Printed by Xpress Print Pte Ltd tel (65)

Transcription

1 Semitech Electronics Ltd Blk 3014A Ubi Road 1 #04-01 / 02 Kampong Ubi Industrial Estate Singapore Tel :: Fax: Designed by press Media Pte Ltd tel (65) Printed by Xpress Print Pte Ltd tel (65)

2 ANNUAL REPORT 2002 ANNUAL REPORT 2002 PROVIDING ENGINEERING CAPABILITIES FOR ELECTRONICS SOLUTIONS

3 contents Corporate Information 02 Chairman and CEO s Message 04 Business Review 08 Group Financial Highlights 10 Board of Directors 12 Key Management 14 Corporate Governance 16 Risk Management 27 Financial Contents 29 DESIGN RATIONALE In our inaugural annual report, we have chosen the Printed Circuit Board and binary numbers as the design theme. As the basic building blocks of our high-technology industry, they are symbols representative of our corporate endeavours, as well as emblems of the cornerstone we have laid in our foundation as a public listed company. Complementing this theme are the distinctive colours of lavender, mustard and dark orange, sumbolising the boldness, freshness and vital difference we aspire to inject into all our undertakings.

4 Mission : We aim to be a World Class Contract Equipment Manufacturer and an International Leader in After-Market Services, servicing all multi-national high-technology products

5 Corporate Information BOARD OF DIRECTORS : Neo Kian Chye Executive Chairman Lawrence Lee Seng Kiong President and Chief Executive Officer Manson Tay Soon Lee Deputy President Wilfred Teo Chu Khiong Chief Financial Officer Chua Keng Khng Independent Director Low Kum Choy Independent Director Victor Chow Yew Wai Independent Director COMPANY SECRETARIES : Wilfred Teo Chu Khiong, CPA Quek Sok Cher, ACIS REGISTERED OFFICE AND BUSINESS ADDRESS : Blk 3014A Ubi Road 1 #04-01/02 Kampong Ubi Industrial Estate Singapore SHARE REGISTRAR : Lim Associates (Pte) Ltd 10 Collyer Quay #19-08 Ocean Building Singapore AUDITORS : Moores Rowland Certified Public Accountants 133 Cecil Street #15-02 Keck Seng Tower Singapore Partner-in-charge : Lee Lee King Date of appointment : 19 December 2002 PRINCIPAL BANKERS : Oversea-Chinese Banking Corporation Limited 65 Chulia Street #29-02/04 OCBC Centre Singapore The Bank of East Asia, Limited Singapore Branch 137 Market Street Singapore The Development Bank of Singapore Ltd 6 Shenton Way DBS Building Tower One Singapore Southern Bank Berhad Singapore Branch 39 Robinson Road #01-02 Robinson Point Singapore Semitech Electronics Ltd Annual Report 2002

6 We provide one-stop services: from design, manufacture to assembly and integration of equipment for hard disk drive manufacturers Semitech Electronics Ltd Annual Report

7 Chairman and CEO s Message Dear Shareholders, The year 2002 was shaped by dynamic events. It had begun with the trauma of September 11 still fresh in the mind, but with reasonable prospects being projected for the continued growth of the US, global and local economies. There were also renewed hopes that Japan would solve its economic problems, while China s entry to the WTO held the promise of its enormous market being opened for overseas investments. As it turned out, not only did the US experience lacklustre growth, but so did the Singapore economy, declining rapidly in the second half of the year. Against this backdrop, the electronics and related industries saw its most severe downturn in history. Despite these conditions, however, we were not deterred in our singleminded determination to obtain a listing on SESDAQ and raise new capital to fund our expansion. We are pleased that the Initial Public Offering (IPO) of 26.5 million new shares went well, drawing keen interest from both institutional and retail investors. The additional funds of about S$4.6 million brought in from the IPO lifted the profile of our Company and allowed us to plan and execute our strategies that will provide the foundations of our long-term success. We are pleased to record that in our first financial year as a public company, we have not only made substantial progress in furthering our objective but also recorded a significant rise in revenues and earnings, albeit by a smaller amount than we had originally forecast at the time we went public in December Results Group turnover rose by 83.7% to S$39.5 million (FY2001: S$21.5 million). Net profit after tax increased by 42.3% to S$3.7 million (FY2001: S$2.6 million). Net asset value per share rose to 8.97 cents (FY2001: 3.62 cents). 44 Semitech Electronics Ltd Annual Report 2002

