ANNUAL REPORT 2013 Contents

(797771-M) ANNUAL REPORT 2013 Contents

Financial Highlights 1 31 Corporate Responsibility – Community & Workplace Vision and Mission 2 Events and Highlights Statement 33 Corporate Governance Business Overview 3 Statement Corporate 4 41 Audit Committee Report Information 44 Statement on Group Structure 6 Risk Management and Awards & 7 Internal Control Accolades 46 Additional Compliance Board of Directors 8 Information Chairman’s 14 51 Financial Statements Statement 136 List of Properties Owned Group Managing Director’s 20 by Oldtown Group Review of Operations 141 Analysis of Shareholdings Sustainability and 28 143 Notice of Annual Corporate Responsibility General Meeting Proxy Form ANNUAL REPORT 2013

Financial Highlights 1

Revenue (RM’000) Profit Before Tax 500,000 (RM’000) 80,000 74,947 422,054 400,000 60,000 51,954 300,000 285,424 255,133 43,379 40,160 40,000 193,666 200,000 27,417 138,437 20,000 100,000

0 0 2008 2009 2010 2011 2013 2008 2009 2010 2011 2013

Profit Attributable to Owners of the Company Earnings Per Share (RM’000) (Sen) 60,000 20.00 55,527

50,000 15.30 15.00 40,177 40,000 11.07 30,231 31,700 30,000 10.00 8.33 8.73 20,446 20,000 5.63 5.00 10,000

0 0 2008 2009 2010 2011 2013 2008 2009 2010 2011 2013

Financial year (in RM’000) 2008p* 2009p* 2010p* 2011a^ 2013b^ Revenue 138,437 193,666 255,133 285,424 422,054 Profit Before Tax 27,417 40,160 43,379 51,954 74,947 Profit Attributable to Owners of the Company 20,446 30,231 31,700 40,177 55,527 # Earnings Per Share (Sen) 5.63 8.33 8.73 11.07 15.30

The financial highlights for the years ended 31 December 2008 to 2010 are presented on a pro-forma basis (on the assumption that the Group has been in existence throughout the years under review). # The EPS for the financial years 2008 to 2013 are calculated based on the enlarged share capital of 363 million ordinary shares after the listing of 330 million shares in 2011 and private placement of 33 million shares in December 2012. They are different from the EPS disclosed in the Prospectus for financial years from 2008 to 2010 (computed based on the enlarged share capital prior to the public listing), audited financial statements for 12-month financial year ended 31 December 2011 (computed based on the enlarged share capital prior to the public listing and weighted average number of shares of 199,434,778 in issue for the financial year ended 31 December 2011) and for 15-month financial period ended 31 March 2013 (computed based on weighted average number of shares of 337,470,330 shares for the financial period ended 31 March 2013). p* : based on the proforma consolidated financial information as disclosed in the Prospectus dated 22 June 2011. a^ : based on the audited financial statements for 12-month financial year ended 31 December 2011. b^ : based on the audited financial statements for 15-month financial period ended 31 March 2013. The Company has on 27 August 2012 changed the financial year end of the Company from 31 December to 31 March. The financial period ended 31 March 2013 made up of 15 months results covering period from 1 January 2012 to 31 March 2013. OLDTOWN BERHAD (797771-M)

2 Vision and Mission Statement

Vision To be Asia Pacific’s Leading White Coffee Brand

Mission OUR PEOPLE: We Believe That Our People Are Our Assets Statement We acknowledge and appreciate our people as those who grow with us and for their full dedication. We value them for their effort and what they are able to bring to the company, hence we constantly provide a platform and opportunities for career growth and enrichment of knowledge. We cultivate the passion of delighting our consumers into all our staffs to bring forth the best experience possible. COMMUNITY: We Nurture The Community We are aware and committed to our community hence we operate our business in a manner that does not compromise the wellness of our future generations. We are passionate about our corporate responsibilities and do our best to provide for the community in different ways, from doing our part for the earth we live in to providing underprivileged children with better homes. We will not look lightly upon our social responsibilities as we believe in giving back to the community as part of the effort towards a better future. OUR CONSUMERS: We Delight Our Consumers With Our Products We are consumer centric and are always focused on consumer needs. Hence we are dedicated to delighting our consumers with all our product offerings, by committing ourselves in sourcing the finest ingredients through ethical ways to provide them with the best quality products. We hold strongly to our origins in order to bring to consumers the authentic experience that they expect to enjoy. MOTHER EARTH: We Do Our Part in Saving Mother Earth We are attuned with the growing needs to nurture our mother earth and to do our part in caring for the environment. With this, we share and grow the passion and knowledge of caring for the environment with our partners and consumers for them to live this together with us as part of our corporate values. INVESTORS: We Focus on Prospering Our Investors We are dedicated to growing and maximising the financial rewards of our investors as we see it as a platform for our company to continue to provide to our consumers and the community. ANNUAL REPORT 2013

3 Business Overview

The business activities of Oldtown Group can be divided into three broad categories as follows: Operation of Manufacturing of Marketing and sales of Cafe Chain coffee and other coffee and other beverages :: Own Cafe Outlets* beverages :: Instant Coffee Mix :: Franchised Outlets :: Instant Coffee Mix :: Roasted Coffee Powder :: Food Processing :: Roasted Coffee Powder :: Instant Milk Tea Mix :: Instant Milk Tea Mix :: Instant Chocolate :: Instant Chocolate :: Ready-to-drink coffee

*Own cafe outlets include those that are fully and partially owned. OLDTOWN BERHAD (797771-M)

4 Corporate Information

COMPANY SECRETARY REGISTRARS

Ng Yuet Seam (MAICSA 7005639) Tricor Investor Services Sdn Bhd (118401-V) Level 17, The Gardens North Tower REGISTERED OFFICE Mid Valley City, Lingkaran Syed Putra 59200 Kuala Lumpur 47A, Jalan Chung Ah Ming, Pasir Puteh Tel: (603) 2264 3883 31650 Ipoh, Perak Darul Ridzuan Fax: (603) 2282 1886 Tel: (605) 253 6073 Fax: (605) 241 0878 PRINCIPAL BANKERS

HEAD OFFICE CIMB Bank Berhad (13491-P)

No. 2, Jalan Portland, Kawasan Perindustrian Tasek HSBC Bank Malaysia Berhad (127776-V) 31400 Ipoh, Perak Darul Ridzuan Tel: (605) 541 5511 Fax: (605) 547 9123 WEBSITE

www.oldtown.com.my ANNUAL REPORT 2013

BOARD OF DIRECTORS

Datuk Dr. Ahmed Tasir Mark Wing Kong Chuah Seong Meng Bin Lope Pihie Independent Executive Director PJN, PMP, JSM, FASc Non-Executive Director Clarence D’Silva A/L Leon D’Silva Independent Tan Chon Ing @ Executive Director Non-Executive Chairman Tan Chong Ling Goh Ching Mun Lee Siew Heng Independent Executive Director Group Managing Director Non-Executive Director Tan Say Yap Chin Lai Yoong Executive Director Non-Independent Non-Executive Director

BOARD COMMITTEES

AUDIT COMMITTEE REMUNERATION COMMITTEE NOMINATION COMMITTEE

Mark Wing Kong Tan Chon Ing @ Datuk Dr. Ahmed Tasir Chairman Tan Chong Ling Bin Lope Pihie Chairman Chairman Datuk Dr. Ahmed Tasir Bin Lope Pihie Datuk Dr. Ahmed Tasir Mark Wing Kong Bin Lope Pihie Tan Chon Ing @ Tan Chon Ing @ Tan Chong Ling Lee Siew Heng Tan Chong Ling Mark Wing Kong Goh Ching Mun

STATUTORY AUDITORS

Messrs. Deloitte KassimChan (AF 0080) Chartered Accountants No. 87, Jalan Sultan Abdul Jalil 30450 Ipoh, Perak Darul Ridzuan Tel: (605) 253 1358 Fax: (605) 253 0090

STOCK EXCHANGE LISTING

Main Market of Bursa Malaysia Securities Berhad (Listed since 13 July 2011) Stock Name: OLDTOWN Stock Code: 5201 OLDTOWN BERHAD (797771-M)

6 Group Structure AS OF MARCH 31, 2013

White Cafe Sdn Bhd 100%

Gongga Food Sdn Bhd 100%

White Cafe Marketing Sdn Bhd 100%

Emperor’s Kitchen Sdn Bhd 100%

Dynasty Confectionery Sdn Bhd 100%

Esquire Chef Sdn Bhd 100%

Kopitiam Asia Pacific Sdn Bhd Old Town Kopitiam Sdn Bhd 100% 100%

Oldtown Singapore Pte Ltd OTK Singapore Pte Ltd 100% 50%

Old Town Kopitiam Dynasty Kitchen Sdn Bhd Butterworth Sdn Bhd 100% 100%

Old Town Kopitiam Kuala Lumpur Sdn Bhd 100%

Old Town Kopitiam Cheras Sdn Bhd 100%

Oldtown Logistics Sdn Bhd 100%

Old Town (M) Sdn Bhd OTK (HK) Investment Limited 100% 51%

Oldtown APP Sdn Bhd 100%

Conneczone Sdn Bhd 80%

Plus One Solution Sdn Bhd 50%

OTK Eatery Sdn Bhd 40% ANNUAL REPORT 2013

Awards & Accolades 7

ldtown Group has won numerous awards since the Group operated Oits chain of OLDTOWN WHITE COFFEE cafe outlets. The Group’s numerous awards are a testament to the success of its brand equity. Its established brand name, associated with its fine coffee beverages and high quality food, provides the Group with a key competitive advantage to compete effectively in the F&B industry.

