koda ltd 2010 annual report

8/2/2019 KODA Ltd 2010 Annual Report

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Redefining Lifestyle

A NN UAL REPORT 2010


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OurVision

content

OurMission

To be a reputable, profitable

and significant global original

manufacturer of furniture.

We must be the most effective value-for-

money manufacturer. We must remain

design-relevant. We must invest in Research

& Development. We must ensure that our

products remain affordable and accessible.

We must ensure we have the right people

with the right skills. We must deliver to our

shareholders value and investment comfort.

01 about koda

02 board of directors

04 management profile

05 results at glance

08 global presence

10 chairmans statement

12 managing directors statement

20 corporate structure

21 report on corporate governance

36 financial content


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KODA LTDANNUAL REPORT FY 2010 1.

about

From our humble beginnings in 1972, Koda has turned

into a leading Original Design Manufacturer (ODM)

and could possibly be the largest dining room furniture

exporter in SouthEast Asia.

Led by a management team with a combined experience of more

than 100 years, Koda has made significant investments in Vietnam,

Malaysia and China. Koda has been recognised by Forbes Asia under

the category of Best Under A Billion Company in 2006 and profiled by

CSIL Milano in its Top World Furniture Manufacturers Report 2006 as

one of the top 200 major furniture manufacturers worldwide.

Luxury defined, Koda distinguishes itself by its aesthetically pleasing

design mastery, technically feasible concepts and practically oriented

craftsmanship with its patience of not seeing R&D micro-management

a fuss and design trifles a bother we are just exacting about everysingle detail of our designs. While exuding design sophistication and

elegance, we have also been instilling a sense of responsibility to

balance aesthetics with the environment by infusing GREEN in the

materials we use; in the process we engage; and in the products we

develop.

Kodas designs are intensive and our product range is extensive

whether in occasional pieces or collection themes we design and

produce furniture for the dining room, living room, bedroom and

outdoor/garden furniture.


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KODA LTDANNUAL REPORT FY 2010.2

board of directors01 02 03 04

01. Mr. Koh Teng Kwee (TK)

Founder and Non-executive Chairman

T.K., founder of Koda, nurtured the companyduring its formative years. A visionary with morethan 45 years of experience in the furnitureindustry, T.K. has been providing the Group withvaluable insight and advising the Group on itsgrowth strategies and design initiatives. He isinstrumental in advising us on design trends andthe product development process.

T.K. was appointed to the Board in 1980. He isour Non-Executive Chairman. He was a certifiedcraftsman from the City & Guild Advanced CraftInstitute (UK) and a Senior Craft Teacher at theAdult Education Board before he founded thecompany.

T.K. was last re-elected to the Board at the 2009Annual General Meeting (AGM).

02. Mr. James Koh Jyh Gang (James)

Deputy Chairman and Managing Director

James spearheads the growth strategies for theGroups operations. With significant experiencegarnered through the initiation of various industrywide projects in Singapore, Vietnam and China,James has been able to successfully formulateour business expansion strategies, strengthensupply chain management, broach new designconcepts and manage our international marketinginvestments. James served as the President of theSingapore Furniture Industries Council (SFIC)for two terms. During his illustrious tenuresJames initiated several industry wide projects,most notably the International Furniture Fair

Singapore (IFFS) and the Singapore FurnitureIndustry Park in Kunshan, China.

He was also appointed the Chairman of IFFSPte Ltd and the International Furniture CentreSteering Committee, with the objectives ofgrowing the IFFS as a world class trade show andpositioning Singapore as a premier furniture hubfor the global market. James also spearheaded the3-year Local Enterprise Association Developmentprogram, a multi-agency program that aims to

enhance competitiveness of various industries.

In July 2009, James was invited to be a memberof the Economic Strategies Committee, aninitiative by the Ministry of Finance to developstrategies for Singapore to seize growthopportunities as a global city in order to achievesustained and inclusive growth.

James was appointed to the Board in 1980 andholds a Diploma in Management Studies fromthe Singapore Institute of Management.

03. Mr. Ernie Koh Jyh Eng (Ernie)

Executive Director, Sales & Marketing

Ernie manages the Groups Sales and Marketingfunctions. He has significant experience ininternational marketing and corporate branding.He is at the helm of the Groups marketinginitiatives, particularly in customer relationshipmanagement, client base diversification, tradefairs participation, new product launchesand marketing talent recruitment. Morespecifically, he is in charge of our furniture fairsmanagement, responsible for formulating the

Groups marketing strategies for new marketpenetration and devising of pricing plans.

Ernie is also instrumental in identifying thelatest design trends and dealing with changingconsumer preferences. Ernie has been with theGroup for more than 16 years.

During his tenure, he has rapidly expandedKodas market share, reaching out to more than200 customers across more than 50 countries

throughout the globe.

Ernie was appointed to the Board in 2001 andholds a BSc. in Marketing from the Universityof Oregon (USA) and an MBA in InternationalMarketing from the San Francisco StateUniversity (USA). He was last re-elected to theBoard at the 2008 AGM.

04. Mdm. Koh Shwu Lee (Shwu Lee)

Executive Director, Finance & Administration

Shwu Lee manages the Groups Management

Information Systems (MIS), administration,finance, logistics and human resourcefunctions. She is at the forefront of the Groupsadministration and plays an integral part in thedaily operations that forms the backbone of theorganization. In particular, she is responsiblefor the Groups capital investment evaluation,credit control management, cash flow planning,budgetary control and documentary creditreview.

Shwu Lee has been with the Group for morethan 20 years. She has recently been tasked


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board of directors05 06 07

to oversee our Malaysia operations where shereviews management accounts and reports,analyses variance reports, manages credit risks,initiates internal control procedures, overseesexpansion plans and formulates human resourcepolicies.

Shwu Lee was appointed to the Board in 2001and holds a BA from the National University ofSingapore. She was last re-elected to the Boardin the 2008 AGM.

05. Mr. Christopher Chong Meng Tak

(Christopher)

Independent Director

Christopher, is our lead Independent Director,Chairman of the Audit Committee and amember of our Nominating and RemunerationCommittee.

He is a partner of ACH Investments Pte Ltd,a corporate advisory firm, and brings toKoda significant corporate governance and

financial market experience. Christopher is anIndependent Director of other companies listedin Australia and Singapore. He is also an advisorto several regional families, international fundsand private corporations. Christopher, a multi-award winning analyst, was the CEO of HSBCSecurities (Singapore) Pte Ltd (formerly known asHSBC James Capel Securities Pte Ltd), ExecutiveDirector of Kay Hian Holdings (formerly knownas Kay Hian James Capel Ltd) and senior advisorto the NYSE-listed Indonesia Fund.

Christopher holds a BSc. in Economics (1stClass) from the University College of Walesand an MBA from the London Business School.He is a member of the Institute of CharteredAccountants of Scotland, a Master Stockbrokerof the Securities, Investment and DerivativesAssociation of Australia and a Fellow of theHong Kong Society of Accountants, the SingaporeInstitute of Directors and the Australian Instituteof Directors. Christopher was last re-elected tothe Board at the 2009 AGM.

06. Mr. Chan Wah Tiong

(Wah Tiong)


Wah Tiong is an Independent Director of Koda,Chairman of the Groups Nominating andRemuneration Committee and member of theAudit Committee. He is the Chief ExecutiveOfficer of All Saints Home, a non-profitorganisation that provides residential nursingcare.

He brings extensive and valuable financial andaccounting experience to the Group, havingserved as an external auditor, Financial Analyst,an Accountant, Finance Director and FinancialController of several companies (local and multi-national) in manufacturing, trading, constructionindustries and non-profit sectors.

Wah Tiong was appointed the GroupsIndependent Director in 2001. He is also anIndependent Director of Hiap Hoe Limited, a

property development company listed on theSingapore Exchange. He serves as the Treasurer& Finance Committee Chairman of Care CornerSingapore entities and Advisor of NeighbourRing Community Services which provide a widescope of community services.

A Certified Public Accountant with the Instituteof Certified Public Accountants of Singapore,Wah Tiong holds a Bachelor of Accountancyand a Graduate Diploma in Social Work from

the National University of Singapore. He was lastre-elected to the Board at the 2009 AGM.

