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HONG LEONG ASIA LTD. ANNUAL REPORT 2010
With a diversified portfolio covering three countries and a management team that is well-versed in East Asia industries, Hong Leong Asia is definitely a force to be reckoned with. Displaying strength in leadership, the Group has proven to be an Asian powerhouse that is not only one of Singapore’s largest manufacturing groups, it is also the largest independent producer of diesel engines and one of the leading manufacturers of refrigerators and freezers in China. Like a granite wall, Hong Leong Asia is stable and steadfast in its company vision and development. Remaining strong, both on the balance sheets and in its management, the Group is committed to steering the business from Strength to Strength.
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Mission stateMent
Hong Leong Asia Group strives to strengthen its businesses in China and Southeast Asia. It will continue to focus on manufacturing and distribution activities in the region. It will grow both organically and through acquisitions to ensure its continued premier position in Asia, in order to achieve superior returns for its shareholders. 丰隆亚洲着重加强其在中国及东南亚地区的投资经营力度，并将继续 重点发展集团在制造及营销等核心领域的业务。 通过自身的不断发展及并购活动，丰隆亚洲将确保其在亚洲地区的主 导地位，为集团股东谋取丰厚的回报。
2010 in review Revenue:
$5.1 billion
Revenue up by
14%
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HONG LEONG ASIA LTD. ANNUAL REPORT 2010
GRoUP PRoFiLe
From being Singapore’s leading integrated building materials supplier to its current standing as one of the region’s major manufacturing and distribution players, Hong Leong Asia’s success is intricately linked to its diversification into the manufacturing and distribution industries in China and Southeast Asia. With over 80 per cent of its market beyond the shores of Singapore, Hong Leong Asia is well placed to leverage on its current position to scale greater heights. Hong Leong Asia has major operations in China and is well-positioned to take advantage of booming markets driven by the Asian giant. With its head office based in Singapore and its Asian management team, the Group combines the best of management practices with a deep understanding of Asian culture and local sensibilities. Its diverse management portfolio includes key sectors in the diesel engines, white goods and industrial packaging products, as well as capabilities across the supply chain in building materials. Each portfolio is led by a seasoned team of professionals who steer the business towards continued growth and profitability.
CAPITAL EMPLOYED
2006 Total Assets Net Assets Net Assets Per Share (in $ million) (in $ million) (in cents) 2,731.5 508.9 133.8 2007 3,046.3 593.3 155.6 2008 3,287.3 580.9 152.3 2009 4,241.4 708.1 189.9 2010 4,752.7 768.4 205.7
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CHaiRMan’s MessaGe
Sales of diesel engines grew, from rising consumer purchasing power, infrastructure projects and the rapid development of transportation in China. The robust growth of white goods in China continued to be powered by healthy domestic demand and favourable government policies.
On behalf of the Board of Directors, I am pleased to announce that the Group has achieved another year of creditable performance. 2010 ended with record high revenue which reached $5.1 billion, eclipsing the previous record achieved in 2009 by 14.4 percent. Government-initiated measures continued to have a positive impact on the economies of China, Malaysia and Singapore, countries in which the Group operates. The Chinese economy grew 10.3 percent in 2010 higher than the 8.7 percent achieved in 2009. China has since surpassed Japan as the world’s second largest economy after having led the world out of the 2009 global recession and stamping its mark with an increasingly dominant role in the global economy. Singapore rebounded from 1.3 percent contraction in 2009 to 14.5 percent growth in 2010 primarily underpinned by a strong expansion in the manufacturing sector which grew 29.7 percent year-on-year. The construction sector, in which the Group has a strong presence in Singapore, also grew in 2010. The Malaysian economy also grew strongly, registering a growth of 7.2 percent in 2010, driven largely by growth in the manufacturing and services sectors and increased domestic consumption and investments in capital goods. However, inflationary pressures in China, Malaysia and Singapore, may result in policy changes which may have an effect on the continued strong growth in these regions.
KwEK LEng BEng ChAIrMAn
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HONG LEONG ASIA LTD. ANNUAL REPORT 2010
CHaiRMan’s MessaGe
As mentioned in my 2009 report to the members of the Company, the inclusion of Tasek Corporation Berhad (“Tasek”) as a subsidiary in early 2009 had a positive impact to the Group. The Group recognized negative goodwill of $50.6 million (net of non-controlling interests: $48.8 million) in 2009 primarily from the acquisition of additional shares in Tasek and China Yuchai International Limited. The Group also made a gain of $6.3 million from the sale of quoted securities by one of its associates. In 2010, the Group made $21.5 million (net of non-controlling interests: $16.6 million) gain from asset sales. Had those non-core operating items recognized in 2009 and 2010 been excluded, profits attributable to shareholders of the Company for 2009 and 2010 would have been $71.6 million and $103.7 million respectively, an increase of 44.8 percent year-on-year. During the year under review, sales revenue of the Group benefitted from strong demand in diesel engines, white goods and packaged consumer products in China. Sales of diesel engines grew from rising consumer purchasing power, infrastructure projects and the rapid development of transportation in China. The robust growth of white goods in China continued to be powered by healthy domestic demand and favourable government policies. Demand remained strong in packaged consumer goods resulting in higher sales of the Group’s industrial packaging products. Sales of building materials in Malaysia grew on the back of increased domestic demand and higher export sales, and strong economic growth increased Singapore’s construction demand which grew to $25.7 billion, up 14 percent year-on-year. However, pricing pressure reduced revenue from sales of building materials, largely from ready-mix concrete. Driven largely by stronger diesel engine sales in China and higher selling prices from improved sales mix and higher capacity engines, and to a lesser extent by stronger sales of cement and clinkers by Tasek as well as better margins from sales of precast concrete, gross profit of the Group rose by 31.2 percent to reach $1.3 billion in 2010. Operating overheads rose primarily on account of higher unit sales of white goods and diesel engines. The Group continues to invest in research and development activities in its white goods and diesel engine businesses. Rising manpower costs in China, a factor of recent government policies, as well as a tightening labour market, also caused an increase in operating overheads. Pending the appointment of a CEO in place of Mr Teo Tong Kooi who resigned on 18 November 2010, Mr Kwek Leng Peck, the Executive Director also stands in as the acting CEO. I shall now provide you with some key highlights on the business units of the Group.
Consumer Products Unit (“Xinfei”)
The robust growth of white goods in China continued the expansion that started in 2009 when the government extended its rural subsidy program to all provinces and implemented favourable policies to encourage domestic consumption including a similar type of subsidy program in major Chinese cities to induce replacement of old consumer durables with new ones. It has been reported that China’s home appliance industry achieved retail sales of RMB1.04 trillion, marking a new record high in over 10 years. Xinfei’s sales grew 19.2 percent year-on-year reaching close to 3.8 million units which translated to an almost similar growth in sales revenue. However, the growth in gross profit was more modest as high raw material costs and increased industry capacity, particularly in refrigerators which posted the highest growth rate in the white goods category, resulted in pricing and margin pressures. Other than higher sales-volume related reasons, Xinfei also had to incur additional sales and marketing expenses in order to defend its market share from increased competition caused by an increase in manufacturing capacity in the industry. Although the Chinese government has continued the various subsidy programs, inflationary pressure may result in some changes being made to these programs and this may have an effect on demand. Nonetheless, the Group believes that any such changes may not be necessarily detrimental to Xinfei as it may well lead to industry consolidation and elimination of marginal provincial manufacturers and distributors of white goods.
Diesel Engines Unit (“Yuchai”)
After supplanting the United States as the world’s largest auto market in 2009, China’s vehicle sales surged 33 percent in
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CHaiRMan’s MessaGe
2010 to 18.1 million units. Most of the diesel engines sold by Yuchai are used in buses and trucks and these auto segments grew 31 percent and 26 percent year-on-year respectively. In tandem with the growth of the Chinese auto market, 2010 sales of diesel engines by Yuchai grew by about 17.9 percent. Sales mix skewed towards the more profitable heavy and medium duty and higher capacity and higher emission standard engines compared to 2009. As a result, sales revenue rose even faster, by 24.6 percent, with gross profit even higher, by about 64.5 percent, from a year ago. Higher sales volume, continued focus on research and development activities and higher staffing cost resulted in an increase in operating overheads in Yuchai for the year under review. Yuchai achieved record profits of approximately RMB1.6 billion in 2010. As part of its drive to cater to an expanding Chinese market, the Xiamen plant will see its production capacity increasing from the current 50,000 units to 70,000 units per year before eventually achieving full capacity of 100,000 units by the end of 2012. The first phase of the new foundry has been completed and production commenced in the first quarter of 2010. The Group expects completion of the next phase to be in the second half of this year. Construction of production facilities in a joint venture to produce heavy duty engines capable of meeting high European standard of performance was completed last year and construction of two joint venture facilities to produce engines and engine parts for smaller passenger cars is on schedule. Tougher emission standards have been imposed in major cities in China as part of the Chinese government’s commitment to reduce carbon emission. The increasing stringent emission standard imposed on engine makers may result in an elimination or knockout round in the game, which will eventually reshuffle or restructure the market. In this regard, Yuchai is well positioned to take advantage of such market changes. A growing logistic industry, the Chinese government’s commitment to improve and expand transportation infrastructure and reduce carbon emission as well as a large Chinese population base should provide further growth impetus for environmentally friendly diesel engines although growth may be dampened by recent government measures to curb the growth of automobiles. Nonetheless, with reports indicating that a diesel engine with equal displacement as a gasoline engine being able to save oil by 30 percent, raise torque by 50 percent and reduce carbon dioxide emission by 25 percent, the future looks good for Yuchai.
Building Materials Unit (“BMU”)
Riding on strong economic growth, Singapore’s preliminary construction demand (as measured by the total value of construction contracts awarded excluding reclamation projects), increased by 14 percent year-on-year from $22.5 billion to $25.7 billion in 2010 fuelled largely by buoyant residential home sales and power utilities projects. While these are positive signs, excess capacity in the ready-mix concrete sector prompted competitive bids by sub-contractors and this affected the sales revenue of the Singapore operations of BMU. Sales of precast concrete were affected by project delays in Singapore but with better margins, it contributed to an improved after tax profit. Tasek did better from improved market sentiments and higher exports which boosted revenue and contributions. Tasek also had a gain on disposal of a piece of plantation land during the year under review. The Singapore Building and Construction Authority (“BCA”) has estimated that the total construction demand in 2011 is likely to reach between $22 billion to $28 billion, comparable to 2010’s demand. As the strong sales of residential projects in 2010 will translate into construction activity in 2011, the Group expects better margins in its ready-mix concrete sector. Prices of building materials have begun to firm and this should translate into less competitive biddings by sub-contractors. With the encouragement of the Singapore government to use precast concrete in infrastructure and housing projects, the Group plans to increase its production capacity of precast concrete. Recent announcements by the Malaysian government to boost the construction sector through the building of a mass rapid transit system and several other mega projects augurs well for the future of Tasek.
Industrial Packaging Unit (“rex”)
Rising consumerism in the Chinese market translated to stronger sales of the Group’s industrial packaging products. Although the Chinese manufacturers of industrial packaging products
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HONG LEONG ASIA LTD. ANNUAL REPORT 2010
CHaiRMan’s MessaGe
remained a fragmented group, Rex is however positioned to service customers who demand consistently high quality packaging products and therefore does not compete solely on product pricing. This has enabled Rex to continue to achieve margins in excess of 15 percent. Sales of green technology pallets increased by more than 77.1 percent year-on-year with more than 330,000 units sold in 2010 (2009: about 187,000 units). However, with the lack of regulatory framework in many countries on the use of green products, this business remains challenging. During the year under review, the Group divested its entire equity interest in an associate company in Indonesia. A factory building in Singapore which used to house the Singapore operations of the green packaging operations had also been sold in 2010. for its research and development activities. These outflows from financing activities were mitigated by the release of bank fixed deposit, given in prior year to secure bank facilities.
Outlook
While the Chinese government faced many challenges over the overheating economy and the formation of an asset bubble, and at the same time needing to increase the income of the general population, reduce income disparity between urban and rural areas and spur domestic consumption, the Group believes that sharply focused government policies and a rapidly emerging middle class will continue to drive economic growth in China. China has the largest population in the world. Every province and municipality in China experienced a rise in its minimum wage in 2010 with increases ranging from 12 percent to Beijing’s 21 percent. Wages will continue to rise. Social unrest in the oil-rich Middle Eastern countries has caused oil prices to increase. Both these factors will certainly increase the cost of doing business in China. Continued pressure on China to appreciate the Renminbi will make Chinese exports less competitive and increase the focus by Chinese manufacturers in the domestic market. This will have a consequential effect of increasing competition in the domestic market. On the positive side, in conjunction with wage increases, the prospects for the China domestic market for all goods will improve dramatically. The China retail market is far from mature. As employment income begins to rise, the possibilities for this market are vast. Demand for consumer durables in the rural areas continued to be powered by both an increase in disposal income and the ongoing rural subsidy program. An expanding transportation network and China’s commitment to reduce carbon emission will continue to lead to a growth in the demand for environmentally friendly engines. Demand for industrial packaging products in China is unlikely to dampen if inflationary pressure is well managed. The Malaysian and Singapore governments’ proactive policies will provide growth engines for their construction industries. A recent media release by BCA gave a promising outlook for the construction sector demand in 2011 as moderation in private sector construction demand is expected to be compensated by the strengthening of public sector construction demand.
Cashflow and Liquidity
The Group ended the year with higher cash balance of about $1.2 billion (2009: about $1.1 billion). The Group continued to generate positive cashflow from operating activities although it was lower than in 2009 due to increased working capital needs. The substantial increase in sales by Xinfei and Yuchai in 2010 necessitated higher working capital requirements and this translated to increases in inventory holdings and higher trade receivables. The recent tightening of bank credit in China particularly in the last quarter of 2010 increased the cost of bank borrowings of suppliers which resulted in requests for prompt settlement of trade payables. About $110 million cash was generated from asset sales largely from the Group’s disposal of a substantial part of its equity stake in Thakral Corporation Ltd and its entire equity stake in an associate company in Indonesia as well as non-core assets in Malaysia and Singapore. These factors together with lower share purchases in a subsidiary company primarily contributed to lower cash outflow from investing activities. The Group continued to make further loan repayments in 2010 which reduced its total bank borrowings by about $64 million. Higher interest expenses were incurred during the year due to increased working capital requirements. The Group also paid more dividends in 2010 and received less government grants
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CHaiRMan’s MessaGe
The former reflects more cautious industry sentiments among developers in the light of a more moderate economic outlook and recent government’s measures to rein in on speculative activity in the residential housing market. Growth in the public sector construction demand is anticipated to come mainly from growth in public sector institutional construction demand (such as Institute of Technical Education’s third regional campus in Ang Mo Kio and development of Jurong General Hospital) and stronger public sector civil engineering construction demand led by the Land Transport Authority’s Downtown MRT Stage 3 contracts. Singapore’s GDP growth is expected to be in the region of 4 to 6 percent in 2011. The Malaysian Institute of Economic Research expects the country to post GDP growth of 5.2 percent this year. Recent announcements by the Malaysian government to improve transportation network in the country and to boost the construction industry in general are expected to benefit suppliers of building materials. The Group is in discussion to divest its equity stake in the quarry on Karimun Island. Xinfei continues to be a well-recognized brand in China having been awarded the “Top Ten of the Most Competitive National Brands” in 2010 in China. Its emphasis on quality also resulted in Xinfei being awarded the “Henan Province Governor Quality Award” in 2010.
Appreciation
On behalf of the Board of Directors, I would like to thank our members, customers, business associates, management and employees for their contribution and look forward to their continuing support.
Kwek Leng Beng Chairman 23 March 2011
Dividends
As the Group had continued to perform in 2010, the Board of Directors is recommending a final dividend of 7 cents per share. If approved by the members of the Company, this will make the total dividend of 10 cents per share for 2010, including the interim dividend of 3 cents per share paid during the year, similar to that of 2009.
Accolades
Hong Leong Asia Ltd. continues to be recognized for its efforts in fostering ties with other countries through its overseas investments. The Company has again achieved a high ranking among the top 100 Singapore companies in terms of overseas revenue. Yuchai remains one of the largest independent diesel engine manufacturers in China in 2010. It has clinched several awards in 2010 amongst which were “2010 China Outstanding Enterprise Culture”, “Top 10 Guangxi Enterprises”, “2010 China Foundries Top 100” and “Hybrid Engine Supplier of the Year”.
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HONG LEONG ASIA LTD. ANNUAL REPORT 2010
主席报告
我谨代表董事会欣然地向大家报告，丰隆亚洲集团再次取 得了良好的年度业绩。2010年度的营业收入增长了14.4%，达 到51亿元，再创历史新高。 集团的业务主要分布在中国、马来西亚和新加坡，而政 府的有关经济措施继续对这些经济体产生了积极的作用。 中国经济在2010年增长了10.3%, 超过了2009年所取 得的8.7%。中国领导世界走出了2009年的全球经济衰退，加 深了其在国际经济领域的话语权，并一举超越日本成为世界第 二大经济实体。 相比于2009年1.3%的负增长，新加坡经济在2010年取 得了14.5%的增长。制造业表现尤为突出，共增长了29.7%。 集团在新加坡的建筑业有较强的市场份额，建筑业在2010年 也有所增长。 在制造业、服务业、内需及资本投资的带动下，马来西 亚经济在2010年也取得了强劲的增长，达到7.2%。 在经济增长的同时，中国、马来西亚和新加坡也面对着 通货膨胀的压力，这有可能导致政府出台一些抑制通货膨胀的 政策，从而影响到这些国家经济的持续增长。 正如我在2009财政年度报告中指出，大石股份有限公司 (“Tasek”)在2009年初由联营公司转变为集团的子公司，这 对集团的业绩产生了正面的影响。集团在2009年确认了5,060 万元的负商誉（扣除少数股东部分实得4,880万元），主要是 因为购买了额外的大石与玉柴国际的股份。集团旗下的一间 联营公司也因为脱售挂牌证券而取得630万元的收益。集团 在2010年从脱售资产中获益2,150万元（扣除少数股东部分 实得1,660万元）。如果不包含这些非核心业务收益，2009 年度与2010年度归属于股东的利润将分别为0.716亿元和 1.037亿元，同比增长了44.8%。 受益于中国市场对柴油发动机、家电产品和消费品包装 的强大需求，2010年集团的营业收入取得了强劲的增长。随 着消费者购买力的提高、政府对基础设施项目的投入以及迅速 发展的交通运输，柴油发动机在中国的销售也日益增长。在家 电产品方面，稳健的国内需求和政府出台的一系列利好政策 是白色家电在中国快速增长的主因。消费品包装的需求依然强 大，因此集团的工业包装产品的销售得以提高。马来西亚的建 筑材料的销售也因为国内需求和出口销售的增加而有了提高。 强劲的经济增长带动了新加坡建筑业的发展，2010年总建筑 合同金额达到257亿元, 同比增长14%。 但是，由于价格的压 力影响了建筑材料的销售收入，尤其是预拌混凝土。 集团的毛利润在2010年增长了31.2%，达到13亿元, 主要是因为中国对柴油发动机有较强的需求、其次是优化产品 组合和重型发动机销量比重的增加、其他次要原因是大石销售 了更多的水泥和熟料，以及销售预制混凝土所带来的较高利润 率。营业费用有所增加是家电产品和柴油发动机的销售量增加 所致。 集团继续增加在家电产品与柴油发动机业务的研发活动 的投入。中国的人力成本由于近期的一些政府政策有所增加， 加上劳动市场的紧张，营业费用也因此有所增加。 原集团首席执行官张冬贵（Teo Tong Kooi）先生于 2010年11月18日辞职。在物色到新首席执行官之前，执行董 事郭令栢先生将兼任代理首席执行官。 以下是集团有关业务单元的主要信息摘要。
家电产品单位 (“新飞”)
为了鼓励国内消费，中国政府在2009年把家电下乡补贴 政策扩展到全国范围，并同时实施了其他有利政策，包括在一 些主要城市实施的以旧换新补贴政策。这一系列利好政策推动 了家电产品销量的持续增长。根据报道，中国家电业2010年 的零售额达到1.04万亿元人民币，这是10年以来的一个新纪 录。 新飞的销售量同比增长了19.2%，接近380万台，销售 额也几乎取得了同步增长。 但是，毛利润的增长就相对较低， 主要是因为原材料成本的增加、以及在白色家电产品中具有最 高增长率的电冰箱行业产能扩充所带来的竞争，对产品的售价 和利润率所造成的冲击。 除了与销售量有关的原因外，由于行业产能的提高，竞 争变得日益激烈，因此新飞需要增加销售和市场费用以便维护 其市场份额。 虽然中国政府延续了各类的补贴政策，通货膨胀的压力 可能会给这些政策带来一些变数，并可能对家电产品的需求有 一定的影响。尽管如此，集团相信任何这些改变不一定就会对 新飞不利，如果因此而导致行业重组，就可能淘汰掉一些边缘 的省级的家电制造商和分销商。
柴油发动机单元(“玉柴”)
中国在2009年取代美国成为世界最大的汽车市场之 后，2010年的汽车销售量增长了33%，达到1,810万台。许 多玉柴销售的柴油发动机被用在巴士和卡车上，两者销售量同 比各增长了31% 和26%。 伴随着中国汽车市场的增长，2010年玉柴的柴油发动机 的销售增长了17.9%。与2009年相比，销售组合偏向利润更 高的重型和中型的发动机，以及更高性能和更高排放标准的发 动机。因此，销售额增长得更快，约为24.6%。与去年同期相 比，毛利润更是迅速地增加了64.5%。
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主席报告
销售量的增加、持续增加的研发活动以及不断增加的员 工成本，导致玉柴的营业费用在2010年度有所增加。 玉柴在2010年取得16亿元人民币的利润，刷新了以前 的纪录。 为了更好的应对不断增长的中国市场，厦门工厂的其中 一个计划是把年产能从5万台增加到7万台，并最终将在2012 年底增加到10万台。新铸造厂的第一期工程已经完成，并已在 2010年的第一季度开始投产。集团预期第二期工程将会在今 年的下半年完成。一间生产重型发动机（能媲美欧洲排放标准 与性能）的合资工厂已经在去年竣工，而另外两间生产用于小 型轿车的发动机和发动机零部件的合资工厂的建设也正在如期 的进行着。 作为中国政府减少碳排放工作的一部分，中国的一些主 要城市已经实施了更严格的排放标准。 对发动机市场实施的越 来越严厉的排放标准将会消除一些不合格的厂家，且将导致整 个行业的重新洗牌或淘汰掉一些厂家，从这方面看来，玉柴将 很有优势能从这些市场改变中得利。 一个不断增长的物流行业、还有中国政府致力改善和扩 大交通设施以及减少碳排放、加上庞大的人口基础，将对环 保型的柴油发动机提供足够的增长动力。虽然这个动力可能会 因为中国政府最近的控制车辆数目的措施而有些许影响。尽管 如此，正如一些报告所指，与汽油发动机相比，一台具有同样 排气量的柴油发动机，可以节省30%的汽油，提高50%的扭 矩，减少25%的二氧化碳排放量，因此，玉柴的前景是光明 的。 马来西亚政府最近宣布，为推动建筑业发展，政府将兴 建一个地铁项目和其他多个大型项目，这对大石的将来是个很 好的消息。
工业包装单元（“利士”）
在中国，日益盛行的消费主义为工业包装产品的销售带 来了强劲的增长。虽然中国的工业包装产品的制造厂家仍然是 一个松散的群体，利士却因为能为一些对高质量包装产品有需 求的客户提供服务而处在一个有利的竞争地位，并依此避免价 格方面的竞争，从而获得超过15% 的毛利率。 绿色技术垫板2010年的销售量同比增长了77.1%，达 到33万块(2009年为18.7万块）。但是，由于许多国家对绿 色产品的运用还缺少法定机制，因此这项业务仍然面临诸多挑 战。 2010年度，利士脱售了其在印度尼西亚一间联营公司的 所有股权。集团在新加坡的一间厂房也一并被出售，该建筑的 前身是绿色包装集团在新加坡的经营场所。
现金流量和流动资金
集团在财政年度结束时持有约12亿元的较高的现金余额 (2009年为11亿元)。 集团继续从经营活动中产生现金流。但是，因为流动资 金需求的增加，经营活动中产生的现金流入量比2009年来的 低。 新飞与玉柴的销售大幅增加，造成存货和应收账款增加， 因此需要更多的流动资金的支持。最近，尤其是2010年的最 后一个季度，中国的银行收紧银根，使供应商向银行融资的成 本有所增加，他们因此要求及时结清应付账款。 集团脱售了其在德加拉集团 （Tha kral Corporation Ltd) 的大部分股权,也脱售了其在印度尼西亚的一间联营公司的所有 股权和一些在新加坡和马来西亚的非核心资产。 这些事项产生 了大约1.1亿元的现金流。综合上述因素，加上集团减少购买 一间子公司的股票，使得投资项目的现金外流有所减少。 集团在2010年继续归还债务使银行贷款减少了约6,400 万元。由于流动资金需求的增加，本年度发生了较高的利息支 出。集团在2010年支付了较多的分红，也收到了较少的政府 对研发活动的补贴。虽然银行退回以前年度为了获得银行信用 额度而质押的定期存款，但是集团还是出现因融资活动而产生 的现金流出。
建筑材料单元(“BMU”)
随着强劲的经济增长，新加坡的主要建筑需求同比增加 了14%，由前一年的225亿元增加到2010年的257亿元（以 签订建筑合同总值估算，不包括填海项目），主要动力来自 蓬勃的住宅单位销售和几个电力设施项目。虽然这些都是正面 的信号，但是预拌混凝土行业过多的产能导致了二手承包商的 压价，因此影响了BMU在新加坡的销售额。预制混凝土的销 售因为在新加坡的一些项目延误而受到影响，由于利润率的提 高，BMU税后利润有所增长。因为市场环境的改进和出口的 增长，大石的销售额和利润都得到了提高。2010年度，大石 也从出售的一块种植园中取得了一笔营业外收益。 根据新加坡建设局(“BCA”)的预估，2011年的建筑需 求总额将与2010年一样，介于220亿元和280亿元之间。由 于住宅项目在2010年的强劲销售将转化成2011年的建筑活 动，集团因此预测预拌混凝土业务会有较高的利润空间。 建筑 材料的价格已经开始稳定下来，这将减缓二手承包商的价格竞 争。鉴于新加坡政府鼓励在基础设施和住宅项目使用预制混凝 土，集团计划增加预制混凝土的产能。
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HONG LEONG ASIA LTD. ANNUAL REPORT 2010
主席报告
展望
尽管中国政府需要面对经济过热和资产泡沫所可能带来 的许多挑战，并同时需要提高老百姓的收入、缩小城乡之间的 收入差距和扩大内需，集团仍坚信目标明确的政府政策和迅速 形成的中产阶级将继续推动中国经济增长。中国是世界人口最 多的国家。 中国的每个省份和城市在2010年都经历了一次最低工资 的上涨，上涨的幅度介于12%到北京市的21%，而且工资将 继续上涨。一些中东富产石油的国家发生社会动乱，导致油价 上升。这些因素肯定会增加集团在中国的业务成本。要求中国 让人民币升值的压力一直存在，这将影响中国出口的竞争力， 使中国的制造商更多关注国内市场，最终的结果是使国内的竞 争变得更加激烈。 从正面看，在工资上涨的同时，所有商品在中国国内市 场的前景将会有显著的改善。中国的零售市场还有很大的发展 空间。当工人的工资开始上涨时，这个市场的潜能就无可限量 了。 可支配收入的增加、和现行的下乡补贴政策将继续推动 农村地区对耐用消费品的需求。不断扩张的交通网络、以及中 国的致力降低碳排放, 将不断提高对环保发动机的需求。只要 通货膨胀的压力能被有效地控制，工业包装产品在中国的需求 将不大可能有不良的影响。 马来西亚和新加坡政府的许多积极的政策将给其国内的 建筑业带来增长的动力。 新加坡建设局（BCA）在最近的一个新闻发布中，对 2011年的建筑业需求给予了一个乐观的展望，因为公共建筑 业的强劲需求将适度弥补私营建筑业方面的不足。私营建筑业 反映了发展商鉴于经济前景不明朗、以及政府为了控制住宅市 场的投机活动在最近所实施的政策，而变得比较谨慎的行业气 氛。公共建筑业的需求预计将来自公共部门的建筑需求（比如 工艺教育学院“ITE”在宏茂桥的第三座校园以及裕廊医院的 建设），此外，新加坡陆路交通管理局（LTA）领头的第三阶 段滨海市区地铁线工程合同也将带来较高的公共部门土木工程 需求。 新加坡的国内生产总值预计在2011年将会有4%到6% 的增长。 马来西亚的经济研究学院预期今年马国的国内生产总值 会有5.2%的增长。马国政府最近宣布将改善国内交通网络和 推进建筑业，预计这将普遍的给建筑材料供应商带来利益。 集团正在讨论脱售其在吉里汶岛（Karimun）采石场所 拥有的股权。
股息
鉴于集团在2010年所持续取得的良好业绩，董事会建议 派发每股7分的末期股息，若获得股东批准，连同本年度已派 发的每股3分的中期股息，2010年派发的股息总额将达到每股 10分，与2009年一样。
荣誉事件
丰隆亚洲有限公司一直通过其在海外的投资，致力与其 他国家建立紧密的联系，这方面的努力再次被肯定。公司再次 入选 新加坡企业中海外收入最高的100强。 玉柴依然是2010年中国最大的独立柴油发动机制造商 之一，并荣获众多奖项，其中包括“2010年中国杰出企业文 化奖”、“广西企业10强”、“2010年中国铸造厂100强” 和“年度混合动力发动机供应商”。 新飞仍然是中国的一个著名品牌，在2010年被评为“全 国十佳最具竞争力民族品牌”。 由于对品质的持续重视，新飞 在2010年荣获“河南省政府质量奖”。
鸣谢
我谨代表董事会，对广大股东、客户、商业伙伴、管理 层和全体员工所作出的贡献表示感谢，并期待大家能够继续支 持公司的发展。
郭令明 主席
2011年3月23日
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
12
FinanCiaL HiGHLiGHts
rEVEnUE
(In $ million)
PrOfIT BEfOrE TAX
(In $ million)
3,233.2
3,616.8
4,457.9
5,102.0
2,481.0
229.6
06
07
08
09
10
06
201.6
07
207.1
08
09
271.1
10
ATTrIBUTABLE PrOfIT
(In $ million)
EArnIngs PEr shArE
(In cents)
33.3
126.7
120.3
95.4
61.1
16.1
25.1
06
07
42.0
08
09
10
06
07
11.0
08
09
10
32.2
457.1
13
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
CoRPoRate stRUCtURe
CONSUMER PRODUCTS
China • Henan Xinfei Electric Co., Ltd. • Henan Xinfei Household Appliance Co., Ltd. • Henan Xinfei Refrigeration Appliances Co., Ltd.
BUILDING MATERIALS
Cement & Granite Division
• HL Building Materials Pte. Ltd. – Singapore • Tasek Corporation Berhad – Malaysia • Singapore Cement Manufacturing Company (Private) Limited - Singapore
DIESEL ENGINES
Bermuda
• China Yuchai International Limited
Ready-Mix Concrete Division
• Island Concrete (Private) Limited – Singapore
China
• Guangxi Yuchai Machinery Company Limited
Pre-cast Concrete Division
• HL Building Materials Pte. Ltd. – Singapore • HL-Manufacturing Industries Sdn. Bhd. – Malaysia
INDUSTRIAL PACKAGING
China • Shanghai Rex Packaging Co., Ltd. • Tianjin Rex Packaging Co., Ltd. • Donguan Rex Packaging Company Limited Hong Kong • Rex Packaging (Hong Kong) Limited Malaysia • Rex Plastics (Malaysia) Sdn. Bhd. • Rexpak Sdn. Bhd. Singapore • Hong Leong (China) Limited • Rex Holdings Pte Ltd • Rex Plastics Pte. Ltd.
Steel Division
• Angkasa Hong Leong Pte Ltd – Singapore
Quarry Division
• PT. Karimun Granite – Indonesia • Karimun Granite (Singapore) Pte Ltd – Singapore • Hayford Holdings Sdn. Bhd. – Malaysia
OTHERS
Hospitality & Property Development
• HL Global Enterprises Limited
GREEN PACKAGING
Singapore
• GPac Technology (S) Pte. Ltd.
Malaysia
• GPac Technology (M) Sdn. Bhd.
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
14
oPeRations HiGHLiGHts
DIEsEL EngInEs COnsUMEr PrODUCTs
China Yuchai International is listed on the New York Stock Exchange. Its principal subsidiary, Guangxi Yuchai manufactures, assembles and sells diesel engines for trucks, buses, vans, construction equipments and other applications. Guangxi Yuchai evolved into the largest single diesel engine facility and has been ranked one of the largest diesel engine manufacturers in unit sales by the China Association of Automobile Manufacturers for the past several years. Guangxi Yuchai expanded its manufacturing facility in Xiamen and established joint ventures in Zhejiang, Shangdong, Anhui and Suzhou to manufacture diesel engines in passenger vehicles, heavy duty trucks and also remanufactured components to service Yuchai engines.
