i s b n 0 7 1 9 8 6 2 0 0 7 1 2 0 7 -...
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HEAD OFFICE AZTECH SYSTEMS LTD No. 31 Ubi Road 1, Aztech Building, Singapore 408694 Tel: (65) 6741-7211 Fax: (65) 6749-1198 Website: http://www.aztech.com
OVERSEAS OFFICES Greater China Office AZTECH SYSTEMS (HONG KONG) LTD Rooms 2-10, 3/F, Core Building 1 No. 1 Science Park East Ave, Hong Kong Science Park, Pak Shek Kok, Shatin, New Territories, Hong Kong Tel: (852) 2757-1177 Fax: (851) 2753-0578
USA AZTECH LABS, INC. 4005 Clipper Court Fremont, CA 94538, USA Tel: (1) (510) 611-6839-800 Fax: (1) (510) 611-6839-803
Germany AZTECH SYSTEMS GmBH Kreuzberger Ring 22 65205 Wiesbaden Germany Tel: (49) (0) 611-45020-0 Fax: (49) (0) 611-45020-100
Malaysia AZ-TECHNOLOGY SDN BHD 105 & 106, Ground Floor, Block A, Kelana Business Centre, 97, Jalan SS 7/2 Kelana Jaya 47301 Petaling Jaya,Selangor Malaysia Tel: (60) (03) 7804-8450 Fax: (60) (03) 7804-8457
R&D CENTRES HQ R & D CENTRE 31 Ubi Road 1, Aztech Building, Singapore 408694 Tel: (65) 6741-7211 Fax: (65) 6749-1198
SHENZHEN R & D CENTRE Blk C Room Nos. 306~308 Intelig Teachnology Digital Park No. 8 Hong Mian Road Futian Free Trade Zone Shenzhen, China Postal Code: 518038 Tel: (86) (755) 25-33-1110 Fax: (86) (755) 2533-1117
HONG KONG R & D CENTRE Room 2-10, 3/F, Core Building 1No. 1 Science Park East AveHong Kong Science ParkShatin, New TerritoriesHong KongTel: (852) 2757-1177Fax: (852) 2753-0578
DONG GUAN R & D CENTRE Jiu Jiang Shui Village, Chang Ping Town, Dong Guan City, Guang Dong Province, China Tel: (86) (769) 8393-6688 Fax: (86) (769) 8393-1138
MANUFACTURING FACILITIES CHINA AZTECH COMMUNICATION DEVICE (DG) LTD Jiu Jiang Shui Village, Chang Ping Town,Dong Guan City,Guang Dong Province, China Tel: (86) (769) 8393-6688 Fax: (86) (769) 8393-1138
SUBSIDIARY – DISTRIBUTION SHIRO CORPORATION PTE LTD 31 Ubi Road 1, #08-00 Aztech Building, Singapore 408694 Tel: (65) 6843-1333 Fax: (65) 6749-3083 Website: http://www.shirocorp.com
SHIRO CORPORATION (HK) LIMITED Rooms2-10, 3/F, Core Building 1 No. 1 Science Park East Ave, Hong Kong Science Park, Pak Shek Kok, Shatin, New Territories, Hong Kong Tel: (852) 2757-1177 Fax: (852) 2753-0578
SUBSIDIARY – SUPPLY OF MATERIALS AZ UNITED PTE. LTD. No. 31 Ubi Road 1, Aztech Building, Singapore 408694 Tel: (65) 6843-1159 Fax: (65) 6741-9773
This publication is produced by Cicada Design Pte Ltd
2007t h e a n n u a l r e p o r t o f a z t e c h s y s t e m s l t d
I S B N 0 7 1 9 8 6 2 0 0 7 1 2 0 7
ON a rOute tO success
www.aztech.com
With worldwide broadband growth
WINNING IR AWARDS p g 20
MANAGING CHALLENGESAHEAD p g 02by Michael Mun, CEO & Chairman
THE YEAR IN REVIEW p g 10how we performed
CORPORATE GOVERNANCE REPORT p g 21a detailed report
On
A R
ou
te To Su
ccessA
ztech A
nn
ual R
epo
rt 2007
Incorporated in 1986, and listed on the Main board of the Singapore Stock Exchange, Aztech Systems Ltd specializes in the design and manufacturing of voice and data communications solutions.
Headquartered in Singapore, Aztech today has more than 2,000 employees worldwide with strong R&D, design and manufacturing capabilities. Supported by its six sales offices in Singapore, Hong Kong, China, USA, Germany and Malaysia, the Company’s main businesses are OEM/ODM, contract manufacturing and retail distribution .
Best Investor Relations Award at the Singapore Corporate Awards, Gold Award for Mainboard Mid Cap '07 & Silver Award for Sesdaq category '06
Most Transparent Company Award at the Securities Investors Association of Singapore Investors’ Choice Award 2007 (Mainboard Small cap, runners-up) & 2006 (Sesdaq)
Aztech Systems Ltd31 Ubi Road 1
Aztech BuildingSingapore 408694Tel: (65) 6741 7211
Fax: (65) 6749 1198Company Reg. No 198601642R
ADSL2+/VDSL2
- Designed for Home-Networking and SOHO environment- Greater Wireless Coverage @125Mbps!- 3-click Easy Set-up
High-SpeedData Transfer
WIRELESSG++READY
125Mbps
VDSL2/ADSL2+Digital ResidentialGateway
VDSL2 / ADSL2+ modem built-in
VDSL2/ ADSL2+ 802.11n/g
High-SpeedDSL
Wireless Draft N with 4-Port router
Wire-Free
Integrated VoIP
VoIP
One TouchSetup
USB 2.0Host
200Mbps HomePlugAV built-in
“Simple Connect”for quick set-up
USB 2.0 hostfor printers/storage
ADSL2+ Modem Wireless 802.11b/g 4-Port Router
contentsANNUAL REPORT 2007
FEATURESBoard O f Direc tors Pg08
Key Management Pg09
The A ztech Year in Review Pg10
Corporate Socia l Responsibi l i t y Pg15
A ztech Brand Sponsorships Pg15
2007 In A Glance Pg16
Investor Relat ions Pg20
FINANCIAL MAT TERSFinancia l Highl ights Pg04
Financia l At A Glance Pg06
Value-Added Statement Pg07
Corporate G overnance Repor t Pg21
Financia l Statements Pg33
HOT PICKSComing SoonPg18
CEO/CHAIRMANMichael Mun Hong Yew
DIRECTORSMichael Mun Hong YewMartin Chia Heok MiinPatricia Ng Sok ChengJeremy Mun Weng HungPhilip Tan Tee YongColin Ng Teck SimKhoo Ho Tong
LEAD INDEPENDENT DIRECTORPhilip Tan Tee Yong
AUDIT COMMITTEEPhilip Tan Tee Yong (Chairman)Colin Ng Teck SimKhoo Ho Tong
NOMINATING COMMITTEEColin Ng Teck Sim (Chairman)Khoo Ho TongMichael Mun Hong Yew
REMUNERATION COMMITTEE Khoo Ho Tong (Chairman)Philip Tan Tee YongColin Ng Teck Sim
COMPANY SECRETARIESPavani NagarajahPradeep Kumar Singh
AUDITORSDeloitte & Touche6 Shenton Way, #32-00DBS Building, Tower TwoSingapore 068809
Alan NisbetPartner-in-chargeAppointed March 30, 2007
REGISTRARB.A.C.S Pte Ltd63 Cantonment RoadSingapore 089758
REGISTERED OFFICE31 Ubi Road 1Aztech BuildingSingapore 408694
COMPANY REGISTRATION NO.198601642R
CORPORATE INFORMATION
LIM
ITED
ED
ITIO
N
COVER STORYManaging ChallengesAhead Pg02A Cover Stor y By M ichael Mun, CEO & Chairman
Cover Picture- 200Mbps
Homeplug AV Wireless 802.11n Router
2007 was another growth year for us. I am proud to say that 2007 marks the 5th year of consecutive growth for Aztech, with a revenue increase of 12.3% year-on-year to S$268.31 million and a retained net profit of S$18.18 million.
FY2007 Performance
Our increase in revenue was largely attributable to the consistent performance of the ODM/OEM segment that accounted for approximately 51% of our total revenue with contract manufacturing and retail sales contributing 38% and 11% of our total revenue respectively.
The Group continues to witness an overall increase in sales across its geographical areas with North & South America segment leading the pack in 2007, accounting for 38% of the Group’s revenue, followed closely by Europe and Asia Pacific with 32% and 24% respectively. The Group’s improved operating performance for 2007 translates into a stronger balance sheet with total assets of S$168.58 million, cash and cash equivalent of S$36.18 million, and shareholders funds of S$89.65 million, an increase of 10.8% over previous year.
Aztech remains focused in our core strategies of capitalising on our competitive strengths of a world-class vertically integrated manufacturing facilities, strong in-house R&D, excellent industrial design capabilities and wide international network. These have enabled us to produce complex high margin products for our contract manufacturing customers, launching new ODM/OEM products for the broadband upgrade market and enticing the retail market with new stylish and innovative products.
Managing Challenges Ahead
Continuous improvement has been the cornerstone of the Group’s efforts as we continue to scale new heights and set high standards for Aztech to deliver greater performance in 2008. This is crucial as we move forward and face increase global economic uncertainty and fluctuations that could impact profitability. At operational level, to meet these challenges, we have put in place and implemented the following strategic plans:
• Improving costs efficiencies
The increase in crude oil prices, material prices and higher operating costs globally and in China continue to impose cost pressures on the Group.
To mitigate the increasing high material prices and production costs, we will strive to increase manufacturing efficiency and improve productivity. We will work towards simplifying manufacturing process and increasing the automation of our processes to reduce costs of production and adopt lean manufacturing solutions for a diverse product mix. Stringent manufacturing specifications and quality control are of paramount importance. The Group believe these core values will fuel and sustain the growth and success of our core business.
• Managing the appreciation of Chinese Renminbi and Singapore dollar againstUS dollar
The strengthening of the Chinese Renminbi and Singapore dollar, against the US dollar has added additional load to the profit margin. To mitigate against adverse fluctuations of foreign currencies, the Group hedges a fixed amount of US dollar against Singapore dollar and Renminbi for the Group’s monthly operating expenses. In doing this, we intend to add stability to our earnings and cash flow. The hedging policy is implemented according to strict risk management guidelines and only for operational requirements. The Group will continue to monitor the currency situation and periodically review the requirement for this exercise.
• Delivering feature-rich products
Aztech will continue to reinforce the key strengths of its core business, primarily the design and manufacturing of data, and voice communication products such as ADSL2+ modems/routers and the HomePlug powerline adapters for the OEM/ODM and Retail markets. In addition, the Group is also targeting to produce feature-rich products that command higher margin such as the new Residential Gateway. The Gateway is truly an all-in-1 broadband device, with built-in modem, wireless Draft N, 4-port router, Ethernet WAN port, VoIP, DECT and 200Mbps HomePlug.
COVERSTORY
story by
Michael MunCEO & Chairman
Challenges AheadManaging
ExclusiveAnnual Report 2007
02
The Group is commited to continue growing our R&D activities by forging alliances with technology partners and institutions to produce cutting edge innovative products.
• Expansion into new business sector
As part of our long-term growth strategy to enhance shareholder value leveraging on our strong cash flow and balance sheet, the Board and management of Aztech is constantly on a look out for new business opportunities to fuel growth and enhance returns. We have recently announced that we have expanded into a new business foray of sourcing and supplying of materials for the building and construction industry as well as for infrastructure development projects. We have recently secured our first contract, to be executed over a period of three years. The contract is worth approximately S$250 million for the overall procurement and supply of the material. This project is expected to have a positive contribution to our financial performance in 2008 and beyond. It is not expected to incur significant capital and resources and is within the current management capability.
We believe the above expansion strategies will provide the impetus for a greater growth beyond what is currently generated by our core business, which will remain our key focus. Aztech will exercise prudent stewardship over our financial resources as we continue to explore other business opportunities to enhance shareholder value.
Rewarding Shareholders
Aztech continues to create value for its shareholders through prudent and efficient capital management for sustained growth. During 2007, Aztech has carried out share buy-back practices, and purchased a total of 9.79 million shares worth S$3.65 million.
Our delivery of consecutive earnings in recent years with healthy cash flow has lead to consistently high level of dividend payouts. Today, to show our appreciation for your support and to enhance the value of your investment and trust in Aztech, our
Michael MunCEO & Chairman
Board of Directors has recommended a tax-exempted (one-tier) final dividend of 1 cent per share. This is in addition to the 0.75 cents per share paid out on 31 August 2007, making the total dividend for FY2007 to be 1.75 cents per share. The dividend payout ratio for 2007 was 39.3%, having increased over the last 4 years with 15.5% in 2004, 19.8% in 2005 and 30.4% in 2006.
A Word of Thanks
Our current management team has done an exemplary job by producing 5 years of consecutive revenue growth and profitability. They continue to drive the business with an emphasis on market development strategies combined with strong fiscal discipline.I trust that the team will continue to strengthen the product quality Aztech represents, build new and deeper business relationships with our partners and continue to drive the enterprise forward.
Once again, our achievements would not have been possible without the support and contribution of our customers, business associates, staff and shareholders. It is this complementary relationship that has contributed greatly to the success of the Group.
In the year ahead, we will continue to pursue revenue growth and profit contributions in our businesses with the goal to scale new heights. Together, we’re moving forward towards a brighter future ahead.
Continuous improvement has been the cornerstone of the Group’s efforts as we continue to scale new heights and set high standards for Aztech to deliver greater performance in 2008
“It’s packed with everything broadband you can imagine in a single box” - Digital Residential Gateway
03
by The Finance Department
FINANCIAL MAT TERS
Group Turnover (S$’m)
152.1
04
178.6
239.0268.3
05 06 07
300
250
200
150
100
50
0
Net Profit (S$’m)
6.4
04
10.1
20.018.2
05 06
25
20
15
10
5
0 07
6
5
4
3
2
1
0
Earnings Per Share (Cents)
200
150
100
50
0
Shareholders’ Equity and Total Assets (S$’m)
55.2
04
138.8
150.2168.6
05 06 07
1.6
04
2.5
4.94.5
05 06 07
108.0
64.680.9
89.6
Annual Report 2007
04
Return on Equity and Total Assets
15
10
5
-
(5)
(10)
Net Cash Flow (S$’m)
1.6
04
5.7
13.9
7.0
05 06 07
Gross Dividend and Dividend Payout Ratio
10
8
6
4
2
0 04 06 070.25
35
28
21
14
7
0
1.50 1.75
15.5%
30.4%
25
20
15
10
5
0 0704 06
15.7%
24.8%
13.3%
050.50
19.8%
39.3%
05
7.3%6.0%
11.7%
20.3%
10.8%
35
30
25
20
15
10
5
0
EBITDA (S$’m)
13.4
04
18.1
32.4 31.3
05 06 07
Annual Report 2007
05
wins triple awards for 802.11n wireless router from prestigious magazines
2007 2006 2005 2004 2003 S$’000 S$’000 S$’000 S$’000 S$’000
ResultsRevenue 268,310 238,997 178,584 152,135 118,042EBITDA 31,286 32,435 18,092 13,416 9,863Net profit for the year 18,177 20,038 10,128 6,434 2,828Net cash inflow (outflow) 7,000 13,852 5,668 1,566 (5,808
Assets and liabilitiesNet current assets 50,079 52,320 24,088 22,669 17,356Total assets 168,583 150,188 138,824 108,044 87,195Total liabilities 78,937 69,282 74,179 52,861 38,803Total borrowings 28,065 20,026 43,595 19,229 11,909Shareholders’ equity 89,646 80,906 64,645 55,183 48,392
Per share basis (in cents)Earnings - basic 4.45 4.94 2.53 1.61 0.71Gross dividend 1.75 1.50 0.50 0.25 –Net asset value 21.86 19.78 16.07 13.81 12.15
RatiosNet profit margin 6.8% 8.4% 5.7% 4.2% 2.4%Current ratio 1.72 1.82 1.43 1.51 1.58Dividend payout ratio 39.3% 30.4% 19.8% 15.5% –Dividend cover 2.51 3.29 5.06 6.44 –Gearing ratio 31.3% 24.8% 67.4% 34.8% 24.6%Return on assets 10.8% 13.3% 7.3% 6.0% 3.2%Return on equity 20.3% 24.8% 15.7% 11.7% 5.8%
(1) The net profit for the year ended December 31, 2004 decreased by $407,000 from $6,841,000 (as previously reported) to $6,434,000 (as restated above) due to the adoption of Singapore Financial Report Standards 102-Share-based Payment.
FY2007
FINANCIAL MAT TERS
(S$’m) %ODM/OEM Sales 137.2 51%Contract Manufacturing 103.1 38%Retail Distribution 28.0 11%Total 268.3 100%
(S$’m) %North & South America 101.0 38%Europe 86.5 32%Asia Pacific 65.0 24%Others 15.8 6%Total 268.3 100%
Retail Distribution11%
ODM/OEM Sales 51%
Contract Manufacturing38%
FY2007 America38%
Asia Pacific 24%
Europe 32%
Others6%
)
(1)
Annual Report 2007
06
2007 2006 Changes $’000 $’000 %Revenue 268,310 238,997Suppliers of materials and services (217,626) (186,785)Gross value added from operations 50,684 52,212Gain on revaluation of investment properties 3,499 -Other operating income 2,745 3,070Exchange (loss) gain (1,548) (1,306)Total value added 55,380 53,976 2.6%Applied as follows:
To remunerate employees- Salaries, wages and other benefits 23,690 20,839 13.7%
To government- Taxation 3,442 2,977 15.6%
To reward providers of capital- Dividend to shareholders 7,231 6,118- Interest on borrowings from banks 1,578 1,928
8,809 8,046 9.5%To maintain operation and expand the group
- Impairment loss on available-for-sale investment - 383- Depreciation and amortisation 8,493 7,811- Net earnings retained 10,946 13,920
19,439 22,114 (12.1%)
55,380 53,976 2.6%Value added ratiosNumber of employees 2,299 2,265 1.5%Value added per employee ($’000) 24 24 -Value added per $ of employment cost 2.34 2.59 (9.7%)Value added per $ sales 0.21 0.23 (8.7%)Value added per $ of investment in property, plant and equipment 0.88 0.89 (1.1%)Cost of property, plant and equipment 62,619 60,777 3.0%
FY2006
41%
5%39%
15%FY2007
35%
6%
43%
16%
To renumerate employees
To government
To reward providers of capital
To maintain operations and expand the group
Annual Report 2007
07
Value added statement is the wealth created by the Group by applying its goods
and services. This statement shows the total wealth created and how it was allocated
“Powerline networking just got better” - HomePlug
PATRICIA NG SOK CHENG
MARTIN CHIA HEOK MIIN
JEREMY MUN WENG HUNG PHILIP TAN TEE YONG
BOARD OFDIRECTORS
MICHAEL MUN HONG YEW
FEATURES Annual Report 2007
08
COLIN NG TECK SIM
KHOO HO TONG
KEY MANAGEMENT
*Details of member of the board can be found in the Corporate Governance Report at pg 21.
09
“A dedicated wireless multimedia streamer for any modern home” - Wireless Multimedia Streamer
IN REVIEWyear
THE
More than products and services, we are driven to deliver sustainable earnings and value growth in every areaof our business.
FEATURES Annual Report 2007
10
ADSL2/2+ wireless modem router
FEATURESREVIEW OF OPERATIONS
Aztech celebrated its 21st year in operations in
2007. The Group’s businesses in the design and
manufacturing of electronic products for OEM/
ODM, contract manufacturing and retail distribution
continue to grow with each passing year.
OUR BUSINESSThe ODM/OEM Sales segment continued to be
the largest contributor of the Group’s turnover. In
FY2007, it accounted for about 51% of Group’s
turnover generating S$137.23 million in revenue.
The good performance was driven by the sales
of broadband products largely from ADSL2/2+
modems/routers and HomePlug powerline adapters.
To tap on the expanding ADSL2/2+ broadband
usage in homes and offices, we have targeted
countries like Eastern Europe, South America, South
East Asia and Middle East where there is potential
increment in number of ADSL subscribers.
In September 2007, Aztech reaffirmed its continuous
growth of its ADSL2/2+ broadband modem
product sector when it received firm orders for 1.5
million units of ADSL2/2+ broadband modems to
be delivered by year-end. The contract was from
a key customer in North America, and is currently
on track for additional orders of 2 million units.
The entire contract was valued at approximately
US$50 million.
Contract Manufacturing accounted for the 2nd
largest business segment with 38% of the Group’s
turnover, generating S$103.09 million in revenue
in 2007.
Our vertically integrated manufacturing facilities
once again affirmed Aztech’s ability to provide a
fast-turnaround time and high quality products
for the increasingly demanding customer base.
In September this year, 3 additional Surface Mount
Technology (SMT) lines were installed in the Dong
Guan plant to cope with the current capacity that
was peaking. The new lines boosted the Group’s
production SMT facilities from 13 lines to 16
lines.
Looking ahead, the prospects for the Contract
Manufacturing segment are encouraging.
However, we remain mindful of global economic
uncertainty and fluctuations that could affect
profitability. The increase in material prices and
higher operating costs continue to impose
cost pressures on the Group. To mitigate these
challenges, the Group will focus on higher value-
added business.
The Group has also embarked on new initiatives to
strengthen and maintain margins through effective
production cost management. We are transforming
our processes to automation that reduces manual
labour costs and adopting lean manufacturing
solutions such as cell-based production lines to cater
for a diverse product mix and higher productivity.
The Retail Distribution segment consists of the
Aztech and the Shiro brand products. Last year,
the Retail sector accounted for 11% of the Group’s
turnover generating S$28 million in revenue.
There were many exciting advancements in the
Annual Report 2007
11
ArgentinaAustraliaBelgiumBrazilCanadaChileCroatiaDemarkEgyptFranceGermanyHong KongIndiaIndonesiaIsraelItaly
KoreaMalaysia
NetherlandsPakistan
PolandRussia
SingaporeSlovakia
South AfricaSpain
SwitzerlandThailand
TurkeyUAE
UKUSA
Vietnam
Major Customers’ Network
FEATURES
High-speed SMT line Automatic Optical Inspection machine
RoHS lead-free spectrometer
Retail sector last year. In August, Aztech received
a major milestone when its 200Mbps HomePlug
was made the preferred choice for SingTel’s
Internet Protocol Television (IPTV) service. Singtel
is Singapore’s largest telecommunications/Internet
service provider. Aztech supplied 20,000 units to
power SingTel’s IPTV, mio TV. Due to the demanding
requirement of high speed and consistent data
transfer speeds required, the HomePlug was the
best and easiest solution to set up a network using
Powerline communications. By plugging a pair
of Aztech’s 200Mbps HomePlug into any existing
power socket, homeowners can enjoy the ease of
streaming Internet video to different parts of the
home, without having to run unsightly cables to link
the broadband connection to the IPTV set-top box.
At the same time, Shiro established new inroads into
emerging markets such as Russia, Ukraine and South
America with its range MP3 and MP4 players and
DECT phones. This was in-line with the Group’s sales
strategy to venture into South America and Eastern
Europe, whereby Shiro succeeded in establishing
major key customers through strategic partnerships
and wide product offerings.
Eyeing at the potential market share in RC
electronics, the Group launched a new electronic
product category specially targeted at hobbyists
and remote-control (RC) enthusiasts. The new Helex
micro-RC helicopter was officially unveiled at the
Hong Kong Electronics Fair (Spring), Shanghai Toy
Expo and Beijing China Model Expo.
For a third year running since 2005, Aztech was
again named as one of the top three brands for
Wireless and Networking products in Malaysia after
a nationwide survey conducted by Malaysia’s most
popular I.T. magazine, Hardware Magazine and
Plaza Low Yat Brand Survey 2007. This award has
once again affirmed Aztech’s dominance in Wireless
Networking and the definitive quality that its
products have brought to the region’s consumers.
The future outlook for the Retail Distribution
segment remains bright. We are actively seeking
out opportunities to expand our product range
to entice the market and increase the market
competitiveness for our products. We plan to
aggressively carry out marketing programs to
build the brand awareness towards our products
especially in new markets. Expansion of our sales
network into new territories will continue to be a
core focus for this segment.
OUR OPERATIONSTo grow its business, Aztech continues to intensify
its R&D efforts to develop new and innovative
products, which can demand better margins. R&D
remained as one of our main focus as we recognized
Aztech Retail Products
Annual Report 2007
12
FEATURES“Take flight the fun & easy way with Zulu” - Aztech RC Helicopter
the invaluable benefits for sustained growth and
long-term competitiveness. With its continuous
pursuit in this area, the Group was able to develop
products with competitive advantages and be a key
player in the industry.
Recently, new products created from the in-
house R&D efforts are specifically targeted at
next generation of broadband – VDSL (Very High
Speed DSL line) and FTTH (Fiber-To-The-Home)
technologies. Such products of better features and
technology are targeted to meet the increasing
popularity and demand for value-added services
such as Internet Protocol (IP) TV, Voice over IP (VoIP),
video conferencing and High Definition (HD) TV.
Taking its R&D activities to a higher level, Aztech
embarked on a strategic approach to forge
alliances with institutions to produce innovative
products. In June, Aztech formed a technological
alliance with Telekom Research & Development
SDN BHD (TMR&D), a wholly owned subsidiary of
Telekom Malaysia Berhad to conduct R&D activities
through cooperative research, research contracts,
training, industrial attachment, and consultancy.
This alliance serves to combine the technical and
marketing capabilities of both organisations and
together promote and commercialize its joint R&D
products in Asia.
