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Hong Leong Finance Limited 2010 Annual Report
AS GOOD AS GOLD
Celebrating 50 years as Singapore’s leading finance company
CONTENTS
1 GOLDEN AGE 3 MILESTONES 8 FIVE-YEAR FINANCIAL SUMMARY 9 FINANCIAL HIGHLIGHTS 10 CHAIRMAN’S STATEMENT 14 CORPORATE PROFILE 15 DIRECTORY OF SERVICES 16 2010 HIGHLIGHTS 18 BOARD OF DIRECTORS 22 CORPORATE DIRECTORY 23 OPERATING AND FINANCIAL REVIEW 35 CORPORATE GOVERNANCE REPORT 55 FINANCIAL REPORT 126 ANALYSIS OF SHAREHOLDINGS 128 NOTICE OF ANNUAL GENERAL MEETING PROXY FORM
$1.55bn
shareholders’ funds
$7.18bn
DEPOSITS
$6.28bn
LOANS
$122mn
NET PROFIT
GOLDEN AGE
We have been in business for 50 years and in that time have grown into Singapore’s largest finance company. We are focused on our customers and business partners and pride ourselves on understanding their needs. The value we place on trust and commitment underscores the lasting business relationships that we foster and helps us remain competitive and successful.
We endeavour to continue to meet the financial needs of our customers during times of growth and challenge. Our experienced and dedicated staff strives to understand our customers and drive the business to greater heights. We hope to be a gold mine for our customers and aspire to work with them to achieve their financial and business goals.
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Hong Leong Finance Annual Report 2010
HONG LEONG FINANCE: HONG LEONG FINANCE:
Submits bid to buy over Singapore Finance.
MILESTONES 1961 – – 2011 MILESTONES 1961 2011
Hong Leong Finance and Singapore Finance merge to form Hong Leong Singapore Finance. This name is shortened to Hong Leong Finance in 2003. It is the largest finance company in Singapore in both asset size and capital funds with a network of 28 branches. Launches Loan and Information Services and Approval, a 24-hour telephone information and loan approval service. ‘Express Share Loan’, an innovative shortterm loan for the small investor, is launched. Starts Singapore’s first Loan Origination System for Motor Vehicle Loans with scorecard technology. Also launches Customer Service Centre. First financial institution to win “Friends of Enterprise” accolade two years in a row. First finance company in Asia to launch Business Current Account product for Business customers. Acquires $405-million motor vehicle business from international bank ABN Amro.
’Finance company expand branches’
The Straits Times, 1 November 1967
‘Hong Leong ahead in finance firm takeover bid’
The Straits Times, 30 August 1978
Acquires Singapore Finance, which becomes its subsidiary.
Initiates payment of interest in savings accounts on a daily basis with its Savers Plus Account.
Founder Kwek Hong Png retires and is made Honorary Life President of Hong Leong Finance.
‘Hong Leong ups bid for S’pore Finance Ltd’
The Straits Times, 28 October 1978
‘Hong Leong wins “war” for Singapore Finance’
The Straits Times, 20 February 1979
The Savers Plus Centre at Singapore Finance House.
‘Hong Leong founder soon to hand over chairmanship to son’
The Straits Times, 30 June 1984
‘HLSF opens its first prototype branch in Jurong East after the merger’
The Straits Times, 24 March 2001
‘Finance firms’ instant cash for shares scheme’
The Straits Times, 2 February 1991
‘SME help from a friend: Small firms gain from Hong Leong Finance’s personal outreach’
TODAY, 10 September 2004
Staff of both companies having a ball at the Joint Family Day held at Sentosa.
Voted “Asian Finance Company of the Year” in the Asian Banking & Finance Retail Banking Awards.
Initiates SME Centre @ Branches to further enhance its services to the business community.
ACQUISITION
The young Kwek Leng Beng (centre in suit) at the Lavender Street branch opening. Opens first branch at South Bridge Road. Upper Bukit Timah branch opening. Aggressive advertising of Singapore Finance’s services as it increases its network to 14 branches.
Kwek Leng Beng addresses shareholders for the first time as Chairman in HLF’s Annual Report.
Launches ‘Credit Plus’, a revolving credit line facility.
Becomes a Participating Financial Institution (PFI) in the Local Enterprise Finance Scheme (LEFS).
The bright and airy branch, using glass panels and low service counters, created a modern yet comfortable atmosphere for customers.
Branding campaign that used young entrepreneurs to reinforce HLF’s commitment to help SMEs grow. The successful campaign’s message was that HLF understood the needs of SMEs best, and reinforced its position as the SME Specialist.
MERGER
First financial institution to compensate investors who bought minibonds linked to Lehman Brothers, the US investment bank which collapsed.
50th most profitable company of 415 listed companies reporting full year profits.
The Business Times, 2 March 2011
GOLDEN JUBILEE
1961
1966
1967
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1974
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2011
HUMBLE BEGINNINGS
Hong Leong Finance is listed on Singapore and Malaysia Stock Exchange. Singapore Finance is listed on Singapore Stock Exchange. Starts factoring services to encourage customers to build up their exports.
Launches Total Finance Plan targeting first time homeowners.
New logo is launched with rebranding of company.
Singapore Finance is re-listed on the Stock Exchange of Singapore with a public issue of 7.5 million shares.
Contributes to Singapore’s 25th anniversary charity fund. Listed on Euromoney’s “The Asian 100”, an annual survey of the top 100 Asian banks. The Group is listed 4th on Returns on Assets.
Launches Revolving Working Capital Finance Scheme as part of a range of facilities for SMEs.
Becomes a cornerstone investor in Enterprise Fund together with International Enterprise Singapore.
Appointed by Singapore Exchange to participate in the Catalist Loan Scheme. This provides companies on Catalist with a loan to fund fees payable to their sponsor.
Moves head office from Lavender Street to Robinson Road.
Head office at Lavender Street.
‘Singapore Finance Limited opens new head office’
Founder Kwek Hong Png.
The Straits Times, 6 May 1967
Hong Leong Finance is the first finance company to start Accounts Receivable Financing the year before. Invites USbased financial experts like Walter S. Seidman to train local staff on various financing tools.
Hong Leong Finance is included in the top 100 of The Business Times’ list of public companies.
Singapore Finance starts business.
Hong Leong Finance opens for business.
‘Firms turn to accounts receivable financing’
The Straits Times, 16 August 1975
Hong Leong Finance moves into new head office at Raffles Quay.
‘Finance firm celebrates first decade.’
‘Hong Leong plans for building’
The Straits Times, 24 June 1981
The opening of Serangoon Garden branch in 2005 with the new logo proudly displayed.
The Straits Times, 21 February 1977
Relocates Singapore Finance head office to 144 Robinson Road.
Hong Leong Finance is the first finance company invited by the Economic Development Board to take part in the Small Industries Finance Scheme.
Hong Leong Centre is completed in 1984 and is later renamed The Corporate Building.
Member of Parliament S. Chandra Das and Hong Leong director Tan I Tong hold a symbolic ingot highlighting part of Hong Leong Group’s contribution to Singapore’s 25th Celebration Fund.
Launches Corporate Finance Services. Expands activities into three main areas of business, enabling it to move towards its goal of offering a complete suite of financial services.
Launches ‘Golden 55 Plus’, a fixed deposit that rewards with a bonus upon maturity.
The long line of customers waiting to open their accounts at Tampines Grande branch opening.
(From left) Directors Kwek Leng Kee and Sim Miah Kian and branch officer Jimmy Wee at the Chinatown Point branch opening.
‘MAS approves three new activities for Hong Leong Finance’
TODAY, 1 July 2005
Singapore Finance is set up with paid up capital of $800,000.
Hong Leong Finance is set up with paid up capital of $6.04million and 17 staff onboard.
Loans $376million, deposits $374million, total assets $499million.
Loans cross the billion dollar mark to $1.1billion, deposits $934million, shareholders’ funds $188million, total assets $1.33billion.
Deposits cross billion mark to $1.2billion, loans $1.5billion, shareholders’ funds $306million, total assets $1.72billion.
Loans $2.4billion, deposits $2.3billion, shareholders’ funds $429million, total assets $2.93billion.
Loans $5.2billion, deposits $5.1billion, shareholders’ funds $1.08billion, total assets $6.41billion.
Loans $6.3billion, deposits $7.2billion, shareholders’ funds $1.55billion, total assets $8.9billion.
Announces 2010 net profits: $122million. Staff strength 640.
1961
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2011
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five-year financial summary
2010 Capital employed Total assets Net equity Net assets per share $million $million $ 8,901 1,549 3.52 8,936 1,469 3.34 9,689 1,365 3.10 9,962 1,341 3.05 7,504 1,393 3.19 2009 2008 2007 2006
Share capital Number of shares in issue million 440.4 440.2 440.2 439.7 437.2
Loans and deposits Loans net of allowances Deposits $million $million 6,279 7,177 6,137 7,269 7,413 8,102 8,039 8,263 6,056 5,460
Profit and retained earnings
commemorating 50 years
Profit before tax Profit after tax Interim/final dividend(s) declared in the year Earnings retained for the year Special dividend
$million $million $million $million $million
146.3 122.0 44.0 78.0 –
134.1 111.2 8.8 102.4 –
94.6 78.0 57.2 20.8 –
163.2 133.4 86.4 47.0 54.0
120.2 96.2 62.9 33.3 17.5
Earnings per share and dividends Earnings per share Dividend - gross less tax * - tax exempt one-tier * Times covered * Special dividend - gross less tax cents cents cents cents 27.7 – 12.0 2.3 – 25.3 – 8.0 3.2 – 17.7 – 5.0 3.5 – 30.4 12.0 8.0 1.7 6.0 22.0 18.0 – 1.5 9.0
Number of employees
640
655
690
692
677
* Dividend per share and times covered are stated based on the interim/final dividend(s) declared/proposed in respect of each financial year. This differs from the accounting treatment whereby dividends are accounted for in the year declared regardless of the financial year to which they relate.
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financial highlights
Total Assets ($ million)
Loans Net Of Allowances ($ million)
Deposits ($ million)
8,901
8,936 7,177 6,279 6,137 7,269
2010
2009
2010
2009
2010
2009
Profit Before Tax ($ million)
Profit After Tax ($ million)
Interim/Final Dividend(s) Declared In The Year ($ million)
Earnings Per Share (cents)
146.3
134.1
27.7 122.0 111.2
25.3
44.0 8.8 2010 2009 2010 2009 2010 2009 2010 2009
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Hong Leong Finance Annual Report 2010
chairman’s statement
On behalf of the Board of Directors, I am pleased to present this annual report of the Group and the Company for the financial year ended 31 December 2010.
FINANCIAL OVERVIEW
Group profit after tax attributable to shareholders for the year ended 31 December 2010 amounted to $122 million, equivalent to 27.7 cents per share and an increase of 9.7% over the previous year. The results for the year were arrived at after writing back provision for settlements relating to wealth management products distributed and impairment losses of other assets and allowances for doubtful debts amounting to $23.9 million compared to a charge of $24.4 million a year earlier. In line with improving economic conditions, loans and advances (before allowances) closed at $6.37 billion, an increase of 2.1% over the previous year. The Company continued to maintain a healthy customer deposits base which stood at $7.18 billion as at 31 December 2010, and there are no bank borrowings outstanding. At the end of the financial year, Group shareholders’ funds totalled $1.55 billion, equivalent to $3.52 per share. The Group strengthened its capital adequacy ratio to 22.3% as at 31 December 2010.
‘
We intensified our lending activities to the SMEs, helping them seize market opportunities in the improving economy to work towards their vision for growth and expansion… We made good progress and new business relationships were developed following our firm support of the SMEs.
An interim dividend of 4 cents per share (tax exempt onetier) was paid on 15 September 2010. Subject to the approval of shareholders at the forthcoming Annual General Meeting, the Board is proposing the payment of a final dividend of 8 cents per share (tax exempt one-tier) in respect of 2010. The aggregate distribution for the year will amount to approximately $53 million, compared to $35 million for 2009.
’
OPERATING PERFORMANCE
Financial Year 2010 marked a year of economic recovery with the global economy gradually recovering from the financial crisis that started in 2008. The Singapore economy rebounded more strongly than expected, posting a stellar economic growth of 14.5% in 2010 after weathering the unprecedented global crisis. Plaudits go to the government’s “Resilience Package” which significantly helped Singapore ride out the financial downturn. The robust growth was in part
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driven by the manufacturing sector together with tourismrelated services sectors and the opening of the Integrated Resorts. The economy performed extremely well particularly in the first half of the year, registering record GDP growth of 16.4% and 19.4% on a year-on-year basis for the first and second quarters respectively. The pace of growth moderated during the second half of the year due to a slowdown in the US recovery and fresh sovereign debt problems in Europe. In Singapore, the strong recovery renewed consumer and business confidence in the economy. Alongside a pick-up in market momentum, Hong Leong Finance (“HLF”) stepped up its efforts to selectively build up its loans and advances portfolio initiated in the latter part of 2009.
businesses further underpins HLF’s commitment to support SMEs. Plans to establish more SME Centre @ Branches are in the pipeline as part of our efforts to create greater value and convenience and to meet the evolving needs of SMEs. With the aim of strengthening our online presence and improving our services, HLF revamped its website www.hlf. com.sg, unveiling a contemporary look with more user friendly features. One feature is the introduction of “HLF Concierge” which visitors can use to obtain personalised online services. The website will continue to serve as an online platform to provide latest news and promote the services and facilities of the Company. The positive local and regional economic outlook during the
We intensified our lending activities to the SMEs, helping them seize market opportunities in the improving economy to work towards their vision for growth and expansion. HLF continued its commitment to SMEs through participation in several events and various government financing initiatives dedicated to local SMEs. In addition to customising financing solutions to cater to the unique needs of each business, various competitive business loan packages such as working capital and equipment financing were also rolled out to capitalise on the healthy state of the economy. We made good progress and new business relationships were developed following our firm support of the SMEs. As part of our on-going efforts to provide convenient and efficient services for customers, we launched a new initiative “SME Centre @ Branches” to facilitate financing for businesses and provide a responsive lending environment for SMEs. Within a span of 3 months, two SME Centres were opened. The first Centre at our City Square Mall Branch commenced operations in September followed by the second Centre at Jurong East Branch in December. Both Centres offer easy access to a complete suite of financial services and solutions to corporate customers such as loan applications, trade financing, receivables financing, equipment financing and government-assisted financing schemes. This new initiative will bring us closer to the business community through our branch network. The ability to respond efficiently and provide personalised services and customised financing solutions to
past year boosted demand for Singapore residential property as optimism and sentiment improved. Given the upswing in the economy together with reduced unemployment and a low interest rate environment, property prices rose on the back of increasing demand. With healthy demand for both private and HDB housing, HLF rolled out innovative home loan packages to meet market needs, offering competitive terms in conjunction with attractive rewards that cater to the lifestyle needs of home buyers. In our search for more lending opportunities, HLF also participated in property events and increased our share of lending to the property market.
‘
Plans to establish more SME Centre @ Branches are in the pipeline as part of our efforts to create greater value and convenience and to meet the evolving needs of SMEs.
’
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chairman’s statement
During the year, we also embarked on deposit gathering campaigns to enlarge our depositor base. Additional deposit tenures were introduced to give depositors greater choice and lifestyle premiums were specifically produced to reward our loyal retail customers as well as to attract new depositors.
‘
With healthy demand for both private and HDB housing, HLF rolled out innovative home loan packages to meet market needs, offering competitive terms in conjunction with attractive rewards that cater to the lifestyle needs of home buyers.
OUTLOOK
As we progress into Year 2011, it is projected that local growth momentum is set to ease to a more sustainable rate and the increase in economic activity across most industries will remain modest. The Company is cautiously optimistic and will maintain a conservative strategic approach whilst keeping in view continuing uncertainties in overseas economic and financial markets. Hong Leong Finance turns 50 in Year 2011. As the Company enters a new era, a series of activities and programmes has been lined up to celebrate this significant milestone. Going forward we will continue to strengthen our innovative spirit and execution capabilities for the benefit of both corporate and retail customers to enhance our competitive edge in the financial market. We will forge ahead to achieve service excellence and remain committed to delivering greater value to the community to expand our customer base. We will also focus on increasing our productivity and operational efficiency and managing our operational cost base. We strive to facilitate business activity in order to stay relevant
The improved sentiment in the residential property market also provided a window of opportunity for property developers. We were able to support our property developer customers by catering to their project financing needs. Capitalising on the steady growth of the economy, we continued to promote our share financing facility with competitive pricing and innovative packages, incorporating new features to boost our share financing portfolio. In the vehicle loan sector, the government further reduced the number of Certificates of Entitlement (COE). This measure resulted in the escalation of COE prices and a surge in car prices which correspondingly dampened the car market activity. Despite this, we continued to build strong relationships with our motor vehicle distributors and dealers. As we seek growth and strive to build a strong and healthy balance sheet, we remain vigilant of the risks and the inherent volatility in the economy. We will continue to monitor changes and developments in the marketplace and reinforce our risk management practices and credit evaluation processes. Strong risk management policies and stringent credit parameters have been instituted to ensure that credit underwriting standards remain robust.
’
in this competitive operating environment and will step up our search for new initiatives and business opportunities to establish new relationships. Our focus on SME customers remains core, as this sector has been the driving force in the economic recovery. Besides continuing our robust support of the government incentive programmes to develop SMEs, we will focus on growing our equipment and cashflow financing businesses and further deepen our existing relationships in the year ahead.
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Attention will also be directed at serving the customers in the HDB estates, for deposit placement and HDB home loans. The housing and SME markets will remain a priority for our business strategy to expand our loans portfolio. Our wide branch network will continue to serve as a delivery channel in our push to reach out to SME and HDB customers and to provide a firm funding platform through our loyal deposit base. As we pursue the journey to build up our balance sheet, we will continue to exercise strict credit parameters and seek ways to strengthen and improve our risk management policies and processes in the underwriting of loans. Strategies have been put in place to ensure sustainable, long-term growth potential by capitalising on our market presence, developing new business opportunities and expanding our existing business partnerships. The Ministry of Trade and Industry has announced that it expects a moderate growth rate of between 4% and 6% for Year 2011, with the fast-growing service sector leading the expansion. Though the outlook appears positive, significant concerns remain due to market anxiety over the sustainability of sovereign debt in Europe, signs of uncertainty in the US economic recovery and concerns over inflation in emerging Asian markets. In addition, the knockon effect of on-going change in the Middle East and North Africa will have to be monitored for its global impact. While challenges lie ahead, we will continue to monitor market developments closely and seek to capitalise on openings that may arise. With unwavering focus on our core strategies, HLF is well positioned to seize the opportunities available in the competitive business environment and continue to sustain growth in the coming year.
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Going forward we will continue to strengthen our innovative spirit and execution capabilities for the benefit of both corporate and retail customers to enhance our competitive edge in the financial market.
’
APPRECIATION
On behalf of the Board of Directors, I would like to thank our valued customers, shareholders and business partners for their consistent support, trust and confidence in us. I also take this opportunity to extend a warm welcome to Mr Ter Kim Cheu who joined the Board on 1 September 2010 and to thank Mr Po’ad bin Shaik Abu Bakar Mattar who agreed to take on the role of Lead Independent Director with effect from the same date. With Mr Ter Kim Cheu’s extensive legal experience garnered over the last three decades, I am sure the Company will benefit from his experience and counsel. I also wish to formally place on record our sincere appreciation to Dr Manfred Otto Barth and Mr Lee Jackson @ Li Chik Sin, who have indicated their desire to retire from the Board at the forthcoming Annual General Meeting, for their valuable contributions to the Company over the past 9 years and 6 years respectively. My appreciation also goes to my fellow Directors for their invaluable advice and guidance during the year and to the management and staff for their dedication and contribution in helping the Company to deliver another year of stable performance.
Kwek Leng Beng Chairman 24 February 2011
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cOrPOrate PrOFiLe
Incorporated in 1961 as a Small & Medium Enterprise (SME), Hong Leong Finance (HLF) has evolved to become Singapore’s largest finance company with a distribution network of 28 branches. Listed on the Stock Exchange of Singapore in 1974 as the then Singapore Finance Ltd, HLF is the financial services arm of the Hong Leong Group Singapore, offering an extensive suite of financial products and services, spanning from deposits and savings, corporate and consumer loans to government assistance programmes for SMEs. We believe in maintaining the trust and confidence that HLF is a pioneer in the Local Enterprise Finance Scheme administered by Spring Singapore. With 50 years of experience in serving the SME community, HLF has supported many local enterprises with customized financing solutions to enable them to operate successfully in the corporate world. To help our corporate customers gain greater business efficiency, HLF launched the Business Current Account in 2007 and became the only finance company here to offer chequeing account services. With our strong commitments towards the SMEs, HLF was twice conferred the “Friends of Enterprise” award by the Spirit of Enterprise. In our quest to maintain market leadership and deliver our services more efficiently to the SMEs, HLF rolled out SME Centre@Branches, a new initiative to further enhance our presence and bring us closer to the business community. SME Centre@City Square and SME Centre@Jurong East were set up in the last quarter of 2010 and both Centres have been successful in reaching out to the businesses in the vicinity. Through the years, we have established a solid customer base and grown with our customers. We thank them for their continued support and look forward to many more years of golden service. our customers have in us by consistently developing and enhancing our capabilities to better serve our diverse customer base and be a financial partner of choice. At HLF, we are committed to providing complete financial solutions to both business enterprises and retail customers. We remain close to the community we serve through our branch network and aspire to serve our customers by listening to their needs and tailoring our suite of products and services to best cater to their needs. Whether it’s a business entity striving to expand its company or an individual wishing to build a secure financial future, HLF will endeavour to cater to their every need.
times winner “friends of enterprise”
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launched sme centre@ branches
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50Years
servicing the community
Hong Leong Finance Annual Report 2010
DirectOrY OF serVices
SME Loans
Commercial/Industrial Property Loan Bridging Loan Programme Development Loan Equipment Financing Equipment Refinancing Factoring/Accounts Receivable Financing HDB Factory/Shop Loan Hire Purchase Insurance Premium Financing Scheme Internationalisation Finance Scheme (IFS) Inventory Finance JTC Factory Loan Letters of Credit/Trust Receipts Loans for Conservation Property Loan Insurance Scheme (LIS) Local Enterprise Finance Scheme (LEFS) Medical Asset Financing Micro Loan Programme Revolving Working Capital Finance Suppliers’ Invoice Financing Trade Finance Vessel Financing Corporate Advisory Financial Advisory Mergers & Acquisitions Restructuring Independent Financial Advisory
Corporate Finance
Equity Fund Raising Initial Public Offering Secondary Fund Raising Underwriting of Shares
Deposits
Business Current Account Fixed Deposits Savings Accounts Savers Plus
Personal Loans
Car Loan (New & Used Cars) HDB Home Loan Private Housing Loan Share Financing
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2010 highLights
JANUARY
“PROSPEROUS HARVEST” FIXED DEPOSIT
Hong Leong Finance (HLF) began the year with a “Prosperous Harvest” Fixed Deposit campaign to reward our depositors for saving with us. Exclusive prosperity bowls designed with significant greetings were given to depositors as a gesture of our appreciation for their loyal support.
MAY (cont’d)
PARTICIPATION AT SCCCI ANNUAL SMES CONFERENCE
As a firm supporter and financier of SMEs, HLF was a Jade sponsor of the Singapore Chinese Chamber of Commerce & Industry 12th Annual SMEs Conference held at Suntec Convention Centre. Themed “The Art of Resilience in Adversity”, the event was graced by Minister of Trade & Industry, Mr Lim Hng Kiang and attracted more than 2,000 affluent business delegates and market players who were keen to gain market perspectives.
APRIL
SEPTEMBER
APPOINTMENT OF INDEPENDENT NON-EXECUTIVE DIRECTOR
HLF appointed Mr Ter Kim Cheu as an independent nonexecutive director to further strengthen its independent element on the Board. Mr Ter brings with him 3 decades of legal experience.
