breadtalk cover_080406.ai [PDF]

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Corporate Profile

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Financial Highlights

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Talking to Shareholders

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Brands that Talk

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- Bakery

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- Restaurant

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- Food Atria

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Board of Directors

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Senior Management

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Corporate Information

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Corporate Governance

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Financial Statements

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Statistics of Shareholdings

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Notice of Annual General Meeting 104

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Founded in 2000, BreadTalk has become a distinctive Singapore brand that has gained international appeal. Renowned for the way it has revolutionised the culture of bread consumption with its visually appealing, aromatic and unique-tasting products, the Group owns and operates 24 bakery outlets in Singapore, as well as 11 outlets in Shanghai, five in Beijing and one in Thailand as of December 2005. Through a joint venture, BreadTalk has three outlets in Malaysia. The BreadTalk brand has also rapidly expanded in the region with 15 franchised outlets in Indonesia, six in the Philippines, three in Kuwait, three in Dubai, three in Hong Kong, three in Shenzhen, one in Nanjing and one in Taiwan as of December 2005. In 2003, the Group diversified into the restaurant business by operating the world-renowned Din Tai Fung brand of restaurants, known for its xiao long bao meat dumplings in Singapore. Din Tai Fung, which originated from Taiwan more than 30 years ago, was rated by The New York Times as one of the world’s Top 10 Best Restaurants in 1993. The Group now operates four Din Tai Fung restaurants in Singapore – Paragon, Junction 8, Tampines Mall and Wisma Atria. In 2005, BreadTalk penetrated further into the China market by acquiring Topwin Investment Holding Pte Ltd, which owns and operates 13 food courts under the award-winning brand-name Megabite in the PRC. In Singapore, the Group has opened a Food Republic food atrium at Wisma Atria, with another slated to open later in 2006 at Vivo City. Food Republic also made its way to Hong Kong, at Cityplaza in Tai Koo Shing. In 2004, BreadTalk clinched the coveted Design For Asia Award from the Hong Kong Design Centre, as well as the Most Transparent Company Award organised by the Securities Investors Association of Singapore (Runner-Up, SESDAQ category) in 2004 and 2005.

Cover Rationale

Brands That Talk --describes the rising levels of noise in the marketplace,

BreadTalk’s efforts at building strong brand equity have also earned it numerous awards; including Singapore Promising Brand Award (SPBA)’s “Silver Award” in 2004 and “Gold Award” in 2005, “Most Distinctive Brand Award” in 2003, 2004 and 2005, as well as the “Most Popular Brand Award” in 2002 and 2005 awarded by the Association of Small and Medium Enterprises (ASME) and Singapore Press Holdings. In 2002, Group Managing Director Dr George Quek also clinched the “Entrepreneur of the Year” award given by ASME and the Rotary Club of Singapore.

created by the barrage of marketing messages that are trying to capture the attention of today’s sophisticated consumers all around the world. For a brand to be successful in this competitive environment, it is crucial to be different, to establish strong, emotive connections with the consumer, thereby rising above the din of a crowded marketplace. This is precisely what BreadTalk has done in the past year. Besides its flagship BreadTalk bakery brand, the Group has developed 4 new brands for its café, restaurants and food atrium businesses as part of its strategy of defining new food & beverage lifestyle trends, and in creating brands that truly sizzle!

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BreadTalk Group Limited & Its Subsidiaries

Proforma Group Financial Highlights

Financial Results ($'000)

FY2001

FY2002

FY2003

FY2004

FY2005

Revenue Operating profit Profit before tax Profit after tax and minority interests

16,741 2,657 2,601 1,973

34,970 4,697 4,563 3,403

40,251 1,718 1,428 976

50,186 1,286 900 (31)

95,297 4,877 3,787 1,040

1.51 177%

2.60 90%

0.70 11%

(0.02) -0.2%

0.55 5.7%

FY2001

FY2002

FY2003

FY2004

FY2005

3,970 -

9,079 -

11,960 -

3,283 (3,846) (1,182) -

89 5,950 (8,363) ( 1,427) -

728 13,569 (8,999) (3,829) (741)

12,151 582 751 15,293 (12,791) (2,123) (1,262)

24,571 2,656 8,881 28,492 (33,988) (4,858) (2,076)

2,225

5,328

12,688

12,601

23,678

1.70 1.70

4.07 4.00

7.78 7.34

7.73 7.27

11.79 7.36

Earnings per share (cents) - Basic & Diluted (1) Return on shareholders' fund (2)

Financial Positions ($'000) Property, plant and equipment Investment in associates/joint ventures Intangible assets Current assets Current liabilities Non-current liabilities Minority interest Shareholders' equity Net asset per share (cents) (3) Net tangible asset per share (cents) (3)

(1) The earnings per ordinary share for FY2005 was computed based on the weighted average of 188,267,356 ordinary shares for the year. (2) Return on shareholders' funds is the profit after taxation and minority interest is expressed as a percentage of the average shareholders' funds. (3) Net assets per share and net tangible assets per share as at end of financial year 2005 were computed based on the share capital of 200,911,034 ordinary shares of $0.04 each, representing shares issued and fully paid as at end of the year.

(1) Revenue by Business

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(2) Revenue by Geographical Segments

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The transformation of BreadTalk from a local bakery chain in 2003 to a regional food and beverage player in a short span of 2 years has been swift and remarkable. This is only possible with the team’s effort and support from our business partners and stakeholders. The milestone of 2005 was our entry into the food court business in China, through the acquisition of Topwin Investment Holding Pte Ltd which took effect from 1 January 2005. Besides the injection of Topwin’s 13 Megabite food courts in China into the Group, we had in October 2005, launched Singapore’s very first Food Republic food atrium on Level 4 of Wisma Atria and another in Hong Kong’s Cityplaza in December 2005. We are very pleased that our efforts to increase our revenue streams within the food and beverage industry have proven successful. The BreadTalk Group is now a more diversified, regional, lifestyle-driven food and beverage company focusing on bakery, restaurants and food atria. A Turnaround Year

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FY2005 has truly been a turnaround year for the BreadTalk Group, having posted a full-year net profit of $1.0 million for the year ended 31 December 2005, reversing a net loss of $31,000 registered in FY2004. This was achieved on the back of a broad-based 89.9% rise in Group revenue to $95.3 million boosted by the full-year contribution from the food atria operation of the recently-acquired Topwin group, increased bakery sales in China, and higher revenue from Din Tai Fung restaurants. In addition, the Group signed five new franchises in Hong Kong, India, Chengdu, Hangzhou and Nanjing, whilst our franchisees in Indonesia, Philippines, Kuwait, Dubai, Malaysia and Hong Kong collectively added 15 franchised outlets in their respective markets. China has become a very significant revenue contributor to the Group, contributing almost half of the Group’s revenue in FY2005, with a total of 16 wholly-owned bakery outlets and 13 Megabite food courts in Shanghai, Beijing and Tianjin. Based on the audited full-year results, the Group’s earnings per share on a fully diluted basis rose to 0.55 cents whilst net asset value per share increased to 11.79 cents. Segmental Review Bakery Operations in Singapore & China Accounting for 50.4% of the Group revenue, BreadTalk’s bakery operations in Singapore and China registered a 29.5% rise in sales to $48.0 million. The growth was mainly spurred by its China bakery operations which increased the number of owned outlets from 7 in FY2004 to 16 as at 31 December 2005. With the BreadTalk brand gaining wider acceptance in China, franchising opportunities began to emerge, and we signed three franchises in Nanjing, Chengdu and Hangzhou. Nanjing has already opened its first outlet in October 2005, whilst Chengdu and Hangzhou will open their first outlets in the first half of FY2006.

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The Group’s Singapore bakery outlets remained at 24 bakery outlets. During the year, two modified bakery concepts were launched – Toast Box and BreadTalk Transit.

more outlets at Tampines Mall and Wisma Atria. The fifth Din Tai Fung restaurant will open in Raffles City by mid-2006.

Franchise Business The Group’s franchise business continued to grow in FY2005 with the signing of five franchises in Hong Kong, India, Nanjing, Chengdu and Hangzhou. As of 31 December 2005, the Group had a total of 38 franchised outlets overseas – 15 in Indonesia, three in Malaysia, six in the Philippines, three in Kuwait, three in Dubai, three in Hong Kong, one in Taiwan, three in Shenzhen and one in Nanjing.

Group Prospects The Group will see an increase in business activities in the next 12 months, particularly since the Group has transformed itself from a local bakery chain to a diversified regional food and beverage group, having footprints in China, Hong Kong, the Middle East and Southeast Asia. As at the end of FY2005, almost half of the Group revenue was derived from overseas and non-bakery business.

The bakery business showed an encouraging improvement with operating loss reduced from $0.8 million in FY2004 to $81,000 in FY2005, despite a $0.7 million net loss from Shenzhen subsidiary in FY2005. This was a result of increased business activities in PRC as well as operational improvement in Singapore. In a bid to stay focused on growing the bakery business in the major cities in China, 70% of BreadTalk Shenzhen was subsequently divested to a franchisee in September 2005.

Barring unforeseen circumstances, the Directors expect our growth in FY2006 to be broad-based as these investments start to bear fruit.

Food Court Business The Group’s food court business accounted for 28.9% of total revenue, generating sales of $27.6 million and operating profit of $1.6 million in FY2005, mainly contributed by Topwin’s 13 Megabite food courts in China, after offsetting start up operating loss of $0.1 million and $0.8 million in the Group’s first two Food Republic food atria in Singapore and Hong Kong respectively. These two food atria commenced operations in October and December 2005 respectively, and have since performed satisfactorily. Restaurant Business Operating profit from Din Tai Fung restaurants achieved an increase of 62% to $3.4 million as revenue surged 56.3% to $16.8 million boosted by the full-year contribution from its Junction 8 outlet and the addition of two

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Appreciation I would like to take this opportunity to thank my team in the BreadTalk Group for their hard work, creativity and dedication. This has truly been a transformational year for BreadTalk, and we did well. My appreciation to the board of directors for their support and guidance. On behalf of my fellow directors, I would also like to thank our customers, bankers, suppliers and business associates for their generous support. Together, we strive to bring you another exciting year.

George Quek Group Managing Director

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BreadTalk has evolved beyond just being a popular bakery brand. With 4 new brands in our stable, we are now, more than ever, setting new trends and definitions in Asian food and beverage. The BreadTalk brand, best known for its Flosss buns topped with fluffy, savoury pork or chicken floss, has continued to wow Singapore and other cities in the region with its endless array of delectable bakery and confectionery products. Having woven a sterling reputation for always thinking literally out of the bread box, the BreadTalk Group has diversified into other aspects of the modern casual dining experience – having brought the world-renowned Din Tai Fung brand of xiao long baos and delectable Taiwanese snacks to Singapore in 2003; and in 2005, launched its brand-new Food Republic brand of food atria which has creatively redefined the food atrium dining concept in Singapore.

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The BreadTalk brand made a grand entrance into the Singapore bakery market in 2000 when our first batch of Flosss buns was rolled out of our maiden Parco Bugis Junction outlet, sparking a revival in Singapore’s bakery scene.

In a short span of about five years, the Group has developed over 400 types of buns, breads and cakes, including all-time favourites such as Hot Tuna Turner, a spicy tuna bun; Couch Potato, a French baguette filled with savoury mashed potato filling; and Super Sausage, a wasabi-mayonnaise bun topped with Taiwanese sausage and Japanese bonito flakes. Even the famed Flosss bun has evolved into other variations such as Flosss Supreme, a fiery concoction of the numbing Szechuan chilli peppers and our highlypopular meat floss topping, and HotChic, another spicy version topped with chicken floss. Our expanding franchise network in the region has also presented varied opportunities for local adaptations such as the Wasabi Flosss, concocted just for the Taiwan market which has an unquenching penchant for all things Japanese. In Thailand, we have adapted the spicy, sourish, sweetish and savoury Thai flavours in a new bun with chicken filling that has hints of lemongrass, called Pan Neng.

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Operating in multi-cultural environment with a diversity of religious, social and cultural preferences has given our Group the opportunity to flex our culinary genius, and to be adaptable. In predominantly Muslim countries such as Indonesia, Malaysia and the Middle East, all of our products are pork-free and halal. It is always important for BreadTalk to continually review and evolve our bakery business – the very platform that propelled the BreadTalk brand and earned us our distinguishing corporate positioning today. Perfecting a business model in our bakery business that will provide a stable income and one that may be duplicated across boundaries, will take precedence in the coming years and remain a growth engine for BreadTalk.

Brand Extensions BreadTalk Transit In December 2005, as part of our efforts to energise and refresh our brand, we launched the new “BreadTalk Transit” concept at Wisma Atria - a bistro-style café cum bakery where our customers can sit in and enjoy not only BreadTalk’s new bakery products but also a dedicated café menu of personal pizzas, delistyle sandwiches, soups, salads, cakes, pastries, and an array of local and Western-style coffees and beverages. BreadTalk Transit is our response to the hustle and bustle of city living, where in the midst of the busy daily life, we can offer our customers a place of respite, to have a quick meal before getting back to the daily grind.

Toast Box Toast Box was developed in conjunction with Food Republic’s launch in Wisma Atria. Owned and managed by BreadTalk, the Toast Box concept is our rendition of the traditional coffee-toast culture, as it draws inspiration from the coffee-shop concept from the 60s and 70s, but with a classic BreadTalk twist. For starters, our kaya toast is super thick, not thin, and customers have a choice of traditional, rich Hainanese kaya or the fragrant Nonya version. In addition, Toast Box offers more toppings for its toasts – hae bee hiam (spicy prawn sambal), otah (spicy Nonya fish paste), condensed milk on pork floss, peanut butter and orange or strawberry jams. No bona-fide toast can do without creamy butter, and our mound of butter has become the piece-de-resistance at Toast Box. This new concept has certainly struck a chord with the office crowd, shoppers and tourists alike.

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Din Tai Fung

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This world-famous Taiwanese brand, voted by The New York

Times as one of the world’s Top 10 Best Restaurants in 1993, has a 30-year history. We opened Singapore’s first Din Tai Fung restaurant in Paragon Shopping Centre along Orchard Road in September 2003. Since then, we have added three more restaurants in Junction 8, Tampines Mall and Wisma Atria. Another outlet at Raffles City is slated to be opened in 2006.

Din Tai Fung has built up a strong international reputation and a cult following in Taiwan, Shanghai, Japan, Hong Kong, South Korea, Indonesia and the United States with its signature xiao long bao (a Northern Chinese specialty dumpling) and steamed chicken soup. Each xiao long bao _ flavourful meat stuffing and stock wrapped with delicate yet firm dumpling skin – is treated like a piece of art, handled with immense care and pride. To maintain quality standards, preparation and cooking methods are standardised worldwide. Managing a food and beverage business is an art of managing and anticipating customers’ expectations. It is never a cookie-cutter approach, but one that requires precise acumen and sometimes an element of surprise to generate consumer demand. Our latest Wisma Atria outlet, for example, offers more Taiwanese snacks, desserts and appetizers, to cater to a higher proportion of lady patrons who prefer smaller portions, quick meals and a wider range.

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Megabite

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The Megabite brand was the first international food court concept

introduced in Shanghai in 1997 by Topwin. Offering a wide variety of local, provincial and international food specialities, the innovative food court has received accolades such as Shanghai’s “Most Trendy Food Court” and “Top 38 Branded Enterprises” awards in 2003.

The acquisition of Topwin’s 13 food courts in the PRC in 2005 marked a quantum leap for the Group into the food court business. Not only has it become a key growth driver for the Group, it also sparked the launch of Food Republic food atria in Singapore and Hong Kong.

Food Republic Following the merger with Topwin, expanding the food court business beyond the PRC into Singapore and Hong Kong was a natural progression for the BreadTalk Group. For these markets, we established a new brand name, Food Republic, while retaining the Chinese name . In terms of its brand concept, we stayed true to our BreadTalk style of always staying ahead of trends – we redefined consumers’ casual dining lifestyle experience to add creativity and vibrancy, together with convenience, ambience and affordability. Over in Hong Kong, we capitalised on the burgeoning food court scene by opening our first 650-seat food atrium in Hong Kong’s Cityplaza at Tai Koo Shing, in December 2005. With a modern interior and an interesting blend of local and international cuisine, Food Republic in Hong Kong offers something different from the usual “dai pai dong” (Hong Kong street fare) and local cafes. In October 2005, we launched our first Food Republic in Singapore, at Wisma Atria. The 23,000 sq ft, 900-seat food atrium is the first and only in Singapore that blends hawker fare with mini restaurants in an integrated open dining concept, providing a kaleidoscope of savoury experiences. Here, we strive to bring back nostalgia in today’s modern society by adopting an eclectic, contemporary flair to its interior décor, juxtaposed with reminisces of the vibrant colours of street-culture made popular in the 1960s and 70s. With its market place atmosphere and engaging displays, Food Republic is an enjoyable destination point and meeting place, offering customers a memorable dining experience that they would want to repeat regularly. Come end of 2006, diners can look forward to yet another feast for the senses – this time at VivoCity, Singapore’s largest mall at the Harbour Front precinct. The Group plans to open our second Food Republic – a 27,000 sq-ft food atrium at VivoCity’s Level 3 which has a bigger seating capacity of 1,000 and boasts a stunning, dramatic interior showpiece. The food atrium at VivoCity will showcase the crème de la crème of our uniquely Singaporean hawker food culture.

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George Quek Meng Tong Group Managing Director George, founder of the BreadTalk Group, drives the strategic direction and development of the Group locally and globally – growing it to become the regional integrated F&B company it is today. With more than 30 years of experience in the F&B industry, he has not only been instrumental in establishing the BreadTalk brand but also in setting new F&B trends and redefining the local food culture. From 1993 to 2000, George was the Managing Director of Topwin Singapore Pte Ltd, which manages food courts in Singapore. He was also instrumental in the company’s foray into the food court business in Shanghai and Beijing, PRC. The Topwin group business has since been acquired by the BreadTalk Group in 2005. George holds an honorary PhD in Business Administration from Wisconsin International University, USA. He was the winner of “Entrepreneur of the Year 2002” award, organised by the Association of Small & Medium Enterprises and the Rotary Club of Singapore, and a finalist of the “Entrepreneur of the Year 2002” award organised by Ernst & Young. Katherine Lee Lih Leng Group Executive Director Katherine oversees our Research and Development Department, and steers our Group’s new concept development and product training initiatives and programmes. Katherine has more than 15 years of experience in the F&B industry. She was previously the Finance Director of Topwin Singapore Pte Ltd, where she assisted in overseeing the food court operations. Prior to that, she was in charge of the human resource and operations of more than 20 food and beverage outlets in Taiwan.

