BUDGET FOR FY 2012

OBJECTIVES AND GUIDELINES

1) Objectives and Target

The primary objectives of this budget exercise are:-

� To ensure each operating unit has a business plan developed to ensure the continued growth, to

optimized all available resources and to anticipate potential pitfalls and their remedies (risk

assessment). This entails the participation and contribution of all departments within the

operating unit working towards a common goal;

� To discharge the entrusted accountability and responsibility from shareholders by generating a

respectable return and consistent growth;

� To achive a target resulted from the shareholders’ expectation and use as a guideline for

measurement of performance.

Actual March’11 Budget FY2011

Consolidated revenue 427,477,744 829,445,545

Consolidated revenue growth 16% 22%

Consolidated EBIT 43,737,263 83,417,090

Consolidated EOCE 0.11 0.18

EOCE = EBIT/(equity + total long term liabilities)

From the above table, we noted that our actual performance is below the budgeted results. For the

remaining period for the FY2011, we have to put in extra effort to achieve the budget or minimize

the adverse variances. Heading into FY2012, we will continue to accept challenge for higher

benchmark.

BUDGET FOR FY 2012

OBJECTIVES AND GUIDELINES

The core reporting business segments for the financial year 2012 are:-

Business

Segment Operating Units Reporting Head Finance Manager/

Accountant

Dairies

Etika Dairies Malaysia (Including Etika Dairies, Etika

Global Resoures and Etika Food

Marketing Sdn Bhd)

Mr Chris Mah &

Mr Khor Sin Kok Mr Ng KP

Etika (NZ) Limited /

Etika Dairies NZ Mr Neil McGarva Mr Brian Tippett

Etika Vixumilk / Tan Viet Xuan

Mr Chris Mah &

Mr Khor Sin Kok Ms Nguyen Ngoc Tuyet Anh

PT Vixon

Mr Ronnie Kwong &

Mr David Widjaja Mr Rustam

PT Etika Marketing Mr Baskaran

Ms Vanita Sharon/

Ms Chloe Liew

PT Sentrafood / PT Sentraboga Mr Chum Chum Yuen Ms Rita Suriany

Susu Lembu Asli Group Mr Lim Yew Chai Mr Winston Ngoh

Frozen

Etika Food (M) Sdn Bhd/

Pok Brothers Group (Excluding

Deluxe and Consumer) Mr Lawrence Pok Ms Susan Wong

Deluxe Food Sdn Bhd Mr Lawrence Pok Ms Susan Wong/ Ms Jesslyn Tan

Pok Brothers Consumer Mr Robert Tan

Ms Susan Wong/

Ms Christine Chan

Family Bakery Mr Simon Chua

Ms Susan Wong/

Ms Yong Yoke Siew

Nutrition

Etika (NZ) Limited/ Naturalac Nutrition Limited Mr Richard Rowntree Mr Brian Tippett

Packaging

Etika Industries Holding Sdn Bhd/

General Packaging

Mr Chris Mah &

Mr Khor Sin Kok Mr Winston Ngoh

Beverages

Etika Beverages Sdn Bhd

Mr Chris Mah &

Mr Khor Sin Kok Mr Winston Ngoh

Others

Quality Wines Sdn Bhd Mr Robert Tan

Ms Susan Wong/

Ms Christine Chan

BUDGET FOR FY 2012

OBJECTIVES AND GUIDELINES

In order to meet the above stated objectives, the following are the targets set for FY2012 budget:

General Group Target

� Revenue and EBIT growth of no less than 25% in FY2012 vs FY2011; and

� EBIT on capital employed (EOCE) of no less than 20% on annualized basis (A separate guideline

will be issued to individual company at a later date)

Operating Unit Target

The respective operating units are to set their own target level for FY2012 budget following past

feedback and in view of the different climate within each industry. However, the targets set should

take into consideration the general group target and the performance from the past 3 years

(FY2008-FY2010) of the respective operating unit. In the event if the target set is below the general

group target, the individual operating unit must justify it.

Historical performance shall not be applied, if the following situation occurred, those affected

operating units are expected to set their different benchmark.

(a) There is no historical figures. The Group expects the first full 12 months to be at least equal to

the financial projection provided to the Group prior to the inception of the project, ie. the

projection provided prior to capital injection or commencement of investment.