Henan Xinfei, one of China’s leading manufacturers of refrigerators and freezers, produces more than 200 models of direct-cooled and frost-free refrigerators, 100 models of freezers and 40 models of air-conditioners. Xinfei, which recently launched a new product line in washing machines, is known for producing durable products backed by reliable after-sales service. Xinfei exports its products to more than 50 countries including countries in Europe, Middle East, Africa and the USA.
467,889
551,592
3,111,281
383,677
3,173,154
3,780,895 986.3
3,341.2
2,754,341
2,939,943
372,280
283,583
2,820.6
884.9
953.0
1,113.1
1,879.0
2,138.9
758.7
Revenue (In $ million) Volume (In Unit)
Revenue (In $ million) Volume (In Unit)
1,380.3
06
07
08
09
10
06
07
08
09
10
15
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
oPeRations HiGHLiGHts
InDUsTrIAL PACKAgIng BUILDIng MATErIALs
Rex Industrial Packaging Group has manufacturing operations in China and Malaysia. It manufactures and distributes a wide range of rigid plastic packaging products for the industrial and consumer markets. GPac Technology, wholly-owned by Hong Leong Asia, is an ecofriendly manufacturer of pallets with operations in Singapore and Malaysia. GPac Technology produces biodegradable products for various industries and applications.
As one of the largest suppliers of integrated building materials in Singapore, Hong Leong Asia’s Building Materials Unit manufactures and distributes a wide range of constructionrelated products including cement, ready-mix concrete, and precast concrete and quarry products. It is a supplier of building materials to several projects in Singapore including the Marina Coastal Expressway, Mass Rapid Transit tunnels, public and private housing projects, Marina Bay Sands as well as Marina Bay Financial Center. In Tasek Corporation Berhad, it owns the fourth largest cement plant in Malaysia.
539.1 513.9
rEVEnUE
(In $ million)
112.9 89.6 97.2 86.1 96.4
rEVEnUE
(In $ million)
393.0 341.7
211.1
06
07
08
09
10
06
07
08
09
10
OThErs
This is Hong Leong Asia’s indirect investment in HL Global Enterprises Limited (“HLGE”). HLGE is primarily engaged in investment holding, hospitality and property development businesses.
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
16
BoaRD oF DiReCtoRs
KwEK LEng BEng Age 70
Appointed non-executive Chairman since 3 January 1995 and non-executive Director since 25 November 1981, Mr Kwek also sits on the Nominating Committee of Hong Leong Asia Ltd. (“HLA”). He was last re-elected as a Director of HLA on 29 April 2010. He is the Executive Chairman of City Developments Limited (“CDL”), Chairman and Managing Director of Hong Leong Finance Limited (“HLF”) and City e-Solutions Limited (“CES”), and nonexecutive Chairman of Millennium & Copthorne Hotels plc (“M&C”). Mr Kwek holds a law degree, LL.B. (London) and is also a fellow of The Institute of Chartered Secretaries and Administrators. He has extensive experience in the finance business, having grown from day one with the original Hong Leong Finance Limited which has since merged its finance business with Singapore Finance Limited (now known as HLF). He also has vast experience in the real estate business, the hotel industry as well as the trading and manufacturing business. Mr Kwek’s other appointments include being a member of the East Asia Council of INSEAD since its inception in 2003 and board member of Singapore Hotel Association. He was also conferred Honorary Doctorate of Business Administration in Hospitality from Johnson & Wales University (Rhode Island, US) and Honorary Doctorate from Oxford Brookes University (UK).
KwEK LEng PECK Age 54
Appointed to the Board since 1 September 1982, Mr Kwek is an Executive Director and is now acting Chief Executive Officer. Mr Kwek also sits on the Hong Leong Asia Share Option Scheme 2000 (“Share Option Scheme”) Committee. He was last re-elected as a Director on 30 April 2009. He is the non-executive Chairman of Tasek Corporation Berhad and a nonexecutive Director of CDL, HLF, M&C and China Yuchai International Limited. In the preceding 3-year period, he was also an Executive Director of CES until his resignation in April 2009. Mr Kwek holds a Diploma in Accountancy and has many years of experience in trading, manufacturing, property investment and development, hotel operations, corporate finance and management.
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HONG LEONG ASIA LTD. ANNUAL REPORT 2010
BoaRD oF DiReCtoRs
ErnEsT COLIn LEE Age 70
Appointed a non-executive Director since 3 April 2000 and last reelected on 30 April 2009, Mr Lee is the Chairman of the Nominating, Remuneration and Share Option Scheme Committees as well as a member of the Audit Committee of HLA. Mr Lee holds a Bachelor of Civil Engineering (Honours) degree (University of Queensland, Australia). He is a professional project consultant and has extensive experience in management, engineering and business development in Singapore and Australia.
gOh KIAn hwEE Age 56
Appointed a non-executive Director since 15 March 2004, Mr Goh was last re-elected on 29 April 2010. He also sits on the Audit, Remuneration and Share Option Scheme Committees of HLA. He is also a non-executive Director of Achieva Limited and Hwa Hong Corporation Limited. In the preceding 3-year period, he was a non-executive Director of Japan Land Limited until his resignation in September 2008. Mr Goh is a Partner of Rajah & Tann LLP, a legal firm, and has over 31 years’ experience in corporate and capital markets law. He holds a LL.B. (Honours) degree (University of Singapore) and has been a practising lawyer since 1980.
QUEK shI KUI Age 74
Appointed a non-executive Director since 28 April 2005, Mr Quek was last re-appointed on 29 April 2010. He is the Chairman of the Audit Committee and a member of the Nominating, Remuneration and Share Option Scheme Committees of HLA. In the preceding 3-year period, he was a non-executive Director of IDT Holdings (Singapore) Ltd and Thomson Medical Centre Limited until his retirement in July 2008 and December 2010 respectively. A Certified Public Accountant, Mr Quek has extensive auditing, accounting and financial experience in Singapore and overseas. He was previously a managing partner of an international accounting firm. Mr Quek’s other appointments include being a council member of the Institute of Certified Public Accountants of Singapore and a member of the ACCA United Kingdom, the Malaysia Institute of Accountants and the Singapore Institute of Directors. He also serves as Chairman of the Board of Trustees, ACCA Singapore.
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
18
CoRPoRate DiReCtoRy
BOARD OF DIRECTORS
CHAIRMAN Kwek Leng Beng - Non-executive EXECUTIVE Kwek Leng Peck - Acting Chief Executive Officer NON-EXECUTIVE Ernest Colin Lee - Independent Goh Kian Hwee - Independent Quek Shi Kui - Independent
REGISTERED OFFICE
16 Raffles Quay #26-00 Hong Leong Building Singapore 048581 Tel : (65) 6220 8411 Fax : (65) 6222 0087 / 6226 0502 Website: www.hlasia.com.sg
REGISTRARS & TRANSFER OFFICE
M & C Services Private Limited 138 Robinson Road #17-00 The Corporate Office Singapore 068906 Tel : (65) 6227 6660 Fax : (65) 6225 1452
AUDIT COMMITTEE
Quek Shi Kui - Chairman Ernest Colin Lee Goh Kian Hwee
NOMINATING COMMITTEE
Ernest Colin Lee - Chairman Kwek Leng Beng Quek Shi Kui
AUDITORS
Ernst & Young LLP Certified Public Accountants One Raffles Quay North Tower, Level 18 Singapore 048583
(Partner-in-charge: Christopher Wong Mun Yick, appointed from commencement of the financial year ended 31 December 2010)
REMUNERATION COMMITTEE
Ernest Colin Lee - Chairman Quek Shi Kui Goh Kian Hwee
HONG LEONG ASIA SHARE OPTION SCHEME 2000 COMMITTEE
Ernest Colin Lee - Chairman Kwek Leng Peck Quek Shi Kui Goh Kian Hwee
PRINCIPAL BANKERS
Bank of America, N.A. DBS Bank Ltd Standard Chartered Bank The Bank of Tokyo-Mitsubishi UFJ, Ltd. The Hongkong and Shanghai Banking Corporation Limited
SECRETARIES
Yeo Swee Gim, Joanne Ng Siew Ping, Jaslin
INVESTOR RELATIONS
Tan Eng Kwee Chief Financial Officer Email: ektan@hlasia.com.sg Tel : (65) 6220 8411 Fax : (65) 6226 0502
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HONG LEONG ASIA LTD. ANNUAL REPORT 2010
CoRPoRate GoveRnanCe RePoRt
Hong Leong Asia Ltd. (“HLA” or the “Company”) is committed to maintaining good corporate governance and business integrity in all its business activities. HLA has adopted a set of internal guidelines on corporate governance (“Internal CG Guidelines”) based on the provisions of the Code of Corporate Governance 2005 (“CG Code”). The following describes the Company’s corporate governance policies and practices in its application of the corporate governance principles as set out in the CG Code.
BoaRD MatteRs Principle 1: the Board’s Conduct of affairs
Primary Functions of the Board The Board oversees the Company’s business and its performance. Its primary functions are to set board policies, provide guidance on and approval of strategic direction and plans for the Company, review Management performance, establish and oversee the framework for internal controls, risk management and financial reporting, and assume responsibility for good corporate governance. Independent Judgment There are internal controls in place to allow for oversight by the Board of the Company’s business and to ensure an appropriate balance of power and authority is exercisable by the Board to enable objective decision-making in the interests of the Company. Directors who are in any way, directly or indirectly, interested in a transaction or proposed transaction will declare the nature of their interests in accordance with the provisions of the Companies Act, Chapter 50, and also voluntarily abstain from deliberation on the same. The assessment criteria used by the Company’s Nominating Committee (“NC”) in its annual evaluation of the Directors takes into account the individual Director’s objectivity, independent thinking and judgment. Delegation by the Board The primary functions of the Board are either carried out directly by the Board or through committees established by the Board, namely, the Audit Committee (“AC”), the NC, the Remuneration Committee (“RC”), and the Hong Leong Asia Share Option Scheme 2000 (“Share Option Scheme”) Committee, all collectively referred to hereafter as the Committees. Specific terms of reference for each of the Committees are set out and approved by the Board. The composition of each Committee can be found under the corporate directory section of this Annual Report 2010 (“AR”). The delegation of authority by the Board to the Committees enables the Board to achieve operational efficiency by empowering these Committees to decide on matters within their respective written terms of reference and/or limits of delegated authority and yet maintain control over major policies and decisions. Please refer to the sections on Principles 5, 7 and 11 in this report for further information on the activities of the NC, RC and AC. Board Processes Board and Committee meetings are held regularly, with the Board meeting no less than 4 times a year. The proposed meetings for each new calendar year are set out in a schedule of meetings and notified to all Board members before the start of each calendar year. Additional meetings are convened as and when circumstances warrant. Records of all such meetings including discussions on key deliberations and decisions taken are maintained. The Company’s Articles of Association allow for the meetings of its Board and Committees to be held via teleconferencing. The Board and Committees may also make decisions by way of circulating resolutions.
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The attendance of the Directors at meetings of the Board and Committees as well as the frequency of such meetings during the financial year under review, is disclosed below. Notwithstanding such disclosure, the Board is of the view that the contribution of each Director should not be focused only on his attendance at meetings of the Board and/or Committees. A Director’s contribution may also extend beyond the confines of the formal environment of such meetings, through the sharing of views, advice, experience and strategic networking relationships which would further the interests of the Company. Directors’ Attendance at Board and Committee Meetings in 2010 Board Number of Meetings Held: Name of Director Kwek Leng Beng Kwek Leng Peck Teo Tong Kooi * Ernest Colin Lee Goh Kian Hwee Quek Shi Kui 4 4 4 4 4 4 4 AC 5 NC 1 RC 2
Number of Meetings Attended in 2010 NA NA NA 5 5 5 1 NA NA 1 NA 1 NA NA NA 2 2 2
* Mr Teo Tong Kooi resigned as a Director and Chief Executive Officer of the Company on 18 November 2010. No meeting of the Share Option Scheme Committee was held in 2010. Board Approval The Board has adopted an internal guide wherein certain key matters are specifically reserved for approval by the Board such as the setting of strategic direction or policies or financial objectives which are, or may have significant impact on the profitability or performance of the Group, decisions to commence, discontinue or modify significantly any business activity or to enter or withdraw from a particular market sector, corporate or financial restructuring, decisions over new borrowings or significant amendments to the terms and conditions of existing borrowings, material acquisition and disposal of assets, adoption of corporate governance policies and any other matters which require Board approval as prescribed under the relevant legislations and regulations as well as the provisions of the Company’s Articles of Association. Board Orientation and Training Every newly appointed Director receives a formal letter, setting out his general duties and obligations as a Director pursuant to the relevant legislations and regulations. The new Director will also receive information and documents relating to the role and responsibilities of a director, the Company’s business, Board processes, corporate governance practices, relevant Company’s policies and procedures as well as a board meeting calendar for the year with a brief of the routine agenda for each meeting. He is also welcome to meet with the Management and be briefed by them on the Company’s business and governance practices.
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The Directors are provided with regular updates and/or briefings from time to time by professional advisers, auditors, Management and the Company Secretary in areas such as directors’ duties and responsibilities, corporate governance practices, risk management matters and changes in financial reporting standards. The Company Secretary regularly keeps them informed of the availability of appropriate courses, conferences and seminars such as those run by the Singapore Institute of Directors, and the Directors are encouraged to attend such training at the Company’s expense. An in-house seminar on some of the latest developments in corporate governance and the proposed amendments to the Listing Rules based on the consultation paper released by Singapore Exchange Securities Trading Limited (“SGX-ST”) in early 2010, was conducted by invited external speakers in July 2010 for the Directors. Directors are also at liberty to approach Management should they require any further information or clarification concerning the Company’s operations. Corporate Values and Conduct of Business The Board and Senior Management are committed to conducting business with integrity and consistent with the high standard of business ethics, and in compliance with all applicable laws and regulatory requirements. The Company has adopted an internal code of business conduct and ethics crystallising the Company’s business principles and practices with respect to matters which may have ethical implications. The Code provides a communicable and understandable framework for staff to observe the Company’s principles such as honesty, integrity, responsibility and accountability at all levels of the organization and in the conduct of the Company’s business in their relationships with customers, suppliers and amongst employees, including situations where there are potential conflicts of interests. Internal Code on Dealings in Securities The Company has adopted an internal code on securities trading which provides guidance and internal regulation with regard to dealings in the Company’s securities by its Directors and officers. These guidelines prohibit dealing in the Company’s securities on short-term considerations and while in possession of unpublished material price-sensitive information in relation to such securities, and during the “closed period” which is defined as 2 weeks before the date of announcement of results for each of the first 3 quarters of the Company’s financial year and one month before the date of announcement of the full year financial results, and ending on the date of the announcement of the relevant results.
Principle 2: Board Composition and Guidance
Board Independence The Board currently comprises 5 members, one of whom is an executive Director. Mr Teo Tong Kooi resigned as a Director and Chief Executive Officer (“CEO”) of the Company in November 2010. Of the 4 non-executive Directors, the NC considers 3 of them, being more than half of the Board, to be independent, thus providing for a strong and independent element on the Board capable of exercising objective judgment on corporate affairs of the Group. No individual or small group of individuals dominates the Board’s decision making. In addition to the annual review by the NC of the Directors’ independence, each independent non-executive Director also submits an annual declaration regarding his independence. The independent non-executive Directors are Messrs Ernest Colin Lee, Goh Kian Hwee and Quek Shi Kui. Mr Goh Kian Hwee is a partner of a legal firm which renders professional legal services to the Group from time to time. Nevertheless, the NC has considered Mr Goh to be independent as he is capable of maintaining his objectivity and independence at all times in the carrying out of his duties and responsibilities as an independent Director.
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Board Composition and Size The NC reviews the size and composition of the Board and Committees, and the skills and core competencies of the Board members annually. The Board comprises business leaders and professionals with financial, legal and business management backgrounds. The members of the Board with their combined business, management and professional experience, knowledge and expertise provide the core competencies to allow for diverse and objective perspectives on the Group’s business and direction. Taking into account the scope and nature of the operations of the Group, the Board considers that a board size of around 6 members as an appropriate size for the Board. The Board is satisfied that the current composition and size of the Board provides for sufficient diversity and allows for effective decision making. Non-executive Directors’ Participation Non-executive Directors of the Company are encouraged to participate actively in Board meetings in the development of the Company’s strategic plans and direction, and in the review and monitoring of Management’s performance against targets. To facilitate this, they are kept informed of the Company’s businesses and performance through monthly and quarterly reports from Management, and have unrestricted access to Management. They also sit on various Committees established by the Board to provide constructive input and the necessary review and monitoring of performance of the Company and Management.
Principle 3: Chairman and Ceo
Role of Chairman and the CEO The Board recognises that best practices of corporate governance advocate that the chairman of the board and the CEO should in principle be separate persons to ensure an appropriate balance of power, increased accountability and greater capacity of the board for independent decision making. The Chairman of the Board is Mr Kwek Leng Beng who is a non-executive Director. Pending the appointment of a CEO in place of Mr Teo Tong Kooi who resigned on 18 November 2010, Mr Kwek Leng Peck, the Executive Director also stands in as the acting CEO. There is a clear division of responsibilities between the Chairman and the acting CEO or the former CEO. As Chairman of the Board, Mr Kwek Leng Beng bears primary responsibility for the workings of the Board, by ensuring effectiveness in all aspects of its role including setting agenda for Board meetings with input from Management, and exercising control over the quality, quantity and timeliness of information flow between the Board and Management. At annual general meetings and other shareholder meetings, he plays a pivotal role in fostering constructive dialogue between shareholders, the Board and Management. Whereas the former CEO, Mr Teo and presently in place of him, Mr Kwek Leng Peck, the acting CEO who is a key management staff, bears executive responsibility for the Group’s business, the management of the day-to-day operations of the Group and the achievement of the corporate goals set for the Group. The former CEO is not related to the Chairman whilst the acting CEO and the Chairman are cousins. With the establishment of various Committees with power and authority to perform key functions beyond the authority of, or without undue influence from, the Chairman or the acting CEO, and the putting in place of various internal controls to allow for effective Board oversight, the Board is of the view that there are adequate accountability safeguards to enable the Board to exercise objective independent decision making and to ensure an appropriate balance of power and authority within the spirit of good corporate governance.
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Principle 4: Board Membership
NC Composition and Role 2 out of the 3 members of the NC, including the NC chairman, are independent. Please refer to the Corporate Information section on page 18 of the AR, for the composition of the NC. The NC’s main role as set out in its written terms of reference, approved and adopted by the Board, is to recommend all Board and Committee appointments and re-appointments, and determine the independence of each Director. The NC also reviews and recommends to the Board the appointment of key executive positions, including that of the CEO, chief operating officer (“COO”) and chief financial officer (“CFO”). The Company Secretary maintains records of all NC meetings including records of discussions on key deliberations and decisions taken. Re-nomination of Directors The NC reviews annually the nominations of Directors for re-election and re-appointment as well as the independence of Directors. When considering the nominations of Directors for re-election and re-appointment, the NC takes into account their contribution to the effectiveness of the Board as well as their time commitment especially for Directors who have multiple board representations, and also reviews their independence. The Articles of Association of the Company provide that at least one-third of the Directors for the time being shall retire as Directors at each annual general meeting of the Company (“AGM”). All new Directors appointed by the Board shall hold office until the next AGM, and be eligible for re-election at the said AGM. Excluding the Directors above 70 years of age who are subject to annual re-nomination, namely Messrs Kwek Leng Beng, Ernest Colin Lee and Quek Shi Kui, the remaining Directors of the Company will retire about once in 2 to 3 years. In accordance with the Articles of Association of the Company, Mr Kwek Leng Peck retiring by rotation, has offered himself for re-election at the forthcoming AGM (“2011 AGM”). Annual Review of Directors’ Independence The NC reviews the independence of Directors annually according to the criteria on independence set out in the CG Code. 3 out of the current 4 non-executive Directors are considered by the NC to be independent, which is more than half of the Board, thus providing for a strong and independent element on the Board capable of exercising objective judgment on corporate affairs of the Company. When considering the independence of the Directors, the NC also reviews the Directors’ other directorships and the annual declaration by the independent non-executive Directors regarding their independence. Directors’ Time Commitments When considering the nomination of Directors for appointment or re-election/re-appointment, the NC also takes into account the competing time commitments faced by Directors with multiple board representations. An analysis of the directorships held by the Directors is reviewed annually by the NC. Based on the analysis and the Directors’ commitment and contributions to the Company which is also evident in their level of attendance and participation at Board and Committee meetings, the NC is satisfied that all Directors are able to carry out and have been adequately carrying out their duties as a Director of the Company.
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Criteria and Process for Nomination and Selection of New Directors The NC will interview the shortlisted candidates before formally considering and recommending them for appointment to the Board and where applicable, to the Committees. In reviewing and recommending to the Board any new Director appointments, the NC will consider: (a) the candidate’s independence, in the case of the appointment of a non-executive independent director; (b) the composition requirements for the Board and Committees (if the candidate is proposed to be appointed to any of the Committees) under the Internal CG Guidelines; (c) the candidate’s age, track record, experience and capabilities and such other relevant factors as may be determined by the NC; and (d) any competing time commitments if the candidate has multiple board representations. Key Information on Directors Please refer to the ‘Board of Directors’ section in the AR for key information on the Directors, and the Notice of AGM for Directors proposed for re-election and re-appointment at the 2011 AGM. Succession Planning for the Board The Board believes in carrying out succession planning for itself to ensure continuity of leadership. Board renewal is a continuing process and in this regard, the NC reviews the composition of the Board, which includes size and mix, annually and recommends to the Board the selection and appointment of new Directors, whether in addition to existing Board members or as replacement of retiring Board members, with a view to identifying any gaps in the Board’s skills sets taking into account the Company’s business operations. The Board will be able to function smoothly notwithstanding any resignation or retirement of any Director given the present number of members and mix of competencies on the Board.
Principle 5: Board Performance
Board Evaluation Process The Company has in place a formal process for assessment of the effectiveness of the Board as a whole and the contribution by each Director to the effectiveness of the Board. The NC assesses the Board’s performance as a whole annually using objective and appropriate quantitative and qualitative criteria which were recommended by the NC and approved by the Board. When assessing the overall Board performance, the NC takes into consideration the feedback from individual Directors on areas relating to the Board’s competencies and effectiveness. The results of the overall evaluation of the Board by the NC including its recommendation, if any, for improvements are presented to the Board. The annual evaluation process for the individual Directors’ performance comprises 3 parts: (a) background information concerning the Directors including their attendance records at Board and Committee meetings; (b) questionnaires for completion by all individual Board members; and (c) NC’s evaluation based on certain assessment parameters. The questionnaires and the assessment parameters were recommended by the NC and approved by the Board. The completed questionnaires are then reviewed by the NC before the NC completes its evaluation of the individual Directors. When deliberating on the performance of a particular Director who is also a member of the NC, that member excuses himself from the discussions in order to avoid any conflict of interests. The results of the individual evaluation of the Directors are also used by the NC, in its consultation with the Chairman of the Board (who is also a member of the NC), to review, where appropriate, the composition of the Board and Committees, and to support its proposals, if any, for appointment of new members and its recommendations for the re-appointment and re-election of retiring Directors. Comments from the Directors if any concerning the Board as a whole and the general performance of the Directors are also presented to the Board.
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Board Evaluation Criteria The qualitative criteria are set out in a questionnaire covering 3 main areas relating to board composition, roles and responsibilities, conduct of meetings and access to information. The quantitative criteria used to evaluate the overall Board performance comprise quarterly performance indicators which include a comparison of the Group’s performance (including segmental performance) for the financial period under review against the Group’s budget and the corresponding period of the previous year as well as longer term indicators such as the Company’s share price performance over a 5-year period and vis-à-vis the Singapore Straits Times Index. Individual Director Evaluation Criteria Factors taken into account in the assessment of Directors’ performance include their abilities and competencies, their objectivity and their level of participation at Board and Committee meetings including their contribution to Board processes and the business strategies and performance of the Group.
Principle 6: access to information
Complete, Adequate and Timely Information and Access to Management Prior to each meeting, members of the Board and the Committees are provided with the meeting agenda and the relevant papers submitted by Management, containing where possible and practicable, complete, adequate and timely information to enable full deliberation on the issues to be considered at the respective meetings. Management, the Company’s auditors and professional advisers who can provide additional insight into the matters for discussion are also invited from time to time to attend such meetings. Directors also have separate and independent access to Management. Draft agendas for Board and Committee meetings are circulated to the Chairman of the Board and the chairmen of the Committees, in advance, for them to review and suggest items for the agenda. Each of the chairmen of the AC, NC and RC provides an annual report of the respective committees’ activities during the year under review to the Board. The minutes of meetings of the Committees are circulated to all Board members. Company Secretary The Company Secretary, whose appointment and removal are subject to Board’s approval, attends all Board and Committee meetings and ensures that all Board procedures are followed. The Company Secretary, together with Management, also ensures that the Company complies with all applicable statutory and regulatory rules. Together with Management, she also assists the Board Chairman, the Board and Committees to implement and strengthen corporate governance practices and processes, including facilitating the continuing training and development for the Directors. On an ongoing basis, the Directors have separate and independent access to the Company Secretary. The duties and responsibilities of the Company Secretary are set out in the internal CG Guidelines. Independent Professional Advice The Directors, whether as a group or individually, are entitled to take independent professional advice at the expense of the Company, in furtherance of their duties and in the event that circumstances warrant the same. The Company has in place internal guidelines allowing the Directors to seek independent professional advice.
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ReMUneRation MatteRs Principle 7: Procedures for Developing Remuneration Policies
RC Composition and Role The RC comprises 3 non-executive Directors, all of whom including the chairman of the RC are independent. The RC’s principal responsibilities as set out in its written terms of reference approved and adopted by the Board are to review and recommend, for the endorsement of the Board, a framework of remuneration and the specific remuneration packages for each Board member, including the Executive Director and the CEO (or executive of equivalent rank) which covers Directors’ fees, salaries, bonuses, allowances, options and other benefits in kind. The Company has in place principles and/or guidelines concerning the Board’s remuneration. All the members of the RC also sit on the Share Option Scheme Committee and the chairman of the RC is also the chairman of the Share Option Scheme Committee. In reviewing remuneration packages, the RC also ensures that the remuneration policies are in line with the strategic objectives and corporate values of the Company. The Company Secretary maintains records of all RC meetings including records of discussions on key deliberations and decisions taken.
Principle 8: Level and Mix of Remuneration
Directors’ Remuneration In reviewing the remuneration packages of the Executive Director and the former CEO for financial year 2010, the RC, with the assistance of the Group Human Resource Department, considered the level of remuneration based on the Company’s remuneration policy which comprises the following 3 distinct objectives: • To ensure that the remuneration packages are competitive in attracting and retaining employees capable of meeting the Company’s needs. To reward employees for achieving corporate and individual performance targets in a fair and equitable way. To ensure that the remuneration reflects employees’ duties and responsibilities.
• •
The Company also utilized longer term incentive schemes, in the form of the grant of options under the Share Option Scheme subject to a vesting schedule. Information on the Share Option Scheme is set out in the Directors’ Report on pages 38 to 42 and the Financial Statements on pages 120 to 122 of the AR. The remuneration of the non-executive Directors is set at a level appropriate to their degree of contribution, taking into account attendance and time spent, and their respective responsibilities. The RC also holds to the principle that non-executive Directors should not be over-compensated to the extent that their independence may be compromised. No Director is involved in deciding his own remuneration.
Principle 9: Disclosure of Remuneration
Disclosure of Remuneration The total compensation packages for employees including the Executive Director and the former CEO for FY 2010 comprised a fixed component (in the form of a base salary and fixed allowances) and a variable component (which includes year-end and variable bonuses, share option grants for eligible employees and benefits-in-kind, where applicable), taking into account amongst other factors, the individual’s performance, the performance of the Group and industry practices. Each of the Directors receives a base Director’s fee, with the Company’s Chairman receiving an additional fee for serving as the Board Chairman. Directors who
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serve on the various Committees (other than the Share Option Scheme Committee) also receive additional fees in respect of each Committee that they serve on, with the chairmen of the Committees receiving a higher fee in respect of their service as chairman of the respective Committees. The breakdown (in percentage terms) of the Directors’ remuneration for financial year ended 31 December (“FY”) 2010 is set out below. Remuneration of Directors for FY 2010 Base Salary(1) % Above $1,000,000 up to $1,250,000 Kwek Leng Peck 37 43 16 (4) 4 100 Variable Bonuses/ Allowances(1) % Board/ Committee Fees(2) % Share Option Grants(5) % Other Benefits % Total
%
Above $750,000 up to $1,000,000 Teo Tong Kooi(6) 74 (3) 17 (3) 15 (4) (18) 12 100
$250,000 and below Kwek Leng Beng Ernest Colin Lee Goh Kian Hwee Quek Shi Kui Notes: 1. 2. The salary and variable bonuses/allowances are inclusive of employer’s central provident fund contributions. These fees comprise Board and Committee fees including an additional one-time Board fee payable to all incumbent Directors at the date of this Report in respect of FY 2010, which are subject to approval by shareholders at the 2011 AGM, and AC fees for FY 2010 that had already been approved by shareholders at the 2009 and 2010 AGMs. Include salary and variable bonuses/allowances paid by subsidiary(ies) of the Company. Includes Directors’ fees paid or payable by subsidiaries of the Company. These relate to options granted during FY 2008. The fair value of the options as at the date of grant ranges from $0.53 to $0.66 for each share under option taking into account the vesting schedule using the Trinomial Tree method. Mr Teo Tong Kooi resigned as a Director/CEO of the Company on 18 November 2010 and the Board fee payable to him for FY 2010 is pro-rated accordingly and excludes the additional one-time Board fee payable only to incumbent Directors at the date of this Report in respect of FY 2010. 100 100 100 100 100 100 100 100
3. 4. 5.
6.
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The remuneration of the top 5 key executives (who are not Directors) is not disclosed in the AR as the Company does not believe it to be in its interest to disclose the identity of the top 5 key executives within the remuneration bands of $250,000 each or to provide a breakdown of each individual’s remuneration, having regard to the highly competitive human resource environment and for purposes of maintaining confidentiality of staff remuneration matters. During FY 2010, none of the Directors had immediate family members not disclosed above who were or are employees of the Company and whose personal annual remuneration exceeded or exceeds $150,000.
aCCoUntaBiLity anD aUDit Principle 10: accountability
Accountability of Board and Management The Board provides shareholders with quarterly and annual financial results. Results for the first 3 quarters are released to shareholders within 45 days of the end of each quarter whilst the annual results are released within 60 days from the financial year end. In presenting the Company’s annual and quarterly results, the Board aims to provide shareholders with a balanced and understandable assessment of the Company’s performance and financial position with a commentary at the date of the announcement of the significant trends and competitive conditions of the industry in which it operates. For the first three quarters in 2010, the Board was provided with a representation letter by the former CEO and/or the Chief Financial Officer (“CFO”) in connection with the issue of the unaudited quarterly financial statements of the Group confirming that to the best of their knowledge and belief, nothing has come to their attention which may render the financial statements to be false or misleading in any material respect. The former CEO and the CFO also received similar representation letters from the various business units within the Group. The Board in turn provided a negative assurance confirmation to the shareholders in accordance with the regulatory requirements. Management provides all Directors with monthly financial summary of the Group’s performance. The Directors recognise that they have overall responsibility to ensure accurate financial reporting for the Group and for the Group’s system of internal controls. The Board confirms that, with the assistance of the AC, it reviews the effectiveness of the Group’s financial reporting and internal controls system, which is monitored through a programme of internal and external audits, and is generally satisfied with the adequacy of such internal controls system.
Principle 11: audit Committee
Composition of AC The AC comprises 3 non-executive Directors, all of whom including the chairman of the AC are independent. The AC has sufficient financial management expertise and experience amongst its members to discharge its functions. Powers and Duties of the AC The AC is authorised by the Board to investigate any matters it deems appropriate within its terms of reference and has full access to and co-operation of Management. It may invite any Director, officer or employee of the Company to attend its meetings and is also authorised to seek external professional advice to enable it to discharge its functions.
