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LIVING

2010ANNUAL

REPORT

a fusionof art andmodern living

Contents

Corporate Profile

Our Products

Distribution Network

Awards & Accreditations

Chairman’s Message

Financial Highlights

Board of Directors

Senior Management

Corporate Information

Corporate Governance

Financial Report

01

02

06

07

08

12

14

16

18

19

27

Corporate Profile

We are an integrated designer, producer and retailer of a wide range of handicrafts and furnishings. Widely used as decorations, interior designs or home furnishings, our products are sold either under our brand name “Passion” or as original design manufacturer (“ODM”) products through our distributors in the PRC and overseas.

We have been catering to the medium and high-end markets over the past several years, with a strong foothold in the overseas market. Our established “Passion” brand name amongst our overseas customers provides a platform for growth within the PRC market. In recent years, our marketing and branding efforts, coupled with the setting up of Passion Art speciality stores in the PRC, have increased domestic consumers’ recognition of our brand name.

With our design and development capabilities, we are able to introduce unique and innovative designs, and customise our products using a wide range of materials, colours, sizes and shapes in accordance with our customers’ needs. Our design and development team can create about 2,000 new designs annually.

Our manufacturing facilities are located in Longyan City, Fujian Province, the PRC, which has one of the larger forest bases in the PRC.

Passion Holdings Limited 01 Annual Report 2010

Our rattan-wood series is our top-selling product range with Oriental-style designs that have won the hearts of consumers from Asia to Europe alike. Our focus on innovation will give rise to new works of art, always.

Our Products


Our passion lies in creating unique and affordable quality products that cater to varied needs and tastes around the world. Every year, we create more than 2,000 new furnishings designs, which can be categorised into the rattan-wood series, bamboo-wood series, medium-density fibreboard series, wood series and iron series.

Oriental Classics


Oriental Classics

MODERNLIVING

Featuring clean and sleek lines with solid colours, our medium-density fibreboard series products instantly add a contemporary and modern look to any room. Each piece is a mark of quality, to ensure that we meet or even exceed the expectations of our customers.

TIMELESS PIECES


Our unique offering of bamboo-wood series and wood series products, made out of specialised natural materials, puts us in a class of our own. From Oriental-style bamboo-wood trays and flower vases, to European-style solid-wood frames for paintings and mirrors, we pay great attention to details in every piece of art.

Express yourself with our handcrafted iron series products, made from recycled or used iron that is welded into various shapes and designs. Whether displayed as home furnishings or collected as souvenirs, you can be sure to find something for every preference and taste.


ARTISTIC EXPRESSIONS

Distribution Network


We have a diversified customer base of more than 200

overseas distributors with a network of over 5,000

points of sale (“POS”), as well as 11 local distributors

with a network of more than 200 POS in the PRC.

These POS include departmental stores, furniture malls,

supermarkets and other retail outlets.

Most of our products are exported to countries outside

the PRC. Our major overseas markets include the UK,

France, Spain, Italy, Turkey, Greece, Canada and the USA.

Our export sales accounted for approximately 81.2% of

our total revenue in FY2010.

Our local distribution network includes 13 Passion Art

speciality stores strategically located in the cities of

Xiamen, Fuzhou, Sanming, Longyan and Nanping in Fujian

Province, Hangzhou in Zhejiang Province, Nanchang and

Ganzhou in Jiangxi Province, Guangzhou in Guangdong

Province, Shaoyang in Hunan Province and Beijing City

in the PRC.

More than 200 overseas distributors with a network of over 5,000 points of sale

USA

CanadaUK

Spain

France

TurkeyGreece

Italy CHINA

ZhejiangJiangxi

Guangdong

Fujian

MexicoPuerto Rico

Jamaica

South Africa

Hunan

Beijing

JapanSouth Korea

Australia

New Zealand

11 local distributors with more than 200 points of sale

Finland

Ireland

Morocco

Poland

Iran

UAEJordan

Saudi Arabia

Lebanon

Russia

QatarKuwait


Awards & Accreditations

Awards and Accolades Date of Conferment Awarded by

Top 10 Well-known Brands in the Furniture Industry in the PRC(中国家具产业十大著名品牌)

April 2010 China Market Investigation & Assessment Centre(中国市场调查评价中心)

Top 10 Most Satisfied Products in the Furniture Industry in the PRC(中国家具产业十大用户满意产品)


Top 10 Best Seller Products in the Furniture Industry in the PRC(中国家具产业十大畅销产品)


Outstanding Export Oriented Enterprise(优秀出口企业)

February 2010 Longyan City People’s Government(龙岩市人民政府)

Top 10 Industrial Enterprice (2009)(2009年度工业十强企业)

January 2010 Management Committee of Fujian Longyan Economic Development Zone(福建龙岩经济开发区管委会)

Leading Company in the Forestry Industry (2009 - 2010)(2009-2010年度福建省林业产业化龙头企业)

August 2009 (1)

(2)

Fujian Province Forestry Bureau(福建省林业厅)

Fujian Province Finance Bureau(福建省财政厅)

Top 10 Industrial Enterprise (2008)(2008年度工业十强企业)


Quality Trustworthy Enterprise (2007)(2007年度质量信得过企业)

February 2008 Management Committee of Fujian Longyan Economic Development Zone(福建龙岩经济开发区管委会)

2007 Top 50 Enterprise in terms of Domestic Market Occupation Rate among Wood Processing and Wood, Bamboo, Rattan, Palm and Grass Production Industry” (2007年度福建木材加工及木、竹、藤、棕、草制品业国内市场占有率50强)

January 2008 (1)

(2)

Fujian Province Enterprise Market Occupation Rate Judging Committee(福建省企业市场占有评委会)

Fujian Province Enterprise Information Centre(福建省企业信息中心)

Top 10 Industrial Enterprise (2007)(2007年度工业十强企业)


2007 Best Growing China Small-Medium Enterprise (2007年度中国最具成长性的中小企业)

September 2007 (1)

(2)

World Eminence Chinese Business Association(世界杰出华商协会)

World Eminence Chinese Investors Association (世界杰出华商投资家协会)

Accreditations Date of Conferment Awarded by

GB/T19001-2000 idt ISO9001:2000 2008 China Quality Mark Certification Group (Fujian Branch)(方圆标志认证集团福建省有限公司)

GB/T24001-2004/ISO14001:2004 2008 Fujian Southeast Standard Certification Centre (福建东南标准认证中心)

GB/T28001-2001 2008 Fujian Southeast Standard Certification Centre (福建东南标准认证中心)

ROHS (Restriction of Hazardous Substances) Certification(国际产品环保认证)

2006 International Chemical Services Ltd. (国际产品环保认证有限公司)

EN60598 2006 International Electrical Certification Centre Ltd. (国际电器认证中心有限公司)

Chairman’s Message

Dear Shareholders

On behalf of the Board of Directors, it is my pleasure to welcome you as shareholders of the Company, and would like to thank you for choosing to invest in Passion Holdings Limited (“Passion” or the “Company”).

Passion’s listing on the Mainboard of the Singapore Exchange on 2 September 2009 marked a significant milestone in our corporate history. We were very pleased that our initial public offering (“IPO”) was well-received by our investors. We believe this was due, in no small measure, to the investors’ recognition of our Group’s business fundamentals, capabilities and long-term growth prospects.

A Fusion Of Art And Modern LivingSince the Company was established in 2001, we have grown to become one of the leading integrated handicrafts and furnishings manufacturer in the PRC, carving a niche for ourselves in an industry where there are no identical dominant leaders to date. We believe we are now one of the largest manufacturers of rattan-wood furnishings in the PRC.

Our success today is built on a strong foundation, marked by several key pillars:

• Strong design and development capabilitiesCollaborating with reputable design centres, domestic research institutes and professional overseas designers, our design and development team can create approximately 2,000 new designs annually, catering to our customers’ varied tastes and needs. We currently own 16 patented designs, with another 16 pending approval.

• Large-scale integrated productionPassion is actively involved in various stages of the manufacturing process - from conceptualisation; to manufacture and assembly; to marketing and distribution. With our manufacturing facilities located in Longyan City, Fujian Province, the PRC, which has one of the larger forest bases in the PRC, our large-scale production takes advantage of economies of scale, allowing better control over quality and costs. Hence, we are able to offer competitive pricing and deliver large product quantities on a timely basis.

• Established distribution networkOver the years, we have established a strong foothold in the overseas market, catering to the medium and high-end markets. In recent years, our marketing and branding efforts, coupled with the setting up of Passion Art speciality stores in the PRC, have increased the PRC consumers’ recognition of the “Passion” brand name. We also actively advertise our “Passion” brand name through the use of various print and outdoor media.

On top of this, our foundation is further strengthened by a team of experienced and dedicated management executives and employees who are committed to create value for our customers and shareholders alike. Year in ReviewSince our listing, we have consistently delivered commendable growth. Despite the uncertain global economic environment in 2010, we made a sterling finish to our fiscal year ended 30 June 2010. Our sales in FY2010 reached RMB702.3 million, up 29.6% from RMB542.0 million a year ago. Our gross profit margin in FY2010 grew to 32.9%, compared to 29.7% in FY2009, while our FY2010 net profit rose 16.9% to RMB130.5 million.

Against robust demand for our products, the Company continued to experience broad-based growth across all the markets, expanding our market share and strengthening our position in the handicrafts and furnishings industry.

Export sales to our overseas markets outside of the PRC grew 25.0% year-on-year to RMB569.8 million and accounted for approximately 81.2% of the Group’s total revenue in FY2010. Our major overseas markets include the UK, France, Spain, Italy, Turkey, Greece, Canada and the USA.

Reaping the results of our strategy to focus on the PRC market, our domestic sales surged 53.4% to reach RMB132.5 million. Our sales in the PRC accounted for 18.8% of our total FY2010 revenue, up from 15.9% of total revenue in FY2009.

To better meet our customers’ needs and sharpen our competitive edge, we further broadened and diversified our product range in FY2010. In particular, we specially customised products to suit the preferences of the discerning middle class consumers in the PRC, who are increasingly more affluent and subscribe to the concept of ‘less renovation, more decoration’.


As part of our effort to improve our margins, we strategically reduced emphasis on lower margin products. Instead, we launched new designs in our medium-density fibreboard (“MDF”) and rattan-wood series, which were well-received by consumers in all markets. Sales for our MDF series, for example, increased by 371% in FY2010 compared to last year.

In January this year, we also successfully expanded our production capacity by about 40%, using part of the proceeds from our IPO. The additional production capacity, when fully ramped up, is expected to generate about RMB200 million in sales values. Aside from the increased capacity, we are also continually exploring ways to leverage technology to raise our production efficiency, so as to enhance our cost competitiveness.

The Year AheadWe anticipate that the PRC market will be our main growth driver in the short to medium term. To leverage the tremendous potential of the handicrafts and furnishings market in the PRC, Passion has developed a multi-pronged growth strategy:

1. Expand distribution channelsPassion will focus on expanding our sales and distribution network within the PRC by appointing additional distributors in the big cities of the PRC such as Shanghai, Guangzhou, Dalian, Qingdao and Xiamen. Together with our local distributors, we plan to set up additional Passion Art speciality stores in the PRC.

2. Strengthen our brand nameTo further strengthen our brand name and build stronger brand loyalty in the PRC, we will continue to enhance public awareness via extensive brand-driven and customer centric advertising, including advertising our “Passion” brand name in magazines, billboards, posters and brochures.

3. Enhance design and development capabilitiesOn the design and development front, Passion will continue to enhance our capabilities by employing more talent and developing processes to improve production efficiency and reduce costs. Widening and diversifying our product range is a key driver to our continued growth.

4. Improve economies of scaleOur large-scale integrated production has put us in good stead against our competitors. To stay ahead in the marketplace, we will strategically increase our production capacity to enjoy further economies of scale, as well as improve our cost control.

Commitment to StakeholdersPassion has come this far today with the support of all of our stakeholders, for which we are grateful. I would like to take this opportunity to express my appreciation to our Board of Directors, management team and employees for their hard work, as well as to our customers and business partners for their continued support.

Looking ahead, we are committed to continue to improve the work-life quality of our employees, serve our customers better, as well as contribute more to our community.

2010 is a year of uncertainty for the global economy, and this trend is expected to continue into 2011. There are several factors that may affect our growth in the new financial year, such as the appreciation of Renminbi which may put pressure on the Company’s margins. Under this challenging business environment, we will work hard to achieve sustainable long-term growth and return greater value to all shareholders. We ask for your continued support and trust, and look forward to seeing you at our upcoming Annual General Meeting.

Chen HuilingExecutive Chairman


亲爱的股东，

我谨代表董事会欢迎您成为我们公司的股东。我们也要

借此机会感谢您选择投资派森控股有限公司。（以下简

称“派森”）

派森于2009年9月2日在新加坡证券交易所主板上市，是我

们公司发展历史中的一个重要里程碑。我们对首次公开售

股能够获得投资者的热烈反响感到十分欣慰。我们相信，

在很大的程度上，这是投资者对我们集团的业务基础、经

营能力与长期的增长前景的认可。

艺术融于现代生活

自公司在2001年成立以来，我们已发展成为中国领先的综

合手工艺品与装饰品制造商，植根于一个至今没有市场垄

断者的优势市场。我们相信，我们目前是中国最大的籐木

装饰品制造商之一。

回顾我们今天的成就，在于我们有稳固的根基，下列数项

特点可以说明之：

设计与产品开发的强大实力

在与知名设计中心、国内研发学院，以及海外的专业

设计师的共同协作下，我们的设计与产品开发团队，

每年可以开发出大约2000款适合不同顾客各种品味

与需求的新产品。目前我们拥有16款专利设计，另有

16款正在等候专利的批准。

大规模生产

从设计概念，到生产和组装，以及宣传与分销，派森

在制造过程中的每个阶段都积极参与。我们在中国的

厂房位于福建省龙岩市，那里是中国最大的林木产地

之一，我们的大规模生产能获得良好的经济效益，并

能更好地控制质量与成本。因此，我们能提供具竞争

力的价格，并及时地完成大批的成品。

完善的分销网络

这些年来，针对中高档的海外市场，我们已经建立起

稳固的地位。近年来，我们在营销与品牌宣传上的努

力，以及在中国设立派森中艺家居专卖店，大大增强

了中国顾客对“派森”品牌的认可度。我们也透过不

同的平面和户外媒体，积极宣传我们的派森品牌。

此外，我们拥有经验丰富和全心全意的管理执行人员，以

及努力为顾客和股东创造价值的员工，公司的基础从而得

到进一步的加强。

年度回顾

自从上市以来，我们始终维持显著的增长。虽然2010年全

球经济环境不明朗，我们通过努力仍然在截至2010年6月

30日的财政年度中取得漂亮的成绩。我们的销售额达到人

民币7亿230万元，比上一个财政年度的人民币5亿4200万

元增长了29.6%，而毛利率从2009年财政年度的29.7%增

至2010年财政年度的32.9%，至于2010年财政年度的净利

润则攀升了16.9%，达到人民币1亿3050万元。

由于对我们产品的需求强劲，公司持续在各销售市场获得

增长，进一步扩展我们的市场占有率，并加强我们在手工

艺品与装饰品行业的地位。

我们的产品出口到中国以外的市场，主要包括英国、法

国、西班牙、意大利、土耳其、希腊、加拿大和美国。

出口销售额增长25.0%达到人民币5亿6980万元，占了

2010财政年度集团总收益的约81.2%。

我们的中国市场策略也取得骄人的成绩，国内销售额激增

53.4%达到人民币1亿3250万元。我们在中国的销售额从

2009年财政年度占总销售额的15.9%，提高到2010年财政

年度的18.8%。

主席致辞

•

•

•


为了更好地满足我们客户的需求并提高我们的竞争力，我

们在2010年的财政年度里，进一步扩展我们的产品种类。

尤其是我们特别为一些中产阶级客户量身定制适合他们品

味的产品，这些都是富裕程度更高的客户，并认同“轻装

修，重装饰”的概念。

我们策略性地减少低利润率产品的生产，增加了中密度纤

维板与籐木系列的新设计，获得客户的欢迎。比起上一个

财政年度，2010年财政年度的中密度纤维板系列销售额增

加了371%。

在今年1月，我们利用首次公开售股的部分资金，成功地

拓展产能40%。新增产能完全使用时，预计将能带来大约

人民币2亿元的销售额。此外，我们也继续尝试依靠技术

来提高生产效率，以便加强我们的成本竞争力。

展望来年

我们预计，中国的市场将是我们短期至中期成长的主要增

长推动力。依靠中国手工艺品与装饰品市场的巨大潜力，

派森已制订一套全方位发展策略:

扩展分销渠道

派森将着眼于在中国国内扩展销售与分销网络，我们

将在大城市如上海、广州、大连、青岛和厦门指定更

多的分销商。我们计划和当地分销商一起在中国设立

更多派森中艺家居专卖店。

巩固我们的品牌

为了进一步巩固我们的品牌，增强在国内的品牌忠诚

度，我们将通过各种品牌战略，以及以客户为中心的

广告宣传，继续加强公众意识；这些广告包括在杂

志、广告板、海报和小册子宣传派森品牌。

提高设计与产品开发的能力

在设计与产品开发方面，派森将继续聘请各方人才，

并利用先进的技术来提高生产效率和降低成本，进一

步提升我们的能力。拓展我们的产品类别，会是公司

继续成长的一个关键推动力。

提高规模效益

我们的大规模生产让我们在竞争中领先于对手。为了

在市场中保持领先地位，我们将进一步提高生产能

力，以享有更大规模效益，并改善对成本的控制。

对股东的承诺

派森能获得今天的成就，有赖于股东的支持，对此我们深

表感激。借此机会，我还要向我们的董事、管理团队与员

工所付出的努力，表示真诚的感谢，并感谢我们的客户与

业务伙伴一直以来的支持。

展望未来，我们承诺会一如既往地为员工提高他们的工

作与生活质量，更好地为客户服务，并为社会带来更多

的回馈。

回顾2010年，全球经济处于不稳定的状态，而2011年全球

经济稳步发展依然有很多不确定的因素，中国人民币的升

值也是影响公司利润的重大因素。面对这些各种影响公司

发展的市场因素，我和我们的经营管理团队一定会继续努

力不懈，我们决心实现可持续的长期成长，以创造更大的

价值回报股东，同时希望继续得到您的支持与信任。我们

期待在即将到来的常年股东大会上与您见面。

陈惠玲

执行主席

1.

