Annual Report 2010 SINO TECHFIBRE LIMITED

Transcription

1 Annual Report 2010 SINO TECHFIBRE LIMITED

2 Contents 01 Corporate Profile 02 Letter to Shareholders 04 Financial Highlights 05 Corporate Information 06 Board of Directors 07 Senior Management 08 Corporate Governance Report 15 Financial Statements 63 Statistics of Shareholders 65 Notice of the Fifth Annual General Meeting

3 Corporate Profile Strategically located in Longkou City of Shandong Province, Sino Techfibre Limited is a leading producer of polyurethane (PU) synthetic leather products, microfibre synthetic leather products, and pattern moulding paper ( PMP ) in the PRC. Our products are marketed under our proprietary Jinfeng ( 金锋 ) brand name. As a testimony to the popularity of our brand, we have over the years received numerous awards and accolades, including the Shandong Famous Brand award ( 山东名牌产品 ) in 2005, and two national awards namely, No. 1 Leather Brand of China ( 中国皮革第一品牌 ) and Famous Brand of China ( 中国驰名品牌 ), both jointly awarded by the China Brand Union Association ( 品牌中国产业联合会 ), the China Expert Guidance Committee for Brand Strategy ( 中国品牌战略专家指导委员会 ), and the China Industrial International United Association ( 中国工业合作协会 ). The s synthetic leather products are sold to manufacturers and trading companies that produce fashion apparel, sports apparel and equipment, luggage and travel accessories, as well as upholstery furnishings for furniture and automobile interiors. Our major customer, the People s Liberation Army and the government sector, accounted for approximately 34.3% of total revenue in FY2010. To ensure the competitiveness of our products, the places strong emphasis on continued product development and technology improvement. We have established cooperative relationships with third party research institutes such as Qingdao University s Textile Product Development Centre, College of Textiles and Clothing ( 青岛大学纺织服装学院 ) for the development of new PU synthetic leather for clothing apparel, and the China Textile Academy ( 中国纺织科学研究院 ) for the development of materials for raincoats, multipurpose apparel, belts and shoes. Underscoring our close relationship with the PLA, the, in July 2004, jointly set up the Technology Research and Development Centre for Military Product Supplies of Synthetic Leather of the General Logistics Department of PLA ( 中国人民解放军总后合成革军需产品技术研发中心 ) with the PLA s General Logistics Department, to develop materials for uses such as protective clothing and hygienic suits. In addition, Sino Techfibre is one of the designated uniform material production companies for the Naval Armament Research Institute ( 海军装备研究所 ), the State Administration of Taxation ( 国家税务总局 ) and the State Administration for Industry and Commerce ( 国家工商行政管理总局 ). We are currently collaborating with a research department of a government sector in the PRC to develop new PU and microfibre synthetic leather products for use in protective armour for the Armed Forces. SINO TECHFIBRE LIMITED ANNUAL REPORT

4 Letter to Shareholders Dear Shareholders, On behalf of the Board of Directors ( Board ), I offer our sincere apology for the anxieties caused by the trading suspension of our Company s shares. Review of Events to date The Audit Committee was informed by our statutory auditor, Ernst and Young LLP ( Auditor ), sometime in March 2011 that it had discovered certain discrepancies in some invoices issued by the Company and its suppliers. The Audit Committee asked the Auditor in April 2011 to conduct a full and complete verification exercise of all the invoices issued and received by the Company to identify the extent of the discrepancies. Management of the Company would provide its assistance and cooperation to the Auditor in the verification exercise. The Audit Committee would oversee the investigations and take further actions where necessary. However, shortly after the Company commenced its investigation into the aforesaid discrepancies, a fire broke out in the early hours of the morning on 20 April 2011 at a part of the Company s office and administrative premises of our production facility in Longkou City. The Company s books and financial records were destroyed in the fire. In order to safeguard shareholders interests, the independent directors initiated the revamp of the Board. Mr. Li Wenheng agreed to step down as CEO and re-designated as executive director. In addition, Mr. Tay Wee Kwang, was appointed as Interim-CEO of the Company and I was then appointed as Non-Executive Chairman of the Company. The Board of Directors provided an update announcement on the fire outbreak at office premises on 19 May The local police reported that 2 office desks and a computer were damaged by the fire, and that the fire may have been caused by an electrical short circuit. The Company understood that the local police will not conduct any further investigations into the fire and the case was officially closed. Subsequently, the Audit Committee (in consultation with the SGX-ST) appointed KPMG Services Pte Ltd ( KPMG ) as special auditors to, amongst others, provide an independent investigation into the audit issues raised in the earlier announcement released on 14 and 21 April 2011 respectively. During the period of the investigation, the Audit Committee took certain actions to safeguard the assets of the, among others:- 1) A designated escrow account to receive all incoming funds pertaining to the daily operations of each of the operating subsidiaries has been opened with the local branch of the Agricultural Bank of China. Further, the Seal of the Legal Representative, which is required for operating the said escrow account, is in the control of the Audit Committee and is in physical possession of the interim CEO. 2) All funds for out-going payments are made available monthly from the said escrow account. 3) Any payments exceeding RMB50,000 will need to be authorized and approved by Mr. Li Wenheng, who is the Executive Director of the Company in charge of the operations. 4) Any payments, exceeding RMB10,000,000 will require the approval of the Board. On 21 November 2011, the Audit Committee of the Company received a report entitled Report on independent review from KPMG. KPMG stated that they were not given access to five of the six computers used by the employees of the Company and its subsidiaries in order for them to perform their forensic technology procedures, and that the Local Tax Bureau refused to accede to the Company s request for copies or a summary listing of the sales and purchase invoices of the Company s China subsidiaries. As a result, KPMG was not able to complete their entire scope of the engagement. In light of this, the Audit Committee has decided, to recommend the appointment of a firm of valuers, to carry out a valuation of the Company s assets and liabilities to ascertain the current value of the Company. The Audit Committee will also seek professional advice on its further course of action. Depending on the outcome of the aforesaid proposed valuation exercise, shareholders are to note that the relevant financial information in this financial report may have to be amended or altered accordingly. Future outlook The s synthetic leather and microfiber plants in PRC are in operation as usual but business has declined in general due to weaker demand, tightening of bank loans and tightening of credit by suppliers. The PMP (Pattern Moulding paper) business has ceased operations in June 2011 and will not resume operations in the near term. Appreciation On behalf of the Board of Directors, I would like to express my utmost appreciation and gratitude to all our shareholders for your continued patience during this difficult period. I would also like to thank our management and staff for their continued dedication and commitment to keep the business operations going, as well as to our customers, bankers, suppliers and independent directors for continuing to support us during this unexpected turn of events. Yours faithfully, Lee Wing Hang Non-executive Chairman and Audit Committee Chairman 02 SINO TECHFIBRE LIMITED ANNUAL REPORT 2010

