Annual Report 2010 KLW HOLDINGS LIMITED

Transcription

1 Annual Report 2010 KLW HOLDINGS LIMITED

2 This annual report has been reviewed by the Company s sponsor, KW Capital Pte. Ltd., for compliance with the relevant rules of the Singapore Exchange Securities Trading Limited ("SGX-ST"). The Company s Sponsor has not independently verified the contents of this annual report. This annual report has not been examined or approved by the SGX-ST and the SGX-ST assumes no responsibility for the contents of this annual report, including the correctness of any of the statements or opinions made or reports contained in this annual report. The details of the contact person for the Sponsor is: Name : Mr Yang Eu Jin (Registered Professional, KW Capital Pte. Ltd.) Address : 80 Raffles Place, #25-01, UOB Plaza 1 Singapore Tel :

3 Growth Goals are achieved through successful breakthroughs. Before that can happen, a few vital values and practices must be embraced: effective leadership, a strong strategic plan and recognising new opportunities, pushing the limits through resilience, and building solid teamwork. Reaching out in motion, with these elements in place, obstacles can be overcome and new breakthroughs gained. KLW is still active in their Go Green mission; hence the colour green is used to indicate their eco-friendly focus.

4 crafting out a strong strategic plan

5 CONTENTS 05 CHAIRMAN S STATEMENT 07 MARKET PRESENCE FOR KLW GROUP OF COMPANIES 09 BUSINESS DIVISIONS 11 BOARD OF DIRECTORS AND KEY MANAGEMENT 13 REPORT ON CORPORATE GOVERNANCE 22 FINANCIAL CONTENTS

6 manage with effective leadership

7 Due to liquidation, Barang Barang shifted out from our warehouse space in February 2010, hence experiencing a drop in rental income. It was only in May 2010 when UPS took up the space. CHAIRMAN S STATEMENT On behalf of the Board, I would like to sincerely thank our shareholders, customers, suppliers and business associates communities for their support. In FY 2010, KLW Group experienced a tough year. We had to address a rapidly deteriorating issue: the closure of our furniture retail business Barang Barang Group of Companies in Singapore and Malaysia. The overwhelming operating cost made the business unsustainable and it was a tight ship to run. It was a painful decision to make but we quickly focused on consolidating the Group s core strength, which is the door division while progressing with a new alliance from Malaysia. Koperasi Permodalan Felda Malaysia Berhad has agreed to take up a 30% stake of our door division. Although there is still much to recover from the loss, we enter FY 2011 in a more confident position. FINANCIAL HIGHLIGHTS KLW registered a turnover of $53 million in FY 2010 and a 5% decline as compared to $56 million of revenue in FY In FY 2010, we experienced a net loss of $5.9 million. Facing the closure of Barang Barang, KLW s turnover was slightly alleviated by a 16% increase from the door division. Over the course of FY2010, KLW s loss per share stood at $1.08 and a net tangible asset value of $1.48 per share. On the optimistic aspect, we benefitted a satisfying increase from manufacturing. We also enjoyed an increase of 16% compared to $27 million in FY Our factory in China, which performed well, has now become our profitable arm. Increasingly, we are steering our focus to China through establishing firm ground by setting up another factory. It will be strategically built near our present factory to keep the muscle of the development taut. The evident demand from our customers continued to grow, signalling a healthy state of growth for our business. The revenues from trading businesses have made significant progress by 9%, from $18 million in 2009 to a well-performed $19 million this year. The business was able to adjust to the ever changing market conditions and it pulled on the glowing economic facelift. At the same time, we saw the project and rental income increased by 40% from $1.3 million in 2009 to $1.9 million this year. There is still much to be addressed but we are certainly entering 2011 with a much stronger focus. KLW is undeterred despite the recent gloomy circumstances. It showcased a mark of ingenuity by securing three door contracts in FY2010, namely: The Wharf Residence, Waterfront Key and Primo Residences. The unhesitating move was spurred by Singapore s vibrant property markets and the company s clear sightedness. With such positive developments already pulsing in the pipeline, the turnover in FY2011 will be sharply averted. All is set to go in remarkable poise and gusto for KLW this year. STRATEGIES FOR 2011 A double-powered strategy from us, in terms of market expansion, we will be spreading our influence to the European and US markets for exports, that s one. Two, we will continue to secure project businesses from Singapore and the Middle East. It s a back-to-back plan for traversing new grounds and strengthening our present links Singapore and the Middle East. For now, these are plans revived to serve as practical solutions and ultimately stretching KLW to attain new objectives. In terms of capacity, a new factory in China will be operating in the third quarter of this year, and that is also another cornerstone to put KLW back on a competitive edge where it belongs. APPRECIATION I look forward to the continued support and understanding of all of our shareholders and investors. Lee Boon Teck Chairman and Executive Director KLW Holdings Limited Annual Report

8 recognising new opportunities KLW United States of America

9 MARKET PRESENCE FOR KLW GROUP OF COMPANIES KLW France Ireland United Kingdom TEENI China Hong Kong Malaysia Singapore Taiwan KLW China Malaysia Singapore KLW United Arab Emirates KLW Holdings Limited Annual Report

10 pushing the limits through resilience

11 BUSINESS DIVISIONS MANUFACTURING S$ by Millions TRADING S$ by Millions RENTAL & PROJECTS S$ by Millions KLW Holdings Limited Annual Report

