ANNUAL REPORT 2007 | 01
MISSION STATEMENT
Hong Leong Asia Group strives to strengthen its businesses
in China and Southeast Asia. It will assume a wider focus in
manufacturing and distribution activities, particularly in
China. It aims to secure a premier position in Asia by
growing both organically and through acquisitions, so as
to achieve superior returns for its shareholders.
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02 | HONG LEONG ASIA LTD.
From being Singapore’s leading integrated building materials supplier to its current standing as one of the region’s majormanufacturing and distribution players, Hong Leong Asia’s success is intricately linked to its diversification into themanufacturing and distribution industry in China and Southeast Asia. With over 80 per cent of its market beyond the shoresof SIngapore, it is well positioned to scale greater heights.
Hong Leong Asia has under its consumer products, diesel engines and industrial packaging arms, three leading China-based manufacturing businesses, namely Henan Xinfei (China’s second largest manufacturer of refrigerators and freezers),China Yuchai Group (China’s largest independent diesel engines manufacturer), and Rex Industrial Packaging Division(manufacturer of industrial packaging containers). GPac Technology, a wholly-owned subsidiary of the Group involved ingreen packaging, is an innovative manufacturer of pallets, which are used for industrial storage and transportation.
CORPORATE PROFILE
The Group, under its building materials arm, ownsIsland Concrete Pte Ltd, one of the largest ready-mixed concrete suppliers in Singapore. In addition,the Group owns PT Karimun Granite, Southeast Asia’slargest hard rock quarry operation located in theNorthwest of the Indonesian island of Karimun. TasekCorporat ion Berhad, being one of the largestintegrated cement producers in Malaysia, is also anassociate of the Group. As part of the Group’sbusiness expansion and diversification plans, HongLeong Asia, through its New York Stock Exchangelisted subsidiary, China Yuchai International Ltd, hasacquired stakeholdings in HLG Enterprise Limited(formerly known as LKN-Primefield Limited) (“HLGE”)and Thakral Corporation Ltd (“TCL”), both of whichare Singapore Exchange listed companies. HLGE isprimarily engaged in the business of investmentholding, property development and hospitality, whileTCL is a China-focused electronics distr ibutioncompany.
ANNUAL REPORT 2007| 03
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CORPORATE STRUCTURE
CONSUMER PRODUCTS
China• Henan Xinfei Electric Co., Ltd• Henan Xinfei Household Appliance Co., Ltd• Henan Xinfei Refrigeration Appliances Co., Ltd
DIESEL ENGINES
Bermuda• China Yuchai International Limited
China• Guangxi Yuchai Machinery Company Limited
INDUSTRIAL PACKAGING
China• Shanghai Rex Packaging Co., Ltd• Tianjin Rex Packaging Co., Ltd• Hangzhou Rex Packaging Co., Ltd• Dongguan Rex Packaging Company Limited
Malaysia• Rex Plastics (Malaysia) Sdn. Bhd• Rexpak Sdn. Bhd
Singapore• Hong Leong (China) Limited• Rex Holdings Pte. Ltd.• Rex Plastics Pte. Ltd.
Indonesia• PT Rexplast
GREEN PACKAGING
Singapore• GPac Technology (S) Pte. Ltd.
BUILDING MATERIALS
Quarry Division• PT. Karimun Granite - Indonesia• Karimun Granite (Singapore) Pte Ltd - Singapore
Ready-Mix Concrete Division• Island Concrete (Private) Limited - Singapore
Pre-Cast Concrete Division• Hong Leong Asia Ltd. - Pre-cast division - Singapore• HL-Manufacturing Industries Sdn. Bhd. - Malaysia
Cement & Granite Division• Singapore Cement Manufacturing Company
(Private) Limited - Singapore• Singapore Cement Industrial Company
(Private) Limited - Singapore• Tasek Corporation Berhad - Malaysia
Steel Division• Angkasa Hong Leong Pte Ltd - Singapore
OTHERS
Consumer Electronics• Thakral Corporation Ltd.
Hospitality & Properties Development• HLG Enterprise Limited
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04 | HONG LEONG ASIA LTD.
OUR BUSINESSES
CONSUMER PRODUCTS
Henan Xinfei, China’s second largest manufacturer of refrigeratorsand freezers, produces more than 300 models of direct-cooled andfrost-free refrigerators, 50 models of freezers and 20 models of air-conditioners. Xinfei is known for producing durable products backedby reliable after-sales service. Xinfei exports its products to more than50 countries such as US, Europe, Middle East, Africa and etc.
DIESEL ENGINES
The New York listed China Yuchai International, with its principalsubsidiary, Guangxi Yuchai, being China’s largest independent dieselengines manufacturer, manufactures, assembles, and sells dieselengines for light-duty, medium-duty and heavy-duty trucks, buses andconstruction equipment in China.
INDUSTRIAL PACKAGING
Rex Industrial Packaging Group has manufacturing operations invarious cities in China, Malaysia and Indonesia. Highly diversified, itmanufactures and markets a wide range of rigid plastic packagingproducts for the industrial and consumer markets.
ANNUAL REPORT 2007| 05
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GREEN PACKAGING
Wholly-owned by Hong Leong Asia, GPac Technology (S) Pte. Ltd. is a“green” organization based in Singapore. I t special izes in thedevelopment and manufacture of eco-friendly, biodegradableproducts for a vast range of industries and applications. AmongGPac’s most notable products is the pallets made from recycledwood fibres that comply with the ISPM 15 guidelines as stipulated inthe International Plant Protection Convention.
BUILDING MATERIALS
Manufacturing and distr ibuting an extensive range of buildingmaterials and construction-related products, Hong Leong Asia’sBuilding Materials Unit is one of the largest suppliers of integratedbuilding materials in Singapore. Its product range includes ready-mixconcrete, pre-cast concrete, cement, steel bars and granite.
OTHERS
I t inc ludes Hong Leong As ia ’s ind i rect investment in Thakra lCorporation Ltd (“TCL”) and HLG Enterprise Limited (“HLGE”). Theprincipal activity of TCL is trading and distr ibution of consumerelectronic goods and accessories in China and Hong Kong. HLGE ispr imari ly engaged in investment holding and hospital i ty andproperties development businesses.
OUR BUSINESSES
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06 | HONG LEONG ASIA LTD.
CORPORATE DIRECTORY
BOARD OF DIRECTORS• Kwek Leng Beng - Chairman, non-executive
EXECUTIVE• Kwek Leng Peck• Teo Tong Kooi - Chief Executive Officer
NON-EXECUTIVE• Ernest Colin Lee - Independent• Goh Kian Hwee - Independent• Quek Shi Kui - Independent
AUDIT COMMITTEE• Quek Shi Kui - Chairman• Ernest Colin Lee• Goh Kian Hwee
NOMINATING COMMITTEE• Ernest Colin Lee - Chairman• Kwek Leng Beng• Quek Shi Kui
REMUNERATION COMMITTEE• Ernest Colin Lee - Chairman• Quek Shi Kui• Goh Kian Hwee
HONG LEONG ASIA SHARE OPTIONSCHEME 2000 COMMITTEE• Ernest Colin Lee - Chairman• Kwek Leng Peck• Quek Shi Kui• Goh Kian Hwee
SECRETARIES• Yeo Swee Gim, Joanne• Ng Siew Ping, Jaslin
REGISTERED OFFICE• 16 Raffles Quay
#26-00 Hong Leong BuildingSingapore 048581Tel : (65) 6220 8411Fax : (65) 6222 0087 / 6226 0502Website : www.hlasia.com.sg
REGISTRARS & TRANSFER OFFICE• M & C Services Private Limited
138 Robinson Road#17-00 The Corporate OfficeSingapore 068906Tel : (65) 6227 6660Fax : (65) 6225 1452
AUDITORS• KPMG
Certified Public Accountants16 Raffles Quay#22-00 Hong Leong BuildingSingapore 048581(Partner-in-charge: Lucas Tran, appointed from commencement of the financial year ended 31 December 2006)
PRINCIPAL BANKERS• Bank of America, N.A.• Citibank, N.A.• DBS Bank Ltd• Standard Chartered Bank• Sumitomo Mitsui Banking Corporation• The Bank of Tokyo-Mitsubishi, Ltd.
ANNUAL REPORT 2007| 07
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FINANCIAL HIGHLIGHTS
REVENUEin $ million
2003
1,883.1
PROFIT BEFORE TAXin $ million
ATTRIBUTABLE INCOMEin $ million
EARNINGS PER SHAREin $ cents
2004
2,059.6
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2005
2,269.2
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2006
2,481.0
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2007
3,233.2
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2003
260.5
2004
198.9
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2005
39.2
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2006
201.6
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2007
229.6
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2003
112.6
2004
41.6
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2005
23.3
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2006
61.1
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2007
95.4
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2003
31.6
2004
11.3
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2005
6.2
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2006
16.1
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12| HONG LEONG ASIA LTD.
BOARD OF DIRECTORS
TEO TONG KOOI, Age 50
Appointed Director and Chief Executive Officer since 1 October 2004, Mr Teo was last re-elected on 28 April 2005. He is the President and Director of CYI, Executive Director of TCBand a Director of HLG Enterprise Limited, Thakral Corporation Ltd and Malaysia listed IsyodaCorporation Berhad. During the past 3 years, he was a Director of Malaysia listed BintaiKinden Corporation Berhad.
Mr Teo holds a Bachelor of Science degree in Marketing Management and a Master ofBusiness Administration (both from Golden Gate University, San Francisco, California, USA).He has also completed the Executive Management Programme at the Stanford UniversityGraduate School of Business. He has a wealth of corporate and commercial bankingexperience with many years in senior management positions where he was Head ofCorporate Banking of Deutsche Bank, Malaysia and Chief Operating Officer of Hong LeongBank, Malaysia.
KWEK LENG PECK, Age 51
Appointed to the Board since 1 September 1982 and is now an Executive Director, Mr Kwekalso sits on the Hong Leong Asia Share Option Scheme 2000 Committee (“SchemeCommittee”). He was last re-elected as a Director on 29 April 2006. He is also an ExecutiveDirector of CES and a Director of CDL, HLF, M&C, New York listed China Yuchai InternationalLimited (“CYI”) and Malaysia listed Tasek Corporation Berhad (“TCB”).
Mr Kwek holds a Diploma in Accountancy and has over 27 years of experience in trading,manufacturing, property investment and development, hotel operations, corporate financeand management.
KWEK LENG BENG, Age 67
Appointed Chairman since 3 January 1995 and Director since 25 November 1981, Mr Kwekalso sits on the Nominating Committee of Hong Leong Asia Ltd. (“HLA”). He was last re-elected as a Director of HLA on 27 April 2007. He is the Executive Chairman of CityDevelopments Limited (“CDL”), Chairman and Managing Director of Hong Leong FinanceLimited (“HLF”) and Hong Kong listed City e-Solutions Limited (“CES”), and Chairman ofLondon listed Millennium & Copthorne Hotels plc (“M&C”).
Mr Kwek holds a law degree, LL.B. (London) and is also a fellow of The Institute of CharteredSecretaries and Administrators. He has extensive experience in the finance business, havinggrown from day one with the original Hong Leong Finance Limited which has since mergedits finance business with Singapore Finance Limited (now known as HLF). He also has vastexperience in the real estate business, the hotel industry as well as the trading andmanufacturing business.
ANNUAL REPORT 2007|13
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BOARD OF DIRECTORS
QUEK SHI KUI, Age 71
Appointed a Director since 28 April 2005, Mr Quek is the Chairman of the Audit Committeeand a member of the Nominating, Remuneration and Scheme Committees of HLA. Healso sits on the boards of IDT Holdings (Singapore) Ltd and Thomson Medical Centre Limited.During the past 3 years, he was a Director of Permasteelisa Pacific Holdings Limited andWah Shing International Holdings Ltd.
A Certified Public Accountant, Mr Quek has extensive auditing, accounting and financialexperience in Singapore and overseas. He was previously a managing partner of aninternational accounting firm.
Mr Quek’s other appointments include being a council member of the Institute of CertifiedPublic Accountants of Singapore and a member of the ACCA United Kingdom, the MalaysiaInstitute of Accountants and the Singapore Institute of Directors. He also serves as Chairmanof the Board of Trustees, ACCA Singapore.
GOH KIAN HWEE, Age 53
Appointed a Director since 15 March 2004, Mr Goh was last re-elected on 29 April 2006.He also sits on the Audit, Remuneration and Scheme Committees of HLA. He is also aDirector of Achieva Limited, Hwa Hong Corporation Limited and Japan Land Limited. Duringthe past 3 years, he was a Director of AsiaMedic Limited, MAE Engineering Ltd and HotelNegara Limited.
Mr Goh is a Partner of Rajan & Tann LLP, a legal firm, and has over 28 years’ experiencein corporate and capital markets law. He holds a LL.B. (Honours) degree (University ofSingapore) and has been a practising lawyer since 1980.
ERNEST COLIN LEE, Age 67
Appointed a Director since 3 April 2000 and last re-elected on 27 April 2007, Mr Lee is theChairman of the Nominating, Remuneration and Scheme Committees as well as a memberof the Audit Committee of HLA.
Mr Lee holds a Bachelor of Civil Engineering (Honours) degree (University of Queensland,Australia). He is a professional project consultant and has extensive experience inmanagement, engineering and business development in Singapore and Australia.
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14| HONG LEONG ASIA LTD.
CORPORATE GOVERNANCE REPORT
Hong Leong Asia Ltd. (“HLA” or the “Company”) is committed to maintaining good corporate governance in accordancewith the principles and guidelines set out in the Code of Corporate Governance released by the Council on CorporateDisclosure and Governance in 2005 (“CCDG Code”). HLA has adopted a set of internal guidelines on corporate governance(“Internal CG Guidelines”) which took into consideration the principles and guidelines set out in the CCDG Code.
The following describes the Company’s corporate governance policies and practices which include, inter alia, specificreference to the principles and guidelines as set out in the CCDG Code.
BOARD MATTERS
CCDG Code Principle 1: The Board’s Conduct of Affairs
The Board oversees the Company’s business. Its primary functions are to set corporate policy, provide guidance and approvalof strategic plans and direction for the Company, review management performance, establish and oversee the frameworkfor internal controls and risk management, and assume responsibility for good corporate governance. These functions areeither carried out directly by the Board or through committees established by the Board, namely, the Audit Committee (“AC”),the Nominating Committee (“NC”), the Remuneration Committee (“RC”), and the Hong Leong Asia Share Option Scheme2000 Committee (“Scheme Committee”), all collectively referred to hereafter as the Board Committees. The compositionof each Board Committee can be found under the corporate directory section of this Annual Report 2007.
The delegation of authority by the Board to the Board Committees enables the Board to achieve operational efficiency byempowering these Board Committees to decide on matters within their respective written terms of reference and/or limitsof delegated authority and yet maintain control over major policies and decisions.
The Company conducts regular scheduled Board meetings on a quarterly basis. Additional meetings are convened as andwhen circumstances warrant. The Company’s Articles of Association allow for the meetings of its Board and Board Committeesto be held via teleconferencing.
The attendance of the Directors at meetings of the Board and Board Committees as well as the frequency of such meetings,are disclosed on page 15. Notwithstanding such disclosure, the Board is of the view that the contribution of each Directorshould not be focused only on his attendance at meetings of the Board and/or Board Committees. A Director’s contributionmay also extend beyond the confines of the formal environment of such meetings, through the sharing of views, advice,experience and strategic networking relationships which would further the interests of the Company.
The Board has also adopted an internal guide wherein certain key matters are specifically reserved for approval by the Boardsuch as the setting of strategic decisions or policies or financial objectives which are, or may be significant, in terms of futureprofitability or performance of the Group and decisions to commence, discontinue or modify significantly any business activityor to enter or withdraw from a particular market sector.
Every newly appointed Director receives a formal letter, setting out his general duties and obligations as a Director pursuantto the relevant legislations and regulations. Newly appointed Directors are also welcome to meet with the management andbe briefed by them on the Company’s business and governance practices. The Company encourages the Directors to keepupdated with the latest changes to the relevant laws and regulations affecting the Company and to receive further relevanttraining of their choice in connection with the discharge of their duties. Appropriate courses include programmes conductedby the Singapore Institute of Directors and Singapore Exchange Securities Trading Limited (“SGX-ST”). Each Director also receivesa manual containing information on a director’s duties and responsibilities, corporate information of the Group, and Companyand Board policies including the Internal CG Guidelines which also cover the internal code of business and ethical conduct,internal code on securities trading, whistle-blowing procedure and a schedule of matters specifically reserved for the Board’sapproval. Directors are also provided regular updates and briefings from time to time by professional advisers, auditors,management and the Company Secretaries on new laws, rules, regulations, listing requirements, governance practices,changes in accounting standards and business and risk management issues applicable or relevant to the performance oftheir duties and obligations as Directors.
ANNUAL REPORT 2007|15
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Directors’ Attendance of Board and Board Committee Meetings in 2007
Name of Directors
Kwek Leng Beng
Kwek Leng Peck
Teo Tong Kooi
Ernest Colin Lee
Goh Kian Hwee
Quek Shi Kui
Board
Number of
Meetings held :
4
Meetings
Attended
4
4
4
4
4
4
AC
Number of
Meetings held :
6
Meetings
Attended
NA
NA
NA
6
6
6
NC
Number of
Meetings held :
1
Meetings
Attended
1
NA
NA
1
NA
1
RC
Number of
Meetings held :
2
Meetings
Attended
NA
NA
NA
2
2
2
Scheme
Committee
Number of
Meetings held :
2
Meetings
Attended
NA
2
NA
2
1*
2
* Mr Goh Kian Hwee was appointed a member of the Scheme Committee with effect from 18 January 2007.
CCDG Code Principle 2: Board Composition and Guidance
The Board currently comprises 6 members, 2 of whom are executive Directors, while the other members of the Board arenon-executive Directors. Of the 4 non-executive Directors, the Board considers 3 of them, being half of the Board, to beindependent, thus providing for a strong and independent element on the Board capable of exercising objective judgmenton corporate affairs of the Group. No individual or small group of individuals dominates the Board’s decision making.
The independent non-executive Directors are Messrs Ernest Colin Lee, Goh Kian Hwee and Quek Shi Kui. Mr Goh Kian Hweeis a partner of a legal firm which renders professional legal services to the Group from time to time. Nevertheless, the Board(excluding Mr Goh in respect of the deliberation of his own independence) has considered Mr Goh to be independent ashe is capable of maintaining his objectivity and independence at all times in the carrying out of his duties and responsibilitiesas an independent Director.
The Board comprises business leaders and professionals with financial, legal and business management backgrounds.The Board has reviewed its composition, taking into account the scope and nature of the operations of the Group, andis satisfied that the current size of the Board is appropriate and allows for effective decision making. The standing of themembers of the Board in the business and professional communities, and their combined business, management andprofessional experience, knowledge and expertise provide the necessary core competencies to meet the Group’s needsand to allow for diverse and objective perspectives on the Group’s strategic direction and growth. Non-executive Directorsof the Company are encouraged to participate actively in Board meetings in the development of the Company’s strategicplans and direction, and in the review and monitoring of management’s performance against set targets.
CORPORATE GOVERNANCE REPORT
The Company has adopted an internal code of business and ethical conduct crystallising the Company’s business principlesand practices with respect to matters which may have ethical implications. The Code provides a communicable andunderstandable framework for staff to observe the Company’s principles such as honesty, integrity, responsibility andaccountability at all levels of the organization and in the conduct of the Company’s business in their relationships withcustomers, suppliers and amongst employees, including situations where there are potential conflicts of interests.
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16| HONG LEONG ASIA LTD.
CORPORATE GOVERNANCE REPORT
CCDG Code Principle 3: Chairman and Chief Executive Officer
The Board recognises that best practices of corporate governance advocate that the chairman of the board and thechief executive officer should in principle be separate persons to ensure an appropriate balance of power, increasedaccountability and greater capacity of the board for independent decision making.
The Chairman of the Board is Mr Kwek Leng Beng who is a non-executive Director while the Chief Executive Officer (“CEO”)is Mr Teo Tong Kooi. There is a clear division of responsibilities between the Chairman and the CEO. As Chairman of the Board,Mr Kwek bears primary responsibility for the workings of the Board, by ensuring effectiveness in all aspects of its role, exercisingcontrol over the quality, quantity and timeliness of information flow between the Board and management, ensuring effectivecommunication with shareholders, facilitating the effective contribution of non-executive Directors, and overseeing the Group’scorporate governance and conduct. Whereas the CEO, Mr Teo who is a key management staff, bears executive responsibilityfor the Group’s business, the management of the day-to-day operations of the Group and the achievement of the corporategoals set for the Group. The CEO is not related to the Chairman.
With the establishment of various Board Committees with power and authority to perform key functions beyond the authorityof, or without undue influence from, the Chairman or the CEO, and the putting in place of various internal controls to allowfor effective Board oversight, the Board is of the view that there are adequate accountability safeguards to enable the Boardto exercise independent decision making and to ensure an appropriate balance of power and authority within the spirit ofgood corporate governance.
CCDG Code Principle 4: Board Membership
The NC’s main role as set out in its written terms of reference is to recommend all Board and Board Committee appointmentsand re-appointments, determine independence of each Director, and identify new Directors who have the appropriateknowledge, experience and skills to contribute effectively to the Board. 2 out of the 3 members of the NC, including the NCchairman, are independent. The NC conducts an annual review of the independence of Directors.
When considering the re-nomination and re-election of Directors, the NC takes into account their contribution to the effectivenessof the Board and the competing time commitments faced by Directors with multiple board representations. Notwithstandingthat some of the Directors have multiple board representations, the NC is satisfied that each Director is able to carry andhas been adequately carrying out his duties as a Director of the Company. The Directors submit themselves for re-nominationor re-election at regular intervals and the Articles of Association of the Company provide that at least one-third of the Directorsfor the time being shall retire as Directors at each Annual General Meeting of the Company.
In reviewing and recommending to the Board any new Director appointments, the NC takes into consideration the currentBoard size and its mix, the additional skills and experience that will bolster the core competencies of the Board, the searchprocess for the identification of suitable candidates and once identified, the appropriate knowledge, experience and skillsof the candidates who in its opinion, are fit and proper and qualified for office.
Key information regarding the Directors is set out on pages 12 and 13 of this Annual Report 2007.
CCDG Code Principle 5: Board Performance
The Company has in place a formal process for assessment of the effectiveness of the Board as a whole and the contributionby each Director to the effectiveness of the Board. The NC assesses each Director’s performance and evaluates the Board’sperformance as a whole annually using objective and appropriate quantitative and qualitative criteria which were recommendedby the NC and approved by the Board. Quarterly performance indicators which include a comparison of the Company’sperformance for the financial period under review against the Company’s budgeted forecasts and performance for thecorresponding period in the previous year and the longer term indicators such as the Company’s share price performanceover a 5-year period and vis-à-vis the Singapore Straits Times Index, are furnished to the Board. In reviewing the overall Boardperformance, the NC also took into consideration the Board’s ability to monitor management’s achievement of the strategicdirections/objectives set and approved by the Board.
