HONG LEONG ASIA LTD. ANNUAL REPORT

Transcription

1 2008 HONG LEONG ASIA LTD. ANNUAL REPORT Diesel Engines Green Packaging Building Materials Industrial Packaging Consumer Products

2 Contents 01 Mission Statement 02 Corporate Profile 03 Corporate Structure 04 Our Businesses 05 Corporate Directory 06 Financial Highlights 07 Chairman s Statement 13 Board of Directors 15 Corporate Governance Report 23 Financial Report 105 Analysis of Shareholdings 107 Notice of Annual General Meeting 113 Proxy Form

3 MISSION Statement Hong Leong Asia Group strives on strengthening its businesses in China and in the Southeast Asia region. It will assume a wider focus in manufacturing and distribution activities, particularly in China. It will grow both organically and through acquisitions to ensure a premier position in Asia, so as to achieve superior returns for its shareholders. 丰隆亚洲将着重加强其在中国及东南亚区域的业务力度 它将重点关注并扩大在制造和经销等领域的活动, 尤其是中国地区的业务 通过自身的发展及并购, 它将确保在亚洲的主导地位, 并为股东们取得最大的效益回馈 1

4 CORPORATE Profile From being Singapore s leading integrated building materials supplier to its current standing as one of the region s major manufacturing and distribution players, Hong Leong Asia s success is intricately linked to its diversification into the manufacturing and distribution industry in China and Southeast Asia. With over 80 per cent of its market beyond the shores of Singapore, Hong Leong Asia is well placed to leverage on its current position to scale greater heights. Hong Leong Asia has under its Consumer Products, Diesel Engines and Industrial Packaging arms, three leading China-based manufacturing businesses, namely Henan Xinfei (one of China s top three largest manufacturers of refrigerators and freezers), China Yuchai Group (China s largest independent diesel engines manufacturer), and Rex Industrial Packaging Division (manufacturer of industrial packaging containers). GPac Technology, a green packaging company wholly-owned by the Group, is an innovative manufacturer of pallets, which are used for industrial storage and transportation. The Group, under its Building Materials arm, owns Island Concrete (Private) Limited, one of the largest readymixed concrete suppliers in Singapore. In addition, the Group recently increased its stake to become a majority shareholder in one of Malaysia s leading integrated cement producers, Tasek Corporation Berhad. As a leading integrated building materials supplier, the Group also has a quarry operation in Senai, Malaysia. As part of the Group s business expansion and diversification plans, Hong Leong Asia, through its New York Stock Exchange listed subsidiary, China Yuchai International Limited, has acquired stakeholdings in HL Global Enterprises Limited (formerly known as HLG Enterprise Limited) ( HLGE ) and Thakral Corporation Ltd ( TCL ), both of which are Singapore listed companies. HLGE is primarily engaged in the business of investment holding, property development and hospitality, while TCL is a China-focused electronics distribution company. 2

5 CORPORATE Structure CONSUMER PRODUCTS CHINA Henan Xinfei Electric Co., Ltd. Henan Xinfei Household Appliance Co., Ltd. Henan Xinfei Refrigeration Appliances Co., Ltd. DIESEL ENGINES BERMUDA China Yuchai International Limited CHINA Guangxi Yuchai Machinery Company Limited INDUSTRIAL PACKAGING CHINA Shanghai Rex Packaging Co., Ltd Tianjin Rex Packaging Co., Ltd. Dongguan Rex Packaging Company Limited HONG KONG Rex Packaging (Hong Kong) Limited MALAYSIA Rex Plastics (Malaysia) Sdn. Bhd. Rexpak Sdn. Bhd. SINGAPORE Hong Leong (China) Limited Rex Holdings Pte Ltd Rex Plastics Pte. Ltd. INDONESIA PT Rexplast GREEN PACKAGING SINGAPORE GPac Technology (S) Pte. Ltd. MALAYSIA GPac Technology (M) Sdn. Bhd. BUILDING MATERIALS CEMENT & GRANITE DIVISION HL Building Materials Pte. Ltd. - Singapore Tasek Corporation Berhad - Malaysia Singapore Cement Manufacturing Company (Private) Limited - Singapore Singapore Cement Industrial Company (Private) Limited - Singapore READY-MIX CONCRETE DIVISION Island Concrete (Private) Limited - Singapore PRE-CAST CONCRETE DIVISION HL Building Materials Pte. Ltd. - Pre-cast division - Singapore HL-Manufacturing Industries Sdn. Bhd. - Malaysia STEEL DIVISION Angkasa Hong Leong Pte Ltd - Singapore QUARRY DIVISION PT. Karimun Granite - Indonesia Karimun Granite (Singapore) Pte Ltd - Singapore OTHERS CONSUMER ELECTRONICS Thakral Corporation Ltd HOSPITALITY & PROPERTIES DEVELOPMENT HL Global Enterprises Limited 3

6 OUR Businesses Consumer Products Henan Xinfei, China s second largest manufacturer of refrigerators and freezers, produces more than 200 models of direct-cooled and frost-free refrigerators, 100 models of freezers and 40 models of air-conditioners. Xinfei is known for producing durable products backed by reliable after-sales service. Xinfei exports its products to more than 50 countries including countries in Europe, Middle East and Africa, and the USA. Diesel Engines The New York-listed China Yuchai International, with its principal subsidiary, Guangxi Yuchai, is China s largest independent diesel engines manufacturer. It produces, assembles and sells diesel engines for light-duty, medium-duty and heavy-duty trucks, buses and construction equipment in China. Industrial Packaging Rex Industrial Packaging Group has manufacturing operations in various cities in China, Malaysia and Indonesia. Highly diversified, it manufactures and markets a wide range of rigid plastic packaging products for the industrial and consumer markets. Green Packaging Wholly-owned by Hong Leong Asia, GPac Technology (S) Pte. Ltd. and GPac Technology (M) Sdn. Bhd. are green organisations with operations in Singapore and Malaysia. They specialise in the development and manufacture of eco-friendly, biodegradable products for a vast range of industries and applications. Among GPac s most notable products is the pallets made from recycled wood fibres that comply with the ISPM 15 guidelines as stipulated in the International Plant Protection Convention. Building Materials Manufacturing and distributing an extensive range of building materials and construction-related products, Hong Leong Asia s Building Materials Unit is one of the largest suppliers of integrated building materials in Singapore. Its product range includes cement, ready-mix concrete, pre-cast concrete, steel bars and quarry products. Others It includes Hong Leong Asia s indirect investments in Thakral Corporation Ltd ( TCL ) and HL Global Enterprises Limited ( HLGE ). The principal activities of TCL are those relating to trading and distribution of consumer electronic goods and accessories in China and Hong Kong. HLGE is primarily engaged in investment holding and hospitality and properties development businesses. 4

7 CORPORATE Directory BOARD OF DIRECTORS Kwek Leng Beng - Chairman, non-executive EXECUTIVE Kwek Leng Peck Teo Tong Kooi - Chief Executive Officer NON-EXECUTIVE Ernest Colin Lee - Independent Goh Kian Hwee - Independent Quek Shi Kui - Independent AUDIT COMMITTEE Quek Shi Kui - Chairman Ernest Colin Lee Goh Kian Hwee NOMINATING COMMITTEE Ernest Colin Lee - Chairman Kwek Leng Beng Quek Shi Kui REMUNERATION COMMITTEE Ernest Colin Lee - Chairman Quek Shi Kui Goh Kian Hwee HONG LEONG ASIA SHARE OPTION SCHEME 2000 COMMITTEE Ernest Colin Lee - Chairman Kwek Leng Peck Quek Shi Kui Goh Kian Hwee REGISTERED OFFICE 16 Raffles Quay #26-00 Hong Leong Building Singapore Tel : (65) Fax : (65) / Website : REGISTRARS & TRANSFER OFFICE M & C Services Private Limited 138 Robinson Road #17-00 The Corporate Office Singapore Tel : (65) Fax : (65) AUDITORS KPMG LLP Certified Public Accountants 16 Raffles Quay #22-00 Hong Leong Building Singapore (Partner-in-charge: Lucas Tran, appointed from commencement of the financial year ended 31 December 2006) PRINCIPAL BANKERS Bank of America, N.A. Citibank, N.A. DBS Bank Ltd Standard Chartered Bank Sumitomo Mitsui Banking Corporation The Bank of Tokyo-Mitsubishi UFJ, Ltd. SECRETARIES Yeo Swee Gim, Joanne Ng Siew Ping, Jaslin 5

8 FINANCIAL Highlights REVENUE in $ million PROFIT BEFORE TAX in $ million 2, , , , , X,XXX ATTRIBUTABLE PROFIT in $ million EARNINGS PER SHARE in cents X,XXX

9 CHAIRMAN S Statement The effects of the financial crisis are being felt deeply in the Asian region, particularly in the last quarter of The economic growth of several large Asian economies has slowed considerably. The Chinese economy, in particular, slowed sharply in the second half of 2008 because of weaker demand for Chinese goods abroad and a slower investment growth in the domestic property sector. GDP growth of China has declined to just 6.8% in the last quarter of 2008 compared to 9% in the 3 rd quarter of 2008 and 13% in This dragged down the annual growth rate for 2008 to a seven-year low of 9%. The business climate in Malaysia, Indonesia and Singapore, the other countries that the Group has operations, remains difficult. Amid this extraordinarily challenging business environment, the performance of the Group, particularly in the last quarter of 2008, has been affected. Corporation Berhad. These were partly compensated by a write-back of loan provision by one of the companies in China, as well as lower performance bonus. As a result of deteriorating business conditions, the Group made further impairments amounting to $9 million to the carrying value of its fixed assets and intangibles. Net profit attributable to shareholders declined from $95.4 million a year ago to $42.0 million in Excluding nonoperating income in 2008 and 2007, the comparable net profit attributable to shareholders would have been $35.0 million and $88.1 million for 2008 and 2007 respectively. I shall now present key highlights of the five business units of the Group: Despite this extraordinarily challenging business environment, I am pleased to report that the Group s consolidated revenue again reached another record peak of $3.6 billion, nearly 12 percent above that of However, margins were eroded by sharply higher raw material prices, particularly in the first half of Operating expenses in 2008 were affected by higher staff costs due to a change in labour insurance laws in China, research and development expenditures incurred in the development of consumer and industrial products to improve product features and to increase product range, higher selling expenses and professional fees incurred on various corporate exercises undertaken by the Group, which included, inter alia, a general offer to acquire shares in Tasek Consumer Products Unit ( Xinfei ) Despite weak consumer sentiments, rising unemployment in urban areas, depressed real estate sector and a tighter rein on credit control by management, the latter being necessary in the light of the current economic environment, sales grew from 2,939,943 units in 2007 to a record high of 3,111,281 units in 2008, up 6% year-on-year. Xinfei was selected as one of the suppliers to participate in the governmentinitiated program to boost ownership of electrical appliances in rural areas, which was implemented in 3 provinces in This had a positive impact of cushioning Xinfei from a general slowdown in consumer demand. This program has since been expanded to the whole of China early this year. 7

10 CHAIRMAN S Statement Diesel Engines Unit ( Yuchai ) Building Materials Unit ( BMU ) Auto sales in China grew 6.7% last year, the first time growth has fallen below 10% since 1999 and in sharp contrast to the 21.8% expansion achieved in Weak business sentiments, fuelled by the effect of the financial crisis, had a dampening effect on demand in the second half of the year. The introduction of Euro III engines, with stricter emission standard and higher selling prices also had a deterring effect on engine purchases. These factors caused unit sales of Yuchai to decline from 383,677 engines in 2007 to 372,280 engines in The Chinese government has announced plans to consolidate and upgrade the automobile industry. Early this year, it announced plans to spend 5 billion yuan on onetime subsidies to farmers opting to replace three-wheeled vehicles or outdated trucks with not more than 1.3-litre engines. Plans to expand the infrastructure networks throughout China will also augur well for the diesel engines industry. Nonetheless the demand for automobile has been hard hit by the global economic slowdown, and the outlook for 2009 remains challenging. Industrial Packaging Unit ( Rex ) Rex continues to operate under extremely challenging environment in an industry which is fragmented with a mix of both large and family-owned players, particularly in China. Supply chain management, including raw material procurement and logistics, remains the key factor to improved profitability. To this end, the Group has been actively engaged and focused on this area. Green Packaging Products ( GPac ) While the Singapore building industry did not grow as fast in 2008 as it did in 2007, demand for building materials remained fairly resilient, albeit with competition much more intense than in Revenue grew 15.0% year-on-year. Although the Singapore economy is now in a recession, we are optimistic that the ongoing activities and stimulus plans already put in place by the Singapore government on the building of infrastructure and public housing projects should continue to yield positive results for BMU. The acquisition of additional shares in Tasek Corporation Berhad, which itself is a major player in the construction industry in Malaysia and a major producer of cement, has further strengthened BMU as a major player of integrated building materials. Cash Flow and Liquidity As at 31 December 2008, the Group had cash and cash equivalents balance of $238.0 million compared to $186.7 million as at 31 December Cash generated from operations increased from $50.8 million in 2007 to $234.2 million in This was due mainly to a higher net reduction in working capital (inventories, trade receivables and payables) in 2008 as compared to 2007 as the Group increased its focus on working capital management in the light of increasingly challenging business environment. Cash outflows from investing activities for the year were $161.8 million compared to $61.5 million in Additional investments in Tasek Corporation Berhad towards the end of 2008 and higher capital expenditures incurred for capacity expansion of the China operations were the primary drivers for the increased cash outflows. With environmentally friendly pallets slow to take off and due to long lead time required by customers for testing and accepting such products, GPac has yet to achieve profitability. Efforts are continuing to expand the market reach of GPac through the use of distributors and through joint ventures with overseas investors, when appropriate. Shareholders Returns Arising from lower earnings, return on equity declined from 16% in 2007 to 10% in This same factor also caused a decline in earnings per share from 25.1 cents in 2007 to 11.0 cents in The move of the production facility from Singapore to Malaysia in 2009 should lower cost and allow for more competitive pricing. 8

11 CHAIRMAN S Statement Business Direction Dividend As part of its efforts to grow the Group s businesses and increase shareholder value, the Group will continue to explore investment and divestment opportunities. As and when these opportunities materialise, appropriate announcements will be made. Outlook In the light of the current economic climate where there is much uncertainty, the Board of Directors considers it prudent to conserve cash to meet any unforeseen circumstances. Consequently, the Board of Directors has recommended a final dividend of 2 cents per share, bringing the total dividend for 2008 to 5 cents per share, including the interim dividend of 3 cents per share paid during the year. While the Chinese economy is expected to continue to witness a slowdown, the Group is hopeful that various stimulus measures undertaken by the Chinese government will yield positive results to boost the demand for consumer and industrial goods. For example, the government-initiated programme to encourage rural folks to own electrical appliances has seen the programme extended to the whole of China early this year. Other programmes to support, inter alia, the real estate and automobile sectors, should also provide impetus to the performance of our China operations in Prices, and thus margins, are however expected to be under pressure. Although the pace of construction activities has slowed considerably in Singapore, ongoing activities and plans already put in place by the Singapore government on the building of infrastructure and public housing projects should continue to yield positive results for the Group s BMU, albeit in an increasingly challenging environment. The acquisition of additional shares in Tasek, which itself is a major player in the construction industry in Malaysia and a major producer of cement, has further strengthened the Group s position as a major player of integrated building materials and is expected to contribute positively to the cashflow of the Group. Despite the adverse business conditions and barring unforeseen circumstances and a sharp deterioration in the business climate, which may affect the carrying value of assets, the Group is cautiously optimistic that it will operate profitably in Accolades Hong Leong Asia Ltd. has again been featured among the top 100 Singapore companies in overseas revenue. Started in 2005 by International Enterprise Singapore, the Singapore International 100 Ranking recognises the achievements of Singapore companies which dare to venture to overseas markets. Hong Leong Asia Ltd. is ranked 3 rd in terms of total revenue derived from China and 18 th overall in overseas revenue among the top 100 Singapore companies. The Yuchai brand of diesel engines, which are manufactured by Guangxi Yuchai Machinery Company Limited, was awarded The Chinese Brand of the Year 2008 in the diesel engine category from the World Brand Laboratory at the 2008 World Entrepreneur Annual Meeting. Appreciation On behalf of the Board of Directors, I would like to thank our shareholders, customers, business associates, management and employees for their contribution and look forward to their continuing support. Kwek Leng Beng Chairman 23 March

12 主席报告 金融危机的影响已严重打击了亚洲区域, 尤其是在 2008 年的第四季度 多个亚洲大型经济体的经济增长因此出现了大幅度的减缓 特别是中国的经济, 由于国外对中国产品的需求有所减少, 再加上国内房地产投资的放缓, 在 2008 年的下半年也出现了大幅度的下滑 中国国内生产总值在 2008 年第四季度只取得 6.8% 的增长, 低于 2008 年第三季度的 9% 和 2007 年全年的 13% 2008 年的全年增长因此被拉低到 9%, 这是 7 年来的最低增长 而其他集团有业务的国家如马来西亚 印尼和新加坡的商业环境仍然困难 在这非常具有挑战性的商业环境, 集团的业绩, 特别是在 2008 年第四季度, 也受到了一定的冲击 尽管面对如此具有挑战性的商业环境, 我欣然向各位股东报告, 集团在 2008 年的营业收入达到了 36.2 亿元的历史新高, 比 2007 年增加了 12% 但是, 集团的毛利润却因为 2008 年上半年原材料的价格高涨而有所降低 2008 年的营运成本有所增加, 主要原因是 : 由于中国劳动保险法改革导致劳工成本增加 为了增加产品种类和改善消费产品和工业产品的功能而支出的研发费用 较高的销售费用 和集团总部在行使各项职能时所发生的专业费用 ( 其中包括集团对大石股份有限公司提出的全面收购案 ) 报表上反映的费用比实际费用低主要是因为 : 冲减了集团在中国的一家公司的贷款所提的坏账准备 以及发放了较低的奖金 有鉴于当前日趋恶劣的商业环境, 集团也对一部分固定资产和无形资产的账面值计提了 9 百万元的减值准备 2008 年集团可分发给股东的净利由去年的 9,543 万元下跌至 4,198 万元 如果不把非营业性收入计算在内, 则调整后 2008 年和 2007 年的净利润将分别为 3,501 万元和 8,809 万元 以下是我对集团五个业务单元的报告摘要 : 家电产品单位 ( 新飞 ) 虽然面对消费者信心疲弱 城市地区失业率攀升 房地产市场萎靡不振 以及管理层因目前经济状况而实施的较严谨的信贷监管, 新飞的家电销量由 2007 年的 294 万台增加到 2008 年的 311 万台的历史新高, 增长了 6% 为了提高农村地区家电用户的占有率, 中国政府在 2008 年在三个特定省份试行了家电下乡计划, 新飞是被选中参与该项目的厂家之一 这一计划的实施有效地抵消了由于消费者需求的普遍减少而给新飞带来的冲击 此家电下乡计划已于今年年初被推广到整个中国 10

13 主席报告 柴油机单元 ( 玉柴 ) 建筑材料单元 ( BMU ) 去年中国的汽车销量增加了 6.7%, 这是自 1999 年来第一次出现低于 10% 的增长率, 这与 2007 年的 21.8% 相比落差更大 疲软的商业信心, 加上金融海啸带来的冲击, 大大地抑制了 2008 年下半年的需求 此外, 由于实施较严格的排放标准而推出的价位较高的欧 III 引擎, 也造成一些商家在购买引擎时采取观望的态度 这些因素使玉柴的引擎销量从 2007 年的 38.4 万台减少到 2008 年的 37.2 万台 中国政府公布了一系列计划要整合和提升汽车产业 今年较早时, 政府宣布一个 50 亿元的援助配套计划, 提供一次性的津贴给需要购买新车以更换三轮卡车或过时卡车的农户 ( 引擎容量不得超过 1.3 公升 ) 此外, 中国进一步扩建全国基础设施的政策也将对柴油引擎行业带来利好消息 尽管如此, 全球经济的放缓已严重的打击了市场对汽车的需求,2009 年的展望依然充满挑战性 工业包装单元 ( 利士 ) 由于同时面对大型企业和家族企业的激烈竞争, 利士 ( 特别是在中国 ) 继续在非常具有挑战性的经营环境下运作 良好的供应链管理流程, 包括原材料采购和物流的安排, 依然是提高盈利能力的关键 在这方面的管理, 集团一直给于很积极的关注 绿色包装单元 ( GPac ) 由于绿色托板业务起步较慢, 再加上客户需要较长的时间对产品进行测试以便接受该产品,GPac 在 2008 年尚未能取得利润 我们一直在努力, 视具体情况, 或通过分销商渠道 或通过与海外投资者成立合资公司进一步开拓 GPac 的市场 GPac 将在 2009 年把位于新加坡的生产设施搬迁到马来西亚, 这将降低成本和提高价格的竞争力 虽然新加坡的建筑业在 2008 年的增长不比 2007 年的快, 建筑材料的需求却相当稳定, 行业的竞争也比 2007 年更加激烈 BMU 在 2008 年的营业收入比 2007 年增长了 15.0% 虽然新加坡的经济目前陷入衰退, 我们相信新加坡政府目前已在基础设施建设和公共住屋项目方面所实施的一些计划和刺激经济的配套, 将会继续给 BMU 带来正面的效益 通过收购大石股份有限公司 一家主要生产洋灰和活跃于马来西亚建筑业的公司, 将能进一步巩固 BMU 作为一家重要的综合建筑材料供应商的地位 现金流量和流动资金截止 2008 年 12 月 31 日, 集团持有 2.38 亿元的现金和其他可替代现金, 去年同期的余额为 1.87 亿元 由经营活动所产生的现金流量从 2007 年的 0.51 亿元增加至 2008 年的 2.34 亿元 这是集团为了应对日益严峻的经济环境, 优化营运资金的管理所带来的成效, 使 2008 年的净营运资本 ( 包括存货 应收和应付账款 ) 比 2007 年来得低 2008 年投资活动的现金支出为 1.62 亿元, 而 2007 年为 0.61 亿元 投资活动现金支出的增加主要是因为集团在 2008 年底在大石股份有限公司所增加的投资以及为了扩充中国业务的产能所做的资本性开支 股东回报由于盈利较低, 股本回报从 2007 年的 16% 降低至 2008 年的 10% 此同样的原因也使每股盈利从 2007 年的 25.1 分减少至 2008 年的 15.1 分 业务方向为了进一步壮大集团业务和增加股东价值, 集团将不断努力的探索投资和撤资机会, 并且将在时机成熟时对外作出宣布 11

