A N N U A L R E P O R T 2 0 1 0 Heating Up The Future
Our Mission To provide value-added solutions, enabling our customers to operate their vessels and plants efficiently, and in turn produce value-added products and services for others. Our Vision To be the premium heat transfer and piping system products, services and solutions provider in the marine, oil and gas and related industries. Quality Policy To achieve and enhance customer satisfaction through on-time delivery of quality products, services and solutions through using resources efficiently. Contents 01 Company Profile 02 Corporate Information 03 Key Milestones 06 Chairman s Statement 08 Board of Directors 12 Operations Review 14 Financial Review This annual report has been prepared by the Company and its contents have been reviewed by the Company s sponsor, Primepartners Corporate Finance Pte Ltd. (the Sponsor ) for compliance with the relevant rules of the Singapore Exchange Securities Trading Limited (the SGX-ST ). The Sponsor has not independently verified the contents of this annual report. This annual report has not been examined or approved by the SGX-ST and the SGX-ST assumes no responsibility for the contents of this annual report, including the correctness of any of the statements or opinions made or reports contained in this annual report. The contact person for the Sponsor is Mr Mark Liew, Managing Director, Corporate Finance, at 20 Cecil Street #21-02 Equity Plaza, Singapore 049705, telephone (65) 6229 8088.
Company PROFILE Heatec Jietong Holdings Ltd. (the Company or Heatec Jietong ) is one of the leaders in piping and heat exchanger services for the marine and oil and gas industries. Piping Services We perform a variety of piping services which include:- fabrication and installation of all types of piping structure fabrication restoration and installation of all types of pipes and systems, including marine piping process piping for floating, production, storage and offloading ( FPSO ) conversions piping fabrication for FPSO turrets Our piping works are used in, among others, offshore structures such as oil rigs, restoration of ship piping systems, routine docking maintenance of ships, FPSO and other types of ship conversions and ship lengthening. In recent times, we expanded our piping services to include turnkey project management which encompasses:- procurement construction fabrication commissioning overall project management Heat Exchangers Services We provide the full range of heat exchanger services on a 24 by 7 basis. We service any heat exchangers that are utilised on board marine vessels, such as plate heat exchangers, charged air coolers, shell and tube heat exchangers and pressure vessels. Our heat exchanger services include:- on-site inspection engineering consultancy services fabrication and restoration of heat transfer devices o main engine charged air coolers o condensers o heaters o fresh water generators We sell and fabricate heat exchangers, as well as provide related services to major players in the marine, oil and gas and shipping industries. We also provide land-based heat exchanger services to the process and chemical plants conducting routine shut-down maintenance. The heat exchangers that we service include plate heat exchangers and shell and tube heat exchangers. Heatec is a member of the Heat Transfer Research Inc. and hence it is able to design and manufacture Shell and Tube Heat Exchangers and Charged Air Coolers to meet the stringent requirements of any certification parties and is in compliance with ASME Section VIII Div 1 and API 661, 660. Heatec is also an ASME- U Stamp and National Board R Stamp certified fabricator which further enhances our commitment to quality and excellence in all the products and services that we provide. The ability of Heatec to conduct the entire stream of heat transfer related services, from design, fabrication to restoration, repair, and final on-site removal and installation, allows us to be a one-stop centre for client s heat exchanger needs. This further reforces Heatec s commitment to our customers, enabling them to operate their vessel and plants efficiently with quality products. Heatec-Chariot Envirobotics Our 72.5% owned subsidiary, Heatec Chariot Envirobotics Pte. Ltd., which was formed pursuant to a joint venture agreement entered into by the Group s wholly-owned subsidiary, Heatec Jietong Pte Ltd in August 2009, will provide services to remove heavy-duty marine coatings and corrosion on the decks and hulls of ships as well as repainting and other related services. Our services include: full coating removal ultrasweep maneuverability flat bottom and sides hull industrial application pollution control These services will be performed using a wireless robot, the Envirobot, which utilises a patented air-gap ultra high water pressure water-jetting system for the removal of heavy duty marine and industrial coatings. The Envirobots also includes a custom vacuum system for the collection and disposal of effluent from the paint removal process. The system will offer significant advantages over traditional grit blast or manual ultra high pressure (UHP) processes, and at the same time, bring little or no environmental consequence. 0
Corporate INFORMATION BOARD OF DIRECTORS Johnny Soon (Chairman and Chief Executive Officer) Jimmy Yong (Executive Director) Yong Yeow Sin (Executive Director) Harold Sng (Executive Director) Seah Kian Peng (Lead Independent Director) Phillip Lee (Independent Director) Michael Seow (Independent Director) Richard Ong (Independent Director) AUDITORS Deloitte & Touche LLP Certified Public Accountants 6 Shenton Way #32-00 DBS Building Tower Two Singapore 068809 Cheung Pui Yuen, Engagement Partner Date of Appointment: 26 November 2007 0 COMPANY SECRETARY Nita Sim Geok Hoon, ACIS, MBA REGISTERED OFFICE 18 Tuas Avenue 18A Singapore 638868 SHARE REGISTRAR AND SHARE TRANSFER OFFICE Boardroom Corporate & Advisory Services Pte. Ltd. 50 Raffles Place #32-01 Singapore Land Tower Singapore 048623 SPONSOR PrimePartners Corporate Finance Pte. Ltd. 20 Cecil Street #21-02 Equity Plaza Singapore 049705 PRINCIPAL BANKERS Oversea-Chinese Banking Corporation Limited 65 Chulia Street #29-02/04 OCBC Centre Singapore 049513 DBS Bank Ltd Enterprise Banking 6 Shenton Way #32-02 DBS Building Tower One Singapore 068809 Standard Chartered Bank Limited SME Banking Consumer Banking, Singapore 51 Bras Basah Road #02-01 Plaza By The Park Singapore 189554
