Innotek Limited Annual Report 2008

Focus and Prudence

Annual Report 2008

Cover Rationale: The current financial downturn has affected the entire manufacturing supply chain as OEMs cut back on outsourcing requirements with weakening market demand. With 2009 set to be another difficult year, we are prepared to focus our efforts on strengthening the company both financially and operationally, while managing our capital and risk prudently – hence the theme for this year’s annual report “Focus and Prudence”.

Taking each step

Tactically

INNOTEK Limited 2008 Annual Report

Automative Parts

Contents

2008 In Review 03 Financial Highlights 08 Corporate Structure 11 Board of Directors 12 Executive Committee 15 InnoTek Locations 16 Corporate Governance 17 Directors’ Report 30 Statement by Directors 34

Independent Auditors’ Report 35 Consolidated Income Statement 37 Balance Sheets 38 Statement of Changes in Equity 39 Consolidated Cash Flow Statement 42 Notes to the Financial Statements 44 Statistics of Shareholdings 108 Notice of Annual General Meeting 110 Proxy Form

INNOTEK Limited 2008 Annual Report

“The Stamping division benefited from the launch of new office automation products from key customers, while the tooling business continued to see demand from its clientele of established European and Japanese automotive makers. FY08 also marked the second full year of our consolidation of Exerion Precision Technology Holding B.V. (“Exerion”), and frame sales from Exerion now accounts for 11% of our overall business.”

Staying

Focused

026

INNOTEK Limited 2008 Annual Report

2008 In Review

Robot Welding Machine

Plastic Injection Molding Machine

The current financial downturn has affected the entire manufacturing supply chain as OEMs cut back on outsourcing requirements with weakening market demand. With 2009 set to be another difficult year, we are prepared to focus our efforts on strengthening the company both financially and operationally, while managing our capital and risk prudently – hence the theme for this year’s annual report “Focus and Prudence”. DEAR SHAREHOLDERS, 2008 was a particularly challenging year for InnoTek Limited as the Group felt the reverbrations of the global financial crisis. Our wholly owned precision metal components business, Mansfield Manufacturing Company Limited (“MSF”), was confronted by sudden slowdown of consumer demand for consumer electronics and office automation products. Together with rising production costs and volatile exchange rates, MSF incurred losses for the first time since the Company acquired a majority stake in 1997.

FINANCIAL PERFORMANCE Despite the volatile market conditions, MSF’s revenue declined marginally by 6.1% to S$421.5 million from S$448.9 million in FY07. Assembly sales fell by 27.6% with lower end-customer demand for flat panel TVs. However these were mitigated by higher sales from the stamping business and Exerion which rose 2.2% and 5.1%, respectively.

Components for 46” TV Stand

03

INNOTEK Limited 2008 Annual Report

“The near-term outlook for the global economy remains uncertain with continued turmoil in the credit markets and inflationary pressure on raw materials and wages. As such, we believe it is essential to focus our efforts on strengthening our fundamentals.”

Assessing our environment

Conscientiously

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INNOTEK Limited 2008 Annual Report

2008 In Review The stamping division benefited from the launch of new office automation products from key customers, while the tooling business continued to see demand from its clientele of established European and Japanese automotive makers. FY08 also marked the second full year of our consolidation of Exerion Precision Technology Holding B.V. (“Exerion”), and frame sales from Exerion now accounts for 11% of our overall business. For FY08, MSF incurred a net loss of S$6.1 million which, apart from lower sales, also reflected one-time charges amounting to S$8.6 million. Had it not been for these nonrecurring charges, MSF would have recorded a profit of S$2.5 million in FY08. The Group had made a decision in FY07 to invest in a new metal stamping facility in Suzhou, China, to cater to expected demand for its stamping services. The facility has since been completed and commenced operations. However, the Group was not able to fully utilize the facility as orders have slowed down due to the worsening of the economic downturn. Due to the installation of the new facility, the Group incurred higher operating and depreciation expenses in FY08. It was also affected by higher minimum wage requirements in China, stronger value of Reminbi and higher raw material prices during the period under review. The Group’s corporate division incurred a loss of S$0.9 million mainly due to foreign exchange loss in 1H08 resulting from the strengthening of the US currency, which affected proceeds from the sale of its subsidiary, Magnecomp Precision Technology Public Company Limited (“MPT”). This is offset by fair value gains in re-valuation of investment securities, reversal of warranties pursuant to disposal of MPT and higher interest income.

Mansfield Suzhou

Magix Assembly Plant

The Group financial position remains healthy. It generated

S$28.6 million

of positive operating cash inflow in FY08.

Automative Parts

Stamping Parts for Copying Machine

05

INNOTEK Limited 2008 Annual Report

2008 In Review

As a result of the above factors, the Group reported a net loss from continuing operations of S$7.0 million, or a loss of 3.0 cents per share. Net asset backing per ordinary share was 88.6 cents as at 31 December 2008. Subsequent to the year-end, the Group disposed of its remaining 10.0% stake in the paidup capital of MPT for approximately S$24.4 million. Underscoring its commitment to return value to shareholders, the Directors have proposed a first and final tax-exempt (one tier) dividend of 5.0 cents per share for FY08. The Group financial position remains healthy. It generated S$28.6 million of positive operating cash inflow in FY08. As at 31 December 2008, the Group had a cash balance of approximately S$93.1 million with total borrowings of S$65.5 million, amounting to a net cash position of S$27.6 million.

MANAGEMENT CHANGE I would like to express my gratitude to my fellow board members for their wise counsel and invaluable contributions throughout the year. Special thanks go to our former Chief Executive Officer, Mr Steven G. Campbell, who left us in December after 6 years with the company, to pursue other career opportunities. Mr Campbell was instrumental in overseeing and expanding the Company’s data storage division which was subsequently disposed off in November 2007. The Board has appointed an Executive Committee to act in place of the CEO until a permanent appointment has been made. The Board will continue to carefully assess possible candidates for the role with a view to find the right person to lead its business acquisition and development strategy. I would like to express the Board’s deepest condolences towards the family of our late Independent Director, Dr Ong Chit Chung, who passed away suddenly in July 2008. Dr Ong contributed immeasurably to the Board with his valuable insights and advice and we are all deeply saddened by his demise.

Sun Mansfield Plant

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INNOTEK Limited 2008 Annual Report

2008 In Review I would like to welcome Mr. Peter Tan who joined us as an Independent Director. Mr Tan was previously the Group Executive Director of JIT Holdings Limited and President and Managing Director of Flextronics International Inc. (Asia). We believe that the board will greatly benefit from his wealth of senior management level experience and wide industry contacts.

OUTLOOK The near-term outlook for the global economy remains uncertain with continued turmoil in the credit markets and inflationary pressure on raw materials and wages. As such, we believe it is essential to focus our efforts on strengthening our fundamentals. We have begun a review of all our operations and will continue to consolidate and scale back our operations where necessary to align our cost structure in line with anticipated lower demand. At the same time, we will continue with a prudent financial strategy by keeping a tight control on our capital and operating expenditure while managing our receivables and inventory levels. With a healthy balance sheet, we believe that we are ready not just to take advantage of any opportunities but also face any challenges that may arise in this current market. The Group will continue to carefully explore and evaluate future opportunities, with a view to acquire earnings-accretive businesses that are synergistic and complementary to MSF’s businesses. In closing, I would like to thank my fellow Board members, management and staff for their efforts and contributions over the year. In addition, we are also thankful for the continued support of our shareholders, customers, bankers and business associates.

ROBERT SEBASTIAAN LETTE Chairman of Executive Committee

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INNOTEK Limited 2008 Annual Report

Financial Highlights

FOR THE YEAR Table 1

FOR THE YEAR (S$ in thousands) Turnover - Total Operating Profit/(Loss) - Total Profit/(Loss) Before Tax and Minority Interest (MI) Profit/(Loss) After Tax and Minority Interest (MI) attributable to members of the Company

At year end Table 2

AT YEAR END (S$ in thousands)

Shareholders’ Equity Fixed Assets (Net) and prepaid land lease payment

per share Table 3

PER SHARE (Singapore cents) Profit/(Loss) After Tax & MI Net Tangible Assets

ratios Table 4

RATIOS Operating Profit/(Loss) to Turnover Profit/(Loss) Before Tax and MI to Turnover Profit/(Loss) After Tax and MI to Turnover Current Ratio

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INNOTEK Limited 2008 Annual Report

Financial Highlights



2004 2005 2006 2007 2006 2007 2008 Include discontinued operation (MPT) Continuing operation only 379,181

639,135

721,616

783,065

319,745

448,935

421,559

26,013

43,627

(23,147)

(4,338)

17,883

26,591

6,126

25,807

62,286

(27,879)

73,872

13,555

25,049

(92)

18,942

54,216 *

(21,305) ** 73,720 ***

7,966



16,725 *** (7,031) ***

2004 2005 2006 2007 2006 2007 2008 Include discontinued operation (MPT) Continuing operation only

153,939 208,202 183,453 231,760 183,453 231,760 206,877 136,216

252,254

306,460

97,509

NA

97,509

127,529

2004 2005 2006 2007 2006 2007 2008 Include discontinued operation (MPT) Continuing operation only 8.2 23.1 * (9.0) ** 30.7 *** 3.4 7.0 *** (3.0) *** 64.5

80.7

69.7

98.5

NA

98.5

88.6

2004 2005 2006 2007 2006 2007 2008 Include discontinued operation (MPT) Continuing operation only 6.9% 6.8% (3.2%) (0.6%) 5.6% 5.9% 1.5% 6.8%

9.7%

(3.9%)

9.4%

4.2%

5.6%

(0.0%)

5.0%

8.5%

(3.0%)

9.4%

2.5%

3.7%

(1.7%)

1.5

1.6

1.1

2.0

NA

2.0

1.7

* Includes exceptional gain of S$25.2 million which is 10.7 cents per share ** Includes exceptional loss of S$22.2 million which is 9.3 cents per share *** Profit/ (Loss) includes the following one-time gains : 2007 (a) Continuing Operation - includes one-time gain of S$1.4 million , net MI which is 0.6 cents per share from the acquisition of Exerion (b) Discontinued Operation - includes one-tme gain of S$82.9 million which is 34.5 cents per share from the disposal of MPT 2008 (a) Continuing Operation - includes one-time loss of S$8.6 million which is 3.66 cents per share NA Not Available

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INNOTEK Limited 2008 Annual Report

“We have begun a review of all our operations and will continue to consolidate and scale back our operations where necessary to align our cost structure in line with anticipated lower demand.”

Diligence and Consistency in operations

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INNOTEK Limited 2008 Annual Report

Corporate Structure InnoTek Limited 100%

Mansfield Manufacturing Company Limited

100%

Mansfield (Suzhou) Manufacturing Co. Ltd (PRC)

55%

Mansfield Industrial Co. Ltd. (HongKong)

100% Lens Tools & Die (H.K.) Limited (HongKong)

90%

100%

100%

Mansfield Manufacturing (Dalian) Co. Ltd (PRC)

100%

Dongguan Mansfield Metal Forming Co. Ltd (PRC)

100%

Magix Mechatronics (Dongguan) Co. Ltd (PRC)

100%

Magix Industrial Co. Ltd (HongKong)

100%

Feng Chuan Tooling (Dongguan) Co. Ltd (PRC)

20%

Mayax, Inc. (USA)

Magix Mechatronics Co. Ltd (HongKong)

Feng Chuan Tooling Co. Ltd (HongKong)

100% Go Smart Development Limited (HongKong)

100%

75%

Exerion Precision Technology Holding B.V. (The Netherlands)

Exerion Precision Technology Ulft NL B.V. (The Netherlands)

100%

Exerion Precision Technology Olomouc CZ, s.r.o. (Czech Republic)

49%

Wong Exerion Precision Technology Sdn. Bhd. (Malaysia)

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INNOTEK Limited 2008 Annual Report

Board of Directors MR. Robert Sebastiaan Lette, 61, is a Non-Executive Independent Director of InnoTek Limited since May 16, 2002. Mr. Lette was appointed Chairman of the Board on November 12, 2004. Mr. Lette is also the Chairman of the Executive Committee of InnoTek Limited since September 1, 2008. He was also appointed a director of Mansfield Manufacturing Company Limited in Hong Kong. A former banker with Credit Suisse Singapore, MeesPierson Asia Ltd and Dresdner South East Asia Ltd. Mr Lette is a member of the Board of Directors of Asia Pacific Breweries Ltd., Singapore. Apart from that, he is also a non-executive director of Heineken Beverages Switzerland, A.G. Mr Lette was re-elected as a Director at the 2008 AGM. MR. Yong Kok Hoon, 52, is an Executive Non-Independent Director and Chief Financial Officer of InnoTek Limited. He was appointed to the

Board on February 18, 2002. Mr Yong is a Certified Public Accountant and is a Fellow of the Association of Chartered Certified Accountants. Prior to joining the Group, he was the Group Financial Controller of QAF Group and was a partner in Moore Stephens, an international accounting firm. Mr Yong started his accounting career with KPMG and subsequently spent more than ten years in Ernst & Young focusing in auditing and advisory services for companies in various industries ranging from medium size enterprises to large MNCs, Big-Cap listed companies and conglomerates. He also acted as reporting accountant for multi-million-dollar IPOs and M&A transactions. He was a member of the financial statements review committee and was also a member of the China committee of the Institute of Certified Public Accountants of Singapore. He holds a Master of Business Administration degree from the International Management Centre,

Mr. Robert Sebastiaan Lette

Buckingham, United Kingdom. Mr Yong was re-elected as a Director at the 2006 AGM and is due for re-election as a Director at this AGM.

Mr. To Wai Hung, 54, is an Executive, Non-Independent Director and the President of Mansfield Manufacturing Company Limited, the precision metal components division of the Group. He was appointed a Director on 7 May 2008 and is due for re-election pursuant to the Articles of Association of the Company at this AGM. He was the co-founder of Mansfield Manufacturing and has more than 30 years of experience in the metal stamping and tool making industries. Mr. To is the Honorary Fellow of the Professional Validation Council of Hong Kong Industries and actively engaged in the industries. Currently Mr. To serves in the General Committee of Federation of Hong Kong Industries. He is also Chairman of the Hong Kong Mould and Die Council, Honorary Chairman of Suzhou

Mr. Yong Kok Hoon

Mr. To Wai Hung

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INNOTEK Limited 2008 Annual Report

Board of Directors

Mould and Die Association and the Vice Chairman of The Hong Kong Metals Manufacturers Association. In January 2008, he was awarded the Dongguan Honorary Citizenship by the Dongguan government.

Professor Low Teck Seng, 54, is a Non-Executive Independent Director of InnoTek Limited appointed on March 5, 2004. As of 1st April 2009 Prof Low assumes responsibility in A*STAR as its Deputy Managing Director (Research). Prof Low was the CEO of Parkway Education and Group Senior Vice President of Parkway Holdings. He was the founder and former Principal and CEO of Republic Polytechnic, Singapore. He graduated with the Bachelor of Science (1st Class) and Ph.D, in 1978 and 1982 from Southampton University, United Kingdom. Prof Low joined NUS in 1983 and founded the Magnetics Technology Centre in 1992. In 1998, he returned to NUS as Dean of the Faculty

Professor Low Teck Seng

of Engineering. Prof Low is a Fellow of the Institute of Electrical and Electronics Engineer. He is actively involved in research and his technical interests are in computational electromagnetics, nanomagnetics and data storage technologies. Prof Low sits on the boards of several companies as well as the National Community Institute and Workplace Safety & Health Council. Prof Low was reelected as a Director at the 2007 AGM.

Mr. Peter Tan Boon Heng, 60, is a Non-Executive Independent Director of the Company since September 17, 2008. Peter has experience in both the public and private sectors, having worked in several MNCs and held directorships and advisory position in companies engaged in the investment, technology, semiconductor, education and IT industries. Amongst his previous appointments, Peter was Group Executive Director of JIT Holdings

Limited and President and Managing Director of Flextronics International Inc. - Asia. He is presently Director and Managing Partner of JP Asia Capital Partners Pte Ltd. Peter holds a Diploma in Management Studies (Distinction) from the University of Chicago and an MBA Degree from Golden Gate University, San Francisco, USA. Apart from his directorships, Peter sits on several Advisory Committees and these include the Industry Advisory Council of MIR Investment Management Pty Ltd, B. Tech. Program at the National University of Singapore, the Advisory Council of PolyTechnos European Growth Fund II, Munich and SolarEdge Technologies, Inc. in Israel. In accordance with the Articles of Association of the Company, Peter is due for re-election as a Director of the Company at this AGM.

Mr. Peter Tan Boon Heng

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INNOTEK Limited 2008 Annual Report

“We will continue with a prudent financial strategy by keeping a tight control on our capital and operating expenditure while managing our receivables and inventory levels.”

Exercising

Prudence in management

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INNOTEK Limited 2008 Annual Report

EXECUTIVE COMMITTEE

From Left: Mr. To Wai Hung Mr. Yong Kok Hoon Mr. Robert Sebastiaan Lette Mr. Peter Tan Boon Heng

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INNOTEK Limited 2008 Annual Report

INNOTEK LOCATIONS INNOTEK LIMITED 1 Finlayson Green #15-02 Singapore 049246 Tel : (65) 6535 0689 Fax : (65) 6533 2680 MANSFIELD MANUFACTURING COMPANY LIMITED 1/F, Che Wah Industrial Building, 1-7 Kin Hong Street, Kwai Chung, NT, Hong Kong Tel : (852) 2489 1968 Fax : (852) 2481 0946 DONGGUAN TANGXIA LINCUN SUN MANSFIELD PLANT Plant I Xin Yang Road, New Sun Industrial City, Lincun, Tangxia, Dongguan, Guangdong, China PC : 523711 Tel : (86) 769-87929299 Fax : (86) 769-87928993 Plant II No.18, New Asia Industrial Zone, Lincun, Tangxia, Dongguan, Guangdong, China PC : 523711 Tel : (86) 769-87849969 Fax : (86) 769-87849986

DONGGUAN MANSFIELD METAL FORMING Co., LIMITED Block 105, Xin Yang Road, New Sun Industrial City, Lincun, Tangxia, Dongguan, Guangdong, China PC : 523711 Tel : (86) 769-87933602 Fax : (86) 769-87933609 MANSFIELD (SUZHOU) MANUFACTURING COMPANY LIMITED Suzhou New Plant: No 2, Jin Wang Road, Xu Guan Zhen, Suzhou New District, Jiangsu, China PC : 215129 Tel : (86) 512-66617083 Fax : (86) 512-66617760 MANSFIELD MANUFACTURING (DALIAN) COMPANY LIMITED Block #10, Tooling Industrial Park, #26 Dalian Economic & Technical Development Zone, Dalian, Liaoning, China PC : 116600 Tel : (86) 411-87614288 Fax : (86) 411-87614266

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FENG CHUAN TOOLING COMPANY LIMITED 1/F, Che Wah Industrial Building, 1-7 Kin Hong Street, Kwai Chung, NT, Hong Kong Tel : (852) 2489 1968 Fax : (852) 2481 0946 FENG CHUAN TOOLING (DONGGUAN) COMPANY LIMITED 55 Xiang Xin East Road, Yantian, Fenggang, Dongguan, Guangdong, China PC : 523700 Tel : (86) 769-87513998 Fax : (86) 769-87512008 MAGIX MECHATRONICS COMPANY LIMITED 1/F, Che Wah Industrial Building, 1-7 Kin Hong Street, Kwai Chung, NT, Hong Kong Tel : (852) 2427 2218 Fax : (852) 2427 2696 MAGIX MECHATRONICS (DONGGUAN) COMPANY LIMITED Plant I Zhen Tian South Road, Yantian, Fenggang, Dongguan, Guangdong, China PC : 523698 Tel : (86) 769-87771571 Fax : (86) 769-87771572 MAGIX OEM FACTORY Road 2, Bulong Industrial Zone, Yantian, Fenggang, Dongguan, Guangdong, China PC : 523702 Tel : (86) 769-82039188 Fax : (86) 769-82039100 EXERION PRECISION TECHNOLOGY HOLDING B.V. De Hogenkamp 16, 7071 EC Ulft, The Netherlands Tel : (31) 315-689-555 Fax : (31) 315-630-888 EXERION PRECISION TECHNOLOGY OLOMOUC CZ, S.R.O Zeleznicni 6, Olomouc, Czech Republic. PC : 77260 Tel : (420) 585-311-310 Fax : (420) 585-313-843

INNOTEK Limited 2008 Annual Report

Corporate Governance The Board of Directors (the “Board”) of InnoTek Limited (the “Company” or “InnoTek”) is committed to high standards of corporate governance and fully supports and upholds the principles in the Code of Corporate Governance 2005 (the “Code”). For effective corporate governance, the Company constantly reviews its corporate governance framework and practices and has put in place various self-regulatory and monitoring mechanisms to ensure greater transparency and maximize long-term shareholder value. This report describes the Company’s corporate governance practices making reference to the Code.

BOARD MATTERS The Board’s Conduct of its Affairs Effective Board to lead and control the Company – Principle 1 Apart from its statutory responsibilities, the Board sets the overall strategy of the Company and its subsidiary (the “InnoTek Group”) and works closely with management for the success of the Company and the InnoTek Group. The principal functions of the Board include the approval of the Company’s strategic plans, the approval of major investments, divestments, annual budget, capital expenditure and oversee processes for evaluating the adequacy of internal controls and risk management. The Board sets the policies on various matters including key operational initiatives and financial controls and reviews the InnoTek Group’s financial performance. InnoTek has in place financial authorization and approval limits for operating and capital expenditure, as well as acquisitions and disposal of investments and bank borrowings. These functions are carried out either directly or though the various Board Committees that have been set up, namely the Executive Committee, the Nominating Committee, the Remuneration Committee and the Audit Committee. The Board meets regularly on a quarterly basis to approve quarterly and full year financial results announcement amongst other matters which require Board’s decision and attention. Additional Board meetings are held to deliberate on urgent substantive matters. Important and critical matters concerning the InnoTek Group are also tabled for the Board’s decision by way of written resolutions, faxes, electronic mails and tele-conferencing. An aggregate of 5 Board meetings were held for the financial year ended 31 December 2008. Details of the attendance of Board members at Board meetings and various Board Committees meetings for the Financial Year ended 31 December 2008 are as follows: Board Executive Committee (“EXCO”) The EXCO comprises the following Board members: Mr. Mr. Mr. Mr.

Robert S. Lette (Chairman) Yong Kok Hoon To Wai Hung Peter Tan Boon Heng

The EXCO was formed in September 2008 to look into the affairs of the Company after the resignation of Mr. Steven G. Campbell as Director of the Company in September 2008 and he was on leave until his contract expired on 31 Decembr 2008. The EXCO meets regularly and exercises its powers and authority, taking into consideration the best interest of the Group, in the absence of a CEO. The EXCO formulates the Group’s strategic development initiatives, provides overall direction, put in place a succession plan for senior management in the Company and the Group as well as oversees the general management of the Group.

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INNOTEK Limited 2008 Annual Report

Corporate Governance Directors’ Attendance at Board & Board Committee Meetings Board No. of Meetings Held Robert S. Lette Steven G. Campbell (1) Yong Kok Hoon To Wai Hung (2) Dr. Ong Chit Chung (3) Prof. Low Teck Seng Peter Tan Boon Heng (4) Note (1) (2) (3) (4)

5 Attended 5/5 3/3 5/5 3/3 2/2 5/5 1/1

Executive Committee 1 Attended 1/1 NA 1/1 1/1 NA NA 1/1

Audit Committee 5 Attended 5/5 NA NA NA 2/2 5/5 1/1

Remuneration Committee 3 Attended 3/3 NA NA NA 1/1 3/3 1/1

Nominating Committee 5 Attended 5/5 NA NA NA 2/2 5/5 1/1

Mr. Steven G. Campbell resigned on 2 September 2008 Mr. To Wai Hung was appointed on 7 May 2008 Dr. Ong Chit Chung passed away on 14 July 2008 Mr. Peter Tan Boon Heng was appointed on 17 September 2008

Newly appointed Directors are briefed on the InnoTek Group’s business activities, strategic direction, corporate governance as well as their statutory and other duties and responsibilities. In addition, new Directors are given a memorandum outlining their obligations, duties and responsibilities to the Company. As and when new regulations and changes to regulations and accounting standards which have an important bearing on the Company’s or Directors’ disclosure obligations, Directors will be briefed either during the Board meetings or through memorandum and emails. Where appropriate, Directors are encouraged to attend courses, conferences and seminars in relevant fields. All new Directors will have an opportunity to visit the InnoTek Group’s offices and plants in Hong Kong and the PRC to familiarize themselves with the InnoTek Group’s business activities.