ANNUAL REPORT 2007|17
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CORPORATE GOVERNANCE REPORT
Assessment parameters for Directors’ performance include their level of participation at Board and Board Committee meetingsand the quality of their contribution to Board processes and the business strategies and performance of the Group. The NC’sevaluation of the individual Directors for the financial year ended 31 December 2007 (“FY 2007”) was facilitated this yearwith feedback from individual Directors on areas relating to the Board’s competencies and effectiveness. The results of theevaluation process would be used by the NC, in its consultation with the Chairman of the Board, to effect continuingimprovements on Board processes.
CCDG Code Principle 6: Access to Information
Prior to each meeting, the respective members of the Board and the Board Committees are provided with the meetingagenda and the relevant papers submitted by the management, containing complete, adequate and timely informationto enable full deliberation on the issues to be considered at the respective meetings. Management staff and the Company’sauditors, who can provide additional insight into the matters for discussion, are also invited from time to time to attend suchmeetings. The Company Secretaries attend all Board meetings and ensure that all Board procedures are followed. TheCompany Secretaries, together with other management staff of the Company, also ensure that the Company complies withall applicable statutory and regulatory rules.
On an ongoing basis, the Directors have separate and independent access to the Company’s senior management andthe Company Secretaries. The Directors, whether as a group or individually, are entitled to take independent professionaladvice at the expense of the Company, in furtherance of their duties and in the event that circumstances warrant the same.
REMUNERATION MATTERS
CCDG Code Principle 7: Procedures for Developing Remuneration Policies
The RC comprises 3 non-executive Directors, all of whom including the chairman of the RC are independent. The RC’sprincipal responsibilities as set out in its written terms of reference are to review and recommend for the endorsement of theBoard, a framework of remuneration and the specific remuneration packages for each Board member and the CEO (orexecutive of equivalent rank). All the members of the RC also sit on the Scheme Committee and the chairman of the RC isalso the chairman of the Scheme Committee. In reviewing remuneration packages, the RC also ensures that the remunerationpolicies are in line with the strategic objectives and corporate values of the Company.
CCDG Code Principle 8: Level and Mix of Remuneration
In reviewing the remuneration packages, the RC, with the assistance of the Group Human Resource Manager, considers thelevel of remuneration based on the Company’s remuneration policy which comprises the following 3 distinct objectives:
• To ensure that the remuneration packages are competitive in attracting and retaining employees capable of meetingthe Company’s needs.
• To reward employees for achieving corporate and individual performance targets in a fair and equitable way.• To ensure that the remuneration reflects employees’ duties and responsibilities.
The remuneration of the non-executive Directors is set at a level appropriate to their degree of contribution, taking into accountattendance and time spent, and their respective responsibilities. No Director is involved in deciding his own remuneration.
Longer term incentive schemes which include the grant of options under the Hong Leong Asia Share Option Scheme 2000(the “Scheme”) subject to a vesting schedule, are encouraged.
CCDG Code Principle 9: Disclosure of Remuneration
The total compensation packages for employees including the CEO comprise a fixed component (in the form of a basesalary and fixed allowances) and a variable component (which includes year-end and variable bonuses, share option grantsfor eligible employees and benefits-in-kind, where applicable), taking into account amongst other factors, the individual’sperformance, the performance of the Group and industry practices. The breakdown (in percentage terms) of the Directors’remuneration for FY 2007 is set in the table on page 18.
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18| HONG LEONG ASIA LTD.
CORPORATE GOVERNANCE REPORT
Directors’ Remuneration for FY 2007
Above $1,500,000up to $1,750,000Teo Tong Kooi
Above $750,000up to $1,000,000Kwek Leng Peck
$250,000and belowKwek Leng BengErnest Colin LeeGoh Kian HweeQuek Shi Kui
Board/BoardCommittee
Fees**%
6***
9***
100100100100
* The salary and variable bonuses/allowances are inclusive of employer’s central provident fund contributions.
** These fees comprise Board and Board Committee fees for FY 2007, which are subject to approval by shareholders asa lump sum at the 2008 Annual General Meeting, and Audit Committee fees for FY 2007 that have already beenapproved by shareholders at the 2006 and 2007 Annual General Meetings.
*** Includes Directors’ fees paid or payable by subsidiaries of the Company.
**** These relate to options granted during FY 2007. The fair value of the options as at the date of grant ranges from $0.34to $0.43 for each share under option taking into account the vesting schedule using the Trinomial Tree method.
The remuneration of the top 5 key executives (who are not Directors) is not disclosed in this Annual Report 2007 as suchdisclosure does not appear to be standard industry practice currently, given the highly competitive industry conditions. TheRC will continue to review the practice of the industry in this regard, weighing the advantages and disadvantages of suchdisclosure.
During FY 2007, none of the Directors had immediate family members not disclosed above who were employees of theCompany and whose personal annual remuneration exceeded $150,000.
Information on the Scheme is set out in the Directors’ Report on pages 27 to 30 and the Financial Statements on pages 79to 81 of this Annual Report 2007.
ACCOUNTABILITY AND AUDIT
CCDG Code Principle 10: Accountability
The Board provides shareholders with quarterly and annual financial results. Results for the first 3 quarters are released toshareholders within 45 days of the end of each quarter whilst the annual results are released within 60 days from the financialyear end. In presenting the Company’s annual and quarterly results, the Board aims to provide shareholders with a balancedand understandable assessment of the Company’s performance and financial position with a commentary at the date ofthe announcement of the significant trends and competitive conditions of the industry in which it operates.
The management provides all Directors with monthly financial summary of the Group’s performance.
VariableBonuses/
Allowances*%
45
31
----
BaseSalary*
%
38
40
----
ShareOption
Grants****%
6
10
----
OtherBenefits
%
5
10
----
Total%
100
100
100100100100
ANNUAL REPORT 2007| 19
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CORPORATE GOVERNANCE REPORT
The Directors recognise that they have overall responsibility to ensure accurate financial reporting for the Group and for theGroup’s system of internal controls. The Board confirms that, with the assistance of the AC, it reviews the effectiveness of theGroup’s financial reporting and internal controls system, which are monitored through a programme of internal and externalaudits. The Board has noted the key conclusions of the audit committee of China Yuchai International Limited (“CYI”), its NYSE-listed subsidiary, pursuant to its independent inquiry into the facts and circumstances of the accounting errors relating to theadjustment of accounts payable of approximately $34.9 million at Guangxi Yuchai Machinery Company Limited (“GuangxiYuchai”), and CYI’s audit committee’s recommendations for, inter alia, further improvements to CYI’s controls and proceduresto improve effectiveness, communication flow, clarification of roles and responsibilities of Guangxi Yuchai’s finance staff,training of Guangxi Yuchai’s finance staff and to increase resources at CYI and Guangxi Yuchai.
CCDG Code Principle 11: Audit Committee
The AC comprises 3 non-executive Directors, all of whom including the chairman of the AC are independent. The AC hassufficient financial management expertise and experience amongst its members to discharge its functions within its writtenterms of reference. The AC is authorised by the Board to investigate any matters it deems appropriate within its terms ofreference and has full access to and co-operation of management. It may invite any Director, executive officer or employeeof the Company to attend its meetings and is also authorised to seek external professional advice to enable it to dischargeits functions.
The principal responsibility of the AC is to assist the Board in maintaining a high standard of corporate governance, particularlyby providing an independent review of the effectiveness of the Group’s financial reporting process and material internalcontrols, including financial, operational, compliance and risk management controls. Other duties within its written terms ofreference include:
- to review with management and, where appropriate, with the external auditors on the quarterly and full year financialstatements to be issued by the Group before their submission to the Board to ensure their completeness, accuracyand fairness;
- to review, on an annual basis, the scope and results of the audit and its cost-effectiveness and the independence andobjectivity of the external auditors;
- to review the effectiveness of the internal audit function;
- to make recommendations to the Board on the appointment, re-appointment and removal of external auditors, andto approve the remuneration and terms of engagement of the external auditors; and
- to review interested person transactions.
The AC held 6 meetings during the year and carried out its duties as set out within its terms of reference. It also met with theinternal and external auditors, each separately without the presence of management. Having reviewed the nature and extentof the non-audit services provided to the Group by the external auditors for FY 2007, the AC is of the opinion that the provisionof such non-audit services would not affect the independence and objectivity of the external auditors. The AC has recommendedto the Board the nomination of Messrs KPMG for re-appointment as external auditors.
HLA has in place a whistle-blowing procedure where staff of the Group can raise in confidence concerns on possibleimproprieties relating to accounting, financial reporting, internal controls and auditing matters. Under these procedures,arrangements are in place for independent investigation of such matters raised and for appropriate follow up action to betaken.
Interested Person Transactions
On 30 May 2003, the Company obtained shareholders’ approval for the Company, its subsidiaries and its associatedcompanies not listed on the SGX-ST or an approved exchange, over which the Company, its subsidiaries and/or interestedpersons have control, to enter into transactions within the categories of Interested Person Transactions set out in the Company’scircular to shareholders dated 5 May 2003, with such persons within the class or classes of Interested Persons as describedin the said circular, provided that such transactions are entered into in accordance with the review procedures set out in
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20| HONG LEONG ASIA LTD.
CORPORATE GOVERNANCE REPORT
the said circular (the “IPT Mandate”). The IPT Mandate was last renewed at the Annual General Meeting of the Company heldon 27 April 2007. As such Interested Person Transactions may occur at any time, and to allow the Group to undertake suchtransactions in an expeditious manner, shareholders’ approval will be sought at the coming Annual General Meeting of theCompany for the renewal of the IPT Mandate.
The AC has confirmed that an independent financial adviser’s opinion is not required for the renewal of the IPT Mandate asthe methods and procedures for determining the transaction prices of the Interested Person Transactions conducted underthe IPT Mandate have not changed since the IPT Mandate was obtained on 30 May 2003, and such methods and procedurescontinue to be sufficient to ensure that these Interested Person Transactions will be carried out on normal commercial termsand will not be prejudicial to the interests of the Company and its minority shareholders.
Particulars of Interested Person Transactions required to be disclosed under Rule 907 of the Listing Manual of the SGX-ST areas follows:
Name ofInterested Person
Aggregate value of all InterestedPerson Transactions in FY 2007(excluding transactions less than$100,000 and t ransact ionsconducted under the IPT Mandatepursuant to Rule 920)
Aggregate value of all InterestedPerson Transactions conducted inFY 2007 under the IPT Mandatepursuant to Rule 920 (excludingtransactions less than $100,000)
Hong Leong Investment HoldingsPte. Ltd. group of companies
Receipt ofmanagement services : $392,358
General Transaction(renewal of lease) : $216,000*
The above Interested Person Transactions were carried out on normal commercial terms and were not prejudicial to theinterests of the Company and its minority shareholders.
CCDG Code Principle 12: Internal Controls
The Directors recognise that they have overall responsibility to ensure accurate financial reporting for the Group and for theGroup’s system of internal controls. Internal and external auditors conduct regular reviews of the system of internal controls,and material internal control weaknesses are brought to the attention of the AC and to management for remedial action.While no system can provide absolute assurance against material loss or financial misstatement, the Group’s internal financialcontrols are designed to provide reasonable assurance that assets are safeguarded, that proper accounting records aremaintained, and that financial information used within the business and for publication is reliable. In reviewing these controls,the Directors have had regard to the risks to which the business is exposed, the likelihood of such risks occurring and the costsof protecting against them.
The Board confirms that, with the assistance of the AC, it reviews the effectiveness of the Group’s financial, operational andcompliance controls and risk management systems which are monitored through a programme of internal and externalaudits together with regular reviews by the management of the Company’s risk management processes and procedures.Efforts are continued to be made to improve the standard of internal controls and Corporate Governance in the Group’sChina operations.
CCDG Code Principle 13: Internal Audit
The Internal Audit (“IA”) function is independent of the activities it audits. The Head of IA’s primary reporting line is to thechairman of the AC with an administrative line of reporting to the CEO of the Company. IA has adopted the InternationalStandards for the Professional Practice of Internal Auditing set by the Institute of Internal Auditors and has incorporated thesestandards into IA’s audit practices. IA operates within the framework stated in its Internal Audit Charter which is approved bythe AC. IA’s responsibilities include evaluating the reliability, adequacy and effectiveness of the internal controls and risk
* Renewal of lease of office premises by the Company for a lease tenure of two years.
ANNUAL REPORT 2007|21
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CORPORATE GOVERNANCE REPORT
management processes of the Company. The Company has a well-established IA function with formal procedures for internalauditors to report their audit findings to the AC and to management. The AC reviews the adequacy of the internal auditfunction through a review of the internal auditors’ activities on a quarterly basis and is satisfied that the internal audit functionhas adequate resources and appropriate standing within the Group to perform its functions properly.
COMMUNICATION WITH SHAREHOLDERS
CCDG Code Principle 14: Communication with Shareholders
The Company announces its quarterly and full year results within the mandatory period. Material and price-sensitive informationis publicly released via SGXNET on a timely basis. All shareholders of the Company receive the annual report of the Companyand the notice of the Annual General Meeting, which notice is also advertised in the press and released via SGXNET.Shareholders and investors can access information on the Company at its website at www.hlasia.com.sg which provides,inter alia, corporate announcements, press releases and the latest financial results as disclosed by the Company on SGXNET.From time to time, the Company’s senior management holds briefings with analysts and the media to coincide with therelease of the Group’s results.
CCDG Code Principle 15: Greater Shareholder Participation
At general meetings of the Company, shareholders are given the opportunity to communicate their views and ask theDirectors and the management questions regarding matters affecting the Company. The chairman of the AC, NC, RC andScheme Committee, and the external auditors were present at the last Annual General Meeting, and will endeavour to bepresent at the coming Annual General Meeting to address, and to assist the Directors in addressing, queries raised by theshareholders.
In accordance with the Articles of Association of the Company, shareholders may appoint one or two proxies to attend andvote in their absence. CPF investors of the Company’s securities may attend shareholders’ meetings as observers providedthey have submitted their requests to do so with their agent banks within a specified timeframe.
RISK MANAGEMENT
An organisational risk management framework has been established by management to formalise and document the internalprocesses, many of which are already currently in place, to enable significant business risks within the Group to be identified,assessed, monitored, managed and evaluated, save for the Group’s China operations where the risk management processesare being continuously improved upon and implemented. The key types of risks of the Group include operational risks, creditrisks, price risks, inventory risks and consignment risks. As part of the ongoing risk management process, management conductsa risk assessment and evaluation annually, and provide for significant risks to be managed through regular reviews bymanagement and the Board and Board Committees, and adoption of adequate and cost-effective system of internalcontrols. The AC reviews the Group’s risk management process established by management to ensure that there are adequateinternal controls in place to manage the significant risks identified. It notes that steps are being taken to strengthen the riskmanagement for its China operations. Apart from introducing a new Risk Management Manual which set out the riskmanagement policy and guidelines for the Group, a consulting firm will be appointed to carry out an organisation efficiencystudy for one of the key business units in China.
INTERNAL CODE ON DEALINGS IN SECURITIES
The Company has adopted an internal code on securities trading which provides guidance and internal regulation withregard to dealings in the Company’s securities by its Directors and officers. These guidelines prohibit dealing in the Company’ssecurities while in possession of unpublished material price-sensitive information in relation to such securities and during the“closed period”, which is defined as 2 weeks before the date of announcement of results for each of the first 3 quarters ofthe Company’s financial year and one month before the date of announcement of the full year financial results.
28 March 2008
ANNUAL REPORT 2007| 23
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DIRECTORS’ REPORT
We are pleased to submit this report to the members of the Company together with the audited financial statementsfor the financial year ended 31 December 2007.
Directors
The directors in office at the date of this report are as follows:
Kwek Leng BengKwek Leng PeckTeo Tong KooiErnest Colin LeeGoh Kian HweeQuek Shi Kui
Arrangements to enable directors to acquire shares and debentures
Except as disclosed under the section on “Share Options” in this report, neither at the end of nor at any time during thefinancial year was the Company a party to any arrangements whose objects are, or one of whose objects is, to enablethe directors of the Company to acquire benefits by means of the acquisition of shares in or debentures of the Companyor any other body corporate.
Directors’ interest in shares or debentures
Except as disclosed in this report, no director who held office at the end of the financial year had interests in shares, shareoptions, warrants and/or debentures of the Company, or of related corporations, either at the beginning or at the endof the financial year.
According to the register kept by the Company for the purposes of Section 164 of the Companies Act, Chapter 50 (the“Act”), particulars of interests of directors who held office at the end of the financial year (including those of their spousesand infant children) in shares and/or share options in the Company and related corporations are as follows:
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24| HONG LEONG ASIA LTD.
DIRECTORS’ REPORT
Directors’ interests in shares or debentures (cont’d)
The Company
Ordinary Shares
Kwek Leng BengKwek Leng PeckTeo Tong KooiErnest Colin Lee
Options to subscribe for the following numberof ordinary shares under the Hong Leong AsiaShare Option Scheme 2000
Kwek Leng BengKwek Leng PeckTeo Tong KooiErnest Colin Lee
Ultimate Holding Company
Hong Leong Investment Holdings Pte. Ltd.Ordinary Shares
Kwek Leng BengKwek Leng Peck
Related Corporations
Hong Leong Finance LimitedOrdinary Shares
Kwek Leng BengKwek Leng Peck
Options to subscribe for the following numberof ordinary shares under the Hong Leong FinanceShare Option Scheme 2001
Kwek Leng Beng
At beginningof the year
600,0001,000,000
-50,000
60,000100,000500,000
50,000
2,320304
4,603,567517,359
2,044,000
At end ofthe year
600,0001,000,000
65,00033,000
60,000350,000250,000
17,000
2,320304
4,603,567517,359
2,422,000
Holdings in which the director,his spouse and infant children
have a direct interest
ANNUAL REPORT 2007| 25
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DIRECTORS’ REPORT
At beginningof the year
259,000381,428
1,110150
397,22643,758
144,445
3,286,9802,082,200
3,000,000
At end ofthe year
259,000381,428
1,110150
397,22643,758
144,445
3,286,9802,082,200
3,000,000
Directors’ interests in shares or debentures (cont’d)
Related Corporations (cont’d)
Hong Leong Holdings LimitedOrdinary Shares
Kwek Leng BengKwek Leng Peck
Hong Realty (Private) LimitedOrdinary Shares
Kwek Leng BengKwek Leng Peck
City Developments LimitedOrdinary Shares
Kwek Leng BengKwek Leng Peck
Preference Shares
Kwek Leng Beng
City e-Solutions LimitedOrdinary Shares of HK$1 each
Kwek Leng BengKwek Leng Peck
Millennium & Copthorne Hotels New Zealand LimitedOrdinary Shares
Kwek Leng Beng
Holdings in which the director,his spouse and infant children
have a direct interest
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26| HONG LEONG ASIA LTD.
DIRECTORS’ REPORT
Directors’ interests in shares or debentures (cont’d)
Related Corporations (cont’d)
Sun Yuan Holdings Pte. Ltd.Ordinary Shares
Kwek Leng Beng
Ultimate Holding Company
Hong Leong Investment Holdings Pte. Ltd.Ordinary Shares
Kwek Leng Beng
At beginningof the year
15,000,000
At end ofthe year
15,000,000
Holdings in which the director,his spouse and infant children
have a direct interest
At beginningof the year
68,596
At end ofthe year
68,596
Other holdings in which the directoris deemed to have
an interest
The Directors’ interests as at 31 December 2007 disclosed above remained unchanged as at 21 January 2008.
ANNUAL REPORT 2007| 27
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DIRECTORS’ REPORT
Directors' interests in contracts
During the financial year, the Company and/or its related corporations have in the normal course of business enteredinto transactions with directors and/or their affiliated parties, being related parties and parties in which some of the directorsare deemed to have an interest, with the directors having disclosed their interests in such transactions pursuant to Section156 of the Act. Such transactions may comprise loans, deposits, provision of nominee and corporate advisory services,foreign exchange transactions, insurance transactions, property-related transactions, construction-related transactions,industrial-related transactions, consumer-related transactions, investing in real estate used for hospitality and/or hospitality-related purposes, purchase/sale of investments or investment products, property, industrial and consumer biodegradableand non-biodegradable products, goods including vehicles, parts and accessories and provision and receipt of after-sales services, hotel-related transactions, procurement services, information technology services, e-commerce-relatedtransactions, management and consultancy services and/or other transactions carried out on normal commercial termsand in the normal course of business of the Company and/or its related corporations.
However, the directors have neither received nor become entitled to receive any benefit arising out of these transactionsother than those to which they may be entitled as customers, suppliers, directors and members of these corporations.
Except as disclosed above and except for remuneration and professional fees received from the related corporations,since the end of the last financial year, no director has received or become entitled to receive a benefit by reason of acontract made by the Company and/or its related corporations with the director, or with a firm of which he is a memberor with a company in which he has a substantial financial interest.
Share options
(a) Hong Leong Asia Share Option Scheme 2000 (the “Scheme”)
The Scheme was approved by the shareholders at the extraordinary general meeting of the Company held on 30December 2000.
The Scheme is administered by the Scheme Committee comprising the following members:
Ernest Colin Lee – ChairmanKwek Leng PeckQuek Shi KuiGoh Kian Hwee
The Scheme provides the Company with the flexibility of granting options to participants at Market Price (as definedin the Scheme) and/or with a discount (either up-front or a deferred discount) to the Market Price. All options grantedto date under the Scheme are at Market Price.
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28| HONG LEONG ASIA LTD.
DIRECTORS’ REPORT
(b) Options granted under the Scheme
Share options (cont’d)
(a) Hong Leong Asia Share Option Scheme 2000 (the “Scheme”) (cont’d)
Under the Scheme, Market Price Options (as defined in the Scheme) granted to:
(i) Group Employees and Parent Group Employees (both as defined in the Scheme) may be exercised one yearafter the date of the grant and will have a term of ten years from the date of the grant; and
(ii) Group Non-Executive Directors, Parent Group Non-Executive Directors and Associated Company Employees(all three as defined in the Scheme) may be exercised one year after the date of the grant and will have aterm of five years from the date of the grant.
The aggregate number of ordinary shares in the capital of the Company (“Shares”) over which options maybe granted under the Scheme on any date, when added to the number of Shares issued and issuable inrespect of all options granted under the Scheme shall not exceed 15% of the total number of issued Sharesexcluding treasury shares, if any, on the day preceding the relevant date of grant. The aggregate numberof Shares which may be offered by way of grant of options to Parent Group Employees and Parent GroupNon-Executive Directors collectively under the Scheme shall not exceed 20% of the total number of Sharesavailable under the Scheme.
During the financial year under review, the following options were granted to Group Employees under theScheme:
Details of the options granted to the Directors of the Company are as follows:
Date of grant
10/1/2007
Exercise priceper share
$1.88
Number of Sharesunder options
1,340,000
Exercise period
10/1/2008 to 9/1/2017
Shares underoptions grantedduring financial
year underreview
-
250,000
250,000
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Aggregate Sharesunder optionsgranted since
commencementof Scheme to
end of financialyear under review
660,000
1,350,000
750,000
150,000
Aggregate Shares
commencement ofScheme to end of
under optionsexercised since
financial yearunder review
600,000
1,000,000
500,000
133,000
Aggregate Sharesunder options
outstanding as atend of financial
year under review
60,000
350,000
250,000
17,000
Name of Director
Kwek Leng Beng
Kwek Leng Peck
Teo Tong Kooi
Ernest Colin Lee
There were 1,080,000 Shares under options granted to Parent Group Employees since the commencement ofthe Scheme to the end of the financial year under review.
