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Norelco Centreline Holdings Limited
33 Changi South Avenue 2 Singapore 486445 Tel: 6543 3000 Fax: 6546 3000
www.norelcocentreline.com
Norelco
2
Centreline
Annual Report 2002
Norelco Centreline
Annual
3 Report 2002
vision
To Be A World Class
Contract Equipment Manufacturer
Norelco
4
Centreline
contents
Chairman’s Statement
2
4
Operations Review 7
Board of Directors
Organisation Structure & Corporate Information
11
Risk Management 13
Key Management
Statement of Corporate Governance
18
Financial Contents 19
Financial Highlights
Annual
5 Report 2002
14
9
chairman’s
statement
“We are clearly setting
our sights on becoming
the outsourcing partner
of choice.”
The year 2002 was another strong and exciting year for Norelco Centreline. We achieved improvements in our
revenue and earnings despite the uncertain economic and geo-political environment that plagued global businesses.
Compared to the previous financial year, our revenue rose by 8.5% to S$92.6 million while profit after tax and
minority interests increased by 17.7% to S$9.2 million. Earnings per share rose from 3.68 cents to 4.10 cents per
share and net tangible assets backing per share increased from 10.43 cents to 14.94 cents per share.
The past year was also a year of many awards and certifications for the company. Smart Investor business magazine
presented us with an award for being one of the twelve most admired companies on the Stock Exchange of Singapore
Dealing and Automated Quotation System (“SESDAQ”). The Productivity and Standards Board also re-certified our
operations ISO 9001: Version 2000 compliant, and Seagate awarded us with a plaque during their Supplier Day 2002
in recognition of our 20 years of solid contributions.
Dividends
In view of the remarkable performance for Year 2002, the directors are pleased to recommend a first and final
dividend of 1.1 cents net of tax per ordinary share of 5 cents.
Prevalent Industry Trends
The technology sector, which we serve, remains weak and the timing of a recovery is increasingly difficult to predict.
This is further compounded by the US-led war against Iraq; threatening to derail any near-term economic recovery
plans. Under this scenario, the near-term visibility of the technology sector continues to be poor and unpredictable.
That said, we are still optimistic about the medium to long-term growth prospects of this dynamic sector; driven by
the pervasiveness of digital and network communication technologies for many enterprise and consumer applications.
Hard Disk Drive (“HDD”) Industry
The competitive landscape of the HDD industry showed little sign of any let-up as we witnessed major restructuring
and consolidation last year. This is, however, viewed quite positively as the three main players now command about
80% of the total HDD market; fostering some pricing and production disciplines.
Another encouraging development is the rapid emergence and adoption of digital consumer appliances, such as
personal video recorders (PVRs), game consoles, digital cameras, handheld organisers, etc; which serve as new and
high volume drivers for HDDs. The HDD players will invariably strive to expand their product offerings so as to
capture a slice of the burgeoning market.
Price and cost pressures will continue to plague the HDD industry but we believe this is not a new phenomenon
amongst the HDD players. Overall, we are bullish on the outlook of the industry. Analysts predict a double-digit
growth of between 10-15% (by unit volume) for the global HDD market in the next few years.
Semiconductor Equipment Industry
After anemic growth in Year 2002, the much-awaited and anticipated strong recovery of the semiconductor industry
in Year 2003 may yet be pushed further out due to this uncertain climate. As a result, industry forecasts are coming
down sharply. Dataquest, for instance, had in late 2001 projected a strong 30% growth for 2003 but revised this
projection down to 12% in November 2002 and further down to just 8.9% in February 2003.
Norelco
2
Centreline
chairman’s statement
Outsourcing
Although the general economic outlook appears to be bearish, we believe that the trend of outsourcing for equipment
manufacturing will continue to grow. There are many reasons for these major industry Original Equiment
Manufacturers (“OEM”) to outsource: lowering of internal costs and overheads; reduction of inventory levels and
ability to concentrate on research, development and marketing. We are clearly setting our sights on becoming the
outsourcing partner of choice and will align our business operations with our customers’ growth. Like other companies,
we also constantly monitor our cost structure so as to stay competitive. In addition, we will continue to enhance our
operational and technical capabilities so as to take on more sophisticated and high margin projects while providing
more value-add to our customers.
Strategic Investors
In order to position our company firmly in the international arena, we managed to secure investments from Baring
Asia II Holdings (13) Limited, a subsidiary of Baring Asia Private Equity Fund II, and individual investors Messrs Koh
Boon Hwee and Lee Kim Bock in our company. We reached an agreement with Baring in October 2002 for Baring to
subscribe for approximately 9.9 million or S$5 million of new ordinary shares in the company. Concurrently, the
major shareholders of Norelco entered into separate agreements to sell an aggregate of approximately 29 million or
S$13.8 million of existing shares to Baring, Koh Boon Hwee and Lee Kim Bock . The major shareholders also granted
these three parties call options to purchase another approximately 24.6 million existing shares in the company
during the period from 1 June 2003 to 30 April 2005.
With these transactions, Messrs Koh Boon Hwee and Jean Eric Salata, Founding Managing Partner of Baring Private
Equity Partners Asia, have joined our Board of Directors, while the Executive Chairman, Mr Koh Pang Kin, and the
non-executive Director, Mdm Ng Guay Heok, have relinquished their positions on the board. An Executive Committee
comprising Mr Koh, Mr Salata, Mr Lee Tiam Nam, our group Chief Operating Officer and myself, has been created in
January 2003 to review the company’s business opportunities and its strategic directions. These new directors and
Committee will provide us with the added insight and experience, particularly in the fields of management, best
business practices and growth strategies that will further propel Norelco into a new era of growth.
Future Plans
We see China becoming a major engine of growth for Norelco Centreline. So far, our China operations have been
encouraging. For example, our Shenzhen operation break even in the second half of last year, as we had budgeted.
We have also secured two new customers - Universal Instruments Corporation, which makes Surface Mount Technology
machines and Mind-Ray, which makes medical instruments. In order to obtain a higher percentage of returns from
our investment in China, we have increased our stake in our Hong Kong subsidiary from 51% previously to 70%.
