Post on 06-Feb-2018
A N N U A L R E P O R T 2 0 1 4
C O S M O S T E E L H O L D I N G S L I M I T E D
To be a world-class provider of industrial hardware and related
services that surpasses expectations of our customers through
consistent product quality, competitive pricing, reliable on-time
delivery, and service excellence with a strong commitment to
social and environmental responsibility.
MISSION
CONTENTS
02Our Products & Services
10Board of Directors
22Financial Highlights
04Joint Message from the Chairman & CEO
18RiskManagment
14Corporate Social Responsibility
13Corporate Information
24Operating & Financial Review
30Corporate Governance
48Financial Report
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CORPORATEPROFILE
SGX Mainboard-listed
CosmoSteel Holdings
Limited and its subsidiaries
(collectively CosmoSteel
or the Group) is backed by
over 30 years of established
track record as a service-
oriented and reliable solutions
provider in the sourcing and
distribution of piping system
components in the Energy,
Marine and other industries
in Southeast Asia and other
regions.
With a keen focus on product
quality, and timely and reliable
deliveries, CosmoSteel
has built a solid business
foundation with an extensive
network of strategic alliances
regionally and internationally.
Having developed a strong
and diversified base of over
400 customers including
local and multinational blue-
chip energy companies such
as Shell, Alstom, Keppel
and SembCorp, the Group
has proven its capacity and
capabilities to be at the
forefront of its steel products
and services business. The
Group is able to supply
consistently high-quality
products on a timely basis due
to the close ties it has forged
with major manufacturers in
Europe, US, Japan and the
Peoples Republic of China,
amongst others.
In line with its drive for
excellence, CosmoSteel has
gained recognition for its
best practices in corporate
transparency and business
operations. In 2014, the
Group was ranked 92nd out
of 644 companies on the
Governance and Transparency
Index (GTI) jointly launched
by The Business Times and
the Centre for Governance,
Institutions and Organisations
(CGIO) of NUS Business
School, National University of
Singapore. The Group has also
received numerous world-
class certifications including
ISO 9002:1994 in 2000; ISO
9001:2000 in 2003; ISO
9001:2008, ISO 14001:2004
and OHSAS 18001:2007 in
2009, and bizSAFE STAR
certification in 2012.
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CUSTOMERS
DRIVING
OUR GROWTH
Our customers use our products as components mainly to construct piping systems for the conduit of
liquids and gases in the production processes of the Energy, Marine
and other industries
Our products are used for offshore rig fabrication (including jack-up
and semi-submersible rigs), Floating Production Storage and Offloading
(FPSO) / Floating Storage and Offloading (FSO) vessel conversion and building, and onshore Energy
facilities fabrication
ENERGY INDUSTRY
We sell to traders who on-sell our products to their customers which may include end user customers
from the Energy and Marine industries
TRADERS
We supply our products to other industries such as the
manufacturing sector
OTHERS
Our products are used for shipbuilding and repair in this
industry and our customers include major local shipyards
in Singapore
MARINE INDUSTRY
We supply spiral welded pipes widely used in water treatment plants and other related infrastructure projects
in Singapore and the region
WATER INDUSTRY
OUR PRODUCTS
With over 25,000 line items
across three main product
categories, CosmoSteel has
one of the largest and most
extensive inventories of steel
pipes, fittings and flanges in
Singapore. Its capabilities as
an inventory specialist have
placed it in a strong position
to meet the steel product
requirements of its customers
readily and efficiently.
From carbon steel, low
temp carbon steel, stainless
steel, duplex steel, super
duplex steel to high yield
and low alloys, the Groups
steel products come in a
wide range of materials to
suit the diverse needs of
its customers. Apart from
material range, CosmoSteels
products are also available in
different product variations in
accordance with customers
required design, size,
chemical compositions,
mechanical strength and
testing requirements.
OUR PRODUCTS & SERVICES
Across the board, the
Groups steel products are
mainly categorised based
on international standards
promulgated by API, ANSI,
ASME, ASTM and/or EN.
Further expanding its product
offerings, CosmoSteel
supplies spiral welded pipes
up to dimensions of OD
2500mm for the water and
construction industries. The
Group also offers seamless
or welded constructed pipes,
which are widely used in
todays cross country line
pipes requirements.
OUR SERVICES
CosmoSteel provides pipe
roll grooving and product
customisation services,
through its in-house
machineries, to modify
product size and thread
dimensions of its products
to meet specific engineering
and fabrication designs and
requirements of its customers.
To ensure quality, the Group
also provides in-house
validation and testing services
as well as third-party testing
and inspection for materials
that require Hydrogen
Induction Cracking or Sulfide
Stress Cracking. Its range of in-
house Non-Destructive Testing
includes alloy verification, dye
penetrant testing, magnetic
particle testing, UT testing for
lamination and longitudinal
or transverse defects, wall
thickness check and ferrite
content check, amongst
others.
Tapping on strategic alliances
with an international network
of suppliers, CosmoSteel
is able to offer expedited
delivery services for material
grades that are difficult to
source.
Over and above all these,
CosmoSteel offers project
management services to
customers, an additional
set of value-adding service
that propels its service
excellence to the next
level. As part of this suite of
services, the Group is able
to provide procurement and
expediting services for the
specific materials required by
customers as well as inventory
management services to
customers without warehouse
or storage facilities. Its project
management services also
include just-in-time delivery
according to customers
requirements and logistics
arrangements for expedited
deliveries, both of which yield
significant time and storage
cost savings for its customers.
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JOINT MESSAGE FROM THE CHAIRMAN & CEO
DEAR SHAREHOLDERS,
On behalf of the Board of
Directors of CosmoSteel,
we are delighted to present
to you our Annual Report for
the financial year ended 30
September 2014 (FY2014).
FY2014 has been another
challenging but satisfying
year for CosmoSteel. The
main challenge has been the
continued dampening effects
of the uncertain global
economic climate. The global
economy has entered a new
norm of slower growth,
and every business has to
adapt to survive in this new
business landscape. The
proverbial silver lining is that
the Federal Reserve System,
which is the central banking
system of the United States,
has tapered off its bond
buying scheme1 and has
publicly discussed increasing
interest rates2, which indicate
positive signals for the US
economy, and by extension,
the global economy.
On top of that, the Group has
had to contend with tough
years for the steel industry
with volatile market prices,
growth overcapacity and
an increasingly competitive
environment.3
Backed by over 30 years of
track record and experience in
the industry, CosmoSteel has
become a nimble and strong
business unit with experienced
and resolute people to chart
the right course for our future.
Since our successful listing
in 2007 on the Singapore
Exchange, the Group has
delivered robust revenue and
profit every year, and just last
year, as a testament to our
confidence in the prospects of
CosmoSteel, we committed
to a formal dividend policy to
distribute at least 10% of the
Groups net profit attributable
to Shareholders4 as a reward
to shareholders who have put
their faith in us.
As such, the Group intends to
distribute a final cash dividend
BACkEd By OvER
30 yEARS Of TRACk
RECORd ANd
ExPERiENCE iN ThE
iNdUSTRy, ThE GROUP
hAS BECOME A
NiMBLE ANd STRONG
BUSiNESS UNiT wiTh
ExPERiENCEd ANd
RESOLUTE PEOPLE
TO ChART ThE RiGhT
COURSE fOR OUR
fUTURE.
1 Fed Minutes: QE likely to end with $15B reduction in October by CNBC (9 July 2014)
2 Fed on target to raise interest rates in Spring 2015 by Forbes (27 March 2014)
3 China Iron and Steel Industry is Facing Tough Times by e-fab (22 February 2014)
4 This is subject to a minimum net profit of at least $3 million and such other conditions as set out in the dividend policy.
SINGAPORE
INDONESIA
MAL AYSIA
THAILAND
NEW ZEAL AND
AUSTRALIA
JAPAN
KOREA
BRUNEI
MYANMAR
CHINAMIDDLE EAST
USA
SOUTH AFRICA
EUROPE
PHILIPPINESVIETNAM
OUR MARKETS
of 0.5 Singapore cents for
FY2014, reflecting a payout
ratio of 23.8%.
