Contents Chairman s Statement & Operations Review

Transcription

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2 Contents 2 Corporate Information & Financial Calendar Chairman s Statement & Operations Review Corporate Social Responsibilities Group Structure Board Of Directors Corporate Management Team Semiconductors/Components Distribution Senior Management Team Corporate Governance Report Financial Contents

3 Corporate Information & Financial Calendar Board of Directors Dr Derek Goh Bak Heng (Executive Chairman/Group CEO) Mr Chin Yeow Hon Mr Ng Cher Yan Mr Ravindran s/o Ramasamy Mr Lee Teck Leng Robson Audit Committee Mr Ng Cher Yan (Chairman) Mr Ravindran s/o Ramasamy Mr Lee Teck Leng Robson Nominating Committee Mr Lee Teck Leng Robson (Chairman) Mr Ng Cher Yan Mr Ravindran s/o Ramasamy Dr Derek Goh Bak Heng Remuneration Committee Mr Ravindran s/o Ramasamy (Chairman) Mr Ng Cher Yan Mr Lee Teck Leng Robson Dr Derek Goh Bak Heng Serial System Executives Share Option Scheme Committee Mr Ravindran s/o Ramasamy (Chairman) Mr Ng Cher Yan Mr Lee Teck Leng Robson Dr Derek Goh Bak Heng Company Secretary Mr Alex Wui Heck Koon Registered Office 8 Ubi View #05-01 Serial System Building Singapore Company Registration Number D Group Websites Registrar & Share Transfer Office B.A.C.S Private Limited 63 Cantonment Road Singapore Auditors Moore Stephens LLP Certified Public Accountants 10 Anson Road #29-15 International Plaza Singapore Audit Partner : Mr Neo Keng Jin (appointed in Year 2007) Principal Bankers Malayan Banking Berhad United Overseas Bank Limited 28 February 2008 Announcement of Financial Year 2007 Results 10 April 2008 Release of Annual Report April 2008 Annual General Meeting February 2009 Announcement of Financial Year 2008 Results 07 April 2009 Release of Annual Report April 2009 Annual General Meeting August 2008 Announcement of Half Year 2008 Results ANNUAL REPORT

4 Chairman s Statement & Operations Review Group Performance I am pleased to present the annual report for the financial year ended 31 December 2008 (FY2008). For FY2008, the Group posted a turnover of about $510.6 million. This was a creditable 7% increase when compared to the corresponding period for the financial year ended 31 December 2007 (FY2007). The turnover increase was achieved on a backdrop of a global financial and economic crisis, which dampened demand for electronic products, especially in the fourth quarter of FY2008. For FY2008, net profit of about $6.0 million was achieved as compared to a profit of about $7.3 million in FY2007. The FY2007 net profit included a gain of about $7.1 million on disposal of the entire 10.7% interests in Wintech Microelectronics Co., Ltd, a company listed on the Taiwan Stock Exchange. No similar gains were recorded in FY2008. In addition, the Group made a fair value gain on investment properties of about $0.9 million in FY2007 as compared to $0.1 million in FY2008. Excluding these gains, the Group had performed well operationally in FY2008 under an extremely difficult environment, affected by the global financial and economic crisis. continued to focus on cost efficiency and was able to reduce total expenses (excluding provisions for trade and other receivables and currency loss) as a percentage of turnover from about 9% in FY2007 to about 8% in FY2008. For FY2008, net cash from operating activities rose by more than 410% to about $17.7 million from about $3.5 million in FY2007. s cash and cash equivalents as at 31 December 2008 was about $15.4 million and bank borrowings declined to about $30.4 million from about $37.4 million as at 31 December Based on the issued share capital as at the end of 2008, net assets backing per ordinary share for FY2008 was cents as compared with cents the previous year. On a fully diluted basis, net earnings per ordinary share was 1.00 cent. Semiconductors/Components Distribution Semiconductors/components distribution remains the Group s core business and experienced growth in majority of the regions we operate in. The North Asia region, which comprises Greater China, South Korea, and Taiwan, posted a 5% growth in turnover. This was largely due to increase in customers base, new products lines and increased products range. Our operations in South and South East Asia registered a 19% increase in turnover when compared with the figure for FY2007, due largely to the increased sales volume in Philippines, Thailand and India. The semiconductors/components distribution business posted a net profit of $6.6 million as compared to a net profit of $0.2 million in FY2007. The better performance by the semiconductors/ components distribution business was attributable mainly to higher gross profit earned because of higher turnover and higher gross profit margin. Average gross profit margin increased from 8.7% in FY2007 to 9.1% in FY2008 as the Group focused more effort on the sale of high margin products. The continuing competitive environment in the markets the Group operated in coupled with worsening economic environment, however negated the impact of the gross margin increase. Serial Microelectronics Pte Ltd (SMPL), a wholly owned subsidiary posted a 22% increase in turnover to $135.7 million. Both its South and South East Asia and transferred businesses from its South Korean entities registered strong growth from increase in customers base and increased products range. SMPL recorded a net profit attributable to shareholders of $3.0 million as compared to a loss of $1.8 million in FY2007. The better performance was mainly attributable to higher gross profit from higher turnover and higher gross profit margin. ANNUAL REPORT