Key MILESTONES 2010 Awarded the Investors Choice Awards 2010 2009 Awarded the OHSAS 18001:2007 certification by Det Norske Veritas Achieved the bizsafe level STAR status by Workplace Safety and Health Council for efforts to maintain workplace safety standards Listed on the SGX-Catalist on 8th July 2009 Awarded the Investors Choice Awards 2009 Heatec Chariot Envirobotics was formed in a joint venture between Heatec Jietong and Chariot Robotics to provide coating removal services 2008 Awarded the ASME-U certification by the American Society of Mechanical Engineers and National Board-R by the National Board 2007 Formed Heatec Marine Phils Inc in the Philippines Awarded the ENTERPRISE 50 Award by Accenture and The Business Times 2006 2005 Moved to its present facility at 18, Tuas Ave 18A to accommodate the Company s rapid business growth Established Heatec IMC-YY Engineering Co. Ltd. in Zhoushan IMC-YongYue Shipyard Achieved the ISO 9001:2000 certification in recognition of the Company s high quality standards in piping structure fabrication and heat exchanger manufacturing and repair Received various awards and accolades due to our dedication to observing safety practices in all projects undertaken by the Company Established Heat Transfer Services Pte. Ltd., a strategic alliance with Invensys APV (the inventor of plate heat exchangers) 0 2003 JieTong Engineering Pte. Ltd. acquired 100% share of Heatec Asia Pacific Pte. Ltd. Jie Tong Engineering Pte. Ltd. transferred all operations to Heatec (Asia Pacific Pte. Ltd.) and ceased all operations Heatec (Asia Pacific Pte. Ltd.) was renamed Heatec Jietong Pte. Ltd., which specialises in heat transfer and piping 2002 Heatec Shanghai Pte. Ltd. was set up in China 2001 JieTong Engineering Pte. Ltd. acquired 75% share of Heatec Asia Pacific 1994 Heatec (Asia Pacific Pte. Ltd.) was founded with ten (10) employees to provide heat exchanger services to the local marine industry 1991 Jie Tong Engineering Pte. Ltd. was formed with fourteen (14) members to render piping services to local shipyards, mainly in Keppel Shipyard
04 Expanding our reach to explore GREATER OPPORTUNITIES
05 The Group s business has been marine-based since our inception, and given the opportunities presented by the new growth areas such as Jurong Island, we will be moving into providing more land-based and niche services to our global clientele.
Chairman s STATEMENT The Group already possesses longstanding capabilities in conducting process piping services for FPSO conversions. In FY2010, we diversified into process piping services for oil and gas plants located on Jurong Island, to leverage on our existing strengths. 0 Dear Shareholders, It gives me great pleasure to present the Annual Report for Heatec Jietong Holdings Ltd ( Heatec and together with its subsidiaries, the Group ) for the financial year ended 31 December 2010 ( FY2010 ). The business conditions in the marine, oil and gas industries that Heatec operates in have improved in the past few months. This has enabled Heatec to remain profitable in FY2010 despite the uncertain economic climate during the first half of FY2010. For the second half of FY2010, we recorded S$24.14 million in revenue and S$2.64 million in net profit. In comparison, we registered S$18.19 million in revenue and S$0.43 million in net profit for the first half of FY2010. As a result, our full-year revenue and net profit for FY2010 stood at S$42.33 million and S$3.07 million respectively. As of 31 December 2010, the Group s net asset value per share stood at 22.53 cents, up from 21.03 cents as of 31 December 2009. The Group performed better during the second half of FY2010 because prospects for the marine, oil and gas industries were steadily improving as the economic recovery gathers momentum. Looking ahead, the Group is actively looking to capitalise on the economic upturn by growing our existing businesses and entering new markets. Business Prospects Heat Exchanger segment Up till 2009, the Group s heat exchanger business was marine-based. In FY2010, we started to make inroads into providing the design and construction of land-based heat exchanger and services for the oil and gas sector. Going forward, we will intensify our marketing efforts for this sector as we see tremendous demand, especially from the oil and gas sector and petrochemical plants located on Jurong Island. Demand for our marine heat exchanger services has remained strong. As the global population continues to grow and energy demand increases, there has been an increase in the demand for oil. This has translated to higher oil prices and increased oil explorations and production. With oil companies increasing their exploration and production budget, there will be more Floating, Production, Storage and Offloading ( FPSO ) conversions in yards. This will have a beneficial filter-down effect in our marine heat exchanger business, especially in the design and build segment. In addition, we will also benefit from the increase in demand for marine heat exchanger servicing and repairs as such orders increases with the recovery in the global economy. Piping segment The Group already possesses longstanding capabilities in conducting process piping
Chairman s STATEMENT services for FPSO conversions. In FY2010, we diversified into process piping services for oil and gas plants located on Jurong Island, to leverage on our existing strengths. We have since secured a contract to provide piping services for an oil and gas player on Jurong Island our maiden order in this new growth area. Currently, there are several large oil and gas projects underway on Jurong Island, which will provide more opportunities to further broaden our revenue base. New business Heatec Chariot Envirobotics The Group s latest subsidiary, Heatec Chariot Envirobotics ( HCE ), has embarked on several projects at the local shipyards. Looking ahead, we are confident that there will be greater interest in HCE s ship hull hydroblasting and coating services, due to benefits of such services which include increased productivity and reduced waste generation. Given the Singapore Government s emphasis on increasing productivity rate and maintaining a clean and healthy workplace, HCE s future looks promising. We also aim to diversify and increase HCE s revenue by offering our HCE hydro-blasting services for storage tanks on Jurong Island. The Envirobots (remote-controlled robots used by HCE) are the