Co. Reg. No.: K REINVENTING THE FUTURE OF TECHNOLOGY

Transcription

1 Co. Reg. No.: K REINVENTING THE FUTURE OF TECHNOLOGY A N N U A L R E P O R T

2 contents 01 Corporate Profile 02 Financial Highlights 03 Chairman s Address 06 Board of Directors 08 Senior Management Profile 09 Management Structure 10 Group Structure 11 Global Network 13 Operations Review - Manufacturing 15 Operations Review - Distribution 16 Financial Review 17 Corporate Governance 28 Financial Contents

3 corporate profile 01 Co. Reg. No.: K Europtronic Group Ltd is a manufacturer and distributor of electronic components that are essential to electrical, electronic, and information technology products. The Company produces its own brand of film capacitors at two state-of-the-art factories, located in Shenzhen and Suzhou, in the People s Republic of China. These products include metallized and non-metallized polyester film capacitors, metallized and non-metallized polypropylene film capacitors, and metallized polypropylene film capacitors for AC circuits (X2). It also produces chip inductors and chip beads via its 77.6% owned subsidiary Housing Tech Corp. in Hsinchu, Taiwan. In addition, Europtronic also distributes other various active and passive components for established international brands, including AVX, Sharp, Micro Crystal, Tyco, JST and Semikron. These include products such as aluminum electrolytic and MLCC capacitors, opto-electronic devices such as transmitters and receivers, flat panel displays, base-band crystals, connectors, and diodes. In all, the Company s ultimate vision is to become a one-stop solution provider for its customers. Originally established in 1977 as Taiwan CTI Industrial Corporation, Europtronic has grown from a trading company into an integrated manufacturer and distributor of electronic components. Today, in addition to its three manufacturing plants, it has representative offices in Singapore, Beijing, Fuqing, Hong Kong, London, Qingdao, Shanghai, Shenzhen, Taipei and Tianjin.

4 02 financial highlights TURNOVER (S$M) PROFIT AFTER TAX (S$M) * 05 (9.3) (10) 06 EARNINGS PER SHARE (CENTS) (3.0) * 05 (2.72) NET TANGIBLE ASSETS (CENTS) * NTA & EPS for 2003, and 2004 are adjusted for 5:4 Bonus Share Issue in May 2004 * Restated after adoption of revised Financial Reporting Standard ( FRS )

5 chairman s address 03 Dear Shareholders FY2006 was a very challenging year for Europtronic Group Ltd ( Europtronic or The Group ). Revenue fell about 6.2% from $82.0m in FY2005 to $76.9m in FY2006. The gross profit also decreased by about 51.7% from S$15.1m in FY2005 to $7.3m in FY2006. The Group s distribution sector achieved another year of revenue and gross profit growth in FY2006. Its revenue increased by 6.3% from $47.9m in FY2005 to $50.9m in FY2006. However, the growth in the Group s distribution sector was offset by the decrease in its manufacturing sector where revenue fell by 23.8% from $34.0m in FY2005 to $25.9m in FY2006. For the first time since the company s Initial Public Offering, the Group registered a loss of about S$9.3m. Several factors, largely within the manufacturing sector, contributed to this. These include increase in both raw material and labor costs. The Group also made provisions on non-rohs compliance inventories as a prudent measure, even though there are still demands from the markets for such products. Positioned to be on a growth path again The Group has initiated rigorous measures to place the company on a healthy growth path again. We are improving our product design and production process, with the aim to reduce the materials usage and widen the application of our capacitors. The target is to sell our capacitor into high end application where the overall profitability will be better than some of the existing sectors that the company is currently supplying. To achieve greater efficiency in the use of materials, stringent reviews of our production process have also been conducted. Raw material costs have begun to show some softening since 4Q2006. The Group will continue to work with the suppliers for better raw material cost. However, outlook of material costs for the rest of 2007 is still uncertain. The Group has also implemented other measures to better manage its inventory holding cost. This includes work closely with suppliers on raw material delivery schedule, as well as ensures finished good inventory are not build-up excessively. On another positive note, the Group is pleased to inform that we have successfully migrated our products to be ROHS compliance. The Group s distribution sector achieved another year of revenue and gross profit growth in FY2006. Revenue growth grew came in stronger by an increase of 6.3% from $47.9m in FY2005 to $50.9m in FY2006.

6 Reinventing the way we see...

7 chairman s address 05 We are also pleased to report that our efforts to improve operations of our latest investment in Housing Tech Corp a chip inductor manufacturing facility in Taiwan, is on track and reaping positive results. The facility has achieved breakeven in 4Q2006. Moving forward, the Group intends to expand this business further. Growth through new acquisitions The cost-cutting measures and process improvements that we have put in place will place the Group on a strong footing for growth. Apart from organic growth, we hope to bring the Group to a higher level of growth through M&As as well as strategic alliances. We also see opportunities for the Group s distribution sector in new markets such as India where we have plans to make inroads in The Group also intends to expand our distribution product offering to extend our presence in the markets we serve. Dividend In appreciation of the strong support of our shareholders, Europtronic had declared a dividend in specie in 11 October For every 1000 Europtronic shares held by the shareholders, it was issued with 200 Eucon shares. The dividend in specie was paid to the shareholders on 10 January In view of our plans to expand the Group s business, the Board has decided not to propose a final dividend. In Appreciation We would like to express our sincere thanks to our Board members for their invaluable contributions in a challenging year. To our stakeholders, customers, partners and suppliers, we express our thanks for their continuous support. To our management and staff, we express our appreciation for their commitment to bring Europtronic on a steady growth path again. The cost-cutting measures and process improvements that we have put in place will place the Group on a strong footing for growth. New markets such as India will also offer new growth opportunities for the Group.