07. Mr. Sim Cheng Huat (Sim)


Sim was appointed as Independent Directorof Koda, a member of the Audit Committeeand Nominating and Remuneration Committeein 2008. He has extensive experience ininternational trade, market development andbanking experience, having served as CommercialSecretary in the Singapore Embassy in New

York, Alternate Executive Director of AsianDevelopment Bank (Manila, Philippines), seniormanagerial positions at International Enterprise(IE) Singapore and other private enterprises. Heis currently a Director of Broadbase TechnologiesPte Ltd, and as an Advisor to Investment &Promotion Board of the Riau Islands Province.

Sim holds a Bachelor of Arts degree from theNew York University . He was appointed to theBoard in March 2008.


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management profi le01 02

CORPORATE OFFICE (SINGAPORE)

01. Mr. Teh Wing Kwan (Teh)

Chief Financial Officer

Teh specializes in accounting, financial management, tax planning, andmerger & acquisition evaluation. More specifically, he oversees the Groupsfinancial functions relating to corporate finance, financial reporting,regional taxation and restructuring exercises for the Group. He managesinvestor relations, deals with the Audit Committee of Koda and reviewsour Groups performance, financial position and funding structure. Teh hashad significant experience, having been a professional in corporate finance

management for a group of companies engaged in manufacturing andas a Group Internal Auditor for a conglomerate listed on Bursa Malaysia(formerly known as Kuala Lumpur Stock Exchange). He also held seniorpositions in several Public Accountant firms.

Teh is a Fellow of the Association of Chartered Certified Accountants(United Kingdom), a Certified Public Accountant of the Institute of CertifiedPublic Accountants of Singapore, a Full Member of the Singapore Instituteof Directors and a Chartered Accountant of the Malaysian Institute ofAccountants. Teh is also the Director of the Groups subsidiaries inMalaysia.

VIETNAM OPERATIONS

02. Mr. Eric Ong Kah Meng (Eric)

General Director of Rossano Design Co., Ltd

Eric, one of the founders of Rossano, has more than 20 years regionalexperience in the furniture industry, specializing in the operation andmanagement of furniture retail business in Singapore, Malaysia andVietnam. Eric has been in Vietnam since 1992 and has since successfullydeveloped and launched the Rossano brand. Rossano is a multiawardwinning brand in Vietnam notable awards were the prestigious 2006Golden Dragon Award, recognizing Rossano as one of the best foreign-

invested enterprises as granted by Ministry of Industry Vietnam, Ministryof Construction Vietnam and Saigon Marketing Magazines.

Eric received a commendation from the Ho Chi Minh Export Processingand Industrial Zone Authority in 2004 for his contribution to the economicdevelopment of Ho Chi Minh City. Eric is responsible for factory operationsand retail business development of Rossano.


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results at a glance

CONSOLIDATED PROFIT AND LOSS STATEMENTSYEAR ENDED 30 JUNE

2010 2009 Change

US$000 US$000 %

Revenue 44,265 37,775 17.2

Cost of sales (32,864) (27,887) 17.8

Gross profit 11,401 9,888 15.3

Other operating income 606 934 (35.1)

Selling and distribution costs (4,201) (3,772) 11.4

Administrative expenses (7,206) (6,958) 3.6

Other operating expenses (329) (94) 250.0

Finance costs (92) (141) (34.8)

Profit (Loss) before income tax 179 (143) NA

Income tax expense 116 (133) NA

Profit (Loss) after income tax 295 (276) NA

Attributable to:Equity holders of the parent 271 (297) NA

Minority interest 24 21 14.3

295 (276) NA

Revenue

Up by US$6.5 million due mainly to overall marketrecovery in the US and UK but growth was somehowaffected by our realignment of production facilities inVietnam which caused disruptions.

Gross profit

Up by US$1.5 million on the back of higher revenuesbut we achieved slightly lower gross margin, which fellby 0.4 percentage point to 25.8% as a result of higherfactories depreciation, materials prices and wages.

Other operating income

Fell by US$0.3 million there was a capital gain ofUS$0.4 million on disposal of fixed assets in FY2009.

Selling and distribution costs

Increased by US$0.4 million due mainly to higher logisticcosts (road transport costs and containers handling fees)and higher retail showrooms rental.

Administrative expenses

Increased by US$0.2 million due mainly to higher officedepreciation and bank charges. The weaker US$ alsomeant higher S$ dollar and RM-denominated operatingexpenses.

Other operating expenses

Increased by US$0.2 million due mainly to provisionsfor slow-moving and obsolete stocks.

Income tax expense

Net tax credit due to reversal of overprovision forincome tax and reduction in deferred tax liabilities.

Equity holders of the parent

A turnaround reported a full year profit of US$0.27million compared to a net operating of US$0.7 millionlast year (excluding capital gain of US$0.4 million inFY2009)


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results at a glance

CONSOLIDATED BALANCE SHEETS (LIABILITIES)AS AT JUNE 30

2010 2009

US$000 US$000

LIABILITIES AND EQUITY

Current liabilities

Bank overdraft and bills payable 3,714 406

Trade payables 3,614 3,446

Other payables and accruals 2,439 2,126

Income tax payable 257

Finance lease obligations: current portion 86 250

Long-term bank loans: current portion 212 380

Total current liabilities 10,065 6,865

Non-current liabilities

Finance lease obligations 657 499

Long-term bank loans 214 95

Total non-current liabilities 871 594

Capital and reserves

Issued capital 4,040 4,040

Capital reserves 2,206 2,193

Currency translation reserve 560 298

Retained earnings 19,990 20,197

Equity attributable to shareholders 26,796 26,728

Minority interests 817 965

Total equity 27,613 27,693

Total Liabilities and Equity 38,549 35,152

CURRENT LIABILITIES

Bank overdraft and bills payable

Increased by US$3.3 million due mainly to higher

working capital loans taken up to finance inventoriesinvestment.

Trade payables

Increased by US$0.2 million rose slower compared toincrease in purchases (on the back of higher revenues) asa result of us paying our suppliers faster.

Other payables and accruals

Increased by US$0.3 million due mainly highercustomers deposits and accrued workers wages (higherheadcount for Malaysia operations and higher minimumwages for Vietnam operations).

Income tax payable

Fell by US$0.3 million due mainly to overprovision fortax in previous financial years and tax payments duringthe year.

Long-term payable (finance lease obligations and

long-term bank loans)

Fell by US$0.2 million due to continuous repaymentsof loans principle.

CAPITAL & RESERVES

Equity attributable to shareholders

Increased by US$0.07 million after accounting for currentyear earnings, higher currency translation reserve andlast-year dividends payments.

Minority interests

Representing the 30% share of Rossanos net asset bythe minority shareholder fell by US$0.15 million afteraccounting current year earnings (which was partiallyaffected by the weakened Vietnamese Dong) anddividends paid to the minority shareholder.


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global presence


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EuropeBelgiumCroatiaCyprusDenmarkFranceGeorgiaGermanyGreeceIreland

ItalyLatviaMaltaNorwayPolandPortugalRomaniaRussia FederationSpainSwedenSwitzerlandThe Netherlands

UkraineUnited Kingdom

PacificAustraliaNew Zealand

AsiaBangladeshCambodiaChinaHong KongJapan

MalaysiaPakistanSingaporeSouth KoreaTaiwanThailandThe PhilippinesVietnam

AmericasCanadaCosta RicaMexicoPanamaU.S.A

South / Latin AmericaArgentinaPuerto Rico

Middle EastBahrainIsraelKuwaitLebanonOmamSaudi ArabiaUnited Arab Emirates

OthersAlgeria

MoroccoSouth Africa

COUNTRIES WE SELL TO:


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chairmans statement


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KODA LTDANNUAL REPORT FY 2010.1 2

managing directors statement

FOR WHATEVER STRATEGIESWE HAVE IN MIND BE ITORGANIC OR SYNERGISTICM&A WE ARE GATHERING

PACE RATHER THAN LOSINGSTEAM. TO WORK THROUGHTHESE STRATEGIES, WE ARECOMPELLED TO REMAINFOCUSED INWARDLY ANDREGIONALLY.

James Koh Jyh Gang

Deputy Chairman & Managing Director

Dear Stakeholders

Much has been talked about the worlds most disruptive recession, the

aftermath of the crisis, gloomy prediction of the spillover and dashing

of stability hopes. Much has also been talked about the fiscal stimuli

around the globe, redistribution of world resources, revival of depressed

investments and returning of investment crews. Having said that, we dont

deserve bottles of champagne, I know. I cant write much about a howling

success in our recovery. Even so, I do feel a little bucked up by our still-

pretty-helpful revenues growth and then see that what was previously

unprofitable, is profitable.