12 building solid teamwork BOARD OF DIRECTORS Lee Boon Teck Executive Chairman Mr Lee Boon Teck, 43, was one of the founders of KLW Singapore in He was first appointed on 15 June 1995 as Director and was last re-elected on 27 April 2009 as the Group s Executive Chairman. He was trained in Building Engineering and has more than 20 years of experience and valuable expertise in the door manufacturing business. He led the company s listing under KLW Holdings Limited on September 1998 and is currently involved in the management of the Group and formulating the Group s overall strategies. Ho Pong Chong** Independent Director Mr Ho Pong Chong, 58, was first appointed as the Group s Independent Director on 15 July 2002 and was last re-elected on 29 April He is Chairman of the Board s Audit and Nominating Committees and a member of its Remuneration Committee. He has been with the KLW Board for the past 8 years. He is currently the Managing Director of Well Global Investments Pte Ltd and Executive Director of Nirvana Memorial Garden Pte Ltd. ** Appointed as Lead Independent Director from 31 March 2010 Teo Hin Guan Independent Director Mr Teo Hin Guan, 60, was first appointed as the Group s Independent Director on 31 March 2004 and was last re-elected on 26 April He is Chairman of the Board s Remuneration Committee and a member of its Audit and Nominating Committees. Currently a Director of a manufacturing company in Malaysia, he has more than 30 years experience in the Banking Industry. Low Hai Lee Independent Director Mr Low Hai Lee, 53, was first appointed as the Group s Independent Director on 16 August 2007 and was last re-elected on 29 April He is a member of the Company's Audit and Remuneration committees. He has more than 20 years of experience in the Banking Industry. He now provides corporate and financial advisory constancy work for corporations in the region.

13 KEY MANAGEMENT FINANCIAL MANAGEMENT Gaw Kuan Ching, Jaslin KLW Holdings Limited Group Financial Controller Ms Jaslin Gaw, 35, is responsible for the full spectrum of financial management for the Group. She has more than 10 years of accounting, corporate finance and internal control experiences with a degree in Accounting and Business from the Staffordshire University in UK. Prior to her appointment as Group Financial Controller, she was the Finance Manager for the Group since year Ngo Yu Peng, Felicia KLW Holdings Limited Group Finance & HR Manager Ms Felicia Ngo, 30, joined KLW Holdings Limited in 2003 and is in charge of the financial accounting aspects of the Group. Prior to joining the Group, she was with Deloitte & Touche LLP as an Accounts officer. She is accredited with Association of Charted Certified Accountants (ACCA) since year 2003 and is also CPA certified with Institute of Certified Public Accountants of Singapore (ICPAS) since year Goh Eng Kiat KLW Resources Sdn Bhd Senior Finance Manager Mr Goh Eng Kiat, 35, joined the Malaysia Door division in He is currently in charge of the financial management and reporting of the Door division in Singapore, Malaysia and China. Prior to joining the Group, he was an auditor armed with an Advanced Diploma in Financial Accounting. His more than 10 years of financial accounting experience has contributed greatly to the Door division s reporting system. OPERATIONS MANAGEMENT Low Yin Sen KLW Wood Products (M) Sdn Bhd Executive Director & CEO Mr Low Yin Sen, 52, joined the Malaysia factory in 2005 and currently manages the overall operations of KLW Wood Products (M) Sdn Bhd. Prior to joining the Group, he was Senior Manager for a wood manufacturing business in Malaysia. To date, Mr Low has more than 20 years of experience in the wood manufacturing industry in Malaysia with a degree in Mechanical Engineering from the University College of Swansea, Wales in UK. Peh Eng Thong, Eric KLW Joinery Pte Ltd Operation Director Mr Eric Peh, 40, joined KLW Singapore s project division in 1996 and is now in charge of the Group s project business in Singapore. He has been the Project Manager and Factory Manager within the Group during his more than 10 years of service with the Group. Mr Peh holds a Bachelor of Science (Computing with Management) (Hons) degree from the University of Bradford, UK. Koh Wee Ann, Sam Dongguan Lebex Doors Ltd General Manager Mr Sam Koh, 28, joined the Group in 2006 and is now in charge of the Group s China factory. He started with the Group s Malaysia factory after graduation from Universiti Putra Malaysia majoring in Forestry degree. Due to outstanding performance, he was seconded to China to set up the factory in 2008 and has been there managing the operation since. Mohd Fauzi Bin Mohd Nazir KLW Wood Products (M) Sdn Bhd Executive Director Mr Mohd Fauzi Bin Mohd Nazir, 51, joined the Malaysia factory in He is responsible for the Business Development, Marketing and Research and Development of the Malaysian business. Prior to joining the Group, he was with a reputable door company managing the Sales and Marketing for its European and UK markets. He has more than 20 years of experience in door sales and marketing armed with a Diploma in Marketing. Lee Wan Cha, Adeline KLW Joinery Pte Ltd General Manager Ms Adeline Lee, 36, joined the Group in 2004 and is now responsible for the management of Singapore s project business. Prior to taking over the project business, she was one of the key personnel in growing the Group s door export business to its current size. Ms Lee holds a degree in Business and Marketing from the University of Portsmouth, UK. Tay Yong Hwa Teeni Group Managing Director Mr Tay Yong Hua, 45, is Managing Director of the Teeni Group. In this capacity, he oversees operations of the Group s Singapore headquarters as well as its subsidiaries in China, Hong Kong, Taiwan and Malaysia. Mr Tay has more than 25 years of experience in the business of beauty implements, cosmetics, hair accessories and skin care products. KLW Holdings Limited Annual Report