Board Composition and Guidance Strong and independent element on the Board – Principle 2 The Board currently comprises 5 directors, 3 of whom are independent non-executive directors. The Board is able to exercise objective judgment on corporate affairs independently, in particular from Management, as there is a strong and independent element on the Board, with independent Directors making up 60% of the Board. The Board comprises the following members:1) 2) 3) 4) 5)

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Mr. Robert S. Lette (Chairman) Mr. Yong Kok Hoon Mr. To Wai Hung Prof. Low Teck Seng Mr. Peter Tan Boon Heng

Non-Executive and Independent Executive and Non-Independent Executive and Non-Independent Non-Executive and Independent Non-Executive and Independent

INNOTEK Limited 2008 Annual Report

Corporate Governance The independence of each Director is reviewed annually by the Nominating Committee based on the guidelines setout in the Code. For the financial year ended 31 December 2008, the Non-Executive Directors considered by the Nominating Committee to be independent as they do not have any business relationship with the InnoTek Group and neither are they related to any of the other Directors or substantial shareholders of the InnoTek Group. Taking into account the scope and nature of the operations of the Company, the size and composition of the Board effectively serve the InnoTek Group. With the core competencies of members of the Board in various fields of finance, business, industry and strategic planning, their stature, and wealth of international business experience, the Company is well positioned to chart new frontiers for the InnoTek Group. The Directors actively participate and engage Management in strategic planning and setting goals and objectives for the Company and the InnoTek Group.

Chairman and Chief Executive Officer Clear division of responsibility – Principle 3 The Chairman and the Chief Executive Officer had always been separate persons to ensure an appropriate balance of power and authority, and a clear division of responsibilities and accountability. The Chairman leads the Board, ensures Directors received timely information, fosters effective communication with shareholders, encourages constructive relations between the Board and Management, and among Directors, and promotes high standards of corporate governance. Note: Mr. Steven G. Campbell, the Chief Executive Officer (“CEO”), who had resigned as Director of the Company on 2 September 2008, ceased employment as CEO of the Company with effect from 1 January 2009. Pending the appointment of a successor and as a temporary measure, the Board had formed an Executive Committee of 4 members to oversee the management of the Company.

The Chairman and the CEO were not related to each other, nor was there any other business relationship between them.

Board Membership Formal and transparent process for appointment of new Directors – Principle 4 Nominating Committee The Nominating Committee (“NC”), through a formal and transparent process, makes recommendations to the Board on all board appointments. The NC met five times in 2008. There are three members in the NC. Members of the NC are Non-Executive Directors, all of whom, including the Chairman, are independent. The Chairman is not directly associated with a substantial shareholder. Mr. Robert S. Lette Prof. Low Teck Seng Mr. Peter Tan Boon Heng*

Chairman Member Member

* Mr. Peter Tan Boon Heng was appointed a member of the NC with effect from 17 September 2008, replacing Dr. Ong Chit Chung who passed away on 14 July 2008.

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INNOTEK Limited 2008 Annual Report

Corporate Governance Members of the NC comprise persons of stature, integrity and accountability, who would be able to exercise independent judgment in the performance of their duties. The NC is guided by its Terms of Reference, which sets out its responsibilities. Its principal functions are to review and make recommendations to the Board on all board appointments, to review all nominations for the appointment and re-appointment of directors, to evaluate the effectiveness and performance of the Board as a whole and each individual director and to review the independence of each director annually. The NC works with the Board to determine the appropriate characteristics, skills and experience for new Board members. Upon the review and recommendation of the NC for the appointment of directors, new directors will be appointed by way of a board resolution. Such new directors must submit themselves for re-election at the next Annual General Meeting (“AGM”) of the Company immediately following his appointment. At least one-third of the Directors retire at each AGM, and the Articles of Association of the Company allow the retiring directors to offer themselves for re-election. All of the Directors are subject to reelection at least once every three years.

Board Performance Formal assessment of the effectiveness of the Board and contributions of each Director – Principle 5 The evaluation of Board performance is based on objective performance criteria, and includes Directors’ attendance, contributions and participation during Board meetings and Committee meetings, ability to make informed decisions and level of comprehension of legal, accounting and regulatory requirements affecting the Group. The NC is satisfied that each Director is able to and has been adequately performing his duties as a Director of the Company, devoting sufficient time and attention to the affairs of the Company.

Access To Information Board members to have complete, adequate and timely information – Principle 6 The Company recognized the importance of providing the Board with timely and complete information prior to its meetings as and when the need arises. In order to ensure that the Board is able to fulfill its responsibilities, Management provides the Board with monthly financial reports, forecasts/budgets and other relevant information of the Group. In addition, the Management provides adequate and timely information to the Board on affairs and issues that require the Board’s decision. The Board has separate and independent access to the senior management including the Company Secretary, who attends all Board meetings. The role of the Company Secretary is clearly defined and includes responsibility for ensuring that board procedures are followed and that applicable rules and regulations are complied with. The Company Secretary, who is also secretary to the various committees, ensures good information flows within the Board and its committees, and between senior management and Non-Executive Directors.

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INNOTEK Limited 2008 Annual Report

Corporate Governance Board members are aware that they, whether as a group or individually, can have independent professional advice as and when necessary to enable them to discharge their responsibilities effectively. The cost of such professional advice will be borne by the Company.

REMUNERATION MATTERS Procedures for developing remuneration policies Formal and transparent procedure – Principle 7 Remuneration & Employees’ Share Option Plan Committee The Remuneration & Employees’ Share Option Plan Committee (“RC”) comprises entirely Non-Executive Directors, all of whom, including the Chairman, are independent: Mr. Robert S. Lette Prof. Low Teck Seng Mr. Peter Tan Boon Heng*

Chairman Member Member

* Mr. Peter Tan Boon Heng was appointed a member of the RC with effect from 17 September 2008, replacing Dr. Ong Chit Chung who passed away on 14 July 2008.

There is a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual top management executives including directors. No Director is involved in deciding his own remuneration. The RC is guided by its Terms of Reference, which sets out its responsibilities. The primary function of the RC is to advise the Board on compensation issues generally, and in particular, in relation to Directors and key management executives, bearing in mind that a meaningful portion of Management’s compensation should be contingent upon financial performance in order to foster the creation of long-term shareholder value. The responsibilities of the RC include the following: (a) (b)

(c) (e) (f) (g)

advise the Board of Directors on compensation theory and practice, as well as best practice with regard to non-cash compensation and trends; review Management’s appraisal on current market situation as it relates to compensation and Management’s recommendation of the overall aggregate adjustments to be made at the annual review of compensation for all staff, Management and Directors, including stock options and other equity incentive schemes; recommend to the Board compensation packages for Executive and Non-executive Directors, CEO and the CFO; responsible for the grant of options and other equity incentives, if any, to Directors, Management and staff based on the recommendations by the Management; review and assess performance of Management and adopt appropriate measures to assess performance; and ensure that appropriate structures for management succession and career development are adopted.

21

INNOTEK Limited 2008 Annual Report

Corporate Governance Level and mix of remuneration – Principle 8 In setting remuneration packages, the RC considers the level of remuneration to attract, retain and motivate Executive Directors and Senior Management and to align their interests with those of shareholders. A proportion of Executive Directors’ remuneration is structured to link rewards to the performance of the InnoTek Group as a whole, as well as individual performance. The remuneration of Non-Executive Directors is set at a competitive level, appropriate to their level of contribution, taking into account attendance and time spent, their participation and contribution and their respective responsibilities. Service contract for the CEO is for a fixed appointment period and is not excessively long. The Company had a long term incentive scheme under the InnoTek Employees’ Share Option Plan (“Plan”). Executive Directors and employees who were eligible were granted with options under the Plan. The Plan had run its full duration of five years from the first date of grant and had expired on 7 February 2006. The expiration of the Plan however did not affect options which had been granted and accepted by the participants of the Plan whether such options have been exercised or not. After the expiry of the Plan, a subsequent plan known as InnoTek Employees’ Share Option Scheme II (“Scheme II”) was approved by shareholders at the Extraordinary General Meeting of the Company on 30 April 2008. Information of options granted under the Scheme II can be found in Note 43(b) of the Notes to the Financial Statements. Disclosure on remuneration – Principle 9 The remuneration policy of the Company is based on an annual appraisal system using the criteria of core values, competencies, key result areas, performance rating and potential. Rewards are linked with corporate and individual performance. The Board is of the view that it is not necessary to present its remuneration policy before shareholders for approval at the AGM. Following are details of the Directors and the top 5 key executives (who are not also directors) remuneration.

Directors’ Remuneration $2,250,000 to below $2,500,000 Steven Glenn Campbell (1) $250,000 to below $500,000 Harry To Wai Hung (2) Yong Kok Hoon Below $250,000 Robert S. Lette Dr. Ong Chit Chung Prof. Low Teck Seng Peter Tan Boon Heng Note: (1) (2)

22

Other Relocation Fee Salary Bonus Benefits Settlement (%) (%) (%) (%) (%)

Total (%)

-

24

0

71

5

100

-

78 80

13 0

9 20

0 0

100 100

100 100 100 100

-

-

-

-

100 100 100 100

Mr. Steven G. Campbell, the Chief Executive Officer (“CEO”), resigned as Director of the Company on 2 September 2008 and ceased employment as CEO of the Company with effect from 1 January 2009. This relates to total remuneration for the whole year. Mr. To Wai Hung was appointed a Director of the Company on 7 May 2008. This relates to total remuneration for the whole year.

INNOTEK Limited 2008 Annual Report

Corporate Governance Key Management Executives’ Remuneration $250,000 to below $500,000 Stanney Kwok Ip Keung Lawrence Xia Lu Rong Ip Chi Chung Below $250,000 Lilian Leong Yin Wah Chin Tong Chai

Other Relocation Fee Salary Bonus* Benefits Settlement (%) (%) (%) (%) (%)

Total (%)

-

53 54 57

41 40 37

6 6 6

0 0 0

100 100 100

-

52 53

42 41

6 5

0 0

100 100

*This relates mainly to performance bonus for 2007 paid in 2008.

Details of the share option plan are set out in the Report of the Directors whilst disclosure on Directors’ remunerations are in the Notes to the Financial Statements.

ACCOUNTABILITY & AUDIT Accountability to the Board and Shareholders – Principle 10 Monthly, Directors are provided with management reports and have separate and independent access to the Management of the Group. The President of Mansfield reports to the Board every quarter highlighting the performance, operations updates and outlook of the Divisions and each subsidiary. In addition, the Directors have separate and independent access to the Chief Financial Officer, who is also an Executive Director of the Company. From time to time information on major transactions are discussed and circulated to Directors as and when they arise. The Board keeps the shareholders updated on the business of the Group through releases of the Group’s quarterly and full year financial results announcement via the SGXNET, publication of the Company’s annual report and timely releases in compliance with the SGX-ST Listing Manual requirements. Audit Committee – Principle 11 The Audit Committee (“AC”) comprises entirely Non-Executive Directors, all of whom, including the Chairman, are independent. They are: Prof. Low Teck Seng Mr. Robert S. Lette Mr. Peter Tan Boon Heng*

Chairman Member Member

* Mr. Peter Tan Boon Heng was appointed a member of the RC with effect from 17 September 2008, replacing Dr. Ong Chit Chung who passed away on 14 July 2008.

23

INNOTEK Limited 2008 Annual Report

Corporate Governance The Audit Committee, in accordance with its written Terms of Reference, which clearly sets out its authority and duties, reviews the scope and results of the internal and external audit and the cost effectiveness, significant financial reporting issues, and adequacy of the Company’s internal controls, as well as the effectiveness of the Company’s internal audit function. The Company endeavours to adopt the guidebook issued by the Audit Committee Guidance Committee which provides practical guidance and recommendations of best practices for audit committees of listed companies in Singapore in relation to the roles and responsibilities of the AC. The AC met five times in 2008. The responsibilities of the AC include the following: (a) (b) (c) (d) (e) (f) (g) (h)

(i)

(j)

review the Quarterly Group consolidated balance sheet and income statement before submission to the Board; review and critically assess management processes, including but not limited to strategic planning, operations, performance measurement and reporting to resist over-ambitious forecast; consider, in consultation with external auditors, the audit scope and plan of external auditors to assure completeness of coverage and effective use of audit resources; review with the external auditors, their audit reports; review the internal audit plan, the effectiveness of the internal audit functions and evaluate the level of risks and the adequacy of the Company’s internal controls; inquire from Management and external auditors about significant risks or exposures and assess steps taken by Management to minimize or control Company’s exposure to such risks; review the quarterly and full year financial statements and announcement of results and media release of the same before submission to the Board for approval; recommend the appointment or discharge of external auditors (subject to shareholders’ approval) and in this connection, consider the independence and objectivity of the external auditors, review and recommend to the Board the compensation of the external auditors. Where the auditors also supply a substantial volume of non-audit services to the Company, review the nature and extent of such services, with the objective of balancing the maintenance of auditor’s objectivity against cost effectiveness; meet with the external auditors in separate session to discuss any matters that the AC believes should be discussed privately and establish a practice to meet with the external auditors without the presence of Management at least once annually; and review interested person transactions falling within the scope of the Singapore Exchange Securities Trading Limited (“SGX-ST”) Listing Manual.

The AC has full access to the external and internal auditors and has full authority to invite any Director or executive officer to its meetings. The AC is authorized to have full and unrestricted access and co-operation of the Company’s Management, personnel, records and other information as required to discharge its responsibilities. For FY2008, the AC has undertaken a review of the audit and non-audit fees paid to Ernst & Young LLP and concluded that the nature and volume of the non-audit services provided will not prejudice the independence and objectivity of the external auditors.

24

INNOTEK Limited 2008 Annual Report

Corporate Governance Internal Controls Internal Audit Sound System of Internal Controls – Principle 12 Setting up independent internal audit function – Principle 13 The Company has in place, a system of internal controls of its procedures and processes to safeguard shareholders’ investments and assets of the Company. The system of internal controls is designed to manage rather than to eliminate the risk of failure to achieve business objectives. The Board believes that, in the absence of any evidence to the contrary, the system of internal control provides reasonable assurance that assets are safeguarded, proper accounting records are maintained and the financial information and compliance controls are reliable. The Group has an Internal Audit Director (“IAD”) who is a member of the Institute of Internal Auditors Inc. (“IIA”) and the Institute of Certified Public Accountants of Singapore. The IAD is assisted by suitably qualified staff at the Group’s subsidiaries in China and Hong Kong. The IAD subscribes to, and is guided by the standards for the professional practice of Internal Auditing developed by the IIA and has incorporated these standards into its audit practices. The focus of the Internal Audit function is to strengthen the internal control structure and risk management of the Group through the conduct of independent and objective reviews. The IAD also conducts tests to verify the Group’s assets and liabilities and to check on compliance with the Group’s system of internal controls including financial, operational and compliance controls. Apart from the internal audits, the external auditors, Ernst & Young LLP, also contribute an independent perspective on relevant internal controls arising from their audit and report their findings to the AC. Although the IAD reports directly to the AC, administratively he reports to the CEO/Executive Committee and the CFO on a regular basis. The Board has been kept informed of the AC’s review of Internal Audit’s reports and management controls and is satisfied on the adequacy of the internal controls of the Group.

Whistleblowing Policy The Group has in place a whistleblowing policy and procedures as prescribed under the Guidebook for Audit Committees in Singapore which provides employees an avenue for reporting suspected fraud, corruption, dishonest practices or other similar matters. All reports are channeled to the IAD who will treat the matter with utmost confidentiality. The aim of this policy is to encourage the reporting of such matters in good faith, with the confidence that employees making the report will, to the extent possible, be protected from reprisal.

COMMUNICATION WITH SHAREHOLDERS Regular, effective and fair communication with Shareholders – Principle 14 Shareholders’ participation at Annual General Meetings (“AGMs”) - Principle 15

25

INNOTEK Limited 2008 Annual Report

Corporate Governance The Company communicates regularly and effectively with its shareholders, conveying material price sensitive and other pertinent information on a timely basis. Dialogues are held with investors, analysts, fund managers and the press. Material information is simultaneously disseminated to SGX-ST and posted on the Company’s website at www.innotek.com.sg Annually, at the Company’s Annual General Meeting, shareholders are given opportunity to communicate their views on matters relating to the Group, with the Board members, Board Committees, as well as the external auditors in attendance. All shareholders of the Company receive the Annual Report and Notice of the AGM. The notice is also advertised in the newspaper. DEALINGS IN SECURITIES The Company has adopted its own internal compliance code modeled after Rule 1207(18) of the SGX-ST Listing Manual to provide guidance for both directors and employees on their dealings in the Company’s securities. Directors and employees are not allowed to deal in the Company’s shares during the period commencing two weeks before the announcement of the Company’s quarterly results and one month before the announcement of the Company’s full year results. Additionally, they are not allowed to deal in the Company’s shares while in possession of price sensitive information. The Directors are required to report to the Company Secretary whenever they deal in the Company’s shares and the Company Secretary will make the necessary announcements. The Company will continually review and update its internal compliance code with any changes to the Listing Manual. INTERESTED PERSON TRANSACTIONS The Company has adopted an internal policy in respect of any transactions with interested persons and has procedures established for the review and approval of the Company’s interested person transactions. The aggregate values of the transactions conducted during the financial year are as follows:-

Nature and Name of Interested Person

Provision of services by VQBN Holdings Pte Ltd (associate of Substantial Shareholder)

Aggregate value of all Aggregate value of all interested person transactions interested person transactions during the financial year under conducted under shareholders’ review (excluding transactions mandate pursuant to Rule 920 less than $100,000 and (excluding transactions less transactions conducted than $100,000) under shareholders’ mandate pursuant to Rule 920) S$40,700

N/A

Disposal of assets to Mr. To Wai Hung

S$204,900

N/A

Disposal of asset to Prof. Low Teck Seng

S$98,000

N/A

The Company does not have any shareholders’ mandate for interested person transactions.

26

INNOTEK Limited 2008 Annual Report

Corporate Governance MATERIAL CONTRACTS During the financial year, there were no material contracts entered into by the Company or any of its subsidiary companies involving the interests of the CEO, any director or the controlling shareholder of the Company except those announced via SGXNET from time to time in compliance with the SGX-ST Listing Manual.

STATEMENT OF COMPLIANCE The Board of Directors confirms that during the financial year ended 31 December 2008, the Company has complied with its policies and practices based on the Code of Best Practices on Securities Transactions and the Code of Corporate Governance 2005. Ernst & Young in Hong Kong are the Group auditors of Mansfield Manufacturing Company Limited (“Mansfield Group”). They have audited the Mansfield Group accounts which include all the subsidiaries in Note 3 to the Financial Statements.

Risk Management InnoTek acknowledges that appropriate management of the risks accompanying its business is vital to prevent losses and damages in the fast-changing business environment. The Board has put in place processes and procedures which help to identify and manage areas of significant strategic, business and financial risks. The Group manages risk under an overall risk management framework determined by the Board and supported by the Audit Committee and Internal Audit. Management periodically reviews the past performance of, and profiles the current and future risks facing the Group. Among the various risks that affect the Group include, but are not limited to: 1.

Industry and customer risk



The market demands and customers specific requirements constantly remind the Company not to be complacent and to keep up and be able to cater to the needs in the market and of its customers. In the event the Company is unable to meet customer and industry requirements, there may be a possibility that its products and/or process will become obsolete, and its customers may take their business to those who are able to meet such requirements. As such, the Company works closely with its customers and industry sources to ensure that its technology and product roadmaps are in line with customer requirements.

2.

Under utilization of production capacity



The Company’s business is characterized by high fixed costs including plant facilities, manufacturing equipment and machineries. In the event when it’s capacity utilization decreases due to poor demand or cancellation or delay of customer orders, the Company could encounter significantly higher unit production costs, lower margins and potentially significant losses. Under utilization of production capacity could also result in equipment write-offs, restructuring charges and employee layoffs.

27

INNOTEK Limited 2008 Annual Report

Corporate Governance 3.

Dependence on a small customer base



In the highly competitive industry with low margin and customers could easily bring their orders elsewhere, the loss of one or more of its major customers or a substantial reduction in orders by any major customer, for any reason, could have a material adverse effect on the Group’s revenue. To mitigate the risk of losing customer the Company works closely with its customers, so as to be able to build long term working relationships and, hence, build long term customers’ trust and loyalty.

4.

Primary materials prices and timely supply of materials



The Group relies on a limited number of qualified suppliers for some of the materials used in its precision metal component division manufacturing processes. Any increase in the price of primary materials would affect the cost of manufacturing. The Group mitigates the risk by not committing to large orders of fixed price materials thus enabling the Group to adjust prices when appropriate and feasible. The timely supply of sufficient quantity of raw materials by its supplier is also crucial in meeting the commitments to its customers. To mitigate the risk the Group employs supply chain management and builds long term relationships with qualified suppliers.

5.

Exposure to credit risks



The Group is exposed to credit risks of its customers. From time to time, in the ordinary course of business, certain customers may default on their payment. Such events may arise due to the inherent risk from its customers’ business, risk pertaining to the political, economic, social and legal environment of its customers’ jurisdiction and foreign exchange risk. However, the Group regularly reviews its exposure by way of monthly management reports, market feedbacks, performing checks on customers’ financial status and executes necessary payment recovery measures to minimize its credit risks.

6.

Foreign exchange exposure

7.

28

The Group’s core assets and raw materials are primarily in U.S dollar denominated currency whereas manufacturing and related expenses are in the currency of the country of operation. The Group has a policy of monitoring the foreign currency exchange rates changes closely so as to minimize any potential material adverse impact on its financial performance. The Group enters into short-term, forward contracts as and when it deems appropriate. Liquidity risk To ensure that it has adequate funding to achieve these requirements and its long term goals, the Group regularly monitors its capital expenditure to ensure an appropriate rate of returns, monitors the efficiency of the investment and pursues new financing opportunities to supplement its current capital resources.  

INNOTEK Limited 2008 Annual Report

Corporate Governance 8.

Changes in the political, social and economic conditions



The Group’s manufacturing facilities are located mainly in China and Europe. Any unfavorable changes in the political, social, legal, regulatory and economic conditions in these countries may disrupt our operations and affect our financial performance.



Regulatory changes could result in increased costs to the company. The company continues to evaluate and monitor developments with respect to new and proposed rules and regulations by the local authorities in the different provinces in the PRC which can or may affect the Company in any way, and cannot predict or estimate the amount of additional costs the Company may incur or the timing of such costs.

29

INNOTEK Limited 2008 Annual Report

DIRECTORS’ REPORT

The directors present their report to the members together with the audited consolidated financial statements of InnoTek Limited (the “Company”) and its subsidiaries (the “Group”) and the balance sheet and statement of changes in equity of the Company for the financial year ended 31 December 2008. Directors The directors of the Company in office at the date of this report are: Robert Sebastiaan Lette Yong Kok Hoon To Wai Hung Professor Low Teck Seng Peter Tan Boon Heng

(Chairman) (Appointed on 7 May 2008) (Appointed on 17 September 2008)

Arrangements to enable directors to acquire shares and debentures Except as described in this report, neither at the end of, nor at any time during the financial year was the Company a party to any arrangement whose object is to enable the directors of the Company to acquire benefits by means of the acquisition of shares or debentures of the Company or any other body corporate. Directors’ Interests in shares, share options and debentures The following directors, who held office at the end of the financial year, had, according to the register of directors’ shareholdings required to be kept under section 164 of the Singapore Companies Act, Cap. 50, an interest in shares and share options of the Company and related corporations (other than wholly-owned subsidiaries) as stated below: The Company InnoTek Limited (Ordinary shares) Yong Kok Hoon Prof. Low Teck Seng To Wai Hung (Appointed on 7 May 2008)

Holding in the name of the Director At beginning of the financial year or At end of date of appointment the financial year 500,000 40,000 16,037,000

550,000 40,000 16,037,000

Options to subscribe for ordinary shares in the Company At beginning of the year or date of appointment

At end of the year

Exercise Price per Share

Date of Grant

Yong Kok Hoon

100,000 200,000 256,000

50,000 200,000 256,000

$0.69* $0.97 $1.23

8 March 2004 18 August 2005 18 January 2006

To Wai Hung

50,000 240,000 300,000

50,000 240,000 300,000

$0.69* $0.97 $1.23

8 March 2004 18 August 2005 18 January 2006

Directors

*Granted at a 20% discount

30

INNOTEK Limited 2008 Annual Report

DIRECTORS’ REPORT

There was no change in any of the above-mentioned interests between the end of the financial year and 21 January 2009. Except as disclosed in this report, no director who held office at the end of the financial year had interests in shares, share options of the Company, or of related corporations, either at the beginning of the financial year, or date of appointment if later, or at the end of the financial year.