2.

3.

4.


Financial Highlights

FY2007

Revenue

FY2008

750

600

450

150

0

300 277.1

FY2009 FY2010

425.7

702.3


Earnings per share (RMB cents)

Net asset value per share (RMB cents) 107.46 65.53

Return on assets (%) 43.2 34.0

Return on equity (%) 66.4 52.6

Current ratio (times) 4.3 2.3

Debt to equity ratio (times) 0.2 0.5

Total liabilities and equity (RMB’m) 518.6 302.3

Shareholders’ equity (RMB’m) 419.1 196.6

Cash and cash equivalents (RMB’m) 179.5 59.2

1Based on post-Invitation weighted average share capital of 374,465,753 shares2Based on pre-Invitation share capital of 300,000,000 shares

FY2010 FY2009

542.0

RMB millionGross Profit & Gross Profit Margin

FY2007 FY2008

250

200

150

50

0

100

FY2009 FY2010

127.9161.0

RMB million

231.0

87.6

31.6% 30.1% 29.7%32.9%

Year ended 30 June Year ended 30 June

Gross ProfitGross Profit Margin

40%

30%

20%

10%

0%

Net Profit

FY2007 FY2008

150

100

50

0FY2009 FY2010

95.5111.6

RMB million

130.5

63.9

Year ended 30 June

34.851 37.212


Revenue by Product Segments

Revenue by Geographical Segments

FY2010 FY2009

61.3%

27.8%

5.0%

3.5%

2.4%

79.3%

4.2%

2.6%

6.3%

7.6%

Rattan-wood series Wood series MDF series Bamboo-wood series Iron series

Europe America PRC Other Asian Countries Other Countries

41.7%

12.7%

21.0%

5.8%47.0%

16.3% 15.9%

16.4%

4.4%

FY2010

18.8%

FY2009

Board of Directors

Ms Chen Huiling Executive ChairmanMs Chen Huiling is our Executive Chairman and the founder of our Group, and was appointed to our Board on 30 October 2008. She is involved in the formulation of our Group’s strategic directions and expansion plans, and manages our Group’s overall business development. Since founding our Group in 2001, she has played an instrumental and pivotal role in the growth and development of our Group. Ms Chen has developed her expertise in business operations and development based on her knowledge and experience gained in the furnishings and design industry over the past 10 years. From 1998 to 2001, she was the general manager of Longyan City Yirong Arts & Crafts. Prior to this, between 1989 and 1996, she served as an accountant in Longyan City Hualong Mechanical Plant (龙岩市华龙机械厂). From 1996 to 1998, she was appointed as the vice general manager in charge of accounting-related matters of Zhangping City Fine Quality Crafts Co., Ltd (漳平市精致工艺品有限公司).

Ms Chen graduated from Huaqiao Occupational School (华侨职业学校) with a Diploma in Accounting in 1989 before obtaining an Associate Degree in Accounting from Peking University (北京大学) in 1996.

Mr Zhao Long Chief Executive OfficerMr Zhao Long is our Chief Executive Officer and was appointed to our Board on 30 October 2008. His responsibilities include formulating and executing our Group’s business strategic directions and overseeing domestic sales. Since 2006, Mr Zhao served as vice general manager of Yirong Arts & Crafts Co., Ltd (“Yirong”) and has been instrumental in managing the operations and trading aspects of Yirong. He started his career as a construction department chief in Nanping City Zhoucheng Construction Co., Ltd (南平市众诚建筑工程有限公司) from 1981 to 1995. Thereafter, from 1995 to 2005, he became the general manager of Nanping City Yanping District Nanjiang Goods Trading Department (南平市延平区南江物质贸易经理部) where he was in charge of its day-to-day operations.

Mr Zhao obtained an Associate Degree in Finance Management from the Nanping Part-time University (南平业余大学) in 1995.

Mr Hong Wei Independent DirectorMr Hong Wei is our Independent Director and was appointed to our Board on 26 March 2009. Mr Hong is also an Independent Director of Fujian Jinsen Forestry Co., Ltd.

Mr Hong Wei is currently a fellow in the Institute of Forest Ecology (森林生态研究所) of Fujian Agriculture and Forestry University (福建农林大学). From 2000 to 2008, Mr Hong Wei served as the vice president of Fujian Agriculture and Forestry University (福建农林大学), overseeing the financial affairs and assets of the university. Prior to that, Mr Hong Wei was the president of Fujian Forestry College (福建林学院) from 1995 to 2000 and was responsible for all administrative work within the college. From 1992 to 1995, he was also the vice president of Fujian Forestry College (福建林学院) in charge of education and research related aspects of the college. He also served as the vice dean and head of the education department in Fujian Forestry College (福建林学院) for the periods of 1978 to 1990 and 1990 to 1992, respectively. From June 2000 to July 2006, Mr Hong Wei held the position of independent director in Fujian Yongan Forestry (Group) Joint Stock Co., Ltd. (福建永安林业股份公司). Mr Hong Wei started his career in 1975 as a teacher at Fujian Province Jianyang District Normal School (福建省建地区师范学校), where he taught until 1978.

Mr Hong Wei obtained a Degree in Mathematics from Fujian Normal University (福建师范大学) in 1975. He was also conferred the full professorship by the Department of Personnel of Fujian Province (福建省人事厅) in August 1993.


Mr Lim Jun Xiong, Steven Independent DirectorMr Lim Jun Xiong, Steven is our Independent Director and was appointed to our Board on 26 March 2009. He is also a Lead Independent Director of Bund Center Investment Limited, Independent Director of Mirach Energy Limited, MAP Technology Holdings Limited and a Non-Executive Director of Gentrade Pte Ltd.

Mr Lim is currently the Chief Executive Officer of SG Trust (Asia) Ltd, a leading service provider of fiduciary services to high networth individuals and families and is a fully owned subsidiary of Societe Generale Private Banking. From 2007 to 2008, Mr Lim was a director and senior consultant at HSBC Trustee (Singapore) Limited, a leading trust company providing wealth management and succession planning services in Singapore. From 1990 to 2007, he was the managing director of Global Wealth Solutions, a line of business in HSBC Private Bank (Suisse) SA that offers wealth planning solutions to high networth individuals and families. He held the positions of operations manager cum company secretary and group trustee systems controller in HSBC Trustee (Singapore) Limited from 1985 before being appointed as the managing director in 1990. Mr Lim started his career with Price Waterhouse Coopers, Singapore in 1980 and was involved in the audit of various industries including banking, construction, manufacturing, marine, retailing, and ship-building & repair.

Mr Lim holds a Bachelor of Commerce majoring in Accounting & Finance from the University of Newcastle, Australia. He holds various professional memberships. In particular, he is a member of the Institute of Certified Public Accountants of Singapore, a membership which he has held since 1980. He is also a member of Society of Trusts & Estate Practitioners and CPA Australia. He sat on the board of CPA Australia from 2003 to 2005 and chaired the CPA Australia (Singapore Division) as its President from 2006 to 2008. In addition, he was the treasurer and committee member of the voluntary organisation Children’s Aid Society from 1987 to 2007, and he was also the treasurer and vice president of the voluntary organisation Singapore Scouts Association from 1997 to 2001.

Mr Tan Thiam Hee Independent DirectorMr Tan Thiam Hee is our Independent Director and was appointed to our Board on 21 October 2008. Mr Tan is currently the Managing Director and Chief Executive Officer of Koon Holdings Limited, a public company currently listed on the Australian Securities Exchange with a secondary listing on the Mainboard of the SGX-ST.

Mr Tan has extensive experience in corporate governance, accounting and finance and has, from 2006 to 2008, served as the Group Financial Controller and Company Secretary of Haw Par Corporation Limited, a public company listed on the Mainboard of the SGX-ST. During this period, he was responsible for accounting, finance, corporate secretarial and legal matters within Haw Par Corporation Limited. From 2003 to 2006, Mr Tan served as the Group Financial Controller and Company Secretary of ASL Marine Holdings Limited, a public company listed on the Mainboard of the SGX-ST. From 1996 to 2003, Mr Tan was the Executive Director, Group Financial Controller and Company Secretary of Hua Kok International Ltd (now known as Abterra Ltd).

Mr Tan obtained a Masters in Business Administration and a Bachelor of Accountancy both from Nanyang Technological University, Singapore in 2000 and 1993 respectively. Mr Tan is also a fellow of the Institute of Certified Public Accountants of Singapore, a member of the Singapore Institute of Directors and a Graduate member of the Australian Institute of Company Directors.


Senior Management

Ng Poh Khoon Chief Financial OfficerMr Ng Poh Khoon joined our Group in November 2008 and is responsible for the preparation of all our financial statements as well as for reviewing and developing effective financial policies and control procedures for our Group.

From 1995 to 1997, he was a senior in the audit department of Moore Stephens Singapore where he was responsible for carrying out statutory audits. In 1997, he joined the audit department of KPMG Singapore as a senior and was promoted to a supervisor in 1998. In July 2000, he assumed the position of the audit manager in KPMG Singapore and his responsibilities included managing a department, managing portfolios of clients, managing initial public offerings, as well as business development activities.

Subsequently, from October 2004 to October 2008, Mr Ng was appointed the chief financial officer of the Sinoying group of companies, which is primarily engaged in the business of shipping and oil trading, where he was responsible for overseeing the financial, accounting and taxation matters of the Sinoying group’s operations in Singapore, the PRC and Hong Kong. He was also the deputy managing director of Sinoying Logistics Pte. Ltd., the shipping arm of the Sinoying group and assisted in Sinoying Logistics Pte. Ltd.’s daily operations during the same period.

Mr Ng is currently the independent director and audit committee’s chairman of STAR Pharmaceutical Ltd, Lottvision Limited and Asia Silk Holdings Limited, all of which are currently listed on the SGX-ST. Mr Ng holds a Diploma in Business Administration from the National Productivity Board, and is a Certified Public Accountant and a member of the Institute of Certified Public Accountants of Singapore and Singapore Institute of Directors. Mr Ng is also a fellow member of the Association of Chartered Certified Accountants, UK.

Huang Changqing Deputy General ManagerMr Huang Changqing is our Deputy General Manager and he joined us in 2002. He is currently responsible for the financial and administrative matters for all the subsidiaries in the PRC. From 1991 to 2002, he was the Chief Accountant at Fujian Hualong Industrial Group Co., Ltd (福建华龙工业集团公司) of which he was responsible for the financial matters.

In 1991, Mr Huang graduated from The National Association of Vocational Education of China in Fujian (福建中华职业大学) with an Accounting diploma. He also obtained an Accounting degree from Xiamen University (厦门大学) in 1994. Mr Huang is a qualified Accountant since 1997, accredited by the Ministry of Finance, PRC (中华人民共和国财政部).

Wu Yonghua Finance ManagerMr Wu Yonghua is our Finance Manager and he joined us in 2002. He is currently responsible for the financial accounts for all the subsidiaries in the PRC. From 2002 to 2003, he was the Chief Accountant in one of the subsidiaries, Passion Art International Co., Ltd. Prior to that, Mr Wu was an Accountant at Xiamen Walls Electronics Co., Ltd (厦门华尔电子有

限公司) from 1998 to 2002.

Mr Wu graduated from The Open University of Fujian (福建广播电视大学) with an Accounting diploma in 1998. He also obtained an Accounting degree from the Central University of Finance and Economics (中央财经大学) in 2009. Mr Wu is a qualified Accountant since 2006, accredited by the Ministry of Finance, PRC (中华人民共和国财政部).

Yin Hemei Administrative ManagerMs Yin Hemei is in charge of administrative matters within our Group. She joined in 2003 and is responsible for administration and human resources management related work. From 1996 to 2003, she served in the Changting County Local Tax Bureau (长汀县地税局) and was involved in tax-related services. Prior to that, she was responsible for file management duties in Fenghua City Cultural Affairs Bureau (奉化市文化局) from 1989 to 1996.

Ms Yin graduated from Zhejiang Fenghua Daqiao Occupational Technical School (浙江奉化大桥职业技术学校) with a Diploma in Secretarial Work in 1989. In 2007, she obtained an Associate Degree in Administrative Management as well as a Qualification Certificate of Administrative Management from East China Normal University (华东师范大学). She was also accredited a Qualification Certificate of File Management by Fenghua City File Management Bureau (奉化市档案局) in 1988.


Lu Hongchang Sales Manager - ExportMr Lu Hongchang is our Sales Manager and he joined us in 2003. He is currently responsible for coordinating sales and marketing activities outside the PRC. Before this, Mr Lu served as the Sales Supervisor at Zhangping Forestory Co., Ltd (漳平木村林产有限公司). During his tenure there, he was also responsible for export sales activities.

Mr Lu graduated in 2000 from Fuzhou University (福州大学), and holds a degree majoring in international trade and a diploma in foreign language.

Li Dekui Sales Manager - DomesticMr Li Dekui joined our Group in 2009 as our Sales Manager and he currently is responsible for coordinating sales and marketing activities within the PRC. Prior to joining the Group, Mr Li was the Customer Relationship Manager at the Fuzhou Branch of Haier Group Co., Ltd (海尔集团福州分公司) from 2004 to 2009, where he was responsible for sales activites in Fuzhou City of Fujian Province, PRC. Mr Li held the position of Marketing Manager from 2001 to 2003 at Wuhan Feiya Window & Door Co., Ltd (武汉飞亚塑钢门窗有限公司) where he was in charge of sales and marketing activities.

Mr Li holds a Marketing degree from Hubei University (湖北大学), having graduated in 2001.

Zhang Fajia Purchasing ManagerMr Zhang Fajia is our Purchasing Manager and he joined the Group in 2009. His current job scope involves managing the entire purchasing process across its range of products for all the subsidiaries in the PRC. Between 2002 to 2009, Mr Zhang held the position of Purchasing Manager at Fujian Zhengrong Group Co., Ltd (福建正荣集团有限公司), where he was responsible for the procurement of raw materials.

Mr Zhang graduated from Fuzhou University (福州大学) with a degree in economics and law in 2002.

Zhang Jin Research and Development Manager Mr Zhang Jin joined our Group in 2009 as the Research & Development Manager. His responsibilities include product research and development. Mr Zhang held the position of Technical Manager between 2006 to 2009 at Fujian Wanda Co., Ltd (福建万达有限公司).

Mr Zhang graduated in 2006 from Minjiang College (闽江学院) with an Applied Mathematics qualification.

Liu Dongying Production ManagerMs Liu Dongying joined our Group in 2003 and is currently responsible for the overall operations at our production facilities including overseeing our manufacturing processes. From 2001 to 2003, Ms Liu was the Production Supervisor at Longyan City Tianwei Rattan-wood Furniture Co., Ltd (龙岩市天炜藤木器有限公司) where she was responsible for the overall manufacturing process. From 1989 to 2001, Ms Liu held the position of Production Supervisor at Longyan City Yirong Rattan-wood Furniture Co., Ltd (龙岩市忆荣藤木器有限公司) where she was overseeing the manufacturing process.

Ms Liu graduated from Shanghang First High School (上杭一中) in 1989.


COMPANY REGISTRATION NUMBER

200820355E

REGISTERED OFFICE

8 Cross Street #11-00

PWC Building

Singapore 048424

BOARD OF DIRECTORS

Chen Huiling (Executive Chairman)

Zhao Long (Chief Executive Officer)

Hong Wei (Independent Director)

Lim Jun Xiong, Steven (Independent Director)

Tan Thiam Hee (Independent Director)

AUDIT COMMITTEE

Chairman

Tan Thiam Hee

Members

Hong Wei

Lim Jun Xiong, Steven

NOMINATING COMMITTEE

Chairman

Hong Wei

Members


Tan Thiam Hee

REMUNERATION COMMITTEE

Chairman


Members

Hong Wei

Tan Thiam Hee

JOINT COMPANY SECRETARIES

Low Siew Tian

Ng Poh Khoon

SHARE REGISTRAR AND SHARE TRANSFER OFFICE

Tricor Barbinder Share Registration Services

8 Cross Street #11-00

PWC Building

Singapore 048424

INDEPENDENT AUDITOR

Foo Kon Tan Grant Thornton LLP

Public Accountants and Certified Public Accountants

47 Hill Street #05-01

Singapore Chinese Chamber of Commerce & Industry Building

Singapore 179365

Partner-in-charge: Chin Sin Beng (Appointed since financial year ended

30 June 2009)

PRINCIPAL BANKERS

Overseas-Chinese Banking Corporation Limited

65 Chulia Street

OCBC Centre

Singapore 049513

Agricultural Bank of China

Longyan Longjin Sub-Branch

(中国农业银行龙岩龙津支行)

No. 56, North Jiefang Road

Xinluo District, Longyan City

Fujian Province, PRC

(中国福建省龙岩市新罗区解放北路56号)

China Citic Bank

Fuzhou Zuohai Sub-Branch

(中信银行福州左海支行)

No. 99. Hudong Road

Fuzhou City,

Fujian Province, PRC

(中国福建省福州市湖东路99号)

Corporate Information



Corporate Governance Statement

Passion Holdings Limited (the “Company”) is committed to maintaining a high standard of corporate governance in complying

with the Code of Corporate Governance 2005 (the “Code”) which forms part of the Continuing Obligations of the Listing

Manual of the Singapore Exchange Securities Trading Limited (“SGX-ST”). Good corporate governance establishes and

maintains an ethical environment, which strives to enhance the interests of all shareholders. This report outlines the Company’s

corporate governance practices throughout the fi nancial year with specifi c reference to the Code issued by the Corporate

Governance Committee.