Last but not the least, we take great pride in its
state-of-the art manufacturing facilities at Dong
Guan plant, which have seen continual upgrades
over the last 2 years since turning operational. In
order to roll-out products of the optimum quality,
we have invested wisely in high tech equipment
such as the 5DX 3D X-ray machine, Automated
Optical Inspection machines and recently a RoHS
lead-free spectrometer. Today, our fully integrated
design and manufacturing solutions serve to
shorten a product’s development life cycle thereby
helping our customers reduce development costs
and retain their edge in their respective markets.
It is our desire to create a world-class plant, fueled
with a dedicated work force to exceed customers’
expectations.
PRODUCT ACCOLADESIn a fast growing and highly aggressive broadband
industry, it is critical for Aztech to stay ahead of
competition by producing quality products of
world-class standards. During the year in review,
our products gathered recognition in the form of
awards from various local magazines.
13Shiro Touch-screen media player Shiro Slim Compact media player
200Mbps HomePlug powerline adapter
FEATURES
Hong Kong Electronic Fair 2007
Our 200Mbps HomePlug, Wireless Draft N adapter,
ADSL2+ Wireless Router and Skype DECT phone took
honorary recognitions from various publications
such as Hardware Mag and PC-Mag. The products
were regularly reviewed by leading tech editors and
the ensuing positive results were a testament to
our commitment in producing quality broadband
products well positioned to distinguish itself in
today’s competitive market.
EXHIBITIONSAztech continued its aggressive strategy to
increase visibility of its latest products. The Group
participated in key international trade exhibitions
to capitalize on the exposure to international
customers and some of the major exhibitions in
2007 included:
• Consumer Electronic Show (US)• VON Spring (US)• Cebit (Europe)• Broadband World Forum (Europe)• Hong Kong Electronic Fair (Hong Kong)• RC Model Exposition (China)• CommunicAsia (Singapore)
BRAND SPONSORSHIP AWARENESSIn 2007, Aztech embarked on brand sponsorship
activities, with the key objective to increase the brand
and product visibility in the end-user market. The
outreach activities were mainly targeted towards the
younger generation of the public, specifically at the
local tertiary schools and universities. In 2007 alone,
there are a total of 23 such sponsorship programs,
ranging from Open Houses to Sports events. Some of
the key events include the 5 Nations Cup organized
Wins Most Transparent Company Award from SIAS Research
by the Singapore Netball Association and the NUS
Run by the National University of Singapore.
INCREASING AZTECH’S CORPORATE PROFILEOn the Corporate front, the Group continuously
reviews and improves its corporate policies, geared
towards achieving and maintaining a high standard
of corporate practices. In May, Aztech won the
Best Investor Relations Award at the Singapore
Corporate Awards organized by Business Times
and SGX. This was followed by another award
win from SIAS Research for Most Transparent
Company, presented in October. It was the 2nd
consecutive year that Aztech has been awarded
Most Transparent Company by SIAS, which can be
credited to our continual aggressive approach to
improve transparency in its corporate activities.
During the year in review, our IR efforts also drove
our ranking on the Corporate Transparency Index
by Business Times in December to the 12th position,
amongst the many listed companies in Singapore.
OUTLOOK FOR 2008Looking ahead, Aztech continues to be in a strong
position to grow and expand. More than products
and services, we are driven to deliver sustainable
earnings and value growth in every area of our
business. The Group’s main efforts and key focus
will be to push for business and market expansion
to propel growth while ensuring high level of
operational efficiency and improved productivity.
Annual Report 2007
14
Objective of sponsorship events:1. To support tertiary students and contribute to their development outside academia.2. Continue branding efforts to generate positive influence of the Aztech brand name.
Following are key events we co-sponsored in 2007:
27th May: NTU Bike Rally organised by NTU Sports Club• Non-competitive, round-
Singapore island cycling event opened to both studentpopulation and public.
• 800 participants
18th August: NUS Run organised by NUS Sports Club• 10km run route around
NUS Campus & Kent Ridge Park opened to students and public.
• 800 participants
3rd-8th Sep: 5 Nations Cup organised by Singapore Netball• Singapore’s most anticipated netball
event of the year, where Singapore and top international teams from Canada, Sri Lanka, Northern Ireland and Trinidad & Tobago, pit against one another.
• Toa Payoh Stadium
Aztech took part in a Blood Donation Drive on 8 Aug 2007. After donating blood, the officers from the S’pore Red Cross also took the staff on a guided tour round the Bloodbank@HSA. To many, the tour had provided an insight into how a single blood donation, by means of modern processing techniques, is separated into its components and can help at least 3 different patients.
Aztech also took 30 children from the Singapore Children’s Society for a special day out at the cinema. The kids were treated to a movie screening of the latest “Harry Potter & The Order of the Phoenix” movie on 21 July 2007 (Saturday) in The Prince Cineplex at Beach Road.
Aztech staff ensured the kids were well taken care of, with transportation to ferry the children to and from the Home in Yishun to the Cinema.Throughly enjoying the event, our staff showered the kids with lots of popcorn and drinks, and more importantly, love and affection. It was truly a fun event and we look forward to the next one.
Some Aztech employees have been serving as volunteers by taking some time off after office hours, per week for the Food From The Heart “FFTH” program. The FFTH program requires the volunteers pick up unsold bread from bakeries and hotels and distribute to various welfare organizations, needy families and individuals.
FEATURESAnnual Report 2007
15
FEATURES
Aztech brand sponsorship at Nanyang Technological University
MAY
A movie treat for kids from theSingapore Children Society
APRIL
Annual Report 2007
16
Lunar New Year celebrations at our Aztech plant - Dong Guan, China
1st preview of the RC Helicopter at Hong Kong Electronic Fair
Inaugural Quarterly Financial Results Briefing
Wins Best Investor Relations Award - Singapore Corporate Awards ‘07
APRIL
MAY
JANUARY MARCH
Annual Report 2007
17
“Easy to use, stylish, slim music player on the go” - Shiro MP3
Aztech sign R&D MOU with Telekom R&D, Malaysia
Analysts’ Day at Dong Guan Plant Invest Fair ‘07 - Keeping in touch with our investment community
Dealer Day in Singapore- Breakfast treat for our dealers
Winner of red.dot Concept Design Award ‘07
JUNEJUNE
AUGUST
Exhibiting at one of Asia’s largest IT trade show - CommunicAsia2007
AUGUST
Coming soon
Digital Residential GatewayToday ISPs face a fast-growing consumer base that demands a simple solution that integrates all Triple Play solutions – data/voice/video. The adoption of IPTV, VoIP, video conferencing and basic surfing has resulted in a big market of multiple devices meant specially for different functions.
Targeted at ISPs or telecommunications providers, Aztech’s latest Digital Residential Gateway packs many features into 1 device that meets the Triple Play requirements.
HOTPICKS
»» All your DSL and networking needs in 1 device
»» ADSL2+/VDSL2 modem built-in
»» Wireless 802.11n with 4-port router for home networking
»» Integrated VoIP
»» 4 Ethernet LAN port
»» Cordless Dect phone base integrated
»» Built-in 200Mbps HomePlug AV for powerline networking
»» USB 2.0 Host for sharing a printer or network storage device
»» “Simple Connect“ technology for wireless, Homeplug and DECT
DSL1215
CHOICE
AZTECHN
EW
RELEAEAZTECH
NE
WR
EL
EA E
Annual Report 2007
18
The new HL109RN is truly an all-in-one device for homeowners who enjoy Triple Play applications such as Internet Protocol Television (“IPTV”), online console gaming (Xbox360, Playstation3, etc) and media sharing. Everything in one simple device, it combines the best functions and complete benefits of a:
Coming soon
HOTPICKS
Carved to geometric perfection and smoothened to a posh reflection for a deep seductive feel, Aztech sets new standards in design trends for home networking products. With the new Wireless Multimedia Streamer, users can now stream multimedia from the an Internet source to 4 different entertainment devices (eg, IPTV, X360, PS3, etc). Users can switch between using a 2.4Ghz frequency to surf the Internet or a dedicated 5Ghz frequency to steam multimedia at the highest payload possible. The WL850MS comes with Aztech’s “Simple Connect” feature that pairs all devices automatically with no fuss.
Wireless Multimedia
»» Built-in 200Mbps HomePlug AV for reliable powerline content transfer
»» Wider wireless coverage with Draft-N
»» Flexibility for content sharing with 4-port router
200Mbps HomePlug Wireless Draft N 4-Port Router
AZTECHN
EW
RELEAEAZTECH
NE
WR
EL
EA E
WL 850MS
INNOVATIVE
AZTECHN
EW
RELEAEAZTECH
NE
WR
EL
EA E
HL109RN
Annual Report 2007
19
FEATURES
IR AWARDS & ACCOLADES
• MOST TRANSPARENT COMPANY AWARD 2007 – Mainboard Small Cap (By SIAS Research)
Aztech was awarded the Most Transparent Company Award in 2 consecutive years, by the SIAS Research Investors’ Choice. Nominated by analysts, fund managers, financial journalists and retail investors represented by SIAS, the award win is attributed to Aztech’s continual aggressive approach to improve transparency in its corporate governance and business activities.
• BEST INVESTOR RELATIONS 2007 – Mainboard Mid Cap Category(By Business Times & SGX)
The Group won the Gold Award – Mainboard Mid Cap category for Best Investor Relations in the Singapore Corporate Awards’ (“SCA”). Organized by The Business Times and supported by SGX, Aztech attained success for our key corporate governance policies and structure, structure of IR function, quality of corporate disclosures and key IR tactics and tools employed. This is the 2nd year that Aztech has won a SCA award.
Investor Relations
ACTIVITIES
As a fast-growing SGX-listed technology Company, Aztech realise the critical importance of building a sturdy relationship with the investment community. This relationship is to be fostered and managed with the utmost attention in order to provide greater transparency and information dissemination to both the institutional and retail investors.
The IR activities in Aztech is managed by a team, which comprises of members from various department, that plays critical functions and provides complementary contributions in their respective fields. Headed by Pavani Nagarajah, Director of Legal & Corporate Affairs, the IR team comprises of Gary Tan from Marketing Communications and Jessica Chua from Finance. Supporting the IR activities are Martin Chia and Herman So from the Sales and Finance department respectively. Each member of the team carries their own individual build-up experience of more than 10 years, and contributes to the overall IR strategies and activities.
IR IN AZTECH
• Quarterly financial results reporting• Analyst & Media briefings• Maintaining a dedicated comprehensive and
ensuring a up-to-date IR portal
• Taking part in external Investors exhibitions (eg. Road shows, Invest Fairs)
• Bi-monthly Aztech newsletter• Concise, accurate and factual press releases
Annual Report 2007
20
Annual Report 2007
Corporate Governance
Annual Report 2007
22
Remuneration Committee
Nomination Committee
Shareholders
Board
Management
Business Units
Audit Committee
This corporate governance section describes the Group’s Corporate Governance processes and activities for FY2007, which is structured in line with the principles of the Code of Corporate Governance 2005 issued by the Council on Corporate Disclosure and Governance, Singapore (“the Code”).
This report describes Aztech’s Corporate Governance practices and structures that were in place during the financial year, with specific reference to the principles and guidelines of the Code. Any deviations from the Code are also explained.
In developing and adopting the Group’s Corporate Governance polices and practices, Aztech has adopted a balanced approach by observing the terms and spirit of the Code.
The diagram below illustrates the Group’s Corporate Governance structure.
BOARD OF DIRECTORS(The Code – Principles 1, 2, 4 & 10)
The Board oversees the business affairs of Aztech and is collectively responsible for the success of the Group. The principal functions of the Board are: -
· make decision on matters relating to the Group’s activities which are of significant nature;· oversee the business and affairs of the Group;· establish with Management the strategies and objectives to be implemented and monitor the
performance of Management;· ensure that adequate internal controls, risk management policies, and financial reporting processes are
in place and are implemented; and· review the financial performance of the Group.
Matters requiring the Board’s decision and approval include:· major funding proposals, investments, acquisitions and divestments;· material transaction of capital assets exceeding value of $500,000;· expenditure of the Group in excess of $500,000 which is not in the budget;· the annual budget;· annual and quarterly financial reports;· internal controls and risk management strategies and execution; and appointment of Directors and key
management staff, including review of performance and remuneration packages.
To assist the Board in discharging its function, various Board Committees, namely the Audit Committee (“AC”), Nominating Committee (“NC”) and Remuneration Committee (“RC”) have been formed with clear terms of reference. The terms of reference of each Committee are described in Appendix 1 of this Report.
Corporate Governance
Annual Report 2007
23
BOARD OF DIRECTORS (cont’d)(The Code – Principles 1, 2, 4 & 10)
The number of Board and Board Committee meetings held in FY2007, as well as the attendance of each Board member at these meetings, are disclosed below:
Number of Meetings Held
Board of Directors
10
AuditCommittee
6
NominatingCommittee
2
RemunerationCommittee
3
Name of Director Number of Meetings Attended
Michael Mun Hong YewPatricia Ng Sok ChengColin Ng Teck SimPhilip Tan Tee YongKhoo Ho TongMartin Chia Heok MiinJeremy Mun Weng Hung
1010101010 10 10
--666--
2-2-2--
--333--
Key information, as required under the Code, regarding each Director is disclosed in Appendix 2 of this Report. The list of directorships or chairmanships, as the case may be, held by each Director both present and those held over the preceding three years in other listed companies is also disclosed in the said appendix.
CHAIRMAN AND CEO(The Code – Principle 3)
Mr Michael Mun is the Chairman and CEO of the Group. He bears responsibility for the functioning of the Board.
The Board confirms that there is no concentrated power in the hands of one individual and there is independent decision-making in the Aztech Board for the following reasons:
· there is a strong independent element on the Aztech Board;· the independent Directors actively participate during Board meetings;· the independent Directors freely discuss and review all proposals of the Management and on all matters
of the business of the Group;· to enhance the independence of the Board, a Lead Independent Director has been appointed to
coordinate the activities of the independent Directors and act as the principle liaison between the independent Directors and the Chairman on sensitive issues; and
· the Lead Independent Director discusses issues with other Independent Directors, both during and outside Board meetings on important issues affecting the affairs of the Group.
In the case of Aztech, the Board is of the firm and unanimous view that it is in the best interests of the Company to continue to have an Executive Chairman who is knowledgeable about the businesses of the Company. Therefore a single leadership structure, where the Chairman and CEO is the same individual is to the benefit of the Group.
The Chairman, with the assistance of the Company Secretary, schedules meetings and prepares meeting agendas to enable the Board to perform its duties responsibly having regard to the Group’s business and operations. The Chairman sets guidelines on and monitors the flow of information from Management to the Board to ensure that all material information is provided timely to the Board to make good decisions.
The Chairman briefs the Directors on prospective deals and potential developments at an early stage before formal board approval is sought on a regular basis. He also ensures that relevant information on business and corporate activities are continuously circulated to Board members so as to enable them to be updated. The Chairman also ensures effective communication with shareholders.
LEAD INDEPENDENT DIRECTOR(The Code – Principle 3)
Mr Philip Tan, an independent non-executive Director was appointed as the Lead Independent Director on October 2, 2006 for a term of two (2) years.
Corporate Governance
Annual Report 2007
24
NOMINATING COMMITTEE(The Code – Principle 4)
The NC comprises of 3 members; namely,
Mr Colin NgMr Khoo Ho TongMr Michael Mun Hong Yew
Chairman, Independent DirectorIndependent DirectorExecutive Director
The term of reference of the NC are disclosed in the Appendix 1 hereto. There were 2 meetings of the NC held during the year in review.
The NC also determines annually whether each Director is able to and has been adequately carrying out his or her duties as a Director of the Company. The NC took into account the results of the assessment of the effectiveness of each individual Director and the respective Directors’ conduct on the Board in making this determination. For a Director who has multiple board representations, the NC reviewed whether or not the Director was able to and had been adequately carrying out his or her duties as Director of the Company.
To ensure that the assessment is done fairly, each member of the NC completes his assessment independently and without consultation with the other members. The results of the assessment are then tabled at a meeting of the NC and evaluated. The NC was satisfied that all the Directors had adequately carried out their duties as Director.
The Nominating Committee is also entrusted with the responsibility of re-nomination having regard to the Director’s contribution and performance (such as attendance, preparedness and participation), with reference to the results of the assessment of the individual Director by his peers for the previous financial year.
The Directors submit themselves for re-nomination and re-election at regular intervals of at least once every three years. Pursuant to the Company’s Articles of Association, one-third of the Directors retire from office at the Company’s annual general meeting, and a newly appointed Director must submit himself or herself for re-election at the annual general meeting immediately following his appointment.
The NC determines on an annual basis whether or not a Director is independent, bearing in mind the Code’s definition of an “Independent Director” and guidance as to relationships of that exist that would deem a Director not to be independent. When deliberating as to whether or not a Director is independent, the NC also takes into account whether a Director directly or indirectly has business relationship with the Group and if so, whether such relationship could interfere, or be reasonably perceived to interfere, with the Director’s independent judgment for the best interest of the Group. The NC concluded that all three (3) non-executive Directors are independent.
All new appointments of Directors are subject to the recommendation of the NC. When recommending any individual, the NC ensures that the individual posses core competencies that meet the Group’s requirement, has relevant experience or willing to acquire the required knowledge, has the ability to commit the time and effort to discharge his or her duties well and is a person of high integrity.
BOARD PERFORMANCE(The Code – Principle 5)
The Director have implemented formal processes for accessing the effectiveness of the Board as a whole, and the contribution by each individual Director to the effectiveness of the Board.
The performance criteria for the Board’s effectiveness with respect to the Board as a whole are adequacy of the Board meetings, Board’s independence, Board’s team spirit, Board’s decision making ability as a whole, Board’s ability to strategize and propose sound business directions, Board’s performance in relation to identifying and handling risks and the Board’s performance in relation to discharging its responsibility in enhancing long term shareholders’ value.
The Board assessment exercise provided an opportunity to each Director to obtain constructive feedback on whether he or she discharges his or her duties effectively and the changes, which should be made to enhance the effectiveness of the Board as a whole. The individual Director assessment exercise allowed for peer review with a view to raising the quality of Board as a whole. The NC concluded that the Aztech Board was effective during the year in review and performed generally well in all areas.
Corporate Governance
Annual Report 2007
25
ACCESS TO INFORMATION(The Code – Principle 6)
As a general rule, Board papers are required to be sent to Directors before the Board meeting so that the Directors may better understand the matter prior to the meeting and discussion may be focused on questions that the Board has about the Board papers. Where required, Management staff would be present at the relevant time during the Board meeting to provide additional information to the Board.
The Company fully recognises that the continual flow of relevant information on an accurate and timely basis is critical for the Board to be effective in the discharge of its duties. The Management, under the supervision of the Chairman provides the Board with accurate information in a timely manner concerning the Group’s progress or shortcomings in achieving its strategic business objectives or financial targets and other information relevant to the strategic issues facing the Group.
Management also provides the Board members with Management accounts on a regular basis. The Management account reports the Group’s performance, financial position and prospects, consolidated profit and loss accounts, analysis of sales by segment and analysis of key customers. Explanation is also given for significant variances to the budget and the performance of the Group for the same period in the previous year.
The Company Secretary administers, attends and prepares agenda and minutes of all Board meetings. She ensures that the Company’s memorandum and articles of association and relevant rules and regulations, including requirements of the Companies Act, Securities & Futures Act, and Listing Manual of the Singapore Exchange Securities Trading Limited (“SGX”) are complied with. She also assists the Chairman and the Board to implement and strengthen corporate governance practices and processes with a view to enhancing long-term shareholder value. The Directors have separate and independent access to the Company Secretary. The appointment and removal of the Company Secretary are subject to the approval of the Board.
Subject to the approval of the Chairman, the Directors, whether as a group or individually, may seek and obtain independent professional advice to assist them in their duties at the expense of the Company.
REMUNERATION MATTERS
Procedures for Developing Remuneration Policies(The Code – Principle 7)
The RC comprises of 3 members; namely,
Khoo Ho TongPhilip Tan Tee YongColin Ng Teck Sim
Chairman, Independent DirectorIndependent DirectorIndependent Director
The term of reference of the RC are disclosed in the Appendix 1 hereto. There were 3 meetings of the RC held during the year in review.
The Remuneration Committee is responsible for ensuring a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual Directors and Senior Management.
The Remuneration Committee recommends to the Board, a framework of remuneration which covers all aspects of remuneration, including but not limited to Director’s fees, salaries, allowances, bonuses, share options, and benefits-in-kind and specific remuneration packages for each Director. The Remuneration Committee ensures that the remuneration of the Directors and Senior Management commensurates with their performance, giving due regard to the financial and commercial health and business needs of the Group. No Director is involved in deciding his own remuneration.
The head of our Human Resources Department assists the RC in performing its function. The RC has access to expert advice in the field of executive compensation outside the Company, if required.
Corporate Governance
Annual Report 2007
26
Level and Mix of Remuneration(The Code – Principle 8)
All Directors receive Directors’ fees in accordance with their contributions, taking into account factors such as effort and time spent; responsibilities of the Directors and the need to pay competitive fees to attract, motivate and retain the Directors. Directors’ fees are recommended by the Board for approval at the Company’s AGM.
The remuneration for the executive Directors and the key executives comprise a basic salary component and a variable component, based on the performance of the Group as a whole and their individual performance. The service agreements entered into with four (4) executive Directors, namely Mr Michael Mun, Ms Patricia Ng, Mr Jeremy Mun and Mr Martin Chia are for a period of three years. The service agreements provide for termination by either the Executive Director or the Company upon giving written notice of not less than six months.
The Remuneration Committee also administers the Group’s share option scheme which was implemented on 10 March 2000 as a share incentive scheme. Details of the ESOS are set out on page 37 of this Annual Report.
Disclosure on Remuneration(The Code – Principle 9)
The breakdown of remuneration of the Directors of the Company for the year ended 31 December 2007 is set out below:
Salary%
Bonus%
Directors’ fees
%
Profit Sharing
%*Others
%Total
%
Executive Directors
Between $1,250,000 and $1,500,000Michael Mun Hong Yew 44 19 4 26 7 100
Between $250,000 and $500,000 Patricia Ng Sok ChengMartin Chia Heok MiinJeremy Mun Weng Hung
685248
112016
77
12
41012
101112
100100100
Non-Executive Directors
Below $250,000Philip Tan Tee YongColin Ng Teck SimKhoo Ho Tong
- - -
- - -
100 100 100
- - -
- - -
100100100
* The Company’s contribution to the Central Provident Fund, allowances, car and accommodation cost (if any) is included in the column referred to as “Others” above.
During the year, no share options were granted to Directors, Senior Management, Substantial Shareholders or Associates of Substantial Shareholders.
Corporate Governance
Annual Report 2007
27
Disclosure on Remuneration (cont’d)(The Code – Principle 9)
During the year, the following Directors exercised share options and the gain from the exercise of options is as follows: -
Name of Director Gain as at the date the shares are listed
Michael Mun Hong YewPatricia Ng Sok ChengMartin Chia Heok MiinJeremy Mun Weng HungColin Ng Teck SimPhilip Tan Tee Yong
$451,000$641,890$460,000$135,300$147,500$147,500
For the Financial Year ended 31 December 2007, except for Mr Michael Mun Hong Yew and Mr Jeremy Mun Weng Hung (whose remunerations disclosed above), no employee of Aztech Group, whose remuneration exceed $150,000, was an immediate family member of a Director. Immediate family means spouse, child, adopted child, stepchild, brother, sister or parent. Mr Jeremy Mun Weng Hung is the son of Mr Michael Mun Hong Yew.
The remuneration band of Top 5 Key Executives of the Group (who are not Directors) are set out below:
Remuneration Bands 2007
$250,000 to $499,000$100,000 to $249,999Below $100,000Total
-5-5
Note:For competitive reasons, the Company is not disclosing the identity of the Top 5 Key Executives and the percentage breakdown of their remuneration.
AUDIT COMMITTEE(The Code – Principle 11 & 12)
The AC comprises of 3 members; namely,
Philip Tan Tee YongColin Ng Teck SimKhoo Ho Tong
Chairman, Independent DirectorIndependent DirectorIndependent Director
The term of reference of the AC are disclosed in the Appendix hereto. There were 6 meetings of the AC held during the year in review.
The Chairman, Mr Philip Tan and another member, Mr Khoo has accounting and finance related management expertise. The third member, Mr Colin Ng has expertise in law and business. The Board is of the view that the AC members have the relevant expertise to discharge the function of an AC.
The AC has full access to and co-operation of the Company’s Management and the internal auditors and has full discretion to invite any officer of the Group to attend its meetings. The auditors, both internal and external, have unrestricted access to the AC. All required resources have been made available to the AC to enable it to discharge its duties. The AC will meet the external auditors, and with the internal auditors, without the presence of Management, at least annually.
The Company’s external auditors carry out, in the course of their annual statutory audit, a review of the effectiveness of the Company’s material internal controls, including financial, operational and compliance controls, and risk management to the extent of the scope of audit as laid out in their audit plan. Material non-compliance and internal control weakness noted during the audit, and the auditors’ recommendations to address such non-compliance and weakness are reported to the AC. Our Management implements the external auditors’ recommendations after discussion with the AC.
Corporate Governance
Annual Report 2007
28
ACCOUNTABILITY(The Code – Principle 10)
The Management provides the Board with management and financial information, which includes quarterly management accounts, which is compared to approved budgets and previous year’s results, forecasts for profit and cash flow and borrowing levels. The Board reviews and approves the Group’s annual budget.
WHISTLE BLOWER POLICY(The Code - Principle 11.7)
Our whistle blower policy, which was launched in 2006, strengthens the ethical business conduct of the Group. All Directors, officers and employees are free to report violations or suspected violations in accordance with the policy. All reports received pursuant to the provision of the policy are investigated by the internal auditor and reported to the Lead Independent Director.