8 Chairman and CEO s Message We are pleased to record that in our first financial year as a public company, we have not only made substantial progress in furthering our objective but also recorded a significant rise in revenues and earnings Dividends The Directors have recommended a first and final dividend of 0.78 cents per ordinary share (net of tax) to be approved at the forthcoming Annual General Meeting. Future Direction - Pragmatic and Optimistic Looking ahead into the current financial year, we are both pragmatic and optimistic. Pragmatic because the geopolitical tensions in the Middle East have yet to be resolved and economic growth prospects for the Singapore economy are as yet unexciting. The order flow from our customers in our Contract Equipment Manufacturing Division of our business is difficult to project with any certainty. While we are confident that the continued trend of outsourcing will translate into orders for our products and services, visibility at the moment however is not clear. On the other hand, we are optimistic about the longer-term prospects for our Group. We have an excellent track record and strong engineering capabilities. With the top-tier names in the Hard Disk Drive (HDD) industry as customers, the demand for hard disk drives in IT and other applications will mean that there is a continuous need for upgrading of production equipment to produce the hard disk drives. The award of the ISO 9001 certification in 2002 has effectively pre-qualified us in many respects and we look to enlarging our list of customers. The range of products and services we have will also be expanded. Geographically, we will expand our Contract Equipment Manufacturing operations to China with the setting up of a plant due to start in the second quarter of this year. The China operations will cater to our major customers Maxtor and Seagate, who will have a sizeable presence there. By locating a facility in China, we aim to be near our customers and reap the benefits from that proximity. As a whole, for this division, we intend to leverage on our engineering capabilities to increase our manufacturing range. Semitech Electronics Ltd Annual Report

9 Chairman and CEO s Message According to Technology Research Consultancy, Gartner Dataquest (in January 2003), mobile phone sales worldwide are projected at 475 million units in Another consultancy, IDC, projected in October 2002 that the development of the mobile commerce industry in Singapore is expected to reach US$403 million by With such a favourable market environment, we envision a corresponding growth in our after-market services. In our Communications Division or after-market services segment of our business, the trend for outsourcing by major mobile phone manufacturers is now established. We already have a strong leadership position in providing this service, and look to opening more of these specialised outlets in Singapore, Malaysia, China, Hong Kong and Thailand. Besides mobile phones from Nokia, Samsung and Motorola, we are servicing an ever larger group of products such as laptops, pocket PCs, multiplexer hubs and modem cards from clients such as Hewlett-Packard and 3Com. This is in line with our strategy of expanding our business synergistically while decreasing the business risk of an over-reliance on a few select clients. As for our Trading and Distribution Division, we are increasing the number of distributorships and will seek to represent several more world-class manufacturers both in the region and China. Acknowledgements We would like to thank our shareholders, employees and customers for their role in making our Company the success that it has been so far. We look forward to reporting and sharing in a more exciting future ahead. Neo Kian Chye Executive Chairman Lawrence Lee Seng Kiong President/Chief Executive Officer 66 Semitech Electronics Ltd Annual Report 2002

10 Semitech Electronics Ltd Annual Report

11 Business Review In our Communications Division, sales rose by 100% to S$12.0 million in FY2002. The rise came from the opening of an additional 3 outlets for the servicing of Nokia hand phones. Total turnover for our Group rose by S$18.0 million in FY2002 to S$39.5 million. The increase came mainly from the Contract Equipment Manufacturing and Communications Divisions. Our Contract Equipment Manufacturing Division saw turnover rise by 95.3% to S$24.8 million in FY2002. There were strong orders from hard disk drive manufacturers that executed their programme of upgrading and enhancements in In our Communications Division, sales rose by 100% to S$12.0 million in FY2002. The rise came from the opening of an additional 3 outlets for the servicing of Nokia hand phones. We now have a total of 5 Nokia outlets located in several key locations with high consumer traffic flow. We also began servicing 3Com multiplexer hub and modem cards as well as the sale of Personal Digital Assistants (PDAs) in Meanwhile, revenue from our Trading and Distribution Division fell by 4.3% to S$2.7 million in FY2002. Weakness in the semiconductor industry caused a falloff in demand for products that we trade and distribute. Our overall gross profit margin fell from 31.3% in FY2001 to 24.7% in FY2002. The decline was due to several factors, namely: (a) a decline in the value of the US Dollar; (b) pricing pressures caused by keen competition; (c) higher raw material prices; (d) less complex repairs undertaken which typically commanded lower fees and generally translated to lower gross profit margin, different sales mix with different margins and the sale of accessories with lower gross profit margin for our Communications Division; (e) pricing pressures faced by our Trading and Distribution Division. Our profit from operations increased by 41.6% from S$3.6 million in FY2001 to S$5.1 million in FY2002. The increase in profit from operations is due mainly to the increase in gross profit of S$3.1 million. Profit before interest and tax margin decreased from 16.7% in FY2001 to 12.9% in FY2002. Profit before interest and tax margin for our Contract Equipment Manufacturing Division decreased from 22.8% in FY2001 to 16.5% in FY2002 due mainly to the decrease in the gross profit margin. Profit before interest and tax margin for our Communications Division 88 Semitech Electronics Ltd Annual Report 2002

