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Hoe Leong Corporation Ltd.Annual Report 2010

ROOTED IN VALUES

U N L I M I T E D I N R E A C H

Rooted in values. Unlimited in reach. From the

platform we have built as a leader in the supply

of heavy equipment parts for the industrial,

construction and mining sectors, we are reaching

forward to become a committed player in the

Oil & Gas industry as owner of a range of vessels

for charter.

01 Corporate Profile03 Chairman’s Statement07 Group Structure08 Financial Highlights11 Operations Review14 Board of Directors16 Key Management Team17 Corporate Governance Report28 Directors’ Report34 Statement By Directors35 Independent Auditors’ Report36 Statements of Financial Position37 Income Statement38 Statement of Comprehensive Income39 Statement of Changes in Equity40 Statement of Cash Flows41 Notes to the Financial Statements82 Supplementary Information83 Shareholding Statistics85 Notice of Annual General Meeting Proxy Form

OUR MISSION

CONTENTS

Hoe Leong Corporation Ltd. (“Hoe Leong” or the “Group”) was incorporated in Singapore on 18 November 1994. It was successfully admitted to the Official List of the Singapore Exchange Securities Trading Limited (“SGX-ST”) on 5 December 2005.

Hoe Leong’s principal business activities entail trading and distribution of an extensive range of equipment parts for both heavy equipment and industrial machinery which include brands such as Caterpillar, Cummins, Hitachi, Hyster, Kato, Kobelco, Komatsu, Mitsubishi, P&H and Sumitomo.

The Group also designs and manufactures equipment parts for both heavy equipment and industrial machinery under its own in-house brand names, “KBJ”, “OEM” and “ROSSI”. Since 2004, it commenced manufacturing certain equipment parts through its subsidiaries in the People’s Republic of China (“PRC”).

Hoe Leong sells directly to end-users as well as through distributors in Singapore and overseas markets including Indonesia, Malaysia, PRC and the emerging markets such as the Middle East. End-users of its products are generally users of heavy equipment and industrial machinery in the building and infrastructure construction, forestry, marine, mining and plantation industries.

Currently, Hoe Leong serves over 1,200 customers. It carries about 20,000 types of equipment parts in 25 categories for over 100 brands of products. We can readily provide assistance to customers and fulfil their requirements, because of our extensive experience in the industry. Our large and varied inventories and our regional sales network are beneficial to our customers as they have easy accessibility to replacement parts, thereby shortening their equipment downtime.

Since May 2008, the Group has partnered Supreme Oilfield Services Pte Ltd (“SOS”) to own a majority stake in offshore support vessels and in 2010, the Group had furthered its vessel chartering venture with the acquisition of a 39.2% effective interest in Semua International Sdn Bhd and its subsidiaries (“Semua Group”), the tanker business of Bursa-listed Sumatec Resources Berhad.


1CORPORATE PROFILE

Our BrandsWe can readily provide assistance to customers and fulfil their requirements, because of our extensive experience in the industry.

Our large and varied inventories and our regional sales network are beneficial to our customers as they have easy accessibility to replacement parts, thereby shortening their equipment downtime.

TMI MACCHINETRATTORI



Strengthening FoundationsOur performance in the past year strengthens our resolve to be vigilant in improving cost structure and profitability, as well as expanding our market share, both locally and beyond our shores.

It gives me great pleasure to present to you Hoe Leong’s annual report for the financial year ended 31 December 2010 (FY2010).

FY2010 was a year of progress and developments for Hoe Leong. As the global macroeconomic environment continued its recovery from 2009, we were able to ride on this turnaround and deliver a strong performance for the Group. In particular, our Barge and Vessel Chartering business achieved significant milestones in the past year, while our traditional heavy equipment parts supply business remained resilient amidst keen competition in overseas markets.

Financial OverviewWe ended FY2010 on a promising note as contributions from the Barge and Vessel Chartering business boosted the Group’s bottom line. The Group posted an 87% surge in net profit to S$10.1 million for FY2010, compared to S$5.4 million in the preceding year. Revenue grew modestly to S$61.8 million, over S$61.2 million recorded in FY2009.

We are pleased to report that our Barge and Vessel Chartering segment has continued to perform well since our foray into the oil and gas industry in 2008, as revenue doubled to S$8.8 million in FY2010, from S$4.4 million a year ago. This was largely due to the full year charter revenue contribution from our second vessel, Supreme Voyager, which started earning charter revenue in late December 2009.

Lower sales in the ASEAN region resulted in an 11.8% decrease in revenue from the Design and Manufacture segment, to reach S$22.6 million in FY2010. Stronger demand in the emerging markets partially mitigated the decrease.

The Trading and Distribution segment’s revenue also slipped slightly to S$30.4 million in FY2010, a 2.5% change from the previous year. This was largely a consequence of the keen competition the segment encountered in the PRC market.

The change in revenue mix towards the Barge and Vessel Chartering segment resulted in a 20.7% jump in gross profit, to reach S$22.8 million in FY2010. Gross profit margin rose six percentage points to reach a healthy 36.9%, driven by the good performance of the Barge and Vessel Chartering segment.

Dear Shareholders


3CHAIRMAN’S STATEMENT

Barge and Vessel CharteringThe Group made significant progress in the provision of vessel chartering services, especially in the past year. On 30 September 2010, the Group completed the acquisition of a 39.2% effective interest in Semua Group of companies, an owner-manager of oil and chemical tankers in Malaysia. Semua Group currently operates 12 such vessels, all of which have been chartered out. The acquisition of Semua places the Group in an advantageous position to harness Semua’s expertise and experience in tanker management to develop our own capabilities.

The Group’s vessel fleet received another boost on 20 December 2010 as we inked a sale and purchase agreement to acquire a 51% stake in Aries Offshore Singapore Pte Ltd (“Aries Offshore”), a 49%-owned associate of Mainboard-listed offshore marine group, Otto Marine Limited. With the addition of Aries Offshore’s four anchor handling tug supply (“AHTS”) vessels, and the 12 oil and chemical tankers from Semua, Hoe Leong will command an expanded operating fleet of 18 vessels.

FY2010 was a year of progress and developments for Hoe Leong. As the global macroeconomic environment continued its recovery from 2009, we were able to ride on this turnaround and deliver a strong performance for the Group.

4 Hoe Leong Corporation Ltd. Annual Report 2010

CHAIRMAN’S STATEMENT

Traditional Heavy Equipment PartsThe Group’s traditional heavy equipment parts business performed stably in the past year, benefitting from the proactive steps taken to mitigate the recessionary effects.

As a result of the marketing efforts of the Design and Manufacture segment in 2010, the brands of our in-house products, such as KBJ, OEM and ROSSI, have grown stronger, and we have garnered increased acceptance from customers in emerging markets. However, keen competition in the ASEAN markets has affected demand for our products, resulting in a decline in sales revenue in these markets.

Our Trading and Distribution segment, which distributes over 100 brands of products, similarly encountered challenges in the PRC as keen competition affected the segment’s performance there.

Our performance in the past year strengthens our resolve to be vigilant in improving cost structure and profitability, as well as expanding our market share, both locally and beyond our shores.

Sailing on a Sea of OpportunitiesThe oil and gas industry remains exciting in the year ahead as prospects look to brighten up following the downturn. The Organization of the Petroleum Exporting Countries (“OPEC”) has raised the forecast for world oil demand growth in 2011 to 1.2 million barrels per day on bullish sentiments, which is likely to drive vessel demand and charter rates.

To position ourselves to take advantage of the opportunities that may come our way, we will continue to keep a close eye on prospects for inorganic expansion and potential joint ventures with established strategic partners to strengthen our foothold. It is our aim to invest mainly in modern and young vessels to maintain a young average fleet age. Our strategy of owning and chartering vessels on a bareboat basis will continue, even as we continue laying out plans to develop our own in-house vessel management capabilities in time to come.

Overseas markets continue to be the major contributors to the performance of our traditional heavy equipment parts business this year. We will continue to boost efforts to market our in-house brands both locally and internationally to reinforce our strong brand position, especially in new emerging markets such as the Middle East, while at the same time seeking opportunities to notch further gains in existing markets.

Special ThanksI would like to express my special thanks to all our staff, business partners, shareholders and professional partners for their unwavering support in the past year. On behalf of the Board of Directors, I would like to thank all of you for your efforts and contributions in overcoming the challenges in the past year and I am confident that, together, we will enable Hoe Leong to reach even greater heights.

James Kuah Geok LinChairman and CEO


5CHAIRMAN’S STATEMENT

Extending NetworksWe will continue to boost efforts to market our in-house brands both locally and internationally to reinforce our strong brand position, especially in new emerging markets such as the Middle East, while at the same time seeking opportunities to notch further gains in existing markets.