first to be used in this industry and region. It could be used to eliminate or reduce many labour supporting works, and the use of unproductive equipment and machineries. Growing internal capacity Productivity is crucial in our business. The level of productivity is dependent on the level of automation in our work processes. In view of this, the Group is considering moving to newer premises so that we can further raise productivity through greater process automation. To further expand our clientele, we are also looking out for opportunities to expand into related businesses in the oil and gas industry. Rewarding our shareholders The Directors have recommended a first and final dividend of 0.75 cents per ordinary share which, if approved at the forthcoming Annual General Meeting, will be paid to shareholders on a date to be announced later. Appreciation I would like to thank our staff for their dedication and professionalism. They have helped the Group to succeed through their commitment and hard work. The Group has an established foothold in the marine, oil and gas industry today because of them. My appreciation also goes to my fellow Board members for their invaluable counsel, and to our customers, partners and suppliers for their unwavering support. We have always looked towards forging win-win partnerships with them, and will continue to do so in the future. Last but not least, I would like to thank our shareholders for their faith in the Group. We hope to continue building a longstanding relationship with you as the Group gears up for further business growth in 2011 and beyond. The journey ahead Barring any unexpected event or adverse economic climate change, the Board of Directors expects the Group s performance to remain profitable in financial year ending 31 December 2011. Johnny Soon Chairman and Chief Executive Officer Heatec Jietong Holdings Ltd 0
Board of DIRECTORS 0 Johnny Soon Chairman & CEO Johnny Soon is our Executive Chairman and Chief Executive Officer ( CEO ) and was appointed to our Board on 26 September 2007. As the Executive Chairman and CEO, he oversees all day-to-day operations and determines the Group s strategic direction for business growth. Jimmy Yong Executive Director Jimmy Yong is our Executive Director and was appointed to our Board on 26 September 2007. As an Executive Director, he is incharge of all aspects of our Company s piping and steelwork operations at Keppel Tuas Shipyard. Yong Yeow Sin Executive Director Yong Yeow Sin is our Executive Director and was appointed to our Board on 26 September 2007. As an Executive Director, he is in-charge of all aspects of our Company s piping and steelwork operations at Keppel Gul, Keppel Benoi, and ST Shipyards. Harold Sng Executive Director Harold Sng is our Executive Director and was appointed to our Board on 8 May 2009. As an Executive Director, he is the Group s Chief Financial Officer and has overall responsibility for all matters relating to the finance, administration and human resource management of our Group.
Board of DIRECTORS Richard Ong Non-executive Director Richard Ong is our Non-Executive Director and was appointed to our Board on 22 June 2009. He is a member of our Audit Committee ( AC ), Nomination Committee ( NC ) and Remuneration Committee ( RC ). He is currently a director of Appleton Global Private Limited and group financial controller of Higson International Pte Ltd. He is also currently serving as an independent director of another company listed on the SGX-ST. Seah Kian Peng Lead Independent Director Seah Kian Peng is our Lead Independent Director and was appointed to our Board on 22 June 2009. He chairs our RC and NC, and is a member of our AC. He is currently the chief executive officer of NTUC Fairprice Co-operative Limited, and a member of Parliament for Marine Parade GRC. He is also a trustee of the Singapore National Cooperatives Federation. 0 Phillip Lee Independent Director Phillip Lee is our Independent Director and was appointed to our Board on 22 June 2009. He is a member of our AC and NC. He is currently the managing director of Phillip Lee Management Consultants Pte Ltd. He is also an independent director of a public trust company, five (5) companies listed on the SGX-ST, as well as three (3) companies listed on the Kuala Lumpur Stock Exchange. Michael Seow Independent Director Michael Seow is our Independent Director and was appointed to our Board on 22 June 2009. He chairs our AC and is a member of our RC. He is currently an Associate Director at Engelin Teh Practice LLC, and has more than twenty (20) years of experience in the areas of conveyancing and property law, landlord and tenant law as well as general corporate and commercial work.
10 Gathering pace to meet growing demand of OIL AND GAS INDUSTRY
11 Our multi-pronged strategy of diversification helps to expand our business scope to tap on new growth opportunities. By maximising the synergy among our businesses, we strive to meet the growing demand in the oil and gas industry.
Operations REVIEW Heat Exchanger segment Revenue from the Heat Exchanger segment fell 13.0% year-on-year ( yoy ) from S$22.03 million for the financial year ended 31 December 2009 ( FY2009 ) to S$19.13 million for the financial year ended 31 December 2010 ( FY2010 ), mainly due to keen competition in the industry. 12 During FY2010, the Group started to diversify into providing heat exchanger services for the oil and gas sector. One of the projects that the Group undertook was for the design and fabrication of eight (8) shell and tube heat exchangers as well as two (2) air-cooled heat exchangers. The Group views the oil and gas heat exchanger business as a new growth driver and will step up its marketing efforts for this oil and gas sector due to the robust demand, especially from the petrochemical plants located on Jurong Island. The Group has also received positive response from its marketing initiatives to offer offshore heat exchanger services to potential clients. In addition, the Group expects that the high global demand for oil will eventually translate into greater demand for Floating, Production, Storage and Offloading ( FPSO ) conversions at shipyards. This will in turn have a beneficial effect on the Group s marine heat exchanger business. Piping segment Revenue from the Piping segment grew 9% yoy from S$20.41 million in FY2009 to S$22.24 million in FY2010, mainly due to higher demand during the second half of FY2010.