5 Serial Microelectronics (HK) Limited, a 91% Hong Kong subsidiary and its wholly owned subsidiary, Serial Microelectronics (Shenzhen) Co., Ltd (SMHK Group) chalked up another year of sterling performance. The SMHK Group recorded net profit attributable to shareholders of $3.9 million on a turnover of $274.1 million. FY2007 net profit and turnover were $2.1 million and $256.5 million respectively. The higher profit was a result of higher gross profit and lower expenses as it begun to reap the benefit from better cost efficiency and effectiveness in FY2008. In May 2008, SMHK incorporated a wholly owned Hong Kong subsidiary, New Trend Technology Development Limited. Tong Baek Trading Co., Ltd (Tong Baek), a 98.2% South Korean subsidiary achieved a turnover of $34.1 million in FY2008 as compared with $36.4 million in FY2007 and ended the year with a small loss attributable to shareholders of $0.3 million. The loss included a currency loss of $3.6 million due to the depreciation of Korean Won against United States dollar. Continued focus on cost efficiency and better inventory management negated the impact of the significant currency loss. In March 2008, Tong Baek acquired the remaining 30% interests in Hu & Power Tech Co., Ltd from its minority shareholders. Serial Microelectronics Inc. (SMTW), a 82.5% Taiwan subsidiary posted a turnover of $28.2 million in FY2008 comparable to a turnover of $28.1 million in FY2007. SMTW turnaround from a loss of $0.3 million in FY2007 to a profit attributable to shareholders of $0.8 million in FY2008, mainly due to higher gross profit margin on sales. Gross margin increased from 7.1% in FY2007 to 9.5% in FY2008 as the company focused on sales of high margin products. continues to be a top semiconductors/ components distributor in the Asia Pacific region. Our suppliers include well-established names such as Texas Instruments, ON Semiconductor, Telegent Systems (HK) Ltd, Analog Devices Inc., NXP Semiconductors Singapore, Silicon Storage Technology Ltd, Avago Technologies International, Tyco Electronics, Hitachi Global Storage Technologies and Micron Semiconductor Asia. In May 2008, the Group disposed of 4% interests in Unitron Tech Co., Limited (Unitron), a South Korean subsidiary to its minority shareholder. s interest in Unitron was reduced to 81%. Unitron recorded a turnover of $34.1 million in FY2008 as compared to $39.7 million in FY2007. Unitron s loss attributable to shareholders was $0.9 million as compared to a profit of $0.2 million in FY2007. The loss in FY2008 was mainly attributable to a goodwill impairment charge of $0.4 million and currency loss of $1.2 million due to the depreciation of Korean Won against United States dollar. Dr Derek Goh Bak Heng Executive Chairman & Group CEO Serial System Ltd ANNUAL REPORT

6 In FY2008, SMPL acquired the business of distributing the electronic products of Littelfuse Inc. in the Philippines for a total consideration of about $0.4 million. The total consideration included customers assignments, business backlogs and purchase of inventories. Bull Will Co., Ltd s interest in Bull Will Co., Ltd (Bull Will), a company listed on the Over-The-Counter Securities Exchange in Taiwan was diluted from 34.3% to 33.3% as at 31 December 2008 due to the conversion of Bull Will s convertible bonds to equity in FY2008. made a dilution gain of about $0.2 million. Due largely to provision for impairment losses of trade receivables and investments and write-down of inventories, Bull Will was not profitable in FY2008. s share of the loss in this associated company was about $0.4 million. Incorporation of Subsidiary In FY2008, the Company incorporated a Taiwan wholly owned subsidiary, Serial Investment (Taiwan) Inc. (SITW). SITW acquired an investment property in Taiwan for $3.0 million. This property was rented to Bull Will. Share Capital In FY2008, 2,000 new ordinary shares were issued upon the exercise of Warrant W As at the end of FY2008, the total number of issued and full paid ordinary shares was 603,416,823. Subsequent to FY2008, 10,580 Warrant W were exercised into 10,580 new ordinary shares. The remaining unexercised 85,523,745 Warrant W lapsed on 6 February 2009, being the expiry date of the Warrant W Proposed Renounceable Non-Underwritten Rights Issue On 31 December 2008, the Company announced a renounceable non-underwritten rights issue on the basis of one rights share for every five existing ordinary shares at an issue price of $0.055 for each rights share. The proposed rights issue is subject to shareholders approval at an extraordinary general meeting to be convened. Based on the existing ordinary shares of 603,416,823 as at 31 December 2008, up to 120,683,364 new ordinary shares were be issued and a maximum of about $6.3 million cash will be raised. The Company intends to use the proceeds from the proposed rights issue to reduce the level of bank borrowings and strengthen the cash flows and working capital of the Group. In support of the rights issue and to demonstrate my commitment to and confidence in the prospects of the Group, I have provided an irrevocable undertaking to the Company to subscribe in full my entitlement of 43,132,785 rights shares under the proposed rights issue. Internal Audit For an even more comprehensive assessment of the overall effectiveness of the Group s control system, the Audit Committee holds the view that the internal audit function should continue to be outsourced. In FY2008, Lee Seng Chan & Co was engaged to do an internal audit review on the controls on revenue, receivables and collections cycle, expenditure controls and payments cycle and value-added tax review at Serial Microelectronics (Shenzhen) Co., Ltd s Shanghai and Beijing branch. ANNUAL REPORT