Overview

Experiencing the existential financial crisis and facing somehow a freakish

revival, this report is still far from stellar. In FY2010, revenues to our

key markets were generally higher and we recovered from the depressed

operating loss position last year. On the commercial front, our massive

new models expansion continued apace as new designs were desperately

needed during these desperate days to sustain margins. For the commercial

runs, we have re-engineered our production lines, acquired new machines,

geared up workers training for improved output efficiency in supporting

these commercial decisions.


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KODA LTDANNUAL REPORT FY 2010 13 .


We had a gripe nevertheless, on the flipside of it. Marketing staff jostling

at the till and scrambling to have their orders delivered by the factories

with us having a need, almost every week if not every day, to mollify some

of the long-awaited customers. The orders backlog somehow caused an

outcry at Production due to increased designs complexity. Production yelled

at R&D for specs confirmation while R&D was eagerly trailing Engineering

for new products costing. After all, it bounced Marketing to negotiate for

better pricing. This transitional learning curve was rather annoying and

disruptive but leastwise manageable. The good news, however, is thatmost of our clients were finally happy to have their LC extended for the

good products.

There were however good commercial reasons behind the flutter. I can

afford the resultant short-term disruptions at the factories but I cannot

afford to see my products development slowing down or dying off into

market irrelevance at the expense of our long-term growth. Economists may

agree but opportunists may oppose the theory of swapping short-term pain

for long-term gain, which to me makes commercial sense even though I

am neither an economist nor opportunist but I agree with consensus! This

partially explained why our capacity utilization during 4Q10 fell below the

optimal level we would have liked, due to the bottleneck we temporarily

faced but explained why our overall margins did not fall as much as one

would have expected, due to the new designs we successfully launched.

Our major trading currency also our functional currency has been in

US$. The weakened US$, to a larger extent, meant higher S$-denominated

head office expenses which caused our administrative expenses to rise but

to a lesser extent, meant lower cost of funds which have helped us to save

on some interest expense. During the year, we borrowed more in US$ and

the lower financing costs allowed us to better leverage on our monies for

higher inventories investment and capital expenditure budgets with our

low gearing position of just below 0.2 times.

On a positive note, we have cleared most of our backlog for our clients

whom we used to temper and placate. They continue snapping up orders

for the new designs and we are now backed by a strong orders book of

about US$13 million, a portion of which is also backed by cash deposits

and letters of credit. This proves that our role as one of the principal

suppliers for our key accounts has not disappeared despite the fact that

the average orders size fell, reflecting that the markets may not be as rich

as before but it is not wimpy either when one has good products to offer

and price them right. Encouragingly, we are also running at levels above

where we were around this time last year.


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FINANCIAL PERFORMANCE

Summarized profit and loss account

For the year ended June 30

US$000 2010 2009 2008 2007 2006

Revenue 44,265 37,775 54,944 60,063 48,117

Gross profit 11,401 9,888 16,014 17,409 13,038

Profit (loss) before income tax 179 (143) 5,079 7,980 4,834

Income tax credit (expense) current year 116 (133) (415) (225) (103)

Net profit (loss) after current year tax provision 295 (276) 4,664 7,755 4,731

Income tax prior year (365)

Net profit (loss) after tax 295 (276) 4,299 7,755 4,731

Attributable to:

Equity holders of the parent 271 (297) 4,200 7,232 4,716

Minority interests 24 21 99 523 15

295 (276) 4,299 7,755 4,731

Earnings (Loss) per share (US cents)* 0.20 (0.22) 3.1 5.4 3.5

Earnings (Loss) Earnings per share (S cents)* 0.28 (0.32) 4.7 8.3 5.4

Revenues and Profits

You have read that our revenues were higher despite the transitional production

upsets we had as a result of our intense desire for a successful new designslaunch during the year. You have further learned that our revenues werehowever lower than what we would have liked given the experient learningcurve. To a certain extent, we have also seen the impact of exchange rateson our operating expenses and finance costs whilst not pushing aside othercommercial factors which have caused our selling and administrative expensesto rise. There was also a capital gain of US$0.4 million in FY2009 whichhad helped to reduce our net loss position to US$0.3 million last year andcomparably, other income fell sharply during the year under review. Thus, ourturnaround in FY2010 with a net profit of US$0.3 million would have beenmore credible excluding the non-recurring capital gain.

Expectation on market condition has brightened somewhat. Worldwide,

except EU and Canada, we clinched more deals with us recordingUS$44.3 million in revenues, a year-on-year revenues growth of 17.2%or US$6.5 million. Some of our winning designs from the intensified R&Defforts managed to draw in clients enquiries and secure better-pricedorders. Notably, more than 60% of our revenues were derived from ourkey markets amidst lingering uncertainty in the US and UK/EU while seeingsustainable revenues coming from the emerging-affluent segments inAsia Pacific and United Arab Emirates, with our rare appearance in NorthAfrica as well. Our local retail and franchise sales in Vietnam were alsosustainably strong but the translated dollar-sales was lower as a result ofthe weakened Vietnamese Dong.

Note:* EPS for FY2006 has been re-computed based on the enlarged number of shares of 133,690,000 (inclusive of 1-for-5 bonus issue)** EPS (S cents) have been computed based on average US$:S$ exchange rates


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Gross profit grew by US$1.5 million to US$11.4 million given our higherrevenues base, but at a pace just slightly slower than our revenues growthdue largely to the moderately higher raw material prices, inflationary workerswages and new facilities depreciation. While our average selling prices weresomewhat 5% 7% higher, we are still catching up with the costs escalationand time lag to pass on such costs continues to exist. At the same time, wecontinued to spend quite a fistful of dollars relative to our size in newdesigns which partially caused our cost of sales to rise further.

We did debate as to whether we should cut back our R&D investments byan average 20% 30% to save on fixed costs when the market sentiment

itself was rather unsettled. At long last, we were inclined to believe that ifwe dont bet on price-slashing strategy for our products, we would haveto count on smart and whipping lines of our products. We would ratherlatch on commercial risks for good margins potential than be blasted forhanging on to the existing market share for too long and watching itsslow decline into insignificance. Consequently, the number of new designslaunched during the international furniture fairs was substantially higherand realignment of production facilities in Vietnam was concurrentlyrequired to put these new designs into commercial production run.

But then, the facilities realignment process during 4Q10 temporarilyflapped departmental flows and clipped productivity in the newly expandedoffice and buildings, which also at the same time started to depreciate.While our revenues for 4Q10 were 27.9% higher than 4Q09, it wouldhave been higher without this transitional learning curve which perplexedus a little (but at least it was not in a mess). While our R&D costs for newdesigns were higher and the learning curve was irritating, we managedto sell more and at better prices, compensating the costs pressure we hadand minimized our gross margin fall.

These intensified R&D efforts are also not without its blow. Get it right,we will be able to see sustainable margins (25% 27%, if not higher),maintain supply-chain credibility and enlarge market share at least wedid. Get it wrong, we will see more of those supposed-to-be in thingsbecome load of cack. During the year, the get-it-right partially explainedwhy our gross margin was relatively constant at about 26% with revenuesto the US and UK growing as much as 40% when these markets sortof recovered. The get-it-wrong, however has resulted in us making aprovision for slow-moving stocks of US$0.2 million under other operatingexpenses on the ground of accounting prudence.

Selling and distribution costs increased by 11.4% or US$0.4 million toUS$4.2 million due largely to higher logistic costs and retail-relatedexpenses. Specifically that:

the number of containers trucked out from our factories to ports washigher as a result of higher revenues. The road transport costs werealso generally higher for each container, which were further burdenedby higher unit handling fees for containers loading. As a result,logistic costs rose;

Year ended

30 June

2010

30 June

2009 Change

US$000 US$000

United Kingdom 7,871 6,275 1,596

Europe 4,393 4,698 (305)

America 19,362 13,148 6,214

Canada 1,963 3,109 (1,146)

Asia-Pacific 9,850 9,754 96

Others 826 791 35

Total Revenues 44,265 37,775 6,490

2009

1.9%

22.3%

4.4%

43.7%

9.9%

17.8%

2010

2.1%

25.8%

8.2%

34.8%

12.4%

16.7%

United KingdomEuropeNorth AmericaCanadaAsia PacificOthers


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Rentals for our retail showrooms in Vietnam were higher. Confidencehas improved and momentum has increased in the real estate in HoChi Minh City with commercial rental catching up with this marketsentiment. Rossano-Vietnam gave its grudging acceptance of higherrent per square meter for its showrooms which are strategically located but they are not sumptuously styled and extravagantly decorated inthe busy districts.