Operations REVIEW In FY2010, the Group began offering process piping services for oil and gas plants located on Jurong Island. This is another new growth driver which is a natural extension of the Group s longstanding capabilities in conducting process piping services for the offshore sector. The Group s maiden project was the fabrication and installation of various process piping systems for an oil and gas player on Jurong Island. This project is currently underway and is expected to complete in April 2011. Currently, there are several large oil and gas projects underway on Jurong Island. The Group believes that these developments represent additional opportunities to strengthen its foothold in providing piping services to the oil and gas sector. Blasting segment The Group s blasting segment, which is undertaken by the Group s latest subsidiary, Heatec Chariot Envirobotics ( HCE ), generated revenue of S$0.96 million in FY2010. There was no revenue contribution from HCE in FY2009 as the subsidiary only began operations in FY2010. In FY2010, HCE clinched several projects to provide vessel hull surface preparation services at the local shipyards. One of the projects involved the hydro-blasting and painting services on a FPSO vessel hull. Looking ahead, the Group anticipates greater interest in HCE s services due to the benefits of such services, including increased productivity and reduced waste generation. The Group also plans to expand HCE s clientele by offering land-based hydro-blasting services to plants on Jurong Island. 13
Financial REVIEW 14 Income Statement The Group s turnover dipped 1% from S$42.44 million in FY2009 to S$42.33 million in FY2010. Revenue from the piping segment rose by S$1.83 million or 9% to S$22.24 million in FY2010 from S$20.41 million in FY2009, which was mainly due to higher demand in the second half of FY2010. Revenue from the heat exchanger segment fell by S$2.90 million or 13% to S$19.13 million in FY2010 from S$22.03 million in FY2009, which was mainly due to keen competition in the industry. Revenue from the blasting segment contributed S$0.96 million in FY2010. The gross profit for the Group was S$13.13 million in FY2010 compared with S$13.57 million in FY2009. Gross profit margin decreased slightly from 31.97% in FY2009 to 31.01% in FY2010. The Group s share of profit of associates was S$0.42 million in FY2010 compared with a share of profit of S$0.22 million in FY2009. This was mainly due to higher demand from our associated companies, Heatec Transfer Services and Zhoushan Heatec IMC-YY Engineering Co. Ltd., in the heat exchanger segment and Heatec Marine Philippines in the piping segment. The Group s finance costs were S$0.47 million in FY2010 compared with S$0.38 million in FY2009. The increase was mainly due to higher cost of borrowing in FY2010 as compared with FY2009. The Group s administrative expenses rose to S$10.46 million in FY2010 from S$9.30 million in FY2009. This was mainly due to the increase in management staff cost arising from an increase in staff headcount, depreciation expense, rental of vehicles and rental of office space in Shanghai, as compared to FY2009. The Group s depreciation of property, plant and equipment was S$1.12 million in FY2010 as compared with S$0.70 million in FY2009. The increase was mainly due to purchase of new plant and machinery by a subsidiary in the blasting segment. Net profit fell 17% year-on-year, from $3.72 million in FY2009 to $3.07 million in FY2010. Our net profit margin fell from 8.7% in FY2009 to 7.3% in FY2010. Balance Sheet The balance sheet was strengthened further in FY2010: Current assets ($ 000) Non-current assets ($ 000) Current liabilities ($ 000) Non-current liabilities ($ 000) Net Asset Value ($ 000) 36,407 36,320 27,300 25,486 (17,386) 11,203 6,494 (15,774) (2,924) (1,554) As at 31 Dec 2010 As at 31 Dec 2009
Financial REVIEW Current assets Cash and bank balance was S$3.37 million as at 31 December 2010 compared with S$4.36 million as at 31 December 2009. Trade and other receivables was S$31.88 million as at 31 December 2010 compared with S$31.14 million as at 31 December 2009. The increase in trade receivables was mainly due to the increase in revenue towards the end of the second half of FY2010. Inventories were S$1.16 million as at 31 December 2010 compared with S$0.82 million as at 31 December 2009. The increase was due to new demand from our new land-based heat exchanger business. Non-current assets Property, plant and equipment were S$9.22 million as at 31 December 2010 compared with S$4.99 million as at 31 December 2009. The increase was mainly due to the new purchase of plant and machinery by a subsidiary of the Company for the Group s new blasting segment. Investment in associates was S$1.98 million as at 31 December 2010 compared with S$1.51 million as at 31 December 2009. The increase was mainly due to an increase in profit contribution to the Group in both the heat exchanger and piping segments. Short-term finance leases were S$1.03 million as at 31 December 2010 compared with S$0.10 million as at 31 December 2009. The increase was mainly due to the increase in the purchase of plant and machinery by a subsidiary of the Company in FY2010 for the Group s new blasting segment. Non-current liabilities Long-term finance leases were S$2.48 million as at 31 December 2010 compared with S$0.59 million as at 31 December 2009, also due to the increase in the purchase of plant and machinery by a subsidiary of the Company in FY2010. Current bank loans increased by S$0.11 million from S$5,53 million as at 31 December 2009 to S$5.64 million as at 31 December 2010. And long-term bank loan decreased by S$1.05 million from S$1.20 million as at 31 December 2009 to S$0.15 million as at 31 December 2010. This was due to the repayment of a bridging loan in FY2010. Cashflow statement The Group had cash and cash equivalents of S$2.75 million as at 31 December 2010, as compared to S$2.35 million as at 31 December 2009. The cash movements during the financial year in review were as follows: 15 Current liabilities Trade and other payables was S$9.84 million as at 31 December 2010 compared with S$9.17 million as at 31 December 2009. The increase was mainly due to new purchases in the land-based heat exchanger segment. Net cash from (used in) financing activities ($ 000) (1,918) 4,304 As at 31 Dec 2010 As at 31 Dec 2009
