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IF YOU ARE IN ANY DOUBT AS TO THE ACTION YOU SHOULD TAKE, YOU SHOULD CONSULT YOUR LEGAL, FINANCIAL, TAX OR OTHER PROFESSIONAL ADVISER. We have made an application to the Singapore Exchange Securities Trading Limited (the SGX-ST) for permission to deal in, and for quotation of, all the ordinary shares (the Shares) in the capital of Old Chang Kee Ltd. (the Company) already issued and the new Shares (the New Shares) which are the subject of this Invitation (as defined herein). Such permission will be granted when we have been admitted to the Official List of the Catalist. The dealing in and quotation of our shares will be in Singapore dollars. Our acceptance of applications for the New Shares will be conditional upon, inter alia, permission being granted by the SGX-ST to deal in, and for quotation of, all of the existing issued Shares and the New Shares. Monies paid in respect of any application accepted will, in the event such permission is not granted, be returned to you at your own risk, without interest or any share of revenue or other benefit arising therefrom, and you will not have any claim whatsoever against us, the Manager (as defined herein), the Underwriter (as defined herein) or the Placement Agent (as defined herein). The SGX-ST assumes no responsibility for the correctness of any of the statements made, opinions expressed or reports contained in this Prospectus. Admission to the Official List of the Catalist is not to be taken as an indication of the merits of the Invitation, the Company, its subsidiaries, the Shares or the New Shares. A copy of this Prospectus has been lodged with and registered by the Monetary Authority of Singapore (the Authority). The Authority assumes no responsibility for the contents of this Prospectus. Registration of this Prospectus by the Authority does not imply that the Securities and Futures Act (Chapter 289) of Singapore, or any other legal or regulatory requirements, have been complied with. The Authority has not, in any way, considered the merits of the Shares or the New Shares, as the case may be, being offered for investment. We have not lodged or registered this Prospectus in any other jurisdiction. No Shares shall be allotted or allocated on the basis of this Prospectus later than six months after the date of registration of this Prospectus by the Authority. Investing in the Shares involves risks which are described in the section entitled Risk Factors of this Prospectus. As part of the transitional arrangement announced by the SGX-ST on 26 November 2007, the Company has been approved to be listed on the Catalist. The Company has submitted its listing application under the listing rules of SGX-SESDAQ and the SGX-ST has reviewed the application based on the SGX-SESDAQ framework and listing rules. The offer will be accompanied by a prospectus registered by the Authority. The SGX-ST will publish a date from which our Company and all existing SGX-SESDAQ listed companies are required to comply with the listing rules of the Catalist (please refer to the section entitled Replacement of SGX-SESDAQ by Catalist and Appendix L of this Prospectus for more information).
SardineO
PepperO
SpringO
CurryO
Pineapple Feelin
Sotong OnStik
Yam Feelin
Pumpkin K8
Carrot K8
Yam K8
delivers
Seafood Gyoza OnStik Gyoza OnStik
CONTENTS
Page CORPORATE INFORMATION ............................................................................................................ DEFINITIONS ...................................................................................................................................... DETAILS OF THE INVITATION Listing on the Catalist ...................................................................................................................... Indicative Timetable for Listing ........................................................................................................ REPLACEMENT OF SGX-SESDAQ BY CATALIST .......................................................................... THE INVITATION.................................................................................................................................. USE OF PROCEEDS FROM THE INVITATION AND EXPENSES INCURRED ................................ MANAGEMENT, UNDERWRITING AND PLACEMENT ARRANGEMENTS...................................... EXCHANGE CONTROLS .................................................................................................................... CLEARANCE AND SETTLEMENT .................................................................................................... PLAN OF DISTRIBUTION .................................................................................................................. CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS ...................................................... SELLING RESTRICTIONS .................................................................................................................. PROSPECTUS SUMMARY ................................................................................................................ INVITATION STATISTICS .................................................................................................................... RISK FACTORS Risks relating to our Business or our Industry ................................................................................ Risks relating to Ownership of our Shares ...................................................................................... MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Combined Profit and Loss Accounts ................................................................................................ Combined Balance Sheet ................................................................................................................ Overview .......................................................................................................................................... Review of Results of Operations ...................................................................................................... Review of Past Financial Position .................................................................................................... Liquidity and Capital Resources ...................................................................................................... Material Capital Expenditure, Divestment and Commitment............................................................ DIVIDEND POLICY .............................................................................................................................. CAPITALISATION AND INDEBTEDNESS .......................................................................................... DILUTION ............................................................................................................................................ 4 6
14 17 18 19 20 21 23 26 27 30 31 32 34
35 41
44 45 46 50 55 57 60 62 63 65
CONTENTS
Page GENERAL INFORMATION ON OUR COMPANY AND OUR GROUP Share Capital.................................................................................................................................... Significant Changes In Percentage of Ownership............................................................................ Changes in Issued and Paid-Up Share Capital of our Company and our Subsidiaries .................. Shareholders .................................................................................................................................... Moratorium ...................................................................................................................................... RESTRUCTURING EXERCISE .......................................................................................................... GROUP STRUCTURE ........................................................................................................................ OUR SUBSIDIARIES AND ASSOCIATED COMPANIES .................................................................. OUR HISTORY .................................................................................................................................... OUR BUSINESS Introduction ...................................................................................................................................... Our Products .................................................................................................................................... Production Facility and Capacity ...................................................................................................... Retail Outlets .................................................................................................................................... Enterprise Resource Planning System ............................................................................................ Quality Control.................................................................................................................................. Marketing and Business Development ............................................................................................ Product Development ...................................................................................................................... Intellectual Property.......................................................................................................................... Properties and Fixed Assets ............................................................................................................ Our Major Customers ...................................................................................................................... Our Major Suppliers ........................................................................................................................ Inventory Management .................................................................................................................... Credit Policy .................................................................................................................................... Government Regulations.................................................................................................................. Insurance.......................................................................................................................................... Competition ...................................................................................................................................... Our Competitive Strengths .............................................................................................................. Awards and Accreditation ................................................................................................................ PROSPECTS AND FUTURE PLANS Prospects.......................................................................................................................................... Trend Information.............................................................................................................................. Future Plans .................................................................................................................................... DIRECTORS, MANAGEMENT AND EMPLOYEES Directors .......................................................................................................................................... Management .................................................................................................................................... Management Reporting Structure .................................................................................................... Directors and Executive Officers Remuneration ............................................................................ Service Agreements ........................................................................................................................ Our Employees ................................................................................................................................ Board Practices ................................................................................................................................ CORPORATE GOVERNANCE ............................................................................................................ 2
66 67 68 69 70 71 73 74 75
CONTENTS
Page INTERESTED PERSON TRANSACTIONS Past Interested Person Transactions ................................................................................................ Present and Ongoing Interested Person Transactions .................................................................... Review Procedures for Future Interested Person Transactions ...................................................... CONFLICTS OF INTEREST ................................................................................................................ GENERAL AND STATUTORY INFORMATION .................................................................................. APPENDIX A Report from the Auditors and the Audited Combined Financial Statements of Old Chang Kee Ltd. and its Subsidiary Companies for the Financial Years Ended 31 December 2004, 2005 and 2006 ................................................................................................ APPENDIX B Report from the Auditors and the Unaudited Combined Financial Statements of Old Chang Kee Ltd. and its Subsidiary Companies for the Financial Period from 1 January 2007 to 30 June 2007 .................................................................................................... APPENDIX C Extracts of our Articles of Association.............................................................................................. APPENDIX D Description of Singapore Company Law relating to Shares ............................................................ APPENDIX E Summary of Relevant Australian Laws and Regulations ................................................................ APPENDIX F Summary of Relevant Malaysian Laws and Regulations ................................................................ APPENDIX G Summary of Relevant PRC Laws and Regulations.......................................................................... APPENDIX H Summary of Relevant Thai Laws and Regulations .......................................................................... APPENDIX I Taxation ............................................................................................................................................ APPENDIX J Terms, Conditions and Procedures for Application and Acceptance .............................................. APPENDIX K Report from the Auditors and the Unaudited Proforma Combined Financial Statements of Old Chang Kee Ltd. and its Subsidiary Companies for the Financial Year Ended 31 December 2006 and the Financial Period from 1 January 2007 to 30 June 2007 .................................................................................................... APPENDIX L Key Changes under Catalist Rules ..................................................................................................
A-1
B-1
C-1
D-1
E-1
F-1
G-1
H-1
I-1
J-1
K-1
L-1
CORPORATE INFORMATION
BOARD OF DIRECTORS : Han Keen Juan (Executive Chairman) Lim Tao-E William (Chief Executive Officer) Choong Buat Ken (Non-Executive Director) Lim Yen Heng (Non-Executive Director) Ong Chin Lin (Lead Independent Director) Wong Chak Weng (Independent Director) Chew Mei Li, CPA 200416190W
: :
2 Woodlands Terrace Singapore 738427 Boardroom Corporate & Advisory Services Pte Ltd 3 Church Street #08-01 Samsung Hub Singapore 049483 Westcomb Capital Pte Ltd 5 Shenton Way #09-07 UIC Building Singapore 068808 Westcomb Securities Pte Ltd 5 Shenton Way #09-08 UIC Building Singapore 068808 Shook Lin & Bok LLP 1 Robinson Road #18-00 AIA Tower Singapore 048542 Hardies Lawyers 45 Ventnor Avenue West Perth WA 6005 Australia Skrine Unit No. 50-8-1, 8th Floor Wisma UOA Damansara 50, Jalan Dungun Damansara Heights 50490 Kuala Lumpur Malaysia Royal Advocates International Limited 2/4 Nai Lert Tower Building 5th Floor, Lumpini Patuwan Bangkok 10330 Thailand
SHARE REGISTRAR
MANAGER
SOLICITORS TO THE INVITATION AND LEGAL ADVISERS TO OUR COMPANY ON SINGAPORE LAW
CORPORATE INFORMATION
LEGAL ADVISERS TO OUR COMPANY ON PRC LAW : King & Wood 22/F, The City Tower 86 Section One Renminnanlu Chengdu, Sichuan 610016 PRC Ernst & Young Certified Public Accountants One Raffles Quay North Tower, Level 18 Singapore 048583 Partner-in-charge: Max Loh Khum Whai (a member of the Institute of Certified Public Accountants of Singapore) RECEIVING BANKER : Oversea-Chinese Banking Corporation Limited 65 Chulia Street OCBC Centre Singapore 049513 Oversea-Chinese Banking Corporation Limited 65 Chulia Street OCBC Centre Singapore 049513 United Overseas Bank Limited 80 Raffles Place UOB Plaza 1 Singapore 048624 CORPORATE WEBSITE : http://www.oldchangkee.com (information contained on this Internet website does not constitute a part of this Prospectus)
PRINCIPAL BANKERS
DEFINITIONS
In this Prospectus, the accompanying Application Forms and, in relation to the Electronic Applications, the instructions appearing on the screens of the ATMs of Participating Banks or the IB websites of the relevant Participating Banks, unless the context otherwise requires, the following definitions apply throughout where the context so admits:-
Companies within our Group Company or Old Chang Kee Group Old Chang Kee Australia Old Chang Kee China
: : : : Old Chang Kee Ltd. Our Company and its subsidiaries Old Chang Kee Australia Pty Ltd Ten & Han Food Management (Chengdu) Co., Ltd.
Ten & Han Associated Companies Old Chang Kee Malaysia Old Chang Kee Thailand
: :
Old Chang Kee (M) Sdn. Bhd. Old Chang Kee (Thailand) Co., Ltd.
Other Companies, Organisations and Agencies 1901 Singapore Auditors Authority AVA Catalist CDP or Depository FIC
: : : : : : : 1901 Singapore Pte. Ltd. Ernst & Young Monetary Authority of Singapore Agri-Food & Veterinary Authority of Singapore Sponsor-supervised board The Central Depository (Pte) Limited Foreign Investment Committee, under Malaysias Prime Ministers Department, which regulates, inter alia, the acquisition of assets, mergers and takeovers by local and foreign interests Housing and Development Board PT. Old Chang Kee Ina Westcomb Securities Pte Ltd
: : :
: :
Westcomb Capital Pte Ltd Majlis Ugama Islam Singapura (also known as the Islamic Religious Council of Singapore) National Environment Agency
NEA
DEFINITIONS
Participating Banks
: DBS Bank Ltd (including POSB) (DBS Bank), Oversea-Chinese Banking Corporation Limited (OCBC) and United Overseas Bank Limited and its subsidiary, Far Eastern Bank Limited (the UOB Group) OCK Food Chain Philippines, Inc. Pure Options Pte. Ltd. Oversea-Chinese Banking Corporation Limited SGX-ST Dealing and Automated Quotation System Singapore Exchange Securities Trading Limited Boardroom Corporate & Advisory Services Pte Ltd Asian Appraisal Company Pte Ltd
Philippines Franchisee Pure Options Receiving Banker SGX-SESDAQ SGX-ST Share Registrar Valuer General Application Forms
: : : : : : :
The printed application forms to be used for the purpose of the Invitation and which form part of this Prospectus The list of applications for the subscription of the New Shares The articles of association of our Company (a) in relation to an entity, means:(i) in a case where the entity is a Substantial Shareholder, Controlling Shareholder, substantial interest-holder or controlling interest-holder, its related corporation, related entity, associated company or associated entity; or in any other case:(aa) (bb) a director or an equivalent person; where the entity is a corporation, a Controlling Shareholder of the entity; where the entity is not a corporation, a controlling interest-holder of the entity; a subsidiary, a subsidiary entity, an associated company, or an associated entity; or a subsidiary, a subsidiary entity, an associated company, or an associated entity, of the Controlling Shareholder or controlling interestholder, as the case may be,
: : :
(ii)
(cc)
(dd)
(ee)
DEFINITIONS
(b) in relation to an individual, means:(i) (ii) his immediate family; a trustee of any trust of which the individual or any member of the individuals immediate family is, (aa) (bb) a beneficiary; or where the trust is a discretionary trust, a discretionary object,
when the trustee acts in that capacity; or (iii) any corporation in which he and his immediate family (whether directly or indirectly) have interests in voting shares of an aggregate of not less than 30% of the total votes attached to all voting shares
Associated Company
in relation to an entity, means:(a) any corporation, other than a subsidiary of the entity, in which:(i) the entity or one or more of its subsidiaries or subsidiary entities has; the entity, one or more of its subsidiaries and one or more of its subsidiary entities together have; the entity and one or more of its subsidiaries together have; the entity and one or more of its subsidiary entities together have; or one or more of the subsidiaries of the entity and one or more of the subsidiary entities of the entity together have,
(ii)
(iii)
(iv)
(v)
a direct interest in voting shares of not less than 20% but not more than 50% of the total votes attached to all voting shares in the corporation; or (b) any corporation, other than a subsidiary of the entity or a corporation which is an associated company of the entity by virtue of paragraph (a), the policies of which:(i) the entity or one or more of its subsidiaries or subsidiary entities; the entity together with one or more of its subsidiaries and one or more of its subsidiary entities; the entity together with one or more of its subsidiaries;
(ii)
(iii)
DEFINITIONS
(iv) the entity together with one or more of its subsidiary entities; or one or more of the subsidiaries of the entity together with one or more of the subsidiary entities of the entity,
(v)
: :
Automated teller machine of a Participating Bank An application for the Offer Shares made through an ATM, subject to and on the terms and conditions of this Prospectus The audit committee of our Company as at the date of this Prospectus The board of Directors of our Company Has the same meaning as in Section 2 of the Business Trusts Act (Chapter 31A) of Singapore, as amended, supplemented or modified from time to time Chief executive officer Companies Act (Chapter 50) of Singapore, as amended, supplemented or modified from time to time In relation to a corporation, means a person who:(a) holds directly or indirectly interest in the voting shares of the corporation and where the total votes attached to such shares are 15% or more of the aggregate of the votes attached to all the voting shares in the corporation; or in fact exercises control over the corporation
Audit Committee
: :
: :
Controlling Shareholder
(b)
: : : : :
The Central Provident Fund The directors of our Company as at the date of this Prospectus An ATM Application or an IB Application Earnings per Share Enterprise Resource Planning, a type of system which uses multiple components of computer software and hardware, including but not limited to a unified database, to integrate all data and processes of an organisation The executive Directors of our Company The executive officers of our Group as at the date of this Prospectus, who are also key executives as defined under the Securities and Futures Act (Offers of Investment) (Shares and Debentures) Regulations 2005
: :
DEFINITIONS
F&B FIE FP FY HACCP
: : : : : Food and beverage Foreign Investment Enterprise Financial period from 1 January to 30 June Financial year ended or, as the case may be, ending 31 December Hazard Analysis and Critical Control Point, a scientific, rational and systematic approach to identify, assess and control hazards during production, processing, manufacturing, preparation and use of food to ensure that food is safe for consumption Contains no pork, lard or other elements of impurities as defined under Islamic law Internet banking An application for the Offer Shares made through an IB website of one of the relevant Participating Banks, subject to and on the terms and conditions of this Prospectus The independent Directors of our Company The invitation by our Company to the public to subscribe for the New Shares, subject to and on the terms and conditions of this Prospectus Initial public offering S$0.20 for each New Share 12 November 2007, being the latest practicable date prior to the lodgment of this Prospectus with the Authority Listing manual of the SGX-ST, as amended, supplemented or modified from time to time A day on which the SGX-ST is open for trading in securities Mass rapid transit Net asset value The 25,000,000 new Shares for which our Company invites applications to subscribe pursuant to the Invitation, subject to and on the terms and conditions of this Prospectus The non-executive Directors (including Independent Directors) of our Company The nominating committee of our Company as at the date of this Prospectus The offer by our Company of the Offer Shares to the public in Singapore for subscription at the Issue Price, subject to and on the terms and conditions of this Prospectus
Halal
IB IB Application
: :
: :
: : :
Listing Manual
: : : :
Non-Executive Directors
Nominating Committee
Offer
10
DEFINITIONS
Offer Shares period under review Placement or Placement Tranche
: : : The 1,000,000 New Shares which are the subject of the Offer FY2004, FY2005, FY2006 and FP2007 The placement by the Placement Agent of the Placement Shares on behalf of our Company for subscription at the Issue Price, subject to and on the terms and conditions of this Prospectus The 24,000,000 New Shares which are the subject of the Placement (including the Reserved Shares) Peoples Republic of China, excluding Hong Kong Special Administrative Region of PRC (Hong Kong), Macau Special Administrative Region of PRC (Macau) and the Republic of China for the purposes of this Prospectus and for geographical reference only This Prospectus dated 4 January 2008 issued by our Company in respect of the Invitation FY2004, FY2005, FY2006, FP2007 and the period between 1 July 2007 to the Latest Practicable Date The remuneration committee of our Company as at the date of this Prospectus The 1,500,000 Placement Shares reserved for our Non-Executive Directors, management, employees, business associates and those who have contributed to the success of our Group The restructuring exercise undertaken by our Group as described in the section entitled Restructuring Exercise of this Prospectus Retail shops and kiosks set up by our Group Securities account maintained by a Depositor with CDP but does not include a securities sub-account Securities and Futures Act (Chapter 289) of Singapore, as amended, supplemented or modified from time to time The service agreements entered into between our Company and our Executive Directors, as described in the section entitled Service Agreements of this Prospectus Ordinary shares in the capital of our Company Registered holders of Shares, except where the registered holder is CDP, the term Shareholders shall, in relation to such Shares, mean the Depositors whose Securities Accounts are credited with Shares The sub-division of each Share into 12 Shares as described in the section entitled Share Capital of this Prospectus
Placement Shares
PRC
Prospectus
Relevant Period
Remuneration Committee
Reserved Shares
Restructuring Exercise
: :
Service Agreements
Shares Shareholders
: :
Sub-division of Shares
11
DEFINITIONS
Substantial Shareholder
: A person who has an interest in voting shares of a corporation, and where the total votes attached to such shares are not less than 5% of the total votes attached to all the voting shares of the corporation Lim Tao-E William
William Lim Currencies, Units and Others AUD or A$ RM or MYR RMB S$ and cents THB US$ or USD sq ft % or per cent.
: : : : : : : :
Australian dollars Malaysian Ringgit PRC Renminbi Singapore dollars and cents, respectively Thai Baht United States dollars Square feet Per centum or percentage
Any reference to our, ourselves, us, we or other grammatical variations thereof in this Prospectus is a reference to our Company, our Group or any member of our Group as the context requires. The terms Depositor, Depository Agent and Depository Register shall have the meanings ascribed to them respectively in Section 130A of the Companies Act. The term entity shall have the same meaning ascribed to it in Section 2 of the Securities and Futures Act, while the terms associated entity, controlling interest-holder, related corporation, related entity, subsidiary, subsidiary entity and substantial interest-holder shall have the same meanings ascribed to them respectively in Paragraph 1 of the Fourth Schedule of the Securities and Futures Act (Offers of Investments) (Shares and Debentures) Regulations 2005. Words importing the singular shall, where applicable, include the plural and vice versa and words importing the masculine gender shall, where applicable, include the feminine and neuter genders and vice versa. References to persons shall include corporations. Any reference in this Prospectus, the Application Forms or the Electronic Applications to any statute or enactment is a reference to that statute or enactment as for the time being amended or re-enacted. Any word defined in the Companies Act, the Securities and Futures Act or any statutory modification thereof or the Listing Manual and used in this Prospectus, the Application Forms and Electronic Applications shall, where applicable, have the meaning assigned to it under the Companies Act, the Securities and Futures Act or such statutory modification, or the Listing Manual, as the case may be. Any reference in this Prospectus, the Application Forms or the Electronic Applications to Shares being allotted to an applicant includes allotment to CDP for the account of that applicant. Any reference to a time of day or dates in this Prospectus, the Application Forms or the Electronic Applications shall be a reference to Singapore time or dates respectively, unless otherwise stated.
12
DEFINITIONS
Certain names with Chinese characters have been translated into English names. These names can be identified by the Chinese characters indicated beside the English names. Such translations which are provided solely for the convenience of investors, may not have been registered with the relevant PRC authorities and should not be construed as representations that the English names actually represent the Chinese characters. Any discrepancies in the tables included in this Prospectus between the listed amounts and the totals thereof are due to rounding. Accordingly, figures shown in totals in certain tables may not be an arithmetic aggregation of the figures which precede them.
13
(c)
that is materially adverse from the point of view of an investor, we may lodge a supplementary or replacement prospectus with the Authority pursuant to Section 241 of the Securities and Futures Act. Where prior to the lodgment of the supplementary or replacement prospectus, applications have been made under this Prospectus to subscribe for the New Shares, and:(a) where the New Shares have not been issued to you, our Company shall either:(i) within seven days from the date of lodgment of the supplementary or replacement prospectus give you the supplementary or replacement prospectus, as the case may be, and provide you with an option to withdraw your application; or
14
(b)
where the New Shares have been issued to you, our Company shall either:(i) within seven days from the date of lodgment of the supplementary or replacement prospectus give you the supplementary or replacement prospectus, as the case may be, and provide you with an option to return to our Company the New Shares which you do not wish to retain title in; or treat the issue of the New Shares as void, in which case the issue shall be deemed void and our Company shall, within seven days from the date of lodgment of the supplementary or replacement prospectus, return to you all monies which you have paid on account of your application for the New Shares, without interest or any share of revenue or other benefit arising therefrom and at your own risk.
(ii)
If you wish to exercise your option under paragraph (a)(i) above to withdraw your application in respect of the New Shares, you shall, within 14 days from the date of lodgment of the supplementary or replacement prospectus, notify our Company of this, whereupon our Company shall, within seven days from the receipt of such notification, pay to you all monies paid by you on account of your application for such New Shares, without interest or any share of revenue or other benefit arising therefrom and at your own risk. If you wish to exercise your option under paragraph (b)(i) above to return the New Shares issued to you, you shall, within 14 days from the date of lodgment of the supplementary or replacement prospectus, notify our Company of this and return all documents, if any, purporting to be evidence of title to those Shares, to our Company, whereupon our Company shall, within seven days from the receipt of such notification and documents, if any, pay to you all monies paid by you for those New Shares, without interest or any share of revenue or other benefit arising therefrom and at your own risk. Under the Securities and Futures Act, the Authority may, in certain circumstances issue a stop order pursuant to Section 242 of the Securities and Futures Act (the Stop Order) to our Company, directing that no New Share or no further Share to which this Prospectus relates, be allotted or issued. Such circumstances will include a situation where this Prospectus (i) contains a statement or matter, which in the opinion of the Authority, is false or misleading; (ii) omits any information that should be included in accordance with the Securities and Futures Act; or (iii) does not, in the opinion of the Authority, comply with the requirements of the Securities and Futures Act. In the event that the Authority issues a Stop Order and applications to subscribe for the New Shares have been made prior to the Stop Order, then:(a) where the New Shares have not been issued to you, your application for the New Shares shall be deemed to have been withdrawn and cancelled, and our Company shall, within 14 days from the date of the Stop Order, pay to you all monies which you have paid on account of your application for the New Shares, without interest or any share of revenue or other benefit arising therefrom and at your own risk; or where the New Shares have been issued to you, the Securities and Futures Act provides that the issue of the New Shares shall be deemed to be void, and our Company is required, within 14 days from the date of the Stop Order, to pay to you all monies which you have paid on account of your application for the New Shares, without interest or any share of revenue or other benefit arising therefrom and at your own risk.
(b)
15
16
The above timetable is only indicative as it assumes that the closing of the Application List takes place on 14 January 2008, the date of admission of our Company to the Official List of the Catalist will be 16 January 2008, the SGX-STs shareholding spread requirement will be complied with and the New Shares will be issued and fully paid-up prior to 16 January 2008. The actual date on which our Shares will commence trading on a ready basis will be announced when it is confirmed by the SGX-ST. The above timetable and procedure may be subject to such modifications as the SGX-ST may, in its discretion, decide, including the decision to permit trading on a ready basis and the commencement date of such trading. The commencement of trading on a ready basis will be entirely at the discretion of the SGX-ST. All persons trading in our Shares before their Securities Accounts with CDP are credited with the relevant number of Shares will do so at the risk of selling Shares which neither they nor their nominees, as the case may be, have been allotted or are otherwise beneficially entitled to. In the event of any changes in the closure of the Application List or the time period during which the Invitation is open, we will publicly announce the same:(i) through a SGXNET announcement to be posted on the Internet at the SGX-ST website http://www.sgx.com; and in a local English newspaper.
(ii)
Results of the Invitation including the allotment of the New Shares and balloting (in the event of an oversubscription for the Offer Shares) will be provided through the channels in (i) and (ii) above. Investors should consult the SGX-ST announcement on the ready listing date on the Internet (at the SGX-ST website http://www.sgx.com) or the newspapers, or check with their brokers on the date on which trading on a ready basis will commence.
17
(d)
Until the above requirements have been met, our Company must continue to comply with the SGXSESDAQ rules. Our Company may be delisted if we fail to comply with the above requirements by the Transition Date. A key feature of Catalist is that intermediaries (Sponsors) will be authorised by the SGX-ST to act as either:(a) a full Sponsor, authorised to undertake activities set out in Catalist Rule 225 in preparing a listing applicant for admission or advising an existing issuer in a very substantial acquisition or reverse takeover as well as activities set out in Catalist Rule 226 in advising an existing issuer on compliance with the continuing obligations under the Catalist Rules; or a continuing Sponsor, authorised to undertake activities set out in Catalist Rule 226 in advising an existing issuer on compliance with the continuing obligations under the Catalist Rules.
(b)
With effect from the day from which we shall comply with the Catalist Rules, we must retain a Sponsor at all times or face delisting. The Sponsor will review all documents to be released by us on Catalist to Shareholders or to the market (including announcements, resolutions contained in notices of meetings, circulars and corporate actions) before release, to ensure that our Company complies with the Catalist Rules and makes the appropriate disclosures. In its letter dated 16 November 2007, informing that our Company is conditionally eligible for listing on the SGX-SESDAQ, the SGX-ST has stated that notwithstanding that our Company meets the Mainboard requirements at the time of listing, it will only be considered for a transfer to the Mainboard if it records substantially higher profits for each of the financial years ending 31 December 2007 and 2008. Please refer to the Key Changes Under Catalist Rules in Appendix L of this Prospectus for information on the key changes which will affect our Company upon the Catalist Rules coming into effect.
18
THE INVITATION
Invitation Size : 25,000,000 New Shares which will, upon allotment and issue, rank pari passu in all respects with our existing issued Shares. S$0.20 for each New Share. The purpose of the Invitation is to secure admission of our Company to the Official List of the Catalist. Our Directors consider that the listing of our Company and the quotation of the Shares and the New Shares on the Official List of the Catalist will enhance the public image of our Group locally and overseas and enable us to tap the capital markets to fund the expansion of our operations and enlarge our capital base for the continued expansion of our business. The Invitation will also provide members of the public, the Non-Executive Directors, management, employees and business associates as well as those who have contributed to our success with an opportunity to participate in the equity of our Company. The Offer comprises an invitation by our Company to the public in Singapore to subscribe for 1,000,000 Offer Shares at the Issue Price, subject to and on the terms and conditions of this Prospectus. The Placement comprises a placement of 22,500,000 Placement Shares by way of Placement Shares Application Forms and 1,500,000 Reserved Shares by way of Reserved Shares Application Forms, subject to and on the terms and conditions of this Prospectus. 1,500,000 Reserved Shares (which form part of the Placement Shares) will be reserved for our Non-Executive Directors, management, employees, business associates and others who have contributed to the success of our Group. In the event that any of the Reserved Shares are not taken up, they will be made available to satisfy applications for the Placement Shares, or in the event of an under-subscription for the Placement Shares, to satisfy applications made by members of the public for the Offer Shares. Our Shares will be quoted in Singapore dollars on the Official List of the Catalist, subject to admission of our Company to the Official List of the Catalist and permission for dealing in, and for quotation of, our Shares and the New Shares being granted by the SGX-ST. Investing in our Shares involves risks which are described in the section entitled Risk Factors of this Prospectus.
: :
The Offer
The Placement
Reserved Shares
Listing Status
Risk Factors
19
Purpose Use of proceeds (i) (ii) (iii) (iv) Expand our overseas operations Increase and refurbish our Singapore retail outlets Expansion through strategic alliances, acquisitions, joint ventures and franchises Working capital purposes
Invitation expenses (i) (ii) (iii) (iv) TOTAL Initial listing and processing fees Professional fees Underwriting commission, placement commission and brokerage (1) Miscellaneous expenses 70 1,100 150 350 5,000 1.4 22.0 3.0 7.0 100.0
Note:(1) Please refer to the section entitled Management, Underwriting and Placement Arrangements of this Prospectus for more details.
Please refer to the section entitled Prospects and Future Plans of this Prospectus for more information on our use of proceeds. In the opinion of our Directors, no minimum amount must be raised from the issue of the New Shares. Pending deployment of the net proceeds from the issue of the New Shares as aforesaid, the net proceeds may be added to our Groups working capital, placed as deposits with banks or financial institutions, or used for investment in short-term deposits, money market instruments or debt instruments, as our Directors may deem fit in their absolute discretion.
20
(c)
(d)
(e)
21
(g) (h)
which has resulted or is in the reasonable opinion of the Manager likely to result in a material adverse fluctuation or adverse conditions in the stock market and/or stock markets overseas or in Singapore; or the success of the Invitation being materially prejudiced; or it becoming impracticable, inadvisable, inexpedient or not commercially viable or otherwise contrary to or outside the usual commercial customs or practices in Singapore for the Manager or the Underwriter to observe or perform or be obliged to observe or perform the terms of the Management and Underwriting Agreement or the Invitation; or the business, trading position, operations or prospects of our Group being materially and adversely affected, the Manager (for itself and for and on behalf of the Underwriter) may at any time prior to the close of the Application List by notice in writing to our Company rescind or terminate the Management and Underwriting Agreement. The Manager or the Underwriter may by notice in writing to our Company terminate the Management and Underwriting Agreement if:(a) at any time up to the commencement of trading of our Shares on the Catalist, a stop order shall have been issued by the Authority in accordance with Section 242 of the Securities and Futures Act; or at any time after the registration of this Prospectus by the Authority but before the close of the Application List, our Company fails and/or neglects to lodge a supplementary or replacement prospectus (as the case may be) if it becomes aware of:(i) (ii) (iii) a false or misleading statement or matter in this Prospectus; an omission from this Prospectus of any information that should have been included in it under Section 243 of the Securities and Futures Act; or a new circumstance that has arisen since this Prospectus was lodged with the Authority and would have been required by Section 243 of the Securities and Future Act to be included in the Prospectus if it had arisen before this Prospectus was lodged,
(b)
that is materially adverse from the point of view of an investor; or (c) the Shares have not been admitted to the Official List of the Catalist on or before 16 January 2008 (or such other date as our Company and the Manager may agree).
In the event, the Placement Agent fails to receive valid subscriptions and payments for at least 90.0% of the Placement Shares by 6.00 p.m. on 9 January 2008 (or such other date as may be decided by the Manager), the Placement Agent shall be entitled to terminate the Placement Agreement. The obligations under the Placement Agreement are conditional upon the Management and Underwriting Agreement not being determined or rescinded pursuant to the provisions of the Management and Underwriting Agreement. In case of the non-fulfilment of any of the conditions in the Management and Underwriting Agreement or the release or discharge of the Manager and/or Underwriter (as the case may be) from their obligations under or pursuant to the Management and Underwriting Agreement, the Placement Agreement shall be terminated and the parties shall be released from their respective obligations under the Placement Agreement. Save as disclosed herein, there is no material relationship between our Company, the Manager, the Placement Agent or the Underwriter. 22
EXCHANGE CONTROLS
Singapore There are no Singapore governmental laws, decrees, regulations or other legislation in force that may affect:(a) the import or export of capital, including the availability of cash and cash equivalents for use by our Group; and the remittance of dividends, interest or other payments to non-resident holders of our Companys securities.
(b)
Australia With regards to the remittance of cash, Section 15 of the Australian Financial Transaction Reports Act 1998 (Cth) provides that it is an offence not to report to the Australian Transaction Reports Analysis Centre (AUSTRAC) or a customs officer a transfer of Australian or foreign currency (coin and paper money), in the amount of A$10,000 or more, into or out of Australia. The remittance of funds is governed by the Australian Banking (Foreign Exchange) Regulations 1959, which are made under the power conferred in Section 39 of the Australian Banking Act 1959 (Cth). Regulation 6 provides that a person shall not take or send out of Australia any Australian or foreign currency without the authority of the Reserve Bank of Australia (except for foreign currency obtained by purchase of a money order issued at any post office). Regulation 8 provides that a person shall not make any payment in Australia to a person who is not a resident or place any sum in Australia to the credit of such a person without the authority of the Reserve Bank of Australia. However under Regulation 38, the Reserve Bank of Australia may exempt any person, transaction, security or goods from the whole or any of the provisions of the Australian Banking (Foreign Exchange) Regulations 1959 (subject to directions from the Treasurer of the Commonwealth of Australia). Regulation 38A also provides that the Reserve Bank of Australia may issue a general authority authorising a person or all persons to do an act or thing specified in the authority, which would normally be prohibited by the Australian Banking (Foreign Exchange) Regulations 1959. A general authority was issued on 29 June 1990 (replacing the previous authority issued on 18 December 1984) which provided that any person in Australia may send Australian currency out of Australia and place currency to the credit of a non-resident. As noted in the Australian Commonwealth Gazette GN 27 dated 11 July 1990, all persons were exempted from the application of Regulations 6 and 8 of the Australian Banking (Foreign Exchange) Regulations 1959. Therefore, there is no barrier to funds transfers into or out of Australia, provided the reporting requirements of the Australian Financial Transaction Reports Act 1998 (Cth) are complied with. Malaysia There are no restrictions on the repatriation of capital, profits, dividends, interest, fees or rental by foreign direct investors or portfolio investors. PRC Major reforms have been introduced to the foreign exchange control system of PRC since 1993. On 1 October 1993, the State Council of PRC issued the Notice on Further Reform of the Foreign Exchange Control System and on 28 December 1993, the Peoples Bank of China (PBOC), issued the Notice of the PBOC on Further Reform of the Foreign Exchange Control System which came into effect on 1 January 1994. Other new regulations and implementation measures include the Regulations on the
23
EXCHANGE CONTROLS
Foreign Exchange Settlement, Sale and Payments which took effect on 1 July 1996 and which contain detailed provisions regulating the settlement, sale and payment of foreign exchange by enterprises, individuals, foreign organisations and visitors in PRC and the Regulations of PRC on Foreign Exchange Control which took effect on 1 April 1996 and which contain detailed provisions in relation to foreign exchange control. On 21 July 2005, the PBOC issued the Public Announcement of the PBOC on Improving the Reform of the RMB Exchange Rate Regime, which states that from 21 July 2005, PRC will reform the exchange rate regime by moving into a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies. RMB will no longer be pegged to the US$ and the RMB exchange rate regime will be improved with greater flexibility. Under these new regulations which contained detailed provisions regulating the holding, sale and purchase of foreign exchange by individuals, enterprises, economic bodies and social organizations in PRC, the previous dual exchange rate system for RMB was abolished and a unified floating exchange rate system based largely on supply and demand was introduced. The PBOC publishes the RMB exchange rate against the US$ and other major foreign currencies daily. The medial price of one foreign currency against RMB is to be set by reference to the US$/RMB and other major foreign currencies trading price on the inter-bank foreign exchange market announced by PBOC upon closing of business on the previous working day. In general, unless otherwise approved by the State Council, all organisations within PRC, including FIEs, are required to repatriate their foreign exchange earnings to PRC. In relation to FIEs (including sinoforeign equity joint ventures and sino-foreign co-operative enterprises as well as wholly foreign owned enterprises (WFOE)), they may maintain their recurrent foreign exchange earnings within the highest sum determined by the State Administration of Foreign Exchange (SAFE) or its local branch and the part beyond the sum abovementioned shall be sold to the designated foreign exchange banks or be sold through the foreign exchange swap transaction center. At present, the enterprises within PRC which require foreign exchange for their ordinary trading and nontrading activities (such as payment of staff remuneration), import activities and repayment of foreign debts may purchase foreign exchange from designated banks if the application is supported by the relevant documents and governmental approvals/registrations as the case may be. FIEs may (subject to due payment of tax on such dividends) distribute profits to their foreign investors with funds in their foreign exchange bank accounts kept with designated banks. Should the amount of funds in such foreign exchange bank accounts be insufficient, the enterprises may purchase additional foreign exchange from designated foreign exchange banks upon the presentation of the resolutions of the directors on the profit distribution plan of that particular enterprise and other documents as required by the said banks in accordance with applicable PRC laws. On 14 January 1997, the Regulations of the Peoples Republic of China on Foreign Exchange Control (Regulations) was amended such that the payment in and transfer of foreign exchange for current international transactions will no longer be subject to PRC government control or restrictions. Under the Regulations, FIEs may buy, sell and/or remit foreign currencies at those banks authorized to conduct foreign exchange business only upon providing valid commercial documents and, in the case of capital account item transactions, obtaining approval from the SAFE. Capital investments by FIEs outside of PRC are also subject to limitations, which include approvals by the Ministry of Commerce, the SAFE, the National Development and Reform Commission and their respective branches. Despite the aforementioned relaxation of foreign exchange control over current account transactions, the approval of the SAFE or its local branch is still required before a PRC enterprise may provide any foreign exchange guarantee or make any investment outside of PRC or enter into any other capital account transaction involving the purchase of foreign exchange, except as otherwise provided by PRC regulations. As to a foreign exchange loan, FIEs are required to effect and complete the foreign exchange loan registration with the SAFE or its local branch and to put the foreign loan concerned on
24
EXCHANGE CONTROLS
record. In addition, under certain notices promulgated by the PBOC and the SAFE in 1998, all PRC borrowers of foreign exchange loans are not permitted to purchase foreign currencies with RMB to prepay such borrowings. However, according to a notice published by the PBOC and the SAFE on 19 September 2001, in certain situations, a PRC borrower is allowed to purchase foreign currencies with RMB to prepay onshore foreign exchange loans subject to the approval of the SAFE. According to the Law of PRC on Sino-Foreign Equity Joint Ventures, the net profit that the foreign investors obtain from the FIEs may be remitted abroad in accordance with the foreign exchange regulations and in the currency or currencies specified in the contracts concerning the ventures or deposit in the Bank of China part of the foreign exchange which the foreign investors are entitled to remit abroad. Thailand Thailands exchange controls are established by the Exchange Control Act B.E. 2485, 1942 of Thailand. The Bank of Thailand oversees all foreign exchange transactions. Commercial banks established in Thailand designated by the Bank of Thailand as its Authorised Agents handle and authorise outward remittances of currencies. Currency transactions by non-listed companies that fall within prescribed categories of transactions, such as outward remittances of foreign currencies for the purpose of making overseas investments in shareholding of less than 10% or loans extended to overseas business establishments or paying securities in overseas markets, are required to be approved by the Bank of Thailand before the remittances of funds can take place. Approval is not required for listed companies remitting foreign currencies if the total amount of remittance does not exceed US$100,000,000 per year. Nor is the approval required for non-listed companies remitting foreign currencies as investments or loans to subsidiaries (in which the companies sending funds hold at least 10%) for the amount not exceeding US$50,000,000 per year. In the event that our Thai associated company, Old Chang Kee Thailand, is required to make outward remittances of currency which do not fall within the prescribed categories of transactions, such as the remittance of dividends, investment funds, profits, loan repayment and interest payment thereon, such remittance shall, subject to the payment of all applicable taxes in Thailand, have to be approved by the Bank of Thailand through its Authorised Agents, provided that the requisite documentary evidence shall be furnished to the satisfaction of the remitting commercial bank prior to remittance.