Norelco Centreline Hong Kong is our vehicle to penetrate mainland China.
The Board of Directors has also approved a plan to set up another plant in Suzhou. This is to support mainly Seagate
in Wuxi. Further down the road, Maxtor is expected to start operations there, putting us in an advantageous
position to serve them there as well. In addition to these existing customers, we will be targeting other MNCs
located in the Suzhou area.
As I have mentioned earlier, we are constantly monitoring our cost competitiveness. We had previously told you
that we were planning to combine our Malaysian operations into the Kuala Lumpur facility so as to streamline our
operations there. But we are currently reviewing those plans as our Penang plant is playing a critical role in supporting
the group’s low-cost operations.
Acknowledgements
On behalf of my fellow Directors, I extend my sincere thanks to our staff for their contributions. Without their hard
work, trust and understanding, our success in 2002 would not have been possible. To our customers, business associates
and suppliers, I would like to express my appreciation for your continued confidence, commitment and support.
We look forward to the next exciting phase of our development.
Mr Peter Koh,
Chairman and CEO.
Annual
3 Report 2002
board of
directors
Mr. Lee Tian Nam
Executive Director
and Chief Operating Officer
Mr. Koh Pang An
Executive Chairman and
Chief Executive Officer
Mr. Chan Pee Teck, Peter
Independent Director
Mr Koh Pang An, a founding member of the Group, has served as the Chief Executive Officer since 1 July 1999. Following his
brother, Mr Koh Pang Kin’s resignation as the Executive Chairman on 3 December 2002, he was appointed the Executive Chairman
of the Group to replace Mr Koh Pang Kin. He now serves as the Executive Chairman and Chief Executive Officer of Norelco
Centreline Holdings Limited (“NCHL”).
During the financial year 2002, he disposed off all his ordinary shares in NCHL and currently does not have any shares in his name.
However he still has a deemed interest in 114,138,000 ordinary shares in NCHL held through 33Starlight Holdings Pte Ltd (“33Starlight”)
by virtue of his wife, Mdm Ng Guay Heok and his shareholdings of more than 20% in the issued share capital of 33Starlight.
Mr Koh brings with him strong leadership skills, good business acumen as well as more than 20 years of industry experience in the
contract equipment manufacturing business. He is involved in guiding the Group towards its strategic direction of becoming a
world class contract equipment manufacturer.
Mr Lee Tiam Nam is the Chief Operating Officer and also one of the founders of the Group. He oversees the operations of the
entire Group and has served in this capacity since 1 July 1999.
During the financial year 2002, he disposed off all his shares in NCHL and currently does not have any shares in his name. However
he still has a deemed interest in 114,138,000 ordinary shares in NCHL held through 33Starlight by virtue of Mr Koh Pang An’s
deemed interest as Mr Koh Pang An is considered to be his associate. He is proposed for re-election at the forthcoming NCHL
Annual General Meeting to be held on 8 May 2003.
With nearly 20 years of experience in the business of contract equipment manufacturing, Mr Lee plays a key role in the establishment
of the operations in the various subsidiaries.
Mr Chan Pee Teck, Peter has been our independent director since 4 May 2001. On 10 December 2002, he was appointed the Chairman
of the Remuneration Committee. He is also a member of the Audit and Remuneration Committees.
Mr Chan does not hold any shares in NCHL. He is currently the Managing Partner of BCEA Management Pte Ltd, the region’s first
specialized private fund targeting Asia enterprises in the media and communication sectors. The fund invests here, in Taiwan,
China and South Korea through its 12 professionals who are actively involved in investee companies strategic and operating
activities. Prior to this, Mr Chan was with the Asian affiliate of Advent International, a US based global fund that pioneered
venture capital activities in Asia in the 1980s. Mr Chan joined Advent in 1987 and left as Vice President in 1995. Mr Chan also sits
on the Board of Popular Holdings Limited, Teckwah Industrial Corporation Ltd, Armstrong Industrial Corporation Limited, Seksun
Corporation Limited, Enzer Corporation Limited and Kyodo-Allied Industries Limited.
Mr Chan has a Bachelor of Accountancy (Honours) degree from the National University of Singapore and joined Arthur Andersen
Singapore after his graduation. Currently, he is a member of the Institute of Certified Public Accountants of Singapore.
Norelco
4
Centreline
board of directors
Mr. Lim Ho Seng
Independent Director
Mr. Koh Boon Hwee
Non-Executive Director
Mr. Jean Eric Salata
Non-Executive Director
Mr Lim Ho Seng has served as our independent director since 4 May 2001. He was also appointed as the Chairman of the Audit
Committee of NCHL on 17 July 2001 and Chairman of the Nomination Committee on 10 December 2002. He has been a member
of the Remuneration Committee since 10 December 2002.
He holds 100,000 ordinary shares in NCHL. Apart from being a director in NCHL, Mr Lim Ho Seng also sits on the Board of Want
Want Holdings Ltd, Kian Ann Engineering Ltd, Flairis Technology Corporation Limited, Sinwa KS Limited, Prima Limited and
Ecowise Holdings Limited. He is also the Chairman of Want Want Foundation Ltd, Sim Siang Choon Ltd, Integra 2000 Ltd and Baker
Technology Ltd.
Mr Lim is a Certified Public Accountant and a Fellow of both the Institute of Chartered Secretaries and Administrators and the
Singapore Institute of Directors. He was the former Chief Executive Officer of NTUC Fairprice Co-operative Ltd, who retired in 1997
after 17 years of service.
Mr Koh Boon Hwee was appointed on 4 December 2002. He is currently a non-executive director of NCHL and he holds 11,190,000
ordinary shares in NCHL. He also has an option to purchase 11,190,000 ordinary shares with an exercise price of S$0.55 per share from
33Starlight. This option can be exercised during the period from 1 June 2003 to 30 April 2005. He is proposed for re-election at the
forthcoming NCHL’s Annual General meeting to be held on 8 May 2003.
Mr Koh Boon Hwee is the Chairman of Singapore Airlines Limited and the Council of Nanyang Technological University. He is also an
executive director of MediaRing Ltd.
