CIRCULAR DATED 14 OCTOBER 2008
THIS CIRCULAR IS IMPORTANT AS IT CONTAINS THE RECOMMENDATION OF THE DIRECTORS OF BRC ASIA LIMITED AND THE ADVICE OF KIM ENG CORPORATE FINANCE PTE. LTD. THIS CIRCULAR REQUIRES YOUR IMMEDIATE ATTENTION AND YOU SHOULD READ IT CAREFULLY.
If you are in any doubt as to the action you should take, you should consult your stockbroker, bank manager, accountant, solicitor or other professional adviser immediately.
If you have sold or transferred all your shares in the capital of BRC Asia Limited (Company), you should immediately forward this Circular to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for onward transmission to the purchaser or the transferee.
The Singapore Exchange Securities Trading Limited assumes no responsibility for the correctness of any of the statements made, reports contained or opinions expressed in this Circular.
(Incorporated in the Republic of Singapore) (Company Reg. No. 193800054G)
CIRCULAR TO SHAREHOLDERS in relation to
THE MANDATORY UNCONDITIONAL CASH OFFER BY KBC BANK N.V., SINGAPORE BRANCH FOR AND ON BEHALF OF HG METAL PTE. LTD. TO ACQUIRE ALL THE ISSUED ORDINARY SHARES IN THE CAPITAL OF THE COMPANY OTHER THAN THOSE ALREADY OWNED, CONTROLLED OR AGREED TO BE ACQUIRED BY HG METAL PTE. LTD. AND PARTIES ACTING OR DEEMED TO BE ACTING IN CONCERT WITH IT AS AT THE DATE OF THE OFFER
Independent Financial Adviser to the Directors
Kim Eng Corporate Finance Pte. Ltd. (Incorporated in the Republic of Singapore) (Company Registration No.: 200207700C)
SHAREHOLDERS SHOULD NOTE THAT THE OFFER DOCUMENT STATES THAT THE OFFER WILL CLOSE AT 5.30 P.M. (SINGAPORE TIME) ON 30 OCTOBER 2008 AND THAT THE OFFEROR DOES NOT INTEND TO EXTEND THE OFFER BEYOND THAT DATE OR TO REVISE THE TERMS OF THE OFFER. ACCORDINGLY THE OFFEROR HAS GIVEN NOTICE THAT THE OFFER WILL NOT BE OPEN FOR ACCEPTANCES BEYOND 5.30 P.M. ON 30 OCTOBER 2008 AND WILL NOT BE REVISED, SAVE THAT SUCH NOTICE SHALL NOT BE CAPABLE OF BEING ENFORCED IN A COMPETITIVE SITUATION. This page has been intentionally left blank. CONTENTS
Page
DEFINITIONS ...... 2
CAUTIONARY NOTE...... 6
INDICATIVE TIMETABLE ...... 7
LETTER TO SHAREHOLDERS
1. Introduction ...... 8
2. TheOffer...... 10
3. The Offeror’s Intentions for the Company ...... 12
4. Benchmarking the Offer ...... 13
5. Advice and Recommendations ...... 14
6. Overseas Shareholders ...... 17
7. Action to be Taken by Shareholders ...... 18
8. Consents...... 18
9. Directors’ Responsibility Statement...... 19
10. Documents Available for Inspection ...... 19
APPENDIX 1 : LETTER FROM KIM ENG CORPORATE FINANCE PTE. LTD. TO THE DIRECTORS OF BRC ASIA LIMITED...... 20
APPENDIX 2 : GENERAL INFORMATION ON THE COMPANY ...... 45
APPENDIX 3 : INFORMATION ON THE OFFEROR ...... 73
APPENDIX 4 : UNAUDITED HALF-YEAR AND SECOND QUARTER FINANCIAL STATEMENT AND DIVIDEND ANNOUNCEMENT FOR THE PERIOD ENDED 30 JUNE 2008 ...... 74
1 DEFINITIONS
For the purpose of this Circular, the following definitions apply throughout unless the context otherwise requires or unless otherwise stated:
Act : The Companies Act, Chapter 50 of Singapore, as amended, varied, supplemented, re-enacted or modified from time to time acting in concert : Individuals or companies who, pursuant to an agreement or understanding (whether formal or informal), cooperate, through the acquisition by any of them of shares in a company, to obtain or consolidate effective control of that company
Articles : The Articles of Association of the Company
Board : The board of Directors of the Company
BRC or Company : BRC Asia Limited
Business Day : A day on which commercial banks in Singapore are open for business (excluding a Saturday, Sunday or a day gazetted as a public holiday in Singapore)
Circular : This Circular to Shareholders dated 14 October 2008 in relation to the Offer
CDP : The Central Depository (Pte) Limited
Closing Date : 30 October 2008, being the last day for the lodgement of acceptances for the Offer
Code : The Singapore Code on Take-overs and Mergers
Controlling Shareholder : In relation to a company, a person who holds, directly or indirectly, 15% or more of the nominal amount of all voting shares in the company (unless otherwise excepted by the SGX-ST) or who in fact exercises control over the company
Despatch Date : 2 October 2008, being the date of despatch of the Offer Document
Directors : The directors of the Company as at the Latest Practicable Date, being John David Sword, Lim Siak Meng, Wong Soong Kit, Harry Elias and Chua Kee Lock
EPS : Earnings per Share
FAA : Form of Acceptance and Authorisation, which forms part of the Offer Document and which is issued to Shareholders whose Shares are deposited with CDP
FAT : Form of Acceptance and Transfer, which forms part of the Offer Document and which is issued to the Shareholders whose Shares are not deposited with CDP
2 DEFINITIONS
First SPA : Shall have the meaning ascribed to it in paragraph 1.2 of this Circular
First Tranche Acquisition : Shall have the meaning ascribed to it in paragraph 1.2 of this Circular
First Tranche Conditions : Shall have the meaning ascribed to it in paragraph 1.2 of Precedent this Circular
First Tranche Sale Shares : Shall have the meaning ascribed to it in paragraph 1.2 of this Circular
Formal Offer Announcement : The announcement issued by KBC, for and on behalf of the Offeror, on 18 September 2008 in relation to the Offer
Formal Offer Announcement : 18 September 2008, being the date of the Formal Offer Date Announcement
FY : Financial year ended or, as the case may be, ending on 31 December
Group : The Company, its subsidiaries and its associated companies
HG : HG Metal Manufacturing Limited
IFA or Kim Eng : Kim Eng Corporate Finance Pte. Ltd., the independent financial adviser to the Directors
KBC : KBC Bank N.V., Singapore Branch
Latest Practicable Date : The latest practicable date prior to the printing of this Circular, being 8 October 2008
Listing Manual : SGX-ST Listing Manual
Market Day : A day on which the SGX-ST is open for trading of securities
Memorandum : The Memorandum of Association of the Company
NTA : Net tangible assets
Offer : The mandatory unconditional cash offer by KBC, for and on behalf of the Offeror, to acquire all the Offer Shares on the terms and subject to the conditions set out in the Offer Document, the FAA and the FAT
Offeror : HG Metal Pte. Ltd.
Offer Document : The document (incorporating the FAA and the FAT) dated 29 September 2008 issued by KBC, for and on behalf of the Offeror, in respect of the Offer
Offer Period : The period from the Pre-Conditional Offer Announcement Date until the date the Offer is declared to have closed or lapsed
3 DEFINITIONS
Offer Price : S$0.11 in cash for each Offer Share
Offer Shares : All the Shares in issue other than those already owned, controlled or agreed to be acquired by the Offeror
Options : Outstanding options to subscribe for new Shares granted under the BRC Share Option Scheme 2004
Overseas Shareholders : Shareholders whose addresses are outside Singapore as shown on the Register of Members of the Company or, as the case may be, in the records of CDP, and Overseas Shareholder means any one of them
Pre-Conditional Offer : The pre-conditional mandatory offer announced by the Offeror on 13 August 2008 in relation to the Offeror’s intention to make the proposed Offer, subject to the satisfaction or waiver (as applicable) of the First Tranche Conditions Precedent and completion of the First Tranche Acquisition
Pre-Conditional Offer : The announcement released by KBC, for and on behalf of Announcement the Offeror, on 13 August 2008 in relation to the Pre- Conditional Offer
Pre-Conditional Offer : 13 August 2008, being the date of the Pre-Conditional Offer Announcement Date Announcement per cent or % : Per centum or percentage
S$ and cents : Singapore dollars and cents, respectively
Second SPA : Shall have the meaning ascribed to it in paragraph 1.2 of this Circular
Second Tranche Acquisition : Shall have the meaning ascribed to it in paragraph 1.2 of this Circular
Second Tranche Conditions : Shall have the meaning ascribed to it in paragraph 1.2 of Precedent this Circular
Second Tranche Sale Shares : Shall have the meaning ascribed to it in paragraph 1.2 of this Circular
Securities Account : A securities account maintained by a Depositor with CDP but does not include a securities sub-account
SGXNET : A system network used by listed companies to send information and announcements to the SGX-ST or any other system network prescribed by the SGX-ST
SGX-ST : Singapore Exchange Securities Trading Limited
Shareholders : The holders of the Offer Shares, including persons whose Offer Shares are deposited with CDP or who have purchased the Offer Shares on the SGX-ST
4 DEFINITIONS
Shares : Ordinary shares in the capital of the Company
SIC : Securities Industry Council
Substantial Shareholder : A person who has an interest of 5% or more of the issued voting shares of the Company subsidiary or subsidiaries : Shall be construed in accordance with Sections 5 and 5B of the Companies Act
Undertaking : Shall have the meaning ascribed to it in paragraph 1.4 of this Circular
Vendor : Acertec Engineering Limited
Depositors. The terms Depositor and Depository Register shall have the meanings ascribed to them respectively in Section 130A of the Act.
Genders. Words importing the singular shall, where applicable, include the plural and vice versa. Words importing the masculine gender shall, where applicable, include the feminine and neuter genders. References to persons shall include corporations.
Headings. The headings in this Circular are inserted for convenience only and shall be ignored in construing this Circular.
Rounding. Any discrepancies in figures included in this Circular between the amounts listed and their actual values are due to rounding. Accordingly, figures may have been adjusted to ensure that totals or sub-totals shown, as the case may be, reflect an arithmetic aggregation of the figures that precede them.
Statutes. Any reference in this Circular to any enactment is a reference to that enactment as for the time being amended or re-enacted. Any word defined under the Act or any statutory modification thereof and not otherwise defined in this Circular shall have the same meaning assigned to it under the Act or any statutory modification thereof, as the case may be.
Time and Date. Any reference to a time of day and date in this Circular is made by reference to Singapore time and date, unless otherwise stated.
Extracts. All terms and expressions used in extracts from the Offer Document shall bear the meanings ascribed to them in the Offer Document.
5 CAUTIONARY NOTE
All statements contained in this Circular which are not statements of historical facts are or may constitute “forward-looking statements”. Some of these statements can be identified by forward-looking terms such as “expect”, “believe”, “plan”, “intend”, “estimate”, “anticipate”, “may”, “will”, “would”, “should”, “shall”, “could” and “can” or other similar words. However, these words are not the exclusive means of identifying forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.
Given the risks and uncertainties that may cause our actual results, performance or achievements to be materially different than expected, expressed or implied by the forward-looking statements in this Circular, you are advised not to place undue reliance on those statements. Further, the Company disclaims any responsibility to update any of those forward-looking statements or publicly announce any revisions to those forward-looking statements to reflect future developments, events or circumstances for any reason, even if new information becomes available or other events occur in the future, subject to compliance with all applicable laws and regulations and/or rules of the SGX-ST and/or any regulatory or supervisory body or agency.
6 INDICATIVE TIMETABLE
The following are the indicative dates and times for the Offer:
Date of despatch of Offer Document : 2 October 2008
Date of despatch of this Circular : 16 October 2008
Close of Offer : 5.30 p.m. on 30 October 2008
Date of settlement of consideration for the Offer : Within 10 days after the date of receipt of each valid tendered acceptance where such acceptances were tendered before the close of the Offer
7 LETTER TO SHAREHOLDERS
BRC ASIA LIMITED Incorporated in the Republic of Singapore (Company Registration No. 193800054G)
Directors Registered Office
John David Sword (Chairman and Non-executive Director) 350 Jalan Boon Lay Lim Siak Meng (Executive Director) Jurong Town Wong Soong Kit (Executive Director) Singapore 619530 Harry Elias (Independent Director) Chua Kee Lock (Independent Director) 14 October 2008
To: The Shareholders of BRC Asia Limited
Dear Sir/Madam
THE MANDATORY UNCONDITIONAL CASH OFFER BY KBC BANK N.V., SINGAPORE BRANCH FOR AND ON BEHALF OF HG METAL PTE. LTD. TO ACQUIRE ALL THE ISSUED ORDINARY SHARES IN THE CAPITAL OF THE COMPANY OTHER THAN THOSE ALREADY OWNED, CONTROLLED OR AGREED TO BE ACQUIRED BY HG METAL PTE. LTD.
1. INTRODUCTION
1.1 Pre-Conditional Offer Announcement On 13 August 2008, KBC, for and on behalf of the Offeror, released the Pre-Conditional Offer Announcement that, subject to the satisfaction and/or waiver of the First Tranche Conditions Precedent and the occurrence of the completion of the First Tranche Acquisition, the Offeror intended to make a mandatory unconditional cash offer for all the issued Shares other than those already owned, controlled or agreed to be acquired by the Offeror.
1.2 Pre-Conditional Offer (a) According to the Offer Document, it was stated in the Pre-Conditional Offer Announcement that the Offeror and the Vendor had on 12 August 2008 entered into: (i) a conditional sale and purchase agreement (the First SPA) in relation to the sale and purchase of 349,500,000 Shares (the First Tranche Sale Shares), representing approximately 56.14% of the existing issued and paid up share capital of the Company as at the date of the First SPA and the Second SPA (the First Tranche Acquisition). Under the terms of the First SPA, completion of the First SPA was subject to the satisfaction and/or waiver of the various conditions precedent as set out in paragraph 1.2(b) below (the First Tranche Conditions Precedent); and (ii) a conditional sale and purchase agreement (the Second SPA) in relation to the sale and purchase of 88,050,000 Shares (the Second Tranche Sale Shares) representing approximately 14.14% of the existing issued and paid up share capital of the Company as at the date of the First SPA and the Second SPA (the Second Tranche Acquisition). Under the terms of the Second SPA, completion of the Second SPA will take place on the date falling on the expiry of 12 months after completion of the First SPA (or such other date as may be agreed between the Offeror
8 LETTER TO SHAREHOLDERS
and the Vendor) and is subject to the satisfaction and/or waiver of the various conditions precedent as set out in paragraph 1.2(c) below (the Second Tranche Conditions Precedent). (b) According to the Offer Document, it was stated in the Pre-Conditional Offer Announcement that the making of the Offer and the posting of the Offer Document to Shareholders would be subject to, and would only take place following, the satisfaction and/or waiver of the First Tranche Conditions Precedent and the completion of the First Tranche Acquisition in accordance with the terms of the First SPA. The First Tranche Conditions Precedent are as follows: (i) The concurrent entry into by the Offeror and the Vendor of the Second SPA; (ii) The Vendor having obtained a letter of consent from Barclays Bank plc consenting to the release of the deed of charge dated 23 November 2005 between the Vendor and Barclays Bank plc over the First Tranche Sale Shares and the Second Tranche Sale Shares to enable the Vendor to sell and transfer the First Tranche Sale Shares to the Offeror free from encumbrances and the Offeror to be registered as the holder of the First Tranche Sale Shares on the completion date of the First SPA; and (iii) HG obtaining the approval of its shareholders at an extraordinary general meeting to be convened prior to the completion date of the First SPA for the acquisition of (i) the First Tranche Sale Shares pursuant to the First SPA, (ii) the Second Tranche Sale Shares pursuant to the Second SPA, and (iii) any of the Offer Shares pursuant to the Offer. (c) According to the Offer Document, the Second Tranche Conditions Precedent are as follows: (i) The concurrent entry into by the Offeror and the Vendor of the First SPA; (ii) The completion of the First SPA; (iii) The Vendor having obtained a letter of consent from Barclays Bank plc consenting to the release of the deed of charge dated 23 November 2005 between the Vendor and Barclays Bank plc over the First Tranche Sale Shares and the Second Tranche Sale Shares to enable the Vendor to sell and transfer the Second Tranche Sale Shares to the Offeror free from encumbrances and the Offeror to be registered as the holder of the Second Tranche Sale Shares on the completion date of the Second SPA; and (iv) HG obtaining the approval of its shareholders at an extraordinary general meeting to be convened prior to the completion date of the Second SPA for the acquisition of (i) the First Tranche Sale Shares pursuant to the First SPA, (ii) the Second Tranche Sale Shares pursuant to the Second SPA, and (iii) any of the Offer Shares pursuant to the Offer. (d) It was further stated in the Pre-Conditional Offer Announcement, inter alia, that if and when the First Tranche Conditions Precedent are satisfied and/or waived and accordingly, completion of the First Tranche Acquisition occurs, KBC, for and on behalf of the Offeror, would announce a firm intention on the part of the Offeror to make the Offer.
1.3 Satisfaction of the First Tranche Conditions Precedent and the Formal Offer Announcement As stated in the Offer Document, the First Tranche Conditions Precedent having been satisfied, completion of the First Tranche Acquisition took place on 18 September 2008. On such date, pursuant to the completion of the First Tranche Acquisition, KBC announced, for and on behalf of the Offeror, the Offeror’s firm intention to make the Offer (Formal Offer Announcement).
9 LETTER TO SHAREHOLDERS
A copy of the Formal Offer Announcement is available on the website of SGX-ST at www.sgx.com.
1.4 Irrevocable Undertaking According to the Offer Document, as at 12 August 2008, the Offeror had received under the Second SPA an irrevocable undertaking (the Undertaking) from the Vendor not to accept the Offer in respect of the Second Tranche Sale Shares.
Save as disclosed in the Offer Document, neither the Offeror nor any party acting in concert with it had received any irrevocable undertaking from any other party to accept or reject the Offer.
1.5 Despatch of Offer Document Shareholders should by now have received a copy of the Offer Document dated 29 September 2008 issued by KBC, for and on behalf of the Offeror, and despatched on 2 October 2008 setting out, inter alia, the terms and conditions of the Offer. Shareholders are advised to read the terms and conditions contained therein.
1.6 Purpose of Circular The purpose of this Circular is to provide Shareholders with information relating to the Offer and to set out the recommendation of the Directors and the advice of the IFA to the Directors in relation to the Offer.
1.7 Independence of Directors Shareholders should note that all of the Directors are considered independent for the purpose of making a recommendation to Shareholders in respect of the Offer.
1.8 The Offeror Information on the Offeror is set out in Appendix 3 to this Circular.
2. THE OFFER Based on the information set out in the Offer Document, the Offeror has offered to acquire the Offer Shares on the terms and subject to the conditions set out in the Offer Document, the FAA and the FAT on the following basis:
2.1 Offer Price For each Offer Share: S$0.11 in cash
It is stated in the Offer Document that the Offeror does not intend to revise the Offer Price.
As stated in the Offer Document, the Offer Shares will be acquired: (a) fully-paid, (b) free from any claims, securities, options, power of sale, hypothecation, liens, equities, mortgages, charges, encumbrances, rights of pre-emption and any other third party rights, retention of title and interests of any nature whatsoever; and
10 LETTER TO SHAREHOLDERS
(c) together with all rights, benefits and entitlements attached thereto as at the Formal Offer Announcement Date and thereafter attaching thereto (including the right to receive and retain all dividends and other distributions (if any) which may be announced, declared, paid or made thereon by the Company on or after the Formal Offer Announcement Date).
If any dividends, other distribution or return of capital is declared, made or paid on or after the Formal Offer Announcement Date, the Offeror reserves the right to reduce the Offer Price by the amount of such dividends, distribution or return of capital.
2.2 Offer Shares (a) Offer Shares. The Offer is extended, on the same terms and conditions, to all the issued Shares other than those already owned, controlled or agreed to be acquired by the Offeror. (b) Options. The Offer will be extended, on the same terms and conditions, to all new Shares unconditionally issued or to be issued pursuant to the valid exercise (if any) prior to the close of the Offer of any Options to subscribe for new Shares granted under the BRC Share Option Scheme 2004, which are vested and released prior to the close of the Offer. For the purpose of the Offer, the expression Offer Shares shall include such new Shares.
2.3 Condition of the Offer The Offer is unconditional in all respects.
2.4 Warranty According to the Offer Document, acceptance of the Offer will be deemed to constitute an unconditional and irrevocable warranty by the accepting Shareholder that each Offer Share tendered in acceptance of the Offer is sold by the accepting Shareholder, as or on behalf of the beneficial owner(s) thereof, (a) fully-paid; (b) free from any claims, securities, options, power of sale, hypothecation, liens, equities, mortgages, charges, encumbrances, rights of pre-emption and any other third party rights, retention of title and interests of any nature whatsoever; and (c) together with all rights, benefits and entitlements attached thereto as at the Formal Offer Announcement Date and thereafter attaching thereto (including the right to receive and retain all dividends and other distributions (if any) which may be announced, declared, paid or made thereon by the Company on or after the Formal Offer Announcement Date).
2.5 Duration of the Offer
(a) Closing Date Except insofar as the Offer may be withdrawn with the consent of the SIC and every person released from any obligation incurred thereunder, the Offer will remain open for acceptances by Shareholders for a period of at least 28 days from the Despatch Date. Accordingly, the Offer will close at 5.30 p.m. on 30 October 2008.
According to the Offer Document, the Offeror does not intend to extend the Offer beyond 5.30 p.m. on 30 October 2008. Accordingly, the Offer will not be open for acceptances beyond 5.30 p.m. on 30 October 2008, save that such notice of the Offeror’s intention not to extend the Offer shall not be capable of being enforced in a competitive situation.
11 LETTER TO SHAREHOLDERS
(b) Revision As stated in paragraph 2.1 above, the Offeror has given notice that it does not intend to revise the Offer Price save that such notice shall not be capable of being enforced in a competitive situation. Nevertheless, pursuant to Rule 20.1 of the Code, the Offer, if revised, will remain open for acceptance for a period of at least 14 days from the date of despatch of the written notification of the revision to Shareholders. In any case, where the terms are revised, the benefit of the Offer (as so revised) will be made available to each of the Shareholders, including those who had previously accepted the Offer.
(c) Subsequent Closing Date As stated in paragraph 2.5(a) above, the Offeror has given notice that it does not intend to extend the Offer beyond 5.30 p.m. on the Closing Date, save that such notice shall not be capable of being enforced in a competitive situation. Nevertheless, if there is an extension of the Offer, pursuant to Rule 22.4 of the Code, any announcement of an extension of the Offer will state the next closing date or a statement may be made that the Offer will remain open until further notice. In the latter case, those Shareholders who have not accepted the Offer will be notified in writing at least 14 days before the Offer is closed.
2.6 Options Under the rules of the BRC Share Option Scheme 2004, the Options are not transferable by the holders thereof. In view of this restriction, the Offeror will not make an offer to acquire the Options. However, as stated in paragraph 2.2(b) above, the Offer will be extended to all new Shares unconditionally issued or to be issued pursuant to the valid exercise prior to the close of the Offer of any such Options.
