01 CORPORATE PROFILE 02 CHAIRMAN S STATEMENT 04 BOARD OF DIRECTORS 06 EXECUTIVE OFFICERS 07 BUSINESS REVIEW 08 FINANCIAL SUMMARY 09 FINANCIAL CONTENTS

Transcription

1 CHINA FASHION HOLDINGS LIMITED STYLED FOR SUCCESS Annual Report 08

2 CONTENTS 01 CORPORATE PROFILE 02 CHAIRMAN S STATEMENT 04 BOARD OF DIRECTORS 06 EXECUTIVE OFFICERS 07 BUSINESS REVIEW 08 FINANCIAL SUMMARY 09 FINANCIAL CONTENTS

3 China Fashion Holdings Limited ANNUAL REPORT CORPORATE PROFILE China Fashion Holdings Limited (China Fashion) listed on SGX-SESDAQ in December 2004, is an established fashion apparel company with integrated design, production and marketing capabilities for quality men s fashion wear in the People s Republic of China (PRC). We are principally engaged in: Brand Management - Nengdali and Benifull are two successful brands under us. Nengdali and Benifull brandnames are primarily applied to men s apparels such as shirts, trousers, suits, jackets and woolen garments. Manufacturing & Sales - We manufacture and sell apparel under the Nengdali brandname. Founded in 1996, the Group has grown from strength to strength over the years. We have won numerous awards and certifications, including the ISO 9001:2000 and the prestigious China Top Brand Product and China Famous Brand for our Nengdali brand. Our extensive franchise network boasts over 400 boutiques and retail spaces across the PRC.

4 02 China Fashion Holdings Limited ANNUAL REPORT 2008 CHAIRMAN S STATEMENT Dear Shareholders, The financial year ended on December 31, 2008 ( FY2008 ) has been a very difficult and challenging year for the Company. We were faced with dwindling sales, slow recovery of accounts receivables and a diminishing cash reserve. Our Group revenue for FY2008 decreased by 30.2% to RMB82.9 million as compared to RMB118.6 million in the previous corresponding year. Revenue from the manufacturing and sales segment decreased by 32.0% to RMB74.8 million in FY2008 as compared to RMB110.0 million in FY2007. Our brand management income also decreased by 7.1% to RMB8.0 million in FY2008 against RMB8.6 million in FY2007. This was mainly due to the effect of global economic slowdown and keen competition in the fashion industry in PRC. Our Group incurred a net loss of RMB15.3 million in FY2008 as compared to a net loss of RMB0.8 million in FY2007. This was mainly due to lower Group sales revenue and the additional allowance of RMB13.0 million for impairment of accounts receivables provided during FY2008. In an effort to boost sales in the domestic market, we have worked together with fashion brands in Shanghai and Hangzhou to expand operations, put in further efforts to assist our existing agents in strengthening the distribution network, and worked diligently to preserve our reputation of being one of the China Top Brand/China Famous Brand. However, these efforts were not rewarding, and have seen little (or no) improvements. To gain a foothold in the fashion market, it has become necessary to either invest a huge sum of money in advertisement or develop highlyspecialized market segments. This has become very challenging for us, especially when we do not have the necessary sufficient financial resources for the former, given the tight credit situation and depressing equity capital markets brought upon by the global financial and economic crisis. Besides, without a fundamental change in our core products and business strategy, our existing products are only meeting the generic market segments, and would be unable to penetrate the highly-specialized market segments. Trapped in the credit crunch in the first half of FY2008, followed by the difficulties brought upon by the financial crisis, there has been a dramatic slowdown in our recovery of accounts receivables despite of our relentless efforts. Although we believe that this may not be an isolated problem faced by us. There has been a significant decrease in our cash reserve in FY2008, mainly due to the repayment of bank loans and slow recovery of accounts receivables. We responded positively to the above problems by: 1. Internally and externally expanding our OEM business while reducing capital expenditure at the same time; 2. Carrying out research on products for market segmentation, paving the way for the provision of customized products, and at the same time expanding our supermarket sales; 3. Stepping up on our efforts further in the recovery of accounts receivables, and at the same time assisting in the steady development of our customers so as to reduce potential occurrence of these turning into bad debts; 4. Communicating and coordinating with the local governments and banks to ensure that there is no further reduction in bank credit; 5. Cutting down on expenses and appropriately reducing operating scale to tide over the current crisis. We have achieved some results through the above measures. For example, there has been a reduction in our operating costs; the government and banks have also given us full understanding and support. We expect that the credit environment should be relaxing in the year 2009, and the economy should gradually recover, with consumer spending gradually increasing. We are preparing ourselves to be ready for such a turnaround, by keeping our operating costs down, maintaining a reduced scale of operations and continuing to work closely with our customers as well as local banks and government to maintain a stable business operation. After more than 20 years of experience navigating all kinds of difficulties, I remain fully confident of the future development of our Company. I believe that with the strong support of all our Shareholders, it is possible that we will ride out the financial crisis steadily! Chen Xi Jian Chairman

