NESTLÉ S.A. HSU FU CHI INTERNATIONAL LIMITED · CREDIT SUISSE (SINGAPORE) LIMITED (Incorporated in...

SCHEME DOCUMENT DATED 31 AUGUST 2011

THIS SCHEME DOCUMENT IS ISSUED BY HSU FU CHI INTERNATIONAL LIMITED (THE“COMPANY” OR “HSU FU CHI”). THIS SCHEME DOCUMENT IS IMPORTANT AND REQUIRESYOUR IMMEDIATE ATTENTION. PLEASE READ IT CAREFULLY.

IF YOU ARE IN ANY DOUBT ABOUT THIS SCHEME DOCUMENT OR THE ACTION YOU SHOULDTAKE, YOU SHOULD CONSULT YOUR STOCKBROKER, BANK MANAGER, SOLICITOR,ACCOUNTANT, TAX ADVISER OR OTHER PROFESSIONAL ADVISER IMMEDIATELY.

If you have sold or transferred all your issued ordinary shares in the capital of the Company,you should immediately forward this Scheme Document and the accompanying forms to thepurchaser or transferee or to the bank, stockbroker or agent through whom you effected thesale for onward transmission to the purchaser or transferee.

The Singapore Exchange Securities Trading Limited assumes no responsibility for thecorrectness of any of the statements made, reports contained or opinions expressed in thisScheme Document.

NESTLÉ S.A. HSU FU CHI INTERNATIONAL LIMITED(Incorporated in Switzerland) (Incorporated in the Cayman Islands)

(RNS Number: 2136S) (Registration Number: CT-175834)

PROPOSED JOINT VENTURE TO BE IMPLEMENTEDBY WAY OF A SCHEME OF ARRANGEMENT

UNDER SECTION 86 OF THE COMPANIES LAW OF THE CAYMAN ISLANDS

Financial Adviser to Nestlé

CREDIT SUISSE (SINGAPORE) LIMITED(Incorporated in the Republic of Singapore) (Company Registration No. 197702363D)

Independent Financial Adviser to the Independent Directors

MORGAN STANLEY ASIA (SINGAPORE) PTE.(Incorporated in the Republic of Singapore) (Company Registration No. 199206298Z)

IMPORTANT

Last date and time for lodgement of Proxy Forms : Friday, 23 September 2011 at 6.00 p.m.for Court Meeting

Date and time of the Court Meeting : Monday, 26 September 2011 at 6.00 p.m.

Place of Court Meeting : 108 Robinson Road, Level 11, The FinexisBuilding, Singapore 068900

The action to be taken by you is set out on page 31 of this Scheme Document.

The important dates, times and place relating to the Court Meeting and the expected timetable are setout on page 9 of this Scheme Document. Your attention is also drawn to the notes under the expectedtimetable.

CONTENTS

1

DEFINITIONS ...................................................................................................................................... 3

EXPECTED TIMETABLE .................................................................................................................... 9

CORPORATE INFORMATION............................................................................................................ 11

LETTER TO THE SHAREHOLDERS AND DEPOSITORS ................................................................ 13

1. INTRODUCTION ...................................................................................................................... 13

2. RATIONALE FOR THE ACQUISITION AND FUTURE PLANS FOR THE COMPANY ............ 16

3. THE SCHEME .......................................................................................................................... 17

4. FINANCIAL EVALUATION OF THE SCHEME CONSIDERATION .......................................... 18

5. NO CASH OUTLAY .................................................................................................................. 18

6. WAIVER OF RIGHTS TO A GENERAL OFFER ...................................................................... 18

7. CONFIRMATION OF FINANCIAL RESOURCES .................................................................... 18

8. INDEPENDENT FINANCIAL ADVISER’S OPINION ................................................................ 18

9. RECOMMENDATION OF THE INDEPENDENT DIRECTORS ................................................ 19

10. DIRECTORS’ RESPONSIBILITY STATEMENT ........................................................................ 20

11. GENERAL INFORMATION ...................................................................................................... 20

EXPLANATORY MEMORANDUM...................................................................................................... 21

1. INTRODUCTION ...................................................................................................................... 21

2. RATIONALE FOR THE PROPOSED TRANSACTION.............................................................. 21

3. THE SCHEME .......................................................................................................................... 21

4. PRINCIPAL TERMS OF THE IMPLEMENTATION AGREEMENT ............................................ 22

5. IRREVOCABLE UNDERTAKINGS............................................................................................ 25

6. SHARE ACQUISITION.............................................................................................................. 25

7. INFORMATION ON THE COMPANY ........................................................................................ 26

8. INFORMATION ON NESTLÉ .................................................................................................... 26

9. COURT MEETING .................................................................................................................... 26

10. REGULATORY APPROVALS .................................................................................................... 27

11. EFFECT OF THE SCHEME AND DELISTING ........................................................................ 28

12. IMPLEMENTATION OF THE SCHEME .................................................................................... 28

13. CLOSURE OF BOOKS ............................................................................................................ 29

14. SETTLEMENT AND REGISTRATION PROCEDURES............................................................ 30

15. DIRECTORS’ AND SUBSTANTIAL SHAREHOLDERS’ INTERESTS IN SHARES OF THECOMPANY ................................................................................................................................ 30

16. OVERSEAS SHAREHOLDERS................................................................................................ 30

17. ACTION TO BE TAKEN BY SHAREHOLDERS AND DEPOSITORS ...................................... 31

18. IFA’S ADVICE TO THE INDEPENDENT DIRECTORS ............................................................ 33

19. GENERAL INFORMATION ...................................................................................................... 33

APPENDIX 1 – LETTER FROM MORGAN STANLEY TO THE INDEPENDENT DIRECTORS ........................................................................................................ 34

APPENDIX 2 – LETTER FROM NESTLÉ S.A. TO THE SHAREHOLDERS AND DEPOSITORS ...................................................................................................... 70

APPENDIX 3 – GENERAL INFORMATION RELATING TO THE COMPANY .............................. 119

APPENDIX 4 – RELEVANT EXCERPTS OF THE MEMORANDUM AND ARTICLES OFASSOCIATION .................................................................................................... 130

APPENDIX 5 – AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP FOR FY2010 ........................................................................................................ 152

APPENDIX 6 – UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP FOR FY2011 ........................................................................................................ 198

APPENDIX 7 – SCHEME CONDITIONS ...................................................................................... 213

APPENDIX 8 – MATERIAL COVENANTS .................................................................................... 215

APPENDIX 9 – REPRESENTATIONS AND WARRANTIES OF NESTLÉ.................................... 216

APPENDIX 10 – REPRESENTATIONS AND WARRANTIES OF THE COMPANY ........................ 217

THE SCHEME .................................................................................................................................... 221

NOTICE OF COURT MEETING.......................................................................................................... 225

CONTENTS

2

In this Scheme Document, the following definitions apply throughout except where the context otherwiserequires:

“ADS Depository” : Citibank N.A.;

“Announcement” : The joint announcement made by the Company and Nestlé dated11 July 2011 in relation to, inter alia, the Scheme and the ShareAcquisition;

“Announcement Date” : 11 July 2011, being the date of the Announcement;

“Books Closure Date” : A date and time to be announced (before the Effective Date) by theCompany on which (i) the Register of Members and (ii) theDepository Register will be closed in order to determine theentitlements of the Scheme Shareholders and Depositors in respectof the Scheme;

“Business Day” : A day (except a Saturday or Sunday) on which banks are generallyopen for business in the Cayman Islands, Switzerland (Canton deVaud), the PRC (Beijing) and Singapore;

“Cayman Companies Law” : The Companies Law, Cap. 22 (Law 3 of 1961, as consolidated andrevised) of the Cayman Islands;

“CDP” : The Central Depository (Pte) Limited;

“CEO” : Chief executive officer of the Company;

“CHF” : Swiss franc, being the lawful currency of Switzerland;

“Code” : The Singapore Code on Take-overs and Mergers, as administeredby the SIC from time to time;

“Company” or “Hsu Fu Chi” : Hsu Fu Chi International Limited, a company incorporated in theCayman Islands (registration number CT-175834) whose registeredoffice is at Cricket Square, Hutchins Drive, P.O. Box 2681, GrandCayman KY1-1111, Cayman Islands;

“Competing Offer” : An offer or proposal by any person (other than Nestlé) pursuant towhich such person or other person may, whether by share purchase,scheme of arrangement or amalgamation, capital reconstruction,purchase of assets, tender offer, general offer, partial offer, jointventure, dual listed company structure or otherwise:

(a) acquire or become the holder or owner of, or otherwise havean economic interest in (i) all or substantially all of the assets,business and/or undertakings of the Group or (ii) all or asignificant portion of the share capital of the Company;

(b) acquire Control of the Group;

(c) merge with any member of the Group; or

(d) effect a transaction which would preclude or restrict theScheme;

DEFINITIONS

3

“Control” : (a) the direct legal and/or beneficial ownership of more than 50%of the voting power of a person; or

(b) the possession of the power to appoint a majority of the boardof directors or equivalent body of a person or otherwise directthe management or policies of a person, whether through theownership of voting securities, proxy, contract, agency orotherwise, and “Controlling” and “Controlled” will beconstrued accordingly;

“Court” : The Grand Court of the Cayman Islands;

“Court Meeting” : The meeting of Scheme Shareholders to be convened at thedirection of the Court, notice of which is set out on pages 225 and226 of this Scheme Document, and any adjournment thereof;

“Court Order” : The order of the Court sanctioning the Scheme under Section 86 ofthe Cayman Companies Law;

“Credit Suisse” : Credit Suisse (Singapore) Limited, the financial adviser to Nestlé;

“Depositor Proxy Form” : The Depositor proxy form for the Court Meeting, a copy of which issent with this Scheme Document;

“Directors” : The directors of the Company as at the date of this SchemeDocument;

“Effective Date” : The Business Day falling five (5) Business Days after thesatisfaction or waiver of the Scheme Conditions set out inparagraphs 1 to 5 and paragraphs 9 and 10 of Appendix 7 providedthat the other Scheme Conditions are satisfied or waived at suchdate;

“Encumbrance” : Any pledge, charge, lien, mortgage, debenture, hypothecation,security interest, pre-emption right, option and any otherencumbrance or third party right or claim of any kind or anyagreement to create any of the above;

“Entitled Depositors” : Depositors having Scheme Shares standing to the credit of theirSecurities Account as at 5.00 p.m. on the Books Closure Date;

“Entitled Shareholders” : Scheme Shareholders as at 5.00 p.m. on the Books Closure Date;

“Explanatory Memorandum” : The explanatory memorandum in compliance with the Rules of theCourt as set out on pages 21 to 33 of this Scheme Document;

“FY” : The financial year of the Company which, in any given year, beginson 1 July and ends on 30 June;

“Group” : The Company, its subsidiaries and any company which is on or atany time after the date of the Implementation Agreement, a personControlled directly or indirectly by the Company and the expression“Group Company” means any member of the Group;

“Holdco” : The holding company into which the Individual Shareholders intendto restructure, on or prior to the Scheme becoming effective, theShares they or their related corporations hold;

DEFINITIONS

4

“IFA Letter” : The letter from the IFA to the Independent Directors as set out inAppendix 1 to this Scheme Document;

“Implementation Agreement” : The implementation agreement dated 11 July 2011 entered intobetween the Company and Nestlé for the implementation of theScheme;

“Independent Directors” : The Directors who are considered independent for the purpose ofmaking a recommendation to the Scheme Shareholders on theScheme, being Mr. Hu Chia-Hsun, Mr. Shaw Sun Kan Gordon, Mr.Cheong Tuck Kuen Kenneth (alternate director to Mr. Shaw Sun KanGordon), Mr. Lim Hock San, Mr. Lam Khin Khui and Mr. Lee Tsu-Der;

“Individual Holders” : Mr. Hsu Chen, Mr. Hsu Pu, Ophira Finance Ltd and SuncoveInvestments Ltd;

“Individual Shareholders” : Mr. Hsu Chen, Mr. Hsu Keng, Mr. Hsu Hang and Mr. Hsu Pu;

“Irrevocable Undertakings” : Irrevocable undertakings given by each of the UndertakingShareholders to Nestlé on 11 July 2011 to, inter alia, vote in favourof the Scheme, on terms described in paragraph 6 of the Letter fromNestlé to the Shareholders and Depositors as set out in Appendix 2to this Scheme Document;

“Joint Venture Agreement” : The joint venture agreement to be entered into between theIndividual Shareholders, Nestlé, the Company and Holdco;

“Latest Practicable Date” : 26 August 2011, being the latest practicable date prior to theprinting of this Scheme Document;

“Listing Manual” : The listing manual issued by the SGX-ST and as amended fromtime to time;

“Long Stop Date” : The earlier of:

(a) the date falling four (4) months from the date of theImplementation Agreement if the approval of the Scheme hasnot been obtained at the Court Meeting by that date; or

(b) 31 March 2012;

“Market Day” : A day on which the SGX-ST is open for trading of securities;

“Material Covenants” : The material covenants of the Company extracted from theImplementation Agreement and reproduced in Appendix 8 of thisScheme Document;

“Morgan Stanley” or “IFA” : Morgan Stanley Asia (Singapore) Pte., as the independent financialadviser to the Independent Directors in respect of the Scheme;

“Nestlé ADR” : The certificates issued by the ADS Depository to evidence theNestlé ADS;

“Nestlé ADS” : Nestlé American depository shares, each of which represents theright to receive one (1) ordinary share of CHF 0.10 of Nestlé ondeposit with the ADS Depository;

DEFINITIONS

5

“Nestlé Directors” : The directors of Nestlé as at the date of this Scheme Document;

“Offer” : The mandatory or voluntary conditional cash offer by or on behalf ofNestlé to acquire Shares not already owned or controlled by Nestlé,on the terms and subject to the conditions which will be set out inthe offer document issued for or on behalf of Nestlé in the event ofthe exercise of the Switch Option;

“Parties” : The Company and Nestlé, and “Party” shall mean either of them;

“PRC” : People’s Republic of China;

“Proposed Transaction” : The Scheme and the Share Acquisition;

“Proxy Form” : The Shareholder Proxy Form or the Depositor Proxy Form, as thecase may be;

“Purchaser” or “Nestlé” : Nestlé S.A., a company incorporated in Switzerland (RNS number2136S) whose global headquarters is located at Avenue Nestlé 55,1800 Vevey, Switzerland;

“Register of Members” : The register of members of the Company which is administered bythe Share Registrar in the Cayman Islands;

“Renminbi” or “RMB” : Renminbi, being the lawful currency of the PRC;

“Restricted Period” : The period from (and including) the date of the ImplementationAgreement up to (and including) the date on which theImplementation Agreement is terminated in accordance with itsterms;

“Restricted Transaction” : (a) the possible acquisition of, or issue or grant of any optionover, the Shares; and/or

(b) the possible acquisition of all or substantially all of the assetsof any Group Company, and will include any Competing Offer;

“Sale Shares” : The 131,000,000 Shares to be acquired by Nestlé pursuant to theShare Acquisition, representing approximately 16.48% of all theShares as at the Latest Practicable Date;

“Scheme” : The scheme of arrangement between the Company and theScheme Shareholders under Section 86 of the Cayman CompaniesLaw, on the terms and subject to the conditions set out in thisScheme Document, subject to any modification, addition orcondition approved or imposed by the Court and agreed in writingby the Parties;

“Scheme Conditions” : The conditions precedent to the effectiveness of the Scheme whichare reproduced in Appendix 7 of this Scheme Document;

“Scheme Consideration” : The cash consideration of four Singapore Dollars and thirty fivecents (S$4.35) per Scheme Share as further set out in paragraph3.1 of the Explanatory Memorandum of this Scheme Document;

DEFINITIONS

6

“Scheme Document” : This document dated 31 August 2011, including all appendices, andany other document(s) which may be issued by or on behalf of theCompany and/or Nestlé to amend, revise, supplement or update thisdocument from time to time;

“Scheme Shareholders” : Shareholders other than the Individual Holders;

“Scheme Shares” : Shares held by the Scheme Shareholders;

“Securities Account” : The securities account maintained by a Depositor with CDP butdoes not include a securities sub-account;

“SGXNET” : The website of the SGX-ST;

“SGX-ST” : Singapore Exchange Securities Trading Limited;

“Share Acquisition” : The acquisition of the Sale Shares from the Individual Holders;

“Share Registrar” : Codan Trust Company (Cayman) Limited;

“Share Transfer Agent” : Boardroom Corporate & Advisory Services Pte. Ltd.;

“Shareholder” : Any person who has his, her or its name entered on the Register ofMembers as a holder of Shares, including without limitation, CDP;

“Shareholder Proxy Form” : The Shareholder proxy form for the Court Meeting, a copy of whichis sent with this Scheme Document;

“Shares” : Issued ordinary shares of par value of S$0.01 each in the capital ofthe Company;

“SIC” : The Securities Industry Council of Singapore;

“Singapore” : The Republic of Singapore;

“Singapore Dollars” or “S$” : Singapore dollars, being the lawful currency of Singapore;

“Substantial Shareholder” : Any person holding an interest in any Shares representing 5% ormore of all the Shares;

“Switch Option” : An option (on the terms set out under paragraph 4.3 of theExplanatory Memorandum of this Scheme Document) exercisableby Nestlé to proceed by way of an Offer in lieu of the ProposedTransaction in the event of a Competing Offer or otherwise, subjectto the prior written consent of the Individual Shareholders;

“Undertaking Shareholders” : (i) Arisaig Asia Consumer Fund Limited and (ii) Winmoore HoldingsLimited and Star Candy Ltd, two subsidiaries of The Baring AsiaPrivate Equity Fund IV, L.P.;

“Voting Record Date” : The date and time being 72 hours before the date and time of theCourt Meeting on which (i) the Register of Members and (ii) theDepository Register will be closed to determine who can vote in thecontext of the Court Meeting;

DEFINITIONS

7

“VWAP” : Volume weighted average price; and

“%” : per centum or percentage.

The terms “Depositor”, “Depository Agent” and “Depository Register” shall have the meaningsascribed to them respectively in Section 130A of the Companies Act of Singapore.

The term “acting in concert” shall have the meaning ascribed to it in the Code.

Any reference to a time of day and date in this Scheme Document shall be a reference to Singapore timeand date, unless otherwise specified.

Words importing the singular shall, where applicable, include the plural and vice versa. Words importingthe masculine gender shall, where applicable, include the feminine and neuter genders. References topersons shall, where applicable, include corporations.

Any reference in this Scheme Document to any enactment is a reference to that enactment as for thetime being amended or re-enacted. Any word defined in the Cayman Companies Law, the Code, theCompanies Act of Singapore, the Listing Manual or any modification thereof and used in this SchemeDocument shall, where applicable, have the meaning assigned to it under the Cayman Companies Law,the Code, the Companies Act of Singapore, the Listing Manual or any modification thereof, as the casemay be, unless the context otherwise requires.

Any reference to “you” or “your” in this Scheme Document is a reference to the Shareholders and/orDepositors (as applicable) unless the context otherwise requires.

Any discrepancies in the figures included in this Scheme Document between the amounts shown and thetotals thereof are due to rounding. Accordingly, figures shown as totals in this Scheme Document may notbe an arithmetic aggregation of the figures that precede them.

In this Scheme Document, the total number of Shares, as at the Latest Practicable Date, is 795,000,000.

DEFINITIONS

8

Singapore time(unless otherwise stated)

Latest date and time for lodgement of Proxy Form in respect : 23 September 2011 at 6.00 p.m.of the Court Meeting(1)(2)(3)

Voting Record Date : 23 September 2011 at 6.00 p.m.

Date and time of the Court Meeting : 26 September 2011 at 6.00 p.m.

Place of the Court Meeting(4) : 108 Robinson Road, Level 11, TheFinexis Building, Singapore 068900

Announcement of the results of the Court Meeting : 28 September 2011

Expected date of Court hearing of the application to sanction : 10 October 2011the Scheme

Expected last day of trading of the Shares : To be announced subject tosatisfaction of the Scheme Conditions

Expected Books Closure Date : To be announced subject tosatisfaction of the Scheme Conditions

Expected Effective Date(5) : To be announced subject tosatisfaction of the Scheme Conditions

Expected date for the payment of the Scheme Consideration : On or before the date falling ten (10)days after the Effective Date

Expected date for delisting of the Shares : One day after the date of the paymentof the Scheme Consideration

You should note that save for the last date and time for lodgement of the Proxy Form and the dateand time of the Court Meeting, the above timetable is indicative only and may be subject tochange. For the events listed above which are described as “expected”, please refer to futureannouncement(s) by the Company and/or the SGX-ST for the exact dates and times of theseevents.

Notes:

(1) Depositors who wish to withdraw their interest in Scheme Shares from CDP and become Scheme Shareholders shouldcontact CDP at 4 Shenton Way, #02-01, SGX Centre 2, Singapore 068807. The latest time for submitting the withdrawalrequest form is ten (10) Market Days prior to the Voting Record Date. Further details on such withdrawal process are set outat http://www.cdp.com.sg/business/withdraw.html and Paragraph 17.3 of the Explanatory Memorandum of this SchemeDocument. Depositors who have become Shareholders and who wish to trade their Shares on the SGX-ST will need to firstbecome Depositors again by depositing their share certificates with CDP together with the duly executed instruments oftransfer in favour of CDP and have their respective Securities Accounts credited with the number of Shares deposited beforethey can effect the desired trades. It will take about twelve (12) Market Days for the Shares to be credited into the relevantSecurities Account and Depositors will only be able to trade the Shares once they have received a notification from CDP.

(2) Shareholders and Depositors are requested to lodge Proxy Forms for the Court Meeting not less than 72 hours before thetime appointed for the Court Meeting, but if they are not so lodged, they may be handed to the chairman of the CourtMeeting at the Court Meeting.

EXPECTED TIMETABLE

9

(3) All Proxy Forms for the Court Meeting (if lodged before the Court Meeting) must be lodged at the office of the Share TransferAgent, Boardroom Corporate & Advisory Services Pte. Ltd., 50 Raffles Place #32-01, Singapore Land Tower, Singapore048623 or faxed to (65) 6536 1360. Completion and return of a Proxy Form will not preclude a Scheme Shareholder orDepositor as at the Voting Record Date from attending and voting in person at the Court Meeting in accordance withparagraph 17 of the Explanatory Memorandum of this Scheme Document.

(4) If Shareholders and Depositors in Hong Kong or the PRC wish to attend the Court Meeting, which is on 26 September 2011at 6.00 p.m. (Beijing time), arrangements have been made at Meeting Room 707, Dongguan Hsu Chi Foods Co. Ltd, ZhouwuIndustrial District, Dongcheng, Dongguan, Guangdong Province, 523118, PRC to facilitate participation in the Court Meetingvia video-conferencing or other telecommunication facilities.

(5) The Scheme will only come into effect upon all the Scheme Conditions set out in Appendix 7 of this Scheme Documenthaving been satisfied (or, where applicable, waived).

EXPECTED TIMETABLE

10

DIRECTORS : Hsu Chen, Executive Chairman Hu Chia-Hsun, Executive Director Hsu Hang, Executive DirectorHsu Pu, Non-Executive DirectorShaw Sun Kan Gordon, Non-Executive Director Lim Hock San, Independent DirectorLam Khin Khui, Independent DirectorLee Tsu-Der, Independent DirectorCheong Tuck Kuen Kenneth, Alternate Director to Shaw Sun KanGordon

COMPANY SECRETARY : Busarakham Kohsikaporn, FCISToh Lei Mui, ACIS

REGISTERED OFFICE : Cricket SquareHutchins DriveP.O. Box 2681Grand Cayman KY1-1111Cayman Islands

CAYMAN ISLANDS : Codan Trust Company (Cayman) LimitedSHARE REGISTRAR Cricket Square

Hutchins DriveP.O. Box 2681Grand Cayman KY1-1111Cayman Islands

SINGAPORE SHARE : Boardroom Corporate & Advisory Services Pte. Ltd.TRANSFER AGENT 50 Raffles Place

#32-01 Singapore Land TowerSingapore 048623

LEGAL ADVISER : Reed Smith Richards ButlerTO THE INDIVIDUAL 20th Floor Alexandra HouseSHAREHOLDERS 18 Chater Road, Central

Hong Kong

SINGAPORE LEGAL ADVISER : Loo & Partners LLPTO THE COMPANY 16 Gemmill Lane

Singapore 069254

CAYMAN LEGAL ADVISER : Conyers Dill & PearmanTO THE COMPANY 2901 One Exchange Square

8 Connaught Place, CentralHong Kong

LEGAL ADVISER TO NESTLÉ : White & Case Pte. Ltd.8 Marina View #27-01 Asia Square Tower 1Singapore 018960

CAYMAN LEGAL ADVISER : Maples and CalderTO NESTLÉ 53rd Floor, The Center

99 Queen’s Road, CentralHong Kong

CORPORATE INFORMATION

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PRC LEGAL ADVISER : King & WoodTO NESTLÉ 40th Floor, Office Tower A

Beijing Fortune Plaza 7 Dongsanhuan Zhonglu Chaoyang District Beijing 100020, PRC

FINANCIAL ADVISER : Credit Suisse (Singapore) LimitedTO NESTLÉ One Raffles Link

South Lobby, #03/#04-01Singapore 039393

INDEPENDENT FINANCIAL : Morgan Stanley Asia (Singapore) Pte.ADVISER TO THE 23 Church StreetINDEPENDENT DIRECTORS #16-01 Capital Square

Singapore 049481

AUDITORS : Ernst & Young LLPOne Raffles Quay North Tower Level 18 Singapore 048583

CORPORATE INFORMATION

12

HSU FU CHI INTERNATIONAL LIMITED(Incorporated in Cayman Islands)

(Co. Reg. No: CT-175834)

Directors: Registered Office:

Hsu Chen, Executive Chairman Cricket Square Hu Chia-Hsun, Executive Director Hutchins Drive Hsu Hang, Executive Director P.O. Box 2681Hsu Pu, Non-Executive Director Grand Cayman KY1-1111Shaw Sun Kan Gordon, Non-Executive Director Cayman Islands Lim Hock San, Independent DirectorLam Khin Khui, Independent DirectorLee Tsu-Der, Independent DirectorCheong Tuck Kuen Kenneth, Alternate Director to Shaw Sun Kan Gordon

Date: 31 August 2011

To: The Shareholders and Depositors of Hsu Fu Chi International Limited

Dear Sir/Madam

PROPOSED JOINT VENTURE BY WAY OF A SCHEME OF ARRANGEMENT UNDER SECTION 86 OFTHE CAYMAN COMPANIES LAW

1. INTRODUCTION

1.1 Announcement of the Scheme and the Share Acquisition

On 11 July 2011, the Company and Nestlé jointly announced the proposed establishment of a jointventure between Nestlé and the Individual Shareholders. In order to implement the ProposedTransaction, (i) the Company and Nestlé entered into the Implementation Agreement for Nestlé toacquire the Scheme Shares representing approximately 43.52% of all the Shares by way of theScheme from the Scheme Shareholders and (ii) subject to the Scheme becoming effective, Nestléwill acquire in addition the Sale Shares representing approximately 16.48% of all the Shares byway of the Share Acquisition.

A copy of the Announcement is available on the website of the SGX-ST at www.sgx.com.

1.2 Delisting

Upon the Proposed Transaction becoming effective, all of the Shares will be held by Nestlé andHoldco. An application has been made to seek confirmation from the SGX-ST to withdraw theShares from the Official List of the SGX-ST upon the Scheme becoming effective and binding. TheSGX-ST has advised that, inter alia, subject to the approval of the Scheme Shareholders beingobtained at the Court Meeting in the manner ordered by the Court and the Scheme becomingeffective and binding, it has no objection to the proposed withdrawal of the Shares from the OfficialList of the SGX-ST. The SGX-ST’s confirmation, however, is not an indication of the merits of theCompany, any other Group Company, the Scheme, the Share Acquisition or the proposedwithdrawal of the Shares from the Official List of the SGX-ST.

SHAREHOLDERS AND DEPOSITORS SHOULD NOTE THAT BY VOTING IN FAVOUR OF THESCHEME, THE COMPANY WILL BE DELISTED FROM THE SGX-ST IF THE SCHEMEBECOMES EFFECTIVE IN ACCORDANCE WITH ITS TERMS.

LETTER TO THE SHAREHOLDERS AND DEPOSITORS

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1.3 Purpose

The purpose of this Scheme Document is to set out information pertaining to the Scheme, to seekyour approval of the Scheme and to give you notice of the Court Meeting.

1.4 Explanatory Memorandum

An Explanatory Memorandum as required by the Rules of the Court setting out the key terms, therationale for, and the effect of, the Scheme and the procedures for its implementation is set out onpages 21 to 33 of this Scheme Document and the Appendices to this Scheme Document. It shouldbe read in conjunction with the full text of this Scheme Document, including the Scheme as set outon pages 221 to 224 of this Scheme Document.

1.5 Information on the Company

The Company is an exempted company with limited liability, incorporated in the Cayman Islands on18 October 2006 and is listed on the Mainboard of the SGX-ST. The registered office of theCompany is at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, CaymanIslands, and the principal place of business of the Group is located at Zhouwu Industrial District,Dongcheng, Dongguan, Guangdong Province, 523118, PRC.

As at the Latest Practicable Date, the Company has an issued share capital of 795,000,000Shares.

Further information relating to the Company is set out in Appendix 3 of this Scheme Document.

1.6 Information on Nestlé

Information on Nestlé is set out in paragraph 8 of the Letter from Nestlé to the Shareholders andDepositors set out in Appendix 2 of this Scheme Document and is reproduced in italics below:

“8.1 Nestlé is a company incorporated in Switzerland and listed on the SIX Swiss Exchange(Code: NESN.VX). Nestlé is the largest food and beverage company in the world, and itsprincipal business is the production, marketing and sales of food and beverage products.

8.2 The global headquarters of Nestlé is located at Avenue Nestlé 55, 1800 Vevey, Switzerland.

8.3 The names, addresses and descriptions of the directors of Nestlé as of the LatestPracticable Date are as follows:

Name Address Designation

Peter Brabeck-Letmathe Nestlé S.A. ChairmanAvenue Nestlé 55, 1800 Vevey,Switzerland

Paul Bulcke Nestlé S.A. Chief Executive OfficerAvenue Nestlé 55, 1800 Vevey,Switzerland

Andreas Koopmann Nestlé S.A. 1st Vice ChairmanAvenue Nestlé 55, 1800 Vevey,Switzerland

Rolf Hänggi Nestlé S.A. 2nd Vice ChairmanAvenue Nestlé 55, 1800 Vevey,Switzerland


14

Jean-René Fourtou Nestlé S.A. DirectorAvenue Nestlé 55, 1800 Vevey,Switzerland

Daniel Borel Nestlé S.A. DirectorAvenue Nestlé 55, 1800 Vevey,Switzerland

Jean-Pierre Meyers Nestlé S.A. DirectorAvenue Nestlé 55, 1800 Vevey,Switzerland

André Kudelski Nestlé S.A. DirectorAvenue Nestlé 55, 1800 Vevey,Switzerland

Carolina Müller-Möhl Nestlé S.A. DirectorAvenue Nestlé 55, 1800 Vevey,Switzerland

Steven George Hoch Nestlé S.A. DirectorAvenue Nestlé 55, 1800 Vevey,Switzerland

Naïna Lal Kidwai Nestlé S.A. DirectorAvenue Nestlé 55, 1800 Vevey,Switzerland

Beat Hess Nestlé S.A. DirectorAvenue Nestlé 55, 1800 Vevey,Switzerland

Titia De Lange Nestlé S.A. DirectorAvenue Nestlé 55, 1800 Vevey,Switzerland

Jean-Pierre Roth Nestlé S.A. DirectorAvenue Nestlé 55, 1800 Vevey,Switzerland

Ann Veneman Nestlé S.A. Director”Avenue Nestlé 55, 1800 Vevey,Switzerland

1.7 Third Party Proposals

From the Announcement Date up to the Latest Practicable Date, no alternative offers for theShares from any third party have been received by the Company.


15

2. RATIONALE FOR THE ACQUISITION AND FUTURE PLANS FOR THE COMPANY

2.1 Rationale and Benefits of the Proposed Transaction

Nestlé’s rationale and benefits of the Proposed Transaction are set out in paragraph 2 of the Letterfrom Nestlé to the Shareholders and Depositors set out in Appendix 2 of this Scheme Documentand are reproduced in italics below:

“2. RATIONALE FOR THE SCHEME

2.1 Hsu Fu Chi’s products are tailored to Chinese consumers’ needs and habits, andcomplement Nestlé’s existing product portfolio in the PRC, which includes culinary products,soluble coffee, bottled water, milk powder and products for the foodservice industry. Hsu FuChi’s large portfolio of affordable products, with the potential for enhanced nutritional value,fits perfectly into Nestlé’s global portfolio.

2.2 The Scheme presents the Scheme Shareholders with an opportunity to realise theirinvestment in the Scheme Shares at an attractive premium of approximately 8.7%, 10.0%,15.7% and 24.7% over the Company’s closing share price of S$4.000 on 1 July 2011 (beingthe last full trading day preceding the Announcement Date), 30-day VWAP of S$3.956, 90-day VWAP of S$3.759 and 180-day VWAP of S$3.490, respectively.

2.3 In maintaining its listing status, the Company incurs compliance costs. The Scheme wouldallow the Company to dispense with listing-related expenses and channel its resources to itsbusiness operations.”

2.2 Future Plans for the Group

Nestlé’s future plans for the Group are set out in paragraph 3 of the Letter from Nestlé to theShareholders and Depositors set out in Appendix 2 of this Scheme Document and are reproducedin italics below:

“3. FUTURE PLANS FOR THE COMPANY

3.1 It is the intention of both Nestlé and the Individual Shareholders that the Company willcontinue with its existing business activities and Nestlé and the Individual Shareholderspresently have no intention to (i) introduce any major changes to the business of theCompany, (ii) redeploy the fixed assets of the Company or (iii) discontinue the employmentof the employees of the Group.

3.2 It is also the intention of both Nestlé and the Individual Shareholders to continue to developand expand the Company business and preserve the legacy of the Hsu Fu Chi brand.

3.3 The Individual Shareholders and Nestlé intend to ensure that there is continuity ofmanagement and minimal interruption of business of the Company. Subsequent to theScheme and Share Acquisition, the current executive chairman of the Company, Mr. HsuChen, will continue as CEO and there are currently no plans to change the existing terms ofhis employment.”


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3. THE SCHEME

3.1 Terms of the Scheme

The Scheme will be implemented by way of a scheme of arrangement pursuant to Section 86 ofthe Cayman Companies Law and in accordance with the Code, together with the terms andconditions of the Implementation Agreement. The Scheme is proposed to all Scheme Shareholdersand will involve a transfer of all the Scheme Shares to Nestlé and/or its nominees for the SchemeConsideration in accordance with the terms set out herein, in particular in paragraphs 3 and 4 ofthe Explanatory Memorandum of this Scheme Document.

Under the Scheme:

(a) all the Scheme Shares will be transferred to Nestlé and/or its nominees fully paid, free fromall Encumbrances and together with all rights, benefits and entitlements attached thereto asat the Effective Date and thereafter attaching thereto, including the right to receive and retainall dividends, rights and other distributions (if any) declared, paid or made by the Companyafter the Effective Date; and

(b) in consideration for such transfer, each of the Scheme Shareholders will be entitled toreceive the Scheme Consideration which is S$4.35 in cash for each Scheme Share asfurther set out in the Explanatory Memorandum of this Scheme Document.

The Scheme Consideration is on the basis that the Company will not make or agree to make anydistribution or other payments of any kind to any person in its capacity as a Shareholder on or priorto the Effective Date. To the extent the Company declares or makes any distribution or otherpayment of any kind to the Scheme Shareholders on or prior to the Effective Date, the SchemeConsideration will be reduced on a per Scheme Share basis by any such amount which is due andpayable (whether paid or unpaid as at the Effective Date) to the Scheme Shareholders.

Further details of the Scheme and the implementation thereof are set out in paragraphs 3, 4 and12 of the Explanatory Memorandum of this Scheme Document.

3.2 Irrevocable Undertakings

Each of the Undertaking Shareholders has given an irrevocable undertaking to Nestlé, inter alia: (i)to vote all the Shares that it owns directly or indirectly, legally or beneficially, at the Court Meetingin favour of any resolutions required to give effect to the Scheme as set out in the notice ofmeeting in the Scheme Document; and (ii) if Nestlé elects to proceed with an Offer, to accept orprocure the acceptance of such Offer in respect of such Shares.

The Irrevocable Undertakings relate to an aggregate of 202,238,854 Scheme Shares, representingapproximately 58.45% of the total issued Scheme Shares as at the Latest Practicable Date.

Further details of the Irrevocable Undertakings can be found in paragraph 6 of the Letter fromNestlé to the Shareholders and Depositors set out in Appendix 2 of this Scheme Document.

Each of the Individual Holders have delivered on 26 August 2011 an undertaking to the Court thatit will, inter alia, support the Scheme and comply with the terms of the Scheme subject to theScheme becoming effective and binding.

3.3 No Other Irrevocable Undertakings

As at the Latest Practicable Date and save as disclosed in the Letter from Nestlé to theShareholders and Depositors set out in Appendix 2 to this Scheme Document, neither Nestlé norany other party acting or deemed to be acting in concert with it, has received any irrevocableundertaking from any other party to vote in favour of or against the Scheme at the Court Meeting.


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4. FINANCIAL EVALUATION OF THE SCHEME CONSIDERATION

The Scheme Consideration represents a premium / (discount) as compared to the relevant tradingprices for Shares as follows:

Premium / (Discount) to

Company Scheme Company Share Price Consideration Share Price

(S$) (S$) (S$) (%)

360-day VWAP(1) 2.683 4.350 1.667 62.1%

180-day VWAP(1) 3.490 4.350 0.860 24.7%

90-day VWAP(1) 3.759 4.350 0.591 15.7%

30-day VWAP(1) 3.956 4.350 0.394 10.0%

Closing price on 1 July 2011(2) 4.000 4.350 0.350 8.7%

Source: Bloomberg

Notes : (1) Up to 1 July 2011 (being the last full trading day preceding the Company’s holding announcement andsuspension of its Shares on 4 July 2011).

(2) Being the last full trading day preceding the Company’s holding announcement and suspension of itsShares on 4 July 2011.

5. NO CASH OUTLAY

Shareholders and Depositors should note that no cash outlay (including any stamp duties orbrokerage expenses) will be required from them under the Scheme.

6. WAIVER OF RIGHTS TO A GENERAL OFFER

Shareholders and Depositors should note that by voting in favour of the Scheme, they are agreeingto Nestlé and its concert parties acquiring effective control of the Company without having to makea general offer for the Company.

7. CONFIRMATION OF FINANCIAL RESOURCES

We note in paragraph 15 of the Letter from Nestlé to the Shareholders and Depositors as set out inAppendix 2 to this Scheme Document that Credit Suisse, in its capacity as financial adviser toNestlé, has confirmed that sufficient financial resources are available to Nestlé to satisfy in full theaggregate Scheme Consideration payable by Nestlé for all the Scheme Shares to be acquired by itpursuant to the Scheme.

8. INDEPENDENT FINANCIAL ADVISER’S OPINION

The Independent Directors have considered carefully the IFA’s opinion on the SchemeConsideration which is set out on pages 34 to 69 of this Scheme Document. The following is anextract from paragraph 10 of the letter from Morgan Stanley to the Independent Directors andshould be read by Shareholders in conjunction with, and in the context of, the full text of the IFALetter (reproduced in Appendix 1 to this Scheme Document):

“Based upon and subject to the foregoing, we are of the opinion that, as at the LatestPracticable Date, the Scheme Consideration is fair and reasonable from a financial point ofview.


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Our opinion is only based on a financial analysis and does not incorporate any assessmentof commercial, legal, tax, regulatory or other matters, including but not limited to: (i) theobjectives highlighted by Nestlé and Hsu Fu Chi in the Scheme Document; and (ii) thepotential impact of the success or failure of the Scheme on the Group. Our opinion alsodoes not incorporate an assessment of the price at which Shares may trade following thesuccess or failure of the Scheme. Such factors (including the aforesaid illustrations) arebeyond the ambit of our review and do not fall within our terms of reference in connectionwith the Scheme.

The Independent Directors may wish to consider advising the Scheme Shareholders whowish to realise their investments in the Company and/or are uncertain of the longer termperformance and prospects of the Company, that such Scheme Shareholders may wish toconsider voting in favour of the approval of the Scheme at the Court Meeting.

If the Independent Directors make a recommendation to the Scheme Shareholders to vote infavour of the Scheme, the Independent Directors may also wish to consider highlighting that theScheme will become effective only if all conditions precedent set out in the ImplementationAgreement and the requisite approvals set out in the Implementation Agreement and the SchemeDocument are obtained.”

9. RECOMMENDATION OF THE INDEPENDENT DIRECTORS

9.1 Recommendation on the Scheme

Each of Mr. Hsu Chen, Mr. Hsu Hang and Mr. Hsu Pu, being Directors who are not IndependentDirectors, will abstain from making a recommendation on the Scheme to the Scheme Shareholdersin accordance with the terms of the exemption granted by the SIC as described in paragraph10.1.1(b) of the Explanatory Memorandum to this Scheme Document.

None of the directors of Nestlé is related to the Independent Directors and/or (as far as theIndependent Directors are aware) controlling shareholders of the Company. There are nocontrolling shareholders in the share capital of Nestlé.

Having regard to the terms of the Scheme, the advice of the IFA to the Independent Directors asset out in the IFA’s opinion on the Scheme Consideration on pages 34 to 69 and the fact that fromthe Announcement Date up to the Latest Practicable Date, no alternative offers for the Shareshave been received by the Company, the Independent Directors consider that, from a financialpoint of view, the terms of the Scheme are fair and reasonable. The Independent Directorstherefore unanimously recommend, in the absence of a superior offer, Scheme Shareholders andDepositors to vote in favour of the Scheme at the Court Meeting. Scheme Shareholders andDepositors should read and consider carefully this Scheme Document, including therecommendation and advice of the IFA set out in Appendix 1 to this Scheme Document in itsentirety before deciding whether to vote in favour of, or against the Scheme. Shareholders shouldnote that the advice of the IFA to the Independent Directors should not be relied upon as the solebasis for deciding whether to vote in favour of, or against, the Scheme.