Administrative expense rose a moderate 3.6% or US$0.2 million to US$7.2million due largely to higher bank charges and higher translated office

expenses in US$. Specifically that:

we strongly believe that it will be more sensible to align our revenues

growth with broader economic growth. It is thus more sensible for us

to look at credit quality rather than credit growth particularly when the

economic conditions are fragile and spending sentiment is still flimsy.

We scrutinized clients credit background, insured open-accounts

debts and monitored collection cycles at least our hands were not

trembling when we signed off our sales contracts but regretfully, a

small fraction of our debts was still required to be written off. Bank

charges were, as a result, much higher;

the Vietnamese Dong has weakened against the US$ which meant

lower office and operating expenses in Vietnam. About the same time,

the US$ has also weakened against Ringgit Malaysia (RM) and the S$

which meant more expensive running costs for our Malaysia factory

and head office expenses at home. Our RM and S$-denominatedexpenses were however proportionately higher than that of the

Dong-denominated expenses and the resultant gap of which caused

US$-denominated administrative expenses to rise.

Considering all these, we recovered losses from previous year. We made

a net profit of US$0.3 million this year compared to a net operating loss

of US$0.7 million (capital gain not counted) last year.

FINANCIAL POSITIONSummarized balance sheet

As at June 30

US$000 2010 2009 2008 2007 2006

Property, plant and equipment 14,699 13,272 13,528 10,764 10,190

Other investments and assets 1,211 1,142 1,228 1,121 1,459

Goodwill on consolidation 728 728 728 728 728

Total non-current assets 16,638 15,142 15,484 12,613 12,377

Current assets 21,911 20,010 22,249 23,189 16,740

Current liabilities (10,065) (6,865) (7,086) (7,849) (7,562)

Net current assets (liabilities) 11,846 13,145 15,163 15,340 9,178

Total non-current liabilities (871) (594) (1,452) (2,171) (3,386)

Minority interest (817) (965) (1,109) (1,120) (563)

Equity attributable to shareholders 26,796 26,728 28,086 24,662 17,606

Net assets value per share (US cents) 20.7 20.0 21.0 18.4 13.2

Net assets value per share (S cents)* 29.0 29.0 28.6 25.0 18.0

* Net Asset Value per share have been computed based on the US$:S$ closing rates


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While I was analyzing this section, my head flopped to one side to wedge

my Nokia talking about various key ratios and my eyes fixated on the

various points of assets and liabilities. I tumbled through the numbers

trying to flesh out more details and I started to draw arrows flying around

pointing assets to liabilities, cash to borrowings, borrowings back to

working capital assets it was like crayon drawings at school but I see

myself doing this more often nowadays.

We are altogether sure. Many businesses struggled in sluggish businesscondition because of overzealous expansion plans, and also because

of overstretched financial position. We know we cant blur and blear

ourselves in this aspect we cant afford to and the safer thing for us

to do when it comes to money-spending (or any wallet-wilting things in

fact) is to drill this so-called prudent hesitation every time we have a

major capital expenditure. Sometimes it could be a baffling problem which

may hinder growth initiatives.

Much as before, our financial position continued to be predictably prudent

and slowly progressed. Overall net assets position has almost an invisible

change as at 30 June 2010 but just fine, it seems.

Assets and Liabilities

Total assets investment increased by US$3.4 million to US$38.6 million.

Reflecting more of a rebound in our orders books, there was an additional

US$2.6 million in inventories investment. Completing our new facilities in

Vietnam, there was a total US$1.4 million in progress payments and new

machines. Emphasizing on credit control, there was an improvement in our

collection cycles with our trade receivables falling by US$0.5 million.

Total liabilities increased by US$3.5 million to US$10.9 million, almost in

line with the increase in our total assets. Leveraging on lower US$ funding

costs, we borrowed quite a fair bit. We drew down additional US$3.3

million in trade finance facilities and relied on a slightly higher suppliers

credit of US$0.2 million to finance our purchases on the back of higher

revenues and our strategical buffer stocks plans.

The total assets position appeared obviously adequate in covering that

of the total liabilities with a reasonably low gearing level for our fundingstructure. That is to say, for every US$1 in debts, we had a financial

backing of about US$3.52 worth of assets; and for every US$1 in assets,

we borrowed just US$0.18 cents.

Shareholders Equity

You had entrusted funds of US$26.8 million with us covering your initial

capital, profits we accumulated for you over the years after the total cash

dividends you received and other non-distributable reserves which act

as a buffer for possible assets value fluctuation and currency translation

movements. Quite disappointing, I know, the Return on Equity of just

1% was probably slightly better than your US$ or S$ fixed deposits rates

here. This year, we have also planned to return a small 1.8% of your

entrusted funds by proposing a final dividend of half-a-Singapore cent

which works out to be some 2.5% dividend yield based on our current

share price. Generally, the slowly progressed shareholders equity remains

fundamentally safe.


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CASH FLOWS

Summarized cash flows statement

For the year ended June 30

US$000 2010 2009 2008 2007 2006

Operating cash flows before working capital changes 1,474 329 6,078 9,056 6,232

Net cash (used in) from operating activities (1,045) (420) 3,120 5,752 8,162Net cash used in investing activities (1,831) (505) (3,282) (528) (3,461)

Net cash from (used in) financing activities 2,798 (692) (570) (1,859) (2,923)

Net (decrease) increase in cash and cash equivalents (78) (1,617) (732) 3,365 1,778

Cash and cash equivalents at beginning of year 3,488 5,105 5,837 2,472 694

Cash and cash equivalents at end of year 3,410 3,488 5,105 5,837 2,472

Operating cash flows before working capital changes or in other words,

also means cash profits before income tax increased sharply to US$1.5

million as a result of our return-to-profit position, much higher provisionsfor depreciation, bad debts and slow-moving stocks which are non-cash

related expenses and the need to account for net effects on currency

translation difference for our group operations. During the year, we

invested more in stocks, paid cash dividends (your FY2009 dividends and

cash distribution to minority shareholders in Rossano) and income tax

as usual but were partly relieved with faster collection cycles and longer

suppliers credit term. As a result we used up US$1.0 million in net cash

for operating activities. Net cash used in investing activities increased

by US$1.8 million given our expansion plans in Vietnam. There was

also additional net cash from financing activities of US$2.8 million as

the low US$ funding costs prompted us to borrow more for our working

capital and capital expenditure investments. To sum up, slightly morethan one-third of our current year cash flows requirement was funded by

internally-generated funds and the remaining balance was matched by the

corresponding increase in borrowings. Considering all these, our cash and

cash equivalents fell slightly by US$0.08 million to US$3.4 million.

Investment ratios and other key financial indicators

Table 1

Year ended/ 2010 2009 2008 2007 2006

As at June 30

Gross profit margin (%) 25.8 26.2 29.1 29.0 27.1

Net profit margin (%) 0.6 7.6 12.0 9.8

Inventory turnover: average(days) 133 124 80 70 54

Trade receivable turnover(days) 29 38 28 32 37

Return on equity (%) 1.0 15.0 29.3 26.8

Quick ratio (times) 1.0 1.5 1.9 1.9 1.5Current ratio (times) 2.2 2.9 3.1 3.0 2.2

Gearing (times) 0.2 0.1 0.1 0.1 0.3

Interest cover (times) 2.9 28.0 32.4 15.4


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When you have your calculator in front of you for these, I guess your

dominant mood was much of the perceptibly boring as reflected in our

average share price, which continues to lag behind our NAV per share of

S 29 cents. Check Table 1 please.

Earnings per share sharp improvement compared to the loss per

share position last year but not extremely notable yet. For every

share you own, probably still far from you would expect, we earn you

US$0.20 cents (S$0.28 cents).

Net Asset Value per share remained relatively constant. For every

share you own, it was backed by US 20.1 cents (S 28.1 cents) worth

of net asset as at 30 June 2010.

Dividend per share the proposed final dividend of S 0.5 cents, if you

approve, would remain the same as last year.

Going forward

We are now mingled in various jumbled macro-economies factors which

have been confusing enough for us to chart realistic growth strategies.