Graduating from the Imperial College of Science and Technology, University of London, with a Bachelor’s Degree (First Class Honours) in
Mechanical Engineering, Mr Koh went on to pursue his Masters of Business Administration in Harvard Business School and graduated
with a Distinction. He was previously Chairman of the Singapore Telecom Group and its predecessor organizations (1986 to 2001),
Chairman of Omni Industries Ltd (1996 to 2001), Chairman of Internet Technology Group Ltd (2000 to 2001), Executive Chairman of the
Wuthelam Group (1991 to 2000), and before that Managing Director of Hewlett Packard Singapore (1985 to 1990), where he started his
career in 1977.
Mr Jean Eric Salata was appointed as a non-executive director of NCHL on 4 December 2002 and he does not hold any ordinary shares
in NCHL. He is proposed for re-election at the forthcoming NCHL’s Annual General meeting to be held on 8 May 2003.
Mr Salata is the Founding Managing Partner of the Baring Asia Private Equity Funds I & II (“the Funds”) which collectively manage over
US$560 million in capital for investment in Asia. He has been responsible for all investment activities of the Funds since their launch in
1997. Mr Salata currently leads a team of approximately 20 investment professionals with offices in Hong Kong, Singapore, Delhi,
Shanghai and San Francisco which have invested in over 40 companies in Asia and the United States of America. He has a broad range of
investment and board experience and is currently the Chairman of the Investment Committee of the Funds.
Mr Salata graduated magna cum laude from the Wharton School with a BS Finance and Economics degree. He was previously a director
of AIG direct investments in Hong Kong, where he made regional investments as part of the Asian private equity group. Prior to that, he
was an executive vice president of finance of a Hong Kong based industrial concern. Mr Salata was also a management consultant with
Bain & Company in Hong Kong, Australia and Boston. He has appeared as a commentator on private equity on CNN and CNBC Asia, and
has been quoted in publications such as the Asian Wall Street Journal, Asia Money, and the Far Eastern Economic Review.
Annual
5 Report 2002
Design Precision Machining Assembly & Integration Testing & Commissioning
Precision Machining
Norelco
6
Centreline
operations
review
Despite the prolonged downturn in the global electronics industry, we have once again performed well in FY 2002. We have
achieved healthy growth in FY2002 due to the increased preference among multinational corporations for outsourcing
their production facilities to Asia, as well as their undertaking of factory-upgrading programmes.
Our revenues surged from S$85.4 million in FY2001 to S$92.6 million in FY2002, representing approximately S$7.2 million or
8.5% improvement. Net profit after tax and minority interests also grew by S$1.4 million or 17.7% to reach S$9.2 million in
FY2002.
Gross margin improved by a slight 2.1% from 41.8% in FY2001 to 43.9% in FY2002. This improvement is the result of our
efforts to secure better pricing for raw materials and sub-contracting costs so as to remain competitive.
As at 31 December 2002, the Group managed to sustain a strong and healthy financial position. Cash and cash equivalents
sat at S$17.8 million, approximately S$2.9 million or 19.7% increase as compared to FY2001. Inventory levels fell as a result
of a more favourable inventory turnover of 27 days in FY2002 as compared to 57 days in FY2001. Trade receivables turnover
increased from 56 days in FY2001 to 82 days in FY2002 as there were higher sales of approximately S$26.0 million during the
last quarter of FY2002 as compared to sales of S$22 million during the last quarter of FY2001. In the month of December
2002, billings amounted to approximately S$13.0 million but in December 2001 total billings was much lesser at approximately
S$3.0 million. This led to the increase in the trade receivables turnover days. Overall, the Group has reiterated the strength
of its financial health in FY2002.
The increase in net profit, together with the proceeds received from the issuance of new shares during the year, translated
into a sharp increase in the shareholders’ equity of approximately S$11.6 million or 49.6% to S$34.9 million by the end of FY
2002. Although 9,895,000 additional shares were issued during the year, the earnings per share still rose from 3.68 cents per
share as at 31 December 2001 to 4.10 cents per share as at 31 December 2002.
BUSINESS SEGMENTS
Semiconductor Business Segment
During the year, the semiconductor business segment increased its significance to the overall performance of the Group.
Revenue contribution from this business segment amounted to approximately 16.9% of total revenue in FY2002 as compared
to 7.7% in FY2001.
The performance of this division grew rapidly during the year, with revenues soaring by an impressive 136.4% to hit S$15.6
million in FY2002 as compared to S$6.6 million in FY2001. Our main customer for this segment of the business continues to
be Kulicke and Soffa. Sales to Kulicke and Soffa constituted about 76.5% of our total revenue from the semiconductor
business segment. Apart from Kulicke and Soffa, sales to our other semiconductor clients like Electroglas also showed an
improvement.
The earnings before interest, tax and depreciation (“EBITA”) for the semiconductor business segment also showed a significant
improvement of 152.1% in FY2002. In FY2002, the segment EBITA contributed by this business segment reached S$3.8
million, a stark improvement as compared to S$1.5 million in FY2001.
Envisioning a continued increase in the outsourcing trend by our semiconductor customers, Norelco Centreline expanded its
Singapore production capability by leasing another plant in Changi South, near its headquarters. Covering 23,000 square
feet, this new facility caters specifically to Norelco Centreline’s semiconductor clients. We are aggressively pursuing new
clients in both the back end and front end segments of the semiconductor industry. Over the past financial year, Norelco
Centreline has secured three new major clients: Electroglas, a leading maker of wafer probers; Applied Materials, the
world’s largest chip equipment maker; and Kinetics, the world’s largest provider of high-purity piping, integrated gas
systems, mass flow controllers and cooling systems to the semiconductor, pharmaceutical and general manufacturing
industries. With all these new developments, we are optimistic that the contribution from this business segment will
continue to increase in significance and regain its full strength in the next few years.
HDD Business Segment
In year 2002, sales to the HDD business segment fell slightly by approximately S$2.8 million or 3.7% from S$74.0 million in
FY2001 to S$71.2 million due to the deferment of an upgrading project by one of our customers to the second quarter of
2003. As a result, we saw a slight contraction in revenue from this segment. Nonetheless, the HDD business segment
continues to be the major contributor to the overall Group performance.