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The principal responsibility of the AC is to assist the Board in maintaining a high standard of corporate governance, particularly by providing an independent review of the effectiveness of the Group’s financial reporting process (including reviewing the accounting policies and practices of the Company) and material internal controls, including financial, operational, compliance and risk management controls. Other duties within its written terms of reference include: to review with Management and, where appropriate, with the external auditors the quarterly and full year financial statements to be issued by the Group before their submission to the Board to ensure their adequacy, accuracy and fairness; to review, on an annual basis, the scope and results of the external audit and its cost-effectiveness and the independence and objectivity of the external auditors, and also the nature and extent of any non-audit services provided by the external auditors to the Company; to review the effectiveness of the internal audit (“IA”) function; to review quarterly and/or annually, as applicable, with Management, the internal and external auditors the results of their review on the Company’s material internal controls, including financial, operational and compliance controls, and risk management policies and systems; to make recommendations to the Board on the nomination for the appointment, re-appointment and removal of external auditors, and to approve the remuneration and terms of engagement of the external auditors; and to review interested person transactions.
-
-
-
-
The AC held 5 meetings during the year and carried out its duties as set out within its terms of reference. The Company Secretary maintains records of all AC meetings including records of discussions on key deliberations and decisions taken. The AC meets with the internal and external auditors, each separately without the presence of Management, annually. In performing its duties, the AC also took cognizance of the Guidebook for Audit Committees in Singapore issued by the Audit Committee Guidance Committee in October 2008 (“ACGC Guidebook”). For the financial year under review, the AC conducted a self-assessment of its own effectiveness in the discharge of its roles and responsibilities. The assessment was facilitated through the use of a self-assessment checklist (“AC Self-Assessment Checklist”), based on the guidance from the ACGC Guidebook. The AC Self-Assessment Checklist covered the AC’s terms of reference, memberships and appointments, meetings, training and resources, financial reporting, internal financial controls and risk management systems, internal and external audit processes, whistleblowing, relationships with the Board, communication with shareholders and contribution of AC members to the AC deliberations and decisions. Based on the self-assessment, the AC believes that it has fulfilled its responsibilities and discharged its duties as set out in the AC’s terms of reference. External Auditors The AC undertook a review of the independence and objectivity of the external auditors through discussion with them. The AC also noted and reviewed the nature and extent of the non-audit services provided to the Group by the external auditors for FY 2010 and is of the opinion that the provision of such non-audit services did not affect the independence and objectivity of the external auditors. Accordingly, the AC has recommended to the Board the nomination of Ernst & Young LLP for re-appointment as external auditors of the Company.
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Whistle-blowing Policy HLA has in place a whistle-blowing procedure where staff of the Group can raise in confidence concerns on possible improprieties relating to accounting, financial reporting, internal controls and auditing matters as well as breach of the internal code of business conduct and ethics, without fear of reprisals in any form. The AC has the responsibility of overseeing this policy which is administered by the Group Internal Audit Manager. Under these procedures, arrangements are in place for independent investigation of such matters raised and for appropriate follow up action to be taken. A dedicated whistle-blowing email account has been set up to receive complaints and information from all employees of the Group in order to facilitate and encourage the reporting of such matters. Interested Person Transactions On 30 May 2003, the Company obtained shareholders’ approval for the Company, its subsidiaries and its associated companies not listed on the SGX-ST or an approved exchange, over which the Company, its subsidiaries and/or interested persons have control, to enter into transactions within the categories of Interested Person Transactions set out in the Company’s circular to shareholders dated 5 May 2003, with such persons within the class or classes of Interested Persons as described in the said circular, provided that such transactions are entered into in accordance with the review procedures set out in the said circular (the “IPT Mandate”). The IPT Mandate was last renewed at the Annual General Meeting of the Company held on 29 April 2010. As such Interested Person Transactions may occur at any time, and to allow the Group to undertake such transactions in an expeditious manner, shareholders’ approval will be sought at the coming Annual General Meeting of the Company for the renewal of the IPT Mandate. The AC has confirmed that an independent financial adviser’s opinion is not required for the renewal of the IPT Mandate as the methods and procedures for determining the transaction prices of the Interested Person Transactions conducted under the IPT Mandate have not changed since the IPT Mandate was obtained on 30 May 2003, and such methods and procedures continue to be sufficient to ensure that these Interested Person Transactions will be carried out on normal commercial terms and will not be prejudicial to the interests of the Company and its minority shareholders. Particulars of Interested Person Transactions required to be disclosed under Rule 907 of the Listing Manual of the SGX-ST are as follows: Name of Interested Person Aggregate value of all Interested Person Transactions in FY 2010 (excluding transactions less than $100,000 and transactions conducted under the IPT Mandate pursuant to Rule 920) Aggregate value of all Interested Person Transactions recorded in FY 2010 under the IPT Mandate pursuant to Rule 920 (excluding transactions less than $100,000)
Hong Leong Investment Holdings Pte. Ltd. group of companies
Provision of management services by Interested Persons to the Group
General Transaction (leases) : $454,174
: $397,008*
* Leases of office premises by the Group from Interested Persons for a lease tenure of three years each in duration. The above Interested Person Transactions were carried out on normal commercial terms and were not prejudicial to the interests of the Company and its minority shareholders.
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CoRPoRate GoveRnanCe RePoRt
Principle 12: internal Controls
Internal Controls The Directors recognise that they have overall responsibility to ensure accurate financial reporting for the Group and for the Group’s system of internal controls including financial, operational and compliance controls, and risk management policies and systems. The AC reviews the adequacy of internal controls periodically and at least once a year, with the assistance of the internal and external auditors, and Management. While no system can provide absolute assurance against material loss or financial misstatement, the Group’s internal financial controls are designed to provide reasonable assurance that assets are safeguarded, that proper accounting records are maintained, and that financial information used within the business and for publication is reliable. In reviewing these controls, the Directors have had regard to the risks to which the business is exposed, the likelihood of such risks occurring and the costs of protecting against them. Based on the work performed by the internal auditors during the financial year, as well as the statutory audit by the external auditors, the Board, through the AC, is generally satisfied that the operational and compliance controls, and risk management systems are adequate to meet the needs of the Company in its current business environment though improvements can be made to the China operations. The Board has noted that China Yuchai International Limited, a subsidiary of the Company listed on the New York Stock Exchange, had on 28 February 2011 announced that its main operating joint-venture subsidiary, Guangxi Yuchai Machinery Company Limited, had only recently closed its financial accounts for fiscal year 2010 which had lengthened the financial reporting process.
Principle 13: internal audit
Reporting Line and Qualifications The IA function is independent of the activities it audits. The Group IA Manager’s primary reporting line is to the chairman of the AC with an administrative line of reporting to the acting CEO of the Company. The AC meets the Group IA Manager at least once annually without the presence of Management. The Group IA Manager has unfettered access to the AC and Management. IA operates within the framework stated in its Internal Audit Charter which is approved by the AC. The standards of the IA Charter are consistent with the International Standards for the Professional Practice of Internal Auditing set by the Institute of Internal Auditors. Role and Activities of IA The primary role of the IA is to assist the Board to evaluate the reliability, adequacy and effectiveness of the internal controls and risk management processes of the Company, reviewing the internal controls of the Company to ensure prompt and accurate recording of transactions and proper safeguarding of assets and reviewing that the Company complies with the relevant laws, regulations, and policies established by the Company. The AC reviews all IA plans and all IA findings. Copies of IA reports are extended to relevant members of Management. IA reports are also provided to the external auditors. Processes are in place such that recommendations raised in IA reports are followed up to ensure that they are dealt with within a reasonable time frame, taking into account the severity and nature of the control weaknesses identified. The AC is apprised regularly on the implementation by Management of the recommendations of IA.
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
32
CoRPoRate GoveRnanCe RePoRt
Adequacy of IA Function The Company has a well-established IA function with formal procedures for the internal auditors to report their audit findings to the AC and to Management. The IA attends regular outside training programmes to keep abreast of developments. The AC reviews the adequacy of the IA function through a review of the IA activities on a quarterly basis and is satisfied that the IA function has adequate resources and appropriate standing within the Group to perform its functions properly.
CoMMUniCation WitH sHaReHoLDeRs Principle 14: Communication with shareholders
The Company announces its quarterly and full year results within the mandatory period. Material and price-sensitive information is publicly released via SGXNET on a timely basis. All shareholders of the Company receive the annual report of the Company and the notice of AGM, which notice is also advertised in the press and released via SGXNET. Shareholders and investors can access information on the Company at its website at www.hlasia.com.sg which provides, inter alia, corporate announcements, press releases and the latest financial results as disclosed by the Company on SGXNET. From time to time, Management holds briefings with analysts to coincide with the release of the Group’s results. In addition, Management takes an active role in investor relations, meeting and attending conference calls with local and foreign fund managers and analysts as well as participating in roadshows and conferences both locally and overseas.
Principle 15: Greater shareholder Participation
At general meetings of the Company, shareholders are given the opportunity to communicate their views and ask the Directors and Management questions regarding matters affecting the Company. The chairman of the AC, NC, RC and Share Option Scheme Committee, and the external auditors were present at the last AGM, and will endeavour to be present at the forthcoming AGM to assist the Directors in addressing queries raised by the shareholders. In accordance with the Articles of Association of the Company, shareholders may appoint one or two proxies to attend and vote at general meetings in their absence. All shareholders are allowed to vote in person or by proxy. CPF investors of the Company’s securities may attend shareholders’ meetings as observers provided they have submitted their requests to do so with their agent banks within a specified timeframe. As the authentication of shareholder identity information and other related integrity issues still remain a concern, the Company has decided, for the time being, not to implement voting in absentia by mail, email or facsimile. The Company provides for separate resolutions at general meetings on each substantial issue. Detailed information on each item in the AGM agenda is in the explanatory notes to the Notice of the AGM in the AR.
RisK ManaGeMent
An organisational risk management framework has been established by Management to formalise and document the internal processes to enable significant business risks within the Group to be identified, assessed, monitored, managed and evaluated. Risk Management Committees have been established at each of the business divisions for the implementation of the risk management policy and guidelines. Presentations on risk management issues are presented by Management to the AC on a regular basis. The IA has responsibility to audit compliance of risk management processes by the business divisions.
23 March 2011
33
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
fInAnCIAL COnTEnTs
Directors’ Report 34 // Statement by Directors 43 // Independent Auditors’ Report 44 // Balance Sheets 46 // Consolidated Income Statement 48 // Consolidated Statement of Comprehensive Income 49 // Consolidated Statement of Changes in Equity 50 // Statement of Changes in Equity 52 // Consolidated Cash Flow Statement 53 // Notes to the Financial Statements 56
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
34
DiReCtoRs’ RePoRt
The directors are pleased to present their report to the members together with the audited financial statements of Hong Leong Asia Ltd. (the “Company”) and its subsidiaries (collectively, the “Group”), for the financial year ended 31 December 2010.
Directors
The directors of the Company in office at the date of this report are: Kwek Leng Beng Kwek Leng Peck Ernest Colin Lee Goh Kian Hwee Quek Shi Kui
Arrangements to enable directors to acquire shares or debentures
Except as disclosed under the section on “Share Options” in this report, neither at the end of nor at any time during the financial year was the Company a party to any arrangements whose objects are, or one of whose objects is, to enable the directors of the Company to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate.
Directors’ interests in shares or debentures
The following directors who held office at the end of the financial year had, according to the register of directors’ shareholdings required to be kept under Section 164 of the Singapore Companies Act, Chapter 50 (the “Companies Act”), interests (including those of their spouses and infant children) in the following shares and/or share options of the Company and its related corporations: Holdings in which the director, his spouse and infant children have a direct interest At beginning of the year The Company Ordinary Shares Kwek Leng Beng Kwek Leng Peck Ernest Colin Lee 660,000 1,430,000 50,000 660,000 1,430,000 50,000 At end of the year
35
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
DiReCtoRs’ RePoRt
Directors’ interests in shares or debentures (cont’d)
Holdings in which the director, his spouse and infant children have a direct interest At beginning At end of the year of the year The Company Options to subscribe for the following number of ordinary shares under the Hong Leong Asia Share Option Scheme 2000 Kwek Leng Peck Ultimate Holding Company Hong Leong Investment Holdings Pte. Ltd. Ordinary Shares Kwek Leng Beng Kwek Leng Peck Related Corporations Hong Leong Finance Limited Ordinary Shares Kwek Leng Beng Kwek Leng Peck Options to subscribe for the following number of ordinary shares under the Hong Leong Finance Share Option Scheme 2001 Kwek Leng Beng Hong Leong Holdings Limited Ordinary Shares Kwek Leng Beng Kwek Leng Peck 259,000 381,428 259,000 381,428 3,160,000 3,560,000 4,603,567 517,359 4,603,567 517,359 2,320 10,921 2,320 10,921 420,000 420,000
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
36
DiReCtoRs’ RePoRt
Directors’ interests in shares or debentures (cont’d)
Holdings in which the director, his spouse and infant children have a direct interest At beginning of the year Related Corporations (cont’d) Hong Realty (Private) Limited Ordinary Shares Kwek Leng Beng Kwek Leng Peck City Developments Limited Ordinary Shares Kwek Leng Beng Kwek Leng Peck Preference Shares Kwek Leng Beng City e-Solutions Limited Ordinary Shares of HK$1 each Kwek Leng Beng Kwek Leng Peck Millennium & Copthorne Hotels New Zealand Limited Ordinary Shares Kwek Leng Beng Sun Yuan Holdings Pte. Ltd. Ordinary Shares Kwek Leng Beng 15,000,000 15,000,000 3,000,000 3,000,000 3,286,980 2,082,200 3,286,980 2,082,200 144,445 144,445 397,226 43,758 397,226 43,758 1,110 150 1,110 150 At end of the year
Other holdings in which the director is deemed to have an interest At beginning of the year Ultimate Holding Company Hong Leong Investment Holdings Pte. Ltd. Ordinary Shares Kwek Leng Beng 40,744 40,744 At end of the year
37
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
DiReCtoRs’ RePoRt
Directors’ interests in shares or debentures (cont’d)
With the exception of the following, the Directors’ interests in the Company as at 31 December 2010 disclosed above remained unchanged as at 21 January 2011: At end of the year The Company Options to subscribe for the following number of ordinary shares under the Hong Leong Asia Share Option Scheme 2000 Kwek Leng Peck 420,000 720,000 At 21 January 2011
Except as disclosed in this report, no director who held office at the end of the financial year had interests in shares, share options, warrants and/or debentures of the Company, or of its related corporations, either at the beginning or at the end of the financial year.
Directors’ contractual benefits
During the financial year, the Company and/or its related corporations have in the normal course of business entered into transactions with directors and/or their affiliated parties, being related parties and parties in which some of the directors are deemed to have an interest, with the directors having disclosed their interests in such transactions pursuant to Section 156 of the Companies Act. Such transactions may comprise loans, deposits, provision of nominee and corporate advisory services, foreign exchange transactions, insurance transactions, property-related transactions, construction-related transactions, industrial-related transactions, consumerrelated transactions, investing in real estate used for hospitality and/or hospitality-related purposes, purchase/sale of investments or investment products, property, industrial and consumer biodegradable and non-biodegradable products, goods including vehicles, parts and accessories and provision and receipt of after-sales services, hotel-related transactions, procurement services, information technology services, e-commerce-related transactions, management and consultancy services and/or other transactions carried out on normal commercial terms and in the normal course of business of the Company and/or its related corporations. However, the directors have neither received nor become entitled to receive any benefit arising out of these transactions other than those to which they may be entitled as customers, suppliers, directors and members of these corporations. Except as disclosed in the financial statements and except for remuneration and professional fees received from the related corporations, since the end of the last financial year, no director of the Company has received or become entitled to receive a benefit by reason of a contract made by the Company and/or its related corporations with the director, or with a firm of which the director is a member, or with a company in which the director has a substantial financial interest.
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
38
DiReCtoRs’ RePoRt
Share options
(a) Hong Leong Asia Share Option Scheme 2000 (the “Share Option Scheme”) The Share Option Scheme was approved by the shareholders at the extraordinary general meeting of the Company held on 30 December 2000 for an initial duration of 10 years (from 30 December 2000 to 29 December 2010). At the annual general meeting (“AGM”) of the Company held on 29 April 2010, the shareholders approved the extension of the duration of the Share Option Scheme for a further period of 10 years from 30 December 2010 to 29 December 2020. Other than the extension of the duration of the Share Option Scheme, all other rules of the Share Option Scheme remain unchanged. The Share Option Scheme is administered by a committee comprising the following members: Ernest Colin Lee – Chairman Kwek Leng Peck Quek Shi Kui Goh Kian Hwee The Share Option Scheme provides the Company with the flexibility of granting options to participants at Market Price (as defined in the Share Option Scheme) and/or with a discount (either up-front or on a deferred basis) to the Market Price. All options granted to date under the Share Option Scheme are at Market Price. Under the Share Option Scheme, Market Price Options (as defined in the Share Option Scheme) granted to: (i) Group Employees and Parent Group Employees (both as defined in the Share Option Scheme) may be exercised one year after the date of the grant and will have a term of ten years from the date of the grant; and Group Non-Executive Directors, Parent Group Non-Executive Directors and Associated Company Employees (all three as defined in the Share Option Scheme) may be exercised one year after the date of the grant and will have a term of five years from the date of the grant.
(ii)
The aggregate number of ordinary shares in the capital of the Company (“Shares”) over which options may be granted under the Share Option Scheme on any date, when added to the number of Shares issued and issuable in respect of all options granted under the Share Options Scheme shall not exceed 15% of the total number of issued Shares excluding treasury shares, if any, on the day preceding the relevant date of grant. The aggregate number of Shares which may be offered by way of grant of options to Parent Group Employees and Parent Group Non-Executive Directors collectively under the Share Option Scheme shall not exceed 20% of the total number of Shares available under the Share Option Scheme. (b) Options granted under the Share Option Scheme No options were granted under the Share Option Scheme during the financial year under review.
39
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
DiReCtoRs’ RePoRt
Share options (cont’d)
(b) Options granted under the Share Option Scheme (cont’d) (i) Details of options granted to the directors of the Company who held office at the end of the financial year are as follows: Aggregate Shares under options granted since commencement of the Share Option Scheme to end of financial year 660,000 1,850,000 150,000 Aggregate Shares under options exercised since commencement of the Share Option Scheme to end of financial year 660,000 1,430,000 150,000
Name of director Kwek Leng Beng Kwek Leng Peck Ernest Colin Lee
Aggregate Shares under options outstanding as at end of financial year – 420,000 –
There were no new Shares issued or existing Shares transferred to the Directors during the financial year. (ii) (iii) None of the participants were regarded by the Directors as controlling shareholders of the Company. None of the participants were granted options representing 5% or more of the total number of Shares under options available under the Share Option Scheme. None of the Parent Group Employees were granted options representing 5% or more of the total number of Shares under options available under the Share Option Scheme to all Parent Group Employees and Parent Group NonExecutive Directors. A total of 1,080,000 Shares under options were granted to Parent Group Employees since the commencement of the Share Option Scheme to the end of the financial year under review.
(iv)
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
40
DiReCtoRs’ RePoRt
Share options (cont’d)
(b) Options granted under the Share Option Scheme (cont’d) (v) Except for options granted to persons in their capacity as Group Employees or Group Non-Executive Directors or Parent Group Employees, no other options have been granted by the Company to any other categories of persons since the commencement of the Share Option Scheme. All options granted under the Share Option Scheme are subject to a vesting schedule as follows: (1) (2) one year after the date of grant for up to 33% of the Shares over which the options are exercisable; two years after the date of grant for up to 66% (including (1) above) of the Shares over which the options are exercisable; and three years after the date of grant for up to 100% (including (1) and (2) above) of the Shares over which the options are exercisable.
(vi)
(3)
(vii)
The persons to whom these options have been granted do not have the right to participate by virtue of the options in any share issue of any other company.
41
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
DiReCtoRs’ RePoRt
Share options (cont’d)
(c) Unissued shares under options There were a total of 805,200 unissued Shares under the options granted pursuant to the Share Option Scheme at the end of the financial year. Details of the options to subscribe for Shares including those granted to the Directors of the Company are as follows: Number of Exercise options price outstanding at per share 1 January 2010 $1.28 $1.88 $1.88 $2.36 $2.36 $1.42 18,000 465,200 160,000 879,000 300,000 100,000 1,922,200 Options Number of Options outstanding option Options at 31 holders at cancelled/ exercised lapsed December 31 December 2010 2010 18,000 380,200 160,000 25,800 – 33,000 617,000 – – – 500,000 – – 500,000 – 85,000 – 353,200 300,000 67,000 805,200 – 1 – 3 1 1
Date of grant
Options granted
Exercise period
26/9/2005 10/1/2007 10/1/2007 15/5/2008 15/5/2008 5/6/2009 Total *
– – – – – – –
26/9/2006 to 25/9/2015 10/1/2008 to 9/1/2017 10/1/2008 to 9/1/2012* 15/5/2009 to 14/5/2018 15/5/2009 to 14/5/2013* 5/6/2010 to 4/6/2019
Relates to options granted to a former Group Employee who had been reclassified as a Group Non-Executive Director on 1 October 2008.
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
42
DiReCtoRs’ RePoRt
Share options (cont’d)
Except as disclosed above, during the financial year, there were: (i) no options granted by the Company or its subsidiaries to any person to take up unissued shares of the Company or its subsidiaries; and no shares issued by virtue of any exercise of option to take up unissued shares of the Company or its subsidiaries.
(ii)
Audit committee
The Audit Committee (“AC”) comprises three members who are independent. The members of the AC at the date of this report are: Quek Shi Kui – Chairman Ernest Colin Lee Goh Kian Hwee The AC has held five meetings since the date of the last directors’ report and carried out the functions of an audit committee as specified in the Companies Act. In carrying out its functions, the AC reviewed the overall scope of both internal and external audits and the assistance given by the Company’s officers to the auditors. It met with the Company’s internal and external auditors to discuss the results of their respective examinations and their evaluation of the Group’s system of internal controls. The AC also reviewed the consolidated financial statements and the financial statements of the Company for the year ended 31 December 2010 as well as the auditors’ report thereon. The AC has recommended to the Board of Directors that the auditors, Ernst & Young LLP, be nominated for re-appointment as auditors at the forthcoming Annual General Meeting of the Company.
Auditors
Ernst & Young LLP have expressed their willingness to accept re-appointment as auditors.
On behalf of the Board of Directors
Kwek Leng Peck Director
Ernest Colin Lee Director
23 March 2011
43
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
stateMent By DiReCtoRs
We, Kwek Leng Peck and Ernest Colin Lee, being two of the directors of Hong Leong Asia Ltd., do hereby state that, in the opinion of the directors: (i) the accompanying balance sheets, consolidated income statement, consolidated statement of comprehensive income, statements of changes in equity, and consolidated cash flow statement together with notes thereto are drawn up so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2010 and the results of the business and changes in equity and cash flows of the Group and the changes in equity of the Company for the year ended on that date, and at the date of this statement, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due.
(ii)
On behalf of the Board of Directors
Kwek Leng Peck Director
Ernest Colin Lee Director
23 March 2011
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
44
inDePenDent aUDitoRs’ RePoRt
To the members of Hong Leong Asia Ltd.
Report on the Consolidated Financial Statements We have audited the accompanying consolidated financial statements of Hong Leong Asia Ltd. (the Company) and its subsidiaries (collectively, the Group) set out on pages 46 to 148, which comprise the balance sheets of the Group and the Company as at 31 December 2010, the statements of changes in equity of the Group and the Company and the consolidated income statement, consolidated statement of comprehensive income and consolidated cash flow statement of the Group for the year then ended, and a summary of significant accounting policies and other explanatory information. The financial statements for the year ended 31 December 2009 were audited by Messrs KPMG LLP whose report dated 23 March 2010 expressed an unqualified opinion on those statements. Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with the provisions of the Singapore Companies Act (the Act) and Singapore Financial Reporting Standards, and for devising and maintaining a system of internal accounting controls sufficient to provide a reasonable assurance that assets are safeguarded against loss from unauthorised use or disposition; and transactions are properly authorised and that they are recorded as necessary to permit the preparation of true and fair profit and loss accounts and balance sheets and to maintain accountability of assets. Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the consolidated financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
45
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
inDePenDent aUDitoRs’ RePoRt
Opinion In our opinion, the consolidated financial statements of the Group and the balance sheet and statement of changes in equity of the Company are properly drawn up in accordance with the provisions of the Act and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2010 and the results and changes in equity and cash flows of the Group for the year ended on that date. Report on Other Legal and Regulatory Requirements In our opinion, the accounting and other records required by the Act to be kept by the Company and by those subsidiaries incorporated in Singapore of which we are the auditors have been properly kept in accordance with the provisions of the Act.
Ernst & Young LLP Public Accountants and Certified Public Accountants Singapore
23 March 2011
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
46
BaLanCe 2010 sHeets as at 31 December
Group Note 2010 $’000 2009 $’000 (restated) Non-current assets Property, plant and equipment Land use rights Intangible assets Investment in subsidiaries Interests in associates Interests in jointly-controlled entities Investment properties Other investments Non-current receivables Deferred tax assets 3 4 5 7 8 9 10 11 12 13 1,141,147 123,438 69,580 – 22,534 – 7,055 2,101 12,666 87,502 1,466,023 Current assets Inventories Development properties Other investments Trade and other receivables Cash and short-term deposits Assets classified as held-for-sale 14 15 11 16 17 18 746,397 15,764 12,596 1,285,517 1,168,143 58,252 3,286,669 Total assets 4,752,692 669,287 18,879 1,331 927,358 1,076,233 111,852 2,804,940 4,241,420 – – 37 183,608 1,125 36,499 221,269 449,846 – – 34 175,440 7,859 39,326 222,659 485,782 1,135,447 115,118 68,733 – 33,421 – 7,008 2,259 6,790 67,704 1,436,480 351 – 583 213,824 13,816 – – – – 3 228,577 495 – 844 231,945 14,695 15,000 – – – 144 263,123 2010 $’000 Company 2009 $’000
The accompanying accounting policies and explanatory notes form an integral part of the financial statements.
47
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
BaLanCe December 2010 sHeets as at 31
Group Note 2010 $’000 2009 $’000 (restated) Current liabilities Trade and other payables Provisions Loans and borrowings Current tax payable Liabilities classified as held-for-sale 18 22 23 21 2,097,200 89,938 235,333 49,648 19,066 2,491,185 Net current assets Non-current liabilities Loans and borrowings Deferred tax liabilities Deferred grants Retirement benefits 21 13 220,680 37,999 46,192 241 305,112 Total liabilities Net assets Equity attributable to owners of the parent Share capital Reserves 19 20 266,143 502,253 768,396 Non-controlling interests Total equity Total equity and liabilities 1,187,999 1,956,395 4,752,692 264,996 443,057 708,053 1,006,596 1,714,649 4,241,420 266,143 39,619 305,762 – 305,762 449,846 264,996 59,026 324,022 – 324,022 485,782 2,796,297 1,956,395 256,642 32,198 36,735 221 325,796 2,526,771 1,714,649 – 45 – – 45 144,084 305,762 – 601 – – 601 161,760 324,022 795,484 1,815,192 66,371 269,373 45,453 4,586 2,200,975 603,965 27,442 – 116,597 – – 144,039 77,230 55,936 – 105,223 – – 161,159 61,500 2010 $’000 Company 2009 $’000
The accompanying accounting policies and explanatory notes form an integral part of the financial statements.
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
48
ConsoLiDateD December 2010 stateMent inCoMe For the financial year ended 31
Group Note Continuing operations Revenue Cost of sales Gross profit Other item of income Other income Other items of expense Selling and distribution expenses Research and development expenses General and administrative expenses Finance costs Profit from continuing operations Share of profit of associates, net of income tax Profit before income tax from continuing operations Income tax expense Profit from continuing operations, net of tax Discontinued operations Profit from discontinued operations, net of tax Profit for the year Attributable to: Owners of the parent Profit from continuing operations, net of tax Profit from discontinued operations, net of tax Non-controlling interests Profit from continuing operations, net of tax Profit from discontinued operations, net of tax Earnings per share from continuing operations attributable to owners of the parent (cents per share) Basic Diluted Basic Diluted 30 30 31.96 31.92 32.21 32.17 33.08 33.08 33.28 33.28 264,604 355 264,959 83,827 290 84,117 119,361 951 120,312 125,883 770 126,653 29 1,306 385,271 1,060 210,770 25 28 26 (564,468) (85,212) (189,788) (49,007) 453,825 3,306 457,131 (73,166) 383,965 (472,392) (77,685) (210,905) (31,053) 260,017 11,116 271,133 (61,423) 209,710 70,761 83,186 24 5,102,000 (3,830,461) 1,271,539 2010 $’000 2009 $’000 (restated) 4,457,888 (3,489,022) 968,866
Earnings per share (cents per share)
The accompanying accounting policies and explanatory notes form an integral part of the financial statements.
49
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
ConsoLiDateD stateMent oF CoMPReHensive inCoMe For the financial year ended 31 December 2010
Group 2010 $’000 2009 $’000
Profit for the year Other comprehensive income Exchange differences on translation of financial statements of foreign subsidiaries and associates Net fair value changes Share of other comprehensive income of associates Other comprehensive income for the year, net of income tax Total comprehensive income for the year Attributable to: Owners of the parent Non-controlling interests Total comprehensive income for the year
385,271
210,770
(84,951) 5,041 – (79,910) 305,361
(26,626) 10,617 14,248 (1,761) 209,009
96,087 209,274 305,361
142,341 66,668 209,009
The accompanying accounting policies and explanatory notes form an integral part of the financial statements.
Group $’000 (28,672) – – 5,041 – (29,266) – – 120,312 96,087 209,274 305,361 29,664 44,015 2,009 (18,757) – – 414,798 708,053 1,006,596 1,714,649 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
Note
Share capital Total equity
Capital Statutory reserve reserve
Fair value reserve Noncontrolling interests
Equity compensation reserve
Premium paid on acquisition of nonTranslation controlling reserve interests Reserve of disposal Total group attributable classified to owners as held-for- Accumulated of the sale profits parent
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
$’000
At 1 January 2010
264,996
50
Total comprehensive income for the year
–
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners – – – – – – – – – – – – – 2,904 – – – – – (2,904) – – – – – – – – – (6,993) – 9,456 – – (72) – – – – (72) – – – – – – – – 1,147 – 1,147 (72) (6,993) – 9,456
Shares issued during the year
19
1,147
Reversal of share-based payments
27
–
Capital reduction by a subsidiary
–
Transfer to statutory reserve
–
Shares issued to noncontrolling interests of subsidiaries – – – – – – – – – – – – – – – (37,354)
–
Dividends paid to shareholders
31
–
(37,354) –
– (24,603)
(37,354) (24,603)
Dividends paid to noncontrolling interests of subsidiaries – – (1,909) (488) 754 – 1,643
–
Reserve attributable to disposal group classified as held-for-sale – – 1,248 28 – – 710
–
–
–
–
–
Realisable of reserves upon disposal of subsidiaries and associates
–
–
1,986
5,226
7,212
Changes in ownership interests in subsidiaries that do not result in a loss of control – – – (28,672) 32,568 48,395 1,477 – – – – – – – – (47,269) – – – – – – (1,451) (1,451) – – – 2,353 – – – 494,852 – – (1,451) 768,396 (10,464) (493) – 1,187,999 (10,464) (493) (1,451) 1,956,395
ConsoLiDateDDecember 2010 stateMent oF CHanGes in eqUity for the financial year ended 31
Acquisition of non-controlling interests
–
Disposal of subsidiaries by non-controlling interests
–
Premium paid on acquisition of non-controlling interests
7
–
At 31 December 2010
266,143
The accompanying accounting policies and explanatory notes form an integral part of the financial statements.
Group $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
Note
Share capital Total equity
Capital reserve
Statutory reserve
Fair value reserve Translation Accumulated reserve profits
Equity compensation reserve
Total attributable to owners of the parent Noncontrolling interests
At 1 January 2009 – – – 21,310 – (5,622) 126,653 142,341 66,668 209,009
278,664
(34,684)
22,267
22,664
1,805
(13,135)
303,304
580,885
895,322
1,476,207
Total comprehensive income for the year
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners 1,223 – – – – – – – – – – – – – – – (19,070) – – – – – – 7,526 – – – (4,431) – – – – – (14,891) 3,095 – (19,070) – (4,461) – – – – 4,461 – – – – 204 – – 204 – – – – – – 1,223 – – – – – 9,523 – (14,800) 1,223 204 – (14,891) 3,095 9,523 (19,070) (14,800)
Shares issued during the year
19
Cost of share-based payments
27
Transfer to accumulated profits
Shares cancelled during the year – – – –
19
(14,891)
Transfer to statutory reserve
Shares issued to noncontrolling interests of subsidiaries
Dividends paid to shareholders
31
Dividends paid to noncontrolling interests of subsidiaries – 10,473 (129) 41 – –
Realisable of reserves upon disposal of subsidiaries and associates – – – – –
3,881
14,266
1,535
15,801
Acquisition of subsidiaries
–
–
–
110,886
110,886
Changes in ownership interests in subsidiaries that do not result in a loss of control – (28,672) 29,664 44,015 – – – – 2,009 – (18,757) – 414,798 – 708,053 (62,538) 1,006,596 (62,538) 1,714,649
Acquisition of non-controlling interests
51
At 31 December 2009
264,996
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
ConsoLiDateD stateMent oFtheCHanGes in December 2010 eqUity for financial year ended 31
The accompanying accounting policies and explanatory notes form an integral part of the financial statements.
