Our Brand Chemistry - listed companymegachem.listedcompany.com/misc/ar2003.pdf · And that’s our brand chemistry at work. Our Brand Chemistry 05. ar 03 Contents 07 Corporate Profile

Our Brand Chemistry

ar03

Professional

Engaging

Insightful

Empowering

Developing Brand Chemistry

ar 03

At MegaChem, our daily

activities centre on fulfilling our

brand promise of empowering

choice with premium market

insight and product expertise for

better results.

Specifically, we work towards

developing brand chemistry

through the consistent delivery

of our brand attributes –

Professional, Engaging, Insightful

and Empowering.

Among many other things, our

competitive pricing, high

product quality, strong technical

support, extensive network and

prompt delivery have made

MegaChem the preferred brand

among our customers.

And that’s our brand chemistry

at work.

Our Brand Chemistry

05

ar 03Contents

07 Corporate Profile

09 Chairman’s Message

11 Managing Director’s

Message

14 Board of Directors

15 Profile of Directors and

Senior Management

16 Financial Highlights

17 Corporate Governance

26 Interested Person

Transactions

27 Corporate Data

28 Directors’ Report

31 Statement by Directors

32 Auditors’ Report

33 Consolidated Income

Statement

34 Balance Sheets

35 Consolidated Statement

of Changes in Equity

36 Consolidated Cash

Flow Statement

37 Notes to Financial

Statements

71 Statistics of Shareholdings

73 Notice of Annual

General Meeting

Proxy Form

ar 03

07

Corporate Profi le

Vision

To be the leading one-stop supplier ofspecialty chemicals,providing totalsolutions with insight

Mission

To meet our clients’specialty chemicalneeds with innovativesolutions and valuecreation, strengthenedby industryknowledge, marketintelligence andexpertise

Background

Incorporated in 1988, Megachem is a one-

stop specialty chemical solutions provider,

with a global presence in Singapore,

Malaysia, Indonesia, Thailand, the Philippines,

Shanghai, Guangzhou and the United

Kingdom.

We distribute and sell over 800 different

types and grades of specialty chemicals that

span a wide range of applications to

industrial customers. To enhance the value

of our services to customers, we have

integrated upwards into the manufacture

of specialty chemicals which enables us to

provide solutions that are tailored to

customers’ needs. Besides developing

products according to customers’

specifications, we also manufacture our own

brand of products, which sharpens our

competitive edge in the specialty chemicals

industry.

Our extensive geographical network places

us in an advantageous position to provide

better support and quick response to the

needs of our customers. Today, we have a

global base of mainly MNC customers,

including Fuji Hunt Photographic Chemicals

Private Limited, Hitachi Chemical Asia-

Pacific, STAHL Asia Pte Ltd and the Shell

Group. They are spread across diverse

industries such as polymerisation, paint and

ink coatings, electronics, rubber and plastics

and water treatment.

We have established long term relationships

with many of our customers because of the

fine quality of our products, our timely

delivery supported by an end-to-end logistics

infrastructure, and our value added services

such as competent technical support.

Working closely with a network of more

than 200 reputable suppliers, we are able

to supply a comprehensive range of

solutions and ensure consistency in the

quality of our products. Some of our

suppliers are Bayer (South East Asia) Pte Ltd,

DuPont Textiles and Interiors (S) Pte Ltd,

Lyondell South Asia Pte Ltd, Dow Corning

Singapore Pte Ltd and Nippon Polyurethane

Industry Co., Ltd.

Riding on the wings of our experienced

management team, coupled with our strong

fundamentals and entrenched market

position, Megachem is poised to scale

greater heights and become a leading

provider of specialty chemicals in the global

market.

ar 03

09

Chairman’s Message

Dear valued shareholders,

On behalf of the Board of Directors, I am

pleased to present Megachem Limited’s

(“Megachem”) maiden annual report for

the financial year ended December 31, 2003

(“FY2003”).

It was an exciting and significant year for

Megachem in 2003. Fifteen years after we

were first established, Megachem marked

a major milestone in its history when we

became a publicly listed company on the

SGX-Sesdaq on October 17, 2003. The

warm reception to our Initial Public Offer is

a sign that the Group is winning recognition

among investors. We believe this successful

listing will serve as an important launch pad

for Megachem’s continued growth in the

years ahead.

The past year was a challenging one due

to the negative impact on business

sentiment from two major events that

occurred in the first half – the SARS Virus

outbreak and the Iraq war – which

exacerbated Asia’s already sluggish

economies. Fortunately, these events were

not prolonged and the region’s economies

started to improve in the second-half of

the year led by a recovery in the US.

Despite a difficult business environment, we

managed a respectable set of financial

results by delivering a resilient sales

performance and a firm bottomline.

This creditable performance can be

attributed to our strong leadership and

Megachem’s sound business model coupled

with its excellent reputation as a reliable one-

stop provider of specialty chemicals. These

inherent strengths enabled us to maintain

a healthy profit margin in our core

distribution business amidst an environment

of intensifying competition.

Going forward, we aim to continue

increasing the Group’s existing capabilities

by widening our geographical coverage,

strengthening our foothold in certain target

industries and building new competencies

to complement and add value to our core

businesses. We believe this is a strategy that

will ensure Megachem remains on course

to deliver continued growth in shareholder

value in the years to come.

Appreciation

To thank the new shareholders from our

Initial Public Offer who had the confidence

to invest in Megachem’s fundamentals and

growth prospects, the Board of Directors has

proposed a final dividend of 0.7 cents (less

tax) per share.

On behalf of the Board of Directors, I would

like to express our sincere thanks to all our

valued customers, suppliers and business

associates for their unwavering support and

confidence in Megachem over this past year.

To our management team and staff, I want

to extend my appreciation for the

dedication, commitment and their

contribution to the growth of our company.

With the support of everyone involved with

the Group, the Board of Directors and the

management team will continue to strive

to attain Megachem’s vision of becoming a

leading player in the global specialty

chemicals industry.

Sidney Chew Choon TeeExecutive Chairman

ar 03

Dear shareholder,

2003 will be remembered as a landmark

year in Megachem’s corporate history. Our

elevation to the status of a publicly listed

company signalled that Megachem had

finally come of age and that a new and

exciting phase of growth lies ahead for us.

I am therefore delighted to share with you

a review of our business performance for

FY2003, as well as an insight into the

strategies that we will be employing to steer

Megachem on a path of continued growth

and success in the years to come.

Review of our financial performance

Despite a challenging economic environ-

ment in FY2003, Group sales were only

down by a marginal 1.6% to S$57.7 million.

This can be mainly attributed to the diversity

that we enjoy in terms of geographical

markets as well as the industries we serve,

both of which cushioned the impact of an

unfavourable operating climate on

Megachem’s performance.

Thanks to lower operating expenses from

stringent cost containment measures, we

posted a steady net profit of S$3.2 million

for FY2003. A lower effective tax rate and

an increase in the contribution from our Thai

associated company also accounted for the

stable showing of our bottom line.

Managing Director’s Message

Review of our global operations

Overall, growth in sales from our operations

in Singapore, China and the Philippines

helped to offset a decline in sales from our

operations in Malaysia, Indonesia and UK.

The Singapore operations, which accounted

for the bulk of the Group’s sales, attained a

sales increase of 3.2% to S$31.0 million.

During the year under review, we stepped

up our efforts to pursue more business in

overseas markets such as South Asia,

through our Singapore operations. As a

result, we experienced growth in our export

business which was a key factor behind the

better performance of our Singapore

operations.

Our budding operations in China and the

Philippines made commendable progress as

we expanded our customer base in these

markets during the year. Sales from our

operations in China and the Philippines rose

38% and 62% respectively.

For various reasons, sales declined at our

Malaysia, Indonesia and UK operations.

Sales from Malaysia were a marginal 3.6%

lower to S$15.0 million due to a weaker

Malaysian Ringgit. Indonesia recorded a

substantial drop in sales of 24.3% to S$5.1

million, largely due to the closure and

relocation of two major customers to

China.

Our UK operations continued making good

progress in developing its markets in the

United Kingdom and Europe, but faced stiff

price pressures in its export business due to

the stronger British pound and Euro dollar.

With its exports to the Middle-East region

also affected by the war in Iraq, the net

result was a drop in sales of 7.3% to S$4.5

million.

Sound financial position

At the end of FY2003, we had a stronger

balance sheet with an improved cash

position of S$6.5 million, higher shareholder

equity of S$24.6 million and lower gearing

of 0.4 times. As part of our commitment to

cultivating long term relationships with

customers, we extended better credit terms

to some of our long established customers

last year. This contributed to a 12.5% rise

in third party debtors to S$14.3 million.

However, the risk of default is generally low

as many of our customers are MNCs.

Given our close working ties with customers

and ERP-based inventory management

system, the Group’s inventory level

decreased slightly while inventory turnover

stood at 92 days in FY2003.

Moving up the value chain

To realise our goal of becoming a one-stop

specialty chemicals solutions provider, we

11

ar 03

continue to work hard to add further value

to our core business of distributing specialty

chemicals. As such, we place strong emphasis

on enhancing our capabilities to manufacture

specialty chemicals that are tailored to

customers’ requirements. With a well-

equipped R&D laboratory staffed with highly

qualified chemists, we possess the technical

expertise to provide sophisticated mixing and

precision blending services to develop

solutions and provide technical support.

Our manufacturing activities are also

shaping up well. We took our manufacturing

activities to a new stage, from contract

manufacturing to the manufacturing of

proprietary products, to achieve a higher

level of integration of our businesses.

Leveraging on our in-depth product and

industry knowledge, and complemented

by our state-of-the-art laboratory and

complete manufacturing facilities, we have

developed a number of proprietary solutions

that are presently in the product evaluation

phase.

As customers emphasise on more flexibility,

efficiency and cost rationalisation, we

have positioned Megachem to ride the

outsourcing trend that has become

prevalent in today’s marketplace. This

strengthens our relationship with both

customers and suppliers as long-term

partners, providing greater sustainability to

our business.

This added capability in specialty chemicals

manufacturing and our ongoing efforts to

develop our own brand of products will

play an important role to keep us ahead

of the competition. The expansion of our

manufacturing business will also

complement and add value to our growing

distribution business and reinforce our

reputation as an integrated solutions

provider in the chemicals industry.

Investing for our future

At Megachem, we strive to achieve

unparalleled level of customer satisfaction.

This hinges on two key elements: the quality

of products as well as the standard of

services. Besides sourcing from a wide base

of reputable suppliers to ensure high

product quality, we also invest in people and

technology to deliver a world-class standard

of service.

As a customer-centric Group, our investments

in technology are driven by the changing

needs of our customers. For instance, we are

one of the first chemical companies in

Singapore to acquire an automated mobile

racking system that gives us ample space to

stock diverse products and facilitates a swift

response to customers’ requests.

We also expended significant effort and

capital to put our cutting edge IT

infrastructure in place to enhance the

Group’s capabilities and efficiency. Besides

the cost benefits and time savings from

streamlining our work processes,

implementation of an Enterprise Resource

Planning system reduces our response time

to customers and enables better logistics

management across Megachem’s offices

around the world, augmenting our service

standards. Our investments in advanced

equipment for our in-house laboratory,

coupled with high calibre chemists and

laboratory personnel, underpin our success

in the manufacture of specialty chemicals.

Going forward, we will continue to invest in

technology that gives an additional boost to

our core set of skills and expertise, increases

our efficiency and productivity levels, and

creates better value for our customers.

Solid foundation our platform forgrowth

In 2003, we embarked on a new initiative,

Business Analysis and Process Redesign

Review programme, to integrate our global

operations and create synergies to raise the

level of customer satisfaction and improve

our financial performance. In essence, we

aim to optimise our business processes to

increase our competitiveness and allow us

to take rapid advantage of future business

opportunities.

Through the implementation of this


12

ar 03

programme, our marketing activities

worldwide will be better integrated to

generate a higher level of support for our

global customer base. In addition, we are

able to enhance our purchasing power

through centralised activities, which helps

to optimise our inventory management.

We believe a review and redesign of our

internal processes will further solidify our

foundation and pave the way for smoother

execution of our growth strategies.

The right mix for growth

Given Megachem’s established track record

in the industry, complete infrastructure,

depth of technical and market knowledge

and integrated global operations, we are

well-positioned to ride the economic upturn

on the horizon.

Our defined and focused strategies are

expected to propel Megachem to a new

level of growth.

Industry and geographical diversity are

integral to the Group’s business model.

While we continue to serve a wide range of

industries, we intend to deepen our

penetration in some sectors, particularly in

the food and pharmaceutical industries

where we see tremendous growth potential.

This will enable us to enlarge our customer

base in existing markets.

To be located in close proximity to our MNC

customers is the cornerstone of our

expansion strategy. We believe that many

fast growing markets offer tremendous

potential to scale up our operations.

In China, we see vast potential for growth

and plan to tap on the rapidly growing

demand there through our subsidiaries,

which are strategically located in Shanghai

and Guangzhou. As foreign direct

investments in China continue to grow at a

rapid pace, we are poised to benefit from

the higher level of industrial production

there.

We have also observed an increasing trend

of customers expanding into Vietnam. As

such, we plan to set up a representative

office there this year as having a direct

presence would accelerate our penetration

into this market.

Besides our present markets, we have also

channelled resources to develop our export

business and have made inroads into

new markets such as the Middle East,

Bangladesh, India, Australia and South

Korea. In the coming years, we intend to

focus on the India and Australia markets

where the prospects are expected to be

promising.