Ho Leong TractorsSdn. Bhd. (Malaysia)

100%

PT Trackspare(Indonesia)

99%

Kunshan Kanto BuhinManufacturing

Co., Ltd. (China)

100%

Supreme VoyagerPte. Ltd.

(Singapore)

70%Supreme Energy

Pte. Ltd.(Singapore)

60%

Trackspares(Aust) Pty. Ltd.

(Australia)

92.9%

Jilin Kanto Buhin Construction

Machinery Manufacturing

Co., Ltd. *(China)

100%

Quanzhou Kanto Buhin Machinery

Manufacturing Co., Ltd(China)

100%

Semua Shipping Sdn. Bhd.Semado Maritime Sdn. Bhd.

Semua Chemical Shipping Sdn. Bhd.Mini Tanker Chartering Sdn. Bhd.

(Malaysia)

100%

Hoe Leong Machinery(H.K) Limited(Hong Kong)

100%

Shenyang MilequipIndustry Co., Ltd*

(China)

83.2%

Ebony Ritz Sdn. Bhd.(Malaysia)

80%

Semua International

Sdn. Bhd.(Malaysia)

49%

Barge & Vessel Chartering

Equipment Parts

Hoe Leong Corporation Ltd. Annual Report 2010

7GROUP STRUCTURE

* Dormant companies

FY2006

2,585

42,680

16,349

1,895

63,509

S$,000 S$,000 S$,000 S$,000 S$,000

2,641

42,307

17,125

3,130

65,203

FY2007

4,477

36,772

15,096

8,310

64,655

FY2008

2,906

37,887

12,667

7,705

61,165

FY2009

2,724

37,648

13,435

7,983

61,790

FY2010

Singapore

Other ASEAN countries

Other Asian countries

Other regions

Grand Total

Revenue By Geographical Segments

80

70

60

50

40

30

20

10

0

14

12

10

8

6

4

2

0

Trading and Distribution Design and Manufacture Barge and Vessel Chartering

41.6

2.3

63.5

5.8

65.2

4.3

64.7

1.9

61.2

7.2

61.8 11

.1

21.9 3.525.0

0.7

25.4 25.6

2.7 4.4

8.8

1.1

1.2

36.6

1.4

0.10.4

31.2

3.3

1.3

2.6

40.2

3.6

8.8

22.6

30.4

20102009200820072006 20102009200820072006

Revenue by Operating Segments(S$ million)

Results by Operating Segments(S$ million)

12.9%

21.8%

4.4%

60.9%


FINANCIAL HIGHLIGHTS

Singapore

Other ASEAN countries

Other Asian countries

Other regions

Net Profit (S$ million) and Net Margin (%) of the Group

Net Asset Valueper Share of the Group(cents)

Earnings per Shareof the Group(cents)

10

9

8

7

6

5

4

3

2

1

0

14.0%

12.0%

10.0%

8.0%

6.0%

4.0%

2.0%

0.0%

30

25

20

15

10

5

0

4

3

2

1

0

6.4%

4.6%

7.3%

11.7%

0.3%

4.1

3.0

2.16

1.29

0.07

1.65

0.2

4.5

23.5

18.7

18.2

20.67.2

2.49

22.3

20102009200820072006

20102009200820072006

20102009200820072006


9FINANCIAL HIGHLIGHTS

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Nurturing GrowthRising oil prices points to the growing potential of the offshore and marine sector, and increased demand for ship chartering services. As such, the Group will continually explore avenues to strengthen the size of its operating fleet through strategic partnerships to ride on this wave of growth.

The Group faced challenging business conditions heading into FY2010 as an after effect of the economic downturn in 2008/2009. However, improving business sentiment boosted business activities in sectors relevant to the Group’s areas of operation, and we were able to record a healthy profit on the back of strong contributions from our growing Barge and Vessel Chartering business. Meanwhile, the Group’s traditional heavy equipment parts business performed stably for the year in review and continued to contribute to the bulk of our revenue.

Commendable Performance from Barge and Vessel CharteringThe Group’s revenue improved to S$61.8 million in the financial year ended 31 December 2010 (“FY2010”), compared to S$61.2 million recorded in the financial year ended 31 December 2009 (“FY2009”).

Contributions from the Group’s relatively young fleet doubled to S$8.8 million in revenue from the previous financial year’s S$4.4 million. Apart from the full year of charter revenue contribution from Supreme Voyager, this improvement can also be attributed to the Group’s strategy to acquire and/or enter into partnerships with established industry players. These strategic moves have provided us with an expanded fleet of vessels which are gainfully engaged in long-term charter contracts.

During the year, the Group also advanced its vessel chartering venture with the successful acquisition of a 39.2% effective interest in Semua Group, the tanker business of Bursa-listed Sumatec Resources Berhad, and the impending acquisition of a 51% interest in Aries Offshore, a 49%-owned associate of Mainboard-listed offshore marine group, Otto Marine Limited. The Group’s share of results from Semua Group amounted to S$4.7 million, comprising S$3.8 million of provisional negative goodwill that arose from the acquisition, and S$0.9 million of post-acquisition results for the three-month period from 1 October to 31 December 2010.

The two segments of the heavy equipment parts business, continued to play important roles in providing a stable stream of income for the Group, accounting for 85.8% of the Group’s total revenue in FY2010.


11OPERATIONS REVIEW

Revenue from the Design and Manufacture segment decreased by 11.8%, to S$22.6 million in FY2010 from S$25.6 million in FY2009, due mainly to the drop in sales of the Group’s in-house branded equipment parts within the intensely competitive ASEAN region. Marketing efforts for the Group’s in-house brands translated to a growth in customer demand in emerging markets, which helped to partially offset the sales decline.

Revenue from the Trading and Distribution segment also dipped slightly by 2.5% to S$30.4 million in FY2010 from S$31.2 million in FY2009, due to similarly lower sales of equipment parts sold under third party brands in the keenly competitive PRC market.

Overall, the Group’s net profit increased significantly by 87% to S$10.1 million in FY2010 from S$5.4 million in FY2009 and grew its gross profit margin by six percentage points to 36.9% in FY2010, from 30.9% in the preceding year, mainly contributed by the Barge and Vessel Chartering segment.

Operating Expenses Increased Marginally in FY2010Distribution expenses increased by S$0.4 million, or 9.8%, to S$4.2 million in FY2010 due mainly to retrenchment benefits paid to certain overseas sales and warehouse personnel, and higher travelling and marketing expenses incurred in FY2010.

Administrative expenses decreased marginally by S$44,000, to S$8.2 million in FY2010, mainly due to the absence of allowance for doubtful receivables of S$1.7 million made in FY2009, substantially offset by S$1.1 million of professional fees incurred for the acquisition of Semua Group and an increase in bonus payable to the Group’s executive directors of S$0.6 million.

Other expenses increased by S$4.2 million, or 670.8%, to S$4.9 million in FY2010 as we made an additional allowance for slow-moving inventories of S$1.0 million in FY2010. This contrasted with the write-back of excess allowance for slow-moving inventories of S$3.1 million in FY2009. In addition, we incurred net foreign exchange losses of S$0.3 million in FY2010 as compared to net foreign exchange gains of S$0.8 million in FY2009, and our rental expenses increased by S$0.2 million in FY2010; but such increases were substantially offset by a decrease in inventories written-off of S$0.5 million in FY2010 and the absence of property, plant and equipment written-off of S$0.7 million incurred in FY2009.

Balance Sheet Remained HealthyProperty, plant and equipment decreased by S$6.8 million, or 12.7%, to S$47.1 million in FY2010 due mainly to depreciation charges, the reclassification of certain production plant and equipment as assets held for sale, and foreign currency translation differences resulting from the depreciation of the USD and RMB against the SGD in FY2010.


OPERATIONS REVIEW

Associates and joint ventures relate to the Group’s cost of investment in, and share of post-acquisition results of, Semua Group. Long-term loans to associates and joint ventures relate to unsecured and interest-free loans granted to Semua Group for working capital purposes.

Assets classified as held for sale relate to certain production plant and equipment to be transferred to a newly established 50:50 joint venture as the Group’s capital contribution in the paid-up capital of the said joint venture.

Inventories decreased by S$3.2 million, or 9.2%, to S$32.1 million in FY2010 due mainly to the decline in sales of the Design and Manufacture, and Trading and Distribution segments, as well as additional allowance for slow-moving inventories of S$1.0 million made in FY2010.

Trade and other receivables decreased by S$1.7 million, or 8.8%, to S$17.4 million in FY2010 due mainly to a decrease in trade receivables as a result of decline in sales of the Design and Manufacture, and Trading and Distribution segments in FY2010.