BOARD MATTERS

Board’s Conduct of its Affairs

The Board’s primary role is to protect shareholders’ interests and enhance long-term shareholders’ value. It sets the overall

strategy for the Company and its subsidiaries (the “Group”) and supervises the management. To fulfi ll this role, the Board

is responsible for setting the strategic direction for the Group, establishing goals for management and monitoring the

achievement of these goals.

Apart from its statutory responsibilities, the Board’s principal functions include the following:

(i) approve the Group’s corporate and strategic directions;

(ii) approve annual reports, periodic fi nancial announcements and accounts;

(iii) ensure management leadership of high quality, effectiveness and integrity;

(iv) approve annual budgets, investment and divestment proposals;

(v) appoint key personnel;

(vi) review fi nancial performance and implement fi nancial policies which incorporate risk management, internal controls and

reporting compliance; and

(vii) assume responsibility for corporate governance framework of the Company.

To assist in the execution of its responsibilities, the Board is supported by a number of committees which include a Nominating

Committee, a Remuneration Committee and an Audit Committee. These committees have written mandates and operating

procedures, which are reviewed on a regular basis.

Formal Board meetings are held on a regular basis to oversee the business affairs of the Group and approve any fi nancial or

business strategies or objectives. Where necessary, additional Board meetings and committee meetings are held to deliberate

on urgent substantive matters. Telephonic attendance and conference via audio communication at Board meetings are allowed

under the Company’s Articles of Association.

The details of the number of Board and Board Committees meetings held in the year and the attendance of each member at

those meetings and the meetings of the various committees are disclosed as follows:

Name

Board Audit CommitteeRemuneration

CommitteeNominating Committee

No. of meetings

held

No. of meetings attended

No. of meetings

held


No. of meetings

held


No. of meetings

held


Chen Huiling 4 3 N.A. N.A. N.A. N.A. N.A. N.A.

Zhao Long 4 4 N.A. N.A. N.A. N.A. N.A. N.A.

Hong Wei 4 4 4 4 2 2 2 2

Lim Jun Xiong, Steven 4 4 4 4 2 2 2 2

Tan Thiam Hee 4 4 4 4 2 2 2 2



New directors appointed to the Board are given an orientation to the Group’s operational facilities in Longyan City, Fujian

Province, People’s Republic of China and meet up with senior management to provide background information about the

Group’s history and business operations. In addition, the Board is provided with regular updates with respect to new laws and

regulations in order to adapt to the changing commercial risks relating to the business and operations of the Group.

Board Composition and Guidance

The Board presently comprises 5 directors, of whom 3 are independent directors. The present composition of the Board

complies with the Code’s guidelines that independent directors make up at least one third of the Board. The nature of the

current directors’ appointments and membership on the Board committees are as follows:

Name Position held on the Board

Committee Membership

Audit Remuneration Nominating

Chen Huiling Executive Chairman – – –

Zhao Long Executive Director – – –

Tan Thiam Hee Independent Director Chairman Member Member

Lim Jun Xiong, Steven Independent Director Member Chairman Member

Hong Wei Independent Director Member Member Chairman

The size and composition of the Board is reviewed annually by the Nominating Committee. The Nominating Committee is of

the view that current Board size is appropriate and facilitates effective decision-making, taking into account the nature and

scope of the Company’s operations.

The directors bring with them a wealth of expertise and experience in areas such as accounting, fi nance, business or

management experience and industry knowledge. Its composition enables the management to benefi t from a diverse and

objective perspective on any issues raised before the Board. Key information of directors is set out on pages 14 to 15 of this

Annual Report.

Chairman and Chief Executive Offi cer

The Board subscribes to the principle set out in the Code on the separation of the roles of the Chairman and the Chief

Executive Offi cer (“CEO”). The roles and responsibilities of the Chairman and CEO in the Company are distinct and separate.

This is to ensure appropriate balance of power and authority, accountability and decision making.

The Chairman of the Board, Ms. Chen Huiling is the founder of the Group. She ensures the smooth conduct of board

meetings and execution of strategic decisions undertaken by the Board. She and the CEO are not related to each other.

Generally, day-to-day operations of the Group are assumed by the CEO, Mr. Zhao Long and the management team. He takes

a leading role in developing and expanding the businesses of the Group and ensures that the Board is kept updated and

informed of the Group’s business.

The Chairman’s responsibilities include:

(i) scheduling meetings and leading the Board to ensures its effectiveness and approves the agenda of Board meetings in

consultation with the CEO;

(ii) reviewing key proposals and Board papers before they are presented to the Board and ensures that Board members

are provided with accurate and timely information;

(iii) ensuring that Board members engage Management in constructive debate on various matters including strategic issues

and business planning processes; and

(iv) promoting high standards of corporate governance.



Access to Information

In order to ensure that the Board is able to fulfi ll its responsibilities, the management provides the Board with management

reports containing complete, adequate and timely information prior to board meetings as well as reports of the Group’s

activities on an on-going basis. The board members have separate and independent access to the Company’s senior

management.

The Company Secretaries attended all board meetings and advise the Board on the applicable rules and regulations to comply

with. The directors have separate and independent access to the Company Secretaries at all times.

From time to time, the directors are furnished with detailed information concerning the Group to enable them to be fully aware

and understand the decisions and actions of the management of the Group. The Board has unrestricted access to the

Group’s records and information. Detailed Board papers are prepared for each Board meeting and are circulated at least 4

days in advance of each meeting. The Board papers include suffi cient information from the management on fi nancial, business

and corporate issues to enable the directors to be properly briefed on issues to be considered at Board meetings.

Each director has the right to seek independent legal and other professional advice concerning any aspect of the Group’s

operations and undertakings in order to fulfi ll their duties as directors. Any expenses incurred in this aspect shall be borne by

the Group.

BOARD COMMITTEES

Nominating Committee (“NC”)

Board MembershipBoard Performance

The NC comprises the following directors, all of whom including the Chairman, is independent. The Chairman is not associated

with the substantial shareholders of the Company:

Hong Wei Chairman

Lim Jun Xiong, Steven Member

Tan Thiam Hee Member

The Board has approved the written terms of reference of the NC, whose principal functions include the following:

(i) make recommendations to the Board on all Board appointments taking into account the director’s contribution and

performance;

(ii) review the Board structure, size and composition, having regard to the principles of corporate governance and the

Code;

(iii) identify and nominate candidates for the approval of the Board to fi ll vacancies in the Board as and when they arise;

(iv) determine, annually whether or not a director is independent based on the circumstances set forth in the Code;

(v) recommend directors who are retiring by rotation to be put up for re-election;

(vi) decide whether or not a director is able to carry out and has been adequately carrying out his duties as a director of

the Company, particularly when he has multiple board representations;

(vii) assess the effectiveness of the Board as a whole and assess the contribution of each individual director to the

effectiveness of the Board on an annual basis; and

(viii) review and approve any new employment of related persons and the proposed terms of their employment.

Pursuant to the Company’s Articles of Association, one-third of the Directors shall retire from offi ce by rotation and all directors

shall retire from offi ce once at least every three years.



During the fi nancial year, the NC met twice to adopt the terms of reference and recommended to the Board that Zhao

Long and Lim Jun Xiong, Steven who are due for retirement by rotation under Article 91, be nominated for re-election at

the forthcoming Annual General Meeting. In making its recommendation, the NC evaluates such directors’ contribution and

performance, such as his attendance at meetings of the Board and Board Committees, where applicable, participation,

candour and any special contributions.

The NC is also responsible for determining annually, the independence of directors. In its annual review, the NC, having

considered the guidelines set out in the Code, has confi rmed the Non-Executive Directors namely, Hong Wei, Lim Jun Xiong,

Steven and Tan Thiam Hee, are independent. The NC is satisfi ed that suffi cient time and attention are being given by the

directors to the affairs of the Company, notwithstanding that some of the directors have multiple board representations.

The NC also evaluates the Board’s performance as a whole and contribution by each director to the effectiveness of the

Board.

For the year under review, the NC evaluates the Board’s performance as a whole and contribution by each director to the

effectiveness of the Board. The NC uses objective and appropriate quantitative and qualitative criteria to assess the

performance of individual directors, and the Board as a whole. Assessment parameters include the attendance records of the

directors at Board or Committee meetings, the level of participation at such meetings, the quality of Board processes and the

business performance of the Group.

Remuneration Committee (“RC”)

Procedures for Developing Remuneration PoliciesLevel and Mix of RemunerationDisclosure on Remuneration

The RC comprises entirely Non-Executive Directors, all of whom including the Chairman, is independent:

Lim Jun Xiong, Steven Chairman

Hong Wei Member

Tan Thiam Hee Member

The Board has approved the written terms of reference of the RC. The functions of the RC are as follows :-

i) Recommending to the Board a remuneration framework for Directors and Executive Offi cers covering all aspects of

remuneration such as director’s fees, salaries, allowances, bonuses, options and benefi ts-in-kind;

ii) Proposing to the Board, appropriate and meaningful measures for assessing the executive directors’ performance;

iii) Determining the specifi c remuneration package for each executive director and CEO;

iv) Considering the eligibility of directors for benefi ts under long-term incentive schemes; and

v) Considering and recommending to the Board the disclosure of details of the Company’s remuneration policy, level and

mix of remuneration and procedure for setting remuneration and details of the specifi c remuneration packages of the

directors and key executives of the Company to those required by law or by the Code.

In carrying out the above, the RC may obtain independent external legal and other professional advice as it deems necessary.

The expenses of such advice will be borne by the Company.

The Executive Directors do not receive directors’ fees. The remuneration package adopted for the Executive Directors is as

per service contract entered into between the respective Director and the Company. The remuneration policy for Executive

Directors consists of fi xed amounts in cash and annual variable incentive. The annual variable incentive is payable on the

achievement of individual and corporate performance targets.

The Independent Directors have no service contract with the Company and their terms are specifi ed in the Articles of

Association. Save for directors’ fees, Non-Executive Directors do not receive any remuneration from the Company. Directors’

fees are set in accordance with a remuneration framework comprising basic fees and additional fees for serving on any of the

committees. Directors’ fees are subject to the approval of the shareholders at the Annual General Meeting.



During the fi nancial year, the RC met twice to adopt the terms of reference and recommend the remuneration of the Executive

Directors and fees payable to the Non-Executive Directors.

A summary of Director’s remuneration payable for the fi nancial year ended 30 June 2010 is shown below:

Remuneration Band and Name of Director Directors’ Fees(1) Salary Bonus Total% % % %

S$250,000 – S$499,999

Chen Huiling – 75 25 100

Zhao Long – 75 25 100

Below S$250,000

Hong Wei1 100 – – 100

Lim Jun Xiong, Steven1 100 – – 100

Tan Thiam Hee1 100 – – 100

1 Subject to approval as a lump sum payment at the Annual General Meeting for fi nancial year ended 30 June 2010

Key Executives

The remuneration of the top fi ve executives of the Group for the fi nancial year ended 30 June 2010 is shown in the following

bands:

Below S$250,000 Ng Poh Khoon

Huang Changqing

Yin Hemei

Lu Hongchang

Wu Yonghua

Key executives’ remuneration packages are set in accordance with a remuneration framework comprising basic salary

(including variable and benefi ts-in-kind). To preserve the confi dentiality of remuneration packages of these key executives, the

breakdown (in percentage terms) of each executive’s remuneration is not disclosed.

Immediate Family Member of Director

The Company does not have any employee who is an immediate family member of a Director or CEO.

Audit Committee (“AC”)

Accountability

The Board is accountable to the shareholders and the management is accountable to the Board. In assisting the Board to

discharge its duties, the management provides fi nancial information on a regular basis. The board currently provides the

shareholders with interim and fi nal fi nancial reports, as well as other announcements, in a timely manner, in accordance with

the relevant rules and regulations. The fi nancial reports include fi nancial performance and review and fi nancial position of the

Group. The Board is of the opinion that the current arrangement of having quarterly internal management reports is adequate.



Audit Committee

The AC comprises all Non-Executive Directors, all of whom, including the Chairman, is independent:

Tan Thiam Hee Chairman

Hong Wei Member

Lim Jun Xiong, Steven Member

The AC carries out the following functions and where relevant, with the management, internal and external auditors:

(i) reviews the audit plans of the internal and external auditors of the Group and ensures the adequacy of the Group’s

system of accounting controls and the co-operation given by the Group’s management to the internal and external

auditors;

(ii) review the interim and annual fi nancial statements and the external auditors’ report on the annual fi nancial statements of

the Company and of the Group before submission to the Board;

(iii) reviews with the management and internal auditors the adequacy of the Group’s internal controls;

(iv) reviews legal and regulatory matters that may have a material impact on the fi nancial statements, related compliance

policies and programmes and any reports received from regulators;

(v) review any potential confl icts of interest (if any) and to ensure that procedures for resolving such confl icts are suffi cient

and strictly adhered to by the Company;

(vi) reviews the cost effective and the independence and objectivity of the external auditors;

(vii) reviews the nature and extent of non-audit services provided by the external auditors;

(viii) reviews the assistance given by the Company’s offi cer to the internal and external auditors;

(ix) consider and recommend the appointment and re-appointment of the external auditors; and

(x) reviews interested person transactions in accordance with the requirements of the SGX-ST Listing Manual.

During the fi nancial year, the AC held 4 meetings and met the internal and external auditors, without the presence of the

Company’s management, and has full access to and co-operation by the management.

The AC has undertaken a review of all non-audit services provided by the external auditors and noted that no such service has

been rendered to the Group by the external auditors for the fi nancial year ended 30 June 2010.

The AC is satisfi ed with the independence and objectivity of the external auditors and recommended to the Board, the

nomination of the external auditors for re-appointment.

In accordance with its terms of reference, the AC has the explicit authority to investigate any matters within its terms

of reference, full access to and co-operation by the management and full discretion to invite external parties to attend its

meetings, and reasonable resources to enable it to discharge its function properly.

The Group does not appoint different auditors for its overseas subsidiaries.

Internal ControlsInternal Audit

The Board recognises the importance of the internal audit function which, being independent of Management is one of the

principal means by which the AC is able to carry out its responsibilities effectively. BDO Consultants Pte. Ltd. is the existing

internal auditors of the Group.

The Group maintains a system of internal controls for all companies within the Group, but recognises that no internal control

system will preclude all errors and irregularities. The system is designed to manage rather than to eliminate the risk of failure to

achieve business objectives. The controls are to provide reasonable, but not absolute, assurance to safeguard shareholders’

investments and the Group’s assets.



The AC assisted the Board to review the effectiveness of the internal audit function annually and is satisfi ed with the current

state of internal controls system of the Company.

Communication with ShareholdersGreater Shareholder Participation

The Board is mindful of the obligation to provide regular, effective and fair communication with shareholders. Information is

communicated to the shareholders on a timely basis. The Board provides shareholders with an assessment of the Company’s

performance, position and prospects on a quarterly basis and other ad hoc announcements as required by the SGX-ST. The

Company’s Annual Report is sent to all shareholders and is available to other investors on request and accessible at the

Company’s website.

The Board welcomes the views of shareholders on matters affecting the Company, whether at shareholders’ meetings or on an

ad hoc basis. Shareholders are informed of shareholders’ meetings through notices published in the newspapers and reports

or circulars sent to all shareholders. Each item of special business included in the notice of the meeting is accompanied by an

explanation for the proposed resolution. Separate resolutions are proposed for substantially separate issues at the meeting.

The Chairmen of the Audit, Remuneration and Nominating Committees are normally available at the meeting to answer those

questions relating to the work of these committees. The external auditors are also present to assist the directors in addressing

any relevant queries by shareholders.

Risk Management

The Group does not have a Risk Management Committee. However, the management regularly reviews the Company’s

business and operational activities to identify areas of signifi cant business risks as well as appropriate measures to control

and mitigate these risks. The management reviews all signifi cant control policies and procedures and highlights all signifi cant

matters to the Board and AC.

Dealings In Securities

The Company has adopted as its own internal compliance code, the best practices guide in Rule 1207(18) of the SGX-ST

Listing Manual with regard to dealing in the Company’s securities by the directors and its offi cers. Directors, management and

offi cers of the Group who have access to price-sensitive, fi nancial or confi dential information are also prohibited from dealing in

the Company’s securities during the periods commencing two weeks before the announcement of the Company’s results for

the fi rst and third quarters of its fi nancial year and one month before the half-year and full-year results and ending on the day

of the announcement, or when they are in possession of unpublished price-sensitive information on the Group.

