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In response to the queries raised by the Singapore Exchange Securities Trading Limited ("SGX.ST") on 25 February 2009, the Directors of AnnAik Limited ("the Company") wish to provide the following information:-
a) We note on page 1 of the results announcement that the Company recorded an amount of S$0.23m as "provision for impairment of goodwill". In respect of the above to provide the following information:-
(i) Elaborate on the circumstances giving rise to the impairment;
Reply from the Company:-
The goodwill of S$0.23m has been written off in FY2008 as management does not foresee Megatech Group of Companies to generate profits in the near future due to drastic fall in demand of its products and unexpected slow down in semi-conductor industry as a result of the severe credit crunch and volatility in the global financial and captical markets.
SGX's query:
(ii) Provide details on the underlying asset or investment to which the goodwill relates to; and
Reply from the Company:-
The goodwill is related to the premium paid for the acquisition of Megatech Group of Companies in 2004.
SGX's query:-
(iii) Whether further impairment of goodwill is expected.
Reply from the Company:-
No further impairment of goodwill is expected in relation to Megatech Group of Companies as the full sum was provided in FY2008. However, the remaining goodwill is related to the premium paid for the acquisition of Kunshan Kinghwa Hardware & Machinery Co., Ltd and AngWei Environmental Ecological & Engineering Shanghai Co., Ltd amounting to S$0.35m to S$0.50m respectively. Nased on our yearly assessment at end of FY2008, no further provision is needed for the remaining goodwill.The Company would review its goodwill annually if there were any indication that the remaining goodwill might be impaired.
SGX's query:-
b) We note that on page 2 of the results announcement that "Available-for-sale investment" increased by 65.6% from S$2.2m to S$3.7m. In respect of the above, to provide the following information:-
(i) Elaborate the nature and provide breakdown of major items contributing to the increase; and
Reply from the Company:-
The available-for-sale investment is a long term investment in an unquoted company incorporated in PRC and engaged in property development activities. The increase was mainly attributed to additional investment made by all shareholders of the unquoted company finance the daily operation of the property project in PRC.
SGX's query:-
(ii) If applicable, to provide required under Rule 704 (15)(b)
Reply from the Company:-
Not applicable as the additional investment amounts are less than 5% of the Group's net tangible assests as at 31 December 2008.
SGX's query:-
c) We note that "Other Payables" increased by 149.3% from S$4.9m to S$12.1m.In view of the above, to provide the breakdown of items contributing to the increase, and elaborate on the reasons giving rise to the increase in "Other Payables".
Reply from the Company:-
Breakdown of Other Payables FY2008 FY2007
(S$'000) (S$'000)
Accrued expenses 1,499 2,038
Directors' fees and bonuses 478 1,621
Amount due of staffs 2 12
Advances from third parties 10,093 1,129
Deferred income 26 52
Total 12,098 4,852
The increase in other payables was mainly due to additional loans of S$7.35m obtained from our associate o finance the newly incorporated plants in PRC.
SGX's query:-
d) We note that on page 2 of the results announcement that "Intangible Assests" increased by 86.3% from S$4.7m to S$8.8m. In respect of the above, to provide the following information:-
(i) Provide breakdown of the major items and nature of such intangible assets; and
Reply from the Company:-
The intangible assets are mainly related was due mainly to substantial completion of the construction works of our wastewater treatment plant under build-own-transfer ("BOT") contract according to INT FRS 112 - Service Concession Arrangement. Please refer to Note 4 and Note 5 of the results announcement dated 23 February 2009 for further details.
SGX's query:-
(ii) Elaborate on the reasons for the significant increase in "Intangible Asset".
Reply from the Company:-
The increase in intangible asset was due mainly to substantial completion of the construction works of our wastewater treatment plant in PRC under build-own-transfer ("BOT") at end of FY2008.
SGX's query:-
e) The Company reported that its net profit attributable to shareholders fell 66.9% from S$8.62m to S$2.85m due to, among other things, "low capacity utilization rate". Nothing that the Company had invested substantial amounts of S$12.5m and S$5.7 in FY2007 and FY2008 respectively to purchase plant, property and equipment, please provide more information on the Company's financial position in the next reporting period and next 12 months. e.g increase in depreciation and interest costs, other fixed overhead costs of the new capacity, and the Company's plans in managing these facilities.
Reply from the Company:-
The construction of the new manufacturing plant was completed in the 4th quarter of 2007 with official opening ceremony in April 2008. The average utilization rate of the plant in 2008 was approxmately 45% with inproved utilization rate of 60% achieved at the end of 2008. The increase in capacity will lead to higher depreciation, interest costs and other fixed overheads in the next reporting period if the utilization rate remained low.As a result of unprecedented global economic downturn since the end of 2008, the Company has implemented a cost cutting scheme in this entity and trim down unnecessary cost to overcome the excess capacity issue.
By Order of the Board
Ng Kim Keang
Director
Singapore, 26 February 2009
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