5 致股东辞 尊敬的股东, 本人代表董事局对于公司停牌带来的焦虑送上衷心的道歉 回顾事件回顾发生到现在 审计委员会于 2011 年 3 月份从安永会计师楼 ( 审计师 ) 得悉其发现公司出具开发的增值税发票和供应商开发出具的增值税发票发现有些存在差异 审计委员会于 2011 年 4 月份要求安永会计师楼去举行全面的审查包括对所有公司出具开发的增值税发票和供应商出具开发的增值税发票进行全面的审查以查证其中的差异程度去探讨有多少差异 管理层会就安永会计师楼的审查提供协助和合作 审计委员会监察这一调查并在必要有需要时采取进一步的作出行动 但是, 在公司调查开始了后不久, 于 2011 年 4 月 20 日零晨时份, 公司位于龙口的办公及行政室, 属于生产设施的部份发生火灾 公司的帐薄和会计纪录于这场火灾中毁灭 为了保障股东的利益, 独立董事开始实施把董事局换面 李文恒同意退位首席执行官并重新委任为执行董事 并且郑伟光聘用为临事首席执行官而我聘用为公司的非执行主席 董事局于 2011 年 5 月 19 日的公告里披露了说出火灾事件于办公室的最新情况 在当地公安报告里提到,2 张个办公写字桌台和电脑于火灾中毁灭, 而该这火灾事件可能因电线短路而引起的 公司并了解到公安也不会关于该火灾事件作进一步调查关于这火灾, 而这事件便正式便告一段落 之后, 审计委员会 ( 与新加坡波联交所咨询讯过 ) 聘请毕马威为特别审计师, 去提供独立调查关于对 2011 年 4 月 14 及 21 日公告提到说的审计事件提供独立调查 在这调查期这时间中, 审计委员会作出了以下行动去保障公司的资产, 尤其是 :- 于 2011 年 11 月 21 日, 审计委员会收到毕马威的独立调查报告 毕马威指出他们不能进入其中的 5 部电脑 ( 总数是 6 部电脑 ) 这些电脑是附属公司员工使用的 因此他们不能进行有关办认真伪技术程序 而且当地的税务署也拒绝给公司所有有关附属公司开具发的增值税发票和供应商开具发的增值税发票复印本, 或一个总表清单 因此, 毕马威不能够完成他们所需要做的工作 由于这样, 审计委员会决定, 推荐笃一些估价师, 去评估公司的资产及债务去查明公司现时的价值 审计委员会会寻找一些专业意见去确认下一步行动 股东要注意, 视乎评估公司做的结果, 有关在这财务报告中的有关资料可能会作出相应的修改或改变 前景展望 由于受到需求减少, 银行银金短缺及供应商收紧借贷的影响, 虽然公司的人造皮革及超细纡厂在内地仍然正常运作, 但交易量普遍下跌 离形纸生意自从 2011 年 6 月份便停止了生产, 而且短期内不会运作 感谢辞 本人代表董事局对向各位股东在这艰难时期所表现出来的持续的耐心送上最大衷心感谢和忍耐在这艰难时期 我也想感多谢管理层及员工继绩支持公司继续运作与及同样感谢客户, 银行, 供应商和独立董事在这无法预计的事态转变下继续支持公司在这遇计不到的事情转变 此致 李永恒非执行主席及审计委员会主席 1) 于每一家附属公司在当地的中国农业银行均开立了一个指定帐户口去控制所有的收款 而操作该帐户所要求的法人章 用来去管这个户口, 现在是由审计委员会去控制并由, 而这法人章在临事首席执行官保管 2) 所有支出会于每个月在这指定户付出 3) 所有支出超过人民币 5 万需要李文恒去批准, 而他是执行董事, 也是负责公司的运作 4) 所有支出如超过人民币 1 千万需要董事会通过批准 SINO TECHFIBRE LIMITED ANNUAL REPORT

6 Financial Highlights KEY FINANCIAL HIGHLIGHTS (RMB million) FY2010 FY2009 Change (%) Revenue 1, Gross Profit/(Loss) 88.8 (6.8) N.A. Net (Loss) (45.1) (262.5) (82.8) (Loss) per share Basic (RMB cents) (4.85) (28.22) Net Asset Value per share Basic (RMB cents) Note: EPS and NAV based on 930,000,000 ordinary shares revenue breakdown By Product PU Synthetic Leather Microfibre Synthetic Leather PMP 15.2% 16.2% FY % FY % 39.8% 37.8% Average Selling Prices PU Synthetic Leather Microfibre Synthetic Leather RMB PMP Q2009 2Q2009 3Q2009 4Q2009 1Q2010 2Q2010 3Q2010 4Q SINO TECHFIBRE LIMITED ANNUAL REPORT 2010