As part of our continual efforts to expand

and enhance our revenue streams, we plan

to further build and refine our manufactur-

ing capabilities vertically to elevate our

standing in the industry.

We are also on the lookout for opportuni-

ties to form partnerships or collaborations

with strategic investors who can add value

to Megachem’s specialty chemicals manu-

facturing capabilities. In addition, we will

explore other avenues such as acquisitions

of complementary businesses that can drive

our Group to a higher level of growth.

Word of thanks

With our healthy balance sheet, clear

strategies for growth, strong management

commitment and the unwavering support

of our shareholders, we believe Megachem

is only at the beginning of a new and

exciting phase of growth that will ultimately

reward our loyal shareholders.

In closing, I would like to thank our

shareholders, staff, customers, suppliers,

banks and business partners for the

unwavering support they have given us over

the years. I look forward to your continued

support in our goal of making Megachem a

leading player in the global specialty

chemicals industry.

Philip Lim Yee HoeManaging Director


13

ar 03Board of Directors

From left to right: Mr Lim Yee Hoe (Managing Director), Mr Tay Swee Sze (Independent Director), Mr Chew Choon Tee(Executive Chairman), Mr Lee Bon Leong (Independent Director), Mr Tan Bock Chia (Executive Director)Not in picture: Mr Chan Choong Poh Charles (Independent Director)

ar 03Profi le of Directors andSenior Management

15

EXECUTIVE DIRECTORS

Chew Choon Tee

Mr Chew Choon Tee, the Group’s ExecutiveChairman, is one of the three founders ofMegachem. He has 19 years of experiencein the chemical industry, 14 years of whichwas with the Group. As Executive Chairman,he leads the Board in setting the Group’svision and strategic direction. In his executivefunctions, he assumes primary responsibilityfor our operations in Malaysia andIndonesia. Prior to this, he was a directorwith a local chemical distributor where hewas responsible for product development,marketing and technical matters.

Lim Yee Hoe

Mr Lim Yee Hoe, one of Megachem’s threefounders, has been with the Group for 14years and is its Managing Director. Besidesmanaging the Group and ensuring theexecution of its operations, he is primarilyresponsible for operations in Thailand, thePhilippines and UK. Mr Lim has worked inthe chemical industry for 23 years. Prior tothis, he was a Sales Manager with a localchemical distributor where he wasresponsible for overall sales of existingproducts and sourcing new products.

Tan Bock Chia

Mr Tan Bock Chia is also one of the Group’sthree founders. As an Executive Director, heis responsible for the Group’s operations inChina. Prior to this, Mr Tan worked ininsurance, real estate management andmaintenance and general trading.

NON-EXECUTIVE DIRECTORS

Chan Choong Poh Charles

Mr Chan Choong Poh Charles, anIndependent Director, is the chairman of the

Remuneration Committee and also sits onthe Audit Committee. He is presently theDeputy President and Chief OperatingOfficer of SembCorp Logistics Limited. Priorto this, Mr Chan was the General Managerof DHL International (Singapore) Pte Ltd andalso the Deputy General Manager ofSingapore Technologies Logistics Pte Ltd. Hehas also held senior positions with theMinistry of Defence.

Lee Bon Leong

Mr Lee Bon Leong, an Independent Director,is the chairman of the NominatingCommittee and also sits on the AuditCommittee. He is a practising lawyer with32 years of experience in corporate andconveyancing law. Presently, Mr Lee is theSenior Partner of Lee Bon Leong & Co andserves as a member on the Law Society ofSingapore’s Conveyancing PracticeCommittee and was appointed as one ofthe Law Society of Singapore’s repre-sentatives during the revamp of the LandTitles (Strata) Act. He is a Justice of the Peaceand a member of the Panel for theDisciplinary Committee of Enquiry PublicService Commission. Mr Lee also serves asan Independent Director on the Board ofseveral public listed companies in Singapore.

Tay Swee Sze

Mr Tay Swee Sze, an Independent Director,is the chairman of the Audit Committeeand a member of the Nominating andRemuneration Committee. He is currentlythe Managing Director of TSS Advisory PteLtd and also serves as an IndependentDirector on the Board of several public listedcompanies in Singapore. He was previouslya partner at Arthur Andersen Singapore’sGlobal Corporate Finance Division. He is amember of the Institute of Certified PublicAccountants of Singapore (“ICPAS”).

SENIOR MANAGEMENT

Lim Chin Kai

Mr Lim Chin Kai is our Corporate andInvestment Director, and is in charge of allfinancial and operational matters (excludinglogistics) of our Group. He has extensiveexperience in the fields of industrialengineering, corporate planning andmarketing. Prior to joining the Group in1997, he was the Assistant Vice-Presidentof Walden International Investment Group(S) Pte Ltd where he was responsible foridentifying and investing in companies withhigh growth potential.

Yau Thiam Hwa

Mr Yau Thiam Hwa joined the Group in 2000as the General Manager of Megachem(Shanghai) and Megachem InternationalTrading (Shanghai) before his appointmentas the Group’s Financial Controller in 2001.He has 12 years’ corporate bankingexperience with various banks doingstructuring of corporate banking products,development of local and regional corporateclient base and credit risk management. MrYau currently takes responsibility for allfinancial matters, including financial andtreasury planning, financial risk managementand investor relations. Prior to this, he workedin the Bank of Hawaii as an Assistant VicePresident (Corporate and Trade Finance).

Kwok Hwee Peng

Ms Kwok Hwee Peng joined the Group asits Group Accountant in 2002. She isresponsible for the Group’s financialreporting and was recently appointedas the Company Secretary. Prior to this,Ms Kwok was an Audit Manager atPricewaterhouseCoopers. She is a memberof the Institute of Certified PublicAccountants of Singapore (“ICPAS”).

ar 03Financial Highl ights

16

Sales ($’000)

2001 2002 2003

Net Profit ($’000)

2001 2002 2003

2001 2002 2003 2001 2002 2003

Total Assets ($’000) Shareholders’ Equity ($’000)

54,4

23

58,6

05

57,6

75

1,86

8

3,14

0

3,23

1

34,8

70

35,8

14 40,8

05

16,1

38 18,3

36

24,5

85

ar 03

17

Corporate Governance

The Directors and management of the Company are committed to maintain high standards of corporate governance in order to protect the

interests of our shareholders.

This report describes the Company’s corporate governance processes and activities.

The Board’s Conduct of its Affairs

The Board conducts regular scheduled meetings on a quarterly basis. Ad-hoc meetings will be convened when circumstances require.

The Company permits Directors to attend meetings by way of telephonic and videoconference meetings.

Details relating to the number of Board and committee meetings and the attendance of the Directors are disclosed in this Report.

In addition to its statutory duties, the Board’s principal functions are :-

1. approving the Group’s strategic plans, key operational initiatives, major investments and divestments and funding requirements;

2. approving the annual budget, reviewing the performance of the business and approving the release of the financial results of the

Group to shareholders;

3. providing guidance in the overall management of the business and affairs of the Group;

4. overseeing the processes for internal controls, risk management, financial reporting and compliance;

5. approving the recommended framework of remuneration for the Board and key executives.

All newly appointed Directors are given briefings by Management on the history and business operations and corporate governance practices

of the Group. The Company will, from time to time, arrange training for the Directors to enable them to keep pace with regulatory changes,

where changes to regulations and accounting standards have a material bearing on the Company.

Board Composition and Balance

The Board currently comprises six Directors of whom three are non-executive and independent directors. The Board is supported by various

sub-committees, namely the Executive Committee, the Remuneration Committee, the Nominating Committee and the Audit Committee.

The roles and functions of each committee are described below. The Board is able to exercise objective judgement independently from

Management and no individual or small group of individuals dominate the decisions of the Board.

The Board is of the opinion that, given the scope and nature of the Group’s operations, the present size of the Board is appropriate for

effective decision making. The profiles of each of the Directors is disclosed in this Annual Report. Accordingly, the current Board comprises

persons who, as a group, have core competencies necessary to lead and manage the Company.

ar 03

18

Chairman and Chief Executive Officer

Mr Chew Choon Tee is currently the Executive Chairman of the Board.

The Board has adopted the recommendation of the Code to have different individuals appointed as the Chairman and the Chief Executive

Officer by appointing Mr Lim Yee Hoe as the Managing Director of the Company. The Chairman and Managing Director are not related. The

Board is of the view that there is a sufficiently strong independent element on the Board to enable the independent exercise of objective

judgement on corporate affairs of the Group by members of the Board, taking into account factors such as the number of non-executive and

independent directors on the Board, as well as the size and scope of the affairs and operations of the Group.

The Chairman is responsible for, among others,

(a) scheduling meetings of the Board and setting the Board meeting agenda in consultation with the Company’s senior management;

(b) exercising control over quality, quantity and timeliness of the flow of information between Management and the Board;

(c) assisting in ensuring compliance with the Company’s guidelines on corporate governance.

Prior to the Board Meetings, all Directors are provided with board papers so that the Directors have complete and timely information to

enable them to be adequately prepared for the meeting.

Executive Committee

The Executive Committee comprises :-

Mr Chew Choon Tee (Chairman)

Mr Lim Yee Hoe (Managing Director)

Mr Tan Bock Chia (Executive Director)

Mr Lim Chin Kai (Corporate and Investment Director)

Mr Yau Thiam Hwa (Group Financial Controller)

Ms Kwok Hwee Peng (Group Accountant & Company Secretary)

The Executive Committee meets periodically to review the performance of the Company and its subsidiaries. The Executive Committee

also formulates the Group’s strategic development initiatives and provides directions for new investments and material financial and

non-financial matters.


ar 03

19

Nominating CommitteeBoard MembershipBoard Performance

To facilitate a formal and transparent process for the appointment of new Directors, the Board has formed the Nominating Committee.

The Nominating Committee comprises :-

Mr Lee Bon Leong (Committee Chairman)

Mr Tay Swee Sze (Member)

Mr Chew Choon Tee (Member)

All Nominating Committee members are independent, non-executive Directors of the Company except for Mr Chew Choon Tee who is the

Company’s Executive Chairman.

The Nominating Committee principal responsibilities are to :

(a) propose to re-nominate our Directors having regard to the Director’s contribution and performance;

(b) assess annually whether or not a Director is independent;

(c) assess whether or not a Director is able to and has been adequately carrying out his duties as a Director;

(d) propose an objective performance criteria to evaluate the Board’s performance, subject to the approval of the Board; and

(e) assess the effectiveness of the Board as a whole and the contribution by each individual Director to the effectiveness of the Board.

Each member of the Nominating Committee shall abstain from voting on any resolutions in respect of the assessment of his performance or

re-nomination as a Director.

The Nominating Committee is of the view that, despite some of the other Directors having other Board representations, the Nominating

Committee is satisfied that these Directors are able to and have adequately carried out their duties as Directors of the Company. The Board

has experienced minimal competing time commitments among its members as Board meetings are planned and scheduled well in advance

of the meeting dates.

Pursuant to the Articles of Association of the Company :-

(a) one third of the Directors shall retire from office at every Annual General Meeting; and

(b) Directors appointed during the course of the year must submit themselves for re-election at the next Annual General Meeting of

the Company.

The Nominating Committee will conduct an annual assessment of the performance of the Board as a whole in view of the complementary

and collective nature of Directors’ contributions. The Committee will be establishing objective performance criteria by which the Board’s

performance may be evaluated.


ar 03

20

Access to Information

The Board is provided with complete and adequate information prior to Board meetings and on an on-going basis. The Company circulates

copies of the Minutes of the Meetings of all Board Committees to all members of the Board to keep them informed of on-going developments

within the Group. Information provided to the Board include financial management reports, reports on performance of the Group against

the budget with notes on any significant variances, papers pertaining to matters requiring the Board’s decision, updates on key outstanding

issues, strategic plans and developments in the Group.

The Directors have separate and independent access to the Company’s senior management and the Company Secretary at all times. The

Company has in place procedures for directors to seek independent advice, where necessary, in the furtherance of their duties and at the

Company’s expense.

The Company Secretary attends all Board and Committee Meetings and is responsible for ensuring that Board procedures are followed. The

Company Secretary assists senior management in ensuring that the Company complies with rules and regulations which are applicable to

the Company.

Remuneration CommitteeProcedures for Developing Remuneration PoliciesLevel and Mix of Remuneration

The Remuneration Committee comprises :-

Mr Chan Choong Poh Charles (Chairman of Committee)

Mr Tay Swee Sze (Member)

Mr Lim Yee Hoe (Member)

The members of the Remuneration Committee are all independent non-executive Directors except for Mr Lim Yee Hoe who is the

Managing Director.

The Remuneration Committee’s principal responsibilities are to :

(a) administer the Megachem Employee Share Option Scheme (“the Scheme”). No options were granted under the Scheme during

the year 2003;

(b) review and recommend to the Board an appropriate and competitive framework of remuneration for the Board and key

executives of the Group and to ensure that it is appropriate to attract, retain and motivate them to run the Group successfully.


ar 03

21

Remuneration CommitteeProcedures for Developing Remuneration PoliciesLevel and Mix of Remuneration (cont’d)

In setting remuneration packages, Remuneration Committee takes into account the performance of the Group as well as the Directors and

key executives aligning their interests with those of shareholders and linking rewards to corporate and individual performance as well as

industry benchmarks. The review of remuneration packages takes into consideration the longer term interests of the Group. The review

covers all aspects of remuneration including salaries, fees, allowances, bonuses, options and benefits-in-kind. The Committee’s

recommendations are made in consultation with the Chairman of the Board and submitted for endorsement by the entire Board.

