HUPSteel · Business and margin for the Group’s other products like pipes, fittings and structural products remained stable throughout the financial year as a result of the robust

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HUPSteel Limitedwww.hupsteel.com(Company Registration Number: 197301452D)

HUPSteel

HUPSteel

contentscontents

01 vision, mission and values02 chairman’s statement06 board of directors08 operations review11 key management staff12 financial highlights13 corporate governance22 directors’ report26 statement by directors27 auditors’ report28 financial statements76 shareholders’ information 78 notice of thirteenth annual general meeting proxy form

corporate information

Board of directors Mr Tang See Chim Non-executive Chairman, Independent Director Mr Lim Kim Thor Chief Executive Officer Mr Lim Boh Chuan Deputy Managing Director Mr Lim Yee Kim Executive Director Mr Lim Beo Peng Executive Director Mr Lim Eng Chong Non-executive Director Dr Lim Puay Koon Non-executive Director Mr Ong Kian Min Independent, Non-executive Director

executive committeeMr Lim Kim Thor ChairmanMr Lim Boh ChuanMr Lim Yee KimMr Lim Beo Peng

audit committeeMr Tang See Chim Chairman (appointed on 29/7/05)Mr Ong Kian Min Dr Lim Puay Koon

NomiNatiNg committeeMr Tang See Chim Chairman (appointed on 29/7/05) Mr Ong Kian MinMr Lim Eng Chong

remuNeratioN committeeMr Ong Kian Min Chairman (appointed on 29/7/05)Mr Tang See ChimMr Lim Kim ThorMr Lim Eng Chong

compaNy secretariesMr Tan Cher LiangMs Julie Koh Ngin Joo

registered address10 Collyer Quay#19-08 Ocean BuildingSingapore 049315

BusiNess office116 Neythal RoadSingapore 628603Tel : (65) 6419 2121Fax : (65) 6419 2113Website: www.hupsteel.com

share registrarTricor Barbinder Share Registration Services8 Cross Street #11-00PWC BuildingSingapore 048424Tel : (65) 6236 3333

auditorsPricewaterhouseCoopers8 Cross Street #17-00PWC BuildingSingapore 048424Tel : (65) 6236 3388

audit partNer-iN-chargeMs Quek Bin HweeDate of appointment : 13/1/2003

HUPSteel Limited 0 1

visionTo be the preferred global total solution provider of steel products and services

missionHarness our Resources for Sustainable Growth and Profit Understand and provide value-added services to meet customer’s needs Pursue Organization and People Excellence

values SERVICE• We seek to provide quality service that “goes the extra mile” to all internal and external customers, suppliers and

colleagues. • We will do this by establishing a relationship based on mutual respect, trust and integrity.• This will lead to service that is prompt, efficient, friendly, trustworthy and solutions-based.

TEAMWORK• We will strive to achieve our shared vision by living our shared values and aligning ourselves towards our common

goals. • We will show respect for all individuals through mutual trust, open communication and motivation. • We will be enthusiastic and supportive of each other as we strive to attain inter-dependence and co-operation.

ENTERPRISING• We will seize challenging business opportunities that would put us ahead of our competitors. • We will be proactive and innovative market leaders by taking the initiative to be different and not being afraid to

break the status quo. • We will be visionary in our outlook and persevering in our united efforts.

EXCELLENCE• We will strive to be excellent and professional in our product knowledge and duties. • We will take personal responsibility and accountability for our partners and customers to ensure quality products

and reliable service to them. • We believe in developing our people to their maximum potential so that they are enabled and equipped to provide

total solutions.

LIFELONG LEARNING• We will grow with the right heart, mind and skill-sets to achieve personal and organizational success. • We will equip through mentoring, coaching, training and development to create a culture of continuous learning and enthusiastic sharing of experiences. • We believe in relevant and applied knowledge as the foundations to building leadership quality.

chairman’s statement

A n n u A L R e p o R t 2 0 0 60 2

Dear Shareholders,

The year in reviewThis financial year was indeed a memorable one for the Group as we celebrated the Group’s 60 years of founding with an Open House and a Gala Dinner for about 1,000 guests at the Meritus Mandarin Hotel. The Company had also changed its name to HUPSteel Limited to mark the beginning of a new chapter in the history of the Group.

For the financial year ended 30 June 2006, the Group reported a revenue of $186.2M (FY05: $197.8M) and a net profit after tax of $15.7M (FY05: $21.6M). Although revenue and net profit after tax declined 5.9% and 27.3% respectively compared with the previous financial year ended 30 June 2005 (“FY05”), it is important to stress that FY05 was an exceptional year for the Group as its inventory costs were low while enjoying high selling price due to strong demand and tight market supply of steel products.

Financial year ended 30 June 2006 (“FY06”) saw a general increase in the supply of steel products. Though market demand had remained strong, the greater supply of steel plates precipitated a significant price correction and the Group had to adjust the selling prices for its steel plates for most of FY06 to remain competitive. However, selling prices for steel plates had since made a remarkable recovery in the final quarter of FY06.

Business and margin for the Group’s other products like pipes, fittings and structural products remained stable throughout the financial year as a result of the robust demand in the Oil, Gas and Shipbuilding sectors.

OuTlOOkDuring the year, the Group conducted an in-depth review of its business and came to the conclusion that its services and product offerings must be more integrated to focus on customers’

needs. At the same time, the Group must grow its business to better serve its customers and to enhance shareholder value. To achieve these aims, the Group had reorganized itself into 3 divisions, namely, the Steel Business, Business Development and Corporate Services divisions.

The Steel Business Division encompasses all the Group’s existing businesses and will strive to expand its businesses by becoming the preferred global total solution provider for steel products and services for its customers. It will strive to build closer relationship with its customers to understand and meet their needs for steel products and related services.

The Business Development Division will continue to look out for new products to meet the market’s changing needs, strengthen our overseas’ markets and establish presence in new markets. This division will also seek out opportunities

This financial year was indeed a memorable one for the Group as we celebrated the Group’s 60 years of founding with an Open House and a Gala Dinner for about 1,000 guests at the Meritus Mandarin Hotel. The Company had also changed its name to HUPSteel Limited to mark the

beginning of a new chapter in the history of the Group.

chairman’s statement


for merger and acquisition in order to further enlarge the Group’s business.

All of these activities will be supported by a group of dedicated personnelfrom Finance, Human Resources, Administration and Information Technology departments, now consolidated under the Corporate Services Division.

The Group believes that demand for its steel products will remain steady in the new financial year amidst the booming Oil, Gas and Shipbuilding sectors. These sectors have reported order books filled till 2009 which augurs well for the Group. In addition, the expected strong growth of the economy for the rest of the year should bring good business prospect for the Group.

With the construction of the integrated resorts expected to begin soon, various planned and ongoing government infrastructure projects like the circle line, rejuvenating of Orchard Road, the new Business and Financial Centre and others should boost demand for the Group’s structural steel products.

To cater to increasing business volume, the Group has decided to expand its storage space by constructing a warehouse extension at its flagship

premises at Neythal Road. The construction is expected to begin in the third quarter of 2006 and when the extension is completed, the Group’s storage capacity will increase to over 33,000 square meters. This will enable the Group to centralize storage of its stocks, thereby better to manage its warehousing and logistic functions and to enhance efficiency.

DiviDenDThe Directors are pleased to recommend a first and final dividend of 0.5 cent (FY05: 0.5 cent) per share less tax at 20%. Given the Group’s strong operating performance, the Directors further propose a special dividend of 1.5 cents (FY05: 2.5 cents) per share less tax at 20% to express our appreciation for the support from our shareholders.

In addition, the Board of Directors is also recommending a bonus dividend of 3.125 cents less tax at 20% and proposed a renounceable non-underwritten rights issue of shares in the ratio of 1 right share for every 4 existing shares held by the shareholders with a subscription price of $0.10 per rights share. Shareholders will be given an option to elect to use the bonus dividend declared to fully subscribe for their rights without further cash outlay. The aim of this exercise is to utilize most of the accummulated

Section 44A tax credit before it expires so that shareholders may benefit from the tax refund arising if their personal income tax rate is lower than the corporate tax rates.

The Board of Directors is looking forward to the support of the shareholders to approve the rights issue at the forthcoming Annual General Meeting to be held on 26th October 2006.

ACknOwLeDGeMenTI would like to thank my fellow Directors for their support and wise counsel and the Management and staff for their loyalty, dedication and contributions to the Group.

I would also like to express the Group’s appreciation to our customers, suppliers and business associates for their continuing support and for joining us in making our 60th anniversary celebrations such a joyous and memorable occasion.

Finally, I would like to thank all of you, our shareholders, for your commitment, support and loyalty to the Group.

TAnG See CHiMNon-executive Chairman14 Sept 2006

A n n u A L R e p o R t 2 0 0 60 4

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TAnG See CHiMMr Tang See Chim, 74, has been an Independent Director of the Company since 1994, was appointed as the Non Executive Chairman of the Board of Directors on 21 Feburary 2005. He is also the Chairman of the Audit and Nominating Committees and a member of the Remuneration Committee. Mr Tang has been in law practice for the last 40 years and since the beginning of 1993, has been a consultant to the law firm of David Lim & Partners. He was a Member of Parliament from 1966 to 1988 and was the Parliamentary Secretary to the Minister for Finance from 1968 to 1970 and the Minister of State for Finance from 1970 to 1972. Mr Tang was Deputy Speaker of Parliament from 1972 to 1981.

Mr Tang is also an Independent Director of City Development Ltd, G K Goh Holdings Ltd and New Toyo International Holdings Ltd.

Mr Tang graduated with a Bachelor of Science (Honours) degree in Economics from the London School of Economics, University of London. Mr Tang qualified as a Barrister-at-Law at the Middle Temple, London.

LiM kiM THORMr Lim Kim Thor, 53, has been a Director of the Company since 1978 and was appointed as the Chief Executive Officer of the Company in 2004. He is the Chairman of the Executive Committee and a member of the Remuneration Committee. Mr Lim has close to 30 years of experience in the industrial hardware and steel pipe business. He enjoys close and strategic relationships with leading global steel product manufacturers and suppliers as well as major customers in the marine engineering and oil and gas industries. Mr Lim is responsible for the execution of the Group’s business strategy and business expansion.

LiM BOH CHUAnMr Lim Boh Chuan, 48, has been a Director of the Company since 1983. Mr B C Lim was appointed as the Deputy Managing Director in 1994 and as a member of the Executive Committee since 1994. Mr B C Lim has over 20 years of experience in industrial hardware business. Mr Lim assists Chief Executive Officer in general management and is responsible for the Group’s property business and is in charge of the Business Development Division of the Group. Mr Lim graduated with a Bachelor degree in Estate Management from the National University of Singapore. He is a member

of the Singapore Institute of Directors since 1999. Mr Lim is the Patron of the Hwa Chong Junior College’s Alumni Association. He is also the Vice Chairman of the Hwa Chong Institution Board of Governors. He is the Chairman of the Hwa Chong International School. In 2003, Mr Lim had the honour of receiving the “Service To Education Award” from the Ministry of Education.

LiM Yee kiMMr Lim Yee Kim, 58, has been an Executive Director of the Company since 1973 and has accumulated close to 40 years of experience in the industrial hardware business. In December 2002, Mr Lim was appointed as the General Manager (Sales and Procurement) of the Company, with principal responsibility for the sales of the Group’s industrial hardware business and the sourcing and procurement of pipe fittings to meet customers’ various needs. As a member of the Executive Committee, Mr Lim also assists the Chief Executive Officer in marketing strategy and warehouse management. Mr Lim is an active member of the Singapore Metal & Machinery Association.

board of directors

A n n u A L R e p o R t 2 0 0 60 6

Tang See Chim

lim yee kimLim Boh Chuan

lim kim Thor

LiM BeO PenGMr Lim Beo Peng, 45, has been a Director of the Company since 1993 and is a member of the Executive Committee. He assumed Executive functions in 2005 by being in charge of the newly created Corporate Service Division which provides the back room service and support to the Group. Mr Lim graduated with a Bachelor degree in Business Administration from the National University of Singapore. Mr Lim has over 18 years of experience in the industrial hardware business. Beside his business interest, Mr Lim is also represented in the 38th Honorary Committee (2006-2007) of the Singapore Metal & Machinery Association.

LiM enG CHOnGMr Lim Eng Chong, 49, has been a Director of the Company since 1992 and is currently a member of the Nominating Committee and was appointed as a member of Remuneration Committee on 14 July 2004. Mr Lim holds a Master in Business Administration (MBA) degree from McGill University. Mr Lim has more

than 20 years of multinational experience in international business and strategic market development. He is currently a director and the President of Canadec Pte Ltd, the appointed regional representative of Maple Leaf Foods Inc.

LiM PUAY kOOnDr Lim Puay Koon, 46, has been a Director of the Company since 1993 and is currently a member of the Audit Committee. Dr Lim holds a PhD in computer and systems engineering, and a Master in Business Administration (MBA) degree from Rensselaer Polytechnic Institute (USA). Dr Lim has more than 20 years of experience in the IT industry and has held various management and systems engineering positions in Hewlett-Packard, Dell Asia Pacific, the National Computer Board (now part of Infocomm Development Authority or IDA) and the New York State Office (USA). He is currently the Director and General Manager, HP Managed Services, South-East Asia.

OnG kiAn MinMr Ong Kian Min, 46, has been an Independent Director of the Company since 2003 and is the Chairman of the Remuneration Committee and a member of the Audit and Nominating Committees. Mr Ong is currently an Advocate and Solicitor and a consultant with Drew & Napier LLC, a Singapore law firm. He was called to the Bar of England and Wales in 1988 and to the Singapore Bar the following year. Mr Ong has also been a Member of Parliament since January 1997. Mr Ong was awarded the President Scholarship and Police Force Scholarship in 1979. He holds a Bachelor of Laws (Honours) external degree from the University of London and a Bachelor of Science (Honours) degree from the Imperial College of Science and Technology in England.

board of directors


Lim Beo Peng

Lim eng Chong

Lim Puay koon

Ong kian Min

A n n u A L R e p o R t 2 0 0 60 8

GeneRALFor the financial year ended 30 June 2006 (‘FY06’), the Group continued to benefit from strong demand for steel products from the Oil, Gas and Marine sectors. Our Group which carries a comprehensive range of structural steel products, pipes and fittings is in an excellent position to meet our customers’ needs for steel products. Generally, both global and local factors will have similar effects on the demand and supply of the Group’s products as they essentially fall under the same class of material. However certain products may be more extensively used by a particular sector and hence are more susceptible to conditions arising from it, like structural steel plates for the ship building sector.

PiPeS, fiTTinGS AnD STRUCTURAL STeeLIn the last 2 years, fast growing demand for oil and escalating oil prices had been driving producers to step up both explorations and drilling activities. This had resulted in our internationally

Your preferred Global Total Solution Provider for Steel Products and Services.

operations review

renowned local yards receiving overwhelming orders to build oil rigs and related marine vessels.This surge in demand for rigs and marine vessels had also provided opportunities for our smaller local shipbuilders to break into the industry. As a result, there was a strong demand for steel products ranging from structural steel products to pipes and fittings which are needed for the construction of these structures. This increase in activities from these sectors in FY05 drove up demand significantly in the midst of tight supply causing prices of steel products to escalate rapidly. The impact of such increase in demand was first experienced in the financial year ended 30 June 2005 (‘FY05’) and continued well into FY06. Consequently, there was great volatility in prices of the Group’s steel plates business – one of the major products offered by the Group. Plates are required in the construction of marine vessels and were in great demand in FY05. This had led to many shipyards stockpiling their inventory of plates and even procuring them

directly from steel mills in order to meet tight delivery schedules. This coupled with a robust demand from the booming China economy induced steel mills to raise up their production to increase supply.

This increase in supply was felt in the first half of FY06 and the market was not able to absorb the additional quantity fast enough as most shipyards were still holding inventory. At the same time, the Chinese Government begun to take steps to preventits economy from overheating thereby further dampening demand for steel. Although there were new shipbuilding contracts concluded, the market could not prevent a downward price correction for plates. This affected the Group’s performance in the first 3 quartersof FY06. Throughout this period, the shipyards continued to work through their stock in hand while mills adjusted their production and supply allocation. The Group also took the precaution to run down its plates inventory to free resources and to wait for an opportune time to replenish its plate inventory. Market situation began to improve in the last quarter of FY06 as the market had worked out its excess inventory and prices recovered gradually.

operations review


With the prices for all its categories of steel products higher than a year ago, the Group is adopting a cautious approach in managing its inventories in order to minimize exposure to price fluctuation risks but at the same time ensuring that it would be able to meet the customers’ requirements in a timely manner.

However demand for the Group’s pipe and fittings had remained stable in FY06 in spite of price increases. As a result, business from pipe and fittings registered an increase in the turnover for FY06 of 4% to $87.9M from $84.6M for FY05.

SAnDBLASTinG, GeneRAL HARDwAReS & PROPeRTieSWith the boom in the local shipbuilding sector, the Group’s sandblasting service offered through Sinip Steel Industries Pte Ltd, one of the Group’s subsidiaries also enjoyed brisk business throughout FY06. Revenue for the Group’s general hardware business also rose in tandem with the improvement in the local economy. Turnover for sandblasting services and general hardware for FY06 rose nearly twofold to $6.7M compared to $3.9M FY05.