25
26
PLAN OF DISTRIBUTION
This section should be read in conjunction with, and is qualified in its entirety by reference to Appendix J of this Prospectus. The Issue Price was determined by us in consultation with the Manager, the Placement Agent and the Underwriter, after taking into consideration, inter alia, prevailing market conditions and the estimated market demand for our Shares through a book-building process. The Issue Price is the same for all New Shares and is payable in full on application. Applications for the New Shares You may apply to subscribe for any number of New Shares in integral multiples of 1,000 Shares. In order to ensure a reasonable spread of Shareholders, we have the absolute discretion to prescribe a limit to the number of New Shares to be allotted to any single applicant and/or to allot New Shares above or under such prescribed limit as we shall deem fit. Applications for the New Shares may be made using the following methods:(1) Application for Offer Shares The Offer Shares are made available to the members of the public in Singapore for subscription at the Issue Price. The terms and conditions and procedures for application are described in Appendix J of this Prospectus. In the event of an under-subscription for the Offer Shares at the close of the Application List, the number of Offer Shares not subscribed for shall be made available to satisfy applications for the Placement Shares to the extent there is an over-subscription for the Placement Shares as at the close of the Application List. In the event of an over-subscription for the Offer Shares at the close of the Application List and the Placement Shares are fully subscribed or over-subscribed as at the close of the Application List, the successful applications for Offer Shares will be determined by ballot or otherwise as determined by our Directors and approved by the SGX-ST. Pursuant to the terms and conditions contained in the Management and Underwriting Agreement, the Underwriter has agreed to underwrite the Offer Shares. The Underwriter may, at its absolute discretion, appoint one or more sub-underwriters for the Offer Shares. (2) Application for Placement Shares (excluding Reserved Shares) Pursuant to the terms and conditions in the Placement Agreement, the Placement Agent agreed to subscribe for and/or procure subscribers for the Placement Shares. The Placement Agent may, at its absolute discretion, appoint one or more sub-placement agents for the Placement Shares. Subscribers of the Placement Shares (excluding the Reserved Shares) may be required to pay a brokerage (and if so required, such brokerage will be up to 1.0% of the Issue Price) as well as applicable stamp duties and goods and services tax of 7.0% to the Placement Agent. In the event of an under-subscription for the Placement Shares as at the close of the Application List, that number of Placement Shares not subscribed for shall be made available to satisfy excess applications for the Offer Shares to the extent that there is an over-subscription for the Offer Shares as at the close of the Application List. In the event, the Placement Agent fails to receive valid subscriptions and payments for at least 90.0% of the Placement Shares by 6.00 p.m. on 9 January 2008 (or such other date as may be decided by the Manager), the Placement Agent shall be entitled to terminate the Placement Agreement.
27
PLAN OF DISTRIBUTION
Application for Placement Shares (other than Reserved Shares) The Placement Shares (other than Reserved Shares) are reserved for placement to members of the public and institutional investors in Singapore. Application for the Placement Shares (other than Reserved Shares) under the Placement Tranche may only be made by way of Placement Shares Application Forms. An applicant who applies for the Placement Shares (other than Reserved Shares) must complete a Placement Shares Application Form, and shall not make any separate application for the Placement Shares using another Placement Shares Application Form or for the Offer Shares (either using an Offer Shares Application Form or by way of an ATM Application or IB Application). Such separate applications will be deemed to be multiple applications and all applications shall be rejected. (3) Reserved Shares To recognise their contributions to our Group, we have reserved 1,500,000 Placement Shares for subscription by our Non-Executive Directors, management, employees, business associates and others who have contributed to the success of our Group at the Issue Price. These Reserved Shares (other than those subscribed for by our Non-Executive Directors) are not subject to any moratorium and may be disposed of after the admission of our Company to the Official List of the Catalist. In the event that any of the Reserved Shares are not subscribed for, they will be made available to satisfy applications for the Placement Shares to the extent that there is an oversubscription for the Placement Shares as at the close of the Application List, or in the event of an under-subscription of the Placement Shares as at the close of the Application List, to satisfy applications made by members of the public for the Offer Shares to the extent that there is an over-subscription for the Offer Shares as at the close of the Application List. You (not being an approved nominee company in this paragraph) are allowed to submit ONLY ONE application in your own name for:(a) the Offer Shares by any one of the following:(i) (ii) (iii) OR (b) the Placement Shares (other than Reserved Shares) by Placement Shares Application Form. Offer Shares Application Form; or ATM Application; or IB Application,
If you submit or procure submissions of multiple share applications for Offer Shares, Placement Shares (other than Reserved Shares) or both Offer Shares and Placement Shares (other than Reserved Shares), ALL YOUR APPLICATIONS SHALL BE DEEMED TO BE MULTIPLE APPLICATIONS AND SHALL BE REJECTED. If you have made an application for Reserved Shares, you may submit ONE application for Offer Shares OR ONE application for Placement Shares (other than Reserved Shares) provided that you adhere to the terms and conditions of this Prospectus. Such applications shall not be treated as multiple applications.
28
PLAN OF DISTRIBUTION
Subscription of the New Shares None of our Directors (other than our Non-Executive Directors) or Substantial Shareholders or their Associates intends to subscribe for the New Shares. In the event that any of our Directors or Substantial Shareholders or their Associates subscribes for any New Shares, we will announce the details of such subscription. To the best of our knowledge, we are not aware of any person who intends to subscribe for more than 5.0% of the New Shares. However, through a book-building process to assess market demand for our Shares, there may be person(s) indicating interest to subscribe for more than 5.0% of the New Shares. The final allotment of the New Shares will be in accordance with the shareholding spread and distribution guidelines as set out in Rule 210 of the Listing Manual. No Shares shall be allotted or allocated on the basis of this Prospectus later than six months after the date of registration of this Prospectus by the Authority.
29
30
SELLING RESTRICTIONS
This Prospectus does not constitute an offer, solicitation or invitation to subscribe for our Shares in any jurisdiction in which such offer, solicitation or invitation is unlawful or is not authorised or to any person to whom it is unlawful to make such offer, solicitation or invitation. No action has been or will be taken under the requirements of the legislation or regulations of, or of the legal or regulatory authorities of, any jurisdiction, except for the lodgment and/or registration of this Prospectus in Singapore in order to permit a public offering of our Shares and the public distribution of this Prospectus in Singapore. The distribution of this Prospectus and the offering of our Shares in certain jurisdictions may be restricted by the relevant laws in such jurisdictions. Persons who may come into possession of this Prospectus are required by our Company, the Manager, the Underwriter and the Placement Agent to inform themselves about, and to observe and comply with, any such restrictions.
31
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and is subject to, the more detailed information and financial statements (including the notes thereto) appearing elsewhere in this Prospectus. Terms defined elsewhere in this Prospectus have the same meanings when used herein. You should carefully consider all the information presented in this Prospectus, particularly the matters set out in the section entitled Risk Factors of this Prospectus before making an investment decision.
OVERVIEW OF OUR GROUP Our Company was incorporated in Singapore under the Companies Act on 16 December 2004 as a private limited company under the name Old Chang Kee Singapore Pte. Ltd.. Pursuant to the Restructuring Exercise described in the section entitled Restructuring Exercise of this Prospectus, we became the holding company of our Group. We are principally engaged in the manufacture and sale of affordable food products of consistent quality under the brand name Old Chang Kee. Our signature product is the well-known Old Chang Kee curry puff, now complemented by a suite of more than 40 other food products such as fish balls, spring rolls and chicken wings. Most of our sales are on a takeaway basis. We sell our food products through our retail outlets to cater to a wide range of consumers. We also have dine-in operations at our Old Chang Kee Take 5 retail outlets located at Icon Village, Square 2, Ogilvy Centre, Golden Shoe Car Park, Eastpoint Mall and West Mall, which offer a suite of local delights such as curry chicken or beef stew in loaf/rice, sambal fish rice, curry noodles and nasi lemak as well as our food products. We also offer delivery services to the central business district and other selected areas in Singapore. As at the Latest Practicable Date, we had 54 retail outlets in Singapore and two retail outlets in Kuala Lumpur, Malaysia (through our 40.0%-owned Associated Company, Old Chang Kee Malaysia). As at the Latest Practicable Date, we had three retail outlets in Chengdu, PRC (through Old Chang Kee China). We have also established brand presence in Indonesia, by way of a franchise agreement entered into between Ten & Han, our subsidiary, and our Indonesian Franchisee. As at the Latest Practicable Date, our Indonesian Franchisee operates four retail outlets in Jakarta, Indonesia. In June 2007, we also established our brand presence in the Philippines, by way of a franchise agreement entered into between Ten & Han, our subsidiary, and our Philippines Franchisee. As at the Latest Practicable Date, our Philippines Franchisee has opened two retail outlets in Manila, the Philippines. The food products prepared and served by our Group in Singapore have been certified as Halal by MUIS since January 2005. In the last few years, we have received multiple awards in recognition of our brand name, including the prestigious Singapore Promising Brand Award Distinctive Brand Award in 2005 and the Lifelong Learner Award, Corporate Category in 2007. A detailed discussion of our business is set out in the sections entitled Our History and Our Business of this Prospectus. OUR COMPETITIVE STRENGTHS We believe that our competitive strengths are as follows:We have an established household brand name with a distinctive Singaporean flavour. We operate an extensive network of retail outlets at strategic locations. We have a diversified customer base. We have dedicated key management personnel with extensive experience in the local food industry. We are committed to high quality standards.
32
PROSPECTUS SUMMARY
A detailed discussion of our competitive strengths is set out in the section entitled Our Competitive Strengths of this Prospectus. OUR BUSINESS STRATEGIES AND FUTURE PLANS Our business strategies and future plans are as follows:Expand our overseas operations. Increase and refurbish our Singapore retail outlets. Expansion through strategic alliances, acquisitions, joint ventures and franchises. For more details, please refer to the section entitled Prospects and Future Plans of this Prospectus. OUR CONTACT DETAILS Our registered office and principal place of business is 2 Woodlands Terrace, Singapore 738427. Our telephone and facsimile numbers are (65) 6303 2400 and (65) 6303 2415 respectively. Our website address is http://www.oldchangkee.com. Information contained on our website does not constitute a part of this Prospectus.
33
INVITATION STATISTICS
ISSUE PRICE PER NEW SHARE NAV per Share NAV per Share, based on the audited balance sheet of our Group as at 31 December 2006: Before adjusting for the estimated net proceeds from the Invitation and based on the pre-Invitation share capital of 68,400,000 Shares After adjusting for the estimated net proceeds from the Invitation and based on the post-Invitation share capital of 93,400,000 Shares : 11.17 cents : S$0.20
11.74 cents
Premium of Issue Price over NAV per Share: Before adjusting for the estimated net proceeds from the Invitation and based on the pre-Invitation share capital of 68,400,000 Shares After adjusting for the estimated net proceeds from the Invitation and based on the post-Invitation share capital of 93,400,000 Shares : 79.1%
70.4%
EPS Historical EPS for FY2006 based on our profit after taxation for FY2006 and the pre-Invitation share capital of 68,400,000 Shares PRICE EARNINGS RATIO Price earnings ratio based on our EPS for FY2006 NET CASH GENERATED FROM OPERATING ACTIVITIES PER SHARE Historical net cash generated from operating activities per Share for FY2006 based on the pre-Invitation share capital of 68,400,000 Shares PRICE TO NET CASH GENERATED FROM OPERATING ACTIVITIES RATIO Price to net cash generated from operating activities based on the net cash generated from operating activities per Share for FY2006 MARKET CAPITALISATION Our market capitalisation based on our post-Invitation share capital of 93,400,000 Shares and the Issue Price : S$18.7 million : 2.3 times : 8.62 cents : 4.5 times : 4.44 cents
34
RISK FACTORS
You should evaluate carefully each of the following considerations and all other information set forth in this Prospectus before deciding to invest in our Shares. Some of the following considerations relate principally to the industry in which we operate and our business in general. Other considerations relate principally to general social, economic, political and regulatory conditions, the securities market and ownership of our Shares, including possible future dilution in the value of our Shares. If any of the following considerations and uncertainties develops into actual events, our business, financial condition or results of operations could be materially and adversely affected. In such a case, the trading price of our Shares could decline due to any of these considerations, and you may lose all or part of your investment. This Prospectus also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks faced by us as described below and elsewhere in this Prospectus.
RISKS RELATING TO OUR BUSINESS OR OUR INDUSTRY We may be affected by any outbreak of food-related diseases and severe changes in climatic conditions Any outbreak of diseases associated with livestock, crops and other food scares in the region and around the world, such as avian influenza, may lead to a reduction in the consumption of the affected livestock or crop or food products. We are unable to predict the next occurrence of such food-related diseases. In the event of the occurrence of food-related diseases affecting ingredients used in our products, the demand for our products is likely to decline, thereby adversely affecting our business and financial performance. Further, sources of supply for the affected types of livestock or crops may also be reduced, or the Singapore government may ban the import of the affected livestock or crop. In such an event, we may not be able to offer the relevant products and our business and financial performance may be adversely affected. Alternatively, we may have to eliminate the use of the affected livestock or crop in our products. Such elimination could affect the taste of the relevant products and thereby adversely affect the demand for such products. The prices of our raw materials are also subject to fluctuations due to severe changes in climatic conditions and outbreak of food-related diseases, all of which may reduce supply and lead to increase in the cost of raw materials. In the event we are unable to pass on any increase in the cost of raw materials to our customers, our business and financial performance may be materially and adversely affected. For example, during the outbreak of the avian influenza in 2004, the supplies of eggs and chicken meat (which are the ingredients of some of our food products) were drastically reduced. This resulted in a sharp increase in the cost of such raw materials in FY2004. As we had not been able to pass the increase in cost to our customers, our financial performance for FY2004 was affected. In addition, in August and September 2004, as the outbreak of the avian influenza worsened, the Singapore government banned the import of chickens and eggs from Malaysia. As a result, we had to serve our food products without eggs and replace fresh chicken meat with frozen chicken meat during the period of the import ban. This had also affected our sales, and hence our revenue for FY2004. We may be affected by the spread or an outbreak of any contagious or virulent disease The spread or outbreak of any contagious or virulent disease in the countries in which we operate could have a material adverse effect on our operations as well as the operations of our suppliers. In the event that any of our employees in our production facilities or the facilities of our suppliers are infected with such diseases, we and/or our suppliers may be required to temporarily shut down the affected facility to prevent the spread of the disease. An outbreak of any contagious or virulent disease in Singapore may negatively affect consumer sentiments, leading to a reduced willingness by the general consumer in Singapore to socialise, hence reducing patronage to our retail outlets which are located at easily accessible locations with high human traffic flow. This will have a negative impact on our business and financial performance.
35
RISK FACTORS
We may be affected by changes in governmental regulations We are subject to the laws and regulations governing the F&B industry, including but not limited to laws and regulations relating to food safety, handling and storage, hygiene standards, and the sale of F&B. We are required to obtain and maintain for our operations, certain licences, permits, approvals and certificates from relevant authorities. Please refer to the section entitled Government Regulations for a list of the licences, permits, approvals and certificates required for our business. The failure to obtain or renew such licences, permits, approvals and certificates or any changes to relevant laws and regulations may have a negative impact on our business. In the event that we are unable at any time to comply with the existing regulations, such as obtaining, maintaining or renewing the relevant licences, permits, approvals and certificates required for our business, or any changes in such laws and regulations, or any new regulations introduced by the relevant authorities, we may not be allowed to continue our business operations. In addition, any change in or introduction of new regulations that require our compliance may increase our cost of operations. All these will have an adverse effect on our business and financial performance. Our business will be adversely affected by the revocation of Halal certification issued to our production facility and retail outlets MUIS, which is constituted under the Administration of Muslim Law Act (Chapter 3) of Singapore, may issue a Halal certificate in relation to the operation of a retail food establishment and regulate the holder of such certificate to ensure that the requirements of the Islamic law are complied with in the operation of the establishment. As at the Latest Practicable Date, Halal certifications had been issued to our production facility located in Singapore at 2 Woodlands Terrace and 50 of our retail outlets in Singapore. Such Halal certification has enabled us to expand our customer base to include Muslim consumers. To maintain such Halal certification, we have implemented a system under which all the processes involved in the production of our food products are monitored closely to ensure that our food products are manufactured, packed, transported, stored and sold in compliance with the requirements of Islamic law. Specific corrective actions will be prescribed and implemented to rectify any aberration detected by the system. There can be no assurance that the Halal certification issued to our production facility or retail outlets will not be revoked or will be renewed. In the event such Halal certification is revoked or not renewed, our customer base will be reduced thus resulting in an adverse effect on our business and financial performance. Our business and financial performance will be affected by any increase in rental charges or the failure to procure the renewal of existing leases All our retail outlets are housed in leased premises. Rental expenses of our retail outlets accounted for 38.1%, 37.4%, 36.1% and 36.6% of our selling and distribution expenses for FY2004, FY2005, FY2006 and FP2007 respectively. Majority of our leases are entered for periods of between one and three years. We generally commence negotiations for new leases about six months prior to the expiry of the existing leases. The new lease agreements are usually signed within one month of the expiry of the existing leases. Upon the expiry of such leases, the lessors have the right to review and alter the terms and conditions of the leases. We face the risk of increases in rental charges or the inability to renew the leases on terms and conditions which are favourable to us. Any increase in the rental charges or changes in terms and conditions that are unfavourable to us would inevitably increase our operating expenses, thus affecting our profitability. In addition, failure to procure the renewal of leases at strategic locations may result in losses and disruptions to our business, and our financial performance will be adversely affected.
36
RISK FACTORS
We may not be able to secure new strategic locations to expand our business Our growth is dependent on our extensive network of retail outlets at strategic locations which allows us to reach out to a wide base of customers. As described in the section entitled Our Competitive Strengths of this Prospectus, our retail outlets are located at easily accessible locations with high human traffic flow, thus facilitating high volume sales of our food products. To maintain our competitiveness in the F&B industry, our business development team constantly seeks new strategic locations to expand our business. However, there can be no assurance that we will continue to secure strategic locations for our new retail outlets. Any failure to secure strategic locations for new retail outlets may result in a loss of business and will present opportunities to competitors to increase their market share by opening their retail outlets at such strategic locations, thereby affecting our business and financial performance. Our business and financial performance will be affected if we are unable to compete with our competitors effectively Our industry is highly competitive and our competitors include individual operators as well as larger groups of chain outlet food operators. There is no assurance that we will be able to continue to compete effectively with our competitors. In the event that we are unable to compete with our competitors effectively, our business and financial performance will be adversely affected. We are susceptible to fluctuations in foreign exchange rates that could result in us incurring foreign exchange losses Our revenue is denominated in S$ while part of our purchases, including equipment, is denominated in THB and US$. Some of our equipment purchases are denominated in US$ and the amount was less than S$300,000 in each of the financial period under review. On the other hand, 46.8%, 48.2%, 45.8% and 44.2% of our total purchases in FY2004, FY2005, FY2006 and FP2007 respectively are denominated in THB. Hence, we are exposed to foreign exchange risks if there are significant fluctuations in currency exchange rates between the time of our purchases and payment in foreign currencies, especially the THB. We are also subject to translation risks as our consolidated financial statements are denominated in S$ while the financial statements of our foreign subsidiaries and Associated Companies are prepared in AUD, RM, RMB and THB. For the purposes of consolidating the results of our foreign subsidiaries and Associated Companies, the respective balance sheets of our foreign subsidiaries and Associated Companies are translated from AUD, RM, RMB and THB in which their financial statements are prepared, based on the prevailing exchange rates on the balance sheet date. The profit and loss accounts of our foreign subsidiaries and Associated Companies are translated using the average exchange rates for the relevant financial year or period. Any significant appreciation of the S$ against AUD, RM, RMB or THB may adversely affect our Groups results from operations as it will result in our Group having lower profits from our foreign subsidiaries and Associated Companies. We do not presently have any formal policy for hedging against foreign exchange exposure. Our business will be adversely affected by complaints from customers and negative publicity Like any operator in the F&B industry, we may be adversely affected by negative publicity concerning food quality, illness, injury, publication of government or industry findings concerning food products served by us, or other health concerns or operational issues of our retail outlets or production facility. At any instance, our retail outlets and production facility may be subject to negative allegations from our customers, complaints of illnesses due to lapses in food quality, injuries sustained on our premises and operational inefficiencies. These negative allegations, especially complaints of illnesses arising from the consumption of our food products, may result in the closure of our retail outlets and/or production facility. There have been instances of complaints from our customers in the past. They relate mainly to the quality of our food products, the quality of the service provided by our employees at the retail outlets, non-punctual delivery of customers orders and delivery of food products not in accordance with customers orders or requests. In the event any of these complaints escalate into legal proceedings against our Group, we will have to expend resources defending and/or counter-claiming against such claims. There can be no assurance that we will be able to defend ourselves successfully and our Group may suffer monetary losses as a result. In addition, such complaints may result in negative publicity or the closure of our retail outlets and/or our production facility which would materially and adversely affect our businesses and financial performance. 37
RISK FACTORS
In addition, we may be the subject of malicious and groundless rumours which may be quickly transmitted and spread over the Internet and short message service (SMS) text messages. Such negative publicity will materially affect our business regardless of whether these allegations are genuine. Publicised instances of poor food or general hygiene may damage our image, reduce customers confidence in our products and result in reduced patronage of our retail outlets and thus have an adverse impact on our business, profitability and financial performance. Our business is reliant on our brand name The Old Chang Kee brand name has become an established and household brand name in Singapore, and is widely known by local consumers. The strong brand name of Old Chang Kee in Singapore serves as a suitable platform for us to launch our food products in other countries. We have set up retail outlets in Kuala Lumpur, Malaysia (through our 40.0%-owned Associated Company, Old Chang Kee Malaysia) and retail outlets in Chengdu, PRC (through Old Chang Kee China). We also have franchise operations in Jakarta, Indonesia (through our Indonesian Franchisee) and Manila, the Philippines (through our Philippines Franchisee). It is also intended that our business would be franchised to other overseas operators in future. Our brand name and reputation may be adversely affected by the manner in which our franchisees conduct their businesses overseas. This would indirectly affect our business, which is reliant on our brand name. Our business is labour intensive Our business is labour intensive and there is a shortage of manpower in Singapores F&B industry. Employee benefits expense (excluding directors remuneration) expressed as a percentage of total revenue for FY2004, FY2005, FY2006 and FP2007 were approximately 20.6%, 19.7%, 20.8% and 21.3% respectively. Please refer to the section entitled Managements Discussion and Analysis of Financial Condition and Results of Operations of this Prospectus for further details. In the event of any substantial increase in employee benefits expense (excluding directors remuneration) at a higher percentage as compared to our revenue, our business and financial performance may be adversely affected. We are dependent on our management Our Groups performance and success have been largely due to the collective efforts of our Executive Directors and Executive Officers who have built the business of our Group under the guidance and leadership of our Executive Chairman, Han Keen Juan, and our CEO, William Lim. Our Executive Chairman, Han Keen Juan, and our CEO, William Lim, have more than 20 and 10 years of experience in the F&B industry, respectively. The continued success and growth of our Group is therefore dependent on our ability to retain the services of our Executive Directors and Executive Officers. Consequently, the loss of certain key personnel and the failure to attract qualified and timely replacements will have an adverse effect on our Group. We are dependent on our major suppliers and contract manufacturers 65.2% of our purchases in FY2006 was from our major suppliers. In particular, more than 30% of our annual purchases relate to certain food products from Siamchai International Food Co. Ltd., our contract manufacturer in Thailand. Please refer to the section entitled Major Suppliers of this Prospectus for further details. The involuntary or unexpected loss of any of our major suppliers or our contract manufacturers will disrupt our supplies and will adversely affect our business and financial performance. Furthermore, there can be no assurance that our major suppliers or contract manufacturers will be able to continue to fulfil our needs and expectations in terms of costs and/or product quality. In the event that our major suppliers or contract manufacturers are unable to fulfil our requirements or cease to supply raw materials and/or food products to us, we may have to incur time and monetary costs seeking alternative suppliers and/or contract manufacturers, or accept higher prices from our existing suppliers and contract manufacturers, which could result in disruptions to our business and may adversely affect our financial performance.
38
RISK FACTORS
We may be adversely affected if our intellectual property rights are not protected We believe that our trademarks are an integral aspect of our Groups strategy on branding, and play a significant role in creating brand recognition for our food products. As such, we have registered or are in the process of registering our principal Old Chang Kee trademark and our other trademarks, both in Singapore and overseas. Please refer to the section entitled Intellectual Property of this Prospectus for further information on our registered trademarks and trademarks pending registration. There can be no assurance that our registered trademarks will not be infringed upon. There can also be no assurance that our trademarks pending registration will be registered by the respective authorities. Unauthorised use of our trademarks or variants of our trademarks may harm our reputation and consequently our business and financial performance. In addition, we may take action (including litigation) to stop infringement of our intellectual property rights or obtain adequate compensation or remedy. There is no assurance that we will be successful in protecting our intellectual property rights and we may incur substantial costs in the process. In addition, in the event that any third party alleges proprietary rights over such trademarks, we may be exposed to legal proceedings brought against us by such third party in respect of our use of the trademarks. These legal proceedings may result in monetary losses and may prevent us from further using our trademarks. Our business and financial performance will be adversely affected in such an event. We may be adversely affected if our contract manufacturers breach their confidentiality obligation owed to us We manufacture our curry puffs and prepare other various food products in-house. The recipes for our other food products are developed in-house and are produced by selected contract manufacturers approved by us according to our specifications. We have exclusive arrangements with our contract manufacturers for the manufacture of some of our food products. As we are materially dependent on the recipes of these food products, we have provided in the agreements with our contract manufacturers that the recipes we provide to them cannot be used for the manufacture of similar food products for third parties and our contract manufacturers are contractually obliged to keep all technical and commercial information provided by us to them for the manufacture of our food products confidential and to use them only for the manufacture of our food products (Confidential Information). We currently have two major contract manufacturers, namely Leong Hin Foods Pte. Ltd. in Singapore and Siamchai International Food Co. Ltd. in Thailand. In the event our contract manufacturers breach their confidentiality obligation owed to us and disclose the Confidential Information to our competitors or use the Confidential Information for the purpose of manufacturing food products for our competitors, the value of the Old Chang Kee brand may be diminished and our market share may decrease. If this event occurs, our business may be adversely affected. We may be affected by pilferage, theft and vandalism Our employees handle the cash sales and our food items on a daily basis. Lapses in internal controls may occur, resulting in pilferage. During the Relevant Period, we have not encountered any instances of cash pilferage. Further, as some of our retail outlets are situated in outdoor locations or locations that are accessible by the public on a 24-hour basis; theft and vandalism may occur. One of our retail outlets encountered a case of break-in theft in July 2007 but the amount lost was insignificant. Even though safes and close circuit cameras are installed in all our retail outlets, there is no assurance that cases of pilferage, theft and vandalism will not occur. Pilferage, theft and vandalism may not only adversely affect our financial performance, but also our reputation and branding. We face uncertainties associated with our overseas expansion plans We intend to broaden our business presence in overseas markets such as Australia, Malaysia, the Philippines, Indonesia, Thailand and PRC. Please refer to the section entitled Prospects and Future Plans of this Prospectus for further details on our overseas expansion plans. Our overseas expansion plans involve various risks, including the costs associated with setting up the overseas business, obtaining suitable plant and machinery, and renovation costs. We may also experience difficulty in securing strategic locations for our retail outlets. As we have limited experience in overseas operations, there is no certainty that we will be able to manage our overseas expansion plans effectively and successfully. If we are unable to do so, our business and financial performance will be materially and adversely affected. 39
RISK FACTORS
Our business and financial performance may be affected by any change of tenant mix, revamp or closure of the shopping malls or complexes in which our retail outlets are located As at the Latest Practicable Date, 39 out of our 54 retail outlets in Singapore are based in shopping malls or complexes. Any change in the tenant mix of a shopping mall or complex in which our retail outlets are located may result in fewer customers visiting the shopping mall or complex and hence a reduction in the human traffic flow to our retail outlets. There is also no assurance that the shopping malls or complexes in which our retail outlets are located will not be revamped to create a larger number of retail outlets, resulting in greater competition from other food operators. Further, there is also no assurance that the shopping malls or complexes in which our retail outlets are located will not be closed or demolished. The closure or demolition of a shopping mall or complex in which our retail outlet is located may cause us to write off certain fixed assets located in such retail outlet. We may also not be able to source for and obtain other suitable alternative locations in time which may result in a loss and disruption to our business. Poor maintenance of the shopping malls or complexes may also result in less patronage at our retail outlets. All the above events will have a material adverse effect on our business and financial performance. We face the risk of food contamination and tampering Food contamination and tampering is a risk inherent to all F&B industry participants. There is always the possibility of contamination given the numerous processes involved in the production of our food products. Further, food products sold may be subject to tampering. Our business may be adversely affected by negative publicity resulting from such food contamination and tampering of our food products. In such event, the demand for our food products may decrease and our business and financial performance will be adversely affected. We are subject to changes in consumers tastes and preferences Our customers are the general consumers. Our continued growth and success is dependent on the popularity of our signature curry puffs which is complemented by a suite of more than 40 other food products such as fish balls, spring rolls and chicken wings. Any shift in consumers tastes and preferences away from our offered food products may affect our business and consequently our financial performance. Our production facility may be subject to disruptions Our production facility is located at 2 Woodlands Terrace. In the event of disruptions such as fire hazards, power failures or floods at our production facility, the supply of food products, especially our signature curry puff, to our retail outlets would be affected. This will have an adverse impact on our revenue and profitability. We are subject to foreign investment guidelines in Malaysia The FIC regulates and prescribes guidelines (the FIC Guidelines) for the acquisition of assets or interests, mergers and take-overs of companies and businesses in Malaysia. Where the FIC Guidelines are applicable, FIC approval is required. The FIC is a committee of the Economic Planning Unit of the Malaysias Prime Ministers Department. Strictly speaking, the FIC Guidelines do not have the force of law (in the sense that they have not been enacted as legislation or promulgated as regulations under any existing laws). However, non-compliance has practical consequences as the FIC liaises closely with other regulatory agencies in Malaysia, and compliance with conditions imposed by the FIC, if any, may be required before other approvals from the other regulatory authorities are given. For example, if a foreign investor needs to apply for a government licence, permit or approval or if a foreign investor wishes to participate in government contracts or attempts to register any land purchases at the relevant land office or registry in Malaysia, FIC approval and compliance with the FIC Guidelines may be required. The FIC Guidelines include requirements as to the shareholding spread of Malaysian and foreign interests in companies incorporated in Malaysia. The only equity condition imposed currently is that Bumiputera equity in a Malaysian company must amount in aggregate to at least 30%. The remaining 70% equity can be held either by a foreigner, a Malaysian or jointly by a foreigner and Malaysian.
40
RISK FACTORS
Our Malaysian Associated Company, Old Chang Kee Malaysia has not obtained FIC approval in relation to our Companys shareholding in Old Chang Kee Malaysia. Our Company holds 40% of the issued and paid-up share capital of Old Chang Kee Malaysia. The remaining 60% of the issued and paid-up share capital of Old Chang Kee Malaysia is held by San Mun Choong, a Malaysian Chinese. Under the FIC Guidelines, any proposed acquisition or acquisition of 15% or more of the voting rights in a Malaysian company by any one foreign interest requires FIC approval, which is granted at the discretion of the FIC. In the event that we are required to comply with the FIC Guidelines, we and the other shareholder of Old Chang Kee Malaysia may have to, inter alia, procure the divestment of at least 30% of Old Chang Kee Malaysias total issued and paid-up share capital to Bumiputera interest(s) within such time as may be stipulated by the FIC. In such an event, any profit contribution of Old Chang Kee Malaysia to our Company may be reduced and our operations and financial performance may be adversely affected. We may be affected by any changes in the general economic, regulatory, political and social conditions in the countries in which we operate We currently have operations in Singapore, Malaysia and PRC and our franchisees have commenced their operations in Indonesia and the Philippines. We also have plans to expand our operations into Australia. As a result, our businesses and future growth are dependent on the economic, regulatory, political, and social conditions of these countries. Any unfavourable changes in the political, economic, regulatory and social conditions in these countries or in the government policies of these countries may have a negative impact on our operations which could materially and adversely affect our results of operations, financial performance and future growth. Terrorist attacks and other acts of violence or wars may adversely affect the markets in which we operate and our profitability Following the occurrence of certain terrorist attacks and other acts of violence or wars, there has been an escalation of a general fear of increased terrorist activities around the world, which may have an adverse effect on the world economy. Given the general fear of economic fall-out around the world, the economic outlook of our markets may become uncertain and there is no assurance that such markets will not be affected by a worldwide economic downturn, or that recovery will happen in the near future. As this could have a negative impact on the demand for our food products and services, our sales, our business, future growth and profitability may be adversely affected. RISKS RELATING TO OWNERSHIP OF OUR SHARES There has been no prior public market for the Shares; liquidity may be low and the market price may be volatile The Issue Price was determined by us in consultation with the Manager, the Placement Agent and the Underwriter, after taking into consideration, inter alia, prevailing market conditions and the estimated market demand for our Shares through a book-building process. The Issue Price may therefore not be indicative of the market price for our Shares after the completion of the Invitation. Prior to the Invitation, there was no public market for our Shares. We have applied to the SGX-ST for the listing and quotation of our Shares on the Official List of the SGX-SESDAQ. As part of the transitional arrangement announced by the SGX-ST on 26 November 2007, the Company has been approved to be listed on the Catalist. The Company has submitted its listing application under the listing rules of SGX-SESDAQ and the SGX-ST has reviewed the application based on the SGX-SESDAQ framework and listing rules. There is no assurance that an active trading market for our Shares will develop or, if a market develops, that it will be sustained after the Invitation. There is also no assurance that the market price of our Shares will not decline below the Issue Price after the Invitation. The market price of our Shares may fluctuate significantly as a result of various factors, some of which are beyond our control. These factors include:variations in our operating results; new products offered by us or our competitors; 41
RISK FACTORS
liquidity of our Shares in the market; changes in securities analysts estimates of our financial performance; announcements by us of significant contracts, acquisitions, partnerships, joint ventures, franchises or capital commitments; additions or departures of key personnel; fluctuations in stock market prices and volume; changes in market valuations of similar companies; involvement in litigation; and general economic and market conditions. Control by our Executive Directors and their Associates could influence the outcome of actions which require the approval of Shareholders Upon the completion of the Invitation, our Executive Directors and their Associates, will own an aggregate of approximately 73.2% of our post-Invitation share capital. Should these parties act together, they will be able to exercise significant influence over all matters requiring the Shareholders approval, including the appointment of directors and the approval of significant corporate transactions. They will also have veto power with respect to any shareholder action or approval requiring a majority vote. Such concentration of ownership could have the effect of delaying or preventing a change in control of our Company or otherwise discouraging a potential acquirer from attempting to obtain control of our Company through corporate actions such as merger or takeover attempts notwithstanding that the same may be synergistic or beneficial to our Group in a manner that may be in conflict with the interests of our public Shareholders. New investors will incur immediate dilution and may experience further dilution The Issue Price of the New Shares is higher than our Groups NAV as at 30 June 2007 based on the post-Invitation issued share capital. If our Company were to be liquidated immediately following this Invitation, you, being an investor subscribing for the New Shares in this Invitation would receive less than the price you paid for your Shares. Details of the immediate dilution incurred by new investors are described under the section entitled Dilution of this Prospectus. We may not be able to obtain sufficient future funding for future expansion The actual amount of our future financing requirements will depend on factors such as our future performance and market conditions, many of which are beyond our control and cannot be predicted with absolute certainty. We may be required to raise additional funds to finance our expansion, meet unanticipated operating cash requirements, develop new or enhanced products or services, respond to competition, or invest in or acquire businesses. If additional funds are raised through additional issue(s) of Shares in the future, the existing Shareholders interests may be diluted. However, in the event that our Company is unable to raise such additional funds, we may not be able to further expand our operations or introduce new lines of food products. In such an event, our operations and financial performance may be adversely affected. Future sales of Shares could adversely affect the share price Except as described in the section entitled Moratorium of this Prospectus, there are no restrictions on the ability of our Shareholders to sell their Shares. Any future sales or availability of a significant amount Shares may exert downward pressure on our share price. The sale of a significant amount of Shares in the public market after the Invitation, or the perception that such sales may occur, could materially affect the market price of our Shares. These factors may also affect our ability to attract subscription of additional equity securities in the future.
42
RISK FACTORS
Negative publicity may adversely affect the share price Any negative publicity or announcements relating to our Group and/or any of our Directors, Executive Officers and/or Substantial Shareholders may adversely affect the market perception or the stock performance of our Company, regardless of whether the allegations are justified or true. Examples include involvement in legal and/or insolvency proceedings, and reports of unsuccessful attempts at joint ventures or acquisitions.
43
Unaudited FY2006 33,784 (13,827) 19,957 299 (11,061) (4,128) (848) (42) (27) 4,150 (1,111) 3,039 4.44 3.25 FP2006 16,074 (6,493) 9,581 82 (5,106) (1,680) (454) (19) 2,404 (673) 1,731 2.53 1.85 FP2007 19,039 (7,918) 11,121 285 (6,657) (2,201) (512) (22) 2,014 (394) 1,620 2.37 1.73
FY2004 20,893 (8,366) 12,527 13 (7,135) (2,510) (285) (13) 2,597 (515) 2,082 3.04 2.23
FY2005 29,045 (11,276) 17,769 39 (8,881) (4,171) (494) (27) 4,235 (1,028) 3,207 4.69 3.43
(2)
(3)
(4)
44
S$000 Non-Current Assets Property, plant and equipment Intangible assets Investment in associated companies Amounts due from associated companies
Current Assets Inventories Trade and other receivables Deposits Prepayments Amounts due from associated companies Cash and cash equivalents
Total Assets Current Liabilities Trade and other payables Other liabilities Bank overdrafts Amount due to a related party Finance lease liabilities Club membership payable current Provision for taxation
16,215
Net Current Assets Non-Current Liabilities Financial lease liabilities Club membership payable long term Deferred tax liabilities
2,427
Total Liabilities
8,576
7,737
Net Assets
7,639
9,140
Equity attributable to equity holders of the Company Share capital Share application money Reserves Total Equity
45
46
(c) (d)
Please refer to the section entitled Risk Factors of this Prospectus for more information on other factors which may affect our business operations, sales and overall financial performance. Seasonality For the period under review, we registered higher sales in the last quarter of each financial year, in particular, in the month of December. We believe that this was mainly due to the festive celebrations of general consumers at year-end. Cost of sales Our cost of sales constituted 40.0%, 38.8%, 40.9% and 41.6% of our revenue for FY2004, FY2005, FY2006 and FP2007 respectively. Our cost of sales comprised mainly raw materials, such as flour, eggs, potatoes, margarine, chicken meat, spices and vegetables for the preparation of our food products. To reduce our production cost, we outsourced the manufacturing of certain food products to a contract manufacturer in Thailand from June 1997. For each of the period under review, purchases from Siamchai International Food Co. Ltd., our contract manufacturer in Thailand, accounted for more than 38% of our purchases. Please refer to the section entitled Major Suppliers of this Prospectus for further details. Cost of raw materials (including contract manufacturing costs) accounted for 84.2%, 85.3%, 83.9% and 84.3% of our cost of sales for FY2004, FY2005, FY2006 and FP2007 respectively. Most of our raw materials can be easily sourced from various suppliers in Singapore and Thailand, and accordingly, we do not generally experience significant price fluctuations in these raw materials. However, we registered higher costs for chicken meat and eggs in FY2004 due to the occurrence of avian influenza and have experienced slow but gradual increase in the prices of vegetable oil and flour in recent years. We did not encounter any significant fluctuation in the cost of contract manufacturing during the period under review. The other major contributor to our cost of sales is the direct labour cost of our production workers. Direct labour costs accounted for 11.6%, 10.4%, 10.7% and 10.5% of our cost of sales for FY2004, FY2005, FY2006 and FP2007 respectively. The balance of our cost of sales relates to overheads incurred in operating our production facilities, comprising mainly utilities charges, depreciation on our kitchen-related fixed assets (including our leasehold production facility at 2 Woodlands Terrace) and rental charges for coldroom facility. Overheads accounted for 4.2%, 4.3%, 5.4% and 5.2% of our cost of sales for FY2004, FY2005, FY2006 and FP2007 respectively. The increases in overheads in FY2006 and FP2007 was due to increases in electricity bill and depreciation. Our cost of sales may be affected by, inter alia, the following key factors:(a) fluctuations in the cost of contract manufacturing and supplies which may be influenced by fluctuations in THB and RM;
47
(f)
(g)
Other operating income Other operating income represented 0.1%, 0.1%, 0.9% and 1.5% of our revenue for FY2004, FY2005, FY2006 and FP2007 respectively. It comprised mainly income from sale of used oil, short-term deposits, insurance compensation, grants received, gains on fair value adjustment of quoted investment and gains on disposal(s) of quoted investment and property, plant and equipment. Operating expenses Our operating expenses comprised selling and distribution expenses, administrative expenses and other operating expenses. Selling and distribution expenses Our selling and distribution expenses accounted for 71.8%, 65.6%, 69.0% and 71.0% of our total operating expenses for FY2004, FY2005, FY2006 and FP2007 respectively. These are expenses incurred for operating our retail outlets which is mainly constituted by employee benefits expense and rental expenses. Employee benefits expense, which comprised salary, incentive, welfare and other employeerelated expenses, accounted for 36.1%, 42.9%, 42.6% and 41.7% of our selling and distribution expenses for FY2004, FY2005, FY2006 and FP2007 respectively. Rental expenses for our retail outlets accounted for 38.1%, 37.4%, 36.1% and 36.6% of our selling and distribution expenses for FY2004, FY2005, FY2006 and FP2007 respectively. The other contributors of selling and distribution expenses are depreciation of retail outlet equipment, advertising and promotional expenses, packing material expenses, water and electricity expenses, and cleaning expenses which, in aggregate, accounted for 25.8%, 19.7%, 21.3% and 21.7% of our selling and distribution expenses for FY2004, FY2005, FY2006 and FP2007 respectively. Administrative expenses Our administrative expenses accounted for 25.3%, 30.8%, 25.7% and 23.5% of our total operating expenses for FY2004, FY2005, FY2006 and FP2007 respectively. These relate mainly to expenses incurred at our head office such as employee benefits expense, entertainment and travelling expenses, and office supplies and general maintenance expenses.