14 主席报告 展望 荣誉事件 虽然中国的经济增长预计将继续放缓, 集团希望中国政府所制定的经济刺激配套能够产生效益带动消费产品和工业产品的需求 比如, 一项由政府所发动的鼓励农村居民购买家电的家电下乡计划, 已经于 2009 年初被推广到整个中国 其他振兴房地产和汽车工业的计划预计也可以推动集团 2009 年在中国的业绩 但是, 集团产品的售价和毛利润估计将会面临下降的压力 虽然新加坡建筑领域前进的脚步放缓了许多, 新加坡政府对基础设施建设和公共住屋计划的投入和刺激经济的配套将继续给集团的 BMU 带来正面的利益, 尽管同业间的竞争也会日益激烈 通过收购大石股份有限公司 一家主要生产洋灰和活跃于马来西亚建筑领域的公司, 集团将能进一步巩固 BMU 作为一家综合建筑材料供应商的重要地位, 同时也将对增加集团的现金流量作出贡献 尽管商业环境非常恶劣, 排除任何不可预见的状况以及因为商业环境急转直下而给资产价值带来负面影响的可能性, 集团对继续在 2009 年保持盈利抱着乐观谨慎的态度 股息 丰隆亚洲有限公司再一次入选新加坡企业中海外收入最高的前 100 佳排名 始于 2005 年, 由新加坡国际企业发展局颁布的新加坡国际企业 100 佳排名, 是对勇于开拓海外市场的新加坡公司所给予的一种认可 在源自于中国的收入最高与源自于海外的收入最高的前一百名新加坡企业中, 丰隆亚洲有限公司分别排行第三和第十八位 由广西玉柴机器有限公司所生产的玉柴品牌柴油机, 在 2008 年世界企业家年会上, 在柴油引擎类别中被世界品牌实验室颁予 2008 中国品牌年度大奖 我们诚挚的谢意我谨代表董事会向所有的股东 客户 商业伙伴 管理层和职员们为他们所作出的贡献表示谢意, 并且期望他们会继续给予支持 郭令明主席 考虑到眼前的经济状况充满着太多变数, 董事会认为应该采取谨慎的态度, 节约现金以应对任何不可预知的状况 有鉴于此, 董事会建议派发每股 2 分的末期股息, 连同本年度已派发的每股 3 分的中期股息,2008 年派息总额为每股 5 分 2009 年 3 月 23 日 12

15 BOARD of Directors KWEK LENG BENG, Age 68 Appointed Chairman since 3 January 1995 and Director since 25 November 1981, Mr Kwek also sits on the Nominating Committee of Hong Leong Asia Ltd. ( HLA ). He was last re-elected as a Director of HLA on 27 April He is the Executive Chairman of City Developments Limited ( CDL ), Chairman and Managing Director of Hong Leong Finance Limited ( HLF ) and Hong Kong listed City e-solutions Limited ( CES ), and Chairman of London listed Millennium & Copthorne Hotels plc ( M&C ). Mr Kwek holds a law degree, LL.B. (London) and is also a fellow of The Institute of Chartered Secretaries and Administrators. He has extensive experience in the finance business, having grown from day one with the original Hong Leong Finance Limited which has since merged its finance business with Singapore Finance Limited (now known as HLF). He also has vast experience in the real estate business, the hotel industry as well as the trading and manufacturing business. Mr Kwek s other appointments include being a member of the East Asia Council of INSEAD and Action Community of Entrepreneurship (ACE) Singapore since its inception in He was also conferred Honorary Doctorate of Business Administration in Hospitality from Johnson & Wales University (Rhode Island, US), and Honorary Doctorate from Oxford Brookes University (UK). KWEK LENG PECK, Age 52 Appointed to the Board since 1 September 1982 and is now an Executive Director, Mr Kwek also sits on the Hong Leong Asia Share Option Scheme 2000 ( Share Option Scheme ) Committee. He was last re-elected as a Director on 29 April He is also an Executive Director of CES and a Director of CDL, HLF, M&C, New York listed China Yuchai International Limited ( CYI ) and Malaysia listed Tasek Corporation Berhad ( TCB ). Mr Kwek holds a Diploma in Accountancy and has over 28 years of experience in trading, manufacturing, property investment and development, hotel operations, corporate finance and management. TEO TONG KOOI, Age 51 Appointed Director and Chief Executive Officer since 1 October 2004, Mr Teo was last re-elected on 29 April He is the President and Director of CYI, Executive Director of TCB and a Director of HL Global Enterprises Limited, Thakral Corporation Ltd and Malaysia listed Isyoda Corporation Berhad. During the past 3 years, he was a Director of Malaysia listed Bintai Kinden Corporation Berhad. Mr Teo holds a Bachelor of Science degree in Marketing Management and a Master of Business Administration (both from Golden Gate University, San Francisco, California, USA). He has also completed the Executive Management Programme at the Stanford University Graduate School of Business. He has a wealth of corporate and commercial banking experience with many years in senior management positions where he was Head of Corporate Banking of Deutsche Bank, Malaysia and Chief Operating Officer of Hong Leong Bank Berhad, Malaysia. 13

16 BOARD of Directors ERNEST COLIN LEE, Age 68 Appointed a Director since 3 April 2000 and last re-elected on 27 April 2007, Mr Lee is the Chairman of the Nominating, Remuneration and Share Option Scheme Committees as well as a member of the Audit Committee of HLA. Mr Lee holds a Bachelor of Civil Engineering (Honours) degree (University of Queensland, Australia). He is a professional project consultant and has extensive experience in management, engineering and business development in Singapore and Australia. GOH KIAN HWEE, Age 54 Appointed a Director since 15 March 2004, Mr Goh was last re-elected on 29 April He also sits on the Audit, Remuneration and Share Option Scheme Committees of HLA. He is also a Director of Achieva Limited and Hwa Hong Corporation Limited. During the past 3 years, he was a Director of Japan Land Limited and Hotel Negara Limited. Mr Goh is a Partner of Rajah & Tann LLP, a legal firm, and has over 29 years experience in corporate and capital markets law. He holds a LL.B. (Honours) degree (University of Singapore) and has been a practising lawyer since QUEK SHI KUI, Age 72 Appointed a Director since 28 April 2005, Mr Quek was last re-appointed on 29 April He is the Chairman of the Audit Committee and a member of the Nominating, Remuneration and Share Option Scheme Committees of HLA. He also sits on the board of Thomson Medical Centre Limited. During the past 3 years, he was a Director of IDT Holdings (Singapore) Ltd and Wah Shing International Holdings Ltd. A Certified Public Accountant, Mr Quek has extensive auditing, accounting and financial experience in Singapore and overseas. He was previously a managing partner of an international accounting firm. Mr Quek s other appointments include being a council member of the Institute of Certified Public Accountants of Singapore and a member of the ACCA United Kingdom, the Malaysia Institute of Accountants and the Singapore Institute of Directors. He also serves as Chairman of the Board of Trustees, ACCA Singapore. 14

17 CORPORATE Governance Report Hong Leong Asia Ltd. ( HLA or the Company ) is committed to maintaining good corporate governance in accordance with the principles and guidelines set out in the Code of Corporate Governance released by the Council on Corporate Disclosure and Governance in 2005 ( CCDG Code ). HLA has adopted a set of internal guidelines on corporate governance ( Internal CG Guidelines ) which took into consideration the principles and guidelines set out in the CCDG Code. The following describes the Company s corporate governance policies and practices which include, inter alia, specific reference to the principles and guidelines as set out in the CCDG Code. BOARD MATTERS CCDG Code Principle 1: The Board s Conduct of Affairs The Board oversees the Company s business. Its primary functions are to set corporate policy, provide guidance and approval of strategic plans and direction for the Company, review management performance, establish and oversee the framework for internal controls and risk management, and assume responsibility for good corporate governance. These functions are either carried out directly by the Board or through committees established by the Board, namely, the Audit Committee ( AC ), the Nominating Committee ( NC ), the Remuneration Committee ( RC ), and the Hong Leong Asia Share Option Scheme 2000 ( Share Option Scheme ) Committee, all collectively referred to hereafter as the Board Committees. The composition of each Board Committee can be found under the corporate directory section of this Annual Report The delegation of authority by the Board to the Board Committees enables the Board to achieve operational efficiency by empowering these Board Committees to decide on matters within their respective written terms of reference and/or limits of delegated authority and yet maintain control over major policies and decisions. The Company conducts regular scheduled Board meetings on a quarterly basis. Additional meetings are convened as and when circumstances warrant. The Company s Articles of Association allow for the meetings of its Board and Board Committees to be held via teleconferencing. The attendance of the Directors at meetings of the Board and Board Committees as well as the frequency of such meetings, are disclosed on page 16 of this Annual Report Notwithstanding such disclosure, the Board is of the view that the contribution of each Director should not be focused only on his attendance at meetings of the Board and/or Board Committees. A Director s contribution may also extend beyond the confines of the formal environment of such meetings, through the sharing of views, advice, experience and strategic networking relationships which would further the interests of the Company. The Board has also adopted an internal guide wherein certain key matters are specifically reserved for approval by the Board such as the setting of strategic plans and direction or policies or financial objectives which are, or may be significant, in terms of future profitability or performance of the Group and decisions to commence, discontinue or modify significantly any business activity or to enter or withdraw from a particular market sector. Every newly appointed Director receives a formal letter, setting out his general duties and obligations as a Director pursuant to the relevant legislations and regulations. Newly appointed Directors are also welcome to meet with the management and be briefed by them on the Company s business and governance practices. The Company encourages the Directors to keep updated with the latest changes to the relevant laws and regulations affecting the Company and to receive further relevant training of their choice in connection with the discharge of their duties. Appropriate courses include programmes conducted by the Singapore Institute of Directors and Singapore Exchange Securities Trading Limited ( SGX-ST ). Each Director also receives a manual containing information on a director s duties and responsibilities, corporate information of the Group, and Company and Board policies including the Internal CG Guidelines which also cover the internal code of business and ethical conduct, internal code on securities trading, whistle-blowing procedure and a schedule of matters specifically reserved for the Board s approval. Directors are also provided regular updates and briefings from time to time by professional advisers, auditors, management and the Company Secretaries on new laws, rules, regulations, listing requirements, governance practices, changes in accounting standards and business and risk management issues applicable or relevant to the performance of their duties and obligations as Directors. 15

18 CORPORATE Governance Report The Company has adopted an internal code of business and ethical conduct crystallising the Company s business principles and practices with respect to matters which may have ethical implications. The Code provides a communicable and understandable framework for staff to observe the Company s principles such as honesty, integrity, responsibility and accountability at all levels of the organization and in the conduct of the Company s business in their relationships with customers, suppliers and amongst employees, including situations where there are potential conflicts of interests. Directors Attendance at Board and Board Committee Meetings in 2008 Name of Directors Board AC NC RC Number of Meetings held: 5 Meetings attended Number of Meetings held: 5 Meetings attended Number of Meetings held: 1 Meetings attended Number of Meetings held: 2 Meetings attended Kwek Leng Beng 5 NA 1 NA Kwek Leng Peck 5 NA NA NA Teo Tong Kooi 5 NA NA NA Ernest Colin Lee Goh Kian Hwee 5 5 NA 2 Quek Shi Kui No meeting of the Share Option Scheme Committee was held during FY CCDG Code Principle 2: Board Composition and Guidance The Board currently comprises 6 members, 2 of whom are executive Directors, while the other members of the Board are nonexecutive Directors. Of the 4 non-executive Directors, the Board considers 3 of them, being half of the Board, to be independent, thus providing for a strong and independent element on the Board capable of exercising objective judgment on corporate affairs of the Group. No individual or small group of individuals dominates the Board s decision making. The independent non-executive Directors are Messrs Ernest Colin Lee, Goh Kian Hwee and Quek Shi Kui. Mr Goh Kian Hwee is a partner of a legal firm which renders professional legal services to the Group from time to time. Nevertheless, the Board (excluding Mr Goh in respect of the deliberation of his own independence) has considered Mr Goh to be independent as he is capable of maintaining his objectivity and independence at all times in the carrying out of his duties and responsibilities as an independent Director. The Board comprises business leaders and professionals with financial, legal and business management backgrounds. The Board has reviewed its composition, taking into account the scope and nature of the operations of the Group, and is satisfied that the current size of the Board is appropriate and allows for effective decision making. The standing of the members of the Board in the business and professional communities, and their combined business, management and professional experience, knowledge and expertise provide the necessary core competencies to meet the Group s needs and to allow for diverse and objective perspectives on the Group s strategic direction and growth. Non-executive Directors of the Company are encouraged to participate actively in Board meetings in the development of the Company s strategic plans and direction, and in the review and monitoring of management s performance against set targets. CCDG Code Principle 3: Chairman and Chief Executive Officer The Board recognises that best practices of corporate governance advocate that the chairman of the board and the chief executive officer should in principle be separate persons to ensure an appropriate balance of power, increased accountability and greater capacity of the board for independent decision making. 16

19 CORPORATE Governance Report The Chairman of the Board is Mr Kwek Leng Beng who is a non-executive Director while the Chief Executive Officer ( CEO ) is Mr Teo Tong Kooi. There is a clear division of responsibilities between the Chairman and the CEO. As Chairman of the Board, Mr Kwek bears primary responsibility for the workings of the Board, by ensuring effectiveness in all aspects of its role, exercising control over the quality, quantity and timeliness of information flow between the Board and management, ensuring effective communication with shareholders, facilitating the effective contribution of non-executive Directors, and overseeing the Group s corporate governance and conduct. Whereas the CEO, Mr Teo who is a key management staff, bears executive responsibility for the Group s business, the management of the day-to-day operations of the Group and the achievement of the corporate goals set for the Group. The CEO is not related to the Chairman. With the establishment of various Board Committees with power and authority to perform key functions beyond the authority of, or without undue influence from, the Chairman or the CEO, and the putting in place of various internal controls to allow for effective Board oversight, the Board is of the view that there are adequate accountability safeguards to enable the Board to exercise independent decision making and to ensure an appropriate balance of power and authority within the spirit of good corporate governance. CCDG Code Principle 4: Board Membership The NC s main role as set out in its written terms of reference is to recommend all Board and Board Committee appointments and re-appointments, determine independence of each Director, and identify new Directors who have the appropriate knowledge, experience and skills to contribute effectively to the Board. 2 out of the 3 members of the NC, including the NC chairman, are independent. The NC conducts an annual review of the independence of Directors. When considering the re-nomination and re-election of Directors, the NC takes into account their contribution to the effectiveness of the Board and the competing time commitments faced by Directors with multiple board representations. Notwithstanding that some of the Directors have multiple board representations, the NC is satisfied that each Director is able to carry and has been adequately carrying out his duties as a Director of the Company. The Directors submit themselves for re-nomination or re-election at regular intervals and the Articles of Association of the Company provide that at least one-third of the Directors for the time being shall retire as Directors at each Annual General Meeting of the Company. In reviewing and recommending to the Board any new Director appointments, the NC takes into consideration the current Board size and its mix, the additional skills and experience that will bolster the core competencies of the Board, the search process for the identification of suitable candidates and once identified, the appropriate knowledge, experience and skills of the candidates who in its opinion, are fit and proper and qualified for office. Key information regarding the Directors is set out on pages 13 and 14 of this Annual Report CCDG Code Principle 5: Board Performance The Company has in place a formal process for assessment of the effectiveness of the Board as a whole and the contribution by each Director to the effectiveness of the Board. The NC assesses each Director s performance and evaluates the Board s performance as a whole annually using objective and appropriate quantitative and qualitative criteria which were recommended by the NC and approved by the Board. Quarterly performance indicators which include a comparison of the Company s performance for the financial period under review against the Company s budgeted forecasts and performance for the corresponding period in the previous year and the longer term indicators such as the Company s share price performance over a 5-year period and vis-à-vis the Singapore Straits Times Index, are furnished to the Board. In reviewing the overall Board performance, the NC also took into consideration the Board s ability to monitor management s achievement of the strategic directions/objectives set and approved by the Board. Assessment parameters for Directors performance include their level of participation at Board and Board Committee meetings and the quality of their contribution to Board processes and the business strategies and performance of the Group. The NC s evaluation of the individual Directors for the financial year ended 31 December 2008 ( FY 2008 ) was facilitated this year with feedback from individual Directors on areas relating to the Board s competencies and effectiveness. The results of the evaluation process would be used by the NC, in its consultation with the Chairman of the Board, to effect continuing improvements on Board processes. 17

20 CORPORATE Governance Report CCDG Code Principle 6: Access to Information Prior to each meeting, the respective members of the Board and the Board Committees are provided with the meeting agenda and the relevant papers submitted by the management, containing complete, adequate and timely information to enable full deliberation on the issues to be considered at the respective meetings. Management staff and the Company s auditors, who can provide additional insight into the matters for discussion, are also invited from time to time to attend such meetings. The Company Secretaries attend all Board meetings and ensure that all Board procedures are followed. The Company Secretaries, together with other management staff of the Company, also ensure that the Company complies with all applicable statutory and regulatory rules. On an ongoing basis, the Directors have separate and independent access to the Company s senior management and the Company Secretaries. The Directors, whether as a group or individually, are entitled to take independent professional advice at the expense of the Company, in furtherance of their duties and in the event that circumstances warrant the same. REMUNERATION MATTERS CCDG Code Principle 7: Procedures for Developing Remuneration Policies The RC comprises 3 non-executive Directors, all of whom including the chairman of the RC are independent. The RC s principal responsibilities as set out in its written terms of reference are to review and recommend for the endorsement of the Board, a framework of remuneration and the specific remuneration packages for each Board member and the CEO (or executive of equivalent rank). All the members of the RC also sit on the Share Option Scheme Committee and the chairman of the RC is also the chairman of the Share Option Scheme Committee. In reviewing remuneration packages, the RC also ensures that the remuneration policies are in line with the strategic objectives and corporate values of the Company. CCDG Code Principle 8: Level and Mix of Remuneration In reviewing the remuneration packages, the RC, with the assistance of the Company s Human Resource Manager, considers the level of remuneration based on the Company s remuneration policy which comprises the following 3 distinct objectives: To ensure that the remuneration packages are competitive in attracting and retaining employees capable of meeting the Company s needs. To reward employees for achieving corporate and individual performance targets in a fair and equitable way. To ensure that the remuneration reflects employees duties and responsibilities. The remuneration of the non-executive Directors is set at a level appropriate to their degree of contribution, taking into account attendance and time spent, and their respective responsibilities. No Director is involved in deciding his own remuneration. Longer term incentive schemes which include the grant of options under the Share Option Scheme subject to a vesting schedule, are encouraged. CCDG Code Principle 9: Disclosure of Remuneration The total compensation packages for employees including the CEO comprise a fixed component (in the form of a base salary and fixed allowances) and a variable component (which includes year-end and variable bonuses, share option grants for eligible employees and benefits-in-kind, where applicable), taking into account amongst other factors, the individual s performance, the performance of the Group and industry practices. The breakdown (in percentage terms) of the Directors remuneration for FY 2008 is set out below. 18

21 CORPORATE Governance Report Directors Remuneration for FY 2008 Base Salary (1) Variable Bonuses/ Allowances (1) Board/ Board Committee Fees (2) Share Option Grants (5) Other Benefits % % % % % % Above $2,000,000 up to $2,250,000 Teo Tong Kooi 43 (3) 45 (3) 3 (4) Total Above $750,000 up to $1,000,000 Kwek Leng Peck (4) $250,000 and below Kwek Leng Beng Ernest Colin Lee Goh Kian Hwee Quek Shi Kui Notes: (1) The salary and variable bonuses/allowances are inclusive of employer s central provident fund contributions. (2) These fees comprise Board and Board Committee fees for FY 2008, which are subject to approval by shareholders as a lump sum at the 2009 Annual General Meeting, and Audit Committee fees for FY 2008 that have already been approved by shareholders at the 2007 and 2008 Annual General Meetings. (3) Include salary and variable bonuses/allowances paid by subsidiary(ies) of the Company. (4) Include Directors fees paid or payable by subsidiaries of the Company. (5) These relate to options granted during FY The fair value of the options as at the date of grant ranges from $0.53 to $0.66 for each share under option taking into account the vesting schedule using the Trinomial Tree method. The remuneration of the top 5 key executives (who are not Directors) is not disclosed in this Annual Report 2008 as such disclosure does not appear to be standard industry practice currently, given the highly competitive industry conditions. The RC will continue to review the practice of the industry in this regard, weighing the advantages and disadvantages of such disclosure. During FY 2008, none of the Directors had immediate family members not disclosed above who were employees of the Company and whose personal annual remuneration exceeded $150,000. Information on the Share Option Scheme is set out in the Directors Report on pages 27 to 30 and the Financial Statements on pages 80 to 82 of this Annual Report ACCOUNTABILITY AND AUDIT CCDG Code Principle 10: Accountability The Board provides shareholders with quarterly and annual financial results. Results for the first 3 quarters are released to shareholders within 45 days of the end of each quarter whilst the annual results are released within 60 days from the financial year end. In presenting the Company s annual and quarterly results, the Board aims to provide shareholders with a balanced and understandable assessment of the Company s performance and financial position with a commentary at the date of the announcement of the significant trends and competitive conditions of the industry in which it operates. The management provides all Directors with monthly financial summary of the Group s performance. 19

22 CORPORATE Governance Report The Directors recognise that they have overall responsibility to ensure accurate financial reporting for the Group and for the Group s system of internal controls. The Board confirms that, with the assistance of the AC, it reviews the effectiveness of the Group s financial reporting and internal controls system, which are monitored through a programme of internal and external audits, and is generally satisfied with the adequacy of such internal controls system though further improvements have to be made to the China operations. CCDG Code Principle 11: Audit Committee The AC comprises 3 non-executive Directors, all of whom including the chairman of the AC are independent. The AC has sufficient financial management expertise and experience amongst its members to discharge its functions within its written terms of reference. The AC is authorised by the Board to investigate any matters it deems appropriate within its terms of reference and has full access to and co-operation of management. It may invite any Director, executive officer or employee of the Company to attend its meetings and is also authorised to seek external professional advice to enable it to discharge its functions. The principal responsibility of the AC is to assist the Board in maintaining a high standard of corporate governance, particularly by providing an independent review of the effectiveness of the Group s financial reporting process and material internal controls, including financial, operational, compliance and risk management controls. Other duties within its written terms of reference include: - to review with management and, where appropriate, with the external auditors on the quarterly and full year financial statements to be issued by the Group before their submission to the Board to ensure their completeness, accuracy and fairness; - to review, on an annual basis, the scope and results of the audit and its cost-effectiveness and the independence and objectivity of the external auditors; - to review the effectiveness of the internal audit function; - to make recommendations to the Board on the appointment, re-appointment and removal of external auditors, and to approve the remuneration and terms of engagement of the external auditors; and - to review interested person transactions. The AC held 5 meetings during the year and carried out its duties as set out within its terms of reference. It also met with the internal and external auditors, each separately without the presence of management. Having reviewed the nature and extent of the non-audit services provided to the Group by the external auditors for FY 2008, the AC is of the opinion that the provision of such non-audit services would not affect the independence and objectivity of the external auditors. The AC has recommended to the Board the nomination of Messrs KPMG LLP for re-appointment as external auditors. HLA has in place a whistle-blowing procedure where staff of the Group can raise in confidence concerns on possible improprieties relating to accounting, financial reporting, internal controls and auditing matters. Under these procedures, arrangements are in place for independent investigation of such matters raised and for appropriate follow up action to be taken. Interested Person Transactions On 30 May 2003, the Company obtained shareholders approval for the Company, its subsidiaries and its associated companies not listed on the SGX-ST or an approved exchange, over which the Company, its subsidiaries and/or interested persons have control, to enter into transactions within the categories of Interested Person Transactions set out in the Company s circular to shareholders dated 5 May 2003, with such persons within the class or classes of Interested Persons as described in the said circular, provided that such transactions are entered into in accordance with the review procedures set out in the said circular (the IPT Mandate ). The IPT Mandate was last renewed at the Annual General Meeting of the Company held on 29 April As such Interested Person Transactions may occur at any time, and to allow the Group to undertake such transactions in an expeditious manner, shareholders approval will be sought at the coming Annual General Meeting of the Company for the renewal of the IPT Mandate. 20