Performance by the Group’s properties business still remains below average for FY06 as prevailing conditions for local property and property rental markets have

yet recovered sufficiently in spite of stronger economy growth in 2006. The management constantly reviews the developments of the property market and seeks expert advice on how to better deploy the properties that it holds.

PROfiT & LOSSRevenue of the Group for FY06 was $186.2M compared to $197.8M recorded in FY05, a slight decrease of 5.8%. The higher revenue in FY05 could be attributed to purchasing spurs by shipyards to stockpile their material due to the large number of orders they had received and in the face of perceived supply shortages. However they have since adjusted the purchasing pattern to take into consideration of the market supply of steel products and rising prices. In addition, lower turnover for FY06 was also due to the lower selling prices of plates and the lower gross margin of 20.1% for FY06 compared with 24.6% achieved inFY05.

Net profit after tax for FY06 reduced to $15.7M from $21.6M for FY05. The net profit margin was 8.4% compared to 10.9% of the last financial year. It is important to note that the net profit after tax for FY05 was exceptional as selling prices rose rapidly during the course of that year and part of the Group’s stocks was carried at a lower cost.

In FY06, the Group continued to derive 68% of its revenue from the local market, 26% from Asia and the rest from countries outside of Asia. The larger proportion in local sales was mainly due to sales of plates and other structural steel products to local customers involved in building rigs and marine vessels for their overseas clients. On the other hand, export sales were mainly generated by the pipes and fittings segment of the Group’s business. Today, the Group’s major operations are consolidated at its flagship building in Neythal Road. Its modern warehouse has a total gross floor area of over 30,000 square meters housing 3 double storey warehouse blocks and an attached 5 stories office block. It also has 2 other offsite storage area totaling 12,500 square meters to meet the warehousing meets of the Group and a fleet of delivery trucks and trailers to ensure timely delivery to our customers. The Group has also embarked on the construction of a warehouse extension at its Neythal Road site which will further add close to another 2,000 square meters of storage space when completed. Presently, the Group employs a work force of about 150 employees.

A n n u A L R e p o R t 2 0 0 61 0

BALAnCe SHeeTCurrent assets of the Group stood at $109.5M and were made up mainly of trade receivables and inventories with balances at $53.4M and $44.4M respectively. Trade receivables of $53.4M was only slightly lower than $55.1M for FY05 as a result of strong sales made in the 4th quarter of FY06. Inventories’ balance fell 34.1% to $44.4M in FY06 from $67.5M when compared to a year ago as a result of the Group’s initiative to run down its stock holding of plates.

Current liabilities declined over two times to $31.7M from $72.7M. This reduction arose mainly from the much lower balance of borrowings of $17.7M at the end of FY06 (FY05: $58.8M). The borrowings were essentially made up of trust receipts incurred in the normal course of business. With the plates prices experiencing considerable fluctuations during most part of FY06, the Group had exercised caution in replenishing the products while paying down trust receipts that were due. This was made possible by the positive cash flow generated from the Group’s operating activities.

Following the implementation of the various Financial Reporting Standards (‘FRS’), long term equities and bonds held by the Group are now grouped as ‘Available for sale financial assets’ and are marked to market value at the balance sheet date. Any excess of market value above costs is taken to the Fair Value Reserve account in the balance sheet.

Another significant change resulting from the amendment to the Companies Act, effective in January 2006, was the abolishment of the par value concept of shares and the elimination of the Share Premium Account. As a result, the amount in the Share Premium Account had now been consolidated into the Share Capital Account.

The strong cash inflow generated for FY06 had also allowed the Group to pay down its trust receipts and bank loans when they became due. The positive cash inflow had also enabled the Group to make the dividend payout of $7.2M for FY05 in December 2005.

CORPORATe evenTSThe Group celebrated its 60th year of founding with a host of activities on 15 November 2005. For the day, the Group was privileged that Mr Chua Tian Poh, President of Singapore Chinese Chamber of Commerce officiated at our Open House at our Neythal Road premises, an event to enable our suppliers and business associates to familiarize with the Group’s operations.

The celebration culminated in a gala dinner held at the Meritus Mandarin Hotel. The Guest of Honour for this joyous occasion was Dr Vivian Balakrishan, Minister for Community Development, Youth and Sports, and Second Minister for Trade and Industry and was attended by close to 1,000 guests consisting of both local and overseas customers, suppliers and

business associates. During the celebration, the Group announced the change of its name from Hup Seng Huat Co. Ltd to HUPSteel Limited and launched its new corporate logo. The new name and logo signified yet another chapter in the history of HUPSteel Limited and its commitment to achieve our mission of ‘Your Preferred Global Total Solution Provider of Steel Products & Services’. In conjunction with the 60th anniversary celebration, the Group also rewarded our loyal shareholders with a bonus issue ofshares of one for every five existing shares held. A total of 60.3M new shares were issued and listed on the Stock Exchange of Singapore on the 24th January 2006. The number of shares in issue hence increased from 301.5M to 361.8M at the end of this exercise.

As part of the continuous effort to review its organizational effectiveness, the Group has recently reorganized itself into 3 core divisions namely Steel Business, Business Development and Corporate Services divisions. The new organizational structure will allow the Group to stay focus in its core steel business and yet, at the same time, continue to seek new markets for its products, look out for new and exciting investment opportunities to expand and diversify its business.

LiM kiM THORChief Executive Officer

operations review

JOe LiM kiM SAnMr Joe Lim Kim San, was appointed an Executive Director of Thong Seng Metal Pte Ltd (“Thong Seng”), a wholly owned subsidiary of the Company, since 1993. His main responsibility is to assist the Group’s Chief Executive Officer in the sales and business operations of Thong Seng. Mr Lim holds a Master in Business Administration (MBA) degree.

TeO BOOn DATMr Teo Boon Dat, is the Sales Manager of the Company. Mr Teo is mainly responsible for domestic sales supplying to various industries such as engineering, trading, shipbuilding and ship repair. Mr Teo also has sales account responsibility for certain customers in Malaysia and Hong Kong. Mr Teo has close to 20 years of sales experience in the industrial hardware business and he has been instrumental in procuring certain large order term contracts from one of the largest local ship building and ship repair companies. Mr Teo joined the Company as a Sales Executive in 1983 and was promoted to Sales Manager since 1994. Mr Teo holds a G.C.E. “A” Level Certificate.

CHAi CHO LiMMr Chai Cho Lim, is the Sales Manager of the Company. Mr Chai is mainly responsible for export sales to markets spanning the South and South East Asia, Middle East and Oceania regions. Mr Chai has more than 14 years of sales experience in the industrial hardware business serving key accounts and customers in the oil and gas industry. Mr Chai joined the Company as a Senior Sales Executive in 1995 and was promoted to Sales Manager in 2001. Mr Chai holds a Bachelor of Business Administration degree (major in Marketing) from the National University of Singapore.

PHiLiP TeO LeOnG SenGMr Philip Teo, is the Marketing Manager of the Company since 2004. He is responsible for the marketing, sales and procurement of stainless steel products. His previous experiences included a 2 years’ stint in Japan and also managing an Anglo-Swedish company responsible for the SEA region. Mr. Philip Teo holds a B.Eng. (Hons) Degree from the University of Glasgow.

key management staff


THOMAS OnG HAn BOOnMr Thomas Ong Han Boon, is the Marketing Manager of Hoe Seng Huat Pte Ltd, a wholly owned subsidiary of the Company. Mr. Ong is involved in sales, marketing and procurement activities of the Company. He is also responsible for new market development and overseeing the sales and marketing team. He has been in the industrial hardware and steel business for over 36 years. Mr. Ong holds a GCE “A” Level Certificate.

LiM HOR SOOnMr Lim Hor Soon, is the Sales Manager of Thong Seng Metal Pte Ltd, a wholly owned subsidiary of the Company. His main responsibility is in sales, marketing and procurement. Mr Lim has been instrumental in maintaining strong account relationship and continuously securing the revolving supply contracts from the Keppel Group of companies over the last 20 years. Mr Lim joined the Company as a Sales Executive in 1963 and was promoted to Sales Manager since 1994.

LiM kOk wAH As the Head of Logistics, Mr Lim Kok Wah, is responsible for the logistics and warehousing function of the Group. He also assists the General Manager (Sales & Procurement) in procurement of pipe fittings to meet the customers’ various needs. He first joined the Company as the Corporate Development Manager in December 2001 and was promoted to the Head of Logistics in January 2006. Mr Lim has several years of experience in public accounting with one of the Big Four public accounting firms and internal audit experience. Mr Lim is a Certified Public Accountant (CPA) and a Certified Internal Auditor (CIA). Mr Lim holds a Bachelor of Accountancy degree (Honours) from Nanyang Technological University.

YAP CHUen kOnGMr Yap Chuen Kong, joined the Company as the Group Financial Controller. He is in charge of financial reporting, taxation, treasury, internal control systems and corporate advisory matters for the Group and the Company. He started his career with one of the Big Four public accounting firms and has since accumulated years of accounting and management experience from working in other public listed companies and private enterprises. Mr Yap graduated from Nanyang Technological University with a degree in Bachelor of Accountancy (Honours).

PeCk kiM GeeMr Peck Kim Gee, joined the Company as a Project Development Manager in 1995. His main responsibilities are assisting the Deputy Managing Director in project management, ISO, property related matters and the Group’s property business. He is also the appointed Fire Safety Manager for the Group’s warehouse. Prior to joining the Company, Mr Peck has several years of experience in public accounting. Mr Peck holds a Bachelor of Business Administration degree in Finance and a Master of Business Administration degree.

LAM CHiew SenGMr Lam Chiew Seng, is appointed as the Logistic cum Safety Manager for the Group with effect from August 2006. Mr Lam is responsible for the day-to-day operation of the Group’s logistic functions and is in charge of the Group’s safety matters. Previously, he was the Marketing Director of Pressure Products Sdn Bhd, a wholly owned subsidiary of the Company incorporated in Malaysia. Mr Lam holds a G.C.E. “O” Level Certificate.

LUCY LAZAROUS-SiMMs Lucy Lazarous-Sim is the Human Resource Manager for the Company & its group of Companies since June 2005. Prior to joining the Group, she has more than 18 years of experience in the field of Admin & Human Resource, in various industries. Ms Lazarous oversees the full spectrum of HR activities for the Group which includes policies formulation, recruitment, compensation & benefits management, performance management, training & development, industrial relations, succession planning, career management, employee communication and work life balance. Ms Lazarous holds a Diploma in Administrative Management.

nG Mei CHOOMs Ng Mei Choo, joined as Finance and Admin Manager of Pressure Products Sdn Bhd (‘Pressure Products’), a wholly owned subsidiary of the Company incorporated in Malaysia, since 2001. Her main responsibilities is to assist the Managing Director in overseeing the Company’s daily operation relating to financial reporting, taxation, secretarial, human resource and the day-to-day sales and marketing related matters. Ms Ng started her career with a Public Listed Company in Malaysia and has since accumulated years of corporate experiences. Ms Ng holds a Bachelor of Economics (Honours) degree and a Master in Accountancy from University of Malaya, Malaysia.

financial highlights

TURnOveR BY GeOGRAPHiCAL LOCATiOnS FY2006 FY2005 FY2004 FY2003 FY2002 $’000 $’000 $’000 $’000 $’000Singapore 127,406 124,019 62,556 24,341 29,393 Malaysia 21,589 28,713 23,400 20,791 7,486 Other South East Asia Countries 27,695 30,207 14,111 6,469 8,963 Other Countries 9,512 14,880 6,917 2,506 2,984 186,202 197,819 106,984 54,107 48,826

ReSULTS Of OPeRATiOn Turnover 186,202 197,819 106,984 54,107 48,826 Net profit attributable to shareholders 15,729 21,608 13,806 1,400 1,910 Earnings per share (cents) 4.35 5.98 4.58 0.47 0.64 Net asset value per share (cents) 34.77 38.30 32.38 29.50 29.29 Gross dividend per share (cents) 5.125* 3.00 1.50 0.50 0.50

* Subject to approval by shareholders

FY2006 FY2005 FY2004 FY2003 FY2002 $’000 $’000 $’000 $’000 $’000finAnCiAL POSiTiOn Property, plant and equipment 32,949 33,826 34,876 38,493 30,423 Other non-current assets 16,098 14,293 14,271 10,381 21,236Non-current assets 49,047 48,119 49,147 48,874 51,659

Current assets 109,466 142,274 78,646 45,121 45,357Current liabilities 31,710 72,678 21,507 4,477 7,858Net current assets 77,756 69,596 57,139 40,644 37,499

Non-current liabilities 988 2,218 8,729 851 1,163net assets 125,815 115,497 97,557 88,667 87,995

Share capital and Share premium 59,317 59,317 58,289 62,036 61,563Reserves 842 (1,017) - - -Retained earnings 65,656 57,163 39,173 26,542 26,313 125,815 115,463 97,462 88,578 87,876Minority interest - 34 95 89 119 125,815 115,497 97,557 88,667 87,995

1 2 A n n u A L R e p o R t 2 0 0 6


corporate governance

The Board of Directors of the Group is committed to maintaining the a high standard of corporate governance by complying

with the Code of Corporate Governance (“the Code”) reviewed by the Singapore Council on Corporate Disclosure and

Governance, whose recommendations to revise the Code have been accepted by the Government in July 2005 (“the

revised Code”).

This Report describes the Company’s corporate governance framework in place with reference to the revised Code and

the Best Practice Guide.

BOARD MATTERS

Principle 1 : The Board’s Conduct of its Affairs

The Board’s primary role is to protect and enhance long-term shareholders’ value and its’ primary functions are to establish

the corporate and strategic policies of the Group, ensures effective management leadership, proper conduct of the Group’s

businesses and to monitor the Group’s performance.

Matters which are specifically reserved for the Board include material acquisition and disposal proposals, major corporate

or financial restructuring, strategic business initiatives i.e board policies, strategies and financial objectives of the Group,

major fund raising exercises, approving nominations of directors and appointment of key executives, approval for the

release of quarterly and full year results, approval of annual audited accounts for the Group and the Directors’ Report

thereto , proposals of dividends and authorization of material interested person transactions and other significant corporate

actions.

Additionally, the Board delegates and entrusts certain of its functions and powers to Board Committees such as Executive

Committee (“EC”), Audit Committee (“AC”), Remuneration Committee (“RC”), and Nominating Committee (“NC”).

The EC comprises of Mr Lim Kim Thor (Chairman), Mr Lim Boh Chuan, Mr Lim Yee Kim and Mr Lim Beo Peng.

The EC is established principally to assist the Board in making decisions expeditiously and is mainly responsible for

planning and strategy, Group policy review, attending to urgent and important business or business of an unusual and

extraordinary nature, and any other functions delegated by the Board.

The Board comprises of members with strong business credentials, industry knowledge and from various professions

such as banking, information technology, financial and the legal profession.

The Management regularly furnishes the Board with updates concerning the changes in laws, regulations or accounting

standards where they may be applicable and relevant in enabling the Board to carry out its duties and responsibilities

properly. To facilitate the effective and efficient discharge of duties and responsibilities, the directors are provided with

extensive information on the Group’s business activities, strategic directions and policies with regular and timely updates

whenever there are any new developments.

Newly appointed directors are given briefings by the Management on the Group’s business activities, strategic directions,

policies and the regulatory environment in which it operates, as well as their statutory and other duties and responsibilities

as directors.

A n n u A L R e p o R t 2 0 0 61 4


The Board is scheduled to meet at least four times a year and where necessary, hold additional meetings to address

significant issues that may arise. The attendance of the directors at Board and Board committees meetings is as follow.

Board Meeting

Executive Committee

Audit Committee

Remuneration Committee

Nominating Committee

Held Attend Held Attend Held Attend Held Attend Held Attend

Tang See Chim(1) 5 5 - - 4 4 2 2 1 1

Lim Kim Thor 5 5 8 8 - - 2 2 - -

Lim Boh Chuan 5 5 8 8 - - - - - -

Lim Yee Kim 5 5 8 7 - - - - - -

Lim Eng Chong 5 4 - - - - 2 2 1 1

Lim Puay Koon 5 4 - - 4 3 - - - -

Lim Beo Peng 5 5 8 8 - - - - - -

Ong Kian Min(2) 5 5 - - 4 4 2 2 1 1

(1) Mr Tang See Chim was appointed as the Chairman of the NC on 29th July 2005 and stepped down as Chairman of the RC. Mr Tang remains as a

member of the RC.

(2) Mr Ong Kian Min was appointed as the Chairman of the RC and a member of the AC and NC on 29th July 2005.

Principle 2 : Board’s Composition and Balance

The Board of Directors comprises 8 directors, 2 of whom are independent non-executive and 2 of whom are non

independent and non-executive. To comply with the recommendation of The Code with regard to one third of the Board

being independent, the Board will continue to actively look for suitable candidates to be appointed as Independent

Directors.