48
Our effective tax rates for FY2005, FY2006 and FP2007 were higher than the statutory corporate rate due mainly to non-deductible expenses. Our effective tax rate for FY2004 was slightly lower than the statutory corporate tax rate due mainly to partial tax exemption on exempt income. Inflation Our operation and performance was not materially affected by inflation during the period under review.
49
39.5
41.2
37.7
37.7
Prior to 1 January 2006, we recorded our purchases from the contract manufacturer and suppliers in Thailand and Malaysia based on the actual Singapore dollar amount paid. Accordingly, we did not have any foreign exchange gain or loss in FY2004 and FY2005. With effect from 1 January 2006, we changed our policy to book in the purchases at transaction rate and record any exchange gain or loss which arises when we make payments. For FY2006, we registered a total exchange loss of S$27,000, including S$3,000 incurred by re-translation of amounts due by Old Chang Kee Malaysia. For FP2007, we registered a total exchange loss of S$184,000, due mainly to realised loss on purchases from the contract manufacturer and suppliers in Thailand and Malaysia. This was due mainly to the appreciation of the THB against S$ in FP2007. In addition, we are exposed to foreign currency fluctuations due to purchases of some of our production equipment, which may be denominated in US$. We currently do not have any policy with respect to our foreign exchange transactions. We have not undertaken any hedging activities since inception. We will continue to monitor our foreign exchange exposure and where appropriate, will consider using financial instruments to hedge our exposure. We will seek the approval of our Board on the policy for entering into any foreign exchange hedging transaction and we will put in place adequate procedures for such transactions which must be reviewed and approved by our Audit Committee. REVIEW OF RESULTS OF OPERATIONS FY2005 vs FY2004 Revenue Our revenue increased by approximately S$8.1 million (or 39.0%) from S$20.9 million in FY2004 to S$29.0 million in FY2005. The increase in our revenue was mainly attributed to additional sales derived from the wider marketability and appeal of our food products after obtaining Halal certification in January 2005. The other factors which contributed to the increase in our revenue include firstly, the addition of four retail outlets between 31 December 2004 and 31 December 2005, bringing the total number of retail outlets to 40. In FY2005, we opened six new retail outlets and closed two retail outlets. The six new retail outlets (including two new retail outlets for 1901) accounted for 9.4% of our revenue in FY2005. Secondly, we also received revenue from the full year sales registered by the seven retail outlets opened in FY2004. And lastly, our Take 5 meals, which was launched in April 2005, also contributed positively to our revenue. Further, we had lower revenue in FY2004 as our sales were affected by the ban of import of chickens and eggs from Malaysia in August 2004 and September 2004 respectively due to the occurrence of the avian influenza. Our signature curry puff remained the major contributor to our revenue and accounted for 31.1% of our revenue in FY2005.
50
51
52
53
54
55
56
57
3,068
4,600
6,392
3,952
FY2004 In FY2004, we generated an operating profit before working capital changes of approximately S$3.4 million. We had cash outflow of S$123,000 from increases in trade and other receivables as well as inventories and cash inflow of S$340,000 from an increase in trade and other payables. These increases are mainly attributable to the increases in raw material purchases and contract manufacturing costs as our sales increased with the opening of seven new retail outlets in FY2004. During the year, we also made an advance of S$61,000 to Gain Up (M) Sdn Bhd (further details set out in the section entitled Past Interested Person Transactions of this Prospectus) and paid tax of S$401,000. Consequently, our net cash from operating activities amounted to S$3.2 million in FY2004. In FY2004, net cash used in investment activities amounted to S$1.1 million, of which S$1.0 million was attributable to additions to plant and equipment, including machinery and equipment as well as motor vehicles. We also had cash outflow of S$38,000 for the payment of club membership. Net cash used in financing activities amounted to S$662,000 in FY2004. This comprised repayment of finance lease liabilities of S$89,000, interest paid of S$13,000 and interim dividends paid in respect of FY2004 of S$560,000. FY2005 In FY2005, we generated an operating profit before working capital changes of approximately S$5.2 million. With the opening of six new retail outlets in FY2005, our raw material purchases increased and accordingly, our trade payables increased and we registered cash inflow of S$625,000 from the increase. We also registered cash inflow of S$738,000 from an increase in other payables and accruals due mainly to provisions for bonus and an increase in finance lease liabilities. These were offset by cash outflows from increases in inventories, deposits, as well as trade and other receivables of S$106,000, S$242,000 and S$242,000 respectively. The increase in inventories was a result of the increase in raw materials corresponding to the increase in the number of retail outlets. The increase in deposits was similarly attributable to the additional retail outlets opened in FY2005. The increase in trade and other receivables was due to amount owing by landlords for sales takings collected on our behalf. With income tax payments of S$700,000, our net cash from operating activities amounted to S$5.3 million in FY2005. In FY2005, net cash used in investment activities amounted to S$2.5 million, of which S$2.2 million was utilised to expand and upgrade our leasehold premises at 2 Woodlands Terrace and to implement our ERP system to automate our operations. We used S$290,000 to acquire computer software licences for our ERP system. We also received S$51,000 in proceeds from disposal of property, plant and equipment.
58
S$000 Additions
(1)
FY2004
FY2005
FY2006
FP2007
Leasehold building (due to improvements at our production facility at 2 Woodlands Terrace) Machinery and equipment Motor vehicles Renovation (for our retail outlets and production facility at 2 Woodlands Terrace) Electrical fittings Furniture Computers
(3) (3)
1,016(2)
Disposals
(4)
Machinery and equipment Motor vehicles Renovation Electrical fittings Furniture Computers
53 4 2 1 60
1 2 3
53 3 56
73 73
Notes:(1) This relates to the cost of property, plant and equipment and intangible assets acquired during the respective financial years/periods. The significant increase in the additions of machinery and equipment, renovation, electrical fittings and furniture in FP2007 was due to the final billing for all the work done for the renovation and upgrading of our production facility at 2 Woodlands Terrace to include a full mezzanine floor to extend the built-in area of the building and the opening of three new retail outlets. This relates to the implementation of our ERP system. This relates to the net book value of property, plant and equipment and intangible assets disposed of during the respective financial years/periods.
(2)
(3) (4)
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23
We disposed our quoted investment for S$107,000 in FY2006 with a gain of S$7,000. In May 2007, after the completion of the renovation works, we conducted a valuation and registered a loss on fair value adjustment on our leasehold building at 2 Woodlands Terrace of S$119,000 which were offset against our asset revaluation reserve. On 15 November 2007, we entered into a sale and purchase agreement with Nineteen O One Sdn. Bhd. pursuant to which the entire issued and paid-up share capital of 1901 Singapore would be transferred to Nineteen O One Sdn. Bhd. for a consideration of S$180,000 (the Disposal). Completion of the Disposal took place on 15 November 2007. Save as disclosed above and in the section entitled Restructuring Exercise of this Prospectus, our Group has no other material capital expenditure or divestment for the period from 1 July 2007 to the Latest Practicable Date. As at the Latest Practicable Date, we had capital commitments of S$82,000 to upgrade the production line with auto-stacker machine and auto-indexing machine, which will be paid by cash. The upgrade will be completed by end January 2008. As at the Latest Practicable Date, we had non-cancellable operating lease commitments in respect of lease of factory land and retail outlets as follows:S$000 Within one year After one year but not more than five years After five years 4,037 3,890 1,994
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DIVIDEND POLICY
Our Company has not declared or paid any dividend since its incorporation. Save as disclosed below, none of our subsidiaries have declared or paid any dividends since 1 January 2004:1 July 2007 to the Latest Practicable Date S$700,000
Dividends Interim
FY2004 S$560,000
FY2005 S$1,008,000
FY2006 S$2,495,071
FP2007
We currently do not have a fixed dividend policy. The form, frequency and amount of future dividends on our Shares will depend on our earnings, general financial condition, results of operations, capital requirements, cash flow, general business condition and other factors as our Directors may deem appropriate. We may, by ordinary resolution of our Shareholders, declare dividends at a general meeting, but we may not pay dividends in excess of the amount recommended by our Directors. The declaration and payment of dividends will be determined at the sole discretion of our Directors, subject to the approval of our Shareholders. Our Directors may also declare an interim dividend without the approval of our Shareholders. In making their recommendations, our Directors will consider, inter alia, our retained earnings and expected future earnings, operations, cash flow, capital requirements and general financing condition, as well as general business conditions and other factors which our Directors may deem appropriate. Future dividends will be paid by us as and when approved by our Shareholders, where necessary, and Directors. All dividends are paid pro-rata among the Shareholders in proportion to the amount paid up on each Shareholders ordinary shares, unless the rights attaching to an issue of any ordinary share provide otherwise. Unless otherwise directed, dividends are paid by cheque(s) or by warrant(s) sent through the post to each Shareholder at his registered address. Notwithstanding the foregoing, the payment by our Company to CDP of any dividend payable to a Shareholder whose name is entered in the Depository Register shall, to the extent of payment made to CDP, discharge our Company from any liability to that Shareholder in respect of that payment. For information relating to taxes payable on dividends, please refer to Appendix I of this Prospectus. The amount of dividends declared and paid by us should not be taken as an indication of the dividends payable in the future. No inference should or can be made from any of the foregoing statements as to our actual future profitability or our ability to pay dividends in any of the periods discussed.
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You should read this table in conjunction with:our consolidated financial statements and the related notes included in this Prospectus; and the section entitled Managements Discussion and Analysis of Financial Condition and Result of Operations of this Prospectus.
As adjusted for the net proceeds from the issue of the New Shares 7,695
Indebtedness Bank overdrafts Unsecured and guaranteed by Ten & Han Finance lease liabilities (current) Secured and guaranteed
(1) (2)
140 153
(2)
Finance lease liabilities (current) Secured and non-guaranteed Finance lease liabilities (non-current) Secured and guaranteed
170 100
(2)
(1) (2)
301 864
Capitalisation Shareholders equity Total capitalisation and indebtedness 9,140 10,004 9,549 10,341 12,879 13,671
Notes:(1) Guaranteed by our Executive Chairman, Han Keen Juan and/or our CEO, William Lim. Please refer to the section entitled Present and Ongoing Interested Person Transactions of this Prospectus for further details. The finance lease liabilities were taken up to finance the purchase of vehicles and computer equipment and were secured by such assets.
(2)
Please also refer to the section entitled Liquidity and Capital Resources of this Prospectus for further discussion on our indebtedness. As at 31 October 2007, we had contingent liabilities of S$160,000 in relation to letters of guarantee issued to landlords of certain retail outlets.
63
64
DILUTION
Dilution arises because the Issue Price per New Share is higher than our NAV per Share attributable to the existing holders of our issued Shares. Our NAV (which is the amount of our total assets, minus the amount of our total liabilities and minority interests) as at 30 June 2007 was S$9.1 million, or 13.36 cents per Share (based on the pre-Invitation share capital of 68,400,000 Shares). Our NAV, as adjusted for the effects of the Invitation as well as any disposal or acquisition which occurred between 30 June 2007 and the date of the registration of this Prospectus by the Authority, will be S$12.5 million or 13.35 cents per Share (based on the post-Invitation share capital of 93,400,000 Shares). This represents an immediate increase in NAV of 0.01 cents per Share to our existing Shareholders and an immediate dilution to you, as a new investor subscribing for the New Shares in the Invitation. The following table illustrates this per Share dilution:Cents Issue Price per New Share NAV per Share as adjusted for any disposal or acquisition which occurred between 30 June 2007 and the date of the registration of this Prospectus by the Authority based on the pre-Invitation share capital of 68,400,000 Shares Decrease in NAV per Share attributable to existing Shareholders pursuant to the Invitation NAV per Share as adjusted for the effects of the Invitation as well as any disposal or acquisition which occurred between 30 June 2007 and the date of the registration of this Prospectus by the Authority based on the post-Invitation share capital of 93,400,000 Shares Dilution to you, as a new investor subscribing for the New Shares in the Invitation Dilution to you, as a new investor subscribing for the New Shares in the Invitation (as a percentage of the Issue Price) 20.0 13.36
(0.01) 13.35
6.65 33.3%
The following table compares the effective cash cost per Share (after adjusting for the Restructuring Exercise and the Sub-division of Shares) paid by our Directors and our Substantial Shareholders at any time during the period of three years before the date of lodgment of this Prospectus and the Issue Price per Share to be paid by you, as a new investor subscribing the New Shares in the Invitation:Effective cash cost per Share/ Issue Price per New Share (cents)
Consideration
68,399,892 6,840,000
S$5,699,991 S$763,896
8.33 11.17
6,840,000 25,000,000
S$763,900 S$5,000,000
11.17 20.00
New investors
Note:(1)
Our CEO, William Lim, is a nephew of our Executive Chairman, Han Keen Juan. Ng Choi Hong is the spouse of our Executive Chairman, Han Keen Juan.
65
(b)
(c)
(d) (e)
(f)
66
Issued and paid-up share capital as at 16 December 2004, being the date of incorporation Issue of 99,998 new Shares pursuant to the conversion of share application money of S$99,998 Issue of 5,600,000 new Shares pursuant to the acquisition of Ten & Han, as further described in the section entitled Restructuring Exercise of this Prospectus Sub-division of one Share into 12 Shares pursuant to the Sub-division of Shares New Shares to be issued pursuant to the Invitation
100,000
100,000
5,700,000
5,700,000
68,400,000
5,700,000
93,400,000
9,030,000
SIGNIFICANT CHANGES IN PERCENTAGE OF OWNERSHIP Pursuant to share transfer agreements dated 15 November 2007 between Han Keen Juan and (i) William Lim; and (ii) Ng Choi Hong, Han Keen Juan made the following share transfers:Number of Shares transferred 6,839,892 6,840,000 Consideration payable to Han Keen Juan S$763,888 S$763,900
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Save as disclosed above, there were no changes in the ownership of Shares in our Company from the date of incorporation up to the Latest Practicable Date. The Shares held by our Directors and Substantial Shareholders do not carry different voting rights from the New Shares which are the subject of the Invitation. CHANGES IN ISSUED AND PAID-UP SHARE CAPITAL OF OUR COMPANY AND OUR SUBSIDIARIES Save as disclosed in the section entitled Share Capital of this Prospectus and in the table below, there were no changes in the issued and paid-up share capital of our Company and our subsidiaries within the three years preceding the Latest Practicable Date:-
Event Incorporation
Save as disclosed above, no shares in or debentures of our Company or any of its subsidiaries have been issued, or are proposed to be issued, as fully or partly paid-up for cash, or for a consideration other than cash, within the two years preceding the date of this Prospectus. Save for the acquisition of Ten & Han as described in the section entitled Restructuring Exercise of this Prospectus, there have not been any situations where more than ten per cent. of our Companys capital was paid for with assets other than cash, within the period of three years preceding the date of lodgment of this Prospectus with the Authority.
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After the Invitation Direct interest Deemed interest Number Number of of Shares % Shares %
54,720,000 6,840,000
80.0 10.0
6,840,000
10.0
54,720,000 6,840,000
58.6 7.3
6,840,000
7.3
6,840,000
10.0
54,720,000
80.0
6,840,000 25,000,000
7.3 26.8
54,720,000
58.6
68,400,000 100.0
93,400,000 100.0
Notes:(1) Our CEO, William Lim, is a nephew of our Executive Chairman, Han Keen Juan. Ng Choi Hong is the spouse of our Executive Chairman, Han Keen Juan. Our Non-Executive Directors, Choong Buat Ken, Lim Yen Heng and Ong Chin Lin will be offered 100,000, 100,000 and 50,000 Reserved Shares respectively at the Issue Price. In the event that they accept any or all of the Reserved Shares offered to them, they have each voluntarily agreed not to dispose of or transfer any or all their respective Shares until at least one month has elapsed from the date of the admission of our Company to the Official List of the Catalist.
(2)
Save as disclosed above, there are no other relationships among our Directors and our Substantial Shareholders. The Shares held by our Directors and Substantial Shareholders do not carry different voting rights from the New Shares which are the subject of the Invitation. As at the Latest Practicable Date, to the best of our Directors knowledge, there is no known arrangement the operation of which may, at a subsequent date, result in a change in control of our Company. There are no Shares that are held by or on behalf of our Company or by our subsidiaries or Associated Companies. Save as disclosed above, our Company is not directly or indirectly owned or controlled, whether severally or jointly, by any person or government.
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70
RESTRUCTURING EXERCISE
In preparation for the Invitation, we undertook a restructuring exercise (the Restructuring Exercise) to rationalise the corporate structure of our Group, resulting in our Company becoming the holding company of our Group. The Restructuring Exercise involved the incorporation of our Company in Singapore on 16 December 2004 as the listing vehicle and holding company of our Group and the following:1. Incorporation of our Company On 16 December 2004, our Company was incorporated in Singapore as a private limited company. At incorporation, the shareholders of our Company were our Executive Chairman, Han Keen Juan, and our CEO, William Lim, who each held one ordinary share in our Company. 2. Acquisition of Old Chang Kee Australia Old Chang Kee Australia was incorporated in Australia as a proprietary company on 5 August 2005. At incorporation, the shareholders of Old Chang Kee Australia were our Executive Chairman, Han Keen Juan, our CEO, William Lim, and Han Jong Kwong Roland, who is a nephew of our Executive Chairman, Han Keen Juan. Each of the shareholders held one share in Old Chang Kee Australia. On 18 April 2006, our Company acquired one share each from our Executive Chairman, Han Keen Juan and our CEO, William Lim, for an aggregate purchase consideration of AUD2.00 (based on the issued and paid-up share capital of Old Chang Kee Australia as at 17 April 2006) payable in cash. Subsequently, on 30 May 2006, our Company acquired one share from Han Jong Kwong Roland for a purchase consideration of AUD1.00 (based on the issued and paid-up share capital of Old Chang Kee Australia as at 29 May 2006) payable in cash. Following the said acquisitions, Old Chang Kee Australia became our wholly-owned subsidiary. 3. Striking off Pure Options As at 13 November 2007, our Company owned 33.3% of the issued and paid-up share capital of Pure Options, which has been dormant since its incorporation. On 13 November 2007, an application to strike-off Pure Options was filed with the Accounting and Corporate Regulatory Authority of Singapore. 4. Disposal of equity interest in 1901 Singapore On 15 November 2007, we entered into a sale and purchase agreement with Nineteen O One Sdn. Bhd. pursuant to which the entire issued and paid-up share capital of 1901 Singapore would be transferred to Nineteen O One Sdn. Bhd. for a consideration of S$180,000 (the Disposal). The shareholders of Nineteen O One Sdn. Bhd. are Ahmad Zakir Bin Jaafar, Malaysia International Franchise Sdn. Bhd. and Tengku Rozidar Binti Tengku Zainol Abidin. Completion of the Disposal took place on 15 November 2007. 5. Acquisition of Ten & Han Ten & Han was incorporated in Singapore as a private limited company on 7 January 1988. Prior to 9 November 2007, the shareholders of Ten & Han were our Executive Chairman, Han Keen Juan, and our CEO, William Lim, holding 5,599,992 shares and eight shares in Ten & Han respectively.
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RESTRUCTURING EXERCISE
Pursuant to a share transfer agreement dated 9 November 2007 between our Company, our Executive Chairman, Han Keen Juan, and our CEO, William Lim, our Company acquired 100% of the issued and paid-up share capital of Ten & Han, comprising 5,600,000 ordinary shares, from Han Keen Juan and William Lim, in the following proportions for an aggregate purchase consideration of S$5,600,000 based on the issued and paidup share capital of Ten & Han as at 9 November 2007:Number of shares in Ten & Han transferred by the vendor 5,599,992 8 Purchase consideration payable to the vendor S$5,599,992 S$8
The purchase consideration was satisfied by the allotment and issuance of 5,599,992 and eight new Shares credited as fully paid to Han Keen Juan and William Lim respectively. Following the said acquisition, Ten & Han became our wholly-owned subsidiary.
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GROUP STRUCTURE
Our Groups structure following the Restructuring Exercise is as follows:-
100%
100%
100%
40% (1)
Notes:(1) 60.0% of the issued and paid-up share capital of Old Chang Kee Malaysia is held by San Mun Choong, who is not related to any of our Directors or Substantial Shareholders. 60.0% of the issued and paid-up share capital of Old Chang Kee Thailand is held in aggregate by the following persons (none of whom are related to any of our Directors or Substantial Shareholders):Name of shareholder Salim Tanacheevit Tanarat Tanacheevit Urai Sadhajit Monthip Rakratanapaisarn Tanarat Tanacheevit is a son of Salim Tanacheevit. Salim Tanacheevit and Tanarat Tanacheevit hold 94.0% and 1.5% direct interest in Siamchai International Food Co. Ltd. respectively. Salim Tanacheevit also holds 2.74% indirect interest in Siamchai International Food Co. Ltd. through Siamchaipokaphan Co., Ltd by virtue of her 76.0% shareholding in Siamchaipokaphan Co., Ltd. Siamchai International Food Co. Ltd. is one of our major suppliers set out in the section entitled Our Major Suppliers of this Prospectus. (3) Our Executive Chairman, Han Keen Juan, and our CEO, William Lim, each holds 100 shares (representing 1.0% interest in Old Chang Kee Thailand) on behalf of our Company. Percentage interest in Old Chang Kee Thailand 48.0% 10.0% 1.0% 1.0%
(2)
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Name of company
Our subsidiaries
Ten & Han 7 January 1988 Singapore Manufacturing of food and franchising / Singapore Dormant / Australia S$5,600,000 100% 100%
AUD3
100%
100%
F&B management and consultancy, manufacture and sale of snacks (operation by branches only) / PRC
S$100,000/Nil
100%
100%
THB1,000,000
40%
40%
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OUR HISTORY
Our Company was incorporated in Singapore under the Companies Act on 16 December 2004 as a private limited company under the name of Old Chang Kee Singapore Pte. Ltd.. Our history can be traced back to 1956 when a tiny stall in the then Koek Road (presently the Centrepoint area) was set up by a Mr Chang, selling only one food item chicken curry puffs. Later, the business was moved to a roadside stall along Albert Street. In 1986, our Executive Chairman, Han Keen Juan, acquired the curry puff business from Mr Chang. Recognising the great opportunity for growth, Han Keen Juan withdrew his personal savings and invested the money in two sole-proprietorships, Old Chang Kee Trading and Ten & Han Trading, for the purpose of re-engineering the business. In the same year, in an effort to modernise the image of our business, we re-designed the brand name Old Chang Kee and created the slogan Its a better puff. In 1987, we leased factory premises in Ubi Avenue 2 as our then principal production facility with a floor area of approximately 1,400 sq ft. At that time, the production facility served five retail outlets. We also began selling complementary food products such as spring rolls and fish balls. In January 1988, Ten & Han Trading Pte Ltd was incorporated as a private limited company in Singapore to take over the manufacturing function of our business from Ten & Han Trading, which was a sole proprietorship. Ten & Han Trading Pte Ltd had two shareholders at the time of its incorporation. In December 1988, Ten & Han Trading Pte Ltd acquired the entire business of Ten & Han Trading. The sales function of our business was then undertaken by Old Chang Kee Trading, which was also a sole proprietorship. In September 1993, Ten & Han Trading Pte Ltd acquired the entire business of Old Chang Kee Trading. From the late 1980s to the early 1990s, we invested in machinery and embarked on an initiative to develop modern methods to standardise our manufacturing processes in order to ensure that the curry puffs we produced were of a consistent high quality. In 1992, Han Keen Juan was awarded the Small Scale Entrepreneur Award by Association of Small and Medium Enterprises in conjunction with the Rotary Club of Singapore in recognition of the success of our business. In 1994, we moved into our existing production facility at 2 Woodlands Terrace with an aggregate built-in floor area of approximately 16,092 sq ft which allowed us to increase our production volume. In the same year, we began to engage contract manufacturers to manufacture related food products according to our specifications, to complement our Old Chang Kee curry puffs. We were thus able to quickly expand the range of products sold at our retail outlets to include other food products such as nuggets, pies, carrot cake and breaded prawns. In 1995, our CEO, William Lim, joined us as a General Manager, to spearhead and implement future growth strategies. Prior to 1995, almost all of our retail outlets were stalls in coffee shops. We set up our first shopping mallbased retail outlet in Jurong Point Shopping Centre in 1995. With the success of this retail outlet, we gradually shifted almost all our retail outlets to shopping malls and complexes, and have since expanded our reach to include individual kiosks, petrol kiosks, retail spaces located in MRT stations and nearby bus interchanges. At the end of 2000, we had 20 retail outlets. In 2002, our Executive Chairman, Han Keen Juan became the sole shareholder of Ten & Han when he bought over the shares of the other shareholder.
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OUR HISTORY
In 2003, although the economy was affected by Severe Acute Respiratory Syndrome, we embarked on an intensive exercise to expand our retail network to include more retail outlets in shopping malls and complexes. In 2003, we opened six new retail outlets. In addition, we embarked on a branding exercise in 2003 to promote Old Chang Kee as a household name, synonymous with high quality curry puffs and related food products. In connection with this branding exercise, we developed a modernised Old Chang Kee logo. In 2004, we were awarded the Singapore Promising Brand Award (SPBA) by the Association of Small and Medium Enterprises and Lianhe Zaobao. In April 2004, we began our delivery services to the central business district area. In October 2004, our Associated Company, Old Chang Kee Malaysia, was incorporated. We hold 40% of the issued and paidup share capital of Old Chang Kee Malaysia. Old Chang Kee Malaysia commenced operations in October 2004 and has since undertaken the business of manufacturing and selling Old Chang Kee curry puffs and other food products in Malaysia. In December 2004, we commenced a new business to provide breakfast items at our retail outlets, such as braised bee hoon and nasi lemak. The purpose of this new business is to maximise the utilisation rate of our production facility and generate more revenue for our business. Capitalising on our strong brand name and established reputation for quality products, we expanded our network by setting up retail outlets in various strategic locations across Singapore. By the end of 2004, we had 36 retail outlets at several venues in Singapores heartland to reach out to a broader spectrum of consumers in Singapore. In early 2005, all our food products obtained the Halal certification from MUIS. This certification gave our food products wider marketability and appeal and our business expanded thereafter. To cope with the increased demand, we extended our production facility at 2 Woodlands Terrace to include a full mezzanine floor. In August 2005, we commenced the operation of 1901 retail outlets in Singapore which sell takeaway hotdogs. On 15 November 2007, we entered into a sale and purchase agreement with Nineteen O One Sdn. Bhd. pursuant to which the entire issued and paid-up share capital of 1901 Singapore would be transferred to Nineteen O One Sdn. Bhd. for a consideration of S$180,000 (the Disposal). Completion of the Disposal took place on 15 November 2007. In 2005, we were also awarded the SPBA-Heritage Brand Award and the SPBA-Distinctive Brand Award by the Association of Small and Medium Enterprises and Lianhe Zaobao. For the purpose of expanding our business overseas, we incorporated a subsidiary in Australia and an Associated Company in Thailand. Currently, the subsidiary in Australia and the Associated Company in Thailand are dormant. We also incorporated Old Chang Kee China, our wholly-owned subsidiary in PRC, in May 2007. As at the Latest Practicable Date, we had three retail outlets in Chengdu, PRC (through Old Chang Kee China). Riding on the success of our food products business, we commenced our food dine-in/takeaway business with the Old Chang Kee Take 5 retail outlets in 2005. The Old Chang Kee Take 5 retail outlets at Ogilvy Centre and HDB Hub at Toa Payoh were opened in 2005. Subsequently, we opened three other Old Chang Kee Take 5 retail outlets in Eastpoint Mall, West Mall and Golden Shoe Car Park in 2006. In February 2007, a new Old Chang Kee Take 5 retail outlet was opened in Square 2 and in July 2007, a new Old Chang Kee Take 5 retail outlet was opened in Icon Village. Our Old Chang Kee Take 5 retail outlets offer a suite of local delights such as curry chicken or beef stew in loaf/rice, sambal fish rice, curry noodles and nasi lemak as well as our food products.
76
OUR HISTORY
In April 2007, we have extended our delivery services to selected areas in the northern, eastern and central parts of Singapore. Under the leadership of our Executive Chairman, Han Keen Juan, and our CEO, William Lim, we undertook new initiatives such as staff training, branding, retail management and quality control, resulting in improved growth for our Group. We continue to invest in research and development to align ourselves with constantly shifting consumers tastes and preferences. As at the Latest Practicable Date, we had 54 retail outlets and more than 40 types of food products. In preparation for our listing, we undertook a Restructuring Exercise. Subsequently, we were converted into a public company limited by shares on 22 November 2007 and changed our name to Old Chang Kee Ltd..
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OUR BUSINESS
INTRODUCTION The principal business of our Group is the manufacture and sale of affordable food products of consistent quality, under the brand name Old Chang Kee. Our signature product is the well-known Old Chang Kee curry puff, now complemented by a suite of more than 40 other food products such as fish balls, spring rolls and chicken wings. Most of our sales are on a takeaway basis. We sell our products through retail outlets to cater to a wide range of consumers. Our dine-in services at Old Chang Kee Take 5 retail outlets located at Icon Village, Square 2, Ogilvy Centre, Golden Shoe Car Park, Eastpoint Mall and West Mall sell local delights such as curry chicken or beef stew in loaf/rice, curry noodles, nasi lemak and sambal fish rice, as well as our food products. We also offer delivery services to the central business district and other selected areas in Singapore. Currently, we have business operations in Malaysia and PRC through our Associated Company in Malaysia and our wholly-owned subsidiary in PRC. As at the Latest Practicable Date, we had 54 retail outlets in Singapore, two retail outlets in Kuala Lumpur, Malaysia and three retail outlets in Chengdu, PRC. Our Indonesian Franchisee has also set up four retail outlets in Jakarta, Indonesia and our Philippines Franchisee has set up two retail outlets in Manila, the Philippines. All the food products we sell in Singapore are certified Halal by MUIS. OUR PRODUCTS We are engaged in the manufacture and sale of food products. We currently have more than 40 food products that are sold under our Old Chang Kee brand. These food products are in turn, sold under their individual sub-brand names. Our food products may be categorised according to their sub-brand categories and names as follows:Sub-Brand Category O Sub-Brand Name CurryO SardineO PepperO SpringO Fish Ball OnStik Sotong Ball OnStik Sotong OnStik Sotong Wing OnStik Crab Claw OnStik Breaded Prawn OnStik Gyoza OnStik Seafood Gyoza OnStik Chicken Nuggets OnStik Sotong Nuggets OnStik Crab Nuggets OnStik Prawn Nuggets OnStik Fish Fillet OnStik Chicken Wrap OnStik Crab Meat Wrap OnStik Sotong Wrap OnStik Yam K8 Carrot K8 Pumpkin K8 Description Curry puff Sardine puff Pepper puff Spring roll Fish balls on a stick Squid balls on a stick Squid head fritters on a stick Squid wing on a stick Crab claw fritters on a stick Breaded prawn fritters on a stick Gyoza fritters on a stick Seafood gyoza on a stick Chicken nuggets on a stick Squid nuggets on a stick Crab nuggets on a stick Prawn nuggets on a stick Fish fillet on a stick Chicken wrap on a stick Crab meat wrap on a stick Squid wrap on a stick Yam cake Carrot cake Pumpkin cake
OnStik
K8
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OUR BUSINESS
Sub-Brand Category Feelin Sub-Brand Name Yam Feelin Pineapple Feelin Green Bean Feelin Curry Chicken Loaf/Rice Beef Stew Loaf/Rice Chicken Stew Loaf/Rice (1) Sambal Fish Rice Curry Noodle Nasi Lemak Description Yam pie Pineapple pie Green bean sesame ball Curry chicken served with bread or rice Beef stew served with bread or rice Chicken stew served with bread or rice Fish served with sambal chilli and rice Noodles cooked with curry and served with egg, chicken and tau pok Rice cooked with coconut milk and served with ikan bilis, fried chicken wing, fish, egg and sambal sotong Fried chicken cutlet served with rice Rice noodles cooked in laksa gravy with egg, prawn, fish cake and tau pok Rice noodles fried with laksa paste and served with prawn, egg and fish cake Chicken cooked with sesame oil and black soy sauce served with rice Fried dory fish served with wasabi sauce and rice Bee hoon served with chilli, tau pok, prawn and egg Fried chicken wing Fried beancurd served with sweet sauce and grated peanuts garnished with carrots, cucumber and salted egg yolk Dessert cooked using white fungus and lotus seed Dessert cooked using yam and sago Dessert cooked using longan and various nuts
Take 5
Sesame Chicken with rice Wasabi fish with rice Mee Siam Chicken Wing Tauhu Goreng
(1)
(1)
Note:(1) These are special items which are only served on certain days of the month.
We also provide breakfast items at selected retail outlets. Our breakfast items include braised bee hoon and nasi lemak. We manufacture our curry puffs and prepare other various food products in-house. The recipes for our other food products are developed in-house and are produced by selected contract manufacturers approved by us according to our specifications. We have exclusive arrangements with our contract manufacturers for the manufacture of some of our food products. As we are materially dependent on the recipes of these food products, we have provided in the agreements with our contract manufacturers that the recipes we provide to them cannot be used for the manufacture of similar food products for third parties and our contract manufacturers are contractually obliged to keep all technical and commercial information provided by us to them for the manufacture of our food products confidential and to use them only for the manufacture of our food products. We currently have two major contract manufacturers, namely Leong Hin Foods Pte. Ltd. in Singapore and Siamchai International Food Co. Ltd. in Thailand.
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OUR BUSINESS
PRODUCTION FACILITY AND CAPACITY We currently have one production facility located in Singapore at 2 Woodlands Terrace, which has obtained HACCP certification and is certified Halal. Our production facility at 2 Woodlands Terrace produces mainly our curry puffs and prepares breakfast items. This facility has an aggregate built-in floor area of approximately 16,092 sq ft. The approximate floor area utilised for production and storage is 8,176 sq ft and 4,574 sq ft is utilised as office and for administrative purposes. Our average annual productive capacity and annual utilisation rate for the production of our curry puffs for the period under review were as follows:Productive capacity (million) (1) FY2004 FY2005 FY2006 FP2007 12.4 14.4 15.8 9.0 Utilisation rate (%) FY2005 FY2006 96.0 88.6
FY2004 57.0
FP2007 85.7
Our capacity is calculated based on the average number of production workers in the respective year/period working on 10.5 hours production time per day.
RETAIL OUTLETS Our retail outlets are located at easily accessible locations with high human traffic flow, such as in shopping malls, individual kiosks, petrol kiosks, retail spaces located in MRT stations and nearby bus interchanges. Our business development team, led by our General Manager, Chow Hui Shien, constantly seeks new strategic locations for our retail outlets. Each retail outlet is functionally designed, incorporating our main corporate colours of black, white and yellow, to appeal to customers of all ages. The size of our retail outlets ranges from 97 sq ft to 1,194 sq ft. Our Old Chang Kee Take 5 retail outlets have seating areas for dine-in customers. We station at least two employees at each retail outlet. The employees prepare the food products according to cooking procedures specified in our in-house operations manual, display the food products at the counter and transact sales with customers. Our service employees are trained in customer service, product knowledge and inventory control. All the retail outlets are managed by our General Manager, Chow Hui Shien, who is assisted by a team of 10 staff consisting of one manager, executives and supervisors. The retail outlets in Singapore are divided into five area groups based on their locations. Each area group is overseen by an area supervisor. A maintenance team, which consists of four members, performs regular maintenance work (simple repairs and hygiene maintenance) for the retail outlets. Each retail outlet has a team leader to oversee the operations. The number of employees at each retail outlet ranges from two to eight employees who work either one or two shifts, depending on the size and sales volume of the retail outlet. ENTERPRISE RESOURCE PLANNING SYSTEM We are currently in the process of implementing a comprehensive ERP system, which puts in place controls in our retail outlets and transmits real-time transaction data to our head office. We expect to complete the full implementation of the ERP system by June 2008. With the ERP system, each batch of food products can be traced from our production facility to the respective points of sale. Information pertaining to the stock levels at each retail outlet is immediately accessible by our head office, thus ensuring that stocks are efficiently replenished. Such real-time transmission of transaction data to our head office also ensures that the right amount of stock is kept at each retail outlet, thus maintaining the freshness and quality of our food products.
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OUR BUSINESS
QUALITY CONTROL We are committed to maintaining a high level of quality control and high standards in our products. Good Manufacturing Practices at our Production Facility We have on 16 May 2007 obtained HACCP certification for the manufacturing of curry puffs, starting from the receipt of raw materials, to the processing, storage and delivery of our curry puffs. We also implemented a quality assurance programme in accordance with HACCP methods, with effect from 16 May 2007. We have also instituted quality control procedures in our manufacturing processes for our other food products in order to ensure high standards of quality of all our food products. At our production facility, we have implemented quality control procedures relating to cleaning and sanitation, hygiene control, maintenance of equipment, raw material control and product quality control. (i) Cleaning and sanitation We ensure that our production facility is clean and our equipment adequately sanitised in order to reduce microbial, physical and chemical impurities in our food products. All equipment and preparation surfaces are cleaned and sanitised. At the end of the day, all floors and equipment in our production facility are also cleaned and sanitised. Our production executive conducts checks of the cleaning and sanitation procedures at our production facility on a daily basis. (ii) Hygiene control Our production facility employees are required to practice good personal hygiene. They must be properly attired in uniforms and footwear provided by us, wash and sanitise their hands upon entering the processing areas and wear disposable gloves when handling our food products. (iii) Maintenance of equipment The equipment at our production facility is checked and serviced on a regular basis as part of our preventive maintenance programme. Our production facility employees inspect the equipment daily, during the clean-up process. Any damaged seals, joints and valves are immediately reported to the supervisor for repair or replacements, where necessary. (iv) Raw material control The quality of raw materials is important to the final quality and safety of the manufactured food products. Purchase, receipt and storage of raw materials are therefore crucial steps in the manufacturing process. We check and assess all raw materials received to ensure they are in good condition. Items that do not meet our requirements are rejected. The raw materials accepted will then be stored at an optimum temperature prior to use in our manufacturing processes, to ensure their freshness. (v) Product quality control We ensure that the quality and safety of our food products are maintained by implementing quality control procedures from our point of production to all points of sale. At our 2 Woodlands Terrace production facility, food products that have been prepared for sale at our retail outlets are stored at optimum temperatures in the chiller or freezer rooms. When transported to our retail outlets, each batch of food products is transported in trucks with chilled storage space in order to maintain their freshness. Each retail outlet is also furnished with at least one chiller and one freezer to ensure that our food products stay fresh until they are cooked and sold to customers. Quality Control at our Retail Outlets We implement specific quality control procedures at our retail outlets to ensure that our food products sold are of consistent quality and freshness. Each of our employees at the retail outlets is required to undergo on-the-job training, to equip them with the skills of food handling, cooking and hygiene control. For further details on the training provided to our employees, please refer to the section entitled Staff Training of this Prospectus. Our in-house operations manual sets out strict procedures concerning food handling and management at our retail outlets. All food products at the retail outlets are required to be prepared according to the cooking procedures set out in our operations manual. 81
OUR BUSINESS
We adopt strict oil management system at our retail outlets to maintain the quality of the oil in order to ensure the consistent high quality in the taste of our food products. The oil management procedures are supervised by our team of area supervisors. Used oil is required to be brought to our head office and disposed of subsequently. Food products that do not meet our requisite quality standards must first be returned to our head office for assessment before being discarded. Food products prepared on any particular day have to be sold on the same day they are prepared. Any products that are not sold on the day they are prepared will be returned to our head office and discarded. Based on our records, the wastage arising from unsold products accounted for less than 0.5% of our total revenue during the Relevant Period. Most of our retail outlets have received either an A or B grade from NEA for their food hygiene and food safety standards. Quality Control for our Halal Certification To maintain the Halal certification issued to our production facility and retail outlets, we have implemented a system under which all the processes involved in the production of our food products are monitored closely to ensure that our food products are manufactured, packed, transported, stored and sold in compliance with the requirements of Islamic law. Specific corrective actions will be prescribed and implemented to rectify any aberration detected by the system. Quality Control of our Contract Manufacturers The recipes for some of our food products are developed in-house and are produced by approved selected contract manufacturers according to our specifications. Our Operations Manager, Ng Lee Huang, will carry out quality control checks on our contract manufacturers on a quarterly basis to ensure that the food products are manufactured in compliance with our standards and specifications. In addition, every batch of food products manufactured and delivered to us by our Thai contract manufacturer, Siamchai International Food Co. Ltd., is verified by our Thai contract manufacturer to be safe for consumption and the laboratory report issued in connection with such verification will be provided to us by our Thai contract manufacturer upon our request. Further, our contract manufacturers are obliged to manufacture the food products in compliance with the HACCP methods in accordance with the contract manufacturing agreements. Quality Control of our Franchisees Our overseas franchisees are required to send their key staff to Singapore for training which includes training in retail, production and logistic procedures to ensure that they can execute such procedures in accordance with our operating manuals. Prior to the opening of the pilot outlet and the central kitchen, we will send our local staff to the country where the foreign franchisee is located to train, guide and prepare the franchisees team for their business operations. Some of our staff may stay on to coach the franchisees team until it is able to conduct the business operations independently. The foreign franchisees are required to report to our Singapore head office when they encounter any issues in its business operations and corrective measures and/or solutions will be offered to them after consultation with the relevant departments. To ensure regular contact with the foreign franchisees, we conduct online meeting sessions with them on a monthly basis to better understand the quality control issues which the foreign franchisees may be facing and to offer them solutions to such issues. The foreign franchisees are also required to report and seek our prior approval for any proposed deviation from our standard operating procedure arising from their local situation or their legal requirements. We will send our local staff to the foreign franchisees operations at least twice a year to monitor and ensure that their operation processes are in compliance with our requirements. Our local staff will conduct any re-training or refresher training if required.