FY2014 IN REVIEW
In FY2014, the Group achieved
a net profit of $5.5 million
on the back of $157.6 million
in revenue, a set of results
which was in line with the
managements expectations
for the year. Despite an
increasingly competitive
business environment, the
Group managed to grow its
top-line by 1.2% in FY2014,
thanks to a number of
Energy-related projects in
markets such as Singapore,
China and Vietnam. We
managed to grow our gross
profit margin in FY2014
marginally to 19.2% from 18.8%
a year ago, while gross profit
grew 3.5% to $30.2 million.
However, due to higher costs
in the form of warehouse
rental, employee costs and
depreciation on our properties,
the Groups bottom-line was
shaved by 12.9%.
CORPORATE
AND BUSINESS
DEVELOPMENTS
DURING THE YEAR
Being a one-stop inventory
specialist holding over 25,000
line items gives us great
leverage over our competitors
to meet customers demands
and requirements on short
notice. We currently have five
warehouse facilities, four of
which are on long-term leases
and one rented, in Singapore,
giving us over 538,000 sq ft
of storage space. In July 2014,
we announced a lease
extension on our warehouse at
90 Second Lok Yang Road to
June 2032 at prevailing market
rates. With a tenure originally
slated to end in March 2019,
the extension enables us to
maintain our considerable
warehouse capacity, giving us
long-term operational security.
As part of the consideration for
the extension, we have agreed
to certain investment criteria
that will see us investing up
to $11.8 million within three
years.
FY2014 also saw the re-
classification of our Chairman,
Mr Low Beng Tin, to
Independent Non-Executive
Director of the Group from
Non-Executive Director.
This move will increase the
independence of the Board
which will give stakeholders
greater assurances about the
Groups management and
operations.
It is always the intention
of CosmoSteel to remain
committed to a policy
of transparency to all
stakeholders. On 27 August
2014, the Group announced
that I, Mr Ong Chin Sum, and
Executive Director, Mr Ong
Tong Yang, were asked by the
Corrupt Practices Investigation
Bureau to assist with an
investigation relating to the
giving of illegal gratification to
an agent under section 6(b) of
the Prevention of Corruption
Act, Chapter 241. As at this
juncture, neither of us has
been charged, and we cannot
reveal further details while the
investigation is ongoing.
Rest assured the Board and
Management of the Group will
stay steadfast in our obligation
to update all our stakeholders
with relevant developments
about this investigation at
the earliest appropriate
opportunity. Already, we have
gotten assurances from the
Groups customers, major
shareholders and business
partners that this will not affect
our relationship with them in
any way. It is business as usual
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LOW BENG TIN ONG CHIN SUM
for us as the Group remains
committed and focused on
driving its operations going
forward and growing the
business.
Underscoring this, CosmoSteel
entered into a conditional
subscription agreement with
a leading Japanese trading
company listed on the
Tokyo Stock Exchange that
is involved mainly in steel
products, Hanwa Co. Ltd.
(Hanwa), on 1 December
2014 for the issuance of 26.4
million new ordinary shares at
a subscription price of $0.58
per share, an approximately
48.7% premium to the Groups
volume weighted average
trading price of $0.3901 on
28 November 2014. The
26.4 million block represents
approximately 10% of the
existing issued share capital of
CosmoSteel. The Group will
raise net proceeds of $14.2
million which we plan to utilise
for the construction of a new
building at 90 Second Lok
Yang Way and the purchase of
machinery and equipment for
our new warehouse at 36 Tuas
Crescent among other uses.
Conditional on the completion
of the proposed subscription, I,
Mr Ong Chin Sum, entered
into a sale and purchase
agreement to sell approximately
56,217,982 shares, representing
21.29% of the existing issued
share capital of CosmoSteel,
to Hanwa at $0.58 per share.
Upon completion of the
above two transactions,
Hanwa will hold, in aggregate,
approximately 28.45% of
CosmoSteels enlarged share
capital of 290,399,997 shares.
At the same time, we have also
entered into a strategic alliance
agreement with Hanwa to
jointly reinforce marketing and
sales efforts relating to our
products. The partnership is an
exciting step forward for us as
CosmoSteel and Hanwa each
have complementary strengths
with different focus in terms of
specific markets and products.
We plan to tap on Hanwas
extensive customer network,
global reach and expertise
as a distribution specialist
to further grow our business.
Stemming from this alliance
with Hanwa, our range of
products will be expanded
horizontally to include steel
plates and sheets, enabling
CosmoSteel to reach out to
even more customers.
OUTLOOK AND STRATEGIES
CosmoSteel expects the
outlook for FY2015 to be
challenging, given the present
macroeconomic dynamics.
As highlighted in our previous
years annual report, we also
expect industry competition to
continue to step up locally and
globally.
That said, overall global
demand for steel has been
healthy and has seen a steady
uptick5 in spite of overcapacity
issues in China and softer steel
prices. There is further support
in the form of the Chinese
government putting mandates
in place to halt this growth in
steel overcapacity.6
Looking ahead, the Group
remains positive on the
prospects of our customers
in the Energy and Marine
industries, which will continue
to be important sectors for
us in FY2015. In particular, the
Group will continue to tap
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4 JOINT MESSAGE FROM THE CHAIRMAN & CEO(contd)
on the Energy industry for its
growth, driven by ongoing
global and regional exploration
and production activities.
We believe our strategy to
penetrate the upstream energy
segment to boost volume
sales in the region will pay off
given the significant order size
of each project. Despite the
greater competition present
in this market, attaining critical
mass will substantially enhance
the growth of CosmoSteel
and aid its long-term business
prospects. Already, we have
seen initial successes with this
strategy as the Group handled
orders of larger volume and
worked with multinational
customers during the year.
In terms of expanding the
pie, the Group has identified
China, the Philippines and
Vietnam as our geographical
focus given the healthy
growth potential arising from
Energy- and Marine-related
projects in the region. As such,
we plan to intensify our sales
and marketing efforts in these
markets to strengthen existing
relationships and to capture
new opportunities.
The Group will also continue
to drive forward its strategy
to be a one-stop inventory
specialist offering extensive
and ready stocks for quick
turnaround. We believe that
this is one of our strongest
draws although it comes
at a price in land-scarce
Singapore. With Hanwa as a
partner, we can better cater
to the wide-ranging needs
of our customers. Given our
requirements for substantial
warehouse space for inventory
storage, we are exploring
ways to mitigate the rising
cost of warehouse capacity
in Singapore. In line with this,
the Group has acquired the
warehouse located at 36 Tuas
Crescent. This single-storey
127,000 sq ft warehouse with
approximately 6 years left
on its tenure, will lower the
Groups overall rental costs
as well as give us scope for
greater expansion.
To protect our key
stakeholders, the Group
also upholds responsible
practices and policies as an
active corporate citizen. We
have implemented a vigorous
Enterprise Risk Management
(ERM) framework to track the
Groups risks and to ensure we
have adequate measures in
place. We have also engaged
an external professional party
to independently assess the
boards remuneration and
ensure that our practices
are aligned with industry
standards. In addition, we
have in place robust Quality,
Environmental, Occupational
Health and Safety standards
to ensure our operations are
safe and sustainable. We have
also embarked on a Business
Continuity Management
(BCM) programme to
attain the ISO 22301:2012
certification which will equip
the Group with knowledge to
respond to adverse impacts
on its operations and put in
place long-term mitigating
procedures.
Even as we pursue our
expansion plans, the Group
is ever mindful that it needs
to maintain prudence with
its financial management by
managing operating costs
and improving productivity to
ensure long-term sustainability
for the Group. We will also
need to stay especially vigilant
against financial pitfalls as we
expand into other countries in
the region. I am confident the
management and employees
will continue to demonstrate
their dedication and deliver
results in the coming years.
APPRECIATION
The last few months have
been difficult. But we are truly
blessed to have the friendship,
trust and confidence of
everyone involved with the
CosmoSteel family. To our
fellow Board members, your
constant counsel has been
invaluable. To the management
and employees of CosmoSteel,
you make this Company tick
and its successes are your
triumphs. To our business
partners, your trust in us
throughout the years has given
us the confidence to fly higher
each year. And to our
loyal shareholders, your
support and faith in the
company spur us to work
harder and achieve positive
results each year. We sincerely
and wholeheartedly thank all
of you.