14 REPORT ON CORPORATE GOVERNANCE

15 REPORT ON CORPORATE GOVERNANCE The Board of Directors (Board) and Management of the Group continue to be committed to maintain a high standard of corporate governance to protect the interests of shareholders, employees, customers, creditors and to promote investors confi dence. The Company has adopted practices based on the Code of Corporate Governance 2005 ( the Code ) issued by the Ministry of Finance. The Board is pleased to confi rm that the principles and guidelines set out in the Code have substantially been adhered to. This Report describes the Company s corporate governance practices with reference to the Code. THE BOARD S CONDUCT OF AFFAIRS Principle 1: Every company should be headed by an effective Board to lead and control the company. The Board is collectively responsible for the success of the company. The Board works with Management to achieve this and the Management remains accountable to the Board. The Board s principal roles include promoting long-term shareholder value, ensuring that the business of the Group is effectively managed and properly conducted by executive management, and ensuring proper observance of corporate governance practices. Apart from its statutory duties and responsibilities, the Board s responsibilities include the following: Approving the board policies, strategies and fi nancial objectives of the Company and monitoring the performance of management; Identifying principal risks and ensuring implementation of internal control procedures to manage these risks; Approving the Group s major investments and funding decisions; and Assuming responsibility for corporate governance. The Board has established a number of committees to assist in the execution of the Board s responsibilities. These committees include the Nominating Committee (the NC ), Remuneration Committee (the RC ) and Audit Committee (the AC ). Each of the committee functions within clearly defi ned in its terms of reference. Prior to their respective appointments to the Board, each of the Directors was given an orientation on the Group s business operations. The Board holds meetings on a regular basis to consider and resolve major fi nancial and business matters of the Group. Where a decision has to be made before a Board meeting is convened, a directors resolution in writing is circulated in accordance with the Articles of Association of the Company and the directors are provided with all relevant information to allow them to make informed decisions. Informal meetings are held to deliberate on various operational issues when necessary. The Board has adopted a set of guidelines on matters that require its approval. The matters requiring the approval of the Board include the following: Material acquisitions and divestments of assets; Corporate strategy; and Dividends and other returns to shareholders. KLW Holdings Limited Annual Report

16 REPORT ON CORPORATE GOVERNANCE The attendance of the directors at meeting of the Board and Committees during the fi nancial year are tabulated below: Directors attendance at Board and Committees Meetings for the period from 01 January 2010 to 31 December 2010 Board Audit Committee Board Members No of Meetings Held No of Meetings Attended No of Meetings Held No of Meetings Attended Lee Boon Teck 4 4 N.A N.A Ho Pong Chong Teo Hin Guan Low Hai Lee Board Members No of Meetings Held/ Resolutions Passed Nominating Committee No of Meetings Attended/ Resolutions Signed Remuneration Committee No of Meetings Held No of Meetings Attended Lee Boon Teck 1 1 N.A N.A Ho Pong Chong Teo Hin Guan 1 1 Low Hai Lee N.A N.A 1 1 BOARD COMPOSITION & GUIDANCE Principle 2: There should be a strong and independent element on the Board, which is able to exercise objective judgment on corporate affairs independently, in particular, from Management. No individual or small group of individuals should be allowed to dominate the Board s decision making. The Board comprises the following members: Lee Boon Teck Ho Pong Chong Teo Hin Guan Low Hai Lee Executive Chairman Non-executive & Independent Non-executive & Independent Non-executive & Independent The Articles of Association of the Company imposes a maximum of fi fteen directors to the Board and a minimum of two. The NC is of the view that the current Board size of four directors is appropriate and effective, taking into account the scope and nature of the Company s operations. The NC further believes that the current Board comprises persons who as a group provide core competencies necessary to meet the Company s objectives. The NC determines the independence of directors based on the criteria of independence defi ned in the Code. The Committee is satisfi ed that the Independent Directors, who represent more than one-third of the Board, satisfy the criteria. The Independent Directors provide, amongst other things, strategic guidance to the Company based on their professional knowledge, in particular, assisting to constructively challenge and develop proposals on strategy. The Independent Directors also help review the performance of management in meeting agreed goals and objectives and monitor the reporting of performance. They may arrange for meetings without the management being present, at least on a yearly basis with the auditors of the company and at other times when deemed necessary. 14 KLW Holdings Limited Annual Report 2010