Generally, I know the economic conditions look fragile but it is not slipping

back. I think the market recovery is not completely behind us but it appears

volatile, I also see that the economic headwinds facing our supply-chain is

erratic although many seem to be moderating. Then again, I must say our

competitive advantage did help us to drive our trade volume higher and

reversed us from losses despite these wandering market conditions while

preparing us for a sustainable upturn trend.

Whilst we are prepared to foster a return to optimum factories utilization

rates, preferably 80% 90% and work towards the market potential in a

context of margins stability, preferably 25% 27%, we cannot possibly beignorant of or choose to ignore what is happening at the moment in the

main countries which we have been selling to. Specifically, I know that the

impact of Wall Street money-printing machine appears to be decelerating,

unemployment data remains stubbornly high, fear of renewed weakness

in the housing industry continues to exist, consumers confidence could

fall again people are still thinking of what they really need rather than

what they seriously like. These not-too-good perceptions stem from the

terrible things which we have seen as to how the great economic powers

could also cause troubles.

After all, these countries are still really serious volume market, where

more than 70% of our US/UK/EU sales still happen and there are always

good reasons to be cautious as these markets carry much greater weight

than just the short-term volume hopes for us. While scratching my head

in thinking of how to stabilize our supply to these markets, we are also

thinking of how to enlarge our market segments and diversify our supply

chain. The PRC and Indonesia in these aspects are a current big talking

point in our recent strategy meetings.

Apart from these market strategies, effective products strategies are as

crucial. We are certainly doing more than just tweaking and toying the

modern paint-and-plain designs where we would have to offer style,

sense and value as well considering economic conditions being far from

conducive to sumptuous living. Value-buy would probably become less

tricky to sell. The entire process management on these renewed product

strategies as you have read in the previous sections did stump us for

a while, but there were not nasty problems to resolve. Having invested in

innovative designs for our current modern contemporary products range,

we are also finding ways to enlarge types of products we could offer the

modern classical or Victorian-style furniture are something appealing to

me and I see their market potential. Talking about this, we are looking

into available sources, again from the PRC and Indonesia.

For whatever strategies we have in mind be it organic or synergistic

M&A we are gathering pace rather than losing steam. To work

through these strategies, we are compelled to remain focused inwardly

and regionally. Thank you the management, shareholders, customers,

suppliers, bankers and business associates your continual support is at

all times important.

James Koh Jyh Gang

Managing Director


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corporate structure

KODA WOODCRAFT SDN BHD KODA VIETNAM CO., LTD

KODA INTERNATIONAL LTD

KODA INDOCHINE COMPANY LTD

KODA SAIGON COMPANY LTD

RICHIN FURNITURE DCOR PTE LTD

ROSSANO DESIGN CO., LTD

JATAT FURNITURE INDUSTRIES SDN BHD

KODA FURNITURE (DONGGUAN) CO., LTD

OUTDOOR LIVING PTE LTD

DEVON LIFESTYLE LIMITED

MALAYSIA 100% VIETNAM 100%

VIETNAM 100%

VIETNAM 100%

VIETNAM 100%

RICHINSINGAPORE 70%

VIETNAM 35%

MALAYSIA 100%

CHINA 100%

OUTDOOR LIVINGSINGAPORE 100%

NEW ZEALAND

100%

50%


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report on corporate governance

The Board of Directors and Management are committed to setting in place corporate governance practices to provide the structure

through which the objectives of protection of shareholders interests and enhancement of long term shareholder value are met

and by complying with the principles and guidelines of the Singapore Code of Corporate Governance 2005 (the Code) issued

by the Ministry of Finance.

This report outlines the Companys corporate governance practices with specific reference made to the Code. The Board is pleased

to confirm that the Company has generally complied with the Code, save for deviation with reference to Guideline 3.1 (Chairman

and CEO should be separate persons) which is explained in this report.

1. The Boards Conduct of its Affairs

The Board must meet at least four times a year. Generally the Board meets more than 4 times a year. Additional meetings

are held at such other times as and when required to review and adjust the medium and longer term strategic plans and

to address any specific significant matters that may arise. The attendance of the Directors at Board meetings and Board

committees, as well as the frequency of such meetings is disclosed in this Report.

The principal functions of the Board are:

a. enhancing the long term value of the Company for shareholders;

b. charting the corporate strategy and direction of the Group, including but not limited to approval of broad policies,

strategies and financial objectives of the Group;

c. supervision and monitoring of the Groups management;

d. together with the help of the Audit Committee, overseeing the processes for evaluating the adequacy of internal

controls, management controls, risk management, financial reporting and compliance;

e. the approval of annual budgets, proposals for acquisitions, investments and disposals;

f. the approval of nominations to the Board and appointment of key personnel; and

g. the review of corporate governance practices.

An Executive Committee was formed to supervise the management of the business and affairs of the Company and reduces

the administrative time, inconvenience and expenses associated with the convening of Board Meetings and circulation of

Board resolutions, without compromising our corporate objectives and adversely affecting the day to day operations of the

Company. The Executive Committee comprises Mr Koh Teng Kwee, Mr James Koh Jyh Gang, Mr Koh Jyh Eng and Mdm

Koh Shwu Lee and Mr Teh Wing Kwan.

Matters which require the Boards approval include the following:

i. the review of the annual budget and the performance of the Group;

ii. review of key activities and business strategies;


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iii. approval of the corporate strategy and direction of the Group;

iv. approval of transactions involving a conflict of interest for a substantial shareholder or a director or interested person

transactions;

v. material acquisitions and disposals;

vi. acceptances of bank facilities;

vii corporate or financial restructuring and share issuances;

viii. declaration of dividends and other returns to shareholders; and

ix. appointment of new directors.

A newly-appointed director will be given a formal letter setting out his duties and obligations upon his appointment and

he will undergo an orientation program to be familiar with the Groups businesses and governance practices. The Directors

are informed of developments relevant to the Group, including changes in laws, regulations and risks that may impact

the Group.

Non-executive Directors are encouraged to purchase shares in the Company and to hold them till they leave the Board.

2. Boards Composition and Balance

The Board comprises seven Directors, three of whom are non-executive, independent directors. The Board and the

Nominating and Remuneration Committee is of the view that there is no individual or small group of individuals dominating

the Boards decision making process and the Boards current size is appropriate for facilitating effective decision making.

The Board has a good balance of directors who have extensive business, financial, accounting and management experience.

The diverse and objective judgment of the independent and non-executive directors on corporate affairs and their

experience and contributions are valuable to the Company. Profiles of the Directors are set out on page 2 and 3 of this

Annual Report.

3. Chairman and Managing Director

Mr Koh Teng Kwee, a non-executive Director and the founder of the Group, assumes the role of Chairman. Mr James Koh

Jyh Gang, is the Deputy Chairman and Managing Director. The Chairman, Mr Koh Teng Kwee, is the father of the Deputy

Chairman and Managing Director, Mr James Koh Jyh Gang. The separation of the roles of Chairman of the Board and

Managing Director is to ensure that the working of the Board and the executive responsibility of the Groups business a re

kept distinct, increasing the accountability and capacity of the Board for independent decision making.


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The Chairman shall:

a. in consultation with the Managing Director, schedule meetings that enable the Board to perform its duties responsibly

while not interfering with the flow of the Groups operations;

b. prepare meeting agenda in consultation with the Managing Director;

c. in consultation with the Managing Director, exercise control over quality, quantity and timeliness of the flow of

information between Management and the Board; and

d. assist in ensuring compliance with the Groups guidelines on corporate governance.

As the Chairman and the Managing Director are related, Mr Christopher Chong Meng Tak has been appointed as the Lead

Independent Director. As the Lead Independent Director, Mr Chong is the contact person for Shareholders in situations

where the Shareholders have concerns or issues which communication with our Chairman or Managing Director is

inappropriate or where such communication has failed to resolve the concerns or issues raised.

The Managing Director, Mr James Koh Jyh Gang, is youthful and healthy. Nevertheless the Board has adopted a succession

policy in the event that the Managing Director is unable to fulfill his duties for whatever reason.