SPECIAL PREVIEW OF W RESIDENCES
HLF valued customers were invited to a special preview of the launch of W Residences, a luxury property at Sentosa Cove. The event, hosted by HLF, City Developments Ltd, Porsche Centre Singapore and MillionaireAsia, saw a great turn out and support from our customers and business partners. Special highlights of the evening included a view of the latest Porsche Panamera 4S and 911 Turbo on display.
MAY
TALK ON PROPERTY MARKET
To further enhance its presence in property financing, HLF sponsored a talk on the new measures pertaining to LoanTo-Value limit and holding period of seller’s stamp duty introduced by the government to cool the hot property market. Organised by Property Guru, the event allowed HLF to foster greater connectivity and relationships with the property agents, investors and market players in the property industry.
PARTICIPATION AT SCCCI ANNUAL SMES CONFERENCE
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SEPTEMBER (cont’d)
NOVEMBER
LAUNCH OF SME CENTRE @ BRANCHES
Recognising the growing demand for greater convenience and accessibility, HLF opened the first SME Centre at its City Square Mall branch to bring itself closer to the business community. It is a one-stop financing centre where a dedicated team of SME Specialists will be on site to attend to SMEs who are seeking funding for business expansion.
PLATINUM SPONSOR AT BLUESKY FESTIVAL
HLF continued to be the Platinum sponsor of the BlueSky Festival, an annual SME event to recognise and celebrate the entrepreneurship spirit in Singapore. Organised by the Action Community of Entrepreneurship and SPRING Singapore, this year’s event was held on 16 November 2010 to coincide with the Global Entrepreneurship Week. Themed “Embracing Innovation, Redefining your Enterprise,” the conference focused on the importance of recognising innovation as the essence of a successful and sustainable business and not as a lifeline during lean times.
PRESENCE AT SHARE INVESTMENT TALK
As part of its on-going effort to promote share financing, HLF participated in an investment talk on “Stock Market Outlook for 2011”. The event saw more than 300 potential investors seeking valuable market information and share investment opportunities.
UNVEILS NEW WEBSITE LOOK
Committed to continually enhancing its services, HLF revamped its website to create a more user friendly and contemporary look. Value added features include a HLF concierge, CNA news feed and calculators to help users compute the repayment installments for home loans and car loans.
DECEMBER
OCTOBER
LAUNCH OF FIXED DEPOSITS CAMPAIGN
Launched “Treasures of Abundance” Fixed Deposit to thank our loyal customers for saving with us. In addition to offering attractive interest rates, a collection of exquisite dining ware was also produced to reward our depositors for their continued support.
2nd SME CENTRE @ BRANCHES OPENED
HLF opened its 2nd SME Centre at Jurong East Branch to extend its services to the businesses in the West.
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BOarD OF DirectOrs
KWEK LENG BENG,
Age 70 Appointed Chairman of Hong Leong Finance Limited (“HLF” or the “Company”) since 28 November 1984 and Managing Director since 1 March 1979, Mr Kwek is also Chairman of the Executive Committee (“Exco”) and sits on the Nominating Committee (“NC”) and Risk Committee (“RiskCom”) (formerly known as the Exco (Risk) Sub-Committee prior to its elevation as a full committee of the Board). He is the Executive Chairman of City Developments Limited (“CDL”) and non-executive Chairman of Hong Leong Asia Ltd. (“HLA”) and Millennium & Copthorne Hotels plc (“M&C”). He is also Chairman and Managing Director of City e-Solutions Limited (“CES”). 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 the Company. 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 JOO,
Age 57 Appointed a Director of HLF since 1 September 2001, Mr Kwek was last re-elected a Director on 24 April 2009. Mr Kwek is also the Managing Director of CDL. He holds a Diploma in Financial Management and has extensive experience in property development and investment. Within the Hong Leong Group, he holds directorships in most of the listed companies, including CES and M&C. Mr Kwek contributes actively to the business community through several public appointments including as Honorary President of the Singapore Chinese Chamber of Commerce and Industry, Chairman of the Board of Trustees of National Youth Achievement Award Council and Chairman of the Chinese Language & Culture Fund Management Committee. He is also a member of the Board of Trustees of Nanyang Technological University, Board of Governors of S. Rajaratnam School of International Studies and the Chinese Heritage Centre.
KWEK LENG PECK,
Age 54 Appointed a Director of HLF since 1 January 1998, Mr Kwek was last re-elected on 24 April 2009. Mr Kwek also sits on the Exco (also as Chairman’s alternate), the RiskCom and Hong Leong Finance Share Option Scheme 2001 Committee (“Share Option Scheme Committee”) of the Company. He is the Executive Director of HLA and is now acting Chief Executive Officer of HLA. Mr Kwek also sits on the boards of
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BOarD OF DirectOrs
CDL, M&C and China Yuchai International Limited. He is also the non-executive Chairman of Tasek Corporation Berhad. In the preceding 3-year period, he was also an Executive Director of CES until April 2009.
Mr Woo holds L.L.B. and L.L.M. degrees and is a Director of Robert Wang & Woo LLC. He is also a Notary Public and Justice of the Peace. He is a member of the Law Society Inquiry Committee, Public
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.
Service Commission Disciplinary Sub-Committee and the Mediating Relational Disputes, Subordinate Courts.
CHNG BENG HUA,
Age 45
KWEK LENG KEE,
Age 56 Appointed to the Board of HLF on 1 September 2001, Mr Kwek was last re-elected as Director on 23 April 2010. Mr Kwek is the Assistant Managing Director of Hong Leong Holdings Limited. Mr Kwek has many years of experience in property investment, property development and the building and construction materials business.
Appointed a Director of HLF since 1 July 2000, Mr Chng was last re-elected on 23 April 2008. He also sits on the Audit Committee (“AC”) of the Company. He is an Executive Director and the Chief Executive Officer of Compact Metal Industries Ltd. In the preceding 3-year period, Mr Chng was also the Deputy Chairman of Compact Metal Industries Ltd until April 2009. Mr Chng holds a Bachelor of Business Administration (Finance) from University of Texas, Austin, USA. He has many years of experience in finance and real estate development.
WOO TCHI CHU,
Age 67 Appointed to the Board of HLF since 22 March 1991 and last re-elected on 23 April 2010, Mr Woo also sits on various Board Committees of the Company, namely the Exco, NC, Remuneration Committee (“RC”), Share Option Scheme Committee and RiskCom.
19
Hong Leong Finance Annual Report 2010
BOarD OF DirectOrs
Mr Cheng retired as the Chief Executive Officer of POSBank in July 1997. In the preceding 3-year period, he was a director of SHC Capital Limited until April 2008, Singapore Petroleum Company Ltd (“SPC”) until October 2009, Westech Electronics Limited until June 2010 and Thomson Medical Centre Limited until December 2010. SPC was delisted on
MANFRED OTTO BARTH,
Age 72 Appointed a Director of HLF since 1 November 2001, Dr Barth was last re-appointed on 23 April 2010. Dr Barth who will be retiring at the Company’s 2011 Annual General Meeting will not be seeking re-appointment as Director when his term ends at the conclusion of the said meeting. Dr Barth holds a PHD degree in Decision Making Progress (Freie Universitaet Berlin) and a Master of Business Administration (University of Cologne, Germany). He has extensive experience in financial matters having worked with Allianz Group and the Dresdner Group for more than 20 years of which 10 years were in Asia since 1990. He was previously the President of the German Business Association, Singapore (until April 2001) and Board member of the Board of Commissioners of Currency, Singapore (until March 1998) and Singapore Trade Development Board (until December 2000). He was also President of the Goethe Institut Association, Singapore (until December 2010).
22 October 2009. Currently, Mr Cheng is the Chairman of TeleChoice International Limited and Tee International Limited, director of Pacific Andes Resources Development Limited and CFM Holdings Limited. He also holds directorships in various unlisted companies. Other appointments include being Chairman of the Medifund Committee, Singapore General Hospital, ViceChairman of the Board of Trustees, Consumers Association of Singapore (CASE) Endowment Fund and Advisor to POSBank. Mr Cheng holds a Bachelor of Arts Degree in Economics (Honours) from the University of Malaya in Singapore. He received the Public Administration Medal (Silver) in 1984, the Public Service Medal in 2001 and the Friend of Labour Award from the National Trades Union Congress in 2008.
LEE JACKSON @ LI CHIK SIN,
Age 78 Appointed a Director of HLF on 1 February 2005, Mr Lee was last re-appointed on 23 April 2010. He also sits on the AC and
CHENG SHAO SHIONG @ BERTIE CHENG,
Age 73 Appointed a Director of HLF since 23 April 2004, Mr Cheng was last re-appointed on 23 April 2010. Mr Cheng also sits on the RC, Exco and Share Option Scheme Committee and is the chairman of the RiskCom and NC of the Company.
Exco of HLF. Mr Lee who will be retiring at the Company’s 2011 Annual General Meeting will not be seeking re-appointment as Director when his term ends at the conclusion of the said meeting. Consequent thereto, he will also cease as a member of the AC and Exco of the Company.
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Hong Leong Finance Annual Report 2010
BOarD OF DirectOrs
Mr Lee also sits on the boards of CES and Hong Fok Corporation Limited. In the preceding 3-year period, he was also a director of Metro Holdings Limited until July 2009. Mr Lee’s last position held prior to retirement in December 1994 was that of Chief Executive of Transmarco Limited, held from 19 December 1983. Mr Lee is a Fellow of the Australian Institute of Chartered Accountants, and was formerly a partner of an international firm of public accountants.
TER KIM CHEU,
Age 64 Appointed a Director of HLF on 1 September 2010. Mr Ter retired from the Singapore Legal Service after over 30 years of service. Prior to his retirement in 2008, he was the Parliamentary Counsel and Principal Senior State Counsel (Legislation Division), Attorney-General’s Chambers, Singapore and a Law Revision Commissioner of Singapore. He was also a member of the Securities Industry Council for two terms from 1993 to 1997. Currently, he provides legislative consultancy services in Singapore and overseas. He is a Fellow of the Singapore Institute of Arbitrators and a member of the Strata Titles Board of Singapore. Mr Ter holds a Bachelor of Social Sciences (Hons) degree from the University of Singapore and Bachelor (Hons) and Master of Law degrees from the University of London. He is also a Barrister-at-Law, having been called to the English Bar at Lincoln’s Inn and an Advocate & Solicitor of the Supreme Court of Singapore.
PO’AD BIN SHAIK ABU BAKAR MATTAR,
Age 63 Appointed a Director of HLF on 24 April 2009, Mr Mattar is also the chairman of the AC, RC and Share Option Scheme Committee of the Company. He was also appointed as Lead Independent Director of the Company on 1 September 2010. Mr Mattar sits on the board of Tiger Airways Holdings Limited. He also sits on other bodies in both the private and public sectors. Mr Mattar holds a Bachelor of Accountancy from the University of Singapore and a Master in Management from the Asian Institute of Management (Makati, Philippines). He is a Certified Public Accountant registered with the Institute of Certified Public Accountants of Singapore and was formerly a Senior Partner with an international firm of public accountants.
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Hong Leong Finance Annual Report 2010
cOrPOr ate DirectOrY
BOARD OF DIRECTORS
Executive Director: Kwek Leng Beng Chairman & Managing Director Non-Executive Directors: Kwek Leng Joo Kwek Leng Peck Kwek Leng Kee Woo Tchi Chu Independent Chng Beng Hua Independent Dr Manfred Otto Barth Independent Cheng Shao Shiong @ Bertie Cheng Independent Lee Jackson @ Li Chik Sin Independent Ter Kim Cheu Independent Lead Independent Director: Po’ad bin Shaik Abu Bakar Mattar
REGISTERED OFFICE
16 Raffles Quay #01-05 Hong Leong Building Singapore 048581 Tel: 6415 9433 Fax: 6224 6773 Email: customerservice@hlf.com.sg
SHARE REGISTRARS & SHARE TRANSFER OFFICE
M & C Services Private Limited 138 Robinson Road #17-00 The Corporate Office Singapore 068906 Tel: 6227 6660 Fax: 6225 1452
INVESTOR RELATIONS
Tel: 6428 9309/6428 9306 Fax: 6534 3060 Email: gcasecretary@cdl.com.sg
AUDIT COMMITTEE
Po’ad bin Shaik Abu Bakar Mattar Chairman Lee Jackson @ Li Chik Sin Chng Beng Hua
AUDITORS
KPMG LLP Certified Public Accountants, Singapore 16 Raffles Quay #22-00 Hong Leong Building Singapore 048581 (Partner-in-charge: Quek Shu Ping, appointed from commencement of audit of financial statements for the financial year ended 31 December 2008)
NOMINATING COMMITTEE
Cheng Shao Shiong @ Bertie Cheng Chairman Kwek Leng Beng Woo Tchi Chu
REMUNERATION COMMITTEE
Po’ad bin Shaik Abu Bakar Mattar Chairman Woo Tchi Chu Cheng Shao Shiong @ Bertie Cheng
BANKERS
Bank of America, N.A. BNP Paribas Crédit Agricole Corporate and Investment Bank Citibank N.A. DBS Bank Ltd Deutsche Bank AG DZ Bank AG HL Bank Malayan Banking Berhad Mizuho Corporate Bank, Ltd. Oversea-Chinese Banking Corporation Limited RHB Bank Berhad Standard Chartered Bank Sumitomo Mitsui Banking Corporation The Bank of Nova Scotia The Bank of Tokyo-Mitsubishi UFJ, Ltd The HongKong and Shanghai Banking Corporation Limited United Overseas Bank Limited
EXECUTIVE COMMITTEE
Kwek Leng Beng Chairman Kwek Leng Peck also as Chairman’s alternate Cheng Shao Shiong @ Bertie Cheng Lee Jackson @ Li Chik Sin Woo Tchi Chu
RISK COMMITTEE
Cheng Shao Shiong @ Bertie Cheng Chairman Kwek Leng Beng Kwek Leng Peck Woo Tchi Chu
HONG LEONG FINANCE SHARE OPTION SCHEME 2001 COMMITTEE
Po’ad bin Shaik Abu Bakar Mattar Chairman Kwek Leng Peck Woo Tchi Chu Cheng Shao Shiong @ Bertie Cheng
SECRETARIES
Yeo Swee Gim, Joanne Oh Su Chong Chye Chan Yu 22
Hong Leong Finance Annual Report 2010
oper ating and financial review
COMPANY OVERVIEW, OBJECTIVES AND STRATEGIES Hong Leong Finance Limited (“HLF” or the “Company”), incorporated in the 1960s, is the listed financial services arm of the Hong Leong Group Singapore. Today, HLF is Singapore’s largest finance company with a network of 28 branches island-wide, serving all walks of life encompassing the Small and Medium Enterprises (“SMEs”) and retail customers. Its activities are governed by the Finance Companies Act (Chapter 108) regulated by the Monetary Authority of Singapore (“MAS”). The principal activity of its subsidiaries is the provision of nominee services. HLF’s core business is the taking of deposits from the public and the provision of a myriad of financial products and services that include consumer and corporate loans. HLF is an active player in the SME market and a pioneer in the Local Enterprises Financing Scheme (“LEFS”). With about 50 years of experience helping SMEs build a strong and solid platform for sustainable growth and success, HLF understands the needs of SMEs well. Through its dedication and commitment, serving the SME business community has evolved to be HLF’s core business activity. HLF is committed to strengthening its leadership status in the market and believes that it takes more than just assets to be a real leader. It maintains a strong commitment to building mutually rewarding relationships with its customers and business partners, understanding their financial needs and ensuring that we are with them every step of the way. In line with its commitment to expand the provision of accessible and comprehensive financial services to the SMEs and the HDB homeowners who are our core customers, HLF has been constantly developing and creating more value in its products and services. Lifestyle rewards were incorporated into its financing packages to meet the demand of customers. The setting up of SME Centre @ Branches has further strengthened its foothold in the SME market and increased its visibility to businesses through its branch network. To complement its range of products and services extended to corporate customers, HLF became the only finance company in Singapore to render corporate advisory services. Besides assisting SMEs who are interested in listing on the Singapore Exchange, HLF provides advisory on mergers and acquisitions and underwrites the sale of shares by listed companies. HLF is also the first finance company here to offer chequeing account services to its corporate loan customers and this capability has provided greater business efficiency to its clients in terms of cash management. HLF continues to participate in SME events and various government initiatives dedicated to helping SMEs grow and seize business opportunities, thus reaffirming its staunch support of local entrepreneurs. To maintain and enhance our competitive edge in this intensifyingly competitive financial environment, we will be steadfast in developing and enhancing our products and services to the best satisfaction and interests of our customers and with 28 branches strategically located, HLF is well positioned to assist both the SMEs and retail customers to fulfill their aspirations and achieve their financial goals. Further details of HLF’s products and services are found in the corporate profile and 2010 highlights sections of this Annual Report 2010.
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Hong Leong Finance Annual Report 2010
oper ating and financial review
FINANCIAl ANAlYSES Analysis of Performance The financial statements are prepared in accordance with Singapore Financial Reporting Standards (“FRS”). 2010 $mil Selected Profit and loss Items Net interest income/hiring charges Fee and commission income Other operating income Income before operating expenses Less : Operating expenses Profit from operations before allowances/provision Add/(Less) : Reversal or recovery of provision for settlements and costs relating to distribution of wealth management products and impairment losses of other assets and (allowances for) doubtful debts Profit before tax Profit after tax attributable to owners Selected Balance Sheet Items Loans, advances and receivables (net of allowances) Deposits and balances of customers Total assets Total liabilities Total equity Key Financial Ratios Net interest margin (%) Net interest income/total income (%) Non-interest income/total income (%) Cost/income ratio (%) Loans/deposits ratio (%) Non-performing loans ratio (%) - Secured by collateral - Unsecured and fully provided for Return on equity (%) Return on assets (%) Capital adequacy ratio (%) Earnings per share (cents) - per basic share - per diluted share Net assets per share ($) - per basic share - per diluted share
* Calculated based on actual figures before rounding. N.M. - Not Meaningful
2009 $mil 216.8 7.6 0.3 224.7 66.2 158.5
Variance* +/(-) % (11.3) (5.8) 71.9 (11.0) 17.2 (22.8)
192.3 7.2 0.5 200.0 77.6 122.4
23.9 146.3 122.0
(24.4) 134.1 111.2
N.M. 9.1 9.7
6,279 7,177 8,901 7,352 1,549
6,137 7,269 8,936 7,467 1,469
2.3 (1.3) (0.4) (1.5) 5.5
2.2 96.1 3.9 38.8 87 1.2 0.3 8.1 1.4 22.3 27.7 27.7 3.52 3.41
2.4 96.5 3.5 29.5 84 2.6 0.5 7.8 1.2 21.4 25.3 25.3 3.34 3.26 9.7 9.6 5.4 4.6
24
Hong Leong Finance Annual Report 2010
oper ating and financial review
2010 cents Dividend per share (tax exempt) - interim - final Total (a) Results for the year Pre-tax profit from operations before allowances/provision was $122.4 million in 2010, a decrease of 22.8% from $158.5 million in 2009. The Group reported profit after tax of $122.0 million for 2010, an increase of $10.8 million or 9.7% over the previous year. The results were arrived at after writing back provision for settlements relating to wealth management products distributed and impairment losses of other assets and allowances for doubtful debts amounting to $23.9 million (2009 : additional allowances/provision of $24.4 million). Net interest income/hiring charges declined by 11.3% to $192.3 million, with a lower average loan base, and a reduction in lending spread achieved. Net interest margin narrowed from 2.4% in 2009 to 2.2% in 2010. Non-interest income decreased to $7.7 million (2009 : $7.9 million) or by 2.5% in 2010. Fee and commission income, the largest component of non-interest income, decreased by 5.8% to $7.2 million from $7.6 million in 2009. Staff costs rose by 22.7% to $57.0 million in 2010 from $46.4 million in 2009 due to reduced payment received under the Jobs Credit Scheme and a tightening labour market, necessitating a higher provision for bonus and other wage-related expenses. Other operating expenses increased by 5.0% to $19.3 million in 2010 from $18.4 million in 2009 due to higher premises costs. The cost to income ratio increased to 38.8% from 29.5% a year ago. (b) Loans and deposits Loans, advances and receivables (net of allowances) increased by 2.3% in 2010 to $6,279 million from $6,137 million. The non-performing loans (“NPL”) ratio improved to an aggregate of 1.5% in 2010 from 3.1% in 2009 after accounting for recoveries and write-offs. The NPL ratio comprised secured NPL of 1.2% (2009 : 2.6%), with the balance 0.3% (2009 : 0.5%) being the unsecured portion which is fully covered by specific allowances. Deposits and balances of customers amounted to $7,177 million as at 31 December 2010. The loans to deposits ratio increased to 87% from 84% in the previous year. (c) Shareholders’ equity and dividends Return on equity was 8.1% in 2010, up from 7.8% in 2009 in line with higher profits in 2010. Return on assets was 1.4% in 2010, up from 1.2% in 2009 while net assets per share rose to $3.52 in 2010 from $3.34 in 2009. As detailed in the Chairman’s Statement, an interim dividend of 4 cents per share (tax exempt one-tier) was paid on 15 September 2010. With the proposed payment of a final dividend of 8 cents per share (tax exempt one-tier) in respect of the financial year ended 31 December 2010, subject to the approval of shareholders, the total distribution for 2010 will amount to approximately $53 million, compared to $35 million paid in respect of 2009. 4 8 12 2 6 8 2009 cents
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Hong Leong Finance Annual Report 2010
oper ating and financial review
(d) No significant subsequent event In the interval between the release of the preliminary financial statement and the latest practicable date prior to the issue of this report, no undisclosed development has occurred which would materially affect the operating and financial performance of the Group. Net Interest Income Net interest income includes hiring charges. Net interest income decreased by 11.3% to $192.3 million in 2010 from $216.8 million in 2009 with a closing loans to deposits ratio of 87% in 2010 against 84% in 2009. The decrease in net interest income was due to a lower average loan base and a reduction in lending spread achieved in 2010. Net interest income was the major source of income contributing 96.1% (2009 : 96.5%) to total income. Net interest margin as a percentage of interest-bearing assets narrowed from 2.4% in 2009 to 2.2% in 2010 with a declining loan base during the first half of the year, and a fall in loan yield which was offset by a fall in cost of deposit funds. 2010 Average Balance $mil Interest-bearing Assets Loans, advances and receivables Singapore Government securities Other assets Total Interest-bearing Liabilities Deposits and balances of customers Other liabilities Total Net interest income/margin as a percentage of interest-bearing assets – 192.3 2.2 – 216.8 2.4 7,021 49 7,070 65.1 1.4 66.5 0.9 2.8 0.9 7,336 33 7,369 90.3 0.9 91.2 1.2 2.8 1.2 6,111 976 1,622 8,709 228.9 24.3 5.6 258.8 3.7 2.5 0.3 3.0 6,843 963 1,082 8,888 279.0 25.5 3.5 308.0 4.1 2.6 0.3 3.5 Interest $mil Average Rate % Average Balance $mil Interest $mil 2009 Average Rate %
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Hong Leong Finance Annual Report 2010
oper ating and financial review
Volume and rate analysis The table below analyses the changes in net interest income in 2010 over 2009 due to changes in volume and changes in rates. 2010 Increase/(decrease) due to change in Interest Income Loans, advances and receivables Singapore Government securities Other assets Net Interest Expense Deposits and balances of customers Other liabilities Net Net interest income (3.9) 0.5 (3.4) (24.3) (21.3) (21.3) (0.2) (25.2) 0.5 (24.7) (24.5) (29.8) 0.3 1.8 (27.7) (20.3) (1.5) 0.3 (21.5) (50.1) (1.2) 2.1 (49.2) Volume $mil Rate $mil Total $mil
Non-Interest Income Non-interest income declined by 2.5% to $7.7 million in 2010 (2009 : $7.9 million). Fee and commission income which constituted 92.6% (2009 : 95.8%) of non-interest income was $7.2 million in 2010 compared to $7.6 million in 2009 due to lower fee income from non-lending activities. Total non-interest income for 2010 was 3.9% of total income, up from 3.5% for 2009, with the non-lending portion comprising 0.2% of total income (2009 : 0.4%). 2010 $mil Fee and Commission Income Loan related and other financing business Non-lending business including corporate advisory services and other trailer fees Other Operating Income Total
* Calculated based on actual figures before rounding.