Company $’000 264,996 – – 3 – 18,016 18,019 9,199 5 1,496 48,326 324,022 $’000 $’000 $’000 $’000 $’000
Note
Share capital
Capital reserve
Fair value reserve Accumulated profits Total equity
Equity compensation reserve
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
At 1 January 2010
Total comprehensive income for the year
52
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners 19 – 31 266,143 278,664 – – 5 – 9,199 – 1,289 27,100 40,296 9,199 8 1,424 28,988 – – – – (37,354) – – (72) – 1,147 – – – – 1,147 (72) (37,354) 305,762 316,252 40,301
Shares issued during the year
Reversal of share-based payments
Dividends paid to shareholders
At 31 December 2010
At 1 January 2009
stateMent oF December 2010 in eqUity CHanGes for the financial year ended 31
Total comprehensive income for the year
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners 19 19 – 31 264,996 9,199 – – – (14,891) – – – – 5 1,223 – – – – 207 – 1,496 – – – (19,070) 48,326 1,223 (14,891) 207 (19,070) 324,022
Shares issued during the year
Shares cancelled during the year
Cost of share-based payments
Dividends paid to shareholders
At 31 December 2009
The accompanying accounting policies and explanatory notes form an integral part of the financial statements.
53
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
ConsoLiDateD CasH FLoWended 31 December 2010 stateMent for the financial year
Group Note 2010 $’000 Operating activities Profit before income tax from continuing operations Profit before income tax from discontinued operations Adjustments for: Share of profit of associates, net of income tax (Reversal)/cost of share-based payments Depreciation and amortisation Allowance (written back)/made for inventories written down Impairment losses (written back)/recognised for trade and other receivables Impairment losses on property, plant and equipment, development properties, intangible assets and assets classified as held-for-sale Property, plant and equipment written off Intangible assets written off Finance costs Dividend income from other investments Interest income (Gain)/loss on disposal of: - subsidiaries - associates - property, plant and equipment - assets held-for-sale Fair value gain on investments Negative goodwill arising on acquisition of subsidiaries and non-controlling interests Provisions for warranties and other costs, net Operating cash flows before changes in working capital Changes in working capital: Inventories Trade and other receivables Trade and other payables Provisions utilised Cash flows from operations Income taxes paid Net cash flows from operating activities 23 (99,892) (425,747) 401,817 (99,001) 459,073 (83,874) 375,199 52,265 23,183 690,161 (89,752) 1,194,919 (37,146) 1,157,773 25 23 25 25 25 (702) (1,174) (19,352) 435 (1,338) – 126,080 681,896 (53) (405) 1,752 – – (50,644) 96,463 519,062 27 25 14 16 25 25 25 26 25 25 (3,306) (72) 111,299 (22,700) (4,312) 5,947 1,404 1,521 49,007 (36) (19,627) (11,116) 204 107,357 41,942 4,320 32,908 1,534 – 31,053 (14) (8,771) 29 457,131 1,691 271,133 1,399 2009 $’000 (restated)
The accompanying accounting policies and explanatory notes form an integral part of the financial statements.
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
54
ConsoLiDateDDecember 2010 CasH FLoW stateMent for the financial year ended 31
Group Note 2010 $’000 2009 $’000 (restated) Investing activities Additional investments in associates Acquisition of subsidiaries, net of cash acquired Acquisition of non-controlling interests in subsidiaries Dividends received from: - associates - other investments Interest received Purchase of: - intangible assets - property, plant and equipment Payment for land use rights Proceeds from disposal of: - subsidiaries, net of cash disposed of - associates - property, plant and equipment - land use rights - assets held-for-sale - other investments Net cash flows used in investing activities 452 12,925 37,307 367 62,250 – (74,374) 385 384 9,483 – – 1,638 (237,182) 5 3 4 (3,171) (178,531) (16,472) (1,634) (200,325) (34,304) 25 2,750 36 19,628 11,146 14 9,074 – – (11,915) (445) 27,407 (60,005)
The accompanying accounting policies and explanatory notes form an integral part of the financial statements.
55
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
ConsoLiDateD CasH FLoWended 31 December 2010 stateMent for the financial year
Group Note 2010 $’000 2009 $’000 (restated) Financing activities Dividends paid to: - non-controlling interests of subsidiaries - shareholders of the Company Interest paid Proceeds from borrowings Release/(placement) of fixed deposits pledged with banks for banking facilities Proceeds from share issues Capital returned on cancellation of shares Capital reduction by a subsidiary Capital contribution by non-controlling interests of subsidiaries Grant received from government Repayments in respect of borrowings Repayment of obligation under finance leases Net cash flows used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Effect of exchange rate changes on balances held in foreign currencies Cash and cash equivalents reclassified to assets held-for-sale Cash and cash equivalents at the end of the financial year Notes: Cash and bank balances totalling $1,084,665,000 (2009: $965,186,000) are held in countries which operate foreign exchange controls. 18 17 17 19 19 31 (24,603) (37,354) (51,680) 194,104 20,915 1,147 – (6,993) 9,456 11,514 (256,196) (1,782) (141,472) 159,353 1,054,674 (41,737) (4,811) 1,167,479 (14,800) (19,070) (34,092) 334,906 (20,649) 1,223 (14,891) – 9,523 37,443 (360,260) – (80,667) 839,924 238,017 (23,267) – 1,054,674
The accompanying accounting policies and explanatory notes form an integral part of the financial statements.
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
56
notes to tHe FinanCiaL stateMents
1. Corporate information Hong Leong Asia Ltd. (the Company) is a limited liability company incorporated and domiciled in Singapore and is listed on the Singapore Exchange Securities Trading Limited (SGX-ST). The registered office of the Company is located at 16 Raffles Quay, #26-00 Hong Leong Building, Singapore 048581. The principal activities of the Group and the Company have been those relating to the manufacturing and distribution of consumer products, diesel engines and related products, industrial packaging products, biodegradable products and building materials, and of investment holding and dealing. The consolidated financial statements relate to the Company and its subsidiaries (referred to as the Group) and the Group’s interests in associates and jointly-controlled entities. The immediate and ultimate holding companies during the financial year are Hong Leong Corporation Holdings Pte. Ltd. and Hong Leong Investment Holdings Pte. Ltd. respectively. These companies are incorporated in Singapore. Related corporations during the financial year relate to companies within the Hong Leong Investment Holdings Pte. Ltd. group. 2. 2.1 Summary of significant accounting policies Basis of preparation The consolidated financial statements of the Group and the balance sheet and statement of changes in equity of the Company have been prepared in accordance with Singapore Financial Reporting Standards (FRS). The financial statements have been prepared on the historical cost basis except as disclosed in the accounting policies below. The financial statements are presented in Singapore Dollars (SGD or $) and all values in the tables are rounded to the nearest thousand ($’000) as indicated. 2.2 Changes in accounting policies The accounting policies adopted are consistent with those of the previous financial year except in the current financial year, the Group has adopted all the new and revised standards and Interpretations of FRS (INT FRS) that are effective for annual periods beginning on or after 1 January 2010. The adoption of these standards and interpretations did not have any effect on the financial performance or position of the Group and the Company except as disclosed below: FRS 103 Business Combinations (revised) and FRS 27 Consolidated and Separate Financial Statements (revised) The revised FRS 103 Business Combinations and FRS 27 Consolidated and Separate Financial Statements are applicable for annual periods beginning on or after 1 July 2009. As of 1 January 2010, the Group adopted both revised standards at the same time in accordance with their transitional provisions.
57
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
notes to tHe FinanCiaL stateMents
2. 2.2 Summary of significant accounting policies (cont’d) Changes in accounting policies (cont’d) FRS 103 Business Combinations (revised) The revised FRS 103 introduces a number of changes to the accounting for business combinations that will impact the amount of goodwill recognised, the reported results in the period that an acquisition occurs, and future reported results. Changes in significant accounting policies resulting from the adoption of the revised FRS 103 include: Transaction costs would no longer be capitalised as part of the cost of acquisition but will be expensed immediately; Consideration contingent on future events are recognised at fair value on the acquisition date and any changes in the amount of consideration to be paid will no longer be adjusted against goodwill but recognised in profit or loss; The Group elects for each acquisition of a business, to measure non-controlling interest at fair value, or at the noncontrolling interest’s proportionate share of the acquiree’s identifiable net assets, and this impacts the amount of goodwill recognised; and When a business is acquired in stages, the previously held equity interests in the acquiree is remeasured to fair value at the acquisition date with any corresponding gain or loss recognised in profit or loss, and this impacts the amount of goodwill recognised.
-
-
According to its transitional provisions, the revised FRS 103 has been applied prospectively. Assets and liabilities that arose from business combinations whose acquisition dates are before 1 January 2010 are not adjusted. The changes will affect future business combinations. FRS 27 Consolidated and Separate Financial Statements (revised) Changes in significant accounting policies resulting from the adoption of the revised FRS 27 include: A change in the ownership interest of a subsidiary that does not result in a loss of control is accounted for as an equity transaction. Therefore, such a change will have no impact on goodwill, nor will it give rise to a gain or loss recognised in profit or loss; Losses incurred by a subsidiary are allocated to the non-controlling interest even if the losses exceed the noncontrolling interest in the subsidiary’s equity; and When control over a subsidiary is lost, any interest retained is measured at fair value with the corresponding gain or loss recognised in profit or loss.
-
-
According to its transitional provisions, the revised FRS 27 has been applied prospectively, and does not impact the Group’s consolidated financial statements in respect of transactions with non-controlling interests, attribution of losses to noncontrolling interests and disposal of subsidiaries before 1 January 2010. The changes will affect future transactions with non-controlling interests.
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
58
notes to tHe FinanCiaL stateMents
2. 2.3 Summary of significant accounting policies (cont’d) Standards issued but not yet effective The Group has not adopted the following standards and interpretations that have been issued but not yet effective: Effective for annual periods beginning on or after 1 February 2010 1 July 2010 1 January 2011 1 January 2011 1 January 2011
Description Amendment to FRS 32 Financial Instruments: Presentation - Classification of Rights Issues INT FRS 119 Extinguishing Financial Liabilities with Equity Instruments Revised FRS 24 Related Party Disclosures Amendments to INT FRS 114 Prepayments of a Minimum Funding Requirement INT FRS 115 Agreements for the Construction of Real Estate
Except for the revised FRS 24, the directors expect that the adoption of the other standards and interpretations above will have no material impact on the financial statements in the period of initial application. The nature of the impending changes in accounting policy on adoption of the revised FRS 24 is described below. Revised FRS 24 Related Party Disclosures The revised FRS 24 clarifies the definition of a related party to simplify the identification of such relationships and to eliminate inconsistencies in its application. The revised FRS 24 expands the definition of a related party and would treat two entities as related to each other whenever a person (or a close member of that person’s family) or a third party has control or joint control over the entity, or has significant influence over the entity. The revised standard also introduces a partial exemption of disclosure requirements for government-related entities. The Group is currently determining the impact of the changes to the definition of a related party has on the disclosure of related party transaction. As this is a disclosure standard, it will have no impact on the financial position or financial performance of the Group when implemented in 2011. 2.4 Basis of consolidation Business combinations from 1 January 2010 The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at the end of the reporting period. The financial statements of the subsidiaries used in the preparation of the consolidated financial statements are prepared for the same reporting date as the Company. Consistent accounting policies are applied to like transactions and events in similar circumstances. All intra-group balances, income and expenses and unrealised gains and losses resulting from intra-group transactions are eliminated in full. Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. Business combinations are accounted for by applying the acquisition method. Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Acquisition-related costs are recognised as expenses in the periods in which the costs are incurred and the services are received.
59
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
notes to tHe FinanCiaL stateMents
2. 2.4 Summary of significant accounting policies (cont’d) Basis of consolidation (cont’d) Business combinations from 1 January 2010 (cont’d) When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability, will be recognised in accordance with FRS 39 either in profit or loss or as change to other comprehensive income. If the contingent consideration is classified as equity, it is not to be remeasured until it is finally settled within equity. In business combinations achieved in stages, previously held equity interests in the acquiree are remeasured to fair value at the acquisition date and any corresponding gain or loss is recognised in profit or loss. The Group elects for each individual business combination, whether non-controlling interest in the acquiree (if any) is recognised on the acquisition date at fair value, or at the non-controlling interest’s proportionate share of the acquiree identifiable net assets. Any excess of the sum of the fair value of the consideration transferred in the business combination, the amount of non-controlling interest in the acquiree (if any), and the fair value of the Group’s previously held equity interest in the acquiree (if any), over the net fair value of the acquiree’s identifiable assets and liabilities is recorded as goodwill. In instances where the latter amount exceeds the former, the excess is recognised as gain on bargain purchase in profit or loss on the acquisition date. Business combinations before 1 January 2010 In comparison to the above mentioned requirements, the following differences applied: Business combinations are accounted for by applying the purchase method. Transaction costs directly attributable to the acquisition formed part of the acquisition costs. The non-controlling interest (formerly known as minority interest) was measured at the proportionate share of the acquiree’s identifiable net assets. Business combinations achieved in stages were accounted for as separate steps. Adjustments to those fair values relating to previously held interests are treated as a revaluation and recognised in equity. When the Group acquired a business, embedded derivatives separated from the host contract by the acquiree are not reassessed on acquisition unless the business combination results in a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required under the contract. Contingent consideration was recognised if, and only if, the Group had a present obligation, the economic outflow was more likely than not and a reliable estimate was determinable. Subsequent measurements to the contingent consideration affected goodwill.
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
60
notes to tHe FinanCiaL stateMents
2. 2.5 Summary of significant accounting policies (cont’d) Transactions with non-controlling interests Non-controlling interest represents the equity in subsidiaries not attributable, directly or indirectly, to owners of the Company, and are presented separately in the consolidated statement of comprehensive income and within equity in the consolidated balance sheets, separately from equity attributable to owners of the Company. Changes in the Company owners’ ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. In such circumstances, the carrying amounts of the controlling and non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the amount by which the non-controlling interest is adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the parent. Acquisition of non-controlling interests Goodwill represents the excess of the additional investment over the Group’s additional interest in the net fair value of the identifiable net assets, liabilities and contingent liabilities at the date of exchange. The excess of the net assets, liabilities and contingent liabilities over the carrying value in respect of the Group’s existing interest is recorded as a fair value adjustment and taken to equity. 2.6 Subsidiaries A subsidiary is an entity over which the Group has the power to govern the financial and operating policies so as to obtain benefits from its activities. In the Company’s separate financial statements, investments in subsidiaries are accounted for at cost less impairment losses. 2.7 Associates An associate is an entity, not being a subsidiary or a joint venture, in which the Group has significant influence. An associate is equity accounted for from the date the Group obtains significant influence until the date the Group ceases to have significant influence over the associate. The Group’s investments in associates are accounted for using the equity method. Under the equity method, the investment in associates is carried in the balance sheet at cost plus post-acquisition changes in the Group’s share of net assets of the associates. Goodwill relating to associates is included in the carrying amount of the investment and is neither amortised nor tested individually for impairment. Any excess of the Group’s share of the net fair value of the associate’s identifiable assets, liabilities and contingent liabilities over the cost of the investment is deducted from the carrying amount of the investment and is recognised as income as part of the Group’s share of results of the associate in the period in which the investment is acquired.
61
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
notes to tHe FinanCiaL stateMents
2. 2.7 Summary of significant accounting policies (cont’d) Associates (cont’d) The profit or loss reflects the share of the results of operations of the associates. Where there has been a change recognised in other comprehensive income by the associates, the Group recognises its share of such changes in other comprehensive income. Unrealised gains and losses resulting from transactions between the Group and the associate are eliminated to the extent of the interest in the associate. The Group’s share of the profit or loss of its associates is shown on the face of profit or loss after tax and non-controlling interests in the subsidiaries of associates. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. After application of the equity method, the Group determines whether it is necessary to recognise an additional impairment loss on the Group’s investment in its associates. The Group determines at the end of each reporting period whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount in profit or loss. The financial statements of the associates are prepared as of the same reporting date as the Group. Where necessary, adjustments are made to bring the accounting policies in line with those of the Group. Upon loss of significant influence over the associate, the Group measures any retained investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the aggregate of the retained investment and proceeds from disposal is recognised in profit or loss. 2.8 Joint venture A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control, where the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control. The Group recognises its interest in the joint venture using the proportionate consolidation method. The Group combines its proportionate share of each of the assets, liabilities, income and expenses of the joint venture with the similar items, line by line, in its consolidated financial statements. The joint venture is proportionately consolidated from the date the Group obtains joint control until the date the Group ceases to have joint control over the joint venture. Adjustments are made in the Group’s consolidated financial statements to eliminate the Group’s share of intragroup balances, income and expenses and unrealised gains and losses on transactions between the Group and its jointly controlled entity. Losses on transactions are recognised immediately if the loss provides evidence of a reduction in the net realisable value of current assets or an impairment loss.
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
62
notes to tHe FinanCiaL stateMents
2. 2.8 Summary of significant accounting policies (cont’d) Joint venture (cont’d) The financial statements of the joint venture are prepared as of the same reporting date as the Group. Where necessary, adjustments are made to bring the accounting policies in line with those of the Group. Upon loss of joint control, the Group measures any retained investment at its fair value. Any difference between the carrying amount of the former joint venture entity upon loss of joint venture control and the aggregate of the fair value of the retained investment and proceeds from disposal is recognised in profit or loss. 2.9 Foreign currency The Group’s consolidated financial statements are presented in Singapore Dollars, which is also the parent company’s functional currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. (a) Transactions and balances Transactions in foreign currencies are measured in the respective functional currencies of the Company and its subsidiaries and are recorded on initial recognition in the functional currencies at exchange rates approximating those ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the end of the reporting period. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Exchange differences arising on the settlement of monetary items or on translating monetary items at the end of the reporting period are recognised in profit or loss except for exchange differences arising on monetary items that form part of the Group’s net investment in foreign operations, which are recognised initially in other comprehensive income and accumulated under foreign currency translation reserve in equity. The foreign currency translation reserve is reclassified from equity to profit or loss of the Group on disposal of the foreign operation. (b) Group companies The assets and liabilities of foreign operations are translated into SGD at the rate of exchange ruling at the end of the reporting period and their profit or loss are translated at the exchange rates prevailing at the date of the transactions. The exchange differences arising on the translation are recognised in other comprehensive income. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognised in profit or loss. In the case of a partial disposal without loss of control of a subsidiary that includes a foreign operation, the proportionate share of the cumulative amount of the exchange differences are re-attributed to non-controlling interest and are not recognised in profit or loss. For partial disposals of associates or jointly-controlled entities that are foreign operations, the proportionate share of the accumulated exchange differences is reclassified to profit or loss. The Group has elected to recycle the accumulated exchange differences in the separate component of other comprehensive income that arises from the direct method of consolidation, which is the method the Group uses to complete its consolidation.
63
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
notes to tHe FinanCiaL stateMents
2. 2.10 Summary of significant accounting policies (cont’d) Property, plant and equipment All items of property, plant and equipment are initially recorded at cost. Such cost includes the cost of replacing part of the property, plant and equipment and borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying property, plant and equipment. The accounting policy for borrowing costs is set out in Note 2.27. The cost of an item of property, plant and equipment is recognised as an asset if, and only if, it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. Subsequent to recognition, plant and equipment and furniture and fixtures are measured at cost less accumulated depreciation and any accumulated impairment losses. When significant parts of property, plant and equipment are required to be replaced in intervals, the Group recognises such parts as individual assets with specific useful lives and depreciation, respectively. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in profit or loss as incurred. Freehold land and buildings are measured at fair value less accumulated depreciation on buildings and impairment losses recognised after the date of the revaluation. Valuations are performed with sufficient regularity to ensure that the carrying amount does not differ materially from the fair value of the freehold land and buildings at the end of the reporting period. Any revaluation surplus is recognised in other comprehensive income and accumulated in equity under the asset revaluation reserve, except to the extent that it reverses a revaluation decrease of the same asset previously recognised in profit or loss, in which case the increase is recognised in profit or loss. A revaluation deficit is recognised in profit or loss, except to the extent that it offsets an existing surplus on the same asset carried in the asset revaluation reserve. Any accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. The revaluation surplus included in the asset revaluation reserve in respect of an asset is transferred directly to retained earnings on retirement or disposal of the asset. Freehold land has an unlimited useful life and therefore is not depreciated. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets as follows: Buildings Leasehold improvements Plant and machinery Motor and transport vehicles Quarry site preparation costs : : : : : Over the period of the lease ranging from 3 to a maximum of 50 years 5 years 2 to 16.7 years 5 to 10 years 3 to 8 years 2.5 to 8 years
Office furniture, fittings and equipment :
Construction-in-progress is not depreciated as it is not yet available for use.
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
64
notes to tHe FinanCiaL stateMents
2. 2.10 Summary of significant accounting policies (cont’d) Property, plant and equipment (cont’d) The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. The residual value, useful life and depreciation method are reviewed at each financial year-end, and adjusted prospectively, if appropriate. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on derecognition of the asset is included in profit or loss in the year the asset is derecognised. 2.11 Investment properties Investment properties are properties that are either owned by the Group or leased under a finance lease in order to earn rentals or for capital appreciation, or both, rather than for use in the production or supply of goods or services, or for administrative purposes, or in the ordinary course of business. Investment properties comprise completed investment properties and properties that are being constructed or developed for future use as investment properties. Properties held under operating leases are classified as investment properties when the definition of investment properties is met and they are accounted for as finance leases. Investment properties are initially recognised at cost and subsequently carried at cost less accumulated depreciation and impairment losses. Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of the investment properties. The estimated useful life is 31 years. Depreciation methods, useful lives and residual values of investment properties are reassessed at each reporting date. Investment properties are derecognised when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gain or loss on the retirement or disposal of an investment property is recognised in profit or loss in the year of retirement or disposal. Transfers are made to or from investment property only when there is a change in use. For a transfer from investment property to owner-occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. For a transfer from owner-occupied property to investment property, the property is accounted for in accordance with the accounting policy for property, plant and equipment set out in Note 2.10 up to the date of change in use. 2.12 Intangible assets (a) Goodwill Goodwill is initially measured at cost. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Company’s cash-generating units that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
65
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
notes to tHe FinanCiaL stateMents
2. 2.12 Summary of significant accounting policies (cont’d) Intangible assets (cont’d) (a) Goodwill (cont’d) The cash-generating unit to which goodwill has been allocated is tested for impairment annually and whenever there is an indication that the cash-generating unit may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each cash-generating unit (or group of cash-generating units) to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised in profit or loss. Impairment losses recognised for goodwill are not reversed in subsequent periods. Where goodwill forms part of a cash-generating unit and part of the operation within that cash-generating unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative fair values of the operations disposed of and the portion of the cash-generating unit retained. Goodwill and fair value adjustments arising on the acquisition of foreign operation on or after 1 January 2005 are treated as assets and liabilities of the foreign operations and are recorded in the functional currency of the foreign operations and translated in accordance with the accounting policy set out in Note 2.9. Goodwill and fair value adjustments which arose on acquisitions of foreign operation before 1 January 2005 are deemed to be assets and liabilities of the Company and are recorded in SGD at the rates prevailing at the date of acquisition. (b) Goodwill/negative goodwill previously written off against reserves Goodwill that has previously been taken to reserves is not taken to the income statement when: (i) (ii) the business is disposed of; or the goodwill is impaired.
Similarly, negative goodwill that has previously been taken to reserves is not taken to the income statement when the business is disposed of. (c) Research and development expenses Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in profit or loss as an expense when incurred. Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditure is capitalised only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable and the Group intends to and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalised includes the cost of materials, direct labour and overhead cost directly attributable to prepare the assets for its intended use. Other development expenditure is recognised in profit or loss as an expense when incurred. Capitalised developed expenditure is stated at cost less accumulated amortisation and impairment losses. Amortisation is recognised in profit or loss using the straight-line method over the estimated useful lives of not more than 20 years, commencing from the date the asset is available for use.
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2. 2.12 Summary of significant accounting policies (cont’d) Intangible assets (cont’d) (d) Trademarks Trademarks acquired are treated as having indefinite useful lives and are not amortised until their useful lives are determined to be finite. (e) Subsequent expenditure Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed when incurred. 2.13 Financial assets Initial recognition and measurement Financial assets are recognised on the balance sheets when, and only when, the Group becomes a party to the contractual provisions of the financial instrument. The Group determines the classification of its financial assets at initial recognition. When financial assets are recognised initially, they are measured at fair value, plus, in the case of financial assets not at fair value through profit or loss, directly attributable transaction costs. Subsequent measurement The subsequent measurement of financial assets depends on their classification as follows: (a) Loans and receivables Non-derivative financial assets with fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method, less impairment. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, and through the amortisation process. (b) Available-for-sale financial assets Available-for-sale financial assets include equity and debt securities. Equity investments classified as available-for-sale are those, which are neither classified as held for trading nor designated at fair value through profit or loss. Debt securities in this category are those which are intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in the market conditions. After initial recognition, available-for-sale financial assets are subsequently measured at fair value. Any gains or losses from changes in fair value of the financial asset are recognised in other comprehensive income, except that impairment losses, foreign exchange gains and losses on monetary instruments and interest calculated using the effective interest method are recognised in profit or loss. The cumulative gain or loss previously recognised in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment when the financial asset is derecognised. Investments in equity instruments whose fair value cannot be reliably measured are measured at cost less impairment loss.
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2. 2.13 Summary of significant accounting policies (cont’d) Financial assets (cont’d) Subsequent measurement (cont’d) (c) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value. Any gains or losses arising from changes in fair value of the financial assets are recognised in profit or loss. Net gains or net losses on financial assets at fair value through profit or loss include exchange differences, interest and dividend income. Derecognition A financial asset is derecognised where the contractual right to receive cash flows from the asset has expired. On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sum of the consideration received and any cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss. All regular way purchases and sales of financial assets are recognised or derecognised on the trade date i.e., the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace concerned. 2.14 Financial liabilities Initial recognition and measurement Financial liabilities are recognised on the balance sheet when, and only when, the Group becomes a party to the contractual provisions of the financial instrument. The Group determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognised initially at fair value and in the case of other financial liabilities, plus directly attributable transaction costs. Subsequent measurement The measurement of financial liabilities depends on their classification as follows: Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss includes financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value. Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
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2. 2.14 Summary of significant accounting policies (cont’d) Financial liabilities (cont’d) Financial liabilities at fair value through profit or loss (cont’d) Subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value. Any gains or losses arising from changes in fair value of the financial liabilities are recognised in profit or loss. The Group has not designated any financial liabilities upon initial recognition at fair value through profit or loss. Other financial liabilities After initial recognition, other financial liabilities are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in profit or loss when the liabilities are derecognised, and through the amortisation process. Derecognition A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss. 2.15 Share capital and share issuance expenses Proceeds from issuance of ordinary shares are recognised as share capital in equity. Incremental costs directly attributable to the issuance of ordinary shares are deducted against share capital. 2.16 Financial guarantees A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due. Financial guarantees are recognised initially as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Subsequent to initial recognition, financial guarantees are recognised as income in profit or loss over the period of the guarantee. If it is probable that the liability will be higher than the amount initially recognised less amortisation, the liability is recorded at the higher amount with the difference charged to profit or loss. 2.17 Inventories Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the weighted average cost formula and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. In the case of manufactured inventories and work-in-progress, cost includes an appropriate share of production overheads based on normal operating capacity.
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2. 2.17 Summary of significant accounting policies (cont’d) Inventories (cont’d) Where necessary, allowance is provided for damaged, obsolete and slow moving items to adjust the carrying value of inventories to the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. 2.18 Development properties Unsold development properties Development properties that are unsold are carried at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less cost to complete development and selling expenses. Costs to complete development include cost of land and other direct and related development expenditure, including borrowing cost incurred in developing the properties. Sold development properties Revenue and cost on development properties that have been sold are recognized using the percentage of completion method. The stage of completion is measured by reference to the development costs incurred to date to the estimated total costs for the property. When it is probable that the total development costs will exceed the total revenue, the expected loss is recognised as an expense immediately. The aggregated costs incurred and the profit/loss recognised in each development property that has been sold is compared against progress billings up to the financial year end. Where costs incurred are and recognised profits (less recognised losses) exceed progress billings, the balance is shown as due from customers on development properties, under trade and other receivables. Where progress billings exceed costs incurred plus recognised profit (less recognised losses), the balance is shown as due to customers on development properties, under trade and other payables. 2.19 Impairment of financial assets The Group assesses at each end of the reporting period whether there is any objective evidence that a financial asset is impaired. (a) Financial assets carried at amortised cost For financial assets carried at amortised cost, the Group first assesses individually whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be recognised are not included in a collective assessment of impairment.
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2. 2.19 Summary of significant accounting policies (cont’d) Impairment of financial assets (cont’d) (a) Financial assets carried at amortised cost (cont’d) If there is objective evidence that an impairment loss on financial assets carried at amortised cost has incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account. The impairment loss is recognised in profit or loss. When the asset becomes uncollectible, the carrying amount of impaired financial assets is reduced directly or if an amount was charged to the allowance account, the amounts charged to the allowance account are written off against the carrying value of the financial asset. To determine whether there is objective evidence that an impairment loss on financial assets has incurred, the Group considers factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments. If in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed to the extent that the carrying amount of the asset does not exceed its amortised cost at the reversal date. The amount of reversal is recognised in profit or loss. (b) Financial assets carried at cost If there is objective evidence (such as significant adverse changes in the business environment where the issuer operates, probability of insolvency or significant financial difficulties of the issuer) that an impairment loss on financial assets carried at cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses are not reversed in subsequent periods. (c) Available-for-sale financial assets In the case of equity investments classified as available-for-sale, objective evidence of impairment include (i) significant financial difficulty of the issuer or obligor, (ii) information about significant changes with an adverse effect that have taken place in the technological, market, economic or legal environment in which the issuer operates, and indicates that the cost of the investment in equity instrument may not be recovered; and (iii) a significant or prolonged decline in the fair value of the investment below its costs. ‘Significant’ is to be evaluated against the original cost of the investment and ‘prolonged’ against the period in which the fair value has been below its original cost.
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2. 2.19 Summary of significant accounting policies (cont’d) Impairment of financial assets (cont’d) (c) Available-for-sale financial assets (cont’d) If an available-for-sale financial asset is impaired, an amount comprising the difference between its acquisition cost (net of any principal repayment and amortisation) and its current fair value, less any impairment loss previously recognised in profit or loss, is transferred from other comprehensive income and recognised in profit or loss. Reversals of impairment losses in respect of equity instruments are not recognised in profit or loss; increase in their fair value after impairment are recognised directly in other comprehensive income. In the case of debt instruments classified as available-for-sale, impairment is assessed based on the same criteria as financial assets carried at amortised cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortised cost and the current fair value, less any impairment loss on that investment previously recognised in profit or loss. Future interest income continues to be accrued based on the reduced carrying amount of the asset and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income. If, in a subsequent year, the fair value of a debt instrument increases and the increases can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed in profit or loss. 2.20 Impairment of non-financial assets The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when an annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or group of assets. Where the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows expected to be generated by the asset are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators. Impairment losses of continuing operations are recognised in profit or loss in those expense categories consistent with the function of the impaired asset, except for assets that are previously revalued where the revaluation was taken to other comprehensive income. In this case, the impairment is also recognised in other comprehensive income up to the amount of any previous revaluation.
