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ZAGRO annual report 2006 iii

Annual Report 2006

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iv ZAGRO annual report 2006

Australia

Bangladesh

Pakistan

China

Germany

India

Sri Lanka

Myanmar

Russia

Malaysia

Singapore

Indonesia

South Africa

Brazil

Philippines

Spain

Egypt

Our Business

Vietnam

Thailand

Our business is to help improve the quantity and quality of

food that comes to your family table. To achieve this goal,

we manufacture and distribute a wide range of nutrition

and protection products for animals and crops. We are also

increasingly sought after for our highly efcient and reliable

laboratory services in life sciences.

Zagros ofces/consultants presence

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ZAGRO annual report 2006 1

ChairmansStatement

08

InternationalBrands

11

Board of Directors& Key Management

14

Financial

Highlights06

Review ofOperations

09

Milestones

12

CorporateInformation

16CorporateGovernance

17Financial

Statements

22

Contents

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2 ZAGRO annual report 2006

CROP CAREHigher Yield, Superior Quality

Zagros comprehensive range of crop care products is used extensively by farm owners and agri-producers

in many parts of the world. We manufacture and distribute nutrition and protection products for growers

of cotton, oil palm, rice, wheat, tea, rubber, coffee, cocoa, fruits and vegetables. These products include

fertilizers, soil conditioners, fungicides, insecticides, herbicides and cover crop seeds.

Zagros crop care products play an integral role in the food supply chain, enhancing quality, improving

productivity and generating better yield of farm crops. The nutrition products provide essential nutrients

while the protection products protect and treat crops against pests, diseases, weeds and fungi throughout the

life cycle of farm produce, from seeding to harvesting.

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ANIMAL HEALTHProviding Quality, Promoting Safety

Zagros animal health products play a vital role in improving the quality of animal produce across the globe.

Our nutritional products like vitamins, growth promotants, hormones and probiotics provide essential nutrition

to livestock, poultry and aquatic animals like fowl layers, breeders, broilers, ducks, pigs, cattle, sheep,

shrimp, sh and even zoo animals and birds bred in diverse farm environments. Our protection products like

anticoccidials and antibiotics provide the necessary treatment and protection of these animals against disease

outbreaks which often result in extensive losses for farmers.

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PACIFIC LAB SERVICESLeading Laboratory Services Provider

Pacic Lab Services has been providing highly accurate and specialized tests and analyses by its team of

highly-trained laboratory specialists for a long 35 years. Besides playing a crucial part in providing quality

assurance for Zagros products, the services of Pacic Lab Services is highly sought after for ingredient

analyses of veterinary, pharmaceutical, Chinese traditional medicine, food and industrial chemicals. Its quick

turnaround time, consistent results and professionalism have gained the trust of not just local customers but

also multi-national companies.

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ECTOPARASITICIDE PRODUCTSEffective Disease Control for the Worlds Livestock

Neocidoland Steladone

, two of Zagros renowned and well-established brands, are popular for their effective

control of ectoparasites like mange mites, blowies, keds, lice and ticks. Besides improving the quality of dairy

produce, beef and mutton, they also signicantly improve the well-being of a large part of the worlds cattle

and sheep population which is estimated at 1.3 billion and 1 billion respectively.

Both Neocidoland Steladone

have a vast range of uses on swine, goats, horses, donkeys, mules, camels and

rabbits. They can be applied by ear-tagging, dipping, bathing and spraying. Common formulations of Neocidol

include Neocidol250 EC, Neocidol

600 EC, Neocidol

600 EW, Neocidol

B40 Ear-tags, Diacap

300 EC and

Neocidol40 WP. Steladone

is available as Steladone

300 EC.

Photo: Courtesy of eFeedLink Pte Ltd

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Financial Highlights


Summarised Profit and Loss Account (S$000)for the financial year ended 31 December

Summarised Balance Sheet (S$000)as at 31 December

Shareholders Valueas at 31 December

2002 2003 2004 2005 2006Net tangible assets

backing per share (cents) 16.28 16.27 14.05 14.94 16.05

Earnings per share - Basic

and Fully Diluted (cents) 0.32 0.88 1.51 1.25 1.68

Dividend and Bonus Share Trend:

2007 (proposed) Dividend 20% less tax2006 Dividend 20% less tax2005 Dividend 20% less tax

2004 Dividend 20% less tax 2003 Dividend 20% less tax 2002 Dividend 20% less tax 2001 Dividend 20% less tax 2000 Dividend 20% less tax 1999 Dividend 10% less tax 1998 Bonus 1 for 1 bonus issue

1998 Dividend 20% less tax 1997 Dividend 20% less tax

2002 2003 2004 2005 2006

Turnover 75,109 104,483 100,814 85,188 97,309

Earnings before interest,

taxation, depreciation

and amortisation 3,357 4,963 7,417 6,070 7,863

Profit before taxation 1,960 3,232 5,149 3,960 5,859

Profit attributable to

members of the Company 814 2,216 3,800 3,142 4,263

2002 2003 2004 2005 2006

Total assets 61,054 72,887 70,744 67,526 70,394Total liabilities 20,153 30,679 27,316 22,445 22,298Shareholders funds 40,901 42,208 43,428 45,081 48,096Cash and cash equivalents 12,076 8,885 3,946 4,153 10,240

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Turnover (S$000)

02 75,109

06 97,309

03 104,483

04 100,814

05 85,188

Earnings before interest, taxation, depreciation and amortisation (S$000)

02 3,357

06 7,863

03 4,963

04 7,417

05 6,070

Prot attributable to members of the company (S$000)

02 814

06 4,263

03 2,216

04 3,800

05 3,142

Earnings per share (cents)

02 0.32

06 1.68

03 0.88

04 1.51

05 1.25

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Dear Shareholders,

2006 marks an exciting watershed year for the Zagro Group as

the company builds on the momentum of its global expansion

phase. Since the brand acquisition of Neocidoland Steladone

from Novartis Animal Health Inc in 2004, we have been investing

time, effort and resources to put in place the necessary product

registrations in the respective target markets. The process hasbeen arduous and challenging but the results thus far have been

noteworthy.

The Group now owns more than 600 product registrations and

230 trademarks worldwide. We are able to sell and distribute

our products in more than 50 countries either directly through

our sales force or through appointed distributors in countries

ranging from Malaysia, Thailand, Philippines and Indonesia,

to Netherlands, Spain, Africas, CIS countries and the Americas.

Our regular customer base has expanded to exceed 3600 and

the impact on the bottom line has been signicant.

Net earnings for the Group surged by a creditable 37% from

$3.4 million to $4.6 million as revenue grew by 14% to$97.3 million, from $85.2 million last year. Strong demand

for crop care products and steady growth in the animal

care segment were key factors contributing to this better

performance. Overall gross margin also improved to 22% due

to better product mix and stronger-margin ectoparasiticides

and aquaculture products.

The Board of Directors is pleased to announce dividends of

1 cent per share, less tax; continuing its dividend payment track

record for the last 10 years.

The Groups cash position has also gained in strength. Net bank

surplus stood at $3.7 million. Our operations continued to churn

strong cash ow of $11.0 million, up from $6.8 million last year,

thereby boosting cash and cash equivalents at year-end to

$10.2 million.

Earnings per share climbed by 34% from 1.25 cents to 1.68 cents

while Return on Equity rose from 7.4% to 9.5%. Net asset value

per share has also increased from 17.55 cents to 18.36 cents.

The Groups balance sheet too continued to remain strong.

Liquidity remains at a comfortable level of 2.5 times while

interest cover is at an all-time high of 65.4 times. In line with

higher business volume, total expenses increased by 13% to

$16 million although this increase could have been lower at 6%

if not for foreign exchange differences.

Supported by these sound fundamentals, the Group is

now poised to embark on its next phase of growth. Going

forward, we seek to be among the global players in animal

health and crop care through the strengthening of our

product portfolio, widening of our distribution channels

and the expansion of our customer and revenue base.

The outlook for the Group is encouraging. We expect

demand for agri-related products to rise in line with the

growth of the world population. To tap into this buoyant

demand, we seek to expedite our planned expansion

through acquisitions of complementary and synergistic

businesses. These acquisitions are likely to be funded

largely by internal cash reserves.

We will continue to be guided by our objective of generating

strong long-term shareholder value by developing Zagro

as a world-class organization with all-round capabilities

and depth in manufacturing, product development and

intellectual property.

Finally, let me take this opportunity to express my

appreciation to our Board of Directors for their guidance

and unwavering support. Special mention and our

heartfelt thanks go to Mr Davinder Singh, who has elected

to retire in the forthcoming AGM due to his heavy work

commitment, for his insights and counsel rendered to Zagro

during the period of his tenure. I would also like to thank

our staff, customers, suppliers and business partners for

their contributions.