Chen Kuo Hua Non-Executive Director Kuo Hua is the Group’s Non-Executive Director and President of the Group’s China operations. Kuo Hua has more than 20 years of experience in providing consultation and strategic planning in the food and beverage industry in various countries, such as Hong Kong, Taiwan, PRC and Singapore. He has held various senior positions in Shanghai Da Shi Dai Foods Co. Ltd., Topwin Singapore Pte Ltd and Shanghai D-Mall Co. Ltd prior to joining the Group. Kuo Hua holds a degree in Drama and Mass Communication from the Chinese Culture University, Taipei, Taiwan.

Frankie Quek Swee Heng Group General Manager Frankie assists our Group Managing Director in overseeing the development and growth of the Company. With the Group’s expansion into the PRC, Frankie was posted to Shanghai in January 2005 where he oversees the growing bakery operations in Shanghai and Beijing, as well as explores new opportunities in other PRC cities. Frankie is also in charge of managing the integration of the Topwin Group into the BreadTalk Group, to ensure that resources are pooled together effectively to ensure higher levels of efficiency. Prior to joining BreadTalk in 2001, Frankie was an Associate Manager in the residential properties division with the Dennis Wee Group. From 1993 to 1999, Frankie held various positions in Topwin Singapore Pte Ltd where he helped set up the Raffles City food court and also oversaw the operations of several food courts. Frankie holds an honorary Master of Business Administration from the American University of Hawaii. Catherine Lee Khia Yee Group Financial Controller Catherine oversees the Group’s financial matters, including financial reporting, compliance, internal controls, financial planning, cash flows, investment and investor relations. A non-practising Certified Public Accountant by training with more than 10 years of experience in various industries, Catherine is an experienced banker and investment professional with a strong corporate finance and private equity background. Prior to joining BreadTalk in 2004, Catherine worked for Transpac Capital where she managed an investment portfolio of public-listed companies and private companies in the USA, Singapore, Malaysia, Indonesia, and Australia. She played the role of financial controller and business development manager to the companies from a multitude of industries. She also sat on the board of several companies to assist in implementing good corporate governance practices and participate in strategic planning. Catherine holds a Bachelor of Accountancy (Honours) degree from the Nanyang Technological University in Singapore.

Ong Kian Min Independent Director Kian Min is currently a consultant with Drew & Napier LLC. He has been a practising advocate and solicitor of the Supreme Court of Singapore since 1989. Kian Min is also an Independent Director and Chairman of the audit committee of a number of public companies listed on the Singapore Stock Exchange. He has been a Member of Parliament since January 1997, and serves as Chairman of the Government Parliamentary Committee (GPC) for Transport and as a member of the GPC for Finance, Trade and Industry. Kian Min was awarded the President Scholarship and Singapore Police Force Scholarship in 1979. He holds a Bachelor of Law (Honours) external degree from the University of London in England and a Bachelor of Science (Honours) degree from the Imperial College of Science & Technology in England.

Lai Hock Meng Independent Director Hock Meng is the President and Director of Star Castle Capital (Singapore) Pte Ltd. He provides consultancy services on private equity investments and corporate mergers and acquisitions. He is currently also an Executive-in-Residence with the Saw Centre for financial studies of the NUS Business School. Hock Meng has a wealth of experience in the public and private finance sectors, having worked for more than 15 years in various financial institutions, including the Monetary Authority of Singapore. He currently holds and also held directorships, in a number of public and private companies. Hock Meng holds a Bachelor of Arts (Honours) and a Masters of Arts from the University of Cambridge in England, majoring in Economics. He is also an accredited Chartered Financial Analyst with the CFA Institute in the USA. pg 16

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Board of Directors George Quek Meng Tong (Group Managing Director) Katherine Lee Lih Leng (Group Executive Director) Chen Kuo Hua (Non-Executive Director) Ong Kian Min (Independent Director) Lai Hock Meng (Independent Director)

Company Secretary Tan Cher Liang

Registered Office 171 Kampong Ampat #05-05 KA Foodlink Singapore 368330 Tel : (65) 6285 6116 Fax: (65)6285 1661

Share Registrar Lim Associates (Pte) Ltd 10 Collyer Quay #19-08 Ocean Building Singapore 049315

Auditors Ernst & Young Certified Public Accountants 10 Collyer Quay #21-01 Ocean Building Singapore 049315 Partner-in-charge : Max Loh Khum Whai

Principal Bankers DBS Bank Ltd United Overseas Bank Limited Malayan Banking Berhad

Investor Relations August Consulting Pte Ltd 501 Orchard Road #09-01 Wheelock Place Singapore 238880 Tel : 6733 8873 Contact Persons: Ho See Kim Email : [email protected] Chin May Nah Email : [email protected] pg 18

(appointed since financial year ended 31 December 2003)

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Corporate Governance

Corporate Governance The Board of Directors (“Board”) and Management recognizes the importance of corporate governance and are committed to maintaining a high standard of corporate governance by complying with the benchmark set by the Code of Corporate Governance (the “Code”) as reviewed by the Singapore Council on Corporate Disclosure and Governance whose recommendations to revise the Code have been accepted by the Government in July 2005 (“the revised Code”). This report outlines BreadTalk Group Limited’s corporate governance framework in place with specific reference to the revised Code and the Best Practice Guide issued by the Singapore Exchange Securities Trading Limited (“SGX-ST”). Board of Directors (Principle 1) The primary functions of the Board include:1.

Approving the overall corporate policies and strategic directions of the Group;

2.

Supervising and monitoring the performance of the management team;

3.

Ensuring the adequacy of internal controls, risk management and periodic reviews of the Group’s financial performance and compliance;

4.

Approving half year and full year accounts and announcements;

5.

Approving annual budget, major investments and divestment proposals;

6.

Assuming responsibility for good corporate governance practices; and

7.

Approving corporate or financial restructuring, share issuance, dividends and other returns to shareholders and Interested Person Transactions.

The Board approves those matters, which under the Companies Act and the Singapore Exchange Securities Trading Ltd (“SGX-ST”) Listing Manual (the “Listing Manual”), require Board’s approval.

Corporate Governance

The Board holds four scheduled meetings a year and where necessary, hold additional meetings to address significant issues that may arise. The attendance of the directors at Board meetings and Board Committees are as follows:

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Corporate Governance

Board Audit Nominating Remuneration Meeting Committee Committee Committee No. of No. of No. of No. of No. of No. of No. of No. of Meetings Meetings Meetings Meetings Meetings Meetings Meetings Meetings Held Attended Held Attended Held Attended Held Attended George Quek Meng Tong 5 5 1 1 Katherine Lee Lih Leng 5 5 Chen Kuo Hua 5 4 4 4 1 1 Ong Kian Min 5 5 4 4 1 1 1 1 Lai Hock Meng 5 5 4 4 1 1 1 1 Name

Board Composition And Balance (Principle 2) The Board comprises five members of whom two are independent directors, one is non-executive director and two are executive directors. Mr George Quek Meng Tong (Group Managing Director) Ms Katherine Lee Lih Leng (Group Executive Director) Mr Chen Kuo Hua (Non-executive Director) Mr Ong Kian Min (Independent Director) Mr Lai Hock Meng (Independent Director) To assist in the execution of its responsibilities, the Board has established a number of Board Committees including an Audit Committee, a Nominating Committee and a Remuneration Committee. These committees function within clearly defined terms of reference and operating procedures and the effectiveness of each committee is constantly monitored. The Nominating Committee based on the criteria defined in the Code reviews the composition and independence of the Board annually. The Nominating Committee is of the view that the current size and composition of five directors is appropriate taking into account the scope and nature of the operation of the Company.

Corporate Governance

Independent Directors

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The Board has two Directors who are independent members. The independence of each director is reviewed annually by the Nominating Committee. The Nominating Committee considers an “independent” director as one who has no relationship with the Company, its related companies or its officers that could interfere or be reasonably perceived to interfere, with the exercise of the director’s independent judgement of the conduct of the Group’s affairs and is not a substantial shareholder, or a partner in (with 5% or more stake) or as executive officer of any for profit business organization to which the Company made or from which the Company received significant payments (aggregated over any financial year in excess of S$200,000) in the current or immediate past financial year. Moreover, the Chairman of Nominating Committee is not directly associated with a substantial shareholder with a view to the best interests of the Company. As a result of the Nominating Committee’s review of the independence of each director for financial year 2005, the Nominating Committee is of the view that the independence directors are independent of the Company’s management as contemplated by the Code.

Corporate Governance

Chairman and Managing Director (Principle 3) The Chairman and Managing Director of the Group is Mr George Quek. As the Chairman, he schedules Board Meetings, prepares Board agenda and monitors the Group’s compliance with the Code. Mr George Quek is responsible for the day-to-day operations of the Group and ensures the timeliness and quality of information flow between the Board and the Management. Given the present scope and nature of the Group’s activities, the Board is of the view that it is in the best interests of the Group to adopt a single leadership structure, whereby the Chairman and Managing Director is the same person. The Board believes that there are sufficient safeguards and measures in place to ensure decision-making are based on collective information and no concentration of power and authority in a single person. Nominating Committee (Principles 4 & 5) The Nominating Committee (“NC”) is made up of two independent directors and one non-executive director. Mr Ong Kian Min – Chairman Mr Chen Kuo Hua – Member Mr Lai Hock Meng – Member All directors retire by rotation at the Annual General Meeting (“AGM”) are required to submit themselves for re-election at regular intervals of at least once every three years.

1.

To make recommendations to the Board on the appointment of new executive and non-executive directors, including making recommendations on the composition of the Board generally and the balance between executive and non-executive Directors appointed to the Board.

2.

To regularly review the Board structure, size and composition and make recommendations to the Board with regards to any adjustments that are deemed necessary.

3.

To be responsible for assessing nominees or candidates for appointment or election to the Board, determining whether or not such nominees have the requisite qualifications and whether or not they are independent.

4.

To make plans for succession, in particular for the Chairman and Managing Director.

5.

To determine, on an annual basis, if a Director is independent. If the NC determines that a Director, who has one or more of the relationships mentioned under the Code is in fact independent, the Company would disclose in full, the nature of the Director’s relationship and bear responsibility for explaining why he should be considered independent.

6.

To recommend Directors who are retiring by rotation to be put forward for re-election.

7.

To decide whether or not a Director is able to and has been adequately carrying out his / her duties as a Director of the Company, particularly when he / she has multiple board representations.

Corporate Governance

The primary responsibilities of the NC shall be:

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Corporate Governance

8.

To be responsible for assessing the effectiveness of the Board as a whole and for assessing the contribution of each individual Director to the effectiveness of the Board. This assessment process shall be disclosed annually.

For the year under review, the NC has evaluated the Board’s performance as a whole. The parameters include Board composition, size and expertise, Board information and timeliness, Board commitment and accountability and the contribution of each individual director to the effectiveness of the management. The NC has met once during the financial year under review on 28 February 2005. Access to Information (Principle 6) The Board receives complete and adequate information on an on-going basis. The management provides Chairman and Managing Director with monthly management accounts and provides Board members with quarterly management accounts. The agenda for Board Meetings is prepared in consultation with the Chairman and it will be circulated one week in advance to the Board members of each meeting. The Board has separate and independent access to the Company Secretary and to the senior management of the Company or Group at all times in carrying out their duties. The Board takes independent professional advice as and when necessary to enable it or the independent directors to discharge its or their responsibilities effectively. The Company Secretary attends all board meetings and ensures that the board procedures are followed and complied with all rules and regulations. Remuneration Committee (Principles 7, 8 & 9) The Remuneration Committee (“RC”) comprises two independent directors and one non-executive director. Mr Lai Hock Meng – Chairman Mr George Quek Meng Tong – Member Mr Ong Kian Min - Member

Corporate Governance

The primary responsibilities of the RC are as follows:-

22

1.

To review and recommend to the Board in consultation with the Chairman of the Board, a framework of remuneration and to determine the specific remuneration packages and terms of employment for each of the executive directors and senior executives/divisional directors (those reporting directly to the Chairman/Managing Director) of the Group including those employees related to the executive directors and controlling shareholders of the Group.

2.

To review and recommend to the Board in consultation with the Chairman of the Board, any long term incentive schemes which may be set up from time to time and to do all acts necessary in connection therewith.

Corporate Governance

3.

To administer the Group’s Employees’ Share Option Scheme (“the Scheme”) and shall have all the powers as set out in the Rules of the Scheme.

4.

To carry out its duties in the manner that it deems expedient, subject always to any regulations or restrictions that may be imposed upon the RC by the Board of Directors from time to time.

5.

As part of its review, the RC shall ensure that: (i)

all aspects of remuneration including directors’ fees, salaries, allowances, bonuses, options and benefits-in-kind should be covered.

(ii)

the remuneration packages should be comparable within the industry and comparable companies and shall include a performance-related element coupled with appropriate and meaningful measures of assessing individual executive directors’ and senior executives’/ divisional directors’ performance.

(iii)

the remuneration package of employees related to executive directors and controlling shareholders of the Group are in line with the Group’s staff remuneration guidelines and commensurate with their respective job scopes and levels of responsibility.

The independent directors receive directors’ fees in accordance with their contributions and responsibilities to the Company. Directors’ fees are recommended by the Board for approval at the Company’s AGM. The Company has entered into a service agreement with our Managing Director Mr George Quek for an initial period of three years commencing 2003 and renewable thereafter unless otherwise terminated by either party by giving not less than six months’ notice in writing. The executive directors do not receive directors’ fees. The remuneration for the executive directors and key executives comprise a basic salary fixed component and a variable component which include the annual bonus and profit sharing, based on the performance of the Company and the individual performance. Disclosure on Remuneration

Name S$250,000 to $499,999 George Quek Meng Tong Chen Kuo Hua Below S$250,000 Katherine Lee Lih Leng Ong Kian Min Lai Hock Meng

Bonus/Profit Sharing

BenefitsIn-Kinds

Directors’ Fee (2)

Total

% 65 67

% 10 33

% 25 –

% – –

% 100 100

85 – –

10 – –

5 – –

– 100 100

100 100 100

Salary

(1)

Notes: (1)

Salary is inclusive of fixed allowance and CPF contribution

(2)

Directors’ fees are only payable after approval by shareholders at the AGM

Corporate Governance

The breakdown of remuneration of the Directors of the Company for the year ended 31 December 2005 is set out below:

23

Corporate Governance

Disclosure of Top 5 Executives’ Remuneration ( Executive who are not Directors )

% Salary

Bonus/ Profit sharing

% Total

Managing Director, China Group

64

36

100

Group General Manager

71

29

100

Managing Director, BreadTalk Pte Ltd

84

16

100

Executive Director, Megabite Hong Kong Limited

94

6

100

General Manager, Shanghai BreadTalk Co., Ltd

86

14

100

Designation

Above S$250,000 1. Chen Poh On S$250,000 and below 2. Frankie Quek Swee Heng 3. Lee Henry

(3)

(4)

4. Jenson Ong 5. Bernard Koh Chee Song

Notes: (3) Frankie Quek is the brother of George Quek Meng Tong. (4) Lee Henry is the brother of Katherine Lee Lih Leng. There are no other employees who are immediate family of members of the directors whose remuneration exceeded S$150,000 during the year.

Accountability and Audit (Principle 10) The Board is accountable to the shareholders while the Management of the Company is accountable to the Board. The Management presents the Board with quarterly management accounts of the Group’s performance, position and prospects. Management also presents to the Audit Committee the half year and full year results and recommends them to the Board for approval. The Board approves the results and authorises the release of the results, and makes disclosure of other relevant information of the Company to the SGX-ST and the public via SGXNET as required by the SGX-ST listing Manual. Audit Committee (Principle 11) The Audit Committee (“AC”) has been established with written terms of reference and comprises three members who are non-executive, two of whom are independent directors.

Corporate Governance

Mr Ong Kian Min – Chairman Mr Chen Kuo Hua – Member Mr Lai Hock Meng – Member

24

The main functions of the AC are as follows:1.

Review the audit plan of the Company’s external auditors;

Corporate Governance

2.

Discuss and review external auditors’ reports;

3.

Review the financial statements of the Company and Group before submission to the Board of Directors;

4.

Review the nomination of the external auditors for appointment or re-appointment;

5.

Review the interested person transactions;

6.

Review the scope and result of the internal audit procedures;

7.

Review the remuneration packages of the employees who are related to the directors or substantial shareholders.

The Audit Committee will commission and review the findings of internal investigations into matters where there is any suspected fraud or irregularity, or failure of internal controls or infringement of any Singapore law, rule or regulation which has a material impact on the Company’s operating results. The AC had met for 4 times with full attendance by its members during the financial year under review. Annually, the AC meets with the external auditors separately without the presence of Management. The AC had also reviewed the non-audit services provided by the external auditors, which comprise tax services and was satisfied that the independence of the external auditors would not be impaired. Internal Control (Principle 12) As part of the statutory audit, the external auditors Ernst & Young have considered the internal controls for the sole purpose of their audit. As part of their consideration of the internal controls, any matter requiring attention are communicated to the AC. The AC has also reviewed the effectiveness of the actions taken by the management on the recommendations made by the external auditors in this respect. For the financial year ended December 2005, the Board believes that in the absence of any evidence to the contrary the system of internal controls maintained by the Group’s management that was in place throughout the financial period up to the date of this report, provides reasonable, but not absolute assurance against material financial misstatements or loss. The Board notes that no system of internal control could provide absolute assurance against the occurrence of material errors, poor judgement in decision making, human errors, losses, fraud or other irregularities. Internal Audit (Principle 13)

Corporate Governance

The internal audit function of the Group is performed by their in-house audit personnel who are responsible for reviewing the effectiveness of the Group’s operational and financial controls, and reports to the Audit Committee. The Audit Committee is satisfied that the internal audit function is adequately staffed and administered.