2009 $mil 6.7 0.9 7.6 0.3 7.9
Variance* +/(-) % 0.5 (55.2) (5.8) 71.9 (2.5)
6.8 0.4 7.2 0.5 7.7
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Hong Leong Finance Annual Report 2010
oper ating and financial review
Operating Expenses Total operating expenses increased by 17.2% to $77.6 million in 2010 from $66.2 million in 2009. Staff costs increased by 22.7% due to reduced payment received under the Jobs Credit Scheme and a tightening labour market, necessitating a higher provision for bonus and other wage-related expenses. Other operating expenses increased to $19.3 million in 2010 from $18.4 million in 2009 due to higher premises costs. 2010 $mil Staff costs - Short-term employee benefits - Employer’s CPF contributions to defined contribution plans - Share-based payments 50.4 4.9 1.7 57.0 Depreciation of property, plant and equipment Other operating expenses - Operating lease expenses - IT-related expenses - Other operating expenses 5.1 2.1 12.1 19.3 Total Group staff strength – period end Group staff strength – average
* Calculated based on actual figures before rounding.
2009 $mil 41.0 4.3 1.1 46.4 1.4
Variance* +/(-) % 22.8 15.2 50.0 22.7 (5.0)
1.3
5.1 1.9 11.4 18.4 66.2 655 672
0.8 8.7 6.3 5.0 17.2 (2.3) (4.3)
77.6 640 643
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Hong Leong Finance Annual Report 2010
oper ating and financial review
Reversal or Recovery of Provision for Settlements and Costs relating to Distribution of Wealth Management Products and Impairment losses of Other Assets and Allowances for Doubtful Debts Reversal or recovery of provision for settlements and costs relating to distribution of wealth management products and impairment losses of other assets and allowances for doubtful debts was $23.9 million in 2010 compared to a net charge of $24.4 million in 2009. No additional general allowance for loans was required for both 2010 and 2009. Specific allowances written back for loans was $4.6 million in 2010 compared to $1.1 million in 2009 due to improved quality of loans in line with improving economic conditions. 2010 $mil Write-back of allowances for loans and advances Other recoveries/(provisions) (net) Total/Net 4.6 19.3 23.9 2009 $mil 1.1 (25.5) (24.4) Variance* +/(-) % 312.8 N.M. N.M.
Total Assets Total assets were $8,901 million as at 31 December 2010, representing a decrease of 0.4% over the figure of $8,936 million as at 31 December 2009.
Assets mix 2010 $mil Cash at banks and in hand Statutory deposit with the Monetary Authority of Singapore Singapore Government securities Customer loans - net Others Total Assets
* Calculated based on actual figures before rounding. N.M. – Not Meaningful
2009 $mil 1,535 171 1,027 6,137 66 8,936
Variance* +/(-) % (3.9) 0.4 (9.9) 2.3 (23.2) (0.4)
1,475 171 925 6,279 51 8,901
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Hong Leong Finance Annual Report 2010
oper ating and financial review
Analysis of Gross loan Portfolio (a) Customer loans by product group With an increase in the loan portfolio, property related loans made up 69% of the total loan portfolio as at 31 December 2010 (2009 : 65%), with property loans other than housing/HDB home loans taking the bigger share at 45% of total portfolio (2009 : 47%). The housing loans component increased to 24% of the total (2009 : 18%) inclusive of HDB home loans of 12% (2009 : 9%). Hire purchase loans formed 24% of total loan portfolio as at 31 December 2010 (2009 : 28%). Whilst such loans are principally fixed rate in nature, this is mitigated by monthly principal repayments and early redemptions. 2010 $mil Housing and HDB Home Loans Other Property Loans Hire Purchase/Block Discounting Share Loans Others Total 1,481 2,891 1,520 395 86 6,373 % 24 45 24 6 1 100 $mil 1,146 2,943 1,760 300 91 6,240 2009 % 18 47 28 5 2 100
Others 1% Share loans 6%
Housing and HDB Home loans 24%
Others 2% Share loans 5%
Housing and HDB Home loans 18%
2010
2009
Hire Purchase/ Block Discounting 24%
Other Property loans 45%
Hire Purchase/ Block Discounting 28%
Other Property loans 47%
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Hong Leong Finance Annual Report 2010
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(b) Customer loans by industrial classification 2010 $mil Hire purchase/block discounting Housing loans secured by property under finance Other loans and advances: Manufacturing Building and construction General commerce Transport, storage and communication Investment and holding companies Professional and private individuals Others (including hotels, associations and charitable organisations) Total 19 1,851 140 22 106 570 806 6,373 1 29 2 1 1 9 12 100 26 1,860 122 36 164 538 682 6,240 1 30 2 1 3 8 10 100 1,520 1,339 % 24 21 $mil 1,760 1,052 2009 % 28 17
Transport, storage and communication 1%
Investment and holding companies 1%
Professional and Others private 12% individuals 9%
Hire purchase/block discounting 24%
Investment and holding companies 3% Transport, storage and communication 1% General Commerce 2%
Professional and Others private 10% individuals 8%
Hire purchase/block discounting 28%
General Commerce 2%
2010
2009
Building and construction 29%
Manufacturing 1%
Housing loans secured by property under finance 21%
Building and construction 30%
Manufacturing 1%
Housing loans secured by property under finance 17%
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Hong Leong Finance Annual Report 2010
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(c) Customer loans by remaining contractual maturity 2010 $mil Reviewable/due within 1 year Due after 1 year but within 3 years Due after 3 years but within 5 years Over 5 years Total 2,108 1,713 601 1,951 6,373 % 33 27 9 31 100 $mil 2,120 1,943 622 1,555 6,240 2009 % 34 31 10 25 100
Over 5 years 31%
Reviewable/ due within 1 year 33%
Over 5 years 25%
Reviewable/ due within 1 year 34%
2010
2009
Due after 3 years but within 5 years 9%
Due after 1 year but within 3 years 27%
Due after 3 years but within 5 years 10%
Due after 1 year but within 3 years 31%
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Hong Leong Finance Annual Report 2010
oper ating and financial review
(d) Non-performing loans The loan portfolio includes secured non-performing loans of 1.2% of the portfolio in 2010 (2009 : 2.6%) together with unsecured non-performing loans of 0.3% of the portfolio in 2010 (2009 : 0.5%). The Group currently maintains full specific allowances for all non-performing loans where the net outstanding debt is not covered by the value of the collateral held. There are no loans and advances graded as doubtful as at 31 December 2010 and 2009. The non-performing loans position by grading and security coverage is given below. 2010 $mil Substandard Loss Total (i) (ii) (iii) Secured non-performing loans (“NPLs”) Secured NPLs as % of total NPLs Unsecured NPLs Specific allowances for NPLs Specific allowances as % of total NPLs 78.3 19.1 97.4 78.3 80.4 19.1 19.3 19.8 2009 $mil 162.6 28.1 190.7 162.6 85.3 28.1 28.5 15.0 Variance* +/(-) % (51.8) (32.2) (48.9) (51.8) (4.9%pt) (32.2) (32.4) +4.8%pt
Funding Sources
Total funding (including total equity) decreased by 0.4% in 2010 to $8,901 million from $8,936 million in 2009. Customers’ deposits remained the main funding source contributing 80.6% (2009 : 81.3%) of total funds. This funding source was $92 million or 1.3% lower in 2010 closing at $7,177 million from $7,269 million in 2009. 2010 $mil Fixed deposits Savings deposits and other balances of customers Current account and other deposits Total customer deposits Other liabilities Total shareholders’ equity Total Customer deposits by remaining contractual maturity On demand/up to 1 year Over 1 year to 3 years Total customer deposits
* Calculated based on actual figures before rounding.
2009 $mil 6,962 300 7 7,269 198 1,469 8,936
Variance* +/(-) % (2.2) 20.0 24.8 (1.3) (11.5) 5.5 (0.4)
6,809 360 8 7,177 175 1,549 8,901
6,694 483 7,177
6,852 417 7,269
(2.3) 16.0 (1.3)
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Hong Leong Finance Annual Report 2010
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Capital Adequacy The Group’s capital adequacy ratio is higher than the minimum regulatory requirement. With the increase in the adjusted core capital, as at 31 December 2010, the capital adequacy ratio was 22.3% compared to 21.4% as at 31 December 2009. 2010 $mil Share capital Reserves Less : Investments Adjusted Core Capital Risk-weighted assets Ratio 870 679 1,549 1,549 6,934 22.3% 2009 $mil 869 600 1,469 (5) 1,464 6,838 21.4%
OTHER INFORMATION A review of the outlook for the Group’s business can be found in the Chairman’s Statement. Information on the background of the Directors is presented in the section on the Board of Directors, whilst information on the background of the President together with details of the Group’s risk management policies and processes have been included in the corporate governance section of this Annual Report 2010. Date : 17 March 2011
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Hong Leong Finance Annual Report 2010
Corpor ate goverNaNCe
Hong Leong Finance Limited (“HLF” or the “Company”) is committed to maintaining good corporate governance and business integrity in all its business activities.
To demonstrate its commitment to uphold the highest standards of corporate governance, HLF had joined the Securities Investors Association Singapore (“SIAS”) and its partners in making the following public Statement of Support at Singapore’s Inaugural Corporate Governance Week 2010 (organised by the SIAS) in October 2010:
“As an Organisation we are committed to upholding high standards of corporate governance to enhance shareholder value. We believe practising good corporate governance is central to the health and stability of our financial markets and economy.”
HLF has adopted a set of internal guidelines on corporate governance based on the provisions of the Code of Corporate Governance 2005 (“CG Code”). Although HLF does not come under the categories of banks, financial holding companies or direct insurers, it has also taken steps to comply, to its best capability, with the revised Guidelines on Corporate Governance for Banks, Financial Holding Companies and Direct Insurers and the Banking (Corporate Governance) Regulations 2005 as amended by the Banking (Corporate Governance) (Amendment) Regulations 2010 (the “CG Regulations”) issued by the Monetary Authority of Singapore (“MAS”).
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 broad 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 Judgement There are internal controls in place to allow for effective 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 the Finance Companies Act, Chapter 108, and also voluntarily abstain from deliberation on the same. The assessment criteria used by the Company’s Nominating Committee in its annual evaluation of the Directors takes into account the individual Director’s objectivity, independent thinking and judgment.
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Hong Leong Finance Annual Report 2010
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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 Executive Committee (“Exco”), the Risk Committee (“RiskCom”), previously known as the Exco (Risk) SubCommittee, a sub-committee of the Board prior to its elevation to a full Board committee, the Audit Committee (“AC”), the Nominating Committee (“NC”), the Remuneration Committee (“RC”), and the Hong Leong Finance Share Option Scheme 2001 (“Share Option Scheme”) Committee (“Share Option Scheme Committee”), all collectively referred to hereafter as the Board Committees, and management committees such as the Loan Sub-Committee, Management Sub-Committees and Assets and Liabilities Committee. Specific terms of reference for Board Committees are set out and approved by the Board. The powers and authorisation limits of relevant management committees which have been delegated authority by the Board are also approved by the Board. The composition of each Board Committee can be found under the ‘Corporate Directory’ section in this Annual Report 2010 (“AR”).
The delegation of authority by the Board to the Board Committees and management committees enables the Board to achieve operational efficiency by empowering these Board Committees and management 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 4, 5, 7 and 11 in this report for further information on the activities of the NC, RC and AC. Information on the activities of the Exco and RiskCom can be found under Principle 1 and the ‘Risk Management’ section in this report.
Board Processes Board and Board 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 the 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 Board Committees to be held via teleconferencing. The Board and Board Committees may also make decisions by way of circulating resolutions.
The attendance of the Directors at meetings of the Board and Board Committees, as well as the frequency of such meetings during the financial year under review, is disclosed on page 37 of the AR. 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 Board 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.
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Directors’ Attendance at Board and Board Committee Meetings in 2010
Share Board AC NC RC Option Scheme Committee Number of meetings held in 2010: Name of Directors Kwek Leng Beng Kwek Leng Joo Kwek Leng Peck Kwek Leng Kee Woo Tchi Chu
(a) (b)
RiskCom
4 4 4 4 3 4 4 3 4 4 4 1
5 N.A. N.A. N.A. N.A. 2 3 N.A. N.A. 5 5 N.A.
2 2 N.A. N.A. N.A. 1 N.A. 1 2 N.A. N.A. N.A.
2 N.A. N.A. N.A. N.A. 2 N.A. N.A. 2 N.A. 2 N.A.
1 N.A. N.A. 1 N.A. N.A. N.A. 1 N.A. 1 N.A.
2 2 N.A. 2 N.A. 2 N.A. N.A. 2 N.A. N.A. N.A.
Number of meetings attended in 2010
Chng Beng Hua
Dr Manfred Otto Barth Cheng Shao Shiong @ Bertie Cheng Lee Jackson @ Li Chik Sin Po’ad bin Shaik Abu Bakar Mattar Ter Kim Cheu (c)
(a) (b) (c)
Mr Woo Tchi Chu stepped down from the AC on 1 March 2010 and was appointed a member of the NC on 1 March 2010 in place of Dr Manfred Barth. Mr Chng Beng Hua was appointed a member of the AC on 1 March 2010 in place of Mr Woo Tchi Chu. Mr Ter Kim Cheu was appointed as a Director on 1 September 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 material impact on the profitability or performance of the Company, 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 other than in the ordinary course of business, 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.
The Company also has in place an authorisation matrix for various matters including limits for the granting of loans, guarantees or other credit facilities, operation of banking accounts, investments, capital expenditure and lease of properties.
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The Exco comprises 5 Directors with the majority of its members being independent. The Exco’s principal responsibility as set out in its written terms of reference, approved and adopted by the Board, is to assist the Board in the discharge of its duties by deliberating on matters requiring Board review that may arise between Board meetings. Its duties include, in particular, assisting the Board in approving banking-related matters such as banking facilities extended to the Company and the granting by the Company of loans, guarantees or credit facilities up to a limit fixed by the Board, and approving acquisition/disposal of assets which are non-discloseable pursuant to the Listing Rules of Singapore Exchange Securities Trading Limited (“SGX-ST”) up to a limit authorised by the Board.
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 an induction pack containing 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.
The Company also conducts an induction programme for newly appointed Directors and in respect of appointments of existing Directors to Board Committees, which seeks to familiarise Directors with the Company’s business, board processes, accounting and governance practices.
The Directors are provided with 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 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.
Senior Management and Management team The Board through the NC currently reviews the appointment of key executive positions equivalent to those of the Chief Executive Officer and the Chief Operating Officer (being the President) together with the Chief Financial Officer.
The role and responsibilities of these positions and other members of the Management team and their reporting relationships are set out in the Company’s organisation structure which is tabled annually and as and when there are changes for the Board’s information. The Board retains the right to require any changes to the organisation structure as it deems fit.
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Corporate Values and Conduct of Business The Board and Senior Management are committed to conducting business with integrity and consistent with high standards of business ethics, and in compliance with all applicable laws and regulatory requirements. In addition to observing the Code of Conduct issued by the Finance Houses Association of Singapore, the Company has adopted an internal code of business and ethical conduct 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 organisation 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 Dealing 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.
Complaint Handling Procedures Complaint handling procedures are also in place to ensure that all complaints from customers are dealt with professionally, fairly, promptly and diligently and decisions clearly communicated to customers.
Principle 2: Board Composition and Guidance Board Independence The Board currently comprises 11 members. All members of the Board except for the Board Chairman are non-executive Directors (“NEDs”). Of the 10 NEDs, the Board considers 7 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 NED also submits an annual declaration regarding his independence.
Board Composition and Size The NC reviews the size and composition of the Board and Board Committees, and the skills and core competencies of the Board members annually. The Board comprises business leaders and professionals with financial, banking, 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 9 to 11 members as an appropriate size for the Board. The Board is satisfied that the current composition and size of the Board provide for sufficient diversity and allow for effective decision making.
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NEDs’ Participation NEDs 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 Board 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 Chief Executive Officer Role of Chairman and the Chief Executive Officer The Chairman of the Board, Mr Kwek Leng Beng, is also the Managing Director (“MD”). Mr Kwek Leng Beng plays an instrumental role in providing the Group with strong leadership and vision, assisting the Board to develop policies and strategies, and ensuring that these are implemented effectively. As Chairman of the Board, he 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. As MD, he is the most senior executive in the Company and bears executive responsibility for the Group’s business. He is assisted by the President, Mr Ian Macdonald and other members of the Management team. Mr Macdonald has extensive working experience in the banking and finance sector and has been with the Company for about 9 years.
The Board recognises that best practices of corporate governance advocate that the chairman of the board and the chief executive officer 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 Board also recognises that there are instances where the two roles may be performed by one person for valid reasons, and that such a practice is not uncommon both locally and in other developed jurisdictions. Where the chairman of the board and the chief executive officer is the same person, an independent NED may be appointed to be the Lead Independent Director (“Lead ID”).
Lead Independent Director The holding of dual roles of Board Chairman and MD by the same Director, together with the strengths brought to these roles by a person of Mr Kwek Leng Beng’s stature and experience has been considered by the Board. There are internal controls in place to allow for effective oversight by the Board of the Company’s business 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. In view of the management structure in place, the Board is of the view that it is currently unnecessary to effect a separation of the roles of the Board Chairman from that of the MD to facilitate the Group’s decision making and implementation process.
Noting the non-separation of the roles of the Board Chairman and MD, the Board has in the spirit of good corporate governance, appointed Mr Po’ad bin Shaik Abu Bakar Mattar as Lead ID in September 2010 to serve as a sounding board for the Board Chairman and also as an intermediary between the NEDs and the Board Chairman. The role of the Lead ID is set out under the written terms of reference of the Lead ID, which has been approved by the Board. Under the chairmanship of the Lead ID, the NEDs met last year without the presence of Management or the Board Chairman.
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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 Directory’ section on page 22 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 Board 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 MD, the President and the Chief Financial Officer. 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 nomination of the relevant Directors for re-election and re-appointment as well as the independence of Directors. When considering the nomination 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 Mr Kwek Leng Beng, Dr Manfred Barth, Mr Jackson Lee and Mr Bertie Cheng, the remaining Directors of the Company will retire about once in 3 years. Dr Manfred Barth and Mr Jackson Lee have expressed their desire to retire from the Board and would therefore not be seeking re-appointment at the 2011 AGM. In accordance with the Articles of Association of the Company, Mr Ter Kim Cheu appointed on 1 September 2010 and Messrs Kwek Leng Peck and Chng Beng Hua retiring by rotation, have offered themselves for re-election at the 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 Regulations. 7 out of the current 10 NEDs are considered by the NC to be independent. With the retirement of Dr Manfred Barth and Mr Jackson Lee at the 2011 AGM, 5 out of the remaining 9 Directors on the Board are considered to be independent, which will be 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 Group.
When considering the independence of the Directors, the NC also reviews the Directors’ other directorships, the annual declaration by the independent NEDs regarding their independence, the Directors’ disclosures of interests in transactions and also any interests in advances, loans or credit facilities granted by the Company.
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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 Board Committee meetings, the NC is satisfied that all Directors are able to carry out and have been adequately carrying out their duties as Directors of the Company.
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 Board 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 an independent NED; (b) the composition requirements for the Board and Board Committees (if candidate is proposed to be appointed to any of the Board Committees) under the Company’s internal guide on corporate governance; (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.
As a finance company, all new appointments to the Board are subject to the approval of the MAS.
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 and the MD The Board believes in carrying out succession planning for itself and the MD 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.
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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 Board 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 abstains 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 Board Chairman (who is also a member of the NC), to review, where appropriate, the composition of the Board and Board 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.
Board Evaluation Criteria The qualitative criteria is 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 comprises quarterly performance indicators which include a comparison of the Company’s performance for the financial period under review against the performance of the Company and industry peers for the corresponding period over the past 3 years and the 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 Board Committee meetings including their contribution to Board processes and the business strategies and performance of the Company.
Principle 6: Access to Information Complete, Adequate and Timely Information and Access to Management Prior to each meeting, members of the Board and the Board Committees are provided with the meeting agenda and the relevant papers submitted by Management, containing 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. The role and responsibilities of Management and their reporting relationships are set out in the Company’s organisation structure which is tabled annually and also as and when there are changes, for noting by the Board. Directors have separate and independent access to Management.
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Draft agendas for Board and Board Committee meetings are circulated to the Board Chairman and the chairmen of the Board Committees, in advance, for them to review and suggest items for the agenda. The Board and the Board Committees are also furnished with routine reports, where applicable from the various departments. Each of the chairmen of the AC, NC, RC and Exco provides an annual report of the respective committees’ activities during the year under review to the Board. The chairman of the RiskCom provides reports to the Board twice yearly on its activities. The minutes of meetings of the Board Committees are circulated to all Board members.
Company Secretary The Company Secretary, whose appointment and removal is subject to the Board’s approval, attends all Board and Board 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 Board Committees to implement and strengthen corporate governance practices and processes, including facilitating orientation for newly appointed Directors and appointments to Board Committees, and 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 Company’s internal guidelines on corporate governance.
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.
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 Board Chairman/MD, and the President (who is the most senior member of the Management team outside the Board), 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 also complies with the Principles for Sound Compensation Practices and Implementation Standards issued by the Financial Stability Board, to the extent that these are applicable to the Company. The Company Secretary maintains records of all RC meetings including records of discussions on key deliberations and decisions taken.
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Principle 8: Level and Mix of Remuneration Directors’ Remuneration In reviewing the remuneration package of the Board Chairman/MD who is the only Executive Director of the Company together with that of the President (who is not a Board member), the RC, with the assistance of the Company’s Senior Vice President, Human Resources, considers 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 utilised longer term incentive schemes, in the form of the grant of options under the Share Option Scheme with certain grants subject to a vesting schedule. Information on the Share Option Scheme is set out in the Directors’ Report on pages 61 to 63 and the Financial Statements on pages 89 to 92 of the AR.
The remuneration of the NEDs 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 NEDs 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 Chairman/MD comprise 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 Board Chairman/MD receiving an additional fee for serving as the Chairman of the Board. Directors who serve on the various Board Committees also receive additional fees in respect of each Board Committee that they serve on, with the chairmen of the Board Committees (except the chairman of the Exco) receiving a higher fee in respect of their service as chairman of the committee.
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The breakdown (in percentage terms) of the Directors’ remuneration for financial year ended 31 December (“FY”) 2010 is set out below.
Directors’ Remuneration for FY 2010 Base Salary(1) Variable Bonuses/ Allowances(1) % $2,000,000 to below $2,250,000 1. Kwek Leng Beng Below $250,000 2. Kwek Leng Joo 3. Kwek Leng Peck 4. Kwek Leng Kee 5. Woo Tchi Chu 6. Chng Beng Hua 7. Dr Manfred Otto Barth 8. Cheng Shao Shiong @ Bertie Cheng 9. Lee Jackson @ Li Chik Sin 10. Po’ad bin Shaik Abu Bakar Mattar 11. Ter Kim Cheu
(1) (2) (4)
Board/ Board Committee Fees(2) % 3 100 100 100 100 100 100 99 100 100 100
Share Option Grants(3) % 10 -
Other Benefits
Total
% 42 -
% 1 1 -
% 100 100 100 100 100 100 100 100 100 100 100
44 -
The salary and variable bonuses/allowances are inclusive of employer’s central provident fund contributions. These fees comprise Board and Board Committee fees for FY 2010, which are subject to approval by shareholders as a lump sum at the 2011 AGM as well as AC fees and fee to the chairman of the previous Exco (Risk) Sub-Committee (now known as the RiskCom) for FY 2010 that have already been approved by shareholders at the 2009 and 2010 AGMs.