2.7 Details of the Offer Further details of the Offer are set out in Appendix IV to the Offer Document, including details on (a) the settlement of the consideration for the Offer, (b) the requirements relating to the announcement of the level of acceptances of the Offer and (c) the right of withdrawal of acceptances of the Offer.
2.8 Procedure for Acceptance The procedures for acceptance of the Offer are set out in Appendix V to the Offer Document.
3. THE OFFEROR’S INTENTIONS FOR THE COMPANY
3.1 Rationale For the Offer and Future Plans for the Company The full text of the rationale for the Offer and the future plans for the Company has been extracted from the Offer Document and is set out in italics below.
“5.1 Rationale for the Offer The Offer is being made in compliance with the provisions of the Code consequent upon the Offeror obtaining a controlling interest over 349,500,000 BRC Shares pursuant to the completion of the First Tranche Acquisition, representing approximately 56.14% of the existing issued and paid up share capital of BRC as at the date of the First SPA and the Second SPA.
12 LETTER TO SHAREHOLDERS
5.2 Future Plans for BRC Subject to normal business considerations, the Offeror does not intend to make changes to the management team of BRC. The Offeror currently has no intention for any changes to (a) the business of the BRC Group, (b) the deployment of the fixed assets of the BRC Group or (c) the employment of the employees of the BRC Group, other than in the ordinary course of business. Nonetheless, the Offeror retains the flexibility at any time to consider options or opportunities which may present themselves and which it regards to be in the interests of the Offeror.”
3.2 Compulsory Acquisition and Delisting The following text relating to Compulsory Acquisition and Delisting of the Company has been extracted from the Offer Document and is set out in italics below:
“Pursuant to Section 215(1) of the Companies Act, in the event the Offeror receives acceptances of the Offer in respect of 90% or more of the BRC Shares (other than those already held by the Offeror, its related corporations or their respective nominees as at the date of the Offer), the Offeror would be entitled to exercise the right to compulsorily acquire all the BRC Shares of the BRC Shareholders who have not accepted the Offer at a price equal to the Offer Price. In addition, BRC Shareholders who have not accepted the Offer have the right under and subject to Section 215(3) of the Companies Act to require the Offeror to acquire their BRC Shares in the event that the Offeror, its related corporations and/or their respective nominees acquire 90% or more of the BRC Shares (excluding treasury shares). In light of the Undertaking given by the Vendor as set out in Section 1.4 above, the Offeror does not expect to have any rights or obligations of compulsory acquisition in connection with the Offer. In any event, the Offeror does not intend to exercise any rights of compulsory acquisition that may arise under the Companies Act as a result of the Offer.
In the event the Offeror announces that valid acceptances have been received that bring the holdings owned by the Offeror and the parties acting in concert with it and the Second Tranche Sale Shares owned by the Vendor to above 90% of the BRC Shares in issue, the SGX-ST may, pursuant to Rule 1105 of the Listing Manual of the SGX-ST, suspend the listing of the BRC Shares in the Ready and Odd-Lots markets until it is satisfied that at least 10% of the BRC Shares in issue (excluding treasury shares) are held by at least 500 BRC Shareholders who are members of the public (“Free Float”). It is the present intention of the Offeror to preserve the listing status of BRC on the SGX-ST. In the event that valid acceptances have been received that bring the holdings owned by the Offeror and the parties acting in concert with it and the Second Tranche Sale Shares owned by the Vendor to above 90% of the BRC Shares in issue, the Offeror will make an announcement via SGXNET and may place out such number of BRC Shares it owns and/or cause BRC to issue such number of new BRC Shares to third parties as may be required to satisfy the Free Float requirement of the Listing Manual. Rule 725 of the Listing Manual states that the SGX-ST may allow BRC a period of three (3) months, or such longer period as the SGX-ST may agree, for the Free Float to be raised to at least 10%, failing which BRC may be de-listed.”
4. BENCHMARKING THE OFFER The full text of the information on the benchmarking of the Offer has been extracted from the Offer Document and set out in italics below. Unless otherwise defined, all terms and expressions used in the extract below shall have the same meaning as those defined in the Offer Document.
13 LETTER TO SHAREHOLDERS
Description Share Price Premium/ (S$) (Discount) of Offer Price of S$0.11 to Share Price (1) Last transacted price on 22 September 2008 (being the 0.105 4.8% last full Market Day prior to the Latest Practicable Date on which trades in the BRC Shares were done) (2) Last transacted price on 17 September 2008 (being the 0.105 4.8% last full Market Day on which the BRC Shares were traded prior to the Formal Offer Announcement Date) (3) Last transacted price on 11 August 2008 (being the last 0.110 0.0% full Market Day on which the BRC Shares were traded prior to the Pre-Conditional Offer Announcement Date) (4) VWAP on the SGX-ST for the one-month period from 0.114 (3.5%) 11 July 2008 to 11 August 2008 (being the last full Market Day on which the BRC Shares were traded prior to the Pre-Conditional Offer Announcement Date) (5) VWAP for the three-month period from 11 May 2008 to 0.115 (4.3%) 11 August 2008 (being the last full Market Day on which the BRC Shares were traded prior to the Pre- Conditional Offer Announcement Date) (6) VWAP for the six-month period from 11 February 2008 0.123 (10.6%) to 11 August 2008 (being the last full Market Day on which the BRC Shares were traded prior to the Pre- Conditional Offer Announcement Date)
5. ADVICE AND RECOMMENDATIONS
5.1 Appointment of the IFA Kim Eng Corporate Finance Pte. Ltd. has been appointed to advise the Directors in respect of the Offer. Shareholders should read and consider carefully the advice of the IFA to the Directors on the Offer set out in Appendix 1 to this Circular (IFA Letter) and the recommendation of the Directors before deciding on whether to accept or reject the Offer.
5.2 Evaluation of the Offer by the IFA The key factors taken into consideration by the IFA in arriving at its recommendation have been extracted from the IFA Letter and set out in italics below. Unless otherwise defined, all terms and expressions used in the extract below shall have the same meaning as those defined in the IFA Letter. Shareholders should read the following extract in conjunction with, and in the context of, the full text of the IFA Letter.
“In arriving at our opinion on the Offer, we have taken into consideration, inter alia, the following factors: (a) The Offer Price of S$0.11 per Share represents a premium of approximately 82.7 per cent. over the unaudited NAV per Share as at 30 June 2008; (b) The Price-Earnings ratio implied by the Offer Price of S$0.11 based on the basic earnings per Share and adjusted diluted earnings per Share of the Group for FY2007 is approximately 12.0 times and 13.1 times respectively;
14 LETTER TO SHAREHOLDERS
(c) During the 2-year periods prior to the Pre-Conditional Offer Announcement Date and the Formal Offer Announcement Date, the average daily trading volume of the Shares were 969,101 and 975,565 Shares respectively, representing approximately 0.58% of the free float. This indicated that the Shares have been thinly traded; (d) The Offer Price also represents a discount of 46.6%, 39.9%, 10.6%, 4.3% and 3.5% over the VWAP of the Shares for the 2-year, 1-year, 6-month, 3-month and 1-month period on which the Shares were traded prior to the Pre-Conditional Offer Announcement Date. The Offer Price is the same as the VWAP of the Shares on the last trading day prior to the Pre-Conditional Offer Announcement Date; (e) The Offer Price represents a discount of 46.1%, 34.1% and 1.8% over the VWAP of the Shares for the 2-year, 1-year and 6-month period on which the Shares were traded prior to the Formal Offer Announcement Date. The Offer Price represents a premium of 3.8%, 6.8% and 5.8% over the VWAP of the Shares for the 3-month, 1-month and on the last trading day on which the Shares were traded prior to the Formal Offer Announcement Date; (f) From the trading day immediately after the Formal Offer Announcement Date to the Latest Practicable Date, the Shares have traded at a price of between S$0.105 and S$0.11 per Share and the VWAP for the period was S$0.105. The Offer Price represents a premium of 4.8% over S$0.105 and is equal to the highest traded price per Share of S$0.11; (g) The Offer Price also represents a 4.8% premium over the last transacted price of S$0.105 per Share on the Latest Practicable Date; (h) From the 12-month period prior to the Pre-Conditional Offer Announcement Date to 12 August 2008, being the date prior to the Pre-Conditional Offer Announcement Date, both the Share price of BRC and the FSSTI Index declined; BRC declined by 45.0% whereas the FSSTI Index declined by 15.2%. From the 12-month period prior to the Formal Offer Announcement Date to 17 September 2008, being the date prior to the Formal Offer Announcement Date, both the Share price of BRC and the FSSTI Index declined; BRC declined by 47.5% whereas the FSSTI Index declined by 29.2%. Shareholders should note that the past trading performance of the Shares should not be relied upon as a promise of its future trading performance; (i) The PER implied in the Offer Price of 13.1 times is above the range of 3.1 times to 4.0 times in respect of the Comparable Companies listed on SGX-ST and is equal to the highest PER of 13.1 times in respect of the Comparable Companies listed on other exchanges; (j) The Price/Book ratio implied in the Offer Price of 1.8 times is above the range of 0.5 times to 0.6 times in respect of the Comparable Companies listed on SGX-ST and it is above the range of 0.4 times to 0.9 times in respect of the Comparable Companies listed on other exchanges; (k) The EV/EBITDA ratio implied in the Offer Price of 8.7 times is above the range of 1.8 times to 7.5 times in respect of the Comparable Companies listed on SGX-ST and is above the range of 3.1 times to 8.4 times in respect of the Comparable Companies listed on other exchanges; (l) The discount implied in the Offer Price over the 1-month and 3-month VWAP prior to the Pre-Conditional Offer Announcement Date is within the range and is a discount as compared to the mean and median of the non-privatisation Take-over Transactions which are premiums to the 1-month and 3-month VWAP prior to each respective announcement date;
15 LETTER TO SHAREHOLDERS
(m) The premium implied in the Offer Price over the 1-month and 3-month VWAP prior to the Formal Offer Announcement Date is within the range and is lower than the mean and median of the non-privatisation Take-over Transactions; (n) The Offer is unconditional in all respects. As at the Latest Practicable Date, there was no publicly available evidence of a competing offer or an enhancement or revision of the Offer. Shareholders should not expect any revision in the Offer Price nor any extension of the Offer Period from the Offeror; and (o) The present intention of the Offeror is to preserve the listing status of the Company on the SGX-ST.
Having regard to the considerations set out in this Letter and the information available as at the Latest Practicable Date and subject to the assumptions and qualifications made herein, we are of the opinion that the terms of the Offer is reasonable from the financial point of view.”
5.3 Advice of the IFA The recommendation and conclusion of the IFA in respect of the Offer has been extracted from the IFA Letter and set out in italics below. Unless otherwise defined, all terms and expressions used in the extract below shall have the same meaning as those defined in the IFA Letter. Shareholders should read the following extract in conjunction with, and in the context of, the full text of the IFA Letter.
“We recommend that the Independent Directors advise the Shareholders as follows in relation to the Offer:
Shareholders who take a short-term view of their investment in the Company and/or wish to realise their investment in the Company and/or are uncertain of the longer term performance and prospect of the Company under the control of the Offeror should: (a) Accept the Offer; or (b) Sell their Shares in the open market if they can obtain a price higher than the Offer Price (after taking into consideration all costs and expenses) by doing so.
Shareholders who are prepared to take a long-term view of their investment in the Company and/or who are positive about the prospects of the Group should retain all or part of their shareholdings in the Company.
Shareholders who retain their Shares should note that future performance of the Shares is dependent on, inter alia, the performance and prospects of the Company, general sentiments in the equity market and prevailing economic conditions in the markets in which the Company operates. There is also no assurance that the risk-return profile of the Company will remain unchanged should the Offeror decide to introduce major changes to the Company’s business in the future.”
5.4 Recommendation of the Directors The Directors, having considered carefully the terms of the Offer and the advice given by the IFA in the IFA Letter, agree with the advice of the IFA in respect of the Offer. Accordingly, the Directors’ unanimous recommendations in respect of the Offer are set out in paragraph 5.3 above.
16 LETTER TO SHAREHOLDERS
SHAREHOLDERS ARE ADVISED TO READ THE IFA LETTER SET OUT IN APPENDIX 1 TO THIS CIRCULAR CAREFULLY BEFORE DECIDING WHETHER TO ACCEPT OR REJECT THE OFFER. SHAREHOLDERS SHOULD NOTE THAT THE IFA’S OPINION SHOULD NOT BE RELIED UPON BY ANY SHAREHOLDER AS THE SOLE BASIS FOR DECIDING WHETHER OR NOT TO ACCEPT THE OFFER.
In making their recommendation, the IFA and the Directors have not taken into consideration the specific investment objectives, financial situation, tax position or particular needs and constraints of any individual Shareholder. Accordingly, the Directors recommend that any individual Shareholder who may require advice in the context of his specific investment objectives or portfolio should consult his stockbroker, bank manager, solicitor, accountant, tax adviser or other professional adviser immediately.
Shareholders should note that the trading of the Shares is subject to, inter alia, the performance and prospects of the Group, prevailing economic conditions, economic outlook and stock market conditions and sentiments. Accordingly, the IFA’s advice on the Offer does not and cannot take into account the future trading activities or patterns or price levels that may be established beyond the Latest Practicable Date. Further thereto, the IFA has highlighted for the attention of the Shareholders that the current global financial crisis has to a certain extent resulted in and also heightened the uncertainty in the stock market for investors.
6. OVERSEAS SHAREHOLDERS
6.1 Based on the Offer Document, the availability of the Offer to Overseas Shareholders may be affected by the laws of the relevant overseas jurisdictions. Accordingly, any Overseas Shareholder should inform himself about and observe any applicable legal requirements. Where there are potential restrictions on sending the Offer Document, the FAAs and/or the FATs to any overseas jurisdiction, the Offeror and KBC each reserves the right not to send these documents to Shareholders in such overseas jurisdictions. For the avoidance of doubt, the Offer is open to all Shareholders, including those to whom the Offer Document, the FAAs and/or the FATs have not been, or may not be, sent.
It is the responsibility of any Overseas Shareholder who wishes to (a) request for the Offer Document, the FAAs, the FATs and/or any related documents, and/or (b) accept the Offer, to satisfy himself as to the full observance of the laws of the relevant jurisdiction in that connection, including the obtaining of any governmental or other consent which may be required, and compliance with all necessary formalities or legal requirements and the payment of any taxes, imposts, duties or other requisite payments due in such jurisdiction. Such Overseas Shareholder shall be liable for any such taxes, imposts, duties or other requisite payments payable and the Offeror and any person acting on its behalf (including KBC) shall be fully indemnified and held harmless by such Overseas Shareholder for any such taxes, imposts, duties or other requisite payments as the Offeror and/or any person acting on its behalf (including KBC) may be required to pay. In (i) requesting for this Offer Document, the FAAs, the FATs and any related documents and/or (ii) accepting the Offer, the Overseas Shareholder represents and warrants to the Offeror and KBC that he is in full observance of the laws of the relevant jurisdiction in that connection, and that he is in full compliance with all necessary formalities or legal requirements.
Any Overseas Shareholder who is in any doubt about his position should consult his professional adviser in the relevant jurisdiction.
17 LETTER TO SHAREHOLDERS
6.2 Copies of Circular Potential restrictions in sending this Circular and any related documents to overseas jurisdictions could result in such documents not being sent to any Overseas Shareholder. Copies of the Circular may however be obtained from the office of the Share Registrar, Tricor Barbinder Share Registration Services (a division of Tricor Singapore Pte Ltd), 8 Cross Street #11-00 PWC Building, Singapore 048424. Alternatively, any Overseas Shareholder may write to the Share Registrar at the aforementioned address to request for the Circular and any related documents to be sent to an address in Singapore by ordinary post at his own risk (the last date for despatch in respect of such request shall be a date falling three (3) Market Days prior to the Closing Date).
6.3 Copies of Offer Document Based on the Offer Document, Overseas Shareholders may obtain copies of the Offer Document, the FAAs, the FATs and any related documents, during normal business hours and up to the Closing Date, from the Offeror through its receiving agent,M&CServices Private Limited at its office located at 138 Robinson Road #17-00, The Corporate Office, Singapore 068906. Alternatively, an Overseas Shareholder may write in to the Offeror throughM&C Services Private Limited at the address listed above to request for the Offer Document, the FAAs, the FATs and any related documents to be sent to an address in Singapore by ordinary post at the Overseas Shareholder’s own risk, up to three (3) Market Days prior to the Closing Date.
6.4 Notice Based on the Offer Document, the Offeror and KBC each reserves the right to notify any matter, including the fact that the Offer has been made, to any or all Overseas Shareholders by announcement to the SGX-ST and if necessary, paid advertisement in a daily newspaper published and circulated in Singapore, in which case such notice shall be deemed to have been sufficiently given notwithstanding any failure by any Shareholder to receive or see such announcement or advertisement.
Further details in relation to Overseas Shareholders are contained in the Offer Document.
7. ACTION TO BE TAKEN BY SHAREHOLDERS Shareholders who wish to accept the Offer must do so no later than 5.30 p.m. on 30 October 2008 and should follow the procedures as set out in Appendix V to the Offer Document.
Shareholders who do not wish to accept the Offer need not take any further action in respect of the Offer Document and the FAA and/or FAT which have been sent to them.
8. CONSENTS The IFA has given and has not withdrawn its written consent to the issue of this Circular with the inclusion herein of its name and the IFA Letter in the form and context in which they are respectively included and references to its name in the form and context in which it appears in this Circular.
18 LETTER TO SHAREHOLDERS
9. DIRECTORS’ RESPONSIBILITY STATEMENT Save for the opinions expressed by the IFA as set out in this Circular and in its letter appended as Appendix 1 to this Circular, the Directors (including those who have delegated detailed supervision of this Circular) collectively and individually accept full responsibility for the accuracy of the information given in this Circular and confirm that, after having made all reasonable enquiries and to the best of their knowledge and belief, the facts stated and opinions expressed in this Circular are fair and accurate in all material respects and there are no material facts the omission of which would make any statement in this Circular misleading in any material respect.
In respect of the IFA Letter, the sole responsibility of the Directors has been to ensure that the facts stated with respect to the Company are fair and accurate.
Where information has been extracted from published or otherwise publicly available sources or obtained from the Offeror, the sole responsibility of the Directors for such information has been to ensure that it has been correctly and accurately extracted from these sources or, as the case may be, accurately reproduced in this Circular.
10. DOCUMENTS AVAILABLE FOR INSPECTION Copies of the following documents may be inspected at the registered office of the Company at during normal office hours for the period during which the Offer remains open for acceptance: (a) the Memorandum and Articles of Association of the Company; (b) the annual reports of the Company for FY2005, FY2006 and FY2007; (c) the IFA Letter; and (d) the letter of consent from the IFA referred to in paragraph 8 of this Circular.
Yours faithfully For and on behalf of the Board of Directors of BRC ASIA LIMITED
John David Sword Chairman and Non-executive Director
19 APPENDIX 1: LETTER FROM KIM ENG CORPORATE FINANCE PTE. LTD. TO THE DIRECTORS OF BRC ASIA LIMITED
KIM ENG CORPORATE FINANCE PTE. LTD. (Incorporated in the Republic of Singapore) (Company Registration Number 200207700C) 9 Temasek Boulevard #39-00 Suntec Tower Two Singapore 038989
14 October 2008
The Directors of BRC Asia Limited 350 Jalan Boon Lay Jurong Town Singapore 619530
Dear Sirs
MANDATORY UNCONDITIONAL CASH OFFER (THE “OFFER”) BY KBC BANK N.V., SINGAPORE BRANCH FOR AND ON BEHALF OF HG METAL PTE. LTD. (THE “OFFEROR”) TO ACQUIRE ALL THE ISSUED ORDINARY SHARES IN THE CAPITAL OF BRC ASIA LIMITED (“BRC” OR THE “COMPANY”) OTHER THAN THOSE SHARES ALREADY OWNED, CONTROLLED OR AGREED TO BE ACQUIRED BY THE OFFEROR (THE “OFFER SHARES”)
1. INTRODUCTION On 13 August 2008 (“Pre-Conditional Offer Announcement Date”), KBC Bank N.V., Singapore Branch (“KBC”) for and on behalf of the Offeror, released an announcement (the “Pre- Conditional Offer Announcement”) regarding the Pre-Conditional Mandatory Cash Offer (the “Pre-Conditional Offer”) for issued ordinary shares (“Shares”) in BRC.
It was stated in the Pre-Conditional Offer Announcement that the Offeror and Acertec Engineering Limited (the “Vendor”), the controlling shareholder of the Company holding Shares representing 70.28% of the issued shares of the Company, had on 12 August 2008 entered into: (i) a conditional sale and purchase agreement (the “First SPA”) in relation to the sale and purchase of 349,500,000 Shares (the “First Tranche Sale Shares”), representing approximately 56.14% of the existing issued and paid up share capital of BRC as at the date of the First SPA and the Second SPA (the “First Tranche Acquisition”). Under the terms of the First SPA, completion of the First SPA is subject to the satisfaction and/or waiver of various conditions precedent as set out in Section 1.2(b) of the Offer Document (the “First Tranche Conditions Precedent”); and (ii) a conditional sale and purchase agreement (the “Second SPA”) in relation to the sale and purchase of 88,050,000 Shares (the “Second Tranche Sale Shares”), representing approximately 14.14% of the existing issued and paid up share capital of BRC as at the date of the First SPA and the Second SPA (the “Second Tranche Acquisition”). Under the terms of the Second SPA, completion of the Second SPA will take place on the date falling on the expiry of 12 months after completion of the First SPA (or such other date as may be agreed between the Offeror and the Vendor) and is subject to the satisfaction and/or waiver of the various conditions precedent as set out in Section 1.2(c) of the Offer Document.
20 APPENDIX 1: LETTER FROM KIM ENG CORPORATE FINANCE PTE. LTD. TO THE DIRECTORS OF BRC ASIA LIMITED
It was also stated in the Pre-Conditional Offer Announcement that the making of the Offer and the posting of this Offer Document to the Shareholders would be subject to, and would only take place following the satisfaction and/or waiver of the First Tranche Conditions Precedent and the completion of the First Tranche Acquisition in accordance with the terms of the First SPA.
On 18 September 2008 (“Formal Offer Announcement Date”), KBC released an announcement (the “Formal Offer Announcement”) that the First Tranche Conditions Precedent has been fulfilled and completion of the First SPA has taken place. Accordingly, KBC announced for and on behalf of the Offeror, the Offeror’s firm intention to make the Offer.
Kim Eng Corporate Finance Pte. Ltd. (“Kim Eng”) has been appointed as the independent financial adviser (“IFA”) to the Directors of the Company who are deemed independent in respect to the Offer (the “Independent Directors”).
This letter (the “Letter”) forms part of the Company’s circular to shareholders (“Shareholders”) dated 14 October 2008 (the “Circular”) and it sets out, inter alia, our views and evaluation of the Offer and our advice to the Independent Directors in relation to their recommendation to the Shareholders on the Offer.
Further details relating to the background of the Offer are set out in the Offer Document. Shareholders should by now have received a copy of the Offer Document dated 29 September 2008 issued by KBC, for and on behalf of the Offeror, setting out, inter alia, the terms and conditions of the Offer and are urged to read carefully the terms and conditions contained therein.