ANNUAL REPORT 2007| 29
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DIRECTORS’ REPORT
Share options (cont’d)
(b) Options granted under the Scheme (cont’d)
None of the participants were regarded by the Directors as controlling shareholders of the Company. None of theparticipants were granted options representing 5% or more of the total number of Shares under options availableunder the Scheme. None of the Parent Group Employees were granted options representing 5% or more of thetotal number of Shares under options available under the Scheme to all Parent Group Employees and Parent GroupNon-Executive Directors.
Except for options granted to persons in their capacity as Group Employees or Group Non-Executive Directors orParent Group Employees, no other options have been granted by the Company to any other categories of personssince the commencement of the Scheme.
All options granted under the Scheme are subject to a vesting schedule as follows:
(i) One year after the date of grant for up to 33% of the Shares over which the options are exercisable;
(ii) Two years after the date of grant for up to 66% (including (i) above) of the Shares over which the options areexercisable; and
(iii) Three years after the date of grant for up to 100% (including (i) and (ii) above) of the Shares over which theoptions are exercisable.
The persons to whom these options have been granted do not have the right to participate by virtue of the optionsin any share issue of any other company.
(c) Unissued Shares under options
There were a total of 1,499,200 unissued Shares under the options granted pursuant to the Scheme at the end ofthe financial year. Details of the options to subscribe for shares including those granted to the Directors of theCompany are as follows:
* Relates to options granted to the Group Non-Executive Directors.
Number ofoption holders
at 31 December2007
Date ofgrant
6/7/2001
6/11/2002
1/10/2004
1/10/2004
26/9/2005
10/1/2007
Total
Exerciseprice per
share
$0.41
$1.00
$1.51
$1.51
$1.28
$1.88
Optionsoutstanding at
1 January2007
44,000
75,000
720,000
110,000
440,000
-
1,389,000
Optionsgranted
-
-
-
-
-
1,340,000
1,340,000
Optionsexercised
(4,000)
(75,000)
(599,000)
(33,000)
(202,800)
-
(913,800)
Optionscancelled/
lapsed
-
-
(21,000)
-
(175,000)
(120,000)
(316,000)
1
-
1
2
5
15
to 30/9/2009*
ExercisePeriod
6/7/2002to 5/7/2011
6/11/2003to 5/11/2012
1/10/2005to 30/9/2014
1/10/2005
26/9/2006to 25/9/2015
10/1/2008to 9/1/2017
Optionsoutstanding at31 December
2007
40,000
-
100,000
77,000
62,200
1,220,000
1,499,200
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30| HONG LEONG ASIA LTD.
DIRECTORS’ REPORT
Teo Tong KooiDirector
Kwek Leng PeckDirector
28 March 2008
Share options (cont’d)
(c) Unissued shares under options (cont’d)
Save as disclosed above, during the financial year, there were:
(i) no options granted by the Company or its subsidiaries to any person to take up unissued shares of the Companyor its subsidiaries; and
(ii) no shares issued by virtue of any exercise of option to take up unissued shares of the Company or its subsidiaries.
Audit committee
The Audit Committee comprises three members who are independent. The members of the Audit Committee at thedate of this report are:
Quek Shi Kui – ChairmanErnest Colin LeeGoh Kian Hwee
The Audit Committee held six meetings since the date of the last directors' report and carried out the functions of an auditcommittee as specified in the Act. In carrying out its functions, the Audit Committee reviewed the overall scope of bothinternal and external audits and the assistance given by the Company's officers to the auditors. It met with the Company'sinternal and external auditors to discuss the results of their respective examinations and their evaluation of the Group'ssystem of internal controls. The Audit Committee also reviewed the consolidated financial statements of the Group andthe balance sheet and the statement of changes in equity of the Company for the year ended 31 December 2007 aswell as the auditors' report thereon.
The Audit Committee has recommended to the Board of Directors that the auditors, Messrs KPMG, be nominated for re-appointment as auditors at the forthcoming Annual General Meeting of the Company.
Auditors
The auditors, Messrs KPMG, have indicated their willingness to accept re-appointment.
On behalf of the Board of Directors
ANNUAL REPORT 2007| 31
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STATEMENT BY DIRECTORS
In our opinion:
(a) the financial statements set out on pages 34 to 93 are drawn up so as to give a true and fair view of the state ofaffairs of the Group and of the Company as at 31 December 2007 and the results, changes in equity and cashflows of the Group and changes in equity of the Company for the year ended on that date in accordance withthe 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 itsdebts as and when they fall due.
The Board of Directors has, on the date of this statement, authorised these financial statements for issue.
On behalf of the Board of Directors
Kwek Leng PeckDirector
Teo Tong KooiDirector
28 March 2008
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32| HONG LEONG ASIA LTD.
INDEPENDENT AUDITORS' REPORT
Members of the CompanyHong Leong Asia Ltd.
We have audited the accompanying financial statements of Hong Leong Asia Ltd. (the Company) and its subsidiaries(the Group), which comprise the balance sheets of the Group and of the Company as at 31 December 2007, the incomestatement, statement of changes in equity and cash flow statement of the Group and the statement of changes in equityof the Company for the year then ended, and a summary of significant accounting policies and other explanatory notes,as set out on pages 34 to 93.
Management’s responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance withthe provisions of the Singapore Companies Act, Chapter 50 (the Act) and Singapore Financial Reporting Standards. Thisresponsibility includes :
(a) devising and maintaining a system of internal accounting controls sufficient to provide a reasonable assurance thatassets are safeguarded against loss from unauthorised use or disposition; and transactions are properly authorisedand that they are recorded as necessary to permit the preparation of true and fair profit and loss accounts andbalance sheets and to maintain accountability of assets;
(b) selecting and applying appropriate accounting policies, and
(c) making accounting estimates that are reasonable in the circumstances.
Auditors’ responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit inaccordance with Singapore Standards on Auditing. Those standards require that we comply with ethical requirementsand plan and perform the audit to obtain reasonable assurance whether the financial statements are free from materialmisstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financialstatements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of materialmisstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditorconsiders internal control relevant to the entity’s preparation and fair presentation of the financial statements in order todesign audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion onthe effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accountingpolicies used and the reasonableness of accounting estimates made by management, as well as evaluating the overallpresentation 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.
ANNUAL REPORT 2007| 33
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INDEPENDENT AUDITORS' REPORT
Opinion
In our opinion:
(a) the consolidated financial statements of the Group and the balance sheet and statement of changes in equityof the Company are properly drawn up in accordance with the provisions of the Act and Singapore FinancialReporting Standards to give a true and fair view of the state of affairs of the Group and of the Company as at 31December 2007 and the results, changes in equity and cash flows of the Group and changes in equity of theCompany for the year ended on that date; and
(b) the accounting and other records required by the Act to be kept by the Company and by those subsidiariesincorporated in Singapore of which we are the auditors have been properly kept in accordance with the provisionsof the Act.
KPMGPublic Accountants andCertified Public Accountants
Singapore
28 March 2008
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34| HONG LEONG ASIA LTD.
Non-current assetsProperty, plant and equipmentPrepaid operating leasesIntangiblesInvestments in subsidiariesInterests in associatesInterest in jointly-controlled entityInvestment propertiesOther investmentsNon-current receivablesAmounts due from subsidiariesDeferred tax assets
Current assetsInventoriesDevelopment propertiesOther investmentsTrade and other receivablesCash and cash equivalentsAssets held for sale
Total assets
Equity attributable to equity holdersof the Company
Share capitalReserves
Minority interestsTotal equity
Non-current liabilitiesAmount due to a subsidiaryFinancial liabilitiesDeferred tax liabilitiesDeferred grantsRetirement benefits
Current liabilitiesTrade and other payablesProvisionsFinancial liabilitiesCurrent tax payable
Total liabilities
Total equity and liabilities
4,382--
219,98055,22615,000
-137
-60,150
-354,875
3,602--
87,9815,259
-96,842
451,717
3456789
10111213
141510161718
Note
772,31848,97166,691
-258,674
-8,1302,8457,852
-64,776
1,230,257
608,18423,291
1,4181,146,729
247,742-
2,027,3643,257,621
734,11050,13266,465
-217,852
-8,5842,847
11,095-
57,1921,148,277
493,39723,62210,723
766,770269,701
18,9681,583,1812,731,458
2007$’000
2006$’000
3,731--
219,98055,45215,000
-167
-59,462
-353,792
9,816--
97,54014,912
-122,268476,060
2006$’000
2007$’000
Group Company
277,12438,581
315,705-
315,705
12,30050,000
457--
62,757
22,688567
50,000-
73,255
136,012
451,717
1920
122113
222321
278,415314,888
593,303737,860
1,331,163
-70,578
2,087272290
73,227
1,286,12959,165
459,39748,540
1,853,231
1,926,458
3,257,621
277,124231,735
508,859661,282
1,170,141
-186,410
2,210294225
189,139
1,014,36446,589
281,35029,875
1,372,178
1,561,317
2,731,458
278,41541,328
319,743-
319,743
11,000-
457--
11,457
34,180640
110,040-
144,860
156,317
476,060
The accompanying notes form an integral part of these financial statements.
BALANCE SHEETSas at 31 December 2007
ANNUAL REPORT 2007| 35
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CONSOLIDATED INCOME STATEMENTYear ended 31 December 2007
RevenueCost of salesGross profit
Other (expenses) / incomeSelling and distribution expensesResearch and development expensesGeneral and administrative expensesProfit from operationsOther non-operating incomeFinance costsShare of profit / (loss) of associatesProfit before income taxIncome tax expenseProfit for the year
Attributable to:Equity holders of the CompanyMinority interests
Earnings per share (cents)
- Basic
- Diluted
24
25
2525
2526
27
Note
Group
3,233,178(2,480,711
752,467
(3,393(255,304
(38,521(224,567230,682
11,981(38,47625,423
229,610(40,359
189,251
95,42893,823
189,251
25.05
25.00
2007$’000
))))
)
)
)2,480,972(1,896,022
584,950
14,685(202,156
(36,877(169,148191,454
41,306(30,697
(475201,588(34,077
167,511
61,130106,381167,511
16.08
16.07
2006$’000
)
)))
)
)
)
The accompanying notes form an integral part of these financial statements.
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36| HONG LEONG ASIA LTD.
The
ac
co
mp
any
ing
no
tes
form
an
inte
gra
l pa
rt o
f the
se fi
nanc
ial s
tate
me
nts.
Tota
la
ttrib
uta
ble
to e
qui
tyho
lde
rso
f the
Co
mp
any
$’00
0
432,
980
(10,
680
38,0
70 255
27,6
4561
,130
88,7
75-
334 - -
(13,
230 -
508,
859) )
19 28No
te
75,9
83
- - - - - - -32
1 -
200,
820 - -
277,
124
Sha
rec
ap
ital
$’00
0
CO
NSO
LID
ATED
STA
TEM
ENT
OF
CH
ANG
ES IN
EQ
UITY
Yea
r end
ed
31
De
ce
mb
er 2
007
Sha
rep
rem
ium
$’00
0 )
200,
807 - - - - - - -
13
-
(200
,820
- - -
Sta
tuto
ryre
serv
e$’
000
14,6
09
- - - - - -2,
335 - - - - -
16,9
44
Fair
valu
ere
serv
e$’
000
5,60
3 -38
,070
-
38,0
70-
38,0
70- - - - - -
43,6
73
Equi
tyc
om
pe
n-sa
tion
rese
rve
$’00
0
374 - -
255
255 -
255 - - - - - -
629
Tra
nsla
tion
rese
rve
$’00
0
(20,
168
(10,
680 - -
(10,
680 -
(10,
680 - - - - - -
(30,
848) ) ) ) )
Ac
cum
ula
ted
pro
fits
$’00
0
190,
456 - - - -
61,1
30
61,1
30(2
,335
- - -
(13,
230 -
236,
021) )
Min
orit
yin
tere
sts
$’00
0
637,
113
(20,
200
32,9
68-
12,7
6810
6,38
1
119,
149 - -
(58,
873 - -
(36,
107
661,
282) ) )
Tota
le
qui
ty$’
000
1,07
0,09
3
(30,
880
71,0
38 255
40,4
1316
7,51
1
207,
924 -
334
(58,
873 -
(13,
230
(36,
107
1,17
0,14
1) ) )
)
Ca
pita
lre
serv
e$’
000
(34,
684 - - - - - - - - - - - -
(34,
684
At 1
Ja
nua
ry 2
006
Exch
ang
e d
iffer
ence
s on
trans
latio
n of
fina
ncia
lst
ate
men
ts o
f for
eig
nsu
bsid
iarie
s a
nd a
ssoc
iate
sN
et fa
ir va
lue
cha
nges
Cos
t of s
hare
-ba
sed
pa
ymen
tsN
et g
ain
s re
cog
nise
d d
irect
lyin
eq
uity
Prof
it fo
r the
yea
rTo
tal r
ecog
nise
d in
com
e a
ndex
pen
se fo
r the
yea
rTra
nsfe
r to
sta
tuto
ry re
serv
esSh
are
s iss
ued
dur
ing
the
yea
rAr
ising
from
ad
ditio
nal/d
ispos
al o
fin
vest
men
ts a
nd c
hang
esin
gro
up s
truct
ure
Trans
fer f
rom
sha
re p
rem
ium
acc
ount
to s
hare
ca
pita
lup
on im
ple
men
tatio
n of
the
Com
pa
nies
(Am
end
men
t) Ac
t 200
5D
ivid
end
s p
aid
tosh
are
hold
ers
Div
iden
ds
pa
id to
min
ority
sha
reho
lder
s of
sub
sidia
ries
At 3
1 D
ecem
ber
200
6
Gro
up
))
ANNUAL REPORT 2007| 37
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. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . . At 1
Ja
nua
ry 2
007
Exc
hang
e d
iffe
renc
es
on
trans
latio
n o
f fin
anc
ial
sta
tem
ent
s o
f fo
reig
nsu
bsid
iarie
s a
nd a
sso
cia
tes
Ne
t fa
ir va
lue
cha
nge
sC
ost
of s
hare
-ba
sed
pa
yme
nts
Ne
t ga
ins
rec
og
nise
d d
irec
tlyin
eq
uity
Pro
fit fo
r the
ye
ar
Tota
l re
co
gni
sed
inc
om
e a
nde
xpe
nse
for t
he y
ea
rTr
ans
fer t
o s
tatu
tory
rese
rve
sSh
are
s iss
ued
dur
ing
the
ye
ar
Purc
hase
of a
dd
itio
nal
sha
reho
ldin
g in
asu
bsid
iary
Rea
lisa
tion
of r
eva
lua
tion
rese
rve
on
disp
osa
l of
ava
ilab
le-fo
r-sa
lein
vest
me
nts
Div
ide
nds
pa
id to
sha
reho
lder
sD
ivid
end
s p
aid
to m
inor
itysh
are
hold
ers
ofsu
bsid
iarie
sAt
31
Dec
emb
er 2
007
19 28No
te
CO
NSO
LID
ATED
STA
TEM
ENT
OF
CH
ANG
ES IN
EQ
UITY
Yea
r end
ed
31
De
ce
mb
er 2
007
)
)
Tra
nsla
tion
rese
rve
$’00
0
(30,
848
1,02
7 - -
1,02
7 -
1,02
7 - - - - - -(2
9,82
1) )
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la
ttrib
uta
ble
to e
qui
tyho
lde
rso
f the
Co
mp
any
$’00
0
508,
859
1,02
724
,374 32
9
25,7
3095
,428
121,
158 -
1,29
1 -
(7,5
29
(30,
476 -
593,
303)
Min
orit
yin
tere
sts
$’00
0
661,
282
(7,5
702,
199 25
(5,3
4693
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88,4
77- -
(201
- -
(11,
698
737,
860) ) ))
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le
qui
ty$’
000
1,17
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(6,5
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8418
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1,29
1
(201
(7,5
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(30,
476
(11,
698
1,33
1,16
3
) ) )))
277,
124 - - - - - - -
1,29
1 - - - -27
8,41
5
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rec
ap
ital
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0
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rep
rem
ium
$’00
0
- - - - - - - - - - - - - -
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tuto
ryre
serv
e$’
000
16,9
44
- - - - - -3,
012 - - - - -
19,9
56
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valu
ere
serv
e$’
000
43,6
73
-24
,374
-
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24,3
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(7,5
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- -60
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tyc
om
pe
n-sa
tion
rese
rve
$’00
0
629 - -
329
329 -
329 - - - - - -
958
Ac
cum
ula
ted
pro
fits
$’00
0
236,
021 - - - -
95,4
28
95,4
28(3
,012
- - -
(30,
476 -
297,
961
)
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pita
lre
serv
e$’
000
(34,
684 - - - - - - - - - - - -
(34,
684
) )
))
Gro
up
The
ac
co
mp
any
ing
no
tes
form
an
inte
gra
l pa
rt o
f the
se fi
nanc
ial s
tate
me
nts.
. . . . . . . . . .
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. . . . . . . . . .
38| HONG LEONG ASIA LTD.
STAT
EMEN
T O
F C
HAN
GES
IN E
QUI
TYYe
ar e
nde
d 3
1 D
ec
em
be
r 200
7
At 1
Ja
nua
ry 2
006
Co
st o
f sha
re-b
ase
d p
aym
ent
sN
et f
air
valu
e c
hang
es
Ne
t (lo
sse
s)/g
ain
s re
co
gni
sed
dire
ctly
in e
qui
tyPr
ofit
for t
he y
ea
rTo
tal r
ec
og
nise
d in
co
me
and
exp
ens
e fo
r the
ye
ar
Sha
res
issue
d d
urin
g th
e y
ea
rTr
ans
fer f
rom
sha
re p
rem
ium
ac
co
unt t
o s
hare
ca
pita
l up
on
imp
lem
ent
atio
n o
f the
Co
mp
ani
es
(Am
end
me
nt) A
ct 2
005
Div
ide
nds
At 3
1 D
ec
em
be
r 200
6
At 1
Ja
nua
ry 2
007
Co
st o
f sha
re-b
ase
d p
aym
ent
sN
et f
air
valu
e c
hang
es
Ne
t ga
ins
rec
og
nise
d d
irec
tly in
eq
uity
Pro
fit fo
r the
ye
ar
Tota
l re
co
gni
sed
inc
om
e a
nd e
xpe
nse
for t
he y
ea
rSh
are
s iss
ued
dur
ing
the
ye
ar
Rea
lisa
tion
of r
eva
lua
tion
rese
rve
on
disp
osa
l of
ava
ilab
le-fo
r-sa
le in
vest
me
nts
Div
ide
nds
At 3
1 D
ec
em
be
r 200
7
19 28 19 28No
te
75,9
83- - - - -
321
200,
820 -
277,
124
277,
124 - - - - -
1,29
1 - -27
8,41
5
Sha
rec
ap
ital
$’00
0
Ca
pita
lre
serv
e$’
000
9,19
9 - - - - - - - -9,
199
9,19
9 - - - - - - - -9,
199
Equi
tyc
om
pe
n-sa
tion
rese
rve
$’00
0
322
156 -
156 -
156 - - -
478
478
360 -
360 -
360 - - -
838
Sha
rep
rem
ium
$’00
0
200,
807 - - - - -
13
(200
,820
- - - - - - - - - - - -)
Fair
valu
ere
serv
e$’
000 ) ) )
131 -
(13
(13 -
(13 - - -
118
118 - 4 4 - 4 -
(122
- -)
Ac
cum
ula
ted
pro
fits
$’00
0
4,48
1 - - -37
,535
37,5
35- -
(13,
230
28,7
86
28,7
86- - -
32,9
8132
,981
- -(3
0,47
631
,291
))
Tota
l$’
000
290,
923
156
(13
143
37,5
3537
,678 33
4 -(1
3,23
031
5,70
5
315,
705
360 4
364
32,9
8133
,345
1,29
1
(122
(30,
476
319,
743)))
Co
mp
any
The
ac
co
mp
any
ing
no
tes
form
an
inte
gra
l pa
rt o
f the
se fi
nanc
ial s
tate
me
nts.
)
ANNUAL REPORT 2007| 39
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. . . . . . . . . .
. . . . . . . . . .
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CONSOLIDATED CASH FLOW STATEMENT
The accompanying notes form an integral part of these financial statements.
Operating activities
Profit before income taxAdjustments for:Share of profit/(loss) of associatesAccretion of deferred grantsCost of share-based paymentsDepreciation and amortisationAllowance for impairment loss of property, plant and equipmentNegative goodwill arising from the acquisition of shares in an
associate and a subsidiaryGain on disposal/redemption of share in subsidiaries and
related businessesRestructuring costs of subsidiariesFinance costsDividend incomeInterest income(Gain)/loss on disposal of:- other investments- property, plant and equipmentProvisions for warranties and other costs, net
Changes in working capital:Inventories and work-in-progressTrade and other receivablesTrade and other payablesProvisions utilisedCash generated from operationsIncome taxes paidCash flows from operating activities
Investing activities
Additional investments in associatesAcquisition of subsidiaries and businesses, net of cash acquiredAcquisition of additional interest in a subsidiaryRepayment by related corporationsDividends received from:- associates- othersInterests receivedPurchase of:- property, plant and equipment- other investmentsPayment for prepaid operating leasesProceeds from disposal of:- subsidiaries, net of cash disposed- property, plant and equipment- other investments- assets held for saleCash flows from investing activities
Note2006$’000
2007$’000
229,610
(25,423(6
36054,18610,122
-
(5,141-
38,476(265
(4,254
(6,8402,082
62,419355,326
(109,369(514,835397,142(50,19278,072(28,49949,573
))
)
))
)
))
)
)
201,588
475(232156
36,8092,502
(31,815
(13,2243,733
30,697(278
(7,272
(513(697
49,789271,718
36,925(67,77966,368(46,209
261,023(10,845
250,178
)
)
)
))
))
)
)
Group
(49,376(96,314(86,211
4,924
1,511276
4,497
(120,347-
(17,377
20,8401,956
32,530-
(303,091
35
36
-(165(201865
5,340217
6,482
(115,053(272
1,471
2,1899,019
11,82818,089(60,191
) )) )
) ))
)
) )
)
)
Year ended 31 December 2007
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40| HONG LEONG ASIA LTD.
CONSOLIDATED CASH FLOW STATEMENTYear ended 31 December 2007
The accompanying notes form an integral part of these financial statements.
Financing activities
Dividends paid to:- minority shareholders of subsidiaries- shareholders of the CompanyInterest paidProceeds from borrowingsFixed deposits pledged with a bank
for banking facilitiesProceeds from share issuesRepayments in respect of trust receipts
and borrowingsCash flows from financing activities
Net decrease in cash and cash equivalentsCash and cash equivalents at
beginning of the yearEffect of exchange rate changes on
balances held in foreign currencyCash and cash equivalents at end of the year
Notes:
(i) Cash and bank balances totalling $214,117,000 (2006: $247,030,000) are held in countries which operate foreignexchange controls.
(ii) During the year, the Group refinanced and rolled over $50,000,000 (2006: $50,000,000) of medium term notes (seenote 21).