(3)
These relate to options granted during FY 2010. The fair value of the options as at the date of grant is $0.5354 for each share under option taking into account the vesting schedule using the Black-Scholes Option Pricing Formula. Mr Ter Kim Cheu was appointed on 1 September 2010 and the Board fee payable to him for FY 2010 is pro-rated accordingly.
(4)
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.
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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 annual results are released within 60 days from the financial year end. In presenting the Group’s annual and quarterly results, the Board aims to provide shareholders with a balanced and understandable assessment of the Group’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 financial year under review, the Chief Financial Officer provided assurance to the AC on the integrity of the quarterly financial statements and 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 results including analysis of the same which are submitted within 30 days of each month end.
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 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 within its written terms of reference, approved and adopted by the Board.
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.
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 Group) 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 completeness, accuracy and fairness;
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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 Group; to review the effectiveness of the internal audit (“IA”) function; to review annually with Management, the internal and external auditors the results of their review on the Group’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; to approve the appointment, resignation or dismissal of the Head of IA; 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 guidance from 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 an evaluation of the IA function and also a self-assessment of its own effectiveness in the discharge of its roles and responsibilities. The assessment was facilitated through the use of an evaluation checklist for the IA function (“IA Assessment Checklist”) and a self-assessment checklist (“AC Self-Assessment Checklist”), based on the guidance from the ACGC Guidebook.
The IA Assessment Checklist included factors such as the sufficiency of IA resources, level of experience, continuous training, work plans and quality of reports. The AC reviews the adequacy of the IA function through a review of the IA activities on a quarterly basis as well as its annual assessment of the IA function. Based on the assessment, the AC is satisfied that the IA function has adequate resources and appropriate standing within the Group to perform its functions effectively.
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 discussions 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.
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On the basis of the above and on other relevant considerations, the AC has recommended to the Board the nomination of KPMG LLP for re-appointment as external auditors.
Whistle-blowing policy HLF has in place a whistle-blowing procedure where staff of the Company can raise in confidence, whether anonymously or otherwise, concerns on possible improprieties relating to accounting, financial reporting, internal controls and auditing matters without fear of reprisals in any form. The AC has the responsibility of overseeing this policy which is administered by the Head of IA. Under these procedures, arrangements are in place for independent investigation of such matters raised and for appropriate follow up action to be taken.
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 annually with the assistance of the internal and external auditors, and Management including the Risk Management department (“RMD”). Additionally, the Company also has a separate compliance function to help ensure that there is no non-compliance with policies and procedures, applicable legislation, rules or regulations in the conduct of its business.
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 IA, the RMD and Compliance department during the financial year, as well as the statutory audit by the external auditors, the Board, through the AC and RiskCom, is satisfied that the internal controls and risk management systems are adequate to meet the needs of the Company in its current business environment.
Principle 13: Internal Audit Reporting Line and Qualifications The IA function is independent of the activities it audits. The Head of IA’s primary reporting line is to the chairman of the AC with an administrative line of reporting to the President of the Company. The appointment, resignation and dismissal of the Head of IA is reviewed and approved by the AC. The AC also provides input on the annual performance appraisal of the Head of IA and the AC chairman is consulted on all bonus payments and salary adjustments for this position. The AC meets the Head of IA at least once annually without the presence of Management. The Head of IA has unfettered access to the AC, the Board 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.
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The Company has a well-established IA function with adequate resources and standing. Processes are in place to ensure that the professional competence of the IA staff is maintained or upgraded through training programmes.
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 Group, reviewing the internal controls of the Group 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 approves all IA plans and reviews all IA findings. Copies of IA reports are extended to relevant members of Management. IA reports are also reviewed by the external auditors. Processes are in place such that recommendations raised in IA reports are dealt with in a timely manner with outstanding exceptions or recommendations being closely monitored and reported back to the AC.
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 the AGM is also advertised in the press and released via SGXNET. Shareholders and investors can access information on the Company at its website at www.hlf.com.sg which provides, inter alia, corporate announcements, press releases and the latest financial results as disclosed by the Company on SGXNET.
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 and RC and the external auditors were present at the last AGM, and will endeavour to be present at the 2011 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 2 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 fax.
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.
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RISK MANAGEMENT Risk management plays an important role in the Company’s business activities and is an essential component of its planning process. It is therefore critical to the Company’s continuing profitability. Where risk is assumed, it is within a calculated and controlled framework. The Company ensures that it has the functional capability to manage risks in new and existing businesses, and that business plans are consistent with risks appetite. There is in place an independent and centralised risk management function which serves to broaden the Group’s existing risk management framework to include additional capabilities and approaches in line with modern risk management practice. This integrated risk management framework identifies, assesses, manages and reports risks on a consistent and reliable basis. With the enhanced and formalised risk management function in place, the Company aims to:-
-
build on existing developments in governance and risk management to create an effective system for management of the risks the Group incurs, supported by appropriate tools; ensure the current operating system delivers the information needed for risk management; and train and motivate staff to manage risks effectively.
The Company believes that a strong risk management process will support effective capital allocation and management and, through this, increase shareholders’ value. It is also with this process that risk and return are evaluated with a goal of producing sustainable revenue and reducing earnings volatility. The maintenance of a strong control framework is a high priority and is the foundation for the delivery of effective risk management.
A strong risk governance structure is maintained to strengthen risk evaluation and management, whilst positioning the Company to manage the changing dynamic environment in an efficient and effective manner. The risk governance structure is reviewed regularly against best practices as set out in the industry and regulatory guidance. The Board establishes and oversees the Company’s risk management framework; and ensures the adequacy of independent risk management systems and practices. Thus, the Board has overall responsibility for determining the type and level of business risks that the Group undertakes to achieve its corporate objectives. To assist the Board in fulfilling its duties, the RiskCom, a dedicated risk committee at board level (previously known as Exco (Risk) Sub-Committee) oversees and reports to the Board on matters relating to the risk management function of the Group. It reviews and approves the risk management framework and related risk policies. It also oversees the establishment and operation of the risk management systems that are in place. The RiskCom comprises 4 Directors, 3 of whom are NEDs. The members of the RiskCom possess the relevant business experience and are therefore suitably qualified to discharge their responsibilities. The Company Secretary maintains records of all RiskCom meetings including records of discussions on key deliberations and decisions taken.
During the year, the RiskCom did a self-assessment of its performance based on the self-assessment checklist adopted in 2009 (“Self-Assessment Checklist”). The Self-Assessment Checklist covered the RiskCom’s terms of reference, memberships and appointments, meetings, training and resources, risk management systems, risk disclosure, relationship with the Board and communication with shareholders. Based on the self assessment, the RiskCom was of the view that it has fulfilled its responsibilities and discharged its duties as set out in its terms of reference.
A risk management team is accountable to the RiskCom for maintaining an effective control environment that reflects established risks appetite and business objectives. The risk management team is independent of the business units, and performs the role of implementing risk management policies and procedures.
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All the Company’s business activities involve, to varying degrees, the analysis, evaluation, acceptance and management of risks or combinations of risks. The principal risks of the Group comprise strategic, credit, market and operational risks. Significant business risks are identified and a risk management action plan focusing on 4 main aspects, namely, Board oversight, senior management accountability, sound and well-documented risk policies and strong risk management, monitoring and control capabilities, implemented. The risk management policies are designed to identify and analyse the various risks, to set appropriate risk limits and controls, and to monitor the risks and adherence to limits by means of reliable information systems. Risk profiles, exposures and trends are regularly reported to Management and the RiskCom for review and appropriate action. The Company regularly reviews its risk management policies and systems to reflect changes in markets, products and emerging best practice.
The Company recognises that the risk management process is an ongoing process and will thus continuously ensure that the Company’s current risk management system and processes are in line with regulatory guidelines and industry best practices.
In the following paragraphs, a description is given of the way the various risk types are measured and managed in the Company.
Strategic Risk Strategic risk is the risk that adverse business decisions, ineffective or inappropriate business plans or failure to respond to changes in the competitive environment, business cycles, customer preferences, product obsolescence, execution and/ or other intrinsic risks of business will impact the Company’s ability to meet its objectives. The Company is mindful of the changes in its operating environment from time to time and is constantly monitoring and reviewing the economic and strategic risks of the Company in order to be able to enhance the management of the same. An integrated business planning and budget process is used to help manage strategic risk. A key component of this process is the alignment of strategies, goals, tactics and resources by the various business units and support departments. A planning process flows through the business units, identifying business unit plans that are aligned with the Company’s direction.
Credit Risk Credit risk is the potential loss arising from failure of a debtor or counterparty to meet their contractual obligations. The risk is managed to achieve sustainable and superior risk-reward performance whilst maintaining exposures within acceptable risk appetite parameters. This is achieved through the combination of governance, policies, systems and controls, underpinned by sound judgment. The failure to effectively manage credit risk across the Company and all products, services and activities can have a direct, immediate and material impact on the Company’s earnings and reputation.
The Company has a Credit Risk Management policy to document and formalise the credit risk framework. This policy sets forth credit risk principles and details how the risks are managed in the Company. It is supplemented by the Credit Manual which details the process and management relating to credit transactions. The comprehensive credit risk framework ensures that all credit risks arising from each business are identified, analysed and monitored. Credit stress testing is also conducted periodically to determine the impact of security values on the Company’s major loan portfolios. This stress testing allows the Company to assess the potential credit impact to losses arising from unlikely but plausible adverse events.
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Corpor ate goverNaNCe
Loans and advances to customers provide the principal source of credit risk to the Company. The value of outstanding loans and advances balances, their risk profile, and potential concentrations within them can therefore have a considerable influence on the level of credit risk. The Company addresses credit risk concentration by setting a credit portfolio mix limit and monitoring the limit on a regular basis. Management periodically reviews the loans portfolio and concentration risk reports to monitor for undue credit concentrations. More details on credit risk could be found in the Financial Statements on pages 106 to 111 of the AR.
Market Risk Market risk is the risk that values of assets and liabilities or revenues will be adversely affected by changes in market conditions such as interest rate movement. Market risk also includes the risks of market access for funding and liquidity. The objective of balance sheet interest rate risk management is to secure stable and optimal net interest income over both the short and long term. Interest rate risk arises primarily from the fact that financial assets and liabilities typically reprice at different points in time. In liquidity risk management, the Company ensures that cash flow requirements of depositors and borrowers, as well as our operating cash needs are met taking into account all on and off-balance sheet funding demands. Liquidity risk management also includes ensuring cash flow needs are met at a reasonable cost. The liquidity funding requirements are integrated into the liquidity risk management policy with its aim to ensure that the Company has a stable diversified funding base without over-reliance on any one market segment. Liquidity contingency funding plans are in place to identify potential liquidity crises using early warning indicators. Crisis escalation procedures and various strategies including funding and communication have been developed to minimise the impact of any liquidity crunch. The Assets and Liabilities Committee (“ALCO”), comprising Management, reviews policies, strategies and limits in the management of market risk. The RiskCom assists the Board in ensuring the effective management of the market risk process.
Analyses of cash flow, re-pricing mismatches, Present Value of a basis point impact of assets and liabilities and simulation modeling are performed to determine the net funding requirements as well as the interest rate risk profile. Tolerance tenor limits on the mismatches of liquidity and interest rates as well as risk ratios are established and monitored periodically. Liquidity stress testing is performed to assess and plan for the impact of various scenarios which may put the Company’s liquidity at risk. The Company implements the Asset and Liability Management (“ALM”) and Funds Transfer Pricing (“FTP”) software systems to enhance market risk management. Interest rate risk sensitivity analyses are performed under various interest rate scenarios using dynamic simulation modeling. The FTP system, being an internal management pricing system, allows for the monitoring of net interest margin. It complements the performance measurement process by incorporating cost of funds dimension to the balance sheet. More details on liquidity and interest rate risks could be found in the Financial Statements on pages 111 to 118 of the AR.
Operational Risk Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or external events. While the Company has established procedures and controls to manage risks, the potential for failure or inadequacy in these procedures and controls would be classified as an operational risk. Operational risk is inherent in all the Company’s business activities, including the practices and controls used to manage other risks. Operational risk failures could lead to reputation damage, financial loss or regulatory consequences.
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Corpor ate goverNaNCe
Operational risk is monitored and controlled through an operational risk management framework designed to provide a sound and well-controlled operational environment. The daily management of operational risk exposures is through a comprehensive system of internal controls to ensure that operational policies and procedures are being adhered to at different levels throughout the Company. The Company’s operational risk self-assessment framework incorporates the mapping of risks into risk categories, monitoring of key risk indicators and loss events reporting. Action plans are formulated based on the severity of the assessed residual risks after considering mitigating controls. This is augmented through the use of a system that supports the operational risk management framework. The IA function checks the system of internal controls through regular and ongoing audit procedures and reports on the effectiveness of internal controls to Management and the AC.
RELATED PARTY AND INTERESTED PERSON TRANSACTIONS Taking a risk-based approach, the Company has established policies and procedures on related party and interested person transactions to ensure that such transactions are undertaken on an arm’s length basis, on normal commercial terms consistent with the Company’s usual business practices and policies, and are not prejudicial to the interests of the Company and its minority shareholders and on terms which are generally no more favourable to the related parties and/or interested persons (as defined in Chapter 9 of the Listing Manual of the SGX-ST), than those other unrelated third parties under similar circumstances. IA reviews related party lending transactions annually and as part of its review, updates the AC on related party lending transactions reviewed and updates the Board on comments/findings if any relating to any loan related/ connected to any AC member. A list of related parties and interested persons is maintained by the Company for monitoring purposes. 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 any shareholders’ mandate pursuant to Rule 920) Hong Leong Investment Holdings Pte. Ltd. group of companies Property-related transactions Receipt of corporate and management services $6,161,670.00* $230,752.22 Not applicable** Not applicable** Aggregate value of all interested person transactions conducted in FY 2010 under shareholders’ mandate pursuant to Rule 920 (excluding transactions less than $100,000)
* **
The figure relates to leases of premises by the Company for its operations from Interested Persons for lease tenures of 3 years and 9 years in duration. The Company has not sought any shareholders’ mandate for interested person transactions pursuant to Rule 920.
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.
Date: 17 March 2011
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Financial REPORT
56 Directors’ Report 65 Statement by Directors 66 Independent Auditors’ Report 68 Balance Sheets 69 Consolidated Statement of Comprehensive Income 70 Consolidated Statement of Changes in Equity 71 Statement of Changes in Equity 72 Consolidated Statement of Cash Flows 73 Notes to the Financial Statements
directors’ report
We are pleased to submit this report to the members of the Company together with the audited financial statements for the financial year ended 31 December 2010. Directors The directors in office at the date of this report are as follows:Kwek Leng Beng Kwek Leng Joo Kwek Leng Peck Kwek Leng Kee Woo Tchi Chu Chng Beng Hua Dr Manfred Otto Barth Cheng Shao Shiong @ Bertie Cheng Lee Jackson @ Li Chik Sin Po’ad bin Shaik Abu Bakar Mattar Ter Kim Cheu (appointed on 1 September 2010) Arrangements to Enable Directors to Acquire Shares and 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 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 related corporations, either at the beginning of the financial year, or date of appointment if later, or at the end of the financial year. The directors of the Company consider Hong Leong Investment Holdings Pte. Ltd. (“HLIH”) to be the immediate and ultimate holding company of the Company. According to the register kept by the Company for the purposes of Section 164 of the Companies Act, Chapter 50, particulars of interests of directors who held office at the end of the financial year (including those of their spouses and infant children) in shares and/or share options in the Company and in related corporations are as follows:-
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directors’ report
Holdings in which the director, his spouse and infant children have a direct interest At beginning of the year At end of the year
The Company
Shares Kwek Leng Beng Kwek Leng Joo Kwek Leng Peck Kwek Leng Kee Woo Tchi Chu Options to subscribe for the following number of shares under the Hong Leong Finance Share Option Scheme 2001 Kwek Leng Beng Immediate and Ultimate Holding Company 3,160,000 3,560,000 4,603,567 703,610 517,359 1,595,079 57,976 4,603,567 703,610 517,359 1,595,079 57,976
Hong Leong Investment Holdings Pte. Ltd. Ordinary Shares Kwek Leng Beng Kwek Leng Joo Kwek Leng Peck Related Corporations 2,320 1,290 10,921 2,320 1,290 10,921
Hong Leong Holdings Limited Ordinary Shares Kwek Leng Beng Kwek Leng Joo Kwek Leng Peck Kwek Leng Kee 259,000 210,000 381,428 997,000 259,000 210,000 381,428 997,000
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directors’ report
Holdings in which the director, his spouse and infant children have a direct interest At beginning of the year At end of the year
Related Corporations (continued)
City Developments Limited Ordinary Shares Kwek Leng Beng Kwek Leng Joo Kwek Leng Peck Woo Tchi Chu Preference Shares Kwek Leng Beng Kwek Leng Joo Hong Realty (Private) Limited Ordinary Shares Kwek Leng Beng Kwek Leng Joo Kwek Leng Peck Kwek Leng Kee Hong Leong Asia Ltd. Ordinary Shares Kwek Leng Beng Kwek Leng Peck Kwek Leng Kee Options to subscribe for the following number of ordinary shares under the Hong Leong Asia Share Option Scheme 2000 Kwek Leng Peck 420,000 420,000 660,000 1,430,000 150,000 660,000 1,430,000 150,000 1,110 510 150 300 1,110 510 150 300 144,445 100,000 144,445 100,000 397,226 65,461 43,758 11,000 397,226 65,461 43,758 11,000
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directors’ report
Holdings in which the director, his spouse and infant children have a direct interest At beginning of the year At end of the year
Related Corporations (continued)
City e-Solutions Limited Ordinary Shares of HK$1.00 each Kwek Leng Beng Kwek Leng Joo Kwek Leng Peck Woo Tchi Chu Millennium & Copthorne Hotels New Zealand Limited Ordinary Shares Kwek Leng Beng Sun Yuan Holdings Pte Ltd Ordinary Shares Kwek Leng Beng Euroform (S) Pte. Limited Ordinary Shares Kwek Leng Joo 50,000 50,000 15,000,000 15,000,000 3,000,000 3,000,000 3,286,980 1,436,000 2,082,200 107,840 3,286,980 1,436,000 2,082,200 107,840
Other holdings in which the director is deemed to have an interest At beginning At end of of the year the year Immediate and Ultimate Holding Company Hong Leong Investment Holdings Pte. Ltd. Ordinary Shares Kwek Leng Beng Kwek Leng Kee 40,744 47,019 40,744 47,019
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directors’ report
The directors’ interests in the Company as at 31 December 2010 disclosed above remained unchanged as at 21 January 2011 except for the following:Holdings in which the director, his spouse and infant children have a direct interest At end of At 21 January the year 2011 Related Corporation Hong Leong Asia Ltd. Options to subscribe for the following number of ordinary shares under the Hong Leong Asia Share Option Scheme 2000 Kwek Leng Peck Directors’ Interests in Contracts 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, Chapter 50. 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, consumer-related 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 above and in the accompanying financial statements, and except for remuneration and professional fees paid/payable by related corporations, since the end of the last financial year, no director 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 he is a member or with a company in which he has a substantial financial interest. 420,000 720,000
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directors’ report
Share Options
(a) Hong Leong Finance Share Option Scheme 2001 (the “Share Option Scheme”) The Share Option Scheme was approved by the shareholders at the extraordinary general meeting of the Company held on 31 January 2001 for an initial duration of 10 years (from 31 January 2001 to 30 January 2011). At the annual general meeting of the Company held on 23 April 2010, the shareholders approved the extension of the duration of the Share Option Scheme for a further period of 10 years from 31 January 2011 to 30 January 2021. 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:Po’ad bin Shaik Abu Bakar Mattar (Chairman) Kwek Leng Peck Woo Tchi Chu Cheng Shao Shiong @ Bertie Cheng 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 a deferred discount) to the Market Price. All options granted to date under the Share Option Scheme are at Market Price and were granted to Group Employees and Parent Group Employees (both as defined in the Share Option Scheme). Subject to any applicable vesting schedule, these options may be exercised one year after the date of the grant and have a term of ten years from the date of the grant. The aggregate number of 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 Option Scheme shall not exceed 15% of the total number of issued Shares 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 (as defined in the Share Option Scheme) collectively under the Share Option Scheme shall not exceed 20% of the total number of Shares available under the Share Option Scheme.
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directors’ report
Share Options (continued)
(b) Options granted under the Share Option Scheme During the financial year under review, the following options were granted to Group Employees under the Share Option Scheme:Number of Shares Date of grant 28.9.2010 Exercise period 28.9.2011 to 27.9.2020 under option 3,581,400 Subscription Price $3.10
(i) Included in the above are options granted to an Executive Director of the Company, details of which are as follows:-
Shares under option granted Name of Director during financial year under review
Aggregate Shares under option granted since commencement of Share Option Scheme to end of financial year under review 3,560,000
Aggregate Shares under option exercised since commencement of Share Option Scheme to end of financial year under review -
Aggregate Shares under option outstanding as at end of financial year under review 3,560,000
Kwek Leng Beng
400,000
(ii) None of the participants were regarded by the Directors as controlling shareholders of the Company. (iii) None of the other participants were granted options representing 5% or more of the total number of Shares under option available under the Share Option Scheme. (iv) None of the Parent Group Employees were granted options representing 5% or more of the total number of Shares under option available under the Share Option Scheme to all Parent Group Employees and Parent Group NonExecutive Directors. A total of 250,000 Shares under option were granted to Parent Group Employees since the commencement of the Share Option Scheme to the end of the financial year under review. (v) Except for options granted to persons in their capacity as Group Employees and/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.
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directors’ report
Share Options (continued)
(b) Options granted under the Share Option Scheme (continued) (vi) The options granted to certain participants of executive rank (including those granted to an Executive Director of the Company) since the commencement of the Share Option Scheme are subject to a vesting schedule as follows:(1) one year after the date of grant for up to 33% of the Shares over which the options are exercisable; (2) two years after the date of grant for up to 66% (including (1) above) of the Shares over which the options are exercisable; and (3) 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. (vii) The persons to whom options have been granted do not have any right to participate by virtue of these options in any share issue of any other company. (c) Unissued Shares under option There were a total of 18,374,505 unissued Shares under option 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 an Executive Director) are as disclosed in the accompanying financial statements. Except as disclosed above and in the accompanying financial statements, 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 (ii) no Shares issued by virtue of any exercise of options to take up unissued Shares of the Company or its subsidiaries.
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directors’ report
Audit Committee The Audit Committee comprises three independent non-executive members of the Board of Directors. The members of the Audit Committee at the date of this report are:Po’ad bin Shaik Abu Bakar Mattar (Chairman) Lee Jackson @ Li Chik Sin Chng Beng Hua The Audit Committee held five meetings since the date of the last directors’ report and carried out the functions of an audit committee under its terms of reference including those specified in the Companies Act, Chapter 50. In carrying out its functions, the Audit Committee inter-alia 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 Audit Committee 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 Audit Committee has recommended to the Board of Directors that the auditors, KPMG LLP, be nominated for reappointment as auditors at the forthcoming Annual General Meeting of the Company. Auditors The auditors, KPMG LLP, have indicated their willingness to accept re-appointment.
On behalf of the Board of Directors
Kwek Leng Beng Director
Po’ad bin Shaik Abu Bakar Mattar Director
Singapore 24 February 2011
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statement by directors
In our opinion:(a) the consolidated financial statements of the Group consisting of Hong Leong Finance Limited (the “Company”) and its subsidiaries and the balance sheet and the statement of changes in equity of the Company, together with the notes, set out on pages 68 to 125 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, changes in equity and cash flows of the Group and the changes in equity of the Company for the year ended on that date in accordance with the provisions of the Singapore Companies Act, Chapter 50 and Singapore Financial Reporting Standards; and (b) 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. The Board of Directors has, on the date of this statement, authorised these financial statements for issue.