7 Corporate Information Board of Directors Lam Tin Tsoh (Non-Executive Director) Li Wenheng (Chief Executive Officer) [re-designated as an Executive Director on 21 April 2011] Li Changrui (Deputy Chief Executive Officer) Lam Shui Ho (Executive Director) Foo Say Tun (Independent Director) Tay Wee Kwang (Independent Director) [appointed as Interim Chief Executive Officer on 21 April 2011] Lee Wing Hang (Independent Director) [appointed as Interim Non-Executive Chairman on 21 April 2011] Joint Company Secretaries Yun Lok Ming, FCCA, CPA (Hong Kong) Low Siew Tian, ACIS Assistant Secretary Codan Services Limited Registered Office Clarendon House 2 Church Street Hamilton HM11 Bermuda Tel: (441) Fax: (441) Principal Place of Business South Muhuang Road and West Railroad Longkou Economic Development Zone Shandong Province (265716) PRC Tel: (86) Fax: (86) Bermuda Company Registration Number Bermuda Share Registrar Codan Services Limited Clarendon House 2 Church Street Hamilton HM11 Bermuda Singapore Share Transfer Agent Boardroom Corporate & Advisory Services Pte. Ltd. 50 Raffles Place Singapore Land Tower #32-01 Singapore Auditors Ernst & Young LLP Certified Public Accountants One Raffles Quay North Tower, Level 18 Singapore Partner-in-charge: Tan Peck Yen (appointed since financial year ended ) Legal advisors to the company as to PRC Law Hills & Co. 11th Floor, Central Tower No. 88 Fu Hua 1st Road Fu Tian Central Business District Shenzhen PRC Principal Bankers Agricultural Bank of China Longkou Branch Xinjia Street Longkou City Shangdong Province PRC Bank of China Longkou Branch Huamulan Street Longkou City Shangdong Province PRC China Merchants Bank Longkou Sub-Branch Shiyan Road Longkou City Shangdong Province PRC Construction Bank of China Longkou Branch Zhenxing Road Longkou City Shangdong Province PRC Yantai Bank Longkou Branch Tonghai Road Longkou City Shangdong Province PRC SINO TECHFIBRE LIMITED ANNUAL REPORT

8 Board of Directors LAM TIN TSOH Non-Executive Director Mr Lam Tin Tsoh, one of our founding directors, was appointed to our Board on 20 June Mr Lam has extensive business experience in Fujian. Between 1980 and 1989, Mr Lam managed Xie Cheng Marine Products Import-Export Private Limited, a trading company in Fujian. He managed Hongyun Real Estate Development Company in Fujian from 1995 to 2003, where he was also the executive director. From 1998 to 2009, Mr Lam was also the director in charge of operations at Wanyi Shanzhuang Hotel in Fujian. Mr Lam graduated from Shishi Huaqiao Secondary School in LI WENHENG Chief Executive Officer (re-designated as Executive Director effective from 21 April 2011) Mr Li Wenheng joined our in 2000 and is responsible in managing the and also to assist our Non-Executive Chairman in the formulation of development plans. Mr Li was appointed to our Board on 20 June Mr Li started his career in the sales and marketing department with Longkou City Latex Factory in He worked there for 16 years and was subsequently promoted to the position of a sales supervisor. From 1989 to 1995, Mr Li worked as a manager in Longkou No. 2 Fine Chemicals Factory where he was responsible for the administration and management of the factory. Between 1996 and 2000, he was the Chief Executive Officer of Longkou Hengzheng Chemicals Co., Ltd. Mr Li is currently the Representative to the Longkou City People s Congress and a member of the Chinese People s Political Consultative Conference. He graduated from Shandong Agricultural University with a degree in business administration in July LI CHANGRUI Deputy Chief Executive Officer Sales and Marketing Director Mr Li Changrui joined our in 2001 and was appointed to our Board on 14 September Mr Li oversees the day-to-day operations of our and the formulation of the general sales plan for our. Between 1988 and 1990, he worked in the Fuzhou Office of the Hong Kong Yaofu as the assistant head and was in charge of facilitating investments from overseas Chinese. From 1990 to 1996, Mr Li was in charge of the sales and production functions of Fuzhou Minfeng Plastic Co., Ltd and Minfeng Chemical Co., Ltd. He was promoted to general manager of both Fuzhou Minfeng Plastic Co., Ltd and Minfeng Chemical Co., Ltd from 1996 to 2000 where he oversaw the entire operations and was responsible for the sales planning and production of PU synthetic leather. Mr Li graduated from Taiyu Secondary School in July LAM SHUI HO Director of Administration (Shandong Xinlong) Mr Lam Shui Ho was appointed to our Board on 14 September 2006 and has been the Director of Administration of Shandong Xinlong since March 2006 where he is responsible for the general administration of Shandong Xinlong. Prior to that, he was involved in the establishment and expansion of both Shandong Xinlong and Shandong Jinfeng from 2003 to From 1997 to 2004, Mr Lam was an executive director of Gam Fook Jewellery and Goldsmith Shares Co. Ltd, a company operating a chain of jewellery outlets in China and Hong Kong, and had been its non-executive director from 2004 to Mr Lam graduated with a diploma from the Asian Gemmological Institute and Laboratory Limited in FOO SAY TUN Independent Director Mr Foo Say Tun was appointed to our Board on 30 December He is also an Independent Director of Fu Yu Corporation Limited, Qingmei Holdings Limited and a partner of Messrs Wee, Tay & Lim LLP, where he practices in the Litigation Department, primarily in the areas of civil and commercial litigation. Prior to his current practice, Mr Foo was a litigation lawyer at Messrs David Lim & Partners from 1994 to 1998, and Messrs Lim Seong Chun & Co in Ipoh from 1991 to He is a member of the Disciplinary Committee that presides over cases against lawyers for misconduct under the Legal Profession Act, and has been an instructor with the Board of Legal Education which runs the Postgraduate Practical Law Course since Mr Foo graduated from the University of East Anglia in England in 1990 with an LLB (Hons) degree and was then admitted to the Bar of England & Wales as a barrister-at-law in He gained admission as an Advocate & Solicitor of the High Court of Malaya in 1992 and was admitted to the Singapore Bar in TAY WEE KWANG Independent Director (appointed as the Interim Executive Officer effective from 21 April 2011) Mr Tay Wee Kwang was appointed to our Board on 14 September He has more than 20 years of experience in engineering, manufacturing, investments and business development. Mr Tay graduated with a Bachelor of Science in Electrical & Electronic Engineering degree from Robert Gordon s University, Scotland, United Kingdom in 1982 and obtained a Master of Business Administration degree from the University of Hull, United Kingdom in In addition, he also obtained post graduate diplomas in Building Science and in Knowledge Engineering from the National University of Singapore in 1985 and 2004 respectively. Mr Tay is a member of the Chartered Institute of Building Services Engineer, Chartered Engineer of United Kingdom and the Institute of Engineers Singapore. He is also a member of the Singapore Institute of Directors. LEE WING HANG Independent Director (appointed as the Interim Non-Executive Director effective from 21 April 2011) Mr Lee Wing Hang was appointed to our Board on 30 December Mr Lee is the sole proprietor of Tony W.H. Lee & Co, Certified Public Accountants in Hong Kong. He is also a board member of China Innovation Investment Ltd listed on Hong Kong Stock Exchange. He has over 18 years of experience in corporate finance, accounting, auditing and taxation sectors. He serves as a Member of the Hong Kong Institute of Certified Public Accountants, and Australia Society of Certified Practicing Accountants. He is a Associate member of Society of Chinese Accountants & Auditors (MSCA). He graduated from Monash University, Australia with a Bachelor degree in Business (Accounting). 06 SINO TECHFIBRE LIMITED ANNUAL REPORT 2010