As always, we look forward to
meeting you at our AGM on
30 January 2015.
LOW BENG TIN
Chairman and independent
Non-Executive director
ONG CHIN SUM
Chief Executive Officer
and Executive director
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5 World steel in figures report by World Steel Association (2014) 6 Chinas runaway steel industry by Bloomberg View (2 September 2014)
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20149302014
2014 12
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30 2007 4
0.52014 23.8
2014
201455015760
20141.2 18.8%19.2% 3.5%3020 12.9%
25000 53800020147 902032620193
1180
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2014827 2416(b)
30
,
,
,
1 Fed Minutes: QE likely to end with $15B reduction in October by CNBC (9 July 2014)
2 Fed on target to raise interest rates in Spring 2015 by Forbes (27 March 2014)
3 China Iron and Steel Industry is Facing Tough Times by e-fab (22 February 2014)
4 This is subject to a minimum net profit of at least $3 million and such other conditions as set out in the dividend policy.
5 World steel in figures report by World Steel Association (2014)
6 Chinas runaway steel industry by Bloomberg View (2 September 2014)
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2014121 0.582640 201411280.390148.7264010 1420 9036 56217982 21.29 0.58 (290399997) 28.45
2015
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ERM
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2015130
LOW BENG TINCHAIRMAN & INDEPENDENT NON-EXECUTIVE DIRECTOR
Re-classified as the Groups Independent Non-Executive Chairman (formerly the Non-Executive Chairman) in September 2014, Mr Low is also the Executive Chairman and Managing Director of OEL (Holdings) Limited (formerly known as Oakwell Engineering Limited), a SGX Catalist listed company which he founded in 1984. Mr Low has close to 40 years of engineering experience in the oil and gas, petrochemical, chemical and marine industries. In recognition of his contribution to the community, he was conferred the Pingat Bakti Masyarakat (The Public Service Medal) in 2004 and the Bintang Bakti Masyarakat (The Public Service Star) in 2009 by the President of the Republic of Singapore. He holds a Diploma in Electrical Engineering from Singapore Polytechnic, a Diploma in Management Studies from Singapore Institute of Management and a Master in Business Administration (Chinese Programme) from the National University of Singapore.
ONG CHIN SUMCHIEF EXECUTIVE OFFICER & EXECUTIVE DIRECTOR
A founding member of CosmoSteel in 1984, Mr Ong has been instrumental in growing the Groups business to its present scale. He is responsible for spearheading and driving CosmoSteels corporate and business strategies. Mr Ong has close to 40 years of experience in the hardware supply industry. His background includes considerable expertise and knowhow in warehousing management, technical requirements and specifications and pricing of products and services, and a wide network of manufacturers and suppliers within the industry.
BOARD OFDIRECTORS
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ONG TONG YANGEXECUTIVE DIRECTOR
Mr Ong, who joined CosmoSteel in 1999, is responsible for developing and setting the strategic directions for the sales, marketing and purchasing functions. His area of focus and responsibility has largely been in sales and marketing, in particular for project-based contracts, as well as purchasing, quality control and certification processes. Since joining the Group, he has spearheaded the growth of CosmoSteels customer base in Singapore and the region, and the Groups range of product offerings. Mr Ong holds a Diploma in Mechanical Engineering from Ngee Ann Polytechnic.
ONG TONG HAIEXECUTIVE DIRECTOR
Mr Ong, who joined CosmoSteel in 1998, spearheads the development and implementation of policies and procedures to enhance the effectiveness and efficiency of the Groups logistics and operations functions. Since joining the Group, he has been largely involved in inventory and warehousing logistics and management, information systems and technology management and administration. One of his key achievements is the implementation of the ERP system for CosmoSteels subsidiary, Kim Seng Huat Hardware Pte. Ltd., which enables the Group to monitor and keep track of its inventory on a real-time basis. He holds a Bachelor of Business (Accountancy) from the Royal Melbourne Institute of Technology, Australia.
JOVENAL R. SANTIAGO INDEPENDENT DIRECTOR
Mr Santiago was appointed Independent Director on 28 March 2007. Retired as a Public Accountant since 1998, Mr Santiago is a Certified Public Accountant in the Philippines with more than 40 years of experience in the accounting and auditing profession in Singapore and the Philippines. From 1971 to 1998, he was an audit principal of Deloitte & Touche, Singapore, where he was in charge of audit engagements of a wide portfolio of clients including several publicly listed companies. He holds a Bachelor of Science degree in Commerce from the University of Santo Tomas, Philippines and a Master of Business Administration degree from New York University, USA. Mr Santiago is also an independent director of another public company listed on the SGX-ST.
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BOARD OFDIRECTORS(contd)
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GERALDINE ONG SIEW TINGINDEPENDENT DIRECTOR
Appointed as Independent Director on 28 March 2007, Ms Ong is an Advocate and Solicitor of the Supreme Court of Singapore and a Director of Drew & Napier LLC, a firm of advocates and solicitors, heading the Real Estate Practice. Ms Ong has over 27 years of experience in the legal field handling corporate, conveyancing and commercial practice areas and has represented clients in cross border transactions. Ms Ong is also the legal advisor to The Singapore Glass Association of Singapore and a Council Member in the Advisory Board, National University of Singapore, School of Design & Environment Advancement Advisory. Ms Ong graduated from the National University of Singapore with a Bachelor of Laws (Honours) degree.
TAN SIOK CHININDEPENDENT DIRECTOR
Appointed as Independent Director of the Company on 28 March 2007, Ms Tan is an Advocate and Solicitor of the Supreme Court of Singapore and a Director of ACIES Law Corporation, a firm of advocates and solicitors, heading its corporate practice group. Ms Tan has over 20 years of experience in legal practice. Her main areas of practice are corporate finance, mergers and acquisitions, capital markets and commercial matters. Ms Tan is also an independent director of several other public companies listed on the SGX-ST. Ms Tan graduated from the National University of Singapore with a Bachelor of Law (Honours) degree.
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CORPORATEINFORMATION
BOARD OF DIRECTORS
Low Beng Tin
Chairman and Independent
Non-Executive Director
Ong Chin Sum
Chief Executive Officer and
Executive Director
Ong Tong Yang
Executive Director
Ong Tong Hai
Executive Director
Jovenal R. Santiago
Independent Director
Geraldine Ong Siew Ting
Independent Director
Tan Siok Chin
Independent Director
AUDIT COMMIT TEE
Jovenal R. Santiago
(Chairman)
Geraldine Ong Siew Ting
Low Beng Tin
Tan Siok Chin
REMUNERATION
COMMIT TEE
Geraldine Ong Siew Ting
(Chairman)
Jovenal R. Santiago
Tan Siok Chin
NOMINATING
COMMIT TEE
Tan Siok Chin
(Chairman)
Geraldine Ong Siew Ting
Jovenal R. Santiago
COMPANY SECRETARY
Lee Pih Peng, MBA, LLB
REGISTERED OFFICE
50 Raffles Place
#06-00 Singapore Land Tower
Singapore 048623
PRINCIPAL PL ACE
OF BUSINESS
14 Lok Yang Way
Singapore 628633
SHARE REGISTRAR
Boardroom Corporate &
Advisory Services Pte Ltd
50 Raffles Place
#32-01 Singapore Land Tower
Singapore 048623
AUDITORS
RSM Chio Lim LLP
8 Wilkie Road #03-08
Wilkie Edge
Singapore 228095
Partner in-Charge:
Peter Jacob
(a member of the Institute of
Singapore Chartered
Accountants)
LEGAL ADVISORS
Lee & Lee
50 Raffles Place
#06-00 Singapore Land Tower
Singapore 048623
LPP Law Corporation
Level 39 Marina Bay Financial Centre
Tower 2
10 Marina Boulevard
Singapore 018983
PRINCIPAL BANKERS
Oversea-Chinese Banking
Corporation Limited
65 Chulia Street
OCBC Centre
Singapore 049513
Standard Chartered Bank
6 Battery Road
Singapore 049909
United Overseas Bank Limited
80 Raffles Place
UOB Plaza I
Singapore 048624
INVESTOR REL ATIONS
CosmoSteel Holdings Limited
E: ir@cosmosteel.com.sg
August Consulting
Silvia Heng
(silvia@august.com.sg)
Ho Lily
(lily@august.com.sg)
WEBSITE
www.cosmosteel.com
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ENVIRONMENTAL
MANAGEMENT
PROGRAMME
To reduce water consumption on a cubic centimetres per
employee basis
To reduce paper consumption on a copies used per $1,000 of sales
revenue basis
To reduce electricity consumption on a kilowatt
per employee basis
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The key objectives of the
programme include:
To reduce electricity
consumption on a
kilowatt per employee
basis;
To reduce paper
consumption on a copies
used per $1,000 of sales
revenue basis; and
To reduce water
consumption on a cubic
centimetres per employee
basis.