17 REPORT ON CORPORATE GOVERNANCE Key information on each director who collectively have experience in the areas of fi nance, manufacturing and strategic planning experience is set out on page 11 of the annual report. CHAIRMAN & MANAGING DIRECTOR Principle 3: There should be a clear division of responsibilities at the top of the company the working of the Board and the executive responsibility of the company s business which will ensure a balance of power and authority, such that no one individual represents a considerable concentration of power. The Executive Chairman, Lee Boon Teck is the only executive director on the Board. He assumes the executive responsibilities for the overall directions and operational duties of the Group to ensures quality, quantity and timeliness of the fl ow of information between Management and the Board; The Chairman monitors communication and relations between the company and its shareholders, between the Board and Management, between executive and non-executive directors as well as independent and non-independent directors, with a view to encourage constructive relations. The Chairman also promotes high standards of corporate governance. The Board is satisfi ed that there are suffi cient checks and balances to ensure decisions at Management level and at Board level are made with full participation by relevant persons. BOARD MEMBERSHIP & PERFORMANCE Principle 4: Principle 5: There should be a formal and transparent process for the appointment of new directors to the Board. There should be a formal assessment of the effectiveness of the Board as a whole and the contribution by each director to the effectiveness of the Board. The NC comprises of the following members: Chairman: Ho Pong Chong (Non-executive & Independent) Members: Lee Boon Teck (Executive Chairman) Teo Hin Guan (Non-executive & Independent) The Committee pursuant to its written terms of reference, shall:- regularly review the structure, size and composition of the Board and make recommendations to the Board with regard to any adjustments that are deemed necessary; annually review whether or not a director is independent, in accordance to paragraph 2 of the Code of Corporate Governance and other salient factors; be responsible for identifying and nominating for the approval of the Board, candidates to fi ll Board vacancies as and when they arises; be responsible for re-nomination having regard to the director s contribution or performance; review and decide whether or not a director is able to and has been adequately carrying out his / her duties as director of the Company; decide how the Board s performance may be evaluated and propose objective performance criteria; decide on the performance evaluation process; and assess the effectiveness of the Board as a whole and for assessing the contribution by each individual director to the effectiveness of the Board. KLW Holdings Limited Annual Report

18 REPORT ON CORPORATE GOVERNANCE It shall also make recommendations to the Board:- as regards plans for succession, in particular, of the Chairman and the Chief Executive / Managing Director; as regards the re-appointment of any non-executive director at the conclusion of his or her specifi ed term of offi ce; for the continuation (or not) in service of any director who has reached the age of seventy; concerning the re-election by shareholders of any director under the retirement by rotation provisions in the Company s Articles of Association, if necessary; concerning any matters relating to the continuation in offi ce as a director of any director at any time; and concerning the appointment of any director to executive or other offi cer other than to the positions of Chairman and the Chief Executive / Managing Director, the recommendation for which would be considered at a meeting of: (a) (b) all the non-executive directors regarding the position of the Chief Executive / Managing Director; and all the directors regarding the position of Chairman. In assessing the suitability of a candidate to be appointed to the Board, the NC will consider if he is able to make the appropriate contributions to the Board and the Group. The key factors which the NC will take into consideration are: qualifi cations, industry knowledge and functional expertise which are relevant and benefi cial to the Group; and extensive experience and business contacts in the industry in which the Group operates. The NC also assesses the independence of each director according to the guidance given under the code of Corporate Governance. In assessing the Directors contribution and performance of the Board, the NC takes into consideration the directors attendance, preparedness, participation and candour of the meetings. Pursuant to the Articles of Association of the Company, one-third of the directors other than the Managing Director will retire from offi ce at each Annual General Meeting (the AGM ). The directors submit themselves for re-appointment and re-election at regular intervals of at least once very three years. The directors who are submitted for re-election are found in the notice of AGM and proxy form. ACCESS TO INFORMATION Principle 6: In order to fulfil their responsibilities, Board members should be provided with complete, adequate and timely information prior to board meetings and on an on-going basis. Prior to each Board and AC meetings, the directors are provided with management reports pertaining to the operational and fi nancial performance of the Group and other relevant information related to the matters on the agenda for the meetings. The Executive Chairman highlights the business conditions and outlook of the Group when the Board meets. The AC has separate and independent access to the Management of the Group and the Company Secretary at all times. The Company Secretary administers, attends and prepares minutes of all Board and Committee meetings for circulation and approval. Should the directors need independent professional advice on matters affecting the Group, such cost will be borne by the Company. The appointment and removal of the company secretary is a matter for the Board to decide as a whole. The Company relies on directors and independent professionals to update themselves on new laws, regulations, and changing commercial risks. 16 KLW Holdings Limited Annual Report 2010

19 REPORT ON CORPORATE GOVERNANCE REMUNERATION COMMITTEE (THE RC ) Principle 7: Principle 8: Principle 9: There should be a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual directors. No director should be involved in deciding his own remuneration. The level of remuneration should be appropriate to attract, retain and motivate the directors needed to run the company successfully but companies should avoid paying more than is necessary for this purpose. A significant proportion of executive directors remuneration should be structured so as to link rewards to corporate and individual performance. Clear disclosure of remuneration policy, level and mix of remuneration and procedure for setting remuneration in the company s annual report. The RC comprises of the following members: Chairman: Teo Hin Guan (Non-executive & Independent) Members: Ho Pong Chong (Non-executive & Independent) Low Hai Lee (Non-executive & Independent) The objective of the RC is to facilitate appropriateness, transparency and accountability to shareholders on issues relating to remuneration of the directors and key executive management staffs of the Company. Members of the RC do not set their own remuneration and no director is involved in deciding his own remuneration. The Committee shall:- determine and agree with the Board the framework or broad policy for the Remuneration of the Company s Board and key executive, and to determine specifi c remuneration packages for each executive director and the Chief Executive Offi cer and such other members of the executive management as it is designated to consider; in determining such policy, take into account all factors which it deems necessary. The objective of such policy shall be to ensure that members of the executive management of the Company are provided with appropriate incentives to encourage enhanced performance and are, in a fair and responsible manner, rewarded for their individual contributions to the success of the Company; determine targets for any performance related pay schemes operated by the Company, taking into account pay and employment conditions within the industry and in comparable companies; within the terms of the agreed policy, determine the total individual remuneration package of each executive director including, where appropriate, allowances, bonuses, benefi ts in kind, incentive payments and share options; determine the policy for and scope of service agreements for the executive directors in the event of early termination including compensation commitments, including fi xing appointment period for the directors; determine the remuneration of non-executive directors, taking into factors such as efforts, time spent and the responsibilities; determine whether directors should be eligible for benefi ts under the long-term incentive scheme; The Group s policy is to set a level of remuneration that is appropriate to attract, retain and motivate all staff and directors. In discharging its functions, the RC may obtain independent external legal and other professional advice as it deems necessary. The expenses of such advice shall be borne by the Group. The Executive Director has a service contract with a fi xed appointment period and the RC reviews in particular termination provisions. Such service contracts are not excessively long and they do not contain onerous removal clauses. In the event of early termination, the Executive Director or the Company may, inter alia, terminate the service agreement by giving to the other party, inter alia, not more than six months notice in writing, or in lieu of notice in writing. KLW Holdings Limited Annual Report