Scheme Shareholders and Depositors should also be aware that there is currently no certainty thatthe Scheme will become effective and there is no assurance that the trading volumes and marketprices of the Shares will be maintained at the current levels prevailing as at the Latest PracticableDate in the short term if the Scheme does not become effective for whatever reason. In the eventthat the Scheme becomes effective, it will be binding on all Shareholders and Depositors and theCompany will be delisted and withdrawn from the Official List of the SGX-ST.


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9.2 No Regard to Specific Objectives

The Independent Directors advise, in deciding whether to vote in favour of the Scheme, to carefullyconsider the full text of the advice of the IFA to the Independent Directors on the Scheme and inparticular, the various factors highlighted by the IFA in the IFA Letter.

In making the above recommendation, the Independent Directors have not had regard to thespecific objectives, financial situation or unique needs and constraints of any person. As differentpersons would have different investment objectives and profiles, the Independent Directorsrecommend that any person who may require advice in the context of his specific investmentobjectives or portfolio should consult his stockbroker, bank manager, solicitor, accountant, taxadviser or other professional adviser immediately.

9.3 Directors’ Intention

As at the Latest Practicable Date, all Directors (other than Mr. Hsu Chen, Mr. Hsu Hang and Mr.Hsu Pu who cannot vote at the Court Meeting) intend to vote in favour of the Scheme at the CourtMeeting in respect of their own Shares and/or beneficial interest in Shares.

10. DIRECTORS’ RESPONSIBILITY STATEMENT

The Directors (including those who may have delegated detailed supervision of this SchemeDocument) have taken all reasonable care to ensure that the facts stated and all opinionsexpressed in this Scheme Document (other than the information in Appendices 1 and 2 to thisScheme Document and the facts relating to Nestlé, Morgan Stanley and Credit Suisse) are fair andaccurate and that no material facts have been omitted from this Scheme Document, and theyjointly and severally accept responsibility accordingly.

Where any information has been extracted from published or publicly available sources, the soleresponsibility of the Directors has been to ensure, through reasonable enquiries, that suchinformation is accurately extracted from such sources or, as the case may be, reflected orreproduced in this Scheme Document.

11. GENERAL INFORMATION

Your attention is drawn to the further relevant information in the Appendices to this SchemeDocument.

Yours faithfully,For and on behalf ofthe Board of Directors ofHSU FU CHI INTERNATIONAL LIMITED

Hsu Chen Executive Chairman


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PROPOSED JOINT VENTURE TO BE IMPLEMENTED BY WAY OF A SCHEME OF ARRANGEMENT

UNDER SECTION 86 OF THE CAYMAN COMPANIES LAW

1. INTRODUCTION

1.1 Announcement of the Proposed Transaction

On 11 July 2011, the respective boards of the Company and Nestlé jointly announced theproposed establishment of a joint venture between Nestlé and the Individual Shareholders.

In order to implement the Proposed Transaction, (i) the Company and Nestlé entered into theImplementation Agreement for Nestlé to acquire the Scheme Shares representing approximately43.52% of all the Shares by way of the Scheme from the Scheme Shareholders and (ii) subject tothe Scheme becoming effective, Nestlé will acquire in addition the Sale Shares representingapproximately 16.48% of all the Shares by way of the Share Acquisition.

As a result of the Proposed Transaction, Nestlé will own 60% of all the Shares with the remaining40% owned by Holdco.

1.2 Explanatory Memorandum

This Explanatory Memorandum should be read in conjunction with the full text of this SchemeDocument, including the Scheme as set out on pages 221 to 224 of this Scheme Document.Capitalised terms used in this Explanatory Memorandum have the same meaning as those definedon pages 3 to 8 of this Scheme Document unless otherwise indicated.

2. RATIONALE FOR THE PROPOSED TRANSACTION

Nestlé’s rationale and benefits of the Proposed Transaction and future plans for the Group are setout in paragraphs 2 and 3 of the Letter from Nestlé to the Shareholders and Depositors set out inAppendix 2 of this Scheme Document.

3. THE SCHEME

3.1 Terms

3.1.1 The Scheme will be effected in accordance with the Cayman Companies Law and theCode, together with the terms and conditions of the Implementation Agreement.

3.1.2 Pursuant to Section 86 of the Cayman Companies Law where an arrangement is proposedbetween a company and its members or any class of them, the Court may, on theapplication of the company or any member of the company, order a meeting of themembers of the company or class of members, as the case may be, to be held in suchmanner as the Court directs. It is expressly provided in Section 86 of the CaymanCompanies Law that if a majority in number representing 75% in value of the members orclass of members, as the case may be, present and voting either in person or by proxy atthe meeting or meetings, as the case may be, held as directed by the Court as aforesaid,agree to any arrangement, the arrangement shall, if sanctioned by the Court, be binding onall members or class of members, as the case may be, and also on the company.

3.1.3 The Court in its hearing on 30 August 2011 determined that the relevant class ofshareholders for the purposes of the Scheme is the Scheme Shareholders. The IndividualHolders will not vote at the Court Meeting. Instead, prior to the Scheme being sanctionedby the Court, the Individual Holders will provide undertakings to the Court to be bound bythe Scheme and to do any and all acts and deeds required of them pursuant to theScheme to implement it.

EXPLANATORY MEMORANDUM

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3.1.4 Under the Scheme:

(a) all the Scheme Shares will be transferred to Nestlé and/or its nominees fully paid,free from all Encumbrances and together with all rights, benefits and entitlementsattached thereto as at the Effective Date and thereafter attaching thereto, includingthe right to receive and retain all dividends, rights and other distributions (if any)declared, paid or made by the Company after the Effective Date; and

(b) in consideration for such transfer, each of the Scheme Shareholders will be entitledto receive four Singapore Dollars and thirty five cents (S$4.35) in cash for eachScheme Share.

3.1.5 The Scheme Consideration was agreed by the Company after arm’s-length negotiationsbetween the Company and Nestlé, on a willing-seller, willing-buyer basis, after taking intoconsideration, amongst others, the recent market price of the Shares.

3.1.6 The Scheme Consideration is on the basis that the Company will not make or agree tomake any distribution or other payments of any kind to any person in its capacity as aShareholder on or prior to the Effective Date. To the extent the Company declares or makesany distribution or other payment of any kind to the Scheme Shareholders on or prior to theEffective Date, the Scheme Consideration will be reduced on a per Scheme Share basis byany such amount which is due and payable (whether paid or unpaid as at the EffectiveDate) to the Scheme Shareholders.

3.1.7 Shareholders and Depositors should note that no cash outlay (including any stamp dutiesor brokerage expense) will be required from them under the Scheme.

3.1.8 Shareholders and Depositors should note that by voting in favour of the Scheme, they areagreeing to Nestlé and its concert parties acquiring effective control of the Companywithout having to make a general offer for the Company.

4. PRINCIPAL TERMS OF THE IMPLEMENTATION AGREEMENT

4.1 Scheme Conditions

4.1.1 The Scheme will be conditional upon the satisfaction (or, where applicable, waiver) of theScheme Conditions on or prior to 5.00 p.m. (Singapore time) on the Long Stop Date.

4.1.2 Under the Implementation Agreement:

(a) the Scheme Conditions set out in paragraphs 1 to 5 of Appendix 7 of this SchemeDocument are not capable of being waived by either Party or both Parties;

(b) with respect to the Scheme Conditions set out in paragraphs 6(b), 7 (in respect ofthe warranties by the Company and the Company’s compliance with theImplementation Agreement only, including but not limited to the Material Covenantsset out in Appendix 8 of this Scheme Document) and 8 to 10 of Appendix 7 of thisScheme Document, any breach or non-fulfilment of any such Scheme Conditionsmay be relied upon only by Nestlé in deciding whether to waive any such breach ornon-fulfilment of such Scheme Condition(s) and whether to terminate theImplementation Agreement. Nestlé may at any time and from time to time at its solediscretion waive any such breach or non-fulfilment;


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(c) with respect to the Scheme Conditions set out in paragraphs 6(a) and 7 (in respectof the warranties by Nestlé and Nestlé’s compliance with the ImplementationAgreement only) of Appendix 7 of this Scheme Document, any breach or non-fulfilment of any such Scheme Condition may be relied upon only by the Company indeciding whether to waive any such breach or non-fulfilment of such SchemeConditions and whether to terminate the Implementation Agreement. The Companymay at any time and from time to time at its sole discretion waive any such breach ornon-fulfilment; and

(d) with respect to the Scheme Conditions set out in paragraphs 11 (to the extent legallypermissible) and 12 of Appendix 7 of this Scheme Document, each may be jointlywaived by the Company and Nestlé.

4.1.3 Where any approval or consent is required and any Scheme Condition is granted subject toany condition or undertaking, such Scheme Condition will not be deemed satisfied unlessand until any such condition or undertaking is reasonably acceptable to the Party sufferingthe burden of such condition or undertaking.

4.1.4 In the event that any Scheme Condition set out in paragraphs 6 to 12 of Appendix 7 of thisScheme Document is not satisfied or waived prior to the Long Stop Date, the Party with thebenefit of such Scheme Condition may only invoke the non-satisfaction of the relevantScheme Condition to terminate the Implementation Agreement upon prior consultation withthe SIC.

4.1.5 As at the Latest Practicable Date, the Scheme Conditions set out in paragraphs 1 and 9 ofAppendix 7 have been satisfied.

4.2 Termination Right

4.2.1 Shareholders and Depositors should note that pursuant to the terms of the ImplementationAgreement, the Implementation Agreement may be terminated by either Party (other than aParty having prevented, by its actions or omissions in breach of the ImplementationAgreement, the Scheme from becoming effective) if the Scheme has not become effectiveon or before 5.00 p.m. on the Long Stop Date, and on the following:

(a) by either Party at any time if any court of competent jurisdiction or governmentalauthority has issued an injunction, order, decree or ruling or taken any other actionpermanently enjoining, restraining or otherwise prohibiting or preventing theconsummation of the proposed acquisition of the Scheme Shares or theimplementation of the Scheme (or the proposed transactions relating to theScheme), and such order, decree, ruling, other action or refusal shall have becomefinal and non-appealable;

(b) by either Party in the event of a material breach by the other Party, which if capableof remedy, has not been remedied within ten (10) Business Days from thetermination for breach notification;

(c) by either Party if the resolutions submitted to the Court Meeting are not approved(without amendment) by the requisite majorities of Scheme Shareholders;

(d) by (i) either Party at any time if a proposal or offer by any person other than Nestléunder Rule 14 or Rule 15 of the Code becomes or is declared unconditional in allrespects or becomes effective, as the case may be or (ii) a Party electing toterminate the Implementation Agreement for a breach of the warranties therein; or


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(e) by either Party, in the event that, following the conclusion of the procedure whichmay, from time to time, be established by the SIC to resolve a competitive situation(the “SIC Competitive Procedure”), the latest bid submitted by Nestlé pursuant tosuch SIC Competitive Procedure is lower than the latest bid submitted by othercompeting offeror(s) pursuant to the SIC Competitive Procedure.

4.2.2 Prior to exercising any termination right under the Implementation Agreement, the Partieswill consult the SIC and obtain the SIC’s approval of, or a statement that the SIC has noobjections to, such termination.

4.3 Switch Option

4.3.1 Subject to prior consultation with the SIC, Nestlé may elect to proceed by way of an Offerin lieu of proceeding with the Proposed Transaction by way of the Scheme (the “SwitchOption”) in the event of a Competing Offer (or otherwise) subject to the prior writtenconsent of the Individual Shareholders.

4.3.2 In such event, Nestlé will make the Offer on the same or better terms as those which applyto the Scheme, including the same or a higher consideration than the SchemeConsideration.

4.3.3 If Nestlé exercises the Switch Option, the Parties agree that the Implementation Agreementwill terminate with effect from the date of the announcement by Nestlé of its firm intentionto make the Offer. The Parties’ accrued rights and obligations under the ImplementationAgreement and the rights and obligations under certain surviving provisions will continue tosubsist, but in all other respects, the Parties’ rights and obligations under theImplementation Agreement will cease.

4.4 Non-solicitation

4.4.1 Under the Implementation Agreement, the Company will not, during the Restricted Period:

(a) directly or indirectly, solicit, make any initial or further approach to, entertain anyapproach from, or enter into or continue any discussion, understanding, arrangementor agreement with any person other than Nestlé (“Third Party Purchaser”) unlesswith the prior written consent of Nestlé, in relation to any actual or proposedinvestment in, or acquisition of, all or any part of the Shares, business, undertakingsand/or assets of the Company or any of its subsidiaries which would preclude,restrict, delay or otherwise affect the consummation of the transactions contemplatedin the Implementation Agreement;

(b) reach any agreement or understanding (whether binding or non-binding, and whetherorally or in writing) with any Third Party Purchaser unless with the prior writtenconsent of Nestlé, in relation to any investment in, or acquisition of, all or any part ofthe Shares;

(c) give any undertakings in relation to a Restricted Transaction; or

(d) enter into, continue, solicit, facilitate or encourage any discussion, enquiry orproposal from, or discussions or negotiations with, any person whatsoever in relationto a Restricted Transaction or the financing thereof or solicit or assist any suchperson to enter into a Restricted Transaction,

save that the restrictions set out above will not apply to (i) the making of normalpresentations, by or on behalf of the Company, to brokers, portfolio investors and analystsin the ordinary and usual course of business and (ii) the provision of information by or onbehalf of the Company to the SGX-ST.


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4.4.2 Without prejudice to paragraph 4.4.1 above, neither the Company nor the Directors areprohibited or restricted, during the Restricted Period, from receiving a bona fide unsolicitedor uninitiated offer or proposal with respect to any Competing Offer (an “UnsolicitedOffer”). In the event that any Group Company or their respective directors, employees,officers or advisers receives any Unsolicited Offer, the Company and/or the Directors shallbe entitled to, inter alia:

(a) announce such Unsolicited Offer, insofar as such announcement is required underthe Listing Manual, the Code, or any applicable laws or regulations;

(b) comply with Rule 9.2 of the Code in relation to the equality of information to anycompeting offeror;

(c) enter into negotiations, discussions or otherwise entertain such Unsolicited Offer ifnecessary for the Directors to comply with and discharge their fiduciary duties to theCompany; and

(d) in the exercise of the fiduciary duties of the Directors, make or refrain from makingany recommendation to the Shareholders as the Directors may deem fit in respect ofthe Unsolicited Offer.

5. IRREVOCABLE UNDERTAKINGS

5.1 Paragraph 6 of the Letter from Nestlé to the Shareholders and Depositors as set out in Appendix 2of this Scheme Document sets out the details of the Undertaking Shareholders who have givenIrrevocable Undertakings to Nestlé.

5.2 Shareholders should note that the aggregate shareholding represented by the UndertakingShareholders is approximately 58.45% of the total number of Scheme Shares as at the LatestPracticable Date.

6. SHARE ACQUISITION

6.1 Under a transaction agreement entered into on 11 July 2011, the Individual Holders will sell, andNestlé will acquire, the Sale Shares, subject only to the occurrence of the Effective Date.

6.2 The consideration to be paid is four Singapore Dollars and thirty five cents (S$4.35) for each SaleShare, payable in cash, which is identical to the Scheme Consideration on a per Share basis.

6.3 Under the terms of the Share Acquisition:

6.3.1 the Individual Shareholders and their related corporations have agreed to support theScheme;

6.3.2 the Individual Shareholders and their related corporations have agreed not to acquire, sell,accept any offer in respect of, or otherwise deal in, any Shares, except pursuant to theScheme, the Share Acquisition, or any transfer of Shares to Holdco, until the EffectiveDate;

6.3.3 the Individual Shareholders and their related corporations have agreed to give customaryrepresentations and warranties in relation to title, authority and no insolvency;

6.3.4 subject to the occurrence of the Effective Date, the Individual Shareholders, Nestlé, theCompany and Holdco will enter into the Joint Venture Agreement;


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6.3.5 subject to the occurrence of the Effective Date, the Individual Shareholders and theirrelated corporations will procure that the Company will enter into a general licenceagreement with Nestlé and certain affiliates of Nestlé, relating to the licence of trade marks,know-how and other intellectual property rights as further set out in Annex 5 of the Letterfrom Nestlé to the Shareholders and Depositors set out in Appendix 2 of this SchemeDocument; and

6.3.6 the Individual Shareholders and their related corporations have agreed to be bound bycertain exclusivity and non-solicitation provisions with respect to their Shares until theearlier of the Effective Date or Long Stop Date, subject to applicable laws and regulationsand fiduciary duties, as applicable.

Please refer to paragraph 7.4 of the Letter from Nestlé to the Shareholders and Depositors set outin Appendix 2 of this Scheme Document for a summary of the terms of the Joint VentureAgreement.

7. INFORMATION ON THE COMPANY

Information on the Company is set out in Appendix 3 to this Scheme Document.

8. INFORMATION ON NESTLÉ

Information on Nestlé is set out at paragraph 8 of the Letter from Nestlé to the Shareholders andDepositors set out in Appendix 2 to this Scheme Document.

9. COURT MEETING

9.1 Court Meeting

By an order of the Court dated 30 August 2011, the Court Meeting has been directed to beconvened for the purpose of the Scheme Shareholders considering and, if thought fit, approvingthe Scheme.

By proposing that the acquisition of the Scheme Shares be implemented by way of a scheme ofarrangement under Section 86 of the Cayman Companies Law, the Company is providing theScheme Shareholders with an opportunity to decide at the Court Meeting whether they considerthe Scheme to be in their best interests.

The Scheme must be approved at the Court Meeting by a majority in number of, and representingnot less than 75% in value of the Scheme Shares held by, Scheme Shareholders, present andvoting, either in person or by proxy, at the Court Meeting. For the purposes of this vote, SchemeShareholders are holders of Scheme Shares as of the Voting Record Date.

When the Scheme, with or without modification, becomes effective, it will be binding on theCompany and all Scheme Shareholders and Depositors, whether or not they are present in personor by proxy or voted at the Court Meeting. Scheme Shareholders or Depositors do not have anyspecific rights to require an independent appraisal of the value of the Scheme Shares inconnection with the Scheme.

9.2 Notice

The notice of Court Meeting is set out on pages 225 to 226 of this Scheme Document. You arerequested to take note of the date and time of the Court Meeting. The Court Meeting will be held at6.00 p.m. (Singapore/Beijing time) on 26 September 2011 at 108 Robinson Road, Level 11, TheFinexis Building, Singapore 068900. If you are in Hong Kong or the PRC and wish to attend theCourt Meeting, arrangements have been made at Meeting Room 707, Dongguan Hsu Chi FoodsCo. Ltd, Zhouwu Industrial District, Dongcheng, Dongguan, Guangdong Province, 523118, PRC, tofacilitate participation in the Court Meeting via video conferencing or other telecommunicationfacilities.


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10. REGULATORY APPROVALS

10.1 The SIC has confirmed on 8 July 2011 that:

10.1.1 the Scheme is exempted from Rules 14, 15, 16, 17, 20.1, 21, 22, 28, 29 and 33.2 and Note1(b) to Rule 19 of the Code, subject to the following conditions:

(a) the Individual Shareholders, Nestlé and their concert parties abstain from voting onthe proposed Scheme;

(b) the Individual Shareholders, Nestlé and their concert parties abstain from making arecommendation on the proposed Scheme to the Shareholders of the Company; and

(c) the Company appoints an independent financial adviser to advise the Shareholderson the Scheme.

In respect of paragraph 10.1.1(a) above, the Company understands that as at the LatestPracticable Date, none of the Individual Shareholders, Nestlé or their concert parties holdsany Scheme Shares which entitle them to vote at the Court Meeting.

In respect of paragraph 10.1.1(b) above, the Individual Shareholders who are Directors,have abstained from making a recommendation on the Scheme.

In respect of paragraph 10.1.1(c) above, Morgan Stanley has been appointed to advise theIndependent Directors in their recommendation to the Scheme Shareholders in relation tothe Scheme;

10.1.2 it has no objections to the Scheme Conditions;

10.1.3 it has no objections to the Share Acquisition, details of which are set out in paragraph 6 ofthis Explanatory Memorandum;

10.1.4 the Share Acquisition does not constitute a special deal for the purposes of Rule 10 of theCode; and

10.1.5 the proposed terms of the Joint Venture Agreement do not constitute a special deal for thepurposes of Rule 10 of the Code.

10.2 SIC has also on 11 August 2011 confirmed that no obligation to make a general offer will betriggered as a result of the transfer of Shares by the Individual Holders to Holdco on or prior to theScheme becoming effective.

10.3 The Scheme is subject to sanction by the Court as stated in paragraph 12 below. The Court, inconsidering whether to sanction the Scheme, may decline to sanction it unless the Court issatisfied not only that the required Court Meeting was properly constituted and the Scheme wasapproved as required by the Cayman Companies Law, but also that the result of the Court Meetingfairly reflected the view of the Scheme Shareholders in general and that an intelligent and honestperson acting in respect of their interests in the Scheme Shares might reasonably approve theScheme.

10.4 Scheme Shareholders (including any beneficial owners of such Scheme Shares (includingDepositors) that give voting instructions to a custodian or clearing house (such as CDP) thatsubsequently vote at the Court Meeting) should note that they are entitled to appear in person orby counsel at the Court hearing on 10 October 2011 at which the Company will seek the sanctionof the Scheme.


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11. EFFECT OF THE SCHEME AND DELISTING

11.1 If the Scheme becomes effective and binding and the Share Acquisition is completed, Nestlé willown 60% of all the Shares with the remaining 40% owned by Holdco. An application has beenmade to seek confirmation from the SGX-ST to withdraw the Shares from the Official List of theSGX-ST upon the Scheme becoming effective and binding. The SGX-ST has advised that, interalia, subject to the approval of the Scheme Shareholders being obtained at the Court Meeting inthe manner ordered by the Court and the Scheme becoming effective and binding, it has noobjection to the proposed withdrawal of the Shares from the Official List of the SGX-ST. The SGX-ST’s confirmation, however, is not an indication of the merits of the Company, any other GroupCompany, the Scheme, the Share Acquisition or the proposed withdrawal of the Shares from theOfficial List of the SGX-ST.

11.2 The Shares will be delisted and withdrawn from the Official List of the SGX-ST after the Schemehas become effective and binding and the Scheme Consideration has been paid to the EntitledShareholders and the Entitled Depositors in accordance with paragraph 12.2.4 below.

12. IMPLEMENTATION OF THE SCHEME

12.1 Upon the Scheme being approved by a majority in number of, and representing not less than 75%in value of the Scheme Shares held by, Scheme Shareholders, present and voting, either in personor by proxy, at the Court Meeting, an application will be made to the Court by the Company tosanction the Scheme.

12.2 If the Court sanctions the Scheme, the Company will (subject to the satisfaction (or, whereapplicable, waiver) of all the Scheme Conditions) take the necessary steps to render the Schemeeffective by delivering a copy of the Court Order to the Registrar of Companies in the CaymanIslands for registration. Thereafter, the following will be implemented:

12.2.1 the Scheme Shares held by the Entitled Shareholders (including CDP) will be transferred toNestlé and/or its nominee by operation of law on the Effective Date and in accordance withthe terms of the Scheme. For the avoidance of doubt, no action is required to be taken bythe Entitled Shareholders (including CDP) with respect to such transfer of Scheme Sharesto Nestlé on the Effective Date;

12.2.2 from the Effective Date, all existing share certificates relating to the Scheme Shares heldby the Scheme Shareholders will cease to have any effect as evidence of title of Sharesrepresented therein;

12.2.3 Entitled Shareholders (not being Depositors) are required to forward their existing sharecertificates relating to their Shares to the Company’s registered office as from the EffectiveDate for cancellation; and

12.2.4 Nestlé shall, not later than ten (10) calendar days after the Effective Date make payment ofthe Scheme Consideration to:

(a) Entitled Shareholders whose Scheme Shares are not deposited with CDP(other than CDP)

each Entitled Shareholder (not being a Depositor or CDP) by sending a cheque forthe aggregate Scheme Consideration payable to and made out in favour of suchEntitled Shareholder by ordinary post to its/his/her address in the Register ofMembers on the Books Closure Date, at the sole risk of such Entitled Shareholder,or in the case of joint Entitled Shareholders, to the first-named Entitled Shareholdermade out in favour of such Entitled Shareholder by ordinary post to its/his/heraddress in the Register of Members on the Books Closure Date, at the sole risk ofsuch Entitled Shareholders; and


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(b) Entitled Depositors

CDP with respect to the Scheme Shares held by CDP as at the Books Closure Date.CDP shall (i) in the case of an Entitled Depositor who has registered for CDP’s directcrediting service, credit the aggregate Scheme Consideration payable to suchEntitled Depositor to the designated bank account of such Entitled Depositor; and (ii)in the case of an Entitled Depositor who has not registered for CDP’s direct creditingservice, send to such Entitled Depositor, by ordinary post to his mailing address inthe Depository Register and at the sole risk of such Entitled Depositor, a cheque forthe payment of such aggregate Scheme Consideration made out in favour of suchEntitled Depositor.

On or after the day falling six (6) months after the posting of such cheques by Nestlé,Nestlé shall have the right to cancel or countermand payment of any such cheque whichhas not then been cashed (or has been returned uncashed) and shall place all moneysrepresented thereby in a dedicated bank account in the Company’s name in a licensedbank in Singapore selected by the Company. The Company shall hold such moneys untilthe expiration of six (6) years from the Effective Date and shall prior to such date makepayments therefrom of the sums (without interest) payable pursuant to the Scheme (as setout on pages 221 to 224 of this Scheme Document) to persons who satisfy the Companythat they are respectively entitled thereto and that the cheques referred to in paragraph 4 ofthe Scheme (as set out on pages 221 to 224 of this Scheme Document) of which they arepayees have not been cashed.

On the expiry of six (6) years from the Effective Date, Nestlé shall be released from anyfurther obligation to make any payments under the Scheme to any Entitled Shareholderand/or Entitled Depositor and/or CDP and the Company shall transfer to Nestlé the balance(if any) of the sums then standing to the credit of the bank account referred to in paragraph4 of the Scheme (as set out on pages 221 to 224 of this Scheme Document) includingaccrued interest, subject, if applicable, to the deduction of interest, tax or any withholdingtax or any other deduction required by law and subject to the deduction of any expenses.

13. CLOSURE OF BOOKS

13.1 Notice of Books Closure

Notice will be given of the Books Closure Date for the purpose of determining the entitlements ofthe Scheme Shareholders and Depositors under the Scheme.

13.2 Books Closure

No Entitled Shareholders or Entitled Depositors may transfer or trade any Shares after the BooksClosure Date.

13.3 Trading in Shares on the SGX-ST

An application has been made to seek confirmation from the SGX-ST to withdraw the Shares fromthe Official List of the SGX-ST upon the Scheme becoming effective and binding. The SGX-ST hasadvised that, inter alia, subject to the approval of the Scheme Shareholders being obtained at theCourt Meeting in the manner ordered by the Court and the Scheme becoming effective andbinding, it has no objection to the proposed withdrawal of the Shares from the Official List of theSGX-ST. The SGX-ST’s confirmation, however, is not an indication of the merits of the Company,any other Group Company, the Scheme, the Share Acquisition or the proposed withdrawal of theShares from the Official List of the SGX-ST.

Shareholders and Depositors should note that the Shares will continue to be traded on the SGX-ST until the Market Day falling three (3) Market Days before the Books Closure Date. The Sharesare expected to be delisted and withdrawn from the Official List of the SGX-ST only after paymentof the Scheme Consideration to the Entitled Shareholders and the Entitled Depositors inaccordance with paragraph 12.2.4 above.


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SHAREHOLDERS AND DEPOSITORS SHOULD NOTE THAT BY VOTING IN FAVOUR OF THESCHEME, THE SHARES OF THE COMPANY WILL BE DELISTED FROM THE SGX-ST IF THESCHEME BECOMES EFFECTIVE IN ACCORDANCE WITH ITS TERMS.

14. SETTLEMENT AND REGISTRATION PROCEDURES

Subject to the Scheme becoming effective, the following settlement and registration procedures willapply:

Scheme Shareholders whose Shares are not deposited with CDP (other than CDP)

Entitlements of Entitled Shareholders (not being Depositors) to the Scheme Consideration will bedetermined on the basis of their holdings of Scheme Shares appearing in the Register of Memberson the Books Closure Date.

Scheme Shareholders (not being Depositors or CDP) who have not already done so are requestedto take the necessary action to ensure that the Scheme Shares owned by them are registered intheir names on the Books Closure Date.

From the Effective Date, each existing share certificate representing a former holding of theScheme Shares by the Entitled Shareholders (not being Depositors) will cease to be evidence oftitle to the Scheme Shares represented thereby.

Entitled Depositors whose Shares are deposited with CDP

Entitlements of Entitled Depositors to the Scheme Consideration will be determined on the basis ofthe number of Scheme Shares standing to the credit of their Securities Accounts on the BooksClosure Date.

On the Effective Date, CDP will debit the number of Scheme Shares standing to the credit of theSecurities Account of the relevant Entitled Depositor.

Within ten (10) calendar days of the Effective Date and after having received payment referred to inparagraph 12.2.4(b) above, CDP shall make payment of the Scheme Consideration to eachEntitled Depositor based on the number of Scheme Shares standing to the credit of his, her or itsSecurities Account on the Books Closure Date.

15. DIRECTORS’ AND SUBSTANTIAL SHAREHOLDERS’ INTERESTS IN SHARES OF THECOMPANY

The interests in Shares of the Directors and the Substantial Shareholders are set out underparagraph 3.3 of Appendix 3 to this Scheme Document. Save as disclosed in this SchemeDocument, the effect of the Scheme on such interests of the Directors and SubstantialShareholders does not differ from that of the other Scheme Shareholders. After the Scheme hasbecome effective and binding and the Proposed Transaction has been completed and effected,Nestlé and/or its nominee will own 60% of the Shares with the remaining 40% owned by Holdco.

16. OVERSEAS SHAREHOLDERS

16.1 Overseas Shareholders

The applicability of the Scheme to Scheme Shareholders and Depositors whose addresses areoutside Singapore, as shown on the Register of Members and the Depository Register maintainedby CDP (each, an “Overseas Shareholder”) may be affected by the laws of the relevant overseasjurisdictions. Accordingly, Overseas Shareholders should keep themselves informed of, andobserve any applicable legal requirements. This Scheme Document will be sent to all OverseasShareholders by airmail.


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16.2 Copies of Scheme Document

Scheme Shareholders including Overseas Shareholders may obtain additional copies of thisScheme Document and any related documents, during normal business hours on any day prior tothe date of the Court Meeting, from the Share Transfer Agent, Boardroom Corporate & AdvisoryServices Pte. Ltd., 50 Raffles Place #32-01, Singapore Land Tower, Singapore 048623.Alternatively, an Overseas Shareholder may write to the Share Transfer Agent at the same addressto request for this Scheme Document and any related documents to be sent to an address inSingapore by ordinary post at his own risk, not later than three (3) Market Days prior to the date ofthe Court Meeting.

16.3 Notice

Nestlé and the Company each reserves the right to notify Shareholders or Depositors of anymatter, including the fact that the Scheme has been proposed, to any or all Shareholders andDepositors with a registered address outside Singapore by announcement via SGXNET or paidadvertisement in a daily newspaper published and circulated in Singapore, and in which case suchnotice shall be deemed to have been sufficiently given notwithstanding any failure by anyShareholder or Depositor to receive or see such announcement via SGXNET or advertisement. Forthe avoidance of doubt, for as long as the Company remains listed on the SGX-ST, it will continueto notify all Shareholders and Depositors of any matter relating to the Scheme by announcementvia SGXNET.

16.4 Foreign Jurisdiction

It is the responsibility of any Overseas Shareholder who wishes to (i) request for this SchemeDocument and/or any related documents or (ii) vote on or participate in the Scheme to satisfyitself/himself/herself as to the full observance of the laws of the relevant jurisdiction in thatconnection, including the obtaining of any governmental or other consent which may be requiredand compliance with all necessary formalities or legal requirements. In requesting this SchemeDocument and/or any related documents, the Overseas Shareholder is deemed to represent andwarrant to the Company and Nestlé that it/he/she is in full observance of the laws of the relevantjurisdiction in that connection, and that it/he/she is in full compliance with all necessary formalitiesor legal requirements. This Scheme Document and/or any related documents will be given on thisbasis. Any Overseas Shareholder who is in any doubt about its/his/her position should consultits/his/her professional adviser in the relevant jurisdiction. In voting on or participating in theScheme, the Overseas Shareholder represents and warrants to Nestlé and the Company thatit/he/she is in full observance of the laws of the relevant jurisdiction in that connection, and thatit/he/she is in full compliance with all necessary formalities or legal requirements.

17. ACTION TO BE TAKEN BY SHAREHOLDERS AND DEPOSITORS

If you own an interest in any Shares through a Securities Account, you are a Depositor and theprovisions of paragraph 17.1 apply to you. If your name is registered on the Register of Members,you are a Shareholder and the provisions of paragraph 17.2 apply to you. If you are a Depositorand wish to become a Shareholder, the provisions of paragraph 17.3 apply.

17.1 Depositors

Depositors cannot vote directly at the Court Meeting, as only Shareholders (being registered asholders of Shares in the Register of Members) are entitled to vote at the Court Meeting inaccordance with Cayman Companies Law.

However, CDP will appoint each of the Depositors and, in relation to each of the Depositors, inrespect of such number of Shares set out opposite their respective names in the DepositoryRegister as at the Voting Record Date, as its proxy/proxies.


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Accordingly, each Depositor may:

(a) attend the Court Meeting and vote the Scheme Shares credited to its/his/her SecuritiesAccount;

(b) vote on the Scheme without attending the Court Meeting by lodging a Depositor ProxyForm to the benefit of the chairman of the Court Meeting (a copy of which is sent with thisScheme Document) completed and signed at the office of the Share Transfer Agent atBoardroom Corporate & Advisory Services Pte. Ltd., 50 Raffles Place #32-01, SingaporeLand Tower, Singapore 048623 or faxed to (65) 6536 1360, in accordance with theinstructions printed thereon so as to arrive not less than 72 hours before the time fixed forthe Court Meeting. Alternatively, the Depositor Proxy Form may be handed before thecommencement of the Court Meeting to the chairman of the Court Meeting at the CourtMeeting; or

(c) appoint any other person(s) to vote at the Court Meeting in its/his/her stead by appointingsuch person(s) as its/his/her proxy by completing, signing and lodging a Depositor ProxyForm in accordance with the instructions printed thereon.

A Depositor who is a corporation and who wishes to attend the Court Meeting must submit theDepositor Proxy Form for the appointment of person(s) to attend and vote at the Court Meeting onits/his/her behalf.

The vote of Depositors will only be taken into account to determine whether the 75% in valuethreshold has been reached and not for the majority in number count.

For the purposes of counting the majority in number, CDP shall be counted as one SchemeShareholder voting for or against the Scheme. In order to determine CDP’s vote, the Company willtake into account the majority of Scheme Shares held by CDP that are voted for or against theScheme by the Depositors, present and voting, either in person or by proxy, at the Court Meeting.

The completion and lodgement of Depositor Proxy Forms will not prevent the Depositors fromattending and voting in person at the Court Meeting if they subsequently wish to do so. In suchevent, the relevant Depositor Proxy Forms will be deemed to be revoked.

Even if you do not vote by appointing a proxy and/or attending and voting at the Court Meeting,you will be bound by the outcome of the Court Meeting.

17.2 Shareholders

Shareholders may attend the Court Meeting in person and vote on the Scheme.

Shareholders who are unable to attend the Court Meeting are requested to complete theShareholder Proxy Form (a copy of which is sent with this Scheme Document) in accordance withthe instructions printed thereon (i) for the benefit of the chairman of the Court Meeting or (ii) for thebenefit of any other person(s) to vote at the Court Meeting in its/his/her stead and return so as toarrive at the office of Share Transfer Agent at Boardroom Corporate & Advisory Services Pte. Ltd.,50 Raffles Place #32-01, Singapore Land Tower, Singapore 048623 or faxed to (65) 6536 1360 notless than 72 hours before the time fixed for the Court Meeting. Alternatively, the Shareholder ProxyForm may be handed before the commencement of the Court Meeting to the chairman of theCourt Meeting at the Court Meeting.

The completion and lodgement of Shareholder Proxy Forms will not prevent the Shareholders fromattending and voting in person at the Court Meeting if they subsequently wish to do so. In suchevent, the relevant Shareholder Proxy Forms will be deemed to be revoked.

Even if you do not vote by appointing a proxy and/or attending and voting at the Court Meeting,you will be bound by the outcome of the Court Meeting.


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17.3 Conversion of Depositors to Shareholders

Depositors may elect to become Shareholders, and thereby have the right to vote at the CourtMeeting and be counted for the purposes of calculating a “majority in number” in respect of theScheme at the Court Meeting by withdrawing its/his/her Scheme Shares from CDP and havingthose Shares registered in the Depositor’s name (provided that such Depositor becomes aShareholder of record not later than the Voting Record Date).

Depositors who wish to withdraw the Scheme Shares and become Shareholders should contactCDP at 4 Shenton Way, #02-01, SGX Centre 2, Singapore 068807. The latest time for submittingthe withdrawal request form is ten (10) Market Days prior to the Voting Record Date. Further detailson withdrawal of Shares are set out at http://www.cdp.com.sg/business/withdraw.html. Currently,the fees payable for the withdrawal of Scheme Shares from CDP are as follow:

Withdrawal fee S$26.75 (inclusive of GST) for withdrawals of more than 1,000 shares, orS$10.70 (inclusive of GST) for 1,000 shares or less

Scrip fee S$2.14 (inclusive of GST) per certificate

Depositors who have become Shareholders and who wish to trade their Shares on the SGX-ST will need to first become Depositors again by depositing their share certificates withCDP together with the duly executed instruments of transfer in favour of CDP and have theirrespective Securities Accounts credited with the number of Shares deposited before theycan effect the desired trades. It will take about twelve (12) Market Days for the Shares to becredited into the relevant Securities Account and Depositors will only be able to trade theShares once they have received a notification from CDP.

As the Company is registered in the Cayman Islands and the Register of Members is kept in theCayman Islands, any transfer of Shares will be exempted from stamp duty under the Stamp DutiesAct, Chapter 312 of Singapore.

18. IFA’S ADVICE TO THE INDEPENDENT DIRECTORS

The letter from Morgan Stanley, the IFA, setting out its advice to the Independent Directors on theScheme is reproduced in Appendix 1 of this Scheme Document.

19. GENERAL INFORMATION

Your attention is drawn to the further relevant information in the Appendices of this SchemeDocument. These Appendices form part of this Scheme Document. This Explanatory Memorandumis qualified by, and should be read in conjunction with, the full text of this Scheme Document,including the Scheme as set out in pages 221 to 224 of this Scheme Document.


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APPENDIX 1 – LETTER FROM MORGAN STANLEY TO THE INDEPENDENT DIRECTORS

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31 August 2011

To: The Independent Directors of Hsu Fu Chi International LtdCricket SquareHutchins DriveP.O. Box 2681Grand Cayman KY1-1111Cayman Islands

Dear Sir/Madam:

PROPOSED SCHEME OF ARRANGEMENT UNDER SECTION 86 OF THE COMPANIES LAW OF THECAYMAN ISLANDS PURSUANT TO WHICH NESTLÉ S.A. (“NESTLÉ”) WILL ACQUIRE 43.52% OFTHE ISSUED ORDINARY SHARES OF HSU FU CHI INTERNATIONAL LIMITED (“HSU FU CHI” ORTHE “COMPANY”) (ALL ISSUED ORDINARY SHARES OF PAR VALUE S$0.01 EACH OF HSU FUCHI BEING REFERRED TO HEREIN AS THE “SHARES”)

1. INTRODUCTION

On 11 July 2011 (the “Announcement Date”), Nestlé and Hsu Fu Chi jointly announced theproposed establishment of a joint venture (the “Joint Venture”) between Nestlé and the currentmajority shareholders of the Company, Mr. Hsu Chen, Mr. Hsu Keng, Mr. Hsu Hang and Mr. Hsu Pu(the “Individual Shareholders”), who together own or hold a deemed interest of approximately56.48% of the Shares. Nestlé will acquire 60% of the Shares by purchasing (i) a 43.52% interestfrom shareholders in the Company other than the Individual Shareholders, their relatedcorporations and their respective nominees by way of a scheme of arrangement (the “Scheme”)under Section 86 of the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and revised) ofthe Cayman Islands (the “Cayman Companies Law”) and in accordance with The Singapore Codeon Take-overs and Mergers (the “Code”) and (ii) a 16.48% interest from the IndividualShareholders or their related corporations by way of a transaction agreement dated 11 July 2011(the “Transaction Agreement”). As a result of the transactions contemplated in (i) and (ii) above(the “Proposed Transactions”), Nestlé will own 60% of the Shares with the remaining 40% ownedindirectly by the Individual Shareholders.

On 11 July 2011, Hsu Fu Chi and Nestlé entered into an implementation agreement (the“Implementation Agreement”) for Nestlé to acquire 43.52% of the Shares (the “Scheme Shares”)from the shareholders of Hsu Fu Chi, other than the Individual Shareholders and their relatedcorporations and respective nominees (the “Scheme Shareholders”) by way of the Scheme.

Also on 11 July 2011, Nestlé entered into the Transaction Agreement pursuant to which Nestlé willacquire, subject to the Scheme becoming effective, 16.48% of the Shares from the IndividualShareholders or their related corporations (the “Sale Shares”).

Upon the Proposed Transactions becoming effective, all of the Shares will be owned, directly orindirectly, by Nestlé and the Individual Shareholders and subject to the approval of the SingaporeExchange Securities Trading Limited (“SGX-ST”), Hsu Fu Chi will be delisted from the Official Listof the SGX-ST.