The NC reviews the independence of each director annually. At each annual general meeting, one-third of the directors are

subject to retirement by rotation. However, the Chief Executive Officer shall not while he continues to hold that office be

subject to retirement by rotation. Directors who have attained the age of 70 and above are subject to annual retirement

and re-appointment in accordance with Section 153(6) of the Companies Act, Cap. 50.

Key information about the directors is detailed in the “Board of Directors” section.

The NC is of the view that there is a good balance between the executive and non-executive directors and a strong

independent element on the Board to enable an objective judgment of the corporate affairs of the Group by board

members.

The Board is also of the opinion that its current size and current mix of expertise and experience of its members, as

a group, provide core competencies in areas such as accounting and finance, business and management experience,

industry knowledge necessary in the discharge of its duties and responsibilities. The Board, through the NC, examines on

an on-going basis the size and the composition of the Board to evaluate whether the Board is effective in carrying out its

duties.



Principle 3 : Role of Chairman and Chief Executive Officer

Mr Tang See Chim is the Non Executive Chairman of the Board of Directors while Mr Lim Kim Thor is the Chief Executive

Officer of the Group.

The Chairman is responsible for board proceedings in the best interests of the Group. The Chairman ensures that the Board

members work together with the Management and that the Board engages Management in constructive discussions on

various matters, including strategic issues and business planning processes.

The Chief Executive Officer (‘CEO’) bears executive responsibility for the Group’s business. The CEO oversees the daily

running of the Group’s operations and is responsible to execute strategies and policies adopted by the Board.

Principle 4 : Board membership

The NC is made up of members all of whom are non-executive and the majority of whom are independent. The NC, which

meets at least once every financial year, comprises three members namely:

Tang See Chim (Chairman- Independent non-executive)

Ong Kian Min (Independent non-executive)

Lim Eng Chong (Non Independent and non-executive)

The NC has adopted its terms of reference that describes the responsibilities of its members. The NC is responsible for

the identification and selection of new directors. The NC make recommendations to the Board on all Board appointments,

review all nominations and re-nominations having regard to directors’ contributions and past performance (eg. Attendance,

preparedness, participation and candour), to assess the effectiveness of the Board as a whole. The NC also determines

annually whether or not a director is independent.

In considering the appointment of any new director, the NC ensures that the new director possesses the necessary skills,

knowledge and experience that could facilitate the Board in the making of sound and well-considered decisions.

The directors submit themselves for re-nomination and re-election at regular intervals. Under the Articles of Association

of the Company, at each Annual General Meeting 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 greater than one-third) shall retire from office by rotation, provided that

no director holding office as Chief Executive Officer shall be subject to retirement by rotation or to be taken into account

in determining the number of directors to retire.

The NC has recommended for re-election of Mr Lim Beo Peng as director of the company pursuant to Article 88 at the

forthcoming AGM. The NC has also recommended the re-appointment of Mr Tang See Chim as director of the company

according to section 153(6) of the Companies Act, Cap 50 at the forthcoming AGM. The Board has accepted the NC’s

recommendation and the two retiring directors have offered themselves for re-election.

The structure, size and composition of the Board are reviewed periodically by the NC to ensure relevance.

A n n u A L R e p o R t 2 0 0 61 6


Principle 5 : Board Performance

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 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 FY2006, 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.

Principle 6 : Access to Information

The Board has separate and independent access to the Management. Requests for information from the Board are dealt

with promptly. The Board is informed of all material events and transactions as and when they occur.

The company secretary attends all board meetings and is responsible for ensuring that board procedures are followed.

REMUNERATION MATTERS

Principle 7 : Procedures for Developing Remuneration PoliciesPrinciple 8 : Level and Mix of RemunerationPrinciple 9 : Disclosure on Remuneration

The RC, which meets at least once every financial year, comprises of 4 directors, of which 2 are independent, 1 non

executive and 1 executive.

The composition of the RC is as follows:-

Ong Kian Min (Chairman- Independent non-executive director)

Tang See Chim (Independent non-executive director)

Lim Kim Thor (Chief Executive Officer)

Lim Eng Chong (Non-independent and non-executive)

The RC carried out their duties in accordance with the written Terms of Reference. The primary objective of the RC are

to make recommendations to the Board on the Group’s framework of remuneration for directors and key executives and

to determine specific remuneration packages for all the executive directors. The RC is also responsible for administering

the Company’s Employee Stock Options Scheme. The RC is chaired by an independent non-executive director and the

committee has access to expert advice inside and outside the Group for knowledge on executive compensation.



The RC’s recommendations are made in consultation with the Chairman of the Board and are submitted for endorsement

by the entire Board. The RC takes into account the pay and employment conditions within the industry and in comparable

companies, as well as the Company’s relative performance and the performance of the individual directors when setting

remuneration packages so as to attract, retain and motivate the directors needed to run the Group successfully. All aspects

of the remuneration, including but not limited to directors’ fees, salaries, allowances, bonuses, profit sharing incentives,

and benefits in kind are covered in the review by the RC. A proportion of the executive directors’ remuneration is linked

to performance.

Remuneration Report

Name of DirectorBase

Salary(%)

VariablePayments

(%)

OtherBenefits

(%)

Fees(%)

Total(%)

$500,000 and aboveLim Kim Thor

Lim Boh Chuan

$250,001 and $500,000

Lim Yee Kim

Below $250,000

Lim Beo PengLim Eng ChongLim Puay KoonTang See ChimOng Kian Min

24.8 68.2 5.0 2.0 10033.8 54.7 8.3 3.2 100

37.3 46.9 12.4 3.4 100

32.8 32.3 26.2 8.7 100- - - 100 100- - - 100 100- - - 100 100- - - 100 100

The Group adopts a remuneration policy for staff comprising a fixed component and a variable component. The fixed

component is in the form of a base salary. The variable component is in the form of a variable bonus that is linked to the

performance of the Group and of the individual staff. Staff appraisals are conducted once a year. The Employees’ Share

Option Scheme is another element of the variable component to align the interests of staff with that of the shareholders.

Details of options granted can be found in the Directors’ Report.

The Board is of the view that disclosure of the remuneration of key management staff who are not directors will be

detrimental to the Group’s interest because of the very competitive nature of the industry the Group operates in.

There is no employee in the Group, being an immediate family member of a director, whose remuneration exceeded

S$150,000 during the year.

A n n u A L R e p o R t 2 0 0 61 8

ACCOUNTABILITY AND AUDIT

Principle 10 : Accountability

The Board account to the shareholders through providing timely information relating to the financial and operations of the

Group as well as any issues faced by the Group regularly and as and when required through announcement releases to

the SGX-ST.

Principle 11 : Audit CommitteePrinciple 12 : Internal Controls

The AC comprises 3 directors of whom 2 are independent and 1 non executive and all members have accounting or

financial management expertise.

The composition of AC is as follows:-

Tang See Chim (Chairman- Independent non-executive director)

Lim Puay Koon (Non-independent and non-executive director)

Ong Kian Min (Independent non-executive director)

Details of the functions and responsibilities of the AC are found in the Directors Report.

The AC has full access to and co-operation from Management and it meets external and internal auditors without the

presence of Company’s Management.

With the assistance of the external and internal auditors, the AC conducts annual review of all material internal controls.

The AC is satisfied that the Group’s material internal controls are adequate.

The AC confirmed that it has undertaken a review of all non-audit services provided by the external auditors and is satisfied

that such services would not, in the AC’s opinion, affect the independence of the auditors.

Principle 13 : Internal Audit

The Group has outsourced the internal audit functions to Messrs Ernst & Young. The internal auditors undertake the

following functions and responsibilities in line with the Standards for the Professional Practice of Internal Auditing:

• review the effectiveness of the Group’s material internal controls;

• provide assurance that key business and operational risks are identified and managed;

• ensure internal controls are in place and functioning as intended; and

• ensure operations are conducted in an effective and efficient manner.

The Internal Auditor reports directly to the Chairman of the Audit Committee and make recommendations on their

findings.




COMMUNICATION WITH SHAREHOLDERS

Principle 14 : Regular, effective and fair communication with shareholders

The Board strives to ensure that all material information is disclosed to the shareholders in an adequate and timely basis.

The Board informs and communicates with shareholders through annual reports, announcement releases through SGX-

ST, advertisement of notice of meetings and at General Meetings.

Principle 15 : Greater shareholder participation

Chairmen of the EC, AC, NC and RC, or members of the respective committees standing in for them, as well as external

auditors will be present and available to address questions at General Meetings

SECURITIES TRANSACTIONS

The Company has clear policies and guidelines for dealings in the securities of the Company by Directors and employees

which are in conformity with the SGX-ST Best Practices Guide.

INTERESTED PERSON TRANSACTIONS

The Company monitors all its interested person transactions closely and all interested person transactions are subject to

review by the Audit Committee.

The aggregate value of interested person transactions entered into during the year were as follows:-

Name of interested person

Aggregate value of all interested person transactions during the

financial year under review (excluding transactions less than

$100,000 and transactions conducted under shareholders’ mandate

pursuant to Rule 920)

Aggregate value of all interested person transactions conducted under shareholders’ mandate

pursuant to Rule 920 (excluding transactions less than $100,000)

Dr Lim Kim Hock - Service $492,404 -

A n n u A L R e p o R t 2 0 0 62 0

RISK MANAGEMENT

The Group regularly reviews and improves its business and operational activities to identify areas of significant business

risk as well as take appropriate measures to control and mitigate these risks. The Group reviews all significant control

policies and procedures and highlights all significant matters to the AC and the Board. The financial risk management

objectives and policies are outlined below.

Fluctuation in industrial hardware product prices

As a stockist, the Group has to stock a wide range of structural steel products, pipes and fittings to cater to the needs

of its customers. The Group currently sources its structural steel products, pipes and fittings from global steel hardware

manufacturers. Prices of these steel products are subject to international price fluctuations of steel. Any significant

fluctuation in the price of steel will affect the Group’s cost of purchase and bottom line.

The Group, with more than 60 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, and

hedging policies to address price fluctuation risk.

Risks of political instability or economic downturn in the countries to which the Group exports

In FY2006, exports accounted for 28% of the Group’s revenue as compared to 35% in FY2005. The major countries to

which the Group currently exports to are mainly Asian countries such as Malaysia, Thailand, and Indonesia. As such, any

political instability or economic downturn in these countries will adversely affect the sales and hence profitability of the

Group.

The Group recognized the importance of market diversification and its ongoing strategy is to entrench its current market

position in ASEAN markets and to further expand beyond its existing geographical coverage.

Exposure to credit risks

The Group is exposed to credit risk of its customers. 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. However, the Group regularly reviews its exposure by way of monthly management reports, market feedbacks,

performing checks on customers’ financial status and executes necessary payment recovery measures to minimize its

credit risks.

The Group performs credit check and approval before granting credit to customers and all credit accounts are subject to

regular review. The Group imposes a credit limit and a credit term on each customer. Significant credit exceptions are

brought to the attention of the Executive Directors.

In addition, the Group is not dependant on any single customer or any single country. The Group has more than 1,000

customers based in more than 15 countries. 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$. The Group is

exposed to fluctuations in foreign exchange rates particularly as its sales and purchases are denominated in different

currencies. For FY2006, approximately 83% of its total purchases were made in US$, whilst approximately 90% of its

total sales were denominated in S$, 5% in US$ and 5% in Malaysia Ringgit (“MR”), which was pegged to US$ until

recently. 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 a case-by-case basis to

reduce its exposure. The Group also holds some US$ deposits from customer collections as a form of natural hedge.

A n n u A l R e p o R t 2 0 0 62 2

directors’ reportFor the financial year ended 30 June 2006

The directors present their report to the members together with the audited financial statements of the Company and the Group for the financial year ended 30 June 2006.

Directors

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

Mr Tang See Chim Mr Lim Kim ThorMr Lim Boh ChuanMr Lim Yee KimMr Lim Beo PengMr Lim Eng ChongDr Lim Puay KoonMr Ong Kian Min

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 object was to enable the directors of the Company to acquire benefits by means of an acquisition of shares in, or debentures of, the Company or any other body corporate other than as disclosed under “Share Options” on pages 23 and 24.

Directors’ interests in shares or debentures

(a) According to the register of directors’ shareholdings, none of the directors holding office at the end of the financial year had any interest in the share capital of the Company and related corporations, except as follows :

Holdings registered Holdings in which a director isin the name of director deemed to have an interest

At 30.06.2006 At 1.07.2005 At 30.06.2006 At 1.07.2005

THE COMPANY

(Ordinary shares)

Lim Kim Thor 19,671,360 16,392,800 95,673,600 79,728,000Lim Boh Chuan 23,168,160 19,306,800 95,529,600 79,608,000Lim Yee Kim 20,723,040 17,269,200 95,529,600 79,608,000Lim Eng Chong 12,117,600 10,098,000 95,529,600 79,608,000Lim Puay Koon 23,169,600 19,308,000 95,529,600 79,608,000Lim Beo Peng 5,462,400 4,552,000 - -

HUPSteel limited 2 3

Directors’ interests in shares and share options (continued)

(b) By virtue of section 7 of the Singapore Companies Act, all directors, except Mr Tang See Chim, Mr Ong Kian Min and Mr Lim Beo Peng, are deemed to have interests in all the ordinary shares of the wholly-owned subsidiaries held by the Group at the beginning and end of the financial year.

(c) The directors’ interests in the shares of the Company and of related corporations as at 21 July 2006 were the same as at 30 June 2006.

Directors’ contractual benefits

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

Share options

The Employees’ Share Option Scheme (“the Option Scheme”) was approved by the members of the Company at an Extraordinary General Meeting held on 24 April 1996. Details of options granted previously under the Option Scheme have been disclosed in the Directors’ Report for the respective financial years.

No options have been granted to controlling shareholders of the Company and their associates. No employee has received 5% or more of the total number of options available under the Option Scheme. No options were granted at a discount during the financial year.

Aggregate options granted to a director of the Company under the Option Scheme since the commencement of the Option Scheme to the end of financial year are as follow :

Name of director

Aggregate options granted since

commencement of scheme to 30.06.2006

Aggregate options exercised since commencement

of scheme to 30.06.2006

Aggregate options expired since

commencement of scheme to 30.06.2006

Aggregate options outstanding at

30.06.2006

Mr Lim Beo Peng 238,000 (150,000) (88,000) -


A n n u A l R e p o R t 2 0 0 62 4

Share options (continued)

At the end of the financial year, outstanding options to take up unissued shares of the Company under the Option Scheme were as follow :

Date of grant

Balance atbeginningof financial

year

Exercisedduring

financialyear

Expired/cancelled

Balanceat end offinancial

yearExercise

price Expiry date

17 November 2000 55,000 - (55,000) - $0.1770 16 November 200517 November 2001 72,000 - - 72,000 $0.1300 16 November 2006

127,000 - (55,000) 72,000

The terms of the Option Scheme are as follows :

(a) The share options granted may be exercised at any time after the first anniversary but before the expiry of the fifth anniversary of the date of grant.

(b) The shares under the Option Scheme may be exercised in full or in respect of 1,000 shares or a multiple thereof.

(c) The grantee may exercise the option by submitting to the Company a notice in the prescribed form accompanied by a remittance for the full amount of the aggregate exercise price in respect of the shares which have been exercised under the option.

(d) The persons to whom the options have been granted under the Option Scheme do not have the right to participate, by virtue of the options, in any share issue of any other Company in the Group.

During the financial year, no options were granted to take up unissued shares of the subsidiaries and no shares of the subsidiaries were issued by virtue of the exercise of an option to take up unissued shares.

At the end of the financial year, there were no unissued shares of the subsidiaries under option.

Audit Committee

The Audit Committee comprises three members, all of whom are non-executive directors (two independent). The members of the Audit Committee at the date of this report are :

Mr Tang See Chim – Independent (Chairman)Dr Lim Puay Koon – Non - ExecutiveMr Ong Kian Min – Independent

The Audit Committee carried out its functions in accordance with Section 201B(5) of the Singapore Companies Act.



Audit Committee (continued)

The Audit Committee :

(i) reviews with the external auditors, their audit plan, evaluation of the internal accounting controls, audit report and any matters which the external auditors wish to discuss, without the presence of management;

(ii) reviews with the internal auditors, their audit plan, evaluation of the internal accounting controls, audit report and any matters which the internal auditors wish to discuss, without the presence of management;

(iii) reviews the quarterly announcements and annual financial statements of the Company and the Group;

(iv) makes recommendations to the Board on the appointment of external and internal auditors and on their remunera-tions;

(v) reviews the Interested Person Transactions as defined in Chapter 9 of the Listing Manual of the Singapore Exchange Securities Trading Limited (SGX-ST) as is required by SGX-ST and ensures that the transactions were on normal commercial terms and not prejudicial to the interests of the members of the Company.

The Audit Committee held 4 meetings during the financial year.

The Audit Committee has nominated PricewaterhouseCoopers for re-appointment as auditors of the Company at the forthcoming Annual General Meeting.

Auditors

The auditors, PricewaterhouseCoopers, have expressed their willingness to accept re-appointment.