5 China Fashion Holdings Limited ANNUAL REPORT

6 04 China Fashion Holdings Limited ANNUAL REPORT 2008 BOARD OF DIRECTORS MR CHEN XI JIAN Executive Chairman & CEO Mr Chen Xi Jian is our Executive Chairman and CEO and was one of the founders of our Group. Mr Chen is involved in the overall management of our group and is responsible for leading the management in setting our Group s mission and objectives and developing the overall business strategies of our Group. Prior to establishing our Group, Mr Chen worked in Jinhua Railways and subsequently in Da Cheng Red Flag Agricultural Technology Station between 1982 and In 1985, Mr Chen served as the logistics supervisor of the clothing factory of a division in the PRC Revolutionary Army. In 1986, Mr Chen held the appointment of factory supervisor of Yiwu Qiaoxi Fashion No. 4 Factory. Thereafter, Mr Chen was the factory supervisor in Yiwu Da Cheng Jiang Fashion No. 3 Factory between 1987 and 1988 and subsequently in Yiwu Fang Xing Fashion Factory. Between 1992 and 1996, Mr Chen was involved in managing the business of Zhejiang Kai Ge Garment Manufacturing Co., Ltd, a garment manufacturer. In 1996, Mr Chen was recognised as a PRC National Leading Youth by the Chinese Communist Party Youth Wing, Central Committee, and PRC National Science and Technology Committee. In addition, in 1998, Mr Chen was recognised as Jinhua City s Top Ten Excellent Youth. Mr Chen was further recognised as Zhejiang Provincial Rural Township Enterprise s Entreprenuer in 1999 by the Zhejiang Provincial Rural Township Enterprise Bureau and Zhejiang Province Union. Mr Chen is currently the vice-chairman of Zhejiang Province Fashion Industry Association and the vice-chairman of Jinhua City Industrial and commercial Association and is further the people s representative for Yiwu City at the National People s Congress since Mr Chen graduated with a diploma in economic management from Zhejiang University in December 2000 and further completed a course in senior professional management training conducted by Tsinghua University in May MDM CHEN CHUN FANG Executive Director Mdm Chen Chun Fang is one of our Executive Directors and was one of the founders of our Group. Mdm Chen oversees our financial management. Mdm Chen is further involved in product development activities, together with our Chief Sales and Marketing Manager. Upon her graduation from Su Xi High School in Yiwu City, Zhejiang Province, Mdm Chen worked as the manager of Zhejiang Kai Ge Garment Manufacturing Co., Ltd, Xi an branch, from 1990 to Mdm Chen joined Zhejiang Nengdali Group Co., Ltd in 1997 and held various positions before being promoted to an executive director in MDM WANG JIAN Non-Executive Director Mdm Wang Jian is our Non-Executive Director. Mdm Wang is currently a director of Zhejiang Investment (S) Pte Ltd., a Singapore based company that focuses on PRC investments. Mdm Wang is involved in the evaluation of potential investment proposals as well as monitoring the performance of all existing investments. Upon her graduation from Zhejiang Mei Xi High School, Mdm Wang worked in Zhejiang Mei Xi library as an administrator between 1981 and Mdm Wang subsequently completed a course in accounting in Zhejiang Jin Hua Accounting School in From 1987 to 1993, Mdm Wang worked in Zhejiang Hu Zhou Food Cadre School as an accountant.

7 China Fashion Holdings Limited ANNUAL REPORT MR LEOW POH CHIN Independent Director Mr Leow Poh Chin was appointed as our Independent Director on 26 April Mr Leow is one of the Managing Directors of Emfore Capital Partners Pte. Ltd., a private equity fund manager in Singapore. Mr Leow has more than a decade of experience in the private equity, venture capital investments and fund management as well as project management sectors. Beginning his career with Keppel FELS Limited in 1989, he was an engineer working on oil and gas, offshore engineering and power projects before moving on to FELS Energy, Inc where he served as vice president from 1993 to In 1995, he served as senior project development manager in FELS Power Pte Ltd till In 1997, Mr Leow joined Oakwell Infrastructure Development Pte Ltd as managing director, and oversaw the private equity and direct investment portfolio of the company after serving as corporate development director of its parent company, Oakwell Engineering Limited. After joining as Head (Finance, Administration and Compliance) of UOB Venture Management Pte Ltd in 2000, Mr Leow served as Director, overseeing several private equity and venture capital fund initiatives focusing across Greater China. Mr Leow holds a Master of Business Administration degree in Investment and Finance and a Master of Business Administration degree in General Business Administration, both from University of Hull, United Kingdom. He also has a Master of Engineering degree in Marine Technology from University of Newcastle upon Tyne, United Kingdom. MR LIM CHENG KEE Independent Director Mr Lim Cheng Kee was appointed as our Independent Director and member of Audit Committee, Remuneration Committee and Nominating Committee on 21 August Mr Lim has 30 years working experience in the banking industry from 1978 to 2008.They included 10 years in a public listed local bank, 4 years in a full licensed American bank, 3 years in a Japanese investment bank and 13 years in a Chinese offshore bank (From 1995 to 2008) as Head of Finance and operations. Mr Lim was responsible for the accounting, financial management, taxation, compliance and other operational functions of the banks. Mr Lim retired from the bank in June 2008 and currently is a financial management consultant in a private investment company. Mr Lim graduated with a Bachelor of Commerce (Accountancy) from the former Nanyang University in 1978 and is a member of the Institute of Certified Public Accountants of Singapore.