Financial REVIEW Net cash (used in) from operating activities ($ 000) Net increase in cash and cash equivalents ($ 000) 3,120 (1,930) 406 1,753 16 As at 31 Dec 2010 As at 31 Dec 2009 Net cash used in investing activities ($ 000) (795) (621) As at 31 Dec 2010 As at 31 Dec 2009 In FY2010, the Group reported positive operating cash flow of S$3.12 million as compared to a negative cash flow of S$1.93 million in FY2009. This was mainly due to better collections from customers in FY2010. The Group recorded a cash outflow of S$0.80 million from investing activities in FY2010 as compared to a cash outflow of S$0.62 million in FY2009. The cash outflow was mainly due to purchase of plant and equipment. As at 31 Dec 2010 As at 31 Dec 2009 Cash and cash equivalents at end of period ($ 000) 2,746 (2,345) As at 31 Dec 2010 As at 31 Dec 2009 The Group recorded cash outflow from financing activities in FY2010 of S$1.92 million as compared to an inflow of S$4.30 million in FY2009. This was mainly due to the dividends paid which amounted to S$1.20 million, the repayment of finance leases which amounted to S$1.16 million and also proceeds from the issuance of shares in FY2009 which did not recur in FY2010. Overall, the Group recorded a net cash inflow of S$0.41 million in FY2010 as compared to a net inflow of S$1.75 million in FY2009.
17 Financial Contents 18 Corporate Governance Report 30 Report of the Directors 33 Statement of Directors 34 Independent Auditor s Report 35 Statements of Financial Position 36 Consolidated Income Statement 37 Consolidated Statement of Comprehensive Income 38 Statements of Changes in Equity 39 Consolidated Statement of Cash Flows 41 Notes to Financial Statements 72 Statistics of Shareholdings 74 Notice of Annual General Meeting Proxy Form
Corporate Governance Report The Board of Directors (the Board ) of Heatec Jietong Holdings Ltd. (the Company and together with its subsidiaries, the Group ) is committed to maintaining a high standard of corporate governance within the Company by complying with the principles and guidelines of the Code of Corporate Governance 2005 (the Code ) where applicable to the Group. This report outlines the corporate governance framework and practices adopted by the Company with specifi c reference made to the principles of the Code throughout the fi nancial year ended 31 December 2010 ( FY2010 ). 1. BOARD MATTERS The Board s Conduct of its Affairs Principle 1: Every company should be headed by an effective Board to lead and control the company. The Board is collectively responsible for the success of the company. The Board works with Management to achieve this and the Management remains accountable to the Board. 18 The Company is headed by an effective Board to lead and control its operations and affairs. The Board is entrusted with the responsibility for the overall management of the Group. The Board s key responsibilities include charting and reviewing the Group s overall business strategy, supervising management and reviewing the Group s fi nancial performance and managerial performance. The Board is also responsible for the approval of major investment and divestment proposals. The Executive Directors play a very active role in the management of the Group and the formulation of corporate strategies and are also responsible for the day-to-day operations and administration of the Group. As at the date of this report, the Board comprises the following Directors:- Johnny Soon Yeow Kwee - Chairman and Chief Executive Offi cer Jimmy Yong Li Vien - Executive Director Yong Yeow Sin - Executive Director Harold Sng Yeow Huat - Executive Director Seah Kian Peng - Lead Independent Director Phillip Lee Soo Hoon - Independent Director Michael Seow Teo Tiew - Independent Director Richard Ong Beng Chye - Independent Director To assist the Board in the execution of its responsibilities and to provide independent oversight of the management, the Board has established a number of Board Committees, namely the Audit Committee (the AC ), the Nominating Committee (the NC ) and the Remuneration Committee (the RC ). These committees function within clearly defi ned terms of references and operating procedures, which will be reviewed on a regular basis. The effectiveness of each committee is also constantly reviewed by the Board. The full Board meets at least twice yearly and whenever warranted by particular circumstances. However, adhoc, non-scheduled Board meetings may be convened to deliberate on urgent substantial matters. In addition to these meetings, corporate events and actions requiring the Board approval may be discussed over the telephone and Directors resolutions in writing may be made. Article 104(4) of the Company s Articles of Association (the Articles ) provides for telephonic and videoconference meetings. The attendance of the Board and committee members at meetings to discharge their duties during the fi nancial year under review is given in the matrix below:- Board Meetings Audit Committee Meetings Nominating Committee Meetings Remuneration Committee Meetings Name of Directors Held Attended Held Attended Held Attended Held Attended Johnny Soon Yeow Kwee 2 2 N.A. N.A. N.A. N.A. N.A. N.A. Jimmy Yong Li Vien 2 2 N.A. N.A. N.A. N.A. N.A. N.A. Yong Yeow Sin 2 2 N.A. N.A. N.A. N.A. N.A. N.A. Winston Chua Seng Chye 1 2 2 N.A. N.A. N.A. N.A. N.A. N.A. Harold Sng Yeow Huat 2 2 N.A. N.A. N.A. N.A. N.A. N.A. Seah Kian Peng 2 2 2 2 1 1 1 1 Phillip Lee Soo Hoon 2 2 2 2 1 1 N.A. N.A. Michael Seow Teo Tiew 2 2 2 2 N.A. N.A. 1 1 Richard Ong Beng Chye 2 2 2 2 1 1 1 1 1 Resigned with effect from 15 October 2010.