Financial liabilities increased by S$3.3 million, or 8.3%, to S$43.4 million in FY2010 due mainly to draw-down of additional bank loans to finance the acquisition of Semua Group and higher utilization of trust receipts for purchases of inventories, partially offset by repayments of bank loans and downward revaluation of USD denominated bank loans as a result of depreciation of the USD against the SGD in FY2010.

Loans from non-controlling shareholders of subsidiaries relate to unsecured and interest-free loans granted to subsidiaries in the Barge and Vessel Chartering segment.

Smoothened Cash FlowThe Group generated net cash inflow of S$1.9 million in FY2010, comprising net cash inflow from operating activities of S$17.1 million and net cash inflow from financing activities of S$6.2 million, partially offset by net cash outflow from investing activities of S$21.4 million. Cash and cash equivalents increased to S$7.5 million as at 31 December 2010 from S$6.2 million as at 31 December 2009.

OutlookAmidst signs of continuing improvement in the global and regional economies, the Group will remain vigilant in managing costs and improving operational efficiencies going forward into 2011.

The Group’s Barge and Vessel Chartering business has panned out well, gaining momentum over the past two years since its inception in 2008. With the additional vessels from Semua Group and Aries Offshore amongst our vessel fleet, the Group expects this business segment to make positive contributions to our financial performance in 2011.

Rising oil prices points to the growing potential of the offshore and marine sector, and increased demand for ship chartering services. As such, the Group will continually explore avenues to strengthen the size of its operating fleet through strategic partnerships to ride on this wave of growth.

In relation to the Group’s traditional heavy equipment parts business, we will continue to actively market our brands of in-house products in both local and overseas markets, with a focus on emerging markets such as the Middle East.


13OPERATIONS REVIEW

Amidst signs of continuing improvement in the global and regional economies, the Group will remain vigilant in managing costs and improving operational efficiencies going forward into 2011.

Mr Paul Kuah Geok KhimExecutive Director

Mr James Kuah Geok LinChairman and CEO

Mr James Kuah Geok Lin is our Chairman and CEO. He has been one of our Executive Directors since 18 November 1994. He was last re-elected as a Director on 24 April 2008. He started as an architect in 1974 with the Housing Development Board. In 1978, Mr James Kuah joined the Company as a Director in charge of operations and played a key role in Company’s regional drive into Indonesia and Malaysia. Under his leadership, the Company was ranked 24th in the 2000 Enterprise 50 Award organized by Andersen Consulting and The Business Times with support from the Economic Development Board. His other advisory positions include that of Permanent Honorary Chairman of the Singapore Metal and Machinery Association, Chairman of Nanyang Kuah Si Association, Chairman of General Affair Committee of the Singapore Chinese Chamber of Commerce & Industry, Vice-Chairman of the Singapore Ann Kway Association and Corporate member of the Singapore Institute of Architects. He holds a Bachelor degree in Architecture from the University ofSingapore.

Mr Paul Kuah Geok Khim has been our Sales and Marketing Director (Overseas) since 22 December 1994 and was last reelected as a Director on 18 April 2007. He began his career with our Group in 1979. Prior to his present position, he was in charge of warehousing and inventory control, gaining valuable experience in this field. Presently, as a Sales and Marketing Director, he oversees all our branches’ operations and major export markets. With a team of business development personnel under him, he ensures that every business opportunity in the emerging market is well tapped.


BOARD OF DIRECTORS

From left: Lim Kok Hoong, Ang Mong Seng, Quah Yoke Hwee, James Kuah Geok Lin, Peter Kuah Geok Koon, Paul Kuah Geok Khim and Peter Boo Song Heng

Dr Peter Kuah Geok Koon is our Manufacturing and Production Director in charge of the manufacturing and production operations in China. He joined the Board on 24 July 2001 and was last re-elected as a Director on 18 April 2007. Since 1998, he has also been in charge of our Hong Kong subsidiary, Hoe Leong Machinery (H.K.) Limited where he is involved in its daily running, including sales development in Hong Kong and China. Dr Kuah joined our Company when it was established in 1994. Prior to joining us, he worked as a principal engineer in Deleuw Cather and Company, a USA engineering company. He has published more than ten papers in professional journals. In 1990, he was conferred a guest professorship by Chongqing Jiaotong University and has also been previously engaged by United Nations Development Plan to lecture in transportation in various universities in China. Dr Kuah was a German scholar and obtained a Diplom-Ing. (FH) degree in civil engineering from Fachhochschule fuer Technik, Stuttgart in 1979. He also obtained a Master degree in Civil Engineering from the University of Michigan, Ann Arbor, USA, in 1981 and a doctorate degree in Civil Engineering from the University of Maryland, College Park, USA in 1986.

Mr Quah Yoke Hwee is our Sales and Marketing Director (Singapore). He joined the Board on 18 November 1994 and was appointed the Managing Director of the Company since 15 January 1996. He is responsible for overseeing the Company’s daily trading and distribution operations in Singapore and the after sales and front office services. Mr Quah has more than 30 years of experience in the equipment parts trading and distribution business. He holds a H.S.C. “A” level certificate.

Mr Ang Mong Seng was appointed as an Independent Director on 29 September 2005. He was last re-elected as a Director on 24 April 2008. Mr Ang is a Member of Parliament for Hong Kah GRC (Bukit Gombak). He is the Chief Operating Officer of EM Services Pte Ltd. He is also the Chairman of Hong Kah Town Council and Vice Chairman of South West Community Development Council. Mr Ang has 30 years of experience in Estate Management. Mr Ang is also an Independent Director of United Fiber System Ltd, Ecowise Holdings Ltd, AnnAik Ltd., Vicplas International Ltd and Chip Eng Seng Corporation Ltd. Mr Ang obtained a Bachelor of Arts degree from Nanyang University in 1973.

Mr Lim Kok Hoong was appointed as an Independent Director on 29 September 2005. Mr Lim has more than 32 years of audit experience. He has been Managing Partner of Arthur Andersen Singapore till June 2002. In July 2002, he joined Ernst & Young Singapore as a Senior Partner and retired in June 2003. Mr Lim has extensive business experience especially in Singapore, Malaysia, Indonesia, Thailand, the Philippines and Vietnam. He is currently an Audit Committee member of A*STAR and a board member of Singapore Tourism Board, where he is also the Chairman of their Audit Committee. Mr Lim is the Chairman of the Board of Directors of Parkway Trust Management Limited and Sabana Real Estate Investment Management Pte Ltd. He is also a board member of Genting Singapore Public Limited Company, Global Logistic Properties Limited and Amtek Engineering Ltd, and is also the Chairman of their Audit Committees. He holds a Bachelor of Commerce degree from the University of Western Australia and is a member of the Institute of Chartered Accountants in Australia and the Institute of Certified Public Accountants of Singapore.

Mr Peter Boo Song Heng was appointed as an Independent Director on 29 September 2005. Mr Boo founded Material Handling Engineering Pte Ltd in 1975 and led the company to its listing on the SESDAQ in 1989. The company subsequently changed its name to MHE Holdings Ltd. In May 2000, he divested off his controlling interest in MHE Holdings Ltd and retired from the company. Since then, he has been sitting on the board of numerous companies in Singapore as well as overseas. He holds a Diploma in Mechanical Engineering from Singapore Polytechnic.

Dr Peter Kuah Geok KoonExecutive Director

Mr Quah Yoke HweeExecutive Director

Mr Ang Mong SengIndependent Director

Mr Lim Kok HoongIndependent Director

Mr Peter Boo Song HengIndependent Director


15BOARD OF DIRECTORS

Mdm Kuah Geok Khim is our Operations Manager. She joined our Company in 1975 and is responsible for the administrative functions of the Group including general office administration, the maintenance and procurement of office equipment and computerization. She is also in charge of our inventory management and management information system. In addition, she is responsible for our sales and purchases, shipping, import and export functions.

Mr Lim Lian Tuan is our Sales and Marketing Director of our wholly-owned subsidiary, Ho Leong Tractors Sdn Bhd (“HL Tractors”). He joined HL Tractors in 1987. He oversees our Group’s Malaysian operations. From 1984 to 1986, he worked in Ho Leong Machinery Sdn. Bhd. as a Sales Executive for the Malaysian operations. Prior to that, Mr Lim worked as a Sales Executive with TAS Berhad and Trackspare Sdn Bhd, both of whom were distributors of equipment parts for both heavy equipment and industrial machinery. He holds the equivalent of a GCE ‘O’ certificate.