Unless otherwise defined or the context otherwise requires, all terms defined in the Circular shall have the same meaning herein.
2. TERMS OF REFERENCE Kim Eng has been appointed to advise the Independent Directors on the financial terms of the Offer in compliance with the provisions of the Code. Our evaluation is confined to the financial terms of the Offer and we have not taken into account the commercial risks and/or commercial merits (if any) of the Offer.
Our terms of reference do not require us to evaluate or comment on the rationale for, or the strategic or long-term commercial merits (if any) of the Offer or on the future prospects of the Company and its subsidiaries (the “Group”) or the method and terms by which the Offer is made or any other alternative methods by which the Offer is made. Such evaluations or comments remain the sole responsibility of the Directors and management of the Company, although we may draw upon their views or make such comments in respect thereof (to the extent deemed necessary or appropriate by us) in arriving at our opinion.
We were also not requested or authorised to solicit, and we have not solicited, any indications of interest from any third party with respect to the Offer. We are therefore not addressing the relative merits of the Offer as compared to any alternative transaction previously considered by the Company or that otherwise may be available to the Company in the future.
In the course of our evaluation of the financial terms of the Offer, we have relied on, and assumed without independent verification, the accuracy and completeness of published information relating to the Company and the Group and other publicly available information collated by us. We have also held discussions with the management of the Company and have relied on the information provided and representations made, including information provided to us by the Company’s professional advisers. We have not independently verified such information or any representation
21 APPENDIX 1: LETTER FROM KIM ENG CORPORATE FINANCE PTE. LTD. TO THE DIRECTORS OF BRC ASIA LIMITED
or assurance made by them, whether written or verbal, and accordingly cannot and do not make any representation or warranty, expressed or implied, in respect of, and do not accept any responsibility for, the accuracy, completeness or adequacy of such information, representation or assurance. We have nevertheless made such enquiry and exercised such judgement as we deemed necessary and are not aware of any reason to doubt the reliability of the information.
In addition, we have not made any independent evaluation or appraisal of the assets and liabilities of the Company or the Group and we have not been furnished with any such independent evaluation or appraisal. We also have not evaluated the solvency of the Company or the Group under any applicable laws relating to bankruptcy, insolvency or similar matters.
We have also relied on the responsibility statement of the Directors (including those who may have delegated detailed supervision of the Circular) that the Circular and all documents relating to the Circular have been seen and approved by them and they collectively and individually accept responsibility for the information given, and confirm that, having made all reasonable enquiries, to the best of their knowledge and belief, the facts stated and opinions expressed in the Circular are fair and accurate in all material respects and that no material fact has been omitted which might cause the Circular to be misleading.
Where information relating to the Offer and the Offeror has been extracted from published or otherwise publicly available sources, the sole responsibility of the Directors has been to ensure that such information has been accurately and correctly extracted from these sources and reflected in the Circular.
Accordingly, no representation or warranty, expressed or implied, is made and no responsibility is accepted by us concerning the accuracy, completeness or adequacy of all such information, provided or otherwise made available to us or relied on by us as described above.
Furthermore, our terms of reference do not require us to express, and we do not express, an opinion on the future growth prospects of the Group, the Offeror or any of its respective related or associated companies. We are therefore not expressing any opinion herein as to the future financial or other performance of those companies.
The views expressed by us in this Letter are based on economic, market, industry, monetary and other conditions prevailing as at the Latest Practicable Date, and information made available to us as at the Latest Practicable Date. Such conditions and information may change significantly over a relatively short period of time. We assume no responsibility to update, revise or reaffirm our recommendations in light of any subsequent development after the Latest Practicable Date that may affect our recommendations contained herein. Shareholders should further take note of any announcements relevant to the consideration of the Offer, which may be released after the Latest Practicable Date.
In rendering our advice and giving our recommendation, we did not have regard to the specific investment objectives, financial situation, tax position, risk profiles or unique needs and constraints of any individual Shareholder. As each Shareholder would have different investment objectives and profiles, we would advise the Independent Directors to recommend that any individual Shareholder who may require specific advice in relation to his investment objectives or portfolio should consult his stockbroker, bank manager, solicitor, accountant, tax adviser or other professional advisers. As such, our opinion should not be the sole basis for deciding whether or not to accept the Offer.
22 APPENDIX 1: LETTER FROM KIM ENG CORPORATE FINANCE PTE. LTD. TO THE DIRECTORS OF BRC ASIA LIMITED
This Letter is addressed to the Independent Directors for their benefit in connection with and for the purpose of their consideration of the Offer and the recommendations made by them shall remain the responsibility of the Independent Directors.
The Company has been separately advised by its own legal adviser in the preparation of the Circular (other than this Letter). We have had no role or involvement and have not provided any advice (financial or otherwise) whatsoever in the preparation, review and verification of the Circular (other than this Letter) and our responsibility is as set out above in relation to this Letter. Accordingly, we take no responsibility for and express no views, whether expressed or implied, on the contents of the Circular (except for this Letter).
Our opinion in relation to the Offer should be considered in the context of the entirety of this Letter, the Circular and the Offer Document.
3. THE OFFER Shareholders should by now have received a copy of the Offer Document issued by the Offeror, setting out, inter alia, the terms of the Offer. We recommend that the Independent Directors advise the Shareholders to read the terms and conditions of the Offer contained therein very carefully.
The principal terms and conditions of the Offer can be found in Section 2 of each of the Circular and Offer Document. A summary of the Offer is set out below:–
3.1 Offer Price The Offer will be made on the basis of S$0.11 in cash for each Offer Share.
THE OFFEROR DOES NOT INTEND TO REVISE THE OFFER PRICE.
The Offer Shares will be acquired (i) fully-paid, (ii) free from any claims, securities, options, power of sale, hypothecation, liens, equities, mortgages, charges, encumbrances, rights of pre-emption and any other third party rights, retention of title and interests of any nature whatsoever and (iii) together with all rights, benefits and entitlements attached thereto (including all voting rights and the right to receive and retain all dividends and other distributions (if any) which may be announced, declared, paid or made thereon by the Company on or after the Formal Offer Announcement Date). If any dividends, other distribution or return of capital is declared, made or paid on or after the Formal Offer Announcement Date, the Offeror reserves the right to reduce the Offer Price by the amount of such dividends, distribution or return of capital.
3.2 Offer Shares (a) Offer Shares. The Offer is extended, on the same terms and conditions, to all the issued Shares other than those already owned, controlled or agreed to be acquired by the Offeror. (b) Options. The Offer will be extended, on the same terms and conditions, to all new Shares unconditionally issued or to be issued pursuant to the valid exercise (if any) prior to the close of the Offer of any options to subscribe for new Shares granted under the BRC Share Option Scheme 2004 (“Options”), which are vested and released prior to the close of the Offer. For the purpose of the Offer, the expression “Offer Shares” shall include such new Shares.
3.3 Condition The Offer is unconditional in all respects.
23 APPENDIX 1: LETTER FROM KIM ENG CORPORATE FINANCE PTE. LTD. TO THE DIRECTORS OF BRC ASIA LIMITED
3.4 Warranty According to the Offer Document, acceptance of the Offer will be deemed to constitute an unconditional and irrevocable warranty by the accepting Shareholder that each Offer Share tendered in acceptance of the Offer is sold by the accepting Shareholder, as or on behalf of the beneficial owner(s) thereof, (a) fully-paid, (b) free from any claims, securities, options, power of sale, hypothecation, liens, equities, mortgages, charges, encumbrances, rights of pre-emption and any other third party rights, retention of title and interests of any nature whatsoever; and (c) together with all rights, benefits and entitlements attached thereto as at the Formal Offer Announcement Date and thereafter attaching thereto (including the right to receive and retain all dividends and other distributions (if any) which may be announced, declared, paid or made thereon by BRC on or after the Formal Offer Announcement Date).
3.5 Duration of the Offer Except insofar as the Offer may be withdrawn with the consent of the SIC and every person released from any obligation incurred thereunder, the Offer will remain open for acceptances by Shareholders for a period of at least 28 days from the date of posting of the Offer Document.
The Offeror does not intend to extend the Offer beyond 5.30 p.m. on 30 October 2008. Accordingly, the Offer will close at 5.30 p.m. on 30 October 2008 and will not be open for acceptances beyond 5.30 p.m. on 30 October 2008, save that such notice of the Offeror’s intention not to extend the Offer shall not be capable of being enforced in a competitive situation.
3.6 Options As at the Latest Practicable Date, there are 62,407,000 outstanding Options to subscribe for 62,407,000 new Shares, all of which are exercisable as at the Latest Practicable Date (each, an “Option”).
Under the rules of the BRC Share Option Scheme 2004, in the event of a take-over being made for the Shares, all participants of the BRC Share Option Scheme 2004 (the “Participant”) shall be entitled to exercise their Options as yet unexercised in full or in part in the period commencing on the date on which the offer is made or, if the offer is conditional, the date on which the offer becomes or is declared unconditional, as the case may be, and ending on six months later (unless prior to the expiry of such six-month period, at the recommendation of the Offeror and with the approvals of the committee administering the BRC Share Option Scheme 2004, such expiry date is extended to a later date), or the date of the expiry of the Option, whichever is the earlier, whereupon the Options then remaining unexercised shall lapse and become null and void.
Provided that if during such period, the Offeror becomes entitled or bound to exercise rights of compulsory acquisition under the provisions of the Act and, being entitled to do so, gives notice to the Participant that it intends to exercise such rights on a specified date, the Option shall remain exercisable by the Participant until the expiry of such specified date or the expiry of the Exercise Period (as defined in the BRC Share Option Scheme 2004) relating thereto, whichever is earlier. Any Option not so exercised shall lapse provided that the rights of acquisition or obligations to acquire shall have been exercised or performed, as the case may be. If such rights or obligations have not been exercised or performed, the Option shall, notwithstanding rule 8 of the BRC Share Option Scheme 2004, remain exercisable until the expiry of the Exercise Period relating thereto.
24 APPENDIX 1: LETTER FROM KIM ENG CORPORATE FINANCE PTE. LTD. TO THE DIRECTORS OF BRC ASIA LIMITED
In this regard, we draw your attention to Section 7 of the Offer Document, wherein the Offeror has stated that it does not expect to have any rights or obligations of compulsory acquisition under Section 215(1) of the Act , in light of the irrevocable undertaking (the “Undertaking”) given by the Vendor not to accept the Offer in respect of the Second Tranche Sale Shares, as set out in Section 1.4 of the Offer Document.
Furthermore, the Options are not transferable by the holders thereof. In view of these restrictions, the Offeror will not make an Offer to acquire the Options. However, as stated above, the Offer will be extended to all new Shares unconditionally issued or to be issued pursuant to the valid exercise prior to the close of the Offer of any such Options.
3.7 Irrevocable Undertaking As at 12 August 2008, the Offeror has received under the Second SPA an irrevocable Undertaking from the Vendor not to accept the Offer in respect of the Second Tranche Sale Shares.
Save as disclosed in the Offer Document, neither the Offeror nor any party acting in concert with it has received any irrevocable undertaking from any other party to accept or reject the Offer.
4. INFORMATION ON THE OFFEROR The information on the Offeror is set out in Section 3 of the Offer Document, which is extracted and reproduced below. All terms and expressions used in the extract below shall have the same meaning as those defined in the Offer Document, unless otherwise stated. Independent Directors should note that the latest practicable date referred to in the Offer Document is 24 September 2008.
“The Offeror is an investment holding company incorporated in Singapore on 4 July 2008. The Offeror is approximately 51.00% owned by HG Metal Investments (a wholly-owned subsidiary of HG), approximately 20.01% owned by Lingco Marine, approximately 9.66% owned by Chye Hin, approximately 9.66% owned by STG and approximately 9.66% owned by SSH.”
Additional information on the Offeror is set out in Section 3 of the Offer Document.
5. INFORMATION ON THE COMPANY BRC is a company incorporated in Singapore on 14 December 1938 and listed on the SGX-ST on 24 July 2000. BRC designs, manufactures and markets prefabricated steel reinforcements for use in concrete under the BRC brand name. The Company’s products include non-standard and customised mesh, cut, bent and prefabricated reinforcing bars.
Besides Singapore, BRC has a wholly-owned subsidiary in Hong Kong, BRC China Ltd, which is dormant. BRC also has operations in China through a 50:50 joint venture entity. The joint venture entity is Anhui BRC & Ma Steel Weldmesh Co, Ltd.
Additional information on the Company can be found in Appendix 2 of the Circular.
25 APPENDIX 1: LETTER FROM KIM ENG CORPORATE FINANCE PTE. LTD. TO THE DIRECTORS OF BRC ASIA LIMITED
6. RATIONALE FOR THE OFFER AND FUTURE PLANS FOR BRC The rationale for the Offer has been extracted from Section 5 of the Offer Document and is reproduced below. All terms and expressions used in the extract below shall have the same meaning as those defined in the Offer Document, unless otherwise stated.
“5.1 Rationale for the Offer
The Offer is being made in compliance with the provisions of the Code consequent upon the Offeror obtaining a controlling interest over 349,500,000 BRC Shares pursuant to the completion of the First Tranche Acquisition, representing approximately 56.14% of the existing issued and paid up share capital of BRC as at the date of the First SPA and the Second SPA.
5.2 Future plans for BRC
Subject to normal business considerations, the Offeror does not intend to make changes to the management team of BRC. The Offeror currently has no intention for any changes to (a) the business of the BRC Group, (b) the deployment of the fixed assets of the BRC Group or (c) the employment of the employees of the BRC Group, other than in the ordinary course of business. Nonetheless, the Offeror retains the flexibility at any time to consider options or opportunities which may present themselves and which it regards to be in the interests of the Offeror.”
7. ASSESSMENT OF THE FINANCIAL TERMS OF THE OFFER In assessing the financial terms of the Offer, we have considered the following pertinent factors which we consider will have a significant bearing on our assessment:- (a) Financial performance of the Group; (b) Net asset value (“NAV”) of the Group; (c) Price-Earnings Ratio (“PER”); (d) Market quotation and trading activity of the Shares; (e) Valuation ratios of selected comparable listed companies in the Asia Pacific region; (f) Selected recent take-over transactions of companies listed on the SGX-ST; and (g) Other relevant considerations.
These factors are discussed in greater detail in the ensuing sections.
For the purposes of evaluating the financial terms of the Offer, we have considered the audited financial statements of the Group for FY2005, FY2006 and FY2007 and the Company’s unaudited half-year announcements for the periods ended 30 June 2007 and 30 June 2008.
7.1 Financial performance of the Group The summary of the consolidated profit and loss account of the Group for FY2005, FY2006, FY2007, 1HY2007 and 1HY2008 is set out below. The following summary financial information should be read together with the annual reports of the Company in respect of the relevant financial years and the results announcement by the Company.
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FY2005 FY2006 FY2007 1HY2007 1HY2008 (S$’000) (audited) (audited) (audited) (unaudited) (unaudited) Revenue 76,307 101,132 130,257 50,186 120,395 Gross profit 10,789 11,786 13,475 4,795 8,632 Profit before taxation 5,215 5,808 6,639 2,485 3,472 Net profit attributable to 4,300 4,730 5,603 2,267 2,892 equity holders of the Company Basic earnings per share 0.72 0.79 0.92 0.38 0.47 (cents) Diluted earnings per share 0.72 0.77 0.87 0.35 0.45 (cents)(1)
Source: Company’s Annual Reports for FY2005, FY2006, FY2007 and the Half Year Statement Announcements for the periods ended 30 June 2007 and 30 June 2008
Note: (1) For the purposes of calculating diluted earnings per share, profit attributable to equity holders of the Company and the weighted average number of ordinary shares outstanding are adjusted for the effects of all dilutive potential ordinary shares. The dilutive potential ordinary shares of the Company comprise the outstanding share options. For share options, the weighted average number of shares in issue has been adjusted as if all dilutive share options were exercised.
From FY2005 to FY2006, the revenue of the Company increased by 32.5 per cent. from S$76.3 million in FY2005 to S$101.1 million in FY2006. The growth came from:– (1) increase in sales from the heavy prefabricated reinforcement segment, with a growing market acceptance of its new product line, and (2) increasing level of construction demand — the Singapore construction industry benefited from an increase in the level of contracts awarded which was S$16.1 billion in 2006 as compared to S$11.5 billion in 20051. Similarly, net profits increased by 9.3 per cent. from S$4.3 million in FY2005 to S$4.7 million in FY2006. This is mainly due to the increase in product sales in FY2006.
From FY2006 to FY2007, the revenue of the Company increased by 28.9 per cent. from S$101.1 million in FY2006 to S$130.3 million in FY2007. Similarly, net profits increased by 19.1 per cent. from S$4.7 million in FY2006 to S$5.6 million in FY2007. The increases in revenue and net profits were due to a strong growth in the construction industry in Singapore in 2007. The 28.9 per cent. growth in revenue, which included price increase of about 10 per cent., driven by the increasing global price of steel, was mainly the result of the Company’s success in developing its full range of steel reinforcement solutions, including cut, bent and prefabricated rebar, in addition to its traditional mesh products.
The revenue of the Company increased by 139.9 per cent. in the first half of 2008 from S$50.2 million to S$120.4 million, as compared to the corresponding period last year. The 139.9 per cent. increase was the result of a volume growth of about 90 per cent. and higher selling prices of about 50 per cent.. Volume growth was the result of the Company’s strategy to offer a total reinforcing package of mesh, bar and prefabricated solutions, supported by a buoyant construction market. The increase in selling prices was driven by the higher cost of steel. The Company’s share of profit from the joint venture in China, Anhui BRC & Ma Steel Weldmesh Co. Ltd (“Anhui BRC”), net of
1 Company’s announcement dated 23 February 2007 for the Unaudited Full Year Financial Statement and Dividend Announcement for the year ended 31 December 2006.
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tax, also increased significantly from S$93,000 in the first half of 2007 to S$248,000 in the first half of 2008, helped by new orders for the high speed railway sector. The Company has a 50 per cent. equity interest in Anhui BRC whose principal activity is to market and manufacture steel welded wire mesh and other forms of wire and reinforcing steel products for use in the construction industry in China.
7.2 NAV of the Group As at 30 June 2008, the assets of the Group comprise mainly property, plant and equipment, investment in joint venture — Anhui BRC, trade and other receivables, inventories and cash and cash equivalent.
Our analysis of the Offer Price in relation to the NAV per share as at 30 June 2008 is set out below:-
Comparison of the NAV per Share and the Offer Price We have set out below the unaudited NAV of the Group as at 30 June 2008:-
Unaudited NAV as at 30 June 2008(1) (S$) 37,453,000 NAV per Share as at 30 June 2008(2) (S$ cents) 6.02
Notes: (1) Based on the Company’s Half Year Financial Statement Announcement for the period ended 30 June 2008. (2) Computed based on 622,542,000 Shares as at 30 June 2008.
Based on the above, we note that the Offer Price represents a premium of approximately 82.7 per cent. over the unaudited NAV per Share as at 30 June 2008.
7.3 Price-Earnings Ratio (“PER”) The Price-Earnings Ratio is the ratio of market capitalisation relative to its profit after tax attributable to ordinary equity holders of the Company. The PER is affected by, inter alia, the capital structure of a company, its tax position as well as its accounting policies relating to depreciation and intangible assets.
We note that the profit after tax attributable to ordinary equity holders of the Company for FY2007 was S$5.6 million. The basic and adjusted diluted earnings per Share1 for FY2007 were 0.92 cents and 0.84 cents respectively. The implied PER of the Group, based on the Offer Price of S$0.11 would be 12.0 times and 13.1 times respectively.
As at the Latest Practicable Date, the last traded Share price of the Group was S$0.105. Based on the basic earnings per Share and adjusted diluted earnings per Share of the Group for FY2007 as stipulated above, the PER of the Group based on the last trading Share price of the Group would be 11.4 times and 12.5 times respectively.
1 Adjusted diluted earnings per share is computed based on the net profit for FY2007 and the weighted average number of shares of 609,835,912 Shares (as at 31 December 2007), adjusted for the dilutive impact of all the 53,249,000 outstanding Share Options (as at 31 December 2007), of which the exercise price is lower than the Offer Price.
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7.4 Market quotation and trading activity of the Shares
7.4.1 Share Price Performance and Liquidity Analysis In evaluating the reasonableness of the Offer Price from a market price expectation perspective, on the basis that the stock market may be considered to provide an efficient mechanism by which such price expectations may be expressed, we have considered whether the current and historical market price of BRC are reasonable indicators for assessing the financial value of the Shares at a given point in time.
We highlight that under ordinary circumstances, the market valuations of shares traded on a recognised stock exchange may be affected by, inter alia, its relative liquidity, the size of its free float, the extent of research coverage, the investor interest it attracts and the general market sentiment at a given period in time.
The trend of the daily transacted prices of the Shares from 13 August 2006, being the date 2 years prior to the last trading day before the Pre-Conditional Offer Announcement Date on which the Shares were traded, to the Latest Practicable Date is set out below:
Daily Last Transacted Price and Trading Volume
Note 3
Note 2 Note 5 Notes 9 and 10 Note 1 Notes 6 and 7 Note 4 Note 11 Note 8
Source: Bloomberg
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A summary of the salient announcements made by the Company during the aforesaid 2-year period is set out below:–
Notes Date Event 1 23 February 2007 Full year financial statement and dividend announcement for FY2006 2 15 August 2007 Half year and second quarter financial statement and dividend announcement for the period ended 30 June 2007 3 21 September 2007 The Company received a letter of award from the main contractor for the sub-structure works for the Sentosa Integrated Resort Project, to supply approximately 40,000 tons of reinforcing steel in the form of prefabricated rebars and wiremesh for the project 4 29 February 2008 Full year financial statement and dividend announcement for FY2007 5 30 April 2008 First quarter financial statement and dividend announcement for the period ended 31 March 2008 6 29 July 2008 Half year and second quarter financial statement and dividend announcement for the period ended 30 June 2008 7 29 July 2008 The Company filed an originating summons with the High Court of Singapore in relation to the supply of steel products to Sembawang Engineers & Constructors Pte Ltd 8 13 August 2008 Pre-Conditional Mandatory Cash Offer Announcement 9 17 September 2008 Results of HG Metal Manufacturing Ltd’s Extraordinary General Meeting — All resolutions pertaining to (i) the proposed acquisition by the Offeror of 437,550,000 Shares in BRC and (ii) the pre-conditional mandatory general offer by the Offeror for all the issued ordinary Shares in the capital of BRC, other than those Shares already owned, controlled or agreed to be acquired by the Offeror and its nominees were passed 10 18 September 2008 Offer Announcement KBC, on behalf of the Offeror, made an announcement in respect of the Offer 11 2 October 2008 BRC made an announcement in respect of the issue of the Offer Document
Source: SGX-ST announcements
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The trading statistics of the Shares are set out below:
Premium/ Daily Trading Volume (Discount) Average Volume as a weighted- of the Daily Percentage Highest Lowest average Offer Price Trading of Free Traded Traded price over Reference Period Volume Float(1) Price Price (“VWAP”) VWAP (%) (S$) (S$) (S$) (%)
Periods Prior to the Pre-Conditional Offer Announcement Date(2) Last 2-year 969,101 0.58 0.310 0.075 0.206 (46.6) Last 1-year 315,085 0.19 0.245 0.100 0.183 (39.9) Last 6-month 132,222 0.08 0.150 0.100 0.123 (10.6) Last 3-month 129,375 0.08 0.135 0.100 0.115 (4.3) Last 1-month 125,200 0.08 0.120 0.105 0.114 (3.5) Last Trading Day(3) 25,000 0.01 0.110 0.110 0.110 0.0 Periods Prior to the Formal Offer Announcement Date(4)
Last 2-year 975,565 0.58 0.310 0.080 0.204 (46.1) Last 1-year 283,962 0.17 0.245 0.100 0.167 (34.1) Last 6-month 228,096 0.14 0.140 0.100 0.112 (1.8) Last 3-month 292,417 0.18 0.120 0.100 0.106 3.8 Last 1-month 543,150 0.33 0.110 0.100 0.103 6.8 Last Trading Day(5) 1,012,000 0.61 0.105 0.100 0.104 5.8 After the Formal Offer Announcement date
Between the 433,455 0.26 0.11 0.105 0.105 4.8 Formal Offer Announcement Date and the Latest Practicable Date Latest Practicable 2,532,000 1.52 0.11 0.105 0.105 4.8 Date
Source: Bloomberg
Notes: (1) Free float in this instance refers to approximately 166,840,000 Shares or approximately 26.8% of the issued share capital held by the public as at the Latest Practicable Date and excludes those held by the Offeror, the Directors and other substantial Shareholders. (2) The data and relevant computations are from the relative periods stipulated prior to the last full day of trading (11 August 2008) in the Shares prior to the Pre-Conditional Offer Announcement Date. (3) Refers to 12 August 2008, being the last trading day on which the Shares were traded prior to the Pre-Conditional Offer Announcement Date. The Shares were traded for half a day before trading was halted in the afternoon. (4) The data and relevant computations are from the relative periods stipulated prior to the last full day of trading (17 September 2008) in the Shares prior to the Formal Offer Announcement Date. (5) Refers to 17 September 2008, being the last full day of trading on which the Shares were traded prior to the Formal Offer Announcement Date.