8 06 board of directors Mr Huang Shih-An Chairman Mrs Huang Chuang Shueh-Ou Vice Chairman One of the Group s co-founders, Mr. Huang was appointed to the Board in November His primary responsibilities with Europtronic include the charting and reviewing of our corporate developments, strategic initiatives, marketing operations, and overseas businesses. Mr. Huang has over 25 years of management experience in the electronic components industry. He holds a Bachelor Degree in International Trade and Finance from the Chinese Culture University and an Executive MBA from the National University of Singapore. One of the Group s co-founders, Mrs. Huang is responsible for our operational and administrative matters as well as investment policies and financial issues. She was appointed to the Board in November In 1999, Mrs. Huang was awarded the title of Model of Overseas Chinese Youth Entrepreneurs by the Association of Entrepeneurs, Republic of China. She holds a Diploma in Management from the Singapore Institute of Management.

9 board of directors 07 Mr Chen Wan Shou, Arthur Non-Executive Director Mr Chiu Jin Yi, Cheyne Independent Director Mr Lim Lee Meng Independent Director Mr. Chen Wan Shou, Arthur was appointed as an Executive Director in January 2005 and was re-designated as non-executive director on March 1, He is the member of our Audit, Nominating and remuneration committees. Mr. Chen has over 20 years of work experience in top management positions at Motorola. Before becoming the Vice-President and Regional Director for its Southeast Asia Region, he was the Vice-President and Global Sales Director for the Motorola Semiconductors Consumer Solutions Group. Mr. Chen holds a Master Degree in Solid States Science from National Chiao Tung University in Taiwan. Mr. Chiu was appointed to the Board In March He is currently the Chairman of our Nominating and Remuneration Committees, as well as an Audit Committee member. Prior to his retirement in 2000, Mr. Chiu was the Taiwan representative to Singapore from 1994 to 1996, and the Minister for Civil Service of Taiwan from 1996 to He holds a Bachelor Degree in Law from the National Cheng-Chi University and an Executive MBA from the National University of Singapore. Mr. Lim was appointed to the Board in March He is the Chairman of our Audit Committee, as well as a member of our Nominating and Remuneration Committees. Mr. Lim also holds independent directorships in several public listed companies in Singapore, including Datapulse Technology Limited, Teckwah Industrial Corporation Ltd, and Tye Soon Ltd. He is currently a senior partner of an accounting firm and has more than 20 years experience in the industry. Mr. Lim has a MBA degree from Hull University, a Bachelor of Commerce degree from Nanyang University, and a diploma in Business Law from the National University of Singapore.

10 08 senior management profile Ms. Tan Lay See, Chief Financial Officer, is responsible for overseeing the finance, accounting, corporate finance, and investor relations functions. She has been with the Group since Ms. Tan graduated with a Bachelor Degree in Accountancy from the University of Glasgow, UK and has a MBA from the University of South Australia. Ms. Tan is a fellow member of the Chartered Association of Certified Accountant ( ACCA ) of UK and registered as a Chartered Accountant with the Malaysian Institute of Accountants ( MIA ). She is also a Certified Public Accountant. Mr. Huang Chien-Hung is the Deputy Chief Executive Officer for the Group. Mr. Huang leads the team to achieve corporate targets and manages budgetary control. His responsibilities include strategic planning and to explore new business opportunities/ strategic alliances, which enhance and develop the new/ existing business. Mr. Huang holds a degree in electronic and electrical engineering from the University of London, UK. Mr. Wu Hong Liang is the General Manager of the Component Manufacturing Business Unit for the Group. Mr. Wu oversees the operations of the manufacturing plants in China. He has more than 20 years of experience in the electronics industry, and holds a degree from Shanghai Putuo College. Mr. Wu was awarded a certificate of qualification for factory director and manager from Shanghai Economic Committee in Mr. Tan Chee Kong is the IT Director, responsible for planning, designing and implementing IT infrastructure and systems. Mr. Tan works with management to set IT strategy in line with the Group s business goals. Mr. Tan holds a Bachelor Degree in Commerce, Information Technology and Systems from Curtin University in Australia. Ms. Huang Yun Ju is the Human Resources Director. Ms. Huang guides and manages the overall provision of human resources services, policies and programmes for the Group. Ms. Huang works with the management in providing a high performance culture that emphasizes empowerment, quality, productivity and the ongoing development of a talent pool. Ms. Huang graduated from Lancaster University, UK, with a BSc (Hons) in management, and has a Washington- Fudan Executive MBA from the Olin School of Business at Washington University.