Corporate Governance Report Matters Requiring Board s Approval The Company has in place internal guidelines on a number of corporate events and actions for which the Board s approval is required. They include the following:- (a) (b) (c) (d) (e) (f) (g) (h) approval of fi nancial results announcements; approval of annual reports and accounts; declaration of interim and/or fi nal dividends; authorisation of transactions; authorisation of new banking facilities; approval of change in corporate strategy; convening of shareholders meeting; and approval of acquisitions and disposals and funding of investments. The Company does not have a formal training programme for the Directors but all new Directors will undergo orientation in order to be provided with background information about the Group s history, strategic direction and industry-specifi c knowledge. The Directors also have the opportunity to visit the Group s operational facilities and meet with the management to gain a better understanding of the Group s business operations. Upon appointment, the newly appointed Directors will be provided a formal letter setting out the duties and obligations. The Directors, Mr Johnny Soon, Mr Jimmy Yong, Mr Yong Yeow Sin, Mr Harold Sng, Mr Richard Ong and Mr Michael Seow, have attended the SGX Listed Companies Development Programme Understanding the Regulatory Environment in Singapore course, conducted by the Singapore Institute of Directors (the SID ), and are aware of the roles and responsibilities of a director of a public-listed company in Singapore. Mr Seah Kian Peng and Mr Phillip Lee are directors of other public-listed companies and therefore have the appropriate experience and are familiar with the roles and responsibilities of a director of a public-listed company in Singapore. The Company encourages the Directors to attend training courses organised by the SID or other training institutions in connection with their duties. All Directors are provided with regular updates on changes in the relevant laws and regulations to enable them to make well-informed decisions and to ensure that the Directors are competent in carrying out their expected roles and responsibilities. Board Composition and Guidance 19 Principle 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. Currently, the Board consists of four (4) Executive Directors and four (4) Non-Executive Independent Directors, all with the right core competencies and diversity of experience which enable them to effectively contribute to the Company. Their varied experience is particularly important in ensuring that the strategies proposed by the management are fully discussed and examined, taking into account the long-term interests of the Company and the Group. Independent Members of the Board of Directors The Board has four (4) Independent Diretors, representing half (1/2) of the Board. They are Mr Seah Kian Peng, Mr Phillip Lee, Mr Michael Seow and Mr Richard Ong. The requirement of the Code that at least one third of the Board comprises Independent Directors is satisfi ed. The criterion for independence is based on the defi nition set out in the Code. The Board considers an independent Director as one who has no relationship with the Company, its related companies or its offi cers that could interfere, or be reasonably perceived to interfere, with the exercise of the Director s independent business judgment. The Independent Directors have confi rmed that they do not have any relationship with the Company or its related companies or its offi cers that could interfere, or be reasonably perceived to interfere, with the exercise of the Director s independent business judgment with a view to the best interests of the Company. The NC has reviewed and determined that the said Directors are independent.
Corporate Governance Report Mr Johnny Soon, Mr Jimmy Yong, Mr Yong Yeow Sin and Mr Harold Sng are the Executive Directors. Although all the Directors have equal responsibility for the performance of the Group, the role of the Non-Executive Directors is particularly important in ensuring that the strategies proposed by the executive management are fully discussed and rigorously examined, taking into account the long -term interests of the shareholders and the employees, customers and suppliers of the Group. The current Board size has the appropriate mix of expertise and experience for adequate functioning. Each Director has been appointed based on the strength of his calibre, experience and stature and is expected to bring his experience and expertise to contribute to the development of the Group. Chairman and Chief Executive Officer 20 Principle 3: There should be a clear division of responsibilities at the top of the company the working of the Board and the executive responsibility of the company s business which will ensure a balance of power and authority, such that no one individual represents a considerable concentration of power. The roles of the Chairman and the Chief Executive Offi cer ( CEO ) are currently held by Mr Johnny Soon. The Board is of the opinion that it is not necessary to separate the roles of the Chairman and the CEO after taking into account the size, scope and the nature of the operations of the Group. Mr Johnny Soon is one of the founders of the Group. He has played an instrumental role in developing the business of the Group and has provided the Group with strong leadership and vision. It is hence the view of the Board that it is currently in the best interests of the Group to adopt a single leadership structure. The Chairman remains involved in signifi cant corporate matters, especially those of strategic nature. In addition, he is responsible for the effective function of the Board and exercises control over the quality, quantity and timeliness of information fl ow between the Board and the management. The Chairman s responsibilities in respect of Board proceedings include:- (a) (b) scheduling of meetings (with the assistance of the Company Secretary) to enable the Board to perform its duties responsibly while not interfering with the fl ow of the Group s operations; and assist in ensuring the Group s compliance with the Code. Although the roles of Chairman of the Board and CEO are not separated, the Board is of the view that there are suffi cient safeguards and checks to ensure that the process of decision making by the Board is independent and based on collective decisions without any individual or group of individuals exercising any considerable concentration of power or infl uence and there is accountability for good corporate governance. All the Board committees are chaired by Independent Directors and half (1/2) of the Board consists of Independent Directors. For good corporate governance, Mr Seah Kian Peng had been appointed as the Lead Independent Director. As the Lead Independent Director, he shall be available to the shareholders of the Company where they have concerns which contact through the normal channels to the Chairman and CEO or the Chief Financial Offi cer has failed to resolve their concerns or for which such contact is considered inappropriate. Board Membership Principle 4: There should be a formal and transparent process for the appointment of new directors to the Board. The NC was established on 26 June 2009 and comprises three (3) Non-Executive Directors, all of whom (including the Chairman) are independent. They are:- 1. Seah Kian Peng (Chairman) 2. Phillip Lee (Member) 3. Richard Ong (Member) The Chairman of the NC, Mr Seah Kian Peng is not directly associated 1 with any substantial shareholder of the Company. 1 A director will be considered directly associated to a substantial shareholder when the director is accustomed or under an obligation, whether formal or informal, to act in accordance with the directions, instructions or wishes of the substantial shareholder.