8 06 China Fashion Holdings Limited ANNUAL REPORT 2008 EXECUTIVE OFFICERS MR SOH BENG KENG Chief Financial Officer Mr Soh Beng Keng is our Chief Financial Officer and is responsible for the overall financial management and accounting of the Group. Prior to joining the Group, Mr Soh was the Financial Controller of Miclyn Offshore Pte Ltd, a Singapore company involved in the business of the owners and charters of ships. From 2005 to 2006, he was the Financial Controller of Kim Heng Marine & Oilfield Pte Ltd, a Singapore company involved in marine and oil related business. From 1996 to 2004, Mr Soh was the Director of Finance of Heeton Management Pte Ltd, and subsequently upon listing, he became the Executive Director of Heeton Holdings Limited. Mr Soh is a full member of the Institute of Directors and a member of the Institute of Certified Public Accountants of Singapore. He obtained his Bachelor of Commerce (Accountancy) from the former Nanyang University in MR FU DONG HAI Chief Production Manager Mr Fu Dong Hai is our Chief Production Manager and is responsible for the management of the Group s production operation and overall factory management. Mr Fu is further responsible for the training of our staff. Upon Mr Fu s graduation from Su Xi High School in Yiwu City, Zhejiang Province, Mr Fu joined the Zhejiang Nengdali Group Co., Ltd as a factory supervisor. During his tenure at Zhejiang Nengdali Group Co., Ltd, Mr Fu held various positions and was mainly involved in factory activities. Mr Fu carries with him over 13 years of experience in the PRC men s fashionwear industry. MR ZHANG YONG JUN Chief Product Development Manager Mr Zhang Yong Jun is responsible for the product development activities of the Group. Mr Zhang is also responsible for the management of our Benifull brand. Upon Mr Zhang D5s graduation from Su Xi High School in Yiwu City, Zhejiang Province, Mr Zhang joined Zhejiang Nengdali Group Co., Ltd in During Mr Zhang s tenure with Zhejiang Nengdali Group Co., Ltd, Mr Zhang held various positions such as sales supervisor, sales manager and assistant general manager. Mr Zhang has accumulated over 12 years of experience in the PRC men s fashionwear industry. Mr Zhang left our Group in July 2007 and rejoined in July MDM FENG LING XIA Chief Sales and Marketing Manager Mdm Feng Ling Xia is our Chief Sales and Marketing Manager and is responsible for the sales and marketing operations of the Group. Mdm Feng is further responsible for liaising with our suppliers and the procurement of our raw materials. Mdm Feng graduated from the Zhejiang Institute of Finance and Economics with a bachelor degree in accounting. Upon her graduation, Mdm Feng joined the Zhejiang Nengdali Group Co., Ltd as an accountant where she was responsible for several aspects of our financial accounting and the computation of our staff wages. Mdm Feng held the position of an accountant from 1995 to 1999 before she was appointed the sales and marketing supervisor of Zhejiang Nengdali Group., Ltd.

9 China Fashion Holdings Limited ANNUAL REPORT BUSINESS REVIEW REVENUE Despite the launch of our two new fashion apparel series in the second half of 2007 and the Nengdali China Famous Brand obtained in September 2007, our Group revenue for the current financial year decreased by 30.2% to RMB82.9 million as compared to RMB118.6 million in the previous corresponding year. Revenue from the manufacturing and sales segment decreased by 32.0% to RMB74.8 million in current financial year as compared to RMB110.0 million in FY2007. Our brand management income also decreased by 7.1% to 8.0 million in current financial year against RMB8.6 million in FY2007. This was mainly due to the effect of global economic slowdown and keen competition in the fashion industry in PRC. PROFITABILITY As a result of decreased sales in both the manufacturing and sales sector and brand management income, the cost of sales decreased by 27.5% to RMB64.6 million in FY2008 as compared to RMB89.2 million in FY2007. Gross profit margin decreased slightly by 2.8% to 22.0% in the current financial year as compared to 24.8% in the previous corresponding year. This was mainly due to higher material costs and factory operating costs as well as keen market competition. Overall gross profit decreased by 38.1% to RMB18.2 million as compared to RMB29.4 million in the previous financial year. This was mainly due to lower sales achieved from both manufacturing and sales segment and brand management income. Distribution costs decreased by 67.5%, from RMB4.1 million in FY2007 to RMB 1.3 million in FY2008. This was mainly due to our cost cutting measure which resulted in a lower advertisement costs and entertainment expenses. Administration expenses decreased by 28.5%, from RMB19.3 million in FY2007 to RMB13.8 million in FY2008. Higher administration costs in FY2007 was mainly due to cost incurred for the application of China Famous Brand. In FY2008, the Group donated an amount of RMB1.5 million towards the Sichun earthquake relief funds. Other operating expenses increased from RMB0.9 million in FY2007 to RMB13.0 million in FY2008. The increase was mainly due to additional allowance for impairment on trade receivables. Notwithstanding the repayment of short term bank borrowing of RMB10 million during the financial year, finance cost increased by 20.8% from RMB4.8 million in FY2007 to RMB5.8 million in FY2008. This was mainly due to higher interest rate charged by the banks. The effective weighted average interest rate of the short term loans was 8.37% per annum in 2008 as compared to 7.5% per annum in Group incurred a net loss of RMB15.3 million in the current financial year as compared to net loss of RMB0.8 million in the previous corresponding year. This was mainly due to lower Group sales revenue and the additional allowance for impairment of receivables provided during the current financial year. BALANCE SHEET Cash and bank balances as at 31 December 2008 decreased by RMB38.1 million, from RMB39.5 million in FY2007 to RMB1.4 million in FY 2008, This was mainly due to the net repayment of short term bank borrowing of RMB10 million and early settlement of supplier s invoices. Trade and other receivables increased slightly from RMB61.1 million in FY2007 to RMB62.5 million in FY2008. Due to delay and slower in payment from customers, allowance for impairment of trade receivables increased from RMB0.9 million in FY2007 to RMB13.9 million in FY2008. Other current asset increased from RMB7.4 million in FY2007 to RMB9.4 million in FY2008 mainly due to higher prepayment to suppliers. Property, plant and equipment decreased from RMB61.2 million in FY2007 to RMB58.8 million in FY2008. This was mainly due to depreciation charge for the current financial year. Intangible assets decreased to RMB11.8 million in FY2008 against RMB14.0 million in FY2007. This was due to amortization charge for the current financial year. Trade and other payables decreased by 21.9% to RMB19.7 million for FY2008 compared to RMB25.3 million in FY2007. The decrease was mainly due to early settlement of cost of raw materials to suppliers. Working capital for the group decreased from a net current assets of RMB20.2 million as at 31 December 2007 to a net current assets of RMB9.5 million as at 31 December This was mainly due to the net repayment of short term bank borrowing of RMB10 million. Shareholders fund decreased by 16.0%, from RMB95.4 million in FY2007 to RMB80.1 million in FY2008.