11 management structure 09 BOARD OF DIRECTORS CHAIRMAN VICE CHAIRMAN DEPUTY CEO IT HR Finance CMBU CDBU (Component Manufacturing Business Unit) (Component Distribution Business Unit)

12 10 group structure Europtronic (H.K.) Company Limited 100% Europtronic Electronic (Shenzhen) Co., Ltd 100% Europtronic (Suzhou) Co., Ltd 100% Europtronic Investment Pte Ltd 100% Crypson Electronics (S) Pte Ltd 100% Crypson Electronics (HK) Co., Limited 100% Crypson Electronics (Shanghai) Pte Ltd 100% Europtronic (Singapore) Pte Ltd 100% Europtronic (Taiwan) Ind. Corp 100% Housing Tech Corp. 77.6% Europtronic Technology (UK) Limited 100% UPT Component (S) Pte Ltd 100% UPT Crypson Component (Shanghai) Co., Limited 100%

13 global network 11 LONDON SUZHOU QINGDAO BEIJING TIANJIN SHANGHAI SHENZHEN SINGAPORE HONG KONG FUQING TAIPEI HSINCHU

14 Reinventing the way we communicate...

15 operations review - manufacturing 13 Manufacturing segment contributed $25.9m or 33.7% to the Group s revenue in FY2006. The declined was mainly due to certain production capacity was allocated for a certain customer. As a result, there is a temporary decline in revenue as it needs some time before significant orders from this customer can be obtained. The Company continued to work with key clients such as TPV Technology Ltd, TCL Corporation, LG Electronics Inc and Royal Philips Electronics during the year. An increase in the cost of both raw materials and labour also contributed to lower profit margins in the manufacturing segment in FY2006. There were signs of softening raw materials costs in 4Q2006 but it is still uncertain how these costs will hold in FY2007. The Group has also made provisions for non-rohs compliance inventory even though there are still markets for such products. Rigorous measures have been put in place to steer the manufacturing segment towards a steady growth path again. Among others, these include a review of the production process to enhance efficiency and costs, improvement in product designs to reduce costs and also, to widen their applications to cater for new industry segments. Steps have also been taken to ensure that our products are now ROHS compliance. A positive item to report in the manufacturing segment relates to our latest acquisition made in Jan 06, a chip inductor manufacturing company based in Taiwan - Housing Tech Corp. Inductor is a passive component widely used extensively in analog circuits and signal processing. In conjunction with capacitors and other components, it can used to form filters to select or reject specific signal frequencies. Rigorous steps taken to improve its operations and production process after its acquisition led to an increase in its monthly production capacity from 15 million pieces to 50 million pieces at the end of FY2006. We are pleased to report that Housing Tech Corp achieved breakeven in 4Q2006 testimony that the measures adopted by the Group are on track to deliver results. Breakdown by Business Activities 41.5% 33.7% Revenue 2005 Revenue 2006 Distribution Manufacturing 58.5% 66.3% Rigorous measures have been put in place to steer the manufacturing segment towards a steady growth path again.

16 Reinventing the way we listen...

17 operations review - distribution 15 The Group s distribution segment posted healthy revenue growth of 6.3% from $47.9m in FY2005 to $50.9m in FY2006. This was attributable to strong market demand in China. Breakdown by Geographical Locations 21.8% 2.3% The Group s distribution segment posted healthy revenue growth of 6.3% from $47.9m in FY2005 to $50.9m in FY2006. This was attributable to strong market demand in China. Higher gross margin achieved in FY2006 was due to different sales mix from this segment. Strong fundamentals including good relationships with existing suppliers place the segment on a firm footing for further growth. This segment is now structured and poised for its next phase of growth in new markets and working with new suppliers. India is one of such new markets which the distribution segment plans to make its foray into in FY2007. Revenue % 15.1% 75.9% 82.9% Revenue 2006 PRC (incl. HK) Asia (excl. PRC/HK) Others

18 16 financial review The Group s revenue decreased by S$5.1 million to S$76.9 million in FY2006, mainly due to a decrease in revenue from manufacturing business. The overall decrease in gross profit margin in FY2006 was attributable to an increase in raw material, labor cost and lower average utilization rate. In FY2006, the Group had a significant increase in selling and distribution expenses. This was due to an allowance of $7.5 million made for inventories that do not comply with the requirement of the European Union s Regulation on Hazardous Substance (ROHS), as well as S$0.6m allowance made for doubtful trade debts. Higher finance cost as a result of higher utilisation of banking facilities for the Group s working capital. Total bank loans and interest bearing borrowing rose to S$51.9 million, of which, S$5.2 million are long-term bank loan, including a S$1.5m loan undertaken by the Group s newly acquired subsidiary, Housing Tech Corp. As of 31 December 06, the Group s Debt / Equity ratio was In FY2006, excluding the one-off inventory allowance made due to non-compliance of ROHS requirement, the Interest cover ratio was Also, after deducted S$3.0 million interest expenses, the cash flow from operation was a net outflow of S$0.26 million. As of 31 December 2006, the Group had a long term investment amount to S$6.4 million, including a S$1.3 million investment in a convertible bond. The balance was from an unquoted equity shares investment. Both of the investments were stated at cost. Under the investment securities, the Group held 85.5 million of Eucon Holding Ltd shares as at 31 December Of which, 22,886,000 shares were divested in February 2007 and a total net proceed of S$4.2 million was received. On 11 October 2006, the shareholders has approved a disposal mandate at the Company s extraordinary general meeting held. In FY2006, the Group had bought back and cancelled 3,750,000 of its issued and paid-up shares from the open market. The Group had also declared a dividend in specie in October For every 1,000 Europtronic shares, the Shareholders were issued with 200 Eucon shares. The Eucon shares was paid to the Shareholders on 10 January 2007.