23 CORPORATE Governance Report The AC has confirmed that an independent financial adviser s opinion is not required for the renewal of the IPT Mandate as the methods and procedures for determining the transaction prices of the Interested Person Transactions conducted under the IPT Mandate have not changed since the IPT Mandate was obtained on 30 May 2003, and such methods and procedures continue to be sufficient to ensure that these Interested Person Transactions will be carried out on normal commercial terms and will not be prejudicial to the interests of the Company and its minority shareholders. Particulars of Interested Person Transactions required to be disclosed under Rule 907 of the Listing Manual of the SGX-ST are as follows: Name of Interested Person Hong Leong Investment Holdings Pte. Ltd. group of companies Aggregate value of all Interested Person Transactions in FY 2008 (excluding transactions less than $100,000 and transactions conducted under the IPT Mandate pursuant to Rule 920) Provision of management services by Interested Persons to the Group : $591,807 Aggregate value of all Interested Person Transactions conducted in FY 2008 under the IPT Mandate pursuant to Rule 920 (excluding transactions less than $100,000) General Transaction : $327,636* (renewal of lease) * Renewal of lease of office premises by the Company for a lease tenure of three years. The above Interested Person Transactions were carried out on normal commercial terms and were not prejudicial to the interests of the Company and its minority shareholders. CCDG Code Principle 12: Internal Controls The Directors recognise that they have overall responsibility to ensure accurate financial reporting for the Group and for the Group s system of internal controls. Internal and external auditors conduct regular reviews of the system of internal controls, and material internal control weaknesses are brought to the attention of the AC and to management for remedial action. While no system can provide absolute assurance against material loss or financial misstatement, the Group s internal financial controls are designed to provide reasonable assurance that assets are safeguarded, that proper accounting records are maintained, and that financial information used within the business and for publication is reliable. In reviewing these controls, the Directors have had regard to the risks to which the business is exposed, the likelihood of such risks occurring and the costs of protecting against them. The Board confirms that, with the assistance of the AC, it reviews the effectiveness of the Group s financial, operational and compliance controls and risk management systems which are monitored through a programme of internal and external audits together with regular reviews by the management of the Company s risk management processes and procedures. The management continues to focus on improving the standard of internal controls and Corporate Governance, and fully implementing the risk management processes in the Group s China operations. CCDG Code Principle 13: Internal Audit The Internal Audit ( IA ) function is independent of the activities it audits. The Head of IA s primary reporting line is to the chairman of the AC with an administrative line of reporting to the CEO of the Company. IA has adopted the International Standards for the Professional Practice of Internal Auditing set by the Institute of Internal Auditors and has incorporated these standards into IA s audit practices. IA operates within the framework stated in its Internal Audit Charter which is approved by the AC. IA s responsibilities include evaluating the reliability, adequacy and effectiveness of the internal controls and risk management processes of the Company. The Company has a well-established IA function with formal procedures for internal auditors to report their audit findings to the AC and to management. The AC reviews the adequacy of the internal audit function through a review of the internal auditors activities on a quarterly basis and is satisfied that the internal audit function has adequate resources and appropriate standing within the Group to perform its functions properly. 21

24 CORPORATE Governance Report COMMUNICATION WITH SHAREHOLDERS CCDG Code Principle 14: Communication with Shareholders The Company announces its quarterly and full year results within the mandatory period. Material and price-sensitive information is publicly released via SGXNET on a timely basis. All shareholders of the Company receive the annual report of the Company and the notice of the Annual General Meeting, which notice is also advertised in the press and released via SGXNET. Shareholders and investors can access information on the Company at its website at which provides, inter alia, corporate announcements, press releases and the latest financial results as disclosed by the Company on SGXNET. From time to time, the Company s senior management holds briefings with analysts and the media to coincide with the release of the Group s results. CCDG Code Principle 15: Greater Shareholder Participation At general meetings of the Company, shareholders are given the opportunity to communicate their views and ask the Directors and the management questions regarding matters affecting the Company. The chairman of the AC, NC, RC and Share Option Scheme Committee, and the external auditors were present at the last Annual General Meeting, and will endeavour to be present at the coming Annual General Meeting to address, and to assist the Directors in addressing, queries raised by the shareholders. In accordance with the Articles of Association of the Company, shareholders may appoint one or two proxies to attend and vote in their absence. CPF investors of the Company s securities may attend shareholders meetings as observers provided they have submitted their requests to do so with their agent banks within a specified timeframe. RISK MANAGEMENT An organisational risk management framework has been established by management to formalise and document the internal processes, many of which are already currently in place, to enable significant business risks within the Group to be identified, assessed, monitored, managed and evaluated, save for the Group s China operations where the risk management processes have yet to be fully implemented. In light of the current global financial crisis, the Group has made more effort to manage credit and liquidity risks. As part of the ongoing risk management process, management will conduct a risk assessment and evaluation annually, and provide for significant risks to be managed through regular reviews by management and the Board and Board Committees, and adoption of adequate and cost-effective system of internal controls. The AC reviews the Group s risk management process established by management to ensure that there are adequate internal controls in place to manage the significant risks identified. It notes that steps are being taken to fully implement risk management for its China operations. INTERNAL CODE ON DEALINGS IN SECURITIES The Company has adopted an internal code on securities trading which provides guidance and internal regulation with regard to dealings in the Company s securities by its Directors and officers. These guidelines prohibit dealing in the Company s securities while in possession of unpublished material price-sensitive information in relation to such securities and during the closed period, which is defined as 2 weeks before the date of announcement of results for each of the first 3 quarters of the Company s financial year and one month before the date of announcement of the full year financial results. 23 March

25 Financial Report 24 Directors Report 32 Statement By Directors 33 Independent Auditors Report 35 Balance Sheets 37 Consolidated Income Statement 38 Consolidated Statement of Changes in Equity 40 Statement of Changes in Equity 41 Consolidated Cash Flow Statement 44 Notes to the Financial Statements

26 Directors report We are pleased to submit this report to the members of the Company together with the audited financial statements for the financial year ended 31 December Directors The directors in office at the date of this report are as follows: Kwek Leng Beng Kwek Leng Peck Teo Tong Kooi Ernest Colin Lee Goh Kian Hwee Quek Shi Kui Arrangements to enable directors to acquire shares and debentures Except as disclosed under the section on Share Options in this report, neither at the end of nor at any time during the financial year was the Company a party to any arrangements whose objects are, or one of whose objects 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 or debentures 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 and/or debentures of the Company, or of related corporations, either at the beginning or at the end of the financial year. According to the register kept by the Company for the purposes of Section 164 of the Companies Act, Chapter 50 (the Act ), particulars of interests of directors who held office at the end of the financial year (including those of their spouses and infant children) in share and/or share options in the Company and related corporations are as follows: 24

27 Directors report Directors interests in shares or debentures (cont d) Holdings in which the director, his spouse and infant children have a direct interest At beginning of the year At end of the year The Company Ordinary Shares Kwek Leng Beng 600, ,000 Kwek Leng Peck 1,000,000 1,000,000 Teo Tong Kooi 65,000 65,000 Ernest Colin Lee 33,000 50,000 Options to subscribe for the following number of ordinary shares under the Hong Leong Asia Share Option Scheme 2000 Kwek Leng Beng 60,000 60,000 Kwek Leng Peck 350, ,000 Teo Tong Kooi 250, ,000 Ernest Colin Lee 17,000 - Ultimate Holding Company Hong Leong Investment Holdings Pte. Ltd. Ordinary Shares Kwek Leng Beng 2,320 2,320 Kwek Leng Peck ,921 Related Corporations Hong Leong Finance Limited Ordinary Shares Kwek Leng Beng 4,603,567 4,603,567 Kwek Leng Peck 517, ,359 Options to subscribe for the following number of ordinary shares under the Hong Leong Finance Share Option Scheme 2001 Kwek Leng Beng 2,422,000 2,800,000 25

28 Directors report Directors interests in shares or debentures (cont d) Holdings in which the director, his spouse and infant children have a direct interest Related Corporations (cont d) At beginning of the year At end of the year Hong Leong Holdings Limited Ordinary Shares Kwek Leng Beng 259, ,000 Kwek Leng Peck 381, ,428 Hong Realty (Private) Limited Ordinary Shares Kwek Leng Beng 1,110 1,110 Kwek Leng Peck City Developments Limited Ordinary Shares Kwek Leng Beng 397, ,226 Kwek Leng Peck 43,758 43,758 Preference Shares Kwek Leng Beng 144, ,445 City e-solutions Limited Ordinary Shares of HK$1 each Kwek Leng Beng 3,286,980 3,286,980 Kwek Leng Peck 2,082,200 2,082,200 Millennium & Copthorne Hotels New Zealand Limited Ordinary Shares Kwek Leng Beng 3,000,000 3,000,000 Sun Yuan Holdings Pte. Ltd. Ordinary Shares Kwek Leng Beng 15,000,000 15,000,000 26

29 Directors report Directors interests in shares or debentures (cont d) Other holdings in which the director is deemed to have an interest At beginning of the year At end of the year Ultimate Holding Company Hong Leong Investment Holdings Pte. Ltd. Ordinary Shares Kwek Leng Beng 68,596 40,744 The Directors interests as at 31 December 2008 disclosed above remained unchanged as at 21 January Directors interests in contracts During the financial year, the Company and/or its related corporations have in the normal course of business entered into transactions with directors and/or their affiliated parties, being related parties and parties in which some of the directors are deemed to have an interest, with the directors having disclosed their interests in such transactions pursuant to Section 156 of the Act. Such transactions may comprise loans, deposits, provision of nominee and corporate advisory services, foreign exchange transactions, insurance transactions, property-related transactions, construction-related transactions, industrial-related transactions, consumerrelated transactions, investing in real estate used for hospitality and/or hospitality-related purposes, purchase/sale of investments or investment products, property, industrial and consumer biodegradable and non-biodegradable products, goods including vehicles, parts and accessories and provision and receipt of after-sales services, hotel-related transactions, procurement services, information technology services, e-commerce-related transactions, management and consultancy services and/or other transactions carried out on normal commercial terms and in the normal course of business of the Company and/or its related corporations. However, the directors have neither received nor become entitled to receive any benefit arising out of these transactions other than those to which they may be entitled as customers, suppliers, directors and members of these corporations. Except as disclosed above and except for remuneration and professional fees received from the related corporations, since the end of the last financial year, no director has received or become entitled to receive a benefit by reason of a contract made by the Company and/or its related corporations with the director, or with a firm of which he is a member or with a company in which he has a substantial financial interest. Share options (a) Hong Leong Asia Share Option Scheme 2000 (the Share Option Scheme ) The Share Option Scheme was approved by the shareholders at the extraordinary general meeting of the Company held on 30 December It is administered by a committee comprising the following members: Ernest Colin Lee Chairman Kwek Leng Peck Quek Shi Kui Goh Kian Hwee 27

30 Directors report Share options (cont d) (a) Hong Leong Asia Share Option Scheme 2000 (the Share Option Scheme ) (cont d) The Share Option Scheme provides the Company with the flexibility of granting options to participants at Market Price (as defined in the Share Option Scheme) and/or with a discount (either up-front or a deferred discount) to the Market Price. All options granted to date under the Share Option Scheme are at Market Price. Under the Share Option Scheme, Market Price Options (as defined in the Share Option Scheme) granted to: (i) (ii) Group Employees and Parent Group Employees (both as defined in the Share Option Scheme) may be exercised one year after the date of the grant and will have a term of ten years from the date of the grant; and Group Non-Executive Directors, Parent Group Non-Executive Directors and Associated Company Employees (all three as defined in the Share Option Scheme) may be exercised one year after the date of the grant and will have a term of five years from the date of the grant. The aggregate number of ordinary shares in the capital of the Company ( Shares ) over which options may be granted under the Share Option Scheme on any date, when added to the number of Shares issued and issuable in respect of all options granted under the Share Option Scheme shall not exceed 15% of the total number of issued Shares excluding treasury shares, if any, on the day preceding the relevant date of grant. The aggregate number of Shares which may be offered by way of grant of options to Parent Group Employees and Parent Group Non-Executive Directors collectively under the Share Option Scheme shall not exceed 20% of the total number of Shares available under the Share Option Scheme. (b) Options granted under the Share Option Scheme During the financial year under review, the following options were granted to Group Employees under the Share Option Scheme: Date of grant Exercise price per share Number of Shares under options Exercise period 15/5/2008 $2.36 1,350,000 15/5/2009 to 14/5/2018 (i) Included in the above are options granted to the Directors of the Company, details of which are as follows: Name of Director Shares under options granted during financial year under review Aggregate Shares under options granted since commencement of Share Option Scheme to end of financial year under review Aggregate Shares under options exercised since commencement of Share Option Scheme to end of financial year under review Aggregate Shares under options outstanding as at end of financial year under review Kwek Leng Beng - 660, ,000 60,000 Kwek Leng Peck 500,000 1,850,000 1,000, ,000 Teo Tong Kooi 500,000 1,250, , ,000 Ernest Colin Lee - 150, ,000-28

31 Directors report Share options (cont d) (b) Options granted under the Share Option Scheme (cont d) (ii) (iii) (iv) (v) (vi) None of the participants were regarded by the Directors as controlling shareholders of the Company. None of the participants were granted options representing 5% or more of the total number of Shares under options available under the Share Option Scheme. A total of 1,080,000 Shares under option were granted to Parent Group Employees since the commencement of the Share Option Scheme to the end of the financial year under review. None of the Parent Group Employees were granted options representing 5% or more of the total number of Shares under options available under the Share Option Scheme to all Parent Group Employees and Parent Group Non- Executive Directors. Except for options granted to persons in their capacity as Group Employees or Group Non-Executive Directors or Parent Group Employees, no other options have been granted by the Company to any other categories of persons since the commencement of the Share Option Scheme. All options granted under the Share Option Scheme are subject to a vesting schedule as follows: (1) One year after the date of grant for up to 33% of the Shares over which the options are exercisable; (2) Two years after the date of grant for up to 66% (including (1) above) of the Shares over which the options are exercisable; and (3) Three years after the date of grant for up to 100% (including (1) and (2) above) of the Shares over which the options are exercisable. (vii) The persons to whom these options have been granted do not have the right to participate by virtue of the options in any share issue of any other company. 29

32 Directors report Share options (cont d) (c) Unissued shares under options There were a total of 2,483,200 unissued Shares under the options granted pursuant to the Share Option Scheme at the end of the financial year. Details of the options to subscribe for Shares including those granted to the Directors of the Company are as follows: Date of grant Exercise price per share Options outstanding at 1 January 2008 Options granted Options exercised Options cancelled/ lapsed Options outstanding at 31 December 2008 Number of option holders at 31 December 2008 Exercise period 6/7/2001 $ ,000 - (40,000) /7/2002 to 5/7/2011 1/10/2004 $ , , /10/2005 to 30/9/2014 1/10/2004 $ ,000 - (17,000) - 60, /10/2005 to 30/9/2009 * 26/9/2005 $ , (27,200) 35, /9/2006 to 25/9/ /1/2007 $1.88 1,220,000 - (110,200) (171,600) 938, /1/2008 to 9/1/ /5/2008 $2.36-1,350, ,350, /5/2009 to 14/5/2018 Total 1,499,200 1,350,000 (167,200) (198,800) 2,483,200 * Relates to options granted to the Group Non-Executive Directors Save as disclosed above, during the financial year, there were: (i) (ii) no options granted by the Company or its subsidiaries to any person to take up unissued shares of the Company or its subsidiaries; and no shares issued by virtue of any exercise of option to take up unissued shares of the Company or its subsidiaries. 30

33 Directors report Audit committee The Audit Committee comprises three members who are independent. The members of the Audit Committee at the date of this report are: Quek Shi Kui Chairman Ernest Colin Lee Goh Kian Hwee The Audit Committee has held five meetings since the date of the last directors report and carried out the functions of an audit committee as specified in the Act. In carrying out its functions, the Audit Committee reviewed the overall scope of both internal and external audits and the assistance given by the Company s officers to the auditors. It met with the Company s internal and external auditors to discuss the results of their respective examinations and their evaluation of the Group s system of internal controls. The Audit Committee also reviewed the consolidated financial statements of the Group and the balance sheet and the statement of changes in equity of the Company for the year ended 31 December 2008 as well as the auditors report thereon. The Audit Committee has recommended to the Board of Directors that the auditors, Messrs KPMG LLP, be nominated for re-appointment as auditors at the forthcoming Annual General Meeting of the Company. Auditors The auditors, Messrs KPMG LLP, have expressed their willingness to accept re-appointment. On behalf of the Board of Directors Kwek Leng Peck Director Teo Tong Kooi Director 23 March

34 Statement by directors In our opinion: (a) (b) the financial statements set out on pages 35 to 94 are drawn up so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2008 and the results, changes in equity and cash flows of the Group and changes in equity of the Company for the year ended on that date in accordance with the provisions of the Companies Act, Chapter 50 and Singapore Financial Reporting Standards; and at the date of this statement, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due. The Board of Directors has, on the date of this statement, authorised these financial statements for issue. On behalf of the Board of Directors Kwek Leng Peck Director Teo Tong Kooi Director 23 March

35 Independent auditors report Members of the Company Hong Leong Asia Ltd. We have audited the accompanying financial statements of Hong Leong Asia Ltd. (the Company) and its subsidiaries (the Group), which comprise the balance sheets of the Group and of the Company as at 31 December 2008, the income statement, statement of changes in equity and cash flow statement of the Group and the statement of changes in equity of the Company for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages 35 to 94. Management s responsibility for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the provisions of the Singapore Companies Act, Chapter 50 (the Act) and Singapore Financial Reporting Standards. This responsibility includes: (a) (b) (c) devising and maintaining a system of internal accounting controls sufficient to provide a reasonable assurance that assets are safeguarded against loss from unauthorised use or disposition; and transactions are properly authorised and that they are recorded as necessary to permit the preparation of true and fair profit and loss accounts and balance sheets and to maintain accountability of assets; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. 33

36 Independent auditors report An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion: (a) (b) the consolidated financial statements of the Group and the balance sheet and statement of changes in equity of the Company are properly drawn up in accordance with the provisions of the Act and Singapore Financial Reporting Standards to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2008 and the results, changes in equity and cash flows of the Group and changes in equity of the Company for the year ended on that date; and the accounting and other records required by the Act to be kept by the Company and by those subsidiaries incorporated in Singapore of which we are the auditors have been properly kept in accordance with the provisions of the Act. KPMG LLP Public Accountants and Certified Public Accountants Singapore 23 March

37 Balance sheets As at 31 December 2008 Group Company Note $ 000 $ 000 $ 000 $ 000 Non-current assets Property, plant and equipment 3 868, , ,731 Prepaid operating leases 4 52,838 48, Intangibles 5 66,786 66,691 1,099 - Investments in subsidiaries , ,980 Interests in associates 8 253, ,674 52,295 55,452 Interest in jointly-controlled entity ,000 15,000 Investment properties 10 7,222 8, Other investments 11 2,145 2, Non-current receivables 12 5,827 7, Amounts due from subsidiaries ,674 59,462 Deferred tax assets 14 38,299 64, ,295,175 1,230, , ,792 Current assets Inventories , ,184-9,816 Development properties 16 20,366 23, Other investments , Trade and other receivables , , ,883 97,540 Cash and cash equivalents , ,742 10,495 14,912 1,992,084 1,816, , ,268 Total assets 3,287,259 3,046, , ,060 The accompanying notes form an integral part of these financial statements. 35

38 Balance sheets As at 31 December 2008 Group Company Note $ 000 $ 000 $ 000 $ 000 Equity attributable to equity holders of the Company Share capital , , , ,415 Reserves , ,888 37,588 41, , , , ,743 Minority interests 895, , Total equity 1,476,207 1,331, , ,743 Non-current liabilities Amount due to a subsidiary ,400 11,000 Financial liabilities 21 56,838 70, Deferred tax liabilities 14 2,111 2, Deferred grants Retirement benefits ,533 73,227 10,857 11,457 Current liabilities Trade and other payables 22 1,135,023 1,074,845 17,350 34,180 Provisions 23 59,697 59, Financial liabilities , , , ,040 Current tax payable 25,767 48, ,751,519 1,641, , ,860 Total liabilities 1,811,052 1,715, , ,317 Total equity and liabilities 3,287,259 3,046, , ,060 The accompanying notes form an integral part of these financial statements. 36

39 Consolidated income statement Year ended 31 December 2008 Group Note $ 000 $ 000 Revenue 24 3,616,784 3,233,178 Cost of sales (2,861,761) (2,480,711) Gross profit 755, ,467 Other income/(expenses) 25 (a) 1,684 (3,393) Selling and distribution expenses (279,976) (255,304) Research and development expenses (57,198) (38,521) General and administrative expenses (220,108) (224,567) Profit from operations 199, ,682 Other non-operating income 25 (b) 42,935 11,981 Finance costs 25 (c) (50,751) (38,476) Share of profit of associates, net of tax 15,470 25,423 Profit before income tax , ,610 Income tax expense 26 (33,618) (40,359) Profit for the year 173, ,251 Attributable to: Equity holders of the Company 41,977 95,428 Minority interests 131,484 93, , ,251 Earnings per share (cents) 27 - Basic Diluted The accompanying notes form an integral part of these financial statements. 37

40 Consolidated statement of changes in equity Year ended 31 December 2008 Share capital Capital reserve Statutory reserve Fair value reserve Equity compensation reserve Translation reserve Accumulated profits Total attributable to equity holders of the Company Minority interests Note Group $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 Total equity At 1 January ,124 (34,684) 16,944 43, (30,848) 236, , ,282 1,170,141 Exchange differences on translation of financial statements of foreign subsidiaries and associates ,027-1,027 (7,570) (6,543) Net fair value changes , ,374 2,199 26,573 Cost of share-based payments Net gains recognised directly in equity , ,027-25,730 (5,346) 20,384 Profit for the year ,428 95,428 93, ,251 Total recognised income and expense for the year , ,027 95, ,158 88, ,635 Transfer to statutory reserves - - 3, (3,012) Shares issued during the year 19 1, ,291-1,291 Purchase of additional shareholding in a subsidiary (201) (201) Realisation of revaluation reserve on disposal of available-for-sale investments (7,529) (7,529) - (7,529) Dividends paid to shareholders (30,476) (30,476) - (30,476) Dividends paid to minority shareholders of subsidiaries (11,698) (11,698) At 31 December ,415 (34,684) 19,956 60, (29,821) 297, , ,860 1,331,163 The accompanying notes form an integral part of these financial statements. 38

41 Consolidated statement of changes in equity Year ended 31 December 2008 Share capital Capital reserve Statutory reserve Fair value reserve Equity compensation reserve Translation reserve Accumulated profits Total attributable to equity holders of the Company Minority interests Note Group $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 Total equity At 1 January ,415 (34,684) 19,956 60, (29,821) 297, , ,860 1,331,163 Exchange differences on translation of financial statements of foreign subsidiaries and associates ,686-16,686 46,426 63,112 Net fair value changes (37,854) (37,854) (13,012) (50,866) Cost of share-based payments Net gains recognised directly in equity (37,854) ,686 - (20,321) 33,416 13,095 Profit for the year ,977 41, , ,461 Total recognised income and expense for the year (37,854) ,686 41,977 21, , ,556 Transfer to statutory reserves - - 2, (2,311) Shares issued during the year Purchase of additional shareholding in a subsidiary (761) (761) Shares issued to minority shareholders of subsidiaries ,103 10,103 Dividends paid to shareholders (34,323) (34,323) - (34,323) Dividends paid to minority shareholders of subsidiaries (16,780) (16,780) At 31 December ,664 (34,684) 22,267 22,664 1,805 (13,135) 303, , ,322 1,476,207 The accompanying notes form an integral part of these financial statements. 39