Directors’ contractual benefits Since the end of the previous financial year, no director of the Company has received or become entitled to receive any benefits by reason of a contract made by the Company or a related corporation with the directors, or with a firm of which the director is a member, or with a company in which the director has a substantial financial interest, except as disclosed in this report and the accompanying financial statements.

Share Options (1)

InnoTek Limited – Employees’ Share Option Plan



(a)

InnoTek Employees’ Share Option Plan (“the Plan”) was approved by the shareholders at an extraordinary general meeting on 18 September 2000. The Plan expired on 8 February 2006. Options granted under the Plan remain exercisable until the end of the relevant Option Period.



(b)

InnoTek Employees’ Share Option Scheme II (“Scheme II”) was approved by shareholders at the annual general meeting on 30 April 2008.



Scheme II succeeded the Plan which expired in 2006.

(2)

Both the Plan and Scheme II are administered by the Remuneration Committee whose members are:



Robert Sebastiaan Lette (Chairman) Prof. Low Teck Seng Peter Tan Boon Heng

(3)

As at the end of the financial year, details of the options to subscribe for ordinary shares of the Company granted to directors of the Company pursuant to the InnoTek Employees’ Share Option Plan are as follows: Aggregate options granted since commencement of Plan

Aggregate options cancelled since commencement of Plan

Aggregate options exercised since commencement of Plan

Aggregate options outstanding as at end of financial year

Yong Kok Hoon

1,656,000

(400,000)

(750,000)

506,000

Steven G. Campbell*

2,500,000

(500,000)

(1,625,000)

375,000

To Wai Hung

1,540,000

(300,000)

(650,000)

590,000

Director

*

Resigned as director of the Company on 2 September 2008

31

INNOTEK Limited 2008 Annual Report

DIRECTORS’ REPORT

Share Options (cont’d) (4)

The unissued ordinary shares of the Company under the Plan as at 31 December 2008 comprises: Date of Grant

No. of options granted

No. of options exercised

No. of options cancelled

Subscription price/ share

08 Feb 01

3,390,000

66,000

3,324,000

Nil

S$0.75

28 Aug 01

284,000

Nil

284,000

Nil

S$0.52

06 Mar 02

4,318,000

60,000

4,258,000

Nil

S$0.39*

05 Sep 02

500,000

Nil

500,000

Nil

S$0.24

07 Mar 03

5,386,000

4,206,000

1,180,000

Nil

S$0.16

31 Mar 03

6,946,000

5,403,500

1,542,500

Nil

S$0.17

30 May 03

60,000

Nil

60,000

Nil

S$0.32

27 Aug 03

508,000

130,000

378,000

Nil

S$0.71

08 Mar 04

5,098,000

1,952,000

2,488,000

658,000

S$0.69*

18 Aug 04

660,000

471,000

64,000

125,000

S$0.49

18 Aug 05

2,100,000

Nil

216,000

1,884,000

S$0.97

18 Jan 06

2,500,000

Nil

228,000

2,272,000

S$1.23

31,750,000

12,288,500

14,522,500

4,939,000

Total *

Exercise period 08/02/2002 08/02/2010 28/08/2002 28/08/2010 06/03/2004 06/03/2012 05/09/2003 05/09/2011 07/03/2004 07/03/2012 31/03/2004 31/03/2012 30/05/2004 30/05/2012 27/08/2004 27/08/2012 08/03/2006 08/03/2014 18/08/2005 18/08/2013 18/08/2006 18/08/2014 18/01/2007 18/01/2015

to to to to to to to to to to to to

Granted at a discount, therefore vesting date is two years after Date of Grant.

(5)

The options under the Plan may be exercised only after the first anniversary of the Date of Grant of options with the exception of options granted at a discount. The options are vested in four equal instalments with the first 25% of the options granted exercisable on the first anniversary of the Date of Grant.



No option has been granted during the financial year.



Apart from the following who have in aggregate received 5% or more of the total number of options available under the Plan, none of the other executive directors and employees of the Group who participated in the Plan has received 5% or more of the total number of options available under the Plan:

Steven G. Campbell* Yong Kok Hoon To Wai Hung *

32

No. of options outstanding

Resigned as director of the Company on 2 September 2008

Total Options Granted

Total % of options under the Plan

2,000,000 1,256,000 1,240,000

8.57% 5.38% 5.31%

INNOTEK Limited 2008 Annual Report

DIRECTORS’ REPORT

Audit Committee The Audit Committee comprises three board members, all of whom are Non-Executive Independent Directors. The members of the Audit Committee as at the date of this report are: Prof. Low Teck Seng Robert Sebastiaan Lette Peter Tan Boon Heng

(Chairman)

The Audit Committee has held five meetings during the financial year and discharged its responsibilities in accordance with its Terms of Reference. The functions of the Audit Committee are as laid down in Section 201B(5) of the Singapore Companies Act, Cap. 50. The Audit Committee reviewed the audit scope and strategies of both the internal and external auditors and met with the auditors and executive management to review and discuss the results of their audit examinations including their evaluation of the system of internal controls. The Audit Committee also reviewed the first quarter results, the half-year interim results, the third quarter results, the final consolidated financial statements of the Group and balance sheet and statement of changes in equity of the Company for the financial year ended 31 December 2008 as well as the auditors’ report thereon, and the impact of the various new accounting standards on the operating results and financial position of the Company and of the Group. In addition, the Audit Committee reviewed the Interested Persons Transactions for the financial year ended 31 December 2008 and reviewed all non-audit services provided by the external auditors to determine if the provision of such services would affect the independence of the auditors and to obtain confirmation of independence of the auditors. The Audit Committee recommended to the Board of Directors the nomination of Ernst & Young LLP as auditors of the Company to be approved at the forthcoming Annual General Meeting of the Company.

Auditors Ernst & Young LLP have expressed their willingness to accept re-appointment as auditors. On behalf of the Board,

Robert Sebastiaan Lette Director

Yong Kok Hoon Director

Singapore 18 March 2009

33

INNOTEK Limited 2008 Annual Report

statement by directors

We, Robert Sebastiaan Lette and Yong Kok Hoon, being two of the directors of InnoTek Limited, do hereby state that, in the opinion of the directors: (i)

the accompanying balance sheets, statements of changes in equity, consolidated income statement and consolidated cash flow statement together with the notes thereto are drawn up so as to give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2008 and of the results of the business, changes in equity and cash flows of the Group and changes in equity of the Company for the year then ended; and

(ii)

at the date of this statement there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due.

On behalf of the Board,

Robert Sebastiaan Lette Director

Yong Kok Hoon Director

Singapore 18 March 2009

34

INNOTEK Limited 2008 Annual Report

independent auditors’ report

To the Members of InnoTek Limited

We have audited the accompanying financial statements of InnoTek Limited (the “Company”) and its subsidiaries (collectively, the “Group”) set out on pages 37 to 107, which comprise the balance sheets of the Group and the Company as at 31 December 2008, the statements of changes in equity of the Group and the Company, the income statement and cash flow statement of the Group for the year then ended, and a summary of significant accounting policies and other explanatory notes.

Management’s responsibility for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the provisions of the Singapore Companies Act, Cap. 50 (the “Act”) and Singapore Financial Reporting Standards. This responsibility includes devising and maintaining a system of internal accounting controls sufficient to provide a reasonable assurance that assets are safeguarded against loss from unauthorised use or disposition; and transactions are properly authorised and that they are recorded as necessary to permit the preparation of true and fair profit and loss account and balance sheet and to maintain accountability of assets; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors’ responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

35

INNOTEK Limited 2008 Annual Report

independent auditors’ report To the Members of InnoTek Limited Opinion In our opinion, (i)

the consolidated financial statements of the Group and the balance sheet and statement of changes in equity of the Company are properly drawn up in accordance with the provisions of the Singapore Companies Act, Cap. 50 (the Act) and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2008 and the results, changes in equity and cash flows of the Group and changes in equity of the Company for the financial year ended on that date; and

(ii)

the accounting and other records required by the Act to be kept by the Company have been properly kept in accordance with the provisions of the Act.

Ernst & Young LLP Public Accountants and Certified Public Accountants Singapore

18 March 2009

36

INNOTEK Limited 2008 Annual Report

consolidated INCOME statement

for the year ended 31 December 2008

Note

Group 2008 $’000

2007 $’000

421,559 4,086 425,645

448,935 4,441 453,376

290,443 80,192 18,291 7,301 26,507 422,734

302,158 76,891 15,430 1,951 27,865 424,295

Continuing Operations Revenue and other income Sale of goods Other income Total revenue and other income Costs and expenses Raw materials and production overheads Salaries and employee benefits Depreciation and amortisation Foreign currency loss Other operating expenses Total costs and expenses Operating profit from continuing operations Finance costs Share of results of associates (Loss)/profit from continuing operations before tax Income tax expense (Loss)/profit from continuing operations, net of tax

4 5

6 12 & 13 7

8

9

2,911 (2,455) (548) (92) (6,181) (6,273)

29,081 (4,017) (15) 25,049 (3,303) 21,746

Discontinued Operation Profit from discontinued operation, net of tax

10

–

47,089

(Loss)/profit net of tax

(6,273)

68,835

Attributable to: Equity holders of the Company Minority interest

(7,031) 758

73,720 (4,885)

(6,273)

68,835

(3.00) –

6.97 23.73

(3.00)

30.70

(3.00) –

6.95 23.69

(3.00)

30.64

Basic (loss)/earnings per share (cents) attributable to equity holders of the Company – Continuing operations – Discontinued operations

Diluted (loss)/earnings per share (cents) attributable to equity holders of the Company – Continuing operations – Discontinued operations

11

11

The accompanying accounting policies and explanatory notes form an integral part of the financial statements.

37

INNOTEK Limited 2008 Annual Report

balance sheets as at 31 December 2008

Note

Non-current assets Property, plant and equipment Prepaid land lease payment Intangible assets Investment in subsidiaries Investment in associates Investment in joint venture Deferred tax assets Other investments Deposit paid for purchases of property, plant and equipment Other receivables Prepayments Current assets Inventories Trade receivables Other receivables Tax recoverables Investment securities Prepayments Loans to subsidiaries Cash and cash equivalents Current liabilities Interest-bearing loans and borrowings Trade payables Other payables and accruals Provisions Tax payable

122,896 4,633 141 − 257 − − 2,634

95,808 1,701 140 − 194 357 3,017 3,116

− − − 47,061 − − − 2,634

121 − − 14,120 − − − 3,116

22 23

2,491 2,079 544

2,623 5,084 390

− − −

− − −

36,765 87,094 13,561 42 23,384 655 − 93,058 254,559

40,219 100,081 18,758 − 22,968 884 − 158,452 341,362

− 584 84 − 23,384 − 16,615 59,279 99,946

− 956 7,426 − 22,968 − 10,690 125,194 167,234

38,442 76,800 31,434 − 2,121 148,797

45,019 75,997 41,820 6,902 2,203 171,941

− − 997 − 2,104 3,101

− − 5,389 6,902 1,568 13,859

105,762

169,421

96,845

153,375

27,035 2,148

27,760 2,314

− 194

− 194

212,254

251,777

146,346

170,538

96,991 (7,028) 116,914

96,648 (6,381) 141,493

206,877 5,377 212,254

231,760 20,017 251,777

20 21 22 15 23 24 25

26 27 28 29

26 18

Net assets Equity Share capital Treasury shares Reserves Attributable to Equity Holders of the Company Minority interest Total Equity

Company 2008 2007 $’000 $’000

12 13 14 15 16 17 18 19

Net current assets Non-current liabilities Interest-bearing loans and borrowings Deferred tax liabilities

Group 2008 2007 $’000 $’000 (Restated)

30(a) 30(b)

96,991 (7,028) 56,383

96,648 (6,381) 80,271

146,346 − 146,346

170,538 − 170,538

The accompanying accounting policies and explanatory notes form an integral part of the financial statements.

38

INNOTEK Limited 2008 Annual Report

statement of changes in equity

for the year ended 31 December 2008

The Company 2008 At 1 January 2008

Share capital

Treasury shares

Share option reserve

Retained earnings

Other reserves

Total equity

$’000

$’000

$’000

$’000

$’000

$’000

(Note 30(a)) (Note 30(b)) 3,049

77,222

80,271

170,538

Profit for the year

−

−

−

59

59

59

Total recognised income for the year

−

−

−

59

59

59

Exercise of Employees’ Share Option Plan

343

−

−

−

−

343

–

–

302

−

302

302

−

−

Share option expenses accrued

96,648

(6,381)

Purchase of treasury shares

−

(13,625)

−

Treasury shares reissued for acquisition of shares from minority shareholder of a subsidiary

−

12,978

−

(743)

(743)

Dividends on ordinary shares (Note 41)

−

−

−

(23,506)

(23,506)

3,351

53,032

56,383

146,346

At 31 December 2008

96,991

(7,028)

(13,625)

12,235 (23,506)

2007 At 1 January 2007

94,508

−

3,002

68,486

71,488

165,996

Profit for the year

−

−

−

32,877

32,877

32,877

Total recognised income for the year

−

−

−

32,877

32,877

32,877

1,396

−

−

−

−

1,396

Expiry of employee share option

−

−

(20)

20

−

−

Share option expenses accrued

−

−

811

−

811

811

−

(744)

−

(744)

Exercise of Employees’ Share Option Plan

Transfer of share option reserve to share capital upon exercise of Employee Share Option Plan Purchase of treasury shares Dividends on ordinary shares (Note 41) At 31 December 2007

744 − − 96,648

(6,381) − (6,381)

− − 3,049

−

−

(24,161)

(24,161)

77,222

80,271

− (6,381) (24,161) 170,538

The accompanying accounting policies and explanatory notes form an integral part of the financial statements.

39

INNOTEK Limited 2008 Annual Report

statement of changes in equity for the year ended 31 December 2008

The Group

2008 At 1 January 2008 Foreign currency translation (Loss)/profit for the year Total recognised income and expense Purchase of treasury shares Treasury shares reissued for acquisition of shares from minority shareholder of a subsidiary Acquisition of minority interest Transfer to retained earnings Exercise of Employees’ Share Option Plan Expiry of employee share options Share option expense accrued Dividends on ordinary shares (Note 41) At 31 December 2008

Share capital

Attributable to equity holders of the Company Foreign Share currency Treasury option Retained translation shares reserve earnings reserve

$’000

$’000

$’000

$’000

$’000

Others

Total other reserves

Total

Minority interest

Total equity

$’000

$’000

$’000

$’000

$’000

(Note 30(a)) (Note 30(b)) 96,648 − −

(6,381) − −

− −

− (13,625)

− −

(7,031) −

6,204 −

− −

(827) −

(827) (13,625)

–

12,978

–

(743)

–

–

(743)

12,235

−

−

−

185

−

−

185

185

−

−

−

(73)

−

73

−

−

−

−

343

−

−

−

−

−

−

343

−

343

−

−

(10)

10

−

−

−

−

−

−

−

−

−

−

−

312

312

−

312

− 96,991

− (7,028)

3,049 142,302 − − − (7,031)

312

− (23,506) 3,351 111,144

(3,785) 6,204 −

− 2,419

(73) 141,493 231,760 − 6,204 6,204 − (7,031) (7,031)

− (23,506) (23,506) − 116,914 206,877

20,017 251,777 (12) 6,192 758 (6,273) 746 −

– (15,386)

− 5,377

(81) (13,625)

12,235 (15,201)

(23,506) 212,254

The accompanying accounting policies and explanatory notes form an integral part of the financial statements.

40

INNOTEK Limited 2008 Annual Report

statement of changes in equity

for the year ended 31 December 2008

The Group 2007 At 1 January 2007 Foreign currency translation Net loss on fair value changes during the year Reversed to the income statement Profit for the year Total recognised income and expense Disposal of subsidiary Minority interest from acquisition of subsidiary Dividend to a minority shareholder of a subsidiary Acquisition of additional interest in a subsidiary Transfer of share option reserve to share capital upon exercise of Employees' Share Option Plan Exercise of Employees’ Share Option Plan Expiry of employee share options Purchase of treasury shares Share option expense accrued Dividends on ordinary shares (Note 41) At 31 December 2007

Share capital

Treasury shares

Attributable to equity holders of the Company Foreign Share currency option Retained translation Statutory Hedging reserve earnings reserve reserve reserve

$’000 $’000 $’000 (Note 30(a))(Note 30(b))

$’000

94,508

−

−

−

−

−

−

−

−

−

− −

− −

− − − 73,720

−

−

− 73,720

−

−

−

−

−

$’000

8,678 92,723 (10,651)

$’000

721

(2,526)

−

−

−

−

−

− −

− −

(600) −

−

(600)

(1,855)

Minority interest

Total equity

$’000

$’000

$’000

$’000

$’000

−

88,945

−

(327)

− −

183,453 46,770

(1,855) (1,855)

(327)

(327)

(600) (600) 73,720 73,720

230,223

(510)

(2,365)

(127)

(454)

− (600) (4,885) 68,835

(327) 70,938

70,938

(5,522) 65,416

3,126

327

4,302

4,302

(21,359) (17,057)

8,721

−

−

−

−

−

−

−

−

−

−

−

−

−

−

−

−

−

−

−

−

−

−

−

−

(73)

(73)

(73)

744

−

−

−

−

−

−

(744)

−

−

−

1,396

−

−

−

−

−

−

−

−

1,396

−

1,396

−

−

(20)

20

−

−

−

−

−

−

−

−

−

−

−

−

−

−

−

2,286

−

−

−

−

−

2,286

−

−

−

− (24,161) (24,161)

−

−

(6,381)

−

−

−

−

96,648

(6,381)

(744)

− (24,161) 3,049 142,302

(3,785)

(721)

Total

−

−

(7,151)

(1,855)

$’000 (Note 32)

Others

Total other reserves

(73) 141,493

1,903

1,903

(199)

(199)

(1,576)

(1,649)

(6,381)

−

(6,381)

2,286

−

2,286

−

(24,161)

231,760 20,017

251,777

The accompanying accounting policies and explanatory notes form an integral part of the financial statements.

41

INNOTEK Limited 2008 Annual Report

Consolidated Cash Flow Statement for the year ended 31 December 2008

Note Cash flows from operating activities (Loss)/profit before tax and minority interests (“MI”) from: – Continuing operations – Discontinued operations Total group (loss)/profit before tax and MI Adjustments for: Gain on acquisition of a subsidiary Share of results of associates Depreciation expense Amortisation expense Loss/(gain) on disposal of property, plant and equipment Gain on disposal of other investment Gain on disposal of subsidiary Fair value gain on investment held for trading Impairment loss of property, plant and equipment Property, plant and equipment written off Stock options expense Amortisation of intangible assets Fair value changes on derivative Fair value changes on other reserve Allowance for doubtful debt Write back of doubtful debts Impairment loss on investment in associate Impairment loss on club memberships Impairment loss on other investment Interest expense Interest income Allowance for obsolete inventories Write back of obsolete inventories Currency realignment Operating cash flows before changes in working capital Decrease in trade and other receivables Decrease/(increase) in inventories (Decrease)/Increase in trade and other payables Decrease in prepayment (Decrease)/increase in provision Cash flows generated from operations Interest paid Interest received Taxes paid Refund of income taxes paid in prior years Net cash flows from operating activities

42

2008 $’000

(92) − (92) − 548 18,273 18 (63) (260) − (416) 1,710 3,546 312 − − − 324 − 825 − − 2,455 (2,226) 928 − 2,858 28,740 23,787 2,482 (15,433) 288 (6,902) 32,962 (2,455) 2,226 (3,647) 10 29,096

2007 $’000 (Restated)

25,049 48,823 73,872 (1,681) 15 66,889 40 (105) − (72,292) (10,666) 17,479 6,208 2,286 290 (600) (454) 612 (1,108) − 28 1,223 11,687 (1,554) − (3,059) (1,705) 87,405 2,845 (3,035) 30,711 353 5,596 123,875 (11,687) 1,554 (2,327) − 111,415

INNOTEK Limited 2008 Annual Report

Consolidated Cash Flow Statement

for the year ended 31 December 2008

Note Cash flows from investing activities Purchase of property, plant and equipment Additions to prepaid land lease payment Proceeds from sale of property, plant and equipment Proceeds from sale of other investment Deposit paid for property, plant and equipment Increase in joint venture Increase in other investments Acquisition of minority interest Net cash outflow from disposal of subsidiaries Net cash inflow for acquisition of a new subsidiary Net cash consideration on disposal of subsidiary

15 15

2008 $’000

(41,707) (2,978) 432 742 (2,913) (1,051) − (2,967) (68) − −

2007 $’000 (Restated) (104,124) (687) 240 − (2,623) (357) (5,227) – − 267 146,617

Net cash (used in)/from investing activities

(50,510)

34,106

Cash flows from financing activities Dividends paid on ordinary shares by the Company Purchase of treasury shares Dividends paid to subsidiary shareholder Proceeds from issuance of ordinary shares Proceeds from loan and borrowings Repayment of loans and borrowings Repayment of finance lease obligations Net cash used in financing activities

(23,506) (13,625) − 343 26,457 (32,888) (295) (43,514)

(24,161) (6,381) (199) 1,396 56,751 (60,786) (796) (34,176)

Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of year

(64,928) 153,919

111,345 42,574

88,991

153,919

Cash and cash equivalents at end of year

25

The accompanying accounting policies and explanatory notes form an integral part of the financial statements.

43

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS 31 December 2008 1.

Corporate Information



InnoTek Limited is a limited liability company which is incorporated in Singapore and listed on the Stock Exchange of Singapore.



The registered office and principal place of business of the Company is located at 1 Finlayson Green #15-02, Singapore 049246.



The principal activity of the Company is that of investment holding.



The principal activities of the subsidiaries are those of manufacturing and sale of metal stamping and sub-assembly of stamped components, frame components, tooling and die making, investment holding and general trading. There has been no significant change in the nature of these activities during the year.

2.

Summary of significant accounting policies

2.1

Basis of preparation



The consolidated financial statements of the Group and the balance sheet and statement of changes in equity of the Company have been prepared in accordance with Singapore Financial Reporting Standards (FRS).



The financial statements have been prepared on a historical cost basis except for derivative financial instruments and investment securities held for trading that have been measured at their fair values.



The financial statements are presented in Singapore Dollars ($) and all values in the tables are rounded to the nearest thousand ($’000) as indicated.

2.2

Changes in accounting policies



The accounting policies have been consistently applied by the Company and the Group and are consistent with those used in the previous financial year, except for the changes in accounting policies discussed below.



(a)



Adoption of new FRS On 1 January 2008, the Group adopted the following INT FRS mandatory for annual financial periods beginning on or after 1 January 2008. INT FRS 111 INT FRS 112 INT FRS 114



44

FRS 102 – Group and Treasury Share Transactions Service Concession Arrangements FRS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and Their Interaction

The adoption of the above INT FRS did not have financial impact on the Group and the Company.

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS

31 December 2008

2.