On behalf of the directors

Lim Kim Thor Lim Boh ChuanDirector Director

22 September 2006


A n n u A l R e p o R t 2 0 0 62 6

In the opinion of the directors,

(a) the financial statements of the Company and the consolidated financial statements of the Group as set out on pages 28 to 75 are drawn up so as to give a true and fair view of the state of affairs of the Company and of the Group at 30 June 2006, and of the results of the business, changes in equity of the Company and of the Group and cash flows of the Group for the financial year ended 30 June 2006; 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 directors

Lim Kim Thor Lim Boh ChuanDirector Director

22 September 2006

statement by directorsFor the financial year ended 30 June 2006


We have audited the accompanying financial statements of Hupsteel Limited set out on pages 28 to 75 for the financial year ended 30 June 2006, comprising the income statement, balance sheet and statement of changes in equity of the Company, and the consolidated financial statements of the Group. These financial statements are the responsibility of the Company’s directors. 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 plan and perform our audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the directors, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion,

(a) the accompanying financial statements of the Company and consolidated financial statements of the Group are properly drawn up in accordance with the provisions of the Companies Act, Cap 50 (“the Act”) and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the Company and of the Group as at 30 June 2006, the results and changes in equity of the Company and of the Group for the financial year ended on that date, and the cash flows of the Group for the financial year ended on that date; and

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

PricewaterhouseCoopersCertified Public Accountants

Singapore, 22 September 2006

auditors’ report TO THE MEMBERS OF HUPSTEEL LIMITED

A n n u A l R e p o R t 2 0 0 62 8

GROUP COMPANYFinancial

year ended

30June2006

Financialperiodfrom 1August

2004 to 30June 2005

Financialyear

ended30

June2006

Financialperiodfrom 1August

2004 to 30June 2005

NOTES $’000 $’000 $’000 $’000

Revenue 5 186,202 197,819 87,942 84,612Other gains 5 1,546 823 1,754 3,622Exceptional item 6 - - - 1,215

Expenses- Inventories (148,749) (149,154) (62,666) (53,132)- Employee benefits 7 (8,996) (10,489) (5,927) (7,305)- Depreciation of property, plant and equipment 21 (1,290) (1,130) (320) (269)- Other 8 (7,927) (7,985) (5,764) (4,268)- Finance 9 (957) (2,609) (321) (596)

(167,919) (171,367) (74,998) (65,570)Profit before income tax 19,829 27,275 14,698 23,879Income tax expense 10 (4,100) (5,683) (2,897) (4,622)Total profit 15,729 21,592 11,801 19,257

Attributable to :Equity holders of the Company 15,729 21,608Minority interest - (16)

Total profit 15,729 21,592

Basic earnings per ordinary share 11 4.35 cents 5.98 centsDiluted earnings per ordinary share 11 4.35 cents 5.98 cents

The accompanying notes form an integral part of these financial statements.Auditors’ report – Page 27.

income statementsFor the financial year ended 30 June 2006


GROUP COMPANY2006 2005 2006 2005

NOTES $’000 $’000 $’000 $’000Current assetsCash and cash equivalents 12 11,200 19,413 4,135 7,443Trade and other receivables 13 53,399 55,040 19,815 15,125Tax recoverable 10 230 14 - -Inventories 14 44,425 67,466 32,767 38,899Other current assets 15 212 341 77 84Amounts due from subsidiaries 16 - - 2,853 10,400

109,466 142,274 59,647 71,951Non-current assetsOther receivables 17 6 26 - 13Available-for-sale financial assets 18 11,363 9,404 9,930 8,364Investment in club membership 61 61 - -Investment in subsidiaries 19 - - 9,457 9,489Loan to a subsidiary 20 - - 34,258 34,626Property, plant and equipment 21 32,949 33,826 8,391 8,625Goodwill 22 4,630 4,630 - -Deferred income tax assets 27 38 172 - 139

49,047 48,119 62,036 61,256Total assets 158,513 190,393 121,683 133,207

Current liabilitiesTrade and other payables 23 10,238 8,822 5,197 5,774Current income tax liabilities 10 3,803 5,090 2,844 3,880Borrowings 24 17,669 58,766 2,963 19,349Due to subsidiaries – trade - - 301 5

31,710 72,678 11,305 29,008Non-current liabilitiesBorrowings 24 33 1,349 - -Provision for directors’ retirement gratuity 26 818 757 818 757Deferred income tax liabilities 27 137 112 27 -

988 2,218 845 757Total liabilities 32,698 74,896 12,150 29,765Net assets 125,815 115,497 109,533 103,442

EquityShare capital 28 59,317 30,154 59,317 30,154Share premium 28 - 29,163 - 29,163Capital reserves 29 (477) (477) 1,430 1,430Currency translation reserves 30 (598) (540) - -Fair value reserves 31 1,917 - 1,526 -Retained earnings 65,656 57,163 47,260 42,695

125,815 115,463 109,533 103,442Minority interest - 34 - -Total equity 125,815 115,497 109,533 103,442


balance sheetsAs at 30 June 2006

A n n u A l R e p o R t 2 0 0 63 0

Attributable to equity holders of the Company

Currency Fair

Share Share Capital translation value Retained Minority

Notes capital premium reserves reserves reserves earnings interest Total

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

Balance at 1 July 2005

- As previously reported 30,154 29,163 (477) (540) - 57,163 34 115,497- Effect of changes in accounting policies

adjusted prospectively 3.3 - - - - 1,247 - - 1,247- As restated 30,154 29,163 (477) (540) 1,247 57,163 34 116,744

Fair value gains on available-for-sale financial assets 31 - - - - 670 - - 670

Currency translation differences 30 - - - (84) - - - (84)Net (losses)/gains recognised directly in

equity - - - (84) 670 - - 586Net profit - - - - - 15,729 - 15,729Total recognised (losses)/gains - - - (84) 670 15,729 - 16,315

Bonus issue 28 6,031 (6,031) - - - - - -Effect of Companies (Amendment) Act

2005 28 23,132 (23,132) - - - - - -Dividends 32 - - - - - (7,236) - (7,236)Liquidation of a subsidiary - - - 26 - - (34) (8)Balance at 30 June 2006 59,317 - (477) (598) 1,917 65,656 - 125,815

Balance at 1 August 2004 30,127 29,146 (477) (507) - 39,173 95 97,557

Currency translation differences 30 - - - (33) - - (2) (35)Net losses recognised directly in equity - - - (33) - - (2) (35)

Net profit - - - - - 21,608 (16) 21,592Total recognised gains/(losses) - - - (33) - 21,608 (18) 21,557

Issue of shares 28 27 17 - - - - - 44

Dividends 32 - - - - - (3,618) (43) (3,661)Balance at 30 June 2005 30,154 29,163 (477) (540) - 57,163 34 115,497


consolidated statement of changes in equity For the financial year ended 30 June 2006


FairShare Share Capital value Retained

Notes capital premium reserves reserves earnings Total$’000 $’000 $’000 $’000 $’000

Balance at 1 July 2005- As previously reported 30,154 29,163 1,430 - 42,695 103,442- Effect of changes in accounting policies adjusted prospectively 3.3 - - - 1,044 - 1,044- As restated 30,154 29,163 1,430 1,044 42,695 104,486Fair value gains on available-for-sale

financial assets 31 - - - 482 - 482Net gains recognised directly

in equity - - - 482 - 482Net profit - - - - 11,801 11,801Total recognised gains - - - 482 11,801 12,283

Bonus issue 28 6,031 (6,031) - - - -Effect of Companies (Amendment)

Act 2005 28 23,132 (23,132) - - - -Dividends 32 - - - (7,236) (7,236)Balance at 30 June 2006 59,317 - 1,430 1,526 47,260 109,533

Balance at 1 August 2004 30,127 29,146 1,430 - 27,056 87,759Net profit - - - - 19,257 19,257Total recognised gains - - - - 19,257 19,257Issue of shares 28 27 17 - - - 44Dividends 32 - - - - (3,618) (3,618)Balance at 30 June 2005 30,154 29,163 1,430 - 42,695 103,442


statement of changes in equity - company For the financial year 30 June 2006

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Financial year ended

30 June2006

Financial period from

1 August 2004 to

30 June 2005$’000 $’000

Cash flows from operating activitiesProfit after income tax 15,729 21,592Adjustments for :

Tax 4,100 5,683Provision for directors’ retirement gratuity 61 73Property, plant and equipment - depreciation 1,290 1,130- gain on disposal to third parties (2) (5)- loss on disposal to directors of the Company - 204Loss on liquidation of a subsidiary 26 -Provision for impairment of trade receivables 572 11(Reversal)/write-down of inventories (1,509) 1,168Reversal of provision for impairment of trade receivables (331) (144)Interest income (243) (199)Interest expense 1,352 1,004Dividend income (458) (392)Foreign currency translation (107) (36)

Operating cash flow before working capital changes 20,480 30,089

Change in operating assets and liabilitiesInventories 24,550 (34,501)Trade and other receivables 1,400 (24,921)Trade and other payables 1,416 (373)Other current assets 129 (68)

Cash generated from/(used in) operations 47,975 (29,774)

Income tax paid (5,444) (3,635)Interest received 243 214Net cash from/(used in) operating activities 42,774 (33,195)


consolidated cash flow statementFor the financial year 30 June 2006


Financial year ended

30 June2006

Financial period from

1 August 2004 to30 June 2005

Note $’000 $’000Cash flows from investing activitiesProperty, plant and equipment- purchases (429) (709)- proceeds from sale 5 391Investments- purchases (42) (15)- proceeds from sale - 40Proceeds from liquidation of a subsidiary 43 -Repayment of staff loans 20 24Disbursement of staff loans - (30)Dividends received from other quoted investments 458 392Net cash from investing activities 55 93

Cash flows from financing activitiesNet proceeds from issue of shares - 44Proceeds from trust receipts 89,711 170,495Dividend paid to shareholders (7,236) (3,618)Dividend paid to minority interests - (43)Repayment of term loan (5,000) (3,500)Repayment of trust receipts (127,151) (124,289)Payments under finance lease obligations (14) (66)Interest paid (1,352) (734)Net cash (used in)/from financing activities (51,042) 38,289

Net (decrease)/increase in cash and cash equivalents (8,213) 5,187Cash and cash equivalents at beginning of the financial year 12 19,413 14,226Cash and cash equivalents at end of the financial year 12 11,200 19,413


consolidated cash flow statement (cont’d)For the financial year 30 June 2006

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These notes form an integral part of and should be read in conjunction with the accompanying financial statements.

1. General

The Company is incorporated and domiciled in Singapore and is publicly traded on the Singapore Exchange. The address of its registered office is 10 Collyer Quay #19-08 Ocean Building Singapore 049315. The address of its principal place of business is 116 Neythal Road Singapore 628603.

The principal activities of the Company consist of trading in industrial hardware and investment holding.

The principal activities of its subsidiaries are set out in Note 19 to the financial statements.

The comparatives cover a period of 11 months from 1 August 2004 to 30 June 2005 and are therefore not comparable to the full year ended 30 June 2006.

2. Significant accounting policies

2.1 Basis of preparation

The financial statements have been prepared in accordance with Singapore Financial Reporting Standards (“FRS”). The financial statements have been prepared under the historical cost convention, except as disclosed in the accounting policies below.

The preparation of financial statements in conformity with FRS requires management to exercise its judgement in the process of applying the Group’s accounting policies. It also requires the use of accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the financial year. Although these estimates are based on management’s best knowledge of current events and actions, actual results may ultimately differ from those estimates. Critical accounting estimates and assumptions used that are significant to the financial statements, and areas involving a higher degree of judgement or complexity, are disclosed in Note 4.

The Group and the Company adopted the new or revised FRS and Interpretations to FRS (INT FRS) that are applicable in the current financial year. The financial statements have been prepared and the comparatives amended as required, in accordance with the relevant transitional provisions in the respective FRS and INT FRS. The following are the new or revised FRS and INT FRS that are relevant to the Group:

FRS 1 (revised 2004) Presentation of Financial StatementsFRS 2 (revised 2004) InventoriesFRS 8 (revised 2004) Accounting Policies, Changes in Accounting Estimates and ErrorsFRS 10 (revised 2004) Events after the Balance Sheet DateFRS 16 (revised 2004) Property, Plant and EquipmentFRS 17 (revised 2004) LeasesFRS 21 (revised 2004) The Effects of Changes in Foreign Exchange RatesFRS 24 (revised 2004) Related Party DisclosuresFRS 27 (revised 2004) Consolidated and Separate Financial StatementsFRS 32 (revised 2004) Financial Instruments: Disclosure and PresentationFRS 33 (revised 2004) Earnings per ShareFRS 39 (revised 2004) Financial Instruments: Recognition and MeasurementFRS 102 Share-based PaymentsINT FRS 101 Changes in Existing Decommissioning, Restoration and Similar Liabilities

The adoption of the above new or revised FRS and INT FRS did not result in substantial changes to the Group’s accounting policies except as disclosed in Note 3.

notes to the financial statementsFor the financial year ended 30 June 2006



2. Significant accounting policies (continued)

2.2 Revenue recognition

Revenue for the Group comprises the fair value of the consideration received or receivable for the sale of goods and rendering of services, net of goods and services tax, rebates and discounts, and after eliminating sales within the Group. Revenue is recognised as follows:

(a) Saleofgoods

Revenue from sales of goods is recognised when a Group entity has delivered the products to the customer, the customer has accepted the products and collectibility of the related receivables is reasonably assured.

(b) Renderingofservices

Revenue from services is recognised over the period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be performed.

(c) Interestincome

Interest income is recognised on a time-proportion basis using the effective interest method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cashflow discounted at original effective interest rate of the instrument, and thereafter amortising the discount as interest income.

(d) Dividendincome

Dividend income is recognised when the right to receive payment is established.

(e) Rentalincome

Rental income from operating leases is recognised on a straight-line basis over the lease term.

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2.3 Group accounting

(a) Subsidiaries

Subsidiaries are entities over which the Group has power to govern the financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.

The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued or liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values on the date of acquisition, irrespective of the extent of any minority interest.

Subsidiaries are consolidated from the date on which control is transferred to the Group to the date on which that control ceases. In preparing the consolidated financial statements, intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Where necessary, adjustments are made to the financial statements of subsidiaries to ensure consistency of accounting policies with those of the Group.

Minority interest is that part of the net results of operations and of net assets of a subsidiary attributable to interests which are not owned directly or indirectly by the Group. It is measured at the minorities’ share of the fair value of the subsidiaries’ identifiable assets and liabilities at the date of acquisition by the Group and the minorities’ share of changes in equity since the date of acquisition, except when the losses applicable to the minority in a subsidiary exceed the minority interest in the equity of that subsidiary. In such cases, the excess and further losses applicable to the minority are attributed to the equity holders of the Company, unless the minority has a binding obligation to, and is able to, make good the losses. When that subsidiary subsequently reports profits, the profits applicable to the minority are attributed to the equity holders of the Company until the minority’s share of losses previously absorbed by the equity holders of the Company has been recovered.

Please refer to Note 2.6 for the Company’s accounting policy on investments in subsidiaries.

(b) Transactioncosts

Costs directly attributable to an acquisition are included as part of the cost of acquisition.




2.4 Property, plant and equipment

(a) Measurement

(i) Freehold land and buildings

Freehold land and buildings are initially recorded at cost.

Freehold land and buildings were revalued in August 1992 by an independent firm of professional valuers on the basis of open market with existing use. The Group has no fixed policy on the frequency of valuation of its property, plant and equipment and the valuation was carried out for the purpose of updating the book value of the freehold land and buildings for the initial public offering of shares of the Company.

Freehold land is subsequently stated at revalued amount less accumulated impairment losses. Buildings on freehold land are subsequently stated at the revalued amount less accumulated depreciation and accumulated impairment losses.

When an asset is revalued, any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset. The net amount is then restated to the revalued amount of the asset. Revaluation surpluses are taken to the asset revaluation reserve, unless they offset previous revaluation losses of the same asset that were taken to the income statement. Revaluation losses are taken to the income statement unless they offset previous revaluation surpluses of the same asset that were taken to the asset revaluation reserve.

(ii) Other property, plant and equipment

All other property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses (Note 2.7).

(iii) Component of costs

The cost of property, plant and equipment includes expenditure that is directly attributable to the acquisition of the items. Dismantlement, removal or restoration costs are included as part of the cost of property, plant and equipment if the obligation for dismantlement, removal or restoration is incurred as a consequence of acquiring or using the asset.

(b) Depreciation

Freehold land is not depreciated. Depreciation on other property, plant and equipment is calculated using the straight line method to allocate their depreciable amounts over their estimated useful lives. The estimated useful lives are as follows:

Useful lives

Buildings and leasehold land Shorter of 50 years and the lease term Motor vehicles 4 to 10 yearsFurniture, fittings and equipment 3 to 20 yearsPlant and machinery 3 to 20 years

The residual values and useful lives of property, plant and equipment are reviewed, and adjusted as appropriate, at each balance sheet date.