(b) The historical figures are unaudited / not reliable.

(c) Historical figures are irrelevant.

(d) The historical performance should not be used as the benchmark if there is expansion or

improvment on the plant capacity.

(e) For subsidiaries newly acquired in the FY2011, the Group expects them to achieve their

performance targets based on the level of understanding of the business and the industry since

the take over.

(f) For loss making companies or divisions, the Group expects a positive EBIT and profit break-even

after interest.

BUDGET FOR FY 2012

OBJECTIVES AND GUIDELINES

2) Timetable and process

The budget process will take approximately 10 weeks based on the following timetable:

From To Duration

Issuance of guidelines & timetable 28.06.11 - n/a

Preparation of budget 28.06.2011 25.07.2011 28 days

1st

draft to be submitted to HQ 26.07.2011 - n/a

Review at HQ 27.07.2011 15.08.2011 20 days

Enqueries from HQ 16.08.2011 19.08.2011 4 days

2nd

draft to be submitted to HQ, if any changes

arising from enquiries

20.08.2011

-

n/a

1st

budget meeting between CEO, COO & BOD 23.08.2011 25.08.2011 3 days

Final budget approval 29.08.2011 30.08.2011 2 days

FY 2011 Comparative

1st

draft to be based on actual results up to June’11, full year estimate for FY2011

Kindly take note that there should be no more than 3 submissions by each operating unit. Upon

receipt of 1st

draft budget, HQ will commence the review to ensure that the budget are aligned with

the stated objectives and targets. 2nd

draft budget is to be submitted after incorporating the

necessary changes resulting from the queries raised during the pre-review of budget.

The respective operating unit’s finance manager / accountant shall be responsible to submit their

budget to the Etika Group ED and CFO after clearance received from their respective operating

unit’s Reporting Heads for each submission.

It is imperative that all operating units’ budget must be finalised and approved by the above stated

timeline to avoid any overlap with our year end closing and audit for FY2011.

3) Budget Format

All budgets are to be submitted using the attached templates in MS excel spreadsheet.

This format has been prepared with the view of harmonization amongst the operating units and to

synchronize with the monthly reporting format. Certain templates have been included in this format

where deemed necessary, we have left areas loose to allow for flexibility to accommodate any

business or operating needs/criteria.

All finalized budget figures are required to be input into Navision.

BUDGET FOR FY 2012

OBJECTIVES AND GUIDELINES

4) Budget Preparation Guidelines

The following serves only as a guide to facilitate the preparation of your budget but is not expected

to be all encompassing nor exhaustive. Accordingly, great care must be taken to ensure that you

have duly considered all material aspects of your business in order to achieve a comprehensive and

meaningful budget.

It is also important for any budget exercise to have the involvement of all department heads within

the operating unit to ensure ownership and accountability. Each Managing Director / General

Manager, facilitated by their respective Finance Manager / Accountant, should ensure that this is a

team exercise.

Monthly budget

Monthly budget is necessary since performance of each operating unit is reported monthly. As such,

monthly budget is required for profit and loss statement, balance sheet and cashflow statement.

Assumptions

A string of assumptions are required in order to put financial numbers to your operating plan. These

assumptions form the foundation of your budget covering the profit and loss statement, balance

sheet as well as cashflow statement.

As far as practicable, assumptions used must be realistic and where applicable, be based on the one

or more of the following which most suits the subject matter:

� Economic reports or statistics

� Historical track records or past trends

� Independent 3rd

party views on future trends

� Or merely targets of improvements set by the operating unit’s management

All key assumptions used must be summarized in one worksheet for ease of reference. It is also

important to ensure that your assumption worksheet is linked to all other relevant worksheets so as

to allow the flexibility of changes to budget via the assumption worksheet. This will help avoid the

need to make multiple changes which increases the risk of errors.

Assumptions are normally required for the following subject matters:

� Sales growth for domestic / export (in quantity or value)

� Average selling prices per unit of product

� Discounts / promotions / trade offers / trade returns

� Average costs of major raw material components

� Wastages / losses

� Production efficiency (capacity utilization rate)

� Inflation

� Foreign exchange rate

BUDGET FOR FY 2012

OBJECTIVES AND GUIDELINES

� Corporate tax rate

� Borrowing costs

� Average inventory/receivables/payables days

The above is not exhaustive and assumptions vary to the uniqueness, complexities and risks of each

operating unit. They are important because update or revised budget may be required to adjust for

material events during the course of the year or to be in-coherent with industry reality.