42 Statement of changes in equity Year ended 31 December 2008 Share capital Note Company $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 Capital reserve Fair value reserve Equity compensation reserve Accumulated profits Total At 1 January ,124 9, , ,705 Cost of share-based payments Net fair value changes Net gains recognised directly in equity Profit for the year ,981 32,981 Total recognised income and expense for the year ,981 33,345 Shares issued during the year 19 1, ,291 Realisation of revaluation reserve on disposal of available-for-sale investments - - (122) - - (122) Dividends (30,476) (30,476) At 31 December ,415 9, , ,743 At 1 January ,415 9, , ,743 Cost of share-based payments Net fair value changes Net gains recognised directly in equity Profit for the year ,132 30,132 Total recognised income and expense for the year ,132 30,595 Shares issued during the year Realisation of revaluation reserve on disposal of available-for-sale investments - - (12) - - (12) Dividends (34,323) (34,323) At 31 December ,664 9,199-1,289 27, ,252 The accompanying notes form an integral part of these financial statements. 40

43 Consolidated cash flow statement Year ended 31 December 2008 Operating activities Group Note $ 000 $ 000 Profit before income tax 207, ,610 Adjustments for: Share of profit of associates (15,470) (25,423) Accretion of deferred grants 25(a) (11) (6) Cost of share-based payments 25(d) Depreciation and amortisation 25 59,694 55,458 Impairment losses on property, plant and equipment and intangibles 25(a) 8,349 10,122 Gain on disposal/redemption of shares in subsidiaries and related businesses (5,141) Finance costs 25(c) 50,751 38,476 Dividend income 25(a) (76) (265) Interest income 25(a) (3,530) (4,254) (Gain)/loss on disposal of: - other investments 25(b) - (6,840) - property, plant and equipment 25 1,786 2,082 Provisions for warranties and other costs, net 25 64,132 62, , ,598 Changes in working capital: Inventories and work-in-progress (77,033) (109,369) Trade and other receivables 37,566 (303,551) Trade and other payables 9, ,858 Provisions utilised 23 (66,666) (50,192) Cash generated from operations 276,491 79,344 Income taxes paid (42,271) (28,499) Cash flows from operating activities 234,220 50,845 The accompanying notes form an integral part of these financial statements. 41

44 Consolidated cash flow statement Year ended 31 December 2008 Group Note $ 000 $ 000 Investing activities Additional investments in associates (40,405) - Acquisition of subsidiaries and businesses, net of cash acquired - (165) Acquisition of additional interest in a subsidiary (1,138) (201) Repayment by related corporations Dividends received from: - associates 5,835 5,340 - others Interest received 3,276 6,482 Purchase of: - intangible assets 5 (1,709) (397) - property, plant and equipment 3 (134,060) (115,053) - other investments - (272) Payment for prepaid operating leases (2,881) 596 Proceeds from disposal of: - subsidiaries, net of cash disposed of (Note A) - 2,189 - property, plant and equipment 9,190 9,019 - other investments - 11,828 - assets held for sale - 18,089 Cash flows from investing activities (161,816) (61,463) Note A: The effect of disposal of the subsidiary s net assets was as follows: 2007 $ 000 Net current liabilities (87) Realisation of translation difference (2,812) Profit on disposal 5,141 Total cash consideration 2,242 Less: (Cash and cash equivalents)/overdraft of subsidiary disposed (53) Disposal of subsidiary, net of cash and cash equivalents disposed 2,189 The accompanying notes form an integral part of these financial statements. 42

45 Consolidated cash flow statement Year ended 31 December 2008 Financing activities Group Note $ 000 $ 000 Dividends paid to: - minority shareholders of subsidiaries (16,780) (11,698) - shareholders of the Company 28 (34,323) (30,476) Interest paid (56,494) (31,877) Proceeds from borrowings 966, ,122 Fixed deposits pledged with a bank for banking facilities 30,920 (7,895) Proceeds from share issues 249 1,291 Capital contribution by minority shareholders of subsidiaries 10,103 - Repayments in respect of borrowings (930,872) (295,548) Cash flows from financing activities (31,084) (51,081) Net increase/(decrease) in cash and cash equivalents 41,320 (61,699) Cash and cash equivalents at beginning of the year 186, ,863 Effect of exchange rate changes on balances held in foreign currency 10,016 1,517 Cash and cash equivalents at end of the year , ,681 Notes: (i) (ii) Cash and bank balances totalling $184,916,000 (2007: $214,117,000) are held in countries which operate foreign exchange controls. In 2007, the Group refinanced and rolled over $50,000,000 of medium term notes. The accompanying notes form an integral part of these financial statements. 43

46 Notes to the financial statements These notes form an integral part of the financial statements. The financial statements were authorised for issue by the Board of Directors on 23 March Domicile and activities Hong Leong Asia Ltd. (the Company) is incorporated in the Republic of Singapore and has its registered office at 16 Raffles Quay, #26-00 Hong Leong Building, Singapore The principal activities of the Group and the Company have been those relating to the manufacturing and distribution of consumer products, diesel engines and related products, industrial packaging products, biodegradable products and building materials, and of investment holding and dealing. The consolidated financial statements relate to the Company and its subsidiaries (referred to as the Group) and the Group s interests in associates and a jointly-controlled entity. The immediate and ultimate holding companies during the financial year are Hong Leong Corporation Holdings Pte Ltd and Hong Leong Investment Holdings Pte. Ltd., respectively. These companies are incorporated in the Republic of Singapore. 2 Summary of significant accounting policies 2.1 Basis of preparation The financial statements have been prepared in accordance with Singapore Financial Reporting Standards (FRS). The financial statements have been prepared on the historical cost basis, except for certain property, plant and equipment, financial assets and financial liabilities which are stated at fair value. The financial statements are presented in Singapore dollars which is the Company s functional currency. All financial information presented in Singapore dollars has been rounded to the nearest thousand, unless otherwise stated. The preparation of financial statements in conformity with FRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements is described in the following notes: Note 6 - assumptions of recoverable amounts relating to property, plant and equipment and trademarks Note 23 and note 33 - measurement of provisions and contingent liabilities Note 32 - valuation of financial instruments The accounting policies set out below have been applied consistently by the Group. The accounting policies used by the Group have been applied consistently to all periods presented in these financial statements. 44

47 Notes to the financial statements 2 Summary of significant accounting policies (cont d) 2.2 Consolidation Business Combinations Business combinations carried out in group restructuring transactions involving related parties under common control are accounted for under the historical cost method in a manner similar to the pooling of interests method. All other business combinations are accounted for under the purchase method. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. The excess of the Group s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition is credited to the income statement in the period of the acquisition. Subsidiaries Subsidiaries are those companies controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of a company so as to obtain benefits from its activities. In assessing control, potential voting rights that are presently exercisable are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed where necessary to align them with the policies adopted by the Group. Associates Associates are those companies in which the Group has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20% and 50% of the voting power of another entity. The consolidated financial statements include the Group s share of the total recognised gains and losses of associates on an equity accounted basis, from the date that significant influence commences until the date that significant influence ceases. The Group s investments in associates include goodwill on acquisition. When the Group s share of losses exceeds the carrying amount of the associate, the carrying amount is eliminated and recognition of further losses is discontinued except to the extent that the Group has incurred obligations in respect of the associate. Jointly-controlled entities Jointly-controlled entities are those enterprises over which activities the Group has joint control, established by contractual agreement. The consolidated financial statements include the Group s proportionate share of the enterprises assets, liabilities, revenue and expenses with items of a similar nature on a line by line basis, from the date that joint control commences until the date that joint control ceases. Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income or expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Group s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. Accounting for subsidiaries, associates and joint ventures by the Company Investments in subsidiaries, associates and joint ventures are stated in the Company s balance sheet at cost less accumulated impairment losses. 45

48 Notes to the financial statements 2 Summary of significant accounting policies (cont d) 2.3 Foreign currencies Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of Group entities at the exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date on which the fair value was determined. Foreign currency differences arising on retranslation are recognised in the income statement, except for differences arising on the retranslation of monetary items that in substance form part of the Group s net investment in a foreign operation (see below) and available-for-sale equity instruments. Foreign operations The assets and liabilities of foreign operations are translated to Singapore dollars at exchange rates prevailing at the reporting date. The income and expenses of foreign operations are translated to Singapore dollars at exchange rates prevailing at the dates of the transactions. Goodwill and fair value adjustments arising on the acquisition of a foreign operation on or after 1 January 2005 are treated as assets and liabilities of the foreign operation and translated at the closing rate. For acquisitions prior to 1 January 2005, the exchange rates at the date of acquisition were used. Foreign currency differences are recognised in the foreign currency translation reserve. When a foreign operation is disposed of, in part or in full, the relevant amount in the foreign exchange translation reserve is transferred to the income statement. Net investment in a foreign operation Exchange differences arising from monetary items that in substance form part of the Company s net investment in a foreign operation are recognised in the Company s income statement. Such exchange differences are reclassified to equity in the consolidated financial statements. When the foreign operation is disposed of, the cumulative amount in equity is transferred to the income statement as an adjustment to the profit or loss arising on disposal. 2.4 Property, plant and equipment Owned assets Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the cost of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. Subsequent expenditure Subsequent expenditure relating to property, plant and equipment that has already been recognised is added to the carrying amount of the asset when it is probable that future economic benefits, in excess of the originally assessed standard of performance of the existing asset, will flow to the enterprise. All other subsequent expenditure is recognised as an expense in the period in which it is incurred. 46

49 Notes to the financial statements 2 Summary of significant accounting policies (cont d) 2.4 Property, plant and equipment (cont d) Depreciation No depreciation is provided on freehold land. Construction-in-progress is not depreciated until it is ready for its intended use. Depreciation is provided on a straight-line basis so as to write off the cost of other property, plant and equipment over their estimated useful lives (or lease term, if shorter) as follows: Buildings - over the period of the lease ranging from 3 to a maximum of 50 years Leasehold improvements - 5 years Plant and machinery - 3 to 15 years Office furniture, fittings and equipment - 5 to 10 years Motor and transport vehicles - 3 to 8 years Quarry site preparation costs to 8 years Depreciation method, useful lives and residual values are reviewed, and adjusted as appropriate, at each reporting date. 2.5 Investment properties Investment property is property held either to earn rental income or capital appreciation or both. It does not include properties for sale in the ordinary course of business, used in the production or supply of goods or services, or for administrative purposes. Investment properties are initially recognised at cost and subsequently carried at cost less accumulated depreciation and impairment losses. Depreciation is recognised in the income statement on a straight-line basis over the estimated useful lives of the investment properties. The estimated useful lives are 36 years. Depreciation methods, useful lives and residual values of investment properties are reassessed at each reporting date. On disposal of an investment property, the difference between the net disposal proceeds and the carrying amount is taken to the income statement. 2.6 Intangible assets Goodwill Goodwill represents the excess of the cost of acquisition over the Group s interest in the net fair value of identifiable net assets, liabilities and contingent liabilities of the acquiree. Goodwill arising from the acquisition of subsidiaries is presented as intangible assets. Goodwill arising from the acquisition of associates is presented together with interests in associates. Goodwill is measured at cost less accumulated impairment losses. Goodwill is tested for impairment as described in note Negative goodwill is recognised immediately in the income statement. Goodwill/negative goodwill previously written off against reserves Goodwill that has previously been taken to reserves is not taken to the income statement when (a) (b) the business is disposed of; or when the goodwill is impaired. Similarly, negative goodwill that has previously been taken to reserves is not taken to the income statement when the business is disposed of. 47

50 Notes to the financial statements 2 Summary of significant accounting policies (cont d) 2.6 Intangible assets (cont d) Acquisition of minority interest Goodwill represents the excess of the additional investment over the Group s additional interest in the net fair value of the identifiable net assets, liabilities and contingent liabilities at the date of exchange. The excess of the net assets, liabilities and contingent liabilities over the carrying value in respect of the Group s existing interest is recorded as a fair value adjustment and taken to equity. Research and development expenses Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in the income statement as an expense when incurred. Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditure is capitalised only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable and the Group intends to and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalised includes the cost of materials, direct labour and overhead cost directly attributable to prepare the assets for its intended use. Other development expenditure is recognised in the income statement as an expense when incurred. Capitalised development expenditure is stated at cost less accumulated amortisation and impairment losses. Capitalised development expenditure is stated at cost less accumulated amortisation and impairment losses. Amortisation is charged to the income statement using the straight-line method over the estimated useful lives of not more than 20 years, commencing from the date the asset is available for use. Trademarks Trademarks acquired are treated as having indefinite useful lives and are not amortised until their useful lives are determined to be finite. Subsequent expenditure Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed when incurred. 2.7 Financial instruments Non-derivative financial instruments Non-derivative financial instruments comprise investments in equity and debt securities, trade and other receivables, cash and cash equivalents, financial liabilities, and trade and other payables. Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs. Subsequent to initial recognition, non-derivative financial instruments are measured as described below. A financial instrument is recognised if the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the Group s contractual rights to the cash flows from the financial assets expire or if the Group transfers the financial asset to another party without retaining control or transfers substantially all the risks and rewards of the asset. Regular way purchases and sales of financial assets are accounted for at trade date, i.e. the date that the Group commits itself to purchase or sell the asset. Financial liabilities are derecognised if the Group s obligations specified in the contract expire or are discharged or cancelled. 48

51 Notes to the financial statements 2 Summary of significant accounting policies (cont d) 2.7 Financial instruments (cont d) Non-derivative financial instruments (cont d) Cash and cash equivalents comprise cash balances and bank deposits. Bank overdrafts that are repayable on demand and that form an integral part of the Group s cash management are included as a component of cash and cash equivalents for the purpose of the cash flow statement. Available-for-sale financial assets The Group s investments in equity securities are classified as available-for-sale financial assets. Subsequent to initial recognition, they are measured at fair value and changes therein, other than for impairment losses, and foreign exchange gains and losses on available-for-sale monetary items, are recognised directly in equity. When an investment is derecognised, the cumulative gain or loss in equity is transferred to the income statement. Other Other non-derivative financial instruments are measured at amortised cost using the effective interest method, less any impairment losses. Impairment of financial assets A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. An impairment loss in respect of an available-for-sale financial asset is calculated by reference to its current fair value, and is recognised when there has been a significant or prolonged decline of its fair value below its carrying amount. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in the income statement. Any cumulative loss in respect of an available-for-sale financial asset recognised previously in equity is transferred to the income statement. Impairment losses in respect of financial assets measured at amortised cost and available-for-sale debt securities are reversed if the subsequent increase in fair value can be related objectively to an event occurring after the impairment loss was recognised. Impairment losses once recognised in the income statement in respect of available-for-sale equity securities are not reversed through the income statement. Any subsequent increase in fair value of such assets is recognised directly in equity. Intra-group financial guarantees Financial guarantees are financial instruments issued by the Group that requires the issuer to make specified payments to reimburse the holder for the loss it incurs because a specified debtor fails to meet payment when due in accordance with the original or modified terms of a debt instrument. Financial guarantees are recognised initially at fair value and are classified as financial liabilities. Subsequent to initial measurement, the financial guarantees are stated at the higher of the initial fair value less cumulative amortisation and the amount that would be recognised if they were accounted for as contingent liabilities. When financial guarantees are terminated before their original expiry date, the carrying amount of the financial guarantees is transferred to the income statement. Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects. 49

52 Notes to the financial statements 2 Summary of significant accounting policies (cont d) 2.8 Inventories Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the weighted average cost formula and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. In the case of manufactured inventories and work-in-progress, cost includes an appropriate share of production overheads based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. 2.9 Development properties Development properties are those properties which are held with the intention of development and sale in the ordinary course of business. They are stated at the lower of cost plus, where appropriate, a portion of attributable profit, and estimated net realisable value, net of progress billings. Net realisable value represents the estimated selling price less costs to be incurred in selling the properties. The cost of properties under development comprise specifically identified costs, including acquisition costs, development expenditure, borrowing costs and other related expenditure. Borrowing costs payable on loans funding a development property are also capitalised, on a specific identification basis, as part of the costs of the development property until the completion of development Impairment - non-financial assets The carrying amounts of the Group s non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the assets recoverable amounts are estimated. For goodwill, recoverable amount is estimated at each reporting date, and as and when indicators of impairment are identified. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that largely are independent from other assets and groups. Impairment losses are recognised in the income statement unless it reverses a previous revaluation, credited to equity, in which case it is charged to equity. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash-generating unit. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. 50

53 Notes to the financial statements 2 Summary of significant accounting policies (cont d) 2.11 Employee benefits Defined contribution plans Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement as incurred. Short-term benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A provision is recognised for the amount expected to be paid under short-term cash bonuses if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. Share-based payments The share option programme allows Group employees to acquire shares of the Company. The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. At each balance sheet date, the Group revises its estimates of the number of options that are expected to become exercisable. It recognises the impact of the revision of original estimates in employee expense with a corresponding adjustment to equity over the remaining vesting period Provisions A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. Claims A provision for claims is recognised when delays arise or complaints from customers are received as the contract progresses. The provision is made based on management estimates from prior experience on similar projects with customers. Warranties A provision for warranties is recognised when the underlying products or services are sold. The provision is based on historical warranty data and a weighting of all possible outcomes against their associated probabilities. Costs incurred are charged against the provision and any over or under provision is recognised in the income statement. Onerous contracts A provision for onerous contracts is recognised when the unavoidable costs of meeting the obligations under a contract exceed the economic benefits expected to be received under it. 51

54 Notes to the financial statements 2 Summary of significant accounting policies (cont d) 2.13 Income recognition Sale of goods Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns and allowances, trade discounts and volume rebates. Revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, and there is no continuing management involvement with the goods and the amount of revenue can be measured reliably. Transfers of risks and rewards vary depending on the individual terms of the contract of sale. For the sale of goods, transfer usually occurs when the product is received at the customer s premises. Rendering of services Revenue from rendering of services relates to construction and project management contracts, commercial/home repair works and maintenance, hotel room and restaurant operations, and IT and computer operations. Revenue is recognised over the period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be performed. Development properties for sale The Group recognises income on property development projects when the risks and rewards of ownership have been transferred to the buyer. In cases where the Group is obliged to perform any significant acts after the transfer of legal title or an equitable interest, revenue is recognised as the acts are performed based on the percentage of completion method under Recommended Accounting Practice (RAP) 11 Pre-completion Contracts for the Sale of Development Property issued by the Institute of Certified Public Accountants of Singapore in October Under RAP 11, when (a) construction is beyond a preliminary stage, (b) minimum down payment criteria are met, (c) sales prices are collectible, and (d) aggregate sales proceeds and costs can be reasonably estimated, the percentage of completion method is an allowed alternative. If any of the above criteria are not met, pre-completion proceeds received are accounted for as deposits until such criteria are met. Under the percentage of completion method, the percentage of completion is measured by reference to the work performed, based on the ratio of costs incurred to date to the estimated total costs for each contract. Profits are recognised only in respect of finalised sales agreements to the extent that such profits relate to the progress of the construction work. Rental income Rental income receivable under operating leases is recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income to be received. Contingent rentals are recognised as income in the accounting period in which they are earned. Dividends Dividend income from unquoted investments is recognised when the shareholder s right to receive payment is established. Dividend income from quoted investments is recognised when dividends are received. Interest income Interest income is recognised as it accrues, using the effective interest method. 52

55 Notes to the financial statements 2 Summary of significant accounting policies (cont d) 2.14 Operating leases Prepaid operating leases The Group leases land under operating leases and the leases run for a period of 15 to 60 years. The upfront payments made under the leases are amortised to the income statement on a straight-line basis over the term of the leases. The amortisation amount is included in operating lease expenses. Other operating leases Where the Group has the use of assets under operating leases, payments made under the leases are charged to the income statement on a straight-line basis over the term of the lease. Lease incentives received are recognised in the income statement as an integral part of the aggregate net lease payments made. Contingent rentals are charged to the income statement in the accounting period in which they are incurred Finance costs Finance costs comprise interest expense and bank charges. All interest expense are recognised in the income statement using the effective interest method, except to the extent that they are capitalised as being directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to get ready for its intended use or sale. Bank charges are recognised in the income statement in the period in which they are incurred Deferred grants Grants received for investment in machinery and equipment used for the manufacture of non-chlorofluorocarbon (non-cfc) refrigerators are recorded as deferred income and taken to income over the same period over which the machinery and equipment are being depreciated Income tax expense Income tax expense comprises current and deferred tax. Income tax expense is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries and joint ventures to the extent that it is probable that they will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which temporary differences can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. 53

56 Notes to the financial statements 3 Property, plant and equipment Freehold land Buildings Leasehold improvements Plant and machinery Office furniture, fittings and equipment Motor and transport vehicles Construction-inprogress Quarry site preparation costs Total Group $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 Cost At 1 January , ,420 1, ,883 18,756 28,459 65,823 10, ,696 Translation differences - 2,604-2, (621) 5,723 Additions - 3, ,429 5,228 5,954 55,663 2, ,979 Transfers - 27, , (76,300) - - Disposals - (11,343) - (17,129) (160) (1,706) - - (30,338) Write-off (607) (3,043) (101) (408) - (4,159) At 31 December , ,060 1, ,481 21,307 32,646 45,352 11, ,901 Translation differences - 25,900-24,050 1, ,243 (92) 55,951 Additions - 7,999-37,800 4,993 4,895 77, ,060 Transfers - 29,445-28, (57,851) - - Disposals - (2,905) - (14,395) (572) (2,294) (983) - (21,149) Write-off - (575) (33) (3,101) (4,664) (846) (384) - (9,603) At 31 December , ,924 1, ,191 22,953 35,412 67,181 12,391 1,038,160 54

57 Notes to the financial statements 3 Property, plant and equipment (cont d) Freehold land Buildings Leasehold improvements Plant and machinery Office furniture, fittings and equipment Motor and transport vehicles Construction-inprogress Quarry site preparation costs Total Group $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 Accumulated depreciation and impairment losses At 1 January ,166 20, ,159 1,788 15,640-6,352 60,586 Translation differences (157) 153 (27) - (524) (21) Charge for the year - 14, ,586 2,332 10,572-2,729 53,833 Impairment losses , ,122 Disposals - (3,146) - (10,789) - (834) - - (14,769) Write-off - (66) - - (2,998) (104) - - (3,168) At 31 December ,166 32, ,902 1,282 25,259-8, ,583 Translation differences - 5,790-10,294 1, (72) 18,038 Charge for the year - 16, ,836 3,348 4, ,545 Impairment losses , ,853-7,473 Reversal of impairment losses (651) (651) Disposals - (485) - (8,741) (491) (2,022) - - (11,739) Write-off - (343) (33) (2,420) (4,242) (759) - - (7,797) At 31 December ,166 53, ,840 1,123 27,505 1,853 9, ,452 Carrying amount At 1 January , ,165 1, ,724 16,968 12,819 65,823 3, ,110 At 31 December , ,915 1, ,579 20,025 7,387 45,352 3, ,318 At 31 December , ,425 1, ,351 21,830 7,907 65,328 3, ,708 55