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2.4 Property, plant and equipment (continued)

(c) Subsequentexpenditure

Subsequent expenditure relating to property, plant and equipment that has already been recognised is added to the carrying amount of the asset when it is probable that future economic benefits, in excess of the standard of performance of the asset before the expenditure was made, will flow to the Group and the cost can be reliably measured. Other subsequent expenditure is recognised as an expense during the financial year in which it is incurred.

(d) Disposal

On disposal of an item of property, plant and equipment, the difference between the net disposal proceeds and its carrying amount is taken to the income statement. Any amount in revaluation reserve relating to that asset is transferred to retained earnings.

2.5 Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of subsidiaries or business units at the date of acquisition of the Group’s share of their identifiable net assets.

(a) Acquisitionspre-1July2001

Goodwill on acquisitions of subsidiaries was adjusted against capital reserves in the year of acquisition; such goodwill has not been retrospectively capitalised and amortised.

On disposal of the subsidiary, such goodwill previously adjusted against capital reserves are not recognised in the income statement.

(b) Acquisitionspost-1July2001

Goodwill on acquisitions of subsidiaries or business units is included as goodwill within non-current assets on the balance sheet. Goodwill for acquisition post 1 July 2004 is determined after deducting the Group’s share of their identifiable net assets and contingent liabilities.

From 1 July 2004, goodwill recognised within non-current assets is tested at least annually for impairment and carried at cost less accumulated impairment losses (Note 2.7).

Gains and losses on disposal of subsidiaries or business units includes the carrying amount of goodwill relating to the subsidiaries or business units sold.

2.6 Investments in subsidiaries

Investments in subsidiaries are stated at cost less accumulated impairment losses (Note 2.7) in the Company’s balance sheet. On disposal of investments in subsidiaries, the difference between net disposal proceeds and the carrying amount of the investment is taken to the income statement.




2.7 Impairment of assets

(a) Goodwill

Goodwill is tested annually for impairment, as well as when there is any indication that the goodwill may be impaired.

For the purpose of impairment testing of goodwill, goodwill is allocated to each of the Group’s cash-generating-units (CGU) expected to benefit from synergies of the business combination.

An impairment loss is recognised in the income statement when the carrying amount of CGU, including the goodwill, exceeds the recoverable amount of the CGU. Recoverable amount of the CGU is the higher of the CGU’s fair value less cost to sell and value in use.

The total impairment loss is allocated first to reduce the carrying amount of goodwill allocated to the CGU and then to the other assets of the CGU pro-rata on the basis of the carrying amount of each asset in the CGU.

Impairment loss on goodwill is not reversed in a subsequent period.

(b) Property,plantandequipment Investmentsinsubsidiaries

Property, plant and equipment and investments in subsidiaries are reviewed for impairment whenever there is any indication that these assets may be impaired. If any such indication exists, the recoverable amount (i.e. the higher of the fair value less cost to sell and value in use) of the asset is estimated to determine the amount of impairment loss.

For the purpose of impairment testing of these assets, recoverable amount is determined on an individual asset basis unless the asset does not generate cash flows that are largely independent of those from other assets. If this is the case, recoverable amount is determined for the CGU to which the asset belongs to.

If the recoverable amount of the asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount. The impairment loss is recognised in the income statement unless the asset is carried at revalued amount, in which case, such impairment loss is treated as a revaluation decrease.

An impairment loss for an asset other than goodwill is reversed if, and only if, there has been a change in the estimates used to determine the assets’ recoverable amount since the last impairment loss was recognised. The carrying amount of an asset other than goodwill is increased to its revised recoverable amount, provided that this amount does not exceed the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised for the asset in prior years. A reversal of impairment loss for an asset other than goodwill is recognised in the income statement, unless the asset is carried at revalued amount, in which case, such reversal is treated as a revaluation increase.

A n n u A l R e p o R t 2 0 0 64 0


2. Significant accounting policies (continued) 2.8 Investments in financial assets

(a) Classification

The Group classifies its investments in financial assets under loans and receivables, and available-for-sale financial assets. The classification depends on the purpose for which the assets were acquired. Management determines the classification of its financial assets at initial recognition and re-evaluates this designation at every reporting date.

(i) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. They are included in current assets, except those maturing more than 12 months after the balance sheet date. These are classified as non-current assets. Loans and receivables include trade and other receivables, amounts due from subsidiaries and loan to a subsidiary.

(ii) Available-for-sale financial assets

Available-for-sale financial assets are those intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices.

(b) Recognitionandderecognition

Purchases and sales of available-for-sale investments are recognised on trade-date – the date on which the Group commits to purchase or sell the asset. Investments are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership.

(c) Initialmeasurement

Financial assets are initially recognised at fair value plus transaction costs.

(d) Subsequentmeasurement

Available-for-sale financial assets are subsequently carried at fair value. Loans and receivables are carried at amortised cost using the effective interest method.

Unrealised gains and losses arising from changes in the fair value of investments classified as available-for-sale are recognised in the fair value reserve within equity. When investments classified as available-for-sale are sold or impaired, the accumulated fair value adjustments in the fair value reserve within equity are included in the income statement.



2. Significant accounting policies (continued) 2.8 Investments in financial assets (continued)

(e) Impairment

The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity investments classified as available for sale, a significant or prolonged decline in the fair value of the investment below its cost is considered in determining whether the investments are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from the fair value reserve within equity and recognised in the income statement. Impairment losses recognised in the income statement on equity investments are not reversed through the income statement, until the equity investments are disposed of.

2.9 Trade and other receivables

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less allowance for impairment. An allowance for impairment of trade and other receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The amount of the allowance is recognised in the income statement.

2.10 Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is taken to the income statement over the period of the borrowings using the effective interest method.

Borrowings which are due to be settled within twelve months after the balance sheet date are included in current borrowings in the balance sheet even though the original term was for a period longer than twelve months and an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the balance sheet date and before the financial statements are authorised for issue. Other borrowings due to be settled more than twelve months after the balance sheet date are included in non-current borrowings in the balance sheet.

2.11 Trade and other payables

Trade and other payables are initially measured at fair value, and subsequently measured at amortised cost, using the effective interest method.

2.12 Fair value estimation

The fair value of financial instruments traded in active markets (such as exchange-traded and over-the-counter securities) is based on quoted market prices at the balance sheet date. The quoted market price used for financial assets held by the Group is the current bid price. The carrying amount of current receivables and payables are assumed to approximate their fair values.

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2.13 Leases

(a) Whenagroupcompanyisthelessee:

Finance leases

Leases of assets in which the Group assumes substantially the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in borrowings. The interest element of the finance cost is taken to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.

Operating leases

Leases of assets in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are taken to the income statement on a straight-line basis over the period of the lease.

When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place.

(b) Whenagroupcompanyisthelessor:

Operating leases

Assets leased out under operating leases are included in property, plant and equipment. Rental income (net of any incentives given to lessees) is recognised on a straight-line basis over the lease term.

2.14 Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined on a weighted average basis. Net realisable value is the estimated selling price in the ordinary course of business, less selling expenses.

2.15 Deferred income taxes

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, if the deferred income tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.




2.16 Provisions for other liabilities and charges

Provisions are recognised when the Group has a legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount can be made.

The Group recognises the estimated costs of dismantlement, removal or restoration of items of property, plant and equipment arising from the acquisition or use of assets. This provision is estimated based on the best estimate of the expenditure required to settle the obligation, taking into consideration time value.

Changes in the estimated timing or amount of the expenditure or discount rate is adjusted against the cost of the related property, plant and equipment unless the decrease in the liability exceeds the carrying amount of the asset or the asset has reach the end of its useful life. In such cases, the excess of the decrease over the carrying amount of the asset or the changes in the liability is recognised in profit or loss immediately.

2.17 Employee benefits

(a) Definedcontributionplans

Defined contribution plans are post-employment benefit plans under which the Group pays fixed contributions into separate entities such as the Central Provident Fund, and will have no legal or constructive obligation to pay further contributions if any of the funds do not hold sufficient assets to pay all employee benefits relating to employee services in the current and preceding financial years. The Group’s contribution to defined contribution plans are recognised in the financial year to which they relate.

(b) Employeeleaveentitlement

Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave as a result of services rendered by employees up to the balance sheet date.

2.18 Currency translation

(a) Functionalandpresentationcurrency

Items included in the financial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements and income statement, balance sheet and statement of changes in equity of the Company are presented in Singapore Dollars, which is the Company’s functional and presentation currency.

(b) Transactionsandbalances

Transactions in a currency other than the functional currency (“foreign currency”) are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Currency translation gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except for currency translation differences on net investment in foreign operations.

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2.18 Foreign currency translation (continued)

(c) TranslationofGroupentities’financialstatements

The results and financial position of all the group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

(i) Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of the balance sheet;

(ii) Income and expenses for each income statement are translated at average exchange rate (unless

this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated using the exchange rates at the dates of the transactions); and

(iii) All resulting exchange differences are taken to the foreign currency translation reserve within equity.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity on or after 1 January 2005 are treated as assets and liabilities of the foreign entity and translated at the closing rate. For acquisitions prior to 1 January 2005, the exchange rates at the dates of acquisition were used.

(d) Consolidationadjustments

On consolidation, currency translation differences arising from the net investment in foreign operations are taken to the foreign currency translation reserve. When a foreign operation is disposed of, such currency translation differences are recognised in the income statement as part of the gain or loss on disposal.

2.19 Segment reporting

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that is subject to risks and returns that are different from those of segments operating in other economic environments.

2.20 Cash and cash equivalents

Cash and cash equivalents include cash on hand and deposits with financial institutions.

2.21 Share capital

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issuance of new equity instruments are taken to equity as a deduction, net of tax, from the proceeds.

2.22 Dividend

Interim dividends are recorded in the financial year in which they are declared payable. Final dividends are recorded in the financial year in which the dividends are approved by the shareholders.



3. Effects on financial statements on adoption of new or revised FRS

The effects on adoption of the following FRS in 2006 are set out below:

3.1 FRS 16 (revised 2004) Property, plant and equipment

Previously, in accordance with the requirements of FRS 16 (now superseded by FRS 16 (revised 2004)), residual values were estimated only at the date of acquisition and not subsequently increased for changes in price.

The Group has assessed the residual value of its property, plant and equipment on 1 July 2005 in accordance with the requirements of FRS 16 (revised 2004) which requires the re-measurement of the residual value of an item of property, plant and equipment at least at each financial year end (Note 2.4).

This change did not materially affect the financial statements for the year ended 30 June 2006.

3.2 FRS 27 (revised 2004) Consolidated and Separate Financial Statements

Previously, there was no requirement for the presentation of minority interests within equity. FRS 27 (revised 2004) requires minority interests to be retrospectively presented within equity of the Group.

3.3 FRS 39 (revised 2004) Financial Instruments: Recognition and Measurement and FRS 32 (revised 2004) Financial Instruments: Disclosure and Presentation

(a) Classification and consequential accounting for financial assets and financial liabilities

Previously, the Group’s investments in equity interest of other companies were stated at cost less provision for diminution in value that was other than temporary, which was charged to the income statement when it arose. Any reversal of the provision was also included in the income statement.

Under FRS 39 (revised 2004), the investments in equity interests of other companies are classified as “available-for-sale financial assets” and are initially recognised at fair value and subsequently measured at fair values at the balance sheet date with all gains and losses other than impairment loss taken to equity. Impairment losses are taken to the income statement in the period it arises. On disposal, gains and losses previously taken to equity are included in the income statement (Note 2.8).

This change was effected prospectively from 1 July 2005 and consequently affected the following balance sheet items as at 1 July 2005.

Group Company$’000 $’000

Increase in:Available-for-sale financial assets (Non- current) (Note 18) 1,247 1,044

Fair value reserve (Note 31) 1,247 1,044

The effects on the balance sheets as at 30 June 2006 are set out in Notes 3.4(a) and 3.4(b).

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3. Effects on financial statements on adoption of new or revised FRS (continued)

3.3 FRS 39 (revised 2004) Financial Instruments: Recognition and Measurement and FRS 32 (revised 2004) Financial Instruments: Disclosure and Presentation (continued)

(b) Impairment and uncollectibility of financial assets

Previously, the Group maintained a general provision against its trade and other receivables for risks that were not specifically identified to any customer. On adoption of FRS 39 (revised 2004), the Group is now required to assess at each balance sheet date if there is any objective evidence that a financial asset or group of financial assets is impaired (Note 2.8). Impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables (Note 2.9).

This change did not materially affect the financial statements for the year ended 30 June 2006.

3.4 Summary of effects on adoption of new or revised FRS on:

(a) Consolidated Balance Sheet as at 30 June 2006

Increase$’000

Description of changeFRS 39 (revised

2004)

Consolidated balance sheet items at 30 June 2006 Note 3.3(a)

Fair value reserve (Note 31) 1,917Available-for-sale financial assets (Non-current) (Note 18) 1,917

(b) Company’s Balance Sheet as at 30 June 2006

Increase$’000

Description of changeFRS 39 (revised

2004)

Company’s balance sheet items at 30 June 2006 Note 3.3(a)

Fair value reserve 1,526Available-for-sale financial assets (Non-current) 1,526



4. Critical accounting estimates and judgements

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next year are discussed below.

(a) Estimatedimpairmentofgoodwill

The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in Note 2.7. The recoverable amounts of cash- generating units have been determined based on value-in-use calculations. These calculations require the use of judgments and estimates.

(b) Estimatedimpairmentofproperty,plantandequipment

The Group tests whether property, plant and equipment have suffered any impairment, in accordance with the accounting policy stated in Note 2.7. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require use of judgments and estimates.

(c) Estimatedallowanceofinventoryobsolescence

The Group assesses annually whether any allowance is required to reflect the carrying value of inventory, in accordance with the accounting policy stated in Note 2.14. Net realisable values have been determined based on the estimated selling price in the ordinary course of business, less applicable variable selling expenses. This estimation requires the use of judgement and estimates.

(d) Estimatedallowanceforimpairmentofreceivables

The Group makes allowance for impairment of receivables based on an assessment of the recoverability of trade receivables and other receivables. Allowances for impairment of receivables are applied to trade receivables and other receivables where events or changes in circumstances indicate that the balances may not be collectible. The identification of doubtful receivables requires the use of judgement and estimates. Where the expectation is different from the original estimate, such difference will impact carrying value of receivables and the allowance for impairment of receivables in the period in which such estimate has been changed.

A n n u A l R e p o R t 2 0 0 64 8


5. Revenue and other gainsGROUP COMPANY

Financialyear

ended30 June

2006

Financialperiod from

1 August2004 to 30June 2005

Financialyear

ended30 June

2006



$’000 $’000 $’000 $’000

Sale of goods 185,101 196,777 87,496 84,194Services rendered 484 497 - -Rental income 617 545 446 418Total revenue 186,202 197,819 87,942 84,612

Other gains:

Gross dividend income from :- quoted investments 458 392 385 341- subsidiaries - - - 2,349

Gain on sale of property, plant and equipment 2 5 - -Proceeds from sales of scrap metal 292 179 202 87Management income from subsidiaries

- - 769 654Interest income from :

- fixed deposits 1 1 - -- quoted corporate bonds 189 173 189 173- others 53 25 12 2

Sundry income 551 48 197 16Other gains 1,546 823 1,754 3,622

187,748 198,642 89,696 88,234

6. Exceptional itemCOMPANY

Financialyear

ended30 June

2006



$’000 $’000

Impairment charge on investment in subsidiaries written back - 1,215



7. Employee benefits


yearended

30 June2006



Financialyear

ended30 June

2006



$’000 $’000 $’000 $’000

Wages and salaries 8,089 9,481 5,306 6,632Directors’ fees 260 311 204 257Employer’s contribution to defined contribution plans including Central Provident Fund 577 624 356 343Retirement gratuity 61 73 61 73

8,996 10,489 5,927 7,305

8. Other expenses


yearended

30 June2006



Financialyear

ended30 June

2006



$’000 $’000 $’000 $’000

Rental on operating leases 666 315 1,512 1,386Freight charges 3,372 3,787 1,712 1,393Provision for impairment of receivables 572 11 244 -Write-back of provision for impairment of

receivables (331) (144) (312) (15)Inventory write-down 56 1,207 - 118Reversal of inventory write-down (1,565) (39) (458) -Legal and professional charges 848 329 798 254Property taxes 418 337 32 30Loss on disposal of motor vehicles to directors of the Company - 204 - 204Others 3,891 1,973 2,236 898

7,927 7,985 5,764 4,268

A n n u A l R e p o R t 2 0 0 65 0


9. Finance expenseGROUP COMPANY

Financialyear

ended30 June

2006



Financialyear

ended30 June

2006



$’000 $’000 $’000 $’000

Interest expense on :- term loan 260 145 109 29- finance lease liabilities 2 3 - -- trust receipts 1,090 856 289 175

1,352 1,004 398 204Foreign exchange (gain)/loss-net (395) 1,605 (77) 392

957 2,609 321 596

10. Income taxes

Income tax expense


yearended

30 June2006



Financialyear

ended30 June

2006



$’000 $’000 $’000 $’000

Tax expense attributable to profit is made up of :Current income tax

- Singapore 3,798 5,419 2,863 4,656- Foreign 15 393 - -

3,813 5,812 2,863 4,656Deferred income tax 377 (11) 166 (34)

4,190 5,801 3,029 4,622Under/(over) provision in preceding financial years

- current income tax 128 (12) (132) -- deferred income tax (218) (106) - -

4,100 5,683 2,897 4,622



10. Income taxes (continued)

Income tax expense (continued)

The tax expense on profit differs from the amount that would arise using the Singapore standard rate of income tax due to the following :


yearended

30 June2006



Financialyear

ended30 June

2006



$’000 $’000 $’000 $’000

Profit before income tax 19,829 27,275 14,698 23,879Tax at statutory tax rate of 20% (2005 : 20%) 3,966 5,455 2,940 4,776Expenses not deductible for tax purposes 340 319 133 114Income not subject to tax (46) (8) (33) (257)Effect of different tax rate in other country 4 102 - -Singapore statutory stepped income exemption (74) (67) (11) (11)Tax charge 4,190 5,801 3,029 4,622

GROUP COMPANY2006 2005 2006 2005

$’000 $’000 $’000 $’000

Tax recoverable (230) (14) - -Current income tax liabilities 3,803 5,090 2,844 3,880

3,573 5,076 2,844 3,880

11. Earnings per share

(a) Basicearningspershare

Basic earnings per share is calculated by dividing the net profit attributable to equity holders of the Company by the weighted average number of ordinary shares outstanding during the financial year.