Apart from Seagate, Maxtor and Western Digital, who continue to be our main customers in FY2002, IBM has also become
one of our major customers. Collectively, these four major customers constitute about 97.8% of the total revenue from the
HDD business segment or 75.3% of the total Group revenue.
To reduce the reliance that we currently place on our four main customers in this business segment, we are also targeting
other big players in the HDD industry and if successful, may result in a leap in revenue for this business segment in the near
future.
Annual
7 Report 2002
operations
review
With a decline in revenue from the HDD business segment, the segment’s contribution to the Group’s EBITA fell from S$12.3
million in FY2001 to S$11.1 million in FY2002.
Other Business Segment
This business segment continues to cover healthcare, defence and general equipment manufacturing industries. The
performance of this business segment showed a moderate growth.
Revenue from this business segment grew by approximately S$1.0 million or 20.2% to reach S$5.7 million in FY2002,
representing 6.2% of the total Group revenue. The growth was mainly due to the increased sales to general equipment
manufacturers, which swelled by 86.4% in FY 2002. In contrast, sales to the healthcare and defence industries declined by
17.8%. The segment EBITA for the Other business segment was S$1.6 million in FY2002 and S$0.4 million in FY2001.
GEOGRAPHICAL SEGMENTS
Singapore
Singapore continues to be the largest market in FY2002, with 88.7% of the total sales from this avenue. Notwithstanding
the fact that during the year, most of the efforts were concentrated on developing the China market, Singapore sourced
revenue still showed an improvement. In FY2002, revenue from the Singapore market reached S$82.1 million, improving by
approximately S$8.3 million or 11.2% from FY2001 when the local revenue was S$73.8 million. This improvement came
about as a result of increased sales to Kulicke and Soffa and Seagate. The increase in revenue from Singapore is encouraging
as it exceeds the average increase of the total group revenue of 8.5%.
Malaysia
Currently, the revenue stream from the Malaysia market is 7.8%, which is a slight drop of approximately S$3.0 million or
28.8% from the year before. In absolute terms, the total revenue from this geographical area was S$7.2 million in FY2002
and S$10.2 million in FY2001. The decline in revenue was due to the slowdown in the semiconductor market in Malaysia,
which most of our customers in Malaysia belong to.
We have responded to the poor sales in Malaysia by reducing the size of our operations in our Kuala Lumpur and Penang
plants to an appropriate level so as to reduce costs and increase efficiency.
Others
This geographical segment covers mainly the China market. With the emergence of China as a huge potential market, and
with our deliberate efforts to develop the China market in FY2002, we saw a huge rise in revenue of 137.7% in FY2002.
Revenue from this area increased from S$1.4 million in FY2001 to S$3.2 million in FY2002.
With our major customers like Seagate, having an existing plant in Wuxi, China and Maxtor, setting up a new plant in
Suzhou, Norelco Centreline has acted swiftly by increasing its investments in China with the establishment of a second plant
in the Suzhou Industrial Park. Similar to its first plant in Shenzhen, this factory undertakes the company’s full stable of
services in precision machinery, design and assembly of machines, as well as equipment and automated assembly lines. The
new plant in Suzhou is expected to commence operations in the second half of 2003. In line with its growth strategy in
China and in anticipation of an upsurge in business in the China market, Norelco Centreline has increased its equity holdings
in its Hong Kong subsidiary from 51% to 70%.
The business prognosis is healthy. Norelco Centreline will continue to offer its specialised services in contract equipment
manufacturing. With an executive committee and an experienced board of directors to give it added depth and vision, and
an expanding customer base, it is on track to realise its global ambitions.
Norelco
8
Centreline
organisation
structure
NC USA
58%
100%
NCM
51%
70%
NCSZ
NC
Suzhou*
NCKL
51%
100%
NCHK#
NCI
100%
NCPL
100%
NCST
51%
NCSE
50%
NCHL
# The Group increased its shareholdings in NCHK from 51% to 59% in January 2003 and subsequently to 70% in April 2003.
* Incorporated on 21 March 2003.
corporate
information
REGISTERED OFFICE AND BUSINESS ADDRESS:
SHARE REGISTRAR:
33 Changi South Avenue 2
Singapore 486445
Tel : 6543 3000
Fax : 6546 3000
Website address: http://www.norelcocentreline.com
Email address: enquiries@norelcocentreline.com
Lim Associates (Pte) Ltd
10 Collyer Quay
#19-08
Ocean Building
Singapore 049315
COMPANY SECRETARIES:
AUDITORS:
Ms Low Mei Mei, Maureen
(ACIS, LLB Hons (London))
Mr Ho Chin Pang (CPA)
Chio Lim & Associates
Certified Public Accountants
18 Cross Street
#08-01 China Square Central
Singapore 048423
Partner-in-charge: Mr Teo Cheow Tong
PRINCIPAL BANKERS
The Development Bank of Singapore Ltd
Oversea-Chinese Banking Corporation Limited
United Overseas Bank Limited
Annual
9 Report 2002
Extensive Manufacturing Capabilities Quality Focused Operations
Extensive Manufacturing
Capabilities
Norelco 10 Centreline
k
e
y
management
Mr Ho Chin Pang
Group Financial Controller
Mr Ho Chin Pang is our Group Financial Controller and is
overall responsible for the Group’s financial accounting, tax
and treasury functions. He joined us since January 2000.
He started his own practice to provide consultancy training
services to the general manufacturing industry, prior to
joining the Group.
Mr Ng has completed his secondary 4 education.
Prior to joining us, he was an auditor with various
international accounting firms since 1993.
Mr Low Kong Siang
Managing Director, Norelco Centreline (KL) Sdn. Bhd.
(“NCKL”)
He holds a Bachelor of Commerce from Murdoch University
and is a member of the Institute of Certified Public
Accountants of Singapore and CPA Australia.
Mr Low Kong Siang is the managing director of NCKL and
is responsible for the business performance and overall
operations of NCKL in Kuala Lumpur.
Mr Barry Sim Mong Huat
Managing Director, Norelco Centreline Pte Ltd (“NCPL”)
Prior to joining the Group in 1996, he was the sales manager
of Markserv Pte Ltd. In 1996, he joined the Group as a sales
manager and was appointed as the managing director of
NCKL in April 1997.