9 Senior Management GAO KAI (resigned on 1 May 2011) Director of Administration (Shandong Jinfeng) Mr Gao Kai joined our in late 2000 and is in charge of the general administration of Shandong Jinfeng. Between 1987 and 1999, he worked as an administrative assistant with the government of Longkou City Xufu Town where he took charge of corporate management at the district and village levels. Mr Gao subsequently joined Longkou Hengzheng Chemical Co., Ltd. as the vice general manager until late Mr Gao graduated with a diploma from the Shandong Province Agricultural Radio and Television School in September CHANG TIANXIANG (resigned on 1 April 2011) Production Manager (Shandong Jinfeng and Yantai Golden Sun) Mr Chang Tianxiang joined our in 2003 as our Production Manager of Shandong Jinfeng, in charge of overseeing the production process of synthetic leather as well as sales. He has 10 years of experience in sales and marketing, having worked as a sales and marketing planner for Shandong Laiwu Sulphuric Acid Plant from 1970 till Mr Chang spent the next 21 years between 1981 and 2002, working for Yantai Wanhua Synthetic Leather Co. Limited, reaching the positions of workshop director and sales manager, where he also supervised the production process of synthetic leather and sales. YU QIUXING Research and Development Manager Mr Yu Qiuxing is responsible for our s product research and development. He joined our in Mr Yu started his career with Jinan Chemical Fiber Factory in 1992, where he worked until 1999 as a technical manager, responsible for the production process management. He was subsequently promoted to factory manager, in charge of overseeing production technology and management, between 1999 and Mr Yu graduated from the Shandong Textile Engineering School in 1992 and is also accredited as an engineer as certified by the Jinan City Textile Engineering Vetting Committee in September LIU YUNHUI Sales and Marketing Manager Mr Liu Yunhui joined our in August 2002 as our Sales and Marketing Manager responsible for all foreign trade operations and import-export work. Prior to this, between 1995 and 2002, he served as a sales supervisor at Shandong Province Longkuo City Foreign Trade Head Office. Mr Liu graduated from Qingdao University majoring in textile engineering in July He is also a qualified foreign trade staff as certified by the former Ministry of Foreign Economic and Trade Cooperation in LIU JIANHONG (resigned on 1 April 2011) Production Manager (Shandong Xinlong) Mr Liu Jianhong joined our in 2004 and is in charge of production management. Between 1980 and 2004, he worked in Jinan Chemical Fiber Factory as an equipment file manager and was later promoted to an equipment supervisor. Mr Liu graduated from the Shandong Industrial University in 1986 and is also accredited as an engineer by the Jinan City Textile Engineering Vetting Committee. ZHANG GUOZHI Quality Assurance Manager Mr Zhang Guozhi joined our in Prior to that, between 1983 and 2001, he was the technical section chief and engineer of Yantai Wanhua Synthetic Leather Co. Ltd and was responsible for the company s synthetic leather production technology. Subsequently he moved to Wenzhou Minfeng Synthetic Leather Co., Ltd as chief engineer and was responsible for PU production, research and development. Mr Zhang graduated from the Shandong Chemical Engineering College in 1983 majoring in organic chemical engineering. He is also a qualified engineer as certified by the Yantai City Management Reform Leading in YUN LOK MING Financial Controller Mr Yun Lok Ming joined our as Financial Controller in May He started his career with Kwan Wong Tan & Fong BDO in 1993 as an assistant accountant, and subsequently joined KPMG Peat Marwick in 1996 as a senior accountant. In 1997, he moved on to Fan Chan & Co as a supervisor. Between 2001 and 2003, Mr Yun was with Grant Thornton as a supervisor. From 2004 to 2006, he provided auditing services to various companies as a CPA. Mr Yun graduated from the City University of Hong Kong in 1993 with a Bachelor of Arts (Hons) in Accountancy degree and also obtained a Master in Business Administration degree from the University of Adelaide in December He was accredited as a Certified Public Accountants (CPA) since 1997 by the Hong Kong Institute of Certified Public Accountants and has been a Fellow Member of the Association of Chartered Certified Accountants (FCCA) since Mr Yun further obtained a CPA (Practising) qualification in February 2004 from the Hong Kong Institute of Certified Public Accountants. Mr Yun has been an independent non-executive director of DBA Telecommunications (Asia) Holdings Limited, a company listed in Hong Kong since May 2006 and is involved in the manufacture and sales of telecommunication equipment and related products. SINO TECHFIBRE LIMITED ANNUAL REPORT