Mr Chan Wee Kiat is our Financial Controller. He joined our company in 2010 and oversees the overall financial and accounting functions of the Group. Prior to joining us, Mr Chan was an auditor with KPMG for 7 years and held the position of Associate Director in Genesis Capital Pte Ltd. He holds a Bachelor degree in Accountancy from Nanyang Technological University and is a Certified Public Accountant and a member of the Institute of Certified Public Accountants of Singapore.

Ms Pwo Chun Chun is our Human Resources and Administrative Manager. She joined our company in 2010 and is responsible for the Group Human Resource and administration including compensation and benefits, expatriate administration, human resource planning and development and overall employee relations. Prior to joining our company, Ms Pwo worked in the service and other various industries for more than 10 years in the same profession. She holds a Diploma in Human Resource Management from Productivity and Standards Board in Singapore.

Mr Ng Tze Wei is our Head of Strategy & Investment. He joined our company in 2010 and is responsible for the Group’s investments, strategic planning and investor relations. Mr Ng began his career as an economist at the Monetary Authority of Singapore and prior to joining our company, was in the investments team at Pacific Star Group, a real estate private equity firm. He holds a Bachelors degree majoring in Economics from Princeton University and has completed all 3 levels of the Chartered Financial Analyst exams.

Mr Alvin Kuah Han Zhou is our Business Development Manager. He joined our company in 2009 and was promoted to Business Development Manager with effect from 1 April 2010. Mr Alvin Kuah is responsible for all the business development activities of our equipment parts and oil and gas sector in the local and overseas market, and he also oversees the daily operations of Middle East region and Australia. Prior to joining our company, Mr Alvin Kuah was in the electronics manufacturing industry for two years specializing in application sales engineering. He holds a Bachelor degree in Electrical Electronics and Engineering from Royal Melbourne Institute of Technology from Australia.

Mr Raymond Quah Eng Kiat is our Sales and Marketing Manager. He joined our company in 2008 and was promoted to Sales and Marketing Manager with effect from 1 April 2010. He is responsible for all overseas sales and marketing activities predominantly for Russia, Indonesia and East Malaysia. Prior to joining our company, Mr Raymond Quah was in the banking sector for five years specializing in anti-money laundering and compliance matters for Standard Chartered Bank and Citigroup respectively. He holds a Master degree majoring in International Business from the University of New South Wales from Sydney.

Mdm Kuah Geok KhimOperations Manager

Mr Lim Lian TuanDirector of Sales and Marketing,

Ho Leong Tractors Sdn. Bhd.

Mr Chan Wee KiatFinancial Controller

Ms Pwo Chun ChunHuman Resources &

Administrative Manager

Mr Alvin Kuah Han ZhouBusiness Development

Manager

Mr Raymond Quah Eng KiatSales and Marketing

Manager


KEY MANAGEMENT TEAM

Mr Frank Ng Tze WeiHead of Strategy &

Investment


17CoRpoRAte GoveRnAnCe RepoRt

The Board of Directors (the “Board”) is committed to ensure high standards of corporate governance to protect the interests of shareholders at the same time to enhance long term shareholders’ value through corporate performance and accountability. The Board observes and adheres to the principles and guidelines set out in the Code of Corporate Governance 2005 (the “Code”). Where there are deviations from the Code, appropriate explanations are provided.

A. BOARD MATTERS

The Board’s Conduct of its Affairs

Principle 1: Every company should be headed by an effective Board to lead and control the company. The Board is collectively responsible for the success of the company. The Board works with Management to achieve this and the Management remains accountable to the Board.

The Board is entrusted with the responsibility of the overall management of the Company and their main duties are to:-

(a) provide entrepreneurial leadership, set strategic aims, and ensure that the necessary financial and human resources are in place for the Company to meet its objective;

(b) approve board policies, strategic plans, and financial objectives of the Group and monitor the performance of Management;

(c) approve annual budgets, funding, material investment and divestment proposals;

(d) approve interim and full year results and announcements and annual report;

(e) ensure an adequate system of internal controls and compliance with financial reporting requirements;

(f) review the financial performance of the Group, proposal of dividends and review interested person transactions;

(g) approve the nomination of directors and appointment of key personnel; and

(h) assume responsibility for corporate governance.

To facilitate effective management, certain functions have been delegated by the Board to various Board Committees, namely the Audit, Nominating and Remuneration Commitees. The Board Committees operate under clearly defined terms of reference. The Chairman of the respective Committees will report to the Board with their decisions and/or recommendations, the ultimate responsibility on all matters are made by the Board as a whole.

The Board conducts regular scheduled meetings during the year. Ad-hoc meetings are convened when circumstances require. Article 106 of the Company’s Articles of Association permits meetings of the Directors to be conducted by means of telephone conference or other methods of simultaneous communication by electronic or telegraphic means.


CoRpoRAte GoveRnAnCe RepoRt

A record of the Directors’ attendances at Board and Board Committee meetings during the financial year ended 31 December 2010 is disclosed as follows:

Name of Director Board Audit Committee Nominating Committee

Remuneration Committee

No. of meetings Attendance




Kuah Geok Lin 2 2 - - 1 1 - -

Kuah Geok Khim 2 2 - - - - - -

Kuah Geok Koon 2 2 - - - - - -

Quah Yoke Hwee 2 2 - - - - - -

Ang Mong Seng 2 2 2 2 1 1 1 1

Lim Kok Hoong 2 2 2 2 - - 1 1

Peter Boo Song Heng 2 2 2 2 1 1 1 1

The Directors come from diverse backgrounds and possess varied expertise in audit, business, finance, industry and management fields. At meetings and as and when necessary, the Directors are provided with regular updates on changes in the relevant laws and regulations to enable them to make well informed decisions. Where possible and when opportunity arises, the Directors will be invited to locations within the Group’s operating businesses to enable them to obtain a better perspective of the business and enhance their understanding of the Group’s operations. The directors of the Company are encouraged to attend seminars or training conducted by professionals to keep pace with new laws, regulations, changing commercial risk and accounting standards.

Board Composition and Guidance

Principle 2: There should be a strong and independent element on the Board, which is able to exercise objective judgement on corporate affairs independently, in particular, from Management. No individual or small group of individuals should be allowed to dominate the Board’s decision making.

The Board comprises seven directors, three of whom are independent non-executive directors.

More than one third of the Board is independent. The strong independent element on the Board ensures that it is able to exercise objective and independent judgement on corporate affairs.

The Executive Directors have extensive experience in the heavy equipment and industrial machinery equipment parts industry and the non-executive directors are experienced and successful in their respective professions. The Board’s structure, size and composition is reviewed annually by the Nominating Committee who is of the view that the current size of the Board is appropriate, taking into account the nature and scope of the Group’s operations, to facilitate effective decision making.

The Nominating Committee is satisfied that the Board comprises directors who as a group provide core competencies such as accounting, finance, business and management experience, industry knowledge, strategic planning experience and customer-based experience and knowledge to lead the company effectively.

At the recommendation of the Nominating Committee, the Board has appointed Mr. Lim Kok Hoong to act as the Lead Independent Non-Executive Director, where shareholders with concerns may contact him directly, when contact through the normal channels via the Chairman and Chief Executive Officer failed to provide satisfactory resolution, or when such contact is inappropriate.


19CoRpoRAte GoveRnAnCe RepoRt

Chairman and Chief Executive Officer

Principle 3: There should be a clear division of responsibilities at the top of the company – the working of the Board and the executive responsibility of the company’s business - which will ensure a balance of power and authority, such that no one individual represents a considerable concentration of power.

The Chairman and Chief Executive Officer (“CEO”) of the Company is Mr Kuah Geok Lin. The Board, after careful consideration, is of opinion that it is not necessary, under current circumstances, to separate the roles of the Chairman and CEO. This is after taking into consideration the size, scope and nature of the operations of our Group, together with the strong presence of our Independent Directors who ensure that decision-making is based on collective decision and that there is no concentration of power and authority vested in one individual.

Our Chairman and CEO has played an instrumental role in developing the business of our Group. He has extensive industry experience and has also provided our Group with strong leadership and vision. It is hence the view of the Board that it is in the best interests of our Group to adopt a single leadership structure, whereby the Chairman and CEO are the same individual.

The Chairman takes an active role in the management of the Group and also bears responsibility for the workings of the Board, ensuring the integrity and effectiveness of the governance process of the Board, ensuring that Board meetings are held regularly, and setting the Board meeting agenda in consultation with all members of the Board. The Chairman reviews board papers before they are presented to the Board and ensures that Board members are provided with adequate and timely information.

Board Membership

Principle 4: There should be a formal and transparent process for the appointment of new directors to the Board.