Mr Barry Sim Mong Huat is the Managing Director of NCPL
and is responsible for the growth and operations of NCPL.
He joined us on 1 March 2003.
Mr Sim spent 13 years with the Economic Development
Board in various capacities including being a Director for
the Electronics Industry with the responsibility to grow and
develop Singapore’s largest segment of the manufacturing
industry, as well as being Director for the Board’s North
America operations. Prior to joining NCPL, he was vice
president (Investment) of EDB Ventures Pte Ltd where he
helped to set up newly focused industry funds in partnership
with international investors.
In addition to a Masters in Business Administration (Sloan
Fellows) from the Massachusetts Institute of Technology in
the United States of America, Mr Sim has a post-graduate
diploma in Finance Management from the Singapore
Institute of Management and a Bachelor of Mechanical
Engineering (First Class Honours) from the University of
Newcastle, Australia.
Mr Ho Thor Chan
Division Director, NCPL
Mr Ho Thor Chan is the Division Director of NCPL’s HDD
Division and is responsible for managing the division’s daily
operations.
Mr Ho has over 20 years of experience in engineering,
product development, quality assurance, procument,
warehousing and manufacturing. He was a senior manager
with Chartered Ammunition Industries Pte Ltd from 1980
to 1994. He then joined Whirlpool SEA Pte Ltd as a lead
engineer for plastic processing in June 1994. In 1997, he
joined Hercules Rubber and Chemical Industries Pte Ltd as
operations manager to mange its manufacturing activities.
In 1999, he moved on to join Armstrong Industrial
Corporation Ltd as senior engineering manager. He left
Armstrong to join NCPL in August 2000.
Mr Ho holds a Masters in Business Administration from
Hawaii Pacific University, a post-graduate diploma in System
Analysis from Japan-Singapore Institute of Software
Technology and a Bachelor of Science (Chemical
Engineering) from the University of Singapore.
Mr Ng Hoo Teng
Managing Director, Norelco Centreline (Hong Kong) Pte
Limited (“NCHK”)
Mr Ng Hoo Teng is the managing director for NCHK and is
responsible for the business performance and overall
operations of NCHK and its wholly owned subsidiary,
Norelco Centreline (Shenzhen) Co., Ltd. He has been with
the Group since 1996.
Mr Low holds a GCE ‘A’ Level certificate.
Mr Kong Sang Wah
Managing Director, Norelco Centreline (M) Sdn. Bhd.
(“NCM”)
Mr Kong Sang Wah is the managing director of NCM and is
responsible for the business performance and overall
operations of NCM in Penang.
He joined the Group as a machinist in 1988 and was
appointed as managing director of NCM in November 1995
after proving his capabilities.
Mr Kong holds a vocational technical certificate from
Sekolah Menengah Vokasional Seremban, a vocational
institution in Malaysia.
Mr Yamada Tomohisa
Managing Director, NCS Engineering Pte Ltd (“NCSE”)
Mr Yamada Tomohisa is the managing director of NCSE and
is responsible for the business and overall operations of
NCSE.
Prior to joining NCSE, he was with Ueno Co Ltd (Japan) for
15 years. He started in the sale of automation parts in 1983,
was promoted to sales engineering in 1987 and
subsequently to branch manager in 1989. In 1991, he
became the technical manager responsible for sales and
technical support of automated assembly equipment. He
left Ueno to join NCSE in March 2000.
Mr Yamada holds a diploma in Mechanical Design from
Kemigawa Senior High School (Japan).
Mr Phillip Soo Cheng Khoon
President, NC USA, Inc.
Mr Phillip Soo is the president of NC USA, Inc. and is
responsible for the business and overall operations of NC
USA, Inc.
Prior to joining Norelco Centreline in July 2001, Mr Soo
served as a country manager (South East Asia region) for
Hubbell Inc., a US elecrical/electronic manufacturer. He has
over 9 years of international managerial experience with
direct profit and loss responsibility.
Mr Soo received his Bachelor of Electrical Engineering from
the University of Louisiana and a Masters of Business
Administration from the Western Michigan University.
Annual 11 Report 2002
Experienced Management Team Established Customer Relationship
Experienced
Management
Team
Norelco 12 Centreline
r
i
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k
management
The Group has put in place risk management policies that are designed to mitigate the various inherent and external risks
that the Group is exposed to. The various risks as well as the policies to reduce that risk to an acceptable level are detailed
below.
Inherent risk of HDD and Semiconductor Industries
This relates to the inherent risk of being in an ever changing, cyclical and dynamic industry. The HDD and semiconductor
industries are driven by various factors including economic, social and political conditions. In FY 2002, these two industrial
segments contribute 93.8% of the total revenue of the Group, with the HDD segment generating approximately 76.9% of
the total revenue and semiconductor segment, approximately 16.9% of the total revenue. Any downturn in these 2 industrial
segments may affect the revenue and performance of the Group materially and adversely.
Although this is an inherent risk serving these two industries, the Group manages this risk through diversification into other
industrial segments so as to reduce its reliance on the above two industries. For example, the Group is constantly on the
lookout for opportunities to expand its business in the Healthcare, Defense, Aerospace etc. industries.
The Group also keeps itself ahead of competitors by being in constant communication with their suppliers and customers,
thereby ensuring that it is kept abreast of the latest developments of the industry.
The Group constantly evaluates and upgrades the various key operational processes (for example, the introduction of the
Enterprise Resource Planning System (“ERP”)), in order to maximize the resources available, thus becoming a more effective
and efficient unit.
The Group is also able to respond quickly to the dynamic industry by having in place a knowledgeable workforce, who are
motivated and committed to distinguish themselves from their peers and competitors.
Foreign exchange exposure risk
The Group, being a company with operations and customers spreading across the world from Asia to North America, is
inevitably exposed to foreign exchange risk due to the need to transact in either the local currency or the more widely used
currency of US Dollar. This has also been more significant given the recent world events that have an impact on the world
economy and thus, the countries that the Group operate in.