Note
17
Group
2006$’000
(36,107(13,230(22,729
451,582
(13,839334
(384,371(18,360
(71,273
329,890
(11,754246,863
)
)
)
)
)
)
))
2007$’000
(11,698(30,476(31,877
325,122
(7,8951,291
(295,548(51,081
(61,699
246,863
1,517186,681
))
)
))
)
)
ANNUAL REPORT 2007| 41
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NOTES TO THE FINANCIAL STATEMENTSYear ended 31 December 2007
These notes form an integral part of the financial statements.
The financial statements were authorised for issue by the Board of Directors on 28 March 2008.
1 Domicile and activities
Hong Leong Asia Ltd. (the Company) is incorporated in the Republic of Singapore with its registered office at 16Raffles Quay, #26-00 Hong Leong Building, Singapore 048581.
The principal activities of the Group and the Company have been those relating to the manufacturing and distributionof consumer products, diesel engines and related products, industrial packaging products, biodegradable productsand building materials, and of investment holding and dealing.
The consolidated financial statements relate to the Company and its subsidiaries (referred to as the Group) and theGroup’s interests in associates and a jointly-controlled entity.
The immediate and ultimate holding companies during the financial year are Hong Leong Corporation HoldingsPte Ltd and Hong Leong Investment Holdings Pte. Ltd., respectively. These companies are incorporated in theRepublic of Singapore.
2 Summary of significant accounting policies
2.1 Basis of preparation
The financial statements have been prepared in accordance with Singapore Financial Reporting Standards (FRS).
The financial statements have been prepared on the historical cost basis, except for certain property, plantand equipment, financial assets and financial liabilities which are stated at fair value.
The financial statements are presented in Singapore dollars which is the Company’s functional currency. All financialinformation presented in Singapore dollars has been rounded to the nearest thousand, unless otherwise stated.
The preparation of financial statements in conformity with FRS requires management to make judgements, estimatesand assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities,income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimatesare recognised in the period in which the estimates are revised and in any future periods affected.
In particular, information about significant areas of estimation uncertainty and critical judgements in applyingaccounting policies that have the most significant effect on the amount recognised in the financial statements isdescribed in the following notes:
• Note 3 – measurement of recoverable amounts of property, plant and equipment
• Note 5 – assumptions of recoverable amounts relating to trademarks impairment
• Note 23 – measurement of provisions and contingent liabilities
• Note 29 – measurement of share-based payments
• Note 32 – valuation of financial instruments
• Note 35 – valuation of assets, liabilities and contingent liabilities acquired in business combinations
The accounting policies set out below have been applied consistently by the Group. The accounting policiesused by the Group have been applied consistently to all periods presented in these financial statements.
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42| HONG LEONG ASIA LTD.
NOTES TO THE FINANCIAL STATEMENTS
2 Summary of significant accounting policies (cont’d)
2.2 Consolidation
Business Combinations
Business combinations carried out in group restructuring transactions involving related parties under common controlare accounted for under the historical cost method in a manner similar to the pooling of interests method.
All other business combinations are accounted for under the purchase method. The cost of an acquisition ismeasured at the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at thedate of exchange, plus costs directly attributable to the acquisition.
The excess of the Group’s interest in the net fair value of the identifiable assets, liabilities and contingentliabilities over the cost of acquisition is credited to the income statement in the period of the acquisition.
Subsidiaries
Subsidiaries are those companies controlled by the Group. Control exists when the Group has the power, directlyor indirectly, to govern the financial and operating policies of a company so as to obtain benefits from its activities.In assessing control, potential voting rights that are presently exercisable are taken into account. The financialstatements of subsidiaries are included in the consolidated financial statements from the date that control commencesuntil the date that control ceases. The accounting policies of subsidiaries have been changed where necessaryto align them with the policies adopted by the Group.
Associates
Associates are those companies in which the Group has significant influence, but not control, over the financialand operating policies. Significant influence is presumed to exist when the Group holds between 20% to 50% ofthe voting power of another entity.
The consolidated financial statements include the Group’s share of the total recognised gains and losses of associateson an equity accounted basis, from the date that significant influence commences until the date that significantinfluence ceases. The Group’s investments in associates include goodwill on acquisition. When the Group’s shareof losses exceeds the carrying amount of the associate, the carrying amount is reduced to nil and recognition offurther losses is discontinued except to the extent that the Group has incurred obligations in respect of the associate.
Jointly-controlled entities
Jointly-controlled entities are those enterprises over which activities the Group has joint control, established bycontractual agreement.
The consolidated financial statements include the Group’s proportionate share of the enterprises’ assets, liabilities,revenue and expenses with items of a similar nature on a line by line basis, from the date that joint control commencesuntil the date that joint control ceases.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income or expenses arising from intra-group transactions,are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions withequity accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidenceof impairment.
Accounting for subsidiaries, associates and joint ventures by the Company
Investments in subsidiaries, associates and joint ventures are stated in the Company’s balance sheet at cost lessaccumulated impairment losses.
ANNUAL REPORT 2007| 43
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NOTES TO THE FINANCIAL STATEMENTS
2 Summary of significant accounting policies (cont’d)
2.3 Foreign currencies
Foreign currency transactions
Transactions in foreign currencies are translated at the respective functional currencies of Group entities at theexchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies atthe reporting date are retranslated to the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslatedto the functional currency at the exchange rate at the date on which the fair value was determined.
Foreign currency differences arising on retranslation are recognised in the income statement, except for differencesarising on the retranslation of monetary items that in substance form part of the Group’s net investment in a foreignoperation (see below) and available-for-sale equity instruments.
Foreign operations
The assets and liabilities of foreign operations are translated to Singapore dollars at exchange rates prevailing atthe reporting date. The income and expenses of foreign operations are translated to Singapore dollars at exchangerates prevailing at the dates of the transactions. Goodwill and fair value adjustments arising on the acquisition of aforeign operation on or after 1 January 2005 are treated as assets and liabilities of the foreign operation and translatedat the closing rate. For acquisitions prior to 1 January 2005, the exchange rates at the date of acquisition were used.
Foreign currency differences are recognised in the foreign currency translation reserve. When a foreign operationis disposed of, in part or in full, the relevant amount in the foreign exchange translation reserve is transferred to theincome statement.
Net investment in a foreign operation
Exchange differences arising from monetary items that in substance form part of the Company’s net investment ina foreign operation are recognised in the Company’s income statement. Such exchange differences are reclassifiedto equity in the consolidated financial statements. When the foreign operation is disposed of, the cumulative amountin equity is transferred to the income statement as an adjustment to the profit or loss arising on disposal.
2.4 Property, plant and equipment
Owned assets
Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses.
Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructedassets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset toa working condition for its intended use, and the cost of dismantling and removing the items and restoring the siteon which they are located. Purchased software that is integral to the functionality of the related equipment iscapitalised as part of that equipment.
Subsequent expenditure
Subsequent expenditure relating to property, plant and equipment that has already been recognised is added tothe carrying amount of the asset when it is probable that future economic benefits, in excess of the originally assessedstandard of performance of the existing asset, will flow to the enterprise. All other subsequent expenditure is recognisedas an expense in the period in which it is incurred.
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44| HONG LEONG ASIA LTD.
NOTES TO THE FINANCIAL STATEMENTS
2 Summary of significant accounting policies (cont’d)
2.4 Property, plant and equipment (cont’d)
Depreciation
No depreciation is provided on freehold land. Construction-in-progress is not depreciated until it is ready for itsintended use. Depreciation is provided on a straight-line basis so as to write off the cost of other property, plantand equipment over their estimated useful lives (or lease term, if shorter) as follows:
Buildings - over the period of the lease ranging from3 to a maximum of 50 years
Leasehold improvements - 5 yearsPlant and machinery - 3 to 15 yearsOffice furniture, fittings and equipment - 5 to 10 yearsMotor and transport vehicles - 3 to 8 yearsQuarry site preparation costs - 2.5 to 8 years
Depreciation method, useful lives and residual values are reviewed, and adjusted as appropriate, at each reportingdate.
2.5 Investment properties
Investment property is property held either to earn rental income or capital appreciation or both. It does not includeproperties for sale in the ordinary course of business, used in the production or supply of goods or services, or foradministrative purposes.
Investment properties are initially recognised at cost and subsequently carried at cost less accumulated depreciationand impairment losses. Depreciation is recognised in the income statement on a straight-line basis over the estimateduseful lives of the investment properties. The estimated useful lives are 36 years. Depreciation method, useful livesand residual values of investment properties are reassessed at each reporting date.
On disposal of an investment property, the difference between the net disposal proceeds and the carrying amountis taken to the income statement.
2.6 Intangible assets
Goodwill
Goodwill represents the excess of the cost of acquisition over the Group’s interest in the net fair value of identifiablenet assets, liabilities and contingent liabilities of the acquiree. Goodwill is measured at cost less accumulatedimpairment losses. Goodwill arising from the acquisition of subsidiaries is presented as intangible assets. Goodwillarising from the acquisition of associates is presented together with interests in associates.
Goodwill/negative goodwill previously written off against reserves
Goodwill that has previously been taken to reserves is not taken to the income statement when
(a) the business is disposed of; or
(b) when the goodwill is impaired.
Similiarly, negative goodwill that has previously been taken to reserves is not taken to the income statement whenthe business is disposed of.
ANNUAL REPORT 2007| 45
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NOTES TO THE FINANCIAL STATEMENTS
2 Summary of significant accounting policies (cont’d)
2.6 Intangible assets (cont’d)
Acquisition of minority interest
Goodwill represents the excess of the additional investment over the Group’s additional interest in the net fair valueof the identifiable net assets, liabilities and contingent liabilities at the date of exchange. The excess of the netassets, liabilities and contingent liabilities over the carrying value in respect of the Group’s existing interest is recordedas a fair value adjustment and taken to equity.
Research and development expenses
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledgeand understanding, is recognised in the income statement as an expense when incurred.
Development activities involve a plan or design for the production of new or substantially improved products andprocesses. Development expenditure is capitalised only if development costs can be measured reliably, the productor process is technically and commercially feasible, future economic benefits are probable and the Group intendsto and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalisedincludes the cost of materials, direct labour and overhead cost directly attributable to prepare the assets for itsintended use. Other development expenditure is recognised in the income statement as an expense when incurred.Capitalised development expenditure is stated at cost less accumulated amortisation and impairment losses.
Capitalised research and development expenditure is stated at cost less accumulated amortisation and impairmentlosses. Amortisation is charged to the income statement using the straight-line method over the estimated usefullives of not more than 20 years, commencing from the date the asset is available for use.
Trademarks
Trademarks acquired are treated as having indefinite useful lives not amortised until their useful lives are determinedto be finite.
Subsequent expenditure
Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economicbenefits embodied in the specific asset to which it relates. All other expenditure is expensed when incurred.
2.7 Financial instruments
Non-derivative financial instruments
Non-derivative financial instruments comprise investments in equity and debt securities, trade and other receivables,cash and cash equivalents, financial liabilities, and trade and other payables.
Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value throughprofit or loss, any directly attributable transaction costs. Subsequent to initial recognition, non-derivative financialinstruments are measured as described below.
A financial instrument is recognised if the Group becomes a party to the contractual provisions of the instrument.Financial assets are derecognised if the Group’s contractual rights to the cash flows from the financial assets expireor if the Group transfers the financial asset to another party without retaining control or transfers substantially all therisks and rewards of the asset. Regular way purchases and sales of financial assets are accounted for at trade date,ie, the date that the Group commits itself to purchase or sell the asset. Financial liabilities are derecognised if theGroup’s obligations specified in the contract expire or are discharged or cancelled.
Cash and cash equivalents comprise cash balances and bank deposits. Bank overdrafts that are repayable ondemand and that form an integral part of the Group’s cash management are included as a component of cashand cash equivalents for the purpose of the cash flow statement.
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46| HONG LEONG ASIA LTD.
NOTES TO THE FINANCIAL STATEMENTS
2 Summary of significant accounting policies (cont’d)
2.7 Financial instruments (cont’d)
Available-for-sale financial assets
The Group’s investments in equity securities are classified as available-for-sale financial assets. Subsequent to initialrecognition, they are measured at fair value and changes therein, other than for impairment losses, and foreignexchange gains and losses on available-for-sale monetary items, are recognised directly in equity. When aninvestment is derecognised, the cumulative gain or loss in equity is transferred to the income statement.
Others
Other non-derivative financial instruments are measured at amortised cost using the effective interest method, lessany impairment losses.
Impairment of financial assets
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it isimpaired. A financial asset is considered to be impaired if objective evidence indicates that one or more eventshave had a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the differencebetween its carrying amount, and the present value of the estimated future cash flows discounted at the originaleffective interest rate. An impairment loss in respect of an available-for-sale financial asset is calculated by referenceto its current fair value.
Individually significant financial assets are tested for impairment on an individual basis. The remaining financialassets are assessed collectively in groups that share similar credit risk characteristics.
All impairment losses are recognised in the income statement. Any cumulative loss in respect of an available-for-sale financial asset recognised previously in equity is transferred to the income statement.
Impairment losses in respect of financial assets measured at amortised cost and available-for-sale debt securitiesare reversed if the subsequent increase in fair value can be related objectively to an event occurring after theimpairment loss was recognised.
Impairment losses once recognised in the income statement in respect of available-for-sale equity securities arenot reversed through the income statement. Any subsequent increase in fair value of such assets is recogniseddirectly in equity.
Intra-group financial guarantees
Financial guarantees are financial instruments issued by the Group that requires the issuer to make specified paymentsto reimburse the holder for the loss it incurs because a specified debtor fails to meet payment when due inaccordance with the original or modified terms of a debt instrument. Financial guarantees are recognised initiallyat fair value and are classified as financial liabilities. Subsequent to initial measurement, the financial guaranteesare stated at the higher of the initial fair value less cumulative amortisation and the amount that would be recognisedif they were accounted for as contingent liabilities. When financial guarantees are terminated before their originalexpiry date, the carrying amount of the financial guarantees is transferred to the income statement.
Share capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deductionfrom equity, net of any tax effects.
ANNUAL REPORT 2007| 47
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NOTES TO THE FINANCIAL STATEMENTS
2 Summary of significant accounting policies (cont’d)
2.8 Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the weighted averagecost formula and comprises all costs of purchase, costs of conversion and other costs incurred in bringing theinventories to their present location and condition. In the case of manufactured inventories and work-in-progress,cost includes an appropriate share of production overheads based on normal operating capacity. Net realisablevalue is the estimated selling price in the ordinary course of business, less the estimated costs of completion andselling expenses.
2.9 Development properties
Development properties are those properties which are held with the intention of development and sale in theordinary course of business. They are stated at the lower of cost plus, where appropriate, a portion of attributableprofit, and estimated net realisable value, net of progress billings. Net realisable value represents the estimatedselling price less costs to be incurred in selling the properties.
The cost of properties under development comprise specifically identified costs, including acquisition costs,development expenditure, borrowing costs and other related expenditure. Borrowing costs payable on loans fundinga development property are also capitalised, on a specific identification basis, as part of the costs of the developmentproperty until the completion of development.
2.10 Impairment – non-financial assets
The carrying amounts of the Group’s non-financial assets are reviewed at each reporting date to determine whetherthere is any indication of impairment. If any such indication exists, the assets’ recoverable amounts are estimated.For goodwill, recoverable amount is estimated at each reporting date, and as and when indicators of impairmentare identified.
An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its estimatedrecoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows thatlargely are independent from other assets and groups. Impairment losses are recognised in the income statementunless it reverses a previous revaluation, credited to equity, in which case it is charged to equity. Impairment lossesrecognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwillallocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on apro rata basis.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value lesscosts to sell. In assessing value in use, the estimated future cash flows are discounted to their present value usinga pre-tax discount rate that reflects current market assessments of the time value of money and the risks specificto the asset or cash-generating unit.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognisedin prior periods are assessed at each reporting date for any indications that the loss has decreased or no longerexists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverableamount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed thecarrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss hadbeen recognised.
2.11 Employee benefits
Defined contribution plans
Obligations for contributions to defined contribution pension plans are recognised as an expense in the incomestatement as incurred.
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48| HONG LEONG ASIA LTD.
NOTES TO THE FINANCIAL STATEMENTS
2 Summary of significant accounting policies (cont’d)
2.11 Employee benefits (cont’d)
Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the relatedservice is provided.
A provision is recognised for the amount expected to be paid under short-term cash bonus if the Group has apresent legal or constructive obligation to pay this amount as a result of past service provided by the employeeand the obligation can be estimated reliably.
Share-based payments
The share option programme allows Group employees to acquire shares of the Company. The fair value of optionsgranted is recognised as an employee expense with a corresponding increase in equity. The fair value is measuredat grant date and spread over the period during which the employees become unconditionally entitled to theoptions.
At each balance sheet date, the Group revises its estimates of the number of options that are expected to becomeexercisable. It recognises the impact of the revision of original estimates in employee expense with a correspondingadjustment to equity over the remaining vesting period.
2.12 Provisions
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation thatcan be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle theobligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflectscurrent market assessments of the time value of money and the risks specific to the liability.
Claims
A provision for claims is recognised when delays arise or complaints from customers are received as the contractprogresses. The provision is made based on management estimates from prior experience on similar projects withcustomers.
Warranties
A provision for warranties is recognised when the underlying products or services are sold. The provision is basedon historical warranty data and a weighting of all possible outcomes against their associated probabilities.
Costs incurred are charged against the provision and any over or under provision is recognised in the incomestatement.
Restructuring
A provision for restructuring is recognised when a detailed and formal restructuring plan has been approved, andthe restructuring has either commenced or has been announced publicly. Costs relating to ongoing activities arenot provided for.
Onerous contracts
A provision for onerous contracts is recognised when the unavoidable costs of meeting the obligations under acontract exceed the economic benefits expected to be received under it.
ANNUAL REPORT 2007| 49
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NOTES TO THE FINANCIAL STATEMENTS
2 Summary of significant accounting policies (cont’d)
2.13 Income recognition
Sale of goods
Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net ofreturns and allowances, trade discounts and volume rebates. Revenue is recognised when the significant risks andrewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associatedcosts and possible return of goods can be estimated reliably, and there is no continuing management involvementwith the goods and the amount of revenue can be measured reliably.
Transfers of risks and rewards vary depending on the individual terms of the contract of sale. For the sale of goods,transfer usually occurs when the product is received at the customer’s premises.
Rendering of services
Revenue from rendering of services relates to construction and project management contracts, commercial/homerepair works and maintenance, hotel room and restaurant operations, and IT and computer operations.
Revenue is recognised over the period in which the services are rendered, by reference to completion of the specifictransaction assessed on the basis of the actual service provided as a proportion of the total services to be performed.
Development properties for sale
The Group recognises income on property development projects when the risks and rewards of ownership havebeen transferred to the buyer through either the transfer of legal title or an equitable interest in a property. In caseswhere the Group is obliged to perform any significant acts after the transfer of legal title or an equitable interest,revenue is recognised as the acts are performed based on the percentage of completion method underRecommended Accounting Practice (RAP) 11 Pre-completion Contracts for the Sale of Development Property issuedby the Institute of Certified Public Accountants of Singapore in October 2005. Under RAP 11, when (a) constructionis beyond a preliminary stage, (b) minimum down payment criteria are met, (c) sales prices are collectible, and(d) aggregate sales proceeds and costs can be reasonably estimated, the percentage of completion method isan allowed alternative. If any of the above criteria are not met, pre-completion proceeds received are accountedfor as deposits until such criteria are met.
Under the percentage of completion method, the percentage of completion is measured by reference to the workperformed, based on the ratio of costs incurred to date to the estimated total costs for each contract. Profits arerecognised only in respect of finalised sales agreements to the extent that such profits relate to the progress of theconstruction work.
Rental income
Rental income receivable under operating leases is recognised in the income statement on a straight-line basisover the term of the lease. Lease incentives granted are recognised as an integral part of the total rental incometo be received. Contingent rentals are recognised as income in the accounting period in which they are earned.
Dividends
Dividend income from unquoted investments is recognised when the shareholder’s right to receive payment isestablished.
Dividend income from quoted investments is recognised when dividends are received.
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50| HONG LEONG ASIA LTD.
2 Summary of significant accounting policies (cont’d)
2.13 Income recognition (cont’d)
Interest income
Interest income is recognised as it accrues, using the effective interest method.
2.14 Operating leases
Prepaid operating leases
The Group leases land under operating leases and the leases run for a period of 15 to 60 years. The upfrontpayments made under the leases are amortised to the income statement on a straight-line basis over the term ofthe leases. The amortisation amount is included in operating lease expenses.
Other operating leases
Where the Group has the use of assets under operating leases, payments made under the leases are charged tothe income statement on a straight-line basis over the term of the lease. Lease incentives received are recognisedin the income statement as an integral part of the aggregate net lease payments made. Contingent rentals arecharged to the income statement in the accounting period in which they are incurred.
2.15 Finance costs
Finance costs comprise interest expense and bank charges.
All interest expense are recognised in the income statement using the effective interest method, except to the extentthat they are capitalised as being directly attributable to the acquisition, construction or production of an assetwhich necessarily takes a substantial period of time to get ready for its intended use or sale. Bank charges arerecognised in the income statement in the period in which they are incurred.
2.16 Deferred grants
Grants received for investment in machinery and equipment used for the manufacture of non-chlorofluorocarbon(non-CFC) refrigerators are recorded as deferred income and taken to income over the same period over whichthe machinery and equipment are being depreciated.
NOTES TO THE FINANCIAL STATEMENTS
ANNUAL REPORT 2007| 51
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2 Summary of significant accounting policies (cont’d)
2.17 Income tax expense
Income tax expense comprises current and deferred tax. Income tax expense is recognised in the income statementexcept to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantivelyenacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognised using the balance sheet method, providing for temporary differences between thecarrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill, the initialrecognition of assets or liabilities in a transaction that is not a business combination and that affects neither accountingnor taxable profit, and differences relating to investments in subsidiaries and joint ventures to the extent that it isprobable that they will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that areexpected to be applied to the temporary differences when they reverse, based on the laws that have been enactedor substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legallyenforceable right to offset current tax liabilities and assets and they relate to income taxes levied by the same taxauthority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities andassets on a net basis or their tax assets and liabilities will be realised simultaneously.
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available againstwhich temporary differences can be utilised. Deferred tax assets are reviewed at each reporting date and arereduced to the extent that it is no longer probable that the related tax benefit will be realised.
NOTES TO THE FINANCIAL STATEMENTS
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52| HONG LEONG ASIA LTD.