20 REPORT ON CORPORATE GOVERNANCE The non-executive and independent directors do not have a service agreement with the Company. Except for directors fees, which need to be approved by shareholders at every AGM, the independent directors do not receive any other forms of remuneration from the Company. Hence, the board is of the view that it is not necessary to present its remuneration policy before shareholders for approval at the AGM. Details of the directors and key management executives remuneration are set out below. Disclosure of the directors remuneration and key management executives remuneration is also set out in Note 27 of the Financial Statements. portion attributable to: Salary Directors fee Bonus Remuneration band and name of directors % % % 2010 Executive Director Above $250,000 Lee Boon Teck 100 Non-executive Directors Below $250,000 Ho Pong Chong 100 Teo Hin Guan 100 Low Hai Lee 100 Remuneration of key executives who are not director Below $250,000 Gaw Kuan Ching, Jaslin 100 Low Yin Sen 100 Mohd Fauzi Bin Mohd Nazir 100 Peh Eng Thong 100 Tay Yong Hua Executive Director Above $250,000 Lee Boon Teck 100 Executive Director Below $250,000 Lim Kok Hui 100 Non-executive Directors Below $250,000 Ho Pong Chong 100 Teo Hin Guan 100 Low Hai Lee 100 Remuneration of key executives who are not director Below $250,000 Gaw Kuan Ching, Jaslin 100 Low Yin Sen 100 Peh Eng Thong 100 Tay Yong Hua KLW Holdings Limited Annual Report 2010

21 REPORT ON CORPORATE GOVERNANCE REMUNERATION OF EMPLOYEES WHO ARE IMMEDIATE FAMILY MEMBERS OF A DIRECTOR Two employees of the Group are immediate family members of the Chairman. The remuneration of each of these employees did not exceed $150,000 during the fi nancial year ended 31 December ACCOUNTABILITY & AUDIT Principle 10: The Board should present a balanced and understandable assessment of the company s performance, position and prospects. The Board provides shareholders with annual fi nancial reports and announces promptly half yearly and yearly fi nancial results. In presenting the fi nancial statements through reports and announcements, it is the aim of the Board to provide the shareholders with detailed analysis and a balanced and understandable assessment of the company s performance, position and prospects. The Management provides the Board with a continual fl ow of relevant information on a quarterly basis in order that it may effectively discharge its duties and the Board is of the view that the information provided on a quarterly basis is suffi ciently effective for it to discharge its duties. AUDIT COMMITTEE Principle 11: The Board should establish an Audit Committee ( AC ) with written terms of reference which clearly set out its authority and duties. The AC comprises of the following members: Chairman: Ho Pong Chong (Non-executive & Independent) Members: Teo Hin Guan (Non-executive & Independent) Low Hai Lee (Non-executive & Independent) The AC s primary function is to provide assistance to the Board of Directors in fulfi lling its responsibility relating to corporate accounting and auditing, reporting practices of the Company, the quality and integrity of the fi nancial reports of the Company, and the Company s system of internal controls regarding fi nance, accounting, legal compliance and ethnics established by the Management and the Board. The Committee s statutory functions are:- to review with the internal and external auditors, their audit plans; to review with the internal and external auditors, their evaluation of the Group s system of internal controls; to review with the internal and external auditors, their audit reports; to review the cooperation / assistance given by the Company s offi cers to the internal and external auditors; to review the scope and results of the internal audit procedures; to review the balance sheet and profi t and loss account of the Company and the consolidated balance sheet and profi t and loss account and to submit them to the Board; to nominate and review the appointment or re-appointment of external auditors. The Company has put in place a whistle-blowing policy and procedures which provide employees with accessible channels to the AC for reporting suspected fraud, corruption, dishonest practices or other similar matters. The aim of this policy is to encourage the reporting of such matters in good faith, with the confi dence that employees making such reports will be treated fairly and, to the extent possible, be protected from reprisal. KLW Holdings Limited Annual Report