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Based on the above, we note the following:
Prior to the Pre-Conditional Offer Announcement Date, • Over the 2-year period prior to the Pre-Conditional Offer Announcement Date, trading liquidity of the Shares has generally been low. The daily trading volume represented less than 1.0% of the Company’s free float. This indicates that the Shares have been thinly traded; • Over the 2-year period prior to the Pre-Conditional Offer Announcement Date, the Shares have fluctuated between a low of S$0.075 per Share and a high of S$0.310 per Share. Thus, the Offer Price represents a premium of approximately 46.7% and a discount of approximately 64.5% over the lowest and highest transacted price respectively over the past 2 years; and • The Offer Price represents a discount of 46.6%, 39.9%, 10.6%, 4.3% and 3.5% over the VWAP of the Shares for the 2-year, 1-year, 6-month, 3-month and 1-month period on which the Shares were traded prior to the Pre-Conditional Offer Announcement Date. The Offer Price is the same as the VWAP of the Shares on the last trading day prior to the Pre-Conditional Offer Announcement Date.
Prior to the Formal Offer Announcement Date, • Over the 2-year period prior to the Formal Offer Announcement Date, trading liquidity of the Shares has generally been low. The daily trading volume represented less than 1.0% of the Company’s free float. This indicates that the Shares have been thinly traded; • Over the 2-year period prior to the Formal Offer Announcement Date, the Shares have fluctuated between a low of S$0.080 per Share and a high of S$0.310 per Share. Thus, the Offer Price represents a premium of approximately 37.5% and a discount of approximately 64.5% over the lowest and highest transacted price respectively over the past 2 years; and • The Offer Price represents a discount of 46.1%, 34.1% and 1.8% over the VWAP of the Shares for the 2-year, 1-year and 6-month period on which the Shares were traded prior to the Formal Offer Announcement Date. The Offer Price represents a premium of 3.8%, 6.8% and 5.8% over the VWAP of the Shares for the 3-month, 1-month and on the last trading day on which the Shares were traded prior to the Formal Offer Announcement Date.
After the Formal Offer Announcement Date, • From the Formal Offer Announcement Date to the Latest Practicable Date, the Shares have traded at a price of between S$0.105 and S$0.11 per Share and the VWAP for the period was S$0.105. The Offer Price represents a premium of 4.8% over S$0.105 and is equal to the highest traded price per Share of S$0.11; and • The Offer Price represents a 4.8% premium over the last transacted price of S$0.105 per Share on the Latest Practicable Date.
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7.4.2 Relative Share Price Performance vs Relevant Index To gauge the market price performance of the Shares relative to the general performance of the Singapore equity market, we have compared the normalised market price movement of the Shares against that of the Straits Times Index (“FSSTI”) for the 2-year period prior to the Pre-Conditional Offer Announcement Date up to the Latest Practicable Date as illustrated in the diagram set out below:
Source: Bloomberg
Based on the above chart, on a normalised basis, it appears that the market price of the Shares has consistently outperformed the FSSTI. However, the market price movement of the Shares and the FSSTI has converged since 2008.
Closing price Last 12 months transacted Last prior to the price prior to Closing price transacted Pre- the Pre- 12 months price prior to Conditional Conditional prior to the the Formal Offer Offer Formal Offer Offer Announcement Announcement % Announcement Announcement % Date Date Change Date Date Change
BRC (S$) 0.20 0.11 (45.0) 0.20 0.105 (47.5)
FSSTI 3,320.11 2,816.82 (15.2) 3,415.53 2,419.29 (29.2)
Source: Bloomberg
The above shows that both the market price of the Shares and the FSSTI Index have declined over the selected reference period, with the market price of the Shares declining by more than 40.0% over the 12 months prior to the Pre-Conditional Offer Announcement Date and the Formal Offer Announcement Date.
Shareholders should note that the past trading performance of the Shares should not be relied upon as a promise of its future trading performance.
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7.5 Comparison of valuation ratios of the Company implied by the Offer Price to those of selected comparable listed companies in the Asia Pacific region For the purpose of assessing the Offer Price, we have compared the valuation ratios of the Company implied by the Offer Price with those of selected comparable companies in the steel industry with construction services listed on the relevant stock exchanges (the “Comparable Companies”).
We wish to highlight that there is no company listed on the relevant stock exchanges which may be directly comparable to the Company in terms of market capitalisation, size of operations, composition of business activities, asset base, geographical spread, track record, financial and operating leverage, risk profile, liquidity, accounting policies, prospects and other relevant criteria. Accordingly, any comparisons made with respect to the Comparable Companies can only serve as an illustrative guide.
7.5.1 Description of Comparable Companies We have selected the following listed Comparable Companies as set out below:
Comparable Country of Market Companies Listing Description Capitalisation(1)
(S$’ million) AnnAik Ltd Singapore AnnAik Limited manufactures stainless 29.8 (“AnnAik”) steel flanges and distributes stainless steel products. The company also provides engineering construction services. Lee Metal Group Singapore Lee Metal Group Limited supplies 43.6 Ltd (“Lee a range of reinforcement steel Metal”) products. The company also imports reinforcement steel bars and steel plates as well as fabricates and manufactures cut-and-bend reinforcement steel bars and steel welded mesh. Lee Metal owns, operates, and charters vessels. Sin Ghee Huat Singapore Sin Ghee Huat Corporation Limited 53.3 Corp Ltd distributes stainless steel products for (“Sin Ghee industries that include oil and gas, Huat”) petrochemicals, marine, construction and food processing. Kawaguchi Metal Japan Kawaguchi Metal Industries Co., Ltd 96.8 Industries Co., manufactures and sells fabricated steel Ltd. products used for machinery and (“Kawaguchi”) construction work. The company also manufactures cylinders and structural metal products for bridges.
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Comparable Country of Market Companies Listing Description Capitalisation(1)
(S$’ million) Nippon Metal Japan Nippon Metal Industry Co Ltd 314.0 Industry Co Ltd manufactures stainless steel and other (“Nippon steel products which are marketed to Metal”) the auto, appliance, machinery and construction industries through distributors. The company’s products include hot-rolled and cold-finished sheet, coils, tubes and pipes. Tokyo Kohtetsu Japan Tokyo Kohtetsu Co., Ltd manufactures 135.1 Co., Ltd. and sells steel products. The (“Tokyo company’s products for the Kohtetsu”) construction market include steel bars, steel wires and structural steel. Dongil Steel Co., Korea Dongil Steel Co., Ltd. manufactures 26.5 Ltd. (“Dongil”) iron and steel products such as steel bars used for automobiles and general machinery and shaped bars for construction uses. The company also operates an international trading business. Hwangkum Steel Korea Hwangkum Steel & Technology Co., 55.1 & Technology Ltd. manufactures and distributes Co., Ltd. stainless steel sheets. The company’s (“Hwangkum”) products include hot-rolled and cold- rolled steel sheets, plates and flat bars. It supplies its products to the various industries such as automobile, construction, machinery and furniture industries. Jeil Steel Korea Jeil Steel Manufacturing Co., Ltd. 12.2 Manufacturing produces rolled steel products used in Co., Ltd. the construction industry. The (“Jeil Steel”) company’s products include iron reinforcing bars. It also produces and sells wire-rod and second processing products such as reinforcing products.
BRC(2) Singapore BRC designs, manufactures and 68.5 markets prefabricated steel reinforcements for use in concrete under the BRC brand name. The Company’s products include non- standard and customised mesh, cut, bent and prefabricated reinforcing bars.
Source: Bloomberg
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Notes: (1) As at 8 October 2008, being the Latest Practicable Date. The share prices of companies which are denominated in foreign currencies have been converted to the Singapore dollar equivalent based on the respective exchange rates from Bloomberg as at the Latest Practicable Date. (2) The market capitalisation of the Company is based on the Offer Price of S$0.11 per Share and 622,542,000 Shares in issue as at the Formal Offer Announcement Date.
7.5.2 Comparison of Valuation Ratios In our evaluation, we have considered the following widely used valuation ratios:
Valuation Ratios Description
PER The Price-Earnings ratio is the ratio of a company’s market capitalisation relative to its profit after tax attributable to its shareholders. The PER is affected by, inter alia, the capital structure of a company, its tax position as well as its accounting policies. Price/Book The Price-to-Book ratio of a company is the ratio of a company’s market capitalisation relative to its consolidated historical book value. EV/EBITDA Enterprise Value or “EV” is the sum of a company’s market capitalisation, preferred equity, minority interests, long and short term debts less its cash and cash equivalents. “EBITDA” stands for historical earnings before interest, tax, depreciation and amortisation expenses. The EV/EBITDA ratio shows the market value of a company’s business relative to its audited historical pre-tax operating cashflow and performance, without regards to the Company’s capital structure.
Market Capitalisation Share Price (S$’ million) (S$) as at the as at the Latest Latest Price/ EV/ Practicable Practicable PER Book EBITDA Company Date Date(1) (times) (times) (times)
Listed in SGX-ST AnnAik 29.8 0.120 3.2 0.5 6.0 Lee Metal 43.6 0.110 3.1 0.6 7.5 Sin Ghee Huat 53.3 0.240 4.0 0.6 1.8 Listed on Other Exchanges Kawaguchi 96.8 4.839 13.1 0.6 7.4 Nippon Metal 314.0 1.772 3.4 0.5 4.1 Tokyo Kohtetsu 135.1 7.743 6.6 0.9 3.1 Dongil 26.5 14.742 11.8 0.7 4.0 Hwangkum 55.1 5.507 4.1 0.7 4.0 Jeil Steel 12.2 1.221 10.8 0.4 8.4
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Market Capitalisation Share Price (S$’ million) (S$) as at the as at the Latest Latest Price/ EV/ Practicable Practicable PER Book EBITDA Company Date Date(1) (times) (times) (times)
High (SGX-ST Listed) 4.0 0.6 7.5 Low (SGX-ST Listed) 3.1 0.5 1.8 Median (SGX-ST Listed) 3.2 0.6 6.0 Mean (SGX-ST Listed) 3.4 0.6 5.1 High (Others) 13.1 0.9 8.4 Low (Others) 3.4 0.4 3.1 Median (Others) 8.7 0.7 4.1 Mean (Others) 8.3 0.6 5.2
BRC Asia Limited 68.5(2) 0.11(2) 13.1(3) 1.8 8.7
Source: Bloomberg
Notes: (1) The share prices of companies which are denominated in foreign currencies have been converted to the Singapore dollar equivalent based on the respective exchange rates from Bloomberg as at the Latest Practicable Date. (2) The market capitalisation and the share price are computed based on the Offer Price of S$0.11 per Share. (3) The PER is calculated based on the Offer Price of S$0.11 per Share and adjusted diluted earnings per Share of 0.84 cents for FY2007.
From the above, we note the following:
Compared to Comparable Companies listed on SGX-ST, (a) the PER implied in the Offer Price is above the range of 3.1 times to 4.0 times. (b) the historical Price/Book ratio implied in the Offer Price is above the range of 0.5 times to 0.6 times. (c) the EV/EBITDA ratio implied in the Offer Price is above the range of 1.8 times to 7.5 times in respect of the Comparable Companies listed in SGX-ST.
Compared to Comparable Companies listed on other exchanges, (a) the PER implied in the Offer Price is equal to the highest PER of 13.1 times. (b) the historical Price/Book ratio implied in the Offer Price is above the range of 0.4 times to 0.9 times. (c) the EV/EBITDA ratio implied in the Offer Price is above the range of 3.1 times to 8.4 times in respect of the Comparable Companies listed on other exchanges.
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7.6 Comparison of the Offer Price with recent take-over transactions of companies listed on the SGX-ST In assessing the financial terms of the Offer Price, we have compiled the offer statistics from take-overs of companies listed on the SGX-ST announced in the last 12 months prior to the Pre-Conditional Offer Announcement Date where the Offeror succeeded in securing statutory control and/or privatising or de-listing of the target listed company and compared with those implied by the Offer Price (“Take-over Transactions”). We have excluded the following transactions in our analysis: (a) voluntary or mandatory conditional offers which were announced but not successful; (b) takeovers which were based on terms other than cash, (c) partial offers and (d) schemes of arrangement.
We wish to highlight that the list of target companies involved in the “Take-over Transactions” set out in the analysis below are not directly comparable with the Company in terms of size of operations, market capitalisation, business activities, asset base, geographical spread, track record, accounting policy, financial performance, operating and financial leverage, future prospects and other relevant criteria. The analysis below is based in connection with take-overs of companies listed on the SGX-ST. Each transaction must be judged on its own commercial and financial merits. The premium that an offeror pays in any particular take-over depends on various factors such as the potential synergy that the offeror can gain by acquiring the target, the presence of competing bids for the target, prevailing market conditions and sentiments, attractiveness and profile of the target’s business and assets, size of consideration and existing and desired level of control in the target. Hence, the comparison of the Offer with the Take-over Transactions set out below is for illustration purpose only. Conclusions drawn from the comparisons made may not reflect any perceived market valuation of the Company.
A summary of the relevant financial terms of the Take-over Transactions is set out below:
Premium/(discount) of Offer Price to 1-month 3-month VWAP prior to VWAP prior to Offer date of date of Date of Price announcement announcement announcement (S$) (%) (%) Privatisations Labroy Marine Limited 29 October 2007 2.8425 9.2 19.8 Sincere Watch Limited(1) 7 December 2007 2.564 19.3 30.2 Vantage Corporation Limited(2) 3 January 2008 0.24 n.a. n.a. The Ascott Group Limited 8 January 2008 1.73 39.5 19.3 Robinson and Company 20 January 2008 7.20 64.4 60.4 Limited(3) Sing Lun Holdings Limited 30 March 2008 0.46 42.3 57.8 SNP Corporation Ltd(4) 10 June 2008 1.76 39.6 47.1 Pokka Corporation (Singapore) 13 June 2008 0.75 48.4 55.9 Limited(5)
High 64.40 60.40
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Premium/(discount) of Offer Price to 1-month 3-month VWAP prior to VWAP prior to Offer date of date of Date of Price announcement announcement announcement (S$) (%) (%) Low 9.20 19.30 Median 39.60 47.10 Mean 37.53 41.50
Non-privatisations
Radiance Electronics Limited 5 October 2007 0.14 (22.2) (17.6) Gates Electronics Ltd 24 October 2007 0.30 0.43 0.83 The Straits Trading Company 6 January 2008 6.70 30.4 35.0 Limited(6) Richland Group Limited(7) 3 March 2008 0.338 79.16 91.40
High 79.16 91.40 Low (22.20) (17.60) Median 15.42 17.92 Mean 21.95 27.41
BRC Asia Limited 13 August 2008(8) 0.11 (3.5) (4.3) 18 September 0.11 6.8 3.8 2008(9)
Source: Bloomberg, company announcements, offer documents and circulars to shareholders in relation to the respective transactions, as the case may be.
Notes: (1) On 7 December 2007, a pre-conditional voluntary conditional offer for Sincere Watch Limited was announced. The offer price for each share in Sincere Watch Limited was S$2.051 in cash and 0.228 new share in the capital of Peace Mark Holdings Limited (a company listed on Hong Kong Stock Exchange) at the issue price of HK$12.096 each, equivalent to a total notional value of S$2.564. The computations in the table above were based on such notional value and over the relevant periods prior to the pre-conditional offer announcement on 7 December 2007. (2) On 3 January 2008, the offeror made the offer at a price of S$0.24 for each share. There has been no trading in the shares since 2 September 2004. Hence, we have excluded the company in our analysis of the premium implied by the offer prices. (3) On 20 January 2008, the offeror made the offer at a price of S$6.25 per share. On 17 March 2008, the offer price was revised to S$7.00 and further revised to S$7.20 on 3 April 2008. The computations in the table above were based on the final offer price of S$7.20 and market prices prior to the first offer announcement on 20 January 2008. (4) On 18 April 2008, SNP Corporation Ltd announced it has been informed that certain parties were engaged in discussions with respect to a stake in the company. On 10 June 2008, the voluntary cash offer was announced. The computations in the table above were based on prices prior to the announcement made as at 18 April 2008. (5) On 13 June 2008, the offeror made the offer at a price of S$0.66 per share. On 15 August 2008, the offer price was revised from S$0.66 in cash to S$0.75 in cash for each offer share. The computations in the table above were based on the final offer price of S$0.75 and market prices prior to the first offer announcement on 13 June 2008.
39 APPENDIX 1: LETTER FROM KIM ENG CORPORATE FINANCE PTE. LTD. TO THE DIRECTORS OF BRC ASIA LIMITED
(6) On 6 January 2008, a voluntary conditional cash offer was made for The Straits Trading Company Limited at S$5.70 for each share and on 28 January 2008, following a competing bid, the offer price was revised to S$6.50 for each share. On 18 February 2008, the offer was further revised to S$6.70 for each share following a revised competing bid. The computations in the table above were based on the final offer price of S$6.70 and over the relevant periods prior to the first offer announcement on 6 January 2008. (7) On 3 March 2008, a pre-conditional offer announcement for Richland Group Limited was announced. The computations in the table above were based on prices prior to the pre-conditional offer announcement on 3 March 2008. (8) Date of the Pre-Conditional Offer Announcement. (9) Date of the Formal Offer Announcement.
We note that:
For Privatisation Take-over Transactions: (i) the discount implied in the Offer Price over the 1-month and 3-month VWAP prior to the Pre-Conditional Offer Announcement Date is below the range and is a discount as compared to the mean and median of the privatisation Take-over Transactions which are premiums to the 1-month and 3-month VWAP prior to each respective announcement date. (ii) the premium implied in the Offer Price over the 1-month and 3-month VWAP prior to the Formal Offer Announcement Date is below the range and lower than the mean and median of the privatisation Take-over Transactions.
For Non-privatisation Take-over Transactions: (i) the discount implied in the Offer Price over the 1-month and 3-month VWAP prior to the Pre-Conditional Offer Announcement Date is within the range and is a discount as compared to the mean and median of the non-privatisation Take-over Transactions which are premiums to the 1-month and 3-month VWAP prior to each respective announcement date. (ii) The premium implied in the Offer Price over the 1-month and 3-month VWAP prior to the Formal Offer Announcement Date is within the range and is lower than the mean and median of the non-privatisation Take-over Transactions.
7.7 Other Relevant Considerations
7.7.1 Unconditional Offer
The Offer is unconditional in all respects. As at Latest Practicable Date, the Offeror is the single largest Shareholder of the Company, owning an aggregate of 437,550,000 Shares, out of which the Offeror has a direct interest in 349,500,000 Shares or 56.14% of the existing share capital of the Company pursuant to the completion of the First Tranche Acquisition and a deemed interest of 88,050,000 Shares or 14.14% of the existing share capital of the Company pursuant to its entry into the Second SPA.
Accordingly, as at Latest Practicable Date, the Offeror has majority ownership over the Company and would be in a position to exercise statutory control over the Company including, inter alia, the passing of all ordinary resolutions on matter in which the Offeror is not conflicted from voting on at general meetings of Shareholders, such as
40 APPENDIX 1: LETTER FROM KIM ENG CORPORATE FINANCE PTE. LTD. TO THE DIRECTORS OF BRC ASIA LIMITED
the election of directors and the approval of significant corporate actions. The Offeror will also have veto power with respect to any shareholder action or approval requiring a majority vote.
7.7.2 Offeror’s Future Plans for BRC The Offeror has stated in the Offer Document that subject to normal business considerations, the Offeror does not intend to make changes to the management team of BRC. The Offeror currently has no intention for any changes to (a) the business of the Group, (b) the deployment of the fixed assets of the Group or (c) the employment of the employees of the Group, other than in the ordinary course of business. Nonetheless, the Offeror retains the flexibility at any time to consider options or opportunities which may present themselves and which it regards to be in the interests of the Offeror.
7.7.3 Alternative Take-over Offer As at the Latest Practicable Date, there is no publicly available evidence of a competing offer or an enhancement or revision of the Offer.
7.7.4 No Revision of Offer and no extension of the Offer Period We note that the Offer Document has stated that the Offeror does not intend to extend the Offer beyond 5.30 p.m. on 30 October 2008 and that the Offer will not be open for acceptances beyond 5.30 p.m. on 30 October 2008. Accordingly, the Offeror has given notice that it does not intend to revise the Offer Price save that such notice shall not be capable of being enforced in a competitive situation.
As such, Shareholders should not expect any revision in the Offer Price or any extension of the Offer Period from the Offeror.
7.7.5 Intention to Preserve the Listing Status of BRC on the SGX-ST In light of the Undertaking given by the Vendor as set out in Section 1.4 and Section 7 of the Offer Document, the Offeror does not expect to have any rights or obligations of compulsory acquisition in connection with the Offer. In any event, the Offeror does not intend to exercise any rights of compulsory acquisition that may arise under the Companies Act as a result of the Offer.