25

Corporate Governance

Communication with Shareholders (Principles 14 & 15) The Board strives to ensure that all material information is disclosed to the shareholders in an adequate and timely basis. The Board informs and communicates with shareholders through annual reports, announcements released through SGXNET, press releases, advertisements of notice of meeting and general meetings. Notices of general meetings are despatched to shareholders, together with the annual report or circulars at least 14 days before the meeting. At general meetings, shareholders are given opportunities to voice their views and direct their questions to directors or management regarding the Company. The chairpersons of the Audit Committee, Nominating Committee and/or Remuneration Committee shall be present and available to address questions at general meetings. The external auditors shall also be present to assist the directors in addressing any relevant queries by shareholders. The Company’s Articles of Association also allow a shareholder to appoint not more than two proxies to attend and vote on his/her behalf at all general meetings. Dealing in Securities The Company has adopted and implemented the Singapore Exchange Best Practices Guide in relation to the dealing in shares of the Company. It has been highlighted that directors and officers who are in possession of unpublished material price sensitive information in relation to those securities is an offence. The Company, while having provided the window periods for dealing in the Company’s securities, has its own internal compliance code in providing guidance to its officers with regards to dealing in the Company’s securities including reminders that the law on insider trading is applicable at all the times. Interested Person Transactions Disclosure of interested person transactions (“IPT”) is set out on pages 92 to 93 of this Annual Report. When a potential conflict arises, the directors concerned do not participate in discussions and refrains from exercising any influence over other members of the Board. The AC has reviewed the IPT entered into during the financial year by the Group and the aggregate value of interested person transactions entered during the financial year under review is as follows:

Name of Interested Person

Corporate Governance

Sky One Art Investment Pte Ltd - purchase of furniture and fittings

26

Aggregate value of all IPTs Aggregate value of all IPTs during the financial year under conducted during the financial review (excluding transactions year under review under less than $100,000 and transactions shareholders’ mandate pursuant conducted under shareholders’ to Rule 920 (excluding transactions mandate pursuant to Rule 920) less than $100,000) $263,000

NA

Corporate Governance

In addition to the transactions disclosed above, during the financial year ended 31 December 2005, the Company acquired 100% of the issued share capital of Topwin Investment Holding Pte Ltd (“Topwin”) for a consideration of $10,242,000 satisfied by the issuance of 37,931,034 new ordinary BreadTalk shares at $0.26 per share, being the price for trades done on the Singapore Exchange Securities Trading Limited (SGX-ST) roundabout 1 January 2005, the effective date of transfer of control of Topwin to the Group. The consideration was based on a willing seller-willing buyer basis. George Quek Meng Tong and Frankie Quek Swee Heng, who collectively control 72% of the issued share capital of Topwin, are also substantial shareholders of the Company. Material Contracts Except as disclosed in Interested Person Transactions, there were no material contracts or loans entered between the Company and any of its subsidiaries involving interests of the Group Managing Director, any Director or controlling shareholder during the financial year ended 31 December 2005. Risk Management

Corporate Governance

The Group regularly reviews and improves its business and operational activities to identify areas of significant business risks as well as taking appropriate measures to control and mitigate these risks. The Group reviews all significant control policies and procedures and highlights all significant matters to the AC and the Board. The financial risk management objectives and policies are outlined in the financial statements.

27

Directors’ Report

The directors are pleased to present their report to the members together with the audited financial statements of BreadTalk Group Limited (the Company) and the consolidated financial statements of the Company and its subsidiaries (collectively, the Group) for the financial year ended 31 December 2005. Directors The directors of the Company in office at the date of this report are: George Quek Meng Tong Katherine Lee Lih Leng Chen Kuo Hua Lai Hock Meng Ong Kian Min Arrangements to enable directors to acquire shares and debentures Neither at the end of nor at any time during the financial year was the Company a party to any arrangement whose objects are, or one of whose object is, to enable the directors of the Company to acquire benefits by means of the acquisition of shares or debentures of the Company or any other body corporate. Directors’ interests in shares and debentures The following directors, who held office at the end of the financial year, had, according to the register of directors’ shareholdings required to be kept under section 164 of the Singapore Companies Act, Cap. 50, an interest in shares of the Company as stated below: Direct interest Name of director The Company (Ordinary shares of $0.04 each) George Quek Meng Tong

Deemed interest

As at 1 January 2005

As at 31 December 2005

As at 21 January 2006

As at 1 January 2005

As at As at 31 December 21 January 2005 2006

52,130,050

79,440,384

79,440,384

50,099,850

50,099,861

50,099,861

Katherine Lee Lih Leng

43,550,850

43,550,850

43,550,850

52,130,050

79,440,384

79,440,384

Chen Kuo Hua

12,443,100

12,443,100

12,443,100

–

–

–

Lai Hock Ming

100,000

100,000

100,000

–

–

–

Ong Kian Min

100,000

100,000

100,000

–

–

–

By virtue of Section 7 of the Companies Act, Cap 50, George Quek Meng Tong and Katherine Lee Lih Leng are deemed to be interested in the shares held by the Company in its subsidiaries. Except as disclosed in this report, no other director who held office at the end of the financial year had interest in shares, warrants or debentures of the Company or related corporations, either at the beginning

Directors’ Report

or the end of the financial year or on 21 January 2006.

28

Directors’ Report

Directors’ contractual benefits Except as disclosed in the financial statements, since the end of previous financial year, no director of the Company has received or become entitled to receive a benefit by reason of a contract made by the Company or a related corporation with the director, or with a firm of which the director is a member, or with a company in which the director has a substantial financial interest.

Options No options were issued by the Company and its subsidiaries during the financial year. As at 31 December 2005, there were no options on the unissued shares of the Company or its subsidiaries which are outstanding.

Audit Committee The Audit Committee performed the functions specified in the Companies Act. The functions performed are detailed in the Report on Corporate Governance.

Auditors Ernst & Young have expressed their willingness to accept re-appointment as auditors.

On behalf of the board of directors:

George Quek Meng Tong Director

Katherine Lee Lih Leng Director

Singapore

Directors’ Report

22 March 2006

29

Statement by Directors

We, George Quek Meng Tong and Katherine Lee Lih Leng, being two of the directors of BreadTalk Group Limited, do hereby state that, in the opinion of the directors, (i)

the accompanying balance sheets, profit and loss accounts, statements of changes in equity and consolidated cash flow statement together with notes thereto are drawn up so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2005 and the results and changes in equity of the Group and of the Company and the cash flows of the Group for the year ended on that date, and

(ii)

at the date of this statement, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due.

On behalf of the board of directors:

George Quek Meng Tong Director

Katherine Lee Lih Leng Director

Singapore

Statement by Directors

22 March 2006

30

Auditors’ Report

to the members of BreakTalk Group Limited

We have audited the accompanying financial statements of BreadTalk Group Limited (the Company) and its subsidiaries (collectively, the Group), set out on pages 32 to 101, for the year ended 31 December 2005. These financial statements are the responsibility of the Company’s directors. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.

An audit also includes assessing the accounting

principles used and significant estimates made by the directors, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, (a)

the consolidated financial statements of the Group and the financial statements of the Company are properly drawn up in accordance with the provisions of the Singapore Companies Act, Cap. 50 (the Act) and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the Group and the Company as at 31 December 2005, and the results and changes in equity of the Group and of the Company and cash flows of the Group for the financial year ended on that date; and

(b)

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

ERNST & YOUNG Certified Public Accountants

Singapore

Auditors’ Report

22 March 2006

31

Profit and Loss Accounts for the year ended 31 December 2005

Notes

Group

Company

2005

2004

2005

2004

$’000

$’000

$’000

$’000

95,297

50,186

–

–

Cost of sales

(42,306)

(19,590)

–

–

Gross profit

52,991

30,596

–

–

4,181

316

564

615

–

–

Revenue

3

Other operating income

4

Distribution and selling expenses

(36,230)

(22,246)

Administrative expenses

(16,065)

(7,380)

(785) (221)

Profit (loss) from operations

5

4,877

1,286

Interest income

7

78

21

Interest expense

7

(614) 1

4

13

(473)

(221)

–

–

Bank charges

(186)

(104)

–

–

Financial (expenses) income, net

(581)

(304)

4

13

Profit (loss) before taxation and share of results of associates and joint ventures

4,296

Share of results of associates

(399)

Share of results of joint ventures

(110)

Profit (loss) before taxation Taxation

8

Profit (loss) for the year

982 (82) –

(217)

14

–

–

–

–

3,787

900

(217)

(2,030)

(410)

1,757

490

(225)

10

(31)

(225)

10

(8)

14 (4)

Attributable to: Equity holders of the Company

1,040

Minority interests

717

521

1,757

490

– (225)

– 10

Earnings (loss) per share (cents)

Profit and Loss Accounts

Basic and diluted

32

9

0.55

(0.02)

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

–

–

Balance Sheets as at 31 December 2005

Notes

Group

Company

2005

2004

2005

2004

$’000

$’000

$’000

$’000

Non-current assets

(Note 37)

Property, plant and equipment

10

24,571

12,151

–

–

Intangible assets

11

8,881

751

–

–

Investment in subsidiaries

12

–

–

17,281

7,039

Investment in associates

13

766

582

–

–

Investment in joint ventures

14

1,890

–

–

–

Inventories

15

1,700

1,350

–

–

Trade receivables

16

2,475

1,238

–

–

Other receivables and deposits

17

6,058

2,341

–

70

609

888

7

559

Current assets

Prepayments Due from subsidiaries (trade) Due from subsidiaries (non-trade)

–

–

–

615

18

–

–

4,670

3,173

411

251

–

–

18

1,254

57

–

–

Amount due from associates (trade) Amount due from associates (non-trade) Amount due from joint ventures (non-trade)

18

313

–

–

–

Fixed deposits

19

1,603

1,904

–

649

14,069

7,264

182

292

28,492

15,293

4,859

5,358

20

7,858

4,038

–

–

Other payables and accrued expenses

21

17,551

5,470

266

552

Amount due to subsidiaries (non-trade)

18

–

–

563

179

71

–

–

–

Amount due to associates (non-trade)

18

261

–

–

–

Amount due to joint venture (non-trade)

18

6

–

–

–

Loan from minority shareholder of a subsidiary 22

86

–

–

–

Cash on hand and at bank

Trade payables

Amount due to associates (trade)

Finance lease obligations, secured

23

162

275

–

–

Short-term loans, secured

24

3,293

1,187

–

–

Long-term loans, secured

25

2,958

1,479

–

–

1,742

342

12

4

33,988

12,791

841

735

2,502

4,018

4,623

Tax payable

Net current (liabilities) assets

(5,496)

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

Balance Sheets

Current liabilities

33

Balance Sheets as at 31 December 2005

Notes

Group

Company

2005

2004

2005

2004

$’000

$’000

$’000

$’000

Non-current liabilities Long-term loans, secured

25

(3,005)

(920)

–

–

Finance lease obligations, secured

23

(139)

(176)

–

–

Loan from minority shareholder of a subsidiary

22

(64)

–

–

–

Amount due to a landlord (non-trade)

26

(738)

–

–

–

8

(912)

–

–

Deferred tax liabilities

Net assets

(1,027)

25,754

13,863

21,299

11,662

Equity attributable to equity holders of the Company Share capital

27

8,036

6,519

8,036

6,519

Capital reserve

28

–

452

–

–

Share premium

29

13,480

5,135

13,480

5,135

2,074

582

Accumulated profits (losses) Translation reserve

Minority interests

Balance Sheets

Total Equity

34

30

88

(87)

(217)

8

–

–

23,678

12,601

21,299

11,662

2,076

1,262

–

–

25,754

13,863

21,299

11,662

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

Statements of Changes in Equity for the year ended 31 December 2005

Attributable to equity holders of the Company 2005 Group

At 31 December 2004 and 1 January 2005 Net effect of currency translation differences Net income recognised directly in equity Net profit for the year Total recognised net income for the year Transfer of reserves Issuance of ordinary shares as purchase consideration for acquisition of a subsidiary (Note 12) Issuance of new shares to minority shareholders At 31 December 2005

Share

Capital

Share

capital

reserve

premium

Accumulated Translation profits $’000

Minority

Total

reserve

interests

equity

$’000

$’000

$’000

1,262

13,863

$’000

$’000

$’000

(Note 27)

(Note 28)

(Note 29)

6,519

452

5,135

582

–

–

–

–

175

–

175

– –

– –

– –

– 1,040

175 –

– 717

175 1,757

– –

1,040 452

175 –

717 –

1,932 –

– –

– (452)

(Note 30)

(87)

1,517

–

8,345

–

–

–

9,862

–

–

–

–

–

97

97

8,036

–

13,480

2,074

88

2,076

25,754

Attributable to equity holders of the Company Group

At 31 December 2003 and 1 January 2004 Net effect of currency translation differences Net expenses recognised directly in equity Net loss for the year Total recognised net income (expenses) for the year At 31 December 2004

Share

Capital

Share

capital

reserve

premium

Accumulated Translation profits $’000

Minority

Total

reserve

interests

equity

$’000

$’000

$’000

$’000

$’000

$’000

(Note 27)

(Note 28)

(Note 29)

6,519

452

5,135

613

(31)

741

–

–

–

–

(56)

–

(56)

– –

– –

– –

– (31)

(56) –

– 521

(56) 490

–

–

–

(31)

(56)

521

434

6,519

452

5,135

582

(87)

1,262

13,863

(Note 30)

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

13,429

Statements of Changes in Equity

2004

35

Statements of Changes in Equity for the year ended 31 December 2005

Attributable to equity holders of the Company 2005 Company

Share capital $’000 (Note 27)

At 31 December 2004 and 1 January 2005

Share premium $’000 (Note 29)

Accumulated profits (losses) $’000

8

Total equity $’000

6,519

5,135

11,662

Net loss for the year

–

–

(225)

(225)

Total recognised net expenses for the year

–

–

(225)

(225)

Issuance of ordinary shares as purchase consideration for acquisition of a subsidiary (Note 12)

1,517

8,345

At 31 December 2005

8,036

13,480

– (217)

9,862 21,299

Attributable to equity holders of the Company 2004 Company

Share capital $’000 (Note 27)

At 31 December 2003 and 1 January 2004 Net profit for the year Total recognised net income for the year

Statements of Changes in Equity

At 31 December 2004

36

Share premium $’000 (Note 29)

Accumulated profits (losses) $’000

6,519 –

5,135 –

–

–

10

10

6,519

5,135

8

11,662

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

(2) 10

Total equity $’000

11,652 10

Consolidated Cash Flow Statement for the year ended 31 December 2005

Cash flows from operating activities Profit before taxation Adjustments for: Depreciation expense Amortisation of intangible assets (Gain) loss on disposal of plant and equipment Write down of inventories Plant and equipment written off Share of results of associates Share of results of joint ventures Interest expense and bank charges Interest income Bad debts written off Gain on disposal of subsidiary Translation difference

10

12

2005 $’000

2004 $’000

3,787

900

6,497 403 (37) – 569 399 110 659 (78) 321 (169) (175)

3,452 121 48 8 386 82 – 325 (21) – – 28

Operating profit before working capital changes (Increase) decrease in: Inventories Trade receivables Other receivables and deposits Prepayments Amount due from associates (trade) Amount due from associates (non-trade) Amount due from joint ventures (non-trade) Increase (decrease) in: Trade payables Other payables and accrued expenses Amount due to associates (trade) Amount due to associates (non-trade)

12,286

Cash flows generated from operations Tax paid

16,287 (1,017)

6,466 (120)

Net cash flows from operating activities

15,270

6,346

78 (14,101) (610) (246) (357) (2,000) 141 5,727 57

21 (4,328) (144) (664) – – 167 – –

(11,311)

(4,948)

Cash flows from investing activities Interest income received Purchase of property, plant and equipment Acquisition of intangible assets Investment in associates Loan to an associate Investment in joint ventures Proceeds from sale of plant and equipment Net cash inflow on acquisition of a subsidiary Net cash inflow on disposal of subsidiary Net cash flows used in investing activities

(261) (1,383) (1,524) 346 (160) (130) (307) 2,324 5,030 71 (5)

B

12 12

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

5,329 (559) 96 46 (509) (251) (57) – 956 1,415 – –

Consolidated Cash Flow Statement

Notes

37

Consolidated Cash Flow Statement for the year ended 31 December 2005

Notes

2005

2004

$’000

$’000

Cash flows from financing activities Interest expense and bank charges paid

(634)

Net proceeds (repayment) of long-term loans

2,140

Net proceeds of short term loan

306

Capital injection from minority shareholders of a subsidiary

97

Repayment of finance lease obligations

(349)

(325) (1,498) 1,187 – (264)

Loan from minority shareholder of a subsidiary

150

–

Decrease (increase) in fixed deposits pledged

488

(6)

Net cash flows from (used in) financing activities

2,198

(906)

Net increase in cash and cash equivalents

6,157

492

Cash and cash equivalents at the beginning of the year

7,912

7,420

14,069

7,912

Cash and cash equivalents at the end of the year

A

Note A. Cash and cash equivalents Cash and cash equivalents consist of cash on hand and at bank and unpledged fixed deposits.

Fixed

deposits pledged to banks for banking facilities granted to the Group are excluded from cash and cash equivalents. For the purpose of the consolidated cashflow statement, cash and cash equivalents comprise the following as at 31 December: 2005

2004

$’000

$’000

14,069

7,264

1,603

1,904

15,672

9,168

Less: Fixed deposits pledged

(1,603)

(1,256)

Cash and cash equivalents at the end of year

14,069

Cash on hand and at bank

Consolidated Cash Flow Statement

Fixed deposits

38

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

7,912

Consolidated Cash Flow Statement for the year ended 31 December 2005

Note A. Cash and cash equivalents (cont’d)

Cash and cash equivalents include amounts denominated in foreign currencies as follows: 2005 United States dollar Renminbi Hongkong dollar Thai Baht

2004

$’000

$’000

573

1,072

7,494

1,248

596

–

6

–

Note B. Plant and equipment held under finance leases During the year, the Group acquired property, plant and equipment with an aggregate cost of approximately $14,301,000 (2004: $4,328,000) of which $200,000 (2004: Nil) was financed via finance lease. Cash

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

Consolidated Cash Flow Statement

payments of $14,101,000 (2004:$4,328,000) were made to acquire property, plant and equipment.

39

Notes to the Financial Statements – 31 December 2005

1.

GENERAL

1.1

Corporate information BreadTalk Group Limited (the Company) is a limited liability company, which is incorporated in the Republic of Singapore. The registered office and principal place of business of the Company is located at 171 Kampong Ampat, #05-05 KA Foodlink, Singapore 368330. The principal activity of the Company is that of investment holding. The principal activities of the subsidiaries are shown in Note 12 to the financial statements.