58 Notes to the financial statements 3 Property, plant and equipment (cont d) Buildings Leasehold improvements Plant and machinery Office furniture, fittings and equipment Motor and transport vehicles Total Company $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 Cost At 1 January , ,446 2,014 1,374 21,057 Additions Disposals (66) (3) (646) (382) (90) (1,187) At 31 December , ,850 1,880 1,290 20,220 Additions Disposals (8,050) (27) (8,850) (1,312) (981) (19,220) At 31 December ,486 Accumulated depreciation At 1 January , ,522 1, ,675 Charge for the year Disposals (56) - (645) (382) (77) (1,160) At 31 December , ,251 1, ,489 Charge for the year Disposals (6,964) (27) (7,428) (1,168) (833) (16,420) At 31 December Carrying amount At 1 January , , ,382 At 31 December , , ,731 At 31 December Certain property, plant and equipment of the Group have been pledged as security for banking facilities as set out in note 21. During the year, interest expense of approximately $2,357,000 (2007: $2,218,000) was capitalised by the Group as cost of construction-in-progress. The capitalisation rate was based on the cost of borrowings of 5.95% (2007: 4.41%) per annum. 4 Prepaid operating leases Long-term prepaid operating leases comprises upfront lumpsum payments made for long-term land leases. 56

59 Notes to the financial statements 5 Intangibles Group Patents and development Trade expenditure marks Goodwill Total $ 000 $ 000 $ 000 $ 000 Cost At 1 January ,653 62,697 1,338 66,688 Translation differences Additions At 31 December ,063 62,697 1,338 67,098 Translation differences Additions 1, ,086 At 31 December ,857 62,697 1,715 69,269 Accumulated amortisation and impairment losses At 1 January 2007 (223) - - (223) Translation differences Amortisation charge for the year (206) - - (206) At 31 December 2007 (407) - - (407) Translation differences (20) - - (20) Amortisation charge for the year (529) - - (529) Impairment losses (1,527) - - (1,527) At 31 December 2008 (2,483) - - (2,483) Carrying amount At 1 January ,430 62,697 1,338 66,465 At 31 December ,656 62,697 1,338 66,691 At 31 December ,374 62,697 1,715 66,786 Company Computer software and related costs $ 000 Cost At 1 January 2007 and 31 December Additions 225 Transfer 1,149 At 31 December ,374 Accumulated amortisation and impairment losses At 1 January 2007 and 31 December Amortisation charge for the year (275) At 31 December 2008 (275) 57

60 Notes to the financial statements 5 Intangibles (cont d) Company (cont d) Computer software and related costs $ 000 Carrying amount At 1 January At 31 December At 31 December ,099 6 Impairment assessment on intangibles and property, plant and equipment Industrial products segment The industrial products segment has 2 main cash-generating units (CGUs), one of which has been incurring losses. An impairment test has been performed on the carrying value of the patent and development expenditure, and property, plant and equipment of this CGU of $9,300,000 as at 31 December The recoverable amount of the CGU was estimated based on the value in use using management s estimates of cash flows for a period of 10 years. Cash flows were projected based on historical growth, past experience and future prospects. The annual revenue over the next 10 years is estimated to be the same as revenue achieved in A discount rate of 14% (2007: 14%) per annum was used. The impairment loss of $9,000,000 (2007: $4,995,000) was charged to the other income/(expense) in the income statement. Consumer products segment Trademarks relate to the Group s consumer product segment which has been identified as a separate CGU for impairment testing purposes. The attributable property, plant and equipment to this CGU was $212 million as at 31 December The recoverable amount of trademarks and property, plant and equipment was determined based on their value in use using 10-year cash flow projections. Cash flows are projected based on historical growth and past experience and does not exceed the currently estimated long-term average growth rate for the business in China market. The Group uses a 10-year forecast annual growth rate of revenue ranging from 2% to 3%, giving an average growth rate of 2.5% and a terminal value to estimate the recoverable amount of the carrying value of the trademarks and attributable property, plant and equipment. The terminal value is derived by discounting the forecast cashflow in the 10-year to perpetuity. A discount rate of 13% (2007: 13%) was used. The estimated recoverable amount exceeds the carrying value of the trademarks and attributable property, plant and equipment by approximately $14 million. The Group believes that any reasonably possible change in the above key assumptions applied is not likely to materially cause the recoverable amount to be lower than its carrying amount. Building materials segment In 2007, due to the disruptions of operations in a CGU of the building material segment, the Group recognised an impairment loss of $5,253,000 based on the value in use of the plant and machinery. 58

61 Notes to the financial statements 7 Investments in subsidiaries Company $ 000 $ 000 Unquoted equity shares, at cost 239, ,732 Impairment losses - (2,752) 239, ,980 Details of significant subsidiaries of the Group are as follows: Name of significant subsidiaries Country of incorporation Effective equity interest % % China Yuchai International Limited ( CYI ) (1) Bermuda Dongguan Rex Packaging Company Limited The People s Republic of China GPac Technology (S) Pte. Ltd. Singapore GPac Technology (M) Sdn. Bhd. Malaysia Guangxi Yuchai Machinery Company Limited (1) Guangxi Yulin Yuchai Accessories Manufacturing Company Limited (formerly known as Guangxi Yulin Yuchai Machinery Spare Parts Manufacturing Company Limited) (1) The People s Republic of China The People s Republic of China Hartwell Pte. Ltd. Singapore Hayford Holdings Sdn. Bhd. Malaysia Henan Xinfei Electric Co., Ltd. Henan Xinfei Household Appliance Co., Ltd. Henan Xinfei Refrigeration Appliances Co., Ltd. The People s Republic of China The People s Republic of China The People s Republic of China HL Building Materials Pte. Ltd. (formerly known as Hong Leong Singapore Plastics Pte Ltd) (2) HL Karimun Granite Pte Ltd Singapore HL Technology Systems Pte Ltd Singapore HL Global Enterprises Limited (formerly known as HLG Singapore Enterprise Limited) ( HLGE ) (3) 59

62 Notes to the financial statements 7 Investments in subsidiaries (cont d) Name of significant subsidiaries Country of incorporation Effective equity interest % % HL-Manufacturing Industries Sdn. Bhd. Malaysia Hong Leong (China) Limited Singapore Hong Leong Electric Pte Ltd Singapore Island Concrete (Private) Limited Singapore Jining Yuchai Engine Company Limited (1) The People s Republic of China Qian Hong Packaging Company Limited Hong Kong Rex Holdings Pte Ltd Singapore Rex Plastics (Malaysia) Sdn. Bhd. Malaysia Rexpak Sdn. Bhd. Malaysia Shanghai Rex Packaging Co., Ltd. Tianjin Rex Packaging Co., Ltd. Xiamen Yuchai Diesel Engines Co., Ltd. (1) Yuchai Express Guarantee Co., Ltd. (1) Yuchai Machinery Monopoly Company Limited (1) Zhejiang Yuchai Sanli Engine Company Limited (1) The People s Republic of China The People s Republic of China The People s Republic of China The People s Republic of China The People s Republic of China The People s Republic of China KPMG LLP, Singapore is the auditor of all significant Singapore-incorporated subsidiaries. Other member firms of KPMG International are auditors of significant foreign-incorporated subsidiaries. (1) The Group considers CYI group as subsidiaries as it is able to govern the financial and operating policies of the company through its ability to control the company s board of directors. (2) In 2008, the Company re-assessed the recoverable amount of its investment in a subsidiary. Based on the assessment, reversal of impairment losses of $2,752,000 were recognised in the Company s income statement under other income/ (expenses). The recoverable amount of the investment in the subsidiary was estimated based on the estimated net selling price of the subsidiary. (3) Having regard to the potential voting rights attributable to the preference shares in HLGE, the Group considers HLGE a subsidiary as it is able to govern the financial and operating policies of HLGE. 60

63 Notes to the financial statements 8 Interests in associates Group Company $ 000 $ 000 $ 000 $ 000 Investments in associates - quoted 227, ,240 21,405 21,405 - unquoted 25,495 59,434 32,275 37, , ,674 53,680 59,369 Impairment losses - - (1,385) (3,917) 253, ,674 52,295 55,452 Market value of quoted equity shares 181, ,935 26,931 29,544 Reversal of impairment losses The Company re-assessed the recoverable amount of its investment in the associate. Based on the assessment, reversal of impairment losses of $2,532,000 (2007: $2,626,000) were recognised in the Company s income statement under other income/(expenses). The recoverable amount was estimated based on the estimated net selling price of the associate. Details of significant associates are as follows: Name of significant associates Principal activities Country of incorporation/ business Effective equity interest % % Held by the Company Singapore Cement Manufacturing Company (Private) Limited Storage, packaging and distribution of cement Singapore Singapore Cement Industrial Company (Private) Limited Investment holding Singapore Held by the Group Tasek Corporation Berhad Manufacture and sale of cement and related products Malaysia Thakral Corporation Ltd (1) Investment holding Singapore (1) The Group considers Thakral Corporation Ltd an associate as investment in the company was held through a subsidiary which has significant influence over the operating and financial policies of the company. 61

64 Notes to the financial statements 8 Interests in associates (cont d) KPMG LLP, Singapore is the auditor of all significant Singapore-incorporated associates. Other member firms of KPMG International are auditors of significant foreign-incorporated associates except for Thakral Corporation Ltd and its subsidiaries which are audited by Deloitte & Touche Singapore. Summarised financial information of the associates, which is not adjusted for the percentage of ownership held by the Group, is as follows: Assets and liabilities $ 000 $ 000 Total assets 765, ,258 Total liabilities (107,391) (36,101) Results Revenue 755, ,626 Profit after income tax 25,701 81,546 Group s share of the associates contingent liabilities (47) (44) 9 Interest in jointly-controlled entity Company $ 000 $ 000 Unquoted equity shares, at cost 15,000 15,000 Particulars of the jointly-controlled entity are as follows: Name of jointly-controlled entity Held by the Company Principal activities Country of incorporation/ Business Effective equity interest % % Angkasa Hong Leong Pte. Ltd. * * Audited by Ernst & Young Singapore. Steel traders, steel fabricators and dealers in building materials Singapore

65 Notes to the financial statements 9 Interest in jointly-controlled entity (cont d) The Group s share of the jointly-controlled entity s results, assets and liabilities are as follows: Results Group $ 000 $ 000 Revenue 103,536 50,651 Expenses (99,623) (51,328) Profit/(loss) before taxation 3,913 (677) Income tax expense (426) (223) Profit/(loss) after taxation 3,487 (900) Assets and Liabilities Non-current assets 5,793 5,392 Current assets 51,756 37,910 Current liabilities (38,870) (28,109) Non-current liabilities (423) (423) Net assets 18,256 14,770 The Group s share of operating lease commitments and forward foreign exchange contract commitments is $3,579,000 (2007: $5,260,000) and $1,185,000 (2007: $7,344,000) respectively. 10 Investment properties Movements in investment properties (non-current) during the financial year are as follows: Group $ 000 $ 000 Cost At 1 January 8,277 8,584 Translation differences (743) (307) At 31 December 7,534 8,277 Accumulated depreciation At 1 January Charge for the year Translation differences 14 - At 31 December Carrying amount At 1 January 8,130 8,584 At 31 December 7,222 8,130 Fair value 8,114 8,483 The commercial property is leased to external customers. Each of the leases is for periods of one to three years. Subsequent renewals are negotiated with the lessee. The fair values are determined by Henry Butcher Malaysia, a firm of independent professional valuers that has appropriate recognised professional qualifications and recent experience in the location and category of the properties being valued. The fair values are based on market value, being the estimated amount for which a property could be exchanged on the date of the valuation between a willing buyer and a willing seller in an arm s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. 63

66 Notes to the financial statements 11 Other investments Group Company $ 000 $ 000 $ 000 $ 000 Non-current Quoted equity securities available-for-sale - related corporations 566 1, other companies , Unquoted equity securities - other companies 1,420 1, ,145 2, Current Quoted equity securities available-for-sale - related corporations 633 1, Non-current receivables The non-trade amounts due from joint venture partners are unsecured and not expected to be repaid within the next 12 months. The effective interest rate as at balance sheet date is 4.20% (2007: 7.15%) per annum. At the balance sheet date, the fair values of the non-current receivables approximate their carrying amounts. 13 Non-trade balances with subsidiaries Company $ 000 $ 000 Amounts due from subsidiaries 55,674 59,462 Amount due to a subsidiary (10,400) (11,000) 45,274 48,462 The amounts due from subsidiaries are non-trade in nature and unsecured. The settlement of these amounts are neither planned nor likely to occur in the foreseeable future. As these amounts are, in substance, a part of the Company s net investments in the subsidiaries, they are stated at cost less accumulated impairment. Included in these amounts is $40,674,000 (2007: $44,266,000) which bears interest at rates ranging from 2.0% to 4.75% (2007: 2.0% to 5.96%) per annum. The amount due to a subsidiary is non-trade, unsecured and bears interest at 3.12% (2007: 3.05%) per annum. 64

67 Notes to the financial statements 14 Deferred tax Movements in deferred tax assets and liabilities (prior to offsetting of balances) during the year are as follows: At 1 January 2007 Recognised in income statement Translation differences At 31 December 2007 Group $ 000 $ 000 $ 000 $ 000 Deferred tax liabilities Property, plant and equipment (1,021) 51 5 (965) Other items (290) 26 (858) (1,122) Total (1,311) 77 (853) (2,087) Deferred tax assets Property, plant and equipment 16,559 (6,265) (82) 10,212 Inventories 4,209 (2,285) 32 1,956 Intangibles 107 (73) 1 35 Trade and other receivables 9,475 3, ,355 Provisions 4,371 (107) 31 4,295 Accruals 17,843 12, ,913 Tax value of loss carried forward 3,072 (167) 12 2,917 Other items 657 (279) 715 1,093 Total 56,293 7, ,776 At 1 January 2008 $ 000 Recognised in income statement $ 000 Translation differences $ 000 At 31 December 2008 $ 000 Deferred tax liabilities Property, plant and equipment (965) (7) 9 (963) Other items (1,122) 14 (40) (1,148) Total (2,087) 7 (31) (2,111) Deferred tax assets Property, plant and equipment 10,212 (1,846) 327 8,693 Inventories 1,956 4, ,193 Intangibles Trade and other receivables 13,355 (10,374) 402 3,383 Provisions 4,295 (1,816) 178 2,657 Accruals 30,913 (17,977) 1,283 14,219 Tax value of loss carried forward 2,917 (625) 40 2,332 Other items 1,093 (285) (58) 750 Total 64,776 (28,887) 2,410 38,299 65

68 Notes to the financial statements 14 Deferred tax (cont d) Deferred tax assets and liabilities of the Company (prior to offsetting of balances) are attributable to the following: Company $ 000 $ 000 Deferred tax liabilities Property, plant and equipment (601) (601) Deferred tax assets Other receivables Provisions Deferred tax liabilities and assets are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred taxes relate to the same taxation authority. The amounts determined after appropriate offsetting included in the balance sheet are as follows: Group Company $ 000 $ 000 $ 000 $ 000 Deferred tax assets 38,299 64, Deferred tax liabilities (2,111) (2,087) (457) (457) 36,188 62,689 (457) (457) Deferred tax assets have not been recognised in respect of the following items: Group $ 000 $ 000 Unutilised tax losses 115, ,216 Deductible temporary differences 6,340 10,819 Unabsorbed capital allowances 7,648 9, , ,892 Unutilised tax losses and unabsorbed capital allowances for the Group are subject to agreement with the tax authorities and compliance with tax regulations in the respective countries in which the Group operates. Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable profit will be available against which the Group can utilise the benefits. 66

69 Notes to the financial statements 15 Inventories Group Company $ 000 $ 000 $ 000 $ 000 Inventories held for resale 1, ,696 Allowance for obsolescence - (28) - - 1, ,696 Raw materials and consumables 405, ,286-1,274 Allowance for obsolescence (18,167) (9,244) , ,042-1,274 Manufacturing work-in-progress 19,353 16, Allowance for obsolescence (18) (110) ,335 16, Finished goods 317, ,342-3,857 Allowance for obsolescence (1,658) (6,492) , ,850-3,857 Goods-in-transit Total 724, ,184-9, Development properties Group $ 000 $ 000 Properties held for sale, at cost 20,366 23,291 67

70 Notes to the financial statements 17 Trade and other receivables Group Company $ 000 $ 000 $ 000 $ 000 Trade receivables 813, ,028 9,531 11,050 Impairment losses (trade) (17,552) (16,633) - (60) Net trade receivables 796, ,395 9,531 10,990 Amounts receivable from: - minority shareholders of subsidiaries (non-trade) 42,935 40, impairment losses (non-trade) - (40,898) , immediate holding company (non-trade) subsidiaries - trade ,111 - non-trade ,153 75,886 - associates - trade 12, non-trade other related corporations (non-trade) Advances paid to suppliers 42,495 32, Prepaid expenses 4,377 16, ,549 Refundable deposits 1,244 1, Tax recoverables 48,774 21,490 2,558 3,734 Other receivables 30,664 36, ,943 Impairment losses - other receivables (3,862) (6,953) , , ,352 86, , , ,883 97,540 Group The non-trade balances due from the minority shareholders of subsidiaries and other related corporations are unsecured, interest-free and repayable on demand. Company The non-trade balances due from subsidiaries include loans and advances of $15,383,000 (2007: $15,390,000) which bear interest at rates ranging from 2% to 3.12% (2007: 3.05% to 4%) per annum. The weighted average effective interest rate per annum at the balance sheet date in respect of the interest-bearing balances is 3.12% (2007: 3.05%) per annum. Interest rates will be repriced within 12 months. These balances are repayable on demand. The remaining non-trade balances are unsecured, interest-free and repayable on demand. 68

71 Notes to the financial statements 17 Trade and other receivables (cont d) The maximum exposure to credit risk for trade and other receivables (excluding advances paid to suppliers, prepaid expenses, refundable deposits and tax recoverables), non-current receivables (see note 12) and amounts due from subsidiaries at the reporting date (by business activities) is as follows: Group Company $ 000 $ 000 $ 000 $ 000 Industrial products 616, , Consumer products 178, , Building materials 89,277 79,153 69,715 71,375 Others ,023 80, , , , ,539 Impairment losses The ageing of trade and other receivables (excluding advances paid to suppliers, prepaid expenses, refundable deposits and tax recoverables), non-current receivables and amounts due from subsidiaries at reporting date is as follows: Gross Impairment losses Gross Impairment losses Group $ 000 $ 000 $ 000 $ 000 Non past due 709, ,306 - Past due 0-30 days 61,553 (1,346) 78,662 (2,543) Past due days 51,786 (1,204) 38,741 (2,231) Past due 121 days - one year 20,946 (4,052) 17,514 (6,529) More than one year 61,727 (14,812) 58,341 (53,181) 905,477 (21,414) 936,564 (64,484) Company Non past due 20,509-68,225 - Past due 0-30 days 2,007-2,843 - Past due days 7,051-24,937 - Past due 121 days - one year 1,072-3,155 - More than one year 159,268-52,439 (60) 189, ,599 (60) 69

72 Notes to the financial statements 17 Trade and other receivables (cont d) The change in impairment losses in respect of trade and other receivables and non-current receivables during the year is as follows: Group Company Note $ 000 $ 000 $ 000 $ 000 At 1 January 64,484 55, ,194 Impairment losses (reversed)/recognised 25, 25(b) (46,161) 10,819 (60) (359) Impairment losses utilised (216) (1,926) - (775) Translation differences 3, At 31 December 21,414 64, The Group s historical experience in the collection of trade and other receivables falls within the recorded allowances. Due to this factor, management believes that no additional credit risks beyond amount provided for collection losses is inherent in the Group s trade and other receivables. Based on historical default rates, the Group believes that no impairment allowance is necessary in respect of trade receivables not past due. These receivables are mainly from customers that have a good record with the Group. 18 Cash and cash equivalents Group Company Note $ 000 $ 000 $ 000 $ 000 Fixed deposits 67, ,064 7,001 13,309 Cash at banks and in hand 203, ,678 3,494 1, , ,742 10,495 14,912 Bank overdrafts (unsecured) 21 (32,868) (30,726) Deposits pledged (293) (30,335) Cash and cash equivalents in the cash flow statement 238, ,681 Deposits pledged represents bank balances of certain subsidiaries pledged as security to obtain credit facilities. The weighted average effective interest rates per annum of the fixed deposits and bank overdrafts at the balance sheet date are as follows: Group Company % % % % Fixed deposits Bank overdrafts Interest rates will be repriced within 12 months. 70

73 Notes to the financial statements 19 Share capital Company No. of shares No. of shares Fully paid ordinary shares, with no par value: At 1 January 381, ,311 Shares issued under share option scheme At 31 December 381, ,225 The Company has issued share options under its Hong Leong Asia Share Option Scheme 2000 (the Share Option Scheme ) (see note 29). The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All shares rank equally with regard to the Company s residual assets. Capital management The Group s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Group monitors the return on capital which the Group defines as net operating income divided by total shareholders equity excluding minority interests. The Group also monitors the level of dividends to ordinary shareholders. The Group seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position. From time to time, the Group may undertake share purchases or acquisitions under its approved Share Purchase Mandate if and when circumstances permit, as part of the Group s management mechanism to facilitate the return of surplus cash over and above its ordinary capital requirements. The shares purchased may be held as treasury shares, which could be transferred for the purposes of or pursuant to the Group s employees share schemes. There were no changes in the Group s approach to capital management during the year. 20 Reserves Group Company $ 000 $ 000 $ 000 $ 000 Capital reserve (34,684) (34,684) 9,199 9,199 Statutory reserve 22,267 19, Translation reserve (13,135) (29,821) - - Fair value reserve 22,664 60, Equity compensation reserve 1, , Accumulated profits 303, ,961 27,100 31, , ,888 37,588 41,328 71

74 Notes to the financial statements 20 Reserves (cont d) (a) Capital reserve comprises: Group Company $ 000 $ 000 $ 000 $ 000 Merger reserve Business participation fee and realised capital gain on disposals of investments 3,046 3,046 9,199 9,199 Adjustment relating to shares of the Company issued to an associate for assets transferred to the Company (11,380) (11,380) - - Goodwill on consolidation written off (26,742) (26,742) - - (34,684) (34,684) 9,199 9,199 The merger reserve relates to reserve arising from certain acquisitions accounted for under the pooling of interests method. (b) (c) (d) (e) Statutory reserve comprises the Group s share of general reserves of its subsidiaries in China which are not available for dividends or other payments. The transfers are required to be made at the rate of 10% to 15% (2007: 10% to 15%) of profit after tax of subsidiaries arrived at under generally accepted accounting principles applicable in the People s Republic of China. The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign subsidiaries and associates. The fair value reserve includes the cumulative net change in the fair value of available-for-sale investments until the investment is derecognised and the Group s share of the post-acquisition fair value adjustments arising from the allocation of purchase price to the identifiable net assets and contingent liabilities of subsidiaries. The equity compensation reserve comprises the cumulative value of employee services received for the issue of share options. The amount in the reserve is retained when the option is exercised or expired. 21 Financial liabilities Group Company Note $ 000 $ 000 $ 000 $ 000 Current liabilities Unsecured bank overdrafts 18 32,868 30, Unsecured bank loans 492, , ,338 10,040 Secured bank loans 5,398 6, Medium Term Notes - 100, ,000 Corporate bond - 129, , , , ,040 Non-current liabilities Unsecured bank loans 37,939 53, Secured bank loans 18,899 16, ,838 70, Total borrowings 587, , , ,040 72