On behalf of the Board of Directors
Kwek Leng Beng Director
Po’ad bin Shaik Abu Bakar Mattar Director
Singapore 24 February 2011
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independent auditors’ report
To the Members of Hong Leong Finance Limited
Report on the financial statements We have audited the accompanying financial statements of Hong Leong Finance Limited (the “Company”) and its subsidiaries (the “Group”), which comprise the balance sheets of the Group and the Company as at 31 December 2010, the statement of comprehensive income, statement of changes in equity and statement of cash flows of the Group and statement of changes in equity of the Company for the year then ended, and a summary of significant accounting policies and other explanatory information, as set out on pages 68 to 125. Management’s responsibility for the financial statements Management is responsible for the preparation of financial statements that give a true and fair view in accordance with the provisions of the Singapore Companies Act, Chapter 50 (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 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 financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the 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 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 financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
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independent auditors’ report
To the Members of Hong Leong Finance Limited
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 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, changes in equity and cash flows of the Group and the changes in equity of the Company 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.
KPMG LLP Public Accountants and Certified Public Accountants
Singapore 24 February 2011
67
Hong Leong Finance Annual Report 2010
baLance sHeets
As at 31 December 2010
Group Note 4 2010 2009 440,179,793 $’000 869,006 500,885 98,812 1,468,703
Company 2010 2009 440,179,793 $’000 869,006 500,885 96,414 1,466,305
Number of shares in issue
440,369,293
440,369,293
$’000 Share capital Reserves Accumulated profits Equity attributable to owners of the Company 4 4
$’000
869,535 533,044 146,262 1,548,841
869,535 533,044 143,768 1,546,347
Liabilities Deposits and balances of customers Trade and other payables Current tax payable Total liabilities Total equity and liabilities 6 7 7,268,818 159,356 39,155 7,467,329 8,936,032 7,272,300 158,102 39,145 7,469,547 8,935,852
7,176,706 133,936 41,725 7,352,367 8,901,208
7,180,519 132,677 41,717 7,354,913 8,901,260
Assets Cash at banks and in hand Statutory deposit with the Monetary Authority of Singapore Singapore Government securities Loans, advances and receivables Other receivables, deposits and prepayments Subsidiaries Investments (long term) Property, plant and equipment Deferred tax assets Total assets Acceptances, guarantees and other obligations on behalf of customers 16 17,097 18,252 17,097 18,252 9 10 11 12 13 14 15 8 171,319 925,586 6,278,595 18,501 546 16,817 15,262 8,901,208 170,719 1,027,269 6,136,990 26,948 5,744 17,248 16,593 8,936,032 171,319 925,586 6,278,595 18,500 535 546 16,817 15,262 8,901,260 170,719 1,027,269 6,136,990 26,947 535 5,744 17,248 16,593 8,935,852 9 1,534,521 1,533,807
1,474,582
1,474,100
The accompanying notes form an integral part of these financial statements.
68
Hong Leong Finance Annual Report 2010
consoLidated statement of compreHensive income
Year ended 31 December 2010
Group 2010 Note Profit and loss account: Interest on loans Hiring charges Other interest income Interest income/hiring charges Less: Interest expense Net interest income/hiring charges Fee and commission income Other operating income Income before operating expenses Less: Staff costs Depreciation of property, plant and equipment Other operating expenses Profit from operations before allowances/provision Add/(Less): Reversal or recovery of provision for settlements and costs relating to distribution of wealth management products and impairment losses of other assets and (allowances for) doubtful debts Profit before income tax Less: Income tax expense Profit for the year/Comprehensive income attributable to owners of the Company 23 27.70 27.67 25.26 25.25 121,961 111,178 22 7,11 23,903 146,321 24,360 (24,420) 134,118 22,940 20 15 21 17 18 19 163,413 65,453 29,984 258,850 66,529 192,321 7,167 574 200,062 56,993 1,329 19,322 122,418 198,377 80,599 29,027 308,003 91,167 216,836 7,607 334 224,777 46,444 1,399 18,396 158,538 $’000 2009 $’000
Earnings per share (cents) Basic Diluted
The accompanying notes form an integral part of these financial statements.
69
Hong Leong Finance Annual Report 2010
consoLidated statement of cHanges in equity
Year ended 31 December 2010
Share Share Statutory capital $’000 reserve $’000 Capital reserve $’000 option Accumulated reserve $’000 profits $’000 Total equity $’000
Group At 1 January 2009 Value of employee services received for issue of share options Interim dividend paid of 2 cents per share (tax exempt one-tier) in respect of year 2009 Comprehensive income for the year Transfer to Statutory reserve At 31 December 2009 At 1 January 2010 Issue of shares under share option scheme Value of employee services received for issue of share options Final dividend paid of 6 cents per share (tax exempt one-tier) in respect of year 2009 Interim dividend paid of 4 cents per share (tax exempt one-tier) in respect of year 2010 Comprehensive income for the year Transfer to Statutory reserve At 31 December 2010 869,535 30,491 524,256 2,307 6,481 (17,608) 121,961 (30,491) (17,608) 121,961 (26,412) (26,412) 1,668 1,668 869,006 869,006 529 27,795 493,765 493,765 2,307 2,307 4,813 4,813 (8,804) 111,178 (27,795) 98,812 (8,804) 111,178 1,468,703 1,112 1,112 869,006 465,970 2,307 3,701 24,233 1,365,217
98,812 1,468,703 529
146,262 1,548,841
The statutory reserve is maintained in compliance with the provisions of Section 18 of the Finance Companies Act, Chapter 108.
The accompanying notes form an integral part of these financial statements.
70
Hong Leong Finance Annual Report 2010
statement of cHanges in equity
Year ended 31 December 2010
Share Share Statutory capital $’000 Company At 1 January 2009 Value of employee services received for issue of share options Interim dividend paid of 2 cents per share (tax exempt one-tier) in respect of year 2009 Comprehensive income for the year Transfer to Statutory reserve At 31 December 2009 At 1 January 2010 Issue of shares under share option scheme Value of employee services received for issue of share options Final dividend paid of 6 cents per share (tax exempt one-tier) in respect of year 2009 Interim dividend paid of 4 cents per share (tax exempt one-tier) in respect of year 2010 Comprehensive income for the year Transfer to Statutory reserve At 31 December 2010 869,535 30,491 524,256 2,307 6,481 (17,608) 121,865 (30,491) (17,608) 121,865 (26,412) (26,412) 1,668 1,668 869,006 869,006 529 27,795 493,765 493,765 2,307 2,307 4,813 4,813 (8,804) 111,075 (27,795) 96,414 (8,804) 111,075 1,466,305 1,112 1,112 869,006 465,970 2,307 3,701 21,938 1,362,922 reserve $’000 Capital reserve $’000 option Accumulated reserve $’000 profits $’000 Total equity $’000
96,414 1,466,305 529
143,768 1,546,347
The statutory reserve is maintained in compliance with the provisions of Section 18 of the Finance Companies Act, Chapter 108.
The accompanying notes form an integral part of these financial statements.
71
Hong Leong Finance Annual Report 2010
consoLidated statement of casH fLows
Year ended 31 December 2010
2010 Note Operating activities Comprehensive income after tax for the year Adjustments for:– Impact of accrual of interest income Impact of accrual of interest expense Reversal of allowances for doubtful debts and impairment losses on investments (long term) Depreciation of property, plant and equipment Gain on disposal of property, plant and equipment Value of employee services received for issue of share options Income tax expense Changes in working capital:– Loans, advances and receivables Other receivables, deposits and prepayments Deposits and balances of customers Trade and other payables Cash generated from/(used in) operations Income taxes paid Cash flows from/(used in) operating activities Investing activities Redemption/(purchase) of investments (long term) Purchase of property, plant and equipment Proceeds from disposal of property, plant and equipment Cash flows from/(used in) investing activities Financing activities Proceeds from exercise of share options Dividends paid Cash flows (used in) financing activities (137,015) 5,886 (92,112) (8,340) (101,784) (20,459) (122,243) 22 (4,921) 1,329 (81) 1,668 24,360 129,797 2,561 (17,080) 121,961 $’000
2009 $’000
111,178 1,222 (16,470) (1,213) 1,399 (68) 1,112 22,940 120,100 1,277,140 (1,262) (832,835) (20,682) 542,461 (6,921) 535,540
5,529 (933) 116 4,712
(1,200) (784) 87 (1,897)
529 (44,020) (43,491)
(8,804) (8,804) 524,839 2,207,670 2,732,509
Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 9
(161,022) 2,732,509 2,571,487
The accompanying notes form an integral part of these financial statements.
72
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
These notes form an integral part of the financial statements. The financial statements for the year ended 31 December 2010 were authorised for issue by the Board of Directors on 24 February 2011. 1. Domicile and Activities Hong Leong Finance Limited (the “Company”) is incorporated in the Republic of Singapore. The address of the Company’s registered office is 16 Raffles Quay #01-05 Hong Leong Building, Singapore 048581. The directors consider Hong Leong Investment Holdings Pte. Ltd., a company incorporated in the Republic of Singapore, to be the immediate and ultimate holding company of the Company. The consolidated financial statements of the Group as at and for the year ended 31 December 2010 relate to the Company and its subsidiaries (together referred to as the “Group”). The principal activities of the Company are those relating to financing business and provision of corporate advisory services. The principal activities of the subsidiaries are the provision of nominee services.
2. Basis of Preparation
(a) Statement of compliance The financial statements have been prepared in accordance with Singapore Financial Reporting Standards (“FRS”). (b) Basis of measurement The financial statements have been prepared on the historical cost basis except for certain financial assets and financial liabilities which are stated at fair value. (c) Functional and presentation currency These financial statements are presented in Singapore dollars, which is the Company’s functional currency. All financial information presented in Singapore dollars has been rounded to the nearest thousand, unless otherwise stated. (d) Use of estimates and judgements The preparation of financial statements in conformity with FRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.
73
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
2. Basis of Preparation (continued)
(d) Use of estimates and judgements (continued) Information about critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements and assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year is included in Note 28, Use of Accounting Estimates and Judgements.
3. Significant Accounting Policies The accounting policies set out below have been applied consistently by the Group to all periods presented in these financial statements. (a) Basis of consolidation Subsidiaries are entities controlled by the Group. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, the Group takes into consideration potential voting rights that are presently exercisable. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Intra-group balances and transactions, and any unrealised income or expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Investments in subsidiaries are stated in the Company’s balance sheet at cost less accumulated impairment losses. (b) Foreign currency transactions Transactions in foreign currencies are translated to Singapore dollars at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the end of the reporting period are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the year, adjusted for effective interest and payments during the year, and the amortised cost in foreign currency translated at the exchange rate at the end of the year. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured in terms of historical cost are translated using the exchange rate at the date of the transaction. Foreign currency differences arising on retranslation are recognised in profit or loss, except for differences arising on the retranslation of available-for-sale equity instruments or qualifying cash flow hedges, which are recognised in other comprehensive income.
74
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
3. Significant Accounting Policies (continued) (c) Financial instruments (i) Fair value measurement The determination of fair values of financial assets and financial liabilities is based on quoted market prices for financial instruments traded in active markets. (ii) Non-derivative financial assets The Group initially recognises loans and receivables and deposits on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognised initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability. The Group also derecognises certain assets when it charges off balances pertaining to the assets deemed to be uncollectible. Financial assets and liabilities are offset and the net amount presented in the balance sheet when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. The Group classifies non-derivative financial assets into the following categories: financial assets at fair value through profit or loss, held-to-maturity financial assets, loans and receivables and available-for-sale financial assets. Financial assets at fair value through profit or loss A financial asset is classified as fair value through profit or loss if it is classified as held for trading or is designated as such upon initial recognition. Financial assets are designated as fair value through profit or loss if the Group manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Group’s documented risk management or investment strategy. Attributable transaction costs are recognised in profit or loss as incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognised in profit or loss. Held-to-maturity financial assets If the Group has the positive intent and ability to hold debt securities to maturity, then such financial assets are classified as held-to-maturity. Held-to-maturity financial assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, held-to-maturity financial assets are measured at amortised cost using the effective interest method, less any impairment losses. Any sale or reclassification of a more than insignificant amount of held-to-maturity investments not close to their maturity would result in the reclassification of all held-to-maturity investments as available for sale. It would also prevent the Group from classifying investment securities as held-to-maturity for the current and the following two financial years. Held-to-maturity financial assets comprise Singapore Government securities. 75
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
3. Significant Accounting Policies (continued)
(c) Financial instruments (continued) (ii) Non-derivative financial assets (continued) Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. Loans and receivables comprise cash balances, bank deposits, statutory deposit with the Monetary Authority of Singapore, loans, advances and receivables, and other receivables. Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are designated as available for sale or are not classified in any of the above categories of financial assets. Initial recognition is at fair value plus incremental direct transaction costs. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses (see Note 3(f)(i)) and foreign currency differences on available-for-sale monetary items (see Note 3(b)), are recognised in other comprehensive income and presented in the fair value reserve in equity. When an investment is derecognised, the gain or loss accumulated in equity is reclassified to profit or loss. Equity investments without active quoted market prices and whose fair value cannot be reliably measured are measured at cost less any impairment losses. Available-for-sale financial assets comprise equity securities. (iii) Non-derivative financial liabilities The Group initially recognises debt securities issued and subordinated liabilities on the date that they are originated. All other financial liabilities (including liabilities designated at fair value through profit or loss) are recognised initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expire. Financial assets and liabilities are offset and the net amount presented in the balance sheet when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. Such financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest method. Non-derivative financial liabilities comprise deposits and balances of customers, borrowings and trade and other payables. Deposits and borrowings are the Group’s sources of debt funding.
76
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
3. Significant Accounting Policies (continued)
(c) Financial instruments (continued) (iv) Share capital Shares are classified as equity. Incremental costs directly attributable to the issue of shares are recognised as a deduction from equity, net of any tax effects. (v) Derivative financial instruments, including hedge accounting The Group holds derivative financial instruments to hedge its interest rate risk exposures. Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the combined instrument is not measured at fair value through profit or loss. On initial designation of the derivative as the hedging instrument, the Group formally documents the relationship between the hedging instrument and hedged item, including the risk management objectives and strategy in undertaking the hedge transaction and the hedged risk, together with the methods that will be used to assess the effectiveness of the hedging relationship. The Group makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, of whether the hedging instruments are expected to be “highly effective” in offsetting the changes in the fair value or cash flows of the respective hedged items attributable to the hedged risk, and whether the actual results of each hedge are within a range of 80%-125%. For a cash flow hedge of a forecast transaction, the transaction should be highly probable to occur and should present an exposure to variations in cash flows that could ultimately affect reported profit or loss. Derivatives are recognised initially at fair value; attributable transaction costs are recognised in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below. Fair value hedges Changes in the fair value of a derivative hedging instrument designated as a fair value hedge are recognised in profit or loss. The hedged item is also stated at fair value in respect of the risk being hedged; the gain or loss attributable to the hedged risk is recognised in profit or loss with an adjustment to the carrying amount of the hedged item.
77
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
3. Significant Accounting Policies (continued)
(c) Financial instruments (continued) (v) Derivative financial instruments, including hedge accounting (continued) Cash flow hedges When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognised in other comprehensive income and presented in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss. When the hedged item is a non-financial asset, the amount accumulated in equity is included in the carrying amount of the asset when the asset is recognised. In other cases, the amount accumulated in equity is reclassified to profit or loss in the same period that the hedged item affects profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. If the forecast transaction is no longer expected to occur, then the balance in equity is reclassified to profit or loss. Separable embedded derivatives Changes in the fair value of separated embedded derivatives are recognised immediately in profit or loss. Other non-trading derivatives When a derivative financial instrument is not designated in a hedge relationship that qualifies for hedge accounting, all changes in its fair value are recognised immediately in profit or loss. (vi) Financial guarantees Financial guarantees are financial instruments issued by the Group that require 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 in accordance with the original or modified terms of a debt instrument. Financial guarantees are recognised initially at fair value and are classified as financial liabilities. Subsequent to initial measurement, the financial guarantees are stated at the higher of the initial fair value less cumulative amortisation and the amount that would be recognised if they were accounted for as contingent liabilities. When financial guarantees are terminated before their original expiry dates, the carrying amount of the financial guarantee is transferred to profit or loss.
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Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
3. Significant Accounting Policies (continued)
(d) Property, plant and equipment (i) Recognition and measurement Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. Property, plant and equipment acquired through finance leases are carried at cost, less accumulated depreciation and accumulated impairment losses. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. The carrying amounts of material land and properties are reviewed annually to determine whether they are in excess of their recoverable amounts at the reporting date. If the carrying amount exceeds the recoverable amount, the asset is written down to the lower value. The gain or loss on disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and is recognised net within other income/ other expenses in profit or loss. When revalued assets are sold, any related amount included in the revaluation reserve is transferred to accumulated profits or capital reserve. (ii) Subsequent costs The cost of replacing a component of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the component will flow to the Group, and its cost can be measured reliably. The carrying amount of the replaced component is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred. (iii) Depreciation Depreciation is based on the cost of an asset less its residual value. Significant components of individual assets are assessed and if a component has a useful life that is different from the remainder of that asset, that component is depreciated separately. Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each component of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Freehold land is not depreciated.
79
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
3. Significant Accounting Policies (continued)
(d) Property, plant and equipment (continued) (iii) Depreciation (continued) The estimated useful lives (or lease term where shorter) for the current and comparative years are as follows:Properties other than freehold land Office equipment, fixtures and fittings Computer equipment Motor vehicles 23 to 50 years 3 to 5 years 3 years 5 years
Depreciation methods, useful lives and residual values are reviewed at the end of each reporting period and adjusted if appropriate. (e) Leased assets Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Other leases are operating leases and are not recognised in the Group’s balance sheet. (f) Impairment (i) Non-derivative financial assets A financial asset not carried at fair value through profit or loss is assessed at the end of each reporting period to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. Objective evidence that financial assets (including equity securities) are impaired can include default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status of borrowers or issuers in the Group, economic conditions that correlate with defaults or the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.
80
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
3. Significant Accounting Policies (continued)
(f) Impairment (continued) (i) Non-derivative financial assets (continued) Loans and receivables and held-to-maturity investment securities The Group considers evidence of impairment for loans and receivables and held-to-maturity investment securities at both a specific asset and collective level. All individually significant loans and receivables and held-to-maturity investment securities are assessed for specific impairment. All individually significant loans and receivables and held-to-maturity investment securities found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Loans and receivables and held-to-maturity investment securities that are not individually significant are collectively assessed for impairment by grouping together loans and receivables and held-to-maturity investment securities with similar risk characteristics. In assessing collective impairment, the Group uses historical trends of the probability of default, the timing of recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of estimated future cash flows, discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against loans and receivables or held-to-maturity investment securities. Interest on the impaired asset continues to be recognised. When a subsequent event (e.g. repayment by a debtor) causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. Available-for-sale financial assets Impairment losses on available-for-sale financial assets are recognised by reclassifying the losses accumulated in the fair value reserve in equity to profit or loss. The cumulative loss that is reclassified from equity to profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss recognised previously in profit or loss. Changes in impairment provisions attributable to application of the effective interest method are reflected as a component of interest income. If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase can be related objectively to an event occurring after the impairment loss was recognised in profit or loss, then the impairment loss is reversed. The amount of the reversal is recognised in profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in other comprehensive income.
81
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
3. Significant Accounting Policies (continued)
(f) Impairment (continued) (ii) Non-financial assets The carrying amounts of the Group’s non-financial assets, other than deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. An impairment loss is recognised if the carrying amount of an asset or its related cash-generating unit (“CGU”) exceeds its estimated recoverable amount. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows 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 or CGU. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGU. Impairment losses are recognised in profit or loss. Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (g) Employee benefits (i) Defined contribution plans A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognised as an employee benefit expense in profit or loss in the periods during which services are rendered by employees. (ii) Short-term employee benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus 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.
82
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
3. Significant Accounting Policies (continued)
(g) Employee benefits (continued) (iii) Share-based payment transactions The grant date fair value of share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. The proceeds received net of any directly attributable transaction costs are credited to share capital when the options are exercised. The fair value of employee share options is measured using a Black-Scholes model. Measurement inputs include share price on measurement date, exercise price, expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), weighted average expected life of the options (based on historical experience and general option holder behaviour), expected dividends, and the risk-free interest rate (based on government bonds). (h) Provisions A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. (i) Recognition of income and expense (i) Interest Interest income and expense are recognised in profit or loss using the effective interest method. The effective interest rate is the rate that discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability (or, where appropriate, a shorter period) to the carrying amount of the financial asset or liability. The effective interest rate is established on initial recognition of the financial asset and liability and is not revised subsequently unless contractually adjusted. The calculation of the effective interest rate includes fees, transaction costs, and discounts or premiums that are an integral part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or liability. Interest income and expense presented in the statement of comprehensive income include interest on financial assets and liabilities at amortised cost on an effective interest rate basis and gains and losses on hedging instruments that are recognised in profit or loss.
83
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
3. Significant Accounting Policies (continued)
(i) Recognition of income and expense (continued) (i) Interest (continued) Where charges are added to the principal financed at the commencement of the period, the general principle adopted for crediting income to profit or loss is to spread the income over the period in which the repayments are due using the following bases for the various categories of financing business:Income earned on hire purchase and leasing Term charges on hire purchase and leasing transactions are accounted for using the Rule of 78 (sum of digits) method. The balance of such term charges at the financial year end is carried forward as unearned charges. Income earned on loans Interest is charged on either an annual rest, monthly rest or daily basis and credited to profit or loss in the period to which it relates. Income earned on trade finance and factoring accounts Interest is charged principally on a monthly rest basis. Income from debt securities Interest income from debt securities with a fixed maturity is recognised as it accrues. Income from bank deposits Interest income from bank deposits is accrued on a time-apportioned basis. Expense on deposits and balances of customers and interest-bearing borrowings Interest expense is accrued on a time-apportioned basis. (ii) Fee and commission Fee and commission income and expense that are integral to the effective interest rate on a financial asset or liability are included in the measurement of the effective interest rate. Other fee and commission income are recognised as the related services are performed. Other fee and commission expense relates mainly to transaction and service fees, which are expensed as the services are received.
84
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notes to tHe financiaL statements
Year ended 31 December 2010
3. Significant Accounting Policies (continued)
(i) Recognition of income and expense (continued) (iii) Dividend income Dividend income is recognised in profit or loss on the date that the Group’s right to receive payment is established, which in the case of quoted securities is normally the ex-dividend date. (iv) Offsetting Gains and losses arising from a group of similar transactions are presented on a net basis. (j) Government grant – Jobs Credit Scheme Cash grants received from the government in relation to the Jobs Credit Scheme are recognised as an offset against staff costs. (k) Lease payments Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed. Determining whether an arrangement contains a lease At inception of an arrangement, the Group determines whether such an arrangement is or contains a lease. A specific asset is the subject of a lease if fulfillment of the arrangement is dependent on the use of that specified asset. An arrangement conveys the right to use the asset if the arrangement conveys to the Group the right to control the use of the underlying asset. At inception or upon reassessment of the arrangement, the Group separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a finance lease that it is impracticable to separate the payments reliably, then an asset and a liability are recognised at an amount equal to the fair value of the underlying asset. Subsequently, the liability is reduced as payments are made and an imputed finance charge on the liability is recognised using the Group’s incremental borrowing rate.