22 REPORT ON CORPORATE GOVERNANCE INTERNAL CONTROL Principle 12: The Board should ensure that the Management maintains a sound system of internal controls to safeguard the shareholders investments and the company s assets. The Board acknowledges that it is responsible for the overall internal control framework, but recognises that no cost effective internal control system will preclude all errors and irregularities, as a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can provide only reasonable and not absolute assurance against material misstatement or loss. The AC has been given full access to and is provided with the co-operation of the Group s management. In addition, the AC has independent access to the external auditors. The AC meets with the external auditors without the presence of management and reviews the effectiveness of the internal controls established by management, at least once a year. The AC has reasonable resources to enable it to discharge its functions properly. The Board believes that, in the absence of any evidence to the contrary, the system of internal controls maintained by the Group s management that was in place throughout the year and up to the date of this report, is adequate to meet the needs of the Group in its current business environment. The Board acknowledges that risk is inherent in business and there are commercial risks to be taken in the course of generating a return on business activities. The Board s policy is that risks should be managed within the Group s overall risk tolerance. The fi nancial risks and management policies of the Group are laid out on pages 74 to 82 of the Annual Report. INTERNAL AUDIT Principle 13: The Company should establish an internal audit function that is independent of the activities it audits. The Group has an internal auditor who reports directly to the Audit Committee and administratively to the Executive Chairman. The internal auditor did not have any qualifi cations from any bodies of Internal Auditors. He is from Philippines and has a degree in Accounting from Philippines University and has work experience as Internal Auditor with a bank in Philippines prior to joining us. The AC is of the view that given the current size and fairly simple organization of the Company, the internal auditor is competent to fufi l the requirements of the internal control checks. COMMUNICATION WITH SHAREHOLDERS Principle 14: Principle 15: Companies should engage in regular, effective and fair communication with shareholders. Companies should encourage greater shareholder participation at AGMs, and allow shareholders the opportunity to communicate their views on various matters affecting the company. In line with continuous disclosure obligations of the company pursuant to the SGX-ST s Listing Rules and the Singapore Companies Act, the Company endeavors to maintain constant and effective communications with shareholders through timely and comprehensive announcements. Material information helpful to shareholders is released on a timely basis. We disseminate our latest corporate news, strategies and announcement promptly through SGXNET and press releases. The Company welcomes active participation from shareholders at AGMs. To facilitate voting by shareholders, the Company s articles allow shareholders to vote by proxies. Proxy forms can be sent to the Company by mail. Each distinct issue is voted via separate resolutions at AGMs. The Board will address any queries raised by shareholders and call upon its professional service providers where it deem appropriate. All minutes of general meetings and a summary of the questions and answers raised at general meetings are available to shareholders upon their request. 20 KLW Holdings Limited Annual Report 2010

23 REPORT ON CORPORATE GOVERNANCE DEALINGS IN THE COMPANY S SECURITIES The Group has adopted an internal code to provide guidance to its offi cers with regards to dealings in the Company s securities. Its offi cers are not allowed to deal in the Company s shares during the period commencing one month before the announcement of the Company s full year and half year results and ending in the date of the announcement of the results or if they are in possession of unpublished price-sensitive information of the Group. They are also discouraged from dealing in the Company s shares on short-term considerations. EMPLOYEES SHARE OPTION SCHEME (THE ESOS ) The ESOS approved at the Extraordinary General Meeting on 21 October 1999, had expired on 20 October The share options granted in 2001 under the ESOS will be expiring on 3 May Please refer to page 24 (Share Options) of the Directors Report for further details on the ESOS. There has not been any other share option granted after MATERIAL CONTRACTS No material contracts have been entered into by the Company and its subsidiaries involving the interests of Chief Executive Offi cer, each Director or controlling shareholder subsisted at the end of the fi nancial year or have been entered into since the end of the previous fi nancial year. USE OF PROCEEDS ARISING FROM ADDITIONAL NEW SHARES 509,719,806 Rights Shares of S$0.01 each The total net proceeds of approximately S$3.4 million after offsetting S$1.7 million loan to the Company by the undertaking shareholders had been fully utilised by the Company and its subsidiaries (the Group ) as follows: (a) (b) (c) Approximately S$0.3 million for expenses incurred in relations to the issuance of shares; Approximately S$2.4 million for repayment of bank borrowings; and Approximately S$0.7 million for the Group s working capital. 356,000,000 Placement Shares of S$0.009 each The total net proceeds of approximately S$3.2 million had been fully utilised as follows: (a) (b) (c) Approximately S$0.05 million for expenses incurred in relations to the issuance of shares; Approximately S$2.0 million for repayment of bank borrowings; and Approximately S$1.15 million for the Group s working capital. NON-AUDIT FEES There was no non-audit fee paid to the External Auditors, Crowe Horwath First Trust LLP during the fi nancial year ended 31 December NON-SPONSOR FEES There was no non-sponsor fee paid to the Sponsor during the fi nancial year ended 31 December KLW Holdings Limited Annual Report

24 FINANCIAL CONTENTS 23 DIRECTORS REPORT 26 STATEMENT BY DIRECTORS 27 INDEPENDENT AUDITORS REPORT 30 BALANCE SHEETS 31 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 32 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 33 CONSOLIDATED STATEMENT OF CASH FLOWS 34 NOTES TO THE FINANCIAL STATEMENTS