75 Notes to the financial statements 21 Financial liabilities (cont d) The secured bank loans are secured on assets with the following carrying values: Group Company $ 000 $ 000 $ 000 $ 000 Freehold land and building 23,889 30, Medium Term Notes In 2008, the Company redeemed the $50 million (in principal amount) of % Unsecured Fixed Rate Notes Due 2008 under the Programme (the Series No. 005 Notes ) and the $50 million (in principal amount) of 2.935% Unsecured Fixed Rate Notes Due 2008 (the Series No. 002 Notes ). During the year, the Company had issued and redeemed $50 million (in principal amount) of % Unsecured Fixed Rate Notes Due 2008 (the Series No. 006 Notes ). The principal and interests of the notes were redeemed by using short-term loans of the same amount. There were no notes outstanding under the programme as at 31 December Terms and conditions of outstanding loans and borrowings are as follows: Weighted average interest rate Year of maturity Face value Carrying amount Weighted average interest rate Face value Carrying amount Group % $ 000 $ 000 % $ 000 $ 000 Secured bank loans: - RMB floating rate loans ,103 13, ,191 3,191 - USD floating rate loans ,771 7,771 - MYR fixed rate loans ,033 7, ,732 1,732 - MYR fixed rate loans ,031 6,031 - MYR floating rate loans ,161 4, ,356 4,356 Unsecured bank loans - RMB fixed rate loans ,677 64, ,663 54,663 - RMB fixed rate loans ,958 16,958 - RMB floating rate loans , , ,098 1,098 - HKD floating rate loans MYR floating rate loans ,456 1, SGD fixed rate notes ,000 50,000 - SGD fixed rate notes ,000 50,000 - SGD floating rate loans , , , ,376 - SGD floating rate loans ,939 37, ,627 36,627 - bank overdrafts ,868 32, ,726 30,726 - corporate bond , , , , , ,975 Company Unsecured bank loans - SGD floating rate loans , , ,040 10,040 - SGD fixed rate notes ,000 50,000 - SGD fixed rate notes ,000 50, , , , ,040 73

76 Notes to the financial statements 21 Financial liabilities (cont d) The followings are the expected contractual undiscounted cash inflows (outflows) of financial liabilities, including interest payments and excluding the impact of netting agreements: Group 2008 Carrying amount Contractual cash flows Within 1 year Cash flows Within 2 to 5 years More than 5 years $ 000 $ 000 $ 000 $ 000 $ 000 Floating interest rate loans 483, , ,409 53, Fixed interest rate loans 71,710 77,376 66,848 7,322 3,206 Bank overdrafts 32,868 34,467 34, Trade and other payables* 917, , , ,505,564 1,527,040 1,462,418 60,662 3, Floating interest rate loans 190, , ,137 56,377 3,057 Fixed interest rate loans 79,384 85,804 57,467 23,666 4,671 Fixed interest rate notes 100, , , Bank overdrafts 30,726 30,726 30, Corporate bond 129, , , Trade and other payables* 842, , , ,372,798 1,393,032 1,305,261 80,043 7,728 Company 2008 Floating interest rate loans 167, , , Trade and other payables* 14,448 14,448 14, , , , Floating interest rate loans 10,040 10,092 10, Fixed interest rate notes 100, , , Trade and other payables* 32,011 32,011 32, , , , * Excludes accrued expenses and advances from customers. 74

77 Notes to the financial statements 22 Trade and other payables Group Company $ 000 $ 000 $ 000 $ 000 Trade payables 837, , ,326 Accrued expenses 160, ,970 2,170 2,169 Other payables 50,816 43, ,425 Advances from customers 56,389 50, Trust receipts 20,212 18, Amounts due to: - immediate holding company (non-trade) subsidiaries - trade ,614 - non-trade ,717 11,628 - associates - trade 8,802 8, other related corporations (non-trade) 212 1, ,135,023 1,074,845 17,350 34,180 The non-trade balances with the immediate holding company, associates and other related corporations are unsecured, interest-free and repayable on demand. The weighted average effective annual interest rates at the balance sheet date in respect of interest-bearing balances are as follows: Group Company % % % % Trust receipts Amounts due to subsidiaries Interest rates will be repriced within 12 months. 75

78 Notes to the financial statements 23 Provisions Onerous contracts Closure costs Claims Warranties Total Group $ 000 $ 000 $ 000 $ 000 $ 000 At 1 January ,799 46,589 Provision made 3,308-7,383 59,966 70,657 Provision utilised - (34) (1,144) (49,014) (50,192) Provision reversed (79) (46) (2,867) (5,246) (8,238) Translation differences At 31 December ,229-4,082 51,854 59,165 Provision made - - 5,534 60,627 66,161 Provision utilised - - (4,698) (61,968) (66,666) Provision reversed - - (2,029) - (2,029) Translation differences - - (10) 3,076 3,066 At 31 December ,229-2,879 53,589 59,697 Claims Company $ 000 At 1 January Provision made 318 Provision utilised (167) Provision reversed (78) At 31 December Provision reversed (640) At 31 December Onerous contracts The provision for onerous contracts relates to the expected losses arising from existing customers contracts, whereby the unavoidable costs of meeting the obligations under the contracts exceed the economic benefits expected to be received. Closure costs The provision for closure costs related to the sale of assets classified as held for sale. Claims The provision for claims relates to costs arising from delays in the completion of contracts or complaints from customers. The provision is made based on estimates from prior experience on similar projects with customers. The Group expects to incur the liability over two years. Warranties The provision for warranties relates to products sold during the year. The provision is made based on estimates from historical warranty data. The Group expects to incur the liability over three years. 76

79 Notes to the financial statements 24 Revenue Revenue of the Group comprises sales of goods delivered less trade discounts. Intra-group sales are eliminated in arriving at the turnover of the Group. 25 Profit before income tax Profit before income tax includes the following: Group Note $ 000 $ 000 Bad debts recovered (5,465) (3,044) Impairment losses (written back)/made for trade and other receivables 17 (3,226) 10,819 Amortisation of intangibles Depreciation of property, plant and equipment and investment properties 3, 10 57,696 53,980 Amortisation of prepaid operating leases 1,469 1,272 Negative goodwill arising from the acquisition of shares in an associate included in share of profits of associates (8,268) - Non-audit fees paid/payable to: - auditors of the Company other auditors of subsidiaries Exchange loss 2,522 3,001 Operating lease expense 6,853 6,138 Loss on disposal of property, plant and equipment 1,786 2,082 Provisions made, net 23 64,132 62,419 (a) Other income/(expenses) Accretion of deferred grants 11 6 Dividend income from available-for-sale financial assets Interest income - associates cash and cash equivalents 3,530 4,243 Impairment losses on property, plant and equipment 3 (7,473) (10,122) Reversal of impairment losses on property, plant and equipment Impairment losses on intangibles 5 (1,527) - (b) Other non-operating income Write back of impairment losses on amounts receivable from minority shareholders of subsidiaries (non-trade) 17 42,935 - Gain on disposal of quoted equity investments - 6,840 Gain on disposal/redemption of shares in subsidiaries and related businesses - 5,141 42,935 11,981 77

80 Notes to the financial statements 25 Profit before income tax (cont d) Profit before income tax includes the following: Group Note $ 000 $ 000 (c) Finance costs Interest expense - Bank term loans 47,239 34,301 - Medium Term Notes 1,792 2,371 - Bank overdrafts Trust receipts 1, Bank charges Finance lease ,751 38,476 (d) Staff costs Wages and salaries 198, ,500 Cost of share-based payments Contributions to defined contribution plans 34,801 29,446 Retrenchment costs , , Income tax expense Group $ 000 $ 000 Current tax charge - Current year 14,191 47,598 - (Over)/under provision in respect of prior years (9,453) 378 4,738 47,976 Deferred tax expense/(credit) - Movements in temporary differences 19,363 (9,987) - Under provision in respect of prior years 9,517 2,370 28,880 (7,617) 33,618 40,359 78

81 Notes to the financial statements 26 Income tax expense (cont d) Reconciliation of effective tax rate Group $ 000 $ 000 Profit before income tax 207, ,610 Income tax using China tax rate of 25% (2007: 33%) comprising central and local government tax 51,770 75,771 Effect of different tax rates in other countries (2,822) (17,074) Effect of tax concessions (17,002) (20,581) Non-deductible expenses 9,430 13,786 Tax-exempt income (14,393) (13,152) Utilisation of deferred tax benefits previously not recognised (804) (3,664) Deferred tax benefits not recognised Changes in tax rates 4, Others 1,862 1,800 (Over)/under provision in respect of prior years - current (9,453) deferred 9,517 2,370 33,618 40,359 Certain of the Group s subsidiaries in the People s Republic of China ( PRC ) have been granted concessionary rate of tax under the Corporate Income Tax Law of the PRC. Income from these entities is subject to tax at the concessionary rate of 15%, instead of the national standard income tax rate of 25% (2007: 33%). This concession is available subject to certain conditions including these entities remain engaged in advance and new technology. Another group of entities in the PRC have been granted tax concession where its income for the first 2 years is tax exempt and income for the following 3 years is subject to a reduced tax rate of 12.5% (2007: 16.5%) being 50% of the PRC national standard income tax rate. 27 Earnings per share Basic earnings per share The calculation of basic earnings per share is based on: Group $ 000 $ 000 (i) Net profit attributable to equity holders of the Company 41,977 95, No. of shares No. of shares (ii) Issued ordinary shares at beginning of the year 381,224, ,311,018 Weighted average number of shares issued during the year 134, ,380 Weighted average number of shares at the end of the year 381,358, ,957,398 79

82 Notes to the financial statements 27 Earnings per share (cont d) Diluted earnings per share The weighted average number of ordinary shares adjusted for the effect of unissued ordinary shares under the Share Option Scheme is determined as follows: No. of shares No. of shares Weighted average number of shares issued, used in the calculation of basic earnings per share 381,358, ,957,398 Dilutive effect of share options 46, ,392 Weighted average number of ordinary shares (diluted) 381,405, ,671, Dividends Company $ 000 $ 000 Interim dividend paid of 3 cents (2007: 4 cents) per share tax exempt in respect of year 2008 and year ,442 15,239 Final dividend paid of 6 cents (2007: 4 cents) per share tax exempt in respect of year 2007 and year ,881 15,237 34,323 30,476 After the balance sheet date, the Directors proposed a tax exempt final dividend of 2 cents (2007: 6 cents) per ordinary share in respect of year 2008 amounting to approximately $7,628,000 (2007: $22,881,000) on the basis that the number of shares in issue at the time of payment remains the same as that as at 26 February 2009 (381,392,018 shares). The dividends have not been provided for. 29 Share options The Hong Leong Asia Share Option Scheme 2000 (the Share Option Scheme ) was approved by the shareholders of the Company on 30 December The Share Option Scheme is administered by the Share Option Scheme Committee comprising: Ernest Colin Lee Chairman Kwek Leng Peck Quek Shi Kui Goh Kian Hwee All options granted under the Share Option Scheme are subject to a vesting schedule as follows: (i) (ii) (iii) one year after the date of grant for up to 33% of the Shares over which the options are exercisable; two years after the date of grant for up to 66% (including the first 33%) of the Shares over which the options are exercisable; and three years after the date of grant for up to 100% (including the 66% as mentioned above) of the Shares over which the options are exercisable. 80

83 Notes to the financial statements 29 Share options (cont d) Details of the options granted under the Share Option Scheme to subscribe for ordinary shares of the Company as at the end of the financial year are as follows: Date of grant Exercise price per share Number of options outstanding at 1 January 2008 Options granted during the year Options exercised during the year Options cancelled/ lapsed during the year Number of options outstanding at 31 December 2008 Number of options exercisable at 1 January 2008 Number of options exercisable at 31 December 2008 Proceeds on options exercised during the year credited to share capital $ Market price of shares at exercise date of option Exercise period 6/7/2001 $ ,000 - (40,000) ,000-16,400 $1.99 6/7/2002 to 5/7/2011 1/10/2004 $ , , , , /10/2005 to 30/9/2014 1/10/2004 $ ,000 - (17,000) - 60,000 77,000 60,000 25,670 $2.39 1/10/2005 to 30/9/2009 * 26/9/2005 $ , (27,200) 35,000 1,010 35, /9/2006 to 25/9/ /1/2007 $1.88 1,220,000 - (110,200) (171,600) 938, , ,176 $2.61 to $ /1/2008 to 9/1/ /5/2008 $2.36-1,350, ,350, /5/2009 to 14/5/2018 1,499,200 1,350,000 (167,200) (198,800) 2,483, , , ,246 * Relates to options granted to the Group Non-Executive Directors. 81

84 Notes to the financial statements 29 Share options (cont d) The fair value of services received in return for share options granted are measured by reference to the fair value of share options granted. The estimate of the fair value of the services received is measured based on the Black-Scholes model. The expected life used in the model has been adjusted, based on management s best estimate, for the effects of non transferability, exercise restrictions and behavioural considerations. Fair value of share options and assumptions Date of grant of options On 1 October 2004 On 26 September 2005 On 10 January 2007 On 15 May 2008 Fair value at measurement date Share price ($) Exercise price ($) Expected volatility (%) Expected option life (years) Expected dividends (%) Risk-free interest rate (%) The expected volatility is based on the historic volatility (calculated based on the weighted average expected life of the share options), adjusted for any expected changes to future volatility. There are no market conditions associated with the share option grants. Service conditions and non-market performance conditions are not taken into account in the measurement of the fair value of the services to be received at the grant date. 30 Commitments Capital commitments Capital expenditure approved by the directors but not provided for in the financial statements as at 31 December 2008 is as follows: Group Company $ 000 $ 000 $ 000 $ 000 Contracted for 120,306 65,

85 Notes to the financial statements 30 Commitments (cont d) Lease commitments At 31 December 2008, commitments for future minimum lease payments under non-cancellable operating leases are as follows: Group Company $ 000 $ 000 $ 000 $ 000 Within 1 year 7,178 5, ,244 After 1 year but within 5 years 13,654 9, ,957 After 5 years 20,745 18,615-4,908 41,577 33, ,109 Annual rentals payable for the leases of land by the Group and the Company under non-cancellable operating leases are subject to revision at fixed intervals ranging from one to five years. Any increase will not exceed 8.5% on an annualised basis, provided that any rent after such increase shall not exceed the prevailing market rent. The leases expire between 2008 and None of these leases includes contingent rentals. 31 Significant related party transactions Key management personnel compensation Key management personnel compensation are as follows: Group $ 000 $ 000 Short-term employee benefits 4,120 4,038 Equity compensation benefits ,517 4,256 Directors remuneration included in key management personnel compensation amounted to $3,053,000 (2007: $2,735,000). Key management personnel of the Group participate in the Hong Leong Asia Share Option Scheme 2000 (the Share Option Scheme ) as described in note 29. During the year, 1,330,000 (2007: 930,000) shares under options were granted to key management personnel pursuant to the Share Option Scheme (the Options ) of which 1,000,000 (2007: 500,000) Options were granted to the Executive Directors of the Company. These Options are subject to a vesting schedule. As at the end of the year, 1,647,000 (2007: 967,400) Options granted to key management personnel were outstanding, of which 1,600,000 (2007: 600,000) were Options granted to the Executive Directors of the Company. Other related party transactions During the year, the Group made payments to a firm, for which a director has an interest, in respect of professional services rendered. This amounted to $578,000 (2007: $374,000). $227,000 (2007: Nil) was outstanding at the balance sheet date. 83

86 Notes to the financial statements 31 Significant related party transactions (cont d) Other related party transactions (cont d) Significant transactions with related parties, other than those as disclosed elsewhere in the financial statements, are as follows: Group $ 000 $ 000 Purchase of raw materials - associates 64,795 39,894 - jointly-controlled entity 727 1,506 Management services paid and payable - related corporations Rental paid and payable - immediate holding company Financial instruments Risk management is integral to the whole business of the Group. The Group has a system of controls in place to create an acceptable balance between the cost of risks occurring and the cost of managing the risks. The management continually monitors the Group s risk management process to ensure that an appropriate balance between risk and control is achieved. The Group s policies and financial authority limits are documented and reviewed periodically. The financial authority limits seek to limit and mitigate operational risk by setting threshold of approvals required for the entry into contractual obligations and investments. Credit risk Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed for all customers requiring credit over a certain amount. The Group requires collateral in respect of financial assets in certain circumstances. The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets. The allowance account in respect of trade and other receivables is used to record impairment losses unless the Group is satisfied that no recovery of the amount owing is possible. At that point, the financial asset is considered irrecoverable and the amount charged to the allowance account is written off against the carrying amount of the impaired financial asset. Cash and fixed deposits are placed with banks and financial institutions which are regulated. At the balance sheet date, a subsidiary of the Group has trade receivables due from a major Chinese customer, amounting to $127 million (2007: $86 million), representing 12% (2007: 8%) of total gross trade receivables of the Group as at 31 December Of this balance, $101 million (2007: $64 million), or 80% (2007: 74%), is supported by bills receivable from Chinese banks. 84

87 Notes to the financial statements 32 Financial instruments (cont d) Market risk Market risk is the risk that changes in market prices, such as interest rates, foreign exchange rates and equity prices will affect the Group s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk. Interest rate risk The Group s policy is to maintain an efficient and optimal interest cost structure using a mix of fixed and variable rate debts. The Group s debt obligations are mainly denominated in Singapore dollars, Chinese Renminbi and Ringgit Malaysia, and at fixed and floating rates of interest. For variable rate financial instruments, a change of 100bp in interest rate at the reporting date would increase/(decrease) profit and loss by the amounts shown below. Profit before income tax 100bp 100bp Group Increase Decrease 31 December 2008 Floating rate instruments (4,486) 4, December 2007 Floating rate instruments (1,030) 1,030 Company 31 December 2008 Floating rate instruments (1,603) 1, December 2007 Floating rate instruments 33 (33) Liquidity risk The Group monitors its liquidity risk and maintains a level of cash and cash equivalents deemed adequate by management to finance the Group s operations and to mitigate the effects of fluctuations in cash flows, and having adequate amounts of committed credit facilities. Foreign currency risk The Group is exposed to foreign currency risk on sales, purchases and borrowings that are denominated in currencies other than the respective functional currencies of entities within the Group. The currencies giving rise to this risk are primarily the Singapore dollar, Ringgit Malaysia, Chinese Renminbi and United States dollar. Foreign currency translation exposure is managed by incurring debt in the operating currency so that where possible operating cash flows can be primarily used to repay obligations in the local currency. This also has the effect of minimising the exchange differences recorded against income, as the exchange differences on the net investment are recorded directly against equity. 85

88 Notes to the financial statements 32 Financial instruments (cont d) The Group s and Company s exposures to foreign currency are as follows: 31 December December 2007 Singapore dollar Ringgit Malaysia Chinese Renminbi United States dollar Singapore dollar Ringgit Malaysia Chinese Renminbi United States dollar Group $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 Other investments 87, , Non-current receivables , Trade and other receivables ,741 13,295 7,091 7,359 17,233 15,733 Cash and cash equivalents ,087 3, ,702 10,931 Financial liabilities (104,000) (159,221) (7,102) (1,098) (7,596) Trade and other payables (6,572) (3,857) (82) (21,326) (49,880) (6,255) (7,329) (14,663) (21,520) (3,604) 3,666 (5,944) (34,704) (5,519) 16,508 4,405 Company Trade and other receivables ,792 Cash and cash equivalents Trade and other payables - (4) - (598) - (4,997) - (82) - (4) - (573) - (4,997) - 2,849 Sensitivity analysis A 10% strengthening of the following major currencies against the functional currency of each of the Group s entities at the reporting date would increase/(decrease) profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. Group Company Profit before income tax Profit before income tax $ 000 $ December 2008 Singapore dollar (2,152) - Ringgit Malaysia (360) - Chinese Renminbi United States dollar (594) (57) 31 December 2007 Singapore dollar (3,470) - Ringgit Malaysia (552) (500) Chinese Renminbi 1,651 - United States dollar A 10% weakening of the above would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant. 86

89 Notes to the financial statements 32 Financial instruments (cont d) Equity price risk The Group and Company have available-for-sale equity securities which are quoted. Sensitivity analysis-equity price risk A 10% increase/(decrease) in the underlying equity prices at the reporting date would increase/(decrease) equity by the following amount: Group Company $ 000 $ 000 $ 000 $ 000 Equity This analysis assumes that all other variables remain constant. Estimation of fair values The following summarises the significant methods and assumptions used in estimating the fair values of financial instruments of the Group and Company. Investments in equity and debt securities The fair value of available-for-sale financial assets is determined by reference to their quoted bid prices at the reporting date. Non-derivative financial liabilities Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. Other financial assets and liabilities The carrying amounts of financial assets and liabilities with a maturity of less than one year (including trade and other receivables, cash and cash equivalents, and trade and other payables) are assumed to approximate their fair values because of the short period to maturity. All other financial assets and liabilities are discounted to determine their fair values. The aggregate net fair values of recognised financial assets and liabilities which are not carried at fair values in the balance sheet at 31 December are represented in the following table: Carrying amount Fair value Carrying amount Fair value Group $ 000 $ 000 $ 000 $ 000 Financial liabilities Medium Term Notes , ,004 Unrecognised gain - 4 The fair value has been determined by discounting the relevant cash flows with current interest rates for similar instruments at the balance sheet date. In 2007, the interest rate used in determining fair value was 2.89%. 87

90 Notes to the financial statements 33 Contingent liabilities (unsecured) As part of Group s cash management policy, the Group may receive bills receivable from customers in settlement of outstanding trade debts. These bills receivable are issued by banks in China. In the event that the Group uses the bills receivable to pay suppliers or discount them with its bankers, the recipients of bills have a recourse to the Group if the issuing bank defaults on the settlement on the maturity dates of the bills. In such a circumstance, the Group will also have recourse to the customer who has settled the outstanding trade debts through bills receivable. Group $ 000 $ 000 Outstanding bills endorsed to suppliers with recourse obligations 302, ,821 Outstanding bills discounted with banks with recourse obligations 394, ,443 The Company has a contingent liability in respect of banking facilities of $20,000,000 (2007: $20,000,000) jointly held with its subsidiaries whereby the Company and the subsidiaries are jointly and severally liable for the outstanding obligations under these facilities. The amount drawn down as at 31 December 2008 on the banking facilities amounted to $15,000,000 (2007: $8,500,000). 34 Segment reporting Segment information is presented in respect of the Group s business and geographical segments. The primary format, business segments, is based on the Group s management and internal reporting structure. Inter-segments pricing is determined on mutually agreed terms. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items mainly comprise non-income-earning assets and non-operating revenue, interestbearing loans, borrowings and non-operating expenses, and corporate assets and expenses. Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period. Business Segments The Group comprises the following main business segments: (i) (ii) (iii) (iv) (v) Consumer products: refrigerators, freezers and air conditioners. Industrial products: diesel engines, plastic packaging related products and container components, and eco-friendly biodegradable pallets. Building materials: pre-cast concrete products, ready-mixed concrete, cement and quarry products. Corporate: relates primarily to results from corporate activities. Others: relate to electronics, hospitality and property development operations. 88