Non-executive directors are paid directors’ fees, subject to approval at the Annual General Meeting. Executive directors do not receive

directors’ fees.

Disclosure on Remuneration

The remuneration of Directors of the Company for FY 2003 is set out below :-

Remuneration Salary Bonus Benefits in kind FeesDirectors of the Company band % % % %

$

Mr Chew Choon Tee Band B 74% 15% 11% Nil

Mr Lim Yee Hoe Band B 73% 15% 12% Nil

Mr Tan Bock Chia Band B 70% 14% 16% Nil

Mr Chan Choong Poh Charles Band A Nil Nil Nil 100%

Mr Lee Bon Leong Band A Nil Nil Nil 100%

Mr Tay Swee Sze Band A Nil Nil Nil 100%

Remuneration of the executive directors is stipulated in their respective Service Agreements with the Company.


ar 03

22

Disclosure on Remuneration (cont’d)

The remuneration of top 5 executives of the Group for FY 2003 is set out below :-

Remuneration band No. of Executives$

Band B 0

Band A 5

Band A : Below $250,000 Band B : $250,000 to below $500,000

Accountability and Audit

In presenting the annual financial statements and announcements of financial results to shareholders, it is the aim of the Board to provide

shareholders with a balanced and understandable assessment of the Company’s and Group’s performance, position and prospects.

Management currently provides the Board with appropriately detailed management reports of the Company’s performance and position on

a periodic basis.

Audit Committee

The Audit Committee comprises :-

Mr Tay Swee Sze (Committee Chairman)

Mr Lee Bon Leong (Member)

Mr Chan Choong Poh Charles (Member)

The Audit Committee members are all independent non-executive Directors, appropriately qualified to discharge their responsibilities. The

members have had many years of experience in accounting, audit, financial management, law and business. The Board considers that the

members of the Audit Committee are appropriately qualified to discharge the responsibilities of the Audit Committee.

The Audit Committee has written terms of reference. The Audit Committee’s main functions are :-

(a) to assist the Board of Directors in the identification and monitoring of areas of significant business risks with the help of internal

and external auditors;


ar 03

23

Audit Committee (cont’d)

(b) to review the effectiveness of financial and accounting control systems and management of exposure to financial and business

risks;

(c) to review with the external and internal auditors their respective audit plans;

(d) to review the internal and external auditors’ reports and their evaluation of the Group’s system of internal controls;

(e) to recommend the appointment of auditors and to review the level of audit fees;

(f) to review the independence of the Company’s auditors on an annual basis;

(g) to review the adequacy of the internal audit function;

(h) to review the assistance given by the Company’s officers to the internal and external auditors;

(i) to review the Group’s results announcements, consolidated financial statements and other documents accompanying the same

before they are recommended to the Board for approval and/or acceptance; and

(j) to review and where appropriate, approve interested person transactions.

The Audit Committee is also authorised to investigate any matter within its terms of reference. It has full access to and the co-operation of

Management and the full discretion to invite any Director or executive officer to attend its meetings, and reasonable resources to enable it

to discharge its functions properly.

The Audit Committee will meet at least three times a year with the internal and external auditors. This is to review the adequacy of audit

arrangements, with particular emphasis on the scope and quality of their audits, and the independence and objectivity of the internal and

external auditors as well as the co-operation rendered by Management to the internal and external auditors

The Audit Committee has undertaken a review of all non-audit services provided by the auditors and in the Audit Committee’s opinion, the

provision of these services does not affect the independence of the auditors.

Internal Controls

The Group’s internal controls are designed to provide reasonable assurance with regard to the keeping of proper accounting records,

integrity and reliability of financial information, and physical safeguard of assets. The management takes into consideration the risks to

which the Group is exposed, the likelihood of occurrence and the cost of prevention while designing internal controls. However, the Board

acknowledges that no system can provide absolute assurance against the occurrence of material errors, poor judgement in decision-making,

human error, losses, fraud or other irregularities.


ar 03

24

Internal Controls (cont’d)

The AC evaluates the findings of the external and internal auditors on the Company’s internal controls annually. The Board believes that, in

the absence of any evidence to the contrary, the system of internal control maintained by the Company’s management and that was in place

throughout the financial year and up to the date of this report provides reasonable, but not absolute, assurance against material financial

misstatements or loss, and include the safeguarding of assets, the maintenance or proper accounting records, the reliability of financial

information, compliance with appropriate legislation, regulation and best practice, and the identification and containment of business risk.

Internal audit

The Company has decided to outsource its internal audit function and is in the process of appointing one.

The primary objectives of the internal audit reviews are to :-

(a) assess if adequate systems of internal controls are in place to protect the funds and assets of the Company and to control

commitment and disbursement of expenditure and other outlay and to ensure such control procedures are complied with;

(b) assess if operations of the business processes under review are conducted efficiently and effectively; and

(c) identify areas of improvement in internal control.

The internal auditors report primarily to the Chairman of the Audit Committee. The Audit Committee ensures that the internal audit

function is adequately resourced and is applied to all companies in the Group.

Communication with Shareholders

The Company ensures that timely and adequate disclosure of information on matters of material impact on the Company are made to

shareholders of the Company, in compliance with the requirements set out in the Listing Manual of the Singapore Exchange Securities

Trading Limited. In this respect, the Company announces its results to shareholders on a half-yearly basis. The Company’s financial results

are also available on the Company’s website and investors relation website, Shareinvestor.com.

Shareholder participation

At general meetings, shareholders of the Company are given the opportunity to air their views and ask Directors or Management questions

regarding the Company. The Board and Management are present at these meetings to address any questions that shareholders may have.

The external auditors are also present to assist the Board in addressing queries by shareholders.

The Articles allow a member of the Company to appoint a proxy to attend and vote at general meetings.


ar 03

25

Dealings in Securities

The Company has adopted the Singapore Exchange Securities Trading Limited’s Best Practices Guide applicable in relation to dealings in the

Company’s securities by its officers. The Company has informed its officers not to deal in the Company’s shares whilst they are in possession

of unpublished material price sensitive information and during the period commencing one month before the announcement of the Company’s

financial results and ending on the date of announcement of such financial results.

Directors’ and committees’ meetings

The number of Directors’ and other committees’ meetings and the record of attendance of each Director during the financial year ended

31 December 2003 is set out below :-

Name Board Audit Committee

No. of No. of No. of No. ofMeetings Meetings Meetings Meetings

Held Attended Held Attended

Chew Choon Tee 1 1 Na Na

Lim Yee Hoe 1 1 Na Na

Tan Bock Chia 1 1 Na Na

*Chan Choong Poh Charles 0 0 1 0

*Lee Bon Leong 0 0 1 1

*Tay Swee Sze 0 0 1 1

Note :

Na : not applicable

There were no Remuneration and Nominating Committee meetings held during the financial year ended 31 December 2003.

* The independent directors were appointed on 5 September 2003. From the time of their appointment to end of 2003, there was no

Board Meeting convened.


ar 03

26

Aggregate value of all

interested person transactions Aggregate value of all

during the financial year under interested person transactions

review (excluding transactions conducted under shareholders’

Name of interested person less than S$100,000 and mandate pursuant to Rule 920

transactions conducted (excluding transactions

under shareholders’ mandate less than S$100,000)

pursuant to Rule 920)

Transportation services rendered by Ipem

Automation Sdn. Bhd, a company owned by Nil Nil (note 1)

associates of Mr Chew Choon Tee, a director,

to Megachem Group.

Joint & several guarantee by Messrs

Chew Choon Tee, Lim Yee Hoe and

Tan Bock Chia, directors, for banking facilities

granted by Malayan Banking Berhad and Nil Nil (note 2)

United Overseas Bank (Malaysia) Bhd to

CN Chemicals Sdn Bhd (ie subsidiary of

Megachem Limited) for working capital purposes

Supply of products to Guangzhou Yuexiu Meijia

Chemical Ltd, an associate of Mr Tan Bock Chia, Nil Nil (note 3)

a director, by Megachem Group.

Note 1 : The Group has entered into interested person transactions amounting to S$372,931 and each transaction was below S$100,000

which fell outside the scope of Rule 920.

Note 2 : The Directors, Messrs Chew Choon Tee, Lim Yee Hoe and Tan Bock Chia have given personal guarantees to Malayan Banking Berhad

and United Overseas Bank (Malaysia) Bhd (the “Banks”) in consideration of the Banks agreeing to grant facilities to the Company’s subsidiary,

namely CN Chemicals Sdn Bhd. The amount of facilities utilised as at 31 December 2003 was S$1,948,913 (equivalent to RM4,301,250).

Note 3 : The Group has entered into interested person transactions amounting to S$252,920 and each transaction was below S$100,000

which fell outside the scope of Rule 920.

Interested Person Transactions

ar 03

27

Corporate Data

BOARD OF DIRECTORS : Chew Choon Tee

(Executive Chairman)

Lim Yee Hoe

(Managing Director)Tan Bock Chia

(Executive Director)


(Independent Director)

Lee Bon Leong

(Independent Director)Tay Swee Sze

(Independent Director)

EXECUTIVE COMMITTEE : Chew Choon Tee

(Committee Chairman)

Lim Yee Hoe

Tan Bock Chia

Lim Chin Kai

Yau Thiam Hwa

Kwok Hwee Peng

AUDIT COMMITTEE : Tay Swee Sze


Lee Bon Leong


REMUNERATION : Chan Choong Poh Charles

COMMITTEE (Committee Chairman)Tay Swee Sze

Lim Yee Hoe

NOMINATING COMMITTEE : Lee Bon Leong


Tay Swee Sze

Chew Choon Tee

COMPANY SECRETARIES : Foo Soon Soo

FCIS, CPA, LLB (Hons)

Kwok Hwee Peng, CPA

REGISTERED OFFICE : 132 Pioneer Road

Singapore 639588

Telephone: (65) 6863 3818

Fax: (65) 6863 2818

Website: www.megachem.com

SHARE REGISTRAR AND : Barbinder & Co. Pte Ltd

SHARE TRANSFER OFFICE 8 Cross Street #11-00

PWC Building

Singapore 048424

AUDITORS : PricewaterhouseCoopers

Certified Public Accountants

8 Cross Street #17-00

PWC Building

Singapore 048424

Partner-in-charge: Soh Kok Leong

(since financial year

ended 31 December 2000)

PRINCIPAL BANKERS : United Overseas Bank Limited

Overseas-Chinese Banking

Corporation Limited

Standard Chartered Bank

KBC Bank N.V., Singapore Branch

Citibank, N.A.

ar 03

28

Directors’ Report

The directors present their report to the members together with the audited financial statements of the Group for the financial year ended

31 December 2003 and the balance sheet of the Company at 31 December 2003.

On 11 September 2003, the Company was converted to a public limited company and changed its name from Megachem Pte Ltd to

Megachem Limited. On 17 October 2003, the Company was admitted to the official list of the Stock Exchange of Singapore Dealing and

Automated Quotation System.

Directors

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

Chew Choon Tee

Lim Yee Hoe

Tan Bock Chia

Chan Choon Poh Charles (appointed 5 September 2003)

Lee Bon Leong (appointed 5 September 2003)

Tay Swee Sze (appointed 5 September 2003)

Arrangements to enable directors to acquire shares and 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 to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate.

ar 03

29

Directors’ Report

Directors’ interests in shares and 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 shares in, or debentures of, the Company and related corporations, except as follows:

Holdings registered in Holdings in which a director is

name of director deemed to have an interest

At 1.1.2003 At 1.1.2003

or date of or date of

At At appointment, At At appointment,

21.1.2004 31.12.2003 if later 21.1.2004 31.12.2003 if later

The Company[Ordinary shares of $0.10 each

(1.1.2003: $1 each)]*

Chew Choon Tee 43,989,316 43,989,316 4,217,723 204,296 204,296 10,000

Lim Yee Hoe 41,848,592 41,848,592 4,012,469 - - -

Tan Bock Chia 21,517,883 21,517,883 2,063,148 - - -

Chan Choon Poh Charles 100,000 100,000 - - - -

Lee Bon Leong 100,000 100,000 - - - -

Tay Swee Sze 100,000 100,000 - - - -

* On 5 September 2003, the ordinary shares of $1 each was sub-divided into ordinary shares of $0.10 each.

(b) Mr Chew Choon Tee and Mr Lim Yee Hoe, who by virtue of their interests of not less than 20% of the issued capital of the

Company, are deemed to have interests in the whole of the share capital of all the subsidiaries of the Company at the beginning

and at the end of the financial year.

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.

ar 03

30

Directors’ Report

Share options

There were no options granted during the financial year to subscribe for unissued shares of the Company or its subsidiaries.

No shares have been issued during the financial year by virtue of the exercise of options to take up unissued shares of the Company or

its subsidiaries.

There were no unissued shares of the Company under option at the end of the financial year.

Auditors

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

On behalf of the directors

CHEW CHOON TEE LIM YEE HOE

Chairman Managing Director

27 February 2004

ar 03

31

Statement by Directors

In the opinion of the directors,

(a) the balance sheet of the Company and the financial statements of the Group as set out on pages 33 to 70 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 31 December 2003 and of the results of the

business, and changes in equity and cash flows of the Group for the financial year then ended; 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

CHEW CHOON TEE LIM YEE HOE

Chairman Managing Director

27 February 2004

ar 03

32

Auditors’ Reportto the members of Megachem Limited

We have audited the balance sheet of Megachem Limited and the consolidated financial statements of the Group for the financial year

ended 31 December 2003 set out on pages 33 to 70. 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 balance sheet of the Company and consolidated financial statements of the Group are properly drawn up in

accordance with the provisions of the Singapore Companies Act, Cap 50 (“the Act”) and Singapore Financial Reporting Stand-

ards so as to give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2003 and the

results, changes in equity and cash flows of the Group for the financial year ended on that date; and

(b) the accounting and other records (excluding registers) 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.