I am condent that we would be on track to achieving our

corporate vision and strategic business objectives if we

continue to deliver on our excellent execution, develop an

even stronger product mix and further unlock the potential

of our intellectual property.

Poh Beng Swee

Chairman and CEO

Zagro Asia Limited

Chairmans Statement

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Among Zagros key business segments, Crop Care, the mainstay of the Groupsoperations, remained the top revenue earner while preserving its marginsin this tightly-contested global business. We seek to develop this segmentfurther by identifying new business opportunities with a view to injectingnew revenue streams. On the animal health front, the diversication intoectoparasiticides and aquaculture is showing good progress. The introductionof these two stronger-margin product categories has given the animal healthsegment a shot in the arm, boosting signicantly the returns of this previously

lower-margin segment.

WIDENING OUR GLOBAL FOOTPRINT

Zagro extended its global footprint in 2006 through a landmark registrationfor Neocidol

in Spain and the Netherlands, paving the way for the Group to

penetrate into the lucrative yet tough European market.

The launch of Neocidolin Europe is an important milestone for the Group

as it opens up doors and business opportunities for Zagro to introduce andcross-sell other products into this territory. The stringent registrationrequirements in Europe combined with its leadership in research anddevelopment have made the region the de facto benchmark for the animalhealth industry. Acceptance in Europe facilitates the introduction of aproduct into other emerging markets.

As such, we are trying to tap the full potential of Neocidol, despite initial

regulatory problems. Being a premium brand product, in contrast to a genericone, also meant that the product yields stronger margins and commandssubstantial customer loyalty. Zagro is now proactively seeking new marketsand intensifying our marketing efforts to our customers and distributorsto realise the drugs potential. We expect the product to continue to be aperfomer with healthy contributions to our bottom line.

NEW PRODUCTS AND PARTNERSHIPSSeabait

An important coup for the Group last year was the acquisition of the exclusiveglobal distribution rights for Seabait

polychaete worms for the feeding of

broodstock shrimp and sh. The Group secured the rights to market theseRolls-Royce of worms from Seabait Limited, a University of Newcastleupon Tyne spin-off that specialises in the culture of marine worms.

Seabaitis an established and much-lauded product with health certications

from CEFAS UK Fisheries Department, University of Stirling and UK Veterinaryservices. This deal was an extension of Zagros existing relationship withSeabait

. Prior to this latest agreement, Zagro had been Seabait

s polychaete

worms distributor in South-east Asia for about a year after which the contractwas extended to the rest of the world.

The contract with Seabaitis signicant in that it allows Zagro to pursue its

long-term goal of creating a new growth engine for the hatchery business.It presents the Group with a valuable opportunity to build a whole productportfolio for the high-end shrimp hatchery business which is part of thefast-growing aquaculture business.

Review of Operations


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Strategic Collaboration

In December 2006, Zagro inked an agreement with Eden Research plc,a leading UK agrochemical development company to collaborate in researchand development work for the investigation and development of newinsecticidal, anti-bacterial and anti-fungal formulations. Under the agreement,

Eden will grant Zagro an exclusive licence for products that are tried and takento market in ten Asian countries, namely Malaysia, Philippines, Singapore,Indonesia, Vietnam, Sri Lanka, Bangladesh, Myanmar, Thailand and Laos.

Both Zagro and Eden will work towards developing formulations for use in thetreatment of animal and plant pathogens of particular relevance to the Asianand tropical markets.

VALUE CREATION

The Group is a rm believer in the value of a strong research and developmentheritage. Product development staff now accounts for 15% of total staffstrength. We are also steadily building our arsenal of intellectual property.To date, Zagro owns 400 crop care and 200 animal health product registrationsas well as 230 trademarks and rights to three global trademarks. The Group

lays claim to 80 toxicological studies and 200 free trial reports, and hasmanufacturing know-how of 35 crop care and 90 animal health products.

We will increasingly engage in licensing activities to develop these intosubstantial revenue streams for the company. Following the out-licensingagreement with Schering Plough Pty Ltd, Australia, Zagro went on tosuccessfully secure an in-licensing contract with crop care global leaderSyngenta AG, for a key premium crop care product, Basudin

. We expect to

create more value through this route.

GLOBAL BRANDING CAMPAIGN

Zagros branding campaign continued to gather pace with Zagrosparticipation in international trade shows and exhibitions such as VIV Europe2006 in Holland, Aquamar International in Mexico, Indo Livestock 2006 inIndonesia and Vietstock 2006 in Vietnam. The Groups extensive marketingblitz includes regular advertisements in key industry publications, productlaunches, sponsorships (UK/Singapore Workshop on Sustainable Aquaculture)as well as promotional activities like seminars and sales campaigns.

These initiatives collectively serve to position the Zagro brand and its keyproducts more prominently and more consistently in the global market placeand form part of our infrastructure into building a world-class corporation.

Review of Operations

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International Brands

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Milestones

Started out as Zuellig AgriHealthcare, a departmentoperating under Swiss-based pharmaceuticaland agricultural giant Zuellig Group.

Acquisition of 20% interest inZuellig Chemicals Sdn Bhd.

Acquisition of Agsin PteLtd and Zuellig AgrochemCorporation (Philippines).

Major corporate restructure.Various Zuellig agri businessesin Asia were grouped togetheras The Zagro Group.

Listing of Zagro onSESDAQ under the StockExchange of Singapore.

Acquisition of premix manufacturingplant from Gold Coin Group, renamedas Zagro Asia (Tianjin) Co Ltd.

Acquisition of agro distribution andformulation plant in Pakistan, renamed

as Zagro NPC (Private) Ltd.Awarding of ISO9002 certicationto Zagro while its laboratory wasaccredited with IEC SINGLAS certicate.

Setting up of ioint-venture inIndia under Zagro Industries

(India) Pte Ltd.

Awarding of ISO9002certication to Zagro Asia(Tianjin) Co Ltd by Det NorskeVeritas of the Netherlands.

Approval of Zagro EmployeesShare Option Scheme.

1953

1994

1995

1996

1997

1998

1999

Zagro factory guttedby re on 23 August.Resumed business atalternative locationon 25 August.

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Ofcially transferred to theMain Board of the Stock Exchangeof Singapore on 10 July.

Launched 3 global B2B exchangeplusportals, www.agroconnect.com,www.vetsquare.com andwww.wtopharma.com.

Investment by Green Dot Capital,a wholly-owned subsidiary ofSingapore Technologies Pte Ltd,in AgroExchangePlus Pte Ltd.

Exercise of option and furtherinvestment by Green Dot Capital inAgroExchangePlus Pte Ltd.

Disposal of Zagro Asia (Tianjin) Co Ltd.

Acquisition of additional 60% interestin Zuellig Chemicals Sdn Bhd. Becamesubsidiary of the Group and renamedZagro Chemicals Sdn Bhd.

Acquisition of Fezagro Co. Ltdin Thailand.

Incorporation of Zagro Africa Pty Ltd.

Licensed trademark and patented productEureka Gold to Schering Plough Pty Ltd, Australia.

Incorporation of P.T. Zagro Indonesia,Zagro Animal Health Pte Ltd andZagro Europe GmbH.

Awarding of ISO9001:2000 and GMPcertications to Zagros production andlaboratory facilities.

Acquisition of global ectoparasiticidebrands, Neocidol

and Steladone

,

from Novartis Animal Health Inc., Basel.

Option Agreement with Green DotInvestments Pte Ltd (GDI) in July,under which Zagro shares are to beissued to GDI as purchase considerationto acquire all of the AgroExchangePlusPte Ltds shares that GDI holds, over ave-year period.

Appointed as exclusive globaldistributor of Seabait

SPF

marine polychaete worms forthe maturation of sh andshrimp broodstock.

Launch of new micro-encapsulationand waterbase formulations(Diacap

and Neocidol

600EW)

for global markets.

AgroexchangePlus becomes afully-owned subsidiary.

2000

2001

2003

2004

2005

2006

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Mr Poh Beng Swee is Chairman of the Board and Chief Executive Ofcer of the Company

and has held these positions since 1994. He was last re-elected on 28 April 2005.

He graduated with a Bachelor of Business Administration (Hons) degree from the then

University of Singapore in 1971 and had attended the Harvard Advanced Management

Programme at Harvard Business School in 1989. Mr Poh is 58 years old and is also a

director of most of the subsidiaries of the Zagro Group.

Mr Soo Kam Beng @ Soo Man Kheng is the General Manager of the Groups Malaysia

subsidiary (Zagro Chemicals Sdn Bhd). He holds a Bachelor of Science (Agriculture)

degree from Punjab Agricultural University in India. He was appointed as an Executive

Director in 1996 and was last re-elected on 28 April 2006. Mr Soo is 60 years old and

holds directorships in several subsidiaries of the Zagro Group.

