REPORT OF THE DIRECTORS 42 STATEMENT BY DIRECTORS 45 AUDITORS REPORT 46 CONSOLIDATED PROFIT AND LOSS ACCOUNT 47 BALANCE SHEETS 48 STATEMENTS OF

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1 REPORT OF THE DIRECTORS 42 STATEMENT BY DIRECTORS 45 AUDITORS REPORT 46 CONSOLIDATED PROFIT AND LOSS ACCOUNT 47 BALANCE SHEETS 48 STATEMENTS OF CHANGES IN EQUITY 49 CONSOLIDATED STATEMENT OF CASH FLOW 52 NOTES TO THE FINANCIAL STATEMENTS 54 DIRECTORS REPORT AND AUDITED FINANCIAL STATEMENTS F J Benjamin Holdings Ltd Co. Reg. No N

2 REPORT OF THE DIRECTORS The Directors of F J Benjamin Holdings Ltd (the Company ) are pleased to present their report together with the audited consolidated financial statements of the Company and its subsidiaries (the ) for the financial year ended and the balance sheet and statement of changes in equity of the Company for the financial year ended. DIRECTORS The names of the Directors of the Company in office at the date of this report are: - Mr Frank Benjamin Executive Chairman Mr Keith Tay Ah Kee Non-executive Deputy Chairman Mr Eli Manasseh Benjamin Chief Executive Officer Mr Douglas Jackie Benjamin Executive Director Ms Karen Chong Mee Keng Executive Director Mr Joseph Grimberg Independent Director Mr Reggie Thein Independent Director Ms Wong Ai Fong Independent Director Mr Timothy Chia Chee Ming Independent Director ARRANGEMENTS TO ENABLE DIRECTORS TO ACQUIRE SHARES AND DEBENTURES Neither at the end of nor at any time during the financial year was the Company a party to any arrangement whose object is to enable the Directors of the Company to acquire benefits by means of the acquisition of shares or debentures of the Company or any other body corporate. DIRECTORS INTERESTS IN SHARES AND DEBENTURES The following Directors, who held office at the end of the financial year had, according to the register of directors shareholdings required to be kept under Section 164 of the Singapore Companies Act, Cap. 50, an interest in the shares of the Company as stated below: - Direct interest Deemed interest At At At At Name of director Ordinary shares Mr Frank Benjamin 65,444,950 68,444,950 52,500,000 52,500,000 Mr Keith Tay Ah Kee 228, ,000 Mr Eli Manasseh Benjamin 23,237,050 23,487, , ,000 Mr Douglas Jackie Benjamin 120, ,000 10,000 10,000 Mr Joseph Grimberg 50,000 50,000 Ms Wong Ai Fong 35,000 35,000 Warrants Mr Frank Benjamin 22,144,950 1,818,950 10,500,000 1,114,000 Mr Keith Tay Ah Kee 28,000 28,000 Mr Eli Manasseh Benjamin 4,237, , , ,000 Mr Douglas Jackie Benjamin 120, ,000 10,000 10,000 Mr Joseph Grimberg 300, ,000 42

3 REPORT OF THE DIRECTORS DIRECTORS INTERESTS IN SHARES AND DEBENTURES (continued) There was no change in any of the above-mentioned interests between the end of the financial year and 21 July By virtue of Section 7 of the Singapore Companies Act, Cap. 50, Mr Frank Benjamin is deemed to have interests in the shares of all the subsidiaries of the Company in proportion to the Company s interests in the subsidiaries. Except as disclosed in this report, no other Director who held office at the end of the financial year had interests in shares, share options, warrants or debentures of the Company, or of related corporations, either at the beginning of the financial year, or date of appointment if later, or at the end of the financial year. DIRECTORS CONTRACTUAL BENEFITS Except as disclosed in the financial statements, since the end of the previous financial year, no Director of the Company has received or become entitled to receive a benefit by reason of a contract made by the Company or a related corporation with the Director, or with a firm of which the Director is a member, or with a company in which the Director has a substantial financial interest. OPTIONS There were no options granted by the Company or its subsidiaries to any person to take up unissued shares in the Company or its subsidiaries during the financial year. AUDIT COMMITTEE The members of the Audit Committee at the date of this report are: Mr Reggie Thein (Chairman) Mr Joseph Grimberg Ms Wong Ai Fong The Audit Committee performed the functions specified in the Singapore Companies Act, Cap. 50 and the Listing Manual of the Singapore Exchange Securities Trading Limited as detailed in the Corporate Governance Report of the Annual Report. The Audit Committee has recommended to the Board of Directors the nomination of Ernst & Young as external auditors at the forthcoming Annual General Meeting of the Company. 43