10 Corporate Governance Report For the Financial Year ended The Board of Directors of SINO TECHFIBRE LIMITED ( Sino Techfibre or the Company ) has set out below the manner in which the Company has applied the principles and the extent of compliance with the guidelines as set out in the Code of Corporate Governance 2005 ( Code ). Principle 1 Board s Conduct of its Affairs The principal functions of the Board apart from its statutory responsibilities are to: (a) set values and standards of the Company and ensure that obligations to shareholders and others are understood and met; (b) provide entrepreneurial leadership, approve the strategic and financial objectives, corporate policies and authorisation matrix of the Company; (c) oversee the processes for risk management, financial reporting and compliance and evaluate the adequacy of internal controls; approve annual budget, key operational matters, major acquisition and divestment proposals, major funding proposals of the Company (d) review management performance; (e) approve the nominations to the Board of Directors and appointment of key management, as may be recommended by the Nominating Committee; and (f) assume responsibility for corporate governance framework of the Company. To facilitate effective management, certain functions of the Board have been delegated to various Board committees, namely Audit, Nominating and Remuneration Committees. Further information regarding the Board s function and the respective Board Committees are set out in the later part of the Report. The Board meets at least four times a year and are allowed by its Terms of Reference and Company s Bye-laws to conduct meetings by way of telephonic conferencing and such other similar means. Ad-hoc meetings are convened as warranted by circumstances or deemed appropriate by the Board members. Directors attendance at meetings of the Board and Board Committees held for the financial year ended is as follows: Board Number of Meetings held: 4 Audit Committee Number of Meetings held: 4 Nominating Committee Number of Meetings held: 1 Remuneration Committee Number of Meetings held: 1 Number of Meetings Number of Meetings Number of Meetings Number of Meetings Name Attended Attended Attended Attended Lam Tin Tsoh (Note 1) 1 n.a. n.a. n.a. Li Wenheng 4 n.a. 1 n.a. Li Changrui 4 n.a. n.a. n.a. Lam Shui Ho 4 n.a. n.a. n.a. Lee Wing Hang 4 4 n.a. 1 Tay Wee Kwang Foo Say Tun n.a.: not applicable Note 1: Due to his personal reasons and tight business schedules, he only managed to attend once the Board Meetings held in Notwithstanding that Mr Lam Tin Tsoh continues to contribute his invaluable advice to the members of the Board based on his extensive business experience as he is one of the founding directors who has been with the since All the directors are responsible for their own training needs and are entitled a certain budget for their training needs, to keep abreast with the latest developments such as updates on the relevant laws and regulations. Board members are aware that they, whether as a Company or individually, in the furtherance of their duties, can take independent professional advice, if necessary, at the Company s expense. As such, all directors are expected to objectively take decisions in the interests of the Company. Principle 2 Board Composition and Balance The Board comprises seven directors of whom three are non-executive independent directors. The profile of the Directors are set out on page 6 of this Annual Report. 08 SINO TECHFIBRE LIMITED ANNUAL REPORT 2010

11 Principle 2 Board Composition and Balance (cont d) The current size of the Board is appropriate for the facilitation of decision making given the size of the and scope of its operations. The Board will continue to review the size of the Board on an ongoing basis. As all the Directors are well established entrepreneur and/or professional, the Board collectively provides core competencies in the areas of accounting, finance, business and management, as well as industry knowledge. Principle 3 Chairman and Chief Executive Officer The role of Chairman and the Chief Executive Officer ( CEO ) are undertaken by separate persons and carried complementary responsibilities. There is a clear division of responsibilities between the Chairman and the CEO to ensure that there is a balance of power and authority. The Chairman and CEO of the Company are Mr Lam Tin Tsoh and Mr Li Wenheng, respectively. Subsequent to the financial year ended 31 December 2010, Mr Lee Wing Hang and Mr Tay Wee Kwang were appointed as the Interim Non-Executive Chairman and Interim CEO on 21 April Principle 4 Board Membership NOMINATING COMMITTEE The Nominating Committee ( NC ) comprises three Directors, majority of whom, including the Chairman is independent. The NC members are: Foo Say Tun (Chairman) Tay Wee Kwang Li Wenheng (Non-executive and Independent) (Non-executive and Independent) (Executive) The NC has written terms of reference that describe its objectives, duties, and conduct of the NC meeting. The primary functions of the NC are summarised below: (a) identify, review and recommend candidates for appointment as Directors of the Company and appointment to the Board committee(s) as well as to senior management positions in the Company; b) evaluate the effectiveness of the Board as a whole and assess the contribution by each Director, to the effectiveness of the Board; c) determine annually whether or not a Director is independent; and d) make recommendations to the Board on reappointment of Board and Board committee members. The NC met after the financial year and determined that the independence of the Directors is in line with the requirements described in the Code. Where new appointments are required, the management will conduct a search for candidates who meet the criteria, the NC will then consider, review the qualifications and credentials of the candidates. Should a suitable candidate is shortlisted, the NC will arrange for short meeting with the candidate before a recommendation is made to the Board. Director who does not have prior experience as a director of a public listed company in Singapore is encouraged to take courses to familiarise with the statutory compliance regime in Singapore. In according to the Company s Bye-laws, each director shall retire at least once every three (3) years and a retiring director shall be eligible for reelection. The NC will review and recommend the re-election/re-appointment of directors. The Director who has submitted himself for re-election at the forthcoming Annual General Meeting of the Company is Mr Li Changrui. Mr Li Changrui is due for retirement by rotation pursuant to Bye-Law 86(1) of the Company s bye-laws; Mr Li Changrui s profile is shown on page 6 of the Annual Report. The Board has suggested the re-election of Mr Li Changrui. Principle 5 Board Performance The NC uses objective and appropriate quantitative and qualitative criteria to assess the performance of individual directors, and the Board as a whole. A formal assessment process is in place to assess the effectiveness of the Board as a whole and the contribution by each director to the effectiveness of the Board annually. Assessment parameters include evaluation of the Board s access to information, risk management, accountability, the Board s performance in relation to discharging its principal functions, communication with management and stakeholders, the business performance of the Company, the quality of Board processes, the attendance records of the directors at Board and Board Committee meetings and the level of participation at such meetings. As part of the process, the Directors will complete evaluation forms which are collated by the Company Secretary. The Company Secretary will then review the results of the appraisal and present the results to the Chairman of the NC who will then report the same to the Board. 09 SINO TECHFIBRE LIMITED ANNUAL REPORT 2010

