going beyondhgmetal.listedcompany.com/misc/ar2011.pdf · 1 corporate profile 2 chairman’s...

HG METAL MANUFACTURING LIMITED Annual Report 2011

GOING BEYOND

1 CorporateProfile2 Chairman’sStatement6 ManagingDirector&CEO’sMessage9 FinancialHighlights10 BoardofDirectors12 KeyExecutives&SharedServices13 KeyMilestones14 Operations&FinancialReview16 CorporateInformation17 CorporateGovernance31 FinancialContents

CONTENTS

GOING BEYOND

YEARS OF STEEL

Supportedbya40-yeartrackrecordinthesteelindustry,SGXMainboard-listedHGMetalManufacturingLimited(“HGMetal”)istodayaleadingsteeldistributorandprocessorintheregion.

Ourhighlyexperiencedmanagementteampossessesanaverageof20yearsofexperienceintheAsiasteelindustry.Weleverageontheexpertiseandrelationshipnetworkofourmajorshareholderandfoundationsteelspecialist,theOrientalCastleGroup,toexecuteourmulti-prongedgrowthstrategyinASEAN.

Withmorethan800,000squarefeetoflandarea,HGMetalhasoneofthelargeststeelwarehouseandprocessingfacilities inSingapore,storingmorethan2,000varietiesofsteelproducts.Togetherwithourcomprehensiverangeofdownstreamvalue-addedandprocessingservices,HGMetalofferscustomisedsteelsolutionsforourregionalcustomerbasealongtheentiresupplychain.

CORPORATE PROFILE

1GOING BEYOND • ANNUAL REPORT 2011

CHAIRMAN’SSTATEMENT

Dear Shareholders

CELEBRATING 40 YEARS OF STEEL

2011markedanimportantmilestoneforHGMetalaswecommemorated40yearsinthesteelbusiness.ThecompanywasfoundedbyourExecutiveDirector,MrTanChanToo,alongwiththreeotherpartners in 1971,asHockGuanHardwareandCompany.Today,HGMetaliswidelyregardedbycustomersandpeersasoneoftheregionalleadersinsteeldistributionandprocessing,andIamprivilegedtobeapartofthisdynamiccompany.

Followingfourdecadesoftrackrecordinthesteelindustry,theGroupcontinuestobuildsustainablegrowthundernewleadership.WeareblessedwithastrongmanagementteamMrTan,whospearheadstheGroup’sdistributionand

tradingbusiness,isnowjoinedbyMrGohKianSin,whohadassumedtheroleofChiefExecutiveOfficeron1July2011.

Armedwithmorethan20yearsofexperienceinthesteelindustry,MrGohisalsothefounderoftheOrientalCastleGroup(“OCG”)whichisoneoftheregion’skeyplayersinthefoundationsteelsector.

HGMetalwill leverageontheexpertiseandrelationshipnetworkofOCGtoexecuteourmulti-prongedgrowthstrategyinASEAN.TheCompanyremainscommittedtoenhancevalueforourcustomersandtocreatelongtermshareholdervalue.

The new leadership signifies a fresh direction for HG Metal, as the Group charts a new beginning in our drive for sustainable growth.

2 HG Metal Manufacturing Limited

Mr. Yap Xi MingNon-ExecutiveChairman

YEAR IN REvIEw

Evenwhenchallengedwithanuncertainglobaleconomyandvolatiletradingconditions,theGroupstayedfocusedtoendFY2011onastrongnote.OurpositiveresultsinFY2011wasduetoincreasedsalesvolumesmainlyinSingapore,MalaysiaandIndonesia.

TheGroupachieveda 18%growth intop linetoreachS$238.8million,whilegrossprofitrose10%tohitS$26.0million.Duetoacompetitivebusinessenvironment,grossprofitmargindeclinedmarginallyby0.8percentagepointsfrom11.7%inFY2010to10.9%inFY2011.

Onanoperatinglevel,otheroperatingexpensesdeclinedsignificantlyby65%toS$7.1millionmainlyduetotheS$12.9million inventorywrite-downinFY2010.Financeexpensesalsodroppedby72%toS$1.9millionfollowingtherepaymentofourlong-termloanfacility.Overall,ournetprofitinFY2011surgedsignificantlytoreachS$16.3million,comparedtoS$0.3millioninFY2010.

ENHANCING SHAREHOLDER vALUE

HGMetaliscommittedtocreatinglong-termsustainablegrowth,andtoreturningvaluetoyou,ourshareholders.InviewofourrobustresultsinFY2011,theBoardofDirectorsispleasedtoproposeaninterimtax-exemptcashdividendof0.6Singaporecentspershare.

Tofurtherenhanceshareholdervalue,theDirectorsarealsoseekingyourapprovalforasharepurchasemandate.Themandatewill give thecompany the flexibility topurchaseoracquirethecompany’sshares, ifandwhencircumstancespermit.

expectationsbeyond

Asharebuyback’s impacton sharepricecomes fromchanges in theCompany’scapital structureand,morecritically,fromthepositivesignalsabuybacksends.ThesharebuybackenablesustoreturntheGroup’sexcessfundstoshareholdersexpedientlyandcost-efficiently.Wewillhavetheopportunitytoacquireshareswhenthesharesareundervalued,tohelpmitigateshort-termmarketvolatilityandshort-termspeculation.

IN APPRECIATION

OnbehalfoftheBoardofDirectors,Iwouldliketoexpressour sinceregratitude toallour stakeholders. Toourshareholdersthankyouforyourcontinuedsupportandconfidence.Tomyfellowboardmembers,managementteamandemployeesthankyouforyourhardworkandcommitment.Toourcustomers, suppliersandbusinesspartnerswearegratefulforyourtrustandconfidenceinusandlookforwardtomanymoreyearsofsupport.


超越期望

董事长致词

亲爱的股东,

庆祝40年的钢铁生意

2011年是福源金属的重要里程碑，标志着我们在钢铁工业40

年。公司在1971年由执行董事，陈春土先生，以及三位合作

伙伴成立, 名为福源硬件公司。今天，福源金属在新加坡和区

域内已成为钢铁分布和加工领域的领导者，而我确实感觉非

常荣幸能够成为这公司的一份子。

以这四十年在钢铁工业的经验为后盾，福源金属富有信心面

向未来。我们背靠强而有力的管理层 - 由陈先生负责集团的

业务分布及贸易，再加上吴建勋先生的加入，于2011年7月1

日上任为首席执行官。

新的领导班子，标志着福源金属的新方向，作为本集团持续

增长的一个新开始。吴先生在钢铁行业的经验超过20年，他

也是Oriental Castle Group（“OCG”）的创始人，而其

公司是区域内基础钢铁工业的主要营业者之一。

有了OCG的加入,作为我们的主要股东, 再加上本集团多管齐

下的增长策略，福源金属致力于为我们的客户增值，并进一

步发展我们在钢铁分布和加工领域的地位。

年度回顾

虽然面对着世界经济困难, 我们在2011财政年度取得了积极

的成果。在全球经济软化与不明朗的背景下，本集团仍保持

集中, 取得成果。我们2011财政年度的业绩，多归于销售量

增加, 尤其在新加坡，马来西亚和印度尼西亚。

新的领导班子，标志着福源金属的新方向，作为本集团持续增长的一个新开始。


本集团取得顶线增长18%，达到两亿三千八百八十万新元，

而利润总额增长了10％，达到两千六百万新元。由于商业环

境竞争激烈，总的利润率轻微下跌0.8个百分点，从2010财

政年度的11.7％跌至2011财政年度的10.9％。

在经营运作方面，其他经营开支显著下降65％至七百一十万

新元，主要是由于2010财政年度写下的慢动库存总值一千

两百九十万新元。财务费用也因为我们偿还了长期贷款设施

而下降了72%至一百九十万新元。总而言之，相比于2010财

政年度的三十万新元净盈利, 我们在2011财政年度净盈利大

幅度上升，达到一千六百三十万新元。

提升股东价值

福源金属致力于确保公司在长期内可持续增长，并为我们的

股东取得盈利。鉴于在2011财政年度我们强胜的业绩，董事

会很高兴提出中期免税现金股息每股新币0.6分。

为了进一步提高股东价值，董事会亦寻求批准获得购股授

权。这将在情况许可下给予公司有灵活性地购买或收购公司

的股份。

在适当的价格水平购买股票，是让我们可以增强集团的净资

产收益率的方法之一。这使我们能够在符合成本效益的情况

下, 适当地向股东归还集团的剩余基金，远远超过我们的普

通资本金要求。我们将有机会在股价被低估时收购股份，以

帮助缓解短期市场波动和短期的投机行为。购股授权也将让

我们在集团的股本结构和股利政策上有更多的灵活性，以提

高盈利和/或每股净资产值。

由衷感谢

在此我代表董事会，向所有的股东表示诚挚的谢意。致我们

的股东 - 感谢您持续的支持和信心。致我的董事会成员，管

理层团队和员工们 - 感谢你们的辛勤工作和奉献。致我们的

客户，供应商和业务伙伴 - 我们感谢你给予我们的信任与信

心，并期待着有你们更多年的支持。

叶玺明先生

非执行董事长

本集团取得顶线增长18%，达到两亿三千八百八十万新元，而利润总额增长了10％，达到两千六百万新元。


Dear Shareholders

A COMMENDABLE PERFORMANCE

HGMetal’sfinancialperformanceinFY2011wasasuccessbyanymeasure,aswemadeasterlingfinishwithgoodsalesandearningsgrowth.

OurGroup’sfull-yearturnoverreachedS$238.8million,up18%year-on-year,whileourgrossprofitrose10%toS$26.0million.Withamajordropinoperatingandfinanceexpenses,ournetprofitinFY2011surgedsignificantlytoreachS$16.3million,comparedtoS$0.3millioninFY2010.

Sincethebeginningofthefinancialyear,theGrouphastakendefinitestepstodrivegrowth.Wenotonlyextendedourproductportfoliotoincludemorestandardsteelandhighergradeproducts,butalsoactivelypushedthesalesofourslower-movingstock.Asaresult,wemanagedtogrowoursalesvolumesandregainsomemarketshare,mainlyinSingapore,MalaysiaandIndonesia.Wehavealsowidenedoursalescoverage,onasmallerscale,toSriLanka,Thailand,MyanmarandVietnam.

Asat30September2011,theGroupachievedbasicearningspershareof1.72Singaporecents,upfromalossof0.32Singaporecentsayearago.Ournetassetvaluealsogrewto13.07Singaporecents,from12.71Singaporecentslastyear.

Givenourstrongperformancethisyearandinappreciationofyoursupport,theGroup’sdirectorswouldliketoreturnvaluetoyouintheformofan interimtax-exemptcashdividendof0.6Singaporecentsper share.Subject toyourapproval,wealsoplantobuybackoursharesattheappropriatetimesoastoenhanceshareholders’value.

IMPROvING OUR OPERATIONS

FY2011wasabusyyearforusasweworkedhardtolaythegroundforthecreationofastrongerHGMetal.

Wetookastepbackandrestructuredouractivitiesintokeybusinessunitsnamely,distribution,projectsalesandprocessing(flat,longandspecialisedprocessing).Webelievecreating thesenewbusinessunitswould improveourorganisationalstructureandprocesses,createclearlinesofaccountability,aswellasrefocusouractivitiestoaddgreatervaluetoourcustomers.

Whatwasalsonecessarywasthestrengtheningofourtalent.WeappointedtwonewChiefOperatingOfficers:MrHoVuiSoon,ChiefOperatingOfficeroftheFlatSteelProcessingBusinessUnit,andMrGeorgesKeipes,ChiefOperatingOfficeroftheLongProcessingBusinessUnit.BothVuiSoonandGeorgeshavechallengingtasksbeforethem,whichtheyaretacklingheadon.

Duringtheyear,wecontinuedtoimprovethequalityandefficiencyofourbusiness,whichhasalwaysbeenoneofourpriorities. In linewiththesteel industry’seffortstoincreasequalitystandards,theGrouphasbeenreviewingourprocessesalong thesupplychainwith theaimofimplementingasystemthatallowsthetraceabilityofsteelsourceandmaterialcomposition.Furthermore,wearelookingatwaystoenhanceouroperationalefficiencyinareassuchasourprocessingservices,warehousing,salesandtransport.

Intermsofourfacilities,weareinthemidstofconstructingthefinalbuildingblockatourthirdandnewpremiseatJurongPortRoad.Whenconstructioniscompletedinmid2012, itwillcementHGMetal’spositionasasteelplayerwithoneofthelargeststeelwarehouseandprocessingfacilitiesinSingapore,withmorethan800,000squarefeetoflandarea.

MANAGING DIRECTOR & CEO’S MESSAGE

Our Group’s full-year turnover reached S$238.8 million, up 18% year-on-year, while our gross profit rose 10% to S$26.0 million.


Someofthesecorporateinitiativestorewireourorganisationandsetthestageforsustainablegrowtharestillwork-in-progress.Althoughtheseinitiativeswilltaketimeandinvestmentcosttocometofruition,weareconfidentthatweareontherighttrack.

GOING BEYOND

OneofHGMetal’skeyvaluepropositionshasalwaysbeenourone-stophypermarket strategyofprovidingawide rangeof steelproducts atcompetitiveprices.Whilethisstrategyhasservedandcontinuestoserveuswell,weareacutelyawarethatweneedtogobeyondthisstrategyandformulateaforward-lookingplantostayaheadinthisincreasinglycompetitiveindustry.

Tothisend,wehavedevelopedabroad-basedroadmapcoveringfivecoreareas:

1. DIvERSIFY BUSINESS MODELWearediversifyingourcommodity-basedsteelstockistbusinessmodeltofocusonhighervalue,nicheproductsandservices.Withtherecoveryofourdistributionbusiness,weareshiftingourattentiontoaddingvaluetooursteelproducts,aswellasdirectsaleswithend-userswhorequirelargeandcustomisedordersforspecificprojects.

2. EXPAND PRODUCT RANGETostrengthenourone-stophypermarketstrategy,weareaddinghighergrade,difficult-to-attainsteelproductstoourportfoliosuchashigh-strengthbeams,hotformedhollowsections,high-strengthplatesforpressurevessels,abrasion-resistantplates,high-strengthrebarsforconstructionandhigh-strengthplatesforshipbuilding.

3. wIDEN GEOGRAPHICAL REACHWithASEANbeingthenextgrowthengineinAsia,wewillleverageSingaporeasahubtoexpandintoSouthEastAsia,SouthAsia,MiddleEastandAustralia.Thesteelmarketsintheregionarehighlyfragmentedandlackhigh-valueproducts–whichprovidesopportunitiesforustotapon.

4. STRENGTHEN CUSTOMER RELATIONSHIPSHGMetalhasalargeanddiversifiedbaseof1,000customers,includingsmallersteelstockists,hardwarecompanies,tradingcompaniesandcompaniesintheengineering,marineandconstructionindustries.Ourstrategyistodirectlyengagetheend-usersofsteel,soastounderstandtheirneedsandinturnprovidemorecomprehensivesolutionsandenhancecustomerloyalty.Withthisstrategyinmind,ournewprojectsalesteamisactivelyseekingopportunities

boundariesbeyond


toworkdirectlywithconstruction,civilengineering,marineengineering,energy,andoil&gascompanies.

5. ENHANCE PROCESSING CAPABILITIESWeaimtoaddgreatervaluetoourend-usersbyofferingmoredownstreamcustomisationservicesinflatandlongprocessing.Presently,HGMetalmainlyprovidesflatsteelprocessingservicessuchaspurlinhole-punching,shearing,sandblasting,coatingandcoilslitting.WearealsotheonlypipemanufacturerinSingapore,producingawiderangeofpipes,square/rectangular/hollowsections, lipchannels,metaldeck,scaffoldsandflatbars. Infuture,wehopetoexpandourcapabilitiesto includeflatteninghotrolledcoilsandcoldrolledcoilsandshearingthemtorequiredlengths,beveling,2D-profilecuttingandplasmacutting,aswellaskitting.

Ourmulti-prongedstrategyaimstoenlargeHGMetal’sbusiness and position the Group for long-term andsustainablegrowthintothefuture.

EMERGING ECONOMIES TO DRIvE STEEL GROwTH

Inviewthatsteelisanessentialmaterialforawiderangeofindustries,weremainconfidentofthelong-termprospectsofthesteelindustryandbelievethatASEANwillbethenextgrowthengineinAsia.

TheWorldSteelAssociationforecaststhatworldsteeldemandwillgrowby5.4% in2012,withemerginganddeveloping economies accounting for 73% of worldsteeldemand.AccordingtotheSouthEastAsiaIronandSteel Institute,theASEANsteel industryhaspickedupsignificantlyafterthefinancialcrisis in2008.Totalsteelconsumptionintheregiontouchednearly49milliontonnesin2010,anincreaseof17.5%year-on-year.ThesubstantialincreasewasledmainlybythehighgrowthrateinThailand,IndonesiaandMalaysia.

ASEAN’ssteelconsumptioncontinuestohaveroomforgrowthbecauseofitspoliticalandeconomicstabilityandhighgrowthpotential.SteelconsumptioninASEANinthe

firsthalfof2011reached26.1milliontonnes.DespitetheseverefloodingexperiencedinThailand,theoverallgrowthin2011 isexpectedtobehealthyalthoughdemandwillincreaseataslowerrate.Hence,steelconsumptionfor2011couldeithercomeclosetoorsurpass50.0milliontonnes.

Ontheglobalfront,theoutlookforthesteelindustryismixed.Recoveryinglobalsteeldemandisanticipatedtoslowdowninlinewiththesluggishgrowthintheworldeconomy.SinceJuly2011,theglobalfinancialmarketshavebeenveryvolatile,triggeredbytheEuropeandebtcrisis.Withheightenedglobaldownsiderisks,theMinistryofTradeandIndustryhaslowereditsgrowthforecastsandexpectsSingaporeeconomytogrowbyaround5%in2011andby1%to3%in2012.

Giventheglobaleconomicuncertaintiesandvolatility,theGroupiscautiouslyoptimisticofourperformanceforFY2012.Weexpectmarginstoremaincompetitiveandwillcontinuetobeprudentintheuseofourbalancesheet,withparticularfocusoncostmanagement,foreignexchangehedgingandnon-coreassetrestructuring.

COMMITMENT TO SHAREHOLDERS

Our40-yeartrackrecordatteststotheviabilityandstrengthofoursteelbusiness.IwishtoassureyouthatHGMetaliscommittedtodeliversustainablereturnsandvaluetoallourshareholders.

Inclosing,pleaseallowmetoexpressmydeepestappreciationtoyou,ourshareholders,foryourconfidenceinHGMetal;ourBoardofDirectorsfortheirinvaluablecontribution;ouremployeesfortheirdedicationandhardwork;andlastbutnotleast,ourcustomers,suppliers,bankersandbusinesspartnersfortheirindispensablesupport.

WelookforwardtoyourcontinuedsupporttomakeFY2012anevenmoresuccessfuloneforHGMetal.

Mr goh Kian SinManagingDirectorandChiefExecutiveOfficer

MANAGING DIRECTOR & CEO’S MESSAGE


ShippLaTES / STEEL pLaTES BarS

BEaMS pipES oThErS

Ship pLaTES /STEEL pLaTES

44%

pipES

11%oThErS

10%

BEaMS

11%

BarS

24%

SingaporE MaLaYSia

inDonESia oThErS

inDonESia

19%

oThErS

4%

SingaporE

64%

MaLaYSia

13%

Turnover by Region (%) Turnover by Products (%)

Shareholders’ Fund S$(million)

70

50

90

110

130

115.8

136.5

98.6100.5

132.8

07 08 09 10 11

Turnover S$(million)

400

200

600

800

1000

07 08 09 10 11

438.1

732.9581.8

203.1 238.8

Net Profit S$(million)

18.3

10

-10

-15

-20

-25

-30

-35

-40

-45

-50

-55

-60

5

-5

15

20

25

30

22.7

16.3

0.3

(58.8)

07 08

09

10 11

FINANCIAL HIGHLIGHTS


1 432

BOARD OF DIRECTORS

1 Mr Yap Xi MingNon-Executive Chairman

MrYapXiMing,wasappointedtotheBoardinApril2010.MrYapistheManagingDirectorofChyeHinHardwarePteLtd,whichisastockist,importerandexporterforstructuralandmildsteelproducts.Heisabusinessmanwithmorethan25yearsofexperienceinthesteelindustry.MrYapisamemberoftheRemunerationCommitteeandNominatingCommittee.

2 Mr. goh Kian Sin Managing Director and Chief Executive Officer

MrGohKianSin,wasappointedtotheBoardinNovember2010.Withmorethan20yearsofexperienceinthesteelindustry,MrGohspenthisfirst10yearsinaKualaLumpur-listedmajorsteelstockistinMalaysia.In1999,hefoundedOrientalCastleSdnBhdandledittobecomeoneoftheregion’skeyplayersinthesteelapplicationandprovidersector,withofficesthroughoutSouthEastAsiaandChina.

Besidessteel,MrGohalsodevelopedhisfamily’susedcarbusinessandco-foundedTelagamasMotorsSdnBhd,anewcardealershipwithanetworkofservicecentresinNorthMalaysia.Anaccountantbytraining,MrGohisaCertifiedPublicAccountantofAustralia.HehasaBachelorofBusinessdegreefromUniversityofSouthernQueensland.MrGohisamemberoftheNominatingCommittee.

3 Mr. Tan Chan TooExecutive Director

MrTanChanToo,isoneofthethreefoundersoftheGroupin1971.Hehas40yearsofexperienceinthesteelindustry.Inthe1980s,MrTanwasinstrumentalindevelopingtheGroup’sexportmarketsandestablishedanewcustomerbase inEastMalaysiaandIndonesia.MrTaniscurrentlyheadingtheGroup’ssteeldistributionbusiness.

4 Wong KEan ShYong, KEnnNon-Executive Director

MrWongKeanShyong,wasappointedtotheBoard inNovember2010.MrWonghasextensivecommercialexperienceintheinternationalsteeltradingindustry.HeiscurrentlytheChiefMarketingOfficerofOrientalSheetPilingSdnBhd,andheadsthecompany’ssteelfoundationbusinessinChinaaswellasitsoilandgasandcivilconstructiondivisions.

From1989to2002,MrWongworkedfortheMarubeniGroup,servinginthegroup’sofficesinJapan,SingaporeandHongKong.HesubsequentlyjoinedVSCHoldingsin2002andlastheldthepositionofPresidentConstructionMaterialGroupin2008.

5 Dr Tan Eng LiangIndependent Director

DrTanEngLiang,wasappointedtotheBoardinJanuary2010.Hesitsontheboardsofseveralcompanies,includingpublic-listedcompanies,namelySunMoonFoodCompanyLimited,TungLokRestaurants (2000) Limited, PokkaCorporation(Singapore)Limited,UnitedEngineersLimited,ProgenHoldingsLimited,JackspeedCorporationLimitedandHartawanHoldingsLimited.

DrTanhasawealthofexperienceandwasaMemberofParliament(1972to1980),theSeniorMinisterofStateforNationalDevelopment(1975to1978)andSeniorMinisterofStateforFinance(1978to1979).HealsoservedastheChairmanoftheUrbanDevelopmentAuthorityandtheSingaporeSportsCouncil.

DrTanhasaDoctoratefromOxfordUniversity,England.DrTanhasbeenawardedthePublicServiceStar(BBM),PublicServiceStar(BAR)andtheMeritoriousServiceMedalbytheSingaporeGovernment.HeistheChairmanoftheAuditCommitteeandmemberoftheRemunerationCommitteeandNominatingCommittee.

6 Mr gui KiM Young @ gui KiM ganIndependent Director

MrGuiKimYoung@GuiKimGan,wasappointedtotheBoardinFebruary2002.MrGuihasmorethan30yearsofexperienceinaccounting,auditandtax.Heispresentlyadirectorofapublicaccountingcorporation,andalsoactsasanindependentdirectorinthreeotherlistedcompanies.

MrGuigraduatedfromthethenNanyangUniversitywithaBachelorofCommercein1973.HeisaFellowoftheInstituteofCertifiedPublicAccountantsofSingaporeandamemberoftheSingaporeInstituteofDirectors.HeistheChairmanoftheRemunerationCommittee,andamemberoftheAuditCommitteeandNominatingCommittee.


5 6 7

7 Mr Ling Chung YEE, roYIndependent Director

MrRoyLing,wasappointedtotheBoardinJanuary2010.HeiscurrentlytheHeadofAsiaInvestmentBankingandManagingDirectoratRLCapitalManagement.HealsositsontheBoardsofseveralorganizationsandSGX-listedcompanies.

Prior toworking forRLCapital,MrLingwasa seniorinvestmentbankerwithJPMorgan’sAsiarealestateinvestmentbankingteam.Hewasresponsiblefortheoriginationandexecutionof investmentbankingmandatesforregionalclients.Prior to JPMorgan,MrLingheldseniorbankingpositionswithLehmanBrothers,GoldmanSachsandSalomonSmithBarney,performingabroadrangeofcorporatefinance,equityresearchandrealestatefinancings.

MrLingisaCharteredFinancialAnalystandwasformerlyaBoardDirectoroftheCFASocietyofJapan.HegraduatedfromINSEADwithaGlobalExecutiveMBAandfromtheNationalUniversityofSingaporewithaBachelorofBusinessAdministrationwithHonours.MrLingistheChairmanoftheNominatingCommitteeandamemberoftheAuditCommitteeandRemunerationCommittee.


1 Mr ho Vui SoonChief Operating Officer (Flat Steel Processing Business Unit)

MrHoheadsHGMetal’sflatsteelprocessingbusinessunit,withfouryears’ofexperienceinthesteelindustry.PriortojoiningtheCompany,hewasGeneralManagerofStrategyoftheOrientalCastleGroupandSeniorManagerofOrientalSteelPiling.MrHoalsobringswithhim7yearsofexperienceinaglobaldatasolutionscompany,RecallAsiaPteLtdandhasheldseveralpositionsasCommercialPlanningManagerandRegionalChiefFinancialOfficer.

2 Mr gEorgES KEipESChief Operating Officer (Long Processing Business Unit)

MrKeipesisinchargeofthelongprocessingbusinessunit.Hehasasolid16yearsofexperienceinthesteelindustry,servingintheArcelorGroupofCompanies,havingmoveduptheranksfromDirectorofMillSalestoManagingDirectorofInternationalDevelopment.HewasalsoProfessor-EngineeratLuxembourgMinistryofNationalEducationfor6years.

3 MS Foong LEE hEng, JaSMinEChief Financial Officer

MsFoong,who joinedtheCompany in2000, isakeymemberoftheseniormanagementteamandisresponsibleforallfinancial,treasuryandaccountingfunctionsaswellasoverseesthecorporateadvisorymattersoftheGroup.Shehas18years’experienceinauditandaccounting,andisafellowmemberoftheAssociationofCharteredCertifiedAccountants,UnitedKingdomandamemberoftheInstituteofCertifiedPublicAccountantsofSingapore.

4 MS Foo Chih YuEnSenior Manager, Supply Chain

MsFoojoinedthegroupin2011.SheassiststheCEOandtheBusinessUnitHeadsinSupplyChainplanningandcontrol.SheisresponsibleforputtinginaplaceManagementInformationSystemtosupportsupplychaindecisionsandfordevelopingproceduresandguidelinesforsupplychainmanagement.

MsFoograduatedfromNUSwithaBachelor inBusinessAdministrationandholdsaPost-graduateDiploma inSystemsAnalysisfromNUS-ISS.Shehas17yearsofworkingexperienceinIT,ProductDevelopmentandBanking.PriortojoiningtheGroup,shewasinCorporateBankingservingthesteelindustry.

5 MS Khong SEE YunSenior Manager, Finance & Operations

MsKhongistheSeniorManageroverseeingthefunctionsoffinanceandoperationsoftheflatsteelandlongprocessingbusinessunits. She joined theGroup in2011. She is afellowmemberofTheCharteredAssociationofCertifiedAccountant,UnitedKingdom.PriortojoiningtheGroup,MsKhongwasinthebuildingmaterialindustrywiththeHongLeongGroup,Malaysiafor11years.ShehadheldvariouspositionsincludingFinanceManager,GroupFinanceManagerandFinancialControllerwiththeHumeCemboardSdnBhdandGroupFinancialControllerwithGuoceraTileIndustriesSdnBhd.