NO
TES
TO T
HE F
INAN
CIA
L ST
ATEM
ENTS
3Pr
op
ert
y, p
lant
and
eq
uip
me
nt
Co
stAt
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anu
ary
200
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ans
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n d
iffe
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es
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rsa
l of d
ep
rec
iatio
n o
nfa
ir va
lue
ad
just
me
ntAd
diti
ons
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nsfe
rsD
ispo
sals
Writ
e-o
ffAc
qui
sitio
n o
f sub
sidia
ry a
ndm
ino
rity
inte
rest
Disp
osa
l of s
ubsid
iary
Fair
valu
e a
dju
stm
ent
Asse
ts re
cla
ssifi
ed
as
held
for s
ale
At 3
1 D
ec
em
be
r 200
6
Co
stAt
1 J
anu
ary
200
7Tr
ans
latio
n d
iffe
renc
es
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itio
nsTr
ans
fers
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osa
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rite
-off
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ec
em
be
r 200
7
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up
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28
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28- - - - -
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hold
land
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7,93
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22
-3,
084 - - - - - - -
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00
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00(6
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235 - - -
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rry s
itep
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ara
tion
cost
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966
(13,
596
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102
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,880
(27,
284 -
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490
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4(1
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0
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ts$’
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)
ANNUAL REPORT 2007|53
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. . . . . . . . . . NO
TES
TO T
HE F
INAN
CIA
L ST
ATEM
ENTS
3Pr
op
ert
y, p
lant
and
eq
uip
me
nt (c
ont
’d)
Ac
cum
ula
ted
de
pre
cia
tion
and
imp
airm
ent
loss
es
At 1
Ja
nua
ry 2
006
Tra
nsla
tion
diff
ere
nce
sRe
vers
al o
f de
pre
cia
tion
on
fair
valu
e a
dju
stm
ent
Cha
rge
for t
he y
ea
rIm
pa
irme
nt lo
ssD
Ispo
sals
Writ
e-o
ffD
ispo
sal o
f sub
sidia
ryAt
31
De
ce
mb
er 2
006
At 1
Ja
nua
ry 2
007
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nsla
tion
diff
ere
nce
sC
harg
e fo
r the
ye
ar
Imp
airm
ent
loss
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osa
lsW
rite
-off
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1 D
ec
em
be
r 200
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rryi
ng a
mo
unt
At 1
Ja
nua
ry 2
006
At 3
1 D
ec
em
be
r 200
6At
31
De
ce
mb
er 2
007
Gro
up
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8365
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45,3
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stru
ctio
n-in
-pro
gre
ss$’
000
1,16
6 - - - - - - -1,
166
1,16
6 - - - - -1,
166
11,1
6211
,162
11,1
62
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hold
land
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0
39,8
16(2
,029
(15,
102
13,1
74 651
(13,
127 -
(3,1
2820
,255
20,2
55 534
14,5
68-
(3,1
46 (66
32,1
45
221,
150
316,
165
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915
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ing
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(58 - -
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981,
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(598
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729 - - -
8,55
7
2,86
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948
3,35
7
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rry s
itep
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tion
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55,1
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(40,
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239,
097
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724
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nt a
ndm
ach
iner
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1 -(1
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(56
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ort
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125,
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(8,7
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)
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54| HONG LEONG ASIA LTD.
NOTES TO THE FINANCIAL STATEMENTS
3 Property, plant and equipment (cont’d)
CostAt 1 January 2006AdditionsDisposalsAt 31 December 2006
At 1 January 2007AdditionsDisposalsAt 31 December 2007
Accumulated depreciationAt 1 January 2006Charge for the yearDisposalsAt 31 December 2006
At 1 January 2007Charge for the yearDisposalsAt 31 December 2007
Carrying amountAt 1 January 2006At 31 December 2006At 31 December 2007
Company
Certain property, plant and equipment of the Group have been pledged as security for banking facilities as setout in Note 21.
During the year, interest expense of approximately $2,218,000 (2006: $3,378,000) was capitalised by the Groupas cost of construction-in-progress. The capitalisation rate was based on the cost of borrowings of 4.41% (2006:4.87%) per annum.
Impairment
In 2007, the Group recorded an impairment loss of $4,995,000 on plant and machinery of a subsidiary whichcontinued to suffer losses. The carrying amount of the assets was reduced to their recoverable amounts. Theestimates of recoverable amount were based on the value in use of the plant and machinery, and determinedusing a discount rate of 14%.
19,2332,013(189
21,057
21,057350
(1,18720,220
15,923922(170
16,675
16,675974
(1,16016,489
3,3104,3823,731
Total$’000
1,074352(52
1,374
1,3746
(901,290
814140(50
904
904137(77
964
260470326
Motor andtransportvehicles
$’000
1,789252(27
2,014
2,014248(382
1,880
1,513130(20
1,623
1,623147(382
1,388
276391492
Officefurniture,
fittings andequipment
$’000
8,2161,340(110
9,446
9,44650
(6468,850
7,257365(100
7,522
7,522374(645
7,251
9591,9241,599
Plant andmachinery
$’000
9469
–163
163–
(3160
3623
–59
5936
–95
5810465
Leaseholdimprove-
ments$’000
8,060––
8,060
8,06046(66
8,040
6,303264
–6,567
6,567280(56
6,791
1,7571,4931,249
Buildings$’000
))))
))))))
))))
)))))
ANNUAL REPORT 2007|55
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NOTES TO THE FINANCIAL STATEMENTS
3 Property, plant and equipment (cont’d)
Impairment (cont’d)
Due to the disruptions of operations in a subsidiary, the Group performed an impairment review to assess therecoverable amount of certain plant and machinery. The Group has recognised an impairment loss of $5,253,000based on the value in use of the plant and machinery.
In 2006, as a result of a restructuring of the operations of a subsidiary, the Group assessed the recoverable amountof certain land and buildings and plant and machinery. The Group had recognised an impairment loss of $2,502,000on the basis of the estimated fair value less cost to sell.
The impairment losses were charged to the “other (expenses)/income” in the income statement.
4 Prepaid operating leases
Long-term prepaid operating leases comprises upfront lumpsum payments made for long-term land leases.
5 Intangibles
Group
CostAt 1 January 2006Acquisitions through
business combinationsAdditionsAt 31 December 2006
At 1 January 2007Translation differencesAdditionsAt 31 December 2007
Accumulated amortisationand impairment losses
At 1 January 2006Amortisation charge for the yearAt 31 December 2006
At 1 January 2007Translation differencesAmortisation charge for the yearAt 31 December 2007
Carrying amountAt 1 January 2006At 31 December 2006
At 1 January 2007At 31 December 2007
2,875
62,6971,116
66,688
66,68813
39767,098
(59(164(223
(22322
(206(407
2,81666,465
66,46566,691
Total$’000
1,338
––
1,338
1,338––
1,338
–––
––––
1,3381,338
1,3381,338
Goodwill$’000
–
62,697–
62,697
62,697––
62,697
–––
––––
–62,697
62,69762,697
Trademarks$’000
1,537
–1,1162,653
2,65313
3973,063
(59(164(223
(22322
(206(407
1,4782,430
2,4302,656
Patents anddevelopment
expenditure$’000
)))
)
))
)))
)
))
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56| HONG LEONG ASIA LTD.
NOTES TO THE FINANCIAL STATEMENTS
5 Intangibles (cont’d)
Trademarks relate to the Group’s consumer product segment which has been identified as a separate cashgenerating unit for impairment testing purposes.
The recoverable amount of trademarks was determined based on their value in use. The recoverable amount oftrademarks was computed based on the following assumptions:
• The anticipated benefits from the trademarks were estimated using the Royalty-Relief-Method over 20 years;
• The anticipated annual growth of revenue included in the projected benefits was 3% for first 10 years and 2%for the next 10 years;
• The royalty income generated from the trademarks was estimated at 1.00% of revenue; and
• Discount rate of 12.5% was used to determine the value of the trademarks.
The values assigned to the key assumptions represent management’s assessment of future benefits that canbe derived from the trademarks and are based on both external sources and internal sources. At the balancesheet date, management believes that the recoverable amount exceeds the carrying amount.
6 Investments in subsidiaries
Details of significant subsidiaries of the Group are as follows:
Name of subsidiaries
China Yuchai International Limited
Dongguan Rex Packaging Company Limited
GPac Technology (S) Pte. Ltd.
Guangxi Yuchai Machinery Company Limited
Guangxi Yulin Yuchai Machinery Spare PartsManufacturing Company Limited
Hayford Holdings Sdn. Bhd.
Place ofincorporation
Bermuda
The People’s Republic of China
Singapore
The People’s Republic of China
The People’s Republic of China
Malaysia
Effectiveequityinterest
2007%
21.23
100
100
16.22
15.76
100
2006%
21.23
100
100
16.22
15.76
100
Unquoted equity shares, at costImpairment loss
2007$’000
222,732(2,752
219,980
2006$’000
222,732(2,752
219,980)
Company
)
ANNUAL REPORT 2007|57
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NOTES TO THE FINANCIAL STATEMENTS
6 Investments in subsidiaries (cont’d)
Name of subsidiaries
Henan Xinfei Electric Co., Ltd.
Henan Xinfei Household Appliance Co., Ltd.
Henan Xinfei Refrigeration Appliances Co., Ltd.
HL Karimun Granite Pte Ltd (2)
HL Technology Systems Pte Ltd
HLG Enterprise Limited (HLGE) (1)
HL-Manufacturing Industries Sdn. Bhd.
Hong Leong (China) Limited
Hong Leong Electric Pte Ltd
Island Concrete (Private) Limited (2)
Karimun Granite (Singapore) Pte Ltd
PT. Karimun Granite
Qian Hong Packaging Company Limited
Rex Holdings Pte Ltd
Rex Plastics (Malaysia) Sdn. Bhd.
Rexpak Sdn. Bhd.
Shanghai Rex Packaging Co., Ltd.
Tianjin Rex Packaging Co., Ltd.
Xiamen Yuchai Diesel Engines Co., Ltd.
Yuchai Express Guarantee Co., Ltd.
Yuchai Machinery Monopoly Company Limited
Place ofincorporation
The People’s Republic of China
The People’s Republic of China
The People’s Republic of China
Singapore
Singapore
Singapore
Malaysia
Singapore
Singapore
Singapore
Singapore
Indonesia
Hong Kong
Singapore
Malaysia
Malaysia
The People’s Republic of China
The People’s Republic of China
The People’s Republic of China
The People’s Republic of China
The People’s Republic of China
Effectiveequityinterest
2007%
90
90
90
100
100
9.64
100
100
100
82.38
80
80
100
100
70
100
55
55
16.22
12.48
11.65
2006%
90
90
90
100
100
9.64
100
100
100
82.38
80
80
100
100
70
100
55
55
16.22
12.48
11.65
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58| HONG LEONG ASIA LTD.
NOTES TO THE FINANCIAL STATEMENTS
6. Investments in subsidiaries (cont’d)
KPMG Singapore is the auditor of all significant Singapore-incorporated subsidiaries. Other member firms of KPMGInternational are auditors of significant foreign-incorporated subsidiaries except for PT. Karimun Granite and KarimunGranite (Singapore) Pte Ltd which are audited by Hans Tuanakotta Mustofa & Halim, a member firm of DeloitteTouche Tohmatsu and Deloitte & Touche Singapore respectively.
(1) Having regard to the potential voting rights attributable to the preference shares in HLGE, the Group considersHLGE a subsidiary, as it is able to govern the financial and operating policies of HLGE.
(2) In 2006, the financial performance and positions of these subsidiaries had improved. As a result, the Companyre-assessed the recoverable amounts of its investments in these subsidiaries. Based on these assessments,reversal of impairment loss of $10,297,000 was recognised in the Company’s income statement under “otheroperating expenses”.
The recoverable amounts of the investments in these subsidiaries were estimated based on the estimated netselling price of the subsidiaries.
7 Interests in associates
Investments in associates- quoted- unquoted
Impairment loss
Market value of quotedequity shares
Group Company
2007$’000
21,40537,96459,369(3,917
55,452
29,544
2006$’000
21,40540,36461,769(6,543
55,226
22.808
2007$’000
199,24059,434
258,674-
258,674
190,935
2006$’000
179,66638,186
217,852-
217,852
158,857
) )
Impairment loss and subsequent reversal
In 2007, as a result of the improved performance of an associate, the Company re-assessed the recoverableamounts of its investment in the associate. Based on the reassessment, a reversal of impairment loss of $2,626,000(2006: $3,500,000) was recognised in the Company’s income statement under “other (expenses)/income”.
The recoverable amount of the investment in this associate was estimated based on the estimated net selling priceof the associate.
ANNUAL REPORT 2007| 59
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NOTES TO THE FINANCIAL STATEMENTS
7 Interests in associates (cont’d)
Details of associates are as follows:
Held by the Company
Singapore Cement ManufacturingCompany (Private) Limited
Singapore Cement IndustrialCompany (Private) Limited
Held by the Group
PT. Rexplast
Tasek Corporation Berhad
Thakral Corporation Ltd
Storage, packaging anddistribution of cement
Investment holding
Manufacture anddistribution ofcomponent, plasticpackaging productsfor industrial andhousehold use
Manufacture and saleof cement and relatedproducts
Investment holding
Equityinterest
2007%
50
50
49.01
31.88
7.31
2006%
50
50
49.01
31.99
7.77
Singapore
Singapore
Indonesia
Malaysia
Singapore
Place ofincorporation/businessPrincipal activitiesName of associates
KPMG Singapore is the auditor of all significant Singapore-incorporated associates. Other member firms of KPMGInternational are auditors of significant foreign-incorporated associates except for PT. Rexplast and Thakral CorporationLtd and its subsidiaries which are audited by Purwantono, Sarwoko & Sandjaja, a member firm of Ernst & YoungGlobal, and Deloitte & Touche Singapore respectively.
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60| HONG LEONG ASIA LTD.
NOTES TO THE FINANCIAL STATEMENTS
7 Interests in associates (cont’d)
Summarised financial information of the associates, which is not adjusted for the percentage of ownership held bythe Group, is as follows:
8 Interest in jointly-controlled entity
Unquoted equity shares, at cost
2007$’000
15,000
2006$’000
15,000
Company
Particulars of the jointly-controlled entity are as follows:
Held by the Company
Angkasa Hong Leong Pte. Ltd.*
Equityinterest
2007%
50
2006%
50Singapore
Place ofincorporation/business
Steel traders, steelfabricators and dealersin building materials
Principal activitiesName of jointly-controlledentity
* Audited by Ernst & Young Singapore
Assets and liabilities
Total assetsTotal liabilities
Results
RevenueProfit/(loss) after income tax
Group’s share of the associates’ contingent liabilities
2007$’000
858,258(36,101
533,62681,546
(44
2006$’000
715,960(135,898
438,954(436
(115
) )
)
) )
ANNUAL REPORT 2007| 61
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NOTES TO THE FINANCIAL STATEMENTS
8 Interest in jointly-controlled entity (cont’d)
The Group’s share of the jointly-controlled entity’s results, assets and liabilities is as follows:
Results
RevenueExpenses(Loss)/profit before taxationTaxation(Loss)/profit after taxation
Assets and Liabilities
Non-current assetsCurrent assetsCurrent liabilitiesNon-current liabilitiesNet assets
The Group’s share of operating lease commitments and forward foreign exchange contract commitments is$5,260,000 (2006: $5,512,000) and $7,344,000 (2006: $11,430,000) respectively.
9 Investment properties
Movements in investment properties (non-current) during the financial year are as follows:
CostAt 1 JanuaryAssets acquired in business combinationTranslation differencesAt 31 December
Accumulated depreciationAt 1 JanuaryCharge for the yearAt 31 December
Carrying amountAt 1 JanuaryAt 31 December
Market value
Group
2007$’000
50,651(51,328
(677(223(900
5,39237,910(28,109
(42314,770
)
))
)
))
2006$’000
41,591(39,727
1,864(239
1,625
5,09525,539(14,280
(48215,872
)
)
))
2006$’000
–8,584
–8,584
–––
–8,584
8,584
Group
2007$’000
8,584–
(3078,277
–147147
8,5848,130
8,483
)
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62| HONG LEONG ASIA LTD.
NOTES TO THE FINANCIAL STATEMENTS
9 Investment properties (cont’d)
The commercial property is leased to external customers. Each of the lease are for periods of one to two years.Subsequent renewals are negotiated with the lessee.
A valuation was performed on 26 December 2007 by Henry Butcher Malaysia, a firm of independent professionalvaluers that has appropriate recognised professional qualifications and recent experience in the location andcategory of the properties being valued. The fair value is based on market value, being the estimated amount forwhich a property could be exchanged on the date of the valuation between a willing buyer and a willing seller inan arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudentlyand without compulsion.
10 Other investments
Non-current
Quoted equity securities available-for-sale- related corporations- other companies
Unquoted equity securities- other companies
Current
Quoted equity securities available-for-sale- related corporations
11 Non-current receivables
The non-trade amounts due from joint venture partners are unsecured and not expected to be repaid within thenext 12 months. The effective interest rate as at balance sheet date is 7.15% (2006: 6.77%) per annum. At thebalance sheet date, the carrying amounts of the non-current receivables approximate their fair values.
12 Non-trade balances with subsidiaries
Amounts due from subsidiariesAmount due to a subsidiary
The amounts due from subsidiaries are non-trade in nature and unsecured. The settlement of these amounts areneither planned nor likely to occur in the foreseeable future. As these amounts are, in substance, a part of theCompany’s net investments in the subsidiaries, these are stated at cost less accumulated impairment. Included inthis amount is $44,266,000 (2006: $44,807,000) which bears interest at rates ranging from 2.0% to 5.96% (2006:2.0% to 6.05%) per annum.
The amount due to a subsidiary is non-trade, unsecured and bears interest at 3.05% (2006: 4%) per annum.
Group Company
2007$’000
–167167
–167
–
2006$’000
–137137
–137
–
2007$’000
1,075185
1,260
1,5852,845
1,418
2006$’000
1,087165
1,252
1,5952,847
10,723
2007$’000
59,462(11,00048,462
)
2006$’000
60,150(12,30047,850
Company
)
ANNUAL REPORT 2007| 63
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13 Deferred tax
Movements in deferred tax assets and liabilities (prior to offsetting of balances) during the year are as follows:
Group
Deferred tax liabilities
Property, plant and equipmentOther receivablesOther itemsTotal
Deferred tax assets
Property, plant and equipmentInventoriesIntangiblesTrade and other receivablesProvisionsAccrualsTax value of loss carried forwardOther itemsTotal
Group
Deferred tax liabilities
Property, plant and equipmentOther itemsTotal
Deferred tax assets
Property, plant and equipmentInventoriesIntangiblesTrade and other receivablesProvisionsAccrualsTax value of loss carried forwardOther itemsTotal
At31 December
2006$’000
(1,021–
(290(1,311
16,5594,209
1079,4754,371
17,8433,072
65756,293
At1 January
2007$’000
(1,021(290
(1,311
16,5594,209
1079,4754,371
17,8433,072
65756,293
Recognisedin incomestatement
$’000
512677
(6,265(2,285
(733,804
(10712,912
(167(279
7,540
Acquired/(Disposed)
$’000
–––
–––––––––
Translationdifferences
$’000
5(858(853
(8232
17631
15812
715943
At31 December
2007$’000
(965(1,122(2,087
10,2121,956
3513,355
4,29530,913
2,9171,093
64,776
))
)
At1 January
2006$’000
(5,742(858(851
(7,451
32,341676
1,35614,451
5,9529,5563,060
–67,392
Recognisedin incomestatement
$’000
3,607854
1,0645,525
(15,0303,640(1,243(4,641(1,3908,954
232683
(8,795
Acquired/(Disposed)
$’000
1,1074
(502609
(334–––––––
(334
Translationdifferences
$’000
7–
(16
(418(107
(6(335(191(667(220
(26(1,970
)
))
)
)
)
)))
)
)
)
)
)))
)
)))
)
)
))
))
)
))
))
)
))
)
NOTES TO THE FINANCIAL STATEMENTS
)
)
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64| HONG LEONG ASIA LTD.
NOTES TO THE FINANCIAL STATEMENTS13 Deferred tax (cont’d)
Deferred tax assets and liabilities of the Company (prior to offsetting of balances) are attributable to the following:
Deferred tax liabilities and assets are offset when there is a legally enforceable right to set off current tax assets againstcurrent tax liabilities and when the deferred taxes relate to the same taxation authority. The amounts determinedafter appropriate offsetting included in the balance sheet are as follows:
Deferred tax assets have not been recognised in respect of the following items:
Unutilised tax losses and unabsorbed capital allowances for the Group are subject to agreement with the taxauthorities and compliance with tax regulations in the respective countries in which the Group operates. Deferredtax assets have not been recognised in respect of these items because it is not probable that future taxable profitwill be available against which the Group can utilise the benefits.
Deferred tax liabilities
Property, plant and equipment
Deferred tax assets
Other receivablesProvisions
Company
2007$’000
(601
41103144
)
2006$’000
(601
41103144
)
Unutilised tax lossesDeductible/(taxable) temporary differencesUnabsorbed capital allowancesUnutilised investment allowances
2007$’000
100,21610,819
9,857-
120,892
2006$’000
105,644(3,935
18,9954,740
125,444
Group
)
Deferred tax assetsDeferred tax liabilities
Group Company
2007$’000
-(457(457
2006$’000
-(457(457
2007$’000
64,776(2,087
62,689
2006$’000
57,192(2,210
54,982) )
)))
)
ANNUAL REPORT 2007| 65
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NOTES TO THE FINANCIAL STATEMENTS
14 Inventories
Inventories held for resaleAllowance for obsolescence
Raw materials and consumable storesAllowance for obsolescence
Manufacturing work-in-progressAllowance for obsolescence
Finished goodsAllowance for obsolescence
Goods-in-transit
Total
15 Development properties
Properties held for sale, at cost
Group
2007$’000
23,291
2006$’000
23,622
Group Company
2007$’000
3,696–
3,696
1,274–
1,274
989–
989
3,857–
3,857
–
9,816
2006$’000
–––
603–
603
1,225–
1,225
1,774–
1,774
–
3,602
2007$’000
557(28
529
254,286(9,244
245,042
16,864(110
16,754
352,342(6,492
345,850
9
608,184
)
)
)
)
2006$’000
605(33
572
303,248(10,845
292,403
17,189(50
17,139
192,361(9,119
183,242
41
493,397
)
)
)
)
. . . . . . . . . .
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66| HONG LEONG ASIA LTD.
NOTES TO THE FINANCIAL STATEMENTS
16 Trade and other receivables
Group
The non-trade balances due from the minority shareholders of subsidiaries and other related corporations areunsecured, interest-free and repayable on demand.
Trade receivablesImpairment losses (trade)Net trade receivables
Amounts receivable from:- minority shareholders of
subsidiaries (non-trade)- impairment loss
(non-trade)
- immediate holdingcompany (non-trade)
- subsidiaries- trade- non-trade
- associates (non-trade)- other related corporations
(non-trade)Deposits paid to suppliersPrepaid expensesRefundable depositsTax recoverablesOther receivablesImpairment losses(non-trade)
Group Company
2007$’000
11,050(60
10,990
–
––
109
3,11175,886
9
29–
1,549180
3,7341,943
–86,550
97,540
)
2006$’000
10,316(1,1949,122
–
––
40
5372,423
61
19–
80690
5,264103
–78,859
87,981
)
2007$’000
1,062,312(16,633
1,045,679
40,898
(40,898–
110
––
13
2932,33716,209
1,18121,49036,634
(6,953101,050
1,146,729
)
)
)
2006$’000
672,636(10,461
662,175
48,212
(40,5907,622
41
––
65
22633,505
6,8262,034
29,17829,213
(4,115104,595
766,770
)
)
)
ANNUAL REPORT 2007| 67
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NOTES TO THE FINANCIAL STATEMENTS
16 Trade and other receivables (cont’d)
Company
The non-trade balances due from subsidiaries include loans and advances of $15,390,000 (2006: $29,192,000)which are unsecured and bear interest at rates ranging from 3.05% to 4% (2006: 3% to 4%) per annum. Theweighted average effective interest rate per annum at the balance sheet date in respect of the interest-bearingbalances is 3.05% (2006: 4%) per annum. Interest rates will be repriced within 12 months. These balances arerepayable on demand.