10 08 China Fashion Holdings Limited ANNUAL REPORT 2008 FINANCIAL SUMMARY FY2008 FY2007 FY2006 Turnover (RMB 000) 82, , ,843 (Loss)/Profit before tax (RMB 000) (15,007) ,915 Shareholders equity (RMB 000) 80,100 95,438 81,401 Bank and cash balances (RMB 000) 1,359 39,522 26,754 Basic (loss)/earnings per share (RMB-cents) (11) (1) 11 Net asset value per ordinary share (RMB-cents) Turnover by segments (RMB 000) Brand Management 8,030 8,640 13,020 Manufacturing and sales 74, , ,823 82, , ,843 NOTE: (1) - Net asset value per ordinary share was computed based on 133,160,025, 133,160,025 and 110,975,025 for FY2008, FY2007 and FY2006 respectively. Turnover (RMB 000) Bank and Cash Balances (RMB 000) (Loss)/Profit before tax (RMB 000) 82, , ,843 13, Shareholder s Equity (RMB 000) ,100 95,438 81,401 1,359 39,522 26,754 (15,007) Net Asset Value Per Ordinary Share (RMB-cents)

11 China Fashion Holdings Limited ANNUAL REPORT FINANCIAL CONTENTS 10 Corporate Governance Statement 20 Directors Report 22 Statement by Directors 23 Independent Auditors Report 25 Consolidated Income Statement 26 Balance Sheets 27 Consolidated Statement of Changes in Equity 28 Consolidated Cash Flow Statement 29 Notes to the Financial Statements 61 Shareholders Information 62 Notice of Fifth Annual General Meeting Proxy Form

12 10 China Fashion Holdings Limited ANNUAL REPORT 2008 CORPORATE GOVERNANCE STATEMENT The Board of Directors of China Fashion Holdings Limited (the Company ), are committed to high standards of corporate governance and adopting the corporate governance practices contained in the Code of Corporate Governance (the Code ) so as to ensure greater transparency and protection of Shareholders interests. This statement outlines the main corporate governance practices that were in place throughout the financial year ended 31 December 2008 ( FY2008 ). BOARD MATTERS Principal 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 Conduct of its Affairs The Board has the responsibility for the overall management of the Group. It establishes the corporate strategies of the Group, sets direction and goals for the executive management. It supervises the executive management and monitors performance of these goals to enhance Shareholders value. The Board is responsible for the overall corporate governance of the Group. The profile of each Director is presented in pages 4 to 5 of this Annual Report. Board Processes To assist in the execution of its responsibilities, the Board has established an Audit Committee, Nominating Committee and Remuneration Committee. These committees function within clearly defined terms of references and operating procedures, which are reviewed on a regular basis. The effectiveness of each Committee is also constantly reviewed by the Board. The roles and responsibilities of these Board Committees are provided for in the latter sections of this Annual Report. The full Board meets on a regular basis and as when necessary to address any specific significant matters that may arise. As provided under Article 99 of the Articles of Association of the Company, the Directors of the Company may participate in any meeting of the Board or any Board Committee by means of telephone, electronic or other communication facilities which will permit all persons participating in the meeting to communicate with each other simultaneously and instantaneously. The number of Board and Board Committee meetings held during FY2008 and the attendance of each Director where relevant is as follows: Board Audit Committee Nominating Committee Remuneration Committee No. of meetings Attendance: Chen Xi Jian 1 2/2 N/A N/A 1/1 Chen Chun Fang 0/2 N/A N/A N/A Wang Jian 1 2/2 2/2 2/2 N/A Tong Xin 2 1/1 1/1 1/1 1/1 Leow Poh Chin 3 1/2 1/2 1/2 0/1 Lim Cheng Kee 4 1 Mdm. Wang Jian was appointed as a member of the Remuneration Committee in place of Mr. Chen Xi Jian at the Board of Directors Meeting held on 28 February Mr. Tong Xin resigned from the Board and stepped down as Chairman of the Audit Committee and ceased as member of the Nominating Committee and Remuneration Committee on 30 June Mr. Leow Poh Chin was appointed as the Chairman of the Audit Committee in place of Mr. Tong Xin on 7 July Mr. Lim Cheng Kee was appointed as an Independent Director to the Board and as member to the Audit Committee, Remuneration Committee and Nominating Committee on 21 August 2008.