6 MS Tan YEE LEE, ELiSEHead of Sales

MsTanjoinedtheCompanyin2007toleadtheSalesTeam.Herkeyresponsibilitiesincludesales,marketingandprocurementofCompany’sproducts,strategizingtheCompany’smarketposition,developingnewmarketopportunities,formulatingsalespoliciesandproceduresto improveefficiencyandprovidingbettercustomerservice.MsTangraduatedfromNUS(B.Sc,InformationTechnologyinBusinessfocus)andjoinedtheGroup’swhollyownedsubsidiaryOrientalMetalsPteLtdin2005,assistingsalesandmarketingfortheCompany.PriortojoiningtheGroup,shehasheldvariousmanagementpositionsingovernment-relatedorganizations.

7 MS MELLY raharDJaProject and Product Development Manager

MsRahardjaisinchargeofpurchasingandjoinedtheGroupin2011.Shehas14yearsofcommercialexperiencewithinthesteelindustry,holdingvariouspositionsinasteeltradingandsteelmanufacturingfirm.

8 MS Tan YEE WEnCustomer Development Manager

MsTan joinedtheCompany in2007tomanagecreditrisk.She is responsible forassessingcreditworthinessofcustomersandtominimisetheriskexposureoftheCompanywhile supporting theCompany’s efforts toexpandsalesand increasemarket share.Her rolehassincegrownto includeexploringanddevelopingnewcustomerbase,openingupnewmarketsegments,providingsales intelligencesupport to theSalesTeam.Shehashadextensiveexperience in international tradingaftergraduatingfromNUSwithabachelor’sdegreeinInformationCommunicationsManagement.

KEY EXECUTIVES & SHARED SERVICES


KEY MILESTONES

1971• Startedsteeltradingbusiness

underthename,HockGuanHardware&Company

• Asmallerretailerofsteelproducts,includingsecondarypipes,flatbarsandhollowsections

• Carriedoutbusinessfromatemporaryretail spaceof 5,000 square feet atMacPhersonRoad

1973• Expandedbusiness from

asteelretailertoasteelstockistbyimportingsteelproductsfromThailandandthePRC

1980s• Acquireda60,000squarefeet

warehouseinTuasin1984,tocopewiththeincreaseinvolumeofbusiness

• Expanded business byexportingandsupplyingsteelproductstoneighbouringcountriesincludingMalaysiaandIndonesia

• AnnualsalesgrewtomorethanS$10million

1988• HGMetalwasincorporated

• Acquired100,000squarefeetofwarehousespaceatLiuFangRoad

• Expandedproductrangetoincludeshipplates,deformedbarsandH-beams

1998• Movedtocurrentpremises

at30JalanBuroh

1999• Movedupthevalue-chain

toprovidesteelproductmanufacturingandprocessingservices , by acquir ingOrientalMetals

2000• OrientalMetalsbuiltanew

factoryandwarehouseatitsexistingpremisesat28JalanBuroh

• OrientalMetalsmanufacturedflatsteelbarsandmildsteellipchannels

2002• HGMetalislistedonSESDAQ

2004• HGMetalupgradedtothe

SGXMainboard

2008• Expanded with 150,000

squarefeetofwarehousespaceatJurongPortRoad

• AcquiredastakeinBRCAsiaLimited

2010• Entryofstrategicinvestor,

OrientalCastleGroup

2011• HG Metal celebrates 4

decadesofheritageinthesteelindustry

40A LOOK BACK AT OUR PAST

YEARS


OPERATIONS & FINANCIAL REVIEW

TURNOvER AND EARNINGS GROwTH

HGMetaldeliveredagoodsetoffinancialresultsforthe12monthsended30September2011(“FY2011”).TheGroupachievedan18%growth inturnovertoS$238.8million,comparedtoS$203.1million inFY2010,underpinnedbyincreasedsalesvolumesmainlyinSingapore,MalaysiaandIndonesia.

Duringtheyearinreview,weactivelypushedthesalesofourslower-movingstockandexpandedourproductportfoliotoincludemorestandardsteelandhighergradeproducts.SalesvolumeinFY2011reachedapproximately235,000metrictonnes(“MT”),upfromabout154,000MTayearago.

Intandemwiththeincreaseinrevenue,theGroup’sgrossprofitroseby10%fromS$23.7millioninFY2010toS$26.0million inFY2011.However,againstamorecompetitivebusinessenvironment,grossprofitmargindeclinedmarginallyby0.8percentagepointsfrom11.7%inFY2010to10.9%inFY2011.

Otheroperating incomeforFY2011decreasedby33%toS$6.6millionfromS$9.8millioninFY2010.InFY2011,otheroperatingincomeincludedafairvaluegainofS$5.2millionforthecalloptionandwarrants,whereasinFY2010,itincludedafairvaluegainofS$1.5millionforthewarrantsandaS$6.4milliongainonthedisposalofsubsidiary,BRCAsiaLimited(“BRC”),inFY2010.

OtheroperatingexpensesdroppedsignificantlybyS$13.4milliontoS$7.1million inFY2011, fromS$20.5million in

FY2010.ThiswasmainlyduetotheS$12.9millionwritedownofinventoryvalueandtheS$1.9millionlossonthedisposalofsharesinanassociatecompanyinFY2010.Followingtherepaymentofourlongtermloanfacility,financeexpensesinFY2011decreasedby72%toS$1.9millionfromS$6.9millioninFY2010.

Asaresultoftheabovefactors,theGrouppostedanetprofitaftertaxofS$16.3millioninFY2011,asignificantjumpfromS$0.3millioninFY2010.

SEGMENTAL PERFORMANCE

Onageographicalbasis,theGroupcontinuedtowidenoursalesreachbeyondSingapore.Wesawanincreaseinsalesacrossallcountries,withabulkofthegrowthcomingfromSingapore,MalaysiaandIndonesia.

Singapore remained the largest contributorof sales,accountingfor64%ofFY2011turnover.Indonesiawasthesecondlargestsalescontributor,generating19%oftheGroup’sturnover.Malaysiacontributed13%,whiletheotherremainingcountrieslikeSriLanka,Thailand,MyanmarandVietnamcontributedtheremaining4%.

Breakingdownourrevenuebyproducts,ship/steelplatesaccountedfor44%ofourFY2011revenue.Ship/steelplatesaretypicallymajorcontributorstoourrevenue,recordingthehighestmargins.TherestofourFY2011revenuecamefrombars(24%),beams(11%),pipes(11%)andothers(10%).

with the proceeds of S$15.6 million from the issue of new shares and S$7.3 million from the issue of call option shares, the Group recorded higher cash and cash equivalents of S$9.1 million as at 30 September 2011, compared to S$4.3 million as at 30 September 2010.


BALANCE SHEET AND CASH FLOwS

In linewith the increase insalesvolumes, theGroup’sinventoriesincreasedtoS$96.7millionasat30September2011,ascomparedtoS$62.5millionasat30September2010.Inspiteoftheincrease,inventorydaysimprovedto137daysinFY2011,from207dayslastyear,asaresultoftheimplementationofamoresystematicinventorymanagementinFY2011.

Asat 30September2011, tradeandother receivablesamountedtoS$44.9million,versusS$30.3millionforthesameperiodlastyear.Debtordaysremainedwithinthegeneralcreditperiodextendedtocustomersat52days.TradeandotherpayablesincreasedtoS$44.5million,upfromS$31.5millionasat30September2010,duetohigherpurchasingvolumestosupportoursalesgrowth.

WiththeproceedsofS$15.6millionfromtheissueofnewsharesandS$7.3millionfromtheissueofcalloptionshares,theGrouprecordedhighercashandcashequivalentsofS$9.1millionasat30September2011,comparedtoS$4.3millionasat30September2010.NetcashflowsofS$30.6millionwereusedinoperatingactivitiesinFY2011asaresultofhigherworkingcapitalusage.

Overall,theGroupmaintainedahealthyfinancialpositioninFY2011.Ourgearingratio*remainedlowat0.3timesasat30September2011.

PER SHARE DATA

Withthe latest robustperformance, theGroup’sbasicearningspershareinFY2011waspushedupto1.72Singaporecents,basedontheweightedaveragenumberofsharesof934,978,212.Thiscomparedtoalossof0.32Singaporecents,basedontheweightedaveragenumberofsharesof775,671,962,inFY2010.Likewise,theGroup’snetassetvalueroseto13.07Singaporecentsasat30September2011,from12.71Singaporecentsasat30September2010.

OUTLOOk

TheGroupexpectsmarginstoremaincompetitiveandwillcontinuetobeprudentintheuseofourbalancesheet,withparticularfocusoncostmanagement,foreignexchangehedgingandnon-coreasset restructuring.TheGroupwillcontinuetobuildonourcompetitivepositioningbydiversifyingourbusinessmodel,expandingourproductrange,forgingstrongcustomerrelationshipsandenhancingourvalueaddedprocessingservices.

* Gearingratio:Bankborrowingovernettangibleassets.


BOARD OF DIRECTORSMR. YAP XI MING non-Executive Chairman

MR. GOH kIAN SIN Managing Director and Chief Executive officer

MR. TAN CHAN TOO Executive Director

MR. wONG kEAN SHYONG, kENN non-Executive Director

DR. TAN ENG LIANG independent Director

MR. GUI kIM YOUNG @ GUI kIM GAN independent Director

MR. LING CHUNG YEE, ROY independent Director

AUDIT COMMITTEEDr Tan Eng Liang (Chairman) Mr Gui kim Young @ Gui kim Gan Mr Ling Chung Yee, Roy

REMUNERATION COMMITTEEMr Gui kim Young @ Gui kim Gan (Chairman) Dr Tan Eng Liang Mr Ling Chung Yee, Roy Mr Yap Xi Ming

NOMINATING COMMITTEEMr Ling Chung Yee, Roy (Chairman) Dr Tan Eng Liang Mr Gui kim Young @ Gui kim Gan Mr Yap Xi Ming Mr Goh kian Sin

JOINT COMPANY SECRETARIESFoong Lee Heng, Jasmine Tan Swee Gek

REGISTERED OFFICE30 JALAN BUROH SINGAPORE 619486tel:(65)62682828fax:(65)62683838www.hgmetal.com

SHARE REGISTRARM&C SERvICES PRIvATE LIMITED 138RobinsonRoad#17-00TheCorporateOfficeSingapore068906

AUDITORSERNST & YOUNG LLP PublicAccountantsandCertifiedPublicAccountantsSingaporePartner-in-charge:HoShyanYan(Witheffectfromfinancialyearended30September2011)

PRINCIPAL BANkERS

OvERSEA-CHINESE BANkING CORPORATION LIMITED

UNITED OvERSEAS BANk LIMITED

CORPORATEINFORMATION


CorporategovernanCe

HG Metal Manufacturing Limited (the “Company”) is committed to complying with the Code of Corporate Governance 2005 (“Code”) so as to ensure greater transparency and to safeguard the interests of shareholders. This statement describes the Company’s corporate governance practices and activities with specific reference to the Code established by the Singapore Corporate Governance Committee and relevant sections of the Listing Manual issued by the SGX-ST.

1 BOARD MATTERS

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

1.1 Role of the Board

The Board of Directors (the “Board”) comprises 2 Executive Directors and 5 Non-Executive Directors. 3 of the 5 Non-Executive Directors are Independent Directors. The Board’s primary role is to protect and enhance long-term shareholder value. To fulfill this, apart from its statutory responsibilities, the Board’s principal functions include the following:

(a) approving the Group’s corporate and strategic directions;(b) establishing goals for management and monitoring the achievement of these goals;(c) ensuring management leadership of high quality, effectiveness and integrity;(d) approving annual budgets, investment and divestment proposals;(e) appointment of Board Directors and key managerial personnel; (f) ensuring an effective risk management framework is in place;(g) reviewing financial performance and implementing financial policies which incorporate risk management,

internal controls and reporting compliance; and(h) assuming responsibility for corporate governance.

1.2 Board Processes

To assist the Board in the discharge of its oversight function, certain functions have been delegated to various Board Committees, namely, the Audit Committee (“AC”), Nominating Committee (“NC”) and the Remuneration Committee (“RC”), each of which has its own written terms of reference. The minutes of meetings of these committees are circulated among the Board.

Formal Board meetings will be held at least once every quarter to oversee the business affairs of the Group and approve any financial or business strategies or objectives. Where necessary, additional Board meetings are held to deliberate on urgent substantive matters. The Board also approves transactions through circular resolutions which are circulated to the Board together with all relevant information relating to the proposed transaction.

The agenda for meetings is prepared in consultation with the Chairman and Chief Executive Officer. The Agenda and submissions are circulated in advance of the scheduled meetings.


CorporategovernanCe

1.3 Directors’ meeting held in Financial Year 2011

The attendance of the directors at meetings for the financial year ended 30 September 2011 are as follows:

Board of Directors

Audit Committee

Remuneration Committee

Nominating Committee

Held Attend Held Attend Held Attend Held AttendYap Xi Ming (1) 6 6 – – 1 – 1 –Goh Kian Sin (2) & (3) 6 6 – – – – 1 –Tan Chan Too 6 5 – – – – – –Wong Kean Shyong, Kenn (2) 6 4 – – – – – –Gui Kim Young @ Gui Kim Gan 6 6 5 5 1 1 1 1Dr Tan Eng Liang 6 6 5 5 1 1 1 1Roy Ling Chung Yee 6 5 5 4 1 1 1 1Chng Hee Kok (4) 6 2 – – – – – –

Notes:

(1) Appointed to the Nominating Committee and Remuneration Committee on 3 December 2010. No Nominating Committee or Remuneration Committee meetings were held during the financial year under review after his appointment to the Nominating Committee and the Remuneration Committee.

(2) Appointed on 15 November 2010.

(3) Appointed to the Nominating Committee on 3 December 2010. No Nominating Committee meetings were held during the financial year under review after his appointment to the Nominating Committee.

(4) Resigned on 2 March 2011, two Board meetings were held prior to his resignation.

The directors were appointed based on their experience, stature and potential to contribute to the proper guidance of the Group and its businesses. As such, we believe that each individual director’s contributions can be reflected in ways other than the reporting of attendances at Board meetings and/or Board committee meetings.

1.4 Matters Requiring Board Approval

The directors have identified a few areas for which the Board has direct responsibility for decision making such as the following:

• approval of the quarterly results announcements;

• approval of the annual report and accounts;

• declaration of interim dividends and proposal of final dividends;

• convening of shareholders’ meetings;

• approval of corporate strategy;

• authorisation of major transactions;

• approval of Board changes and appointments on Board committees;

• increase in investment in businesses and subsidiaries;

• divestment in any of the Group companies; and

• commitments to term loans and lines of credit from banks and financial institutions by the Company.


CorporategovernanCe

While matters relating in particular to the Company’s objectives, strategies and policies require the Board’s direction and approval, Management is responsible for the day to day operation and administration of the Company in accordance with the objectives, strategies and policies set by the Board.

1.5 Training of Directors

Our directors are provided with extensive background information about our Group’s history, mission, values and business operations. Changes to regulations and accounting standards are monitored closely by management. To keep pace with such regulatory changes, the Company provides opportunities for ongoing education on Board processes and best practices as well as updates on relevant new laws and regulations. Directors also have the opportunity to visit the Group’s operational facilities and meet with management to gain a better understanding of the business operations. The Company has set up a more formal procedure for the issue of the appointment letter setting out the directors’ duties and obligations. Newly appointed directors shall also be briefed on the business and organisational structure of the Group and its strategic directions.

1.6 Board Composition and Balance

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

All directors exercise independent judgements and make decisions objectively in the best interest of the Company. The assessment criteria in the Chairman’s assessment of directors include intensity of participation at meetings, quality of interventions and special contribution.

The Board comprises members with diverse expertise and experience in the steel, finance and business industries.

As of the date of this report, the Board comprises the following directors:

ExECuTivE DiRECTORSMr Goh Kian Sin (Managing Director and Chief Executive Officer) - Appointed on 15 November 2010Mr Tan Chan Too

NON-ExECuTivE AND NON-iNDEPENDENT DiRECTORSMr Yap Xi Ming (Non-Executive Chairman)Mr Kenn Wong Kean Shyong - Appointed on 15 November 2010

iNDEPENDENT NON-ExECuTivE DiRECTORSDr Tan Eng LiangMr Gui Kim Young @ Gui Kim GanMr Roy Ling Chung Yee

The profiles of the Board are set out in pages 10 and 11 of the Annual Report.

The composition of the Board is determined in accordance with the following principles:

• to form a strong independent element on the Board, it should comprise at least one-third of non-executive independent directors;

• the Board should have enough directors to serve on various committees of the Board without over-burdening the directors or making it difficult for them to fully discharge their responsibilities;

• the Board should comprise directors with a broad range of competencies and expertise both nationally and internationally; and


CorporategovernanCe

• directors appointed by the Board are subject to election by shareholders at the following Annual General Meeting (“AGM”) and thereafter, directors are subject to re-election according to the provisions in the Articles of Association. Article 89 of the Articles of Association of the Company states that one third of the directors shall retire from office by rotation with the exception of the director holding office as Managing Director.

The Board regularly examines its size and, with a view to determining the impact of its number upon effectiveness, decides on what it considers an appropriate size for itself, taking into account the scope and nature of the Company’s operations. The composition of the Board is reviewed on an annual basis by the NC to ensure that the Board has the appropriate mix of expertise and experience to enable management to benefit from a diverse perspective of issues that are brought before the Board. The NC is of the view that the Board comprises directors capable of exercising objective judgment on the corporate affairs of the Company independently of management and that no individual or small group of individuals dominate the Board’s decision-making process.

When a vacancy exists, through whatever cause, or where it is considered that the Board would benefit from the services of a new director with particular skills and knowledge, the NC, in consultation with the Board, determines the selection criteria for the position based on the skills and knowledge deemed necessary for the Board to best carry out its responsibilities. Candidates may be suggested by directors or management or sourced from external sources. The NC will interview the candidates and assess them based on objective criteria approved by the Board such as integrity, independent mindedness, possession of the relevant skills required or skills needed to complement the existing Board members, ability to commit the time and effort to carry out his responsibilities, good decision making track record, relevant experience and financial literacy. The NC will make a recommendation to the Board on the appointment. The Board then appoints the most suitable candidate who must stand for election at the next AGM of shareholders.

Particulars of interests of directors who held office at the end of the financial year in shares and share options in the Company and in related corporations (other than wholly-owned subsidiaries) are set out in the Directors’ Report.

1.7 independent Members of the Board of Directors

The Board has 3 independent directors, representing at least one-third of the Board: Dr Tan Eng Liang, Mr Gui Kim Young @ Gui Kim Gan and Mr Roy Ling Chung Yee. The criteria for independence are based on the definition given in the Code, which considers an independent director as one who has no relationship with the Company, its related companies or its officers that could interfere, or be reasonably perceived to interfere, with the exercise of the director’s independent business judgement with a view to the best interest of the Company. The independence of each director is reviewed annually by the NC.

1.8 Chairman and Chief Executive Officer

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

The Company has a separate Non-Executive Chairman and a Chief Executive Officer, which ensures that there is a balance of power and authority, increased accountability and greater capacity of the Board for independent decision-making at the top of the Company. As at the date of this report, Mr Yap Xi Ming holds the post of Non-Executive Chairman, whilst Mr Goh Kian Sin holds the post of Managing Director and Chief Executive Officer.

The Non-Executive Chairman ensures that board meetings are held when necessary and sets the board meeting agenda (with the assistance of the company secretary and in consultation with the Managing Director and Chief Executive Officer). The Chairman ensures that the board members are provided with complete, adequate and timely information. The Chairman ensures that procedures are introduced to comply with the Code and ensures effective communication within the board and with the shareholders.


CorporategovernanCe

The Board has delegated the daily operations of the Group to the Managing Director and the Chief Executive Officer. The Managing Director and Chief Executive Officer leads the management team and executes the strategic plans in alignment with the strategic decisions and goals set out by the Board and ensures that the directors are kept updated and informed of the Group’s businesses.

1.9 Board Membership

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

The Board has delegated to the NC the functions of developing and maintaining a transparent and formal process for the appointment of new directors, making recommendations for directors who are due for retirement by rotation to seek re-election at general meeting and determining the independent status of each director.

As at the date of this report, the NC comprises the following members, the majority of whom (including the Chairman) are independent:-

Mr Roy Ling Chung Yee (Chairman and Independent Director),Dr Tan Eng Liang (Independent Director)Mr Gui Kim Young @ Gui Kim Gan (Independent Director)Mr Yap Xi Ming (Non-Executive Chairman and Non-Executive Director)Mr Goh Kian Sin (Managing Director and Chief Executive Director)

The NC is regulated by its terms of reference and its key functions include:-

• making recommendations to the Board on new appointments to the Board;• determining orientation programs for new directors and recommending opportunities for the continuing

training of the directors;• making recommendations to the Board on the re-nomination of retiring directors standing for re-election

at the Company’s AGM, having regard to the directors’ contribution and performance (e.g. attendance, preparedness, participation and candour);

• ensuring that all directors submit themselves for re-nomination and re-election at regular intervals and at least every three years;

• determining annually whether or not a director is independent;• reviewing the size and composition of the Board with the objective of achieving a balanced Board in terms

of the mix of experience and expertise;• reviewing the appointment of immediate family members (spouse, child, adopted child, step-child, sibling

and parent) of any of the Company’s directors or substantial shareholders to managerial positions in the Company;

• determining whether a director who has multiple board representations is able to and has been adequately carrying out his duties as director of the Company;

• reporting to the board on its activities and proposals; and• carrying out such other duties as may be agreed to by the NC and the Board.

The NC meets at least once a year. The Company’s Articles of Association provide that, at each AGM, one-third of the directors for the time being (or, if their number is not a multiple of three, the number nearest to but not less than one-third) shall retire from office by rotation. A retiring director is eligible for re-election by the shareholders of the Company at the AGM, and prior to nominating a retiring director for re-election, the NC will evaluate the director’s contribution and performance taking into consideration factors such as attendance, preparedness, participation and candour.


CorporategovernanCe

1.10 Board Performance

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

We believe that Board performance is ultimately reflected in the performance of the Group and the Company. The Board should ensure compliance with applicable laws and Board members should act in good faith, with due diligence and care in the best interests of the Group and the shareholders. In addition to these fiduciary duties, the Board is charged with two key responsibilities of setting strategic direction and ensuring that the Group is ably led. The Board, through the delegation of its authority to the NC, will review the Board’s composition annually to ensure that the Board has the appropriate mix of expertise and experience to lead the Group.

The NC assesses the effectiveness of the Board as a whole and the contribution by each director to the effectiveness of the Board on an annual basis.

In its assessment of the Board’s effectiveness, the NC takes into consideration the frequency of the Board meetings, the rate at which issues raised are adequately dealt with and the reports from the various committees. In the like manner, the NC is able to assess the contribution of each individual director to the effectiveness of the Board.

The NC has conducted a Board’s performance evaluation as a whole in FY2011, participated by all directors. The assessment parameters are broadly based on the attendance records at the meetings of the Board and the relevant board committees, intensity of participation at meetings, sense of independence, quality of contributions and workload requirements.

1.11 Access to information

Principle 6: in order to fulfil their responsibilities, Board members should be provided with complete, adequate and timely information prior to Board meetings and on an on-going basis.

Directors receive a regular supply of information from management about the Group so that they are equipped to play as full a part as possible in Board meetings. Detailed Board papers are circulated to all directors prior to the scheduled meetings so that members may better understand the issues beforehand, allowing for more time at such meetings for questions that members may have. The Board papers provided include background or explanatory information relating to matters to be brought before the Board. A presentation is made to the Directors at the Board meeting on budgets, forecasts and variances from the budget disclosed.

All directors have separate and independent access to the advice and services of the company secretary. The company secretary attends the Board and Board Committee meetings and assists the Chairman of the Board and Board Committee meetings in ensuring that the relevant procedures are followed and that applicable rules and regulations are complied with as well as ensuring good information flow within the Board and its committees, between senior management and the non-executive directors, facilitating orientation and assisting with professional development as required. The appointment and removal of the company secretary is a matter which is approved by the Board.

The Board also has separate and independent access to the Company’s senior management.

Each director has the right, at the Company’s expense, to seek independent legal and other professional advice concerning any aspect of the Group’s operations or undertakings in order to fulfill their duties and responsibilities as directors.


CorporategovernanCe

2 REMuNERATiON MATTERS

2.1 Procedure for developing Remuneration Policies

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

The Group’s remuneration policy is to provide compensation packages at market rates which reward successful performance and attract, retain and motivate directors and key management executives.

The RC comprises solely of non-executive directors, the majority of whom, including the Chairman, is independent. At the date of this report, the RC comprises the following members:-

Mr Gui Kim Yong @ Gui Kim Gan (Chairman, and Independent Director) Dr Tan Eng Liang (Independent Director) Mr Roy Ling Chung Yee (Independent Director) Mr Yap Xi Ming (Non-Executive Chairman and Non-Executive Director)

The RC meets at least once each year and at other times as required.

The RC is responsible for recommending to the Board a framework of remuneration for the directors and senior management which is submitted to the whole Board for endorsement. The RC reviews and approves recommendations on remuneration policies and packages for directors and senior management in the interests of improved corporate performance.

The RC’s review of remuneration packages covers all aspects of remuneration, including but not limited to directors’ fees, salaries, allowances, bonuses, options, profit sharing (where applicable) and benefits-in-kind.

In setting out the remuneration packages, the RC would take into consideration pay and employment conditions within the industry and in comparable companies. The remuneration packages should take into account the Company’s relative performance and the performance of the individual directors/senior management.

The RC’s recommendations are submitted to the entire Board. Each member of the RC shall abstain from voting on any resolution concerning his own remuneration.

The Directors’ fees to be paid for any one year are submitted for shareholders’ approval at the AGM.

2.2 Level and Mix of Remuneration

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

The remuneration packages of the Managing Director and Chief Executive Officer and the executive directors are determined based on the framework recommended by the RC. In doing so, the RC reviews the length of the fixed appointment period, the notice period for termination and the terms of the compensation package in the event of the termination of any executive directors’ contracts of service to ensure that the terms of such clauses are not onerous to the Company. The executive directors’ framework of remuneration includes a fixed element as well as a variable element in the form of a bonus and a profit sharing incentive which is linked to the Company’s performance.


CorporategovernanCe

All non-executive Directors are paid a Director’s fee, with additional fees for serving as the chairman or member of a Board committee and attendance fees for Board and Board committee meetings. These fees are recommended by the RC and submitted to the Board for endorsement. The remuneration of non-executive directors should be appropriate to the level of contribution, taking into account factors such as effort and time spent, and responsibilities of the directors. Non-executive directors should not be over-compensated to the extent that their independence may be compromised.

2.3 Disclosure on Remuneration

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

The remuneration of the Directors from the Company for the financial year ended 30 September 2011 is as follows:-

Directors Base Salary BonusDirector

Fees Others TOTAL

S$742,000 to S$806,000

Goh Kian Sin 29% 67% – 4% 100%

Tan Chan Too 45% 44% – 11% 100%

Below S$250,000

Chng Hee Kok 87% – – 13% 100%

Yap Xi Ming – – 100% – 100%

Wong Kean Shyong, Kenn – – 100% – 100%

Dr Tan Eng Liang – – 100% – 100%

Gui Kim Young @ Gui Kim Gan – – 100% – 100%

Ling Chung Yee, Roy – – 100% – 100%

2.4 Remuneration of Employees Related to Directors

There is no employee who is related to a Director or the Chief Executive Officer whose remuneration exceeds S$150,000 in the Group’s employment for financial year ended 30 September 2011.