Interested Person Transactions (“IPTs”)

The Group has established procedures to ensure that all transactions with interested persons are reported on a timely manner

to the AC and that the transactions are carried out on normal commercial terms and are not prejudicial to the interests of the

Company and its minority shareholders.

The Board and the AC will review all IPTs to be entered to ensure that the relevant rules under Chapter 9 of the SGX-ST Listing

Manual are complied with.

There were no IPTs for disclosure according to Rule 907 of the SGX-ST Listing Manual in respect of IPTs for the fi nancial year

ended 30 June 2010.

MATERIAL CONTRACTS

There was no material contracts entered during the fi nancial year under review.



USE OF PROCEEDS

As at 30 June 2010, the use of the net proceeds of S$18.5 million raised from the initial public offering on 2 September 2009

was as follows:-

Proposed Use as per ProspectusAmount

AllocatedAmount Utilized

to-dateBalance Amount

S$’000 S$’000 S$’000 Expand our production capacity 6,000 (6,000) – Expand our sales and distribution network within the PRC 8,000 – 8,000 Promote and strengthen our “Passion” brand name in the PRC 4,000 (2,492) 1,508 General working capital 500 (192) 308

18,500 (8,694) 9,816

Total commitment for the expansion of the Group’s production capacity amounted to RMB31.48 million (equivalent to S$6.49

million). The excess of RMB2.38 million (equivalent to S$0.49 million) was funded by internally generated funds.

FINANCIAL CONTENTS

Directors’ Report 28

Statement by Directors 30

Independent Auditor’s Report 31

Statements of Financial Position 32

Consolidated Statement of Comprehensive Income 33

Consolidated Statement of Changes in Equity 34

Consolidated Statement of Cash Flows 35

Note to the Financial Statements 36

Statistics of Shareholdings 66

Notice of Annual General Meeting 68

Proxy Form

Directors' report


The directors submit this annual report to the members together with the audited consolidated fi nancial statements of the

Group and statement of fi nancial position of the Company for the fi nancial year ended 30 June 2010.

Names of directors

The directors in offi ce at the date of this report are:

Chen Huiling

Zhao Long

Hong Wei


Tan Thiam Hee

Arrangements to acquire shares or debentures

During and at the end of the fi nancial year, neither the Company nor any of its subsidiaries was a party to any arrangement

the object of which was to enable the directors to acquire benefi ts through the acquisition of shares in or debentures of the

Company or of any other corporate body other than as disclosed in this report.

Directors’ interest in shares or debentures

According to the Register of Directors’ Shareholdings kept by the Company under Section 164 of the Companies Act, Cap.

50, the following director who held offi ce at the end of the fi nancial year was interested in shares of the Company as follows:

Number of ordinary sharesShares registered inthe name of director

Shares in which director is deemed to have an interest

As at

1.7.2009

As at30.6.2010

As at

1.7.2009

As at30.6.2010

The Company -

Passion Holdings Ltd

Chen Huiling – – 168,030,000 168,030,000

Zhao Long – – 60,000,000 60,000,000

There was no change in any of the above mentioned interest between the end of the fi nancial year and 21 July 2010.

By virtue of the provisions of Section 7 of the Singapore Companies Act, Cap. 50, Ms. Chen Huiling is deemed to be

interested in shares of the subsidiaries held by the Company.

Directors’ benefi ts

Since the end of the previous fi nancial year, other than as disclosed in the fi nancial statements, no director has received or has

become entitled to receive a benefi t under a contract which is required to be disclosed under Section 201(8) of the Companies

Act, Cap. 50.

Share options

No options were granted during the fi nancial year to take up unissued shares of the Company or of its subsidiaries.

No shares were issued during the fi nancial year to which this report relates by virtue of the exercise of options to take up

unissued shares of the Company or any subsidiaries.

There were no unissued shares of the Company and of the subsidiaries under option at the end of the fi nancial year.


Directors' report

Audit Committee

The Audit Committee comprises the following members:

Tan Thiam Hee (Chairman)

Hong Wei


The Audit Committee performs the functions set out in Section 201B(5) of the Companies Act, Cap. 50. The functions

performed are detailed in the Corporate Governance Statement.

The Committee is satisfi ed with the independence and objectivity of the external auditor and has recommended to The Board

of Directors that the auditors, Foo Kon Tan Grant Thornton LLP, be nominated for re-appointment as auditor at the forthcoming

Annual General Meeting of the Company.

Independent auditor

The independent auditor, Foo Kon Tan Grant Thornton LLP, Certifi ed Public Accountants, has expressed its willingness to

accept re-appointment.

On behalf of the Board of Directors

CHEN HUILING

ZHAO LONG

Dated: 14 September 2010

Statement by directors


In the opinion of the directors,

(i) the accompanying statements of fi nancial position, consolidated statement of comprehensive income, consolidated

statement of changes in equity and consolidated statement of cash fl ows, together with the notes thereon, are drawn

up so as to give a true and fair view of the state of affairs of the Company and of the Group as at 30 June 2010 and

of the results of the business, changes in equity and cash fl ows of the Group for the fi nancial year ended on that date;

and

(ii) at the date of this statement there are reasonable grounds to believe that the Company will be able to pay its debts as

and when they fall due.

On behalf of the Board of Directors

CHEN HUILING

ZHAO LONG

Dated: 14 September 2010


Independent auditor's reportto the members of Passion Holdings Limited

We have audited the accompanying fi nancial statements of Passion Holdings Limited (“the Company”) and its subsidiaries

(“the Group”), which comprise the statements of fi nancial position of the Group and of the Company as at 30 June 2010, the

consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement

of cash fl ows of the Group for the year then ended, and a summary of signifi cant accounting policies and other explanatory

notes.

Management’s responsibility for the fi nancial statements

Management is responsible for the preparation and fair presentation of these fi nancial statements in accordance with the

provisions of the Singapore Companies Act, Cap. 50 (“the Act”) and Singapore Financial Reporting Standards. This

responsibility includes:

(a) devising and maintaining a system of internal accounting controls suffi cient to provide a reasonable assurance that

assets are safeguarded against loss from unauthorised use or disposition; and transactions are properly authorised

and that they are recorded as necessary to permit the preparation of true and fair profi t and loss accounts and balance

sheets and to maintain accountability of assets;

(b) selecting and applying appropriate accounting policies; and

(c) making accounting estimates that are reasonable in the circumstances.

Auditors’ responsibility

Our responsibility is to express an opinion on these fi nancial statements based on our audit. We conducted our audit in

accordance with Singapore Standards on Auditing. Those standards require that we comply with ethical requirements and plan

and perform the audit to obtain reasonable assurance on whether the fi nancial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fi nancial

statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material

misstatement of the fi nancial statements, whether due to fraud or error. In making those risk assessments, the auditor

considers internal control relevant to the entity’s preparation and fair presentation of the fi nancial statements in order to

design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the

effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used

and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the

fi nancial statements.

We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion:

(a) the consolidated fi nancial statements of the Group and the statement of fi nancial position of the Company are properly

drawn up in accordance with the provisions of the Act and Singapore Financial Reporting Standards so as to give a

true and fair view of the state of affairs of the Company and of the Group as at 30 June 2010 and the results, changes

in equity and cash fl ows of the Group for the fi nancial year ended on that date; and

(b) the accounting and other records required by the Act to be kept by the Company have been properly kept in

accordance with the provisions of the Act.

Foo Kon Tan Grant Thornton LLP

Public Accountants and

Certifi ed Public Accountants

Singapore,

14 September 2010

Statements of fi nancial positionas at 30 June 2010


The annexed notes form an integral part of and should be read in conjunction with these fi nancial statements

The Group The Company

30 June 2010 30 June 2009 30 June 2010 30 June 2009

Note RMB RMB RMB RMB

Assets

Non-Current

Property, plant and equipment 5 76,102,701 41,308,263 – –

Lease prepayments 6 15,468,064 15,827,145 – –

Investment in subsidiaries 7 – – 1,763,600 1,763,600

91,570,765 57,135,408 1,763,600 1,763,600

Current

Lease prepayments 6 359,081 359,081 – –

Inventories 8 45,700,560 46,938,760 – –

Trade and other receivables 9 201,453,153 138,596,495 35,307 5,947,695

Amount due from a subsidiary (non-trade) 10 – – 94,601,213 –

Cash and bank balances 11 179,496,691 59,235,846 577,530 45,238

427,009,485 245,130,182 95,214,050 5,992,933

Total assets 518,580,250 302,265,590 96,977,650 7,756,533

Equity and Liabilities

Capital and reserves

Share capital 12 96,437,648 4,429,205 96,437,648 4,429,205

Exchange fl uctuation reserve 357,800 357,800 – –

Retained profi ts /(Accumulated loss) 249,611,115 152,626,841 (7,237,230) (1,388,543)

Statutory reserves 13 72,668,963 39,168,683 – –

419,075,526 196,582,529 89,200,418 3,040,662

Current liabilities

Trade and other payables 14 53,381,949 45,243,200 2,120,390 1,716,358

Notes payable 15 – 3,070,000 – –

Bank borrowings 16 33,932,769 44,615,000 – –

Amount due to a subsidiary (non-trade) 10 – – 5,656,842 –

Amount due to a director (non-trade) 17 – 10,724,971 – 2,999,513

Income tax payable 12,190,006 2,029,890 – –

99,504,724 105,683,061 7,777,232 4,715,871

Total equity and liabilities 518,580,250 302,265,590 96,977,650 7,756,533


Consolidated statement of comprehensive Incomefor the fi nancial year ended 30 June 2010


Year ended30 June 2010

Year ended

30 June 2009

Note RMB RMB

Revenue 18 702,299,468 542,019,700

Cost of sales (471,267,978) (381,031,380)

Gross profi t 231,031,490 160,988,320

Other operating income 2,639,187 1,634,492

Distribution expenses (46,901,672) (19,535,961)

Administrative expenses (17,337,585) (11,367,792)

Other operating expenses (3,884,577) –

Finance costs (2,614,095) (4,567,615)

Profi t before taxation 19 162,932,748 127,151,444

Taxation 20 (32,448,194) (15,516,788)

Profi t for the year 130,484,554 111,634,656

Other comprehensive income – –

Total comprehensive income for the year attributable to shareholders of

the Company 130,484,554 111,634,656

Earnings per share

- basic and diluted (cents) 21 34.85 37.21

Consolidated statement of changes in equityfor the fi nancial year ended 30 June 2010



Share capital

Exchangefl uctuation

reserveRetained

profi tsStatutory reserves Total

RMB RMB RMB RMB RMB

Balance at 1 July 2008 2,121,400 – 185,715,695 24,445,173 212,282,268

Issue of shares (Note 12) 2,665,605 – – – 2,665,605

Effect of Restructuring Exercise (357,800) 357,800 – – –

Dividend paid (Note 27) – – (130,000,000) – (130,000,000)

Total comprehensive income for the year – – 111,634,656 – 111,634,656

Transfer to statutory common reserve – – (14,723,510) 14,723,510 –

Balance at 30 June 2009 4,429,205 357,800 152,626,841 39,168,683 196,582,529

Issue of shares, net of expenses(Note 12) 92,008,443 – – – 92,008,443

Total comprehensive income for the year – – 130,484,554 – 130,484,554

Transfer to statutory common reserve – – (33,500,280) 33,500,280 –

Balance at 30 June 2010 96,437,648 357,800 249,611,115 72,668,963 419,075,526


Consolidated statement of cash fl owsfor the fi nancial year ended 30 June 2010


Year ended30 June 2010

Year ended

30 June 2009

RMB RMB

Cash Flows from Operating Activities

Profi t before taxation 162,932,748 127,151,444

Adjustments for:

Depreciation of property, plant and equipment (Note 5) 4,191,983 2,950,828

Amortisation of lease prepayments (Note 6) 359,081 359,081

Interest income (Note 19(b)) (772,719) (591,053)

Interest expense (Note 19(e)) 2,614,095 4,567,615

Operating profi t before working capital changes 169,325,188 134,437,915

Change in operating assets and liabilities

Inventories 1,238,200 2,150,037

Operating receivables (62,856,658) (62,723,988)

Operating payables 8,431,415 1,167,292

Cash generated from operating activities 116,138,145 75,031,256

Interest paid (2,906,761) (4,567,615)

Income tax paid (22,288,078) (17,456,001)

Net cash generated from operating activities 90,943,306 53,007,640

Cash Flows from Investing Activities

Acquisition of property, plant and equipment (38,986,421) (989,209)

Interest received 772,719 591,053

Net cash used in investing activities (38,213,702) (398,156)

Cash Flows from Financing Activities

Proceeds from bank borrowings 130,453,606 40,165,000

Repayment of bank borrowings (141,135,837) (51,765,520)

Proceeds from note payables issued - 3,070,000

Repayment of notes payable (3,070,000) (11,400,000)

Decrease/ (increase) in bank balance pledged with bank 11,477,749 (6,548,608)

Dividend paid (Note 27) - (130,000,000)

Issue of shares (Note 12) 92,008,443 2,665,605

(Repayment of)/ advances from a director (10,724,971) 105,875,676

Repayment of advances from a related party - (721,441)

Net cash generated from/ (used in) fi nancing activities 79,008,990 (48,659,288)

Net increase in cash and cash equivalents 131,738,594 3,950,196

Cash and cash equivalents at beginning of year 47,758,097 43,807,901

Cash and cash equivalents at end of year (Note 11) 179,496,691 47,758,097

Notes to the fi nancial statementsfor the fi nancial year ended 30 June 2010


1 General information

The fi nancial statements of the Company and of the Group for the fi nancial year ended 30 June 2010 were authorised

for issue in accordance with a resolution of the directors on the date of the Statement By Directors.

The Company was incorporated in Singapore on 21 October 2008 under the name of Passion Holdings Pte Ltd as a

private limited company.

On 3 June 2009, the Company changed its name to “Passion Holdings Limited” in connection with its conversion to a

public company limited by shares.

The registered offi ce of the Company is located at 8 Cross Street, #11-00 PWC Building, Singapore 048424. The

principal place of business of the Group is located at Yirong Road, Economic and Technological Development District,

Longyan City, Fujian Province, the People’s Republic of China (“PRC”).

The principal activities of the Company are those of investment holding. The principal activities of the subsidiaries are

disclosed in Note 7 to the fi nancial statements.

2 Basis of preparation

The fi nancial statements are prepared in accordance with Singapore Financial Reporting Standards including related

Interpretations promulgated by the Accounting Standards Council. The fi nancial statements have been prepared under

the historical cost convention, except as disclosed in the accounting policies below.

The fi nancial statements are presented in Renminbi (“RMB”) which is the functional currency of all entities within the

Group. All fi nancial information has been presented in RMB, unless otherwise stated.

Except for new accounting standards and interpretations effective during current fi nancial year as described in Note 3,

the accounting policies set out below have been applied consistently by the Group to all periods presented in these

fi nancial statements.

2(a) Restructuring exercise

(i) Incorporation of the Company

The Company was incorporated on 21 October 2008 in Singapore as a private limited investment holding

company with issued and paid-up capital comprising one ordinary share of S$1.00 (RMB 4.76).

(ii) Acquisition of the entire issued share capital of Sunny Art International Co., Limited (“Sunny Art”)

Pursuant to a share swap agreement dated 27 November 2008 entered between the then sole shareholder

of Sunny Art (the “Vendor”) and the Company, the entire registered capital in Sunny Art was transferred to the

Company for a consideration of HK$2,000,000 (RMB1,763,600) based on the nominal issued share capital of

Sunny Art. Therefore, no goodwill arose from this business combination which was accounted for using the

pooling of interests method. This consideration was satisfi ed by the allotment and issue of an aggregate of

293,999 ordinary shares in the capital of the Company to the Vendor. After the completion of the acquisition of

Sunny Art, the Company became the holding company of the Group.



2 Basis of preparation (cont’d)

2(a) Restructuring exercise (cont’d)

(iii) Upon completion of the above Restructuring Exercise, the Company had acquired the following subsidiaries:

Name of subsidiaries

Date and place of incorporation/

businessEffective equity

held by the Group Principal activities

Held by the Company

Sunny Art International Co., Limited Hong Kong 100% Investment holding

Held by Sunny Art:

Yirong Arts & Crafts Co., Ltd.

(福建省亿隆家庭装饰品有限公司)PRC 100% Design, production and sale of

handicrafts and furnishings

Passion Art International Co., Ltd.

(福建龙岩天河藤木器有限公司)

PRC 100% Dormant

(iv) Pre-IPO Investment in the Company

On 9 January 2009, the Company entered into a subscription agreement with the Pre-IPO Investors, pursuant

to which the Pre-IPO Investors subscribed for 6,000 new shares fully paid in cash.

(v) Sub-division of shares

Pursuant to an extraordinary general meeting held on 1 June 2009, the Company subdivided each of its

300,000 shares into 1,000 shares resulting in its issued share capital increasing to 300,000,000 shares.

The Restructuring Exercise as described above principally related to a business combination involving companies which

are ultimately controlled by the same parties before and immediately after the Restructuring Exercise and that control

is not transitory. Consequently, immediately after the Restructuring Exercise, there was a continuation of the risks and

benefi ts to the ultimate shareholders that existed prior to the Restructuring Exercise. The business combination was

accounted for using the pooling of interests method, under which the Company was treated as the holding company

of its subsidiaries during the relevant periods or since their respective dates of incorporation or acquisition whichever is

later.