19 corporate governance report 17 The Board of Directors (the Board ) and Management of Europtronic Group Ltd ( the Company ) are committed to high standards of corporate governance by complying with specific reference to the principles of the Singapore Code of Corporate Governance introduced in April 2001 and amended in 2005 ( Code ). Corporate Governance refers to the processes by which corporate affairs are directed and managed with the objective of enhancing long-term shareholder s value through improving corporate performance and accountability. Fundamentals of good corporate governance include timely and reliable financial reporting, transparent and efficient management, and respect for stakeholders such as employees, shareholders and customers. The approach of the Company and its group of companies (collectively refer to as the Group ) in 2006 remains unchanged. The Company confirms that it has adhered to the principles and guidelines as set out in the Code, where applicable, and has specified and explained the areas of non-compliance. (A) BOARD MATTERS Board s Conduct of its Affairs The Board is collectively responsible for the success of the Group. The Board works with Management to achieve this and Management remains accountable to the Board. Role of the Board of Directors The Board s primary role is to protect and enhance long-term shareholder s value. It sets the overall strategy for the Group and supervises executive management. To fulfill this role, the Board is responsible for the overall corporate governance of the Group including setting its strategic direction, establishing goals for management and monitoring the achievement of these goals. Matters Requiring Board Approval The directors have identified a number of areas in which the Board has direct responsibility for decision-making. The Board meets to consider the following corporate events and actions including, but not limited to: Approval of quarterly, half-yearly and full-year results announcements; Approval of the annual report and accounts; Declaration of interim and proposal of final dividends; Convening of shareholders meetings; Approval of corporate strategies; and Material acquisitions and disposal of assets. Matters which are specially reserved to the Board for decision are those involving material acquisitions and disposal of assets, corporate or financial restructuring and share issuances, dividends and other returns to shareholders. All other matters are delegated to Board committees whose actions are reported and monitored by the Board.

20 18 corporate governance report Board Processes The Board meets at least four times a year and as and when deemed necessary. To assist in the execution of its responsibilities, the Board has established an Audit Committee ( AC ), a Nominating Committee ( NC ), and a Remuneration Committee ( RC ). These committees function within clearly defined terms of reference and operating procedures, which are reviewed on a regular basis. Details of the AC, NC and RC are set out on pages 24, 19 and 22 of this Annual Report respectively. Training of Directors The Group provides extensive background information about its history, mission, and values to its Directors. The directors also have the opportunity to visit the Group s operational facilities and meet with Management to gain a better understanding of its business operations. The Group also has an on-going training budget for the existing directors to fund the directors participation at industry conferences and seminars. This budget may be utilised by each director subject to approval by the Chairman. Newly appointed directors would also be given training appropriate to the level of their previous experiences. Board Composition and Balance The Board comprises of five directors, of whom two are executive directors, two are independent non-executive directors and a non-executive director. The two independent non-executive directors are Mr. Lim Lee Meng and Mr. Chiu Jin Yi, Cheyne. The criterion of independence is based on the definition given in the Code. The Board considers an independent director as one who has no relationship with the Group, its related companies or its officers that could interfere, or be reasonably perceived to interfere, with the exercise of the director s independent judgment of the conduct of the Group s affairs. With two of the directors deemed to be independent, the Board is able to exercise independent judgment on corporate affairs and provide Management with a diverse and objective perspective on issues. Furthermore, the Board will be able to interact and work with Management through a robust exchange of ideas and views to help shape the Group s strategic direction. The composition of the Board is reviewed on an annual basis by the NC to ensure that the Board has the appropriate mix of expertise and experience, and collectively possess the necessary core competencies for effective functioning and informed decision-making. When a vacancy arises under any circumstance, or where it is considered that the Board would benefit from the services of a new director with particular skills, the NC, in consultation with the Board, determines the selection criteria and selects candidates with the appropriate expertise and experience for the position. The NC s recommendation would be approved by the Board. Subsequent to the financial year ended 31 December 2006, a process for selection and appointment of new directors has been recommended by NC and approved by the Board. The profiles of the directors are set out on pages 6 to 7 of this Annual Report. Their shareholdings in the Company are also disclosed under the Directors Report on page 29 of this Annual Report. The Board and NC are of the view that the current composition of five directors is appropriate taking into account the scope and nature of the operations of the Group.