The remaining non-trade balances are unsecured, interest-free and repayable on demand.
The maximum exposure to credit risk for trade and other receivables and non-current receivables at the reportingdate by (business activities) is:
Industrial productsConsumer productsBuilding materialsOthers
Group Company
2007$’000
102–
71,37580,062
151,539
2006$'000
116–
79,14362,712
141,971
2007$’000
663,469340,742
79,153–
1,083,364
2006$’000
376,167109,498
52,475–
538,140
Impairment losses
The ageing of trade and other receivables and non-current receivables at reporting date is:
Group
Non past duePast due 0 - 30 daysPast due 31 - 120 daysPast due 121 days - one yearMore than one year
Company
Non past duePast due 0 - 30 daysPast due 31 - 120 daysPast due 121 days - one yearMore than one year
)))))
)))))
))))
))
)
2007 2006
Gross$’000
419,07150,09346,47421,49156,177
593,306
80,2452,9954,604
28,26127,060
143,165
Impairmentlosses$’000
–(740
(1,846(6,429
(46,151(55,166
–(212
(89(58
(835(1,194
Gross$’000
954,59078,66238,74117,51458,341
1,147,848
68,2252,843
24,9373,155
52,439151,599
Impairmentlosses$’000
–(2,543(2,231(6,529
(53,181(64,484
– – – –
(60(60
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68| HONG LEONG ASIA LTD.
NOTES TO THE FINANCIAL STATEMENTS
16 Trade and other receivables (cont’d)
Impairment losses (cont’d)
The change in impairment loss in respect of trade and other receivables and non-current receivables duringthe year is as follows:
Based on historical default rates, the Group believes that no impairment allowance is necessary in respect oftrade receivables not past due. These receivables are mainly arising by customers that have a good record withthe Group.
17 Cash and cash equivalents
Deposits pledged represents bank balances of certain subsidiaries pledged as security to obtain credit facilities.
The weighted average effective interest rates per annum of the fixed deposits and bank overdrafts at the balancesheet date are as follows:
)
At 1 JanuaryImpairment loss
(reversed)/recognisedAt 31 December
Group Company
2007$’000
1,194
(1,13460
2006$'000
1,171
231,194
2007$’000
55,166
9,31864,484
2006$’000
91,920
(36,75455,166
)
Fixed depositsCash at banks and in hand
Bank overdrafts (unsecured)Deposits pledgedCash and cash equivalents in
the cash flow statement
Group Company
Note
21
2007$’000
13,3091,603
14,912––
14,912
2006$'000
3,2841,9755,259
––
5,259
2007$’000
118,064129,678247,742(30,726(30,335
186,681
))
2006$’000
60,563209,138269,701
(570(22,268
246,863
))
Fixed depositsBank overdrafts
Interest rates will be repriced within 12 months.
Group Company
2007%
1.3-
2006%
3.0-
2007%
2.686.51
2006%
3.74.1
ANNUAL REPORT 2007| 69
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NOTES TO THE FINANCIAL STATEMENTS
18 Assets held for sale
The assets held for sale relate to a hotel property and its related assets. On 18 December 2006, a third party exercisedits option to purchase the hotel property and its related assets and the sale was completed on 12 March 2007.
19 Share capital
The Group has issued shares options under its Hong Leong Asia Share Option Scheme 2000 (see note 29).
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled toone vote per share at meetings of the Company. All shares rank equally with regard to the Company’s residualassets.
Capital management
The Group’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidenceand to sustain future development of the business. The Group monitors the return on capital which the Group definesas net operating income divided by total shareholders’ equity excluding minority interests. The Group also monitorsthe level of dividends to ordinary shareholders.
The Group seeks to maintain a balance between the higher returns that might be possible with higher levelsof borrowings and the advantages and security afforded by a sound capital position.
From time to time, the Group may purchases its own shares on the market; the timing of these purchases dependson market prices. Buy and sell decisions are made on a specific transaction basis by the Board; the Group doesnot have a defined share buy-back plan.
There were no changes in the Group’s approach to capital management during the year.
Fully paid ordinary shares,with no par value:
At 1 JanuaryShares issued under
share option schemeAt 31 December
Group and Company
2007
No. of shares’000
380,311
914381,225
2006
No. of shares’000
379,914
397380,311
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70| HONG LEONG ASIA LTD.
NOTES TO THE FINANCIAL STATEMENTS
20 Reserves
Capital reserveStatutory reserveTranslation reserveFair value reserveEquity compensation reserveAccumulated profits
(a) Capital reserve comprises:
The merger reserve relates to reserve arising from certain acquisitions accounted for under the pooling ofinterests method.
(b) Statutory reserve comprises the Group’s share of general reserves of its subsidiaries in China which are notavailable for dividends or other payments. The transfers are required to be made at the rate of 10% to 15%(2006: 10% to 15%) of profit after tax of subsidiaries arrived at under generally accepted accounting principlesapplicable in the People’s Republic of China.
(c) The translation reserve comprises all foreign exchange differences arising from the translation of the financialstatements of foreign subsidiaries and associates.
(d) The fair value reserve includes the cumulative net change in the fair value of available-for-sale investmentsuntil the investment is derecognised and the Group’s share of the post-acquisition fair value adjustments arisingfrom the allocation of purchases price to the identifiable net assets and contingent liabilities of subsidiaries.
(e) The equity compensation reserve comprises the cumulative value of employee services received forthe issue of share options. The amount in the reserve is retained when the option is exercised or expired.
Group Company
2007$’000
9,199–––
83831,29141,328
2006$'000
9,199––
118478
28,78638,581
2007$’000
(34,68419,956(29,82160,518
958297,961314,888
2006$’000
(34,68416,944(30,84843,673
629236,021231,735
)
)
)
)
Merger reserveBusiness participation fee and
realised capital gain ondisposals of investments
Adjustment relating to sharesof the Company issued toan associate for assetstransferred to the Company
Goodwill on consolidationwritten off
Group Company
2007$’000
–
9,199
–
–9,199
2006$'000
–
9,199
–
–9,199
2007$’000
392
3,046
(11,380
(26,742(34,684
2006$’000
392
3,046
(11,380
(26,742(34,684
) )
) )) )
ANNUAL REPORT 2007| 71
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21 Financial liabilities
The secured bank loans and bank overdrafts are secured on assets with the following net book values:
Medium Term Notes
The Company had redeemed the $50 million (in principal amount) of 3.885% Unsecured Fixed Rate Notes Due2007 (the “Series No. 004 Notes”) by means of utilising short-term loans of the same amount. Subsequently, theCompany had financed the repayment of these short-term loans which matured on 16 November 2007 by issuing$50 million (in principal amount) of 2.8606% Unsecured Fixed Rate Notes Due 2008 under the Programme (the“Series No. 005 Notes”). These Series No. 005 Notes, together with the existing $50 million (in principal amount) of2.935% Unsecured Fixed Rate Notes Due 2008 (the “Series No. 002 Notes”) are constituted by an Amendment andRestatement Deed dated 16 May 2005 (the “Deed”) under the $500 million Medium Term Note (“Notes”) Programme(the “Programme”) and listed on the Singapore Exchange Securities Trading Limited.
The Notes constitute direct, unconditional and unsecured obligations of the Company ranking pari passu amongthemselves and pari passu with all other present and future unsecured obligations (other than subordinated obligationsand priorities created by law or the Deed).
The Company or any of its related corporations (as defined by the Companies Act, Chapter 50 of Singapore)may at any time purchase the Notes by tender (available to all Bondholders alike) or by private treaty.
Unless previously purchased and cancelled, the Series No. 002 Notes and the Series No. 005 Notes will be redeemedat 100% of their principal amount on 16 May 2008.
Under the terms of the Deed, so long as any of the Notes remains outstanding, covenants relating to consolidatedtangible net worth, ratio of consolidated total net debt to consolidated tangible net worth, and the interest coverageratio as defined in the Deed must be met.
Current liabilitiesUnsecured bank overdraftsUnsecured bank loansSecured bank loansMedium Term NotesCorporate bond
Non-current liabilitiesUnsecured bank loansSecured bank loansMedium Term Notes
Total borrowings
Note
17
Group Company
2007$’000
–10,040
–100,000
–110,040
––––
110,040
2006$'000
–––
50,000–
50,000
––
50,00050,000
100,000
2007$’000
30,726193,075
6,088100,000129,508459,397
53,58516,993
–70,578
529,975
2006$’000
570126,523
5,84550,00098,412
281,350
128,7187,692
50,000186,410
467,760
Freehold land and building
Group Company
2007$’000
–
2006$'000
–
2007$’000
30,322
2006$’000
16,973
NOTES TO THE FINANCIAL STATEMENTS
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72| HONG LEONG ASIA LTD.
NOTES TO THE FINANCIAL STATEMENTS
21 Financial liabilities (cont’d)
Medium Term Notes (cont’d)
The Company and certain of its subsidiaries must not sell, transfer or otherwise dispose of certain properties, unlessthe provisions under the Deed are complied with.
In addition, the Company and certain of its subsidiaries must not create any mortgage, charge, security or otherencumbrances on their assets unless such charge is extended equally and ratably to the indebtedness of theCompany in respect of the Bonds.
Terms and debt repayment schedule
Terms and conditions of outstanding loans and borrowings are as follows:
GroupSecured bank loans:- RMB floating rate loans- USD floating rate loans- MYR fixed rate loans- MYR fixed rate loans- MYR floating rate loans
Unsecured bank loans- RMB fixed rate loans- RMB fixed rate loans- RMB floating rate loans- HKD floating rate loans- MYR fixed rate loans- USD floating rate loans- SGD fixed rate notes- SGD floating rate notes- SGD floating rate loans- SGD floating rate loans- bank overdraft- corporate bond
CompanyUnsecured bank loans- SGD floating rate loans- SGD fixed rate notes- SGD floating rate notes
2006
FaceValue$’000
––
1,1427,6924,702
62,32319,800
3,960993193
1,10650,00050,00057,948
108,919570
99,002468,350
–50,00050,000
100,000
Carryingamount
$’000
––
1,1427,6924,702
62,32319,800
3,960993193
1,10650,00050,00057,948
108,919570
98,412467,760
–50,00050,000
100,000
Weightedaverageinterest
rate%
––
6.95.54.6
5.55.95.25.07.38.72.93.94.14.14.13.3
–2.93.9
Carryingamount
$’000
3,1917,7711,7326,0314,356
54,66316,958
1,098938
––
50,00050,000
136,37636,62730,726
129,508529,975
10,04050,00050,000
110,040
FaceValue$’000
3,1917,7711,7326,0314,356
54,66316,958
1,098938
––
50,00050,000
136,37636,62730,726
129,675530,142
10,04050,00050,000
110,040
Weightedaverageinterest
rate%
6.46.35.55.54.8
6.15.96.05.1
––
2.92.93.33.46.53.2
2.52.92.9
Year ofmaturity
20102010200820152008
2008201020082008
––
200820082008201020082008
200820082008
2007
ANNUAL REPORT 2007| 73
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NOTES TO THE FINANCIAL STATEMENTS
21 Financial liabilities (cont’d)
Terms and debt repayment schedule
The following are the expected contractual undiscounted cash inflows (outflows) of financial liabilities, includinginterest payments and excluding the impact of netting agreements:
* Excludes accrued expenses and advances from customers.
Group
2007Floating interest rate loansFloating interest rate notesFixed interest rate loansFixed interest rate notesBank overdraftsCorporate bondTrade and other payables*
2006Floating interest rate loansFloating interest rate notesFixed interest rate loansFixed interest rate notesBank overdraftsCorporate bondTrade and other payables*
Company
2007Floating interest rate notesFloating interest rate notesFixed interest rate notesTrade and other payables*
2006Floating interest rate notesFixed interest rate notesTrade and other payables*
$’000
190,35750,00079,38450,00030,726
129,5081,054,1071,584,082
177,62850,00091,15050,000
57098,412
693,0191,160,779
10,04050,00050,00032,011
142,051
50,00050,00021,569
121,569
Within2 to 5 years
$’000
56,377–
23,666––––
80,043
120,619–
27,59450,724
–––
198,937
–––––
–50,724
–50,724
More than5 years
$’000
3,057–
4,671––––
7,728
3,582–
5,942––––
9,524
–––––
––––
Within1 year$’000
143,13750,70957,46750,72430,726
129,6751,054,1071,516,545
69,25351,70365,369
728570
99,002693,019979,644
10,09250,70950,72432,011
143,536
51,703728
21,56974,000
Contractualcash flows
$’000
202,57150,70985,80450,72430,726
129,6751,054,1071,604,316
193,45451,70398,90551,452
57099,002
693,0191,188,105
10,09250,70950,72432,011
143,536
51,70351,45221,569
124,724
Cash flowsCarryingamount
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74| HONG LEONG ASIA LTD.
NOTES TO THE FINANCIAL STATEMENTS
22 Trade and other payables
The non-trade balances with immediate holding company, associates, other related corporations and other related parties areunsecured, interest-free and repayable on demand.
The weighted average effective annual interest rates at the balance sheet date in respect of interest-bearing balances are asfollows:
23 Provisions
Trade payablesAccrued expensesOther payablesAdvances from customersTrust receiptsAmounts due to:- immediate holding
company (non-trade)- subsidiaries
- trade- non-trade
- associates- trade
- other related corporations(non-trade)
Group Company
2007$’000
9,3262,1692,425
––
–
8,61411,628
18
–34,180
2006$'000
5,1221,1192,705
––
3
3,28310,227
229
–22,688
2007$’000
982,094181,970
43,93650,05218,691
85
––
8,296
1,0051,286,129
2006$’000
778,553117,722
56,93735,44113,316
104
––
9,707
2,5841,014,364
Trust receiptsAmounts due to subsidiaries
Interest rates will be repriced within 12 months
Group Company
2007%
-3.05
2006%
-4.0
2007%
4.67-
2006%
4.74-
Group
At 1 January 2007Provision madeProvision utilisedProvision reversedTranslation differenceAt 31 December 2007
)
Warranties$’000
45,79959,966(49,014
(5,246349
51,854
Total$'000
46,58970,657(50,192
(8,238349
59,165
Closurecosts$’000
80–
(34(46
––
Claims$’000
7107,383(1,144(2,867
–4,082
Onerouscontracts
$’000
–3,308
–(79
–3,229
))
))
))
)))
ANNUAL REPORT 2007| 75
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. . . . . . . . . .
NOTES TO THE FINANCIAL STATEMENTS
23 Provisions (cont’d)
Company
At 1 January 2007Provisions madeProvision utilisedProvision reversedAt 31 December 2007
Onerous contracts
Provision for onerous contracts relates to the expected losses arising from existing customers’ contracts, wherebythe unavoidable costs of meeting the obligations under the contracts exceed the economic benefits expectedto be received.
Closure costs
The provision for closure costs relates to the sale of assets classified as held for sale.
Claims
Provision for claims relates to costs arising from delays in the completion of contracts or complaints from customers.The provision is made based on estimates from prior experience on similar projects with customers. The Groupexpects to incur the liability over two years.
Warranties
Provision for warranties relates to products sold during the year. The provision is made based on estimatesfrom historical warranty data. The Group expects to incur the liability over three years.
24 Revenue
Revenue of the Group comprises sales of goods delivered less trade discounts. Intra-group sales are eliminatedin arriving at the turnover of the Group.
Claims$'000
567318(167
(78640
))
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76| HONG LEONG ASIA LTD.
NOTES TO THE FINANCIAL STATEMENTS
25 Profit before income tax
Profit before income tax includes the following:
Allowance made/(written back) for trade andother receivables/bad debts (recovered)/written off
Amortisation of intangiblesDepreciation of property, plant and equipment,
and investment propertiesNon-audit fees paid/payable to:- auditors of the Company- other auditors of subsidiariesExchange lossOperating lease expenseLoss/(gain) on disposal of property, plant and equipmentProvisions made, net
Other (expenses)/income
Accretion of deferred grantsDividend income from available-for-sale financial assetsGain on disposal of available-for-sale financial assetsInterest income- associates- cash and cash equivalents- bondImpairment loss on property, plant and equipment
Other non-operating income
Gain on disposal of quoted equity investmentsNegative goodwill arising from the acquisition of shares in an
associate and a subsidiaryGain on disposal/redemption of shares in subsidiaries and
related businessesRestructuring costs of subsidiaries
Finance costs
Interest expense- Bank term loans- Medium Term Notes- Bank overdrafts- Trust receipts- Bank charges- Finance lease
2007$’000
4,997206
53,980
8873
3,0016,1382,082
62,419
6265
–
114,243
–10,122
6,840
–
5,141–
11,981
34,3012,371
36842916
1038,476
2006$’000
(24,058164
36,645
12816
2,0004,652
(69749,789
232278513
15,9291,3422,502
–
31,815
13,224(3,733
41,306
26,6593,204
23653157
130,697
Group
Note
5
3, 9
23
)
)
)
ANNUAL REPORT 2007| 77
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. . . . . . . . . .
NOTES TO THE FINANCIAL STATEMENTS
25 Profit before income tax (cont’d)
Staff costs
Wages and salariesCost of share-based paymentsContributions to defined contribution plansRetrenchment costs
2007$’000
224,481360
32,06154
256,956
2006$’000
171,584156
20,549719
193,008
Group
26 Income tax expense
Current tax charge- Current year- Underprovision in respect of prior years
Deferred tax (credit)/expense- Movements in temporary differences- Under/(over) provision in respect of prior years
Reconciliation of effective tax rate
Profit before income tax
Income tax using China tax rate of 33% (2006: 33%)comprising central and local government tax
Effect of different tax rates in other countriesEffect of tax concessionsNon-deductible expensesTax-exempt incomeRecognition of deferred tax benefitsDeferred tax benefits not recognisedChanges in tax ratesOthersUnder/(over) provision in respect of prior years- current- deferred
Group
2006$’000
29,7231,084
30,807
4,701(1,4313,270
34,077
201,588
66,524(8,376
(19,29319,266(23,718
(1,6061,163
–464
1,084(1,431
34,077
)
)
)
))
)
2007$’000
47,598378
47,976
(9,9872,370(7,617
40,359
229,610
75,771(17,074(20,58113,786(13,152
(3,664–
7251,800
3782,370
40,359
))
))
)
)
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78| HONG LEONG ASIA LTD.
NOTES TO THE FINANCIAL STATEMENTS
27 Earnings per share
Basic earnings per share
The calculation of basic earnings per share is based on:
(i) Net profit attributable to equity holders of the Company
(ii) Issued ordinary shares at beginning of the yearWeighted average number of shares issued during the yearWeighted average number of shares at the end of the year
2007$’000
95,428
2007No. of shares
380,311,018646,380
380,957,398
2006$’000
61,130
2006No. of shares
379,914,118233,129
380,147,247
Group
Diluted earnings per share
The weighted average number of ordinary shares adjusted for the effect of unissued ordinary shares under the ShareOption Scheme is determined as follows:
Weighted average number of shares issued, used in thecalculation of basic earnings per share
Dilutive effect of share optionsWeighted average number of ordinary shares (diluted)
2007No. of shares
380,957,398714,392
381,671,790
2006No. of shares
380,147,247252,028
380,399,275
28 Dividends
Interim dividend paid of Nil cents (2006: 0.6 cents) per share taxexempt (2006: 20%) in respect of year 2007 and year 2006
Interim dividend paid of 4 cents (2006: 1.4 cents) per share taxexempt in respect of year 2007 and year 2006
Final dividend paid of 4 cents (2006: 2 cents) per share taxexempt (2006: 20%) in respect of year 2006 and year 2005
2007$’000
-
15,239
15,23730,476
2006$’000
1,825
5,323
6,08213,230
Company
After the balance sheet date, the Directors proposed a tax exempt (1-tier) final dividend of 6 cents (2006: 4 cents)per ordinary share in respect of year 2007 amounting to approximately $22,879,000 (2006: $15,234,000) on thebasis that the number of shares in issue at the time of payment remains the same as that as at 28 February 2008(381,315,218 shares). The dividends have not been provided for.
ANNUAL REPORT 2007| 79
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NOTES TO THE FINANCIAL STATEMENTS
29 Share options
The Hong Leong Asia Share Option Scheme 2000 (the “Scheme”) was approved by the shareholders of the Companyon 30 December 2000. The Scheme is administered by the Scheme Committee comprising:
Ernest Colin Lee – ChairmanKwek Leng PeckQuek Shi KuiGoh Kian Hwee
All options granted under the Scheme are subject to a vesting schedule as follows:
(i) one year after the date of grant for up to 33% of the Shares over which the options are exercisable;
(ii) two years after the date of grant for up to 66% (including the first 33%) of the Shares over which the options areexercisable; and
(iii) three years after the date of grant for up to 100% (including the 66% as mentioned above) of the Shares overwhich the options are exercisable.
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80| HONG LEONG ASIA LTD.
NO
TES
TO T
HE F
INAN
CIA
L ST
ATEM
ENTS
29Sh
are
op
tions
(co
nt’d
)
De
tails
of t
he o
ptio
ns g
rant
ed
und
er t
he S
che
me
to s
ubsc
ribe
for o
rdin
ary
sha
res
of t
he C
om
pa
ny a
s a
t the
end
of t
he fi
nanc
ial y
ea
r are
as
follo
ws:
6/7/
2001
6/11
/200
2
1/10
/200
4
1/10
/200
4
26/9
/200
5
10/1
/200
7
1,64
0
75,0
00
904,
490
49,8
30
259,
584 -
1,29
0,54
4
Proc
eed
s on
optio
ns e
xerc
ised
dur
ing
the
yea
r cre
dite
dto
sha
re c
ap
ital $
40,0
00
-
100,
000
77,0
00
1,00
0 -
218,
000
Num
ber
of
optio
nsex
erci
sab
le a
t31
Dec
emb
er20
07
44,0
00
75,0
00
475,
200
72,6
00
145,
200 -
812,
000
Num
ber
of
optio
nsex
erci
sab
le a
t1
Janu
ary
2007
40,0
00
-
100,
000
77,0
00
62,2
00
1,22
0,00
0
1,49
9,20
0
Num
ber
of
optio
nsou
tsta
ndin
g at
31 D
ecem
ber
2007
- -
(21,
000) -
(175
,000
)
(120
,000
)
(316
,000
)
Op
tions
canc
elle
d/
lap
sed
dur
ing
the
yea
r
(4,0
00)
(75,
000)
(599
,000
)
(33,
000)
(202
,800
) -
(913
,800
)
Op
tions
exer
cise
dd
urin
gth
e ye
ar
- - - - -
1,34
0,00
0
1,34
0,00
0
Op
tions
gra
nted
dur
ing
the
yea
r
44,0
00
75,0
00
720,
000
110,
000
440,
000 -
1,38
9,00
0
Num
ber
of
optio
nsou
tsta
ndin
g a
t1
Janu
ary
2007
$0.4
1
$1.0
0
$1.5
1
$1.5
1
$1.2
8
$1.8
8
Exer
cise
pric
e p
ersh
are
Da
te o
fg
rant
$3.1
4
$1.9
2 to
$1.