The Board conducts regular scheduled meetings and ad-hoc Board meetings are convened when warranted by circumstances

relating to matters that are material to the Group. The Board meets at least four times a year. Telephonic attendance and

video conferencing at Board meetings are allowed under the Companys articles of association. The number of meetings

held and the attendance of each director at every Board and Board Committees meetings during the financial year ended

30 June 2010 are as follows:

Name Board Audit Committee

Nominating &

Remuneration

Committee

Executive

Committee

No. of

meetings

held

No. of

meetings

attended

No. of

meetings

held

No. of

meetings

attended

No. of

meetings

held

No. of

meetings

attended

No. of

meetings

held

No. of

meetings

attended

Koh Teng Kwee 6 4 NA NA NA NA 6 1

James Koh Jyh Gang 6 6 NA NA NA NA 6 6

Koh Jyh Eng 6 6 NA NA NA NA 6 6

Koh Shwu Lee 6 6 NA NA NA NA 6 6

Christopher Chong

Meng Tak 6 6 4 4 1 1 NA NA

Chan Wah Tiong 6 6 4 4 1 1 NA NA

Sim Cheng Huat 6 6 4 4 1 1 NA NA


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4. Board Membership

The Nominating and Remuneration Committee comprises three members, all of whom are independent. The Nominating

and Remuneration Committee is chaired by Mr Chan Wah Tiong and has as its members, Mr Christopher Chong Meng

Tak and Mr Sim Cheng Huat.

The Nominating and Remuneration Committee meets when necessary to discuss issues of Board appointments or matters

relating to remuneration.

The functions of the Nominating and Remuneration Committee include the following:

a. assisting the Board to enhance the long term value of the Company for shareholders;

b. recommendations to the Board on all Board appointments or re-appointments;

c. assessment of the effectiveness of the Board as a whole and the contributions of each director to the effectiveness

of the Board;

d. determination of the independence of the members of the Board;

e. recommendations to the Board of a framework of remuneration for the Board and key executives, which covers

all aspects of remuneration, including but not limited to directors fees, salaries, allowances, bonuses, options andbenefits in kind;

f. determining specific remuneration packages for each executive Director.

For appointment of new directors to the Board, the Nominating and Remuneration Committee would, in consultation

with the Board, evaluate and determine the selection criteria with due consideration to the mix of skills, knowledge and

experience of the existing Board. The Nominating and Remuneration Committee does so by first evaluating the existing

strengthens and capabilities of the Board, assess the likely future needs of the Board, assess whether this need can be

fulfilled by the appointment of one person and if not, then to consult the Board with respect to the appointment of

two persons, seek likely candidates widely and source resumes for review, undertake background checks on the resumes

received, narrow this list of resumes to a short list and then to invite the shortlisted candidates to an interview which may

include a briefing of the duties required to ensure that there are no expectations gap. The Nominating and Remuneration

Committee will seek candidates widely and beyond persons directly known to the Directors and is empowered to engage

professional search firms and also give due consideration to candidates identified by any persons. The Nominating and

Remuneration Committee will interview all potential candidates in frank and detailed meetings and make recommendations

to the Board for approval.

Pursuant to the Articles of Association of the Company, new Directors must submit themselves for re-election at the next

Annual General Meeting (AGM). In addition, an election of Directors shall take place each year at the Annual General

Meeting, where not less than one-third of the Directors shall retire from office by rotation but a re eligible for re-election.

Under the Articles of Association of the Company, the Managing Director, Mr James Koh Jyh Gang is not subject to

retirement by rotation or be taken into account in determining the number of Directors to retire.


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The Nominating and Remuneration Committee in determining whether to recommend a Director for re-appointment will

have regard to such Directors contribution and performance to the Group and whether such Director has been adequately

carrying out his or her duties as a Director. The Nominating and Remuneration Committee is in the process of adopting

internal guidelines to address the competing time commitments that are faced when Directors serve on multiple boards.

However, the Nominating and Remuneration Committee notes that such Directors have been taking independent actions

to address the issue. For instance, the Nominating and Remuneration Committee has been informed by Mr Christopher

Chong Meng Tak that he has retired from two Boards to cover duties over and above what is normally expected of a

director, he has, with the approval of that Board, appointed an alternate director to cover these additional responsibilities.The Nominating and Remuneration Committee is satisfied that adequate time and attention have been given to the affairs

of the Company, through attendance at meetings of the Board and Board Committees, including electronic and telephone

communications, by all Directors.

The Directors standing for re-election at the forthcoming Annual General Meeting are Mr Sim Cheng Huat, Mdm Koh

Shwu Lee and Mr Koh Teng Kwee. Mr Sim Cheng Huat and Mdm Koh Shwu Lee are retiring pursuant to Article 91 of the

Companys Articles of Association and are eligible for re-election. Mr Koh Teng Kwee, being over the age of 70 years is

seeking re-election in accordance with section 153(6) of the Companies Act, Cap. 50.

The Nominating and Remuneration Committee, after assessing their contributions and performance has recommended

Mr Sim Cheng Huat, Mdm Koh Shwu Lee and Mr Koh Teng Kwee for re-election at the forthcoming Annual GeneralMeeting.

Every year, the Nominating and Remuneration Committee reviews and affirms the independence of the Companys

Independent Directors. Each Director is required to complete a Directors Independence Checklist on an annual basis to

confirm his independence. The checklist is drawn up based on the guidelines provided in the Code and further requires

each Director to assess whether he considers himself independent despite not being involved in any of the relationships

identified in the Code. The Nominating and Remuneration Committee then reviews the checklist to determine whether the

Director is independent. The Nominating and Remuneration Committee is of the view that all the Independent Directors,

namely Mr Christopher Chong Meng Tak, Mr Chan Wah Tiong and Mr Sim Cheng Huat, are independent. The Nominating

and Remuneration Committee met once during the last financial year.

5. Board Performance

The Nominating and Remuneration Committee is tasked with the assessment of the Boards and Directors performance.

The performance criteria used by the Nominating and Remuneration Committee includes the evaluation of the size and

composition of the Board, the Boards access to information, Board processes and accountability and the Boards performance

in relation to discharging its principal functions and responsibilities, the Directors standards of conduct and such financial

targets as the Nominating and Remuneration Committee considers appropriate. In assessing the individual Directors

performance and the effectiveness of the Board, the Nominating and Remuneration Committee takes into consideration


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the individual Directors industry knowledge and/or functional expertise, contribution and workload requirements. The

Board, however, notes that the financial indicators provide only a snapshot of the Companys performance, and do not

fully reflect on-going risk or measure the sustainable long-term wealth and value creation of the Company.

The Nominating and Remuneration Committee in considering the re-appointment of a Director evaluates such directors

contribution and performance, such as his or her attendance at meetings of the Board or Board committees, where

applicable, participation, candour and any special contributions.

6. Access to Information

Directors are regularly updated by Management on the developments within the Group so that they are equipped to

participate fully at Board Meetings. Board papers are prepared for each Board Meeting and include information from

Management on the financial, business and corporate issues to enable the Directors to be properly briefed on issues to

be raised at Board Meetings.

All Directors have unrestricted access to the Companys records and information and the independent Directors have

access to all levels of key personnel in the Group. At least one of the two joint Company Secretaries is in attendance at

Board meetings, Audit Committee meetings and Nominating and Remuneration Committee meetings. All the Directors

have separate and independent access to both the joint Company Secretaries. The Company Secretaries are responsiblefor ensuring that Board procedures are followed and that applicable rules and regulations are complied with.

Should the Directors, whether as a group or individually, in furtherance of their duties require independent professional

advice, the Directors may, with the consent of the Chairman only or with the consent of the Audit Committee only, appoint

a professional advisor to render advice at the Companys expense.

7. Remuneration Matters

The composition of the Nominating and Remuneration Committee and its functions are set out on pages 24 and 25 of

this Report.

No member of the Nominating and Remuneration Committee shall be involved in any deliberation nor decision making

in respect of any compensation to be offered or granted to him or in respect of his effectiveness as a Director. The

Nominating and Remuneration Committee has access to expert advice inside and outside the Group, if necessary, on

matters of executive compensation.

The Company has in place service contracts for each of its executive Directors which sets out the framework of their

remuneration. The Nominating and Remunerating Committee will, upon the expiry of such service contracts, recommend

to the Board a framework of remuneration for the Board and key executives and determine specific remuneration packages

for each executive Director. The Nominating and Remuneration Committees recommendations will be made in consultation

with the Chairman and submitted for endorsement by the entire Board.


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8. Level and Mix of Remuneration

The Groups remuneration policy is to provide compensation packages appropriate to attract, retain and motivate the

Directors and key personnel required to run the Group successfully.