The Nominating Committee (“NC”) is established for the purposes of ensuring that there is a formal and transparent process for all Board appointments. The NC comprises the following three members, majority of whom are independent non-executive directors:-

Mr Peter Boo Song Heng (Chairman)Mr Ang Mong Seng (Member)Mr Kuah Geok Lin (Member)

The NC has adopted written terms of reference defining its membership, administration and duties. Duties and responsibilities of the NC include:

(a) to make recommendations to the Board on all board appointments having regard to the director’s contribution and performance;

(b) to determine annually whether a director is independent; and

(c) to assess the composition and effectiveness of the Board as a whole and to determine if each director has been adequately carrying out his duties.

Each member of our NC shall abstain from voting on any resolution in respect of his re-nomination as a director.

The search and nomination process for new directors, if any, will be through search companies, contacts and recommendations that go through the normal selection process, to cast its net as wide as possible for the right candidates.


Our Articles of Association require one-third of the Directors, or if their number is not a multiple of three, the number nearest to but not less than one-third of our Directors, to retire and subject themselves to re-election by the shareholders at every Annual General Meeting. In addition, all Directors of the Company, including the Managing Director after his initial term of engagement as Managing Director, shall retire from office at least once every three years. A retiring Director is eligible for re-election at the meeting at which he retires.

The profiles of the Directors are disclosed on pages 14 and 15 (“Board of Directors”) of this annual report.

Board Performance

Principle 5: There should be a formal assessment of the effectiveness of the Board as a whole and the contribution by each Director to the effectiveness of the Board.

The NC will decide how the Board’s performance is to be evaluated and propose objective performance criteria, subject to the approval of the Board, which will address how the Board has enhanced long-term shareholders’ value. The NC has in place an annual Board evaluation exercise to assess the effectiveness of the Board and to facilitate discussion to enable the Board to discharge its duties more effectively. Each member of the NC shall abstain from voting on any resolution in respect of his performance as a director.

Notwithstanding that some of the Directors have multiple board representations, the NC is satisfied that each Director is able to and has been adequately carrying out his duties as a director of the Company.

The Board and the NC have endeavoured to ensure that Directors appointed to the Board possess the experience, knowledge and expertise relevant to the Group’s business.

Access to Information

Principle 6: In order to fulfill their responsibilities, Board members should be provided with complete, adequate and timely information prior to Board meetings and on an ongoing basis.

Management provides the Board with adequate and timely information as well as a review of the Group’s performance prior to the Board meetings. The Board has separate and independent access to the Group’s senior management and Company Secretary, should they have any queries on the affairs of the Group.

Should the Directors, whether as a group or individually, require independent professional advice, the Company will bear the expenses incurred if such advice is required to enable the directors to discharge their duties professionally.

The Company Secretary attends all Board and Committees meetings and is responsible for ensuring that Board procedures are followed and that applicable rules and regulations (in particular the Companies Act and the SGX-ST Listing Manual) are complied with.



21

B. REMUNERATION MATTERS

Procedures for Developing Remuneration Policies

Principle 7: There should be a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual directors. No director should be involved in deciding his own remuneration.

The Remuneration Committee (“RC”) is established for the purposes of ensuring that there is a formal and transparent process for developing policy on executive remuneration and for fixing the remuneration packages of individual directors and key executives. The RC comprises the following three independent non-executive directors:-

Mr Ang Mong Seng (Chairman)Mr Lim Kok Hoong (Member)Mr Peter Boo Song Heng (Member)

The RC has adopted written terms of reference defining its membership, administration and duties. Duties and responsibilities of the RC include:

(a) to review and recommend to the Board a framework of remuneration for the Board and key executives;

(b) to review and determine specific remuneration packages for each Executive Director and the CEO which should cover all aspects of remuneration including but not limited to directors’ fees, salaries, allowances, bonuses, options and benefits in kind;

(c) to review and recommend to the Board the terms of renewal of service contracts of Directors;

(d) to retain such professional consultancy firm as the committee may deem necessary to enable it to discharge its duties satisfactorily;

(e) to consider various disclosure requirements for Directors’ remuneration, particularly those required by regulatory bodies such as the SGX-ST, and ensure that there is adequate disclosure in the financial statements to ensure and enhance transparency between the Company and relevant interested parties; and

(f) to carry out such other duties as may be agreed by the RC and the Board. The RC’s recommendations would be made in consultation with the Chairman of the Board and submitted for endorsement by the entire Board and no Director shall participate in decisions on his/her own remuneration.

Level and Mix of Remuneration

Principle 8: The level of remuneration should be appropriate to attract, retain and motivate the directors needed to run the company successfully but the company should avoid paying more for this purpose. A significant proportion of executive directors’ remuneration should be structured so as to link rewards to corporate and individual performance.

It is the Group’s policy to set a level of remuneration that is appropriate to attract, retain and motivate the directors. The independent non-executive directors receive directors’ fees in accordance with their level of contribution, taking into account factors such as effort and time spent and responsibilities of the directors. The Board may, if it considers necessary, consult experts on the remuneration of non-executive directors and would recommend the remuneration of the non-executive directors for approval at the Annual General Meeting (“AGM”).



The Company has entered into a service agreement with each of our Executive Directors, namely Kuah Geok Lin, Kuah Geok Khim, Kuah Geok Koon and Quah Yoke Hwee (collectively the “Appointees”). The service agreements contain non-competition and non-solicitation clauses, which are binding on the Appointees during their period of employment with the Company and for a period of 12 months after the cessation of their employment with the Company. The Executive Directors do not receive directors’ fees. The remuneration of the Appointees comprise a fixed basic salary component which includes the 13-month supplement and a variable component which includes an incentive bonus (“Incentive Bonus”) at the end of every financial year of the Company based on the audited consolidated profit before tax (before the Incentive Bonus) of our Group. The Appointees are also entitled to other benefits including dental, optical and medical benefits, personal accident, hospitalization and surgical insurance and travelling and entertainment expenses incurred for the purposes of our Group’s business.

The service agreements of the Appointees shall be subject to termination:

(i) by the Company or any of the Appointees giving to the other at least three months’ written notice; or(ii) without prior notice, upon the occurrence of certain specified events, including willful neglect in the discharge

of duties.

The Hoe Leong Performance Share Plan 2009 (“HL PSP”) for the Group employees, including the Group Executive Directors and The Hoe Leong Share Option Scheme 2009 (“HL ESOS”) were approved by the shareholders of the Company at an Extraordinary General Meeting held on 27 April 2009.

The Group employees including the Executive Directors are eligible to participate in the HL PSP and the HL ESOS. More information on the HL ESOS is set out in the Directors’ Report on pages 31 and 32 of this annual report. Disclosure on Remuneration

Principle 9: Each company should provide clear disclosure of its remuneration policy, level and mix of remuneration, and the procedure for setting remuneration, in the company’s annual report. It should provide disclosure in relation to its remuneration policies to enable investors to understand the link between remuneration paid to directors and key executives, and performance.

A breakdown showing the level and mix of each individual Director’s remuneration for the year ended 31 December 2010 is disclosed in the table below:

Name of DirectorsRemuneration

Band Salary(%)

Incentive Bonus

(%)

Variable Bonus

(%)Fees(%)

Share Options

(%)

Other Benefits

(%)Total(%)

Kuah Geok Lin(1) $750,000 to $999,999

38 44 10 - 1 7 100

Kuah Geok Khim(1) $500,000 to $749,999

41 45 9 - 1 4 100

Quah Yoke Hwee(1) 37 50 8 - 1 4 100

- $250,000 to $499,999

- - - - - - -

Kuah Geok Koon(1)

$0 to $249,999

84 - 7 - 1 8 100

Ang Mong Seng - - - 91 9 - 100

Lim Kok Hoong - - - 94 6 - 100

Peter Boo Song Heng - - - 91 9 - 100

Note:

(1) All of our Executive Directors, namely Kuah Geok Lin, Kuah Geok Khim, Kuah Geok Koon and Quah Yoke Hwee are

siblings.



23

The table below shows the level and mix of the remuneration of our key executives (who are not directors) for the year ended 31 December 2010:

Name of ExecutiveRemuneration

Band Salary(%)

Variable Bonus

(%)

Share Options

(%)

Other Benefits

(%)Total(%)

Mdm Kuah Geok Khim(1)

$0 to $249,999

76 19 2 3 100

Quah Eng Kiat(2) 71 18 3 8 100

Kuah Han Zhou Alvin(3) 73 18 - 9 100

Pwo Chun Chun(4) 89 11 - - 100

Chan Wee Kiat(4) 100 - - - 100

Ng Tze Wei(4) 92 8 - - 100

Lim Lian Tuan 65 - 4 31 100

Tan Wee Boon(5) 80 20 - - 100

Notes:

(1) Mdm Kuah Geok Khim is the sister of our Executive Directors, namely Kuah Geok Lin, Kuah Geok Khim, Kuah Geok Koon

and Quah Yoke Hwee.