12 Business Review decreased from 17.2% in FY2001 to 10.2% in FY2002 due mainly to the decrease in gross profit margin on different sales mix with different margins and increase in rental expenses in relation to revenue. Loss before interest and tax margin for our Trading and Distribution Division reduced from 18.6% in FY2001 to 14.1% in FY2002, due mainly to better cost control. The financial position of our Group improved by year-end Cash and cash equivalents increased from S$2.1 million in FY2001 to S$10.4 million in FY2002 due mainly to the proceeds from our IPO. Our cash management also improved with trade receivables turnover decreasing from 67 days in FY2001 to 35 days in FY2002. Trade payables turnover decreased from 83 days in FY2001 to 27 days in FY2002 due to the use of more trade financing facilities instead of trade credit. Inventory turnover also registered an improvement from 90 days in FY2001 to 44 days in FY2002, due to better inventory management, even as the inventories held rose as a result of a higher volume of business. Our capital expenditure for FY2003 is expected to be about S$1.41 million. This will be used mainly for upgrading our current facilities and opening after-market service centres. Future Directions In December 2002, we were appointed by Motorola to open a Motorola Wireless Connectivity Centre at the Paragon Shopping Centre. This centre will offer onestop services to Motorola customers such as servicing and connecting Motorola products. All in all, we aim to open additional after-sales service centres to cater to the growing demand for professional product servicing. With the challenging business climate, we have maintained an eagle eye on our expenses and investments. Any expansion, like our China footprint, will be done prudently and progressively. We will concentrate on developing our core competencies and advantages and widen the menu of products we service, as well as broaden the range of equipment we manufacture. This will not only provide us a wider pool of revenue streams but will further mitigate downside risk. Such measures, we believe, will enable us to face the future with optimism. Semitech Electronics Ltd Annual Report

13 Group Financial Highlights S$million Revenue S$million Shareholders Interests 15.8 Net profit after tax was S$3.7 million for FY2002, compared to S$2.6 million for FY2001, an increase of 42.3% S$million Profit Before Tax S$million Profit After Tax Semitech Electronics Ltd Annual Report 2002

14 S$ 000 S$ 000 S$ 000 S$ 000 Revenue 16,255 21,964 21,511 39,521 Profit from operations 624 1,537 3,576 5,064 Profit before tax 475 1,340 3,381 4,822 Profit after tax ,579 3,701 Minority interests 10 (12) (2) - Profit attributable ,577 3,701 to shareholders Shareholders interests 3,944 4,553 6,383 15,836 Total assets 9,401 12,471 11,731 23,196 Total liabilities 5,443 7,892 5,320 7,360 % % % % Profitability ratios Gross profit margin Return on revenue Return on shareholders funds Per share data Net tangible assets Earnings per share days days days days Trade receivables turnover Trade payables turnover Inventory turnover Note: Net tangible assets was calculated based on the number of shares in issue of 176,500,000 ordinary shares of S$0.05 each. For FY , earnings per share was calculated based on 126,600,000 ordinary shares. For FY2002, earnings per share was computed based on the weighted average number of ordinary shares in issue during the financial year of 141,406, Semitech Electronics Ltd Annual Report

15 Board of Directors Neo Kian Chye Lawrence Lee Seng Kiong Manson Tay Soon Lee Wilfred Teo Chu Khiong Victor Chow Yew Wai Chua Keng Khng Low Kum Choy 1212 Semitech Electronics Ltd Annual Report 2002