GROUPFinancial

yearended

30 June2006



Net profit attributable to members of HupSteel Limited ($’000) 15,729 21,608

Weighted average number of ordinary shares in issue (‘000) 361,859 361,575

Basic earnings per ordinary share (cents) 4.35 5.98

A n n u A l R e p o R t 2 0 0 65 2


11. Earnings per share (continued)

(b) Dilutedearningspershare

For the purpose of calculating diluted earnings per share, profit attributable to members of the Company and the weighted average number of ordinary shares outstanding are adjusted for the effects of all dilutive potential ordinary shares. The Company has share options which are dilutive potential ordinary shares.

A calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company’s shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options. The differences are added to the denominator as an issuance of ordinary shares for no consideration. No adjustment is made to earnings (numerator).

Fully diluted earnings per share is the same as the basic earnings per share as there is no material dilutive effect from the exercise of outstanding share options at 30 June 2006.

12. Cash and cash equivalentsGROUP COMPANY

2006 2005 2006 2005$’000 $’000 $’000 $’000

Cash and bank balances 9,851 16,829 4,135 7,443Short-term bank deposits 1,349 2,584 - -

11,200 19,413 4,135 7,443

The carrying amounts of cash and cash equivalents approximate their fair value.

Cash and cash equivalents are denominated in the following currencies :

GROUP COMPANY2006 2005 2006 2005

$’000 $’000 $’000 $’000

Singapore Dollar 9,037 13,800 3,714 5,780United States Dollar 814 2,935 421 1,663Malaysian Ringgit 1,349 2,678 - -

11,200 19,413 4,135 7,443

Short-term bank deposits at the balance sheet date have an average maturity of 8 months (2005 : 8 months) from the end of the financial year with the following weighted average effective interest rates :

GROUP2006 2005

Singapore Dollar 1.80% 1.56%Malaysian Ringgit 2.90% 2.50%



13. Trade and other receivables GROUP COMPANY

2006 2005 2006 2005$’000 $’000 $’000 $’000

Trade receivables – third parties 53,763 55,214 19,572 14,724Goods and services tax recoverable 218 529 219 464Less : Provision for impairment of receivables – third parties (637) (818) - (84)

53,344 54,925 19,791 15,104Staff loans 22 22 13 10Interest receivable 11 11 11 11Sundry receivables 22 82 - -

53,399 55,040 19,815 15,125

The Group has no concentration of credit risk with respect to trade receivables due to the Group’s large number of customers covering a large spectrum of industries.

The carrying amount of trade and other receivables approximate to their fair values.

Trade and other receivables are denominated in the following currencies :

GROUP COMPANY2006 2005 2006 2005

$’000 $’000 $’000 $’000

Singapore Dollar 45,322 35,222 16,888 13,373United States Dollar 6,782 16,547 2,927 1,752Malaysian Ringgit 1,295 3,271 - -

53,399 55,040 19,815 15,125

The weighted average effective interest rates for staff loans is disclosed in Note 17.

14. Inventories

GROUP COMPANY2006 2005 2006 2005

$’000 $’000 $’000 $’000

Finished goods 44,425 67,466 32,767 38,899

15. Other current assetsGROUP COMPANY

2006 2005 2006 2005$’000 $’000 $’000 $’000

Deposits 37 136 3 3Prepayments 175 205 74 81

212 341 77 84

The carrying amounts of deposits approximate their fair values.

A n n u A l R e p o R t 2 0 0 65 4


16. Amounts due from subsidiaries

COMPANY2006 2005

$’000 $’000Amounts due from subsidiariesTrade 1,798 9,533Non-trade 1,055 867

2,853 10,400

The non-trade amounts due from subsidiaries are unsecured, interest-free and repayable on demand.

They carrying amounts of the amounts due from subsidiaries approximate their fair value.

Amounts due from subsidiaries are denominated in the following currencies :

COMPANY2006 2005

$’000 $’000

Singapore Dollar 1,752 2,580United States Dollar 1,101 7,820

2,853 10,400

17. Other receivables – non current

GROUP COMPANY2006 2005 2006 2005

$’000 $’000 $’000 $’000

Staff loans due after 12 months 6 26 - 13

The interest rate for the staff loans are variable and pegged to the average of the prevailing 6 months fixed deposit rates of the local banks.

The carrying amount of the staff loans approximates to their fair value and are denominated in Singapore Dollars.

The weighted average effective interest rate as at balance sheet date is 0.45% (2005 : 0.45%).

These loans are repayable by April 2008.



18. Available-for-sale financial assetsGROUP COMPANY

2006 2005 2006 2005$’000 $’000 $’000 $’000

Balance at beginning of financial year - At cost less allowance for diminution in value 9,404 9,428 8,364 8,403 - Effect of adoption of FRS 39 on 1 July 2005 (Note 3.3) 1,247 - 1,044 -As restated 10,651 9,428 9,408 8,403Additions 42 15 40 -Disposals - (39) - (39)Fair value gains transferred to equity (Note 31)

670 - 482 -Balance at end of financial year 11,363 9,404 9,930 8,364

Other long-term investments as at 1 August 2004 and 30 June 2005 have been reclassified into “available-for-sale financial assets” so as to conform to the presentation adopted in 2006. Available-for-sale financial assets are measured in accordance with the accounting policy as set out in Note 2.8 only with effect from 1 July 2005.

Available-for-sale financial assets include the following:

GROUP COMPANY2006 2005 2005 2006 2005 2005

$’000 $’000 $’000 $’000 $’000 $’000

At fair value

At fair value

At cost less allowance

for diminution

in valueAt

fair valueAt

fair value

At cost less allowance

for diminution

in valueListed securities-Singapore - Equity securities 7,593 7,351 6,404 6,160 6,108 5,364 - S$ Corporate bonds 3,770 3,300 3,000 3,770 3,300 3,000 11,363 10,651 9,404 9,930 9,408 8,364

The effective interest rates for the interest-bearing financial assets were as follows:

GROUP AND COMPANY2006 2005

% %

S$ Corporate bonds 6.293 6.293

The corporate bonds are listed bonds and debentures which have maturity dates ranging from June 2011 to May 2012.

A n n u A l R e p o R t 2 0 0 65 6


19. Investment in subsidiariesCOMPANY

2006 2005$’000 $’000

Equity investments at cost 9,457 9,489

The particulars of the subsidiaries are as follows :

Name

Place ofincorporationand business

Principalactivities

Effectiveinterest

Cost of unquoted equity

investment2006 2005 2006 2005

% % $’000 $’000Held by the CompanyEastern Win Metals & Singapore Hardware and 100 100 364 364Machinery Pte Ltd@ general

merchandise andracking services

Metal House Investment Singapore Hardware trading 100 100 6,000 6,000 Pte Ltd@ property and

investment holding

Hup Seng Huat Land Pte Ltd@ Singapore Investment holding 100 100 1,050 1,050

Thong Seng Metal Pte Ltd@ Singapore Hardware trading 100 100 300 300

Pressure Products Sdn. Bhd.* Malaysia Hardware trading 100 100 1,743 1,743

Deluxe Attempt Sdn. Bhd.+ Malaysia Investment holding - 55 - 329,457 9,489

Held by subsidiaryHoe Seng Huat Pte Ltd@ Singapore Hardware trading 100 100 20,000 15,000

Sinip Steel Industries (S) Singapore Sand-blasting 100 100 1,500 1,500 Pte Ltd@

@ Audited by PricewaterhouseCoopers, Singapore* Audited by PricewaterhouseCoopers, Kuala Lumpur, Malaysia.+ Liquidated during the year.



20. Loan to a subsidiaryCOMPANY

2006 2005$’000 $’000

Loan due after 12 months 34,258 34,626

The loan to a subsidiary is unsecured, interest-free, with no fixed terms of repayment and is not expected to be repaid in the next 12 months from the balance sheet date.

The fair value of the loan is $32,627,000 (2005: $33,617,000). The fair value is computed based on the present value of the cashflows on the loan assuming the minimum maturity of 12 months, using a discount rate based upon the borrowing rate which the directors expect would be available to the Group at balance sheet date.

The loan is denominated in Singapore dollars.

21. Property, plant and equipment

Freeholdland andbuildings

$’000

Leaseholdland and buildings

$’000

Motorvehicles

$’000

Furniture,fittings andequipment

$’000

Plant andmachinery

$’000Total$’000

GROUPCost or valuationAt 1 July 2005Cost 6,520 16,965 1,282 2,229 1,824 28,820Valuation 13,900 - - - - 13,900

20,420 16,965 1,282 2,229 1,824 42,720

Exchange rate adjustments - (51) (6) (8) (2) (67)Additions - 74 52 104 240 470Disposals - - (78) (12) (1) (91)At 30 June 2006 20,420 16,988 1,250 2,313 2,061 43,032Representing :Cost 6,520 16,988 1,250 2,313 2,061 29,132Valuation 13,900 - - - - 13,900

20,420 16,988 1,250 2,313 2,061 43,032Accumulated depreciation and

accumulated impairment lossesAt 1 July 2005 5,672 1,104 628 949 541 8,894Exchange rate adjustments - (2) (6) (2) (3) (13)Depreciation charge 120 584 95 280 211 1,290Disposals - - (75) (12) (1) (88)At 30 June 2006 5,792 1,686 642 1,215 748 10,083

Net book valueAt 30 June 2006 14,628 15,302 608 1,098 1,313 32,949

A n n u A l R e p o R t 2 0 0 65 8


21. Property, plant and equipment (continued)


$’000

Leaseholdland and buildings

$’000

Motorvehicles

$’000


$’000

Plant andmachinery

$’000Total$’000

GROUPCost or valuationAt 1 August 2004Cost 6,520 16,944 2,099 1,915 1,824 29,302Valuation 13,900 - - - - 13,900

20,420 16,944 2,099 1,915 1,824 43,202

Exchange rate adjustments - (39) (3) (7) - (49)Additions - 60 145 504 - 709Disposals - - (959) (183) - (1,142)At 30 June 2005 20,420 16,965 1,282 2,229 1,824 42,720Representing :Cost 6,520 16,965 1,282 2,229 1,824 28,820Valuation 13,900 - - - - 13,900

20,420 16,965 1,282 2,229 1,824 42,720Accumulated depreciation and

accumulated impairment losses

At 1 August 2004 5,560 570 935 901 360 8,326Exchange rate adjustments - - (3) (7) - (10)Depreciation charge 112 534 70 233 181 1,130Disposals - - (374) (178) - (552)At 30 June 2005 5,672 1,104 628 949 541 8,894

Net book valueAt 30 June 2005 14,748 15,861 654 1,280 1,283 33,826





Motorvehicles


Plant andmachinery Total

$’000 $’000 $’000 $’000 $’000COMPANYCost or valuationAt 1 July 2005Cost - 804 1,486 373 2,663Valuation 8,920 - - - 8,920

8,920 -

804 -

1,48634

37352

11,58386Additions

Disposals - - (3) - (3)At 30 June 2006 8,920 804 1,517 425 11,666

Representing :Cost - 804 1,517 425 2,746

Valuation 8,920 - - - 8,9208,920 804 1,517 425 11,666

Accumulated depreciation and accumulated impairment losses

At 1 July 2005 1,894 288 612 164 2,958Depreciation charge 33 70 183 34 320Disposals - - (3) - (3)At 30 June 2006 1,927 358 792 198 3,275

Net book valueAt 30 June 2006 6,993 446 725 227 8,391

A n n u A l R e p o R t 2 0 0 66 0




Motorvehicles


Plant andmachinery Total

$’000 $’000 $’000 $’000 $’000COMPANYCost or valuationAt 1 August 2004Cost - 1,606 1,296 373 3,275Valuation 8,920 - - - 8,920

8,920 -

1,606145

1,296206

373 -

12,195351Additions

Disposals - (947) (16) - (963)At 30 June 2005 8,920 804 1,486 373 11,583

Representing :Cost - 804 1,486 373 2,663

Valuation 8,920 - - - 8,9208,920 804 1,486 373 11,583

Accumulated depreciation and accumulated impairment losses

At 1 August 2004 1,861 609 474 135 3,079Depreciation charge 33 52 155 29 269Disposals - (373) (17) - (390)At 30 June 2005 1,894 288 612 164 2,958

Net book valueAt 30 June 2005 7,026 516 874 209 8,625




(a) The properties of the Group are as follows :

Description Location Floor area Site area Tenure Years Square Square

metres metres

Warehouse with 3-storey office block annexe

6 Kim Chuan DriveSingapore

1,865 3,075 Freehold -

Warehouse with 5-storey office block annexe

116 Neythal Road Singapore

31,854 29,519 Leasehold 30 years from 2001

2- storey shophouse 359 Jalan BesarSingapore

237 142 Freehold -

2- storey shophouse 365/365A JalanBesar, Singapore

256 158 Freehold -

Office units 27 Foch Road#05-04/05/06/07Hoa Nam BuildingSingapore

128 - Freehold -

Warehouse with office block annexe

22 Benoi RoadSingapore


7-storey industrial building

38 Genting LaneSingapore

4,040 2,103 Freehold -

Single-storey terraced factory

Lot MC 0259Subang IndustrialPark, Malaysia

149 149 Leasehold 99 years from 1992

Factory Lot 1 Kawasan MIEL Phase 10 Section 23 Shah Alam, Malaysia


(b) Freehold land and freehold buildings of the Group and the Company were revalued by the directors in August 1992 based on a valuation carried out by an independent firm of professional valuers on the basis of open market value with existing use. The revaluation surplus had been transferred to asset revaluation reserve account. The Group has no fixed policy on the frequency of valuation of its property, plant and equipment and the valuation was carried out for the purpose of updating the book value of the freehold properties for the initial public offering of shares of the Company.

A n n u A l R e p o R t 2 0 0 66 2



(c) Had the revalued freehold land and freehold buildings of the Group and the Company been carried at cost less accumulated depreciation, the carrying amounts of the freehold properties would have been as follows :

GROUP COMPANY2006 2005 2006 2005

$’000 $’000 $’000 $’000

Carrying amountsFreehold land 6,863 6,863 2,363 2,363Freehold buildings 2,971 3,077 490 508

9,834 9,940 2,853 2,871

(d) Additions in the consolidated financial statements include $41,000 (2005: Nil) of plant and machinery acquired under finance leases (where the Group is the lessee).

The Group had plant and machinery under finance leases with carrying amounts of $111,000 (2005 : $70,000).

22. Goodwill

GROUP2006 2005

$’000 $’000

Goodwill arising on acquisition of business 4,630 4,630

Goodwill is allocated to the Group’s cash generating unit (“CGU”) identified as the hardware operations of its subsidiary, Hoe Seng Huat Pte Ltd.

The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations use cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using the estimated growth rates stated below. The growth rate does not exceed the long-term average growth rate for the hardware business in which the CGU operates.

Keyassumptionsusedforvalue-in-usecalculations:

Gross margin1 11%

Growth rate2 2%

Discount rate3 13%

1 Budgeted gross margin2 Weighted average growth rate used to extrapolate cash flows beyond the budget period 3 Pre-tax discount rate applied to the cash flow projections

These assumptions have been used for the analysis of the CGU. Management determined budgeted gross margin based on past performance and its expectations of the market development. The weighted average growth rates used are consistent with the forecasts included in industry reports. The discount rates used are pre-tax and reflect specific risks relating to the business.

Management does not foresee any significant changes in the key assumptions used for the value-in-use calculations that will cause the carrying amount of the CGU to be significantly in excess of its recoverable amount.



23. Trade and other payablesGROUP COMPANY

2006 2005 2006 2005$’000 $’000 $’000 $’000

Trade payables 5,676 2,768 1,809 1,199Other payables 610 296 273 163Deposits received from customers 60 49 55 46Accrued operating expenses 3,892 5,709 3,060 4,366

10,238 8,822 5,197 5,774

The carrying amounts of trade and other payables approximate their fair values.