INTERNAL CONTROLS(The Code – Principle 12)
The Group’s internal controls and systems are designed to provide reasonable assurance as to the integrity and reliability of the financial information and to safeguard and maintain accountability of its assets. The Group has placed relevant procedures to identify major business risk and evaluate potential financial effects. There are also procedures for the authorisation of capital expenditures and investment.
The Board is of the view that the overall internal controls and processes currently in place are adequate.
INTERNAL AUDIT(The Code – Principle 13)
The Internal Audit function is headed by the Internal Auditor. The Internal Auditor reports directly to the Chairman of the AC on audit matters, and to the CEO on administrative matters. The AC reviews the scope and methodology adopted by the Internal Auditor in discharging duties. All Internal Auditors’ reports are sent directly to the Chairman of AC and copied to the other AC members. It is the Group’s policy to support the Internal Audit activities to meet and comply with acceptable internal audit standards and practices.
INTERESTED PERSON TRANSACTIONS(The Listing Manual – Rule 907 & 1207 (16))
The Company has adopted an internal policy in respect of any transactions with interested persons. All transactions with interested persons are reviewed by the Board. Details of such transactions are disclosed in the financial statements.
During the year under review, there were no interested person transactions exceeding S$100,000. Further, there were no interested person transactions entered into under shareholders’ mandate pursuant to Rule 920.
NO MATERIAL CONTRACTS(The Listing Manual – Rule 1207(8))
Since the end of financial year 2006, the Company and its subsidiaries did not enter into any material contracts in which the CEO, Directors or Controlling Shareholders has any interest and no such material contracts subsist at the end of financial year 2007.
Corporate Governance
Annual Report 2007
29
COMMUNICATION WITH SHAREHOLDERS(The Code – Principle 14 & 15)
The Company communicates information to shareholders and the investing community through announcements that are released to the SGX-ST via SGXNET which are then immediately posted on the Company’s website www.aztech.com. Such announcements include the quarterly and full-year results, material transactions, and other developments relating to the Group.
All shareholders of the Company are sent a copy of the Annual Report and notice of the Annual General Meeting (“AGM”). The notice of AGM which sets out all items of business to be transacted at the AGM, is released on the SGXNET and also advertised in a major newspaper.
The Company’s main forum for dialogue with shareholders takes place at its AGM, where Directors, Management and the external auditors are in attendance. At the AGM, shareholders are given the opportunity to air their views and questions regarding the Company.
DEALING IN SECURITIES(The Listing Manual – Rule 1207(18))
The Group’s policies on share dealing have been issued to all Directors and key officers of the Group. The Company’s officers are not allowed to deal in the Company’s shares during the period commencing two (2) weeks before the announcement of the Company’s financial statements for each of the first three quarters of its financial year and one (1) month for the half-year or full year financial results. This restriction ends on the date of the announcement of the relevant results.
All officers of the Group are required on an annual basis to submit a written confirmation of their compliance with the internal guidelines.
Pavani NagarajahCompany SecretaryMarch 11, 2008
Corporate Governance
Annual Report 2007
30
Corporate Governance
Appendix 1 – Key Terms of Reference of Board Committees
Nominating Committee
· review and make recommendations to the Board on all board appointments and re-appointments;· oversee and monitor Board’s and Management’s performance; and · oversee succession planning for the Company.
Remuneration Committee
· implement procedures which facilitate a formal and transparent process by which the remuneration of all Directors and key executives is fixed.
· adopt such performance measurement tools as may be appropriate for the purpose of assessing the performance and contribution of Directors and executives in an objective and fair manner.
· recommend remuneration packages, the RC shall take into account pay and employment conditions within the industry and in comparable companies, as well as the Company’s relative performance and the performance of individual Directors.
Audit Committee
· review the scope and results of the audits and its cost effectiveness;· review the independence and objectivity of the external auditors;· keep the nature and extent of non-audit services under review, seeking to balance the maintenance of
objectivity and value for money;· review the significant financial reporting issues and judgments;· ensure the integrity of the financial statements of the Company and any formal announcements relating
to the Company’s financial performance;· review the adequacy of the Company’s internal financial controls, operational and compliance controls,
and risk management policies and systems established by the Management;· review the effectiveness of the Company’s internal audit function; · recommend to the Board on the appointment, reappointment and removal of the external auditor; · approve the remuneration and terms of engagement of the external auditor;· review the independence of the external auditors annually;· review the internal audit programme and report;· review interested person transactions (as defined in the Listing Manual) and report its findings to the
Board; and· conduct an annual review of the volume of non-audit services.
Appendix 2 – Particulars of Directors
Name of Director/Age Details
Directorship:Date First Appointed &LastRe-Elected
Directorship or Appointment in other Listed Companies, both present & held over the preceding three years
Percentage (%) of Shareholding in the Company*
Michael Mun Hong Yew, 58
· Chairman & CEO of the Company.
· Member of NC· One of the co-founders of the
Company· Started Aztech in 1986.· Started his early working career
with the Singapore office of a British consumer electronics distributor,
· Has over 30 years of experience in the electronics industry
· Responsible for the overall strategy & direction of the Group.
August 06, 1986 23.02%
Annual Report 2007
31
Corporate Governance
Martin Chia Heok Miin, 46
· Senior Vice President of the Company
· Joined Aztech in 1989· Responsible for product
marketing & sales activities of the Group.
· Prior to joining Aztech, was a marketing executive in a multinational sales company dealing in semiconductor & computer peripherals
· Also holds directorships in some of Aztech’s subsidiaries.
June 08, 2006 & April 10, 2007
0.53%
Patricia Ng Sok Cheng, 47
· Senior Vice President of the Company
· Joined Aztech in 1986· General Manager of Shiro
Corporation Pte Ltd (“Shiro”), a wholly-owned subsidiary
· Responsible for the overall business & performance of Shiro
· Has held various management positions within the Group
· Also holds directorships in some of Aztech’s subsidiaries
April 06, 1993 & April 12, 2004
3.74%
Jeremy Mun Weng Hung, 32
· Vice President of Plant Operations
· Joined Aztech in 2002· Responsible for the overall
management of the Group’s plant in Dong Guan, China.
· Also holds directorships in some of Aztech’s subsidiaries
June 08, 2006 & April 10, 2007
0.18%
Philip Tan Tee Yong, 61
· Independent Director· Chairman of AC· Member of RC· Owner & Managing Director of
PTOS Singapore Pte Ltd· Fellow of the Chartered Institute
of Management Accountants.· Has over 40 years of experience
in banking, accounting, finance, marketing & sales commercial & banking software development, consulting, manufacturing & entrepreneurship.
· Was a Member of Parliament for 2 terms aggregating 7 years.
June 27, 1993April 08, 2005
0.12%
Appendix 2 (cont’d)
Annual Report 2007
32
Colin Ng Teck Sim, 52
· Independent Director· Chairman of NC· Member of AC· Member of RC· Is a practicing lawyer with over
20 years of experience.· Practice focuses on corporate
banking & finance including public listing of companies & also on securities & capital market instruments.
· Admitted as an advocate & solicitor of the Supreme Court of Singapore in 1982.
· Admitted as a solicitor of the Supreme Court of England & Wales in 2000.
· Obtained Master of Business Administration (Accountancy) in 2007 from Nanyang Technological University
· Notary Public· Member of the SGX-ST’s &
Catalist’s Appeals Committee.
October 12, 1993 &April 12, 2006
TSH Corporation Limited (present)Independent Director, Chairman of AC, Member of RC & NC
CEI Contract Manufacturing Limited (present)Independent Director, Member of AC & RC
Media Asia Entertainment Group Limited(past – until 12 June 2007)Independent Director, Non-Executive Director, Non-Executive Chairman of the Board, Chairman of AC, Member of RC
0.15%
Khoo Ho Tong. 67
· Independent Director· Chairman of RC · Member of AC· Member of NC· Is a practicing Public Accountant
for over 20 years.· Institute treasurer and a council
member of various sub-committees of the Institute of Certified Public Accountants, Singapore
· Council member of the Asean Federation of Accountants
November 12, 2002 & April 10, 2007
Nam Lee Pressed Metal Industries Ltd(present)Independent Director, Chairman of AC, Member of RC & NC
Tastyfood Holdings Ltd(present)Independent Director, Chairman of AC, Member of RC & NC
Asia Travel.com Holdings Ltd(present)Independent Director, Chairman of AC, Member of RC & NC
J K Technology Group Ltd(present)Non-Executive Director, Member of AC, RC & NC
Kingsmen Creatives Ltd(present)Independent Director, Chairman of RC, Member of AC & NC
Asiamedic Limited(past – until August 2005)Independent Director, Chairman of AC, Member of RC & NC
Eng Kong Holdings Ltd(past – until March 2007)Independent Director, Chairman of NC, Member of AC & RC
0.14%
Corporate Governance
Appendix 2 (cont’d)
* Shareholding as at March 7, 2008 and based on issued shares of the Company (excluding treasury shares).
Annual Report 2007
Financial
34 Report of the Directors40 Independent Auditors’ Report41 Balance Sheets42 Consolidated Profit and Loss Statement43 Statements of Changes in Equity45 Consolidated Cash Flow Statement47 Notes to the Financial Statements89 Statement of Directors90 Analysis of Shareholdings91 Analysis of Warrant Holdings92 Notice of Annual General Meeting95 Explanatory Statement to Ordinary Resolution 9105 Proxy Form
The Directors present their report together with the audited consolidated financial statements of the Group and balance sheet and statement of changes in equity of the Company for the financial year ended December 31, 2007.
1 DIRECTORS
The Directors of the Company in office at the date of this report are:
Michael Mun Hong YewPatricia Ng Sok ChengPhilip Tan Tee Yong Colin Ng Teck SimKhoo Ho TongJeremy Mun Weng HungMartin Chia Heok Miin
2 AUDIT COMMITTEE
The Board has adopted the principles as described in the Code of Corporate Governance formulated by the Singapore Exchange Securities Trading Limited (“SGX-ST”) with regards to the Audit Committee.The members of the Audit Committee of the Company at the date of this report are as follows:
Philip Tan Tee Yong (Chairman and independent director)Colin Ng Teck Sim (Non-executive independent director)Khoo Ho Tong (Non-executive independent director)
The Audit Committee has met five times since the last Annual General Meeting (“AGM”) and has reviewed the following, where relevant, with the Executive Directors, the External Auditors and Internal Auditor of the Company:
a) the audit plans and results of the External Auditors’ and Internal Auditor’s examination and evaluation of the Group’s systems of internal accounting controls;
b) the Group’s financial and operating results and accounting policies;c) the financial statements of the Company and the consolidated financial statements of the Group before
their submission to the Directors of the Company and the External Auditors’ report on those financial statements;
d) the half year and full year announcements on the results and financial position of the Company and the Group;
e) the co-operation and assistance given by the management to the Group’s External Auditors and Internal Auditor;
f) interested person transactions; andg) the re-appointment of the External Auditors of the Company.
The Audit Committee has full access to and co-operation of the management and has been given the resources required for it to discharge its function properly. It also has full discretion to invite any Director and Executive Officer to attend its meetings. The External Auditors and Internal Auditor have unrestricted access to the Audit Committee.
The Audit Committee has recommended to the Directors the nomination of Deloitte & Touche for re-appointment as External Auditors of the Company at the forthcoming annual general meeting.
3 ARRANGEMENTS TO ENABLE DIRECTORS TO ACQUIRE BENEFITSBY MEANS OF THE ACQUISITION OF SHARES AND DEBENTURES
Neither at the end of the financial year nor at any time during the financial year did there subsist any arrangement whose object is to enable the Directors of the Company to acquire benefits by means of the acquisition of shares or debentures in the Company or any other body corporate except for the Aztech Group Employee Share Option Scheme 2000 (“ESOS 2000”) as detailed in paragraphs 4 and 6 of the Report of the Directors.
Annual Report 2007
34
Report of the
4 DIRECTORS’ INTERESTS IN SHARES AND DEBENTURES
The Directors of the Company holding office at the end of the financial year had no interests in the share capital and debentures of the Company and related corporations as recorded in the register of Directors’ shareholdings kept by the Company under Section 164 of the Singapore Companies Act except as follows:
Names of Directors and companies At beginning At endin which interests are held of year of year
The Company- Aztech Systems Ltd Ordinary shares
Michael Mun Hong Yew 11,783,388 490,386Michael Mun Hong Yew (deemed interest) 80,735,998 93,500,000Patricia Ng Sok Cheng 13,403,474 288,474Patricia Ng Sok Cheng (deemed interest) - 15,000,000Jeremy Mun Weng Hung (deemed interest) 350,000 750,000Martin Chia Heok Miin 538,000 1,638,000Martin Chia Heok Miin (deemed interest) 20,000 20,000Khoo Ho Tong 500,000 523,000Philip Tan Tee Yong - 500,000Colin Ng Teck Sim - 510,000
The Company Options to subscribe for- Aztech Systems Ltd ordinary shares
ESOS 2000
Michael Mun Hong Yew 3,000,000 2,000,000Patricia Ng Sok Cheng 3,485,000 1,800,000Philip Tan Tee Yong 500,000 - Colin Ng Teck Sim 500,000 - Khoo Ho Tong - - Jeremy Mun Weng Hung 300,000 - Martin Chia Heok Miin 3,344,250 2,344,000
The Company Warrants to subscribe for- Aztech Systems Ltd new ordinary shares
Michael Mun Hong Yew - 19,654,846Michael Mun Hong Yew (deemed interest) - 3,750,000Patricia Ng Sok Cheng - 3,784,618Jeremy Mun Weng Hung (deemed interest) - 175,000Martin Chia Heok Miin - 397,000Martin Chia Heok Miin (deemed interest) - 2,500Khoo Ho Tong - 125,000Philip Tan Tee Yong - 125,000Colin Ng Teck Sim - 125,000
By virtue of Section 7 of the Singapore Companies Act, Michael Mun Hong Yew is deemed to have an interest in the Company and in all the subsidiaries of the Company.
The Directors’ interests as at January 21, 2008 were the same as those at the end of the financial year.
Annual Report 2007
35
Report of the
5 DIRECTORS’ RECEIPT AND ENTITLEMENT TO CONTRACTUAL BENEFITS
Since the beginning of the financial year, no Director has received or become entitled to receive a benefit which is required to be disclosed under Section 201(8) of the Singapore Companies Act, by reason of a contract made by the Company or a related corporation with the Director or with a firm of which he is a member, or with a company in which he has a substantial financial interest except for salaries, bonuses and other benefits as disclosed in the financial statements and the Profit Sharing Scheme (“Scheme”) as described below and as disclosed in the financial statements.
Certain Directors received remuneration from related corporations in their capacity as Directors and/or executives of those related corporations.
There were certain transactions (as shown in Note 6 of the financial statements) with corporations in which certain Directors have an interest.
Scheme
The Company has entered into the Scheme, which was recommended by the Remuneration Committee and approved by the Board of Directors, with the following Directors of the Company:
Michael Mun Hong YewPatricia Ng Sok ChengMartin Chia Heok MiinJeremy Mun Weng Hung
For Michael Mun Hong Yew
In accordance with the Scheme, Michael Mun Hong Yew is entitled to profit share based on the amount of the audited consolidated profit after tax (“PAT”), as computed in the following manner:(i) When PAT is equal to or exceeds $5 million (“Minimum Profit”) but less than $10 million, the amount
shall be equal to 1.2% of the PAT;(ii) When PAT is equal to or exceeds $10 million but is less than $15 million, the amount shall be equal to
1.6% of the PAT; and(iii) When the PAT is equal to or exceeds $15 million, the amount shall be 2.0% of the PAT.
For Patricia Ng Sok Cheng, Jeremy Mun Weng Hung and Martin Chia Heok Miin
In accordance with the Scheme, Patricia Ng Sok Cheng, Jeremy Mun Weng Hung and Martin Chia Heok Miin are entitled to share in the Profit Sharing Pool (“Pool”), based on the amount of PAT, as computed in the following manner:(i) When PAT is equal to or exceeds Minimum Profit, but less than $10 million, the Pool shall be equal to
1.8% of the PAT;(ii) When PAT is equal to or exceeds $10 million but is less than $15 million, the Pool shall be equal to
2.4% of the PAT; and(iii) When the PAT is equal to or exceeds $15 million, the Pool shall be 3.0% of the PAT.
Under the Scheme, the Remuneration Committee shall review and recommend their respective share of the Pool to be allocated to the abovementioned Directors. The actual amount payable to them shall be deliberated and decided by the Board of Directors.
As at the end of the financial year, an accrual of $500,000 (2006: $662,500) has been made pursuant to the Scheme.
Annual Report 2007
36
Report of the
6 SHARE OPTIONS
AZTECH GROUP EMPLOYEE SHARE OPTION SCHEME 2000 (“ESOS 2000”)
(a) Names of the Members of the Committee Administering ESOS 2000
ESOS 2000 was approved and adopted at the Company’s Extraordinary General Meeting held on March 10, 2000 and will continue in operation for a maximum period of 10 years, commencing on March 10, 2000. ESOS 2000 is administered by the Remuneration Committee comprising the following members:
Khoo Ho Tong (Chairman)Philip Tan Tee YongColin Ng Teck Sim
Participants who are members of the Committee were not involved in the deliberations in respect of options granted to that participant.
(b) Outstanding options
The number of Shares available under the Scheme shall not exceed 15% of the issued share capital of the Company. The number of outstanding share options under the scheme are as follows:
Numberof options
Number Number Number outstanding as atDate options Offer price of options of options of options December 31,granted Exercise period per option(1) granted exercised cancelled 2007
December 30, 2002 December 31, 2003 to $0.089 (“A”) 3,444,050 2,290,000 1,154,050 -December 30, 2007 $0.071 (“B”)
August 6, 2003 August 7, 2004 to $0.095 (“A”) 3,373,250 1,854,400 1,343,000 175,850August 6, 2008 $0.076 (“B”)
December 30, 2003 December 31, 2004 to $0.137 (“A”) 16,118,750 10,000,000 4,475,000 1,643,750December 30, 2008 $0.110 (“B”)
May 18, 2004 May 19, 2005 to $0.149 (“A”) 3,300,000 1,300,000 - 2,000,000May 18, 2009 $0.119 (“B”)
June 12, 2004 June 13, 2005 to $0.135 (“A”) 1,000,000 - - 1,000,000June 12, 2009 $0.112 (“B”)
June 12, 2004 June 13, 2005 to $0.135 (“A”) 9,365,000 4,755,000 2,490,000 2,120,000 June 12, 2009 $0.108 (“B”)
July 14, 2004 July 15, 2005 to $0.130 (“A”) 600,000 - 600,000 - July 14, 2009 $0.104 (“B”)
December 12, 2006 December 13, 2007 to $0.232 (“A”) 3,350,000 - 300,000 3,050,000December 12, 2011 $0.186 (“B”)
July 27, 2007 July 28, 2008 to $0.561 (“A”) 1,950,000 - 120,000 1,830,000July 27, 2012 $0.449 (“B”)
42,501,050 20,199,400 10,482,050 11,819,600
Holders of the above share options have no right to participate in any share issues of any other company and no employee or employee of related corporations has received 5% or more of the total options available under ESOS 2000, except as detailed below.
Annual Report 2007
37
Report of the
6 SHARE OPTIONS (cont’d)
(b) Outstanding options
There are no options granted to any of the Company’s controlling shareholders or their associates (as defined in the Singapore Exchange Securities Trading Listing Manual), except as detailed below.
Note: (1) “A” - Option Price that is applicable if option exercised after the 1st anniversary of the date of the acceptance of the offer but before the 2nd anniversary of the date of the acceptance of the offer. Option Price A is finalised based on the average of the last dealt prices per share of the Company on the SGX-ST for the period of five (5) consecutive market days prior to the date the option is offered.
“B” - Option Price that is applicable if option exercised after the 2nd anniversary of the date of the acceptance of the offer but before the expiry of sixty (60) months from the date of the acceptance of the offer.
(2) All options granted under ESOS 2000 (Price “B”) were granted at a discount of 20%.
(3) Each option entitles participants to subscribe for one ordinary share in the Company.
(c) Participants who are Directors/controlling shareholder/associate of controlling shareholder/executive
Aggregate options Aggregate options Aggregate options Aggregate granted since exercised since lapsed since options Options granted commencement of commencement of commencement outstanding during the scheme to end of scheme to end of of scheme to end as at end of financial year December 31, December 31, of December 31, December 31,
Name of participant under review 2007 2007 2007 2007
Directors of the Company
Michael Mun Hong Yew (1)(3)(4) - 3,000,000 1,000,000 - 2,000,000Martin Chia Heok Miin (3) - 4,242,500 1,398,000 500,500 2,344,000Patricia Ng Sok Cheng (3) - 4,370,000 1,820,000 750,000 1,800,000Jeremy Mun Weng Hung (2)(4) - 300,000 300,000 - - Khoo Ho Tong - 500,000 500,000 - - Colin Ng Teck Sim - 500,000 500,000 - - Philip Tan Tee Yong - 500,000 500,000 - -
- 13,412,500 6,018,000 1,250,500 6,144,000
Note: (1) Michael Mun Hong Yew is also controlling shareholder of the Company.(2) Jeremy Mun Weng Hung is the son of Michael Mun Hong Yew.(3) Participants received 5.0% or more of total available options.(4) Options granted to Michael Mun Hong Yew and Jeremy Mun Weng Hung were approved
by resolution passed at the EGM of the Company dated April 12, 2004.
Annual Report 2007
38
Report of the
(d) Issue of shares under the options
In 2007, the Company issued a total of 10,200,000 ordinary shares at the following exercise price, pursuant to the exercise of options under the ESOS 2000 to take up unissued shares of the Company:(i) 385,800 at $0.071(ii) 224,200 at $0.076(iii) 5,350,000 at $0.110(iv) 1,300,000 at $0.119(v) 2,940,000 at $0.108
Except for the above, no other options to take up unissued shares of the Company and subsidiaries were granted and no other shares were issued by virtue of the exercise of options to take up unissued shares of the Company or its subsidiaries. As at the end of the financial year, except for the above, there were no unissued shares of any other subsidiaries under option.
7 WARRANTS
On July 17, 2007, the Company allotted 104,390,250 warrants at an issue price of $0.02 for each warrant on the basis of one warrant for every four existing shares. Each warrant entitles the warrant holder to subscribe for one new ordinary shares of the Company at an exercise price of $0.51 per share. The warrants have an exercise period of 3 years from July 17, 2007 to July 16, 2010. During the year, 546,000 ordinary shares were issued for the conversion of warrants and the outstanding number of warrants is 103,844,250 as at December 31, 2007.
8 AUDITORS
The auditors, Deloitte & Touche, have expressed their willingness to accept re-appointment.
ON BEHALF OF THE DIRECTORS
Michael Mun Hong Yew
Martin Chia Heok Miin
March 11, 2008
Annual Report 2007
39
Report of the
We have audited the accompanying financial statements of Aztech Systems Ltd (the Company) and its subsidiaries (the Group) which comprise the balance sheets of the Group and the Company as at December 31,2007, the profit and loss statement, statement of changes in equity and cash flow statement of the Group and the statement of changes in equity of the Company for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages 41 to 88.
Directors’ Responsibility
The Company’s directors are responsible for the preparation and fair presentation of these financial statements in accordance with the provisions of the Singapore Companies Act, Cap. 50 (the “Act”) and Singapore Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation 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 entity’s 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.
Opinion
In our opinion,
(a) the consolidated financial statements of the Group and the balance sheet and statement of changes in equity of the Company are properly drawn up in accordance with the provisions of the Act and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the Group and of the Company as at December 31, 2007 and of the results, changes in equity and cash flows of the Group and changes in equity of the Company for the year ended on that date; and
(b) the accounting and other records required by the Act to be kept by the Company and by those subsidiaries incorporated in Singapore of which we are the auditors have been properly kept in accordance with the provisions of the Act.
Deloitte & ToucheCertified Public Accountants
Alan Rupert NisbetPartnerAppointed on March 30, 2007
SingaporeMarch 11, 2008
Annual Report 2007
40
TO THE MEMBERS OF AZTECH SYSTEMS LTD
Independent Auditors’
GROUP COMPANYNote 2007 2006 2007 2006
$’000 $’000 $’000 $’000
ASSETS
Current assetsCash and bank balances 7 36,177 29,177 27,327 21,324Trade receivables 8 44,225 48,007 13,879 8,352Other receivables and prepayments 9 3,421 2,253 1,361 34,093Derivative financial instruments 10 176 - 20 - Inventories 11 36,099 36,558 - -Total current assets 120,098 115,995 42,587 63,769
Non-current assetsInvestment in subsidiaries 12 - - 54,658 25,832Property, plant and equipment 13 27,364 28,551 832 969Investment properties 14 14,316 - - - Available-for-sale investments 15 560 403 516 356Deferred tax assets 16 - 425 507 573Intangible asset 17 6,245 4,814 6,580 4,857Total non-current assets 48,485 34,193 63,093 32,587
Total assets 168,583 150,188 105,680 96,356
LIABILITIES AND EQUITY
Current liabilitiesBorrowings 18 17,081 12,236 - 639Trade payables 19 37,316 36,330 79 218Other payables and provisions 20 9,671 10,462 12,308 4,646Derivative financial instruments 10 280 - 15 - Income tax payable - 3,023 2,464 2,044 2,440Finance leases 21 2,648 2,183 - - Total current liabilities 70,019 63,675 14,446 7,943
Non-current liabilitiesBorrowings 18 5,159 1,540 - - Deferred tax liabilities 16 582 - - - Finance leases 21 3,177 4,067 - - Total non-current liabilities 8,918 5,607 - -
Capital and reservesShare capital 22 109,958 108,342 109,958 108,342Treasury shares 23 (3,647) - (3,647) - Warrant reserve 1,769 - 1,769 - Foreign currency translation reserve (3,482) (1,329) - - Employee share-based compensation reserve 24 547 514 547 514Investment revaluation reserve 200 - 200 - Accumulated losses (15,699) (26,621) (17,593) (20,443)Total equity 89,646 80,906 91,234 88,413
Total liabilities and equity 168,583 150,188 105,680 96,356
See accompanying notes to financial statements.