2009 Ranked first in the Top 10 2007 outstanding SMEs category in the Golden Bull Award 2009 organised Golden Bull Award 2007 by Nanyang Siang Pau. organised by Nanyang Siang Pau. Gold Award (National Growth Best Brands Food and Award) in the MRCA Award 2009 Beverage Kopitiam 2007 from the Malaysian Retailer-Chains by the BrandLaureate. Association. 2012 SME Brand Excellence 2011 Award 2007 from the 2010 Product Excellence Award Gold Award for The Most SMI Association of Malaysia. (Category III) in Industry Promising Brand and Silver Silver Award (Fast Food) Award (Retail – Fast Food) Malaysia Book of Records Excellence Award 2010 in the Putra Brand Awards organised by Ministry of in the Putra Brand Awards for achieving the largest organised by 4As (Association organised by 4As (Association of Kopitiam chain in Malaysia International Trade and of Accredited Advertising Industry (MITI). Accredited Advertising Agencies). by year end 2007. Agencies). Industry Excellence Award 2010 Franchisor of the Year Award Platinum Award for organised by MITI. and International Franchisor 2008 Outstanding Malaysian Brand of the Year 2012 Award from in the Outstanding Business The People’s Choice Special the Malaysian Franchise Gold Award (National Growth Awards 2010 organised by Mention (Retail – Fast Food) Association (MFA). Award) from the Malaysian the Star. in the Putra Brand Awards Retailer-Chains Association organised by 4As (Association of Asia Excellence Brand Award in 2008. Ranked No.1 in the Super Accredited Advertising Agencies). by Yazhou Zhoukan 2012. Golden Bull category in the Enterprise 50 Award 2008 Golden Bull Award 2010 International Franchisor of Malaysia’s Most Valuable Brand organised by SME Corporation organised by Nanyang Siang Pau. the Year 2011 by the Licensing Award by the 4As (Association Malaysia and Deloitte Malaysia. Association of Singapore. of Accredited Advertising Enterprise 50 Award 2010 Agencies) and MATRADE Golden Bull Award 2008 organised by SME Corporation Asia Excellence Brand Award (Malaysia External Trade organised by Nanyang Siang Pau. Malaysia and Deloitte Malaysia. by Yazhou Zhoukan 2011. Development Association). OLDTOWN BERHAD (797771-M)

8 Board of Directors

4 7

1. Datuk Dr. Ahmed Tasir Bin Lope Pihie 5. Chuah Seong Meng 2. Lee Siew Heng 6. Clarence D’Silva A/L Leon D’Silva 3. Tan Chon Ing @ Tan Chong Ling 7. Goh Ching Mun 4. Mark Wing Kong 8. Tan Say Yap Not in picture: Chin Lai Yoong

he left the institute. He was the Chief Executive Officer of the Malaysia Industry-Government Group for High Technology (MIGHT) from 1993 to 2008. He is presently the Chairman of Strand Aerospace Malaysia Sdn Bhd and a Director of other private companies including Inno Bio Ventures Sdn Bhd, Inno Biologics Sdn Bhd, Inno Bio Diagnostics Sdn Bhd, Natural Products Asia Sdn Bhd, A7N Sdn Bhd, Bio Innovation Centre Sdn Bhd and R7 Sdn Bhd. He also holds the post as Adjunct Professor of the University Malaysia Pahang. Datuk Ahmed Tasir does not have any family relationship with any Director and/or major shareholders of the Datuk Dr. Ahmed Tasir Bin Lope Pihie, a Malaysian, aged 62, Company. He does not have any conflict of interest in any is the Independent Non-Executive Chairman of Oldtown business arrangement involving the Company other than Berhad and was appointed to the Board on 10 November those disclosed under Notes to the Financial Statements of 2009. He is the Chairman of the Nomination Committee this Annual Report. He is a shareholder of Oldtown Berhad and a member of the Audit Committee and Remuneration and his shareholdings is indicated on page 141 of this Annual Committee. He holds a Doctor of Philosophy (PhD) in Science Report under the Analysis of Shareholdings section. and Technology Policy from the University of Manchester, Master of Science in Seed Technology from the University of Datuk Ahmed Tasir has attended all the seven (7) Board Edinburgh, Scotland and a Bachelor in Agriculture Science Meetings which were held in the financial period ended 31 from the University of Malaya. He was with the Malaysian March 2013. He does not have any other directorship in any Agricultural Research and Development Institute (MARDI) public companies. He has no conviction for any offences from 1972 to 1992 and last held the post as a Director before within the past 10 years. ANNUAL REPORT 2013

6 3

2 1

Lee Siew Heng, a Malaysian, aged 47, is the Group Managing Director of Oldtown Berhad and one (1) of the two (2) first Directors of Oldtown Berhad, since its incorporation on 30 November 2007. He is also a member of the Remuneration Committee. He brings with him invaluable industry experience, having accumulated more than 21 years of experience in the manufacturing and retailing industries, of which more than 11 years is in the coffee beverage industry. He has been instrumental in the growth and development of the Oldtown Group of companies and has been a key driving force in the expansion of the Group’s beverage manufacturing and cafe rental of properties, manufacturing, trading and investment chain operation businesses. As the Group Managing Director, holding and is currently the Chairman of Old Town International he is currently responsible for the overall strategic direction and Sdn Bhd, the holding company of Oldtown Berhad . overall management of the Oldtown Group of companies. Upon Mr Lee is the brother-in-law of Mdm Chin Lai Yoong, a Non- completion of his secondary education in 1986, he started his Independent Non-Executive Director of the Company who is also career as Production Manager of Chong Ngai Knitting Factory a deemed substantial shareholder of Oldtown Berhad. He does Sdn Bhd, a company involved in the manufacturing of garments. not have any conflict of interest in any business arrangement In 1991, as General Manager, he was responsible for the overall involving the Company other than those disclosed under Notes operations of the said company. He left the company in 1997 to to the Financial Statements of this Annual Report. He is a join CN Supplies Sdn Bhd, a company which was then involved deemed substantial shareholder of Oldtown Berhad and his in the trading of hotel supplies, where he was appointed as a shareholdings is indicated on page 141 of this Annual Report Director, a position which he still holds todate. In 2001, he joined under the Analysis of Shareholdings section. White Cafe Marketing Sdn Bhd and was appointed Managing Director and in 2005, he was appointed the Managing Director Mr Lee has attended all the seven (7) Board Meetings which of Old Town International Group. On 10 November 2009, he was were held in the financial period ended 31 March 2013. He does redesignated as the Group Managing Director of Oldtown Group. not have any other directorship in any public companies. He has He holds directorships in several private companies involved in no conviction for any offences within the past 10 years. OLDTOWN BERHAD (797771-M)

10 Board of Directors

Manager, Corporate Finance. He left in 1997 and joined LB Aluminium Berhad, a company principally engaged in the business of manufacturing, marketing and trading of aluminium extrusion and ceiling metal tee products, where he is currently the Chief Executive Officer. He is also an Independent Non-Executive Director of M3 Technologies (Asia) Berhad which is involved in the provision of mobile- internet messaging solutions and retailing of GPS navigators and other IT accessories. LB Aluminium Berhad and M3 Technologies (Asia) Berhad are listed on the Main Market Mark Wing Kong, a Malaysian, aged 54, is an Independent and ACE Market of Bursa Malaysia Securities Berhad Non-Executive Director of Oldtown Berhad and was respectively. He is also a director of Calltime Technology appointed to the Board on 10 November 2009. He is the Sdn Bhd. Chairman of the Audit Committee and also a member of the Mr Mark has no family relationship with any Director and/ Nomination Committee and Remuneration Committee. He or major shareholders of the Company nor has he any is a member of the Malaysian Institute of Certified Public conflict of interest in business arrangement involving the Accountants. His career started as an auditor with Kassim, Company. He is a shareholder of Oldtown Berhad and his Chan & Co in 1980. He joined Arab-Malaysian Securities Sdn shareholdings is indicated on page 141 of this Annual Report Bhd as Operations Manager in 1986 and was transferred under the Analysis of Shareholdings section. to Arab-Malaysian Merchant Bank Berhad (now known as AmInvestment Bank Berhad) in 1988 where he took up the Mr Mark has attended all the seven (7) Board Meetings post of Operations Manager in the Investment Department. which were held in the financial period ended 31 March In 1990, he was transferred to the Corporate Finance 2013. He has no conviction for any offences within the past Department where his last held position was General 10 years.

with more than 16 years of experience in construction and property development which include a golf course township development. Mr Tan is the founder and Vice Chairman of Eduland China with 11 years of experience in the setting up, operation and franchise of a chain of Bilingual Early Childhood Education centres in Central China namely Shanghai City, Suzhou and Zhejiang Provinces to provide quality early childhood care and education at purpose built kindergarten buildings located at premium township and residential area.