We have considered the financial statements and auditors’ reports of the subsidiaries of which we have not acted as auditors, being financial

statements included in the consolidated financial statements. The names of the subsidiaries are stated in Note 16 to the financial statements.

We are satisfied that the financial statements of the subsidiaries that have been consolidated with the financial statements of the Company

are in form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements and we have

received satisfactory information and explanations as required by us for those purposes.

The auditors’ reports on the financial statements of the subsidiaries were not subject to any qualification and in respect of subsidiaries

incorporated in Singapore did not include any comment made under section 207(3) of the Act.

PricewaterhouseCoopers

Certified Public Accountants

Singapore, 27 February 2004

ar 03

33

Consol idated Income Statementfor the financial year ended 31 December 2003

Notes The Group

2003 2002

$ $

Sales 3 57,675,157 58,605,345

Cost of sales (44,941,847) (45,290,532)

Gross profit 12,733,310 13,314,813

Other operating income 3 376,196 337,949

Distribution costs (4,535,195) (4,512,042)

Administrative expenses (2,698,821) (2,518,169)

Other operating expenses (1,492,711) (2,019,405)

Profit from operations 4 4,382,779 4,603,146

Finance income/(cost) – net 5 (501,103) (534,305)

Share of results of associated company 864,980 666,062

Profit before tax 4,746,656 4,734,903

Income tax expense 7 (1,394,790) (1,432,841)

Profit from ordinary activities after tax 3,351,866 3,302,062

Minority interests 8 (120,983) (161,747)

Net profit 3,230,883 3,140,315

Earnings per share 9

- Basic 2.75 cents 2.79 cents

- Diluted 2.75 cents 2.79 cents

The accompanying notes form an integral part of these financial statements.Auditors’ Report - Page 32.

ar 03

34

Balance Sheetsas at 31 December 2003

Notes The Group The Company

2003 2002 2003 2002

$ $ $ $

ASSETSCurrent assetsCash and cash equivalents 10 6,522,838 3,735,472 4,540,455 1,839,409

Receivables 11 15,312,067 13,469,958 11,485,251 8,517,981

Inventories 12 11,142,658 11,262,070 6,742,585 7,983,901

Other current assets 13 468,604 415,818 90,944 171,652

33,446,167 28,883,318 22,859,235 18,512,943

Non-current assetsTransferable club memberships 14 55,838 58,588 24,121 26,121

Investment in associated company 15 989,771 497,225 56,840 56,840

Investments in subsidiaries 16 - - 2,611,037 2,663,327

Property, plant and equipment 17 6,292,045 6,349,683 3,293,025 3,326,926

Goodwill 18 20,874 24,850 - -

7,358,528 6,930,346 5,985,023 6,073,214

Total assets 40,804,695 35,813,664 28,844,258 24,586,157

LIABILITIESCurrent liabilitiesTrade and other payables 19 4,693,436 4,400,237 2,666,331 2,721,164

Current tax liabilities 820,096 1,063,081 604,113 616,739

Borrowings 20 9,408,251 10,910,984 7,410,820 7,811,154

14,921,783 16,374,302 10,681,264 11,149,057

Non-current liabilitiesBorrowings 20 221,483 247,293 221,483 247,293

Deferred tax liabilities 22 95,526 57,577 81,000 31,000

317,009 304,870 302,483 278,293

Total liabilities 15,238,792 16,679,172 10,983,747 11,427,350

NET ASSETS 25,565,903 19,134,492 17,860,511 13,158,807

SHAREHOLDERS’ EQUITYShare capital 23 13,330,000 10,786,570 13,330,000 10,786,570

Share premium 2,562,028 122,499 2,562,028 122,499

Other reserves 24 228,190 352,355 - -

Retained earnings 25 8,464,568 7,074,616 1,968,483 2,249,738

Total shareholders’ equity 24,584,786 18,336,040 17,860,511 13,158,807

Minority interests 8 981,117 798,452 - -

25,565,903 19,134,492 17,860,511 13,158,807


ar 03

35

Consol idated Statement ofChanges in Equity

for the financial year ended 31 December 2003

Share Share Other Retained

Notes capital premium reserves earnings Total

$ $ $ $ $

Balance at 1 January 2003 10,786,570 122,499 352,355 7,074,616 18,336,040

Net loss not recognised in income

statement – currency translation

differences - - (124,165) - (124,165)

Net profit - - - 3,230,883 3,230,883

Total recognised gains and losses for the financial year - - (124,165) 3,230,883 3,106,718

Bonus issue of shares 23 463,430 (122,499) - (340,931) -

Issue of new shares 23 2,080,000 3,699,000 - - 5,779,000

Expenses on issue of new shares* - (1,136,972) - - (1,136,972)

Dividends 26 - - - (1,500,000) (1,500,000)

Balance at 31 December 2003 13,330,000 2,562,028 228,190 8,464,568 24,584,786

Balance at 1 January 2002 10,786,570 122,499 653,193 4,575,413 16,137,675

Net loss not recognised in income

statement – currency translation

differences - - (300,838) - (300,838)

Net profit - - - 3,140,315 3,140,315

Total recognised gains and losses for the financial year - - (300,838) 3,140,315 2,839,477

Dividends 26 - - - (641,112) (641,112)

Balance at 31 December 2002 10,786,570 122,499 352,355 7,074,616 18,336,040

* Expenses on issue of new shares include other fees paid to the auditors of the Company of $165,000 (2002: Nil).


ar 03

36

Consol idated Cash Flow Statementfor the financial year ended 31 December 2003

Notes 2003 2002$ $

Cash flows from operating activitiesProfit before tax and after share of profits of associated company 4,746,656 4,734,903Adjustments for:

Allowance for diminution in value of transferable club memberships 2,000 10,000Amortisation of goodwill 3,976 2,982Depreciation of property, plant and equipment 882,475 911,864Gain on sale of property, plant and equipment (141,037) (154,945)Gain on partial disposal of interest in subsidiary (6,267) -Loss on dilution of interests in subsidiaries 330 107,199Share of results of associated company (864,980) (666,062)Interest income (18,628) (16,894)Interest expense 519,731 551,199

Operating cash flow before working capital change 5,124,256 5,480,246

Change in operating assets and liabilitiesReceivables (1,888,145) 845,147Inventories 119,413 (147,829)Payables 293,199 (226,133)Exchange differences (84,690) (161,723)

Cash generated from operations 3,564,033 5,789,708Income tax paid (1,334,910) (1,597,027)

Net cash inflow from operating activities 2,229,123 4,192,681

Cash flows from investing activitiesAcquisition of additional interest in subsidiary - (49,707)Dividends received 158,485 92,840Net proceeds from issue of shares pursuant to listing on the stock exchange 4,642,028 -Payments for property, plant and equipment (730,811) (416,141)Proceeds from issue of shares of subsidiaries to minority shareholders 59,156 111,180Proceeds from partial disposal of interest in subsidiary 6,275 -Proceeds from sale of property, plant and equipment 443,385 186,818Repayments of advances from minority shareholders - (10,388)Interest received 18,628 16,894

Net cash inflow/(outflow) from investing activities 4,597,146 (68,504)

Cash flows from financing activitiesDividends paid (1,500,000) (641,112)Repayment of lease liabilities (495,183) (595,365)Repayments of borrowings (795,503) (1,485,345)Interest paid (519,731) (551,199)

Cash outflow from financing activities (3,310,417) (3,273,021)

Net increase in cash and cash equivalents held 3,515,852 851,156Cash and cash equivalents at beginning of financial year 3,034,512 2,184,802Effects of exchange rate changes on cash and cash equivalents (27,526) (1,446)

Cash and cash equivalents at end of financial year 10 6,522,838 3,034,512


ar 03

37

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. The address of its registered office is No. 132 Pioneer Road,

Singapore 639588.

On 11 September 2003, the Company was converted to a public limited company and changed its name from Megachem Pte

Ltd to Megachem Limited. On 17 October 2003, the Company was admitted to the official list of the Stock Exchange of

Singapore Dealing and Automated Quotation System.

The principal activities of the Company consist of trading in chemicals and chemical-related products and investment holding.

The principal activities of the subsidiaries consist of the blending of, and trading in chemicals and chemical-related products.

2. Significant accounting policies

(a) Effect of changes in Singapore Companies Legislation

Pursuant to the Singapore Companies (Amendment) Act 2002, with effect from financial year commencing on or after 1 January

2003, Singapore-incorporated companies are required to prepare and present their statutory financial statements in accordance

with the Singapore Financial Reporting Standards (“FRS”). Hence, these financial statements, including the comparative figures,

have been prepared in accordance with FRS.

Previously, the Company and the Group prepared their statutory financial statements in accordance with Singapore Statements

of Accounting Standard. The adoption of FRS does not have material impact on the accounting policies and figures presented in

the statutory financial statements for financial year ended 31 December 2002.

(b) Basis of preparation

The financial statements have been prepared under the historical cost convention. The preparation of financial statements in

conformity with Singapore Financial Reporting Standards requires the use of 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.

Notes to Financial Statementsfor the financial year ended 31 December 2003

ar 03

38

2. Significant accounting policies (cont’d)

(c) Revenue recognition

Revenue comprises the invoiced value for the sale of goods and services net of goods and services tax, rebates and discounts, and

after eliminating sales within the Group. Revenue from the sale of goods is recognised when significant risks and rewards of

ownership of the goods are transferred to the buyer. Revenue from rendering of services is based on the stage of completion

determined by reference to services performed to date as a percentage of total services to be performed.

Revenue arising from rental and grants is recognised on an accrual basis in accordance with the substance of the relevant

agreements. Interest income is recognised on a time proportion basis, taking account of the principal outstanding and the

effective rate over the period of maturity, when it is determined such income will accrue to the Group. Dividend income is

recognised when the right to receive payment is established.

(d) Group accounting

(1) Subsidiaries

Subsidiaries are those entities in which the Group has an interest of more than one half of the voting rights or

otherwise has power to govern the financial and operating policies. The existence and effect of potential voting

rights that are presently exercisable or presently convertible are considered when assessing whether the Group con-

trols another entity.

Subsidiaries are consolidated from the date on which control is transferred to the Group and is no longer consoli-

dated from the date that control ceases. 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 up, shares issued or

liabilities undertaken at the date of acquisition plus costs directly attributable to the acquisition. The excess of the

cost of acquisition over the fair value of the net assets of the subsidiary acquired is recorded as goodwill.

Intercompany transactions, balances, unrealised gains on transactions between group companies are eliminated;

unrealised losses are also eliminated unless cost cannot be recovered. Where necessary, adjustments are made to the

financial statements of subsidiaries to ensure consistency of accounting policies with those of the Group.


ar 03

39


(d) Group accounting (cont’d)

(2) Associated companies

Associated companies are entities over which the Group generally has between 20% and 50% of the voting rights,

and over which the Group has significant influence, but which it does not control. Investments in associated

companies are accounted for in the consolidated financial statements using the equity method of accounting.

Equity accounting involves recognising the Group’s share of the results of associated companies in the consolidated

income statement and the Group’s share of post-acquisition movements in reserves in consolidated reserves.

The cumulative post-acquisition movements are adjusted against the cost of investment. Unrealised gains on

transactions between the Group and its associated companies are eliminated to the extent of the Group’s interest in

the associated companies; unrealised losses are also eliminated unless the transaction provides evidence of an

impairment of the asset transferred. Where necessary, in applying the equity method, adjustments are made to the

financial statements of associated companies to ensure consistency of accounting policies with those of the Group.

The Group’s investments in associated companies are stated in the balance sheet at an amount that reflects its share

of the net assets of the associated companies and includes goodwill (net of accumulated amortisation) on

acquisition. Equity accounting is discontinued when the carrying amount of the investment in associated companies

reaches zero, unless the Group has incurred obligations or guaranteed obligations in respect of the associated

companies.

(e) Property, plant and equipment

Property, plant and equipment are stated at historical cost less accumulated depreciation and impairment losses.

Depreciation is calculated on a straight-line basis to write off the cost of the property, plant and equipment over their expected

useful lives. The estimated useful lives are as follows:

Freehold buildings 50 years

Buildings on leasehold land 20 to 30 years

Machinery and equipment 4 to 5 years

Motor vehicles 3 to 5 years

Computer equipment, furniture and fixtures 3 to 5 years

No depreciation is provided on freehold land.


ar 03

40


(e) Property, plant and equipment (cont’d)

Repairs and maintenance are taken to the income statement during the financial period in which they are incurred. The cost of

major renovations and restorations is included in the carrying amount of the asset when it is probable that future economic

benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group, and depreciated

over the remaining useful life of the asset.

Where an indication of impairment exists, the carrying amount of the asset is assessed and written down immediately to its

recoverable amount.

Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in profit/(loss) from

operations.

(f) Goodwill

Goodwill represents the excess of the cost of an acquisition of subsidiaries and associated companies over the fair value of the

Group’s share of their identifiable net assets at the date of acquisition.