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2. 2.20 Summary of significant accounting policies (cont’d) Impairment of non-financial assets (cont’d) For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group estimates the asset’s or cash-generating unit’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increase cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised previously. Such reversal is recognised in profit or loss unless the asset is measured at revalued amount, in which case the reversal is treated as a revaluation increase. 2.21 Non-current assets held-for-sale and discontinued operations Non-current assets and disposal groups classified as held-for-sale are measured at the lower of carrying amount and fair value less costs to sell. Non-current assets and disposal groups are classified as held-for-sale if their carrying amounts will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. A component of the Group is classified as a “discontinued operation” when the criteria to be classified as held-for-sale have been met or it has been disposed of and such a component represents a separate major line of business or geographical area of operations or is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations. In profit or loss of the current reporting period, and of the comparative period, all income and expenses from discontinued operations are reported separate from income and expenses from continuing activities, down to the level of profit after taxes, even when the Group retains a non-controlling interest in the subsidiary after the sale. The resulting profit or loss (after taxes) is reported separately in profit or loss. Property, plant and equipment and intangible assets once classified as held-for-sale are not depreciated or amortised. 2.22 Employee benefits (a) Defined contribution plans The Group participates in the national pension schemes as defined by the laws of the countries in which it has operations. In particular, the Singapore companies in the Group make contributions to the Central Provident Fund scheme in Singapore, a defined contribution pension scheme. Contributions to defined contribution pension schemes are recognised as an expense in the period in which the related service is performed. (b) Short-term benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A provision is recognised for the amount expected to be paid under short-term cash bonuses if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
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2. 2.22 Summary of significant accounting policies (cont’d) Employee benefits (cont’d) (c) Share-based payments The share option programme allows Group employees to acquire shares of the Company. The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. At each balance sheet date, the Group revises its estimates of the number of options that are expected to become exercisable. It recognises the impact of the revision of original estimates in employee expense with a corresponding adjustment to equity over the remaining vesting period. 2.23 Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of economic resources will be required to settle the obligation and the amount of the obligation can be estimated reliably. Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of economic resources will be required to settle the obligation, the provision is reversed. If the effect of the time value of money is material, provisions are discounted using a current pre tax rate that reflects, where appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. (a) Claims A provision for claims is recognised when delays arise or complaints from customers are received as the contract progresses. The provision is made based on management estimates from prior experience on similar projects with customers. (b) Warranties A provision for warranties is recognised when the underlying products or services are sold. The provision is based on historical warranty data and a weighting of all possible outcomes against their associated probabilities. Costs incurred are charged against the provision and any over or under provision is recognised in profit or loss. (c) Onerous contracts A provision for onerous contracts is recognised when the unavoidable costs of meeting the obligations under a contract exceed the economic benefits expected to be received under it.
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2. 2.24 Summary of significant accounting policies (cont’d) Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of consideration received or receivable, excluding discounts, rebates, and sales taxes or duty. The Group assesses its revenue arrangements to determine if it is acting as principal or agent. The Group has concluded that it is acting as a principal in all of its revenue arrangements. The following specific recognition criteria must also be met before revenue is recognised: (a) Sale of goods Revenue from sale of goods is recognised upon the transfer of significant risk and rewards of ownership of the goods to the customer. Revenue is not recognised to the extent where there are significant uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods. (b) Rendering of services Revenue from rendering services relates to project management contracts, hotel room and restaurant operations. Revenue is recognised over the period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be performed. (c) Development properties for sale Revenue from property development is recognised on a percentage of completion basis only in respect of units sold when construction of the property is at an advanced stage and aggregate sales proceeds and costs can reasonably estimated. Under the percentage of completion method, the percentage of completion is measured by reference to the work performed, based on the ratio of costs incurred to date to the estimated total costs for each contract. Profits are recognised only in respect of finalised sales agreements to the extent that such profits relate to the progress of the construction work. (d) Rental income Rental income arising from operating leases is recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income to be received. Contingent rentals are recognised as income in the accounting period in which they are earned. (e) Dividend income Dividend income from unquoted investments is recognised when the Group’s right to receive payment is established. Dividend income from quoted investments is recognised when dividends are received. (f) Interest income Interest income is recognised using the effective interest method.
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2. 2.25 Summary of significant accounting policies (cont’d) Land use rights Land use rights are initially measured at cost. Following initial recognition, land use rights are measured at cost less accumulated amortisation. The land use rights are amortised on a straight-line basis over the lease term of 15 to 75 years. 2.26 Leases The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date: whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset. For arrangements entered into prior to 1 January 2005, the date of inception is deemed to be 1 January 2005 in accordance with the transitional requirements of INT FRS 104. (a) As lessee Finance leases, which transfer to the Group substantially all the risks and rewards incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Any initial direct costs are also added to the amount capitalised. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to profit or loss. Contingent rents, if any, are charged as expenses in the periods in which they are incurred. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term. Operating lease payments are recognised as an expense in profit or loss on a straight-line basis over the lease term. The aggregate benefit of incentives provided by the lessor is recognised as a reduction of rental expense over the lease term on a straight-line basis. (b) As lessor Leases where the Group retains substantially all the risks and rewards of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same bases as rental income. The accounting policy for rental income is set out in Note 2.24 (d). Contingent rents are recognised as revenue in the period in which they are earned. 2.27 Borrowing costs Borrowing costs are capitalised as part of the cost of a qualifying asset if they are directly attributable to the acquisition, construction or production of that asset. Capitalisation of borrowing costs commences when the activities to prepare the asset for its intended use or sale are in progress and the expenditures and borrowing costs are incurred. Borrowing costs are capitalised until the assets are substantially completed for their intended use or sale. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.
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2. 2.28 Summary of significant accounting policies (cont’d) Government grants Government grants are recognised at their fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. Deferred grants Grants received for investment in machinery and equipment used for the development of diesel engines are recorded as deferred income and taken to income over the same period over which the machinery and equipment are being depreciated. Jobs Credit Scheme Cash grants received from the government in relation to the Jobs Credit Scheme are recognised as an offset against staff costs upon receipt. 2.29 Taxes (a) Current income tax Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the end of the reporting period, in the countries where the Group operates and generates taxable income. Current income taxes are recognised in profit or loss except to the extent that the tax relates to items recognised outside profit or loss, either in other comprehensive income or directly in equity. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. (b) Deferred tax Deferred tax is provided using the liability method on temporary differences at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all temporary differences, except: Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
-
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2. 2.29 Summary of significant accounting policies (cont’d) Taxes (cont’d) (b) Deferred tax (cont’d) Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised except: Where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred income tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.
-
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at the end of each reporting period and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the end of each reporting period. Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity and deferred tax arising from a business combination is adjusted against goodwill on acquisition. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current income tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority. (c) Sales tax Revenues, expenses and assets are recognised net of the amount of sales tax except: Where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and Receivables and payables that are stated with the amount of sales tax included.
-
The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet.
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2. 2.30 Summary of significant accounting policies (cont’d) Earnings per share The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which comprise convertible notes and share options granted to employees. 2.31 Segment reporting For management purposes, the Group is organised into operating segments based on their products and services which are independently managed by the respective segment managers responsible for the performance of the respective segments under their charge. The segment managers report directly to the management of the Group who regularly review the segment results in order to allocate resources to the segments and to assess the segment performance. Additional disclosures on each of these segments are shown in Note 39, including the factors used to identify the reportable segments and the measurement basis of segment information. 2.32 Cash and cash equivalents Cash and cash equivalents comprise cash at bank and on hand, demand deposits, and short-term, highly liquid investments that are readily convertible to known amount of cash and which are subject to an insignificant risk of changes in value. These also include bank overdrafts that form an integral part of the Group’s cash management. 2.33 Contingencies A contingent liability is: (a) a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group; or a present obligation that arises from past events but is not recognised because: (i) It is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or The amount of the obligation cannot be measured with sufficient reliability.
(b)
(ii)
A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. Contingent liabilities and assets are not recognised on the balance sheet of the Group, except for contingent liabilities assumed in a business combination that are present obligations and which the fair values can be reliably determined.
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notes to tHe FinanCiaL stateMents
2. 2.34 Summary of significant accounting policies (cont’d) Related parties A party is considered to be related to the Group if: (a) The party, directly or indirectly through one or more intermediaries, (i) (ii) (iii) (b) (c) (d) (e) (f) controls, is controlled by, or is under common control with, the Group; has an interest in the Group that gives it significant influence over the Group; or has joint control over the Group;
The party is an associate; The party is a jointly-controlled entity; The party is a member of the key management personnel of the Group or its parent; The party is a close member of the family of any individual referred to in (a) or (d); or The party is an entity that is controlled, jointly-controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (d) or (e); or The party is a post-employment benefit plan for the benefit of the employees of the Group, or of any entity that is a related party of the Group.
(g)
3. Quarry site preparation costs Total $’000 $’000 Motor and transport vehicles Constructioninprogress $’000 $’000 Office furniture, fittings and equipment $’000
Property, plant and equipment
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
Group $’000 $’000 $’000
Freehold land Buildings
Leasehold improvements
Plant and machinery
$’000
Cost 422,235 (11,940) 9,578 76,269 – 91,283 5,547 1,146 4,959 – 212 43,000 5,449 3,081 139,005 – 200,325 223,599 – (18,178) (1,072) (581) (3,028) (401) (35,421) 1,780 467,191 22,953 35,412 67,181 12,391 1,041,471
80
At 1 January 2009
12,328
Translation differences
(221)
Additions
–
Acquisitions through business combinations 10,812 (2,647) – (31,507) (228) (771) (147) (11,990) – 59,374 507 6 (70,827) –
44,395
Transfers
128
– (47,449)
Transfer to assets classified as heldfor-sale (2,925) (332) 501,050 1,810 571,131 29,022 35,446 (182) (5,247) (497) – – (34,785) (3,637) (2,847) (345) (509) 136,289
(159)
Disposals
–
– – –
(44,539) (6,767) 1,331,219
notes to tHe FinanCiaL stateMents
Write-off
–
At 31 December 2009 56,471 and 1 January 2010 (restated) (24,653) 25,360 36,383 (7,949) (1,208) (7,213) (140) (4,010) – (1,651) (1,437) (17,045) 4,339 76,392 4,666 (3,526) (500) (369) 1,083 8,771 5,229 (520) (27,948) (1,583) (564) 5,205 155 (2,353) (119) (121)
Translation differences
699
(6,796) 132,459 (121,935) – – (35)
– – – – – –
(61,365) 178,531 – (36,027) (3,478) (11,278)
Additions
424
Transfers
–
Disposals
(3,717)
Write-off
–
Transfer from/(to) assets classified as held-for-sale 521,770 5,135
610
At 31 December 2010 54,487
605,640
32,939
37,649
139,982
–
1,397,602
3. Quarry site preparation costs Total $’000 $’000 Motor and transport vehicles Constructioninprogress $’000 $’000 Office furniture, fittings and equipment $’000
Property, plant and equipment (cont’d)
Group $’000 $’000 $’000
Freehold land
Leasehold Buildings improvements
Plant and machinery
$’000
Accumulated depreciation 54,491 (2,816) 26,031 173 – (2,647) (4,548) (322) 70,362 185 81,569 7,065 27,769 (177) (4,263) (471) – – (26,152) (240) (2,078) (286) – 7,721 – (28,104) (221) (764) – – – – (50) – – 9,533 41 – 6,357 – – (10,121) – – – 61 64,065 7,693 3,627 – 1,500 – (8,350) (860) (471) (203) (544) 301 74,840 1,123 27,505 1,853 9,165 170,444 (13,245) 102,977 16,104 (50) (41,921) (33,304) (5,233) 195,772
At 1 January 2009
1,166
Translation differences
(1)
Charge for the year
–
Impairment losses
–
Reversal of impairment losses
–
Transfer to assets classified as heldfor-sale
(64)
Disposals
–
Write-off
–
At 31 December 2009 and 1 January 2010 (restated) (5,541) 21,857 4,417 – (6,852) (26) (3,034) – (3,048) – – 215 – (321) 2,766 71,441 7,533 (340) (10,330) (1,216) (781) 3,378 131 – (88)
1,101
Translation differences
360
(506) – 814 – –
– – – – –
(18,354) 106,975 5,577 (3,048) (10,321)
Charge for the year
–
Impairment losses
–
Reversal of impairment losses
–
Transfer to assets classified as heldfor-sale (2,006) (287) 81,950 2,578 – (7) (12,168) (1,193) 123,237
–
81
Disposals
–
(2,023) (485) 10,768
(1,868) (109) 28,432
– – 8,029
– – –
(18,072) (2,074) 256,455
Write-off
–
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
notes to tHe FinanCiaL stateMents
At 31 December 2010
1,461
3.
Property, plant and equipment (cont’d)
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
Group $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
Freehold land Total
Leasehold Buildings improvments
Plant and machinery Constructioninprogress
Office furniture, fittings and equipment Motor and transport vehicles Quarry site preparation costs
$’000
82
Net book value 1,625 2,557 482,403 22,171 9,217 131,953 – 1,141,147 489,562 21,957 7,677 128,568 – 1,135,447
At 31 December 2009
55,370 430,688
notes to tHe FinanCiaL stateMents
At 31 December 2010
53,026 439,820
83
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
notes to tHe FinanCiaL stateMents
3. Property, plant and equipment (cont’d) Office furniture, fittings and equipment $’000 Motor and transport vehicles $’000
Company Cost At 1 January 2009 Additions Disposals At 31 December 2009 and 1 January 2010 Additions Disposals At 31 December 2010 Accumulated depreciation At 1 January 2009 Charge for the year Disposals At 31 December 2009 and 1 January 2010 Charge for the year Disposals At 31 December 2010 Net book value At 31 December 2009 At 31 December 2010
Leasehold improvements $’000
Total $’000
133 – – 133 – – 133
890 26 (33) 883 50 (13) 920
463 – (56) 407 – – 407
1,486 26 (89) 1,423 50 (13) 1,460
101 26 – 127 5 – 132
416 145 (32) 529 138 (13) 654
246 81 (55) 272 51 – 323
763 252 (87) 928 194 (13) 1,109
6 1
354 266
135 84
495 351
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
84
notes to tHe FinanCiaL stateMents
3. Property, plant and equipment (cont’d) Capitalisation of borrowing costs The Group’s plant and equipment include borrowing costs arising from bank loans borrowed specifically for the purpose of the construction of a plant and equipment. During the financial year, the borrowing costs capitalised as cost of plant and equipment amounted to $2,963,000 (2009: $2,167,000). The rate used to determine the amount of borrowing costs eligible for capitalisation was 5.00% (2009: 4.56%), which is the effective interest rate of the specific borrowing. Assets held under finance lease The carrying amount of plant and equipment held under finance leases at the end of the reporting period were $6,542,000 (2009: $7,468,000). Leased assets are pledged as security for the related finance lease liabilities. Assets pledged as security In addition to assets held under finance leases, the Group’s freehold land, buildings and property, plant and equipment with a carrying amount of $48,136,000 (2009: $60,365,000) are mortgaged to secure the Group’s bank loans (Note 21).
85
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
notes to tHe FinanCiaL stateMents
4. Land use rights Group 2010 $’000 2009 $’000 (restated) Cost At 1 January Additions Acquisition of subsidiaries Fair value adjustment Disposals Translation differences At 31 December Accumulated amortisation At 1 January Amortisation for the year Acquisition of subsidiaries Disposals Translation differences At 31 December Net carrying amount Amount to be amortised: 14,539 3,470 – (69) (776) 17,164 123,438 10,241 3,541 1,006 – (249) 14,539 115,118
129,657 16,472 – – (436) (5,091) 140,602
60,764 34,304 13,361 23,517 – (2,289) 129,657
- Not later than one year - Later than one year but not later than five years - Later than five years
3,388 13,924 106,126
3,425 14,087 97,606
The Group has land use rights over 49 plots of state-owned land in the People’s Republic of China, Singapore and Malaysia where the Group’s manufacturing and storage facilities reside. The transferable land use rights have a remaining tenure of 21 to 50 years (2009: 22 to 50 years) and the non-transferable land use rights have a remaining tenure of 13 to 20 years (2009: 14 to 21 years).
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
86
notes to tHe FinanCiaL stateMents
5. Intangible assets Patents and development expenditure $’000 Cost At 1 January 2009 Translation differences Additions Acquisitions through business combinations At 31 December 2009 and 1 January 2010 Translation differences Additions Write-off At 31 December 2010 Accumulated amortisation and impairment losses At 1 January 2009 Translation differences Amortisation charge for the year Impairment losses At 31 December 2009 and 1 January 2010 Translation differences Amortisation charge for the year At 31 December 2010 Net carrying amount At 31 December 2009 At 31 December 2010 Patents and development expenditure Patents and development expenditure relates to costs incurred for the following: exploration and evaluation expenditure of quarries design, construction and testing of new diesel engines 3,467 5,806 62,697 62,697 2,569 1,077 68,733 69,580 2,483 (28) 700 – 3,155 (28) 714 3,841 – – – – – – – – – – – 10,236 10,236 – – 10,236 2,483 (28) 700 10,236 13,391 (28) 714 14,077 4,857 (51) 1,634 182 6,622 (117) 3,171 (29) 9,647 62,697 – – – 62,697 – – – 62,697 1,715 – – 11,090 12,805 – – (1,492) 11,313 69,269 (51) 1,634 11,272 82,124 (117) 3,171 (1,521) 83,657
Group
Trademarks $’000
Goodwill $’000
Total $’000
The patents and development expenditure have remaining amortisation periods ranging from 3 to 10 years (2009: 4 to 10 years).
87
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
notes to tHe FinanCiaL stateMents
5. Intangible assets (cont’d) Trademarks Trademarks belonging to the Group’s consumer product segment are estimated to have an indefinite useful life because management believe that there is no foreseeable limit to the period over which the trademarks are expected to generate net cash inflows for the Group. Computer software and related costs $’000 Cost At 1 January 2009 Additions At 31 December 2009 and 1 January 2010 Additions At 31 December 2010 Accumulated amortisation and impairment losses At 1 January 2009 Amortisation charge for the year At 31 December 2009 and 1 January 2010 Amortisation charge for the year At 31 December 2010 Net carrying amount At 31 December 2009 At 31 December 2010 6. Impairment assessment of intangible assets and property, plant and equipment Industrial packaging segment The industrial packaging segment has 2 main cash-generating units (CGUs), one of which has been incurring losses. An impairment test has been performed on the carrying value of the patent and development expenditure, and property, plant and equipment of this CGU of $444,000 (2009: $4,678,000) as at 31 December 2010. The recoverable amount of the CGU was estimated based on the value in use using management’s estimates of cash flows for a period of 5 years. Cash flows were projected based on historical growth, past experience and future prospects. The annual revenue over the next 5 years is estimated to grow 5% year on year from revenue achieved in 2010. A discount of 14% (2009: 14%) per annum was used. The impairment loss of $444,000 (2009: $4,285,000) was charged to cost of sales in the income statement. 844 583 275 278 553 282 835 1,374 23 1,397 21 1,418
Company
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
88
notes to tHe FinanCiaL stateMents
6. Impairment assessment of intangibles and property, plant and equipment (cont’d) Consumer products segment Trademarks relate to the Group’s consumer products segment which has been identified as a separate CGU for impairment testing purposes. The attributable trademark to this CGU was $62,697,000 (2009: $62,697,000) as at 31 December 2010. The recoverable amount of trademarks was determined based on their value in use using 5-year cash flows projection. Cash flows are projected based on historical growth and past experience and does not exceed the estimated long-term average growth rate for the business in China market. The Group uses a 5-year forecast annual revenue growth rate of 10% per annum. A discount rate of 12% (2009: 12%) was used. Building materials segment Due to the disruption of operating in a CGU of the building materials segment, the Group recognised full impairment loss of $9,652,000 (2009: $2,667,000) on the carrying amount of the plant and machinery. The impairment loss was charged to cost of sales in the income statement. Diesel engines segment The Group reversed an impairment loss of $1,909,000 (2009: $8,148,000 impairment loss made) in the income statement in respect of property, plant and equipment. Goodwill In prior year, management assessed the recoverable amount of the goodwill relating to a subsidiary’s hotel and office building business. Management determined that there was no further cost savings and synergy arising from this business and a full impairment loss of $10,236,000 was recognised in the income statement in 2009. Sensitivity to changes in assumptions
The calculations of value in use for the CGUs are most sensitive to the following assumptions:
Budgeted gross margins – Gross margins are based on average values achieved in the past one year preceding the start of the budget period. These are increased over the budget period for anticipated efficiency improvements. An improvement of 0.4% to 8% per annum was applied for the entire budget period. Growth rates – The forecasted growth rates are based on published industry research and do not exceed the long-term average growth rate for the industries relevant to the CGUs. Pre-tax discount rates – Discount rates reflect the current market assessment of the risks specific to each CGU. This is the benchmark used by management to assess operating performance and to evaluate future investment proposals. In determining appropriate discount rates for each CGU, regard has been given to the yield of the industries relevant to the CGUs.
89
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
notes to tHe FinanCiaL stateMents
7. Investment in subsidiaries Company 2010 $’000 Shares, at cost Impairment losses 260,776 (46,952) 213,824 Country of incorporation 2009 $’000 258,885 (26,940) 231,945 Effective equity interest 2010 % Held by the Company Hayford Holdings Sdn. Bhd. HL Building Materials Pte. Ltd. HL-Manufacturing Industries Sdn. Bhd. Hong Leong (China) Limited Island Concrete (Private) Limited (“ICPL”) Held by the Group China Yuchai International Limited (“CYI”) GPac Technology (S) Pte. Ltd. GPac Technology (M) Sdn. Bhd. Guangxi Yuchai Machinery Company Limited
(2) (2) (1)
Names of significant subsidiaries
2009 % 100 100 100 100 100
Malaysia Singapore Malaysia Singapore Singapore
100 100 100 100 100
Bermuda Singapore Malaysia The People’s Republic of China
(2)
28.24 100 100 21.58
27.50 100 100 21.01
Guangxi Yuchai Machinery Monopoly Development Co., Ltd
The People’s Republic of China The People’s Republic of China
15.50
15.09
Guangxi Yulin Hotel Company Limited
(2)
21.58
21.01
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
90
notes to tHe FinanCiaL stateMents
7. Investment in subsidiaries (cont’d) Names of significant subsidiaries Country of incorporation Effective equity interest 2010 % Held by the Group (cont’d) Guangxi Yulin Yuchai Accessories Manufacturing Company Limited Henan Xinfei Electric Co., Ltd.
(2)
2009 %
The People’s Republic of China The People’s Republic of China The People’s Republic of China The People’s Republic of China Singapore Malaysia
20.96 90
20.41 90
Henan Xinfei Household Appliance Co., Ltd.
90
90
Henan Xinfei Refrigeration Appliances Co., Ltd.
90
90
HL Technology Systems Pte Ltd HL Cement (Malaysia) Sdn. Bhd. HL Global Enterprises Limited (“HLGE”) Hong Leong Electric Pte Ltd Jining Yuchai Engine Company Limited
(2) (3)
100 100 13.38 100 11.22
100 100 12.48 100 10.93
Singapore Singapore The People’s Republic of China Hong Kong Singapore Malaysia
Qian Hong Packaging Company Limited Rex Holdings Pte Ltd Tasek Corporation Berhad
100 100 72.79
100 100 72.65
91
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
notes to tHe FinanCiaL stateMents
7. Investment in subsidiaries (cont’d) Names of significant subsidiaries Country of incorporation Effective equity interest 2010 % Held by the Group (cont’d) Xiamen Yuchai Diesel Engines Co., Ltd.
(2)
2009 %
The People’s Republic of China
(2)
21.58
21.01
Zhejiang Yuchai Sanli Engine Company Limited
The People’s Republic of China
11.22
10.93
Ernst & Young LLP, Singapore is the auditor of all significant Singapore-incorporated subsidiaries while other member firms of Ernst & Young Global are auditors of significant foreign incorporated subsidiaries.
(1)
In 2010, the Company re-assessed the recoverable amount of its investment in ICPL. Based on the assessment, impairment losses of $18,121,000 (2009: $9,811,000) were recognised respectively in the Company’s income statement under general and administrative expenses. The recoverable amount of the investment in the subsidiaries was estimated based on the estimated net selling price of the subsidiaries.
(2)
The directors consider it appropriate to treat these companies as subsidiaries as the Group has either shareholding control over, or exercises control over the composition of the board of directors of these companies. Having regard to the potential voting rights attributable to the preference shares in HLGE, the Group considers HLGE a subsidiary as it is able to govern the financial and operating policies of HLGE.
(3)
Acquisition of non-controlling interests During the year, the Group acquired additional equity interests in its subsidiaries from its non-controlling interests for a cash consideration of $11,915,000. As a result of this acquisition, the carrying value of the net assets at acquisition date was $931,131,000 and the carrying value of the additional interest acquired was $10,464,000. The difference of $1,451,000 between the consideration and the carrying value of the additional interest acquired has been recognised as “Premium paid on acquisition of non-controlling interests” within equity.
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
92
notes to tHe FinanCiaL stateMents
8. Interests in associates Group 2010 $’000 Shares, at cost Impairment losses Share of post-acquisition reserves 20,109 – 2,425 22,534 2009 $’000 23,051 – 10,370 33,421 2010 $’000 17,385 (3,569) – 13,816 Company 2009 $’000 17,385 (2,690) – 14,695
The Company re-assessed the recoverable amounts of its investment in an associate. Based on the assessment, impairment losses of $879,000 (2009: $1,305,000) were recognised in the Company’s income statement. The recoverable amount was estimated based on the estimated net selling price of the associate. Name of significant associate Country of incorporation Principal activities Effective equity interest 2010 % Held by the Company Singapore Cement Manufacturing Company (Private) Limited (1)
(1)
2009 %
Singapore
Storage, packaging and distribution of cement
50
50
Audited by Ernst & Young LLP, Singapore.
Summarised financial information of the associates, which is not adjusted for the percentage of ownership held by the Group, is as follows: 2010 $’000 Assets and liabilities: Total assets Total liabilities Results: Revenue Profit for the year 118,531 6,741 156,019 37,051 64,681 (9,405) 115,382 (32,236) 2009 $’000
93
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
notes to tHe FinanCiaL stateMents
9. Interests in jointly-controlled entities Company 2010 $’000 Unquoted equity shares, at cost – 2009 $’000 15,000
During the year, the Company classified interests in a jointly-controlled entity to assets classified as held-for-sale. Particulars of the jointly-controlled entities are as follows: Names of jointly-controlled entities Country of incorporation Principal activities Effective equity interest 2010 Jointly-controlled entities of HL Global Enterprises Limited Augustland Hotel Sdn. Bhd.
(1)
2009 % 5.62 7.49 6.12 6.24
% Malaysia Hotel development and operation Owns and operates a hotel in Qingdao Hotel management and consultancy Owns and operates a hotel and club in Shanghai 6.02 8.03 6.56 6.69
Copthorne Hotel Qingdao Co., Ltd.
(2)
The People’s Republic of China The People’s Republic of China The People’s Republic of China
Shanghai Equatorial Hotel Management Co., Ltd (2) Shanghai International Equatorial Hotel Company Ltd. (2) Jointly-controlled entities of China Yuchai International Limited Y&C Engine Co., Ltd.
(3)
The People’s Republic of China The People’s Republic of China
Manufacture and sale of automobile parts and components Remanufacture and sale of automobile parts, diesel engines and components
9.71
9.46
Yuchai Remanufacturing Services (Suzhou) Co., Ltd. (4)
(1)
11.00
–
Audited by SJ Grant Thornton, Kuala Lumpur, Malaysia. Audited by Ernst & Young Hua Ming. Audited by Tong Ling Hua Cheng Accounting Firm, the People’s Republic of China. Audited by PricewaterhouseCoopers Zhong Tian CPAs Limited Company, the People’s Republic of China.
(2)
(3)
(4)
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
94
notes to tHe FinanCiaL stateMents
9. Interests in jointly-controlled entities (cont’d) The Group’s share of the jointly-controlled entities’ results, assets and liabilities are as follows: 2010 $’000 Results Revenue Expenses Loss before taxation Income tax expense Loss after taxation Assets and liabilities Non-current assets Current assets Current liabilities Non-current liabilities Net assets 73,172 38,905 (18,248) (15,302) 78,527 55,104 46,260 (28,732) (6,171) 66,461 89,590 (90,632) (1,042) (562) (1,604) 86,360 (86,994) (634) (286) (920) 2009 $’000
The Group’s share of operating lease commitments and contingent liabilities are Nil (2009: $4,798,000) and $2,638,000 (2009: $2,397,000) respectively.
95
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
notes to tHe FinanCiaL stateMents
10. Investment properties Movements in investment properties during the financial year are as follows: Group 2010 $’000 Cost At 1 January Translation differences At 31 December Accumulated depreciation At 1 January Charge for the year Translation differences At 31 December Net carrying amount At 1 January At 31 December Fair value 7,008 7,055 8,161 7,222 7,008 8,034 440 140 (25) 555 312 139 (11) 440 7,448 162 7,610 7,534 (86) 7,448 2009 $’000
The commercial property is leased to external customers. Each of the leases is for periods of one to three years. Subsequent renewals are negotiated with the lessee. The fair values are determined by Henry Butcher Malaysia, a firm of independent professional valuers that has appropriate recognised professional qualifications and recent experience in the location and category of the properties being valued. The fair values are based on market value, being the estimated amount for which a property could be exchanged on the date of the valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
96
notes to tHe FinanCiaL stateMents
11. Other investments Group 2010 $’000 Non-current Available-for-sale financial assets Quoted equity securities - related corporations Unquoted equity securities - other companies 1,254 2,101 Current Fair value through profit or loss financial assets Quoted equity securities 11,156 – – – 1,399 2,259 – – – – 847 860 – – 2009 $’000 2010 $’000 Company 2009 $’000
Available-for-sale financial assets Quoted equity securities - related corporations - other companies 1,258 182 12,596 1,150 181 1,331 – 37 37 – 34 34
The quoted equity securities are listed on the Singapore Exchange Securities Trading Limited (SGX-ST). 12. Non-current receivables The non-trade amounts due from joint venture partners are unsecured and not expected to be repaid within the next 12 months. The effective interest rate as at balance sheet date is 1.68% (2009: 1.64%) per annum.
13.
Deferred tax
Movements in deferred tax assets and liabilities (prior to offsetting of balances) during the year are as follows:
Group $’000 $’000 $’000 $’000 $’000 $’000
At 1 January 2010 Recognised in equity Translation difference
Recognised in income statement
Transfer to assets classified as heldfor-sale (Note 18) At 31 December 2010
Deferred tax liabilities (22,664) (8,359) (1,175) (32,198) (6,858) 82 772 203 (9,403) 20 104 228 – – – 308 2,545 62 668 (333) (19,722) (8,051) (10,226) (37,999)
Property, plant and equipment
Unremitted income
Other items
Total
Deferred tax assets 12,979 11,349 – 4,139 2,349 35,372 – 1,516 67,704 22,944 4,456 353 – – – 28,011 – (1,096) – (115) – 540 – (1,546) – – – – – – – – – (7,659) – – 202 (509) (13) (194) (74) (2,394) (38) (126) (3,146) 5,522 9,294 527 3,830 1,179 60,989 315 5,846 87,502
Property, plant and equipment
Inventories
Intangible assets
Trade and other receivables
Provisions
Accruals
Tax value of loss carried forward
Other items
Total
97
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
notes to tHe FinanCiaL stateMents
13.
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
Deferred tax (cont’d)
Movements in deferred tax assets and liabilities (prior to offsetting of balances) during the year are as follows:
Group $’000 $’000 $’000 $’000 $’000 $’000
At 1 January 2009 Translation difference At 31 December 2009
Recognised in income statement
Acquired in business combination
Transfer to assets classified as held-for-sale (Note 18)
98
Deferred tax liabilities (963) (93) (1,055) (2,111) (5,943) (24,121) – (23) (120) – – – (8,438) – – 172 (8,359) (1,175) (32,198) 2,615 (24,121) – (195) (22,664)
Property, plant and equipment
Unremitted income
Other items
Total
Deferred tax assets 8,693 6,193 72 3,383 2,657 14,219 2,332 750 38,299 16,979 15,918 745 – – – 22,021 – 64 – (323) – (2,332) 97 (2,345) 771 78 (1) (71) – – 5,801 – (371) (12,352) 15,840 585 213 (274) (1) (92) (49) (868) – (76) (1,147) 12,979 11,349 – 4,139 2,349 35,372 – 1,516 67,704
Property, plant and equipment
Inventories
notes to tHe FinanCiaL stateMents
Intangible assets
Trade and other receivables
Provisions
Accruals
Tax value of loss carried forward
Other items
Total
99
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
notes to tHe FinanCiaL stateMents
13. Deferred tax (cont’d) Deferred tax assets and liabilities of the Company (prior to offsetting of balances) are attributable to the following: Company 2010 $’000 Deferred tax liabilities Property, plant and equipment Deferred tax assets Other receivables Provisions – 3 3 41 103 144 (45) (601) 2009 $’000
Deferred tax liabilities and assets are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred taxes relate to the same taxation authority. The amounts determined after appropriate offsetting included in the balance sheet are as follows: Group 2010 $’000 Deferred tax assets Deferred tax liabilities 87,502 (37,999) 49,503 2009 $’000 67,704 (32,198) 35,506 2010 $’000 3 (45) (42) Company 2009 $’000 144 (601) (457)
Deferred tax assets have not been recognised in respect of the following items: Group 2010 $’000 Unutilised tax losses Deductible temporary differences Unabsorbed capital allowances 97,440 – 6,265 103,705 2009 $’000 114,590 7,095 6,882 128,567
Unutilised tax losses and unabsorbed capital allowances for the Group are subject to agreement with the tax authorities and compliance with tax regulations in the respective countries in which the Group operates. The unutilised tax losses and unabsorbed capital allowances do not expire under current tax legislation. Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable profits will be available against which the Group can utilise the benefits.