In FY 2002 and FY 2001, sales in US dollar amounted to 77.0% and 37.0% of the Group sales respectively and US dollar
purchases for the current and prior year was 34.4% and 33.7% of the Group purchases respectively. Our foreign currency
sales and purchases fluctuate from year to year. Therefore, we are exposed to foreign currency exchange risks arising from
any mismatch between the currencies of our sales and the currencies of our purchases. To the extent that our sales and
purchases are not matched in the same currency, we may be exposed to significant fluctuations in exchange rates, which
may materially and adversely affect our operating results.
The Group seeks to minimize foreign exchange risks by having the following treasury related policies which are monitored
closely by the senior management team.
· Receivables and payables in foreign currency are ‘matched’ as close as possible, both in terms of the absolute amount
as well as the repayment period in order to minimize the impact of large fluctuations in the foreign currency exchange
rates.
· Material amounts of receivables and payables that are not ‘matched’ are then hedged with foreign exchange forward
contracts where applicable.
Reliance on a few major customers
The Group’s major customers, Seagate, Maxtor, Western Digital and Kulicke & Soffa together make up about 83.3% and
86.4% of total Group revenue in FY 2001 and FY 2002 respectively. Although the Group derives the majority of its revenue
from these few customers, it is confident of retaining these customers as the Group has built up a strong relationship with
these customers since the start of the business.
The Group is committed to reducing its exposure on the reliance on a few major customers. The Group is currently in an
aggressive marketing campaign aimed at drawing new customers globally. We believe that in the near future, our efforts
will be paid off by the increase in the number of our customers.
Annual 13 Report 2002
corporate
governance
Statement of Corporate Governance
The Board of Directors and management of the Group are committed to maintain the highest standards of corporate
governance and fully supports the Best Practices Guide issued by the Singapore Exchange Trading Limited (“SGX”). They
recognise that good corporate governance will establish and maintain an ethical environment in the Group, which strives to
protect the interests of all shareholders and ensure greater transparency. This statement highlights the corporate governance
practices established by the Group.
BOARD MATTERS
Board of Directors
Composition:
During the financial year 2002, the Board reviewed the appropriateness and effectiveness of its size and its members and
has decided to reduce its size from 8 members to 6 members. The movement of the directors during the year are as follows:
Executive Directors:
Mr Koh Pang An
Mr Lee Tiam Nam
Mr Koh Pang Kin
Mr Tan Ah Seng
Mr Lim Teck Yong
(Chief Executive Officer & Executive Chairman)
(Chief Operating Officer)
(Executive Chairman - Resigned on 3 December 2002)
(Resigned on 10 January 2003)
(Resigned on 10 January 2003)
Non-Executive Directors:
Mr Chan Pee Teck, Peter
Mr Lim Ho Seng
Mdm Ng Guay Heok
Mr Koh Boon Hwee
Mr Jean Eric Salata
(Independent Director)
(Independent Director)
(Resigned on 3 December 2002)
(Appointed on 4 December 2002)
(Appointed on 4 December 2002)
The Board comprises members from various professions such as investment banking, accountacy, engineering and etc. They
bring with them many years of valuable experience which will benefit the company, particularly in the areas of management
skills, best practices and growth strategies. All new members to the Board are given an orientation training program by the
management team to ensure that they are familiar with the Group’s business and its governance practices. Any new regulations
relevant to the Board will be highlighted to them during the Board meetings or other electronic means. Key information
relating to the respective directors is provided in the Directors’ Information on pages 6&7 .
Role of the Board and Meetings Held:
The Board’s primary role is to ensure long term growth of the Company. It steers the Company towards its strategic direction
with the help of its management team. Key information relating to the respective key management personnel is provided
on page 13. The Board also approves the appointment of directors and key management personnel, all operational,
investment, funding plans and monitors the progress of each plan executed. Apart from the above, it also reviews the
financial performance of the Group as well as approves the financial budget. During the financial year under review, the
Board held 4 meetings to perform the following functions:-
Reviewed and approved the half year and full year results announcements;
Reviewed and approved the financial budget for year 2002;
Reviewed interested party transactions. There were no interested party transactions during the financial year 2002;
Re-appointed the auditors;
Noted the declaration of interests by the directors;
Reviewed the composition and terms of reference for the Audit Committee;
Reviewed the internal control policies and financial authorization limits of the Group;
Formed the Nomination Committee and set out the terms of reference for the Nomination Committee;
Formed the Remuneration Committee and set out the terms of reference for the Remuneration Committee; and
Reviewed and implemented the Code of Corporate Governance.
The attendance of the directors at the 4 Board meetings are as follows:
Name of director
Mr Koh Pang An
Mr Lee Tiam Nam
Mr Koh Pang Kin
Mr Tan Ah Seng
Mr Lim Teck Yong
Mr Chan Pee Teck, Peter
Mr Lim Ho Seng
Mdm Ng Guay Heok
Mr Koh Boon Hwee
Mr Jean Eric Salata
Attendance
4
4
4
4
4
4
4
3
1
1
Norelco 14
Centreline
All members of the Board have unrestricted access to the Company’s records and information and the management team
constantly updates them with the developments of the group to enable them to be fully aware of the issues faced by the
Group. Monthly financial statements are given to the executive directors so that they can keep track of the Group’s financial
health. The Board also has separate and independent access to the company secretaries and during the year 2002, the
company secretaries attended all Board meetings. Each member of the Board has the right to seek independent advice at
the expense of the Group, to assist him or her in the discharge of his or her responsibilities, with the approval of the Chief
Executive Officer.
To assist the Board in performing its roles and responsibilities, committees such as the Audit Committee, Remuneration
Committee and the Nomination Committee have been set up. These committees function within clearly defined terms of
reference and internal guidelines which are reviewed as and when required.
Chairman and Chief Executive Officer
Since the resignation of Mr Koh Pang Kin on 3 December 2002, the Group’s Chairman and Chief Executive Officer is represented
by the same person, Mr Koh Pang An. Mr Koh Pang An is one of the founders of the Group and has been instrumental in
steering our Group to its present stature. He brings with him many valuable years of experience in this specialized industry
and has guided the Group with his strong leadership and vision.