2.5 Remuneration of Top 5 Key Management Executives

The key executives as referred to in page 12 of the Annual Report fall within the remuneration band of below $250,000.

The Company adopts a remuneration policy for staff comprising both a fixed and variable component. The fixed component is in the form of a base salary and allowances. The variable component is in the form of a variable bonus that is linked to the Company and each individual’s performance.


CorporategovernanCe

3 ACCOuNTABiLiTY AND AuDiT

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

In presenting the annual financial statements and quarterly announcements to shareholders as well as any price sensitive reports to the public, the Board aims to provide the shareholders with a balanced and understandable assessment of the Company’s and the Group’s performance, position and prospects.

The Board is provided with an analysis of the management accounts at the quarterly Board meetings which presents a balanced and understandable assessment of the Company’s performance, position and prospects.

3.1 Audit Committee

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

The AC comprises 3 members, all of whom including the Chairman are non-executive and independent directors. The AC’s members are:-

Dr Tan Eng Liang (Chairman, and Independent Director) Mr Gui Kim Young @ Gui Kim Gan (Independent Director) Mr Roy Ling Chung Yee (Independent Director)

All 3 members have accounting or related financial management expertise or experience.

The AC’s main objective is to assist the Board in fulfilling its fiduciary responsibilities relating to internal controls, overseeing the external audit process, reviewing the financial information to be disclosed to the public and ensuring that arrangements are in place for the independent investigation and follow up of reports by staff of improprieties in financial reporting and other matters. To achieve this, the AC ensures that its members have the appropriate qualifications to provide independent, objective and effective oversight.

Specifically, the AC meets periodically to perform the following functions:

• reviewing the audit plans of the external and internal auditors;• reviewing the external and internal auditors’ reports;• reviewing the co-operation given by the Company’s officers to the external and internal auditors;• reviewing the adequacy of the internal audit function;• evaluating the effectiveness of the Group’s system of internal controls, including financial, operational

and compliance controls, and risk management, by reviewing written reports from internal and external auditors, and management responses and actions to correct any deficiencies;

• reviewing the financial statements of the Company and the Group before their submission to the Board;• reviewing non-audit services provided by the external auditors to satisfy itself that the nature and extent

of such services will not prejudice the independence and objectivity of the external auditors;• nominating external auditors for appointment or re-appointment and approve the remuneration and

terms of engagement of the external auditor;• reviewing the Group’s compliance with such functions and duties as may be required under the relevant

statutes or the Listing Manual issued by SGX-ST, and by such amendments made thereto from time to time; and

• reviewing interested person transactions (as defined in Chapter 9 of the Listing Manual issued by SGX-ST) to ensure that they are on normal commercial terms and arms’ length basis and not prejudicial to the interests of the Company or its shareholders in any way.


CorporategovernanCe

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

The AC meets from time to time with the Group’s external and internal auditors and the executive management to review accounting, auditing and financial reporting matters so as to provide the necessary checks and balances to ensure that an effective control environment is maintained in the Group. The AC also studies proposed changes in accounting policies, examines the internal audit functions and discusses the accounting implications of major transactions. Furthermore, the AC advises the Board regarding the adequacy of the Group’s internal controls and the contents and presentation of its interim and annual reports. Based on the information provided to the AC, nothing has come to the AC’s attention that the system of internal controls and risk management is inadequate.

The AC is also authorised to investigate any matter within its terms of reference and has full access to and co-operation of the management and full discretion to invite any director or executive officer to attend its meetings, and reasonable resources to enable it to discharge its functions properly. The AC meets annually with the internal auditors and the external auditors, without the presence of the Company’s management to review the adequacy of audit arrangements, with particular emphasis on the scope and quality of their audits, and the independence and objectivity of the internal and external auditors.

The amount of non-audit fees paid to the external auditors for the financial year ended 30 September 2011 was S$33,000. The AC, having reviewed all non-audit services provided by the external auditors to the Group, is satisfied that the nature and extent of such services would not affect the independence of the external auditors.

3.2 internal Controls

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

The Board recognises that it is responsible for the overall internal control framework, but accepts that no cost effective internal control system will preclude all errors and irregularities, as the system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss. The AC will:

• satisfy itself that adequate measures are being made to identify and mitigate any material business risks associated with the Group;

• ensure that a review of the effectiveness of the Group’s material internal controls, including financial, operating and compliance controls and risk management, is conducted at least annually. Such review can be carried out by internal auditors/external auditors;

• ensure that the internal control recommendations made by internal and external auditors have been implemented by the management; and

• ensure the Board is in a position to comment on the adequacy of the internal controls of the Group.

Based on the discussions with the auditors and the management’s responses to the auditors’ recommendations for improvements to the Group’s internal controls, the Board is satisfied that there are adequate internal controls to safeguard the assets and ensure the integrity of financial statements.


CorporategovernanCe

3.3 Whistle-Blowing Policy

The Group has adopted a constructive whistle-blowing policy and guideline in order to detect and deter any fraud or deliberate error in the preparation, evaluation, review or audit of any financial statement, financial reports and records of the Company.

Demonstrating its pledge to good corporate governance, the Group provides an avenue for employees to bring their complaints responsibly to report any possible improprieties in matters of financial reporting or other matters that they may encounter to the AC or any other committees established by the Audit Committee for such purpose without fear of reprisal. The establishment of the whistle-blowing structure also augments the Group’s ability to detect potential fraud, providing another level of comfort and assurance to investors.

3.4 internal Audit

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

The Group has outsourced its internal audit function to Deloitte & Touche Enterprise Risk Services Pte Ltd. The aim of the internal audit function is to promote internal control in the Group and to monitor the performance and effective application of internal audit procedures. It supports the directors in assessing key internal controls through a structured review programme. The internal audit function is expected to meet the standard set by internationally recognised professional bodies including the Standards for the Professional Practice of Internal Auditing set by The Institute of Internal Auditors.

The internal audit function reports functionally to the Chairman of the AC and administratively to the Chief Executive Officer. The AC ensures that the internal audit function has adequate resources and has appropriate standing within the Group. The AC, on an annual basis, assesses the effectiveness of the internal auditors by examining:

• the scope of the internal auditors’ work;

• the quality of the reports;

• the relationship with the external auditors; and

• the independence of the areas reviewed.

4 COMMuNiCATiON WiTH OuR SHAREHOLDERS

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

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

The Company firmly believes in high standards of transparent corporate disclosure, pursuant to the SGX-ST’s Listing Rules and the Singapore Companies Act, whereby shareholders are informed of all major developments that affect the Group. Information is communicated to our shareholders on a timely basis. Where there is inadvertent disclosure made to a selected group, the Company will make the same disclosure publicly to all others as soon as practicable. Communication is made through:


CorporategovernanCe

• annual reports that are prepared and sent to all shareholders. The Board ensures that the annual report includes all relevant information about the Company and the Group, including future developments and other disclosures required by the Singapore Companies Act and Singapore Financial Reporting Standards;

• quarterly announcements containing a summary of the financial information and affairs of the Group for that period;

• notices of and explanatory memoranda for AGMs and Extraordinary General Meetings;

• press releases on major developments of the Company and the Group;

• disclosure to the SGX-ST; and

• the Company’s website at http://www.hgmetal.com at which our shareholders can access information on the Group.

Moreover, our shareholders are encouraged to attend the AGM to ensure a high level of accountability and to be updated on the Company’s strategies and goals. The Company’s Articles allow a shareholder to appoint up to 2 proxies to attend a shareholder’s meeting on his behalf. The notice of the AGM is sent to our shareholders, together with explanatory notes, appendices or a circular on items of special business, at least 14 days before the meeting. The Chairmen of the AC, NC and RC are normally present and available to address questions relating to the work of their respective committees at general meetings. Furthermore, the external auditors are present to assist our Board in addressing any relevant queries by our shareholders.

Each item of special business included in the notice of the meeting is accompanied, where appropriate, by an explanation for the proposed resolution. Separate resolutions are proposed for substantially separate issues at the meeting.

5 DEALiNGS iN SECuRiTiES

In accordance with Rule 1207(18) of the Listing Manual issued by SGX-ST, the Company notifies all employees that they are prohibited from trading in the Company’s shares one month prior to the announcement of the Company’s full year results and 14 days before the announcement of the first three quarters of the Company’s financial results.

The Company has also issued a policy on Insider Trading to all employees which sets out the principles of relevant laws relating to insider trading which are applicable at all times.


CorporategovernanCe

6 iNTERESTED PERSON TRANSACTiONS

The Company is required to comply with the requisite rules under Chapter 9 of the Listing Manual issued by SGX-ST for interested person transactions. To ensure compliance with Chapter 9, the AC meets quarterly to review if the Company will be entering into an interested person transaction in order to ensure that the interested person transactions are carried out on normal commercial terms and will not prejudicial to the interests of the shareholders.

Disclosure according to Rule 907 of the SGX-ST Listing Manual in respect of interested person transactions for financial year ended 30 September 2011 is stated in the table below:

Name of interested person

Aggregate value of all interested person transactions, conducted pursuant to Rule 920 (excluding transactions less than S$100,000 and transaction conducted under

shareholders’ mandate)

Aggregate value of all interested person transactions, conducted

under shareholders mandate pursuant to Rule 920 (excluding

transactions less than S$100,000)

Chye Hin Hardware Pte Ltd - Sales - Purchases - Other Charges

NANA

7,017,00019,272,000

508,000

Oriental Sheet Piling Pte Ltd - Sales - Other Charges

NANA

1,873,0009,000

Oriental Steel Pipe Sdn Bhd - Purchases NA 2.662,000

Oriental Castle Sdn Bhd - Other Charges NA 303,000

Plan B Pte Ltd - Purchases - Other Charges

NANA

3,143,00020,000

7. MATERiAL CONTRACTS

Save as disclosed in the audited financial statements of this Annual Report, there are no material contracts of the Company or its subsidiaries involving the interest of the Managing Director, CEO, directors or controlling shareholder subsisting at the end of the financial year ended 30 September 2011 or have been entered into since the end of the previous financial year.


CorporategovernanCe

8. RiSK MANAGEMENT

Management regularly reviews the Group’s business and operational activities to identify areas of significant business risks as well as deliberate on appropriate measures to control and mitigate these risks. Management is accountable to the Board for ensuring the effectiveness of risk management and adherence to risk appetite limits.

On a day-to-day basis, business units have primary responsibility for risk management. The various business units provide the senior management with a timely assessment of key risk exposures and the associated management responses. These units also recommend risk appetite and control limits.

The significant risk management policies are as disclosed in the audited financial statements of this Annual Report.

The financial risk management policies are outlined below:

Fluctuations in steel prices

As a distributor of steel products, the Group purchases a wide range of steel products and maintain substantial inventories to be in a position to fulfil customers’ orders within a short lead time. The cost of steel products purchased is the main component of the Group’s cost of sales for its steel distribution business. Prices of steel products are subject to international price fluctuations of steel. Therefore, the Group is vulnerable to any fluctuations in prices of steel.

The Group, with more than 30 years of knowledge and expertise gained in this line of business, is able to make appropriate adjustments to its supplier choice, timing of purchase and shipment, contracting arrangement with its customers to address price fluctuation risk.

Credit risk of its customers

The Group extends credit terms ranging from 30 to 120 days to its customers, depending on their credit worthiness. From time to time, in the ordinary course of business, certain customers may default on their payment. Such events may arise due to the inherent risk from its customers’ business, risk pertaining to the political, economic, social and legal environment of its customers’ jurisdiction and foreign exchange risk. In the event that the Group’s customers default on their payments, the Group would have to make allowances for doubtful debts or incur write-offs, which will have an adverse impact on its profitability.

The Group performs credit check and approval before granting credit to customers and imposes a credit limit and credit term on each customer. All credit accounts are subject to monthly review.

In addition, the Group is not dependant on any single customer or any single country. The Group has more than 1,000 customers. Hence, the Group is not exposed to significant credit risk posed by any single customer.

Foreign exchange exposure

The purchases of the Group are mainly denominated in US$ and its sales are mainly denominated in S$. As a result, the Group is exposed to fluctuations in foreign exchange rates. For FY2011, approximately 90% of its total purchases were made in US$, whilst approximately 80% and 20% of its total sales were denominated in S$ and US$ respectively. Hence, the Group may be exposed to any significant fluctuation of the US$.

The Group monitors the US$ exchange rates closely and will enter into forward contracts on case to case basis to reduce its exposure.


FInanCIaLContentS

Directors’ report 32

statement by Directors 35

inDepenDent auDitors’ report 36

consoliDateD statement of 38 comprehensive income

balance sheets 39

statements of changes in equity 40

consoliDateD cash flow statement 43

notes to the financial statements 45

appenDix 112

annexure i to the appenDix 125

annexure ii to the appenDix 127

shareholDings statistics 128

notice of annual general meeting 130

proxy form


DIreCtorS’report

The directors present their report to the members together with the audited consolidated financial statements of HG Metal Manufacturing Limited (the “Company”) and its subsidiaries (collectively the “Group”) and the balance sheet and statement of changes in equity of the Company for the financial year ended 30 September 2011.

Directors

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

Yap Xi MingGoh Kian Sin (appointed on 15 November 2010)Tan Chan TooWong Kean Shyong (Kenn) (appointed on 15 November 2010)Gui Kim Young @ Gui Kim GanTan Eng LiangLing Chung Yee, Roy

Arrangements to enable directors to acquire shares or debentures

Neither at the end of nor at any time during the financial year was the Company a party to any arrangement whose objects are, or one of whose objects is, to enable the directors of the Company to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate.

Directors’ interests in shares or debentures

According to the register of Directors’ shareholdings kept by the Company for the purposes of Section 164 of the Singapore Companies Act, Cap. 50, none of the directors of the Company holding office at the end of the financial year had any interest in the shares or debentures of the Company and its related corporations except as detailed below:

Shareholdings registered in the name of directors

Shareholdings in which directors are deemed to have an interest

Balance as at1 October

2010 or dateof appointment

Balance as at30 September

2011

Balance as at1 October

2010 or dateof appointment

Balance as at30 September

2011

Number of ordinary shares

CompanyHG Metal Manufacturing LimitedTan Chan Too 21,455,187 21,455,187 – –Yap Xi Ming 5,710,000 5,751,554 80,646,574 82,446,574Goh Kian Sin – – 163,850,000 240,350,000

In accordance with the continuing listing requirements of the Singapore Exchange Securities Trading Limited, the directors of the Company state that the directors’ interests as at 21 October 2011 in the shares and warrants of the Company have not changed from those disclosed as at 30 September 2011.


Directors’ contractual benefits

Since the end of the previous financial year, no director of the Company has received or become entitled to receive a benefit by reason of a contract made by the Company or by a related corporation with the director, or with a firm of which he is a member, or with a company in which the director has a substantial financial interest.

Options

At an Extraordinary General Meeting held on 10 November 2010, the shareholders approved the issue of 163,850,000 new ordinary shares at $0.095 per share to Oriental Castle Sdn Bhd (“OCS”). OCS had also been granted a call option to subscribe for 153,000,000 new ordinary shares at $0.095 per share in the Company or such other number representing 14% of the enlarged share capital of the Company as at the date of the exercise of the call option.

The call option was exercised by OCS on 19 July 2011. The Company has agreed with OCS that pursuant to the exercise of the call option, the Company shall:

1. issue and allot the first 50% of the Option Shares (being 76,500,000 shares in the capital of the Company) 7 business days from the exercise date, against full payment by OCS for such Option Shares; and

2. issue and allot the remaining 50% of the Option Shares (being an additional 76,500,000 shares in the capital of the Company) 7 months from the exercise date (i.e. 18 February 2012), against full payment being made by OCS for such Option Shares.

Audit committee

The audit committee (AC) carried out its functions in accordance with section 201B(5) of the Singapore Companies Act, Cap. 50, including the following:

• Reviews the audit plans of the internal and external auditors of the Company, and reviews the internal auditors’ evaluation of the adequacy of the Company’s system of internal accounting controls and the assistance given by the Company’s management to the external and internal auditors

• Reviews the quarterly and annual financial statements and the auditors’ report on the annual financial statements of the Company before their submission to the board of directors

• Reviews effectiveness of the Company’s material internal controls, including financial, operational and compliance controls and risk management via reviews carried out by the internal auditors

• Meets with the external auditors, other committees, and management in separate executive sessions to discuss any matters that these groups believe should be discussed privately with the AC

• Reviews legal and regulatory matters that may have a material impact on the financial statements, related compliance policies and programmes and any reports received from regulators

• Reviews the cost effectiveness and the independence and objectivity of the external auditors

• Reviews the nature and extent of non-audit services provided by the external auditors

DIreCtorS’report


Audit committee (cont’d)

• Recommends to the board of directors the external auditors to be nominated, approves the compensation of the external auditors, and reviews the scope and results of the audit

• Reports actions and minutes of the AC to the board of directors with such recommendations as the AC considers appropriate

• Reviews interested person transactions in accordance with the requirements of the Singapore Exchange Securities Trading Limited’s Listing Manual

The AC, having reviewed all non-audit services provided by the external auditors to the Group, is satisfied that the nature and extent of such services would not affect the independence of the external auditors. The AC has also conducted a review of interested person transactions.

The AC convened 5 meetings during the year. The AC has also met with internal and external auditors, without the presence of the Company’s management, at least once a year.

Further details regarding the AC are disclosed in the Report on Corporate Governance.

Auditors

Ernst & Young LLP have expressed their willingness to accept reappointment as auditors.

On behalf of the Board of Directors,

Goh Kian SinDirector

Tan Chan TooDirector

Singapore19 December 2011

DIreCtorS’report


We, Goh Kian Sin and Tan Chan Too, being two of the directors of HG Metal Manufacturing Limited, do hereby state that, in the opinion of the directors:

(a) the accompanying balance sheets, consolidated statement of comprehensive income, statements of changes in equity, and consolidated cash flow statement together with notes thereto are drawn up so as to give a true and fair view of the state of affairs of the Group and of the Company as at 30 September 2011 and the results of the business, changes in equity and cash flows of the Group and the changes in equity of the Company for the year ended on that date, and

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

On behalf of the Board of Directors,

Goh Kian SinDirector

Tan Chan TooDirector

Singapore19 December 2011

Statementby DIreCtorS


Report on the financial statements

We have audited the accompanying financial statements of HG Metal Manufacturing Limited (the “Company”) and its subsidiaries (the “Group”) set out on pages 38 to 111, which comprise the balance sheets of the Group and the Company as at 30 September 2011, the statements of changes in equity of the Group and the Company and the statement of comprehensive income and cash flow statement of the Group for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management’s responsibility for the financial statements

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

Auditors’ responsibility

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

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

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

InDepenDentauDItorS’ reportfor the financial year ended 30 september 2011to the members of hg metal manufacturing limited


Opinion

In our opinion, the consolidated financial statements of the Group and the balance sheet and statement of changes in equity of the Company are properly drawn up in accordance with the provisions of the Act and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the Group and of the Company as at 30 September 2011 and the results, changes in equity and cash flows of the Group and the changes in equity of the Company for the year ended on that date.

Report on other legal and regulatory requirements

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

Ernst & Young LLPPublic Accountants and Certified Public AccountantsSingapore19 December 2011

InDepenDentauDItorS’ reportfor the financial year ended 30 september 2011to the members of hg metal manufacturing limited


Note 2011 2010$’000 $’000

Revenue 4 238,842 203,068Cost of sales (212,849) (179,338)

Gross profit 25,993 23,730Other operating income 5 6,572 9,817Selling and distribution costs (1,776) (1,579)Administrative expenses (9,353) (9,484)Other operating expenses 7 (7,096) (20,457)Finance costs 6 (1,923) (6,920)Share of joint venture profits – 223Share of associate profits 3,748 4,643

Profit/(loss) before income tax 7 16,165 (27)Income tax credit 8 107 354

Profit for the year 16,272 327

Other comprehensive incomeForeign currency translation (209) 195Share of other comprehensive income of associates (44) (190)

Other comprehensive income for the year, net of tax (253) 5

Total comprehensive income for the year 16,019 332

Profit/(loss) attributable to:Equity holders of the Company 16,116 (2,483)Non-controlling interests 156 2,810

16,272 327

Total comprehensive income attributable to:Equity holders of the Company 15,927 (2,508)Non-controlling interests 92 2,840

16,019 332

Earnings/(loss) per share:

Basic (cents) 9 1.72 (0.32)

Diluted (cents) 9 1.70 (0.32)

ConSoLIDateD Statement oFComprehenSIve InComefor the financial year ended 30 september 2011

The accompanying accounting policies and explanatory notes form an integral part of the financial statements.


Group CompanyNote 2011 2010 2011 2010

$’000 $’000 $’000 $’000

Non-current assetsProperty, plant and equipment 10 31,938 32,173 24,812 23,753Intangible assets 11 267 434 230 384Investment in subsidiaries 12 – – 12,520 12,520Investment in associates 13 36,667 32,963 713 713

68,872 65,570 38,275 37,370

Current assetsInvestment held for trading 16 135 380 – –Inventories 17 96,732 62,504 86,704 49,733Trade and other receivables 18 44,879 30,235 50,447 36,145Prepaid expenses 30 75 10 14Cash and fixed deposits 19 9,851 5,108 2,773 1,165

151,627 98,302 139,934 87,057

Current liabilitiesDerivative financial instruments 15 329 1,048 329 1,048Trade and other payables 20 42,863 30,658 38,004 26,716Finance lease payables 21 291 150 204 39Bank borrowings 22 37,840 25,297 32,722 20,168Provision for income tax 94 19 – –

81,417 57,172 71,259 47,971

Net current assets 70,210 41,130 68,675 39,086

Non-current liabilitiesFinance lease payables 21 356 477 108 129Bank borrowings 22 1,915 4,512 791 2,097Deferred tax liabilities 14 212 297 – –Provision for reinstatement costs 23 1,650 800 1,350 500

4,133 6,086 2,249 2,726

134,949 100,614 104,701 73,730

Equity attributable to owners of the CompanyShare capital 24 130,046 111,730 130,046 111,730Other reserves 25 2,064 2,253 2,527 2,527Accumulated profits/(losses) 704 (15,412) (27,872) (40,527)

132,814 98,571 104,701 73,730Non-controlling interests 2,135 2,043 – –

Total equity 134,949 100,614 104,701 73,730

baLanCeSheetSas at 30 september 2011



Attributable to owners of the Company

Sharecapital

Capitalreserve

Fairvalue

reserves

Foreigncurrency

translationreserve

Accumu-lated

profits/(losses)

Equity attributable

to owners of the

Company total

Non-controlling

interestsTotal

equity$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Group

Opening balance at 1 October 2010 111,730 2,527 1 (275) (15,412) 98,571 2,043 100,614

Other comprehensive income for the year – – (10) – (179) (189) (64) (253)

Profit for the year – – – – 16,116 16,116 156 16,272

Total comprehensive income for the year – – (10) (179) 16,116 15,927 92 16,019

Issuance of ordinary shares 18,316 – – – – 18,316 – 18,316

Closing balance at 30 September 2011 130,046 2,527 (9) (454) 704 132,814 2,135 134,949

StatementS oFChangeS In equItyfor the financial year ended 30 september 2011



Sharecapital

Capitalreserve

Shareoption

reserve

Fairvalue

reserves

Premiumpaid on

acquisitionof minority

interest

Foreigncurrency

translationreserve

Accumu-lated

profits/(losses)

Equity attributable

to owners of the

Company total

Non-controlling

interestsTotal

equity$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Group

Opening balance at 1 October 2009 111,730 2,527 17 – (539) (293) (12,929) 100,513 32,505 133,018

Other comprehensive

income for the year – – – 1 – (26) – (25) 30 5

Profit for the year – – – – – – (2,483) (2,483) 2,810 327

Total comprehensive income for the year – – – 1 – (26) (2,483) (2,508) 2,840 332

Issue of shares in a subsidiary – – – – – – – – 550 550

Disposal of a subsidiary – – (17) – 539 44 – 566 (33,852) (33,286)

Closing balance at 30 September 2010 111,730 2,527 – 1 – (275) (15,412) 98,571 2,043 100,614




Sharecapital

Capitalreserves

Accumulatedprofits /

(losses)Total

equity$’000 $’000 $’000 $’000

Company

Opening balance at 1 October 2010 111,730 2,527 (40,527) 73,730

Profit for the year, representing total comprehensive income for the year – – 12,655 12,655

Issuance of ordinary shares 18,316 – – 18,316

Closing balance at 30 September 2011 130,046 2,527 (27,872) 104,701

Opening balance at 1 October 2009 111,730 2,527 (27,989) 86,268

Loss for the year, representing total comprehensive income for the year – – (12,538) (12,538)

Closing balance at 30 September 2010 111,730 2,527 (40,527) 73,730

.




Note 2011 2010$’000 $’000

Cash flows from operating activitiesProfit/(loss) before income tax 16,165 (27)Adjustments for:Loss on disposal of shares in an associate – 1,910Bad debts recovered – (5)Dividend income (15) (20)Depreciation of property, plant and equipment 3,317 2,505Amortisation of computer software 167 167(Gain)/loss on disposal of property, plant and equipment (51) 284Write off of property, plant and equipment 13 –Gain on disposal of subsidiary – (6,373)Write down of inventories – 12,875Allowance for doubtful debts, net 58 263Fair value gain on derivatives- call option (4,517) –- warrants (719) (1,516)Fair value loss/(gain) on investment held for trading 245 (110)Interest expense 1,923 6,920Interest income (28) (28)Share of joint venture profits – (223)Share of associate results (3,748) (4,643)Amortisation of customer relationship – 246Currency realignment (122) (348)

Operating cashflows before working capital changes 12,688 11,877Working capital changes:Inventories (34,228) 28,487Trade and other receivables (19,242) 1,300Trade and other payables 11,511 (25,994)

Cash (used in)/generated from operations (29,271) 15,670Interest received 28 28Interest paid (1,923) (4,579)Income tax refund 97 499

Net cash (used in)/generated from operating activities (31,069) 11,618

Cash flows from investing activitiesNet cash outflow on disposal of a subsidiary 12 – (9,527)Dividend income received from an associate – 1,702Dividend income received from quoted investment 15 20Increase in fixed deposits (49) (62)Purchase of property, plant and equipment A (1,708) (6,750)Proceeds from disposal of property, plant and equipment B 5,095 11,031Proceeds from sale of shares in an associate 13 – 15,474

Net cash generated from investing activities 3,353 11,888

ConSoLIDateDCaSh FLow Statementfor the financial year ended 30 september 2011


Note 2011 2010$’000 $’000

Cash flows from/(used in) financing activitiesProceeds from bank borrowings 118,013 46,750Repayment of bank borrowings (108,073) (81,822)Proceeds from issue of ordinary shares in the Company 24 22,833 –Proceeds from issuance of shares in a subsidiary – 550Repayment of finance lease payables (339) (479)

Net cash generated from/(used in) financing activities 32,434 (35,001)

Net increase/(decrease) in cash and cash equivalents 4,718 (11,495)Cash and cash equivalents at beginning of financial year 4,348 15,843

Cash and cash equivalents at end of financial year 19 9,066 4,348

Note A. Purchase of property, plant and equipment

During the financial year, the Group acquired property, plant and equipment with an aggregate cost of $3,611,000 (2010: $8,182,000). This comprised assets acquired by means of finance lease of $359,000 (2010: $632,000), increase in provision for reinstatement cost of $850,000 (2010: $800,000) and an amount payable to other creditors of $694,000 (2010: Nil).

Cash payments of $1,708,000 (2010: $6,750,000) were made to purchase property, plant and equipment.

Note B. Disposal of property, plant and equipment

During the financial year, the Group received proceeds of $511,000 (2010: $11,031,000) from property plant and equipment disposed in the current year. Cash inflow for the year also includes the balance of proceeds of $4,584,000 (2010: Nil) from property, plant and equipment disposed in the previous year.

ConSoLIDateDCaSh FLow Statementfor the financial year ended 30 september 2011



noteS tothe FInanCIaL StatementS– 30 september 2011

1. Corporate information

HG Metal Manufacturing Limited (“the Company”) is a public limited liability company incorporated in Singapore and is listed on the Singapore Exchange Securities Trading Limited (“SGX-ST”).