7 Geographical Balance North Asia continues to be the single most important region. For the year under review, about 77% of the Group s assets are in North Asia and turnover from this region accounted for about 85% of the Group s total turnover. Dividend A one-tier tax-exempt final dividend of 0.2 cent per ordinary share were paid in FY2008 in respect of the FY2007. In FY2008, the Company paid a one-tier tax-exempt interim dividend of 0.33 cent per ordinary share. The Board recommends a one-tier tax-exempt final dividend of 0.25 cent per ordinary share. Outlook The current financial and economic crisis has resulted in negative or slow growth in major economies of the world. expects sliding demand for electronic products in both the consumer and industrial segments, fluctuations in currency exchange rates and commodity prices and tight credit conditions to weigh on the performance of the Group s semiconductors/ components distribution business. FY2009 will be a challenging year and further worsening of the global economic environment will negatively impact the Group s revenue and its profitability. Resignation of Group Senior Vice President Mr Roland Chan, our Group Senior Vice President resigned on 7 August 2008 to pursue other career opportunities. Mr Roland Chan joined the Company as Group Senior Vice President on 24 October He oversees the Corporate Planning and Development and Human Resources departments during his tenure with the Group. On behalf of the Group, I would like to record our appreciation to Mr Roland Chan for his past services and contribution. Appreciation I would like to take the opportunity to thank team members at all levels of the Group for their dedication, drive, and support. I would also like to extend my appreciation to customers, bankers, suppliers, business partners, and shareholders for their faith and continued support. Dr Derek Goh Bak Heng March 2009 will continue to adopt measures focusing on stringent cost control, close monitoring of inventories, tightening of credit to customers and strengthening of cash flows in response to the uncertain economic environment. Efforts will also be heightened to diversify product and customer base to lessen the impact of falling demand. ANNUAL REPORT

8 Corporate Social Responsibilities Serial System Ltd donated $50,000 to the Embassy of The People s Republic of China (Earthquake in Sichuan) for the reconstruction of schools and education programs for the children in 2008 At Serial System Ltd, we believe business is inseparable from the society. It is this belief, that Serial System Ltd has over the years played an active role as a responsible corporate citizen. Its social responsibility practices are broad in scope and focus on contributions to the poor and needy, education and art programs and disaster relief programs. In 2008, Serial System Ltd contributed a total of $152,000 to a variety of programs and organisations in Singapore and various parts of the world. Contribution to the Poor and Needy Every Lunar New Year, Serial System Ltd visits the Tai Pei Old Folks Home to distribute Lunar New Year goody bags and red packets to the old folks. These visits are accompanied by traditional lion and dragon dance performances. In 2008, a sum of $37,000 was donated to various charity foundations to extend Serial System Ltd Group s welfare aid to needy students and families in Singapore. Contribution to Education and Art Programs Serial System Ltd s visit to the Tai Pei Old Folks Home during Lunar New year 2009 distributing goody bags and red packets to the old folks In 2008, a sum of $30,000 was donated to Singapore Chinese Orchestra to promote greater appreciation of Chinese orchestral music and achievement of artistic excellence, and to provide as study awards to all-rounder students and undergraduates with strong community and social services inclination. The aim is to stimulate interests in young Singaporeans to serve the society in the future. Contribution to Disaster Relief Programs In 2008, Serial System Ltd together with its employees donated $69,000 to the Embassy of The People s Republic of China for the reconstruction of schools and education programs for the children, as well as re-building of the mishap city, which was affected by the Sichuan Earthquake disaster on 12 th May Serial System Ltd also donated $10,000 to Mercy Relief Limited to provide assistance to the Myanmar Cyclone Nargis s victims. ANNUAL REPORT

9 Group Structure As at 18 March 2009 Serial System Ltd Semiconductors/Components Distribution 100% Serial Microelectronics Pte Ltd 100% Serial System Sdn. Bhd. 33.3% Bull Will Co., Ltd 91% Serial Microelectronics (HK) Limited 95.5% T & S Technology Limited 98.2% Tong Baek Trading Co., Ltd 81% Unitron Tech Co., Limited 100% Serial Microelectronics (Shenzhen) Co., Ltd 100% New Trend Technology Development Limited 67.13% Bona Technology Inc. 100% Hu & Power Tech Co., Ltd 82.5% Serial Microelectronics Inc. Other Businesses 100% Serial Investment Pte Ltd 100% Serial Investment (Taiwan) Inc. 100% SCE Enterprise Pte Ltd 45% Globaltronics International Pte Ltd has offices and/or representations in Philippines, Thailand, Vietnam and major cities of China and India. ANNUAL REPORT