The Board feels that it is not necessary for 2 individuals to hold the posts of the Chairman and Chief Executive Officer
separately as the Board believes that Mr Koh Pang An has the capabilities to fulfil the roles and responsibilities of the
Chairman and the Chief Executive Officer.
As the Chief Executive Officer of the Group, Mr Koh Pang An drives the strategic decision making process of the Group.
Holding the position of the Chairman for the Group, he also ensures that there is control over the quality, quantity and
timeliness of the flow of information between the management and the Board. In addition, he assists in ensuring compliance
with the Group’s guidelines on corporate governance.
Audit Committee
The audit committee is made up of 3 directors, 2 of whom are independent directors:Mr Lim Ho Seng
Mr Chan Pee Teck, Peter
Mr Koh Pang An
Mr Koh Pang Kin
(Chairman and Independent Director)
(Independent Director)
(Appointed 3 December 2002)
(Resigned 3 December 2002)
The main responsibility of the audit committee is to assist the Board in identifying and managing business and financial risks
associated with the Group which aim to safeguard the Group’s assets, maintain adequate accounting records, and develop
and maintain an effective system of internal control.
The audit committee held 3 meetings with the external auditors during the financial year and reviewed the following:- Half year and full year results announcements of the Group and the company prior to their submission to the Board from
adoption;
- Financial budget for year 2002;
- Interested party transactions;
- Assistance provided by the Group’s officers to the external auditors;
- Adequacy of the internal control policies;
- Scope, quality and plans of the audit by the external auditors; and
- Other matters as requested by the Board.
The attendance of the directors at the 3 audit committee meetings are as follows:
Name of director
Mr Lim Ho Seng
Mr Chan Pee Teck, Peter
Mr Koh Pang An
Mr Koh Pang Kin
Attendance
3
3
1
3
The audit committee acknowledges that the Code of Corporate Governance requires all the members of the audit committee
to be non-executive directors. Since Mr Koh Pang An is presently an executive director of the company, the audit committee
will recommend to the board of directors a suitable candidate to replace his membership.
The audit committee also confirms that the only non-audit services provided by the auditors of the Company were that of
review of the half year announcement figures and this does not affect the independence of the auditors.
The audit committee has full access to management and is given the resources required for it to discharge its functions. It
has full authority and discretion to invite any director or executive officer to attend its meeting.
Annual 15 Report 2002
corporate
governance
Nomination Committee
The Nomination Committee was formed on the 10 December 2002, with 3 members:Mr Lim Ho Seng
Mr Chan Pee Teck, Peter
Mr Koh Pang An
(Chairman and Independent Director)
(Independent Director)
The responsibilities of the Nomination Committee are as follows:
-
To nominate new directors to fill up any vacancies in the Board or the various committees;
To renominate existing directors, having regards to their contributions and performance to the Group;
To review and determine annually whether a director is independent; and
To ensure that where the director has multiple directorships, he or she is able to devote sufficient time and attention to
the affairs of the Group so as to carry out his or her duties.
As the Nomination Committee has just been formed at the end of year 2002, no meeting has been conducted. The Nomination
Committee is currently reviewing the process and criteria for assessing the performance of the individual members of the
Board and the Board as a whole.
Remuneration Committee
The remuneration committee was established on the 10 December 2002, comprising 3 members:Mr Chan Pee Teck, Peter
Mr Lim Ho Seng
Mr Koh Pang An
(Chairman and Independent Director)
(Independent Director)
The responsibilities of the Remuneration Committee are as follows:- To recommend a framework for remunerating the Board, both executive and non executive directors, and key executives
of the Group; and
- To review all matters relating to the remuneration of the Board and key executives of the Group.
During the year 2002, no meeting was conducted by the Remuneration Committee. The Remuneration Committee is
currently reviewing the framework for remunerating the Board and the key executives of the Group.
The Group’s remuneration policy for directors is to align their interest with those of shareholders as well as to the Group’s
performance and their individual performance.
The details of the remuneration paid to the directors of the Company for the year ended 31 December 2002 are set out
below:
Name of Director
Mr Koh Pang An
Mr Lee Tiam Nam
Mr Lim Teck Yong
Mr Tan Ah Seng
Mr Koh Pang Kin
Mr Lim Ho Seng
Mr Chan Pee Teck, Peter
Mdm Ng Guay Heok
Basic
Salary
S$’000
Allowance
S$’000
Profit
Share
S$’000
Directors
Fees
S$’000
Central Provident
Fund Contribution
S$’000
Total
S$’000
236
220
160
155
98
-
48
48
42
42
44
-
69
64
47
45
30
-
32
30
10
23
22
19
19
9
-
376
354
268
261
181
32
30
10
869
224
255
72
92
1,512
The service agreements between the company and the respective directors and executive officers provide for “a profit share
of the pre-tax operating profits of the group.” This amounted to S$892,000 for the financial year 2002. However, they have
collectively agreed to waive 50% of their total profit share amounting to S$446,000 in favour of employees of both the
company and its wholly-owned subsidiary, Norelco Centreline Pte Ltd as a form of variable bonus (in addition to the Annual
Wage Supplement).
Apart from the above service agreements with the company, there were other service agreements signed between its 58%
owned subsidiary, Norelco Centreline (M) Sdn. Bhd. and this subsidiary’s directors. A similar service agreement was signed
between its 51% owned subsidiary, Norelco Centreline (KL) Sdn. Bhd. and this subsidiary’s directors. However, as the
performance of these two subsidiaries did not meet the pre-defined target in financial year 2002, these subsidiaries’ directors
were not entitled to any profit share.
All service agreements were entered into on 4 May 2001 for an initial period of 2 years, renewable thereafter. Either party
may terminate the service agreements giving no less than 3 months’ written notice to the other party except for Mr Koh
Pang An and Mr Lee Tiam Nam whose service agreements require no less than 6 months written notice to either party. The
service agreements will be terminated if the Appointee ceases to be a director, executive officer, as the case may be.
Norelco 16 Centreline
The service agreements provide for restrictive covenants restraining the Appointees, while being employed by the Group
and within 12 months after ceasing to be employed under their respective service agreements, either alone or jointly or as
a manager, agent, consultant or employee of any person, firm or company, directly or indirectly carry on or be engaged in
any activity or business which shall be in competition with our business.