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
100
notes to tHe FinanCiaL stateMents
14. Inventories Group 2010 $’000 Raw materials and consumables Allowance for inventories written down 397,682 (47,066) 350,616 Manufacturing work-in-progress Allowance for inventories written down 24,269 (34) 24,235 Finished goods Allowance for inventories written down 386,110 (14,564) 371,546 Total Inventories recognised as an expense in cost of sales (Note 25) Inclusive of the following charge/(credit): 746,397 3,316,967 2009 $’000 373,302 (67,838) 305,464 23,508 (312) 23,196 346,390 (5,763) 340,627 669,287 2,929,899
-
Inventories written down Reversal of write-down of inventories
9,444 (32,144)
43,846 (1,904)
15.
Development properties Group 2010 $’000 Properties held-for-sale (net) Freehold land Development costs Overhead expenditure capitalised 9,897 2,777 3,090 15,764 The income statement includes allowance made for development properties of $640,000 (2009: Nil) (Note 25). 9,319 5,499 4,061 18,879 2009 $’000
101
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notes to tHe FinanCiaL stateMents
16. Trade and other receivables Group 2010 $’000 2009 $’000 (restated) Trade receivables Bill receivables Impairment losses Net trade receivables Amounts receivable from: - immediate holding company (non-trade) - subsidiaries (non-trade) - associates (trade) - associates (non-trade) - other related corporations (non-trade) Advances paid to suppliers Prepaid expenses Refundable deposits Tax recoverables Other receivables Impairment losses - other receivables – – 253 75 467 62,313 13,366 2,089 15,740 43,945 (1,798) 136,450 Total trade and other receivables 1,285,517 9 – 6,434 263 37 53,698 15,555 1,765 17,860 25,392 (4,655) 116,358 927,358 – 177,242 – 2 – – 42 50 – 778 – 178,114 183,608 9 162,866 – 2 – – 38 50 997 474 (300) 164,136 175,440 264,201 897,142 (12,276) 1,149,067 222,954 605,904 (17,858) 811,000 5,494 – – 5,494 11,304 – – 11,304 2010 $’000 Company 2009 $’000
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notes to tHe FinanCiaL stateMents
16. Trade and other receivables (cont’d) Group The non-trade balances due from the minority shareholders of subsidiaries and other related corporations are unsecured, interest-free, repayable on demand and are to be settled in cash. Company The non-trade balances due from subsidiaries include loans and advances of $94,841,000 (2009: $89,191,000) which bear interest at rates ranging from 0.79% to 4.68% (2009: 1.31% to 4.4%) per annum. The weighted average effective interest rate per annum at the balance sheet date in respect of the interest-bearing balances is 2.99% (2009: 3.20%) per annum. Interest rates will be repriced within 12 months. These balances are repayable on demand and are to be settled in cash. The remaining non-trade balances are unsecured, interest-free and repayable on demand and are to be settled in cash. The maximum exposure to credit risk for trade and other receivables (excluding advances paid to suppliers, prepaid expenses, refundable deposits and tax recoverable), non-current receivables (Note 12) and amounts due from subsidiaries at the reporting date (by business activities) is as follows: Group 2010 $’000 2009 $’000 (restated) Industrial packaging Diesel engines Consumer products Building materials Others 16,348 801,988 290,183 96,101 55 1,204,675 17,648 505,226 231,493 90,903 – 845,270 71 8 351 10,370 172,716 183,516 169 74 437 20,781 152,894 174,355 2010 $’000 Company 2009 $’000
103
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notes to tHe FinanCiaL stateMents
16. Trade and other receivables (cont’d) Impairment losses The ageing of trade and other receivables (excluding advances paid to suppliers, prepaid expenses, refundable deposits and tax recoverable), non-current receivables and amounts due from subsidiaries at reporting date is as follows: 2010 Gross $’000 Group Not past due Past due 0 to 30 days Past due 31 to 120 days Past due 121 days to one year More than one year 1,133,025 30,331 26,814 11,896 16,683 1,218,749 Company Not past due Past due 0 to 30 days Past due 31 to 120 days Past due 121 days to one year More than one year 26,464 229 8,869 44,368 103,586 183,516 – – – – – – 98,341 719 26,955 5,590 43,050 174,655 – – – – (300) (300) (190) (29) (1,258) (1,321) (11,276) (14,074) 751,833 44,958 31,211 9,346 30,435 867,783 – (183) (919) (2,401) (19,010) (22,513) Impairment losses $’000 Gross $’000 (restated) 2009 Impairment losses $’000 (restated)
The change in impairment losses in respect of trade and other receivables and non-current receivables during the year is as follows: Group Company
2010 $’000 At 1 January Impairment losses (written back)/recognised Impairment losses utilised Translation differences At 31 December 22,513 (4,312) (3,336) (791) 14,074
2009 $’000 21,414 4,320 (3,374) 153 22,513
2010 $’000 300 – (300) – –
2009 $’000 – 300 – – 300
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
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notes to tHe FinanCiaL stateMents
16. Trade and other receivables (cont’d) The Group’s historical experience in the collection of trade and other receivables falls within the recorded allowances. Due to this factor, management believes that no additional credit risks beyond the amount provided for collection losses are inherent in the Group’s trade and other receivables. Based on historical default rates, the Group believes that no impairment allowance is necessary in respect of trade receivables not past due. These receivables are mainly from customers that have a good record with the Group. 17. Cash and short-term deposits Note 2010 $’000 Fixed deposits Cash at banks and in hand 653,503 514,640 1,168,143 Bank overdrafts (unsecured) Deposits pledged Cash and cash equivalents in the cash flow statement 21 (637) (27) 1,167,479 Group 2009 $’000 625,953 450,280 1,076,233 (617) (20,942) 1,054,674 2010 $’000 – 1,125 1,125 Company 2009 $’000 3,000 4,859 7,859
Deposits pledged represents bank balances of certain subsidiaries pledged as security to obtain credit facilities. The weighted average effective interest rates per annum of the fixed deposits and bank overdrafts at the balance sheet date are as follows: Group 2010 % Fixed deposits Bank overdrafts Interest rates will be repriced within 12 months. 3.09 7.40 2009 % 1.67 7.50 2010 % – – Company 2009 % 0.09 –
105
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18. Assets/(liabilities) classified as held-for-sale In view of the disruption of operations in a CGU of building materials segment and other strategic reasons, the Group plans to divest its investment in the above CGU, one jointly-controlled entity and two other associates of the Group (the “disposal group”). Efforts to sell the disposal group have since commenced. Group 2010 $’000 Property, plant and equipment Investment in a subsidiary Investment in a jointly-controlled entity Interests in associates Inventories Trade and other receivables Deferred tax assets Cash and short-term deposits 3,222 – – – 11,850 36,203 2,166 4,811 58,252 Trade and other payables Provisions Current tax payable Deferred tax liabilities Loans and borrowings (16,597) (1,426) (258) (772) (13) (19,066) 19. Share capital 2010 Amount $’000 2009 Amount $’000 2009 $’000 (restated) 6,587 – – 87,402 – 15,518 2,345 – 111,852 (2,926) (1,660) – – – (4,586) – – 15,000 – – 21,499 – – 36,499 – – – – – – – 1,891 – – – 37,435 – – 39,326 – – – – – – 2010 $’000 Company 2009 $’000
Issued and fully paid ordinary shares, with no par value At 1 January Shares issued under the Share Option Scheme Shares cancelled during the year At 31 December 372,956 617 – 373,573 264,996 1,147 – 266,143 381,392 644 (9,080) 372,956 278,664 1,223 (14,891) 264,996
No. of shares ’000
No. of shares ’000
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
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notes to tHe FinanCiaL stateMents
19. Share capital (cont’d) The Company has issued share options under its Hong Leong Asia Share Option Scheme 2000 (the “Share Option Scheme”) (Note 32). The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All shares rank equally with regard to the Company’s residual assets. The Company had in 2009 obtained court approval for cancellation of its shares distributed by one of its associates via HLA Selective Capital Distribution. 20. Reserves Group 2010 $’000 Capital reserve Statutory reserve Translation reserve Fair value reserve Equity compensation reserve Accumulated profits Reserve of disposal group classified as held-for-sale Premium paid on acquisition of non-controlling interests (28,672) 32,568 (47,269) 48,395 1,477 494,852 2,353 (1,451) 502,253 2009 $’000 (28,672) 29,664 (18,757) 44,015 2,009 414,798 – – 443,057 2010 $’000 9,199 – – 8 1,424 28,988 – – 39,619 Company 2009 $’000 9,199 – – 5 1,496 48,326 – – 59,026
(a)
Capital reserve comprises: Group 2010 $’000 2009 $’000 392 3,046 (11,380) (20,730) (28,672) 2010 $’000 – 9,199 – – 9,199 Company 2009 $’000 – 9,199 – – 9,199
Merger reserve Business participation fee and realised capital gain on disposal of investments Adjustment relating to shares of the Company issued to an associate for assets transferred to the Company Goodwill on consolidation written off
392 3,046 (11,380) (20,730) (28,672)
The merger reserve relates to reserve arising from certain acquisitions accounted for under the pooling of interests method.
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notes to tHe FinanCiaL stateMents
20. Reserves (cont’d) (b) Statutory reserve comprises the Group’s share of general reserves of its subsidiaries in China which are not available for dividends or other payments. The transfers are required to be made at the rate of 10% to 15% (2009: 10% to 15%) of profit after tax of subsidiaries arrived at under generally accepted accounting principles applicable in the People’s Republic of China. The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign subsidiaries and associates. The fair value reserve includes the cumulative net change in the fair value of available-for-sale investments until the investment is derecognised and the Group’s share of the post-acquisition fair value adjustments arising from the allocation of purchase price to the identifiable net assets and contingent liabilities of subsidiaries. The equity compensation reserve comprises the cumulative value of employee services received for the issue of share options. The amount in the reserve is retained when the option is exercised or expired. The reserve of disposal group classified as held-for-sale comprises assets revaluation reserve of the disposal group. Premium paid on acquisition of non-controlling interests comprises premium paid on acquisition of non-controlling interests by one of the Group’s subsidiaries in China net of discount on further purchase of shares in one of the Group’s subsidiaries.
(c)
(d)
(e)
(f) (g)
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
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notes to tHe FinanCiaL stateMents
21. Loans and borrowings Group 2010 $’000 2009 $’000 (restated) Current liabilities Unsecured bank overdrafts (Note 17) Unsecured bank loans Secured bank loans Obligations under finance leases (Note 33) 637 202,428 30,342 1,926 235,333 Non-current liabilities Unsecured bank loans Secured bank loans Obligations under finance leases (Note 33) 43,859 173,251 3,570 220,680 Total loans and borrowings 456,013 86,731 164,678 5,233 256,642 526,015 – – – – 116,597 – – – – 105,223 617 224,389 42,322 2,045 269,373 – 116,597 – – 116,597 – 105,223 – – 105,223 2010 $’000 Company 2009 $’000
The obligations under finance leases are secured by a charge over the leased assets (Note 3). The average discount rate implicit in the leases is 7.75% (2009: 7.76%) per annum. The secured bank loans are secured on assets with the following carrying values: Group 2010 $’000 Property, plant and equipment Investment in subsidiaries Floating charge on trade receivables 48,136 219,202 22,186 2009 $’000 60,365 209,784 17,388 2010 $’000 – – – Company 2009 $’000 – – –
109
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notes to tHe FinanCiaL stateMents
21. Loans and borrowings (cont’d) Terms and conditions of outstanding loans and borrowings are as follows: 2010 Year of maturity Face value $’000 Carrying amount $’000
Weighted average interest rate % Group Secured bank loans: - RMB floating rate loans - RMB floating rate loans - MYR floating rate loans - MYR floating rate loans - MYR floating rate loans Unsecured bank loans: - RMB fixed rate loans - RMB floating rate loans - RMB floating rate loans - USD floating rate loans - HKD floating rate loans - SGD floating rate loans - SGD floating rate loans - bank overdrafts Obligations under finance leases: - RMB fixed rate loans - RMB fixed rate loans - RMB fixed rate loans 7.8 4.9 7.8 5.7 5.0 4.7 0.8 1.6 1.1 1.2 7.4 6.2 4.8 4.6 8.7 5.7
2013 2011 2011 2012 2018
11,291 23,005 1,674 161,960 5,663 203,593
11,291 23,005 1,674 161,960 5,663 203,593 1,162 23,859 51,220 37,597 587 111,862 20,000 637 246,924 1,926 22 3,548 5,496 456,013
2011 2012 2011 2011 2011 2011 2014 2011
1,162 23,859 51,220 37,597 587 111,862 20,000 637 246,924
2011 2015 2014
1,926 22 3,548 5,496 456,013
Company Unsecured bank loans: - USD floating rate loans - SGD floating rate loans 0.8 0.9 2011 2011 37,597 79,000 116,597 37,597 79,000 116,597
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
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notes to tHe FinanCiaL stateMents
21. Loans and borrowings (cont’d) 2009 Weighted average interest rate % Group Secured bank loans: - RMB floating rate loans - MYR floating rate loans - MYR floating rate loans - MYR floating rate loans Unsecured bank loans: - RMB fixed rate loans - RMB floating rate loans - RMB floating rate loans - USD floating rate loans - HKD floating rate loans - MYR floating rate loans - SGD floating rate loans - SGD floating rate loans - bank overdrafts Obligations under finance leases: - RMB fixed rate loans - RMB fixed rate loans 7.7 7.7 2014 2010 5,233 2,045 7,278 526,015 Company Unsecured bank loans: - USD floating rate loans - SGD floating rate loans 1.5 1.6 2010 2010 35,923 69,300 105,223 35,923 69,300 105,223 5,233 2,045 7,278 526,015 8.0 4.9 4.5 1.5 1.6 3.3 1.8 1.8 6.7 2011 2012 2010 2010 2010 2010 2010 2011 2010 1,242 31,050 31,050 35,923 817 925 151,674 58,439 617 311,737 1,242 31,050 31,050 35,923 817 925 151,674 58,439 617 311,737 4.9 4.2 3.9 8.5 2010 2017 2010 2012 38,461 6,398 3,123 159,018 207,000 38,461 6,398 3,123 159,018 207,000
Year of maturity
Face value $’000 (restated)
Carrying amount $’000 (restated)
111
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
notes to tHe FinanCiaL stateMents
21. Loans and borrowings (cont’d) The following are the expected contractual undiscounted cash outflows of financial liabilities, including interest payments and excluding the impact of netting agreements: Cash flows Carrying amount Group 2010 Floating interest rate loans Fixed interest rate loans Bank overdrafts Trade and other payables* 448,718 6,658 637 1,885,055 2,341,068 2009 (restated) Floating interest rate loans Fixed interest rate loans Bank overdrafts Trade and other payables* 516,878 8,520 617 1,691,209 2,217,224 Company 2010 Floating interest rate loans Trade and other payables* 116,597 27,442 144,039 2009 Floating interest rate loans Trade and other payables* 105,223 55,936 161,159 * Excludes advances from customers. 106,901 55,936 162,837 106,901 55,936 162,837 – – – – – – 117,602 27,442 145,044 117,602 27,442 145,044 – – – – – – 566,207 11,099 617 1,691,209 2,269,132 250,894 4,257 617 1,691,209 1,946,977 312,722 6,842 – – 319,564 2,591 – – – 2,591 486,566 7,152 637 1,885,055 2,379,410 252,312 3,155 637 1,885,055 2,141,159 234,254 3,997 – – 238,251 – – – – – $’000 Contractual cash flows $’000 Within 1 year $’000 Within 1 to 5 years $’000 More than 5 years $’000
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
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notes to tHe FinanCiaL stateMents
22. Trade and other payables Group 2010 $’000 Trade payables Accrued expenses Other payables Advances from customers Trust receipts Amounts due to: - immediate holding company (non-trade) - subsidiaries (trade) - subsidiaries (non-trade) - associates (trade) - associates (non-trade) - other related corporations (non-trade) Total trade and other payables Trade payables / other payables These amounts are non-interest bearing. Trade and other payables are normally settled on agreed credit terms ranging from 7-day to 90-day terms and are to be settled in cash. Amounts due to related corporations The balances with the immediate holding company, subsidiaries, associates and other related corporations are unsecured, interest-free, repayable on demand and are to be settled in cash. Purchases from related corporations are made at terms equivalent to those prevailing in arm’s length transactions with third parties. The weighted average effective annual interest rates at the balance sheet date in respect of interest-bearing balances are as follows: Group Company – – – 9,333 16 209 2,097,200 196 – – 5,167 237 4,496 1,815,192 – – 23,276 – – – 27,442 – 14,973 35,198 – – – 55,936 1,473,993 351,467 48,310 212,145 1,727 2009 $’000 (restated) 1,346,422 277,962 47,607 123,983 9,122 40 3,040 1,086 – – 28 4,045 1,692 – – 2010 $’000 Company 2009 $’000
2010 % Trust receipts Amounts due to subsidiaries Interest rates will be repriced within 12 months. 3.06 –
2009 % 4.08 –
2010 % – –
2009 % – 2.41
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notes to tHe FinanCiaL stateMents
23. Provisions Group At 1 January 2009 Provision made Provision utilised Provision reversed Translation differences At 31 December 2009 and 1 January 2010 Provision made Provision utilised Provision reversed Translation differences At 31 December 2010 Onerous contracts The provision for onerous contracts relates to the expected losses arising from existing customers’ contracts, whereby the unavoidable costs of meeting the obligations under the contracts exceed the economic benefits expected to be received. Claims The provision for claims relates to costs arising from delays in the completion of contracts or complaints from customers. The provision is made based on estimates from prior experience on similar projects with customers. Warranties The provision for warranties relates to products sold during the year. The provision is made based on estimates from historical warranty data. 24. Revenue Revenue of the Group comprises: (a) Sales of goods delivered less trade discounts. Intra-group sales are eliminated in arriving at the turnover of the Group. Revenue from rendering services relates to project management contracts, hotel room and restaurant operations. Revenue from sale of development properties. Rental income arising from operating leases and development properties. Onerous contracts $’000 3,229 – (1,426) – – 1,803 6,900 – (1,803) – 6,900 Claims $’000 2,879 1,469 (1,709) (459) 1,331 3,511 2,038 (1,125) (1,576) (7) 2,841 Warranties $’000 53,589 95,453 (86,617) – (1,368) 61,057 120,521 (97,876) – (3,505) 80,197 Total $’000 59,697 96,922 (89,752) (459) (37) 66,371 129,459 (99,001) (3,379) (3,512) 89,938
(b) (c) (d)
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
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notes to tHe FinanCiaL stateMents
25. Profit before income tax from continuing operations Profit before income tax from continuing operations includes the following: Group Note 2010 $’000 Bad debts recovered Impairment losses (written back)/recognised for trade and other receivables Inventories recognised as an expense in cost of sales Amortisation of intangible assets Depreciation of property, plant and equipment and investment properties Amortisation of land use rights Property, plant and equipment written off Intangible assets written off Non-audit fees paid/payable to: - auditors of the Company - other auditors of subsidiaries Exchange (gain)/loss, net Operating lease expense (Gain)/loss on disposal of property, plant and equipment Gain on disposal of subsidiaries Gain on disposal of associates Provisions made, net Allowance (written back)/made for inventories written down Impairment losses on: - property, plant and equipment - intangible assets - assets classified as held-for-sale Reversal of impairment losses on property, plant and equipment Allowance made for development properties Dividend income from other investments Interest income: - cash and short-term deposits - jointly-controlled entity Sale of scrap Write-off debt owing to creditors Government grant Negative goodwill arising from the acquisition of subsidiaries Provisional negative goodwill arising from additional shares purchase in a subsidiary (19,542) (85) (5,799) (446) (3,612) – – (8,643) (128) (5,432) (4,955) (3,698) (37,104) (13,540) 3 15 3 5 5,577 – 2,778 (3,048) 640 (36) 16,104 10,236 6,618 (50) – (14) 23 14 27 156 (2,336) 6,797 (19,352) (702) (1,174) 126,080 (22,700) 50 61 447 12,472 1,752 (53) (405) 96,463 41,942 14 5 3, 10 4 3 5 – (4,312) 3,316,967 714 107,115 3,470 1,404 1,521 2009 $’000 (restated) (27) 4,320 2,929,899 700 103,116 3,541 1,534 –
115
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
notes to tHe FinanCiaL stateMents
26. Finance costs Group 2010 $’000 Bank term loans Bank overdrafts Trust receipts Bills discounting Bank charges Finance leases Facilities fees 22,063 49 392 24,988 1,477 17 21 49,007 27. Employee benefits Group 2010 $’000 Wages and salaries Jobs credits granted by the Singapore government (Reversal)/cost of share-based payments Contributions to defined contribution plans Retrenchment costs 289,728 (216) (72) 44,867 – 334,307 28. Income tax expense Major components of income tax expense The major components of income tax expense for the years ended 31 December 2010 and 2009 are: Group 2010 $’000 Current tax charge Current year (Over)/under provision in respect of prior years 99,815 (10,563) 89,252 Deferred tax (credit)/expense Movements in temporary differences (Over)/under provision in respect of prior years (12,891) (3,195) (16,086) (14,852) 3,816 (11,036) 70,364 2,095 72,459 2009 $’000 2009 $’000 236,584 (587) 204 39,256 56 275,513 2009 $’000 13,746 54 590 15,185 731 319 428 31,053
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
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notes to tHe FinanCiaL stateMents
28. Income tax expense (cont’d) Major components of income tax expense (cont’d) Group 2010 $’000 Income tax attributable to continuing operations Income tax attributable to discontinued operations Income tax expense recognised in profit or loss Relationship between tax expense and accounting profit The reconciliation between tax expense and the product of accounting profit multiplied by the applicable corporate tax rate for the years ended 31 December 2010 and 2009 are as follows: Group 2010 $’000 Profit before income tax from continuing operations Income tax using China tax rate of 25% (2009: 25%) Adjustments: Effect of different tax rates in other countries Effect of tax concessions Non-deductible expenses Tax-exempt income Utilisation of deferred tax benefits previously not recognised Deferred tax benefits not recognised (Over)/under provision in respect of prior years: - current - deferred Others (10,563) (3,195) 5,066 73,166 2,095 3,816 2,849 61,423 (10,623) (30,112) 12,524 (1,092) (4,054) 932 (5,458) (16,529) 11,241 (7,114) (1,079) 3,819 457,131 114,283 2009 $’000 271,133 67,783 73,166 385 73,551 2009 $’000 61,423 339 61,762
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notes to tHe FinanCiaL stateMents
28. Income tax expense (cont’d) In accordance with the new corporate income tax law (“CIT law”) of the People’s Republic of China (“PRC”), which became effective 1 January 2008, foreign invested enterprises and domestic companies are subject to a uniform tax rate of 25%. Under the new CIT law, those foreign enterprises incorporated before the promulgation date of the new tax law are entitled to a preferential lower tax rate for a transition period of 1 January 2008 to 31 December 2012. During this period, the new CIT law provides for a graduated tax rate increase over five-year from an existing reduced tax rate to the uniform tax rate of 25%. Certain of the Group’s subsidiaries in the PRC have been granted concessionary tax rate under the Corporate Income Tax Law of the PRC. Income from these entities is subject to tax at the concessionary rate of 15% instead of the national standard income tax rate of 25% (2009: 25%). This concession is available subject to certain conditions including these entities remain engaged in advance and new technology. The corporate income tax rate applicable to Singapore companies of the Group was reduced to 17% for the year of assessment 2010 onwards from 18% for year of assessment 2009. 29. Discontinued operations On 13 July 2010, one of the Group’s subsidiaries entered into a Sales and Purchase Agreement to dispose a piece of property for a total consideration of $22,773,000. The disposal of the property was completed on 15 December 2010. Accordingly, the results from operations of this subsidiary have been presented separately on the income statement of the Group as discontinued operations. The effect on the consolidated income statement for the years ended 31 December 2010 and 2009 are set out below: Consolidated income statement disclosures The results of the subsidiary for years ended 31 December are as follows: Group 2010 $’000 Revenue Expenses Profit before tax from discontinued operations Income tax expense (Note 28) Profit from discontinued operations, net of tax 2,652 (961) 1,691 (385) 1,306 2009 $’000 2,469 (1,070) 1,399 (339) 1,060
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
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notes to tHe FinanCiaL stateMents
29. Discontinued operations (cont’d) Statement of cash flow disclosures The cash flows attributable to the subsidiary are as follows: Group 2010 $’000 Operating Investing Net cash inflow Earnings per share disclosures Group 2010 Earnings per share from discontinued operations attributable to owners of the parent (cents per share) Basic Diluted 30. Earnings per share Basic earnings per share The calculation of basic earnings per share is based on: Group 2010 $’000 (i) (ii) Net profit attributable to equity holders of the Company Issued ordinary shares at beginning of the year Weighted average number of shares issued during the year Weighted average number of shares cancelled during the year Weighted average number of shares at the end of the year 120,312 372,956,359 522,935 – 373,479,294 2009 $’000 126,653 381,392,018 82,806 (920,404) 380,554,420 0.25 0.25 0.20 0.20 2009 1,114 22,137 23,251 2009 $’000 1,108 (45) 1,063
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30. Earnings per share (cont’d) Diluted earnings per share The weighted average number of ordinary shares adjusted for the effect of unissued ordinary shares under the Share Option Scheme is determined as follows: Group 2010 No. of shares Weighted average number of shares issued, used in the calculation of basic earnings per share Dilutive effect of share options Weighted average number of ordinary shares (diluted) 31. Dividends Group 2010 $’000 Interim tax exempt dividend paid of 3 cents (2009: 3 cents) per share in respect of year 2010 and year 2009 Final tax exempt dividend paid of 7 cents (2009: 2 cents) per share in respect of year 2009 and year 2008 11,207 26,147 37,354 2009 $’000 11,442 7,628 19,070 373,479,294 509,151 373,988,445 2009 No. of shares 380,554,420 3,592 380,558,012
After the balance sheet date, the Directors proposed a final tax exempt dividend of 7 cents (2009: 7 cents) per ordinary share in respect of year 2010 amounting to approximately $26,150,000 (2009: $26,147,000) on the basis that the number of shares in issue at the time of payment remains the same as that as at 1 March 2011 (373,573,359 shares). The dividends have not been provided for.
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
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notes to tHe FinanCiaL stateMents
32. Share options The Hong Leong Asia Share Option Scheme 2000 (the “Share Option Scheme”) was approved by the shareholders of the Company on 30 December 2000. It is administered by a committee comprising the following members: Ernest Colin Lee – Chairman Kwek Leng Peck Quek Shi Kui Goh Kian Hwee All options granted under the Share Option Scheme are subject to a vesting schedule as follows: (1) (2) one year after the date of grant for up to 33% of the Shares over which the options are exercisable; two years after the date of grant for up to 66% (including the first 33%) of the Shares over which the options are exercisable; and three years after the date of grant for up to 100% (including the 66% as mentioned above) of the Shares over which the options are exercisable.
(3)
32.
Share options (cont’d)
Details of the options granted under the Share Option Scheme to subscribe for ordinary shares of the Company as at the end of the financial year are as follows:
Date of grant – (18,000) – – 18,000 – $23,040 $3.56-$4.01 26/9/2006 to 25/9/2015 10/1/2008 to 9/1/2017 10/1/2008 to 9/1/2012* 15/5/2009 to 14/5/2018 – – 15/5/2009 to 14/5/2013* $46,860 $3.29 5/6/2010 to 4/6/2019 $1,146,364
Exercise price per share Exercise period
Number of options outstanding at 1 January 2010 Options granted during the year Options exercised during the year Options Number of cancelled/ options lapsed outstanding at during the 31 December year 2010 Number of options exercisable at 1 January 2010
Number of options exercisable at 31 December 2010
Proceeds on options exercised during the year credited to share capital Market price of shares at exercise date of option
26/9/2005
$1.28
18,000
10/1/2007
$1.88
465,200
–
(380,200)
–
85,000
217,000
85,000
$714,776
$3.25-$3.71
10/1/2007
$1.88
160,000
–
(160,000)
–
–
92,000
–
$300,800
$3.44-$4.59
15/5/2008 – (25,800) (500,000) 353,200 175,500 166,200
$2.36
879,000
$60,888
$3.07-$4.09
15/5/2008
$2.36
300,000
–
–
–
300,000
99,000
198,000
5/6/2009
$1.42
100,000
–
(33,000)
–
67,000
–
–
Total
1,922,200
–
(617,000)
(500,000)
805,200
601,500
449,200
* Relates to options granted to a former Group Employee who had been reclassified as a Group Non-Executive Director on 1 October 2008.
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32. Share options (cont’d) The fair value of services received in return for share options granted are measured by reference to the fair value of share options granted. The estimate of the fair value of the services received is measured based on the Black-Scholes model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non transferability, exercise restrictions and behavioural considerations. Fair value of share options and assumptions: On 26 September 2005 0.23 – 0.29 1.28 1.28 29.8 3 – 6 3.1 2.4 – 2.7 On 10 January 2007 0.34 – 0.43 1.88 1.88 29.8 3 – 6 3.2 2.9 – 3.0 On 15 May 2008 0.53 – 0.66 2.36 2.36 43.9 – 45.2 2 – 4 2.5 1.1 – 1.4 On 5 June 2009 0.60 – 0.62 1.42 1.42 66.0 – 77.1 2 – 4 3.7 2.1 – 2.4
Date of grant of options Fair value at measurement date ($) Share price ($) Exercise price ($) Expected volatility (%) Expected option life (years) Expected dividends (%) Risk-free interest rate (%)
The expected volatility is based on the historic volatility (calculated based on the weighted average expected life of the share options), adjusted for any expected changes to future volatility. There are no market conditions associated with the share option grants. Service conditions and non-market performance conditions are not taken into account in the measurement of the fair value of the services to be received at the grant date. 33. Commitments Capital commitments Capital expenditure contracted for as at the end of the year but not recognised in the financial statements are as follows: Group 2010 $’000 Capital commitments in respect of property, plant and equipment 264,455 2009 $’000 131,354 2010 $’000 – Company 2009 $’000 –
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33. Commitments (cont’d) Operating lease commitments as lessee At 31 December, commitments for future minimum lease payments under non-cancellable operating leases are as follows: Group 2010 $’000 Within 1 year After 1 year but within 5 years After 5 years 11,863 13,026 9,025 33,914 2009 $’000 11,316 19,885 25,227 56,428 2010 $’000 422 150 – 572 Company 2009 $’000 449 572 – 1,021
Annual rentals payable for the leases of land by the Group under non-cancellable operating leases are subject to revision at fixed intervals ranging from one to five years. Any increase will not exceed 5.5% to 7.6% (2009: 5.5% to 7.6%) on an annualised basis, provided that any rent after such increase shall not exceed the prevailing market rent. The leases expire between 2011 and 2025. None of these leases includes contingent rentals. Operating lease commitments as lessor The Group leases out its investment property. The future minimum lease receivables under non-cancellable operating leases are as follows: Group 2010 $’000 Within 1 year After 1 year but within 5 years After 5 years 1,443 2,185 3 3,631 2009 $’000 1,242 3,427 104 4,773
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33. Commitments (cont’d) Finance lease commitments The Group has finance leases for various plant and machinery. The leases have terms of renewal but no purchase options and escalation clauses. Renewals are at the option of the specific entity that holds the lease. Future minimum lease payments under finance leases together with the present value of the net minimum lease payments are as follows: 2010 Minimum Present value of payments payments $’000 Within 1 year After 1 year but within 5 years Total minimum lease payments Less: Amounts representing finance charges Present value of minimum lease payments 2,252 4,304 6,556 (1,060) 5,496 $’000 1,926 3,570 5,496 – 5,496 2009 Minimum Present value of payments payments $’000 2,387 6,344 8,731 (1,453) 7,278 $’000 2,045 5,233 7,278 – 7,278
34.
Related party transactions (a) Compensation of key management personnel Group 2010 $’000 Short-term employee benefits Equity compensation benefits 4,137 (72) 4,065 2009 $’000 4,579 267 4,846
Directors’ remuneration included in key management personnel compensation amounted to $1,954,000 (2009: $3,308,000). Key management personnel of the Group participate in the Hong Leong Asia Share Option Scheme 2000 (the “Share Option Scheme”) as described in Note 32. No options were granted to key management personnel pursuant to the Share Option Scheme during the year (2009: 100,000). All options are subject to a vesting schedule.
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34. Related party transactions (cont’d) (a) Compensation of key management personnel (cont’d) As at the end of the year, 497,200 (2009: 1,300,000) options granted to key management personnel were outstanding, of which 420,000 (2009: 1,170,000) were options granted to the Executive Directors of the Company. (b) Sale and purchase of goods and services During the year, the Group made payments to a firm, in which a director has an interest, in respect of professional services rendered. This amounted to $329,000 (2009: $1,170,000). There was no amount outstanding at the balance sheet date (2009: $258,000). Significant transactions with related parties, other than those as disclosed elsewhere in the financial statements, are as follows: Group 2010 $’000 Purchase of raw materials associates jointly-controlled entity 53,514 2,070 68,858 1,760 2009 $’000
Management services paid and payable related corporations 784 574
Rental paid and payable 35. immediate holding company related corporations 259 190 241 189
Financial risk management objectives and policies Risk management is integral to the whole business of the Group and the Company. The management continually monitors the Group’s and the Company’s risk management process to ensure that an appropriate balance between risk and control is achieved. The Group’s and the Company’s policies and financial authority limits are documented and reviewed periodically. The financial authority limits seek to limit and mitigate operational risk by setting threshold of approvals required for the entry into contractual obligations and investments.