Morgan Stanley Asia (Singapore) Pte. (“Morgan Stanley”) has been appointed to act asIndependent Financial Adviser to the Directors of the Company (the “Directors”) who areconsidered to be independent for the purposes of the Scheme (the “Independent Directors”). TheDirectors have confirmed to Morgan Stanley that Mr. Hu Chia-Hsun, Mr. Shaw Sun Kan Gordon,Mr. Cheong Tuck Kuen Kenneth (alternate director to Mr. Shaw Sun Kan Gordon), Mr. Lim HockSan, Mr. Lam Khin Khui and Mr. Lee Tsu-Der are the Independent Directors for the purposes of theScheme and that there are no special circumstances or other arrangements which may affect theindependence of the foregoing Directors. This letter sets out our opinion arising from our evaluationof the Scheme, from a financial point of view, for inclusion in the document dated 31 August 2011,including all appendices (the “Scheme Document”) to be sent to the shareholders of theCompany.

2. TERMS OF REFERENCE

In the course of our evaluation of the Scheme, from a financial point of view, we have, amongstother things:

(i) reviewed certain publicly available financial statements and other information relating to HsuFu Chi, as well as certain information provided, and representations made, to us by theDirectors, senior executives, professional advisers and other authorised representatives ofthe Company;

(ii) discussed the past and current operations and financial condition of Hsu Fu Chi and itssubsidiaries (the “Group”) with senior executives of the Company;

(iii) reviewed the reported prices, trading multiples and trading activity for the Shares;

(iv) compared the prices and trading multiples with those of certain other comparable publicly-traded companies and their securities;

(v) reviewed the financial terms, to the extent publicly available, of certain comparabletransactions;

(vi) participated in discussions with representatives of Hsu Fu Chi and its legal advisers withrespect to the Scheme;

(vii) reviewed the Implementation Agreement and the Scheme Document (collectively, the “HsuFu Chi Transaction Documents”), the Irrevocable Undertakings (as defined below) and theTransaction Agreement (collectively the “Shareholder Transaction Documents,” andtogether with the Hsu Fu Chi Transaction Documents, the “Transaction Documents”); and

(viii) performed such other analyses, reviewed such other information and considered such othermatters as we deemed appropriate.

We do not comment on the merits of the Proposed Transactions, including without limitation on thefairness of the consideration for the Sale Shares, nor do we evaluate and/or comment on thestrategic or commercial merits of the Proposed Transactions or on the prospects of the Company.We do not address the relative merits of the Proposed Transactions as compared to any otheralternative transaction, or other alternatives, or whether or not such alternatives could be achievedor are available. This opinion is necessarily based on financial, economic, market and otherconditions in effect on, and the information made available to us as at 26 August 2011, being theLatest Practicable Date. We have not been requested or authorised to solicit, nor have we solicited,any indications of interest from any third party with respect to the Shares.


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We have assumed and relied upon, without independent verification, the accuracy andcompleteness of the information that was publicly available or supplied or otherwise made availableto us by the Company and formed a substantial basis for this opinion.

The Directors have confirmed to us that, to the best of their knowledge and belief, all materialinformation in connection with the Company, the Group and the Proposed Transactions, includingwithout limitation the Transaction Documents, has been disclosed to us, that such information istrue, complete and accurate in all material respects and that there are no omissions which maycause any information given to us to be incomplete, inaccurate or misleading. The Directors havejointly and severally accepted the responsibility for the accuracy and completeness of suchinformation. We have relied upon such confirmation by the Directors and the accuracy andcompleteness of all information given to us and have not independently verified such information,whether written or verbal, and accordingly cannot and do not represent or warrant, expressly orimpliedly, and do not accept any responsibility for, the accuracy, completeness or adequacy of suchinformation.

In addition, we have assumed that the Proposed Transactions will be consummated in accordancewith the terms set forth in the Transaction Documents without any waiver, amendment or delay ofany terms or conditions except as set out therein including, without limitation, that the Scheme willbe consummated in accordance with the terms set forth in the Implementation Agreement and theScheme Document. Morgan Stanley has assumed that in connection with receipt of all necessarygovernmental, regulatory or other approvals and consents required for the Proposed Transactions,no delays, limitations, conditions or restrictions will be imposed that would have a material adverseeffect on the contemplated benefits expected to be derived from the Proposed Transactions. Weare not legal, tax or regulatory advisers. We are financial advisers only and have relied upon,without independent verification, the assessment of Hsu Fu Chi and its legal, tax or otherregulatory advisers with respect to legal, tax or regulatory requirements. We have not made anindependent evaluation or appraisal of the assets and liabilities (including without limitation, realproperty) of the Group or any of its associated or joint venture companies, nor have we beenfurnished with any such appraisals.

We have relied upon the assurances of the Directors that the Scheme Document has beenapproved by the Directors (including those who may have delegated detailed supervision of theScheme Document) and that the Directors have taken all reasonable care to ensure that the factsstated and all the opinions expressed in the Scheme Document (other than the information inAppendices 1 and 2 to the Scheme Document and the facts relating to Nestlé, Morgan Stanley andCredit Suisse (Singapore) Limited) are fair and accurate and that no material facts have beenomitted from the Scheme Document, and the Directors jointly and severally accept responsibilityaccordingly.

Where information relating to the Scheme and the other Transaction Documents, Nestlé, Hsu FuChi and parties acting in concert with them has been extracted from published or otherwisepublicly available sources, the responsibility of the Directors has been to ensure that, having madereasonable enquiries, such information has been accurately and correctly extracted from therelevant sources.

Our terms of reference do not require us to express, and we do not express, an opinion on theShareholder Transaction Documents or the future growth prospects of Hsu Fu Chi. We aretherefore not expressing any opinion herein as to the price at which the Shares may trade uponcompletion or rejection of the Scheme or on the future financial performance of the Company.Scheme Shareholders should note that trading of the Shares is subject to, inter alia, theperformance and prospects of Hsu Fu Chi, prevailing economic conditions, economic outlook andstock market conditions and sentiments. Accordingly, our evaluation of the Scheme, from afinancial point of view, does not and cannot take into account the future trading activities orpatterns or price levels that may be established beyond the Latest Practicable Date.


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For the purposes of our evaluation of the Scheme, from a financial point of view, we have notreceived nor relied on any financial projections or forecasts in respect of the Group. We are notrequired to express and we do not express any view on the growth prospects and earningspotential of the Group in connection with our opinion herein.

The preparation of this letter, our evaluation of the Scheme, from a financial point of view, and ouropinion in this letter are based solely upon financial, market, economic, industry, monetary,regulatory and other conditions in effect on, and the information made available to us as at theLatest Practicable Date. Events occurring after the date hereof may affect this opinion and theassumptions used in preparing it. We assume no responsibility to update, revise or reaffirm ouropinion in light of any subsequent development after the Latest Practicable Date that may affectour opinion contained herein.

In rendering our opinion, we have not had regard to any general or specific investment objectives,financial situations, risk profiles, tax positions or particular needs or constraints of any individualScheme Shareholder or any specific group of Scheme Shareholders and do not assume anyresponsibility for, nor hold ourselves out as advisers to, any person other than the IndependentDirectors. As different Scheme Shareholders would have different investment profiles andobjectives, we advise the Independent Directors to recommend that any Scheme Shareholder whomay require specific advice in relation to his or her investment portfolio to consult their stockbroker,bank manager, solicitor, accountant, tax adviser or other professional adviser immediately.

Hsu Fu Chi will be separately advised by its own professional advisers in the preparation of theScheme Document (other than this letter). We have no role or involvement and have not and willnot provide any advice (financial or otherwise) whatsoever in the preparation, review andverification of the Scheme Document (other than this letter and paragraphs 5 and 15.3 of Appendix3 of the Scheme Document). Accordingly, we take no responsibility for (other than this letter andparagraphs 5 and 15.3 of Appendix 3 of the Scheme Document) and express no views, whetherexpress or implied, on the contents of the Scheme Document (except for this letter).

We have acted as Independent Financial Adviser to the Independent Directors for the purposes ofthe Scheme and will receive a fee for our services in connection with the delivery of this letter.Morgan Stanley may also seek to provide services to Hsu Fu Chi or the Group and Nestlé orparties acting in concert with Hsu Fu Chi or the Group or Nestlé in the future and expect to receivefees for rendering such services. In addition, the Company has agreed to indemnify us for certainliabilities arising out of our engagement. In the ordinary course of our securities underwriting,trading, brokerage, foreign exchange, commodities and derivatives trading, prime brokerage,investment management, financing and financial advisory activities, Morgan Stanley or its affiliatesmay at any time hold long or short positions, finance positions, and may trade or otherwisestructure and effect transactions, for our own account or the accounts of customers, in debt orequity securities or loans of Hsu Fu Chi or Nestlé or any other company or currency or commoditythat may be involved in this transaction or any related derivative instrument.

This opinion has been approved by a committee of Morgan Stanley employees in accordance withour customary practice. This opinion is for the information of the Independent Directors only andmay not be used for any other purpose without our prior written consent. This opinion is notaddressed to and may not be relied upon by any third party apart from the Independent Directors.

Any opinion and advice set forth herein should be considered in the context of the entirety of thisletter and the Scheme Document.


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3. TERMS AND CONDITIONS OF THE SCHEME, IMPLEMENTATION AGREEMENT ANDIRREVOCABLE UNDERTAKINGS

The following summary of the principal terms of the Scheme, the Implementation Agreement andthe Irrevocable Undertakings has been obtained from the Scheme Document.

3.1. The Principal Terms of the Scheme

The principal terms of the Scheme are set out below:

Scheme Consideration

(a) All the Scheme Shares will be transferred to Nestlé and/or its nominees fully paid, free fromall Encumbrances (as defined in the Scheme Document) and together with all rights,benefits and entitlements attached thereto as at the Effective Date (as defined in theScheme Document) and thereafter attaching thereto, including the right to receive and retainall dividends, rights and other distributions (if any) declared, paid or made by Hsu Fu Chiafter the Effective Date.

(b) In consideration for such transfer, each of the Scheme Shareholders will be entitled toreceive four Singapore Dollars and thirty-five cents (S$4.35) in cash for each Scheme Share(the “Scheme Consideration”).

(c) The Scheme Consideration was agreed by Hsu Fu Chi after arm’s-length negotiationsbetween Hsu Fu Chi and Nestlé, on a willing-seller, willing-buyer basis, after taking intoconsideration, amongst others, the recent market price of the Shares.

(d) The Scheme Consideration is on the basis that Hsu Fu Chi will not make or agree to makeany distribution or other payments of any kind to any person in its capacity as a Shareholderon or prior to the Effective Date. To the extent the Company declares or makes anydistribution or other payment of any kind to the Scheme Shareholders on or prior to theEffective Date, the Scheme Consideration will be reduced on a per Scheme Share basis byany such amount which is due and payable (whether paid or unpaid as at the Effective Date)to the Scheme Shareholders.

No Cash Outlay

Scheme Shareholders and Depositors (as defined in the Scheme Document) should note that nocash outlay (including any stamp duties or brokerage expense) will be required from them underthe Scheme.

Waiver of Rights to a General Offer

Scheme Shareholders and Depositors (as defined in the Scheme Document) should note that byvoting in favour of the Scheme, they are agreeing to Nestlé and its concert parties acquiringeffective control of Hsu Fu Chi without having to make a general offer for the Company.

Further details of the terms and conditions of the Scheme are set out in paragraph 3 of Hsu FuChi’s Letter to Shareholders and Depositors and paragraph 3 of the Explanatory Memorandum inthe Scheme Document.

3.2. Principal Terms of the Implementation Agreement

The principal terms of the Implementation Agreement are set out below:

Scheme Conditions. The Scheme will be conditional upon the satisfaction (or, whereapplicable, waiver) of the conditions set out in Appendix 7 of the Scheme Document (the “SchemeConditions”) on or prior to 5.00 p.m. (Singapore time) on the Long Stop Date (as defined in theScheme Document).


38

Termination Right. The Implementation Agreement may be terminated by either Party (asdefined in the Scheme Document) (other than a Party having prevented, by its actions oromissions in breach of the Implementation Agreement, the Scheme from becoming effective) if theScheme has not become effective on or before 5.00 p.m. on the Long Stop Date, and on thegrounds as set out in paragraph 4.2 of the Explanatory Memorandum in the Scheme Document.

Switch Option. Subject to prior consultation with the Securities Industry Council ofSingapore (the “SIC”), Nestlé may elect to proceed by way of an Offer (as defined in the SchemeDocument) in lieu of proceeding with the Proposed Transactions by way of the Scheme (the“Switch Option”) in the event of a Competing Offer (as defined in the Scheme Document) (orotherwise) subject to the prior written consent of the Individual Shareholders. In such event, Nestléwill make the Offer on the same or better terms as those which apply to the Scheme, including thesame or a higher consideration than the Scheme Consideration.

Non-solicitation. Under the Implementation Agreement, the Company is bound by certainnon-solicitation obligations set out in paragraph 4.4 of the Explanatory Memorandum in theScheme Document during the period from (and including) 11 July 2011 up to (and including) thedate on which the Implementation Agreement is terminated in accordance with its terms (the“Restricted Period”).

Further details of the terms and conditions of the Implementation Agreement are set out inparagraph 4 of the Explanatory Memorandum in the Scheme Document.

3.3 Principal Terms of the Irrevocable Undertakings

The principal terms of the Irrevocable Undertakings are set out below:

Each of Arisaig Asia Consumer Fund Limited, Winmoore Holdings Limited and Star Candy Ltd(collectively, the “Undertaking Shareholders”), which directly or indirectly, legally or beneficiallyhold 71,176,000, 13,324,000 and 117,738,854 Shares representing approximately 8.95%, 1.68%and 14.81% of the Shares respectively as at 11 July 2011, has given an irrevocable undertaking toNestlé to, inter alia:

(a) exercise or cause the registered holder of the Shares which are owned (whether directly orindirectly, legally or beneficially) or controlled by it, to exercise, all voting rights attaching tothe Shares at the meeting of the Scheme Shareholders, notice of which is set out in theScheme Document, and any adjournment thereof (the “Court Meeting”) in favour of theresolution required to give effect to the Scheme; and

(b) if Nestlé elects to proceed with the Offer, to accept or procure the acceptance of such Offerin respect of its Shares (collectively the “Irrevocable Undertakings”).

Further, each of the Undertaking Shareholders has agreed to be bound by certain non-solicitationprovisions during the term of its undertaking, save for certain exceptions.

Further details of the Irrevocable Undertakings are set out in paragraph 3.2 of Hsu Fu Chi’s Letterto Shareholders and Depositors, paragraph 5 of the Explanatory Memorandum in the SchemeDocument and paragraph 6 of the Letter from Nestlé to the Shareholders and Depositors inAppendix 2 of the Scheme Document.


Information on Nestlé is set out in paragraph 1.6 of Hsu Fu Chi’s Letter to the Shareholders andDepositors in the Scheme Document, paragraph 8 of the Explanatory Memorandum in the SchemeDocument and paragraph 8 of the Letter from Nestlé to the Shareholders and Depositors inAppendix 2 of the Scheme Document.


39

5. RATIONALE FOR THE SCHEME

The rationale for the Scheme is set out paragraph 2 of Hsu Fu Chi’s Letter to the Shareholders andDepositors in the Scheme Document, paragraph 2 of the Explanatory Memorandum in the SchemeDocument and paragraph 2 of the Letter from Nestlé to the Shareholders and Depositors inAppendix 2 of the Scheme Document.

6. NESTLÉ’S INTENTIONS IN RELATION TO HSU FU CHI

The intentions of Nestlé in relation to Hsu Fu Chi are set out in paragraph 2.2 of Hsu Fu Chi’sLetter to the Shareholders and Depositors in the Scheme Document, paragraph 2 of theExplanatory Memorandum in the Scheme Document and paragraph 3 of the Letter from Nestlé tothe Shareholders and Depositors in Appendix 2 of the Scheme Document.

7. INFORMATION ON HSU FU CHI

Information on Hsu Fu Chi can be found in paragraph 1.5 of Hsu Fu Chi’s Letter to theShareholders and Depositors in the Scheme Document, paragraph 7 of the ExplanatoryMemorandum in the Scheme Document and Appendix 3 of the Scheme Document.

8. FINANCIAL EVALUATION OF THE SCHEME

We have confined our evaluation to the financial terms of the Scheme. In evaluating the Scheme,from a financial point of view, we have performed the following analyses based upon publiclyavailable information and information made available to us by Hsu Fu Chi as at the LatestPracticable Date:

� Liquidity and broker research coverage analysis to evaluate whether the historical shareprices of the Company provide a meaningful reference point for comparison against theScheme Consideration;

� Hsu Fu Chi’s historical share price performance analysis to evaluate how the SchemeConsideration compares to the historical share prices of the Company over differentobservation periods;

� Hsu Fu Chi’s historical trading performance analysis to evaluate how the valuationmultiples implied by the Scheme Consideration compare to the Company’s historical tradingmultiples;

� Trading comparable analysis to evaluate how the valuation multiples implied by theScheme Consideration compare to trading multiples of listed comparable companies;

� Precedent transaction analysis to evaluate how the valuation multiples implied by theScheme Consideration compare to multiples of selected transactions in the food andbeverage (“F&B”) industry in Asia Pacific and in the confectionery and bakery industryglobally;

� Precedent take-over analysis to evaluate how the premia implied by the SchemeConsideration compare to the premia/discounts on selected take-overs in Singapore atdifferent times prior to their respective announcement dates; and

� Broker research price targets for the Shares to evaluate how the Scheme Considerationcompares to broker research price targets for Hsu Fu Chi in reports issued prior to and afterthe Scheme Announcement.


40

The figures and underlying financial data used in our analyses, including share prices,trading volumes, free float data, and broker research have been extracted from Bloomberg,FactSet, Capital IQ, SGX-ST and other public filings as at the Latest Practicable Date.Morgan Stanley makes no representations or warranties, express or implied, as to theaccuracy or completeness of such information.

8.1. Liquidity and Broker Research Coverage Analysis

To evaluate whether the historical market prices of the Shares provide a meaningful referencepoint for comparison against the Scheme Consideration, we have considered the liquidity, free floatand extent of research coverage of the Company relative to companies that make up the top 25companies traded on the SGX-ST based on market capitalisation as at the Latest Practicable Date(“Top 25 Largest SGX Companies”).

Chart 1 — Liquidity Analysis and Broker Research Coverage (1)

Source Bloomberg, FactSet and Company Filings

Notes

1 All figures are as of 26 August 2011, being the Latest Practicable Date

2 Free float amounts are Bloomberg estimates

3 Average daily trading volume for the last 12 months prior to the Latest Practicable Date (27 August 2010 to 26 August2011)

4 Average daily trading value for the last 12 months prior to the Latest Practicable Date (27 August 2010 to 26 August2011)

5 Based on the latest analyst coverage as of the Latest Practicable Date (Source: Bloomberg)

6 Average, median, maximum and minimum values based on the top 25 SGX-listed companies by market capitalisation

7 Hsu Fu Chi free float is calculated from total shares outstanding after excluding shareholdings of the IndividualShareholders and the Undertaking Shareholders

Market Avg. Daily Volume (3) / Avg. Daily Value (4) / Approx. #

Capitalisation Free Float (2) Free Float Market Cap of Brokers)%( )%( )%()MM $S(ynapmoCknaR Covering Company (5)

42%31.0%92.0%54314,94.dtL snoitacinummoceleT eropagniS1

8%40.0%01.0%73026,04.dtL sgnidloH nosehtaM enidraJ2

7%20.0%80.0%91343,93.dtL sgnidloH cigetartS enidraJ3

32%61.0%83.0%73290,33.dtL lanoitanretnI ramliW4

52%52.0%13.0%27320,03.dtL sgnidloH puorG SBD5

52%71.0%91.0%08818,82knaB CBCO6

62%02.0%22.0%58847,72saesrevO detinU7

52%60.1%96.1%84617,81eropagniS gnitneG8

81%21.0%91.0%05801,51dnaL gnokgnoH9

32%93.0%24.0%87890,51proC leppeK01

1%60.0%82.0%42180,51elcyC enidraJ11

4%10.0%30.0%22532,31mraF yriaD21

12%52.0%24.0%54856,2131

42%74.0%75.0%06136,01dtL dnalatipaC41

02%85.0%77.0%55872,9puorG elboN51

42%91.0%52.0%86390,9stnempoleveD ytiC61

41%80.0%51.0%84298,8gnE hceT eropagniS71

01%71.0%91.0%48690,8.dtL evaeN & resarF81

32%93.0%67.0%83517,7eniraM procbmeS91

81%07.0%72.1%05625,7.dtL secruoseR-irgA nedloG02

7%25.0%20.1%93993,7 scitsigoL labolG12

22%74.0%45.0%17442,7.dtL egnahcxE eropagniS22

81%22.0%53.0%05779,6.dtL seirtsudnI proCbmeS32

31%77.0%49.0%85939,6tsurT sgnidloH troP nosihctuH42

5%30.0%40.0%87087,6LCP egareveB iahT52

71%03.0%64.0%45124,71egarevA

02%02.0%13.0%05856,21naideM

62%60.1%96.1%58314,94mumixaM

1%10.0%30.0%91087,6muminiM

%20.0%41.0%81703,3ihC uF usH93 1

(6)

(7)

(6)

(6)

(6)








52%71.0%91.0%08818,82knaB CBCO6

62%02.0%22.0%58847,72saesrevO detinU7


81%21.0%91.0%05801,51dnaL gnokgnoH9

32%93.0%24.0%87890,51proC leppeK01

1%60.0%82.0%42180,51elcyC enidraJ11

4%10.0%30.0%22532,31mraF yriaD21

12%52.0%24.0%54856,2131

42%74.0%75.0%06136,01dtL dnalatipaC41

02%85.0%77.0%55872,9puorG elboN51



01%71.0%91.0%48690,8.dtL evaeN & resarF81

32%93.0%67.0%83517,7eniraM procbmeS91







71%03.0%64.0%45124,71egarevA

02%02.0%13.0%05856,21naideM

62%60.1%96.1%58314,94mumixaM

1%10.0%30.0%91087,6muminiM

%20.0%41.0%81703,3ihC uF usH93 1








52%71.0%91.0%08818,82knaB CBCO6

62%02.0%22.0%58847,72saesrevO detinU7


81%21.0%91.0%05801,51dnaL gnokgnoH9

32%93.0%24.0%87890,51proC leppeK01

1%60.0%82.0%42180,51elcyC enidraJ11

4%10.0%30.0%22532,31mraF yriaD21

12%52.0%24.0%54856,21Singapore Airlines31

42%74.0%75.0%06136,01dtL dnalatipaC41

02%85.0%77.0%55872,9puorG elboN51



01%71.0%91.0%48690,8.dtL evaeN & resarF81

32%93.0%67.0%83517,7eniraM procbmeS91







71%03.0%64.0%45124,71egarevA

02%02.0%13.0%05856,21naideM

62%60.1%96.1%58314,94mumixaM

1%10.0%30.0%91087,6muminiM

%20.0%41.0%81703,3ihC uF usH93 1

(6)

(7)

(6)

(6)

(6)

Singapore Airlines


41

With respect to Chart 1, we note that in the twelve months leading up to the Latest PracticableDate, Hsu Fu Chi’s average daily trading volume represented 0.14 per cent. of free float and 0.02per cent. of market capitalisation. These values are within the ranges of the Top 25 Largest SGXCompanies (between 0.03 per cent. and 1.69 per cent. and between 0.01 per cent. and 1.06 percent., respectively), and below the average and median average daily trading volume to free floatof 0.46 per cent. and 0.31 per cent., respectively, and the average and median average dailytrading value to market capitalisation of 0.30 per cent. and 0.20 per cent., respectively, for the Top25 Largest SGX Companies.

We also note that only one brokerage house provides research coverage on the Company. This isat the bottom of the range of the number of brokerage houses providing research coverage on theTop 25 Largest SGX Companies from 1 to 26 and below the average and median of 17 and 20,respectively.

We have also considered the historical trading volume of the Shares for the 1-week, 1-month, 3-month, 6-month and 12-month periods leading up to the Latest Practicable Date, as well as theperiod from the Announcement Date to the Latest Practicable Date, as set out in Chart 2 below:

Chart 2 — Historical Trading Volume

Source Bloomberg

Notes

1 The Latest Practicable Date is 26 August 2011. Trading in the Shares was halted on 4 July 2011 and resumed tradingon 11 July 2011. Periods analysed are as follows - 12 months: 27 August 2010 to 26 August 2011, 6 months: 1 March2011 to 26 August 2011, 3 months: 27 May 2011 to 26 August 2011, 1 month: 27 July 2011 to 26 August 2011 and 1week: 22 August 2011 to 26 August 2011). Only trading days have been included in the analysis

2 VWAP calculated as the average daily trading value / average daily trading volume for the relevant period over thelast 12 months up to 26 August 2011, being the Latest Practicable Date

3 Free float amount excludes shareholdings of the Individual Shareholders as well as the shareholdings of theUndertaking Shareholders

We note that the analysis of the historical trading volume of the Shares includes the period from 11July 2011, being the Announcement Date to 26 August 2011, being the Latest Practicable Date.For the 12-month period shown ending on the Latest Practicable Date, the average daily tradingvalue has been approximately S$308,000. We note that announcements related to the Schememay have had an impact on the trading volume of the Shares during this period.

Period up to the Latest

Practicable Date (1)VWAP (2)

(S$)

Total VolumeTraded

('000)

Avg. Daily Trading Value

(S$'000)

Avg. Daily Trading Volume

('000)

Avg. Daily Trading

Volume / Free Float (3)

(%)

12-month S$3.79 41,090 308 200 0.14%

6-month S$4.04 28,547 413 269 0.19%

3-month S$4.17 16,004 484 276 0.19%

1-month S$4.08 2,656 446 121 0.08%

1-week S$4.14 336 278 67 0.05%

From Announcement Date to Latest Practicable Date

S$4.21 5,838 692 172 0.12%


42

Our analysis of the historical trading volume of the Shares and the average daily trading volumeand value of the Shares relative to the Top 25 Largest SGX Companies suggests there is lowliquidity in the Shares both in absolute terms and relative to the free float of the Company.

In the context of illiquid trading conditions, trading prices (including volume-weightedaverage prices) may be less meaningful as analytical benchmarks.

8.2. Hsu Fu Chi’s Historical Share Price Performance Analysis

We have compared the Scheme Consideration to the historical and current share priceperformance of the Shares over different observation periods.

We set out below in Chart 3 the daily closing prices of the Shares compared to the performance ofthe Straits Times (“STI”), MSCI Asia ex Japan Consumer Staple (“MSCI Consumer Asia”) andMSCI China Consumer Staple (“MSCI Consumer China”) Indices (collectively, the “BenchmarkIndices”) for the period from 27 August 2009 to 26 August 2011, being the Latest Practicable Date.

Chart 3 — Share Price Performance Relative to the Benchmark Indices

Share Price (S$)

Source Company Filings, Factiva Newsrun, Bloomberg and FactSet

Notes

1 Arisaig Asia Consumer Fund became a substantial shareholder in Hsu Fu Chi through its open market purchase of2.03% on 8 January 2008, increasing its stake from 4.03% to 6.06%

2 MSCI Consumer Asia and MSCI Consumer China indices are both sourced from Bloomberg

0.00

1.00

2.00

3.00

4.00

5.00

27-Aug-09 20-Jan-10 09-Jul-10 08-Nov-10 01-Apr-11 26-Aug-11

Hsu Fu Chi's Share Price STI (Rebased to Hsu Fu Chi’s Share Price)MSCI Asia Ex Japan Consumer Staple Index (Rebased to Hsu Fu Chi’s Share Price)

MSCI China Consumer Staple Index (Rebased to Hsu Fu Chi’s Share Price)

6

7

8

1

2

34

)2()2(

5

1-Jul-11: Nestlé is rumoured to be in talks to acquire a stake in Hsu Fu Chi

4-Jul-11: Trading halt in Hsu Fu Chi shares

11-Jul-11: Nestlé announced its proposed acquisition of a 60% stake in Hsu Fu Chi

Trading resumes in Hsu Fu Chi shares

18-Sep-09: (1)

Baring Asia acquires a 14.8% stake in Hsu Fu Chi at an entry price of S$1.55 per share from Transpac Capital

0.00

1.00

2.00

3.00

4.00

5.00

27-Aug-09 20-Jan-10 09-Jul-10 08-Nov-10 01-Apr-11 26-Aug-11

Hsu Fu Chi's Share Price STI (Rebased to Hsu Fu Chi’s Share Price)MSCI Asia Ex Japan Consumer Staple Index (Rebased to Hsu Fu Chi’s Share Price)

MSCI China Consumer Staple Index (Rebased to Hsu Fu Chi’s Share Price)

6

7

8

1

2

34

)2()2(

5

1-Jul-11: Nestlé is rumoured to be in talks to acquire a stake in Hsu Fu Chi

4-Jul-11: Trading halt in Hsu Fu Chi shares

11-Jul-11: Nestlé announced its proposed acquisition of a 60% stake in Hsu Fu Chi

Trading resumes in Hsu Fu Chi shares

18-Sep-09: (1)

Baring Asia acquires a 14.8% stake in Hsu Fu Chi at an entry price of S$1.55 per share from Transpac Capital


43

Earnings Announcement (Period — Date)

Source Company Filings, SGX-ST

Table 1 — Historical Share Price Performance of Hsu Fu Chi and the Benchmark Indices

Source Bloomberg

Note

1 MSCI Consumer Asia and MSCI Consumer China indices are both sourced from Bloomberg

We note that the Shares have significantly outperformed the Benchmark Indices.

We set out below in Chart 4 the daily closing prices of the Shares and daily trading volumes for theperiod from 2 July 2009 to 1 July 2011, being the last full trading day preceding the SchemeAnnouncement on 11 July 2011 (“Last Pre-Announcement Trading Day”).

Chart 4 — Share Price Performance and Trading Volume until the Last Pre-AnnouncementTrading Day (1)(2)

Source FactSet

0.50

1.50

2.50

3.50

4.50

02-Jul-09 14-Sep-09 25-Nov-09 05-Feb-10 20-Apr-10 01-Jul-10 13-Sep-10 24-Nov-10 04-Feb-11 19-Apr-11 01-Jul-110

2,000

4,000

6,000

140,000

Trading VolumeHsu Fu Chi's Share Price

Share Price Trading Volume

S$ 000’s

Scheme Consideration: S$4.35

18-Sep-09: Baring Asia acquires 14.8% stake in Hsu Fu Chi at an entry price of S$1.55 per share from TranspacCapita l

(3)

1.24

4.00

ITSihC uF usH MSCI

Consumer Asia (1)MSCI

Consumer China (1)

)%0.01( )%7.0()%4.21(%1.6 M3L

%1.3 %0.21)%7.8(%6.51 M6L

)%5.7( %6.01)%5.6(%1.45 MTL

%7.83 %2.64%0.4%2.971 Y2L

1 1Q10 - 23 Oct 2009

5 1Q11 – 29 Oct 2010

2 2Q10 – 8 Feb 2010

6 2Q11 – 14 Feb 2011

3 3Q10 – 10 May 2010

7 3Q11 – 6 May 2011

4 FY10 – 23 Aug 2010

8 FY11 – 26 Aug 2011

1 1Q10 - 23 Oct 20091 1Q10 - 23 Oct 2009

5 1Q11 – 29 Oct 20105 1Q11 – 29 Oct 2010

2 2Q10 – 8 Feb 20102 2Q10 – 8 Feb 2010

6 2Q11 – 14 Feb 20116 2Q11 – 14 Feb 2011

3 3Q10 – 10 May 20103 3Q10 – 10 May 2010

7 3Q11 – 6 May 20117 3Q11 – 6 May 2011

4 FY10 – 23 Aug 20104 FY10 – 23 Aug 2010

8 FY11 – 26 Aug 20118 FY11 – 26 Aug 2011


44

Notes

1 Last Pre-Announcement Trading Day is 1 July 2011, the last full trading day preceding the Scheme Announcementon 11 July 2011. Trading in the Shares was halted on 4 July 2011 and resumed after the Scheme Announcement on11 July 2011

2 For the period from 2 July 2009 to 1 July 2011, being the Last Pre-Announcement Trading Day, 17% of total tradingdays had zero trading volume (86 out of 507 trading days)

3 On 18 September 2009, 119,742,000 Shares were traded, out of which 117,738,854 were Shares which Baring Asiaacquired from Transpac Capital

Based on Chart 4, we note that over the period from 2 July 2009 to 1 July 2011, being the LastPre-Announcement Trading Day, the price of the Shares increased by 223%, based on closingprices of S$1.24 and S$4.00, respectively. The Scheme Consideration is equivalent to the highestclosing price observed during the period shown and since the Company’s IPO in 2006 to the LastPre-Announcement Trading Day.

The average daily volume of Shares traded over the 24-month period prior to the AnnouncementDate was approximately 565,519. There was no trading volume during 86 of the 507 trading daysin this period, representing approximately 17% of total trading days, highlighting limited liquidity inthe Shares.

We set out below in Chart 5 the daily closing prices of the Shares and total volume of Sharestraded after the Announcement Date until the Latest Practicable Date.

Chart 5 — Post-Announcement Share Price Performance and Trading Volume

Source Bloomberg

Based on Chart 5, we note that, between the Announcement Date and the Latest Practicable Date,the closing prices of the Shares ranged between S$3.98 and S$4.40 and the total volume ofShares traded was approximately 5.8 million Shares, representing approximately 0.7% of theCompany’s total issued Shares as at the Latest Practicable Date.

S$ ‘000

Closing Share Price Trading Volume

416

1,121

133122

530

199

75

300

4585

41115

19 30 9 9

283

50 45

254

397

62 94

326290

4

97 121

2786 115

56 52

230

3.90

4.00

4.10

4.20

4.30

4.40

400

800

1,200

1,600

2,000

Trading Volume Hsu Fu Chi's Closing Share Price


Latest Practicable Date

Closing Price: S$4.16

S$ ‘000


416

1,121

133122

530

199

75

300

4585

41115

19 30 9 9

283

50 45

254

397

62 94

326290

4

97 121

2786 115

56 52

230

3.90

4.00

4.10

4.20

4.30

4.40

400

800

1,200

1,600

2,000






416

1,121

133122

530

199

75

300

4585

41115

19 30 9 9

283

50 45

254

397

62 94

326290

4

97 121

2786 115

56 52

230

3.90

4.00

4.10

4.20

4.30

4.40

400

800

1,200

1,600

2,000



416

1,121

133122

530

199

75

300

4585

41115

19 30 9 9

283

50 45

254

397

62 94

326290

4

97 121

2786 115

56 52

230

3.90

4.00

4.10

4.20

4.30

4.40

11-Jul 13-Jul 15-Jul 19-Jul 21-Jul 25-Jul 27-Jul 29-Jul 2-Aug 4-Aug 8-Aug 11-Aug 15-Aug 17-Aug 19-Aug 23-Aug 25-Aug

400

800

1,200

1,600

2,000





11-Jul 13-Jul 15-Jul 19-Jul 21-Jul 25-Jul 27-Jul 29-Jul 2-Aug 4-Aug 8-Aug 11-Aug 15-Aug 17-Aug 19-Aug 23-Aug 25-Aug11-Jul 13-Jul 15-Jul 19-Jul 21-Jul 25-Jul 27-Jul 29-Jul 2-Aug 4-Aug 8-Aug 11-Aug 15-Aug 17-Aug 19-Aug 23-Aug 25-Aug


45

We set out below in Chart 6 the premia implied by the Scheme Consideration over the volumeweighted average price of the Shares (“VWAP”) for the 1-week, 1-month, 3-month, 6-month and12-month periods preceding the Last Pre-Announcement Trading Day and over the VWAP for the30-day, 90-day, 180-day and 360-day periods (i.e., trading days) preceding the Last Pre-Announcement Trading Day. Chart 6 also sets out the premia implied by the Scheme Considerationover the closing price of the Shares on the Latest Practicable Date, one trading day following theAnnouncement Date and on the Last Pre-Announcement Trading Day.

Chart 6 — Analysis of Share Price Performance

Source Scheme Announcement, Bloomberg and FactSet

Notes

1 Periods analysed are as follows - 1 week: 27 June 2011 to 1 July 2011, 1 month: 2 June 2011 to 1 July 2011, 3months: 5 April 2011 to 1 July 2011, 6 months: 3 January 2011 to 1 July 2011 and 12 months: 2 July 2010 to 1 July2011). Only trading days were included for the analysis

2 Total daily trading value / total daily trading volume for the relevant periods

Based on Chart 6, we note the following:

� The Scheme Consideration represents a premium of approximately 4.6% over the closingprice of the Shares of S$4.16 on the Latest Practicable Date and a premium of 1.4% overthe closing price of S$4.29 one trading day after the Announcement Date.

� The closing price of the Shares on the Latest Practicable Date of S$4.16 represents anincrease of approximately 4.0% over the closing price of S$4.00 on the Last Pre-Announcement Trading Day.


Price % Premium /

)tnuocsiD($SsisaB ecirP

%6.4061.4ecirP gnisolC)11-tsuguA-62( etaD elbacitcarP tsetaL

%4.1092.4ecirP gnisolC)11-luJ-21( etaD tnemecnuonnA emehcS tsoP yaD gnidarT 1

Scheme Consideration 4.350

%7.8000.4ecirP gnisolCyaD gnidarT tnemecnuonnA-erP tsaL

Calendar Period VWAP Prior to Announcement Date

%5.8900.4PAWVyaD gnidarT tnemecnuonnA-erP tsaL ot pu doireP keeW 1

%5.9179.3PAWVyaD gnidarT tnemecnuonnA-erP tsaL ot pu doireP htnoM 1




Trading Day VWAP Disclosed in Scheme Announcement

%0.01659.3PAWVyaD gnidarT tnemecnuonnA-erP tsaL ot pu PAWV yad-03



%1.26386.2PAWVyaD gnidarT tnemecnuonnA-erP tsaL ot ot pu PAWV yad-063

(2)

(2)

(2)

(2)

(2)

(2)

(2)

(2)

(2)

(1)


Price % Premium /

)tnuocsiD($SsisaB ecirP

%6.4061.4ecirP gnisolC)11-tsuguA-62( etaD elbacitcarP tsetaL

%4.1092.4ecirP gnisolC)11-luJ-21( etaD tnemecnuonnA emehcS tsoP yaD gnidarT 1

Scheme Consideration 4.350

%7.8000.4ecirP gnisolCyaD gnidarT tnemecnuonnA-erP tsaL

Calendar Period VWAP Prior to Announcement Date

%5.8900.4PAWVyaD gnidarT tnemecnuonnA-erP tsaL ot pu doireP keeW 1





Trading Day VWAP Disclosed in Scheme Announcement




%1.26386.2PAWVyaD gnidarT tnemecnuonnA-erP tsaL ot ot pu PAWV yad-063

(2)

(2)

(2)

(2)

(2)

(2)

(2)

(2)

(2)

(1)


46

� The closing price of the Shares on 12 July 2011 (being the first trading day after theAnnouncement Date) of S$4.29 represents an increase of approximately 7.3% over theclosing price of S$4.00 on the Last Pre-Announcement Trading Day.

� The Scheme Consideration represents a premium of approximately 8.7% over the closingprice of the Shares of S$4.00 on the Last Pre-Announcement Trading Day.

� The Scheme Consideration represents premia of approximately 8.5%, 9.5%, 12.5%, 16.8%and 33.5%, respectively, over the VWAP of the Shares in the 1-week, 1-month, 3-month, 6-month and 12-month periods preceding the Last Pre-Announcement Trading Day.

� The Scheme Consideration represents premia of approximately 10.0%, 15.7%, 24.7% and62.1%, respectively, over the VWAP of the Shares in the 30-day, 90-day, 180-day and 360-day periods (i.e., trading days) preceding the Last Pre-Announcement Trading Day.

We note there is no assurance that the price of the Shares will remain at current levels. Inaddition, the past price performance of the Shares is not indicative of the future priceperformance of the Shares.

8.3. Hsu Fu Chi’s Historical Trading Performance Analysis

We have compared the P/E multiple (defined herein) implied by the Scheme Consideration (basedon the Company’s Last Twelve Month Net Income as of 30 June 2011) to the Company’s P/Emultiple (based on its trailing 12-month earnings for the applicable time periods) over the lasttwelve months prior to the Announcement Date.

Chart 7 — Historical LTM P/E (1)(2)

Table 2 — Summary of Historical P/E Multiples (2)

Source Company Filings and FactSet as of 1 July 2011

y px4.72 noitaredisnoC emehcS yb deilpmI

Pre-Offer (12 months up to 1 July 2011)

LTM Average 20.2x

LTM Maximum(3) 24.5x

LTM Minimum 15.7x

x4.72 noitaredisnoC emehcS yb deilpmI


LTM Average 20.2x


LTM Minimum 15.7x

A

B

15

20

25

30

Jul-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11

Pric

e / L

TM

Ear

ning

s (x

)

23 Aug 2010: 2010 Earnings Announcement

29 Oct 2010: 1Q11 Earnings Announcement

14 Feb 2011: 2Q11 Earnings Announcement

6 May 2011:3Q11 Earnings Announcement

A

B

15

20

25

30

Jul-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11

Pric

e / L

TM

Ear

ning

s (x

)





A

B


47

Notes

1 Based on quarterly net income (excluding extraordinary items such as gains or losses on sale of PP&E, reversal ofdeferred tax liabilities and impairment on PP&E on a tax-effected basis) as reported by the Company. As Hsu FuChi’s share price is in SGD and reported financial statements are in CNY, daily S$/CNY foreign exchange ratessourced from FactSet have been assumed in the calculation of multiples

2 LTM defined as Last Twelve Months

3 On 18 May 2011, Hsu Fu Chi closed at S$4.35

We note that the P/E multiple implied by the Scheme Consideration (based on the trailing 12-month earnings) of 27.4 times is above the range of P/E multiples (based on trailing 12-monthearnings) of 15.7 times to 24.5 times over the last twelve months prior to the Announcement Date.

We have also compared the EV/EBITDA multiple (defined herein) implied by the SchemeConsideration (based on the Company’s Last Twelve Month EBITDA as of 30 June 2011) to theCompany’s EV/EBITDA multiple (based on its trailing 12-month EBITDA for the applicable timeperiods) over the last twelve months prior to the Announcement Date.