Goodwill on acquisitions of subsidiaries occurring on or after 1 January 2001 is included as intangible assets. Goodwill on

acquisitions of associated companies occurring on or after 1 January 2001 is included in investments in associated companies.

Goodwill on acquisitions that occurred prior to 1 January 2001 has been taken in full to retained earnings in shareholders’ equity;

such goodwill has not been retroactively capitalised and amortised.

Goodwill is amortised using the straight-line method over its estimated useful life. Management determines the estimated

useful life of goodwill based on its evaluation of the respective companies at the time of the acquisition, considering factors such

as existing market share, potential growth and other factors inherent in the acquired companies. Goodwill arising on

acquisitions by the Group is amortised over a maximum period of 20 years.

At each balance sheet date, the Group assesses whether there is any indication of impairment. If such indications exist, an

analysis is performed to assess whether the carrying amount of goodwill is fully recoverable. A write-down is made if the carrying

amount exceeds the recoverable amount.

The gain or loss on disposal of an entity includes the unamortised balance of goodwill relating to the entity disposed of or, for

pre 1 January 2001 acquisitions, the goodwill taken to shareholders’ equity.


ar 03

41


(g) Investments

Investments in subsidiaries and associated companies are stated at cost less impairment losses in the Company’s balance sheet.

Where an indication of impairment exists, the carrying amount of the investment is assessed and written down immediately to its

recoverable amount.

Other non-current investments, including transferable club memberships, are stated at cost and an allowance for diminution is

made where, in the opinion of the directors, there is a decline other than temporary in the value of such investments. Where

there has been a decline other than temporary in the value of an investment, such a decline is recognised as an expense in the

period in which the decline is identified.

On disposal of an investment including subsidiaries, associated companies and transferable club memberships, the difference

between net disposal proceeds and its carrying amount is taken to the income statement.

(h) Impairment of non-current assets

Property, plant and equipment and other non-current assets, including goodwill are reviewed for impairment losses whenever

events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised

for the amount by which the carrying amount of the asset exceeds its recoverable amount which is the higher of an asset’s net

selling price and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there

are separately identifiable cash flows.

(i) Trade receivables

Trade receivables are stated at original invoice amount less allowance made for doubtful receivables based on a review of

all outstanding amounts at the year end. An allowance for doubtful receivables is made when there is objective evidence that

the Company will not be able to collect all amounts due. Bad debts are written off when identified.

(j) Leases

Finance leases

Leases of property, plant and equipment where the Group assumes substantially all 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 or 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 charged 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. If there is no

reasonable certainty that the Group will obtain ownership by the end of the lease term, the property, plant and equipment

acquired under finance leases are depreciated over the shorter of the useful life of the asset or the lease term.


ar 03

42


Operating leases

Leases where 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 charged 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.

(k) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined on a first-in first-out basis. Net realisable

value is the estimated selling price in the ordinary course of business, less selling expenses.

Allowance for obsolete, slow-moving and defective inventories is made where necessary.

(l) 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. Currently enacted tax rates are used in the

determination of deferred income tax.

Deferred 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 and associated companies,

except where the timing of the reversal of temporary difference can be controlled and it is probable that the temporary difference

will not reverse in the foreseeable future.

(m) Provisions

Provisions are recognised when the Group has a legal or constructive obligation as a result of past events, it is probable that an

outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made.

(n) Employee benefits

Employee leave entitlement

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.


ar 03

43


(o) Foreign currency translation

(1) Measurement currency

Items included in the financial statements of each entity in the Group are measured using the currency that

best reflects the economic substance of the underlying events and circumstances relevant to that entity (“the

measurement currency”). The consolidated financial statements and balance sheet of the Company are presented in

Singapore dollars, which is the measurement currency of the Company.

(2) Transactions and balances

Foreign currency transactions are translated into the measurement currency using the exchange rates prevailing at

the date of transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and

from the translation of monetary assets and liabilities denominated in foreign currencies, are recognised in the

income statement.

Foreign currency monetary assets and liabilities are translated into the measurement currency at the rates of

exchange prevailing at the balance sheet date or at contracted rates where they are covered by forward exchange

contracts. Exchange differences arising are taken to the income statement.

(3) Group companies

In respect of associated companies and foreign subsidiaries whose operations are not an integral part of the Company’s

operations, the balance sheets are translated into Singapore dollars at the exchange rates prevailing at the balance

sheet date, and the results are translated using the average monthly exchange rates for the financial year. The

exchange differences arising on translation of foreign subsidiaries and the Group’s share of exchange differences

arising from the translation of foreign associated companies are taken directly to the foreign currency translation

reserve. On disposal, accumulated translation differences are recognised in the consolidated income statement as

part of the gain or loss on sale.

(p) Segment reporting

Business segments provide products and services that are subject to risks and returns that are different from those of other

business segments. Geographical segments provide products or services within a particular economic environment that is

subject to risks and returns that are different from those of components operating in other economic environments.

(q) Cash and cash equivalents

For the purposes of the consolidated cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call

with banks and bank overdrafts. Bank overdrafts are included under borrowings in current liabilities on the balance sheet.


ar 03

44


(r) Share Issue Costs

External share issue costs directly attributable to the issue of new shares, other than on a business combination, are shown in

equity as a deduction, net of tax, from the proceeds. Share issue costs incurred directly in connection with a business combina-

tion are included in the cost of acquisition.

(s) Dividend

Dividends are recorded in the Group’s financial statements in the period in which they are declared payable.

3. Revenue

The Group

2003 2002

$ $

Sale of goods 57,541,891 58,601,973

Services rendered 133,266 3,372

57,675,157 58,605,345

Other operating income

- Rental income 18,322 27,265

- Bad debts recovered 15,696 -

- Grant income 156,125 32,677

- Net foreign exchange gain 38,749 123,062

- Gain on partial disposal of interest in subsidiary 6,267 -

- Gain on sale of property, plant and equipment 141,037 154,945

Total other operating income 376,196 337,949

Interest income (Note 5) 18,628 16,894

58,069,981 58,960,188


ar 03

45

4. Profit from operations

The following items have been included in arriving at profit from operations:

The Group

2003 2002

$ $

Charging:

Amortisation of goodwill (included in other operating

expenses) 3,976 2,982

Auditors’ remuneration paid/payable to:

- Auditor of the Company 72,000 53,000

- Other auditors* 67,893 51,000

Depreciation of property, plant and equipment:

- Freehold buildings 17,953 18,455

- Buildings on leasehold land 120,160 120,667

- Machinery and equipment 102,366 85,761

- Motor vehicles 304,667 316,777

- Computer equipment, furniture and fixtures 337,329 370,204

Inventories:

- Costs of inventories recognised as an expense

(included in cost of sales) 42,860,079 43,187,679

- Write-down of inventory 360,868 397,543

Loss on dilution of interests in subsidiaries 330 107,199

Other fees paid/payable to auditors of the Company 29,887 65,918

Rental expense – operating leases 631,494 545,660

* Includes PricewaterhouseCoopers firms outside Singapore.


ar 03

46

5. Finance income/(cost) - net

The Group

2003 2002

$ $

Interest income:

- Banks 18,628 16,894

Interest expense:

- Bank loans - (4,794)

- Overdrafts (4,734) (2,086)

- Bills payable (470,049) (496,838)

- Finance leases (44,948) (47,481)

(519,731) (551,199)

(501,103) (534,305)

6. Staff costs

The Group

2003 2002

$ $

Wages and salaries 3,806,577 3,647,627

Employer’s contribution to defined contribution

plans including Central Provident Fund 389,448 414,862

Termination benefits - 6,385

4,196,025 4,068,874

The number of persons employed at the end of the financial year:

The Group

2003 2002

Full time 93 89


ar 03

47

7. Tax

The Group

2003 2002

$ $

Tax expense attributable to profit is made up of:

Current income tax provision

- Singapore 490,568 557,095

- Foreign 569,475 644,835

1,060,043 1,201,930

Deferred tax 45,062 33,042

Share of tax of associated company (Note 15) 264,147 203,009

1,369,252 1,437,981

Under/(over) provision in preceding financial years:

- Current income tax 31,881 (889)

- Deferred tax (6,343) (4,251)

1,394,790 1,432,841

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

the following:

The Group

2003 2002

$ $

Profit before tax 4,746,656 4,734,903

Tax calculated at a tax rate of 22% (2002: 22%) 1,044,264 1,041,678

Effect of different tax rates in other countries 208,348 208,106

Income not subject to tax (22,130) (28,840)

Expenses not deductible for tax purposes 123,415 183,323

Singapore statutory stepped income exemption (23,100) (23,100)

Deferred tax assets not recognised 38,455 56,814

1,369,252 1,437,981


ar 03

48

8. Minority interests

The Group

2003 2002

$ $

At beginning of financial year 798,452 448,894

New shares issued to minority shareholders 59,156 111,180

Acquisition of interest by minority shareholders 338 107,199

Disposal of interest by minority shareholders - (21,875)

Repayments to minority shareholders - (10,388)

Share of profit after tax of subsidiaries 120,983 161,747

Share of net translation adjustments during the

financial year 2,188 1,695

At end of financial year 981,117 798,452

9. Earnings per share

Basic earnings per share is calculated by dividing the net profit attributable to members of Megachem Limited by the weighted

average number of ordinary shares in issue during the financial year:

The Group

2003 2002

Net profit attributable to members of

Megachem Limited $3,230,883 $3,140,315

Weighed average number of ordinary shares

in issue for basic earnings per share 117,700,000 112,500,000

Basic earnings per share 2.75 cents 2.79 cents

The weighted average number of shares for both 2003 and 2002 has been adjusted to reflect the bonus shares and the share

split as disclosed in Note 23 to the financial statements.

Diluted earnings per share is the same as basic earnings per share as the Company does not have any dilutive potential

ordinary shares.


ar 03

49

10. Cash and cash equivalents

The Group The Company

2003 2002 2003 2002

$ $ $ $

Cash at bank and on hand 3,220,472 3,380,872 1,511,455 1,839,409

Fixed deposits with financial

institutions 3,302,366 354,600 3,029,000 -

6,522,838 3,735,472 4,540,455 1,839,409

The fixed deposits with financial institutions mature on varying dates within one month (2002: one month) from the financial

year end. The weighted average effective interest rate of these deposits as at 31 December 2003 was 0.97% (2002: 1.00%)

per annum.

For the purposes of the consolidated cash flow statement, the financial year-end consolidated cash and cash equivalents com-

prise the following:

The Group

2003 2002

$ $

Cash and bank balances (as above) 6,522,838 3,735,472

Less: Bank overdrafts (Note 20) - (700,960)

Cash and cash equivalents per consolidated

cash flow statement 6,522,838 3,034,512

11. Receivables


2003 2002 2003 2002

$ $ $ $

Trade receivables

- Third parties 14,251,937 12,672,958 6,969,250 5,743,265

- Subsidiaries - - 2,742,331 1,873,451

- Associated company 504,856 561,503 495,174 487,496

14,756,793 13,234,461 10,206,755 8,104,212


ar 03

50

11. Receivables (cont’d)


2003 2002 2003 2002

$ $ $ $

Less: Allowance for doubtful receivables (42,874) (44,558) (25,000) (25,000)

Trade receivables - net 14,713,919 13,189,903 10,181,755 8,079,212

Due from subsidiaries (non-trade) - - 789,050 274,577

Due from associated company (non-trade) 165,235 158,485 165,235 158,485

Other receivables 432,913 121,570 349,211 5,707

15,312,067 13,469,958 11,485,251 8,517,981

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

12. Inventories


2003 2002 2003 2002

$ $ $ $

Finished goods, at net

realisable value 11,142,658 11,262,070 6,742,585 7,983,901

13. Other current assets


2003 2002 2003 2002

$ $ $ $

Deposits 97,124 141,717 46,241 79,220

Prepayments 371,480 274,101 44,703 92,432

468,604 415,818 90,944 171,652


ar 03

51

14. Transferable club memberships


2003 2002 2003 2002

$ $ $ $

Transferable club memberships

at cost 95,921 95,921 65,121 65,121

Exchange differences 917 1,667 - -

Less: Allowance for diminution

in value (41,000) (39,000) (41,000) (39,000)

55,838 58,588 24,121 26,121

15. Investment in associated company


2003 2002 2003 2002

$ $ $ $

Unquoted equity shares at cost 56,840 56,840

At beginning of financial year 497,225 214,569

Share of results before tax 864,980 666,062

Share of tax (Note 7) (264,147) (203,009)

Share of results after tax 600,833 463,053

Dividends receivable, net of tax (165,235) (158,485)

Exchange differences 56,948 (21,912)

989,771 497,225

Details of the associated company are as follows:

Country of

incorporation

and place of

Name of company Principal activities business Equity holding

2003 2002

% %

Megachem (Thailand) Trading in chemicals Thailand 48 49

Limited* and chemical-related

products

* Audited by PricewaterhouseCoopers, Thailand.


ar 03

52

16. Investments in subsidiaries

The Company

2003 2002

$ $

Unquoted equity shares at cost 2,931,037 2,983,327

Less: Allowance for diminution in value (320,000) (320,000)

2,611,037 2,663,327

Details of the subsidiaries are as follows:

Country of incorporation

Name of company Principal activities and place of business Equity holding

2003 2002% %

Held by the Company

C.N. Chemicals Trading in Malaysia 100 100

Sdn. Bhd. (b) industrial chemicals

Megachem Trading in chemicals People’s Republic of 100 100

(Guangzhou and chemical-related China

Free Trade Zone) products

Co., Ltd (e)

Megachem Blending of chemicals Singapore 100 100

Manufacturing Pte Ltd (a) and chemical-related

products

Megachem Trading in chemicals Philippines 90 100

Phils., Inc. (c) and chemical-related

products

Megachem Trading in chemicals Singapore 74 74

Raya Pte Ltd (a) and chemical-related

products

Megachem Trading in chemicals Singapore 85 100

(Shanghai) Pte and chemical-related

Ltd (a) products


ar 03

53

16. Investments in subsidiaries (cont’d)

Country of incorporation

Name of company Principal activities and place of business Equity holding

2003 2002% %

Held by the Company

Newport Trading in chemicals United 85 89

Chemicals (UK) and chemical-related Kingdom

Limited (d) products

Held by subsidiaries

Megachem Trading in chemicals People’s 100 100

International and chemical-related Republic

Trading products of China

(Shanghai)

Co., Ltd (g)

P.T. Mega Trading in chemicals Indonesia 74 74

Kemiraya (f) and chemicals-related

products

(a) Audited by PricewaterhouseCoopers, Singapore.