Tan Chon Ing @ Tan Chong Ling, a Malaysian, aged 52, is In the construction and development sector, Mr Tan is an Independent Non-Executive Director of Oldtown Berhad a Director of Integrated DC Builders Sdn Bhd and Vice and was appointed to the Board on 7 November 2012. He Chairman of Liang Court Wanisara (Sarawak) Sdn Bhd. is the Chairman of the Remuneration Committee and is a Mr Tan has no family relationship with any Director and/ member of the Audit Committee and Nomination Committee or major shareholders of the Company nor has he any of Oldtown Berhad. He graduated with a honours degree in conflict of interest in any business arrangement involving Bachelor of Civil Engineering from the National University the Company. He does not have any shareholdings in the of Singapore in 1985. He joined WTS Konsultant in Kuching Company. from 1985 to 1990 as a Civil Engineer. He was the Managing Director of Uomo Donna Sarawak Sdn Bhd from 1991 Mr Tan has attended the two (2) Board Meetings since his to 1993 and was appointed Chief Executive Officer of PT appointment to the Board on 7 November 2012. He does not Indoscala, Indonesia, a wholesaler and retailer of ladies have any other directorship in any public companies. He has apparel, from 1993 to 1996. He is a business entrepreneur no conviction for any offences within the past 10 years. ANNUAL REPORT 2013

Chin Lai Yoong, a Malaysian, aged 45, is a Non-Independent companies involved in the supply of car audio accessories Non-Executive Director of Oldtown Berhad and was and trading of textile fabrics and garments. appointed to the Board on 10 November 2009. She graduated Mdm Chin is the sister-in-law of Mr Lee Siew Heng, the Group with a London Chamber of Commerce and Industry (LCCI) Managing Director of Oldtown Berhad who is also a deemed Diploma in Cost Accounting. She started her career in 1987 substantial shareholder of Oldtown Berhad. She does not with The Asia Insurance Co. Ltd, Ipoh, as a Clerk in the have any conflict of interest in any business arrangement Administrative and Accounts Department. She left in 1989 to involving the Company other than those disclosed under join Singapore Airport Terminal SVS Pte Ltd as Passenger Notes to the Financial Statements of this Annual Report. She Services Agent before becoming a cabin crew member is a deemed substantial shareholder of Oldtown Berhad and at Malaysian Airline Systems in 1991. She left and joined her shareholdings is indicated on page 141 of this Annual Oriental Bank Berhad, Ipoh, in that same year as a Clerk in Report under the Analysis of Shareholdings section. the Credit Department and was mainly responsible for loan processing and disbursement. In 1998, she participated as Mdm Chin has attended five (5) out of seven (7) Board an investor in a fashion retailing business before joining Meetings which were held in the financial period ended White Cafe Marketing Sdn Bhd and later the Old Town 31 March 2013. She does not have any other directorship International Group as an Administration Officer from in any public companies. She has no conviction for any 2003 to July 2009. She also holds Directorships in private offences within the past 10 years.

Chuah Seong Meng, a Malaysian, aged 38, is an Executive Director of Oldtown Berhad and was appointed to the Board on 10 November 2009. He graduated with a Bachelor of Business, majoring in Marketing from the University of Tasmania, Australia in 1997. He is also a certified marketer of the Chartered Institute of Marketing, United Kingdom. His career started in 1997 as a Sales Executive with Besta Computerized Dictionary Sdn Bhd, a distributor of computer dictionary products. He left in 1999 to join Apex Furniture Sdn Bhd as Sales Executive. He resigned and joined White Cafe Sdn Bhd in 1999 as Marketing Manager and later He does not have any family relationship with any Director assumed a similar role with White Cafe Marketing Sdn Bhd and/or major shareholders of the Company nor has he any in 2001. He was promoted to Senior Marketing Manager conflict of interest in any business arrangement involving in 2003 and subsequently the Group Marketing General the Company. He does not have any shareholdings in the Manager of White Cafe Marketing Sdn Bhd in 2007. He Company. currently assumes the role of Chief Operating Officer of the FMCG sector of the Group. He oversees the overall business Mr Chuah has attended all the seven (7) Board Meetings operations including strategy formulation, objectives which were held in the financial period ended 31 March setting and strategy implementation of the Group’s FMCG 2013. He does not have any other directorship in any public businesses. companies. He has no conviction for any offences within the past 10 years. OLDTOWN BERHAD (797771-M)

12 Board of Directors

Sushi Kin Sdn Bhd as the General Manager/Chief Operating Officer and was appointed to the Board of Directors of Sushi Kin Sdn Bhd in 2000. In 2003, he left and joined Yoshinoya Food Systems, part of the Wing Tai Asia Limited in Singapore as the Chief Operating Officer. In 2006, he left and took up the position of Chief Operating Officer with FB Food System (HK) Ltd, a subsidiary of Far East Consortium, Hong Kong. He left and joined Oldtown Group of companies in 2009 and is currently the Chief Operating Officer of the Food and Beverage (F&B) Sector of the Oldtown Group. His main responsibilities include overseeing the development Clarence D’Silva A/L Leon D’Silva, a Malaysian, aged 52, of the franchising business operations of the Group. is an Executive Director of Oldtown Berhad and was Mr Clarence has no family relationship with any Director appointed to the Board on 10 November 2009. He has over and/or major shareholders of the Company. He does not a span of 30 years in the Food Service industry where he have any conflict of interest in any business arrangement managed several International Brands and has done start involving the Company other than those disclosed under up for new food business in Indonesia, Thailand, Philippines, Notes to the Financial Statements of this Annual Report. He Hong Kong and Malaysia and served in several senior is a shareholder of Oldtown Berhad and his shareholdings positions with Multi National Companies. He graduated with is indicated on page 141 of this Annual Report under the a Bachelor of Business Administration from the California Analysis of Shareholdings section. Technical College, United States in 1982. His career started in 1983 when he joined Kentucky Fried Chicken as a Mr Clarence has attended all the seven (7) Board Meetings Management Trainee. In 1989, he left to take up employment which were held in the financial period ended 31 March with Carl’s Jr. Asia Development Corporation, part of the 2013. He does not have any other directorship in any public MBF Group of Companies and was eventually promoted to companies. He has no conviction for any offences within the General Manager of the brand in Thailand. In 1998, he joined past 10 years.

coffee that is currently produced by the Group. He is currently responsible for product research and development activities of the Group. He is also the Chairman of the Corporate Social Responsibility (CSR) Committee that carries out the social responsibility functions of the Group via Oldtown Children Care Fund (OCAF) and Oldtown Earthcare activities. He is also a director of OTK Northern Sdn Bhd, which is an OLDTOWN WHITE COFFEE cafe outlet franchisee and is also a director of two companies which are involved in property investments.