4 REPORT OF THE DIRECTORS AUDITORS The auditors, Ernst & Young, Certified Public Accountants, have expressed their willingness to accept reappointment. On behalf of the Board Eli Manasseh Benjamin Director Karen Chong Mee Keng Director Singapore 11 September

5 STATEMENT BY DIRECTORS We, Eli Manasseh Benjamin and Karen Chong Mee Keng, being two of the Directors of F J Benjamin Holdings Ltd, do hereby state that, in the opinion of the Directors:- (i) (ii) the accompanying consolidated financial statements of the and the balance sheet and statement of changes in equity of the Company are drawn up so as to give a true and fair view of the state of affairs of the and of the Company as at and the results, changes in equity and cash flow of the and the changes in equity of the Company for the financial year ended on that date; 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 Eli Manasseh Benjamin Director Karen Chong Mee Keng Director Singapore 11 September

6 AUDITORS REPORT to the members of F J Benjamin Holdings Ltd We have audited the accompanying financial statements of F J Benjamin Holdings Ltd (the Company ) and its subsidiaries (the ), set out on pages 47 to 97, for the financial year ended. These financial statements are the responsibility of the Company s Directors. 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 plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Directors, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. In our opinion, (a) (b) the consolidated financial statements of the and the balance sheet and statement of changes in equity of the Company are properly drawn up in accordance with the provisions of the Singapore Companies Act, Cap. 50 (the Act ) and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the and of the Company as at, changes in equity of the and of the Company, the results and cash flow of the for the financial 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. ERNST & YOUNG Certified Public Accountants Singapore 11 September

7 CONSOLIDATED PROFIT AND LOSS ACCOUNT for the financial year ended Note Restated $ 000 $ 000 Revenue 4 187, ,658 Other income 5 5,251 4, , ,800 Costs and expenses Cost of goods sold 110,471 91,073 Staff costs 27,200 19,974 Rental of premises 15,246 12,683 Advertising and promotion 7,300 5,445 Depreciation of property, furniture, fixtures and equipment 10 3,869 3,381 Other operating expenses 15,298 13,650 Total costs and expenses 179, ,206 Operating profit 13,102 3,594 Exceptional items 6 1,221 1,456 Interest expense (1,908) (1,435) Share of results of associates 1,964 2,081 Profit before taxation 7 14,379 5,696 Taxation 8 (4,208) (1,434) Net profit for the financial year 10,171 4,262 Basic earnings per share (cents) Diluted earnings per share (cents) The accompanying policies and explanatory notes form an integral part of the financial statements. 47

8 BALANCE SHEETS as at Company Note Restated Restated $ 000 $ 000 $ 000 $ 000 Non-current assets Property, furniture, fixtures and equipment 10 69,370 69,019 35,857 34,380 Subsidiaries 11 75,537 71,531 Investment in joint ventures 12 Investment in associates 13 9,551 7,986 Other investments Other receivables 15 4,672 5, Deferred tax assets ,526 82, , ,344 Current assets Inventories 16 43,708 32,617 Trade debtors 17 29,074 19,708 Tax recoverable 1,579 1, Other debtors 18 7,961 5, Cash on hand and at banks 24,929 14,765 19,893 7, ,251 73,557 20,324 8,404 Current liabilities Trade and other creditors 19 52,023 36,005 2, Finance lease creditors Bank borrowings 21 19,910 20, Provision for taxation 2, ,727 57,538 2,824 2,040 Net current assets 32,524 16,019 17,500 6,364 Non-current liabilities Finance lease creditors Bank borrowings 21 17,949 18,361 11,200 11,200 Other liabilities 22 2,583 2,535 Deferred tax liabilities ,210 21,634 11,735 11,814 Net assets 95,840 77, , ,894 Equity attributable to equity holders of the Company Share capital 24 99,360 57,000 99,360 57,000 Share premium 24 26,685 26,685 Warrant reserve 25 25,175 28,025 25,175 28,025 Exchange translation reserve 26 (9,109) (7,204) Accumulated losses (19,710) (27,257) (7,044) (10,816) 95,716 77, , ,894 Preference shares issued by a subsidiary ,840 77, , ,894 The accompanying policies and explanatory notes form an integral part of the financial statements. 48