10 Board Of Directors Derek Goh Bak Heng 2 Chin Yeow Hon 3 Ng Cher Yan 4 Ravindran s/o Ramasamy 5 Lee Teck Leng Robson Derek Goh Bak Heng Executive Chairman & Group CEO Dr Derek Goh Bak Heng founded Serial System as a sole proprietorship in 1988, incorporated Serial System Ltd in 1992 and was the founding Chairman and CEO when the company was listed in Dr Goh is currently the Chairman and CEO of Serial System Ltd with overall management responsibilities for the Group. As Executive Chairman, Dr Goh leads the Board in charting the future direction for the Group. He is currently also a member of the Remuneration Committee, Nominating Committee and Serial System Executives Share Option Scheme Committee. Dr Goh was last re-elected as a Director on 26 October He was appointed Group Managing Director on 1 March Dr Goh holds an Honorary MBA degree from the American University of Hawaii and the Honorary Doctor of Business Administration in Marketing degree from the Wisconsin International University. Dr Goh was also conferred the degree of Honorary Doctor of Philosophy in Business Administration by the Kennedy- Western University. In 1996, Dr Goh won the Entrepreneur of the Year Award, organised by the Rotary Club of Singapore and the Association of Small and Medium Enterprises, and supported by the Trade Development Board. In 1999, he was also conferred the ASEAN Best Young Entrepreneur Award 1999 by the ASEAN Secretariat. On 29 March 2000, Dr Goh was conferred the World Association of Small and Medium Enterprises (WASME) Special Honour Award by the World Association of Small and Medium Enterprises. In 2004, Dr Goh was awarded the Public Service Medal by the President of the Republic of Singapore. As at 18 March 2009, Dr Goh holds 215,663,926 shares (35.74%) and 35,943,987 Warrant W in Serial System Ltd. Dr Goh is a substantial shareholder of Serial System Ltd. Chin Yeow Hon Executive Director Mr Chin Yeow Hon joined Serial System Ltd as an Applications Engineer in July He was appointed an Executive Director on 20 October 1999 and Group Senior Vice President in July In February 2001, he took on the role of Acting Chief Operating Officer of Serial System Ltd. Mr Chin was last re-elected as a Director on 27 April Mr Chin holds an Electrical/Electronics Engineering degree from the National University of Singapore. As at 18 March 2009, Mr Chin holds 8,250,408 shares (1.37%), and 1,297,234 Warrant W in Serial System Ltd. ANNUAL REPORT

11 Ng Cher Yan Non-Executive & Independent Director Mr Ng Cher Yan joined the Board of Directors on 19 March He is currently the Chairman of the Audit Committee and a member of the Nominating Committee, Remuneration Committee, and Serial System Executives Share Option Scheme Committee. Mr Ng was last re-elected as a Director on 27 April Besides Serial System Ltd, Mr Ng is also a Non- Executive and Independent Director of the following listed companies: Kian Ann Engineering Ltd, Ecowise Holdings Limited, Sinopipe Holdings Limited, Kinergy Ltd, Sihuan Pharmaceutical Holdings Group Ltd, and Samko Timber Ltd. Mr Ng graduated from the National University of Singapore in 1983 with a Bachelor of Accountancy degree and he started his professional career with Pricewaterhouse. He is currently a practicing public accountant under the name of CY Ng & Co, and a fellow member of the Institute of Certified Public Accountants of Singapore and a member of the Institute of Chartered Accountants in Australia. As at 18 March 2009, Mr Ng holds 600,000 shares (0.10%) in Serial System Ltd. Ravindran s/o Ramasamy Non-Executive & Independent Director Mr Ravindran s/o Ramasamy joined the Board of Directors on 14 August He is currently the Chairman of the Remuneration Committee and Serial System Executives Share Option Scheme Committee, and a member of the Audit Committee and Nominating Committee. Mr Ravindran was last re-elected as a Director on 25 April Besides Serial System Ltd, Mr Ravindran is also a Non- Executive and Independent Director of Best World International Limited and Frasers Centrepoint Asset Management (Commercial) Ltd. Mr Ravindran holds a Masters of Law degree from the National University of Singapore and is a consultant with Harry Elias Partnership. As at 18 March 2009, Mr Ravindran holds 262,500 Warrant W in Serial System Ltd. Lee Teck Leng Robson Non-Executive & Independent Director Mr Lee Teck Leng Robson joined the Board of Directors on 30 December He is currently the Chairman of the Nominating Committee and a member of the Audit Committee, Remuneration Committee, and Serial System Executives Share Option Scheme Committee. Mr Lee was last re-elected as a Director on 25 April Besides Serial System Ltd, Mr Lee is also a Non-Executive and Independent Director of Qian Hu Corporation Limited, Sim Lian Group Limited, Best World International Limited, Matex International Limited, and Youcan Foods International Limited. Mr Lee graduated from the National University of Singapore with a Second Class Upper Honors degree in law. He is a trustee of the land on which both Hwa Chong Institution and Hwa Chong International are situated and further holds the position of Secretary in the Board of Governors of Hwa Chong Institution and Secretary in the Board of Directors of The Singapore Chinese High School. Mr Lee is currently a partner in Shook Lin & Bok s corporate finance and international finance practice and has been with the firm since Mr Lee is also a partner in the firm s China practice, focusing on crossborder corporate transactions in the People s Republic of China. ANNUAL REPORT