82
OUR BUSINESS
MARKETING AND BUSINESS DEVELOPMENT Our food products are sold mainly in Singapore. As at the Latest Practicable Date, we had 54 retail outlets strategically located in shopping malls, individual kiosks, petrol kiosks, retail spaces located in MRT stations and nearby bus interchanges throughout Singapore. We set up our overseas retail outlets through direct investment, joint ventures or franchise arrangements. As at the Latest Practicable Date, we had three retail outlets in PRC, our Associated Company (Old Chang Kee Malaysia) had two retail outlets in Kuala Lumpur, Malaysia, our Indonesian Franchisee in Indonesia had four retail outlets in Jakarta, Indonesia and our Philippines Franchisee had two retail outlets in Manila, the Philippines. Our food products are sold directly to customers on a cash basis. Advertising and Promotion and Public Relations Our marketing activities are overseen by our CEO, William Lim. Our Groups marketing strategy mainly focuses on capitalising on our strong brand name, Old Chang Kee, and enhancing awareness of the brand. Our marketing team meets on a regular basis to develop advertising and promotional strategies to be undertaken by our Group. Our marketing team includes our CEO, William Lim, General Manager, Chow Hui Shien and several other executives. In addition, we appoint professional marketing and communication firms on an ad hoc basis to assist us in our marketing efforts. In order to continuously improve our product quality and service standard, our marketing team proactively reaches out to our customers by making regular visits to our retail outlets to obtain market feedback. We participate in joint promotions with shopping malls to showcase our food products. As a food sponsor, we are also joint participants in activities such as annual walk-a-jogs with the Handicapped Welfare Association. In 2004, our Group also sponsored school bags for the Yayasan Mendaki (Mendaki) and special food products such as Halal mooncakes to needy families under the care of Yayasan Mendaki (Mendaki). We are also active in promoting the performance arts. In 2006, we sponsored the Jinsha culture show from Chengdu, PRC. In 2007, we sponsored the Drama Box in staging the childrens play, Mo Mo . In the same year, we act as main sponsor for the local play, If Therere Seasons . In addition, we conduct marketing campaigns to promote our new food products through print advertisements in magazines and newspapers. Business Development Our General Manager, Chow Hui Shien, is responsible for overseeing our Groups business development activities. A primary business development strategy is to identify and procure strategic locations for new retail outlets in order to reach a wider spectrum of customers. Our Executive Directors and our General Manager also work to foster and maintain healthy relationships with various landlords to ensure smooth operations at our existing retail outlets and to improve our chances of securing strategic locations for our new retail outlets. Another business development strategy involves sourcing for new distribution channels. We currently provide a delivery service called Old Chang Kee Delivers to consumers in the central business district and other selected areas of Singapore. Old Chang Kee Delivers seeks to provide existing and potential customers with added convenience and offers a quick and easy way to cater finger food for office meetings and home parties. We constantly seek to develop new business concepts to complement our existing businesses, such as the takeaway cum dine-in meals business of Old Chang Kee Take 5. Our General Manager, Chow Hui Shien is responsible for conceptualising such new business concepts and integrating them into our Group operations. Branding is an integral part of our business development. Apart from capitalising on Old Chang Kees status as a household name, we have sought to create sub-brands for different categories of our food products in order to generate greater appeal for our products. Please refer to the section entitled Our Products of this Prospectus for further information on our sub-brands. 83
OUR BUSINESS
Franchises In an attempt to expand our business into the overseas market, we have franchised our businesses to overseas partners. We have entered into a franchise agreement with our Philippines Franchisee (the Philippines Franchise Agreement) on 20 December 2007. We have also entered into a franchise agreement and a supplemental franchise agreement (collectively referred to as the Indonesian Franchise Agreement) with the Indonesian Franchisee on 5 October 2007 and 26 December 2007 respectively. Legal advisers to our Company on the Philippines law, Villaraza & Angangco, had on 10 September 2007 submitted, on Ten & Hans behalf, a draft of the Philippines Franchise Agreement to the Documentation Information and Technology Transfer Bureau of the Intellectual Property Office of the Philippines for review. The Intellectual Property Office of the Philippines has confirmed in its letter to Villaraza & Angangco on 28 November 2007 that the draft Philippines Franchise Agreement complies with the Intellectual Property Code of the Philippines. Based on the above, Villaraza & Angangco had on 28 December 2007 advised our Company that the Philippines Franchise Agreement is valid and enforceable under the laws of the Philippines. This statement was prepared by Villaraza & Angangco for the purpose of incorporation in this Prospectus. Our Company has also been advised by its legal advisers on Indonesian law, Soebagjo, Jatim, Djarot, on 2 January 2008 that under the Government Regulation No. 42 of 2007 regarding franchises (GR No.42), Ten & Han (the Franchisor) is obliged to register a prospectus on the franchise to be granted by Ten & Han to the Indonesian Franchisee (the Indonesian Franchise) prior to the signing of the Indonesian Franchise Agreement and the Indonesian Franchisee is obliged to register the Indonesian Franchise Agreement, both with the Ministry of Trade of Indonesia (MOT). Further, under Permendag 12/2006, the Indonesian Franchisee is required to register the Indonesian Franchise Agreement with the MOT within 30 days from the date of the commencement of the Indonesian Franchise Agreement in order for it to be valid and enforceable. In the course of preparing the application to MOT for the registration of the prospectus on the Indonesian Franchise and the Indonesian Franchise Agreement, MOT informed Soebagjo, Jatim, Djarot that following the issuance of GR No. 42, MOT will be promulgating new implementing regulations (New Regulations) with respect to such registrations and therefore MOT is unable to process any new applications to register prospectuses on franchises and franchise agreements until the New Regulations are passed. As at 2 January 2008, the New Regulations have not been passed. In view of the above, our Company has also been advised on 2 January 2008 by Soebagjo, Jatim, Djarot that the Indonesian Franchise Agreement is still valid and enforceable under the laws of Indonesia as between Ten & Han and the Indonesian Franchisee. This statement was prepared by Soebagjo, Jatim, Djarot for the purpose of incorporation in this Prospectus. Under these franchise agreements, we are entitled to an initial franchise fee and royalties based on a percentage of the turnover. We have plans to source for other suitable franchisees to set up retail outlets in other countries. Potential franchisees are carefully evaluated by our management, taking into account their financial standing, integrity and the ability to secure strategic locations for the purpose of setting up retail outlets. As franchisor, we assist our franchisees in selecting the appropriate store locations and providing the initial training support for such franchisees staff. We sell certain raw materials to our franchisee to ensure consistency in the quality of our food products. We also advise on the interior design plans for the renovation of the retail outlets, the materials to be used that are unique to our design and the concept for outfitting the franchisees retail outlets. We will also monitor the performance of the respective franchisees on an on-going basis. As at the Latest Practicable Date, our Indonesian Franchisee operates four retail outlets in Jakarta, Indonesia and our Philippines Franchisee has opened two retail outlets in Manila, the Philippines. These franchise operations have not contributed significantly to our revenue since they commenced operations. PRODUCT DEVELOPMENT We place great emphasis on product development. In order to meet consumers demand for new and high quality food products, we seek to constantly introduce new food products into the market. On average, we introduce about four new products annually. Our Group has evolved from selling a single product to offering a wide variety of food products including fish balls, spring rolls and chicken wings.
84
OUR BUSINESS
In order to establish a loyal customer base, we have invested in technology to ensure the food products we produce are of a consistent high quality. We concentrate on production factors such as the temperature at which our food products are stored, cooked and delivered, and oil management techniques all of which contribute to the freshness and taste of our food products. We have formulated standard production procedures for each food product, to which our employees strictly adhere. In respect of products manufactured by our contract manufacturers, we typically collaborate with our contract manufacturers to formulate the recipes of these products in-house before producing them. Specific tests are conducted in-house in order to obtain the right taste and texture for our food products. After the initial batch of food products produced by our contract manufacturers, we conduct further tests to ensure the products are manufactured to our exact specifications before retailing the products. INTELLECTUAL PROPERTY Trademarks We believe that our trademarks are an integral part of our Groups focus on branding, and play a significant role in creating brand recognition for our products. As such, we have registered or are in the process of registering our principal Old Chang Kee trademark and our other trademarks, both in Singapore and overseas. As at the Latest Practicable Date, our Group owns the following trademarks:Place of application Singapore
Description of trademark
Class No. 30
T0422578H
Singapore
43
T0504698D
Singapore
29
T0504700Z
Singapore
30
T0504706I
Singapore
30
T0422579F
Singapore
43
T0504695Z
Singapore
30
85
OUR BUSINESS
Place of application Singapore
Description of trademark
Class No. 30
T0504699B
Singapore
30
T0504702F
Singapore
30
T0504703D
Singapore
30
T0504704B
Singapore
30
T0504705J
Singapore
30
T0504697F
Singapore
29
T0504701H
Singapore
30
T0616584G
Singapore
43
86
OUR BUSINESS
Place of application Singapore
Description of trademark
Class No. 29
T0616575H
Singapore
43
T0616579J
Singapore
43
T0700680G
Singapore
30
T0700688B
Singapore
29
T0700682C
Singapore
29
T0700685H
Singapore
29
T0700681E
Singapore
29
87
OUR BUSINESS
Place of application Singapore
Description of trademark
Class No. 43
T0716098I
Singapore
30
The
T0716093H
Shop
Singapore
43
The
Shop
The
T0716095D
Shop
Singapore
30
The
Shop
T0616582J
Singapore
30
Expiry date is on 11 August 2016 Expiry date is on 11 August 2016 Expiry date is on 11 August 2016 Expiry date is on 11 August 2016
T0616580D T0616576F
Singapore Singapore
29 29
T0616585E
Singapore
29
T0616587A
Singapore
30
T0616588Z
Singapore
43
942016
Australia
30 and 43
88
OUR BUSINESS
Place of application Australia
Description of trademark
1165463
Republic of China
30
93047046
Republic of China
43
IDM000007939
Indonesia
30
IDM000007940
Indonesia
43
93-01697
Malaysia
30
04010989
Malaysia
43
1995/00445
30
789010
PRC
30
89
OUR BUSINESS
Place of application Hong Kong
Description of trademark
3323713
Japan
30
004750089
CTM Countries
30 and 43
(1)
N/20295
Macau
42
N/20294
Macau
30
Thailand
30
Thailand
43
4-1999-002422
The Philippines
30
Note:(1) CTM Countries means Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxemburg, Malta, The Netherlands, Poland, Portugal, Romania, Slovakia, Spain, Sweden and United Kingdom.
90
OUR BUSINESS
As at the Latest Practicable Date, our Group has applied for the following trademarks:Place of application Singapore Status / Application date Pending / 11 August 2006
Description of trademark
Class No. 30
T0616577D
Singapore
30
T0700684Z
Singapore
30
5033464
PRC
30
5033463
PRC
43
5880182
PRC
29
5880183
PRC
30
5880184
PRC
43
4-2005-000727
The Philippines
43
91
OUR BUSINESS
Place of application The Philippines Status / Application date Pending / 5 February 2007
Description of trademark
07002033
Malaysia
29
07002031
Malaysia
30
07002032
Malaysia
43
2004-10809
Malaysia
30
84606
30
84607
43
78924,990
30 and 43
77/322,728
29, 30 and 43 30
Indonesia
43
92
OUR BUSINESS
Place of application Indonesia Status / Application date Pending / 1 February 2007
Description of trademark
Class No. 29
Indonesia
30
Indonesia
43
45-2007-0000669
Korea
29, 30 and 43
667175
Thailand
29
Pending / 13 July 2007 Pending / 13 July 2007 Pending / 13 July 2007 Pending / 13 July 2007 Pending / 13 July 2007 Pending / 20 July 2007
667176
Thailand
30
667177
Thailand
43
ONSTIK
667178
Thailand
30
SPRINGO
667179
Thailand
30
4-2007-13809
Vietnam
29, 30 and 43
6382253
CTM Countries
(1)
29,30 and 43
CTM Countries means Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxemburg, Malta, The Netherlands, Poland, Portugal, Romania, Slovakia, Spain, Sweden and United Kingdom. Under the International Classification of Goods System, the trademark classes may be described as follows:Class 29: Meat, fish, poultry and game; meat extracts; preserved, frozen, dried and cooked fruits and vegetables; jellies, jams; compotes; eggs, milk and milk products; edible oils and fats
(2)
93
OUR BUSINESS
Class 30: Coffee, tea, cocoa, sugar, rice, tapioca, sago, artificial coffee; flour and preparations made from cereals, bread, pastry and confectionery, ices; honey, treacle; yeast, baking-powder; salt, mustard; vinegar, sauces (condiments); spices; ice Class 42: Scientific and technological services and research and design relating thereto; industrial analysis and research services; design and development of computer hardware and software Class 43: Services for providing food and drink; temporary accommodation
Save as disclosed above, our business or profitability is not materially dependent on any registered trademark or patent or any other intellectual property rights. PROPERTIES AND FIXED ASSETS As at the Latest Practicable Date, we own the following leasehold property:Location Lessor/Licensor Tenure Floor area (sq ft) 23,685 Use of property
As at the Latest Practicable Date, we also lease or rent or occupy the following properties under leases or licences:Commencement of Tenancy
Location
Lessor/Licensor
Use of property
Block 3020, Ubi Avenue 2, #01-125, Singapore 408896 23 Woodlands Sector 1, #01-52, Singapore 738250 25 Woodlands Sector 1, #01-63, Singapore 738251 23 Woodlands Sector 1, #01-36, Singapore 738250 Block 22 Woodlands Link, #03-40, Singapore 738034 Parkway Parade, 80 Marine Parade Road, #01-33E, Singapore 449269 The Amara, 165 Tanjong Pagar Road, #01-07, Singapore 088539
HDB
1 February 2006
Retail outlet
Avery Strategic Investments Pte Ltd Avery Strategic Investments Pte Ltd Avery Strategic Investments Pte Ltd Keen Holdings Pte. Ltd. (1)
16 September 2007
699
Dormitory housing
1 January 2007
699
Dormitory housing
1 August 2007
699
Dormitory housing
1 September 2007
1,938
7 November 2006
75
24 October 2006
441
Retail outlet
94
OUR BUSINESS
Commencement of Tenancy
Location
Lessor/Licensor
Use of property
2 March 2007
Retail outlet
NTUC Fairprice Co-operative Limited SLF AMK Pte Ltd Bugis Junction, 230 Victoria Street, #B1-13, Singapore 188024 HSBC Institutional Trust Services (Singapore) Limited as Trustee of CapitaMall Trust NTUC Fairprice Co-operative Limited 15 October 2006 470 Retail outlet
Blk 166 Bukit Merah Central, #01-3527, Singapore 150166 Bukit Panjang Plaza, 1 Jelebu Rd, #01-16, Singapore 677743
19 May 2006
116
Retail outlet
HSBC Institutional Trust Services (Singapore) Limited as Trustee of CapitaRetail BPP Trust HSBC Institutional Trust Services (Singapore) Limited as trustee of Frasers Centrepoint Trust Century Square Holdings Pte Ltd
22 March 2007
237
Retail outlet
1 November 2005
217
Retail outlet
Century Square, 2 Tampines Central 5, #01-38A, Singapore 529509 Shop 36, 10 Choa Chu Kang Avenue 4, Choa Chu Kang MRT Station, Singapore 689810(2) Ngee Ann City, Civic Plaza, 391 Orchard Road #01-K1, Singapore 238872 Compass Point, 1 Sengkang Square, #01-38, Singapore 545078
6 December 2007
173
Retail outlet
192
Retail outlet
1 May 2007
161
Retail outlet
1 August 2005
237
Retail outlet
95
OUR BUSINESS
Commencement of Tenancy
Location
Lessor/Licensor
Use of property
Downtown East, e!Hub, No. #E02-11, 1 Pasir Ris Close, Singapore 519599(2) SPC Dunearn Service Station, 260 Dunearn Road, Singapore 299542 Eastpoint Mall, 3 Simei Street 6, #01-23, Singapore 528833 Kiosk No. 3 Far East Plaza, 14D Scotts Road, Singapore 228213 Forum The Shopping Mall, 583 Orchard Road, #01-K3, Singapore 238884 Golden Shoe Car Park, 50 Market Street, #01-27, Singapore 048940
Retail outlet
1 May 2007
194
Retail outlet
1 July 2006
258
Retail outlet
Management Corporation Strata Title Plan No. 1259 Hermill Investments Pte Ltd
1 April 2007
97
Retail outlet
30 October 2006
120
Retail outlet
HSBC Institutional Trust Services (Singapore) Limited as trustee of CapitaCommercial Trust Lucky Pinnacle Pte Ltd
12 November 2006
570
Retail outlet
Icon Village, 12 Gopeng Street, #01-19/20, Singapore 078877 Great World City 1 Kim Seng Promenade, #B1-18/19, Singapore 237994 Heartland Mall, Block 205 Hougang St 21, #01-133/135, Singapore 530205 Hougang Mall, 90 Hougang Ave 10, #01-39, Singapore 538766 Hougang Point, No. 1 Hougang St 91, #01-K09, Singapore 538692
10 June 2007
506
Retail outlet
1 October 2006
180
Retail outlet
5 September 2006
205
Retail outlet
3 September 2005
220
Retail outlet
16 October 2006
115
Retail outlet
96
OUR BUSINESS
Commencement of Tenancy
Location
Lessor/Licensor
Use of property
Hotel Meridien and Shopping Centre, 100 Orchard Rd, #01-03B, Singapore 238840 IMM Building, 2 Jurong East Street 21, #01-39, Singapore 609601
1 July 2006
Retail outlet
HSBC Institutional Trust Services (Singapore) Limited as trustee of CapitaMall Trust Lim Ban Leong and Ong Ah Moy
1 May 2007
182
Retail outlet
International Plaza, 10 Anson Road, #01-11, Singapore 079903 Junction 8 Shopping Centre, 9 Bishan Place, #B1-12, Singapore 579837 Jurong Point Shopping Centre, 1 Jurong West Central 2, #01-26G, Singapore 648886 Jurong Point Shopping Centre, 1 Jurong West Central 2, #01-39, Singapore 648886(2) to replace the above outlet when renovation of the new extension of Jurong Point Shopping Centre is completed Shop 5, Kallang MRT Station, 5 Sims Avenue, Singapore 387405(2) Shop 1, Kembangan MRT Station, 55 Sims Avenue East, Singapore 416551(2) Caltex Lorong Chuan, 277 Lorong Chuan Road, Singapore 556771 Caltex Bukit Batok, 50 Bukit Batok Avenue 3, Singapore 659879
15 December 2006
247
Retail outlet
HSBC Institutional Trust Services (Singapore) Limited as trustee of CapitaMall Trust Jurong Point Realty Limited
16 October 2006
170
Retail outlet
15 July 2007
409
Retail outlet
443
Retail outlet
259
Retail outlet
300
Retail outlet
21 December 2006
202
Retail outlet
31 December 2007
100
Retail outlet
97
OUR BUSINESS
Commencement of Tenancy
Location
Lessor/Licensor
Use of property
Caltex Tampines, 1 Tampines Avenue 8, Singapore 529594 Caltex East Coast, 355 East Coast Road, Singapore 428972 Caltex Dunearn, 130 Dunearn Road, Singapore 309436 Caltex Holland, 297 Holland Road, Singapore 278629 Caltex Ang Mo Kio Avenue 3, 3551 Ang Mo Kio Avenue 3, Singapore 569927 Lot 1 Shoppers Mall, 21 Choa Chu Kang Avenue 4, #B1-K3, Singapore 689812
31 December 2007
Retail outlet
31 December 2007
100
Retail outlet
31 December 2007
100
Retail outlet
31 December 2007
100
Retail outlet
31 December 2007
100
Retail outlet
HSBC Institutional Trust Services (Singapore) Limited as Trustee of CapitaRetail Lot One Trust Singapore Land Authority
26 April 2007
152
Retail outlet
2 Mackenzie Road, #01-01, Singapore 228673 Northpoint Shopping Centre Extension, 930 Yishun Avenue 2, #01-15, Singapore 769098
13 January 2007
194
Retail outlet
HSBC Institutional Trust Services (Singapore) Limited as trustee of Frasers Centrepoint Trust Novena Square Development Ltd
20 October 2005
151
Retail outlet
Novena Square, 238 Thomson Road, #01-70, Singapore 307683 268 Orchard Road, #01-K2, Singapore 238856 New Administration Office and Canteen Building, Nanyang Technological University(2) The Ogilvy Centre, 35 Robinson Road, #01-08, Singapore 068876
25 November 2006
205
Retail outlet
140
Retail outlet
1,000
Retail outlet
15 February 2007
688
Retail outlet
98
OUR BUSINESS
Commencement of Tenancy
Location
Lessor/Licensor
Use of property
Paragon, 290 Orchard Road, #B1-10, Singapore 238859 Parkway Parade, 80 Marine Parade Road, #01-K12, Singapore 449269 Pasir Ris MRT Station, 10 Pasir Ris Central, #01-17, Singapore 519634 Peninsula Plaza, 111 North Bridge Road, #01-35 (Partial), Singapore 179098 SPC Punggol Service Station, 100 Punggol Central, Singapore 828839 Raffles City Shopping Centre, 252 North Bridge Road, #B1-59, Singapore 179103
3 October 2005
Retail outlet
7 November 2006
614
Retail outlet
1 May 2006
188
Retail outlet
1 January 2007
398
Retail outlet
1 October 2007
135
Retail outlet
HSBC Institutional Trust Services (Singapore) Limited as TrusteeManager of RCS Trust HSBC Institutional Trust Services (Singapore) Limited as Trustee of Capital Retail Rivervale Trust SMRT Trains Ltd
4 October 2007
258
Retail outlet
6 May 2007
142
Retail outlet
Simei MRT Station, 30 Simei Street 3, #01-02, Singapore 529888 Square 2, 10 Sinaran Drive, #01-04/05, Singapore 307506 Sun Plaza, 30 Sembawang Drive, #01-38, Singapore 757713 Suntec City Mall, 3 Temasek Boulevard, #01-189/ 189A, Singapore 038983
1 May 2006
165
Retail outlet
21 March 2007
777
Retail outlet
28 November 2005
368
Retail outlet
HSBC Institutional Trust Services (Singapore) Limited as trustees for Suntec REIT
1 June 2006
193
Retail outlet
99
OUR BUSINESS
Commencement of Tenancy
Location
Lessor/Licensor
Use of property
Tampines MRT Station, 20 Tampines Central 1, #01-03, Singapore 529538 Tekka Mall, 2 Serangoon Road, #01-01, Singapore 218227 Thomson Plaza, 301 Upper Thomson Road, #01-113B, Singapore 574408 Tiong Bahru Plaza, 302 Tiong Bahru Road, #01-03A, Singapore 168732 Block 500 Lorong 6 Toa Payoh, #01-34, Singapore 310500 United Square, 101 Thomson Road, #B1-03, Singapore 307591 VivoCity, 1 Harbourfront Walk, #B2-K12, Singapore 098585 West Mall, 1 Bukit Batok Central Link #B1-05, Singapore 658713 White Sands, 1 Pasir Ris Central Street 3, #01-41, Singapore 518457 White Sands, 1 Pasir Ris Central Street 3, Singapore 518457
1 April 2006
Retail outlet
27 September 2007
325
Retail outlet
5 September 2007
129
Retail outlet
1 December 2005
200
Retail outlet
HDB
15 March 2005
339
Retail outlet
1 June 2005
396
Retail outlet
2 November 2006
104
Retail outlet
31 August 2006
369
Retail outlet
11 June 2007
145
Retail outlet
11 June 2007
60
Outdoor seating area for the retail outlet at White Sands, #01-41, 1 Pasir Ris Central Street 3, Singapore 518457 Retail outlet
Yusof Ishak House, 31 Lower Kent Ridge Road, #01-05, Kent Ridge Campus, Singapore 119078
1 January 2008
178
100
OUR BUSINESS
Commencement of Tenancy
Location
Lessor/Licensor
Use of property
Shop 4, Aljunied MRT Station, 81, Lorong 25, Geylang, Singapore 388310(2)
Notes:(1)
Retail outlet
Keen Holdings Pte. Ltd. is a property investment company wholly-owned by our Executive Chairman, Han Keen Juan, and his wife. Please refer to the section entitled Present and Ongoing Interested Person Transactions of this Prospectus for further information on our lease with Keen Holdings Pte. Ltd.. The retail outlet is being constructed at the moment. As such, only a letter of offer has been signed and the tenure and floor area of the retail outlet has yet to be finalised.
(2)
The abovementioned leases for the retail outlets are for the terms of between one to three years. For the retail outlets with leases expiring within the next 12 months, except for retail outlets in Far East Plaza, Bukit Merah, Eastpoint Mall, United Square and SPC Dunearn which had in aggregate contributed to less than 5.0% of our revenue for FP2007, our Company has either secured the relevant renewals for terms of one to three years or has the option to renew, at their own discretion, their leases for the terms of one to three years at the prevailing market rate. Further details on our production facility are set out in the section entitled Production Facility and Capacity of this Prospectus. There are no regulatory requirements or environmental issues that may materially affect our utilisation of our fixed assets. OUR MAJOR CUSTOMERS None of our customers individually contributes 5% or more of our revenue in the period under review. Our customers are principally takeaway customers, whose individual annual expenditure at our various retail outlets does not constitute a substantial percentage of our annual revenue. Almost all our sales are transacted on a cash basis. Less than 0.5% of our revenue in the period under review was generated on credit terms. Credit terms of between seven and 30 days are granted to some customers, including governmental agencies, our Associated Company and our franchisees. As such, we have not been dependent on any single customer for the period under review. OUR MAJOR SUPPLIERS Our major purchases for our operations are raw materials such as vegetable oil and margarine, and food products manufactured by our contract manufacturers. These raw materials are sourced within Singapore while our contract manufacturers are located in Singapore and Thailand. The suppliers accounting for 5% or more of our purchases for FY2004, FY2005, FY2006 and FP2007 are set out below:Percentage of purchases (%) FY2004 FY2005 FY2006 FP2007 41.7 42.1 38.6 39.6
Supplier Siamchai International Food Co. Ltd. (1) Leong Hin Foods Pte. Ltd.
21.4
(2)
17.6
17.9
17.1
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Percentage of purchases (%) FY2004 FY2005 FY2006 FP2007 8.4 8.2 8.6 8.3
Some of the shareholders of Siamchai International Food Co. Ltd. are our joint venture partners in Old Chang Kee Thailand. Please refer to the section entitled Group Structure of this Prospectus for more details. The lower percentage of purchases from Siamchai International Food Co. Ltd. in FY2006 was due to the increase in our total purchases in FY2006 as a result of increased purchases of items such as such as flour and margarine from other suppliers. The higher percentage of purchases from Leong Hin Foods Pte. Ltd. in FY2004 was due to a reduction in order from Leong Hin Foods Pte. Ltd some time in FY2005 as it reduced its production capacity when it relocated to a smaller factory.
(2)
We assess our supply sources from time to time. We place more orders with suppliers who consistently provide favourable value in terms of price, quality and exhibit/provide the ability to meet our delivery schedules. Supplies of raw materials are readily available within Singapore. Our Directors also believe that there are many suitable alternative suppliers in the market. In the event that our major suppliers are unable to meet our demand for raw materials, we will source for alternative suppliers. Our Directors believe that we will not encounter significant difficulty in procuring alternative suppliers. Our Group is therefore not materially dependent on the abovementioned major suppliers. None of our Directors or Substantial Shareholders has any interest (direct or indirect) in any of the abovementioned suppliers. INVENTORY MANAGEMENT As at 31 December 2006, our inventory amounted to S$446,000 and consisted of mainly raw materials (flour, eggs, potatoes, margarine, chicken meat, spices, vegetables and frozen food products manufactured by our contract manufacturers). As at 30 June 2007, our inventory amounted to S$526,000. We do not keep a large inventory of raw materials as such materials are readily available. Most of the raw materials used for production are perishable, and as such have short shelf lives. Our inventory is managed on a first-in-first-out basis, where supplies received first are used first in the production process. We conduct daily stock counts at our production facility. We do not have any specific policy for provision and write-off of inventories. For the period under review, we have not experienced any significant damage or loss of inventory and have not written off any obsolete inventory. Our average inventory turnover (in days) for the period under review are as follows:FY2004 Number of days
Note:(1) Average inventory turnover = (Average inventory/purchases) x 365 days. Pro-rated 181 days for FP2007.
(1)
FY2005 11
FY2006 13
FP2007 13
12
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OUR BUSINESS
CREDIT POLICY We do not extend credit to our customers as we operate on a cash basis. However, we have trade receivables arising from export sales to Old Chang Kee Malaysia and our overseas franchisees, revenue collected on our behalf by the landlord of a retail outlet as well as other miscellaneous sales such as sale of vouchers to corporate customers. We have not experienced any material bad trade debts during the periods under review. Similarly, we did not provide for doubtful trade debts as we have not experienced significant difficulties in collecting our trade receivables. Our average trade receivables turnover (in days) for the period under review are as follows:FY2004 Number of days
Notes:(1) (2) Average trade receivables turnover = (Average trade receivables/revenue) x 365 days. Pro-rated 181 days for FP2007. While our sales are conducted on cash basis only, we had trade and other receivables arising from export sales to the Indonesian Franchisee and revenue collected on our behalf by the landlord of a retail outlet.
(1) (2)
FY2005 1
FY2006 1
FP2007 1
Payment terms granted by our suppliers vary depending on, inter alia, our relationship with our suppliers and the size of the transactions. Typical credit terms range from seven days to 60 days. Our average trade payables turnover (in days) for the period under review are as follows:FY2004 Number of days
Notes:(1) (2) Average trade payables turnover = (Average trade payables/purchases) x 365 days. Pro-rated 181 days for FP2007. The increasing average trade payables turnover from 52 days in FY2004 to 64 days in FY2006 was due in part to our suppliers granting us more favourable credit terms, and in part to economies of scale, as the volume of our purchases increased with our extended network of retail outlets.
(1)
FY2005 55
FY2006 64
(2)
FP2007 58
52
GOVERNMENT REGULATIONS The following are the main licences, permits, approvals and certificates that are essential for our business operations in Singapore:Licences, permits approvals and certificates Registration of factories
Location / Entity 2 Woodlands Terrace Singapore 738427 2 Woodlands Terrace Singapore 738427
Licence to operate a AVA food processing establishment (excluding meat and fish) Licence for import of meat products and fish products Food shop licence AVA
Production facility
Production facility
NEA
Retail outlets
See note 1
103
OUR BUSINESS
Licences, permits approvals and certificates Temporary occupation licence
Location / Entity 2 Mackenzie Road #01-01 Singapore 228673 36 retail outlets in Singapore
Retail outlets
As at the Latest Practicable Date, these retail outlets have received either an A or B grade Expiry date is on 31 March 2008 See note 1
Halal certification
MUIS
Production facility
2 Woodlands Terrace Singapore 738427 50 retail outlets in Singapore(3) 4 retail outlets in Singapore and 2 Woodlands Terrace Singapore 738427
Retail outlets
Signboard licence
See note 1
Notes:(1) The food shop licences, Halal certificates and signboard licences issued to our Group are usually granted for a period from one to two years and are renewable at the discretion of the relevant authorities subject to compliance with the relevant terms and conditions applicable. We have not experienced any difficulties in obtaining and maintaining all our licences, permits, approvals or certificates. Two retail outlets are currently awaiting the issuance of their food shop licence. Four retail outlets are currently awaiting the issuance of its Halal certificate.
(2) (3)
Registration of factories Under the Workplace Safety and Health (Registration of Factories) Regulations 2006 (WRFR), any person who desires to occupy or use any premises as a factory shall apply to the Commissioner for Workplace Safety and Health (CWSH) to register the premises as a factory. A factory has been defined under the Workplace Safety and Health Act 2006 to include premises within which persons are employed in any process for the making of any article. A certificate of registration shall be valid for a period of one year or for such other period as the CWSH may determine, unless it is earlier revoked in accordance with the WRFR. A certificate of registration may, on payment of a renewal fee, be renewed by the CWSH for such period as he may determine. The CWSH may, instead of registering any premises as a factory, issue a factory permit, with or without conditions, authorising the applicant to occupy the premises as a factory. A factory permit shall be valid for such period not exceeding six (6) months as the CWSH may specify in the permit, unless it is earlier revoked in accordance with the WRFR. A factory permit may, on payment of an extension fee, be extended for such period not exceeding six (6) months as the CWSH may determine. Licence to operate a food processing establishment (excluding meat and fish) Pursuant to the Sale of Food Act (Chapter 283), a person who operates, uses or knowingly permits a food establishment to be used for the manufacturing, processing, preparation or packaging of food (excluding meat and fish) for the purpose of distribution to retailers is required to apply for a licence to operate a food processing establishment from the Director-General, Agri-Food and Veterinary Authority (the Director-General). Pursuant to the Sale of Food (Food Establishments) Regulations (SFER), the licence has to be exhibited in a conspicuous position in the food establishment in respect of which the licence has been granted. The SFER also requires the licensee to store, pack and transport food (excluding fish and meat) in a manner such that it is protected from the likelihood of contamination and the safety, wholesomeness and suitability of the food (excluding fish and meat) is not affected.
104
OUR BUSINESS
Licence to operate a meat or fish processing establishment or cold store A person who uses any premises or permits any premises to be used as a processing establishment or a cold store for meat products or fish products is required under the Wholesome Meat and Fish Act (Chapter 349A) (WMFA) to apply for a licence to do so from the Director-General. In determining whether to grant or refuse to grant the licence, the Director-General shall have regard to the financial standing of the applicant and his ability to operate and maintain a processing establishment or cold store and the suitability of the premises to be licensed for use as a processing establishment or cold store. A licence granted by the Director-General shall be valid for the period stated therein unless it is revoked before the expiry of that period. Upon expiry of the licence, it may be renewed. Under the Wholesome Meat and Fish (Processing Establishments and Cold Stores) Rules (WPCR), the licensee has to exhibit his licence in a conspicuous position in the processing establishment or cold store in respect of which the licence has been granted. The WPCR also requires the licensee to take measures to, inter alia, cause every person employed in his licensed processing establishment or cold store to be examined by a medical practitioner at the time of this appointment and obtain from the medical practitioner a certificate of fitness in respect of every such person who is found fit by the medical practitioner to be employed at the processing establishment or cold store and to ensure that every person who is employed in the licensed processing establishment or cold store handles any meat product, fish product or processing ingredient in a hygienic manner. Licence for import of meat products and fish products Pursuant to the WMFA, a person who imports any meat product or fish product is required to apply for a licence from the Director-General. Further, no licensee shall import any meat product or fish product for sale, supply or distribution in Singapore unless the licensee has obtained a permit from the DirectorGeneral in respect of each consignment of meat products or fish products to be imported by him and the import of each such consignment is carried out in accordance with the conditions of the permit, the whole consignment conforms to the description as contained in the permit, the whole consignment meets with the prescribed standards and the meat products or fish products constituting the consignment are packaged and labelled in the prescribed manner. Any person who has imported any meat product or fish product into Singapore has to forthwith arrange for the meat product or fish product to be inspected, examined and certified by an examiner, authorised by the Director-General, before it is sold. Where any meat product or fish product which has been inspected or examined by an authorised examiner is found by the authorised examiner to be diseased, adulterated or otherwise unfit for human consumption, the authorised examiner shall issue to the person who imported the meat product or fish product a certificate stating his finding and the person who imported the meat product or fish product shall remove the meat product or fish product from Singapore or destroy or otherwise dispose of the meat product or fish product in the prescribed manner. A licence which is granted by the Director-General shall be valid for the period stated therein unless it is revoked before the expiry of that period. Upon expiry of the licence, it may be renewed. Food shop licence A person who operates or uses or knowingly permits a food establishment to be used as a retail food establishment where food is sold wholly by retail, whether or not the food sold is also prepared, stored or packed for sale or consumed at such premises, is required to obtain a licence from the Director-General of Public Health (DGPH). A licence which is granted shall be in the form as the DGPH may determine. The Environmental Public Health (Food Hygiene) Regulations (EFHR) stipulates that a licensee shall cause his licence to be exhibited at all times in a conspicuous and accessible position within the licensed premises. The EFHR also sets out the rules regarding, inter alia, the storage and refrigeration of food, packaging of food, transportation of food, the sale and preparation of food, cleanliness of equipment used in the licensed premises, the upkeep of the licensed premises and the personal cleanliness of the persons who are engaged in the sale or preparation for sale of food, which a licensee must abide by. These rules are to ensure that the food sold at the licensed premises is free from contamination and safe for human consumption.
105
OUR BUSINESS
Temporary occupation licence Pursuant to Section 3 of the State Land Rules (Chapter 314) of Singapore, any person who operates a food retail outlet at an outdoor kiosk occupying State land is required to obtain a temporary occupation licence (TOL) from the Collector of Land Revenue, who is either any officer of the Singapore Land Authority or any public officer or officer of any other public authority constituted under any written law for a public purpose, appointed to be a Collector of Land Revenue. Every TOL shall be subject to such terms and conditions as the Collector of Land Revenue considers fit to impose. Each TOL shall be issued for a period not exceeding three years and may, at the discretion of the Collector of Land Revenue, be renewed upon its expiry for a period not exceeding three years upon any one renewal. No TOL issued pursuant to the State Land Rules (Chapter 314) of Singapore shall create or be deemed to create a tenancy in favour of the licensee or give the licensee as against the Government of Singapore the exclusive right to the occupation of the land described in the TOL. The TOL may be cancelled or revoked at any time and neither the licensee nor any other person shall be entitled to any compensation or damages. Grading scheme for food processing establishments All food processing establishments in Singapore are classified into four graded categories: A, B, C and D, based on food hygiene and food safety standards. Each establishment is graded prior to the expiry of its licence and is reassessed annually. Food processing establishments are graded with the aim of enabling food manufacturers to be aware of hygiene and food safety standards and the need for improvements. It creates an environment which encourages food manufacturers to upgrade their hygiene and food and safety standards in the process of striving for higher grades. Food processing establishments are graded based on a set of criteria covering all aspects of hygiene and food safety standards. The criteria include:General cleanliness and housekeeping Food storage Food processing equipment and facilities Food handling and facilities Product identification and transportation Food safety system Food hygiene training Documentation Violation history Food manufacturers strive for higher grades in order to remain competitive. Food processing establishments with higher grades may use their grades as testimonies to show their customers that they have achieved high food hygiene and food safety standards. Halal certification MUIS, which is constituted under the Administration of Muslim Law Act (Chapter 3), may issue a Halal certificate in relation to the operation of a retail food establishment and regulate the holder of such certificate to ensure that the requirements of the Islamic law are complied with in the operation of the establishment. An application for a Halal certificate shall be in such form as MUIS may require and MUIS may, in issuing the Halal certificate, impose such conditions as it thinks fit and may at any time, vary, remove or add to such condition.