In the event the Offeror announces that valid acceptances have been received that bring the holdings owned by the Offeror and the parties acting in concert with it and the Second Tranche Sale Shares owned by the Vendor to above 90% of the Shares in issue, the SGX-ST may, pursuant to Rule 1105 of the Listing Manual of the SGX-ST, suspend the listing of the Shares in the Ready and Odd-Lots markets until it is satisfied that at least 10% of the Shares in issue (excluding treasury shares) are held by at least 500 Shareholders who are members of the public (“Free Float”). It is the present intention of the Offeror to preserve the listing status of BRC on the SGX-ST. In the event that valid acceptances have been received that bring the holdings owned by the Offeror and the parties acting in concert with it and the Second Tranche Sale Shares owned by the Vendor to above 90% of the Shares in issue, the Offeror will make an announcement via SGXNET and may place out such number of Shares it owns and/or cause BRC to issue such number of new Shares to third parties as may be required to satisfy the Free Float requirement
41 APPENDIX 1: LETTER FROM KIM ENG CORPORATE FINANCE PTE. LTD. TO THE DIRECTORS OF BRC ASIA LIMITED
of the Listing Manual. Rule 725 of the Listing Manual states that the SGX-ST may allow BRC a period of three (3) months, or such longer period as the SGX-ST may agree, for the Free Float to be raised to at least 10%, failing which BRC may be de-listed.
8. CONCLUSION AND RECOMMENDATION We have taken into account a range of factors we deemed necessary and balanced them before reaching our conclusion and recommendation. Accordingly, it is important that our Letter and, in particular, all the considerations and information we have taken into account, be read in its entirety.
Our opinion is solely based on information available as at the date of this Letter. In arriving at our opinion on the Offer, we have taken into consideration, inter alia, the following factors: (a) The Offer Price of S$0.11 per Share represents a premium of approximately 82.7 per cent. over the unaudited NAV per Share as at 30 June 2008; (b) The Price-Earnings ratio implied by the Offer Price of S$0.11 based on the basic earnings per Share and adjusted diluted earnings per Share of the Group for FY2007 is approximately 12.0 times and 13.1 times respectively; (c) During the 2-year periods prior to the Pre-Conditional Offer Announcement Date and the Formal Offer Announcement Date, the average daily trading volume of the Shares were 969,101 and 975,565 Shares respectively, representing approximately 0.58% of the free float. This indicated that the Shares have been thinly traded; (d) The Offer Price also represents a discount of 46.6%, 39.9%, 10.6%, 4.3% and 3.5% over the VWAP of the Shares for the 2-year, 1-year, 6-month, 3-month and 1-month period on which the Shares were traded prior to the Pre-Conditional Offer Announcement Date. The Offer Price is the same as the VWAP of the Shares on the last trading day prior to the Pre-Conditional Offer Announcement Date; (e) The Offer Price represents a discount of 46.1%, 34.1% and 1.8% over the VWAP of the Shares for the 2-year, 1-year and 6-month period on which the Shares were traded prior to the Formal Offer Announcement Date. The Offer Price represents a premium of 3.8%, 6.8% and 5.8% over the VWAP of the Shares for the 3-month, 1-month and on the last trading day on which the Shares were traded prior to the Formal Offer Announcement Date; (f) From the trading day immediately after the Formal Offer Announcement Date to the Latest Practicable Date, the Shares have traded at a price of between S$0.105 and S$0.11 per Share and the VWAP for the period was S$0.105. The Offer Price represents a premium of 4.8% over S$0.105 and is equal to the highest traded price per Share of S$0.11; (g) The Offer Price also represents a 4.8% premium over the last transacted price of S$0.105 per Share on the Latest Practicable Date; (h) From the 12-month period prior to the Pre-Conditional Offer Announcement Date to 12 August 2008, being the date prior to the Pre-Conditional Offer Announcement Date, both the Share price of BRC and the FSSTI Index declined; BRC declined by 45.0% whereas the FSSTI Index declined by 15.2%. From the 12-month period prior to the Formal Offer Announcement Date to 17 September 2008, being the date prior to the Formal Offer Announcement Date, both the Share price of BRC and the FSSTI Index declined; BRC
42 APPENDIX 1: LETTER FROM KIM ENG CORPORATE FINANCE PTE. LTD. TO THE DIRECTORS OF BRC ASIA LIMITED
declined by 47.5% whereas the FSSTI Index declined by 29.2%. Shareholders should note that the past trading performance of the Shares should not be relied upon as a promise of its future trading performance; (i) The PER implied in the Offer Price of 13.1 times is above the range of 3.1 times to 4.0 times in respect of the Comparable Companies listed on SGX-ST and is equal to the highest PER of 13.1 times in respect of the Comparable Companies listed on other exchanges; (j) The Price/Book ratio implied in the Offer Price of 1.8 times is above the range of 0.5 times to 0.6 times in respect of the Comparable Companies listed on SGX-ST and it is above the range of 0.4 times to 0.9 times in respect of the Comparable Companies listed on other exchanges; (k) The EV/EBITDA ratio implied in the Offer Price of 8.7 times is above the range of 1.8 times to 7.5 times in respect of the Comparable Companies listed on SGX-ST and is above the range of 3.1 times to 8.4 times in respect of the Comparable Companies listed on other exchanges; (l) The discount implied in the Offer Price over the 1-month and 3-month VWAP prior to the Pre-Conditional Offer Announcement Date is within the range and is a discount as compared to the mean and median of the non-privatisation Take-over Transactions which are premiums to the 1-month and 3-month VWAP prior to each respective announcement date; (m) The premium implied in the Offer Price over the 1-month and 3-month VWAP prior to the Formal Offer Announcement Date is within the range and is lower than the mean and median of the non-privatisation Take-over Transactions; (n) The Offer is unconditional in all respects. As at the Latest Practicable Date, there was no publicly available evidence of a competing offer or an enhancement or revision of the Offer. Shareholders should not expect any revision in the Offer Price nor any extension of the Offer Period from the Offeror; and (o) The present intention of the Offeror is to preserve the listing status of the Company on the SGX-ST.
Having regard to the considerations set out in this Letter and the information available as at the Latest Practicable Date and subject to the assumptions and qualifications made herein, we are of the opinion that the terms of the Offer is reasonable from the financial point of view. Accordingly, we recommend that the Independent Directors advise the Shareholders as follows in relation to the Offer:-
Shareholders who take a short-term view of their investment in the Company and/or wish to realise their investment in the Company and/or are uncertain of the longer term performance and prospect of the Company under the control of the Offeror should: (a) Accept the Offer; or (b) Sell their Shares in the open market if they can obtain a price higher than the Offer Price (after taking into consideration all costs and expenses) by doing so.
Shareholders who are prepared to take a long-term view of their investment in the Company and/or who are positive about the prospects of the Group should retain all or part of their shareholdings in the Company.
Shareholders who retain their Shares should note that future performance of the Shares is dependent on, inter alia, the performance and prospects of the Company, general
43 APPENDIX 1: LETTER FROM KIM ENG CORPORATE FINANCE PTE. LTD. TO THE DIRECTORS OF BRC ASIA LIMITED
sentiments in the equity market and prevailing economic conditions in the markets in which the Company operates. There is also no assurance that the risk-return profile of the Company will remain unchanged should the Offeror decide to introduce major changes to the Company’s business in the future.
In rendering our advice, we have not taken into consideration the specific investment objectives, financial situation, tax position or particular needs and constraints of any individual Shareholder. As each Shareholder would have different objectives and profiles, we recommend that any individual Shareholder who may require specific advice in relation to his investment objectives or portfolio should consult his stockbroker, bank manager, solicitor, accountant, tax adviser or other professional adviser immediately.
Independent Directors should note that trading of the Shares is subject to, inter alia, the performance and prospects of the Group, prevailing economic conditions, economic outlook and stock market conditions and sentiments. Accordingly, our advice on the Offer does not and cannot take into account the future trading activities or patterns or price levels that may be established beyond the Latest Practicable Date.
Shareholders should also note that the current global financial crisis has to a certain extent resulted in and also heightened the uncertainty in the stock market for investors.
This Letter is addressed to the Independent Directors for their benefit, in connection with and for the purpose of their consideration of the financial terms of the Offer and should not be relied on by any other party. The recommendation made by them to the Shareholders in relation to the Offer shall remain the sole responsibility of the Independent Directors.
Whilst a copy of this letter may be reproduced in the Circular, neither the Company nor the Directors may reproduce, disseminate or quote this letter (or any part thereof) for any other purpose at any time and in any manner without the prior written consent of Kim Eng in each specific case.
This Letter is governed by, and construed in accordance, with the laws of Singapore, and is strictly limited to the matters stated herein and does not apply by implication to any other matter. Nothing herein shall confer or be deemed or is intended to confer any right of benefit to any third party and the Contracts (Rights of Third Parties) Act 2001 and any re-enactment thereof shall not apply.
Yours faithfully For and on behalf of Kim Eng Corporate Finance Pte. Ltd.
Wan Tai Foong Kelly Tan Shao Chin Director Vice President
44 APPENDIX 2: GENERAL INFORMATION ON THE COMPANY
1. DIRECTORS The names, addresses and designations of the Directors as at the Latest Practicable Date are set out below:
Name Address Designation
Mr. John David Sword Chivel Chipping Norton Chairman and Oxon Non-executive Director OX7 5TR England
Lim Siak Meng 30 Jalan Soo Bee Executive Director Singapore 488125
Wong Soong Kit 79 Moonbeam Terrace Executive Director Singapore 277328
Harry Elias 9 Nathan Road Independent Director #23-02 Regency Park Singapore 248730
Chua Kee Lock 124 Tanjong Rhu Road Independent Director #03-05 Singapore 436916
2. PRINCIPAL ACTIVITIES The Company was incorporated in Singapore in 1938 as the Malayan Wire Mesh & Fencing Co Ltd and was listed on the SGX-ST on 24 July 2000.
The Company is one of the first companies to pioneer the use of prefabricated steel reinforcement in Singapore. The Group’s principal activities are the prefabrication of steel reinforcement for use in concrete, trading of steel reinforcing bars and manufacturing and sale of wire mesh fences.
3. SHARE CAPITAL As at the Latest Practicable Date, the Company has a total of 622,542,000 issued Shares and an issued and paid-up share capital of S$25,104,669. 3,782,000 Shares have been issued between the end of the last financial year ended 31 December 2007 and the Latest Practicable Date pursuant to the exercise of Options.
As of the Latest Practicable Date, there are the following Options to subscribe for Shares:
No. outstanding at Date of grant Latest Practicable Date Exercise price (S$) Exercise period 23 Aug 2004 14,856,000 0.0657 23 Aug 2006 – 22 Aug 2009 1 Oct 2005 14,555,000 0.0612 1 Oct 2007 – 30 Sep 2010 21 Aug 2006 20,056,000 0.0720 21 Aug 2008 – 20 Aug 2011 7 Sep 2007 12,940,000 0.1710 7 Sep 2009 – 6 Sep 2012
45 APPENDIX 2: GENERAL INFORMATION ON THE COMPANY
There is only one class of Shares in the capital of the Company which are ordinary Shares with equal ranking rights to dividend, voting at general meetings and return of capital. Further details of the rights of Shareholders in respect of capital, voting and dividends are stated in the Articles of the Company, the relevant extracts of which are reproduced in italics, without amendment, and set out below:
“8. Subject to the Act, no shares may be issued by the Directors without the prior approval of the Company in General Meeting but subject thereto and to Article 52, and to any special rights attached to any shares for the time being issued, the Directors may issue, allot or grant options over or otherwise deal with or dispose of the same to such persons on such terms and conditions and at such time and subject or not to the payment of any part of the amount thereof in cash as the Directors may think fit, and any shares may be issued in such denominations or with such preferential, deferred, qualified or special rights, privileges or conditions as the Directors may think fit, and preference shares may be issued which are or at the option of the Company are liable to be redeemed, the terms and manner of redemption being determined by the Directors, provided always that: (i) the total nominal value of issued preference shares shall not exceed the total nominal value of the issued ordinary shares at any time; (ii) the rights attaching to shares of a class other than ordinary shares shall be expressed in the resolution creating the same; (iii) where the capital of the Company consists of shares of different monetary denominations, the voting rights shall be prescribed in such manner that a unit of capital in each class when reduced to a common denominator, shall carry the same voting power when such right is exercisable; (iv) no shares shall be issued at a discount, except in accordance with the Act; (v) (subject to any direction to the contrary that may be given by the Company in General Meeting), any issue of shares for cash to Members holding shares of any class shall be offered to such Members in proportion as nearly as may be to the number of shares of such class then held by them; and (vi) any other issue of shares, the aggregate of which would exceed the limits referred to in Article 52(1), shall be subject to the approval of the Company in General Meeting.
9. (1) Preference shareholders shall have the same rights as ordinary shareholders as regards receiving of notices, reports and balance sheets and attending General Meetings of the Company. Preference shareholders shall also have the right to vote at any meeting convened for the purpose of reducing the capital or winding up or sanctioning a sale of the undertaking of the Company or where the proposal to be submitted to the meeting directly affects their rights and privileges or when the dividend on the preference shares is more than six months in arrears.
(2) The Company has power to issue further preference capital ranking equally with, or in priority to, preference shares from time to time already issued or about to be issued.
46 APPENDIX 2: GENERAL INFORMATION ON THE COMPANY
10. (1) If at any time the share capital is divided into different classes, the special rights attached to any class (unless otherwise provided by the terms of issue of the shares of that class) may, subject to the provisions of the Act, whether or not the Company is being wound up, only be made, varied or abrogated with the sanction of a Special Resolution passed at a separate General Meeting of the holders of shares of the class and to every such Special Resolution the provisions of Section 184 of the Act shall, with such adaptations as are necessary, apply. To every such separate General Meeting the provisions of these Articles relating to General Meetings shall mutatis mutandis apply; but so that the necessary quorum shall be two persons at least holding or representing by proxy or by attorney one-third of the issued shares of the class and that any holder of shares of the class present in person or by proxy or by attorney may demand a poll. Provided always that where the necessary majority for such a Special Resolution is not obtained at the Meeting, consent in writing if obtained from the holders of three-fourths of the issued shares of the class concerned within two months of the Meeting shall be as valid and effectual as a Special Resolution carried at the Meeting.
(2) The repayment of preference capital other than redeemable preference capital or any other alteration of preference shareholder rights, may only be made pursuant to a special resolution of the preference shareholders concerned. PROVIDED ALWAYS that where the necessary majority for such a special resolution is not obtained at the Meeting, consent in writing if obtained from the holders of three-fourths of the preference shares concerned within two months of the Meeting, shall be as valid and effectual as a special resolution carried at the Meeting.
11. The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall, unless otherwise expressly provided by the terms of issue of the shares of that class or by these Articles as are in force at the time of such issue, be deemed to be varied by the creation or issue of further shares ranking equally therewith.
52. (1) The Company may by ordinary resolution in general meeting give to the Directors a general authority, either unconditionally or subject to such conditions as may be specified in the ordinary resolution, to: (a) (i) issue shares in the capital of the Company whether by way of rights, bonus or otherwise; and/or (ii) make or grant offers, agreements or options (collectively, “Instruments”) that might or would require shares to be issued, including but not limited to the creation and issue of (as well as adjustments to) warrants, debentures or other instruments convertible into shares; and (b) (notwithstanding that the authority conferred by the ordinary resolution may have ceased to be in force) issue shares in pursuance of any Instrument made or granted by the Directors while the ordinary resolution was in force,
provided that: (1) the aggregate number of shares to be issued pursuant to the ordinary resolution (including shares to be issued in pursuance of Instruments made or granted pursuant to the ordinary resolution) does not exceed 50 per cent. (or such other limit as may be prescribed by the Exchange) of the issued
47 APPENDIX 2: GENERAL INFORMATION ON THE COMPANY
share capital of the Company (as calculated in accordance with sub- paragraph (2) below), of which the aggregate number of shares to be issued other than on a pro-rata basis to shareholders of the Company (including shares to be issued in pursuance of Instruments made or granted pursuant to the ordinary resolution) does not exceed 20 per cent. (or such other limit as may be prescribed by the Exchange) of the issued share capital of the Company (as calculated in accordance with sub-paragraph (2) below); (2) (subject to such manner of calculation as may be prescribed by the Exchange) for the purpose of determining the aggregate number of shares that may be issued under sub-paragraph (1) above, the percentage of issued share capital shall be based on the issued share capital of the Company at the time of the passing of the ordinary resolution, after adjusting for: (a) new shares arising upon the conversion or exercise of any convertible securities or share options or vesting of share awards which are outstanding or subsisting at the time of the passing of the ordinary resolution; and (b) any subsequent consolidation or subdivision of shares; (3) in exercising the authority conferred by the ordinary resolution, the Company shall comply with the provisions of the Listing Manual of the Exchange for the time being in force (unless such compliance is waived by the Exchange) and these Articles; and (4) (unless revoked or varied by the Company in general meeting) the authority conferred by the ordinary resolution shall not continue in force beyond the conclusion of the Annual General Meeting of the Company next following the passing of the ordinary resolution, or the date by which such Annual General Meeting of the Company is required by law to be held, or the expiration of such other period as may be prescribed by the Act
(2) Notwithstanding Article 52(1) above but subject to the Act, the Directors shall not be required to offer any new shares to members to whom by reason of foreign securities laws such offers may not be made without registration of the shares or a prospectus or other document, but to sell the entitlements to the new shares on behalf of such Members in such manner as they think most beneficial to the Company.
53. Except so far as otherwise provided by the conditions of issue or by these Articles, any capital raised by the creation of new shares shall be considered part of the original ordinary capital of the Company and shall be subject to the provisions of these Articles with reference to allotments, payment of calls, lien, transfer, transmission, forfeiture or otherwise.
54. (1) The Company may by Ordinary Resolution:– (i) consolidate and divide all or any of its share capital into shares of larger amount than its existing shares; (ii) cancel any shares which, at the date of the passing of the Resolution, have not been taken or agreed to be taken by any person or which have been forfeited and diminish the amount of its share capital by the amount of the shares so cancelled;
48 APPENDIX 2: GENERAL INFORMATION ON THE COMPANY
(iii) subdivide its shares or any of them into shares of a smaller amount than is fixed by the Memorandum of Association (subject, nevertheless, to the provisions of the Act), provided always that in such subdivision the proportion between the amount paid and the amount (if any) unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived; (iv) subject to the provisions of the Articles and the Act, convert any class of shares into any other class of shares.
(2) Subject to and in accordance with the provisions of the Act, the Company may authorise the Directors in General Meeting to purchase or otherwise acquire shares in the issued share capital of the Company on such terms as the Company may from time to time think fit and in the manner prescribed by the Act. If required by the Act, any share that is so purchased or acquired by the Company shall be deemed to be cancelled immediately on purchase or acquisition. On cancellation of any share as aforesaid, the rights and privileges attached to that share shall expire. In any other instance, the Company may deal with any such share which is so purchased or acquired by it in such manner as may be permitted by, and in accordance with the Act
62. (1) Subject to the provisions of the Act as to Special Resolutions and special notice and calling of meetings at short notice, at least fourteen days’ notice in writing (exclusive both of the day on which the notice is served or deem to be served and of the day for which the notice is given) of every General Meeting shall be given in the manner hereinafter mentioned to such persons (including the Auditors) as are under the provisions herein contained entitled to receive notice from the Company and at least fourteen days’ notice of such Meeting shall be given by advertisement in the daily press and in writing to the Exchange.
(2) The accidental omission to give notice to, or the non-receipt by any person entitled thereto, shall not invalidate the proceedings as at any General Meeting.
63. (1) Every notice calling a General Meeting shall specify the place and the day and hour of the Meeting and there shall appear with reasonable prominence in every such notice a statement that a Member entitled to attend and vote is entitled to appoint a proxy to attend and to vote instead of him and that a proxy need not be a Member of the Company.
(2) In the case of an Annual General Meeting, the notice shall also specify the Meeting as such.
(3) In the case of any General Meeting at which business other than routine business is to be transacted (special business), the notice shall specify the general nature of the special business, and if any resolution is to be proposed as a Special Resolution or as requiring special notice, the notice shall contain a statement to that effect.
64. All business shall be deemed special that is transacted at any Extraordinary General Meeting, and all that is transacted at an Annual General Meeting shall also be deemed special, with the exception of sanctioning a dividend, the consideration of the accounts and balance sheet and the reports of the Directors and Auditors, and any other documents required to be annexed to the balance sheet, electing Directors in place of those retiring by rotation or otherwise and the fixing of the Directors’ remuneration and the
49 APPENDIX 2: GENERAL INFORMATION ON THE COMPANY appointment and fixing of the remuneration of the Auditors or determining the manner in which such remuneration is fixed. Any notice of a meeting called to consider special business shall be accompanied by a statement regarding the effect of any proposed resolution in respect of such special business.
70. At any General Meeting a resolution put to the vote of the Meeting shall be decided on a show of hands unless a poll is (before or on the declaration of the result of the show of hands) demanded: (i) by the Chairman of the meeting; or (ii) by at least two Members present in person or by proxy (where a Member has appointed more than one proxy, any one of such proxies may represent that member) or attorney or in the case of a corporation by a representative and entitled to vote thereat; or (iii) by any Member or Members present in person or by proxy (where a Member has appointed more than one proxy, any one of such proxies may represent that member) or attorney or in the case of a corporation by a representative or any number or combination of such Members, holding or representing not less than one-tenth of the total voting rights of all the Members having the right to vote at the Meeting; or (iv) by a Member or Members present in person or by proxy (where a Member has appointed more than one proxy, any one of such proxies may represent that member) or attorney or in the case of a corporation by a representative or any number or combination of such Members, holding or representing shares in the Company conferring a right to vote at the Meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.
Provided always that no poll shall be demanded on the election of a Chairman or on a question of adjournment. Unless a poll is so demanded (and the demand is not withdrawn) a declaration by the Chairman that a resolution has been carried or carried unanimously or by a particular majority or lost and an entry to that effect in the minute book shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favour of or against the resolution. A demand for a poll may be withdrawn.
71. If a poll is duly demanded (and the demand is not withdrawn) it shall be taken in such manner (including the use of ballot or voting papers or tickets) as the Chairman may direct and the result of a poll shall be deemed to be the resolution of the Meeting at which the poll was demanded. The Chairman may, and if so requested shall, appoint scrutineers and may adjourn the Meeting to some place and time fixed by him for the purpose of declaring the result of the poll.
72. If any votes are counted which ought not to have been counted or might have been rejected, the error shall not vitiate the result of the voting unless it is pointed out at the same Meeting or at any adjournment thereof, and not in that case unless it shall in the opinion of the Chairman be of sufficient magnitude.
73. Subject to the Act and the requirements of the Exchange, in the case of equality of votes, whether on a show of hands or on a poll, the Chairman of the Meeting at which the
50 APPENDIX 2: GENERAL INFORMATION ON THE COMPANY show of hands takes place or at which the poll is demanded shall be entitled to a second or casting vote in addition to the votes to which he may be entitled as a Member or as proxy of a Member.
74. A poll demanded on any question shall be taken either immediately or at such subsequent time (not being more than thirty days from the date of the Meeting) and place as the Chairman may direct. No notice need be given of a poll not taken immediately.
75. The demand for a poll shall not prevent the continuance of a Meeting for the transaction of any business, other than the question on which the poll has been demanded.