The registered office and principal place of the Company is located at 30 Jalan Buroh, Singapore 619486.

The principal activities of the Company are those of investment holding and the business of trading of steel products. The principal activities of the subsidiaries are set out in Note 12 to the financial statements.

2. Summary of significant accounting policies

2.1 Basis of preparation

The consolidated financial statements of the Group and the balance sheet and statement of changes in equity of the Company have been prepared in accordance with Singapore Financial Reporting Standards (“FRS”).

The financial statements have been prepared on the historical cost basis except as disclosed in the accounting policies below.

The financial statements are presented in Singapore Dollars (SGD or $) and all values in the tables are rounded to the nearest thousand ($’000) as indicated.

2.2 Changes in accounting policies

The accounting policies adopted are consistent with those of the previous financial year except in the current financial year, the Group has adopted all the new and revised standards and Interpretations of FRS (INT FRS) that are effective for annual periods beginning on or after 1 October 2010. The adoption of these standards and interpretations did not have any effect on the financial performance or position of the Group and the Company.



2. Summary of significant accounting policies (cont’d)

2.3 Standards issued but not yet effective

The Group has not adopted the following standards and interpretations that have been issued but not yet effective:

Description

Effective for annual periods beginning

on or after

Revised FRS 24 Related Party Disclosures 1 January 2011Amendments to INT FRS 114 Prepayments of a Minimum Funding Requirement 1 January 2011Amendments to INT FRS 115 Agreements for the Construction of Real Estate 1 January 2011Amendments to FRS 107 Disclosure – Transfer of Financial Assets 1 July 2011Amendments to FRS 12 Deferred Tax – Recovery of Underlying Assets 1 January 2012Amendments to FRS 1 Presentation of Items of Other Comprehensive Income 1 July 2012Revised FRS 19 Employee Benefits 1 January 2013Revised FRS 27 Separate Financial Statements 1 January 2013Revised FRS 28 Investments in Associates and Joint Ventures 1 January 2013FRS 110 Consolidated Financial Statements 1 January 2013FRS 111 Joint Arrangements 1 January 2013FRS 112 Disclosure of Interests in Other Entities 1 January 2013FRS 113 Fair Value Measurements 1 January 2013

Except for the revised FRS 24, Amendments to FRS 1 and FRS 112, the directors expect that the adoption of the other standards and interpretations above will have no material impact on the financial statements in the period of initial application. The nature of the impending changes in accounting policy on adoption of the revised FRS 24, Amendments to FRS 1 and FRS 112 are described below.

Revised FRS 24 Related Party Disclosures

The revised FRS 24 clarifies the definition of a related party to simplify the identification of such relationships and to eliminate inconsistencies in its application. The revised FRS 24 expands the definition of a related party and would treat two entities as related to each other whenever a person (or a close member of that person’s family) or a third party has control or joint control over the entity, or has significant influence over the entity. The revised standard also introduces a partial exemption of disclosure requirements for government-related entities. The Group is currently determining the impact of the changes to the definition of a related party has on the disclosure of related party transaction. As this is a disclosure standard, it will have no impact on the financial position or financial performance of the Group when implemented in 2012.




2.3 Standards issued but not yet effective (cont’d)

Amendments to FRS 1 Presentation of Items of Other Comprehensive Income

The Amendments to FRS 1 Presentation of Items of Other Comprehensive Income (OCI) is effective for financial periods beginning on or after 1 July 2012.

The Amendments to FRS 1 changes the grouping of items presented in OCI. Items that could be reclassified to profit or loss at a future point in time would be presented separately from items which will never be reclassified. As the Amendments only affect the presentations of items that are already recognised in OCI, the Group does not expect any impact on its financial position or performance upon adoption of this standard.

FRS 112 Disclosure of Interests in Other Entities

FRS 112 is effective for financial periods beginning on or after 1 January 2013.

FRS 112 is a new and comprehensive standard on disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. FRS 112 requires an entity to disclose information that helps users of its financial statements to evaluate the nature and risks associated with its interest in other entities and the effects of those interests on its financial statements. The Group is currently determining the impact of the disclosure requirements. As this is a disclosure standard, it will have no impact to the financial position and financial performance of the Group when implemented.

2.4 Foreign currency

The Group’s consolidated financial statements are presented in Singapore Dollars, which is also the Company’s functional currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency.

Transactions in foreign currencies are measured in the respective functional currencies of the Company and its subsidiaries and are recorded on initial recognition in the functional currencies at exchange rates approximating those ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

Exchange differences arising on the settlement of monetary items or on translating monetary items at the balance sheet date are recognised in profit or loss except for exchange differences arising on monetary items that form part of the Group’s net investment in foreign operations, which are recognised initially in other comprehensive income and accumulated under foreign currency translation reserve in equity. The foreign currency translation reserve is reclassified from equity to profit or loss of the Group on disposal of the foreign operations.

For consolidation purposes, the assets and liabilities of foreign operations are translated into SGD at the rate of exchange ruling at the balance sheet date and their profit or loss are translated at the weighted average exchange rates for the year. The exchange differences arising on the translation are recognised in other comprehensive income. On disposal of a foreign operation, the cumulative amount recognised in foreign currency translation reserve relating to that particular foreign operation is recognised in profit or loss.




2.4 Foreign currency (cont’d)

In the case of a partial disposal without loss of control of a subsidiary that includes a foreign operation, the proportionate share of the cumulative amount of the exchange differences are re-attributed to non-controlling interest and are not recognised in profit or loss. For partial disposals of associates or jointly controlled entities that are foreign operations, the proportionate share of the accumulated exchange differences is reclassified to profit or loss.

2.5 Basis of consolidation and business combinations

(a) Basis of consolidation

Basis of consolidation from 1 October 2009

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at the end of the reporting period. The financial statements of the subsidiaries used in the preparation of the consolidated financial statements are prepared for the same reporting date as the Company.

Consistent accounting policies are applied to like transactions and events in similar circumstances.

All intra-group balances, income and expenses and unrealised gains and losses resulting from intra-group transactions and dividends are eliminated in full.

Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases.

Losses within a subsidiary are attributed to the non-controlling interest even if that results in a deficit balance.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it:

– De-recognises the assets (including goodwill) and liabilities of the subsidiary at their carrying amounts at the date when controls is lost;

– De-recognises the carrying amount of any non-controlling interest;

– De-recognises the cumulative translation differences recorded in equity;

– Recognises the fair value of the consideration received;

– Recognises the fair value of any investment retained;

– Recognises any surplus or deficit in profit or loss;

– Re-classifies the Group’s share of components previously recognised in other comprehensive income to profit or loss or retained earnings, as appropriate.




2.5 Basis of consolidation and business combinations (cont’d)

(a) Basis of consolidation (cont’d)

Basis of consolidation prior to 1 October 2009

Certain of the above-mentioned requirements were applied on a prospective basis. The following differences, however, are carried forward in certain instances from the previous basis of consolidation:

– Acquisitions of non-controlling interests, prior to 1 October 2009, were accounted for using the parent entity extension method, whereby, the difference between the consideration and the book value of the share of the net assets acquired were recognised in goodwill.

– Losses incurred by the Group were attributed to the non-controlling interest until the balance was reduced to nil. Any further losses were attributed to the Group, unless the non-controlling interest had a binding obligation to cover these. Losses prior to 1 October 2009 were not reallocated between non-controlling interest and the owners of the Company.

– Upon loss of control, the Group accounted for the investment retained at its proportionate share of net asset value at the date control was lost. The carrying value of such investments as at 1 October 2009 has not been restated.

(b) Business combination

Business combinations from 1 October 2009

Business combinations are accounted for by applying the acquisition method. Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Acquisition-related costs are recognised as expenses in the periods in which the costs are incurred and the services are received.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability, will be recognised in accordance with FRS 39 either in profit or loss or as a change to other comprehensive income. If the contingent consideration is classified as equity, it is not be remeasured until it is finally settled within equity.

In business combinations achieved in stages, previously held equity interests in the acquiree are remeasured to fair value at the acquisition date and any corresponding gain or loss is recognised in profit or loss.

The Group elects for each individual business combination, whether non-controlling interest in the acquiree (if any) is recognised on the acquisition date at fair value, or at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets.




2.5 Basis of consolidation and business combinations (cont’d)

(b) Business combination (cont’d)

Business combinations from 1 October 2009 (cont’d)

Any excess of the sum of the fair value of the consideration transferred in the business combination, the amount of non-controlling interest in the acquiree (if any), and the fair value of the Group’s previously held equity interest in the acquiree (if any), over the net fair value of the acquiree’s identifiable assets and liabilities is recorded as goodwill. In instances where the latter amount exceeds the former, the excess is recognised as gain on bargain purchase in profit or loss on the acquisition date.

Business combinations prior to 1 October 2009

In comparison to the above mentioned requirements, the following differences applied:

Business combinations are accounted for by applying the purchase method. Transaction costs directly attributable to the acquisition formed part of the acquisition costs. The non-controlling interest (formerly known as minority interest) was measured at the proportionate share of the acquiree’s identifiable net assets.

Business combinations achieved in stages were accounted for as separate steps. Adjustments to those fair values relating to previously held interests are treated as a revaluation and recognised in equity. Any additional acquired share of interest did not affect previously recognised goodwill.

When the Group acquired a business, embedded derivatives separated from the host contract by the acquiree were not reassessed on acquisition unless the business combination resulted in a change in the terms of the contract that significantly modified the cash flows that otherwise would have been required under the contract.

Contingent consideration was recognised if, and only if, the Group had a present obligation, the economic outflow was more likely than not and a reliable estimate was determinable. Subsequent adjustments to the contingent consideration were recognised as part of goodwill.

2.6 Transactions with non-controlling interests

Non-controlling interest represents the equity in subsidiaries not attributable, directly or indirectly, to owners of the Company, and are presented separately in the consolidated statement of comprehensive income and within equity in the consolidated balance sheet, separately from equity attributable to owners of the Company.

Changes in the Company owners’ ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. In such circumstances, the carrying amounts of the controlling and non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the amount by which the non-controlling interest is adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company.




2.7 Subsidiaries

A subsidiary is an entity over which the Group has the power to govern the financial and operating policies so as to obtain benefits from its activities.

In the Company’s separate financial statements, investments in subsidiaries are accounted for at cost less impairment losses.

2.8 Associates

An associate is an entity, not being a subsidiary or a joint venture, in which the Group has significant influence. An associate is equity accounted for from the date the Group obtains significant influence until the date the Group ceases to have significant influence over the associate.

The Group’s investments in associates are accounted for using the equity method. Under the equity method, the investment in associates is carried in the balance sheet at cost plus post-acquisition changes in the Group’s share of net assets of the associates. Goodwill relating to associates is included in the carrying amount of the investment and is neither amortised nor tested individually for impairment. Any excess of the Group’s share of the net fair value of the associate’s identifiable asset, liabilities and contingent liabilities over the cost of the investment is included as income in the determination of the Group’s share of results of the associate in the period in which the investment is acquired.

The profit or loss reflects the share of the results of operations of the associates. Where there has been a change recognised in other comprehensive income by the associates, the Group recognises its share of such changes in other comprehensive income. Unrealised gains and losses resulting from transactions between the Group and the associate are eliminated to the extent of the interest in the associates.

The Group’s share of the profit or loss of its associates is shown on the face of profit or loss after tax and non-controlling interests in the subsidiaries of associates.

When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

After application of the equity method, the Group determines whether it is necessary to recognise an additional impairment loss on the Group’s investment in its associates. The Group determines at the end of each reporting period whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount in profit or loss.

The financial statements of the associates are prepared as of the same reporting date as the Company. Where necessary, adjustments are made to bring the accounting policies in line with those of the Group.

Upon loss of significant influence over the associate, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the aggregate of the retained investment and proceeds from disposal is recognised in profit or loss.




2.9 Property, plant and equipment

All items of property, plant and equipment are initially recorded at cost. Subsequent to recognition, plant and equipment and furniture and fixtures are measured at cost less accumulated depreciation and any accumulated impairment losses. The cost includes the cost of replacing part of the property, plant and equipment and borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying property, plant and equipment. The accounting policy for borrowing costs is set out in Note 2.22. The cost of an item of property, plant and equipment is recognised as an asset if, and only if, it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably.

When significant parts of property, plant and equipment are required to be replaced in intervals, the Group recognises such parts as individual assets with specific useful lives and depreciation, respectively. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in profit or loss as incurred.

Freehold land has unlimited useful life and therefore is not depreciated.

Depreciation of an asset begins when it is available for use and is computed on the straight line basis over the estimated useful life of the asset as follows:

Buildings – 50 yearsLeasehold buildings – 18 to 41 yearsPlant and machinery – 4 to 19 yearsFurniture and fittings – 4 to 10 yearsOffice equipment – 3 to 10 yearsRenovation – 5 to 10 yearsMotor vehicles – 4 to 10 years

Construction in progress included in property, plant and equipment are not depreciated as these assets are not yet available for use.

The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.

The residual value, useful life and depreciation method are reviewed at each financial year-end, and adjusted prospectively, if appropriate.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on de-recognition of the asset is included in profit or loss in the year the asset is derecognised.




2.10 intangible assets

(a) Goodwill

Goodwill is initially measured at cost. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.

For the purpose of impairment testing, goodwill acquired is allocated, from the acquisition date, to each of the Group’s cash-generating units that are expected to benefit from the synergies of the combination.

The cash-generating unit to which goodwill has been allocated is tested for impairment annually and whenever there is an indication that the cash-generating unit may be impaired, by comparing the carrying amount of the cash-generating unit, including the allocated goodwill, with the recoverable amount of the cash-generating unit. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised in profit or loss. Impairment losses recognised for goodwill are not reserved in subsequent periods.

Where goodwill forms part of a cash-generating unit and part of the operation within that cash-generating unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative fair values of the operations disposed of and the portion of the cash-generating unit retained.

Goodwill and fair value adjustments arising on the acquisition of foreign operation on or after 1 January 2005 are treated as assets and liabilities of the foreign operations and are recorded in the functional currency of the foreign operations and translated in accordance with the accounting policy set out in Note 2.4.

Goodwill and fair value adjustments which arose on acquisitions of foreign operation before 1 January 2005 are deemed to be assets and liabilities of the Company and are recorded in SGD at the rates prevailing at the date of acquisition.

(b) Other intangible assets

Intangible assets acquired separately are measured initially at cost. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Following initial acquisition, intangible assets are measured at cost less any accumulated amortisation and accumulated impairment losses.

The useful lives of intangible assets are assessed as finite or indefinite.

Intangible assets with finite useful lives are amortised over the estimated useful lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method are reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in profit or loss in the expense category consistent with the function of the intangible asset.




2.10 intangible assets (cont’d)

(b) Other intangible assets (cont’d)

Intangible assets with indefinite useful lives or not yet available for use are tested for impairment annually, or more frequently if the events and circumstances indicate that the carrying value may be impaired either individually or at the cash-generating unit level. Such intangible assets are not amortised. The useful life of an intangible asset with an indefinite useful life is reviewed annually to determine whether the useful life assessment continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in profit or loss when the asset is derecognised.

Computer software

Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. Direct expenditure, which enhances or extends the performance of computer software beyond its specifications and which can be reliably measured, is recognised as a capital improvement and added to the original cost of the software. Costs associated with maintaining computer software are recognised as an expense as incurred.

Computer software licences are stated at cost less accumulated amortisation and impairment in value, if any. These costs are amortised using the straight line method over their estimated useful lives of 5 years.

2.11 impairment of non-financial assets

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when an annual impairment assessment for an asset is required, the Group makes an estimate of the asset’s recoverable amount.

An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or group of assets. Where the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows expected to be generated by the asset are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators.

The Group bases its impairment calculation on detailed budgets and forecast calculations which are prepared separately for each of the Group’s cash-generating units to which the individual assets are allocated. These budgets and forecast calculations are generally covering a period of five years. For longer periods, a long-term growth rate is calculated and applied to project future cash flows after the fifth year.




2.11 impairment of non-financial assets (cont’d)

Impairment losses of continuing operations are recognised in profit or loss in those expense categories consistent with the function of the impaired asset.

For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group estimates the asset’s or cash-generating unit’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increase cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised previously. Such reversal is recognised in profit or loss.

2.12 Financial assets

initial recognition and measurement

Financial assets are recognised when, and only when, the Group becomes a party to the contractual provisions of the financial instrument. The Group determines the classification of its financial assets at initial recognition.

When financial assets are recognised initially, they are measured at fair value, plus, in the case of financial assets not at fair value through profit or loss directly attributable transaction costs.

Subsequent measurement

The subsequent measurement of financial assets depends on their classification as follows:

(a) Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. This category includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by FRS 39. Derivatives, including separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.

Subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value. Any gains or losses arising from changes in fair value of the financial assets are recognised in profit or loss. Net gains or net losses on financial assets at fair value through profit or loss include exchange differences, interest and dividend income.

Derivatives embedded in host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated at fair value through profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in profit or loss. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required.




2.12 Financial assets (cont’d)

(b) Loans and receivables

Non-derivative financial assets with fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method, less impairment. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, and through the amortisation process.

(c) Available-for-sale financial assets

Available-for-sale financial assets include equity and debt securities. Equity investments classified as available-for sale are those, which are neither classified as held for trading nor designated at fair value through profit or loss. Debt securities in this category are those which are intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in the market conditions.

After initial recognition, available-for-sale financial assets are subsequently measured at fair value. Any gains or losses from changes in fair value of the financial assets are recognised in other comprehensive income, except that impairment losses, foreign exchange gains and losses on monetary instruments and interest calculated using the effective interest method are recognised in profit or loss. The cumulative gain or loss previously recognised in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment when the financial asset is de-recognised.

Investments in equity instruments whose fair value cannot be reliably measured are measured at cost less impairment loss.

De-recognition

A financial asset is derecognised where the contractual right to receive cash flows from the asset has expired. On de-recognition of a financial asset in its entirety, the difference between the carrying amount and the sum of the consideration received and any cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss.

All regular way purchases and sales of financial assets are recognised or derecognised on the trade date i.e. the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace concerned.




2.13 inventories

Inventories are stated at the lower of cost and net realisable value. Costs incurred in bringing the inventories to their present location and condition are accounted for as follows:

– Raw materials: purchase costs on a weighted average cost basis;

– Finished goods and work-in-progress: costs of direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity. These costs are assigned on a weighted average cost basis.

Where necessary, allowance is provided for damaged, obsolete and slow moving items to adjust the carrying value of inventories to the lower of cost and net realisable value.

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

2.14 impairment of financial assets

The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset is impaired.

(a) Financial assets carried at amortised cost

For financial assets carried at amortised cost, the Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be recognised are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss on financial assets carried at amortised cost has incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account. The impairment loss is recognised in profit or loss.

When the asset becomes uncollectible, the carrying amount of impaired financial assets is reduced directly or if an amount was charged to the allowance account, the amounts charged to the allowance account are written off against the carrying value of the financial asset.

To determine whether there is objective evidence that an impairment loss on financial assets has incurred, the Group considers factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments.




2.14 impairment of financial assets (cont’d)

(a) Financial assets carried at amortised cost (cont’d)

If in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed to the extent that the carrying amount of the asset does not exceed its amortised cost at the reversal date. The amount of reversal is recognised in profit or loss.

(b) Available-for-sale financial assets

In the case of equity investments classified as available-for-sale, objective evidence of impairment include (i) significant financial difficulty of the issuer or obligor, (ii) information about significant changes with an adverse effect that have taken place in the technological, market, economic or legal environment in which the issuer operates, and indicates that the cost of the investment in equity instrument may not be recovered; and (iii) a significant or prolonged decline in the fair value of the investment below its costs. ‘Significant’ is to be evaluated against the original cost of the investment and ‘prolonged’ against the period in which the fair value has been below its original cost.

If an available-for-sale financial asset is impaired, an amount comprising the difference between its acquisition cost (net of any principal repayment and amortisation) and its current fair value, less any impairment loss previously recognised in profit or loss is transferred from other comprehensive income and recognised in profit or loss. Reversals of impairment losses in respect of equity instruments are not recognised in profit or loss; increase in their fair value after impairment are recognised directly in other comprehensive income.

2.15 Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits, and short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. These also include bank overdrafts that form an integral part of the Group’s cash management.

2.16 Provisions

General

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and the amount of the obligation can be estimated reliably.

Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of economic resources will be required to settle the obligation, the provision is reversed. If the effect of the time value of money is material, provisions are discounted using a current pre tax rate that reflects, where appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.




2.16 Provisions (cont’d)

Provision for reinstatement costs

Provision for reinstatement cost arose from the estimated cost of dismantling, removing and restoring the leasehold properties at the end of their lease terms.

The reinstatement costs which are provided at the present value of estimated costs required to settle the obligation are recognised as part of the cost of that particular asset. The estimated future cost if reinstatement is reviewed annually and adjusted as appropriate.

2.17 Financial liabilities

initial recognition and measurement

Financial liabilities are recognised when, and only when, the Group becomes a party to the contractual provisions of the financial instrument. The Group determines the classification of its financial liabilities at initial recognition.

All financial liabilities are recognised initially at fair value plus in the case of financial liabilities not at fair value through profit or loss, directly attributable transaction costs.

Subsequent measurement

The measurement of financial liabilities depends on their classification as follows:

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss includes financial liabilities held for trading and financial liabilities designated upon initial recognition at fair value through profit or loss. Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.

Subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value. Any gains or losses arising from changes in fair value of the financial liabilities are recognised in profit or loss.

Other financial liabilities

After initial recognition, other financial liabilities are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in profit or loss when the liabilities are derecognised, and through the amortisation process.




2.17 Financial liabilities (cont’d)

De-recognition

A financial liability is de-recognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a de-recognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss.

2.18 Leases

The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date: whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset, even if that right is not explicitly specified in an arrangement.

For arrangements entered into prior to 1 January 2005, the date of inception is deemed to be 1 January 2005 in accordance with the transitional requirements of INT FRS 104.

(a) As lessee

Finance leases, which transfer to the Group substantially all the risks and rewards incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Any initial direct costs are also added to the amount capitalised. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to profit or loss. Contingent rents, if any, are charged as expenses in the periods in which they are incurred.

Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term.

Operating lease payments are recognised as an expense in profit or loss on a straight-line basis over the lease term. The aggregate benefit of incentives provided by the lessor is recognised as a reduction of rental expense over the lease term on a straight-line basis.

(b) As lessor

Leases where the Group retains substantially all the risks and rewards of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same bases as rental income. The accounting policy for rental income is set out in Note 2.23.




2.19 Employee benefits

Defined contribution plans

The Group participates in the national pension schemes as defined by the laws of the countries in which it has operations. In particular, the Singapore companies in the Group make contributions to the Central Provident Fund scheme in Singapore, a defined contribution pension scheme. Contributions to defined contribution pension schemes are recognised as an expense in the period in which the related service is performed.

Employee leave entitlement

Employee entitlements to annual leave are recognised as a liability when they accrue to the employees. The estimated liability for leave is recognised for services rendered by employees up to the end of the reporting period.

2.20 Financial guarantees

A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument.

Financial guarantees are recognised initially as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Subsequent to initial recognition, financial guarantees are recognised as income in profit or loss over the period of the guarantee. If it is probable that the liability will be higher than the amount initially recognised less amortisation, the liability is recorded at the higher amount with the difference charged to profit or loss.

2.21 Taxes

(a) Current income tax

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the end of the reporting period, in the countries where the Group operates and generates taxable income.

Current income taxes are recognised in profit or loss except to the extent that the tax relates to items recognised outside profit or loss, either in other comprehensive income or directly in equity. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.




2.21 Taxes (cont’d)

(b) Deferred tax

Deferred tax is provided using the liability method on temporary differences at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all temporary differences, except:

– Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

– In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised except:

– Where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

– In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at the end of each reporting period and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the end of each reporting period.

Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity and deferred tax arising from a business combination is adjusted against goodwill on acquisition.




2.21 Taxes (cont’d)

(b) Deferred tax (cont’d)

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current income tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, would be recognised subsequently if new information about facts and circumstances changed. The adjustment would either be treated as a reduction to goodwill (as long as it does not exceed goodwill) if it incurred during the measurement period or in profit or loss.

(c) Sales tax

Revenues, expenses and assets are recognised net of the amount of sales tax except:

– Where the sales tax incurred in a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and

– Receivables and payables that are stated with the amount of sales tax included.

The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet.

2.22 Borrowing costs

Borrowing costs are capitalised as part of the cost of a qualifying asset if they are directly attributable to the acquisition, construction or production of that asset. Capitalisation of borrowing costs commences when the activities to prepare the asset for its intended use or sale are in progress and the expenditures and borrowing costs are incurred. Borrowing costs are capitalised until the assets are substantially completed for their intended use or sale. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

2.23 Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when the payment is made. Revenue is measured at the fair value of consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty. The Group assesses its revenue arrangements to determine if it is acting as principal or agent. The Group has concluded that it is acting as a principal in all of its revenue arrangements. The following specific recognition criteria must also be met before revenue is recognised:

Revenue from engineering and sand blasting services is recognised when services are rendered.

Revenue from sale of goods is recognised upon the transfer of significant risk and rewards of ownership of the goods to the customer, usually on delivery of goods. Revenue is not recognised to the extent where there are significant uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods.




2.23 Revenue recognition (cont’d)

Rental income under operating leases is recognised in profit or loss on a straight-line basis over the term of the lease.

Dividend income is recognised in profit or loss when the Group’s right to receive payment is established.

Interest income is recognised using the effective interest method.

2.24 Segment reporting

For management purposes, the Group is organised into operating segments based on their products and services which are independently managed by the respective segment managers responsible for the performance of the respective segments under their charge. The segment managers report directly to the management of the Company who regularly review the segment results in order to allocate resources to the segments and to assess the segment performance. Additional disclosures on each of these segments are shown in Note 28, including the factors used to identify the reportable segments and the measurement basis of segment information.

2.25 Share capital and share issue expenses

Proceeds from issuance of ordinary shares are recognised as share capital in equity. Incremental costs directly attributable to the issuance of ordinary shares are deducted against share capital.

2.26 Contingencies

A contingent liability is:

(a) a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group; or

(b) a present obligation that arises from past events but is not recognised because:

(i) It is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or

(ii) The amount of the obligation cannot be measured with sufficient reliability.

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group.

Contingent liabilities and assets are not recognised on the balance sheet of the Group, except for contingent liabilities assumed in a business combination that are present obligations and which the fair values can be reliably determined.




2.27 Related parties

A party is considered to be related to the Group if:

(a) The party, directly or indirectly through one or more intermediaries,

(i) controls, is controlled by, or is under common control with, the Group;

(ii) has an interest in the Group that gives significant influence over the Group; or

(iii) has joint control over the Group;

(b) The party is an associate;

(c) The party is a jointly-controlled entity;

(d) The party is a member of the key management personnel of the Group or its parent;

(e) The party is a close member of the family of any individual referred to in (a) or (d); or

(f) The party is an entity that is controlled, jointly controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (d) or (e); or

(g) The party is a post-employment benefit plan for the benefit of the employees of the Group; or of any entity that is related party of the Group.

3. Significant accounting judgements and estimates

The preparation of the Group’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future.

3.1 Judgements made in applying accounting policies

In the process of applying the Group’s accounting policies, management has made the following judgements, apart from those involving estimations, which has the most significant effect on the amounts recognised in the financial statements:

(i) Impairment of investment in associates

The directors of the Company follow the guidance of FRS 36 – Impairment of Assets, in determining whether investment in associates are other than temporary impaired. This requires assumptions made regarding the duration and extent to which the fair value of an investment is less than its costs and the financial health of and near-term business outlook for the investment, including factors such as industry and sector performance, changes in technology and operational and financing cash flow.