9 STATEMENTS OF CHANGES IN EQUITY for the financial year ended Attributable to equity holders of the Company Exchange Share Share Warrant translation Accumulated Minority Note capital premium reserve reserve losses interest Preference shares issued by a subsidiary Total equity $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 At 30 June 2005 as previously reported 57,000 26,685 28,025 (7,204) (27,128) 77,378 Effect of adopting FRS 16 (129) (129) At 30 June 2005 as restated 57,000 26,685 28,025 (7,204) (27,257) 77,249 Effect of adopting FRS 39 (116) (116) At 1 July 2005 as restated 57,000 26,685 28,025 (7,204) (27,373) 77,133 Net profit for the financial year 10,171 10,171 Exchange differences arising from consolidation recognised in equity (1,905) (1,905) Total recognised income and expenses for the year (1,905) 10,171 8,266 Dividend paid 35 (2,508) (2,508) Transfer of share premium to share capital account 26,685 (26,685) Exercise of warrants 15,675 (2,850) 12,825 Preference shares issued by a subsidiary At 99,360 25,175 (9,109) (19,710) ,840 The accompanying policies and explanatory notes form an integral part of the financial statements. 49

10 STATEMENTS OF CHANGES IN EQUITY for the financial year ended Note Attributable to equity holders of the Company Exchange Share Warrant translation Accumulated premium reserve reserve losses Share capital Minority interest Preference shares issued by a subsidiary Total equity $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 At 30 June 2004 as previously reported 57,000 26,685 28,025 (5,599) (29,707) 62 76,466 Effect of adopting FRS 16 (102) (102) At 30 June 2004 as restated 57,000 26,685 28,025 (5,599) (29,809) 62 76,364 Net profit for the financial year 4,262 4,262 Exchange differences arising from consolidation recognised in equity (1,461) (1,461) Exchange differences arising from the conversion of quasi equity loan to share capital 1,064 1,064 Realisation of translation gain upon liquidation of subsidiary (1,208) (1,208) Net income recognised directly in equity (1,605) (1,605) Total recognised income and expenses for the year (1,605) 4,262 2,657 Liquidation of a subsidiary (62) (62) Dividend paid (1,710) (1,710) At 30 June ,000 26,685 28,025 (7,204) (27,257) 77,249 The accompanying policies and explanatory notes form an integral part of the financial statements. 50

11 STATEMENTS OF CHANGES IN EQUITY for the financial year ended Note Share capital Share premium Warrant reserve Exchange translation reserve Accumulated losses Total equity $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 Company At 30 June ,000 26,685 28,025 (6,609) (27,518) 77,583 Effects of adopting FRS 27 6,609 16,702 23,311 At 30 June 2005 as restated 57,000 26,685 28,025 (10,816) 100,894 Net profit for the financial year 6,280 6,280 Dividend paid 35 (2,508) (2,508) Transfer of share premium to share capital account 26,685 (26,685) Exercise of warrants 15,675 (2,850) 12,825 At 99,360 25,175 (7,044) 117,491 At 30 June ,000 26,685 28,025 (2,947) (32,200) 76,563 Effects of adopting FRS 21 1,060 (1,060) Effects of adopting FRS 27 1,887 (516) 1,371 At 30 June 2004 as restated 57,000 26,685 28,025 (33,776) 77,934 Net profit for the financial year 24,670 24,670 Dividend paid (1,710) (1,710) As at 30 June ,000 26,685 28,025 (10,816) 100,894 The accompanying policies and explanatory notes form an integral part of the financial statements. 51

12 CONSOLIDATED STATEMENT OF CASH FLOW for the financial year ended $ 000 $ 000 Cash flow from operating activities: Profit before taxation 14,379 5,696 Adjustments for: Depreciation of property, furniture, fixtures and equipment 3,869 3,381 Share of results of associates (1,964) (2,081) Currency realignment Loss on disposal of furniture, fixtures and equipment Fair value change of interest-free loan (160) Interest income (278) (89) Dividend income (30) (36) Interest expense 1,908 1,435 (Write-back) / write-down in value of other investments (48) 131 Write-back of allowance for impairment loss on property, furniture, fixtures and equipment, net (2,071) (443) Gain on disposal of other investment (258) Translation gain from the liquidation of a subsidiary (Note B) (1,208) Operating profit before reinvestment in working capital 15,488 7,006 Increase in debtors (12,164) (3,290) Increase in inventories (11,636) (8,364) Increase in creditors 17,095 10,407 Cash from operations 8,783 5,759 Income tax paid (1,089) (230) Net cash from operating activities 7,694 5,529 Cash flow from investing activities: Purchase of furniture, fixtures and equipment (4,107) (3,396) Proceeds from disposal of furniture, fixtures and equipment 8 80 Loan to associates (802) (638) Disposal of joint venture entity, net of cash disposed (Note A) (289) Proceeds from disposal of other investment 258 Capital distribution to minority interest (Note B) (62) Dividend received Interest received Net cash used in investing activities (4,624) (3,891) Cash flow from financing activities: Proceeds from issuance of ordinary shares 12,825 Proceeds from issuance of preference shares by a subsidiary 124 (Repayment of) / proceeds from bank borrowings (2,288) 5,070 Repayment of finance lease (119) (222) Interest paid (1,908) (1,435) Dividend paid to shareholders (2,508) (1,710) Net cash from financing activities 6,126 1,703 The accompanying policies and explanatory notes form an integral part of the financial statements. 52