12 Corporate Management Team Derek Goh Bak Heng 2 Chin Yeow Hon 3 Alex Wui Heck Koon Derek Goh Bak Heng Group Chief Executive Officer As Group Chief Executive Officer, Derek leads the corporate management team in executing strategies to achieve the goals set by the Board of Directors. Chin Yeow Hon Group Senior Vice President & Acting Chief Operating Officer Yeow Hon joined the Group in July He is a Group Senior Vice President and took on the role of Acting Chief Operating Officer in February He holds an Electrical/Electronics Engineering degree from the National University of Singapore. Alex Wui Heck Koon Group Financial Controller Alex joined the Group in August 2000 and was appointed Group Financial Controller in August He is also the Company Secretary. Alex is a Certified Public Accountant with corporate advisory and public accounting experiences gained with an international accounting firm. He holds a Bachelor of Accountancy degree from the Nanyang Technological University. ANNUAL REPORT

13 Semiconductors/Components Distribution Senior Management Team Chin Yeow Hon 2 Johnson Ho 3 Kim Sang Yeol 4 Lawrence Ho 5 Richard Namkoong 6 Bob Chu 7 Jesse Jeng 8 Phillip Warren 9 Ng Teck Cheng 10 Sean Goh Chin Yeow Hon Group Senior Vice President & Acting Chief Operating Officer Serial System Ltd Johnson Ho Group Senior Vice President Serial Microelectronics Pte Ltd Kim Sang Yeol President Tong Baek Trading Co., Ltd South Korea Lawrence Ho President Serial Microelectronics (HK) Limited Hong Kong & People s Republic of China Richard Namkoong President Unitron Tech Co., Limited South Korea Bob Chu Chief Executive Officer Bull Will Co., Ltd Taiwan, Republic of China Jesse Jeng President Serial Microelectronics Inc. Taiwan, Republic of China Phillip Warren Vice President Serial Microelectronics Pte Ltd Ng Teck Cheng Vice President Group Operations & Asset Management Serial Microelectronics Pte Ltd Sean Goh Marketing Director Serial Microelectronics Pte Ltd ANNUAL REPORT

14 Corporate Governance Report Both Board of Directors (the Board ) and management are committed to high standards of corporate governance and have adopted practices contained in the Best Practices Guide issued by the Singapore Exchange Securities Trading Limited (the SGX-ST ). Board s conduct of its affairs The Board s primary role is to protect and enhance the long-term shareholders value. Besides setting the overall strategic direction for the Group, the Board also establishes goals for the management and monitors the achievement of these goals. The Board monitors management performance and oversees the processes for evaluating the adequacy of internal controls, financial reporting and compliance. For the effective execution of its responsibilities, the Board has delegated most of its functions to the various Board committees. These are the Audit Committee ( AC ), Nominating Committee ( NC ), and Remuneration Committee ( RC ). Matters which require Board s approval The Board continues to approve matters which, under the Companies Act and SGX-ST Listing Manual, require the Board s approval. Specifically, the Board has direct responsibility for decision making in the following: joint ventures, acquisitions, and mergers; sales and purchases of shares in Serial System Ltd and its subsidiaries and associated companies, and other companies; capital expenditure exceeding $2 million; disposal of assets exceeding $2 million; borrowing exceeding $5 million; interested person transactions for an amount equal to or more than $100,000; declaration of dividends by Serial System Ltd; and appointment of Directors and Chief Executive Officer of Serial System Ltd. Board composition and balance Currently, the Board comprises two executive directors and three independent directors. The Board is guided by the definition of independence given in the Code of Corporate Governance issued by the Corporate Governance Committee in determining if a director is independent. The NC has reviewed and confirmed that Messrs. Ng Cher Yan, Ravindran s/o Ramasamy, and Lee Teck Leng Robson are independent directors In determining the size, the Board takes the view that there is sufficient number of directors to serve on the various committees without over-burdening them and making it convenient for them to discharge their responsibilities. ANNUAL REPORT

15 As for composition, the Board is of the opinion that at least one-third of the number should be independent and non-executive. Directors appointed by the Board are subject to election by shareholders at the annual general meeting ( AGM ). All directors are subject to re-election once every three years, if re-nominated by the NC. The NC (with Mr Ng Cher Yan and Mr Ravindran s/o Ramasamy abstaining in respect of their re-nomination) recommended to the Board that both Mr Ng Cher Yan and Mr Ravindran s/o Ramasamy who retire pursuant to Article 89 of Serial System Ltd s Articles of Association, be nominated for re-appointment at the forthcoming AGM on 22 April Access to information From time to time, Directors are furnished with information concerning the Group s operations so that they can be appropriately cognisant of the decisions and actions of the Group s management. All independent directors have access to the Group s management. If need be, they also have the right to seek professional advice, at the Group s expense, concerning any aspect of the Group s operations or undertakings in order to fulfil their duties and responsibilities as directors. Company Secretary attends Board and Committee meetings and is responsible for ensuring that established procedures and the relevant statutes and regulations are complied with. Directors have had the opportunity to meet with the Group s management and receive briefings on the Group s operations and policies. Independent directors are provided with orientation and updates on the salient aspects of the Group s business. Board meetings held in Year 2008 The Board meets as warranted by circumstances. In 2008, the Board held three meetings and the attendance by the directors is as follows: Name of Director Number of Meetings held Attendance Derek Goh Bak Heng 3 3 Chin Yeow Hon 3 2 Ng Cher Yan 3 3 Ravindran s/o Ramasamy 3 3 Lee Teck Leng Robson 3 2 Directors attendances at formal meetings alone do not reflect the true extent of each director s contribution. s management has access to each director for guidance and exchange of views outside the formal environment of board meetings. ANNUAL REPORT