Chart 8 — Historical LTM EV (1)(2) / EBITDA (3)

Table 3 — Summary of Historical EV/EBITDA Multiples (2)(3)

Source Company Filings and FactSet as of 1 July 2011

Notes

1 Enterprise Value calculated as equity value + net debt + minority interest – associate interest

2 LTM defined as Last Twelve Months

3 Based on quarterly EBITDA (excluding extraordinary items such as gains or losses on sale of PP&E, reversal ofdeferred tax liabilities and impairment on PP&E) and balance sheet items as reported by the Company. As Hsu FuChi’s share price is in SGD and reported financial statements are in CNY, daily S$/CNY foreign exchange ratessourced from FactSet have been assumed in the calculation of multiples

4 On 18 May 2011, Hsu Fu Chi closed at S$4.35

We note that the EV/EBITDA multiple implied by the Scheme Consideration (based on its trailing12-month EBITDA) of 16.6 times is above the range of EV/EBITDA multiples (based on trailing 12-month EBITDA) of 8.5 times to 15.2 times over the last twelve months prior to the AnnouncementDate.

x6.61


LTM Average 11.8x


LTM Minimum 8.5x

A

B

Implied by Scheme Consideration

8

10

12

14

16

18

Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11

EV

/ LT

M E

BIT

DA

(x)





A

B

8

10

12

14

16

18

Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11

EV

/ LT

M E

BIT

DA

(x)





A

B


48

8.4. Trading Comparable Analysis

We have considered selected F&B companies listed in Hong Kong and Singapore as tradingcomparables for the Company. The companies which we have selected as trading comparables inthe list below are a representative sample of companies in the F&B industry in Asia Pacific(“Comparable Companies”).

In evaluating these companies, we have used the following ratios:

� Price/Earnings (P/E)

� Enterprise Value/Earnings before interest, tax, depreciation and amortisation (EV/EBITDA)

� Enterprise Value/Sales (EV/Sales)

� Price to Net Tangible Assets (P/NTA)

Enterprise Value is the market capitalisation as at the Latest Practicable Date, plus the latest NetDebt and the latest minority interest minus the latest associate interest. Net Debt is total debt lesscash and cash equivalents. Net Tangible Assets equals total assets less any intangible assets lesstotal liabilities.

A brief description of the Comparable Companies is set out below:

Table 4 — Comparable Companies Overview

Company Name Market Cap (1) Description

Hong Kong

Tingyi Cayman S$19,169 MM Tingyi Cayman Islands Holding (“Tingyi”) engages in theIslands Holding manufacturing and sale of instant noodles, bakery products and

beverages primarily under the ‘Master Kong’ brand name in China.It offers instant noodles, ready-to-drink teas, bottled water, dilutedjuices, sandwich crackers, rice crackers, milk products, potatostarch, seasoning flavors and dehydrated vegetables. Tingyidistributes its products through sales offices and warehouses towholesalers and direct retailers

Want Want China S$13,207 MM Want Want China Holdings engages in the manufacturing,Holdings distribution and sale of food and beverages. The company offers

rice crackers, including sugar coated crackers and fried crackers,dairy products and beverages, as well as wine and other foodproducts. The company operates in China, Taiwan, Singapore andHong Kong, and sells its products in Southeast Asia, the UnitedStates and Europe. Currently, Want Want has 33 sales branchesand 330 sales offices in mainland China

Tsingtao Brewery S$9,199 MM Tsingtao Brewery Co. primarily engages in the production, saleCo. and trade of beer products in China. The company sells its beer

principally under the ‘Tsingtao Beer’ trademark. It is also involvedin manufacturing and trading malt, prepackaged food, as well asaccommodation and design businesses, indoor decoration andindustrial equipment fixing operations, as well as importing andexporting of beer


49


Hong Kong

China Mengniu S$6,828 MM China Mengniu Dairy Co. engages in the manufacturing andDairy Co. distribution of dairy products primarily in China. The company

sells liquid milk comprising UHT milk, milk beverages and yogurt,ice cream and other dairy products, such as milk powder andcheese. The company offers its products primarily under the“Mengniu” brand name

China Yurun S$4,989 MM China Yurun Food Group engages in slaughtering, producing and Food Group selling of chilled and frozen meat as well as processed meat

products in China. It markets chilled and frozen meat and pork,and low and high temperature processed meat products under theYurun, Furun, Wangrun and Popular Meat Packing brand names.It has established a nationwide production network throughoutChina

Uni-President S$2,463 MM Uni-President China Holdings engages in the manufacturing and China Holdings sale of beverages and instant noodles in China. The Company’s

principal beverage products include juice drinks and ready-to-drink teas, as well as milk, tea, coffee, bottled water, and yogurt.The company’s instant noodle products comprise bowl noodles,packet noodles and snack noodles in various flavors. Thecompany distributes its products in 31 provinces through varioussales channels and other distribution points, such asentertainment and leisure venues, schools and transportationstations

China Huiyuan S$751 MM China Huiyuan Juice Group engages in the manufacturing andJuice Group sale of juice products primarily in China. The company offers fruit

and vegetable juice products, including 100% juices, nectars andjuice drinks primarily under the Huiyuan brand. It also producesmineral water, milk and dairy drinks and bottled tea, as well assells potable water and fruit and vegetable juices. China Huiyuansells its products directly, as well as through sales distributionnetworks

Singapore

Fraser & Neave S$8,096 MM Fraser & Neave Ltd. operates in the food and beverage, propertyLtd. and publishing and printing industries in Singapore and

internationally. The company engages in the production and saleof soft drinks, beer, stout and dairy products. It offers various milkdrinks, ice cream and isotonic and Asian drinks. The company isalso involved in the development, investment, and management ofreal estate properties, as well as management of a real estateinvestment trust. In addition, it engages in publishing, printing,direct sales, distribution, and retailing of books and magazines, aswell as providing educational services. The company also offerstreasury and financial services, management consultancyservices and produces and sells of mineral water, carbonateddrinks and bottles


50


Singapore

Cerebos Pacific S$1,532 MM Cerebos Pacific Ltd. engages in the manufacturing, marketing, Ltd. sale and distribution of health supplements and food products in

the Asia Pacific region. The company’s health supplement productoffering includes essence of chicken and related products andfood products include sauces, gravies, coffee, salt and other foodproducts. The company also provides a range of canned food,juices, beverages, desserts, toppings, condiments, cooking aids,tablet health supplements and canned soups. It markets itsproducts under the BRAND’S, Fountain, Gravox, Robert Harrisand Greggs brand names

Petra Foods Ltd. S$1,088 MM Petra Foods Ltd. manufactures and markets cocoa ingredientsand consumer chocolate confectionery products. The company’sCocoa Ingredients segment engages in the manufacturing andmarketing of specialty cocoa butter, liquor and powder productsfor food and beverage companies. The company’s BrandedConsumer segment manufactures and markets chocolateconfectionery products under various brands, such as Goya andCeres. It also provides manpower and management consultingservices. It operates in Indonesia, Japan, Singapore, thePhilippines and other countries in Asia, Europe, Australia, Northand South America, the Middle East and Africa

Super Group Ltd. S$825 MM Super Group Ltd. manufactures, packages and distributes instantbeverages and convenience food products primarily in Singapore,Southeast Asia and East Asia. The company provides instantcoffee mixes, instant coffee, instant tea mixes, instant cereals,instant noodles, canned drinks and non-dairy creamers, as wellas cereal related products, soluble coffee powder and vendingmachine services

People’s Food S$795 MM People’s Food Holdings engages in the production, processing, Holdings marketing and distribution of meat products primarily in China. It

offers high temperature meat products, low temperature meatproducts, chilled fresh pork, frozen pork, pig by-products andfrozen chicken. The company sells its meat products under theJinluo brand name. It also engages in trading meat and otherproducts and operates pig farms

Synear Food S$197 MM Synear Food Holdings develops, produces and sells quick freezeHoldings food products primarily in China. It offers various traditional

Chinese staple food products, including savory dumplingproducts, glutinous sweet dumpling products, and other productscomprising glutinous rice dumpling products, and specialtydesserts and snacks. The company sells its products under theSynear brand name. It distributes its products to supermarkets,retail outlets and stores

Source Company Information, Bloomberg and Capital IQ

Note

1 Market capitalisation and FX rates used as of 26 August 2011, being the Latest Practicable Date


51

Chart 9 below sets out the valuation statistics for the Comparable Companies:

Chart 9 — Comparable Companies Trading Multiples

Source Company Filings and FactSet as of 26 August 2011

Notes

1 Market capitalisation calculated on a fully diluted basis assuming treasury stock method and foreign exchangeconversion rate as at 26 August 2011

2 Enterprise Value calculated as equity value + net debt + minority interest – associate interest

3 Last twelve month average daily trading value in S$ MM (Source: FactSet)

4 Based on the latest analyst coverage as of 26 August 2011 (Source: FactSet)

5 Calculated as average daily turnover over the last twelve months (Source: Bloomberg)

6 Financial information reflects data for the last twelve months ended 30 June 2011, with total shares outstanding andshare options as of 31 July 2011. EBITDA figures from reported filings and net income figures have been adjusted forextraordinary items such as gains or losses on sale of PP&E, gain on discontinuation of associates, impairment onPP&E, and impairment on intangibles; 25% marginal tax rate applied to net income adjustments

7 Financial information reflects data for the last twelve months ended 30 June 2011, with total shares outstanding andshare options as of 31 July 2011. Figures adjusted for extraordinary items such as gains or losses on sale of PP&Eand financial assets and gains from waived liabilities; 25% marginal tax rate applied to net income adjustments

8 Financial information reflects data for the last twelve months ended 30 June 2011, with total shares outstanding andshare options as of 31 July 2011. Market capitalisation includes both HK-listed H-shares and Shanghai listed A-shares. Figures adjusted for extraordinary items such as gains or losses on sale of assets and impairment loss onassets; 25% marginal tax rate applied to net income adjustments

9 Financial information reflects data for the last twelve months ended 31 December 2010, with total shares outstandingand share options as of 31 July 2011. Share Option tranches have been adjusted for changes based on monthlyreturn filings on a weighted basis. Intangibles include land use rights. Figures adjusted for extraordinary items suchas gains or losses on sale of PP&E and associates; 25% marginal tax rate applied to net income adjustments

10 Financial information reflects data for the last twelve months ended 30 June 2011, with total shares outstanding andshare options as of 31 July 2011. Figures adjusted for extraordinary items such as gains or losses on sale of PP&Eand financial assets, and recognition of negative goodwill; 25% marginal tax rate applied to net income adjustments

11 Financial information reflects data for the last twelve months ended 30 June 2011, with total shares outstanding andshare options as of 31 July 2011. Figures adjusted for extraordinary items such as gains or losses on sale of PP&Eand financial assets and reversal of impairment of receivables; 25% marginal tax rate applied to net incomeadjustments

MTLesirpretnE

Local Share Price Market Cap Value P / LTM EV / LTM P / Latest ADTV # Broker

egarevoC)MM $S()x( ATN)x( ADTIBE)x( selaS)x( sgninraE)MM $S()MM $S()MM ycnerruC lcL()ycnerruC lcL(ycnerruCemaN ynapmoC

Hong Kong Listed China F&B

Tingyi Cayman Islands Holding HKD 22.05 123,809 19,169 19,646 34.2x 2.1x 15.2x 8.6x 20.6 31

Want Want China Holdings HKD 6.45 85,302 13,207 13,033 30.1x 4.3x 21.0x 9.9x 16.7 29

228.01x0.7x6.41x9.1x4.62798,7991,9614,9557.34DKH .oC yrewerB oatgnisT

China Mengniu Dairy Co. HKD 24.95 44,101 6,828 5,786 29.0x 1.0x 14.0x 4.2x 24.3 27

China Yurun Food Group HKD 17.66 32,224 4,989 4,666 10.8x 1.0x 9.8x 2.0x 49.6 30

Uni-President China Holdings HKD 4.42 15,910 2,463 2,073 37.4x 0.9x 14.9x 1.9x 3.0 13

China Huiyuan Juice Group HKD 3.28 4,848 751 1,259 15.3x 1.6x 14.0x 1.0x 1.7 10

Singapore Listed F&B

011.31x4.1x2.9x7.1x8.31762,01690,8690,807.5DGS.dtL evaeN & resarF

13.0x3.4x8.7x5.1x1.41544,1235,1235,128.4DGS.dtL cificaP sobereC

23.0x0.3x4.11x8.0x5.61696,1880,1880,187.1DGS.dtL sdooF arteP

54.1x5.2x1.01x7.1x7.5179652852884.1DGS.dtL puorG repuS

People's Food Holdings Ltd. SGD 0.70 795 795 379 37.8x 0.1x 5.2x 0.8x 0.5 1

Synear Food Holdings Ltd. SGD 0.14 197 197 62 12.3x 0.2x 1.7x 0.4x 0.8 0

Average 23.0x 1.5x 11.8x 3.5x

Median 21.4x 1.6x 12.7x 2.3x

Hsu Fu Chi (Latest Practicable Date) SGD 4.16 3,307 3,307 3,029 26.3x 3.1x 15.9x 6.5x 0.3 1

Hsu Fu Chi (Scheme Consideration) SGD 4.35 3,458 3,458 3,179 27.4x 3.2x 16.6x 6.8x 0.3 1

(1)

(3)

(5)

(4)

(9)

(2)

(6)

(7)

(8)

(5)

(10)

(11)

(12)

(13)

(14)

(15)

(16)

(17)

(18)

(19)

(19)

MTLesirpretnE

Local Share Price Market Cap Value P / LTM EV / LTM P / Latest ADTV # Broker

egarevoC)MM $S()x( ATN)x( ADTIBE)x( selaS)x( sgninraE)MM $S()MM $S()MM ycnerruC lcL()ycnerruC lcL(ycnerruCemaN ynapmoC

Hong Kong Listed China F&B

Tingyi Cayman Islands Holding HKD 22.05 123,809 19,169 19,646 34.2x 2.1x 15.2x 8.6x 20.6 31

Want Want China Holdings HKD 6.45 85,302 13,207 13,033 30.1x 4.3x 21.0x 9.9x 16.7 29

228.01x0.7x6.41x9.1x4.62798,7991,9614,9557.34DKH .oC yrewerB oatgnisT

China Mengniu Dairy Co. HKD 24.95 44,101 6,828 5,786 29.0x 1.0x 14.0x 4.2x 24.3 27

China Yurun Food Group HKD 17.66 32,224 4,989 4,666 10.8x 1.0x 9.8x 2.0x 49.6 30

Uni-President China Holdings HKD 4.42 15,910 2,463 2,073 37.4x 0.9x 14.9x 1.9x 3.0 13

China Huiyuan Juice Group HKD 3.28 4,848 751 1,259 15.3x 1.6x 14.0x 1.0x 1.7 10

Singapore Listed F&B

011.31x4.1x2.9x7.1x8.31762,01690,8690,807.5DGS.dtL evaeN & resarF

13.0x3.4x8.7x5.1x1.41544,1235,1235,128.4DGS.dtL cificaP sobereC

23.0x0.3x4.11x8.0x5.61696,1880,1880,187.1DGS.dtL sdooF arteP

54.1x5.2x1.01x7.1x7.5179652852884.1DGS.dtL puorG repuS

People's Food Holdings Ltd. SGD 0.70 795 795 379 37.8x 0.1x 5.2x 0.8x 0.5 1

Synear Food Holdings Ltd. SGD 0.14 197 197 62 12.3x 0.2x 1.7x 0.4x 0.8 0

Average 23.0x 1.5x 11.8x 3.5x

Median 21.4x 1.6x 12.7x 2.3x

Hsu Fu Chi (Latest Practicable Date) SGD 4.16 3,307 3,307 3,029 26.3x 3.1x 15.9x 6.5x 0.3 1

Hsu Fu Chi (Scheme Consideration) SGD 4.35 3,458 3,458 3,179 27.4x 3.2x 16.6x 6.8x 0.3 1

(1)

(3)

(5)

(4)

(9)

(2)

(6)

(7)

(8)

(5)

(10)

(11)

(12)

(13)

(14)

(15)

(16)

(17)

(18)

(19)

(19)


52

12 Financial information reflects data for the last twelve months ended 30 June 2011, with total shares outstanding andshare options as of 31 July 2011. Adjusted for extraordinary items such as gains or losses on sale of PP&E; 25%marginal tax rate applied to net income adjustments

13 Financial information reflects data for the last twelve months ended 30 June 2011, with total shares outstanding as of30 June 2011 and share options as of 31 December 2010. EBITDA adjusted for extraordinary items such as gains orlosses on sale of fixed assets, provisions on land premium, sale of derivatives, fair value loss of derivatives, andimpairment of fixed and intangible assets. Reported net profit excludes extraordinary items

14 Financial information reflects data for the last twelve months ended 30 June 2011, with total shares outstanding andas of 30 June 2011 and share options as of 31 December 2010. Adjusted for extraordinary items such as gains orlosses on sale of PP&E, PP&E write-off, allowance of impairment loss for PP&E, insurance recovery, and sale ofsubsidiaries; 17% marginal tax rate applied to net income adjustments

15 Financial information reflects data for the last twelve months ended 30 June 2011, with total shares outstanding andshare options as of 30 June 2011. Adjusted for extraordinary items such as gains or losses on sale of PP&E; 17%marginal tax rate applied to net income adjustments

16 Financial information reflects data for the last twelve months ended 30 June 2011, with total shares outstanding andas of 30 June 2011 and share options as of 31 December 2010. Adjusted for extraordinary items such as gains orlosses on sale of PP&E and joint venture company, fair value loss on securities, impairment loss on PP&E and gainon disposal of securities; 17% marginal tax rate applied to net income adjustments

17 Financial information reflects data for the last twelve months ended 30 June 2011, with total shares outstanding andshare options as of 30 June 2011. Adjusted for extraordinary items such as fair value gains or losses; 25% marginaltax rate applied to net income adjustments

18 Financial information reflects data for the last twelve months ended 30 June 2011, with total shares outstanding andshare options as of 30 June 2011. Adjusted for extraordinary items such as gains or losses on sale of PP&E; 25%marginal tax rate applied to net income adjustments

19 Financial information reflects data for the last twelve months ended 30 June 2011, with total shares outstanding andshare options as of 30 June 2011. Adjusted for extraordinary items such as gains or losses on sale of PP&E, reversalof deferred tax liabilities and impairment on PP&E; 16.5% marginal tax rate applied to net income adjustments; totaldebt includes bills payable and intangibles include land rights

Based on Chart 9, we note that:

� Hong Kong-listed Comparable Companies are generally larger, have greater liquidity andtrade at higher multiples than Singapore-listed Comparable Companies; and

� The Company’s market capitalisation, liquidity and broker research coverage are generallymore consistent with the Singapore-listed Comparable Companies.

We also note that at the Scheme Consideration:

� The implied multiples are within the range of the Hong Kong-listed Comparable Companiesacross P/E, EV/EBITDA, EV/Sales and P/NTA;

� The implied multiples are within the range of the Singapore-listed Comparable Companiesfor P/E and above the range for EV/Sales, EV/EBITDA and P/NTA; and

� Overall, the implied multiples are within the range of the Comparable Companies. Theimplied P/E, EV/EBITDA, EV/Sales and P/NTA multiples are above the average and medianof the Comparable Companies.


53

The above comparison with the Comparable Companies is for illustrative purposes only.The Comparable Companies may not be directly comparable with the Company and mayvary with respect to, amongst other factors: the geographical spread of activities, businessmix and model within the F&B industry, size of the addressable market for their products,scale of operations, asset intensity, financial leverage, accounting policies, risk profile, taxfactors and track record and future prospects. Accordingly, the Comparable Companies maynot provide a meaningful basis for valuation comparison.

The underlying financial data used to calculate the P/E, EV/EBITDA, EV/Sales and P/NTA inour analysis have been extracted from the relevant companies’ financials, Bloomberg andFactSet as at the Latest Practicable Date. Morgan Stanley makes no representations orwarranties, express or implied, as to the accuracy or completeness of such information.

8.5. Precedent Transaction Analysis

We have reviewed selected recent transactions involving the acquisitions of equity interests in F&Bcompanies in Asia Pacific, and for which information is publicly available (“Selected Asia F&BPrecedent Transactions”).

A brief description of the companies selected for our analysis is set out below:

Table 5 — Companies Underlying Selected Asia F&B Precedent Transactions

Stake Date of Acquired Description

Target Announcement (%) (at time of acquisition)

Asia F&B - Control Transactions

China Huiyuan 3-Sep-08 100% China Huiyuan Juice Group is the leading PRC fruit andJuice Group vegetable juice producer in China. According to AC

Nielsen, Huiyuan Juice was the largest 100% juice seriesand nectars producer in China, ranked by sales volume forthe twelve months ended 31 December 2007. HuiyuanJuice possesses an extensive nationwide distributionnetwork as well as plants at strategic locations

Asia F&B - Minority Transactions

Fraser & Neave 26-Jul-10 15% Fraser & Neave Ltd. is a Singapore-listed conglomerateLtd. involved in food and beverage, brewery and real estate

businesses. F&N’s food and beverage business is focusedon soft drinks and dairy products, and operates through anextensive network in the Southeast Asian market includingSingapore, Thailand and Malaysia

Sichuan Swellfun 01-Mar-10 21% Sichuan Swellfun Co. is the fourth largest super premiumCo. Chinese white spirits brand by volume in China. The

company is currently listed on the Shanghai StockExchange (600779)

Hsu Fu Chi 2-Sep-09 15% Hsu Fu Chi International, registered in China in 1992, International was founded by four Hsu brothers from Taiwan. Over 99%

of the Group’s confectionery products are sold in China. Asat the financial year ended 30 June 2009, the Group had97 sales branches in China. The Group’s sales teamcomprised over 8,000 sales personnel managing a mix ofmodern and traditional sales channels consisting of morethan 13,170 direct retail points; amongst which 3,060specialty counters staffed by dedicated promoters weredeployed in hypermarkets and supermarkets


54

Stake Date of Acquired Description

Target Announcement (%) (at time of acquisition)

Asia F&B - Minority Transactions

China Mengniu 6-Jul-09 20% China Mengniu Dairy Company manufactures andDairy Company distributes dairy products. The company’s products include

liquid milk products such as ultra heat-treated milk, yogurt,milk beverages, ice cream and other dairy products, suchas milk powder and milk tablets. The companymanufactures dairy products under the Mengniu brand.China Mengniu Dairy Company was founded in 1999 andis headquartered in Hong Kong

Tsingtao Brewery 23-Jan-09 20% Tsingtao Brewery Co. was founded in 1903 and is one of Co. the oldest breweries in China. As the company has

regularly expanded its distribution capabilities in thecountry and has actively invested in businessopportunities, Tsingtao has become one of the topbreweries in terms of production as well as sales in China

Want Want 17-May-07 25% Want Want Group began operations with I Lan FoodsHoldings Industrial Co., Ltd in Taiwan in May 1962, as a

manufacturer of canned agricultural products mainly forexport. The principal activities of the Group are themanufacturing and trading of snack foods, beverages andrelated products. The Group has also ventured intohospital, hotel and property businesses

Source Company Information, News Reports and Capital IQ

Chart 10 below sets out the implied valuation metrics for the Selected Asia F&B PrecedentTransactions.

Chart 10 — Selected Asia F&B Precedent Transactions

Source Comany Filings, FactSet and MergerMarket

Notes

1 Enterprise Value based on transaction price per share and diluted total shares outstanding adjusted for optionsoutstanding using Treasury Stock Method. Net Debt as on the latest filings on the date of acquisition and includesminority interest. Enterprise Value adjusted for associates. Conversion to S$ using exchange rate as on the date ofannouncement

Announ. Date tegraTroriuqcA ADTIBEselaSekatS % LTM P/E

Asia F&B-Control Transactions

3-Sep-08 Coca Cola China Huiyuan Juice China 100% 3,645 6.7x 40.3x 60.6x 195.0%

Asia F&B-Minority Transactions

26-Jul-10 Kirin Holdings Fraser & Neave Singapore 15% 13,203 2.2x 10.9x 15.0x 13.0%

)%6.0(x1.44x5.82x6.8040,2%12anihCnufllewS nauhciSoegaiD01-raM-1

2-Sep-09 Baring PE Hsu Fu Chi China 15% 1,026 1.3x 6.1x 12.6x 2.6%

6-Jul-09 COFCO/Hopu China Mengniu Dairy Company China 20% 4,968 1.0x 67.2x NM (7.9%)

8-May-09 Chen Fashu Tsingtao Brewery China 7% 4,694 1.3x 12.0x 29.0x (11.9%)

23-Jan-09 Asahi Breweries Tsingtao Brewery China 20% 4,852 1.4x 13.5x 35.3x 37.7%

14-May-07 Want Want International Want Want Holdings China 25% 4,667 3.3x 15.2x 23.0x 15.0%

Average (Asia F&B-Minority Transactions) 2.7x 21.9x 26.5x 6.9%

Median (Asia F&B-Minority Transactions) 1.4x 13.5x 26.0x 2.6%

%7.8x4.72x6.61x2.3971,3%06anihCihC uF usHéltseN11-luJ-11

Target Country

Enterprise Value (S$ MM)

Prem to 1 Day Prior Price

Enterprise Value /LTM

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

(2)

(3)

(12) (13)

(2)(1)Announ. Date tegraTroriuqcA ADTIBEselaSekatS % LTM P/E

Asia F&B-Control Transactions

3-Sep-08 Coca Cola China Huiyuan Juice China 100% 3,645 6.7x 40.3x 60.6x 195.0%

Asia F&B-Minority Transactions

26-Jul-10 Kirin Holdings Fraser & Neave Singapore 15% 13,203 2.2x 10.9x 15.0x 13.0%

)%6.0(x1.44x5.82x6.8040,2%12anihCnufllewS nauhciSoegaiD01-raM-1

2-Sep-09 Baring PE Hsu Fu Chi China 15% 1,026 1.3x 6.1x 12.6x 2.6%

6-Jul-09 COFCO/Hopu China Mengniu Dairy Company China 20% 4,968 1.0x 67.2x NM (7.9%)

8-May-09 Chen Fashu Tsingtao Brewery China 7% 4,694 1.3x 12.0x 29.0x (11.9%)

23-Jan-09 Asahi Breweries Tsingtao Brewery China 20% 4,852 1.4x 13.5x 35.3x 37.7%

14-May-07 Want Want International Want Want Holdings China 25% 4,667 3.3x 15.2x 23.0x 15.0%

Average (Asia F&B-Minority Transactions) 2.7x 21.9x 26.5x 6.9%

Median (Asia F&B-Minority Transactions) 1.4x 13.5x 26.0x 2.6%


Target Country

Enterprise Value (S$ MM)


Enterprise Value /LTM

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

(2)

(3)

(12) (13)

(2)(1)


55

2 EBITDA and net income adjusted for one-off items and exceptional items. Tax effect of these adjustments appliedusing marginal tax rate as disclosed in the company filings

3 Sourced from company press releases where disclosed, otherwise closing price sourced from FactSet as on onetrading day prior to the date of announcement of the transaction

4 Enterprise Value based on disclosed offer amounts in The Coca Cola Company and China Huiyuan Juice GroupLimited joint announcement dated 3 September 2008 comprising of consideration for shares, convertible bonds andoptions outstanding aggregating to HK$19,647 MM. Convertible bonds and options assumed to be converted andexercised. EBITDA and Net Income LTM to the period of 30 June 2008 and adjusted for interest on subscriptionmonies from IPO shares, gain on disposal of PPE and donations to Red Cross. Net income adjustments tax-effectedat marginal tax rate of 33%. The proposed acquisition was blocked by MOFCOM

5 Enterprise Value based on acquisition price of S$6.5 per share. Enterprise Value excludes net book value of jointventures. EBITDA and net income LTM to the period of 30 June 2010 and adjusted for loss on sale of fixed assets.Net income adjustments tax-effected at marginal tax rate of 17%

6 Enterprise Value based on Mandatory Tender Offer price per share of CNY21.45. EBITDA and net income LTM to theperiod of 30 September 2009 and adjusted for impairment loss, gain/loss on disposal of PPE. Diageo holds 53% ofQuanxing Group post transaction, which in turn holds 39.7% in Swellfun. Stake acquired calculated as the effectiveinterest held by Diageo in Swellfun

7 Enterprise Value based on acquisition price of S$1.55 per share as disclosed in the substantial shareholder noticeand net debt as on 30 June 2009. EBITDA and net income LTM to the period of 30 June 2009 and excludes loss ondisposal of PPE. Net income adjustments tax-effected at marginal tax rate of 17%

8 Enterprise Value based on acquisition price per share of HK$17.6 and Net Debt as on 31 December 2008. EBITDAand net income LTM to the period of 31 December 2008 and excludes write off and write downs of inventoriespursuant to melamine scandal and loss of disposal of PPE. Net income adjustments tax-effected at marginal tax rateof 25%. COFCO further increased its stake to 28.0% on 13 July 2011. P/E is shown NM as LTM net profit is negative

9 Enterprise Value based on acquisition price per share of HK$19.83 and net debt as on 31 March 2009. EBITDA andnet income LTM to the period of 31 March 2009 and excludes gain from changes of fair value, asset impairment andgain or loss from sale of assets. Net income adjustments tax-effected at marginal tax rate of 25%

10 Enterprise Value based on acquisition price per share of HK$19.2 and net debt as on 30 September 2008. EBITDAand net income LTM to the period of 30 September 2008 and excludes gain from changes of fair value, assetimpairment and gain or loss from sale of assets. Net income adjustments tax-effected at marginal tax rate of 25%

11 Enterprise Value based on offer price of US$2.35 per share and net debt as on 31 March 2007. EBITDA, and netincome LTM to the period of 31 March 2007 excluding gain on disposal of trading investments, reversal for diminutionin value of investment, under-provision of tax in respect of prior years, loss on sale of disposal of PPE and fair value(gain) loss of available-for-sale investments. Net income adjustments tax-effected at marginal tax rate of 25%

12 Enterprise Value based on the offer price of S$4.35 per share and net debt as on 30 June 2011. EBITDA and netincome LTM to the period of 30 June 2011 adjusted for loss on disposal of PPE, impairment and reversal of deferredtax liabilities. Net income adjustments tax-effected at marginal tax rate of 16.5%

13 Nestlé also acquired 60% stake in Yinlu Food Group in April 2011. The transaction value was not disclosed publicly

The Selected Asia F&B Precedent Transactions are provided for illustrative purposes only.The Selected Asia F&B Precedent Transactions and the acquired companies may not bedirectly comparable with the Scheme and the Company and may vary with respect to,amongst other factors: the acquisition of minority versus controlling stakes in thetransactions, the liquidity of the underlying shares in the acquired companies and theprevailing market conditions at the time of the transactions, as well as the geographicalspread of activities, business mix and model within the F&B industry, size of theaddressable market for their products, scale of operations, asset intensity, financialleverage, accounting policies, risk profile, tax factors, track record and future prospects ofthe acquired companies. Accordingly, the Selected Asia F&B Precedent Transactions maynot provide a meaningful basis for valuation comparison.


56

We further wish to highlight that underlying financial data used to calculate the P/E,EV/EBITDA, EV/Sales and premia in our analysis have been extracted from the relevantcompanies’ financials, Bloomberg and FactSet as at the Latest Practicable Date. MorganStanley makes no representations or warranties, express or implied, on the accuracy orcompleteness of such information.

Based on Chart 10, we note that at the Scheme Consideration:

� The implied EV/Sales multiple is above the average and the median of the minoritytransactions among the Selected Asia F&B Precedent Transactions;

� The implied EV/EBITDA multiple is below the average and above the median of the minoritytransactions among the Selected Asia F&B Precedent Transactions;

� The implied P/E multiple is above the average and the median of the minority transactionsamong the Selected Asia F&B Precedent Transactions; and

� The premium implied by the Scheme Consideration is above the average and median 1-dayoffer premium for the minority transactions among the Selected Asia F&B PrecedentTransactions.

We also note specifically that:

� Baring Private Equity acquired a 15 per cent. stake in Hsu Fu Chi from Transpac Capital in2009; the transaction occurred at P/E, EV/EBITDA and EV/Sales multiples of 12.6 times, 6.1times and 1.3 times, respectively; and

� Want Want International conducted a take-private of Want Want Holdings in 2007. WantWant Holdings was listed in Singapore and the transaction occurred at P/E, EV/EBITDA andEV/Sales multiples of 23.0 times, 15.2 times and 3.3 times, respectively.

We have also reviewed selected recent transactions involving the acquisitions of majority interestsin Confectionery and Bakery companies globally and for which information is publicly available(“Selected Global Confectionery and Bakery Precedent Transactions”).

A brief description of the companies selected for our analysis is set out below:

Table 6 — Companies Underlying Selected Global Confectionery and Bakery PrecedentTransactions

Stake Target Date of Acquired Description

Announcement (%) (at time of acquisition)

Global Confectionery and Bakery

Cadbury 19-Jan-10 100% Cadbury is a UK-based manufacturer of beverages andconfectionery products. The company offers Chocolatesunder key brands like Cadbury Dairy Milk, CadburyCreme Egg, Flake and Green & Black’s; Gum under keybrands like Trident, Hollywood, Stimorol, Dentyne,Clorets and Bubbaloo; and Candy under key brands likeHalls, Maynards, The Natural Confectionery Co. andCadbury Eclairs


57



Wm. Wrigley Jr. 28-Apr-08 100% Wm. Wrigley Jr. Company is a recognised leader inCompany confections with a wide range of product offerings

including gum, mints, hard and chewy candies, lollipops,and chocolate. The company distributes its brands inmore than 180 countries. Three of these brands -Wrigley’s Spearmint, Juicy Fruit, and Altoids - haveheritages stretching back more than a century. Otherwell-known brands include Doublemint, Life Savers, BigRed, Boomer, Pim Pom, Winterfresh, Extra, Freedent,Hubba Bubba, Orbit, Excel, Creme Savers, Eclipse,Airwaves, Solano, Sugus, P.K., Cool Air and 5

Godiva 20-Dec-07 100% Godiva Chocolatier was established in Brussels in 1926 Chocolatier by Joseph Daps and has been producing premium

chocolate products for 80 years. The Godiva brandserves its customers through 450 standalone boutiquesand 9,300 sales points worldwide with products rangingfrom premium chocolates to biscuits, from coffee tococoa, chocolate drinks, cakes and chocolate bars.Godiva offers its products throughout four geographiesincluding North America, Japan, the Pacific region andEurope

Danone (Biscuits 3-Jul-07 100% The company includes all of Groupe Danone Biscuits && Cereals) Cereals division except Groupe Danone’s stakes in

Britannia and Arcor JV. It has 15,000 employees, 36manufacturing plants and a leading portfolio in morethan 22 countries. Danone (Biscuits & Cereals) operatesin more than 15 countries

Burton’s Foods 18-Mar-07 100% Burton’s Foods owns popular biscuit brands in the U.K.such as Maryland Cookies, Jammie Dodgers andWagon Wheels. The company bakes and sells underlicense a wide range of Cadbury chocolate biscuits,including Cadbury Fingers and Cadbury ChocolateDigestives. Burton’s brands all occupy strong positions,largely No.1 or No.2 in the key market segments inwhich they participate. The company serves all themajor grocery retailers in the U.K. with branded andown label products and has significant exports toScandinavia, France and the US. Founded in the 1930s,it was acquired by Associated British Foods in 1949.The company was sold to Hicks, Muse, Tate and Furstin 2000 and subsequently merged with the HorizonBiscuit Company Ltd.

A. Korkunov 23-Jan-07 80% Founded in 1999 by two Russian entrepreneurs, AndreyChocolatier Inc. Korkunov and Sergey Lyapuntsov, A. Korkunov

Chocolatier Inc. has become the seventh largest playerin the Russian chocolate category, which has anestimated value of US$3.7 billion. It is also the #2 playerin the overall premium-boxed chocolate segment, withits namesake brand — A. Korkunov — the top-seller inthat highly competitive segment


58



Kraft (Sugar 15-Nov-04 100% Kraft’s sugar confectionery business includes the LifeConfectionery) Savers, Creme Savers, Altoids, Trolli and Sugus brands,

which represent approximately 1.5% of Kraft’s globalrevenues. The company operates sugar confectionerymanufacturing facilities in Creston, IA; Chattanooga, TN;Brasov, Romania; and Bridgend and UK

Adams 17-Dec-02 100% Adams Confectionery is a branded global confectionery Confectionery manufacturer with presence across 70 countries. In

2001, Adams had a 3.3% share of the total global retailconfectionery market and within this 25.5% of the retailmarket for functional confectionery. Adams hassignificant market presence and operations in North,Central and South America, which accounted for 75% ofsales in 2001. Adams is also represented in Europe,Africa, the Middle East and Asia. It has an establishedpresence in a number of developing markets, principallyLatin America, which in aggregate accounted for around40% of sales in 2001

Source Company Press Releases, News Reports and Capital IQ

Chart 11 below sets out the implied valuation metrics for the Selected Global Confectionery andBakery Precedent Transactions.

Chart 11 — Selected Global Confectionery and Bakery Precedent Transactions

Source Company Data and FactSet

Notes

1 Enterprise value based on offer price per share and diluted shares outstanding adjusted for options outstanding usingTreasury Stock Method. Net Debt as on the latest filings on the date of acquisition and includes minority interest.Enterprise value adjusted for associates. Conversion to S$ using exchange rate as on the date of announcements

2 EBITDA and net income adjusted for one-off items and exceptional items. Tax effect of these adjustments appliedusing marginal tax rate as disclosed in the company filings

3 Sourced from company press releases where disclosed, otherwise closing price sourced from FactSet as on onetrading day prior to the date of announcement of the transaction

4 Enterprise value based on offered share price GBP8.5 per share (which includes special dividend to be paid by Kraftto shareholders of Cadbury of 10 pence) and net debt as on 31 December 2009 and includes retirement obligations.EBITDA and Net Income LTM to the period of 31 December 2009


%3.5x7.22x1.31x3.2161,03%001KU yrubdaC sdooF tfarK01-naJ-91

ASUyelgirW mailliWsraM80-rpA-82 100% 30,689 4.0x 17.8x 32.6x 28.0%

ANANx0.51x7.1242,1%001ASUavidoGreklÜ70-ceD-02

3-Jul-07 Kraft Foods Danone (Biscuits & Cereals) France 100% 11,046 2.7x 13.6x NM NA

ANx0.71x2.8x8.0566%001KUs'notruBekuD70-raM-81

ANANANx8.3575%08aissuRvonukroKyelgirW70-naJ-32

ANANANx0.3644,2%001ASU)yrenoitcefnoC raguS( tfarKyelgirW40-voN-51

17-Dec-02 Cadbury Schweppes Adams Confectionery USA 100% 7,332 2.0x 12.8x NA NA

Average 2.5x 13.4x 24.1x 16.6%

Median 2.5x 13.4x 22.7x 16.6%


Target Country

Enterprise Value /LTMEnterprise Value (S$ MM)


(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

(12)

(1) (3)

(2) (2)

(13)


%3.5x7.22x1.31x3.2161,03%001KU yrubdaC sdooF tfarK01-naJ-91

ASUyelgirW mailliWsraM80-rpA-82 100% 30,689 4.0x 17.8x 32.6x 28.0%

ANANx0.51x7.1242,1%001ASUavidoGreklÜ70-ceD-02

3-Jul-07 Kraft Foods Danone (Biscuits & Cereals) France 100% 11,046 2.7x 13.6x NM NA

ANx0.71x2.8x8.0566%001KUs'notruBekuD70-raM-81

ANANANx8.3575%08aissuRvonukroKyelgirW70-naJ-32

ANANANx0.3644,2%001ASU)yrenoitcefnoC raguS( tfarKyelgirW40-voN-51

17-Dec-02 Cadbury Schweppes Adams Confectionery USA 100% 7,332 2.0x 12.8x NA NA

Average 2.5x 13.4x 24.1x 16.6%

Median 2.5x 13.4x 22.7x 16.6%


Target Country

Enterprise Value /LTMEnterprise Value (S$ MM)


(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

(12)

(1) (3)

(2) (2)

(13)


59

5 Enterprise value based on the offer price of US$80 per share and net debt as on 31 March 2008. EBITDA and NetIncome LTM to the period of 31 March 2008 and excludes restructuring charges and net loss/gain on sale of assets.Net income adjustments tax-effected at marginal tax rate of 32%

6 Enterprise value, sales and EBITDA multiples as reported by Campbell in press release. LTM to the period of 31December 2006

7 Valuation multiples based on the financials as disclosed by Danone in its investor presentation. LTM to the period of31 December 2006. Business was effectively a sale on a 100% debt free basis, therefore P/E is not meaningful

8 Consideration as reported by Duke Street Capital’s announcement assumed as enterprise value. Burton financials foryear ending December 2006

9 Consideration of US$300 MM for 80% stake assumed to be including net debt. Net sales as reported by Wrigley’spress release

10 Purchase price of US$1.48 Bn assumed as enterprise value. Sales for 2004 sourced from press release information

11 Valuation multiples (based on Dec-01 financials) as reported by Cadbury in its press release

12 Enterprise value based on the offer price of S$4.35 per share and TSO of 795 MM and net debt as on 30 June 2011.EBITDA and Net Income LTM to the period of 30 June 2011 adjusted for loss on disposal of PPE, impairment andreversal of deferred tax liabilities. Net income adjustments tax-effected at marginal tax rate of 16.5%

13 Nestlé also acquired 60% stake in Yinlu Food Group in April 2011. The transaction value was not disclosed publicly

The Selected Global Confectionery and Bakery Precedent Transactions are provided forillustrative purposes only. The Selected Global Confectionery and Bakery PrecedentTransactions and the acquired companies may not be directly comparable with the Schemeand the Company and may vary with respect to, amongst other factors: the liquidity of theunderlying shares in the acquired companies and the prevailing market conditions at thetime of the transactions, the geographical spread of activities, business mix and modelwithin the confectionery and bakery industry, size of the addressable market for theirproducts, scale of operations, asset intensity, financial leverage, accounting policies, riskprofile, track record and future prospects. Accordingly, the Selected Global Confectioneryand Bakery Precedent Transactions may not provide a meaningful basis for valuationcomparison.

The underlying financial data used to calculate the P/E, EV/EBITDA, EV/Sales and premia inour analysis have been extracted from the relevant companies’ financials and FactSet as atthe Latest Practicable Date. Morgan Stanley makes no representations or warranties,express or implied, on the accuracy or completeness of such information.

