Annual Report 2011

Trade and other payables are non-interest bearing and are normally settled on 30 to 90 days terms.

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The S$53.3 million (2010: S$66 million) short-term loans are unsecured, interest bearing at rates ranging from 0.90% to 1.19% (2010: 0.69% to 0.70%) per annum and are repayable in full in January 2012 (2010: January 2011).

The S$250 million long term loans are unsecured and are repayable in full in May 2013. They consist of a S$125 million fixed rate loan at an effective rate of 2.6% (2010: 2.6%) per annum and a S$125 million floating rate loan. The S$125 million floating rate loan is interest bearing at a rate which is based on the variable Singapore Dollar Swap Offer Rate, payable semi-annually every November and May. The Company has entered into an interest rate swap to hedge the S$125 million floating rate loan, whereby it receives interest at the variable Singapore Dollar Swap Offer Rate and pays interest at a fixed rate of 1.579% (2010: 1.579%) per annum.

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The holders of ordinary shares are entitled to receive dividends as and when declared by the Company. All ordinary shares carry one vote per share without restrictions. The ordinary shares have no par value.

The Company has an employee share option scheme (see Note 27) under which options to subscribe for the Company’s ordinary shares may have been granted to employees (including executive director) and non-executive directors of the Company and its subsidiaries.

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Hedging reserve records the portion of the fair value changes on derivative financial instruments designated as hedge instruments in cash flow hedges that is determined to be an effective hedge.

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In addition to the related party information disclosed elsewhere in the financial statements, the following were significant transactions entered into by the Group and related parties who are not members of the Group at market rates agreed between the parties during the financial year:

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(a) Capital commitments

Capital expenditure contracted for as at the statement of financial position date but not recognised in the financial statements are as follows:

(b) Operating lease commitments

Rental expenses (principally for land, offices, retail outlets, service centres and base stations) under operating leases were S$28,299,000 and S$25,516,000 for the financial years ended 31 December 2011 and 2010 respectively.

The Group leases various properties under operating lease agreements. These leases have varying terms, escalation clauses and renewal rights. The future minimum lease payments are as follows:

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The Company has an employee share option scheme, M1 Share Option Scheme (the “Scheme”), for granting of non-transferable options to employees (including executive director) and non-executive directors of the Company and its subsidiaries.

The Remuneration Committee is responsible for administering the Scheme. The Remuneration Committee members are Mr Roger Barlow (Chairman of Committee), Mr Chow Kok Kee, Mr Low Huan Ping, Mr Alan Ow Soon Sian and Mr Teo Soon Hoe.

Under the Scheme, options granted have a term of 5 years or 10 years from the date of grant for non-executive directors and Group executives respectively.

The subscription price for each ordinary share in respect of which an option is exercisable shall be determined by the Remuneration Committee as follows:

For good corporate governance, the Remuneration Committee had in 2003 resolved that the date of grant of share options under the Scheme shall be a pre-determined date; that is, the date falling 14 days immediately after the date of announcement of the Company’s full-year results.

Information with respect to the number of options granted under the Scheme is as follows:

*Cancelled when staff resigned from the Company.

The above options will vest over a period of three years from the date of grant and may be exercisable for a period commencing after the first anniversary of the date of grant and expiring on the 10th anniversary of the date of grant.

The weighted average fair value of options granted during the financial year was S$0.25 (2010: S$0.23).

The weighted average share price at the date of exercise of the options during the financial year was S$2.44 (2010: S$2.13).

The weighted average remaining contractual life for options outstanding at the end of the financial year is 6.4 years (2010: 6.9 years).

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Information on a director of the Company participating in the Scheme is as follows:

The expected life of the option is based on historical date and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. No other features of the option were incorporated into the measurement of fair value.

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The Group’s instruments are, in the normal course of business, exposed to interest rate, foreign currency, credit and liquidity risks. The Group’s risk management strategy aims to minimise the adverse effects of financial risk on the financial performance of the Group. The Group also enters into derivative transactions, including interest rate swaps and forward currency contracts. The purpose is to manage the interest rate and currency risks arising from the Group’s operations and its sources of financing. There has been no change to the Group’s exposure to these financial risks or the manner in which it manages and measures the risks.

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of the Group’s and the Company’s financial instruments will fluctuate because of changes in market interest rates. The Group’s and the Company’s exposure to interest rate risk arises primarily from the Group’s long-term debt obligation.

The Group’s policy is to manage its interest cost using a mix of variable and fixed rate debts. To manage this mix in a cost-efficient manner, the Group enters into interest rate swaps, in which the Group agrees to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to an agreed-upon notional principal amount. These swaps are designated to hedge underlying debt obligations. As at 31 December 2011 and 2010, after taking into account the effect of interest rate swap, all of the Group’s long-term borrowings are at fixed rates of interest.