16 Chairman and Chief Executive Officer s Chairman and Chief Executive Officer ( CEO ) is Dr Derek Goh Bak Heng. He is also the founder of the Group and continues to play a pivotal and significant role in developing the Group s businesses. His performance and remuneration package are reviewed periodically by the NC and RC respectively. As such, the Board is of the view that adequate safeguards are in place to ensure a good balance of power and responsibility. The Board has decided that it would currently not be in the Group s interests to institute a separation in the role of the Chairman from that of the CEO. The Board views that in the best interests of the Group, Dr Derek Goh Bak Heng continues to be the Chairman of the Board and CEO of the Group for the current year. Audit Committee Mr Ng Cher Yan chairs the AC. The other members of the AC are Mr Ravindran s/o Ramasamy and Mr Lee Teck Leng Robson. Currently, all three members of the AC are independent directors. The AC has its terms of reference. Specifically, the AC: reviews with the Group s external auditors, their audit plan, evaluation of the internal accounting controls, audit report, and any matters which the external auditors wish to discuss reviews the Group s financial reports to shareholders and the general public to ensure that they comply with the Companies Act, SGX-ST s Listing Rules, and other regulatory requirements reviews with the internal auditors, the scope and results of internal audit procedures and their evaluation of the internal control system reviews assistance given by the Company s officers to the external and internal auditors reviews interested person transactions evaluates the objectivity and independence of the external auditors annually and nominates external auditors for appointment or re-appointment The AC has reviewed the financial statements with management and the external auditors and is of the view that the Group s financial statements for Year 2008 are fairly presented in conformity with the relevant Singapore Financial Reporting Standards in all material aspects. The AC has the explicit authority to investigate any matter within its terms of reference. During the year under review, the AC has full access to and cooperation by the Group s management. It also has the discretion to invite any director or member of the Group s management to its meetings as well as reasonable resources to enable it to discharge its functions properly. The AC confirms that it has undertaken a review of all non-audit services provided by the external auditors and is satisfied that such services would not, in the AC s opinion, affect the independence of the external auditors. The AC held three meetings during the year and the attendance by the members is as follows: Name of Director Number of Meetings held Attendance Ng Cher Yan 3 3 Ravindran s/o Ramasamy 3 3 Lee Teck Leng Robson 3 1 ANNUAL REPORT

17 A member of the AC holds office until the next AGM following that member s appointment and may, subject to the prior approval of the Board, be re-appointed to such office. Where, by virtue of any vacancy in the membership of the AC for any reason, the number of members of the AC is reduced to less than three (or such other number as may be determined by SGX-ST), the Board shall, within three months thereafter, appoint such number of new members to the AC. Any new member appointed shall hold office for the remainder of the term of office of the member of the AC in whose place he or she is appointed. The AC meets regularly with the Group s external auditors. At least once a year, the AC would meet with the Group s external auditors without the presence of the management to ensure that there are no unresolved areas of concern. Nominating Committee Mr Lee Teck Leng Robson chairs the NC. Other members of the NC are Mr Ng Cher Yan, Mr Ravindran s/o Ramasamy and Dr Derek Goh Bak Heng. Besides Dr Derek Goh Bak Heng, all the other three members of the NC are independent directors. The NC has its terms of reference. Specifically, it determines the criteria for identifying candidates and reviewing nominations for the appointments as directors and CEO decides how the Board s performance may be evaluated and proposes objective performance criteria for the Board s approval assesses the effectiveness of the Board as a whole assesses the contribution by each individual director to the effectiveness of the Board re-nominates any director, having regard to the director s contribution and performance determines on an annual basis whether a director is independent decides whether a director is able to and has been adequately carrying out his or her duties as a director of the Group, particularly when the director has multiple board representations and identifies gaps in the mix of skills, experiences and other qualities required in an effective board so as to better nominate or recommend suitable candidates to fill the gaps A member of the NC holds office until the next AGM following that member s appointment and may, subject to the prior approval of the Board, be re-appointed to such office. The NC held one meeting during the year and the attendance by the members is as follows: Name of Director Number of Meetings held Attendance Lee Teck Leng Robson 1 1 Ng Cher Yan 1 1 Ravindran s/o Ramasamy 1 1 Derek Goh Bak Heng 1 1 ANNUAL REPORT

18 Remuneration Committee Mr Ravindran s/o Ramasamy chairs the RC. Other members of the RC are Mr Ng Cher Yan, Mr Lee Teck Leng Robson, and Dr Derek Goh Bak Heng. The RC reviews and recommends to the Board for approval the remuneration packages of the executive directors. The remuneration package of each executive director is based on both the performances of the Group and the individual. The Board recommends to shareholders for approval at AGM the fees payable to directors. A breakdown showing the level and mix of each individual director s remuneration payable for Year 2008 is as follows: Remuneration Bands Executive Directors Salary 1 and AWS 2 (%) Fees 3 (%) Incentive Bonus (%) Other Benefits 4 (%) Total Remuneration (%) (1) $750,000 to $999,999 Derek Goh Bak Heng (2) $250,000 to $499,999 Chin Yeow Hon Non-Executive & Independent Directors (1) Less than $250,000 Ng Cher Yan Ravindran s/o Ramasamy Lee Teck Leng Robson includes employer s CPF contribution 2 annual wage supplement of one-month salary 3 accrued for Year excludes share options under Serial System Executives Share Option Scheme which are disclosed in the Directors report. Note: The remuneration disclosed in this report does not include share option expense. No share options were granted to directors in Year ANNUAL REPORT