21 corporate governance report 19 Chairman and Chief Executive Officer ( CEO ) The Board is currently of the view that it is in the best interests of the Group to adopt a single leadership structure, whereby the CEO and Chairman of the Board is the same person, so as to ensure that the decision-making process of the Group would not be unnecessarily hindered. The Group s Executive Chairman and CEO, Mr. Huang Shih-An, plays an instrumental role in developing the business of the Group and provides the Group with strong leadership and vision. In addition to the day-to-day running of the Group, his responsibilities include the charting and reviewing of the Group s corporate directions and strategies, which cover areas of marketing and strategic alliances. All major decisions made by the Executive Chairman and CEO are endorsed by the Board. His performance and re-appointment to the Board is reviewed periodically by the NC and his remuneration package is reviewed periodically by the RC. The NC and RC comprise a majority of independent non-executive directors. The Board believes that the independent non-executive directors have demonstrated high commitment in their role as directors and have ensured that there is a good balance of power and authority. As such, the Board believes that there are adequate safeguards in place against an uneven concentration of power and authority in a single individual. Board Membership Nominating Committee ( NC ) The NC comprises three members, namely, Mr. Chiu Jin Yi, Cheyne (Chairman), Mr. Lim Lee Meng and Mr. Chen Wan Shou, Arthur. Mr. Lim Lee Meng is an independent non-executive director and Mr. Chen Wan Shou, Arthur is a non-executive director. Mr. Chiu Jin Yi, Cheyne, Chairman of the NC, is an independent non-executive director and is not associated with a substantial shareholder. The responsibilities of the NC are to develop and maintain a transparent and formal process for the appointment of new directors, the recommendations of directors who are due for retirement by rotation to seek re-election at annual general meeting, review and evaluation of the Board s performance and the determination of each director and the Board as a whole. In additions, the NC also performs the following functions: (a) To make plans for succession, in particular for the Chairman and CEO (b) To determine, on an annual basis, if a director is independent. (c) To decide whether or not a director is able to and has been adequately carrying out his/her duties as a director of the Company, particularly when he/she has multiple board representations. The NC shall recommend to the Board internal guidelines to address the competing time commitments faced by directors who serve on multiple boards. (d) To be responsible for assessing the effectiveness of the Board as a whole and for assessing the effective contribution and commitment of each individual Director to the effectiveness of the Board. The results of the performance evaluation will be reviewed by the Chairman of the NC. (e) To make recommendations to the Board for the continuation (or not) in services of any Director who has reached the age of seventy (70) years, where appropriate.

22 20 corporate governance report The directors who are retiring and who, being eligible, will offer themselves for re-election at the forthcoming Annual General Meeting ( AGM ) are named below: Name of director Date of first appointment Date of last re-election Director due for re-election Mr. Huang Shih-An 18 November April 2004 Retiring under Article 89 Mrs. Huang Chuang Shueh-Ou 18 November April Mr. Chiu Jin Yi, Cheyne 12 March April Mr. Lim Lee Meng 12 March April Mr. Chen Wan Shou, Arthur 13 January April 2005 Retiring under Article 89 The directors submit themselves for re-nomination and re-election at regular intervals of at least once in every three years. Pursuant to Article 89 of the Company s Articles of Association, one-third of the directors are to retire from office by rotation at the next AGM. In addition, Article 88 of the Company s Article of Association provides that all newly appointed directors will have to retire at the next AGM following their appointments. The retiring directors are eligible to offer themselves for re-election. The NC had recommended the re-election of Mr. Huang Shih-An and Mr. Chen Wan Shou, Arthur as directors at the forthcoming AGM and the Board has also accepted the NC s recommendation and these two directors will be offering themselves for reelection. Board Performances The Board performance is ultimately reflected of the performance of the Group. The Board should ensure compliance with the applicable laws and the Board members should act in good faith, with due diligence and care in the best interests of the Group and its shareholders. An effective Board is able to lend support to Management at all times and steer the Group in the right direction. The NC has established a process for assessing the effectiveness of the Board as a whole. It considers a set of quantitative and qualitative performance criteria in evaluating the Board s performance. The performance criteria for the Board evaluation includes an evaluation of the size and composition of the Board, the Board s access to information, accountability, Board processes, Board performance in relation to discharging its principal responsibilities in terms of the financial indicators as set out in the Code. The Board and the NC have endeavoured to ensure that directors appointed to the Board possess the experience, knowledge and skills critical to the Group s business, so as to enable the Board to make sound and well-considered decisions.

23 corporate governance report 21 In 2006, the NC reviews the Board s performance, with inputs from other members of the Board. The findings were analysed and reviewed by the Chairman of the NC. Directors Attendance at Board and Board Committee Meetings in FY2006 Audit Nominating Remuneration Board Committee Committee Committee No. of No. of No. of No. of No. of No. of No. of No. of meetings meetings meetings meetings meetings meetings meetings meetings Name of Directors held attended held attended held attended held attended Mr. Huang Shih-An Mrs. Huang Chuang Shueh-Ou Mr. Chen Wan Shou, Arthur (*) Mr. Chiu Jin Yi, Cheyne Mr. Lim Lee Meng (*) Chen Wan Shou, Arthur was appointed a member of the Audit Committee, Nominating Committee and Remuneration Committee on 31 March Assess to Information All directors are from time to time furnished with detailed information concerning the Group to enable them to be fully aware and understand the decisions and actions of the Group s executive management. They have unrestricted access to the Group s records and information. Detailed Board papers are prepared for each Board meeting and are normally circulated to the directors before the meeting. The Board papers include sufficient information from Management on financial, business and corporate issues to enable the directors to be properly briefed on issues to be considered at Board meetings. Analysts reports on the Group are also forwarded to the directors on an on-going basis as and when received by management. The directors have independent access to the Company Secretary and senior management of the Group at all times in carrying out their duties. The Company Secretary or her representative attends all Board and Board committee meetings and is responsible for ensuring that the established procedures, all the relevant statutes, and regulations that are applicable to the Company are complied with. Each director has the right to seek independent legal and other professional advice concerning any aspect of the Group s operations and undertakings, as required, in order to fulfill their duties and responsibilities as directors. Any expense incurred in this regard shall be borne by the Group.