Based on Chart 11, we note that at the Scheme Consideration:

� The implied EV/Sales multiple is above the average and the median of the Selected GlobalConfectionery and Bakery Precedent Transactions;

� The implied EV/EBITDA multiple is above the average and the median of the SelectedGlobal Confectionery and Bakery Precedent Transactions; and

� The implied P/E multiple is above the average and the median of the Selected GlobalConfectionery and Bakery Precedent Transactions.


60

8.6. Precedent Take-over Analysis

We have selected take-over transactions in Singapore resulting in a change of control, announcedand completed between 1 January 2007 and the Latest Practicable Date. The transaction sizesimplied by the respective take-overs are greater than S$100 million and only those transactionswhere only cash was offered as consideration were considered.

Chart 12 sets out the premia/discounts implied by the various transaction prices compared to theclosing prices of each target 1-day prior to the relevant offer announcement and the VWAP for the1-month, 3-month, 6-month and 12-month periods prior to the relevant take-over announcement.

Chart 12 — Precedent Take-overs in Singapore

Source Relevant Company Filings and Bloomberg

Notes

1 Premia calculated over the closing price of each target company one day prior to the relevant take-overannouncement and the VWAP of 1 month, 3 months, 6 months and 12 months prior to the relevant take-overannouncement

2 Bloomberg VWAP for the relevant periods as stated in the Offer Documents for each transaction

3 VWAP calculated as average daily trading value divided by average daily trading volume for the relevant period

Date of Closing

emaN roriuqcAemaN tegraTtnemecnuonnA 1D 1M 3M 6M 12M

%9.021%2.001%5.28%4.96%0.26dtL etP airetsaS dtL ertneC lacideM nosmohT01-tcO-92

%3.71%7.4%8.32%7.53%8.63CLL sroiretnI apeD dtL rerutcafunaM erutinruF oidutS ngiseD01-nuJ-82

%1.86%1.92%1.32%4.02%8.03dtL sgnidloH erachtlaeH detargetnIdtL sgnidloH yawkraP01-luJ-62

%3.34%7.16%8.36%1.14%9.22CLL oC tsevnI hceT decnavdAdtL gnirutcafunaM rotcudnocimeS deretrahC90-peS-7

%4.64%4.63%2.33%4.42%5.72amrahP anihCsgnidloH lacituecamrahP nauhiS90-guA-42

21-Jun-09 Singapore Petroleum Company Ltd PetroChina International Pte Ltd 24.0% 52.1% 90.0% 120.8% 54.3%

%3.91%5.02%0.42%2.52%8.42secivreS lanimreT tropriA eropagniSdtL seirtsudnI dooF eropagniS90-naJ-02

%9.75%4.52%0.22%7.41%0.8dtL oC gnitnirP nappoTdtL proC PNS80-nuJ-01

%8.1%8.72%7.64%0.44%3.93dtL )naubaL( gnidloH hctaLdtL ygolonhceT leetsinU80-nuJ-7

%1.6%1.82%1.23%1.13%2.41 tnemtsevnI lacituecamrahP eYuLdtL puorG mrahPaisA80-beF-4

%7.54%5.45%4.06%4.46%4.16dtL etP labolG FLAdtL oC & nosniboR80-naJ-02

%6.05%9.14%1.53%4.03%1.53dtL etP snriaCdtL oC gnidarT stiartS80-naJ-6

%8.54%4.83%2.83%9.33%9.82dtL etP eropagniS TBdtL noitaroproC seigolonhceT eniltnorF70-ceD-5

%1.82%1.81%8.91%2.9%4.3CLL dlroW skcodyrD iabuDdtL eniraM yorbaL70-tcO-92

%2.92%3.02%3.31%1.9%0.6dtL sgnidloH TSVdtL sgnidloH SCE70-guA-7

%3.84%8.63%8.03%6.03%9.13dtL scinortcelE T&TA labolGdtL retneC ylbmessA dna tseT detinU70-nuJ-72

%7.02%4.61%1.51%9.31%7.21dtL etP )aisA( sserpxE lloTdtL snartmiK gnawabmeS70-nuJ-31

%7.16%0.33%7.12%4.41%0.3CLL dlroW skcodyrD iabuDdtL eniraM detinU-naP70-yaM-82

%2.77%3.66%0.95%3.15%0.14dtL etP )eropagniS( oC pmocteMdtL gnireenignE ketmA70-yaM-22

%3.68%4.26%7.34%5.82%2.61dtL etP latipaC noisicerPdtL sgnidloH IMM70-rpA-5

%7.34%8.14%2.53%0.7)%5.21(dtL etP ecA nedloGdtL HSR70-raM-4

%1.35%4.64%2.33%8.12%2.81srotcudnocimeS hceT eropagniSdtL CAPpihC statS70-raM-1

%3.26%0.74%5.92%5.22%6.3dtL etP natniB hadnI malAdtL STG eirhtuG70-naJ-8

Average 24.0% 30.3% 38.0% 42.3% 48.2%

Median 24.4% 29.4% 33.2% 36.8% 47.3%

Minimum (12.5%) 7.0% 13.3% 4.7% 1.8%

Maximum 62.0% 69.4% 90.0% 120.8% 120.9%

%5.33%8.61%5.21%5.9%7.8.A.S éltseNihC uF usH11-luJ-11

VWAP (2)

Premium / (Discount) Prior to Pre-Announcement Share Price (1)

Date of Closing

emaN roriuqcAemaN tegraTtnemecnuonnA 1D 1M 3M 6M 12M

%9.021%2.001%5.28%4.96%0.26dtL etP airetsaS dtL ertneC lacideM nosmohT01-tcO-92

%3.71%7.4%8.32%7.53%8.63CLL sroiretnI apeD dtL rerutcafunaM erutinruF oidutS ngiseD01-nuJ-82

%1.86%1.92%1.32%4.02%8.03dtL sgnidloH erachtlaeH detargetnIdtL sgnidloH yawkraP01-luJ-62

%3.34%7.16%8.36%1.14%9.22CLL oC tsevnI hceT decnavdAdtL gnirutcafunaM rotcudnocimeS deretrahC90-peS-7

%4.64%4.63%2.33%4.42%5.72amrahP anihCsgnidloH lacituecamrahP nauhiS90-guA-42

21-Jun-09 Singapore Petroleum Company Ltd PetroChina International Pte Ltd 24.0% 52.1% 90.0% 120.8% 54.3%

%3.91%5.02%0.42%2.52%8.42secivreS lanimreT tropriA eropagniSdtL seirtsudnI dooF eropagniS90-naJ-02

%9.75%4.52%0.22%7.41%0.8dtL oC gnitnirP nappoTdtL proC PNS80-nuJ-01

%8.1%8.72%7.64%0.44%3.93dtL )naubaL( gnidloH hctaLdtL ygolonhceT leetsinU80-nuJ-7

%1.6%1.82%1.23%1.13%2.41 tnemtsevnI lacituecamrahP eYuLdtL puorG mrahPaisA80-beF-4

%7.54%5.45%4.06%4.46%4.16dtL etP labolG FLAdtL oC & nosniboR80-naJ-02

%6.05%9.14%1.53%4.03%1.53dtL etP snriaCdtL oC gnidarT stiartS80-naJ-6

%8.54%4.83%2.83%9.33%9.82dtL etP eropagniS TBdtL noitaroproC seigolonhceT eniltnorF70-ceD-5

%1.82%1.81%8.91%2.9%4.3CLL dlroW skcodyrD iabuDdtL eniraM yorbaL70-tcO-92

%2.92%3.02%3.31%1.9%0.6dtL sgnidloH TSVdtL sgnidloH SCE70-guA-7

%3.84%8.63%8.03%6.03%9.13dtL scinortcelE T&TA labolGdtL retneC ylbmessA dna tseT detinU70-nuJ-72

%7.02%4.61%1.51%9.31%7.21dtL etP )aisA( sserpxE lloTdtL snartmiK gnawabmeS70-nuJ-31

%7.16%0.33%7.12%4.41%0.3CLL dlroW skcodyrD iabuDdtL eniraM detinU-naP70-yaM-82

%2.77%3.66%0.95%3.15%0.14dtL etP )eropagniS( oC pmocteMdtL gnireenignE ketmA70-yaM-22

%3.68%4.26%7.34%5.82%2.61dtL etP latipaC noisicerPdtL sgnidloH IMM70-rpA-5

%7.34%8.14%2.53%0.7)%5.21(dtL etP ecA nedloGdtL HSR70-raM-4

%1.35%4.64%2.33%8.12%2.81srotcudnocimeS hceT eropagniSdtL CAPpihC statS70-raM-1

%3.26%0.74%5.92%5.22%6.3dtL etP natniB hadnI malAdtL STG eirhtuG70-naJ-8

Average 24.0% 30.3% 38.0% 42.3% 48.2%

Median 24.4% 29.4% 33.2% 36.8% 47.3%

Minimum (12.5%) 7.0% 13.3% 4.7% 1.8%

Maximum 62.0% 69.4% 90.0% 120.8% 120.9%

%5.33%8.61%5.21%5.9%7.8.A.S éltseNihC uF usH11-luJ-11

VWAP (2)

Premium / (Discount) Prior to Pre-Announcement Share Price (1)

(3) (3) (3) (3)

(3) (3) (3) (3)

(3) (3) (3) (3)

(3)

(3)

(3)

(3) (3) (3) (3)

(3)

(3)

(3) (3) (3) (3)

(3) (3) (3) (3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

(12)

(13)

(14)

(15)

(16)

(17)

(18)

(19)

(20)

(21)

(22)

(23)

(24)

(3) (3) (3) (3)

(3)

(3)(3)(3)

(3)

18-Jan-10 Hongguo International Holdings Ltd Info Giants Investments Limited 37.2% 31.4% 35.5% 36.8% 69.5%


61

4 On 29 October 2010, Sasteria Pte Ltd (“Sasteria”) and Thomson Medical Centre Ltd’s (“Thomson Medical”) founder,Dr Cheng Wei Chen entered into a married deal for 39.34 per cent. for S$1.75. With this purchase, Sasteria wasrequired to make a mandatory conditional cash offer for Thomson Medical. The mandatory offer was conditional onSasteria acquiring more than 50 per cent. of the shares in the capital of Thomson Medical. Premia have beencalculated with reference to 28 October 2008, being the last trading day prior to the Announcement Date

5 On 28 June 2010, CIMB Bank Berhad, on behalf of Depa Interiors LLC (“Depa Interiors”), announced its intention tomake a voluntary conditional cash offer for the shares in the capital of Design Studio Furniture Manufacturer Ltd(“Design Studio”) at a price of S$0.55. On 2 August 2010, Depa Interiors announced that it had acquired anadditional 26.45 per cent. of Design Studio’s shares for S$0.65, increasing Depa Interiors’ stake in Design Studio toapproximately 51.22 and triggering the conversion of Depa Interiors’ offer to a mandatory cash offer. The marketpremia in the table above were computed based on the final offer price of S$0.65 and market prices prior to the firstoffer announcement on 28 June 2010. In computing the premium of the offer price over the last transacted price, thelast transacted price on 25 June 2010 has been used

6 VWAP figures as shown in offer document based on Capital IQ

7 On 29 May 2009, the Singapore Business Times reported a possible acquisition by ATIC of Chartered SemiconductorManufacturing Ltd (“Chartered”) shares held by Singapore Technologies Semiconductors Pte Ltd. Following thisreport, Chartered issued a holding announcement on the same day. Premia have been calculated with reference to28 May 2009, being the day of the last transacted price prior to the commencement of market speculation

8 On 24 May 2009, a pre-conditional offer for Singapore Petroleum Co Ltd (“Singapore Petroleum”) was announced, inconjunction with a purchase of a 45.5 per cent. stake in Singapore Petroleum. The offer premia in the above table arereferenced against the pre-conditional offer announcement date

9 Premia calculated with reference to 21 October 2008, being the last full day prior to the query of the SGX-STregarding a substantial increase in the price of shares for Singapore Food Industries Limited (“SFI”). On 23 October2008, SFI announced that Ambrosia Investment Pte. Ltd. was evaluating options in respect of its stake in SFI

10 Premia calculated with reference to 17 April 2008, being the last trading day prior to SNP Corp Ltd’s (“SNP”)announcement that it had been informed by its majority shareholder, Green Dot that Green Dot was evaluatingoptions with respect to its 54% stake in SNP

11 On 16 April 2008, Unisteel Technology Ltd (“Unisteel”) replied to a query by the SGX-ST regarding the substantialincrease in Unisteel’s share price on 15 April 2008 that Unisteel was in the preliminary stages of reviewing strategicoptions. On 7 June 2008, the proposed acquisition relating to Unisteel was announced. The market premia in thetable above were computed with reference to 14 April 2008, being the last full day of trading prior to the query bySGX-ST on 15 April 2008

12 Premia calculated with reference to 30 January 2009, being the last trading day prior to high trading volumes andsubstantial price increases in AsiaPharm Group Ltd shares, leading to a suspension of the shares on 31 January2008 prior to the announcement date on 4 February 2008

13 On 20 January 2008, ALF Global Private Ltd (“ALF”) announced its intention to make a voluntary conditional cashoffer for the shares in the capital of Robinson and Company Limited at a price of S$6.25. Subsequently, ALFincreased the offer price to S$7.00 on 17 March 2008, and to S$7.20 on 3 April 2008. The bid premia in the tableabove were computed based on the final offer price of S$7.20 and market prices prior to the first offer announcementon 20 January 2008

14 On 6 January 2008, Standard Chartered Bank on behalf of The Cairns Pte Ltd (“The Cairns”) announced its intentionto make a voluntary conditional cash offer for the shares in the capital of The Straits Trading Company Limited at aprice of S$5.70. Subsequently, The Cairns increased the offer price to S$6.50 on 28 January 2008, and to S$6.70 on18 February 2008. The market premia in the table above were computed based on the final offer price of S$6.70 andmarket prices prior to the first offer announcement on 6 January 2008. In computing the premium of the offer priceover the last transacted price, the last transacted price on 4 January 2008 had been used.

15 Premia calculated with reference to 30 November 2007, being the last full trading day preceding 3 December 2007,the date on which Frontline requested for a trading halt for its shares

16 Premia calculated with reference to 1 June 2007, being the last trading day prior to the publication of the DBS Groupresearch report saying that United Test and Assembly Center Ltd was a “good buyout candidate”

17 On 13 June 2007, Toll Express (Asia) Pte Ltd (“Toll Express”) launched a voluntary general offer for SembawangKimtrans Ltd at $0.70 per share. In the event that Toll Express acquired not less than 90% of shares of the shares notalready owned by Toll Express, the offer price would be revised to S$0.80. Two-tiered offer, with premia calculatedusing S$0.80 as the offer price


62

18 Premia calculated with reference to 24 May 2007, being the last full day of trading in the shares prior to a trading halton 25 May 2007

19 Premia calculated with reference to 13 April 2007, being the last full day of trading in the shares prior to theannouncement on 16 April 2007 by Amtek Engineering Ltd (“Amtek Engineering”), announcing that certainshareholders, including a substantial shareholder and shareholders who are executive directors, have beenapproached in relation to possible transactions involving their shares in Amtek Engineering

20 Premia calculated with reference to 8 February 2007, being the day prior to an announcement by MMI Holdings Ltd(“MMI”) that it had received expressions of interest in relation to a possible transaction involving MMI

21 Premia calculated with reference to 28 February 2007, the last day which RSH Ltd shares were traded on SGX-STimmediately preceding the announcement date

22 On 1 March 2007, Singapore Tech Semiconductors (“ST”) launched a voluntary general offer to purchase StatsChipPAC shares at S$1.75 per share. In the event that ST acquired not less than 90% of shares of the shares notalready owned by ST, the offer price would be revised to S$1.88. Two-tiered offer, with premia calculated usingS$1.75 as the offer price

23 The market premia in the table were calculated with reference to 28 December 2006, being the last full day of tradingof the shares in Guthrie GTS Limited (“Guthrie”) prior to the release of a holding announcement by Guthrie. On 8January 2007, the offer was announced by Kim Eng Capital Pte Ltd on behalf of Alam Indah Bintan Pte Ltd

24 Premia calculated with reference to 1 July 2011, being the last full trading day preceding the Company’s holdingannouncement and the suspension of its shares on 4 July 2011


� The premium implied by the Scheme Consideration is below the average and median 1-daytake-over premium, but is within the range of the selected precedent take-overs inSingapore; and

� The premia implied by the Scheme Consideration are below the average and median 1-month, 3-month, 6-month and 12-month take-over premia but within the range of the 1-month, 6-month and 12-month offer premia for the selected precedent take-over offers inSingapore.

The Independent Directors should note that the level of premium (if any) an acquirer wouldnormally pay in a general offer, merger or take-over transaction varies in differentcircumstances depending on, inter alia, the attractiveness of the underlying business to beacquired, the synergies to be gained by the acquirer from integrating the target company’sbusinesses with its existing business, the possibility of significant revaluation of the assetsto be acquired, the availability of substantial cash reserves, the liquidity in the trading of thetarget company’s shares, the presence of competing bids for the target company, the formof consideration offered by an acquirer, the extent of control the acquirer already has in thetarget company and prevailing market conditions and expectations.

The Independent Directors should also note that the comparison is made without takinginto consideration the underlying liquidity of the shares of the relevant companies, theperformance of the shares of the companies or the quality of earnings prior to the relevantannouncement and the market conditions or sentiments when the announcements weremade or the desire or relative need for control leading to compulsory acquisition. Moreover,as the Company is not in the same industry and does not conduct the same businesses asthe other target companies in Chart 12, it may not, therefore, be directly comparable to thetarget companies in terms of geographical spread of activities, composition of businessactivities, product lines, size of addressable market, scale of operations, asset intensity,financial leverage, risk profile, client base, accounting policies, track record, prospects andother relevant criteria. Accordingly, the selected precedent take-over offers may not providea meaningful basis for premium comparison.


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8.7. Broker Research Price Targets for the Shares

We have reviewed the price targets for the Shares estimated by broker research as set out inBloomberg.

The Company is covered by one brokerage house. Between 1 January 2011 and theAnnouncement Date, this brokerage house issued four research reports with a price target on theCompany. This brokerage house subsequently revised its price target following speculation of atransaction on 4 July 2011 and subsequently on the Announcement Date.

Chart 13 — Broker Research Estimates

Source Bloomberg


� The Scheme Consideration is at a premium of 3.6 per cent. over the pre-announcementbroker research price target of S$4.20 (which represented a 30 per cent. premium to theprice of the Shares immediately prior to the report); and

� The Scheme Consideration is equal to the post-announcement broker research price targetof S$4.35.

We wish to highlight that the above broker research report is not exhaustive and pricetargets for the Shares represent the individual views of the broker research analyst basedon the circumstances (including, inter alia, market, economic, industry and monetaryconditions as well as market sentiment and investor perceptions regarding the futureprospects of the Company) prevailing at the date of the publication of the respective brokerresearch reports. The opinions of the brokers may change over time as a result of, amongother things, changes in market conditions, the Company’s market development and theemergence of new information relevant to the Company. As such, the above price targetsmay not be an accurate prediction of future market prices of the Shares.

Target Price S$

3.89

4.20

4.34 53.453.4

S$3.39

S$3.23

S$4.00 S$4.00

S$4.15

3.00

3.50

4.00

4.50

5.00

Pre-announcement Pre-announcement Post Market Speculation Announcement Date Post-announcement

Scheme Consideration : S$4.35

Date of Report

11-Jul-2011 1102-guA-811102-luJ-41102-beF-411102-naJ-82

Share price as on the date prior to research report

3.89

4.20

4.34 53.453.4

S$3.39

S$3.23

S$4.00 S$4.00

S$4.15

3.00

3.50

4.00

4.50

5.00

Pre-announcement Pre-announcement Post Market Speculation Announcement Date Post-announcement

Scheme Consideration : S$4.35

Date of Report

11-Jul-2011 1102-guA-811102-luJ-41102-beF-411102-naJ-82

Share price as on the date prior to research report


64

Any opinions or price targets expressed in such broker research reports represent theindividual views of the respective brokers and not of Morgan Stanley.

9. OTHER CONSIDERATIONS

9.1 Joint Venture Agreement

Certain information regarding the joint venture agreement to be entered into on the Effective Datebetween, among others, the Individual Shareholders and Nestlé (the “Joint Venture Agreement”)is set out in paragraphs 6 and 10 of the Explanatory Memorandum in the Scheme Document andparagraph 7.4 of the Letter from Nestlé to the Shareholders and Depositors in Appendix 2 of theScheme Document. We note that under paragraph 10.1 of the Explanatory Memorandum in theScheme Document, the SIC has confirmed that the proposed terms of the Joint VentureAgreement between Nestlé and the Individual Shareholders do not constitute a special deal for thepurposes of Rule 10 of the Code. Morgan Stanley has not reviewed the Joint Venture Agreement,has not evaluated whether or how the Scheme becoming effective or otherwise would affect suchmatters and has not evaluated the proposed terms of the Joint Venture Agreement, as suchevaluation does not fall within the scope of Morgan Stanley’s terms of reference.

9.2 General Licence Agreement

Certain information regarding the general licence agreement which is to be entered into betweenNestlé, certain affiliates of Nestlé and Hsu Fu Chi on, and subject to the occurrence of, theEffective Date (the “GLA”) is set out in Annex 5 of Appendix 2 of the Scheme Document,paragraph 6.3 of the Explanatory Memorandum in the Scheme Document and paragraph 7.3 of theLetter from Nestlé to the Shareholders and Depositors in Appendix 2 of the Scheme Document.Morgan Stanley has not reviewed the GLA, has not evaluated whether or how the Schemebecoming effective or otherwise would affect such matters and has not evaluated the proposedterms of the GLA, as such evaluation does not fall within the scope of Morgan Stanley’s terms ofreference.

9.3 CEO Service Arrangement

Certain information regarding the current executive chairman of the Company, Mr Hsu Chen’semployment arrangement with the Company as chief executive officer subsequent to the Schemeand Share Acquisition (the “CEO Service Arrangement”) is set out in paragraph 2.2 of Hsu FuChi’s Letter to the Shareholders and Depositors in the Scheme Document and paragraphs 3.3 and7.4 and Annex 5 of the Letter from Nestlé to the Shareholders and Depositors in Appendix 2 of theScheme Document. Morgan Stanley has not reviewed the CEO Service Arrangement, has notevaluated whether or how the Scheme becoming effective or otherwise would affect such mattersand has not evaluated the terms of the CEO Service Arrangement, as such evaluation does not fallwithin the scope of Morgan Stanley’s terms of reference.

9.4 The Scheme is binding on all Scheme Shareholders

If the Scheme is approved by a majority in number of Scheme Shareholders present and voting,either in person or by proxy, at the Court Meeting, such majority holding not less than 75 per cent.in value of the Scheme Shares held by Scheme Shareholders present and voting at the CourtMeeting, the Scheme will be binding on all Scheme Shareholders, regardless of whether they werepresent in person or by proxy or voted at the Court Meeting.

9.5 The Scheme is applicable only to the Scheme Shareholders

The Scheme is proposed to the Scheme Shareholders only and excludes the IndividualShareholders, their related corporations and their respective nominees.


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9.6 Irrevocable Undertakings

As at the Latest Practicable Date, the Shares which are the subject of the IrrevocableUndertakings represent approximately 25.44 per cent. of all the Shares and 58.45 per cent. of theScheme Shares. Further details of the Irrevocable Undertakings can be found in paragraph 3.2 ofHsu Fu Chi’s Letter to Shareholders and Depositors, paragraph 5 of the Explanatory Memorandumin the Scheme Document and paragraph 6 of the Letter from Nestlé to the Shareholders andDepositors in Appendix 2 of the Scheme Document.

9.7 Switch Option

Pursuant to the terms of the Implementation Agreement, subject to prior consultation with the SIC,Nestlé may elect to proceed by way of a Switch Option in the event of a Competing Offer (asdefined in the Scheme Document) (or otherwise) subject to the prior written consent of theIndividual Shareholders.

In such event, Nestlé will make the Offer on the same or better terms as those which apply to theScheme, including the same or higher consideration than the Scheme Consideration.

Further details of the Switch Option are contained in paragraph 4.3 of the ExplanatoryMemorandum in the Scheme Document.

9.8 Non-solicitation

Under the Implementation Agreement, Hsu Fu Chi will not, inter alia, during the Restricted Perioddirectly or indirectly, solicit or reach any agreement or understanding or enter into transactioninvolving (a) the possible acquisition of, or issue or grant of any option over the Shares and/or (b)the possible acquisition of all or substantially all of the assets of any member of the Group,including any Competing Offer.

Further details of the non-solicitation obligations of Hsu Fu Chi are contained in paragraph 4.4 ofthe Explanatory Memorandum in the Scheme Document.

Each of the Undertaking Shareholders has agreed to be bound by certain non-solicitationprovisions during the term of its undertakings, save for certain exceptions.

Further details of the non-solicitation obligations of the Undertaking Shareholders are set out inparagraph 6 of the Letter from Nestlé to the Shareholders and Depositors in Appendix 2 of theScheme Document.

The Individual Shareholders and their related corporations have agreed to be bound by certainexclusivity and non-solicitation provisions with respect to their Shares until the earlier of theEffective Date or Long Stop Date, subject to applicable laws and regulations and fiduciary duties,as applicable.

Further details of the exclusivity and non-solicitation obligations of the Individual Shareholders andtheir related corporations are set out in paragraph 6.3 of the Explanatory Memorandum in theScheme Document and paragraph 7.3 of the Letter from Nestlé to the Shareholders andDepositors in Appendix 2 of the Scheme Document.

9.9 Delisting of Hsu Fu Chi

Upon the Proposed Transactions becoming effective, all of the Shares will be owned directly byNestlé and indirectly by the Individual Shareholders and subject to the approval of the SGX-ST,Hsu Fu Chi will be delisted from the Official List of the SGX-ST.


66

9.10 Acquisition of Shares of the Individual Shareholders

On 11 July 2011, Nestlé entered into the Transaction Agreement pursuant to which Nestlé willacquire, subject to the Scheme becoming effective, the Sale Shares from the IndividualShareholders (or their related corporations) (the “Share Acquisition”). The consideration to bepaid is S$4.35 for each Sale Share, payable in cash, which is identical to the SchemeConsideration.

The Individual Shareholders and their related corporations have agreed not to acquire, sell, acceptany offer in respect of, or otherwise deal in, any Shares, except pursuant to the Scheme, the ShareAcquisition, or any permitted transfers of the Shares, until the Effective Date.

Each of the Individual Shareholders or their related corporations has delivered on 26 August 2011an undertaking to the Court (as defined in the Scheme Document) that they will, inter alia, supportthe Scheme and comply with the terms of the Scheme subject to the Scheme becoming effectiveand binding.

Further details of the Transaction Agreement are set out in paragraph 6 of the ExplanatoryMemorandum of the Scheme Document and paragraph 7 of the Letter from Nestlé to theShareholders and Depositors in Appendix 2 of the Scheme Document. We note that underparagraph 10.1 of the Explanatory Memorandum to the Scheme Document, the SIC has confirmedthat it has no objections to the Share Acquisition and that the Share Acquisition does not constitutea special deal for the purposes of Rule 10 of the Code.

9.11 Third Party Proposals

The Directors have confirmed that from the Announcement Date up to the Latest Practicable Date,the Directors, the Individual Shareholders and Hsu Fu Chi have not been approached by anyperson with an offer competing with the Scheme.

9.12 Material Litigation

The Directors have confirmed that as at the Latest Practicable Date, none of Hsu Fu Chi or anymember of the Group are engaged in any material litigation, either as plaintiff or defendant, whichmight materially and adversely affect the financial position of Hsu Fu Chi or the Group, and theDirectors are not aware of any litigation, claims or proceedings pending or threatened against HsuFu Chi or any member of the Group or any facts likely to give rise to any litigation, claims orproceedings which might materially and adversely affect the financial position of Hsu Fu Chi or theGroup.

10. CONCLUSION

In arriving at our opinion to the Independent Directors, we have taken into consideration, inter alia,the following factors:

(a) Our analysis of the historical trading volume of the Shares and the average daily tradingvolume and value in comparison against the Top 25 Largest SGX Companies suggests thatthere is low liquidity in the Shares both in absolute terms and relative to the free float of theCompany.

(b) The closing prices of the Shares have ranged between S$2.29 and S$4.35 and betweenS$1.24 and S$4.35 over the 12-month and 24-month periods, respectively, prior to the LastPre-Announcement Trading Day. The Shares have significantly outperformed the BenchmarkIndices over the two years prior to the Latest Practicable Date.

(c) The Scheme Consideration is equivalent to the highest closing price of the shares from theCompany’s initial public offering in 2006 until the Last Pre-Announcement Trading Day.


67

(d) Subsequent to the Announcement Date and up to the Latest Practicable Date, the closingprices of the Shares have traded between S$3.98 and S$4.40, with a VWAP of S$4.21 anda last closing price of S$4.16.

(e) There is limited broker research covering the Company. The Scheme Considerationrepresents a premium of approximately 3.6% to the pre-announcement broker researchprice target of S$4.20 (which represented a 30% premium to the price of the Sharesimmediately prior to the research report) and is equivalent to the post-announcement brokerresearch price target of S$4.35.

(f) The implied P/E and EV/EBITDA multiples are above the high end of the range for Hsu FuChi’s multiples for the 12-month period prior to the Announcement Date.

(g) The implied multiples are within the range of the Hong Kong-listed Comparable Companiesacross P/E, EV/EBITDA, EV/Sales and P/NTA. In addition, the implied multiples are withinthe range of the Singapore-listed Comparable Companies for P/E and above the range forEV/Sales, EV/EBITDA and P/NTA. Overall, the implied multiples are within the range of theComparable Companies.

(h) The implied P/E multiple is above the average and median, of the minority transactionsamong the Selected Asia F&B Precedent Transactions. The implied EV/EBITDA multiple isbelow the average and above the median multiples of the minority transactions among theSelected Asia F&B Precedent Transactions. The EV/Sales multiple is above the average andthe median multiples of the minority transactions among the Selected Asia F&B PrecedentTransactions.

(i) The implied P/E, EV/EBITDA and EV/Sales multiples are above the average and medianmultiples of the Selected Global Confectionery and Bakery Precedent Transactions.

(j) The Scheme Consideration represents a premium of approximately 8.7% to the closing priceof S$4.00 on the Last Pre-Announcement Trading Day and a premium of approximately9.5%,12.5%,16.8% and 33.5%, respectively, over the VWAP of the Shares in the 1-month, 3-month, 6-month and 12-month periods preceding the Announcement Date.

(k) The premia implied by the Scheme Consideration are generally within the range of thecorresponding premia for the selected precedent take-over offers in Singapore for the timeperiods considered.

(l) The Undertaking Shareholders who hold an aggregate of 25.44% of all the issued Shares(and 58.45% in the Scheme Shares), have provided irrevocable undertakings to vote infavour of the Scheme. The Individual Shareholders, Nestlé and their concert parties willabstain from voting on the Scheme.

(m) The Company has confirmed to us that alternative strategic options were considered prior tothe Announcement, including preliminary discussions with alternative partners.

(n) The Company has not been approached by any person with a competing offer since theAnnouncement.

In rendering our opinion, we have not had regard to any general or specific investmentobjectives, financial situations, risk profiles, tax positions or particular needs or constraintsof any individual Scheme Shareholder or any specific group of Scheme Shareholders andwe neither assume any responsibility for, nor hold ourselves out as advisers to any personother than the Independent Directors.


68

Based upon and subject to the foregoing, we are of the opinion that, as at the LatestPracticable Date, the Scheme Consideration is fair and reasonable from a financial point ofview.

Our opinion is only based on a financial analysis and does not incorporate any assessmentof commercial, legal, tax, regulatory or other matters, including but not limited to: (i) theobjectives highlighted by Nestlé and Hsu Fu Chi in the Scheme Document; and (ii) thepotential impact of the success or failure of the Scheme on the Group. Our opinion alsodoes not incorporate an assessment of the price at which Shares may trade following thesuccess or failure of the Scheme. Such factors (including the aforesaid illustrations) arebeyond the ambit of our review and do not fall within our terms of reference in connectionwith the Scheme.

The Independent Directors may wish to consider advising the Scheme Shareholders whowish to realise their investments in the Company and/or are uncertain of the longer termperformance and prospects of the Company, that such Scheme Shareholders may wish toconsider voting in favour of the approval of the Scheme at the Court Meeting.

If the Independent Directors make a recommendation to the Scheme Shareholders to vote infavour of the Scheme, the Independent Directors may also wish to consider highlighting that theScheme will become effective only if all conditions precedent set out in the ImplementationAgreement and the requisite approvals set out in the Implementation Agreement and the SchemeDocument are obtained.

We wish to emphasise that we have been appointed to render our opinion as of the LatestPracticable Date. Our terms of reference do not require us to express, and we do notexpress, an opinion on the future growth prospects of Hsu Fu Chi. This letter is addressedto the Independent Directors solely for their benefit in connection with and for the purposesof their consideration of the Scheme and should not be relied on by any other party or forany other purpose. This opinion does not constitute and should not be relied on, as adviceor a recommendation to, or confer any rights or remedies upon, any individual SchemeShareholder, specific group of Scheme Shareholders or Individual Shareholder, their relatedcorporations and their respective nominees. Nothing herein shall confer or be deemed or isintended to confer any right or benefit to any third party and the Contracts (Rights of ThirdParties) Act, Chapter 53B of Singapore shall not apply. The recommendations made by theIndependent Directors to the Scheme Shareholders in relation to the Scheme remain thesole responsibility of the Independent Directors.

This letter is governed by, and construed in accordance with the laws of Singapore, and isstrictly limited to the matters stated herein and does not apply by implication to any othermatter. No other person may use, reproduce, disseminate or quote this letter (or any partthereof) for any other purpose at any time and in any manner except with Morgan Stanley’sprior written consent in each specific case.

Yours faithfully,For and on behalf ofMORGAN STANLEY ASIA (SINGAPORE) PTE.

Jonathan PopperManaging Director


69

APPENDIX 2 – LETTER FROM NESTLÉ S.A. TO THE SHAREHOLDERS AND DEPOSITORS

70

31 August 2011

To: The Shareholders and Depositors of Hsu Fu Chi International Limited

Dear Sir/Madam

PROPOSED SCHEME OF ARRANGEMENT UNDER SECTION 86 OF THE CAYMAN COMPANIESLAW TO ACQUIRE A 43.52% INTEREST IN HSU FU CHI INTERNATIONAL LIMITED

1. INTRODUCTION

1.1 On 11 July 2011, the respective boards of Nestlé and the Company jointly announced theproposed establishment of a joint venture between Nestlé and the Individual Shareholders.

1.2 In order to implement the Proposed Transaction, (i) the Company and Nestlé entered into theImplementation Agreement for Nestlé to acquire the Scheme Shares representing approximately43.52% of all the Shares by way of the Scheme from the Scheme Shareholders and (ii) subject tothe Scheme becoming effective, Nestlé will acquire in addition the Sale Shares representingapproximately 16.48% of all the Shares by way of the Share Acquisition. As a result of theProposed Transaction, Nestlé will own 60% of all the Shares with the remaining 40% owned byHoldco.

A copy of the Announcement is available on the website of the SGX-ST at www.sgx.com.

1.3 The Scheme Consideration is on the basis that the Company will not make or agree to make anydistribution or other payments of any kind to any person in his capacity as a shareholder of theCompany on or prior to the Effective Date. To the extent the Company declares or makes anydistribution or other payment of any kind to the Scheme Shareholders on or prior to the EffectiveDate, the Scheme Consideration will be reduced on a per Scheme Share basis by any suchamount which is due and payable (whether paid or unpaid as at the Effective Date) to the SchemeShareholders.

1.4 Nestlé wishes to draw the attention of the Shareholders and Depositors to the fact that theeffectiveness of the Scheme is conditional on the satisfaction or waiver (as applicable) of all theconditions precedent to the Scheme, including without limitation the approval by Ministry ofCommerce, PRC (MOFCOM) of the Scheme, as set out in paragraph 4.1 of the ExplanatoryMemorandum in the Scheme Document and Appendix 7 to the Scheme Document.

1.5 The terms of the Scheme are more particularly described in paragraphs 3 and 4 of the ExplanatoryMemorandum in the Scheme Document.

1.6 If the Scheme becomes effective and binding and the Share Acquisition is completed, Nestlé willown 60% of all the Shares with the remaining 40% owned by Holdco. An application has beenmade to seek confirmation from the SGX-ST to withdraw the Shares from the Official List of theSGX-ST upon the Scheme becoming effective and binding. The SGX-ST has advised that, interalia, subject to the approval of the Scheme Shareholders being obtained at the Court Meeting inthe manner ordered by the Court and the Scheme becoming effective and binding, it has noobjection to the proposed withdrawal of the Shares from the Official List of the SGX-ST. The SGX-ST’s confirmation, however, is not an indication of the merits of the Company, any other GroupCompany, the Scheme, the Share Acquisition or the proposed withdrawal of the Shares from theOfficial List of the SGX-ST.

1.7 Capitalised terms used in this Letter have the same meaning and construction as those defined inthe Scheme Document, unless otherwise indicated.

2. RATIONALE FOR THE SCHEME

2.1 Hsu Fu Chi’s products are tailored to Chinese consumers’ needs and habits, and complementNestlé’s existing product portfolio in the PRC, which includes culinary products, soluble coffee,bottled water, milk powder and products for the foodservice industry. Hsu Fu Chi’s large portfolio ofaffordable products, with the potential for enhanced nutritional value, fits perfectly into Nestlé’sglobal portfolio.

2.2 The Scheme presents the Scheme Shareholders with an opportunity to realise their investment inthe Scheme Shares at an attractive premium of approximately 8.7%, 10.0%, 15.7% and 24.7%over the Company’s closing share price of S$4.000 on 1 July 2011 (being the last full trading daypreceding the Announcement Date), 30-day VWAP of S$3.956, 90-day VWAP of S$3.759 and 180-day VWAP of S$3.490, respectively.

2.3 In maintaining its listing status, the Company incurs compliance costs. The Scheme would allowthe Company to dispense with listing-related expenses and channel its resources to its businessoperations.

3. FUTURE PLANS FOR THE COMPANY

3.1 It is the intention of both Nestlé and the Individual Shareholders that the Company will continuewith its existing business activities and Nestlé and the Individual Shareholders presently have nointention to (i) introduce any major changes to the business of the Company, (ii) redeploy the fixedassets of the Company or (iii) discontinue the employment of the employees of the Group.

3.2 It is also the intention of both Nestlé and the Individual Shareholders to continue to develop andexpand the Company business and preserve the legacy of the Hsu Fu Chi brand.

3.3 The Individual Shareholders and Nestlé intend to ensure that there is continuity of managementand minimal interruption of business of the Company. Subsequent to the Scheme and ShareAcquisition, the current executive chairman of the Company, Mr. Hsu Chen, will continue as CEOand there are currently no plans to change the existing terms of his employment.

4. IMPLEMENTATION OF THE SCHEME

Paragraphs 12 and 14 of the Explanatory Memorandum in the Scheme Document set out thedetails of the process for the implementation of the Scheme and the settlement and registrationprocedures in relation thereto.


71

5. SWITCH OPTION

5.1 Subject to prior consultation with the SIC and the prior written consent of the IndividualShareholders, Nestlé may elect to proceed by way of an Offer in lieu of proceeding with theProposed Transaction by way of the Scheme (the “Switch Option”) in the event of a CompetingOffer (or otherwise).

5.2 In such event, Nestlé will make the Offer on the same or better terms as those which apply to theScheme, including the same or a higher consideration than the Scheme Consideration.

5.3 If Nestlé exercises the Switch Option, the Parties agree that the Implementation Agreement willterminate with effect from the date of the announcement by Nestlé of its firm intention to make theOffer. The Parties’ accrued rights and obligations under the Implementation Agreement and therights and obligations under certain surviving provisions will continue to subsist, but in all otherrespects, the Parties’ rights and obligations under the Implementation Agreement will cease.

6. IRREVOCABLE UNDERTAKINGS

6.1 The Undertaking Shareholders have each given irrevocable undertakings dated 11 July 2011 infavour of Nestlé, inter alia:

(a) to vote all the Shares that it owns directly or indirectly, legally or beneficially, at the CourtMeeting in favour of any resolutions required to give effect to the Scheme as set out in thenotice of meeting in the Scheme Document; and

(b) if Nestlé elects to proceed with an Offer, to accept or procure the acceptance of such Offerin respect of such Shares.

6.2 Further, the Undertaking Shareholders have agreed to be bound by certain non-solicitationprovisions during the term of their undertakings, save for certain exceptions.

6.3 As at the Latest Practicable Date, the Undertaking Shareholders hold directly or indirectly, legallyor beneficially, 202,238,854 Shares in the aggregate, representing approximately 25.44% of all theissued Shares and approximately 58.45% of all the Scheme Shares, details of which are set out asbelow:

Number of Shares directly or indirectly held by Undertaking Percentage Percentage of the

Name Shareholders of all the Shares Scheme Shares

Arisaig Asia Consumer 71,176,000 8.95% 20.57%Fund Limited

Winmoore Holdings 13,324,000 1.68% 3.85%Limited

Star Candy Ltd 117,738,854 14.81% 34.03%

TOTAL 202,238,854 25.44% 58.45%

NOTE: Winmoore Holdings Limited and Star Candy Ltd (each a “BPEA Subsidiary” and together, the “BPEASubsidiaries”) are subsidiaries of The Baring Asia Private Equity Fund IV, L.P.


72

6.4 Lapse of the Irrevocable Undertakings

6.4.1 The irrevocable undertaking of Arisaig Asia Consumer Fund Limited will lapse and cease tohave any effect:

(a) if the Announcement is not released on or before 5.30 p.m. (Singapore time) on thedate of the irrevocable undertaking;

(b) if the Scheme lapses or is withdrawn, other than pursuant to Nestlé’s exercise of theSwitch Option in accordance with certain provisions of the irrevocable undertaking;

(c) if the Offer lapses or is withdrawn;

(d) if the Switch Option has not been exercised and the Company’s shareholders havenot approved the Scheme with the requisite majority by 5.30 p.m. (Singapore time) onthe day falling four (4) months after the Announcement; or

(e) immediately following the close of the Court Meeting.