19 The Board is aware that the Code of Corporate Governance requires the remuneration of at least the top five executives (who are not directors) to be disclosed. However, the Board, after careful deliberation, believes that such information is best kept confidential as disclosing the same would be disadvantageous to the Group s business interest. Instead, the remuneration band of the top five executives (who are not directors) for Year 2008 are presented as follows: Remuneration Bands Number of executives 1 Between $250,000 to $499,999 3 Less than $250, includes executives of overseas subsidiaries Internal Control and Audit The Board is responsible for maintaining a system of internal controls to safeguard shareholders investments and the Group s assets. Whilst the AC is tasked to oversee the implementation of an effective system of internal controls, the Board recognises that no cost effective control system will totally preclude all errors and irregularities. The Board is of the view that any internal control system is designed to manage rather than totally eliminate the risk of failure to achieve business objectives. A cost effective internal control system can only provide reasonable and not total assurance against material misstatement or loss. For an even more comprehensive assessment of the overall effectiveness of the Group s control system, the Audit Committee holds the view that the internal audit function should continue to be outsourced. In Year 2008, Lee Seng Chan & Co was engaged to do an internal audit review on the controls on revenue, receivables and collections cycle, expenditure controls and payments cycle and value-added tax review at Serial Microelectronics (Shenzhen) Co., Ltd s Shanghai and Beijing branch. The internal auditors report to the AC any material non-compliance and internal control weaknesses. The AC continues to oversee and monitor the implementation of any agreed improvements. Whistle-blowing Policy The Company has in place a whistle-blowing policy. Staff may raise concerns about possible improprieties to the Chairman of the AC. Communication with Shareholders It is the Board s policy that all shareholders should be treated equally and timely informed of material developments. does not practise selective disclosure. Material information including interim and full-year results are released through SGXNET and the Group s website. All shareholders receive the annual report which, amongst others, contains information required to be disclosed by the SGX-ST, the Singapore Financial Reporting Standards, and the Companies Act. ANNUAL REPORT

20 Shareholders can assess information on the Group through the Group s website at which provides the Group s corporate announcements, press releases, and profiles. The Board recognises that the AGM is the most feasible medium for communicating with shareholders. Time will be allocated for greater shareholders participation at AGMs as well as to provide shareholders the opportunity to communicate their views on matters affecting the Group. The Chairmen of the Audit Committee, Nominating Committee, and Remuneration Committee are normally available at these meetings to address questions. Currently, shareholders are allowed to vote in person or in absentia. Equal effect is given to votes whether cast in person or in absentia. To ensure that shareholders can have better exercise of their right to approve or deny each issue or motion, separate issues are not combined and presented as one single motion for voting by the shareholders. At shareholders meetings, there are separate resolutions on each distinct issue. Dealing in securities s directors and officers are not permitted to deal in the Group s shares whilst in possession of price sensitive information and during the period commencing one month before the announcement of the Group s half-yearly and full year results and ending on the day of announcement of the results. Compliance with The Code of Corporate Governance The Board is satisfied that for the financial year ended 31 December 2008, the Group has complied with the spirit of the principal corporate governance recommendations set out in The Code of Corporate Governance. ANNUAL REPORT

21 Financial Contents 21 Directors Report Statement By Directors Independent Auditors Report To The Members Of Serial System Ltd Consolidated Income Statement Balance Sheets Consolidated Statement Of Changes in Equity Consolidated Cash Flow Statement Notes To The Financial Statements Additional Requirements of Singapore Exchange Securities Trading Limited s Listing Manual Statistics Of Shareholdings Statistics Of Warrantholdings Notice Of Annual General Meeting Notice Of Books Closure Proxy Form - Annual General Meeting

22 DIRECTORS REPORT The directors present their report to the members together with the audited financial statements of the Group for the financial year ended 31 December 2008 and the balance sheet of the Company at 31 December Directors The directors of the Company in office at the date of this report are: Derek Goh Bak Heng Chin Yeow Hon Ng Cher Yan Ravindran s/o Ramasamy Lee Teck Leng Robson Arrangements to enable directors to acquire shares and debentures 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 in, or debentures of, the Company or any other body corporate, other than as disclosed under Share Options in this report. Directors interests in shares or debentures (a) According to the register of directors shareholdings, the interests of the directors holding office at the end of the financial year in the issued share capital of the Company and related corporations were as follows: Holdings registered in name of director or nominees At At At The Company (Number of ordinary shares) Derek Goh Bak Heng 215,663, ,663, ,663,926 Chin Yeow Hon 8,250,408 8,250,408 7,783,408 Ng Cher Yan 600, , ,000 Ravindran s/o Ramasamy - - 1,575,000 (Number of Warrant W and Warrant W to subscribe for ordinary shares) Derek Goh Bak Heng 84,065,234 84,065,234 84,065,234 Chin Yeow Hon 1,368,262 1,368,262 1,368,262 Ravindran s/o Ramasamy 262, , ,500 ANNUAL REPORT