(b) Audited by PricewaterhouseCoopers, Malaysia.

(c) Audited by PricewaterhouseCoopers, Philippines.

(d) Audited by PricewaterhouseCoopers, United Kingdom.

(e) Audited by Guangzhou Lingnan Certified Public Accountants Co Ltd.

(f) Audited by PricewaterhouseCoopers, Indonesia.

(g) Audited by Shu Lun Pan Certified Public Accountants Co Ltd.


ar 03

54

17. Property, plant and equipment

Computer

Freehold Buildings on Machinery equipment,

land and leasehold and Motor furniture and

buildings land equipment vehicles fixtures Total

$ $ $ $ $ $

The Group

CostAt 1 January 2003 1,849,985 3,720,921 1,720,766 1,693,795 2,740,563 11,726,030

Exchange differences (42,665) (15,902) (1,826) (7,667) (14,347) (82,407)

Additions - - 49,902 574,336 569,676 1,193,914

Disposals - - - (723,122) (37,104) (760,226)

At 31 December 2003 1,807,320 3,705,019 1,768,842 1,537,342 3,258,788 12,077,311

Accumulated depreciation

At 1 January 2003 60,593 925,295 1,394,620 862,325 2,133,514 5,376,347

Exchange differences (1,591) (1,292) (371) (3,767) (8,660) (15,681)

Disposals - - - (421,088) (36,787) (457,875)

Depreciation charge 17,953 120,160 102,366 304,667 337,329 882,475

At 31 December 2003 76,955 1,044,163 1,496,615 742,137 2,425,396 5,785,266

Net book valueAt 31 December 2003 1,730,365 2,660,856 272,227 795,205 833,392 6,292,045

Net book value

At 31 December 2002 1,789,392 2,795,626 326,146 831,470 607,049 6,349,683

The Company

Cost

At 1 January 2003 3,080,120 1,528,423 1,404,989 2,065,244 8,078,776

Additions - - 387,405 496,225 883,630

Disposals - (1,081,412) (611,967) (50,099) (1,743,478)

At 31 December 2003 3,080,120 447,011 1,180,427 2,511,370 7,218,928

Accumulated depreciation

At 1 January 2003 882,524 1,383,398 700,295 1,785,633 4,751,850

Disposals - (974,034) (331,041) (39,199) (1,344,274)

Depreciation charge 102,671 15,544 224,827 175,285 518,327

At 31 December 2003 985,195 424,908 594,081 1,921,719 3,925,903


ar 03

55

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

Buildings Computer

on Machinery equipment,

leasehold and Motor furniture and

land equipment vehicles fixtures Total

$ $ $ $ $

Net book valueAt 31 December 2003 2,094,925 22,103 586,346 589,651 3,293,025

Net book valueAt 31 December 2002 2,197,596 145,025 704,694 279,611 3,326,926

At the balance sheet date, the net book value of plant and equipment of the Group and the Company under finance lease

agreements (Note 21) amounted to $790,000 (2002: $511,000) and $635,000 (2002: $511,000) respectively.

The Group’s freehold land and buildings with a net book amount of $1,730,000 (2002: $1,789,000) are pledged to banks as

security for bank facilities extended to a subsidiary.

18. Goodwill

The Group

2003 2002

$ $

Goodwill arising on consolidation

At beginning of financial year 24,850 -

Acquisition of additional interest in subsidiary - 27,832

Amortisation for the financial year (3,976) (2,982)

At end of financial year 20,874 24,850

Gross goodwill 27,832 27,832

Accumulated amortisation (6,958) (2,982)

Net book value 20,874 24,850


ar 03

56

19. Trade and other payables


2003 2002 2003 2002

$ $ $ $

Trade payables to:

- Third parties 2,851,891 2,762,338 1,155,652 1,683,466

- Subsidiaries - - 141,657 115,241

- Associated company 16,260 26,508 16,260 26,508

Accrued operating expenses 1,294,026 873,871 1,005,569 602,067

Due to subsidiaries (non-trade) - - 1,934 7,692

Due to associated company (non-trade) 8,563 438 8,563 438

Due to company related by common

shareholders (non-trade) 62,812 4,261 62,812 4,261

Sundry creditors 459,884 732,821 273,884 281,491

4,693,436 4,400,237 2,666,331 2,721,164

The non-trade amounts due to subsidiaries, associated company and company related by common shareholders are unsecured,

interest-free and are repayable on demand.

20. Borrowings


2003 2002 2003 2002

$ $ $ $

Current

Bills payable

- Secured 1,948,913 10,088,791 - 6,988,961

- Unsecured 7,344,375 - 7,344,375 -

Bank overdrafts (secured) - 700,960 - 700,960

Finance lease liabilities (secured)

[Note 21] 114,963 121,233 66,445 121,233

9,408,251 10,910,984 7,410,820 7,811,154

Non-current

Finance lease liabilities (secured)

[Note 21] 221,483 247,293 221,483 247,293

9,629,734 11,158,277 7,632,303 8,058,447


ar 03

57

20. Borrowings (cont’d)

(a) The secured borrowings of a subsidiary amounting to $1,949,000 (2002: $3,100,000), comprising bank overdrafts, bills payable

and other bank facilities, are guaranteed by certain directors of the Company, and are secured by way of a first and floating

charge on certain assets of the subsidiary. The remaining secured borrowings relate to finance lease liabilities secured on the

plant and equipment of the Group (Note 17).

(b) Effective interest rates

The weighted average effective interest rates per annum at the balance sheet date are as follows:


2003 2002 2003 2002

$ $ $ $

Bills payable 3.47 2.25 2.77 3.06

Bank overdrafts - 5.82 - 5.82

Finance lease liabilities 2.48 2.72 2.30 2.72

(c) Carrying amounts and fair values

The fair values are based on discounted cash flows using a discount rate based upon the borrowing rate which the directors

expect would be available to the Group at the balance sheet date. The carrying amounts of bank overdrafts, bills payables and

finance lease obligations approximate their fair values.

21. Finance lease liabilities


2003 2002 2003 2002

$ $ $ $

Minimum lease payments due:

- Not later than 1 year 124,147 137,598 74,086 137,598

- Later than 1 year but not

later than 5 years 246,953 277,897 246,953 277,897

- Later than 5 years - 8,595 - 8,595

371,100 424,090 321,039 424,090

Less: Future finance charges (34,654) (55,564) (33,111) (55,564)

Present value of finance

lease liabilities 336,446 368,526 287,928 368,526


ar 03

58

21. Finance lease liabilities (cont’d)


2003 2002 2003 2002

$ $ $ $

The present value of finance lease liabilities is as follows:

- Not later than 1 year (Note 20) 114,963 121,233 66,445 121,233

- Later than 1 year but not

later than 5 years 221,483 240,021 221,483 240,021

- Later than 5 years - 7,272 - 7,272

Total non-current liability

(Note 20) 221,483 247,293 221,483 247,293

336,446 368,526 287,928 368,526

22. Deferred income taxes

Deferred income taxes are calculated in full on temporary differences under the liability method using a principal tax rate of 22%

(2002: 22%).

The movement on the deferred income tax account is as follows:


2003 2002 2003 2002

$ $ $ $

Balance at beginning of

financial year 57,577 29,853 31,000 -

Provision during the

financial year 45,062 33,042 50,000 31,000

Write-back during the

financial year (6,343) (4,251) - -

Exchange differences (770) (1,067) - -

Balance at end of financial year 95,526 57,577 81,000 31,000


ar 03

59

22. Deferred income taxes (cont’d)

Deferred tax assets are recognised for tax loss carried forward to the extent that realisation of the related tax benefits through

future taxable profits is probable. The Group has unrecognised tax losses and capital allowances of $380,000 and $32,000

(2002: $299,000 and $32,000) respectively which can be carried forward and used to offset against future taxable income

subject to meeting certain statutory requirements by those companies with unrecognised tax losses and capital allowances in

their respective countries of incorporation. These tax losses have no expiry date except for an amount of $282,000 (2002:

$147,000) which will expire between 2004 to 2008. Unutilised capital allowances do not have expiry dates.

The movement in the deferred tax assets and liabilities (prior to offsetting of balances within the same tax jurisdiction) during the

financial year is as follows:

The Group

Deferred tax liabilities

Accelerated Unrealised

tax foreign

depreciation exchange Total

$ $ $

At 31 December 2002 96,054 1,997 98,051

Charged to income statement 36,837 46 36,883

Exchange differences (705) (203) (908)

At 31 December 2003 132,186 1,840 134,026

Deferred tax assets

Unrealised

foreign

Provisions exchange Total

$ $ $

At 1 December 2002 (34,500) (5,974) (40,474)

Credited to income statement (4,000) 5,836 1,836

Exchange differences - 138 138

At 31 December 2003 (38,500) - (38,500)


ar 03

60

22. Deferred income taxes (cont‘d)

The Company

Deferred tax liabilities

Accelerated tax

depreciation Total

$ $

At 31 December 2002 65,500 65,500

Charged to income statement 54,000 54,000

At 31 December 2003 119,500 119,500

Deferred tax assets

Provisions Total

$ $

At 1 December 2002 (34,500) (34,500)

Credited to income statement (4,000) (4,000)

At 31 December 2003 (38,500) (38,500)

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current

tax liabilities and when the deferred income taxes relate to the same fiscal authority. The following amounts, determined after

appropriate offsetting, are shown in the balance sheets:


2003 2002 2003 2002

$ $ $ $

Deferred tax liabilities 95,526 57,577 81,000 31,000

The amounts shown in the balance sheet included the following:


2003 2002 2003 2002

$ $ $ $

Deferred tax liabilities to be settled

after more than 12 months 95,526 57,577 81,000 31,000


ar 03

61

23. Share capital

(a) Authorised share capital

2003 2002

$ $

300,000,000 ordinary shares of $0.10 each 30,000,000 10,900,000

(2002: 10,900,000 ordinary shares of S$1.00 each)

Nil (2002: 5,000,000 redeemable convertible - 50,000

preference shares of S$0.01 each)

Nil (2002: 5,000,000 nominal shares of $0.01 each) - 50,000

30,000,000 11,000,000

(b) Issued and fully paid ordinary share capital

2003 2002 2003 2002

shares shares $ $

At beginning of financial year

at par value of $1.00 each 10,786,570 10,786,570 10,786,570 10,786,570

Bonus shares issue during the

financial year at par value

of $1.00 each 463,430 - 463,430 -

11,250,000 10,786,570 11,250,000 10,786,570

After share split, par value of

$0.10 each (2002: $1.00 each) 112,500,000 10,786,570 11,250,000 10,786,570

Issue of new shares during

the financial year 20,800,000 - 2,080,000 -

At end of financial year 133,300,000 10,786,570 13,330,000 10,786,570

(c) At an Extraordinary General Meeting held on 5 September 2003, the shareholders approved, inter alia, the increase of the

authorised share capital from $11,000,000 divided into 10,900,000 ordinary shares of $1.00 each, 5,000,000 redeemable

convertible preference shares of $0.01 each and 5,000,000 nominal shares of $0.01 each, to $30,000,000 divided into 30,000,000

ordinary shares of $1.00 each.

On the same date, the shareholders also approved, inter alia, the sub-division of each ordinary share of $1.00 each in the

authorised and issued share capital into 10 ordinary shares of $0.10 each.


ar 03

62

23. Share capital (cont’d)

(d) During the financial year, the Company increased its issued ordinary share capital from $10,786,570 to $13,330,000 by the way

of the following:

(i) On 5 September 2003, the Company issued 463,430 ordinary shares of $1.00 each at par value from the capitalisa-

tion of $122,499 out of the share premium account and $340,931 out of the retained earnings account as bonus

shares to the shareholders; and

(ii) On 16 October 2003, the Company issued 19,300,000 ordinary shares and 1,500,000 ordinary shares of $0.10 each

at a premium of $0.18 per share and $0.15 per share respectively, for cash upon listing on the Stock Exchange of

Singapore Dealing and Automated Quotation System.

The newly issued shares rank pari passu in all respects with the previously issued shares.

The movements in the share premium account are set out in the Consolidated Statement of Changes in Equity.