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35. Financial risk management objectives and policies (cont’d) (a) Credit risk Credit risk is the risk of loss that may arise on outstanding financial instruments should a counterparty default on its obligations. The Group’s and the Company’s exposure to credit risk arises primarily from trade and other receivables. For other financial assets (including quoted securities and cash and short-term deposits), the Group and the Company minimise credit risk by dealing exclusively with high credit rating counterparties. Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed for all customers requiring credit over a certain amount. The Group and the Company requires collateral in respect of financial assets in certain circumstances. The Group and the Company establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets. The allowance account in respect of trade and other receivables is used to record impairment losses unless the Group and the Company is satisfied that no recovery of the amount owing is possible. At that point, the financial asset is considered irrecoverable and the amount charged to the allowance account is written off against the carrying amount of the impaired financial asset. Cash and short-term deposits are placed with banks and financial institutions which are regulated. At the balance sheet date, a subsidiary of the Group has trade receivables due from a major Chinese customer, amounting to $222 million (2009: $137 million), representing 19% (2009: 16%) of total gross trade and bill receivables of the Group as at 31 December 2010. Of this balance, $161 million (2009: $82 million), or 72% (2009: 59%) is supported by bill receivables from Chinese banks. Except for this, there is no significant concentration of credit risk. (b) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of the Group’s and the Company’s financial instruments will fluctuate because of changes in market interest rates. The Group’s and the Company’s exposure to interest rate risk arises primarily from their loans and borrowings and short-term deposits. The Group’s and the Company’s policy is to maintain an efficient and optimal interest cost structure using a mix of fixed and variable rate debts. The Group’s and the Company’s debt obligations are mainly denominated in Singapore Dollar, United States Dollar, Chinese Renminbi and Ringgit Malaysia, and at fixed and floating rates of interest. For variable rate financial instruments, a change of 100 bp in interest rate at the reporting date would increase/ (decrease) profit or loss by the amounts shown below.
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35. Financial risk management objectives and policies (cont’d) (b) Interest rate risk (cont’d) Profit before income tax 100 bp Increase $’000 Group 31 December 2010 Floating rate instruments 31 December 2009 Floating rate instruments 1,084 (1,084) 2,041 (2,041) 100 bp Decrease $’000
Profit before income tax 100 bp Increase Company 31 December 2010 Floating rate instruments 31 December 2009 Floating rate instruments (c) Liquidity risk Liquidity risk is the risk that the Group or the Company will encounter difficulty in meeting financial obligations due to shortage of funds. The Group’s and the Company’s exposure to liquidity risk arises primarily from mismatches of the maturities of financial assets and liabilities. The Group’s and the Company’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank credit facilities. The Group monitors its liquidity risk and maintains a level of cash and cash equivalents deemed adequate by management to finance the Group’s operations and to mitigate the effects of fluctuations in cash flows, and having adequate amounts of committed credit facilities. The maturity profile of the Group’s and the Company’s financial liabilities based on contractual undiscounted cash outflows are disclosed in Note 21. (1,022) 1,022 (1,166) 1,166 $’000 100 bp Decrease $’000
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notes to tHe FinanCiaL stateMents
35. Financial risk management objectives and policies (cont’d) (d) Foreign currency risk The Group is exposed to foreign currency risk on sales, purchases and borrowings that are denominated in currencies other than the respective functional currencies of entities within the Group. The currencies giving rise to this risk are primarily the Singapore Dollar, Chinese Renminbi and United States Dollar. Foreign currency translation exposure is managed by incurring debt in the operating currency so that where possible operating cash flows can be primarily used to repay obligations in the local currency. This also has the effect of minimising the exchange differences recorded against income, as the exchange differences on the net investment are recorded directly against equity. The Group’s and the Company’s financial assets and liabilities balances that have exposures to foreign currencies are as follows: 2010 Singapore Dollar $’000 Group Other investments Trade and other receivables Cash and cash equivalents Loans and borrowings Trade and other payables 11,742 83 17,831 (30,000) (9,050) (9,394) – 6,951 – – (873) 6,078 2010 Singapore Dollar $’000 Company Trade and other receivables Cash and cash equivalents Loans and borrowings Trade and other payables – – – – – – – – – – 42,067 55 (37,597) – 4,525 Chinese Renminbi $’000 United States Dollar $’000 – 69,470 6,927 (37,597) (21,723) 17,077 Chinese Renminbi $’000 United States Dollar $’000
129
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35. Financial risk management objectives and policies (cont’d) (d) Foreign currency risk (cont’d) 2009 Singapore Dollar $’000 Group Other investments Trade and other receivables Cash and cash equivalents Loans and borrowings Trade and other payables 946 77 16,223 (102,000) (14,211) (98,965) Company Trade and other receivables Cash and cash equivalents Loans and borrowings – – – – Sensitivity analysis A 10% strengthening of the following major currencies against the functional currency of each of the Group’s entities at the reporting date would increase/(decrease) profit or loss by the amount shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. Profit before income tax Group $’000 2010 Singapore Dollar Chinese Renminbi United States Dollar 2009 Singapore Dollar Chinese Renminbi United States Dollar (9,897) 642 1,334 – – 220 (939) 608 1,708 – – 453 Company $’000 – – – – 38,099 19 (35,923) 2,195 – 6,720 – – (297) 6,423 – 74,873 1,356 (35,923) (26,970) 13,336 Chinese Renminbi $’000 United States Dollar $’000
A 10% weakening of the above would have equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.
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notes to tHe FinanCiaL stateMents
35. Financial risk management objectives and policies (cont’d) (e) Equity price risk The Group and the Company have available-for-sale equity securities which are quoted. The Group and the Company are not exposed to significant equity price risk. 36. Fair value of financial instruments (a) Fair value of financial instruments that are carried at fair value Group $’000 Quoted prices in active markets for identical instruments (Level 1) 2010 Financial assets Other investments At 31 December 2010 2009 Financial assets Other investments At 31 December 2009 Fair value hierarchy The Group classify fair value measurement using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy have the following levels: • Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities • Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices), and • Level 3 – Inputs for the asset or liability that are not based on observable market data (unobservable inputs) There have been no transfers between Level 1 and Level 2 during the financial years ended 2010 and 2009. Determination of fair value Quoted equity securities (Note 11): Fair value is determined by direct reference to their bid price quotations in an active market at the end of the reporting period. Unquoted equity securities (Note 11): Fair value is determined based on assumptions regarding the future financial performance of the investee, its risk profile, and economic assumptions regarding the industry and geographical jurisdiction in which the investee operates. 2,190 2,190 – – 1,400 1,400 3,590 3,590 13,443 13,443 – – 1,254 1,254 14,697 14,697 Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3)
Total
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36. Fair value of financial instruments (cont’d) (b) Fair value of financial instruments by classes that are not carried at fair value and whose carrying amounts are reasonable approximation of fair value Current trade and other receivables and payables, non-current receivables (Notes 16 and 12), accrued expenses (Note 22), and non-current loans and borrowings at floating rate (Note 21). The carrying amounts of these financial assets and liabilities are reasonable approximation of fair values, either due to their short-term nature or that they are floating rate instruments that are re-priced to market interest rates on or near the end of the reporting period. Set out below is a comparison by category of carrying amounts of the Group’s and the Company’s financial instruments that are carried in the financial statements: Classification of financial instruments Loans Fair value and through receivables profit or loss $’000 2010 Assets Property, plant and equipment Land use rights Intangible assets Interests in associates Investment properties Other investments Non-current receivables Deferred tax assets Inventories Development properties Trade receivables Due from related corporations Prepaid expenses Other receivables and deposits Advances paid to suppliers Assets classified as held-for-sale Cash and short-term deposits – – – – – – 12,666 – – – 1,149,067 795 – 59,976 – – 1,168,143 2,390,647 – – – – – 11,156 – – – – – – – – – – – 11,156 – – – – – 3,541 – – – – – – – – – – – 3,541 – – – – – – – – – – – – – – – – – – 1,141,147 123,438 69,580 22,534 7,055 – – 87,502 746,397 15,764 – – 13,366 – 62,313 58,252 – 2,347,348 1,141,147 123,438 69,580 22,534 7,055 14,697 12,666 87,502 746,397 15,764 1,149,067 795 13,366 59,976 62,313 58,252 1,168,143 4,752,692 $’000 Available for sale $’000 Liabilities at amortised cost $’000 Nonfinancial assets/ liabilities $’000
Group
Total $’000
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
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notes to tHe FinanCiaL stateMents
36. Fair value of financial instruments (cont’d) Classification of financial instruments (cont’d) Loans Fair value and through receivables profit or loss $’000 2010 Liabilities Advances from customers Trade and other payables Due to related corporations Loans and borrowings Provisions Current tax payable Liabilities classified as held-forsale Deferred tax liabilities Deferred grants Retirement benefits – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 1,875,497 9,558 456,013 – – – – – – 2,341,068 212,145 – – – 89,938 49,648 19,066 37,999 46,192 241 455,229 212,145 1,875,497 9,558 456,013 89,938 49,648 19,066 37,999 46,192 241 2,796,297 $’000 Available for sale $’000 Liabilities at amortised cost $’000 Nonfinancial assets/ liabilities $’000
Group
Total $’000
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notes to tHe FinanCiaL stateMents
36. Fair value of financial instruments (cont’d) Classification of financial instruments (cont’d) Loans Fair value and through receivables profit or loss $’000 2009 Assets Property, plant and equipment Land use rights Intangible assets Interests in associates Investment properties Other investments Non-current receivables Deferred tax assets Inventories Development properties Trade receivables Due from related corporations Prepaid expenses Other receivables and deposits Advances paid to suppliers Assets classified as held-for-sale Cash and short-term deposits – – – – – – 6,790 – – – 811,000 6,743 – 40,362 – – 1,076,233 1,941,128 – – – – – – – – – – – – – – – – – – – – – – – 3,590 – – – – – – – – – – – 3,590 – – – – – – – – – – – – – – – – – – 1,135,447 115,118 68,733 33,421 7,008 – – 67,704 669,287 18,879 – – 15,555 – 53,698 111,852 – 2,296,702 1,135,447 115,118 68,733 33,421 7,008 3,590 6,790 67,704 669,287 18,879 811,000 6,743 15,555 40,362 53,698 111,852 1,076,233 4,241,420 $’000 Available for sale $’000 Liabilities at amortised cost $’000 Nonfinancial assets/ liabilities $’000
Group
Total $’000
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notes to tHe FinanCiaL stateMents
36. Fair value of financial instruments (cont’d) Classification of financial instruments (cont’d) Loans Fair value and through receivables profit or loss $’000 2009 Liabilities Advances from customers Trade and other payables Due to related corporations Loans and borrowings Provisions Current tax payable Liabilities classified as held-forsale Deferred tax liabilities Deferred grants Retirement benefits – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 1,681,113 10,096 526,015 – – – – – – 2,217,224 123,983 – – – 66,371 45,453 4,586 32,198 36,735 221 309,547 123,983 1,681,113 10,096 526,015 66,371 45,453 4,586 32,198 36,735 221 2,526,771 $’000 Available for sale $’000 Liabilities at amortised cost $’000 Nonfinancial assets/ liabilities $’000
Group
Total $’000
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notes to tHe FinanCiaL stateMents
36. Fair value of financial instruments (cont’d) Classification of financial instruments (cont’d) Loans Fair value and through receivables profit or loss $’000 2010 Assets Property, plant and equipment Investment in subsidiaries Intangible assets Interests in associates Other investments Deferred tax assets Trade receivables Due from related corporations Prepaid expenses Other receivables and deposits Assets classified as held-for-sale Cash and short-term deposits – – – – – – 5,494 177,244 – 828 – 1,125 184,691 Liabilities Trade and other payables Due to related corporations Loans and borrowings Deferred tax liabilities – – – – – – – – – – – – – – – 4,166 23,276 116,597 – 144,039 – – – 45 45 4,166 23,276 116,597 45 144,084 – – – – – – – – – – – – – – – – – 37 – – – – – – – 37 – – – – – – – – – – – – – 351 213,824 583 13,816 – 3 – – 42 – 36,499 – 265,118 351 213,824 583 13,816 37 3 5,494 177,244 42 828 36,499 1,125 449,846 $’000 Available for sale $’000 Liabilities at amortised cost $’000 Nonfinancial assets/ liabilities $’000
Company
Total $’000
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
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notes to tHe FinanCiaL stateMents
36. Fair value of financial instruments (cont’d) Classification of financial instruments (cont’d) Loans Fair value and through receivables profit or loss $’000 2009 Assets Property, plant and equipment Investment in subsidiaries Intangible assets Interests in associates Interests in jointly-controlled entity Other investments Deferred tax assets Trade receivables Due from related corporations Prepaid expenses Other receivables and deposits Assets classified as held-for-sale Cash and short-term deposits – – – – – – – 11,304 162,877 – 1,221 – 7,859 183,261 Liabilities Trade and other payables Due to related corporations Loans and borrowings Deferred tax liabilities – – – – – – – – – – – – – – – 5,765 50,171 105,223 – 161,159 – – – 601 601 5,765 50,171 105,223 601 161,760 – – – – – – – – – – – – – – – – – – – 34 – – – – – – – 34 – – – – – – – – – – – – – – 495 231,945 844 14,695 15,000 – 144 – – 38 – 39,326 – 302,487 495 231,945 844 14,695 15,000 34 144 11,304 162,877 38 1,221 39,326 7,859 485,782 $’000 Available for sale $’000 Liabilities at amortised cost $’000 Nonfinancial assets/ liabilities $’000
Company
Total $’000
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HONG LEONG ASIA LTD. ANNUAL REPORT 2010
notes to tHe FinanCiaL stateMents
37. Capital management The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholders’ value. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the years ended 31 December 2010 and 2009. As disclosed in Note 20(b), the Group’s subsidiaries in China is required by the Foreign Enterprise Law of the PRC to contribute to and maintain a non-distributable statutory reserve fund whose utilisation is subject to approval by the relevant PRC authorities. This externally imposed capital requirement has been complied with by the above mentioned subsidiaries for the financial years ended 31 December 2010 and 2009. There were no changes in the Group’s approach to capital management during the year. Group 2010 $’000 Loans and borrowings Trade and other payables Less: Cash and short-term deposits Financial liabilities, net of cash and short-term deposits attributable to discontinued operation Net debt Equity attributable to the owners of the parent Less: Fair value reserve Statutory reserve Total capital Capital and net debt 456,013 2,097,200 (1,168,143) 11,799 1,396,869 768,396 (48,395) (32,568) 687,433 2,084,302 2009 $’000 526,015 1,815,192 (1,076,233) 2,926 1,267,900 708,053 (44,015) (29,664) 634,374 1,902,274
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notes to tHe FinanCiaL stateMents
38. Contingent liabilities (unsecured) As part of the Group’s cash management policy, the Group may receive bill receivables from customers in settlement of outstanding trade debts. These bill receivables are issued by banks in China. In the event that the Group uses the bill receivables to pay suppliers or discount them with its bankers, the recipients of bills have a recourse to the Group if the issuing bank defaults on the settlement on the maturity dates of the bills. In such a circumstance, the Group will also have recourse to the customer who has settled the outstanding trade debts through bill receivables. Group 2010 $’000 Outstanding bills endorsed to suppliers with recourse obligations Outstanding bills discounted with banks with recourse obligations 337,121 768,283 2009 $’000 492,095 758,008
The Company has a contingent liability in respect of banking facilities of $20,000,000 (2009: $20,000,000) jointly held with its subsidiaries whereby the Company and the subsidiaries are jointly and severally liable for the outstanding obligations under these facilities. The amount drawn down as at 31 December 2010 on the banking facilities amounted to Nil (2009: $10,000,000). 39. Segment Information For management purpose, the Group is organised into business units based on their product and services and has four reportable operating segments as follows: Reportable Segments (i) (ii) Consumer products: refrigerators, freezers and air conditioners. Industrial packaging: plastic packaging related products and container components, and eco-friendly biodegradable pallets. Building materials: cement, pre-cast concrete products, ready-mix concrete, steel bars and quarry products. Diesel engines products: diesel engines and automobile spare parts.
(iii) (iv)
Other operations include electronics, hospitality and property development operations. None of these segments meets any of the quantitative thresholds for determining reportable segments in 2010 or 2009. Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit before income tax, as included in the internal management reports that are reviewed by the Group’s Chief Operating Decision Maker. Segment report is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries.
39.
Segment Information (cont’d)
Reportable Segments (cont’d) Consumer products Others* $’000 37,307 197 (4,170) (6,908) (3,461) 109 (2,278) (33,277) (110,819) 481,630 3,306 403,040 19,303 5,102,000 $’000 Total $’000 1,113,098 387 (4,314) (17,242) 34,985 – 31,204 6,184 52,449 315,481 1,817 1,513 (133) 5,626 65,895 378,585 (3,928) (24,272) (58,469) (1,045) (451) (23,297) 105 3,950 14,664 96,356 513,942 3,341,297 $’000 $’000 $’000 Industrial packaging Building materials Diesel engines
2010
Total external revenue
Interest income
Interest expense
Depreciation and amortisation
Reportable segment profit/(loss) before income tax
Share of profit/(loss) of associates
Reportable segment profit/(loss) after income tax
Other material non-cash items: – 481 9,652 – 640 10,773
-
Impairment losses on property, plant and equipment, intangible assets and assets held-for-sale (344) – – 8,779 – – – 462 5,097 – – – (1,956) – – 111,742
-
Reversal of impairment losses on property, plant and equipment and intangible assets
(2,526) – – –
(4,826) 462 5,097 120,521
-
Claims
-
Onerous contracts
-
Warranties
Assets and liabilities 840,191 – 13,122 577,159 35,363 – 2,771 43,158 631,684 – 17,686 160,695 3,042,955 321 146,679 1,678,406 117,773 7,279 1,444 142,129 4,667,966 7,600 181,702 2,601,547
Reportable segment assets
Interests in associates
139
Capital expenditure ^
Reportable segment liabilities
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
notes to tHe FinanCiaL stateMents
* ^
Others relate to hospitality and property development operations. Capital expenditure consists of additions of property, plant and equipment and intangible assets (including goodwill).
39.
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
Segment Information (cont’d)
Reportable Segments (cont’d)
Consumer products Others* $’000 25,802 389 (400) (6,377) (775) 51 (944) (106,797) 242,239 11,116 181,219 (25,866) 9,007 4,457,888 $’000 Total $’000 986,323 396 (5,958) (11,575) 76,043 – 67,315 (4,747) 36,409 83,186 1,184 6,631 3,250 (3,064) 47,801 122,234 (3,469) (26,010) (59,366) (1,277) (1,664) (16,567) 105 2,962 5,155 88,624 536,588 2,820,551 $’000 $’000 $’000
Industrial packaging
Building materials
Diesel engines
140
2009
Total external revenue
Interest income
Interest expense
Depreciation and amortisation
Reportable segment profit/(loss) before income tax
Share of profit of associates
Reportable segment profit/(loss) after income tax
Other material non-cash items: 812 4,285 2,667 18,384 6,618 32,766
notes to tHe FinanCiaL stateMents
-
Impairment losses on property, plant and equipment, intangible assets and assets held-for-sale – – 10,553 – – – 1,010 – – (22) – 84,900
-
Reversal of impairment losses on property, plant and equipment and intangible assets
– – –
(22) 1,010 95,453
-
Claims
-
Warranties
Assets and liabilities 753,318 – 5,268 483,900 9,088 5,461 58,864 38,975 645,879 – 20,733 159,832 2,614,412 993 161,021 1,482,934 123,012 7,169 9,476 147,021 4,175,596 17,250 201,959 2,332,551
Reportable segment assets
Interests in associates
Capital expenditure ^
Reportable segment liabilities
* ^
Others relate to hospitality, property development and electronics (classified as assets held-for-sale in 2009) operations. Capital expenditure consists of additions of property, plant and equipment and intangible assets (including goodwill).
141
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
notes to tHe FinanCiaL stateMents
39. Segment Information (cont’d) Reportable Segments (cont’d) Reconciliations of reportable segment revenues, profit or loss, assets and liabilities and other material items 2010 $’000 Revenue Total revenue for reportable segments Other revenue Consolidated revenue Profit or loss Total profit before income tax for reportable segments Other loss 485,091 (3,461) 481,630 Unallocated amounts: - Corporate (loss)/profit Consolidated profit before income tax Assets Total assets for reportable segments Other assets 4,550,193 117,773 4,667,966 Interests in associates Other unallocated amounts Consolidated total assets Liabilities Total liabilities for reportable segments Other liabilities 2,459,418 142,129 2,601,547 Other unallocated amounts Consolidated total liabilities 194,750 2,796,297 2,185,530 147,021 2,332,551 194,220 2,526,771 22,534 62,192 4,752,692 4,052,584 123,012 4,175,596 33,421 32,403 4,241,420 (24,499) 457,131 28,894 271,133 243,014 (775) 242,239 5,064,693 37,307 5,102,000 4,432,086 25,802 4,457,888 2009 $’000
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
142
notes to tHe FinanCiaL stateMents
39. Segment Information (cont’d) Reportable Segments (cont’d) Other material items Reportable segments total $’000 2010 Interest income Interest expense Capital expenditure Depreciation and amortisation Impairment losses/(reversal of impairment losses) on property, plant and equipment, intangible assets and assets held-for-sale 2009 Interest income Interest expense Capital expenditure Depreciation and amortisation Impairment losses on property, plant and equipment, intangible assets and assets held-for-sale Geographical Segments The Group operations are primarily in China, Singapore and Malaysia. In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers. Segment assets are based on the geographical location of the assets. (8,618) 25,466 192,483 100,420 26,126 (153) 5,587 9,476 6,937 6,782 (8,771) 31,053 201,959 107,357 32,908 (19,106) 29,107 180,258 103,911 7,833 (521) 19,900 1,444 7,388 (1,886) (19,627) 49,007 181,702 111,299 5,947 Consolidated total $’000
Adjustments $’000
39.
Segment Information (cont’d)
Geographical Segments (cont’d) China $’000 $’000 $’000 $’000 $’000 Singapore Malaysia Others Consolidated Total
2010 4,532,055 1,051,886 69,748 219,587 – 1,341,221 285,322 258,316 26,307 5,102,000
Total revenue from external customers
Non-current assets #
2009 (restated) 3,873,650 709,932 400,550 215,824 – 321,986 239,407 22,845 4,457,888 1,326,306
Total revenue from external customers
Non-current assets #
#
Excludes interests in associates, financial instruments, deferred tax assets and non-current receivables.
Major customer
Revenue from one customer of the Group’s diesel engines segment represents approximately $669,164,000 (2009: $530,392,000) of the Group’s total revenue.
143
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
notes to tHe FinanCiaL stateMents
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
144
notes to tHe FinanCiaL stateMents
40. Significant accounting judgment and estimates The preparation of the Group’s consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities at the end of each reporting period. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future periods. Judgments made in applying accounting policies In the process of applying the Group’s accounting policies, management has made the following judgments, apart from those involving estimations, which have the most significant effect on the amounts recognised in the consolidated financial statements: (a) Determination of functional currency The Group measures foreign currency transactions in the respective functional currencies of the Company and its subsidiaries. In determining the functional currencies of the entities in the Group, judgment is required to determine the currency that mainly influences sales prices for goods and services and of the country whose competitive forces and regulations mainly determines the sales prices of its goods and services. The functional currencies of the entities in the Group are determined based on management’s assessment of the economic environment in which the entities operate and the entities’ process of determining sales prices. Key sources of estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the end of each reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are as follows: (a) Impairment of non-financial assets An impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. The fair value less costs to sell calculation is based on available data from binding sales transactions in an arm’s length transaction of similar assets or observable market prices less incremental costs for disposing the asset. The value in use calculation is based on a discounted cash flow model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Group is not yet committed to or significant future investments that will enhance the asset’s performance of the cash generating unit being tested. The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model as well as the expected future cash inflows and the growth rate used for extrapolation purposes. Further details of the key assumptions applied in the impairment assessment of goodwill are in Note 6 to the financial statements.
145
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
notes to tHe FinanCiaL stateMents
40. Significant accounting judgment and estimates (cont’d) Key sources of estimation uncertainty (cont’d) (b) Impairment of loans and receivables The Group assesses at the end of each reporting period whether there is any objective evidence that a financial asset is impaired. To determine whether there is objective evidence of impairment, the Group considers factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments. Where there is objective evidence of impairment, the amount and timing of future cash flows are estimated based on historical loss experience for assets with similar credit risk characteristics. The carrying amount of the Group’s loans and receivables at the end of the reporting period is disclosed in Note 36 to the financial statements. (c) Employee share options The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in Note 32. (d) Allowance for inventories written down Where necessary, allowance for inventories written down would be set up for estimated losses which may result from obsolete inventories held. The Group estimates the level of allowance based on the prevailing market conditions and historical provisioning experience. The required level of allowance could change significantly as a result of changes in market conditions. (e) Business combination – fair value of property, plant and equipment The fair value of property, plant and equipment and land use rights recognised as a result of a business combination is based on market value. The market value is the estimated amount for which these assets could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties have acted knowledgeably, prudently and without compulsion. The assets are valued on the basis of continuous use having taken into account the cost of replacement, future economic working life and local market condition where appropriate.
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
146
notes to tHe FinanCiaL stateMents
40. Significant accounting judgment and estimates (cont’d) Key sources of estimation uncertainty (cont’d) (f) Depreciation of property, plant and equipment Property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives. Management estimated the useful lives of these property, plant and equipment to be within 2 to 50 years. The carrying amount of the Group’s property, plant and equipment are set out in Note 3. Changes in the expected level of usage and technological developments could impact the economic useful lives and the residual values of these assets, therefore future depreciation charges could be revised. (g) Provisions Estimates of the Group’s obligations arising from contracts that exist as at balance sheet date may be affected by future events, which cannot be predicted with any certainty. The assumptions and estimates are made based on the management’s knowledge and experience and may vary from actual experience so that the actual liability may vary considerably from the best estimates. Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are only disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.
147
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
notes to tHe FinanCiaL stateMents
41. Comparative figures The following comparative figures in the consolidated income statement and consolidated balance sheets have been restated to conform with current year’s presentation: 2009 As previously stated $’000 Continuing operations Revenue Cost of sales Other income Selling and distribution expenses General and administrative expenses Income tax expense Discontinued operations Profit from discontinued operations, net of tax Non-current assets Property, plant and equipment Land use rights Current assets Trade and other receivables Assets classified as held-for-sale Current liabilities Trade and other payables Loans and borrowings Non-current liabilities Loans and borrowings Deferred grants 300,642 258 (44,000) 36,477 256,642 36,735 (f) (e) 1,851,669 225,373 (36,477) 44,000 1,815,192 269,373 (e) (f) 940,229 98,981 (12,871) 12,871 927,358 111,852 (d) (d) 1,133,128 117,437 2,319 (2,319) 1,135,447 115,118 (c) (c) – 1,060 1,060 (a) 4,448,128 (3,481,188) 83,438 (459,457) (220,767) (61,762) 9,760 (7,834) (252) (12,935) 9,862 339 4,457,888 (3,489,022) 83,186 (472,392) (210,905) (61,423) (a), (b) (a) (a) (a), (b) (a) (a) Restatement $’000 2009 As restated $’000 Note
(a) (b)
Comparatives were restated due to the discontinued operations as disclosed in Note 29. Sales and promotion expenses previously netted off against revenue have now been reclassified to selling and distribution expenses. Certain property, plant and equipment that were previously classified as land use rights have been reclassified to property, plant and equipment. Trade and other receivables included amounts due from an associate that was classified as assets held-for-sale in 2009 have been reclassified to assets held-for-sale.
(c)
(d)
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
148
notes to tHe FinanCiaL stateMents
41. Comparative figures (cont’d) (e) Deferred grants previously included in trade and other payables which are not expected to be utilised within the next 12 months period have been reclassified to non-current liabilities. Loans and borrowings that may be callable by the lender at any time without cause have been classified as current in accordance with FRS 1. The comparatives for 2009 have been reclassified accordingly.
(f)
The above restatement to 2009 comparative has no impact on the balance sheet as of 1 January 2009 and therefore no balance sheet was presented. The financial statements for the financial year ended 31 December 2009 were audited by another firm of Certified Public Accountants. 42. Authorisation of financial statements The financial statements of Hong Leong Asia Ltd. for the year ended 31 December 2010 were authorised for issue in accordance with a resolution of the directors on 23 March 2011.