91 Notes to the financial statements 34 Segment reporting (cont d) Geographical Segments The Group operations were primarily in China (including Hong Kong), Singapore and Malaysia. In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers. Segment assets are based on the geographical location of assets. Business Segments Revenue and Expenses Consumer products Industrial products Building materials Corporate Others * Consolidated $ 000 $ 000 $ 000 $ 000 $ 000 $ Total external revenue 952,957 2,238, ,961-32,024 3,616,784 Segment results 41, ,240 11,716 31,093 3, ,360 Share of profit of associates ,411 - (6,217) 15,470 Finance costs (50,751) Income tax expense (33,618) Minority interests (131,484) Net profit for the year 41, Total external revenue 884,913 1,972, ,722-34,415 3,233,178 Segment results 78, ,338 39,410 (5,698) 11, ,663 Share of profit of associates ,263-1,578 25,423 Finance costs (38,476) Income tax expense (40,359) Minority interests (93,823) Net profit for the year 95,428 * Others relate to electronics, hospitality and property development operations. 89

92 Notes to the financial statements 34 Segment reporting (cont d) Assets and Liabilities Consumer products Industrial products Building materials Corporate Others * Consolidated $ 000 $ 000 $ 000 $ 000 $ 000 $ Segment assets 707,890 1,916, , ,910 2,989,993 Interests in associates - 6, ,255-78, ,350 Unallocated assets - deferred tax assets 38,299 - others 5,617 Total assets 3,287,259 Segment liabilities 327, , ,355-42,475 1,225,494 Unallocated liabilities - borrowings 555,002 - deferred tax liabilities 2,111 - current tax payable 25,767 - others 2,678 Total liabilities 1,811, Segment assets 715,334 1,633, ,346 7, ,436 2,718,835 Interests in associates - 6, , , ,674 Unallocated assets - deferred tax assets 64,776 - others 4,052 Total assets 3,046,337 Segment liabilities 326, ,649 93,815 3,333 18,929 1,164,815 Unallocated liabilities - borrowings 499,249 - deferred tax liabilities 2,087 - current tax payable 48,540 - others 483 Total liabilities 1,715,174 * Others relate to electronics, hospitality and property development operations. 90

93 Notes to the financial statements 34 Segment reporting (cont d) Consumer products Industrial products Building materials Corporate Others * Consolidated $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 Other disclosures 2008 Capital expenditure 40,935 85,100 7,226-2, ,146 Depreciation 5,117 37,579 8,705-6,295 57,696 Amortisation of intangibles Provision made/ (reversed), net - claims - 1,400 2, ,505 - warranties 12,454 48, ,627 Impairment losses on property, plant and equipment and intangibles, net - 8, , Capital expenditure 37,186 60,914 11,822-3, ,376 Depreciation 3,085 36,417 8,314-6,164 53,980 Amortisation of intangibles Provision made/ (reversed), net - claims - - 4, ,516 - warranties 4,682 50, ,720 - closure costs - (46) (46) - onerous contracts - - 3, ,229 Impairment losses on property, plant and equipment - 4,869 5, ,122 * Others relate to electronics, hospitality and property development operations. 91

94 Notes to the financial statements 34 Segment reporting (cont d) Geographical Segments 2008 China (including Hong Kong) Singapore Malaysia Others Consolidated $ 000 $ 000 $ 000 $ 000 $ 000 Total revenue from external customers 3,148, ,067 26,231 45,871 3,616,784 Segment assets 2,577, ,305 65,026 17,465 2,989,993 Capital expenditure 128,227 5,599 2, , Total revenue from external customers 2,805, ,152 26,262 54,208 3,233,178 Segment assets 2,347, ,156 61,614 29,936 2,718,835 Capital expenditure 98,117 7, , , Subsequent event In January 2009, the Group, through its subsidiary, Hartwell Pte. Ltd., acquired an additional 27.01% equity interest in Tasek Corporation Berhad for approximately $79,000,000 thereby increasing its effective equity interest from 45.58% to 72.59%. The acquisition was completed on 20 January 2009 and Tasek Corporation Berhad became a subsidiary of the Group. 36 Comparative information Certain changes have been made to the comparatives to more appropriately reflect the balances of the Group. The significant changes are as follows: As previously As restated stated $ 000 $ 000 Wages and salaries 193, ,481 Contribution to defined contribution plans 29,446 32,061 Trade receivables 851,028 1,062,312 Trade payables 770, ,094 92

95 Notes to the financial statements 37 New accounting standards and interpretations not yet adopted The Group has not applied the following accounting standards (including its consequential amendments) and interpretations that have been issued as of the balance sheet date but are not yet effective: FRS 1 (revised 2008) Presentation of Financial Statements FRS 23 (revised 2007) Borrowing Costs Amendments to FRS 32 Financial Instruments: Presentation and FRS 1 Presentation of Financial Statements Puttable Financial Instruments and Obligations Arising on Liquidation Amendments to FRS 39 Financial Instrument: Recognition and Measurement Eligible Hedged Items Amendment to FRS 101 First-time Adoption of FRSs and FRS 27 Consolidated and Separate Financial Statements Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate Amendment to FRS 102 Share-based Payment Vesting Conditions and Cancellations FRS 108 Operating Segments Improvements to FRSs 2008 INT FRS 113 Customer Loyalty Programmes INT FRS 116 Hedges of a Net Investment in a Foreign Operation FRS 1 (revised 2008) will become effective for the Group s financial statements for the year ending 31 December The revised standard requires an entity to present, in a statement of changes in equity, all owner changes in equity. All non-owner changes in equity (i.e. comprehensive income) are required to be presented in one statement of comprehensive income or in two statements (a separate income statement and a statement of comprehensive income). Components of comprehensive income are not permitted to be presented in the statement of changes in equity. In addition, a statement of financial position is required at the beginning of the earliest comparative period following a change in accounting policy, the correction of an error or the reclassification of items in the financial statements. FRS 1 (revised 2008) does not have any impact on the Group s financial position or results. FRS 23 (revised 2007) will become effective for the Group s financial statements for the year ending 31 December FRS 23 (revised 2007) removes the option to expense borrowing costs and requires an entity to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. The Group s current policy to capitalise borrowing costs is consistent with the requirement in the revised FRS 23. The amendments to FRS 32 and FRS 1 on puttable financial instruments will become effective for the Group s financial statements for the year ending 31 December The amendments allow certain instruments that would normally be classified as liabilities to be classified as equity if and only if they meet certain conditions. The Group does not issue such puttable financial instruments and thus the application of these amendments is not expected to have any significant impact on the Group s financial statements. The amendments to FRS 39 on eligible hedged items will become effective for the Group s financial statements for the year ending 31 December The amendments clarify how the principles that determine whether a hedged risk or portion of cash flows is eligible for designation should be applied in two particular situations: (i) the designation of a one-sided risk in a hedged item; and (ii) the designation of inflation in particular situations. The application of these amendments is not expected to have any significant impact on the Group s financial statements. 93

96 Notes to the financial statements 37 New accounting standards and interpretations not yet adopted (cont d) The amendments to FRS 101 and FRS 27 on the cost of an investment in a subsidiary, jointly controlled entity or associate will become effective for the Company s financial statements for the year ending 31 December The amendments remove the definition of cost method currently set out in FRS 27, and instead require an entity to recognise all dividend from a subsidiary, jointly controlled entity or associate as income in its separate financial statements when its right to receive the dividend is established. The application of these amendments is not expected to have any significant impact on the Company s financial statements. The amendments to FRS 102 on vesting conditions and cancellations will become effective for the Group s financial statements for the year ending 31 December The amendments clarify the definition of vesting conditions and provide the accounting treatment for non-vesting conditions and cancellations. The application of these amendments is not expected to have any significant impact on the Group s financial statements. FRS 108 will become effective for the Group s financial statements for the year ending 31 December FRS 108, which replaces FRS 14 Segment Reporting, requires identification and reporting of operating segments based on internal reports that are regularly reviewed by the entity s chief operating decision maker in order to allocate resources to the segment and to assess its performance. Currently, the Group presents segment information in respect of its business and geographical segments (see note 34). Under FRS 108, the Group will present segment information in respect of its operating segments: consumer products, industrial products, building materials, corporate and others which relate to electronic, hospitality and property development operations. Improvements to FRSs 2008 will become effective for the Group s financial statements for the year ending 31 December 2009, except for the amendment to FRS 105 Non-current Assets Held for Sale and Discontinued Operations which will become effective for the year ending 31 December Improvements to FRSs 2008 contain amendments to numerous accounting standards that result in accounting changes for presentation, recognition or measurement purposes and terminology or editorial amendments. The Group is in the process of assessing the impact of these amendments. The Group has not considered the impact of accounting standards issued after the balance sheet date. 94

97 重点财务报表 资产负债表 96 合并利润表 98 合并所有者权益变动表 99 母公司所有者权益变动表 101 合并现金流量表

98 资产负债表 2008 年 12 月 31 日 集团 母公司 附注 $ 000 $ 000 $ 000 $ 000 非流动资产产业, 厂房和设备 3 868, , ,731 预付经营租赁 4 52,838 48, 无形资产 5 66,786 66,691 1,099 - 子公司投资 , ,980 联营公司投资 8 253, ,674 52,295 55,452 合股经营企业投资 ,000 15,000 投资物业 10 7,222 8, 其它金融资产 11 2,145 2, 非流动应收款 12 5,827 7, 应收子公司款项 ,674 59,462 递延税务资产 14 38,299 64, ,295,175 1,230, , ,792 流动资产存货 , ,184-9,816 发展物业 16 20,366 23, 其它金融资产 , 应收货款和其他应收款 , , ,883 97,540 现金及现金等价物 , ,742 10,495 14,912 1,992,084 1,816, , ,268 总资产合计 3,287,259 3,046, , ,060 此报告中的附注是组成这些财务报表不可或缺的内容 96

99 资产负债表 2008 年 12 月 31 日 集团 母公司 附注 $ 000 $ 000 $ 000 $ 000 股本与公积发行股本 , , , ,415 各项公积 , ,888 37,588 41, , , , ,743 少数股东权益 895, , 所有者权益总计 1,476,207 1,331, , ,743 非流动负债应付子公司款项 ,400 11,000 金融负债 21 56,838 70, 递延税务负债 14 2,111 2, 递延补助 退休津贴 ,533 73,227 10,857 11,457 流动负债应付货款和其它应付款 22 1,135,023 1,074,845 17,350 34,180 各项准备 23 59,697 59, 金融负债 , , , ,040 应付税费 25,767 48, ,751,519 1,641, , ,860 总负债合计 1,811,052 1,715, , ,317 负债及所有者权益总计 3,287,259 3,046, , ,060 此报告中的附注是组成这些财务报表不可或缺的内容 97

100 合并利润表 截至 2008 年 12 月 31 日 集团 附注 $ 000 $ 000 营业收入 24 3,616,784 3,233,178 营业成本 (2,861,761) (2,480,711) 毛利润 755, ,467 其它收入 /( 费用 ) 25(a) 1,684 (3,393) 销售和分销费用 (279,976) (255,304) 研究和开发费用 (57,198) (38,521) 管理和其它经营费用 (220,108) (224,567) 营业利润 199, ,682 其它非经营性收入 25(b) 42,935 11,981 财务费用 25(c) (50,751) (38,476) 应占联营公司盈利 15,470 25,423 税前利润 , ,610 所得税支出 26 (33,618) (40,359) 税后利润 173, ,251 归属于 : 母公司所有者的净利润 41,977 95,428 少数股东损益 131,484 93, , ,251 每股收益 ( 分 ) 27 - 基本 稀释 此报告中的附注是组成这些财务报表不可或缺的内容

101 合并所有者权益变动表 截至 2007 年 12 月 31 日 附注 发行股本 资本公积 法定公积 公允价值公积 权益报酬公积 外币报表折算差额 未分配利润 归属于母公司所有者权益合计 少数股东权益 所有者权益合计 集团 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 年 1 月 1 日余额 277,124 (34,684) 16,944 43, (30,848) 236, , ,282 1,170,141 国外子公司和联营公司的 外币报表折算差额 ,027-1,027 (7,570) (6,543) 净公允价值变动 , ,374 2,199 26,573 股份支付计入所有者权益 的金额 直接计入所有者权益的 利得 /( 损失 ) , ,027-25,730 (5,346) 20,384 本年净利润 ,428 95,428 93, ,251 本年确认的收入与费用总计 , ,027 95, ,158 88, ,635 转入法定公积 - - 3, (3,012) 本年股本发行 19 1, ,291-1,291 增购子公司权益 (201) (201) 处置可供出售资产所实现的 重估增值 (7,529) (7,529) - (7,529) 已付股利予公司股东 (30,476) (30,476) - (30,476) 已付股利予子公司少数股东 (11,698) (11,698) 2007 年 12 月 31 日余额 278,415 (34,684) 19,956 60, (29,821) 297, , ,860 1,331,163 此报告中的附注是组成这些财务报表不可或缺的内容 99

102 合并所有者权益变动表 截至 2008 年 12 月 31 日 附注 发行股本 资本公积 法定公积 公允价值公积 权益报酬公积 外币报表折算差额 未分配利润 归属于母公司所有者权益合计 少数股东权益 所有者权益合计 集团 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 年 1 月 1 日余额 278,415 (34,684) 19,956 60, (29,821) 297, , ,860 1,331,163 国外子公司和联营公司的 外币报表折算差额 ,686-16,686 46,426 63,112 净公允价值变动 (37,854) (37,854) (13,012) (50,866) 股份支付计入所有者权益 的金额 直接计入所有者权益的 利得 /( 损失 ) (37,854) ,686 - (20,321) 33,416 13,095 本年净利润 ,977 41, , ,461 本年确认的收入与费用总计 (37,854) ,686 41,977 21, , ,556 转入法定公积 - - 2, (2,311) 本年股本发行 增购子公司权益 (761) (761) 股本发行予子公司少数股东 ,103 10,103 已付股利予公司股东 (34,323) (34,323) - (34,323) 已付股利予子公司少数股东 (16,780) (16,780) 2008 年 12 月 31 日余额 278,664 (34,684) 22,267 22,664 1,805 (13,135) 303, , ,322 1,476,207 此报告中的附注是组成这些财务报表不可或缺的内容 100

103 母公司所有者权益变动表 截至 2008 年 12 月 31 日 附注 发行股本 资本公积 公允价值公积 权益报酬公积 未分配利润 合计 母公司 $ 000 $ 000 $ 000 $ 000 $ 000 $ 年 1 月 1 日余额 277,124 9, , ,705 股份支付计入所有者权益的金额 净公允价值变动 直接计入所有者权益的利得 本年净利润 ,981 32,981 本年确认的收入与费用总计 ,981 33,345 本年股本发行 19 1, ,291 处置其它金融资产所实现的重估增值 - - (122) - - (122) 股利 (30,476) (30,476) 2007 年 12 月 31 日余额 278,415 9, , , 年 1 月 1 日余额 278,415 9, , ,743 股份支付计入所有者权益的金额 净公允价值变动 直接计入所有者权益的利得 本年净利润 ,132 30,132 本年确认的收入与费用总计 ,132 30,595 本年股本发行 处置其它金融资产所实现的重估增值 - - (12) - - (12) 股利 (34,323) (34,323) 2008 年 12 月 31 日余额 278,664 9,199-1,289 27, ,252 此报告中的附注是组成这些财务报表不可或缺的内容 101

104 合并现金流量表 截至 2008 年 12 月 31 日 经营活动产生的现金流量 集团 附注 $ 000 $ 000 税前利润 207, ,610 调整项目 : 应占联营公司盈利 (15,470) (25,423) 确认递延补助 25(a) (11) (6) 股本支付产生的费用 25d) 折旧与摊销 25 59,694 55,458 固定资产和无形资产减值准备 25(a) 8,349 10,122 处置子公司股权和相关业务产生的盈利 - (5,141) 财务费用 25(c) 50,751 38,476 股利收入 25(a) (76) (265) 利息收入 25(a) (3,530) (4,254) 处置以下资产 ( 收益 )/ 损失 : - 其它投资 25(b) - (6,840) - 产业, 厂房与设备 25 1,786 2,082 所提准备净额 25 64,132 62, , ,598 营运资金的增 / 减变动 : 存货与在造品 (77,033) (109,369) 应收货款和其它应收款 37,566 (303,551) 应付货款和其它应付款 9, ,858 已提准备冲销 23 (66,666) (50,192) 经营活动产生产生的现金流量 276,491 79,344 已付所得税 (42,271) (28,499) 经营活动产生的现金流量净额 234,220 50, 此报告中的附注是组成这些财务报表不可或缺的内容

105 合并现金流量表 截至 2008 年 12 月 31 日 投资活动产生的现金流量 集团 附注 $ 000 $ 000 增购联营公司权益 (40,405) - 购入子公司权益和其他业务, 净现金支出 - (165) 增购子公司权益 (1,138) (201) 关联公司偿还款项 股利所得 : - 联营公司 5,835 5,340 - 其他 已收利息 3,276 6,482 购置资产 : - 无形资产 5 (1,709) (397) - 产业, 厂房与设备 3 (134,060) (115,053) - 其他投资 - (272) 支付预付经营租赁 (2,881) 596 处置资产所得 : - 子公司, 净现金收入 ( 附注 A) - 2,189 - 产业, 厂房与设备 9,190 9,019 - 其他投资 - 11,828 - 可供出售资产 - 18,089 投资活动产生的现金流量净额 (161,816) (61,463) 附注 A: 处置子公司净资产所得如下 : 2007 $ 000 净流动负债 (87) 外币折算差额转入损益 (2,812) 处置子公司产生的盈利 5,141 现金收入小计 2,242 减 : 被处置子公司持有的 ( 现金 )/ 银行透支 (53) 处置子公司, 净现金收入 2,189 此报告中的附注是组成这些财务报表不可或缺的内容 103

106 合并现金流量表 截至 2008 年 12 月 31 日 筹资活动产生的现金流量 集团 附注 $ 000 $ 000 股利支出 : - 少数股东 (16,780) (11,698) - 股东 28 (34,323) (30,476) 已付利息 (56,494) (31,877) 银行借贷所得 966, ,122 定期存款用于质押贷款 30,920 (7,895) 股票发行所得 249 1,291 股本发行予子公司少数股东 10,103 偿还银行贷款 (930,872) (295,548) 筹资活动产生的现金流量净额 (31,084) (51,081) 净现金及现金等价物净增加 /( 减少 ) 额 41,320 (61,699) 期初现金及现金等价物余额 186, ,863 汇率变动对现金的影响 10,016 1,517 期末现金及现金等价物余额 , ,681 附注 : (i) (ii) 现金及银行存款合计 $184,916,000 (2007: $214,117,000) 存放在实行货币兑换管制条例的国家 集团于 2007 年重新融资了 $50,000,000 的中期债券 此报告中的附注是组成这些财务报表不可或缺的内容 104

107 Analysis of Shareholdings As at 16 March 2009 Class of Shares : Ordinary shares Number of Ordinary Shares in issue : 381,392,018 Number of Ordinary Shareholders : 5,285 Voting Rights : 1 vote for 1 share There are no treasury shares held in the issued share capital of the Company. No. of No. of Range of Shareholdings Shareholders % Shares Held % , ,000-10,000 4, ,813, ,001-1,000,000 1, ,247, ,000,001 and above ,325, , ,392, Based on information available to the Company as at 16 March 2009, approximately 31.85% of the total number of issued shares of the Company is held by the public and therefore Rule 723 of the Listing Manual issued by the Singapore Exchange Securities Trading Limited is complied with. Major Shareholders List - Top 20 as at 16 March 2009 (as shown in the Register of Members) No. of No. Name of Shareholder Shares Held % 1. Hong Leong Corporation Holdings Pte Ltd 233,000, Singapore Cement Industrial Company (Private) Limited 18,159, DBS Nominees Pte Ltd 10,268, DBSN Services Pte Ltd 8,988, Citibank Nominees Singapore Pte Ltd 8,875, HSBC (Singapore) Nominees Pte Ltd 6,762, Starich Investments Pte. Ltd. 6,664, Raffles Nominees Pte Ltd 3,460, DBS Vickers Securities (S) Pte Ltd 3,126, OCBC Securities Private Ltd 2,424, United Overseas Bank Nominees Pte Ltd 1,811, Paramount Assets Investments Pte Ltd 1,750, Ling Kung Eng 1,434, UOB Kay Hian Pte Ltd 1,264, Soon Lee Heng Trading & Transportation Pte Ltd 1,174, ABN Amro Nominees Singapore Pte Ltd 1,129, Phillip Securities Pte Ltd 1,034, Tan Guat Poh 1,000, HL Bank Nominees (S) Pte Ltd 947, Chng Gim Huat 819, ,091,

108 Analysis of Shareholdings As at 16 March 2009 Substantial Shareholders (as shown in the Register of Substantial Shareholders) No. of Shares Name of Substantial Shareholders Direct Interest Deemed Interest Total Interest % Hong Leong Corporation Holdings Pte Ltd 233,000,000 24,823,318 (1) 257,823, Hong Leong Enterprises Pte. Ltd ,823,318 (2) 257,823, Hong Leong Investment Holdings Pte. Ltd ,091,318 (3) 258,091, Davos Investment Holdings Private Limited - 258,091,318 (4) 258,091, Kwek Holdings Pte Ltd - 258,091,318 (4) 258,091, Notes: (1) Hong Leong Corporation Holdings Pte Ltd ( HLCH ) is deemed under Section 7 of the Companies Act, Chapter 50 (the Act ) to have an interest in the Shares held directly by its wholly-owned subsidiary, Starich Investments Pte. Ltd. ( Starich ). HLCH is also deemed under Section 7 of the Act to have an interest in the Shares held directly by Singapore Cement Industrial Company (Private) Limited ( SCIC ), in which it is entitled to exercise or control the exercise of not less than 20% of the voting shares in SCIC. (2) Hong Leong Enterprises Pte. Ltd. is deemed under Section 7 of the Act to have an interest in the Shares held directly by HLCH, Starich and SCIC, in which it is entitled to exercise or control the exercise of not less than 20% of the voting shares in the latter companies. (3) Hong Leong Investment Holdings Pte. Ltd. ( HLIH ) is deemed under Section 7 of the Act to have an interest in the Shares held directly by its subsidiaries, HLCH, Starich, Millennium Securities Pte Ltd and Welkin Investments Pte Ltd. HLIH is also deemed under Section 7 of the Act to have an interest in the Shares held directly by SCIC, in which it is entitled to exercise or control the exercise of not less than 20% of the voting shares in SCIC. (4) Davos Investment Holdings Private Limited and Kwek Holdings Pte Ltd are deemed under Section 7 of the Act to have interests in the Shares referred to in Note 3 above held indirectly by HLIH, in which each of them is entitled to exercise or control the exercise of not less than 20% of the voting shares in HLIH. 106