Summary of significant accounting policies (cont’d)

2.2 Changes in accounting policies (cont’d)

(b)

Future changes in accounting policies The Group and the Company have not adopted the following FRSs and INT FRSs that have been issued but not yet effective: Effective for annual periods Reference Description beginning on or after FRS 1

FRS 23 FRS 27 FRS 32 FRS 101

FRS 102 FRS 108 INT FRS 113 INT FRS 116

Presentation of Financial Statements Revised Presentation Amendments relating to Puttable Financial Instruments and Obligations Arising on Liquidation Borrowing Costs Consolidated and Separate Financial Statements Amendments relating to Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate Financial Instruments: Presentation Amendments relating to Puttable Financial Instruments and Obligations Arising on Liquidation First Time Adoption of Financial Reporting Standards – Amendments relating to Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate Share-based Payment – Amendments relating to Vesting Conditions and Cancellations Operating Segments Customer Loyalty Programmes Hedges of a Net Investment in a Foreign Operation

1 January 2009 1 January 2009 1 January 2009 1 January 2009 1 January 2009

1 January 2009 1 1 1 1

January January January January

2009 2009 2009 2009

The directors expect that the adoption of the above pronouncements will have no material impact to the financial statements in the period of initial application, except for FRS 1 and FRS 108 as indicated below: FRS 1 Presentation of Financial Statements – Revised presentation The revised FRS 1 requires owner and non-owner changes in equity to be presented separately. The statement of changes in equity will include only details of transactions with owners, with all non-owner changes in equity presented as a single line item. In addition, the revised standard introduces the statement of comprehensive income: it presents all items of income and expenses, either in one single statement, or in two linked statements. The Group and the Company are currently evaluating which format to adopt.

45

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS 31 December 2008 2.

Summary of significant accounting policies (cont’d)

2.2 Changes in accounting policies (cont’d) (b) Future changes in accounting policies (cont’d)

FRS 108 Operating Segments



FRS 108 requires entities to disclose segment information based on the information reviewed by the entity’s chief operating decision maker. The impact of this standard on the other segment disclosures is still to be determined. As this is a disclosure standard, it will have no impact on the financial position and results of the Group when implemented in 2009.

2.3 Significant accounting judgements and estimates

The preparation of the Group’s financial statement requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosures of contingent liabilities at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future.



The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.



(a)



The Group has exposure to income taxes in numerous jurisdictions. Significant judgement is involved in determining the Group-wide provision for income taxes. There are certain transactions and computations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for expected tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recognised, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. The carrying amounts of the Group’s tax payable, deferred tax assets and deferred tax liabilities as at 31 December 2008 were $2,121,000 (2007: $2,203,000), $nil (2007: $3,017,000) and $2,148,000 (2007: $2,314,000) respectively. The carrying amounts of the Company’s tax payable and deferred tax liabilities as at 31 December 2008 were $2,104,000 (2007: $1,568,000) and $194,000 (2007: $194,000) respectively.



Depreciation of machinery and equipment

(b)



46

Income taxes

The costs of machinery and equipment for the Group’s manufacturing activities are depreciated on a straight-line basis over the useful lives of the machinery and equipment. Management estimates the useful lives of the machinery and equipment to be within 1 to 10 years. These are common life expectancies applied in the industry. Changes in the expected level of usage and technological developments could impact the economic useful lives and the residual values of these assets, therefore future depreciation charges could be revised. The carrying amount of the Group’s machinery and equipment at 31 December 2008 was stated in Note 12 to the financial statements.

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS

31 December 2008

2.

Summary of significant accounting policies (cont’d)

2.3

Significant accounting estimates and judgements (cont’d) (c)

Impairment of loans and receivables



The Group assesses at each balance sheet date whether there is any objective evidence that a loan or receivable is impaired. To determine whether there is objective evidence of impairment, the Group considers factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments.



Where there is objective evidence of impairment, the amount and timing of future cash flows are estimated based on historical loss experience for assets with similar credit risk characteristics. The carrying amount of the Group’s loan and receivable at the balance sheet date is disclosed in Note 21 and Note 22 to the financial statements.



(d)



Impairment of non-financial assets The Group assesses whether there are any indicators of impairment for all non-financial assets at each reporting date. Definite life non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable. When value in use calculations are undertaken, management must estimate the expected future cash flows from the asset or cash-generating unit and choose a suitable discount rate in order to calculate the present value of those cash flows.

2.4

Basis of consolidation



The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at the balance sheet date. The financial statements of the subsidiaries used in the preparation of the consolidated financial statements are prepared for the same reporting date as the Company. Consistent accounting policies are applied to like transactions and events in similar circumstances.



All intra-group balances, income and expenses and unrealised gains and losses resulting from intragroup transactions are eliminated in full.



Acquisitions of subsidiaries are accounted for using the purchase method. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.



Any excess of the cost of business combination over the Group’s share in the net fair value of the acquired subsidiary’s identifiable assets, liabilities and contingent liabilities is recorded as goodwill on the balance sheet. The accounting policy of goodwill is set out in Note 2.9(a).



Any excess of the Group’s share in the net fair value of the acquired subsidiary’s identifiable assets, liabilities and contingent liabilities over the cost of business combination is recognised in the income statement on the date of acquisition.



Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases.

47

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS 31 December 2008 2.

Summary of significant accounting policies (cont’d)

2.5 Transactions with minority interests Minority interests represent the portion of profit or loss and net assets in subsidiaries not held by the Group and are presented separately in the consolidated income statement and within equity in the consolidated balance sheet, separately from parent shareholders’ equity. Transactions with minority interests are accounted for using the entity concept method, whereby, transactions with minority interests are accounted for as transactions with equity holders. On acquisition of minority interests, the difference between the consideration and book value of the share of the net assets acquired is reflected as being a transaction between owners and recognised directly in equity. Gain or loss on disposal to minority interest is recognised directly in equity. 2.6 Foreign currency Transactions in foreign currencies are measured in the respective functional currencies of the Company and its subsidiaries and are recorded on initial recognition in the functional currencies at exchange rates approximating those ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Exchange differences arising on the settlement of monetary items or on translating monetary items at the balance sheet date are recognised in the income statement except for exchange differences arising on monetary items that form part of the Group’s net investment in foreign subsidiaries, which are recognised initially in a separate component of equity as foreign currency translation reserve in the consolidated balance sheet and recognised in the consolidated income statement on disposal of the subsidiary. In the Company’s separate financial statements, such exchange differences are recognised in the income statement. The assets and liabilities of foreign operations are translated into SGD at the rate of exchange ruling at the balance sheet date and their income statements are translated at the weighted average exchange rates for the year. The exchange differences arising on the translation are taken directly to a separate component of equity as foreign currency translation reserve. On disposal of a foreign operation, the cumulative amount recognised in foreign currency translation reserve relating to that particular foreign operation is recognised in the income statement. 2.7 Property, plant and equipment All items of property, plant and equipment are initially recorded at cost. The cost of an item of property, plant and equipment is recognised as an asset if, and only if, it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. Subsequent to recognition, plant and equipment are measured at cost less accumulated depreciation and any accumulated impairment losses.

48

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS

31 December 2008

2.

Summary of significant accounting policies (cont’d)

2.7 Property, plant and equipment (cont’d)

Freehold land has an unlimited useful life and therefore is not depreciated. Depreciation of an asset begins when it is available for use and is computed on a straight-line basis over the estimated useful life of the asset as follows: Leasehold land and buildings Freehold properties Machinery and equipment Tools and dies Furniture, fittings and office equipment Motor vehicles Leasehold improvements

-

10 to 25 years 20 years 5 to 10 years 1 to 5 years 3 to 10 years 5 years 5 to 20 years



Assets under construction-in-progress are not depreciated as these assets are not yet available for use.



Fully depreciated assets are retained in the financial statements until they are no longer in use and no further charge for depreciation is made in respect of these assets.



The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.



The residual values, useful life and depreciation method are reviewed at each financial year-end to ensure that the amount, method and period of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the items of property, plant and equipment.



An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arises on derecognition of the asset is included in the income statement in the year the asset is derecognised.

2.8 Prepaid land lease payment

Prepaid land lease payments under operating leases are initially stated at cost and subsequently recognised on the straight-line basis over the lease terms. When the lease payments cannot be allocated reliably between the land and buildings elements, the entire lease payments are included in the cost of the land and buildings as a finance lease in property, plant and equipment.

2.9 Intangible assets

(a)

Goodwill



Goodwill is initially measured at cost. Following initial recognition, goodwill is measured at cost less accumulated impairment losses. Goodwill is reviewed for impairment annually or more frequently if events and circumstances indicate that the carrying value may be impaired.



For the purpose of impairment testing, goodwill acquired is allocated to each of the Group’s cash-generating units that are expected to benefit from the synergies of the combination.

49

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS 31 December 2008 2.

Summary of significant accounting policies (cont’d)

2.9 Intangible assets (cont’d)

50

(a)

Goodwill (cont’d)



The cash-generating unit to which goodwill has been allocated is tested for impairment annually and whenever there is an indication that the cash-generating unit may be impaired, by comparing the carrying amount of the cash-generating unit, including the allocated goodwill, with the recoverable amount of the cash-generating unit. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised in the income statement. Impairment losses recognised for goodwill are not reversed in subsequent periods.



Where goodwill forms part of a cash-generating unit and part of the operation within that cash-generating unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative fair values of the operations disposed of and the portion of the cash-generating unit retained.



Other intangible assets

(b)



Intangible assets acquired separately are measured initially at cost. The cost of intangible assets acquired in a business combination is their fair values as at the date of acquisition. Following initial recognition, intangible assets are measured at cost less any accumulated amortisation and accumulated impairment losses.



Intangible assets with finite useful lives are amortised on a straight-line basis over the estimated useful lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method are reviewed at least at each financial year-end.



Intangible assets with indefinite useful lives are tested for impairment annually, or more frequently if the events and circumstances indicate that the carrying value may be impaired either individually or at the cash-generating unit level. Such intangible assets are not amortised. The useful life of an intangible asset with an indefinite useful life is reviewed annually whether the useful life assessment continues to be supportable.



(i)

Research and development cost



Research costs are expensed as incurred. Expenditure incurred on projects to develop new products is capitalised and deferred only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the project and the ability to measure reliably the expenditure during the development. Product development expenditure which does not meet these criteria is expensed when incurred.



Deferred development costs are stated at cost less any impairment losses and are amortised using the straight-line basis over the commercial lives of the underlying products not exceeding five years, commencing from the date when the products are put into commercial production.

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS

31 December 2008

2.

Summary of significant accounting policies (cont’d)

2.9 Intangible assets (cont’d) (b) Other intangible assets (cont’d)

(ii)

Licence fee



Licence fee is stated at cost less impairment losses and is amortised on a straight-line basis over the licence period of five years.



Club memberships

(iii)



This is stated at cost and less impairment losses. The club membership has indefinite useful life and assessment for impairment is performed annually.

2.10 Impairment for non-financial assets

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment assessment for an asset is required, the Group makes an estimate of the asset’s recoverable amount.



An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. In assessing value in use, the estimated future cash flows expected to be generated by the asset are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Impairment losses are recognised in the income statement.



An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increase cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss be recognised previously. Such reversal is recognised in the income statement. After such a reversal, the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

2.11 Subsidiaries

A subsidiary is an entity over which the Group has the power to govern the financial and operating policies so as to obtain benefits from its activities. The Group generally has such power when it, directly or indirectly, holds more than 50% of the issued share capital, or controls more than half of the voting power, or controls the composition of the board of directors.



In the Company’s separate financial statements, investments in subsidiaries are accounted for at cost less impairment losses.

51

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS 31 December 2008 2.

Summary of significant accounting policies (cont’d)

2.12 Associates

An associate is an entity, not being a subsidiary or a joint venture, in which the Group has significant influence. This generally coincides with the Group having 20% or more of the voting power, or has representation on the board of directors. The associate is equity accounted for from the date the Group obtains significant influence until the date the Group ceases to have significant influence over the associate.



The Group’s investments in associates are accounted for using the equity method. Under the equity method, the investment in associate is measured in the balance sheet at cost plus post-acquisition changes in the Group’s share of net assets of the associate. Goodwill relating to an associate is included in the carrying amount of the investment. Any excess of the Group’s share of the net fair value of the associate’s identifiable assets, liabilities and contingent liabilities over the cost of the investment is deducted from the carrying amount of the investment and is recognised as income as part of the Group’s share of results of the associate in the period in which the investment is acquired.



When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.



The financial statements of the associates are prepared as of the same reporting date as the Company. Consistent accounting policies are applied for like transactions and events in similar circumstances.

2.13 Joint ventures

A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control, where the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control. The Group recognises its interest in joint venture using proportionate consolidation. The Group combines its share of each of the assets, liabilities, income and expenses of the joint venture with the similar items, line by line, in its consolidated financial statements. The joint venture is proportionately consolidated from the date the Group obtains joint control until the date the Group ceases to have joint control over the joint venture.



The financial statements of the joint venture are prepared as of the same reporting date as the Group.

2.14 Jointly controlled entities

52



A jointly-controlled entity is a joint venture that is subject to joint control, resulting in none of the participating parties having unilateral control over the economic activity of the jointly-controlled entity.



The Group’s interest in a jointly-controlled entity is stated in the consolidated balance sheet at the Group’s share of net assets under the equity method of accounting, less any impairment losses. The Group’s share of the post-acquisition results and reserves of a jointly-controlled entity is included in the consolidated income statement and statement of changes in equity, respectively. Unrealised gains and losses resulting from transactions between the Group and its jointly-controlled entity are eliminated to the extent of the Group’s interest in the jointly-controlled entity, except where unrealised losses provide evidence of an impairment of the assets transferred.

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS

31 December 2008

2.

Summary of significant accounting policies (cont’d)

2.15 Financial assets

Financial assets are recognised on the balance sheet when, and only when, the Group becomes a party to the contractual provisions of the financial instrument.



When financial assets are recognised initially, they are measured at fair value, plus, in the case of financial assets not at fair value through profit or loss, directly attributable transaction costs.



A financial asset is derecognised where the contractual right to receive cash flows from the asset has expired. On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sum of the consideration received and any cumulative gain or loss that has been recognised directly in equity is recognised in the income statement.



All regular way purchases and sales of financial assets are recognised or derecognised on the trade date i.e.,the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace concerned.



(a)





(b)

Loans and receivables Financial assets with fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method. Gains and losses are recognised in the income statement when the loans and receivables are derecognised or impaired, as well as through the amortisation process. Available-for-sale financial assets



Available-for-sale financial assets are financial assets that are not classified in any of the other categories. After initial recognition, available-for-sale financial assets are measured at fair value. Any gains or losses from changes in fair value of the financial asset are recognised directly in the fair value adjustment reserve in equity, except that impairment losses, foreign exchange gains and losses on monetary instruments and interest calculated using the effective interest method are recognised in the income statement. The cumulative gain or loss previously recognised in equity is recognised in the income statement when the financial asset is derecognised.



Investments in equity instruments whose fair value cannot be reliably measured are measured at cost less impairment loss.



Financial assets at fair value through profit or loss

(c)



Financial assets held for trading are classified as financial assets at fair value through profit or loss. Financial assets classified as held for trading are derivatives (including separated embedded derivatives) or financial assets acquired principally for the purpose of selling or repurchasing it in the near term.



Subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value. Any gains or losses arising from changes in fair value of the financial assets are recognised in the income statement. Net gains or net losses on financial assets at fair value through profit or loss include exchange differences, interest and dividend income.

53

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS 31 December 2008 2.

Summary of significant accounting policies (cont’d)

2.15 Financial assets (cont’d)

Derecognition of financial assets



A financial asset is derecognised where:





The Group transfers the contractual rights to receive cash flows from the financial asset; or





The Group retains the contractual rights to receive cash flows from the financial asset, but assumes a contractual obligation to pay the cash flows to one or more recipients in a ‘passthrough’ arrangement; or





The Group has transferred its rights to receive cash flows from the asset and either has transferred substantially all the risks and rewards of the asset, or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.



Where the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.



Where continuing involvement takes the form of a written and/or purchased option on the transferred asset, the extent of the Group’s continuing involvement is the amount of the transferred asset that the Group may repurchase, except that in the case of a written put option on an asset measured at fair value, the extent of the Group’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price.



On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sum of (a) the consideration received (including any new asset obtained less any new liability assumed) and (b) any cumulative gain or loss that has been recognised directly in equity is recognised in the income statement.

2.16 Impairment of financial assets

54



The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or a group of financial assets is impaired.



(a)

Assets carried at amortised cost



If there is objective evidence that an impairment loss on financial assets carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account. The impairment loss is recognised in the income statement.



When the asset becomes uncollectible, the carrying amount of impaired financial assets is reduced directly or if an amount was changed to the allowance account, the amounts charged to the allowance account are written off against the carrying value of the financial asset.

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS

31 December 2008

2.

Summary of significant accounting policies (cont’d)

2.16 Impairment of financial assets (cont’d)

(a)

Assets carried at amortised cost (cont’d)



To determine whether there is objective evidence that an impairment loss on financial assets has been incurred, the Group considers factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments.



If in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed to the extent that the carrying amount of the asset does not exceed its amortised cost at the reversal date. The amount of reversal is recognised in the income statement.



Assets carried at cost

(b)



If there is objective evidence that an impairment loss on financial assets carried at cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses are not reversed in subsequent periods.

2.17 Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand and demand deposits. These also include bank overdrafts that form an integral part of the Group’s cash management.

2.18 Inventories

Inventories are stated at the lower of cost and net realisable value.



Cost of raw materials comprises purchase costs and other direct attributable costs on a first-in-firstout basis. Cost of finished goods and work-in-progress comprise direct labour, materials and an appropriate proportion of production overhead expenditure.



Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

2.19 Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of economic resources will be required to settle the obligation and the amount of the obligation can be estimated reliably.



Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of economic resources will be required to settle the obligation, the provision is reversed. If the effect of the time value of money is material, provisions are discounted using a current pre tax rate that reflects, where appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

55

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS 31 December 2008 2.

Summary of significant accounting policies (cont’d)

2.20 Financial liabilities

Financial liabilities are recognised on the balance sheet when, and only when, the Group becomes a party to the contractual provisions of the financial instrument.



Financial liabilities are recognised initially at fair value, plus, in the case of financial liabilities other than derivatives, directly attributable transaction costs. Subsequent to initial recognition, all financial liabilities are measured at amortised cost using the effective interest method, except for derivatives, which are measured at fair value.



A financial liability is derecognised when the obligation under the liability is extinguished. For financial liabilities other than derivatives, gains and losses are recognised in the income statement when the liabilities are derecognised, and through the amortisation process. Any gains or losses arising from changes in fair value of derivatives are recognised in the income statement. Net gains or losses on derivatives include exchange differences.

2.21 Borrowing costs

Borrowing costs are recognised in the income statement as expenses in the period in which they are incurred.

2.22 Employee benefits

(a)



The Group participates in the national pension schemes as defined by the laws of the countries in which it has operations. In particular, the Company makes contributions to the Central Provident Fund scheme in Singapore, a defined contribution pension scheme. Contributions to defined contribution pension schemes are recognised as an expense in the period in which the related service is performed.



Employee leave entitlement

(b)



Employee entitlements to annual leave are recognised as a liability when they accrue to employees. The estimated liability for leave is recognised for services rendered by employees up to balance sheet date.



Termination benefits

(c)



56

Defined contribution plans

Termination benefits 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 terminate the employment of current employees according to a detailed plan without possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy. In the case of an offer made to encourage voluntary redundancy, the measurement of termination benefits is based on the number of employees expected to accept the offer. Benefits falling due more than 12 months after balance sheet date are discounted to present value.

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS

31 December 2008

2.

Summary of significant accounting policies (cont’d)

2.22 Employee benefits (cont’d)

(d)

Employee share option plans



Employees (including senior executives) of the Group receive remuneration in the form of share options as consideration for services rendered (‘equity settled transactions’). The cost of these equity-settled transactions with employees is measured by reference to the fair value at the date on which the share options are granted. The cost is recognised in the income statement, with a corresponding increase in the employee share option reserve, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (‘the vesting date’). The cumulative expense recognised at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The charge or credit to the profit or loss for a period represents the movement in cumulative expense recognised as at the beginning and end of that period.



No expense is recognised for options that do not ultimately vest, except for options where vesting is conditional upon a market condition, which are treated as vested irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied. The employee share option reserve is transferred to retained earnings upon expiry of the share options. When the options are exercised, the employee share option reserve is transferred to share capital upon the issuance of new shares.



Where the terms of an employee share option plan are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any modification, which increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification.



Where an employee share option plan is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph.

2.23 Leases

(a)

As lessee



Finance leases, which transfer to the Group substantially all the risks and rewards incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Any initial direct costs are also added to the amount capitalised. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to the income statement. Contingent rents, if any, are charged as expenses in the periods in which they are incurred.



Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term.

57

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS 31 December 2008 2.

Summary of significant accounting policies (cont’d)

2.23 Leases (cont’d)

(a)

As lessee (cont’d)



Operating lease payments are recognised as an expense in the income statement on a straightline basis over the lease term. The aggregate benefit of incentives provided by the lessor is recognised as a reduction of rental expense over the lease term on a straight-line basis.



As lessor

(b)



Leases where the Group retains substantially all the risks and rewards of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same bases as rental income (Note 2.25(e)).

2.24 Discontinued operation

A component of the Group is classified as a ‘discontinued operation’ when the criteria to be classified as held for sale have been met or it has been disposed of and such a component represents a separate major line of business or geographical area of operations or is part of a single co-ordinated major line of business or geographical area of operations. A component is deemed to be held for sale if its carrying amounts will be recovered principally through a sale transaction rather than through continuing use.



Upon classification as held for sale, non-current assets and disposal groups are not depreciated and are measured at the lower of carrying amount and fair value less costs to sell. Any differences are recognised in the income statement.

2.25 Revenue recognition

58



Revenue is recognised to the extent that is probable that the economic benefits will flow to the Group and the revenue can be reliably measured.



(a)

Sale of goods



Revenue is recognised upon the transfer of significant risk and rewards of ownership of the goods to the customer, which generally coincides with delivery and acceptance of the goods sold. Revenue is not recognised to the extent where there are significant uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods.



Dividend income

(b)

(c)

Dividend income is recognised when the Company’s right to receive payment is established.



Interest income is recognised as interest accrues (using the effective interest method) unless collectability is in doubt.

Interest income

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS

31 December 2008

2.

Summary of significant accounting policies (cont’d)

2.25 Revenue recognition (cont’d)

(d)

Management fees



Management fees are recognised when services are rendered.



Rental income

(e)



Rental income is accounted for on a straight-line basis over the leased terms on ongoing leases. The aggregate cost of incentives provided to lessees is recognised as a reduction of rental income over the lease term on a straight-line basis.

2.26 Income taxes

(a)

Current tax



Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date.



Current tax is recognised in the income statement except that tax relating to items recognised directly in equity is recognised directly in equity.



Deferred tax

(b)



Deferred income tax is provided using the liability method on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.



Deferred tax liabilities are recognised for all taxable temporary differences, except:





Where the deferred tax arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss;







In respect of temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled by the Group and it is probable that the temporary differences will not reverse in the foreseeable future; and







In respect of deductible temporary differences and carry-forward of unused tax credits and unused tax losses, if it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilised.



The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be utilised.

59

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS 31 December 2008 2.

Summary of significant accounting policies (cont’d)

2.26 Income taxes (cont’d)

(b)

Deferred tax



Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date.



Deferred tax are recognised in the income statement except that deferred tax relating to items recognised directly in equity is recognised directly in equity.



Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.



Sales tax

(c)



Revenues, expenses and assets are recognised net of the amount of sales tax except:





Where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and





Receivables and payables that are stated with the amount of sales tax included.



The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet.

2.27 Derivative financial instruments and hedging activities

60



The Group uses derivative financial instruments such as forward currency contracts and interest rate swaps to hedge its risks associated with foreign currency and interest rate fluctuations. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivative financial instruments are carried as assets when the fair value is positive and as liabilities when the fair value is negative.



Any gains or losses arising from changes in fair value on derivative financial instruments that do not qualify for hedge accounting are taken to the income statement for the year.



The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The fair value of interest rate swap contracts is determined by reference to market values for similar instruments.

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS

31 December 2008

2.

Summary of significant accounting policies (cont’d)

2.27 Derivative financial instruments and hedging activities (cont’d)

For the purpose of hedge accounting, hedges are classified as:





Fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability or an unrecognised firm commitment, that is attributable to a particular risk and could affect profit or loss;





Cash flow hedges when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction and could affect profit or loss; or





Hedges of a net investment in a foreign operation.



At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.



Cash flow hedge



For cash flow hedges, the effective portion of the gain or loss on the hedging instrument is recognised directly in the hedging reserve, while the ineffective portion is recognised in the income statement.