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Foreign currency risk

The Group’s revenue and expenditure are primarily transacted in Singapore dollar. The currency exposures are limited to US dollars (“USD”) and Special Drawing Rights (“SDR”). SDR is an international reserve asset created by International Monetary Fund and is valued on the basis of a basket of key national currencies.

The Group and the Company also hold cash and cash equivalents denominated in foreign currencies for working capital purposes. At the statement of financial position date, such foreign currency balances (mainly in USD and Euro) amount to S$1,912,000 (31 December 2010: S$2,611,000) for both the Group and the Company.

Whenever possible, foreign currency transactions are matched to minimise the exposure. The exchange rates are continually monitored and forward contracts are used when appropriate to hedge against exchange rate fluctuations.

As at the statement of financial position date, the Group’s currency exposures are insignificant.

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Liquidity risk

Liquidity risk is the risk that the Group or the Company will encounter difficulty in meeting financial obligations due to shortage of funds. The Group’s and the Company’s exposure to liquidity risk arises primarily from mismatches of the maturities of financial assets and liabilities. The Group relies on its internal working capital and bank borrowings to fund most of its operating and investing activities. There are sufficient revolving credit facilities available to meet short term funding requirements.

The table below summarises the maturity profile of the Group’s and Company’s financial liabilities at the statement of financial position date based on contractual undiscounted payments.

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Credit risk

Credit risk is the risk of loss that may arise on outstanding financial instruments should a counterparty default on its obligations. The Group’s credit risk is mitigated by its combination of cash and credit sales. For credit sales, the Group has no significant concentration of credit risk from trade debtors due to its diverse customer base. Credit risk is managed through credit checks, credit reviews and monitoring procedures that includes a formal automated collection process.

The Group’s maximum exposure to credit risk in the event the counterparties fail to perform their obligations as of 31 December 2011 in relation to each class of recognised financial assets, other than derivatives, is the carrying amount of those assets as indicated in the statement of financial position.

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The fair value of a financial instrument is the amount at which the instrument could be exchanged or settled between knowledgeable and willing parties in an arm’s length transaction, other than in forced or liquidation sale.

Financial instruments carried at fair value

The Company has carried all derivative financial instruments at their fair value as required by FRS 39. The following table shows an analysis of financial instruments carried at fair value by level of fair value hierarchy:

Fair value hierarchy

The Group classifies fair value measurement using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy have the following levels:

Level 1 – Quoted prices (unadjusted) in active markets for identical assets

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices), and

Level 3 – Inputs for the asset or liability that are not based on observable market data (unobservable inputs)

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Determination of fair value

Derivatives (Note 30): Forward currency contracts and interest rate swap contracts are valued using a valuation technique with market observable inputs. The most frequently applied valuation techniques include forward pricing and swap models, using present value calculations. The models incorporate various inputs including the credit quality of counterparties, foreign exchange spot and forward rates and interest rate curves.

Financial instruments whose carrying amount approximate fair value

Management has determined that the carrying amounts of current trade debtors, other debtors, due from related parties, cash and cash equivalents, creditors and due to related parties, based on their notional amounts, are reasonable approximation of fair values either due to their short-term nature or they are floating rate instruments that are re-priced to market rates on or near the statement of financial position date.

The fair value of financial liabilities by classes that are not carried at fair value and whose carrying amounts are not reasonable approximation of fair value are as follows:

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As at 31 December 2011, the Company has one (31 December 2010: one) interest rate swap agreement in place with notional amount of S$125 million, whereby it receives interest at the variable Singapore Dollar Swap Offer Rate and pays interest at a fixed Singapore Dollar rate of 1.579% (2010: 1.579%) per annum semi-annually every November and May.

This swap is designated as cash flow hedge and being used to hedge the cash flow interest rate risk of the Company’s floating rate long-term loan. The interest rate swap and the floating rate long-term loan have the same critical terms and notional amount of S$125 million.

The fair value (liability position) of the interest rate swap at 31 December 2011 was S$881,000 (31 December 2010: S$189,000), which is included in hedging reserve. There was no impact to profit or loss.

The forward currency contracts of notional amounts S$Nil (2010: S$14,539,000) are used to hedge foreign currency risk arising from the Group’s purchases denominated in USD and Euros. The Group does not apply hedge accounting for these forward currency contracts. The fair value gain of the forward currency contracts at 31 December 2011 was S$Nil (2010: S$237,000).

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