Corporate Governance Report The responsibilities of the NC include that of re-nomination, having regard to the Director s contribution and performance as well as an annual determination on whether or not a Director is independent. The NC considers and makes recommendations to the Board concerning the appropriate size and needs of the Board, having regard to the appropriate skill mix, personal qualities and experience required for the effective performance of the Board. The NC also recommends all appointments and retirement of Directors and considers candidates to fi ll new positions created by expansion and vacancies that occur by resignation, retirement or for any other reason. Candidates are selected for their character, judgment, business experience and acumen. Where a Director has multiple board representations, the NC will evaluate whether or not a Director is able to and has been adequately carrying out his duties as a Director. Final approval of a candidate is determined by the Board. The NC is of the view that the current Board comprises persons who as a group provide capabilities required for the Board to be effective. In appointing Directors, the Board considers the range of skills and experience required in the light of:- (a) (b) (c) (d) the geographical spread and diversity of the Group s businesses; the strategic direction and progress of the Group; the current composition of the Board; and the need for independence. Article 98 of the Company s Articles provides that at each annual general meeting, at least one third (1/3) of the Directors for the time being shall retire from offi ce by rotation, provided that all Directors shall retire from offi ce at least once every three (3) years. Article 102 of the Company s Articles provides that the Directors shall have power at any time and from time to time to appoint any person to be a Director either to fi ll a casual vacancy or as an additional Director but the total number of Directors shall not at any time exceed the maximum number (if any) fi xed by the Articles. Any Director so appointed shall hold offi ce only until the next annual general meeting and shall then be eligible for re-election but shall not be taken into account in determining the number of Directors who are to retire by rotation at such meeting. The NC recommended to the Board that the following Directors be nominated for re-election at the forthcoming Annual General Meeting ( AGM ):- 21 (i) (ii) Mr Johnny Soon, who is retiring by rotation pursuant to Articles 98 and 99 of the Company s Articles. Mr Harold Sng, who is retiring by rotation pursuant to Articles 98 and 99 of the Company s Articles. (iii) Mr Richard Ong, who is retiring pursuant to Articles 98 and 99 of the Company s Articles. In making the recommendation, the NC had considered the Directors overall contributions and performance. As at the date of this report, the members of the Board and their details are set out below:- Name of Director Johnny Soon Yeow Kwee Date of first appointment/ last re-election Nature of appointment Functions/ Board Committee served 26 September 2007 Executive CEO and Chairman Academic and professional qualifications Secondary school. - Jimmy Yong Li Vien 26 September 2007 Executive - Primary school. - Yong Yeow Sin 26 September 2007 Executive - Primary school. - Directorships or Chairmanships both present and held over last 3 years in other listed companies and other major appointments
Corporate Governance Report 22 Name of Director Harold Sng Yeow Huat Date of first appointment/ last re-election Nature of appointment Functions/ Board Committee served Academic and professional qualifications 8 May 2009 Executive CFO Bachelor of Commerce. Fellow of the Institute of Certifi ed Public Accountants of Singapore. Seah Kian Peng 22 June 2009 Non- Executive/ Independent Phillip Lee Soo Hoon Michael Seow Teo Tiew Richard Ong Beng Chye 22 June 2009 Non- Executive/ Independent 22 June 2009 Non- Executive/ Independent 22 June 2009 Non- Executive/ Independent Member of AC, Chairman of NC and RC Member of AC and NC Chairman of AC and Member of RC Member of AC, NC and RC Bachelor of Building (First Class Honours). Fellow of Chartered Institute of Marketing. Certifi ed Public Accountant. Fellow of the Institute of Certifi ed Public Accounts of Singapore and the Institute of Chartered Accountants of England and Wales, UK. Member of the Malaysian Association of Certifi ed Public Accountants, the Malaysian Institute of Accountants and Stanford Club of Singapore. Bachelor of Laws, National University of Singapore. Bachelor of Science (Economics). Chartered Accountant and an associate member of the Institute of Chartered Accountants of England and Wales, UK. Member of The Institute of Chartered Financial Analyst. Non-practising member of the Institute of Certifi ed Public Accountants of Singapore. Directorships or Chairmanships both present and held over last 3 years in other listed companies and other major appointments Present Directorship - Past Directorship MAP Technology Holdings Limited Present Directorship Skywest Airlines Ltd Past Directorship - Present Directorship CSE Global Limited G. K. Goh Holdings Limited IPC Corporation Limited Kluang Rubber Company (Malaya) Berhad Kuchai Development Berhad Sungei Bagan Rubber Company (Malaya) Berhad Transview Holdings Limited Past Directorship - - Present Directorship Hafary Holdings Limited Past Directorship Details of Director s shareholding in the Company are set out in the Directors Report.