6.4.2 The irrevocable undertakings of each of the BPEA Subsidiaries will lapse and cease to haveany effect at the earliest of any of the following occurrences:

(a) at 5.30 p.m. (Singapore time) on 11 July 2011, if the Announcement is not releasedon or before 5.30 p.m. (Singapore time) on 11 July 2011;

(b) save where Nestlé had exercised the Switch Option, if the Implementation Agreementis terminated, on the date on which the Implementation Agreement is terminated;

(c) if the acquisition is implemented by way of an Offer pursuant to the exercise of theSwitch Option, on the date such BPEA Subsidiary accepts (or procure theacceptance of) the Offer in respect of all the relevant securities;

(d) at 5.30 p.m. (Singapore time) on 31 March 2012, if the acquisition is implemented byway of an Offer pursuant to the exercise of the Switch Option and the Offer has notbeen declared unconditional in all respects by 5.30 p.m. (Singapore time) 31 March2012;

(e) if the Offer lapses or is withdrawn, on the date that the Offer lapses or is withdrawn;

(f) if the terms of the Scheme deviate substantially from those set out in theAnnouncement;

(g) if any term of the Implementation Agreement is amended, supplemented or varied inany material respect;

(h) at 5.30 p.m. (Singapore time) on the day falling four (4) months after theAnnouncement:

(i) if the Company’s shareholders have not approved the Scheme with therequisite majority by such day; and

(ii) Nestlé has not exercised the Switch Option;

(i) if at any time prior to the Court Meeting, the irrevocable undertaking dated 11 July2011 by Arisaig Asia Consumer Fund Limited in favour of Nestlé lapses, is withdrawnor terminated;


73

(j) if any time prior to the Court Meeting, the transaction agreement entered into or to beentered into by the Individual Shareholders and Nestlé lapses, is withdrawn orterminated; or

(k) if the Company’s shareholders approve the Scheme with the requisite majority at theCourt Meeting, on the date of the Court Meeting.

6.4.3 Save for the Irrevocable Undertakings as disclosed above, neither Nestlé nor any its concertparties has received any other irrevocable undertakings from any other party to vote infavour of the Scheme as at the Latest Practicable Date.

6.5 Each of the Individual Holders has delivered on 26 August 2011 an undertaking to the Court thatthey will, inter alia, support the Scheme and comply with the terms of the Scheme subject to theScheme becoming effective and binding.

7. SHARE ACQUISITION AND JOINT VENTURE

7.1 Subject only to the Scheme being effective, the Individual Holders will sell, and Nestlé will acquire,the Sale Shares.

7.2 The consideration to be paid will be S$4.35 for each Sale Share, payable in cash, which isidentical to the Scheme Consideration.

7.3 Under the terms of the Share Acquisition:

(a) the Individual Shareholders and their related corporations have agreed to support theScheme;

(b) the Individual Shareholders and their related corporations have agreed not to acquire, sell,accept any offer in respect of, or otherwise deal in, any Shares, except pursuant to theScheme, the Share Acquisition, or any transfer of Shares to Holdco, until the Effective Date;

(c) the Individual Shareholders and their related corporations have agreed to give customaryrepresentations and warranties in relation to title, authority and no insolvency;

(d) subject to the occurrence of the Effective Date, the Individual Shareholders, Nestlé, theCompany and Holdco will enter into the Joint Venture Agreement;

(e) subject to the occurrence of the Effective Date, the Individual Shareholders and their relatedcorporations will procure that the Company will enter into a general licence agreement withNestlé and certain affiliates of Nestlé, relating to the licence of trade marks, know-how andother intellectual property rights as further set out in Annex 5 of this Letter; and

(f) the Individual Shareholders and their related corporations have agreed to be bound bycertain exclusivity and non-solicitation provisions with respect to their Shares until theearlier of the Effective Date or Long Stop Date, subject to applicable laws and regulationsand fiduciary duties, as applicable.

7.4 Under the terms of the Joint Venture Agreement:

(a) Nestlé and Holdco, shall each be entitled to appoint a specified number of representativesto the board of directors of the Company approximately proportionate to their shareholdingin the Company;

(b) the current executive chairman, Mr. Hsu Chen, will continue as CEO of the Company for thenext five (5) years;


74

(c) board decisions will be subject to a simple majority vote except for certain limited reservedmatters which will require a positive vote of Holdco; and

(d) the sale of shares in the Company by either party will be subject to a five (5) year initiallock-up period and thereafter to a right of first offer coupled with a right of first refusal.


8.1 Nestlé is a company incorporated in Switzerland and listed on the SIX Swiss Exchange (Code:NESN.VX). Nestlé is the largest food and beverage company in the world, and its principalbusiness is the production, marketing and sales of food and beverage products.

8.2 The global headquarters of Nestlé is located at Avenue Nestlé 55, 1800 Vevey, Switzerland.

8.3 The names, addresses and descriptions of the directors of Nestlé as of the Latest Practicable Dateare as follows:


Peter Brabeck-Letmathe Nestlé S.A. ChairmanAvenue Nestlé 55, 1800 Vevey, Switzerland

Paul Bulcke Nestlé S.A. Chief Executive OfficerAvenue Nestlé 55, 1800 Vevey, Switzerland

Andreas Koopmann Nestlé S.A. 1st Vice ChairmanAvenue Nestlé 55, 1800 Vevey, Switzerland

Rolf Hänggi Nestlé S.A. 2nd Vice ChairmanAvenue Nestlé 55, 1800 Vevey, Switzerland

Jean-René Fourtou Nestlé S.A. DirectorAvenue Nestlé 55, 1800 Vevey, Switzerland

Daniel Borel Nestlé S.A. DirectorAvenue Nestlé 55, 1800 Vevey, Switzerland

Jean-Pierre Meyers Nestlé S.A. DirectorAvenue Nestlé 55, 1800 Vevey, Switzerland

André Kudelski Nestlé S.A. DirectorAvenue Nestlé 55, 1800 Vevey, Switzerland

Carolina Müller-Möhl Nestlé S.A. DirectorAvenue Nestlé 55, 1800 Vevey, Switzerland

Steven George Hoch Nestlé S.A. DirectorAvenue Nestlé 55, 1800 Vevey, Switzerland

Naïna Lal Kidwai Nestlé S.A. DirectorAvenue Nestlé 55, 1800 Vevey, Switzerland

Beat Hess Nestlé S.A. DirectorAvenue Nestlé 55, 1800 Vevey, Switzerland

Titia De Lange Nestlé S.A. DirectorAvenue Nestlé 55, 1800 Vevey, Switzerland

Jean-Pierre Roth Nestlé S.A. DirectorAvenue Nestlé 55, 1800 Vevey, Switzerland

Ann Veneman Nestlé S.A. DirectorAvenue Nestlé 55, 1800 Vevey, Switzerland


75

9. FINANCIAL INFORMATION OF NESTLÉ

9.1 The summary financial information in this paragraph 9, Annex 1, Annex 2, Annex 3, and Annex 4to this Letter should be read together with the financial statements of Nestlé for the relevantperiods and related notes thereto, copies of which are available at www.nestle.com.

9.2 The extracts of the audited consolidated financial statements of the Nestlé group for the financialyears ended on 31 December in 2008, 2009 and 2010 are set out in Annex 1, Annex 2 and Annex3 to this Letter respectively. The extract of the unaudited consolidated financial statements of theNestlé group for the six month period ended on 30 June 2011 is set out in Annex 4 to this Letter.

9.3 Set out below is a summary of the dividends per Nestlé share declared in respect of each of thefinancial years of the Nestlé group ended on 31 December in 2008, 2009 and 2010 and the sixmonth period ended on 30 June 2011 as extracted from the relevant financial statements of Nestléfor the relevant periods.

Financial Year Financial Year Financial Year Six-monthended ended ended period ended

31 December 31 December 31 December 30 June2008 2009 2010 2011

Net dividends per 1.40 1.60 1.85 0.00share (in CHF)

9.4 As at the Latest Practicable Date, there have been no known material changes to the financialposition of the Nestlé group since 31 December 2010, being the date of the last audited accountsof the Nestlé group laid before shareholders of Nestlé in general meeting.

9.5 The significant accounting policies of the Nestlé group applied in the audited consolidated financialstatements of the Nestlé group for the financial year ended on 31 December 2010 (which areincluded in Annex 3 to this Letter) are set out in the notes thereto.

9.6 The unaudited consolidated financial statements of the Nestlé group for the six month periodended on 30 June 2011, which are included in Annex 4 to this Letter, have been prepared on thebasis of different accounting policies from those applied in the audited consolidated financialstatements for the financial year ended on 31 December 2010. Details of the changes are set outin the notes to such unaudited consolidated financial statements in Annex 4 to this Letter.

10. DISCLOSURE OF INTERESTS AND DEALINGS IN SECURITIES

As at the Latest Practicable Date, saved as disclosed in the Scheme Document, none of Nestlé,the Nestlé Directors or any party deemed to be acting in concert with Nestlé:

(a) owns, controls or has agreed to acquire any Shares. There are no other securities whichcarry voting rights, securities which are convertible into Shares, or any rights to subscribefor or options in respect of the Shares;

(b) has dealt for value in any Shares during the three-month period immediately preceding theAnnouncement Date and ending on the Latest Practicable Date; or

(c) has received any irrevocable undertaking from any party to vote in favour of the Scheme atthe Court Meeting other than the Irrevocable Undertakings.


76

11. SPECIAL ARRANGEMENTS

11.1 Save as disclosed in the Scheme Document, as at the Latest Practicable Date, there is noagreement, arrangement or understanding between Nestlé or any party acting in concert withNestlé and (i) any of the current or recent directors of the Company or (ii) any of the current orrecent shareholders of the Company having any connection with or dependence upon the Scheme.

11.2 As at the Latest Practicable Date, there is no agreement, arrangement or understanding wherebyany Scheme Shares acquired by Nestlé and/or its nominees pursuant to the Scheme would betransferred to any other person.

11.3 As at the Latest Practicable Date, there is no agreement, arrangement or understanding for anypayment or other benefit to be made or given to any director of the Company or any director of itsrelated corporations as compensation for loss of office or otherwise in connection with theScheme.

11.4 Save as disclosed in the Scheme Document and Annex 5 of this Letter, as at the LatestPracticable Date, there is no agreement, arrangement or understanding between Nestlé and any ofthe directors of the Company or any other person in connection with or conditional upon theoutcome of the Scheme or otherwise connected with the Scheme.

11.5 As at the Latest Practicable Date, save as disclosed in the Scheme Document, neither Nestlé norany party acting in concert with it has entered into any arrangement with any person of the kindreferred to in Note 7 of Rule 12 of the Code, including indemnity or option arrangements and anyagreement or understanding, formal or informal, of whatever nature, relating to the Shares whichmay be an inducement to deal or refrain from dealing in the Shares.

12. GENERAL AND FINANCIAL INFORMATION RELATING TO THE COMPANY

12.1 The Memorandum and Articles of Association of the Company do not contain any restriction on theright to transfer the Scheme Shares which has the effect of requiring Scheme Shareholders, beforetransferring them, to offer them for purchase to other members of the Company or to any otherperson.

12.2 Save as disclosed in the Scheme Document, in the unaudited consolidated financial statements ofthe Company for FY2011 or any other information on the Company which is publicly available, tothe knowledge of Nestlé, there are no material changes in the financial position or prospects of theCompany since 30 June 2010, being the date of the last balance sheet laid before the Company ina general meeting.

13. SHAREHOLDINGS OF NESTLÉ PRIOR TO, AND FOLLOWING, COMPLETION OF THESCHEME AND SHARE ACQUISITION

Based on the holdings of Shares of Nestlé and the number of Shares in issue as at the LatestPracticable Date, the shareholdings of Nestlé in the Company prior to and following completion of(i) the Scheme and (ii) the Scheme and the Share Acquisition, are as follows:

FollowingPrior to Following completion of the

completion of completion of Scheme and the the Scheme the Scheme Share Acquisition

No. of Shares held No. of Shares held No. of Shares held

Nestlé 0 346,000,000 477,000,000


77

14. MARKET QUOTATIONS

14.1 The following table sets out the closing prices of the Shares on the SGX-ST as at the followingdates:

Date Closing Price

26 August 2011 (the Latest Practicable Date) S$4.16

1 July 2011 (the last Market Day on which Shares were traded on the SGX-ST preceding the Announcement Date) S$4.00

30 June 2011 S$4.00

31 May 2011 S$3.94

29 April 2011 S$3.80

31 March 2011 S$3.75

25 February 2011 S$3.60

31 January 2011 S$3.20

14.2 The highest and lowest closing prices of the Shares on the SGX-ST during the period commencingsix months prior to 1 July 2011 (being the last Market Day on which Shares were traded on theSGX-ST preceding the Announcement Date) to the Latest Practicable Date are as follows:

(a) highest closing price: S$4.40 per Share, transacted on 11 July 2011; and

(b) lowest closing price: S$3.20 per Share, transacted on each of 31 January 2011, 1 February2011, 8 February 2011 and 9 February 2011.

15. CONFIRMATION OF FINANCIAL RESOURCES

Credit Suisse, in its capacity as financial adviser to Nestlé, confirms that sufficient financialresources are available to Nestlé to satisfy in full the aggregate Scheme Consideration payable byNestlé for all the Scheme Shares to be acquired by it pursuant to the Scheme.

16. RESPONSIBILITY STATEMENT

The Nestlé Directors (including those who may have delegated detailed supervision of thepreparation of this Letter) have taken all reasonable care to ensure that the facts stated andopinions expressed in this Letter (other than those relating to the Company) are fair and accurateand no material facts have been omitted from this Letter, and they jointly and severally acceptresponsibility accordingly. Where any information has been extracted from published or publiclyavailable sources, the sole responsibility of the Nestlé Directors has been to ensure, throughreasonable enquiries, that such information is accurately extracted from such sources or, as thecase may be, reflected or reproduced in this Letter. The Nestlé Directors do not accept anyresponsibility for any information relating to or opinions expressed by the Company or the IFA.

Yours faithfully,For and on behalf ofNESTLÉ S.A.

The Board of Directors


78

Annex 1Extract of the audited consolidated financial statements of the Nestlé group for

the financial year ended on 31 December 2008


79

Consolidated income statementfor the year ended 31 December 2008

In millions of CHF Notes 2008 2007

Sales 3 109 908 107 552

Cost of goods sold (47 339) (45 037)

Distribution expenses (9 084) (9 104)

Marketing and administration expenses (35 832) (36 512)

Research and development costs (1 977) (1 875)

EBIT Earnings Before Interest, Taxes, restructuring and impairments 3 15 676 15 024

Net other income/(expenses) 4

Other income 9 426 695

Other expenses (2 124) (1 285)

7 302 (590)

Profit before interest and taxes 22 978 14 434

Net fi nancing cost 5

Financial income 102 576

Financial expense (1 247) (1 492)

(1 145) (916)

Profit before taxes and associates 21 833 13 518

Taxes 7 (3 787) (3 416)

Share of results of associates 8 1 005 1 280

Profit for the period 19 051 11 382

of which attributable to minority interests 1 012 733

of which attributable to shareholders of the parent (Net profi t) 18 039 10 649

As percentages of sales

EBIT Earnings Before Interest, Taxes, restructuring and impairments 14.3% 14.0%

Profit for the period attributable to shareholders of the parent (Net profi t) 16.4% 9.9%

Earnings per share (in CHF)

Basic earnings per share (a) 9 4.87 2.78

Fully diluted earnings per share (a) 9 4.84 2.76

(a) 2007 comparatives have been restated following 1-for-10 share split effective on 30 June 2008.

Consolidated balance sheet as at 31 December 2008before appropriations


Assets

Current assets

Cash and cash equivalents 19 5 835 6 594

Short-term investments 19 1 296 2 902

Trade and other receivables 10/19 13 442 14 890

Current income tax receivables 889 531

Assets held for sale 8 22

Inventories 12 9 342 9 272

Derivative assets 11/19 1 609 754

Prepayments and accrued income 627 805

Total current assets 33 048 35 770

Non-current assets

Property, plant and equipment 13 21 097 22 065

Investments in associates 8 7 796 8 936

Deferred tax assets 7 2 842 2 224

Financial assets 19 3 868 4 213

Employee benefi ts assets (a) 16 60 1 513

Goodwill 14 30 637 33 423

Intangible assets 15 6 867 7 217

Total non-current assets 73 167 79 591

Total assets 106 215 115 361

(a) 2007 comparatives have been restated following first application of IFRIC 14 (refer to Note 32).


80


Liabilities and equity

Current liabilities

Trade and other payables 19 12 608 14 179

Liabilities directly associated with assets held for sale – 7

Financial liabilities 19 15 383 24 541

Current income tax payables 824 856

Derivative liabilities 11/19 1 477 477

Accruals and deferred income 2 931 3 266

Total current liabilities 33 223 43 326

Non-current liabilities


Employee benefi ts liabilities 16 5 464 5 165

Deferred tax liabilities (a) 7 1 341 1 558

Other payables 1 264 1 091

Provisions 18 3 663 3 316

Total non-current liabilities 18 076 17 259

Total liabilities 51 299 60 585

Equity 21

Share capital 383 393

Treasury shares (9 652) (8 013)

Translation reserve (11 103) (6 302)

Retained earnings and other reserves 71 146 66 549

Total equity attributable to shareholders of the parent (a) 50 774 52 627

Minority interests 4 142 2 149

Total equity 54 916 54 776

Total liabilities and equity 106 215 115 361

(a) 2007 comparatives have been restated following first application of IFRIC 14 (refer to Note 32).


81

Consolidated cash fl ow statementfor the year ended 31 December 2008


Operating activities (a)


Non-cash items of income and expense 22 (6 157) 2 097

Decrease/(increase) in working capital 22 (1 787) 82

Variation of other operating assets and liabilities 22 (344) (122)

Operating cash fl ow 10 763 13 439

Investing activities

Capital expenditure 13 (4 869) (4 971)

Expenditure on intangible assets 15 (585) (619)

Sale of property, plant and equipment 13 122 323

Acquisition of businesses 23 (937) (11 232)

Disposal of businesses 24 10 999 456

Cash flows with associates 266 264

Other investing cash fl ows (297) 26

Cash flow from investing activities 4 699 (15 753)

Financing activities

Dividend paid to shareholders of the parent 21 (4 573) (4 004)

Purchase of treasury shares 22 (8 696) (5 455)

Sale of treasury shares and options exercised 639 980

Cash flows with minority interests (367) (205)

Bonds issued 19 2 803 2 023

Bonds repaid 19 (2 244) (2 780)

Increase in other non-current fi nancial liabilities 374 348

Decrease in other non-current fi nancial liabilities (168) (99)

Increase/(decrease) in current fi nancial liabilities (6 100) 9 851

Decrease/(increase) in short-term investments 1 448 3 238

Cash fl ow from fi nancing activities (16 884) 3 897

Currency retranslations 663 (267)

Increase/(decrease) in cash and cash equivalents (759) 1 316

Cash and cash equivalents at beginning of period 6 594 5 278

Cash and cash equivalents at end of period 22 5 835 6 594

(a) Presentation was amended (refer to section Changes in presentation on page 20).


82

Consolidated statement of recognised income and expenseand changes in equity for the year ended 31 December 2008Statement of recognised income and expense (a)


Profit for the period recognised in the income statement 19 051 11 382

Currency retranslations (4 997) (1 195)

Fair value adjustments on available-for-sale fi nancial instruments

– Unrealised results (358) (15)

– Recognition of realised results in the income statement (1) (18)

Fair value adjustments on cash fl ow hedges

– Recognised in hedging reserve (409) 94

– Removed from hedging reserve 52 (168)

Actuarial gains/(losses) on defi ned benefi t schemes (b) 16 (3 139) 273

Changes in equity of associates 8 (853) (631)

Taxes on equity items (b) 7 1 454 (140)

Income and expense recognised directly in equity (8 251) (1 800)

Total recognised income and expense 10 800 9 582

of which attributable to minority interests 798 632

of which attributable to shareholders of the parent 10 002 8 950

(a) Presentation was amended (refer to section Changes in presentation on page 20).(b) 2007 comparatives have been restated following first application of IFRIC 14 (refer to Note 32).


83

Total recognised income and expense (4 801) 14 803 10 002 798 10 800

Dividend paid to shareholders of the parent (4 573) (4 573) (4 573)

Dividends paid to minority interests – (408) (408)

Movement of treasury shares (net) (b) (7 141) (381) (7 522) (7 522)

Changes in minority interests – 1 574 1 574

Equity compensation plans 223 17 240 29 269

Reduction in share capital (10) 5 279 (5 269) – –

Equity as at 31 December 2008 383 (9 652) (11 103) 71 146 50 774 4 142 54 916

(a) Refer to Note 32(b) Includes Nestlé S.A. shares exchanged for warrants (refer to Note 19).

00

80

0

Changes in equity

In millions of CHF

Sh

are

cap

ital

Treasu

rysh

are

s

Tran

slatio

n

rese

rve

Reta

ined

earn

ing

s an

do

ther

rese

rves

Tota

l eq

uity a

ttri

bu

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le

to s

hare

ho

lders

of

the

pare

nt

Min

ori

ty

inte

rest

s

Tota

l eq

uity

Equity as at 31 December 2006 as reported last year 401 (4 644) (5 205) 60 439 50 991 1 857 52 848

First application of IFRIC 14 (a) 793 793 793

Equity restated as at 1 January 2007 401 (4 644) (5 205) 61 232 51 784 1 857 53 641

Total recognised income and expense (1 097) 10 047 8 950 632 9 582


Dividends paid to minority interests – (359) (359)

Movement of treasury shares (net) (4 522) 232 (4 290) (4 290)

Changes in minority interests – 1 1



Equity restated as at 31 December 2007 393 (8 013) (6 302) 66 549 52 627 2 149 54 776


84

Annex 2Extract of the audited consolidated financial statements of the Nestlé group for

the financial year ended on 31 December 2009


85



Co

ntin

uin

go

pera

tio

ns

Dis

co

ntin

ued

op

era

tio

ns

(a)

Tota

l

Co

ntin

uin

go

pera

tio

ns

Dis

co

ntin

ued

op

era

tio

ns

(a)

Tota

l

Sales 3 100 579 7 039 107 618 103 086 6 822 109 908

Cost of goods sold (43 467) (1 741) (45 208) (45 756) (1 583) (47 339)

Distribution expenses (8 237) (183) (8 420) (8 895) (189) (9 084)

Marketing and administration expenses (34 296) (1 974) (36 270) (33 836) (1 996) (35 832)

Research and development costs (1 357) (664) (2 021) (1 359) (618) (1 977)

EBIT Earnings Before Interest, Taxes,

restructuring and impairments 3 13 222 2 477 15 699 13 240 2 436 15 676

Other income 4 466 43 509 185 9 241 9 426

Other expenses 4 (1 196) (42) (1 238) (2 042) (82) (2 124)

Profit before interest and taxes 12 492 2 478 14 970 11 383 11 595 22 978

Financial income 5 123 56 179 43 59 102

Financial expense 5 (777) (17) (794) (1 088) (159) (1 247)

Profit before taxes and associates 11 838 2 517 14 355 10 338 11 495 21 833

Taxes 7 (3 087) (275) (3 362) (3 687) (100) (3 787)

Share of results of associates 8 800 – 800 1 005 – 1 005

Profit for the year 9 551 2 242 11 793 7 656 11 395 19 051

of which attributable to non-controlling interests 291 1 074 1 365 245 767 1 012

of which attributable to shareholders

of the parent (Net profi t) 9 260 1 168 10 428 7 411 10 628 18 039


EBIT Earnings Before Interest, Taxes, restructuring

and impairments 13.1% 35.2% 14.6% 12.8% 35.7% 14.3%

Profit for the year attributable to shareholders

of the parent (Net profi t) 9.7% 16.4%


Basic earnings per share 9 2.59 0.33 2.92 2.00 2.87 4.87

Fully diluted earnings per share 9 2.58 0.33 2.91 1.99 2.85 4.84

(a) Detailed information related to Alcon discontinued operations is disclosed in Note 25.

Consolidated statement of comprehensive incomefor the year ended 31 December 2009


Profit for the year recognised in the income statement 11 793 19 051

Currency retranslations (217) (4 997)


– Unrealised results 182 (358)



– Recognised in hedging reserve 196 (409)

– Removed from hedging reserve 269 52

Actuarial gains/(losses) on defi ned benefi t schemes 16 (1 672) (3 139)

Share of other comprehensive income of associates 8 333 (853)

Taxes 7 90 1 454

Other comprehensive income for the year (834) (8 251)

Total comprehensive income for the year 10 959 10 800

of which attributable to non-controlling interests 1 247 798



86



Assets

Current assets

Cash and cash equivalents 19 2 734 5 835





Derivative assets 11/19 1 671 1 609

Current income tax assets 19 1 045 889

Assets held for sale 25 11 203 8


Non-current assets


Goodwill 14 27 502 30 637




Employee benefi ts assets 16 230 60



Total assets 110 916 106 215


87



Current liabilities




Provisions 18 643 417

Derivative liabilities 11/19 1 127 1 477

Current income tax liabilities 19 1 173 824

Liabilities directly associated with assets held for sale 25 2 890 –






Deferred tax liabilities 7 1 404 1 341

Other payables 1 361 1 264



Equity 21





Total equity attributable to shareholders of the parent 48 915 50 774

Non-controlling interests 4 716 4 142




88



Operating activities

Profit for the year 11 793 19 051

Non-cash items of income and expense 22 3 478 (6 157)

Decrease/(increase) in working capital 22 2 442 (1 787)

Variation of other operating assets and liabilities 22 221 (344)

Operating cash fl ow (a) 17 934 10 763




Sale of property, plant and equipment 111 122

Acquisition of businesses 23 (796) (937)



Other investing cash fl ows (110) (297)

Cash flow from investing activities (a) (5 399) 4 699




Sale of treasury shares and options exercised 292 639

Cash flows with non-controlling interests (720) (367)

Bonds issued 19 3 957 2 803

Bonds repaid 19 (1 744) (2 244)

Inflows from other non-current fi nancial liabilities 294 374

Outflows from other non-current fi nancial liabilities (175) (168)

Infl ows/(outflows) from current fi nancial liabilities (446) (6 100)

Infl ows/(outflows) from short-term investments (1 759) 1 448

Cash flow from fi nancing activities (a) (12 361) (16 884)

Currency retranslations (184) 663

Increase/(decrease) in cash and cash equivalents (10) (759)

Cash and cash equivalents at beginning of year 5 835 6 594

Cash and cash equivalents at end of year 22 5 825 5 835



89

Consolidated statement of changes in equityfor the year ended 31 December 2009

Total comprehensive income (72) 9 784 9 712 1 247 10 959


Dividends paid to non-controlling interests – (732) (732)


Changes in non-controlling interests – 21 21




In millions of CHF Sh

are

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Total comprehensive income (4 801) 14 803 10 002 798 10 800



Movement of treasury shares (net) (7 141) (381) (7 522) (7 522)

Changes in non-controlling interests – 1 574 1 574





90

Annex 3Extract of the audited consolidated financial statements and significant accounting

policies of the Nestlé group for the financial year ended on 31 December 2010


91



Co

ntin

uin

go

pera

tio

ns

Dis

co

ntin

ued

op

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tio

ns

(a)

Tota

l

Co

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Dis

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op

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(a)

Tota

l

Sales 3 104 613 5 109 109 722 100 579 7 039 107 618

Cost of goods sold (44 775) (1 074) (45 849) (43 467) (1 741) (45 208)

Distribution expenses (8 385) (125) (8 510) (8 237) (183) (8 420)

Marketing and administration expenses (36 012) (1 276) (37 288) (34 296) (1 974) (36 270)

Research and development costs (1 403) (478) (1 881) (1 357) (664) (2 021)

EBIT Earnings Before Interest, Taxes,

restructuring and impairments 3 14 038 2 156 16 194 13 222 2 477 15 699

Other income 4 206 24 535 24 741 466 43 509

Other expenses 4 (2 101) (14) (2 115) (1 196) (42) (1 238)

Profit before interest and taxes 12 143 26 677 38 820 12 492 2 478 14 970

Financial income 13 72 22 94 123 56 179

Financial expense 13 (834) (13) (847) (777) (17) (794)

Profit before taxes and associates 11 381 26 686 38 067 11 838 2 517 14 355

Taxes 14 (3 343) (350) (3 693) (3 087) (275) (3 362)

Share of results of associates 15 1 010 – 1 010 800 – 800

Profit for the year 9 048 26 336 35 384 9 551 2 242 11 793

of which attributable to non-controlling interests 271 880 1 151 291 1 074 1 365

of which attributable to shareholders of the parent (Net profi t) 8 777 25 456 34 233 9 260 1 168 10 428


EBIT Earnings Before Interest, Taxes, restructuring

and impairments 13.4% 42.2% 14.8% 13.1% 35.2% 14.6%

Profit for the year attributable to shareholders



Basic earnings per share 16 2.60 7.56 10.16 2.59 0.33 2.92

Fully diluted earnings per share 16 2.60 7.52 10.12 2.58 0.33 2.91


Consolidated statement of comprehensive incomefor the year ended 31 December 2010

In millions of CHF 2010 2009

Profit for the year recognised in the income statement 35 384 11 793

Currency retranslations (4 801) (217)


– Unrealised results 227 182



– Recognised in hedging reserve 704 196

– Removed from hedging reserve (752) 269

Actuarial gains/(losses) on defi ned benefi t schemes (153) (1 672)

Share of other comprehensive income of associates (89) 333

Taxes 268 90

Other comprehensive income for the year (4 606) (834)

Total comprehensive income for the year 30 778 10 959

of which attributable to non-controlling interests 941 1 247



92



Assets

Current assets

Cash and cash equivalents 13/17 8 057 2 734





Derivative assets 13 1 011 1 671

Current income tax assets 956 1 045

Assets held for sale (a) 28 11 203


Non-current assets


Goodwill 8 27 031 27 502





Current income tax assets 90 213



Total assets 111 641 110 916

(a) Mainly Alcon in 2009.


93

Consolidated balance sheet as at 31 December 2010 (continued)



Current liabilities

Financial debt 13 12 617 14 438




Derivative liabilities 13 456 1 127

Current income tax liabilities 1 079 1 173

Liabilities directly associated with assets held for sale (a) 3 2 890



Financial debt 13 7 483 8 966



Deferred tax liabilities 14 1 371 1 404

Other payables 13 1 253 1 361



Equity 18





Total equity attributable to shareholders of the parent 61 867 48 915

Non-controlling interests 731 4 716



(a) Mainly Alcon in 2009.


94




Profit for the year 35 384 11 793

Non-cash items of income and expense 17 (20 948) 3 478

Decrease/(increase) in working capital 17 (632) 2 442

Variation of other operating assets and liabilities 17 (196) 221

Operating cash fl ow (a) 13 608 17 934




Sale of property, plant and equipment 7 113 111

Acquisition of businesses 2 (5 582) (796)



Other investing cash fl ows (2 967) (110)

Cash flow from investing activities (a) 14 549 (5 399)




Sale of treasury shares 278 292


Bonds issued 1 219 3 957

Bonds repaid (832) (1 744)



Infl ows/(outflows) from current fi nancial liabilities (2 174) (446)

Infl ows/(outflows) from short-term investments (5 835) (1 759)

Cash flow from fi nancing activities (a) (25 808) (12 361)

Currency retranslations (117) (184)

Increase/(decrease) in cash and cash equivalents 2 232 (10)


Cash and cash equivalents at end of year 17 8 057 5 825

(a) Detailed information related to Alcon discontinued operations is disclosed in Note 2. In 2010, even if Alcon’s assets and liabilities were classified as held for sale, individual lines of the cash flow statement comprise Alcon’s movements until disposal.


95

Consolidated statement of changes in equityfor the year ended 31 December 2010

In millions of CHF Sh

are

cap

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Treasu

rysh

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Total comprehensive income (72) 9 784 9 712 1 247 10 959




Changes in non-controlling interests – 21 21




Total comprehensive income (4 619) 34 456 29 837 941 30 778




Changes in non-controlling interests (146) (146) (4 216) (4 362)


Adjustment for hyperinfl ation (a) 305 305 305


Equity as at 31 December 2010 347 (11 108) (15 794) 88 422 61 867 731 62 598

(a) Relates to Venezuela, considered as a hyperinfl ationary economy.


96

Notes

1. Accounting policies

Accounting convention and accounting standardsThe Consolidated Financial Statements comply with

International Financial Reporting Standards (IFRS) issued

by the International Accounting Standards Board (IASB)

and with the Interpretations issued by the International

Financial Reporting Interpretations Committee (IFRIC).

The Consolidated Financial Statements have been

prepared on an accrual basis and under the historical cost

convention, unless stated otherwise. All signifi cant

consolidated companies and associates have a 31 December

accounting year-end.

The preparation of the Consolidated Financial Statements

requires Group Management to exercise judgement and to

make estimates and assumptions that affect the application

of policies, reported amounts of revenues, expenses, assets

and liabilities and disclosures. These estimates and

associated assumptions are based on historical experience

and various other factors that are believed to be reasonable

under the circumstances. Actual results may differ from

these estimates.

The estimates and underlying assumptions are reviewed

on an ongoing basis. Revisions to accounting estimates are

recognised in the period in which the estimate is revised if

the revision affects only that period, or in the period of the

revision and future periods if the revision affects both

current and future periods. Those areas affect mainly

provisions, goodwill impairment tests, employee benefi ts,

allowance for doubtful receivables, share-based payments

and taxes, and key assumptions are detailed in the related

notes.

Scope of consolidationThe Consolidated Financial Statements comprise those

of Nestlé S.A. and of its affiliated companies, including

joint ventures and associates (the Group). The list of the

principal companies is provided in the section “Companies

of the Nestlé Group.”

Consolidated companiesCompanies, in which the Group has the power to exercise

control, are fully consolidated. This applies irrespective of

the percentage of interest in the share capital. Control refers

to the power to govern the fi nancial and operating policies

of a company so as to obtain the benefi ts from its activities.

Non-controlling interests are shown as a component of equity

in the balance sheet and the share of the profi t attributable

to non-controlling interests is shown as a component of

profi t for the year in the income statement.

Proportionate consolidation is applied for companies

over which the Group exercises joint control with partners.

The individual assets, liabilities, income and expenses are

consolidated in proportion to the Nestlé participation in

their equity (usually 50%).

Newly acquired companies are consolidated from the

effective date of control, using the purchase method.

AssociatesCompanies where the Group has the power to exercise

a signifi cant influence but does not exercise control are

accounted for using the equity method. The net assets

and results are adjusted to comply with the Group’s

accounting policies. The carrying amount of goodwill

arising from the acquisition of associates is included in the

carrying amount of investments in associates.

Venture fundsInvestments in venture funds are recognised in accordance

with the consolidation methods described above,

depending on the level of control or signifi cant infl uence

exercised.

Foreign currenciesThe functional currency of the Group’s entities is the

currency of their primary economic environment.

In individual companies, transactions in foreign currencies

are recorded at the rate of exchange at the date of the

transaction. Monetary assets and liabilities in foreign

currencies are translated at year-end rates. Any resulting

exchange differences are taken to the income statement.

On consolidation, assets and liabilities of Group entities

reported in their functional currencies are translated into

Swiss Francs, the Group’s presentation currency, at year-

end exchange rates. Income and expense items are

translated into Swiss Francs at the annual weighted average

rates of exchange or at the rate on the date of the

transaction for signifi cant items.

Differences arising from the retranslation of opening net

assets of Group entities, together with differences arising

from the restatement of the net results for the year of Group

entities, are recognised in other comprehensive income.


97

The balance sheet and net results of Group entities

operating in hyperinfl ationary economies are restated for

the changes in the general purchasing power of the local

currency, using offi cial indices at the balance sheet date,

before translation into Swiss Francs at year-end rates.

Segment reportingOperating segments refl ect the Group’s management

structure and the way financial information is regularly

reviewed by the Group’s chief operating decision maker

(CODM), which is defined as the Executive Board.

The Group is focused in two areas of activity, Food and

Beverages, and Pharmaceuticals. The Group’s Food and

Beverages business is managed through three geographic

Zones and several Globally Managed Businesses (GMB).

Zones and GMB, that meet the quantitative threshold of

10% of sales, EBIT or assets, are presented on a

standalone basis as reportable segments. Other GMB

that do not meet the threshold, like Nestlé Professional,

Nespresso, and the food and beverages Joint Ventures,

are aggregated and presented in Other Food and

Beverages. The Group’s pharmaceutical activities are also

managed, and presented, separately. Therefore, the

Group’s reportable operating segments are:

– Zone Europe;

– Zone Americas;

– Zone Asia, Oceania and Africa;

– Nestlé Waters;

– Nestlé Nutrition;

– Other Food and Beverages; and

– Pharma.

As some operating segments represent geographic zones,

information by product is also disclosed. The eight product

groups that are disclosed represent the highest categories

of products that are followed internally.

Finally, the Group provides information attributed to the

country of domicile of the Group’s parent company (Nestlé S.A.

– Switzerland) and to the ten most important countries in

terms of sales.

Segment results represent the contribution of the different

segments to central overheads, research and development

costs and the profi t of the Group. Specifi c corporate

expenses as well as specific research and development

costs are allocated to the corresponding segments.

Segment assets and liabilities are aligned with internal

reported information to the CODM. Segment assets comprise

property, plant and equipment, intangible assets, goodwill,

trade and other receivables, assets held for sale, inventories,

prepayments and accrued income as well as specifi c

financial assets associated to the reportable segments.

Segment liabilities comprise trade and other pay ables,

liabilities directly associated with assets held for sale,

some other payables as well as accruals and deferred

income. Eliminations represent inter-company balances

between the different segments.

Segment assets by operating segment represent the

situation at the end of the year. Assets and liabilities by

product repre sent the annual average, as this provides

a better indication of the level of invested capital for

management purposes.

Capital additions represent the total cost incurred to

acquire property, plant and equipment, intangible assets

and goodwill, including those arising from business

combinations. Capital expenditure represents the

investment in property, plant and equipment only.

Depreciation of segment assets includes depreciation

of property, plant and equipment and amortisation of

intangible assets. Impairment of assets includes impairment

related to property, plant and equipment, intangible assets

and goodwill.

Unallocated items represent non-specific items whose

allocation to a segment would be arbitrary. They mainly

comprise:

– corporate expenses and related assets/liabilities;

– research and development costs and related assets/

liabilities; and

– some goodwill and intangible assets.

Non-current assets by geography include property,

plant and equipment, intangible assets and goodwill that

are attributable to the ten most important countries and

the country of domicile of Nestlé S.A.

Valuation methods, presentation and defi nitionsRevenueRevenue represents amounts received and receivable from

third parties for goods supplied to the customers and for

services rendered. Revenue from the sales of goods is

recognised in the income statement at the moment when

the significant risks and rewards of ownership of the goods

1. Accounting policies (continued)


98

have been transferred to the buyer, which is mainly upon

shipment. It is measured at the list price applicable to

a given distribution channel after deduction of returns,

sales taxes, pricing allowances and similar trade discounts.

Payments made to the customers for commercial services

received are expensed.

ExpensesCost of goods sold is determined on the basis of the cost

of production or of purchase, adjusted for the variation of

inventories. All other expenses, including those in respect

of advertising and promotions, are recognised when the

Group receives the risks and rewards of ownership of the

goods or when it receives the services.

Net other income/(expenses)These comprise all exit costs including but not limited

to profi t and loss on disposal of property, plant and

equipment, profi t and loss on disposal of businesses,

onerous contracts, restructuring costs, impairment of

property, plant and equipment, intangibles and goodwill.

Restructuring costs are restricted to dismissal

indemnities and employee benefi ts paid to terminated

employees upon the reorganisation of a business.

Dismissal indemnities paid for normal attrition such as

poor performance, professional misconduct, etc. are part

of the expenses by functions.

Net fi nancing costNet financing cost includes the financial expense on

borrowings from third parties as well as the fi nancial

income earned on funds invested outside the Group.

Net financing cost also includes other fi nancial income

and expense, such as exchange differences on loans and

borrowings, results on foreign currency and interest rate

hedging instruments that are recognised in the income

statement. Certain borrowing costs are capitalised as

explained under the section on Property, plant and equipment.

Others are expensed.

Unwind of discount on provisions is presented in net

fi nancing cost.

TaxesThe Group is subject to taxes in different countries all over

the world. Taxes and fiscal risks recognised in the

Consolidated Financial Statements refl ect Group

Management’s best estimate of the outcome based on the

facts known at the balance sheet date in each individual

country. These facts may include but are not limited to

change in tax laws and interpretation thereof in the

various jurisdictions where the Group operates. They may

have an impact on the income tax as well as the resulting

assets and liabilities. Any differences between tax

estimates and final tax assessments are charged to the

income statement in the period in which they are in curred,

unless anticipated.

Taxes include current taxes on profi t and other taxes

such as taxes on capital. Also included are actual or

potential withholding taxes on current and expected

transfers of income from Group companies and tax

adjustments relating to prior years. Income tax is

recognised in the income statement, except to the extent

that it relates to items directly taken to equity or other

comprehensive income, in which case it is recognised

against equity or other comprehensive income.

Deferred taxation is the tax attributable to the

temporary differences that arise when taxation authorities

recognise and measure assets and liabilities with rules

that differ from the principles of the Consolidated

Financial Statements. It also arises on temporary

differences stemming from tax losses carried forward.

Deferred taxes are calculated under the liability method

at the rates of tax expected to prevail when the temporary

differences reverse subject to such rates being

substantially enacted at the balance sheet date. Any

changes of the tax rates are recognised in the income

statement unless related to items directly recognised

against equity or other comprehensive income. Deferred

tax liabilities are recognised on all taxable temporary

differences excluding non-deductible goodwill. Deferred

tax assets are recognised on all deductible tem porary

differences provided that it is probable that future taxable

income will be available.

For share-based payments, a deferred tax asset is

recognised in the income statement over the vesting

period, provided that a future reduction of the tax expense

is both probable and can be reliably estimated. The

deferred tax asset for the future tax deductible amount

exceeding the total share-based payment cost is

recognised in equity.



99

Financial instrumentsClasses of fi nancial instrumentsThe Group aggregates its fi nancial instruments into classes

based on their nature and characteristics. The details of

financial instruments by class are disclosed in the notes.