24 22 corporate governance report (B) REMUNERATION MATTERS Procedures for Developing Remuneration Policies Remuneration Committee ( RC ) The RC comprises three members, namely, Mr. Chiu Jin Yi, Cheyne (Chairman), Mr. Lim Lee Meng and Mr. Chen Wan Shou, Arthur. Both Mr. Chiu Jin Yi, Cheyne (Chairman) and Mr. Lim Lee Meng are independent non-executive directors and Mr. Chen Wan Shou, Arthur is a non-executive director. The RC reviews the framework of remuneration policies and packages for directors, senior management of the Group and employees related to directors and controlling shareholders of the Group. The review covers all aspects of remuneration, including directors fees, salaries, allowances, bonuses, performance shares, options and benefits-in-kind. The review of the remuneration packages takes into consideration the industry standards, performance-related elements and the job scopes and levels of responsibility of the individual. The RC s recommendations are submitted for endorsement by the Board. Europtronic Employees Share Option Scheme (the Share Option Scheme ) The Share Option Scheme, administrated by the RC, is opened to confirmed employees, associates of substantial shareholders and any director (including non-executive and independent directors) except for those who are the Company s substantial shareholders or any employee who has been selected by RC. Details of the Share Option Scheme are set out on page 30 and 31 of this Annual Report under the Report of the Directors. No share options were offered and granted by the RC in FY2006. Performance Share Scheme (the Scheme ) The purpose of adopting the Scheme in addition to the existing Share Option Scheme is to give the Group greater flexibility to align the interests of employees, especially key executives, with those of shareholders as well as to reward, retain and motivate employees to achieve superior performance. Under the Scheme, awards represent the right of a Participant to receive fully paid ordinary shares in the Company ( Shares ) free of charge, upon the Participant achieving prescribed performance targets. The selection of a Participant and the number of Shares which are the subject of each award to be granted to a Participant in accordance with the Scheme shall be determined at the absolute discretion of the RC, which shall take into account criteria such as his rank, job performance, years of service and potential for future development, his contribution to the success and development of the Group and the extent of effort required to achieve the performance target within the performance period. No Shares were granted by the RC in FY2006.

25 corporate governance report 23 Level and Mix of Remuneration In setting remuneration packages, the Group takes into account pay and employment conditions within the same industry and in comparable companies, as well as the Group s relative performance and the performance of individual director. The independent non-executive and non-executive directors receive directors fees, in accordance with their contributions, taking into account factors such as effort and time spent, responsibilities of the directors and the need to pay competitive fees to attract, retain and motivate the directors. Directors fees are recommended by the Board for approval at the Company s AGM. The remuneration for the executive directors and the key senior executives comprise a basic salary component and a variable component which is the annual bonus, based on the performance of the Group as a whole and their individual performance. The annual reviews of the compensation of directors are carried out by the RC to ensure that the remuneration of the executive directors and senior management commensurate with their performance, giving due regard to the financial and commercial health and business needs of the Group. The performance of the CEO (together with other senior executives) is reviewed periodically by the RC and the Board. Disclosure of Remuneration On 12 March 2002, the Company entered into separate service agreements with the executive directors, Mr. Huang Shih-An and Mrs. Huang Chuang Shueh-Ou. The service agreements do not have an expiry date as they were entered prior to the Company s admission to the SGX-ST on 5 April 2002 but may be terminated by either party giving not less than six (6) months notice in writing to the other. The service agreements may also be terminated if any of the executive directors commits a breach of the service agreements, such as being convicted of an offence involving fraud or dishonesty or being adjudicated bankrupt. For competitive reasons, the Group is not disclosing each individual director s remuneration. Instead, the bands of remuneration in FY2006 are disclosed in the compensation table below: Remuneration Band No. of directors Salary (%) Profit Sharing (%) Directors fees (%) Total (%) S$250,000~S$500, Below S$250, Remuneration of Employees Related to Directors or the CEO and Substantial Shareholders and Top 5 Key Executives As at 31 December 2006, there were 4 remunerated employees who are related to a Director or the CEO and substantial shareholders. These 4 employees were: Mr. Huang Hsuan-Chin, Ms. Huang Chung-Huei, Ms. Huang Yun Ju, and Mr. Huang Chien-Hung, all of whom are executive officers. The basis of determining the remuneration of these related employees is the same as the basis of determining the remuneration of other unrelated employees. For the year under review, the remuneration of each related employee is below S$150,000.