1.2

Fundamental accounting assumption The financial statements of the Group have been prepared on a going concern basis. The Group’s net current liabilities position as at 31 December 2005 of $5,496,000 arose mainly from the purchase of a leasehold office property in Beijing for an amount of $3,124,000 fully paid in cash, as well as the use of cash and short-term bank borrowings to finance the purchase of fixed assets for the bakery, food court and restaurants businesses during the year. Included in other payables and accrued expenses are deferred revenue of $2,967,000 and food court tenant and stored value card deposits of $1,999,000. Deferred revenue relates to unearned franchise fees received and the unutilised value on the food court stored value cards. These current liabilities, because of their nature, are not expected to result in significant cash outflow from the Group within the next 12 months. In addition, the Group has unutilised banking facilities available for future use. The directors are

Notes to the Financial Statements

confident that the Group will be able to pay its debts as and when they fall due.

40

Notes to the Financial Statements – 31 December 2005

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.1

Basis of preparation The consolidated financial statements of the Group and the financial statements of the Company have been prepared in accordance with Singapore Financial Reporting Standards (“FRS”). The financial statements have been prepared on a historical cost basis. The financial statements are presented in Singapore Dollars (SGD or $) and all values are rounded to the nearest thousand ($’000) except when otherwise indicated. Changes in accounting policies The accounting policies have been consistently applied by the Group and the Company and are consistent with those used in the previous financial year, except for the changes in accounting policies discussed below. (a)

Adoption of new FRS The Group and the Company adopted FRS 39, Financial Instruments: Recognition and Measurement prospectively on 1 January 2005. At that date, financial assets within the scope of FRS 39 were classified as loans and receivables and were measured at amortised cost using the effective interest method. In addition, FRS 103, Business combinations has been applied for business combinations on or after 1 January 2005. The adoption of FRS 39 and FRS 103 did not result in any adjustments to the financial statements as at 1 January 2005 and for the year ended 31 December 2005. Other new standards mandatory for annual financial periods beginning on or after 1 January 2005 which do not apply to the activities of the Group include: •

FRS 102, Share-based Payment

•

FRS 105, Non-Current Assets Held for Sale and Discontinued Operations

Notes to the Financial Statements

2.2

41

Notes to the Financial Statements – 31 December 2005

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

2.2

Changes in accounting policies (cont’d) (b)

Adoption of revised FRS The Group adopted the following revised standards which did not result in any significant

Notes to the Financial Statements

change in accounting policies:

42

•

FRS 1 (revised), Presentation of Financial Statements

•

FRS 2 (revised), Inventories

•

FRS 8 (revised), Accounting Policies, Changes in Accounting Estimates and Errors

•

FRS 10 (revised), Events after the Balance Sheet Date

•

FRS 16 (revised), Property, Plant and Equipment

•

FRS 17 (revised), Leases

•

FRS 21 (revised), The Effects of Changes in Foreign Exchange Rates

•

FRS 24 (revised), Related Party Disclosures

•

FRS 27 (revised), Consolidated and Separate Financial Statements

•

FRS 28 (revised), Investments in Associates

•

FRS 31 (revised), Interests in Joint Venture

•

FRS 32 (revised), Financial Instruments: Disclosure and Presentation

•

FRS 33 (revised), Earnings Per Share

•

FRS 38 (revised), Intangible Assets

Notes to the Financial Statements – 31 December 2005

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

2.2

Changes in accounting policies (cont’d) (c)

New FRS/Revised FRS/INT FRS not yet effective The Group has not applied the following FRS and INT FRS that have been issued but are only effective for annual financial periods beginning on or after 1 January 2006 unless otherwise stated: •

FRS 19 (revised), Employee Benefits

•

FRS 40, Investment Property (effective for annual financial periods beginning on or after 1 January 2007)

•

FRS 106, Exploration for and Evaluation of Mineral Resources

•

FRS 107, Financial Instruments: Disclosures (effective for annual financial periods beginning on or after 1 January 2007)

• •

INT FRS 104, Determining Whether an Arrangement Contains a Lease INT FRS 105, Rights to Interests Arising from Decommissioning, Restoration and Environmental Rehabilitation Funds

•

INT FRS 106, Liabilities Arising from Participating in a Specific market – Waste Electrical and Electronic Equipment (effective for annual financial periods beginning on or after 1 December 2005)

•

INT FRS 107, Applying the Restatement Approach under FRS 29, Financial Reporting in Hyperinflationary Economies (effective for annual financial periods beginning on or after 1 March 2006)

The adoption of FRS 19 (revised) and FRS 107 will result in additional disclosures in the financial statements. The other FRS and INT FRS are not relevant to the activities of the Group and the adoption of these pronouncements will have no impact on the financial statements in the period of initial application. Significant accounting estimates and judgements Estimates, assumptions concerning the future and judgements are made in the preparation of the financial statements. They affect the application of the Group’s accounting policies, reported amounts of assets, liabilities, income and expenses, and disclosures made. They are assessed on an on-going basis and are based on experience and relevant factors, including expectations of future events that are believed to be reasonable under the circumstances.

Notes to the Financial Statements

2.3

43

Notes to the Financial Statements – 31 December 2005

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

2.3

Significant accounting estimates and judgements (cont’d) Key sources of estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. (i)

Impairment of goodwill The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units to which the goodwill are allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The carrying amount of the Group’s goodwill at 31 December 2005 was $4,578,000. More details are given in Note 11.

(ii)

Valuation and estimated useful life of brand value arising from acquisition of a subsidiary, Topwin Investment Holding Pte Ltd (“Topwin”) Brand value amounting to $3,308,000 arising from the acquisition of Topwin was separately identified and recognised by management using the “relief from royalty method”.

The

premise of this valuation method is the assumption that the Group would be compelled to pay the rightful owner of the brand name if the Group did not have the legal right to utilise the brand name. The ownership of the brand therefore relieves the Group from making such royalty payments. This requires an estimation of the royalty payments including initial fees and continuing royalty payments based on a percentage of projected revenue. The basis used to determine the revenue projections is the revenue for each food court of Topwin achieved in the financial year ended 31 December 2004 projected into the future. The useful life of the brand value is estimated by the directors to be 15 years as this is the length of time that they expect the benefits of the brand to flow to the Group. Amortisation of the brand amounted to

Notes to the Financial Statements

$221,000 for the financial year ended 31 December 2005.

44

Notes to the Financial Statements – 31 December 2005

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

2.3

Significant accounting estimates and judgements (cont’d) (iii)

Income taxes The Group has exposure to income taxes in numerous jurisdictions. Significant judgement is involved in determining the Group-wide provision for income taxes. There are certain transactions and computations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for expected tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recognised, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. The carrying amount of the Group’s tax payable at 31 December 2005 was amounted to approximately $1,742,000 (2004: $342,000). A subsidiary, BreadTalk Pte Ltd (“BTPL”) obtained the Development and Expansion Incentive (“DEI”) which entitles the qualifying income of the company earned during the financial years ended 31 December 2003 to 2007 to be subject to the concessionary tax rate of 10%, subject to certain conditions to be met by year 2007. Accordingly, the tax liability of the company has been computed based on DEI status. As at 31 December 2005, BTPL has yet to satisfy all the conditions. The management is currently in negotiation with the Economic Development Board to review the qualifying conditions. Should BTPL not be entitled to the concessionary tax rate, additional provision of tax liabilities amounting to $322,000 would have to be made. Depreciation of property, plant and equipment Property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives. Management estimates the useful lives of these assets to be within 5 to 20 years. The carrying amount of the Group’s property, plant and equipment as at 31 December 2005 was $24,571,000 (2004: $12,151,000). Changes in the expected level of usage and technological developments could impact the economic useful lives and the residual values of these assets, therefore future depreciation charges could be revised. In particular, renovation costs incurred and capitalised for bakery outlets, food courts and restaurants may be subject to immediate impairment upon their unforeseen closure due to unfavourable operations.

Notes to the Financial Statements

(iv)

45

Notes to the Financial Statements – 31 December 2005

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

2.3

Significant accounting estimates and judgements (cont’d) Critical judgement made in applying accounting policies The following critical judgement was made by management in the process of applying the Group’s accounting policies that has the most significant effect on the amounts recognised in the financial statements. (i)

Litigation claims With regard to the litigation disclosed in Note 31(e), the Group has determined that the litigation sums awarded by the District Court should be borne by the licensee and any liability arising therefrom will be recoverable from the licensee.

2.4

Functional and foreign currency (a)

Functional currency The management has determined the currency of the primary economic environment in which the Company operates i.e. functional currency, to be SGD. Sales prices and major costs of providing goods and services including major operating expenses are primarily influenced by fluctuations in SGD.

(b)

Foreign currency transactions Transactions in foreign currencies are measured in the respective functional currencies of the Company and its subsidiaries and are recorded on initial recognition in the functional currencies at exchange rates approximating those ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the closing rate of exchange ruling at the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency

Notes to the Financial Statements

are translated using the exchange rates at the date when the fair value was determined.

46

Notes to the Financial Statements – 31 December 2005

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

2.4

Functional and foreign currency (cont’d) Exchange differences arising on the settlement of monetary items or on translating monetary items at the balance sheet date are recognised in the profit and loss account except for exchange differences arising on monetary items that form part of the Group’s net investment in foreign subsidiaries, which are recognised initially in a separate component of equity as foreign currency translation reserve in the consolidated balance sheet and recognised in the consolidated profit and loss account on disposal of the subsidiary. In the Company’s separate financial statements, such exchange differences are recognised in the profit and loss account. (c)

Foreign currency translation The results and financial position of foreign operations are translated into SGD using the following procedures: •

Assets and liabilities for each balance sheet presented are translated at the closing exchange rate ruling at that balance sheet date; and

•

Income and expenses for each income statement are translated at average exchange rates for the year, which approximates the exchange rates at the dates of the transactions.

All resulting exchange differences are recognised in a separate component of equity as foreign currency translation reserve. On disposal of a foreign operation, the cumulative amount of exchange differences deferred in equity relating to that foreign operation is recognised in the profit and loss account as a component of the gain or loss on disposal. Related party An entity or individual is considered a related party of the Group for the purposes of the financial statements if: i) it possesses the ability (directly or indirectly) to control or exercise significant influence over the operating and financial decisions of the Group or vice versa; or ii) it is subject to common control or common significant influence.

Notes to the Financial Statements

2.5

47

Notes to the Financial Statements – 31 December 2005

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

2.6

Subsidiaries and principles of consolidation (a)

Subsidiaries A subsidiary is an entity over which the Group has the power to govern the financial and operating policies so as to obtain benefits from its activities. The group generally has such power when it directly or indirectly, holds more than 50% of the issued share capital, or controls more than half of the voting power, or controls the composition of the board of directors. In the Company’s separate financial statements, investments in subsidiaries are accounted for at cost less any impairment losses.

(b)

Principles of consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at the balance sheet date. The financial statements of the subsidiaries are prepared for the same reporting date as the parent company. Consistent accounting policies are applied for like transactions and events in similar circumstances. All intra-group balances, transactions, income and expenses and profits and losses resulting from intra-group transactions that are recognised in assets, are eliminated in full. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the group obtains control, and continue to be consolidated until the date that such control ceases. Acquisitions of subsidiaries are accounted for using the purchase method. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date,

Notes to the Financial Statements

irrespective of the extent of any minority interest.

48

Any excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities represents goodwill. The goodwill is accounted for in accordance with the accounting policy for goodwill stated in Note 2.10 below.

Notes to the Financial Statements – 31 December 2005

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

2.6

Subsidiaries and principles of consolidation (cont’d) (b)

Principles of consolidation (cont’d) Any excess of the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of business combination is recognised in the profit and loss account on the date of acquisition. Minority interests represent the portion of profit or loss and net assets in subsidiaries not held by the Group. They are presented in the consolidated balance sheet within equity, separately from the parent shareholders’ equity, and are separately disclosed in the consolidated profit and loss account.

Associates An associate is an entity, not being a subsidiary or a joint venture, in which the Group has significant influence. This generally coincides with the Group having 20% or more of the voting power, or has representation on the board of directors. The Group's investments in associates are accounted for using the equity method. Under the equity method, the investment in associate is carried in the balance sheet at cost plus post-acquisition changes in the Group’s share of net assets of the associate. The Group’s share of the profit or loss of the associate is recognised in the consolidated profit and loss account. Where there has been a change recognised directly in the equity of the associate, the Group recognises its share of such changes. After application of the equity method, the Group determines whether it is necessary to recognise any additional impairment loss with respect to the Group’s net investment in the associate. The associate is equity accounted for from the date the Group obtains significant influence until the date the Group ceases to have significant influence over the associate. Goodwill relating to an associate is included in the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. The most recent available audited financial statements of the associates are used by the Group in applying the equity method.

Where the dates of the audited financial statements used are

not co-terminous with those of the Group, the share of results is arrived at from the last audited financial statements available and un-audited management financial statements to the end of the accounting period. Consistent accounting policies are applied for like transactions and events in similar circumstances.

Notes to the Financial Statements

2.7

49

Notes to the Financial Statements – 31 December 2005

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

2.8

Joint ventures The Group has interest in joint ventures which is a jointly controlled entity. A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control, and a jointly controlled entity is a joint venture that involves the establishment of a separate entity in which each venturer has an interest. The Group's investments in joint ventures are accounted for using the equity method. Under the equity method, the investment in joint venture is carried in the balance sheet at cost plus postacquisition changes in the Group’s share of net assets of the joint ventures. The Group’s share of the profit or loss of the joint ventures is recognised in the consolidated profit and loss account. Where there has been a change recognised directly in the equity of the joint ventures, the Group recognises its share of such changes. After application of the equity method, the Group determines whether it is necessary to recognise any additional impairment loss with respect to the Group’s net investment in the joint ventures. The joint ventures are equity accounted for from the date the Group obtains joint control until the date the Group ceases to have joint control over the joint ventures. The most recent available audited financial statements of the joint ventures are used by the Group in applying the equity method. Consistent accounting policies are applied for like transactions and events in similar circumstances.

2.9

Property, plant and equipment All items of property, plant and equipment are initially recorded at cost. Subsequent to recognition, property, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation of an asset begins when it is available for use and is computed on a straight-line basis over the estimated useful life of the asset. Property, plant and equipment of PRC subsidiaries are depreciated using the straight-line method to write off the cost of fixed assets less estimated

Notes to the Financial Statements

residual value of 10% over their estimated useful life.

50

Leasehold property

20 years

Machinery and equipment

5 - 6 years

Electrical works

5 - 6 years

Furniture and fittings

5 - 6 years

Office equipment

5 - 6 years

Renovation

2 - 9 years

Motor vehicles

5 - 6 years

Notes to the Financial Statements – 31 December 2005

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

2.9

Property, plant and equipment (cont’d) Construction-in-progress is stated at cost. No depreciation is provided for construction-in-progress as these assets are not available for use. The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. The residual values, useful life and depreciation method are reviewed at each financial year-end to ensure that the amount, method and period of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the items of property, plant and equipment. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset is included in the profit and loss account in the year the asset is derecognised. Intangible assets (a)

Goodwill Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated: Notes to the Financial Statements

2.10

51

Notes to the Financial Statements – 31 December 2005

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

2.10

Intangible assets (cont’d) (a)

Goodwill (cont’d) •

Represents the lowest level within the Group at which the goodwill is monitored for internal management purposes; and

•

Is not larger than a segment based on either the Group’s primary or the Group’s secondary reporting format.

A cash-generating unit (or group of cash-generating units) to which goodwill has been allocated are tested for impairment annually and whenever there is an indication that the unit may be impaired, by comparing the carrying amount of the unit, including the goodwill, with the recoverable amount of the unit. Where the recoverable amount of the cash-generating unit (or group of cash-generating units) is less than the carrying amount, an impairment loss is recognised. Where goodwill forms part of a cash-generating unit (or group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. (b)

Other intangible assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair values as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised on a straight-line basis over the estimated economic useful lives and

Notes to the Financial Statements

assessed for impairment whenever there is an indication that the intangible asset may be

52

impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. The amortisation expense on intangible assets with finite lives is recognised in the profit and loss account through the ‘administrative expenses’ line item.

Notes to the Financial Statements – 31 December 2005

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

2.10

Intangible assets (cont’d) (b)

Other intangible assets (cont’d)

Intangible assets with indefinite useful lives are tested for impairment annually or more frequently if the events or changes in circumstances indicate that the carrying value may be impaired either individually or at the cash-generating unit level. Such intangibles are not amortised. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether the useful life assessment continues to be supportable. Gain or loss arising from derecognition of an intangible asset is measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the profit and loss account when the asset is derecognised. (i)

Trade mark Costs relating to trade mark are capitalised and amortised on a straight-line basis over its estimated finite useful life of 5 years.

(ii)

Franchise rights Costs relating to master franchise fees paid are capitalised and amortised on a straight-line basis over the franchise period ranging from 6 to 9 years.

(iii)

Location premium Consideration paid to previous tenants to vacate premises in order to secure the lease arrangement are amortised on a straight-line basis over the new lease agreement period of 4 years. Brand value Brand value was acquired through a business combination. The useful life of the brand is assessed to be finite and estimated to be 15 years because this is the length of time that the management expects the economic benefits of the brand to flow to the Group. Brand value is amortised on a straight-line basis over its estimated economic useful life.

Notes to the Financial Statements

(iv)

53

Notes to the Financial Statements – 31 December 2005

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

2.11

Impairment of non-financial assets The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset (i.e. an intangible asset with an indefinite useful life, an intangible asset not yet available for use, or goodwill acquired in a business combination) is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Impairment losses of continuing operations are recognised in the profit and loss account as ‘administrative expenses’. An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses recognised for an asset other than goodwill may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Reversal of an impairment loss is recognised in the profit and loss account. After such a reversal, the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

Notes to the Financial Statements

The Group does not reverse in a subsequent period, any impairment loss recognised for goodwill.

54

Notes to the Financial Statements – 31 December 2005

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

2.12

Financial assets Financial assets are recognised on the balance sheet when, and only when, the Group becomes a party to the contractual provisions of the financial instrument. Non-derivative financial assets with fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Such assets are initially recognised at fair value, plus directly attributable transactions costs. Subsequent to initial recognition, such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in the profit and loss account when the loans and receivables are derecognised or impaired, as well as through the amortisation process.

2.13

Cash and cash equivalents Cash and cash equivalents comprise cash on hand and at bank, unpledged fixed deposits and shortterm highly liquid investments which are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value. Cash and short-term deposits carried in the balance sheets are classified and accounted for as loans and receivables under FRS 39. The accounting policy for this category of financial assets is stated in Note 2.12. Trade and other receivables Trade and other receivables, including amounts due from subsidiaries, associates and joint ventures are classified and accounted for as loans and receivables under FRS 39. The accounting policy for this category of financial assets is stated in Note 2.12. An allowance is made for uncollectible amounts when there is objective evidence that the Group will not be able to collect the debt. Bad debts are written off when identified. Further details on the accounting policy for impairment of loans and receivables are stated in Note 2.15 below.