106
OUR BUSINESS
Signboard licence Under the Building Control (Outdoor Advertising) Regulations, a person who displays, causes or permits to be displayed outdoors, whether on the exterior surface of any building or on any part of the premises, or on any free-standing advertising structure, any advertisement or any single signboard that has an area exceeding 5 square metres or a series of related signboards that together have an aggregate area that exceeds 5 square metres, is required to obtain a licence from the Commissioner of Building Control (CBC). In considering whether to grant or renew a licence, the CBC will take into account the amenities of the premises, the aesthetics of the streetscape and the amenities of any historic or public building or monument or of any place frequented by the public solely or mainly on account of its beauty or historic interest. A licence may be granted or renewed subject to such conditions and restrictions as the CBC may think fit. Based on our Directors belief and knowledge, we have obtained all necessary licences, permits, approvals and certificates for our business operations in Singapore and have complied with all relevant laws and regulations that would materially affect our business operations. INSURANCE We have taken out insurance policies for our production facility and office at 2 Woodlands Terrace covering losses due to robbery and burglary, public liability occurrences, consequential losses, material damages caused to our computer equipment, building and/or improvement cost of furniture, fixtures, fittings, office and business equipment and coldrooms. For each of our retail outlets, we have taken out insurance policies covering losses due to damage caused to the landlords fixtures and fittings, stocks, furniture and fittings, office business equipment and other contents as well as public liability insurance. Insurance policies covering losses due to damage to our vehicles have also been taken out. We have also insured our staff for workmens compensation insurance. Further, we have taken out an insurance policy covering losses caused by accidental death and permanent disablement, accident medical reimbursement, temporary total disablement and temporary partial disablement for our management staff. In addition to the above, we have also taken out a comprehensive general liability insurance covering losses due to property damage and bodily injuries caused by consumption of our food products in Singapore, Malaysia, Indonesia, Republic of China, PRC and Perth, Australia as well. Based on the above, our Directors believe that these insurance policies are adequate for the current operations of our Group. COMPETITION The F&B industry is intensely competitive. There are many other stores and retail outlets around Singapore serving competing, alternative or substitute food products. Our Directors believe our Groups competitiveness depends on various factors including pricing, location, taste, presentation, branding, reputation, variety of food products and hygiene standards. Of the players in the industry, we have identified the following as our closest competitors:Bengawan Solo BreadTalk Group Limited Polar Puffs & Cakes Pte Ltd Prima Deli Bakeries and food retail outlets close to our retail outlets
107
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OUR COMPETITIVE STRENGTHS Our Directors believe that our competitive strengths are as follows:(i)
(ii)
(iii)
(iv)
We have dedicated key management personnel with extensive experience in the local food industry
We have a dedicated management team spearheading our business operations and driving our future growth plans. The teams experience and knowledge of the industry in which we operate enables our Group to successfully introduce new food products into the market and identify new business opportunities. Our Group is led by our Executive Chairman, Han Keen Juan, and our CEO, William Lim, who have more than 20 and 10 years of experience in the F&B industry, respectively. Under their leadership, our business has experienced significant growth over the years and the Old Chang Kee brand is now a well-known household brand name. Further details of our management teams working experience are set out under the section entitled Directors, Management and Employees of this Prospectus.
(v)
108
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AWARDS AND ACCREDITATION We have obtained the following awards and accreditation:Award/Accreditation Singapore Promising Brand Award (SPBA) Year of issue 2004 Issued by Association of Small and Medium Enterprises and Lianhe Zaobao Association of Small and Medium Enterprises and Lianhe Zaobao Association of Small and Medium Enterprises and Lianhe Zaobao MediaCorp Radio, Singapore Workforce Development Agency, National Trade and Unions Congress and Spring Singapore
2005
2005
2007
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(ii)
TREND INFORMATION We have been and will be making minor price adjustments to the selling price of a few of our food products in the current financial year due to the increasing cost of sales and operations brought about by the appreciation of THB against the S$ as well as the increasing raw material prices (such as vegetable oil and flour), rental and utilities charges. On 15 November 2007, we entered into a sale and purchase agreement with Nineteen O One Sdn. Bhd. pursuant to which the entire issued and paid-up share capital of 1901 Singapore would be transferred to Nineteen O One Sdn. Bhd. for a consideration of S$180,000, based on the net tangible assets of 1901 Singapore as at 15 November 2007 (the Disposal). Completion of the Disposal took place on 15 November 2007. The Disposal is expected to result in a loss of about S$100,000 to be recognised in full in FY2007. As a result of the increasing cost of sales and operations as well as the loss arising from the Disposal, it is likely that our profit for FY2007 will be lower than our profit for FY2006. In the period from 1 January 2007 up to the Latest Practicable Date, we had opened eight new retail outlets and closed one retail outlet in Singapore. We expect to open 11 new retail outlets in Singapore between the Latest Practicable Date and 31 December 2008. These 11 retail outlets will comprise five new retail outlets at various petrol stations, four new retail outlets at MRT stations and two retail outlets at other locations, which are to be determined. Barring any unforeseen circumstances, we expect the new retail outlets to generate new revenue for our Group with corresponding increases in our cost of sales and operating expenses. There is no assurance that the new retail outlets will have any material impact on the profitability of our Group in the current financial year. In May 2006, we entered into negotiations with a Taiwanese party to set up a company in PRC. Pursuant to these negotiations, Old Chang Kee Chengdu Co., Ltd. was incorporated in Chengdu, PRC. Subsequently, the Taiwanese party decided not to continue its participation in the investment. As a consequence, we are in the process of liquidating Old Chang Kee
110
(ii)
(iii)
111
William Lim
47
59
Managing Director of Mast Management Consultants Pte Ltd and Mast Computer Pte Ltd Sole Proprietor of Y.H. Lim & Co. Certified Public Accountants Singapore Business adviser
58
Block 856E Tampines Street 82 #09-202 Singapore 525856 Block 498G Tampines Street 45 #10-432 Singapore 525498 Block 172 Bedok South Road #07-425 Singapore 460172
59
53
Information on the areas of responsibility and working experience of our Directors are set out below:Han Keen Juan is our Executive Chairman and one of the founders of our Group. He is involved in the overall management of our Group and is responsible for leading the management in setting our Groups mission and objectives and developing the overall business strategies of our Group. He has more than 30 years of sales experience and was instrumental in the establishment, development and expansion of our Groups business. He began his career in 1972 as a salesman in Guthrie Waugh Singapore selling electronic equipment. In 1975, he joined Duncan Robert Sdn Bhd as an electronic equipment salesman and was later promoted to sales supervisor during his employment with them. In 1978, he held the position of sales supervisor of Chubb Singapore Private Limited and was subsequently promoted to sales manager. In 1986, he left Chubb Singapore Private Limited and established our business. He graduated from Upper Serangoon Technical School. William Lim is our CEO. He joined our Group in 1995, and has accumulated more than 20 years of sales experience. Prior to joining our Group, he was a sales representative with Canon Marketing Services Pte Ltd from 1981 to 1983. From 1984 to 1990, he was the general manager and director of Font Office Automation Pte Ltd, a company involved in the sales of office equipment. From 1991 to 1994, he was a part-time sales representative with CDM Australia Pty Ltd. He is instrumental in the development of new food products and expansion into overseas markets. Under his leadership, we had established 54 retail outlets in Singapore as at the Latest Practicable Date. He is responsible for the development of new food products, expansion of our business into overseas markets and overseeing the business and sales development strategies of our business. He is currently a member on the board of the Intellectual Property Office of Singapore (IPOS) and the IPOS Investment Committee. He obtained a Bachelor of Commerce from the Curtin University of Technology in 1995.
112
113
34
General Manager
Ng Lee Huang
48
Operations Manager
49
Logistics Manager
Information on the areas of responsibility and working experience of our Executive Officers are set out below:Chew Mei Li, our Chief Financial Officer, joined our Group in March 2006. She is responsible for the full spectrum of financial and taxation functions in our Group, including financial accounting, management accounting, budgeting and forecasting, statutory reporting to relevant authorities in all jurisdictions that our Group operates in as well as internal controls and compliance with corporate, legal, tax, accounting and operational requirements. She has over 12 years of experience in accounting and finance. From 1986 to 1993, she held the position of audit assistant with Y H Lim & Co, where she was responsible for evaluating clients internal controls and taxation matters. From 1994 to 1996, she was an accounts executive with Cathay Organisation Pte Ltd. Prior to joining our Group, she held the position of assistant manager with a company listed on the SGX-ST Mainboard, L.C. Development Ltd, where she was responsible for the financial and accounting functions of the company. Ms Chew is a non-practising member of Institute of Certified Public Accountants of Singapore and a fellow member of the Association of Chartered Certified Accountants. Chow Hui Shien, our General Manager, is responsible for overseeing the retail operations of our Group. She also participates actively in formulating various branding exercises, business development and sourcing for strategic locations at which to set up new retail outlets for our Group. She also ensures the smooth implementation of the ERP system. She joined our Group in 2004 and has, to date, more than seven years of experience in general management. From 1999 to 2002, she was appointed as a manager of Good Morning Breakfast (a sole-proprietorship involved in the retailing of local breakfast items). Her duties included overseeing the retail and production operations, the sales and marketing aspects and the research and development activities of the business. Between 2002 and 2004, she assisted in the incorporation of Hainan Treats Pte. Ltd. and was subsequently appointed as its manager. Her duties included overseeing the retail and production operations and the sales and marketing activities of the company. She graduated with a Bachelor of Business from the Monash University, Melbourne in 2003.
114
BOARD OF DIRECTORS
115
Directors Han Keen Juan William Lim Choong Buat Ken Lim Yen Heng Ong Chin Lin Wong Chak Weng Executive Officers Chew Mei Li Chow Hui Shien Ng Lee Huang Ngoh Kin Wee
Legend:Band I Band II Band III Band IV Note:(1)
: : : :
of of of of
S$0 to S$250,000 per annum S$250,001 to S$500,000 per annum S$500,001 to S$750,000 per annum S$750,001 to S$1,000,000 per annum
The compensation for FY2007 is estimated and does not include performance bonuses payable.
We have not set aside or accrued any amounts for our Directors, Executive Officers and our employees to provide for pension, retirement or similar benefits. Remuneration of employees who are related to our Directors and Substantial Shareholders As at the date of this Prospectus, two of our employees, Chow Hui Shien and Chow Phee Liat Philip, are related to our Directors and Substantial Shareholders. Chow Hui Shien, our General Manager, is a niece of our Executive Chairman, Han Keen Juan and a cousin of our CEO, William Lim. Chow Phee Liat Philip, who is our Franchise Manager, is a nephew of our Executive Chairman, Han Keen Juan, a cousin of our CEO, William Lim, and the brother of our General Manager, Chow Hui Shien. His scope of responsibility includes handling our franchise enquiries and participating in the selection of suitable business partners for our Group. Ng Choi Hong, the wife of our Executive Chairman, Han Keen Juan, was our marketing manager until her resignation which takes effect from 31 May 2007. Chiow Phee Bian, who was our Business Development Executive for 1901 Singapore, is a distant relative of our Executive Chairman and a first cousin of Chow Hui Shien. He has resigned with effect from 15 July 2007.
116
The basis of determining the remuneration of these related employees is the same as the basis for determining the remuneration of other unrelated employees. The total remuneration of employees who are related to our Directors and Substantial Shareholders shall be subject to the review and approval of the Remuneration Committee to ensure that their remuneration packages are in line with our Groups staff remuneration guidelines, and are commensurate with their respective job scopes and levels of responsibility. The total remuneration paid to our Directors, Substantial Shareholders and our employees who are related to our Directors will be disclosed in our annual reports. Save as disclosed above and in the section entitled Shareholders of this Prospectus, none of the Executive Officers or other employees mentioned above is related to each other or to any Director or Substantial Shareholder. SERVICE AGREEMENTS On 16 November 2007, our Company entered into separate service agreements (the Service Agreements) with our Executive Chairman, Han Keen Juan, and our CEO, William Lim (the Executives), which will take effect on the date of admission of the Company to the Official List of the Catalist or such other date as may be mutually agreed between our Company and the respective Executive. The terms of the appointment of Han Keen Juan and William Lim are for three years each, unless otherwise terminated by either party giving not less than six months written notice or salary in lieu of notice. We may also terminate their respective Service Agreements if, inter alia, any of them are convicted or otherwise found guilty of any offence involving fraud or dishonesty or serious misdemeanour, becomes bankrupt or otherwise acts to the prejudice of our Companys interests. In the event of such summary termination of employment, such Executive shall not be entitled to any compensation or liability in respect of such termination. The Service Agreements cover the terms of employment, specifically salaries, bonuses and benefits. Pursuant to the terms of the respective Service Agreements, Han Keen Juan and William Lim are entitled to a monthly salary of S$30,000 and S$25,000, respectively. The Executives are each entitled to a fixed bonus of an amount equivalent to two month(s) of their basic salary. They are each also entitled to an annual incentive bonus which shall be computed based on our audited consolidated profit (excluding extraordinary items and before paying the incentive bonus) before taxation of the Group (Group PBT) for that financial year. The incentive bonus will be based on a percentage of our Group PBT as set out in the table below and will be payable after the consolidated financial statements of our Group for each financial year have been audited:Name Han Keen Juan William Lim Incentive bonus payable 6% of the Group PBT 4.5% of the Group PBT
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FY2005
FY2006
FP2007
5 2 8 73 187 275
5 4 15 84 267 375
Note:(1) There has been no replacement of management staff (comprising our Executive Directors and Executive Officers) in the period set out above.
We do not experience any significant seasonal fluctuations in our number of employees. We do not employ a significant number of temporary employees.
118
Our Directors do not currently have a fixed term of office. At each annual general meeting, one-third of the Directors for the time being (or, if their number is not a multiple of three, the number nearest to but not less than one-third) shall retire from office by rotation. A retiring Director shall be eligible for reelection. The Directors to retire in every year shall be those who have been longest in office since their last re-election or appointment. All Directors (other than a Director holding office as Managing Director) shall retire from office at least once every three years.
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CORPORATE GOVERNANCE
OVERVIEW Corporate governance refers to the processes and structure by which the business and affairs of a company are directed and managed, in order to enhance long term shareholder value through enhancing corporate performance and accountability. Good corporate governance therefore embodies both enterprise (performance) and accountability (conformance). With a view towards good corporate governance, our Company has implemented the corporate governance model set out below:-
Board of Directors
Nominating Committee Chairman Wong Chak Weng Members Ong Chin Lin Choong Buat Ken
Audit Committee Chairman Ong Chin Lin Members Wong Chak Weng Lim Yen Heng
Remuneration Committee Chairman Ong Chin Lin Members Wong Chak Weng Choong Buat Ken Lim Yen Heng
Ong Chin Lin and Wong Chak Weng have been appointed as our Independent Directors. Our Directors consider Ong Chin Lin and Wong Chak Weng to be independent as they do not have any past or ongoing business relationship with our Group and/or our Directors or Substantial Shareholders. Ong Chin Lin and Wong Chak Weng are neither related to each other nor to any of our Executive Directors or Substantial Shareholders. In view of the family relationship between our Executive Chairman, Han Keen Juan and our CEO, William Lim, and of the fact that they are both part of the executive management team, we have appointed Ong Chin Lin as our Lead Independent Director, pursuant to the recommendations in Commentary 3.3 of the Code of Corporate Governance 2005. In accordance with the recommendations in the said Commentary 3.3, Shareholders will be able to consult the Lead Independent Director where they have concerns for which contact through the normal channels of our Executive Chairman, CEO or Chief Financial Officer has failed to resolve or for which such contact is inappropriate. NOMINATING COMMITTEE Our Nominating Committee comprises Wong Chak Weng, Ong Chin Lin and Choong Buat Ken. Our Nominating Committee is chaired by Wong Chak Weng. The Nominating Committee is responsible for the following:(a) to make recommendations to the Board on all board appointments, including re-nominations, having regard to the Directors contribution and performance (for example, attendance, preparedness, participation and candour) including, if applicable, as an Independent Director; All Directors should be required to submit themselves for re-nomination and re-election at regular intervals and at least every three years; (b) to determine annually whether or not a Director is independent;
120
CORPORATE GOVERNANCE
(c) in respect of a Director who has multiple board representations on various companies, to decide whether or not such Director is able to and has been adequately carrying out his duties as Director, having regard to the competing time commitments he faces when serving on multiple boards; and to decide how the Boards performance may be evaluated and propose objective performance benchmarks, as approved by the Board, that allows comparison with its industry peers, and to address how the Board has enhanced long term shareholder value.
(d)
AUDIT COMMITTEE Our business and operations are presently under the management and close supervision of our Executive Directors who are assisted by a team of key Executive Officers. The overall management is overseen by our CEO, William Lim. After the listing, our Executive Directors and Executive Officers will manage the business and operations of our Group. The Audit Committee will assist our Board with regards to discharging its responsibility to safeguard our Companys assets, maintain adequate accounting records, and develop and maintain effective systems of internal controls with the overall objective of ensuring that our management has created and maintained an effective control environment in our Company, and that our management demonstrates and stimulates the necessary aspect of our Groups internal control structure among all parties. Our Audit Committee comprises Ong Chin Lin, Wong Chak Weng and Lim Yen Heng. Our Audit Committee will be chaired by Ong Chin Lin. Our Audit Committee will meet at least quarterly to discuss and review the following where applicable:(a) review our audit plans with the external auditors and, where applicable, our internal auditors, including the evaluation of our internal control system, the audit report, the management letter and our managements response; review the quarterly and annual consolidated financial statements and the external auditors reports on those financial statements, before submission to the Board for approval, focusing in particular on changes in accounting policies and practices, major risk areas, significant adjustments resulting from the audit, the going concern statement, compliance with accounting standards as well as compliance with any stock exchange and statutory/regulatory requirements; review the internal controls and procedures and ensure co-ordination between the external auditors and our management, reviewing the assistance given by our management to the auditors, and discuss problems and concerns, if any, arising from the interim and final audits, and any matters which the auditors may wish to discuss (in the absence of our management where necessary); review and discuss with auditors any suspected fraud, irregularity or infringement of any relevant laws, rules or regulations, which has or is likely to have a material impact on our Groups operating results or financial position and our managements response; consider the appointment or re-appointment of the external auditors and matters relating to resignation or dismissal of the auditors; review transactions falling within the scope of Chapter 9 and Rule 1010 of the Listing Manual; review any potential conflicts of interest;
(b)
(c)
(d)
(e)
(f) (g)
121
CORPORATE GOVERNANCE
(h) undertake such other reviews and projects as may be requested by the Board and report to the Board its findings from time to time on matters arising and requiring the attention of our Audit Committee; and generally undertake such other functions and duties as may be required by law or the Listing Manual, and by such amendments made thereto from time to time.
(i)
In addition, all future transactions with related parties shall comply with the requirements of the Listing Manual. As required by paragraph 1(9)(e) of Appendix 2.2 of the Listing Manual, any one of our Directors shall abstain from voting on any contract or arrangement or proposed contract or arrangement in which he has a personal material interest. Apart from the duties listed above, our Audit Committee shall commission and review the findings of internal investigations into matters where there is any suspected fraud or irregularity, or failure of internal controls or infringement of any Singapore and other applicable law, rule or regulation which has or is likely to have a material impact upon our Companys operating results and/or financial position. Upon our admission to the Official accountant to conduct a full review two years and to report its findings the Audit Committee to consider on with such an engagement. REMUNERATION COMMITTEE Our Remuneration Committee comprises Ong Chin Lin, Wong Chak Weng, Choong Buat Ken and Lim Yen Heng. Our Remuneration Committee is chaired by Ong Chin Lin. Our Remuneration Committee will recommend to the Board a framework of remuneration for the Directors and key executives, and determine specific remuneration packages for each Executive Director. The recommendations of our Remuneration Committee should be submitted for endorsement by the entire Board. All aspects of remuneration, including but not limited to Directors fees, salaries, allowances, bonuses, options and benefits-in-kind shall be overseen by our Remuneration Committee. Each member of the Remuneration Committee shall abstain from voting on any resolutions and making any recommendations and/or participating in any deliberations of the Remuneration Committee in respect of his remuneration package. List of the Catalist, we intend to engage an independent qualified of our Groups internal control and accounting systems annually for to the SGX-ST. Subsequently to the reviews, the Board will request a regular basis whether it is necessary for our Company to continue
122
Sale of business assets of Hainan Treats Pte. Ltd. to Ten & Han
Hainan Treats Pte. Ltd. was a company incorporated in Singapore. The spouse of our Executive Chairman, Han Keen Juan held the majority stake in Hainan Treats Pte Ltd. In December 2004, Ten & Han acquired certain business assets from Hainan Treats Pte. Ltd., comprising mainly kitchen equipment for the manufacture of food products and appliances, for an aggregate consideration of S$67,000 based on the net book value of Hainan Treats Pte. Ltd. Accordingly, the transaction was deemed to have been carried out on an arms length basis. Hainan Treats Pte. Ltd. was struck-off the register of companies on 24 February 2006.
Provision of audit, tax services and other services by Y.H. Lim & Co.
Lim Yen Heng (our Non-Executive Director) is a sole-proprietor of Y.H. Lim & Co., which was the statutory auditor of our subsidiary, Ten & Han between 1988 and 2002. In FY2005, Ten & Han engaged Y.H. Lim & Co. to perform a sales audit to certify the gross turnover of certain retail outlets pursuant to the lease agreements of those retail outlets. The total fees paid to Y.H. Lim & Co. for this service in FY2005 was S$1,500. The above transactions were conducted on an arms length basis and on normal commercial terms. Y.H. Lim & Co. ceased to provide such services to us since the end of FY2005. We do not intend to engage the services of Y.H. Lim & Co. after the admission of our Company to the Official List of the Catalist.
123
Provision of corporate secretarial and advisory services by Mast Management Consultants Pte Ltd
Choong Buat Ken, our Non-Executive Director, and Fang Siew Boon (the spouse of Lim Yen Heng, our Non-Executive Director), each hold a 50% interest in Mast Management Consultants Pte Ltd (a corporate secretarial and advisory firm). Choong Buat Ken and Fang Siew Boon are also directors of Mast Management Consultants Pte Ltd. Mast Management Consultants Pte Ltd has been providing corporate secretarial and advisory services to our Group since 1988. The total fees paid to Mast Management Consultants Pte Ltd for services rendered during the Relevant Period were as follows:1 July 2007 to the Latest Practicable Date 3
FY2004 2
FY2005 63
(1)
FY2006 2
FP2007 n.m
(2)
The increase in the fees paid to Mast Management Consultants Pte Ltd in FY2005 was due to the management consultancy services provided in relation to our Groups restructuring exercise and the implementation of the ERP system. Not meaningful. Amount less than S$1,000.
(2)
The above transactions were conducted on an arms length basis and on normal commercial terms. We will ensure that future transactions will comply with Chapter 9 of the Listing Manual.
Provision of accounting processing and computer software maintenance services by Mast Computer Pte Ltd
Choong Buat Ken and Fang Siew Boon hold 33.3% and 33.3% interests respectively in Mast Computer Pte Ltd (an accounting processing and computer software maintenance firm). Choong Buat Ken is also a director of Mast Computer Pte Ltd.
124
FY2004 5
FY2005 21
FY2006 24
FP2007 n.m
(1)
The above transactions were conducted on an arms length basis and on normal commercial terms. We will ensure that future transactions will comply with Chapter 9 of the Listing Manual.
Description S$5.58 million credit facilities from OCBC at 6.25% per annum S$1.87 million line of credit facilities from UOB Group at 6.0% per annum Hire purchase for motor vehicle from Hong Leong Finance Limited at 4.15% per annum Hire purchase for motor vehicle from GE Money at 6.30% per annum Hire purchase for motor vehicle from UMF (Singapore) Limited at 6.26% per annum Lease agreements for computer equipment from IBM Singapore Pte. Ltd. at 4.17% per annum Lease of Far East Plaza retail outlet
Guarantee Personal guarantee by Han Keen Juan Personal guarantee by Han Keen Juan
S$200,000
S$31,000
S$85,000
S$34,000
S$30,000
S$11,000
S$66,000
S$37,000
S$383,000
S$70,000
Joint guarantee by Han Keen Juan and William Lim Joint guarantee by Han Keen Juan and William Lim
125
Guarantee Joint guarantee by Han Keen Juan and William Lim Personal guarantee by William Lim
As no fee was paid to Han Keen Juan or William Lim for the provision of the abovementioned guarantees, the transactions are not deemed to have been entered into on an arms length basis. The nature of the above transactions are described under the sections entitled Liquidity and Capital Resources and Capitalisation and Indebtedness of this Prospectus. Subsequent to the Invitation, we intend to procure the release and discharge of the above guarantees from the relevant banks, financiers and landlords by providing substitute securities acceptable to the banks, financiers or landlords. Should the terms and conditions of our existing facilities be affected by the withdrawal of the above guarantees, our Directors are confident that with our listed status and strengthened financial position, we should be able to secure alternative bank facilities on terms similar to those applicable to the existing facilities. In the event that the banks, financiers and landlords do not agree to release our Executive Directors from the above guarantees, our Executive Directors will continue to provide the relevant guarantees and security. REVIEW PROCEDURES FOR FUTURE INTERESTED PERSON TRANSACTIONS All future transactions with interested persons shall comply with the requirements of the Listing Manual. As stated in the Listing Manual, our Articles require a Director to abstain from voting in any contract or arrangement in which he has a personal material interest. Our internal control procedures will ensure that all interested person transactions, including the aforementioned interested person transactions involving companies related to our Group, are conducted at arms length and on normal commercial terms. Such internal controls include the following:(a) when purchasing from interested persons, our Directors shall take into account the prices and terms of at least two other comparative offers from non-interested persons. The purchase price shall not be higher than the most competitive price of the two comparative offers from noninterested persons. In determining the most competitive purchase price, our Directors shall also take into consideration the quality, delivery time and track record of the suppliers; except for sale of our food products on a de minimis basis, when selling to interested persons, our Directors shall take into account the prices and terms of at least two other successful sales of similar nature and size to non-interested persons. The sale price shall not be lower than the lowest sale price of the other two successful sales to non-interested persons; and when renting from and to interested persons, our Directors shall take appropriate steps to ensure that such rent is commensurate with the prevailing market rates, including adopting measures such as making relevant enquiries with landlords of similar location and size, or obtaining necessary reports or reviews published by property agents (including an independent valuation report by a property valuer, where appropriate). The rent payable shall be based on the most competitive market rental rate of similar properties in terms of size and location, based on the results of the relevant enquiries.
(b)
(c)
126
127
CONFLICTS OF INTEREST
Save as disclosed in the section entitled Interested Person Transactions of this Prospectus, none of our Directors, Controlling Shareholders and Executive Officers or their Associates have any material interest, directly or indirectly, in:(i) (ii) (iii) any company carrying out the same business or a similar trade as our Group, directly or indirectly; any enterprise or company that is our Groups customer or supplier of goods or services; and any transaction to which we are a party.
None of our Controlling Shareholders, nor any of their Associates, has any interest, direct or indirect, in any company carrying out the same business or deals in similar products as our Company or any of our subsidiaries.
128
(b)
Other Companies Harbinger Resources Pte Ltd (struck-off) Millennium Food Services Pte Ltd Group Companies Nil
William Lim
Group Companies 1901 Singapore Old Chang Kee Australia Old Chang Kee China Old Chang Kee Malaysia Old Chang Kee Thailand Ten & Han Other Companies Intellectual Property Office of Singapore
Group Companies Nil Other Companies Mast Computer Pte Ltd Mast Management Consultants Pte Ltd Mast Technology Pte Ltd Singapore Chinese High School ViewSonic Singapore Pte Ltd
Group Companies Nil Other Companies Harbinger Resources Pte Ltd (struck-off) Hwa Chong International School Lao Zeng Ji Investment Pte Ltd (struck-off) New Rise Global Private Limited (gazetted to be struck-off) Singapore Chinese High School Tian-Huo Pte Ltd (struck-off) Group Companies Nil Other Companies Nil
129
(c)
Save as disclosed below, none of our Executive Officers hold any directorships (past or present) in the five years preceding the date of this Prospectus:Name Chow Hui Shien Present Directorships Group Companies Ten & Han Food Management (Chengdu) Co., Ltd. Past Directorships Group Companies Nil
(d)
Save as disclosed in the section entitled Directors, Management and Employees of this Prospectus, none of our Directors, Executive Officers or Substantial Shareholders are related by blood or marriage to one another. There is no shareholding qualification for Directors in the Articles of our Company. Save as disclosed below, none of our Directors, Executive Officers or Controlling Shareholders:(i) has, at any time during the last ten (10) years, had an application or a petition under any bankruptcy laws of any jurisdiction filed against him or against a partnership of which he was a partner at the time when he was a partner or at any time within 2 years from the date he ceased to be a partner; has, at any time during the last ten (10) years, had an application or a petition under any law of any jurisdiction filed against an entity (not being a partnership) of which he was a director or an equivalent person or a key executive, at the time when he was a director or an equivalent person or a key executive of that entity or at any time within two (2) years from the date he ceased to be a director or an equivalent person or a key executive of that entity, for the winding-up or dissolution of that entity or, where that entity is the trustee of a business trust, that business trust, on the ground of insolvency; has any unsatisfied judgment against him;
(e) (f)
(ii)
(iii)
130
(v)
(vi)
(vii)
(viii)
(ix)
(x)
(bb)
(cc)
(dd)
in connection with any matter occurring or arising during the period when he was so concerned with the entity or business trust; and (xi) has been the subject of any current or past investigation or disciplinary proceedings, or has been reprimanded or issued a warning, by the Authority or any other regulatory authority, exchange, professional body or government agency, whether in Singapore or elsewhere.
131
132
(b)
(c)
(d)
(e)
(f)
(g)
(h)
133
4.
LITIGATION AND ARBITRATION PROCEEDINGS Save as disclosed in the following, to the best of our knowledge and belief and having made all reasonable enquiries, neither our Company nor any of our subsidiaries is engaged in any litigation or arbitration proceedings either as plaintiff or defendant including those which are pending or known to be contemplated, which may have or have had in the last 12 months preceding the date of lodgement of this Prospectus, a material effect on our Groups profitability or financial position:(a) In July 2005, an employee of Ten & Han was involved in an accident while driving one of the companys motor vehicles along Woodlands Loop. On 6 June 2006, the third party (Plaintiff A) commenced legal action against, inter alia, Ten & Han. The motor vehicle was insured by Ten & Han with American Home Assurance Company Singapore (AHACS). This suit has since been settled and concluded. In September 2005, an employee of Ten & Han was involved in an accident while driving one of the companys motor vehicles along the Pan Island Expressway towards Jurong before the Kallang Exit. On 9 June 2006, the third party (Plaintiff B) commenced legal action against, inter alia, Ten & Han. The motor vehicle was insured by Ten & Han with AHACS. AHACS settled the claim by paying a sum of S$23,527.50 to Plaintiff B. In November 2007, legal proceedings was commenced by a plaintiff (Plaintiff C) against Ten & Han for, inter alia, damages resulting from a motor accident involving one of Ten & Hans employee. American Home Assurance Company Singapore, who is the insurer of Ten & Han, is currently negotiating with Plaintiff C to reach an amicable settlement of the matter.
(b)
(c)
5.
MISCELLANEOUS (a) Application monies received by our Company in respect of successful applications (including successful applications which are subsequently rejected) will be placed in a separate noninterest bearing account with the Receiving Banker. In the ordinary course of business, the Receiving Banker will deploy these monies in the interbank monies market. All profits derived from the deployment of such monies will accrue to the Receiving Banker. Any refund of all or part of the application monies to unsuccessful or partially successful applicants will be made without interest or any share of revenue or any other benefit arising therefrom. We intend to continue with the engagement of Ernst & Young as our auditors after our listing on the Official List of the Catalist. No expert named in this Prospectus:(i) (ii) is employed on a contingent basis by our Company or our subsidiaries; has a material interest, whether direct or indirect, in our Shares or in the shares of our subsidiaries; or has a material economic interest, whether direct or indirect, in our Company, including an interest in the success of the offer.
(b)
(c)
(iii)
(d)
As at the Latest Practicable Date, our Directors are not aware of any event which has occurred since 30 June 2007 which may have a material effect on the financial position and results of our Group that is not already disclosed in the sections entitled Managements Discussion and Analysis of Financial Condition and Results of Operations, Capitalisation and Indebtedness and Trend Information of this Prospectus.
134
(b)
(c)
in the form and context in which they appear in this Prospectus, and to act in such capacity in relation to this Prospectus. (d) The legal advisers to our Company on the Philippines law, has given and has not withdrawn its written consent to the issue of this Prospectus with the inclusion herein of:(i) (ii) its name and all reference to its name; and the statement prepared by them set out under Franchises in the section entitled Marketing and Business Development of this Prospectus,
in the form and context in which they appear in this Prospectus, and to act in such capacity in relation to this Prospectus. (e) Each of the Placement Agent, the Solicitors to the Invitation, the legal advisers to our Company on Australian Law, the legal advisers to our Company on Malaysian Law, the legal advisers to our Company on Thai Law, the legal advisers to our Company on PRC law, the Share Registrar, the Receiving Banker, the Principal Bankers and the Valuer does not make or purport to make any statement in this Prospectus and is not aware of any statement in this Prospectus which purports to be based on a statement made by it and each of them makes no representation regarding any statement in this Prospectus and, to the extent permitted by law, takes no responsibility for any statement in or omission from this Prospectus.
135
(c)
(d)
(e)
(f)
136
APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
A-1
APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Statement by Directors
We, Han Keen Juan and Lim Tao-E William, being the Directors of Old Chang Kee Ltd. (the Company), do hereby state that, in the opinion of the Directors, (a) the accompanying combined financial statements together with notes thereto, are drawn up so as to present fairly, the state of affairs of the Group as at 31 December 2004, 2005 and 2006 and of the results, changes in equity and cash flows of the Group for the financial years ended on those date; and at the date of this statement there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due.
(b)
A-2
APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Report from the Auditors in relation to the Audited Combined Financial Statements of Old Chang Kee Ltd. and its Subsidiary Companies for the financial years ended 31 December 2004, 2005 and 2006
4 January 2008 The Board of Directors Old Chang Kee Ltd. 2 Woodlands Terrace Singapore 738427 Dear Sirs: We have audited the accompanying combined financial statements of Old Chang Kee Ltd. (the Company) and its subsidiary companies (collectively, the Group) set out on pages A-5 to A-43, which comprise the combined balance sheets of the Group as at 31 December 2004, 2005 and 2006, the combined profit and loss accounts, combined statements of changes in equity and combined cash flow statements of the Group for each of the financial years ended 31 December 2004, 2005 and 2006, and a summary of significant accounting policies and other explanatory notes.
Auditors Responsibility
Our responsibility is to express an opinion on these combined 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 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 auditors judgment, 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 entitys preparation and fair presentation of the financial statements 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 entitys internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Directors, 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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APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Report from the Auditors in relation to the Audited Combined Financial Statements of Old Chang Kee Ltd. and its Subsidiary Companies for the financial years ended 31 December 2004, 2005 and 2006 (contd)
Opinion
In our opinion, the combined financial statements of the Group presents fairly, in all material respects, the state of affairs of the Group as at 31 December 2004, 2005 and 2006 and the results, changes in equity and cash flows of the Group for each of the financial years ended 31 December 2004, 2005 and 2006 in accordance with the provisions of the Act and Singapore Financial Reporting Standards. This report has been prepared for inclusion in the Prospectus in connection with the Invitation by the Company in respect of the issue of 25,000,000 new ordinary shares in the share capital of the Company.
Yours faithfully,
ERNST & YOUNG Certified Public Accountants Singapore Max Loh Khum Whai Partner-in-Charge
A-4
APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Combined Profit and Loss Accounts for the financial years ended 31 December 2004, 2005 and 2006
Note
2005 S$000 29,045 (11,276) 17,769 39 (8,881) (4,171) (494) (27) 4,235 (1,028) 3,207 4.69
2006 S$000 33,784 (13,827) 19,957 299 (11,061) (4,128) (848) (42) (27) 4,150 (1,111) 3,039 4.44
Revenue Cost of sales Gross profit Other operating income Selling and distribution expenses Administrative expenses Other operating expenses Finance costs Share of results of associated companies Profit before taxation Taxation Net profit attributable to shareholders Basic and fully diluted earnings per share (cents)
(13)
7 8
3.04
The accompanying accounting policies and explanatory notes form an integral part of the financial statements.
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APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Combined Balance Sheets as at 31 December 2004, 2005 and 2006
Note
2004 S$000
2005 S$000
2006 S$000
Non-Current Assets Property, plant and equipment Intangible assets Investment in associated companies Amounts due from associated companies Quoted investment
10 11 12 13 14
Current Assets Inventories Trade and other receivables Deposits Prepayments Amounts due from associated companies Cash and cash equivalents
15 16
17 18
Current Liabilities Trade and other payables Other liabilities Bank overdrafts Amount due to a related party Finance lease liabilities Club membership payable current Provision for taxation
19 20 18 21 22
Net Current Assets Non-Current Liabilities Finance lease liabilities Club membership payable long term Deferred tax liabilities
1,582
22 23
Net Assets Equity attributable to equity holders of the Company Share capital Share application money Reserves Total Equity
4,796
24 25 26
The accompanying accounting policies and explanatory notes form an integral part of the financial statements.
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APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Combined Statements of Changes in Equity for the financial years ended 31 December 2004, 2005 and 2006
Attributable to equity holders of the Company Share application money S$000 Asset revaluation Accumulated Total reserve profits reserves S$000 S$000 S$000 263 2,311 2,574
Note
At 1 January 2004 Profit for the year, representing total recognised income for the year Dividends on ordinary shares At 31 December 2004 and 1 January 2005 Profit for the year, representing total recognised income for the year Dividends on ordinary shares At 31 December 2005 and 1 January 2006 Profit for the year, representing total recognised income for the year Application for increase of ordinary shares Dividends on ordinary shares At 31 December 2006
2,082
2,082
2,082
27
(560)
(560)
(560)
700
263
3,833
4,096
4,796
3,207
3,207
3,207
27
(1,008)
(1,008)
(1,008)
700
263
6,032
6,295
6,995
3,039
3,039
3,039
25
100
100
27
700
100
263
(2,495) 6,576
(2,495) 6,839
(2,495) 7,639
The accompanying accounting policies and explanatory notes form an integral part of the financial statements.
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APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Combined Cash Flow Statements for the financial years ended 31 December 2004, 2005 and 2006
Note Cash flows from operating activities: Profit before taxation Adjustments for: Amortisation of intangible assets Bad debt written off loan to a Director-related party loan to a related party Currency realignment Depreciation of property, plant and equipment Gain on disposal of quoted investment Gain on fair value adjustment of quoted investment Impairment loss on investment in associated company Interest expense Interest income Loss/(gain) on disposal of property, plant and equipment Property, plant and equipment written off Provision for reimbursement of start-up costs for an associated company in Chengdu Share of results of associated companies Operating profit before working capital changes Increase in trade and other receivables Increase in inventories Increase in trade and other payables (Increase)/decrease in amount due from a Director-related company Increase in amount due from associated companies Increase in amount due to a related party
2004 S$000
2005 S$000
2006 S$000
2,597
4,235
4,150
A-8
APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Combined Cash Flow Statements for the financial years ended 31 December 2004, 2005 and 2006 (contd)
Note Cash generated from operations Tax paid Net cash generated from operating activities Cash flows from investing activities: Advances to associated companies Purchase of property, plant and equipment Purchase of intangible asset Proceeds from disposal of property, plant and equipment Interest received Payment for club membership Investment in associated companies Proceeds from disposal of quoted investment Increase in share application money Net cash used in investing activities Cash flows from financing activities: Repayment of finance lease liabilities Interest paid Dividends paid on ordinary shares Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of the financial year
27
18
3,068
4,600
6,392
The accompanying accounting policies and explanatory notes form an integral part of the financial statements.
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APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 31 December 2004, 2005 and 2006
1.
Corporate Information The Company was incorporated in Singapore on 16 December 2004 under the Singapore Companies Act as a private company limited by shares under the name of Old Chang Kee Singapore Pte. Ltd. and changed its name to Old Chang Kee Pte. Ltd. on 13 September 2007. On 22 November 2007, the Company changed its name to Old Chang Kee Ltd. in connection with its conversion into a public company limited by shares. The Company was incorporated for the purpose of acquiring the existing companies of the Group pursuant to the Group Restructuring Exercise. The registered office and principal place of business of the Company is located at 2 Woodlands Terrace, Singapore 738427. The principal activities of the Company are those relating to investment holding. The principal activities of the subsidiary companies are set out in Note 2.
2.
Restructuring Exercise Pursuant to an agreement dated 9 November 2007, the Company acquired the entire issued and paid-up capital of Ten & Han Trading Pte Ltd, comprising 5,600,000 ordinary shares with effect from 12 November 2007. The purchase consideration was satisfied by the issue of 5,600,000 ordinary shares credited as fully paid in the capital of the Company to Mr Han Keen Juan and Mr Lim Tao-E William. Pursuant to the agreement, Ten & Han Trading Pte Ltd became a wholly-owned subsidiary company of the Company. At the date of this report, the Group structure is as shown below:
Country and date of incorporation/ acquisition
Name
Principal activities
Subsidiary Companies Ten & Han Trading Pte Ltd (Ten & Han) Old Chang Kee Australia Pty Ltd (OCKA) Ten & Han Food Management (Chengdu) Co., Ltd. Associated Companies Old Chang Kee (Thailand) Co Ltd (OCKT) Thailand 19 June 2006 Dormant 40 Singapore 7 January 1988 Australia 30 May 2006 Peoples Republic of China 23 May 2007 Manufacture and distribution of food products and general trading Dormant F & B management and consultancy, manufacture and sale of snacks 100
100 100
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APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 31 December 2004, 2005 and 2006
2.