CosmoSteel conducts in-
house awareness training for
its new employees as well
as annual refresher training
for existing employees. This
training enforces energy, water
and paper saving initiatives
such as using energy and
water conserving appliances
and going paperless where
possible. In addition,
CosmoSteel also promotes
recycling of resources and
materials across its operations.
Since March 2013, the Group
has obtained the Water
Efficient Building Certification
from PUB in recognition of its
water saving efforts.
COMMITMENT TO
THE COMMUNIT Y:
An organisations success
is not solely measured by
its financial performance
and as such, the pursuit of
profitability should not be
its singular focus. As a good
corporate citizen, CosmoSteel
is committed to conducting
our business in a manner that
best serves our stakeholders
interests.
Our Quality, Environmental
and Occupational Health
and Safety (QEHS) policies,
which integrate and manage
the issues of sustainability and
social responsibility within our
operations, provides a guiding
principle for the way the
Group conducts its business.
COMMITMENT TO
THE ENVIRONMENT:
ENVIRONMENTAL
MANAGEMENT
PROGRAMME
CosmoSteel has adopted an
Environmental Management
Programme with clear-cut
objectives and pegged to
performance indicators as part
of our efforts to achieve
a greener footprint.
CORPORATE SOCIAL RESPONSIBILIT Y (CSR)
COSMOSTEEL
CONDUCTS IN-
HOUSE AWARENESS
TRAINING FOR ITS
NEW EMPLOYEES AS
WELL AS ANNUAL
REFRESHER TRAINING
FOR EXISTING
EMPLOYEES
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COMMITMENT TO
EMPLOYEES: HEALTH AND
SAFETY MANAGEMENT
PROGRAMME
The health and safety of
our staff and visitors at our
premises continues to be
one of the most important
priorities of the Group.
To this end, CosmoSteel
has implemented a Health
and Safety Management
Programme since 2007 with
the following objectives:
To improve safety in
general work operations
by reducing the
frequency and severity
rate of accidents per
million man hours; and
To reduce the percentage
of medical visits
associated with work by
promoting healthy life-
style of employees.
CHARITABLE INITIATIVES
As part of its efforts to give
back to the community,
CosmoSteel contributed
approximately $185,000 to
various charities and charity
fund raisers over the last
three financial years. For
FY2014, the Group donated
approximately $36,500 to
various beneficiaries, one of
which was the Metta Welfare
Association, a charity that the
Group has regularly supported
over the years.
Founded in 1992, Metta
Welfare Association runs
nine welfare centres across
Singapore that serves over
1,000 beneficiaries from
various races and religions.
These centres provide disability
care for the intellectually and
physically disabled, medical
care for the elderly and the
terminally ill, intervention
programmes to young children
with special needs, and special
education for children with
mild intellectual disability or
autism spectrum disorders.
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4 CORPORATE SOCIAL RESPONSIBILIT Y (CSR)(contd)
AS PART OF ITS
EFFORTS TO GIVE BACK
TO THE COMMUNITY,
COSMOSTEEL
CONTRIBUTED
APPROXIMATELY
$185,000 TO VARIOUS
CHARITIES AND
CHARITY FUND RAISERS
OVER THE LAST THREE
FINANCIAL YEARS.
Amongst many other
initiatives, the Group promotes
health and safety through
regular in-house and external
training courses, visual
reminders and advocating
the use of proper personal
protection equipment. The
Group also ensures that it
keeps abreast of the latest
requirements from various
government agencies and
workplace safety organisations
that are relevant to its business
operations. In FY2014, new
safety practices were issued by
these authorities for which the
Group is currently undergoing
training. They include
regulations and recommended
practices pertaining to:
Working At Heights (WAH)
Company Emergency
Response Team (CERT)
Safe Loading on Vehicles
CosmoSteel also encourages
sports and recreational
activities among employees as
part of its efforts to promote
team spirit and a healthy
lifestyle. The Group signed up
for corporate programmes
with the Singapore Sports
Council to allow its employees
easy access to gym facilities
across the island.
In recognition of its strong
quality, health and safety
focus, the Group has received
numerous world-class
certifications including ISO
9002:1994 in 2000; ISO
9001:2000 in 2003; ISO
9001:2008, ISO 14001:2004
and OHSAS 18001:2007 in
2009, and bizSAFE STAR
certification in 2012.
COMMITMENT TO
SHAREHOLDERS: INVESTOR
RELATIONS PROGRAMME
The Group is committed to
providing accurate, transparent
and timely information to
shareholders to keep them
constantly updated on the
Groups performance and
strategic initiatives.
As part of our Investor
Relations (IR) Programme,
all our corporate
announcements, press
releases and presentation
slides are released on the
Singapore Exchanges
SGXNET and on our corporate
website simultaneously.
We maintain a dedicated IR
section within our corporate
website, where investors can
easily access up-to-date
information relating to the
Group. Investors can also sign
up for an email alert service
to receive the latest IR news
from CosmoSteel or connect
with our IR team, whose
contacts are listed in our
website and annual report.
On an on-going basis,
CosmoSteel actively engages
in a two-way communication
with the investment
community via face-to-
face briefings, phone calls
or emails. In addition to our
annual general meeting, we
conduct results briefings
with analysts and media on a
regular basis.
In recognition of our best
practices in corporate
transparency, CosmoSteel
was ranked 92nd out of
644 companies on the
Governance and Transparency
Index (GTI) in 2014, which
was jointly launched by
The Business Times and
the Centre for Governance,
Institutions and Organisations
(CGIO) of NUS Business
School, National University
of Singapore. The Group
achieved an overall GTI
score of 57 points in 2014,
representing an improvement
over its score of 55 in 2013.
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Analyst briefing for its FY2014 financial results
18
CUSTOMER SATISFACTION
FEEDBACK
The Group has established and implemented a system of obtaining customers satisfaction feedback through surveys
to monitor overall level of customers services, thus providing opportunities for the Group to identify potential continual
improvement to its Quality Management System
Five or more non-conformance reports reported by the
customer within the year from the last review
Top 10% of customer by sales value over a period of
12 months from the last review
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responsible for the effective
implementation of the Groups
risk management strategy,
policies and processes to
facilitate the achievement of
its business plans and goals
within the risk tolerance set
by the Board. This team is
also responsible for setting
the direction of corporate risk
management and monitoring
the implementation of
risk management policies
and procedures. The Risk
Management Team provides
quarterly updates to the Audit
Committee and the Board
where there may be areas of
concern arising in relation to
any of the identified key risks
factors, if any, which the Audit
Committee and the Board
should take note of.
In FY2013, the Group engaged
an external consultant,
Deloitte & Touche Enterprise
Risk Services Pte Ltd to
conduct a rigorous company-
wide risk assessment review
to evaluate and ascertain the
main risk categories pertinent
in the current business
environment as well as
ascertain the robustness of the
Groups mitigating practices.
As part of this exercise, the
Group has set out key risk
factors that it faces in its
business and operations and
categorised them according
to compliance, financial and
operational risks; ranking
of the risk factors in terms
of their relative importance
or implications for the
Group should such risks
materialise; and the risk
mitigating practices (where
applicable) which may be
in place to address such
risks. The Company has also
requested its internal auditors,
Nexia TS Public Accounting
Corporation, to take such risk
factors into consideration in
drawing up the annual internal
audit plan, so that there is a
system and process review
of the identified key risk
areas. In the event that the
Group intends to enter into
any new markets, business
venture or business sector, the
Group may, where necessary
or appropriate, appoint
and commission external
professional parties to review
or advise on, inter alia, any
additional areas of risk factors
to consider in connection with
such forays.