Notes to the Financial Statements

2.14

55

Notes to the Financial Statements – 31 December 2005

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

2.15

Impairment of loans and receivables The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or group of financial assets is impaired. If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset's original effective interest rate (i.e. the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced through the use of an allowance account. The amount of the loss is recognised in the profit and loss account. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in the profit and loss account, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date.

2.16

Inventories Inventories are valued at the lower of cost and net realisable value. Inventories comprise raw materials and costs relate to purchase costs accounted for on a weighted average cost basis. Base inventory, comprising mainly cutlery and dining utensils, are written down to 50% of the original cost and all further replacement costs incurred in maintaining the base inventory is expensed. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

Notes to the Financial Statements

Provision is made for deteriorated, damaged, obsolete and slow-moving inventories.

56

Notes to the Financial Statements – 31 December 2005

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

2.17

Trade and other payables Liabilities for trade and other amounts payable and payables to related parties are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in the profit and loss account when the liabilities are derecognised as well as through the amortisation process.

2.18

Interest bearing loans and borrowings All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in the profit and loss account when the liabilities are derecognised as well as through the amortisation process.

2.19

Borrowing costs Borrowing costs are generally expensed as incurred. Derecognition of financial assets and liabilities (a)

Financial assets A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised where: •

The contractual rights to receive cash flows from the asset have expired;

•

The Group retains the contractual rights to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a ‘pass-through’ arrangement; or

Notes to the Financial Statements

2.20

57

Notes to the Financial Statements – 31 December 2005

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

2.20

Derecognition of financial assets and liabilities (cont’d) •

The Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sum of (a) the consideration received (including any new asset obtained less any new liability assumed) and (b) any cumulative gain or loss that has been recognised directly in equity is recognised in the profit and loss account. (b)

Financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the profit and loss account.

2.21

Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) where, as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the profit and loss account net of any reimbursement.

Notes to the Financial Statements

If the effect of the time value of money is material, provisions are discounted using a current pre-

58

tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as finance costs.

Notes to the Financial Statements – 31 December 2005

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

2.21

Provisions (cont’d) Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed. Leases (a)

As lessee Finance leases, which transfer to the Group substantially all the risks and rewards incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Any initial direct costs are also added to the amount capitalised. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to the profit and loss account. Contingent rents, if any, are charged as expenses in the periods in which they are incurred. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term, if there is no reasonable certainty that the group will obtain ownership by the end of the lease term. Operating lease payments are recognised as an expense in the profit and loss account on a straight-line basis over the lease term. The aggregate benefit of incentives provided by the lessor is recognised as a reduction of rental expense over the lease term on a straight-line basis.

(b)

As lessor Leases where the Group retains substantially all the risks and rewards of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same bases as rental income (Note 2.24).

Notes to the Financial Statements

2.22

59

Notes to the Financial Statements – 31 December 2005

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

2.23

Employee benefits (a)

Defined contribution plans The Group participates in the national pension schemes as defined by the laws of the countries in which it has operations. Singapore The Group makes contributions to the Central Provident Fund (CPF) scheme in Singapore, a defined contribution pension scheme. The Group makes monthly contributions based on stipulated contribution rates. People’s Republic of China (“PRC”) Subsidiaries incorporated and operating in the PRC are required to provide certain staff pension benefits to their employees under existing PRC regulations. Contributions are provided at rates stipulated by PRC regulations and are contributed to a pension fund managed by government agencies, which are responsible for administering these amounts for the subsidiaries’ PRC employees. Hong Kong The subsidiary incorporated and operating in Hong Kong pays contributions to publicly or privately administered pension insurance plans on a mandatory basis. The subsidiary has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due and are not reduced by contributions forfeited by those employees who leave the scheme prior to vesting fully in the contributions. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. Contributions to national pension schemes are recognised as an expense in the period in

Notes to the Financial Statements

which the related scheme is performed.

60

Notes to the Financial Statements – 31 December 2005

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

2.23

Employee benefits (cont’d) (b)

Employee leave entitlement Employee entitlements to annual leave are recognised when they accrue to employees. The estimated liability for leave is recognised for services rendered by employees up to balance sheet date.

Revenue Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: (a)

Bakery sales, restaurant sales and sales to franchisee Revenue from the sale of goods is recognised net of goods and services tax and discounts upon the passing of title to the customer which generally coincides with delivery and acceptance of the goods sold.

(b)

Franchise income Initial franchise income is recognised upon the grant of rights, completion of the designated phases of the franchise setup and transfer of know-how to the franchisee in accordance with the terms stated in the franchise agreement. Recurring franchise income is recognised on a periodic basis as a percentage of the franchisees’ turnover in accordance with terms as stated in the franchise agreement.

(c)

Food court revenue Revenue from operation of food court is recognised when rental are charged to the food court tenants based on a percentage of their gross sales. Revenue from sales of food and beverage is recognised upon delivery and acceptance by customers, net of sales discount. Notes to the Financial Statements

2.24

61

Notes to the Financial Statements – 31 December 2005

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

2.24

Revenue (cont’d) (d)

Management fee Management fee is recognised on an accrual basis.

(e)

Interest income Interest income is recognised as interest accrues (using the effective interest method) unless collectibility is in doubt.

2.25

Government grants Government grants are recognised at their fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised in the profit and loss account over the period necessary to match them on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset, the fair value is recognised as deferred capital grant on the balance sheet and is amortised to the profit and loss account over the expected useful life of the relevant asset by equal annual instalments.

2.26

Income taxes (a)

Current tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the

Notes to the Financial Statements

balance sheet date.

62

Notes to the Financial Statements – 31 December 2005

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

2.26

Income taxes (cont’d) Deferred tax Deferred income tax is provided using the liability method on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary differences, except: •

Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither accounting profit nor taxable profit or loss; and

•

In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred income tax assets are recognised for all deductible temporary differences, carryforward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax credits and unused tax losses can be utilised except: •

Where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither accounting profit nor taxable profit or loss; and

•

In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

Notes to the Financial Statements

(b)

63

Notes to the Financial Statements – 31 December 2005

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

2.26

Income taxes (cont’d) (b)

Deferred tax (cont’d) The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

(c)

Sales tax Revenue, expenses and assets are recognised net of the amount of sales tax except: •

Where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and

•

Receivables and payables that are stated with the amount of sales tax included.

The net amount of sales tax recoverable from, or payable to, the taxation authority is included

Notes to the Financial Statements

as part of receivables or payables in the balance sheet.

64

Notes to the Financial Statements – 31 December 2005

REVENUE Group 2005

2004

2005

2004

$’000

$’000

$’000

$’000

Bakery sales

47,986

37,049

–

–

Restaurant sales

16,789

10,740

–

–

878

1,027

–

–

2,078

1,370

–

–

27,566

–

–

–

95,297

50,186

–

–

Sales to franchisee Franchise income Food court income

4.

Company

OTHER OPERATING INCOME Group

Company

2005

2004

2005

2004

$’000

$’000

$’000

$’000

2,538

–

–

–

Management fee income - Food court management - Others

237

–

564

615

Government grant (1)

260

–

–

–

37

–

–

–

Gain on disposal of plant and equipment Gain on disposal of subsidiary

169

–

–

–

Sundry sales

417

284

–

–

Miscellaneous income

523

32

–

–

4,181

316

564

615

(1)

Government grant in relation to business expansion activities undertaken by a subsidiary in the PRC.

Notes to the Financial Statements

3.

65

Notes to the Financial Statements – 31 December 2005

5.

PROFIT (LOSS) FROM OPERATIONS This is determined after charging (crediting) the following: Group

Non-audit fee to auditors of the Company

Company

2005

2004

2005

2004

$’000

$’000

$’000

$’000

21

2

3

–

Amortisation of intangible assets (Note 11)

403

121

–

–

Bad trade debt written off

321

–

–

–

88

88

88

88

887

625

263

245

Directors’ fees Directors’ remuneration(1) - directors of the Company - directors of subsidiaries

956

–

–

–

6,497

3,452

–

–

24,846

15,223

266

248

7

130

(4)

Plant and equipment written off

569

386

–

–

(Gain) Loss on disposal of plant and equipment

(37)

48

–

–

Litigation damages due to a tenant

145

–

–

–

17,065

9,156

–

–

3,750

281

–

–

1,056

129

–

–

–

8

–

–

Depreciation expense (Note 10) Employee benefits (Note 6)

(2)

Foreign exchange (gain) loss, net

(3)

14

Operating lease expenses - fixed portion

(4)

- variable portion Pre-operating expenses Write down of inventories

(1)

Included in the directors’ remuneration are Central Provident Fund contributions of approximately $56,000 (2004:$22,000).

(2)

This includes amounts shown as directors’ remuneration.

(3)

This relates to a compensation amount payable to a tenant of a food court.

(4)

Net of sublease rental income received from a related party amounting to approximately $10,000

Notes to the Financial Statements

(2004:$118,000).

66

Notes to the Financial Statements – 31 December 2005

6.

EMPLOYEE BENEFITS Group

Company

2005

2004

2005

2004

$’000

$’000

$’000

$’000

Staff costs (including directors) - Salaries and bonuses

19,949

12,137

252

234

1,673

1,066

14

12

- Central Provident Fund and other pension contributions Sales incentives and commission Other personnel benefits

7.

584

469

–

–

2,640

1,551

–

2

24,846

15,223

266

248

INTEREST INCOME AND INTEREST EXPENSE Group

Interest income from bank balances

Company

2005

2004

2005

2004

$’000

$’000

$’000

$’000

78

21

4

13

–

–

Interest expense - Term loans

(429)

(190)

- Finance lease obligations

(19)

(31)

- Other

(25)

–

(473)

– –

–

–

TAXATION Major components of income tax expense were: Group

Current tax - Current year - Underprovision in respect of prior year Deferred tax - Current year - Overprovision in respect of prior year - Change in tax rate Withholding tax Taxation expense

Company

2005

2004

2005

2004

$’000

$’000

$’000

$’000

1,876 51

310 7

8 –

4 –

(115) – –

179 (28) (87)

– – –

– – –

218

29

–

–

2,030

410

8

4

Notes to the Financial Statements

8.

(221)

– –

67

Notes to the Financial Statements – 31 December 2005

8.

TAXATION (cont’d) A reconciliation between the tax expense and the product of accounting profit multiplied by the applicable tax rate for the year ended 31 December is as follows: Group

Company

2005

2004

2005

2004

$’000

$’000

$’000

$’000

4,296

982

(217)

14

963

149

(43)

3

Tax losses of a subsidiary disposed

221

–

–

–

Expenses not deductible for tax purposes

513

263

51

1

(47)

(48)

–

–

- Current tax

51

7

–

–

- Deferred tax

–

(28)

–

–

–

(87)

–

–

218

29

–

–

(129)

(10)

–

–

375

135

–

–

(110)

–

–

–

(25)

–

–

–

2,030

410

Profit (loss) before taxation and share of results of associates and joint ventures Tax at the domestic rates applicable to profits in the countries concerned

(1)

Tax effect of:

Tax savings arising from development and expansion incentive(2) Under (over) provision in respect of prior year

Deferred tax adjustment due to change in tax rate Withholding tax expense Tax exemption Deferred tax asset not recognised in current year Deferred tax asset previously not recognised Others

Notes to the Financial Statements

Taxation expense

68

(1) (2)

8

4

This is prepared by aggregating separate reconciliations for each national jurisdiction. In February 2004, the Economic Development Board granted the Development and Expansion Incentive under the International Headquarters (IHQ-DEI) Award to a subsidiary. Subject to certain conditions, the subsidiary enjoys a concessionary tax rate of 10% on its qualifying income for a period of 5 years commencing 1 January 2003.

Notes to the Financial Statements – 31 December 2005

8.

TAXATION (cont’d) Deferred tax liabilities arose as result of: Group 2005

2004

$’000

$’000

(911)

(1,037)

Excess of net book value over tax written down value of plant and equipment Others Net deferred tax liabilities

(1) (912)

10 (1,027)

In accordance with the “Income Tax Law of the PRC for Enterprises with Foreign Investment and Foreign Enterprises”, Shanghai BreadTalk Co., Ltd (“SHBT”), a wholly-owned subsidiary registered in the PRC, is entitled to full exemption from Enterprise Income Tax (“EIT”) for the first two years and a 50% reduction in EIT for the next three years, commencing from the first profitable year after offsetting all tax losses carried forward from the previous five years. SHBT achieved its first profitable year in the current financial year end. Unrecognised tax losses and unabsorbed capital allowances As at 31 December 2005, the Group has tax losses of approximately $1,670,000 (2004: $948,000) and unabsorbed capital allowances of approximately $Nil (2004: $103,000) that are available for offset against future taxable profits. No deferred tax asset is recognised on these amounts due to uncertainty of its utilisation. The utilisation of the tax losses is subject to the agreement of the tax authorities and compliance with certain provisions of the tax legislation of the respective countries in which the companies operate.

EARNINGS (LOSS) PER SHARE Basic earnings per share is calculated by dividing the Group’s net profit for the year of $1,040,000 (2004: net loss for the year of $31,000) by the weighted average number of ordinary shares of 188,267,356 (2004: 162,980,000) in issue during the year. No diluted earnings per share is presented as there are no potential dilutive shares.

Notes to the Financial Statements

9.

69

Notes to the Financial Statements – 31 December 2005

10.

PROPERTY, PLANT AND EQUIPMENT

Notes to the Financial Statements

Group

70

Leasehold Machinery Electrical property and equipment works $’000 $’000 $’000

Furniture Office and fittings equipment $’000 $’000

Cost As at 1.1. 2004 Additions Reclassifications Write off Disposals Translation difference As at 31.12.2004 and 1.1.2005 Additions Acquisition of subsidiaries Reclassifications Write off Disposals Disposal of subsidiary Translation difference

– – – – – – – 3,124 – – – – – 48

5,705 1,147 (93) (110) (41) (34) 6,574 2,252 1,839 (328) (295) (179) (131) 126

3,032 446 7 (247) (132) (2) 3,104 1,105 – – (193) (4) (12) (2)

1,377 571 1 (84) (35) (2) 1,828 2,736 1,511 374 (407) (30) (98) 63

957 341 17 (2) – (9) 1,304 761 291 15 (184) – (52) 29

As at 31.12.2005

3,172

9,858

3,998

5,977

2,164

Accumulated depreciation As at 1.1. 2004 Charge for the year Write off Disposals Translation difference As at 31.12.2004 and 1.1.2005 Charge for the year Acquisition of subsidiaries Reclassification Write off Disposals Disposal of subsidiary Translation difference

– – – – – – 114 – – – – – 2

1,859 1,113 (59) (12) (3) 2,898 1,440 1,087 (169) (248) (145) (6) 50

963 573 (135) (64) (2) 1,335 587 – – (116) (1) (1) –

288 322 (37) (12) – 561 679 1,076 103 (296) (11) (7) 49

198 214 (1) – (2) 409 354 127 8 (111) – (4) 8

As at 31.12.2005

116

4,907

1,804

2,154

791

Net book value As at 31.12.2004

–

3,676

1,769

1,267

895

As at 31.12.2005

3,056

4,951

2,194

3,823

1,373

Notes to the Financial Statements – 31 December 2005

PROPERTY, PLANT AND EQUIPMENT (cont’d) Motor

Construction

Renovation

vehicles

-in-progress

Total

$’000

$’000

$’000

$’000

As at 1.1.2004

5,190

762

52

17,075

Additions

1,785

38

–

4,328

120

–

Write off

(530)

–

–

(973)

Disposals

(159)

–

–

(367)

(2)

–

(95)

Group

Cost

Reclassifications

Translation difference

(46)

(52)

–

As at 31.12.2004 and 1.1.2005

6,360

798

–

19,968

Additions

4,487(1)

253

–

14,718

134

16,312

Acquisition of subsidiaries Reclassifications Write off Disposals

12,407

130

77

–

(531) –

– (132)

(138)

–

–

(1,610)

–

(345)

Disposal of subsidiary

(381)

–

–

(674)

Translation difference

658

10

4

936

23,077

1,059

–

49,305

As at 1.1.2004

1,513

234

–

5,055

Charge for the year

1,087

143

–

3,452

(295)

–

–

(527)

(64)

–

–

(152)

(4)

–

–

(11)

As at 31.12.2005 Accumulated depreciation

Write off Disposals Translation difference As at 31.12.2004 and 1.1.2005

2,237

377

–

7,817

Charge for the year

3,147

176

–

6,497

Acquisition of subsidiaries

8,882

39

–

11,211

(1)

–

–

–

(1,041)

–

(241)

Reclassification Write off Disposals

59 (270) –

(84)

–

Disposal of subsidiary

(32)

–

–

(50)

Translation difference

429

3

–

541

14,452

510

–

24,734

As at 31.12.2004

4,123

421

–

12,151

As at 31.12.2005

8,625

549

–

24,571

As at 31.12.2005 Net book value

(1)

Amount includes provision for reinstatement costs of $417,000 included in accrued expenses.

Notes to the Financial Statements

10.

71

Notes to the Financial Statements – 31 December 2005

10.

PROPERTY, PLANT AND EQUIPMENT (cont’d) As at 31 December 2005, the net book values of machinery and equipment and motor vehicles acquired under finance leases are approximately $436,000 and $318,000 (2004:$430,000 and $370,000) respectively. Property, plant and equipment written off during the year arose mainly due to the closure of certain bakery outlets and refurbishment of certain food courts. The amount written off represents the following: •

the total carrying value of the plant and equipment attributable to the bakery outlets at the date of closure of these bakery outlets

•

the total carrying value of the plant and equipment attributable to the food courts at the date of refurbishment of the these food courts

The residual value of these assets has been assessed as nil. 11.