16 Board of Directors Neo Kian Chye, our Executive Chairman, is one of our founders and primarily responsible for overseeing the overall business strategy and expansion of our Group. He has more than 29 years of business and working experience, during which he founded several other companies, such as Kiro Pte Ltd, a trader of paper laminating materials and Heatwell Elements Manufacturing Pte Ltd, a manufacturer of heaters. He co-founded our Company in 1986 and has approximately 16 years of experience in contract equipment manufacturing and electronic components and equipment trading. Lawrence Lee Seng Kiong, our President and Chief Executive Officer, is primarily responsible for overseeing the overall management and day-to-day operations of our Group. He is instrumental in the growth and development of our Group. He joined us in 1989 and has more than 25 years of experience in the electronics industry. Starting as a technician with Fairchild Pte Ltd (now known as National Semiconductor Pte Ltd) in 1975, he assumed the post of Technical Supervisor with Data Terminal System Pte Ltd in Thereafter, he joined KES System and Service Pte Ltd for 7 years, as Head of Service Department from 1981 to 1985 and Regional Sales Engineer from 1986 to Immediately prior to joining us, he was a Senior Sales Engineer with Wells Electronics Pte Ltd. He holds a Diploma in Business Management from the Singapore Institute of Management. Manson Tay Soon Lee, our Deputy President, is primarily responsible for overseeing the management and day-to-day operations of our Contract Equipment Manufacturing Division. He started in 1979 as a Technician with Philips Singapore Pte Ltd and went on to work for Nixdorf Computer International Singapore Pte Ltd between 1982 and 1984 as an Electronics Technician. Between 1984 and 1987, he was with KES Systems and Service Pte Ltd initially as its Electronics Technician, and subsequently moved up the ranks to be its Technical Specialist and finally the Head of the Product Installation, Maintenance and Service Unit. Before joining our Group in 1987, he was the Head of the Service Department with Micromaster Pte Ltd, assisting them in establishing their service department. Wilfred Teo Chu Khiong, our Chief Financial Officer, was appointed to our Board on 25 October He is responsible for our financial accounting, corporate finance, human resource, purchasing, warehousing and administration matters. He has more than 20 years of experience in finance and accounting. In 1989, he joined Interturbine Pte Ltd and its subsidiaries as Finance and Administration Manager and Company Secretary and was subsequently promoted to Finance Director in Between 1992 and 1998, he was with ABR Holdings Limited as Head of Corporate Planning and Company Secretary from 1992 to 1995 as well as an Executive Director of its associated company, Lawry s (Singapore) Ltd and its subsidiaries, from 1993 to From 1998 to 2000, he was the General Manager (Finance and Administration) and from 1999 to 2000, the Company Secretary of Enersave Holdings Limited. Prior to joining us in March 2002, he was the General Manager of Culina Pte Ltd, an associated company of Sincere Watch Limited. He holds a Bachelor of Commerce (Accountancy) degree from the Nanyang University of Singapore and is a Certified Public Accountant of the Institute of Certified Public Accountants of Singapore. Chua Keng Khng, an Independent Non-Executive Director, was appointed to our Board on 25 October He was with an international accounting firm between 1972 and 1988 before leaving to start his own practice. His experience includes statutory audit, tax, liquidation, receivership, restructuring and financial consultancy. He is a fellow member of the Association of Chartered Certified Accountants (UK) and is also a practising Certified Public Accountant of the Institute of Certified Public Accountants of Singapore. He is the Chairman of our Company s Audit Committee and is a member of the Remuneration Committee. He is also an Independent Non-Executive Director in three other listed companies in Singapore, Casa Holdings Limited, San Teh Ltd and SM Summit Holdings Ltd. He currently does not hold any shares in our Company. Low Kum Choy, an Independent Non-Executive Director, was appointed to our Board on 25 October Mr Low is the Chairman and Joint Managing Director of the KES System and Service group of companies between 1978 and He retired in 1990 and now occupies the position of Non-Executive Chairman of DVS Technology (S) Pte Ltd. He began his working life as an apprentice with the then HM Dockyard and obtained a Diploma from the Dockyard Technical College. He holds a Masters of Business Administration degree from the University of Leicester, United Kingdom and a Diploma in Telecommunications Engineering from the Singapore Polytechnic. He is the Chairman of our Company s Nominating Committee and is a member of the Audit Committee. He currently does not hold any shares in our Company. Victor Chow Yew Wai, an Independent Non-Executive Director, was appointed to our Board on 25 October He was with Robin Holdings (Pte.) Ltd between 1981 and 1998 and was appointed the Group General Manager and director of Robin Holdings (Pte.) Ltd and its subsidiaries (Robin Group) in During his 17 years with the Robin Group, his duties encompassed overseeing more than 30 companies involved in the running of mills, construction, civil engineering, marine engineering, manufacturing of electronic components and electroplating, property development and hotel management. In 2002, he started a sole proprietorship specialising in developing business strategies for small and medium-sized enterprises in Singapore. He is a qualified Fellow of the Chartered Institute of Management Accountants of United Kingdom, a member of the Institute of Certified Public Accountants of Singapore and a member of the Chartered Institute of Marketing of the United Kingdom. He is the Chairman of our Company s Remuneration Committee and is a member of the Audit and Nominating Committee. He currently does not hold any shares in our Company Semitech Electronics Ltd Annual Report

17 Key Management Patrick Ng Wee Teck, our Vice President (Communications Division), is responsible for overseeing the operations and business development of our Communications Division. He has more than 23 years of working experience in the electronics, computer and telecommunication industries. Prior to joining us in 2000, he was Regional Service Support Manager for 3Com and was responsible for managing the overall operations of service support and logistics for the Palm computing business. He holds a Bachelor of Business Administration degree from the Royal Melbourne Institute of Technology University, a Diploma in Electrical & Electronics Engineering from Ngee Ann Polytechnic and a Diploma in Management Studies from the Singapore Institute of Management. 2. Johnny Qua Gin Jong, our Vice President (Contract Equipment Manufacturing Division), is responsible for managing the operations of our Contract Equipment Manufacturing Division. He has more than 21 years of working experience in the electronics industry. Prior to joining us in 2000, he was Project Manager with Mark IV IVHS, Inc New Jersey, USA, and was responsible for automatic vehicle identification installation projects. He holds a Bachelor of Electronics Engineering Technology degree from Fairleigh Dickinson University, USA. 3. Heng Lim Song, our Vice President (Trading and Distribution Division), is responsible for managing the operations of our Trading and Distribution Division. He has more than 27 years of experience in the electronics industry. Prior to joining us in 2002, he was Sales Manager with ZMC Technologies Pte Ltd and was responsible for the sale of semiconductor test equipment. He holds a Full Technological Certificate in Telecommunications and Electronics from City & Guilds of London Institute and also a Diploma in Management Studies from the Singapore Institute of Management. 4. Nicholas Lee Hwee Choon, our General Manager for Semitech Electronics (Wuxi) Co., Ltd, is responsible for managing Semitech China Operations. He has more than 23 years of working experience in various areas of business covering engineering and international sales and marketing. He was also an entrepreneur in the Contract Service Manufacturing and Semiconductor Industries. Prior to joining us in 2002, he was a local Company Director of ROBV Pte Ltd. He holds a Master of Business Administration McQuarie University (Australia). 5. Stuart Teo Chong Teck, our Assistant Vice President (Communications Division), is responsible for managing the regional operations and business development of our mobile phone repair services for our Communications Division. Prior to joining us from 1998 to 2000, he was with Mist Asia Sdn Bhd as an Executive Director and was responsible for managing the operations in Malaysia. He joined us in 2000 and holds a Bachelor of Business Administration degree from the University of York, Canada Semitech Electronics Ltd Annual Report 2002