3. Significant accounting judgements and estimates (cont’d)

3.1 Judgements made in applying accounting policies (cont’d)

(i) Impairment of investment in associates (cont’d)

Based on the directors’ assessment, there is no requirement to provide for any allowance for impairment in value of investment in associates. The Group’s carrying amount of investment in associates at the balance sheet date is disclosed in Note 13 to the financial statements.

(ii) Income taxes

The Group has exposure to income taxes in various jurisdictions. Significant judgement is involved in determining the Group-wide provision for income taxes. There are certain transactions and computations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for expected tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recognised, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. The carrying amount of the Group’s income tax payables and deferred tax liabilities at the balance sheet date was $94,000 (2010: $19,000) and $212,000 (2010: $297,000) respectively.

3.2 Key sources of estimation uncertainty

The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

(i) Depreciation of property, plant and equipment

These assets are depreciated on a straight-line basis over their estimated useful lives. The Group estimates the useful lives of these assets to be within 3 to 50 years. The carrying amounts of the Group’s property, plant and equipment at the balance sheet date are disclosed in Note 10 to the financial statements. Changes in the expected level of usage and technological developments could impact the economic useful lives and the residual values of these assets, therefore future depreciation charges could be revised.

(ii) Impairment of trade and other receivables

The Group establishes allowance for doubtful receivables on a case-by-case basis when they believe that payment of amounts owed is unlikely to occur. In establishing these allowances, the Group considers its historical experience and changes to its customers’ financial position. If the financial conditions of receivables were to deteriorate, additional allowances may be required. The carrying amount of trade and other receivables for the Group at the balance sheet date is disclosed in Note 18 to the financial statements.



3. Significant accounting judgements and estimates (cont’d)

3.2 Key sources of estimation uncertainty (cont’d)

(iii) Inventories and related allowance

Inventories are stated at the lower of cost and net realisable value. The Group primarily determines cost of inventories using the “weighted average” method. The Group estimates the net realisable value of inventories based on assessment of receipt or committed sales prices and provides for excess and obsolete inventories based on historical usage, estimated future demand and related pricing. In determining excess quantities, the Group considers recent sales activities, related margins and market positioning of its products. These estimates are generally not subject to significant volatility, due to the long life cycles of its products. However, factors beyond its control, such as demand levels, technological advances and pricing competition, could change from period to period. If such factors had an adverse effect, the Group might be required to reduce the value of its inventories, which would adversely affect its results, cash flows and financial position. The carrying amount of inventories for the Group at the balance sheet date is disclosed in Note 17 to the financial statements.

4. Revenue

Revenue of the Group and of the Company represents the invoiced value of goods sold less goods returned and discounts allowed, net of goods and services tax. Revenue of the Group is in respect of external transactions only.

5. Other operating income

Group2011 2010

$’000 $’000

Allowance for doubtful trade receivables no longer required, now written back 39 396Claims and compensation received 43 460Fair value gain on investment held for trading – 110Fair value gain on derivatives - call option (Note 24) 4,517 –- warrants 719 1,516Bad debts recovered – 5Dividend income 15 20Gain on disposal of property, plant and equipment 51 –Commission income 382 201Interest income- fixed deposits 28 27- current accounts with banks – 1Rental income 585 499Gain on disposal of subsidiary (Note 12) – 6,373Other income 193 209

6,572 9,817



6. Finance costs

Group2011 2010

$’000 $’000

Interest expense- bank overdrafts 3 –- bankers’ acceptance 28 23- bridging loans 154 414- finance lease 35 40- term loans 154 3,644- trust receipts 1,210 946- late payment 301 1,728

1,885 6,795Other finance costs- invoice financing 38 26- others – 99

1,923 6,920



7. Profit/(loss) before income tax

Profit/(loss) before income tax is arrived at after debiting the following:

Group2011 2010

$’000 $’000

Depreciation of property, plant and equipment recognised as an expense in cost of sales 897 807

Inventories recognised as an expense in cost of sales (Note 17) 206,506 171,775Operating lease expenses recognised as an expense in cost of sales 492 506Fees paid/payable for non-audit services- auditors of the Company 33 3- other auditors 31 18Directors fees 193 156Staff cost (including directors)- Salaries, bonus and allowances 6,846 6,885- Employer’s contributions to defined contribution plan 563 1,104- Other staff welfare expenses 161 157

Included in other operating expenses:Foreign exchange loss 1,340 77Depreciation of property, plant and equipment 2,420 1,698Loss on disposal of property, plant and equipment – 284Property, plant and equipment written off 13 –Amortisation of computer software 167 167Amortisation of customer relationship – 246Write down of inventories to net realisable value – 12,875Allowance made for doubtful trade receivables 97 659Operating lease expenses 1,645 1,556Fair value loss on investment held for trading 245 –Loss on disposal of shares in an associate (Note 13) – 1,910



8. income tax credit

Major components of income taxes

The major components of income taxes for the years ended 30 September 2011 and 2010 are:

Group2011 2010

$’000 $’000

Current income tax- Current financial year 148 1,128- Over provision in respect of prior years (170) (1,144)- Loss carry back relief – (62)

(22) (78)

Deferred tax- Current financial year (79) (123)- Over provision in respect of prior years (6) (153)

(85) (276)

Total income tax credit recognised in profit or loss (107) (354)

On 3 October 2007, the Company was awarded the Global Trader Programme (“GTP”) status by International Enterprise Singapore. Under the GTP, the Company’s qualifying income will be taxed at a concessionary rate of 10% for a 4 year period commencing from 1 August 2007, subject to compliance with Section 43P of the Income Tax Act Cap. 134 and with the regulations prescribed in the International Enterprise Singapore Award Letter.



8. income tax credit (cont’d)

The reconciliation between tax credit and the product of accounting profit/(loss) multiplied by the applicable corporate tax rate for the years ended 30 September 2011 and 2010 are as follows:

Group2011 2010

$’000 $’000

Profit/(loss) before income tax 16,165 (27)

Income tax calculated using statutory tax rate of 17% (2010: 17%) 2,748 (5)Tax effect of:- expenses not deductible for tax purposes 675 1,106- income not subject to tax (1,032) (1,360)- Loss carry back relief – (62)Effect of different tax rate in other countries (24) (68)(Over)provision in respect of prior years (176) (1,297)Tax exemption (29) (1)Tax incentive (152) (134)Deferred tax assets not recognised 61 2,326Tax calculated on share of joint venture and associate profits (637) (827)Benefits from previously recognised tax losses (1,545) (17)Others 4 (15)

(107) (354)

In prior year, certain Singapore companies in the Group have elected for the enhanced loss carry back relief system which was introduced and applicable from YA 2010. The loss carry back relief system allows companies to utilise their unabsorbed capital allowances and tax losses against assessable income for up to three preceding year of assessments. The maximum amount of unutilised qualifying deduction that may be carried back for each year of assessment is $200,000. The utilisation of unabsorbed capital allowances and tax losses is subject to the approval of the Singapore tax authorities.

The tax effect of expenses that are not deductible for income tax purposes include the following:

Group2011 2010

$’000 $’000

Depreciation of property, plant and equipment 434 400Annual front end bank facility fees 36 33Loss on disposal of shares in an associate – 325Interest expense – 95



8. income tax credit (cont’d)

The tax effect of income that is not subject to tax include the following:

Group2011 2010

$’000 $’000

Gain on disposal of subsidiary – 1,083Fair value gain on derivatives 890 257

9. Earnings per share

(a) Basic earnings per share

Basic earnings per share is calculated by dividing the Group’s profit/(loss) attributable to equity holders by the weighted average number of ordinary shares in issue during the financial year.

The earnings per share is calculated as follows:

Group2011 2010

$’000 $’000

Net profit/(loss) attributable to equity holders of the Company 16,116 (2,483)

Weighted average number of shares in issue during the financial year 934,978 775,672

Basic earnings/(loss) per share 1.72 cents (0.32) cents



9. Earnings per share (cont’d)

(b) Diluted earnings per share

For the purpose of calculating diluted earnings per share, profit/(loss) attributable to equity holders of the Company and the weighted average number of ordinary shares outstanding are adjusted for the effects of all dilutive potential ordinary shares.

Group2011 2010

$’000 $’000

Net profit/(loss) attributable to equity holders of the Company 16,116 (2,483)

Weighted average number of shares in issue during the financial year for basic earnings per share computation 934,978 775,672

Effects of dilution:- Stock call option 11,535 –

946,513 775,672

Diluted earnings/(loss) per share 1.70 cents (0.32) cents

60,000,000 (2010: 60,000,000) warrants have not been included in the calculation of diluted earnings per share because they are anti-dilutive.



10. Property, plant and equipment

Freeholdland Buildings

Leaseholdbuildings

Plant andmachinery

Furniture and

fittingsOffice

equipment RenovationMotor

vehiclesConstruction

in progress Total

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Group

Cost

At 1 October 2009 11,285 – 33,334 50,467 1,197 1,831 812 2,981 14,826 116,733

Additions – – – 696 80 26 889 746 5,745 8,182

Disposals/write off (11,394) – – (386) – (75) (13) (509) (3,778) (16,155)

Divestment of a subsidiary – – (18,131) (43,676) (912) (1,461) – (422) – (64,602)

Reclassifications 380 334 – – – – – – (714) –

Exchange differences 369 5 – (9) 1 – 1 19 126 512

At 30 September 2010 and 1 October 2010 640 339 15,203 7,092 366 321 1,689 2,815 16,205 44,670

Additions – – 850 276 78 92 82 809 1,424 3,611

Disposals/write off (373) – – (75) (10) (76) (338) (900) (13) (1,785)

Reclassifications – – 17,724 – – – (800) – (16,924) –

Exchange differences (24) (16) – 2 (2) – – (24) – (64)

At 30 September 2011 243 323 33,777 7,295 432 337 633 2,700 692 46,432

Accumulated depreciation

At 1 October 2009 – – 15,303 35,970 1,028 1,588 497 1,778 – 56,164

Charge for the year – 4 870 912 45 63 178 433 – 2,505

Disposals/write off – – – (66) – (69) (13) (329) – (477)

Divestment of subsidiary – – (10,164) (33,193) (872) (1,343) – (130) – (45,702)

Exchange differences – – – (3) – – – 10 – 7

At 30 September 2010 and 1 October 2010 – 4 6,009 3,620 201 239 662 1,762 – 12,497

Charge for the year – 7 2,102 642 36 38 111 381 – 3,317

Disposals/write off – – – (65) (10) (71) (338) (828) – (1,312)

Reclassifications – – 63 – – – (63) – – –

Exchange differences – – – – – – – (8) – (8)

At 30 September 2011 – 11 8,174 4,197 227 206 372 1,307 – 14,494

Net book value

At 30 September 2011 243 312 25,603 3,098 205 131 261 1,393 692 31,938

At 30 September 2010 640 335 9,194 3,472 165 82 1,027 1,053 16,205 32,173



10. Property, plant and equipment (cont’d)

Leaseholdbuildings

Plant andmachinery

Furnitureand

fittingsOffice

equipment RenovationMotor

vehicles

Construction in

progress Total

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Company

Cost

At 1 October 2009 8,672 901 140 199 614 1,781 10,896 23,203

Additions – 184 – 20 500 292 5,309 6,305

Disposal/write off – – – (60) – (3) – (63)

At 30 September 2010 and 1 October 2010 8,672 1,085 140 159 1,114 2,070 16,205 29,445

Additions 850 24 70 59 50 809 1,411 3,273

Disposal/write off – (60) (10) (71) (338) (900) – (1,379)

Reclassification 17,424 – – – (500) – (16,924) –

At 30 September 2011 26,946 1,049 200 147 326 1,979 692 31,339

Accumulated depreciation

At 1 October 2009 2,697 317 80 151 425 1,144 – 4,814

Charge for the year 408 92 13 22 105 300 – 940

Disposal/write off – – – (60) – (2) – (62)

At 30 September 2010 and 1 October 2010 3,105 409 93 113 530 1,442 – 5,692

Charge for the year 1,659 103 16 23 54 283 – 2,138

Disposal/write off – (60) (10) (66) (338) (829) – (1,303)

Reclassification 33 – – – (33) – – –

At 30 September 2011 4,797 452 99 70 213 896 – 6,527

Net book value

At 30 September 2011 22,149 597 101 77 113 1,083 692 24,812

At 30 September 2010 5,567 676 47 46 584 628 16,205 23,753



10. Property, plant and equipment (cont’d)

As at the balance sheet date, the net book value of property, plant and equipment purchased under finance leases were as follows:

Group Company2011 2010 2011 2010

$’000 $’000 $’000 $’000

Plant and machinery 153 180 – –Motor vehicles 725 749 441 359

878 929 441 359

Lease assets are pledged as security for the related finance lease liability.

The net book value of motor vehicles registered in the name of certain Directors and employees who were holding these motor vehicles in trust for the Group and the Company were as follows:

Group Company2011 2010 2011 2010

$’000 $’000 $’000 $’000

As at 30 September – 359 – 359

The net book value of property, plant and equipment of the Group and the Company that were mortgaged as security for bank borrowings (Note 22) were as follows:

Group Company2011 2010 2011 2010

$’000 $’000 $’000 $’000

Leasehold properties 25,603 9,194 22,149 5,567Properties under construction in progress 692 16,205 692 16,205

26,295 25,399 22,841 21,772



11. intangible assets

Trademark GoodwillComputer

softwareCustomer

relationship Total$’000 $’000 $’000 $’000 $’000

Group

Cost

At 1 October 2009 13,840 2,951 834 10,318 27,943Divestment of a subsidiary (13,840) (2,951) – (10,318) (27,109)

At 30 September 2010 and 30 September 2011 – – 834 – 834

Accumulated amortisation

At 1 October 2009 – – 233 1,474 1,707Amortisation – – 167 246 413Divestment of a subsidiary – – – (1,720) (1,720)

At 30 September 2010 and 1 October 2010 – – 400 – 400

Amortisation – – 167 – 167

At 30 September 2011 – – 567 – 567

Carrying amounts

At 30 September 2011 – – 267 – 267

At 30 September 2010 – – 434 – 434



11. intangible assets (cont’d)

Computersoftware

$’000Company

Cost

At 1 October 2009 768Additions –

At 30 September 2010 and 30 September 2011 768

Accumulated amortisation

At 1 October 2009 230Amortisation 154

At 30 September 2010 384Amortisation 154

At 30 September 2011 538

Carrying amounts



Computer software

Computer software of the Group and the Company is determined to have finite useful lives and is amortized on a straight-line basis over 5 years with remaining useful lives of 2 years (2010: 3 years)



12. investment in subsidiaries

Company2011 2010

$’000 $’000

Unquoted equity shares, at cost 12,520 12,520

The directors of the Company had assessed for impairment in value of investment in subsidiaries. From the assessment, no allowance for impairment in value of investment in subsidiaries is required.

Details of the subsidiaries are as follows:

Name of subsidiaries Principal activities

Country ofincorporation/

business

Effective equityinterest heldby the Group

2011 2010% %

Held by the Company

Jin Heng Li Hardware Sdn. Bhd. (2)

Trading in all types of hardware Malaysia 59.23 59.23

Oriental Metals Pte Ltd (1) Trading and manufacturing of steel products and provisions of engineering and sandblasting services

Singapore 99.99 99.99

HG Metal Investments Pte Ltd (1)

Investment holding Singapore 100.00 100.00

Held by HG Metal investments Pte Ltd

Niho (Singapore) Pte Ltd (1) Wholesalers and distributors of various types of metals and fabricated metals


Galaxia Pte Ltd (1) Rental of metal plates Singapore 100.00 100.00

HG Metal Manufacturing Sdn Bhd (2)

Dormant Malaysia 100.00 100.00

HG Metal Pte Ltd (1) Investment holding Singapore 100.00 100.00



12. investment in subsidiaries (cont’d)

Name of subsidiaries Principal activities


business

Effective equityinterest heldby the Group

2011 2010% %

Held by Niho (Singapore) Pte Ltd

Kunshan Niho Co Ltd (3) Wholesalers and distributors of various types of metals and fabricated metals

People’s Republicof China

59.03 59.03

Held by HG Metal Manufacturing Sdn Bhd

Nusajaya Steel Sdn Bhd (2) Dormant Malaysia 100.00 70.00

(1) Audited by Ernst & Young LLP, Singapore.

(2) Audited by RSM Robert, Teo, Kuan & Co., Malaysia.

(3) Audited by Suzhou Ren Tai Certified Public Accountants Partnership, People’s Republic of China.

HG Metal Pte Ltd

Capital reduction in HG Metal Pte Ltd (“HGMPL”) and consequently cessation of BRC Asia Limited (“BRC”) as a subsidiary in FY2010

At an Extraordinary General Meeting held on 26 October 2009, the shareholders of HGMPL approved the following:

– Capitalisation of advances from minority shareholders of $17,055,000.

– Capital reduction of paid-up capital of $46,356,000. The reduction in paid-up capital of $31,756,000 relating to the minority shareholders was to be satisfied by the transfer of 281,927,381 shares in BRC.

Approval from the High Court of Republic of Singapore was obtained on 30 October 2009 and the capital reduction was completed on 26 November 2009 with the transfer of BRC shares to the minority shareholders. Accordingly, HGMPL became a wholly-owned subsidiary of the Group. BRC ceased to be a subsidiary of the Group on that date and the Group recognised a gain of $6,373,000 (Note 5) relating to the disposal. Consequently, the Group’s retained interest in BRC is accounted for as an investment in associate (Note 13).



12. investment in subsidiaries (cont’d)

The net identifiable assets and liabilities of BRC at the date of disposal and cash flow effect of the disposal are as follows:

2010$’000

Property, plant and equipment 18,900Intangible assets 25,389Investment in joint venture 9,690Available for sale financial assets 28Trade and other receivables 58,453Inventories 36,645Cash and cash equivalents 9,527

158,632

Bank borrowings (26,608)Trade and other payables (25,999)Provision for retirement benefits (786)Deferred revenue (1,867)Finance lease payables (1,560)Derivative financial instruments (500)Provision for taxation (4,280)Deferred tax liability (6,115)

(67,715)

Net identifiable assets 90,917

Net cash outflow on disposal of subsidiary:Cash and cash equivalents of subsidiary 9,527



13. investment in associates

Group Company2011 2010 2011 2010

$’000 $’000 $’000 $’000

Shares, at cost 32,312 30,279 713 713Share of associate results,

net of dividend income 4,589 2,874 – –Share of changes recognised directly

in associate’s equity (234) (190) – –

36,667 32,963 713 713

Fair value of investment in an associate for which there is published price quotation 23,107 26,795 – –

Name of associates Principal activities


business

Effective equityinterest held by theGroup and Company

2011 2010% %

Held by the Company

POS-SEA Pte Ltd (1) Commission agent for procurement of steel products and materials


Held by HG Metal Pte Ltd

BRC Asia Limited (2) Prefabrication and trading of steel reinforcement products and manufacture and sale of wire mesh fences


(1) Audited by Lee Seng Chan & Co, Singapore.

(2) Audited by Ernst & Young LLP, Singapore.



13. investment in associates (cont’d)

The summarised financial information of the associates, not adjusted for the proportion of ownership interest held by the Group, is as follows:

Group2011 2010

$’000 $’000

Assets and liabilities:Total assets 156,715 151,181

Total liabilities (53,109) (61,498)

Results:Revenue 349,982 296,563

Profit for the year 15,492 21,815

Disposal of shares in the associate, BRC Asia Limited (“BRC”) in FY2010

On 26 November 2009, the Group’s retained interest in BRC is accounted for as an investment in associate (Note 12). Subsequently, the Group disposed of 80,641,080 and 28,000,000 shares in BRC in January 2010 and March 2010 respectively for a total cash consideration of $15,474,000. The Group recorded a loss totalling $1,910,000 (Note 7) as a result of the disposals. Immediately following the disposals, the Group had a 27.50% interest in BRC.

Of the above transactions, 5,000,000 shares in BRC was disposed of to the directors and key management personnel of BRC for a cash consideration of $675,000. The Group recognised a loss of $125,000 from this disposal.

Dilution of interest in BRC in the FY2010

On 6 April 2010, BRC allotted and issued 100,000,000 new ordinary shares to third parties. As a result, the Group’s equity interest in BRC decreased from 27.50% to 23.94% and the financial effect of the dilution of interest was approximately $288,000.

Increase of interest in BRC during the year

On 18 April 2011, the Group participated in BRC’s Scrip Dividend Scheme in respect of qualifying dividends. As a result, the number of ordinary shares held by the Group increased by 16,132,769 shares to 200,926,308 ordinary shares and, the shares at cost increased by $2,033,000 to $32,312,000. Accordingly, the Group’s equity interest increased to 24.39%.



14. Deferred tax

Deferred income tax as at 30 September relates to the following:

GroupConsolidated

balance sheet

Consolidated statement of comprehensive

income2011 2010 2011 2010

$’000 $’000 $’000 $’000

Deferred tax liabilities:

Differences in depreciation for tax purposes 212 297 (85) (276)

212 297

Deferred income tax credit (85) (276)

At the balance sheet date, the Group has tax losses of approximately $74,854,000 (2010: $84,500,000) that are available for offset against future taxable profits of the companies in which the losses arose, for which no deferred tax asset is recognised due to uncertainty of its recoverability. The use of these tax losses is subject to the agreement of the tax authorities and compliance with certain provisions of the tax legislation of the respective countries in which the companies operate.

Tax consequences of proposed dividends

There are no income tax consequences (2010: nil) attached to the dividends to the shareholders proposed by the Company but not recognised as a liability in the financial statements (Note 29).

15. Derivative financial instruments

Contract/NotionalAmount 2011

Contract/NotionalAmount 2010

$’000 $’000 $’000 $’000Assets Liabilities Assets Liabilities

Group and Company

Warrants 7,488 – 329 7,488 – 1,048

The Company issued 60,000,000 warrants to Oversea-Chinese Banking Corporation Limited and United Overseas Bank Limited (the “lenders”) in conjunction with the $39 million term loan facility provided by the lenders. The term loan facility had a tenure period of one year from the date of the facility agreement of on 21 October 2009 and the term loan has been repaid during the year. The warrants carry the rights to subscribe for shares at an exercise price of $0.1248 per share for a period of 3 years from 23 November 2009.



15. Derivative financial instruments (cont’d)

The above derivatives are measured at fair value at each balance sheet date. The warrants are valued using a valuation model. The inputs to the model include assumptions regarding dividend yield and volatility of share price. The fair values of forward currency contracts are determined based on the quoted market price for equivalent instruments at the balance sheet date.

16. investment held for trading

Group2011 2010

$’000 $’000

Equity instruments (quoted) 135 380

17. inventories

Group Company2011 2010 2011 2010

$’000 $’000 $’000 $’000

Trading inventories 89,392 52,708 86,704 49,733Finished goods 2,694 3,583 – –Work-in-progress 970 1,281 – –Raw materials 3,676 4,932 – –

96,732 62,504 86,704 49,733

Group2011 2010

$’000 $’000

Inventories recognised as expense in cost of sales (Note 7) 206,506 171,775Write-down of inventories to net realisable value recognised in other

operating expenses – 12,875



18. Trade and other receivables

Group Company2011 2010 2011 2010

$’000 $’000 $’000 $’000

Trade receivablesThird parties 43,406 26,675 33,841 17,618Amounts due from subsidiaries – – 403 44Amounts due from related parties 3,324 1,845 2,257 865Amounts due from associates 12 – 12 –Allowance for doubtful receivables (3,751) (3,755) (3,595) (3,650)

42,991 24,765 32,918 14,877

Other receivablesThird parties 32 4,744 31 35Advance to suppliers for purchase of inventories 1,068 – 653 –Rental, utilities and other deposits 570 726 245 265Amounts due from subsidiaries (non-trade) – – 18,207 22,792Amounts due from related parties 217 – 217 –Amounts due from associates 1 – – –Allowances for doubtful receivables from

subsidiaries (non-trade) – – (1,824) (1,824)

1,888 5,470 17,529 21,268

Total 44,879 30,235 50,447 36,145

Receivables that are past due but not impaired

The Group has trade receivables amounting to $17,820,000 (2010: $10,759,000) that are past due at the balance sheet date but not impaired. These receivables are unsecured and the analysis of their aging at the balance sheet date is as follows:

Group2011 2010

$’000 $’000

Trade receivables past due:- Less than 30 days 9,553 5,935- 30 - 60 days 3,592 2,146- 61 - 90 days 2,396 923- 91 - 120 days 1,791 912- More than 120 days 490 843

17,822 10,759



18. Trade and other receivables (cont’d)

Receivables that are impaired

The Group’s trade receivables that are impaired at the balance sheet date and the movement of the allowance accounts used to record the impairment are as follows:

Group Company2011 2010 2011 2010

$’000 $’000 $’000 $’000

Trade receivables –nominal amounts 3,751 3,755 3,595 3,650Less: Allowance for impairment (3,751) (3,755) (3,595) (3,650)

– – – –

Movement in allowance accounts:

Balance at 1 October 3,755 4,342 3,650 3,518Charge for the year 97 659 4 480Written back (39) (396) (59) (348)Bad debts written off against allowance (27) (9) – –Arising from disposal of subsidiary – (692) – –Exchange differences (35) (149) – –

Balance at 30 September 3,751 3,755 3,595 3,650

Trade receivables that are individually determined to be impaired at the balance sheet date relate to debtors that are in significant financial difficulties and have defaulted on payments. These receivables are not secured by any collateral or credit enhancements.

Trade receivables are non-interest bearing and are generally on 30 to 120 days credit terms.

Other receivables, including non-trade amounts due from subsidiaries, associates and related parties, are unsecured, interest-free and repayable on demand.

Trade receivables denominated in foreign currencies at 30 September are as follows:

Group Company2011 2010 2011 2010

$’000 $’000 $’000 $’000

United States Dollar 3,761 3,901 1,995 2,109



19. Cash and fixed deposits

Group Company2011 2010 2011 2010

$’000 $’000 $’000 $’000

Cash at bank balances 9,215 4,491 2,773 1,165Fixed deposits with banks (Note 22) 636 617 – –

Cash and fixed deposits 9,851 5,108 2,773 1,165

Fixed deposits bear weighted average effective interest rate of 2.97% per annum (2010: 2.20% - 2.83% per annum) and for tenures ranging from 1 to 12 months (2010: 12 months). Fixed deposits are pledged to banks for bank borrowings granted to a subsidiary.

For the purpose of the consolidated cash flow statement, cash and cash equivalents comprise the following at the balance sheet date:

Group2011 2010

$’000 $’000

Cash and fixed deposits 9,215 4,491Bank overdrafts (Note 22) (149) (143)

Cash and cash equivalents 9,066 4,348



20. Trade and other payables

Group Company2011 2010 2011 2010

$’000 $’000 $’000 $’000

Trade payables 30,141 17,522 26,702 14,565Deposits from customers 615 436 575 329Accrued operating expenses 2,258 1,450 1,929 979Other payables 1,480 989 1,309 629Advances from shareholders – 31 – –Amounts due to subsidiaries- trade – – 150 2,465- non-trade – – 515 77Amounts due to related parties- trade 6,822 7,498 6,677 7,498- non-trade 49 – 49 –Amounts due to associates- trade 1,498 2,732 98 174

Total 42,863 30,658 38,004 26,716

Trade payables including amount due to associates and related parties are non-interest bearing and are normally settled on 30 to 90 days’ term.

The non-trade amounts, including amounts due to subsidiaries, related parties and advances from shareholders, are unsecured, interest-free and repayable on demand.

Deposits from customers are trade related, unsecured and settled upon the fulfilment of the contractual obligations.

Trade payables denominated in foreign currencies at 30 September are as follows:

Group Company2011 2010 2011 2010

$’000 $’000 $’000 $’000

United States Dollar 29,688 8,633 27,281 5,602



21. Finance lease payables

As at balance sheet date, the Group and Company have obligations under finance leases that are repayable as follows:

Minimumlease

payments

Futurefinancecharges

Presentvalue

of leasepayments

$’000 $’000 $’000Group

2011Within one financial year 316 (25) 291After one financial year but less than five financial years 385 (29) 356

701 (54) 647

2010Within one financial year 180 (30) 150After one financial year but less than five financial years 506 (58) 448After five financial years 30 (1) 29

716 (89) 627

Company


322 (10) 312


186 (18) 168

Lease terms range from one to five years (2010: one to six years) with options to purchase at the end of the lease term. Interest is payable at average effective interest rates ranging from 1.88% to 5.93% (2010: 2.19% to 5.94%) per annum.