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notes to tHe financiaL statements
Year ended 31 December 2010
3. Significant Accounting Policies (continued)
(l) Income tax Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for:t • emporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss; • emporary differences related to investments in subsidiaries and jointly controlled entities to the extent that it is t probable that they will not reverse in the foreseeable future; and • taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. (m) Earnings per share The Group presents basic and diluted earnings per share data for its shares. Basic earnings per share is calculated by dividing the profit or loss after tax attributable to owners of the Company by the weighted average number of shares outstanding during the year. Diluted earnings per share is determined by adjusting the profit or loss after tax attributable to owners and the weighted average number of shares outstanding for the effects of all dilutive potential shares, which comprise shares under option granted to employees.
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Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
3. Significant Accounting Policies (continued)
(n) Segment reporting An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. The Group operates in only one segment. Its activities relate to financing business augmented by secondary non-lending activities such as provision of corporate advisory services and provision of nominee services. All activities are carried out in the Republic of Singapore. Revenue in respect of these activities is presented in Notes 17 and 18. (o) New standards and interpretations not yet adopted A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 January 2010, and have not been applied in preparing these financial statements. None of these are expected to have a significant effect on the financial statements of the Group.
4. Capital and Reserves
Share capital
Company 2010 Number Note Fully paid shares, with no par value:At 1 January Issue of shares under share option scheme At 31 December 5 440,179,793 189,500 440,369,293 440,179,793 440,179,793 of shares 2009 Number of shares
In 2010, pursuant to the Hong Leong Finance Share Option Scheme 2001 (“Share Option Scheme”), the Company issued new shares fully paid in cash as follows:Company 2010 Number of shares Exercise price $3.62 $3.06 $2.74 6,000 16,500 167,000 189,500
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notes to tHe financiaL statements
Year ended 31 December 2010
4. Capital and Reserves (continued)
Share capital (continued) In 2009, the Company did not issue any new shares pursuant to the Share Option Scheme. The holders of 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. Reserves Group and Company 2010 $’000 Statutory reserve Capital reserve Share option reserve 524,256 2,307 6,481 533,044 2009 $’000 493,765 2,307 4,813 500,885
The statutory reserve is maintained in compliance with the provisions of Section 18 of the Finance Companies Act, Chapter 108. The capital reserve comprises premium on issue of bonds with warrants and surplus on liquidation of subsidiaries. The share option reserve comprises the cumulative value of employee services received for the issue of share options. Details of movements in reserves are shown in the consolidated statement of changes in equity and statement of changes in equity. Dividends After the balance sheet date, the Directors proposed a final dividend of 8 cents per share, tax exempt one-tier, amounting to $35,230,000 (2009: 6 cents per share, tax exempt one-tier, amounting to $26,412,000) when estimated based on the number of shares in issue as at the balance sheet date. The dividend has not been recognised in the financial statements. The proposed final dividend is in addition to an interim dividend of 4 cents per share, tax exempt one-tier, (2009: 2 cents per share, tax exempt one-tier) amounting to $17,608,000 (2009: $8,804,000) paid on 15 September 2010 (2009: 16 September 2009).
88
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
5. Employee Share Options The Share Option Scheme was approved and adopted by members at an Extraordinary General Meeting held on 31 January 2001 for an initial duration of 10 years (from 31 January 2001 to 30 January 2011). At the Annual General Meeting of the Company held on 23 April 2010, the shareholders approved the extension of the duration of the Share Option Scheme for a further period of 10 years from 31 January 2011 to 30 January 2021. 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 the Company’s Share Option Scheme Committee which comprised the following directors as at 31 December 2010:Po’ad bin Shaik Abu Bakar Mattar (Chairman) Kwek Leng Peck Woo Tchi Chu Cheng Shao Shiong @ Bertie Cheng Information regarding the Share Option Scheme is as follows:(a) The subscription price for each share under option is fixed by the Share Option Scheme Committee and to date has been at a price equal to the average of the last dealt prices for one share in the capital of the Company, as determined by reference to the daily official list made available by the Singapore Exchange Securities Trading Limited, for the 3 consecutive trading days immediately preceding the date of grant, subject to the rules of the Share Option Scheme. (b) Each option is exercisable, in whole or in part, during the option period applicable to that option subject to any conditions, including a vesting schedule, that may be imposed by the Share Option Scheme Committee in relation to any shares comprised in that option. (c) All options are settled by delivery of shares. (d) The options granted to Group Employees and Parent Group Employees expire 10 years from the date of grant. The options granted to Non-Group Employees expire 5 years from the date of grant.
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Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
5. Employee Share Options (continued) Movements in the number of share options and their related weighted average exercise prices are as follows:-
Weighted average exercise price 2010 $ At 1 January Granted Not accepted Lapsed Exercised At 31 December Exercisable at 31 December
Number of options 2010 (’000)
Weighted average exercise price 2009 $ 3.26 2.74 2.74 3.44 3.15 3.26
Number of options 2009 (’000) 12,181 3,307 (28) (306) 15,154 10,612
3.15 3.10 3.10 3.10 2.80 3.14
15,154 3,636 (55) (172) (189) 18,374
3.18
13,528
In 2010, options exercised resulted in the issue of 189,500 shares at a weighted average price of $2.80 each. No option was exercised in 2009. The weighted average share price during the year was $3.03 (2009: $2.50) per share. The fair value of services received in return for share options granted is measured based on the grant-date fair value of share options. The grant-date fair value of the share options is measured using a 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. Expected volatility is estimated by considering historic average share price volatility. There are no market and non-market performance conditions associated with the share option grants. Service conditions are not taken into account in the measurement of fair value of the services to be received at the grant date.
90
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
5. Employee Share Options (continued) The inputs used in the measurement of the fair values at grant date of the share options are as follows:Fair value of share options and assumptions Date of grant of options Fair value at grant date Share price Exercise price Expected volatility Expected option life Expected dividend yield Risk-free interest rate (based on government bonds) Employee expenses:2010 $’000 Share options granted in 2006 2007 2008 2009 2010 Total expense recognised as employee costs 43 84 1,143 398 1,668 21 122 590 379 1,112 2009 $’000 1.2 to 3.0% 1.2 to 3.7% 1.6 to 3.2% 2.4 to 2.9% 3.0 to 3.2% 2.2 to 2.7% 1.5 to 3.2% 1.2 to 2.5% 0.8 to 2.0% 4.9% 4.1% 6.3% 4.8% 5.6% 4.9% 5.1% 2.9% 3.9% $0.17 $1.79 $1.85 22.6% 2.2 to 10 years $0.31 $2.66 $2.63 22.0% 2.2 to 10 years $0.13 $2.84 $2.85 15.5% 2.4 to 10 years $0.31 $3.78 $3.82 18.4% 2.4 to 10 years $0.23 $3.24 $3.22 16.4% 2.7 to 10 years $0.39 $3.68 $3.62 21.3% 2.9 to 10 years $0.26 $2.95 $3.06 21.3% 3.4 to 10 years $0.53 $2.76 $2.74 28.3% 4.2 to 10 years $0.49 $3.09 $3.10 28.1% 4.4 to 10 years 5.12.2002 16.9.2003 28.9.2004 28.9.2005 28.9.2006 19.9.2007 30.9.2008 29.9.2009 28.9.2010
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Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
5. Employee Share Options (continued) Details of the options granted under the Share Option Scheme on unissued shares of the Company at the end of the year are as follows:(1) Date of grant of options Expiry date Exercise price Number of options outstanding at 1.1.2010 Options lapsed Options exercised (1.1.2010 to 31.12.2010) Number of options outstanding at 31.12.2010 Number of options exercisable at 1.1.2010 Number of options exercisable at 31.12.2010 Option exercise period of options outstanding at 31.12.2010 5.12.2003 to 4.12.2012 vested on 5.12.2003 vested on 5.12.2004 vested on 5.12.2005 16.9.2004 to 15.9.2013 vested on 16.9.2004 vested on 16.9.2005 vested on 16.9.2006 28.9.2005 to 27.9.2014 vested on 28.9.2005 vested on 28.9.2006 vested on 28.9.2007 28.9.2006 to 27.9.2015 vested on 28.9.2006 vested on 28.9.2007 vested on 28.9.2008 28.9.2007 to 27.9.2016 vested on 28.9.2007 vested on 28.9.2008 vested on 28.9.2009 5.12.2002 4.12.2012 $1.85 633,000 633,000 633,000 633,000 231,000 198,000 204,000 (2) 16.9.2003 15.9.2013 $2.63 590,500 590,500 590,500 590,500 (3) 28.9.2004 27.9.2014 $2.85 671,500 671,500 671,500 671,500 (4) 28.9.2005 27.9.2015 $3.82 2,071,320 5,000 2,066,320 2,071,320 2,066,320 (5) 28.9.2006 27.9.2016 $3.22 1,500,095 39,610 1,460,485 1,500,095 1,460,485
244,780 170,280 175,440
339,280 153,780 178,440
1,354,940 338,910 372,470
853,800 298,815 307,870
(6) Date of grant of options Expiry date Exercise price Number of options outstanding at 1.1.2010 Options granted Options not accepted Options lapsed Options exercised (1.1.2010 to 31.12.2010) Number of options outstanding at 31.12.2010 Number of options exercisable at 1.1.2010 Number of options exercisable at 31.12.2010 Option exercise period of options outstanding at 31.12.2010 19.9.2008 to 18.9.2017 vested on 19.9.2008 vested on 19.9.2009 vested on 19.9.2010 30.9.2009 to 29.9.2018 vested on 30.9.2009 vested on 30.9.2010 vesting on 30.9.2011 29.9.2010 to 28.9.2019 vested on 29.9.2010 vesting on 29.9.2011 vesting on 29.9.2012 28.9.2011 to 27.9.2020 vesting on 28.9.2011 vesting on 28.9.2012 vesting on 28.9.2013 19.9.2007 18.9.2017 $3.62 3,029,500 21,000 6,000 3,002,500 2,624,730 3,002,500 2,204,865 392,865 404,770
(7) 30.9.2008 29.9.2018 $3.06 3,384,500 49,500 16,500 3,318,500 2,520,870 2,880,240
(8) 29.9.2009 28.9.2019 $2.74 3,274,000 49,500 167,000 3,057,500 2,223,015
(9) 28.9.2010 27.9.2020 $3.10 3,636,400 55,000 7,200 3,574,200 -
2,454,870 425,370 438,260
2,223,015 411,015 423,470
2,705,411 427,911 440,878
92
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
6. Deposits and Balances of Customers These include deposits placed by subsidiaries amounting to $3,813,000 (2009: $3,482,000) for the Company, and by other related corporations amounting to $35,124,000 (2009: $12,554,000) for the Group and the Company, accepted in the ordinary course of business.
7. Trade and Other Payables
Group 2010 $’000 Due after 12 months Amount due to SPRING Singapore Due within 12 months Amount due to SPRING Singapore Interest payable Other trade payables and accrued operating expenses Trade amounts due to:- related corporations - subsidiaries Other payables Total trade and other payables 283 1,288 114,679 133,936 188 1,267 135,151 159,356 274 30 1,215 113,420 132,677 47,748 52,818 46,541 23,871 41,489 22,317 58,561 23,871 41,489 19,257 24,205 19,257 2009 $’000 2010 $’000
Company 2009 $’000
24,205
22,317 58,561 51,615 185 27 1,192 133,897 158,102
Amount due to SPRING Singapore represents unsecured advances from Standards, Productivity and Innovation Board under the Local Enterprise Finance Scheme (“LEFS”) and Extended Local Enterprise Finance Scheme (“ELEFS”) to finance LEFS and ELEFS borrowers. The interest rates and repayment periods vary in accordance with the type, purpose and security of the facilities granted under these schemes. Credit risks are shared with SPRING Singapore. Included in other trade payables and accrued operating expenses is a provision for settlements and costs relating to distribution of wealth management products. During the financial year, the Company received the first and final distribution from the trustee of a series of structured notes, in respect of notes obtained by the Company upon settlement with customers who had earlier purchased such notes through the Company. This has given rise to a reversal of provision for settlements and costs amounting to $13 million in the financial year ended 31 December 2010.
93
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
8. Deferred Tax Movements in deferred tax assets and liabilities during the year are as follows:Group and Company Recognised At 1 January 2009 $’000 Deferred tax assets Trade and other payables Loans, advances and receivables Deferred tax liabilities Property, plant and equipment Other items 177 180 357 Net deferred tax assets (19,315) 7 (10) (3) 2,722 184 170 354 (16,593) 50 50 234 170 404 (4,088) (15,584) (19,672) 674 2,051 2,725 (3,414) (13,533) (16,947) 529 752 1,281 (2,885) (12,781) (15,666) in profit or loss (Note 22) $’000 At 31 December 2009 $’000 Recognised in profit or loss (Note 22) $’000 At 31 December 2010 $’000
1,331
(15,262)
Deferred tax assets relate primarily to timing differences in respect of provisions and collective impairment allowances expected to be realisable at a future date. Deferred tax liabilities relate primarily to differences arising between capital allowances granted and accumulated depreciation in respect of capital expenditure and other timing issues.
9. Cash and Cash Equivalents
Group 2010 $’000 Cash at banks and in hand Statutory deposit with the Monetary Authority of Singapore Singapore Government securities Cash and cash equivalents in the consolidated statement of cash flows 1,474,582 171,319 925,586 2,571,487 2009 $’000 1,534,521 170,719 1,027,269 2,732,509
94
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
10. Singapore Government Securities Group and Company 2010 $’000 Singapore Government securities, held to maturity at amortised cost - Within 12 months - After 12 months 158,499 767,087 925,586 Market value 115,400 911,869 1,027,269 1,066,374 2009 $’000
955,826
11. Loans, Advances and Receivables Group and Company 2010 $’000 (a) Loans, advances and receivables at amortised cost Due after 12 months Loans, advances and hire purchase receivables Less: Unearned charges and interest Less: Allowances for doubtful debts - Loans and advances - Hire purchase receivables 38,854 25,042 63,896 4,201,021 Due within 12 months Loans, advances, factoring receivables and hire purchase receivables Less: Unearned charges and interest Less: Allowances for doubtful debts - Loans, advances and factoring receivables - Hire purchase receivables 20,704 9,590 30,294 2,077,574 Total loans, advances and receivables 23,266 10,859 34,125 2,086,140 6,136,990 2,156,703 48,835 2,107,868 2,181,647 61,382 2,120,265 40,221 29,093 69,314 4,050,850 4,346,222 81,305 4,264,917 4,228,125 107,961 4,120,164 2009 $’000
6,278,595
95
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
11. Loans, Advances and Receivables (continued) (b) Allowances for impairment Group and Company 2010 $’000 Specific allowances for impairment At 1 January Net allowances reversed during the year Receivables written off against allowances At 31 December Collective allowances for impairment At 1 January and 31 December Total allowances for impairment (c) Hire purchase receivables are categorised as follows:Group and Company 2010 Receivables $’000 Due within 1 year Due after 1 year but within 5 years Due after 5 years Total Interest $’000 Principal $’000 Receivables $’000 538,474 1,186,244 203,513 1,928,231 2009 Interest $’000 59,956 98,955 8,778 167,689 Principal $’000 478,518 1,087,289 194,735 1,760,542 28,538 (4,590) (4,659) 19,289 33,924 (1,112) (4,274) 28,538 2009 $’000
74,901 94,190
74,901 103,439
468,391
47,631
420,760
1,023,142 156,736 1,648,269
75,350 5,793 128,774
947,792 150,943 1,519,495
The Company’s leasing arrangements comprise hire purchase contracts mainly for motor vehicles and equipment.
96
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
12. Other Receivables, Deposits and Prepayments Group 2010 $’000 Interest receivables Deposits Prepayments Other receivables Less: Allowances for doubtful receivables:At 1 January Allowances reversed during the year At 31 December Net receivables Total 11,583 1,463 1,036 4,419 2009 $’000 14,144 1,441 856 10,507 2010 $’000 11,583 1,463 1,035 4,419 Company 2009 $’000 14,144 1,441 855 10,507
4,419 18,501
101 (101) 10,507 26,948
4,419 18,500
101 (101) 10,507 26,947
Deposits include rental and other deposits placed with related corporations amounting to $1,086,000 (2009: $964,000) for the Group and the Company.
13. Subsidiaries Company 2010 $’000 Unquoted equity investments, at cost Details of the subsidiaries are as follows:Effective equity held by the Group Country of Name of Subsidiary Hong Leong Finance Nominees Pte Ltd Singapore Nominees Private Limited KPMG LLP Singapore is the auditor of the subsidiaries. incorporation Singapore Singapore 2010 % 2009 % 100 100 535 2009 $’000 535
100 100
97
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
14. Investments (long term)
Group and Company 2010 $’000 Available for sale unquoted equity securities, at cost Less: Impairment losses:At 1 January Impairment losses reversed upon redemption during the year At 31 December Net investments 514 (502) 12 514 514 5,744 2009 $’000 6,258
558
546
Included in the above at 31 December 2009 was an amount of $5,198,000 being investment net of impairment loss in The Enterprise Fund Ltd whose fund sponsors were IE Singapore Holdings Pte Ltd and the Company and which was targeted at making equity investments to support small and medium enterprises. During the year, the investment in The Enterprise Fund Ltd was redeemed at $5,529,000.
98
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
15. Property, Plant and Equipment Group and Company Office equipment, Freehold land $’000 Cost At 1 January 2009 Additions Disposals At 31 December 2009 Additions Disposals At 31 December 2010 Accumulated depreciation and impairment losses At 1 January 2009 Depreciation charge for the year Disposals At 31 December 2009 Depreciation charge for the year Disposals At 31 December 2010 Carrying amount At 1 January 2009 At 31 December 2009 At 31 December 2010 50 50 50 1,877 1,817 1,757 13,768 13,328 12,889 1,536 1,460 1,504 129 96 163 522 497 454 17,882 17,248 16,817 1,061 60 1,121 60 1,181 4,599 440 5,039 439 5,478 7,281 618 (419) 7,480 541 (786) 7,235 10,350 78 (1,693) 8,735 99 (271) 8,563 457 203 (191) 469 190 (195) 464 23,748 1,399 (2,303) 22,844 1,329 (1,252) 22,921 50 50 50 2,938 2,938 2,938 18,367 18,367 18,367 8,817 543 (420) 8,940 594 (795) 8,739 10,479 46 (1,694) 8,831 167 (272) 8,726 979 195 (208) 966 172 (220) 918 41,630 784 (2,322) 40,092 933 (1,287) 39,738 Freehold buildings $’000 Leasehold buildings $’000 fixtures and $’000 Computer $’000 Motor vehicles $’000 Total $’000 fittings equipment
The carrying amount of property, plant and equipment of the Group and the Company includes amounts totalling $12,889,000 (2009: $13,328,000) in respect of leasehold buildings held under finance leases.
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Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
15. Property, Plant and Equipment (continued) The carrying amounts of material properties held at 31 December are as follows:Group and Company 2010 $’000 (a) A shop unit at Block 203 Bedok North Street 1 #01-451, Singapore, with a floor area of approximately 4,026 sq. ft. on a 84-year lease commencing July 1992 held as branch premises. (b) A shop unit at Block 725 Clementi West Street 2 #01-216, Singapore, with a floor area of approximately 3,832 sq. ft. on a 85-year lease commencing November 1995 held as branch premises. (c) A shop unit at Block 504 Jurong West Street 51 #01-211, Singapore, comprising 1,539 sq. ft. on a 91-year lease commencing January 1994 held as branch premises. (d) A shop unit at Block 520 Lorong 6 Toa Payoh #02-54, Singapore, comprising 1,195 sq. ft. on a 99-year lease commencing May 2002 held as branch premises. (e) A shop unit at 288 Balestier Road #01-02, Singapore, comprising 1,281 sq. ft. on freehold land held as branch premises. Total 1,135 7,567 1,162 7,776 1,714 1,756 1,120 1,152 1,972 2,029 1,626 1,677 2009 $’000
16. Acceptances, Guarantees and Other Obligations on behalf of Customers These are commitments entered into by the Group and the Company on behalf of customers for which customers have corresponding obligations under their contracts with the Group and the Company, and are in respect of the following:Group and Company 2010 $’000 Letters of credit Guarantees Total These contingent liabilities are not secured on any of the Group’s assets. 2009 $’000 1,733 16,519 18,252
546 16,551 17,097
100
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
17. Net Interest Income/Hiring Charges
Group 2010 $’000 Interest income/hiring charges Loans, advances and receivables Deposits placed Singapore Government securities and other liquid assets Total interest income Interest expense Deposits from - related corporations - other persons Others Total interest expense Net interest income/hiring charges 27 65,104 1,398 66,529 56 90,185 926 91,167 216,836 228,866 5,638 24,346 258,850 278,976 3,528 25,499 308,003 2009 $’000
192,321
There are no interest income/hiring charges and interest expense reported above that relate to financial assets or liabilities that are carried at fair value through profit or loss or classified as available-for-sale.
18. Fee and Commission Income Group 2010 $’000 Fee and commission income arising from:Loans and advances extended to - related corporations - other persons Non-lending activities Others Total 3 6,688 386 90 7,167 6,631 862 114 7,607 2009 $’000
There is no fee and commission income relating to financial assets or liabilities carried at fair value through profit or loss or classified as available-for-sale.
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notes to tHe financiaL statements
Year ended 31 December 2010
19. Other Operating Income Group 2010 $’000 Gain on disposal of plant and equipment Other operating income from - related corporation - other persons Total 493 574 15 251 334 2009 $’000 68
81
20. Staff Costs Group 2010 $’000 Short-term employee benefits CPF contributions to defined contribution plans Share-based payments Total 2009 $’000 41,049 4,283 1,112 46,444
50,391 4,934 1,668 56,993
21. Other Operating Expenses Group 2010 $’000 Audit fees to auditors Non-audit fees to auditors Operating lease expenses to - related corporations on normal commercial terms - other persons IT-related expenses Other expenses to - related corporations - other persons Total 452 11,270 19,322 326 10,677 18,396 3,713 1,383 2,079 3,581 1,474 1,913 2009 $’000 362 63
346 79
Included in other expenses to other persons are fee and commission expenses arising from loans and advances amounting to $1,804,000 (2009: $2,566,000).
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notes to tHe financiaL statements
Year ended 31 December 2010
22. Income Tax Expense Group 2010 Note Current tax expense Current year Deferred tax expense Origination and reversal of temporary differences Reduction in tax rate 8 Total income tax expense Reconciliation of tax expense Group 2010 $’000 Profit after tax for the year Income tax expense Profit before income tax Tax calculated using Singapore tax rate of 17% (2009: 17%) Reduction in tax rate Tax effect on:Exempt income not taxable for tax purposes Tax incentives Bad debts recovered not subject to tax Income taxed at concessionary tax rate Expenses not deductible for tax purposes Others Income tax expense (35) (72) (2) (831) 420 6 24,360 (37) (3) (898) 5 22,940 2009 $’000 111,178 22,940 134,118 22,800 1,073 1,331 1,331 1,649 1,073 2,722 22,940 23,029 20,218 $’000 2009 $’000
24,360
121,961 24,360 146,321
24,874 -
103
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
23. Earnings Per Share (a) Basic earnings per share Group 2010 $’000 Basic earnings per share is based on:Profit after tax for the year attributable to owners of the Company 121,961 2010 Number of shares (’000) Issued shares at the beginning of the year Effect of share options exercised Weighted average number of shares at the end of the year (b) Diluted earnings per share Group 2010 $’000 Diluted earnings per share is based on:Profit after tax for the year attributable to owners of the Company 121,961 111,178 2009 $’000 440,180 58 440,238 111,178 2009 Number of shares (’000) 440,180 440,180 2009 $’000
For the purpose of calculating the diluted earnings per share, the weighted average number of shares in issue is adjusted to take into account the dilutive effect arising from the dilutive share options, with the potential shares weighted for the period outstanding.