The details of the remuneration paid to the top 5 executives (who are not the directors of the Company) for the year ended
31 December 2002 are set out below:Name of Director
Mr Ng Swee Chang #
Mr Ng Hoo Teng +
Mr Ho Meng Kee*
Mr Ho Thor Chan
Mr Toh Mun Wai
Basic
Salary
S$’000
Allowance
S$’000
Profit
Share
S$’000
Annual Wage
Supplement and Bonus
S$’000
Central Provident
Fund Contribution Total
S$’000
S$’000
116
71
125
100
78
30
18
30
-
39
48
42
-
19
15
16
9
16
15
14
201
146
213
134
107
490
78
129
34
70
801
# Mr Ng Swee Chang is the son-in-law of Mdm Ng Guay Heok’s sister and Mdm Ng Guay Heok is Mr Koh Pang An’s wife. He
resigned from his position as an executive officer of the Group on 3 December 2002.
+ Mr Ng Hoo Teng is the brother of Mdm Ng Guay Heok.
* Mr Ho Meng Kee resigned from his position as an executive officer of the Group on 3 December 2002.
ACCOUNTABILITY AND AUDIT
The Board acknowledges that they are accountable to the shareholders. The Board is assisted by its management team who
provides timely information relating to the financial and operations of the Group as well as any issues faced by the Group.
The Board is committed to translate all important information to the shareholders regularly through the Monetary Authority
of Singapore Network (“MASNET”).
Internal Controls
The Board recognizes the importance of its internal controls in safeguarding its assets and ensuring that its resources are
used wisely and appropriately for legitimate purposes. In this respect, the Board has set up an internal control framework,
whereby the various internal controls such as accounting and reporting system controls, budgetary controls, information
system controls and operational controls have been established and enforced.
However, the Board also acknowledges that there is no internal control system that is flawless and can totally eliminate the
risk of fraudulent activities, misstatement of financials, or other irregularities. The above internal control framework can
only reduce and manage such risks. To further strengthen the Group’s internal control framework, the Board has agreed to
set up an Internal Audit Function.
Internal Audit
The audit committtee is currently looking into the formation of the internal audit function and has decided that this
function will be outsourced to a qualified and professional firm. As of the date of this report, no internal auditors have
been appointed.
COMMUNICATION WITH SHAREHOLDERS
Pursuant to the SGX Listing Rules and the Companies Act, Cap 50 on continuous disclosure, the Board makes every effort to
ensure that all material information are disclosed to the shareholders in an adequate and timely basis. During the year
2002, information relating to the following were made through MASNET and news releases:
-
Half year and full year financial results announcements;
Dividend payment and book closure;
Resignation and appointment of directors;
Formation of the remuneration and nomination committee;
Changes in the composition of the Board and the audit committee;
Appointment of key executive for one of its subsidiary; and
Sale of existing shares and issue of new shares.
Apart from using MASNET and newspapers, the Company also holds analyst briefings every half yearly to update shareholders
and the public on the latest developments of the Group. In addition, all shareholders are encouraged to attend the Annual
General Meeting to ensure that they have a better knowledge of the Group’s strategies and plans for the future.
DEALING IN SECURITIES
The Group has devised and adopted its own internal code, which complies with the Best Practices Guide, to provide guidance
to its directors and employees on the restrictions on their dealings in the Company’s shares.
Annual 17 Report 2002
financial
highlights
PROFIT & LOSS
By Years:
<—————— Proforma ——————>
1998
1999
2000
S$’000
S$’000
S$’000
Turnover
Profit After Tax
30,337
201
35,268
472
<——— Actual ———>
2001
2002
S$’000
S$’000
67,387
6,604
85,358
7,822
92,586
9,209
Turnover
2001
2002
S$’000
S$’000
By Industrial Segments:
HDD
Semiconductor
Others
73,987
6,608
4,763
85,358
71,236
15,624
5,726
92,586
73,812
10,193
1,353
85,358
82,117
7,258
3,211
92,586
By Geographical Segments:
Singapore
Malaysia
Others
BALANCE SHEET
<—————— Proforma ——————>
1998
1999
2000
Fixed Assets
Current Assets
Current Liabilities
Shareholder’s Equity
<——— Actual ———>
2001
2002
16,063
12,261
16,489
4,144
16,281
14,319
19,106
4,518
20,971
28,150
27,689
9,561
23,336
37,402
28,850
23,343
22,510
44,604
24,850
34,924
Net Tangible Assets Per Share (cents)
2.18
2.38
5.03
10.43
14.94
Earnings Per Share (cents)
0.11
0.65
3.48
3.68
4.10
FINANCIAL RATIOS
Profit After Tax
Turnover
S$’000
S$’000
92,586
2002
85,358
2001
0
20000
40000
472
1999
30,337
1998
6,604
2000
35,268
1999
7,822
2001
67,387
2000
9,209
2002
201
1998
60000
80000
100000
0
2000
Turnover by Industrial Segment
6000
10000
cents
5,726 15,624
14.94
2002
71,236
10.43
2001
Hard Disk Drive
2001
8000
Net Tangible Assets Per Share
cents
2002
4000
4,763 6,608
73,987
Semiconductor
5.03
2000
2.38
1999
2.18
1998
Others
0
20000
40000
60000
80000
100000
0
Turnover by Geographical Segment
9
12
15
cents
3,211
82,117
7,258
1,353
4.10
2002
3.68
2001
Singapore
2001
6
Earnings Per Share
cents
2002
3
73,812
10.193
3.48
2000
0.65
1999
Malaysia
0.11
1998
Others
0
20000
40000
60000
80000
100000
0
Norelco 18 Centreline
1
2
3
4
5
financial contents
Directors’ Report
20
Statement of Directors
Auditors’ Report
Balance Sheets
25
26
27
Income Statements
28
29
Consolidated Cash Flow Statement 30
Notes to Financial Statements 31
Statistics of Shareholdings 50
Notice of Annual General Meeting 51
Proxy Form 53
Statements of Changes in Equity
Annual 19 Report 2002