25 DIRECTORS REPORT The directors present their report to the members together with the audited fi nancial statements of KLW Holdings Limited (the Company ) and its subsidiaries (the Group ) and the balance sheet of the Company as at 31 December DIRECTORS The directors of the Company in offi ce at the date of this report are as follows: Lee Boon Teck Ho Pong Chong Teo Hin Guan Low Hai Lee ARRANGEMENTS TO ENABLE DIRECTORS TO ACQUIRE BENEFITS BY MEANS OF THE ACQUISITION OF SHARES AND DEBENTURES Neither at the end of nor at any time during the fi nancial year was the Company a party to any arrangement whose object was to enable the directors of the Company to acquire benefi ts by means of the acquisition of shares in, or debentures of, the Company or any other body corporate. DIRECTORS' INTERESTS IN SHARES OR DEBENTURES According to the register kept by the Company for the purposes of section 164 of the Singapore Companies Act, Cap 50, none of the directors holding offi ce at the end of the fi nancial year had any interest in the shares or debentures of the Company or its related corporations, except as follows: At 1 January 2010 Shareholdings registered in name of director At 31 December 2010 At 21 January 2011 Shareholdings in which a director is deemed to have an interest At 1 January 2010 At 31 December 2010 At 21 January 2011 Company Ordinary shares Lee Boon Teck 21,417,500 22,386,000 22,386, ,215, ,215,500 Teo Hin Guan 520,000 1,560,000 1,560,000 DIRECTORS' CONTRACTUAL BENEFITS Since the end of the previous fi nancial year, no director has received or become entitled to receive a benefi t by reason of a contract made by the Company or a related corporation with the director or with a fi rm of which the director is a member or with a company in which the director has a substantial fi nancial interest, except for salaries, bonuses and other benefi ts as disclosed in the fi nancial statements. A director received remuneration from related corporations in his capacity as director. KLW Holdings Limited Annual Report

26 DIRECTORS REPORT SHARE OPTIONS KLW Employees Share Option Scheme The KLW Employees Share Option Scheme (the Scheme ) was approved by members of the Company at an Extraordinary General Meeting on 21 October Particulars of the options granted in 2000 and 2001 under the Scheme (known as the 2000 Options and 2001 Options ) were set out in the Directors Reports for the respective fi nancial years. The Employee Share Option Scheme Committee comprising the following directors administer the Scheme: Lee Boon Teck Ho Pong Chong (Chairman) The option granted under the Scheme were not valued as they were granted before 22 November 2002 and were therefore not required to be valued under the Singapore Financial Reporting Standards. Details of the options granted to employee of the Company are as follows: Number of unissued ordinary shares of the Company under option Scheme Exercise period Balance of 1 January 2010 Total granted Total exercised Total lapsed Balance at 31 December 2010 Exercise price 2000 Options to ,000 (239,000) $ Options to , ,000 $ ,000 (239,000) 330,000 Except as disclosed above, during the fi nancial year, there were: no share options granted during the fi nancial year to subscribe for unissued shares of the Company or any of its subsidiaries; and no shares of the Company were allotted and issued by virtue of the exercise of options to take up unissued shares of the Company or any of its subsidiaries. AUDIT COMMITTEE The members of the Audit Committee at the end of the fi nancial year are as follows: Ho Pong Chong Teo Hin Guan Low Hai Lee (Chairman) The Audit Committee carried out its functions in accordance with Section 201B(5) of the Singapore Companies Act, Cap. 50, the Listing Manual of the Singapore Exchange Securities Trading Limited and the Code of Corporate Governance. In performing those functions, the Audit Committee reviewed: the scope and the results of internal audit procedures with the internal auditor; the audit plan of the Company s independent auditors and any recommendations on internal accounting controls arising from the statutory audit; 24 KLW Holdings Limited Annual Report 2010

27 DIRECTORS REPORT AUDIT COMMITTEE (Continued) the assistance given by the Company s management to the independent auditors; the periodic results announcements prior to their submission to the Board for approval; the balance sheet of the Company and the consolidated fi nancial statements of the Group for the fi nancial year ended 31 December 2010 prior to their submission to the Board of Directors, as well as the independent auditors report on the balance sheet of the Company and the consolidated fi nancial statements of the Group; and interested person transactions (as defi ned in Chapter 9 of the Listing Manual of the Singapore Exchange Securities Trading Limited). The Audit Committee has recommended to the Board of Directors that the independent auditors, Crowe Horwath First Trust LLP, be nominated for re-appointment at the forthcoming Annual General Meeting of the Company. The Audit Committee has conducted an annual review of non-audit services to satisfy itself that the nature and extent of such services will not prejudice the independence and objectivity of the external auditors before confi rming their re-nomination. Further details regarding the Audit Committee are disclosed in the Report on Corporate Governance. INDEPENDENT AUDITORS The independent auditors, Crowe Horwath First Trust LLP, have expressed their willingness to accept re-appointment as auditors of the Company. On behalf of the Board of Directors LEE BOON TECK Director HO PONG CHONG Director 7 April 2011 KLW Holdings Limited Annual Report

28 STATEMENT BY DIRECTORS In the opinion of the directors, (a) (b) the balance sheet of the Company and the consolidated fi nancial statements of the Group as set out on pages 30 to 84 are drawn up so as to give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2010 and of the results, changes in equity and cash fl ows of the Group for the fi nancial year then ended; 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. On behalf of the Board of Directors LEE BOON TECK Director HO PONG CHONG Director 7 April KLW Holdings Limited Annual Report 2010