COMPLIANCE RISKS
The regulatory landscape
is constantly evolving and
the Group remains vigilant
in tracking regulatory
developments to ensure
that it stays in compliance
with law, standards and/
or requirements issued by
regulators that are applicable
to its business. The Groups
Company Secretary advises
the Board on changes in
legal and regulatory
issues while its external
auditors provide changes
in accounting standards
to management for their
consideration.
To better manage compliance
risk oversight, the Audit
Committee of the Group has
requested its internal auditors
to assist the Management
in evaluating and assessing
the effectiveness of internal
controls implemented by
the Company, including
review of the adequacy and
effectiveness of the Groups
systems of internal controls
to identify risks of non-
compliance in various areas.
In line with CosmoSteels
commitment to deliver
sustainable value to its
shareholders as a public-
listed company and protect
stakeholders interests, the
Group is fully committed to
a robust system of internal
controls and risk management.
The Group has set in place an
Enterprise Risk Management
(ERM) Framework consisting of
potential risks and mitigating
best practices, to provide
guidance to all its business
divisions to identify and
manage the risks they face
during the course of day-to-
day operations and long-term
business planning.
The ERM is administered
by a Risk Management
Team comprising members
from Management who are
RISKMANAGEMENT
THE REGULATORY
LANDSCAPE IS
CONSTANTLY EVOLVING
AND THE GROUP
REMAINS VIGILANT IN
TRACKING REGULATORY
DEVELOPMENTS TO
ENSURE THAT IT STAYS
IN COMPLIANCE WITH
LAW, STANDARDS AND/
OR REQUIREMENTS
ISSUED BY REGULATORS
THAT ARE APPLICABLE
TO ITS BUSINESS.
The Group is ISO14001:2004
and OHSAS 18001:2007
certified. To ensure compliance
with Environmental Health and
Safety laws and regulations,
the Group subscribes to
quarterly updates with Neville-
Clark (Singapore) Pte Ltd
and undergoes surveillance
audits by BVQI annually and
recertification audits every
three years.
The Group also ensures that
the terms and conditions of
its contractual agreements
are reviewed by its Finance
Department and/or external
lawyers, where applicable,
before acceptance to ensure
adherence with applicable
laws and regulations.
The Company has also put in
place a whistle blowing policy
and has implemented relevant
procedures, as approved by
the Audit Committee and
adopted by the Board, for
the purposes of handling
complaints, concerns or
issues relating to activities or
affairs relating to the business,
customers, suppliers, partners
or associates, activities or
affairs of the Group or conduct
of any officer, Management or
employee of the Group. Staff
of the Group has access to the
Company Secretary and may,
in confidence, raise concerns
about possible improprieties
in any such corporate matters
by sending an email or a letter
in writing to the Company
Secretary, who would re-direct
and/or send such email or
letter in writing to the Audit
Committee (in the event such
concerns relates to any of the
Directors or the Chief Financial
Officer of the Company) or the
whistle blowing committee
(for all other concerns), as the
case may be. During FY2014,
there were no complaints,
concerns or issues received.
In addition, as part of our
ISO9001 policy, a customer
satisfaction survey is done
annually to determine our
customers level of satisfaction
with our services.
The Group also ensures that
its Employees Health and
Welfare benefits are in keeping
with regulations and industry
standards. It maintains Human
Resource practices to ensure
employee benefits are in place
and healthcare insurance
is taken out for eligible
employees. In addition, the
Groups overall compensation
and benefits structure follows
closely the basic requirements
by the Ministry of Manpower
(MOM). The Group also
receives regular updates from
MOM.
OPERATIONAL RISKS
The space-intensive nature
of the Groups operations,
namely storing and dealing
with large transactions of bulky
materials on-site, poses several
inherent risks it has to cater
for. Being highly important
to the Groups reputation for
on-time delivery, product
quality and the conduct of
its business, supply chain
management is handled by
the adequate sourcing of
accredited suppliers in line
with its ISO9001 policy and
effective planning of inventory
stock and costs.
Human resources is also high
on the agenda of the Group as
it searches for quality people
to add to its workforce and
retain its valued employees. To
this end, the Group ensures it
has training and development
programmes beyond the
scope required by authorities
and has implemented a Health
and Safety Management
programme. In addition,
CosmoSteel provides highly
incentivised working benefits
which include insurance,
medical and dental coverage.
The Group also has a
robust Sales, Marketing and
Communication strategy in
place to ensure its message to
stakeholders are aligned and
it delivers on its sales targets.
In order to achieve this, it
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4 RISKMANAGEMENT(contd)
has a sales strategy based on
regular management review
and a greatly incentivised
remuneration based on
achieving sales targets.
The Group has also established
and implemented a system
of obtaining customers
satisfaction feedback through
surveys to monitor overall
level of quality work and
services, thus providing
opportunities for the Group
to identify potential continual
improvement to its Quality
Management System. The
feedback obtained is evaluated
to assess customer perception
and brought up for discussion
during the management
review. Where appropriate,
other means of monitoring
customer satisfaction may be
identified on an ad-hoc basis.
The selection for conducting
customer satisfaction survey
is based on the following
criteria:
Top 10% of customer by
sales value over a period
of 12 months from the
last review
Five or more non-
conformance reports
reported by the customer
within the year from the
last review
CosmoSteel actively seeks
to reduce its operational
impact on the environment,
and has stringent corporate
responsibility and sustainability
practices in place to manage
its industrial waste by recycling
and reusing where possible
and engaging licensed waste
collectors.
To safeguard the Groups
legal interests, CosmoSteel
hires professionals such as
lawyers and accountants
who are able to provide their
professional advice in relation
to operational risks. To ensure
continuous operationality,
the Groups IT infrastructure
is partially outsourced to
professional vendors ensuring
reliability of our IT systems
and installation of stringent
security measures to prevent
information leaks or losses.
In addition, the Groups
inventories are protected by
adequate insurance covering
all industrial risks in addition
to its utilisation of on-site
security devices.
Understanding that many
of its operational risks can
be inter-related, the Group
has decided to synergise the
way it currently manages
the fragmented mitigating
procedures under a single
process. To this end, the
Group has embarked on
a Business Continuity
Management (BCM)
programme to attain the
ISO 22301:2012 certification.
Undertaking this certification
will improve the Groups
resilience to business
disruptions, minimising the
negative impacts of these
disruptions and ensuring
rapid recovery of critical
business functions.
FINANCIAL RISKS
Cashflow health is vital to
every trading business. To
mitigate liquidity risks, the
Group employs a tight capital
management system to
ensure that it has sufficient
working capital to meet
debt obligations. The Group
also pays close attention to
critical financial ratios such as
inventory turnover, accounts
receivable/payable, gearing
and current ratio for the
early detection of red flags.
Information on the Groups
Key Performance Indicators
and ratios are reported
regularly to the Board.
As a steel pipe, fittings and
flanges stockist, CosmoSteels
business performance is only
as good as the relevance
of the inventory stock
it maintains. To remain
resilient amidst changing and
increasingly diverse customer
demands and an uncertain
global economy, the Group
constantly keeps itself abreast
of market conditions, and stays
close to its customers through
regular visits and tracking of
their purchasing patterns. This
is to ensure that CosmoSteel
continues to stock up
inventory that is relevant
to its existing and potential
customers.
The Group also has a stringent
credit policy in place that
covers credit evaluation,
approval and monitoring, as a
safeguard to minimise all credit
risks. In FY2013, the Group has
taken up trade credit insurance
on its trade receivables which
covers protracted default and
insolvency, depending on the
customers credit worthiness
and credit limit history.
In anticipation of unforeseen
financial losses, the Group
adopts hedging policies
and is insured in relation
to the following: workmen
compensation; product
liability; directors and
executive officers liability;
loss of keyman insurance;
industrial risks; marine
insurance; vehicles insurance;
trade credit insurance; as well
as travel, health and personal
accidents insurance for
the Group.