109 NOTICE OF ANNUAL GENERAL MEETING NOTICE IS HEREBY GIVEN that the Forty-Eighth Annual General Meeting (the Meeting ) of HONG LEONG ASIA LTD. will be held at Grand Copthorne Waterfront Hotel, Riverfront 1 & 2, Level 2, 392 Havelock Road, Singapore on Thursday, 30 April 2009 at 3.00 p.m. for the following purposes: A. ORDINARY BUSINESS: 1. To receive and adopt the Audited Accounts and Reports of the Directors and Auditors for the year ended 31 December To declare a tax exempt (1-tier) final dividend of 2 cents per ordinary share for the year ended 31 December 2008 as recommended by the Directors. 3. To approve Directors fees of $190,000 (excluding the Audit Committee fees) for the year ended 31 December 2008 (year 2007: $190,000) and Audit Committee fees of $20,000 per quarter for the period commencing from 1 July 2009 to 30 June 2010, with payment of the Audit Committee fees to be made in arrears at the end of each calendar quarter. 4. To re-elect the following Directors retiring by rotation in accordance with the Articles of Association of the Company and who, being eligible, offer themselves for re-election: (i) (ii) Mr Kwek Leng Peck Mr Ernest Colin Lee 5. To re-appoint Mr Quek Shi Kui as a Director of the Company pursuant to Section 153(6) of the Companies Act, Chapter 50, to hold office from the date of this Meeting until the next Annual General Meeting. 6. To re-appoint Messrs KPMG LLP as Auditors and to authorise the Directors to fix their remuneration. B. SPECIAL BUSINESS: To consider and, if thought fit, to pass, with or without any modifications, the following resolutions as Ordinary Resolutions: 7. That authority be and is hereby given to the Directors to: (a) (i) issue shares in the capital of the Company ( shares ) whether by way of rights, bonus or otherwise; and/or (ii) make or grant offers, agreements or options (collectively, Instruments ) that might or would require shares to be issued, including but not limited to the creation and issue of (as well as adjustments to) warrants, debentures or other instruments convertible into shares, at any time and upon such terms and conditions and for such purposes and to such persons as the Directors may in their absolute discretion deem fit; and (b) (notwithstanding the authority conferred by this Ordinary Resolution may have ceased to be in force) issue shares in pursuance of any Instrument made or granted by the Directors while this Ordinary Resolution was in force, provided that: (1) the aggregate number of shares to be issued pursuant to this Ordinary Resolution (including shares to be issued in pursuance of Instruments made or granted pursuant to this Ordinary Resolution but excluding shares which may be issued pursuant to any adjustments effected under any relevant Instrument): (A) (B) by way of renounceable rights issues on a pro rata basis to shareholders of the Company ( Renounceable Rights Issues ) does not exceed 100% of the total number of issued shares, excluding treasury shares, in the capital of the Company (as calculated in accordance with sub-paragraph (3) below); and otherwise than by way of Renounceable Rights Issues ( Other Share Issues ) does not exceed 50% of the total number of issued shares, excluding treasury shares, in the capital of the Company (as calculated in accordance with sub-paragraph (3) below), of which the aggregate number of shares to be issued other than on a pro rata basis to shareholders of the Company does not exceed 20% of the total number of issued shares, excluding treasury shares, in the capital of the Company (as calculated in accordance with sub-paragraph (3) below); 107

110 NOTICE OF ANNUAL GENERAL MEETING (2) the Renounceable Rights Issues and Other Share Issues shall not, in aggregate, exceed 100% of the total number of issued shares, excluding treasury shares, in the capital of the Company (as calculated in accordance with subparagraph (3) below); (3) (subject to such manner of calculation as may be prescribed by the Singapore Exchange Securities Trading Limited ( SGX-ST )) for the purpose of determining the aggregate number of shares that may be issued under sub-paragraphs (1)(A) and (1)(B) above, the total number of issued shares, excluding treasury shares, shall be based on the total number of issued shares, excluding treasury shares, in the capital of the Company at the time this Ordinary Resolution is passed, after adjusting for: (i) (ii) new shares arising from the conversion or exercise of any convertible securities or share options or vesting of share awards which are outstanding and subsisting at the time this Ordinary Resolution is passed; and any subsequent bonus issue, consolidation or subdivision of shares; (4) in exercising the authority conferred by this Ordinary Resolution, the Company shall comply with the provisions of the Listing Manual of the SGX-ST for the time being in force (unless such compliance has been waived by the SGX-ST) and the Articles of Association for the time being of the Company; and (5) (unless revoked or varied by the Company in General Meeting) the authority conferred by this Ordinary Resolution shall continue in force until the conclusion of the next Annual General Meeting of the Company or the date by which the next Annual General Meeting of the Company is required by law to be held, whichever is the earlier. 8. That, contingent on the passing of the Ordinary Resolution in 7 above, authority be and is hereby given to the Directors to fix the issue price for shares in the capital of the Company that may be issued by way of placement pursuant to the 20% sub-limit for Other Share Issues on a non pro rata basis referred to in Resolution 7 above, at a discount exceeding 10% but not more than 20% of the price as determined in accordance with the Listing Manual of the SGX-ST. 9. That approval be and is hereby given to the Directors to offer and grant options in accordance with the provisions of the Hong Leong Asia Share Option Scheme 2000 (the Share Option Scheme ) and to allot and issue from time to time such number of shares in the capital of the Company as may be required to be issued pursuant to the exercise of the options granted under the Share Option Scheme provided that the aggregate number of shares to be issued pursuant to the Share Option Scheme shall not exceed 15% of the total number of issued shares excluding treasury shares, if any, in the capital of the Company from time to time, and provided further that the aggregate number of shares to be issued during the entire operation of the Share Option Scheme (subject to adjustments, if any, made under the Share Option Scheme) shall not exceed such limits or (as the case may be) sub-limits as may be prescribed in the Share Option Scheme. 10. That: (a) for the purposes of Sections 76C and 76E of the Companies Act, Chapter 50 (the Companies Act ), the exercise by the Directors of the Company of all the powers of the Company to purchase or otherwise acquire issued ordinary shares in the capital of the Company (the Shares ) not exceeding in aggregate the Maximum Limit (as hereafter defined), at such price or prices as may be determined by the Directors from time to time up to the Maximum Price (as hereafter defined), whether by way of: (i) (ii) market purchase(s) on the SGX-ST and/or any other stock exchange on which the Shares may for the time being be listed and quoted ( Other Exchange ); and/or off-market purchase(s) (if effected otherwise than on the SGX-ST or, as the case may be, Other Exchange) in accordance with any equal access scheme(s) as may be determined or formulated by the Directors as they consider fit, which scheme(s) shall satisfy all the conditions prescribed by the Companies Act, and otherwise in accordance with all other laws and regulations and rules of the SGX-ST or, as the case may be, Other Exchange as may for the time being be applicable, be and is hereby authorised and approved generally and unconditionally (the Share Purchase Mandate ); 108

111 NOTICE OF ANNUAL GENERAL MEETING (b) unless varied or revoked by the Company in general meeting, the authority conferred on the Directors of the Company pursuant to the Share Purchase Mandate may be exercised by the Directors at any time and from time to time during the period commencing from the date of the passing of this Resolution and expiring on the earlier of: (i) (ii) the date on which the next Annual General Meeting of the Company is held; and the date by which the next Annual General Meeting of the Company is required by law to be held; (c) in this Resolution: Average Closing Price means the average of the closing market prices of a Share for the five consecutive market days on which the Shares are transacted on the SGX-ST or, as the case may be, Other Exchange immediately preceding the date of market purchase by the Company or, as the case may be, the date of the making of the offer pursuant to the off-market purchase, and deemed to be adjusted in accordance with the listing rules of the SGX-ST for any corporate action which occurs after the relevant five-day period; date of the making of the offer means the date on which the Company makes an offer for the purchase or acquisition of Shares from holders of Shares, stating therein the purchase price (which shall not be more than the Maximum Price) for each Share and the relevant terms of the equal access scheme for effecting the off-market purchase; Maximum Limit means that number of issued Shares representing 10% of the total number of issued Shares of the Company (excluding any Shares which are held as treasury shares) as at the date of the passing of this Resolution; and Maximum Price in relation to a Share to be purchased or acquired, means the purchase price (excluding brokerage, commission, applicable goods and services tax and other related expenses) which shall not exceed: (i) (ii) in the case of a market purchase of a Share, 105% of the Average Closing Price of the Shares; and in the case of an off-market purchase of a Share pursuant to an equal access scheme, 110% of the Average Closing Price of the Shares; and (d) the Directors of the Company and/or any of them be and are hereby authorised to complete and do all such acts and things (including executing such documents as may be required) as they and/or he may consider expedient or necessary to give effect to the transactions contemplated and/or authorised by this Resolution. 109

112 NOTICE OF ANNUAL GENERAL MEETING 11. That approval be and is hereby given for the purposes of Chapter 9 of the Listing Manual of SGX-ST, for the Company, its subsidiaries and its associated companies that are not listed on the SGX-ST or an approved exchange, over which the Company, its subsidiaries and/or its interested person(s), have control, or any of them to enter into any of the transactions falling within the types of Interested Person Transactions, particulars of which are set out in the Appendix to this Notice of Annual General Meeting (the Appendix ) with any party who is of the class of Interested Persons described in the Appendix; provided that such transactions are entered in accordance with the review procedures set out in the Appendix, and that such approval (the IPT Mandate ) shall, unless revoked or varied by the Company in General Meeting, continue in force until the conclusion of the next Annual General Meeting of the Company, and the Directors of the Company be and are hereby authorised to complete and do all such acts and things (including executing all such documents as may be required) as they may consider expedient or necessary or in the interests of the Company to give effect to the IPT Mandate and/or this Resolution. C. TO TRANSACT ANY OTHER ORDINARY BUSINESS. BY ORDER OF THE BOARD Yeo Swee Gim, Joanne Ng Siew Ping, Jaslin Company Secretaries 13 April 2009 Singapore The Company had on 26 February 2009 advised that the Register of Members of the Company will be closed on 12 May 2009 for the preparation of dividend warrants. Duly completed transfers received by the Company up to 5.00 p.m. on 11 May 2009 will be registered before entitlements to the proposed dividend for the year ended 31 December 2008 are determined. Directors have recommended a tax exempt (1-tier) final dividend of 2 cents per ordinary share in respect of the financial year ended 31 December 2008 for approval by Members at the Annual General Meeting to be held on 30 April The final dividend, if approved, will be payable on 22 May

113 NOTICE OF ANNUAL GENERAL MEETING NOTES: 1. A member of the Company entitled to attend and vote at the Meeting is entitled to appoint not more than two proxies (whether a member or not) as his proxy to attend and vote on his behalf. The instrument appointing a proxy must be deposited at the Secretary s Office at 36 Robinson Road, #03-01 City House, Singapore , not less than forty-eight (48) hours before the time appointed for holding the Meeting. 2. With reference to item 4(i) above (under the heading Ordinary Business ), Mr Kwek Leng Peck will, upon re-election as a Director of the Company, remain as a member of the Share Option Scheme Committee. 3. With reference to item 4(ii) above (under the heading Ordinary Business ), Mr Ernest Colin Lee will, upon re-election as a Director of the Company, remain as Chairman of the Nominating, Remuneration and Share Option Scheme Committees as well as a member of the Audit Committee. Mr Lee is an independent Director. 4. With reference to item 5 above (under the heading Ordinary Business ), Mr Quek Shi Kui will, upon re-appointment as a Director of the Company, remain as Chairman of the Audit Committee and as a member of the Nominating, Remuneration and Share Option Scheme Committees. Mr Quek is an independent Director. 5. The Ordinary Resolution proposed in item 7 above (under the heading Special Business ), if passed, will empower the Directors of the Company from the date of the Meeting until the next Annual General Meeting (unless such authority is previously revoked or varied at a general meeting), to issue shares and/or make or grant Instruments that might require new shares to be issued up to a number not exceeding (i) 100% for Renounceable Rights Issues, and (ii) 50% for Other Share Issues of which up to 20% may be issued other than on a pro rata basis to shareholders, provided that the total number of shares which may be issued pursuant to (i) and (ii) shall not exceed 100% of the total number of the Company s issued shares excluding treasury shares. The aggregate number of shares which may be issued under this Ordinary Resolution will be calculated based on the total number of issued shares, excluding treasury shares, in the capital of the Company at the time that this Ordinary Resolution is passed, after adjusting for new shares arising from the conversion or exercise of any convertible securities or share options or vesting of share awards which are outstanding and subsisting at the time this Ordinary Resolution is passed and any subsequent bonus issue, consolidation or subdivision of shares. The authority for 100% Renounceable Rights Issues is proposed pursuant to the SGX news release of 19 February 2009 which introduced further measures to accelerate and facilitate listed issuers fund raising efforts ( SGX News Release ). 6. The Ordinary Resolution proposed in item 8 above (under the heading Special Business ), if passed, will empower the Directors to fix the issue price for shares that may be issued by way of placement pursuant to the 20% sub-limit for Other Share Issues on a non pro rata basis (referred to in the Ordinary Resolution proposed in item 7 above) at a discount exceeding 10% but not more than 20% of the price as determined in accordance with the Listing Manual of the SGX-ST. This Ordinary Resolution is proposed pursuant to the SGX News Release. 7. The Ordinary Resolution proposed in item 9 above (under the heading Special Business ), if passed, will empower the Directors to offer and grant options under the Share Option Scheme and to issue from time to time such number of shares in the capital of the Company pursuant to the exercise of such options under the Share Option Scheme subject to such limits or sub-limits as prescribed in the Share Option Scheme. 8. The Ordinary Resolution proposed in item 10 above (under the heading Special Business ), if passed, will empower the Directors of the Company to make purchases or otherwise acquire issued shares in the capital of the Company from time to time subject to and in accordance with the guidelines set out in Annexure I of the Appendix to the Notice of this Meeting. This authority will continue in force until the next Annual General Meeting of the Company, unless previously revoked or varied at a general meeting. 9. The Ordinary Resolution proposed in item 11 above (under the heading Special Business ), if passed, will renew the IPT Mandate first approved by shareholders on 30 May 2003 to facilitate the Company, its subsidiaries and its associated companies, to enter into Interested Person Transactions, the details of which are set out in Annexures II and III of the Appendix to the Notice of this Meeting. The IPT Mandate will continue in force until the next Annual General Meeting of the Company, unless previously revoked or varied at a general meeting. 111

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115 Co. Reg. No G (Incorporated in the Republic of Singapore) PROXY FORM For Annual General Meeting IMPORTANT 1. For investors who have used their CPF monies to buy the Company s shares, the Annual Report is forwarded to them at the request of their CPF Approved Nominee and is sent solely FOR INFORMATION ONLY. 2. This Proxy Form is not valid for use by CPF investors and shall be ineffective for all intents and purposes if used or purported to be used by them. 3. CPF Investors who wish to attend the AGM as OBSERVERS have to submit their requests through their respective Agent Banks so that their Agent Banks may register with the Company Secretary of Hong Leong Asia Ltd. *I/We, with NRIC/Passport No. of being a *member/members of HONG LEONG ASIA LTD. (the Company ), hereby appoint Name Address NRIC/Passport Number Proportion of Shareholdings (%) and/or (delete as appropriate) as *my/our *proxy/proxies to vote for *me/us and on *my/our behalf at the Forty-Eighth Annual General Meeting of the Company (the AGM ) to be held at Grand Copthorne Waterfront Hotel, Riverfront 1 & 2, Level 2, 392 Havelock Road, Singapore on Thursday, 30 April 2009 at 3.00 p.m. and at any adjournment thereof. *I/We direct *my/our *proxy/proxies to vote for or against the Resolutions to be proposed at the AGM as indicated with an X in the spaces provided hereunder. If no specific direction as to voting is given or in the event of any other matter arising at the AGM, *my/our *proxy/proxies will vote or abstain from voting at the discretion of *my/our *proxy/proxies. No. Resolutions For Against A. ORDINARY BUSINESS: 1. Adoption of Reports and Accounts 2. Declaration of Final Dividend 3. Approval of Directors Fees and Audit Committee Fees 4. Re-election of Directors: (i) Mr Kwek Leng Peck (ii) Mr Ernest Colin Lee 5. Re-appointment of Mr Quek Shi Kui as Director under Section 153(6) of the Companies Act, Chapter Re-appointment of Messrs KPMG LLP as Auditors B. SPECIAL BUSINESS: 7. Authority for Directors to issue shares and/or make or grant offers, agreements or options pursuant to Section 161 of the Companies Act, Chapter 50 and the listing rules of the Singapore Exchange Securities Trading Limited 8. Approval of Share Placement Discount 9. Authority for Directors to offer and grant options and to issue shares in accordance with the provisions of the Hong Leong Asia Share Option Scheme Renewal of Share Purchase Mandate 11. Renewal of Shareholders Mandate for Interested Person Transactions Dated this day of 2009 Total No. of Shares Held * Delete accordingly Signature(s) of Notes: See overleaf Member(s)/Common Seal

116 NOTES : 1. A member of the Company entitled to attend and vote at the AGM is entitled to appoint one or two proxies to attend and vote in his/her stead. A proxy need not be a member of the Company. 2. Where a member appoints two proxies, the appointments shall be invalid unless he specifies the proportion of his shareholding (expressed as a percentage of the whole) to be represented by each proxy. 3. Completion and return of this instrument appointing a proxy shall not preclude a member from attending and voting at the AGM. Any appointment of a proxy or proxies shall be deemed to be revoked if a member attends the AGM in person, and in such event, the Company reserves the right to refuse to admit any person or persons appointed under the instrument of proxy, to the AGM. 4. Please insert the total number of shares held by you. If you have shares entered against your name in the Depository Register (as defined in Section 130A of the Companies Act, Chapter 50 of Singapore), you should insert that number of shares. If you have shares registered in your name in the Register of Members of the Company, you should insert that number of shares. If you have shares entered against your name in the Depository Register and shares registered in your name in the Register of Members, you should insert the aggregate number of shares. If no number is inserted, this instrument of proxy will be deemed to relate to all the shares held by you. 5. This instrument of proxy must be signed by the appointor or his attorney duly authorised in writing. Where the instrument appointing a proxy or proxies is executed by a body corporate, it must be executed either under its common seal or under the hand of its attorney or a duly authorised officer. 6. A body corporate which is a member may also appoint by resolution of its directors or other governing body an authorised representative or representatives in accordance with its Articles of Association and Section 179 of the Companies Act, Chapter 50 of Singapore to attend and vote for and on behalf of such body corporate. 7. This instrument appointing a proxy or proxies (together with the power of attorney, if any, under which it is signed or a certified copy thereof), must be deposited at the Secretary s Office at 36 Robinson Road, #03-01 City House, Singapore not less than 48 hours before the time fixed for holding the AGM. 8. The Company shall be entitled to reject this instrument of proxy if it is incomplete, improperly completed or illegible or where the true intentions of the appointor are not ascertainable from the instructions of the appointor specified in this instrument of proxy. In addition, in the case of shares entered in the Depository Register, the Company may reject any instrument appointing a proxy or proxies lodged if the member, being the appointor, is not shown to have shares entered against his name in the Depository Register as at 48 hours before the time appointed for holding the AGM as certified by The Central Depository (Pte) Limited to the Company. 9. Agent Banks acting on the request of CPF Investors who wish to attend the AGM as Observers are required to submit in writing, a list with details of the investor s name, NRIC/Passport number, addresses and number of shares held. The list, signed by an authorised signatory of the agent bank, should reach the Company Secretary, at the Secretary s Office at 36 Robinson Road, #03-01 City House, Singapore , not less than 48 hours before the time fixed for holding the AGM. Fold Here PROXY FORM Affix Stamp Here The Company Secretary HONG LEONG ASIA LTD. 36 Robinson Road #03-01 City House Singapore Fold Here

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119 OPERATING Network CORPORATE OFFICE Hong Leong Asia Ltd. 16 Raffles Quay #26-00, Hong Leong Building, Singapore Tel: (65) (17 Lines) Fax: (65) / Hong Leong Asia (Shanghai) Co., Ltd. Room 1006, Urban Development International Tower, No. 355 Hongqiao Road, Shanghai , People s Republic of China Tel: (86) /12/13/15 Fax: (86) CONSUMER PRODUCTS Henan Xinfei Electric Co., Ltd. Henan Xinfei Household Appliance Co., Ltd. Henan Xinfei Refrigeration Appliances Co., Ltd. 370 Hong Li Road, Xinxiang, Henan , People s Republic of China Tel: (86) Fax: (86) DIESEL ENGINES Executive Office China Yuchai International Limited 16 Raffles Quay #39-01A, Hong Leong Building, Singapore Tel: (65) (17 Lines) Fax: (65) Guangxi Yuchai Machinery Company Limited 88 Tianqiao West Road, Yulin, Guangxi, People s Republic of China Tel: (86) Fax: (86) INDUSTRIAL PACKAGING Hong Leong (China) Limited 14 Ang Mo Kio St. 63, Singapore Tel: (65) Fax: (65) Shanghai Rex Packaging Co., Ltd 1500 Bei Song Road, Minhang District, Shanghai , People s Republic of China Tel: (86) Fax: (86) Tianjin Rex Packaging Co., Ltd. 167 Dongting Road, Tianjin Economic & Technological Development Area, , People s Republic of China Tel: (86) Fax: (86) Dongguan Rex Packaging Company Limited Su Keng, Chang Ping, Dongguan, Guangdong Province , People s Republic of China Tel: (86) Fax: (86) Rex Plastics (Malaysia) Sdn. Bhd. Lot 45 Jalan Delima 1/1, Subang Hi-Tech Industrial Park, Shah Alam, Selangor Darul Ehsan, Malaysia Tel: (603) Fax: (603) Rexpak Sdn. Bhd. Lot 45 Jalan Delima 1/1, Subang Hi-Tech Industrial Park, Shah Alam, Selangor Darul Ehsan, Malaysia Tel: (603) Fax: (603) PT Rexplast Jl. Berbek Industri V/10, Sidoarjo East Java, Indonesia Tel: (62) /9 Fax: (62) GREEN PACKAGING GPac Technology (S) Pte. Ltd. 14 Ang Mo Kio St. 63, Singapore Tel: (65) Fax: (65) GPac Technology (M) Sdn. Bhd. PLO 19, Jalan Persiaran Teknologi, Taman Teknologi Johor, Senai, Johor, Malaysia Tel: (607) Fax: (607) BUILDING MATERIALS Cement & Granite Division HL Building Materials Pte. Ltd. 43/45 Sungei Kadut Street 4, Singapore Tel: (65) Fax: (65) Tasek Corporation Berhad Persiaran Tasek, Tasek Industrial Estate, Ipoh, Perak, Malaysia Tel: (605) Fax: (605) Singapore Cement Manufacturing Company (Private) Limited 43/45 Sungei Kadut Street 4, Singapore Tel: (65) Fax: (65) Ready-mix Concrete Division Island Concrete (Private) Limited 43/45 Sungei Kadut Street 4, Singapore Tel: (65) Fax: (65) Pre-cast Concrete Division HL Building Materials Pte. Ltd. 7A Tuas Avenue 13, Singapore Tel: (65) Fax: (65) Steel Division Angkasa Hong Leong Pte Ltd No. 20 Woodlands Loop, Singapore Tel: (65) Fax: (65) Quarry Division PT. Karimun Granite Plaza Kebon Sirih Lantai 1, Unit P1-08, Jalan Kebon Sirih No , Jakarta 10340, Indonesia Tel: (021) /7 Fax: (021) OTHERS HL Global Enterprises Limited 70 Shenton Way, #20-01 Marina House, Singapore Tel: (65) Fax: (65) Thakral Corporation Ltd 20 Upper Circular Road, #03-06 The Riverwalk, Singapore Tel: (65) Fax: (65) Produced by: Group Corporate Affairs Hong Leong Group Singapore Designed & Printed by: Xpress Print Pte Ltd

120 HONG LEONG ASIA LTD. Co. Reg. No G