18 Professional expertise and quality customer service is the distinguishing experience offered by our service centres Semitech Electronics Ltd Annual Report

19 Corporate Governance The Company is committed to comply with the Code of Corporate Governance issued on 21 March 2001 by the Corporate Governance Committee to protect the interests of its shareholders and ensure greater transparency and accountability. This report describes the corporate governance activities that have been adopted by the Company with specific references to the Code of Corporate Governance ( Code ). BOARD MATTERS Principle 1: Board s Conduct of its Affairs The primary role of the Board is to set broad policies and strategies of the Company, establish goals for the Management and monitor the performance of these goals. It also monitors and ensures regulatory compliance. The Board meets to consider the following: a) approval of half-year and full year announcements; b) approval of annual report and accounts; c) approval of material acquisitions and disposal of assets; d) conflicts of interest for substantial shareholders or directors; e) approve corporate or financial restructuring; f) other matters which require Board approval as specified under the Company s interested person transaction policy. The Board intends to hold at least 4 meetings each year. However, additional meetings may be scheduled if there are matters requiring the Board s decision. The attendance of the Directors at meetings of the Board and the Board Committees, as well as the frequency of such meetings from 12 December 2002 to 18 March 2003, is disclosed as such: Board Audit Executive Nominating Remuneration Meetings Committee Committee Committee Committee No. of No. of No. of No. of No. of No. of No. of No. of No. of No. of meetings meetings meetings meetings meetings meetings meetings meetings meetings meetings held attended held attended held attended held attended held attended Neo Kian Chye Lawrence Lee Seng Kiong Manson Tay Soon Lee Wilfred Teo Chu Khiong Chua Keng Khng Low Kum Choy Victor Chow Yew Wai Semitech Electronics Ltd Annual Report 2002

20 Corporate Governance The Company monitors and works closely with our external consultants on the changes in regulations and accounting standards. The Company Secretary will also provide Directors with regular updates on the latest governance and listing manuals. Where changes have a significant bearing on the Company, Directors will be briefed either during Board meetings or through electronic means. Principle 2: Board Composition and Balance Currently, the Board consists of 7 Directors of whom 3 are Independent Non-Executive Directors. The details of the academic and professional qualifications of the Directors are set out on page 13. The 3 Independent Non-Executive Directors are Mr Chua Keng Khng, Mr Low Kum Choy and Mr Victor Chow Yew Wai. In its review, the Board adopts the Code s definition of what constitutes an Independent Director in its review. As a result of the review, the Board is of the view that all Independent Non-Executive Directors are independent. The Board has established the following committees on these dates: 1) Audit Committee on 31 October ) Executive Committee on 30 January ) Nominating Committee on 18 March ) Remuneration Committee on 31 October 2002 The nature of the Directors appointments on the Board and details of their membership are set out below: Director Board membership Committee membership Audit Executive Nominating Remuneration Neo Kian Chye Executive Chairman - Chairman Member Member Lawrence Lee Seng Kiong President and Chief - Member - - Executive Officer Manson Tay Soon Lee Deputy President - Member - - Wilfred Teo Chu Khiong Chief Financial Officer - Member - - Chua Keng Khng Independent Director Chairman - - Member Low Kum Choy Independent Director Member - Chairman - Victor Chow Yew Wai Independent Director Member - Member Chairman Semitech Electronics Ltd Annual Report

21 Corporate Governance The Board has reviewed the composition and is satisfied that the current board size is adequate. The current Board members comprise individuals from various disciplines with different working experiences and backgrounds, which we may tap for assistance in furthering our business objectives and shaping our business strategies. Principle 3: Chairman and Chief Executive Officer The Code recommends that there should be a clear division of responsibilities at the top of the company the working of the Board and the executive responsibility of the company s business which will ensure a balance of power and authority, such that no one individual represents a considerable concentration of power. To achieve this, the roles of the Chairman and the Chief Executive Officer ( CEO ) should be separate to ensure an appropriate balance of power, increased accountability and greater capacity of the Board for independent decision-making. The Board of Directors is headed by Mr Neo Kian Chye, the Executive Chairman who is responsible for the running of the Board. The-day-to-day running of the business is headed by Mr Lawrence Lee Seng Kiong, the CEO. The Executive Chairman and CEO of the Company are not related to each other. To assist the Board to better manage the affairs of the Company, an Executive Committee ( Exco ) was formed. The Exco is currently chaired by Mr Neo Kian Chye. Its other members are Mr Lawrence Lee Seng Kiong, Mr Manson Tay Soon Lee and Mr Wilfred Teo Chu Khiong. The Exco may decide to invite any person into the Exco, with the approval of all existing members. The Exco meets at least once a month. The functions of the Exco are to: a) review with management, and recommend to the Board, the overall strategy of our Group and monitor its implementation; b) consider and recommend to the Board the Group s short and medium term plans (1 to 3 years) together with its annual operating and capital budgets; c) review the half-year and full-year financial announcements before submission to the Board of Directors for approval; d) identify, initiate and make recommendations to the Board on any price-sensitive information that they possess which should be announced to the public; e) evaluate and approve any employment and/or termination of key management employees (executive officers and above). The Exco should review whether this position is necessary and decide on the maximum amount of salary to be paid to that employee; 1818 Semitech Electronics Ltd Annual Report 2002