Mr Davinder Singh is the Chief Executive Ofcer of Drew & Napier LLC.

He graduated with a degree in Bachelor of Law from the National University of Singapore

in 1982, and was appointed Senior Counsel in 1997, in the rst batch of Senior Counsel

appointed in Singapore. He was appointed to the Board as a Non-Executive Director on

20 May 1996 and was last re-elected on 28 April 2005. Mr Singh also holds directorships

in Singapore Airlines Limited and Petra Foods Limited. Mr Singh is 49 years old.

Ms Ng Ai Kwan was appointed as a Non-Executive Director on 20 May 1996 and was last

re-elected on 28 April 2006. She graduated with a Bachelor of Business Administrationdegree from the National University of Singapore. Ms Ng holds directorships in

Chu Cheong Co. Pte Ltd, Granz Holdings Pte Ltd, Mazda Motor (S) Pte Ltd and Sanyo

Singapore Pte Ltd. She is 58 years old.

Board of Directors

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ZAGRO annual report 2006 15ZAGRO annual report 2006 15

Ms Chow Siew Hwa is the Chief Financial Ofcer of the Group. She is responsible for the Groups nance, internal

controls and corporate secretarial functions. Prior to joining the group in 2004, Ms Chow had more than 3 years of audit

experience with an international public accounting rm, 6 years of nancial management experience in public-listed

companies and more than 10 years of senior management experience in a well-established European MNC encompassing

regional nancial as well as commercial responsibilities. She is a CPA with a Bachelor of Commerce (Accountancy)

Gold Medal from the Nanyang University, Singapore and holds an MBA in general management from the University

of Hull, UK.

Dr Somchai Theveethivarak is the General Manager of the Groups Thailand subsidiary. His responsibility is to provide leadership

and direction to the business and operations to maximize prot and optimize efciency. Prior to joining the Group in 1996,

he had held various management positions in companies engaged in agricultural and veterinary businesses. Dr Somchai

graduated in Veterinary Medicine from Kasetsart University, Thailand. He was recently elected as the Vice President of Thai

Crop Protection Association.

Mr Chin Vui Nam is the President of the Groups Philippines subsidiary. He oversees the operations and is responsible for the

performances of several sales branches and representative ofces located in various parts of the country. He has close to

30 years of experience in the agricultural and veterinary industries. He was with the Zuellig Group for more than 16 years before

he joined the Group in 1993. He has in-depth knowledge of the industry and the business of the Group by having worked as

Branch Manager in several overseas subsidiaries of the Group in Asia.

Key Management

Dr Thomas Stunzi Zuellig was appointed to the Board as a Non-Executive Director on

3 June 2003 and was last re-elected on 30 April 2004. He has years of experience in

the agricultural and feeds industries, having held key positions in various Gold Coin

and Zuellig Group companies. Dr Zuellig holds a doctorate in law from the University of

Zurich, Switzerland. He is a director in various Zuellig and Gold Coin Group companies.

He is 50 years old.

Mr Noris Ong Chin Guan was a partner in PricewaterhouseCoopers and has

been in professional practice for more than 30 years. He was appointed as a

Non-Executive Director on 19 January 2007. Mr Ong is a fellow of the Institute of

Chartered Accountants in England and Wales, the CPA Australia and Institute of Certied

Public Accountants, Singapore. He is presently chairman and director of the Board of the

Tax Academy of Singapore, director of the Singapore Institute of Taxation, director of

the Association of Taxation Technicians, Singapore and also chairman of CPA Australia

Appeals Committee (Ethics). Mr Ong is also a Justice of Peace, served as Nominated

Member of Parliament, was awarded gold medal in 2003 by ICPAS for his service to

the accounting profession and the community and conferred the Public Service Star -

BBM in 2006. He is 58 years old.

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Corporate Information

BOARD OF DIRECTORSMr Poh Beng Swee (Chairman & CEO)

Mr Soo Kam Beng @ Soo Man Kheng

Mr Davinder Singh

Ms Ng Ai Kwan

Dr Thomas Stunzi Zuellig

Mr Ong Chin Guan, Noris

AUDIT COMMITTEEMs Ng Ai Kwan (Chairperson)

Mr Davinder Singh

Dr Thomas Stunzi Zuellig

Mr Ong Chin Guan, Noris

REGISTERED OFFICEZagro Global Hub

5 Woodlands Terrace #06-00

Singapore 738430

SOLICITORSDrew & Napier LLC

Oliver Quek & Associates

AUDITORSErnst & Young

Certied Public Accountants

Mr Vincent Toong

(Audit Partner-in-charge since 2005)

SHARE REGISTRAR

Lim Associates (Pte) Ltd3 Church Street #08-01

Samsung Hub

Singapore 049483

COMPANY SECRETARYMs Madelyn Kwang Yeit Lam

PRINCIPAL BANKERSThe Hongkong & Shanghai Banking

Corporation Limited

Standard Chartered

Maybank Berhad

The Siam Commercial Bank

OTHER INFORMATIONMajor leasehold property used as ofce

cum factory at Zagro Global Hub.

Zagro Global Hub is built on a leasehold

land under a 60-year operating lease for

the period from 23 November 1994 to

30 November 2054.


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The Company is committed to the enhancement of long-term shareholders value and protection of shareholders intereststhrough corporate performance and accountability.

When establishing its corporate governance framework, the Company evaluates the principles and guidelines of the Code ofCorporate Governance (the Code) set by the Council on Corporate Disclosure and Governance. Taking into consideration thecosts and benets of the recommended practices and their applicability to our business circumstances, the Company adoptspractices that are most suitable and effective in order to achieve high standard of corporate governance desired.

The key mechanism of the Companys corporate governance system is a strong and objective Board of Directors. The compositionof the Board and the formation of appropriate sub-committees enable it to carry out its functions effectively. This reportdescribes the Companys corporate governance structure, processes and activities with specic references to the Code.

BOARD OF DIRECTORS(Principles 1, 2, 6 & 10)

The Board comprises 6 Directors, 2 of whom hold executive positions and 3 of whom are considered as independent (as dened

by the Code):

Executive DirectorsPoh Beng Swee - Chairman and Chief Executive Ofcer of the CompanySoo Kam Beng @ Soo Man Kheng - General Manager of Zagro Chemicals Sdn Bhd, a subsidiary of the Company

Non-Executive DirectorsDavinder Singh - Independent DirectorNg Ai Kwan - Independent Director (Chairman of Audit Committee)Thomas Stunzi Zuellig - Non-independent DirectorOng Chin Guan, Noris - Independent Director

The Board consists of respectable individuals of diverse backgrounds from the private sector, whose management and businessskills and experiences are extensive and complementary. It is made up of a balanced mix of executive and non-executive,independent and non-independent Directors. The Board as a whole exhibits core competencies required for performing its

stewardship and governance roles. Details of the Directors academic and professional qualications and other appointmentsare set out on page 14 and page 15 of the Annual Report.

The Board approves the Groups key business initiatives and major investment and funding decisions. It reviews and evaluatesthe Groups nancial performances. From time to time, matters that require the Boards attention are circulated. The Boardmeets at least twice a year and oversees the affairs of the Group. The number of Board meetings held in 2006, as well as theattendance of each Board member at those meetings are as follows:

Directors Number of meetings held in 2006 Number of meetings attended

Poh Beng Swee 2 2

Soo Kam Beng @ Soo Man Kheng 2 1

Davinder Singh 2 1

Ng Ai Kwan 2 2

Thomas Stunzi Zuellig 2 2

In aiding the Board to fulll its responsibilities, the Management of the Company provides the Board with timely and completeinformation in the form of nancial reports and explanatory notes of the business and performances prior to Board meetings.As and when requested by the Board, the Management also supplies the Board with additional information covering wide rangeof issues, such as a specic accounting treatment, or the latest business circumstances and developments. New Directorsappointed during the nancial year are provided with background and nancial information, in order to orientate them to theGroups structure and business.

All Directors have separate and independent access to Management and to the Company Secretary. The Company Secretaryadministers and attends Board meetings, prepares minutes of such meetings, assists the Chairman in ensuring the boardprocedures are followed and applicable rules and regulations, including the requirements of the Companies Act and theSingapore Exchange Securities Trading Limited, are complied with.

Corporate Governance

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CHAIRMAN AND CHIEF EXECUTIVE OFFICER(Principle 3)

Mr Poh Beng Swee holds the positions of Chairman of the Board and Chief Executive Ofcer of the Company. He is also thecontrolling shareholder of the Company. The scale of the business does not warrant a meaningful split of these positions.