The Company is of the view that performance-related elements of remuneration should form a significant proportion of

the total remuneration package of executives and should be designed to align their interests with those of shareholders

and link rewards to corporate and individual performance. The Company has in place an employee profit sharing schemepursuant to which executives and management staff (excluding the Directors of the Company) whose job responsibilities

have an impact on the performance and profitability of their department or section are eligible. The limitation of profit

sharing to a maximum of six months of an eligible employees salary as described in the Companys Prospectus dated 8

January 2002 remains unchanged. The Company is of the opinion that further long term incentives are not required given

the significant number of shares held by the Executive Directors.

The remuneration of non-executive Directors should be appropriate to the level of contribution, taking into account factors

such as effort and time spent and responsibilities of the Directors. Non-executive Directors shall not be over-compensated to

the extent that their independence may be compromised. The Board will, if necessary, consult experts on the remuneration

of non-executive Directors. The Board will recommend the remuneration of the non-executive Directors for approval at

the AGM.

Service contracts entered into by the Company with Directors have a fixed appointment period and are not to be excessively

long or with onerous removal clauses. The Nominating and Remuneration Committee considers what compensation the

Directors contracts of service would entail in the event of early termination and aims to be fair and avoid rewarding poor

performance. The Nominating and Remuneration Committee also considers whether Directors should be eligible for benefits

under long-term incentive schemes, such as share option schemes. Currently, the Company has in place an employee share

option scheme, however to date, no options have been granted pursuant to such employee share option scheme.

Details of remuneration paid to the Directors are set out below:

The Directors receiving remuneration from the Group for the year ended 30 June 2009 and 30 June 2010:

Number of Directors

Remuneration band 2010 2009

S$500,000 and above

S$250,000 to S$499,999 1 1

Below S$249,999 6 6

Total 7 7


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Disclosure on Remuneration

Salary Bonus Fees

Allowances

and other

benefits Total

% % % % %

Directors

S$500,000 and above

S$250,000 to S$499,999

James Koh Jyh Gang 83 7 10 100

Below S$250,000

Koh Teng Kwee 90 8 2 100

Koh Jyh Eng 77 6 17 100

Koh Shwu Lee 80 7 13 100

Christopher Chong Meng Tak 100 100

Chan Wah Tiong 100 100

Sim Cheng Huat 100 100

Key personnel of the Group

Below S$250,000

Teh Wing Kwan 87 7 6 100

Chia See Tee 45 40 15 100

Ong Kah Meng 92 8 100

The directors fees paid to the independent Directors, being Mr Christopher Chong Meng Tak, Mr Chan Wah Tiong and

Mr Sim Cheng Huat for FY2010 were S$35,000, S$28,000 and S$18,000 respectively. There are set fees paid for being a

lead independent director/Chairman of the Audit Committee, Chairman of the Nominating and Remuneration Committeeand director. Thus directors fees payable were based on the responsibilities of the Directors and the amount of their time

spent. The proposed directors fees are subject to approval of shareholders at the AGM.

9. Accountability

The Company recognises that the Board should provide shareholders with a balanced and understandable assessment

of the Groups performance, position and prospects on a regular basis and adopts the practice of communicating major

developments in its business and operations to the SGX-ST, its shareholders and its employees. The Company announces

its financial results on a quarterly basis via SGXNET.


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Management provides the Directors with balanced and understandable management accounts of the Groups performance

prior to Board meetings and as and when necessary. The Directors also have separate and independent access to all levels

of key personnel in the Group.

In line with the requirements of SGX-ST negative assurance confirmations on interim financial results were issued by the

Board confirming that to the best of its knowledge, nothing had come to the attention of the Board which would render

the Companys quarterly results to be false or misleading in any material respect.

10. Audit Committee

The Audit Committee comprises three members, all of whom are independent. The Audit Committee is chaired by Mr

Christopher Chong Meng Tak and has as its members, Mr Chan Wah Tiong and Mr Sim Cheng Huat.

The Board recognises that the Audit Committee is responsible for reviewing the results of the Groups audit and cost

effectiveness. The chairman of the Audit Committee is an independent Director and no individual is able to dominate the

Audit Committees decision making process.

The members of the Audit Committee are appropriately qualified to discharge their responsibilities: Mr Christopher Chong

Meng Tak has a BSc. Econ (1st Class) from the University College of Wales, an MBA from the London Business Schooland is a member of the Institute of Chartered Accountants of Scotland, a Fellow of the Australian Securities & Derivatives

Industry Association, a Fellow of the Australian Institute of Directors, a member and ex-Honorary Treasurer of the Hong

Kong Institute of Investment Analysts and a Fellow of the Hong Kong Society of Accountants; Mr Chan Wah Tiong is

a Certified Public Accountant with the Institute of Certified Public Accountants of Singapore and holds a Bachelor of

Accountancy from the National University of Singapore; Mr Sim Cheng Huat has over forty years of international trade,

market development and banking experience.

The Audit Committee has met four times during the last financial year. The Committee reviewed the following, where

relevant, with the executive Directors and the external auditors:

a. the audit plan of the external auditors and results of their examination and evaluation of the Groups systems ofinternal accounting controls;

b. the Groups financial and operating results and accounting policies;

c. the financial statements of the Company and the consolidated financial statements of the Group before their

submission to the Board and the external auditors report on those financial statements;


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d. the appointment and independence of the external auditors of the Company, review of the scope and results of

the audit and its cost-effectiveness;

e. interested person transactions involving transactions between the Group and Directors or associates of Directors.

The Audit Committee has explicit authority to investigate any matter within the scope of its duties and is authorised to

obtain independent professional advice. It has full access to and co-operation of the management and reasonable resources

to enable it to discharge its duties properly. It also has full discretion to invite any executive director or executive officeror any other person to attend its meetings. The Audit Committee meets with the external and internal auditors separately,

at least once a year, without the presence of management to review any areas of audit concern. Individual members of

the Audit Committee also engage the external and internal auditors separately in ad hoc meetings. The external auditors

have unrestricted access to the Audit Committee.

The Audit Committee has undertaken a review of all non-audit services provided by the external auditors and has confirmed

that such non-audit services would not in the Audit Committees opinion, affect the independence of the external

auditors.

The Audit Committee has recommended to the Board the nomination of Deloitte & Touche for re-appointment as external

auditors of the Company at the forthcoming AGM.

The Board has put in place whistle-blowing procedures pursuant to which staff of the Company may, in confidence, raise

concerns about possible improprieties in matters of financial reporting or other matters.

Pursuant to such whistle-blowing procedures, employees are free to submit complaints confidentially or anonymously to

the chairman of the Audit Committee and in this regard a dedicated email address has been set up which is accessible

only by the chairman of the Audit Committee and/or a designated member of the Audit Committee. The procedures for

submission of complaints have been explained to all employees of the Group. All complaints are to be treated as confidential

and are to be brought to the attention of the Audit Committee. Assessment, investigation and evaluation of complaints

are conducted by or at the direction of the Audit Committee and the Audit Committee, if it deems appropriate, may

engage at the Companys expense independent advisors. Following investigation and evaluation of a complaint, the AuditCommittee will then decide on recommended disciplinary or remedial action, if any. The action so determined by the Audit

Committee to be appropriate shall then be brought to the Board or to the appropriate members of senior management

for authorisation or implementation respectively.


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11. Internal Control and Risk Management

The Group has a system of internal controls designed to provide reasonable assurance that assets are safeguarded,

proper accounting records are maintained and that financial information used for financial reporting is reliable. The Board

recognises that no internal control system could provide absolute assurance against the occurrence of material errors, poor

judgment in decis ion-making, human errors, losses, fraud or other ir regularities. The system is designed to manage rather

than eliminate the risk of failure to achieve the business objectives.

Internal and external audit reports on any material non-compliance or internal control weaknesses, including financial,

operational and compliance controls and recommendations for improvements are submitted to the Audit Committee for

review semi-annually. The Audit Committee requires the external auditor to perform the internal audit to IIA standard. The

Audit Committee reviews the effectiveness of the actions taken by management based on the recommendations made

by the internal and external auditors to the Audit Committee. The Audit Committee is satisfied that there are adequate

internal controls within the Group taking into account the nature and size of the Groups business and operations.

The Board believes that the system of internal controls and risk management maintained by the Company is adequate to

safeguard shareholders investment and the Companys assets.