INTANGIBLE ASSETS

Goodwill $’000

Notes to the Financial Statements

Cost At 1.1.2004 Additions

72

Brand value $’000

Group Trade Franchise Location Mark rights Premium Total $’000 $’000 $’000 $’000

– –

– –

217 111

562 33

– –

779 144

At 31.12.2004 and 1.1.2005 Additions Acquisition of subsidiaries

– – 4,578

– – 3,308

328 70 40

595 66 –

– 474 –

923 610 7,926

At 31.12.2005

4,578

3,308

438

661

474

9,459

Accumulated amortisation At 1.1.2004 Amortisation

– –

– –

30 58

21 63

– –

51 121

At 31.12.2004 and 1.1.2005

–

–

88

84

–

172

Amortisation Acquisition of subsidiaries

– –

221 –

80 3

72 –

30 –

403 3

At 31.12.2005

–

221

171

156

30

578

Net book value At 31.12.2004

–

–

240

511

–

751

4,578

3,087

267

505

444

8,881

At 31.12.2005

Notes to the Financial Statements – 31 December 2005

INTANGIBLE ASSETS (cont’d) As from 1 January 2005, the date of adoption of FRS 103, goodwill was no longer amortised but is now subject to annual impairment test. Brand value, trade mark, franchise rights and location premium are determined to have finite useful lives and are amortised on a straight-line basis over their respective estimated economic useful lives and assessed for impairment whenever there is an indication that the intangible assets may be impaired. Brand value, trade mark, franchise rights and location premium have remaining useful lives of 14 years, 1 to 4 years, 4 to 6 years and 3 years as at 31 December 2005 respectively. Impairment testing of goodwill Goodwill acquired through business combinations has been allocated to 2 cash-generating units (“CGU”), which represent the 2 geographical segments in which the acquired food courts are located. The food courts located in the same geographical segment are managed by the same management team. Allocated goodwill based on the CGUs is as follows: Carrying

Basis on which

amount as at

recoverable

31 December

values are

Pre-tax

2005

determined

discount rate

$’000 Shanghai segment

3,569

Value in use

8%

Beijing segment

1,009

Value in use

8%

4,578 Both the CGUs belong to the reportable segment “food court operation”. The recoverable amount is determined based on a value in use calculation using the cash flow projections based on financial budgets approved by management covering a five-year period. The discount rates applied to the cash flow projections are derived from cost of capital plus a reasonable risk premium at the date of assessment of the respective cash generating units. The growth rate during the forecast period has been conservatively assumed to be zero in view of the matured operations of the respective food courts. No impairment loss on goodwill was required for the financial year ended 31 December 2005 for goodwill as the recoverable amount was in excess of the carrying value.

Notes to the Financial Statements

11.

73

Notes to the Financial Statements – 31 December 2005

12.

INVESTMENT IN SUBSIDIARIES Company

(a) Unquoted equity shares at cost

2005

2004

$’000

$’000

17,281

7,039

(b) Details of the subsidiaries are as follows:

Name

Country of

Principal

incorporation

activities

Proportion (%) of ownership

Cost of investment

interest

by the Company

2005

2004

2005

2004

%

%

$’000

$’000

100

100

5,239

5,239

Held by the Company BreadTalk Pte Ltd (“BTPL”)(1)

Singapore

Bakers and manufacturers of and dealers in bread, flour and biscuits

BreadTalk International

Singapore

Investment holding

100

100

1,800

1,800

Singapore

Investment holding

100

–

10,242

–

Singapore

Operators of food and

70(6)

70(6)

–

–

100

100

–

–

100

100

–

–

Pte. Ltd. (“BTI”)(1) Topwin Investment Holding Pte. Ltd. (“Topwin”)(1) Held through subsidiaries Taster Food Pte. Ltd. (“TFPL”)(1)

drinks sale outlets, eating houses and restaurants Shanghai BreadTalk Co., Ltd (“SHBT”)(2)

People’s Republic Bakers and manufacturers of China

of and dealers in bread, flour and biscuits

Shanghai BreadTalk Gourmet Co., Ltd (“SHBTG”)(2)

People’s Republic Management of food and of China

beverage, manufacture and retail of bakery,

Notes to the Financial Statements

confectionery products

74

Notes to the Financial Statements – 31 December 2005

Investment in subsidiaries (cont’d)

Name

Country of

Principal

incorporation

activities

Proportion (%) of

Cost of investment

ownership interest

by the Company

2005

2004

2005

2004

%

%

$’000

$’000

Beijing BreadTalk Restaurant People’s Republic of China Management Co., Ltd (“BJBT”)(3)

Management of food and beverage, manufacture and retail of bakery, confectionery products

100

100

–

–

Shanghai Xin Jia Fang Food People’s Republic of China & Beverage Co., Ltd (“SHXJF”) (2)

Food court operator

100

–

–

–

Shanghai Hui Xin Restaurant Co., Ltd (“SHHX”)

People’s Republic of China

Food court operator

100(8)

–

–

–

Shanghai Da Shi Dai Foods Co., Ltd (“SHDSD”)

People’s Republic of China

Food court operator

100(8)

–

–

–

Beijing Da Shi Dai Food and Beverage Co., Ltd (“BJDSD”)(3)

People’s Republic of China

Food court operator

100

–

–

–

Nanning Da Shi Dai Food and Beverage Co., Ltd (“NNDSD”)(4)

People’s Republic of China

Food court operator

100

–

–

–

Megabite Hong Kong Limited (“MBHK”)(5)

Hong Kong

Food court operator

85(7)

–

–

–

Megabite (S) Pte Ltd (“MBS”)(1)

Singapore

Investment holding and operator of Food & Beverage outlets

100

–

–

–

Food Republic Pte Ltd (“FR”)(1)

Singapore

Dormant

100

–

–

–

Management of food and beverage, manufacture and retail of bakery, confectionery products

100

–

–

–

17,281

7,039

BreadTalk (Thailand) Company Limited (BTT)(9)

Thailand

Notes to the Financial Statements

12.

75

Notes to the Financial Statements – 31 December 2005

12.

INVESTMENT IN SUBSIDIARIES (cont’d) (1)

Audited by Ernst & Young, Singapore.

(2)

Audited by Shanghai Xin Gao Xin Certified Public Accountants Co., Ltd, PRC

(3)

Audited by Beijing Zhong Qi Ren Xin Certified Public Accountants Co., Ltd, PRC

(4)

Audited by Guang Xi Qi Yuan Lian He Certified Public Accountants Co., Ltd. PRC

(5)

Audited by S.F. Kwok & Co. Certified Public Accountants, Hong Kong

(6)

The remaining 30% equity interest is held by Din Tai Fung Company Limited and an independent third party.

(7) (8)

The remaining 15% equity interest is held by an independent third party. Shanghai Hui Xin Restaurant Co., Ltd and Shanghai Da Shi Dai Foods Co., Ltd were amalgamated with Shanghai Xin Jia Fang Food & Beverage Co., Ltd with effect from 1 May 2005.

(9)

Not a significant subsidiary and unaudited financial statements have been used for the preparation of the consolidated financial statements of the Group.

(a)

During the year, the Group acquired the following subsidiaries: (i)

Megabite (S) Pte Ltd (“MBS”), incorporated in Singapore, for a total cash consideration of S$1. This company was incorporated on 1 July 2005 with an authorised share capital of $5,000,000 comprising 5,000,000 ordinary shares of S$1 each and an issued and paid-up share capital of $1. The issued paid up capital was subsequently increased to $200,000.

(ii)

Food Republic Pte Ltd (“FR”), incorporated in Singapore, for a total cash consideration of S$1. This company was incorporated on 6 October 2005 with an authorised share capital of $5,000,000 comprising 5,000,000 ordinary shares of S$1 each and an issued and paid-up share capital of $1.

(b)

Topwin subscribed for 85% interest in the registered capital of Megabite Hong Kong Limited (“MBHK”), representing 2,550,000 shares of HK$1 each for a total consideration of HK$2,550,000. MBHK was incorporated in Hong Kong on 30 March 2005.

(c)

BreadTalk International Pte Ltd incorporated a wholly-owned subsidiary, Breadtalk (Thailand)

Notes to the Financial Statements

Company Limited (“BTT”) with a registered and paid-in share capital of 3,000,000 Baht

76

divided into 300,000 shares of 10 Baht each.

Notes to the Financial Statements – 31 December 2005

INVESTMENT IN SUBSIDIARIES (cont’d) (d)

Acquisition of a subsidiary, Topwin Investment Holding Pte Ltd On 21 October 2004, the Company entered into a sale and purchase agreement to acquire 100% of the issued share capital of Topwin Investment Holding Pte Ltd (“Topwin”) for a consideration of up to $11 million to be satisfied by up to 37,931,034 new ordinary shares. The effective date of transfer of control of Topwin to the Group was determined to be 1 January 2005. The Company issued 37,931,034 new ordinary shares during the year as purchase consideration for the acquisition, based on the fair value of the Company’s ordinary shares on 1 January 2005 of $0.26 per share, being the price for trades done on the Singapore Exchange Securities Trading Limited (SGX-ST) roundabout that date. The acquisition was accounted for using the purchase method of accounting. These newly issued shares ranked pari passu in all respects with the then existing ordinary shares of the Company. The fair values of the identifiable assets and liabilities of Topwin Investment Holding Pte Ltd and its subsidiaries as at the date of acquisition were as follows:

Plant and equipment Brand value Trademark Inventories Trade receivables Other receivables and deposits Prepayments Fixed deposits – pledged Cash on hand and at bank Trade payables Other payables and accrued expenses Provision for income tax Short-term loans Amount due to a landlord (non-trade) Long-Term loans Net identifiable assets Goodwill arising from acquisition Total purchase consideration Net cash inflow from acquisition: Cost of acquisition Consideration via issuance of new shares

Recognised on acquisition $’000 5,101 3,308 37 153 174 2,314 81 835 6,107 (1,622) (6,708) (262) (1,800) (630)

Carrying amount before combination $’000 5,101 – 37 153 174 2,314 81 835 6,107 (1,622) (6,708) (262) (1,800) (801)

(1,424)

(1,424)

5,664 4,578

2,185

10,242

(10,242) 9,862

Unpledged cash balances acquired

6,107

Net cash inflow

5,727

Notes to the Financial Statements

12.

77

Notes to the Financial Statements – 31 December 2005

12.

INVESTMENT IN SUBSIDIARIES (cont’d) (d)

Acquisition of a subsidiary, Topwin Investment Holding Pte Ltd (cont’d) The total cost of the acquisition was $10,242,000 and comprised an issue of ordinary shares at fair value amounting to $9,862,000 and costs directly attributable to the acquisition of $380,000. From the date of acquisition, which coincides with the beginning of the year, Topwin Investment Holding Pte Ltd and its subsidiaries have contributed $653,000 and $27,566,000 to the net profit and revenue of the Group respectively.

(e)

Disposal of Shenzhen BreadTalk Restaurant Management Company Limited On 1 February 2005, BTI incorporated a wholly-owned subsidiary, Shenzhen BreadTalk Restaurant Management Company Limited (“SZBT”) with a registered capital of US$300,000 of which US$150,000 was paid up as of 31 August 2005. On 1 September 2005, BTI disposed of its 30% and 70% interest in shares to a fellow subsidiary, SHXJF and an independent third party respectively. Consequently, SZBT became an associate of the Group (Note 13). The carrying values of assets and liabilities of SZBT recorded in the consolidated financial statements as at 31 August 2005, and the effect of dilution of interest in SZBT is as follows: $’000 Plant and equipment 624 Inventories 64 Amount due from related company 2 Other receivables and deposits 121 Prepayments 14 Cash on hand and at bank 7 Trade payables (126) Other payables and accruals (53) Amount due to related companies (1,067) (414) 264 Liabilities undertaken by a subsidiary (1) Carrying value of net liabilities (150)

Notes to the Financial Statements

Disposal of 70% equity interest Gain on disposal Net proceeds from disposal of subsidiary

78

(105) 169 64

Cash on hand and at bank disposed

(7)

Net cash inflow on disposal of subsidiary

57

(1)

According to the sales and purchase agreement dated 1 September 2005, BTI agreed to undertake certain liabilities of SZBT amounting to approximately $264,000.

Notes to the Financial Statements – 31 December 2005

INVESTMENT IN ASSOCIATES Group 2005

2004

$’000

$’000

Shares, at cost

932

664

Loan to an associate

357

–

Investment in shares, unquoted

Share of post-acquisition losses of associates

(481)

Unrealised profit on transaction with an associate

(42)

At end of year

766

(82) – 582

Loan to an associate is quasi capital in nature, non-interest bearing and has no fixed terms of repayment. Details of the associates are as follows:

Name Held through subsidiaries ML Breadworks Sdn Bhd(1)

Hong Kong BreadTalk Ltd(2)

Taiwan BreadTalk Co., Ltd(3)

Shenzhen BreadTalk Restaurant Management Co., Ltd(3) (1)

(2) (3)

Country of incorporation

Singapore

Hong Kong

Taiwan

People’s Republic of China

Principal activities

Proportion (%) of ownership interest 2005 2004

Bakers and manufacturers of and dealers in bread, flour and biscuits

49

49

Bakers and manufacturers of and dealers in bread, flour and biscuits

25

–

Bakers and manufacturers of and dealers in bread, flour and biscuits

30

–

Bakers and manufacturers of and dealers in bread, flour and biscuits

30

–

Not a significant associate with statutory year end on 28 February and unaudited financial statements have been used for the preparation of the consolidated financial statements of the Group. Audited by S.F. Kwok & Co. Certified Public Accountants, Hong Kong. Not a significant associate and unaudited financial statements have been used for the preparation of the consolidated financial statements of the Group.

Notes to the Financial Statements

13.

79

Notes to the Financial Statements – 31 December 2005

13.

INVESTMENT IN ASSOCIATES (cont’d) The summarised financial information of the associates is as follows: Group 2005

2004

$’000

$’000

Total assets

5,375

1,652

Total liabilities

5,219

600

4,445

1,217

Assets and liabilities

Results Revenue Net loss for the year

14.

(1,467)

(255)

INVESTMENT IN JOINT VENTURES Group 2005

2004

$’000

$’000

2,000

–

Investment in shares, unquoted Shares, at cost Share of post-acquisition losses of joint ventures

(110) 1,890

– –

The Group has an interest of 50% in MWA Pte Ltd, a jointly-controlled entity which is involved in food court operation. Country of

Notes to the Financial Statements

Name

80

incorporation

Proportion (%) of Principal activity

ownership interest 2005 %

2004 %

Held through a subsidiary MWA Pte Ltd (1)

Singapore

Operators of food court

50

–

Held through a joint venture Food Art Pte Ltd (1)

Singapore

Operators of food & beverage outlets

50

–

(1)

Audited by Ernst and Young, Singapore.

Notes to the Financial Statements – 31 December 2005

14.

INVESTMENT IN JOINT VENTURES (cont’d) The aggregate amounts of each of the current assets, non-current assets, current liabilities, noncurrent liabilities, income and expenses related to the Group’s interests in the joint ventures are as follows: Group 2005 $’000

2004 $’000

Current assets Non-current assets

1,384 2,136

– –

Total assets

3,520

–

Current liabilities Non-current liabilities

1,627 3

– –

Total liabilities

1,630

–

1,168 254 (1,532)

– – –

(110)

–

Assets and liabilities

Results Revenue Other income Expenses Loss for the year

INVENTORIES Group 2005 2004 $’000 $’000 Raw materials and consumables, at cost Base inventories

(1)

Total inventories at lower of cost and net realisable value

(1)

Company 2005 2004 $’000 $’000

1,535

1,330

–

–

165

20

–

–

1,700

1,350

–

–

This is stated after writing down 50% of the original cost of base inventories.

Notes to the Financial Statements

15.

81

Notes to the Financial Statements – 31 December 2005

16.

TRADE RECEIVABLES Group 2005 2004 $’000 $’000 Trade receivables

2,475

1,238

Company 2005 2004 $’000 $’000 –

–

Trade receivables include amounts denominated in foreign currencies as follows:

United States dollar Renminbi Thai Baht

$’000

$’000

$’000

$’000

639 1,098 80

354 36 –

– – –

– – –

Trade receivables Trade receivables are non-interest bearing and are generally on 30 to 90 days terms. They are recognised at their original invoice amounts which represents their fair values on initial recognition. 17.

OTHER RECEIVABLES AND DEPOSITS

2005 $’000

Group 2004 $’000

Company 2005 2004 $’000 $’000

Other receivables

1,297

404

–

70

Deposits

4,761

1,937

–

–

6,058

2,341

–

70

Other receivables and deposits include amounts denominated in foreign currencies as follows: $’000

$’000

$’000

$’000

136

14

–

–

2,874

432

–

–

Hong Kong dollar

820

–

–

–

Thai Baht

128

–

–

–

United States dollar

Notes to the Financial Statements

Renminbi

82

Other receivables are non-interest bearing and are generally on 30 to 180 days terms.

Notes to the Financial Statements – 31 December 2005

18.

DUE FROM/TO SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES (NON-TRADE) Amount due from subsidiaries, associates and joint ventures are non-interest bearing, unsecured and repayable within the next 12 months. Amounts due to subsidiaries, associates and joint ventures are non-interest bearing and are repayable on demand. These amounts are unsecured and are to be settled in cash.

19.

FIXED DEPOSITS As at 31 December 2005, fixed deposits amounting to $1,603,000 (2004: $1,256,000) were pledged to banks for banking facilities granted to the Group and letters of guarantees issued by banks to lessors of premises occupied by a subsidiary as disclosed in Notes 24 and 25 to the financial statements. Fixed deposits of the Group and the Company have maturity periods ranging from 1 week to 12 months with effective interest rates ranging from 0.31% to 2.50% (2004: 0.25% to 1.5%) per annum.

TRADE PAYABLES

Trade payables

2005 $’000

Group 2004 $’000

7,858

4,038

Company 2005 2004 $’000 $’000 –

–

Trade payables include amounts denominated in foreign currencies as follows:

United States dollar Renminbi Hongkong dollar Ringgit Malaysia Thai Baht

$’000

$’000

$’000

$’000

38 4,575 64 218 97

– 1,197 – 4 –

– – – – –

– – – – –

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

Notes to the Financial Statements

20.

83

Notes to the Financial Statements – 31 December 2005

21.

OTHER PAYABLES AND ACCRUED EXPENSES Group 2005 2004 $’000 $’000 Other payables Accrued operating expenses Deferred revenue

Company 2005 2004 $’000 $’000

7,396 7,188 2,967

1,975 3,391 104

104 162 –

215 337 –

17,551

5,470

266

552

Other payables include amounts denominated in foreign currencies as follows:

Taiwan dollar United States dollar Renminbi Hongkong dollar Ringgit Malaysia Thai Baht

$’000

$’000

$’000

$’000

– 110 9,511 1,839 3 27

102 101 813 – – –

– – – – – –

– – – – – –

Other payables are non-interest bearing and have an average of 30 to 90 days term, except for retention sums included therein which have repayment terms of up to 1 year. 22.