Mr Poh discharges his duty as Chairman of the Board objectively with the help of his other Board members. The Board consistsof 4 non-executive Directors, one of whom has in-depth knowledge of the industry. This composition serves as a check that theBoard as a whole is independent in substance, and that the power and authority of the Board does not vest on only one person.The Board meetings are also attended by key Management other than the CEO, to represent the Management in accounting ofManagements actions and the Companys performance to the Board.

Among his other duties, the Chairmans role is to schedule and chair the Board meetings, to prepare meeting agenda and toexercise control over quality, quantity and timeliness of ow of information to the Board.

AUDIT COMMITTEE (AC), INTERNAL CONTROLS AND INTERNAL AUDIT

(Principles 11, 12 & 13)

The AC comprises Ms Ng Ai Kwan as the Chairman, Mr Davinder Singh, Dr Thomas Stunzi Zuellig and Mr Noris Ong (appointed19th January 2007) as members. All four are non-executive Directors, and other than Dr Zuellig, they are independent Directors.

The AC meets at least twice a year. The number of AC meetings held in 2006, as well as the attendance of each member atthose meetings are as follow:

AC Members Number of meetings held in 2006 Number of meetings attended

Ng Ai Kwan (Chairman) 2 2

Davinder Singh 2 1

Thomas Stunzi Zuellig 2 2

The AC, which has written terms of reference, performs the following functions:

1. Review with the external auditors their audit plans;

2. Review with the external auditors their evaluation of internal nancial controls together withManagements responses;

3. Review the level of assistance given by the Companys ofcers to the auditors;

4. Review the half year and full year nancial results of the Company and the Group before their submission tothe Board and their announcement;

5. Investigate any matters within the ACs terms of reference;

6. Approve the nomination of external auditors for re-appointment; and

7. Review interested person transactions in accordance with Chapter 9 of the Listing Manual of the SingaporeExchange Securities Trading Limited.

The Company maintains a sound system of internal controls, with control features that can be found pervasively in all operations

and processes. The external auditors of the Company carry out reviews on the internal nancial control systems and reporttheir ndings to the AC. The current scale of operations does not warrant a formal internal audit function. This will be reviewedfrom time to time as the need arises.

The AC has full access to and cooperation by the Companys Management. It has also been given the resources required todischarge its functions properly and has full discretion to invite any Director or executive ofcer to attend its meetings.The external auditors have unrestricted access to the AC.

The AC has nominated Ernst & Young for re-appointment as external auditors of the Company at the forthcoming AnnualGeneral Meeting. The AC has reviewed the non-audit services provided by Ernst & Young to satisfy itself that the natureand extent of such services will not prejudice the independence and objectivity of the external auditors before conrmingtheir re-nomination.



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ZAGRO EMPLOYEES SHARE OPTION SCHEME COMMITTEEThis Committee, which administers the Zagro Employees Share Option Scheme, comprises 4 Directors. They are:

Executive DirectorPoh Beng Swee

Non-Executive DirectorsDavinder SinghNg Ai KwanThomas Stunzi Zuellig

The scheme was approved in 1998, and its object is to give recognition to full time employees who have contributed signicantlyto the growth and development of the Group. This scheme rewards these employees with the opportunity to participate in theequity of the Company.

The role of the Committee is to select eligible employees to participate in this scheme, and to determine the number of shares

and the subscription price of each offer.

NOMINATING COMMITTEE (NC)(Principles 4 & 5)

The Company recognises that a formal and transparent process for appointment of Directors and for assessment of Boardeffectiveness are two important aspects of good corporate governance. The Code recommends the setting up of a NominatingCommittee to undertake the responsibility of administering such a process. The Company did not establish a NC during the nancialyear under review, as the Board itself can fulll the role of NC. The size of the Board does not warrant having a sub-committee for thestated purposes.

Being a small-sized board, the contribution and performance of each Director (measured in terms of attendance, preparedness,participation, leadership and decision making) are apparent to the other Directors and the shareholders. All the Directorsalso submit themselves for re-nomination and re-election at regular intervals and at least once in every 3 years. At suchtime that the Board nds that it requires new members to improve its working and quality, the Board would make the

recommendation. The independence of the Board is also being monitored and ensured, not only by the Board itself, but alsoby the Company and the Company Secretary. Thus the Company is satised that its current Board serves the Company and theshareholders effectively.

The Board will review the need for a NC annually, and will establish one should the need arise.

REMUNERATION COMMITTEE (RC)(Principles 7 & 8)

The Company recognises that a formal and transparent process for xing the remuneration of individual Directors isan aspect of good corporate governance. The Code recommends the setting up of a Remuneration Committee to undertakethe responsibility of administering such a process. The Company did not establish a RC during the nancial year under review,as the Board itself can fulll the role of a RC. The size of the Board does not warrant having a sub- committee for thestated purposes.

The Board will review the need for a RC annually, and will establish one should the need arise.

The remuneration policy of the Company is to pay competitively and adequately. This translates to be remunerationthat is attractive but yet non-excessive, that enables the Company to recruit capable Directors, Management and staff.While the initial remuneration set for an individual is based on qualication and relevant work experience, subsequent salaryadjustments, bonus and other incentives are awarded based on the individuals effort and performance, and the Companysoverall protability. The remuneration policy seeks to align the interests of Directors and staff to those of shareholders.

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20 ZAGRO annual report 200620 ZAGRO annual report 2006


DISCLOSURE ON REMUNERATION(Principles 8 & 9)

The remunerations of Directors and top 5 executives for the year are as follows:

Number of Directors and

executives earning

Below $250,000

Number of Directors and executives

earning remuneration in the range of:

$250,000 - $499,999

Executive Directors 1 1

Non-executive Directors 3 0

Top 5 executives 5 0

The executive Director whose remuneration was above $250,000 is Mr Poh Beng Swee. His remuneration comprised xed salary

(78.1%), bonus (12.8%), Directors fee (4.6%), and others (4.5%). Mr Soo Kam Beng @ Soo Man Khengs remuneration comprisedxed salary (63.9%), bonus (7%), Directors fee (21.5%), and others (7.6%). The non-executive Directors remuneration comprisedonly Directors fees. All Directors fees were approved at last years AGM.

The Company has an employee share option scheme that grants employees, including executive Directors and top executives,options to subscribe for shares of the Company. Details of the scheme can be found in the above paragraph on the ZagroEmployees Share Option Scheme Committee and on pages 24 and 50-51 of the Annual Report.

There are no employees in the Group who are immediate family members of any director or the CEO and whose renumerationexceed S$150,000 during the year.

COMMUNICATION WITH SHAREHOLDERS(Principles 10, 14 & 15)

The Company and the Board believe that a high standard of disclosure is an important aspect of good corporate governance.The Company releases timely, accurate and complete information in accordance with the Corporate Disclosure Policy of theSingapore Exchange Securities Trading Limited via SGXNET, news releases and the Groups website (www.zagro.com).

The Board, the Management and the external auditors of the Company are always present at annual and other general meetings,to explain the business and the performance of the Group to the shareholders, and to address the shareholders concerns andqueries. The Company welcomes and values the views of all shareholders.

RISK MANAGEMENT(Listing Manual Rule 1207(4)(d))

Other than the nancial risk management objectives and policies described on page 54 of the Annual Report, the main businessrisks that the Group faces when operating in the global market arise from unpredictable climate conditions and diseasesoutbreak, changes in environmental laws, and intense competition.

Climate conditions and diseases

The sales of the Groups veterinary and agro-chemical products are indirectly affected by outbreak of diseases and adverseclimatic conditions, due to their impact on the businesses of our customers, who are the feed mills, livestock breeders,husbandry, aquaculture farmers, and cash-crops farmers.

The Group mitigates these risks with three strategies. Firstly, the Group has a wide customer base, with customers who engagein the breeding of different kinds of livestock and the cultivation of different crop products. The probability of a diseaseoutbreak that attacks more than one kind of or all of livestock is low. Secondly, the Groups customers are located in differentcountries, but mainly in Asia. Again, geographical diversication connes the threats of these risks to only portions of theGroups business. Thirdly, the governments and regulatory agencies of the countries of the Groups customers are generallyprompt in taking actions to contain diseases outbreaks and to help their farmers weather tough climatic conditions.

Environmental laws

The Group is vulnerable to changes in environmental laws in the countries in which we operate. Reacting to new ndings onproducts or their raw materials, the regulatory authorities may introduce laws or guidelines to prohibit or discourage the useof certain products. The Group follows closely the changes in environmental laws globally and has intimate knowledge of ourproducts. The Group is therefore able to anticipate potential changes in legislation and will be in the position to replace bannedproducts in a short period of time. We are also able to bring in new products quickly when opportunity arises.