Annual Report 2007
41
Balance
December 31, 2007
Note 2007 2006 $’000 $’000
Revenue 25 268,310 238,997
Cost of sales (221,979) (188,890)
Gross profit 46,331 50,107
Other operating income 26 6,244 3,070
Selling and distribution costs (8,029) (8,297)
Administrative expenses (21,188) (19,811)
Finance costs 27 (2,143) (2,373)
Profit before income tax 21,215 22,696
Income tax 28 (3,038) (2,658)
Net profit for the year 29 18,177 20,038
Earnings per share (cents)
- Basic 30 4.45 4.94
- Diluted 30 4.31 4.80
See accompanying notes to financial statements.
Annual Report 2007
42
Consolidated Profit and Loss
Year ended December 31, 2007
Foreign Employee currency share based Investment
Share Treasury Warrant Share translation compensation revaluation AccumulatedNote capital shares reserves (1) premium reserves reserves reserves (2) losses Total
$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000GROUPBalance at January 1, 2006 20,109 - - 87,408 (858) 597 - (42,611) 64,645
Currency translation differences - - - - (471) - - - (471)Net expense recognised directly in equity - - - - (471) - - - (471)Net profit for the year - - - - - - - 20,038 20,038Total recognised income and expense for the year - - - - (471) - - 20,038 19,567
Transfer from share premium account 22 87,408 - - (87,408) - - - - - Issue of shares 22 825 - - - - (93) - - 732Recognition of share-based payment 24 - - - - - 10 - - 10Dividend paid 31 - - - - - - - (4,048) (4,048)Balance at December 31, 2006 108,342 - - - (1,329) 514 - (26,621) 80,906
Currency translation differences - - - - (2,153) - - - (2,153)Revaluation of available-for-sale Investments - - - - - - 200 - 200Net expense recognised directly in equity - - - - (2,153) - 200 - (1,953)Net profit for the year - - - - - - - 18,177 18,177Total recognised income and expense for the year - - - - (2,153) - 200 18,177 16,224
Issue of shares 22 1,616 - (10) - - (225) - - 1,381Repurchase of shares 23 - (3,647) - - - - - - (3,647)Issue of warrants - - 1,779 - - - - - 1,779Recognition of share-based payment 24 - - - - - 258 - - 258Dividend paid 31 - - - - - - - (7,255) (7,255)Balance at December 31, 2007 109,958 (3,647) 1,769 - (3,482) 547 200 (15,699) 89,646
(1) The warrant reserve represents net proceeds in the Company rights issue of warrants. As and when the warrants are exercised, the net proceeds relating to the warrants exercised will be transferred to the share capital reserve.
(2) The investment revaluation reserve arises from the revaluation of available-for-sale financial assets. Where a revalued financial asset is sold, the portion of the reserve that relates to that financial asset, and is effectively realized, is recognised in profit or loss. Where a revalued asset is impaired, the portion of the reserve that relates to that financial asset is recognised in profit or loss.
See accompanying notes to financial statements.
Annual Report 2007
43
Statements of Changes in
Year ended December 31, 2007
Employee share based Investment
Share Treasury Warrant Share compensation revaluation AccumulatedNote capital shares reserves premium reserves reserves losses Total
$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000COMPANY
Balance at January 1, 2006 20,109 - - 87,408 597 - (45,677) 62,437
Net profit for the year - - - - - - 29,282 29,282Total recognised income and expense for the year - - - - - - 29,282 29,282Transfer from share premium account 22 87,408 - - (87,408) - - - - Issue of shares 22 825 - - - (93) - - 732Recognition of share-based payment 24 - - - - 10 - - 10Dividend paid 31 - - - - - - (4,048) (4,048)
Balance at December 31, 2006 108,342 - - - 514 - (20,443) 88,413
Revaulation of available-for-sale Investments - - - - - 200 - 200Net income recognised directly in equity - - - - - 200 - 200
Net profit for the year - - - - - - 10,105 10,105Total recognised income and expense for the year - - - - - 200 10,105 10,305
Issue of shares 22 1,616 - (10) - (225) - - 1,381Repurchase of shares 23 - (3,647) - - - - - (3,647)Issue of warrants - - 1,779 - - - - 1,779Recognition of share-based payment 24 - - - - 258 - - 258Dividend paid 31 - - - - - - (7,255) (7,255)
Balance at December 31, 2007 109,958 (3,647) 1,769 - 547 200 (17,593) 91,234
See accompanying notes to financial statements.
Annual Report 2007
44
Year ended December 31, 2007
Statements of Changes in
2007 2006$’000 $’000
Operating activities
Profit before income tax 21,215 22,696
Adjustments for:
Share based payment 258 10
Allowance for doubtful trade receivables 581 -
Allowance of inventories 1,436 80
Impairment loss on available-for-sale investments - 383
Depreciation 4,948 4,510
Loss (gain) on disposal of property, plant and equipment 10 (1,030)
Loss on disposal of available-for-sale investment 3 -
Amortisation of intangible asset 3,545 3,301
Provision for (reversal of) warranty 82 (76)
Gain on revaluation of investment properties (3,499) -
Change in fair value of currency derivatives 100 -
Interest income (780) (608)
Interest expense 1,578 1,928
Operating cash flows before movements in working capital 29,477 31,194
Trade receivables 3,201 (16,076)
Other receivables and prepayments (1,168) (230)
Inventories (977) (4,860)
Trade payables 986 15,838
Other payables and provisions (303) 729
Cash generated from operations 31,216 26,595
Interest paid (1,578) (1,928)
Income tax paid (1,440) (1,535)
Net cash from operating activities 28,198 23,132
Annual Report 2007
45
Consolidated Cash Flow
Year ended December 31, 2007
Note 2007 2006$’000 $’000
Investing activities
Proceeds on disposal of available-for-sale investment 38 311
Proceeds on disposal of property, plant and equipment 17 25,056
Purchase of property, plant and equipment A (5,578) (3,570)
Purchase of investment property (8,884) -
Intangible assets (4,979) (4,185)
Interest received 780 608
Net cash (used in) from investing activities (18,606) 18,220
Financing activities
Dividend paid (7,255) (4,048)
Repayment of obligations under finance leases (3,054) (2,574)
Net proceeds from (repayment of) bank borrowings 8,464 (23,584)
Net proceeds from issue of warrants 1,779 -
Proceeds from issue of shares 1,381 732
Proceeds from derivative financial instrument 11 -
Purchase of treasury shares (3,647) -
Net cash used in financing activities (2,321) (29,474)
Effect of translation of foreign subsidiaries (271) 1,974
Net increase in cash and cash equivalents 7,000 13,852
Cash and cash equivalents at beginning of year 29,177 15,325
Cash and cash equivalents at end of year 36,177 29,177
Note A: Purchase of property, plant and equipment
During the year the Group acquired property, plant and equipment with an aggregate cost of $7,637,000 (2006: $6,159,000) of which $2,059,000 (2006: $2,589,000) was acquired by means of finance leases. Cash payments of $5,578,000 (2006: $3,570,000) were made to purchase the property, plant and equipment.
Annual Report 2007
46
Consolidated Cash Flow
Year ended December 31, 2007
1 GENERAL
The Company (Registration No. 1986-01642-R) is incorporated in the Republic of Singapore with its principal place of business and registered office at 31 Ubi Road 1, Aztech Building, Singapore 408694. The Company is listed on the Singapore Exchange Securities Trading Limited. The financial statements are expressed in Singapore dollars.
The principal activities of the Company are to engage in the design, manufacture and distribution of multicommunication products and computer peripherals.
The principal activities of the subsidiaries are disclosed in Note 12 to the financial statements.
The consolidated financial statements of the Group and the balance sheet and statement of changes in equity of the Company for the year ended December 31, 2007 were authorised for issue by the Board of Directors on March 11, 2008.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING - The financial statements are prepared in accordance with the historical cost convention, except as disclosed in the accounting policies below, and are drawn up in accordance with the provisions of the Singapore Companies Act and Singapore Financial Reporting Standards (“FRS”).
ADOPTION OF NEW AND REVISED STANDARDS - In the current financial year, the Group has adopted all the new and revised FRSs and Interpretations of FRS (“INT FRS”) that are relevant to its operations and effective for annual periods beginning on or after January 1, 2007. The adoption of these new/revised FRSs and INT FRSs has no material effect on the amounts reported for the current or prior years except as disclosed below and in the notes to the financial statements.
FRS 107 - Financial Instruments: Disclosures and amendments to FRS 1 Presentation of Financial Statements relating to 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 (revised) requires the Group to make new disclosures to enable users of the financial statements to evaluate the Group’s objectives, policies and processes for managing capital.
FRS 40 – Investment Property
In accordance with FRS 40, investment properties are stated in the balance sheet at fair value. Any gain or loss arising from a change in fair value or from the retirement or disposal of an investment property is recognised in profit and loss statement as part of other operating income. The change in accounting policy has been accounted for prospectively from January 1, 2007 in accordance with the transition provision of FRS 40. The effect of adopting FRS 40 on January 1, 2007 to the opening balance of the Group’s accumulated losses is immaterial. The adoption of FRS 40 has resulted in the recognition of revaluation gain of $3,499,000 in the current year’s consolidated profit and loss statement.
The effects of adopting FRS 40 in the current financial year are as follows:Group
2007 2007$’000 $,000
(Before adoption (After adoptionof FRS 40) of FRS 40)
Financial statements line item affected: Investment property - 14,316 Accumulated losses (18,209) (15,699) Profit before income tax (continuing operations) 17,716 21,215 Income tax expenses (continuing operations) (2,049) (3,038) Profit after income tax (continuing operations) 15,667 18,177
Annual Report 2007
47
Notes to Financial
December 31, 2007
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
At the date of authorisation of these financial statements, the following FRSs, INT FRSs and amendments to FRS were issued but not effective:
FRS 23 - Borrowing Costs (Revised)FRS 108 - Operating SegmentsINT FRS 111 - FRS 102 – Group and Treasury share TransactionsINT FRS 112 - Service Concession Arrangements
Consequential amendments were also made to various standards as a result of these new/revised standards.
The Directors anticipate that the adoption of the above FRSs, INT FRSs and amendments to FRSs in future periods will not have a material impact on the financial statements of the Group and the Company in the period of their initial adoption.
BASIS OF CONSOLIDATION - The consolidated financial statements incorporate the financial statements of the Company and entities (including special purpose entities) controlled by the Company (its subsidiaries). Control is achieved when the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated profit and loss statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies into line with those used by other members of the Group.
All intra-group transactions, balances, income and expenses are eliminated on consolidation.
Minority interests in the net assets of the consolidated subsidiaries are identified separately from the Group’s equity therein. Minority interests consist of the amount of those interests at the date of the original business combination (see below) and the minority’s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority’s interest in the subsidiary’s equity are allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover its share of those losses.
In the Company’s financial statements, investments in subsidiaries are carried at cost less any impairment in net recoverable value that has been recognised in the profit and loss statement.
BUSINESS COMBINATIONS - The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under FRS 103 are recognised at their fair values at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with FRS 105 Non-Current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to sell.
Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in the consolidated profit and loss statement.
The interest of minority shareholders in the acquiree is initially measured at the minority’s proportion of the net fair value of the assets, liabilities and contingent liabilities recognised.
FINANCIAL INSTRUMENTS – Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument.
Annual Report 2007
48
Notes to Financial
December 31, 2007
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
Financial assets
Financial assets are classified into available-for-sale financial assets, trade and other receivables. The classification depends on the nature and purpose of financial assets and is determined at the time of initial recognition.
Effective interest method
The effective interest method is a method of calculating the amortised cost of a financial instrument and of allocating interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial instrument, or where appropriate, a shorter period.
Available-for-sale investments
Investments in club memberships held by the Group are classified as being available for sale and are stated at fair value. Fair value is determined in the manner described in Note 4. Gains and losses arising from changes in fair value are recognised directly in the revaluation reserve with the exception of impairment losses, which are recognised directly in profit and loss statement. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognised in the revaluation reserve is included in profit and loss statement for the period.
Available-for-sale unquoted equity investments are initially recognised at its fair value plus directly attributable acquisition costs. They are subsequently measured at cost less impairment loss as fair values cannot be reliably measured. Dividends on available-for-sale equity instruments are recognised in profit and loss statement when the Group’s right to receive payments is established.
Trade and other receivables
Trade receivables and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as trade and other receivables. Trade and other receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method less impairment. Interest is recognised by applying the effective interest rate method, except for short-term receivables when the recognition of interest would be immaterial.
Impairment of financial assets
Financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade and other receivables where the carrying amount is reduced through the use of an allowance account. When trade and other receivables are uncollectible, they are written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to profit and loss statement. Changes in the carrying amount of the allowance account are recognised in profit and loss statement.
With the exception of available-for-sale equity investments carried at fair value, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognised, the previously recognised impairment loss is reversed through profit and loss statement to the extent the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.
In respect of available-for-sale unquoted equity investments carried at fair value, impairment loss is recognised in the profit and loss statement and not subsequently reversed.
Annual Report 2007
49
Notes to Financial
December 31, 2007
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
Financial liabilities and equity instruments
Classification as debt or equity
Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments are recorded at the proceeds received, net of direct issue costs.
Treasury shares
When the Company purchases its ordinary shares (treasury shares), the consideration paid, including any directly attributable incremental costs, net of income taxes, is deducted from equity attributable to the Company’s equity holders and presented as “treasury shares” within equity, until they are cancelled, sold or reissued.
When treasury shares are subsequently sold or reissued, the cost of the treasury shares is reversed from the treasury shares account and the realised gain or loss on sale or reissue, net of any directly attributable incremental transaction costs and related income tax, is recognised in the share capital of the Company.
Warrants
Proceeds from the issuance of warrants are credited to the warrant reserve. When the warrants are exercised, the value of such warrants exercised standing to the credit of the warrant reserve account will be transferred to the share capital account. At the expiry of the warrants, the balance in the warrant reserve will be transferred to the retained earnings.
Financial liabilities
Trade and other payables are initially measured at fair value, net of transaction costs, and are subsequently measured at amortised cost, using the effective interest rate method, with interest expense recognised on an effective yield basis.
Interest-bearing bank loans and overdrafts are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognised over the term of the borrowings in accordance with the Group’s accounting policy for borrowing costs (see below).
Derivative financial instruments
The Group enters into foreign currency forward contracts to manage its exposure to foreign exchange risk. Further details of derivative financial instruments are disclosed in Note 10.
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each balance sheet date. The resulting gain or loss is recognised in profit or loss immediately.
INVENTORIES - Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.
Annual Report 2007
50
Notes to Financial
December 31, 2007
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
PROPERTY, PLANT AND EQUIPMENT – Property, plant and equipment are carried at cost, less accumulated depreciation and any impairment loss where the recoverable amount of the asset is estimated to be lower than its carrying amount.
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised as income.
Depreciation is charged so as to write off the cost of assets, other than freehold land and properties under construction, over their estimated useful lives, using the straight-line method, on the following bases:
Freehold property - 2%Leasehold property - 1.75% to 4%Computer and office equipment - 20% to 33.33%Factory equipment - 12.5% to 20%Factory furniture and fittings - 20%Office furniture and fittings - 20%Research and development equipment and tools - 20% to 33.33%Software applications - 33.33%Motor vehicles - 20%
The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis.
Fully depreciated assets still in use are retained in the financial statements.
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, if there is no certainty that the lessee will obtain ownership by the end of the lease term, the asset shall be fully depreciated over the shorter of the lease term and its useful life.
The gain or loss arising on disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amounts of the asset and is recognised in the profit and loss statement.
INVESTMENT PROPERTY - Investment property, which is property held to earn rentals and/or for capital appreciation, is measured initially at its cost, including transaction costs. Subsequent to initial recognition, investment property is measured at fair value. Gains or losses arising from changes in the fair value of investment property are included in profit or loss for the period in which they arise.
INTANGIBLE ASSETS
Internally-generated intangible assets - research and development expenditure
Expenditure on research activities is recognised as an expense in the period in which it is incurred.
An internally-generated intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, all of the following have been demonstrated:
· the technical feasibility of completing the intangible asset so that it will be available for use or sale;· the intention to complete the intangible asset and use or sell it;· the ability to use or sell the intangible asset;· how the intangible asset will generate probable future economic benefits;· the availability of adequate technical, financial and other resources to complete the development and
to use or sell the intangible asset; and· the ability to measure reliably the expenditure attributable to the intangible asset during its
development.
Annual Report 2007
51
Notes to Financial
December 31, 2007
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
The amount initially recognised for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Development costs that have been capitalised as intangible assets are amortised from the commencement of the commercial production on a straight-line basis over the period of its expected benefits, which normally does not exceed 3 years. Where no internally generated asset can be recognised, development expenditure is charged to the profit and loss statement in the period in which it is incurred.
Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses.
IMPAIRMENT OF TANGIBLE AND INTANGIBLE ASSETS EXCLUDING GOODWILL - At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually, and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. 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.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in the profit and loss statement.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in the profit and loss statement.
PROVISIONS - Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.
Warranties
Provisions for warranty costs are recognised at the date of sale of the relevant products, at the directors’ best estimate of the expenditure required to settle the Group’s obligation.
LEASES - Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
Annual Report 2007
52
Notes to Financial
December 31, 2007
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
The Group as lessor
Rental income from operating leases associated with leased assets is recognised on a straight-line basis over the term of the relevant lease unless another systematic basis is more representative of the time pattern in which use benefit derived from the leased asset is diminished. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term.
Rental income from subletting arrangements is recognised on a straight-line basis over the term of the relevant lease.
The Group as lessee
Assets held under finance leases are recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Group’s general policy on borrowing costs (see below). Contingent rentals are recognised as expenses in the periods in which they are incurred.
Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the term of the relevant lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.
In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
SHARE-BASED PAYMENTS - The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value (excluding the effect of non market-based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest and adjusted for the effect of non market-based vesting conditions.
Fair value is measured using the Black-Scholes pricing model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferrability, exercise restrictions and behavioural considerations.
REVENUE RECOGNITION - Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances.
Sale of goods
Revenue from the sale of goods is recognised when all the following conditions are satisfied:
· the Group has transferred to the buyer the significant risks and rewards of ownership of the goods;· the Group retains neither continuing managerial involvement to the degree usually associated with
ownership nor effective control over the goods sold;· the amount of revenue can be measured reliably;· it is probable that the economic benefits associated with the transaction will flow to the Group; and· the costs incurred or to be incurred in respect of the transaction can be measured reliably.
Annual Report 2007
53
Notes to Financial
December 31, 2007
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
Interest income
Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.
Dividend income
Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established.
BORROWING COSTS - Borrowing costs directly attributable to the acquisition, construction, or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.
All other borrowing costs are recognised in the profit and loss statement in the period in which they are incurred.
RETIREMENT BENEFIT COSTS - Payments to defined contribution retirement benefit plans are charged as an expense as they fall due. Payments made to state-managed retirement benefit schemes, such as the Singapore Central Provident Fund, are dealt with as payments to defined contribution plans where the Group’s obligations under the plans are equivalent to those arising in a defined contribution retirement benefit plan.
PROFIT SHARING SCHEME - Certain directors are entitled to a share of profit under the profit sharing scheme as disclosed in the Directors’ Report. A provision is made for the estimated liability under the profit sharing scheme.
EMPLOYEE LEAVE ENTITLEMENT - Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave as a result of services rendered by employees up to the balance sheet date.
INCOME TAX - Income tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the profit and loss statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are not taxable or tax deductible. The Group’s liability for current tax is calculated using tax rates (and tax laws) that have been enacted or substantively enacted in countries where the Group and the subsidiaries operate by the balance sheet date.
Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
Annual Report 2007
54
Notes to Financial
December 31, 2007
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised based on the tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date. Deferred tax is charged or credited to profit and loss statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
Current and deferred tax are recognised as an expense or income in profit or loss, except when they relate to items credited or debited directly to equity, in which case the tax is also recognised directly in equity, or where they arise from the initial accounting for a business combination. In the case of a business combination, the tax effect is taken into account in calculating goodwill or determining the excess of the acquirer’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over cost.
FOREIGN CURRENCY TRANSACTIONS AND TRANSLATION - The individual financial statements of each Group entity are measured and presented in the currency of the primary economic environment in which the entity operates (its functional currency). The consolidated financial statements of the Group and the balance sheet of the Company are presented in Singapore dollars, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements.
In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency are recorded at the rates of exchange prevailing on the date of the transaction. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on retranslation of monetary items are included in profit or loss for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity. For such non-monetary items, any exchange component of that gain or loss is also recognised directly in equity.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations (including comparatives) are expressed in Singapore dollars using exchange rates prevailing on the balance sheet date. Income and expense items (including comparatives) are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are classified as equity and transferred to the Group’s translation reserve. Such translation differences are recognised in profit or loss in the period in which the foreign operation is disposed of.
On consolidation, exchange differences arising from the translation of the net investment in foreign entities (including monetary items that, in substance, form part of the net investment in foreign entities) are taken to the foreign currency translation reserve.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents comprise cash on hand and demand deposits, bank overdrafts, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Annual Report 2007
55
Notes to Financial
December 31, 2007
3 CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
Critical judgements in applying the Group’s accounting policies
In the application of the Group’s accounting policies which are described in Note 2 above, the management is of the opinion that there are no critical judgements involved that have a significant effect on the amounts recognised in the financial statements.
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.
Estimated impairment of deferred development costs
Determining whether deferred development cost is impaired requires an estimation of the value in use of the development projects. The value in use calculation requires the Group to estimate the future cash flows expected to arise from such projects and a suitable discount rate in order to calculate the present value. Where the actual future cash flows are less then expected, a material impairment loss may arise. As at December 31, 2007, the carrying amount of deferred development cost is $6,245,000 (2006 : $4,814,000).
Estimated impairment of receivables
When there is objective evidence of impairment loss, the Group takes into consideration the estimation of future cash flows. The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). Where the actual future cash flows are less than expected, a material impairment loss may arise. As at December 31, 2007, the carrying amount of trade receivables is $44,225,000 (2006 : $48,007,000) (net of allowance for doubtful debts of $541,000; 2006 : $5,000).
Estimated allowance for inventories
At the balance sheet date, the management of the Group carries out a review on a product-by-product and on an aging basis makes allowance for obsolete and slow-moving inventory items. The management estimates the net realisable value for such inventory items based primarily on the current market conditions. As at December 31, 2007, the allowance for inventories was $1,750,000 (2006 : $566,000).
Estimated impairment in value of investment in subsidiaries
Determining whether investment in subsidiaries is impaired involves the consideration of the performance of the subsidiaries and the market condition which the subsidiaries operate in. This affects the Group’s share of net assets of the subsidiaries. During the year, the management of the Group has considered its investment in its subsidiaries and as at December 31, 2007, the impairment loss balance was $43,920,000 (2006 : $43,920,000) (Note 12).
If the performance of the subsidiaries and/or market condition was to deteriorate which will affect the Group’s share of net assets of the subsidiaries, additional impairments may be required.
Estimated valuation of the investment properties
As described in Note 2, investment properties are stated at fair value based on the valuation performed by independent professional valuers. In determining the fair value, the valuers have determined the fair values using various methods of valuation which involve the making of certain assumptions and the use of estimates. In relying on the valuation reports of the professional valuers, the management has exercised judgement in arriving at a value which is reflective of the current market conditions.
Annual Report 2007
56
Notes to Financial
December 31, 2007
4 FINANCIAL INSTRUMENTS, FINANCIAL AND CAPITAL RISKS MANAGEMENT
(a) Categories of financial instruments
The following table sets out the financial instruments as at the balance sheet date:
GROUP COMPANY2007 2006 2007 2006
$’000 $’000 $’000 $’000Financial assetsDerivative financial instruments 176 - 20 - Trade and other receivables (including cash and cash equivalents) 83,823 79,437 42,567 63,769Available-for-sale financial assets 560 403 516 356
Financial liabilitiesDerivative financial instruments 280 - 15 - Trade and other payables (including loans and finance leases) 74,995 66,788 12,387 5,503
(b) Financial risk management policies and objectives
The Group has a system of controls in place to create an acceptable balance between the cost of risks occurring and the cost of managing the risks. The management continually monitors the Group’s risk management process to ensure that an appropriate balance between risk and control is achieved. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group activities.
The Audit Committee oversees how management monitors compliance with the Group’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management control and procedures, the results of which are reported to the Audit Committee.
There has been no change to the Group’s exposure to these financial risks or the manner in which it manages and measures the risk. Market risk exposures are measured using sensitivity analysis indicated below.
(i) Foreign exchange risk management
The Group is exposed to foreign currency risk on sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of Group entities. The currency that giving rise to this risk is primarily United States dollars.
The Group manages foreign currency risk by matching assets and liabilities in the same currency denomination and supplemented with appropriate financial instruments where necessary. The Group uses derivative financial instruments to mitigate the financial impact associated with foreign currency fluctuation relating to certain forecasted transactions.