Accordingly, the combined fi nancial statements of the Group and the statement of fi nancial position of the Company for

the fi nancial year ended 30 June 2009 presented the state of affairs of the Company and of the Group as at 30 June

2009 and the results, changes in equity and cash fl ows of the Group for the fi nancial year then ended as if the current

structure of the Group had been in existence throughout the year ended 30 June 2009.

The combined fi nancial statements for the relevant periods were prepared in accordance with Singapore Financial

Reporting Standards (“FRS”), which includes the Interpretations to FRS (“INT FRS”) issued by ASC.

The combined fi nancial statements, expressed in RMB, were prepared in accordance with the historical cost convention

in accordance with FRS, including related Interpretations promulgated by the ASC.

The accounting policies applied by the Group were consistent with all periods presented in the combined fi nancial

statements.




2(a) Restructuring exercise (cont’d)

In arriving at the combined fi nancial statements, adjustments were made as considered necessary in order to present

the fi nancial statements on a consistent and comparable basis as if the Group existed throughout the years, or since

the respective dates of incorporation/acquisition of the companies in the Group, whichever is later.

The combined fi nancial statements of the Group for the fi nancial year ended 30 June 2009 were prepared based on

the audited fi nancial statements of Sunny Art International Co., Limited, Yirong Arts & Crafts Co., Ltd. and Passion Art

International Co., Ltd. for the fi nancial year ended 30 June 2009 and 2010. These company level fi nancial statements

were audited by Foo Kon Tan Grant Thornton in accordance with Singapore Standards on Auditing. The fi nancial

statements were prepared in accordance with Singapore Financial Reporting Standards (“FRS”) including related

Interpretations promulgated by the Accounting Standards Council (“ASC”).

In arriving at the combined fi nancial statements, the directors of the Company are of the view that no material

adjustment was required to be made to the information used in the above preparation.

2(b) Signifi cant accounting estimates and judgements

The preparation of the fi nancial statements in conformity with FRS requires the use of judgements, estimates and

assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities

at the date of the fi nancial statements and the reported amounts of revenues and expenses during the fi nancial year.

Although these estimates are based on management’s best knowledge of current events and actions, actual results

may differ from those estimates.

The critical accounting estimates and assumptions used and areas involving a high degree of judgement are detailed

below:

(i) Critical judgements

Classifi cation of Land Use Rights as Operating Leases (Lease prepayments)

Within the People’s Republic of China, it is the practice for the State to issue Land Use Rights to individuals or

entities. Such rights are evidenced through the granting of a Land Use Rights certifi cate, which gives the holder

the right to use the land (including the construction of buildings thereon) for a given length of time. An upfront

payment is made for these rights.

The Directors judge that the substance of these arrangements is an operating lease over the land, and that

the upfront payment represents prepaid lease rentals. As such a prepayment is recognised in the statement of

fi nancial position, analysed between current and non current assets. The prepayment is amortised to spread the

lease cost over the duration of the term of the land use rights, as specifi ed in the lease certifi cate.

Common control business combination outside the scope of FRS 103

A business combination involving entities under common control is a business combination in which all the

combining entities or businesses are ultimately controlled by the same party or parties both before and after

the business combination, and that control is not transitory. The Restructuring Exercise described in Note 2(a)

resulted in a business combination involving entities under common control, and accordingly the accounting

treatment is outside the scope of FRS 103. For such common control business combinations, the merger

accounting principles are used to include the assets, liabilities, results, equity changes and cash fl ows of the

combining entities in the combined fi nancial statements.

In applying merger accounting, fi nancial statement items of the combining entities or businesses for the

reporting period in which the common control combination occurs, and for any comparative periods disclosed,

are included in the combined fi nancial statements of the combined entity as if the combination had occurred

from the date when the combining entities or businesses fi rst came under the control of the controlling party or

parties.




2(b) Signifi cant accounting estimates and judgements (cont’d)

(i) Critical judgements (cont’d)

A single uniform set of accounting policies is adopted by the combined entity. Therefore, the consolidated entity

recognised the assets, liabilities and equity of the combining entities or businesses at the carrying amounts in

the combined fi nancial statements of the controlling party or parties prior to the common control combination.

The carrying amounts are included as if such combined fi nancial statements had been prepared by the

controlling party, including adjustments required for conforming the consolidated entity’s accounting policies

and applying those policies to all periods presented. There is no recognition of any goodwill or excess of the

acquirer’s interest in the net fair value of the acquiree’s identifi able assets, liabilities and contingent liabilities over

cost at the time of the common control combination.

The effects of all transactions between the combining entities or businesses, whether occurring before or after

the combination, are eliminated in preparing the combined fi nancial statements of the consolidated entity.

(ii) Critical assumptions used and accounting estimates in applying accounting policies

Useful lives of property, plant and equipment

Property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives. The

Group performs annual reviews on whether the assumptions made on useful lives continue to be valid. As

changes in the expected level of usage, competitors’ actions and technological obsolescence arising from

changes in the market demands or service output of the assets could impact the economic useful lives and the

residual values of these assets, leading to potential changes in future depreciation charges, impairment losses

and/or write-offs.

Income tax

Signifi cant judgement is involved in determining provision for income taxes. The Group recognises liabilities for

expected tax issues based on estimates of whether additional taxes will be due. Where the fi nal tax outcome of

these matters is different from the amounts that were initially recognised, such differences will impact the income

tax provision in the period in which such determination is made.

Impairment of property, plant and equipment and land use rights

Property, plant and equipment and land use rights are reviewed to determine whether there is any indication

that the carrying value of these assets may not be recoverable and have suffered impairment loss. If any such

indication exists, the assets are tested for impairment. The recoverable amounts of the assets are estimated in

order to determine the extent of the impairment loss, if any. The recoverable amount is the higher of an asset’s

fair value less costs to sell and value in use. Such impairment loss is recognised in the profi t or loss.

The use of estimates is required in the area of asset impairment, particularly in assessing: (1) whether an

event has occurred that may indicate that the related asset values may not be recoverable; (2) whether the

carrying value of an asset can be supported by the net present value of future cash fl ows which are estimated

based upon the continued use of the asset in the business; (3) the appropriate key assumptions to be

applied in preparing cash fl ow projections including whether these cash fl ow projections are discounted using

an appropriate rate. Changing the assumptions selected by management to determine the level, if any, of

impairment, including the discount rates or the growth rate assumptions in the cash fl ow projections could

materially affect the net present value used in the impairment test and as a result affects the Group’s results.

Impairment of investments in subsidiaries

Determining whether investments in subsidiaries is impaired requires an estimation of the value-in-use of the

investments. The value-in-use calculation requires the Group to estimate the future cash fl ows expected from

the cash-generating units and an appropriate discount rate in order to calculate the present value of the future

cash fl ows. Management has evaluated the recoverability of the investment based on such estimates.




2(b) Signifi cant accounting estimates and judgements (cont’d)

(ii) Critical assumptions used and accounting estimates in applying accounting policies (cont’d)

Impairment for bad and doubtful debts

The Group makes impairment for bad and doubtful debts, if any, based on an assessment of the recoverability

of trade and other receivables. Impairment is applied to trade and other receivables where events or changes

in circumstances indicate that the balances may not be collectible. The identifi cation of bad and doubtful

debts requires the use of judgement and estimates. Where the expected outcome is different from the original

estimate, such difference will impact the carrying value of trade and other receivables and doubtful debt

expenses in the year in which such estimate has been changed.

Allowance for inventories

A review is made periodically on inventories for excess inventories and decline in net realisable value below

cost and a provision will be made against the inventory balance for any such decline. These reviews require

management to estimate future demand for products. Possible changes in these estimates could result in

revisions to the valuation of inventories.

3 New accounting standards and interpretations

New accounting standards and interpretations effective during current fi nancial year

On 1 July 2009, the Group adopted the new or amended FRS and Interpretations to FRS (“INT FRS”) that are

mandatory for application from that date. This includes the following new and revised standards, which are relevant to

the Group:

FRS 1 (Revised 2008) Presentation of Financial Statements - Revised presentation

Amendments to FRS 1 (Revised 2008) Amendments Relating to Puttable Financial Instruments and Obligations Arising on Liquidation

FRS 23 (Revised) Borrowing Costs

Amendments to FRS 27 Amendments Relating to Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate

Amendments to FRS 32 Amendments Relating to Puttable Financial Instruments and Obligations Arising on Liquidation

Amendments to FRS 39 Amendments Relating to Reclassifi cation of Financial Assets

Amendments to FRS 101 Amendments Relating to Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate

Amendments to FRS 102 Amendments Relating to Vesting Conditions and Cancellation

Amendments to FRS 107 Amendments Relating to Reclassifi cation of Financial Assets

Amendments to FRS 107 Financial Instruments: Disclosures - Improving Disclosures about Financial Instruments

FRS 108 Operating Segments

Amendments to INT FRS 109 and FRS 39 Embedded Derivatives

INT FRS 113 Customer Loyalty Programmes

INT FRS 116 Hedges of a Net Investment in a Foreign Operation

Improvements to FRSs 2008



3 New accounting standards and interpretations (cont’d)

New accounting standards and interpretations effective during current fi nancial year (cont’d)

The adoption of these new/revised FRS and INT FRS did not result in substantial changes to the Group’s accounting

policies nor any signifi cant impact on these fi nancial statements except for the following:

FRS 1 (Revised 2008) Presentation of Financial Statements (effective from 1 January 2009)

The revised standard prohibits the presentation of items of income and expenses (that is, ‘non-owner changes in

equity’) in the statement of changes in equity. All non-owner changes in equity are shown in a performance statement,

but entities can choose whether to present one performance statement (the statement of comprehensive income) or

two statements (the income statement and statement of comprehensive income). The Group has chosen to adopt the

former alternative. Where comparative information is restated or reclassifi ed, a restated statement of fi nancial position

is required to be presented as at the beginning comparative period. Comparatives for 2009 have been restated to

conform to the requirements of the revised standard.

Amendment to FRS 107 Improving disclosures about fi nancial instruments (effective from 1 January 2009)

The amendment requires enhanced disclosures about fair value measurement and liquidity risk. In particular, the

amendment requires disclosure of fair value measurements by level of a fair value measurement hierarchy. The

adoption of the amendment results in additional disclosures but does not have an impact on the accounting policies

and measurement bases adopted by the Group.

New accounting standards and interpretations not yet adopted

At the date of authorisation of these fi nancial statements, the following FRS and INT FRS were issued but not yet

effective:

FRS 24 (revised) Related party disclosures

FRS 27 (amended 2009) Consolidated and separate fi nancial statements

FRS 103 (revised 2009) Business combinations

Amendments to FRS 39 Financial instruments: Recognition and measurement - Eligible hedged items

Amendments to INT FRS 109 Reassessment of embedded derivatives

Amendments to FRS 39 Financial instruments: Recognition and measurement - Embedded derivatives

INT FRS 115 Agreements for the Construction of Real Estate

INT FRS 117 Distributions of non-cash assets to owners

INT FRS 118 Transfer of assets from customers

INT FRS 119 Extinguishing fi nancial liabilities with equity instruments

Improvements to FRSs 2009

The directors do not anticipate that the adoption of other FRSs and INT FRSs in future periods will have a material

impact on the consolidated fi nancial statements of the Group.

4 Summary of signifi cant accounting policies

Basis of consolidation

The fi nancial statements of the Group include the fi nancial statements of the Company and its subsidiaries made up to

the end of the fi nancial year. Information on its subsidiaries is given in Note 7.

All inter-company balances and signifi cant inter-company transactions and resulting unrealised profi ts or losses are

eliminated on consolidation and the consolidated fi nancial statements refl ect external transactions and balances

only. The results of subsidiaries acquired or disposed off during the fi nancial year are included or excluded from the

consolidated statement of comprehensive income from the effective date in which control is transferred to the Group or

in which control ceases, respectively.



4 Summary of signifi cant accounting policies (cont’d)

Basis of consolidation (cont’d)

Acquisitions of subsidiaries are accounted for using the purchase method. The cost of an acquisition is measured as

the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange,

plus costs directly attributable to the acquisition. Identifi able assets acquired and liabilities and contingent liabilities

assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the

extent of any minority interest.

Any excess of the cost of the business combination over the Group’s interest in the net fair value of the identifi able

assets, liabilities and contingent liabilities represents goodwill. The goodwill is accounted for in accordance with the

accounting policy for goodwill stated below.

Any excess of the Group’s interest in the net fair value of the identifi able assets, liabilities and contingent liabilities over

the cost of business combination is recognised as income on the date of acquisition.

Where the accounting policies of a subsidiary do not conform with those of the Company, adjustments are made on

consolidation when the amounts involved are considered signifi cant to the Group.

Subsidiaries

For consolidation purposes, a subsidiary is an entity controlled by the Group. Control exists when the Group has the

power to govern the fi nancial and operating policies of an entity so as to obtain benefi ts from its activities. The existence

and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether

there is control.

Shares in subsidiaries are stated at cost less allowance for any impairment losses on an individual subsidiary basis.

The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is

measured as the fair value of the assets given, equity instruments issued or liabilities incurred or assumed at the date

of exchange, plus costs directly attributable to the acquisition. Identifi able assets acquired and liabilities assumed in a

business combination are measured initially at their fair values on the date of acquisition, irrespective of the extent of

minority interest.

Property, plant and equipment and depreciation

Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses, if any.

Depreciation is computed utilising the straight-line method to write off the cost of these assets over their estimated

useful lives as follows:

Buildings on leasehold land 20 years

Plant and machinery 10 years

Motor vehicles 5 years

Offi ce equipment 3 - 10 years

No depreciation is provided on construction work-in-progress. Depreciation will commence when the asset is

completed.

The residual values, depreciation methods and useful lives of property, plant and equipment are reviewed and adjusted

as appropriate at the reporting date.

The cost of property, plant and equipment includes expenditure that is directly attributable to the acquisition of the

items. Dismantlement, removal or restoration costs are included as part of the cost of property, plant and equipment if

the obligation for dismantlement, removal or restoration is incurred as a consequence of acquiring or using the asset.

Subsequent expenditure relating to property, plant and equipment that have been recognised is added to the carrying

amount of the asset when it is probable that future economic benefi ts, in excess of the standard of performance

of the asset before the expenditure was made, will fl ow to the Group and the cost can be reliably measured. Other

subsequent expenditure is recognised as an expenses during the fi nancial year in which is incurred.




Property, plant and equipment and depreciation (cont’d)

For acquisitions and disposals during the fi nancial year, depreciation is provided from the month of acquisition and to

the month before disposal respectively. Fully depreciated property, plant and equipment are retained in the books of

accounts until they are no longer in use.

Lease prepayments

The land use rights are stated at cost less accumulated amortisation and any impairment losses. Amortisation is

calculated on a straight-line basis to write off the cost of the lease prepayment (land use rights) over the period for

which the rights have been granted.

Financial assets

Financial assets can be divided into the following categories: fi nancial assets at fair value through profi t or loss, held-to-

maturity investments, loans and receivables and available-for-sale fi nancial assets. Financial assets are assigned to the

different categories by management on initial recognition, depending on the purpose for which the investments were

acquired. The designation of fi nancial assets is re-evaluated and classifi cation may be changed at the reporting date

with the exception that the designation of fi nancial assets at fair value through profi t or loss is not reversible.

All fi nancial assets are recognised on their trade date - the date on which the Company and the Group commit to

purchase or sell the asset. Financial assets are initially recognised at fair value, plus directly attributable transaction

costs except for fi nancial assets at fair value through profi t or loss, which are recognised at fair value.

Derecognition of fi nancial instruments occurs when the rights to receive cash fl ows from the investments expire or

are transferred and substantially all of the risks and rewards of ownership have been transferred. An assessment for

impairment is undertaken at least at each balance sheet date whether or not there is objective evidence that a fi nancial

asset or a group of fi nancial assets is impaired.

Non-compounding interest and other cash fl ows resulting from holding fi nancial assets are recognised in profi t or loss

when received, regardless of how the related carrying amount of fi nancial assets is measured.

The Group does not hold any fi nancial assets at fair value through profi t or loss, held-to-maturity investments or

available-for-sale fi nancial assets.

Loans and receivables

Loans and receivables are non-derivative fi nancial assets with fi xed or determinable payments that are not quoted in an

active market. They arise when the Company provides money, goods or services directly to a debtor with no intention

of trading the receivables. They are included in current assets, except for maturities greater than 12 months after the

reporting date which are classifi ed as non-current assets.

Loans and receivables are subsequently measured at amortised cost using the effective interest method, less

impairment losses, if any. Any change in their value is recognised in profi t or loss. Any reversal shall not result in a

carrying amount that exceeds what the amortised cost would have been had any impairment loss not been recognised

at the date the impairment is reversed. Any reversal is recognised in profi t or loss.

Receivables are provided against when there is objective evidence that the Group will not be able to collect all amounts

due to it in accordance with the original terms of the receivables. The amount of the write-down is determined as the

difference between the asset’s carrying amount and the present value of estimated future cash fl ows.

Loans and receivables are included in trade and other receivables in the statement of fi nancial position.




Inventories

Inventories are carried at the lower of cost and net realisable value. Cost is determined on a weighted-average basis

and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to

their present location and condition. In the case of manufactured inventories and work-in-progress, cost includes an

appropriate share of production overheads based on normal operating capacity. Net realisable value is the estimated

selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

Allowance is made, where necessary, for obsolete, slow-moving and defective inventories in arriving at the net realisable

value.