It will certainly help, if assumptions and worksheets are constructed in a convenient way that

facilitates an easy update.

Revenue

Revenue is normally the starting point of your budget and should be derived from product

categories/grouping in line with how sales performance are tracked and measured by the operating

unit. There should be sufficient details on quantities, pricing as well as geographical markets.

Production

For those in manufacturing, there should be a table that summarises the budgeted production

output, on monthly basis, which compares with the normal capacity of the plant.

Cost of goods sold (COGS)

COGS should be derived from budgeted unit cost of each product category/group multiplied with

the quantities as per the revenue budget. Each budgeted unit cost shall contain the following

details:

� Direct material

Each major raw material component must be shown as a separate line item with it’s respective

cost and usage requirement. Any component representing 10% or more of direct material costs

is deemed material.

� Direct labour (for manufacturing activities only)

There should be sufficient details to show manpower requirements in terms of skill levels,

headcount, cost and workings on how labour rate is arrived at.

� Factory overheads (for manufacturing activities only)

Factory overheads are normally deemed as fixed costs unless otherwise stated. If there are any

variable overheads, these need to be separately grouped in your presentation. Line items should

follow the different nature of expenses.

Unless they are variable in nature, factory overheads should not increase proportionately with

the increase in revenue.

For the purpose of budget setting, factory overhead shall be based on the average incurred in

the actual of FY2011 (9 months for 1st

draft), increased by the incremental rate to be applied

BUDGET FOR FY 2012

OBJECTIVES AND GUIDELINES

(except for asset depreciation). As a rule of thumb, the incremental rate shall be based on the

assumed inflation rate for the budget year (please see table below). Any incremental rate other

than the assumed inflation rate must be justified and explained.

There should be a table showing the monthly overheads breakdown and workings on how

overhead absorption rate is arrived at for each product category/group.

Operating Expenses

Similarly, operating expenses are generally fixed in nature (except for certain sales and marketing

expenses eg. sales commission and transportation costs) and therefore should not increase

proportionately with the increase in revenue. If there are any variable expenses, these need to be

clearly identified and separately group in your presentation.

The same rule on factory overhead using incremental rate shall apply to operating expenses as well.

And there should be a table showing the monthly operating expenses breakdown.

Capital expenditure

All capital expenditure required to achieve the business plan must be budgeted for and summarized

in a separate sheet. Capital expenditure budget must carry sufficient details to identify the type of

capex, estimated cost, purpose, funding structure, and the incremental costs.

Bank borrowings

There should be a summary table showing movements (drawdowns/utilisations, repayments, and

interest) in the bank borrowings on a monthly basis.

Human resources requirement

There should be a table showing breakdown of number of staff by department on monthly basis.

Intercompany transactions

For intercompany transactions, please ensure that all amounts are mutually agreed by both parties

and taken up accordingly.

BUDGET FOR FY 2012

OBJECTIVES AND GUIDELINES

5) Standard rates to be applied

The following rates are to be adopted for all operating units, whenever applicable:-

Year 2011 Year 2012

Country Estimate Forecast

Inflation ratei Malaysia 3.0% 3.25%

New Zealand 3.5% 3.5%

Singapore 3.3% 3.3%

Indonesia

Vietnam

7.1%

15.0%

7.4%

15.0%

Interest rate (BFR/ BLR/

OCR/ PLR/ COF)

Malaysia

6.60%

6.60%

New Zealand 3.79% 5.30%

Singapore 5.38% 5.38%

Indonesia 7.25% 7.25%

Vietnam 14.0% 14.0%

Currency

Foreign exchange rate1 USD/ MYR 3.0421

USD/ NZD 1.2455

USD/ SGD 1.2403

USD/ IDR 8,562

USD/ VND 20,352

SGD/ MYR 2.4516

SGD/ NZD 1.0037

SGD/ IDR 6,900

SGD/ VND 16,402

NZD/ MYR 2.4416

MYR/ IDR 2,809

MYR/ VND 6,677

1 Extracted from Oanda Website (http://www.oanda.com)