24. Other reserves

The Group

2003 2002

$ $

Foreign currency translation reserve (143,515) (19,350)

Reserve on consolidation 371,705 371,705

228,190 352,355

Movements in foreign currency translation reserve are as follows:

The Group

2003 2002

$ $

Balance at beginning of financial year (19,350) 281,488

Net exchange difference on translation of financial

statements of foreign subsidiaries (124,165) (300,838)

Balance at end of financial year (143,515) (19,350)

These reserves are non-distributable.


ar 03

63

25. Retained earnings

(a) Retained earnings of the Group and the Company are distributable except for accumulated retained earnings of associated

company amounting to $902,000 (2002: $466,000) which are included in the Group’s retained earnings.

(b) Movements in retained earnings for the Company are as follows:

The Company

2003 2002

$ $

At beginning of financial year 2,249,738 1,516,971

Net profit during financial year 1,559,676 1,373,879

Bonus shares issue (Note 23) (340,931) -

Dividends paid (Note 26) (1,500,000) (641,112)

At end of financial year 1,968,483 2,249,738

Movements in retained earnings for the Group are shown in the Consolidated Statement of Changes in Equity.

26. Dividends

The Group and The Company

2003 2002

$ $

Ordinary dividends paid:

Final dividends of Nil (2002: 1.72 cents*) per share,

paid net of tax at Nil (2002: 24.5%) - 140,074

Additional final dividends arising from reduction in tax

rate to 22% in 2002 - 4,640

Interim dividends of 17.8 cents (2002: 5.9 cents*)

per share, paid net of tax at 22% (2002: 22%) 1,500,000 496,398

1,500,000 641,112

* Based on issued ordinary shares of 10,786,570 of $1.00 each.

At the Annual General Meeting on 15 April 2004, a final dividend of 0.7 cents per share amounting to a total of $933,100 less

tax at 20% is to be recommended. These financial statements do not reflect this dividend payable, which will be accounted for

in the shareholders’ equity as an appropriation of retained earnings in the financial year ending 31 December 2004.


ar 03

64

27. Operating lease commitments

The aggregate minimum lease payments under non-cancellable operating leases contracted for at reporting date but not recog-

nised as liabilities, are as follows:


2003 2002 2003 2002

$ $ $ $

Not later than 1 year 163,409 154,975 61,721 64,190

Later than 1 year but not

later than 5 years 272,581 305,177 272,581 283,484

Later than 5 years 1,503,636 1,563,784 1,503,636 1,563,784

1,939,626 2,023,936 1,837,938 1,911,458

The leasehold land on which the Company’s building is situated is under a non-cancellable operating lease expiring in 2053. The

annual rental payable is subject to annual revision.

28. Financial risk management

Financial risk factors

The Group’s activities expose it to a variety of risks, including the effects of changes in foreign currency exchange rates and

interest rates. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to

minimise potential adverse effects on the financial performance of the Group. The Group uses foreign exchange contracts to

hedge certain exposures. Financial risk management is carried out under policies approved by the Board of Directors.

(i) Foreign exchange risk

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures

primarily with respect to United States dollars, Euro dollars, Sterling pound and Japanese Yen. The Group uses

forward exchange contracts to hedge certain of its exposure to foreign currency risk.

The Company has a number of investments in foreign subsidiaries and associated company, whose net assets are

exposed to currency translation risk. The Company does not hedge such currency translation risk as this risk is not

expected to be significant.


ar 03

65

28. Financial risk management (cont’d)

(ii) Interest rate risk

Other than borrowings, the Group’s income and operating cash flows are substantially independent of changes in

market interest rates. The Group has no significant interest-bearing assets. The Group monitors the interest rates on

borrowings closely and is constantly seeking favourable financing instruments to reduce its interest cost.

(iii) Credit risk

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.

(iv) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash balances, the availability of funding through an

adequate amount of committed credit facilities. Due to the dynamic nature of the underlying business, the Group

aims at maintaining flexibility in funding by keeping committed credit lines available.

29. Financial instruments

(a) Forward foreign exchange contracts

Forward foreign exchange contracts are entered into to manage exposure to fluctuations in foreign currency exchange rate on

specific transactions.

At 31 December 2003 and 2002, the settlement dates on open forward contracts ranged between 1 to 6 months.


ar 03

66

29. Financial instruments (cont’d)

(a) Forward foreign exchange contracts (cont’d)

The local currency amounts to be paid and contractual exchange rates of the Group’s outstanding contracts were:

The Group

2003 2002

$ $

United States dollar [at rates averaging S$1=US$0.58

[2002: S$1=US$0.57)] 462,325 1,880,046

Euro dollar [at rates averaging NIL (2002: S$1=Euro$0.59)] - 70,766

Malaysia Ringgit [at rates averaging NIL (2002: S$1=RM0.45)] - 70,133

Japanese Yen [at rates averaging S$1=62.80Yen

(2002: S$1=69.78Yen)] 82,481 291,132

544,806 2,312,077

(b) Net fair values

The net fair values of the Group’s foreign exchange contracts at the balance sheet date were:

The Group

2003 2002

$ $

Favourable forward foreign exchange contracts 11,289 10,748

Unfavourable forward foreign exchange contracts (18,041) (30,360)

The fair values of forward foreign exchange contracts have been calculated (using rates quoted by the Group’s bankers) to

terminate the contracts at the balance sheet date.

The carrying amounts of cash and cash equivalents, trade and other receivables, trade and other payables, finance lease obligations

and current borrowings approximate their fair values.


ar 03

67

30. Related party transactions

In addition to the related party information shown elsewhere in the financial statements, the following transactions took place

between the Group and related parties during the financial year at terms agreed by the parties concerned:

(a) Sale and purchase of inventories and services

The Group

2003 2002

$ $

Sale of inventories to

- Associated company 1,763,938 1,821,202

- Company related by common shareholders 252,920 228,395

Purchase of inventories from associated company (84,726) (50,835)

(b) Directors’ remuneration

Directors’ remuneration include fees, salary, bonus, commission and other emoluments (including benefits-in-kind) computed

based on the cost incurred by the Group and the Company, and where the Group or Company did not incur any costs, the value

of the benefit is included. In 2003, the total directors’ remuneration is as follows :

The Group

2003 2002

$’000 $’000

Directors’ remuneration :

- Directors of the Company 870,561 882,460

- Directors of subsidiaries 174,828 150,921

The following information relates to remunerations of directors of the Company

2003 2002

Number of directors of the Company

in remuneration bands :

- Above $500,000 - -

- $250,000 to below $500,000 3 3

- Below $250,000 3 -

Total 6 3


ar 03

68

31. Segment information

Primary reporting format – Geographical segments by location of assets

United

Singapore Malaysia Indonesia Kingdom Others Elimination Group

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

Year ended31 December 2003

Revenue

- External revenue 30,950 14,978 5,072 4,479 2,196 - 57,675

- Inter-segment sales 9,695 531 - 3,364 - (13,590) -

40,645 15,509 5,072 7,843 2,196 (13,590) 57,675

Segment result 2,535 2,018 27 22 (73) (146) 4,383

Finance income/(cost) - net (501)

Share of results of

associated company 865

Profit before tax 4,747

Income tax expense (1,395)

Profit from ordinary

activities after tax 3,352

Minority interests (121)

Net profit 3,231

Segment assets 31,363 9,219 3,409 1,840 1,810 (7,826) 39,815

Associated company 990

Consolidated total assets 40,805

Segment liabilities (13,412) (3,720) (3,208) (1,349) (1,014) 7,464 (15,239)

Capital expenditure 940 207 36 7 4 - 1,194

Depreciation 595 175 93 8 11 - 882

Amortisation - - - - 4 - 4


ar 03

69

31. Segment information (cont’d)

United

Singapore Malaysia Indonesia Kingdom Others Elimination Group

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

Year ended31 December 2002

Revenue

- External revenue 30,000 15,539 6,704 4,834 1,528 - 58,605

- Inter-segment sales 12,858 439 5 3,501 - (16,803) -

42,858 15,978 6,709 8,335 1,528 (16,803) 58,605

Segment result 2,830 1,834 382 69 (98) (414) 4,603

Finance income/(cost) - net (534)

Share of results of

associated company 666

Profit before tax 4,735

Income tax expense (1,433)

Profit from ordinary

activities after tax 3,302

Minority interests (162)

Net profit 3,140

Segment assets 25,578 9,055 3,390 1,297 1,714 (5,718) 35,316

Associated company 497

Consolidated total assets 35,813

Segment liabilities (12,454) (4,646) (3,193) (882) (839) 5,335 (16,679)

Capital expenditure 681 67 5 5 17 - 775

Depreciation 616 185 91 5 15 - 912

Amortisation - - - - 3 - 3

The Group operates in four main geographical segment by location of assets. Other geographical areas mainly comprise China

and Philippines, none of which constitute a separately reportable segment.


ar 03

70

31. Segment information (cont’d)

Geographical market of the customers

The following details show the distribution of the Group’s consolidated sales based on the countries in which the customers are

located, regardless of where the goods are sold.

2003 2002

$’000 $’000

External sales revenueSingapore 21,599 22,987

Malaysia 17,511 18,289

Indonesia 6,017 6,931

China 2,384 1,816

United Kingdom and Europe 1,333 575

Others 8,831 8,007

57,675 58,605

Inter-segment transactions are determined on terms agreed between the parties. Segment assets consist primarily of property,

plant and equipment, inventories, receivables and operating cash, and exclude investment in associated company. Segment

liabilities comprise operating liabilities. Capital expenditure comprises additions to property, plant and equipment.

Secondary reporting format – Business segments

As the Group operates substantially in one business segment which is the blending of and trading in chemicals and chemical-

related products, no other segment information by business segment is presented.

32. Authorisation of financial statements

These financial statements were authorised for issue in accordance with a resolution of the directors on 27 February 2004.

Auditors’ Report - Page 32.


ar 03

71

Share Capital

Authorised Share Capital : $30,000,000

Issued and Fully Paid-Up Capital : $13,330,000

Class of Shares : 133,300,000 ordinary shares of $0.10 each

Voting Rights : One vote per share

Substantial Shareholders as at 4 March 2004(as shown in the Company’s Register of Substantial Shareholders)

Direct Interest Deemed interestNo. of shares % No. of shares %

Chew Choon Tee 43,989,316 33.0 204,296 0.2

Lim Yee Hoe 41,848,592 31.4 - -

Tan Bock Chia 21,517,883 16.1 - -

* Mr Chew Choon Tee’s deemed interest arising from the holding of 204,296 shares by spouse, Ms Liau Bin Bin.

Analysis of shareholdings as at 4 March 2004

No. of % of No. of % ofSize of Shareholdings Shareholders Shareholders Shares held Shareholdings

1 – 999 1 0.11 422 0.00

1,000 – 10,000 532 57.58 3,506,000 2.63

10,001 – 1,000,000 387 41.88 19,937,787 14.96

1,000,001 – and above 4 0.43 109,855,791 82.41

Total 924 100.00 133,300,000 100.00

Statist ics of Shareholdings

*

ar 03

72

List of top twenty-four shareholders as at 4 March 2004

% ofS/N Name of Shareholders No. of Shares Holdings

1. Chew Choon Tee 43,989,316 33.00

2. Lim Yee Hoe 41,848,592 31.39

3. Tan Bock Chia 21,517,883 16.14

4. Nippon Polyurethane Industry Co.,Ltd 2,500,000 1.88

5. UOB Kay Hian Pte Ltd 957,000 0.72

6. Kim Eng Securities Pte. Ltd. 777,000 0.58

7. Lim & Tan Securities Pte Ltd 640,000 0.48

8. Philip Securities Pte Ltd 570,000 0.43

9. United Overseas Bank Nominees Pte Ltd 510,000 0.38

10. OCBC Securities Private Ltd 491,000 0.37

11. DBS Nominees Pte Ltd 367,000 0.28

12. Citibank Nominees Singapore Pte Ltd 300,000 0.22

13. Lim Chin Kai 252,624 0.19

14. Lee Son Sia @ Lee Song Sia 251,000 0.19

15. Wong Wai Kar Michael 250,000 0.19

16. Hong Leong Finance Nominees Pte Ltd 228,000 0.17

17. Chan Kit Whye 226,000 0.17

18. Liau Bin Bin 204,296 0.15

19. Chan Ah Kau 200,000 0.15

20. Lee Bak Guan @ Lee Back Nguang 200,000 0.15

21. Ong Ah Inn 200,000 0.15

22. Tan Boon Ann 200,000 0.15

23. Wong Li Loon 200,000 0.15

24. Yap Sew 200,000 0.15

117,079,711 87.83

Percentage of Shareholding in Public Hands

19.1% of the Company’s issued paid-up capital is held in the hands of public. Accordingly, the Company has complied with Rule 723 of the

Listing Manual of the SGX-ST.

Stat ist ics of Shareholdings

ar 03

73

Notice of Annual General Meeting

NOTICE IS HEREBY GIVEN that the Annual General Meeting of the Company will be held at 132 Pioneer Road, Singapore 639588 on 15

April 2004 at 10.00 a.m. to transact the following business:-

AS ORDINARY BUSINESS

1. To receive and adopt the Audited Accounts of the Company for the financial year ended 31 December 2003 and the Directors’

Report and the Auditors Report thereon. (Resolution 1)

2. To declare a Final Dividend of 0.7 cents per share less income tax of 20% for the financial year ended 31 December 2003.