96
$1.9
4 to
$3.
86
$3.1
0
$1.9
4 to
$3.
86
-
Ma
rket
pric
e of
sha
res
at e
xerc
ise
da
te o
f op
tion
6/7/
2002
to 5
/7/2
011
6/11
/200
3 to
5/1
1/20
12
1/10
/200
5 to
30/
9/20
14
1/10
/200
5 to
30/
9/20
09
26/9
/200
6 to
25/
9/20
15
10/1
/200
8 to
9/1
/201
7
Exer
cise
per
iod
*Re
late
s to
op
tions
gra
nte
d to
the
Gro
up N
on-
Exe
cut
ive
Dire
cto
rs.
*
ANNUAL REPORT 2007|81
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NOTES TO THE FINANCIAL STATEMENTS
29 Share options (cont’d)
The fair value of services received in return for share options granted are measured by reference to the fair valueof share options granted. The estimate of the fair value of the services received is measured based on a Black-Scholes model. The expected life used in the model has been adjusted, based on management’s best estimate,for the effects of non transferability, exercise restrictions and behavioural considerations.
Fair value of share options and assumptions
Date of grant of options
Fair value at measurement date
Share price ($)Exercise price ($)Expected volatility (%)Expected option life (years)Expected dividends (%)Risk-free interest rate (%)
On18 September
2003
0.24 - 0.29
1.791.7929.83 - 66.0
1.5 - 2.7
On1 October
2004
0.27 - 0.37
1.511.5129.83 - 62.7
1.9 - 2.7
On26 September
2005
0.23 - 0.29
1.281.2829.83 - 63.1
2.4 - 2.7
On10 January
2007
0.34 - 0.43
1.881.8829.83 - 63.2
2.9 - 3.0
The expected volatility is based on the historic volatility (calculated based on the weighted average expected lifeof the share options), adjusted for any expected changes to future volatility due to publicly available information.
There are no market conditions associated with the share option grants. Service conditions and non-marketperformance conditions are not taken into account in the measurement of the fair value of the services to bereceived at the grant date.
30 Commitments
Capital Commitments
Capital expenditure approved by the directors but not provided for in the financial statements as at 31 December2007 is as follows:
Contracted forNot contracted for
Group Company
2007$’000
572-
572
2006$'000
91287
999
2007$’000
65,2551,287
66,542
2006$’000
35,6095,003
40,612
. . . . . . . . . .
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82| HONG LEONG ASIA LTD.
NOTES TO THE FINANCIAL STATEMENTS
30 Commitments (cont’d)
Lease Commitments
At 31 December 2007, commitments for minimum rental payments under non-cancellable operating leasesin respect of leasehold land with terms exceeding one year are payable as follows:
Annual rentals payable for the leases of land by the Group and the Company under non-cancellable operatingleases are subject to revision at fixed intervals ranging from one to five years. Any increase will not exceed 8.5% onan annualised basis and provided that any rent shall not exceed the prevailing market rent. The leases expirebetween 2007 and 2011. None of these leases includes contingent rentals.
31 Significant related party transactions
Key management personnel compensation
Key management personnel compensation are as follows:
Directors’ remuneration included in key management personnel compensation amounted to $2,812,000 (2006:$1,647,000).
Key management personnel of the Company participate in the Hong Leong Asia Share Option Scheme 2000 (the“Scheme”) as described in note 29. During the year, 930,000 (2006: Nil) shares under options were granted to keymanagement personnel pursuant to the Scheme (the “Options”) of which 500,000 Options were granted to ExecutiveDirectors of the Company. These options are subject to a vesting schedule.
As at the end of the year, 967,400 (2006: 770,000) Options granted to key management personnel were outstanding,of which 600,000 (2006: 600,000) were options granted to the Executive Directors of the Company.
Within 1 yearAfter 1 year but within 5 yearsAfter 5 years
Group Company
2007$’000
8723,8254,9089,605
2006$'000
9483,9325,673
10,553
2007$’000
5,5299,021
18,61533,165
2006$’000
6,19411,90921,58639,689
Short-term employee benefitsEquity compensation benefits
Group
2007$’000
3,622244
3,866
2006$'000
2,360125
2,485
ANNUAL REPORT 2007| 83
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NOTES TO THE FINANCIAL STATEMENTS
31 Significant related party transactions (cont’d)
Other related party transactions
During the year, the Company made payments to legal and consultancy firms controlled by two directors of theCompany separately. These payments were made for the provision of legal and consultancy services renderedto the Company and the Group for an amount of $374,000 (2006: $663,000) on a time cost reimbursement basis.No balances were outstanding at the balance sheet date.
During the year, accounting, administrative and management services were provided by the employees of theCompany’s corporate office to its subsidiaries at no consideration.
Significant transactions with related parties, other than those as disclosed elsewhere in the financial statements, areas follows:
Other related corporationsManagement fees expense
AssociatesPurchase of raw materials
Jointly-controlled entityPurchase of raw materials
Group
2007$’000
309
39,894
1,506
2006$’000
1,921
30,219
908
32 Financial instruments
Risk management is integral to the whole business of the Group. The Group has a system of controls in place tocreate an acceptable balance between the cost of risks occurring and the cost of managing the risks. Themanagement continually monitors the Group’s risk management process to ensure that an appropriate balancebetween risk and control is achieved. The Group’s policies and financial authority limits are documented andreviewed periodically. The financial authority limits seek to limit and mitigate operational risk by settingthreshold of approvals required for the entry into contractual obligations and investments.
Credit risk
Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Creditevaluations are performed for all customers requiring credit over a certain amount. The Group requires collateralin respect of financial assets in certain circumstances.
The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of tradeand other receivables. The main components of this allowance are a specific loss component that relates toindividually significant exposures, and a collective loss component established for groups of similar assets in respectof losses that have been incurred but not yet identified. The collective loss allowance is determined based onhistorical data of payment statistics for similar financial assets.
The allowance account in respect of trade and other receivables is used to record impairment losses unless theGroup is satisfied that no recovery of the amount owing is possible. At that point, the financial asset is consideredirrecoverable and the amount charged to the allowance account is written off against the carrying amount of theimpaired financial asset.
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84|HONG LEONG ASIA LTD.
NOTES TO THE FINANCIAL STATEMENTS
32 Financial instruments (cont’d)
Credit risk (cont’d)
Cash and fixed deposits are placed with banks and financial institutions which are regulated.
At the balance sheet date, a subsidiary of the Group has trade receivables due from a major Chinese customer,Dongfeng Automobile Company and its affiliates, amounting to $86 million (2006: $59 million), representing 8%(2006: 12%) of total gross trade receivables of the Group as at 31 December 2007. Of the total balance, $64million (2006: $34 million), or 74% (2006: 58%), is supported by bills receivable from Chinese banks.
Market risk
Market risk is the risk that changes in market prices, such as interest rates, foreign exchange rates and equity priceswill affect the Group’s income or the value of its holdings of financial instruments. The objective of market riskmanagement is to manage and control market risk exposures within acceptable parameters, while optimising thereturn on risk.
Interest rate risk
The Group’s policy is to maintain an efficient and optimal interest cost structure using a mix of fixed and variablerate debts. The Group’s debt obligations are mainly denominated in Singapore dollars, Ringgit Malaysia and ChineseRenminbi, and at fixed and floating rates of interest. For variable rate financial instruments, a change of 100bp ininterest rate at the reporting date would increase/(decrease) equity and profit and loss by the amounts shown below.
Group
31 December 2007Floating interest rate loans and notes
31 December 2006Floating interest rate loans and notes
Profit and loss
100bpIncrease
(2,404)
(2,276)
100bpDecrease
2,404
2,276
Liquidity risk
The Group monitors its liquidity risk and maintains a level of cash and cash equivalents deemed adequate bymanagement to finance the Group’s operations and to mitigate the effects of fluctuations in cash flows, and havingadequate amount of committed credit facilities and the ability to close market position at short notice.
Foreign currency risk
The Group is exposed to foreign currency risk on sales, purchases and borrowings that are denominated in currenciesother than the respective functional currencies of entities within the Group. The functional currencies of entities withinthe Group are primarily the Singapore Dollars and Renminbi. The currencies giving rise to this risk are primarily RinggitMalaysia, Renminbi and United States dollar.
Foreign currency translation exposure is managed by incurring debt in the operating currency so that where possibleoperating cash flows can be primarily used to repay obligations in the local currency. This also has the effect ofminimising the exchange differences recorded against income, as the exchange differences on the net investmentare recorded directly against equity.
ANNUAL REPORT 2007|85
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NOTES TO THE FINANCIAL STATEMENTS
32 Financial instruments (cont’d)
Foreign currency risk (cont’d)
The Group’s and Company’s exposures to foreign currency are as follows:
Sensitivity analysis
A 10% strengthening of Singapore dollar against the following currencies at the reporting date would increase/(decrease) profit or loss by the amounts shown below: This analysis assumes that all other variables, in particularinterest rates, remain constant.
31 December 2007Ringgit MalaysiaRenminbiUnited States dollar
31 December 2006RInggit MalaysiaRenminbiUnited States dollar
GroupProfit or loss
$’000
552(1,651
(441
625(1,097(1,825
CompanyProfit or loss
$’000
500-
(285
222-
(329
A 10% weakening of Singapore dollar against the above currencies would have had the equal but opposite effecton the above currencies to the amounts shown above, on the basis that all other variables remain constant.
Group
Other investmentsNon-current receivablesTrade and other receivablesCash and cash equivalentsFinancial liabilitiesTrade and other payables
Company
Trade and other receivablesCash and cash equivalentsFinancial liabilitiesTrade and other payables
) ) ) ) ) ) )) ) ) ) ) ) )) ) )
)))
31 December 2007 31 December 2006
Singaporedollar$’000
124,59950,835
3,9085,658
(164,185(51,132(30,317
-----
RinggitMalaysia
$’000
--
8,118357
(9,414(5,307(6,246
---
(2,215(2,215
Renminbi$’000
--
14,1728,066(3,960(7,308
10,970
-----
UnitedStatesdollar$’000
--
24,9323,480(1,095(9,068
18,249
3,154140
--
3.294))
) )))
Singaporedollar$’000
112,04551,293
7,0913,968
(159,221(49,880(34,704
-----
RinggitMalaysia
$’000
--
7,359479
(7,102(6,255(5,519
---
(4,997(4,997
Renminbi$’000
--
17,2337,702(1,098(7,329
16,508 -----
UnitedStatesdollar$’000
--
15,73310,931(7,596
(14,6634,405
2,792139
-(82
2,849)
))
))
)
))
))
))
)
)
)
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86| HONG LEONG ASIA LTD.
NOTES TO THE FINANCIAL STATEMENTS
32 Financial instruments (cont’d)
Equity price risk
The Group and Company have available-for-sale equity securities which are quoted.
Sensitivity analysis-equity price risk
A 10% increase/(decrease) in the underlying equity prices at the reporting date would increase/(decrease) equityby the following amount:
Equity
This analysis assumes that all other variables remain.
Estimation of fair values
The following summarises the significant methods and assumptions used in estimating the fair values of financialinstruments of the Group and Company.
Investments in equity and debt securities
The fair value of available-for-sale financial assets is determined by reference to their quoted bid prices at thereporting date.
Non-derivative financial liabilities
Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principaland interest cash flows, discounted at the market rate of interest at the reporting date.
Other financial assets and liabilities
The carrying amounts of financial assets and liabilities with a maturity of less than one year (including trade and otherreceivables, cash and cash equivalents, and trade and other payables) are assumed to approximate their fairvalues because of the short period to maturity. All other financial assets and liabilities are discounted to determinetheir fair values.
Group Company
2007$’000
17
2006$'000
14
2007$’000
126
2006$’000
125
ANNUAL REPORT 2007| 87
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NOTES TO THE FINANCIAL STATEMENTS
32 Financial instruments (cont’d)
Other financial assets and liabilities (cont’d)
The aggregate net fair values of recognised financial assets and liabilities which are not carried at fair values in thebalance sheet at 31 December are represented in the following table:
The fair value has been determined by discounting the relevant cash flows with current interest rates for similarinstruments at the balance sheet date.
The interest rate used in determining fair value is 2.89% (2006: 3.86%).
Outstanding bills discounted with recourse obligations
Group
2007$’000
577,980
2006$’000
425,768
33 Contingent liabilities (unsecured)
The Company has a contingent liability in respect of banking facilities of $33,000,000 (2006: $33,000,000) jointlyheld with its subsidiaries whereby the Company and the subsidiaries are jointly and severally liable for the outstandingobligations under these facilities. The amount drawn down as at 31 December 2007 on the banking facilitiesamounted to $8,500,000 (2006: $10,000,000).
34 Segment reporting
Segment information is presented in respect of the Group’s business and geographical segments. The primaryformat, business segments, is based on the Group’s management and internal reporting structure.
Inter-segments pricing is determined on mutually agreed terms.
Segment results, assets and liabilities include items directly attributable to a segment as well as those that can beallocated on a reasonable basis. Unallocated items mainly comprise non-income-earning assets and non-operatingrevenue, interest-bearing loans, borrowings and non-operating expenses, and corporate assets and expenses.
Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expectedto be used for more than one period.
Group
Financial liabilities
Medium Term Notes
Unrecognised gain/(loss) )
Carryingamount
2006$’000
100,000
Fairvalue2006$'000
99,415
(585
Carryingamount
2007$’000
100,000
Fairvalue2007$’000
100,004
4
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88| HONG LEONG ASIA LTD.
NOTES TO THE FINANCIAL STATEMENTS
34 Segment reporting (cont’d)
Business Segments
The Group comprises the following main business segments:
(i) Consumer products: refrigerators, freezers and air conditioners.
(ii) Industrial products: diesel engines, plastic packaging related products and container components, and eco-friendly biodegradable pallets.
(iii) Building materials: pre-cast concrete products, ready-mixed concrete and quarry products.
(iv) Corporate: relates primarily to results from corporate activities.
(v) Others: relate to electronics, hospitality and property development operations.
Geographical Segments
The Group operations were primarily in China (including Hong Kong), Singapore, Malaysia and Indonesia.
In presenting information on the basis of geographical segments, segment revenue is based on the geographicallocation of customers. Segment assets are based on the geographical location of assets.
ANNUAL REPORT 2007| 89
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NOTES TO THE FINANCIAL STATEMENTS
34 Segment reporting (cont’d)
Business Segments (cont’d)
2007
Total external revenue
Segment results
Share of profit of associatesFinance costsIncome tax expenseMinority interestsNet profit for the year
2006
Total external revenue
Segment results
Share of profit/(loss)of associates
Finance costsIncome tax expenseMinority interestsNet profit for the year
34,415
11,797
1,578
16,324
17,860
(6,631
Others*$’000
–
(5,698)
–
–
38,879
–
Corporate$’000
341,722
39,410
23,263
211,056
10,475
–
Buildingmaterials
$’000
1,972,128
118,338
582
1,494,935
101,021
535
Industrialproducts
$’000
884,913
78,816
–
758,657
64,525
5,621
Consumerproducts
$’000Revenue and Expenses
3,233,178
242,663
25,423(38,476(40,359(93,82395,428
2,480,972
232,760
(475(30,697(34,077
(106,38161,130
Consolidated$’000
)))
))
))
)
2007
Segment assetsInterests in associatesUnallocated assets- deferred tax assets- othersTotal assets
Segment liabilitiesUnallocated liabilities- borrowings- deferred tax liabilities- provision for tax- othersTotal liabilities
2,930,119258,674
64,7764,052
3,257,621
1,376,099
499,2492,087
48,540483
1,926,458
170,436
18,929
7,318
3,333
192,346
93,815
1,633,401
722,649
926,618
537,373
Assets and Liabilities
* Others relate to electronics, hospitality and property development operations.
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90| HONG LEONG ASIA LTD.
NOTES TO THE FINANCIAL STATEMENTS
34 Segment reporting (cont’d)
Business Segments (cont’d)
2006
Segment assetsInterests in associatesUnallocated assets- deferred tax assets- othersTotal assets
Segment liabilitiesUnallocated liabilities- borrowings- deferred tax liabilities- provision for tax- othersTotal liabilities
176,72999,910
181,078
Others*$’000
72,080–
5,766
Corporate$’000
96,734110,894
51,486
Buildingmaterials
$’000
1,423,7507,048
391,557
Industrialproducts
$’000
687,065–
431,631
Consumerproducts
$’000Assets and Liabilities
2,456,358217,852
57,19256
2,731,458
1,061,518
467,1842,210
29,875530
1,561,317
Consolidated$’000
2007
Capital expenditureDepreciationProvision made/(reversed), net- claims- warranties- closure costs- onerous contracts- impairment loss
2006
Capital expenditureDepreciationProvision made/(reversed), net- claims- warranties- closure costs- onerous contracts- impairment loss
3,1156,017
–––––
5,5352,867
––
81–
11
––
–––––
––
–––––
60,63436,417
–50,038
(46–
4,869
91,01425,016
(1840,158
--
2,491
37,1863,085
–4,682
–––
14,3411,998
–9,999
–––
Other disclosures
* Others relate to electronics, hospitality and property development operations.
112,75753,833
4,51654,720
(463,229
10,122
125,35336,645
28550,157
81(734
2,502)
)
11,8228,314
4,516––
3,2295,253
14,4636,764
303––
(734–)
)
)
ANNUAL REPORT 2007|91
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NOTES TO THE FINANCIAL STATEMENTS
34 Segment reporting (cont’d)
Geographical Segments
2007
Total revenue from external customers
Segment assets
Capital expenditure
2006
Total revenue from external customers
Segment assets
Capital expenditure
3,233,178
2,930,119
112,757
2,480,972
2,456,358
125,353
Consolidated$’000
52,972
34
–
85,227
160
–
Others*$’000
1,236
29,902
6,193
4,551
27,309
7,261
Indonesia$’000
26,262
61,614
855
28,880
76,476
523
Malaysia$’000
347,152
280,156
7,592
225,229
239,859
16,877
Singapore$’000
2,805,556
2,558,413
98,117
2,137,085
2,112,554
100,692
* Others relate to electronics, hospitality and property development operations.
35 Acquisitions of subsidiaries and minority interest
During the financial year, the subsidiaries acquired are engaged in the distribution of diesel engine and spare partbusinesses. In the three months to 31 December 2007, the subsidiaries’ contributions to the Group’s revenue andnet profit are immaterial. The results of the acquired subsidiaries as though the acquisition date was from 1 January2007 will also not materially affect the revenue and profit of the Group for the year ended 31 December 2007.
In 2006, the Group acquired 45.42% of the ordinary shares of HLG Enterprise Limited (“HLGE”) for $4,881,000. TheGroup also acquired the following interest of HLGE:
(a) 123,010,555 redeemable convertible preference shares for $1,230,000; and
(b) $130,800,917 in principal amount of unsecured 3 year non-convertible bonds for $130,801,000.
HLGE is engaged in hospitality and property development businesses. In the eleven months to 31 December 2006,the subsidiary contributed a net profit of $755,000 to the consolidated net profit for the year. The results of the aboveacquired subsidiary as though the acquisition date was from 1 January 2006 will not materially affect the revenueand profit of the Group for the year ended 31 December 2006.
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92| HONG LEONG ASIA LTD.
NOTES TO THE FINANCIAL STATEMENTS
36 Disposals of subsidiaries
During the financial year, the Group disposed of 1 subsidiary held by HLG Enterprise Limited.
In 2006, the Group disposed of 2 subsidiaries in the metal container business and 2 subsidiaries held by HLG EnterpriseLimited.
The effect of disposals of the subsidiary’s net assets is as follows:
Non-current assetsNet current liabilitiesNon-current liabilitiesMinority interestRealisation of translation differenceProfit on disposalTotal cash considerationLess: (cash and cash equivalents)/overdraft of subsidiary disposedDisposal of subsidiary, net of cash and cash equivalents disposed
2006$’000
)
)
18,727(12,792
(204(3,323
(1215,57117,9672,873
20,840
))
-(87
--
(2,8125,1412,242
(532,189
2007$’000
)
)
Non-current assetsNet current assetsNon-current liabilitiesMinority interestsAmount previously recognised for associated companiesand joint ventures
Positive/(negative) goodwillConsideration paidLess: cash and cash equivalents of subsidiaries acquiredAcquisition of subsidiaries, net of cash acquired
Recognisedvalues
2007$’000
192258
--
(13627
341(176165
)
117,19129,587(36,147(30,411
-(20,13060,090
Carryingamounts
2006$’000
40,25911,60224,961
-
--
76,822
Fair valueadjustments
2006$’000
)
)
)
157,45041,189(11,186(30,411
-(20,130
136,912(40,59896,314
Recognisedvalues
2006$’000
))
)
)
35 Acquisitions of subsidiaries and minority interest (cont’d)
The effect of acquisition of the subsidiaries is set out below:
)
Acquisitions of minority interest
In January 2006, the Group acquired an additional 39% interest in Henan Xinfei Electric Co. Ltd and Henan XinfeiHousehold Appliance Co. Ltd for $86,211,000 in cash, increasing its ownership from 51% to 90%. The carryingamount of net assets in the consolidated financial statements on the date of the acquisition was $220,413,000.The Group recognised a decrease in minority interest of $85,961,000.
)
ANNUAL REPORT 2007|93
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NOTES TO THE FINANCIAL STATEMENTS
37 Subsequent Event
On 26 November 2007, the Group acquired an additional 30% equity interest in Rex Plastics (Malaysia) Sdn. Bhd.for $1,138,000 in cash, increasing its ownership from 70% to 100%. The acquisition was completed on 25 February2008.
38 New accounting standards and interpretations not yet adopted
The Group has not applied the following accounting standards (including its consequential amendments) andinterpretations that have been issued as of the balance sheet date but are not yet effective:
• FRS 23 Borrowing Costs
• FRS 108 Operating Segments
• INT FRS 111 FRS 102 Group and Treasury Share Transactions
• INT FRS 112 Service Concession Arrangements
The initial application of these standards (and its consequential amendments) and interpretations is not expectedto have any material impact on the Group’s financial statements. The Group has not considered the impact ofaccounting standards issued after the balance sheet date.
39 Comparative information
The following comparative figures have been restated to conform with the current year’s presentation:
Consolidated balance sheetTrade and other receivablesTrade and other payables
Consolidated income statementCost of salesSelling and distribution expenses
Consolidated cash flow statement
Operating activitiesTrade and other receivablesTrade and other payables
Financing activitiesFixed deposits pledged with a bank for banking facilities
598,588846,182
1,916,465181,713
57,642(59,053
-
31/12/2006S$’000
(as previouslyreported)
766,7701,014,364
1,896,022202,156
(67,77966,368
(13,839
31/12/2006S$’000
(as restated)
)
)
)
ANNUAL REPORT 2007| 103
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as at 20 March 2008
Based on information available to the Company as at 20 March 2008, approximately 32.16% of the total number ofissued shares excluding treasury shares, if any, of the Company is held by the public and therefore Rule 723of the Listing Manual issued by the Singapore Exchange Securities Trading Limited is complied with.