12. Key Operational Risks

The Board is aware of the operational risks which may adversely affect the Groups operating results if any of these risk

factors and uncertainties develops into actual events. The Board uses a probability-impact risk matrix to assess risk. The

following is a non-exhaustive list of some of the key operational risks which affect our Group.

Macro Economic Risk The Groups business is sensitive to global economic conditions. The global economic slowdown

has resulted in lower consumer confidence and reduced purchasing power with consumers changing their spending pattern

to save more for necessities. Furniture purchase is discretionary and has inevitably been affected by the generally weak

economic factors and such market uncertainties. In the event of a prolonged economic downturn, demand for our furniture

is likely to be affected and this will have an adverse impact on the Groups operating results.

Design Risk The Groups business segments have been design-intensive and its operating results depend heavily on the

Groups ability to continually design products which are market-oriented and production-feasible, failing which the Groups

operating results will be adversely affected.

Change in customers ordering pattern As a result of recent market uncertainties, the Companys clients have now

placed orders in smaller batches and expect goods to be delivered faster; switching part of the stock holding risks to the

suppliers. To meet shorter lead time, the Group would have to increase raw materials stocks and produce semi-finished

components ahead of confirmed orders in accordance with its internal orders projection, which means investment in


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inventories would be higher and warehousing facilities would be larger. In the event that the Groups customers do not

order goods in quantities and specifications as projected, the Group may have to make provisions for slow-moving stocks

or stock obsolescence and its operating results will be affected by such provisions.

Increasing credit risks Whilst the Groups current bad debts risk is currently low and existing receivables turnover period

remains manageable, clients expect longer credit terms as a result of changing market conditions in the countries which

the Group has been selling to. The extension of credit terms means increasing credit risk which would need to be closely

monitored. The increasing credit risk may result in the Group having a need to make provision for doubtful debts andincur additional costs in collecting payments. Any bad debt provisions and write-offs will have a negative impact on the

Groups net operating margins.

Supplies of raw materials the Group purchases raw materials such as wood, leather, fabrics and finishes for its production.

The prices of these raw materials are generally sensitive to the world crude oil prices and any increase in the crude oil prices

is likely to increase production costs. The production cycles are also dependent on the ability of the Groups suppliers to

supply raw materials at acceptable terms such as quantity, quality, prices, specifications and lead time - failing which the

Groups production cycles may be disrupted and its operating results may also be adversely be affected.

Risk of Fire The extensive use of wood, chemicals, lacquers and solvents increase the risk of fire. Several fires have

occurred at the Groups factories in the past (the risk of fire in those instances was fully insured). Whilst the Group takesevery precaution against fire, there is no assurance there will be no major fire occurrence in the future and the occurrence

of a major fire will adversely the Groups operations.

Labor supply Approximately one-quarter of the Groups production capacity is located in Malaysia for which the workers

are mainly from Bangladesh, Myanmar and Vietnam. The employment of these foreign workers is subject to quota and

other immigration rules as imposed by the Malaysian Government. Tightening of and adverse changes made to such rules

may result in the Group not being able to source sufficient workers and find suitable replacements its Malaysia operations

and the operating results of the Group may be partially affected.

Changes in tax legislation (Vietnam) There were previously changes made to the tax legislations in Vietnam resulting in

additional and retrospective tax liabilities incurred by one of the Companys subsidiaries in Vietnam (Rossano Design Co.,Ltd (Rossano)). Except for Rossano, the Companys Vietnam-based subsidiaries are currently enjoying concessionary tax

rates. However, if the Vietnamese government were to revise these concessionary tax rates upwards or for whatever reasons,

withdraw these tax incentives granted to our Vietnam-based subsidiaries, the effective tax rates would be significantly

higher and this will adversely affect the Groups net profit margin.

Port facilities disruption in Vietnam The Groups operations in Vietnam incurred incurred Congestion and Terminal charges

in the past and also experienced an exceptionally long waiting time for port access in Vietnam resulting in the Vietnam

operations not being able to receive and deliver goods on time. Should the Vietnam operation encounter such disruptions

again in the future, the distribution costs would be higher and the production cycles may be adversely affected.


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13. Internal Audit

The Company has appointed Messrs Yang Lee & Associates as the internal auditor to review the Groups internal control

system. The internal auditor will plan its internal audit reviews in consultation with, but independent of the Management.

The internal audit plan will be submitted to the Audit Committee for approval prior to the commencement of the internal

audit. The Audit Committee will review the activities of the internal auditors on a regular basis, including overseeing and

monitoring of the implementation of improvement required on internal control weaknesses identified. The internal auditor

adopts the Standards for the Professional Practice of Internal Auditing set by the Institute of Internal Auditors. The internalauditor reports directly to the Audit Committee.

14. Communication with Shareholders

The Directors are mindful of their obligation to provide shareholders with timely disclosure of material information that is

presented in a fair and objective manner. Shareholders and other investors are provided regularly with:

a. An Annual Report;

b. Quarterly financial results and other financial announcements as required;

c. A powerpoint presentation on the state of the Company (available when the Company holds results briefing after

the announcement of its financial statements);

d. Press releases and other announcements on important developments;

e. A website and portal (www.kodaonline.com); and

f. Replies to email queries from shareholders.

On the Companys website investors will find information about the Company, its products, its directors, contact details

and under the Investor Relations link will find all the information the Company has released.

In FY2010 the Company released 14 number of reports and announcements or on average 4 per quarter. Financial results,

annual reports, press releases on the performance and major developments in the business and operations of the Group

and any other material announcements are released through SGXNET and are available on the Companys website.

The financial statements as well as the accompanying press release are released onto the SGX-ST website. For first half

and full year results announcements, results briefing by management is held for analysts.

The Company also engages external investor relation consultant firm to support the Group in promoting the communication

with shareholders and the investment community.


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The Company also holds analyst briefing of important events at least twice a year. All shareholders will receive the

annual report of the Company and notice of AGM by post and through notices published in the newspapers within

the mandatory period. The shareholders can also access information on the Group at the Groups corporate website at

www.kodaonline.com. The website provides, inter alia, all publicly disclosed financial information, corporate announcements,

press releases, annual reports and profiles of the Group.

The Board regards the AGM as an opportunity to communicate directly with shareholders and encourages greater

shareholder participation. The Chairman and the other Directors attend the AGM and are available to answer questionsfrom shareholders at the AGMs. External auditors are also present to assist Directors in addressing any relevant queries

from shareholders.

15. Code on Securities Transactions by Officers

In compliance with the best practices on dealings in securities set out in the SGX-ST Listing Manual, the Company has

adopted its own internal compliance code to provide guidance to its officers with regards to dealing by the Company

and its officers in the Companys securities. Directors and employees of the Company have been advised not to deal in

the Companys shares on short-term considerations or when they are in the possession of unpublished price-sensitive

information. In addition, dealings in the Companys share and during the period commencing one month (in the case of

full year announcements) or two weeks (in the case of quarterly result announcements) before any announcement of theCompanys financial statements and ending on the date of announcement of the results is prohibited.

16. Interested Person Transactions (IPT)

The Group has set up a procedure to record and report IPT. All the IPT were concluded on normal commercial terms and

the value of each IPT during the financial year ended 30 June 2010 did not exceed $100,000.

There were no material contracts entered into by the Company and its subsidiaries involving the interest of the substantial

shareholder or director, which are either subsisting at the end of the financial year or, if not then subsisting, entered into

since the end of the previous financial year.

17. Material Contracts

Since the end of the previous financial year, the Company and its subsidiary companies did not enter into any material

contracts involving the interests of any Directors or any controlling shareholders of the Company or their associates and

there are no such material contracts still subsisting at the end of the financial year.


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18. SGX Checklists

The Board has accepted and uses the following checklist when required:

Acquisitions and Realisations Compliance checklist.

Annual Report Compliance checklist.

Bonus Issue Compliance checklist.

Financial Results Review checklist.

Placement Compliance checklist.

Rights Issue Compliance checklist.

Share Split Compliance checklist.

Share Buyback Compliance checklist.


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fi nancial content

37 report of the directors

41 independent auditors report

43 statements of financial positions

45 consolidated statement of comprehensive income

46 statements of changes in in equity

47 consolidated statement of cash flows

49 notes to financial statements

104 statement of directors

105 freehold land, leasehold land & buildings

106 statistics of shareholdings

108 notice of annual general meeting

proxy form


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koda ltd 2010 annual report

Documents