13 CONSOLIDATED STATEMENT OF CASH FLOW for the financial year ended $ 000 $ 000 Net increase in cash and cash equivalents 9,196 3,341 Cash and cash equivalents at beginning of financial year 12,952 9,596 Net effect of exchange rate changes on opening cash and cash equivalents Cash and cash equivalents at end of financial year (Note 28) 22,224 12,952 Note A During the financial year, the disposed of V.B. Fashions Pte Ltd, a joint venture entity. The value of the assets disposed of and the cash flow effect of the disposal were as follow: Property, furniture, fixtures and equipment 44 Inventories 545 Debtors 281 Creditors (1,159) Cash on hand and at bank 36 Fair value of net tangible assets disposed of (253) $ 000 Settlement (253) Cash and cash equivalent of joint venture entity (36) Net cash outflow on disposal of joint venture entity (289) Note B During the financial year 2005, the liquidated Rainier Trading Ltd, a subsidiary in Hong Kong. The fair value of the assets disposed of and cash flow effect arising from the liquidation were as follow: $ 000 Cash on hand and at bank 125 Capital distribution to minority interest (62) Fair value of net tangible assets disposed of 63 Consideration received in cash (63) Translation gain from the liquidation of a subsidiary 1,208 Net gain on liquidation of a subsidiary 1,208 The accompanying policies and explanatory notes form an integral part of the financial statements. 53

14 1. CORPORATE INFORMATION The Company is a public limited company incorporated and domiciled in Singapore. The registered address and the principal place of business of the Company is 6B Orange Grove Road, Singapore The principal activities of the Company are those of investment holding and the provision of management services to its subsidiaries. The subsidiaries are primarily importers, exporters, licensees, distributors and retailers of consumer fashion wear and accessories, home furnishings and timepieces. There has been no significant changes in the nature of these activities during the financial year. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2.1 Basis of accounting The financial statements have been prepared in accordance with Singapore Financial Reporting Standards ( FRS ) as required by the Singapore Companies Act. The financial statements of the Company and of the, which are expressed in Singapore dollars and all values are rounded to the nearest thousand ($ 000) except when otherwise indicated. The financial statements are prepared under the historical cost convention modified by the revaluation of one of the freehold land and buildings and the accounting of derivative financial instruments at fair value. 2.2 Changes in accounting policies The accounting policies have been consistently applied and are consistent with those used in the previous financial year, except for the changes in accounting policies discussed below. (a) Adoption of new and revised FRS (i) FRS 39 Financial Instruments: Recognition and Measurement On 1 July 2005, the and Company adopted FRS 39 prospectively. At that date, financial assets within the scope of FRS 39 were classified as either financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments or available-for-sale financial assets, as appropriate. At 1 July 2005, financial liabilities (other than derivative financial instruments) within the scope of FRS 39 were measured at amortised costs using the effective interest rate method. According to FRS 39, all derivative financial instruments held by the and the Company were recognised as assets or liabilities in the balance sheet and classified as financial assets or financial liabilities at fair value through profit or loss. Any difference between the carrying values and amortised costs as at 1 July 2005 were recognised in accumulated losses. 54