The carrying amounts of foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows:
GROUP COMPANYLiabilities Assets Liabilities Assets
2007 2006 2007 2006 2007 2006 2007 2006$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
Singapore dollars 77 89 - - - - - - Renminbi 2,280 502 3,233 1,032 3 - - - United States dollars 53,548 47,732 56,394 54,977 8,022 1,788 19,635 14,775Euro 19 34 82 - - - 4 - Ringgit 1 - - - - - - - Hong Kong dollars 7,372 125 43 11 - - - 39
Annual Report 2007
57
Notes to Financial
December 31, 2007
4 FINANCIAL INSTRUMENTS, FINANCIAL AND CAPITAL RISKS MANAGEMENT (cont’d)
Foreign currency sensitivity
The following table details the sensitivity to a 5% increase and decrease in the Singapore dollar against the relevant foreign currencies. 5% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 5% change in foreign currency rates. The sensitivity analysis includes external loans as well as loans to foreign operations within the Group where the denomination of the loan is in a currency other than the currency of the lender or the borrower.
If the Singapore dollar strengthens/weakens by 5% against the United States dollars with all other variables held constant, the Group’s and the Company’s profit for the year ended December 31, 2007 would decrease/increase by $142,000 (2006 : $362,000) and $581,000 (2006 : $649,000) respectively.
The Group’s sensitivity to foreign currency has decreased during the current year mainly due to the decrease in foreign currency net assets.
ii) Interest rate risk management
The Group’s exposure to interest rate risk arises from cash and cash equivalents placed with and borrowing from banks and financial institutions in Singapore and Hong Kong.
The interest bearing cash and cash equivalents placed with banks are short-term in nature and the interest rate on finance leases are fixed on the date of inception. Variation in short-term interest rate is not expected to have a material impact on the results of the Group.
As interest on bank borrowings varies according to market rates, the Directors are of the view that such variations in interest rate will not have a material impact on the results of the Group. Hence,the Group does not hedge against the interest rate risk associated with its bank borrowings.
Interest rate sensitivity
The sensitivity analyses below have been determined based on the exposure to interest rates for cash and cash equivalents placed with and borrowing from banks and financial institutions in Singapore and Hong Kong at the balance sheet date. For floating rate liabilities, the analysis is prepared assuming the amount of liability outstanding at the balance sheet was outstanding for the whole year. A 50 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.
If interest rates had been 50 basis points higher/lower with all other variables held constant, the Group’s profit for the year ended December 31, 2007 would decrease/ increase by $140,000 (2006 : decrease/increase by $100,000). No analysis is prepared at the Company level as the amount is immaterial.
The Group’s sensitivity to interest rates has increased during the current year mainly due to the increase in bank loan of $7.88 million extended to the Group for the acquisition of the office property in Shenzhen, People’s Republic of China (“PRC”).
iii) Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Group. The Group has adopted the policy of only dealing with creditworthy counterparties as a means of mitigating the risk of financial losses from default. Credit risk is managed through the application of credit approvals, credit limits and monitoring procedures. Where appropriate, the Group obtains collateral from its customers. Cash terms, advance payments and letter of credits are required for customers of lower credit standing. An allowance for impairment is made where there is an identified loss event which, based on previous experience, is evidence of a reduction in the recoverability of the cash flows.
Annual Report 2007
58
Notes to Financial
December 31, 2007
4 FINANCIAL INSTRUMENTS, FINANCIAL AND CAPITAL RISKS MANAGEMENT (cont’d)
As at December 31, 2007, 45.5% (2006: 61.6%) of trade receivables for the Group relate to amounts due from five (2006 : five) major customers. The Group manages concentration risk by performing credit analysis procedures to assess the potential customers’ credit quality and defines credit limits by customer before offering credit term to any new customer. The credit terms to customers are reviewed at least once a year.
The Group places its cash with creditworthy institutions.
The maximum exposure to credit risk in the event that the counterparties fail to perform their obligations as at the end of the financial year in relation to each class of recognised financial assets is the carrying amount of those assets as stated in the balance sheet, reduced by the effects of any netting agreements with counterparties.
(iv) Liquidity risk management
Individual operating entities within the Group are responsible for their own cash management, including the short term investment of cash surplus and the raising of loans to cover expected cash demand, subject to approval by the parent company’s board when the borrowings exceed certain predetermined levels of authority. The Group’s policy is to regularly monitor its liquidity requirements and its compliance with lending covenants, to ensure that it maintains sufficient reserves of cash and adequate committed lines of funding from major financial institutions to meet its liability requirements in the short and longer term. Undrawn facilities are disclosed in Note 18.
Liquidity and interest risk analyses
Non-derivative financial liabilities
The following tables detail the remaining contractual maturity for non-derivative financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group and Company can be required to pay. The table includes both interest and principal cash flows. The adjustment column represents the possible future cash flows attributable to the instrument included in the maturity analysis which is not included in the carrying amount of the financial liability on the balance sheet.
Weighted Onaverage demand Withineffective or within 2 to After
interest rate 1 year 5 years 5 years Adjustment Total% $’000 $’000 $’000 $’000 $’000
GROUP2007Non-interest bearing - 46,987 - - - 46,987Finance lease liability 5.9% 2,919 3,356 - (450) 5,825Bank loans 6.9% 17,626 5,418 - (804) 22,240
2006Non-interest bearing - 46,792 - - - 46,972Finance lease liability 7.0% 2,557 4,361 - (668) 6,250Bank loans 6.6% 12,565 1,600 - (389) 13,776
COMPANY 2007Non-interest bearing - 12,387 - - - 12,387
2006Non-interest bearing - 4,864 - - - 4,864Bank loans 6.5% 643 - - (4) 639
Annual Report 2007
59
Notes to Financial
December 31, 2007
4 FINANCIAL INSTRUMENTS, FINANCIAL AND CAPITAL RISKS MANAGEMENT (cont’d)
Non-derivative financial assets
The following table details the expected maturity for non-derivative financial assets. The tables below have been drawn up based on the undiscounted contractual maturities of the financial assets including interest that will be earned on those assets except where the Group and the Company anticipates that the cash flow will occur in a different period. The adjustment column represents the possible future cash flows attributable to the instrument included in the maturity analysis which are not included in the carrying amount of the financial asset on the balance sheet.
Weighted Onaverage demand Withineffective or within 2 to After
interest rate 1 year 5 years 5 years Adjustment Total% $’000 $’000 $’000 $’000 $’000
GROUP2007Non-interest bearing - 55,241 - - - 55,241Fixed deposits 3.6% 28,582 - - - 28,582
2006Non-interest bearing - 58,192 - - - 58,192Fixed deposits 3.4% 21,245 - - - 21,245
COMPANY2007Non-interest bearing - 15,742 - - - 15,742Fixed deposits 3.6% 26,825 - - - 26,825
2006Non-interest bearing - 42,606 - - - 42,606Fixed deposits 3.4% 21,163 - - - 21,163
(v) Fair value of financial assets and financial liabilities
The carrying amounts of cash and cash equivalents, trade and other current receivables and payables and other liabilities approximate their respective fair values due to the relatively short-term maturity of these financial instruments. The fair values of other classes of financial assets and liabilities are disclosed in the respective notes to financial statements.
The fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices.
Annual Report 2007
60
Notes to Financial
December 31, 2007
4 FINANCIAL INSTRUMENTS, FINANCIAL AND CAPITAL RISKS MANAGEMENT (cont’d)
Except as detailed in the following table, the Directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the financial statements approximate their fair values:
2007 2006Carrying Fair Carrying Fair amount value amount value
$’000 $’000 $’000 $’000GROUP
Financial liabilitiesFinance lease obligations 5,825 5,763 6,250 6,511Bank loans 22,240 22,063 13,776 13,842
COMPANY
Financial liabilitiesBank loans - - 639 635
(c) Capital risk management policies and objectives
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. During 2007, the Group’s strategy, which was unchanged from 2006, was to maintain the gearing ratio below 50%. The gearing ratios at December 31, 2007 and 2006 were 31% and 25% respectively.
5 RELATED COMPANY BALANCES
Related companies in these financial statements refer to members of the Group of companies. The intercompany balances are unsecured, interest-free and are repayable within the next twelve months unless stated otherwise.
6 RELATED PARTY TRANSACTIONS
(a) Related parties are entities with common direct or indirect shareholders and/or directors. Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions.
(b) By virtue of Section 7 of the Singapore Companies Act, Michael Mun Hong Yew is deemed to have an interest in the Company and in all the subsidiaries of the Company.
In accordance with FRS 24 - Related Party Disclosures, the close members of the family of Michael Mun Hong Yew are considered to be related parties.
(c) Some of the Group’s transactions and arrangements are with related parties and the effect of these on the basis determined between the parties are reflected in these financial statements. Such related party transactions are reviewed by the Audit Committee. The balances with related parties are unsecured, interest-free and repayable within the next twelve months unless otherwise stated.
Annual Report 2007
61
Notes to Financial
December 31, 2007
6 RELATED PARTY TRANSACTIONS (cont’d)
During the year, Group entities entered into the following transactions with related parties:
GROUP2007 2006$’000 $’000
(1) Transaction with companies in which Michael Mun Hong Yew has an equity interest:Rental income (52) (46)Sales of goods 23 -Purchase of goods 2 3
(2) Transaction with an entity in which Michael Mun Hong Yew is a director:Return of capital from venture fund (38) (311)
(3) Transaction with companies in which an Independent Director has an interest:Consulting services 67 62Corporate secretarial services 17 12
(4) Salaries paid to employees of the Group who are relatives of Michael Mun Hong Yew:Salary expenses 347 312
Compensation of directors and key management personnel
The remuneration of Directors and other members of key management during the year was as follows: GROUP
2007 2006$’000 $’000
Short-term benefits 3,394 3,194Share based payments 100 16Total 3,494 3,210
The remuneration of Directors and key management is determined by the Remuneration Committee having regard to the performance of individuals.
7 CASH AND BANK BALANCESGROUP COMPANY
2007 2006 2007 2006$’000 $’000 $’000 $’000
Cash at bank 7,560 7,892 498 157Fixed deposits 28,582 21,245 26,825 21,163Cash on hand 35 40 4 4Total 36,177 29,177 27,327 21,324
Bank balances and cash comprise cash held by the Group and the Company and short-term bank deposits with an original maturity of three months or less. The carrying amounts of these assets approximate their fair values.
Fixed deposits bear interest at an average rate of 2.8% (2006 : 3.2%) per annum and for a tenor of approximately 30 days (2006 : 30 days).
Annual Report 2007
62
Notes to Financial
December 31, 2007
7 CASH AND BANK BALANCES (cont’d)
The Group’s and the Company’s cash and bank balances that are not denominated in the functional currencies of the respective entities are as follows:
GROUP COMPANY2007 2006 2007 2006$’000 $’000 $’000 $’000
Renminbi 1,482 695 - - United States dollars 12,780 8,939 5,755 2,965Euro dollars 78 - - - Hong Kong dollars 7 11 - -
8 TRADE RECEIVABLES
GROUP COMPANY2007 2006 2007 2006$’000 $’000 $’000 $’000
Outside parties 44,744 48,012 13,879 8,352Allowance for doubtful trade receivables (541) (5) - - Trade receivables due from related parties (Note 6) 22 - - - Total 44,225 48,007 13,879 8,352
The average credit period on sale of goods is 45 days (2006 : 30 days). No interest is charged on the trade receivables.
Before accepting any new customer, the Group uses both an internal and external credit scoring system to assess the potential customer’s credit quality and defines credit limits by customer. Limits and scoring attributed to customers are reviewed once per year. 98.8% of the trade receivables that are neither past due nor impaired have the best credit scoring attributable under credit scoring system used by the Group.
Included in the Group’s trade receivable balance are debtors with a carrying amount of$14.13 million (2006 : $18.47 million) which are past due at the reporting date for which the Group has not provided as there has not been a significant change in credit quality and the amounts are still considered recoverable. The Group does not hold any collateral over these balances. The average age of these receivables are 63 days (2006 : 61 days).
In determining the recoverability of a trade receivable the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, the Directors believe that there is no further impairment required in excess of the allowance for doubtful debts.
During the year, the Group transferred $17,646,000 (2006 : $24,319,000) of trade receivables to the banks. As part of the transfer, the Group provided the banks a credit guarantee over the expected losses of those receivables and has recognised the cash received on the transfer as a secured borrowing. At the reporting date, the carrying amount of the transferred short term receivables and the associated liability is $1,343,000 (2006 : $1,496,000) (Note 18).
Included in the allowance for doubtful debts are specific trade receivables with a balance of $541,000 (2006 : Nil) which have been placed under liquidation. The impairment recognised represents the difference between the carrying amount of the specific trade receivable and present value of expected liquidation proceeds.
Annual Report 2007
63
Notes to Financial
December 31, 2007
8 TRADE RECEIVABLES (cont’d)
Movements in the allowance for doubtful debts: GROUP 2007 2006 $’000 $’000
Balance at beginning of the year 5 5Amounts written off during the year (45) - Increase in allowance recognised in profit or loss statement 581 -Balance at end of the year 541 5
The Group’s and the Company’s trade receivables that are not denominated in the functional currencies of the respective entities are as follows:
GROUP COMPANY2007 2006 2007 2006$’000 $’000 $’000 $’000
United States dollars 43,110 45,837 13,879 8,322
9 OTHER RECEIVABLES AND PREPAYMENTSGROUP COMPANY
2007 2006 2007 2006$’000 $’000 $’000 $’000
Other receivables and prepayments 3,421 2,253 596 1,059Subsidiaries (Notes 5 and 12) - - 4,570 36,839Allowance for doubtful other receivables - - (3,805) (3,805)Total 3,421 2,253 1,361 34,093
The Company’s other receivables due from subsidiaries are interest-free and repayable on demand and the average age of these receivables is less than 60 days (2006 : 60 days). The Company has not made any further allowance in 2007 as the Directors are of the view that receivables are recoverable.
The Group’s and the Company’s other receivables and prepayments that are not denominated in the functional currencies of the respective entities are as follows:
GROUP COMPANY2007 2006 2007 2006$’000 $’000 $’000 $’000
Renminbi 1,751 337 - - United States dollars 504 201 - 3,488Euro dollars 4 - 4 - Hong Kong dollars 36 - - 39
Annual Report 2007
64
Notes to Financial
December 31, 2007
10 DERIVATIVE FINANCIAL INSTRUMENTSGROUP COMPANY
Assets Liabilities Assets Liabilities2007 2006 2007 2006 2007 2006 2007 2006$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
Forward foreign exchange contracts 176 - (280) - 20 - (15) -
The following table details the forward foreign currency contracts outstanding as at reporting date:
(i) Deliverable and Non Deliverable Forward Contracts:
Notional amount Maturity date Exchange rate
US$500,000 – Deliverable From May 13, 2008 to Sell US$/ buy RMB at Forward Contract October 13, 2008 7.1907 to 7.3144
US$500,000 - Non Deliverable From May 13, 2008 to Buy US$/ sell RMB at Forward Contract October 13, 2008 7.068 to 7.235
(ii) The Group has entered into a US$ vs HK$ structured forward contracts which give the Group the opportunities to sell US$1 million/buy HK$ at more favourable exchange rates than market exchange rates. However, the Group is obliged to buy US$/sell HK$ at a fixed exchange rate of 7.75 if the exchange rate falls below 7.75 for a maximum of US$3 million per month for each contract for a period of 18 months. As at December 31, 2007, the remaining tenor of the contract was 16 months.
(iii) The Group has also entered into a US$ vs S$ structured forward contracts which give the Group the opportunities to sell US$1 million against S$ at 1.47 if US$/S$ spot rate does not trade at or below the knock out rate at 1.43 (pre-determined) during the life of the option. However, the Group is obliged to sell US$2 million against S$ at 1.47 if the exchange rate trades above 1.47 for US$2 million per month for each contract for a period of 6 months. As at December 31, 2007, the remaining tenor of the contract was 4 months.
The above foreign currency contracts were measured at fair value at each balance sheet date. Their fair values were determined based on the valuation techniques as provided by licensed financial institutions at the balance sheet date.
11 INVENTORIES GROUP 2007 2006 $’000 $’000
At cost:
Finished goods 5,484 5,016Work-in-progress 6,542 3,752Raw materials 22,029 23,858
34,055 32,626Finished goods, at net realisable value 2,044 3,932Total 36,099 36,558
The cost of inventories recognised as an expense includes $77,000 (2006 : $269,000) in respect of write-downs of inventory to net realisable value.
Annual Report 2007
65
Notes to Financial
December 31, 2007
12 INVESTMENT IN SUBSIDIARIES COMPANY 2007 2006 $’000 $’000
Unquoted equity shares, at cost 96,185 68,401Deemed interest (4) 2,393 1,351
98,578 69,752Impairment loss (43,920) (43,920)Carrying amount 54,658 25,832
The subsidiaries of the Group are set out below:
Proportion ofPlace of ownership interest Cost of
incorporation and voting power investmentName of company and operation held by the Group by the Company Principal activity
2007 2006 2007 2006% % $’000 $’000
Held by the Company
AZ – Technology Malaysia 100 100 78 68 Distribution and sale of Sdn Bhd (1) multicommunication
products and computer peripherals and provision of marketing services
Aztech Systems GmbH (2) Germany 100 100 6,534 6,531 Distribution and sale of multicommunication products and computer peripherals and provision of marketing services
Aztech Labs, Inc. (2) United States 100 100 24,617 24,614 Distribution and sale ofof America multicommunication
products and computer peripherals and provision of marketing services
Aztech International Ltd (1) Hong Kong 100 100 * * Distribution and sales of electronic products
Aztech Systems Hong Kong 100 100 43,822 15,096 Manufacture and sale of (Hong Kong) Ltd (1) multicommunication
products and computer peripherals
Azfin Semiconductors Singapore 82 82 3,000 3,000 DormantPte Ltd
Shiro Corporation Pte Ltd Singapore 100 100 504 420 Manufacture,development and sale of consumer electronic products and computer peripherals
Annual Report 2007
66
Notes to Financial
December 31, 2007
12 INVESTMENT IN SUBSIDIARIES (cont’d)Proportion of
Place of ownership interest Cost ofincorporation and voting power investment
Name of company and operation held by the Group by the Company Principal activity2007 2006 2007 2006
% % $’000 $’000
Shiro Corporation Hong Kong 100 100 * * Sale of consumer (HK) Limited (1) electronic products and
computer peripherals and provision of marketing services
Hitemco Pte Ltd Singapore 100 100 3,000 3,000 Development of and investment in properties
Aztech Technologies Singapore 100 100 7,908 7,908 Distribution and sale ofPte Ltd multicommunication
products and computer peripherals
AZ United Pte Ltd Singapore 100 100 9,115 9,115 Non-building construction(Formerly known as Aztech related work, including Communication Pte Ltd) supply and procurement
of materials Held by Aztech Systems(Hong Kong) Ltd
Aztech Communication PRC 100 100 - - Manufacture and saleDevice (DG) Ltd (1) of multicommunication
products and plastic injection parts
Aztech Communication PRC 100 100 - - Research and Device (Shenzhen) Ltd (1) development of
multicommunication products
Held by Aztech Communication Pte Ltd
ThatWeb Solutions PRC - - - - In process of liquidation (Shanghai) Co. Ltd (3)
98,578 69,752
All the companies are audited by Deloitte & Touche, Singapore except for the subsidiaries that are indicated as follows:
(1) Audited by overseas practices of Deloitte Touche Tohmatsu
(2) Not required to be audited by law in its country of incorporation. The net tangible asset (NTA) and pre-tax profits of the entities are less than 20% of the Group’s consolidated NTA and pre-tax profits respectively. Their unaudited financial statements have been reviewed as part of the Group audit.
(3) Not audited as the company is in the process of liquidation.
* Less than $1,000.
(4) Deemed interest arose from financial guarantees provided by the Company to banks in respect of financing facilities granted to its subsidiaries and the share options granted under ESOS 2000 by the Company to employees of its subsidiaries. Management has assessed that the fair value of the financial guarantees equivalent to 1.5 % (2006 : 1.5%) of the amount of financing facilities guaranteed from the dates when the financing facilities were issued.
Annual Report 2007
67
Notes to Financial
December 31, 2007
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Annual Report 2007
68
Notes to Financial
December 31, 2007
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Annual Report 2007
69
Notes to Financial
December 31, 2007
13 PROPERTY, PLANT AND EQUIPMENT (cont’d)
(c) Major property of the Group is as follows:
Existing Area Tenure of CarryingDescription Location use (in sq metres) lease value
2007 2006$’000 $’000
Leasehold Dongguan Jiu Self use 43,146 50 years with 7,545 8,451Property * Jiang Shui Village, effect from
Chang Ping Town, October 1, 2002Dong Guan City,
GuangdongProvince PRC
* At December 31, 2007, the Group was applying for the land use right certificate and property ownership certificates in respect of the leasehold property interest of $7,545,000(2006 : $8,451,000) from the relevant PRC government authorities.
14 INVESTMENT PROPERTIES GROUP 2007 2006 $’000 $’000
At fair value
At January 1 - -Additions 8,884 - Reclassification from property, plant and equipment 2,001 -Gain from fair value adjustment 3,499 - Net foreign currency exchange differences (68) - At December 31 14,316 -
The fair values of the Group’s investment properties at December 31, 2007 have been determined on the basis of valuations carried out at the year end date by an independent valuer having an appropriate recognised professional qualification and recent experience in the location and category of the properties being valued. The valuations were arrived at by reference to market evidence of transaction prices for similar properties, and was performed in accordance with International Valuation Standards.
The property rental income from the Group’s investment properties of which 24.4% (2006 : 100%) are leased out under operating leases, amounted to $83,000 (2006 : $73,000). Direct operating expenses (including repairs and maintenance) arising from the rental-generating investment property amounted to $27,000 (2006 : $64,000). Direct operating expenses (including repairs and maintenance) arising from the non rental-generating investment property amounted to $6,000 (2006 : $Nil).
Annual Report 2007
70
Notes to Financial
December 31, 2007
14 INVESTMENT PROPERTIES (cont’d)
(a) Major properties of the Group are as follows:
Existing Area Tenure of FairDescription Location use (in sq metres) lease value
2007 2006$’000 $’000
Investment Fortune Building For rental 1,693 50 years with 12,116 -Property Junction of Jintian effect from
Road and Fuhua June 26, 20003rd Road, Futian
District, ShenzhenGuangdong
Province, PRC
Investment ACE Building For rental 545 Freehold 2,200 -Property (5th Storey) 146B
Paya Lebar RoadSingapore 409017
15 AVAILABLE-FOR-SALE INVESTMENTSGROUP COMPANY
2007 2006 2007 2006$’000 $’000 $’000 $’000
Non-current
At cost: Unquoted venture fund* - 583 - 583 Unquoted equity shares 220 220 220 220
220 803 220 803Impairment loss (220) (763) (220) (763)
- 40 - 40At fair value:Club memberships 560 363 516 316
Total 560 403 516 356
* On May 6, 2005, the shareholders of UOB Venture Investments II Limited passed a special resolution pursuant to Section 290(i)(b) of the Singapore Companies Act (Cap. 50) to place the said company into members’ voluntary liquidation. A liquidator was appointed to wind up the company and distribute the company’s assets. As at December 31, 2007, the Group received a return of capital of $38,000(2006 : $311,000) from the liquidator and subsequently UOB Venture Investments II Limited was dissolved on January 10, 2008.
Michael Mun Hung Yew is also a director of this venture fund. Accordingly, the venture fund is a related party.
Annual Report 2007
71
Notes to Financial
December 31, 2007
16 DEFERRED TAX
The following are the major deferred tax liabilities and assets recognised and the movements thereon, during the current and prior reporting periods:
Accelerated Propertytax Tax Deferred revaluation
depreciation Provisions losses expenditure gain Total$’000 $’000 $’000 $’000 $’000 $’000
GroupAt January 1, 2006 361 (32) (597) - - (268)Charge (credit) to profit and loss for the year (272) 8 522 (415) - (157)At December 31, 2006 89 (24) (75) (415) - (425)Charge (credit) to profit and loss for the year (46) (61) 75 67 989 1,024Exchange difference (17) - - - - (17)At December 31, 2007 26 (85) - (348) 989 582
CompanyAt January 1, 2006 - - - - - - Charge (credit) to profit and loss for the year (158) - - (415) - (573)At December 31, 2006 (158) - - (415) - (573)Charge (credit) to profit and loss for the year 58 (59) - 67 - 66At December 31, 2007 (100) (59) - (348) - (507)
Certain deferred tax assets and liabilities have been offset in accordance with the Group’s and Company’s accounting policy. The following is the analysis of the deferred tax balances (after offset) for balance sheet purposes:
GROUP COMPANY2007 2006 2007 2006$’000 $’000 $’000 $’000
Deferred tax liabilities 1,113 89 - - Deferred tax assets (531) (514) (507) (573)Net 582 (425) (507) (573)
Subject to the agreement by the tax authorities in the relevant foreign tax jurisdictions in which the Group operates and conditions imposed by law, the Group has tax losses carryforwards available for offsetting against future taxable income as detailed below. In addition, the Singapore tax loss carryforwards are subject to the retention of majority shareholders as defined.
GROUP COMPANY2007 2006 2007 2006$’000 $’000 $’000 $’000
As at January 1 40,594 66,039 - 12,280Adjustment for prior years (37) (11,286) - (12,280)Arising in current year 920 76 - - Exchange difference (1,327) (2,230) - - Amount utilised (1,779) (12,005) - - As at December 31 38,371 40,594 - - Deferred tax benefit on above not recorded 6,596 8,178 - -
Annual Report 2007
72
Notes to Financial
December 31, 2007
16 DEFERRED TAX (cont’d)
No deferred tax asset has been recognised by the Group in respect of the tax losses of $38,371,000 as at December 31, 2007 (2006 : $40,222,000) due to the unpredictability of future profits stream of the relevant subsidiaries.