Corporate Governance Report Board Performance Principle 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. The Board recognises the merit of having some degree of formal assessment of the effectiveness of the Board as a whole and the contribution by each Director to the effectiveness of the Board. The NC together with the Board have considered the guidelines contained in the Code and formulated a plan to evaluate the performance of the Board as a whole as well as using a set of performance criteria. The NC has an annual Board performance evaluation to assess the effectiveness of the Board as a whole on the following parameters: (A) (B) (C) (D) (E) (F) Size and composition of the Board; Board s access to information; Appropriateness of Board procedures; Board accountability; Communications with the CEO and management; and Standard of conduct of Board members. The NC in assessing the contribution of individual Director, has considered each Director s level of participation and attendance at Board and Committee Meetings, his qualifi cation, experience and expertise and the time and effort dedicated to the Group s business and affairs including the management s access to the Directors for guidance or exchange of views as and when necessary. In assessing the effectiveness of the Board as a whole, both quantitative and qualitative criteria are considered. The NC has assessed the current Board s performance to-date and is of the view that the performance of the Board as a whole was satisfactory. Although some of the Board members have multiple board representations, the NC is satisfi ed that suffi cient time and attention has been given by the Directors to the Group. Access to Information Principle 6: In order to fulfi ll their responsibilities, Board members should be provided with complete, adequate and timely information prior to board meetings and on an on-going basis. Detailed Board papers are prepared for each Board meeting. The Board papers include suffi cient information on fi nancial, business and corporate issues to enable the Directors to be properly briefed on issues to be considered at the Board meetings. However, sensitive matters may be tabled at the meeting itself or discussed without any papers being distributed. Managers who can provide additional insight into the matters at hand would be present at the relevant time during the Board meeting. 23 All Directors have unrestricted access to the Company s records and information. The Directors may also liaise with the senior management as and when required to seek additional information. In addition, the Board also has separate and independent access to the Company Secretary, who is responsible to the Board for ensuring that established procedures and relevant statutes and regulations are complied with. The Company Secretary attends all the Board meetings. The appointment and removal of the Company secretary are decided by the Board as a whole. Should Directors need to seek independent professional advice concerning any aspect of the Group s operations or undertakings in order to fulfi ll their duties and responsibilities as Directors, the Board will appoint at the Company s expense professional adviser(s) to assist such Directors.
Corporate Governance Report 2. REMUNERATION MATTERS Procedures for Developing Remuneration Policies Principle 7: There should be a formal and transparent procedure for developing policy on executive remuneration and for fi xing the remuneration packages of individual directors. No director should be involved in deciding his own remuneration. The RC was established on 26 June 2009 and comprises three (3) Non-Executive Directors, all of them (including the Chairman) are independent. They are:- 1. Seah Kian Peng (Chairman) 2. Michael Seow (Member) 3. Richard Ong (Member) 24 The RC reviews and approves recommendations on the remuneration packages for the Chairman and the other Executive Directors based on the performance of the Group and the individual Director. No Director individually decides or is involved in the determination of his own remuneration. The RC also reviews and approves recommendations on remuneration policies and packages for the key executives. The RC s review covers all aspects of remuneration, including but not limited to Directors fees, salaries, allowances, bonuses, and benefi ts-in-kind. The RC has access to advice from the internal human resource department and, if necessary, expert advice from outside the Company. The RC s recommendations are submitted for endorsement by the entire Board. The Company has a share option scheme known as Heatec Employee Share Option Scheme (the Heatec ESOS ) and a performance share plan known as Heatec Performance Share Plan (the Performance Share Plan ) which were approved by shareholders of the Company on 18 June 2009. The Heatec ESOS and Performance Share Plan comply with the relevant rules as set out in Chapter 8 of the Listing Manual Section B: Rules of Catalist of the Singapore Exchange Securities Trading Limited (the SGX-ST ) ( Rules of Catalist ). The Heatec ESOS and Performance Share Plan will provide eligible participants with an opportunity to participate in the equity of the Company and to motivate them towards better performance through increased dedication and loyalty. Both the Heatec ESOS and Performance Share Plan are administered by the RC. Level and Mix of Remuneration Principle 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 signifi cant proportion of executive directors remuneration should be structured so as to link rewards to corporate and individual performance. The Group s remuneration policy is to provide compensation packages at market rates which reward successful performance and attract, retain and motivate Directors. The remuneration packages take into account the performance of the Group and the individual Directors. Fees for the Non-Executive Directors are determined by the Executive Directors on the recommendation of the RC, based on the effort and time spent and the responsibilities of the Non-Executive Directors. The total remuneration of the Non-Executive Directors is recommended for approval at annual general meeting. The remuneration for the Executive Directors comprises a basic salary and a variable component which is the annual bonus. The Company had on 8 June 2009 entered into service agreements with the following Directors:- (a) (b) (c) (e) Mr Johnny Soon, in relation to his appointment as Chairman and CEO; Mr Jimmy Yong, in relation to his appointment as Executive Director; Mr Yong Yeow Sin, in relation to his appointment as Executive Director; and Mr Harold Sng, in relation to his appointment as Chief Financial Offi cer and Executive Director.