26 24 corporate governance report Adjustments to the remuneration packages for the related employees are reviewed annually by the RC to ensure that they are in line with the Group s staff remuneration guidelines and commensurate with their job scope and level of responsibility. In the event that a member of the RC is related to the employee under review, that member will abstain from the review accordingly. As at 31 December 2006, the Group s top 5 key executives (who are not directors of the Company) were: Ms. Tan Lay See, Mr. Wu Hong Liang, Mr. Huang Chien-Hung(1), Ms Huang Yun Ju(2), and Mr. Tan Chee Kong. (1) Mr. Huang Chien-Hung is an immediate family of Mr. Huang Shih-An and Mrs Huang Chuang Shueh-Ou. (2) Ms. Huang Yun Ju is an immediate family of Mr. Huang Shih-An and Mrs Huang Chuang Shueh-Ou. The table below set out the band of gross remuneration received by the top 5 key executives (who are not directors) of the Group in FY2006: Remuneration band FY2006 FY2005 S$250,000~S$500, Below S$250, (*) * The Group s top 5 key executives (who are not directors of the Company) in FY2005 were: Ms. Tan Lay See, Mr. Wu Hong Liang, Mr. Huang Chien-Hung, Mr. Tan Chee Kong and Mr. Howard Ouyang Hao. (C) ACCOUNTABILITY AND AUDIT Accountability In presenting the quarterly, half-yearly and full-year announcements and annual financial statements to shareholders, it is the aim of the Board to provide the shareholders with a detailed analysis, explanation and assessment of the Group s financial position and prospects. In addition, Management currently provides to the executive directors monthly management accounts, which show the Group's performance, position and prospects. The Board is of the view that the current arrangement is sufficient. Audit Committee ( AC ) The AC comprises three members, namely Mr. Lim Lee Meng (independent non-executive director), Mr. Chiu Jin Yi Cheyne (independent non-executive director) and Mr. Chen Wan Shou, Arthur (non-executive director). The AC is chaired by Mr. Lim Lee Meng. The AC meets at least 4 times a year and as and when deemed necessary to discuss with the Group s external auditors and its executive management to review accounting, auditing and financial reporting matters so as to ensure that an effective control environment is maintained in the Group. The AC monitors proposed changes in accounting policies, reviews the internal audit functions and discusses the accounting implications of major transactions.

27 corporate governance report 25 Specifically, the AC: review the audit plans (including the nature and scope of the audit before the audit commences) and evaluate their overall effectiveness through regular meetings with the internal and external auditors; review and recommend to the Board the re-appointment of external auditors review the scope and results of the internal audit procedures including the effectiveness of the internal audit functions; evaluate the adequacy of the internal control systems of the Group by reviewing management letter from the internal and external auditors, and the management s responses and actions to correct any deficiencies; evaluate the adherence to the Group s administrative, operating and internal accounting controls; review the quarterly, half-yearly and full year announcement and annual financial statements to shareholders before submission to the Board for adoption; review interested person transactions in accordance with the requirements of the Listing Manual of the SGX-ST to ensure that they are on normal commercial terms and not prejudicial to the interests of the Group or its shareholders; review all non-audit service provided by the external auditors to determine if the provision of such service would affect the independence of the external auditors; and consider other matters as requested by the Board. The AC is authorised to investigate any matter within its terms of reference and has full access to Management and resources, which are necessary to enable it to discharge its functions properly. Subsequent to the financial year under review, the Company has in place a whistle-blowing programme where employees may, in confidence, report possible improprieties which may cause financial loss or non financial loss of the Company. Annually, the AC meets with the internal and external auditors separately, without the presence of Management. This is to review the adequacy of audit arrangements, with particular emphasis on the observations of the auditors, the scope and quality of their audits and the independence and objectivity of the auditors. The AC has conducted an annual review of the volume of non-audit services to satisfy itself that the nature and extent of such services will not prejudice the independence and objectivity of the external auditors before confirming their re-nomination. The AC had recommended the re-appointment of Ernst and Young as external auditors at the forthcoming AGM. Internal Control The Board acknowledges that it is responsible for the overall internal control framework, but recognises that no cost effective internal control system will preclude all errors and irregularities, as a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can provide only reasonable and not absolute assurance against material misstatement or loss. Risk assessment and evaluation takes place as an integral part of the annual strategic planning cycle. Having identified the risks to the achievement of their strategic objectives, each business is required to document the management and mitigating actions in place and proposed in respect of each significant risk.

28 25 corporate governance report During the financial year under review, the AC, on behalf of the Board, has reviewed the effectiveness of the Group s system of internal controls in light of key business and financial risks affecting the operations. Based on the internal auditors reports submitted by the internal auditors and the various controls put in place by Management, the Board is satisfied that there are adequate internal controls in the Group. Internal Audits The Board recognizes that it is responsible for maintaining a system of internal control processes to safeguard shareholders investments and the Group s business and assets. The systems that are in place are intended to provide reasonable but not absolute assurance against the occurrence of material errors, human error, losses, fraud or other irregularities, and include the safeguarding of assets, the maintenance of proper accounting records, the reliability of financial information, compliance with appropriate legislation and best practices, and the containment of business risks. The effectiveness of the internal financial control systems and procedures are monitored by Management and the internal audit function is outsourced to Nexia Tan & Sitoh. The internal auditors report directly to the Chairman of the AC and present their reports, findings and recommendations to the AC. The Group has conducted two internal audit activities during FY2006 and the internal auditors reports were submitted to the AC for review and approval. The internal auditors has adopted the Standards for the Professional Practice of Internal Auditing set by The institute of Internal Auditors. (D) COMMUNICATIONS WITH SHAREHOLDERS Communication with Shareholders The Company does not practice selective disclosure. In line with the continuous disclosure obligations of the Company pursuant to the SGX-ST s Listing Rules and the Companies Act Cap 50, the Board s policy is that all shareholders should be equally and timely informed of all major developments that impact the Group. Information is communicated to shareholders on a timely basis through: Annual reports that are prepared and issued to all shareholders. quarterly, half-yearly and full year announcements containing a summary of the financial information and affairs of the Group for the period are published through SGXNET and news releases, as appropriate; notices of and explanatory memorandums for annual general meetings and extraordinary general meetings; press releases on major developments of the Group; disclosures to the SGX-ST through SGXNET in accordance with the requirements of the SGX-ST s Listing Rules; and the Group s website at at which shareholders can access information on the Group. The website provides, inter alia, corporate announcements, press releases, annual reports, and profiles of the Group.