22. Bank borrowings

Group Company2011 2010 2011 2010

$’000 $’000 $’000 $’000

CurrentSecured- Term loans – 4,430 – 3,993- Trust receipts 31,416 14,932 31,416 14,932- Bankers acceptance 908 1,027 – –- Bank overdrafts 149 143 – –

32,473 20,532 31,416 18,925

Unsecured- Trust receipts 1,972 2,294 – –- Invoice financing 798 – – –- Bridging loans 2,597 2,471 1,306 1,243

5,367 4,765 1,306 1,243

Total current borrowings 37,840 25,297 32,722 20,168

Non-current liabilities

Unsecured- Bridging loans 1,915 4,512 791 2,097

Total non-current borrowings 1,915 4,512 791 2,097

Secured

The secured portions of the bank borrowings of the Group and the Company are secured by way of:

(i) legal mortgage over leasehold properties and construction in progress (Note 10) of the Group and of the Company with net book value of $26,295,000 (2010: $25,399,000) and $22,841,000 (2010: $21,772,000) respectively as at 30 September 2011;

(ii) pledge over the Group’s interest in 200,926,308 (2010: 184,793,539) shares of BRC Asia Limited and fixed deposits of the Group’s Malaysia subsidiary Jin Heng Li Hardware Sdn. Bhd. (Note 19); and

(iii) fixed and floating charge over all assets of the Company and two subsidiaries, HG Metal Investment Pte Ltd and Galaxia Pte Ltd.

The secured bank borrowings of the Company are also supported by corporate guarantees given by a subsidiary, Oriental Metals Pte Ltd.



22. Bank borrowings (cont’d)

unsecured

Group

As at the balance sheet date, unsecured bank borrowings amounting to $5,185,000 (2010: $5,937,000) of certain subsidiaries are supported by corporate guarantees given by the Company.

The Group’s bank borrowings have the following maturity dates and interest rates:

interest rates per annumMaturity 2011 2010

Term loans – – 2.80% - 8.55%Bankers acceptance 2011 3.42% 3.05%Trust receipts 2011 3.11% - 3.70% 3.02% - 4.30%Bridging loans 2013 5% 5%Bank overdrafts – 8.35% 8.05%

23. Provision for reinstatement costs

Group Company2011 2010 2011 2010

$’000 $’000 $’000 $’000

Provision for reinstatement costs 1,650 800 1,350 500

The movement in provision for reinstatement costs is as follows:

Group Company2011 2010 2011 2010

$’000 $’000 $’000 $’000

At 1 October 800 – 500 –Additions 850 800 850 500

At 30 September 1,650 800 1,350 500

Provision for reinstatement costs is made in respect of the Group and Company’s leasehold properties to fulfil the obligations under the lease agreements. Outflows are expected only at the end of the lease tenure of the leasehold properties in the years’ ranging from 2019 to 2035.



24. Share capital

Group and Company2011 2010

$’000 $’000

Issued and fully-paid:

775,671,962 (2010: 775,671,962) ordinary shares at 1 October 111,730 111,730Issue of 163,850,000 (2010: Nil) ordinary shares from shares placement 11,049 –Issue of 76,500,000 (2010: Nil) ordinary shares from exercise of call option 7,267 –

1,016,021,962 (2010: 775,671,962) ordinary shares at 30 September 130,046 111,730

The holders of ordinary shares are entitled to receive dividends as and when declared by the Company. All ordinary shares carry one vote per share without restrictions. The ordinary shares have no par value.

At an Extraordinary General Meeting held on 10 November 2010, the shareholders approved the issue of 163,850,000 new ordinary shares at $0.095 per share to Oriental Castle Sdn Bhd (“OCS”). OCS had also been granted a call option to subscribe for 153,000,000 new ordinary shares at $0.095 per share in the Company or such other number representing 14% of the enlarged share capital of the Company as at the date of the exercise of the call option.

Accordingly, the Company received cash proceeds of $15,566,000 upon the issue of 163,850,000 new ordinary shares at $0.095 per share with attached call option, and correspondingly recognised share capital of $11,049,000 and a derivative on the call option of $4,517,000.

The call option was exercised by OCS on 19 July 2011. The Company has agreed with OCS that pursuant to the exercise of the call option, the Company shall:

1. issue and allot the first 50% of the Option Shares (being 76,500,000 shares in the capital of the Company) 7 business days from the exercise date, against full payment by OCS for such Option Shares; and

2. issue and allot the remaining 50% of the Option Shares (being an additional 76,500,000 shares in the capital of the Company) 7 months from the exercise date (i.e. 18 February 2012), against full payment being made by OCS for such Option Shares.

On 25 July 2011, the Company allotted 76,500,000 new ordinary shares at $0.095 per share to OCS. The Company received cash proceeds of $7,267,000 and recognised share capital of the same amount. With the exercise of the call option, the derivative of $4,517,000 was recognised in profit or loss as a fair value gain on derivative.

Warrants

The Company issued 60,000,000 warrants to Oversea-Chinese Banking Corporation Limited and United Overseas Bank Limited (the “lenders”) in conjunction with the facility agreement entered into with the lenders on 21 October 2009. These warrants carry the rights to subscribe for shares at an exercise price of $0.1248 per share for a period of 3 years from 23 November 2009. No warrants have been exercised and as at balance sheet date, there were outstanding warrants of 60,000,000 (2010: 60,000,000).



25. Other reserves

Group Company2011 2010 2011 2010

$’000 $’000 $’000 $’000

Capital reserve (a) 2,527 2,527 2,527 2,527Foreign currency translation reserve (b) (454) (275) – –Fair value reserves (c) (9) 1 – –

2,064 2,253 2,527 2,527

(a) Capital reserve

In 2005, the Company entered into a $10,000,000 convertible loan agreement (2005 Convertible Loan Agreement) with Oversea-Chinese Banking Corporation Limited (“OCBC”) for the purpose of expansion and/or to be applied to general working capital requirements. On 15 August 2006, the Company and OCBC entered into a revised Convertible Loan Agreement for refinancing the 2005 Convertible Loan Agreement which granted OCBC the right to convert the loan amount into new ordinary shares of the Company at any time until maturity date on 5 July 2008.

The net proceeds received from the issue of the convertible loan were split into the liability element and equity component, representing the fair value of the embedded option to convert the liability into equity of the Group and the Company. Accordingly, $101,000 was credited to capital reserve in the financial year ended 30 September 2006.

OCBC exercised its option to convert the entire convertible loan of $10 million into 31,171,147 new ordinary shares of the Company during the financial year 30 September 2007. In accordance with the terms of the revised convertible loan agreement, the Company was entitled to a certain percentage of share of profits earned by OCBC from the sale of these conversion shares, net of certain expenses.

Subsequently OCBC sold the shares and a sum of $2,426,000 was received by the Company as its share from the net profit earned by OCBC on the disposal of the conversion shares. The Company has recorded the consideration received as capital reserve.

(b) Foreign currency translation reserve

The foreign currency translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations whose functional currencies are different from that of the Group’s presentation currency. Movement in this account is set out in the consolidated statement of changes in equity.

(c) Fair value reserves

Fair value reserves represents the cumulative fair value changes, net of tax, of available for sale financial assets of the associate, BRC Asia Limited until they are disposed of or impaired.



26. Significant transactions with related companies and related parties

In addition to the information disclosed elsewhere in the financial statements, the following were significant transactions between the Company and its related companies and related parties on rates and terms agreed during the financial year:

Group Company2011 2010 2011 2010

$’000 $’000 $’000 $’000

With subsidiariesSales – – 2,856 97Purchases – – 665 4,012Rental income – – 103 58Management fee income – – 48 344Other income (commission income) – – 2 27Dividend income – – 19 18Rental expense – – – –Other expense – – 242 3

With associatesSales 192 84 46 –Purchases 6,732 5,985 2,918 –Rental income 27 30 – –Other income 5 5 – –

With companies of which a director is related to a director of the Company

Sales – 3,770 – 3,770Purchases – 74 – 74Rental expense – 32 – 32

With shareholder corporations of a subsidiarySales – 1,637 – 1,473Purchases – 7,037 – 7,037Rental income – 9 – 9Other charges – 47 – 47

With companies related to a director of the Company

Sales 8,890 1,276 7,465 574Purchases 25,077 24 24,525 24Other charges 840 816 840 816



26. Significant transactions with related companies and related parties (cont’d)

Compensation of key management personnel

The remuneration of Directors and other members of key management of the Group and of the Company during the financial year are as follows:

Group2011 2010

$’000 $’000

Directors of the CompanySalaries and other short-term employee benefits 1,767 1,290Employer’s contributions to defined contribution plan 11 20

Key management personnelSalaries and other short-term employee benefits 773 426Employer’s contributions to defined contribution plan 46 36

2,597 1,772

27. Commitments and contingent liabilities

Operating lease commitments

The Group and the Company as lessee

As at the balance sheet date, the Group and the Company have operating lease commitments for rental payable in subsequent accounting periods as follows:

Group Company2011 2010 2011 2010

$’000 $’000 $’000 $’000

Future minimum lease paymentsWithin one financial year 1,573 1,463 1,207 1,126After one financial year but within

five financial years 6,058 5,732 4,754 4,497After five financial years 17,315 17,837 16,401 16,665

24,946 25,032 22,362 22,288

The above operating lease commitments are based on existing rates. The lease agreements provide for a periodic revision of such rates in the future.



27. Commitments and contingent liabilities (cont’d)

Operating lease commitments (cont’d)

The Group and the Company as lessor

As at the balance sheet date, the Group and the Company have contracted with their tenants for the following future minimum lease payments:

Group Company2011 2010 2011 2010

$’000 $’000 $’000 $’000

Within one financial year 564 533 387 380After one financial year but within

five financial years 252 385 214 234

816 918 601 614

Capital commitments

As at the balance sheet date, the Group and the Company had the following capital commitments contracted but not provided for in the financial statements:

Group Company2011 2010 2011 2010

$’000 $’000 $’000 $’000

Construction of new warehouse 9,071 5,754 9,071 5,754

Contingent liabilities

Guarantees

Intra-group financial guarantees comprise corporate guarantees granted by the Company to banks in respect of banking facilities amounting to $23,685,000 (2010: $33,672,000) to secure banking facilities provided to certain subsidiaries. The financial guarantees will expire when the loans have been paid and discharged and/or when the banking facilities are no longer available to the subsidiaries.

The principal risk to which the Company is exposed is credit risk in connection with the guarantee contracts it has issued. The credit risk represents the loss that would be recognised upon a default by the subsidiaries for which, the guarantees were given on behalf of.

There are no terms and conditions attached to the guarantee contracts that would have a material effect on the amount, timing and uncertainty of the Company’s future cash flows.

The amount of credit facilities utilised by the subsidiary companies as at the balance sheet date amounted to $3,165,000 (2010: $2,391,000).



27. Commitments and contingent liabilities (cont’d)

Contingent liabilities (cont’d)

Guarantees (cont’d)

In the opinion of the directors, no loss is anticipated from these guarantees.

The fair values of the financial guarantee contracts have not been recognised on the balance sheet at 30 September 2011 of the Group as the Group is of the view that the fair values of the corporate guarantees are not significant and that no material losses will arise in respect of the guarantees provided at the date of these financial statements.

Legal Claim

On 5 December 2011, a vendor has lodged an adjudication application claiming the sum of S$780,088 against the Company in respect of construction works in connection with the proposed erection of a single-user industrial development at Jurong Port Road (“JPR project”). The Company has made provision in the financial statements for current financial year ended 30 September 2011.

On 9 December 2011, the same vendor served a writ of summons claiming the sum of S$483,994 for consultancy services rendered to the Company under a consultancy agreement for the JPR project. On the same day, a related company of the vendor served a writ of summons claiming and the sum of S$696,812 for consultancy services rendered under a consultancy agreement for a proposed factory/warehouse development in Johor, Malaysia.

The matter is in the initial phase of proceedings. The Company intends to resist the claims and is in discussion with its legal advisers on the next course of action. The Company believes that the matter would not have a significant impact on the financial position of the Company.

28. Segment information

For management purposes, the Group is organised into business units based on their products and services, and has two reportable operating segments as follows:

(i) The trading segment is a supplier of steel products and includes the holding of investments in subsidiaries.

(ii) The manufacturing segment produces steel products and provides related engineering and sandblasting services.

Except as indicated above, no operating segments have been aggregated to form the above reportable operating segments.

Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss.

Transactions between operating segments are generally based on terms determined on commercial basis.



28. Segment information (cont’d)

TradingManu-

facturingAdjustment/

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

Financial year ended 30 September 2011

REvENuESales to external customers 214,340 24,502 – 238,842Inter-segment sales (Note A) 2,856 1,394 (4,250) –

Total 217,196 25,896 (4,250) 238,842

RESuLTSProfit from operations 14,868 142 (698) 14,312Interest expense (1,673) (250) – (1,923)Interest income 28 – – 28Share of associate results 74 3,674 – 3,748

Segment profit 13,297 3,566 (698) 16,165Income tax credit 107

Profit for the year 16,272

OTHER iNFORMATiONDebit / (Credit):Investment in associates 750 35,917 – 36,667Additions to non-current assets (Note B) 3,286 325 – 3,611Depreciation and amortisation 2,435 1,058 (9) 3,484Provision for reinstatement costs (850) – – (850)Fair value gain from derivatives (5,236) – – (5,236)

ASSETS AND LiABiLiTiESSegment assets (Note A) 227,051 28,477 (35,029) 220,499

Total assets 220,499

Segment liabilities (Note A) 109,971 9,973 (34,700) 85,244Tax payable 94Deferred tax liabilities 212

Total liabilities 85,550




TradingManu-

facturingAdjustment/

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

Financial year ended 30 September 2010

REvENuESales to external customers 132,113 70,955 – 203,068Inter-segment sales (Note A) 97 4,374 (4,471) –

Total 132,210 75,329 (4,471) 203,068

RESuLTSProfit from operations (7,774) 7,815 1,958 1,999Interest expense (6,325) (595) – (6,920)Interest income 27 1 – 28Share of joint venture results – 223 – 223Share of associate results 30 4,613 – 4,643

Segment (loss)/profit (14,042) 12,057 1,958 (27)Income tax credit 354

Profit for the year 327

OTHER iNFORMATiONDebit / (Credit):Investment in associates 688 32,275 – 32,963Additions to non-current assets (Note B) 7,266 609 307 8,182Depreciation and amortisation 1,239 1,687 (8) 2,918Write down of inventories 12,322 553 – 12,875Provision for reinstatement costs (500) (300) – (800)Fair value gain from derivatives (1,293) (223) – (1,516)

ASSETS AND LiABiLiTiESSegment assets (Note A) 169,580 30,404 (36,112) 163,872

Total assets 163,872

Segment liabilities (Note A) 91,067 11,963 (40,088) 62,942Tax payable 19Deferred tax liabilities 297

Total liabilities 63,258




Notes:

(A) Segment assets and liabilities include balances with companies in the Group. Inter-segment sales, assets and liabilities are eliminated on consolidation.

(B) Additions to non-current assets consist of additions to property, plant and equipment and intangible assets

Geographical information

External sales Non-current assets2011 2010 2011 2010

$’000 $’000 $’000 $’000

Singapore 152,151 143,505 31,275 31,128Malaysia 31,061 36,764 930 1,479Indonesia 45,365 17,148 – –Others 10,265 5,651 – –

238,842 203,068 32,205 32,607

Non-current assets information presented above consist of property, plant and equipment and intangible assets as presented in the consolidated balance sheet.

Information about a major customer

Revenue from one major customer amount to $15,034,000 (2010: $4,444,000), arising from sales of the trading segment.

29. Dividends

Group and Company2011 2010

$’000 $’000

Proposed but not recognised as a liability as at 30 September:- Interim exempt (one-tier) dividend for 2011: 0.60 cents (2010: Nil) per share 6,096 –

The company has proposed an interim dividend subsequent to year end and the dividend is not recognised as a liability as at 30 September 2011.



30. Financial instruments

Classification of financial instruments

Fair valuethrough profit

and lossLoans and

ReceivablesLiabilities at

amortised cost$’000 $’000 $’000

Group

2011

AssetsInvestment held for trading 135 – –Trade and other receivables – 44,879 –Cash and fixed deposits – 9,851 –

Total 135 54,730 –

LiabilitiesDerivative financial instruments 329 – –Trade and other payables – – 42,863Finance lease payables – – 647Bank borrowings – – 39,755

Total 329 – 83,265

2010

AssetsInvestment held for trading 380 – –Trade and other receivables – 30,235 –Cash and fixed deposits – 5,108 –

Total 380 35,343 –

LiabilitiesDerivative financial instruments 1,048 – –Trade and other payables – – 30,658Finance lease payables – – 627Bank borrowings – – 29,809

Total 1,048 – 61,094



30. Financial instruments (cont’d)

Fair valuethrough profit

and lossLoans and

ReceivablesLiabilities at

amortised cost$’000 $’000 $’000

Company

2011

AssetsTrade and other receivables – 50,447 –Cash and bank balances – 2,773 –

Total – 53,220 –

LiabilitiesDerivative financial instruments 329 – –Trade and other payables – – 38,004Finance lease payables – – 312Bank borrowings – – 33,513

Total 329 – 71,829

2010

AssetsTrade and other receivables – 36,145 –Cash and bank balances – 1,165 –

Total – 37,310 –

LiabilitiesDerivative financial instruments 1,048 – –Trade and other payables – – 26,716Finance lease payables – – 168Bank borrowings – – 22,265

Total 1,048 – 49,149



30. Financial instruments (cont’d)

Fair values

The fair value of a financial instrument is the amount at which the instrument could be exchanged or settled between knowledgeable and willing parties in an arm’s length transaction, other than in a forced or liquidation sale.

Financial instruments whose carrying amount approximates fair value

Management has determined that the carrying amounts of derivative financial instruments, investment held for trading, trade and other receivables, cash and bank balances, trade and other payables, and bank borrowings reasonably approximate their fair values either due to their short term nature or that they are floating rate instruments that are re-priced to market interest rates on or near the balance sheet date.

31. Financial risk management

The Group and the Company is exposed to financial risks arising from its operations and the use of financial instruments. The key financial risks include credit risk, liquidity risk, interest rate risk, foreign currency risk and market price risk. The Board of directors reviews and agrees policies and procedures for the management of these risks, which are executed by the Chief Financial Officer.

The following sections provide details regarding the Group’s and Company’s exposure to the above-mentioned financial risks and the objectives, policies and processes for the management of these risks.

(a) Credit risk

Credit risk is the risk of loss that may arise on outstanding financial instruments should a counterparty default on its obligations. The Group’s and Company’s credit risk arise primarily from trade and other receivables. For other financial assets (including derivatives financial instruments, investment held for trading and cash and fixed deposits), the Group and the Company minimise credit risks by dealing exclusively with high credit rating counterparties.

The Group and Company have a credit policy in place and the exposure to credit risk is monitored on an on-going basis. Credit review, which takes into account qualitative and quantitative factors like business performance and profile of the customers, is performed and approved by the management before credit is granted. The customer’s payment profile and credit exposures are monitored on an on-going basis by the Credit controller.

At the balance sheet date, the Group’s and the Company’s maximum exposure to credit risk is represented by the carrying amount of each class of financial assets recognised in the balance sheets.



31. Financial risk management (cont’d)

(a) Credit risk (cont’d)

The Group’s trade receivables concentration profile by geographical areas and industry sectors as at balance sheet date are as follows:

Group Company2011 2010 2011 2010

$’000 $’000 $’000 $’000

By country:- Singapore 29,517 17,282 23,344 11,742- Malaysia 6,346 4,350 3,289 1,264- Indonesia 6,257 2,218 5,698 1,358- Others 871 915 587 513

42,991 24,765 32,918 14,877

By industry sectors:- Trading 19,619 12,433 14,412 8,710- Construction 9,984 2,107 7,846 1,597- Shipping 8,720 1,751 8,599 568- Others 4,668 8,474 2,061 4,002

42,991 24,765 32,918 14,877

At the end of the reporting period, approximately:

– 9% (2010: 16%) of the Group’s trade receivables were due from 5 major customers who are located in Singapore and Indonesia.

– 8% (2010: 6%) of the Group’s trade and other receivables were due from related parties.

Financial assets that are neither past due nor impaired

Cash and fixed deposits that are neither past due nor impaired are placed with or entered into with reputable financial institutions with high credit ratings and have no history of default. Trade and other receivables that are neither past due nor impaired are with creditworthy debtors with good payment record with the Group.

Financial assets that are either past due or impaired

Information regarding financial assets that are either past due or impaired is disclosed in Note 18 (Trade and other receivables).




(b) Liquidity risk

Liquidity risk is the risk that the Group or the Company will encounter difficulty in meeting financial obligations due to shortage of funds. The Group’s and Company’s exposure to liquidity risks arises primarily from mismatches of the maturities of financial assets and liabilities.

The Group and the Company manages its liquidity risk by ensuring the availability of funding through an adequate amount of committed credit facilities from financial institutions. In addition, the Group and Company also maintain surplus cash for future investment opportunities.

The following are the contractual maturities of financial assets and liabilities of the Group and Company at balance sheet date based on contractual undiscounted payments:

Withinone year

Two tofive years

Afterfive years Total

$’000 $’000 $’000 $’000

Group

As at 30 September 2011

Financial assets:

Investment held for trading 135 – – 135Trade and other receivables 44,879 – – 44,879Cash and fixed deposits 9,851 – – 9,851

Total undiscounted financial assets 54,865 – – 54,865

Financial liabilities:

Derivatives 329 – – 329Trade and other payables 42,863 – – 42,863Finance lease payables 316 385 – 701Bank borrowings 38,376 1,985 – 40,361

Total undiscounted financial liabilities 81,884 2,370 – 84,254

Total net undiscounted financial liabilities (27,019) (2,370) – (29,389)




(b) Liquidity risk (cont’d)

Withinone year

Two tofive years

Afterfive years Total

$’000 $’000 $’000 $’000

Group


Financial assets:

Investment held for trading 380 – – 380Trade and other receivables 30,235 – – 30,235Cash and fixed deposits 5,108 – – 5,108

Total undiscounted financial assets 35,723 – – 35,723


Derivatives 1,048 – – 1,048Trade and other payables 30,658 – – 30,658Finance lease payables 180 506 31 717Bank borrowings 25,678 4,899 – 30,577

Total undiscounted financial liabilities 57,564 5,405 31 63,000

Total net undiscounted financial liabilities (21,841) (5,405) (31) (27,277)




(b) Liquidity risk (cont’d)

Withinone year

Two tofive years Total

$’000 $’000 $’000Company


Financial assets:

Trade and other receivables 50,447 – 50,447Cash and bank balances 2,773 – 2,773

Total undiscounted financial assets 53,220 – 53,220


Derivatives 329 – 329Trade and other payables 38,004 – 38,004Finance lease payables 210 112 322Bank borrowings 33,089 814 33,903

Total undiscounted financial liabilities 71,632 926 72,558

Total net undiscounted financial liabilities (18,412) (926) (19,338)


Financial assets:

Trade and other receivables 36,145 – 36,145Cash and bank balances 1,165 – 1,165

Total undiscounted financial assets 37,310 – 37,310


Derivatives 1,048 – 1,048Trade and other payables 26,716 – 26,716Finance lease payables 43 142 185Bank borrowings 20,414 2,263 22,677

Total undiscounted financial liabilities 48,221 2,405 50,626

Total net undiscounted financial liabilities (10,911) (2,405) (13,316)




(c) Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of the Group’s and the Company’s financial instruments will fluctuate because of changes in market interest rates. The Group’s and the Company’s exposure to interest rate risk arises primarily from finance lease payables and bank borrowings. The Group does not hedge its investment in fixed rate debt securities as they have active secondary or resale markets to ensure liquidity. All of the Group’s and the Company’s financial assets and liabilities at floating rates are contractually re-priced at intervals of less than 3 months (2010: less than 3 months) from the balance sheet date.

The Group’s and Company’s exposure to interest rate risk relate primarily to interest-bearing fixed deposits and debt obligations with financial institutions. Sensitivity analysis for interest rate risk

At the balance sheet date, if interest rates had been 8 (2010: 8) basis points lower/higher with all other variables held constant, the Group’s income and equity would have been approximately $28,000 (2010: $22,000) higher/lower, arising mainly as a result of higher/lower interest income/expense on fixed deposits and debt obligations with financial institutions.

A similar change in interest rates would have increased/decreased the Company’s income and equity by approximately $25,000 (2010: $18,000).

(d) Foreign currency risk

The Group has transactional currency exposures arising from sales or purchases that are denominated in a currency other than the respective functional currencies of the Group entities, primarily the Singapore Dollar and Malaysian Ringgit. The foreign currencies in which these transactions are denominated are mainly the US Dollar (“USD”).

The Group and the Company also hold cash and bank balances denominated in foreign currencies for working capital purposes. At the balance sheet date, such foreign currency balances (mainly in USD) amounted to $882,000 (2010: $700,000) and $837,000 (2010: $250,000) for the Group and Company respectively.

The Group is exposed to currency translation risk arising from its net investments in foreign operations, including Malaysia and People’s Republic of China (PRC). The Group’s net investments in Malaysia and PRC are not hedged as currency positions in Ringgit and RMB are considered to be long-term in nature.




(d) Foreign currency risk (cont’d)

Sensitivity analysis for foreign currency risk

The following table demonstrates the sensitivity of the Group’s profit net of tax to a reasonably possible change in the USD exchange rate against the respective functional currencies of the Group entities, with all other variables held constant.

Profit net of tax2011 2010

$’000 $’000Group

USD/SGD - strengthened 2% (2010: 2%) (882) (534) - weakened 2% (2010: 2%) 882 534

Statement of comprehensive income

2011 2010$’000 $’000

Company

USD/SGD - strengthened 2% (2010: 2%) (837) (472) - weakened 2% (2010: 2%) 837 472

(e) Market price risk

Market price risk is the risk that fair value or future cash flows of the Group’s financial instruments will fluctuate because of changes in market prices (other than interest or exchange rates). The Group is exposed to equity price risk arising from its investment in quoted equity instruments. These instruments are quoted on the SGX-ST in Singapore and are classified as held for trading.

Sensitivity analysis for equity price risk

At the balance sheet date, if the STI had been 2% (2010: 2%) higher/lower with all other variables held constant, this would have given rise to higher/lower fair value gains in held for trading equity instruments and the Group’s net income would have been $2,700 higher/lower (2010: Group’s net loss would have been $1,500 lower/higher).



32. Capital management

The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value.

The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the years ended 30 September 2011 and 30 September 2010.

The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Group’s policy is to keep the gearing ratio below 70%. The Group includes within net debt, loans and borrowings and finance lease payables less cash and fixed deposits. Capital includes equity attributable to the equity holders of the parent.

2011 2010$’000 $’000

Finance lease payables 647 627Bank borrowings 39,755 29,809Less:Cash and fixed deposits (9,851) (5,108)

Net debt 30,551 25,328Equity attributable to equity holders of the Company 132,814 98,571

Capital and net debt 163,365 123,899

Gearing ratio 19% 20%

33. Approval of financial statements

The financial statements were approved and authorised for issue by the board of directors on 19 December 2011.


appenDIx

1. iNTRODuCTiON

1.1 Shareholders had approved the general mandate pursuant to Chapter 9 of the Listing Manual permitting members in the HG Group (as defined below), or any of them, to enter into certain types of transactions of a recurrent nature with specified classes of the Company’s interested persons (the “iPT Mandate”) at the Extraordinary General Meeting of HG Metal Manufacturing Limited (the “Company”) held on 4 March 2011. Particulars of the IPT Mandate were set out in the circular to Shareholders dated 17 February 2011.