Amounts taken to hedging reserve are transferred to the income statement when the hedged transaction affects profit or loss, such as when hedged financial income or financial expense is recognised or when a forecast sale or purchase occurs. Where the hedged item is the cost of a non-financial asset or liability, the amounts taken to hedging reserve are transferred to the initial carrying amount of the non-financial asset or liability.



If the forecast transaction is no longer expected to occur, amounts previously recognised in hedging reserve are transferred to the income statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognised in hedging reserve remain in hedging reserve until the forecast transaction occurs. If the related transaction is not expected to occur, the amount is taken to the income statement.



Fair value hedge



For fair value hedges, the carrying amount of the hedged item is adjusted for gains and losses attributable to the risk being hedged, the derivative is remeasured at fair value and gains and losses from both are taken to the income statement.

61

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS 31 December 2008 2.

Summary of significant accounting policies (cont’d)

2.27 Derivative financial instruments and hedging activities (cont’d)

For fair value hedges relating to items carried at amortised cost, the adjustment to carrying value is amortised through the income statement over the remaining term to maturity. Any adjustment to the carrying amount of a hedged financial instrument for which the effective interest method is used is amortised to the income statement.



Amortisation begins as soon as an adjustment exists but no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged.



When an unrecognised firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognised as an asset or liability with a corresponding gain or loss recognised in the income statement. The changes in the fair value of the hedging instrument are also recognised in the income statement.



The Group discontinues fair value hedge accounting if the hedging instrument expires or is sold, terminated or exercised, the hedge no longer meets the criteria for hedge accounting or the Group revokes the designation. Any adjustment to the carrying amount of a hedged financial instrument for which the effective interest method is used is amortised to the income statement. Amortisation begins as soon as an adjustment exists but no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged.

2.28 Segment reporting

A business segment is a distinguishable component of the Group that is 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 that is engaged in providing products or services within a particular economic environment and that is subject to risks and returns that are different from those of components operating in other economic environments.

2.29 Share capital and share issue expenses

Proceeds from issuance of ordinary shares are recognised as share capital in equity. Incremental costs directly attributable to the issuance of ordinary shares are deducted against share capital.

2.30 Treasury shares

When shares recognised as equity are reacquired, the amount of consideration paid is recognised directly in equity. Reacquired shares are classified as treasury shares and presented as a deduction from total equity. No gain or loss is recognised in the income statement on the purchase, sale, issue or cancellation of treasury shares.

2.31 Contingencies

62



A contingent liability or asset is a possible obligation or asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of uncertain future event(s) not wholly within the control of the Group.



Contingent liabilities and assets are not recognised on the balance sheet of the Group.

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS

31 December 2008

3.

Group companies



The subsidiary and associated companies as at 31 December 2008 are: Name of Company (Country of incorporation)

Principal activities (Place of business)

Subsidiary companies

Cost of investments by the Company 2008 2007 $’000 $’000

Effective interest held by the Group 2008 2007 % %

Directly held by the Company Mansfield Manufacturing Company Limited (Hong Kong) (“Mansfield”) 1 & 3

Metal stamping and sub-assembly of stamped components, tooling and die making (Hong Kong)

47,061* 14,120

47,061

100.00

83.33

14,120

* Increase is via cash investment of $20,706,000 and reissue of treasury shares of $12,235,000 made during the year. Indirectly held through subsidiary companies MSF Go Smart Development Limited 1 (Hong Kong)

Property investment and trading of electrical appliances (Hong Kong)

#

#

100.00

83.33

ME Electronic Products Limited (Hong Kong)

Research development (Hong Kong)

#

#

-

83.33

Lens Tool & Die (H.K.) Limited 1 (Hong Kong)

Property investment (Hong Kong)

#

#

100.00

83.33

Magix Mechatronics Company Limited 1 (Hong Kong)

Sale of Assembly Components (Hong Kong)

#

#

90.00

75.00

Feng Chuan Tooling Company Limited 1 (Hong Kong)

Sales of precision tools and dies (Hong Kong)

#

#

100.00

83.33

2

63

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS 31 December 2008 3.

Group companies (cont’d) Name of Company (Country of incorporation)

Principal activities (Place of business)

Subsidiary companies

Cost of investments by the Company 2008 2007 $’000 $’000

Effective interest held by the Group 2008 2007 % %

Indirectly held through subsidiary companies (cont’d) Feng Chuan Tooling (Dongguan) Company Limited 4 (People’s Republic of China)

Manufacturing of precision tools and dies (People’s Republic of China)

#

#

100.00

83.33

Mansfield (Suzhou) Manufacturing Company Limited 4 (People’s Republic of China)

Metal stamping, tooling and die making (People’s Republic of China)

#

#

100.00

83.33

Magix Mechatronics (Dongguan) Company Limited 4 (People’s Republic of China)

Assembly of components (People’s Republic of China)

#

#

90.00

75.00

Dongguan Mansfield Metal Forming Company Limited 4 (People’s Republic of China)

Metal stamping, tooling and die making (People’s Republic of China)

#

#

100.00

83.33

Go Smart Technologies (Shenzhen) Co Ltd 2 & 4 (People’s Republic of China)

Trading of electrical appliances

#

#

-

83.33

Magix Industrial Company Limited (Hong Kong)

Contract manufacturing in China and general trading (Hong Kong)

#

#

90.00

75.00

Investment holding and general trading (Hong Kong)

#

#

55.00

45.83

1

Mansfield Industrial Company Limited 1 (Hong Kong)

64

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS

31 December 2008

3.

Group companies (cont’d) Name of Company (Country of incorporation)

Principal activities (Place of business)

Subsidiary companies

Cost of investments by the Company 2008 2007 $’000 $’000

Effective interest held by the Group 2008 2007 % %

Indirectly held through subsidiary companies (cont’d) Mansfield Manufacturing (Dalian) Company Limited 4 (People’s Republic of China)

Metal stamping (People’s Republic of China)

#

#

55.00

45.83

Exerion Precision Technology Holdings BV 1 (The Netherlands)

Investment holding

#

#

75.00

62.50

Exerion Precision Technology Ulft NL BV 1 (The Netherlands)

Electrical appliance sub-assembly

#

#

75.00

62.50

Exerion Precision Technology Olomouc CZ s.r.o.1 (Czech Republic)

Electrical appliance sub-assembly

#

#

75.00

62.50

Associated companies Indirectly held through subsidiary companies Wong Exerion Precision Technology Sdn Bhd 4

Electrical appliance subassembly

#

#

36.60

36.60

Mayax, Inc.

Metal stamping

#

-

20.00

-

Audited by member firms of Ernst & Young Global in the respective countries Disposed of during the year 3 Acquired the remaining 16.67% equity interest during the year 4 Audited by other firm 5 Group’s effective interest diluted from 41.67% to 20% during the year (see Note 17) # Cost of investment in the sub-subsidiaries of the Group are reflected in the financial statements of their respective holding companies



1



2





5

4.

Sale of goods



Sale of goods of the Group represents the aggregate of net invoiced value of goods sold, after allowances for goods returned and trade discounts, and excludes intra-group transactions.

65

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS 31 December 2008 5.

Other income Group

Interest income from banks Rental income Gain on disposal of property, plant and equipment Others Excess over the cost of business combination (Note 15)

2007 $’000

2,226 548 63 1,249 – 4,086

1,356 539 27 838 1,681 4,441

6.

Salaries and employee benefits



Salaries and employee benefits for continuing operation includes the following:

Directors’ emoluments: Directors of the Company – Fees – Employee share option plan expense – Other emoluments – Contributions to state pension schemes and CPF contributions Directors of subsidiaries – Employee share option plan expense – Other emoluments Contributions to state pension schemes and CPF contributions Employee share options plan expense

2008 $’000

Group

2007 $’000

189 106 3,107 41

211 123 1,819 10

– – 2,554 312

83 929 2,532 676

7.

Other operating expenses/(income)



The following items have been included in arriving at the loss before tax from continuing operations: Group 2008 2007 $’000 $’000 Non-audit fees – Auditors of the Company – Other auditors Property, plant and equipment written off Amortisation of intangible assets Operating lease expenses Impairment of property, plant and equipment Impairment of investment in associates Impairment of other investments Impairment of club membership Allowance for doubtful trade receivables Write-back of allowance for doubtful other receivables Provision for obsolete inventories Fair value gain on investment held for trading Write-back of provision for undertakings

66

2008 $’000

70 – 3,546 – 10,572 1,710 825 – – 324 – 928 (416) (6,902)

70 26 58 190 9,059 – − 1,223 28 612 (1,108) 722 – –

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS

31 December 2008

8.

Finance costs Group

Interest expense – Bank loans and borrowings 9.

Income tax expense



Major components of income tax expense are:

2008 $’000

2007 $’000

2,455

4,017

2008 $’000 Current – continuing operations Singapore Foreign

655 1,504

Deferred – continuing operations Origination and reversal of temporary differences

2,699

Group

2007 $’000 1,618 2,106 (761)

4,858

2,963

1,323

340

Income tax attributable to continuing operations Income tax attributable to discontinued operation (Note10)

6,181 –

3,303 1,734

Income tax expense recognised in the income statement

6,181

5,037

Under-provision for current income tax in respect of previous years

A reconciliation between the tax expense and the product of accounting profit multiplied by the applicable tax rate for the years ended 31 December is as follows: Group 2008 2007 $’000 $’000 (Loss)/profit from continuing operations before tax Profit from discontinued operation before tax

(92) –

25,049 48,823

Accounting (loss)/profit before tax

(92)

73,872

45

(10,666)

Tax expense/(income) at the domestic rates applicable to profits in the countries where the Group operates Adjustments: Non-taxable income and credits Non-deductible expenses Effect of change in tax rate Deferred tax assets not recognised Derecognition of deferred tax assets Benefits from previously unrecognised tax losses Others Under provision of tax in prior years Tax expense recognised in the income statement

(1,375) 2,170 483 453 2,881 – 201 1,323

(7,432) 13,957 – 9,651 – (2,984) 692 1,819

6,181

5,037

67

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS 31 December 2008 9.

Income tax expense (cont’d)



The above reconciliation is prepared by aggregating separate reconciliations of each national jurisdiction.



The corporate income tax rate applicable to Hong Kong companies of the Group was reduced from 17.5% to 16.5% for the year of assessment 2009 onwards.



Certain subsidiaries of the Group established in the People’s Republic of China (“PRC”) were exempted from PRC corporate income tax (“CIT”) for their first two profit-making years of operations and thereafter are eligible for a 50% relief from PRC CIT for the following three years under the PRC tax laws. For some other companies, corporate taxes have been calculated on the estimated assessable profits for the year at the rate of 25% (2007: 27%).



For the companies operating in the Netherlands, corporate taxes have been calculated on the estimated assessable profits for the year at rates ranging from 21% to 25.5%.



A subsidiary group in Thailand was granted promotional privileges granted under the Investment Promotion Act in Thailand. As part of the privileges, certain profits of these subsidiaries are not subject to tax for a period ranging from 3 to 7 years commencing from 1 September 2002, 30 June 2004, 1 April 2005, 2 February 2007, 1 April 2007 and 2 October 2007 respectively. This subsidiary group was disposed off on 7 November 2007.



As at 31 December 2008, the Group had unutilised tax losses of approximately $11,868,000 (2007: $8,922,000) which are available for offset against future taxable profits of the companies in which the losses arose, for which no deferred tax asset is recognised due to uncertainty of its recoverability. The use of these tax losses is subject to the agreement with the tax authorities and compliance with certain provisions of the tax legislation of the respective countries in which the Group operates. No deferred tax asset is recognised on these losses in accordance with the Group’s accounting policy as set out in Note 2.26(b).

10. Discontinued operation

On 29 August 2007, the Company publicly announced the decision of its Board of Directors to discontinue and dispose of its subsidiary, Magnecomp Precision Technologies Public Company (“MPT”), a public listed company on the Stock Exchange of Thailand and its subsidiaries. The sale transaction was completed on 7 November 2007.



The results of MPT and its subsidiaries (“MPT Group”) for period from 1 January 2007 to the date of disposal and the net gain on disposal are presented separately on the income statement as “Profit from discontinued operations, net of tax”. The results are as follows: Group 2007 $’000 Revenue Expenses

Loss from operations Finance costs Net gain on partial disposal (2) (Note 15) Fair value change on investment held for trading

68

337,140 (363,604)

(1)

(3)

(26,464) (7,671) 72,292 10,666

Gain from discontinued operation before taxation Tax related to loss from discontinued operations

48,823 (1,734)

Profit from discontinued operations, net of tax

47,089

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS

31 December 2008

10. Discontinued operation (cont’d) Cash flow statement disclosures The cash flows attributable to MPT are as follows: Group 2007 $’000



Operating Investing Financing

62,956 (58,362) (16,855)

Net cash outflows

(12,261)

(1)

Included in the expenses are restructuring charge of approximately $23 million for the year ended 31 December 2007 due to earlier-than-expected end of life of certain products and the reduction of China, USA and Thailand operations as follows: Group 2007 $’000

Impairment loss/written-off for machinery and equipment Allowance for stock obsolescence Relocation of factory and office Severance payment

20,787 − − 1,898 22,685



(2)



(3)



This gain relates to disposal of 64.3% shareholding stake in MPT after provision for undertakings given to TDK Corporation (“TDK”) Fair value change relates to balance of the 10% shareholding stake on MPT amounting to 208,486,179 shares in MPT under the Put and Call Option agreement with TDK.

11. (Loss)/earnings per share (1)

Continuing operations



(a)

Basic (loss)/earnings per share amounts are calculated by dividing the net (loss)/profit for the year from continuing operations attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the financial year.

69

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS 31 December 2008

11. (Loss)/earnings per share (cont’d) (1)

Continuing operations (cont’d)



The following table reflects the profit and loss data used in the computation of the basic and diluted (loss)/earnings per share for the years ended 31 December: Group 2008 $’000 Net (loss)/profit attributable to ordinary equity holders for basic earnings per share

–

(47,089)

Minority interest from discontinued operation

–

(9,906)

–

(56,995)

Net (loss)/profit from continuing operations attributable to ordinary equity holders of the Company used in the computation of basic and diluted (loss)/earning per share Weighted average number of ordinary shares on issue applicable to basic earnings per share (’000) (b)

(7,031) 234,090

16,725 240,102

Diluted (loss)/earnings per share amounts are calculated by dividing the net (loss)/profit for the year from continuing operations attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares in issue for the financial year, after adjusting for the effect of dilutive options under the InnoTek Employees’ Share Option Plan as follows: 2008 No. of shares ’000

70

73,720

Profit from discontinued operation, net of tax, attributable to ordinary equity holders of the Company

Less: Profit from discontinued operation, net of tax and minority interests, attributable to ordinary equity holders of the Company



(7,031)

2007 $’000

2007 No. of shares ’000

Number of ordinary shares in issue (used in the calculation of basic (loss)/earnings per share) Number of unissued shares under option

234,090 –

240,102 477

Weighted average number of ordinary shares for diluted (loss)/earnings per share computation

234,090

240,579

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS

31 December 2008

11. (Loss)/earnings per share (cont’d) (1)

Continuing operations (cont’d)



(c)

There are no potential dilutive earnings per share year for year 2008 as the Group is in a loss position. In the year 2007, 4,244,000 shares options granted to employees under the existing employee share option plans have not been included in the calculation of diluted earnings per share because they are anti-dilutive for the previous financial periods presented.



(d)

Since the end of the year, no employees have exercised the option to acquire ordinary shares (2007: 295,000 ordinary shares). There have been no other transactions involving ordinary shares or potential ordinary shares since the reporting date and before the completion of these financial statements.

(2)

Discontinued operations



The basic and diluted earnings per share from discontinued operation are calculated by dividing the “Profit from discontinued operation, net of tax and minority interests attributable to ordinary equity holders of the Company’ by the ‘Weighted average number of ordinary shares on issue applicable to basic earnings per share computation’ and ‘Weighted average number of ordinary shares for diluted earnings per share calculation’ respectively. These income statement and share data are presented above in caption 1(a) of this Note.

12. Property, plant and equipment

Group

Leasehold buildings $’000

Freehold land $’000

Freehold properties $’000

Machinery and equipment $’000

Tools and dies $’000

5,048 615 1,967

7,302 − −

31,555 2,525 272

372,954 38,433 34,418

30,544 491 14,281

457 −

− −

− −

2,982 (1,221)

Furniture fittings, and office equipment $’000

Motor vehicles $’000

Leasehold improvements $’000

Construction in-progress $’000

27,745 1,016 4,865

1,846 (224) 346

35,428 7,856 13,408

53,360 (50,712) 34,440

Total $’000 (Restated)

Cost At 1 January 2007 Reclassification Additions Acquisition of subsidiary Disposals Disposal of subsidiary Written off Currency realignment At 31 December 2007 and 1 January 2008 Reclassification Additions Disposals Disposal of subsidiaries Written off Currency realignment At 31 December 2008

(2,467) − (208)

5,412 21,194 6,010 − − − (126)

32,490

(7,317) − 15

(34,282) − (70)

565,782 − 103,997

1,214 (17)

2,363 (533)

− (133)

− (5,295)

4 (204)

7,020 (7,403)

(333,086) (8,016) (4,739)

(42,746) (1,172) (705)

(17,765) (1,048) (787)

(695) − (56)

(16,317) (16) (1,714)

(30,660) (1,164) 3,667

(485,335) (11,416) (4,597)

101,725 1,451 9,702 (746)

1,890 − 149 −

15,856 469 1,522 −

1,084 − 161 (298)

33,350 5,703 5,637 −

8,731 (28,817) 24,538 −

168,048 − 47,719 (1,044)

− (1,002) 43

(689) (3,755) 4,389

− − − −

− − − −

− − −

− − −

− − 2,939

−

−

115,071

(610) − (50)

1,379

(75) (337) 282

17,717

− − 30

977

(4) (2,416) 1,271

43,541

3,493

214,668

71

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS 31 December 2008

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

Group

Accumulated depreciation and impairment loss At 31 December 2006 and 1 January 2007 (as restated) Reclassification Acquisition of subsidiary Impairment Charge for the year – Continuing operations Charge for the year – Discontinuing operations Disposals Disposal of subsidiary Written off Currency realignment At 31 December 2007 and 1 January 2008 Impairment Charge for the year Disposals Disposal of subsidiaries Written off Currency realignment

Leasehold buildings $’000

Freehold land $’000

1,903 615

− −

182 −

− −

− −

186

−

−

7 −

− −

1,465 −

(263) − (112)

13,415 188,798 (383) 1,450

16,282 (1,399)

18,764 (376)

2,504 15,329

320 1,903

1,257 29

7,902

504

Motor vehicles $’000

Total $’000 (Restated)

19,984 307

− −

260,435 −

− −

− 2

− 216

4,263 17,479

1,933

159

4,706

−

15,390

1,978 (523)

35 (133)

1,504 (5,296)

(14,489) (206,552) (30,129) (11,102) − (3,269) (772) (1,159) (8) 5,317 (674) (553)

(625) − (35)

(4,175) (8) (937)

476 − 182 (216)

16,087 − 5,908 −

31,357 (1,087)

1,162 − 476 −

51,499 (7,269)

− (267,335) − (5,208) (12) 2,986

− − −

− − −

− − 805

2,543

−

−

52,956

1,041

11,944

449

22,839

−

91,772

At 31 December 2008

29,947

−

−

62,115

338

5,773

528

20,702

3,493

122,896

At 31 December 2007

2,894

−

−

59,976

728

5,608

608

17,263

8,731

95,808

(566) − (31)

10,248 − 1,906 −

− (204)

− − − −

− − (626)

41,749 1,506 9,354 (458)

15,153 (26)

1,289 (214)

Leasehold Construction improvements in-progress $’000 $’000

− − − −

At 31 December 2008

2,518 204 447 −

− − −

Freehold Machinery Tools and properties and equipment dies $’000 $’000 $’000

Furniture fittings, and office equipment $’000

(58) 209 (361)

− − 7

(4) − 848

− − − −

72,240 1,710 18,273 (674)

− − −

(628) 209 642

Net book value

(i)

72

In year 2007, impairment loss relates to certain subsidiaries discontinuing certain production lines, earlier-than-expected end of life of certain products and the related assets amounting to approximately $17,479,000 was charged to profit and in the line item “expenses” in Note 10.

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS

31 December 2008

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

Company

Computer $’000

Furniture, fittings and office equipment $’000

Motor vehicles $’000

Total $’000

Cost At 1 January 2007 Additions Written off

164 56 (136)

128 5 (25)

298 − −

590 61 (161)

298 – (298)

490 9 (298)

At 31 December 2007 and 1 January 2008 Additions Disposal

84 – –

108 9 –

At 31 December 2008

84

117

–

201

Accumulated depreciation At 1 January 2007 Charge for the year Written off

164 56 (136)

128 5 (25)

133 44 −

425 105 (161)

177 39 (216)

369 48 (216)

At 31 December 2007 and 1 January 2008 Charge for the year Disposal

84 – –

108 9 –

At 31 December 2008

84

117

–

201

At 31 December 2008

–

–

–

–

At 31 December 2007

−

−

121

121

Net book value

Assets held under finance leases The carrying amount of machinery and equipment held under finance leases as at 31  December 2008 was approximately $203,000 (2007: $1,210,000). Leased assets are pledged as security for the related finance lease liabilities.

73

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS 31 December 2008

13. Prepaid land lease payments Group 2008 $’000

2007 $’000 (Restated)

Cost At 1 January Addition Exchange differences

2,174 2,978 66

1,567 688 (81)

At 31 December

5,218

2,174

Accumulated amortisation At 1 January Amortisation for the year Exchange differences

463 18 3

453 40 (30)

At 31 December

484

463

Net carrying amount

4,734

1,711

Amount to be amortised: – Not later than one year – Later than one year but not later than five years – Later than five years

101 406 4,227

10 170 1,531

4,734

1,711

101 4,633

10 1,701

4,734

1,711

Current (Note 23) Non-current

The Group has 4 leasehold land in People’s Republic of China (PRC) where the Group’s PRC manufacturing and storage facilities reside. The leasehold land is transferable and has a remaining tenure ranges from 39 to 50 years (2007: 40 to 51 years).

74

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS

31 December 2008

14. Intangible assets

Group

Club memberships $’000

Goodwill $’000

Deferred expenditure $’000

Patents $’000

16,317 − (16,374) 57

5,706 (2,047) (3,659) −

3,925 − (3,926) 1

Total $’000

Cost Balance 1 January 2007 Written off Disposal of subsidiary Currency realignment

333 − (206) 41

At 31 December 2007 and 1 January 2008 Disposal Currency realignment

168 (9) 1

− – –

− – –

− – –

168 (9) 1

At 31 December 2008

160

–

–

–

160

26,281 (2,047) (24,165) 99

Accumulated amortisation and impairment loss Balance 1 January 2007 Amortisation for the year Impairment loss Written off Disposal of subsidiary Currency realignment

−

−

5,030

3,821

8,851

− 28 − − −

− − − − −

190 − (1,561) (3,659) −

100* − − (3,923) 2

290 28 (1,561) (7,582) 2

At 31 December 2007 and 1 January 2008 Disposal

28 (9)

− −

− −

− −

28 (9)

At 31 December 2008

19

−

−

−

19

At 31 December 2008

141

−

−

−

141

At 31 December 2007

140

−

−

−

140

Net book value

*

Amortisation of patents relates to research and development expenditure has been included in the “raw materials and production overheads” line item in the income statement.

75

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS 31 December 2008

14. Intangible assets (cont’d)

Company

Club memberships $’000

Deferred expenditure $’000

Total $’000

2,047 (2,047)

2,075 (2,047)

Cost At 1 January 2007 Written off

28 −

At 31 December 2007 and 1 January 2008 Disposal

28 (9)

− −

28 (9)

Balance at 31 December 2008

19

−

19

Accumulated amortisation At 1 January 2007 Amortisation for the year Impairment loss Written off

− − 28 −

1,371 190 − (1,561)

1,371 190 28 (1,561)

At 31 December 2007 and 1 January 2008 Disposal

28 (9)

− −

28 (9)

At 31 December 2008

19

−

19

At 31 December 2008

−

−

−

At 31 December 2007

−

−

−

Net book value

76

•

Deferred expenditure represents license fee payable under cross licensing/licensing agreements for use of certain patents. The remaining deferred expenditure was written off as it relates to patents pertaining to MPT operations which was disposed off on 7 November 2007.