149
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
重点财务报表
资产负债表 合并利润表 综合全面收益表 合并所有者权益变动表 母公司所有者权益变动表 合并现金流量表 150 152 153 154 156 157
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
150
资产负债表
2010年12月31日
集团 附注 2010 $’000 2009 $’000 (重列) 非流动资产 产业，厂房和设备 土地使用权 无形资产 子公司投资 联营公司投资 合营企业投资 投资性房地产 其它金融资产 长期应收款 递延所得税资产 3 4 5 7 8 9 10 11 12 13 1,141,147 123,438 69,580 – 22,534 – 7,055 2,101 12,666 87,502 1,466,023 流动资产 存货 发展物业 其它金融资产 应收账款和其他应收款 现金和短期存款 持有以备出售资产 14 15 11 16 17 18 746,397 15,764 12,596 1,285,517 1,168,143 58,252 3,286,669 总资产合计 4,752,692 669,287 18,879 1,331 927,358 1,076,233 111,852 2,804,940 4,241,420 – – 37 183,608 1,125 36,499 221,269 449,846 – – 34 175,440 7,859 39,326 222,659 485,782 1,135,447 115,118 68,733 – 33,421 – 7,008 2,259 6,790 67,704 1,436,480 351 – 583 213,824 13,816 – – – – 3 228,577 495 – 844 231,945 14,695 15,000 – – – 144 263,123 2010 $’000 母公司 2009 $’000
此报告中的附注是组成这些财务报表不可或缺的内容
151
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
资产负债表
2010年12月31日
集团 附注 2010 $’000 2009 $’000 (重列) 流动负债 应付账款和其他应付款 各项准备 短期借款 应付所得税 持有以备出售负债 18 22 23 21 2,097,200 89,938 235,333 49,648 19,066 2,491,185 净流动资产 非流动负债 长期借款 递延所得税负债 递延补贴 退休金 21 13 220,680 37,999 46,192 241 305,112 总负债合计 净资产 股本与公积 发行股本 各项公积 19 20 266,143 502,253 768,396 少数股东权益 所有者权益合计 负债及所有者权益总计 1,187,999 1,956,395 4,752,692 264,996 443,057 708,053 1,006,596 1,714,649 4,241,420 266,143 39,619 305,762 – 305,762 449,846 264,996 59,026 324,022 – 324,022 485,782 2,796,297 1,956,395 256,642 32,198 36,735 221 325,796 2,526,771 1,714,649 – 45 – – 45 144,084 305,762 – 601 – – 601 161,760 324,022 795,484 1,815,192 66,371 269,373 45,453 4,586 2,200,975 603,965 27,442 – 116,597 – – 144,039 77,230 55,936 – 105,223 – – 161,159 61,500 2010 $’000 母公司 2009 $’000
此报告中的附注是组成这些财务报表不可或缺的内容
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
152
合并利润表
截至2010年12月31日
集团 附注 持续经营业务 营业收入 营业成本 毛利润 其他收入项目 其他收入 其他费用项目 销售费用 研发费用 管理费用 财务费用 持续经营业务营业利润 应占联营公司盈利 持续经营业务税前利润 所得税费用 持续经营业务税后利润 已终止业务 已终止业务税后利润 本年利润 归属于: 母公司所有者 持续经营业务税后利润 已终止业务税后利润 少数股东权益 持续经营业务税后利润 已终止业务税后利润 264,604 355 264,959 持续经营业务每股收益 (分) - 基本 - 稀释 每股收益 (分) - 基本 - 稀释 30 30 32.21 32.17 33.28 33.28 31.96 31.92 33.08 33.08 83,827 290 84,117 119,361 951 120,312 125,883 770 126,653 29 25 28 26 (564,468) (85,212) (189,788) (49,007) 453,825 3,306 457,131 (73,166) 383,965 1,306 385,271 (472,392) (77,685) (210,905) (31,053) 260,017 11,116 271,133 (61,423) 209,710 1,060 210,770 24 2010 $’000 5,102,000 (3,830,461) 1,271,539 70,761 2009 $’000 (重列) 4,457,888 (3,489,022) 968,866 83,186
此报告中的附注是组成这些财务报表不可或缺的内容
153
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
综合全面收益表
截至2010年12月31日
集团 2010 $’000 本年利润 其他全面收益 国外子公司和联营公司的外币报表折算差额 净公允价值变动 应占联营公司其他全面收益 本年其他全面收益（扣除税项） 本年全面收益总额 归属于： 母公司所有者 少数股东权益 本年全面收益总额 96,087 209,274 305,361 142,341 66,668 209,009 (84,951) 5,041 – (79,910) 305,361 (26,626) 10,617 14,248 (1,761) 209,009 385,271 2009 $’000 210,770
此报告中的附注是组成这些财务报表不可或缺的内容
附注 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
发行 股本
资本 公积
法定 公积
公允价值 公积
权益报酬 公积
外币报表 折算差额
收购少数 股东股权 的额外 持有以备出售 支付 资产的公积 归属于母公 未分配 司所有者权 利润 益合计 少数股东 权益 所有者权益 合计
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
集团
$’000
$’000
2010年1月1日余额 – – 5,041 – (29,266) – – 120,312 96,087 209,274 305,361
264,996
(28,672)
29,664
44,015
2,009
(18,757)
–
– 414,798
708,053
1,006,596
1,714,649
154
截至2010年12月31日
本年全面收益总额
–
与所有者的交易直接在权 益确认
向所有者收取和支付
– – – – – – – – – – 1,248 28 – – 710 – (1,909) (488) 754 – 1,643 – – – – – – – – – – – – – – – (37,354) (37,354) – – 1,986 – – – – – – – – 2,904 – – – – – (2,904) – – – – – – – – – (6,993) – 9,456 – (24,603) – 5,226 – – (72) – – – – (72) – – – – – – – – 1,147 – 1,147 (72) (6,993) – 9,456 (37,354) (24,603) – 7,212
本年发行股本
19
1,147
股份支付冲回的费用
27
–
子公司资本缩减
–
转入法定公积
–
发行股本予子公司少数 股东
–
合并所有者权益变动表
支付公司股东股利
31
–
支付子公司少数股东股利
–
重分类为持有以备出售资 产的调整
–
处置子公司和联营公司 的调整
–
子公司股权改变不导致失 去控制权 – – – 32,568 48,395 1,477 (47,269) – – – – – – – – – (1,451) (1,451) – – – – – – – – – – – – – (1,451) 2,353 494,852 768,396 (10,464) (493) – 1,187,999 (10,464) (493) (1,451) 1,956,395
收购少数股东股权
–
处置子公司
–
收购少数股东股权的额 外支付
7
–
2010年12月31日余额
266,143
(28,672)
此报告中的附注是组成这些财务报表不可或缺的内容
附注 $’000 (34,684) – – 21,310 – (5,622) 126,653 142,341 66,668 209,009 22,267 22,664 1,805 (13,135) 303,304 580,885 895,322 1,476,207 $’000
发行 股本
资本 公积
法定 公积
集团
$’000
公允价值 公积 $’000
权益报酬 公积 $’000
外币报表 折算差额 $’000
未分配 利润 $’000
归属于母公司 所有者权益 合计 $’000 少数股东 权益 $’000 所有者权益 合计 $’000
2009年1月1日余额 –
278,664
本年全面收益总额
与所有者的交易直接在权益确认
向所有者收取和支付
– – (4,461) – – – – – 10,473 – – – – – – (129) 41 – – 3,881 – – – – – – – – – (19,070) (19,070) – 14,266 – – – – – – – 7,526 – – – (4,431) 3,095 – – – – – (14,891) – – 9,523 – (14,800) 1,535 110,886 – – – – 4,461 – – – – 204 – – 204 – – – – – – 1,223 – 1,223 204 – (14,891) 3,095 9,523 (19,070) (14,800) 15,801 110,886
本年发行股本 – –
19
1,223
股份支付确认的费用
27
转入未分配利润
注销股份 – – – – – –
19
(14,891)
转入法定公积
发行股本予子公司少数股东
支付公司股东股利
31
支付子公司少数股东股利
处置子公司和联营公司的调整
收购子公司
子公司股权改变不导致失去控制权 – (28,672) 29,664 44,015 2,009 (18,757) – – – – – – 414,798 – 708,053 (62,538) 1,006,596 (62,538) 1,714,649
收购少数股东股权
2009 年12月31日余额
264,996
155
合并所有者权益变动表
截至2010年12月31日
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
此报告中的附注是组成这些财务报表不可或缺的内容
附注 264,996 – – 3 – 18,016 18,019 9,199 5 1,496 48,326 324,022
母公司
发行 股本 $’000 合计 $’000
资本 公积 $’000
公允价值 公积 $’000
权益报酬 公积 $’000
未分配 利润 $’000
2010年1月1日余额
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
本年全面收益总额
与所有者的交易直接在权益确认
156
截至2010年12月31日
向所有者收取和支付
19 – 31 266,143 278,664 – – 5 – 40,296 9,199 – 1,289 27,100 9,199 8 1,424 28,988 – – – – (37,354) (37,354) 305,762 316,252 40,301 – – (72) – (72) 1,147 – – – – 1,147
本年股本发行
股份支付冲回的费用
支付公司股东股利
2010年12月31日余额
2009年1月1日余额
本年全面收益总额
与所有者的交易直接在权益确认
向所有者收取和支付
19 19 – 31 264,996 9,199 5 – – – – – (14,891) – – – 207 – 1,496 1,223 – – – – – – (19,070) 48,326 1,223 (14,891) 207 (19,070) 324,022
母公司所有者权益变动表
本年股本发行
注销股份
股份支付确认的费用
支付公司股东股利
2009年12月31日余额
此报告中的附注是组成这些财务报表不可或缺的内容
157
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
合并现金流量表
截至2010年12月31日
集团 附注 2010 $’000 经营活动产生的现金流量 持续经营业务税前利润 已终止业务税前利润 调整项目： 应占联营公司盈利 股份支付（冲回）/确认的费用 折旧与摊销 存货跌价（冲回）/损失 应收账款和其他应收款坏账（冲回）/损失 固定资产，无形资产和持有以备出售资产减值准备 固定资产注销 无形资产注销 财务费用 股利收入 利息收入 处置以下资产（收益）/损失： - 子公司 - 联营公司 - 产业, 厂房与设备 - 持有以备出售资产 可供出售金融资产公允价值变化的投资收益 收购子公司和少数股东股权产生的负商誉 所提准备净额 流动资金变动前经营活动产生的现金流量 流动资金的变动： 存货 应收账款和其他应收款 应付账款和其他应付款 已提准备冲销 经营活动产生的现金流量 已付所得税 经营活动产生的现金流量净额 23 (99,892) (425,747) 401,817 (99,001) 459,073 (83,874) 375,199 52,265 23,183 690,161 (89,752) 1,194,919 (37,146) 1,157,773 25 23 25 25 25 (702) (1,174) (19,352) 435 (1,338) 126,080 681,896 (53) (405) 1,752 (50,644) 96,463 519,062 27 25 14 16 25 25 25 26 25 25 (3,306) (72) 111,299 (22,700) (4,312) 5,947 1,404 1,521 49,007 (36) (19,627) (11,116) 204 107,357 41,942 4,320 32,908 1,534 31,053 (14) (8,771) 29 457,131 1,691 271,133 1,399 2009 $’000 (重列)
此报告中的附注是组成这些财务报表不可或缺的内容
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
158
合并现金流量表
截至2010年12月31日
集团 附注 2010 $’000 2009 $’000 (重列) 投资活动产生的现金流量 增购联营公司权益 购入子公司权益，净现金收入 收购少数股东股权 股利所得: - 联营公司 - 其他 利息收入 购置资产： - 无形资产 - 产业, 厂房与设备 支付土地使用权 处置资产所得: - 子公司，净现金收入 - 联营公司 - 产业, 厂房与设备 - 土地使用权 - 持有以备出售资产 - 其他投资 投资活动产生的现金流量净额 452 12,925 37,307 367 62,250 (74,374) 385 384 9,483 1,638 (237,182) 5 3 4 (3,171) (178,531) (16,472) (1,634) (200,325) (34,304) 25 2,750 36 19,628 11,146 14 9,074 (11,915) (445) 27,407 (60,005)
此报告中的附注是组成这些财务报表不可或缺的内容
159
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
合并现金流量表
截至2010年12月31日
集团 附注 2010 $’000 2009 $’000 (重列) 筹资活动产生的现金流量 股利支出: - 少数股东 - 股东 已付利息 银行借贷所得 用于银行抵押存款释放/（定期存款） 发行股本所得 注销股份 子公司资本缩减 发行股本予子公司少数股东 政府补贴 偿还银行贷款 偿还融资租赁 筹资活动产生的现金流量净额 现金及现金等价物净增加 期初现金及现金等价物余额 汇率变动对现金及现金等价物的影响 现金及现金等价物重分类为持有以备出售资产 期末现金及现金等价物余额 附注: 现金及银行存款合计$1,084,665,000 (2009: $965,186,000) 存放于实行货币兑换管制条例的国家。 18 17 17 19 19 31 (24,603) (37,354) (51,680) 194,104 20,915 1,147 (6,993) 9,456 11,514 (256,196) (1,782) (141,472) 159,353 1,054,674 (41,737) (4,811) 1,167,479 (14,800) (19,070) (34,092) 334,906 (20,649) 1,223 (14,891) 9,523 37,443 (360,260) (80,667) 839,924 238,017 (23,267) 1,054,674
此报告中的附注是组成这些财务报表不可或缺的内容
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
160
anaLysis oF sHaReHoLDinGs
as at 3 MaRCH 2011
Class of Shares Number of Ordinary Shares in issue Number of Ordinary Shareholders Voting Rights : : : : Ordinary shares 373,573,359 6,241 1 vote for 1 share
There are no treasury shares held in the issued share capital of the Company. Range of Shareholdings 1 - 999 1,000 - 10,000 10,001 - 1,000,000 1,000,001 and above No. of Shareholders 24 5,166 1,036 15 6,241 % 0.38 82.78 16.60 0.24 100.00 No. of Shares Held 6,327 20,792,284 41,219,820 311,554,928 373,573,359 % 0.002 5.566 11.034 83.398 100.000
Based on information available to the Company as at 3 March 2011, approximately 35.02% of the total number of issued shares of the Company is held by the public and therefore Rule 723 of the Listing Manual issued by the Singapore Exchange Securities Trading Limited is complied with. Major Shareholders List - Top 20 as at 3 March 2011 (as shown in the Register of Members) No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Name of Shareholder Hong Leong Corporation Holdings Pte Ltd DBS Nominees Pte Ltd Citibank Nominees Singapore Pte Ltd DBSN Services Pte Ltd Taiheiyo Singapore Pte Ltd Starich Investments Pte Ltd Raffles Nominees (Pte) Ltd United Overseas Bank Nominees Pte Ltd HSBC (Singapore) Nominees Pte Ltd Morgan Stanley Asia (S) Securities Pte Ltd ABN Amro Nominees Singapore Pte Ltd Kim Eng Securities Pte. Ltd. Phillip Securities Pte Ltd Soon Lee Heng Trading & Transportation Pte Ltd DBS Vickers Securities (S) Pte Ltd UOB Kay Hian Pte Ltd CIMB Securities (S) Pte Ltd OCBC Securities Private Ltd Merrill Lynch (S) Pte Ltd Ang Jwee Herng No. of Shares Held 233,000,000 16,657,315 13,574,003 10,933,259 9,079,659 6,664,000 6,410,222 3,209,200 2,965,746 2,487,770 1,765,000 1,375,154 1,251,600 1,141,000 1,041,000 936,000 932,000 912,000 678,320 660,000 315,673,248 % 62.37 4.46 3.63 2.93 2.43 1.78 1.72 0.86 0.79 0.67 0.47 0.37 0.34 0.31 0.28 0.25 0.25 0.24 0.18 0.18 84.51
161
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
anaLysis oF sHaReHoLDinGs
as at 3 MaRCH 2011
Substantial Shareholders (as shown in the Register of Substantial Shareholders) No. of Shares Deemed Interest 6,664,000 (1) 239,664,000 239,932,000
(2)
Name of Substantial Shareholder Hong Leong Corporation Holdings Pte Ltd Hong Leong Enterprises Pte. Ltd. Hong Leong Investment Holdings Pte. Ltd. Davos Investment Holdings Private Limited Kwek Holdings Pte Ltd Notes:
(1)
Direct Interest 233,000,000 -
Total Interest 239,664,000 239,664,000 239,932,000 239,932,000 239,932,000
% 64.15 64.15 64.23 64.23 64.23
239,932,000 (3)
(4)
239,932,000 (4)
Hong Leong Corporation Holdings Pte Ltd (“HLCH”) is deemed under Section 7 of the Companies Act, Chapter 50 (the “Companies Act”) to have an interest in the Shares held directly by its wholly-owned subsidiary, Starich Investments Pte. Ltd. (“Starich”). Hong Leong Enterprises Pte. Ltd. is deemed under Section 7 of the Companies Act to have an interest in the Shares held directly by HLCH and Starich, in which it is entitled to exercise or control the exercise of not less than 20% of the voting shares in the latter companies. Hong Leong Investment Holdings Pte. Ltd. (“HLIH”) is deemed under Section 7 of the Companies Act to have an interest in the Shares held directly by its subsidiaries, HLCH, Starich, Millennium Securities Pte Ltd and Welkin Investments Pte Ltd. Davos Investment Holdings Private Limited and Kwek Holdings Pte Ltd are deemed under Section 7 of the Companies Act to have interests in the Shares referred to in Note 3 above held indirectly by HLIH, in which each of them is entitled to exercise or control the exercise of not less than 20% of the voting shares in HLIH.
(2)
(3)
(4)
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
162
notiCe oF annUaL GeneRaL MeetinG
NOTICE IS HEREBY GIVEN that the Fiftieth Annual General Meeting (the “Meeting”) of HONG LEONG ASIA LTD. (the “Company”) will be held at M Hotel Singapore, Banquet Suite, Level 10, 81 Anson Road, Singapore 079908 on Tuesday, 19 April 2011 at 3.00 p.m. for the following purposes:
A.
1.
ORDINARY BUSINESS:
To receive and adopt the Audited Financial Statements and Reports of the Directors and Auditors for the year ended 31 December 2010. To declare a tax exempt (1-tier) final dividend of 7 cents per ordinary share for the year ended 31 December 2010 as recommended by the Directors. (a) To approve Directors’ fees of $260,384 (excluding the Audit Committee fees) for the year ended 31 December 2010 (year 2009: $190,000) and Audit Committee fees of $20,000 per quarter for the period commencing from 1 July 2011 to 30 June 2012 (period from 1 July 2010 to 30 June 2011: $20,000 per quarter), with payment of the Audit Committee fees to be made in arrears at the end of each calendar quarter. To approve additional Directors’ fees of $170,000 for the year ended 31 December 2010 (year 2009: Nil).
2.
3.
(b) 4.
To re-elect Mr Kwek Leng Peck as a Director of the Company who would be retiring by rotation in accordance with the Articles of Association of the Company and who, being eligible, offers himself for re-election. To re-appoint the following Directors pursuant to Section 153(6) of the Companies Act, Chapter 50, to hold office from the date of this Meeting until the next Annual General Meeting: (i) (ii) (iii) Mr Kwek Leng Beng Mr Ernest Colin Lee Mr Quek Shi Kui
5.
6.
To re-appoint Ernst & Young LLP as Auditors of the Company and to authorise the Directors to fix their remuneration.
B.
SPECIAL BUSINESS:
To consider and, if thought fit, to pass, with or without any modifications, the following resolutions as Ordinary Resolutions:
7.
That authority be and is hereby given to the Directors to: (a) (i) issue shares in the capital of the Company (“shares”) whether by way of rights, bonus or otherwise; and/or make or grant offers, agreements or options (collectively, “Instruments”) that might or would require shares to be issued, including but not limited to the creation and issue of (as well as adjustments to) warrants, debentures or other instruments convertible into shares,
(ii)
at any time and upon such terms and conditions and for such purposes and to such persons as the Directors may, in their absolute discretion, deem fit; and (b) (notwithstanding the authority conferred by this Ordinary Resolution may have ceased to be in force) issue shares in pursuance of any Instrument made or granted by the Directors while this Ordinary Resolution was in force;
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notiCe oF annUaL GeneRaL MeetinG
provided that: (1) the aggregate number of shares to be issued pursuant to this Ordinary Resolution (including shares to be issued in pursuance of Instruments made or granted pursuant to this Ordinary Resolution but excluding shares which may be issued pursuant to any adjustments effected under any relevant Instrument), does not exceed 50% of the total number of issued shares, excluding treasury shares, if any, in the capital of the Company (as calculated in accordance with sub-paragraph (2) below), of which the aggregate number of shares to be issued other than on a pro rata basis to shareholders of the Company (including shares to be issued in pursuance of Instruments made or granted pursuant to this Ordinary Resolution but excluding shares which may be issued pursuant to any adjustments effected under any relevant Instrument) does not exceed 20% of the total number of issued shares, excluding treasury shares, if any, in the capital of the Company (as calculated in accordance with sub-paragraph (2) below); (subject to such manner of calculation as may be prescribed by the Singapore Exchange Securities Trading Limited (“SGX-ST”)) for the purpose of determining the aggregate number of shares that may be issued under sub-paragraph (1) above, the total number of issued shares, excluding treasury shares shall be based on the total number of issued shares, excluding treasury shares, if any, in the capital of the Company at the time this Ordinary Resolution is passed, after adjusting for: (i) new shares arising from the conversion or exercise of any convertible securities or share options or vesting of share awards which are outstanding or subsisting at the time this Ordinary Resolution is passed; and any subsequent bonus issue, consolidation or subdivision of shares;
(2)
(ii) (3)
in exercising the authority conferred by this Ordinary Resolution, the Company shall comply with the provisions of the Listing Manual of the SGX-ST for the time being in force (unless such compliance has been waived by the SGXST) and the Articles of Association for the time being of the Company; and (unless revoked or varied by the Company in general meeting) the authority conferred by this Ordinary Resolution shall continue in force until the conclusion of the next Annual General Meeting of the Company or the date by which the next Annual General Meeting of the Company is required by law to be held, whichever is the earlier.
(4)
8.
That approval be and is hereby given to the Directors to offer and grant options in accordance with the provisions of the Hong Leong Asia Share Option Scheme 2000 (the “Share Option Scheme”) and to allot and issue from time to time such number of shares in the capital of the Company as may be required to be issued pursuant to the exercise of the options granted under the Share Option Scheme provided that the aggregate number of shares to be issued pursuant to the Share Option Scheme shall not exceed 15% of the total number of issued shares excluding treasury shares, if any, in the capital of the Company from time to time, and provided further that the aggregate number of shares to be issued during the entire operation of the Share Option Scheme (subject to adjustments, if any, made under the Share Option Scheme) shall not exceed such limits or (as the case may be) sub-limits as may be prescribed in the Share Option Scheme. That: (a) for the purposes of Sections 76C and 76E of the Companies Act, Chapter 50 (the “Companies Act”), the exercise by the Directors of the Company of all the powers of the Company to purchase or otherwise acquire issued ordinary shares in the capital of the Company (the “Shares”) not exceeding in aggregate the Maximum Limit (as hereinafter defined), at such price or prices as may be determined by the Directors from time to time up to the Maximum Price (as hereinafter defined), whether by way of:
9.
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
164
notiCe oF annUaL GeneRaL MeetinG
(i) market purchase(s) on the SGX-ST and/or any other stock exchange on which the Shares may for the time being be listed and quoted (“Other Exchange”); and/or off-market purchase(s) (if effected otherwise than on the SGX-ST or, as the case may be, Other Exchange) in accordance with any equal access scheme(s) as may be determined or formulated by the Directors as they may, in their absolute discretion, deem fit, which scheme(s) shall satisfy all the conditions prescribed by the Companies Act,
(i)
and otherwise in accordance with all other laws, regulations and rules of the SGX-ST or, as the case may be, Other Exchange as may for the time being be applicable, be and is hereby authorised and approved generally and unconditionally (the “Share Purchase Mandate”); (b) the authority conferred on the Directors of the Company pursuant to the Share Purchase Mandate may be exercised by the Directors at any time and from time to time during the period commencing from the date of the passing of this Resolution and expiring on the earlier of: (i) (ii) the date on which the next Annual General Meeting of the Company is held or required by law to be held; the date on which the authority conferred by the Share Purchase Mandate is varied or revoked in general meeting; or the date on which the purchases or acquisitions of Shares pursuant to the Share Purchase Mandate are carried out to the full extent mandated;
(iii)
(c)
in this Resolution: “Average Closing Price” means the average of the closing market prices of a Share for the five consecutive market days on which the Shares are transacted on the SGX-ST or, as the case may be, Other Exchange immediately preceding the date of market purchase by the Company or, as the case may be, the date of the making of the offer pursuant to the off-market purchase, and deemed to be adjusted in accordance with the listing rules of the SGX-ST for any corporate action which occurs after the relevant five-day period; “date of the making of the offer” means the date on which the Company makes an offer for the purchase or acquisition of Shares from holders of Shares, stating therein the purchase price (which shall not be more than the Maximum Price) for each Share and the relevant terms of the equal access scheme for effecting the off-market purchase; “Maximum Limit” means that number of issued Shares representing 10% of the total number of issued Shares of the Company (excluding any Shares which are held as treasury shares) as at the date of the passing of this Resolution; and “Maximum Price” in relation to a Share to be purchased or acquired, means the purchase price (excluding brokerage, commission, applicable goods and services tax and other related expenses) which shall not exceed: (i) (ii) in the case of a market purchase of a Share, 105% of the Average Closing Price of the Shares; and in the case of an off-market purchase of a Share pursuant to an equal access scheme, 110% of the Average Closing Price of the Shares; and
(d)
the Directors of the Company and/or any of them be and are hereby authorised to complete and do all such acts and things (including executing such documents as may be required) as they and/or he may consider expedient or necessary to give effect to the transactions contemplated and/or authorised by this Resolution.
165
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
notiCe oF annUaL GeneRaL MeetinG
10. That approval be and is hereby given for the purposes of Chapter 9 of the Listing Manual of SGX-ST, for the Company, its subsidiaries and its associated companies that are not listed on the SGX-ST or an approved exchange, over which the Company, its subsidiaries and/or its interested person(s), have control, or any of them to enter into any of the transactions falling within the types of Interested Person Transactions, particulars of which are set out in the Appendix to this Notice of Annual General Meeting (the “Appendix”) with any party who is of the class of Interested Persons described in the Appendix; provided that such transactions are entered in accordance with the review procedures set out in the Appendix, and that such approval (the “IPT Mandate”) shall, unless revoked or varied by the Company in general meeting, continue in force until the conclusion of the next Annual General Meeting of the Company, and the Directors of the Company be and are hereby authorised to complete and do all such acts and things (including executing all such documents as may be required) as they may consider expedient or necessary or in the interests of the Company to give effect to the IPT Mandate and/or this Resolution.
C.
TO TRANSACT ANY OTHER ORDINARY BUSINESS
BY ORDER OF THE BOARD Yeo Swee Gim, Joanne Ng Siew Ping, Jaslin Company Secretaries 28 March 2011 Singapore Directors have recommended a tax exempt (1-tier) final dividend of 7 cents per ordinary share in respect of the year ended 31 December 2010 for approval by Members at the Annual General Meeting to be held on 19 April 2011. The final dividend, if approved, will be payable on 16 May 2011. The Company had on 28 March 2011 advised that the Share Transfer Books and Register of Members of the Company will be closed on 4 May 2011. Duly completed transfers received by the Company’s Share Registrar, M & C Services Private Limited of 138 Robinson Road, #17-00 The Corporate Office, Singapore 068906 up to 5.00 p.m. on 3 May 2011 will be registered to determine shareholders’ entitlements to the proposed dividend for the year ended 31 December 2010.
HONG LEONG ASIA LTD. ANNUAL REPORT 2010
166
notiCe oF annUaL GeneRaL MeetinG
NOTES: 1. A member of the Company entitled to attend and vote at the Meeting is entitled to appoint not more than two proxies (whether a member or not) as his proxy to attend and vote on his behalf. The instrument appointing a proxy must be deposited at the Company Secretary’s office at 36 Robinson Road, #03-01 City House, Singapore 068877, not less than forty-eight (48) hours before the time appointed for holding the Meeting. With reference to item 3(b) above (under the heading “Ordinary Business”), in view of the consecutive good performance of the Group in 2009 and 2010, a special one-time payment of additional Special Directors’ fees amounting to an aggregate of $170,000 for the year ended 31 December 2010 is proposed. This payment, which is in addition to the ordinary Directors’ fees in item 3(a) above, is to remunerate the Directors for their dedicated service, entrepreneurial leadership and invaluable contributions to the Company’s success. With reference to item 4 above (under the heading “Ordinary Business”), Mr Kwek Leng Peck will, upon re-election as a Director of the Company, remain as a member of the Share Option Scheme Committee. With reference to item 5(i) above (under the heading “Ordinary Business”), Mr Kwek Leng Beng will, upon re-appointment as a Director of the Company, remain as a member of the Nominating Committee (“NC”). With reference to item 5(ii) above (under the heading “Ordinary Business”), Mr Ernest Colin Lee will, upon re-appointment as a Director of the Company, remain as chairman of the NC, Remuneration Committee (“RC”) and Share Option Scheme Committee, and as a member of the Audit Committee (“AC”). Mr Lee is an independent Director. With reference to item 5(iii) above (under the heading “Ordinary Business”), Mr Quek Shi Kui will, upon re-appointment as a Director of the Company, remain as chairman of the AC and as a member of the NC, RC and Share Option Scheme Committee. Mr Quek is an independent Director. The Ordinary Resolution proposed in item 7 above (under the heading “Special Business”), if passed, will empower the Directors of the Company from the date of the Meeting until the next Annual General Meeting (unless such authority is previously revoked or varied at a general meeting), to issue shares whether by way of rights, bonus or otherwise and/or make or grant Instruments that might require shares to be issued up to and not exceeding 50% of the Company’s total number of issued shares, excluding treasury shares, if any, with a limit of 20% of the Company’s total number of issued shares excluding treasury shares, if any, for any issue of shares not made on a pro rata basis to shareholders. This authority will expire at the next Annual General Meeting of the Company, unless revoked or varied at a general meeting. The Ordinary Resolution proposed in item 8 above (under the heading “Special Business”), if passed, will empower the Directors of the Company to offer and grant options under the Share Option Scheme and to issue from time to time such number of shares in the capital of the Company pursuant to the exercise of such options under the Share Option Scheme subject to such limits or sub-limits as prescribed in the Share Option Scheme. The Ordinary Resolution proposed in item 9 above (under the heading “Special Business”), if passed, will empower the Directors of the Company to make purchases or otherwise acquire issued shares in the capital of the Company from time to time subject to and in accordance with the guidelines set out in Annexure I of the Appendix to the Notice of this Meeting. This authority will continue in force until the next Annual General Meeting of the Company, unless previously revoked or varied at a general meeting or when such purchases or acquisitions are carried out to the full extent mandated. The Ordinary Resolution proposed in item 10 above (under the heading “Special Business”), if passed, will renew the IPT Mandate first approved by shareholders on 30 May 2003 to facilitate the Company, its subsidiaries and its associated companies, to enter into Interested Person Transactions, the details of which are set out in Annexures II and III of the Appendix to the Notice of this Meeting. The IPT Mandate will continue in force until the conclusion of the next Annual General Meeting of the Company, unless previously revoked or varied at a general meeting.
2.
3.
4.
5.
6.
7.
8.
9.
10.
HONG LEONG ASIA LTD. PROXY FORM
Co. Reg. No. 196300306G (Incorporated in the Republic of Singapore)
IMPORTANT 1. For investors who have used their CPF monies to buy Hong Leong Asia Ltd. shares, the Annual Report is forwarded to them at the request of their CPF Approved Nominee and is sent solely FOR INFORMATION ONLY. 2. This Proxy Form is not valid for use by CPF investors and shall be ineffective for all intents and purposes if used or purported to be used by them. 3. CPF Investors who wish to attend the 50th Annual General Meeting as OBSERVERS have to submit their requests through their respective Agent Banks so that their Agent Banks may register with the Company Secretary of Hong Leong Asia Ltd. (Agent Banks: Please see note 8 on required format.)
For Annual General Meeting
*I/We, of
with NRIC/Passport No.
being *a member/members of HONG LEONG ASIA LTD. (the “Company”), hereby appoint Name Address NRIC/Passport Number Proportion of Shareholdings (%)
and/or (delete as appropriate)
as *my/our *proxy/proxies to vote for *me/us on *my/our behalf at the Fiftieth Annual General Meeting of the Company (the “AGM”) to be held at M Hotel Singapore, Banquet Suite, Level 10, 81 Anson Road, Singapore 079908 on Tuesday, 19 April 2011 at 3.00 p.m. and at any adjournment thereof. *I/We direct *my/our *proxy/proxies to vote for or against the Resolutions to be proposed at the AGM as indicated with an “X” in the spaces provided hereunder. If no specific direction as to voting is given, the *proxy/proxies will vote or abstain from voting at *his/their discretion, as *he/they will on any other matter arising at the AGM. No. A. 1. 2. 3. Resolutions ORDINARY BUSINESS: Adoption of Reports and Financial Statements Declaration of Final Dividend (a) Approval of Directors’ Fees and Audit Committee Fees (b) Approval of additional Directors’ Fees 4. 5. Re-election of Mr Kwek Leng Peck as Director under the Articles of Association Re-appointment of Directors under Section 153(6) of the Companies Act, Chapter 50: (i)Mr Kwek Leng Beng (ii)Mr Ernest Colin Lee (iii)Mr Quek Shi Kui 6. B. 7. Re-appointment of Ernst & Young LLP as Auditors SPECIAL BUSINESS: Authority for Directors to issue shares and/or make or grant offers, agreements or options pursuant to Section 161 of the Companies Act, Chapter 50 and the listing rules of the Singapore Exchange Securities Trading Limited Authority for Directors to offer and grant options and to issue shares in accordance with the provisions of the Hong Leong Asia Share Option Scheme 2000 Renewal of Share Purchase Mandate Renewal of Shareholders’ Mandate for Interested Person Transactions day of 2011 For Against
8. 9. 10.
Dated this Total No. of Shares Held
*Delete accordingly Notes: See overleaf
Signature(s) of Member(s)/Common Seal
NOTES:
1. A member of the Company entitled to attend and vote at the AGM is entitled to appoint one or two proxies to attend and vote in his/her stead. A proxy need not be a member of the Company. Where a member appoints two proxies, the appointments shall be invalid unless he specifies the proportion of his shareholding (expressed as a percentage of the whole) to be represented by each proxy. Please insert the total number of shares held by you. If you have shares entered against your name in the Depository Register (as defined in Section 130A of the Companies Act, Chapter 50 of Singapore), you should insert that number of shares. If you have shares registered in your name in the Register of Members of the Company, you should insert that number of shares. If you have shares entered against your name in the Depository Register and shares registered in your name in the Register of Members, you should insert the aggregate number of shares. If no number is inserted, this instrument of proxy will be deemed to relate to all the shares held by you. This instrument of proxy must be signed by the appointor or his attorney duly authorised in writing. Where the instrument appointing a proxy or proxies is executed by a body corporate, it must be executed either under its common seal or under the hand of its attorney or a duly authorised officer. A body corporate which is a member may also appoint by resolution of its directors or other governing body an authorised representative or representatives in accordance with its Articles of Association and Section 179 of the Companies Act, Chapter 50 of Singapore to attend and vote for and on behalf of such body corporate. This instrument appointing a proxy or proxies (together with the power of attorney, if any, under which it is signed or a certified copy thereof), must be deposited at the Company Secretary’s office at 36 Robinson Road, #03-01 City House, Singapore 068877 not less than 48 hours before the time fixed for holding the AGM. The Company shall be entitled to reject this instrument of proxy if it is incomplete, improperly completed or illegible or where the true intentions of the appointor are not ascertainable from the instructions of the appointor specified in this instrument of proxy. In addition, in the case of shares entered in the Depository Register, the Company may reject any instrument appointing a proxy or proxies lodged if the member, being the appointor, is not shown to have shares entered against his name in the Depository Register as at 48 hours before the time appointed for holding the AGM as certified by The Central Depository (Pte) Limited to the Company. Agent Banks acting on the request of CPF Investors who wish to attend the AGM as Observers are required to submit in writing, a list with details of the investor’s name, NRIC/Passport number, addresses and number of shares held. The list, signed by an authorised signatory of the agent bank, should reach the Company Secretary, at her office at 36 Robinson Road, #03-01 City House, Singapore 068877, not less than 48 hours before the time fixed for holding the AGM.
Fold Here
2.
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PROXY FORM
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The Company Secretary HONG LEONG ASIA LTD. 36 Robinson Road #03-01 City House Singapore 068877
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