12 Corporate Governance Report For the Financial Year ended Principle 5 Board Performance (cont d) The NC is of the opinion that the Board is able to exercise objective judgement on corporate affairs independently and no individual or small group of individuals dominates the Board s decision-making process. Principle 6 Access to Information Board members are provided with management information pertaining to areas such as budget, forecast, the funding positions and cashflow projections of the Company, to help them carry out their responsibilities effectively. In addition, all relevant information on material events and transactions are circulated to directors as and when they arise. All Board members have separate and independent access to the advice and services of the Joint Company Secretaries, who are responsible to the Board for ensuring that board procedures are followed and that applicable rules and regulations are complied with. All Board members also have separate and independent access to the senior management of the Company. The Joint Company Secretaries also attend Board Meetings and assist the Board to ensure that all relevant regulations and established procedures regarding the conduct of the Board are complied with. The appointment or removal of the Joint Company Secretaries is a matter for the Board as a whole. Principle 7 Procedures for Developing Remuneration Policies REMUNERATION COMMITTEE The primary objectives of the Remuneration Committee ( RC ) are to make recommendation to the Board on the s framework of remuneration, and the specific remuneration packages for each director and the Key Management and to ensure that the compensation realistically commensurate with the responsibilities and risks involved of that position. The RC comprises three Directors, all of whom are independent. The RC members are as follows: Tay Wee Kwang (Chairman) Foo Say Tun Lee Wing Hang (Non-executive and Independent) (Non-executive and lndependent) (Non-executive and lndependent) The principal functions of the RC are to: (a) review and recommend to the Board a framework of remuneration for the Directors and key executives; (b) determine the specific remuneration packages for each Executive Director and senior Company management personnel; and (c) recommend the fees of the Non-executive Directors. Each member of the RC shall abstain from voting on any resolutions in respect of his own remuneration package. In its review, the Company can establish and maintain a level of remuneration that would be appropriate to attract, retain and motivate the directors and key executives to run the Company successfully. The RC also ensures that the remuneration policies and systems of the Company support the Company s objectives and strategies. Principle 8 Level and Mix of Remuneration In setting the remuneration packages of the Executive Directors, the Company makes a comparative study of the packages of executive directors in comparable industries and takes into account the performance of the Company. Non-executive Directors are paid a fee. Such fee is approved by the shareholders of the Company as a lump sum payment at the annual general meeting of the Company. 10 SINO TECHFIBRE LIMITED ANNUAL REPORT 2010

13 Principle 9 Disclosure on Remuneration The details of the remuneration of the Directors and Key Management are as follows: Fees Salary Bonus Other Benefits Total DIRECTORS % % % % % Below S$250,000 Lam Tin Tsoh Li Wenheng (1) Li Changrui Lam Shui Ho Tay Wee Kwang (2) Lee Wing Hang (3) Foo Say Tun Fees Salary Bonus Other Benefits Total KEY MANAGEMENT Below S$250,000 Gao Kai (4) Chang Tianxiang (5) Yu Qiuxing Lin Yunhui Liu Jianhong (5) Zhang Guozhi Yun Lok Ming (1) Mr. Li Wenheng has been re-designated as Executive Director of the Company effective from 21 April 2011 (2) Mr. Tay Wee Kwang has been appointed as the interim Chief Executive Officer of the Company effective from 21 April (3) Mr. Lee Wing Hang, has been appointed as the interim Non-Executive Chairperson of the Company effective from 21 April (4) Mr. Gao Kai has left his employment on 1 May (5) Mr. Chang Tianxiang and Mr. Liu Jianhong have left their employment on 1 April Saved as disclosed, none of the employees who are immediate family members of a Director or the Chief Executive Officer received more than S$150,000 in remuneration during the year. The Company does not have any share options scheme in place. Principle 10 Accountability The Board is accountable in presenting a balanced and understandable assessment of the Company s performance, position and prospects to its shareholders. Reports and information concerning the performance of the Company are circulated in advance by the management for review by the Board members on quarterly basis. The management is accountable for providing additional information to the Board as and when requested by the Board for purposes of assessing the performance of the and in the decision-making process. Principle 11 Audit Committee The Audit Committee ( AC ) comprises the following members: Lee Wing Hang (Chairman) Foo Say Tun Tay Wee Kwang (Non-executive and Independent) (Non-executive and Independent) (Non-executive and Independent) 11 SINO TECHFIBRE LIMITED ANNUAL REPORT 2010