•

Patents represent costs of developing intellectual property relating to patents on new products and process technologies.

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS

31 December 2008

15. Investment in subsidiaries Company 2008 2007 $’000 $’000 Investment in subsidiaries, at cost Less: Disposal of subsidiary

47,061 – 47,061

Analysis of impairment loss: Balance at beginning of year Written-back to income statement on disposal of subsidiary

– –

Balance at end of year

–

163,054 (148,934) 14,120 8,006 (8,006) −

Please see Note 3 for details of subsidiaries. Disposal of ME Electronic Products Limited (“MEP”) and Go Smart Technologies (Shenzhen) Co., Ltd (“GSS”) The Group disposed of 100% equity interest in MEP and GSS on 31 August 2008 for a cash consideration of HK$491,000 (S$90,000) and HK$624,000 (S$115,000) respectively. No gain or loss on disposal of MEP and GSS was being recorded. The value of assets and liabilities of MEP and GSS recorded on the consolidated financial statements as at 31 August 2008, and the cash flow effect of MEP and GSS were: 2008 $’000 Net assets disposed of: Property, plant and equipment Cash and cash equivalents Prepayment and other receivables Accruals and other payables Due to a subsidiary

61 273 33 (43) (119)

Results on disposal of subsidiaries

205 –

Consideration from disposal Less: Cash and cash equivalents disposed Net cash outflow from sale of MEP and GSS

205 (273) (68)

77

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS 31 December 2008

15. Investment in subsidiaries (cont’d)

Disposal of Magnecomp Precision Technologies Public Company (“MPT”) in year 2007



The Company disposed of 64.3% equity interest in MPT on 7 November 2007 for a cash consideration of US$106.5 million ($153.1 million).



The Company entered into a put and call option agreement with TDK Corporation (“TDK”) in respect of its remaining 10% equity interest in MPT. As the terms and conditions of the put and call options differ, the Company has redesignated the 10% equity interest investment as “held-for-trading” and accounted for it at fair value as at year end.



In addition, the Company also received US$5.0 million ($7.2 million) from the change of name of the Company from “Magnecomp International Limited” to “InnoTek Limited” and the provisions of other undertakings under the undertaking agreement with TDK. The undertaking agreement provided, inter alia, for the Company to assist TDK to procure the remaining equity interest in MPT for a maximum amount of US$5.0 million. As at 31 December 2007, TDK had attained 98.93% equity interest in MPT and an amount of US$4.8 million ($6.9 million) was recognised as income. As at 31 December 2007, the Company made a provision of $6.9 million in respect of undertakings given pursuant to the sale and purchase agreement. As at 31 December 2008, management has assessed the provision for undertakings for sale of MPT and write-back the provision as it is no longer required.



The disposal of MPT results in a gain on sale of MPT amounting to $72,292,000 and the value of assets and liabilities of MPT pertaining to the 64.3% equity interest in MPT recorded in the consolidated financial statements as at 7 November 2007, and the cash flow effect of MPT disposal were: Group 2007 $’000 Current assets Cash and cash equivalent Non-current assets Current liabilities Non-current liabilities Minority Interest Reserves Carrying values of net assets Gain on disposal of MPT (Note 10)

78

59,303 5,300 205,459 (104,150) (71,525) (18,484) 3,722 79,625 72,292

Consideration from disposal, net of expense Less: Cash and cash equivalents disposed

151,917 (5,300)

Net cash inflow from sale of MPT

146,617

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS

31 December 2008

15. Investment in subsidiaries (cont’d)

The Group also recorded a gain from the fair value change for the balance of the 10% shareholding in MPT representing 208,486,179 MPT shares held under the put and call option agreement with TDK as follows: Group and Company 2008 2007 $’000 $’000 Investment Securities Market price of the 208,486,179 MPT shares as at 31 December Fair value change for investment held for trading

23,384

22,968

416

10,666



Acquisition of subsidiary



On 2 January 2007, the Group’s subsidiary, Mansfield Manufacturing Company Limited acquired 75% equity interest in Exerion Precision Technology Holding B.V. (“Exerion”). Exerion is engaged in engineering, production and assembly of complex frame structures and functional modules primarily of document-processing and medicinal appliance and equipment. The purchase consideration was in the form of the conversion of a convertible loan of S$3,944,000 extended to Exerion in the previous year and cash of $81,000.



The fair values of the identifiable assets and liabilities of Exerion as at the date of acquisition were:

Property, plant and equipment Investment in associate Deferred tax assets Inventories Trade receivables Other receivables Cash and bank balances Interest-bearing loans and borrowings Trade payables Other payables and accruals Minority interests Net identifiable assets Excess over the cost of acquisition recognised in the income statement (Note 5) Consideration for acquisition

Fair value recognised on acquisition $’000

Carrying amount before combination $’000

2,757 214 2,823 8,442 3,623 693 348 (2,003) (7,458) (1,830) (1,903)

2,757 214 2,823 8,442 3,623 693 348 (2,003) (7,458) (1,830) (1,903)

5,706

5,706

(1,681) 4,025

79

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS 31 December 2008

15. Investment in subsidiaries (cont’d) Fair value recognised on acquisition $’000 Satisfied by: Cash paid Conversion of convertible loan*

81 3,944 4,025

*

The convertible loan was classified as deposit as at 31 December 2007.

The effect of acquisition on cash flows is as follows: 2007 $’000

80

Total consideration for 75% equity interest acquired Less: Non-cash consideration

4,025 (3,944)

Consideration settled in cash Cash and bank balance of newly acquired subsidiary

81 (348)

Net cash inflow on acquisition

(267)



The subsidiary acquired during the year contributed $43.2 million to the Group’s continuing operation’s revenue and a loss after tax before minority interest from continuing operations of $0.8 million.



Had acquisition taken place at the beginning of the year, the revenue and the profit after tax from continuing operations for the year would have been $448.9 million and $21.7 million respectively.



Acquisition of minority interest



(a)

On 14 March 2008, the Company entered into a sale and purchase agreement with Mr. To Wai Hung, a minority shareholder of its subsidiary, Mansfield Manufacturing Company Limited (“MSF”), to acquire the remaining 21,347 ordinary shares of MSF, which represents approximately 16.67% of the paid-up share capital of MSF.



The consideration for this purchase comprises:



(i)

the sum of $2,966,611 payable in cash (“Cash Consideration”); and



(ii)

the allotment by the Company to Mr. To Wai Hung of 15,787,000 ordinary shares of the Company, representing approximately 6.5% of the issued share capital of the Company (including treasury shares) as at 14 March 2008 (“Share Consideration”).

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS

31 December 2008

15. Investment in subsidiaries (cont’d) Acquisition of minority interest (cont’d)

(a)

The Share Consideration comprises treasury shares that the Company purchased pursuant to the InnoTek share purchase mandate approved by its shareholders at the Extraordinary General Meeting held on 1 November 2008 and held as treasury shares.



As a result of this acquisition, MSF became a wholly-owned subsidiary of the Company. On the date of acquisition, the book value of the additional interest acquired was $15,386,000. The difference between the consideration and the book value of the interest acquired of $185,000 is reflected in equity as gain on acquisition of minority interests. The difference between the cost of treasury shares acquired and fair value on treasury shares reissuance date of $743,000 is reflected in equity as a loss.



On 31 July 2007, the Company’s subsidiary, Mansfield Manufacturing Company Limited acquired an additional 12.5% equity interest in Magix Mechatronics Company Limited from its minority interest for a cash consideration of $2.0 million (HK$10.1 million). The difference between the carrying amount of the interest acquired ($2,073,000) and the consideration is taken to equity as other reserve on acquisition of minority interest.

(b)

16. Investment in associates Group

Unquoted shares at cost Share of post-acquisition loss Impairment loss Currency realignment Transfer to other investment (Note 19)

Company 2008 2007 $’000 $’000

2008 $’000

2007 $’000

1,667 (563) (825) (22)

4,036 (1,566) (1,049) (4)

– – – –

3,822 − (2,599) −

(1,223)

–

(1,223)

– 257

194

–

−



Mayax, Inc. has suffered losses since its incorporation. In view of the deteriorating operating results of Mayax, Inc., the Group has provided an impairment loss of $825,000 (2007: $Nil).



Please see Note 3 for details of associates.



The summarised financial information of the associates, not adjusted for the proportion of ownership interest held by the Group, is as follows: Group 2008 2007 $’000 $’000 Assets and liabilities: Total assets Total liabilities

7,632 (3,042)

732 (317)

4,289

599

Results: Revenue Loss for the year

(2,866)

(31)

81

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS 31 December 2008

17. Investment in joint venture Group 2008 $’000

2007 $’000

–

357

Share of net assets

Particulars of the jointly-controlled entity as at 31 December 2007 are as follows:

Name Mayax, Inc.

Place of incorporation and operation San Diego County, California, USA

Nominal value Percentage of of issued equity attributable common stock to Group US$2,000,000

41.67%

Principal activities Metal stamping



The above investment in the jointly-controlled entity is indirectly held through a wholly-owned subsidiary of the Company.



Mayax, Inc. was accounted for as a jointly-controlled entity as at 31 December 2007 as the Group had joint control over Mayax, Inc. Pursuant to the amended and restated joint venture agreement dated 1 January 2008 entered into between the Group and YG Holdings Limited (“YG”), the other joint venture partner of Mayax, Inc., additional shares in Mayax, Inc. were subscribed by YG and the Group’s equity interest therein was diluted from 41.67% in 2007 to 20% in 2008. Thereafter, the Group no longer has joint control but has been in a position to exercise significant influence over Mayax, Inc. Accordingly, the Group’s interest in Mayax, Inc. has been accounted for as an associate since then (Note 16). The aggregate amounts of the current assets, non-current assets, current liabilities, income and expenses related to the Group’s interest in the jointly-controlled entity as at 31 December 2007 were as follows: 2007 $’000 Share of jointly-controlled entity were as follows: Current assets Non-current assets Current liabilities Net assets

3,975 315 (3,933) 357

Results:

82

Revenue

−

Expenses

−

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS

31 December 2008

18. Deferred tax

Group 2008 2007 $’000 $’000 Deferred tax assets Unutilised tax losses Currency realignment

Consolidated income statement 2008 2007 $’000 $’000

Company 2008 2007 $’000 $’000

– –

2,625 392

2,865 –

– –

– –

– –

–

3,017

2,865

–

–

–

167

–

−

Deferred tax liabilities Differences in depreciation (1,954) Foreign income not remitted (194)

(2,120) (194)

–

(928)

(194)

(194)

(2,148)

(2,314)

2,699

(761)

(194)

(194)

(166)



Unrecognised temporary differences relating to investment in subsidiaries



At 31 December 2008, there was no significant unrecognised deferred tax liability (2007: Nil) for taxes that would be payable on the unremitted earnings of the subsidiary of the Group, as the Group has no liability to additional tax should such amounts be remitted.



Tax consequences of proposed dividends



There are no income tax consequences (2007: Nil) attached to the dividends to the shareholders proposed by the Company but not recognised as a liability in the financial statement.

19. Other investments Group and Company 2008 2007 $’000 $’000



Available-for-sale: Unquoted shares at cost: Balance at beginning of year Additions Disposal Transferred from investment in associates (Note 16) Impairment loss

3,116 – (482) – –

2,105 1,011 – 1,223 (1,223)

Balance at end of year

2,634

3,116

The Company invested into a non-listed company in California (United States), Daylight Solutions Inc. in 2006. The principal activities of Daylight Solutions Inc. include developing, manufacturing and selling unique molecular detection and imaging instrumentation that offers significant advancement in the areas of medical diagnostics, homeland security, military applications and industrial controls.

83

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS 31 December 2008

19. Other investments (cont’d)

The Company disposed of 305,000 shares in Daylight Solutions Inc. on 13 November 2008 for a cash consideration of US$500,000 (S$714,000). Accordingly, the investment in Daylight Solution Inc. was diluted from 14.4% to 10.0% during the year.



In the year 2007, the Company transferred investment in associates of $1,223,000 to other investments as the Company’s interest in this entity has diluted from 48% in the year 2006 to 6% in the year 2007 due to a capital restructuring exercise conducted by this entity. The Directors do not expect the investment to be recoverable and a full provision for the same amount has been made accordingly. This impairment loss is included in the line item “other operating expenses” in the income statement.

20. Inventories Group 2008 $’000

2007 $’000 (Restated)

Finished goods Work-in-progress Raw materials

12,415 8,495 15,855

15,278 10,185 14,756

Total inventories at lower of cost and net realisable value

36,765

40,219



During the year, the Group wrote down approximately $928,000 (2007: write-back of $4,583,000) of inventories as expenses/income in the income statement.



In the year 2007, the Group wrote down approximately $1,524,000 of inventories which is recognised as expense in the income statement in the “raw material and production overhead” line item, and the “expenses” line item in Note 10.

21. Trade receivables Group

Trade receivables Amounts due from subsidiaries Allowance for doubtful trade receivables

2008 $’000

2007 $’000

88,281 – 88,281

101,424 − 101,424

(1,187) 87,094

84

(1,343) 100,081

Company 2008 2007 $’000 $’000 – 584 584

− 956 956

–

−

584

956



Trade receivables



The above balances are non-interest bearing and are generally on 30 to 90 days’ terms. They are recognised at their original invoice amounts which represents their fair values on initial recognition.

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS

31 December 2008

21. Trade receivables (cont’d)

Trade receivables (cont’d)



Included in trade receivables are amount due from minority shareholders of subsidiaries of $24,381,000 (2007: $45,565,000).



Amount due from subsidiaries



The above balances are unsecured, non-interest bearing, and are repayable on demand. The amounts will be settled in cash.



Allowance for doubtful trade receivables



For the year ended 31 December 2008, an impairment loss of $324,000 (2007: $612,000) was recognised in the income statement subsequent to a debt recovery assessment performed on trade receivables as at year end.



The Group’s trade receivables that are impaired at the balance sheet date and the movement of the allowance accounts are as follows: Group 2008 2007 $’000 $’000 Movement in allowance accounts: At 1 January Charge for the year Written off Currency realignment

(1,343) (324) 435 45

(1,284) (612) 553 –

At 31 December

(1,187)

(1,343)



The above represents a provision for individually impaired trade receivables whose carrying values aggregate $1,187,000 (2007: $1,343,000) as at year end. The individually impaired trade receivables relate to customers that were in financial difficulties and the receivables are not expected to be recovered. The Group does not hold collateral or other credit enhancements over these balances.



Receivables that are past due but not impaired



The Group has trade receivables amounting to $16,149,000 (2007: $21,000,000) that are past due at the balance sheet date but not impaired. These receivables are unsecured and the analysis of their aging at the balance sheet date is as follows: Group 2008 2007 $’000 $’000 Trade receivables past due: Less than 30 days 6,176 16,338 30 to 60 days 2,972 1,829 61 to 90 days 3,637 1,398 91 to 120 days 990 630 More than 120 days 2,374 805 16,149

21,000

85

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS 31 December 2008

22. Other receivables Group



Company 2008 2007 $’000 $’000

2008 $’000

2007 $’000 (Restated)

Non-current: Deposits

2,079

5,084

–

–

Current: Deposits Other debtors

8,097 5,464

6,232 12,526

62 22

105 7,321

13,561

18,758

84

7,426

Included in other debtors are amount due from related company of $357,000 (2007: $Nil). The balances are unsecured, non-interest bearing and repayable on demand.

23. Prepayments Group 2008 $’000

2007 $’000 (Restated)

Company 2008 2007 $’000 $’000

Non-current: Prepayments

544

390

–

–

Current: Prepaid land lease payments (Note 13) Other prepayments

101 554

10 874

– –

– –

655

884

–

–

24. Loans to subsidiaries

86

Loans to subsidiaries disbursed by the Company are unsecured, repayable on demand and are to be settled in cash. Interest bearing loans bear interest ranging from 3.44% to 5.36% (2007: 3.44% to 5.88%) per annum. The loans are to be settled in cash and are repayable on demand.

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS

31 December 2008

25. Cash and cash equivalents

Cash and cash equivalents as at 31 December were as follows: Group

Company 2008 2007 $’000 $’000

2008 $’000

2007 $’000

Cash and bank balances Fixed deposits

34,343 58,715

34,321 124,131

564 58,715

1,063 124,131

Bank overdrafts (Note 26)

93,058 (4,067)

158,452 (4,533)

59,279 –

125,194 −

88,991

153,919

59,279

125,194



Cash at banks earns interest at floating rates based on daily bank deposit rates at 0.01% to 1.4% (2007: ranging from 0.72% to 2.9%) per annum. Short-term deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates. The weighted average effective interest rate of short term deposits is 2.76% (2007: 6.80%) per annum.



Bank overdrafts are included in the determination of cash and cash equivalents because they form an integral part of the Group’s cash management.



Bank overdrafts are repayable on demand and have a weighted average effective interest rate of 6.23% (2007: 6.92%) p.a.

26. Interest-bearing loans and borrowings Weighted average effective interest rate (p.a.) Current: Obligations under finance lease, secured (Note 31) Bank loans: Hong Kong dollar Amounts owing to bankers Bank overdrafts (Note 26)

Non-Current: Obligations under finance lease, secured (Note 31) Bank loans: Hong Kong dollar

2.24% HIBOR+1% to1.85% / PRIBOR+1.75% HIBOR+1.5% to 1.75% EURIBOR+1.5% to 1.75%

Maturity

Group 2008 $’000

2007 $’000

2009

70

288

2009

24,075

21,811

2009

10,230

18,387

2009

4,067

4,533

38,442

45,019

2.24%

2010 – 2013

53

130

HIBOR+1.25% to 1.85%

2010 – 2011

26,982

27,630

27,035

27,760

87

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS 31 December 2008

26. Interest-bearing loans and borrowings (cont’d)

The bank overdrafts, amounts owing to bankers and bank loans are secured by Corporate guarantee of approximately $106,220,000 (2007: $101,328,000) from the Company and $5,000,000 (2007: $5,000,000) from one subsidiary to the Company.



Obligations under finance leases



These obligations are secured by a charge over the leased assets (Note 12).



Amounts owing to bankers



The amounts of $10,230,000 (2007: $17,193,000) relates to trust receipts payable to banks. There was no factoring loan as at 31 December 2008 (2007: $1,194,000).



Bank loans



(i)

granted a five year term loan on 26 April 2005 for which the full amount of $10.7 million (HK$50.0 million) had been drawn down. The loan is repayable at an amount of $537,000 (HK$2.5 million) on a equal quarterly instalment basis. The loan balance as at 31 December 2008 was $2.8 million (HK$15.0 million).



(ii)

granted a five year term loan on 29 July 2004 for the amount of $13.8 million (HK$70.0 million ). The loan is repayable by 16 quarterly instalments of $863,000 (HK$4.4 million). The loan balance as at 31 December 2008 was $3.2 million (HK$17.5 million).



(iii)

granted a four year term loan of $17.2 million (HK$80.0 million) on 25 October 2005. This amount is repayable at an amount of $1.15 million (HK$5.3 million) in 14 equal quarterly instalments basis. The loan balance as at 31 December 2008 was $3.9 million (HK$21.3 million).



(iv)

granted a three year term loan of $9.9 million (HK$50.0 million) on 6 June 2006 by a commercial bank. The loan balance as at 31 December 2008 was $5.1 million (HK$27.3 million).



(v)

drew down a five years term loan of $9.2 million (HK$50.0 million) granted on 23 April 2007. The loan is repayable on 16 equal quarterly instalments commencing 15 months from May 2007. The loan balance as at 31 December 2008 was $8.1 million (HK$43.8 million).



(vi)

drew down in September 2008 a 5 years term loan of $18.6 million (HK$100.0 million) granted on 29 July 2008. The loan is repayable on 10 quarterly instalments of $1.9 million (HK$10.0 million) commencing 2.5 years after first drawdown

27. Trade payables

88

Trade payables balance are non-interest bearing and are normally settled on 30 to 90 day terms.

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS

31 December 2008

28. Other payables and accruals Group 2008 $’000 Accrued operating expenses Other payables



Company 2008 2007 $’000 $’000

2007 $’000 (Restated)

13,853 17,581

30,413 11,407

997 –

4,823 566

31,434

41,820

997

5,389

Other payables are non-interest bearing and are normally settled on 30 to 90 day terms.

29. Provisions Group Provision Provision for Provision for severance for retirement benefits undertakings benefits $’000 $’000 $’000 At 1 January 2007 Arising during the year Utilised Translation differences Disposal of a subsidiary At 31 December 2007 and 1 January 2008 Write-back At 31 December 2008

142 3,053 (2,482) (46) (667) − − –

− 6,902 − − − 6,902 (6,902) –

1,378 − − − (1,378)

Provision for relocation $’000

Total $’000

2,177 591 (2,351) (71) (346)

3,697 10,546 (4,833) (117) (2,391)

− −

− −

–

–

6,902 (6,902) –

Company 2008 2007 $’000 $’000 Balance as at 1 January 2007 Arising during the year Write-back

6,902 – (6,902) –

− 6,902 – 6,902



The provision arose from the undertaking of warranties to TDK pursuant to the MPT sale and purchase agreement which was completed on 7 November 2007.



During the year ended 31 December 2008, management has assessed the provision for undertakings for sale of MPT and write-back the provision as it is no longer required (see Note 43 for details on subsequent event).

89

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS 31 December 2008

30. Share capital and treasury shares

(a)

Share capital Group and Company 2008 No. of shares ’000 Issued and fully paid At 1 January 242,848 Issued for cash (Note 33) 620 Transfer of share option reserve to share capital upon exercise of Employee Share Option Plan – At 31 December

243,468

$’000

2007 No. of shares ’000

$’000

96,648 343

238,360 4,488

94,508 1,396

–

−

744

96,991

242,848

96,648



The holders of ordinary shares (except treasury shares) are entitled to receive dividends as and when declared by the Company. All ordinary shares carry one vote per share without restrictions.



The Group has an employee share option plan (Note 33) under which options to subscribe for the Company’s ordinary shares have been granted to employees of the Group.



Treasury shares

(b)

Group and Company 2008

Issued and fully paid At 1 January Acquired during the year Reissued for acquisition of minority interest At 31 December

90

No. of shares ’000

2007

$’000

No. of shares ’000

$’000

7,602 18,246

6,381 13,625

− 7,602

− 6,381

(15,787)

(12,978)

–

–

7,602

6,381

10,061

7,028



Treasury shares relate to ordinary shares of the Company that is held by the Company.



The Company acquired 18,246,000 (2007: 7,602,000) shares in the Company through purchases on the Singapore Exchange during the financial year. The total amount paid to acquire the shares was $13,625,000 (2007: S$6,381,000) and this was presented as a component within shareholders’ equity.



On 14 March 2008, the Company entered into a sale and purchase agreement with Mr. To Wai Hung, a minority shareholder of a subsidiary, Mansfield Manufacturing Company limited (“MSF”), to acquire the remaining 21,397 ordinary shares of MSF, which represents 16.67% of the issued and paid-up share capital of MSF. 15,787,000 treasury shares were reissued to Mr. To as part of the consideration under this sale and purchase agreement.

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS

31 December 2008

31. Finance lease commitments

The Group has finance leases for certain item of plant and equipment (Note 12). These leases are classified as finance leases and expire over the next five years. The average discount rate implicit in the leases is 2.24% (2007: 4.19%) per annum. These leases have terms of renewal but no purchase options and escalation clauses. There are no restrictions placed upon the Group by entering into these leases.



Future minimum lease payments under finance leases together with the present value of the net minimum lease payments are as follows: Group 2008 2007 Present Present Minimum value of Minimum value of Payments payments payments payments $’000 $’000 $’000 $’000 (Note 26) (Note 26) Within one year After one year but not more than five years Total minimum lease payments Less: Amounts representing finance charges

72

70

293

288

54

53

132

130

126

123

425

418

(3) 123

– 123

(7) 418

− 418

32. Statutory reserve

Under the provision of the Civil and Commercial Code of Thailand, Magnecomp Precision Technologies Public Company (“MPT”) is required to set aside as legal reserve at least 5% of annual net income (after deduction of the deficit brought forward, if any) until the reserve reaches 10% of the company’s authorised capital. The statutory reserve cannot be used for dividend payment. In year 2007, this subsidiary was disposed of and the statutory reserve was accordingly reversed out to the net carrying value of MPT in the determination of the gain on disposal.