Goh Ching Mun, a Malaysian, aged 42, is an Executive Mr Goh does not have any family relationship with any Director of Oldtown Berhad and one (1) of the two (2) first Director and/or major shareholders of the Company. He does Directors of Oldtown Berhad, since its incorporation on not have any conflict of interest in any business arrangement 30 November 2007. He is also a member of the Remuneration involving the Company other than those disclosed under Committee. He completed his secondary education in 1988. Notes to the Financial Statements of this Annual Report. He As the co-founder of Oldtown Group of companies, he has is a deemed substantial shareholder of Oldtown Berhad and accumulated more than 21 years of experience in the coffee his shareholdings is indicated on page 141 of this Annual manufacturing industry. His career started in 1983 when he Report under the Analysis of Shareholdings section. was involved in the family business of operating the Nam Mr Goh has attended all the seven (7) Board Meetings which Heong Coffee Shop in Ipoh. Subsequently in 1999, he co- were held in the financial period ended 31 March 2013. founded and established White Cafe Sdn Bhd where he was He does not have any other directorship in any public appointed Product Research and Development Director and companies. He has no conviction for any offences within the was then responsible for the formulation of the blend of white past 10 years. ANNUAL REPORT 2013

Tan Say Yap, a Malaysian, aged 38, is an Executive Director of Oldtown Berhad and was appointed to the Board on 10 November 2009. He has more than 13 years of experience in the coffee manufacturing industry. As the co-founder of the Oldtown Group of companies, he is instrumental in the formulation of the blend of white coffee, which started the beverage manufacturing business of the Group. He obtained a Diploma in Hotel Business Management from Syuen Hotel and Catering Management Institute, Ipoh in 1996. His career started in 1997 as Commis One at the Pangkor Laut Resort Hotel where he was mainly involved in the preparation of food for the hotel’s food and beverage outlets. In 1999, he not have any conflict of interest in any business arrangement co-founded and established White Cafe Sdn Bhd and was involving the Company other than those disclosed under appointed Director of White Cafe Sdn Bhd. He was appointed Notes to the Financial Statements of this Annual Report. He Business Development Director of Kopitiam Asia Pacific Sdn is a shareholder of Oldtown Berhad and his shareholdings is Bhd and is responsible for the cafe outlet operations from indicated on page 141 of the Annual Report under the Analysis 2005 to 2009. He is currently the Corporate Relation Director of Shareholdings section. of Kopitiam Asia Pacific Sdn Bhd where he is responsible for Mr Tan has attended all the seven (7) Board Meetings fostering corporate relations with franchisees, landlords, which were held in the financial period ended 31 March business associates and business partners. 2013. He does not have any other directorship in any public Mr Tan does not have any family relationship with any companies. He has no conviction for any offences within the Director and/or major shareholders of the Company. He does past 10 years. OLDTOWN BERHAD (797771-M)

14 Chairman’s Statement ANNUAL REPORT 2013

Dear Shareholders, On behalf of the Board of Directors, I am pleased to present the Annual Report of Oldtown Berhad (“the Company” or “the Group”) for the financial period ended 31 March 2013 (“FP2013”) and am equally delighted to report that the Group has continued to register strong growth as a result of strategic foresight and robust financial performance.

Strong Overall Financial Performance (Note) Increase in Earnings Per Share The Group’s financial results are in tandem with the The Group registered a net profit 500,000 commendable economic growth rate of 5.6% y-o-y attributable to owners of the Company of 422,054 achieved by Malaysia in 2012. For the 15-month RM55.527 million in FP2013 against the 400,000 period ended 31 March 2013, the Group achieved a net profit attributable to owners of the 285,424 consolidated revenue of RM422.054 million whereas Company of RM40.177 million in FY2011, 300,000 the consolidated revenue achieved in the previous which translated into an earnings per share financial year for the 12-month ended 31 December of 15.30 sen for FP2013 against FY2011 200,000 2011 (“FY2011”) was RM285.424 million. earnings per share of 11.07 sen, based on an enlarged share capital base of 363 100,000 Note: The Company had on 27 August 2012 changed million ordinary shares at RM1.00 each. its financial year end from 31 December to 31 March. 0 The financial period ended 31 March 2013 was made 2011 2013 Prudent Financial Discipline up of results for 15 months covering the period from Revenue 1 January 2012 to 31 March 2013. The shareholders’ fund of the Group was RM304.851 (RM’000) million as at 31 March 2013 which translated into Operation of Cafe Chain is the Main Revenue net assets per share of RM0.84, based on the Growth Driver enlarged share capital base of 363 million ordinary shares. The operation of cafe chain segment continued to be the main and dominant revenue contributor As at 31 March 2013, the total debt to total equity to the Group, attributing 60% of the FP2013 ratio or gross gearing ratio level was at 0.11 revenue, with the remaining 40% contributed by the times. The fixed deposits, cash and bank balances manufacturing of beverages segment. conserved as at 31 March 2013 was RM86.227 million against a total debt of RM34.541 million. As The Group’s revenue and profit before tax in FP2013 a result, this has turned the Group into a net cash were mainly derived from the cafe chain operation position of RM51.686 million as at 31 March 2013. which recorded RM252.369 million and RM42.276 With a healthy balance sheet position and armed million respectively. The Group’s manufacturing of with vast availability of borrowing capacity, the beverages division reported revenue of RM169.685 Group is always looking out for any good business million and profit before tax of RM33.765 million in opportunities that may arise in the near future to FP2013. further expand its business venture. The Group’s FP2013 profit before tax included RM1.960 million goodwill written off which took Stable Financial Liquidity place on 31 December 2012 after the Company The Group experienced a net operating cash inflow conducted its annual goodwill impairment test. of RM71.586 million for the 15-month period Whereas, the Group’s FY2011 profit before tax ended 31 March 2013, mainly after adding back a included a gain on disposal of investment in one-off non-cash flow item of goodwill written off at associate companies of RM5.574 million and a gain RM1.960 million. In contrast, the Group experienced on disposal of property, plant and equipment of net investing cash outflow of RM119.842 million for RM2.843 million. Overall, the profit after taxation of the 15-month period ended 31 March 2013 which was the Group for FP2013 was RM55.587 million, while primarily due to the purchase of other investments profit after tax was RM40.216 million for FY2011. of RM60 million and purchase of property, plant and equipment of RM63.682 million. OLDTOWN BERHAD (797771-M)

16 Chairman’s Statement

The net cash inflow from financing activities of Recent Corporate Development RM48.661 million was primarily due to a cash inflow Completing the First Private Placement Exercise from the private placement proceeds at RM64.350 million and a net increase of term loans at RM15.585 Post listing, the Company has completed its million, after netting off dividend payment of RM33 first private placement exercise to raise gross million. The issuance of 33 million new ordinary proceeds of RM64.350 million during the FP2013. shares was issued at RM1.95 per share to the On 21 December 2012, 33 million new placement investing public pursuant to the Company’s private shares were successfully listed and quoted on the placement exercise, which was completed on 21 Main Market of Bursa Malaysia Securities Berhad. December 2012. The cash and cash equivalents as The newly issued 33 million ordinary shares, which at 31 March 2013 was RM83.668 million. represented 10% share capital of the Company of 330 million ordinary shares, were issued to third Growing the Value for Shareholders – Dividend (Note) party investors at a placement price of RM1.95 per share. Approximately 70% of the proceeds or Upon evaluating the Group’s funding requirements, RM44.695 million has been allocated for capital our commitment to deliver value to our expenditure in view of the Group’s business shareholders is reinforced by the Company to expansion plans; and the remaining 30% or distribute a minimum of 50% of the Group’s annual RM19.655 million for working capital needs profit attributable to the owners of the Company as and expenses incurred in relation to the private gross dividend. Whilst retaining a sizable portion placement exercise. of profit and funds to finance future growth, the Company also strives to reward its shareholders Drawing Up a New Processing Food Centre in China with a generous level of dividend payout. To support the Group’s expansion of licensed cafe In respect of the financial period ended 31 March outlets in the territory of Southern China, People’s 2013, a first interim single-tier dividend of 6.0 sen Republic of China, a new food processing centre per share amounting to RM19.80 million based on will be set up to ensure adequate supply of large a share capital of 330 million ordinary shares was food quantities required for the cafe outlets. paid on 10 January 2013. The Board of Directors Understanding this need, on 8 February 2013, further recommended a final single-tier dividend the Company has via its wholly owned subsidiary, of 3.0 sen per share amounting to RM10.89 million Old Town (M) Sdn Bhd, executed a Shareholders based on the enlarged share capital of 363 million Agreement with Year Full Group Limited (“YF ordinary shares in respect of the financial period Group”) for the establishment of a joint venture ended 31 March 2013, subject to the approval of the company (“JV Company”) in the Hong Kong Special shareholders at the forthcoming Annual General Administrative Region. The JV Company will act Meeting. as an investment holding company to establish a wholly owned foreign enterprise in the territory of Should the final single-tier dividend of RM10.89 Guangdong Province, China for the establishment million be approved by the shareholders at the of a new food processing centre. The JV company forthcoming Annual General Meeting, coupled with known as OTK (HK) Investment Limited (“OTK the RM19.80 million interim single-tier dividend HK”) has been incorporated on 26 March 2013 paid on 10 January 2013, this will translate into with an authorised and issued capital of HKD10 a dividend payout ratio of 55.3% in respect of million divided into 10 million ordinary shares of the financial period ended 31 March 2013. The HKD1.00 each, of which 51% is held by OTM and cumulative total dividend payout would be RM30.69 the remaining 49% is held by YF Group. million against a net profit attributable to owners of the Company of RM55.527 million in FP2013, if Taking Control of Distribution Operation in Hong Kong and after the final single-tier dividend of RM10.89 million is approved by the shareholders at the On 8 April 2013, the Company has via its wholly forthcoming Annual General Meeting. owned subsidiary, Old Town (M) Sdn Bhd, entered into a Sale and Purchase Agreement for Shares Note: Pursuant to a change of financial year end with Chan, Koon Hung Nelson, Law Cho Hong from 31 December 2012 to 31 March 2013, FP2013 and Lee Siu Chung to acquire 1.4 million ordinary was made up of 15 months period from 1 January shares of HKD1.00 each in Advance City Limited, 2012 to 31 March 2013. The cumulative total dividend Hong Kong (“ACL”), representing 70% of the issued payout of 9 sen per share in respect of FP2013 is for and paid up share capital of ACL. This acquisition 15 months period financial results from 1 January has enabled the Company to take control of the 2012 to 31 March 2013.