22 Corporate Governance f) Evaluate, review and approve capital equipment purchases, leases and expenses above S$100,000, including the suppliers in which the Company would be engaging; g) Ratify quotations of S$200,000 or above submitted and/or committed by the Company. This is in line with the policy that all quotations above S$200,000 have to be approved and signed by any two of the Exco members; h) Consider, evaluate, review and if deemed fit, approve major transactions such as investments and disposal of assets of the Group within the limits established. The major transactions are listed as follows: Major Transactions (Limits) Below S$100,000 Above S$100,000 or 1% of Net Tangible Assets (whichever is lower) Above S$250,000 or 2.5% of Net Tangible Assets (whichever is lower) Approval Level Chief Executive Officer Exco Board of Directors i) Review and recommend to the Board, proposed investments, acquisitions and disposal of assets of the Company and its subsidiaries which are above S$250,000 or 2.5% of the net tangible assets (whichever is lower) of the respective companies, but less than S$500,000 or 5% of the net tangible assets (whichever is lower). Any transactions above this limit needs approval from the shareholders; j) Carry out such functions as may be delegated by the Board and be assessable by the Board of Directors for any information that the Board deems to be necessary to carry out and discharge their duties and responsibilities. In addition, Exco should provide the Board with any minutes of the Exco meetings upon request from the Board; k) Approve the affixation of the common seal onto any legal documents in accordance with the Company s Memorandum and Articles of Association; l) To identify the business risks and establish risk management policies and procedures for the Group. Semitech Electronics Ltd Annual Report

23 Corporate Governance Principle 4: Board Membership Our Board of Directors has formed the Nominating Committee ( NC ) on 18 March It comprises two of our independent Directors, Mr Low Kum Choy as Chairman and Mr Victor Chow Yew Wai and our Executive Chairman, Mr Neo Kian Chye. The Board is represented by members who are nominated by the respective substantial shareholders of the Company. Accordingly, the NC s principal functions are therefore: a) the re-nomination of Directors, having regard to the Director s contribution and performance (eg attendance, preparedness, participation and candour) including, if applicable, independence; b) to determine, annually, whether a Director is independent; c) to assess the effectiveness of the Board and the contribution by each Director to the effectiveness of the Board; d) to determine whether a Director is able to and has been adequately carrying out his duties as a Director of the Company; e) to recommend to the Board the performance criteria to be used for the evaluation of individual Directors as well as the effectiveness of the Board as a whole, and to put in place the evaluation process. Our Articles of Association require one-third of our Directors to retire and subject themselves to re-election by shareholders at every Annual General Meeting ( AGM ) ( one-third rotation rule ). In other words, no Director stays in office for more than three years without being re-elected by shareholders. In addition, a newly-appointed Director will re-submit himself for retirement and re-election at the AGM immediately following his appointment. He is therefore subject to the one-third rotation rule. Principle 5: Board Performance Due to the historical background of the Company, where the Board members are appointed by the respective substantial shareholders, the performance of the individual Director is directly evaluated by the substantial shareholders. The NC will evaluate the Board s performance as a whole. The assessment is based on the criteria such as relations with the Company, experience in being a Director and various competencies and knowledge and wealth of experience. The NC, together with the Chairman of the Board of Directors, evaluates the effectiveness of the Board in monitoring management s performance against the goals that have been set by the Board Semitech Electronics Ltd Annual Report 2002

24 Corporate Governance Principle 6: Access to Information The Company fully recognises that the continual flow of relevant information on an accurate and timely basis is critical for the Board to be effective in the discharge of its duties. Management provides the Board members with monthly management accounts and regular updates on the financial position of the Company. Quarterly reviews of the Company s activities are also provided to the Board while other key information is forwarded to the Directors on an on-going basis. The Directors have also been provided with the telephone numbers and particulars of the Company s senior management and Company Secretary to facilitate access. The Directors have separate and independent access to the Company Secretary. The role of the Company Secretary is to advise and ensure the Company s compliance regulations adhere to the relevant statutes and regulations. The Board will have access to professional advice where such services are required. The cost of such professional advice will be borne by the Company. REMUNERATION MATTERS Principle 7: Procedures for Developing Remuneration Policies Principle 8: Level and Mix of Remuneration Principle 9: Disclosure and Remuneration The Remuneration Committee comprises our Executive Chairman, Mr Neo Kian Chye, and two of our Independent Directors, Mr Chua Keng Khng and Mr Victor Chow Yew Wai. The Chairman of the Remuneration Committee is Mr Victor Chow Yew Wai. The functions of the Remuneration Committee are to: a) review the remuneration packages of the management; b) ensure that the performance-related element should incorporate meaningful measures of assessing Company s performance and the performance of Executive Directors and Officers; c) administer Semitech Employees Share Option Scheme in accordance with the rules of the Scheme and any modifications/ alterations from time to time. Our Executive Directors are entitled to a fixed monthly salary. In addition, under the terms of the Service Agreements, Mr Neo Kian Chye, Mr Lawrence Lee Seng Kiong and Mr Manson Tay Soon Lee, are entitled to profit-sharing (inclusive of all applicable employer s CPF contribution) payable based on a percentage of the Net Profit Before Tax ( NPBT ) defined in the next page. The profit-sharing shall be computed based on the NPBT in accordance with the formulae set out on the following table: Semitech Electronics Ltd Annual Report