33. Employee share option plan

(a)

InnoTek Employees’ Share Option Plan



The InnoTek Employees’ Share Option Plan (the “Plan”) was approved by the shareholders of the Company at an Extraordinary General Meeting held on 18 September 2000.



The principal terms of the Plan were set out in the Circular to Shareholders dated 2 September 2000.



The Plan is administered by the Remuneration Committee which approves the dates of grant after the announcement of the half year and full year results of the Group. The bulk of the options allocated for grant each year are given out after announcement of the full year results. The second grant in the year is mainly given to eligible employees who join the Group during the year and who were left out in the earlier grant.

91

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS 31 December 2008

33. Employee share option plan (cont’d)

(a)

InnoTek Employees’ Share Option Plan (cont’d)



The unissued ordinary shares of the Company under the plan as at 31 December 2008 can be found under the Section “Options” of the Directors’ Report.



The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share options during the year: 2008 No. WAEP($) Outstanding at beginning of year Forfeited during the year Exercised during the year (2) (Note30(a)) Outstanding at end of year Exercisable at end of year

(3)

(1)

2007 No. WAEP($)

6,313,000 (754,000)

0.95 0.70

12,472,000 (1,671,000)

0.51 0.69

(620,000)

0.55

(4,488,000)

0.31

4,939,000

1.04

6,313,000

0.95

2,912,250

1.03

1,491,500

0.71

(1)



Included within these balances are equity-settled options that have not been recognised in accordance with FRS102 as these equity-settled options were granted on or before 22 November 2002. These options have not been subsequently modified and therefore do not need to be accounted for in accordance with FRS102.

(2)



The weighted average share price at the date of exercise for the options exercised was $0.77 (2007: $0.87).

(3)



The range of exercise prices for options outstanding at the end of the year was $0.49 to $1.23 (2007: $0.16 to $1.23). The weighted average remaining contractual life for these options is 6.4 years (2007: 7.2 years).

There is no share option granted in year 2008 (2007: Nil).

(b)



92

Magnecomp Precision Technology Public Company Limited (“MPT”) – Warrants (Share Option Plan) With the completion of disposal of MPT on 7 November 2007, the MPT-Warrant (Share Option Plan) which was reported as discontinued operation in 2007 is not applicable in year 2008.

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS

31 December 2008

34. Related party transactions

In addition to the related party information disclosed elsewhere in the financial statements, the following significant transactions between the Group and related parties who are not members of the Group took place during the year at terms agreed between the parties:



(a)

Sales and purchases of goods, services and motor vehicle Group

Sale of finished goods to a company related to a director of a subsidiary Sale of finished goods to a minority shareholder Provision of services Sale of motor vehicle to a director

2008 $’000

2007 $’000

47,406 57,338 (41) 98

44,168 99,728 (48) –



Company related to a director of a subsidiary



One of the directors of a subsidiary of Mansfield Group is also a director of a company to which the subsidiary has sold goods relating to office automation and television parts.



Acquisition of minority interest

(b)



On 14 March 2008, the Company entered into a sale and purchase agreement with Mr To Wai Hung, a minority shareholder and a director of its subsidiary, Mansfield Manufacturing Limited (“MSF”), to acquire the remaining 21,347 ordinary shares of MSF (see Note 15). Company 2008 2007 $’000 $’000 Acquisition of minority interest



(c)



15,202

–

Disposal of subsidiaries On 31 August 2008, the Group disposed of 100% equity interest in ME Electronic Products Limited (“MEP”) and Go Smart Technologies (Shenzhen) Co. Ltd. (“GSS”) to Mr To Wai Hung, director of the Company and a third party (see Note 15). Group

Disposal of MEP and GSS

2008 $’000

2007 $’000

205

–

93

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS 31 December 2008

34. Related party transactions (cont’d) (e)

Compensation of key management personnel Group



94

2008 $’000

2007 $’000

Directors’ fees Short-term employee benefits Central Provident Fund contributions Employee share option plan expense Termination benefits Compensation and other payment on disposal of MPT

189 4,405 112 163 – –

211 5,759 38 901 1,741 2,680

Total compensation paid to key management personnel

4,869

11,330

Comprise amounts paid to: – Directors of the Company – Other key management personnel

3,443 1,426

5,053 6,277

4,869

11,330

The remuneration of key management personnel are determined by the remuneration committee having regard to the performance of individuals and market trends.



Interest of key management personnel in employee share option plan



(i)

At 1 January 2008 the key management personnel held options to purchase ordinary shares of the Company under the InnoTek Employees’ Share Option Plan (the “Plan”) (Note 33) as follows:

























125,000 (2007: 500,000) ordinary shares at a price of $0.49 (2007: $0.49) exercisable between 18 August 2005 and 18 August 2013 584,000 (2007: 1,295,000) ordinary shares at a price of $0.69 (2007: $0.69) exercisable between 8 March 2007 and 8 March 2014 748,000 (2007: 440,000) ordinary shares at a price of $0.97 (2007: $0.97) exercisable between 18 August 2007 and 18 August 2014. 912,000 (2007: 556,000) ordinary shares at a price of $1.23 (2007: Nil) exercisable between 18 January 2008 and 18 August 2015.



During the year ended 31 December 2008:







each, each, each, each,

These key management personnel exercised options over 167,000 ordinary shares (2007: 1,745,000 ordinary shares) at S$0.69 each (2007: $0.16 to $0.71 each), with a total consideration received by the Company from these key management personnel of $115,200 (2007: $725,100), in cash.



No share options have been granted to the Company’s non-executive directors.



In year 2007, majority of the key management staff were from MPT which was disposed of on 7 November 2007. These MPT key management staff were not allotted the share option with prices of $0.97 and $1.23. In year 2008, the key management staff were from MSF.

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS

31 December 2008

34. Related party transactions (cont’d)

Interest of key management personnel in employee share option plan (cont'd)



(ii)



Magnecomp Precision Technology Public Company Limited Share Option Plan The expense at fair value for warrants under ESOP#4 was taken up to 7 November 2008, the date of completion for the disposal of MPT.

35. Directors’ remuneration

Number of directors in remuneration bands:

$500,000 and above* $250,000 to $499,999 Below $250,000**



2008

2007

1 2 4

2 − 4

7

6

* Includes a director who resigned on 2 September 2008 ** Includes a director who deceased on 14 July 2008.

36. Commitments and contingencies

(a)

Capital expenditure not provided for in the financial statements: Group

Commitment in respect of capital contribution to a jointventure entity Commitments in respect of purchase of property, plant and equipment

(b)

Company 2008 2007 $’000 $’000

2008 $’000

2007 $’000

-

4,027

–

–

11,465

7,803

–

–

The Company and its subsidiaries have issued corporate guarantees amounting to approximately $106 million (2007: $101 million) in favour of certain financial institutions for banking facilities extended to the subsidiaries in the Group, of which $95,382,000 (2007: $61 million) was utilised as at 31 December 2008.

95

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS 31 December 2008

36. Commitments and contingencies (cont’d)

(c)



Operating lease commitments – As lessee The Group leases certain properties and motor vehicles under lease agreements that are non-cancellable within a year. Leases for properties are negotiated for various terms up to 50 years, and those for motor vehicles are leased for 2 years with no renewal option or escalation clauses included in the contracts. There are no restrictions placed upon the Group or the Company by entering into these leases. Future minimum lease payments for all leases with initial or remaining terms of one year or more are as follows: Group

Within one year After one year but not more than five years More than five years



(d)

Company 2008 2007 $’000 $’000

2008 $’000

2007 $’000

9,814

8,032

60

8,032

19,678 6,606

16,349 7,455

– –

16,349 7,455

36,098

31,836

60

31,836

Operating lease commitments - As lessor



The Group sub-leases certain of its office properties under operating lease arrangements, with leases negotiated up to 3 years. The terms of the leases generally also require the tenants to pay security deposits and provide for periodic rent adjustments according to the then prevailing market conditions.



At 31 December 2007, the Group had total future minimum lease receivables under noncancellable operating leases with its tenants falling due as follows: Group

Within one year

96

2008 $’000

2007 $’000

–

87

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS

31 December 2008

37. Financial instruments

The carrying amounts of each of the categories of financial instruments as at the balance sheet are as follows: Group Company 2008 2007 2008 2007 $’000 $’000 $’000 $’000 Financial Assets Trade receivables Other receivables and deposits Loans to subsidiary Cash and cash equivalents

Financial Liabilities At amortised cost: Trade payables Other payables and accruals Interest-bearing loans and borrowings

87,094 15,640 – 93,058

100,081 23,842 − 158,452

584 84 16,615 59,279

956 7,426 10,690 125,194

195,792

282,375

76,562

144,266

76,800 31,434

75,997 41,820

– 997

− 5,389

65,477

72,779

–

−

173,711

190,596

997

5,389



The fair value of a financial instrument is the amount at which the instrument could be exchanged or settled between knowledgeable and willing parties in an arm’s length transaction, other than in a forced or liquidation sale.



Financial instruments whose carrying amount approximate fair value



The carrying amounts of cash and short term deposits, current trade and other receivables, bank overdrafts and borrowings, based on their notional amounts, reasonably approximate their fair values because these are mostly short term in nature or are repriced frequently.



Financial instruments carried at other than fair value



Unquoted investment carried at cost have no market prices and the fair value cannot be reliably measured using valuation techniques.



Quoted Financial instruments



Fair value is determined directly by reference to their published market bid price at the balance sheet date.

38. Financial risk management objectives and policies

The Group’s principal financial instruments, other than derivative financial instruments and investment securities, comprise bank loans and overdraft, finance leases and hire purchase contracts, and cash and fixed deposits. The main purpose of these financial instruments is to finance the Group’s operations. The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations.

97

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS 31 December 2008

38. Financial risk management objectives and policies (cont’d)

98



The Group also enters into derivative transactions, including principally interest rate swaps and forward currency contracts. The purpose is to manage the interest rate risks arising from the Group’s operations and its sources of financing.



It is, and has been throughout the year under review, the Group’s policy that no trading in derivative instruments shall be undertaken.



The main risks arising from the Group’s financial instruments are market risk, interest rate risk, liquidity risk, foreign currency risk and credit risk. The board reviews and agrees policies for managing each of these risks and they are summarised below. The Group’s accounting policies in relation to derivative financial instruments are set out in Note 2.24.



Market price risk



Market price risk is the risk that the fair value of future cash flows of the Group’s financial instruments will fluctuate because of changes in market prices (other than interest or exchange rates). The Group is exposed to equity price risk arising from its investment in quoted equity instruments. These instruments are quoted on the Stock Exchange of Thailand (SET) and are classified as held for trading financial assets. These instruments had been delisted from SET during year 2008.



It is the Group’s policy not to hold and manage investment in quoted equity instruments for speculative purposes. Any deviation from this policy is required to be approved by the Board of Directors and Audit Committee. As at 31 December 2007, the Group’s investment in quoted equity instruments represents the 10% shareholding investment in MPT.



At 31 December 2007, if the SET had been 4% higher/lower with all other variable held constant, the Group’s profit net of tax would have been $890,000 higher/lower, arising as a result of higher/ lower fair value gains on held for trading investments in equity instruments.



Interest rate risk



Interest rate risk is the risk that the fair value or future cash flows of the Group’s and the Company’s financial instruments will fluctuate because of changes in market interest rates. The Group’s and the Company’s exposure to interest rate risk arises primarily from their interest-bearing loans and borrowings and cash and cash equivalents. The Group’s and the Company’s financial assets and liabilities at floating rates are contractually repriced at intervals of less than 3 months from the balance sheet date. The Group’s policy is to obtain the most favourable interest rates available without increasing its exposure to foreign currency.

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS

31 December 2008

38. Financial risk management objectives and policies (cont’d) Interest rate risk (cont’d)

The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group’s and the Company’s profit before tax (through the impact on floating rate loans and borrowings and bank balances and fixed deposit): Group Company Increase/ Increase/ (decrease) (decrease) Increase/ in profit Increase/ in profit (decrease) before tax (decrease) before tax % $’000 % $’000 2008 Hong Kong dollar 1 614 – – Singapore dollar 1 547 1 531 United States dollar 1 141 1 223 Hong Kong dollar Singapore dollar United States dollar

(1) (1) (1)

(614) (547) (141)

– (1) (1)

2007 Hong Kong dollar Singapore dollar United States dollar Hong Kong dollar Singapore dollar United States dollar

– (531) (223)

1 1 1

(658) − 1,221

− 1 1

− 34 1,317

(1) (1) (1)

658 − (1,221)

− (1) (1)

− (34) (1,317)



Foreign currency risk



The Group has transactional currency exposures. Such exposures arise from sales or purchases by operating units in currencies other than the units’ functional currencies to which it relates which are in Singapore dollar, Euro, Hong Kong dollar and Renminbi. The Group manages its transactional currency exposures by matching as far as possible, its receipt and payment in each individual currency. The Group monitors the foreign currency exchange rates closely so as to minimise potential material adverse effects from these exposure in a timely manner.



The Group primarily utilises forward exchange contracts with maturities of less than twelve months to hedge foreign currency denominated financial assets, liabilities and firm commitments. Foreign exchange differences arising from translation of financial statements of foreign subsidiaries are taken to translation reserve, a component of equity.



The Group and the Company also hold cash and cash equivalents denominated in foreign currencies for working capital purposes. At the balance sheet date, such foreign currency balances (mainly in USD) amount to $9,250,000 and $5,763,000 (2007: $136,210,000 and $124,200,000) for the Group and the Company respectively.

99

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS 31 December 2008

38. Financial risk management objectives and policies (cont’d)

100

The following table demonstrates the sensitivity at the balance sheet date to a reasonably possible change in the exchange rate of United States dollar and Renminbi, with all other variables held constant, of the Group’s profit before tax (due to changes in the fair value of monetary assets and liabilities): 2008 2007 Increase/ Increase/ (decrease) (decrease) Increase/ in profit Increase/ in profit Group (decrease) before tax (decrease) before tax % $’000 % $’000 Renminbi United States dollar

5.0 0.5

211 (325)

5.0 0.5

137 871

Renminbi United States dollar

(5.0) (0.5)

(211) 325

(5.0) (0.5)

(137) (871)



Credit risk



The Group trades only with recognised and creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis and the Group’s exposure to bad debts is not significant. For transactions that are not denominated in the functional currency of the relevant operating unit, the Group does not offer credit terms without specific approval of the Vice President of Marketing and Operations Department.



The credit risk of the Group’s other financial assets, which comprise bank balances and other receivables, arises from default of the counterparty, with a maximum exposure equal to the carrying amounts of these instruments. The Group is also exposed to credit risk through the granting of financial guarantees, further details of which are disclosed in Note 36 to the financial statements.



Further quantitative data in respect of the Group’s exposure to credit risk arising from trade receivables are disclosed in Note 21 to the financial statements.



Liquidity risk



Liquidity risk is the risk of not having access to sufficient funds to meet the Group’s obligation as they become due. The Group’s and the Company’s exposure to liquidity risk arises primarily from mismatches of the maturity of financial assets and liabilities. The Group’s and the Company’s objective is to maintain a balance between continuity of funding and flexibility through the use of stand-by credit facilities.

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS

31 December 2008

38. Financial risk management objectives and policies (cont’d)

The maturity profile of the Group’s financial liabilities as at the balance sheet date, based on the contractual undiscounted payments, was as follows:

Group 2008 Finance lease payables Interest-bearing loans and borrowings Trade payables Financial liabilities included in other payables and accruals and provisions 2007 Finance lease payables Interest-bearing loans and borrowings Trade payables Financial liabilities included in other payables and accruals and provisions

On demand $’000

Less than 3 months $’000

3 to less than 12 months $’000

1 to 5 years $’000

Total $’000

–

18

52

53

123

4,067 2,938

19,401 70,733

14,904 3,129

26,982 –

65,354 76,800

14,700

13,950

2,784

–

31,434

21,705

104,102

20,869

27,035

173,711

−

212

76

130

418

4,533 −

25,301 73,648

14,897 2,349

27,630 −

72,361 75,997

9,357

20,899

4,615

6,949

41,820

13,890

120,060

21,937

34,709

190,596

2008 Financial liabilities included in other payables and accruals and provisions

–

997

–

–

997

2007 Financial liabilities included in other payables and accruals and provisions

−

5,389

−

6,902

12,291

Company

39. Capital management

The primary objective of the Group’s capital management is to safeguard the Group’s ability to continue as a going concern and to maintain healthy capital ratios in order to support its business and maximise shareholder’s value.



The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Group is not subject to any externally imposed capital requirements. No changes were made in the objectives, policies or processes during the years ended 31 December 2008 and 31 December 2007.

101

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS 31 December 2008

39. Capital management (cont’d)

The Group monitors capital using a gearing ratio, which is net debt divided by total capital. Net debt, is defined as total interest-bearing loans and borrowings less cash and cash equivalents. Capital is defined as equity attributable to the equity holders of the Company. The Group’s policy is to keep the gearing ratio below 1. Group and Company 2008 2007 $’000 $’000 Interest-bearing loans and borrowings (Note 26) Less: Cash and cash equivalents (Note 25)

65,477 (93,058)

72,779 (158,452)

Net cash

(27,581)

(85,673)

Equity attributable to the equity holders of the Company

206,877

231,760

*

*

Gearing ratio

* Not applicable as the Group is in net cash position.

40. Segment information

102



Reporting format



The primary segment reporting format is determined to be business segments as the Group’s risks and rates of return are affected predominantly by differences in the products and services produced. Secondary information is reported geographically. The operating businesses are organised and managed separately according to the nature of the products and services provided, with each segment representing a strategic business unit that offers different products and serves different markets.



Business segments



The MPT segment offers suspension assemblies to disk drive manufacturers. This segment has been classified as a discontinued operation in year 2007.



The Mansfield segment offers components for office automation machines like copier, printer and other electrical and electronic products. This segment also provides die making services to manufacturers of such equipment.



The corporate and other segments include general corporate income and expense items.



Geographical segments



The Group’s geographical segments are based on the location of the Group’s assets. Sales to external customers disclosed in geographical segments are based on the geographical location of its customers.

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS

31 December 2008

40. Segment information (cont’d)

Allocation basis and transfer pricing



Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets, income tax and deferred tax assets and liabilities, interest-bearing loans and related expenses.



Transfer prices between business segments are set on an arm’s length basis in a manner similar to transactions with third parties. Segment revenue, expenses and results include transfers between business segments. These transfers are eliminated on consolidation.



The Group generally accounts for inter-segment sales and transfers as if the sales or transfers were to third parties at current market prices. Revenues are attributed to geographical areas based on the location of the assets producing the revenues. Segment assets consist primarily of fixed assets, current assets, intangibles and exclude investment in associates and joint ventures. Segment liabilities comprise mainly of operating liabilities and exclude income tax liabilities.



(a)



Business segments The following table presents revenue and results information regarding the Group’s business segments for the years ended 31 December 2008 and 2007:

Mansfield 2008 2007 $’000 $’000

Continuing Operations Corporate and others Elimination 2008 2007 2008 2007 $’000 $’000 $’000 $’000

Revenue: Sales to external customer 421,559 448,935 Management fee – − Intercompany interest income – − Other income 1,813 3,251

– 891

− 3,527

– (891)

928 2,273

234 1,190

(928) –

Total revenue and other income 423,372 452,186

4,092

4,951

Segment results Finance cost Share of loss of unconsolidated associates Net gain on partial disposal Fair value change for investment held for trading (Loss)/profit before tax Tax expense (Loss)/profit for the year

2,849 32,590 (3,383) (4,172)

(548)

574 –

(564) (79)

Total 2008 2007 $’000 $’000

− 421,559 448,935 (3,527) – − (234) –

– –

Consolidated 2008 2007 $’000 $’000

334,130 421,559 783,065 – – −

− 4,441

– –

(1,819)

(3,761) 425,645 453,376

–

337,140 425,645 790,516

(928) 928

(2,945) 2,495 29,081 234 (2,455) (4,017)

– –

(26,464) 2,495 2,617 (7,671) (2,455) (11,688)

(15)

–

−

–

–

–

−

–

−

–

–

–

−

416

−

–

–

– 4,086

Discontinued Operation MPT 2008 2007 $’000 $’000

(548)

– 3,010

– 4,086

(548)

− 7,451

(15)

–

–

(15)

–

−

–

72,292

–

72,292

416

−

– –

10,666

416

10,666

(92) 25,049 (6,181) (3,303)

– –

48,823 (92) 73,872 (1,734) (6,181) (5,037)

(6,273) 21,746

–

47,089

(6,273) 68,835

103

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS 31 December 2008

40. Segment information (cont’d)

(a)



Business segments (cont’d) The following table presents assets, liabilities and other segment information regarding the Group’s business segments for the years ended 31 December 2008 and 2007:

Mansfield 2008 2007 $’000 $’000 Segment assets Investment in associates and joint ventures

304,596 290,931

Total assets

304,853 291,482

Segment liabilities Unallocated liabilities

107,237 108,943 – −

997 –

Total liabilities

107,237 108,943

997

257

551

Total 2008 2007 $’000 $’000

85,381 158,825 389,977 449,756

Discontinued Operation MPT 2008 2007 $’000 $’000

Consolidated 2008 2007 $’000 $’000

–

– 389,977 449,756

551

–

–

85,381 158,825 390,234 450,307

–

– 390,234 450,307

12,291 108,234 121,234 − 69,746 77,296

– –

– 108,234 121,234 – 69,746 77,296

12,291 177,980 198,530

–

– 177,980 198,530

–

−

257

257

551

Capital expenditure

50,687

44,763

10

61

50,697

44,824

– 59,860

50,697 104,684

Depreciation

18,224

15,286

49

104

18,273

15,390

– 51,499

18,273

66,889

–

−

–

28

–

28

–

–

–

28

1,710

−

–

–

1,710

−

– 17,479

1,710

17,479

3,546

–

–

–

3,546

–

–

–

3,546

–

–

–

6,902

–

6,902

–

–

–

6,902

–

825

–

–

–

825

–

–

–

825

–

–

−

–

1,223

–

1,223

–

–

–

1,223

–

−

–

190

–

190

–

100

–

290

Impairment loss on club membership Impairment loss on property, plant and equipment Property, plant and equipment written-off Write-back of provision for undertakings Impairment loss on investment in associate Impairment loss on other investment Amortisation of intangible assets

104

Continuing Operation Corporate and others 2008 2007 $’000 $’000

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS

31 December 2008

40. Segment information (cont’d)

(b)



Geographical segments The following table presents revenue and information regarding the Group’s geographical segments for the years ended 31 December 2008 and 2007: Thailand/USA 2008 2007 $’000 $’000

Revenue and income from continuing operation Sales to external customer Management fee Intercompany interest income Other income

– –

− −

– –

− −

–

−

Hong Kong/PRC 2008 2007 $’000 $’000

376,205 405,709 – – – 1,813

– 3,296

Singapore 2008 2007 S’000 S’000

– 891

Europe 2008 2007 S’000 S’000

Elimination 2008 2007 $’000 $’000

Consolidated 2008 2007 $’000 $’000

− 45,354 43,226 3,527 – −

– − 421,559 448,935 (891) (3,527) – −

928 2,273

234 1,145

(928) –

4,092

4,906 45,354 43,226 (1,819) (3,761) 425,645 453,376

– –

− −

(234) – − 4,086

− 4,441

Total revenue and income Add: Revenue and income attributable to discontinued operation Sales to external customer Other income

– –

299,157 2,422

– –

34,973 588

– –

– –

– –

− −

– –

− −

– 334,130 – 3,010

Total revenue and income

–

301,579

–

35,561

–

–

–

−

–

−

– 337,140

– –

299,157 376,205 440,682 − – –

Segment revenue and income Sales to external customer Management fee Intercompany interest income Other income Total revenue and income

– –

–

− 2,422

378,018 409,005

– 1,813

– 3,884

301,579 378,018 444,566

– 891

– 45,354 43,226 3,527 – −

– − 421,559 783,065 (891) (3,527) – −

928 2,273

234 1,145

(928) –

4,092

4,906 45,354 43,226 (1,819) (3,761) 425,645 790,516

– –

− −

(234) – − 4,086

− 7,451

105

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS 31 December 2008

40. Segment information (cont’d)

(b)



Geographical segments (cont’d) The following table presents capital expenditure and certain assets information regarding the Group’s geographical segments for the years ended 31 December 2008 and 2007: Thailand/USA 2008 2007 $’000 $’000

Other segment information: Segment assets Investment in associates and joint ventures

Hong Kong/PRC 2008 2007 $’000 $’000

Singapore 2008 2007 S’000 S’000

Europe 2008 2007 S’000 S’000

–

− 283,420 274,674 85,381 158,826 21,176

–

−

Total assets

–

− 283,420 274,674 85,381 158,826 21,433

Capital expenditure

–

57,683

–

49,179

−

44,937

–

10

–

–

16,256 389,977 449,756

257

1,508

Consolidated 2008 2007 $’000 $’000

551

257

551

16,807 390,234 450,307 2,064

50,697 104,684

41. Dividends on ordinary shares Group and Company 2008 2007 $’000 $’000 Declared and paid during the year Dividends on ordinary shares: Interim tax exempt (one-tier) dividend

23,506

24,161

42. Comparatives

During the year, the Group reclassified certain items in the financial statements. The directors consider such reclassification allows a more appropriate presentation and better reflects the nature of the transaction. The comparative amounts of certain items in the financial statements have been reclassified to conform with the current year’s presentation. Details of comparative figures restated in the balance sheet as at 1 January 2008 are as follows: Group

Non-current assets Property, plant and equipment Prepaid land lease payment Deposit paid for purchase of property, plant and equipment Prepayments and other deposits Current assets Inventories Other receivables and deposits Prepayments Current liabilities Other payables and accruals

106

As Restated $’000

As previously stated $’000

95,808 1,701 2,623 5,474

97,518 – – –

40,219 18,758 884

36,734 26,649 1,081

(41,820)

(38,335)

INNOTEK Limited 2008 Annual Report

NOTES TO THE FINANCIAL STATEMENTS

31 December 2008

43. Subsequent events

(a)

On 15 January 2009, TDK exercised the call option under the Put and Call Option at an exercise price of US$16.25 million ($23.38 million). A discount of US$0.25 million ($0.36 million) was given to TDK for early execution of the Put and Call Option and full discharge of undertakings pursuant to the MPT sale and purchase agreement.