76. Subject and without prejudice to any special privileges or restrictions as to voting for the time being attached to any special class of shares for the time being forming part of the capital of the Company each Member entitled to vote may vote in person or by proxy or attorney, and (in the case of a corporation) by a representative. On a show of hands every Member who is present in person or by proxy or attorney, or in the case of a corporation by a representative, shall have one vote provided that if a Member is represented by two proxies, only one of the two proxies as determined by their appointor shall vote on a show of hands and in the absence of such determination, only one of the two proxies as determined by the Chairman (or by a person authorised by him) shall vote on a show of hands and on a poll, every Member who is present in person or by proxy, attorney or representative shall have one vote for each share which he holds or represents Provided Always That notwithstanding anything contained in these Articles, a Depositor shall not be entitled to attend any General Meeting and to speak and vote thereat unless his name is certified by the Depository to the Company as appearing on the Depository Register not earlier than 48 hours before that General Meeting (the “cut-off time”)asa Depositor on whose behalf the Depository holds shares in the Company. For the purpose of determining the number of votes which a Depositor or his proxy may cast on a poll, the Depositor or his proxy shall be deemed to hold or represent that number of shares entered in the Depositor’s Securities Account at the cut-off time as certified by the Depository to the Company, or where a Depositor has apportioned the balance standing to his Securities Account as at the cut-off time between two proxies, to apportion the said number of shares between the two proxies in the same proportion as specified by the Depositor in appointing the proxies; and accordingly no instrument appointing a proxy of a Depositor shall be rendered invalid merely by reason of any discrepancy between the number of shares standing to the credit of that Depositor’s Securities Account as at the cut-off time, and the true balance standing to the Securities Account of a Depositor as at the time of the relevant general meeting, if the instrument is dealt with in such manner as aforesaid.
77. Where there are joint holders of any share any one of such persons may vote and be reckoned in a quorum at any Meeting either personally or by proxy or by attorney or in the case of a corporation by a representative as if he were solely entitled thereto but if more than one of such joint holders is so present at any meeting then the person present whose name stands first in the Register of Members or the Depository Register (as the case may be) in respect of such share shall alone be entitled to vote in respect thereof. Several executors or administrators of a deceased Member in whose name any share stands shall for the purpose of this Article be deemed joint holders thereof.
78. If a Member be a lunatic, idiot or non-compos mentis, he may vote whether on a show of hands or on a poll by his committee, curator bonis or such other person as properly has the management of his estate and any such committee, curator bonis or other person may vote by proxy or attorney, provided that such evidence as the Directors may require
51 APPENDIX 2: GENERAL INFORMATION ON THE COMPANY of the authority of the person claiming to vote shall have been deposited at the Office not less than forty-eight hours before the time appointed for holding the Meeting.
79. Subject to the provisions of these Articles, every Member either personally or by attorney or in the case of a corporation by a representative and every proxy shall be entitled to be present and to vote at any General Meeting and to be reckoned in the quorum thereat in respect of shares fully paid and in respect of partly paid shares where calls are not due and unpaid.
80. No objection shall be raised to the qualification of any voter except at the Meeting or adjourned Meeting at which the vote objected to is given or tendered and every vote not disallowed at such Meeting shall be valid for all purposes. Any such objection made in due time shall be referred to the Chairman of the Meeting whose decision shall be final and conclusive.
81. On a poll votes may be given either personally or by proxy or by attorney or in the case of a corporation by its representative and a person entitled to more than one vote need not use all his votes or cast all the votes he uses in the same way.
82. (1) A Member may appoint not more than two proxies to attend and vote at the same General Meeting.
(2) If the Member is a Depositor, the Company shall be entitled: (i) to reject any instrument of proxy lodged if the Depositor is not shown to have any shares entered in its Securities Account as at the cut-off time as certified by the Depository to the Company; and (ii) to accept as validly cast by the proxy or proxies appointed by the Depositor on a poll that number of votes which corresponds to or is less than the aggregate number of shares entered in its Securities Account of that Depositor as at the cut-off time as certified by the Depository to the Company, whether that number is greater or smaller than the number specified in any instrument of proxy executed by or on behalf of that Depositor.
(3) Where a Member appoints more than one proxy, he shall specify the proportion of his shareholding to be represented by each proxy. If no such proportion or number is specified the first named proxy may be treated as representing 100% of the shareholding and any second named proxy as an alternate to the first named.
(4) Voting right(s) attached to any shares in respect of which a Member has not appointed a proxy may only be exercised at the relevant general meeting by the member personally or by his attorney, or in the case of a corporation by its representative.
(5) Where a Member appoints a proxy in respect of more shares than the shares standing to his name in the Register of Members, or in the case of a Depositor, standing to the credit of that Depositor’s Securities Account, such proxy may not exercise any of the votes or rights of the shares not registered to the name of that Member in the Register of Members or standing to the credit of that Depositor’s Securities Account as at the cut-off time, as the case may be.
52 APPENDIX 2: GENERAL INFORMATION ON THE COMPANY
83. A proxy or attorney need not be a Member, and shall be entitled to vote on a show of hands on any question at any General Meeting.
84. Any instrument appointing a proxy shall be in writing in the common form approved by the Directors under the hand of the appointor or his attorney duly authorised in writing or, if the appointor is a corporation, under seal or under the hand of its attorney duly authorised and the Company shall accept as valid in all respects the form of proxy approved by the Directors for use at the date relevant to the General Meeting in question.
85. The instrument appointing a proxy, together with the power of attorney or other authority, if any, under which the instrument of proxy is signed or a duly certified copy of that power of attorney or other authority (failing previous registration with the Company) shall be attached to the instrument of proxy and must be left at the Office or such other place (if any) as is specified for the purpose in the notice convening the Meeting not less than forty-eight hours before the time appointed for the holding of the Meeting or adjourned Meeting (or in the case of a poll before the time appointed for the taking of the poll) at which it is to be used failing which the instrument may be treated as invalid. An instrument appointing a proxy shall, unless the contrary is stated thereon, be valid as well for any adjournment of the Meeting as for the Meeting to which it relates Provided that an instrument of proxy relating to more than one meeting (including any adjournment thereof) having once been so delivered for the purposes of any meeting shall not be required again to be delivered for the purposes of any subsequent meeting to which it relates. An instrument of proxy shall be deemed to include the power to demand or concur in demanding a poll on behalf of the appointer. Unless otherwise instructed, a proxy shall vote as he thinks fit. The signature on an instrument appointing a proxy need not be witnessed.
86. A vote given in accordance with the terms of an instrument of proxy (which for the purposes of these Articles shall also include a power of attorney) shall be valid notwithstanding the previous death or insanity of the principal or revocation of the proxy, or of the authority under which the proxy was executed or the transfer of the share in respect of which the proxy is given, provided that no intimation in writing of such death, insanity, revocation or transfer shall have been received by the Company at the Office (or such other place as may be specified for the deposit of instruments appointing proxies) before the commencement of the Meeting or adjourned Meeting (or in the case of a poll before the time appointed for the taking of the poll) at which the proxy is used.
87. Any corporation which is a Member may by resolution of its directors or other governing body authorise such person as it thinks fit to act as its representative at any Meeting of the Company or of any class of Members and the persons so authorised shall be entitled to exercise the same powers on behalf of the corporation as the corporation could exercise if it were an individual Member of the Company. The Company shall be entitled to treat a certificate under the seal of the corporation as conclusive evidence of the appointment or revocation of appointment of a representative under this Article.
129. The Directors may, with the sanction of the Company, by Ordinary Resolution declare dividends but (without prejudice to the powers of the Company to pay interest on share capital as hereinbefore provided) no dividend shall be payable except out of the profits of the Company.
130. Subject to the rights of holders of shares with special rights as to dividend (if any), all dividends shall be declared and paid according to the amounts paid on the shares in respect whereof the dividend is paid, but (for the purposes of this Article only) no amount
53 APPENDIX 2: GENERAL INFORMATION ON THE COMPANY paid on a share in advance of calls shall be treated as paid on the share. All dividends shall be apportioned and paid pro rata according to the amount paid on the shares during any portion or portions of the period in respect of which the dividend is paid, but if any share is issued on terms providing that it shall rank for dividend as from a particular date such shares shall rank for dividend accordingly.
131. Notwithstanding Article 130, if, and so far as in the opinion of the Directors, the profits of the Company justify such payments, the Directors may pay fixed preferential dividends on any express class of shares carrying a fixed preferential dividend expressed to be payable on a fixed date on the half-yearly or other dates (if any) prescribed for the payment thereof by the terms of issue of the shares, and subject thereto may also from time to time pay to the holders of any other class of shares interim dividends thereon of such amounts and on such dates as they may think fit.
132. If the Company issues shares at a premium, whether for cash or otherwise, the Directors shall transfer a sum equal to the aggregate amount or value of the premiums to an account called the “Share Premium Account” and any amount for the time being standing to the credit of such account shall not be applied in the payment of any cash dividend.
133. No dividend or other moneys payable on or in respect of a share shall bear interest against the Company.
134. The Directors may deduct from any dividend or other moneys payable to any Member on or in respect of a share all sums of money (if any) presently payable by him to the Company on account of calls or in connection therewith, or any other account which the Company is required by law to withhold or deduct.
135. The Directors may retain any dividend or other moneys payable on or in respect of a share on which the Company has a lien and may apply the same in or towards satisfaction of the debts, liabilities or engagements in respect of which the lien exists.
136. The Directors may retain the dividends payable on shares in respect of which any person is under these Articles, as to the transmission of shares, entitled to become a Member, or which any person under these Articles is entitled to transfer, until such person shall become a Member in respect of such shares or shall duty transfer the same.
137. The payment by the Directors of any unclaimed dividends or other moneys payable on or in respect of a share into a separate account shall not constitute the Company a trustee in respect thereof. All dividends unclaimed after being declared may be invested or otherwise made use of by the Directors for the benefit of the Company and any dividend unclaimed after a period of six years from the date of declaration of such dividend may be forfeited and if so shall revert to the Company but the Directors may at any time thereafter at their absolute discretion annul any such forfeiture and pay the dividend so forfeited to the person entitled thereto prior to the forfeiture. For the avoidance of doubt no Member shall be entitled to any interest, share of revenue or other benefit arising from any unclaimed dividends, howsoever and whatsoever.
138. The Company may, upon the recommendation of the Directors, by Ordinary Resolution direct payment of a dividend in whole or in part by the distribution of specific assets and in particular of paid up shares or debentures of any other company or in any one or more of such ways, and the Directors shall give effect to such Resolution, and where any
54 APPENDIX 2: GENERAL INFORMATION ON THE COMPANY difficulty arises in regard to such distribution, the Directors may settle the same as they think expedient and in particular may issue fractional certificates and fix the value for distribution of such specific assets or any part thereof and may determine that cash payments shall be made to any Members upon the footing of the value so fixed in order to adjust the rights of all parties and may vest any such specific assets in trustees as may seem expedient to the Directors.
139. Any dividend or other moneys payable in cash on or in respect of a share may be paid by cheque or warrant sent through the post to the registered address of the Member or person entitled thereto or, if several persons are registered as joint holders of the share or are entitled thereto in consequence of the death or bankruptcy of the holder, to any one of such persons or to such person and such address as such persons may by writing direct Provided that where the Member is a Depositor, the payment by the Company to the Depository of any dividend payable to a Depositor shall to the extent of the payment discharge the Company from any further liability in respect of the payment. Every such cheque and warrant shall be made payable to the order of the person to whom it is sent or to such person as the holder or joint holders or person or persons entitled to the share in consequence of the death or bankruptcy of the holder may direct and payment of the cheque if purporting to be endorsed or the receipt of any such person shall be a good discharge to the Company. Every such cheque and warrant shall be sent at the risk of the person entitled to the money represented thereby.
140. A transfer of shares shall not pass the right to any dividend declared on such shares before the registration of the transfer.
142. The Company may, upon the recommendation of the Directors, by Ordinary Resolution of the Company (including any Ordinary Resolution passed pursuant to Article 52(1), resolve that it is desirable to capitalise any sum for the time being standing to the credit of any of the Company’s reserve accounts (including share premium account and any capital redemption reserve funds) or any sum standing to the credit of the profit and loss account or otherwise available for distribution; provided that such sum be not required for paying the dividends on any shares carrying a fixed cumulative preferential dividend and accordingly that the Directors be authorised and directed to appropriate the sum resolved to be capitalised to the Members holding shares in the Company in the proportions in which such sum would have been divisible among them had the same been applied or have been applicable in paying dividends and to apply such sum on their behalf either in or towards paying up the amounts (if any) for the time being unpaid on any shares held by such Members respectively, or in paying up in full unissued shares or debentures of the Company of a nominal amount equal to such sum, such shares or debentures to be allotted and distributed and credited as fully paid up to and among such Members in the proportion aforesaid or partly in one way and partly in the other, Provided that a share premium account and a capital redemption reserve fund may only be applied hereunder in the paying up of unissued shares to be issued to Members as fully paid shares. Where any difficulty arises in respect of any such distribution the Directors may settle the same as they think expedient and in particular they may fix the value for distribution of any fully paid-up shares or debentures, make cash payments to any Members on the footing of the value so fixed in order to adjust rights, and vest any such shares or debentures in trustees upon such trusts for the persons entitled to share in the appropriation and distribution as may seem just and expedient to the Directors. When deemed requisite a proper contract for the allotment and acceptance of any shares to be distributed as aforesaid shall be delivered to the Registrar of Companies for registration in accordance with the Act and the Directors
55 APPENDIX 2: GENERAL INFORMATION ON THE COMPANY
may appoint any person to sign such contract on behalf of the persons entitled to share in the appropriation and distribution and such appointment shall be effective.
143. Whenever such a resolution as aforesaid shall have been passed the Directors shall make all appropriation and applications of the sum resolved to be capitalised thereby, all allotments and issues of fully paid shares or debentures (if any), and generally shall do all acts and things required to give effect thereto and also to authorise any person to enter on behalf of all the Members entitled thereto into an agreement with the Company providing for the allotment to them respectively, credited as fully paid-up, of any further shares or debentures to which they may be entitled upon such capitalisation or (as the case may require) for the payment up by the Company on their behalf, by the application thereto of their respective proportions of the sum resolved to be capitalised, of the amounts or any part of the amounts remaining unpaid on their existing shares and any agreement made under such authority shall be effective and binding on all such Members.
164. If the Company is wound up (whether the liquidation is voluntary, under supervision or by the Court) the Liquidator may, with the authority of a Special Resolution, divide among the Members in specie or kind the whole or any part of the assets of the Company and whether or not the assets shall consist of property of one kind or shall consist of properties of different kinds and may for such purpose set such value as he deems fair upon any one or more class or classes of property to be divided as aforesaid and may determine how such division shall be carried out as between the Members or different classes of Members. The Liquidator may, with the like authority, vest the whole or any part of the assets in trustees upon such trusts for the benefit of Members as the Liquidator with the like authority thinks fit, and the liquidation of the Company may be closed and the Company dissolved, but no Member shall be compelled to accept any shares or other securities in respect of which there is liability.”
4. DISCLOSURE OF INTERESTS
4.1 Neither the Company nor its subsidiaries has any direct or indirect interests in the shares or convertible securities of the Offeror or HG as at the Latest Practicable Date.
4.2 Neither the Company nor its subsidiaries has dealt for value in the shares or convertible securities of the Offeror or HG during the period commencing six months prior to 13 August 2008, being the Pre-Conditional Offer Announcement Date, and ending on the Latest Practicable Date.
4.3 None of the Directors has any direct or indirect interests in the Shares or convertible securities of the Offeror or HG as at the Latest Practicable Date.
4.4 Save as disclosed below, none of the Directors has any direct or indirect interests in the Shares or convertible securities of the Company as at the Latest Practicable Date:
Direct Interest Deemed Interest No. of No. of No. of Name of Director Shares %(1) Shares %(1) Options John David Sword —— — — — Lim Siak Meng 13,683,000 2.20 ——11,402,200 Wong Soong Kit 4,469,000 0.72 ——16,422,800
56 APPENDIX 2: GENERAL INFORMATION ON THE COMPANY
Direct Interest Deemed Interest No. of No. of No. of Name of Director Shares %(1) Shares %(1) Options Harry Elias ———— — Chua Kee Lock ———— —
Note: (1) The percentage shareholding is computed based on the issued share capital of the Company comprising 622,542,000 Shares as at the Latest Practicable Date.
4.5 None of the Directors has dealt for value in the shares or convertible securities of the Offeror, HG or of the Company during the period commencing six months prior to 13 August 2008, being the Pre-Conditional Offer Announcement Date, and ending on the Latest Practicable Date.
4.6 Neither the IFA nor funds whose investments are managed by the IFA on a discretionary basis owns or controls any shares or convertible securities of the Offeror, HG or of the Company as at the Latest Practicable Date.
4.7 Neither the IFA nor funds whose investments are managed by the IFA on a discretionary basis has dealt for value in the shares or convertible securities of the Offeror, HG or of the Company during the period commencing six months prior to 13 August 2008, being the Pre-Conditional Offer Announcement Date, and ending on the Latest Practicable Date.
5. OTHER DISCLOSURES
5.1 Directors’ Service Contracts There are no service contracts between any Director or proposed director with the Company or any of its subsidiaries which have more than 12 months to run and which cannot be terminated by the Company within the next 12 months without paying any compensation.
No such service contracts were entered into or amended during the period commencing six months prior to 13 August 2008, being the Announcement Date, and ending on the Latest Practicable Date.
5.2 Arrangements Affecting Directors It is not proposed, in connection with the Offer, that any payment or other benefit be made or given to any Director or to any director of any other corporation which is, by virtue of Section 6 of the Act, deemed to be related to the Company, as compensation for loss of office or otherwise in connection with the Offer.
There are no agreements or arrangements made between any Director and any other person in connection with or conditional upon the outcome of the Offer.
There are no material contracts entered into by the Offeror in which any of the Directors has a material personal interest, whether direct or indirect.
5.3 Directors’ Intentions It is the intention of all the Directors who hold Shares to accept the Offer in relation to their Shares.
57 APPENDIX 2: GENERAL INFORMATION ON THE COMPANY
5.4 Material Contracts Save as disclosed below, neither the Company nor any of its subsidiaries has entered into any material contract with Interested Persons1 (other than those entered into in the ordinary course of business) during the period beginning three years before 13 August 2008, being the Pre-Conditional Offer Announcement Date, and ending on the Latest Practicable Date:
(a) Keong Hong Construction Pte. Ltd. (Keong Hong) Mr. Ronald Leo Ting Ping was an independent director of the Company and a substantial shareholder of Keong Hong. Keong Hong is a major customer of the Company and the aggregate value of transactions conducted with Keong Hong were S$121,000, S$2,149,451 and S$423,951 for FY2005, FY2006 and FY2007 respectively.
Mr. Leo has resigned from the Board on 23 February 2007 to avoid potential conflicts of interest as dealings between Keong Hong and the Company were expected to increase. The Company’s dealings with Keong Hong from 16 May 2006 were approved by the shareholders pursuant to a shareholder mandate obtained at an extraordinary general meeting held on 16 May 2006. Prior to 16 May 2006, the transactions with Keong Hong were not required by SGX-ST to be approved by shareholders of the Company.
(b) BRC Ltd BRC Ltd is a wholly-owned subsidiary of Acertec Plc, the ultimate holding company of Acertec Engineering Limited which was a Substantial Shareholder of the Company. From 2005 to 2006, the Company and BRC Ltd had entered into two separate sale and purchase agreements in relation to the sale of the Company’s plant and equipment to BRC Ltd. The aggregate value of the transactions with BRC Ltd were S$180,000 and S$2,574,000 for FY2005 and FY2006 respectively. The transactions with BRC Ltd were entered into on commercial terms and conditions and at market prices.
The transaction with BRC Ltd for FY2006 was approved by the shareholders pursuant to a shareholder mandate obtained at the extraordinary general meeting held on 16 May 2006. The transaction with BRC Ltd for FY2005 was not required by SGX-ST to be approved by shareholders of the Company.
1 As defined in the Note on Rule 24.6 read with the Note on Rule 23.12 of the Code, an Interested Person is: (a) a director, chief executive officer or Substantial Shareholder of the Company; (b) the immediate family of a director, the chief executive officer or a Substantial Shareholder (being an individual) of the Company; (c) the trustees, acting in their capacity as such trustees, of any trust of which a director, the chief executive officer or a Substantial Shareholder (being an individual) and his immediate family is a beneficiary; (d) any company in which a director, the chief executive officer or a Substantial Shareholder (being an individual) together and his immediate family together (directly or indirectly) have an interest of 30 or more; (e) any company that is the subsidiary, holding company or fellow subsidiary of the Substantial Shareholder (being a company); or (f) any company in which a Substantial Shareholder (being a company) and any of the companies listed in (e) above together (directly or indirectly) have an interest of 30 or more.
58 APPENDIX 2: GENERAL INFORMATION ON THE COMPANY
5.5 Material litigation On 29 July 2008, the Company announced that it had begun proceedings against Sembawang Engineers & Constructors Pte. Ltd. (SECPL), in relation to the supply of steel products by filing an Originating Summons with the High Court of Singapore (Courts). The proceedings have been converted as if they were begun by filing a Writ.
SECPL is one of the contractors engaged by Resorts World at Sentosa Pte. Ltd. for the substructure work package relating to the Integrated Resorts project at Sentosa Island (Project). The Company was purported to be awarded the sub-contract (Contract) to supply various reinforcing steel products (Products) for the Project on or about 13 August 2007 while negotiations were ongoing over the terms of the Contract. The Company had supplied the Products to SECPL during negotiations.
As at 30 June 2008, the Company has supplied over S$39 million of Products to SECPL in relation to the Project.
The Company is seeking a ruling from the Courts that, inter alia, in respect of all and any steel products supplied by the Company at SECPL’s request, SECPL should pay the Company for supply of the steel products on a quantum merit basis at a fair and reasonable market rate.
Further to announcement on 29 July 2008, the Company has announced on 15 August 2008 to clarify that the Project is the Group’s only project in which SECPL is the customer. Although the revenue earned by the Group from the Project represents more than 5% of the Group’s revenue for FY2007, the SECPL is not a regular customer of the Group nor does the Group have any other contracts with SECPL. As such, the litigation is not expected to have any adverse impact on the Group.
Shareholders should note that the Company has made the necessary adjustments to provide for the full costs of the Products supplied and yet to be supplied to SECPL in the income statement for the half year ended 30 June 2008. In the event that any award is granted by the Court in relation to payment by SECPL for the products on a quantum meruit basis, such award would have a positive impact on the results of the Company.
6. FINANCIAL INFORMATION
6.1 Financial information on the Group A summary of the audited financial information of the Group for FY2005, FY2006 and FY2007 is set out below. The following summary financial information should be read together with the audited financial statements for the relevant periods and related notes thereto:
FY2005 FY2006 FY2007 (S$’000) (Audited) (Audited) (Audited) Revenue 76,307 101,132 130,257 Net profit before tax and minority interests 5,215 5,808 6,639 Minority interests N.A. N.A. N.A. Net profit after tax and minority interests 4,300 4,730 5,603 Exceptional items N.A. N.A. N.A. Basis earnings per Share (cents) 0.72 0.79 0.92 Diluted earnings per Share (cents) 0.72 0.77 0.87 Net dividends per Share (cents) 0.56 0.62 0.62
59 APPENDIX 2: GENERAL INFORMATION ON THE COMPANY
The statement of the assets and liabilities of the Group as at 31 December 2007 is as follows:
FY2007 (S$’000) (Audited) Current assets 69,614 Non-current assets 19,684
Total assets 89,298
Current liabilities 48,540 Non-current liabilities 3,333
Total liabilities 51,873
NET ASSETS 37,425
A summary of the unaudited financial information of the Group, including turnover, exceptional items, net profit and loss before and after tax, minority interests, net earnings per share and net dividends per share, for the six-month period ended 30 June 2008 is set out below. The following summary financial information should be read together with the unaudited financial statements for the relevant period and related notes thereto:
Six-month period ended 30 June 2008 (S$’000) (Unaudited) Revenue 120,395 Net profit before tax and minority interests 3,472 Minority interests N.A. Net profit after tax and minority interests 2,892 Exceptional items N.A. Basis earnings per Share (cents) 0.47 Diluted earnings per Share (cents) 0.45 Net dividends per Share (cents) 0.15
The statement of the assets and liabilities of the Group as at 30 June 2008 is set out in the unaudited consolidated financial statements of the Group for the six-month period ended 30 June 2008, which are set out in Appendix 4 to this Circular.