25 Corporate Governance Net profit before tax and before profit share (before minority interest and extraordinary items) of our Group ( NPBT ) (S$ million) Up to S$3 million More than S$3 million to S$6 million More than S$6 million Amount of Profit Share 1.5% of NPBT 2.0% of NPBT in excess of S$3.0 million + S$45, % of NPBT in excess of S$6.0 million + S$105,000 Mr Wilfred Teo Chu Khiong is entitled to a discretionary and variable performance bonus. Such a performance bonus shall be based on the financial results achieved by our Group for the relevant financial period and his performance and contribution to our Group. The salaries are reviewed at the discretion of the Board of Directors in consultation with our Remuneration Committee. There are no fixed terms of service agreements for all Executive Directors. All service agreements shall be subject to termination by giving each party 3 months notice. Director s fees are set in accordance with a remuneration framework comprising basic fees, which will be subjected to approval at the AGM. The key management of the Company is entitled to a discretionary and variable performance bonus linked to their performance. All employees are entitled to a fixed and variable component of their remuneration. The fixed component is in the form of a base salary while the variable component is linked to the employees performance Semitech Electronics Ltd Annual Report 2002

26 Corporate Governance The details of the remuneration paid to Directors and Key Management are as follows: Remuneration band & Base/fixed Bonus Directors Allowances and Total Name of Directors/Key Management salary fees other benefits Directors Below S$250,000 Neo Kian Chye 82% 13% 5% 100% Lawrence Lee Seng Kiong 70% 8% 2% 20% 100% Manson Tay Soon Lee 70% 7% 3% 20% 100% Wilfred Teo Chu Khiong* 58% 25% 13% 4% 100% Chua Keng Khng 100% 100% Low Kum Choy 100% 100% Victor Chow Yew Wai 100% 100% Key Management Below S$250,000 Patrick Ng Wee Teck 79% 7% 14% 100% Johnny Qua Gin Jong 86% 8% 6% 100% Heng Lim Song 85% 11% 4% 100% Nicholas Lee Hwee Choon 80% 16% 4% 100% Stuart Teo Chong Teck 83% 9% 8% 100% * Wilfred Teo Chu Khiong was appointed as a Director on 25 October 2002, as such his salary was calculated for the period that he had served as a Director. The Company has adopted the Semitech Share Option Scheme which was approved by our Shareholders at an Extraordinary General Meeting on 25 October The Scheme will provide an opportunity for our employees, executives and Non-Executive Directors as well as Controlling Shareholders and their associates, who are our employees, to participate in the equity of our Company. Details of our Semitech Share Option Scheme, can be found in our IPO Prospectus dated 29 November 2002, from page 85 to 88. As to date, no options have been granted. Semitech Electronics Ltd Annual Report

27 Corporate Governance Principle 10: Accountability and Audit Principle 11: Audit Committee Principe 12: Internal Controls The Audit Committee ( AC ) comprises the following members, namely Mr Chua Keng Khng (Chairman), Mr Low Kum Choy and Mr Victor Chow Yew Wai, all of whom are independent. The Board is of the view that the members of the AC have sufficient financial management expertise and experience to discharge the AC s function. The AC performs the following functions: a) reviews with the external auditors the audit plan, their evaluation of the system of internal accounting controls, their letter to management and the management s response; b) reviews with the internal auditors, the scope and results of internal audit procedures and their evaluation of the overall internal control systems; c) reviews the half-year and full year announcements and annual financial statements and balance sheets and profit and loss accounts before submission to the Board for approval, focusing in particular on changes in accounting policies and practices, major risk areas, significant adjustments resulting from the audit, compliance with accounting standards and compliance with the SGX-ST Listing Manual and any other relevant statutory or regulatory requirements; d) reviews the internal control procedures and ensures co-ordination between the external auditors and the management, and reviews the assistance given by the management to the auditors, and discusses problems and concerns, if any, arising from the interim and final audits, and any matters which the auditors may wish to discuss in the absence of the management; e) reviews and discusses with the external auditors any suspected fraud or irregularity, or suspected infringement of any relevant laws, rules or regulations, which has or is likely to have a material impact on the Group s operating results or financial position and the management s response; f) considers the appointment or re-appointment of the external auditors and matters relating to the resignation or dismissal of the auditors; g) reviews interested person transactions (if any) falling within the scope of Chapter 9 of the SGX-ST Listing Manual; h) reviews potential conflicts of interest, if any; i) undertakes such other reviews and projects as may be requested by the Board and reports to our Board its findings from time to time on matters arising and requiring the attention of the Audit Committee; and 2424 Semitech Electronics Ltd Annual Report 2002