(b)

On 10 March 2009, 3,840,000 options were granted to the Group’s and the Company’s employees under the “InnoTek Employees’ Shares Option Scheme II” plan which was approved by shareholders at the Extraordinary General Meeting held on 30 April 2008. The option price for the grant was $0.19 which was based on the average price of the last dealt prices of the shares traded over five consecutive market days immediately prior to the date of grant of options.



(c)

On 24 February 2009, the Company proposed a final tax exempt (one-tier) dividend of 5.0 cents per ordinary share which amounts to approximately $11.7 million. The proposed dividend is subject to shareholders’ approval at the AGM.



(d)

The corporate tax rate for Singapore company of the Group, as announced by the Government on 22 January 2009, will be reduced from 18% to 17% with effect from Year of Assessment 2010. This is considered as a non-adjusting subsequent event and the financial effect of the reduced tax rate will be reflected in the accounts for financial year ending 31 December 2009.

44. Authorisation of financial statements

The financial statements for the year ended 31 December 2008 were authorised for issue in accordance with a resolution of the Directors on 18 March 2009.

107

INNOTEK Limited 2008 Annual Report

STATISTICS OF SHAREHOLDINGS As at 23 March 2009

No. of issued shares No. of issued shares (excluding Treasury Shares) No./Percentage of Treasury Shares Class of Shares Voting Rights (excluding Treasury Shares)

-

243,468 428 233,407,428 10,061,000 (4.31%) Ordinary Shares One vote per share

DISTRIBUTION OF SHAREHOLDINGS

Size of Shareholdings

No. of Shareholders

%

No. of Shares

%

1 - 999 1,000 - 10,000 10,001 - 1,000,000 1,000,001 AND ABOVE

11 1,213 404 11

0.67 74.01 24.65 0.67

1,261 5,299,128 27,281,465 200,825,574

0.00 2.27 11.69 86.04

TOTAL

1,639

100.00

233,407,428

100.00

TWENTY LARGEST SHAREHOLDERS No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Name of Shareholders HSBC (SINGAPORE) NOMINEES PTE LTD RAFFLES NOMINEES PTE LTD CITIBANK NOMINEES SINGAPORE PTE LTD TO WAI HUNG DBS NOMINEES PTE LTD UNITED OVERSEAS BANK NOMINEES PTE LTD CIMB BANK NOMINEES (S) SDN BHD COMCRAFT INTERNATIONAL S.A. DBSN SERVICES PTE LTD ESTATE OF GOPALA ACHUTA MENON, DECEASED STEVEN GLENN CAMPBELL DAIWA SECURITIES SMBC SINGAPORE MERRILL LYNCH (SINGAPORE) PTE LTD KUANG MING INVESTMENTS PTE LIMITED ECKSTEIN ALFRED KIM ENG SECURITIES PTE. LTD. YONG KOK HOON PHILLIP SECURITIES PTE LTD DB NOMINEES (S) PTE LTD METROOF INDUSTRIES PTY LTD TOTAL

108

No. of Shares

%

74,826,300 54,190,000 18,571,174 16,037,000 10,523,200 10,067,000 4,500,000 4,421,000 3,729,900 2,472,000 1,488,000 940,000 887,260 791,000 774,000 768,000 550,000 525,000 507,000 506,000

32.06 23.22 7.96 6.87 4.51 4.31 1.93 1.89 1.60 1.06 0.64 0.40 0.38 0.34 0.33 0.33 0.24 0.22 0.22 0.22

207,073,834

88.73

INNOTEK Limited 2008 Annual Report

SUBSTANTIAL SHAREHOLDERS Percentage of Shareholding in Public’s Hands

Based on information available to the Company as of 23 March 2009, approximately 37.39% of the issued ordinary shares are held in the hands of the public. Accordingly, the Company has complied with Rule 723 of the SGX-ST Listing Manual requirement.

Substantial Shareholders (As recorded in the Register of Substantial Shareholders)

Direct Interest Name of Substantial Shareholders Advantec Holding SA1 Trustee of Chandaria Trust I 2 Thai Focused Equity Fund Ltd To Wai Hung

3

No. of Shares 0 0 0 16,037,000

Deemed Interest % 0 0 0 6.87

No. of Shares 83,382,300 83,832,300 45,687,000 0

% 35.72 35.92 19.57 0

Notes : 1. 2. 3.

Advantec Holding SA is deemed to be interested in the 73,382,300 Shares held by HSBC (Singapore) Nominees Pte Ltd. and 10,000,000 shares held by United Overseas Bank Nominees Pte Ltd. Trustee of Chandaria Trust I is deemed to be interested in the 83,382,300 Shares held by Advantec Holding SA as well as a further 450,000 Shares held by Metchem Engineering SA, both of which are wholly-owned by the Chandaria Trust I. Thai Focused Equity Fund Ltd is deemed to be interested in 45,687,000 Shares held by Raffles Nominees (Pte) Ltd.

109

INNOTEK Limited 2008 Annual Report

NOTICE OF ANNUAL GENERAL MEETING NOTICE IS HEREBY GIVEN that the 13th Annual General Meeting of INNOTEK LIMITED (“the Company”) will be held at The Casuarina Suite A, Level 3, Raffles Hotel, 1 Beach Road, Singapore 189673 on Wednesday, 29 April 2009 at 10.00 a.m. for the following purposes:

AS ORDINARY BUSINESS

1.

To receive and adopt the Directors’ Report and the Audited Accounts of the Company for the year ended 31 December 2008 together with the Auditors’ Report thereon. (Resolution 1)

2.

To declare a first and final tax-exempt (one-tier) dividend of 5 cents per share for the year ended 31 December 2008. (2007: 10 cents per share) (Resolution 2)

3.

(i)

To re-elect Mr. Yong Kok Hoon (Executive Director) who is retiring by rotation in accordance with Article 103 of the Company’s Articles of Association and who, being eligible, offers himself for re-election. (Resolution 3)

(ii)

To re-elect Mr. To Wai Hung (Executive Director) who is retiring in accordance with Article 107 of the Company’s Articles of Association and who, being eligible, offers himself for reelection. (Resolution 4)

(iii)

To re-elect Mr. Peter Tan Boon Heng (Non-Executive Director) who is retiring in accordance with Article 107 of the Company’s Articles of Association and who, being eligible, offers himself for re-election. Subject to his re-appointment, Mr. Peter Tan who is considered an independent director, will be re-appointed as a member of the Executive Committee, Audit Committee, Nominating Committee and Remuneration Committee. (Resolution 5)

4.

To approve the payment of Directors’ fees of S$216,857 for the year ended 31 December 2008 (2007: S$211,225). (Resolution 6)

5.

To re-appoint Ernst & Young LLP as the Company’s Auditors for the ensuing year and to authorise the Directors to fix their remuneration. (Resolution 7)

6.

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

AS SPECIAL BUSINESS 7.

Authority to allot and issue new shares To consider and if thought fit, to pass the following Ordinary Resolution, with or without modifications:

110

INNOTEK Limited 2008 Annual Report

NOTICE OF ANNUAL GENERAL MEETING

That pursuant to Section 161 of the Companies Act Chapter 50 of Singapore and Rule 806 of the Listing Manual of the Singapore Exchange Securities Trading Limited, the Directors of the Company be authorised and empowered to: (a)

(i)

allot and issue shares in the capital of the Company (“shares”) whether by way of rights or bonus; 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,

at any time and upon such terms and conditions and for such purposes as the Directors may in their absolute discretion deem fit; and (b)

(notwithstanding the authority conferred by this Resolution may have ceased to be in force) issue shares in pursuance of any Instrument made or granted by the Directors while this Resolution was in force,

Provided that: (1)

the aggregate number of shares to be issued pursuant to this Resolution (including shares to be issued in pursuance of Instruments made or granted pursuant to this Resolution) does not exceed 50 per cent (or 100 per cent, in the event of a pro-rata renounceable rights issue) of the total number of issued shares in the capital of the Company, excluding treasury shares, (as calculated in accordance with sub-paragraph (2) below) of which the aggregate number of shares and instruments to be issued other than a pro-rata basis to existing shareholders of the Company shall not exceed 20 per cent of the total number of issued shares (excluding treasury shares) in the 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 Singapore Exchange Securities Trading Limited (“SGX-ST”)) for the purpose of determining the aggregate number of shares that may be issued under sub-paragraph (1) above, the total number of issued shares, excluding treasury shares, shall be based on the total number of issued shares in the capital of the Company, excluding treasury shares, at the time this Resolution is passed, after adjusting for:

(3)

(i)

new shares arising from the conversion or exercise of any convertible securities or share options or vesting of share awards which are outstanding or subsisting at the time this Resolution is passed; and

(ii)

any subsequent bonus issue, consolidation or subdivision of shares;

in exercising the authority conferred by this Resolution, the Company shall comply with the provisions of the Listing Manual of the SGX-ST for the time being in force (unless such compliance has been waived by the SGX-ST) and the Articles of Association of the Company; and



111

INNOTEK Limited 2008 Annual Report

NOTICE OF ANNUAL GENERAL MEETING (4)

8.

(unless revoked or varied by the Company in general meeting) the authority conferred by this Resolution shall continue in force until the conclusion of the next Annual General Meeting of the Company or the date by which the next Annual General Meeting of the Company is required by law to be held, whichever is the earlier.” [See Explanatory Note (i)] (Resolution 8)

Authority to offer and grant options and to allot and issue new shares in accordance with the provisions of the Share Plans “That approval be and is hereby given to the Directors to offer and grant options in accordance with the provisions of the InnoTek Employees’ Share Option Plan and/or the InnoTek Employees’ Share Option Scheme II (collectively, the “Share Plans”) and to allot and issue such number of shares as may be issued pursuant to the exercise of the options under the Share Plans, provided always that the aggregate number of shares to be issued pursuant to the Share Plans shall not exceed 15 per cent (15%) of the total number of issued shares in the capital of the Company, excluding treasury shares, from time to time.” [See Explanatory Note (ii)] (Resolution 9)

9.

Proposed Renewal of the Share Purchase Mandate “That: (a) for the purposes of Sections 76C and 76E of the Companies Act, Chapter 50 of Singapore (the “Companies Act”), the exercise by the Directors of the Company of all the powers of the Company to purchase or otherwise acquire issued ordinary shares in the capital of the Company not exceeding in aggregate the Maximum Percentage (as hereafter defined), at such price or prices as may be determined by the Directors from time to time up to the Maximum Price (as hereafter defined), whether by way of:

(b)

112

(i)

market purchase(s) on the Singapore Exchange Securities Trading Limited (“SGXST”) transacted through the Central Limit Order Book trading system and/or any other securities exchange on which the Shares may for the time being be listed and quoted (“Other Exchange”); and/or

(ii)

off-market purchase(s) (if effected otherwise than on the SGX-ST or, as the case may be, Other Exchange) in accordance with any equal access scheme(s) as may be determined or formulated by the Directors as they consider fit, which scheme(s) shall satisfy all the conditions prescribed by the Companies Act, and otherwise in accordance with all other laws and regulations and rules of the SGX-ST or, as the case may be, Other Exchange as may for the time being be applicable, be and is hereby authorised and approved generally and unconditionally (the “Share Purchase Mandate”);

unless varied or revoked by the Company in general meeting, the authority conferred on the Directors of the Company pursuant to the Share Purchase Mandate may be exercised by the Directors at any time and from time to time during the period commencing from the date of the passing of this Resolution and expiring on the earlier of: (i)

the date on which the next Annual General Meeting of the Company is held; and

(ii)

the date by which the next Annual General Meeting of the Company is required by law to be held;

INNOTEK Limited 2008 Annual Report

NOTICE OF ANNUAL GENERAL MEETING (c) in this Resolution:

“Average Closing Price” means the average of the closing market prices of a Share over the five (5) consecutive trading days on which the Shares are transacted on the SGX-ST or, as the case may be, Other Exchange immediately preceding the date of the market purchase by the Company or, as the case may be, the date of the making of the offer pursuant to the off-market purchase, and deemed to be adjusted, in accordance with the listing rules of the SGX-ST, for any corporate action that occurs after the relevant five-day period; “date of the making of the offer” means the date on which the Company makes an offer for the purchase or acquisition of Shares from holders of Shares stating therein the relevant terms of the equal access scheme for effecting the off-market purchase; “Maximum Percentage” means that number of issued Shares representing 10% of the total number of issued Shares as at the date of the passing of this Resolution (excluding any Shares which are held as treasury shares as at that date); and “Maximum Price” in relation to a Share to be purchased or acquired, means the purchase price (excluding brokerage, commission, applicable goods and services tax and other related expenses) which shall not exceed:

(d)

(i)

in the case of a market purchase of a Share, 105% of the Average Closing Price of the Shares; and

(ii)

in the case of an off-market purchase of a Share, 110% of the Average Closing Price of the Shares; and

the Directors of the Company and/or any of them be and are hereby authorised to complete and do all such acts and things (including executing such documents as may be required) as they and/or he may consider expedient or necessary to give effect to the transactions contemplated and/or authorised by this Resolution.” [See Explanatory Note (iii)] (Resolution 10)

NOTICE IS HEREBY GIVEN that the Share Transfer Books and Register of Members of the Company will be closed on 8 May 2009 for the preparation of dividend warrants. Duly completed transfers in respect of ordinary shares in the capital of the Company (“Shares”) received by the Company’s Registrar, Boardroom Corporate & Advisory Services Pte. Ltd., 3 Church Street #08-01 Samsung Hub, Singapore 049483 up to 5.00 p.m. 7 May 2009 will be registered to determine members’ entitlement to the proposed first and final dividend. Members whose Securities Accounts with The Central Depository (Pte) Ltd are credited with Shares in the Company as at 5:00 p.m. on 7 May 2009 will be entitled to the proposed first and final dividend. The proposed first and final dividend, if approved at the Annual General Meeting to be held on 29 April 2009, will be paid on 26 May 2009.

By Order of the Board

Linda Sim Hwee Ai Company Secretary Singapore, 13 April 2009

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INNOTEK Limited 2008 Annual Report

NOTICE OF ANNUAL GENERAL MEETING Explanatory Notes: (i)

The Ordinary Resolution 8 proposed in item 7 above, if passed, will empower the Directors of the Company from the date of this Meeting until the date of the next Annual General Meeting, to issue, or agree to issue shares and/or grant instruments that might require shares to be issued on a pro rata basis to shareholders of the Company, up to an aggregate limit of 50 per cent (or 100 per cent in the event of a pro-rata renounceable rights issue) of the total number of issued share in the capital of the Company, excluding treasury shares, of which up to 20 per cent may be issued other than a pro-rata basis to existing shareholders of the Company (calculated as described).

(ii)

The Ordinary Resolution 9 proposed in item 8 above, if passed, will empower the Directors of the Company, from the date of the above Meeting until the next Annual General Meeting, to offer and grant options in accordance with the provisions of the InnoTek Employees’ Share Option Plan and/ or InnoTek Employees’ Share Option Scheme II (the “Share Plans”) and to allot and issue shares as may be issued pursuant to the exercise of options under the Share Plans up to an aggregate limit of 15 per cent (15%) of the total number of issued share in the capital of the Company from, excluding treasury shares, from time to time (the “15 per cent Limit”). The 15 per cent Limit is calculated by including the shares which have already been allotted and issued pursuant to the exercise of options under the Share Plans.

(iii)

The Ordinary Resolution 10 proposed in item 9 above, is to renew the mandate to permit the Company to purchase or acquire issued shares in the capital of the Company on the terms and subject to the conditions of the Resolution. The Company may use internal sources of funds, or a combination of internal resources and external borrowings, to finance the purchase or acquisition of its shares. The amount of funding required for the Company to purchase or acquire its shares, and the impact on the Company’s financial position, cannot be ascertained as at the date of this Notice as these will depend on the number of shares purchased or acquired and the price at which such shares were purchased or acquired and whether the shares purchased or acquired are held in treasury or cancelled. The financial effects of the purchase or acquisition of such shares by the Company pursuant to the proposed Share Purchase Mandate on the audited financial accounts of the Company and its subsidiary for the financial year ended 31 December 2008, based on certain assumptions, are set out in paragraph 2.5 of the Letter to Shareholders dated 13 April 2009, which is enclosed together with the Annual Report 2008.

Notes:

114

1.

A Member entitled to attend and vote at the Annual General Meeting (the “Meeting”) is entitled to appoint a proxy to attend and vote in his/her stead. A proxy need not be a Member of the Company.

2.

The instrument appointing a proxy must be deposited at the Registered Office of the Company at 1 Finlayson Green #15-02 Singapore 049246 not less than forty-eight (48) hours before the time appointed for holding the Meeting.

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INNOTEK LIMITED

Company Registration No. 199508431Z (Incorporated In The Republic Of Singapore)

PROXY FORM (Please see notes overleaf before completing this Form)

I/We,

(Name)

Of

(Address)

Being a member/members of INNOTEK LIMITED (the “Company”), hereby appoint: Name

Address

NRIC/Passport Number

Proportion of Shareholdings (%)

Address

NRIC/Passport Number

Proportion of Shareholdings (%)

And /or (delete as appropriate) Name

or failing him/her, the Chairman of the meeting as my/our proxy to vote for me/us on my/our behalf and, if necessary, demand for a poll at the 13th Annual General Meeting of the Company to be held on Wednesday, 29 April 2009 at 10.00 a.m. and at any adjournment thereof. The proxy is to vote on the business before the meeting as indicated below. If no specific direction as to voting is given, the proxy will vote or abstain from voting at his/her discretion, as he/she will on any other matter arising at the Meeting: No. 1 2 3 4 5 6 7 8 9 10

Resolutions relating to: Directors’ Report and Accounts for the year ended 31 December 2008 Payment of proposed first and final dividend Re-election of Mr Yong Kok Hoon Re-election of Mr To Wai Hung Re-election of Mr Peter Tan Boon Heng Approval of Directors’ fees amounting to S$216,857 Re-appointment of Ernst & Young LLP as Auditors Authority to allot and issue new shares Authority to offer and grant options and to allot and issue new shares in accordance with the provisions of the Share Plans Renewal of Share Purchase Mandate

For

Against

(Please indicate with a cross [X] in the space provided whether you wish your vote to be cast for or against the Resolutions as set out in the Notice of the Meeting.)

Dated this

day of

2009 Total number of Shares in: (a) CDP Register (b) Register of Members

Signature of Shareholder(s) or, Common Seal of Corporate Shareholder

No. of Shares

Notes: 1.

Please insert the total number of Shares held by you. If you have Shares entered against your name in the Depository Register (as defined in Section 130A of the Companies Act, Chapter 50 of Singapore), you should insert that number of Shares. If you have Shares registered in your name in the Register of Members, you should insert that number of Shares. If you have Shares entered against your name in the Depository Register and Shares registered in your name in the Register of Members, you should insert the aggregate number of Shares entered against your name in the Depository Register and registered in your name in the Register of Members. If no number is inserted, the instrument appointing a proxy or proxies shall be deemed to relate to all the Shares held by you.

2.

A member of the Company entitled to attend and vote at a meeting of the Company is entitled to appoint one or two proxies to attend and vote instead of him/her. A proxy need not be a member of the Company.

3.

Where a member appoints two proxies, the appointments shall be invalid unless he/she specifies the proportion of his/her shareholding (expressed as a percentage of the whole) to be represented by each proxy.

4.

The instrument appointing a proxy or proxies must be deposited at the Registered Office of the Company at 1 Finlayson Green #15-02 Singapore 049246 not less than forty-eight (48) hours before the time appointed for the Annual General Meeting.

5.

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

6.

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

General: The Company shall be entitled to reject the instrument appointing a proxy or proxies if it is incomplete, improperly completed or illegible or where the true intentions of the appointor are not ascertainable from the instructions of the appointor specified in the instrument appointing a proxy or proxies. In addition, in the case of Shares entered in the Depository Register, the Company may reject any instrument appointing a proxy or proxies lodged if the member, being the appointor, is not shown to have Shares entered against his name in the Depository Register as at forty-eight (48) hours before the time appointed for holding the Meeting, as certified by The Central Depository (Pte) Limited to the Company.

INNOTEK Limited 2008 Annual Report

Corporate Information Directors Mr. Robert Sebastiaan Lette (Chairman) Mr. Steven Glenn Campbell (Resigned on 2 September 2008) Mr. Yong Kok Hoon Dr. Ong Chit Chung (Deceased 14 July 2008) Prof. Low Teck Seng Mr. To Wai Hung (Appointed on 7 May 2008) Mr. Peter Tan Boon Heng (Appointed on 17 September 2008) Executive Committee Mr. Robert Sebastiaan Lette (Chairman) Mr. Yong Kok Hoon Mr. To Wai Hung Mr. Peter Tan Boon Heng Audit Committee Prof. Low Teck Seng (Chairman) Mr. Robert Sebastiaan Lette Mr. Peter Tan Boon Heng Remuneration Committee/ Share Option Plan Committee Mr. Robert Sebastiaan Lette (Chairman) Prof. Low Teck Seng Mr. Peter Tan Boon Heng

Registrar and Share Transfer Agent Boardroom Corporate & Advisory Services Pte Ltd 3 Church Street #08-01 Samsung Hub Singapore 049483 Registered Address 1 Finlayson Green #15-02 Singapore 049246 Tel: (65) 6535-0689 Fax: (65) 6533-2680 Website: www.innotek.com.sg Auditors Ernst & Young LLP One Raffles Quay North Tower, Level 18 Singapore 048583 Partner-in-Charge: Mr. Nagaraj Sivaram (from 2007) Principal Bankers The Hongkong and Shanghai Banking Corporation Bank of China Ltd. The Bank of Tokyo-Mitsubishi UFJ, Ltd. DBS Bank Ltd. United Overseas Bank Ltd.

Nominating Committee Mr. Robert Sebastiaan Lette (Chairman) Prof. Low Teck Seng Mr. Peter Tan Boon Heng Secretaries Ms. Linda Sim Hwee Ai Ms. Susie Low Geok Eng (Resigned on 31 July 2008) Ms. Marilyn Tan Lay Hong (Appointed on 11 August 2008)

Sun Mansfield Plant Assembly Section

Dongguan Mansfield

INNOTEK Limited Co. Reg. No.199508431Z 1 Finlayson Green #15-02 Singapore 049246 Tel : (65) 6535 0689 Fax : (65) 6533 2680

www.innotek.com.sg