14 Corporate Governance Report For the Financial Year ended Principle 11 Audit Committee (cont d) The AC meets periodically to perform the following main functions: Reviews the audit plans of the external auditors of the and ensures the adequacy of the s system of accounting controls and the co-operation given by the s management to the external auditors; Reviews the quarterly and annual financial statements and the auditors report on the annual financial statements of the before their submission to the board of directors; Reviews effectiveness of the s material internal controls, including financial, operational and compliance controls; Meets with the external auditors, other committees, and management in separate executive sessions to discuss any matters that these groups believe should be discussed privately with the AC; Reviews legal and regulatory matters that may have a material impact on the financial statements, related compliance policies and programmes and any reports received from regulators; Reviews the cost effectiveness and the independence and objectivity of the external auditors; Reviews the nature and extent of non-audit services provided by the external auditors; Recommends to the board of directors the external auditors to be nominated, reviews the compensation of the external auditors, and reviews the scope and results of the audit; Reports actions and minutes of the AC to the board of directors with such recommendations as the AC considers appropriate; and Reviews interested person transactions in accordance with the requirements of the SGX-ST s Listing Manual. The AC has full access to, and cooperation from the management including the external auditors, and has full discretion to invite any director and executive officer to attend its meetings. The AC also has power to investigate any matter brought to its attention, within its terms of reference, with the power to retain professional advice at the Company s expense. The AC meets with the external auditors, without the presence of the management at least once a year. The AC was informed by the auditors of the Company in March 2011 that they have discovered certain discrepancies in invoices issued by the Company and its suppliers and they are not able to verify whether the invoices in question are genuine or otherwise. For the period from 14 April 2011 to 30 January 2012, the AC had held numerous meetings with and without management, together with professionals, including meetings with the stock exchanges with a view to safeguard the assets of the Company and the interests of minority shareholders. The AC then (in consultation with the SGX) appointed KPMG Services Pte Ltd ( KPMG )as special Auditors on 24 May 2011 to conduct special review on the audit issues raised in the earlier announcements. The AC has been in active discussion with the executive directors of the Company since it was informed of the Auditor s difficulty in verifying the invoices issued by the Company and its suppliers. Members of the AC had visited the Company s subsidiaries in Longkou City, Shandong Province to discuss the s affairs and operations with management. From 14 April 2011, the AC had numerous meetings with the executive directors to ensure that the day-to-day operations are on-going and to assist in the reviewing of financial controls and facilitate any investigation into the affairs of the, to safeguard interests of the shareholders. The On 21 November 2011, the AC of the Company received an independent report from KPMG. In the report, KPMG stated that they were not given access to five of the six computers used by the Company s and its subsidiaries employees in order for them to perform their forensic technology procedures, and that the Local bureau refused to accede to the Company s request for copies or a summary listing of the Company s China subsidiaries sales and purchase invoices. As a result, KPMG was not able to complete their entire scope of engagement and the discrepancies highlighted by the Company s auditors remained unresolved. In light of this, the AC decided to recommend the appointment of a firm of valuers, to carry out a valuation of the Company s assets and liabilities to ascertain what the current value of the Company is in the opinion of the valuer. Accordingly, on 3 January 2012, the AC appointed Stone Forest Corporate Advisory Pte Ltd (SFCA) to perform the business valuation of the Company. As at the date of this report, the aforesaid business valuation is still ongoing. AC, having reviewed the non-audit services provided by the external auditors to the Company, is satisfied with the independence and objectivity of the external auditors. The non-audit fee paid to the external auditors, Ernst & Young LLP for the financial year ended was SGD6,000. The Company has complied with Rule 712 and 716 in relation to auditing firms. 12 SINO TECHFIBRE LIMITED ANNUAL REPORT 2010

15 Principle 11 Audit Committee (cont d) Based on the following representations from the management, the AC has no objection to the appointment of different auditors for its subsidiaries in PRC and Hong Kong and acknowledged that the appointment would not compromise the standard and effectiveness of the audit of the Company and the Company is in compliance with Rule 716 of the Listing Manual of SGX-ST:- (i) (ii) The statutory auditors for the significant subsidiaries in PRC, namely Shandong Jinfeng Synthetic Leather Co., Ltd., Shandong Xinlong Hi-Tech Co., Ltd and Yantai Golden Sun Technology Co., Ltd, are Yantai TianHong Certified Public Accountants Co. Limited. The management is satisfied with the standard and effectiveness of its audit; In view of the nature of business and scope of work of Sino Techfibre (HK) Limited and Joy Clear Limited, the appointment of W.H. Tang & Partners CPA Limited, a second-tier accounting firm in Hong Kong, is effective in performing the audit for these subsidiary; and (iii) the financial statements of Shandong Jinfeng Synthetic Leather co., Ltd, Shandong Xinlong Hi-Tech Co., Ltd and Yantai Golden Sun Technology Co., Ltd were audited by Messrs Ernst & Young LLP, Singapore, the Company s statutory auditors, for consolidation purposes. Principle 12 Internal Controls Currently, the Company maintains a system of internal controls for all companies within the Sino Techfibre, but recognises that no internal control system will preclude all errors and irregularities. The system is designed to manage rather than to eliminate the risk of failure to achieve business objectives. The controls are to provide reasonable, but not absolute, assurance to safeguard shareholders investments and the Company s assets. The Board continues to look into ways to improve the internal controls maintained by the Company s management in its current business operations. The Company has a whistle blowing policy. This policy provides well-defined and accessible channels in the through which employees may raise concerns about improper conduct within the. Principle 13 Internal Audit The Company recognises the importance of the internal audit function which, being independent of management is one of the principal means by which the AC is able to carry out its responsibilities effectively. The internal audit function include financial, operational and compliance controls, and risk management. The internal audit function is outsourced to Messrs Yantai Tianhong Certified Public Accountants Co. Ltd. ( Yantai ). Yantai primarily reports to the Chairman of the AC. COMMUNICATIONS WITH SHAREHOLDERS Principle 14 Communication with Shareholders The Company strives for timeliness and transparency in its disclosures to the shareholders and the public. In addition to the regular dissemination of information through SGXNET, the Company also responds to enquiries from investors, analysts, fund managers and the press. However, the Company does not practise selective disclosure as all price-sensitive information is always first released through SGXNET. Principle 15 Encourage Greater Shareholder Participation At general meetings of the Company, shareholders are given the opportunity to express their views and ask the Board questions regarding the Company and the. The Board members are present and available to address shareholders questions at general meetings. The external auditors are also present to address shareholders queries relating to the conduct of the audit and the preparation and conduct of the auditor s report. 13 SINO TECHFIBRE LIMITED ANNUAL REPORT 2010