21
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GROSSPROFIT
EARNINGSPER
SHARE
NETPROFIT
REVENUE
2.130.2m
5.5m
157.6m
$
$
$
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FINANCIALHIGHLIGHTS
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FY2
010
FY2
011
FY2
012
FY2
013
FY2
014
EA
RN
ING
S P
ER
SH
AR
E
2.4
1
2.1
0
4.1
9
2.0
4
1.2
4FY
20
10
FY2
011
FY2
012
FY2
013
FY2
014
RE
VE
NU
E
155
.7
157.
6
155
.0
127.
9
89
.2
S $ m
FY2
010
FY2
011
FY2
012
FY2
013
FY2
014N
ET
AS
SE
T V
AL
UE
PE
R S
HA
RE
37.
64 40
.56
35
.40
31.
56
28
.44
NE
T P
RO
FIT
FY2
010
FY2
011
FY2
012
FY2
013
FY2
014
6.4
11.1
5.4
3.3
5.5
S $ m
FY2
010
FY2
011
FY2
012
FY2
013
FY2
014
FY2
010
FY2
011
FY2
012
FY2
013
FY2
014
GR
OS
S P
RO
FIT
GR
OS
S P
RO
FIT
MA
RG
IN
%
DIV
IDE
ND
PE
R S
HA
RE
DIV
IDE
ND
PA
YO
UT
RA
TIO
%
29
.21.
0
30
.20
.5
33
.21.
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26
.21.
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21.
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.52
4.6
20
.5 21.
4
18.8
19.2
40
.4
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.1
29
.9
41.
5 23
.8
S $ m
24
KEY REVENUE
DRIVERS
ENERGY INDUSTRY
MARINE INDUSTRY
Against a backdrop of ongoing exploration and
production activities worldwide, the Energy and
Marine segments continued to be the main revenue
generator for the Group in FY2014, collectively
accounting for 95.1% or $150.0 million of total
Group revenue
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150.0m
$
OPERATING &FINANCIAL REVIEW
A REVIEW
OF FY2014
Despite a business environment
that remained competitive
and challenging, CosmoSteel
achieved revenue of $157.6
million for the financial year
ended 30 September 2014
(FY2014), a slight increase
of 1.2% as compared to the
preceding financial year
(FY2013).
The higher revenue was
propelled by the Energy and
Marine industries in which the
Group has a strong foothold
in. In terms of geographical
locations, Singapore,
Vietnam and Other markets,
predominantly made up by
China and the Philippines,
were the main drivers behind
CosmoSteels revenue growth.
On the back of this revenue
growth, the Groups gross
profit and gross profit margins
turned in a better performance
in FY2014, with gross profit
increasing 3.5% to $30.2 million
in FY2014, and a corresponding
0.4 percentage point increase
in gross profit margin to reach
19.2%.
CosmoSteel has sustained
a healthy profitable streak
since its listing in FY2007.
However, due to higher
distribution and administrative
expenditures that comprised
warehouse rental, employee
costs and depreciation on
its properties, CosmoSteels
earnings fell 12.9% to $5.5
million.
Higher warehouse rental was
incurred during FY2014, as
the Group has expanded its
warehousing capacity to cater
for a wider range of products
in anticipation of evolving
customer demands. This,
coupled with the hiring of new
managers for its Sales divisions,
pushed up distribution costs
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by 10.7% to $11.1 million in
FY2014.
Administrative expenses
increased 10.2% year-on-
year (y-o-y) to $11.0 million
in FY2014 which resulted
from higher depreciation
on properties, hiring of new
managers for its Information
Technology, Human Resource
and Finance Divisions, as well
as bonus payments as a form of
employee retention incentive,
augmenting employee costs.
Finance costs rose 7.7% to $1.5
million mainly from higher
interest paid on long-term
loans.
As a result of foreign currency
gains, the Group recorded a
credit of $0.1 million in FY2014
as compared to a charge of
$0.6 million in FY2013.
INCOME STATEMENT
GROUP
FY2014S$000
FY2013S$000
Change%
Revenue 157,642 155,712 1.2
Cost of sales (127,409) (126,514) 0.7
Gross profit 30,233 29,198 3.5
Other Items of Income
Interest Income 39 25 56.0
Other Items of Expense
Finance Costs (1,460) (1,356) 7.7
Distribution Costs (11,146) (10,070) 10.7
Administrative Expenses (10,991) (9,977) 10.2
Other Credits/ (Charges) - Net 148 (559) (126.5)
Profit Before Tax from Continuing Operations 6,823 7,261 (6.0)
Income Tax Expense (1,283) (897) 43.0
Profit from Continuing Operations, Net of Tax 5,540 6,364 (12.9)
26
REVENUE ANALYSIS
BY CUSTOMER T YPE
Over the years, CosmoSteel
has cultivated solid and
longstanding relationships
with its customers, many of
which are blue chips hailing
from the Energy and Marine
Sectors in the region.
Against a backdrop of
ongoing exploration and
production activities
worldwide, the Energy and
Marine segments continued
to be the main revenue
generator for the Group
in FY2014, collectively
accounting for 95.1% of total
Group revenue at about
$150.0 million.
Specifically, with an
incremental revenue growth
of 1.2% to $128.0 million, the
Energy segment remains the
major revenue contributor at
a share of 81.2%, consistent
with FY2013. Revenue from
the Marine segment climbed
2.5% to $21.9 million which
represents 13.9% of total
revenue.
FY2014 FY2013 Change
S$000 S$000 S$000 %
Energy 128,023 126,454 1,569 1.2
Marine 21,948 21,416 532 2.5
Trading 6,689 5,722 967 16.9
Others 982 2,120 (1,138) (53.7)
Total Revenue 157,642 155,712 1,930 1.2
REVENUE BY CUSTOMER T YPE
REVENUE BY CUSTOMER T YPE (%)
4.2 Trading 0.7 Others
2014
81.2
13.9
Energy
Marine
3.7 Trading 1.4 Others
2013
81.2
13.7
Energy
Marine
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REVENUE ANALYSIS BY
GEOGRAPHICAL MARKET
The Groups geographical
revenue contribution is
recorded based on the
domicile of the customers and
not where the products are
ultimately put into use.
In FY2014, Singapore remained
the biggest contributor to the
Groups revenue, accounting
for 60.3% of total revenue, a
notch higher than the 42.6%
recorded in FY2013.
Besides Singapore, the Group
also derived substantially
higher sales revenue from
Vietnam and Others markets
including China, the Philippines
and New Zealand, largely
driven by Energy-related
projects.
REVENUE BY GEOGRAPHICAL MARKET (%)
FY2014 FY2013 Change
S$000 S$000 S$000 %
Brunei 8,635 14,191 (5,556) (39.2)
Europe 874 2,758 (1,884) (68.3)
Indonesia 1,662 4,593 (2,931) (63.8)
Japan 4,725 36,873 (32,148) (87.2)
Malaysia 750 2,068 (1,318) (63.7)
Middle East 84 49 35 71.4
Singapore 95,118 66,306 28,812 43.5
Thailand 123 251 (128) (51.0)
Vietnam 22,466 10,650 11,816 110.9
Others 23,205 17,973 5,232 29.1
Total Revenue 157,642 155,712 1,930 1.2
REVENUE BY GEOGRAPHICAL MARKET
The Others market was the
second largest contributor
to Group revenue after
Singapore, representing 14.7%
of total revenue. Revenue
from this segment increased
29.1% y-o-y to $23.2 million.
Vietnam was the third most
significant revenue contributor
to the Group in FY2014,
accounting for 14.3% of total
revenue as compared to 6.8%
in FY2013. Revenue from
this emerging market soared
110.9% to hit $22.5 million in
FY2014.
The Singapore, Vietnam and
Others markets collectively
accounted for 89.3% of total
revenue to the Group, as
compared to 60.9% in FY2013.
These markets and the Middle
East reported higher revenue
whilst the other markets saw a
decline in FY2014.