29 INDEPENDENT AUDITORS REPORT to the members of KLW Holdings Limited Report on the Financial Statements We have audited the accompanying fi nancial statements of KLW Holdings Limited (the Company ) and its subsidiaries (the Group ) set out on pages 30 to 84, which comprise the consolidated balance sheet and the balance sheet of the Company as at 31 December 2010, and the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash fl ows of the Group for the fi nancial year then ended, and a summary of signifi cant accounting policies and other explanatory information. Management s Responsibility for the Financial Statements Management is responsible for the preparation of fi nancial statements that give a true and fair view in accordance with the provisions of the Singapore Companies Act (the Act ) and Singapore Financial Reporting Standards, and for devising and maintaining a system of internal accounting controls suffi cient 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 profi t and loss accounts and balance sheets and to maintain accountability of assets. Auditors Responsibility Our responsibility is to express an opinion on these fi nancial statements based on our audit. Except as discussed below, 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 about whether the fi nancial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fi nancial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the fi nancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation of the fi nancial statements that give a true and fair view 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 fi nancial statements. We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our qualifi ed audit opinion. Basis for Qualifi ed Opinion The fi nancial statements for the fi nancial year ended 31 December 2009 ( FY2009 ) were audited by another fi rm of certifi ed public accountants (the Preceding Auditors ), whose report dated 15 April 2010 expressed a disclaimer of opinion on those fi nancial statements due to the following: (i) As at the date of their report, the Preceding Auditors were unable to complete the audit of Barang Barang Pte Ltd ( BBPL ) all its accounting staff were laid off and the accounting records were handed over to the liquidator. The management accounts for the fi nancial year ended 31 December 2009, which were prepared by the directors on a going concern basis, were used for consolidation purposes. Based on existing circumstances as at the date of their report, the Preceding Auditors was of the view that management s use of the going concern assumption in the preparation of the fi nancial statement was not appropriate. Owing to the limitation of scope where no audit was performed, the Preceding Auditors were unable to determine the extent of the adjustments that should be effected on the impact of BBPL being placed on liquidation if the appropriate basis of preparing and presenting the fi nancial statements were adopted. As at 31 December 2009, BBPL s total assets and liabilities included in the Group s balance sheet amounted to S$4,014,715 and S$6,376,211, respectively. Its revenue and loss for the fi nancial year included in the consolidated statement of comprehensive income amounted to S$7,813,658 and S$8,918,935 respectively. KLW Holdings Limited Annual Report

30 INDEPENDENT AUDITORS REPORT to the members of KLW Holdings Limited (ii) The Preceding Auditors were also unable to satisfy themselves on the appropriateness of the going concern assumption used to prepare the audited fi nancial statement of Barang Barang Lifestyle Sdn Bhd ( BBLSB ) included in the Group fi nancial statements. Based on their post balance sheet review of the fi nancial statement of the BBLSB, the Preceding Auditors was of the view that management s use of the going concern assumption in the preparation of the fi nancial statements may not be appropriate. As at 31 December 2009, BBLSB s total assets and liabilities included in the Group s balance sheet amounted to RM2,128,329 (equivalent to S$868,358) and RM675,410 (equivalent to S$275,567) respectively. Its revenue and loss for the fi nancial year included in the consolidated statement of comprehensive income amounted to RM3,144,853 (equivalent to S$1,297,755) and RM3,522,388 (equivalent to S$1,453,572). We discuss below the extent to which the matters that gave rise to the disclaimer of opinion in respect of the FY2009 Financial Statements that remained unresolved, insofar as they impact both the corresponding and current year s fi gures provided in the current fi nancial statements as well as other additional matters that relate to the current year s fi nancial statements. (i) During the fi nancial year, two subsidiaries, namely Barang Barang Pte Ltd ( BBPL ) and Barang Barang Lifestyle Sdn Bhd ( BBLSB ), were placed under creditors voluntary liquidation on 10 February 2010 and 31 March 2010, respectively. On 24 December 2010, the appointed liquidator of BBPL offi cially lodged the liquidators report to Accounting and Corporate Regulatory Authority ( ACRA ) and the Insolvency and Public Trustee s Offi ce ( IPTO ). On 24 March 2011, 3 months after the date of lodgment, BBPL was formally dissolved. In view of the above and of those matters mentioned by the Preceding Auditors, we were unable to perform the audit procedures necessary to obtain suffi cient and appropriate audit evidence regarding the fi nancial position of BBPL as at 1 January (ii) (iii) As at the date of this report, BBLSB is still in the process of liquidation. We were similarly unable to obtain suffi cient and appropriate audit evidence regarding the fi nancial position of BBLSB as at 1 January As disclosed in Note 9 to the consolidated fi nancial statements, the Group recorded a net loss of $3,433,660 on the liquidation of the two subsidiaries, BBPL and BBLSB for the current fi nancial year ended 31 December As we were unable to audit the fi nancial positions of the abovementioned subsidiaries that was liquidated / being liquidated as detailed above, we were also unable to determine if the resultant net loss on liquidation was properly and accurately recorded in the consolidated statement of comprehensive income. Qualifi ed Opinion In our opinion, except for the possible effects of the matters described in the Basis for Qualifi ed Opinion paragraph, the balance sheet of the Company and the consolidated fi nancial statements of the Group are properly drawn up in accordance with the provisions of the Act and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2010, and of the results, changes in equity and cash fl ows of the Group for the fi nancial year then ended on that date. Emphasis of matter Without qualifying our opinion, we draw attention to Note 2 to the fi nancial statements. As at 31 December 2010, the Company and the Group s current liabilities have exceeded its current assets by $5,508,155 and $878,363 respectively. The fi nancial statements of the Company and Group have been prepared on a going concern basis as the Company has embarked on a fund raising exercise via share placements and the Group is also exploring various options to restructure or reorganise its businesses (Note 26). The fi nancial statements do not include any adjustments relating to the recoverability and classifi cation of recorded asset amounts and do not include any classifi cation of liabilities that may be necessary if the Company and the Group were unable to continue as a going concern. 28 KLW Holdings Limited Annual Report 2010