OLDTOWN BERHAD (797771-M)

18 Chairman’s Statement

current distribution operation with the objective to of Operations of this Annual Report. I believe with maximise sales potential for greater financial return high confidence that all of these promising in the long run. The acquisition was completed on development and our initiatives will augur well for 22 April 2013 following the fulfillment of terms the Group’s performance in the ensuing year. and conditions in accordance with the Sales and Purchase Agreement for Shares. Acknowledgement On behalf of the Board, I would like to extend my Promising Business Prospects Moving Forward heartfelt gratitude to our shareholders, bankers, After the Malaysian economy witnessed a customers, business partners and regulatory continuous y-o-y GDP growth rate of 5.6% in 2012 authorities for their continued support, guidance against 5.1% in 2011, the Malaysian economy and assistance extended to the Group. The Board is projected to grow by 4.5% to 5.6% y-o-y in would like to express its appreciation to the 2013 in accordance to forecasts made by various management and employees of the Group for their economists and government bodies. hard work and dedication. We look forward to the future with confidence The Board would like to express its highest and are optimistic that our business is expected appreciation to Dr. Leong Chik Weng, who has to remain strong in 2013 and beyond, despite less ceased to become the director of the Company since robust global economic outlook which may derail 13 September 2012, for his invaluable contributions the domestic economy’s performance in 2013 and and services to the Group since the Company was our export markets business segments. Whilst listed as a public entity in July 2011. The Board Malaysia’s economy is tied to the global economy, would also like to extend a warm welcome to our country’s fundamentals remain strong and it is Mr. Tan Chon Ing @ Tan Chong Ling as a new board supported by the expansion in private consumption member, succeeding Dr. Leong Chik Weng as an and investment. Domestic demand is expected Independent Non-Executive Director on 7 November to continue to be the driver of Malaysia’s growth; 2012. Mr. Tan is a successful entrepreneur and complemented by the government’s measures to brings with him a wealth of experience in various boost national productivity, per capita income and business sectors, such as in education franchise, consumption. construction and property development industry, which will enable the Group to benefit from his vast Malaysia’s economic growth remains intact experience and guidance in the future. despite the uncertain outlook while the Malaysian Government has implemented various measures to ensure the domestic market remains resilient Datuk Dr. Ahmed Tasir and competitive under various key initiatives, such bin Lope Pihie as the Economic Transformation Programme and Chairman the Government Transformation Programme. In addition, the food and beverages industry is fairly resilient in its nature and is proven with the ability to weather through various economic cycles historically without seriously experiencing negative impact by any economic slowdown or even recession. While market space and landscape in the food and beverages industry is becoming more challenging with intensified competition, we will continue to drive innovative business strategies and plans across all channels to consolidate and build our leadership in the respective market segments that we are operating in. The Company has outlined various pragmatic business strategies and holistic business plans to take on greater challenges in the near future as described in detail in the Group Managing Director’s Review

OLDTOWN BERHAD (797771-M)

20 Group Managing Director’s Review of Operations

Oldtown Berhad (“the Company” or “the Group”) is one of the fastest growing cafe operators and beverages players in Malaysia. This is continuously reflected by the Group’s robust performance during the 15-month financial period ended 31 March 2013 (“FP2013”). The Group has successfully commanded significant market share in the business segments of operation of cafe chain and manufacturing of beverages within the respective industries. ANNUAL REPORT 2013

2013 OPERATIONS REVIEW strategies implemented by the Group have been fruitful over the years. Strong Growth in the Operation of Cafe Chain Note: The restructuring exercise was completed on Segment 16 May 2011 (“Completion Date”) as disclosed in the The operation of cafe chain segment continued Prospectus of the Company dated 22 June 2011. to be the main and dominant revenue contributor The above comment on the Group’s financial to the Group, attributing 60% of the consolidated performance refers to the audited Statements of revenue for the financial period ended 31 March Comprehensive Income for FP2013 against FY2007 2013 (“FP2013”) (62% of the consolidated revenue which was prepared based on the combined results for the financial year ended 31 December 2011 of Oldtown Berhad and its subsidiaries (“the (“FY2011”)); whereas, the remaining 40% of Group”), assuming the Group has existed on or consolidated revenue for FP2013 (38% of the before 1 January 2007. consolidated revenue for FY2011) was contributed by the manufacturing of beverages segment. Building Strong Foundation in Local and The Group’s consolidated revenue derived from Overseas Markets the cafe chain operation in FP2013 was RM252.369 In terms of geographical breakdown for the million (consolidated revenue derived from the consolidated revenue of RM422.054 million achieved cafe chain operation in FY2011 was RM177.155 in FP2013, 75.2% was derived from the local market million). A higher quantum of revenue achieved and the remaining 24.8% was from the export in FP2013 mainly due to higher number of cafe market. Within the export market segment, South outlets operated by the Group during FP2013 (total East Asia contributed 9.9%, other Asian countries outlets as at the end of FP2013 and FY2011 were contributed 12.9% and the remaining 2.0% was 222 and 196 respectively). The higher revenue was contributed by other countries. also attributable to the extended financial period of 15 months. On the other hand, 76.3% of the consolidated revenue of RM285.424 million registered in The cafe chain operation revenue has grown by FY2011 was derived from the local market and leaps and bounds over the years. From a lower pro- the remaining 23.7% was from the export market. forma consolidated revenue of RM47.889 million Within the export market segments, South East Asia achieved in FY2007, the segment’s revenue has contributed 9.8%, other Asian countries contributed grown more than 5 folds to RM252.369 million in 11.7% and the remaining 2.2% was contributed by FP2013 (Note). This signified that the Group has other countries. managed to consistently achieve a larger scale of operation capability over the years. Taking Proactive Steps to Shape Our Future

Robust Growth in the Manufacturing of In view of the Group’s regional business expansion Beverages Segment plans, the Company plans to utilise RM44.695 million (70% of the gross proceeds) of the RM64.350 The Group’s manufacturing of beverages segment million raised from the private placement exercise reported consolidated revenue of RM169.685 million for capital expenditure, of which RM33.79 million in FP2013 (the consolidated revenue derived from the was utilised to acquire 70% equity interest in manufacturing of beverages segment in FY2011 was Advance City Limited, Hong Kong. The remaining RM108.269 million). The higher quantum of revenue proceeds are intended to be utilised for business achieved in FP2013 was mainly due to increase in expansion in domestic and international markets. It both local and export sales for the Group’s beverage would comprise, but not limited to, opening of new products, rapid expansion of distribution networks outlets in the domestic and international markets, across the various regions and the extended financial acquisition of equipment for the new and existing period of 15 months. outlets, acquisition of plant and machinery for the The manufacturing of beverages revenue has new and existing factories, and also investment equally achieved fast growth pace over the years. into a new food processing centre to support the From a lower pro-forma consolidated revenue development of licensed cafe outlets in China. of RM31.296 million achieved in FY2007, the An amount of approximately RM19.155 million (29% segment’s revenue has also grown more than of the gross proceeds) is earmarked for the working 5 folds to RM169.685 million in FP2013 (Note). This capital needs. The working capital is mainly to be indicated that the various pragmatic marketing utilised to finance the growth of operations of the OLDTOWN BERHAD (797771-M)