(2) Quah Eng Kiat is the son of our Executive Director, Quah Yoke Hwee.

(3) Kuah Han Zhou Alvin is the son of our Chairman and CEO, Kuah Geok Lin.

(4) Joined during the year.

(5) Resigned during the year.

Save as disclosed above, there is no immediate family member of the directors and whose remuneration exceeded $150,000 during the financial year.

C. ACCOUNTABILITY AND AUDIT

Accountability

Principle 10: The Board should present a balanced and understandable assessment of the company’s performance, position and prospects.

One of the Board’s principal duties is to protect and enhance the long-term value and returns to the shareholders of the Company. The accountability of the Board to the shareholders is demonstrated through the presentation of the periodic financial statements as well as the timely announcements and news releases of significant corporate developments and activities so that the shareholders can have a detailed explanation and balanced assessment of the Group’s financial position and prospects.

The Management presents to the Audit Committee the interim and full-year results for review and recommends them to the Board for approval. The Board approves the results and authorizes the release of the results to the SGX-ST and the public via SGXNET as required by the SGX-ST Listing Manual.

In compliance with Rule 705(2)(c) of the SGX-ST Listing Manual, the Company has, from year 2011 onwards, commenced quarterly reporting of its financial statements.



Audit Committee

Principle 11: The Board should establish an Audit Committee (“AC”) with written terms of reference which clearly set out its authority and duties.

The AC comprises the following three independent directors:-

Mr Lim Kok Hoong (Chairman)Mr Ang Mong Seng (Member)Mr Peter Boo Song Heng (Member)

The Board is of the view that the members of the AC are appropriately qualified, having accounting or related financial management expertise or experience as the Board interprets such qualification, to discharge their responsibilities.

As a sub-committee of the Board of Directors, it assists the Board in discharging their responsibility to safeguard our assets, maintain adequate accounting records, and develop and maintain effective systems of internal control, with the overall objective of ensuring that our management creates and maintains an effective control environment in our Group. The AC will also review and supervise the internal audit functions of the Group.

Our AC will provide a channel of communication between our Board, our management and our external auditors on matters relating to audit.

The AC had met twice during the financial year and these meetings were attended by the Financial Controller, the Internal Auditors and External Auditors at relevant junctions relevant to the meeting. The AC also met with External Auditors without presence of any executive of the Group during their meetings.

Our AC has adopted written terms of reference defining its membership, administration and duties. Duties and responsibilities of the AC include:

(a) review with the external auditors the audit plan, their evaluation of the system of internal accounting controls, their letter to management and the management’s response;

(b) review the interim and annual financial statements before submission to our Board for approval, focusing in particular on changes in accounting policies and practices, major risk areas, significant adjustments resulting from the audit, compliance with accounting standards and compliance with the SGX-ST Listing Manual and any other relevant statutory or regulatory requirements;

(c) review the scope and results of the audit and its cost effectiveness and the independence and objectivity of the external auditors. Where the auditors also supply a substantial volume of non-audit services to the Company, the AC would keep the nature and extent of such services under review, seeking to balance the maintenance of objectivity and value for money;

(d) review the internal control procedures and ensure co-ordination between the external auditors and our management, and review the assistance given by our management to the auditors, and discuss problems and concerns, if any, arising from the interim and final audits, and any matters which the auditors may wish to discuss in the absence of our management at least annually;

(e) review and discuss with the external auditors any suspected fraud or irregularity, or suspected infringement of any relevant laws, rules or regulations, which has or is likely to have a material impact on our Group’s operating results or financial position, and our management’s response;

(f) to review the independence and objectivity of the external auditors annually;



25

(g) consider the appointment or re-appointment of the external auditors and matters relating to the resignation or dismissal of the auditors;

(h) review interested person transactions (if any) falling within the scope of Chapter 9 of the SGX-ST Listing Manual;

(i) review potential conflicts of interest, if any;

(j) undertake such other reviews and projects as may be requested by the Board, and will report to the Board its findings from time to time on matters arising and requiring the attention of the AC; and

(k) generally undertake such other functions and duties as may be required by statute or the SGX-ST Listing Manual, or by such amendments as may be made thereto from time to time.

In the event that any Director has a personal material interest in any contract or proposed contract or arrangement, he will abstain from reviewing that particular transaction or voting on the particular resolution.

The Company has put in place a whistle-blowing policy and the AC has the authority to conduct independent investigation into any complaint.

Apart from the duties listed above, the AC shall commission and review the findings of internal investigations into matters where there is any suspected fraud or irregularity, or failure of internal controls or infringement of any Singapore law, rule or regulation which has or is likely to have a material impact on our Company’s operating results and/or financial position.

In performing its functions, the AC has explicit authority to investigate any matter within its terms of reference, having full access to and co-operation by management and full discretion to invite any director or executive officer to attend meetings, and reasonable resources to enable it to discharge its function properly.

Internal Controls

Principle 12: The Board should ensure that the Management maintains a sound system of internal controls to safeguard the shareholders’ investments and the company’s assets.

The Board recognizes the importance of maintaining a sound system of internal controls to safeguard the shareholders’ interest and investments and the Group’s assets. The AC has during FY2010 reviewed and assessed the Group’s internal controls and had accepted the recommendations made by the appointed Internal Auditors. The Group is now in stages of implementing improvement to the Group’s existing internal controls.

The Board further recognizes that no systems of internal controls can provide absolute assurance against occurrence of material errors, poor judgement in decision making, human errors or irregularities.

Internal Audit

Principle 13: The company should establish an internal audit function that is independent of the activities it audits.

The Company has engaged the services of an external consultant to perform its internal audit function.

The AC reviews annually the Internal Audit plan independent of management and the internal auditors reports directly to the Chairman of AC.



Communication with Shareholders

Principle 14: Companies should engage in regular, effective and fair communication with shareholders.

The Company endeavours to communicate regularly, effectively and fairly with its shareholders. Timely, as well as, detailed disclosure is made to the public in compliance with SGX-ST guidelines. The Company does not practise selective disclosure. Price sensitive information is first publicly released, either before the Company meets with any group of investors or analysts.

Shareholders are kept informed of developments and performance of the Group through announcements published via SGXNET and the press when necessary as well as in the annual report. Other announcements are also made on an ad-hoc basis where applicable as soon as possible to ensure timely dissemination of the information to shareholders.

Principle 15: Companies should encourage greater shareholder participation at AGMs, and allow shareholders the opportunity to communicate their views on various matters affecting the Company.

All shareholders of the Company receive the annual report of the Company and notice of AGM within the prescribed period. Participation of shareholders is encouraged at the Company’s general meetings. To facilitate voting by shareholders, the Company’s articles allow shareholders to appoint not more than two proxies to attend and vote at the same general meeting. The Board of Directors (including the Chairman of the respective Board committees), management, as well as the external auditors will attend the Company’s AGM to address any questions that shareholders may have.

D. DEALINGS IN SECURITIES

The Company has adopted the requirements in SGX-ST Rule 1207(18) applicable to dealings in the Company’s securities by its Directors, management and officers. Directors, management and officers of the Group who have access to price-sensitive, financial or confidential information are prohibited to deal in the Company’s shares during the “closed period” commencing one month before the announcement of the Group’s half-year or full year results and ending on the date of the announcements of such results.

As the Company has commenced quarterly reporting of its financial statements in 2011, the Directors, management and officers of the Group are informed that they are prohibited to deal in the Company’s shares during the “close period” commencing two weeks before the announcement of the Group’s first three quarters results and one month before the announcement of the Group’s full year results.

Directors, management and officers of the Group are also required to observe insider trading laws at all times even when dealing in securities within the permitted trading period. In addition, the Directors, management and officers of the Group are discouraged from dealing in the Company’s securities on short-term considerations.



27

E. INTERESTED PERSON TRANSACTIONS

The Company has adopted an internal policy governing procedures for the identification, approval and monitoring of transactions with interested persons. All interested person transactions (“IPT”) are subject to review by the AC every 6 months to ensure that the relevant rules in Chapter 9 of the SGX-ST Listing Manual are complied with.

From 2011 onwards, the IPT are subject to review by the AC every quarter to ensure compliance with Chapter 9 of the SGX-ST Listing Manual.