Financial assetsFinancial assets are initially recognised at fair value plus

directly attributable transaction costs. However when

a financial asset at fair value through profi t or loss is

recognised, the transaction costs are expensed

immediately. Subsequent remeasurement of fi nancial

assets is determined by their classification that is revisited

at each reporting date.

Derivatives embedded in other contracts are separated

and treated as stand-alone derivatives when their risks

and characteristics are not closely related to those of their

host contracts and the respective host contracts are not

carried at fair value.

In case of regular way purchase or sale (purchase or

sale under a contract whose terms require delivery within

the time frame established by regulation or convention in

the market place), the settlement date is used for both

initial recognition and subsequent derecognition.

At each balance sheet date, the Group assesses

whether its financial assets are to be impaired. Impairment

losses are recognised in the income statement where

there is objective evidence of impairment, such as where

the issuer is in bankruptcy, default or other signifi cant

fi nancial difficulty. In addition, for an investment in an

equity security, a significant or prolonged decline in its fair

value below its cost is objective evidence of impairment.

Impairment losses are reversed when the reversal can be

objectively related to an event occurring after the

recognition of the impairment loss. For debt instruments

measured at amortised cost or fair value, the reversal is

recognised in the income statement. For equity

instruments classified as available for sale, the reversal is

recognised in other comprehensive income. Impairment

losses on financial assets carried at cost because their fair

value cannot be reliably measured are never reversed.

Financial assets are derecognised (in full or partly)

when substantially all the Group’s rights to cash fl ows

from the respective assets have expired or have been

transferred and the Group has neither exposure to


substantially all the risks inherent in those assets nor

entitlement to rewards from them.

The Group classifi es its fi nancial assets into the following

categories: loans and receivables, held-for-trading assets

(fi nan cial assets at fair value through profi t and loss), held-

to-maturity investments and available-for-sale assets.

Loans and receivablesLoans and receivables are non-derivative fi nancial assets

with fi xed or determinable payments that are not quoted

in an active market. This category includes the following

classes of financial assets: loans; trade and other

receivables and cash and cash equivalents (cash balances,

deposits at sight and other short-term highly liquid

investments with original maturities of three months or

less).

Subsequent to initial measurement, loans and

receivables are carried at amortised cost using the

effective interest rate method less appropriate allowances

for doubtful receivables.

Allowances for doubtful receivables represent the

Group’s estimates of losses that could arise from the failure

or inability of customers to make payments when due.

These estimates are based on the ageing of customers

balances, specifi c credit circumstances and the Group’s

historical bad receivables experience.

Loans and receivables are further classifi ed as current and

non-current depending whether these will be realised within

twelve months after the balance sheet date or beyond.

Held-for-trading assetsThe Group does not apply the fair value option. Held-for-

trading assets are marketable securities, derivative fi nancial

instruments and other fi xed income portfolios that are

managed with the aim of delivering performance over

agreed benchmarks and are therefore classifi ed as trading.

Subsequent to initial measurement, held-for-trading

assets are carried at fair value and all their gains and

losses, realised and unrealised, are recognised in the

income statement.

Held-to-maturity investmentsHeld-to-maturity investments are non-derivative fi nancial

assets with fi xed or determinable payments and fi xed

maturities. The Group uses this category when it has an


100


intention and ability to hold them until maturity and when

the re-sale of such investments is prohibited.

Subsequent to initial recognition, held-to-maturity

investments are recognised at amortised cost less

impairment losses. They are further classified as current

and non-current depending whether they will mature

within twelve months after the balance sheet date or

beyond.

Available-for-sale assetsAvailable-for-sale assets are those non-derivative fi nancial

assets that are either designated as such upon initial

recognition or are not classified in any of the other

financial assets categories. This category includes the

following classes of financial assets: bonds, equities,

commercial paper and bills, time deposits and other

investments. They are split into:

– short-term investments, if their maturity is more than

three months at inception and if they are due within

a period of 12 months or less; or there is no maturity but

the assets are expected to be realised within 12 months

after the reporting period; and

– non-current fi nancial assets.

Subsequent to initial measurement, available-for-sale

assets are stated at fair value with all unrealised gains or

losses recognised against other comprehensive income

until their disposal when such gains or losses are

recognised in the income statement.

Interest earned on available-for-sale assets is calculated

using the effective interest rate method and is recognised

in the income statement as part of interest income under

net financing cost. Accrued interest on available-for-sale

financial assets is included in the balance sheet line

prepayments and accrued income.

Financial liabilities at amortised costFinancial liabilities are initially recognised at the fair value

of consideration received less directly attributable

transaction costs.

Subsequent to initial measurement, fi nancial liabilities

are recognised at amortised cost unless they are part of

a fair value hedge relationship (refer to fair value hedges).

The difference between the initial carrying amount of the

fi nancial liabilities and their redemption value is recognised

in the income statement over the contractual terms using

the effective interest rate method. This category includes

the following classes of financial liabilities: trade and other

payables; commercial paper; bonds and other fi nancial

liabilities.

Financial liabilities at amortised cost are further

classified as current and non-current depending whether

these will fall due within twelve months after the balance

sheet date or beyond.

Financial liabilities are derecognised (in full or partly)

when either the Group is discharged from its obligation,

it expires, is cancelled or replaced by a new liability with

substantially modifi ed terms.

Derivative fi nancial instrumentsA derivative is a financial instrument that changes its

values in response to changes in the underlying variable,

requires no or little net initial investment and is settled at

a future date. Derivatives are mainly used to manage

exposures to foreign exchange, interest rate and

commodity price risk. Whilst some derivatives are also

acquired with the aim of managing the return of

marketable securities portfolios, these derivatives are only

acquired when there are underlying fi nancial assets.

Derivatives are initially recognised at fair value. These

are subsequently remeasured at fair value on a regular

basis and at each reporting date as a minimum. The fair

values of exchange-traded derivatives are based on market

prices, while the fair value of the over-the-counter

derivatives are determined using accepted mathematical

models based on market data.

Derivatives are carried as assets when their fair value is

positive and as liabilities when their fair value is negative.

The Group’s derivatives mainly consist of currency

forwards, futures, options and swaps; commodity futures

and options; interest rate forwards, futures, options and

swaps.

The use of derivatives is governed by the Group’s

policies approved by the Board of Directors, which provide

written principles on the use of derivatives consistent with

the Group’s overall risk management strategy.

Hedge accountingThe Group designates and documents certain derivatives

as hedging instruments against changes in fair values of

recognised assets and liabilities (fair value hedges), highly


101


probable forecast transactions (cash flow hedges) and

hedges of net investments in foreign operations (net

investment hedges). The effectiveness of such hedges is

assessed at inception and verified at regular intervals and

at least on a quarterly basis, using prospective and

retrospective testing.

Fair value hedgesThe Group uses fair value hedges to mitigate foreign

currency and interest rate risks of its recognised assets

and liabilities.

The changes in fair values of hedging instruments are

recognised in the income statement. Hedged items are

also adjusted for the risk being hedged, with any gain or

loss being recognised in the income statement.

Cash fl ow hedgesThe Group uses cash flow hedges to mitigate a particular

risk associated with a recognised asset or liability or highly

probable forecast transactions, such as anticipated future

export sales, purchases of equipment and raw materials,

as well as the variability of expected interest payments

and receipts.

The effective part of the changes in fair value of

hedging instruments is recognised in other comprehensive

income, while any ineffective part is recognised

immediately in the income statement. When the hedged

item results in the recognition of a non-financial asset or

liability, the gains or losses previously recognised in other

comprehensive income are included in the measurement

cost of the asset or of the liability. Otherwise the gains or

losses previously recognised in other comprehensive

income are removed and recognised in the income

statement at the same time as the hedged transaction.

Net investment hedgesThe Group uses net investment hedges to mitigate

translation exposure on its net investments in affi liated

companies.

The changes in fair values of hedging instruments are

taken directly to other comprehensive income together

with gains or losses on the foreign currency translation of

the hedged investments. All of these fair value gains or

losses are deferred in equity until the investments are sold

or otherwise disposed of.

Undesignated derivativesUndesignated derivatives are comprised of two

categories. The first includes derivatives acquired in the

frame of risk management policies for which hedge

accounting is not applied. The second category relates

to derivatives that are acquired with the aim of delivering

performance over agreed benchmarks of marketable

securities portfolios.

Subsequent to initial measurement, undesignated

derivatives are carried at fair value and all their gains and

losses, realised and unrealised, are recognised in the

income statement.

Fair valueThe Group determines the fair value of its fi nancial

instruments on the basis of the following hierarchy.

i) The fair value of financial instruments quoted in active

markets is based on their quoted closing price at the

balance sheet date. Examples include commodity

derivative assets and liabilities and other fi nancial assets

such as investments in equity and debt securities.

ii) The fair value of financial instruments that are not

traded in an active market is determined by using

valuation techniques using observable market data.

Such valuation techniques include discounted cash

flows, standard valuation models based on market

parameters, dealer quotes for similar instruments and

use of comparable arm’s length transactions. For

example, the fair value of forward exchange contracts,

currency swaps and interest rate swaps is determined

by discounting estimated future cash flows using a risk-

free interest rate.

iii) The fair value of a small number of instruments are

determined on the basis of entity specifi c valuations

using inputs that are not based on observable market

data (unobservable inputs). When the fair value of

unquoted instruments cannot be measured with

suffi cient reliabi lity, the Group carries such instruments

at cost less impairment, if applicable.

InventoriesRaw materials and purchased finished goods are valued at

purchase cost. Work in progress and manufactured

finished goods are valued at production cost. Production

cost includes direct production costs and an appropriate


102


proportion of production overheads and factory

depreciation.

Raw material inventories and purchased fi nished goods

are accounted for using the FIFO (first in, fi rst out)

method. The weighted average cost method is used for

other inventories.

An allowance is established when the net realisable

value of any inventory item is lower than the value

calculated above.

Prepayments and accrued incomePrepayments and accrued income comprise payments

made in advance relating to the following year, and

income relating to the current year, which will not be

invoiced until after the balance sheet date.

Property, plant and equipmentProperty, plant and equipment are shown in the balance

sheet at their historical cost. Depreciation is provided on

components that have homogenous useful lives by using

the straight-line method so as to depreciate the initial cost

down to the residual value over the estimated useful lives.

The residual values are 30% on head offices and nil for all

other asset types. The useful lives are as follows:

Buildings 20 – 40 years

Machinery and equipment 10 – 25 years

Tools, furniture, information technology

and sundry equipment 3 – 10 years

Vehicles 3 – 8 years

Land is not depreciated.

Useful lives, components and residual amounts are

reviewed annually. Such a review takes into consideration

the nature of the assets, their intended use including but

not limited to the closure of facilities and the evolution of

the techno logy and competitive pressures that may lead to

technical obsolescence.

Depreciation of property, plant and equipment is

allocated to the appropriate headings of expenses by

function in the income statement.

Borrowing costs incurred during the course of

construction are capitalised if the assets under

construction are significant and if their construction

requires a substantial period to complete (typically more

than one year). The capitalisation rate is determined on the

basis of the short term borrowing rate for the period of

construction. Premiums capitalised for leasehold land or

buildings are amortised over the length of the lease.

Government grants are recognised in accordance with the

deferral method, whereby the grant is set up as deferred

income which is released to the income statement over

the useful life of the related assets. Grants that are not

related to assets are credited to the income statement

when they are received.

Leased assetsAssets acquired under finance leases are capitalised and

depreciated in accordance with the Group’s policy on

property, plant and equipment unless the lease term is

shorter. Land and building leases are recognised

separately provided an allocation of the lease payments

between these categories is reliable. The associated

obligations are included under fi nancial liabilities.

Rentals payable under operating leases are expensed.

The costs of the agreements that do not take the legal

form of a lease but convey the right to use an asset are

separated into lease payments and other payments if the

entity has the control of the use or of the access to the

asset or takes essentially all the output of the asset. Then

the entity determines whether the lease component of the

agreement is a finance or an operating lease.

Business combinations and related goodwillAs from 1 January 1995, the excess of the cost of an

acquisition over the fair value of the net identifi able assets,

liabilities and contingent liabilities acquired is capitalised.

Previously these amounts had been written off through

equity.

Goodwill is not amortised but tested for impairment at

least annually and upon the occurrence of an indication of

impairment. The impairment testing process is described

in the appropriate section of these policies.

Goodwill is recorded in the functional currencies of the

acquired operations.

All assets, liabilities and contingent liabilities acquired in

a business combination are recognised at the acquisition

date and measured at their fair value.


103


Intangible assetsThis heading includes intangible assets that are internally

generated or acquired either separately or in a business

combination when they are identifi able and can be reliably

measured. Intangible assets are considered to be

identifi able if they arise from contractual or other rights,

or if they are separable (i.e. they can be disposed of either

individually or together with other assets). Intangible

assets comprise inde finite life intangible assets and fi nite

life intangible assets. Internally generated intangible assets

are capitalised, provided they generate future economic

benefi ts and their costs are clearly identifi able. Borrowing

costs incurred during the development of internally

generated intangible assets are capitalised if the assets

are significant and if their development requires a

substantial period to complete (typically more than one

year).

Indefinite life intangible assets are those for which there

is no foreseeable limit to their useful economic life as they

arise from contractual or other legal rights that can be

renewed without significant cost and are the subject of

continuous marketing support. They are not amortised but

tested for impairment annually or more frequently if an

impairment indicator is triggered. They mainly comprise

certain brands, trademarks and intellectual property

rights. The assessment of the classification of intangible

assets as indefinite is reviewed annually.

Finite life intangible assets are those for which there

is an expectation of obsolescence that limits their useful

economic life or where the useful life is limited by

contractual or other terms. They are amortised over the

shorter of their contractual or useful economic lives.

They comprise mainly management information systems,

patents and rights to carry on an activity (e. g. exclusive

rights to sell products or to perform a supply activity).

Finite life intan gible assets are amortised on a straight-line

basis assuming a zero resi d ual value: management

information systems over a period ranging from 3 to

5 years; and other finite life intangible assets over 5 to

20 years. Useful lives and residual values are reviewed

annually.

Amortisation of intangible assets is allocated to the

appropriate headings of expenses by function in the

income statement.

Research and developmentResearch costs are charged to the income statement in

the year in which they are incurred.

Development costs relating to new products are not

capitalised because the expected future economic benefi ts

cannot be reliably determined. As long as the products

have not reached the market place, there is no reliable

evidence that positive future cash fl ows would be obtained.

Other development costs (essentially management

information system software) are capitalised provided

that there is an identifi able asset that will be useful in

generating future benefi ts in terms of savings, economies

of scale, etc.

Impairment of goodwill and indefinite life intangibleassetsGoodwill and indefinite life intangible assets are tested for

impairment at least annually and upon the occurrence of

an indication of impairment.

The impairment tests are performed annually at the

same time each year and at the cash generating unit

(CGU) level. The Group defines its CGU based on the way

that it monitors and derives economic benefi ts from the

acquired goodwill and intangibles. The impairment tests

are performed by comparing the carrying value of the

assets of these CGU with their recoverable amount, based

on their future projected cash flows discounted at an

appropriate pre-tax rate of return. Usually, the cash fl ows

correspond to estimates made by Group Management in

financial plans and business strategies covering a period

of fi ve years. They are then projected to 50 years using

a steady or declining growth rate given that the Group

businesses are of a long-term nature. The Group assesses

the uncertainty of these estimates by making sensitivity

analyses. The discount rate refl ects the current assessment

of the time value of money and the risks specifi c to the CGU

(essentially country risk). The business risk is included in

the determination of the cash flows. Both the cash fl ows

and the discount rates exclude infl ation.

An impairment loss in respect of goodwill is never

subsequently reversed.


104


Impairment of property, plant and equipment andfinite life intangible assetsConsideration is given at each balance sheet date to

determine whether there is any indication of impairment

of the carrying amounts of the Group’s property, plant and

equipment and finite life intangible assets. Indication could

be unfavourable development of a business under

competitive pressures or severe economic slowdown in

a given market as well as reorganisation of the operations

to leverage their scale. If any indication exists, an asset’s

recoverable amount is estimated. An impairment loss is

recognised when ever the carrying amount of an asset

exceeds its recoverable amount. The recoverable amount

is the greater of the fair value less cost to sell and value in

use. In asses sing value in use, the estimated future cash

flows are discounted to their present value, based on the

time value of money and the risks specific to the country

where the assets are located. The risks specific to the

asset are included in the determina tion of the cash fl ows.

Assets that suffered an impairment are tested for

possible reversal of the impairment at each reporting date

if indications exist that impairment losses recognised in

prior periods no longer exist or have decreased.

Assets held for sale and discontinued operationsNon-current assets held for sale (and disposal groups) are

presented separately in the current section of the balance

sheet. Immediately before the initial classification of the

assets (and disposal groups) as held for sale, the carrying

amounts of the assets (or all the assets and liabilities in the

disposal groups) are measured in accordance with their

applicable accounting policy. Non-current assets held for

sale (and disposal groups) are subsequently measured at

the lower of their carrying amount and fair value less cost

to sell. Non-current assets held for sale (and disposal

groups) are no longer depreciated.

Upon occurrence of discontinued operations, the

income statement of the discontinued operations is

presented separately in the consolidated income statement.

Comparative information is restated accordingly. Balance

sheet and cash flow information related to discontinued

operations are disclosed separately in the notes.

ProvisionsProvisions comprise liabilities of uncertain timing or

amount that arise from restructuring plans, environmental,

litigation and other risks. Provisions are recognised when

there exists a legal or constructive obligation stemming

from a past event and when the future cash outfl ows can

be reliably estimated. Obligations arising from restructuring

plans are recognised when detailed formal plans have been

established and when there is a valid expectation that such

plans will be carried out by either starting to implement

them or announcing their main features. Obligations under

litigations refl ect Group Management’s best estimate of

the outcome based on the facts known at the balance

sheet date.

Contingent assets and liabilitiesContingent assets and liabilities are possible rights and

obligations that arise from past events and whose

existence will be confirmed only by the occurrence or

non-occurrence of one or more uncertain future events

not fully within the control of the Group. They are

disclosed in the notes.

Post-employment benefi tsThe liabilities of the Group arising from defi ned benefi t

obligations, and the related current service cost, are

determined using the projected unit credit method.

Actuarial advice is provided both by external consultants

and by actuaries employed by the Group. The actuarial

assumptions used to calculate the defi ned benefi t

obligations vary according to the economic conditions of

the country in which the plan is located. Such plans are

either externally funded (in the form of independently

administered funds) or unfunded.

For the funded defi ned benefi t plans, the defi cit or

excess of the fair value of plan assets over the present value

of the defi ned benefi t obligation is recognised as a liability

or an asset in the balance sheet, taking into account any

unrecognised past service cost. However, an excess of

assets is recognised only to the extent that it represents

a future economic benefi t which is available in the form of

refunds from the plan or reductions in future contributions

to the plan. When these criteria are not met, it is not

recognised but is disclosed in the notes. Impacts of

minimum funding requirements in relation to past service

are considered when determining pension obligations.


105


Actuarial gains and losses arise mainly from changes in

actuarial assumptions and differences between actuarial

assumptions and what has actually occurred. They are

recognised in the period in which they occur in other

comprehensive income.

For defi ned benefi t plans, the pension cost charged to

the income statement consists of current service cost,

interest cost, expected return on plan assets, effects of

early retirements, curtailments or settlements, and past

service cost. The past service cost for the enhancement of

pension benefi ts is accounted for when such benefi ts vest

or become a constructive obligation.

Some benefi ts are also provided by defi ned contribution

plans. Contributions to such plans are charged to the

income statement as incurred.

Equity compensation plansThe Group has equity-settled and cash-settled share-

based payment transactions.

Equity-settled share-based payment transactions are

recognised in the income statement with a corresponding

increase in equity over the vesting period. They are fair

valued at grant date and measured using generally

accepted pricing models. The cost of equity-settled share-

based payment transactions is adjusted annually by the

expec tations of vesting, for the forfeitures of the

participants’ rights that no longer satisfy the plan

conditions, as well as for early vesting.

Liabilities arising from cash-settled share-based

payment transactions are recognised in the income

statement over the vesting period. They are fair valued at

each reporting date and measured using generally

accepted pricing models. The cost of cash-settled share-

based payment transactions is adjusted for the forfeitures

of the participants’ rights that no longer satisfy the plan

conditions, as well as for early vesting.

Accruals and deferred incomeAccruals and deferred income comprise expenses relating

to the current year, which will not be invoiced until after

the balance sheet date, and income received in advance

relating to the following year.

DividendIn accordance with Swiss law and the Company’s Articles

of Association, dividend is treated as an appropriation of

profi t in the year in which it is ratifi ed at the Annual General

Meeting and subsequently paid.

Events occurring after the balance sheet dateThe values of assets and liabilities at the balance sheet

date are adjusted if there is evidence that subsequent

adjusting events warrant a modification of these values.

These adjustments are made up to the date of approval of

the Consolidated Financial Statements by the Board of

Directors. Other non-adjusting events are disclosed in the

notes.

Changes in accounting policiesThe Group has applied the following revised International

Financial Reporting Standard (IFRS) and International

Accounting Standard (IAS) as from 1 January 2010

onwards. These changes have been applied in accordance

with the specific transitional provisions of each standard,

and none of them had a material impact on the Group’s

fi nancial statements.

IFRS 3 Revised 2008 – Business combinationsThe revised standard has resulted in the following

changes, applicable to transactions occuring after

1 January 2010:

– acquisition-related costs are expensed as incurred;

– for a business combination in which the Group achieves

control without buying all of the equity of the acquiree,

the non-controlling interests are measured either at fair

value or at the non-controlling interests’ proportionate

share of the acquiree’s net identifi able assets;

– upon obtaining control in a business combination

achieved in stages, the Group remeasures its previously

held equity interest at fair value and recognises a gain

or a loss to the income statement; and

– contingent consideration of an acquisition is measured

at fair value. Changes are accounted for outside

goodwill, in the income statement.


106

IAS 27 Revised 2008 – Consolidated and separatefi nancial statementsChanges of non-controlling interests of an acquiree that

do not result in a change of control are accounted for as

transactions with equity holders.

Improvements and other amendments of IFRS/IASImprovements or other amendments effective in 2010 (for

example, the amendment to IAS 18 – Revenue recognition

on determining whether an entity is acting as a principal

or as an agent) have been incorporated in the Group

accounting policies and do not have a material effect on

the Consolidated Financial Statements.

Changes in presentationNotes to the Consolidated Financial Statements have been

re-ordered. In particular, all information related to net

financing cost and financial instruments has been grouped

in a single note and the content has been enhanced to

provide more information on fi nancial risks.

2009 comparatives have been restated to refl ect

reclassification of cash and cash equivalents within the

category loans and receivables, and to exclude taxes from

the disclosures on financial instruments. Moreover the

information on expenses by nature is now disclosed in the

notes related to the appropriate topic (e.g., salaries and

welfare expenses are disclosed in the employee benefi ts

note).


Changes in IFRS that may affect the Groupafter 31 December 2010The Group is currently assessing the potential impacts of

new standards, amendments to standards and

interpretations that are effective for annual periods

beginning after 1 January 2011, and which the Group has

not early adopted. None of these are expected to have a

material effect on the Group’s financial statements, except

for IFRS 9 – Financial Instruments, which becomes

mandatory for the Group’s 2013 financial statements and

could change the classification and measurement of

financial assets. The Group does not plan to adopt this

standard in anticipation.

Changes in presentation that will affect theGroup after 31 December 2010Certain allowances and discounts, granted to trade chains,

customers, retailers and consumers for trade and consumer

promotions, selling, distribution, advertising and other

services, rendered to the Group are currently treated as

expenses under marketing and administration expenses

as well as distribution expenses on grounds that they are

incurred to generate revenue. The Group will treat these

allowances and discounts as from 2011 as a deduction of

revenue in conformity with the practice generally admitted

by consumer goods companies. Based on 2010 fi gures,

the reclassification from distribution expenses as well as

marketing and administration expenses to sales amounts

to CHF 16 707 million.


107

Annex 4Extract of the unaudited consolidated financial statements and significant accounting

policies of the Nestlé group for the six month period ended on 30 June 2011


108

Key fi gures (consolidated)

Key figures in CHF

Principal key figures in USD (Illustrative)Income statement figures translated at weighted average rate; balance sheet figures at ending June exchange rate

January–June January–June January–June

In millions of CHF (except for per share data) 2011 2010 2010

Total

Continuing

operations Total (a)

Sales (b) 41 004 43 174 47 089

Trading operating profi t (b) 6 210 6 444 8 123

as % of sales 15.1% 14.9% 17.3%

Profit for the period attributable to shareholders of the parent (Net profi t) 4 703 4 713 5 450

as % of sales 11.5% 10.9% 11.6%

Equity attributable to shareholders of the parent, end June 51 764 42 012

Market capitalisation, end June 166 388 176 410

Operating cash fl ow 1 669 4 360 5 769

Capital expenditure 1 409 1 255 1 409

as % of sales 3.4% 2.9% 3.0%

Free cash fl ow (c) 263 2 716 3 252

Net fi nancial debt (d) 14 508 29 650

Per share

Basic earnings per share CHF 1.46 1.38 1.60

Diluted earnings per share CHF 1.46 1.37 1.59

Equity attributable to shareholders of the parent, end June CHF 16.07 12.30


In millions of USD (except for per share data) 2011 2010 2010

Total

Continuing


Sales (b) 45 351 39 783 43 390





Per share

Basic earnings per share USD 1.61 1.27 1.47

Equity attributable to shareholders of the parent, end June USD 19.31 11.36

(a) June 2010 includes Alcon’s discontinued operations.(b) 2010 restated following the changes in the Income Statement described in Note 1 – Accounting Policies.(c) Operating cash flow less capital expenditure, disposal of tangible assets, purchase and disposal of intangible assets, movements with associates

as well as with non-controlling interests.(d) Alcon net debt position not included in 2010, as part of assets held for sale.

(a) June 2010 includes Alcon’s discontinued operations.(b) 2010 restated following the changes in the Income Statement described in Note 1 – Accounting Policies.

Principal key figures in EUR (Illustrative)Income statement figures translated at weighted average rate; balance sheet figures at ending June exchange rate

Principal exchange rates


In millions of EUR (except for per share data) 2011 2010 2010

Total

Continuing


Sales (b) 32 309 30 070 32 797





Per share

Basic earnings per share EUR 1.15 0.96 1.11

Equity attributable to shareholders of the parent, end June EUR 13.31 9.29

June December June January–June January–June

CHF per 2011 2010 2010 2011 2010

Ending rates Weighted average rates

1 US Dollar USD 0.832 0.938 1.083 0.904 1.085

1 Euro EUR 1.207 1.253 1.324 1.269 1.436

1 Pound Sterling GBP 1.339 1.454 1.630 1.463 1.650

100 Brazilian Reais BRL 52.925 56.291 59.924 55.358 60.339

100 Japanese Yen JPY 1.035 1.153 1.222 1.105 1.188

100 Mexican Pesos MXN 7.087 7.568 8.435 7.617 8.553

1 Canadian Dollar CAD 0.860 0.938 1.031 0.921 1.056

1 Australian Dollar AUD 0.894 0.955 0.925 0.934 0.968

100 Philippine Pesos PHP 1.919 2.146 2.332 2.081 2.368

100 Chinese Yuan Renminbi CNY 12.872 14.227 15.951 13.852 15.861

(a) June 2010 includes Alcon’s discontinued operations.(b) 2010 restated following the changes in the Income Statement described in Note 1 – Accounting Policies.


109

Consolidated income statementfor the period ended 30 June 2011

January–June January–June

In millions of CHF 2011 2010 (a)

No

tes

Tota

l

Co

ntin

uin

go

pera

tio

ns

Dis

co

ntin

ued

op

era

tio

ns

(b)

Tota

l

Sales 3 41 004 43 174 3 915 47 089

Other revenue 68 58 – 58

Cost of goods sold (21 352) (21 725) (816) (22 541)

Distribution expenses (3 804) (3 962) (93) (4 055)

Marketing and administration expenses (8 961) (10 171) (970) (11 141)

Research and development costs (671) (669) (357) (1 026)

Other trading income 5 22 41 – 41

Other trading expenses 5 (96) (302) – (302)

Trading operating profi t 3 6 210 6 444 1 679 8 123

Other operating income 95 43 63 106

Other operating expenses (142) (83) (31) (114)

Operating profi t 6 163 6 404 1 711 8 115

Financial income 42 34 16 50

Financial expense (368) (453) (12) (465)

Profit before taxes and associates 5 837 5 985 1 715 7 700

Taxes (1 504) (1 702) (296) (1 998)

Share of results of associates 6 539 599 – 599

Profit for the period 4 872 4 882 1 419 6 301

of which attributable to non-controlling interests 169 169 682 851

of which attributable to shareholders of the parent (Net profi t) 4 703 4 713 737 5 450


Trading operating profi t 15.1% 14.9% 42.9% 17.3%

Profit for the period attributable to shareholders



Basic earnings per share 1.46 1.38 0.22 1.60

Diluted earnings per share 1.46 1.37 0.22 1.59

(a) 2010 restated following the changes in the Income Statement described in Note 1 – Accounting Policies.(b) Relates to Alcon.


110

Consolidated statement of comprehensive incomefor the period ended 30 June 2011


In millions of CHF 2011 2010

Profit for the period recognised in the income statement 4 872 6 301

Currency retranslations (4 848) 505


– Unrealised results (80) 114

– Recognition of realised results in the income statement 4 5


– Recognised in hedging reserve (21) (244)

– Removed from hedging reserve 2 32

Actuarial gains/(losses) on defi ned benefi t schemes (161) (1 920)

Share of other comprehensive income of associates 265 73

Taxes 29 503

Other comprehensive income for the period (4 810) (932)

Total comprehensive income for the period 62 5 369

of which attributable to non-controlling interests 117 921

of which attributable to shareholders of the parent (55) 4 448


111

Consolidated balance sheet as at 30 June 2011

30 June 31 December 30 June

In millions of CHF 2011 2010 2010

Assets

Current assets

Cash and cash equivalents 2 833 8 057 2 451

Short term investments 4 129 8 189 2 690

Inventories 8 885 7 925 8 748

Trade and other receivables 11 946 12 083 12 499

Prepayments and accrued income 1 002 748 925

Derivative assets 1 068 1 011 1 417


Assets held for sale (a) 22 28 11 787

Total current assets 30 849 38 997 41 442

Non-current assets

Property, plant and equipment 20 114 21 438 21 774

Goodwill 24 753 27 031 30 171

Intangible assets 7 328 7 728 8 430

Investments in associates 7 976 7 914 8 046

Financial assets 7 679 6 366 4 349



Deferred tax assets 1 805 1 911 2 724

Total non-current assets 69 841 72 644 75 858

Total assets 100 690 111 641 117 300

(a) June 2010 relates mainly to Alcon’s discontinued operations.


112

30 June 31 December 30 June

In millions of CHF Notes 2011 2010 2010


Current liabilities

Financial debt 14 905 12 617 26 810

Trade and other payables 11 137 12 592 12 955

Accruals and deferred income 2 433 2 798 2 788


Derivative liabilities 677 456 704

Current income tax liabilities 1 195 1 079 1 358

Liabilities directly associated with assets held for sale (a) – 3 2 856

Total current liabilities 30 856 30 146 47 884


Financial debt 6 565 7 483 7 981

Employee benefi ts liabilities 4 653 5 280 7 836

Provisions 3 332 3 510 3 577

Deferred tax liabilities 1 352 1 371 1 482

Other payables 1 460 1 253 1 495

Total non-current liabilities 17 362 18 897 22 371

Total liabilities 48 218 49 043 70 255

Equity

Share capital 8 330 347 347

Treasury shares (5 991) (11 108) (4 345)

Translation reserve (20 588) (15 794) (10 753)

Retained earnings and other reserves 78 013 88 422 56 763

Total equity attributable to shareholders of the parent 51 764 61 867 42 012

Non-controlling interests 708 731 5 033

Total equity 52 472 62 598 47 045

Total liabilities and equity 100 690 111 641 117 300

(a) June 2010 relates mainly to Alcon’s discontinued operations.

Consolidated balance sheet as at 30 June 2011 (continued)


113

Consolidated cash fl ow statementfor the period ended 30 June 2011





Non-cash items of income and expense 7 1 157 1 362

Decrease/(increase) in working capital (3 284) (2 111)

Variation of other operating assets and liabilities (1 076) 217

Operating cash fl ow 1 669 5 769

of which discontinued operations (a) 1 409


Capital expenditure (1 409) (1 409)

Expenditure on intangible assets (131) (276)

Sale of property, plant and equipment 30 58

Acquisition of businesses 2 (708) (4 378)

Disposal of businesses 2 4 86


Other investing cash fl ows (2 020) (552)

Cash flow from investing activities (3 821) (6 136)

of which discontinued operations (a) (673)



Purchase of treasury shares (4 329) (5 519)

Sale of treasury shares 380 128


Bonds issued 9 527 1 267

Bonds repaid 9 (1 689) (1 068)



Infl ows/(outflows) from current fi nancial liabilities 4 310 10 927

Infl ows/(outflows) from short-term investments 3 900 (142)

Cash flow from fi nancing activities (3 009) (625)

of which discontinued operations (a) (1 509)

Currency retranslations (63) 103

Increase/(decrease) in cash and cash equivalents (5 224) (889)


Cash and cash equivalents at end of period 2 833 4 936

(a) Relates to Alcon.


114

Consolidated statement of changes in equityfor the period ended 30 June 2011

In millions of CHF

Sh

are

cap

ital

Treasu

rysh

are

s

Tran

slatio

n

rese

rve

Reta

ined

earn

ing

s an

do

ther

rese

rves

Tota

l eq

uity a

ttri

bu

tab

le t

o

share

ho

lders

of

the p

are

nt

No

n-c

on

tro

llin

g

inte

rest

s

Tota

l eq

uity


Total comprehensive income 422 4 026 4 448 921 5 369



Movement of treasury shares (net) (a) (5 088) (1 207) (6 295) (6 295)

Changes in non-controlling interests (6) (6) 27 21

Equity compensation plans 171 (63) 108 14 122

Adjustment for hyperinfl ation (b) 285 285 285


Equity as at 30 June 2010 347 (4 345) (10 753) 56 763 42 012 5 033 47 045

Equity as at 31 December 2010 347 (11 108) (15 794) 88 422 61 867 731 62 598

Total comprehensive income (4 794) 4 739 (55) 117 62



Movement of treasury shares (net) (a) (3 872) (435) (4 307) (4 307)

Changes in non-controlling interests (1) (1) 4 3

Equity compensation plans 163 (60) 103 103

Adjustment for hyperinfl ation (b) 96 96 96


Equity as at 30 June 2011 330 (5 991) (20 588) 78 013 51 764 708 52 472

(a) Movement reported under retained earnings mainly relates to written put options on own shares.(b) Relates to Venezuela, considered as a hyperinfl ationary economy.


115

Notes

Basis of preparationThese financial statements are the unaudited interim

consolidated financial statements (hereafter “the Interim

Financial Statements”) of Nestlé S.A., a company

registered in Switzerland, and its subsidiaries for the

six-month period ended 30 June 2011. They have been

prepared in accordance with International Accounting

Standard IAS 34 – Interim Financial Reporting, and should

be read in conjunction with the Consolidated Financial

Statements for the year ended 31 December 2010.

The accounting conventions and accounting policies

are the same as those applied in the Consolidated Financial

Statements for the year ended 31 December 2010, except

for the changes in presentation mentioned below.

The preparation of the Interim Financial Statements

requires management to make estimates, judgments and

assumptions that affect the application of policies, reported

amounts of revenues, expenses, assets and liabilities and

disclosures. The key sources of estimation uncertainty

within these Interim Financial Statements remain the same

as those applied to the Consolidated Financial Statements

for the year ended 31 December 2010.

Changes in presentation – RevenueCertain allowances and discounts, granted to trade chains,

customers, retailers and consumers for trade and consumer

promotions, selling, distribution, advertising and other

services, rendered to the Group were previously reported

as expenses under marketing and administration expenses

as well as distribution expenses on grounds that they

are incurred to generate sales. These allowances and

discounts, as from 1 January 2011, are disclosed as

a deduction of sales in conformity with the practice

generally admitted by consumer goods companies.

The impact of this change for the six-month period ended

30 June 2010 is a reduction in distribution expenses of

CHF 212 million as well as marketing and administration

expenses of CHF 7985 million. Moreover, a separate line

for other revenues such as license fees received from

third parties has been added to the Income Statement,

for an amount of CHF 58 million for this same period. The

total impact is a reduction in sales of CHF 8255 million.

2010 comparatives have been restated accordingly.

Changes in presentation – Operating profi tPreviously the Group Income Statement included EBIT

(Earnings before Interest, Taxes, Restructuring and

Impairments) and Profi t before Interest and Taxes.

As from 2011, the Income Statement displays a Trading

Operating Profi t that is after restructuring costs,

impairment of all assets except goodwill, litigations and

onerous contracts, result on disposal of property, plant

and equipment and specific other income and expenses.

This represents the new internal performance view that is

also utilised in the segment reporting. Finally the line Profi t

before Interest and Taxes is renamed Operating Profi t and

is after impairment of goodwill, results on disposals of

businesses, acquisition-related costs and other income

and expenses that fall beyond the control of operating

segments and relate to events such as natural disasters

and expropriation of assets. 2010 comparatives have been

restated accordingly.

Changes in presentation – Analyses by segmentThe scope of the operating segments has been modifi ed

following on the changes in management responsibilities:

HealthCare Nutrition, now managed by Nestlé Health

Science, is reported under “Other”. Moreover Pharma

is also reported under “Other” as a result of the disposal

of Alcon. Information by product has been modifi ed

accordingly. 2010 comparatives have been restated.

1. Accounting policies


116

Changes in IFRSs that may affect the Groupafter 30 June 2011The following standards and amendments to existing

standards have been published and are mandatory for the

Group’s accounting period beginning on 1 January 2013.

The Group will not early adopt them.

IFRS 9 – Financial InstrumentsThe standard addresses the classifi cation, measurement

and derecognition of fi nancial assets and fi nancial liabilities.

The standard will affect the Group’s accounting for its

available-for-sale financial assets, as IFRS 9 only permits

the recognition of fair value gains and losses in other

comprehensive income if they relate to equity investments

that are not held for trading. Such gains and losses are

never reclassified to the Income Statement at a later date.

There will be no impact on the Group’s accounting for

financial liabilities, as the new requirements only affect

the accounting for financial liabilities that are designated at

fair value through profi t or loss, and the Group does not

have any such liabilities.

IFRS 10 – Consolidated Financial StatementsThis standard provides a single consolidation model

that identifies control as the basis for consolidation for

all types of entities. It is not expected to have a material

impact on the Group Financial Statements.

IFRS 11 – Joint ArrangementsThis standard establishes principles for the fi nancial

reporting by parties to a joint arrangement. The standard

will affect the Group’s accounting for companies over

which the Group exercises joint control with partners.

The current proportionate consolidation method will be

replaced by the equity method and this change will affect

almost all Financial Statement line items resulting in

decreasing revenues and expenses, assets and liabilities.

Nevertheless, profi t for the period and equity will remain

unchanged.

IFRS 12 – Disclosure of Interests in Other EntitiesThis standard combines, enhances and replaces disclosure

requirements for subsidiaries, joint arrangements, associates

and unconsolidated structured entities. It is not expected to

have a material impact on the Group Financial Statements.

IFRS 13 – Fair Value MeasurementThis standard applies when other IFRSs require or permit

fair value measurements. It defines fair value, sets out in

a single IFRS a framework for measuring fair value and

requires disclosures about fair value measurements. It

is not expected to have a material impact on the Group

Financial Statements.

IAS 19 Revised 2011 – Employee Benefi tsThe amendments that are expected to have the most

significant impact include:

– replacement of the expected return on plan assets and

interests costs on the defi ned benefit obligation with

a single net interest component which is calculated by

applying the discount rate to the net defi ned benefi ts

asset or liability;

– past-service costs that will be recognised in the period

of a plan amendment and unvested benefits that will no

longer be spread over a future period until the benefi ts

become vested.

The Group is currently assessing the impacts of these

amendments.

Improvements and other amendments to IFRS/IASSeveral standards have been modified on miscellaneous

points and are effective from 1 January 2013. Such

changes include IAS 1 – Presentation of Financial

Statements, which requires entities to separate items

presented in Other Comprehensive Income into two

groups, based on whether or not they may be recycled

to the Income Statement in the future. None of these

amendments are expected to have a material effect on

the Group’s Financial Statements.



117

Annex 5Special Arrangements

1. GENERAL LICENCE AGREEMENT

Conditional upon the Scheme becoming effective and the completion of the Share Acquisition, theCompany will enter into a general licence agreement with Nestlé, Société des Produits Nestlé S.A.and Nestec S.A. by which certain affiliates of Nestlé will licence to the Company and certain GroupCompanies (i) trade marks for the manufacture, processing, control, packaging, marketing,distribution and selling of Nestlé-branded products and (ii) know-how / technical information andcertain other intellectual property rights in relation to the manufacture, processing, control,packaging, marketing, distribution and selling of Nestlé-branded and other Company products.

2. CEO SERVICE AGREEMENT

In connection with the Scheme and the subsequent operational continuity of the Company, Mr. HsuChen (currently the executive chairman of the Company) will continue as CEO and there arecurrently no plans to change the existing terms of his employment.


118

APPENDIX 3 – GENERAL INFORMATION RELATING TO THE COMPANY

119

All the capitalised terms hereunder shall have the same meaning as ascribed to them in the SchemeDocument.

1. DIRECTORS

The names, addresses and designations of the Directors as at the Latest Practicable Date are asfollows:


Hsu Chen Zhouwu Industrial District Executive Chairman Dongcheng, Dongguan, Guangdong Province523118, PRC

Hu Chia-Hsun Zhouwu Industrial District Executive DirectorDongcheng, Dongguan, Guangdong Province523118, PRC

Hsu Hang Zhouwu Industrial District Executive DirectorDongcheng, Dongguan, Guangdong Province523118, PRC

Hsu Pu 99 Sec. 6, Roosevelt Road, Taipei Non-Executive DirectorTaiwan R.O.C.