6.2 Material changes in financial position Save as disclosed in this Circular, the unaudited consolidated financial statements of the Group for the six-month period ended 30 June 2008 set out in Appendix 4 to this Circular, the audited consolidated financial statements of the Group for FY2007 as well as any other information on the Group which is publicly available (including without limitation the announcements released by the Company on the SGXNET), there has been no known material changes to the financial position of the Company since 31 December 2007, being the date of the last published audited financial statements of the Company.
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6.3 Significant accounting policies The significant accounting policies of the Group which are disclosed in the notes to the audited consolidated financial statements of the Group for FY2007 are reproduced in italics, without amendment, below:
2. SIGNIFICANT ACCOUNTING POLICIES
2.1 Basis of preparation The financial statements have been prepared in accordance with Singapore Financial Reporting Standards (“FRS”). The financial statements have been prepared under the historical cost convention, except as disclosed in the accounting policies below.
The preparation of financial statements in conformity with FRS requires management to exercise its judgement in the process of applying the Group’s accounting policies. It also requires the use of certain critical accounting estimates and assumptions. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 3.
Interpretations and amendments to published standards effective in 2007
On 1 January 2007, the Group adopted the new or amended FRS and Interpretations to FRS (INT FRS) that are mandatory for application from that date. Changes to the Group’s accounting policies have been made as required, in accordance with the transitional provisions in the respective FRS and INT FRS.
The following are the new or amended FRS and INT FRS that are relevant to the Group:
Amendments to FRS 1 Presentation of Financial Statements — Capital Disclosures
FRS 107 Financial Instruments: Disclosures
INT FRS 110 Interim Financial Reporting and Impairment
The adoption of the above FRS or INT FRS did not result in any substantial changes to the Group’s accounting policies nor any significant effect on these financial statements.
2.2 Group accounting
(a) Subsidiaries Subsidiaries are entities over which the Group has power to govern the financial and operating policies, generally accompanied by a shareholding giving rise to the majority of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.
The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued or liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination
61 APPENDIX 2: GENERAL INFORMATION ON THE COMPANY
are measured initially at their fair values on the date of acquisition, irrespective of the extent of any minority interest.
Subsidiaries are consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date on which control ceases.
In preparing the consolidated financial statements, transactions, balances and unrealised gains on transactions between group entities are eliminated. Unrealised losses are also eliminated but are considered an impairment indicator of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
Please refer to note 2.9 for the accounting policy on investments in subsidiaries in the separate financial statements of the Company.
(b) Joint ventures The Group’s joint ventures are entities over which the Group has contractual arrangements to jointly share the control over the economic activity of the entities with one or more parties. The Group’s interest in joint ventures is accounted for in the consolidated financial statements using the equity method of accounting.
Investments in joint ventures are initially recognised at cost. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued or liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition.
In applying the equity method of accounting, the Group’s share of its joint venture’s post-acquisition profits or losses is recognised in the income statement and its share of post-acquisition movements in reserves is recognised in equity directly. These post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in a joint venture equals or exceeds its interest in the joint venture, including any other unsecured non-current receivables, the Group does not recognise further losses, unless it has obligations or has made payments on behalf of the joint venture.
Unrealised gains on transactions between the Group and its joint venture are eliminated to the extent of the Group’s interest in the joint venture. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of the joint ventures have been changed where necessary to ensure consistency with the accounting policies adopted by the Group.
Please refer to note 2.9 for the accounting policy on investment in a joint venture in the separate financial statements of the Company.
2.3 Currency translation
(a) Functional and presentation currency Items included in the financial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates (“functional currency”). The financial statements are presented in Singapore Dollar.
62 APPENDIX 2: GENERAL INFORMATION ON THE COMPANY
(b) Transactions and balances Transactions in a currency other than the functional currency (“foreign currency”) are translated into the functional currency using the exchange rates at the date of the transactions. Currency translation difference from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at the closing rates at the balance sheet date are recognised in the income statement, unless they arise from borrowings in foreign currencies, other currency instruments designated and qualifying as net investment hedges and net investment in foreign operations. Those currency translation differences are recognised in the currency translation reserve in the consolidated financial statements and transferred to the income statement as part of the gain or loss on disposal of the foreign operation.
Non-monetary items measured at fair values in foreign currencies are translated using the exchange rates at the date when the fair values are determined.
(c) Translation of Group entities’ financial statements The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (i) Assets and liabilities are translated at the closing rate at the date of that balance sheet; (ii) Income and expenses are translated at average exchange rates (unless the average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated using the exchange rates at the dates of the transactions); and (iii) All resulting currency translation differences are taken to the currency translation reserve.
Goodwill and fair value adjustments arising on the acquisition of foreign operations on or after 1 January 2005 are treated as assets and liabilities of the foreign operations and translated at the closing rates at the date of the balance sheet. For acquisitions prior to 1 January 2005, the exchange rates at the dates of acquisition are used.
2.4 Revenue recognition Sales comprises the fair value of the consideration received or receivable for the sale of goods and rendering of services in the ordinary course of the Group’s activities. Sales is presented, net of goods and services tax, rebates and discounts, and after eliminating sales within the Group.
The Group recognises revenue when the amount of revenue and related cost can be reliably measured, it is probable that future economic benefits will flow to the entity and when the specific criteria for each of the Group’s activities are met as follows:
(a) Sale of goods Revenue from the sale of goods is recognised when a Group entity has delivered the products to location specified by its customers, the customers have accepted the products in accordance with the sales contract and the collectability of the related receivables is reasonably assured.
63 APPENDIX 2: GENERAL INFORMATION ON THE COMPANY
(b) Dividend income Dividend income is recognised when the right to receive payment is established.
(c) Interest income Interest income, including income arising from finance lease and other financial instruments, is recognised using the effective interest method.
2.5 Income taxes Current income tax for current and prior periods is recognised at the amounts expected to be paid to or recovered from the tax authorities, using the tax rates and tax laws that have been enacted or substantially enacted by the balance sheet date.
Deferred income tax is recognised for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements except when the deferred income tax arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and affects neither accounting nor taxable profit or loss at the time of the transaction.
A deferred income tax liability is recognised on temporary differences arising on investments in subsidiaries and joint ventures, except where the Group is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
A deferred income tax asset is recognised to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences and tax losses can be utilised.
Deferred income tax is measured at: (i) the tax rates that are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled, based on tax rates and tax laws that have been enacted or substantially enacted by the balance sheet date; and (ii) based on the tax consequence that will follow from the manner in which the Group expects, at the balance sheet date, to recover or settle the carrying amounts of its assets and liabilities.
Current and deferred income taxes are recognised as income or expense in the income statement, except to the extent that the tax arises from a business combination or a transaction which is recognised directly in equity. Deferred tax arising from a business combination is adjusted against goodwill on acquisition.
2.6 Cash and cash equivalents For the purpose of presentation in the consolidated cash flow statement, cash and cash equivalents comprise cash on hand and deposits with financial institutions.
2.7 Inventories Inventories are carried at the lower of cost and net realisable value. Cost is determined on a weighted average method. The cost of finished goods and work-in-progress comprises raw materials, direct labour, other direct costs and related production overheads (based on
64 APPENDIX 2: GENERAL INFORMATION ON THE COMPANY
normal operating capacity) but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of the business, less applicable variable selling expenses.
2.8 Financial assets
(a) Classification The Group classifies its financial assets in the following categories: loans and receivables and available-for-sale. The classification depends on the purpose for which the assets were acquired. Management determines the classification of its financial assets at initial recognition.
(i) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except those maturing later than 12 months after the balance sheet date which are presented as non-current assets. Loans and receivables are presented within “trade and other receivables” and “cash and cash equivalents” on the balance sheet.
(ii) Financial assets, available-for-sale Financial assets, available-for-sale are non-derivatives that are either designated in this category or not classified in any of the other categories. They are presented as non-current assets unless management intends to dispose off the assets within 12 months after the balance sheet date.
(b) Recognition and derecognition Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. On disposal of a financial asset, the difference between the carrying amount and the sale proceeds is recognised in the income statement. Any amount in the fair value reserve relating to that asset is transferred to the income statement.
(c) Initial measurement Financial assets are initially recognised at fair value plus transaction costs.
(d) Subsequent measurement Loans and receivables are subsequently carried at amortised cost using the effective interest method. Financial assets classified as available-for-sale, are subsequently carried at fair value.
Changes in the fair value of financial assets classified as available-for-sale are recognised in the fair value reserve within equity. Dividends on available-for-sale equity securities are recognised separately in the income statement.
(e) Impairment The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired and recognises an allowance for impairment when such evidence exists.
65 APPENDIX 2: GENERAL INFORMATION ON THE COMPANY
(i) Loans and receivables Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy, and default or significant delay in payments are objective evidence that these financial assets are impaired.
The carrying amount of these assets is reduced through the use of an impairment allowance account which is calculated as the difference between the carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. When the asset becomes uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are recognised against the same line item in the income statement.
The allowance for impairment loss account is reduced through the income statement in a subsequent period when the amount of impairment loss decreases and the related decrease can be objectively measured. The carrying amount of the asset previously impaired is increased to the extent that the new carrying amount does not exceed the amortised cost had no impairment been recognised in prior periods.
(ii) Financial assets, available-for-sale Significant or prolonged declines in the fair value of the security below its cost and the disappearance of an active trading market for the security are objective evidence that the security is impaired.
The cumulative loss that was recognised in the fair value reserve is transferred to the income statement. The cumulative loss is measured as the difference between the acquisition cost (net of any principal repayments and amortisation) and the current fair value, less any impairment loss previously recognised in the income statement on debt securities. The impairment losses recognised in the income statement on equity securities are not reversed through the income statement.
2.9 Investments in subsidiaries and joint ventures Investments in subsidiaries and joint ventures are stated at cost less accumulated impairment losses (note 2.12), in the Company’s balance sheet. On disposal of investments in subsidiaries and joint ventures, the difference between net disposal proceeds and the carrying amount of the investments are taken to the income statement.
2.10 Property, plant and equipment
(a) Measurement
(i) Property, plant and equipment Other than certain leasehold buildings, all property, plant and equipment are initially stated at cost and subsequently carried at cost less accumulated depreciation and accumulated impairment losses (note 2.12). The leasehold buildings were initially stated at cost and subsequently stated at valuation less accumulated depreciation and impairment losses (note 2.12). The valuation of
66 APPENDIX 2: GENERAL INFORMATION ON THE COMPANY
certain leasehold buildings was carried out in 1993 based on the appraisals received from an independent firm of professional valuers and the revaluation surplus was taken to capital reserves. The Group does not have a policy of periodic revaluation of its leasehold buildings.
(ii) Component of costs The cost of an item of property, plant and equipment initially recognised includes its purchase price and any cost that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.
(b) Depreciation Depreciation of property, plant and equipment is calculated using the straight line method to allocate their depreciable amounts over their estimated useful lives are as follows:
Useful lives Leasehold buildings — Term of the lease between 11 to 37 years Plant and machinery — 4 to 15 years Motor vehicles — 4 years Furniture and equipment — 3 to 5 years
The residual values, estimated useful lives and depreciation method of property, plant and equipment are reviewed, and adjusted as appropriate, at each balance sheet date. The effects of any revision are recognised in the income statements for the financial year in which the changes arise.
(c) Subsequent expenditure Subsequent expenditure relating to property, plant and equipment that has already been recognised is added to the carrying amount of the asset only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be reliably measured. All other repair and maintenance expense is recognised in the income statement when incurred.
(d) Disposal On disposal of an item of property, plant and equipment, the difference between the net disposal proceeds and its carrying amount is taken to the income statement. Any amount in capital reserve relating to that asset is transferred to retained earnings directly.
2.11 Intangible assets
Contractual customer relationships Contractual customer relationships acquired are initially recognised at cost at the acquisition date and are subsequently carried at cost less accumulated amortisation and accumulated impairment losses (note 2.12). The costs are amortised to the income statement based on the pattern in which the intangible asset’s future economic benefits are expected to be consumed by the entity, which is over a period of one year.
67 APPENDIX 2: GENERAL INFORMATION ON THE COMPANY
2.12 Impairment of non-financial assets
Property, plant and equipment Investments in subsidiaries and joint ventures Intangible assets Property, plant and equipment, investments in subsidiaries and joint ventures and intangible assets are reviewed for impairment whenever there is any objective evidence or indication that these assets may be impaired. If any such indication exists, the recoverable amount (i.e. the higher of the fair value less cost to sell and the value-in-use) of the asset is estimated to determine the amount of impairment loss.
For the purpose of impairment testing of these assets, recoverable amount is determined on an individual asset basis unless the asset does not generate cash flows that are largely independent of those from other assets. If this is the case, recoverable amount is determined for the cash-generating-units (“CGU”) to which the asset belongs. If the recoverable amount of the asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount. The impairment loss is recognised in the income statement, unless the asset is carried at revalued amount, in which case, such impairment loss is treated as a revaluation decrease.
An impairment loss for an asset is reversed if, and only if, there has been a change in the estimates used to determine the assets’ recoverable amount since the last impairment loss was recognised. The carrying amount of an asset is increased to its revised recoverable amount, provided that this amount does not exceed the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised for the asset in prior years.
The reversal of impairment loss for an asset is recognised in the income statement, unless the asset is carried at revalued amount, in which case, such reversal is treated as a revaluation increase. However, to the extent that an impairment loss on the same revalued asset was previously recognised in the income statement, a reversal of that impairment is also recognised in the income statement.
2.13 Borrowings Borrowings are presented as current liabilities unless the Group has an unconditional right to defer settlement for at least 12 months after the balance sheet date.
Borrowings are initially recognised at fair value (net of transaction costs) and subsequently stated at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.
Borrowings which are due to be settled within 12 months after the balance sheet date are included as current borrowings in the balance sheet even though the original term was for a period longer than 12 months and an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the balance sheet date and before the financial statements are authorised for issue. Other borrowings due to be settled more than 12 months after the balance sheet date are presented as non-current borrowings in the balance sheet.
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2.14 Borrowing costs Borrowing costs are recognised in the income statement using the effective interest method.
2.15 Trade and other payables Trade and other payables are initially measured at fair value, and subsequently carried at amortised cost, using the effective interest method.
2.16 Derivative financial instruments Derivative financial instrument are initially recognised at its fair value on the date the derivative contracts are entered into and is subsequently re-measured at their fair value. The Group does not adopt hedge accounting. Accordingly, changes to fair value of derivatives are recognised immediately in the income statement.
2.17 Financial guarantees The Group has issued a corporate guarantee to a bank for bank borrowings of its joint venture. This guarantee is a financial guarantee contract as it requires the Group to reimburse the bank if the joint venture fails to make principal or interest payments when due in accordance with the terms of the borrowings.
The financial guarantee contract is initially recognised at its fair value plus transaction costs in the balance sheets of the Group.
The financial guarantee contract is subsequently amortised to the income statement over the period of joint venture’s borrowings, unless it is probable that the Group will reimburse the bank for an amount higher than the unamortised amount. In this case, the financial guarantee contract shall be carried at the expected amount payable to the bank in the balance sheets of the Group/Company.
2.18 Fair value estimation of financial assets and liabilities The fair values of financial instruments traded in active markets (such as exchange-traded and over-the-counter securities and derivatives) are based on quoted market prices at the balance sheet date. The quoted market prices used for financial assets are the current bid prices; the appropriate quoted market prices for financial liabilities are the current asking prices.
The fair values of financial instruments that are not traded in an active market are determined by using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. Where appropriate, quoted market prices or dealer quotes for similar instruments are used. Valuation techniques, such as discounted cash flows analyses, are also used to determine the fair values of the financial instruments.
The fair values of currency forwards are determined using actively quoted forward exchange rates.
The fair values of current financial assets and liabilities carried at amortised cost approximate their carrying amounts.
69 APPENDIX 2: GENERAL INFORMATION ON THE COMPANY
2.19 Provisions Provisions, including warranty for products, are recognised when the Group has a present legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated.
2.20 Leases When the Group is the lessee:
The Group leases certain plant and machinery under finance leases from non-related parties.
(a) Lessee — Finance leases Leases where the Group assumes substantially all risks and rewards incidental to ownership of the leased assets are classified as finance leases.
The leased assets and the corresponding lease liabilities (net of finance charges) under finance leases are recognised on the balance sheet as plant and equipment and borrowings respectively, at the inception of the leases based on the lower of the fair value of the leased assets and the present value of the minimum lease payments.
Each lease payment is apportioned between the finance expense and the reduction of the outstanding lease liability. The finance expense is recognised in the income statement on a basis that reflects a constant periodic rate of interest on the finance lease liability.
(b) Lessee — Operating leases Leases of assets where substantially all risks and rewards incidental to ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are recognised in the income statement on a straight-line basis over the period of the lease.
Contingent rents are recognised as an expense in the income statement when incurred.
2.21 Employee compensation
(a) Defined contribution plans Defined contribution plans are post-employment benefit plans under which the Group pays fixed contributions into separate entities such as the Central Provident Fund on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The Group’s contributions are recognised as employee compensation expense when they are due, unless they can be capitalised as an asset.
70 APPENDIX 2: GENERAL INFORMATION ON THE COMPANY
(b) Retirement benefits Retirement benefits are granted to employees who commenced employment with the Company prior to 1 January 1983. The retirement benefits are calculated based on one week’s pay for each full year of services at the employee’s last drawn basic salary at date of retirement.
Defined benefit plans are post-employment benefit plans other than defined contribution plans. Defined benefit plans typically define the amount of benefit that an employee will receive on or after retirement, usually dependent on one or more factors such as age, years of service and compensation.
The liability recognised in the balance sheet in respect of a defined benefit plan is the present value of the defined benefit obligation at the balance sheet date. The defined benefit obligation is calculated annually using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using market yields of high quality corporate bonds that are denominated in the currency in which the benefits will be paid, and have tenures approximating to that of the related benefit obligations.
Actuarial gains and losses are recognised in the income statement in the period in which they arise.
(c) Share-based compensation The Group operates an equity-settled, share-based compensation plan. The fair value of the employee services received in exchange for the grant of options is recognised as an expense in the income statement with a corresponding increase in the share option reserve over the vesting period. The total amount to be recognised over the vesting period is determined by reference to the fair value of the options granted on the date of grant. Non-market vesting conditions are included in the estimation of the number of shares under options that are expected to become exercisable on the vesting date. At each balance sheet date, the Group revises its estimates of the number of shares under options that are expected to become exercisable on the vesting date and recognises the impact of the revision of estimates in the income statement, with a corresponding adjustment to the share option reserve over the remaining vesting period.
When the options are exercised, the proceeds received (net of transaction costs) and the related balance previously recognised in the share option reserve are credited to share capital account, when new ordinary shares are issued.
(d) Termination benefits Termination benefits are those benefits which are payable when employment is terminated before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either: terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after balance sheet date are discounted to present value.
71 APPENDIX 2: GENERAL INFORMATION ON THE COMPANY
2.22 Segment reporting A business segment is a distinguishable component of the Group engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is a distinguishable component of the Group engaged in providing products or services within a particular economic environment that is subject to risks and returns that are different from those segments operating in other economic environments.
2.23 Dividends to Company’s shareholders Dividends to Company’s shareholders are recognised when the dividends are approved for payments.
2.24 Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of new ordinary shares are deducted against the share capital account.
6.4 Changes in accounting policies Save as disclosed in this Circular, the unaudited consolidated financial statements of the Group for the six-month period ended 30 June 2008 set out in Appendix 4 to this Circular and the audited consolidated financial statements of the Group for FY2007: (a) there were no significant accounting policies or any matter from the notes of the financial statements of the Group which are of any major relevance for the interpretation of the last published audited financial statements of the Group; and (b) there was no change in the accounting policies of the Company and its consolidated subsidiaries which will cause the financial information for the FY ended 31 December 2008 not to be comparable to a material extent with the FY ended on 31 December 2007.
7. GENERAL All expenses and costs incurred by the Company in relation to the Offer will be borne by the Company.
72 APPENDIX 3: INFORMATION ON THE OFFEROR
The following information on the Offeror has been extracted from the Offer Document and set out in italics below. Unless otherwise defined, all terms and expressions used in the extract below shall have the same meaning as those defined in the Offer Document.
“The Offeror is an investment holding company incorporated in Singapore on 4 July 2008. The Offeror is approximately 51.00% owned by HG Metal Investments (a wholly-owned subsidiary of HG), approximately 20.01% owned by Lingco Marine, approximately 9.66% owned by Chye Hin, approximately 9.66% owned by STG and approximately 9.66% owned by SSH.
HG Metal Investments is a company incorporated in Singapore on 28 June 2004 for investment holding purposes. As at the Latest Practicable Date, HG Metal Investments has an issued and paid-up share capital of S$2.00 divided into 10 ordinary shares.
HG is a company incorporated in Singapore on 4 August 1988. It was first listed on the SGX-SESDAQ on 21 March 2002 and transferred to the SGX-ST on 7 May 2004. HG is one of the leading steel stockists in Singapore. HG is a “one-stop supermarket” stockyard and manufacturing facility that carries more than 2,000 types of steel products, of various dimensions and for a wide range of industrial and engineering applications. In addition, HG and its subsidiaries manufacture customised flat steel bars and mild steel lip channels, as well as pipes and hollow sections. Further information relating to HG can be found at www.hgmetal.com. As at the close of trading on the Latest Practicable Date, HG has an issued and paid-up share capital of S$78,202,000 divided into 424,714,561 ordinary shares, and a market capitalisation of S$112.55 million.
Lingco Marine is a company incorporated in Singapore on 21 January 1975. Lingco Marine is involved in the business of property and investment holding and ship ownership and operations. As at the Latest Practicable Date, Lingco Marine has an issued and paid-up share capital of S$3,078,000 divided into 3,078,000 ordinary shares.
As at the Latest Practicable Date, 30.17% of the issued share capital of Lingco Marine is held by Mr Sia Ling Sing. Mr Sia Ling Sing is a non-executive director of HG and has a direct interest in 3.78% of the issued share capital of HG and a deemed interest in 6.50% of the issued share capital of HG (due to his shareholdings in Lingco Marine).
Chye Hin is a company incorporated in Singapore on 24 October 1977. Chye Hin is involved in the manufacture of structural metal products (e.g. metal sections, corrugated sheets etc.) and the wholesale of general hardware (e.g. locks, hinges etc.). As at the Latest Practicable Date, Chye Hin has an issued and paid-up share capital of S$5,115,000 divided into 5,115,000 ordinary shares.