104
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
23. Earnings Per Share (continued) (b) Diluted earnings per share (continued) The effect of the exercise of share options on the weighted average number of shares in issue is as follows:Group 2010 Number of shares (’000) Weighted average number of:shares used in the calculation of basic earnings per share potential shares issuable under share options Weighted average number of issued and potential shares assuming full conversion 440,238 601 440,839 440,180 164 440,344 2009 Number of shares (’000)
Outstanding share options that were not included in the computation of diluted earnings per share because the share options were anti-dilutive amounted to 13,845,475 at $3.06 to $3.82 as at 31 December 2010 (2009: 14,521,415 at $2.63 to $3.82). The average market value of the shares for the purposes of calculating the dilutive effect of share options was based on quoted market prices for the period that the options were outstanding.
24. Financial Risk Management (a) Overview Risk is an inherent part of the Group’s business activities. Managing risks is therefore integral to the Group’s business strategy and continuing profitability. Where risk is assumed, it is within a calculated and controlled framework. As the business activities involve the use of financial instruments, the Group has exposure to the following risks:(i) credit risk (ii) liquidity risk (iii) interest rate risk (iv) operational risk. This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing these risks, and the Group’s management of capital.
105
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
24. Financial Risk Management (continued) (a) Overview (continued) Risk management framework The Board of Directors has overall responsibility for determining the type and level of business risks that the Group undertakes to achieve its corporate objectives. To assist the Board in fulfilling its duties, the Risk Committee oversees and reports to the Board on matters relating to the risk function of the Group. A risk management team is accountable to the Risk Committee for maintaining an effective control environment that reflects established risks appetite and business objectives. The risk management team is independent of the business units, and performs the role of reviewing and implementing risk management policies and procedures. The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits by means of reliable information systems. Risk management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered, and emerging best practices. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment, in which all employees understand their roles and obligations. The Audit Committee reviews the effectiveness of the financial reporting process and material internal controls as well as risk management policies and systems with the assistance of internal audit. (b) Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s loans and advances to customers. Other than loans and advances, the Group’s investment in debt securities comprises Singapore Government securities, which are held to meet liquidity and statutory reserve requirements. For risk management reporting purposes, the Group considers and consolidates all elements of credit risk exposure. Credit risk concentration is addressed by setting appropriate credit portfolio limits and monitoring its exposures against the limits on a regular basis.
106
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
24. Financial Risk Management (continued) (b) Credit risk (continued) Management of credit risk Credit risk is managed to achieve sustainable and superior risk-reward performance whilst maintaining exposures within acceptable risk appetite parameters. The Board of Directors has delegated responsibility for the management of credit risk oversight to its Risk Committee whilst reserving for itself and various committees approval authority for exposures exceeding pre-set limits. A separate Risk Management and Credit Control department is responsible for oversight of the Group’s credit risk, including:(i) Formulating credit policies in consultation with business units, covering collateral requirements, credit assessment, risk grading and reporting, documentary and legal procedures, and compliance with regulatory and statutory requirements. (ii) Monitoring the Group’s loans portfolio and concentration risk exposures. (iii) Reviewing and assessing credit risk. (iv) Maintaining the Group’s risk gradings. (v) Providing advice, guidance and specialist skills to business units to promote best practice throughout the Group in the management of credit risk. Credit stress testing is performed and forms an integral part of the credit portfolio analysis. It allows the Group to assess the potential credit impact to losses arising from unlikely but plausible adverse events. Exposure to credit risk Maximum exposure to credit risk for loans and advances as at 31 December before collateral held (or other credit enhancements) amounted to $6,278,595,000 (2009: $6,136,990,000) for the Group and the Company. Financial guarantees comprise guarantees issued by the Company to third parties on behalf of customers amounting to $16,551,000 (2009: $16,519,000). At the reporting date, the Company does not consider it probable that claims will be made against the Company under the guarantees.
107
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
24. Financial Risk Management (continued) (b) Credit risk (continued) Loans and advances to customers can be analysed as follows:Group and Company 2010 $’000 Performing accounts that are - neither past due nor impaired - past due but not impaired Gross amount Collective allowances Carrying amount Individually impaired - Substandard (payment not kept current for 90 days but fully secured) - Loss (fully provided for) Gross amount Specific allowances for impairment Carrying amount Total carrying amount There are no loans and advances graded as doubtful as at 31 December 2010 and 2009. No loans and advances described as neither past due nor impaired have renegotiated terms as at 31 December 2010 (2009: Nil). Impaired: when the Group determines that it is probable that it will be unable to collect all principal and interest due according to the contractual terms of the transaction. Past due but not impaired: when contractual interest or principal payments are past due by not more than three months and the Group believes that specific impairment is not appropriate on the basis of the security available and/or the stage of collection. Collective allowances have been set aside on a portfolio basis. Loans and advances with renegotiated terms: where loans have been restructured due to deterioration in the borrower’s financial position with concessions that the Group would not have otherwise made, during the post-restructuring period established to ensure satisfactory performance is attained. 78,347 19,089 97,436 (19,289) 78,147 162,621 28,138 190,759 (28,538) 162,221 6,136,990 6,010,129 265,220 6,275,349 (74,901) 6,200,448 5,752,122 297,548 6,049,670 (74,901) 5,974,769 2009 $’000
6,278,595
108
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
24. Financial Risk Management (continued) (b) Credit risk (continued) Allowances for impairment: represents the Group’s estimate of incurred losses in its loan portfolio, and comprises principally a specific loss component relating to individually significant exposures and a collective loss component established for groups of homogeneous assets not subject to individual assessment for impairment. Write-off policy: The Group writes off wholly or partially loan balances (together with any related allowances for impairment losses) when the Group determines that they are uncollectible. This determination is reached after considering information such as the occurrence of a deterioration in the borrower’s financial position such that the borrower can no longer pay the obligation, or that proceeds from collateral will not be sufficient to repay the entire exposure. Set out below is an analysis of the gross and net (of allowances for impairment) amounts of individually impaired loans and advances to customers by risk grade. Amount net of individual allowances for Gross amount $’000 31 December 2010 Substandard Loss Total 31 December 2009 Substandard Loss Total 162,621 28,138 190,759 162,621 (400) 162,221 78,347 19,089 97,436 78,347 (200) 78,147 impairment $’000
The Group normally holds collateral against loans and advances to customers. These are in the form of mortgage interests over property and ownership or other registered interests over assets. Estimates of fair value of collateral are assessed in each accounting period prior to determination of individual impairment allowances.
109
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
24. Financial Risk Management (continued) (b) Credit risk (continued) An estimate of the gross fair value of collateral and other security enhancements held against financial assets is shown below. The Group’s claim against such collateral will be limited to the obligations of the respective obligors. 2010 $’000 Against loans and advances to customers that are:Neither past due nor impaired Past due but not impaired Individually impaired Total 11,969,666 370,921 163,090 12,503,677 10,848,463 524,546 253,238 11,626,247 2009 $’000
The nature and carrying amount of collateral held against financial assets, obtained by taking possession of the collateral held as security, are as follows. Claims against such collateral are limited to the outstanding obligations. Group and Company 2010 $’000 Properties Motor vehicles Total 2009 $’000 60,000 375 60,375
202 202
110
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
24. Financial Risk Management (continued) (b) Credit risk (continued) The Group monitors concentrations of credit risk by sector. An analysis of concentrations of credit risk at the reporting date is shown below:Loans and advances to customers 2010 2009 $’000 $’000 Gross carrying amount Concentration by sector Hire purchase/block discounting Housing loans secured by property under finance Other loans and advances:Manufacturing Building and construction General commerce Transport, storage and communication Investment and holding companies Professional and private individuals Others Total 6,372,785 6,240,429
1,519,495 1,338,715 19,313 1,850,677 139,914 21,775 106,343 570,655 805,898 6,372,785
1,760,542 1,051,940 26,550 1,860,072 121,552 35,701 164,313 537,835 681,924 6,240,429
At balance sheet date, there was no significant concentration of credit risk. The maximum exposure to credit risk is represented by the carrying amount of the financial assets in the balance sheets, reduced by the value of the collateral held. (c) Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations and commitments resulting from its financial liabilities, or can only access these cash flow needs at excessive cost. Management of liquidity risk The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group is currently funded from equity and deposit liabilities. Liquidity risk arises from the management of the net funding position after accounting for the ongoing cash flows from the loan assets and the deposit liabilities at various points in time.
111
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
24. Financial Risk Management (continued) (c) Liquidity risk (continued) Liquidity risk is managed in accordance with the Group’s liquidity framework of policies, contingency funding plan, controls and limits approved by the Risk Committee. This framework ensures that liquidity risk is monitored and managed in a manner that ensures sufficient sources of funds are available over a range of market conditions. Stress testing is conducted under the name specific crisis and general market crisis scenarios. This is undertaken to assess and plan for the impact of the scenarios which may put the Group’s liquidity at risk. Liquidity risk is also mitigated through the large number of customers in the Company’s diverse loans and deposits bases and the close monitoring of exposure to avoid any undue concentration. Contingency funding plans are in place to address potential liquidity crises using early warning indicators. Crisis escalation procedures and various strategies including funding and communication have been developed to minimise the impact of any liquidity crunch. Exposure to liquidity risk The Company monitors the liquidity limit, being a ratio of liquid assets (comprising cash balances with the Monetary Authority of Singapore and reserve assets principally comprising Singapore Government securities) to net liabilities as at the reporting date and during the reporting period. Details of the ratio of liquid assets to net liabilities at the reporting date and during the reporting period were as follows:Company 2010 At 31 December Average for the period Maximum for the period Minimum for the period 2009 21.92% 19.13% 22.14% 17.16%
20.10% 21.71% 23.32% 20.00%
112
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
24. Financial Risk Management (continued) (c) Liquidity risk (continued) The table below shows the remaining contractual undiscounted cash flows of the Group’s financial liabilities on the basis of their earliest possible contractual maturity. The Group’s expected cash flows on these instruments could vary significantly from this analysis. In particular, the carrying amount of deposits from customers is expected to remain stable; not all undrawn loan commitments are available to be drawn down immediately upon finalisation of legal documentation, due to factors like the progressive nature of the facility to be based on the stage of completion of work in progress. Over Gross Carrying amount $’000 Group 31 December 2010 Non-derivative liabilities Deposits and balances of customers Amount due to SPRING Singapore Other liabilities Financial guarantees Derivative liabilities Undrawn loan commitments nominal (outflow) $’000 Up to 1 month $’000 1 month to 3 months $’000 Over 3 months to 1 year $’000 Over 1 year to 5 years $’000 More than 5 years $’000
7,176,706 (7,218,064) (2,169,175) (1,140,963) (3,421,689) 43,128 (43,262) (2,972) (4,167) (16,807) 49,316 (49,316) (8,775) (2,839) (27,306) 7,269,150 (7,310,642) (2,180,922) (1,147,969) (3,465,802) (16,551) (16,551) 7,269,150 (7,327,193) (2,197,473) (1,147,969) (3,465,802)
(486,237) (17,206) (8,107) (511,550) (511,550)
(2,110) (2,289) (4,399) (4,399)
- (1,998,663) (1,448,112) (550,551) 7,269,150 (9,325,856) (3,645,585) (1,698,520) (3,465,802)
(511,550)
(4,399)
31 December 2009 Non-derivative liabilities Deposits and balances of of customers Amount due to SPRING Singapore Other liabilities Financial guarantees Derivative liabilities Undrawn loan commitments - (1,659,835) (1,247,750) (412,085) (452,336) (2,277) 7,369,612 (9,104,528) (3,339,855) (1,632,504) (3,677,556) 46,522 54,272 (46,660) (54,272) (16,519) (3,469) (14,723) (16,519) (3,529) (6,911) (15,385) (22,274) (24,227) (8,137) (452,336) (452,336) (50) (2,227) (2,277) (2,277) 7,268,818 (7,327,242) (2,057,394) (1,209,979) (3,639,897) (419,972) -
7,369,612 (7,428,174) (2,075,586) (1,220,419) (3,677,556) 7,369,612 (7,444,693) (2,092,105) (1,220,419) (3,677,556)
113
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
24. Financial Risk Management (continued) (c) Liquidity risk (continued) Over Gross Carrying amount $’000 Company 31 December 2010 Non-derivative liabilities Deposits and balances of customers Amount due to SPRING Singapore Other liabilities Financial guarantees Derivative liabilities Undrawn loan commitments - (1,998,663) (1,448,112) (550,551) (510,920) (3,807) 7,271,691 (9,328,410) (3,646,206) (1,698,724) (3,468,753) 43,128 48,044 7,271,691 7,271,691 (43,262) (48,044) (2,972) (8,752) (4,167) (2,829) (16,807) (27,289) (17,206) (7,477) (510,920) (510,920) (2,110) (1,697) (3,807) (3,807) 7,180,519 (7,221,890) (2,169,819) (1,141,177) (3,424,657) (486,237) nominal (outflow) $’000 Up to 1 month $’000 1 month to 3 months $’000 Over 3 months to 1 year $’000 Over 1 year to 5 years $’000 More than 5 years $’000
(7,313,196) (2,181,543) (1,148,173) (3,468,753) (16,551) (16,551) -
(7,329,747) (2,198,094) (1,148,173) (3,468,753)
31 December 2009 Non-derivative liabilities Deposits and balances of customers 7,272,300 Amount due to SPRING Singapore Other liabilities Financial guarantees Derivative liabilities Undrawn loan commitments 7,371,830 (1,659,835) (1,247,750) (412,085) (451,706) (1,686) (9,106,756) (3,339,832) (1,633,316) (3,680,216) 46,522 53,008 7,371,830 7,371,830 (46,660) (53,008) (16,519) (3,469) (14,700) (16,519) (3,529) (6,911) (15,385) (22,254) (24,227) (7,507) (451,706) (451,706) (50) (1,636) (1,686) (1,686) (7,330,734) (2,057,394) (1,210,791) (3,642,577) (419,972) -
(7,430,402) (2,075,563) (1,221,231) (3,680,216) (7,446,921) (2,092,082) (1,221,231) (3,680,216)
114
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
24. Financial Risk Management (continued) (d) Interest rate risk Interest rate risk is the risk that the value of the Group’s financial assets and/or financial liabilities changes because of changes in interest rates. Interest rate risk arises primarily from the fact that financial assets and financial liabilities typically reprice at different points in time. Management of interest rate risk The overall objective of interest rate risk management is to manage current and future earnings sensitivity arising from various interest rate exposures and to secure stable and optimal net interest income over the short term and long term. Interest rate risk exposures are measured using a combination of repricing gap, present value of 1 basis point reports and simulation modeling. The Risk Committee approves policies, strategies and limits in the management of interest rate risk. Exposure to interest rate risk The Company does not hold a trading portfolio. The principal risk to which its non-trading portfolio is exposed arises from the risk of fluctuations in the future cash flows or fair values of financial instruments due to changes in market interest rates. Interest rate risk is managed principally through monitoring interest rate gaps and by having pre-approved limits for repricing bands. Besides Singapore Government securities intended to be held to maturity, the Group’s exposure to interest rate risk relates primarily to the Group’s loan portfolio, deposit liabilities and any interest-bearing borrowings. Interest rate risk will arise when these assets and liabilities mature or reprice at different times or in differing amounts, or when market conditions dictate the extent of repricing possible. The Group manages this risk through diversity in its loan portfolio and to a lesser extent in its deposit portfolio, and maintains a capital adequacy ratio in excess of statutory requirements. Repricing analysis The following table indicates the periods in which the financial instruments reprice or contractually mature, whichever is the earlier. Actual repricing dates may differ from contractual repricing dates due to prepayment of loans or early withdrawal of deposits.
115
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
24. Financial Risk Management (continued) (d) Interest rate risk (continued) Group Over 1 to 5 years $’000
Note 31 December 2010 Financial assets Loans, advances and receivables Singapore Government securities Cash at banks and in hand Statutory deposit with the Monetary Authority of Singapore Other assets Investments (long term) Financial liabilities Deposits and balances of customers Amount due to SPRING Singapore Other liabilities 31 December 2009 Financial assets Loans, advances and receivables Singapore Government securities Cash at banks and in hand Statutory deposit with the Monetary Authority of Singapore Other assets Investments (long term) Financial liabilities Deposits and balances of customers Amount due to SPRING Singapore Other liabilities 11 10 9 9 14 11 10 9 9 14
Carrying amount $’000
Up to 1 year $’000
After 5 years $’000
NonInterest Bearing $’000
6,278,595 925,586 1,474,582 171,319 17,465 546
4,770,106 158,499 1,464,063 -
1,359,778 745,085 -
148,711 22,002 -
10,519 171,319 17,465 546
7,176,706 43,128 90,808
6,569,085 23,871 -
483,302 17,153 -
2,104 -
124,319 90,808
6,136,990 1,027,269 1,534,521 170,719 26,092 5,744
4,751,341 115,400 1,523,562 -
1,194,142 860,491 -
191,507 51,378 -
10,959 170,719 26,092 5,744
7,268,818 46,522 112,834
6,764,416 22,317 -
416,478 24,156 -
49 -
87,924 112,834
116
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
24. Financial Risk Management (continued) (d) Interest rate risk (continued) Company Over 1 to 5 years $’000
Note 31 December 2010 Financial assets Loans, advances and receivables Singapore Government securities Cash at banks and in hand Statutory deposit with the Monetary Authority of Singapore Other assets Investments (long term) Financial liabilities Deposits and balances of customers Amount due to SPRING Singapore Other liabilities 31 December 2009 11 10
Carrying amount $’000
Up to 1 year $’000
After 5 years $’000
NonInterest Bearing $’000
6,278,595 925,586 1,474,100 171,319 17,465 546
4,770,106 158,499 1,463,581 -
1,359,778 745,085 -
148,711 22,002 -
10,519 171,319 17,465 546
14
7,180,519 43,128 89,549
6,572,898 23,871 -
483,302 17,153 -
2,104 -
124,319 89,549
Financial assets Loans, advances and receivables Singapore Government securities Cash at banks and in hand Statutory deposit with the Monetary Authority of Singapore Other assets Investments (long term) Financial liabilities Deposits and balances of customers Amount due to SPRING Singapore Other liabilities 7,272,300 46,522 111,580 6,767,898 22,317 416,478 24,156 49 87,924 111,580 14 170,719 26,092 5,744 170,719 26,092 5,744 11 10 6,136,990 1,027,269 1,533,807 4,751,341 115,400 1,522,848 1,194,142 860,491 191,507 51,378 10,959
117
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
24. Financial Risk Management (continued) (d) Interest rate risk (continued) Sensitivity analysis Interest rate sensitivity analyses are performed under various interest rate scenarios using simulation modeling where the sensitivity of projected net interest income is measured against changes in market interest rates. The projected impact on future net interest income before tax over the next twelve months from the close of the year resulting from a 100 basis points parallel shift in the yield curves applied to the year end position is a gain/(loss) of:Group 2010 $’000 + 100 basis points parallel shift in yield curves - 100 basis points parallel shift in yield curves 2009 $’000 11,372 (10,616)
14,498 (8,351)
The above sensitivity analysis is illustrative only. It assumes that interest rates of all tenors move by the same amount and does not reflect the potential impact on net interest income of some rates changing while others remain unchanged. The analysis also assumes that all financial assets and liabilities run to contractual maturity without action by the Group to mitigate any impact of changes in interest rates. (e) Operational risk Operational risk is the risk of loss resulting from inadequate or failed internal processes and/or systems, personnel or external events. This risk includes operational risk events such as technology problems, missing or inadequate internal controls, human error, fraud and external threats. Operational risks arise from all of the Group’s operations and are faced by all business entities. Management of operational risk The Group’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Group’s reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity. The operational risk management process has been established to ensure that operational risks are identified, monitored, managed and reported in a structured, systematic and consistent manner. The primary responsibility for the development and implementation of controls to address operational risk is assigned to management within each department. This responsibility is supported by the development of overall Group standards for the management of operational risk. The operational risk self-assessment (ORSA) framework has been implemented and incorporates the mapping of risks into risk categories, monitoring of key risk indicators and loss events reporting.
118
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
24. Financial Risk Management (continued) (f) Capital management The Board’s policy is to maintain a strong capital base so as to maintain investor, customer and market confidence and to sustain future development of the business. The Board of Directors monitors the level of dividends to shareholders. Regulatory capital The Group maintains a capital adequacy ratio in excess of the prescribed ratio, expressed as a percentage of total capital to total risk-weighted assets. The Group’s regulatory capital includes share capital, accumulated profits, statutory reserve, capital reserve and share option reserve. At 31 December 2009, the carrying amount of an investment in a private equity fund was deducted. The investment was redeemed during the year. Risk-weighted assets are determined according to regulatory requirements that reflect the varying levels of risk attached to assets and off-balance sheet exposures. The Group’s regulatory capital position at 31 December is as follows:2010 $’000 Share capital Accumulated profits Statutory reserve Capital reserve Share option reserve Investments (long term) Regulatory capital Risk-weighted assets Capital adequacy ratio There were no changes in the Group’s approach to capital management during the year. 869,535 146,262 524,256 2,307 6,481 1,548,841 1,548,841 6,933,934 22.3% 2009 $’000 869,006 98,812 493,765 2,307 4,813 1,468,703 (5,198) 1,463,505 6,837,828 21.4%
25. Financial Instruments Accounting classifications and fair values (a) Loans, advances and receivables and deposits and balances of customers The fair value of fixed rate loans, advances and receivables and deposits and balances of customers, which will mature and reprice more than six months after the reporting date, has been determined by discounting the relevant cash flows using current interest rates for similar instruments at the reporting date. The carrying amounts of financial assets and financial liabilities with a maturity of less than six months (including other loans, advances and receivables, and other deposits/savings accounts) approximate their fair values. 119
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
25. Financial Instruments (continued) (b) Singapore Government securities Fair value is based on quoted market bid prices at the reporting date. (c) Other financial assets and financial liabilities The carrying amounts of other financial assets and financial liabilities with a maturity of less than one year (including other receivables, other deposits, cash, trade payables and other payables) are estimated to approximate their fair values in view of the short period to maturity. There are no financial assets and financial liabilities classified as held for trading. In accordance with the accounting policy on Financial Instruments and pursuant to FRS 39, certain financial assets and financial liabilities are not carried at fair value in the balance sheets as at 31 December. The aggregate net fair values of these financial assets and financial liabilities are disclosed in the following table:Group Fair Carrying value amount 2010 2009 $’000 $’000
Note Financial assets Loans, advances and receivables Singapore Government securities 11 10
Carrying amount 2010 $’000
Fair value 2009 $’000
6,278,595 925,586 7,204,181
6,307,883 955,826 7,263,709
6,136,990 1,027,269 7,164,259
6,159,918 1,066,374 7,226,292
Financial liabilities Deposits and balances of customers Net financial assets/(liabilities) Unrecognised gain (7,176,706) 27,475 (7,192,026) 71,683 44,208 (7,268,818) (104,559) (7,289,778) (63,486) 41,073
Company Ｃ Carrying amount 2010 Note Financial assets Loans, advances and receivables Singapore Government securities 11 10 6,278,595 925,586 7,204,181 Financial liabilities Deposits and balances of customers Net financial assets/(liabilities) Unrecognised gain (7,180,519) 23,662 (7,195,851) 67,858 44,196 (7,272,300) (108,041) (7,293,271) (66,979) 41,062 6,307,883 955,826 7,263,709 6,136,990 1,027,269 7,164,259 6,159,918 1,066,374 7,226,292 $’000 Fair value 2010 $’000 Carrying amount 2009 $’000 Fair value 2009 $’000
120
Hong Leong Finance Annual Report 2010
notes to tHe financiaL statements
Year ended 31 December 2010
26. Commitments (a) Operating lease commitments At 31 December, the Group and the Company had commitments for future minimum lease payments under noncancellable operating leases as follows:Group and Company 2010 $’000 Within 1 year After 1 year but within 5 years After 5 years 2009 $’000 4,918 14,721 766 20,405
5,257 14,465 2,629 22,351
The Group leases office premises, residential premises and motor vehicles under operating leases. The length of the leases ranges from one to nine years, with options to renew the leases. None of the leases include contingent rentals. (b) Capital commitments At 31 December, the Group and the Company had outstanding capital commitments in respect of contracts to purchase property, plant and equipment amounting to $465,000 (2009: $143,000). (c) As at 31 December 2009, the Company had an investment commitment to subscribe for unquoted shares amounting to $4.3 million in The Enterprise Fund Ltd for the purposes described in Note 14. The investment was redeemed during the year.