Trade and other payables are denominated in the following currencies :

GROUP COMPANY2006 2005 2006 2005

$’000 $’000 $’000 $’000

Singapore Dollar 7,754 7,259 3,754 4,897United States Dollar 914 726 578 413Euro 832 464 832 464Malaysian Ringgit 738 373 33 -

10,238 8,822 5,197 5,774

24. BorrowingsGROUP COMPANY

2006 2005 2006 2005$’000 $’000 $’000 $’000

CurrentTerm loan 1,333 5,000 - 3,000Trust receipts 16,317 53,756 2,963 16,349Finance lease liabilities (Note 25) 19 10 - -

17,669 58,766 2,963 19,349

Non-currentTerm loan - 1,333 - -Finance lease liabilities (Note 25) 33 16 - -

33 1,349 - -

Total borrowings 17,702 60,115 2,963 19,349

(a) Securitygranted

Finance lease liabilities of the Group are secured by the rights to the leased plant and machinery (Note 21(d)), which will revert to the lessor in the event of default by the Group.

Trust receipts and term loan of subsidiaries amounting to $13,041,000 and $1,333,000 are guaranteed by the Company.

A n n u A l R e p o R t 2 0 0 66 4


24. Borrowings (continued) (b) Maturityofborrowings

The current borrowings (excludes finance lease liabilities) have an average maturity of 3 months (2005 : 9 months) from the end of the financial year.

The non-current borrowings (excluding finance leases liabilities) have the following maturity:

GROUP2006 2005

$’000 $’000

Later than one year and not later than five years - 1,333

(c) Currencyrisk

The carrying amounts of total borrowings are denominated in the following currencies :

GROUP COMPANY2006 2005 2006 2005

$’000 $’000 $’000 $’000

Singapore Dollar 16,400 6,358 2,312 3,000United States Dollar 1,274 53,548 651 16,140Euro 28 209 - 209

17,702 60,115 2,963 19,349

(d) Interestraterisks

The weighted average effective interest rates of total borrowings at the balance sheet date are as follows :

GROUP COMPANY2006 2005 2006 2005

$’000 $’000 $’000 $’000

Term loan 5.10% 3.37% - 3.13%Trust receipts 4.98% 4.00% 5.53% 3.40%Finance lease liabilities (Note 25) 3.41% 3.20% - -

(e) Carryingamountandfairvalues

The carrying amounts of current borrowings approximate their fair values. The carrying amounts and fair values of non-current borrowings are as follows :

The Group

Carrying amounts Fair values2006 2005 2006 2005

$’000 $’000 $’000 $’000

Term loan - 1,333 - 1,270Finance lease liabilities (Note 25) 33 16 33 13

33 1,349 33 1,283



24. Borrowings (continued)

(e) Carryingamountandfairvalues(continued)

The fair values are determined from the discounted cash flows analysis, using a discount rate based upon the borrowing rate which the directors expect would be available to the Group at the balance sheet date.

25. Finance lease liabilitiesGROUP

2006 2005$’000 $’000

Minimum lease payments due :- not later than one year 21 12- later than one year but not later than five years 36 16

57 28Less : Future finance charges (5) (2)Present value of finance lease liabilities 52 26

The present value of finance lease liabilities may be analysed as follows :

Not later than one year (Note 24) 19 10Later than one year but not later than five years (Note 24) 33 16

52 26

26. Provision for directors’ retirement gratuityGROUP AND COMPANY

Financialyear

ended30 June

2006



$’000 $’000

At beginning of the financial year/period 757 684

Provision made during the financial year/period 61 73

At end of the financial year/period 818 757

Retirement gratuity is available to certain directors of the Group. The retirement gratuity is calculated by reference to the length of service and remuneration of the directors.

A n n u A l R e p o R t 2 0 0 66 6


27. Deferred income taxes

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set off current income tax assets against current income tax liabilities and when the deferred income taxes relate to the same fiscal authority. The amounts, determined after appropriate offsetting, are shown in the balance sheets as follows :

GROUP COMPANY2006 2005 2006 2005

$’000 $’000 $’000 $’000

Deferred income tax assets to be recovered after one year (38) (172) - (139)

Deferred income tax liabilities to be settled after one year 137 112 27 -

99 (60) 27 (139) The movements in the deferred income tax account are as follows :


yearended

30 June2006



Financialyear

ended30 June

2006



$’000 $’000 $’000 $’000

At beginning of the financial year/period (60) 57 (139) (105)Tax charge/(credit) to :

- income statement 159 (117) 166 (34)At end of the financial year/period 99 (60) 27 (139)

The movements in the deferred income tax assets and liabilities (prior to offsetting of balances within the same tax jurisdiction) during the year/period are as follows :

The Group

Deferred income tax liabilities/(assets)

Acceleratedtax

depreciation Provisions Others Total$’000 $’000 $’000 $’000

2006At beginning of the financial year 369 (342) (87) (60)Tax charged to income statement 9 47 103 159At end of the financial year 378 (295) 16 99

Acceleratedtax


2005At beginning of the financial period 376 (303) (16) 57Tax credited to income statement (7) (39) (71) (117)At end of the financial period 369 (342) (87) (60)



27. Deferred income taxes (continued)

The Company

Deferred income tax liabilities/(assets)

Accelerated

taxdepreciation Provisions Others Total

$’000 $’000 $’000 $’0002006At beginning of the financial year 242 (309) (72) (139)Tax (credited)/charged to income statement (15) 90 91 166At end of the financial year 227 (219) 19 27

Acceleratedtax


2005At beginning of the financial period 163 (268) - (105)Tax charged/(credited) to income statement 79 (41) (72) (34)At end of the financial period 242 (309) (72) (139)

28. Share capital and share premium

<–––– No. of shares ––––> <–––––––––––––––––– Amount –––––––––––––––––– >

Authorised share

capital

Issued share

capital

Authorised share

capital

Issued share

capitalShare

premium

Total share capital

and share premium

‘000 ‘000 $’000 $’000 $’000 $’000

2006Balance at beginning of

financial year 500,000 301,549 50,000 30,154 29,163 59,317Bonus issue (see note (a)) - 60,310 - 6,031 (6,031) -Effect of Companies

(Amendment) Act 2005 (see note (b)) (500,000) - (50,000) 23,132 (23,132) -

Balance at end of financial year - 361,859 - 59,317 - 59,317

2005Balance at beginning of

financial period 500,000 301,273 50,000 30,127 29,146 59,273Issue of shares on exercise of

options - 276 - 27 17 44Balance at end of financial

period 500,000 301,549 50,000 30,154

29,163 59,317

All issued shares are fully paid.

A n n u A l R e p o R t 2 0 0 66 8


28. Share capital and share premium (continued)

(a) On 8 November 2005, the Company announced a bonus issue of shares of 1 for 5 existing shares which was subsequently approved by the SGX on the 3 January 2006. The bonus issue of 60,309,790 shares was credited as fully paid by transferring the amount of $6,030,979 from the share premium account to the share capital account. Hence the number of fully paid up shares increased from 301,549,000 to 361,858,790. These new shares were allotted and credited to the shareholders’ account and were listed on the SGX on 25 January 2006.

(b) Under the Companies (Amendment) Act 2005 that came into effect on 30 January 2006, the concepts of

par value and authorised share capital are abolished and the amount in the share premium account as of 30 January 2006 is required to become part of the Company’s share capital.

(c) Share options

At the end of the financial year, outstanding options to take up unissued shares of the Company granted to a director and eligible employees of the Company and its subsidiaries under the Option Scheme were as follows :

Exercisedduring the

Balance financial Expired/ Balance ExerciseDate of grant At 1.7.05 year cancelled At 30.6.06 price Expiry date

17 Nov 2000 55,000 - (55,000) - $0.1770 16 Nov 200517 Nov 2001 72,000 - - 72,000 $0.1300 16 Nov 2006

127,000 - (55,000) 72,000

The Option Scheme was approved by the members of the Company at the Extraordinary General Meeting held on 24 April 1996. The options were granted, pursuant to the Option Scheme, to a director and full-time confirmed employees of the Company and its subsidiaries to subscribe for ordinary shares of $0.10 each in the Company. The options granted may be exercised at any time after the first anniversary but before the expiry of the fifth anniversary of the date of the grant.

29. Capital reservesGROUP COMPANY

2006 2005 2006 2005$’000 $’000 $’000 $’000

Composition :Asset revaluation reserve 1,525 1,525 1,430 1,430Goodwill arising from consolidation (2,002) (2,002) - -

(477) (477) 1,430 1,430

The revaluation reserves arose from revaluation of freehold land and freehold building by an independent firm of professional valuers in August 1992, on basis of open market value (Note 21).



30. Currency translation reservesGROUP

2006 2005

$’000 $’000

Balance at beginning of financial year/period 540 507

Release on liquidation of a subsidiary (26) -

Net currency translation differences of financial statements of foreign subsidiaries 84 35

Minority interest - (2)

84 33

Balance at end of financial year/period 598 540

31. Fair value reserves

GROUP COMPANY2006 2005 2006 2005

$’000 $’000 $’000 $’000Balance at beginning of financial year/period- As previously reported - - - -- Effects of adoption of FRS 39 adjusted

prospectively (Note 3.3) 1,247 - 1,044 -- As restated 1,247 - 1,044 -Fair value gains on available-for- sale financial assets (Note 18) 670 - 482 -Balance at end of financial year/period 1,917 - 1,526 -

32. Dividends GROUP AND COMPANY

2006 2005$’000 $’000

Final dividend paid of 0.5 cent (2005 : 0.5 cent) per share less income tax at 20% (2005 : 20%) 1,206 1,206Special dividend paid of 2.5 cent (2005 : 1 cent) per share less income tax at 20% (2005 : 20%) 6,030 2,412

7,236 3,618

At the Annual General Meeting on 26 October 2006, a final dividend of 0.5 cent per share, a special dividend of 1.5 cents per share and a bonus dividend of 3.125 cents per share amounting to a total of $14,836,000 net of tax at 20% will be recommended. These financial statements do not reflect these dividends payable, which will be accounted for in the shareholders’ equity as an appropriation of retained earnings in the financial year ended 30 June 2007.

A n n u A l R e p o R t 2 0 0 67 0


33. Contingent liability

The Company has given a guarantee to a financial institution in respect of credit facilities granted to its subsidiary amounting to $17,500,000 (2005 : $82,200,000). The directors are of the view that no losses are expected to arise from the guarantee.

34. Commitments

(a) Operatingleasecommitments–whereagroupcompanyisalessee

At the balance sheet date, the Group has rental commitments under operating leases for leasehold properties.

The future aggregate minimum lease payments under non-cancellable operating leases contracted for at the reporting date but not recognised as liabilities, are as follows :

GROUP COMPANY2006 2005 2006 2005

$’000 $’000 $’000 $’000

Not later than one year 660 500 1,483 1,483Later than one year but not later than five

years 2,325 2,000 124 124Later than five years 7,388 7,241 - -

10,373 9,741 1,607 1,607

(b) Operatingleasecommitments–whereagroupcompanyisalessor

The future minimum lease payments receivable under non-cancellable operating leases contracted for at the reporting date but not recognised as receivables, are as follows :

GROUP COMPANY2006 2005 2006 2005

$’000 $’000 $’000 $’000

Not later than one year 398 360 391 391Later than one year but not later than five years 218 60 88 88

616 420 479 479

35. Financial risk management

The main financial risks arising from the Group’s activities are credit risk, currency risk and interest rate risk. The Board of Directors reviews and agrees policies for managing each of these risks and they are summarised below :

Credit risk

Credit risk refers to the risk that counterparties will default on their contractual obligations resulting in financial loss to the Group. The Group has no significant concentrations of credit risk. The Group has policies in place to ensure that sales of products and services are made to customers with an appropriate credit history. The Group reviews on a regular basis the exposure to credit risk and makes provisions for potential losses on credit extended when necessary. The carrying amount of each financial asset as indicated in the balance sheets represents the Group’s maximum exposure to credit risk.



35. Financial risk management (continued)

Currency risk

Currency risk arises from the change in foreign exchange rates that may have an adverse effect on the Group in the current reporting period and in the future years. The Group is exposed to foreign currency risk on sales and purchases that are denominated in currency other than Singapore Dollars, since the value denominated in other currencies will fluctuate due to changes in exchange rates. The Group is primarily exposed to foreign currency exposures in United States Dollar and Malaysian Ringgit. The Group does not have any formal policy with respect to the foreign currency exposure but monitored it on an ongoing basis.

Interest rate risk

The Group’s exposure to market risk for changes in interest rates relates primarily to the Group’s fixed deposits with the banks and bank borrowings.

36. Related party transactions

(a) In addition to the related party transactions disclosed elsewhere in the financial statements, the following significant transactions with related parties took place during the financial year on terms mutually agreed between the parties concerned :

GROUPCOMPANY

Financialyear

ended30 June

2006



Financialyear

ended30 June

2006



$’000 $’000 $’000 $’000

With subsidiaries:Sales of finished goods - - 13,142 25,210Purchases of finished goods - - 96 144Rental paid - - 1,484 1,360Rental received - - 162 201

With companies in which certain directors of the Company have substantial financial interests :

Management fees paid 73 66 - -Rental paid for office space - 19 - 19

With substantial shareholder :Consultancy fees paid 492 106 492 106

A n n u A l R e p o R t 2 0 0 67 2


36. Related party transactions (continued)

(b) Key management personnel compensation

Key management personnel compensation is as follows:


yearended

30 June2006



Financialyear

ended30 June

2006



$’000 $’000 $’000 $’000

Salaries and other short-term employee benefits

3,908 5,106 3,279 4,498

Post-employment benefits - contribution to CPF

146 129 110 100

Retirement gratuity 61 73 61 73Gratuity paid - 180 - 180

4,115 5,488 3,450 4,851

Including in above, total compensation to directors of the Group and Company amounted to $2,801,000 and $2,573,000 respectively (2005: $4,093,000 and $3,991,000).

37. Group segment information

The Group has two business segments operating in two geographical areas, Singapore and Malaysia. Singapore is the home country of the Company.

The business segments are as follows:

Hardware trading - sale of industrial hardware products.

Property investment - rental of properties.

The geographical segments are as follows:

Singapore - the Company is headquartered and has operations in Singapore. The operations in this area are hardware trading and property investment.

Malaysia - the operations in this area are principally hardware trading.

The segment information has been compiled using a consistent basis. The division of the group’s revenue, results and assets and liabilities into geographical and business segments has been ascertained by reference to direct identification to each particular segment. Inter-segment transactions are determined on an arm’s length basis.



37. Group segment information (continued)

Primary reporting format - geographical segments.

Singapore Malaysia Total$’000 $’000 $’000

Financial year ended 30 June 2006REVENUETotal revenue 181,631 5,064 186,695Inter-segment sales (493) - (493)External sales 181,138 5,064 186,202

RESULTSegment result 20,501 68 20,569Interest expense (957)Interest income 243Loss on disposal of subsidiary (26)Income tax expense (4,100)Profit attributable to shareholders 15,729

OTHER INFORMATIONSegment assets 153,032 5,213 158,245Tax assets 268Total assets 158,513Segment liabilities 28,053 705 28,758Tax liabilities 3,940Total liabilities 32,698

Capital expenditure 468 2 470

Depreciation of property, plant and equipment 1,238 52 1,290

A n n u A l R e p o R t 2 0 0 67 4



Primary reporting format - geographical segments

Singapore Malaysia Total$’000 $’000 $’000

Financial period from 1 August 2004 ended 30 June 2005

REVENUETotal revenue 197,164 14,819 211,983Inter-segment sales (14,163) (1) (14,164)External sales 183,001 14,818 197,819

RESULTSegment result 28,331 1,354 29,685Interest expense (2,609)Interest income 199Income tax expense (5,683)Profit attributable to shareholders 21,592

OTHER INFORMATIONSegment assets 178,428 11,779 190,207Tax assets 186Total assets 190,393Segment liabilities 69,320 374 69,694Tax liabilities 5,202Total liabilities 74,896

Capital expenditure 598 111 709

Depreciation of property, plant and equipment 1,081 49 1,130

Revenue from sales to external customers based on location of customers for each customer-based geographical segment is as follows :

Financialyear

ended30 June

2006



$’000 $’000

Singapore 127,406 124,019Malaysia 21,589 28,713Other South East Asian countries 27,695 30,207Other countries 9,512 14,880

186,202 197,819




Secondary reporting format - business segments

HardwareProperty

investment Total$’000 $’000 $’000

Financial year ended 30 June 2006REVENUEExternal sales 185,585 617 186,202OTHER INFORMATIONTotal assets 126,289 32,224 158,513Capital expenditure 268 202 470

Financial period from 1 August 2004 to 30 June 2005REVENUEExternal sales 197,274 545 197,819OTHER INFORMATIONTotal assets 157,564 32,829 190,393Capital expenditure 641 68 709

38. New accounting standards and FRS interpretations

Certain new accounting standards and interpretations have been published that are mandatory for accounting periods beginning on or after 1 January 2006. The Group does not expect that adoption of these accounting standards or interpretations will have a material impact on the Group’s financial statements for the financial year ended 30 June 2006.