STG is a company incorporated in Singapore on 25 March 1994. STG is involved in the retail sale of spare parts and accessories for motor vehicles. As at the Latest Practicable Date, STG has an issued and paid-up share capital of S$1,500,000 divided into 1,500,000 ordinary shares.
SSH is a company incorporated in Singapore on 26 February 1957. SSH is involved in business relating to building materials and timber and investment holding. As at the Latest Practicable Date, SSH has an issued and paid-up share capital of S$4,160,183 divided into 4,160,183 ordinary shares.”
Additional information on the Offeror and HG is set out in Appendix I to the Offer Document.
73 APPENDIX 4: UNAUDITED HALF-YEAR AND SECOND QUARTER FINANCIAL STATEMENT AND DIVIDEND ANNOUNCEMENT FOR THE PERIOD ENDED 30 JUNE 2008
BRC Asia Limited
Unaudited Half-year and Second Quarter Financial Statement And Dividend Announcement For the Period ended 30 June 2008
PART I - INFORMATION REQUIRED FOR ANNOUNCEMENTS OF QUARTERLY (Q1, Q2 & Q3), HALF-YEAR AND FULL YEAR RESULTS
1(a) Group Profit and Loss Account for the half year and second quarter ended 30 June
1st Half 1st Half 2nd Qtr 2nd Qtr 2008 2007 +/(-) 2008 2007 +/(-) $’000 $’000 % $’000 $’000 %
Sales 120,395 50,186 140 68,038 25,461 167
Cost of sales (111,763) (45,391) 146 (63,637) (22,799) 179
Gross profit 8,632 4,795 80 4,401 2,662 65
Other (loss) / gains (net) [ note (a) ] - Miscellaneous (624) 1,345 n.m 126 1,345 (91)
Expenses - Distribution (1,131) (996) 14 (568) (491) 16 - Administrative (2,353) (1,778) 32 (1,310) (931) 41 - Finance (net) (739) (485) 52 (438) (270) 62 - Other (561) (489) 15 (326) (236) 38 Share of profit of joint venture, net of 248 93 167 199 182 9 tax Profit before income tax [ note (b) ] 3,472 2,485 40 2,084 2,261 (8)
Income tax expense (580) (218) 166 (339) (162) 109 Net profit 2,892 2,267 28 1,745 2,099 (17)
n.m. denotes not meaningful.
74 APPENDIX 4: UNAUDITED HALF-YEAR AND SECOND QUARTER FINANCIAL STATEMENT AND DIVIDEND ANNOUNCEMENT FOR THE PERIOD ENDED 30 JUNE 2008
1st Half 1st Half 2nd Qtr 2nd Qtr 2008 2007 +/(-) 2008 2007 +/(-) $’000 $’000 % $’000 $’000 %
Note (a) - Miscellaneous Net foreign exchange (loss) / gain (626) 155 n.m 124 155 (20) Gain on disposal of available-for-sale - 1,187 n.m - 1,187 n.m financial assets Dividend income from available-for-sale 1 1- 1 1- financial assets Interest Income 1 2 (50) 1 2 (50)
Note (b) - Profit before tax is arrived at after charging Interest expense on borrowings 739 485 52 438 270 62 Depreciation 811 1,024 (21) 405 515 (21) Share option expense 200 240 (17) 138 173 (20) Rental expense – operating lease 328 316 4 164 158 4 Provision for onerous contracts 3,856 - n.m 3,356 - n.m
Note Please refer to Para 8 for an explanation for “Provision for onerous contracts”.
75 APPENDIX 4: UNAUDITED HALF-YEAR AND SECOND QUARTER FINANCIAL STATEMENT AND DIVIDEND ANNOUNCEMENT FOR THE PERIOD ENDED 30 JUNE 2008
1(b)(i) A balance sheet (for the issuer and group), together with a comparative statement as at the end of the immediately preceding financial year
The Group The Company Jun 2008 Dec 2007 Jun 2008 Dec 2007 $’000 $’000 $’000 $’000
Current assets Cash and cash equivalents [1] 10,369 1,541 10,331 1,502 Trade and other receivables [2] 52,251 35,034 52,251 35,034 Inventories [3] 62,178 32,464 62,178 32,464 Other current assets 70 576 27 529 124,868 69,615 124,787 69,529
Non-current assets Investment in a subsidiary - - 3,670 3,670 Investment in joint venture [4] 7,096 6,848 6,076 6,076 Available-for-sale financial assets 33 39 33 39 Property, plant and equipment 12,398 12,797 12,398 12,797 19,527 19,684 22,177 22,582
Total assets 144,395 89,299 146,964 92,111
Current liabilities Trade and other payables [5] 70,496 31,956 70,105 31,746 Current income tax liabilities 1,537 1,386 1,537 1,386 Borrowings [6] 31,671 15,197 31,671 15,197 103,704 48,539 103,313 48,329
Non-current liabilities Trade and other payables [7] - - 3,592 3,592 Borrowings 1,879 1,975 1,879 1,975 Provision for retirement benefits 384 384 384 384 Deferred income tax liabilities 975 975 975 975 3,238 3,334 6,830 6,926
Total liabilities 106,942 51,873 110,143 55,255
Net assets 37,453 37,426 36,821 36,856
Share capital and reserves Share capital 25,105 24,768 25,105 24,768 Capital reserve 597 597 597 597 Fair value reserve 13 19 13 19 Share option reserve 1,571 1,469 1,571 1,469 Foreign currency translation reserve (550) (364) - - Retained earnings 10,717 10,937 9,535 10,003 37,453 37,426 36,821 36,856
76 APPENDIX 4: UNAUDITED HALF-YEAR AND SECOND QUARTER FINANCIAL STATEMENT AND DIVIDEND ANNOUNCEMENT FOR THE PERIOD ENDED 30 JUNE 2008
Comments on Group Balance Sheet
[1] Cash and cash equivalents of $10.4m were retained to cater for disbursements needed immediately after 30 June 2008.
[2] The higher turnover was the main reason for the increase in receivables of $17.2m.
[3] We hedged the fixed price commitments in our order book by ensuring that our physical inventory and inventory on order is equivalent to our order book in volume terms. The increase in our order book was the main reason for the increase in inventory by $29.7m.
[4] The increase in our investment in the JV came from equity accounting of our share of its profit.
[5] The higher level of purchases, which was driven by the increase in business volume, was the main reason behind the increase in payables by $38.5m
[6] The higher bank borrowing of $16.4m was needed to finance the higher level of inventory and receivables.
[7] The payable relates to amount due to wholly owned subsidiary.
1(b)(ii) Aggregate amount of group’s borrowings and debt securities
Amount repayable in one year or less, or on demand
30 Jun 2008 31 Dec 2007 Secured $’000 Unsecured $’000 Secured $’000 Unsecured $’000 883 30,788 787 14,410
Amount repayable after one year 30 Jun 2008 31 Dec 2007 Secured $’000 Unsecured $’000 Secured $’000 Unsecured $’000 1,879 0 1,975 0
Details of any collateral
Borrowings of $1,729 K is secured by a mortgage over the factory at 12 Tuas Avenue 5, Singapore 639338 and the balance of $1,033 K relates to hire purchase financing of machinery.
77 APPENDIX 4: UNAUDITED HALF-YEAR AND SECOND QUARTER FINANCIAL STATEMENT AND DIVIDEND ANNOUNCEMENT FOR THE PERIOD ENDED 30 JUNE 2008
1(c) A cash flow statement (for the group), together with a comparative statement for the corresponding period of the immediately preceding financial year
1st Half to 1st Half to 2nd Qtr to 2nd Qtr to Jun 08 Jun 07 Jun 08 Jun 07 $’000 $’000 $’000 $’000 Cash flows from operating activities Total profit 2,892 2,267 1,745 2,099 Adjustments for : Tax 580 218 339 162 Share of profit of joint venture (248) (93) (199) (182) Depreciation of property, plant and equipment 811 1,024 405 515 Share option expenses 200 240 138 173 Interest expense 739 485 438 270 Interest income (1) (2) (1) (2) Dividend income (1) (1) (1) (1) Gain on disposal of available-for-sale financial - (1,187) - (1,187) assets Operating cash flow before working capital change 4,972 2,951 2,864 1,847
Change in operating assets and liabilities Trade and other receivables (17,217) (142) (10,116) (1,192) Inventories (29,714) (11,516) (10,603) (7,799) Other current assets 506 (6) 1,814 (4) Trade and other payables 38,354 (8,117) 29, 808 (2,029) Cash (used in) / provided by operations (3,099) (16,830) 13,767 (9,177) Income tax paid (429) (404) (441) (485) Net cash (used in) / provided by operating (3,528) (17,234) 13,326 (9,662) activities
Cash flows from investing activities Purchases of property, plant and equipment (412) (498) (297) (306) Proceeds from sale of available-for-sale financial - 1,445 - 1,445 assets Interest received 1 2 1 2 Dividend received 1 1 1 1 Net cash (used in)/ provided by investing (410) 950 (295) 1,142 activities
Cash flows from financing activities Net proceeds from bank loan 374 1,792 626 1,891 Net proceeds from / (repayment of ) finance lease 266 885 (88) 68 Net proceeds from / (repayment of ) bills payable to 15,738 14,665 (2,833) 7,496 banks Proceed from issuance of ordinary shares 239 732 115 561 Dividends paid (3,112) (2,990) (3,112) (2,990) Interest paid (739) (485) (438) (270) Cash provided by / (used in ) financing activities 12,766 14,599 (5,730) 6,756
Net increase / (decrease) in cash and cash 8,828 (1,685) 7,301 (1,764) equivalents Cash and cash equivalents at the beginning of the 1,541 2,244 3,068 2,323 financial period Cash and cash equivalents at the end of the 10,369 559 10,369 559 financial period
78 APPENDIX 4: UNAUDITED HALF-YEAR AND SECOND QUARTER FINANCIAL STATEMENT AND DIVIDEND ANNOUNCEMENT FOR THE PERIOD ENDED 30 JUNE 2008
1(d)(i) A statement (for the issuer and group) showing either (i) all changes in equity or (ii) changes in equity other than those arising from capitalisation issues and distributions to shareholders, together with a comparative statement for the corresponding period of the immediately preceding financial year
Statement of changes in Equity - Group Share capital Capital Fair value Share option Currency Retained Total reserve reserve reserve translation earnings reserve $’000 $’000 $’000 $’000 $’000 $’000 $’000
Balance at 1 January 2008 24,768 597 19 1,469 (364) 10,937 37,426 - Currency translation differences - - - - (148) - (148) Net losses recognised directly in equity - - - - (148) - (148) Net profit - - - - - 1,147 1,147 Total recognised gains / (losses) ----(148) 1,147 999 Employee share option scheme - Value of employee services - - - 62 - - 62 Issue of shares 177 - - (53) - - 124 Balance at 31 March 2008 24,945 597 19 1,478 (512) 12,084 38,611 - Currency translation differences - - - - (38) - (38) Net losses recognised directly in equity - - - - (38) - (38) Net profit - - - - - 1,745 1,745 Total recognised gains ----(38) 1,745 1,707 -Fair value losses on available-for-sale - - (6) - - - (6) financial assets Employee share option scheme - Value of employee services - - - 138 - - 138 Issue of shares 160 - - (45) - - 115 Dividend relating to 2007 paid ----- (3,112) (3,112) Balance at 30 June 2008 25,105 597 13 1,571 (550) 10,717 37,453
Balance at 1 January 2007 22,885 597 593 1,620 (282) 9,085 34,498 -Fair value gains on available-for-sale financial assets - - 415 - - - 415 - Currency translation differences - - - - (19) - (19) Net gains / (losses) recognised directly in - - 415 - (19) - 396 equity Net profit -----168168 Total recognised gains / (losses) - - 415 - (19) 168 564 Employee share option scheme - Value of employee services - - - 67 - - 67 Issue of shares 236 - - (65) - - 171 Balance at 31 March 2007 23,121 597 1,008 1,622 (301) 9,253 35,300 -Fair value gains on available-for-sale financial assets - - 229 - - - 229 - Currency translation differences - - - - 136 (117) 19 Net losses recognised directly in equity - - 229 - 136 (117) 248 Net profit - - - - - 2,099 2,099 Total recognised gains - - 229 - 136 1,982 2,347 Transfer to income statement on disposal of - - (1,187) - - - (1,187) available-for-sale financial assets Employee share option scheme - Value of employee services - - - 173 - - 173 Issue of shares 775 - - (214) - - 561 Dividend relating to 2006 paid -----(2,990) (2,990) Balance at 30 June 2007 23,896 597 50 1,581 (165) 8,245 34,204
79 APPENDIX 4: UNAUDITED HALF-YEAR AND SECOND QUARTER FINANCIAL STATEMENT AND DIVIDEND ANNOUNCEMENT FOR THE PERIOD ENDED 30 JUNE 2008
Statement of changes in Equity-Company
Share capital Capital Fair value Share option Retained Total reserve reserve reserve earnings $’000 $’000 $’000 $’000 $’000 $’000
Balance at 1 January 2008 24,768 597 19 1,469 10,003 36,856 Net profit - - - - 1,098 1,098 Total recognised gains - - - - 1,098 1,098 Employee share option scheme - value of employee services - - - 62 - 62 Issue of shares 177 - - (53) - 124 Balance at 31 March 2008 24,945 597 19 1,478 11,101 38,140 -Fair value losses on available-for-sale - - (6) - - (6) financial assets Net losses recognised directly in equity - - (6) - - (6) Net profit ----1,546 1,546 Total recognised gains - - (6)- - 1,546 1,540 Employee share option scheme - value of employee services - - - 138 - 138 Issue of shares 160 - - (45) - 115 Dividend relating to 2007 paid ----(3,112) (3,112) Balance at 30 June 2008 25,105 597 13 1,571 9,535 36,821
Balance at 1 January 2007 22,885 597 593 1,620 8,560 34,255 - Fair value gains on available-for-sale financial assets - - 415 - - 415 Net gains recognised directly in equity - - 415 - - 415 Net profit - - - - 257 257 Total recognised gains - - 415 - 257 672 Employee share option scheme - value of employee services - - - 67 - 67 Issue of shares 236 - - (65) - 171 Balance at 31 March 2007 23,121 597 1,008 1,622 8,817 35,165 -Fair value gains on available-for-sale - - 229 - - 229 financial assets Net losses recognised directly in equity - - 229 - - 229 Net profit 1,919 1,919 Total recognised gains - - 229 - 1,919 2,148 Transfer to income statement on disposal --(1,187) --(1,187) of available-for-sale financial assets Employee share option scheme - Value of employee services ---173 - 173 Issue of shares 775 - - (214) - 561 Dividend relating to 2006 paid ----(2,990) (2,990) Balance at 30 June 2007 23,896 597 50 1,581 7,746 33,870
80 APPENDIX 4: UNAUDITED HALF-YEAR AND SECOND QUARTER FINANCIAL STATEMENT AND DIVIDEND ANNOUNCEMENT FOR THE PERIOD ENDED 30 JUNE 2008
1(d)(ii) Details of any changes in the company's share capital arising from rights issue, bonus issue, share buy-backs, exercise of share options or warrants, conversion of other issues of equity securities, issue of shares for cash or as consideration for acquisition or for any other purpose since the end of the previous period reported on. State also the number of shares that may be issued on conversion of all the outstanding convertibles as at the end of the current financial period reported on and as at the end of the corresponding period of the immediately preceding financial year
The changes to the company’s share capital were as follows:-
No of shares $
Share capital as at 01/01/2008 618,760,000 24,767,810
Options exercised by employees pursuant To BRC Share Option Scheme 2004 2,023,000 177,318
Balance as at 31/03/2008 620,783,000 24,945,128
Options exercised by employees pursuant To BRC Share Option Scheme 2004 1,759,000 159,541
Balance as at 30/06/2008 622,542,000 25,104,669
The outstanding options as at 30/06/08 were:-
Options Exercise Period Exercise Price
14,856,000 23/08/2006 - 22/08/2009 $0.0657 14,555,000 01/10/2007 - 30/09/2010 $0.0612 20,056,000 21/08/2008 - 20/08/2011 $0.0720 12,940,000 07/09/2009 - 06/09/2012 $0.1710
1(d)(iii) To show the total number of issued shares excluding treasury shares as at the end of the current financial period and as at the end of the immediately preceding year.
30 Jun 08 31 Dec 07
Total number of issued shares 622,542,000 618,760,000 (excluding treasury shares)
1(d)(iv) A statement showing all sales, transfer, disposal, cancellation and/or use of treasury shares as at the end of the current financial period reported on.
Not applicable.
81 APPENDIX 4: UNAUDITED HALF-YEAR AND SECOND QUARTER FINANCIAL STATEMENT AND DIVIDEND ANNOUNCEMENT FOR THE PERIOD ENDED 30 JUNE 2008
2. Whether the figures have been audited, or reviewed and in accordance with which standard (e.g. the Singapore Standard on Auditing 910 (Engagements to Review Financial Statements), or an equivalent standard
The figures have not been audited or reviewed.
3. Where the figures have been audited or reviewed, the auditors’ report (including any qualifications or emphasis of matter)
N/A
4. Whether the same accounting policies and methods of computation as in the issuer’s most recently audited annual financial statements have been applied
The Group has applied the same accounting policies and methods of computation in the financial statements for the current financial year as compared with the most recently audited annual financial statement for the financial year ended 31 December 2007.
5. If there are any changes in the accounting policies and methods of computation, including any required by an accounting standard, what has changed, as well as the reasons for, and the effect of, the change
N / A
6. Earnings per ordinary share of the group for the current period reported on and the corresponding period of the immediately preceding financial year, after deducting any provision for preference dividends
The Group.
1st Half to 1st Half to 2nd Qtr to 2nd Qtr to Earnings per ordinary share (cents) Jun 08 Jun 07 Jun 08 Jun 07
- Basic 0.465 0.376 0.280 0.345 - Diluted basis 0.450 0.350 0.268 0.260
82 APPENDIX 4: UNAUDITED HALF-YEAR AND SECOND QUARTER FINANCIAL STATEMENT AND DIVIDEND ANNOUNCEMENT FOR THE PERIOD ENDED 30 JUNE 2008
7. Net asset value (for the issuer and group) per ordinary share based on issued share capital of the issuer at the end of the (a) current period reported on and (b) immediately preceding financial year
The Group
Net asset value per ordinary share (cents) 30 Jun 08 31 Dec 07
- Basic 6.02 6.05
The Company
Net asset value per ordinary share (cents) 30 Jun 08 31 Dec 07
- Basic 5.91 5.96
8. A review of the performance of the group, to the extent necessary for a reasonable understanding of the group’s business. The review must discuss any significant factors that affected the turnover, costs, and earnings of the group for the current financial period reported on, including (where applicable) seasonal or cyclical factors. It must also discuss any material factors that affected the cash flow, working capital, assets or liabilities of the group during the current financial period reported on.
Our turnover increased by 140% in the first half of 2008 compared with the first half of 2007. On a quarter by quarter basis, the increase in the first quarter was 112% whereas the second was 167%. The 140% increase was a result of a volume growth of about 90% and higher selling prices of about 50%. Volume growth was the result of our strategy to offer a total reinforcing package of mesh, bar and prefabricated solutions, supported by a buoyant construction market. The increase in selling prices was driven by the higher cost of steel.
Margin in the first half of 2008 was affected by a provision of S$3.9m for onerous contracts. (S$0.5m was provided for in the first quarter and S$3.4m for the second). On an overall basis, the average selling prices are higher than our inventory cost. However, for accounting purposes, we have to identify projects where the selling prices are lower than our inventory cost (defined as “onerous contracts”) and provide for the losses. Out of the total of S$3.9m provided, S$2.4m relates to the Integrated Resorts Project on Sentosa. We are seeking a court ruling on the latter. Adjustments will accordingly be made to the financial statement in the event of obtaining a favourable outcome. Please refer to our separate announcement which is being released simultaneously.
Despite the significant increase in volume of about 90%, distribution expenses were well controlled and increased by only 14%. Administrative expenses increased by 32% caused by the higher headcount needed to service the higher volume. The higher level of inventory, which was financed by bank borrowings in the form of bills payable, was the main reason for the increase in finance expenses.
Our share of profit of the joint venture in China, net of tax, increased significantly, helped by new orders for the high speed railway sector.
83 APPENDIX 4: UNAUDITED HALF-YEAR AND SECOND QUARTER FINANCIAL STATEMENT AND DIVIDEND ANNOUNCEMENT FOR THE PERIOD ENDED 30 JUNE 2008
9. Where a forecast, or a prospect statement, has been previously disclosed to shareholders, any variance between it and the actual results
No forecast or prospect statement has been made or disclosed to shareholders.
10. A commentary at the date of the announcement of the competitive conditions of the industry in which the group operates and any known factors or events that may affect the group in the next reporting period and the next 12 months
The strong construction industry in Singapore will continue to be the key driver of growth for the reinforcing industry in 2008. The industry will continue to benefit from the high quantum of contracts awarded in 2007 and capacity utilization should remain high.
Some slowing in growth is expected in Singapore’s economy because of the credit crisis brought about by the sub-prime problems in the US. Despite this and the Government’s announcement on the scaling back of certain construction projects, the construction market is expected to continue to be strong in the next 12 months.
11. Dividend
(a) Current Financial Period Reported On
2008 Name of dividend Interim Dividend type Cash Dividend rate 0.15 cents per share (one- tier) Date payable 28 August 2008
(b) Corresponding Period of the Immediately Preceding Financial Year
2007 Name of dividend Interim Dividend type Cash Dividend rate 0.15 cents per share Tax rate 18% Date paid / payable 03 October 2007
(c) Date payable
28 August 2008
84 APPENDIX 4: UNAUDITED HALF-YEAR AND SECOND QUARTER FINANCIAL STATEMENT AND DIVIDEND ANNOUNCEMENT FOR THE PERIOD ENDED 30 JUNE 2008
(d) Books closure date
NOTICE IS HEREBY given that the Share Transfer Books and Register of Members of the Company will be closed on 15 August 2008 for the preparation of dividend warrants. Duly completed registrable transfers received by the Company’s Share Registrar Tricor Barbinder Share Registration Services, 8 Cross Street, #11-00 PWC Building, Singapore 048424, up to 5.00 pm on 14 August 2008 will be registered to determine shareholders’ entitlements to the said dividend. In respect of ordinary shares in securities accounts with The Central Depository (Pte) Limited (“CDP”), the final dividend will be paid by the Company to CDP which will, in turn distribute the entitlements to the final dividend to CDP account holders in accordance with its normal practice.
12. If no dividend has been declared / recommended, a statement to that effect
N/A
13. Confirmation pursuant to Rule 705(4) of the SGX Listing Manual
We, Lim Siak Meng and Wong Soong Kit, being two directors of BRC Asia Limited, do hereby confirm on behalf the Board of Directors of the Company that, to the best of our knowledge, nothing has come to the attention of the Board of Directors of the Company which may render the unaudited financial results for the quarter and half year ended 30 June 2008 to be false or misleading in any material aspects.
On behalf of the Board of Directors
Lim Siak Meng Wong Soong Kit Executive Director Executive Director
BY ORDER OF THE BOARD
John David Sword Chairman
29 July 2008
85 SNP Vite Pte Ltd