15 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.2 Changes in accounting policies (continued) (a) Adoption of new and revised FRS (continued) (i) FRS 39 Financial Instruments: Recognition and Measurement (continued) Under the transitional provision of FRS 39, the change in accounting policy on 1 July 2005 resulted in the following changes to the s results: - Accumulated losses increased by $116,000; - Investment in associates increased by $344,000; - Secured loan receivables from associates decreased by $688,000 - Allowance for doubtful debts decreased by $312,000; and - Derivatives liability increased by $84,000. (ii) FRS 16 Property, Plant and Equipment As a result of the adoption of the revised FRS 16, cost of property, plant and equipment includes the costs of their dismantlement, removal or restoration, the obligation as a consequence of installing the items. The and the Company had adopted the revised FRS 16 retrospectively. Previously, cost included only the cost incurred as a consequence of installing the item. The change in accounting policy on 1 July 2005 resulted in the following changes to the s results: - Trade and other creditors increased by $44,000; - Share of post-acquisition reserve decreased by $85,000; and - Accumulated losses increased by $129,000. For the financial year ended, the profit of the was reduced by $18,000 (2005: $27,000). There was no material impact to the basic and diluted earnings per share. (iii) FRS 27 Consolidated and Separate Financial Statements The Company had previously accounted for investments in subsidiaries using the equity method in its separate financial statements as allowed by FRS 27 Consolidated Financial Statements and Accounting for Investments in Subsidiaries. With the introduction of the revised FRS 27, this option has been removed, and the Company has elected to account for its investments in subsidiaries at cost less impairment, if any. The change in accounting policy on 1 July 2005 resulted in the following changes to the Company s results: - Interests in subsidiaries increased by $23,311,000 (2004: $1,371,000); - Accumulated losses decreased by $16,702,000 (2004: increased by $516,000); and - Exchange translation reserve increased by $6,609,000 (2004: $1,887,000) 55

16 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.2 Changes in accounting policies (continued) (a) Adoption of new and revised FRS (continued) (iii) FRS 27 Consolidated and Separate Financial Statements (continued) The Company had also previously accounted for investments in joint ventures using the equity method as allowed by FRS 31 - Financial Reporting of Interests in Joint Ventures. In accordance with the revised FRS 31 - Interests in Joint Ventures, the Company has elected to account for its investment in joint ventures at cost less impairment, if any. The adoption of this revised standard on 1 July 2005 did not result in any significant effect on the financial statements. (iv) FRS 21 The Effects of Changes in Foreign Exchange Rates According to the revised FRS 21, exchange differences arising on a monetary item that forms part of the Company s net investment in a foreign subsidiary shall be recognised in profit or loss, instead of equity, in the separate financial statements of the Company. The Company has a monetary item that in substance forms part of the net investment in a foreign subsidiary prior to 1 July 2005 and was converted to equity during the financial year ended 30 June The change in accounting policy has resulted in the following changes to the Company s results as at 1 July 2004: - Accumulated losses increased by $1,060,000; and - Exchange translation reserve increased by $1,060,000. (v) Other revised FRSs adopted The and the Company have adopted the following new and revised standards on 1 July 2005 which did not result in any significant change in accounting policies: - FRS 1 (revised) Presentation of Financial Statements - FRS 2 (revised) Inventories - FRS 8 (revised) Accounting Policies, Changes in Accounting Estimates and Errors - FRS 10 (revised) Events after the Balance Sheet Date - FRS 17 (revised) Leases - FRS 24 (revised) Related Party Disclosures - FRS 28 (revised) Investments in Associates - FRS 31 (revised) Interests in Joint Ventures - FRS 32 (revised) Financial Instruments: Disclosure and Presentation - FRS 33 (revised) Earnings Per Share - FRS 36 (revised) Impairment of Assets 56

17 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.2 Changes in accounting policies (continued) (b) FRS and INT FRS not yet effective The has not applied the following new/revised FRSs and INT FRSs that have been issued and applicable to the but only effective for financial periods beginning on or after 1 January 2006: - FRS 40 Investment Property The intends to adopt the cost model as permitted by the standards. The and the Company expect the adoption of this standard to have no impact on the financial statements in the period of initial application. - FRS 19 (revised) Employee Benefits - FRS 107 Financial Instruments: Disclosure The above FRSs have no recognition or measurement impact but may result in additional disclosures. - FRS 106 Exploration for and Evaluation of Mineral Resources - INT FRS 104 Determining Whether an Arrangement Contains a Lease - INT FRS 105 Rights to Interests Arising from Decommissioning, Restoration and Environmental Rehabilitation Funds - INT FRS 106 Liabilities Arising from Participating in a Specific Market - Waste Electrical and Electronic Equipment - INT FRS 107 Applying the Restatement Approach under FRS 29, Financial Reporting in Hyperinflationary Economies The above FRSs and interpretations are not relevant to the activities of the. 2.3 Significant accounting estimates and judgements Estimates, assumptions concerning the future and judgements are made in the preparation of the financial statements. They affect the application of the s accounting policies, reported amounts of assets, liabilities, income and expenses, and disclosures made. They are assessed on an on-going basis and are based on experience and relevant factors, including expectations of future events that are believed to be reasonable under the circumstances. (i) Impairment of property, furniture, fixtures and equipment The determines the impairment of property, furniture, fixtures and equipment on an annual basis. This requires an estimation of the value in use of the assets. Estimating the value in use requires the to make an estimate of the future cash flow from assets and also to determine appropriate discount rates to calculate the present value of these cash flow. The discount rate applied to the cash flow projections ranged from 4.28% to 7.00% (2005: 4.40% to 7.00%) and cash flow beyond the 5-year period is extrapolated using growth rate ranging from 2.00% to 5.00% (2005: 2.00% to 6.00%) that does not exceed the long-term average growth rate for the industry. The carrying amounts of the s and Company s property, furniture, fixtures and equipment at were $69,370,000 (2005: $69,019,000) and $35,857,000 (2005: $34,380,000). 57