22 Group Managing Director’s Review of Operations

Group which includes the purchase of raw materials We are specialised in our own formulation of hot and for operating expenses. The actual expenses and cold coffee and tea beverages using high quality incurred for the private placement were RM0.504 coffee beans roasted with our proprietary roasting million (1% of the gross proceeds) with the minor process. We are also adopting flexible approach shortfall of approximately RM0.004 million funded in making some modifications in our beverage by internally generated funds. and food items to suit the local landscape and the individual market’s consumer taste profile especially We anticipate that the food and beverage business for the overseas markets. All of our cafe outlets in landscape will be even more competitive while Malaysia are well supported by three centralised consumers become more sophisticated and food processing centres fully owned by the Group. discerning in the foreseeable future. The future Our unique, focused and flexible business strategies success of the Group will be determined by our will enable the Group to generate significant growth ability to meet the varied demands of our consumers momentum as we continuously expand our presence and to keep abreast of trends while fulfilling in the regional markets. existing loyal consumers’ needs and aspirations. At the same time, we will also continue to attract new Additionally, the Group is also involved in customers and come forward to become our larger manufacturing, marketing and sales of coffee and group of future loyal clientele. All of the proactive other beverages where our products are exported measurements that we have undertaken at present to countries such as Hong Kong, Singapore, USA, will lift the Group’s operational performance and Taiwan, China and etc. Our products include instant market position to greater heights tomorrow as a coffee mix, roasted coffee powder, instant milk tea sustainable and competitive business enterprise. mix, instant chocolate mix and ready to drink canned coffee. The Group is able to widen its market reach 2013/2014 MARKET PROSPECTS by leveraging on third party distributors, retailers and intermediaries networks where they will carry We Deliver What We Can Do Best and distribute our beverage products in various distribution points, such as departmental stores, Overall, the Oldtown Group is an established and hypermarkets, supermarkets, convenient stores reputable operator of chain cafe since 2005 and and retail outlets, located both locally and abroad. a manufacturer of beverages since 1999. As at 31 March 2013, the Group has a total of 222 cafe Adopting a Unique Integrated Business Model outlets in Malaysia, Singapore, Indonesia and China. Amongst the 222 cafe outlets, 83 are fully Oldtown Berhad is one of the very few players in owned cafe outlets, 19 partially owned outlets, 108 the market place that operates under an integrated franchised and 12 licensed outlets. business model where both cafe operation and manufacturing of beverages operation complement ANNUAL REPORT 2013

each other in terms of raw materials procurement, In the domestic front, we are adopting multi- support services, marketing campaign, promotion, pronged strategies to penetrate into new market business strategies and advertisement. This proven segments and enhance our leading market position business model has enabled the Group to grow both as the largest Asian style cafe operator in Malaysia. business segments tremendously since 2005 to Under the Group’s market development plans, we become one of the leading beverage manufacturers intend to open approximately 20 to 30 new outlets in the white coffee segment and the largest Asian in Malaysia by 2013, of which 50% is to be operated style cafe operator in terms of number of outlets in by the franchisee and the remaining 50% is to be Malaysia as at today. fully owned by the Group. Although OLDTOWN cafe outlets are easily visible in most of the urban The integrated features are essential to erect an cities throughout Malaysia, we are progressively invisible wall to fend off competition and create penetrating into the suburban and rural markets higher barriers of expansion for other potential and over the next few years, whereby most of the second existing competitors from expanding their market and third tier cities and townships present vast share easily. In view of the unique integrated business opportunity for the Group to reach a wider scope model pursued by the Group, we are able to expand and range of customers. our business ventures by focusing on promoting our beverage products and cafe outlet services under a One of the most significant milestones which single flagship brand of OTDTOWN across the regions. has been achieved by the Group in 2013 was the This integration has placed us in a stronger position to Group’s celebration of the successful opening of its create more value, capture market share and generate 200th outlet opening on 18 April 2013, reminiscing new growth for the Group in the long run. our humble beginnings when the first OLDTOWN cafe outlet was opened in 2005 in the Ipoh town of Pursuing Practical Business Strategies for Growth Perak, Malaysia. The Company has also taken the opportunity to launch a New Menu Set nationwide First, we place emphasis on branding by on the same day. In addition, since early May 2013, strengthening and promoting the “OLDTOWN” OLDTOWN cafe outlets have crossed another brand name which is essential in building up significant hurdle with the acceptance of credit brand equity and uphold customer loyalty by card payments via our collaboration with the RHB embarking on a rebranding exercise in the second Banking Group in Malaysia. The acceptance of credit half of 2013. Second, we shall continue to expand payment is a tested and proven model which would cafe network via our franchise programme help to increase sales in almost all types of consumer locally and internationally, besides solely relying related services or businesses. It is an essential tool on the establishment of our fully or partially to create incremental sales per customer spending owned outlets. Third, besides focusing on market in OLDTOWN cafe outlets in the long run. positioning by strengthening our position as one of the largest Asian cafe chain operators and beverages manufacturer that specialises in coffee related products, we shall also focus on becoming a Halal certified cafe chain operator and beverages manufacturer. Riding on OLDTOWN’s strong and influential brand equity coupled with our unique integrated business strategies, both the cafe chain operation and manufacturing of beverages segments are expected to progress optimistically as a result of our strategic foresight which would lead to solid financial and operational performance in the ensuing year.

Progress of Cafe Chain Operation Development Plans

Adopting Multi-Pronged Strategies for Domestic Market

As at 31 March 2013, the Group has a total of 222 cafe outlets, of which 199 are located in Malaysia, 8 in Singapore, 11 in Indonesia and 4 in China. OLDTOWN BERHAD (797771-M)

24 Group Managing Director’s Review of Operations

In order to capture the ever changing market favourite places where all Malaysians can together dynamics and as part of our core marketing patronise in the medium to long term. strategy in 2013, the Group has adopted a tactical The Group has also initiated an animation contest marketing strategy via the introduction of the “All for OLDTOWN’s Mascot. We have invited all Day Set Menu” by focusing on two key marketing Malaysians to participate in this animation contest elements, namely the “Affordability and Availability” in order to create the next Malaysian ICON which factors. Customers will be able to enjoy promotional will represent Oldtown White Coffee. As part of our packages on breakfast, lunch, tea, dinner and corporate rejuvenation process, we have begun a supper set menus at anytime, on any day and in rebranding campaign to upgrade the image of all any one of OLDTOWN cafe outlets at affordable the cafe outlets by changing our marketing posters, prices. This will help to attract larger quantum of outlet layout and introducing a new brand tagline by customers besides increasing the frequency of changing our previous brand tagline of “Take Your their visits to OLDTOWN cafe outlets. Time” to “Aroma of Good Times”. Making Our Cafe Outlets the Preferred Place for Ramping Up New Cafe Outlets Opening in the All to Patronise International Markets Since the Group has begun to embark on getting Currently, our presence is entrenched stronger each individual cafe outlet to be certified as a than before in 3 key countries within the Asian Halal compliant outlet, the Group has eventually region, namely Singapore, Indonesia and China. completed the Halal certification process for Nonetheless, we are also continuously and actively majority of the outlets operated in Malaysia and exploring penetration opportunities into other Singapore by the end of June 2013. Since 2011, we new countries within the Asian region along our have been working closely with the Department of international markets expansion journey, while Islamic Development Malaysia (JAKIM) to certify the focusing to strengthen our market position and operation of each cafe outlet, so that we are able to speed up our expansion pace within each individual penetrate into the Muslim consumer markets more existing market that we presently operate in. comfortably for the second half of 2013 onwards. The number of cafe outlets that have been certified For the international markets, our development Halal in both Malaysia and Singapore are 168 and 8 plans in Singapore include the opening of 2 to 3 fully outlets respectively as at 30 June 2013. owned new outlets in 2013 and exploring licensing opportunities within the Singapore market. Since A few core marketing strategies have been adopted early 2012, we have and are still in the process of by the Company to capture additional revenue from revamping the existing Singapore operating model this huge untapped market segment. On 8 July and have launched a more innovative concept and 2013, the Company has officially launched a Halal design for OLDTOWN cafe outlets in Singapore. campaign in the OLDTOWN cafe outlet located at However, the net increase in cafe outlets in the Paradigm Mall, Kelana Jaya in conjunction Singapore appeared to be nil for FP2013 because with the commencement of the Muslim fasting whilst the Group opened 2 new cafe outlets during month. For the Ramadhan month promotion, the the year, there were 2 cafe outlets being closed Company has launched “My Dulang“ set menu and down due to expiry of tenancy. Nonetheless, the will continue to enhance our Muslim Ramadan and 2 cafe outlets will be relocated and opened in new Hari Raya festival meal sets throughout the entire premises at Bedok Mall and Aperia Kallang Park month. in 2013. A series of various public relation activities and For the Indonesian market, we target to open engagement exercises have been organised during another 5 to 8 new outlets in 2013. We have also the Muslim fasting month from early July 2013 gradually changed the Indonesian market business to early August 2013; and during the month long model from company operated outlet to the sub- Muslim New Year celebration from early August licensing model and we plan to open more licensed 2013 to early September 2013. The promotional outlets in Indonesia in 2013. We managed to open campaigns will include holding Ramadhan Buka 7 new cafe outlets in FP2013 and currently we are Puasa (Breaking Fast) in all our cafe outlets and operating a total of 11 cafe outlets in Indonesia as Open House Celebrations in some of the selected at 31 March 2013. cafe outlets. All the promotional activities and initiatives are targeted to gradually upgrade For the China market, there is a huge growth OLDTOWN cafe outlets to become one of the potential for OLDTOWN cafe chain business in view ANNUAL REPORT 2013