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CompetitionThe Group faces competition from multi-national companies and smaller local manufacturers and distributors. The Group aimsto achieve its competitive edge over its competitors through the following strengths:

The Company has also implemented a Crisis Management plan. The plan is managed by the Crisis Management Team headedby the CEO. The plan includes recovery strategies for production, sales, nance, IT and all other critical operations, as wellas a maintenance programme for all these processes. In addition, the plan species a command cum back up center at analternative site.

SECURITIES TRANSACTIONS(Listing Manual Rule 1207(18))

The Group has adopted an internal compliance code with respect to dealings in securities by Directors and ofcers in line withthe guidelines on dealings in securities prescribed by the SGX-ST. In line with the guidelines, Directors, Management and ofcersof the Group who have access to price sensitive and condential information are not permitted to deal in the Companys sharesduring the periods commencing one month before the announcement of the Groups annual or half yearly results and endingon the date of the announcement of such results, or when they are in possession of unpublished price sensitive information onthe Group.

INTERESTED PERSON TRANSACTIONS(Listing Manual Rule 920(1)(a))

The Company has adopted an internal policy in respect of any transactions with interested persons and has set out proceduresfor review and approval of the Companys interested person transactions.

The general mandate for interested person transactions (IPT Mandate) with the Gold Coin Group was last renewed at theCompanys Eleventh Annual General Meeting (AGM) on 28 April 2006. The IPT Mandate will be put forth for renewal at theforthcoming AGM.

Interested person transactions pursuant to the Shareholders Mandate obtained by the Group are as follow:

Name of interested person

Aggregate value of all interested persontransactions during the fnancial yearunder review (excluding transactionsless than S$100,000 and transactionsconducted under shareholders mandatepursuant to Rule 920)

Aggregate value of all interestedperson transactions during the fnancialyear under review, conducted undershareholders mandate pursuant toRule 920 (excluding transactions lessthan S$100,000)

Nil Nil

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Statement by

Directors

26

Prot and Loss

Accounts

28

Statements of

Changes in Equity

30

Report of

the Directors23

Independent

Auditors Report

27

Balance Sheets

29

Consolidated Cash

Flow Statement

32Notes to the

Financial Statements

33

Notice of Twelve

Annual General Meeting

60

Statistics of

Shareholdings

59

Financial Report

Proxy Form

63

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Report of the Directors

The directors are pleased to present their report to the members together with the audited consolidated nancial statements ofZagro Asia Limited (the Company) and its subsidiaries (collectively, the Group) and the prot and loss account, balance sheet andstatement of changes in equity of the Company for the nancial year ended 31 December 2006.

DIRECTORS

The directors of the Company in ofce at the date of this report are :-

Poh Beng Swee (Chairman and Chief Executive Ofcer)Soo Kam Beng @ Soo Man KhengDavinder SinghNg Ai KwanThomas Stunzi ZuelligOng Chin Guan, Noris

ARRANGEMENTS TO ENABLE DIRECTORS TO ACQUIRE SHARES AND DEBENTURESExcept under The Zagro Employees Share Option Scheme as described below, neither at the end of nor at any time during the nancialyear was the Company a party to any arrangement whose objects are, or one of whose object is, to enable the directors of the Companyto acquire benets by means of the acquisition of shares or debentures of the Company or any other body corporate.

DIRECTORS INTERESTS IN SHARES AND DEBENTURES

The following directors, who held ofce at the end of the nancial year, had, according to the register of directors shareholdingsrequired to be kept under Section 164 of the Singapore Companies Act, Cap. 50, an interest in shares and share options of the Companyand related corporations (other than wholly-owned subsidiaries) as stated below :-

Direct interest Deemed interest

At beginning of At end of At At beginning of At end of AtName of director the year the year 21 January 2007 the year the year 21 January 2007

The CompanyZagro Asia LimitedOrdinary sharesPoh Beng Swee 77,456,000 77,456,000 77,456,000 24,360,000 26,860,000 29,360,000Soo Kam Beng @ Soo Man Kheng 1,100,000 1,100,000 1,100,000

Options to subscribe for ordinary sharesSoo Kam Beng @ Soo Man Kheng 200,000 200,000 200,000

Mr Poh Beng Swee (Mr Poh) with shareholding as above, is deemed to have an interest in the shares of all the Companys subsidiariesin proportion to its interests in these subsidiaries by virtue of his interest in more than 20% of the issued capital of the Company.

Except as disclosed in this report, no other director who held ofce at the end of the nancial year had interests in shares or shareoptions of the Company, or of related corporations, either at the beginning of the nancial year, or at the end of the nancial year.

DIRECTORS CONTRACTUAL BENEFITS

On 5 February 2004, Mr Poh being a director of the Company, entered into a call option agreement with a substantial corporate shareholderof the Company, under which Mr Poh is granted the right to purchase from the substantial corporate shareholder the ordinary sharesof the Company, amounting to not more than 6% of the paid-up capital of the Company. The exercise price of the option is $0.20 perordinary share and the validity period of the option is 3 years from the date of the agreement.

During the year, Mr Poh acquired 2.5 million shares from the substantial corporate shareholder. These shares were acquired on 8 May2006. These shares were acquired via a company in which Mr Poh controls not less than 20% of the voting shares.

Except as disclosed above and in the nancial statements, since the end of the previous nancial year, no director of the Company hasreceived or become entitled to receive a benet by reason of a contract made by the Company or a related corporation with the director,or with a rm of which the director is a member, or with a company in which the director has a substantial nancial interest.

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SHARE OPTIONS(i) On 29 June 1998, the Company approved The Zagro Employees Share Option Scheme (Scheme) which would enable

selected full-time employees, including executive directors of the Company and the subsidiaries to subscribe for shares of$0.05 each in the capital of the Company. The Scheme was amended with approval by the shareholders in an ExtraordinaryGeneral Meeting held on 31 May 2001 to extend the option period from 5 years to 10 years and extend the exercise period foroptions offered at a discount from 1 year to 2 years.

The members of the committee administering the Scheme who are also directors of the Company are as follows :-

Poh Beng Swee Davinder Singh Ng Ai Kwan Thomas Stunzi Zuellig

Details of outstanding options at the end of the nancial year are :-

Balance at Balance at ExerciseDate of grant 1.1.2006 Cancelled Forfeited 31.12.2006 price Exercisable period

8.5.2001 1,077,000 (85,000) 992,000 $0.212 9.5.2003 to 7.5.2010 16.2.2004 1,065,000 (60,000) 1,005,000 $0.200 17.2.2006 to 15.2.2014

2,142,000 (145,000) 1,997,000

Details of options granted to and exercised by a director of the Company are :-

Aggregate options Aggregate options Aggregate options Aggregategranted since expired since exercised since options

Options commencement commencement commencement outstandinggranted during of plan to end of of plan to end of of plan to end of as at end of

Name nancial year nancial year nancial year nancial year nancial year

Soo Kam Beng @Soo Man Kheng 400,000 (100,000) (100,000) 200,000

No participant has received 5% or more of the total number of options available under the Scheme. No option has been grantedto controlling shareholders of the Company and their associates.

(ii) In 2004, the Company entered into a call and put option agreement (Shareholders Agreement) with a minority shareholderof a subsidiary of the Group to acquire the minority shareholders interest in the subsidiary company, AgroExchangePlus Pte Ltd(AEP), comprising 23,311 ordinary shares of S$1.00 each, in exchange for shares in the Company for a total consideration ofS$2,250,049 which was the original investment paid by the minority shareholder. During the year, the Company exercised theremaining options, issued 6,290,244 new ordinary shares and acquired the 22,850 ordinary shares in AEP held by the minorityshareholder.

(iii) In 2000, a subsidiary of the Company, Vetsquare.com Pte Ltd (Vetsquare), entered into a subscription agreement with aminority shareholder of a subsidiary of the Group to grant to the minority shareholder a non-transferable option to purchase

new shares in Vetsquare. The option was valid for a term of 3 months commencing from the date of completion of investmentby a third party into Vetsquare and allowed the option holder the option to subscribe for up to 5 per cent of the share capitalin Vetsquare, at a price determined by the third party investor. During the year, the subscription agreement was terminatedpursuant to the termination of the Shareholders Agreement following the acquisition of the shares in the subsidiary that wereheld by the minority shareholder (see (ii) above).

(iv) The options granted by the Company and its subsidiaries do not entitle the holders of the options, by virtue of such holdings,to any right to participate in any share of any other corporation.

No unissued shares of the Company or its subsidiaries, other than those referred to above, are under option as at the date of thisreport.

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AUDIT COMMITTEEThe audit committee performed the functions specied in the Singapore Companies Act, Cap. 50. The functions performed are detailedin the Report on Corporate Governance.