27. Related Party Transactions The Company is considered to be a subsidiary of Hong Leong Investment Holdings Pte. Ltd. Transactions entered into by the Group and the Company with related corporations and other related parties incurred in the ordinary course of business from time to time and at market value, primarily comprise loans, deposits, provision of corporate advisory services, insurance transactions, property-related transactions, purchase/sale of investment products and property, management services, incidental expenses and/or other transactions relating to the business of the Group and the Company. A party is related to the Company if:(a) directly or indirectly through one or more intermediaries, the party:(i) controls, is controlled by, or is under common control with, the Company (this includes the holding company, subsidiaries and fellow subsidiaries referred to as related corporations); (ii) has an interest in the Company that gives it significant influence over the Company; or (iii) has joint control over the Company;
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notes to tHe financiaL statements
Year ended 31 December 2010
27. Related Party Transactions (continued) (b) the party is an associate of the Company; (c) the party is a joint venture in which the Company is a venturer; (d) the party is a member of the key management personnel of the Company or holding company; (e) the party is a close member of the family of any individual referred to in (a) or (d); (f) the party is an entity that is controlled, jointly controlled or significantly influenced by, or for which significant voting power in such entities resides with, directly or indirectly, any individual referred to in (d) or (e); or (g) the party is a post-employment benefit plan for the benefit of employees of the Company, or of any company that is a related party of the Company. Key Management Personnel Compensation Key management personnel compensation comprised:Group 2010 $’000 Short-term employee benefits CPF contributions to defined contribution plans Depreciation of motor vehicles Other operating expenses including principally directors’ fees Share-based payments 2009 $’000 2,630 4 5 671 319 3,629
2,868 4 5 787 307 3,971
Directors’ remuneration (inclusive of fees) included in key management personnel compensation amounted to $2,878,000 (2009: $2,623,000). Key management personnel of the Company participate in the Share Option Scheme as described in Note 5. During the year, options to 590,000 (2009: 530,000) shares were granted to key management personnel. These share options are subject to a vesting schedule. Options granted to key management personnel outstanding at the end of the year are as follows:2010 Granted on 5.12.2002 16.9.2003 28.9.2004 28.9.2005 28.9.2006 19.9.2007 30.9.2008 29.9.2009 28.9.2010 2009
600,000 400,000 360,000 540,000 377,600 567,000 567,000 530,000 590,000
600,000 400,000 360,000 540,000 377,600 567,000 567,000 530,000 -
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notes to tHe financiaL statements
Year ended 31 December 2010
27. Related Party Transactions (continued) Options granted to an Executive Director included in key management personnel outstanding at the end of the year are as follows:2010 Granted on 5.12.2002 16.9.2003 28.9.2004 28.9.2005 28.9.2006 19.9.2007 30.9.2008 29.9.2009 28.9.2010 Other Related Party Transactions Other than transactions with related corporations separately disclosed in the financial statements, balances as at the reporting date and transactions during the financial year with other related parties being key management personnel and their related parties are as follows:Group and Company 2010 Key Management Personnel $’000 (a) Loans, advances and hire purchase receivables (b) Deposits and other payables (c) Other receivables, deposits and prepayments (d) Profit and loss transactions - Interest income on loans and advances and hiring charges in respect of hire purchase receivables - Interest expense on deposits - Fee and commission and other income - Other operating expenses 3,635 2,784 2009 Other Key Related Management Parties Personnel $’000 $’000 177,968 20,739 7 4,437 3,547 Other Related Parties $’000 127,848 19,414 13 2009
600,000 400,000 360,000 360,000 324,000 378,000 378,000 360,000 400,000
600,000 400,000 360,000 360,000 324,000 378,000 378,000 360,000 -
237 (20) 1 -
5,310 (113) 305 (1)
212 (28) 1 -
5,578 (134) 133 -
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notes to tHe financiaL statements
Year ended 31 December 2010
27. Related Party Transactions (continued) Loans and deposits transactions with related parties are conducted at arm’s length in the ordinary course of business. Credit facilities granted are subject to the Company’s normal credit evaluation, approval, monitoring and reporting processes. Loans and advances are secured on equity securities or property, plant and equipment. No impairment losses have been recorded against balances outstanding during the financial year with key management personnel, and no specific allowance has been made for impairment losses on balances with key management personnel at the end of the financial year.
28. Use of Accounting Estimates and Judgements These disclosures supplement the commentary on financial risk management in Note 24. Key sources of estimation uncertainty (a) Impairment losses on loans, advances and receivables The Group reviews the loan portfolio to assess impairment at least on a quarterly basis. The specific counterparty component of the total allowances for impairment applies to claims evaluated individually for impairment and is based on management’s best estimate of the present value of the cash flows that are expected to be received. In estimating these cash flows, management makes judgements about a counterparty’s financial situation and the net realisable value of any underlying collateral. Each impaired asset is assessed on its merits. Collectively assessed impairment allowances cover credit losses inherent in portfolios of claims with similar economic characteristics when there is objective evidence to suggest that they contain impaired claims, but the individual impaired items cannot yet be identified. The Group makes judgements as to whether there is any observable data indicating a measurable decrease in the estimated future cash flows of the loan portfolio. The evidence may include observable data indicating adverse changes in the payment status of certain groups of borrowers or local economic conditions that correlate with defaults in the loan portfolio. Management uses estimates based on historical loss experience for loans, advances and receivables with credit risk characteristics and objective evidence of impairment similar to those in the loan portfolio when scheduling future cash flows. The methodology and assumptions used for estimating the amount and timing of cash flows are reviewed regularly to reduce any differences between estimates and actual loss experience. Collectively assessed impairment allowances also take into account prevailing regulatory considerations.
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notes to tHe financiaL statements
Year ended 31 December 2010
28. Use of Accounting Estimates and Judgements (continued) (b) Held-to-maturity investments Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held to maturity. In classifying financial assets as held-to-maturity, the Group has determined that it has both the positive intention and ability to hold the assets to maturity. The Group does not classify any financial assets as held to maturity if during the current financial year or during the two preceding financial years, it sold or reclassified more than an insignificant amount of held-to-maturity investments before maturity. If the conditions are not complied with, the investments will be reclassified as available-for-sale and measured at fair value. As at the end of the current financial year, had the heldto-maturity investments been classified as available-for-sale, the fair value would have increased by $30,240,000 (2009: $39,105,000), with a corresponding entry in the fair value reserve in equity. (c) Provision for settlements and costs relating to distribution of wealth management products The Company has made a provision for settlements with customers together with costs relating to compensation sought in respect of wealth management products distributed by the Company, based on management’s best estimates to arrive at a fair and equitable resolution. Settlements may include a transfer by the customer of a proportionate amount of the structured products to the Company.
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anaLysis of sHareHoLdings
as at 8 March 2011
Number of shares in issue Class of Shares Number of Shareholders Voting Rights
: : : :
440,396,293 Ordinary Shares 10,922 1 vote for 1 share No. of Shareholders 1,340 7,814 1,740 28 10,922 No. of Shares Held 428,968 30,406,137 84,852,794 324,708,394 440,396,293
Range of Shareholdings 1 – 999 1,000 – 10,000 10,001 – 1,000,000 1,000,001 and above
% 12.27 71.54 15.93 0.26 100.00
% 0.10 6.90 19.27 73.73 100.00
Based on the information available to the Company as at 8 March 2011, approximately 49.30% 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 8 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 Hong Leong Investment Holdings Pte. Ltd. DBS Nominees Pte Ltd Hong Realty (Private) Limited Hong Leong Corporation Holdings Pte Ltd United Overseas Bank Nominees Pte Ltd BNP Paribas Securities Services Singapore Branch Hong Leong Foundation Garden Estates (Pte.) Limited SGI Investment Holdings Pte Ltd Citibank Nominees Singapore Pte Ltd HSBC (Singapore) Nominees Pte Ltd City Developments Limited Tudor Court Gallery Pte Ltd Malayan Banking Berhad Hong Leong Holdings Limited UOB Nominees (2006) Pte Ltd HL Bank Nominees (S) Pte Ltd Soh Holdings Pte Ltd (In Members’ Voluntary Liquidation) Hong Leong Enterprises Pte. Ltd. Kwek Leng Kee No. of Shares Held 99,608,176 37,099,845 21,971,370 19,685,812 18,899,261 16,980,933 13,854,823 12,258,753 10,899,187 10,723,544 10,476,760 9,149,817 6,517,000 6,026,902 5,460,422 4,663,566 3,135,000 2,725,195 2,485,047 1,595,079 314,216,492 % 22.62 8.42 4.99 4.47 4.29 3.86 3.15 2.78 2.47 2.44 2.38 2.08 1.48 1.37 1.24 1.06 0.71 0.62 0.56 0.36 71.35
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anaLysis of sHareHoLdings
as at 8 March 2011
Substantial Shareholders (As shown in the Register of Substantial Shareholders) No. of Shares Deemed Interest 23,678,335 19,968,812 106,252,582 205,860,758 205,860,758
Direct Interest Hong Realty (Private) Limited (“HR”) (1) Hong Leong Enterprises Pte. Ltd. (“HLE”) (2) Hong Leong Investment Holdings Pte. Ltd. (“HLIH”) (3) Davos Investment Holdings Private Limited (“Davos”) (4) Kwek Holdings Pte Ltd (“KH”) (4) Notes:
(1)
Total Interest 46,949,705 24,453,859 205,860,758 205,860,758 205,860,758
% 10.66 5.55 46.74 46.74 46.74
23,271,370 4,485,047 99,608,176 -
HR is deemed under Section 7 of the Companies Act, Chapter 50 to have an interest in the 23,678,335 shares held directly by companies in which it is entitled to exercise or control the exercise of not less than 20% of the votes attached to the voting shares thereof.
(2)
HLE is deemed under Section 7 of the Companies Act, Chapter 50 to have an interest in the 19,968,812 shares held directly and/or indirectly by companies in which it is entitled to exercise or control the exercise of not less than 20% of the votes attached to the voting shares thereof.
(3)
HLIH is deemed under Section 7 of the Companies Act, Chapter 50 to have an interest in the 106,252,582 shares held directly and/or indirectly by companies in which it is entitled to exercise or control the exercise of not less than 20% of the votes attached to the voting shares thereof, which includes (i) the 46,949,705 shares held directly and indirectly by HR and (ii) the 24,453,859 shares held directly and indirectly by HLE.
(4)
Davos and KH are deemed under Section 7 of the Companies Act, Chapter 50, to have interests in the 205,860,758 shares held directly and/or indirectly by HLIH in which each of them is entitled to exercise or control the exercise of not less than 20% of the votes attached to the voting shares thereof.
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notice of annuaL gener aL meeting
NOTICE IS HEREBY GIVEN that the Fifty-First Annual General Meeting (the “Meeting”) of HONG LEONG FINANCE LIMITED (the “Company”) will be held at M Hotel Singapore, Banquet Suite, Level 10, 81 Anson Road, Singapore 079908, on Thursday, 21 April 2011 at 3.00 p.m. for the following purposes:
A) Ordinary Business: 1. To receive and adopt the Audited Financial Statements and Reports of the Directors and Auditors for the year ended 31 December 2010. 2. To declare a tax exempt (1-tier) final dividend of 8 cents per share for the year ended 31 December 2010 as recommended by the Directors. 3. To approve Directors’ Fees of $495,668 for the year ended 31 December 2010 (year 2009: $384,000), Fees to the Audit Committee of $25,000 per quarter for the period commencing from 1 July 2011 to 31 December 2011 (July 2010 to June 2011: $25,000 per quarter) with payment of the said fees to be made in arrears at the end of each calendar quarter, and Fees to the Risk Committee (formerly known as the Exco (Risk) Sub-Committee prior to its elevation as a full committee of the Board) of $50,000 per quarter for the period commencing from 1 January 2011 to 31 December 2011, with payment of the said fees to be made in arrears at the end of each calendar quarter. 4. To re-elect the following Directors retiring in accordance with the Articles of Association of the Company and who, being eligible, offer themselves for re-election: (a) Mr Kwek Leng Peck (b) Mr Chng Beng Hua (c) Mr Ter Kim Cheu (appointed on 1 September 2010) 5. 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: (a) Mr Kwek Leng Beng (b) Mr Cheng Shao Shiong @ Bertie Cheng 6. To re-appoint KPMG LLP as Auditors and to authorise the Directors to fix their remuneration.
B) Special Business: 7. To consider and, if thought fit, to pass, with or without any modifications, the following resolution as an Ordinary Resolution: 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
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notice of annuaL gener aL meeting
(ii) 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, 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, 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 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 in the capital of the Company (as calculated in accordance with subparagraph (2) below); (2) (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 in the capital of the Company shall be based on the total number of issued shares 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 which are outstanding or subsisting at the time this Ordinary Resolution is passed; and (ii) any subsequent bonus issue, consolidation or subdivision of shares; (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 SGX-ST) and the Articles of Association for the time being of the Company; and (4) (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.
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notice of annuaL gener aL meeting
8. To consider and, if thought fit, to pass, with or without any modifications, the following resolution as an Ordinary Resolution: That approval be and is hereby given to the Directors to offer and grant options in accordance with the provisions of the Hong Leong Finance Share Option Scheme 2001 (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 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.
C) To Transact Any Other Ordinary Business
BY ORDER OF THE BOARD
Yeo Swee Gim, Joanne Company Secretary Singapore, 1 April 2011
Directors have recommended a tax exempt (1-tier) Final Dividend of 8 cents per share in respect of the year ended 31 December 2010 for approval by shareholders at the Annual General Meeting to be held on 21 April 2011. Subject thereto, the dividend, will be payable on 20 May 2011. The Company had on 24 February 2011 advised that the Share Transfer Books and Register of Members of the Company will be closed on 5 May 2011. Duly completed registrable 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 4 May 2011 will be registered to determine shareholders’ entitlement to the proposed dividend for the year ended 31 December 2010. Notes: 1 A member of the Company entitled to attend and vote at the Meeting may appoint not more than two proxies to attend and vote in his stead. A proxy need not be a member of the Company. 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 48 hours before the time appointed for holding the Meeting.
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notice of annuaL gener aL meeting
2
With reference to item 3 above (under the heading “Ordinary Business”), the Directors’ Fees of $495,668 for the year ended 31 December 2010 excludes the quarterly fees paid to the Audit Committee (“AC”) and the chairman of the previous Exco (Risk) Sub-Committee for the year ended 31 December 2010, which have been approved by shareholders at the last Annual General Meeting of the Company held in April 2010. With the Exco (Risk) Sub-Committee having been elevated to a full Board committee in late 2010, approval is now sought from shareholders for the payment of quarterly fees to the Risk Committee (“RiskCom”) for the year ending 31 December 2011, which approval will replace and supercede the previous approval granted by shareholders at the last Annual General Meeting of the Company for payment of fees to the chairman of the Exco (Risk) Sub-Committee from 1 January 2011 to 30 June 2011.
3
With reference to item 4(a) 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 Executive Committee (“Exco”) (also as Chairman’s alternate), Share Option Scheme Committee and RiskCom.
4
With reference to item 4(b) above (under the heading “Ordinary Business”), Mr Chng will, upon re-election as a Director of the Company, remain as a member of the AC. Mr Chng is an independent Director.
5
With reference to item 5(a) above (under the heading “Ordinary Business”), Mr Kwek Leng Beng will, upon re-appointment as a Director of the Company, remain as Chairman of the Board, chairman of the Exco, and a member of the Nominating Committee (“NC”) and RiskCom.
6
With reference to item 5(b) above (under the heading “Ordinary Business”), Mr Cheng will, upon re-appointment as a Director of the Company, remain as chairman of the NC and RiskCom and also as a member of the Remuneration Committee, Exco and Share Option Scheme Committee. Mr Cheng is an independent Director.
7
Dr Manfred Barth, a Director retiring at the Meeting pursuant to Section 153 of the Companies Act, Chapter 50, has notified the Company that he will not be seeking re-appointment as a Director of the Company at the Meeting.
8
Mr Jackson Lee, a Director retiring at the Meeting pursuant to Section 153 of the Companies Act, Chapter 50, has notified the Company that he will not be seeking re-appointment as a Director of the Company at the Meeting. Consequent thereto, Mr Lee will also cease to act as a member of the AC and Exco, following the conclusion of the Meeting.
9
The ordinary resolution set out 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 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, with a limit of 20% of the Company’s total number of issued shares 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.
10 The ordinary resolution set out in item 8 above (under the heading “Special Business”), if passed, will empower the Directors 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.
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HONG LEONG FINANCE LIMITED
Co. Reg. No. 196100003D (Incorporated in the Republic of Singapore)
IMPORTANT: 1. For investors who have used their CPF monies to buy Hong Leong Finance Limited shares, the Annual Report is forwarded to them at the request of their CPF Approved Nominee and is sent solely FOR INFORMATION ONLY. 2. 3. 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. CPF Investors who wish to attend the 51st 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 Finance Limited. (Agent Banks: Please see note 8 on required format.)
PROxY FORM for Annual General Meeting
I/We, ____________________________________________________________ with NRIC/Passport No. _____________________ of __________________________________________________________________________________________________________ being a * member/members of HONG LEONG FINANCE LIMITED (the “Company”), hereby appoint NRIC/Passport Number Proportion of Shareholdings (%)
Name
Address
and/or (delete as appropriate)
as *my/our *proxy/proxies to vote for *me/us on *my/our behalf at the 51st 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 Thursday, 21 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. 4. Resolutions ORDINARY BUSINESS: Adoption of Reports and Financial Statements Declaration of Final Dividend Approval of Directors’ Fees, Audit Committee Fees and Risk Committee Fees Re-election of Directors under the Articles of Association: Re-appointment of Directors under Section 153(6) of the Companies Act, Chapter 50: Re-appointment of KPMG 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 Finance Share Option Scheme 2001 day of 2011 (a) Mr Kwek Leng Peck (b) Mr Chng Beng Hua (c) Mr Ter Kim Cheu 5. 6. B 7. (a) Mr Kwek Leng Beng (b) Mr Cheng Shao Shiong @ Bertie Cheng For Against
8.
Dated this
Total No. of Shares Held
* Delete accordingly Signature of Member(s)/Common Seal NOTES: SEE OVERLEAF
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. 2. 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. 3. 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. 4. This instrument of a 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. 5. 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. 6. This instrument appointing a proxy (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. 7. The Company shall be entitled to reject an instrument of proxy if it is incomplete, improperly completed, 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. 8. 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
PROxY FORM
Affix Postage Stamp
The Company Secretary
HONG LEONG FINANCE LIMITED
36 Robinson Road, #03-01 City House Singapore 068877
Fold Here
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BRANCH LOCATIONS
MAIN BRANCH
16 Raffles Quay #01-05 Hong Leong Building Singapore 048581 Tel: 6415 9433 Fax: 6222 8790 ANG MO KIO AVE 1 Blk 338 Ang Mo Kio Ave 1 #01-1641 Singapore 560338 Tel: 6452 8735 Fax: 6454 3524 ANG MO KIO AVE 4 Blk 157 Ang Mo Kio Ave 4 #01-564 Singapore 560157 Tel: 6458 8030 Fax: 6458 8186 BALESTIER 288 Balestier Road #01-02 Balestier 288 Singapore 329731 Tel: 6250 1083 Fax: 6254 8801 BEDOK Blk 203 Bedok North Street 1 #01-451 Singapore 460203 Tel: 6449 0601 Fax: 6444 3827 BUKIT BATOK CENTRAL Blk 641 Bukit Batok Central #01-48 Singapore 650641 Tel: 6564 8801 Fax: 6564 9643 BUKIT MERAH Blk 125 Bukit Merah Lane 1 #01-156 Singapore 150125 Tel: 6273 0360 Fax: 6272 7158 CHINATOWN POINT 133 New Bridge Road #01-13/15 Chinatown Point Singapore 059413 Tel: 6534 5767 Fax: 6534 5868 CITY PLAZA 810 Geylang Road #01-111/114 City Plaza Singapore 409286 Tel: 6746 8084 Fax: 6748 2422 CITY SQUARE MALL 180 Kitchener Road #B2-41City Square Mall Singapore 208539 Tel: 6509 8200 Fax: 6509 8100 CLEMENTI WEST Blk 725 Clementi West Street 2 #01-216 Singapore 120725 Tel: 6778 6271 Fax: 6775 2751 GHIM MOH Blk 21 Ghim Moh Road #01-209/211 Singapore 270021 Tel: 6467 3715 Fax: 6468 3273 HOLLAND DRIVE Blk 45 Holland Drive #01-351 Singapore 270045 Tel: 6778 4169 Fax: 6775 2836 HOUGANG Blk 208 Hougang Street 21 #01-211/213 Singapore 530208 Tel: 6288 2396 Fax: 6281 3046 JOO CHIAT 278 Joo Chiat Road Singapore 427532 Tel: 6344 8842 Fax: 6440 2864 JURONG WEST Blk 504 Jurong West Street 51 #01-211 Singapore 640504 Tel: 6569 0361 Fax: 6569 5918 KALLANG BAHRU Blk 66 Kallang Bahru #01-521 Singapore 330066 Tel: 6296 8067 Fax: 6294 2907 MARINE PARADE Blk 80 Marine Parade Central #01-790 Singapore 440080 Tel: 6346 2036 Fax: 6346 2035 REDHILL (JLN TIONG) Blk75D Redhill Road #01-100 Singapore 154075 Tel: 6479 0277 Fax: 6479 0218 RIVERVALE MALL 11 Rivervale Crescent #01-07/08 Rivervale Mall Singapore 545082 Tel: 6489 7224 Fax: 6489 0503 SERANGOON GARDEN 8 Kensington Park Road Serangoon Garden Estate Singapore 557260 Tel: 6280 5665 Fax: 6285 2195 TAMPINES GRANDE 9 Tampines Grande #01-12 Singapore 528735 Tel: 6784 7326 Fax: 6784 9057 TOA PAYOH Blk 520 Lorong 6 Toa Payoh #02-54 HDB Hub Singapore 310520 Tel: 6253 4821 Fax: 6256 5676 UPPER BUKIT TIMAH 140 Upper Bukit Timah Road #01-19/21 Beauty World Plaza Singapore 588176 Tel: 6469 7438 Fax: 6468 4181 UPPER THOMSON 219 Upper Thomson Road Singapore 574351 Tel: 6453 3266 Fax: 6454 1913
WOODLANDS Blk 306 Woodlands Street 31 #01-43 Singapore 730306 Tel: 6368 7928 Fax: 6368 1448 YISHUN Blk 743 Yishun Ave 5 #01-542/544 Singapore 760743 Tel: 6758 3711 Fax: 6753 5001
SME CENTRE @ BRANCHES
SME Centre @ City Square 180 Kitchener Road #B2-41 City Square Mall Singapore 208539 Tel: 6834 3283 Fax: 6834 3280 SME Centre @ Jurong East Blk 134 Jurong East Street 13 #01-313 Singapore 600134 Tel: 6665 1950 Fax: 6564 3787
PRODUCED BY: Group Corporate Affairs Hong Leong Group Singapore DESIGNED BY: Sedgwick Richardson
JURONG EAST Blk 134 Jurong East Street 13 #01-313 Singapore 600134 Tel: 6564 3880 Fax: 6564 3787
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Hong Leong Finance Limited 16 Raffles Quay #01-05 Hong Leong Building Singapore 048581 www.hlf.com.sg
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