Future tax benefits from the Group tax loss carryforwards amounting to $17,499,000 (2006 : $17,521,000)are available for an unlimited future period. The remaining tax loss carryforwards amounting to $20,872,000 (2006 : $23,073,000) have a limited life ranging from 15 to 20 years to offset against future profits after which any unutilised amount will be foregone.
17 INTANGIBLE ASSETGROUP COMPANY
$’000 $’000
Deferred development cost
Costs: At January 1, 2006 15,146 13,911 Additions 4,185 4,425 Currency realignment (119) - At December 31, 2006 19,212 18,336 Additions 4,979 5,294 Written off (11,485) (11,485) Currency realignment (77) - At December 31, 2007 12,629 12,145
Accumulated amortisation: At January 1, 2006 11,176 10,502 Amortisation for the year 3,301 2,977 Currency realignment (79) - At December 31, 2006 14,398 13,479 Amortisation for the year 3,545 3,571 Written off (11,485) (11,485) Currency realignment (74) - At December 31, 2007 6,384 5,565
Carrying amount: At December 31, 2007 6,245 6,580
At December 31, 2006 4,814 4,857
The deferred development cost above has finite useful lives, and is amortised. The amortisation period for development costs incurred is three years.
The amortisation of deferred development cost has been included under administrative expenses.
Annual Report 2007
73
Notes to Financial
December 31, 2007
18 BORROWINGSGROUP COMPANY
2007 2006 2007 2006$’000 $’000 $’000 $’000
Current:
SecuredBills discounted with recourse 1,343 1,496 - 639Bills payable 10,000 8,686 - - Export trade loan 1,374 - - - Revolving loan 718 - - -Term loan 1,436 2,054 - - Bank loan 2,210 - - - Total 17,081 12,236 - 639
Non-current:
SecuredTerm loan - 1,540 - - Bank loan 5,159 - - - Total 5,159 1,540 - -
Total borrowings 22,240 13,776 - 639
GROUP COMPANY2007 2006 2007 2006$’000 $’000 $’000 $’000
The borrowings are repayable as follows: On demand or within one year 17,081 12,236 - 639 In the second year 2,211 1,540 - - In the third year 2,948 - - - In the fourth year - - - - In the fifth year - - - - After five years - - - -
22,240 13,776 - 639Less: Amount due for settlement within 12 months (shown under current liabilities) (17,081) (12,236) - (639)Amount due for settlement after 12 months 5,159 1,540 - -
The Group’s and the Company’s borrowings that are not denominated in the functional currencies of the respective entities are as follows:
GROUP COMPANY2007 2006 2007 2006$’000 $’000 $’000 $’000
Hong Kong dollars 7,369 - - - United States dollars 14,871 13,776 - 639
The Group has banking facilities relating to bills discounted with recourse, trade bills payable, revolving credit export trade loan and bank overdrafts of $53,424,000 (2006 : $50,975,570), of which $13,435,000 (2006 : $10,181,570) have been utilised as at December 31, 2007. These banking facilities are secured by a corporate guarantee from the Company. These banking facilities bear interest rates from 4.7% to 7.5% (2006 : 5.9% to 10%) per annum. The undrawn committed borrowing facilities in respect of which all conditions precedent had been met.
Annual Report 2007
74
Notes to Financial
December 31, 2007
18 BORROWINGS (cont’d)
The term loan of approximately $5,059,000 extended to the Group is repayable over 3 years from 2005. The loan which has an outstanding balance of $1,436,000 (2006 : $3,594,000) bears interest at United States Prime Lending Rate less 0.5% per annum or at 1.5% per annum over the lender’s cost of funds, whichever is higher, calculated on a 360 day basis and the actual number of days elapsed. The loan is secured by corporate guarantees from the Company.
The bank loan of approximately $7,369,000 extended to the Group to acquire office property in Shenzhen, PRC is repayable over 3 years (FY2008 : $2,210,000, FY2009 : $2,210,000 and FY2010 : $2,949,000) commencing June 2007. The loan bears interest at HIBOR plus 1.5% per annum calculated on a 365 days basis and the actual number of days elapsed. The bank loan is secured by a corporate guarantee from the Company.
19 TRADE PAYABLESGROUP COMPANY
2007 2006 2007 2006$’000 $’000 $’000 $’000
Outside parties 37,316 36,330 79 218
The average credit period on purchases of goods is 60 days (2006 : 60 days). No interest is charged on the trade payables. The Group has financial risk management policies in place to ensure that all payables are paid within the credit timeframe.
Trade payables principally comprise amounts outstanding for trade purchases and ongoing costs.
The Group’s and Company’s trade payables that are not denominated in the functional currencies of the respective entities are as follows:
GROUP COMPANY2007 2006 2007 2006$’000 $’000 $’000 $’000
Singapore dollars - 89 - - Renminbi 505 267 - - United States dollars 30,544 25,246 - 123Euro 19 34 - - Ringgit 1 - - - Hong Kong dollars 3 - - -
Annual Report 2007
75
Notes to Financial
December 31, 2007
20 OTHER PAYABLES AND PROVISIONSGROUP COMPANY
2007 2006 2007 2006$’000 $’000 $’000 $’000
Subsidiaries (Notes 5 and 12) - - 8,448 1,394Accrued expenses 7,021 5,624 3,355 2,666Customer deposits 1,434 1,998 114 307Provision for warranty 57 30 - - Payables for plant and equipment 402 1,320 - - Other payables 757 1,490 391 279Total 9,671 10,462 12,308 4,646
Provision for warrantyBalance at January 1 30 106 - - Charge (reversal) to profit and loss 82 (76) - - Utilised (55) - - - Balance at December 31 57 30 - -
The provision for warranty represents management’s best estimate of the Group’s liability under 12 months warranties granted on computer peripherals and multicommunication products based on past experience and industry averages for defective products.
The Group’s and Company’s other payables that are not denominated in the functional currencies of the respective entities are as follows:
GROUP COMPANY2007 2006 2007 2006$’000 $’000 $’000 $’000
Renminbi 1,775 235 3 - Singapore dollars 77 - - -United States dollars 2,308 2,585 8,022 1,026
Annual Report 2007
76
Notes to Financial
December 31, 2007
21 OBLIGATIONS UNDER FINANCE LEASESGROUP
Present valueMinimum of minimum
lease payments lease payments2007 2006 2007 2006$’000 $’000 $’000 $’000
Amounts payable under finance leases:Within one year 2,919 2,557 2,648 2,183In the second to fifth years inclusive 3,356 4,361 3,177 4,067
6,275 6,918 5,825 6,250
Less: Future finance charges (450) (668) - -
Present value of lease obligations 5,825 6,250 5,825 6,250
Less: Amount due for settlement within 12 months (shown under current liabilities) (2,648) (2,183)
Amount due for settlement after 12 months 3,177 4,067
It is the Group’s policy to acquire certain of its plant and equipment under finance lease arrangements. The average lease term is 3 years. For the year ended December 31, 2007, the average effective borrowing rate was 6.7% per annum (2006 : 6.7% per annum). All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.
The fair value of the Group’s lease obligations approximates their carrying amount.
The Group’s obligations under finance leases are secured by the lessors’ title to the leased assets (Note 13).
Annual Report 2007
77
Notes to Financial
December 31, 2007
22 SHARE CAPITALGROUP AND COMPANY
2007 2006 2007 2006’000 ’000 $’000 $’000
Number of ordinary sharesIssued and paid up: At January 1 409,080 402,187 108,342 20,109 Transferred from share premium - - - 87,408 Transferred from share-based compensation reserve - - 225 -
Transferred from warrant reserve - - 10 - Conversion of warrants 546 - 278 - Exercise of share options 10,200 6,893 1,103 825 At December 31 419,826 409,080 109,958 108,342
The Company has one class of ordinary shares with no par value which carry no right to fixed income.
The Aztech Group Employee Share Option Scheme 2000 (“ESOS 2000”) was approved and adopted at the Company’s Extraordinary General Meeting (“EGM”) held on March 10, 2000.
As a result of the Companies (Amendment) Act 2005 which came into effect on January 30, 2006, the concept of authorised share capital and par value has been abolished. Any amount standing to the credit of share premium account has been transferred to the Company’s share capital account on the effective date.
In 2007, 10,746,000 ordinary shares in the Company were issued at the following subscription price, pursuant to the exercise of options granted under ESOS 2000 and the conversion of warrant:
(i) 385,800 at $0.071(ii) 224,200 at $0.076(iii) 5,350,000 at $0.11(iv) 1,300,000 at $0.119(v) 2,940,000 at $0.108(vi) 546,000 at $0.51
The new shares ranked pari passu in all respects with existing shares of the Company.
On July 17, 2007, the Company allotted 104,390,250 warrants at an issue price of $0.02 for each warrant on the basis of one warrant for every four existing shares. Each warrant entitles the warrant holder to subscribe for one new ordinary share of the Company at an exercise price of $0.51 per share. The warrants have an exercise period of 3 years from July 17, 2007 to July 16, 2010. During the year, 546,000 ordinary shares were issued for the conversion of warrants and the outstanding number of warrants is 103,844,250 as at December 31, 2007.
23 TREASURY SHARESGROUP AND COMPANY
2007 2006 2007 2006’000 ’000 $’000 $’000
Number of ordinary sharesAt beginning of the year - - - - Repurchased during the year 9,793 - 3,647 - At end of the year 9,793 - 3,647 -
The Company acquired 9,793,000 of its own shares through purchases on the Singapore Exchange during the year. The total amount paid to acquire the shares was $3,674,000 and has been deducted from shareholders’ equity. The shares are held as ‘treasury shares’.
Annual Report 2007
78
Notes to Financial
December 31, 2007
24 EMPLOYEE SHARE BASED COMPENSATION RESERVE
Equity-settled share option scheme
ESOS 2000 was approved and adopted at the Company’s EGM held on March 10, 2000 and will continue in operation for a maximum period of 10 years, commencing March 10, 2000.
The Company has a share option scheme for all employees of the Group. The scheme is administered by the Remuneration Committee. Options are exercisable at price based on the average of the last done prices for the shares of the Company on the Singapore Exchange Securities Trading Limited for the 5 market days preceding the date of grant. The vesting period is 1 - 2 years. If the options remain unexercised after a period of 5 years from the date of grant, the options expire. Options are forfeited if the employee leaves the Group before the options vest.
Details of the share options outstanding during the year are as follows:GROUP AND COMPANY
2007 2006Weighted Weighted
Number average Number averageof share exercise of share exercise
options price options price $ $
Outstanding at January 1 20,533,650 0.129 24,478,300 0.134Granted during the year 1,950,000 0.561 3,350,000 0.232Forfeited during the year (462,000) 0.303 (270,800) 0.129Exercised during the year (10,200,000) 0.108 (6,893,000) 0.106Expired during the year (2,050) 0.071 (130,850) 0.150Outstanding at December 31 11,819,600 0.212 20,533,650 0.129
Exercisable at December 31 9,989,600 0.148 17,183,650 0.109
The weighted average share price at the date of exercise for share options exercised during the year was $0.485 (2006 : $0.245). The options outstanding at the end of the year have a weighted average remaining contractual life of 2.5 years (2006 : 2.6 years).
In 2007, 1,950,000 options were granted on July 27, 2007(2006 : 3,350,000). The estimated fair values of the options granted on those dates are $403,123 (2006 : $240,947).
These fair values were calculated using The Black-Scholes pricing model. The inputs into the model were as follows:
2007 2006
Weighted average share price 0.555 0.225Weighted average exercise price 0.561 0.232Expected volatility 55% 48%Expected life 2.78 years 2.53 yearsRisk free rate 2.400% 3.025%Expected dividend yield 2% 2%
Expected volatility was determined by calculating the historical volatility of the Company’s share price over the previous 3 years. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non transferability, exercise restrictions and behavioural considerations.
The Group and the Company recognised total expenses of $258,000 (2006 : $10,000) related to equity-settled share-based payment transactions during the year.
Annual Report 2007
79
Notes to Financial
December 31, 2007
25 REVENUE GROUP 2007 2006 $’000 $’000
Sales of goods 268,310 238,997
26 OTHER OPERATING INCOME GROUP 2007 2006 $’000 $’000
Rental income 1,240 1,120Interest income 780 608Gain on disposal of property, plant and equipment - 1,030Gain on revaluation of investment properties 3,499 - Others 725 312Total 6,244 3,070
27 FINANCE COSTS GROUP 2007 2006 $’000 $’000
Bank charges 465 445Interest expense for: Trust receipts and invoice financing 672 1,411 Finance leases 416 455 Long-term bank loan 490 62Fair value loss on derivative financial instrument 100 - Total 2,143 2,373
Annual Report 2007
80
Notes to Financial
December 31, 2007
28 INCOME TAX GROUP 2007 2006 $’000 $’000
Current - Singapore 1,403 2,432- Foreign 647 62
(Over) under provision in prior years – current (36) 321Deferred taxation- Current year 1,024 552- Overprovision in prior year - (709)Net 3,038 2,658
Domestic income tax is calculated at 18% (2006 : 20%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions.
The income tax expense varied from the amount of income tax expense determined by applying the Singapore income tax rate of 18% (2006 : 20%) to profit before income tax as a result of the following differences:
GROUP 2007 2006 $’000 $’000
Profit before income tax 21,215 22,696
Income tax expense of statutory rate 3,819 4,539Effects of different tax rates of overseas subsidiaries 644 (267)Effects of change in tax rate 59 -Revenue exempt from taxation (643) (56)Effects of tax concession (2,955) (256)Non-allowable items 1,514 1,184Deferred tax benefit not recognised 162 7Recognition of deferred tax liability 1,024 - Overprovision of deferred taxation in prior year - (709)Utilisation of deferred tax benefits previously not recognised (356) (2,078)(Over) under provision in prior years (36) 321Others (194) (27)Total income tax expense 3,038 2,658
In 2006, the Company was granted the International Headquarters (“IHQ”) status effective from January 1,2006 for a period of 5 years subject to the fulfilment of certain terms and conditions by December 31, 2008. The income from the qualifying IHQ activities was taxed at a concessionary rate of 10% for the current financial year.
Annual Report 2007
81
Notes to Financial
December 31, 2007
29 NET PROFIT FOR THE YEAR
Net profit for the year has been arrived at after charging (crediting): GROUP 2007 2006 $’000 $’000
Depreciation and amortisation:
Depreciation of property, plant and equipment 4,948 4,510Amortisation of intangible asset 3,545 3,301Total depreciation and amortisation 8,493 7,811
Directors’ remuneration: of the Company 2,237 2,140 of subsidiaries 106 111
Directors’ fees: Directors of the Company 348 322Total Directors’ remuneration 2,691 2,573
Employee benefits expense (including Directors’ remuneration):
Staff costs (including directors’ remuneration) 22,466 19,901
Share-based payments Equity settled 258 10
Defined contributions plans 966 928Total employee benefits expense 23,690 20,839
Impairment loss on available-for-sale equity investments - 383
Net foreign exchange losses 1,548 1,306
Loss (gain) on disposal of plant and equipment 10 (1,030)
Cost of inventories recognised as an expense 197,848 168,558
Audit fees paid to auditors: Auditors of the Company 206 129 Other auditors 175 137
Non-audit fees paid to auditors: Auditors of the Company 33 83 Other auditors 11 6
Annual Report 2007
82
Notes to Financial
December 31, 2007
30 EARNINGS PER SHARE 2007 2006 $’000 $’000
Number of shares
Weighted average number of ordinary shares for the purposes of basic earnings per share 408,149 405,280Effect of dilutive potential ordinary shares: Share options 13,273 11,865Weighted average number of ordinary shares for the purposes of diluted earnings per share 421,422 417,145
Earnings
Net profit attributable to shareholders ($’000) 18,177 20,038
Basic earnings per share (cents) 4.45 4.94
Effect of dilutive potential ordinary shares: Interest on share options (net of tax) (0.14) (0.14)Fully diluted earnings per share (cents) 4.31 4.80
Fully diluted earnings per share is based on 421,422,598 (2006 : 417,144,965) ordinary shares assuming the full exercise of share options outstanding during the year and adjusting the (weighted average) number of ordinary shares to reflect the effect of all potentially dilutive ordinary shares. The outstanding number of warrants of 103,844,250 (2006 : Nil) have not been included in the calculation of diluted earnings per share because they are anti-dilutive for the current financial year presented.
31 DIVIDEND
On May 10, 2007, a one-tier tax exempt final dividend of $0.005 and special dividend of $0.005 per ordinary share amounting to $4,124,000 was paid to shareholders in respect of the financial year ended December 31, 2006. On August 31, 2007, an interim one-tier tax exempt dividend of $0.0075 per ordinary share amounting to $3,131,000 was paid to shareholders for the financial year ended December 31, 2007.
In respect of the current year, the Directors proposed that a final one-tier tax exempt dividend of $0.01 per ordinary share will be paid to shareholders on May 2, 2008. This dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. The proposed dividend, if approved, is payable to all shareholders on the Register of Members on April 18, 2008. The total estimated dividend to be paid is $4,100,000.
Annual Report 2007
83
Notes to Financial
December 31, 2007
32 CONTINGENT LIABILITIES AND COMMITMENTS
(a) Operating lease commitments
The Group as lessee GROUP 2007 2006 $’000 $’000
Minimum lease payments under operating leases included in the profit and loss statement 2,929 2,976
At the balance sheet date, the commitments in respect of non-cancellable operating leases for office and factory were as follows:
GROUP COMPANY2007 2006 2007 2006$’000 $’000 $’000 $’000
Future minimum lease payments payable: Within one year 2,729 2,765 2,220 2,262 In the second to fifth years inclusive 9,169 9,267 8,927 8,809 After five years 337 2,344 337 2,344Total 12,235 14,376 11,484 13,415
Operating lease payments represents rentals payable by the Group for certain of its office properties. Leases are negotiated for an average term of 2 years and rentals are fixed for an average of 2 years except for the Company whereby leases are negotiated for a term of 7 years with 5% increase in rentals on 3rd and 5th year.
The Group as lessor
The Group sublets its leased property and leases its investment property in Singapore under operating leases. Property rental income earned during the year was $1,240,000 (2006 : $1,120,000). The investment property is expected to generate rental yields of 5% on an on going basis. The properties held for rental income have committed tenants for the next 1 to 3 years.
At the balance sheet date, the Group has contracted with tenants for the following future minimum lease payments:
GROUP 2007 2006 $’000 $’000
Within one year 1,371 1,040In the second to fifth years inclusive 1,193 439After five years - -
2,564 1,479
Annual Report 2007
84
Notes to Financial
December 31, 2007
32 CONTINGENT LIABILITIES AND COMMITMENTS (cont’d)
(b) Contingent liabilitiesGROUP COMPANY
2007 2006 2007 2006$’000 $’000 $’000 $’000
Banker’s guarantees - unsecured 2,449 2,450 2,265 2,450Corporate guarantee given by the Company
to banks in connection with banks facilities utilised by subsidiaries
- unsecured - - 22,562 13,137
In addition to the guarantees disclosed above, the Company has given undertakings to provide continuing financial support to certain of its subsidiaries with capital deficiencies amounting to $3,852,000 (2006 : $3,802,000) to enable them to continue as going concerns and to meet their obligations for at least 12 months from the date of this report.
(c) Capital expenditure commitments GROUP AND COMPANY 2007 2006 $’000 $’000
Contracted for acquisition of property, plant and equipment but not provided for in the financial statements - 65
(d) Pursuant to a land use right agreement dated June 15, 2002, a subsidiary of the Company is committed to pay to the local authority in People’s Republic of China land management fee of approximately $20,000 (RMB100,000) per annum with an increment rate of 10.0% every five years till September 30, 2052.
Annual Report 2007
85
Notes to Financial
December 31, 2007
33S
EG
ME
NT
INFO
RM
AT
ION
(a)
Bus
ines
s se
gmen
ts
The
Gro
up is
org
anis
ed o
n a
wor
ldw
ide
basi
s in
to th
ree
mai
n op
erat
ing
divi
sion
s, n
amel
y:
-O
DM
/OE
M S
ales
- D
esig
n, d
evel
op,
man
ufac
ture
and
mar
ket
of d
ata
com
mun
icat
ion,
voi
ce c
omm
unic
atio
n an
d m
ultim
edia
pro
duct
s on
OD
M a
nd O
EM
ba
sis.
-C
ontr
act M
anuf
actu
ring
: Ele
ctro
nic
Des
ign
and
Con
trac
t Man
ufac
turin
g-
Ret
ail D
istr
ibut
ion
: Dis
trib
utio
n an
d sa
le o
f con
sum
er e
lect
roni
c pr
oduc
ts a
nd c
ompu
ter p
erip
hera
ls
Seg
men
t re
venu
e an
d ex
pens
e:
Seg
men
t re
venu
e an
d ex
pens
e ar
e th
e op
erat
ing
reve
nue
and
expe
nse
repo
rted
in t
he G
roup
’s p
rofit
and
loss
sta
tem
ent
that
are
di
rect
ly a
ttrib
utab
le to
a s
egm
ent a
nd th
e re
leva
nt p
ortio
n of
suc
h re
venu
e an
d ex
pens
e th
at c
an b
e al
loca
ted
on a
reas
onab
le b
asis
to a
seg
men
t.
Seg
men
t as
sets
and
liab
ilitie
s: S
egm
ent
asse
ts in
clud
e al
l ope
ratin
g as
sets
use
d by
a s
egm
ent
and
cons
ist
prin
cipa
lly o
f op
erat
ing
rece
ivab
les,
inve
ntor
ies
and
prop
erty
, pla
nt a
nd e
quip
men
t, ne
t of
allo
wan
ces
and
prov
isio
ns. C
apita
l exp
endi
ture
incl
udes
the
tot
al c
ost
incu
rred
to
acqu
ire p
rope
rty,
pla
nt a
nd e
quip
men
t an
d de
ferr
ed e
xpen
ditu
re d
irect
ly a
ttrib
utab
le to
the
segm
ent.
Seg
men
t lia
bilit
ies
incl
ude
all o
pera
ting
liabi
litie
s an
d co
nsis
t prin
cipa
lly o
f acc
ount
s pa
yabl
e.
Inte
r-se
gmen
t sal
es a
re c
harg
ed a
t pre
vailin
g m
arke
t pric
es.
OD
M/O
EM
Sal
esC
ont
ract
Man
ufac
turi
ngR
etai
lD
istr
ibut
ion
Elim
inat
ion
Gro
up20
07$’
000
2006
$’00
020
07$’
000
2006
$’00
020
07$’
000
2006
$’00
020
07$’
000
2006
$’00
020
07$’
000
2006
$’00
0
Rev
enue
Ext
erna
l sal
es13
7,22
792
,630
103,
088
115,
069
27,9
9531
,298
--
268,
310
238,
997
Inte
r-se
gmen
t sal
es16
,655
18,7
07-
--
-(1
6,65
5)(1
8,70
7)-
-To
tal r
even
ue fr
om
cont
inui
ng o
pera
tions
153,
882
111,
337
103,
088
115,
069
27,9
9531
,298
(16,
655)
(18,
707)
268,
310
238,
997
Annual Report 2007
86
Notes to Financial
December 31, 2007
OD
M/O
EM
Sal
esC
ont
ract
Man
ufac
turi
ngR
etai
lD
istr
ibut
ion
Elim
inat
ion
Gro
up20
07$’
000
2006
$’00
020
07$’
000
2006
$’00
020
07$’
000
2006
$’00
020
07$’
000
2006
$’00
020
07$’
000
2006
$’00
0
Res
ults
Seg
men
t res
ults
17,5
438,
843
16,7
5029
,563
83
563
(2,5
16)
(2,5
39)
31,8
60
36,4
30O
ther
ope
ratin
g in
com
e6,
244
3,07
0U
nallo
cate
d co
rpor
ate
ex
pens
es(1
4,74
6)(1
4,43
1)Fi
nanc
e co
sts
(2,1
43)
(2,3
73)
Pro
fit b
efor
e in
com
e ta
x21
,215
22,6
96In
com
e ta
x(3
,038
)(2
,658
)N
et p
rofi
t fo
r th
e ye
ar18
,177
20,0
38
Seg
men
t ass
ets
60,8
5164
,256
47,8
6454
,402
5,17
07,
380
(1,2
73)
(11,
265)
112,
612
114,
773
Una
lloca
ted
corp
orat
e
asse
ts55
,971
35,4
15C
ons
olid
ated
to
tal
as
sets
168,
583
150,
188
Seg
men
t lia
bilit
ies
32,5
1928
,942
25,4
7128
,189
2,33
712
,684
(1,2
73)
(11,
265)
59,0
5458
,550
Una
lloca
ted
corp
orat
e
liabi
litie
s19
,883
10,7
32C
ons
olid
ated
to
tal
lia
bili
ties
78,9
3769
,282
Oth
er in
form
atio
nC
apita
l exp
endi
ture
9,04
66,
661
2,98
92,
472
4045
--
12,0
759,
178
Una
lloca
ted
capi
tal
ex
pend
iture
9,42
51,
166
Co
nso
lidat
ed c
apit
al
exp
end
itur
e21
,500
10,3
44
Dep
reci
atio
n an
d
amor
tisat
ion
expe
nses
6,04
75,
245
1,78
61,
951
7663
--
7,90
97,
259
Una
lloca
ted
de
prec
iatio
n an
d
amor
tisat
ion
expe
nse
584
552
Co
nso
lidat
ed
dep
reci
atio
n an
d
amo
rtis
atio
n
exp
ense
8,49
37,
811
33S
EG
ME
NT
INFO
RM
AT
ION
(con
t’d)
Annual Report 2007
87
Notes to Financial
December 31, 2007
33 SEGMENT INFORMATION (cont’d)
(b) Geographical segments
Segment revenue: Segment revenue is analysed based on the location of customers regardless of where the goods are produced.