AUDITORS

Ernst & Young have expressed their willingness to accept reappointment as auditors.

On behalf of the board of directors :

Poh Beng Swee

Chairman

Soo Kam Beng @ Soo Man KhengDirector

Singapore16 March 2007

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Statement by Directors

We, Poh Beng Swee and Soo Kam Beng @ Soo Man Kheng, being two of the directors of Zagro Asia Limited (the Company), do herebystate that, in the opinion of the directors,

(i) the accompanying balance sheets, prot and loss accounts, statements of changes in equity, and consolidated cash ow statementtogether with the notes thereto are drawn up so as to give a true and fair view of the state of affairs of the Company and itssubsidiaries (collectively, the Group) as at 31 December 2006, and the results and changes in equity of the Company and ofthe Group and cash ows of the Group for the 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 andwhen they fall due.

On behalf of the board of directors :

Poh Beng SweeChairman

Soo Kam Beng @ Soo Man KhengDirector


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We have audited the accompanying nancial statements of Zagro Asia Limited (the Company) and its subsidiaries (collectively,the Group) set out on pages 28 to 58, which comprise the balance sheets of the Group and the Company as at 31 December 2006, thestatements of changes in equity of the Group and the Company, the prot and loss account of the Group and the Company, and cashow statement of the Group for the year then ended, and a summary of signicant accounting policies and other explanatory notes.

DIRECTORS RESPONSIBILITY FOR THE FINANCIAL STATEMENTS

The Companys directors are responsible for the preparation and fair presentation of these nancial statements in accordance withthe provisions of the Singapore Companies Act, Cap. 50 (the Act) and Singapore Financial Reporting Standards. This responsibilityincludes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of nancialstatements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accountingpolicies; and making accounting estimates that are reasonable in the circumstances.

AUDITORS RESPONSIBILITY

Our responsibility is to express an opinion on these nancial statements based on our audit. We conducted our audit in accordancewith Singapore Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform theaudit to obtain reasonable assurance whether the nancial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the nancial statements.The procedures selected depend on the auditors judgement, including the assessment of the risks of material misstatement of thenancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevantto the entitys preparation and fair presentation of the nancial statements in order to design audit procedures that are appropriatein the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. An auditalso includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made bydirectors, as well as evaluating the overall presentation of the nancial statements.

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

OPINIONIn our opinion,

(i) the consolidated nancial statements of the Group, and the balance sheet, prot and loss account and statement of changesin equity of the Company are properly drawn up in accordance with the provisions of the Singapore Companies Act, Cap. 50(the Act) and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the Groupand of the Company as at 31 December 2006 and the results, changes in equity and cash ows of the Group and the results,changes in equity of the Company for the year ended on that date; and

(ii) the accounting and other records required by the Act to be kept by the Company and by those subsidiaries incorporated inSingapore of which we are the auditors have been properly kept in accordance with the provisions of the Act.

ERNST & YOUNG

Certied Public Accountants


Independent Auditors Reportto the Members of Zagro Asia Limited

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Prot and Loss Accountsfor the year ended 31 December 2006

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

Group Company Notes 2006 2005 2006 2005$000 $000 $000 $000

Turnover 3 97,309 85,188 Cost of sales (76,231) (67,450)

Gross prot 21,078 17,738 Other revenue 771 528 2,643 882Selling and marketing expenses (8,213) (8,073) Administrative expenses (4,182) (4,227) (378) (387)Other operating expenses, net (3,504) (1,756) (782) 535

Operating prot 4 5,950 4,210 1,483 1,030Interest income 5 229 131 56 17Interest expense 6 (320) (381)

Prot before taxation 5,859 3,960 1,539 1,047Taxation 7 (1,284) (610) (182) 15

Prot for the year 4,575 3,350 1,357 1,062Attributable to :

Equity holders of the Company 4,263 3,142 1,357 1,062 Minority interest 312 208

4,575 3,350 1,357 1,062Earnings per share :

Basic and diluted 9 1.68 cents 1.25 cents

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Balance Sheetsas at 31 December 2006

Group Company Notes 2006 2005 2006 2005$000 $000 $000 $000

Non-current assetsProperty, plant and equipment 10 11,040 11,033 Intangible assets 11 5,947 6,568 Investment in subsidiaries 12 13,427 10,915Investment in an associate 13 13 Deferred tax assets 20 325 257

Current assetsOther investment 14 2,050 2,058 Inventories 15 19,098 21,040 Related party/company balances 16 66 21,345 24,389

Trade and other receivables 17 21,622 22,331 13 Fixed deposits 22 4,358 995 2,030 Cash and bank balances 22 5,941 3,178 59 22

53,069 49,668 23,447 24,411Current liabilitiesTrade and other payables 18 13,857 12,863 259 294Interest-bearing loans and borrowings 19 6,589 7,987 Provision for taxation 924 1,125 88 61Bank overdrafts 22 59 20

21,429 21,995 347 355Net current assets 31,640 27,673 23,100 24,056Non-current liabilities

Deferred tax liabilities 20 (869) (450) Net assets 48,096 45,081 36,527 34,971Equity attributable to equity holders of the CompanyShare capital 21 29,691 12,549 29,691 12,549Share premium 14,936 14,936Reserves 17,540 16,569 6,836 7,486

47,231 44,054 36,527 34,971Minority interests 865 1,027

Total equity 48,096 45,081 36,527 34,971


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Statements of Changes in Equityfor the year ended 31 December 2006

Attributable to equity holders of the CompanyEmployee Foreign

Fair value share currencyShare Share adjustment Capital option translation Revenue Total Minority Total

Group capital premium reserve(1) reserve reserve(2) reserve(3) reserve reserve interests equity

$000 $000 $000 $000 $000 $000 $000 $000 $000 $000(Note 21)

2006

At 1 January 2006 12,549 14,936 58 1,993 37 (1,134) 15,615 16,569 1,027 45,081Transfer of share premium

reserve to share capital 14,936 (14,936) Foreign currency

translation adjustment 707 707 (7) 700Net loss on fair value change

during the year (8) (8) (8)

Net income recogniseddirectly in equity (8) 707 699 (7) 692

Prot for the year 4,263 4,263 312 4,575

Total recognised incomeand expenses for the year (8) 707 4,263 4,962 305 5,267

Issuance of shares

during the year 2,206 2,206Acquisition of additional

shares in a subsidiary from a minority shareholder (1,983) (1,983) (223) (2,206)Dividends paid/payable to

ordinary shareholders(Note 8) (2,008) (2,008) (2,008)

Dividends paid/payable tominority shareholders (244) (244)

At 31 December 2006 29,691 50 10 37 (427) 17,870 17,540 865 48,0962005

At 31 December 2004as previously reported 12,549 14,936 1,993 (1,533) 14,514 14,974 969 43,428

Effects of adopting FRS 102 33 (33)

At 31 December 2004,restated 12,549 14,936 1,993 33 (1,533) 14,481 14,974 969 43,428

Foreign currency translation

adjustment 399 399 9 408Net gain on fair value change

during the year 58 58 58

Net income recogniseddirectly in equity 58 399 457 9 466

Prot for the year 3,142 3,142 208 3,350

Total recognised incomeand expenses for the year 58 399 3,142 3,599 217 3,816

Share based payments for the year 4 4 4Dividends paid/payable to ordinary shareholders (Note 8) (2,008) (2,008) (2,008)Dividends paid/payable to

minority shareholders (159) (159)

At 31 December 2005 12,549 14,936 58 1,993 37 (1,134) 15,615 16,569 1,027 45,081


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Statements of Changes in Equityfor the year ended 31 December 2006

Attributable to equity holders of the CompanyShare Share Employee share Revenue TotalCompany capital premium option reserve(2) reserve equity

$000 $000 $000 $000 $000(Note 21)

2006

At 1 January 2006 12,549 14,936 37 7,449 34,971Transfer of share premium reserve to share capital 14,936 (14,936) Prot for the year 1,358 1,358

Total recognised income andexpenses for the year 1,358 1,358

Issuance of shares during the year 2,206 2,206

Dividends paid/payable to ordinary shareholders (Note 8) (2,008) (2,008)

At 31 December 2006 29,691 37 6,799 36,527

2005

At 31 December 2004 as previously reported 12,549 14,936 8,428 35,913Effect of adopting FRS 102 33 (33)

At 31 December 2004, restated 12,549 14,936 33 8,395 35,913Prot for the year 1,062 1,062Total recognised income and

expenses for the year 1,062 1,062

Share based payments for the year 4 4Dividends on ordinary shares (Note 8) (2,008) (2,008)

At 31 December 2005 12,549 14,936 37 7,449 34,971

(1) Fair value adjustment reserve records the cumulative fair value changes of available-for-sale nancial assets until they are derecognised orimpaired.