Revenue contribution from the Middle East and Thailand were not plotted as the figures were not material
Revenue contribution from the Middle East was not plotted as the figure was not material
60.3 42.6Singapore Singapore
2014
2013
14.3
6.8
5.5 9.1
23.7
0.6 Europe
1.8 Europe
1.1 Indonesia
3.0 Indonesia
0.2Thailand
3.0 Japan0.5 Malaysia
1.3 Malaysia
14.7 11.5
Vietnam
Vietnam
Others Others
BruneiBrunei
Japan
28
GROUP
FY2014S$000
FY2013S$000
Change%
ASSETS
Non-Current Assets
Property, Plant and Equipment 24,063 20,502 17.4
Available-For-Sale Financial Assets 130 130 N.A.
Total Non-Current Assets 24,193 20,632 17.4
Current Assets
Inventories 109,214 119,819 (8.9)
Trade and Other Receivables 41,171 29,503 39.5
Financial Assets at Fair Value
Through Profit or Loss 1,454 1,492 (2.5)
Other Assets 1,368 486 181.5
Cash and Cash Equivalents 33,177 20,444 62.3
Total Current Assets 186,384 171,744 8.5
Total Assets 210,577 192,376 9.5
EQUITY AND LIABILITIES
Equity
Share Capital 42,062 42,062 N.A
Retained Earnings 50,642 47,000 7.7
Other Reserves 14,380 10,302 39.6
Total Equity 107,084 99,364 7.8
Non-Current Liabilities
Deferred Tax Liabilities 3,556 2,735 30.0
Provisions 64 - 100
Other Financial Liabilities 4,679 5,064 (7.6)
Total Non-Current Liabilities 8,299 7,799 6.4
Current Liabilities
Income Tax Payable 1,537 1,289 19.2
Trade and Other Payables 25,976 23,905 8.7
Other Liabilities 2,190 355 516.9
Other Financial Liabilities 65,491 59,618 9.9
Finance Leases - 46 n.m.
Total Current Liabilities 95,194 85,213 11.7
Total Liabilities 103,493 93,012 11.3
Total Equity and Liabilities 210,577 192,376 9.5
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STATEMENT OF FINANCIAL POSITION
OPERATING &FINANCIAL REVIEW(contd)
N.A.: Not applicable / n.m.: Not meaningful
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FINANCIAL POSITION
ANALYSIS
CosmoSteel upheld a strong
financial position in FY2014,
improving shareholders equity
to $107.1 million at the end of
FY2014, up 7.8% from $99.4
million as at the end of FY2013.
With upward revaluation of the
Groups leasehold properties
offsetting depreciation,
non-current assets increased
17.4% to $24.2 million in
FY2014.
An increase in the Groups
trade and other receivables
as well as cash and cash
equivalents boosted current
assets by 8.5% to $186.4
million in FY2014. Trade and
other receivables increased
39.5% to $41.2 million, with
the bulk of trade receivables
(76.4%) not due for payment
or have been overdue for less
than 30 days.
As the Group adopted more
stringent controls on its
inventory procurement,
while at the same time
ensuring competitiveness
through its ready stocks and
timely delivery turnaround,
inventories decreased 8.9% to
$109.2 million. This reduction
in inventories was the main
driving factor behind the
62.3% jump in cash and cash
equivalents to $33.2 million in
FY2014.
Non-current liabilities
increased by 6.4% to $8.3
million in FY2014 mainly from
an increase in deferred tax
which resulted from upward
revaluations of the leasehold
properties of the Group in
FY2014.
Similarly, current liabilities
increased 11.7% to $95.2
million in FY2014. The
increase was mainly
attributable to both short term
borrowings and trade and
other payables. Other current
financial liabilities increased
9.9% to $65.5 million from
the drawdown of short-term
loans which were not due for
repayments. Trade and other
payables also increased by
8.7% to $26.0 million in
FY2014 mainly from longer
credit terms extended by
suppliers.
CASHFLOW ANALYSIS
CosmoSteels management
team maintains constant
vigilance over cashflow
balances to ensure the Group
stays in a healthy financial
position with adequate
cashflow for the sound
operation of its business.
In the financial year under
review, net cashflow from
operating activities surged
by $10.7 million y-o-y to $13.9
million in FY2014, primarily
as a result of reduced
inventories.
To enhance CosmoSteels
service capabilities, the Group
purchased testing equipment
during the financial year,
resulting in an increase in net
cash used in investing activities
to $0.4 million, compared with
$0.2 million in FY2013.
To finance the long-term
expansion of the Group, long-
term borrowings increased,
translating to less net cash
being used in financing
activities in FY2014 at $0.8
million, in comparison with
$2.2 million in FY2013.
S$000 FY2014 FY2013
Net cash flows from operating activities 13,925 3,198
Net cash flows used in investing activities (378) (179)
Net cash flows used in financing activities (829) (2,200)
Net increase in cash and cash equivalents 12,718 819
Cash at end of the year* 33,107 20,389
* Excluding cash restricted in use over three months
STATEMENT OF CASH FLOWS
CORPORATEGOVERNANCE
The Company is committed to good standards of corporate governance to enhance corporate
performance and accountability. The Company has adopted principles and practices of corporate
governance in line with the recommendations of the Code of Corporate Governance 2012 (the
Code) issued by the Corporate Governance Committee as part of its continuing obligations as a
listed company under the listing manual (the SGX-ST Listing Manual) of the Singapore Exchange
Securities Trading Limited (SGX-ST).
The SGX-ST Listing Manual requires an issuer to describe their corporate governance practices
with specific reference to the principles of the Code in its annual report, as well as disclose and
explain any deviation from any guideline of the Code.
This statement outlines the policies adopted during the financial year ended 30 September 2014
(FY2014) and practised by the Group with specific reference to the relevant provisions of the
Code.
BOARD MAT TERS
Principle 1: Boards Conduct of its Affairs
The board of directors of the Company (the Board) effectively leads the Company, working
together with the Companys senior management (the Management) to achieve success for the
Company and its subsidiaries (the Group). Management remains accountable to the Board.
In addition to its statutory duties, the Boards principal functions are:-
a) to provide guidance and entrepreneurial leadership for the purposes of the Groups strategic
plans, key operational initiatives, major investments and divestments and funding requirements
and to ensure that the necessary financial and human resources are in place for the Group to
meet its objectives;
b) to approve the budget, review the performance of the business and the release of the financial
results of the Group to shareholders;
c) to provide guidance in the overall management of the business and affairs of the Group and to
review Managements performance;
d) to establish a framework of prudent and effective controls to assess, manage and oversee
processes for risk management, financial reporting and compliance;
e) to set and adopt, from time to time, internal guidelines for the relevant matters and the type of
material transactions that require Board approval, on a case by case basis as applicable;
f) to set the Companys values and standards and to provide guidance to Management to ensure
that the Companys obligations to its shareholders and the public are met; and
g) to approve the recommended framework of remuneration for the Board and key management
personnel proposed by the Remuneration Committee.
The Board has adopted a set of internal guidelines setting forth matters that require its approval.
Matters which are specifically reserved to the Board for approval include but are not limited to the
following:
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i) any proposed acquisitions and disposal of assets;
ii) any proposed changes in the capital of the Company;
iii) any interested person transaction (as defined under chapter 9 of the Listing Manual);
iv) dividends and other returns to shareholders; and
v) capital expenditure or commitment exceeding S$1 million per transaction which is not
considered to be in the ordinary course of business.
No new Directors have been appointed to the Board since the initial public offering of the
Companys shares in June 2007. Newly appointed Directors, if any, will be briefed on the history
and business operations and corporate governance practices of the Group. All Directors will, if
necessary, be briefed on or memoranda will be circulated to the Directors to update them from
time to time on legal or regulatory changes, where such changes have a material bearing on the
Company. The Company will issue a formal letter of appointment to new Directors setting out
their duties and obligations when they are appointed.
The Board is supported by three sub-committees, namely the Audit Committee, the Nominating
Committee and the Remuneration Committee, whose powers, functions and duties are described
below. The Board and sub-committees of the Board (Committees) meet regularly throughout
the year. Ad hoc meetings and/or discussions (including via email correspondences) are convened
when circumstances require. Details relating to the number of Board and Committee meetings
held during FY2014 and the attendance of the Directors are set out on page 36 of this Report.