Impairment of non-fi nancial assets

The carrying amounts of non-fi nancial assets, other than inventories, are reviewed at each reporting date to determine

whether there is any indication of impairment. If any such indication exists, the assets’ recoverable amounts are

estimated.

If it is not possible to estimate the recoverable amount of the individual asset, then the recoverable amount of the cash-

generating unit to which the assets belong will be identifi ed.

For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately

identifi able cash fl ows (cash-generating units). As a result, some assets are tested individually for impairment and some

are tested at cash-generating unit level.

Individual assets or cash-generating units that include goodwill and other intangible assets with an indefi nite useful

life or those not yet available for use are tested for impairment at least annually or more often if there are indicators of

impairment. All other individual assets or cash-generating units are tested for impairment whenever events or changes

in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognised for the amount by which the asset’s or cash-generating unit’s carrying amount

exceeds its recoverable amount. The recoverable amount is the higher of fair value, refl ecting market conditions less

costs to sell, and value in use, based on an internal discounted cash fl ow evaluation. Impairment losses recognised

for cash-generating units, to which goodwill has been allocated, are credited initially to the carrying amount of goodwill.

Any remaining impairment loss is charged pro rata to the other assets in the cash-generating unit.

Any impairment loss is charged to profi t or loss unless it reverses a previous revaluation in which case it is charged to

equity.

With the exception of goodwill,

• An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable

amount or when there is an indication that the impairment loss recognised for the asset no longer exists or

decreases.

• An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying

amount that would have been determined if no impairment loss had been recognised.

• A reversal of an impairment loss on a revalued asset is credited directly to equity under the heading revaluation

surplus. However, to the extent that an impairment loss on the same revalued asset was previously recognised

in profi t or loss, a decrease in that impairment loss is reversed through profi t or loss.

An impairment loss in respect of goodwill is not reversed, even if it relates to an impairment loss recognised in an

interim period that would have been reduced or avoided had the impairment assessment been made at a subsequent

reporting date.




Cash and cash equivalents

Cash and cash equivalents comprise cash and bank balances.

For the purpose of the statement of cash fl ows, cash and cash equivalents are presented net of bank overdrafts which

are repayable on demand and which form an integral part of cash management.

Share capital

Ordinary shares are classifi ed as equity. Incremental costs directly attributable to the issuance of new ordinary shares

are deducted against the share capital account.

Statutory reserves

Statutory common reserve

Subsidiaries incorporated in the People’s Republic of China (“PRC”) are required to transfer between 5% and 10% of

its profi t after taxation to statutory common reserve until the common reserve balance reaches 50% of the registered

capital. The transfer to this reserve must be made before the distribution of dividends to shareholders. Statutory

common reserve can only be used to set off against accumulated losses or to increase the registered capital of the

company, subject to approval from the PRC authorities.

Statutory common welfare fund

Subsidiaries incorporated in the PRC appropriate 5% of its profi t after taxation to the statutory common welfare fund

each year. This fund is available to fund payments of special bonuses to staff and for collective welfare benefi ts.

For the purpose of calculating the transfer to these reserve, the profi t after taxation shall be the amount determined

under the PRC accounting standards. All the statutory reserves mentioned above are not available for dividend

appropriation to the shareholders.

Dividends

Final dividends proposed by the directors are not accounted for in shareholders’ equity as an appropriation of retained

profi t, until they have been approved by the shareholders in a general meeting. When these dividends have been

approved by the shareholders and declared, they are recognised as a liability.

Interim dividends are simultaneously proposed and declared, because of the articles of association of the Company

grant the directors the authority to declare interim dividends. Consequently, interim dividends are recognised directly as

a liability when they are proposed and declared.

Income taxes

Current taxation is provided at the current taxation rate based on the tax payable on the income for the fi nancial

year that is chargeable to tax. Deferred taxation is provided at the current taxation rate on all temporary differences

existing at the reporting date between the tax bases of assets and liabilities and their carrying amounts in the fi nancial

statements.

Deferred tax liabilities are recognised for all taxable temporary differences (unless the deferred tax liability arises from

goodwill or the initial recognition of an asset or liability in a transaction that is not a business combination and at the

time of the transaction, affects neither the accounting profi t nor taxable profi t or loss).

Deferred income tax is provided on all temporary differences arising on investments in subsidiaries, except where the

timing of the reversal of the temporary differences can be controlled and it is probable that the temporary difference will

not reverse in the foreseeable future.




Income taxes (cont’d)

Deferred tax assets are recognised for all deductible temporary differences to the extent that it is probable that future

taxable profi t will be available against which the deductible temporary differences can be utilised (unless the deferred

tax asset arises from goodwill or the initial recognition of an asset or liability in a transaction that is not a business

combination and, at the time of the transaction, affects neither the accounting profi t nor taxable profi t or loss).

The statutory tax rates enacted or substantively enacted at the reporting date are used to determine deferred income

tax.

Financial liabilities

The Group’s fi nancial liabilities include trade and other payables, notes payable, bank loans and amounts due to related

parties.

Financial liabilities are recognised when the Company and the Group become a party to the contractual agreements of

the instrument. All interest-related charges are recognised as an expense in “fi nance cost” in profi t or loss. Financial

liabilities are derecognised if the Group’s obligations specifi ed in the contract expire or are discharged or cancelled.

Borrowings are recognised initially at fair value of proceeds received less attributable transaction costs, if any.

Borrowings are subsequently stated at amortised cost which is the initial fair value less any principal repayments. Any

difference between the proceeds (net of transaction costs) and the redemption value is taken to profi t or loss over the

period of the borrowings using the effective interest method. The interest expense is chargeable on the amortised cost

over the period of borrowing using the effective interest method.

Gains and losses are recognised in profi t or loss when the liabilities are derecognised as well as through the

amortisation process.

Borrowings which are due to be settled within 12 months after the reporting date are included in current borrowings

in the statement of fi nancial position even though the original terms were for a period longer than twelve months and

an agreement to refi nance, or to reschedule payments, on a long-term basis is completed after the reporting date.

Borrowings to be settled within the Group’s normal operating cycle are considered as current. Other borrowings due

to be settled more than 12 months after the reporting date are included in non-current borrowings in the statement of

fi nancial position.

Trade payables are initially measured at fair value, and subsequently measured at amortised cost, using the effective

interest method.

Financial guarantee contracts entered into to guarantee the indebtedness of other group entities are initially recognised

at their fair value plus transaction costs.

Financial guarantee contracts are subsequently amortised to profi t or loss over the period of the group entities’

borrowings, unless the Company has incurred an obligation to reimburse the bank for an amount higher than the

unamortised amount. In that case, the fi nancial guarantee contracts shall be carried at the expected amount payable to

the bank.

Leases

Finance leases

When assets are fi nanced by lease agreements that give rights approximating to ownership, the assets are capitalised

as if they had been purchased outright at values equivalent to the lower of the fair values of the leased assets and

the present value of the total minimum lease payments during the periods of the leases. The corresponding lease

commitments are included under liabilities. The excess of the lease payments over the recorded lease obligations is

treated as fi nance charges which are amortised over each lease term to give a constant effective rate of charge on the

remaining balance of the obligation.

The leased assets are depreciated on a straight-line basis over their estimated useful lives as detailed in the accounting

policy on “property, plant and equipment”.




Leases (cont’d)

Operating leases

Leases of assets in which a signifi cant portion of the risks and rewards of ownership are retained by the lessor are

classifi ed as operating leases.

Rentals on operating leases are recognised in profi t or loss on a straight-line basis over the lease term. Lease

incentives, if any, are recognised as an integral part of the net consideration agreed for the use of the leased asset.

Penalty payments on early termination, if any, are recognised in the profi t or loss when incurred.

The land use rights held by the Group are regarded as operating leases. The amounts paid for these rights are treated

as lease prepayments and are amortised over the period for which the rights have been granted in accordance with the

land use rights certifi cate.

Provisions

Provisions are recognised when there is a present obligation (legal or constructive) as a result of a past event, it is

probable that an outfl ow of resources embodying economic benefi ts will be required to settle the obligation and a

reliable estimate can be made of the amount of the obligation. Present obligations arising from onerous contracts

are recognised as provisions. The directors review the provisions annually and where in their opinion, the provision is

inadequate or excessive, due adjustment is made.

Financial instruments

Financial instruments carried on the statement of fi nancial position include cash and cash equivalents, fi nancial assets

and fi nancial liabilities. The particular recognition methods adopted are disclosed in the individual policy statements

associated with each item. These instruments are recognised when contracted for. Disclosures on fi nancial risk

management objectives and policies are provided in Note 25.

Revenue recognition

Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns

and allowances, goods and services taxes or other sales taxes, trade discounts and volume rebates. Revenue is

recognised when the signifi cant risks and rewards of ownership have been transferred to the buyer, recovery of the

consideration is probable, the associated costs and possible return of goods can be estimated reliably, and there is no

continuing management involvement with the goods.

Revenue from the sale of goods is recognised upon delivery of goods and acceptance by customers.

Income-related grants are credited to the income statement over the periods necessary to match them with the related

expenditure.

Interest income is recognised on a time proportion basis using the effective interest method.

Dividend income is recognised when the right to receive the dividend is established.

Functional currency

Items included in the fi nancial statements of each entity in the Group are measured using the currency that best

refl ects the economic substance of the underlying events and circumstances relevant to that entity (“the functional

currency”). The consolidated fi nancial statements of the Group and the statement of fi nancial position of the Company

are presented in RMB to the nearest thousand, which is also the functional currency of the Company.




Foreign currency translation

Monetary items

Transactions in foreign currencies are translated to the respective functional currencies of Group entities at the exchange

rate at the date of the transaction. Foreign currency monetary items are retranslated to the functional currency at rates

of exchange closely approximating those ruling at reporting date. Foreign currency differences arising on retranslation

are recognised in income or loss.

Non-monetary items

Non-monetary items that are measured at fair values in foreign currencies are translated using the exchange rates at

the date when the fair values are determined. Currency translation differences on non-monetary items, whereby the

gains or losses are recognised in the profi t or loss, such as equity investments held at fair value through profi t or loss or

investment properties carried at fair value, are reported as part of the fair value gains or losses.

Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Employee benefi ts

Defi ned contribution plans

The Group entities make contributions to state-managed retirement benefi t schemes, such as the social security plans

in the PRC and Central Provident Fund in Singapore, which are dealt with as contributions to defi ned contribution

plans.

The Group entities are required to contribute a certain percentage of their employees’ payroll costs to the state-

managed retirement benefi t scheme operated by the local governments.

The local governments undertake to assume the retirement benefi t obligations of all existing and future retired

employees of these Group entities. These Group entities have no further payment obligations once the contributions

have been paid.

Employee leave entitlements

Employee entitlements to annual leave are recognised when they accrue to employees. Accrual is made for the

unconsumed leave as a result of services rendered by employees up to the reporting date.

Key management personnel

Key management personnel are those persons having the authority and responsibility for planning, directing and

controlling the activities of the entity. Directors and certain key executive offi cers are considered key management

personnel.

Government grants

Government grants are recognised in the balance sheet initially as deferred income when there is reasonable assurance

that they will be received and that the Group will comply with the conditions attaching to them. Grants that compensate

the Group for expenses incurred are recognised as revenue in the income statement on a systematic basis in the same

periods in which the expenses are incurred. Grants that compensate the Group for the cost of an asset are recognized

in the income statement as revenue on a systematic basis over the useful life of the asset.

Related parties

For the purposes of these fi nancial statements, parties are considered to be related to the Group if the Group has

the ability, directly or indirectly, to control the party or exercise signifi cant infl uence over the party in making fi nancial

and operating decisions, or vice versa, or where the Group and the party are subject to common control or common

signifi cant infl uence. Related parties may be individuals or other entities.



5 Property, plant and equipment

Buildingson leasehold

landPlant and machinery

Motor vehicles

Offi ce equipment

Constructionwork-in-progress Total

The Group RMB RMB RMB RMB RMB RMB

Cost

At 1 July 2008 41,580,606 6,564,345 1,340,950 1,378,331 5,000,000 55,864,232

Additions – 283,061 – 706,148 – 989,209

At 30 June 2009 41,580,606 6,847,406 1,340,950 2,084,479 5,000,000 56,853,441

Additions – 33,839,746 101,152 45,523 5,000,000 38,986,421

At 30 June 2010 41,580,606 40,687,152 1,442,102 2,130,002 10,000,000 95,839,862

Accumulated depreciation

At 1 July 2008 9,014,242 2,287,567 850,501 442,040 – 12,594,350

Depreciation for the year 1,896,076 587,169 212,739 254,844 – 2,950,828

At 30 June 2009 10,910,318 2,874,736 1,063,240 696,884 – 15,545,178

Depreciation for the year 1,896,076 1,838,183 121,486 336,238 – 4,191,983

At 30 June 2010 12,806,394 4,712,919 1,184,726 1,033,122 – 19,737,161

Net book value

At 30 June 2010 28,774,212 35,974,232 257,376 1,096,880 10,000,000 76,102,701

At 30 June 2009 30,670,288 3,972,670 277,710 1,387,595 5,000,000 41,308,263

(a) Construction work-in-progress relates to a building with factory and warehouse facilities erected on an existing

parcel of land of Yirong Arts & Crafts Co., Ltd., a subsidiary. As at 30 June 2010, physical construction of the

building had been completed pending the receipt of the Certifi cate of Real Estate Ownership of the building

from the local authorities in due course.

(b) At 30 June 2009, buildings on leasehold land with net book value amounting to RMB24,108,752 were pledged

to fi nancial institutions to secure bank loans granted to a subsidiary. At 30 June 2010, none of property, plant

and equipment was pledged to secure any of the Group’s bank loans.

(c) Depreciation

2010 2009

The Group RMB RMB

Depreciation charged to:

Cost of sales (Note 19(a)) 2,898,728 1,630,276

Distribution expenses (Note 19(c)) 287,319 359,875

Administrative expenses (Note 19(d)) 1,005,936 960,677

4,191,983 2,950,828



6 Lease prepayments

The Group RMB

Cost

At 1 July 2008, 30 June 2009 and 30 June 2010 17,954,046

Accumulated amortisation

At 1 July 2008 1,408,739

Amortisation for the year (Note 19(d)) 359,081

At 30 June 2009 1,767,820

Amortisation for the year(Note 19(d)) 359,081

At 30 June 2010 2,126,901

Net book value

At 30 June 2010 15,827,145

At 30 June 2009 16,186,226

2010 2009

The Group RMB RMB

Presented as:

Current 359,081 359,081

Non-current 15,468,064 15,827,145

15,827,145 16,186,226

Land use rights relate to the following parcels of land :

Location TenureLand area

(sq m)

Huangbang Village, Dongxiao Town, Xinluo District,

Longyan City, Fujian Province, PRC

50 years (expiring on

9 December 2049)

55,788

Huangbang Village, Dongxiao Town, Xinluo District,

Longyan City, Fujian Province, PRC

50 years (expiring on

1 January 2057)

11,835

At 30 June 2009, land use rights were pledged to fi nancial institutions to secure bank loans granted to a subsidiary

(Note 16). At 30 June 2010, none of land use rights was pledged to secure any of the Group’s bank loans.



7 Subsidiaries

2010 2009

The Company RMB RMB

Unquoted equity investments, at cost 1,763,600 1,763,000

Details of the subsidiaries:

NameCountry of

incorporation

Effective equity held by the

GroupCost of

investmentPrincipal activities

2010 2009 RMB

%

Held by the company

Sunny Art International Co.

Limited (“Sunny Art”)#

Hong Kong 100 100 1,763,000 Investment

holding

Held by Sunny Art

Yirong Arts & Crafts Co., Ltd. # PRC 100 100 51,249,922 Design,

production

and sale of

handicrafts and

furnishings

Passion Art International

Co., Ltd. #

PRC 100 100 2,060,000 Dormant

# Audited by Foo Kon Tan Grant Thornton LLP for consolidation purposes.

8 Inventories, at cost

2010 2009

The Group RMB RMB

Raw materials 13,402,328 10,964,673

Work-in-progress 14,159,742 28,192,068

Finished goods 18,138,490 7,782,019

45,700,560 46,938,760

Cost of inventories charged to cost of sales 423,450,545 310,676,313



9 Trade and other receivables

The Group The Company2010 2009 2010 2009

RMB RMB RMB RMB

Trade receivables 185,936,324 101,671,163 – –

Other receivables

Rental deposit 2,000 2,000 – –

Renovation subsidy granted to a distributor# 15,097,222 25,750,000 – –

Prepaid advertising expenditure – 4,996,200 – –

Prepaid IPO expenses – 5,947,695 – 5,947,695

Sundry receivables 294,822 229,437 – –

Others 122,785 – 35,307 –

15,516,829 36,925,332 35,307 5,947,695

201,453,153 138,596,495 35,307 5,947,695

# Renovation subsidy granted to a distributor is amortised over the contractual term of the agreement with the distributor.

Trade and other receivables are denominated in the following currencies:

2010 2009 2010 2009

RMB RMB RMB RMB

Singapore dollars 35,307 5,947,695 35,307 5,947,695

Renminbi 59,075,906 59,202,351 – –

United States dollars 142,311,940 73,446,449 – –

201,453,153 138,596,495 35,307 5,947,695

Trade receivables are usually due within 3 months and are not interest bearing.