(2) Employee share option reserve represents the equity-settled share options granted to employees (Note 21). The reserve is made up of the cumulativevalue of services received from employees recorded on grant of equity-settled share options.

(3) Foreign currency translation reserve is used to record exchange differences arising from the translation of the nancial statements of foreignoperations whose functional currencies are different from that of the Groups presentation currency.


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Consolidated Cash Flow Statementfor the year ended 31 December 2006

Group 2006 2005$000 $000

Cash ows from operating activities :Operating prot before taxation and minority interest 5,859 3,960Adjustments for :

Depreciation of property, plant and equipment 1,002 1,128 Gain on disposal of property, plant and equipment (7) (4) Amortisation of intangible assets 910 732 Interest income (229) (131) Interest expense 320 381 Share based payment 4 Currency realignment 706 393

Operating prot before working capital changes 8,561 6,463

Decrease in trade and other receivables 715 1,251Decrease in inventories 1,942 763Increase/(decrease) in payables and accruals 913 (679)Decrease in related party balances 66

Cash generated from operations 12,197 7,798Interest income received 223 131Interest expenses paid (324) (381)Income taxes paid (1,134) (737)

Net cash ows from operating activities 10,962 6,811Cash ows from investing activities :Purchase of property, plant and equipment (1,016) (282)Addition in intangible assets (291) (92)Proceeds from sale of property, plant and equipment 10 13Investment in associate (13)

Net cash ows used in investing activities (1,310) (361)Cash ows from nancing activities :Net repayment of loans and borrowings (1,398) (3,994)Dividend paid on ordinary shares (2,008) (2,008)Dividend paid to minority shareholders (159) (241)

Net cash ows used in nancing activities (3,565) (6,243)

Net increase in cash and cash equivalents 6,087 207Cash and cash equivalents at beginning of year (Note 22) 4,153 3,946

Cash and cash equivalents at end of year (Note 22) 10,240 4,153


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Notes to the Financial Statements- 31 December 2006

1. CORPORATE INFORMATION Zagro Asia Limited (the Company) is a limited liability company, which is domiciled and incorporated in Singapore.

The registered ofce and principal place of business of the Company is Zagro Global Hub, 5 Woodlands Terrace, #06-00,Singapore 738430.

The principal activity of the Company is investment holding. The subsidiaries are primarily engaged in the manufacturing andtrading in crop care, animal health and ectoparasiticide products. Two of the subsidiaries are engaged in e-commerce relatedactivities. They own, operate and transact on B2B exchangeplus portal for crop care and animal health products. There havebeen no signicant changes in the nature of these activities during the year.

Related companies in these nancial statements refer to subsidiaries of the Group. Related parties in these nancial statementsrefer to enterprises in which the directors and substantial corporate shareholders of the Group have benecial interests.

2. SIGNIFICANT ACCOUNTING POLICIES2.1 Basis of preparation The consolidated nancial statements of the Group and the prot and loss account, balance sheet and statement of changes

in equity of the Company have been prepared in accordance with Singapore Financial Reporting Standards (FRS).

The nancial statements have been prepared on a historical cost basis except for derivative nancial instruments and available-for-sale nancial assets that have been measured at its fair value.

The nancial statements are presented in Singapore Dollars (SGD or $) and all values are rounded to the nearest thousand($000) except when otherwise indicated.

2.2 Changes in accounting policies The accounting policies have been consistently applied by the Group and the Company and are consistent with those used in

the previous nancial year, except for the changes in accounting policies discussed below.

(a) Adoption of new FRS On 1 January 2006, the Group and the Company adopted the following standard mandatory for annual nancial periods

beginning on or after 1 January 2006.

INT FRS 104 Determining Whether an Arrangement Contains a Lease

The adoption of this new FRS did not give rise to any prior year adjustment or adjustment to the reserves as at 1January 2006.

(b) Adoption of revised FRS The Group and the Company adopted the following revised standards mandatory for annual periods beginning on or

after 1 January 2006.

FRS 19 (revised) Employee Benets FRS 39 (revised) Fair value option FRS 39 (revised) Financial Guarantee Contracts

The adoption of these standards did not result in any signicant change in accounting policies.

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2. SIGNIFICANT ACCOUNTING POLICIES (CONTD)2.2 Changes in accounting policies (contd)

(c) FRS and INT FRS not yet effectiveThe Group and the Company have not early adopted any of the FRS and Interpretations of Financial Reporting Standards(INT FRS) that have been issued but not yet effective :

Effective date(Annual periods

beginning on or after)

FRS 1 : Amendment to FRS 1 (revised), 1 January 2007Presentation of nancial statements (Capital Disclosures)

FRS 40 : Investment Property 1 January 2007

FRS 107 : Financial Instruments: Disclosures 1 January 2007

INT FRS 107 : Applying the Restatement Approach under FRS 29, 1 March 2006

Financial Reporting in Hyperinationary EconomiesINT FRS 108 : Scope of FRS 102, Share-based Payment 1 May 2006

INT FRS 109 : Reassessment of Embedded Derivatives 1 June 2006

INT FRS 110 : Interim Financial Reporting and Impairment 1 November 2006

The adoption of these FRS and INT FRS, where applicable are not expected to have signicant impact on the nancialstatements of the Group and the Company.

2.3 Signicant accounting estimates and judgements Estimates, assumptions concerning the future and judgements are made in the preparation of the nancial statements.

They affect the application of the Groups accounting policies, reported amounts of assets, liabilities, income and expenses,and disclosures made. They are assessed on an on-going basis and are based on experience and relevant factors, includingexpectations of future events that are believed to be reasonable under the circumstances.

(a) Key sources of estimation uncertaintyThe key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date,that have a signicant risk of causing a material adjustment to the carrying amounts of assets and liabilities withinthe next nancial year are discussed below.

(i) Impairment of goodwill The Group determines whether goodwill is impaired at least on an annual basis in accordance with the policy

stated at Note 2.8(a). No impairment was recognised for the year. The recoverable amount for goodwill wasdetermined based on a value in use calculation using cash ow projection based on nancial budgets approvedby management covering a one-year period. The pre-tax discount rate applied to the cash ow projection was6% (2005 : 6%) per annum, being the cost of nancing for the Groups bank lending rate. The carrying amountof the Groups goodwill at 31 December 2006 was $180,000 (2005 : $180,000).

(ii) Amortisation of brand The cost of brand is amortised in accordance with the policy stated at Note 2.8(d). The carrying amount of

the Groups brand at 31 December 2006 was $5,463,000 (2005 : $6,260,000). Changes in the expected salesgenerated by the brand could impact the economic useful life and the residual value of the brand, thereforefuture amortisation charges could be revised.

(iii) Depreciation of plant and machinery The plant and machinery for the manufacturing activities are depreciated in accordance with the policy stated

at Note 2.7. These are common life expectancies applied in the industry. The carrying amount of the Groupsplant and machinery at 31 December 2006 was $1,103,000 (2005 : $1,187,000). Changes in the expected levelof usage and technological developments could impact the economic useful life and the residual value of theseassets, therefore future depreciation charges could be revised.

(iv) Income taxes The Group has exposure to income taxes in numerous jurisdictions. Signicant judgement is involved in

determining the group-wide provision for income taxes. There are certain transactions and computations forwhich the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises

liabilities for expected tax issues in accordance with the policy stated at Note 2.23. Where the nal tax outcomeof these matters is different from the amounts that were initially recognised, such differences will impactthe income tax and deferred tax provisions in the period in which such determination is made. The carryingamount of the Groups tax payables and deferred tax liabilities at 31 December 2006 was $924,000 (2005 :$1,125,000) and $869,000 (2005 : $450,000) respectively.

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2. SIGNIFICANT ACCOUNTING POLICIES (CONTD)2.4 Functional and foreign currency

(a) Functional currencyThe management has determined the currency of the primary economic environment in which the Company operates(i.e. functional currency) to be SGD. Sales prices and major costs of providing goods and services including majoroperating expenses are primarily inuenced by uctuations in SGD.

(b) Foreign currency transactionsTransactions in foreign currencies are measured in the respective functional currencies of the Company and its subsidiariesand are recorded on initial recognition in the functional currencies at exchange rates approximating those ruling atthe transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the closingrate of exchange ruling at the balance sheet date. Non-monetary items that are measured in terms of historical costin a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetaryitems measured at fair value in a foreign currency are translated using the exchange rates at the date when the fairvalue was determined.