Restructuring Exercise (contd) Country and date of incorporation/ acquisition Proportion of ownership interest % Associated Companies Old Chang Kee (M) Sdn Bhd (OCKM) Malaysia 21 July 2006 Operating retail food outlets and general trading 40
Name
Principal activities
3.
Summary of significant accounting policies 3.1 Basis of preparation The combined financial statements of the Group have been prepared in accordance with Singapore Financial Reporting Standards (FRS). The combined financial statements have been prepared on a historical cost basis except for leasehold building and held for trading financial assets that have been measured at their fair values. The combined financial statements are presented in Singapore Dollars (SGD or S$). 3.2 Changes in accounting policies The accounting policies have been consistently applied by the Group and the Company and are consistent with those used in the previous financial year, except for the changes in accounting policies discussed below. (a) Adoption of new FRS On 1 January 2005, the Group and the Company adopted FRS 39, Financial Instruments: Recognition and Measurement, mandatory for annual financial periods beginning on or after 1 January 2005. FRS 39, Financial Instruments: Recognition and Measurement The Group and the Company adopted FRS 39 prospectively on 1 January 2005. At that date, financial assets within the scope of FRS 39 were classified as either financial assets at fair value through profit or loss, loans and receivables, held-tomaturity investments or available-for-sale financial assets, as appropriate. Financial assets that were classified as financial assets at fair value through profit or loss and available-for-sale financial assets were measured at fair value while loans and receivables and held-to-maturity investments were measured at amortised cost using the effective interest rate method. At 1 January 2005, differences between the carrying values and fair values of financial assets at fair value through profit or loss were recognised in accumulated profits while the differences between carrying values and fair values of available-for-sale financial assets were recognised in the fair value adjustment reserve. For investments carried at amortised cost, any differences between the carrying values and amortised costs as at 1 January 2005 were recognised in accumulated profits.
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APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 31 December 2004, 2005 and 2006
3.
Summary of significant accounting policies (contd) 3.2 Changes in accounting policies (contd) (a) Adoption of new FRS (contd) FRS 39, Financial Instruments: Recognition and Measurement (contd) At 1 January 2005, financial liabilities (other than derivative financial instruments) within the scope of FRS 39 were measured at amortised cost using the effective interest rate method. Any difference between the carrying values and amortised costs as at 1 January 2005 were recognised in accumulated profits. (b) Adoption of revised FRS The Group adopted the following revised standards mandatory for annual financial periods beginning on or after 1 January 2005 which did not result in any significant change in accounting policies: FRS 1 (revised) FRS 2 (revised) FRS 8 (revised) FRS 10 (revised) FRS 16 (revised) FRS 17 (revised) FRS 19 (revised) FRS 21 (revised) FRS 24 (revised) FRS 27 (revised) FRS 32 (revised) FRS 33 (revised) FRS 36 (revised) FRS 38 (revised) INT FRS 104 INT FRS 105 INT FRS 106 INT FRS 106 Presentation of Financial Statements Inventories Accounting Policies, Changes in Accounting Estimates and Errors Events after the Balance Sheet Date Property, Plant and Equipment Leases Employee Benefits The Effects of Changes in Foreign Exchange Rates Related Party Disclosures Consolidated and Separate Financial Statements Financial Instruments: Disclosure and Presentation Earnings Per Share Impairment of Assets Intangible Assets Determining Whether an Agreement Contains a Lease Rights to Interests Arising from Decommissioning Restoration and Environmental Rehabilitation Funds Liabilities Arising from Participating in a Specific Market-Waste Electrical and Electronic Equipment Explorations for and Evaluation of Mineral Resources
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APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 31 December 2004, 2005 and 2006
3.
Summary of significant accounting policies (contd) 3.3 FRS and INT FRS not yet effective The Group and the Company has not applied the following FRS and INT FRS that have been issued but not yet effective: Effective date (Annual periods beginning on or after) FRS 1 FRS 40 FRS 107 FRS 108 INT FRS 107 : : : : : Amendment to FRS 1 (revised), Presentation of financial statements (Capital Disclosures) Investment Property Financial Instruments : Disclosures Operating Segments Applying the Restatement Approach under FRS 29, Financial Reporting in Hyperinflationary Economies Scope of FRS 102, Share-based Payment Reassessment of Embedded Derivatives Interim Financial Reporting & Impairment Group and Treasury Share Transactions Service Concession Arrangements 1 January 2007 1 1 1 1 January 2007 January 2007 January 2009 March 2006
: : : : :
1 1 1 1 1
May 2006 June 2006 November 2006 March 2007 January 2008
The Directors expect that the adoption of the above pronouncements will have no material impact to the financial statements in the period of initial application, except for FRS 107 and the amendment to FRS 1 as indicated below. FRS 107, Financial Instruments: Disclosures and amendment to FRS 1 (revised), Presentation of financial statements (Capital Disclosures) FRS 107 introduces new disclosures to improve the information about financial instruments. It requires the disclosure of qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk, liquidity risk and market risk, including sensitivity analysis to market risk. The amendment to FRS 1 requires the Group to make new disclosures to enable users of the financial statements to evaluate the Groups objectives, policies and processes for managing capital. The Group will apply FRS 107 and the amendment to FRS 1 from annual periods beginning 1 January 2007.
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APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 31 December 2004, 2005 and 2006
3.
Summary of significant accounting policies (contd) 3.4 Significant accounting estimates and judgements Estimates, assumptions concerning the future and judgements are made in the preparation of the financial statements. They affect the application of the Groups accounting policies, reported amounts of assets, liabilities, income and expenses, and disclosures made. They are assessed on an on-going basis and are based on experience and relevant factors, including expectations of future events that are believed to be reasonable under the circumstances. Key sources of estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. (a) Depreciation of property, plant and equipment The cost of property, plant and equipment is depreciated on a straight-line basis over the plant and equipments useful lives. Management estimates the useful lives of these property, plant and equipment to be within 5 to 50 years. The carrying amount of the Groups property, plant and equipment at 31 December 2006 was approximately S$5,881,000 (2005: S$5,740,000 and 2004: S$3,679,000). Changes in the expected level of usage and technological developments could impact the economic useful lives and the residual values of these assets, therefore future depreciation charges could be revised. (b) Income taxes Significant judgement is involved in determining the Group-wide provision for income taxes. There are certain transactions and computations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for expected tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recognised, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. The carrying amount of the Groups tax payables and deferred tax liabilities at 31 December 2006 was approximately S$900,000 (2005: S$942,000 and 2004: S$804,000) and S$576,000 (2005: S$326,000 and 2004: S$136,000) respectively.
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APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 31 December 2004, 2005 and 2006
3.
Summary of significant accounting policies (contd) 3.5 Functional and foreign currency (a) Functional currency The management has determined the currency of the primary economic environment in which the Company operates i.e. functional currency, to be SGD. Sales prices and major costs of providing goods and services including major operating expenses are primarily influenced by fluctuations in SGD. (b) Foreign currency transactions Transactions in foreign currencies are measured in the respective functional currencies of the Company and its subsidiary companies and are recorded on initial recognition in the functional currencies at exchange rates approximating those ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the closing rate of exchange ruling at the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Exchange differences arising on the settlement of monetary items or on translating monetary items at the balance sheet date are recognised in the profit and loss account. (c) Foreign currency translations The results and financial position of foreign operations are translated into SGD using the following procedures: Assets and liabilities for each balance sheet presented are translated at the closing exchange rate ruling at that balance sheet date; and Income and expenses for each profit and loss account are translated at average exchange rates for the year, which approximates the exchange rates at the dates of the transactions. All resulting exchange differences are recognised in a separate component of equity as foreign currency translation reserve. On disposal of a foreign operation, the cumulative amount of exchange differences deferred in equity relating to that foreign operation is recognised in the profit and loss account as a component of the gain or loss on disposal.
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APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 31 December 2004, 2005 and 2006
3.
Summary of significant accounting policies (contd) 3.6 Subsidiary company and principles of consolidation (a) Subsidiary company A subsidiary company is an entity over which the Group has the power to govern the financial and operating policies so as to obtain benefits from its activities. The Group generally has such power when it directly or indirectly, holds more than 50% of the issued share capital, or controls more than half of the voting power, or controls the composition of the board of directors. In the Companys separate financial statements, investment in subsidiary company is accounted for at cost less any impairment losses. (b) Principles of consolidation The combined financial statements comprise the financial statements of the Company and its subsidiary companies as at the balance sheet date. The financial statements of the subsidiary companies are prepared for the same reporting date as the parent company. Consistent accounting policies are applied for like transactions and events in similar circumstances. All intra-group balances, transactions, income and expenses and profits and losses resulting from intra-group transactions that are recognised in assets, are eliminated in full. Subsidiary companies are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. Acquisition of subsidiary company is accounted for using the purchase method. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. Pursuant to an agreement dated 9 November 2007, the Company acquired the entire issued and paid-up capital of Ten & Han at par comprising 5,600,000 ordinary shares. As this arrangement constitutes a reorganisation of companies under common control, the pooling of interest method of accounting was adopted in the preparation of the combined financial statements of the Group. Under this method of accounting, the results and cash flows of the Company and Ten & Han are combined from the beginning of the financial period in which the reorganisation occurred and their assets and liabilities combined at the amounts at which they were previously recorded as if they had been part of the Group for the whole of the current and preceding periods.
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APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 31 December 2004, 2005 and 2006
3.
Summary of significant accounting policies (contd) 3.7 Associated company An associated company is an entity, not being a subsidiary or a joint venture, in which the Group has significant influence. This generally coincides with the Group having 20% or more of the voting power, or has representation on the board of directors. The Groups investment in associated companies is accounted for using the equity method. Under the equity method, the investment in associated companies is carried in the balance sheet at cost plus post-acquisition changes in the Groups share of net assets of the associated companies. The Groups share of the profit or loss of the associated companies is recognised in the consolidated profit and loss account. Where there has been a change recognised directly in the equity of the associated companies, the Group recognises its share of such changes. After application of the equity method, the Group determines whether it is necessary to recognise any additional impairment loss with respect to the Groups net investment in the associated companies. The associated companies are equity accounted for from the date the Group obtains significant influence until the date the Group ceases to have significant influence over the associate. When the Groups share of losses in an associated companies equals or exceeds its interest in the associated companies, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associated companies. The most recent available audited financial statements of the associated companies are used by the Group in applying the equity method. In the Companys separate financial statements, investment in associated companies is accounted for at cost less impairment losses. 3.8 Property, plant and equipment All items of property, plant and equipment are initially recorded at cost. Subsequent to recognition, property, plant and equipment are stated at cost or valuation less accumulated depreciation and any accumulated impairment losses. Leasehold buildings are subsequently revalued on an asset-by-asset basis, to their fair values. Fair value is determined from market-based evidence by appraisal that is undertaken by professionally qualified valuers. Revaluations are made annually to ensure that their carrying amount does not differ materially from their fair value at the balance sheet date. When an asset is revalued, any increase in the carrying amount is credited directly to the asset revaluation reserve. However, the increase is recognised in the profit and loss account to the extent that it reverses a revaluation decrease of the same asset previously recognised in the profit and loss account. When an assets carrying amount is decreased as a result of a revaluation, the decrease is recognised in the profit and loss account. However, the decrease is debited directly to the asset revaluation reserve to the extent of any credit balance existing in the reserve in respect of that asset.
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APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 31 December 2004, 2005 and 2006
3.
Summary of significant accounting policies (contd) 3.8 Property, plant and equipment (contd) Any accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. The revaluation surplus included in the asset revaluation reserve in respect of an asset, is transferred directly to accumulated profits on retirement or disposal of the asset. Depreciation of an asset begins when it is available for use and is computed on a straight-line basis over the estimated useful life of the asset as follows: Leasehold building Machinery and equipment Motor vehicles Renovation Electrical fittings Furniture Computers 50 years 5 years 5 years 5 years 5 years 5 years 5 years
The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. The residual values, useful life and depreciation method are reviewed at each financial year-end to ensure that the amount, method and period of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the items of property, plant and equipment. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset is included in the profit and loss account in the year the asset is derecognised. 3.9 Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised on a straight-line basis over the estimated economic useful lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. The amortisation expense on intangible assets with finite lives is recognised in the profit and loss account through the other operating expenses line item.
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APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 31 December 2004, 2005 and 2006
3.
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APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 31 December 2004, 2005 and 2006
3.
Summary of significant accounting policies (contd) 3.11 Financial assets Financial assets within the scope of FRS 39 are classified as either financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, or available-for-sale financial assets, as appropriate. Financial assets are recognised on the balance sheet when, and only when, the Group becomes a party to the contractual provisions of the financial instrument. When financial assets are recognised initially, they are measured at fair value, plus, in the case of financial assets not at fair value through profit or loss, directly attributable transaction costs. The Group determines the classification of its financial assets after initial recognition and, where allowed and appropriate, re-evaluates this designation at each financial year-end. (a) Financial assets at fair value through profit or loss Financial assets classified as held for trading are included in the category financial assets at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Gains or losses on investments held for trading are recognised in the profit and loss account. The Group does not designate any financial assets not held for trading as financial assets at fair value through profit and loss. (b) Loans and receivables Non-derivative financial assets with fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in the profit and loss account when the loans and receivables are derecognised or impaired, as well as through the amortisation process. 3.12 Quoted investment Quoted investment is classified as financial assets at fair value through profit or loss. The accounting policy for the aforementioned category of financial assets is stated in Note 3.11.
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APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 31 December 2004, 2005 and 2006
3.
Summary of significant accounting policies (contd) 3.13 Cash and cash equivalents Cash and cash equivalents comprise cash on hand and at bank, demand deposits, and short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the purposes of the cash flow statement, cash and cash equivalents are shown net of outstanding bank overdrafts which are repayable on demand and which form an integral part of the Groups cash management. Cash and short term deposits carried in the balance sheets are classified and accounted for as loans and receivables under FRS 39. The accounting policy for this category of financial assets is stated in Note 3.11. 3.14 Trade and other receivables Trade and other receivables, including amounts due from associated companies are classified and accounted for as loans and receivables under FRS 39. The accounting policy for this category of financial assets is stated in Note 3.11. An allowance is made for uncollectible amounts when there is objective evidence that the Group will not be able to collect the debt. Bad debts are written off when identified. Further details on the accounting policy for impairment of financial assets are stated in Note 3.15 below. 3.15 Impairment of financial assets The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or group of financial assets is impaired.
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APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 31 December 2004, 2005 and 2006
3.
Summary of significant accounting policies (contd) 3.16 Inventories Inventories are valued at the lower of cost and net realisable value. In general, cost of raw materials and sundry consumables is determined on a first-in, first-out basis and includes all costs in bringing the inventories to their present location and condition. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. 3.17 Financial liabilities Financial liabilities include trade payables, which are normally settled on 30 90 day terms, other amounts payable and payables to related parties. Financial liabilities are recognised on the balance sheet when, and only when, the Group becomes a party to the contractual provisions of the financial instrument. Financial liabilities are initially recognised at fair value of the consideration received less directly attributable transaction costs and subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in the profit and loss account when the liabilities are derecognised as well as through the amortisation process. 3.18 Derecognition of financial assets and liabilities (a) Financial assets A financial asset is derecognised where the contractual rights to receive cash flows from the asset have expired. On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sum of (a) the consideration received and (b) any cumulative gain or loss that has been recognised directly in equity is recognised in the profit and loss account. (b) Financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expired. 3.19 Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) where, as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
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APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 31 December 2004, 2005 and 2006
3.
Summary of significant accounting policies (contd) 3.20 Employee benefits (a) Defined contribution plans The Group participates in the national pension schemes as defined by the laws of the countries in which it has operations. In particular, the Singapore companies in the Group make contributions to the Central Provident Fund (CPF) scheme in Singapore, a defined contribution pension scheme. Contributions to national pension schemes are recognised as an expense in the period in which the related service is performed. (b) Employee leave entitlement Employee entitlements to annual leave are recognised as a liability when they accrue to employees. The estimated liability for leave is recognised for services rendered by employees up to balance sheet date. 3.21 Leases Finance leases, which transfer to the Group substantially all the risks and rewards incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Any initial direct costs are also added to the amount capitalised. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to the profit and loss account. Contingent rents, if any, are charged as expenses in the periods in which they are incurred. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term. Operating lease payments are recognised as an expense in the profit and loss account on a straight-line basis over the lease term. The aggregate benefit of incentives provided by the lessor is recognised as a reduction of rental expense over the lease term on a straight-line basis. 3.22 Revenue Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: (a) Outlet sales Revenue from the sale of goods is recognised net of goods and services tax and discounts upon the passing of title to the customer which generally coincides with delivery and acceptance of the goods sold.
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APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 31 December 2004, 2005 and 2006
3.
Summary of significant accounting policies (contd) 3.22 Revenue (contd) (b) Franchise income Initial franchise income is recognised upon the grant of rights, completion of the designated phases of the franchise set-up and transfer of know-how to the franchisee in accordance with the terms stated in the franchise agreement. Recurring franchise income is recognised on a periodic basis as a percentage of the franchisees turnover in accordance with terms as stated in the franchise agreement. (c) Interest income Interest income is recognised as interest accrues (using the effective interest method) unless collectibility is in doubt. 3.23 Government grants Government grants are recognised at their fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised in profit and loss account over the period necessary to match them on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset, the fair value is recognised as deferred capital grant on the balance sheet and is amortised to the profit and loss account over the expected useful life of the relevant asset by equal annual instalments. 3.24 Income taxes (a) Current tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date. (b) Deferred tax Deferred income tax is provided using the liability method on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary differences, except: Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither accounting profit nor taxable profit or loss; and
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APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 31 December 2004, 2005 and 2006
3.
Summary of significant accounting policies (contd) 3.24 Income taxes (contd) (b) Deferred tax (contd) In respect of taxable temporary differences associated with investments in subsidiary companies and associated companies, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax credits and unused tax losses can be utilised. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Income tax relating to items recognised directly in equity is recognised in equity. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. (c) Sales tax Revenues, expenses and assets are recognised net of the amount of sales tax except: Where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and Receivables and payables that are stated with the amount of sales tax included. The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet.
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APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 31 December 2004, 2005 and 2006
4.
Revenue
2004 S$000 Outlet sales Export sales 20,893 20,893 2005 S$000 29,045 29,045 2006 S$000 33,625 159 33,784
5.
6.
Finance costs
2004 S$000 Interest expense: Finance lease Bank overdrafts 2005 S$000 2006 S$000
13 13
27 27
35 7 42
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APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 31 December 2004, 2005 and 2006
7.
Profit before taxation Profit before taxation is arrived at after charging/(crediting) the following:
2004 S$000 Amortisation of intangible assets Bad debts written off loan to a Director-related company loan to a related party Depreciation of property, plant and equipment Directors fee Directors remuneration Employee benefits expense (excluding Directors) salaries & bonuses central Provident Fund Loss/(gain) on disposal of property, plant and equipment Operating lease expenses Property, plant and equipment written off Provision for reimbursement of start-up costs for an associated company in Chengdu Staff training and benefits 841 400 450 3,883 430 2,755 240 2005 S$000 40 61 899 500 1,165 5,122 608 1 3,382 8 195 2006 S$000 73 77 1,273 200 1,025 6,408 621 (9) 4,059 76 238
8.
Taxation (a) Major components of income tax expense The major components of income tax expense for the years ended 31 December are:
2004 S$000 Current income tax: Current income taxation Under provision in respect of prior years Deferred income tax: Movement in temporary differences Income tax expense recognised in the profit and loss account 2005 S$000 2006 S$000
590 10 (85)
830 8 190
859 3 249
515
1,028
1,111
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APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 31 December 2004, 2005 and 2006
8.
Taxation (contd) (b) Relationship between tax expense and accounting profit A reconciliation between tax expense and the product of accounting profit multiplied by the applicable corporate tax rate for the years ended 31 December as follows:
2004 S$000 Profit before taxation Tax expense at 20% (2005: 20%, 2004: 20%) Adjustments: Tax effect of (income)/expense not (chargeable)/ deductible for tax Deferred tax assets not recognised Share of tax of associates Effect of recognised partial tax exemption Under provision in respect of prior years Others Income tax expense recognised in the profit and loss account 2,597 2005 S$000 4,235 2006 S$000 4,150
519
847
830
(4) (10) 10
159 14 (10) 8 10
283 5 (10) 3
515
1,028
1,111
9.
Earnings per share Basic earnings per share is calculated by dividing profit for the year that is attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the year. The following tables reflect the profit and loss account and share data used in the computation of basic earnings per share for the years ended 31 December:
2004 S$000 Profit for the year attributable to ordinary equity holders of the Company 2005 S$000 2006 S$000
2,082 000
68,400
(1)
For comparative purposes, earnings per share for the periods reported on have been computed based on the profit after tax attributable to equity holders of the Proforma Group divided by the pre-invitation share capital of 68,400,000 shares.
A-28
APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 31 December 2004, 2005 and 2006
10.
1,600 739
2,895 501
1,126 11 (62)
430 44 (2)
947
2,339 2,339
96 33
2,154 287
398 99 (41)
369 26 (1)
87
129 47 176
394 47 441
87 222 309
A-29
APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 31 December 2004, 2005 and 2006
10.
Total S$000
41 41
29 29 60 89
11 11 6 17
7 7
40 40 73 113
A-30
APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 31 December 2004, 2005 and 2006
11.
Total S$000
261 217
105 94 88
34
4 4 4
18 17 16
(i)
(ii)
Club membership
This relates to transferable membership in a golf club in Singapore which is stated at cost less accumulated amortisation and any impairment in value. Market value of the transferable membership as at 31 December 2006 is S$180,000 (2005: S$115,000 and 2004: S$115,000).
(iii)
Franchise rights
Franchise rights are stated at cost less accumulated amortisation and any impairment in value. Amortisation is calculated on a straight-line basis to write off the cost of franchise rights over a period of 5 years. Impairment testing will be performed annually and more frequently when an indication of impairment exists. Amortisation period and method will be reviewed annually.
A-31
APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 31 December 2004, 2005 and 2006
12.
Old Chang Kee (Thailand) Co Ltd Old Chang Kee (M) Sdn Bhd (2)
Thailand
(1)
Dormant
Malaysia
Operating retail food outlets and general trading Dormant Operating retail food outlets and general trading
40
Pure Options Pte Ltd Old Chang Kee (Chengdu) Co., Ltd. (4)
(1) (2) (3) (4)
(3)
33 35
Audited by U. B. Audit Office Audited by Poo, Lee & Co. Audited by S.L. Chua & Co. Not audited as the Company is in the process of being liquidated.
271 (73)
A-32
APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 31 December 2004, 2005 and 2006
13.
Amounts due from associated companies Amounts due from associated companies are non-trade in nature, unsecured, interest-free and not expected to be repaid within 12 months from the balance sheet date.
14.
Quoted investment
2004 S$000 2005 S$000 2006 S$000
77
100
15.
Inventories
2004 S$000 Raw materials Sundry consumables Total inventories at lower of cost and net realisable value 239 5 244 2005 S$000 341 9 350 2006 S$000 346 100 446
16.
17.
Amounts due from associated companies These amounts are non-trade in nature, unsecured, interest-free and repayable on demand.
18.
A-33
APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 31 December 2004, 2005 and 2006
18.
Cash and cash equivalents (contd) Cash at banks earns interest at floating rates based on daily bank deposit rates ranging from 0.25% to 0.475% (2005: 0.21% to 0.31% and 2004: 0.18% to 0.22%) per annum. Short-term deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates. The weighted average effective interest rate of short term deposits is 3.1% (2005: 2.9% and 2004: Nil) per annum. A short-term deposit of S$1 million (2005: S$1 million and 2004: Nil) of the Group has been pledged as security for bank facilities granted by a financial institution. For the purpose of the combined cash flow statements, cash and cash equivalents comprise the following at 31 December:
2004 S$000 Cash and short-term deposit Bank overdrafts 3,068 3,068 2005 S$000 4,654 (54) 4,600 2006 S$000 6,565 (173) 6,392
Bank overdrafts are included in the determination of cash and cash equivalents because they form an integral part of the Groups cash management. Bank overdrafts utilised by the subsidiary company are secured by a guarantee from another subsidiary company. They are repayable on demand and have a weighted average effective interest rate of 6.2% (2005: 6.0% and 2004: Nil) per annum. Interest rates of bank overdrafts are repriced at an interval of 1 month. 19. Trade and other payables
2004 S$000 Trade payables Accruals Amount due to Directors Provision for reimbursement of start-up costs for an associated company in Chengdu Sundry creditors 1,141 376 1,517 2005 S$000 1,766 1,062 4 16 2,848 2006 S$000 2,241 1,063 2,498 76 3 5,881
A-34
APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 31 December 2004, 2005 and 2006
19.
Trade and other payables (contd) Trade payables are denominated in the following currencies:
2004 S$000 Singapore Dollars (SGD) Thai Baht (THB) Malaysia Ringgit (RM) 849 292 1,141 2005 S$000 1,276 464 26 1,766 2006 S$000 1,595 639 7 2,241
20.
Other liabilities
2004 S$000 Foreign staff deposits Provision for unconsumed leave 6 50 56 2005 S$000 22 66 88 2006 S$000 34 146 180
21.
Amount due to a related party This amount is non-trade in nature, unsecured, interest-free and repayable on demand.
22.
Finance lease liabilities The Group has finance leases for certain motor vehicles and computers. The lease terms range from 3 to 7 years with options to purchase at the end of the lease term. The lease terms do not contain restrictions concerning dividends, additional debt or further leasing. The average discount rate implicit in the leases range from 4.15% to 8.73% (2005: 4.15% to 8.73% and 2004: 4.15% to 8.13%) per annum.
A-35
APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 31 December 2004, 2005 and 2006
22.
Finance lease liabilities (contd) Future minimum lease payments under finance leases together with the present value of the net minimum lease payments are as follows:
2004 Minimum payments S$000 Within one year After one year but not more than five years After five years Total minimum lease payments Less : Amounts representing finance charges Present value of minimum lease payments 125 477 54 Present value of payments S$000 108 385 74 2005 Minimum payments S$000 356 811 62 Present value of payments S$000 323 722 53 2006 Present Minimum value of payments payments S$000 S$000 380 540 13 344 474 11
656 (89)
567
1,229 (131)
1,098
933 (104)
829
567
567
1,098
1,098
829
829
23.
Deferred taxation comprises: Differences in depreciation Asset revaluation reserve 69 67 136 259 67 326 509 67 576
A-36
APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 31 December 2004, 2005 and 2006
24.
Share capital
2004 No. of shares 000 Ordinary shares issued and fully paid At 1 January and 31 December 700 700 700 700 700 700 No. of shares 000 2005 No. of shares 000 2006
S$000
S$000
S$000
The holders of ordinary shares are entitled to receive dividends as and when declared by the Group. All ordinary shares carry one vote per share without restriction. In accordance with the Companies (Amendment) Act 2005, on 30 January 2006, the shares of the Group ceased to have a par value. 25. Share application money The share application money relates to funds received from the shareholders as additional capital injection to the Group. As at 31 December 2006, new shares have not been allotted to the shareholders. 26. Reserves
2004 S$000 2005 S$000 2006 S$000
The asset revaluation reserve is used to record increases in the fair value of leasehold building and decreases to the extent that such decrease relates to the same asset previously recognised in equity.
A-37
APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 31 December 2004, 2005 and 2006
27.
Dividends
2004 S$000 Dividends on ordinary shares: Interim dividend for 2006: Nil (2005: $1.80 and 2004: $1.00) per share, paid net of tax at 20% (2005: 20% and 2004: 20%) Interim dividend for 2006: $3.08 (2005: Nil and 2004: Nil) per share, paid net of tax at 20% (2005: 20% and 2004: 20%) Interim exempt (one-tier) dividend for 2006: $1.10 (2005: Nil and 2004: Nil) per share 2005 S$000 2006 S$000
560
1,008
1,725
560
1,008
770 2,495
28.
Commitments and contingencies (a) Capital commitments Capital expenditure contracted for as at the balance sheet date but not recognised in the financial statements is as follows:
2004 S$000 Capital commitments in respect of property, plant and equipment 2005 S$000 2006 S$000
2,306
(b)
Operating lease commitments The Group has non-cancellable operating lease agreements in respect of office, production and storage premises and retail outlets. These non-cancellable leases have remaining non-cancellable terms of between 2 to 60 years. Some of the leases include a clause to enable upward revision of the rental charges on an annual basis based on prevailing conditions. Some of the rental outlets include clauses whereby rental is charged using a base rental plus a percentage of the outlets sales turnover. Future minimum rental under non-cancellable leases as at the end of the financial years are as follows:
2004 S$000 Not later than one year Later than one year but not later than five years Later than five years 2,331 1,624 2,132 6,087 2005 S$000 2,899 2,275 2,083 7,257 2006 S$000 3,827 4,668 2,035 10,530
A-38
APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 31 December 2004, 2005 and 2006
28.
Commitments and contingencies (contd) (c) Financial guarantees, unsecured As at 31 December 2006, a subsidiary of the Group, Ten & Han Trading Pte Ltd, has given financial guarantees of S$970,000 (2005: S$420,000 and 2004: Nil) to banks for facilities granted to another subsidiary of the Group, 1901 Singapore Pte. Ltd.. (d) Letters of guarantees, secured As at 31 December 2006, the bank issued letters of guarantees on behalf of its wholly owned subsidiary, Ten & Han Trading Pte Ltd to lessors of premises amounting to approximately S$110,000 (2005: S$109,000 and 2004: S$63,000). These letters of guarantees are secured by fixed deposits.
29.
Related parties disclosures (a) Sale and purchase of goods and services In addition to those related party information disclosed elsewhere in the financial statements, the following significant transactions between the Group and its related parties took place during the year on terms agreed between the parties:
2004 S$000 Purchase of fixed assets from a Director-related company Sales of goods to an associated company 2005 S$000 2006 S$000
(67)
13
(b)
894
1,710
1,269
894
1,710
1,269
A-39
APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 31 December 2004, 2005 and 2006
30.
Financial risk management objectives and policies The Groups principal financial instruments, comprise overdraft, finance leases and cash and short term deposits. The main purpose of these financial instruments is to raise finance for the Groups operations. The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations. The main risks arising from the Groups financial instruments are interest rate risk, credit risk and liquidity risk. The Board reviews and agrees policies for managing these risks and they are summarised below. (a) Interest rate risk The Groups exposure to market risk for changes in interest rates relates primarily to the Groups bank overdraft and finance lease liabilities. (b) Credit risk The Group trades mainly in cash. Receivable balances are monitored on an ongoing basis with the result that the Groups exposure to bad debts is not significant. With respect to credit risk arising from other financial assets of the Group, which comprise cash and cash equivalents and other receivables, the Groups exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. There are no significant concentrations of credit risk within the Group. (c) Liquidity risk The Groups objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts and finance leases.
31.
Financial instruments (a) Fair values The fair value of a financial instrument is the amount at which the instrument could be exchanged or settled between knowledgeable and willing parties in an arms length transaction, other than in a forced or liquidation sale.
A-40
APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 31 December 2004, 2005 and 2006
31.
567
520
1,098
1,038
829
790
67
64
51
50
35
35
Amount due from associated companies has no repayment terms and is repayable only when the cash flows of the borrowers permits. Accordingly, the fair value of the amount due from associated companies is not determinable as the timing of the future cash flows cannot be estimated reliably.
A-41
APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 31 December 2004, 2005 and 2006
31.
Financial instruments (contd) (b) Interest rate risk The following tables sets out the carrying amount, by maturity, of the Groups financial instruments that are exposed to interest rate risk:
Within 1 year S$000 1-2 years S$000 2-3 years S$000 3-4 years S$000 4-5 More than years 5 years Total S$000 S$000 S$000
Note 2006 Fixed rate Short-term deposits Obligations under finance leases Floating rate Cash at bank Bank overdrafts 2005 Fixed rate Short-term deposits Obligations under finance leases Floating rate Cash at bank Bank overdrafts 2004 Fixed rate Obligations under finance leases Floating rate Cash at bank
18 22
4,578 (344)
(230)
(117)
(85)
(42)
(11)
4,578 (829)
18 18
1,700 (173)
1,700 (173)
18 22
3,004 (323)
(321)
(207)
(109)
(85)
(53)
3,004 (1,098)
18 18
1,531 (54)
1,531 (54)
22
(108)
(108)
(106)
(87)
(84)
(74)
(567)
18
2,770
2,770
Interest on financial instruments subject to floating interest rates is contractually repriced at intervals of less than 6 months. Interest on financial instruments at fixed rates are fixed until the maturity of the instrument. The other financial instruments of the Group that are not included in the above tables are not subject to interest rate risks.
A-42
APPENDIX A REPORT FROM THE AUDITORS AND THE AUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 31 December 2004, 2005 and 2006
32.
Segment information The Group is principally engaged in the manufacture and distribution of food products. As such, the Group has not presented a breakdown of segment information by business segments. The Groups operations and customers are mainly located in Singapore. As such, the Group has not presented a breakdown of segment information by geographical segments.
33.
Events occurring after the balance sheet date On 25 July 2007, the Company declared and paid an interim exempt (one-tier) dividend on ordinary shares amounting to S$700,000 (S$1.00 per ordinary share). On 15 November 2007, the Company entered into a sale and purchase agreement with Nineteen O One Sdn. Bhd. pursuant to which the entire issued and paid up share capital of 1901 Singapore Pte. Ltd. would be transferred to Nineteen O One Sdn. Bhd. for a consideration of S$180,000 (the Disposal). Completion of the Disposal took place on 15 November 2007.
34.
Authorisation of combined financial statements for issue The combined financial statements for the financial years ended 31 December 2006, 2005 and 2004 were authorised for issue in accordance with a resolution of the Directors on 4 January 2008.
A-43
APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
B-1
APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Statement by Directors
We, Han Keen Juan and Lim Tao-E William, being the Directors of Old Chang Kee Ltd. (the Company), do hereby state that, in the opinion of the Directors, (a) the accompanying combined financial statements together with notes thereto are drawn up so as to present fairly the state of affairs of the Group as at 30 June 2007 and of the results of the business, changes in equity and cash flows of the Group for the financial period from 1 January 2007 to 30 June 2007; and at the date of this statement there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due.
(b)
B-2
APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Report from the Auditors in relation to the Review of the Unaudited Combined Financial Statements of Old Chang Kee Ltd. and its Subsidiary Companies for the financial period from 1 January 2007 to 30 June 2007
4 January 2008 The Board of Directors Old Chang Kee Ltd. 2 Woodlands Terrace Singapore 738427 Dear Sirs: We have reviewed the accompanying combined financial statements of Old Chang Kee Ltd. (the Company) and its subsidiary companies (collectively, the Group) set out on pages B-4 to B-39 which comprise the combined balance sheet of the Group as at 30 June 2007, the combined profit and loss account, combined statement of changes in equity and combined cash flow statement of the Group for the period from 1 January 2007 to 30 June 2007, and a summary of significant accounting policies and other explanatory notes. Management is responsible for the preparation and fair presentation of these combined financial statements in accordance with Singapore Financial Reporting Standard 34, Interim Financial Reporting (FRS 34). Our responsibility is to express a conclusion on these financial statements based on our review.
Scope of Review
We conducted our review in accordance with Singapore Standard on Review Engagements 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review of financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Singapore Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the accompanying combined financial statements do not present fairly, in all material respects, the financial position of the Group as at 30 June 2007 and of its results, changes in equity and cash flows for the six month period then ended in accordance with FRS 34. This report has been prepared for inclusion in the Prospectus in connection with the Invitation by the Company in respect of the issue of 25,000,000 new ordinary shares in the share capital of the Company. Yours faithfully,
ERNST & YOUNG Certified Public Accountants Singapore Max Loh Khum Whai Partner-in-Charge B-3
APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Combined Profit and Loss Accounts for the financial period from 1 January 2007 to 30 June 2007
Note
Unaudited 1 January 2006 to 30 June 2006 S$000 16,074 (6,493) 9,581 82 (5,106) (1,680) (454) (19) 2,404 (673) 1,731 2.53
Revenue Cost of sales Gross profit Other operating income Selling and distribution expenses Administrative expenses Other operating expenses Finance costs Profit before taxation Taxation Profit for the period Basic and fully diluted earnings per share (cents)
6 7 8
2.37
The accompanying accounting policies and explanatory notes form an integral part of the financial statements.
B-4
APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Combined Balance Sheet as at 30 June 2007
Note
Non-Current Assets Property, plant and equipment Intangible assets Investment in associated companies Amounts due from associated companies
10 11 12 13
Current Assets Inventories Trade and other receivables Deposits Prepayments Amounts due from associated companies Cash and cash equivalents
14 15
16 17
Current Liabilities Trade and other payables Other liabilities Bank overdrafts Amount due to a related party Finance lease liabilities Club membership payable current Provision for taxation
18 19 17 20 21
Net Current Assets Non-Current Liabilities Finance lease liabilities Club membership payable long term Deferred tax liabilities
363
21 22
Net Assets
9,140
Equity attributable to equity holders of the Company Share capital Share application money Reserves Total Equity
23 24 25
The accompanying accounting policies and explanatory notes form an integral part of the financial statements.
B-5
APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Combined Statements of Changes in Equity for the financial period from 1 January 2007 to 30 June 2007
Share capital S$000 Unaudited period ended 30 June 2006 At 1 January 2006 Profit for the period, representing total recognised income for the period At 30 June 2006 700
263
6,032
6,295
6,995
700
263
1,731 7,763
1,731 8,026
1,731 8,726
Unaudited period ended 30 June 2007 1 January 2007 Issue of ordinary shares for cash Revaluation difference Profit for the period, representing total recognised income for the period At 30 June 2007 700 100 100 (100) 263 (119) 6,576 6,839 (119) 7,639 (119)
800
144
1,620 8,196
1,620 8,340
1,620 9,140
The accompanying accounting policies and explanatory notes form an integral part of the financial statements.
B-6
APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Combined Cash Flow Statements for the financial period from 1 January 2007 to 30 June 2007
Unaudited 1 January 2007 to 30 June 2007 S$000 Cash flows from operating activities: Profit before taxation Adjustments for: Amortisation of intangible assets Bad debt written off loan to a related party Currency realignment Depreciation of property, plant and equipment Gain on disposal of property, plant and equipment Gain on disposal of quoted investment Interest expense Interest income Provision for reimbursement of start-up costs for an associated company in Chengdu 2,014
2,404
Operating profit before working capital changes Decrease/(increase) in trade and other receivables (Increase)/decrease in inventories (Decrease)/increase in trade and other payables (Increase)/decrease in amount due from associated companies Decrease in amount due to a related party
Cash generated from operations Tax paid Net cash generated from operating activities
The accompanying accounting policies and explanatory notes form an integral part of the financial statements.
B-7
APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Combined Cash Flow Statements for the financial period from 1 January 2007 to 30 June 2007 (contd)
Unaudited 1 January 2007 to 30 June 2007 S$000 Cash flows from investing activities: Purchase of property, plant and equipment Purchase of intangible asset Proceeds from disposal of property, plant and equipment Interest received Payment for club membership Proceeds from disposal of quoted investment Investment in associated companies Advance to associated companies Net cash used in investing activities (4,300) (3) 204 36 (7) (29) (4,099)
Cash flows from financing activities: Repayment of finance lease liabilities Interest paid Net cash used in financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial period Cash and cash equivalents at the end of the financial period (Note 17) (298) (22) (320) (2,440) 6,392 (165) (20) (185) 1,292 4,600
3,952
5,892
The accompanying accounting policies and explanatory notes form an integral part of the financial statements.
B-8
APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 30 June 2007
1.
Corporate Information The Company was incorporated in Singapore on 16 December 2004 under the Singapore Companies Act as a private company limited by shares under the name of Old Chang Kee Singapore Pte. Ltd. and changed its name to Old Chang Kee Pte. Ltd. on 13 September 2007. On 22 November 2007, the Company changed its name to Old Chang Kee Ltd. in connection with its conversion into a public company limited by shares. The Company was incorporated for the purpose of acquiring the existing companies of the Group pursuant to the Group Restructuring Exercise. The registered office and principal place of business of the Company is located at 2 Woodlands Terrace, Singapore 738427. The principal activity of the Company is that relating to investment holding. The principal activities of the subsidiary companies are set out in Note 2.
2.
Restructuring Exercise Pursuant to an agreement dated 9 November 2007, the Company acquired the entire issued and paid-up capital of Ten & Han Trading Pte Ltd, comprising 5,600,000 ordinary shares with effect from 12 November 2007. The purchase consideration was satisfied by the issue of 5,600,000 ordinary shares credited as fully paid in the capital of the Company to Mr Han Keen Juan and Mr Lim Tao-E William. Pursuant to the agreement, Ten & Han Trading Pte Ltd became a wholly-owned subsidiary company of the Company. At the date of this report, the Group structure is as shown below:
Country and date of incorporation/ acquisition Proportion of ownership interest % Subsidiary Companies Ten & Han Trading Pte Ltd (Ten & Han) Singapore 7 January 1988 Manufacture and distribution of food products and general trading Dormant 100
Name
Principal activities
Old Chang Kee Australia Pty Ltd (OCKA) Ten & Han Food Management (Chengdu) Co., Ltd.