Segment assets and capital expenditure: Segment assets and capital expenditure are analysed based on the location of those assets. Capital expenditure includes the total cost incurred to acquire property, plant and equipment and intangible assets.
CapitalRevenue Assets expenditure
2007 2006 2007 2006 2007 2006$’000 $’000 $’000 $’000 $’000 $’000
Europe 86,487 70,439 14,488 9,464 19 2Asia Pacific 65,028 109,124 129,772 127,369 21,477 10,340North and South America 101,035 46,008 20,606 11,028 4 2Others 15,760 13,426 3,717 2,327 - - Total 268,310 238,997 168,583 150,188 21,500 10,344
34 SUBSEQUENT EVENTS
(i) Subsequent to the financial year end, the Company purchased 2,095,000 of its shares from the open market at an average price of $0.247 for a total consideration of $517,675.
(ii) Subsequent to the financial year end, the Company issued 500,000 shares at the exercise price of $0.11 pursuant to the exercise of options granted under ESOS2000.
(iii) Aztech Systems Ltd’s wholly owned subsidiary, Aztech Communication Pte. Ltd. has changed its name to AZ United Pte Ltd (“AZ United”) with effect from January 18, 2008.
On February 12, 2008, AZ United has secured a contract for the procurement and supply of construction material. The contract, which is projected to be executed in three stages is worth a total of approximately $250 million for the overall procurement and supply of the material over a period of three years. The first stage is valued at $23 million, to be executed over a period of six months. The first delivery is expected to commence by the end of March 2008. The subsequent two stages of the contract valued at $92 million and $138 million respectively are to be executed upon confirmation from the buyer should the preceding stages progress satisfactorily.
Annual Report 2007
88
Notes to Financial
December 31, 2007
In the opinion of the Directors, the consolidated financial statements of the Group and the balance sheet and statement of changes in equity of the Company as set out on pages 41 to 88 are drawn up so as to give a true and fair view of the state of affairs of the Group and of the Company as at December 31, 2007, and of the results, changes in equity and cash flows of the Group and changes in equity of the Company for the financial year then ended and at the date of this statement, there are reasonable grounds to believe that the Company will be able to pay its debts when they fall due.
ON BEHALF OF THE DIRECTORS
Michael Mun Hong Yew
Martin Chia Heok Miin
March 11, 2008
Annual Report 2007
89
Statement of
As at March 7, 2008
NO OF ISSUED SHARES 420,326,000
NO. OF ISSUED SHARES (EXCLUDING TREASURY SHARES): 408,538,000
NUMBER/PERCENTAGE OF TREASURY SHARES: 11,788,000 (2.89%)
CLASS OF SHARES: ORDINARY SHARES
VOTING RIGHTS (EXCLUDING TREASURY SHARES): ONE VOTE PER SHARE
Annual Report 2007
90
TOP TWENTY SHAREHOLDERS AS AT 7 MARCH 2008NO. OF
SHARES %
CITIBANK NOMINEES SINGAPORE PTE LTD DBS NOMINEES PTE LTD UNITED OVERSEAS BANK NOMINEES PTE LTDHSBC (SINGAPORE) NOMINEES PTE LTD DBS VICKERS SECURITIES (S) PTE LTD OVERSEA-CHINESE BANK NOMINEES PTE LTDOCBC NOMINEES SINGAPORE PTE LTD PHILLIP SECURITIES PTE LTD OCBC SECURITIES PRIVATE LTD MUN HONG YEWNG AH KAU @ NG KIM POHFOO FONG GRAFFLES NOMINEES PTE LTD CAPITAL INTELLIGENCE LIMITED UOB KAY HIAN PTE LTD CHIA HEOK MIINDBSN SERVICES PTE LTD BRAHMANA KARTA SAKRI OR SUDRIANI SAKRI MORGAN STANLEY ASIA (SINGAPORE) SECURITIES PTE LTDLOW WEI CHONG (LIU WEICONG)
106,448,50025,958,71515,965,99013,270,7909,443,0008,722,0008,292,0087,927,3807,072,0084,540,3864,403,0393,903,8302,916,8002,650,0002,148,0002,138,0002,075,0002,050,0001,787,7501,295,000
26.066.353.913.252.312.132.031.941.731.111.080.960.710.650.530.520.510.500.440.32
233,008,196 57.04
SIZE OFSHAREHOLDINGS
NO. OFSHAREHOLDERS %
NO. OF SHARES %
1 - 9991,000 - 10,00010,001 - 1,000,0001,000,001 & ABOVE
2148,6242,892
23
1.8273.3824.610.19
10,36236,732,754
137,048,888234,745,996
0.008.99
33.5557.46
TOTAL 11,753 100.00 408,538,000 100.00
DISTRIBUTION OF SHAREHOLDINGS
Analysis of
Shareholdings
NO. OF FULLY PAID SHARED
SUBSTANTIAL SHAREHOLDERSDirect
InterestDeemedInterest
Michael Mun Hong Yew 4,540,386 89,500,000*
*Note:
Michael Mun Hong Yew is deemed to have an interest in 1,000,000 Shares held by his nominees, OCBC Securities Pte Ltd and 88,500,000 shares held by his nominees, Citibank Nominees Singapore Pte Ltd.
As at March 7, 2008
Annual Report 2007
91
TOP TWENTY WARRANT HOLDERS AS AT 7 MARCH 2008NO. OF
WARRANTS %
MUN HONG YEWCITIBANK NOMINEES SINGAPORE PTE LTD OCBC SECURITIES PRIVATE LTD NG SOK CHENGPHILLIP SECURITIES PTE LTD TEO MONG JEEHSBC (SINGAPORE) NOMINEES PTE LTD UNITED OVERSEAS BANK NOMINEES PTE LTDLIM & TAN SECURITIES PTE LTD OVERSEA-CHINESE BANK NOMINEES PTE LTDDBS VICKERS SECURITIES (S) PTE LTD DBS NOMINEES PTE LTD TAN SIAH HWEE FOO FONG GUOB KAY HIAN PTE LTD LIM SOON KWONG ARTHUR HO WEE FONGMUN HON PHENGR VASWANI HARISH CIMB-GK SECURITIES PTE. LTD.
20,654,8464,985,0003,790,8503,784,6183,218,2892,957,0002,792,4612,474,2502,118,2501,995,0001,464,5001,374,0301,000,000
975,957926,250865,000700,000685,000613,000525,250
19.894.803.653.643.102.852.692.382.041.921.411.320.960.940.890.830.670.660.590.51
TOTAL 57,899,551 55.74
Analysis of
Warrant HoldingsDISTRIBUTION OF WARRANT HOLDINGS
SIZE OFWARRANT HOLDINGS
NO. OFWARRANT HOLDERS %
NO. OF WARRANTS %
1 - 9991,000 - 10,00010,001 - 1,000,0001,000,001 & ABOVE
2424,398
66512
4.5582.7212.510.22
76,74015,166,84936,991,56751,609,094
0.0714.6135.6249.70
TOTAL 5,317 100.00 103,844,250 100.00
*Note:
Michael Mun Hong Yew is deemed to have an interest in 250,000 warrants held by his nominees, OCBC Securities Pte Ltd and 2,500,000 warrants held by his nominees, Citibank Nominees Singapore Pte Ltd.
Rule 723
As at March 7, 2008, approximately 71.33% of the shareholding was held in the hands of the public. As such, Rule 723 is complied with.
NO. OF WARRANTS
SUBSTANTIAL WARRANT HOLDERSDirect
InterestDeemedInterest
Michael Mun Hong Yew 20,654,846 2,750,000*
Annual Report 2007
92
Notice of
AZTECH SYSTEMS LTD(Incorporated in the Republic of Singapore) Company Registration No. 198601642R
NOTICE IS HEREBY GIVEN THAT the Annual General Meeting of AZTECH SYSTEMS LTD will be held at 31 Ubi Road 1, Aztech Building, Singapore 408694 on Friday, April 11, 2008 at 10.00 am for the following purposes:
AS ORDINARY BUSINESS
1. To receive and, if approved, to adopt the Audited Accounts for the financial year ended December 31, 2007 together with the Directors’ Report and Auditors’ Report thereon. [Resolution 1]
2. To declare a final one-tier tax exempt dividend of $0.010 per share for the financial year ended December 31, 2007 as recommended by the Directors. [Resolution 2]
3. To approve the Directors’ Fees of $345,000 for the financial year ended December 31, 2007. (2006 : $319,028) [Resolution 3]
4. To re-elect Mr Philip Tan Tee Yong who is retiring under Article 107 of the Articles of Association. [Resolution 4]
5. To re-elect Ms Patricia Ng Sok Cheng who is retiring under Article 107 of the Articles of Association. [Resolution 5]
6. To re-appoint Messrs Deloitte & Touche as auditors of the Company and to authorize the Directors to fix their remuneration. [Resolution 6]
7. To transact any other routine business which may be properly transacted at an Annual General Meeting.
AS SPECIAL BUSINESS
To consider and, if thought fit, to pass the following resolutions (with or without amendments) as Ordinary Resolutions:
8. IT WAS RESOLVED THAT the Directors be and are hereby authorised pursuant to the provisions of Section 161 of the Companies Act, Cap. 50 (the “Act”) to allot and issue shares and convertible securities of the Company on such terms and conditions and with such rights or restrictions as they may deem fit PROVIDED ALWAYS THAT the aggregate number of shares and convertible securities to be issued pursuant to this resolution shall not exceed fifty per cent (50%) of the issued share capital of the Company, of which the aggregate number of shares and convertible securities to be issued other than on a pro rata basis to existing shareholders shall not exceed twenty per cent (20%) of the issued share capital of the Company and that such authority shall continue in force until the conclusion of the next Annual General Meeting or the expiration of the period within which the next Annual General Meeting of the Company is required by law to be held, whichever is the earlier. For the purposes of this resolution, the percentage of issued share capital shall be based on the Company’s issued share capital at the time of the passing of this resolution after adjusting for:
(a) new shares arising from the conversion or exercise of convertible securities or from exercising employee share options outstanding or subsisting at the time of the passing of this resolution; and
(b) any subsequent consolidation or subdivision of shares. [Resolution 7]
9. IT WAS RESOLVED THAT approval be and is hereby given to the Directors to offer and grant options under the Aztech Group Employees’ Share Option Scheme 2000 which was approved by the shareholders at an Extraordinary General Meeting of the Company on March 10, 2000 (“ESOS 2000”) and to allot and issue from time to time such number of shares in the Company as may be required to be issued pursuant to the exercise of options under the ESOS 2000, PROVIDED ALWAYS THAT the aggregate number of shares to be issued pursuant to the ESOS 2000 shall not exceed fifteen per cent (15%) of the total issued share capital of the Company from time to time. [Resolution 8]
Annual Report 2007
93
Notice of
10. IT WAS RESOLVED THAT:-
(a) for the purposes of Sections 76C and 76E of the Act, the exercise by the Directors of the Company of all powers of the Company to purchase or otherwise acquire issued ordinary shares of the Company (“Shares”), not exceeding in aggregate the Prescribed Limit (as hereinafter defined), at such price(s) as may be determined by the Directors of the Company from time to time up to the Maximum Price (as hereinafter defined), whether by way of:-
(i) market purchase(s) (each a “Market Purchase”) on the Singapore Exchange Securities Trading Limited (“SGX-ST”) ; and/ or
(ii) off-market purchase(s) (each an “Off-Market Purchase”) effected otherwise than on the SGX-ST in accordance with any equal access scheme(s) as may be determined or formulated by the Directors of the Company as they consider fit, which scheme(s) shall satisfy all the conditions prescribed by the Act,
and otherwise in accordance with all other laws and regulations and rules of the SGX-ST as may for the time being be applicable, be and is hereby authorised and approved generally and unconditionally (the “Share Buyback Mandate”);
(b) unless varied or revoked by the Company in general meeting, the authority conferred on the Directors of the Company pursuant to the Share Buyback Mandate may be exercised by the Directors at any time and from time to time during the period commencing from the passing of this Resolution and expiring on the earlier of:-
(i) the date on which the next annual general meeting of the Company is held; or
(ii) the date by which the next annual general meeting of the Company is required by law to be held;
(c) in this Resolution:-
“Prescribed Limit” means ten per cent (10%) of the issued ordinary share capital of the Company as at the date of passing of this Resolution; and
“Maximum Price” in relation to a Share to be purchased or acquired, means an amount (excluding brokerage, commission, stamp duties, applicable goods and services tax, clearance fees and other related expenses) not exceeding:-
(i) in the case of a Market Purchase, 105% of the Average Closing Price of the Shares; and
(ii) in the case of an Off-Market Purchase pursuant to an equal access scheme, 120% of the Average Closing Price of the Shares;
where:-
“Average Closing Price” means the average of the closing market prices of a Share over the last five (5) market days on which transactions in the Shares were recorded on the SGX-ST immediately preceding the date of the Market Purchase by the Company or, as the case may be, the date of the making of the offer pursuant to the Off-Market Purchase, and deemed to be adjusted for any corporate action that occurs after the relevant five-day period; and
“date of the making of the offer” means the date on which the Company announces its intention to make an offer for the purchase or acquisition of Shares from holders of Shares, stating therein the relevant terms of the equal access scheme for effecting the Off-Market Purchase; and
(d) the Directors of the Company and/ or any of them be and are hereby authorised to complete and do all such acts and things (including executing such documents as may be required) as they and/ or he may consider expedient or necessary to give effect to the transactions contemplated by this Resolution.
[Resolution 9]
Annual Report 2007
94
Notice of
NOTICE IS HEREBY GIVEN that the Share Transfer Books and Register of Members of the Company will be closed on 21 April 2008, for the preparation of dividend warrants. The final one-tier tax exempt dividend of $0.010 per share for the financial year ended December 31, 2007 will be paid on May 2, 2008.
Duly completed transfers received by the Company’s Share Register, B.A.C.S. Ptd Ltd of 63 Cantonment Road, Singapore 089758 up to close of business at 5 p.m. on 18 April 2008 will be registered to determine shareholders’ entitlement to the said dividend. Members whose securities accounts with the Central Depository (Pte) Limited are credited with shares at 5 p.m. on 18 April 2008 will be entitled to the said dividend.
BY ORDER OF THE BOARD
Ms Pavani NagarajahCompany Secretary
Date: March 26, 2008Singapore
Notes:
(i) A member entitled to attend and vote at the Meeting is entitled to appoint a proxy to attend and vote in his stead. A member of the Company, which is a corporation, is entitled to appoint its authorized representative or proxy to vote on its behalf.
A proxy need not be a member of the Company.
The instrument appointing a proxy must be deposited at the Company’s registered office at 31 Ubi Road 1, Aztech Building, Singapore 408694 at least 48 hours before the time of the Meeting.
(ii) If re-elected under Resolution 4, Mr Philip Tan Tee Yong will remain the Chairman of the Audit Committee, and a member of the Remuneration Committee and will be considered an independent Director of the Company.
(iii) If re-elected under Resolution 5, Ms Patricia Ng Sok Cheng will remain and will be considered an Executive Director of the Company.
(iv) Resolution 7, if passed, will empower the Directors of the Company to issue shares and convertible securities in the Company up to a maximum of fifty per cent (50%) of the issued capital of the Company (of which the aggregate number of shares and convertible securities to be issued other than on a pro rata basis to existing shareholders shall not exceed twenty per cent (20%) of the issued share capital of the Company) for such purposes as they consider would be in the interests of the Company. This authority will continue in force until the next Annual General Meeting of the Company or the expiration of the period within which the next Annual General Meeting is required by law to be held, whichever is the earlier, unless the authority is previously revoked or varied at a general meeting.
(v) Resolution 8, if passed, will empower the Directors to offer and grant options and issue shares pursuant to the Aztech Group Employees’ Share Option Scheme 2000, which was approved by the shareholders at an Extraordinary General Meeting of the Company on March 10, 2000 (“ESOS 2000”), provided always that the aggregate number of shares to be issued pursuant to ESOS 2000 shall not exceed fifteen per cent (15%) of the Company’s issued share capital for the time being. This authority will continue in force until the next Annual General Meeting of the Company or the expiration of the period within which the next Annual General Meeting is required by law to be held, whichever is the earlier, unless the authority is previously revoked or varied at a general meeting.
Annual Report 2007
95
Explanatory Statement to
SGX-ST assumes no responsibility for the correctness of any of the statements made, reported, contained or opinions expressed in this explanatory statement.
A. RATIONALE FOR THE SHARE BUYBACK MANDATE
The purchase by a company of its issued shares is one of the ways in which the return on equity of the company may be improved, thereby increasing shareholder value. By obtaining a Share Buyback Mandate, the Company will have the flexibility to undertake purchases of Shares at any time, subject to market conditions, during the period when the Share Buyback Mandate is in force.
The Share Buyback Mandate will also facilitate the return to the Shareholders by the Company of surplus cash (if any) which is in excess of the Group’s financial needs in an expedient and cost-effective manner.
The Directors further believe that Share purchases by the Company may help to mitigate short-term market volatility in the Company’s Share price, off-set the effects of short-term speculation and bolster Shareholders’ confidence.
If and when circumstances permit, the Directors will decide whether to effect the share purchases via market purchases or off-market purchases, after taking into account the amount of surplus cash available, the prevailing market conditions and the most cost-effective and efficient approach. The Directors do not propose to carry out purchases pursuant to the Share Buyback Mandate to such an extent that would, or in circumstances that might, result in a material adverse effect on the financial position of the Group.
Shareholders should note that purchases or acquisitions of Shares pursuant to the Share Buyback Mandate may not be carried out to the full limit as authorised. The share purchases will not cause illiquidity or affect orderly trading of the Shares.
B. AUTHORITY AND LIMITS OF THE SHARE BUYBACK MANDATE
Approval is being sought from Shareholders at the AGM for the renewal of a general and unconditional Share Buyback Mandate for the purchase by the Company of its issued Shares. If approved, the Share Buyback Mandate will be renewed from the date of the AGM and continue in force until the date of the next annual general meeting of the Company or such date as the next annual general meeting is required by law to be held, unless prior thereto, share buybacks are carried out to the full extent mandated or the Share Buyback Mandate is revoked or varied by the Company in general meeting. The Share Buyback Mandate will be put to Shareholders for renewal at each subsequent annual general meeting of the Company.
The authority and limitations placed on purchases or acquisitions of Shares by the Company under the Share Buyback Mandate are summarised below:-
(a) Maximum Number of Shares
The total number of Shares which may be purchased or acquired by the Company pursuant to the Share Buyback Mandate shall not exceed ten percent (10%) of the issued ordinary share capital of the Company as at the date of the last AGM of the Company held before the resolution authorising the Share Buyback Mandate is passed or as at the date on which the resolution authorising the Share Buyback Mandate is passed, whichever is the higher.
Purely for illustrative purposes, on the basis of 408,538,000 Shares (excluding treasury shares) in issue as at the Latest Practicable Date March 7, 2008 and assuming that no further Shares are issued on or prior to the AGM, not more than 40,853,800 Shares (representing 10% of the Shares in issue as at that date) may be purchased or acquired by the Company pursuant to the proposed Share Buyback Mandate.
Resolution for the Renewal of the Share Buyback Mandate
Annual Report 2007
96
(b) Duration of Authority
Purchases or acquisitions of Shares may be made, at any time and from time to time, by the Company on and from the date of the AGM at which the Share Buyback Mandate is approved up to the earliest of:
(i) the date on which the next AGM of the Company is held or required by law to be held;
(ii) the date on which the share purchases are carried out to the full extent mandated; or
(iii) the time when the authority conferred by the Share Buyback Mandate is revoked or varied by the Shareholders of the Company in general meeting.
The Share Buyback Mandate may be renewed at each AGM or other general meeting of the Company.
(c) Manner of Purchases or Acquisitions of Shares
Purchases or acquisitions of Shares may be effected by the Company by way of:-
(i) on-market purchases (“Market Purchases”); and/or
(ii) off-market purchases, otherwise than on a securities exchange, in accordance with an “equal access scheme” as defined in Section 76C of the Companies Act (“Off-Market Purchases”).
Market Purchases refer to purchases or acquisitions of Shares by the Company effected on the SGX-ST through the Central Limit Order Book trading system, and/or through one or more duly licensed dealers appointed by the Company for the purpose.
In an Off-Market Purchase, the Directors may impose such terms and conditions which are not inconsistent with the Share Buyback Mandate, the Listing Manual, the Act and other applicable laws and regulations, as they consider fit in the interests of the Company in connection with or in relation to any equal access scheme or schemes. An equal access scheme must, however, satisfy the following conditions:-
(i) offers for the purchase or acquisition of Shares shall be made to every person who holds Shares to purchase or acquire the same percentage of their Shares;
(ii) all of those persons shall be given a reasonable opportunity to accept the offers made; and
(iii) the terms of all the offers are the same, except that there shall be disregarded:-
(aa) differences in consideration attributable to the fact that the offers may relate to Shares with different accrued dividend entitlements;
(bb) (if applicable) differences in consideration attributable to the fact that the offers relate to Shares with different amounts remaining unpaid; and
(cc) differences in the offers introduced solely to ensure that each person is left with a whole number of Shares.
Under the Listing Manual, if the Company wishes to make an Off-Market Purchase, the Company will issue an offer document containing, inter alia, the following information to all Shareholders:-
(i) the terms and conditions of the offer;
(ii) the period and procedures for acceptances; and
(iii) the information required under Rule 883(1), (2), (3), (4) and (5) of the Listing Manual.
Explanatory Statement to
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97
Explanatory Statement to
(d) Maximum Purchase Price
The purchase price (excluding ancillary expenses such as brokerage, commission, applicable goods and services tax, stamp duties, clearance fees and other related expenses) to be paid for the Shares will be determined by the Directors. However, the purchase price to be paid for the Shares must not exceed the maximum price (“Maximum Price”) as set out below:-
(i) in the case of a Market Purchase, 105% of the Average Closing Price of the Shares; and
(ii) in the case of an Off-Market Purchase, 120% of the Average Closing Price of the Shares,
in each case, excluding related expenses of the purchase or acquisition.
For the above purposes:-
“Average Closing Price” means the average of the closing market prices of a Share over the last five (5) Market Days on which transactions in the Shares were recorded on the SGX-ST immediately preceding the date of the Market Purchase by the Company or, as the case may be, the date of the making of the offer pursuant to the Off-Market Purchase, and deemed to be adjusted for any corporate action that occurs after the relevant five-day period; and
“date of the making of the offer” means the date on which the Company announces its intention to make an offer for the purchase or acquisition of Shares from holders of Shares, stating therein the relevant terms of the equal access scheme for effecting the Off-Market Purchase.
C. PURCHASED SHARES: CANCELLED OR HELD IN TREASURY
Shares which are purchased or acquired by the Company may be cancelled or held by the Company as treasury shares. All shares purchased by the Company will be automatically delisted by the SGX-ST.
If cancelled, all rights and privileges attached to that Share shall expire on cancellation and certificates in respect thereof will be cancelled and destroyed by the Company as soon as reasonably practicable following settlement of any such purchase.
D. SOURCE OF FUNDS
The Company may, at its discretion, purchase Shares pursuant to the Share Buyback Mandate out of capital and/or out of distributable profits.
The Directors do not propose to exercise the Share Buyback Mandate in a manner and to such an extent that the working capital position of the Group would be materially adversely affected.
The Company intends to use internal sources of funds and/or external borrowings to finance purchases or acquisitions of its Shares. The amount of funding required for the Company to purchase or acquire its Shares and the financial impact on the Company and the Group arising from such purchases or acquisitions of the Shares pursuant to the proposed Share Buyback Mandate will depend on, inter alia, the aggregate number of Shares purchased or acquired, the consideration paid at the relevant time, and the amount (if any) borrowed by the Company to fund the purchases or acquisitions.
E. SOLVENCY TEST
Under the Act in force as at the Latest Practicable Date, we may not purchase Shares if we know that our Company is not solvent. For this purpose, a company is “solvent” if:
(1) the company is able to pay its debts in full at the time of the payment for the purchase and will be able to pay its debts as they fall due in the normal course of business during the period of 12 months immediately following the date of the payment; and
(2) the value of the company’s assets is not less than the value of its liabilities (including contingent liabilities) and will not after the proposed purchase, become less than the value of its liabilities (including contingent liabilities) having regard to the most recent financial statements of the company and all other circumstances that the directors or managers of the company know or ought to know affect, or may affect, such values.”
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98
Explanatory Statement to
F. FINANCIAL EFFECTS
The Company’s total issued share capital will be diminished by the total issue price of the Shares purchased or acquired by the Company if the Shares purchased or acquired are cancelled.
The financial effects on the Group arising from purchases or acquisitions of Shares which may be made pursuant to the Share Buyback Mandate will depend on, inter alia, the aggregate number of Shares purchased or acquired, the consideration paid at the relevant time, and the amount (if any) borrowed by the Group to fund the purchases or acquisitions.
Based on the existing issued and paid-up ordinary share capital of the Company as at the Latest Practicable Date, the purchase by the Company of 10 percent (10%) of its issued Shares will result in the purchase or acquisition of 40,853,800 Shares.
Assuming the Company purchases or acquires the 40,853,800 Shares at the Maximum Price, the maximum amount of funds required (excluding related brokerage, commission, applicable goods and services tax, stamp duties, clearance fees and other related expenses) is:-
(a) $10.25 million in the case of Market Purchases of Shares based on $0.251 per Share (being the price equivalent to five percent (5%) above the Average Closing Price of the Shares traded on the SGX-ST for the five (5) consecutive Market Days immediately preceding the Latest Practicable Date); and
(b) $11.73 million in the case of Off-Market Purchases of Shares based on $0.287 per Share (being the price equivalent to twenty percent (20%) above the Average Closing Price of the Shares traded on the SGX-ST for the five (5) consecutive Market Days immediately preceding the Latest Practicable Date).