of its large population base and growing spending coffee mix and instant milk tea mix core products’ power, therefore, the Group has an ambitious production capacity to the next new height. It vision of opening more licensed outlets in strategic will provide an additional production capacity locations in China. We target to open a total of of approximately 300% compared to the output 30 new cafe outlets by 2015, after the first 4 China capacity in year 2012. cafe outlets were successfully opened in Guangzhou The investment in technology continue to be a and Shenzhen city of Southern China. primary enabler for us to optimise efficiencies As part of our long term business plan, we are and increase output to cater for faster response planning to set up a new food processing centre across our extensive distribution network and in Guangdong Province, China to support a larger rising demand from the marketplace. From now number of new cafe outlets. The expansion in China onwards, the supply constraint faced by the Group is expected to be able to accelerate at a faster pace on production of beverage products has since once the proposed new food processing centre is been overcome and the Group now has abundant ready to roll out its commercial production by the capacity to cope with the rising demand easily over end of 2013. A permanent food processing centre the next 5 years. which is located in the Southern China will enable the Group to expand into other territories of China Enhancement and Investment in OLDTOWN’s more easily, where the proximity factor will play a Brand Equity significant role in supporting the Group’s long term Our tireless efforts in enhancing OLDTOWN brand expansion plans in China. equity has enabled us to stand up tall and proud today, even as the business landscape becomes Progress of Beverages Manufacturing more crowded and competitive. On the domestic Development Plans front, we consistently invest in advertising, promotional and marketing campaigns to uphold A New Home for Manufacturing of Beverages OLDTOWN’s branding and to enhance its brand In view of the rising demand towards the Group’s equity value and customer loyalty in the beverage products, we have gradually relocated our marketplace. Our advertisements are not only existing beverage manufacturing operations to a new easily located and identified in printed media, such and larger factory constructed in Tasek Industrial as major stream newspapers and magazines; Estate of Ipoh. The execution and completion but also well exposed via the digital media world of a seamless transition to a new state-of-the- such as radio and TV commercials; online media art integrated facility, including the production and social networks. We also organised various facility, warehouse, research and development on-the-ground events such as consumer contests, laboratory, administrative and logistic processing products testing and sampling, road shows; and centre in single location, will not only enhance participated in expos and exhibitions. our capabilities and capacity but also allows the In the domestic market, we foresee growing new plant to reinforce our goals for the Group to demand as the Group is actively participating in capture the relatively untapped markets in the past. various joint marketing programs organised by the In view of the larger facilities to be established local key retailers. Amongst others, such as the and to support the Group’s sustainable business launching of Old Town White Coffee Chinese New development plan, the total capital expenditure Year Gift Pack, conducting exclusive consumer has been revised upward to approximately contest via collaborations with Giant and AEON RM66 million from the initial budgeted amount of and launching of Modern Trade Display Contest. RM61 million, which include the construction cost Besides our participation in product road shows in the new premises, land acquisition, and the organised by major retailers such as Giant, AEON acquisition cost of new machinery and equipment. Big and AEON, we are also continuing to expand The installation of new system and equipment, the Muslim market segment for the age group of production lines testing and commissioning for the 30 to 40 years old. Our recent participation in “Jom new plant has been fully completed by end June Heboh” marketing campaign and TV commercial 2013, after the construction of the new factory and and advertisement are targeted to expand the its ancillary buildings in Ipoh were completed in Group’s share within the Muslim market in the long January 2013. The new beverage manufacturing run. We believe, our flagship brand, OLDTOWN, facility began its commercial production in July will continue to maintain its dominant presence in 2013, which is expected to lift the Group’s instant the domestic market, as a result of our continuous OLDTOWN BERHAD (797771-M)

26 Group Managing Director’s Review of Operations

effort to engage consumers through successful campaign and product mix when venturing into the execution of all the above mentioned promotional international markets, as each consumer market activities and marketing campaigns. possesses unique characteristics and preferences.

Expansion for Beverages Products Export Markets Strategic Investments Ahead of the Curve

The Group is continuously intensifying efforts On the international front, one of the significant to scale up existing export markets share and milestones which was achieved by the Group in penetration into the more promising Asian region, 2013 was the acquisition of OLDTOWN beverage comprising Hong Kong, China, Singapore and products’ sole distributor in Hong Kong, which is Taiwan, besides increasing our growth within expected to contribute favourably to the Group’s and beyond the 13 countries to which the Group’s financial performance in the medium to long term. beverage products are currently exported to. The completion of the acquisition of 70% stake in Advance City Limited, Hong Kong (“ACL”) will not The Group foresees that there is much more room only enable the Company to take control of ACL’s to grow for its beverages products in China in view of current operations, but it will also allow the Group the country’s enormous market potential and rising to gain direct access to ACL’s existing management affluent amongst the urban population. The other expertise, marketing operations and distribution overseas markets with huge market potentials are network. ACL will source its coffee beverage Taiwan and Thailand. Hence, the Group is seeking products from the Group directly and distribute for more potential new distributors and retailers in the products into southern China markets, such as different countries to improve its regional market Hong Kong, Macau and Guangdong Province in the share and export sales. People’s Republic of China territory. Currently, ACL For the China market, most of the China major owns approximately 1,450 and 1,360 distribution retailers along the coastal cities of China are networks points in both Hong Kong and Guangdong selling OLDTOWN’s various beverage products. Province respectively. International and local retail chain, such as Moving forward, the Group will be able to Wal Mart, Carrefour, Jusco, Auchan and RT Mart participate directly in the pricing, marketing and other smaller retail outlets, do carry and and branding strategy to further strengthen sell OLDTOWN beverage products within their the current market positioning and distribution premises. operations of ACL. On top of that, the Group also For 2013 and 2014, the Group plans to expand further aims to improve ACL’s human capital strength, into the central region of China by distributing its internal process and operating efficiency in the beverage products across most of the second tier long run. This vertical integration by acquiring the cities in China, such as Tianjin, Shenyang, Suzhou, downstream distributor of OLDTOWN beverage Hangzhou, Dalian, Qingdao, Dongguan, Nanjing, products in Hong Kong will not only augur well Foshan, Wuhan, Xiamen, Chengdu, Chongqing, for the Group’s regional expansion plans but also Wuxi and Changzhou. Recently, the Company has assist to enhance the Group’s business prospects participated in SIAL Expo in Shanghai to increase in the Southern China region for the long run OLDTOWN’s brand equity and search for more with a better grip. This is also an earning accretive expansion opportunities in the greater part of China. acquisition whereby the profits generated by ACL would contribute positively to the Group’s For the Thailand market, three variances of white overall earnings and net assets in the next coffee i.e. OLDTOWN White Coffee Classic, Hazelnut financial year. and Coffee & Creamer have been launched since the first quarter of 2013. We target to penetrate into I believe our committed implementation of all the major modern trade distribution channels with the business strategies that have been thoughtfully distribution of OLDTOWN White Coffee products to crafted will hopefully deliver another successful year more than 400 retailing outlets in the second half of for the Group and compliment our aim to continue 2013. The target retailer chains that the Group aims the creation of value, growth and profitability for all to list its products are Tops Supermarket (161 outlets) the shareholders in a sustainable future. and a few hypermarket chains such as Big C (116 outlets), Tesco (91 outlets) and Makro (49 outlets). The Group is adopting various flexible and Lee Siew Heng adaptive strategies by customising its marketing Group Managing Director ANNUAL REPORT 2013

27 OLDTOWN White Coffee and Other Beverage Products Making Inroads into Local and Export Markets

Malaysia Brunei Shenzhen Canada Singapore Philippines Shanghai USA Thailand Taiwan Beijing Australia Indonesia Hong Kong UK New Zealand