13 China Fashion Holdings Limited ANNUAL REPORT CORPORATE GOVERNANCE STATEMENT Matters Requiring Board Approval The Board has identified the following areas for which the Board has direct responsibility for decision-making: Approval of half-year and full-year result announcements for release to the Singapore Exchange Securities Trading Limited ( SGX-ST ); Approval of the Annual Reports and Audited Financial Statements; Convening of Shareholders Meetings; Approval of Corporate Strategies; Approval of material acquisitions and disposal of assets; and Approval of major investment and funding decisions. BOARD COMPOSITION AND BALANCE Principal 2 There should be a strong and independent element on the Board, which is able to exercise objective judgement 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. Board Composition The Board comprises 5 directors in which 3 are Non-Executive Directors and out of which 2 are Independent Directors. The Directors of the Company as at the date of this statement are: (i) (ii) (iii) (iv) (v) Mr Chen Xi Jian (Executive Chairman and Chief Executive Officer ( CEO )) Mdm Chen Chun Fang (Executive Director) Mdm Wang Jian (Non-Executive Director) Mr Leow Poh Chin (Independent Director) Mr Lim Cheng Kee (Independent Director) The criteria for independence are determined based on the definition as provided in the Code. The Board considers an independent director as one who has no relationship with the Company, its related companies or its officers that could interfere, or be reasonably perceived to interfere, with the exercise of the directors independent judgement of the Group s affairs. On an annual basis and upon notification by an Independent Director of a change in circumstances, the Nominating Committee will review the independence of each Independent Director based on the criteria for independence defined in the Code and recommends to the Board as to whether the Director is to be considered independent. The Board examines its size and after taking into account the nature and scope of the Company s operations, is of the opinion that the current Board size and composition, with diversified background and experience provides core competencies such as finance, accounting, legal, business management, industry knowledge and strategic planning experience, is appropriate and effective to ensure the balance of power and authority to facilitate effective decision making.

14 12 China Fashion Holdings Limited ANNUAL REPORT 2008 CORPORATE GOVERNANCE STATEMENT CHAIRMAN AND CHIEF EXECUTIVE OFFICER Principal 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 Group s Chairman, Mr. Chen Xi Jian, also assumes the role of CEO as he is the founder of the Group and has played an instrumental role in developing the business of the Group. Mr Chen Xi Jian has considerable industry experience and has also provided the Group with strong leadership and vision. It is hence the view of the Board that it is in the best interest of the Group to adopt a single leadership structure, and there are sufficient safeguards in place to ensure that the management is accountable to the Board as a whole. The Chairman/CEO ensures that Board meetings are held when necessary and reviews the Board papers in consultation with Management, prior to presenting them to the Board. The Chairman/CEO also ensures that Board members are provided with complete, adequate and timely information on a regular basis to enable them to be fully cognisant of the affairs of the Group. Mr. Leow Poh Chin acts as the Lead Independent Director to whom any concerns about the Group may be conveyed to. Any such concerns may be sent to his address at ericpcleow@gmail.com. BOARD MEMBERSHIP Principal 4 the Board. There should be a formal and transparent process for the appointment of new directors to The Nominating Committee ( NC ) comprises the following 3 members, a majority of whom including the Chairman of the NC, are Independent Non-Executive Directors: Mr Lim Cheng Kee (Chairman) Mr Leow Poh Chin (Member) Mdm Wang Jian (Member) Mr. Lim Cheng Kee has been appointed as the Chairman of the Nominating Committee in place of Mr. Leow Poh Chin with effect from 28 February The Chairman of the NC is also not associated with any substantial Shareholders of the Company. The duties and functions of the NC are as follows: (a) (b) (c) (d) to make recommendations to the Board on all Board appointments having regard to the Director s contribution and performance (e.g. attendance, preparedness, participation, candour and any other salient factors); to determine annually whether a Director is independent; to decide whether a Director is able to and has adequately carried out his duties as a Director of the Company in particular where the Director has multiple board representations; and to decide on how the Board s performance may be evaluated and propose objective performance criteria. Such performance criteria, that allow comparison with its industry peers, should be approved by the Board and address how the Board has enhanced long term Shareholders value.