The aging analysis of trade receivables is as follows:

2010 2009

The Group RMB RMB

One month or less 70,901,477 44,493,745

More than one but less than two months 68,286,637 34,836,061

More than two but less than three months 46,748,210 22,341,357

185,936,324 101,671,163

Further disclosures on credit risk are provided in Note 25.4.

10 Amounts due from/to a subsidiary (non-trade)

The non-trade amounts comprising advances due from/to a subsidiary are unsecured, interest-free and repayable on

demand.



11 Cash and bank balances

The Group The Company 2010 2009 2010 2009

RMB RMB RMB RMB

Cash and bank balances in the consolidated

statement of fi nancial position 179,496,691 59,235,846 577,350 45,238

Bank balances pledged as security for notes

payable (Note 15) – (2,452,749) – –

Bank balances pledged as security for bank

loans (Note 16) – (9,025,000) – –

Cash and cash equivalents in the consolidated

statement of cash fl ows 179,496,691 47,758,097 577,350 45,238

As at 30 June 2010, the weighted average effective interest rate of cash and cash equivalents was 0.43% (2009:

0.75%).

Cash and cash equivalents are denominated in the following currencies:


RMB RMB RMB RMB

Singapore dollars 577,350 45,238 577,350 45,238

Renminbi 172,519,033 51,126,292 – –

United States dollars 6,400,308 8,064,316 – –

179,496,691 59,235,846 577,350 45,238

12 Share capital

The Company

2010 2009 2010 2009

Number of ordinary shares

Number of

ordinary shares RMB RMB

Issued and fully paid, with no par value

Balance at beginning 300,000,000 294,000 4,429,205 2,121,400

Issue of shares 90,000,000 6,000 92,008,443 2,665,605

Sub-division of shares – 299,700,000 – –

Effect of restructuring exercise – – – (357,800)

Balance at end 390,000,000 300,000,000 96,437,648 4,429,205

2009 The Company issued 6,000 new shares to Pre- initial public offering (“IPO”) investors for a consideration of S$560,000

(RMB2,665,600) pursuant to the share allotment agreement dated 9 January 2009.

Pursuant to an extraordinary general meeting held on 1 June 2009, the Company subdivided each of its 300,000

shares into 1,000 shares resulting in its issued share capital increasing to 300,000,000 shares.

2010 On 2 September 2009, the Company issued 90 million new shares at S$0.25 per share in connection with its

IPO. Incremental costs directly attributable to the issuance of new shares amounting to S$3,110,073 (equivalent

to RMB14,742,807) were deducted against the proceeds from the share issue of S$22.5 million (equivalent to

RMB106,751,250) to arrive at a net increase in share capital of S$19,389,927 (equivalent to RMB92,008,443).



13 Statutory reserves

The Group 2010 2009

RMB RMB

Statutory common reserve

- Balance at beginning 25,624,961 16,296,782

- Movement during the year 22,333,520 9,328,179

- Balance at end (i) 47,958,481 25,624,961

Statutory common welfare fund

- Balance at beginning 13,543,722 8,148,391

- Movement during the year 11,166,760 5,395,331

- Balance at end (ii) 24,710,482 13,543,722

(i) + (ii) 72,668,963 39,168,683

14 Trade and other payables


RMB RMB RMB RMB

Trade payables 42,573,506 36,805,704 – –

Accrued employee benefi ts 3,036,645 2,262,710 – 54,991

Advertising expenses payable – 2,885,417 – –

Deposits from customers – 40,603 – –

Accrued interest expense – 292,666 – –

Accruals 2,120,390 1,123,036 1,629,129 1,079,698

Export insurance payable 54,763 227,211 – –

Custom duties payable 306,208 212,642 – –

Utilities payable 893,261 811,542 – –

Retention sums for capital expenditure 3,148,000 – – –

Sundry payables 1,249,176 581,669 491,261 581,669

53,381,949 45,243,200 2,120,390 1,716,358

Trade and other payables are denominated in the following currencies:

The Group The Company2010 2009 2010 2009

RMB RMB RMB RMB

Singapore dollars 2,120,390 1,716,358 2,120,390 1,716,358

Renminbi 51,206,796 43,259,028 – –

United States dollars 54,763 267,814 – –

53,381,949 45,243,200 2,120,390 1,716,358



15 Notes payable

2010 2009

The Group RMB RMB

Notes payable – 3,070,000

At 30 June 2009, the notes payable were denominated in RMB, repayable within six months from the balance sheet

date and secured on bank balances amounting to RMB2,452,749 (Note 11).

16 Bank borrowings

2010 2009

The Group RMB RMB

Bank loans: 33,932,769 44,615,000

At the reporting date, the weighted average interest rate of the bank loans was 2.31% (2009: 7.64%).

Bank borrowings are denominated in the following currencies:

2010 2009

RMB RMB

Renminbi – 35,800,000

Hong Kong dollars – 8,815,000

United States dollars 33,932,769 –

33,932,769 44,615,000

Details of securities pledged by loan principal are as follows:

2010 2009

The Group RMB RMB

Securities pledged:

Buildings and land use rights – 29,000,000

Bank balances # – 8,815,000

Guarantee of a third party guarantor company – 2,350,000

Guarantees of a third parties – 4,450,000

Guarantee of a director who is also a shareholder 33,932,769 –

33,932,769 44,615,000

# Secured on bank balances amounting to RMB9,025,000 (Note 11).

At 30 June 2010, the loans are repayable within 12 months (2009: 12 months) from the reporting date.

17 Amount due to a director (non-trade)

The non-trade amount comprising advances due to a director is unsecured, interest-free and repayable on demand.



18 Revenue

The Group is principally engaged in the design, production and sale of handicrafts and furnishings. An analysis of the

Group’s revenue by product is as follows:

2010 2009

The Group RMB RMB

Wood series 35,553,976 34,029,264

Rattan-wood series 430,705,237 430,061,025

Iron series 16,835,334 13,882,797

Medium-density fi breboard series 194,911,605 41,386,874

Bamboo-wood series 24,293,316 22,659,740

702,299,468 542,019,700

19 Profi t before taxation

The Group

Profi t before taxation includes the following:

19(a) Cost of sales includes:

2010 2009

The Group RMB RMB

Depreciation of property, plant and equipment (Note 5) 2,898,728 1,630,276

Employee benefi t expenses 27,660,808 23,394,138

19(b) Other operating income

2010 2009

The Group RMB RMB

Sale of samples and scrap materials 147,027 485,449

Interest income – bank balances 772,719 591,053

Foreign exchange gain 248,692 –

Government incentives 1,470,749 557,990

2,639,187 1,634,492

19(c) Distribution expenses include:

2010 2009

The Group RMB RMB

Depreciation of property, plant and equipment (Note 5) 287,319 359,875




19(d) Administrative expenses include:

2010 2009

The Group RMB RMB

Depreciation of property, plant and equipment (Note 5) 1,005,936 960,677

Amortisation of land use rights (Note 6) 359,081 359,081

Directors’ remuneration 3,084,121 541,920


Exchange loss – 1,361,201

19(e) Finance costs

2010 2009

The Group RMB RMB

Interest on bank loans 2,614,095 4,321,089

Bank charges on notes payable – 246,526

2,614,095 4,567,615

19(f) Other operating expenses

2010 2009

The Group RMB RMB

Costs related to the initial public offering of shares 3,884,577 –

19(g) Employee benefi t expenses

2010 2009

The Group RMB RMB

Directors’ remuneration

- Salaries and related costs 2,555,444 251,077

- Fees 525,029 287,019

- Contributions to defi ned contribution plans 3,648 3,824

3,084,121 541,920

Key management personnel (other than directors)

- Salaries and related costs 1,635,730 1,028,790

- Contributions to defi ned contribution plans 54,627 34,270

Other than directors and key management personnel

- Salaries and related costs 30,049,744 26,198,988

- Contributions to defi ned contribution plans 1,381,316 1,507,907

36,205,538 29,311,875



20 Taxation

2010 2009

The Group RMB RMB

Current taxation 32,448,194 15,516,788

Reconciliation of effective tax rate

Profi t before taxation 162,932,748 127,151,444

Tax at statutory rate of 25% (2009: 25%) 40,733,187 31,787,861

Tax exempt income (10,145,114) (17,282,475)

Tax effect of non-taxable income – (377,143)

Deferred tax assets on tax losses not recognised 1,860,121 1,388,545

32,448,194 15,516,788

In 2005, Yirong Arts & Crafts Co., Ltd. (“Yirong”), a subsidiary was granted exemption from Enterprise Income Tax

(“EIT”) in accordance with the “Income Tax Law of the PRC for enterprises with Foreign Investment and Foreign

Enterprises”. Yirong was entitled to full exemption from EIT for the period from 1 January 2005 to 31 December

2006 and a 50% reduction in EIT for the period from 1 January 2007 to 31 December 2009. Yirong is subject to the

prevailing statutory tax rate of 25% from 1 January 2010.

The Group has not recognised a deferred tax asset in respect of the tax losses related to the Company and certain

subsidiaries because it is not reasonably certain that these tax losses will be allowed by the relevant tax authorities in

the future.

21 Earnings per share

The basic and diluted earnings/(loss) per share is calculated by dividing the net profi t attributable to equity holders of

the Company by the weighted average number of ordinary shares in issue during the fi nancial year.

2010 2009The Group RMB RMB

Net profi t attributable to equity holders of the Company 130,484,554 111,634,656

Weighted average number of ordinary shares in issue for basic earnings per share 374,465,753 300,000,000

Basic and diluted earnings per share (cents): 34.85 37.21

The Company did not have any stock options or dilutive potential ordinary shares at 30 June 2009 and 2010.



22 Signifi cant related party transactions

Other than disclosed elsewhere in the fi nancial statements, there were signifi cant related party transactions which were

carried out in the normal course of business on terms agreed between the parties during the fi nancial year as follows:


RMB RMB RMB RMB

With subsidiary:

Advances to a subsidiary – – 26,527,050 –

Advances from a subsidiary – – 9,507,032 –

Between subsidiaries:

Advances to a fellow subsidiary 7,760,085 46,731,156 – –

Advances from a fellow subsidiary 7,760,085 46,731,156 – –

23 Commitments

23.1 Capital commitments

Capital commitments not provided for in the fi nancial statements are as follows:


Construction of factory and warehouse facilities 1,655,050 2,555,050

23.2 Operating lease commitments

The future minimum lease payments payable under non-cancellable operating leases are as followings:


Not later than one year 32,400 16,000

Later than one year but not later than fi ve years 24,300 –

Later than fi ve years – –

56,700 16,000

The operating leases related to warehouse facilities expire between February 2011 and March 2016 with an option to

renewal upon maturity. The current rent payments on the leases ranging from RMB250 to RMB1,200 per month are

subject to revision on renewal.



24 Operating segments

The Group

For management purposes, the Group is organised as one business unit with a single reportable operating segment.

The Group is in the business of design, manufacture and sale of handicrafts and furnishings.

Geographical information

The turnover by geographical segments is based on the location of customers. The Group’s products are mainly

exported to markets overseas. The following table presents revenue information regarding geographical segments:

2010 2009

RMB RMB

PRC 132,549,964 86,393,590

Other Asian countries 147,481,181 89,031,042

Europe 292,661,641 254,659,998

America 89,130,833 88,317,195

Other countries 40,475,849 23,617,875

702,299,468 542,019,700

No information on assets and liabilities is presented on the basis of geographical segments as they cannot be allocated

based on the geographical location of business on a reasonable basis. The assets are deployed and the liabilities are

utilised to manufacture goods in China for sales to all geographical locations.

25 Financial risk management

The Company and the Group are exposed to fi nancial risks arising from its operations and the use of fi nancial

instruments. The key fi nancial risks include market price risk, foreign currency risk, interest rate risk, credit risk and

liquidity risk. The Company and the Group focus on the unpredictability of fi nancial markets and seeks to minimise

adverse effects from the unpredictability of fi nancial markets on the Company’s and the Group’s fi nancial performance.

25.1 Market risk

The Company and the Group do not hold any quoted or marketable fi nancial instruments and hence, is not exposed to

any movement in market price.

25.2 Foreign currency risk

Foreign currency risk is the risk that the value of a fi nancial instrument will fl uctuate due to changes in foreign exchange

rates. Currency risk arises when transactions are denominated in foreign currencies.

The Group has transactional currency exposures arising from sales or purchases that are denominated in a currency

other than the functional currencies of the respective group entities, primarily the Singapore dollar (SGD), Hong Kong

dollar (“HKD”) and United States dollar (USD).

The Group does not enter into currency options and does not use forward exchange contracts to protect against

volatility associated with foreign currency sales and purchases.



25 Financial risk management (cont’d)

25.2 Foreign currency risk (cont’d)

The Group’s and the Company’s exposure to foreign currencies at the reporting date is as follows:

The Group

SGD HKD USD

At 30 June 2010Financial assetsCash and bank balances 577,350 – 6,400,308Trade and other receivables 35,307 – 142,311,940

612,657 – 148,712,248Financial liabilitiesBank borrowings – – (33,932,769)Trade and other payables (2,120,390) – (54,763)

(2,120,390) – (33,987,532)

Currency exposure (1,507,733) – 114,724,716

At 30 June 2009Financial assetsCash and bank balances 45,238 – 8,064,316

Trade and other receivables 5,947,695 – 73,446,449

5,992,933 – 81,510,765

Financial liabilitiesBank borrowings – (8,815,000) –

Trade and other payables (1,716,358) – (267,814)

(1,716,358) (8,815,000) (267,814)

Currency exposure 4,276,575 (8,815,000) 81,242,951

The Company

SGD HKD USD

At 30 June 2010Financial assetsCash and bank balances 577,350 – –Trade and other receivables 35,307 – –

612,657 – –Financial liabilitiesTrade and other payables (2,120,390) – –

(2,120,390) – –

Currency exposure (1,507,733) – –

At 30 June 2009Financial assetsCash and bank balances 45,238 – –

Trade and other receivables 5,947,695 – –

5,992,933 – –

Financial liabilitiesTrade and other payables (1,716,358) – –

(1,716,358) – –

Currency exposure 4,276,575 – –




25.2 Foreign currency risk (cont’d)

Sensitivity analysis of foreign currency risk

A 5% strengthening of the foreign currencies against the RMB at the reporting date would increase/ (decrease) the

profi t net of tax and equity by the amounts shown below. The analysis assumes that all other variables, in particular

interest rates, remain constant. A 5% weakening of the foreign currencies against RMB at the reporting date would

have an equal but opposite effect on the profi t net of tax and equity.

The Group

2010 Increase/(Decrease)

2009

Increase/(Decrease)

Profi t after tax Equity Profi t after tax Equity

RMB RMB RMB RMB

SGD against RMB

- strengthened 5% (62,571) (62,571) 177,478 177,478

HKD against RMB

- strengthened 5% – – (365,823) (365,823)

USD against RMB

- strengthened 5% 4,302,177 5,736,236 3,046,611 3,046,611

The Company


2009

Increase/(Decrease)


RMB RMB RMB RMB

SGD against RMB

- strengthened 5% (62,571) (62,571) 177,478 177,478

25.3 Interest rate risk Interest rate risk is the risk that the fair value or future cash fl ows of the Company’s and the Group’s fi nancial

instruments will fl uctuate because of changes in market interest rates.

The Group’s exposure to interest rate risk arises primarily from its bank loans. The Group does not use hedging

instruments such as interest rate swaps to minimise its exposure to interest rate volatility.

The Group’s interest-bearing borrowings at the reporting date are as follows:

2010 2009

RMB RMB

Bank loans:

- fi xed rate 33,932,769 26,350,000

- variable rate – 18,265,000

Notes payable - fi xed rate – 3,070,000

33,932,769 47,685,000




25.3 Interest rate risk (cont’d)

Sensitivity analysis of interest rate risk

For bank loans at variable rates, an increase of 50 basis points in interest rate at the reporting date would increase/

(decrease) profi t net of tax and equity by the amount shown below. A decrease of 50 basis points in interest rate would

have an equal but opposite effect. This analysis assumes that all other variables, in particular foreign currency rates,

remain constant.

The Group


2009

Increase/(Decrease)


RMB RMB RMB RMB

Increase of 50 basis points in interest rate – – (79,909) (79,909)

25.4 Credit risk

Credit risk is the risk of fi nancial loss to the Group if a customer or counterparty to a fi nancial instruments fails to meet

its contractual obligations. The Group’s exposure to credit risk arises primarily from trade and other receivables.

Management has a credit control policy in place. Credit evaluations are performed on all customers requiring credit

over a certain amount. Transactions are conducted with customers with appropriate credit histories. The counterparty’s

payment profi le and credit exposure are continuously monitored by management. Credit terms are generally not more

than 90 days.

The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade

and other receivables. The main components of this allowance are a specifi c loss component that relates to individually

signifi cant exposures.

The allowance account in respect of trade and other receivables is used to record impairment losses unless the Group

is satisfi ed that no recovery of the amount owing is possible. At that point, the fi nancial asset is considered irrecoverable

and the amount charged to the allowance account is written off against the carrying amount of the impaired fi nancial

asset.

At the reporting date, no allowances for impairment have been considered necessary in respect of trade receivables not

past due and past due amounts which are considered recoverable based on the creditworthiness and past collection

history of the customers. The Group does not require collateral from its customers.

Cash is placed with reputable fi nancial institutions.