Exchange differences arising on the settlement of monetary items or on translating monetary items at the balancesheet date are recognised in the prot and loss account except for exchange differences arising on monetary items thatform part of the Groups net investment in foreign subsidiaries, which are recognised initially in a separate componentof equity as foreign currency translation reserve in the consolidated balance sheet and recognised in the consolidatedprot and loss account on disposal of the subsidiary. In the Companys separate nancial statements, such exchangedifferences are recognised in the prot and loss account.

(c) Foreign currency translationThe assets and liabilities of foreign operations for each balance sheet presented are translated into SGD at the closingrate ruling at that balance sheet date and their income and expenses for each income statement are translated ataverage exchange rates for the year, which approximates the exchange rates at the dates of the transactions. All resultingexchange differences are recognised in a separate component of equity as foreign currency translation reserve.

Goodwill and fair value adjustments arising on the acquisition of foreign operations on or after 1 January 2005 are

treated as assets and liabilities of the foreign operations and are recorded in the functional currency of the foreignoperations and translated at the closing rate at the balance sheet date.Goodwill and fair value adjustments which arose on acquisitions of foreign subsidiaries before 1 January 2005 aredeemed to be assets and liabilities of the parent company and are recorded in SGD at the rates prevailing at the dateof acquisition.

On disposal of a foreign operation, the cumulative amount of exchange differences deferred in equity relating to thatforeign operation is recognised in the prot and loss account as a component of the gain or loss on disposal.

2.5 Subsidiaries and principles of consolidation(a) Subsidiaries

A subsidiary is an entity over which the Group has the power to govern the nancial and operating policies so as toobtain benets from its activities. The Group generally has such power when it directly or indirectly, holds more than50% of the issued share capital, or controls more than half of the voting power, or controls the composition of theboard of directors.

In the Companys separate nancial statements, investments in subsidiaries are accounted for at cost less anyimpairment losses.

(b) Principles of consolidationThe consolidated nancial statements comprise the nancial statements of the Company and its subsidiaries as at thebalance sheet date. The nancial statements of the subsidiaries are prepared for the same reporting date as the parentcompany. Consistent accounting policies are applied for like transactions and events in similar circumstances.

All intra-group balances, transactions, income and expenses and prots and losses resulting from intra-group transactionsthat are recognised in assets, are eliminated in full.

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2. SIGNIFICANT ACCOUNTING POLICIES (CONTD)2.5 Subsidiaries and principles of consolidation (contd)

(b) Principles of consolidation (contd)Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control,and continue to be consolidated until the date that such control ceases.Acquisitions of subsidiaries are accounted for using the purchase method. The cost of an acquisition is measured as thefair 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. Identiable assets acquired and liabilities and contingent liabilitiesassumed in a business combination are measured initially at their fair values at the acquisition date, irrespective ofthe extent of any minority interest.Minority interests represent the portion of prot or loss and net assets in subsidiaries not held by the Group. They arepresented in the consolidated balance sheet within equity, separately from the parent shareholders equity, and areseparately disclosed in the consolidated prot and loss account.

2.6 Associates An associate is an entity, not being a subsidiary or a joint venture, in which the Group has signicant inuence. This generally

coincides with the Group having 20% or more of the voting power, or has representation on the board of directors.

The Groups investments in associates are accounted for using the equity method. Under the equity method, the investmentin associate is carried in the balance sheet at cost plus post-acquisition changes in the Groups share of net assets of theassociate. The Groups share of the prot or loss of the associate is recognised in the consolidated prot and loss account. Wherethere has been a change recognised directly in the equity of the associate, the Group recognises its share of such changes.After application of the equity method, the Group determines whether it is necessary to recognise any impairment loss withrespect to the Groups net investment in the associate. The associate is equity accounted for from the date the Group obtainssignicant inuence until the date the Group ceases to have signicant inuence over the associate.

Goodwill relating to an associate is included in the carrying amount of the investment.

Any excess of the Groups share of the net fair value of the associates identiable assets, liabilities and contingent liabilitiesover the cost of the investment is excluded from the carrying amount of the investment and is instead included as income inthe determination of the Groups share of the associates prot or loss in the period in which the investment is acquired.

When the Groups share of losses in an associate equals or exceeds its interest in the associate, including any other unsecuredreceivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of theassociate.

The most recent available audited nancial statements of the associates are used by the Group in applying the equity method.Where the dates of the audited nancial statements used are not co-terminous with those of the Group, the share of results isarrived at from the last audited nancial statements available and un-audited management nancial statements to the end ofthe accounting period. Consistent accounting policies are applied for like transactions and events in similar circumstances.

In the Companys separate nancial statements, investments in associates are accounted for at cost less impairment losses.

2.7 Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and any impairment in value. All items of

property, plant and equipment are initially recorded at cost.

The initial cost of a property, plant and equipment comprises its purchase price and any directly attributable costs of bringingthe asset to its working condition and location for its intended use. Any trade discounts and rebates are deducted in arrivingat the purchase price. Expenditure incurred after the property, plant and equipment have been put into operation, such asrepairs and maintenance and overhaul costs, is normally charged to the prot and loss account in the period in which the costsare incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the futureeconomic benets expected to be obtained from the use of an item of property, plant and equipment beyond its originallyassessed standard of performance, the expenditure is capitalised as an additional cost of property, plant and equipment.

Depreciation of an asset begins when it is available for use and is computed on a straight-line basis over the estimated usefullife of the asset as follows:

Leasehold land and buildings - 50 to 93 years Plant and machineries - 5 to 15 years Ofce furniture, xtures and equipment - 3 to 10 years Motor vehicles - 5 to 10 years

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2. SIGNIFICANT ACCOUNTING POLICIES (CONTD)2.7 Property, plant and equipment (contd) The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances

indicate that the carrying value may not be recoverable.

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

An item of property, plant and equipment is derecognised upon disposal or when no future economic benets are expectedfrom its use or disposal. Any gain or loss arising on derecognition of the asset is included in the prot and loss account in theyear the asset is derecognised.

2.8 Intangible assets(a) Goodwill

Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the businesscombination over the Groups interest in the net fair value of the identiable assets, liabilities and contingent liabilities.Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewedfor impairment, annually or more frequently if events or changes in circumstances indicate that the carrying valuemay be impaired.Since 1 January 2005, goodwill is no longer amortised on a straight-line basis over a period of 3 years but it is testedannually for impairment or whenever there is indication of impairment. The accounting policy for impairment of assetsis included in Note 2.14.If an entity is subsequently sold, the carrying amount of capitalised goodwill relating to the entity sold is taken to theconsolidated income statements as part of the gain or loss on sale.Goodwill and fair value adjustments which arose on acquisitions of foreign subsidiaries before 1 January 2005 aredeemed to be assets and liabilities of the parent company and are recorded in SGD at the rates prevailing at the date

of acquisition.

(b) Negative goodwillIf the cost of the business combination is less than the Groups interest in the net fair value of the identiable assets,liabilities and contingent liabilities of the business acquired, the difference is recognised directly in the consolidatedprot and loss account.

(c) Product registrationCosts relating to product registration, which are acquired, are capitalised and amortised on a straight-line basis overthe useful lives of between 3 -5 years. Product registration is tested annually for impairment or more frequently, if theevents or circumstances warrant it. Amortisation period and method are reviewed at each nancial year-end.

(d) BrandCosts relating to brand of product lines which are acquired, are capitalised and amortised at a rate which bearsrelation to the total projected sales generated from the brand as management believes there is foreseeable limit tothe period over which the brand is expected to generate net cash ows for the Group. It is currently estimated thatthe assets would be amortised based on 15% external sales generated by the brand annually. Brand is tested annuallyfor impairment or more frequently if the events or circumstances warrant it. Amortisation period and method arereviewed at each nancial year-end.Gain or loss arising from derecognition of an intangible asset is measured as the difference between the net disposalproceeds and the carrying amount of the asset and are recognised in the prot and loss account when the asset isderecognised.

2.9 Financial instruments Financial assets classied as held for trading and available-for-sale are measured at fair value while loans, receivables and

held-to-maturity investments are measured at amortised cost using the effective interest method. Financial liabilities (otherthan derivative nancial instruments) are measured at amortised costs using the effective interest method. Derivative nancialinstruments are classied as nancial assets or nancial liabilities as appropriate and measured at fair value.

The difference between the carrying values and fair values is recognised in the fair value adjustment reserve. The differencebetween the carrying values and amortised costs is recognised in the revenue reserve.

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2. SIGNIFICANT ACCOUNTING POLICIES (CONTD)2.9 Financial instruments (contd)

(a) Financial assets at fair value through prot or lossFinancial assets classied as held for trading are included in the category nancial assets at fair value through prot orloss. Financial assets are classied as held for trading if they are acquired for the purpose of selling in the near term.Derivative nancial instruments are also cla

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