15 China Fashion Holdings Limited ANNUAL REPORT CORPORATE GOVERNANCE STATEMENT The Articles of Association of the Company provides that every Director shall retire by rotation once every three (3) years and for this purpose, at each Annual General Meeting ( AGM ), one-third (1/3) of the Directors for the time being (or, if their number is not multiple of three (3), the number nearest to but not less than one-third (1/3)) shall retire from office by rotation and such retiring Director shall be eligible for re-election. The details of Directors who will retire by rotation at the forthcoming AGM, Mr Chen Xi Jian and Mdm. Chen Chun Fang, are disclosed in the Directors Profile on page 4 of this Annual Report. Where a vacancy arises, the NC will consider each candidate for directorship based on the selection criteria determined after consultation with the Board and after taking into consideration the qualification and experience of such candidate, his/her ability to increase the effectiveness of the Board and to add value to the Group s business in line with its strategic objectives, the NC will recommend the candidate to the Board for approval. Under the Articles of Association of the Company, a newly appointed Director shall retire at the AGM following his/her appointment and he/she shall be eligible for re-election. During FY2008, on 21 August 2008, Mr Lim Cheng Kee was appointed to the Board of the Company. Pursuant to the Articles of Association of the Company, Mr Lim Cheng Kee will retire at the forthcoming AGM. His profile is disclosed on page 5 of this Annual Report. BOARD PERFORMANCE Principal 5 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. On an annual basis, the NC, in consultation with the Chairman of the Board, will review and evaluate the performance of the Board as a whole, taking into consideration the attendance record at the meetings of the Board and Board Committees and also the contribution of each Director to the effectiveness of the Board. ACCESS TO INFORMATION Principal 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. The Board has separate and independent access to senior management and the company secretary at all times. Requests for information from the Board are dealt with promptly by Management. The Board is informed of all material events and transactions as and when they occur. The Management provides the Board with half-year and full-year financial results, progress report on the Group s operations, corporate development, regulatory updates, business developments and audit reports. The Management also consults with Board members regularly whenever necessary and appropriate. The Board is issued with the meeting agenda and Board papers timely and prior to Board meetings. The company secretary attends all Board meetings. The company secretary administers, attends and prepares minutes of Board meetings, and assists the Chairman in ensuring that Board procedures are followed and reviewed so that the Board functions effectively and the Company s Memorandum and Articles of Association, the Listing Manual of the SGX-ST and other relevant rules and regulations applicable to the Company are complied with. The appointment and removal of the company secretary are decided by the Board as a whole. The Board in fulfilling its responsibilities, can as a group or individually, when deemed fit, direct the Company, at the Company s expense, to appoint professional adviser to render professional advice.

16 14 China Fashion Holdings Limited ANNUAL REPORT 2008 CORPORATE GOVERNANCE STATEMENT REMUNERATION MATTERS Principal 7 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 Remuneration Committee ( RC ) comprises the following 3 members, all of whom including the Chairman of the RC are Independent Non-Executive Directors: Mr Lim Cheng Kee (Chairman) Mr Leow Poh Chin (Member) Mdm Wang Jian (Member) Mr. Lim Cheng Kee has been appointed as the Chairman of the Remuneration Committee in place of Mr. Leow Poh Chin with effect from 28 February The RC is responsible: (a) (b) (c) (d) (e) to recommend to the Board a framework of remuneration for the Board and key executives; to determine specific remuneration packages for each Executive Director and the CEO, if the CEO is not an executive director, which covers all aspects of remuneration including but not limited to Directors fees, salaries, allowances, bonus, options and benefits in kind; in the case of service contracts of Directors, to review and to recommend to the Board the terms of renewal of service contracts and to consider what compensation commitments of the service contracts in the event of early termination; to retain such professional consultancy firm as the RC may deem necessary to enable it to discharge its duties satisfactorily; to carry out such other duties as may be agreed to by the RC and the Board. The RC s recommendations should be made in consultation with the Chairman of the Board and submitted for endorsement by the entire Board. No Directors are involved in deciding their own remuneration. LEVEL AND MIX OF REMUNERATION Principal 8 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 the executive remuneration should be structured so as to link rewards to corporate and individual performance. In setting remuneration packages, the RC will take into consideration of the pay and employment conditions within the industry and comparable companies. The remuneration of Non-Executive Directors will also be reviewed to ensure that their remuneration commensurate with the contribution, effort and time spent, and the responsibilities of each Non-Executive Director. The Company will submit the quantum of Directors fees for each year to the shareholders for approval at the AGM.

17 China Fashion Holdings Limited ANNUAL REPORT CORPORATE GOVERNANCE STATEMENT DISCLOSURE ON REMUNERATION Principal 9 Each company should provide clear disclosure of its remuneration policy, level and mix of remuneration, and the procedure for setting remuneration in the company s annual report. It should provide disclosure in relation to its remuneration policies to enable investors to understand the link between remuneration paid to directors and key executives, and performance. The remuneration of the Directors and the key executives, who are not Directors of the Company, for FY2008 are disclosed below. The disclosure is to enable Shareholders to understand the link between remuneration paid to Directors and key executives and their performance. The breakdown (in percentage terms) of each Directors and key executives remuneration for FY2008 are as follows: Directors Name Salary % Bonus % Fringe Benefits % Directors Fees % Total % Below $250,000 Chen Xi Jian Chen Chun Fang Wang Jian Tong Xin* Leow Poh Chin Lim Cheng Kee# * Mr. Tong Xin resigned from the Board on 30 June 2008 # Mr. Lim Cheng Kee was appointed to the Board on 21 August 2008 Key Executives Name Below $250,000 Salary % Bonus % Fringe Benefits % Soh Beng Keng Fu Dong Hai Zhang Yong Jun Feng Ling Xia Total % Save as disclosed above, the Company does not have any employees who are immediate family members of a Director or the CEO and whose remuneration for FY2008 exceeds $150,000.