39. Event occurring after balance sheet date

On 29 August 2006, the Company announced a renounceable non-underwritten rights issue of up to 90,482,698 new ordinary shares of the Company at an issue price of S$0.10 for each rights share, on the basis of 1 rights share for every 4 shares held by entitled shareholders.

40. Approval of financial statements

These financial statements were authorised for issue in accordance with a resolution of the Board of Directors of HUPSTEEL LIMITED on 22 September 2006.

A n n u A l R e p o R t 2 0 0 67 6

TWENTY LARGEST SHAREHOLDERS AS AT 11 SEPTEMBER 2006

NAME OF SHAREHOLDER NO. OF SHARES %

1 HENNFA INVESTMENTS PTE LTD 95,529,600 26.402 LIM PUAY KOON 23,169,600 6.403 LIM BOH CHUAN 23,168,160 6.404 LIM YEE KIM 20,723,040 5.735 LIM KIM THOR 19,671,360 5.446 LIM KIM HOCK 18,162,720 5.027 ESTATE OF LIM PIT HONG @ LIM GEOK HONG, DECEASED 15,579,360 4.318 LIM ENG CHONG 12,117,600 3.359 ESTATE OF LIM BOON WAN, DECEASED 11,738,880 3.2410 UNITED OVERSEAS BANK NOMINEES PTE LTD 10,814,480 2.9911 LIM BEO PENG 5,462,400 1.5112 DBS NOMINEES PTE LTD 4,424,520 1.2213 SIN TIEN SENG PTE LTD 2,880,000 0.8014 PHILLIP SECURITIES PTE LTD 2,669,060 0.7415 OCBC NOMINEES SINGAPORE PTE LTD 2,424,560 0.6716 LIM KOK TIONG 2,335,200 0.6517 LIM KOK SENG 2,211,600 0.6118 LIM HAN LEONG 2,062,800 0.5719 TAN AH HUAT 1,455,200 0.4020 KIM ENG SECURITIES PTE. LTD. 1,338,480 0.37

TOTAL: 277,938,620 76.81

Note 1:Under the Companies (Amendment) set 2005 that come into affection 30 January 2006, the concepts of par value and authorised share capital are abolished and the amount in the share premium account as of 30 January 2006 is required to become part of the Company’s share capital.

DISTRIBUTION OF SHAREHOLDERS BY SIZE OF SHAREHOLDINGS AS AT 11 SEPTEMBER 2006

Issued and fully paid up capital : S$59,318,4811

Class of shares : Ordinary sharesVoting rights : One vote per share

SIZE OF SHAREHOLDINGSNO. OF

SHAREHOLDERS % NO. OF SHARES %

1 - 999 422 5.30 157,559 0.041,000 - 10,000 5,774 72.50 21,623,271 5.9810,001 - 1,000,000 1,747 21.94 61,059,100 16.871,000,001 and above 21 0.26 279,018,860 77.11

Total 7,964 100.00 361,858,790 100.00

shareholders’ informationAs at 11 September 2006


SUBSTANTIAL SHAREHOLDERS(As recorded in the Register of Substantial Shareholders)

Direct Interest % Deemed Interest %

Hennfa Investments Pte Ltd 95,529,600 26.40 - -Lim Puay Koon 23,169,600 6.40 95,529,600 26.40Lim Boh Chuan 23,168,160 6.40 95,529,600 26.40Lim Yee Kim 20,723,040 5.73 95,529,600 26.40Lim Kim Thor 19,671,360 5.44 95,673,600 26.44Lim Kim Hock 18,162,720 5.02 95,529,600 26.40Estate of Lim Pit Hong @ Lim Geok Hong, Deceased

15,579,360 4.31 95,529,600 26.40

Lim Eng Chong 12,117,600 3.35 95,529,600 26.40Estate of Lim Boon Wan, Deceased 11,738,880 3.24 95,529,600 26.40Machotech Pte Ltd - - 95,529,600 26.40Pey Choi - - 95,529,600 26.40

Notes: 1. The late Mr Lim Boon Wan was the father of Messrs Lim Kim Hock, Lim Kim Thor and Lim Eng Chong. The late

Mr Lim Boon Wan was the uncle of the late Mr Lim Pit Hong and Mr Lim Yee Kim. He was also the grand uncle of Messrs Lim Boh Chuan and Lim Puay Koon.

2. Messrs Lim Boh Chuan and Lim Puay Koon are brothers. Messers Lim Boh Chuan and Lim Puay Koon together hold

21.74% of the voting shares in Hennfa Investments Pte Ltd. By virtue of Section 7 of the Companies Act, Lim Boh Chuan and Lim Puay Koon are deemed to have an interest in the shares of the Company held by Hennfa Investments Pte Ltd

3. Hennfa Investments Pte Ltd (“Hennfa”) is an investment holding company which is 23.5% owned by Machotech Pte

Ltd (“Machotech”). Machotech is a business management and consultancy services company owned by Messers Lim Yee Kim and Pey Choi equally. Pey Choi is the spouse of Lim Yee Kim. Machotech is thus deemed interested in the shares of Hennfa. The other shareholders of Hennfa are Pit Hong Holdings Pte. Ltd. (“Pit Hong”), Lim Kim Thor, Lim Kim Hock, Lim Eng Chong, Lim Boh Chuan, Lim Puay Koon. Pit Hong is an investment holding company which is held equally by Estate of Lim Pit Hong@Lim Geok Hong, Lim Beo Peng, Lim Han Leong and Lim Kok Seng.

4. Mr Lim Yee Kim and the late Mr Lim Pit Hong are brothers. As such, by virtue of Section 7 of the Companies Act, the late Mr Lim Pit Hong is considered an associate of Mr Lim Yee Kim and is deemed to have an interest in the shares of the Company held by Hennfa Investments Pte Ltd by virtue of the fact that Mr Lim Yee Kim has a deemed interest in Hennfa Investments Pte Ltd through his shareholding in Machotech Pte Ltd (as indicated in note 4 above).

PERCENTAGE OF SHAREHOLDING IN PUBLIC’S HANDS

28.65% of the Company’s shares are held in the hands of public. Accordingly, the Company has complied with Rule 723 of the Listing Manual of the SGX-ST.

shareholders’ informationAs at 11 september 2006

A n n u A l R e p o R t 2 0 0 67 8

NOTICE IS HEREBY GIVEN that the Thirteenth Annual General Meeting of HUPSteel Limited (“the Company”) will be held at 116 Neythal Road Singapore 628603 on Thursday, 26 October 2006 at 2.30 p.m. for the following purposes:

AS ORDINARY BUSINESS

1. To receive and adopt the Directors’ Report and the Audited Financial Statements of the Company for the financial year ended 30 June 2006 together with the Auditors’ Report thereon. (Resolution 1)

2. To declare a first and final dividend of 0.5 cent less income tax at 20% for the financial year ended 30 June 2006. (2005: 0.5 cent) (Resolution 2)

3. To declare a special dividend of 1.5 cents less income tax at 20% for the financial year ended 30 June 2006. (2005: 2.5 cents) (Resolution 3)

4. To declare a bonus cash dividend of 3.125 cents less income tax at 20% for the financial year ended 30 June 2006. [See Explanatory Note (i)] (Resolution 4)

5. To re-elect the following Director retiring pursuant to Article 88 of the Company’s Articles of Association:

Lim Beo Peng (Resolution 5)

6. To pass the following resolution pursuant to Section 153(6) of the Companies Act, Cap. 50:-

“That pursuant to Section 153(6) of the Companies Act, Cap. 50, Mr Tang See Chim who is over seventy years of age be re-appointed as Director of the Company to hold office until the next Annual General Meeting.” (Resolution 6)

Mr Tang See Chim will, upon re-election as a Director of the Company, remain as Chairman of the Nominating and Audit Committees and a member of the Remuneration Committee. He is considered independent for the purpose of Rule 704(8) of the Listing Manual of Singapore Exchange Securities Trading Limited (“SGX-ST”).

7. To re-appoint Messrs PricewaterhouseCoopers as the Company’s Auditors and to authorise the Directors to fix their remuneration. (Resolution 7)

8. 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 resolutions 8 and 9 as Ordinary Resolutions, with or without any modifications:

9. Payment of directors’ fees for the financial year ended 30 June 2006 - Ordinary Resolution “That the payment of Directors’ fees of S$204,600 for the financial year ended 30 June 2006 be approved.” (2005:

S$257,150). [See Explanatory Note (ii)] (Resolution 8)

notice of thirteenth annual general meeting

HUPSTEEL LIMITEDCompany Registration Number: 197301452D(Incorporated in Singapore with Limited Liability)


10. Authority to allot and issue shares up to 50 per centum (50%) of issued share capital – Ordinary Resolution

That pursuant to Rule 806 of the Listing Manual of the Singapore Exchange Securities Trading Limited, the Directors be empowered to allot and issue shares and convertible securities in the capital of the Company at any time and upon such terms and conditions and for such purposes as the Directors may, in their absolute discretion, deem fit provided that the aggregate number of shares (including shares to be issued in accordance with the terms of convertible securities issued, made or granted pursuant to this Resolution) to be allotted and issued pursuant to this Resolution shall not exceed fifty per centum (50%) of the issued share capital of the Company at the time of the passing of this Resolution, of which the aggregate number of shares and convertible securities to be issued other than on a pro rata basis to all shareholders of the Company shall not exceed twenty per centum (20%) of the issued share capital of the Company and that such authority shall, unless revoked or varied by the Company in general meeting, continue in force (i) until the conclusion of the Company’s next Annual General Meeting or the date by which the next Annual General Meeting of the Company is required by law or the Bye-laws of the Company to be held, whichever is earlier or (ii) in the case of shares to be issued in accordance with the terms of convertible securities issued, made or granted pursuant to this Resolution, until the issuance of such shares in accordance with the terms of such convertible securities. [See Explanatory Note (iii)] (Resolution 9)

By Order of the Board

Tan Cher LiangJulie Koh Ngin JooSecretariesSingapore, 2 October 2006

Explanatory Notes:

(i) Ordinary Resolution 4: Bonus Cash Dividend

The Company has released an announcement on Proposed Bonus Cash Dividend and Rights Issue to the SGX-ST on 29 August 2006 outlining the following exercises to be undertaken by the Company:-

a) a bonus cash dividend for the financial year ended 30 June 2006 (“FY2006”) of 3.125 cents less tax of 20% (or 2.5 cents net) (“Bonus Dividend”) per ordinary share of the company (“Share”) to be declared and paid to shareholders of the Company (“Shareholders”) as at a books closure date to announced by the Company (“Books Closure Date”) in proportion to their respective shareholdings of the Company; and

b) a proposed renounceable non-underwritten rights issue of up to 90,482,698 new ordinary shares of the company (“Rights Shares”) at an issue price of S$0.10 for each rights share (“Issue Price”), on the basis of one(1) Rights Share for every four (4) Shares held by Entitled Shareholders as at the Books Closure Date, fractional entitlements to be disregarded and availability of option to elect to utilize Net Bonus Dividend to subscribe for rights shares (“Rights Issue”).

Rationale:

Bonus Dividend. The purpose of the Bonus Dividend is to reward Shareholders with a bonus cash dividend and allow the Company to pass on its tax credits under Section 44A of the Income Tax Act (Cap. 134) of Singapore to Shareholders. At the same time, the Bonus Dividend will provide Entitled Shareholders with an option to re-invest their Net Bonus Dividend by subscribing for the Rights Shares.

Rights Issue. The Rights Issue has been proposed to strengthen the capital base of the Company following the payment of the Net Bonus Dividend. Together with the Bonus Dividend, the Rights Issue will in effect transform a portion of the Company’s retained earnings into permanent share capital.


A n n u A l R e p o R t 2 0 0 68 0

Approvals:

a) The Bonus Dividend is subject to the approval of the Shareholders at the Annual General Meeting (“AGM”).b) The directors of the Company propose to issue the Rights Shares out of the general share issue mandate

resolution (Resolution 9 of this Notice) (“Share Issue Mandate”) under Section 161 of the Companies Act, Chapter 50, of Singapore, to be put forth for approval by Shareholders at the AGM.

c) The Rights Issue is subject to the in-principle approval of SGX-ST for the listing of and quotation for the Rights Shares on the Official List of the SGX-ST and the lodgment of the Offer Information Statement with the Monetary Authority of Singapore (“MAS”). An application has been made by the Company to obtain the SGX-ST’s approval for the listing of and quotation for the Rights Share. The Offer Information Statement will be lodged with the MAS and dispatched to Entitled Shareholders in due course after in-principle approval of the SGX-ST is obtained.

(ii) The Ordinary Resolution 8 proposed in item 9 above on Directors’ fees is considered as a special business in accordance with the Company’s Articles of Association.

(iii) The Ordinary Resolution 9 proposed in item 10 above, if passed, will empower the Directors from the date of the above Meeting until the date of the next Annual General Meeting, or the date by which the next Annual General Meeting is required by law to be held or when varied or revoked by the Company in general meeting, whichever is earlier, to allot and issue shares and convertible securities in the Company. The number of shares and convertible securities that the Directors may allot and issue under this Resolution would not exceed fifty per centum (50%) of the issued capital of the Company at the time of the passing of this resolution. For issue of shares and convertible securities other than on a pro rata basis to all shareholders, the aggregate number of shares and convertible securities to be issued shall not exceed twenty per centum (20%) of the issued capital of the Company. For the purpose of this resolution, the percentage of issued capital is based on the Company’s issued capital at the time this proposed Ordinary Resolution is passed after adjusting for (a) new shares arising from the conversion of convertible securities or employee share options on issue when this proposed Ordinary Resolution is passed and (b) any subsequent consolidation or subdivision of shares.

Notes:

1. A Member entitled to attend and vote at the Annual General Meeting (the “Meeting”) is entitled to appoint a proxy to attend and vote in his/her/its stead. A proxy need not be a Member of the Company.

2. If the appointor is a corporation, the instrument appointing a proxy must be executed under seal or the hand of its duly authorized officer or attorney.

3. The instrument appointing a proxy must be deposited at the Registered Office of the Company at 10 Collyer Quay #19-08 Ocean Building Singapore 049315 not less than 48 hours before the time appointed for holding the Meeting.

NOTICE OF BOOKS CLOSUREFIRST & FINAL AND SPECIAL DIVIDENDS

NOTICE IS HEREBY GIVEN that the Share Transfer Books and Register of Members of HUPSteel Limited (the “Company”) will be closed on 6 November 2006 to determine shareholders’ entitlement to the first & final dividend of 0.5 cent less income tax at 20% and the special dividend of 1.5 cents less income tax at 20% income tax and for the preparation of dividend warrants.

Duly completed registrable transfers received by the Company’s Share Registrar, Tricor Barbinder Share Registration Services, 8 Cross Street #11-00, PWC Building, Singapore 048424 up to 5.00 p.m. on 3 November 2006 will be registered to determine shareholders’ entitlements to the said dividend. Members whose Securities Accounts with The Central Depository (Pte) Limited are credited with shares at 5.00 p.m. on 3 November 2006 will be entitled to the proposed dividends.

Payment of the dividend, if approved by the members at the Thirteenth Annual General Meeting to be held on 26 October 2006 will be made on 22 November 2006.


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HUPSTEEL LIMITEDCompany Registration Number: 197301452D(Incorporated in Singapore with Limited Liability)

PROXY FORM(Please see notes overleaf before completing this Form)

I/We,

of

being a member/members of HUPSteel 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 him/her, the Chairman of the Meeting as my/our proxy/proxies to vote for me/us on my/our behalf at the Thirteenth Annual General Meeting (the “Meeting”) of the Company to be held on Thursday, 26 October 2006 at 2.30 p.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.

(Please indicate your vote “For” or “Against” with a tick [√] within the box provided.)

No. Resolutions relating to: For Against1 Directors’ Report and Audited Financial Statements for the financial year ended 30 June

2006.2 Payment of proposed first and final dividend.3 Payment of proposed special dividend.4 Payment of proposed cash bonus dividend.5 Re-election of Mr Lim Beo Peng as Director under Article 88 of the Company’s Articles of

Association.6 Re-election of Mr Tang See Chim as Director pursuant to Section 156(3) of the Companies

Act, Cap. 50.7 Re-appointment of PricewaterhouseCoopers as Auditors.8 Approval of Directors’ fees amounting to S$204,600 for the financial year ended 30 June

2006.9 Authority to allot and issue new shares.

Dated this day of 2006

Total number of Shares in: No. of Shares

(a) CDP Register

Signature of Shareholder(s) (b) Register of Members

or, Common Seal of Corporate Shareholder

IMPORTANT:

1. For investors who have used their CPF monies to buy HUPSteel 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. The instrument appointing a proxy or proxies must be deposited at the registered office of the Company at 10 Collyer Quay #19-08 Ocean Building Singapore 049315 not less than 48 hours before the time appointed for the Meeting.

5. 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.

6. 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 of Singapore.

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.

Documents

HUPSteel · Business and margin for the Group’s other products like pipes, fittings and structural products remained stable throughout the financial year as a result of the robust