18 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.3 Significant accounting estimates and judgements (continued) (ii) Income tax The has exposure to income taxes in several jurisdictions. Significant judgement is involved in determining the group-wide provision for income taxes. There are certain transactions and computations for which the ultimate tax determination is uncertain during the ordinary course of business. The recognises liabilities for expected tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recognised, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. The carrying amounts of the income tax items in the financial statements are: Company $ 000 $ 000 $ 000 $ 000 Deferred tax assets Tax recoverable 1,579 1, Provision for taxation 2, Deferred tax liabilities Unutilised tax losses 54,900 63,900 Unabsorbed capital allowances (iii) Inventories Inventories are stated at the lower of cost and net realisable value. The net realisable value is estimated based on the estimated average realisable value of each type of inventories. The carrying amount of the s inventories at was $43,708,000 (2005: $32,617,000). (iv) Operating lease commitments - As lessor The has entered into commercial property leases on its freehold and leasehold properties. The has determined that it retains all the significant risks and rewards of ownership of these properties which are leased out on operating leases. 2.4 Functional and foreign currency a) Functional currency The management has determined the currency of the primary economic environment in which the Company operates i.e. functional currency, to be SGD. Revenue and major costs of providing the services including major operating expenses are primarily influenced by fluctuations in SGD. 58

19 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.4 Functional and foreign currency (continued) b) Foreign currency transactions Transactions in foreign currencies are measured in the respective functional currencies of the Company and its subsidiaries and are recorded on initial recognition in the functional currencies at exchange rates approximating those ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the closing rate of exchange ruling at the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Exchange differences arising on the settlement of monetary items or on translating monetary items at the balance sheet date are recognised in the profit and loss account except for exchange differences arising on monetary items that form part of the s net investment in foreign subsidiaries, which are recognised initially in a separate component of equity as foreign currency translation reserve in the consolidated balance sheet and recognised in the consolidated profit and loss account on disposal of the subsidiary. In the Company s separate financial statements, such exchange differences are recognised in the profit and loss account. c) Foreign currency translation The results and financial position of foreign operations are translated into SGD using the following procedures: - assets and liabilities for each balance sheet presented are translated at the closing rate ruling at that balance sheet date; and - income and expenses for each income statement are translated at average exchange rates for the year, which approximates the exchange rates at the dates of the transactions. Goodwill and fair value adjustments arising on the acquisition of foreign operations on or after 1 January 2005 are treated as assets and liabilities of the foreign operations and are recorded in the functional currency of the foreign operations and translated at the closing rate at the balance sheet date. Goodwill and fair value adjustments which arose on acquisitions of foreign subsidiaries before 1 January 2005 are deemed to be assets and liabilities of the parent company and are recorded in SGD at the rates prevailing at the date of acquisition. All resulting exchange differences are recognised in a separate component of equity as foreign currency translation reserve. On disposal of a foreign operation, the cumulative amount of exchange differences deferred in equity relating to that foreign operation is recognised in the profit and loss account as a component of the gain or loss on disposal. 59