18 16 China Fashion Holdings Limited ANNUAL REPORT 2008 CORPORATE GOVERNANCE STATEMENT ACCOUNTABILITY AND AUDIT Principal 10 The Board should present a balanced and understandable assessment of the company s performance, position and prospects. The Board is responsible to provide a balanced and understandable assessment of the Company s performance, position and prospects, to its Shareholders, the public and regulators. The Board is accountable to the Shareholders and is mindful of its obligations to furnish timely information and to ensure full disclosure of material information to Shareholders in compliance with statutory requirements and the Listing Manual of the SGX-ST. Price sensitive information will be publicly released either before the Company meets with any group of Shareholders or analysts or simultaneously with such meetings. Financial results and annual reports will be announced or issued within the legal prescribed periods. AUDIT COMMITTEE Principal 11 The Board should establish an Audit Committee ( AC ) with written terms of reference which clearly set out its authority and duties. The Audit Committee ( AC ) comprises the following 3 members, all of whom are Non-Executive Directors and a majority including the Chairman of the AC are Independent Directors: Mr Leow Poh Chin (Chairman) Mdm Wang Jian (Member) Mr Lim Cheng Kee (Member) The functions of the AC are as follows: (a) (b) (c) (d) (e) (f) (g) (h) to review with the external auditors, the audit plan, their evaluation of the Group s system of internal accounting controls, their audit report, management letter and the Management s response; and also to review the assistance given by the Company s officers to the external auditors; to review the scope and results of audit and its cost effectiveness and the independence and objectivity of the external auditors. Where the external auditors also supply a substantial volume of non-audit services to the Company, to review the nature and extent of such services to maintain the balance of objectivity and value for money; to review the half-year and full-year financial results of the Company and the consolidated financial statements of the Group before submission to the Board for approval; to review the independence of the external auditors annually; to consider and make recommendations to the Board on the appointment, re-appointment and removal of external auditors, their remuneration and terms of engagement; to ensure that the internal audit function is adequately resourced and has appropriate standing within the Company and to review the adequacy of the function annually; to review the scope and results of the internal audit procedures; to meet with the external and internal auditors without the presence of the Management, annually;

19 China Fashion Holdings Limited ANNUAL REPORT CORPORATE GOVERNANCE STATEMENT (i) (j) to review interested persons transactions to comply with the rules of the Listing Manual of the SGX-ST and other relevant statutory requirements and any potential conflicts of interest; and to commission and review the findings of internal investigations into matters where there is any suspected fraud or irregularity, or failure of internal controls or infringement of any Singapore law, rules or regulations which has or is likely to have a material impact on the operating results and financial position of the Group. The AC has the power to conduct or authorize investigations into any matters within the AC s scope of responsibility. The AC has full access to and co-operation of the Company s Management and has full discretion to invite any Director or executive officer to attend the meetings, and has been given reasonable resources to enable it to discharge its functions. The AC, having reviewed the range and value of non-audit services provided by the Company s external auditors, Moore Stephens LLP and being satisfied that the nature and extent of such services will not be prejudicial to the independence and objectivity of Moore Stephens LLP as external auditors, are pleased to confirm their re-nomination. During FY2008, there are no non-audit fees paid by the Group to Moore Stephens LLP. During the FY2008, the AC met two (2) times to discuss the following matters: (a) (b) (c) (d) (e) (f) (g) (h) (i) reviewed the external auditors findings in respect of the statutory audit of the accounts of the Group for the financial year ended 31 December 2007; reviewed the half-year and full-year result announcements before recommending it to the Board for approval; reviewed any non-audit services provided by the external auditors during financial year ended 31 December 2007 and reviewed their independence; reviewed the internal audit findings and Internal Control Report prepared by the internal auditors; reviewed and approved the External Audit Plan for FY2008; recommended and proposed change of External Auditors; reviewed and approved any interested persons transactions; discussed the recoverability of deposit pledged/granted with third parties; reviewed the excerpt of the AC s disclosure in the Statement on Corporate Governance of the Company s 2007 Annual Report. During FY2008, upon recommendation by the AC and the Board, the Shareholders of the Company had during the AGM of the Company held on 29 April 2008, appointed Messrs. Moore Stephens LLP as the Company s External auditors for FY2008, in place of the resigning External Auditors, Messrs. PricewaterhouseCoopers. The AC has recommended for endorsement by the Company, a Whistle-Blowing Policy, for the Group. The Policy is to enable persons employed by the Group a channel to report any suspicions of non-compliance with regulations, policies and fraud, etc, to the appropriate authority for resolution, without any prejudicial implications for these employees. The AC would be vested with the power and authority to receive, investigate and enforce appropriate action when any such non-compliance matter is brought to its attention.