LOAN FROM MINORITY SHAREHOLDER OF A SUBSIDIARY This loan from minority shareholder of a subsidiary, Megabite Hong Kong Limited is unsecured, non-interest bearing and has no fixed terms of repayment, except for an amount of $86,000

Notes to the Financial Statements

which is expected to be repaid within the next 12 months.

84

Notes to the Financial Statements – 31 December 2005

FINANCE LEASE OBLIGATIONS, SECURED The Group has finance leases for certain items of plant and equipment and motor vehicles (Note 10). There are no restrictions placed upon the Group by entering into these leases. Future minimum lease payments under finance leases together with the present value of the net minimum lease payments are as follows: Group

Not later than one year Later than one year but not later than five years Later than five years Total minimum lease payments Less: amounts representing finance charges Present value of minimum lease payments

Total minimum lease payments 2005 $’000 174 139 13 326 (25) 301

Present value of payments 2005 $’000 162 127 12 301 – 301

Total minimum lease payments 2004 $’000 292 182 – 474 (23) 451

Present value of payments 2004 $’000 275 176 – 451 – 451

The lease periods range from 3 to 5 years (2004: 3 to 5 years) with options to purchase at the end of the lease term. The average discount rates implicit in the leases range from 4.91% to 6.12% (2004: 4.90% to 6.12%) per annum. Lease terms do not contain restrictions concerning dividends, additional debt or further leasing.

Notes to the Financial Statements

23.

85

Notes to the Financial Statements – 31 December 2005

24.

SHORT-TERM LOANS, SECURED Group

SGD Bank loan 1 RMB Bank loan 2 USD Bank loan 3 HKD Bank loan 4

2005

2004

$’000

$’000

450

–

826

1187

1,372

–

645

–

3,293

1,187

The effective interests on these short-term loans range from 5.22% to 6.89% (2004: 5.58%) per annum. The interest rates of these floating rate loans are repriced from time to time at the discretion of the respective banks. Security Bank loan 1 is a 2-month revolving term loan and secured by several continuing guarantees by the Company. Bank loan 2 is a 1-year term loan and secured by several continuing guarantees by the Company. Bank loan 3 is secured by (i) a first and/ or third party pledge of no less than USD 200,000 in fixed deposit of a subsidiary placed with the bank together with interest accrued thereof (ii) joint and several personal guarantees from directors of a subsidiary. Bank loan 4 is a 6-month term loan and secured by several continuing guarantees by the Company. 25.

LONG-TERM LOANS, SECURED Group

Notes to the Financial Statements

Due within one year

86

2005

2004

$’000

$’000

2,958

1,479

Due after 1 year but not more than 5 years

3,005

920

Total long-term loans

5,963

2,399

Notes to the Financial Statements – 31 December 2005

LONG-TERM LOANS, SECURED (cont’d) Details of the long term loans: Group 2005 2004 $’000 $’000

Term loans

SGD Term loan 1

Repayable in 36 monthly instalments commencing

71

354

65

453

625

1,125

120

467

851

–

140

–

983

–

1,398

–

967

–

743

–

5,963

2,399

April 2003 SGD Term loan 2

Repayable in 36 monthly instalments commencing March 2003

SGD Term loan 3

Repayable in 48 monthly instalments commencing April 2003

SGD Term loan 4

Repayable in 36 monthly instalments commencing May 2003

SGD Term loan 5

Repayable in 24 monthly instalments commencing September 2005

SGD Term loan 6

Repayable in 36 monthly instalments commencing December 2005

SGD Term loan 7

Repayable in 36 monthly instalments commencing June 2005

SGD Term loan 8

Repayable in 48 monthly instalments commencing September 2005

HKD Term loan 9

Repayable in 12 quarterly instalments commencing December 2006

RMB Term loan 10

Repayable in 10 quarterly instalments commencing September 2004

Effective interest on these bank loans range from 3.96% to 7.00% (2004: 4.21% to 6.50%) per annum. The interest rates of these floating rate loans are repriced from time to time at the discretion of the respective banks. Securities Term loan 1 is secured by: (a) Fixed deposits of a subsidiary amounting to $152,000 (2004: $156,000); and (b) Several continuing guarantees by the Company. Term loans 2, 3 and 5 are secured by: (a) Fixed deposits of a subsidiary amounting to $1,000,000 (2004: $1,000,000); and (b) Several continuing guarantees by the Company.

Notes to the Financial Statements

25.

87

Notes to the Financial Statements – 31 December 2005

25.

LONG-TERM LOANS, SECURED (cont’d) Term loan 4 is secured by: (a)

Fixed deposits of $103,000 (2004: $100,000) placed with the bank by a subsidiary.

(b)

Fresh joint and several continuing guarantee by the Company.

Term loans 6, 7, 8, 9 and 10 are secured by continuing guarantees by the Company. 26.

AMOUNT DUE TO LANDLORD (NON-TRADE) The balance is payable to one of the landlords, who paid renovation costs on behalf of two subsidiaries, BJDSD and NNDSD. This amount is unsecured, non-interest bearing and repayment is not expected within the next 12 months.

27.

SHARE CAPITAL

Number of shares Authorised - Ordinary shares of $0.04 each Issued and fully paid At beginning of year - Ordinary shares of $0.04 each - Issuance of shares as purchase consideration for acquisition of a subsidiary At end of the year - Ordinary shares of $0.04 each

Group and Company 2005 2004 Number of $ shares

$

500,000,000

20,000,000

500,000,000

20,000,000

162,980,000

6,519,200

162,980,000

6,519,200

37,931,034

1,517,241

–

–

200,911,034

8,036,441

162,980,000

6,519,200

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 restriction.

Notes to the Financial Statements

28.

88

CAPITAL RESERVE The difference between the purchase consideration paid and the net tangible assets of a subsidiary acquired by the Company pursuant to the Restructuring Exercise in connection with the initial public offering of the Company was taken directly to capital reserve. At 1 January 2005, the Group has taken the capital reserve of $452,000 to accumulated profits.

Notes to the Financial Statements – 31 December 2005

29.

SHARE PREMIUM Group and Company 2005 2004 $’000 $’000 At beginning of year Arising from the issuance of 37,931,034 ordinary shares

5,135

at a premium of $ 0.22 per share At end of year

5,135

8,345

–

13,480

5,135

The share premium account may be applied only for the purposes specified in the Companies Act. The balance is not available for distribution of dividends except in the form of shares. 30.

TRANSLATION RESERVE The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign operations whose functional currencies are different from that of the Group’s presentation currency. COMMITMENTS AND CONTINGENCIES (a)

Commitments Expenditure contracted for as at the balance sheet date but not recognised in the financial statements is as follows: Group

Company

2005

2004

2005

2004

$’000

$’000

$’000

$’000

718

–

699

–

Commitment in respect of plant and equipment (b)

Operating lease commitments The Group has various operating lease agreements for equipment, office, central kitchen, food court and retail outlet premises. These non-cancellable leases have remaining noncancellable lease terms of between 1 and 10 years. Most leases contain renewable options. Some of the leases contain escalation clauses and provide for contingent rentals based on percentages of sales derived from assets held under operating leases. Lease terms do not contain restrictions on the Group’s activities concerning dividends, additional debt or further leasing.

Notes to the Financial Statements

31.

89

Notes to the Financial Statements – 31 December 2005

31.

COMMITMENTS AND CONTINGENCIES (cont’d) (b)

Operating lease commitments (cont’d) Future minimum lease payments payable under non-cancellable operating leases as at 31 December are as follows: Group

Not later than one year

Company

2005

2004

2005

2004

$’000

$’000

$’000

$’000

20,833

9,063

–

–

54,353

19,312

–

–

Later than one year but not later than five years Later than five years

(c)

7,277

1,589

–

–

82,463

29,964

–

–

Operating lease income The Group has entered into non-cancellable operating leases to sublease its food court and retail outlet premises. Sublease rental receivable as at 31 December is as follows: Group

Not later than one year

Company

2005

2004

2005

2004

$’000

$’000

$’000

$’000

6,020

216

–

–

4,922

549

–

–

10,942

765

–

–

Later than one year but not later than five years

(d)

Letters of guarantees, secured As at 31 December 2005, the banks issued letters of guarantees on behalf of the Group

Notes to the Financial Statements

to lessors of premises amounting to approximately $1,142,000 (2004: $845,000). These

90

letters of guarantees are secured by fixed deposits, being part of the fixed deposits pledged for the long-term loans secured (Note 25) of the Group amounting to approximately $1,103,000 (2004: $1,104,000).

Notes to the Financial Statements – 31 December 2005

COMMITMENTS AND CONTINGENCIES (cont’d) (e)

Litigation During the financial year, there was a claim filed by a renovation contractor against a subsidiary, Shanghai Xin Jia Fang Food and Beverage Co., Ltd (“SHXJF”) and Shenyang Da Shi Dai Restaurant Co., Ltd (“SDSD”), for non-payment of contract sums and variation orders for a food court owned by SDSD. SDSD is a third party licensee who signed a licensing agreement with SHXJF for the use of “Da Shi Dai” trade mark. The District Court in Shenyang PRC has ruled that SHXJF should compensate the plaintiff a total sum of approximately RMB222,000, of which approximately RMB173,000 is to be borne jointly by SHXJF and SDSD. The directors are of the opinion that any liability arising from the litigation will be recoverable from SDSD. Accordingly, no provision has been made in the financial statements for the year ended 31 December 2005.

(f)

Commitment for injection of capital and loan to an associate As at 31 December 2005, a subsidiary of the Group, SHXJF has committed to inject a total capital sum of US$144,000 and a shareholder loan of up to US$24,000 into an associate, Shenzhen BreadTalk Restaurant Management Co., Ltd.

Notes to the Financial Statements

31.

91

Notes to the Financial Statements – 31 December 2005

32.

RELATED PARTY DISCLOSURES (a)

Sale and purchase of goods and services In addition to those related party information disclosed elsewhere in the financial statements, the following significant transactions between the Group and related parties took place during the year on terms agreed between the parties: Group 2005 2004 $’000 $’000

Company 2005 2004 $’000 $’000

Income Management fee income from subsidiaries

–

–

564

615

10

118

–

–

11

–

–

–

100

–

–

–

237

–

–

–

2

–

–

–

–

3

–

–

Rental expense paid to director

–

13

–

–

Rental paid to a party related to a director

3

–

–

–

Rental income earned from a company in which a director of the Company has an interest Rental income earned from an associate Sales of goods to an associate Management fee income from joint ventures Management fee income from an associate Expenses Purchase from a company in which a director of the Company has an interest

Others Purchase of furniture and fittings from a company in which a director of the

Notes to the Financial Statements

Company has an interest

92

263

–

–

–

Notes to the Financial Statements – 31 December 2005

RELATED PARTY DISCLOSURES (cont’d) Other directors’ interest In addition to the transactions disclosed above, during the financial year ended 31 December 2005, the Company acquired 100% of the issued share capital of Topwin Investment Holding Pte Ltd (“Topwin”) for a consideration of $10,242,000 satisfied by the issuance of 37,931,034 new ordinary BreadTalk shares at $0.26 per share, being the price for trades done on the Singapore Exchange Securities Trading Limited (SGX-ST) roundabout 1 January 2005, the effective date of transfer of control of Topwin to the Group. The consideration was based on a willing seller-willing buyer basis. George Quek Meng Tong and Frankie Quek Swee Heng, who collectively control 72% of the issued share capital of Topwin, are also substantial shareholders of the Company. (b)

Compensation of key management personnel Group

Salaries and bonus Central Provident Fund contributions and other pension contributions Directors’ fee Other personnel expenses Total compensation paid to key management personnel Comprise amounts paid to: Directors of the Company Other key management personnel

Company 2005 2004 $’000 $’000

2005 $’000

2004 $’000

2,707

1,151

252

234

127 88 395

71 88 160

11 88 –

11 88 –

3,317

1,470

351

333

975

713

351

333

2,342

757

–

–

3,317

1,470

351

333 Notes to the Financial Statements

32.

93

Notes to the Financial Statements – 31 December 2005

33.

FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group’s principal financial instruments comprise bank loans, finance leases and cash and short term deposits. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has various other financial assets and liabilities such as trade and other receivables and trade and other payables, which arise directly from its operations. It is, and has been throughout the year under review, the Group’s policy that no trading in derivative financial instruments shall be undertaken. The main risks arising from the Group’s financial instruments are interest rate risks (both fair value and cash flow), liquidity risk, foreign currency risk and credit risk. The board reviews and agrees policies for managing each of these risks and they are summarised below. (a)

Interest rate risks The Group’s and the Company’s exposure to market risk for changes in interest rates relates primarily to its investment portfolio in fixed deposits and its debt obligations. The Group does not use derivative financial instruments to hedge its investment portfolio. The Group obtains additional financing through bank borrowings and leasing arrangements. The Group’s policy is to obtain the most favourable interest rates available without increasing its foreign exchange exposure. Surplus funds are placed with reputable banks. Information relating to the Group’s interest rate exposure is disclosed in the notes on the Group’s borrowings, including leasing obligations.

(b)

Foreign currency risk Currently, the Chinese government imposes control over foreign currency. Renminbi (RMB), the official currency in China, is not freely convertible. Enterprises operating in the PRC can enter into exchange transactions through the People’s Bank of China or other authorised financial institutions. Payments for imported materials or services and remittance of earnings outside of the PRC are subject to the availability of foreign currency which depends on the foreign currency denominated earnings of the enterprises, or exchanges of RMB for foreign

Notes to the Financial Statements

currency must be arranged through the People’s Bank of China or other authorised financial

94

institutions. Approval for exchanges at the People’s Bank of China or other authorised financial institutions is granted to enterprises in the PRC for valid reasons such as purchase of imported materials and remittance of earnings. While conversion of RMB into Singapore dollars or other currencies can generally be effected at the People’s Bank of China or other authorised financial institutions, there is no guarantee that it can be effected at all times.

Notes to the Financial Statements – 31 December 2005

33.

FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (cont’d) (c)

Credit risk The Group trades only with recognised and creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant. With respect to credit risk arising from the other financial assets of the Group, which comprise cash and cash equivalents and other receivables (including related parties balances), the Group’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. Since the Group trades only with recognised and creditworthy third parties, there is no requirement for collateral.

(d)

Liquidity risk The Group monitors and maintains a level of cash and cash equivalents deemed adequate by the management to finance the operations of the Group. Short-term funding may be obtained from short-term loans where necessary.

FINANCIAL INSTRUMENTS (a)

Credit risk There are no significant concentrations of credit risk within the Group and the Company.

(b)

Fair values 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 a forced or liquidation sale.

Notes to the Financial Statements

34.

95

Notes to the Financial Statements – 31 December 2005

34.

FINANCIAL INSTRUMENTS (cont’d) (b)

Fair values (cont’d) Financial instruments carried at fair value The Group has no financial instruments that are classified as held for trading, available-forsale financial assets, or derivative financial instruments, which would have been carried at their respective fair values as required by FRS 39. Financial instruments whose carrying amount approximate fair value Management has determined that the carrying amounts of cash and bank balances, fixed deposits, trade and other receivables, trade and other payables and current bank loans, based on their notional amounts, reasonably approximate their fair values because these are mostly short term in nature or are repriced frequently. Financial instruments carried at other than fair value Set out below is a comparison of the carrying amount and fair value of the financial instrument that is carried in the financial statements at other than fair value as at 31 December. Carrying amount

Fair value

2005

2004

2005

2004

$’000

$’000

$’000

$’000

301

451

304

449

Financial liabilities: Obligations under finance leases

Fair value has been determined using discounted estimated cash flows. The discount rates used are the current market incremental lending rates for similar types of leasing agreements.

Notes to the Financial Statements

No disclosure of fair values are made for the quasi-capital loan to an associate, loan from minority

96

shareholder of a subsidiary and amount due to landlord as it is not practical to determine their fair values with sufficient reliability since the balances have no fixed terms of repayment. During the year, no amount (2004:Nil) has been recognised in the profit and loss account in relation to the change in fair value of financial assets or financial liabilities estimated using a valuation technique.

Notes to the Financial Statements – 31 December 2005

FINANCIAL INSTRUMENTS (cont’d) (c)

Interest rate risk The following tables sets out the carrying amount, by maturity, of the Group’s and the Company’s financial instruments that are exposed to interest rate risk: 2005

Within

1–2

2–3

3–4

4–5

Group

1 year

years

years

years

years

More than 5 years

Total

$’000

$’000

$’000

$’000

$’000

$’000

$’000

1,603

–

–

–

–

–

1,603

162

69

28

17

13

12

301

Fixed rate Fixed deposits Obligations of finance leases Floating rate Short-term loans

3,293

–

–

–

–

–

3,293

Long-term loans

2,958

1,526

807

534

138

–

5,963

–

–

–

–

–

–

–

Company Fixed rate Fixed deposits 2004

Within

1–2

2–3

3–4

4–5

Group

1 year

years

years

years

years

More than 5 years

Total

$’000

$’000

$’000

$’000

$’000

$’000

$’000

275

138

38

–

–

–

451

1,904

–

–

–

–

–

1,904

Short-term loans

1,187

–

–

–

–

–

1,187

Long-term loans

1,479

795

125

–

–

–

2,399

649

–

–

–

–

–

649

Fixed rate Obligations of finance leases Fixed deposits Floating rate

Company Fixed rate Fixed deposits

Interest on financial instruments subject to floating interest rates is repriced from time to time at the discretion of banks. Interests on financial instruments at fixed rates are fixed until the maturity of the instrument. The other financial instruments of the Group that are not included in the above tables are not subject to interest rate risks.

Notes to the Financial Statements

34.

97

Notes to the Financial Statements – 31 December 2005

35.

SEGMENT INFORMATION Reporting format The primary segment reporting format is determined to be business segments as the Group’s risks and rates of return are affected predominantly by differences in the products and services produced. Secondary information is reported geographically. The operating businesses are organised and managed separately according to the nature of the products and services provided, with each segment representing a strategic business unit that offers different products and serves different markets. Business segments The Group’s primary format for reporting segment information is business segments, with each segment representing a strategic business activity.

For management purposes, the Group is

organised into three business segments, namely bakery operations, food courts operations and restaurant operations. Bakery operations: This relates to the manufacture and retail of all kinds of food, bakery and confectionery products including franchising. Food court operations: This relates to the management and operation of food courts. Restaurant operations: This relates to the operation of food and drinks sale outlets, eating houses and restaurants. Geographical segment The Group’s main operations are in Singapore and the PRC. Sales to external customers disclosed in geographical segments are based on geographical location of its customers. Revenue and cost of sales are directly attributable to the segments. Operating expenses/income are allocated to the segments.