20 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.5 Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at the balance sheet date. The financial statements of the subsidiaries are prepared for the same reporting date as the Company. Consistent accounting policies are applied for like transactions and events in similar circumstances. All intra-group balances, transactions, income and expenses and profits and losses resulting from intra-group transactions that are recognised in assets, are eliminated in full. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the obtains control, and continue to be consolidated until the date that such control ceases. Minority interests represent the portion of profit or loss and net assets in subsidiaries not held by the. They are presented in the consolidated balance sheet within equity, separately from the parent shareholders equity, and are separately disclosed in the consolidated profit and loss account. 2.6 Subsidiaries A subsidiary is an entity over which the has the power to govern the financial and operating policies so as to obtain benefits from its activities. The generally has such power when it directly or indirectly, holds more than 50% of the issued share capital, or controls more than half of the voting power, or controls the composition of the board of directors. In the Company s separate financial statements, investments in subsidiaries are accounted for at cost less any impairment losses. This requires an estimation of the recoverability of the carrying cost using a cash flow projection based on financial budgets approved by management. The discount rate applied to the cash flow projections ranged from 7% to 14% (2005: 7% to 14%). The growth rate used does not exceed the long-term growth rate for the industry. 2.7 Joint ventures The has interest in joint ventures which are jointly controlled entities. A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control, and a jointly controlled entity is a joint venture that involves the establishment of a separate entity in which each venturer has an interest. The recognises its interest in the joint venture using proportionate consolidation. The combines its share of each of the assets, liabilities, income and expenses of the joint venture with the similar items, line by line, in its consolidated financial statements. The financial statements of the joint venture are prepared for the same reporting year as the parent company. Consistent accounting policies are applied for like transactions and events in similar circumstances. The joint venture is proportionately consolidated until the date on which the ceases to have joint control over the joint venture. In the Company s separate financial statement, interest in joint ventures are accounted for at cost less impairment losses. 60

21 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.8 Associates An associate is an entity, not being a subsidiary or a joint venture, in which the has significant influence. This generally coincides with the having 20% or more of the voting power, or has representation on the board of directors. The s investment in associates are accounted for using the equity method. Under the equity method, the investment in associates are carried in the balance sheet at cost plus postacquisition changes in the s share of net assets of the associates. The s share of the profit or loss of the associates is recognised in the consolidated profit and loss account. Where there has been a change recognised directly in the equity of the associate, the recognises its share of such changes. After application of the equity method, the determines whether it is necessary to recognise any additional impairment loss with respect to the s net investment in the associate. The associate is equity accounted for from the date the obtains significant influence until the date the ceases to have significant influence over the associate. Goodwill relating to an associate is included in the carrying amount of the investment. Any excess of the s share of the net fair value of the associate s identifiable assets, liabilities and contingent liabilities over the cost of the investment is excluded from the carrying amount of the investment and is instead included as income in the determination of the s share of the associate s profit or loss in the period in which the investment is acquired. When the s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. The most recent available audited financial statements, if not available, the unaudited management financial statements of the associates are used by the in applying the equity method. Consistent accounting policies are applied for like transactions and events in similar circumstances. In the Company s separate financial statements, investments in associates are accounted for at cost less impairment losses. 2.9 Property, furniture, fixtures and equipment Property, furniture, fixtures and equipment are stated at cost less accumulated depreciation and impairment loss, except for one of the freehold land and buildings which is stated at valuation. The will revalue its freehold land and buildings on a need-to basis. The cost of an asset comprises its purchase price, any directly attributable costs of bringing the asset to working condition for its intended use and costs of its dismantlement, removal or restoration, the obligation for which an entity incurs as a consequence of installing the item. Investment properties are investment in properties that are not occupied substantially for use by or in the operations of the. They are accounted for as property, furniture, fixtures and equipment and are carried in the balance sheet at cost less accumulated depreciation and impairment loss. 61

22 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.9 Property, furniture, fixtures and equipment (continued) Depreciation is calculated on the straight-line method over the estimated useful life of the asset as follows: Freehold buildings - 50 years Leasehold buildings - Over the lease terms Furniture and fittings - 10 years Electrical installation and office equipment - 6 to 7 years Motor vehicles - 5 years Data processing equipment - 3 years Leasehold improvements - 3 to 5 years No depreciation is provided on freehold land. The carrying values of property, furniture, fixtures and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. The residual values, useful life and depreciation method are reviewed at each financial year-end to ensure that the amount, method and period of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the items of property, furniture, fixtures and equipment. An item of property, furniture, fixtures and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset is included in the profit and loss account in the year the asset is derecognised Financial assets Financial assets within the scope of FRS 39 are classified as either financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, or available-for-sale financial assets, as appropriate. When financial assets are recognised initially, they are measured at fair value, plus, in the case of financial assets not at fair value through profit or loss, directly attributable transaction costs. The determines the classification of its financial assets after initial recognition and, where allowed and appropriate, re-evaluates this designation at each financial year-end. All regular way purchases and sales of financial assets are recognised on the trade date i.e. the date that the commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace concerned. a) Financial assets at fair value through profit or loss Financial assets classified as held for trading are included in the category financial assets at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivative financial instruments are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on investments held for trading are recognised in the profit and loss account. 62