16 Corporate Governance Report For the Financial Year ended Principle 15 Encourage Greater Shareholder Participation (cont d) CODE OF CONDUCT Dealings in Securities The Company is aware that the Directors and employees are prohibited from securities dealings whilst they are in possession of price-sensitive information. The Company issues regular circulars to its Directors, principal officers and relevant officers who have access to unpublished material price-sensitive information to remind them of the aforementioned prohibition and to remind them of the requirement to report their dealings in shares of the Company. The Directors and employees are also prohibited from dealing in the securities of the Company during the period commencing two weeks before announcement of the Company s financial statement for each of the first three quarters of its financial year, or one month for the full financial year, as the case may be, and ending on the date of the announcement of the relevant results. Interested Party Transactions ( IPT ) The AC is satisfied that the review procedures for IPTs and reviews to be made periodically by the AC in relation thereto are adequate to ensure that the IPTs, if any, will be transacted on normal terms and will not be prejudicial to the interests of the Company and its minority shareholders. There was no IPT in the during the financial year. Material Contracts There were no material contracts entered into by the Company or any of its subsidiaries involving the interest of the CEO, any Director, or controlling shareholder. 14 SINO TECHFIBRE LIMITED ANNUAL REPORT 2010

17 Financial Contents 16 Directors Report 19 Statement by Directors 20 Independent Auditors Report 21 Consolidated Statement of Comprehensive Income 22 Balance Sheets 23 Statements of Changes in Equity 26 Consolidated Cash Flow Statement 28 Notes to the Financial Statements

18 Directors Report For the Financial Year ended The directors are pleased to present their report to the members together with the audited consolidated financial statements of Sino Techfibre Limited (the Company ) and its subsidiaries (collectively, the ) and the balance sheet and statement of changes in equity of the Company for the financial year ended. Directors The directors of the Company in office at the date of this report are: Mr. Lam Tin Tsoh (Non-Executive Director) Mr. Li Wenheng (Chief Executive Officer and re-designated as Executive Director effective from 21 April 2011) Mr. Li Changrui (Deputy Chief Executive Officer) Mr. Lam Shui Ho (Executive Director) Mr. Tay Wee Kwang (Independent Director and appointed as Interim Chief Executive Officer on 21 April 2011) Mr. Lee Wing Hang (Independent Director and appointed as Interim Non-Executive Chairman effective from 21 April 2011) Mr. Foo Say Tun (Independent Director) Arrangements to enable directors to acquire shares and debentures 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 in 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 an interest in shares of the Company as stated below: Deemed interest Name of Director 1 January 2010 Ordinary shares of the Company Lam Tin Tsoh 564,786,927 (1) 564,786,927 (1) Li Wenheng 566,918,927 (1) (2) (1) (2) 566,918,927 (1) Mr Lam Tin Tsoh and Mr Li Wenheng hold 75% and 25% of the share capital of Merit Asia International Limited respectively. As such, both Mr Lam Tin Tsoh and Mr Li Wenheng are deemed to have interests in all the shares held by Merit Asia International Limited in the Company. (2) Mr Li Wenheng is also deemed to have interest in 2,132,000 shares held through a nominee company, Citibank Nominees Singapore Pte Ltd. There was no change in any of the above-mentioned interests between the end of the financial year and 21 January Except as disclosed in this report, no director who held office at the end of the financial year had interests in shares, share options, warrants or debentures of the Company, or of related corporations, either at the beginning of the financial year, or at the end of the financial year. 16 SINO TECHFIBRE LIMITED ANNUAL REPORT 2010

19 Directors contractual benefits Except as disclosed in the financial statements, since the end of the previous financial year, no director of the Company has received or become entitled to receive a benefit by reason of a contract made by the Company or a related corporation with the director, or with a firm of which the director is a member, or with a company in which the director has a substantial financial interest. Options No options were issued by the Company or its subsidiaries during the financial year. As at, there were no options on the unissued shares of the Company or its subsidiaries which are outstanding. Audit Committee The audit committee ( AC ) carried out its functions in accordance with the Listing Manual of the SGX-ST, and the Code of Corporate Governance including the following: Reviews the audit plan of the external auditors of the and ensures the adequacy of the s system of accounting controls and the co-operation given by the s management to the external auditors; Reviews the quarterly and annual financial statements and the auditors report on the annual financial statements of the before their submission to the board of directors; Reviews effectiveness of the s material internal controls, including financial, operational and compliance controls; Meets with the external auditors, other committees, and management in separate executive sessions to discuss any matters that these groups believe should be discussed privately with the AC; Reviews legal and regulatory matters that may have a material impact on the financial statements, related compliance policies and programmes and any reports received from regulators; Reviews the cost effectiveness and the independence and objectivity of the external auditors; Reviews the nature and extent of non-audit services provided by the external auditors; Recommends to the board of directors the external auditors to be nominated, reviews the compensation of the external auditors, and reviews the scope and results of the audit; Reports actions and minutes of the AC to the board of directors with such recommendations as the AC considers appropriate; and Reviews interested person transactions in accordance with the requirements of the Singapore Exchange Securities Trading Limited (SGX-ST) s Listing Manual. The AC, having reviewed all non-audit services provided by the external auditors to the, is satisfied that the nature and extent of such services would not affect the independence of the external auditors. The AC has also conducted a review of interested person transactions. The AC conducts regular meetings scheduled on a quarterly basis. Ad-hoc meetings may be carried out from time to time, as circumstances require. The AC convened six meetings during the financial year. The AC has also met with the external auditors, without the presence of the s management. Further details regarding the audit committee are disclosed in the Report on Corporate Governance. 17 SINO TECHFIBRE LIMITED ANNUAL REPORT 2010