(Resolution 2)

3. To approve the Directors’ fees of S$34,000 for the financial year ended 31 December 2003. (Resolution 3)

4. To re-elect the following Directors retiring pursuant to the Company’s Articles of Association:-

Mr Chew Choon Tee (Article 104) (Resolution 4)Mr Tay Swee Sze (Article 108) (Resolution 5)Mr Chan Choong Poh Charles (Article 108) (Resolution 6)Mr Lee Bon Leong (Article 108) (Resolution 7)

Messrs Tay Swee Sze, Chan Choong Poh Charles and Lee Bon Leong will, upon re-election as Directors of the Company, remain as

members of the Audit Committee and will be considered independent for the purposes of Rule 704(8) of the Listing Manual of The

Singapore Exchange Securities Trading Limited.

5. To re-appoint PricewaterhouseCoopers as auditors of the Company and to authorise the Directors to fix their remuneration.

(Resolution 8)

AS SPECIAL BUSINESS

To consider and, if thought fit, to pass the following ordinary resolutions with or without modifications:-

6. Authority to allot and issue shares

(a) “That, pursuant to Section 161 of the Companies Act, Chapter 50, and the listing rules of the Singapore Exchange

Securities Trading Limited, approval be and is hereby given to the Directors of the Company at any time to such persons

and upon such terms and for such purposes as the Directors may in their absolute discretion deem fit, to:

(i) issue shares in the capital of the Company whether by way of rights, bonus or otherwise;

(ii) make or grant offers, agreements or options that might or would require shares to be issued or other transferable

rights to subscribe for or purchase shares (collectively, “Instruments”) including but not limited to the creation

and issue of warrants, debentures or other instruments convertible into shares;

ar 03

74


(iii) issue additional Instruments arising from adjustments made to the number of Instruments previously issued in the

event of rights, bonus or capitalisation issues; and

(b) (Notwithstanding the authority conferred by the shareholders may have ceased to be in force) issue shares in pursuance of

any Instrument made or granted by the Directors while the authority was in force,

provided always that

(i) the aggregate number of shares to be issued pursuant to this resolution (including shares to be issued in pursuance of

Instruments made or granted pursuant to this resolution) does not exceed 50% of the Company’s issued share capital, of

which the aggregate number of shares (including shares to be issued in pursuance of Instruments made or granted

pursuant to this resolution) to be issued other than on a pro rata basis to shareholders of the Company does not exceed

20% of the issued share capital of the Company, and for the purpose of this resolution, the issued share capital shall be

the Company’s issued share capital at the time this resolution is passed, after adjusting for;

a) new shares arising from the conversion or exercise of convertible securities, or

b) new shares arising from exercising share options or vesting of share awards outstanding or subsisting at the time

this resolution is passed provided the options or awards were granted in compliance with Part VIII of Chapter 8 of

the Listing Manual of the Singapore Exchange Securities Trading Limited, and

c) any subsequent consolidation or subdivision of the Company’s shares, and

(ii) such authority shall, unless revoked or varied by the Company at a general meeting, continue in force until the conclusion

of the next Annual General Meeting or the date by which the next Annual General Meeting of the Company is required by

law to be held, whichever is the earlier.” (Resolution 9)(See Explanatory Note 1)

7. Authority to grant options and to issue shares under the Megachem Employee Share Option Scheme

“That authority be and is hereby given to the Directors of the Company to offer and grant options from time to time in accordance

with the provisions of the Megachem Employee Share Option Scheme (the “Scheme”), and, pursuant to Section 161 of the

Companies Act, Chapter 50, to allot and issue from time to time such number of shares in the capital of the Company as may be

required to be issued pursuant to the exercise of options granted under the Scheme, provided that the aggregate number of shares

to be issued pursuant to the Scheme shall not exceed 15% of the issued share capital of the Company from time to time, as

determined in accordance with the provisions of the Scheme.” (Resolution 10)(See Explanatory Note 2)

8. To transact any other ordinary business which may be properly transacted at an Annual General Meeting.

ar 03

75

NOTICE OF BOOKS CLOSURE

NOTICE IS HEREBY GIVEN that subject to approval being obtained at the Annual General Meeting to be held at 132 Pioneer Road, Singapore

639588 on 15 April 2004 at 10.00 a.m.

1. A Final Dividend of 0.7 cents per share less income tax of 20% for the financial year ended 31 December 2003 will be paid on 12

May 2004.

2. The Share Transfer Books and Registrar and Register of Members of the Company will be closed on 23 April 2004 for preparation

of dividend warrants. Duly completed and stamped transfers received by the Company’s Share Registrar, Barbinder & Co Pte Ltd, 8

Cross Street #11-00 PWC Building, Singapore 048424, up to 5.00 p.m. on 22 April 2004 will be registered to determine members’

entitlements to the proposed dividend. Members (being depositors) whose securities account with the Central Depository (Pte)

Limited are credited with shares as at 5.00 p.m. on 22 April 2004 will be entitled to the payment of the proposed dividend.

BY ORDER OF THE BOARD

Kwok Hwee Peng

Foo Soon Soo

Company Secretaries

30 March 2004

Notes:

1) A member of the Company entitled to attend and vote at the Meeting is entitled to appoint a proxy in his stead.

2) A proxy need not be a member of the Company.

3) If the appointor is a corporation, the proxy must be executed under seal or the hand of its duly authorised officer or attorney.

4) The instrument appointing a proxy must be deposited at the registered office of the Company at 132 Pioneer Road Singapore

639588 not later than 48 hours before the time appointed for the Meeting.

Explanatory Notes:-

1. The ordinary resolution in item no. 6 is to authorise the Directors of the Company from the date of the above Meeting until the next

Annual General Meeting to issue shares and convertible securities in the Company up to an amount not exceeding in aggregate

50% of the issued share capital of the Company of which the total number of shares and convertible securities issued other than

on a pro-rata basis to existing shareholders shall not exceed 20% of the issued share capital of the Company at the time the

resolution is passed, for such purposes as they consider would be in the interests of the Company. This authority will, unless

revoked or varied at a general meeting, expire at the next Annual General Meeting of the Company.

2. The ordinary resolution proposed in item 7 above, if passed, will empower the Directors of the Company to offer and grant options

under the Megachem Employee Share Option Scheme and to allot and issue shares pursuant to the exercise of such options under

the Megachem Employee Share Option Scheme not exceeding 15% of the issued share capital of the Company from time to time.


This page has been intentionally left blank



MEGACHEM LIMITED(Incorporated in the Republic of Singapore)

PROXY FORM

IMPORTANT1. For investors who have used their CPF monies to buy

Megachem Limited shares, the Annual Report is forwardedto them at the request of their CPF Approved Nomineesand is sent FOR INFORMATION ONLY.

2. This Proxy Form is not valid for use by CPF investors andshall be ineffective for all intents and purposes if used orpurported to be used by them.

*I/We_____________________________________________________________________________________________________ of

________________________________________________________________________________________________________________

being *a member/members of Megachem Limited (the “Company”), hereby appoint

NRIC/ Proportion of shareholdings toName Address Passport No. be represented by proxy (%)

*and/or

as *my/our *proxy/proxies to vote for *me/us on *my/our behalf and, if necessary, to demand a poll, at the Annual GeneralMeeting of the Company to be held at 132 Pioneer Road Singapore 639588 on 15 April 2004 at 10.00 a.m. and at any adjournmentthereof.

*I/we direct *my/our *proxy/proxies to vote for or against the Ordinary Resolutions to be proposed at the Annual General Meetingas indicated with an “X” in the spaces provided hereunder. If no specified directions as to voting are given, the *proxy/proxies willvote or abstain from voting at *his/their discretion.

No. Ordinary Resolutions For Against

1. To receive and adopt the Accounts for the financial year ended 31 December 2003and the Reports of Directors and Auditors thereon.

2. To declare a Final Dividend of 0.7 cents per share less income tax of 20% for thefinancial year ended 31 December 2003.

3. To approve the Directors’ fees of S$34,000 for the financial year ended31 December 2003.

4. To re-elect Mr Chew Choon Tee pursuant to Article 104 of the Company’s Articlesof Association.

5. To re-elect Mr Tay Swee Sze pursuant to Article 108 of the Company’s Articlesof Association.

6. To re-elect Mr Chan Choong Poh Charles pursuant to Article 108 of the Company’sArticles of Association.

7. To re-elect Mr Lee Bon Leong pursuant to Article 108 of the Company’s Articlesof Association.

8. To re-appoint PricewaterhouseCoopers as auditors of the Company and to authorisethe Directors to fix their remuneration.

9. To authorise Directors to issue shares pursuant to Section 161 of the Companies Act,Chapter 50.

10. To authorise Directors to grant options and to issue shares under the MegachemEmployee Share Option Scheme.

Dated this ________day of ____________________ 2004

Total Number of Shares Held

______________________________________________

Signature(s) of Member(s)/Common Seal

* Delete accordingly

IMPORTANT. Please read notes overleaf

Notes:-

1. A member of the Company entitled to attend and vote at the Annual General Meeting is entitled to appoint not more than twoproxies to attend and vote in his stead. Such proxy need not be a member of the Company.

2. Where a member of the Company appoints two proxies, he shall specify the proportion of his shareholding (expressed as a percentageof the whole) to be represented by each such proxy.

3. The instrument appointing a proxy or proxies must be under the hand of the appointor or his attorney duly authorised in writing.Where the instrument appointing a proxy or proxies is executed by a corporation, it must be executed under its common seal or underthe hand of its attorney or duly authorised officer.

4. A corporation which is a member of the Company may authorise by resolution of its directors or other governing body such personas it thinks fit to act as its representative at the Annual General Meeting, in accordance with its Articles of Association and Section 179of the Companies Act, Chapter 50 of Singapore.

5. The instrument appointing proxy or proxies, together with the power of attorney or other authority (if any) under which it is signed,or notarially certified copy thereof, must be deposited at the registered office of the Company at 132 Pioneer Road Singapore 639588not later than 48 hours before the time set for the Annual General Meeting.

6. A member should insert the total number of shares held. If the member has shares entered against his name in the DepositoryRegister (as defined in Section 130A of the Companies Act, Chapter 50 of Singapore), he should insert that number of shares. If themember has shares registered in his name in the Register of Members of the Company, he should insert the number of shares. If themember has shares entered against his name in the Depository Register and shares registered in his name in the Register of Membersof the Company, he should insert the aggregate number of shares. If no number is inserted, this form of proxy will be deemed torelate to all the shares held by the member of the Company.

7. The Company shall be entitled to reject the instrument appointing a proxy or proxies if it is incomplete, improperly completed orillegible or where the true intentions of the appointor are not ascertainable from the instructions of the appointor specified in theinstrument appointing a proxy or proxies. In addition, in the case of members of the Company whose shares are entered against theirnames in the Depository Register, the Company may reject any instrument appointing a proxy or proxies lodged if such members arenot shown to have shares entered against their names in the Depository Register 48 hours before the time appointed for holding theAnnual General Meeting as certified by The Central Depository (Pte) Limited to the Company.

8. A Depositor shall not be regarded as a member of the Company entitled to attend the Annual General Meeting and to speak and votethereat unless his name appears on the Depository Register 48 hours before the time set for the Annual General Meeting.

AFFIX

STAMP

The Company Secretary

MEGACHEM LIMITED132 Pioneer Road

Singapore 639588

ar 03Offices

Megachem Limited

Megachem Raya Pte Ltd

Megachem (Shanghai) Pte Ltd

Megachem Manufacturing Pte Ltd

132 Pioneer Road, Singapore 639588

Tel (65) 6863 3818

Fax (65) 6863 2818

[email protected]

www.megachem.com.sg

C.N. Chemicals Sdn Bhd

121 Jalan SS25/2 Petaling Jaya,

Selangor Darul Ehsan, Malaysia

Tel (60) 3 7803 0795

Fax (60) 3 7803 0878

[email protected]

PT. Mega Kemiraya

Jalan Karang Bolong Raya

12/23 Ancol Pademangan

Indonesia

Tel (62) 21 690 9169

Fax (62) 21 690 9173

[email protected]

Megachem (Thailand) Limited

49/10 Moo 12,

King Kaew Road,

Tambon Rachatava,

Amphor Bangplee,

Samut Prakarn Province,

Thailand

Tel (66) 2 750 3265

Fax (66) 2 750 3266

[email protected]

Megachem Phils., Inc.

Room 1116 11th Floor,

City & Land Mega Plaza

ADB Corner, Garnet Road

Ortigas Center, Pasig City

Philippines

Tel (63) 2 687 6086, 687 6089, 687 6097

Fax (63) 2 687 7937

[email protected]

�� !"#$%&'()*+

Megachem International Trading

(Shanghai) Co., Ltd.

Room 10C, Zhaofeng World Trade Building

369 Jiangsu Street, Changning District

Shanghai, China

Tel (86) 21 5240 0296, 5240 0297

Fax (86) 21 5240 0994

[email protected]

��(�� !")�� !"#$

Megachem (Guangzhou Free

Trade Zone) Co., Ltd.

Room 5029, the Second Floor,

No. 284, Dongjiang Street,

Guangzhou Bonded Zone,

Guangzhou, PRC

Tel (86) 20 8326 6154, 8326 6965

Fax (86) 20 8326 6760

[email protected]

Newport Chemicals (UK) Limited

Suite 3,

2 Alexandra Gate

Cardiff, UK

Tel (44) 29 20 894812, 894810

Fax (44) 29 20 894814

[email protected]

Megachem Limited • 132 Pioneer Road Singapore 639588 Tel (65) 6863 3818 Fax (65) 6863 2818 www.megachem.com.sg

Documents

Our Brand Chemistry - listed companymegachem.listedcompany.com/misc/ar2003.pdf · And that’s our brand chemistry at work. Our Brand Chemistry 05. ar 03 Contents 07 Corporate Profile