Enjoyed All Around The World Our products are currently exported to over 13 countries. OLDTOWN BERHAD (797771-M)

28 Sustainability and Corporate Responsibility

Oldtown Berhad (“Oldtown” or “the Group”) recognizes that The Group through Oldtown EARTHCARE takes a proactive acting responsibly and sustainably creates value for the Group, approach to promote an environmentally-conscious employees, customers, shareholders and society as a whole. culture in the workplace. Oldtown EARTHCARE sends Sustainability is an integral part of our business and corporate out “Oldtown Green Alert” to all employees periodically responsibility serves as key to sustainability. to introduce various green initiatives and measures on the responsible use of resources to reduce, reuse and The Group’s corporate responsibility practices focus on four recycle materials wherever possible. It provides tips for areas – Environment, Workplace, Community and Marketplace resource-saving and promotes environmental friendly which aim to deliver sustainable value to society at large. practices and awareness among employees to help The Group will continue to build sustainable practices in make a difference to the environment. every aspect of the Group’s business and remain steadfast in During the financial period under review, the Group achieving excellence in its corporate responsibility activities. carried out Carnival of the Green 2012, it participated the A. ENVIRONMENT Earth Hour Campaign and allocated Green Signage at nationwide Oldtown White Coffee outlets. Environmental Sustainability is of utmost importance due to the increasing depletion of the earth’s natural resources B. WORKPLACE and global climate change issues. As a dynamic business Employees are the backbone of the business. Essentially, entity, we rely on the earth’s natural resources every day employees are central to the smooth functioning of and climate change issues will affect the supply chain and business operations and play a vital role in the success the source of many products. Therefore, it is essential to and sustainability of the Group. embed environmental sustainability principles into our business operations and practices. The Group believes that human capital is the most valuable asset. In line with this belief, the Group strives to We aim for business growth that is in harmony with provide a dynamic and challenging workplace that gives environment and are committed to protecting the emphasis on the opportunity to develop employee skills, earth’s natural resources, conserving and preserving the talent and capability. environment. The Group, in fulfilling its corporate responsibility as a Among the approaches seek to heighten the positive caring employer, places emphasis to build long lasting impact and minimize negative impacts of the Group’s relationships with its employees. operations on the environment are: The efforts towards achieving the above objectives are • The efficient use of energy, water and raw materials carried out in various aspects: in all our operations. (i) Employee Welfare and Well-Being Program • The establishment of Oldtown EARTHCARE which inculcate environmentally intelligent practices with a The Group aims to enhance the employee benefits variety of green initiatives, activities and awareness schemes to build an engaged workforce that stay loyal programs. and grow with the Group. In pursuing the objective, we provide the following: • The implementation of ongoing product wastage elimination program and packaging design optimization. • Adequate medical benefits, hospitalization and personal accident insurance coverage. • The proper utilization of reusable resources and recyclable materials. • Financial assistance in the form of education subsidy and employee emergency assistance • The practice of 3Rs (Reduce, Reuse and Recycle) at fund. the workplace. • Organizes annual dinner and recognizes long • The participation in Earth Hour Campaign. service staff with the Long Service Award in • The support of green environment and Eco-friendliness recognition of their loyalty, dedication and concept through “Plant a Tree” Campaign. commitment. • Review the Human Resource policies and staff benefits on regular basis. ANNUAL REPORT 2013

(ii) Safe, Healthy and Conducive Work Environment (v) Retention, Talent Management and Succession Planning The Group strives to provide a safe, healthy, comfortable and conducive work environment for its Retaining key employees is crucial to ensure business employees through the following initiatives: success. The Group shall continue to ensure the rewards package remain competitive to attract, retain • Setting up of Occupational Safety and Health and motivate the right talents. Committee to initiate various health and safety programs such as fire drills, fire safety briefings A proper succession plan is put in place for critical and safety system checks on the equipment. positions to ensure sustainability in terms of continuous effective and efficient operations within • Ensuring safe practices in all aspects. the Group and a healthy leadership pipeline. • Promoting the awareness of safety precautions C. COMMUNITY and health. The Group recognizes the interdependent relationship between (iii) Training and Development Program business growth and social well-being and welfare. Therefore, The Group seeks to promote and develop its human in fulfilling its corporate responsibilities to the community assets to be competent, multi-skilled and well- it serves, the Group is obligated to nourish and improve the motivated to increase their career advancement quality of the society at large while doing business. opportunities. The Group continues to carry out the To be socially responsible, the Group focuses its corporate following efforts: responsibilities on enhancing community sustainability • Employees are provided with the necessary job through various activities and actions aim to promote related training, seminars and workshops on community engagement and address the needs of less an ongoing basis to further enhance their skills, fortunate and underprivileged families. knowledge, core competencies and proficiency The philanthropic activities and approaches include: level. • The setting up of Oldtown Children Care Fund to • Participation in various in-house and external provide aid funds to orphaned, abandoned, vulnerable training programs from technical-related skills and deprived children. to soft management skills. • Monetary donations to schools, charity, welfare and • Participation in international trade fairs/ voluntary associations. exhibitions locally and overseas, to broaden the knowledge base and exposure of the employees • Distribution of gifts, goodie bags, basic supplies to keep abreast of new developments in their and necessities to the poor and impoverished respective field of expertise. communities during festivals. (iv) Recreational, Sports and Leisure Activities • Financial aids in the form of medical, emergency funds or short-term living expenses support to The Group acknowledges a good work-life balance alleviate the hardships of needy families. will lead to a more productive workforce. • Building funds donations to orphanage. In order to cultivate balanced work life and create a caring, harmonious and cohesive working environment, During the financial period, the Group through Oldtown employees are encouraged to participate in social, Children Care Fund extended monetary donations to sports, recreational and leisure activities organized by schools, welfare association and needy families. It the Group. Besides, communication and camaraderie organized various festive celebrations, movie treats and among staff is fostered through social gatherings and day trips for children homes. It also sponsored products team building events. for fund raising projects and donated school bags, stationery, books and uniforms to schools. OLDTOWN BERHAD (797771-M)

30 Sustainability and Corporate Responsibility

D. MARKETPLACE (ii) Suppliers

To achieve the sustainable development of the marketplace, We respect our suppliers and work with them through the Group endeavors to carry out activities in a sustainable long-term relationships to realize mutual growth based on manner and promote responsible practices among our mutual trust. In this aspect, we engage with our suppliers investors, suppliers and customers. in the following areas: (i) Investors • Fosters new partnerships and delivers new business opportunities to expand the suppliers’ business We strive to enhance corporate value and maintain coverage in the industry. stable and long term growth for the benefit of shareholders. It is through engagement with its • Engages in ethical procurement practices by adopting shareholders that the Group may learn of new and standard procedures in vendors’ qualification. better ways to enable a successful and sustainable • Ensures the products supplied are in accordance with business model. The Group continues its efforts to the Group’s materials requirements. engage with its shareholders through the following initiatives: • Conducts more in-depth suppliers’ audits to ensure improved standards in the supply chain. • Disclose and disseminate all material information in a timely, open, fair and transparent manner. (iii) Customers • Ensuring a robust system of corporate Based on our philosophy of “Customer First”, we develop governance. and provide innovative, safe and high quality products and services that meet a wide variety of customers’ demands • Implementing policies that promote ethical and earn the trusts of our customers. behavior and conducting business responsibly through high standards and business ethics. • Focuses on product innovation and development to meet the customers’ requirements. • Actively engages with its shareholders and investors through various channels of communication such • Ensures halal compliance covering materials, as investor relations activities, general meetings of employees and systems. shareholders, financial results briefings, dialogues • Enhances customers’ satisfaction and confidence by and regular press releases. providing safe, reliable and affordable products. • Accessible in the public domain and regular • Establishes customers’ complaint and feedback investors updates on our website. system through dedicated email address and The Group aims to develop a good relationship with suggestion boxes and ensures all customers investors and is accountable for providing timely complaints are acknowledged and resolved promptly. information about the Group to the investment community. • Sets quantitative benchmarks for its customer service During the financial period ended 31 March 2013, the delivery standard such as Standard Waiting Time. Group has conducted 57 investor relations activities via various communication channels such as one-to-one • Continues to be covered by the internationally meetings, small group briefings, conference calls and recognized ISO 9001:2008 (Quality Management regular meetings. System), ISO 22000:2005 (Food Safety Management System), HACCP (Hazard Analysis Critical Control Point) and GMP (Good Manufacturing Practice) certifications for its manufacturing of beverages segment to ensure uniform and high standards of product.