Notes to the Financial Statements

Allocation basis

98

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly provision for taxation, borrowings, associates and joint ventures. Transfer prices between business segments are set on an arm’s length basis in a manner similar to transactions with third parties. Segment revenue, expenses and results include transfers between business segments. These transfers are eliminated on consolidation.

Notes to the Financial Statements – 31 December 2005

SEGMENT INFORMATION (cont’d) (a)

Analysis of business segment Revenue and cost of sales are directly attributable to the segments. Operating expenses/ income are allocated to the segments.

2005 Revenue Sales to external customers (Loss) profit from operations Financial expenses, net

Bakery Restaurant Food court operations(1) operations operation Others(2) Elimination Group $’000 $’000 $’000 $’000 $’000 $’000

50,942 (81)

16,789

27,566

3,414

1,605

– (61)

– –

Profit before tax and associates and joint ventures’ results Share of associates’ results Share of joint ventures’ results

(399) (110) 3,787 (2,030)

Profit for the year

1,757

Assets and liabilities Segment assets 23,278 Investment in associates Investment in joint ventures

10,557

30,896

702

(3,489)

64,600 9,601

2,971

15,586

1,225

(3,635)

Total liabilities

Depreciation and amortisation

61,944 766 1,890

Total assets

Other information Capital expenditure - Property, plant and equipment - Intangible assets

4,877 (581)

4,296

Profit before tax Tax

Segment liabilities Unallocated liabilities

95,297

25,748 13,098 38,846

4,533 41

2,033 540

8,152 29

– –

– –

14,718 610

4,574

2,573

8,181

–

–

15,328

3,387

965

2,548

–

–

6,900

Notes to the Financial Statements

35.

99

Notes to the Financial Statements – 31 December 2005

35.

SEGMENT INFORMATION (cont’d) (a)

Analysis of business segment (cont’d)

2004 Revenue Sales to external customers (Loss) profit from operations Financial expenses, net

Bakery Restaurant Food court operations(1) operations operation Others(2) Elimination Group $’000 $’000 $’000 $’000 $’000 $’000

39,446 (802)

10,740

–

–

–

2,091

–

(3)

–

Profit before tax and associate’s results Share of associate’s results

(82) 900 (410)

Profit for the year

490

19,874

7,446

–

4,022

(3,147)

Total assets Segment liabilities Unallocated liabilities

Notes to the Financial Statements 100

Depreciation and amortisation

28,195 582 28,777

(8,891)

(2,912)

–

(852)

3,147

Total liabilities Other information Capital expenditure - Property, plant and equipment - Intangible assets

1,286 (304)

982

Profit before tax Tax

Assets and liabilities Segment assets Investment in associates

50,186

(9,508) (5,406) (14,914)

2,990 111

1,338 33

– –

– –

– –

4,328 144

3,101

1,371

–

–

–

4,472

3,005

568

–

–

–

3,573

Notes to the Financial Statements – 31 December 2005

35.

SEGMENT INFORMATION (cont’d) (b)

Analysis by geographical segments Segment revenue is based on location of customers regardless of where the business is conducted. Segment assets and capital expenditure are based on the geographical location of those assets. Capital Revenue

expenditure

2004

2005

2004

2005

2004

$’000

$’000

$’000

$’000

$’000

$’000

Singapore

47,394

41,510

34,406

23,333

3,759

2,676

PRC

44,851

6,442

26,255

4,862

8,439

1,796

3,052

2,234

3,939

582

3,130

–

95,297

50,186

64,600

28,777

15,328

4,472

Rest of world Total

36.

Assets

2005

(1)

Bakery operations comprise operation of bakery retail outlets as well as that operated through franchising.

(2)

The business segment “Others” pertains to investment holding activities.

COMPARATIVES To conform with the current year’s presentation, the comparative amount for “Franchise rights” of $511,000 has been aggregated under “intangible assets”. In addition, prepayments of $888,000 previously aggregated under “Other receivables, deposits and prepayments” have been presented separately as “Prepayments”.

AUTHORISATION OF FINANCIAL STATEMENTS The financial statements for the year ended 31 December 2005 were authorised for issue in accordance with a resolution of the directors on 22 March 2006. Notes to the Financial Statements

37.

101

Statistics of Shareholdings AS AT 17 MARCH 2006

Issued and fully Paid-up Capital

:

$8,036,441

Number of Ordinary Shares in Issue

:

200,911,034

Class of Shares

:

Ordinary Shares

Voting rights

:

One vote per share

Distribution of Shareholdings No. of Size of Shareholdings 1

-

1,000 10,001 1,000,001

Shareholders

No. of Shares

999

–

–

-

10,000

488

-

1,000,000

297

-

and above

Total

No. of Shares

%

–

–

60.77

2,549,000

1.27

36.99

18,890,011

9.40

18

2.24

179,472,023

89.33

803

100.00

200,911,034

100.00

Substantial Shareholdings Direct Interest Name of Shareholders

Deemed Interest

No of Share

%

%

No of Share

%

George Quek Meng Tong (1)

79,440,384

39.54%

50,099,861

24.93%

129,540,245

64.47%

Katherine Lee Lih Leng (1)

43,550,850

21.67%

79,440,384

39.54%

122,991,234

61.21%

Chen Kuo Hua

12,443,100

6.19%

-

-

12,443,100

6.19%

Chen Poh On

10,620,689

5.29%

-

-

10,620,689

5.29%

6,549,011

3.25%

79,440,384

39.54%

85,989,395

42.79%

Frankie Quek Swee Heng (2)

No of Share

Total Interest

Notes : (1)

Katherine Lee Lih Leng is the spouse of George Quek Meng Tong.

(2)

Frankie Quek Swee Heng is the brother of George Quek Meng Tong.

Statistics of Shareholdings

Saved as disclosed, there are no family relationship among our Directors and Substantial Shareholders.

102

Statistics of Shareholdings AS AT 17 MARCH 2006

Twenty Largest Shareholders Name

No. of Shares

%

1

Katherine Lee Lih Leng

38,550,850

19.19

2

Quek Meng Tong George

27,720,384

13.80

3

Hong Leong Finance Nominees Pte Ltd

26,290,000

13.09

4

HL Bank Nominees (S) Pte Ltd

15,000,000

7.47

5

DBS Nominees Pte Ltd

13,174,000

6.56

6

Chen Poh On

10,620,689

5.29

7

Maybank Nominees (S) Pte Ltd

9,500,000

4.73

8

Jason Ng Kok Soon

9,303,475

4.63

9

Chen Kuo Hua

6,223,100

3.10

10

Go Kun Heng

5,834,525

2.90

11

SBS Nominees Pte Ltd

5,000,000

2.49

12

Pineapples Of Malaya Private Limited

2,500,000

1.24

13

Tan Tiang Yong

2,334,000

1.16

14

Citibank Nominees Singapore Pte Ltd

1,884,000

0.94

15

Kusdianto Soewarno

1,837,000

0.91

16

Quak Bee Guat

1,500,000

0.75

17

Lee Henry

1,180,000

0.59

18

Tay Kok Leong

1,020,000

0.51

19

Wong Shaw Seng

903,000

0.45

20

HSBC (Singapore) Nominees Pte Ltd

750,000

0.37

181,125,023

90.17

Total

Based on the information available to the Company as at 17 March 2005, approximately 24.06% of the Company’s shares are held in the hands of the public. This is in compliance with Rule 723 of the Listing Manual of the SGX-ST which requires at least 10% of a listed issuers equity securities to be held by the

Statistics of Shareholdings

public.

103

Notice of Annual General Meeting Company Registration No. 200302045G (Incorporated in Singapore with limited liability)

NOTICE IS HEREBY GIVEN that the Annual General Meeting of BreadTalk Group Limited (“the Company”) will be held at 171 Kampong Ampat #05-05, KA FoodLink, Singapore 368330 on Thursday, 27 April 2006 at 10.00 a.m. for the following purposes: AS ORDINARY BUSINESS 1.

To receive and adopt the Directors’ Report and the Audited Financial Statements of the Company for the year ended 31 December 2005 together with the Auditors’ Report thereon.

2.

(Resolution 1)

To re-elect Mr Chen Kuo Hua who is retiring pursuant to Article 104 of the Company’s Articles of Association.

(Resolution 2)

Mr Chen Kuo Hua will, upon re-election as a Director of the Company, remain as a member of the Audit and Nominating Committees and will be considered non-independent for the purposes of Rule 704(8) of the Listing Manual of the Singapore Exchange Securities Trading Limited. 3.

To approve the payment of Directors’ fees of S$87,500 for the year ended 31 December 2005 (2004: S$87,500).

4.

To re-appoint Messrs Ernst & Young as the Company’s Auditors and to authorise the Directors to fix their remuneration.

5.

(Resolution 3)

(Resolution 4)

To transact any other ordinary business which may properly be transacted at an Annual General Meeting.

AS SPECIAL BUSINESS To consider and if thought fit, to pass the following resolutions as Ordinary Resolutions, with or without any modifications: 6.

Authority to allot and issue shares up to 50 per centum (50%) of issued shares in the capital of the Company That pursuant to Section 161 of the Companies Act, Cap. 50 and Rule 806 of the Listing Manual of

Notice of Annual General Meeting

the Singapore Exchange Securities Trading Limited, the Directors be empowered to allot and issue

104

shares and convertible securities in the Company at any time and upon such terms and conditions and for such purposes as the Directors may, in their absolute discretion, deem fit provided that the aggregate number of shares (including shares to be issued in accordance with the terms of convertible securities issued, made or granted pursuant to this Resolution) to be allotted and issued pursuant to this Resolution shall not exceed fifty per centum (50%) of the issued shares in the capital of the Company at the time of the passing of this Resolution , of which the aggregate number of shares and convertible securities to be issued other than on a pro rata basis to all shareholders of the Company shall not exceed twenty per centum (20%) of the issued shares in the capital of

Notice of Annual General Meeting Company Registration No. 200302045G (Incorporated in Singapore with limited liability)

the Company and that such authority shall, unless revoked or varied by the Company in general meeting, continue in force (i) until the conclusion of the Company’s next Annual General Meeting or the date by which the next Annual General Meeting of the Company is required by law to be held, whichever is earlier or (ii) in the case of shares to be issued in accordance with the terms of convertible securities issued, made or granted pursuant to this Resolution, until the issuance of such shares in accordance with the terms of such convertible securities. [See Explanatory Note (i)] 7.

(Resolution 5)

Authority to allot and issue shares under the BreadTalk Group Limited Employees’ Share Option Scheme That pursuant to Section 161 of the Companies Act, Cap. 50, the Directors be authorised and empowered to allot and issue shares of the Company to all the holders of options granted by the Company, whether granted during the subsistence of this authority or otherwise, under the BreadTalk Group Limited Employees’ Share Option Scheme (“the Scheme”) upon the exercise of such options and in accordance with the terms and conditions of the Scheme, provided always that the aggregate number of additional ordinary shares to be allotted and issued pursuant to the Scheme shall not exceed fifteen per centum (15%) of the issued ordinary shares in the capital of the Company from time to time and that such authority shall, unless revoked or varied by the Company in general meeting, continue in force until the conclusion of the Company’s next Annual General Meeting or the date by which the next Annual General Meeting of the Company is required by law to be held, whichever is earlier. [See Explanatory Note (ii)]

(Resolution 6)

By Order of the Board

Tan Cher Liang Company Secretary

Notice of Annual General Meeting

Singapore, 11 April 2006

105

Notice of Annual General Meeting Company Registration No. 200302045G (Incorporated in Singapore with limited liability)

Explanatory Notes: (i)

The Ordinary Resolution 5 proposed in item 6 above, if passed, will empower the Directors from the date of this Meeting until the date of the next Annual General Meeting, or the date by which the next Annual General Meeting is required by law to be held or when varied or revoked by the Company in general meeting, whichever is the earlier, to allot and issue shares and convertible securities in the Company. The number of shares and convertible securities that the Directors may allot and issue under this resolution would not exceed fifty per centum (50%) of the issued capital of the Company at the time of the passing of this resolution. For issue of shares and convertible securities other than on a pro rata basis to all shareholders, the aggregate number of shares and convertible securities to be issued shall not exceed twenty per centum (20%) of the issued capital of the Company. For the purpose of this resolution, the percentage of issued capital is based on the Company’s issued capital at the time this proposed Ordinary Resolution is passed after adjusting for new shares arising from the conversion or exercise of convertible securities, the exercise of share options or the vesting of share awards outstanding or subsisting at the time when this proposed Ordinary Resolution is passed and any subsequent consolidation or subdivision of shares.

(ii)

The Ordinary Resolution 6 proposed in item 7 above, if passed, will empower the Directors of the Company, from the date of this Meeting until the next Annual General Meeting, or the date by which the next Annual General Meeting is required by law to be held or when varied or revoke by the Company in general meeting, whichever is the earlier, to allot and issue shares in the Company of up to a number not exceeding in total fifteen per centum (15%) of the issued ordinary shares in the capital of the Company from time to time pursuant to the exercise of the options under the Scheme.

Notes: 1.

A Member entitled to attend and vote at the Annual General Meeting (the “Meeting”) is entitled to appoint a proxy to attend and vote in his/her stead. A proxy need not be a Member of the Company.

Notice of Annual General Meeting

2.

106

If the appointor is a corporation, the instrument appointing a proxy must be executed under the seal or the hand of its duly authorised office or attorney.

3.

The instrument appointing a proxy must be deposited at the Registered Office of the Company at, 171 Kampong Ampat #05-05, KA FoodLink, Singapore 368330 not less than 48 hours before the time appointed for holding the Meeting.

BREADTALK GROUP LIMITED

IMPORTANT: 1. For investors who have used their CPF monies to buy BreadTalk Group Limited’s shares, this Report is forwarded to them at the request of the CPF Approved Nominees and is sent solely FOR INFORMATION ONLY.

Company Registration No. 200302045G (Incorporated In Singapore with limited liability)

PROXY FORM (Please see notes overleaf before completing this Form)

2.

This Proxy Form is not valid for use by CPF investors and shall be ineffective for all intents and purposes if used or purported to be used by them.

3.

CPF investors who wish to attend the Meeting as an observer must submit their requests through their CPF Approved Nominees within the time frame specified. If they also wish to vote, they must submit their voting instructions to the CPF Approved Nominees within the time frame specified to enable them to vote on their behalf.

I/We, of being a member/members of BREADTALK GROUP LIMITED (the “Company”), hereby appoint: Name

NRIC/Passport No.

Proportion of Shareholdings No. of Shares

%

Address

and/or (delete as appropriate) Name

NRIC/Passport No.

Proportion of Shareholdings No. of Shares

%

Address

or failing him/her, the Chairman of the Meeting as my/our proxy/proxies to vote for me/us on my/our behalf at the Annual General Meeting (the “Meeting”) of the Company to be held on 27 April 2006 at 10.00 a.m. at 171 Kampong Ampat #05-05, KA FoodLink, Singapore 368330 and at any adjournment thereof. I/We direct my/our proxy/proxies to vote for or against the Resolutions proposed at the Meeting as indicated hereunder. If no specific direction as to voting is given or in the event of any other matter arising at the Meeting and at any adjournment thereof, the proxy/proxies will vote or abstain from voting at his/her discretion. The authority herein includes the right to demand or to join in demanding a poll and to vote on a poll. (Please indicate your vote “For” or “Against” with a tick [9] within the box provided.) No. Resolutions relating to:

For

1

Directors’ Report and Audited Financial Statements for the year ended 31 December 2005.

2

Re-election of Mr Chen Kuo Hua as a Director under Article 104 of the Company’s Articles of Association.

3

Approval of Directors’ fees amounting to S$87,500 for the year ended 31 December 2005.

4

Re-appointment of Messrs Ernst & Young as Auditors.

5

Authority to allot and issue new shares.

6

Authority to allot and issue shares under the BreadTalk Group Limited Employees’ Share Option Scheme.

Dated this

day of

2006

Total number of Shares in: (a) CDP Register (b) Register of Members

Signature of Shareholder(s) or, Common Seal of Corporate Shareholder *Delete where inapplicable

Against

No. of Shares

Notes : 1.

Please insert the total number of Shares held by you. If you have Shares entered against your name in the Depository Register (as defined in Section 130A of the Companies Act, Chapter 50 of Singapore), you should insert that number of Shares. If you have Shares registered in your name in the Register of Members, you should insert that number of Shares. If you have Shares entered against your name in the Depository Register and Shares registered in your name in the Register of Members, you should insert the aggregate number of Shares entered against your name in the Depository Register and registered in your name in the Register of Members. If no number is inserted, the instrument appointing a proxy or proxies shall be deemed to relate to all the Shares held by you.

2.

A member of the Company entitled to attend and vote at a meeting of the Company is entitled to appoint one or two proxies to attend and vote in his/her stead. A proxy need not be a member of the Company.

3.

Where a member appoints two proxies, the appointments shall be invalid unless he/she specifies the proportion of his/her shareholding (expressed as a percentage of the whole) to be represented by each proxy.

4.

The instrument appointing a proxy or proxies must be deposited at the registered office of the Company at 171 Kampong Ampat #05-05, KA FoodLink, Singapore 368330 not less than 48 hours before the time appointed for the Meeting.

5.

The instrument appointing a proxy or proxies must be under the hand of the appointor or of his attorney duly authorised in writing. Where the instrument appointing a proxy or proxies is executed by a corporation, it must be executed either under its seal or under the hand of an officer or attorney duly authorised. Where the instrument appointing a proxy or proxies is executed by an attorney on behalf of the appointor, the letter or power of attorney or a duly certified copy thereof must be lodged with the instrument.

6.

A corporation which is a member may authorise by resolution of its directors or other governing body such person as it thinks fit to act as its representative at the Meeting, in accordance with Section 179 of the Companies Act, Chapter 50 of Singapore.

General: The Company shall be entitled to reject the instrument appointing a proxy or proxies if it is incomplete, improperly completed or illegible or where the true intentions of the appointor are not ascertainable from the instructions of the appointor specified in the instrument appointing a proxy or proxies. In addition, in the case of Shares entered in the Depository Register, the Company may reject any instrument appointing a proxy or proxies lodged if the member, being the appointor, is not shown to have Shares entered against his name in the Depository Register as at 48 hours before the time appointed for holding the Meeting, as certified by The Central Depository (Pte) Limited to the Company.