Major Shareholders List - Top 20 as at 20 March 2008(as shown in the Register of Members)
No. ofNo. Name Shares Held %
1. Hong Leong Corporation Holdings Pte Ltd 233,000,000 61.10
2. Citibank Nominees Singapore Pte Ltd 26,324,455 6.90
3. DBS Nominees Pte Ltd 24,446,489 6.41
4. Singapore Cement Industrial Company (Private) Limited 18,159,318 4.76
5. Raffles Nominees Pte Ltd 13,516,700 3.54
6. HSBC (Singapore) Nominees Pte Ltd 9,758,500 2.56
7. DBSN Services Pte Ltd 5,600,000 1.47
8. Starich Investments Pte. Ltd. 5,395,000 1.41
9. United Overseas Bank Nominees Pte Ltd 2,653,000 0.70
10. Morgan Stanley Asia (S) Securities Pte Ltd 2,179,585 0.57
11. Paramount Assets Investments Pte Ltd 1,750,000 0.46
12. DB Nominees (S) Pte Ltd 1,491,815 0.39
13. ABN Amro Nominees Singapore Pte Ltd 1,158,000 0.30
14. DBS Vickers Securities (S) Pte Ltd 1,002,000 0.26
15. UOB Kay Hian Pte Ltd 717,000 0.19
16. OCBC Securities Private Ltd 674,000 0.18
17. Kwek Leng Beng 600,000 0.16
18. HL Bank Nominees (S) Pte Ltd 481,000 0.13
19. Phillip Securities Pte Ltd 419,000 0.11
20. Kim Eng Securities Pte. Ltd. 408,000 0.11
349,733,862 91.71
Range of Shareholdings
1- 9991,000 - 10,000
10,001 - 1,000,0001,000,001 and above
No. ofShareholders
153,171
53914
3,739
%
0.4084.8114.42
0.37
100.00
No. ofShares Held
3,15011,720,59023,183,516
346,434,862
381,342,118
%
0.0013.0746.079
90.846
100.000
Class of Shares : Ordinary sharesNumber of Ordinary Shares in issue : 381,342,118Number of Ordinary Shareholders : 3,739Voting Rights : 1 vote for 1 share
ANALYSIS OF SHAREHOLDINGS
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104| HONG LEONG ASIA LTD.
ANALYSIS OF SHAREHOLDINGSas at 20 March 2008
No. of SharesDirect Interest Deemed Interest Total Interest %
Hong Leong Corporation Holdings Pte Ltd 233,000,000 23,554,318 (1) 256,554,318 67.28Hong Leong Enterprises Pte. Ltd. - 256,554,318 (2) 256,554,318 67.28Hong Leong Investment Holdings Pte. Ltd. - 256,822,318 (3) 256,822,318 67.35Davos Investment Holdings Private Limited - 256,822,318 (4) 256,822,318 67.35Kwek Holdings Pte Ltd - 256,822,318 (4) 256,822,318 67.35
Notes:
(1) Hong Leong Corporation Holdings Pte Ltd (“HLCH”) is deemed under Section 7 of the Companies Act, Chapter 50(the “Act”) to have an interest in the Shares held directly by its wholly-owned subsidiary, Starich Investments Pte. Ltd.(“Starich”).
HLCH is also deemed under Section 7 of the Act to have an interest in the Shares held directly by Singapore CementIndustrial Company (Private) Limited (“SCIC”), in which it is entitled to exercise or control the exercise of not less than20% of the voting shares in SCIC.
(2) Hong Leong Enterprises Pte. Ltd. is deemed under Section 7 of the Act to have an interest in the Shares held directlyby HLCH, Starich and SCIC, in which it is entitled to exercise or control the exercise of not less than 20% of the votingshares in the latter companies.
(3) Hong Leong Investment Holdings Pte. Ltd. (“HLIH”) is deemed under Section 7 of the Act to have an interest in theShares held directly by its subsidiaries, HLCH, Starich, Millennium Securities Pte Ltd and Welkin Investments Pte Ltd.
HLIH is also deemed under Section 7 of the Act to have an interest in the Shares held directly by SCIC, in which it isentitled to exercise or control the exercise of not less than 20% of the voting shares in SCIC.
(4) Davos Investment Holdings Private Limited and Kwek Holdings Pte Ltd are deemed under Section 7 of the Act tohave interests in the Shares referred to in Note 3 above in which they are entitled to exercise or control the exerciseof not less than 20% of the voting shares in HLIH.
Substantial Shareholders(as shown in the Register of Substantial Shareholders)
ANNUAL REPORT 2007| 105
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NOTICE OF ANNUAL GENERAL MEETING
NOTICE OF ANNUAL GENERAL MEETING
NOTICE IS HEREBY GIVEN that the Forty-Seventh Annual General Meeting (the “Meeting”) of HONG LEONG ASIA LTD. will beheld at Grand Copthorne Waterfront Hotel, Galleria Ballroom, Level 3, 392 Havelock Road, Singapore 169663 on Tuesday,29 April 2008 at 10.30 a.m. for the following purposes:
A. ORDINARY BUSINESS:
1. To receive and adopt the Audited Accounts and Reports of the Directors and Auditors for the year ended 31December 2007.
2. To declare a tax exempt (1-tier) final dividend of 6 cents per ordinary share for the year ended 31 December 2007as recommended by the Directors.
3. To approve Directors’ fees (excluding the Audit Committee fees) of $190,000 for the year ended 31 December 2007(year 2006: $190,011) and Audit Committee fees of $20,000 per quarter for the period commencing from 1 July2008 to 30 June 2009, with payment of the Audit Committee fees to be made in arrears at the end of each calendarquarter.
4. To re-elect the following Directors retiring by rotation in accordance with the Articles of Association of the Companyand who, being eligible, offer themselves for re-election:
(i) Mr Teo Tong Kooi(ii) Mr Goh Kian Hwee
5. To re-appoint Mr Quek Shi Kui as a Director of the Company pursuant to Section 153(6) of the Companies Act,Chapter 50, to hold office from the date of this Meeting until the next Annual General Meeting.
6. To re-appoint Messrs KPMG as Auditors and to authorise the Directors to fix their remuneration.
B. SPECIAL BUSINESS:
7. To consider and, if thought fit, to pass, with or without any modifications, the following resolution as an OrdinaryResolution:
That authority be and is hereby given to the Directors to:
(a) (i) issue shares in the capital of the Company (“shares”) whether by way of rights, bonus or otherwise; and/or
(ii) make or grant offers, agreements or options (collectively, “Instruments”) that might or would require sharesto be issued, including but not limited to the creation and issue of (as well as adjustments to) warrants,debentures or other instruments convertible into shares,
at any time and upon such terms and conditions and for such purposes and to such persons as the Directorsmay in their absolute discretion deem fit; and
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106| HONG LEONG ASIA LTD.
NOTICE OF ANNUAL GENERAL MEETING
(b) (notwithstanding the authority conferred by this Ordinary Resolution may have ceased to be in force) issueshares in pursuance of any Instrument made or granted by the Directors while this Ordinary Resolution was inforce,
provided that:
(1) the aggregate number of shares to be issued pursuant to this Ordinary Resolution (including shares to be issuedin pursuance of Instruments made or granted pursuant to this Ordinary Resolution but excluding shares whichmay be issued pursuant to any adjustments effected under any relevant Instrument), does not exceed 50%of the total number of issued shares excluding treasury shares, if any, in the capital of the Company (ascalculated in accordance with sub-paragraph (2) below), of which the aggregate number of shares to beissued other than on a pro rata basis to shareholders of the Company (including shares to be issued inpursuance of Instruments made or granted pursuant to this Ordinary Resolution but excluding shares whichmay be issued pursuant to any adjustments effected under any relevant Instrument) does not exceed 20%of the total number of issued shares excluding treasury shares, if any, in the capital of the Company (ascalculated in accordance with sub-paragraph (2) below);
(2) (subject to such manner of calculation as may be prescribed by the Singapore Exchange Securities TradingLimited (“SGX-ST”)) for the purpose of determining the aggregate number of shares that may be issued undersub-paragraph (1) above, the total number of issued shares excluding treasury shares, if any, shall be basedon the total number of issued shares excluding treasury shares, if any, in the capital of the Company at thetime this Ordinary Resolution is passed, after adjusting for:
(i) new shares arising from the conversion or exercise of any convertible securities or share options whichare outstanding and subsisting at the time this Ordinary Resolution is passed; and
(ii) any subsequent bonus issue, consolidation or subdivision of shares;
(3) in exercising the authority conferred by this Ordinary Resolution, the Company shall comply with the provisionsof the Listing Manual of the SGX-ST for the time being in force (unless such compliance has been waived bythe SGX-ST) and the Articles of Association for the time being of the Company; and
(4) (unless revoked or varied by the Company in General Meeting) the authority conferred by this Ordinary Resolutionshall continue in force until the conclusion of the next Annual General Meeting of the Company or the dateby which the next Annual General Meeting of the Company is required by law to be held, whichever is theearlier.
8. To consider and, if thought fit, to pass, with or without any modifications, the following resolution as an OrdinaryResolution:
That the Hong Leong Asia Share Option Scheme 2000 (the “Scheme”) be amended by deleting Rule 6.1 in its entiretyand substituting in place thereof the following:
The Scheme Committee may, subject as provided in Rule 5, grant Options at any time and from time to time.
9. To consider and, if thought fit, to pass, with or without any modifications, the following resolution as an OrdinaryResolution:
That approval be and is hereby given to the Directors to offer and grant options in accordance with the provisionsof the Hong Leong Asia Share Option Scheme 2000 (the “Scheme”) and to allot and issue from time to time suchnumber of shares in the capital of the Company as may be required to be issued pursuant to the exercise of theoptions granted under the Scheme provided that the aggregate number of shares to be issued pursuant to theScheme shall not exceed 15% of the total number of issued shares excluding treasury shares, if any, in the capitalof the Company from time to time, and provided further that the aggregate number of shares to be issued duringthe entire operation of the Scheme (subject to adjustments, if any, made under the Scheme) shall not exceed suchlimits or (as the case may be) sub-limits as may be prescribed in the Scheme.
ANNUAL REPORT 2007| 107
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NOTICE OF ANNUAL GENERAL MEETING
10. To consider and, if thought fit, to pass, with or without any modifications, the following resolution as an OrdinaryResolution:
That:(a) for the purposes of Section 76C and 76E of the Companies Act, Chapter 50 (the “Companies Act”), the exercise
by the Directors of the Company of all the powers of the Company to purchase or otherwise acquire issuedordinary shares in the capital of the Company (the “Shares”) not exceeding in aggregate the Maximum Limit(as hereafter defined), at such price or prices as may be determined by the Directors from time to time upto the Maximum Price (as hereafter defined), whether by way of:
(i) market purchase(s) on the SGX-ST and/or any other stock exchange on which the Shares may for thetime being be listed and quoted (“Other Exchange”); and/or
(ii) off-market purchase(s) (if effected otherwise than on the SGX-ST or, as the case may be, Other Exchange)in accordance with any equal access scheme(s) as may be determined or formulated by the Directorsas they consider fit, which scheme(s) shall satisfy all the conditions prescribed by the Companies Act,
and otherwise in accordance with all other laws and regulations and rules of the SGX-ST or, as the case maybe, Other Exchange as may for the time being be applicable, be and is hereby authorised and approvedgenerally and unconditionally (the “Share Purchase Mandate”);
(b) unless varied or revoked by the Company in general meeting, the authority conferred on the Directors of theCompany pursuant to the Share Purchase Mandate may be exercised by the Directors at any time and fromtime to time during the period commencing from the date of the passing of this Resolution and expiring onthe earlier of:
(i) the date on which the next Annual General Meeting of the Company is held; and
(ii) the date by which the next Annual General Meeting of the Company is required by law to be held;
(c) in this Resolution:
“Average Closing Price” means the average of the closing market prices of a Share for the five consecutivemarket days on which the Shares are transacted on the SGX-ST or, as the case may be, Other Exchangeimmediately preceding the date of market purchase by the Company or, as the case may be, the date ofthe making of the offer pursuant to the off-market purchase, and deemed to be adjusted in accordance withthe listing rules of the SGX-ST for any corporate action which occurs after the relevant five-day period;
“date of the making of the offer” means the date on which the Company makes an offer for the purchaseor acquisition of Shares from holders of Shares, stating therein the purchase price (which shall not be morethan the Maximum Price) for each Share and the relevant terms of the equal access scheme for effectingthe off-market purchase;
“Maximum Limit” means the number of issued Shares representing 10% of the total number of issued Sharesof the Company (excluding any Shares which are held as treasury shares) as at the date of the passing of thisResolution; and
“Maximum Price” in relation to a Share to be purchased or acquired, means the purchase price (excludingbrokerage, commission, applicable goods and services tax and other related expenses) which shall notexceed:
(i) in the case of a market purchase of a Share, 105% of the Average Closing Price of the Shares; and
(ii) in the case of an off-market purchase of a Share pursuant to an equal access scheme, 110% of the Average Closing Price of the Shares; and
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108| HONG LEONG ASIA LTD.
NOTICE OF ANNUAL GENERAL MEETING
(d) the Directors of the Company and/or any of them be and are hereby authorised to complete and do allsuch acts and things (including executing such documents as may be required) as they and/or he mayconsider expedient or necessary to give effect to the transactions contemplated and/or authorised by thisResolution.
11. To consider and, if thought fit, to pass, with or without any modifications, the following resolution as an OrdinaryResolution:
That approval be and is hereby given for the purposes of Chapter 9 of the Listing Manual of SGX-ST, for the Company,its subsidiaries and its associated companies that are not listed on the SGX-ST or an approved exchange, overwhich the Company, its subsidiaries and/or its interested person(s), have control, or any of them to enter into anyof the transactions falling within the types of Interested Person Transactions, particulars of which are set out in theAppendix to this Notice of Annual General Meeting (the “Appendix”) with any party who is of the class of InterestedPersons described in the Appendix; provided that such transactions are entered in accordance with the reviewprocedures set out in the Appendix, and that such approval (the “IPT Mandate”) shall, unless revoked or varied bythe Company in General Meeting, continue in force until the conclusion of the next Annual General Meeting ofthe Company, and the Directors of the Company be and are hereby authorised to complete and do all such actsand things (including executing all such documents as may be required) as they may consider expedient ornecessary or in the interests of the Company to give effect to the IPT Mandate and/or this Resolution.
C. To Transact Any Other Ordinary Business.
BY ORDER OF THE BOARD
Ng Siew Ping, JaslinCompany Secretary
14 April 2008Singapore
The Company had on 28 February 2008 advised that the Register of Members of the Company will be closed on 8 May2008 for the preparation of dividend warrants. Duly completed transfers received by the Company up to 5.00 p.m. on7 May 2008 will be registered before entitlements to the proposed dividend for the year ended 31 December 2007 aredetermined.
Directors have recommended a tax exempt (1-tier) final dividend of 6 cents per ordinary share in respect of the financialyear ended 31 December 2007 for approval by Members at the Annual General Meeting to be held on 29 April 2008.The final dividend, if approved, will be payable on 23 May 2008.
ANNUAL REPORT 2007| 109
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NOTICE OF ANNUAL GENERAL MEETING
NOTES:
1. A member of the Company entitled to attend and vote at the Meeting is entitled to appoint not more than twoproxies (whether a member or not) as his proxy to attend and vote on his behalf. The instrument appointing a proxymust be deposited at the Secretary’s Office at 36 Robinson Road, #03-01 City House, Singapore 068877, not lessthan forty-eight (48) hours before the time appointed for holding the Meeting.
2. With reference to item 4(ii) above (under the heading “Ordinary Business”), Mr Goh Kian Hwee will, upon re-electionas a Director of the Company, remain as a member of the Audit, Remuneration and Hong Leong Asia ShareOption Scheme 2000 Committees.
3. With reference to item 5 above (under the heading “Ordinary Business”), Mr Quek Shi Kui will, upon re-appointmentas a Director of the Company, remain as Chairman of the Audit Committee and as a member of the Nominating,Remuneration and Hong Leong Asia Share Option Scheme 2000 Committees. Mr Quek is an independent Director.
4. The ordinary resolution proposed in item 7 above (under the heading “Special Business”), if passed, will empowerthe Directors of the Company from the date of the Meeting until the next Annual General Meeting to issue shareswhether by way of rights, bonus or otherwise and/or make or grant Instruments that might require shares to beissued up to and not exceeding 50% of the total number of the Company’s issued shares excluding treasury shares,if any, with a limit of 20% of the total number of the Company’s issued shares excluding treasury shares, if any,for any issue of shares not made on a pro-rata basis to shareholders. This authority will expire at the next AnnualGeneral Meeting of the Company, unless revoked or varied at a general meeting.
5. The ordinary resolution proposed in item 9 above (under the heading “Special Business”), if passed, will empowerthe Directors to offer and grant options under the Scheme and to issue from time to time such number of sharesin the capital of the Company pursuant to the exercise of such options under the Scheme subject to such limitsor sub-limits as prescribed in the Scheme.
6. The ordinary resolution proposed in item 10 above (under the heading “Special Business”), if passed, will empowerthe Directors of the Company to make purchases or otherwise acquire issued shares in the capital of the Companyfrom time to time subject to and in accordance with the guidelines set out in Annexure II of the Appendix to theNotice of this Meeting. This authority will continue in force until the next Annual General Meeting of the Company,unless previously revoked or varied at a general meeting.
7. The ordinary resolution proposed in item 11 above (under the heading “Special Business”), if passed, will renewthe IPT Mandate first approved by shareholders on 30 May 2003 to facilitate the Company, its subsidiaries and itsassociated companies, to enter into Interested Person Transactions, the details of which are set out in AnnexuresIII and IV of the Appendix to the Notice of this Meeting. The IPT Mandate will continue in force until the next AnnualGeneral Meeting of the Company, unless previously revoked or varied at a general meeting.
HONG LEONG ASIA LTD.Co. Reg. No. 196300306G(Incorporated in the Republic of Singapore)
PROXY FORMFor Annual General Meeting
IMPORTANT
1. For investors who have used their CPF monies to buy the Company’s shares, the AnnualReport is forwarded to them at the request of their CPF Approved Nominee and is sentsolely FOR INFORMATION ONLY.
2. This Proxy Form is not valid for use by CPF investors and shall be ineffective for all intentsand purposes if used or purported to be used by them.
3. CPF Investors who wish to attend the AGM as OBSERVERS have to submit their requeststhrough their respective Agent Banks so that their Agent Banks may register with theCompany Secretary of Hong Leong Asia Ltd.
No. Resolutions
A. ORDINARY BUSINESS:
1. Adoption of Reports and Accounts
2. Declaration of Final Dividend
3. Approval of Directors’ Fees and Audit Committee Fees
4. Re-election of Directors: (i) Mr Teo Tong Kooi
(ii) Mr Goh Kian Hwee
5. Re-appointment of Mr Quek Shi Kui as Director under Section 153(6) of the Companies Act,
Chapter 50
6. Re-appointment of Messrs KPMG as Auditors
B. SPECIAL BUSINESS:
7. Authority for Directors to issue shares and/or make or grant offers, agreements or options pursuant
to Section 161 of the Companies Act, Chapter 50 and the listing rules of the Singapore Exchange
Securities Trading Limited.
8. Amendment to the Rule of the Hong Leong Asia Share Option Scheme 2000
9. Authority for Directors to offer and grant options and to issue shares in accordance with the
provisions of the Hong Leong Asia Share Option Scheme 2000
10. Renewal of the Share Purchase Mandate
11. Renewal of Shareholders’ Mandate for Interested Person Transactions
Dated this day of 2008
Total No. of Shares Held
* Delete accordingly
Notes: See overleaf
For Against
*I/We, with NRIC/Passport No.
of
being a *member/members of HONG LEONG ASIA LTD. (the “Company”), hereby appoint
NRIC/Passport Proportion ofName Address Number Shareholdings (%)
and/or (delete as appropriate)
as *my/our *proxy/proxies to vote for *me/us and on *my/our behalf at the Forty-Seventh Annual General Meeting of theCompany (the “AGM”) to be held at Grand Copthorne Waterfront Hotel, Galleria Ballroom, Level 3, 392 Havelock Road,Singapore 169663 on Tuesday, 29 April 2008 at 10.30 a.m. and at any adjournment thereof. *I/We direct *my/our *proxy/proxiesto vote for or against the Resolutions to be proposed at the AGM as indicated with an “X” in the spaces provided hereunder.If no specific direction as to voting is given or in the event of any other matter arising at the AGM, *my/our *proxy/proxies willvote or abstain from voting at the discretion of *my/our *proxy/proxies.
Signature(s) ofMember(s)/Common Seal
NOTES
1. A member of the Company entitled to attend and vote at the AGM is entitled to appoint one or two proxies to attendand vote in his /her stead. A proxy need not be a member of the Company.
2. Where a member appoints two proxies, the appointments shall be invalid unless he specifies the proportion of hisshareholding (expressed as a percentage of the whole) to be represented by each proxy.
3. Completion and return of this instrument appointing a proxy shall not preclude a member from attending and voting atthe AGM. Any appointment of a proxy or proxies shall be deemed to be revoked if a member attends the AGM in person,and in such event, the Company reserves the right to refuse to admit any person or persons appointed under the instrumentof proxy, to the AGM.
4. Please insert the total number of shares held by you. If you have shares entered against your name in the DepositoryRegister (as defined in Section 130A of the Companies Act, Chapter 50 of Singapore), you should insert that number ofshares. If you have shares registered in your name in the Register of Members of the Company, you should insert thatnumber of shares. If you have shares entered against your name in the Depository Register and shares registered in yourname in the Register of Members, you should insert the aggregate number of shares. If no number is inserted, thisinstrument of proxy will be deemed to relate to all the shares held by you.
5. This instrument of proxy must be signed by the appointor or his attorney duly authorised in writing. Where the instrumentappointing a proxy or proxies is executed by a body corporate, it must be executed either under its common seal orunder the hand of its attorney or a duly authorised officer.
6. A body corporate which is a member may also appoint by resolution of its directors or other governing body an authorisedrepresentative or representatives in accordance with its Articles of Association and Section 179 of the Companies Act,Chapter 50 of Singapore to attend and vote for and on behalf of such body corporate.
7. This instrument appointing a proxy or proxies (together with the power of attorney, if any, under which it is signed or acertified copy thereof), must be deposited at the Secretary’s Office at 36 Robinson Road, #03-01 City House, Singapore068877 not less than 48 hours before the time fixed for holding the AGM.
8. The Company shall be entitled to reject this instrument of proxy if it is incomplete, improperly completed or illegible orwhere the true intentions of the appointor are not ascertainable from the instructions of the appointor specified in thisinstrument of proxy. In addition, in the case of shares entered in the Depository Register, the Company may reject anyinstrument appointing a proxy or proxies lodged if the member, being the appointor, is not shown to have shares enteredagainst his name in the Depository Register as at 48 hours before the time appointed for holding the AGM as certifiedby The Central Depository (Pte) Limited to the Company.
9. Agent Banks acting on the request of CPF Investors who wish to attend the AGM as Observers are required to submit inwriting, a list with details of the investor’s name, NRIC/Passport number, addresses and number of shares held. The list,signed by an authorised signatory of the agent bank, should reach the Company Secretary, at the Secretary’s Office at36 Robinson Road, #03-01 City House, Singapore 068877, not less than 48 hours before the time fixed for holding theAGM.
Fold Here
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PROXY FORM
The Company SecretaryHONG LEONG ASIA LTD.
36 Robinson Road#03-01 City HouseSingapore 068877
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