23 DIRECTORS REPORT Directors interests in shares or debentures (continued) (b) According to the register of directors shareholdings, certain of the directors holding office at the end of the financial year had share options to subscribe for ordinary shares of the Company granted pursuant to the Serial System Executives Share Option Scheme as set out below: Number of unissued ordinary shares under share options held by director At At At ** At Discounted share options* Chin Yeow Hon 210, , , ,000 Non-discounted share options* Chin Yeow Hon 630, , , ,000 Lee Teck Leng Robson , ,000 * Refer to Share Options in this report for details on Discounted Share Options and Non-discounted Share Options. ** Refer to Share Options in this report for details on Adjustments to Share Options. (c) Mr Derek Goh Bak Heng, who by virtue of his interest of not less than 20% of the issued share capital of the Company, is deemed to have an interest in the whole of the issued share capital of the Company s wholly owned subsidiaries and in the following partially owned subsidiaries of the Group: Holdings in which a director is deemed to have an interest At At Serial Microelectronics (HK) Limited (Number of ordinary shares of HK$1 each) 1,365,000 1,365,000 T&S Technology Limited (Number of ordinary shares of HK$1 each) 744, ,900 Serial Microelectronics Inc. (Number of ordinary shares of NT10 each) 1,320,000 1,320,000 Tong Baek Trading Co., Ltd (Number of common stocks of Korean Won 5,000 each) 19,640 19,640 Bona Technology Inc. (Number of common stocks of Korean Won 5,000 each) 186, ,019 Unitron Tech Co., Limited (Number of common stocks of Korean Won 5,000 each) 64,800 68,000 Hu & Power Tech Co., Ltd (Number of common stocks of Korean Won 5,000 each) 196, ,480 Serial Microelectronics (Shenzhen) Co., Ltd (Capital contribution) HK$910,000 HK$910,000 New Trend Technology Development Limited (Number of ordinary shares of HK$1 each) 9,100 - ANNUAL REPORT

24 DIRECTORS REPORT Directors contractual benefits Since the end of the previous financial year, no director has received or become entitled to receive a benefit by reason of a contract made by the Company or a related corporation with the director or with a firm of which he is a member or with a company in which he has a substantial financial interest, except as disclosed in the financial statements and in this report. Share options (a) Serial System Executives Share Option Scheme [the SSL Executives Share Option Scheme ] The SSL Executives Share Option Scheme was approved by the shareholders at the Extraordinary General Meeting of the Company held on 30 January It replaced the previous share option schemes, which expired on 26 October Any share options granted and accepted under the previous share option schemes which have not been exercised and have not lapsed, shall continue to be exercisable up to its expiry under the terms of the previous schemes and not be invalidated by the implementation of the SSL Executives Share Option Scheme. Under the SSL Executives Share Option Scheme, share options are granted to the following persons at the absolute discretion of the SSL Executives Share Option Scheme Committee (the Committee ): (i) (ii) (iii) (iv) full time confirmed employees of the Company and its subsidiaries who have attained the age of 21 years on or before the date of the grant of the share options; Directors of the Company and directors of subsidiaries who perform an executive function; Non-Executive Directors of the Company; and employees who qualify under (i) and are seconded to an associated company or a company outside the Group in which the Company and/or Group has an equity interest, and who, in the absolute discretion of the Committee is selected to participate in the SSL Executives Share Option Scheme. For non-discounted share options, the exercise price of the granted share options is set by reference to the average of the last dealt prices of the ordinary shares of the Company on the Singapore Exchange Securities Trading Limited ( SGX-ST ) for the three consecutive trading days immediately preceding the date of offer of the share options ( Market Price ). For discounted share options, share options are granted at a price which is set at a discount to the Market Price, provided that the maximum discount shall not exceed 20% of the Market Price or such other percentage or amount as may be prescribed or permitted for the time being by the SGX-ST. There is no restriction to the eligibility of any persons to whom the share options have been granted, to participate in other share option or share incentive schemes implemented by the Company, subsidiaries or associated companies. Particulars of the share options granted in the preceding financial years under the previous schemes were set out in the Directors Reports for the respective financial years. There were no share options granted pursuant to the SSL Executives Share Option Scheme during the financial year ended 31 December No ordinary shares of the Company were allotted and issued by virtue of the exercise of share options during the financial year ended 31 December In 2007, the Company undertook a renounceable non-underwritten rights issue ( Rights cum Warrants Issue ) approved by the shareholders at the Extraordinary General Meeting of the Company held on 16 November Pursuant to the terms and conditions of the SSL Executives Share Option Scheme, the Committee has determined that adjustments were required to be made to the exercise price and number of share options which have not been exercised and have not lapsed, as a result of the Rights cum Warrants Issue. The adjustments were made to the exercise price and number of these share options on 25 January 2008 and disclosed in the Directors Report for the financial year ended 31 December ANNUAL REPORT