There were no interested person transactions (with value more than $100,000) during the financial year ended 31 December 2010 except as follows:

Aggregate value of all interested person transactions

during the financial year under review (excluding

transaction less than $100,000 and transactions conducted

under shareholders’ mandate pursuant to Rule 920 of the

SGX-ST Listing Manual)

Aggregate value of all interested person transactions conducted during the financial

year under review under shareholders’ mandate pursuant to Rule 920 of

the SGX-ST Listing Manual (excluding transactions less

than $100,000)

Name of interested person $’000 $’000

Hoe Leong Plastic Industry (China) Ltd

- Rental expense 165 -

F. MATERIAL CONTRACTS

Pursuant to Rule 1207(8) of the SGX-ST Listing Manual, the Company confirms that there was no material contract entered into between the Company and its subsidiaries which involved the interests of any director or controlling shareholder, either still subsisting at the end of the financial year or if not then subsisting, which was entered into since the end of the previous financial year.



We are pleased to submit this annual report to the members of the Company together with the audited financial statements for the financial year ended 31 December 2010.

Directors

The directors in office at the date of this report are as follows:

Kuah Geok LinQuah Yoke HweeKuah Geok KhimKuah Geok KoonAng Mong SengLim Kok HoongPeter Boo Song Heng

Directors’ interests

According to the register kept by the Company for the purposes of Section 164 of the Singapore Companies Act, Chapter 50 (the Act), particulars of interests of directors who held office at the end of the financial year (including those held by their spouses and infant children) in shares, debentures, warrants and share options in the Company and its related corporations are as follows:

Name of director and corporation in which interests are held

Holdingsat beginningof the year

Holdingsat end

of the year

Kuah Geok LinThe CompanyHoe Leong Corporation Ltd.Ordinary shares- interests held 8,860,924 8,860,924Options to subscribe for ordinary shares exercisable at- $0.39 between 27/04/2011 to 26/04/2020 – 50,000- $0.39 between 27/04/2012 to 26/04/2020 – 50,000

Ultimate Holding CompanyHoe Leong Co. (Pte.) Ltd.Ordinary shares- interests held 288,600 288,600

SubsidiaryPT TrackspareOrdinary shares of US$1,000 each fully paid- interests held 5 5

DiReCtoRs’ RepoRt


29



Holdingsat end

of the year

Quah Yoke HweeThe CompanyHoe Leong Corporation Ltd.Ordinary shares- interests held 8,750,924 8,750,924Options to subscribe for ordinary shares exercisable at- $0.39 between 27/04/2011 to 26/04/2020 – 50,000- $0.39 between 27/04/2012 to 26/04/2020 – 50,000


Kuah Geok KhimThe CompanyHoe Leong Corporation Ltd.Ordinary shares- interests held 8,750,924 8,750,924Options to subscribe for ordinary shares exercisable at- $0.39 between 27/04/2011 to 26/04/2020 – 50,000- $0.39 between 27/04/2012 to 26/04/2020 – 50,000


Kuah Geok KoonThe CompanyHoe Leong Corporation Ltd.Ordinary shares- interests held 8,750,924 8,750,924Options to subscribe for ordinary shares exercisable at- $0.39 between 27/04/2011 to 26/04/2020 – 25,000- $0.39 between 27/04/2012 to 26/04/2020 – 25,000


DiReCtoRs’ RepoRt




Holdingsat end

of the year

Ang Mong SengThe CompanyHoe Leong Corporation Ltd.Ordinary shares- interests held 100,000 100,000Options to subscribe for ordinary shares exercisable at- $0.42 between 13/04/2011 to 12/04/2015 – 25,000- $0.42 between 13/04/2012 to 12/04/2015 – 25,000

Peter Boo Song HengThe CompanyHoe Leong Corporation Ltd.Options to subscribe for ordinary shares exercisable at- $0.42 between 13/04/2011 to 12/04/2015 – 25,000- $0.42 between 13/04/2012 to 12/04/2015 – 25,000

Lim Kok HoongThe CompanyHoe Leong Corporation Ltd.Options to subscribe for ordinary shares exercisable at- $0.42 between 13/04/2011 to 12/04/2015 – 25,000- $0.42 between 13/04/2012 to 12/04/2015 – 25,000

Kuah Geok Lin, Quah Yoke Hwee, Kuah Geok Khim and Kuah Geok Koon have the following deemed interests in the Company:

Name of corporation in which interests are held


Holdingsat end

of the year

The CompanyHoe Leong Corporation Ltd. 133,994,276 133,994,276

By virtue of Section 7 of the Act, Kuah Geok Lin, Quah Yoke Hwee, Kuah Geok Khim and Kuah Geok Koon are deemed to have an interest in all the other wholly-owned subsidiaries of Hoe Leong Co. (Pte.) Ltd., at the beginning and at the end of the financial year.

Except as disclosed in this report, no director who held office at the end of the financial year had interests in shares, debentures, warrants or share options of the Company or of related corporations, either at the beginning or at the end of the financial year.

There were no changes in any of the above mentioned interests in the Company between the end of the financial year and 21 January 2011.

Except as disclosed under the “Share options” section of this report, neither at the end of, nor at any time during the financial year, was the Company a party to any arrangement whose objects are, or one of whose objects is, to enable the directors of the Company to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate.

DiReCtoRs’ RepoRt


31

Except for salaries, bonuses and fees and those benefits that are disclosed in Note 29 to the financial statements, since the end of the last financial year, no director has received or become entitled to receive a benefit by reason of a contract made by the Company 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.

Share options

The Hoe Leong Share Option Scheme 2009 (the “Scheme”) of the Company was approved and adopted by its members at an Extraordinary General Meeting held on 27 April 2009.

The Scheme is administered by the Remuneration Committee whose members are as follows:

Ang Mong Seng (Chairman)Lim Kok Hoong (Member)Peter Boo Song Heng (Member)

Information regarding the Scheme is set out below:

• The exercise price of the options can be set at a discount to the market price not exceeding 20% of the market price in respect of options granted at the time of grant.

• For options granted to directors, 50% of the options can be exercised after one year from the date of grant and the remaining 50% of the options can be exercised after two years from the date of grant.

• For options granted to employees, 50% of the options can be exercised after two years from the date of grant and the remaining 50% of the options can be exercised after three years from the date of grant.

• The options granted to executive directors and employees will expire after 10 years from the date of grant.

• The options granted to non-executive directors will expire after five years from the date of grant.

Options granted, exercised / cancelled, and outstanding

Details of the options granted, exercised or cancelled during the financial year and outstanding at the end of the financial year under the Scheme, on the unissued ordinary shares of the Company, are as follows:

Date of grant of options

Exercise price per

share

Options outstanding

at 1 January

2010Options granted

Options exercised

Options cancelled/

expired

Options outstanding

at 31 December

2010

Number of option holders

at 31 December

2010 Exercise period

$

13 April 2010 0.42 – 150,000 – – 150,000 3 13 April 2011 to 12 April 2015

13 April 2010 0.34* – 350,000 – (100,000) 250,000 4 13 April 2012 to 12 April 2020

27 April 2010 0.39 – 350,000 – – 350,000 4 27 April 2011 to 26 April 2020

27 April 2010 0.31* – 130,000 – – 130,000 2 27 April 2012 to 26 April 2020

– 980,000 – (100,000) 880,000

* These options were granted to the employees of the Group at a 20% discount to the average closing market price of the Company’s shares for the last five trading days immediately preceding the date of grant.

DiReCtoRs’ RepoRt


The aggregate options granted to directors and associates of controlling shareholders of the Company are as follows:

Name of Participants

Options granted during

the financial year ended 31

December 2010

Aggregate options

granted since commencement of Scheme to 31 December 2010

Aggregate options

exercised/ cancelled since commencement of Scheme to 31 December 2010

Aggregate options

outstanding at 31 December

2010(’000) (’000) (’000) (’000)

DirectorsKuah Geok Lin 100 100 – 100Quah Yoke Hwee 100 100 – 100Kuah Geok Khim 100 100 – 100Kuah Geok Koon 50 50 – 50Ang Mong Seng 50 50 – 50Lim Kok Hoong 50 50 – 50Peter Boo Song Heng 50 50 – 50Associates of controlling shareholdersMdm Kuah Geok Khim 80 80 – 80Quah Eng Kiat 50 50 – 50

630 630 – 630

Since the commencement of the Scheme, no participant under the Scheme has been granted 5% or more of the total options available under the Scheme.

Except as disclosed above, there were no unissued shares of the Company or its subsidiaries under options granted by the Company or its subsidiaries as at the end of the financial year.

Audit Committee

The members of the Audit Committee during the year and at the date of this report are:

• Lim Kok Hoong (Chairman), non-executive director

• Ang Mong Seng, non-executive director

• Peter Boo Song Heng, non-executive director

The Audit Committee performs the functions specified in Section 201B of the Act, the SGX-ST Listing Manual and the Code of Corporate Governance.