The IPT Mandate was expressed to take effect until the conclusion of the next Annual General Meeting of the Company, being the annual general meeting of the Company to be held on 12 January 2012 (the “AGM”). Accordingly, the Directors propose that the IPT Mandate be renewed at the AGM, to take effect until the next Annual General Meeting of the Company. The transactions under the IPT Mandate which is sought to be renewed remain unchanged.

1.2 The purpose of this Appendix, to be circulated to Shareholders together with the Company’s 2011 Annual Report, is to provide Shareholders with information relating to, and to explain the rationale for, the proposed renewal of the IPT Mandate to be tabled at the AGM. Details of the IPT Mandate, including the rationale for and the benefits to the Company, the review procedures for determining transaction prices with its Interested Persons and other general information relating to Chapter 9 of the Listing Manual, are set out in paragraph 3 below.

2. CONFiRMATiON BY AuDiT COMMiTTEE The Audit Committee confirms that:

(a) the methods and procedures for determining the transaction prices under the IPT Mandate have not changed since the Extraordinary General Meeting of the Company held on 4 March 2011; and

(b) the methods and procedures referred to in sub-paragraph (a) above are sufficient to ensure that the transactions will be carried out on normal commercial terms and will not be prejudicial to the interests of the Company and its minority Shareholders.

3. THE iPT MANDATE

3.1 Chapter 9 of the Listing Manual

Chapter 9 of the Listing Manual governs transactions by a listed company, as well as transactions by its subsidiaries and associated companies that are considered to be at risk, with the listed company’s interested persons.

When Chapter 9 of the Listing Manual applies to a transaction with an interested person (except for any transaction which is below S$100,000 in value and certain transactions which, by reason of the nature of such transactions, are not considered to put the listed company at risk to its interested person and are hence excluded from the ambit of Chapter 9 of the Listing Manual) and the value of that transaction alone or on aggregation with other transactions conducted with the interested person during the financial year reaches (or exceeds) certain materiality thresholds (which are based on the listed group’s latest audited consolidated net tangible assets (“NTA”)), the listed company is required to make an immediate announcement, or to make an immediate announcement and seek its shareholders’ approval for that transaction.


appenDIx

An immediate announcement is required where:

(a) the value of a transaction with an interested person is equal to, or more than, 3% of the listed group’s latest audited consolidated NTA; or

(b) the aggregate value of all transactions entered into with the same interested person (as such term is construed under Chapter 9 of the Listing Manual) during the same financial year, amounts to 3% or more of the listed group’s latest audited consolidated NTA.

In addition, shareholders’ approval is required for an interested person transaction of a value equal to, or exceeding:

(i) 5% of the listed group’s latest audited consolidated NTA; or

(ii) 5% of the listed group’s latest audited consolidated NTA, when aggregated with other transactions entered into with the same interested person (as such term is construed under Chapter 9 of the Listing Manual) during the same financial year. However, a transaction which has been approved by shareholders, or is the subject of aggregation with another transaction that has been approved by shareholders, need not be included in any subsequent aggregation.

For illustration purposes, based on the audited accounts of the HG Group for the financial year ended 30 September 2011, the consolidated NTA of the HG Group was S$132.5 million. Accordingly, in relation to the Company, and for the purposes of Chapter 9 of the Listing Manual, 5% of the latest audited consolidated NTA of the HG Group would be S$6.6 million. Based on the above figures, Shareholders’ approval would be required for any transaction with a value equal to or above S$6.6 million or any transaction, when aggregated with other transactions entered into with the same interested person during the same financial year, with a value equal to or above S$6.6 million (unless such transaction has been approved by the Shareholders or is the subject of aggregation with another transaction that has been approved by the Shareholders).

Chapter 9 of the Listing Manual permits a listed company to seek a general mandate from its shareholders for recurrent transactions of a revenue or trading nature or those necessary for its day-to-day operations such as the purchase and sale of supplies and materials (but not in respect of the purchase or sale of assets, undertakings or businesses) that may be carried out with the listed company’s interested persons. A general mandate is subject to annual renewal.

The definitions of certain terms which are used in Chapter 9 of the Listing Manual (such as “entity at risk”, “interested person” and “associate”), are set out in Annexure I of this Appendix.

3.2 Rationale for the Renewal of the iPT Mandate

It is envisaged that in the ordinary course of their businesses, transactions between companies in the HG Group (as defined below) and the Company’s Interested Persons (as defined below) are likely to occur from time to time. Such transactions would include, but are not limited to, the sale and purchase of steel products in the ordinary course of business of the HG Group to (or from) the Company’s Interested Persons and the purchases of steel products in the ordinary course of business by the HG Group jointly with the Company’s Interested Persons.


appenDIx

In view of the time-sensitive nature of commercial transactions, the obtaining of the IPT Mandate pursuant to Chapter 9 of the Listing Manual will enable:

(a) the Company;

(b) subsidiaries of the Company that are not listed on the Singapore Exchange Securities Trading Limited (“SGx-ST”) or an approved exchange; and

(c) associated companies of the Company that are not listed on the SGX-ST or an approved exchange, provided that the HG Group, or the HG Group and the Interested Person(s), has or have control over the associated companies,

(together, the “HG Group”) or any of them, in the ordinary course of their businesses, to enter into the categories of transactions (the “interested Person Transactions”) set out in paragraph 3.5 below with the specified class of the Company’s interested persons (the “interested Persons”) set out in paragraph 3.4 below without being separately subject to the obligations in Rules 905 and 906 of the Listing Manual, provided such Interested Person Transactions are made on normal commercial terms and will not be prejudicial to the interests of the Company and its minority Shareholders.

3.3 Scope of the iPT Mandate

The IPT Mandate will cover (a) the purchase of steel products in the ordinary course of business of the HG Group from Chye Hin Hardware Pte. Ltd. (“Chye Hin”) and/or the OCS Group (defined below), (b) the sale of steel products in the ordinary course of business of the HG Group to Chye Hin and/or the OCS Group (c) (i) the joint purchases of goods with Chye Hin pursuant to the terms of a master sales agreement between the HG Group and Chye Hin, and (ii) the joint purchases of goods with the OCS Group pursuant to the terms of a master sales agreement between the HG Group and OCS, (d) the provision of short term loans by Chye Hin and/or the OCS Group to the entities of the HG Group, and (e) the provision of management and support services by the OCS Group to the HG Group.

The IPT Mandate will not cover any transaction by a company in the HG Group with an Interested Person that is below S$100,000 in value as the threshold and aggregation requirements of Chapter 9 of the Listing Manual would not apply to such transactions.

Transactions with interested persons (including the Interested Persons) that do not fall within the ambit of the IPT Mandate will be subject to the relevant provisions of Chapter 9 of the Listing Manual and/or other applicable provisions of the Listing Manual.

The OCS Group comprises Oriental Castle Sdn Bhd (“OCS”) and the following subsidiaries and associated companies of OCS:

(a) Oriental Sheet Piling Sdn Bhd;

(b) Oriental Sheet Piling Pte. Ltd.;

(c) Oriental Steel Pipe Sdn Bhd;

(d) Oriental Steel Pipe Pte. Ltd.;

(e) Arcelor International Steel Trading (Shanghai) Co. Ltd.; and

(f) Plan B Pte. Ltd..


appenDIx

3.4 Classes of interested Persons

The IPT Mandate will apply to the Interested Person Transactions (as described in paragraph 3.5 below) that are carried out between (i) any member of the HG Group, with (ii) Chye Hin and/or any member of the OCS Group, as the case may be.

(a) Chye Hin

Chye Hin is a private limited company incorporated in Singapore and presently carries on the business of importing and exporting structural and mild steel products. As at 19 December 2011, being the latest practicable date prior to the printing of this Appendix (the “Latest Practicable Date”), Chye Hin holds 82,446,574 shares in the capital of the Company (“Shares”) and is a Substantial Shareholder of the Company. Mr. Yap Xi Ming, a Director of the Company, has an interest of approximately 33.33% in Chye Hin.

As such, Chye Hin (being an associate of Mr. Yap Xi Ming) is an Interested Person in the Company pursuant to Chapter 9 of the Listing Manual and any transactions entered into between the HG Group and Chye Hin would constitute Interested Person Transactions.

(b) The OCS Group

OCS is a private limited company incorporated in Malaysia and the entities of the OCS Group presently carry on the business of trading in construction materials as well as investment holding companies. As at the Latest Practicable Date, OCS holds 240,350,000 Shares and is deemed interested in 76,500,000 Shares and is a Substantial Shareholder of the Company. Mr. Goh Kian Sin, a director and controlling shareholder of the Company, has an interest of approximately 80% in OCS. Mr. Hew Yuen Hin, a controlling shareholder of the Company, has an interest of approximately 20% in OCS.

Annexure II of this Circular contains a chart setting out the shareholding structure of the OCS Group.

Each member of the OCS Group (being an associate of Mr. Goh Kian Sin, Mr. Hew Yuen Hin and/or OCS) is an Interested Person in the Company pursuant to Chapter 9 of the Listing Manual and any transactions entered into between the HG Group and any member of the OCS Group would constitute Interested Person Transactions.

Mr. Wong Kean Shyong, Kenn, a non-executive director of the Company, is also currently appointed as the chief marketing officer of Arcelor International Steel Trading (Shanghai) Co. Ltd., and is in charge of the purchase and sale of steel products by Arcelor International Steel Trading (Shanghai) Co. Ltd..

3.5 Categories of interested Person Transactions

The Interested Person Transactions with the Interested Persons (as described in paragraph 3.4 above) that will be covered by the IPT Mandate are set out below.

(a) Purchase of steel products in the ordinary course of business of the HG Group from Chye Hin and/or the OCS Group

The HG Group purchases steel products from Chye Hin and/or the OCS Group, for the purpose of on-selling such products to the HG Group’s customers. This enables the HG Group to complement and supplement its existing range of products without the need for additional working capital requirements whilst at the same time providing better service to the existing customers of the HG Group.


appenDIx

(b) Sale of steel products in the ordinary course of business of the HG Group to Chye Hin and/or the OCS Group

The products of entities in the HG Group are sold to Chye Hin and/or the OCS Group. Such sales enable the HG Group to tap on Chye Hin’s and the OCS Group’s respective client networks, thus bringing additional revenue and profit to the HG Group.

(c) (i) Joint purchases of goods with Chye Hin pursuant to the terms of a master sales agreement between the HG Group and Chye Hin, and (ii) joint purchases of goods with the OCS Group pursuant to the terms of a master sales agreement between the HG Group and OCS

The Company has entered into a master sales agreement with each of Chye Hin and the OCS Group for common purchases from third party suppliers of goods required for the day-to-day operations of the Company.

The said arrangement enables the HG Group to tap on Chye Hin’s and the OCS Group’s respective networks of suppliers, so as to take advantage of the existing goodwill enjoyed by Chye Hin and/or the OCS Group, as the case may be, as well as any preferential rates, rebates or discounts accorded for bulk purchases by Chye Hin and/or the OCS Group, and vice versa. The HG Group stands to benefit from the mutual advantages enjoyed by both parties to the master sales agreement, so as to be able to translate the cost-savings thereunder into more competitive pricing for the products of the HG Group.

Pursuant to the respective master sales agreement with each of Chye Hin and the OCS Group (i) Chye Hin and/or the OCS Group, as the case may be, and (ii) the Company, will make such purchases on behalf of the other party where it would be more cost effective for them to do so. The costs of such purchases will be initially borne by the purchasing party, and will be allocated to the other party at the cost price paid by the purchasing party for the goods (after taking into account all expenses incurred in respect of the purchase) with no mark-up. The other party will thereafter reimburse the purchasing party at cost with no mark-up for its allocated portion of such costs.

(d) Provision of short term loans by Chye Hin and/or the OCS Group to the entities of the HG Group

It is intended that, in the event that the HG Group has fully utilised all its existing credit facilities with financial institutions, the entities of the HG Group may from time to time take out short term loans (i.e. with repayment periods of up to six (6) months) from Chye Hin and/or the entities of the OCS Group, on an ad hoc basis, for the purpose of bridging short term cash requirements of the HG Group. It is estimated that the aggregate principal amount outstanding from the HG Group under all such loans at any given time will not exceed $10 million in aggregate.

The HG Group can benefit from competitive rates or quotes offered by Chye Hin and the OCS Group, as well as by leveraging on the financial strength and credit standing of Chye Hin and the OCS Group in an expeditious manner.

(e) Provision of management and support services by the OCS Group to the HG Group

The OCS Group provides management and support services to the HG Group on an ad-hoc basis.

By having access to such services, the HG Group derives operational and financial leverage through savings in terms of reduced overheads and greater economies of scale.


appenDIx

3.6 Benefits to Shareholders

The IPT Mandate for the Interested Person Transactions with the Interested Persons as highlighted in paragraph 3.5 above, if approved at the AGM, will enhance the ability of entities in the HG Group to pursue business opportunities which are time-sensitive in nature and will eliminate the need for the Company to announce, or to announce and convene separate general meetings on each occasion to seek Shareholders’ prior approval for the entry by the relevant entity in the HG Group into such Interested Person Transactions. As such Interested Person Transactions are also carried out by the HG Group in its ordinary course of business and/or which are necessary for its day-to-day operations (but not in respect of the purchase or sale of assets, undertakings or businesses), the IPT Mandate will substantially reduce the expenses associated with the convening of general meetings on an ad hoc basis, improve administrative efficiency considerably, and allow manpower resources and time to be channeled towards attaining other corporate objectives without compromising existing corporate objectives and adversely affecting the business opportunities available to the Company owing to the time-sensitive nature of commercial transactions.

The IPT Mandate is intended to facilitate the Interested Person Transactions in the day-to-day operations of the HG Group that may be transacted from time to time with the specified classes of Interested Persons, provided that they are carried out on normal commercial terms, and are not prejudicial to the interests of the Company and its minority Shareholders. The HG Group will benefit from having access to competitive quotes from, or transactions with, its Interested Persons in addition to obtaining quotes from, or transactions with non-Interested Persons, as well as having more business opportunities through the cross-selling of products. The IPT Mandate will also enhance the ability of the HG Group to utilise the resources owned by its Interested Persons which will improve operational efficiency in a cost-effective manner to the HG Group.

3.7 Guidelines and Review Procedures for interested Person Transactions

3.7.1 Review Procedures

The Company has internal control systems in place to ensure that transactions with its interested persons (including the Interested Persons) are made on normal commercial terms, and are consistent with the Company’s usual business practices and policies. The Audit Committee will also review and approve the transactions where applicable, as further described below.

The internal control systems will also include the following guidelines and procedures to ensure that the Interested Person Transactions are undertaken with the Interested Persons on normal commercial terms:

(a) Purchase of steel products from Chye Hin and/or the OCS Group

The purchase of steel products from Chye Hin and/or the OCS Group will be carried out on terms which are no more favourable to Chye Hin or the OCS Group, as the case may be, than those offered by unrelated third party suppliers to the HG Group.

In this regard, prior to the entry of the transaction with Chye Hin and/or the OCS Group, as the case may be, contemporaneous quotes obtained (wherever possible or available) from at least two other unrelated third party suppliers for similar products and/or quantities, from similar geographical locations, will be used as comparison, taking into account all pertinent factors such as but not limited to delivery schedules, quality of products/materials and track record of counter-parties and where applicable, preferential rates, rebates or discounts accorded for bulk purchases.


appenDIx

In the event where it is impracticable or impossible to obtain comparable prices of contemporaneous purchase transactions of similar products due to the nature of the product to be purchased, the transaction price and terms extended will be determined in accordance with the HG Group’s usual business practices and pricing policies or in accordance with industry norms (as the case may be), taking into account factors such as, but not limited to, the nature of the product, delivery schedules, order quantity, customer requirements and specifications, duration of contract, preferential rates, discounts or rebates for bulk purchases or sales and cost for freight.

(b) Sale of steel products to Chye Hin and/or the OCS Group

The sale of steel products to Chye Hin and/or the OCS Group will be carried out on terms which are no more favourable to Chye Hin or the OCS Group, as the case may be, than those extended by the HG Group to its unrelated third party customers. In this regard, the terms of at least two other contemporaneous transactions involving sales of steel products to unrelated third party customers for similar products or services, will be used as comparison, wherever possible, taking into account all pertinent factors such as but not limited to, delivery schedules, quality of products and track record of counter-parties and where applicable, preferential rates, rebates or discounts accorded for bulk purchases.

In the event where it is impracticable or impossible to obtain comparable prices of contemporaneous sale transactions of similar products due to the nature of the product to be sold, the transaction price and terms extended or offered will be determined in accordance with the HG Group’s usual business practices and pricing policies, including the HG Group’s profit margin which will not be lower than the profit margin for a similar transaction to unrelated third parties, or in accordance with industry norms (as the case may be), taking into account factors such as, but not limited to, the nature of the product, delivery schedules, order quantity, customer requirements and specifications, duration of contract, preferential rates, discounts or rebates for bulk purchases or sales and cost for freight.

(c) Entry into a master sales agreement for joint purchases with Chye Hin and/or the OCS Group

In the event that Chye Hin or the OCS Group takes the lead on such joint purchases from third party suppliers, the purchase of such goods from Chye Hin and/or the OCS Group will be carried out at the cost price paid to third party suppliers for the goods, after taking into account all expenses incurred by Chye Hin and/or the OCS Group in respect of the purchase. In this regard, Chye Hin or the purchasing OCS Group entity, as the case may be, will provide the Company with documentary evidence of the cost of the goods purchased by it on behalf of the Company, as well as a break-down of the expenses incurred by it in connection with the purchase, at rates which are to be mutually agreed between (i) the Company and Chye Hin and/or (ii) the Company and the purchasing OCS Group entity, as the case may be. The Company and Chye Hin or the purchasing OCS Group entity, as the case may be, will enter into specific sale contracts in respect of each such joint purchase arrangement, in accordance with the terms of the master sales agreement, so as to avoid unexpected and unforeseeable fluctuations in the prices of the goods to be purchased.

In the event that the HG Group takes the lead on such joint purchases from third party suppliers, the sales of such goods to Chye Hin and/or the OCS Group, as the case may be, will be transacted in the same manner as described above.

(d) Provision of short term loans by Chye Hin and/or the OCS Group

In relation to the intended borrowings by the HG Group from Chye Hin and/or the OCS Group, the Company will require that quotations shall be obtained from such Interested Person and at least two banks for rates for loans of the funds to be borrowed. The borrowing HG Group entity will only borrow funds from such Interested Person if the terms quoted are no less favourable than those quoted by the banks.


appenDIx

(e) Provision of management and support services by the OCS Group to the HG Group

In relation to the management and support services to be provided by the OCS Group to the HG Group, the Company will reimburse and pay OCS the management and support services fees on a “cost recovery basis”, that is, the costs incurred by the OCS Group in the provision of such management and support services.

The Audit Committee will review, on a quarterly basis upon the provision of such management and support services by the OCS Group to the HG Group, whether the fee payable to OCS is fair and reasonable and commensurate with the amount of resources incurred by the OCS Group in their provision of such management and support services to the HG Group.

3.7.2 Approval Thresholds

In addition to the review procedures, the HG Group will monitor all Interested Person Transactions, and will categorise the transactions as follows:

(a) Category 1 Interested Person Transactions

These are Interested Person Transactions where the value thereof is below three per cent. (3%) of the audited NTA (based on the latest audited consolidated accounts) of the HG Group.

Category 1 Interested Person Transactions below S$100,000 shall be reviewed and approved by the relevant head of the department handling the transaction, who shall not have an interest in the transaction. Category 1 Interested Person Transactions in excess of S$100,000 shall be approved by the chief executive officer of the Company (the “CEO”). If the CEO has an interest in the transaction, the approval shall be given by any Director who does not have an interest in the transaction. Category 1 Interested Person Transactions do not require the prior approval of the Audit Committee but shall be reviewed on a quarterly basis by the Audit Committee to ensure that they are carried out on an arm’s length basis and on normal commercial terms, in accordance with the guidelines and procedures outlined above.

(b) Category 2 Interested Person Transactions

These are Interested Person Transactions where the value thereof is equal to or above three per cent. (3%) of the audited NTA (based on the latest audited consolidated accounts) of the HG Group.

All Category 2 Interested Person Transactions shall be reviewed and approved by the Audit Committee prior to the HG Group’s entry into such transactions. If a member of the Audit Committee has an interest in the transaction to be reviewed by the Audit Committee, he will abstain from any decision-making by the Audit Committee in respect of that transaction and the review and approval of the transaction will be undertaken by the remaining members of the Audit Committee.

In addition to and without prejudice to the above, where the aggregate value of all Category 1 and Category 2 Interested Person Transactions with the same Interested Person (as defined in Rule 908 of the Listing Manual) in the current financial year is equal to or exceeds ten per cent. (10%) of the latest audited NTA of the HG Group, the latest and all future Interested Person Transactions (whether Category 1 or Category 2 Interested Person Transactions) with that same Interested Person (so defined) will be approved by the Audit Committee prior to the HG Group’s entry into such transactions.


appenDIx

The threshold limits set out above are adopted by the Company taking into account, inter alia, the nature, volume, recurrent frequency and size of the transactions as well as the Group’s day-to-day operations, administration and businesses. The threshold limits were arrived at after taking into consideration the need to strike a balance between (i) maximising the operational efficiency of the day-to-day operations of the HG Group, and (ii) maintaining adequate internal controls and governance in relation to the Interested Person Transactions. The threshold limits are intended to act as an additional safeguard to supplement the review procedures which will be implemented by the Company for Interested Person Transactions.

3.7.3 iPT Register

The Company maintains a register to record all Interested Person Transactions (with details of the nature of the transaction, the amount of and the basis for the fees and charges including the quotations, purchase invoices, sales invoices and credit terms, if any, and where relevant, obtained to support such basis on which they are entered into) which are entered into pursuant to the IPT Mandate. The IPT Register is prepared, maintained and monitored by one or more senior management executives of the Company who are not Interested Persons.

The Company’s internal auditors shall review the IPT Register no less than once annually to ascertain that the guidelines and procedures established to monitor Interested Person Transactions have been complied with. The scope of the review by the Company’s internal auditors is limited to transactions above S$100,000 only.

3.7.4 Reviews by Audit Committee

Notwithstanding paragraph 3.7.2(a) above, the Company shall, on a quarterly basis, report to the Audit Committee all Interested Person Transactions which are in excess of S$100,000 per transaction, and the basis of such transactions, entered into with Interested Persons during the preceding quarter. The Audit Committee shall review such Interested Person Transactions at its quarterly meetings except where such Interested Person Transactions are required under the review procedures to be approved by the Audit Committee prior to the entry thereof.

The Audit Committee has the overall responsibility for determining the review procedures with the authority to delegate to individuals within the Company as it deems appropriate. In its review and/or approval of Interested Person Transactions under paragraph 3.7.2(b) and under this paragraph 3.7.4, the Audit Committee will generally only approve an Interested Person Transaction if the terms of the transaction are no less favourable to the HG Group than the terms offered by unrelated third parties, or in accordance with published or prevailing rates/prices or otherwise in accordance with prevailing industry norms. The members of the Audit Committee may, as they deem fit, request for additional information pertaining to the transaction under review from independent sources or advisers, including the obtaining of valuations from independent professional valuers.

In addition to the Audit Committee’s participation in the review and/or approval processes described above, the Audit Committee will also:

(a) carry out periodic reviews (at least once a year) to ascertain that the established guidelines and procedures for Interested Person Transactions have been complied with; and

(b) consider at least once a year whether the established guidelines and procedures for transactions with Interested Persons have become inappropriate or are unable to ensure that the transactions will be carried out on normal commercial terms, and are not prejudicial to the interests of Shareholders.


appenDIx

If, during a review by the Audit Committee, the Audit Committee is of the view that the established review procedures are not sufficient or have become inappropriate, in view of changes to the nature of, or the manner in which, the business activities of the HG Group are conducted, it will take such actions as it deems appropriate and/or institute additional procedures as necessary to ensure that future transactions of a similar nature are on normal commercial terms and will not be prejudicial to the interests of the Company and its minority Shareholders, and the Company will revert to the Shareholders for a fresh mandate based on new review procedures for transactions with Interested Persons.

For the purpose of the review process, if a member of the Audit Committee has an interest in the transaction to be reviewed by the Audit Committee, he will abstain from any decision-making by the Audit Committee in respect of that transaction and the review and approval of the transaction will be undertaken by the remaining members of the Audit Committee.

3.8 validity Period of the iPT Mandate

If approved by Shareholders at the AGM, the renewal of the IPT Mandate will take effect from the passing of the ordinary resolution relating thereto at the AGM, and will (unless revoked or varied by the Company in a general meeting) continue in force until the next Annual General Meeting. Approval from Shareholders will be sought for the renewal of the IPT Mandate at the next Annual General Meeting and at each subsequent Annual General Meeting of the Company, subject to satisfactory review by the Audit Committee of its continued application to the transactions with the Interested Persons.

3.9 Disclosure in Annual Report

In accordance with the requirements of Chapter 9 of the Listing Manual, the Company will disclose the IPT Mandate and the aggregate value of the Interested Person Transactions conducted pursuant to the IPT Mandate in the annual report of the Company for the current financial year, and in the annual reports of the Company for the subsequent financial years during which the IPT Mandate is in force. Such disclosures shall be in the form set out in Rule 907 of the Listing Manual.

In addition, the Company will announce the aggregate value of the Interested Person Transactions conducted pursuant to the IPT Mandate for the financial periods which it is required to report on (pursuant to Rule 705 of the Listing Manual) within the time required for the announcement of such report.

4. AuDiT COMMiTTEE’S STATEMENT

The Audit Committee has reviewed the terms of the IPT Mandate, and is satisfied that the review procedures for Interested Person Transactions, as well as the reviews to be made periodically by the Audit Committee (with internal audit assistance) in relation thereto, are sufficient to ensure that Interested Person Transactions will be made with the relevant class of Interested Persons in accordance with HG Group’s normal commercial terms, and are hence not prejudicial to the Company and its minority Shareholders.

If, on its review of the internal audit reports, the Audit Committee is of the view that the established guidelines and procedures are not sufficient to ensure that the Interested Person Transactions will be on the HG Group’s normal commercial terms and will not be prejudicial to the interests of the Company and its minority Shareholders, the Company will seek a fresh mandate based on new guidelines and procedures for transactions with Interested Persons.


appenDIx

5. DiRECTORS AND SuBSTANTiAL SHAREHOLDERS’ iNTERESTS

Based on information in the Register of Directors maintained by the Company pursuant to Section 173(1) of the Companies Act, Chapter 50 of Singapore, as at the Latest Practicable Date, the number of Shares in which the Directors have an interest are as follows:

Direct interest Deemed interestNumber of

Shares(%) (1) Number of

Shares(%) (1)

Yap Xi Ming 5,751,554 0.57 82,446,574 (2) 8.11Goh Kian Sin – – 316,850,000 (3) 29.00 (4)

Tan Chan Too 21,455,187 2.11 – –Wong Kean Shyong, Kenn – – – –Tan Eng Liang – – – –Gui Kim Young @ Gui Kim Gan – – – –Ling Chung Yee Roy – – – –

Notes:

(1) Based on total issued and paid-up ordinary share capital comprising 1,016,021,962 Shares as at the Latest Practicable Date.

(2) Yap Xi Ming holds approximately 33.33% in the share capital of Chye Hin and is therefore deemed interested in the Shares held by Chye Hin.

(3) Goh Kian Sin holds 80% in the share capital of OCS and is therefore deemed interested in the Shares held by OCS.

(4) The percentage of issued share capital is calculated based on the enlarged issued share capital of 1,092,521,962 shares.

Based on information in the Register of Substantial Shareholders maintained by the Company pursuant to Section 88 of the Companies Act, Chapter 50 of Singapore, as at the Latest Practicable Date, the Substantial Shareholders and the number of Shares in which they have an interest are as follows:

Direct interest Deemed interest Total interestNumber of



Shares(%) (1)

Chye Hin Hardware Pte. Ltd.