25.5 Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its fi nancial obligations as they fall due. Liquidity risk

may result from an inability to sell a fi nancial asset quickly at close to its fair value.

The Group’s exposure to liquidity risk arises primarily from mismatches of the maturities of fi nancial assets and liabilities.

The Group’s objective is to maintain a balance between continuity of funding and fl exibility through the use of stand-by

credit facilities.

The table below analyses the maturity profi le of the Company’s and the Group’s fi nancial liabilities based on contractual

undiscounted cash fl ows, including estimated interest payment:

Carrying amount Total

Less than 1 year

Between2 and 5 years

Over5 years

The Group RMB RMB RMB RMB RMB

At 30 June 2010

Trade and other payables 53,381,949 53,381,949 53,381,949 – –

Bank borrowings 33,932,769 34,050,009 34,050,009 – –

Income tax payable 12,190,006 12,190,006 12,190,006 – –

99,504,724 99,621,964 99,621,964 – –

At 30 June 2009


Bank loans 44,615,000 45,274,548 45,274,548 – –

Notes payable 3,070,000 3,070,000 3,070,000 – –

Amount due to a director

(non-trade) 10,724,971 10,724,971 10,724,971 – –

Income tax payable 2,029,890 2,029,890 2,029,890 – –

105,683,061 106,342,609 106,342,609 – –

Carrying amount Total

Less than 1 year

Between2 and 5 years

Over5 years

The Company RMB RMB RMB RMB RMB

At 30 June 2010


Amount due to a

subsidiary (non-trade) 5,656,842 5,656,842 5,656,842 – –

7,777,232 7,777,232 7,777,232 – –

At 30 June 2009


Amount due to a director

(non-trade) 2,999,512 2,999,512 2,999,512 – –

4,715,870 4,715,870 4,715,870 – –

The Group ensures that there are adequate funds to meet all its obligations in a timely and cost-effective manner. In

addition, the Group strives to maintain available banking facilities from fi nancial institutions to meet its working capital

requirements.



26 Fair Values

The notional amounts of fi nancial assets and liabilities with a maturity of less than one year approximate their fair values

because of the short period to maturity.

27 Dividends

2010 2009

The Group RMB RMB

Approved and paid during the fi nancial year:

2010: nil (2009 – 43.33 cents per share tax-exempt) – 130,000,000

28 Capital Management

The Group’s objectives when managing capital are:

(a) To safeguard the Group’s ability to continue as a going concern;

(b) To support the Group’s stability and growth; and

(c) To provide capital for the purpose of strengthening the Group’s risk management capability.

The Group actively and regularly reviews and manages its capital structure to ensure optimal capital structure and

shareholder returns, taking into consideration the future capital requirements of the Group and capital effi ciency,

prevailing and projected profi tability, projected operating cash fl ows, projected capital expenditures and projected

strategic investment opportunities. The Group currently does not adopt any formal dividend policy. The Company and

its subsidiaries are not subject to externally imposed capital requirements.

The Board of Directors monitors capital based on a gearing ratio. The gearing ratio is defi ned as net debt divided

by total capital. Net debt comprises bank loans, notes payables plus trade and other payables less cash and cash

equivalents.

Total capital comprises equity plus net debt.


Trade and other payables 53,381,949 45,243,200

Notes payable – 3,070,000

Bank loans 33,932,769 44,615,000

87,314,718 92,928,200

Less: cash and cash equivalents (179,496,691) (59,235,846)

Net debt (A) (92,181,973) 33,692,354

Total equity 419,075,526 196,582,529

Total capital (B) 326,893,553 230,274,883

Gearing ratio (A)/(B) NA# 15%

# Not applicable as the Group has a net cash position.

Statistics of shareholdingsas at 1 September 2010


Issued and fully paid-up capital : S$23,449,409.00

Total no. of issued shares : 390,000,000

Class of shares : Ordinary share

Voting rights : One vote per share

Distribution of Shareholdings

Size of Shareholdings No. of Shareholders % No. of Shares %

1 - 999 1 0.13 188 0.00

1,000 - 10,000 245 32.24 1,481,000 0.38

10,001 - 1,000,000 501 65.92 42,626,000 10.93

1,000,001 and above 13 1.71 345,892,812 88.69

TOTAL : 760 100.00 390,000,000 100.00

Twenty Largest Shareholders

SHAREHOLDER’S NAME NO. OF SHARES %

1 JOY RAINBOW INTERNATIONAL LIMITED 168,030,000 43.08

2 KING TAH INTERNATIONAL LIMITED 60,000,000 15.38

3 DBS NOMINEES PTE LTD 56,166,812 14.40

4 OCBC SECURITIES PRIVATE LTD 37,010,000 9.49

5 FRESH JOYANCE INTERNATIONAL LIMITED 5,200,000 1.33

6 PHILLIP SECURITIES PTE LTD 4,886,000 1.25

7 HSBC (SINGAPORE) NOMINEES PTE LTD 4,291,000 1.10

8 LIKE SKY INVESTMENTS LIMITED 2,780,000 0.71

9 TRONDHEIM CONSULTING PTE LTD 2,000,000 0.51

10 LIM CHWEE KIM 1,500,000 0.38

11 UOB KAY HIAN PTE LTD 1,472,000 0.38

12 LEE SAU LEUNG 1,300,000 0.33

13 ZHAO FANG 1,257,000 0.32

14 LIM CHYE HUAT @ BOBBY LIM CHYE HUAT 1,000,000 0.26

15 UNITED OVERSEAS BANK NOMINEES PTE LTD 924,000 0.24

16 TAN BUCK HOCK 810,000 0.21

17 LIM WEN GIN 800,000 0.21

18 NG TEE KHIANG 800,000 0.21

19 YONG HUA CHEW 800,000 0.21

20 DBS VICKERS SECURITIES (SINGAPORE) PTE LTD 700,000 0.18

Total 351,726,812 90.18


Statistics of shareholdingsas at 1 September 2010

SUBSTANTIAL SHAREHOLDERS

Substantial shareholders of the Company (as recorded in the Register of Substantial Shareholders) as at 1 September 2010

No. of Ordinary shares

Name Direct Interest % Indirect Interest %

Joy Rainbow International Limited 168,030,000 43.08 –

King Tah International Limited 60,000,000 15.38 –

Chen Huiling 1 168,030,000 43.08

Zhao Long 2 – 60,000,000 15.38

Note:

1. Ms Chen Huiling is deemed to have an interest in the 168,030,000 shares benefi cially held by Joy Rainbow International Limited by

virtue of her direct shareholding of 100% in Joy Rainbow International Limited.

2. Mr Zhao Long is deemed to have an interest in the 60,000,000 shares benefi cially held by King Tah International Limited by virtue of his

direct shareholding of 100% in King Tah International Limited.

FREE FLOAT

As at 1 September 2010, approximately 41.22% of the issued share capital of the Company was held in the hands of the

public (based on information available to the Company). Accordingly, the Company has complied with Rule 723 of the Listing

Manual of the Singapore Exchange Securities Trading Limited.

Notice of Annual General Meeting


NOTICE IS HEREBY GIVEN that the Annual General Meeting of Passion Holdings Limited (“the Company”) will be held at

Suntec Singapore International Convention & Exhibition Centre, Meeting Room 323, Level 3, 1 Raffl es Boulevard Singapore

039593, on Friday, 8th October 2010 at 3 p.m. for the following purposes:

AS ORDINARY BUSINESS

1. To receive and adopt the Directors’ Report and the Audited Financial Statements of the Company for the fi nancial year

ended 30 June 2010 together with the Auditors’ Report thereon. (Resolution 1)

2. To re-elect the following Directors retiring pursuant to Article 91 of the Company’s Articles of Association:

Mr Zhao Long (Resolution 2)

Mr Lim Jun Xiong, Steven [See Explanantory Note (i)] (Resolution 3)

3. To approve the payment of Directors’ fees of SGD 120,000 for the fi nancial year ended 30 June 2010. (Resolution 4)

4. To approve the payment of Directors’ fees of SGD 160,000 for the fi nancial year ending 30 June 2011 on quarterly

basis in arrears. (Resolution 5)

5. To re-appoint Fon Kon Tan Grant Thornton LLP as the Company’s Auditors and to authorise the Directors to fi x their

remuneration. (Resolution 6)

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

AS SPECIAL BUSINESS

To consider and if thought fi t, to pass the following resolution, with or without any modifi cations:

7. ORDINARY RESOLUTION: Authority to allot and issue shares

“That pursuant to Section 161 of the Companies Act, Cap. 50 and in accordance with Rule 806 of the Listing Manual

of the Singapore Exchange Securities Trading Limited, approval be and is hereby given to the Directors to issue:-

(a) shares in the Company (whether by way of bonus, rights or otherwise); or

(b) convertible securities; or

(c) additional convertible securities arising from adjustments made to the number of convertible securities previously

issued in the event of rights, bonus or capitalisation issues; or

(d) shares arising from the conversion of convertible securities,

at any time and upon such terms and conditions and for such purposes as the Directors may in their absolute

discretion deem fi t provided that :-

(i) the aggregate number of shares and convertible securities that may be issued shall not be more than 50% of

the total number of issued shares excluding treasury shares, in the capital of the Company or such other limit as

may be prescribed by the Singapore Exchange Securities Trading Limited (“SGX-ST”) as at the date the general

mandate is passed;

(ii) the aggregate number of shares and convertible securities to be issued other than on a pro-rata basis to existing

shareholders shall not be more than 20% of the total number of issued shares excluding treasury shares in the

capital of the Company or such other limit as may be prescribed by the SGX-ST as at the date the general

mandate is passed;


Notice of Annual General Meeting

(iii) for the purpose of determining the aggregate number of shares that may be issued under sub-paragraphs (i)

and (ii) above, the total number of issued shares excluding treasury shares shall be calculated based on the

total number of issued shares excluding treasury shares in the capital of the Company as at the date the general

mandate is passed after adjusting for new shares arising from the conversion or exercise of any convertible

securities or employee stock options in issue as at the date the general mandate is passed and any subsequent

bonus issue, consolidation or subdivision of the Company’s shares; and

(iv) unless earlier revoked or varied by the Company in general meeting, such authority shall continue in force until

the next Annual General Meeting or the date by which the next Annual General Meeting is required by law to be

held, whichever is earlier.”

[See Explanantory Note (ii)]

(Resolution 7)

By Order of the Board

Ng Poh Khoon

Company Secretary

Singapore, 22 September 2010

Explanatory Notes:

(i) Mr Lim Jun Xiong, Steven, upon election as a Director, remain as the Chairman of the Remuneration Committee and a member of Audit

Committee and Nominating Committee; and will be considered independent for the purpose of Rule 704 (8) of the Listing Manual of the

SGX-ST.

(ii) Ordinary Resolution 7 proposed in item 7 above, if passed, will authorise and empower the Directors of the Company from the date of

the above Meeting until the next Annual General Meeting to issue shares and/or convertible securities in the Company up to an amount

not exceeding in aggregate 50 percent of the total number of issued shares excluding treasury shares in the capital of the Company

of which the total number of shares and convertible securities issued other than on a pro-rata basis to existing shareholders shall

not exceed 20 percent of the total number of issued shares excluding treasury shares in the capital of the Company at the time the

resolution is passed, for such purposes as they consider would be in the interests of the Company. This authority will, unless revoked or

varied at a general meeting, expire at the next Annual General Meeting of the Company.

Notes :

1. A Member entitled to attend and vote at the Annual General Meeting (the “Meeting”) is entitled to appoint one/two proxy/proxies to

attend and vote in his/her stead. A proxy need not be a Member of the Company.

2. Where a member appoints more than one proxy, the appointments shall be invalid unless he/she specify the proportion of his/her

shareholding to be represented by each proxy.

3. A corporation which is a member of the Company may authorise by resolution of its directors or other governing body, such person as

it thinks fi t to act as its representative at the meeting.

4. The instrument appointing a proxy must be deposited at the registered offi ce of the Company at 8 Cross Street, #11-00, PWC Building,

Singapore 048424, not less than forty-eight (48) hours before the time appointed for holding the Meeting.

PASSION HOLDINGS LIMITED(Incorporated in the Republic of Singapore)

(Company Registration Number 200820355E)

PROXY FORMAnnual General Meeting(Please read notes overleaf before completing this form.)

I/We (Name)

of (Address)

being a member/members of Passion Holdings Limited. (the “Company”) hereby appoint:

Name NRIC/ Passport No. Proportion of Shareholdings

No. of Shares %

Address

and/or (delete as appropriate)

Name NRIC/ Passport No. Proportion of Shareholdings

No. of Shares %

Address

or failing him/her, the Chairman of the Meeting as my/our proxy/proxies to attend and vote for me/us on my/our behalf at the

Annual General Meeting (the “Meeting”) to be held at Suntec Singapore International Convention & Exhibition Centre, Meeting

Room 323, Level 3, 1 Raffl es Boulevard Singapore 039593, on 8 October 2010 at 3 p.m. and at any adjournment thereof.

I/We direct my/our proxy/proxies to vote for or against the Resolutions proposed at the Meeting as indicated hereunder. If

no specifi c direction as to voting is given or in the event of any other matter arising at the Meeting and at any adjournment

thereof, the proxy/proxies will vote or abstain from voting at his/her discretion. The authority herein includes the right to

demand or to join in demanding a poll and to vote on a poll.

(Please indicate your vote “For” or “Against” with a tick [ √ ] within the box provided.)

No. Ordinary Resolutions For Against

ORDINARY BUSINESS

1.To receive and adopt the Directors’ Report and Audited Financial Statement for the fi nancial

year ended 30 June 2010

2.To re-elect Mr Zhao Long, who is retiring under Article 91 of the Company’s Article of

Association

3.To re-election of Mr Lim Jun Xiong, Steven, who is retiring under Article 91 of the Company’s

Article of Association

4. To approve payment of Directors’ Fees for fi nancial year ended 30 June 2010

5.To approve payment of Directors’ Fees for fi nancial year ending 30 June 2011 on quarterly

basis in arrears.

6.To re-appoint Messrs Foo Kon Tan Grant Thornton LLP as Auditors of the Company and to

authorise the Directors to fi x their remuneration

SPECIAL BUSINESS

7. To authorise the Directors to allot and issue new shares

Dated this 2010.

Signature of Shareholder(s)

or Common Seal of Corporate Shareholder

*Delete where inapplicable

IMPORTANT: PLEASE READ NOTES ON THE REVERSE

IMPORTANT:

1. For investors who have used their CPF monies to buy shares of Passion Holdings Limited., this Annual Report is forwarded to them at the request of their CPF Approved Nominees and is sent for information only.

2. This Proxy Form is not valid for use by such CPF investors and shall be ineffective for all intents and purposes if used or purported to be used by them.

3. CPF investors who wish to attend the Meeting as an observer must submit their requests through their CPF Approved Nominees within the time frame specifi ed. If they also wish to vote, they must submit their voting instructions to the CPF Approved Nominees within the time frame specifi ed to enable them to vote on their behalf.

Total number of Shares in: No. of Shares

(a) CDP Register

(b) Register of Members

NOTES:

1. Please insert the total number of Shares held by you. If you have Shares entered against your name in the Depository Register (as

defi ned in Section 130A of the Companies Act, Chapter 50 of Singapore), you should insert that number of Shares. If you have Shares

registered in your name in the Register of Members, you should insert that number of Shares. If you have Shares entered against

your name in the Depository Register and Shares registered in your name in the Register of Members, you should insert the aggregate

number of Shares entered against your name in the Depository Register and registered in your name in the Register of Members. If no

number is inserted, the instrument appointing a proxy or proxies shall be deemed to relate to all the Shares held by you.

2. A member of the Company entitled to attend and vote at a meeting of the Company is entitled to appoint one or two proxies to attend

and vote in his/her stead. A proxy need not be a member of the Company.

3. Where a member appoints two proxies, the appointments shall be invalid unless he/she specifi es the proportion of his/her shareholding

(expressed as a percentage of the whole) to be represented by each proxy.

4. The instrument appointing a proxy or proxies must be deposited at the registered offi ce of the Company at 8 Cross Street, #11-00,

PWC Building, Singapore 048424, not less than 48 hours before the time appointed for the Meeting.

5. The instrument appointing a proxy or proxies must be under the hand of the appointor or of his attorney duly authorised in writing.

Where the instrument appointing a proxy or proxies is executed by a corporation, it must be executed either under its seal or under the

hand of an offi cer or attorney duly authorised. Where the instrument appointing a proxy or proxies is executed by an attorney on behalf

of the appointor, the letter or power of attorney or a duly certifi ed copy thereof must be lodged with the instrument.

6. A corporation which is a member may authorise by resolution of its directors or other governing body such person as it thinks fi t to act

as its representative at the Meeting, in accordance with Section 179 of the Companies Act, Chapter 50, of Singapore.

7. General: The Company shall be entitled to reject the instrument appointing a proxy or proxies if it is incomplete, improperly completed

or illegible or where the true intentions of the appointor are not ascertainable from the instructions of the appointor specifi ed in the

instrument appointing a proxy or proxies. In addition, in the case of Shares entered in the Depository Register, the Company may reject

any instrument appointing a proxy or proxies lodged if the member, being the appointor, is not shown to have Shares entered against

his name in the Depository Register as at 48 hours before the time appointed for holding the Meeting, as certifi ed by The Central

Depository (Pte) Limited to the Company.

Tel: (86) 597 5279 888Fax: (86) 597 5279 058

Web: www.passion-holdings.com

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