28 Corporate Governance j) generally undertakes such other functions and duties as may be required by statute or the SGX-ST Listing Manual, or by such amendments as may be made thereto from time to time. The AC has the express power to conduct or authorise investigations into any matters within the terms of reference. The AC meets with the external and internal auditors, without the presence of management, at least once a year. The AC has reviewed the Company s risk assessment, and based on the Internal Auditors reports as well as management controls, is satisfied that there are adequate internal controls in the Company. The AC has undertaken a review of all non-audit services provided by the auditors and is of the view that it will not affect the independence of the auditors. Principle 13: Internal Audit The internal auditor reports directly to the Chairman of the AC on audit matters. The AC reviews the internal auditors report and its activities on a quarterly basis. The AC also reviews and approves the annual internal audit plan. The Company s internal auditor performs financial audits and the audits of other management processes. Tests are conducted to verify the Group s assets and liabilities and to check on compliance with the Company s system of internal control. This control system comprises all the procedures,which combined, give the Board of Directors reasonable assurance of : a) maintenance of proper accounting records and reliability of financial information used within or published by the Company; and b) the safeguarding of the Group s assets against unauthorised use or loss. Semitech Electronics Ltd Annual Report

29 Corporate Governance Principle 14: Communication with Shareholders Principle 15: Promoting Greater Participation by Shareholders Announcement of Company s half-year and full year results will be done via MASNET. All information on the Company s new developments will be communicated to shareholders on a timely basis via MASNET. Shareholders can also have access to the Company s financial information as well as its developments of the Company through its web-site at or at The Company communicates with its investors on a regular basis and attends to their questions. All shareholders of the Company receive a copy of the annual report and Notice of Annual General Meeting. The Notice will be advertised in the newspapers. All shareholders of the company are encouraged to attend the AGM. At the AGM, shareholders are given the opportunity to communicate their views on various matters pertaining to the company. The Company does not practice selective disclosure. Price-sensitive information is first publicly released before the Company meets with any group of investors or analysts or when such meetings are held, information is concurrently released to the public. Securities Transactions The Company has issued a policy on dealings in the securities of the Company and its subsidiaries to its Directors and senior executives, setting out the implications of insider trading and guidance on such dealings. It has adopted the Best Practices Guide on Dealings in Securities. Directors are required to report to the Company Secretary whenever they deal in the Company s shares. The latter will assist the Audit Committee and the Board to monitor such share transactions and make the necessary announcements Semitech Electronics Ltd Annual Report 2002

30 Risk Management Operational Risk Dependence on Singapore Market Our Group operates primarily in Singapore and revenue generated from Singapore constitutes about 91.9% of our Group s total revenue for Our Group has identified this dependency risk that we may face. As part of our expansion plan, our Group will focus on geographical expansion in the Asia Pacific region through the possibility of setting up new customer service centres or back-room centres particularly in People s Republic of China and Malaysia. Our Company has established a new subsidiary, Semitech Electronics (Wuxi) Co, Ltd in the People s Republic of China in 2003 as part of our expansion plan. Dependence on Major Customers We are reliant on our relationship with major customers. With our business strategy to expand our products and our business geographically beyond Singapore, we will step up marketing efforts to secure new customers. We are currently in preliminary discussions with potential customers. For a start, we have been appointed by Motorola in December 2002 to open a Motorola Wireless Connectivity Centre at the Paragon Shopping Centre in Singapore to provide after-sales repair and warranty service to original Motorola Products. The Service Centre is also authorised to sell Motorola cellular telephone product accessories, data connectivity products and related products. Interest Rate Risk This relates to changes in interest rates which will affect other income and operating expenses of our Group. Our Group currently obtains additional financing through bills payable, bank borrowings and leasing arrangements with reputable banks and financial institutions. Excess cash balances are placed as fixed deposits with reputable banks and financial institutions. Our Group manages its interest cost by sourcing the most favourable interest rates given. Fixed deposits are placed at varying maturing dates and interest rates. Semitech Electronics Ltd Annual Report

31 Risk Management Liquidity Risk Our Group monitors and maintains sufficient cash and flexibility in funding by keeping committed credit lines available. The management reviews our Group s operations constantly to mitigate the effects of fluctuations in cash flows. Credit Risk Credit risk refers to risk that receivables will default on their obligations to repay the amounts due to our Group. Our Group has substantial sales to a few customers. Our Group has, in place, guidelines on extending credit worthiness based on customers financial standing. Management also closely monitors all outstanding debts and reviews the collectibility of receivables periodically to make specific provision in the event it considers any collection doubtful. Foreign Exchange Risk Our Group faces foreign exchange currency risk on revenue and costs that are transacted in a currency other than Singapore Dollars for our Company and in respect of subsidiaries operating in foreign countries, the revenue and costs are transacted in foreign currencies. The currency giving to this risk is primarily the US Dollar. All receipts and payments are matched against their source currency. Where there is excess, we will convert to our home currency. At present, our Group does not have any formal policy for hedging against foreign exchange exposure. Our Group, may, when necessary, enter into foreign currency forward contracts to hedge against exposure from foreign currency fluctuations Semitech Electronics Ltd Annual Report 2002