100
100
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APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 30 June 2007
2.
Name
Principal activities
40
3. 3.1
Basis of preparation
The combined financial statements of the Group have been prepared in accordance with Singapore Financial Reporting Standards (FRS). The combined financial statements have been prepared on a historical cost basis except for leasehold building that has been measured at its fair value. The combined financial statements are presented in Singapore Dollars (SGD or S$). The accounting policies have been consistently applied by the Group and the Company throughout the financial year.
3.2
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APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 30 June 2007
3. 3.3
The Directors expect that the adoption of the above pronouncements will have no material impact to the financial statements in the period of initial application. 3.4
APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 30 June 2007
3. 3.5
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APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 30 June 2007
3. 3.6
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APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 30 June 2007
3. 3.7
Associated company
An associated company is an entity, not being a subsidiary or a joint venture, in which the Group has significant influence. This generally coincides with the Group having 20% or more of the voting power, or has representation on the board of directors. The Groups investment in associated companies is accounted for using the equity method. Under the equity method, investment in associated companies is carried in the balance sheet at cost plus post-acquisition changes in the Groups share of net assets of the associated companies. The Groups share of the profit or loss of the associated companies is recognised in the consolidated profit and loss account. Where there has been a change recognised directly in the equity of the associated companies, the Group recognises its share of such changes. After application of the equity method, the Group determines whether it is necessary to recognise any additional impairment loss with respect to the Groups net investment in the associated companies. The associated companies are equity accounted for from the date the Group obtains significant influence until the date the Group ceases to have significant influence over the associate. When the Groups share of losses in associated companies equals or exceeds its interest in the associated companies, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associated companies. The most recent available audited financial statements of the associated companies are used by the Group in applying the equity method. In the Companys separate financial statements, investment in associated companies is accounted for at cost less impairment losses.
3.8
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APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 30 June 2007
3. 3.8
The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. The residual values, useful life and depreciation method are reviewed at each financial yearend to ensure that the amount, method and period of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the items of property, plant and equipment. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset is included in the profit and loss account in the year the asset is derecognised. 3.9
Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised on a straight-line basis over the estimated economic useful lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. The amortisation expense on intangible assets with finite lives is recognised in the profit and loss account through the other operating expenses line item.
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APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 30 June 2007
3. 3.9
Intangible assets (contd) Computer software licences, club membership and franchise rights
Computer software licences, club membership and franchise rights are stated at cost less accumulated amortisation and any impairment in value. They are amortised on a straight-line basis over the following estimated useful lives: Computer software licences Club membership Franchise rights 5 years 20 years 5 years
3.10 Impairment of non-financial assets The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset (i.e. an intangible asset with an indefinite useful life, an intangible asset not yet available for use, or goodwill acquired in a business combination) is required, the Group makes an estimate of the assets recoverable amount. An assets recoverable amount is the higher of an assets or cash-generating units fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. 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. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Impairment losses of continuing operations are recognised in the profit and loss account as impairment losses or treated as a revaluation decrease for assets carried at revalued amount to the extent that the impairment loss does not exceed the amount held in the asset revaluation reserve for that same asset. An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses recognised for an asset other than goodwill may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the assets recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Reversal of an impairment loss is recognised in the profit and loss account unless the asset is carried at revalued amount, in which case the reversal in excess of impairment loss previously recognised through the profit and loss account is treated as a revaluation increase. After such a reversal, the depreciation charge is adjusted in future periods to allocate the assets revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.
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APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 30 June 2007
3.
3.11 Financial assets Financial assets within the scope of FRS 39 are classified as either financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, or availablefor-sale financial assets, as appropriate. Financial assets are recognised on the balance sheet when, and only when, the Group becomes a party to the contractual provisions of the financial instrument. When financial assets are recognised initially, they are measured at fair value, plus, in the case of financial assets not at fair value through profit or loss, directly attributable transaction costs. The Group determines the classification of its financial assets after initial recognition and, where allowed and appropriate, re-evaluates this designation at each financial year-end. (a) Financial assets at fair value through profit or loss Financial assets classified as held for trading are included in the category financial assets at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Gains or losses on investments held for trading are recognised in the profit and loss account. The Group does not designate any financial assets not held for trading as financial assets at fair value through profit and loss. (b) Loans and receivables Non-derivative financial assets with fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in the profit and loss account when the loans and receivables are derecognised or impaired, as well as through the amortisation process. The Group classified the following financial assets as loans and receivables: Cash and cash equivalents Trade and other receivables including amounts due from associated companies. 3.12 Cash and cash equivalents Cash and cash equivalents comprise cash on hand and at bank, demand deposits, and shortterm, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the purposes of the cash flow statement, cash and cash equivalents are shown net of outstanding bank overdrafts which are repayable on demand and which form an integral part of the Groups cash management. Cash and short term deposits carried in the balance sheets are classified and accounted for as loans and receivables under FRS 39. The accounting policy for this category of financial assets is stated in Note 3.11.
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APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 30 June 2007
3.
3.13 Impairment of financial assets The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or group of financial assets is impaired.
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APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 30 June 2007
3.
3.16 Derecognition of financial assets and liabilities (a) Financial assets A financial asset is derecognised where the contractual rights to receive cash flows from the asset have expired. On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sum of (a) the consideration received and (b) any cumulative gain or loss that has been recognised directly in equity is recognised in the profit and loss account. (b) Financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expired. 3.17 Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) where, as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. 3.18 Employee benefits (a) Defined contribution plans The Group participates in the national pension schemes as defined by the laws of the countries in which it has operations. In particular, the Singapore companies in the Group make contributions to the Central Provident Fund (CPF) scheme in Singapore, a defined contribution pension scheme. Contributions to national pension schemes are recognised as an expense in the period in which the related service is performed. (b) Employee leave entitlement Employee entitlements to annual leave are recognised as a liability when they accrue to employees. The estimated liability for leave is recognised for services rendered by employees up to balance sheet date. 3.19 Leases Finance leases, which transfer to the Group substantially all the risks and rewards incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Any initial direct costs are also added to the amount capitalised. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to the profit and loss account. Contingent rents, if any, are charged as expenses in the periods in which they are incurred.
B-19
APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 30 June 2007
3.
3.19 Leases (contd) Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term. Operating lease payments are recognised as an expense in the profit and loss account on a straight-line basis over the lease term. The aggregate benefit of incentives provided by the lessor is recognised as a reduction of rental expense over the lease term on a straight-line basis. 3.20 Revenue Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: (a) Outlet sales Revenue from the sale of goods is recognised net of goods and services tax and discounts upon the passing of title to the customer which generally coincides with delivery and acceptance of the goods sold. (b) Interest income Interest income is recognised as interest accrues (using the effective interest method) unless collectibility is in doubt. 3.21 Government grants Government grants are recognised at their fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised in the profit and loss account over the period necessary to match them on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset, the fair value is recognised as deferred capital grant on the balance sheet and is amortised to the profit and loss account over the expected useful life of the relevant asset by equal annual instalments. 3.22 Income taxes (a) Current tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date.
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APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 30 June 2007
3.
3.22 Income taxes (contd) (b) Deferred tax Deferred income tax is provided using the liability method on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary differences, except: Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither accounting profit nor taxable profit or loss; and In respect of taxable temporary differences associated with investments in subsidiary companies and associated companies, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax credits and unused tax losses can be utilised. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Income tax relating to items recognised directly in equity is recognised in equity. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
B-21
APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 30 June 2007
3.
3.22 Income taxes (contd) (c) Sales tax Revenues, expenses and assets are recognised net of the amount of sales tax except: Where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and Receivables and payables that are stated with the amount of sales tax included. The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet. 4. Revenue
Unaudited 1 January 2007 to 30 June 2007 S$000 Outlet sales Export sales 18,938 101 19,039 Unaudited 1 January 2006 to 30 June 2006 S$000 16,028 46 16,074
5.
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APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 30 June 2007
6.
Finance costs
Unaudited 1 January 2007 to 30 June 2007 S$000 Interest expense: Finance lease Bank overdrafts Unaudited 1 January 2006 to 30 June 2006 S$000
18 4 22
17 2 19
7.
Profit before taxation Profit before taxation is arrived at after charging/(crediting) the following:
Unaudited 1 January 2007 to 30 June 2007 S$000 Amortisation of intangible assets Bad debts written off loan to a related party Depreciation of property, plant and equipment Directors remuneration Employee benefits expense (excluding Directors) salaries & bonuses central Provident Fund Gain on disposal of property, plant and equipment Operating lease expenses Provision for reimbursement of start-up costs for an associated company in Chengdu Staff training and benefits 38 758 391 3,736 326 (148) 2,469 58 Unaudited 1 January 2006 to 30 June 2006 S$000 36 79 596 404 3,091 269 (11) 1,894 76
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APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 30 June 2007
8.
Taxation (a) Major components of income tax expense The major components of income tax expense for the periods ended 30 June are:
Unaudited 1 January 2007 to 30 June 2007 S$000 Current income tax: Current income taxation Under provision in respect of prior years Deferred income tax: Movement in temporary differences Over provision in respect of prior years Change in tax rate Income tax expense recognised in the profit and loss account Unaudited 1 January 2006 to 30 June 2006 S$000
313
430 4
239
394
673
(b)
Relationship between tax expense and accounting profit A reconciliation between tax expense and the product of accounting profit multiplied by the applicable corporate tax rate for the periods ended 30 June is as follows:
Unaudited 1 January 2007 to 30 June 2007 S$000 Profit before taxation Tax expense at 18% (2006: 20%) Adjustments: Tax effect of expenses not deductible for tax purposes Effect of recognised partial tax exemption (Over)/under provision in respect of prior years Deferred tax adjustments due to change in tax rate Others Income tax expense recognised in the profit and loss account 2,014 362 136 (13) (41) (57) 7 Unaudited 1 January 2006 to 30 June 2006 S$000 2,404 481 202 (10) 4 (4)
394
673
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APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 30 June 2007
9.
Earnings per share Basic earnings per share is calculated by dividing profit for the year that is attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the year. The following tables reflect the profit and loss account and share data used in the computation of basic earnings per share for the periods ended 30 June:
Unaudited 1 January 2007 to 30 June 2007 S$000 Profit for the period attributable to ordinary equity holders of the Company Unaudited 1 January 2006 to 30 June 2006 S$000
1,620 000
(1)
68,400
For comparative purposes, earnings per share for the periods reported on have been computed based on the profit after tax attributable to equity holders of the Proforma Group divided by the pre-invitation share capital of 68,400,000 shares.
10.
2,339 2,339
129 47 176
394 47 441
87 222 309
2,163
1,089
529
348
636
211
905
5,881
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APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 30 June 2007
10.
176 14 (194) 8 4
654 85 4 743
441 75 516
2,246
1,700
600
1,638
1,287
1,152
818
9,441
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APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 30 June 2007
11.
Intangible assets
Computer software licences (i) S$000 Audited 31 December 2006 Cost At 1 January 2006 Additions At 31 December 2006 Accumulated amortisation At 1 January 2006 Charge for the year At 31 December 2006 Net carrying amount At 31 December 2006 Unaudited 30 June 2007 Cost At 1 January 2007 Additions At 30 June 2007 Accumulated amortisation At 1 January 2007 Charge for the period At 30 June 2007 Net carrying amount At 30 June 2007 Average remaining amortisation years - 31 December 2006 - 30 June 2007 Club membership (ii) S$000 Franchise rights (iii) S$000
Total S$000
290 16 306
105 105
41 41
395 57 452
29 60 89
11 6 17
7 7
40 73 113
217
88
34
339
306 3 309
105 105
41 41
452 3 455
89 31 120
17 3 20
7 4 11
113 38 151
189
85
30
304
4 3
16 15
4 4
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APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 30 June 2007
11.
(i)
(ii)
Club membership
This relates to transferable membership in a golf club in Singapore which is stated at cost less accumulated amortisation and any impairment in value. The market value of the transferable membership as at 30 June 2007 is S$230,000 (31 December 2006: S$180,000).
(iii)
Franchise rights
Franchise rights are stated at cost less accumulated amortisation and any impairment in value. Amortisation is calculated on a straight-line basis to write off the cost of franchise rights over a period of 5 years. Impairment testing will be performed annually and more frequently when an indication of impairment exists. Amortisation period and method will be reviewed annually.
12.
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APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 30 June 2007
12.
Investment in associated companies (contd) Details of the associated companies are as follows:
Name of associated companies Country of incorporation Proportion (%) of ownership interest 30.6.2007 Old Chang Kee (Thailand) Co Ltd (1) Old Chang Kee (M) Sdn Bhd (2) Thailand Dormant 40 31.12.2006 40
Principal activities
Malaysia
Operating retail food outlets and general trading Dormant Operating retail food outlets and general trading
40
40
Pure Options Pte Ltd Old Chang Kee (Chengdu) Co., Ltd.(4)
(1) (2) (3) (4)
(3)
33 35
33 35
Audited by U.B. Audit Office Audited by Poo, Lee & Co. Audited by S.L. Chua & Co. Not audited as the Company is in the process of being liquidated.
Impairment loss
The management carried out a review of the recoverable amount of its investment in associated companies during 2006 as there are plans to liquidate Old Chang Kee (Chengdu) Co., Ltd. Impairment losses amounting to $Nil (31 December 2006: $66,066) have been recognised in other operating expenses. The summarised financial information of the associated companies are as follows:
Unaudited 30 June 2007 S$000 Assets and liabilities: Current assets Non-current assets Other assets Total assets Current liabilities Long-term liabilities Total liabilities Audited 31 December 2006 S$000
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APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 30 June 2007
12.
104 (28)
13.
Amounts due from associated companies Amounts due from associated companies are non-trade in nature, unsecured, interest-free and not expected to be repaid within 12 months from the balance sheet date.
14.
Inventories
Unaudited 30 June 2007 S$000 Raw materials Sundry consumables Total inventories at lower of cost and net realisable value 519 7 526 Audited 31 December 2006 S$000 346 100 446
15.
16.
Amounts due from associated companies These amounts are non-trade in nature, unsecured, interest-free and repayable on demand.
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APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 30 June 2007
17.
Cash at banks earns interest at floating rates based on daily bank deposit rates ranging from 0.25% to 0.475% (31 December 2006: 0.25% to 0.475%) per annum. Short-term deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates. The weighted average effective interest rate of short term deposits is 2.2% (31 December 2006: 3.1%) per annum. A short-term deposit of S$1 million (31 December 2006: S$1 million) of the Group has been pledged as security for bank facilities granted by a financial institution. For the purpose of the combined cash flow statements, cash and cash equivalents comprise the following:
Unaudited 30 June 2007 S$000 Cash and short-term deposits Bank overdrafts 4,092 (140) 3,952 Audited 31 December 2006 S$000 6,565 (173) 6,392
Bank overdrafts are included in the determination of cash and cash equivalents because they form an integral part of the Groups cash management. Bank overdrafts utilised by the subsidiary company are secured by a guarantee from another subsidiary company. They are repayable on demand and have a weighted average effective interest rate of 6.1% (31 December 2006: 6.2%) per annum. Interest rates of bank overdrafts are repriced at an interval of 1 month.
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APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 30 June 2007
18.
Amount due to Directors is unsecured, interest-free and repayable on demand. Trade payables are denominated in the following currencies:
Unaudited 30 June 2007 S$000 Singapore Dollars (SGD) Thai Baht (THB) Malaysia Ringgit (RM) 1,601 443 8 2,052 Audited 31 December 2006 S$000 1,595 639 7 2,241
19.
Other liabilities
Unaudited 30 June 2007 S$000 Foreign staff deposits Provision for unconsumed leave 37 166 203 Audited 31 December 2006 S$000 34 146 180
20.
Amount due to a related party This amount is non-trade in nature, unsecured, interest-free and repayable on demand.
B-32
APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 30 June 2007
21.
Finance lease liabilities The Group has finance leases for certain motor vehicles and computers. The lease terms range from 3 to 7 years with options to purchase at the end of the lease term. The lease terms do not contain restrictions concerning dividends, additional debt or further leasing. The average discount rate implicit in the leases range from 4.15% to 6.68% (31 December 2006 : 4.15% to 8.73%) per annum. Future minimum lease payments under finance leases together with the present value of the minimum lease payments are as follows:
Unaudited 30 June 2007 Present Minimum value of payments payments S$000 S$000 Within one year After one year but not more than five years After five years Total minimum lease payments Less : Amounts representing finance charges Present value of minimum lease payments 357 418 63 838 (114) 724 323 349 52 724 724 Audited 31 December 2006 Present Minimum value of payments payments S$000 S$000 380 540 13 933 (104) 829 344 474 11 829 829
22.
590 67 657
509 67 576
B-33
APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 30 June 2007
23.
Share capital
Unaudited 30 June 2007 No. of shares 000 S$000 Ordinary shares issued and fully paid At 1 January and 30 June/31 December Audited 31 December 2006 No. of shares 000 S$000
800
800
700
700
The holders of ordinary shares are entitled to receive dividends as and when declared by the Group. All ordinary shares carry one vote per share without restriction. 24. Share application money The share application money relates to funds received from the shareholders as additional capital injection to the Group. As at 30 June 2007, new shares have been allotted to the shareholders. 25. Reserves
Unaudited 30 June 2007 S$000 Accumulated profits Asset revaluation reserve 8,196 144 8,340 Audited 31 December 2006 S$000 6,576 263 6,839
B-34
APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 30 June 2007
26.
Commitments and contingencies (a) Capital commitments Capital expenditure contracted for as at the balance sheet date but not recognised in the financial statements is as follows:
Unaudited 30 June 2007 S$000 Capital commitments in respect of property, plant and equipment Audited 31 December 2006 S$000
82
2,306
(b)
Operating lease commitments The Group has non-cancellable operating lease agreements in respect of office, production and storage premises and retail outlets. These non-cancellable leases have remaining non-cancellable terms of between 2 to 60 years. Some of the leases include a clause to enable upward revision of the rental charges on an annual basis based on prevailing conditions. Some of the rental outlets include clauses whereby rental is charged using a base rental plus a percentage of the outlets sales turnover. Future minimum rental under non-cancellable leases as at the end of the financial periods are as follows:
Unaudited 30 June 2007 S$000 Not later than one year Later than one year but not later than five years Later than five years 4,338 5,043 2,010 11,391 Audited 31 December 2006 S$000 3,827 4,668 2,035 10,530
(c)
Financial guarantees, unsecured As at 30 June 2007, a subsidiary of the Group, Ten & Han Trading Pte Ltd, has given financial guarantees of S$970,000 (31 December 2006: S$970,000) to banks for facilities granted to another subsidiary of the Group, 1901 Singapore Pte. Ltd..
(d)
Letters of guarantees, secured As at 30 June 2007, the bank issued letters of guarantees on behalf of its wholly owned subsidiary, Ten & Han Trading Pte Ltd to lessors of premises amounting to approximately S$170,000 (31 December 2006: S$110,000). These letters of guarantees are secured by fixed deposits.
B-35
APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 30 June 2007
27.
412
426
28.
Financial risk management objectives and policies The Groups principal financial instruments comprise bank overdrafts, finance leases and cash and short term deposits. The main purpose of these financial instruments is to raise finance for the Groups operations. The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations. The main risks arising from the Groups financial instruments are interest rate risk, credit risk and liquidity risk. The Board reviews and agrees policies for managing these risks and they are summarised below. (a) Interest rate risk The Groups exposure to market risk for changes in interest rates relates primarily to the Groups bank overdraft and finance lease liabilities. (b) Credit risk The Group trades mainly in cash. Receivable balances are monitored on an ongoing basis with the result that the Groups exposure to bad debts is not significant. With respect to credit risk arising from other financial assets of the Group, which comprise cash and cash equivalents and other receivables, the Groups exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. There are no significant concentrations of credit risk within the Group. (c) Liquidity risk The Groups objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts and finance leases.
B-36
APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 30 June 2007
29.
Financial instruments (a) Fair values The fair value of a financial instrument is the amount at which the instrument could be exchanged or settled between knowledgeable and willing parties in an arms length transaction, other than in a forced or liquidation sale.
The Group
724 28
664 28
829 35
790 35
Amount due from associated companies has no repayment terms and is repayable only when the cash flows of the borrowers permits. Accordingly, the fair value of the amount due from associated companies is not reliably determinable.
B-37
APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 30 June 2007
29.
Financial instruments (contd) (b) Interest rate risk The following tables sets out the carrying amount, by maturity, of the Groups financial instruments that are exposed to interest rate risk:
Within 1 year S$000 Unaudited 30 June 2007 Fixed rate Short-term deposits Obligation under finance leases Floating rate Cash at bank Bank overdrafts 1-2 years S$000 2-3 years S$000 3-4 years S$000 4-5 More than years 5 years Total S$000 S$000 S$000
1,547 (323)
(121)
(93)
(82)
(53)
(52)
1,547 (724)
2,342 (140)
2,342 (140)
Audited 31 December 2006 Fixed rate Short-term deposits 4,578 Obligations under finance leases (344) Floating rate Cash at bank Bank overdrafts
(230)
(117)
(85)
(42)
(11)
4,578 (829)
1,700 (173)
1,700 (173)
Interest on financial instruments subject to floating interest rates is contractually repriced at intervals of less than 6 months. Interest on financial instruments at fixed rates are fixed until the maturity of the instrument. The other financial instruments of the Group that are not included in the above tables are not subject to interest rate risks. 30. Segment information The Group is principally engaged in the manufacture and distribution of food products. As such, the Group has not presented a breakdown of segment information by business segments. The Groups operations and customers are mainly located in Singapore. As such, the Group has not presented a breakdown of segment information by geographical segments. 31. Events occurring after the balance sheet date On 25 July 2007, the Company declared and paid an interim exempt (one-tier) dividend on ordinary shares amounting to S$700,000 (S$1.00 per ordinary share). On 15 November 2007, the Company entered into a sale and purchase agreement with Nineteen O One Sdn. Bhd. pursuant to which the entire issued and paid up share capital of 1901 Singapore Pte. Ltd. would be transferred to Nineteen O One Sdn. Bhd. for a consideration of S$180,000 (the Disposal). Completion of the Disposal took place on 15 November 2007.
B-38
APPENDIX B REPORT FROM THE AUDITORS AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Combined Financial Statements 30 June 2007
32.
Authorisation of combined financial statements for issue The combined financial statements for the financial period from 1 January 2007 to 30 June 2007 was authorised for issue in accordance with a resolution of the Directors on 4 January 2008.
B-39
(a)
a Directors power to vote on a proposal, arrangement or contract in which the Director is interested
Article 100
A Director shall not vote in respect of any contract or arrangement or any other proposal whatsoever in which he has any personal material interest, directly or indirectly. A Director shall not be counted in the quorum at a meeting in relation to any resolution on which he is debarred from voting.
(b)
the Directors power to vote on remuneration (including pension or other benefits) for himself or for any other director, and whether the quorum at meeting of the board of Directors to vote on Directors remuneration may include the director whose remuneration is the subject of the vote
Article 77
The ordinary remuneration of the Directors, which shall from time to time be determined by an Ordinary Resolution of the Company, shall not be increased except pursuant to an Ordinary Resolution passed at a General Meeting where notice of the proposed increase shall have been given in the notice convening the General Meeting and shall (unless such resolution otherwise provides) be divisible among the Directors as they may agree, or failing agreement, equally, except that any Director who shall hold office for part only of the period in respect of which such remuneration is payable shall be entitled only to rank in such division for a proportion of remuneration related to the period during which he has held office. The ordinary remuneration of an executive Director may not include a commission on or a percentage of turnover and the ordinary remuneration of a non-executive Director shall be a fixed sum, and not by a commission on or a percentage of profits or turnover.
Article 78
Any Director who holds any executive office, or who serves on any committee of the Directors, or who otherwise performs services which in the opinion of the Directors are outside the scope of the ordinary duties of a Director, may be paid such extra remuneration by way of salary, commission or otherwise as the Directors may determine, other than by a commission on or percentage of commission or turnover, Provided that such extra remuneration (in case of an executive Director) shall not be by way of commission on or a percentage of turnover.
Article 79
The Directors may repay to any Director all such reasonable expenses as he may incur in attending and returning from meetings of the Directors or of any committee of the Directors or General Meetings or otherwise in or about the business of the Company.
C-1
Article 81
A Director may be party to or be in any way interested in any contract or arrangement or transaction to which the Company is a party or in which the Company is in any way interested and he may hold and be remunerated in respect of any office or place of profit (other than the office of Auditor of the Company or any subsidiary thereof) under the Company or any other company in which the Company is in any way interested and he (or any firm of which he is a member) may act in a professional capacity for the Company or any such other company and be remunerated therefor and in any such case as aforesaid (save as otherwise agreed) he may retain for his own absolute use and benefit all profits and advantages accruing to him thereunder or in consequence thereof.
Article 86
The remuneration of a Managing Director shall from time to time be fixed by the Directors and may subject to these Articles be by way of salary or commission or participation in profits or by any or all these modes but he shall not under any circumstances be remunerated by a commission on or a percentage of turnover.
(c)
borrowing powers exercisable by the Directors and how such borrowing powers can be varied
Article 108
Subject as hereinafter provided and to the provisions of the Statutes, the Directors may exercise all the powers of the Company to borrow money, to mortgage or charge its undertaking, property and uncalled capital and to issue debentures and other securities, whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party.
(d)
Article 89
At each Annual General Meeting, one-third of the Directors for the time being (or, if their number is not a multiple of three, the number nearest to but not less than one-third) shall retire from office by rotation, Provided that no Director holding office as Managing Director shall be subject to retirement by rotation or be taken into account in determining the number of Directors to retire. For the avoidance of doubt, each Director (other than a Director holding office as Managing Director) shall retire at least once every three years.
Article 90
The Directors to retire by rotation shall include (so far as necessary to obtain the number required) any Director who is due to retire at a General Meeting by reason of age or who wishes to retire and not to offer himself for re-election. Any further Directors so to retire shall be those of the other Directors subject to retirement by rotation who have been longest in office since their last re-election or appointment and so that as between persons who became or were last re-elected Directors on the same day, those to retire shall (unless they otherwise agree among themselves) be determined by ballot. A retiring Director shall be eligible for re-election.
C-2
(b)
(c)
(d)
The retirement shall not have effect until the conclusion of the meeting except where a resolution is passed to elect some other person in the place of the retiring Director or a resolution for his re-election is put to the meeting and lost and accordingly a retiring Director who is re-elected or deemed to have been re-elected will continue in office without a break.
Article 94
The office of a Director shall be vacated in any of the following events, namely:(a) if he shall become prohibited or disqualified by the Statutes or any other law from acting as a Director; or if (not being a Director holding any executive office for a fixed term) he shall resign by writing under his hand left at the Office or if he shall in writing offer to resign and the Directors shall resolve to accept such offer; or if he shall become bankrupt or have a receiving order made against him or shall make arrangement or composition with his creditors generally; or if he becomes of unsound mind, or if in Singapore or elsewhere an order shall be made by any court claiming jurisdiction in that behalf on the ground (however formulated) of mental disorder for his detention or for the appointment of a guardian or for the appointment of a receiver or other person (by whatever name called) to exercise powers with respect to his property or affairs; or is absent, for more than six months and without leave of the Directors, from meetings of the Directors held during that period; or if he is removed by the Company in General Meeting pursuant to these Articles.
(b)
(c)
(d)
(e)
(f)
(e)
Article 76
A Director shall not be required to hold any shares of the Company by way of qualification. A Director who is not a Member of the Company shall nevertheless be entitled to receive notice of and to attend and speak at General Meetings.
C-3
Article 3
(A) Subject to the Act and to these Articles, no shares may be issued by the Directors without the prior approval of the Company in General Meeting pursuant to Section 161 of the Act, but subject thereto and the terms of such approval, and to Article 5, and to any special rights attached to any shares for the time being issued, the Directors may allot and issue shares or grant options over or otherwise dispose of the same to such persons on such terms and conditions and for such consideration and at such time and whether or not subject to the payment of any part of the amount thereof in cash or otherwise as the Directors may think fit, and any shares may, subject to compliance with Sections 70 and 75 of the Act, be issued with such preferential, deferred, qualified or special rights, privileges, conditions or restrictions, whether as regards Dividend, return of capital, participation in surplus assets and profits, voting, conversion or otherwise, as the Directors may think fit, and preference shares may be issued which are or at the option of the Company are liable to be redeemed, the terms and manner of redemption being determined by the Directors in accordance with the Act, Provided Always that no options shall be granted over unissued shares except in accordance with the Act and the Designated Stock Exchanges listing rules. The Directors may, at any time after the allotment of any share but before any person has been entered in the Register of Members as the holder, recognize a renunciation thereof by the allottee in favour of some other person and may accord to any allottee of a share a right to effect such renunciation upon and subject to such terms and conditions as the Directors may think fit to impose. Except so far as otherwise provided by the conditions of issue or by these Articles, all new shares shall be issued subject to the provisions of the Statutes and of these Articles with reference to allotment, payment of calls, lien, transfer, transmission, forfeiture or otherwise.
(B)
(C)
Article 8
(A) Preference shares may be issued subject to such limitation thereof as may be prescribed by the Designated Stock Exchange. Preference Shareholders shall have the same rights as ordinary Shareholders as regards receiving of notices, reports and balance-sheets and attending General Meetings of the Company, and preference Shareholders shall also have the right to vote at any General Meeting convened for the purpose of reducing capital or winding-up or sanctioning a sale of the undertaking of the Company or where the proposal to be submitted to the General Meeting directly affects their rights and privileges or when the Dividend on the preference shares is more than six months in arrear. The Company has power to issue further preference capital ranking equally with, or in priority to, preference shares already issued.
(B)
Article 9
(A) Whenever the share capital of the Company is divided into different classes of shares, the variation or abrogation of the special rights attached to any class may, subject to the provisions of the Act, be made either with the consent in writing of the holders of three-quarters of the total number of issued shares of the class or with the sanction of a Special Resolution passed at a separate General Meeting of the holders of the shares of the class (but not otherwise) and may be so made either whilst the Company is a going concern or during or in contemplation of a windingup. To every such separate General Meeting all the provisions of these Articles relating to General Meetings of the Company and to the proceedings thereat shall mutatis mutandis apply, except that the necessary quorum shall be two or more persons holding at least one-third of the total number of the issued shares of the class present in person or by proxy or attorney and that any holder of shares of the class present in person or by proxy or attorney may demand a poll and that every such holder shall on a poll have one vote for every share of the class held by him where the class is a class of equity shares within the meaning of Section 64(1) of the Companies Act or at least
C-4
(C)
Article 14
Every person whose name is entered as a Member in the Register of Members shall be entitled, within ten market days (or such period as the Directors may determine having regard to any limitation thereof as may be prescribed by the Designated Stock Exchange from time to time) after the closing date of any application for shares or (as the case may be) the date of lodgement of a registrable transfer, to one certificate for all his shares of any one class or to several certificates in reasonable denominations each for a part of the shares so allotted or transferred.
Article 34
(A) There shall be no restriction on the transfer of fully paid up shares (except where required by law or by the rules, bye-laws or listing rules of the Designated Stock Exchange) but the Directors may in their discretion decline to register any transfer of shares upon which the Company has a lien, and in the case of shares not fully paid up, may refuse to register a transfer to a transferee of whom they do not approve, Provided Always that in the event of the Directors refusing to register a transfer of shares, the Company shall within ten market days (or such period as the Directors may determine having regard to any limitation thereof as may be prescribed by the Designated Stock Exchange from time to time) after the date on which the application for a transfer of shares was made, serve a notice in writing to the applicant stating the facts which are considered to justify the refusal as required by the Statutes. The Directors may decline to register any instrument of transfer unless:(a) such fee not exceeding S$2.00 (or such other fee as the Directors may determine having regard to any limitation thereof as may be prescribed by the Designated Stock Exchange from time to time) as the Directors may from time to time require is paid to the Company in respect thereof; the amount of proper duty (if any) with which each instrument of transfer is chargeable under any law for the time being in force relating to stamps is paid; the instrument of transfer is deposited at the Office or at such other place (if any) as the Directors may appoint accompanied by a certificate of payment of stamp duty (if stamp duty is payable on such instrument of transfer in accordance with any law for the time being in force relating to stamp duty), the certificates of the shares to which it relates, and such other evidence as the Directors may reasonably require to show the right of the transferor to make the transfer and, if the instrument of transfer is executed by some other person on his behalf, the authority of the person so to do; and the instrument of transfer is in respect of only one class of shares.
(B)
(b)
(c)
(d)
C-5
(b)
(c)
(d)
Article 42
Except as required by the Statutes or law, no person shall be recognised by the Company as holding any share upon any trust, and the Company shall not be bound by or compelled in any way to recognize (even when having notice thereof) any equitable, contingent, future or partial interest in any share, or any interest in any fractional part of a share, or (except only as by these Articles or by the Statutes or law otherwise provided) any other right in respect of any share, except an absolute right to the entirety thereof in the registered holder and nothing in these presents contained relating to CDP or to Depositors or in any depository agreement made by the Company with any common depository for shares shall in any circumstances be deemed to limit, restrict or qualify the above.
Article 63
In the case of joint holders of a share, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders and for this purpose seniority shall be determined by the order in which the names stand in the Register of Members or, as the case may be, the order in which the names appear in the Depository Register in respect of the joint holding.
C-6
Article 65
No member shall be entitled in respect of shares held by him to vote at a General Meeting either personally or by proxy or to exercise any other right conferred by membership in relation to General Meetings if any call or other sum payable by him to the Company in respect of such shares remains unpaid.
(g)
Article 3
(A) Subject to the Act and to these Articles, no shares may be issued by the Directors without the prior approval of the Company in General Meeting pursuant to Section 161 of the Act, but subject thereto and the terms of such approval, and to Article 5, and to any special rights attached to any shares for the time being issued, the Directors may allot and issue shares or grant options over or otherwise dispose of the same to such persons on such terms and conditions and for such consideration and at such time and whether or not subject to the payment of any part of the amount thereof in cash or otherwise as the Directors may think fit, and any shares may, subject to compliance with Sections 70 and 75 of the Act, be issued with such preferential, deferred, qualified or special rights, privileges, conditions or restrictions, whether as regards Dividend, return of capital, participation in surplus assets and profits, voting, conversion or otherwise, as the Directors may think fit, and preference shares may be issued which are or at the option of the Company are liable to be redeemed, the terms and manner of redemption being determined by the Directors in accordance with the Act, Provided Always that no options shall be granted over unissued shares except in accordance with the Act and the Designated Stock Exchanges listing rules. The Directors may, at any time after the allotment of any share but before any person has been entered in the Register of Members as the holder, recognize a renunciation thereof by the allottee in favour of some other person and may accord to any allottee of a share a right to effect such renunciation upon and subject to such terms and conditions as the Directors may think fit to impose. Except so far as otherwise provided by the conditions of issue or by these Articles, all new shares shall be issued subject to the provisions of the Statutes and of these Articles with reference to allotment, payment of calls, lien, transfer, transmission, forfeiture or otherwise.
(B)
(C)
Article 10
The Company may by Ordinary Resolution:(a) (b) consolidate and divide all or any of its share capital; sub-divide its shares, or any of them, provided always that in such subdivision the proportion between the amount paid and the amount (if any) unpaid on each reduced share shall be same as it was in the case of the share from which the reduced share is derived; convert or exchange any class of shares into or for any other class of shares; and/or
(c)
C-7
Article 11
(A) The Company may reduce its share capital or any other undistributable reserve in any manner permitted, and with, and subject to, any incident authorized, and consent or confirmation required, by law. The Company may purchase or otherwise acquire its issued shares subject to and in accordance with the provisions of the Statutes and any applicable rules of the Designated Stock Exchange (hereafter, the Relevant Laws), on such terms and subject to such conditions as our Company may in General Meeting prescribe in accordance with the Relevant Laws. Any shares purchased or acquired by the Company as aforesaid shall, unless held in treasury in accordance with the Act, be deemed to be cancelled immediately on purchase or acquisition by the Company. On the cancellation of any share as aforesaid, the rights and privileges attached to that share shall expire. In any other instance, the Company may hold or deal with any such share which is so purchased or acquired by it in such manner as may be permitted by, and in accordance with the Relevant Laws. Without prejudice to the generality of the foregoing, upon cancellation of any share purchased or otherwise acquired by the Company pursuant to these Articles and the Statutes, the number of issued shares of the Company shall be diminished by the number of shares so cancelled, and, where any such cancelled share was purchased or acquired out of the capital of the Company, the amount of share capital of the Company shall be reduced accordingly.
(B)
(h)
any change in the respective rights of the various classes of shares including the action necessary to change the rights
Article 9
(A) Whenever the share capital of the Company is divided into different classes of shares, the variation or abrogation of the special rights attached to any class may, subject to the provisions of the Act, be made either with the consent in writing of the holders of three-quarters of the total number of the issued shares of the class or with the sanction of a Special Resolution passed at a separate General Meeting of the holders of the shares of the class (but not otherwise) and may be so made either whilst the Company is a going concern or during or in contemplation of a windingup. To every such separate General Meeting all the provisions of these Articles relating to General Meetings of the Company and to the proceedings thereat shall mutatis mutandis apply, except that the necessary quorum shall be two or more persons holding at least one-third of the total number of the issued shares of the class present in person or by proxy or attorney and that any holder of shares of the class present in person or by proxy or attorney may demand a poll and that every such holder shall on a poll have one vote for every share of the class held by him where the class is a class of equity shares within the meaning of Section 64(1) of the Act or at least one vote for every share of the class where the class is a class of preference shares within the meaning of Section 180(2) of the Act, Provided Always that where the necessary majority for such a Special Resolution is not obtained at such General Meeting, the consent in writing, if obtained from the holders of three-quarters of the total number of the issued shares of the class concerned within two months of such General Meeting, shall be as valid and effectual as a Special Resolution carried at such General Meeting. The provisions in Article 9(A) shall mutatis mutandis apply to any repayment of preference capital (other than redeemable preference capital) and any variation or abrogation of the rights attached to preference shares or any class thereof.
(B)
C-8
(i)
any time limit after which a dividend entitlement will lapse and an indication of the party in whose favour this entitlement then operates
Article 126
(A) No Dividend shall be paid otherwise than out of profits available for distribution under the provisions of the Statutes. The payment by the Directors of any unclaimed dividends or other moneys payable on or in respect of a share into a separate account shall not constitute the Company a trustee in respect thereof. All Dividends remaining unclaimed after one year from having been first payable may be invested or otherwise made use of by the Directors for the benefit of the Company, and any Dividend or any such moneys unclaimed after six years from having been first payable shall be forfeited and shall revert to the Company provided always that the Directors may at any time thereafter at their absolute discretion annul any such forfeiture and pay the Dividend so forfeited to the person entitled thereto prior to the forfeiture. If CDP returns any such Dividend or moneys to the Company, the relevant Depositor shall not have any right or claim in respect of such Dividend or moneys against the Company if a period of six years has elapsed from the date of the declaration of such Dividend or the date on which such other moneys are first payable. A payment by the Company to CDP of any Dividend or other moneys payable to a Depositor shall, to the extent of the payment made, discharge the Company from any liability to the Depositor in respect of that payment.
(B)
(j)
any limitation on the right to own Shares, including limitations on the right of non-resident or foreign Shareholders to hold or exercise voting rights on their Shares
There are no limitations on the rights of the Shareholders who are regarded as non-residents of Singapore to hold or vote on their Shares. However, the Singapore Code on Take-overs and Mergers (the Take-over Code) issued by the Authority pursuant to Sections 137 and 321 of the Securities and Futures Act prescribes certain situations whereby a person who, either on his own or together with persons acting in concert (as defined in the Take-over Code) with him, must make a mandatory take-over offer for the Shares.
C-9
D-1
D-2
D-3
(b)
Singapore courts have wide discretion as to the reliefs they may grant and those reliefs are in no way limited to those listed in the Companies Act itself. Without prejudice to the foregoing, Singapore courts may:(a) (b) (c) direct or prohibit any act or cancel or vary any transaction or resolution; regulate the conduct of the affairs of our Company in the future; authorise civil proceedings to be brought in the name of, or on behalf of, our Company by a person or persons and on such terms as the court may direct; provide for the purchase of a minority Shareholders shares by the other Shareholders or by our Company and, in the case of a purchase of shares by our Company, a corresponding reduction of its share capital; provide that the Memorandum of Association or the Articles be amended; or provide that our Company be wound up.
(d)
(e) (f)
D-4
E-1
E-2
(b)
Australia has a number of Double Taxation Agreements (DTA) with other countries that in principle adopt the form of the 1977 Organisation for Economic Co-operation and Development (OECD) model treaty. If a non-resident subject to Australian income tax is resident of a country having a DTA with Australia, relief from double taxation may be available. The rates of income tax vary depending upon the structure of the Australian operations. The Australian Taxation Office is the authority responsible for administering Australias income tax system. Companies An Australian resident company is liable to pay Australian income tax on income and capital gains derived from all sources, within or outside Australia. The payment of tax on income and gains derived from non-Australian sources is subject to certain accruals, taxation and foreign tax credit provisions. The rate of company tax on income is 30% and there is an imputation system for dividends paid from taxed profits. In addition to tax on income, companies are required to pay tax on fringe benefits paid to employees. The fringe benefits tax rate is 48.5%.