23 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.10 Financial assets (continued) b) Held-to-maturity investments Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity when the has the positive intention and ability to hold the assets to maturity. Investments intended to be held for an undefined period are not included in this classification. Other long-term investments that are intended to be held-tomaturity, such as bonds, are subsequently measured at amortised cost using the effective interest method. This cost is computed as the amount initially recognised minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initially recognised amount and the maturity amount and minus any reduction for impairment or uncollectibility. This calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums and discounts. For investments carried at amortised cost, gains and losses are recognised in the profit and loss account when the investments are derecognised or impaired, as well as through the amortisation process. c) Loans and receivables Non-derivative financial assets with fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in profit and loss account when the loans and receivables are derecognised or impaired, as well as through the amortisation process. d) Available-for-sale financial assets 2.11 Other investments Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified in any of the three preceding categories. After initial recognition, available-for sale financial assets are measured at fair value with gains or losses being recognised in the fair value adjustment reserve until the investment is derecognised or until the investment is determined to be impaired at which time the cumulative gain or loss previously reported in equity is included in the profit and loss account. The fair value of investments that are actively traded in organised financial markets is determined by reference to the relevant Exchange s quoted market bid prices at the close of business on the balance sheet date. For investments where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm s length market transactions; reference to the current market value of another instrument, which is substantially the same; discounted cash flow analysis and option pricing models. Other investments comprising quoted and unquoted equity investments are classified as available-for-sale financial assets. The accounting policies for this category of financial assets is stated in Note

24 2. Summary of significant accounting policies (continued) 2.12 Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits which are subject to an insignificant risk of changes in value. These also include bank overdrafts that form an integral part of the s cash management. Cash and short term deposits carried in the balance sheets are classified and accounted for as loans and receivables under FRS 39. The accounting policy for this category of financial assets is stated in Note Receivables Trade and other receivables, including amounts due from subsidiaries, associates, related companies and loans to subsidiaries, associates, related companies are classified and accounted for as loans and receivables under FRS 39. The accounting policy for this category of financial assets is stated in Note An allowance is made for uncollectible amounts when there is objective evidence that the will not be able to collect the debt. Bad debts are written off when identified. Further details on the accounting policy for impairment of financial assets are stated in Note 2.14 below Impairment of financial assets The assesses at each balance sheet date whether there is any objective evidence that a financial asset or group of financial assets is impaired. a) Assets carried at amortised cost If there is objective evidence that an impairment loss on loans and receivables or held-tomaturity investments carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flow (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account. The amount of the loss is recognised in the profit and loss account. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in the profit and loss account, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date. b) Assets carried at cost If there is objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument has been incurred, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flow discounted at the current market rate of return for a similar financial asset. Such impairment losses are not reversed in subsequent periods. 64

25 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.14 Impairment of financial assets (continued) c) Available-for-sale financial assets 2.15 Inventories If an available-for-sale financial asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in the profit and loss account, is transferred from equity to the income statement. Reversals in respect of equity instruments classified as available-for-sale are not recognised in the profit and loss account. Reversals of impairment losses on debt instruments are reversed through the profit and loss account, if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognised in the profit and loss account. Inventories are stated at the lower of cost and net realisable value. Cost comprises the invoiced value of goods on a weighted average basis together with the related charges incurred in importing such goods. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale Payables Liabilities for trade and other amounts payable, which are normally settled on day terms, and payables to related parties are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in the profit and loss account when the liabilities are derecognised as well as through the amortisation process Interest bearing loans and borrowings All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in the profit and loss account when the liabilities are derecognised as well as through the amortisation process Borrowing costs Borrowing costs are recognised as interest expense in the financial year in which they are incurred. 65

26 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.19 Derecognition of financial assets and liabilities a) Financial assets A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised where: (i) (ii) (iii) The contractual rights to receive cash flow from the asset have expired; The retains the contractual rights to receive cash flow from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a pass-through arrangement; or The has transferred its rights to receive cash flow from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. Where the has transferred its rights to receive cash flow from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the could be required to repay. Where continuing involvement takes the form of a written and/or purchased option on the transferred asset, the extent of the s continuing involvement is the amount of the transferred asset that the may repurchase, except that in the case of a written put option on an asset measured at fair value, the extent of the s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price. On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sum of (a) the consideration received (including any new asset obtained less any new liability assumed) and (b) any cumulative gain or loss that has been recognised directly in equity is recognised in the profit and loss account. b) Financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the profit and loss account. 66