For illustrative purposes only, on the basis of the assumptions set out above, and based on the audited financial statements of the Group for the financial year ended December 31, 2007, and assuming that:-
(i) the Share Buyback Mandate had been effective on January 1, 2007;
(ii) the purchases or acquisitions of Shares are financed solely by internal resources;
(iii) the Company’s distributable profit is $2.87 million as at December 31, 2007, taking into account the dividend declared in 2007;and
(iv) the capital of the Company is $109.96 million as at December 31, 2007,
the financial effects of the purchase or acquisition of such Shares by the Company on the audited financial statements of the Group for the financial year ended December 31, 2007 would have been as follows:-
Market Purchases
Group Company
Before SharePurchase
After SharePurchase
Before SharePurchase
After SharePurchase
As at December 31, 2007
Shareholders’ Funds ($’000)NTA ($’000)Current Assets ($’000)Current Liabilities ($’000)Total Borrowings ($’000)Number of Shares (000)
89,64683,401
120,09870,01928,065
410,033
79,39273,147
109,84470,01928,065
369,179
91,23484,65442,58714,446
-410,033
80,98074,40032,33314,446
-369,179
Financial RatiosNTA per Share (cents)Earnings per Share (cents)Gearing (times)Current Ratio (times)
20.344.450.311.72
19.814.950.351.57
20.652.48
-2.95
20.152.75
-2.24
Annual Report 2007
99
Explanatory Statement to
Off Market Purchases
Group Company
Before SharePurchase
After SharePurchase
Before SharePurchase
After SharePurchase
As at December 31, 2007
Shareholders’ Funds ($’000)NTA ($’000)Current Assets ($’000)Current Liabilities ($’000)Total Borrowings ($’000)Number of Shares (000)
89,64683,401
120,09870,01928,065
410,033
77,92171,676
108,37370,01928,065
369,179
91,23484,65442,58714,446
-410,033
79,50972,92930,86214,446
-369,179
Financial RatiosNTA per Share (cents)Earnings per Share (cents)Gearing (times)Current Ratio (times)
20.344.450.311.72
19.414.950.361.55
20.652.48
-2.95
19.752.75
-2.14
(1) Total borrowings comprise liabilities arising from borrowings from banks and other financial institutions, and outstanding debt securities.
(2) Gearing is computed based on the ratio of total borrowings to shareholders’ funds.
(3) Current ratio is derived based on current assets divided by current liabilities.
For illustrative purposes, it has been assumed that the purchases or acquisitions of Shares are financed solely by internal resources. Where the purchase or acquisition of Shares is financed through external borrowings or financing, there would also be an increase in the gearing ratios of the Group and the Company and a decline in the current ratios of the Group and the Company, with the actual impact dependent on, inter alia, the number of Shares purchased or acquired and the prices at which the Shares are purchased or acquired.
Shareholders should note that the financial effects set out above are for illustration purposes only (based on the aforementioned assumptions). The actual impact will depend on, inter alia, the number and price of the Shares purchased or acquired (if any). In particular, Shareholders should note that the above analysis is based on the audited financial statements of the Group for the financial year ended December 31, 2007 and is not necessarily representative of future financial performance.
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100
Explanatory Statement to
The Company may take into account both financial and non-financial factors (for example, stock market conditions and the performance of the Shares) in assessing the relative impact of a share purchase before execution.
G. REPORTING REQUIREMENTS UNDER THE ACT
Within 30 days of the passing of a Shareholders’ resolution to approve the purchases of Shares by the Company, the Company shall lodge a copy of such resolution with the Accounting and Corporate Regulatory Authority.
The Company shall notify the Accounting and Corporate Regulatory Authority within 30 days of a purchase of Shares on the SGX-ST or otherwise. Such notification shall include the following:
(1) the date of the purchase;
(2) number of Shares purchased;
(3) the number of Shares cancelled;
(4) the number of Shares held as treasury shares;
(5) the Company’s issued share capital before the purchase;
(6) the Company’s issued share capital after the purchase;
(7) the amount of consideration paid by the Company for the purchase of the Shares; and
(8) whether the Shares were purchased out of the profits or the capital of the Company.
H. REQUIREMENTS IN THE LISTING MANUAL
(a) Under the Listing Manual, a listed company may purchase shares by way of Market Purchases at a price per share which is not more than five percent (5%) above the average closing market price, being the average of the closing market prices of the shares over the last five (5) Market Days, on which transactions in the shares were recorded, before the day on which the purchases were made. The Maximum Price for a Share in relation to Market Purchases by the Company, referred to in section F above, conforms to this restriction.
(b) The Listing Manual specifies that a listed company shall report all purchases or acquisitions of its shares to the SGX-ST not later than 9.00 a.m. (i) in the case of a Market Purchase, on the Market Day following the day on which the Market Purchase was effected, and (ii) in the case of an Off-Market Purchase, on the second Market Day after the close of acceptances of the offer. The notification of such purchases or acquisitions to the SGX-ST shall be in such form, and shall include such details, as may be prescribed by the SGX-ST in the Listing Manual.
(c) The Listing Manual does not expressly prohibit any purchase of shares by a listed company during any particular time(s). However, as the Company would be regarded as an “insider” in relation to any proposed purchase or acquisition of its shares, the Company will not undertake any purchase or acquisition of Shares pursuant to the Share Buyback Mandate in the following circumstances:
(i) at any time after any matter or development of a price-sensitive nature has occurred or has been the subject of a decision of the Board until the price-sensitive information has been publicly announced; and
(ii) in the case of Market Purchases, during the period commencing one month immediately before the announcement of the Company’s half-year or full-year results, as the case may be, and (if applicable) the period of two weeks before the announcement of the Company’s other interim results, as the case may be,
(d) The Listing Manual requires a company to ensure that at least ten percent (10%) of equity securities (excluding preference shares and convertible equity securities) in a class that is listed is held by public shareholders. The “public”, as defined under the Listing Manual, are persons other than the directors, chief executive officer, substantial shareholders or controlling shareholders of the Company and its subsidiaries, as well as the associates of such persons.
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101
Explanatory Statement to
As at the Latest Practicable Date, there are approximately 291,399,227 Shares in the hands of the public, representing approximately 71.33% of the issued ordinary share capital of the Company. Accordingly, the Company is of the view that there is, at present, a sufficient number of Shares held by public shareholders which would permit the Company to undertake purchases and acquisitions of its Shares up to the full ten percent (10%) limit pursuant to the proposed Share Buyback Mandate, without adversely affecting the listing status of its Shares on the SGX-ST.
I. CERTAIN TAKE-OVER CODE IMPLICATIONS
(a) Obligation to Make a Take-over Offer
Any resultant increase in the percentage of voting rights held by a Shareholder and persons acting in concert with him, following any purchase or acquisition of Shares by the Company, will be treated as an acquisition for the purposes of Rule 14 of the Take-over Code (“Rule 14”). Consequently, depending on the number of Shares purchased or acquired by the Company and the Company’s issued share capital at that time, a Shareholder or group of Shareholders acting in concert with each other could obtain or consolidate effective control of the Company and could become obliged to make a take-over offer under Rule 14.
(b) Persons Acting in Concert
Under the Take-over Code, persons acting in concert comprise individuals or companies who, pursuant to an agreement or understanding (whether formal or informal), co-operate, through the acquisition by any of them of shares in a company to obtain or consolidate effective control of that company. Unless the contrary is established, the following persons, inter alia, will be presumed to be acting in concert, namely, (i) a company with any of its directors (together with their close relatives, related trusts as well as companies controlled by any of the directors, their close relatives and related trusts), and (ii) a company, its parent, subsidiaries and fellow subsidiaries, and their associated companies and companies of which such companies are associated companies, all with each other. For this purpose, a company is an associated company of another company if the second company owns or controls at least twenty percent (20%) but not more than fifty percent (50%) of the voting rights of the first-mentioned company.
(c) Effect of Rule 14 and Appendix 2
The circumstances under which Shareholders (including Directors) and persons acting in concert with them respectively will incur an obligation to make a take-over offer under Rule 14 after a purchase or acquisition of Shares by the Company are set out in Rule 14 and Appendix 2 of the Take-over Code. In general terms, the effect of Rule 14 and Appendix 2 is that, unless exempted, Directors and persons acting in concert with them will incur an obligation to make a take-over offer for the Company under Rule 14 if, as a result of the Company purchasing or acquiring Shares, the voting rights of such Directors and their concert parties would increase to thirty percent (30%) or more, or, if the voting rights of such Directors and their concert parties fall between thirty percent (30%) and fifty percent (50%) of the Company’s voting rights, the voting rights of such Directors and their concert parties would increase by more than one percent (1%) in any period of six (6) months.
Under Appendix 2 of the Take-over Code, a Shareholder not acting in concert with the Directors will not be required to make a take-over offer under Rule 14 if, as a result of the Company purchasing or acquiring its Shares, the voting rights of such Shareholder would increase to thirty percent (30%) or more, or, if such Shareholder holds between thirty percent (30%) and fifty percent (50%) of the Company’s voting rights, the voting rights of such Shareholder would increase by more than one percent (1%) in any period of six (6) months. Such Shareholder need not abstain from voting in respect of the resolution authorising the proposed Share Buyback Mandate.
(d) Directors’ and Substantial Shareholders’ Interests
Based on the Register of Directors’ Shareholdings and the Register of Substantial Shareholders of the Company, as at the Latest Practicable Date, the shareholdings of the Directors and of the Substantial Shareholders in the Company before and after the purchase of Shares pursuant to the proposed Share
Annual Report 2007
102
Buyback Mandate, assuming (i) the Company purchases the maximum amount of ten percent (10%) of the issued ordinary share capital of the Company, and (ii) there is no change in the number of Shares held by the Directors and Substantial Shareholders or which they are deemed to be interested in, will be as follows:-
Before Share Purchase After Share Purchase
Total Number of Shares in which
interested(direct and
deemed) % of Issued
Shares (1) % of Issued
Shares (1)
Total Number of share options
held
Total Number of Warrants in which
interested (direct and deemed)
DirectorsMichael Mun Hong Yew (2)
Patricia Ng Sok Cheng Martin Chia Heok MiinJeremy Mun Weng HungColin Ng Teck Sim Philip Tan Tee YongKhoo Ho Tong
94,040,38615,288,4742,158,000
750,000610,000500,000573,000
23.023.740.530.180.150.120.14
25.584.160.590.200.170.140.16
2,000,0001,800,0001,844,000
0000
23,404,8463,784,618
399,500175,000125,000125,000125,000
SubstantialShareholdersMichael Mun Hong Yew (2) 94,040,386 23.02 25.58 2,000,000 23,404,846
Notes:-
(1) Based on an issued share capital, (excluding treasury shares) of 408,538,000 Shares as at the Latest Practicable Date.
(2) As at the Latest Practicable Date, Michael Mun Hong Yew’s aggregate interest consists of 4,540,386 Shares which he holds directly, 88,500,000 shares held by Citibank Nominees Singapore Pte Ltd and 1,000,000 Shares held by OCBC Securities Pte Ltd.
As at the Latest Practicable Date, none of our Directors or Substantial Shareholders will be obliged to make a mandatory take-over offer in the event that the Company purchased the maximum 10% of the issued Shares under the proposed Share Buyback Mandate. In this regard, our Substantial Shareholder, Michael Mun Hong Yew, who is presumed to have an interest in 94,040,386 Shares, is regarded as acting in concert with (i) his son Jeremy Mun Weng Hung who holds 750,000 Shares held by OCBC Securities Pte Ltd; (ii) his son Mun Weng Kai who holds 50,000 Shares and (iii) his brother Mun Hon Pheng who indirectly holds 2,899,913 Shares as at the Latest Practicable Date, pursuant to the Take-over Code.
Shareholders who are in doubt as to whether they would incur any obligation to make a takeover offer as a result of any purchase of Shares by the Company pursuant to the Share Buyback Mandate are advised to consult their professional advisers and/or the Securities Industry Council before they acquire any Shares in the Company during the period when the Share Buyback Mandate is in force.
The statements herein do not purport to be a comprehensive or exhaustive description of all implications that may arise under the Take-over Code. Shareholders are advised to consult their professional advisers and/or the Securities Industry Council and/or other relevant authorities at the earliest opportunity as to whether an obligation to make a take-over offer would arise by reason of any purchase or acquisition of Shares by the Company.
Explanatory Statement to
--------------------As at Latest Practicable Date--------------------
Annual Report 2007
103
J. SHARES PURCHASED IN THE PREVIOUS 12 MONTHS
For the period of 12 months prior to the date of this Notice, as at the latest Practicable Date, the Company had, pursuant to and in accordance with the terms of the resolution passed at the Annual General Meeting held on April 10, 2007, purchased in aggregate 10,581,000 shares by way of Market Purchase effected on the SGX-ST. The Price paid and other particulars relating to the purchases are set out below.
Transaction Date Total No. of Shares
Prices / Average Prices Per Share
(S)
Aggregate Consideration
(S)*
August 2, 2007August 17, 2007September 20, 2007September 28, 2007October 10, 2007October 25, 2007October 26, 2007October 29, 2007October 31, 2007November 1, 2007November 2, 2007November 5, 2007November 6, 2007November 7, 2007November 9, 2007November 13, 2007November 15, 2007November 21, 2007November 22, 2007November 23, 2007November 26, 2007November 28, 2007November 30, 2007December 6, 2007December 7, 2007December 10, 2007December 11, 2007December 12, 2007December 13, 2007December 14, 2007December 17, 2007December 18, 2007December 19, 2007December 21, 2007December 24, 2007December 26, 2007December 31, 2007February 12, 2008February 15, 2008February 19, 2008February 20, 2008February 21, 2008February 22, 2008February 26, 2008February 27, 2008February 29, 2008March 05, 2008March 06, 2008
500,000389,000500,000500,000159,000300,000300,000300,000300,000200,000200,000300,000200,000300,000400,000160,000250,000200,000250,00050,000
150,00050,000
180,000100,000100,00099,00060,00070,000
210,000200,000170,000320,000309,000160,000300,000110,000240,000305,000120,000100,000110,000100,00050,000
290,000150,000120,000300,000350,000
$0.598$0.480$0.425$0.415$0.420$0.379$0.375$0.375$0.375$0.380$0.370$0.360$0.350$0.350$0.350$0.320$0.315$0.305$0.300$0.300$0.305$0.300$0.313$0.330$0.325$0.326$0.329$0.326$0.326$0.328$0.324$0.321$0.320$0.320$0.310$0.327$0.328$0.260$0.265$0.255$0.250$0.250$0.245$0.241$0.245$0.240$0.240$0.240
$299,380.11$187,275.49$213,132.19$208,117.32$ 67,078.84$114,089.42$112,834.69$112,834.69$112,834.69$ 76,340.10$ 74,331.15$108,321.30$ 70,313.25$105,312.38$140,416.50$ 51,429.12$ 79,102.41$ 61,272.98$ 75,335.63$ 15,082.13$ 46,000.49$ 15,082.13$ 56,657.21$ 33,180.68$ 32,677.94$ 32,441.74$ 19,852.89$ 22,975.21$ 68,857.07$ 65,793.12$ 55,295.74$103,006.34$ 99,272.83$ 51,429.12$ 93,416.18$ 36,161.40$ 78,951.74$ 79,654.87$ 31,974.11$ 25,639.62$ 27,650.57$ 25,136.88$ 12,317.07$ 70,231.89$ 36,890.88$ 28,957.68$ 72,222.76$ 84,375.90
Total: 10,581,000 $3,690,938.45
*Aggregate consideration excludes applicable goods and services tax
As at the Latest Practicable Date, the Company holds 11,788,000 treasury shares.
Explanatory Statement to
Annual Report 2007
104
K. RECOMMENDATION
The Directors are of the opinion that the proposed Share Buyback Mandate for the buyback by the Company of its Shares is in the best interests of the Company. They accordingly recommend that Shareholders vote in favour of the Resolution, being the ordinary resolution number 9 relating to the Share Buyback Mandate set out on page 93 of this Annual Report.
L. DIRECTORS’ RESPONSIBILITY STATEMENT
The Directors collectively and individually accept responsibility for the accuracy of the information given in this Explanatory Statement and confirm, having made all reasonable enquires, that to the best of their knowledge and belief, the facts stated and opinion expressed in this Explanatory Statement are fair and accurate that there are no material facts the omission of which would make any statement in this Explanatory Statement misleading.
Explanatory Statement to
No. of Shares held
I/We of being a Member(s) of Aztech Systems Ltd, hereby appoint Mr/Mrs/Ms
Name Address NRIC/PASSPORT NO. Proportion of Shareholdings (%)
or failing him/her, the Chairman of the Annual General Meeting of the Company (“AGM”) as my/our proxy, to vote for me/us and on my/our behalf at the AGM of the Company, to be held at 31 Ubi Road 1, Aztech Building, Singapore 408694on Friday, April 11 2008, and at any adjournment thereof in the following manner:-
RESOLUTIONS FOR AGAINST
1. To adopt the Audited Accounts, Director’s Report and Auditors’ Report
2. Declaration of final one-tier tax-exempt dividend of $0.010 per share
3. To approve the payment of Directors’ Fees
4. To re-elect Mr Philip Tan Tee Yong as a Director under Article 107
5. To re-elect Ms Patricia Ng Sok Cheng as a Director under Article 107
6. To re-appoint Auditors and authorise Directors to fix their remuneration
7. To authorise Directors to allot shares pursuant to Section 161 of the Companies Act, Chapter. 50
8. To authorise Directors to offer and grant options, and allot and issue shares in connection with the exercise of options granted pursuant to Aztech Group Employees’ Share Option Scheme 2000
9. To renew Share Buy Back Mandate
If you wish to exercise all your votes For or Against, please tick with “ √ ”. Alternatively, please indicate the number of votes For or Against each resolution.
If this form of proxy contains no indication as to how the proxy should vote in relation to each resolution , the proxy shall, as in the case of any other business raised at the meeting, vote as the proxy deems fit.
As witness my/our hand(s) this day of 2008.
Signature of Shareholder
OR
The Common Seal of the company was hereunto affixed in the presence of :-
Director Director/Secretary
IMPORTANT :This Annual Report is forwarded to CPF Investors at the request of their CPF Approved Nominees and is sent solely FOR INFORMATION. This Proxy Form is not valid for use by CPF Investors and shall be ineffective for all intents and purposes if used or purported to be used by them.
Annual Report 2007
105
AZTECH SYSTEMS LTD
PROXY FORM FOR ANNUAL GENERAL MEETING
Notes:
1. Please insert the total number of shares held by you. If you have shares entered against your name in the Depository Register (as defined in Section 130A of the Companies Act, Chapter 50), you should insert that number of shares. If you have shares registered in your name in the Register of Members, you should insert that number of shares. If you have shares entered against your name in the Depository Register and shares registered in your name in the Register of Members, you should insert the aggregate number of shares entered against your name in the Depository Register and registered in your name in the Register of Members. If no number is inserted, the instrument appointing a proxy or proxies shall be deemed to relate to all the shares held by you.
2. A member entitled to attend and vote at a meeting of the Company is entitled to appoint not more than two proxies to attend and vote instead of him.
3. Where a member appoints two proxies, he shall specify the percentage of his shares to be represented by each proxy and if no percentage is specified, the first named proxy shall be deemed to represent 100 per cent of his shareholding and the second named proxy shall be deemed to be an alternate to the first named.
4. A proxy need not be a member of the Company.
5. The instrument appointing a proxy or proxies together with the letter or power of attorney, if any, under which it is signed or a duly certified copy thereof, must be deposited at the registered office of the Company at 31 Ubi Road 1, Aztech Building, Singapore 408694, not less than 48 hours before the time appointed for the Annual General Meeting.
6. The instrument appointing a proxy or proxies must be under the hand of the appointor or his attorney duly authorized in writing. Where the instrument appointing a proxy or proxies is executed by a corporation, it must be executed either under its seal or under the hand of an officer or attorney duly authorized.
7. A corporation which is a member may authorize by resolution of its directors or other governing body such person as it thinks fit as its representative at the Annual General Meeting, in accordance with Section 179 of the Companies Act Chapter 50.
8. Please indicate with an “ √ ” in the spaces provided whether you wish your vote(s) to be for or against the Resolutions as set out in the Notice of Annual General Meeting. In the absence of specific directions, the proxy/proxies will vote or abstain as he/they may think fit, as he/they will on any other matter arising at the Annual General Meeting.
9. The Company shall be entitled to reject the instrument appointing a proxy or proxies if it is incomplete, improperly completed or illegible or where the true intentions of the appointor are not ascertainable from the instructions of the appointor specified in the instrument appointing a proxy or proxies.
10. In the case of a member whose shares are entered against his name in the Depository Register, the Company may reject any instrument appointing a proxy or proxies lodged if the member, being the appointor, is not shown to have shares entered against his name in the Depository Register as at 48 hours before the time appointed for holding the Annual General Meeting, as certified by The Central Depository (Pte) Limited to the Company.
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AZTECH SYSTEMS LTD
PROXY FORM FOR ANNUAL GENERAL MEETING
Annual Report 2007
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Incorporated in 1986, and listed on the Main board of the Singapore Stock Exchange, Aztech Systems Ltd specializes in the design and manufacturing of voice and data communications solutions.
Headquartered in Singapore, Aztech today has more than 2,000 employees worldwide with strong R&D, design and manufacturing capabilities. Supported by its six sales offices in Singapore, Hong Kong, China, USA, Germany and Malaysia, the Company’s main businesses are OEM/ODM, contract manufacturing and retail distribution .
Best Investor Relations Award at the Singapore Corporate Awards, Gold Award for Mainboard Mid Cap '07 & Silver Award for Sesdaq category '06
Most Transparent Company Award at the Securities Investors Association of Singapore Investors’ Choice Award 2007 (Mainboard Small cap, runners-up) & 2006 (Sesdaq)
Aztech Systems Ltd31 Ubi Road 1
Aztech BuildingSingapore 408694Tel: (65) 6741 7211
Fax: (65) 6749 1198Company Reg. No 198601642R
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HEAD OFFICE AZTECH SYSTEMS LTD No. 31 Ubi Road 1, Aztech Building, Singapore 408694 Tel: (65) 6741-7211 Fax: (65) 6749-1198 Website: http://www.aztech.com
OVERSEAS OFFICES Greater China Office AZTECH SYSTEMS (HONG KONG) LTD Rooms 2-10, 3/F, Core Building 1 No. 1 Science Park East Ave, Hong Kong Science Park, Pak Shek Kok, Shatin, New Territories, Hong Kong Tel: (852) 2757-1177 Fax: (851) 2753-0578
USA AZTECH LABS, INC. 4005 Clipper Court Fremont, CA 94538, USA Tel: (1) (510) 611-6839-800 Fax: (1) (510) 611-6839-803
Germany AZTECH SYSTEMS GmBH Kreuzberger Ring 22 65205 Wiesbaden Germany Tel: (49) (0) 611-45020-0 Fax: (49) (0) 611-45020-100
Malaysia AZ-TECHNOLOGY SDN BHD 105 & 106, Ground Floor, Block A, Kelana Business Centre, 97, Jalan SS 7/2 Kelana Jaya 47301 Petaling Jaya,Selangor Malaysia Tel: (60) (03) 7804-8450 Fax: (60) (03) 7804-8457
R&D CENTRES HQ R & D CENTRE 31 Ubi Road 1, Aztech Building, Singapore 408694 Tel: (65) 6741-7211 Fax: (65) 6749-1198
SHENZHEN R & D CENTRE Blk C Room Nos. 306~308 Intelig Teachnology Digital Park No. 8 Hong Mian Road Futian Free Trade Zone Shenzhen, China Postal Code: 518038 Tel: (86) (755) 25-33-1110 Fax: (86) (755) 2533-1117
HONG KONG R & D CENTRE Room 2-10, 3/F, Core Building 1No. 1 Science Park East AveHong Kong Science ParkShatin, New TerritoriesHong KongTel: (852) 2757-1177Fax: (852) 2753-0578
DONG GUAN R & D CENTRE Jiu Jiang Shui Village, Chang Ping Town, Dong Guan City, Guang Dong Province, China Tel: (86) (769) 8393-6688 Fax: (86) (769) 8393-1138
MANUFACTURING FACILITIES CHINA AZTECH COMMUNICATION DEVICE (DG) LTD Jiu Jiang Shui Village, Chang Ping Town,Dong Guan City,Guang Dong Province, China Tel: (86) (769) 8393-6688 Fax: (86) (769) 8393-1138
SUBSIDIARY – DISTRIBUTION SHIRO CORPORATION PTE LTD 31 Ubi Road 1, #08-00 Aztech Building, Singapore 408694 Tel: (65) 6843-1333 Fax: (65) 6749-3083 Website: http://www.shirocorp.com
SHIRO CORPORATION (HK) LIMITED Rooms2-10, 3/F, Core Building 1 No. 1 Science Park East Ave, Hong Kong Science Park, Pak Shek Kok, Shatin, New Territories, Hong Kong Tel: (852) 2757-1177 Fax: (852) 2753-0578
SUBSIDIARY – SUPPLY OF MATERIALS AZ UNITED PTE. LTD. No. 31 Ubi Road 1, Aztech Building, Singapore 408694 Tel: (65) 6843-1159 Fax: (65) 6741-9773
This publication is produced by Cicada Design Pte Ltd
2007t h e a n n u a l r e p o r t o f a z t e c h s y s t e m s l t d
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With worldwide broadband growth
WINNING IR AWARDS p g 20
MANAGING CHALLENGESAHEAD p g 02by Michael Mun, CEO & Chairman
THE YEAR IN REVIEW p g 10how we performed
CORPORATE GOVERNANCE REPORT p g 21a detailed report
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