E-3
E-4
E-5
E-6
(ii)
(iii)
(b)
regardless of whether the value is less than RM10 million with the exception of open market acquisitions on Bursa Malaysia meant for short term holdings; (iv) Any proposed acquisition of interest as in paragraph (iii) by:(a) foreign interest, which will result in an increase in the voting rights to 15% or more, in any local company or business in Malaysia; or associated or non-associated group of foreign interests, which in aggregate will result in an increase in the voting rights to 30% or more, in any local company or business in Malaysia;
(b)
regardless of whether the value is less than RM10 million with the exception of open market acquisitions on Bursa Malaysia meant for short term holdings; (v) Any proposed acquisition of interest and control of more than 50% of the voting rights in any local company or business in Malaysia by local interest, regardless of whether the value is less than RM10 million; Any proposed merger or take-over of any local company or business in Malaysia by local or foreign interests;
(vi)
F-1
(ix)
(x)
However, under the FIC Guidelines, there are exemptions for acquisition of interests, mergers and take-overs by local and foreign interests, and these include but are not limited to the acquisition of interests in Multimedia Super Corridor (MSC) status companies, any acquisition of interests in manufacturing companies licensed by the Ministry of International Trade and Industry, and any acquisition of interests in companies granted the status of operational headquarters.
F-2
G-1
G-2
(2)
(3)
(4)
(5)
(6)
G-3
(a)
(b)
Notwithstanding the abovementioned description, the Income Tax Law of PRC on Foreign Investment Enterprises and Foreign Enterprises and the Implementing Rules of the Income Tax Law of PRC on Foreign Investment Enterprises and Foreign Enterprises shall be annulled as of 1 January 2008. Two new laws, which are named (i) Enterprises Income Tax Law of PRC adopted by the Standing Committee of the NPC on 16 March 2007, and (ii) Implementation Rules of Enterprises Income Tax Law of PRC promulgated by the State Council on 6 December 2007 (collectively referred to as New Enterprises Income Tax Law) will come into effect as of 1 January 2008. According to the New Enterprises Income Tax Law, the enterprises established within the territory of China in accordance with Chinese laws and regulations (referred to as PRC Enterprises), including the foreign investment enterprises, shall be subject to a unified applicable enterprises income tax rate 25%. The industries and projects with key support and under encouraged development by the State may be given preferential enterprise income tax treatment.
G-4
G-5
(3)
Shareholder Action by Written Consent Thai law does not make provision for shareholders of a private company to pass any resolution by written means. All shareholders meetings must take place by way of physical meetings. Shareholder Proposals Pursuant to the CCC, the board of directors may call an extraordinary general meeting of the shareholders at any time the board considers it expedient to do so. In addition, shareholders holding shares in aggregate amounting to not less than one-fifth of the total number of shares sold may submit their names in request directing the board of directors to call an extraordinary general meeting at any time, but the reasons for calling such meeting shall be clearly stated in such request. If the board of directors fails to call a shareholders meeting to be held within one month of the date of receipt of such request the said shareholders may call the meeting by themselves.
H-1
A statutory special resolution is defined as a resolution passed and confirmed at two consecutive shareholders meetings held after an interval of at least 14 days but not more than 6 weeks and after due notices have been given to all the shareholders. Passage requires an affirmative threefourths majority vote cast at the first meeting and a two-thirds majority vote cast at the second meeting. Furthermore, a company may also be dissolved by a court order on the following grounds: (i) default is made in filing the minutes of the statutory meeting or in holding the statutory meeting; the company has not commenced its business within a year from the date of registration or suspends its business for a whole year; the business of a company, if operated further, will bring only losses, and recovery is hopeless; or the number of shareholders decreases to fewer than seven.
(ii)
(iii)
(iv)
However, in the case of default in filing the minutes of the statutory meeting or in holding the statutory meeting, the court may, instead of dissolving the company, direct that the minutes of the statutory meeting be filed or the statutory meeting be held as it may deem fit. Variation of rights of shares Under the CCC, preferential rights accruing to shares already issued shall not be changed. A preferred share may have less than one vote if clearly specified in the articles of association of the company. Alteration of memorandum of association and articles of association A company may amend its memorandum of association or articles only when a shareholders special resolution is passed. A company shall apply to register the amendment within 14 days of the date on which the resolution was passed at the meeting.
H-2
APPENDIX I TAXATION
TAXATION The following is a discussion of certain tax matters arising under the current tax laws in Singapore and is not intended to be and does not constitute legal or tax advice. While this discussion is considered to be a correct interpretation of existing laws in force, no assurance can be given that courts or fiscal authorities responsible for the administration of such laws will agree with this interpretation or that changes in such laws will not occur. The discussion is limited to a general description of certain tax consequences in Singapore with respect to ownership of the Shares by Singapore investors, and does not purport to be a comprehensive nor exhaustive description of all the tax considerations that may be relevant to a decision to purchase the Shares. Prospective investors should consult their tax advisors regarding Singapore tax and other tax consequences of owning and disposing of the Shares. It is emphasised that neither the Company, the Directors nor any other persons involved in the Invitation accepts responsibility for any tax effects or liabilities resulting from the subscription for, purchase, holding or disposal of the Shares. SINGAPORE INCOME TAX General Singapore tax residents are subject to Singapore income tax on income that is accrued in or derived from Singapore and on foreign income received in Singapore, subject to certain exceptions. Non-resident corporate taxpayers are subject to income tax on income that is accrued in or derived from Singapore, and on foreign income received in Singapore, subject to certain exceptions. All individuals resident and non-resident, subject to certain exceptions, are subject to income tax on the income accrued in or derived from Singapore. With effect from year of assessment 2005 (i.e. for financial /calendar year ending in 2004), all foreign-source income received in Singapore by all individuals will be exempt from Singapore tax. The latter exemption will not apply to such income received from a partnership in Singapore. A company is tax resident in Singapore if the control and management of its business is exercised in Singapore. An individual is tax resident in Singapore in a year of assessment if, in the preceding year, he was physically present in Singapore or exercised an employment in Singapore (other than as a director of a company) for 183 days or more, or if he resides in Singapore. The corporate tax rate in Singapore is 20% up to the year of assessment 2007 i.e. the financial year ended in 2006. With effect from the year of assessment 2008 (i.e. financial year ended 2007), the corporate tax rate will be reduced to 18%. In addition, 75% of the first S$10,000 of the companys chargeable income, and 50% of the next S$300,000 will be exempt from corporate tax. The above tax exemption will not apply to Singapore dividends with franking credits. For a Singapore tax resident individual, the rate of tax will vary according to the individuals circumstances but is subject to a current maximum rate of 20%. Dividend Distributions Singapore moved to the one-tier corporate tax system with effect from 1 January 2003. Under this system, the tax collected from corporate profits is final and all Singapore dividends paid by Singapore tax resident companies to their shareholders are exempt from tax (referred hereinafter as one-tier tax exempt dividends). We are in the one-tier corporate tax system. Under this system, when we distribute dividends, we will pay one-tier tax exempt dividends to our shareholders. One-tier tax exempt dividends on our Shares are tax exempt in the hands of our shareholders. Gains on Disposal of our Shares Singapore does not impose tax on capital gains. However, there are no specific laws or regulations which deal with the characterisation of capital gains, and hence, gains may be construed to be of an income nature and subject to tax especially if they arise from activities which the Inland Revenue Authority of Singapore (IRAS) regards as the carrying on of a trade in Singapore. I-1
APPENDIX I TAXATION
Any profits from the disposal of our Shares are not taxable in Singapore unless the seller is regarded as having derived gains of an income nature, in which case, the disposal profit would be taxable. Stamp Duty There is no stamp duty payable on the subscription of our Shares. Stamp duty is payable on the instrument of transfer of our Shares at the rate of $2.00 for every $1,000 market value of our Shares registered in Singapore. The purchaser is liable for stamp duty, unless there is an agreement to the contrary. No stamp duty is payable if no instrument of transfer is executed or the instrument of transfer is executed outside Singapore. However, stamp duty may be payable if the instrument of transfer which is executed outside Singapore is received in Singapore. The above stamp duty is not applicable to electronic transfers of our shares through the CDP. Estate Duty Singapore estate duty is imposed on the value of immovable property situated in Singapore owned by individuals who are not domiciled in Singapore, subject to specific exemption limits. Movable assets of non-domiciles will be exempt from estate duty with respect to deaths occurring on or after 1 January 2002. Singapore estate duty is imposed on the value of most immovable property situated in Singapore and on most movable property, wherever it may be, owned by individuals who are domiciled in Singapore, subject to specific exemption limits. Our Shares are considered to be movable property situated in Singapore as we are a company incorporated in Singapore. Accordingly, our Shares held by an individual domiciled in Singapore are subject to Singapore estate duty upon such individuals death. Singapore estate duty is payable to the extent that the value of our Shares aggregated with any other assets subject to Singapore estate duty exceeds $600,000. Unless other exemptions apply to the other assets, for example, the separate exemption limit for residential properties, any excess beyond $600,000 will be taxed at 5% of the first $12,000,000 of the individuals Singapore chargeable assets and thereafter at 10%. For death from 1 January 2006, the government will allow the estate duty paid on the earlier death to be deducted from the estate duty payable on the same assets assessed in the beneficiaries subsequent deaths. The relief will start at 100% if the deaths occur within 6 months of each other, graduating to the full estate duty payable if the deaths are more than 2 years apart. Individuals should consult their own tax advisors regarding the Singapore estate duty consequences of their ownership of our Shares. Goods and Services Tax (GST) The sale of our Shares by an investor belonging in Singapore to another person belonging in Singapore is an exempt supply not subject to GST. Any GST directly or indirectly incurred by the investor in respect of this exempt supply is a cost to the investor. Where our Shares are sold by a GST-registered investor to a person belonging outside Singapore, the sale is a taxable sale subject to GST at zero-rate. Any GST incurred by the investor in the making of this sale, if the same is a supply in the course of furtherance of a business, is claimable as a refund from the Comptroller of GST. Services such as brokerage, handling and clearing services rendered by a GST-registered person to an investor belonging in Singapore in connection with the investors purchase, sale or holding of our Shares will be subject to GST at the current rate of 7%. Similar services rendered to an investor belonging outside Singapore are subject to GST at zero-rate.
I-2
2.
If you have made an application for Reserved Shares, you may submit ONE application for Offer Shares OR ONE application for Placement Shares (other than Reserved Shares) provided that you adhere to the terms and conditions of this Prospectus. Such applications shall not be treated as multiple applications. If you submit or procure submissions of multiple share applications for Offer Shares, Placement Shares (other than Reserved Shares) or both Offer Shares and Placement Shares (other than Reserved Shares), all your applications shall be deemed to be multiple applications and shall be rejected. JOINT OR MULTIPLE APPLICATIONS SHALL BE REJECTED. If you submit or procure submissions of multiple share applications for Offer Shares, Placement Shares (other than Reserved Shares) or both Offer Shares and Placement Shares (other than Reserved Shares), you may be deemed to have committed an offence under the Penal Code (Chapter 224) of Singapore and the Securities and Futures Act (Chapter 289) of Singapore, and your applications may be referred to the relevant authorities for investigation. Multiple applications or those appearing to be or suspected of being multiple applications will be liable to be rejected at our discretion.
J-1
5.
6.
7.
8.
9.
10.
J-2
12.
13.
14.
15.
(b)
(c)
(d)
(e)
J-3
(b)
(c)
17. 18.
Our Company will not hold any applications in reserve. Our Company will not allot Shares on the basis of this Prospectus later than six months after the date of this Prospectus. Additional terms and conditions for applications by way of Application Forms are set out on pages J-5 to J-8 of this Prospectus. Additional terms and conditions for applications by way of Electronic Applications are set out on pages J-8 to J-15 of this Prospectus.
19.
20.
ADDITIONAL TERMS AND CONDITIONS FOR APPLICATIONS USING PRINTED APPLICATION FORMS Your application by way of Application Forms shall be made on the terms and subject to the conditions of this Prospectus including but not limited to the terms and conditions appearing below and those set out on pages J-1 to J-4 of this Prospectus, as well as the Memorandum of Association and Articles of our Company. 1. Your application must be made using the WHITE Application Forms for Offer Shares and the BLUE Application Forms for Placement Shares (other than Reserved Shares) or PINK Reserved Shares Application Forms accompanying and forming part of this Prospectus. Our Company draws your attention to the detailed instructions contained in the respective Application Forms and this Prospectus for the completion of the Application Forms which must be carefully followed. Our Company reserves the right to reject applications which do not conform strictly to the instructions set out in the Application Forms and this Prospectus or to the terms and conditions of this Prospectus or which are illegible, incomplete, incorrectly completed or which are accompanied by improperly drawn remittances or improper form of remittances. Your Application Forms must be completed in English. Please type or write clearly in ink using BLOCK LETTERS. All spaces in the Application Forms except those under the heading FOR OFFICIAL USE ONLY must be completed and the words NOT APPLICABLE or N.A. should be written in any space that is not applicable.
2.
3.
J-4
5.
(c)
6.
You (whether you are an individual and corporate applicant, whether incorporated or unincorporated and wherever incorporated or constituted), will be required to declare whether you are a citizen or permanent resident of Singapore or a corporation in which citizens or permanent residents of Singapore or any body corporate constituted under any statute of Singapore have an interest in the aggregate of more than 50 per cent. of the issued share capital of or interests in such corporations. If you are an approved nominee company, you are required to declare whether the beneficial owner of the New Shares is a citizen or permanent resident of Singapore or a corporation, whether incorporated or unincorporated and wherever incorporated or constituted, in which citizens or permanent residents of Singapore or any body corporate whether incorporated or unincorporated and wherever incorporated or constituted under any statute of Singapore have an interest in the aggregate of more than 50 per cent. of the issued share capital of or interests in such corporation. Your application must be accompanied by a remittance in Singapore currency for the full amount payable, in respect of the number of New Shares applied for, in the form of a BANKERS DRAFT or CASHIERS ORDER drawn on a bank in Singapore, made out in favour of OLD CHANG KEE SHARE ISSUE ACCOUNT crossed A/C PAYEE ONLY, with your name and address written clearly on the reverse side. Our Company will not accept applications accompanied by ANY OTHER FORM OF PAYMENT. Our Company will reject remittances bearing NOT TRANSFERABLE or NON TRANSFERABLE crossings. No acknowledgement or receipt will be issued for any application or remittance received. Unsuccessful applications are expected to be returned (without interest or any share of revenue or other benefit arising therefrom) to you by ordinary post within 24 hours of the balloting after the close of the Application List at your own risk. Where your application is accepted in part only, the balance of the application monies will be refunded (without interest or any share of revenue or other benefit arising therefrom) to you by ordinary post at your own risk in the shortest possible time. Capitalised terms used in the Application Forms and defined in this Prospectus shall bear the meanings assigned to them in this Prospectus.
7.
8.
9.
J-5
(b)
all applications, acceptances and contracts resulting therefrom under the Invitation shall be governed by and construed in accordance with the laws of Singapore and that you irrevocably submit to the non-exclusive jurisdiction of the Singapore courts; in respect of the New Shares for which your application has been received and not rejected, acceptance of your application shall be constituted by written notification and not otherwise, notwithstanding any remittance being presented for payment by or on our behalf; you will not be entitled to exercise any remedy of rescission for misrepresentation at any time after acceptance of your application; and in making your application, reliance is placed solely on the information contained in this Prospectus and none of our Company, the Manager, the Underwriter, the Placement Agent or any other person involved in the Invitation shall have any liability for any information not so contained.
(c)
(d)
(e)
Applications for Offer Shares 1. Your applications for Offer Shares MUST be made using the WHITE Offer Shares Application Forms and WHITE official envelopes A and B. ONLY ONE APPLICATION should be enclosed in each envelope. You must:(a) enclose the WHITE Offer Shares Application Form, duly completed and signed, together with your remittance in the WHITE envelope A provided; in the appropriate spaces on WHITE envelope A:(i) (ii) (iii) (c) write your name and address; state the number of Offer Shares applied for; and affix adequate Singapore postage;
2.
(b)
J-6
3.
Applications that are illegible, incomplete or incorrectly completed or accompanied by improperly drawn remittances are liable to be rejected.
Applications for Placement Shares (other than Reserved Shares) 1. Your application for Placement Shares (other than Reserved Shares) MUST be made using the BLUE Placement Shares Application Forms. ONLY ONE APPLICATION should be enclosed in each envelope. The completed and signed BLUE Placement Shares Application Form and your remittance, in accordance with the terms and conditions of this Prospectus, for the full amount payable in respect of the number of Placement Shares applied for, with your name and address written clearly on the reverse side, must be enclosed and sealed in an envelope to be provided by you. You must affix adequate Singapore postage on the envelope (if despatching by ordinary post) and thereafter the sealed envelope must be DESPATCHED BY ORDINARY POST OR DELIVERED BY HAND at your own risk to Boardroom Corporate & Advisory Services Pte Ltd, 3 Church Street, #08-01 Samsung Hub, Singapore 049483, to arrive by 12.00 noon on 14 January 2008 or such other time as our Company may, in consultation with the Manager, in their absolute discretion decide, subject to any limitations under all applicable laws. Local Urgent Mail or Registered Post must NOT be used. No acknowledgement or receipt will be issued for any application or remittance received. Alternatively, you may remit your application monies by electronic transfer to the account of Oversea-Chinese Banking Corporation Limited, account number 581-385440-001, in favour of OLD CHANG KEE SHARE ISSUE ACCOUNT for the number of Placement Shares applied for by 12.00 noon on 14 January 2008 or such other time as our Company may, in consultation with the Manager, in their absolute discretion decide, subject to any limitations under all applicable laws. If you remit your application monies via electronic transfer, you should fax and send a copy of the remittance advice to Westcomb Securities Pte Ltd at fax number 6220 6632 to arrive by 12.00 noon on 14 January 2008 or such other time as our Company may, in consultation with the Manager, in their absolute discretion decide, subject to any limitations under all applicable laws.
2.
3.
Applications For Reserved Shares 1. Your application for Reserved Shares MUST be made using the PINK Reserved Shares Application Forms. ONLY ONE APPLICATION should be enclosed in each envelope. The completed PINK Reserved Shares Application Form and the correct remittance (in accordance with the terms and conditions of this Prospectus) with your name and address written clearly on the reverse side, must be enclosed and sealed in an envelope to be provided by you. The sealed envelope must be DESPATCHED BY ORDINARY POST OR DELIVERED BY HAND at your own risk to Boardroom Corporate & Advisory Services Pte Ltd, 3 Church Street, #08-
2.
J-7
ADDITIONAL TERMS AND CONDITIONS FOR ELECTRONIC APPLICATIONS The procedures for Electronic Applications at ATMs are set out on the ATM screens (in the case of ATM Applications) and the IB website screens (in the case of IB Applications) of the relevant Participating Banks. Currently, DBS Bank and the UOB Group are the only Participating Banks through which an IB Application can be made on the respective IB websites of DBS Bank and the UOB Group. For illustration purposes, the procedures for Electronic Applications through ATMs and the IB website of DBS Bank are set out respectively in the Steps for ATM Applications through ATMs of DBS Bank and the Steps for IB Applications through the IB website of DBS Bank (the Steps) of this Prospectus. The Steps set out the actions that you must take at an ATM or the IB website of DBS Bank to complete an Electronic Application. Please read carefully the terms of this Prospectus, the Steps and the terms and conditions for Electronic Applications set out below before making an Electronic Application. Any reference to you in the additional terms and conditions for Electronic Applications and the Steps shall refer to you making an application for Offer Shares through an ATM or the IB website of a relevant Participating Bank. To make an ATM Application:(a) You must have an existing bank account with and be an ATM cardholder of one of the Participating Banks before you can make an Electronic Application at the ATMs. An ATM card issued by one Participating Bank cannot be used to apply for Offer Shares at an ATM belonging to other Participating Banks. Upon the completion of your ATM Application transaction, you will receive an ATM transaction slip (Transaction Record), confirming the details of your ATM Application. The Transaction Record is for your retention and should not be submitted with any Application Form. You must ensure that you enter your own Securities Account number when using the ATM card issued to you in your own name. If you operate a joint bank account with any of the Participating Banks, you must ensure that you enter your own Securities Account number when using the ATM card issued to you in your own name. Using your own Securities Account number with an ATM card which is not issued to you in your own name will render your Electronic Application liable to be rejected.
(b)
To make an IB Application, you must have an existing bank account with and an IB User Identification (User ID) and a Personal Identification Number/Password given by the relevant Participating Bank. Upon completion of your IB Application, there will be an on-screen confirmation (Confirmation Screen) of the application which you can print out for your record. This printed record of the Confirmation Screen is for your retention and should not be submitted with any Application Form.
J-8
and you will be asked to declare the above accordingly. Otherwise, your application is liable to be rejected.
Note:(1) For details, please refer to definition of US person on the IB websites
Your Electronic Application shall be made on the terms and subject to the conditions of this Prospectus including but not limited to the terms and conditions appearing below and those set out on pages J-1 to J-8 of this Prospectus as well as the Memorandum of Association and Articles of our Company. 1. In connection with your Electronic Application for New Shares, you may be required to confirm statements to the following effect in the course of activating the Electronic Application:(a) that you have received a copy of this Prospectus and have read, understood and agreed to all the terms and conditions of application for New Shares and this Prospectus prior to effecting the Electronic Application and agreed to be bound by the same; that you consent to the disclosure of your name, NRIC/passport number, address, nationality, permanent resident status, CDP Securities Account number, and share application amount (the Relevant Particulars) from your account with that Participating Bank to the Share Registrar, CDP, SCCS, our Company, the Manager, the Underwriter and the Placement Agent (the Relevant Parties); and that this is your only application and it is made in your own name and at your own risk.
(b)
(c)
Your application will not be successfully completed and cannot be recorded as a completed transaction in the ATM unless you press the Enter or OK or Confirm or Yes key. By doing so, you shall be treated as signifying your confirmation of each of the above three statements. In respect of statement 1(b) above, your confirmation, by pressing the Enter or OK or Confirm or Yes key, shall signify and shall be treated as your written permission, given in accordance with the relevant laws of Singapore including Section 47(2) of the Banking Act, Chapter 19 of Singapore to the disclosure by that Participating Bank of your Relevant Particulars to the Relevant Parties. 2. BY MAKING AN ELECTRONIC APPLICATION, YOU CONFIRM THAT YOU ARE NOT APPLYING FOR NEW SHARES AS NOMINEE OF ANY OTHER PERSON AND THAT ANY ELECTRONIC APPLICATION THAT YOU MAKE IS THE ONLY APPLICATION MADE BY YOU AS BENEFICIAL OWNER. YOU SHOULD MAKE ONLY ONE ELECTRONIC APPLICATION FOR NEW SHARES AND SHOULD NOT MAKE ANY OTHER APPLICATION FOR OFFER SHARES OR PLACEMENT SHARES WHETHER AT THE ATM OR THE IB WEBSITES OF ANY PARTICIPATING BANK OR ON THE APPLICATION FORMS. IF YOU HAVE MADE AN APPLICATION FOR NEW SHARES ON AN APPLICATION FORM, YOU SHALL NOT MAKE AN ELECTRONIC APPLICATION FOR NEW SHARES AND VICE VERSA.
J-9
4.
J-10
UOB Group
UOB Group ATM (Other Transactions IPO Enquiry) UOB Personal Internet Banking at www.uobgroup.com
24 hours a day
If you make your IB Applications through the IB website of DBS Bank or the UOB Group, you may check the result through the same channels listed in the table above in relation to ATM Applications made at ATMs of DBS Bank or the UOB Group. 7. Electronic Applications shall close at 12.00 noon on 14 January 2008 or such other time as our Company may, in consultation with the Manager, in their absolute discretion decide, subject to any limitations under all applicable laws. You are deemed to have requested and authorised us to:(a) register the Offer Shares or Placement Shares, as the case may be, allotted to you in the name of CDP for deposit into your Securities Account; send the relevant Share certificate(s) to CDP; (for ATM Applications or IB Applications) return or refund (without interest or any share of revenue or other benefit arising therefrom) the application monies, should your Electronic Application be rejected, by automatically crediting your bank account with your Participating Bank with the relevant amount within twenty-four hours after the close of the Application List; and (for ATM Applications or IB Applications) return or refund (without interest or any share of revenue or other benefit arising therefrom) the balance of the application monies, should your Electronic Application be accepted in part only, by automatically crediting your bank account with your Participating Bank with the relevant amount within the shortest possible time after the close of the Application List
8.
(b) (c)
(d)
J-11
10.
11.
12.
13.
(b)
none of our Company, the Manager, the Underwriter, the Placement Agent or the Participating Banks shall be liable for any delays, failures or inaccuracies in the recording, storage or in the transmission or delivery of data relating to your Electronic Application to us or CDP due to breakdowns or failure of transmission, delivery or communication facilities or any risks referred to in paragraph 9 above or to any cause beyond their respective controls; in respect of Offer Shares for which your Electronic Application has been successfully completed and not rejected, acceptance of your Electronic Application shall be constituted by written notification by or on behalf of our Company and not otherwise, notwithstanding any payment received by or on behalf of our Company; you will not be entitled to exercise any remedy of rescission for misrepresentation at any time after acceptance of your application; and reliance is placed solely on information contained in this Prospectus and that none of our Company, the Manager, the Placement Agent and the Underwriter for the Public Offer nor any other person involved in the Invitation shall have any liability for any information not so contained.
(c)
(d)
(e)
J-12
J-13
12 13
: :
14
15
Steps for IB Applications through the IB website of DBS Bank For illustrative purposes, the steps for making an IB Application through the DBS Bank IB website are shown below. Certain words appearing on the screen are in abbreviated form (A/c, amt, &, I/C, SGX and No. refer to Account, Amount, and, NRIC, SGX-ST, and Number respectively). Step 1 2 3 4 5 : : : : : Click on to DBS Bank website (www.dbs.com). Login to Internet Banking. Enter your User ID and PIN. Select Electronic Security Application (ESA). Click Yes to proceed and to warrant that you have observed and complied with all applicable laws and regulations. Select your country of residence and click confirm.
J-14
11
J-15
APPENDIX K REPORT FROM THE AUDITORS AND THE UNAUDITED PROFORMA COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 AND THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
K-1
APPENDIX K REPORT FROM THE AUDITORS AND THE UNAUDITED PROFORMA COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 AND THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Report on Unaudited Proforma Combined Financial Statements for the financial year ended 31 December 2006 and the six month period ended 30 June 2007
4 January 2008 The Board of Directors Old Chang Kee Ltd. 2 Woodlands Terrace Singapore 738427
Dear Sirs: We report on the unaudited proforma combined financial statements of Old Chang Kee Ltd. (the Company) and its subsidiary companies (collectively, the Group) set out on pages K-4 to K-11, which have been prepared for illustrative purposes only and based on certain assumptions and after making certain adjustments to show what: (a) the financial results, changes in equity and cash flows of the Group for the financial year ended 31 December 2006 and the six month period ended 30 June 2007 would have been if the significant event as stated in Note 2 to the unaudited proforma financial information had occurred since 1 January 2006. the financial positions of the Group as of the balance sheets as at 31 December 2006 and 30 June 2007 would have been if the significant event had occurred on those dates.
(b)
The unaudited proforma combined financial statements, because of their nature, may not give a true picture of the Groups actual financial positions, financial results, changes in equity and cash flows. The unaudited proforma combined financial statements are the responsibility of the Directors of the Company. Our responsibility is to express an opinion on the unaudited proforma combined financial statements based on our work. We carried out our procedures in accordance with Singapore Statement of Auditing Practice: SAP 24 Auditors and Public Offering Documents. Our work, which involved no independent examination of the underlying financial statements, consisted primarily of comparing the unaudited proforma combined financial statements to the audited/reviewed combined financial statements of the Group, considering the evidence supporting the adjustments and discussing the unaudited proforma combined financial statements with the Directors of the Company.
K-2
APPENDIX K REPORT FROM THE AUDITORS AND THE UNAUDITED PROFORMA COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 AND THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Report on Unaudited Proforma Combined Financial Statements for the financial year ended 31 December 2006 and the six month period ended 30 June 2007 (contd)
In our opinion: (a) the unaudited proforma combined financial statements have been properly prepared: (i) in a manner consistent with the format of the combined financial statements and the accounting policies of the Group which are prepared in accordance with Singapore Financial Reporting Standards; and on the bases as set out in Note 3, to the unaudited proforma combined financial statements.
(ii) (b)
each material adjustment made to the information used in the preparation of the unaudited proforma combined financial statements is appropriate for the purpose of preparing such financial statements.
Yours faithfully,
ERNST & YOUNG Certified Public Accountants Singapore Max Loh Khum Whai Partner-in-Charge
K-3
APPENDIX K REPORT FROM THE AUDITORS AND THE UNAUDITED PROFORMA COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 AND THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Unaudited Proforma Combined Profit and Loss Accounts For the financial year ended 31 December 2006 and the six month period ended 30 June 2007
Year ended 31 December 2006 S$000 Revenue Cost of sales Gross profit Other operating income Selling and distribution expenses Administrative expenses Other operating expenses Finance costs Share of results of associated companies Profit before taxation Taxation Net profit attributable to shareholders Basic and fully diluted earnings per share
(2)
Six month period ended 30 June 2007 S$000 19,039 (7,919) 11,120 285 (6,802) (2,201) (492) (24) 1,886 (394) 1,492 2.18
33,784 (14,076) 19,708 299 (11,475) (4,128) (788) (60) (27) 3,529 (1,111) 2,418 (cents) 3.54
Note (1) The financial results of the Proforma Group have been prepared on the basis that the Proforma Group has been in existence throughout the year/period. For comparative purposes, earnings per share (EPS) have been computed based on the profit attributable to equity holders of the Proforma Group divided by the pre-invitation share capital of 68,400,000 shares for the financial year ended 31 December 2006 and the six month period ended 30 June 2007.
(2)
The accompanying accounting policies and explanatory notes form an integral part of the unaudited proforma combined financial statements.
K-4
APPENDIX K REPORT FROM THE AUDITORS AND THE UNAUDITED PROFORMA COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 AND THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Unaudited Proforma Combined Balance Sheets As at 31 December 2006 and 30 June 2007
As at 31 December 2006 S$000 Non-current assets Property, plant and equipment Intangible assets Investment in associated companies Amount due from associated companies 11,530 352 16 57 11,955 Current assets Inventories Trade and other receivables Deposits Prepayments Amount due from associated companies Cash and cash equivalents 446 83 1,393 149 15 3,134 5,220 Current liabilities Trade and other payables Other liabilities Bank overdrafts Amount due to a related party Finance lease liabilities Club membership payable current Provision for taxation 5,881 180 173 2 372 15 900 7,523 Net Current Liabilities Non-Current Liabilities Finance lease liabilities Other liabilities Club membership payable long term Deferred tax liabilities 962 20 576 1,558 Net Assets Proforma shareholders equity 8,094 8,094 (2,303)
The accompanying accounting policies and explanatory notes form an integral part of the unaudited proforma combined financial statements.
K-5
APPENDIX K REPORT FROM THE AUDITORS AND THE UNAUDITED PROFORMA COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 AND THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Proforma Combined Cash Flow Statements
Year ended 31 December 2006 S$000 Cash flows from operating activities Profit before taxation Adjustments for: Amortisation of intangible assets Bad debts written off Loan to a related party Currency realignment Depreciation of property, plant and equipment Gain on disposal of property, plant and equipment Gain on disposal of quoted investment Impairment on loss on investment in associated company Interest expense Interest income Provision for reimbursement of start-up costs for an associated company in Chengdu Share of results of associated companies Operating profit before changes in working capital (Increase)/decrease in trade and other receivables Increase in inventories Increase/(decrease) in trade and other payables Decrease in amount due from a Director-related company Increase in amount due from associated company Increase/(decrease) in amount due to a related party Cash generated from operations Tax paid Net cash generated from operating activities Cash flows from investing activities Increase in share application money Interest received Investment in associated companies Purchase of property, plant and equipment Purchase of intangible asset Proceeds from disposal of property, plant and equipment Payment for club membership Proceeds from disposal of quoted investment Advance to associated companies Net cash flows used in investing activities Cash flows from financing activities Interest paid Increase in other liabilities Repayment of finance lease liabilities Dividends paid on ordinary shares Net cash flows used in financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of year/period Cash and cash equivalents at end of year/period 3,529 112 77 1 1,999 (171) (7) 66 60 (139) 76 27 5,630 (430) (96) 2,972 10 (15) 2 8,073 (903) 7,170 100 137 (110) (6,400) (60) 365 (16) 107 (57) (5,934) (42) (338) (2,495) (2,875) (1,639) 4,600 2,961 Six month period ended 30 June 2007 S$000 1,886 38 (1) 884 (148) 24 (35) 2,648 506 (80) (691) (7) (2) 2,374 (395) 1,979 36 (5,052) (3) 204 (7) (29) (4,851) (22) 22 (298) (298) (3,170) 6,392 3,222
The accompanying accounting policies and explanatory notes form an integral part of the unaudited proforma combined financial statements.
K-6
APPENDIX K REPORT FROM THE AUDITORS AND THE UNAUDITED PROFORMA COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 AND THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Statement of Adjustments for the Unaudited Proforma Combined Financial Statements of the Group
Audited Combined Financial Statements Year ended 31 December 2006 S$000 Revenue Cost of sales Gross profit Other operating income Selling and distribution expenses Administrative expenses Other operating expenses Finance costs Share of results of associated company Profit before taxation Taxation Net profit attributable to shareholders 33,784 (13,827) 19,957 299 (11,061) (4,128) (848) (42) (27) 4,150 (1,111) 3,039
K-7
APPENDIX K REPORT FROM THE AUDITORS AND THE UNAUDITED PROFORMA COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 AND THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Statement of Adjustments for the Unaudited Proforma Combined Financial Statements of the Group
Unaudited Combined Financial Statements Six month period ended 30 June 2007 S$000 Revenue Cost of sales Gross profit Other operating income Selling and distribution expenses Administrative expenses Other operating expenses Finance costs Profit before taxation Taxation Net profit attributable to shareholders 19,039 (7,918) 11,121 285 (6,657) (2,201) (512) (22) 2,014 (394) 1,620
K-8
APPENDIX K REPORT FROM THE AUDITORS AND THE UNAUDITED PROFORMA COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 AND THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Statement of Adjustments for the Unaudited Proforma Combined Financial Statements of the Group
5,649 13
Current assets Inventories Trade and other receivables Deposits Prepayments Amount due from associated companies Cash and cash equivalents
(1,271)
(3,431)
Current liabilities Trade and other payables Other liabilities Bank overdrafts Amount due to a related party Finance lease liabilities Club membership payable current Provision for taxation
28
Net Current Assets/(Liabilities) Non-Current Liabilities Finance lease liabilities Club membership payable long term Deferred tax liabilities
2,427
477
7,639 7,639
K-9
APPENDIX K REPORT FROM THE AUDITORS AND THE UNAUDITED PROFORMA COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 AND THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Statement of Adjustments for the Unaudited Proforma Combined Financial Statements of the Group
(730)
28
K-10
APPENDIX K REPORT FROM THE AUDITORS AND THE UNAUDITED PROFORMA COMBINED FINANCIAL STATEMENTS OF OLD CHANG KEE LTD. AND ITS SUBSIDIARY COMPANIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 AND THE FINANCIAL PERIOD FROM 1 JANUARY 2007 TO 30 JUNE 2007
Old Chang Kee Ltd. and its Subsidiary Companies Notes to the Proforma Combined Financial Statements
1.
Significant accounting policies The proforma combined financial statements have been prepared in accordance with the accounting policies of the Proforma Group set out in Note 3 to the combined financial statements of the Group for the years ended 31 December 2004, 2005 and 2006, and Note 3 to the combined financial statements of the Group for the six month period ended 30 June 2007.
2.
Significant event Save for the following significant event relating to the acquisition of assets (the Significant Event), the Directors, as at the date of this report, are not aware of any significant acquisitions/disposals of assets, which have occurred since 31 December 2006 and any significant changes made to the capital structure of the Company subsequent to 30 June 2007. The Proforma Group acquired plant and equipment of approximately S$5.60 million since 31 December 2006 to the latest practicable date and approximately S$1.10 million since 30 June 2007 to the latest practicable date.
3.
Basis of preparation of the proforma combined financial statements The proforma combined financial statements have been prepared for illustrative purposes only. They have been prepared based on certain assumptions and after making certain adjustments to show: (i) what the financial results, changes in equity and cash flows of the Proforma Group for the financial year ended 31 December 2006 and the six month period ended 30 June 2007 would have been had the Significant Event occurred on 1 January 2006; and what the financial positions of the Proforma Group as at 31 December 2006 and 30 June 2007 would have been had the Significant Event occurred on 31 December 2006.
(ii)
Based on the assumptions discussed above, the following adjustments have been made to the combined financial statements of Old Chang Kee Ltd. and its subsidiaries in arriving at the unaudited proforma combined financial statements included herein: (i) being adjustments to effect the acquisition of plant and equipment as described in Note 2 above, taking into account the cash consideration of the acquisition and assuming that the acquisition had occurred since 1 January 2006. In the opinion of the Directors, no adjustments for additional revenue were required to be made in respect of the acquisition of the plant and equipment, as they were not available for use in the manner intended by the management during the periods presented.
The proforma combined financial statements, because of its nature, may not give a true picture of the Proforma Groups actual financial position, financial results, changes in equity and cash flows. They are not necessarily indicative of the results of the operations or the related effects on the financial positions that would have been attained had the abovementioned Significant Event occurred at the respective dates as assumed.
K-11
(d)
Until the above requirements have been met, our Company must continue to comply with the SGXSESDAQ rules. Our Company may be delisted if we fail to comply with the above requirements by the Transition Date. The following key changes which affect our Company will take place with effect from the day from which we shall comply with the Catalist Rules:Existing Requirements under SGX-SESDAQ Rules 1. For two years after the listing of a company on the Official List of the SGX-SESDAQ, the company must prominently include a statement that its initial public offering was sponsored by its issue manager in all announcements made by it (on SGXNET or otherwise) and in all its information documents. A company listed on the Official List of the SGX-SESDAQ may obtain a mandate from its shareholders to enable it to issue up to 50% of its issued share capital (of which the aggregate number of shares and convertible securities issued other than on a pro-rata basis must not exceed 20% of its issued share capital). New Requirements under Catalist Rules
The SGX-ST will authorise intermediaries (Sponsors) through certain requirements. After the listing of a company on Catalist, the company must retain a Sponsor at all times. A company may be delisted if it does not have a Sponsor for more than three continuous months.
2.
A company listed on Catalist may obtain a mandate from its shareholders to enable it to issue up to 100% of its issued share capital (of which the aggregate number of shares and convertible securities issued other than on a prorata basis must not exceed 50% of its issued share capital). In the event where shareholders approval is obtained via special resolution on or after the first shareholders meeting, the aggregate number of shares and convertible securities issued other than on a pro-rata basis may be up to 100%.
L-1
(b)
(b)
(c)
(d)
4.
The SGX-ST will review circulars of companies listed on the Official List of the SGX-SESDAQ.
The Sponsor retained by us shall be responsible for advising us on all matters relating to the Catalist Rules, and shall, inter alia:(i) monitor the trading of our Shares and seek and review reasons for any unusual fluctuations in the price and volume of our Shares; advise us on the suitability of Directors arising from proposed changes to our Board; advise us on the appointment of a suitable accounting firm to meet our audit obligations; and advise us if the trading of our Shares should be halted or suspended.
L-2
Our Outlets
2 Mackenzie Road (Rex) 268 Orchard Road AMK Hub Bugis Junction Bukit Merah Central Bukit Panjang Plaza Caltex Ang Mo Kio Avenue 3 Caltex Holland Caltex Lorong Chuan Causeway Point Century Square Compass Point Eastpoint Mall Far East Plaza Forum The Shopping Mall Golden Shoe Car Park Great World City Heartland Mall Hotel Meridien and Shopping Centre Hougang Mall Hougang Point Icon Village IMM Building International Plaza Junction 8 Shopping Centre Jurong Point Shopping Centre Lot 1 Shoppers Mall National University of Singapore Ngee Ann City Northpoint Shopping Centre Extension Novena Square Paragon Parkway Parade Peninsula Plaza Raffles City Shopping Centre Rivervale Mall Simei MRT Station SPC Dunearn Service Station SPC Punggol Service Station Square 2 Sun Plaza Suntec City Mall Tampines MRT Station Tekka Mall The Amara The Ogilvy Centre Thomson Plaza Tiong Bahru Plaza Toa Payoh Lorong 6 Ubi Avenue 2 United Square VivoCity West Mall White Sands
Old Chang Kee Ltd., 2 Woodlands Terrace, Singapore 738427 Tel: (65) 6303 2400 Fax: (65) 6303 2415 Website: www.oldchangkee.com