29 corporate governance report 27 In addition, shareholders are encouraged to attend the AGM to ensure a high level of accountability and to stay informed of the Group s strategy and goals. The AGM is the principal forum for dialogue with shareholders. The notice of the AGM is dispatched to shareholders, together with explanatory notes or a circular on items of special business, at least 14 working days before the meeting. The Board welcomes questions from shareholders who have an opportunity to raise issues either informally or formally before or at the AGM. The Chairmen of the AC, RC and NC as well as the external auditors are normally available at the meeting to answer those questions relating to the work of these committees. (E) DEALING IN THE COMPANY S SECURITIES The Group has procedures in place prohibiting dealings in the Company s shares by its directors and key officers while in possession of price sensitive information and during the period commencing two weeks prior to the announcement of the Company s financial statement for each of the first three quarters of its financial year or one month before the financial year, as the case may be, and ending on the date of announcements of the relevant results. The directors and key officers are also expected to observe insider-trading laws at all times even when dealing in securities within permitted trading period. Where a potential conflict of interest arises, the director concerned does not participate in discussions and refrains from exercising any influence over other members of the Board. (F) INTERESTED PERSON TRANSACTIONS The Company has adopted an internal policy in respect of any transaction with interested person and has set out the procedures for review and approval of the Company s interested person transactions. All interested person transactions are subject to review by the AC. During the financial year under review, there were no interested person transactions entered into by the Company which are more than $100,000 The Company does not have a shareholders mandate for interested person transactions. (G) MATERIAL CONTRACTS Since the end of FY2005, the Group did not enter into any material contracts in which the CEO, directors or controlling shareholders has any interests and no such material contracts subsist at FY2006.

30 28 financial contents 29 Directors Report 33 Statement by Directors 34 Independent Auditors Report 35 Balance Sheets 37 Consolidated Profit and Loss Account 38 Statements of Changes in Equity 40 Consolidated Statement of Cash Flows 42 Notes to the Financial Statements 86 Supplementary Information 87 Statistics of Shareholdings 89 Notice of Annual General Meeting 92 Appendix in Relation to the Proposed Renewal of The Share Buy-Back Mandate 106 Appendix in Relation to the Proposed Renewal of The Disposal Mandate to Authorise The Company to Dispose of, in Whole or In Part, the Interest Held by The Group in Eucon Holding Limited Proxy Form

31 directors report 29 The directors are pleased to present their report to the members together with the audited consolidated financial statements of Europtronic Group Ltd (the Company ) and its subsidiaries (the Group ) for the financial year ended 31 December 2006, the balance sheet of the Company as at 31 December 2006, and statement of changes in equity of the Company for the financial year ended 31 December Directors The directors of the Company in office at the date of this report are :- Mr Huang Shih-An Mrs Huang Chuang Shueh-Ou Mr Chiu Jin Yi, Cheyne Mr Lim Lee Meng Mr Chen Wan Shou, Arthur (Chairman) (Vice Chairman) In accordance with Article 89 of the Company s Articles of Association, Mr Huang Shih-An and Mr Chen Wan Shou, Arthur retire and, being eligible, offer themselves for re-election as directors. Arrangements to enable directors to acquire shares and debentures Except as disclosed below, neither at the end of nor at any time during the financial year was the Company a party to any arrangement whose objects are, or one of whose object is, to enable the directors of the Company to acquire benefits by means of the acquisition of shares, or debentures of the Company or any other body corporate. Directors interests in shares and debentures The following directors, who held office at the end of the financial year, had, according to the register of directors shareholdings required to be kept under Section 164 of the Singapore Companies Act, Cap. 50, interests in shares of the Company as stated below :- Direct interest Deemed interest At At At At At At Name of directors The Company Europtronic Group Ltd (Ordinary shares of $0.10 each) Mr Huang Shih-An 91,701,384 91,701,384 91,701,384 83,604,084 84,604,084 84,604,084 Mrs Huang Chuang Shueh-Ou (1) 83,604,084 84,604,084 84,604,084 91,701,384 91,701,384 91,701,384 Mr Lim Lee Meng 54,000 54,000 54,000 Mr Chiu Jin Yi, Cheyne 47,000 47,000 47,000 (1) Mrs Huang Chuang Shueh-Ou is the spouse of Mr Huang Shih-An.