The Company takes up directors and officers (D&O) liability insurance of an appropriate quantum
to cover the Board in the discharge of their duties.
Principle 2: Board Composit ion and Guidance
The Board exercises objective judgment independently from Management on corporate affairs of
the Group and no individual or small group of individuals dominate the decisions of the Board.
As at the date of this Report, the Board comprises seven Directors, four of whom are independent
non-executive Directors (Independent Non-Executive Directors), representing at least one-third
of the Board.
The Directors in office at the date of this Report are:
Executive DirectorsDate of First Appointment as Director
Date of Last Re-Appointment as Director
Mr Ong Chin Sum 09 November 2005 23 January 2013
Mr Ong Tong Yang 09 November 2005 17 January 2014
Mr Ong Tong Hai 09 November 2005 17 January 2014
Independent Non-Executive Directors
Date of First Appointment as Director
Date of Last Re-Appointment as Director
Mr Low Beng Tin 09 November 2005 23 January 2013
Ms Geraldine Ong Siew Ting 28 March 2007 17 January 2014
Mr Jovenal R. Santiago 28 March 2007 17 January 2014
Ms Tan Siok Chin 28 March 2007 23 January 2013
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There are no permanent alternate Directors. Further information about each Director is found
under the section on Board of Directors on pages 10 to 12 of this Report. Further information on
the shareholding held by each Director in the Company and its related corporations is found on
page 49 of this Report.
The Nominating Committee determines on an annual basis whether or not a Director is
independent. The criterion for independence is based on the definition given in the Code and
guidance thereunder as to relationships the existence of which would deem a director not to be
independent. The Board considers an Independent Non-Executive Director as one who, inter
alia, has no relationship with the Company, its related corporations, its 10% shareholders or its
officers that could interfere, or be reasonably perceived to interfere, with the exercise of the
Directors independent business judgment with a view to the best interests of the Company. In
line with the guidance in the Code, the Board takes into account the existence of relationships
or circumstances that are relevant in its determination as to whether a Director is independent,
including the employment of a Director by the Company or any of its related corporations during
the financial year in question or any of the previous three financial years; the acceptance by a
Director of any significant compensation from the Company or any of its related corporations for
the provision of services during the financial year in question or the previous financial year, other
than compensation for board service; and a Director being related to any organisation from which
the Company or any of its subsidiaries received significant payments or material services during
the financial year in question or the previous financial year.
The Nominating Committee carried out the review on the independence of each Independent
Non-Executive Director in November 2014 based on the foregoing considerations, the respective
Directors self-declaration in the Directors Independence Checklist and their actual performance
on the Board and Committees, and is satisfied that the Independent Non-Executive Directors are
able to act with independent judgment.
With effect from 4 September 2014, Mr Low Beng Tin, formerly the non-executive Chairman of the
Board, was re-classified as an Independent Non-Executive Director of the Company. The factors
taken into consideration for determining his independence for the purpose of the re-classification
were set out in the Companys announcement dated 4 September 2014. In addition, as Mr Low
Beng Tin, who was appointed to the Board on 9 November 2005, has served on the Board for
more than nine years, the Board had reviewed his independence taking into consideration, inter
alia, the criterion for independence as provided for under the Code and as further elaborated
above, and was satisfied that Mr Low has, and will continue to exercise independent business
judgment with the view to the best interests of the Company, notwithstanding the length of tenure
of his service.
The Board is of the view that given the nature and scope of the Groups operations, the present
Board size of seven members is appropriate for the Company and to provide for effective
decision-making. Given the diverse qualifications, experience, background and profile of the
Independent Non-Executive Directors, the Board collectively possesses core competencies in
areas such as accounting or finance, legal and regulatory matters, risk management, business or
management experience and industry knowledge. As such, the Board is of the opinion that the
current Board members as a group provides an appropriate balance and diversity of the relevant
skills, experience and expertise for effective management of the Group.
Management regularly puts up proposals or reports for the Boards consideration and approval
(where appropriate), for instance, proposals on the annual budget of the Group, proposals relating
to specific proposed transactions or general business direction or strategy of the Group, as well
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as regular reports or updates on the Groups inventory management and risk management.
Independent Non-Executive Directors, when presented with these proposals or reports for their
consideration, evaluate the proposals or reports made by Management and these Directors also
review the performance of Management in meeting agreed goals and objectives and monitor the
reporting of performance and, where appropriate, provide guidance to Management on relevant
aspects of the Groups business. In addition, Independent Non-Executive Directors meet regularly
without the presence of Management, in the meetings with the external auditors and internal
auditors at least annually and on such other occasions as may be required.
Principle 3: Chairman and Chief Executive Officer
The Independent Non-Executive Chairman and the Chief Executive Officer of the Company are
separate individuals. As the most senior executive in the Company, the Chief Executive Officer, Mr
Ong Chin Sum, assumes executive responsibilities for the Groups performance and the Groups
business. As the Chairman, Mr Low Beng Tin leads the Board, ensures that the Directors receive
accurate, timely and clear information, encourages constructive relations between the Board
and Management, as well as between Board members, ensures effective communication with
shareholders and endeavours to promote a high standard of corporate governance.
The Chairman also ensures that Board meetings are held regularly and on an ad hoc basis where
required and, when necessary, sets the Board meeting agendas in consultation with the Chief
Executive Officer. The Chairman presides over each Board meeting and ensures full discussion of
agenda items. Management staff, as well as external experts who can provide additional insights
into the matters to be discussed, are invited when necessary, to attend at the relevant time during
the Board meetings. In assuming their roles and responsibilities, the Chairman and the Chief
Executive Officer consult with the Board and the Committees on major issues.
Principle 4: Board Membership
The Company has established a Nominating Committee. The Nominating Committee comprises
three Directors, all of whom, including its Chairman, are Independent Non-Executive Directors.
As at the date of this Report, the members of the Nominating Committee are:
Ms Tan Siok Chin / Chairman
Ms Geraldine Ong Siew Ting
Mr Jovenal R. Santiago
The Nominating Committee is governed by written terms of reference under which it is
responsible for:
a) determining annually, and as and when circumstances require, whether a Director is
independent, and providing its views to the Board in relation thereto for the Boards
consideration;
b) reviewing the independence of any director who has served on the Board for more than
nine (9) years from the date of his first appointment and the reasons for considering him as
independent;
c) where a Director or proposed Director has multiple board representations, deciding whether
the Director is able to and has been adequately carrying out his duties as a Director, taking
into consideration the Directors number of listed company board representations and other
principal commitments;
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d) where the appointment of an alternate Director to a Director is proposed, determining whether
the alternate Director is familiar with the Companys affairs, appropriately qualified and (in the
case of an alternate Director to an independent) whether the alternate Director would similarly
qualify as an independent Director, and providing its views to the Board in relation thereto for
the Boards consideration;
e) making recommendations to the Board on relevant matters relating to:
i. the review of board succession plans for directors, in particular, the Chairman and for the
CEO;
ii. the development of a process for evaluation of the performance of the Board, its board
committees and directors;
iii. the review of training and professional development programs for the Board; and
iv. the appointment and re-appointment of directors (including alternate directors, if
applicable);
f) proposing objective performance criteria for evaluation of the Boards performance as a whole
which allows for comparison with industry peers and address how the Board has enhanced
long-term shareholder value;
g) carrying out, at least annually, a formal assessment of the performance and effectiveness of the
Board as a whole and its board committees and (if applicable) the contributions of individual
Directors to the effectiveness of the Board, based on the process implemented by the Board; and
h) based on the results of the performance evaluation, providing its views and recommendations
to the Board, including any appointment of new members.
Each member of the Nominating Committee will abstain from voting on any resolution (if
applicable) in respect of the assessment of his performance or re-nomination as Director.
The Board has implemented certain performance criteria and process recommended by the
Nominating Committee for evaluation and assessment of the effectiveness and performance of
the Board as a whole. The performance criteria which the Board has adopted include the Boards
ability to discharge their duties in terms of timeliness and effective communications with third
parties such as shareholders and the regulatory authorities, each individual Directors commitment
of time to attending Board and Committee meetings and contributions to discussions at Board
and Committee meetings, a