The Audit Committee has held two meetings since the last directors’ report. In performing its functions, the Audit Committee met with the Company’s external auditors to discuss the scope of their work, the results of their examination and evaluation of the Company’s internal accounting control system. The Company’s internal audit function has been outsourced and the Audit Committee has discussed the scope of the work with the appointed firm, the results of their examination and their evaluation of the Company’s internal accounting system, where appropriate.

The Audit Committee also reviewed the following:

• assistance provided by the Company’s officers to the internal and external auditors;

• half yearly financial information and annual financial statements of the Group and the Company prior to their submission to the directors of the Company for adoption; and

• interested person transactions (as defined in Chapter 9 of the SGX-ST Listing Manual).

DiReCtoRs’ RepoRt


33

The Audit Committee has full access to management and is given the resources required for it to discharge its functions. It has full authority and the discretion to invite any director or executive officer to attend its meetings. The Audit Committee also recommends the appointment of the external auditors and reviews the level of audit and non-audit fees.

The Audit Committee is satisfied with the independence and objectivity of the external auditors and has recommended to the Board of Directors that the auditors, KPMG LLP, be nominated for re-appointment as auditors at the forthcoming Annual General Meeting of the Company.

Auditors

The auditors, KPMG LLP, have indicated their willingness to accept re-appointment.

On behalf of the Board of Directors

Kuah Geok LinDirector

Quah Yoke HweeDirector

31 March 2011

DiReCtoRs’ RepoRt


In our opinion:

(a) the financial statements set out on pages 36 to 81 are drawn up so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2010 and the results, changes in equity and cash flows of the Group for the year ended on that date in accordance with the provisions of the Singapore Companies Act, Chapter 50 and Singapore Financial Reporting Standards; and

(b) at the date of this statement, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due.

The Board of Directors has, on the date of this statement, authorised these financial statements for issue.

On behalf of the Board of Directors

Kuah Geok LinDirector

Quah Yoke HweeDirector

31 March 2011

stAtement by DiReCtoRs


35

Report on the financial statements

We have audited the accompanying financial statements of Hoe Leong Corporation Ltd. (the Company) and its subsidiaries (the Group), which comprise the statements of financial position of the Group and the Company as at 31 December 2010, the income statement, statement of comprehensive income, statement of changes in equity and statement of cash flows of the Group for the year then ended, and a summary of significant accounting policies and other explanatory information, as set out on pages 36 to 81.

Management’s responsibility for the financial statements

Management is responsible for the preparation of financial statements that give a true and fair view in accordance with the provisions of the Singapore Companies Act, Chapter 50 (the Act) and Singapore Financial Reporting Standards, and for devising and maintaining a system of internal accounting controls sufficient to provide a reasonable assurance that assets are safeguarded against loss from unauthorised use or disposition; and transactions are properly authorised and that they are recorded as necessary to permit the preparation of true and fair profit and loss accounts and balance sheets and to maintain accountability of assets.

Auditors’ responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements of the Group and the statement of financial position of the Company are properly drawn up in accordance with the provisions of the Act and Singapore Financial Reporting Standards to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2010 and the results, changes in equity and cash flows of the Group for the year ended on that date.

Report on other legal and regulatory requirements

In our opinion, the accounting and other records required by the Act to be kept by the Company and by those subsidiaries incorporated in Singapore of which we are the auditors have been properly kept in accordance with the provisions of the Act.

KPMG LLPPublic Accountants andCertified Public Accountants

Singapore31 March 2011

inDepenDent AuDitoRs’ RepoRt

membeRs of tHe CompAny Hoe LeonG CoRpoRAtion LtD.


Group CompanyNote 2010 2009 2010 2009

$’000 $’000 $’000 $’000

AssetsProperty, plant and equipment 4 47,115 53,944 11,516 11,885Subsidiaries 5 – – 10,007 9,991Associates and joint ventures 6 23,130 – – – Loans to subsidiaries 7 – – 24,315 – Loans to associates and joint ventures 8 2,726 – – – Deferred tax assets 9 101 15 – – Total non-current assets 73,072 53,959 45,838 21,876

Assets classified as held for sale 10 1,097 – – – Inventories 11 32,054 35,300 21,071 25,491Trade and other receivables 12 17,358 19,023 22,480 33,298Cash and cash equivalents 13 7,505 6,238 2,315 1,697Total current assets 58,014 60,561 45,866 60,486Total assets 131,086 114,520 91,704 82,362

Equity Share capital 14 53,897 53,897 53,897 53,897Currency translation reserve 15 (3,573) (2,052) – – Share-based compensation reserve 16 56 – 56 – Accumulated profits 14,204 7,775 3,108 3,150Equity attributable to owners of the Company 64,584 59,620 57,061 57,047Non-controlling interests 4,017 2,950 – – Total equity 68,601 62,570 57,061 57,047

LiabilitiesFinancial liabilities 17 18,342 17,137 8,577 120Loans from non-controlling shareholders of subsidiaries 18 7,631 – – – Deferred tax liabilities 9 1,063 702 2 2Total non-current liabilities 27,036 17,839 8,579 122

Trade and other payables 19 9,713 10,271 5,916 6,030Financial liabilities 17 25,070 22,953 19,834 18,288Current tax payable 666 887 314 875Total current liabilities 35,449 34,111 26,064 25,193Total liabilities 62,485 51,950 34,643 25,315Total equity and liabilities 131,086 114,520 91,704 82,362

stAtements of finAnCiAL position

As At 31 DeCembeR 2010

The accompanying notes form an integral part of these financial statements.


37

GroupNote 2010 2009

$’000 $’000

Revenue 20 61,790 61,165Cost of sales (38,983) (42,276)Gross profit 22,807 18,889Other income 1,998 1,996Distribution expenses (4,217) (3,842)Administrative expenses (8,186) (8,230)Other expenses (4,879) (633)Results from operating activities 7,523 8,180

Finance income 69 33Finance costs (1,152) (1,058)Net finance costs 21 (1,083) (1,025)

Share of results of associates and joint ventures 6 4,651 –

Profit before income tax 22 11,091 7,155Income tax expense 23 (1,040) (1,779)Profit for the year 10,051 5,376

Attributable to:Owners of the Company 7,218 4,454Non-controlling interests 2,833 922Profit for the year 10,051 5,376

Earnings per shareBasic earnings per share (cents) 24 2.49 1.65Diluted earnings per share (cents) 24 2.49 1.65

inCome stAtement

yeAR enDeD 31 DeCembeR 2010



Group2010 2009$’000 $’000

Profit for the year 10,051 5,376

Other comprehensive incomeForeign currency translation differences arising from foreign operations (1,798) (84)Income tax relating to components of other comprehensive income – – Other comprehensive income, net of income tax (1,798) (84)Total comprehensive income for the year 8,253 5,292

Attributable to:Owners of the Company 5,697 4,327Non-controlling interests 2,556 965Total comprehensive income for the year 8,253 5,292

stAtement of CompReHensive inCome

yeAR enDeD 31 DeCembeR 2010



39

Attributable to owners of the Company

Sharecapital

Share-based compensation

reserve

Currency translation

reserveAccumulated

profits Total

Non-controlling interests

Totalequity

Group $’000 $’000 $’000 $’000 $’000 $’000 $’000

At 1 January 2009 46,564 – (1,925) 3,585 48,224 1,353 49,577Total comprehensive income

for the yearProfit for the year – – – 4,454 4,454 922 5,376Other comprehensive incomeForeign currency translation

differences arising from foreign operations – – (127) – (127) 43 (84)

Total comprehensive income for the year – – (127) 4,454 4,327 965 5,292

Transactions with owners, recorded directly in equity

Issue of shares 7,502 – – – 7,502 632 8,134Expenses on issue of shares (169) – – – (169) – (169)Dividend paid – – – (264) (264) – (264)Total transactions with owners 7,333 – – (264) 7,069 632 7,701At 31 December 2009 53,897 – (2,052) 7,775 59,620 2,950 62,570Total comprehensive income

for the yearProfit for the year – – – 7,218 7,218 2,833 10,051Other comprehensive incomeForeign currency translation

differences arising from foreign operations – – (1,521) – (1,521) (277) (1,798)

Total comprehensive income for the year – – (1,521) 7,218 5,697 2,556 8,253

Transactions with owners, recorded directly in equity

Share-based compensation expenses – 56 – – 56 – 56

Dividend paid – – – (723) (723) – (723)Total transaction with owners – 56 – (723) (667) – (667)Changes in ownership in

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