20 18 China Fashion Holdings Limited ANNUAL REPORT 2008 CORPORATE GOVERNANCE STATEMENT INTERNAL CONTROLS Principal 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. It is in the opinion of the Board that, in the absence of evidence to the contrary, the system of internal controls maintained by the Company s Management and that was in place throughout FY2008 and up to the date of this report provides reasonable, but not absolute, assurance against material financial misstatements or losses, and includes the safeguarding of assets, the maintenance of proper accounting records, the reliability of financial information, compliance with appropriate legislation and regulations and the identification and containment of financial, operational and compliance risks. The Board notes that all internal control systems contain inherent limitations and no system of internal controls could provide absolute assurance against the occurrence of material errors, poor judgment in decision-making, human error losses, fraud or other irregularities. INTERNAL AUDIT Principal 13 The company should establish an internal audit function that is independent of the activities it audits. The Company outsources its internal audit function to an external professional firm, who reports directly to the Chairman of AC and administratively to the Chairman of the Board. The objective of the internal audit function is to determine whether the Group s risk management, control and governance processes, as designed by the Company, is adequate and functioning in the required manner. The internal auditors have identified the Group s main business processes and developed an audit plan that covers the main business process over a 1-2 year audit cycle. The AC will review the adequacy of the internal audit function annually and ensures that the internal audit function is adequately resourced and has appropriate standing within the Company. COMMUNICATION WITH SHAREHOLDERS Principal 14 Principal 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. The Company does not practise selective disclosure. In line with continuous obligations of the Company pursuant to the Listing Rules of the SGX-ST, the Board s policy is that all Shareholders should be equally informed of all major developments impacting the Group. Information is disseminated to Shareholders on a timely basis through: SGXNET announcements and news releases; and Annual Reports prepared and issued to all Shareholders. At the Shareholders meetings, Shareholders are given the opportunity to voice their views and ask Directors or Management questions regarding the Company. The Chairmen of the AC, RC and NC will normally be present at AGMs to answer any questions relating to the work of these Board Committees. There are separate resolutions at the Shareholders meetings to address each distinct issue. The Articles of Association of the Company allow a member of the Company to appoint not more than two (2) proxies to attend and vote on behalf of the member.

21 China Fashion Holdings Limited ANNUAL REPORT CORPORATE GOVERNANCE STATEMENT RISK MANAGEMENT The Company regularly reviews and improves its business and operational activities to identify areas of significant business risks as well as take appropriate measures to control and mitigate these risks. The Company reviews all significant control policies and procedures and highlights all significant matters to the AC and Board. DEALING IN SECURITIES In line with the Rule 1207(18) of the Listing Manual of the SGX-ST, the Company has in place a policy prohibiting share dealings by Directors and employees of the Group for the period of one month before the announcement of the Company s half-year and full-year financial statements. Directors and employees of the Group are expected to observe the insider trading laws at all times even when dealing in securities within permitted trading period. MATERIAL CONTRACTS There were no material contracts including loans that are either still subsisting at the end of FY2008 or entered into by the Group during FY2008, involving the interests of the CEO, any Director or controlling Shareholder. INTERESTED PERSONS TRANSACTIONS The Company has established internal control polices to ensure that transactions with interested persons are reported in a timely manner to the AC and that transactions are conducted on an arms length basis and not prejudicial to the interests of the Shareholders. The details of the interested persons transactions subsisting at the end of FY2008, are as follows: Name of Interested Person Zhejiang Nengdali Group Co., Ltd Operating lease paid Zhejiang Nengdali Group Co., Ltd Purchase of goods Aggregate value of all interested person transactions (excluding transactions less than $100,000 and transactions conducted under shareholders mandate pursuant to Listing Manual Rule 920) RMB 000 Aggregate value of all interested person transactions, conducted under the shareholder s mandate pursuant to Rule 920 (excluding transactions less than $100,000) RMB 000 1,320 1,658

22 20 China Fashion Holdings Limited ANNUAL REPORT 2008 DIRECTORS REPORT For the year ended 31 December 2008 The directors present their report to the members together with the audited consolidated financial statements of China Fashion Holdings Limited (the Company ) and its subsidiaries (collectively the Group ) for the financial year ended 31 December 2008 and the balance sheet of the Company as at 31 December Directors The directors of the Company in office at the date of this report are as follows: Chen Xi Jian Chen Chun Fang Wang Jian Leow Poh Chin Lim Cheng Kee (appointed on 21 August 2008) 2 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 in, or debentures of, the Company or any other body corporate. 3 Directors Interests in Shares or Debentures According to the register of directors shareholdings, none of the directors holding office at the end of the financial year had any interest in the shares or debentures of the Company or related corporations, except as follows: Holdings registered in name of director or nominee At At No. of Ordinary shares Holdings in which a director is deemed to have an interest At At No. of Ordinary shares China Fashion Holdings Limited Chen Xi Jian 35,654,525 35,248,525 11,990,000 11,990,000 Chen Chun Fang 11,990,000 11,990,000 35,654,525 35,248,525 Wang Jian 5,100,000 5,100,000 Mr Chen Xi Jian and Mdm Chen Chun Fang, by virtue of the provisions of Section 7 of the Singapore Companies Act, Cap. 50, are deemed to have an interest in the entire share capital of the Company s whollyowned subsidiaries. The directors interest in the ordinary shares of the Company as at 21 January 2009 were the same as those as at 31 December Directors Contractual Benefits Since the end of the previous financial year, no director 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 he is a member or with a company in which he has a substantial financial interest, except as disclosed in the accompanying financial statements and in this report, and except that certain directors have employment relationships with related corporations and have received remuneration in those capacities.