82,446,574 8.11 – – 82,446,574 8.11

Yap Xi Ming 5,751,554 0.57 82,446,574 (2) 8.11 88,198,128 8.68Tan Kim Seng – – 82,446,574 (3) 8.11 82,446,574 8.11Oriental Castle

Sdn Bhd240,350,000 23.66 76,500,000 7.00 (6) 316,850,000 29.00 (6)

Goh Kian Sin – – 316,850,000 (4) 29.00 (6) 316,850,000 29.00 (6)

Hew Yuen Hin – – 316,850,000 (5) 29.00 (6) 316,850,000 29.00 (6)

Notes:

(1) Based on total issued and paid-up ordinary share capital comprising 1,016,021,962 Shares as at the Latest Practicable Date.

(2) Yap Xi Ming holds approximately 33.33% in the share capital of Chye Hin and is therefore deemed interested in the Shares held by Chye Hin.

(3) Tan Kim Seng holds approximately 25% in the share capital of Chye Hin and is therefore deemed interested in the Shares held by Chye Hin.

(4) Goh Kian Sin holds 80% in the share capital of OCS and is therefore deemed interested in the Shares held by OCS.

(5) Hew Yuen Hin holds 20% in the share capital of OCS and is therefore deemed interested in the Shares held by OCS.

(6) The percentage of issued share capital is calculated based on the enlarged issued share capital of 1,092,521,962 shares.


appenDIx

6. iNDEPENDENT DiRECTORS’ RECOMMENDATiON

As (i) Mr. Yap Xi Ming is a major shareholder of Chye Hin, (ii) Mr. Goh Kian Sin is a major shareholder of OCS and (iii) Mr. Wong Kean Shyong, Kenn is appointed as the chief marketing officer of Arcelor International Steel Trading (Shanghai) Co. Ltd. (a member of the OCS Group), and is in charge of the purchase and sale of steel products by Arcelor International Steel Trading (Shanghai) Co. Ltd., each of Mr. Yap, Mr. Goh and Mr. Wong abstains from making any recommendations to Shareholders to vote in favour of the ordinary resolution relating to the IPT Mandate at the AGM. Accordingly, the Directors who are deemed to be independent for the purposes of making a recommendation to Shareholders in respect of the IPT Mandate are Mr. Tan Chan Too, Dr. Tan Eng Liang, Mr. Gui Kim Young @ Gui Kim Gan and Mr. Ling Chung Yee Roy.

For the reasons set out in paragraphs 3.2 and 3.6 above, the Directors who are deemed to be independent for the purposes of making a recommendation to Shareholders in respect of the IPT Mandate are of the unanimous view that it would be beneficial to and in the interests of the entities in the HG Group to have the flexibility to enter into the types of Interested Person Transactions described above in their ordinary course of business with the specified classes of Interested Persons provided that such transactions are carried out on normal commercial terms and will not be prejudicial to the interests of the Company and its minority Shareholders. Accordingly, they recommend that Shareholders vote in favour of the ordinary resolution relating to the IPT Mandate at the AGM.

7. ACTiON TO BE TAKEN BY SHAREHOLDERS

If a Shareholder is unable to attend the AGM and wishes to appoint a proxy to attend and vote on his behalf, he should complete, sign and return the attached Proxy Form in accordance with the instructions printed thereon as soon as possible and, in any event, so as to reach the registered office of the Company at 30 Jalan Buroh, Singapore 619484 not later than 10.00 a.m. on 10 January 2012. Completion and return of the Proxy Form by a Shareholder will not prevent him from attending and voting at the AGM if he so wishes.

8. ABSTENTATiON FROM vOTiNG

Each of OCS and Chye Hin, being an Interested Person in relation to the IPT Mandate, will abstain, and has undertaken to ensure that its associates (as defined in the Listing Manual) will abstain, from voting on the ordinary resolution relating to the IPT Mandate at the forthcoming AGM and will also decline to accept appointment as proxy for any Shareholder to vote in respect of the ordinary resolution relating to the IPT Mandate, unless the Shareholder concerned shall have given instructions in the Proxy Form as to the manner in which his votes are to be cast in respect of the ordinary resolution relating to the IPT Mandate.

9. RESPONSiBiLiTY STATEMENT

The Directors collectively and individually accept full responsibility for the accuracy of the information given in this Appendix and confirm after making all reasonable enquiries that, to the best of their knowledge and belief, this Appendix constitutes full and true disclosure of all material facts about the IPT Mandate, the issuer and its subsidiaries, and the Directors are not aware of any facts the omission of which would make any statement in this Appendix misleading. Where information in the Appendix has been extracted from published or otherwise publicly available sources or obtained from a named source, the sole responsibility of the Directors has been to ensure that such information has been accurately and correctly extracted from those sources and/or reproduced in the circular in its proper form and context.


appenDIx

10. DOCuMENTS AvAiLABLE FOR iNSPECTiON

The following documents are available for inspection at the registered office of the Company at 30 Jalan Buroh, Singapore 619486 during normal business hours from the date of this Appendix up to the date of the forthcoming AGM:

(a) the Annual Report of the Company for the financial year ended 30 September 2011;

(b) the Memorandum and Articles of Association of the Company.

Yours faithfully

For and on behalf of the Board of Directors ofHG Metal Manufacturing Limited

Tan Chan TooExecutive Director


1. iNTRODuCTiON

Chapter 9 of the Listing Manual (“Chapter 9”) applies to transactions between a party that is an entity at risk and a counter party that is an interested person. The objective of Chapter 9 (as stated in Rule 901 of the Listing Manual) is to guard against the risk that interested persons could influence a listed company, its subsidiaries or associated companies to enter into transactions with interested persons that may adversely affect the interests of the listed company or its shareholders. The aforementioned terms “entity at risk”, “interested person” and “associated companies” as well as other terms used are defined below.

2. MAiN TERMS uSED iN CHAPTER 9 OF THE LiSTiNG MANuAL

(a) An “approved exchange” means a stock exchange that has rules which safeguard the interests of shareholders against interested person transactions according to similar principles to Chapter 9.

(b) An “associate” in relation to an interested person who is a director, chief executive officer or controlling shareholder of the listed company (being an individual) means an immediate family member (that is, the spouse, child, adopted child, step-child, sibling or parent) of such director, chief executive officer or controlling shareholder; the trustees of any trust of which the director and/or his immediate family, or the chief executive officer and/or his immediate family or the controlling shareholder and/or his immediate family is a beneficiary or, in the case of a discretionary trust, is a discretionary object; and any company in which the director and/or his immediate family, or the chief executive officer and/or his immediate family or the controlling shareholder and/or his immediate family has or have an aggregate interest (directly or indirectly) of 30 per cent. or more; and, where a controlling shareholder of the listed company is a corporation, its “associate” means its subsidiary or holding company or fellow subsidiary or a company in which it and/or such other companies taken together have (directly or indirectly) an interest of 30 per cent. or more.

(c) An “associated company” of a listed company means a company in which at least 20 per cent. but not more than 50 per cent. of its shares are held by the listed company or the listed group.

(d) A “chief executive officer” of a listed company means the most senior executive officer who is responsible under the immediate authority of the board of directors for the conduct of the business of the listed company.

(e) A “controlling shareholder” of a listed company means a person who (i) holds directly or indirectly 15 per cent. or more of the voting rights in the listed company. The SGX-ST may determine that a person who satisfies this paragraph is not a controlling shareholder; or (ii) a person who in fact exercises control over a company.

(f) An “entity at risk” means:

(i) the listed company;

(ii) a subsidiary of the listed company that is not listed on the SGX-ST or an approved exchange; or

(iii) an associated company of the listed company that is not listed on the SGX-ST or an approved exchange, provided that the listed company and/or its subsidiaries (the “listed group”), or the listed group and its interested person(s), has or have control over the associated company.

(g) An “interested person” means a director, chief executive officer or controlling shareholder of the listed company or an associate of such director, chief executive officer or controlling shareholder.

(h) An “interested person transaction” means a transaction between an entity at risk and an interested person.

annexure I to the appenDIxgeneral information relating to chapter 9 of the listing manual


3. MATERiALiTY THRESHOLDS, DiSCLOSuRE REQuiREMENTS AND SHAREHOLDERS’ APPROvAL

Except for certain transactions which, by reason of the nature of such transactions, are not considered to put the listed company at risk to its interested persons and are hence excluded from the ambit of Chapter 9, immediate announcement and shareholders’ approval would be required in respect of transactions with interested persons if certain financial thresholds (which are based on the value of the transaction as compared with the listed company’s latest audited consolidated NTA) are reached or exceeded.

Immediate Announcement

An immediate announcement is required where the interested person transaction is of a value equal to, or more than, 3% of the listed group’s latest audited NTA. Where the aggregate value of all the transactions entered into with the same interested person during the same financial year amounts to 3% or more of the listed group’s latest audited NTA, the issuer must make an immediate announcement of the latest transaction and all future transactions entered into with the same interested person during that financial year.

Shareholders’ Approval

Shareholders’ approval is required where the interested person transaction is of a value equal to, or more than:

(a) 5% of the listed group’s latest audited NTA; or

(b) 5% of the listed group’s latest audited NTA, when aggregated with other transactions entered into with the same interested person during the same financial year.

However, a transaction which has been approved by shareholders, or is the subject of aggregation with another transaction that has been approved by shareholders, need not be included in any subsequent aggregation.

The above requirements for immediate announcement and for shareholders’ approval do not apply to any transaction below S$100,000.

4. GENERAL MANDATE

Chapter 9 permits a listed company to seek a general mandate from its shareholders for recurrent transactions with interested persons of a revenue or trading nature or those necessary for its day-to-day operations, but not in respect of the purchase or sale of assets, undertakings or businesses. A general mandate is subject to annual renewal.

annexure I to the appenDIxgeneral information relating to chapter 9 of the listing manual


annexure II to the appenDIxshareholding structure of the ocs group

Mr. Goh Kian Sin Mr. Hew Yuen Hin

Oriental Castle Sdn Bhd

Oriental Sheet Piling Sdn Bhd

Oriental Steel PipeSdn Bhd

Plan B Pte. Ltd.

Oriental Sheet PilingPte Ltd

Oriental Sheet Piling(China) Co. Ltd.

Oriental Steel PipePte. Ltd.

Arcelor International SteelTrading (Shanghai) Co. Ltd.

80% 20%

40%

100% 100% 100%

100%

85% 85%


SharehoLDIngSStatIStICSas at 15 December 2011

Number of shares - 1,016,021,962Class of Shares - Ordinary SharesVoting Rights - On a show of hands: 1 vote - On a poll: 1 vote for each ordinary share

ANALYSiS OF SHAREHOLDiNGS

Number ofShareholders

Number ofSharesRange of Shareholdings % %

1 - 999 401 6.46 190,786 0.02 1,000 - 10,000 974 15.68 6,677,760 0.66 10,001 - 1,000,000 4,773 76.86 371,375,095 36.55 1,000,001 and above 62 1.00 637,778,321 62.77

6,210 100.00 1,016,021,962 100.00

TOP 20 SHAREHOLDERS LiST

S/No Name of ShareholderNumber of

Shares %

1 DMG & Partners Securities Pte Ltd 241,140,278 23.732 Chye Hin Hardware Pte Ltd 82,446,574 8.113 HSBC (Singapore) Nominees Pte Ltd 32,715,832 3.224 UOB Kay Hian Pte Ltd 24,639,012 2.435 Bank of Singapore Nominees Pte Ltd 24,224,297 2.386 Sia Ling Sing 21,107,333 2.087 Tan Ah Bee or Tan Lay Choon 19,553,954 1.928 OCBC Securities Private Ltd 14,597,244 1.449 Kim Eng Securities Pte. Ltd. 11,817,079 1.1610 Chong Thim Pheng 11,350,666 1.1211 Nomura Securities Singapore Pte Ltd 10,925,000 1.0812 Estate of Tian Chye Heng, Deceased 10,729,509 1.0613 Phillip Securities Pte Ltd 9,315,329 0.9214 DBS Nominees Pte Ltd 7,855,364 0.7715 CIMB Securities (S) Pte Ltd 7,471,885 0.7416 United Overseas Bank Nominees Pte Ltd 7,358,825 0.7217 Tan Wai See 6,550,000 0.6418 Yap Xi Ming 5,710,000 0.5619 Yee Hang @ See Fann 5,232,000 0.5120 Lee Leng Loke 4,802,317 0.47

559,542,498 55.06


StatIStICS oFSubtantIaL SharehoLDerSas at 7 December 2011

Number of shares - 1,016,021,962Class of Shares - Ordinary SharesVoting Rights - On a show of hands: 1 vote - On a poll: 1 vote for each ordinary share

Number of Shares each fully paid

Name of Substantial Shareholder Direct interest indirect interestNo. of shares % No. of shares %

Oriental Castle Sdn. Bhd. 240,350,000 23.66 76,500,000 (1) 7.53Chye Hin Hardware Pte. Ltd. 82,446,574 8.11 – –Goh Kian Sin – – 316,850,000 (2) 31.19Hew Yuen Hin – – 316,850,000 (3) 31.19Yap Xi Ming 5,751,554 0.57 82,446,574 (4) 8.11Tan Kim Seng 3,300,088 0.32 82,446,574 (5) 8.11

Notes:

(1) Oriental Castle Sdn. Bhd is deemed interested in 76,500,000 call option shares by virtue of Section 7 of the Companies Act, Cap. 50.

(2) Goh Kian Sin is deemed interested in the 316,850,000 shares registered in the name of Oriental Castle Sdn. Bhd. by virtue of Section 7 of the Companies Act, Cap. 50.

(3) Hew Yuen Hin is deemed interested in the 316,850,000 shares registered in the name of Oriental Castle Sdn. Bhd. by virtue of Section 7 of the Companies Act, Cap. 50.

(4) Yap Xi Ming is deemed interested in the 82,446,574 shares registered in the name of Chye Hin Hardware Pte. Ltd. by virtue of Section 7 of the Companies Act, Cap. 50.

(5) Tan Kim Seng is deemed interested in the 82,446,574 shares registered in the name of Chye Hin Hardware Pte. Ltd. by virtue of Section 7 of the Companies Act, Cap. 50.

PERCENTAGE OF SHAREHOLDiNG HELD iN THE HANDS OF PuBLiC

As at 7 December 2011, the percentage of shareholding in the Company held in the hands of public is approximately 67%. At least 67% of the Company’s equity securities are held by the public at all times and the Company is in compliance with Rule 723 of the SGX-ST Listing Manual.


notICe oFannuaL generaL meetIng

HG METAL MANuFACTuRiNG LiMiTED(Company Registration No. 198802660D) (Incorporated in the Republic of Singapore)

NOTiCE OF ANNuAL GENERAL MEETiNG

NOTICE IS HEREBY GIVEN that the Annual General Meeting of HG Metal Manufacturing Limited (“the Company”) will be held at 28 Jalan Buroh, Singapore 619484 on Thursday, 12 January 2011 at 10.00 a.m. for the following purposes:

AS ORDiNARY BuSiNESS

1. To receive and adopt the Directors’ Report and the Audited Accounts of the Company and the Group for the year ended 30 September 2011 together with the Auditors’ Report thereon. (Resolution 1)

2. To re-elect the following Director of the Company retiring pursuant to Article 89 of the Articles of Association

of the Company: Mr Wong Kean Shyong (Kenn) (Retiring under Article 89) (Resolution 2)

[See Explanatory Note (i)]

3. To re-appoint the following directors of the Company retiring under Section 153(6) of the Companies Act, Chapter. 50, to hold office from the date of this Annual General Meeting until the next Annual General Meeting of the Company.

Dr Tan Eng Liang (Resolution 3) Mr Gui Kim Young (Resolution 4)

[See Explanatory Note (ii)] 4. To note the retirement of Mr Roy Ling Chung Yee, a Director retiring pursuant to Article 89 of the Articles of

Association of the Company who would not be seeking re-election.

Upon the retirement of Mr Roy Ling Chung Yee, he will relinquish his position as Chairman of the Nominating Committee and member each of the Audit Committee and Remuneration Committee.

5. To approve the payment of Directors’ fees of S$238,000 for the year ended 30 September 2011 (previous year: S$163,750). (Resolution 5)

6. To re-appoint Ernst & Young LLP as the Auditors of the Company and to authorise the Directors of the Company to fix their remuneration. (Resolution 6)

7. To transact any other ordinary business which may properly be transacted at an Annual General Meeting.



AS SPECiAL BuSiNESS

To consider and if thought fit, to pass the following resolutions as Ordinary Resolutions, with or without any modifications: 8. Authority to issue shares in the capital of the Company pursuant to Section 161 of the Companies Act, Cap. 50

and Rule 806 of the Listing Manual of the Singapore Exchange Securities Trading Limited (“SGX-ST”)

That pursuant to Section 161 of the Companies Act, Cap. 50 and Rule 806 of the Listing Manual of the Singapore Exchange Securities Trading Limited, the Directors of the Company be authorised and empowered to:

(a) (i) issue shares in 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 shares to be issued, including but not limited to the creation and issue of (as well as adjustments to) options, 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 Directors of the Company may in their absolute discretion deem fit; and

(b) (notwithstanding the authority conferred by this Resolution may have ceased to be in force) issue shares in pursuance of any Instrument made or granted by the Directors of the Company while this Resolution was in force,

(the “Share issue Mandate”)

provided that:

(1) the aggregate number of shares (including shares to be issued in pursuance of the Instruments, made or granted pursuant to this Resolution) and Instruments to be issued pursuant to this Resolution shall not exceed fifty per centum (50%) of the total number of issued shares (excluding treasury shares) in the capital of the Company (as calculated in accordance with sub-paragraph (2) below), of which the aggregate number of shares and Instruments to be issued other than on a pro rata basis to existing shareholders of the Company shall not exceed twenty per centum (20%) of the total number of issued shares (excluding treasury shares) in the capital of the Company (as calculated in accordance with sub-paragraph (2) below);

(2) (subject to such calculation as may be prescribed by the SGX-ST for the purpose of determining the aggregate number of shares and Instruments that may be issued under sub-paragraphs (1) above, the percentage of issued shares and Instruments shall be based on the number of issued shares (excluding treasury shares) in the capital of the Company at the time of the passing of this Resolution, after adjusting for:

(a) new shares arising from the conversion or exercise of the Instruments or any convertible securities;(b) new shares arising from exercising share options or vesting of share awards outstanding and

subsisting at the time of the passing of this Resolution; and (c) any subsequent consolidation or subdivision of shares;

(3) in exercising the Share Issue Mandate conferred by this Resolution, the Company shall comply with the provisions of the Listing Manual of the SGX-ST for the time being in force (unless such compliance has been waived by the SGX-ST) and the Articles of Association of the Company; and



(4) unless revoked or varied by the Company in a general meeting, the Share Issue Mandate shall continue in force (i) until the conclusion of the next Annual General Meeting of the Company or the date by which the next Annual General Meeting of the Company is required by law to be held, whichever is earlier or (ii) in the case of shares to be issued in pursuance of the Instruments, made or granted pursuant to this Resolution, until the issuance of such shares in accordance with the terms of the Instruments.

[See Explanatory Note (iii)] (Resolution 7)

9. Renewal of the Mandate for interested Person Transactions

That for the purposes of Chapter 9 of the Listing Manual (“Chapter 9”) of the Singapore Exchange Securities Trading Limited:

(a) approval be and is hereby given for the Company, its subsidiaries and associated companies that are entities at risk (as defined in Chapter 9) or any of them to enter into any of the transactions falling within the types of Interested Person Transactions, particulars of which are set out in paragraph 3.5 of the Appendix to the 2011 Annual Report of the Company, with the Interested Persons, provided that such transactions are made on normal commercial terms, will not be prejudicial to the interests of the Company and its minority Shareholders and are in accordance with the review procedures for Interested Person Transactions as set out in the Appendix (the “iPT Mandate”);

(b) the IPT Mandate shall, unless revoked or varied by the Company in a General Meeting, continue in force until the next Annual General Meeting of the Company; and

(c) the Directors of the Company be and are hereby authorised to complete and do all such acts and things (including without limitation, executing all such documents as may be required) as they may consider expedient or necessary or in the interests of the Company to give effect to the IPT Mandate and/or this Resolution.

[See Explanatory Note (iv)] (Resolution 8)

By Order of the Board

Foong Lee Heng/Tan Swee GekSecretariesSingapore28 December 2011



Explanatory Notes:

(i) Mr Wong Kean Shyong, Kenn will, upon re-election as a Director of the Company, remain as Non-Executive Non-Independent Director.

(ii) The effect of the Ordinary Resolution 3 and 4 above, is to re-appoint the directors of the Company who are over 70 years of age.

Dr Tan Eng Liang will, upon re-election as a Director of the Company, remain as Chairman of the Audit Committee and a member each of the Nominating Committee and the Remuneration Committee and will be considered independent.

Mr Gui Kim Young will, upon re-election as a Director of the Company, remain as Chairman of the Remuneration Committee and a member each of the Audit Committee and Nominating Committee, and will be considered independent.

(iii) The Ordinary Resolution 7 above, if passed, will empower the Directors of the Company from the date of this Meeting until the date of the next Annual General Meeting of the Company, or the date by which the next Annual General Meeting of the Company is required by law to be held or such authority is varied or revoked by the Company in a general meeting, whichever is the earlier, to issue shares, make or grant instruments convertible into shares and to issue shares pursuant to such instruments, up to a number not exceeding, in total, 50% of the total number of issued shares (excluding treasury shares), of which up to 20% may be issued other than on a pro-rata basis to shareholders.

For the purpose of determining the aggregate number of shares that may be issued, the percentage of issued shares in the capital of the Company will be calculated based on the total number of issued shares (excluding treasury shares) in the capital of the Company at the time this Ordinary Resolution is passed after adjusting for new shares arising from the conversion or exercise of the Instruments or any convertible securities, the exercise of share options or the vesting of share awards outstanding or subsisting at the time when this Ordinary Resolution is passed and any subsequent consolidation or subdivision of shares.

(iv) The Ordinary Resolution 8 seeks to renew the annual mandate to allow the Company, its subsidiaries and associated companies that are entities at risk, or any of them, to enter into certain Interested Person Transactions with persons who are considered “Interested Persons” (as defined in Chapter 9). Details of the terms of the mandate are set out in the Appendix to the 2011 Annual Report of the Company.

*Notes

1. A Member entitled to attend and vote at the Annual General Meeting (the “Meeting”) is entitled to appoint not more than two proxies to attend and vote in his/her stead. A proxy need not be a Member of the Company.

2. The instrument appointing a proxy must be deposited at the Registered Office of the Company at not less than

forty-eight (48) hours before the time appointed for holding the Meeting.


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proxy Form(please see notes overleaf before completing this form)

I/We, ofbeing a member/members of HG Metal Manufacturing Limited (the “Company”), hereby appoint:

Name NRiC/Passport No. Proportion of ShareholdingsNo. of Shares %

Address

and/or (delete as appropriate)

Name NRiC/Passport No. Proportion of ShareholdingsNo. of Shares %

Address

or failing the person, or either or both of the persons, referred to above, the Chairman of the Meeting as my/our proxy/proxies to vote for me/us on my/our behalf at the Annual General Meeting (the “Meeting”) of the Company to be held at 28 Jalan Buroh, Singapore 619484 on 12 January 2012 at 10.00 a.m. and at any adjournment thereof. I/We direct my/our proxy/proxies to vote for or against the Resolutions proposed at the Meeting as indicated hereunder. If no specific direction as to voting is given or in the event of any other matter arising at the Meeting and at any adjournment thereof, the proxy/proxies will vote or abstain from voting at his/her discretion. The authority herein includes the right to demand or to join in demanding a poll and to vote on a poll.

(Please indicate your vote “For” or “Against” with a tick [√] within the box provided.)

No. Resolutions relating to: For Against1 Directors’ Report and Audited Accounts for the year ended 30 September 20112 Re-election of Mr Wong Kean Shyong (Kenn) as a Director3 Re-appointment of Dr Tan Eng Liang as a Director4 Re-appointment of Mr Gui Kim Young as a Director5 Approval of Directors’ fees amounting to S$238,000/-6 Re-appointment of Ernst & Young LLP as Auditors7 Authority to issue shares and convertible securities pursuant to Section 161 of the

Companies Act, Chapter 508 Renewal of mandate for Interested Person Transactions

Dated this day of 201_

Total number of Shares in: No. of Shares(a) CDP Register

Signature of Shareholder(s) (b) Register of Membersor, Common Seal of Corporate Shareholder *Delete where inapplicable

HG METAL MANuFACTuRiNG LiMiTEDCompany Registration No. 198802660D(incorporated in the republic of singapore)

iMPORTANT:

1. For investors who have used their CPF monies to buy HG Metal Manufacturing Limited’s shares, this Report is forwarded to them at the request of the CPF Approved Nominees and is sent solely FOR INFORMATION ONLY.

2. This Proxy Form is not valid for use by CPF investors and shall be ineffective for all intents and purposes if used or purported to be used by them.

3. CPF investors who wish to attend the Meeting as an observer must submit their requests through their CPF Approved Nominees within the time frame specified. If they also wish to vote, they must submit their voting instructions to the CPF Approved Nominees within the time frame specified to enable them to vote on their behalf.

Notes :

1. Please insert the total number of Shares held by you. If you have Shares entered against your name in the Depository Register (as defined in Section 130A of the Companies Act, Chapter 50 of Singapore), you should insert that number of Shares. If you have Shares registered in your name in the Register of Members, you should insert that number of Shares. If you have Shares entered against your name in the Depository Register and Shares registered in your name in the Register of Members, you should insert the aggregate number of Shares entered against your name in the Depository Register and registered in your name in the Register of Members. If no number is inserted, the instrument appointing a proxy or proxies shall be deemed to relate to all the Shares held by you.

2. A member of the Company entitled to attend and vote at a meeting of the Company is entitled to appoint one or two proxies to attend and vote in his/her stead. A proxy need not be a member of the Company.

3. Where a member appoints two proxies, the appointments shall be invalid unless he/she specifies the proportion of his/her shareholding (expressed as a percentage of the whole) to be represented by each proxy.

4. Completion and return of this instrument appointing a proxy shall not preclude a member from attending and voting at the Meeting. Any appointment of a proxy or proxies shall be deemed to be revoked if a member attends the meeting in person, and in such event, the Company reserves the right to refuse to admit any person or persons appointed under the instrument of proxy to the Meeting.

5. The instrument appointing a proxy or proxies must be deposited at the registered office of the Company at 30 Jalan Buroh, Singapore 619486 not less than 48 hours before the time appointed for the Meeting.

6. The instrument appointing a proxy or proxies must be under the hand of the appointor or of his attorney duly authorised in writing. Where the instrument appointing a proxy or proxies is executed by a corporation, it must be executed either under its seal or under the hand of an officer or attorney duly authorised. Where the instrument appointing a proxy or proxies is executed by an attorney on behalf of the appointor, the letter or power of attorney or a duly certified copy thereof must be lodged with the instrument.

7. A corporation which is a member may authorise by resolution of its directors or other governing body such person as it thinks fit to act as its representative at the Meeting, in accordance with Section 179 of the Companies Act, Chapter 50.

General:

The Company shall be entitled to reject the instrument appointing a proxy or proxies if it is incomplete, improperly completed or illegible, or where the true intentions of the appointor are not ascertainable from the instructions of the appointor specified in the instrument appointing a proxy or proxies. In addition, in the case of Shares entered in the Depository Register, the Company may reject any instrument appointing a proxy or proxies lodged if the member, being the appointor, is not shown to have Shares entered against his name in the Depository Register as at 48 hours before the time appointed for holding the Meeting, as certified by The Central Depository (Pte) Limited to the Company.

hg Metal Manufacturing Limited30 Jalan Buroh Buroh Singapore 619486

Tel : 6268 2828 • Fax: 6268 3838www.hgmetal .com • Email : sales@hgmetal .com

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