Shaw Sun Kan Gordon No. 8 Summit Residences Unit Non-Executive Director2403, 108th Nong, Shang Cheng Road, Pudong New Area Shanghai200120, China

Lim Hock San 10 Peirce Road Independent DirectorSingapore 248529

Lam Khin Khui 29 Shangri-la Walk Independent DirectorSingapore 568206

Lee Tsu-Der 32F-1 International Trade Building Independent Director333 Keelung Road Sec 1, Taipei, 110Taiwan R.O.C.

Cheong Tuck Kuen Kenneth 86 Trevose Crescent Alternate Director toSingapore 298084 Shaw Sun Kan Gordon

2. PRINCIPAL ACTIVITIES

The Company was incorporated in the Cayman Islands on 18 October 2006. Its Shares were listedon the main board of SGX-ST on 1 December 2006 (Code: AS5). The registered office of theCompany is at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, CaymanIslands, and the principal place of business of the Group is located at Zhouwu Industrial District,Dongcheng, Dongguan, Guangdong Province, 523118, PRC

.

The main business of the Company is to develop, manufacture and distribute Hsu Fu Chi brandedfood products, in particular candy, cake, cookie and sachima products in the PRC.

3. DISCLOSURE OF INTERESTS IN SECURITIES

3.1 Holdings of shares in Nestlé by the Company

As at the Latest Practicable Date, none of the Company or its subsidiaries owns, controls or hasagreed to acquire any shares in Nestlé.

3.2 Directors’ Interests in Nestlé

Save as disclosed below, as at the Latest Practicable Date, none of the Directors has any direct orindirect interest in shares of Nestlé, or instruments convertible into, or rights to subscribe for oroptions in respect of shares of Nestlé.

Name of Director Number of shares in Nestlé Number of Nestlé ADRs

Cheong Tuck Kuen Kenneth – 500

Lam Khin Khui 900 –

3.3 Directors’ and Substantial Shareholders’ Interests

As at the Latest Practicable Date, the interests of the Directors and Substantial Shareholders, asrecorded in the register of directors’ shareholdings of the Company and register of substantialshareholders of the Company, are as follows:

Direct Interest Deemed Interest

Number of Number ofShares % Shares %

Directors

Hsu Chen 134,000,000 16.86 – –

Hu Chia-Hsun 650,000 0.08 – –

Hsu Hang 1 – – 107,200,000 –

Hsu Pu 87,200,000 10.97 – –

Shaw Sun Kan Gordon – – 7,000 0.0009

Cheong Tuck Kuen (Alternate director toShaw Sun Kan Gordon) 36,000 0.005 36,000 0.005

Lim Hock San – – – –

Lam Khin Khui – – – –

Lee Tsu-Der – – – –


120

Direct Interest Deemed Interest

Number of Number ofShares % Shares %

Substantial Shareholders

Hsu Chen 134,000,000 16.86 – –

Hsu Hang 1 – – 107,200,000 13.48

Hsu Keng 2 – – 120,600,000 15.17

Hsu Pu 87,200,000 10.97 – –

Ophira Finance Ltd 107,200,000 13.48 – –

Suncove Investments Ltd 120,600,000 15.17 – –

Arisaig Asia Consumer Fund Limited (formerly known as Arisaig Asia Fund Limited) 3 71,176,000 8.95 – –

Arisaig Partners (Mauritius) Limited 4 – – 71,176,000 8.95

Arisaig Partners (Asia) Pte Ltd 4 – – 71,176,000 8.95

Arisaig Partners (Holdings) Ltd 4 – – 71,176,000 8.95

Skye Partners Limited 4 – – 71,176,000 8.95

Perivoli Trust 4 – – 71,176,000 8.95

Lindsay Cooper 4 – – 71,176,000 8.95

Sannox Trust 4 – – 71,176,000 8.95

Star Candy Ltd 117,738,854 14.81 – –

Baring Private Equity Asia IV Holding (12) Limited 5 – – 131,062,854 16.49

The Baring Asia Private Equity Fund IV, L.P. 5 – – 131,062,854 16.49

Baring Private Equity Asia GP IV, L.P. 5 – – 131,062,854 16.49

Baring Private Equity Asia GP IV Limited 6 – – 131,062,854 16.49

Jean Eric Salata 7 – – 131,062,854 16.49

Nestlé 8 – – 131,000,000 16.48

Notes:

1 Mr. Hsu Hang is deemed interested in the Shares held by Ophira Finance Ltd, of which he is the sole shareholder.

2 Mr. Hsu Keng is deemed interested in the Shares held by Suncove Investments Ltd, of which he is the soleshareholder.

3 Until 31 March 2010 Arisaig Asia Fund Limited (“AAF”) has been organised as a “feeder fund” which has investedindirectly in Asia Securities through its investments in the shares of a number of wholly-owned (100%) underlyingfunds which include Arisaig Korea Fund Limited, Arisaig Greater China Fund Limited and Arisaig ASEAN FundLimited (the “Underlying Funds”).

On 31 March 2010 shareholders in AAF approved a restructuring as a result of which, from 1 April 2010, AAF woulddirectly own the securities previously held by the Underlying Funds. AAF’s name was changed to Arisaig AsiaConsumer Fund Limited (“Asia Consumer Fund”).

The process to transfer these securities was effected on 1 April 2010 and hence from this date Asia Consumer Fundis the owner of securities previously held by the Underlying Funds.


121

4 Arisaig Partners (Mauritius) Limited (“AP Mauritius”), being the fund manager of Asia Consumer Fund, is deemed tobe interested in the Shares held by Asia Consumer Fund.

Arisaig Partners (Asia) Pte Ltd (“AP Asia”), being the investment adviser of Asia Consumer Fund is deemed to beinterested in the Shares held by Asia Consumer Fund.

Arisaig Partners (Holdings) Ltd (“AP Holdings”) has a controlling interest in AP Mauritius and AP Asia, and istherefore deemed interested in all the Shares in which AP Mauritius and AP Asia are deemed interested in.

Skye Partners Limited (“SPL”) has a controlling interest in AP Holdings, and SPL is therefore deemed interested in allthe Shares in which AP Holdings is deemed interested in.

Perivoli Trust, Lindsay Cooper and Sannox Trust each has 33.33% interest in SPL, and each is therefore deemedinterested in all the Shares in which SPL is deemed interested in.

5 Star Candy Ltd is a wholly-owned subsidiary of Baring Private Equity Asia IV Holding (12) Limited (“BPEA(12)”).

The Baring Asia Private Equity Fund IV, L.P. (“BPE Fund IV L.P.”) owns approximately 99% of BPEA(12).

BPE GP I is the general partner of BPE Fund IV L.P.

By virtue of Section 7 of the Companies Act, Chapter 50 of Singapore, BPE GP I is deemed to be interested in theShares held by Star Candy Ltd.

6 Baring Private Equity Asia GP IV Limited (“BPE GP II”) is the general partner of BPE GPI.

By virtue of Section 7 of the Companies Act, Chapter 50 of Singapore, BPE GP II is deemed to be interested in theShares held by Star Candy Ltd.

7 Jean Eric Salata is the holder of all the issued share capital of BPE GP II.

By virtue of Section 7 of the Companies Act, Chapter 50 of Singapore, Jean Eric Salata is deemed to be interested inthe Shares held by Star Candy Ltd. Jean Eric Salata disclaims beneficial ownership of the Shares owned by StarCandy Ltd.

8 Nestlé has entered into the transaction agreement dated 11 July 2011 to, amongst others, acquire the Sale Sharesfrom Mr. Hsu Chen, Mr. Hsu Pu, Suncove Investments Ltd and Ophira Finance Ltd.

By virtue of section 7 of the Companies Act Cap 50 of Singapore, Nestlé is deemed to be interested in the SaleShares which are held by Mr. Hsu Chen, Mr. Hsu Pu, Suncove Investments Ltd and Ophira Finance Ltd and to beacquired by Nestlé pursuant to the terms of the said transaction agreement.

4. DEALINGS IN SHARES

4.1 Dealings in shares of Nestlé by the Company

Neither the Company nor its subsidiaries have dealt for value in the shares of Nestlé during theperiod commencing six (6) months prior to the Announcement Date and ending on the LatestPracticable Date.

4.2 Dealings in shares of Nestlé by the Directors

None of the Directors has dealt for value in the shares of Nestlé during the period commencing six(6) months prior to the Announcement Date and ending on the Latest Practicable Date.

4.3 Dealings in Shares by the Directors

None of the Directors has dealt for value in Shares during the period commencing six (6) monthsprior to the Announcement Date and ending on the Latest Practicable Date.


122

5. INTERESTS OF THE INDEPENDENT FINANCIAL ADVISER

5.1 Interests of Morgan Stanley in the Shares

Save as disclosed below, none of Morgan Stanley, its related corporations nor any funds whoseinvestments are managed by Morgan Stanley on a discretionary basis owns or controls any Sharesas at the Latest Practicable Date.

Note

(1) Based on the issued ordinary shares of 795,000,000 Shares as at the Latest Practicable Date.

(2) Held by Morgan Stanley & Co. International plc (an associate of the IFA) as at the Latest Practicable Date in itscapacity as prime broker for its clients in connection with the provision of certain prime brokerage services to suchclients in its ordinary course of business. Pursuant to the prime brokerage arrangement, Morgan Stanley & Co.International plc has the right of re-hypothecation and right of use of the Shares, including to borrow, lend orotherwise use for its own purposes the Shares either for itself, itself as broker or to another person. As of the LatestPracticable Date, none of such rights have been exercised by Morgan Stanley & Co. International plc.

(3) Held by Morgan Stanley & Co. International plc (an associate of the IFA) as at the Latest Practicable Date in itscapacity as broker for its institutional clients in connection with the provision of trading, stock borrowing, stock lendingand brokerage services to such clients on a non-discretionary basis in its ordinary course of business.

5.2 Dealings in the Shares by Morgan Stanley

Save as disclosed below, none of Morgan Stanley, its related corporations nor any funds whoseinvestments are managed by Morgan Stanley on a discretionary basis has dealt for value in theShares during the period commencing six (6) months prior to the Announcement Date, and endingon the Latest Practicable Date.

The details of dealings in Shares by Morgan Stanley & Co. International plc (an associate of theIFA) in its capacity as broker for its institutional clients in connection with the provision of certaintrading, stock borrowing, stock lending and brokerage services to such clients on a non-discretionary basis, in its ordinary course of business, during the period commencing six (6)months prior to the Announcement Date, and ending on the Latest Practicable Date are set outbelow:

5.2.1 Buy/Sell Transactions

Note

(1) Excluding brokerage commission, clearing fees and goods and services tax.

(2) Based on the issued ordinary shares of 795,000,000 Shares as at the Latest Practicable Date.

NameNo. of shares

% of the total

issued Shares (2)No. of shares

% of the total

issued Shares (2)

Morgan Stanley & Co. International plc

12-Jul-2011 4.30 NA


13-Jul-2011 4.26 NA


18-Jul-2011 4.26 NA

Shares SoldShares Acquired

Price Per

Share (S$)(1)Date of

Transaction

NA 1,000 0.0001%

NA 1,000 0.0001%

NA 2,000 0.0003%

serahs fo .oNemaN

% of total

issued Shares (1)

Morgan Stanley & Co. International plc 202,000 0.0254%

Morgan Stanley & Co. International plc 7,000 0.0009%

(2)

(3)


123

5.2.2 Stock Borrowing Transactions

During the period commencing six (6) months prior to the Announcement Date, and endingon the Latest Practicable Date, the following stock borrowing transactions were carried outby Morgan Stanley & Co. International plc (an associate of the IFA) in its capacity as brokerfor its institutional clients in connection with the provision of certain trading, stock borrowing,stock lending and brokerage services to such clients on a non-discretionary basis in itsordinary course of business. As there are no transaction prices for the stock borrowingtransactions, the “Reference Price” set out in the table below represents the closing price ofthe Shares in Singapore Dollars on the respective dates of each transaction.

6. FINANCIAL INFORMATION ON THE COMPANY

The summary financial information in this paragraph 6 should be read together with the auditedconsolidated financial statements of the Group for the relevant years and related notes thereto,copies of which are available for inspection at Loo & Partners LLP at 16 Gemmill Lane, Singapore069254.

The audited consolidated financial statements of the Group for FY2010 ended 30 June are set outin Appendix 5 to this Scheme Document.

6.1 Profit and Loss Summary

A summary of the audited consolidated profit and loss accounts for FY2008, FY2009 and FY2010,together with the unaudited financial information of the Group for FY2011 is set out below:

FY 2008 FY 2009 FY 2010 FY 2011Group Audited(1) Audited(1) Audited Unaudited

RMB’000 RMB’000 RMB’000 RMB’000

Revenue 3,391,621 3,784,874 4,305,656 5,157,501Cost of sales (1,991,084) (2,068,390) (2,279,968) (2,959,147)

Gross profit 1,400,537 1,716,484 2,025,688 2,198,354

Other items of income

Other income 29,223 39,242 39,119 52,052

Financial income 13,634 9,894 12,961 34,179

Other items of expense

Selling and distribution expenses (818,730) (957,709) (1,122,337) (1,236,910)

General and administrative

expenses (159,501) (211,607) (198,617) (221,324

Financial expenses (18,592) (11,934) (2,341) (4,141)

Profit before tax 446,571 584,370 754,473 822,210

etaDytitnE Trade Type TransactionNumber

of shares Reference

Price per Share


15-Jul-2011 Borrow Borrow 1,000 4.28




27-Jul-2011 Borrow Return (1,000) 4.24


28-Jul-2011 Borrow Return (10,000) 4.23




124

FY 2008 FY 2009 FY 2010 FY 2011Group Audited(1) Audited(1) Audited Unaudited

RMB’000 RMB’000 RMB’000 RMB’000

Income tax (101,776) (123,946) (152,278) (145,905)

Net profit attributable to shareholders 344,795 460,424 602,195 676,305

Statement of Comprehensive Income:

Net profit attributable to shareholders 344,795 460,424 602,195 676,305

Other comprehensive income for the year:

Exchange differences on translating foreign operations 8,777 1,424 (8) (18)

Total comprehensive incomefor the year attributableto shareholders 353,572 461,848 602,187 676,287

Note:

(1) In FY2010, general and administration expenses for sales offices have been reclassified as selling and distributionexpenses to better reflect the nature of such expenses. Prior period comparatives have been reclassified to conformwith FY2010 presentation.

6.2 Statement of Assets and Liabilities

A summary of the audited balance sheets of the Group and the Company as at 30 June 2010being the latest published audited balance sheets of the Group and the Company prior to theLatest Practicable Date, and the unaudited balance sheets as at 30 June 2011, is set out below:

Group Company

30/6/2011 30/6/2010 30/6/2011 30/6/2010RMB’000 RMB’000 RMB’000 RMB’000

Unaudited Audited Unaudited Audited

ASSETS

Non-current assets

Investment in subsidiaries – – 982,197 982,197

Property, plant and equipment 1,764,993 1,591,299 – –

Land use rights 241,850 211,803 – –

Intangible assets 2,965 2,029 – –

Prepayments for property, plant and equipment 53,532 210,015 – –

Deferred tax assets 151,493 97,107 – –

2,214,833 2,112,253 982,197 982,197

Current assets Inventories 319,185 381,650 – –Trade, bills and other receivables 260,856 314,401 526,694 878,658Prepayments 50,726 47,208 648 1,111Cash and bank balances 2,045,768 1,291,828 3,357 2,968

2,676,35 2,035,087 530,699 882,737

TOTAL ASSETS 4,891,368 4,147,340 1,512,896 1,864,934


125

Group Company

30/6/2011 30/6/2010 30/6/2011 30/6/2010RMB’000 RMB’000 RMB’000 RMB’000

Unaudited Audited Unaudited Audited

EQUITY AND LIABILITIES

Current liabilities

Trade and other payables 546,677 608,525 3,161 2,443

Other liabilities 562,934 542,889 1,851 3,192

Income tax payable 70,481 29,363 – –

Short-term bank loans 520,772 – – –

1,700,864 1,180,777 5,012 5,635

NET CURRENT ASSETS 975,671 854,310 525,687 877,102


Deferred tax liabilities 82,721 109,007 – –

Retirement pension payable 170,190 – – –

252,911 109,007 – –

TOTAL LIABILITIES 1,953,775 1,289,784 5,012 5,635

NET ASSETS 2,937,593 2,857,556 1,507,884 1,859,299

Equity attributable to equity holders of the parent

Share capital 40,124 40,124 40,124 40,124

Share premium 1,445,020 1,445,020 1,445,020 1,445,020

Translation reserves (119) (101) – –

Reserve fund 376,652 282,193 – –

Restructuring reserves (716,588) (716,588) – –

Accumulated profits 1,792,504 1,806,908 22,740 374,155

TOTAL EQUITY 2,937,593 2,857,556 1,507,884 1,859,299

TOTAL EQUITY AND LIABILITIES 4,891,368 4,147,340 1,512,896 1,864,934

7. MATERIAL CHANGES IN THE FINANCIAL POSITION OF THE COMPANY

Save as disclosed in this Scheme Document and in the unaudited financial statements for FY 2011of the Company released on 26 August 2011, there are no other known material changes in thefinancial position of the Group subsequent to the last published audited financial statements forFY2010, which are reproduced in Appendix 5 to this Scheme Document.

8. SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies for the Group are set out in the notes to the auditedconsolidated financial statements of the Group for FY2010, set out in Appendix 5 to this SchemeDocument.


126

9. CHANGES IN ACCOUNTING POLICIES

The changes in the accounting policies for the Group are set out in the notes to the auditedconsolidated financial statements of the Group for FY2010, set out in Appendix 5 to this SchemeDocument.

10. SHARE CAPITAL

10.1 Shares

As at the Latest Practicable Date, the Company has an issued and fully paid share capital of795,000,000 Shares and has not repurchased any Shares. The authorised share capital of theCompany is 3,000,000,000 ordinary shares of par value S$0.01 each. The Shares are quoted andlisted on the Official List of the SGX-ST. As at the Latest Practicable Date, there are no options,warrants or conversion rights over or affecting any Shares.

10.2 Rights and Privileges of the Shares

The rights and privileges of the Shareholders in respect of capital, dividend and voting are statedin the Articles of Association of the Company and are reproduced in Appendix 4 of this SchemeDocument.

10.3 Issue of Shares since the end of the last financial year

No Shares have been issued by the Company since 30 June 2011.

10.4 Convertible Instruments

As at the Latest Practicable Date, there are no outstanding instruments convertible into, rights tosubscribe for, and options in respect of, the Shares or which carry voting rights affecting theShares.

11. MATERIAL LITIGATION

The Directors are not aware of any litigation, claims, arbitration or other proceedings pending orthreatened against the Company or any of its subsidiaries or of any facts likely to give rise to anylitigation, claims, arbitration or other proceedings which may materially and adversely affect thefinancial position of the Group taken as a whole.

12. GENERAL DISCLOSURES

12.1 Financial Statements for FY2010

The audited consolidated financial statements of the Group for FY2010 are set out in Appendix 5to this Scheme Document.

12.2 Directors’ Service Contracts

Save as disclosed in the Scheme Document, there are no (a) service contracts between anyDirector or proposed director with the Company or any of its subsidiaries with more than twelve(12) months to run, which the employing company cannot, within the next twelve (12) months,terminate without payment of compensation and (b) service contracts entered into or amendedbetween any of the Directors or proposed director and the Company or any of its subsidiariesduring the period between the start of the six (6) months immediately preceding theAnnouncement Date and the Latest Practicable Date.


127

12.3 Material Contracts

(a) There are no material contracts entered into by the Company or any of its subsidiaries inwhich any Director has a material personal interest, whether direct or indirect. There are alsono material contracts (not being a contract entered into in the ordinary course of business)entered into by the Company or any of its subsidiaries with other interested persons duringthe period three years before the Announcement Date.

(b) As at the Latest Practicable Date, none of the Directors has a personal interest whetherdirect or indirect, in any material contracts entered into by Nestlé.

12.4 All Independent Directors intend to Vote in Favour of the Scheme

All the Independent Directors who have beneficial shareholdings in the Company will vote in favourof the Scheme. SIC has ruled that Mr. Hsu Chen, Mr. Hsu Hang and Mr. Hsu Pu shall abstain fromvoting on the Scheme.

13. SPECIAL ARRANGEMENTS

13.1 No Payment or Benefit to Directors

Save as disclosed in this Scheme Document, there is no agreement, arrangement orunderstanding for any payment or other benefit to be made or given to any Director or to anydirector of corporations (which by virtue of Section 6 of the Companies Act of Singapore isdeemed to be related to the Company) as compensation for loss of office or otherwise inconnection with the Scheme.

13.2 No Agreement Conditional upon Outcome of the Scheme

Save as disclosed in paragraph 6 of the Explanatory Memorandum in relation to the ShareAcquisition and the Joint Venture Agreement, there is no agreement, arrangement orunderstanding between (a) Nestlé and (b) any of the Directors or any other person in connectionwith or conditional upon the outcome of the Scheme or otherwise connected to the Scheme.

13.3 Transfer Restrictions

The Memorandum and Articles of Association of the Company do not contain any restrictions onthe right to transfer the Shares, which has the effect of requiring holders of such Shares, beforetransferring them, to offer them for purchase to members of the Company or to any other person.

14. MARKET QUOTATIONS

14.1 Transacted Prices

The high, low and last closing prices and transacted volume of the Shares on the SGX-ST on amonthly basis from January 2011 to June 2011 are detailed below:

Last Closing Total Volume of High Low Price Shares Traded (S$) (S$) (S$) (’000)

Monthly Trades

January 2011 3.68 3.20 3.20 1,469

February 2011 3.70 3.20 3.60 938

March 2011 3.80 3.56 3.75 7,610

April 2011 3.80 3.55 3.80 1,934

May 2011 4.35 3.80 3.94 3,016

June 2011 4.05 3.68 4.00 10,098


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14.2 Closing Prices

The closing prices of the Shares on the SGX-ST on (a) 1 July 2011, being the last full trading daypreceding the Announcement Date was S$4.00 per Share; and (b) the Latest Practicable Date wasS$4.16 per Share.

14.3 Highest and Lowest Prices

During the period commencing six (6) months prior to 11 July 2011 (being the AnnouncementDate) and ending on the Latest Practicable Date, the highest closing price of the Shares on theSGX-ST was S$4.40 transacted on 11 July 2011 and the lowest closing price of the Shares on theSGX-ST was S$3.20 transacted on each of 31 January 2011, 1 February 2011, 8 February 2011and 9 February 2011.

15. CONSENTS

15.1 General

Loo & Partners LLP, Conyers Dill & Pearman, White & Case Pte. Ltd., Reed Smith Richards Butler,Maples and Calder, King & Wood, and the Share Transfer Agent has each given and has notwithdrawn its written consent to the issue of this Scheme Document with the inclusion herein of itsname and references to its name, in the form and context in which they respectively appear in thisScheme Document.

15.2 Credit Suisse

Credit Suisse has given and has not withdrawn its written consent to the issue of this SchemeDocument with the inclusion herein of its name and references to its name, in the form and contextin which they appear in this Scheme Document.

15.3 Morgan Stanley

Morgan Stanley has given and has not withdrawn its written consent to the issue of this SchemeDocument with the inclusion herein of its name and its letter dated 31 August 2011 relating to itsadvice to the Directors in respect of the Scheme set out in Appendix 1 to this Scheme Documentand references thereto, in the form and context in which they appear in this Scheme Document.

15.4 Ernst & Young LLP

Ernst & Young LLP has given and has not withdrawn its written consent to the issue of thisScheme Document with the inclusion herein of its name and the auditors’ report relating to theaudited consolidated financial statements of the Group for FY2010 set out in Appendix 5 to thisScheme Document and references thereto, in the form and context in which they appear in thisScheme Document.

16. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at Loo & Partners LLP at 16Gemmill Lane, Singapore 069254 during normal business hours from the date of this SchemeDocument up to the date of the Court Meeting:

(a) the Memorandum and Articles of Association of the Company;

(b) the annual reports of the Group for FY2008, FY2009 and FY2010;

(c) the Implementation Agreement;

(d) the Irrevocable Undertakings; and

(e) the letters of consent referred to in paragraph 15 above.


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The relevant provisions in the Memorandum and Articles of Associations relating to the rights of theShareholders in respect of capital, voting and dividend are reproduced as follows:

SHARE CAPITAL

3. (1) The share capital of the Company at the date on which these Articles come into effect shallbe divided into shares of a par value of SG$0.01 each.

(2) Any power of the Company to purchase or otherwise acquire its own shares shall beexercisable by the Board upon such terms and subject to such conditions as it thinks fit and shall also besubject to the Law and the Articles. Shares may be purchased out of profits of the Company, out of theproceeds of a fresh issue of shares made for the purposes of the purchase, or by a payment out ofcapital as the Board may determine, and shall be purchased for cash, unless otherwise directed by theMembers. For so long as the shares of the Company are listed on the Designated Stock Exchange, theprior approval of the Members in general meeting for such purchase or acquisition shall be required.Such approval of the Members shall remain in force until (i) the conclusion of the annual general meetingof the Company following the passing of the resolution granting the said authority or (ii) the date by whichsuch annual general meeting is required to be held or (iii) it is revoked or varied by ordinary resolution ofthe Company in general meeting, whichever is the earliest, and may thereafter be renewed by theMembers in general meeting. For so long as the shares of the Company are listed on the DesignatedStock Exchange, the Company shall make an announcement to the Designated Stock Exchange of anypurchase or acquisition by the Company of its own shares on the market day following the day of suchpurchase or acquisition.

ALTERATION OF CAPITAL

4. The Company may from time to time by ordinary resolution in accordance with the Law alter theconditions of its memorandum of association to:-

(a) increase its capital by such sum, to be divided into shares of such amounts, as theresolution shall prescribe;

(b) consolidate and divide all or any of its capital into shares of larger amount than its existingshares;

(c) divide its shares into several classes and without prejudice to any special rights previouslyconferred on the holders of existing shares attach thereto respectively any preferential,deferred, qualified or special rights, privileges, conditions or such restrictions which in theabsence of any such determination by the Company in general meeting, as the Directorsmay determine provided always that where the Company issues shares which do not carryvoting rights, the words “non-voting” shall appear in the designation of such shares andwhere the equity capital includes shares with different voting rights, the designation of eachclass of shares, other than those with the most favourable voting rights, must include thewords “restricted voting” or “limited voting”;

(d) sub-divide its shares, or any of them, into shares of smaller amount than is fixed by thememorandum of association (subject, nevertheless, to the Law), and may by such resolutiondetermine that, as between the holders of the shares resulting from such sub-division, oneor more of the shares may have any such preferred deferred or other rights or be subject toany such restrictions as compared with the other or others as the Company has power toattach to unissued or new shares;

(e) change the currency denomination of its share capital;

(f) make provision for the issue and allotment of shares which do not carry any voting rights;and

APPENDIX 4 – RELEVANT EXCERPTS OF THE MEMORANDUM AND ARTICLES OF ASSOCIATION

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(g) cancel any shares which, at the date of the passing of the resolution, have not been taken,or agreed to be taken, by any person, and diminish the amount of its capital by the amountof the shares so cancelled.

5. The Board may settle as it considers expedient any difficulty which arises in relation to anyconsolidation and division under the last preceding Article and in particular but without prejudice to thegenerality of the foregoing may issue certificates in respect of fractions of shares or arrange for the saleof the shares representing fractions and the distribution of the net proceeds of sale (after deduction of theexpenses of such sale) in due proportion amongst the Members who would have been entitled to thefractions, and for this purpose the Board may authorise some person to transfer the shares representingfractions to their purchaser or resolve that such net proceeds be paid to the Company for the Company’sbenefit. Such purchaser will not be bound to see to the application of the purchase money nor will his titleto the shares be affected by any irregularity or invalidity in the proceedings relating to the sale.

6. The Company may from time to time by special resolution, subject to any confirmation or consentrequired by law, reduce its share capital or any share premium account or capital redemption reserve orother undistributable reserve in any manner permitted by law.

7. Except so far as otherwise provided by the conditions of issue, or by these Articles, any capitalraised by the creation of new shares shall be treated as if it formed part of the original capital of theCompany, and such shares shall be subject to the provisions contained in these Articles with reference tothe payment of calls and instalments, transfer and transmission, forfeiture, lien, cancellation, surrender,voting and otherwise.

SHARE RIGHTS

8. (1) Subject to the Law, the memorandum of association and these Articles, and any specialrights conferred on the holders of any shares or class of shares, any share in the Company (whetherforming part of the present capital or not) may be issued with or have attached thereto such rights orrestrictions whether in regard to dividend, voting, return of capital or otherwise as the Company may byordinary resolution determine or, if there has not been any such determination or so far as the same shallnot make specific provision, as the Board may determine. The rights attaching to shares of a class otherthan ordinary shares must be expressed in these Articles.

(2) Subject to the Law, the rules or regulations of any Designated Stock Exchange, thememorandum of association and these Articles, and any special rights conferred on the holders of anyshares or attaching to any class of shares, shares may be issued on the terms that they may be, or at theoption of the Company or the holder are, liable to be redeemed on such terms and in such manner,including out of capital, as the Board may deem fit.

9. (1) In the event of preference shares being issued the total nominal value of issued preferenceshares shall not at any time exceed the total nominal value of the issued ordinary shares and preferenceshareholders shall have the same rights as ordinary shareholders as regards receiving of notices, reportsand balance sheets and attending general meetings of the Company, and preference shareholders shallalso have the right to vote at any meeting convened for the purpose of reducing the capital or winding-upor sanctioning a sale of the undertaking or where the proposition to be submitted to the meeting directlyaffects their rights and privileges or when the dividend on the preference shares is more than six (6)months in arrear.

(2) Subject to the Law, any preference shares may be issued or converted into shares that, at adeterminable date or at the option of the Company or the holder if so authorised by its memorandum ofassociation, are liable to be redeemed on such terms and in such manner as the Company before theissue or conversion may by ordinary resolution of the Members determine.

(3) The Company has power to issue further preference capital ranking equally with, or inpriority to, preference shares already issued.



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VARIATION OF RIGHTS

10. Whenever the share capital of the Company is divided into different classes of shares, subject tothe provisions of the Statutes, preference capital other than redeemable preference capital may be repaidand the special rights attached to any class may be varied or abrogated either with the consent in writingof the holders of three-quarters in nominal value of the issued shares of the class or with the sanction ofa special resolution passed at a separate general meeting of the holders of the shares of the class (butnot otherwise) and may be so repaid, varied or abrogated either whilst the Company is a going concernor during or in contemplation of a winding-up. To every such separate general meeting and alladjournments thereof all the provisions of these Articles relating to general meetings of the Company andto the proceedings thereat shall mutatis mutandis apply, except that the necessary quorum (other than atan adjourned meeting) shall be two persons at least holding or representing by proxy at least one-third innominal value of the issued shares of the class and at any adjourned meeting of such holders, twoholders present in person or by proxy (whatever the number of shares held by them) shall be a quorumand that any holder of shares of the class present in person or by proxy may demand a poll and thatevery such holder shall on a poll have one vote for every share of the class held by him, provided alwaysthat where the necessary majority for such a special resolution is not obtained at such general meeting,consent in writing if obtained from the holders of three-quarters in nominal value of the issued shares ofthe class concerned within two months of such general meeting shall be as valid and effectual as aspecial resolution carried at such general meeting. The foregoing provisions of this Article shall apply tothe variation or abrogation of the special rights attached to some only of the shares of any class as ifeach group of shares of the class differently treated formed a separate class the special rights whereofare to be varied.

11. The special rights conferred upon the holders of any shares or class of shares shall not, unlessotherwise expressly provided in the rights attaching to or the terms of issue of such shares, be deemedto be varied, modified or abrogated by the creation or issue of further shares ranking pari passutherewith.

SHARES

12. (1) Subject to the Law and to the rules or regulations of the Designated Stock Exchange (ifapplicable), no shares may be issued by the Board without the prior approval of the Company in generalmeeting but subject thereto and to these Articles and without prejudice to any special rights orrestrictions for the time being attached to any shares or any class of shares, the unissued shares of theCompany (whether forming part of the original or any increased capital) shall be at the disposal of theBoard, which may offer, allot, grant options over or otherwise dispose of them to such persons, at suchtimes and for such consideration and upon such terms and conditions as the Board may in its absolutediscretion determine but so that no shares shall be issued at a discount, provided always that:-

(a) no shares shall be issued to transfer a controlling interest in the Company without theprior approval of the Members in general meeting;

(b) (subject to any direction to the contrary that may be given by the Company in generalmeeting) any issue of shares for cash to Members holding shares of any class shallbe offered to such Members in proportion as nearly as may be to the number ofshares of such class then held by them and the provisions of the second sentence ofArticle 12(2) with such adaptations as are necessary shall apply; and

(c) any other issue of shares, the aggregate of which would exceed the limits referred toin Article 12(3), shall be subject to the approval of the Company in general meeting.



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Neither the Company nor the Board shall be obliged, when making or granting any allotment of, offer of,option over or disposal of shares, to make, or make available, any such allotment, offer, option or sharesto Members or others with registered addresses in any particular territory or territories being a territory orterritories where, in the absence of a registration statement or other special formalities, this would ormight, in the opinion of the Board, be unlawful or impracticable. Members affected as a result of theforegoing sentence shall not be, or be deemed to be, a separate class of members for any purposewhatsoever.

(2) Except as permitted under the rules or regulations of the Designated Stock Exchange or anydirection given by the Company in general meeting, all new shares shall before issue be offered to suchpersons who as at the date of the offer are entitled to receive notices from the Company of generalmeetings in proportion, as far as the circumstances admit, to the amount of the existing shares to whichthey are entitled. The offer shall be made by notice specifying the number of shares offered, and limitinga time within which the offer, if not accepted, will be deemed to be declined. After the expiration of thattime, or on the receipt of an intimation from the person to whom the offer is made that he declines toaccept the shares offered, the Board may dispose of those shares in such manner as they think mostbeneficial to the Company. The Board may likewise so dispose of any new shares which (by reason of theratio which the new shares bear to shares held by persons entitled to an offer of new shares) cannot, inthe opinion of the Board, be conveniently offered under this Article 12(2).

(3) Notwithstanding Bye-law 12(2) above but subject to the Statutes and in accordance with anyapplicable listing rules of the Designated Stock Exchange, the Company in general meeting may byordinary resolution grant to the Directors a general authority, either unconditionally or subject to suchconditions as may be specified in the said ordinary resolution, to:-

(a) (i) issue shares in the capital of the Company (“Shares”) whether by way of rights,bonus or otherwise; and/or

(ii) make or grant offers, agreements or options (collectively, “Instruments”) thatmight or would require Shares to be issued, including but not limited to thecreation and issue of (as well as adjustments to) warrants, debentures or otherinstruments convertible into Shares; and

(b) (notwithstanding the authority conferred by the said ordinary resolution may haveceased to be in force) issue Shares in pursuance of any Instrument made or grantedby the Directors while the said ordinary resolution was in force,

provided that:-

(aa) the aggregate number of Shares to be issued pursuant to the said ordinary resolution(including Shares to be issued in pursuance of Instruments made or granted pursuantto the said ordinary resolution) shall be subject to such limits and manner ofcalculation as may be prescribed by the Designated Stock Exchange;

(bb) in exercising the authority conferred by the said ordinary resolution, the Companyshall comply with the listing rules of the Designated Stock Exchange for the timebeing in force (unless such compliance is waived by the Designated Stock Exchange)and these presents; and

(cc) (unless revoked or varied by the Company in general meeting) the authority conferredby the said ordinary resolution shall not continue in force beyond the conclusion of theannual general meeting of the Company next following the passing of the saidordinary resolution, or the date by which such annual general meeting of theCompany is required by law to be held, or the expiration of such other period as maybe prescribed by the Statutes (whichever is the earliest).



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(4) The Board may issue warrants conferring the right upon the holders thereof to subscribe forany class of shares or securities in the capital of the Company on such terms as it may from time to timedetermine, Provided that such issue must be specifically approved by the Company in general meeting ifrequired by the rules or regulations of the Designated Stock Exchange.

13. The Company may in connection with the issue of any shares exercise all powers of payingcommission and brokerage conferred or permitted by the Law. Subject to the Law, the commission maybe satisfied by the payment of cash or by the allotment of fully or partly paid shares or partly in one andpartly in the other.

14. Except as required by law, no person shall be recognised by the Company as holding any shareupon any trust and the Company shall not be bound by or required in any way to recognise (even whenhaving notice thereof) any equitable, contingent, future or partial interest in any share or any fractionalpart of a share or (except only as otherwise provided by these Articles or by law) any other rights inrespect of any share except an absolute right to the entirety thereof in the registered holder.

15. (1) Subject to the terms and conditions of any application for shares, the Board shall allotshares applied for within ten (10) market days of the closing date of any such application (or such otherperiod as may be approved by the Designated Stock Exchange).

(2) Subject to the Law and these Articles, the Board may at any time after the allotment ofshares but before any person has been entered in the Register as the holder, recognise a renunciationthereof by the allottee in favour of some other person and may accord to any allottee of a share a right toeffect such renunciation upon and subject to such terms and conditions as the Board considers fit toimpose.

SHARE CERTIFICATES

16. Every share certificate shall be issued under the Seal or a facsimile thereof and shall specify thenumber and class and distinguishing numbers (if any or if required by Section 33(2) of the Law) of theshares to which it relates, and the amount paid up thereon and may otherwise be in such form as theDirectors may from time to time determine. No certificate shall be issued representing shares of morethan one class. The Board may by resolution determine, either generally or in any particular case orcases, that any signatures on any such certificates (or certificates in respect of other securities) need notbe autographic but may be affixed to such certificates by some mechanical means or may be printedthereon or that such certificates need not be signed by any person.

17. (1) In the case of a share held jointly by several persons, the Company shall not be bound toissue more than one certificate therefor and delivery of a certificate to one of several joint holders shallbe sufficient delivery to all such holders.

(2) Where a share stands in the names of two or more persons, the person first named in theRegister shall as regards service of notices and, subject to the provisions of these Articles, all or anyother matters connected with the Company, except the transfer of the shares, be deemed the sole holderthereof.

(3) Where a share stands in the names of two or more persons, any request relating tocancellation or issue of share certificates may be made by any one of the registered joint holders.

18. (1) Every person whose name is entered as a Member in the Register shall be entitled, withoutpayment, to receive one certificate for all shares of any one class or several certificates each for one ormore of such shares of such class upon payment for every certificate after the first of such fee as isprovided in Article 18(2).



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(2) The fee payable in respect of share certificates referred to in this Article and Article 19 shallbe an amount not exceeding two Singapore dollars (S$2.00) per certificate or such other maximumamount as the Designated Stock Exchange may from time to time determine provided that the Boardmay at any time waive such fee or determine a lower amount for such fee.

19. (1) Upon every transfer of shares the certificate held by the transferor shall be given up to becancelled, and shall forthwith be cancelled accordingly, and a new certificate shall be issued to thetransferee in respect of the shares transferred to him.

(2) Where a Member transfers part only of the shares comprised in a certificate or where aMember requires the Company to cancel any certificate or certificates and issue new certificates for thepurpose of subdividing his holding in a different manner the old certificate or certificates shall becancelled and a new certificate or certificates for the balance of such shares issued in lieu thereof andsuch Member shall pay all or any part of the stamp duty payable (if any) on each share certificate prior tothe delivery thereof which the Board in its absolute discretion may require and such fee as is provided inArticle 18(2).

20. Subject to the payment of all or any part of the stamp duty payable (if any) on each sharecertificate prior to the delivery thereof which the Board in its absolute discretion may require, everyperson whose name is entered as a Member in the Register shall be entitled to receive within ten (10)market days of the date of allotment (or such other period as may be approved by the Designated StockExchange) or within ten (10) market days after the date of lodgement of a registrable transfer (or suchother period as may be approved by the Designated Stock Exchange) share certificates in reasonabledenominations for the shares so allotted or transferred.

21. Subject to the provisions of the Statutes, if any share certificate shall be defaced, worn out,destroyed, lost or stolen, it may be renewed on such evidence being produced and a letter of indemnity(if required) being given by the shareholder, transferee, person entitled, purchaser, member firm ormember company of the Designated Stock Exchange or on behalf of its or their client or clients as theDirectors shall require, and (in case of defacement or wearing out) on delivery of the old certificate and inany case on payment of such sum not exceeding two Singapore dollars (S$2.00) as the Directors mayfrom time to time require together with the amount of the stamp duty payable (if any) on each sharecertificate. In the case of destruction, loss or theft, a shareholder or person entitled to whom suchrenewed certificate is given shall also bear the loss and pay to the Company all expenses incidental tothe investigations by the Company of the evidence of such destruction or loss.

LIEN

22. The Company shall have a first and paramount lien on all the shares not fully paid up registered inthe name of a Member (whether solely or jointly with others). Such lien shall be restricted to unpaid callsand instalments upon the specific shares in respect of which such moneys are due and unpaid, and tosuch amounts as the Company may be called upon by law to pay in respect of the shares of the Memberor deceased Member. The Company’s lien on a share shall extend to all dividends or other moneyspayable thereon or in respect thereof. The Board may at any time, generally or in any particular case,waive any lien that has arisen or declare any share exempt in whole or in part, from the provisions of thisArticle.

23. Subject to these Articles, the Company may sell in such manner as the Board determines anyshare on which the Company has a lien, but no sale shall be made unless some sum in respect of whichthe lien exists is presently payable, or the liability or engagement in respect of which such lien exists isliable to be presently fulfilled or discharged nor until the expiration of fourteen (14) clear days after anotice in writing, stating and demanding payment of the sum presently payable, or specifying the liabilityor engagement and demanding fulfilment or discharge thereof and giving notice of the intention to sell indefault, has been served on the registered holder for the time being of the share or the person entitledthereto by reason of his death or bankruptcy.



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24. The net proceeds of the sale shall be received by the Company and applied in or towards paymentor discharge of the debt or liability in respect of which the lien exists, so far as the same is presentlypayable, and any residue shall be paid to the person entitled to the share at the time of the sale or to hisexecutors, administrators or assignees or as he may direct. To give effect to any such sale the Board mayauthorise some person to transfer the shares sold to the purchaser thereof. The purchaser shall beregistered as the holder of the shares so transferred and he shall not be bound to see to the applicationof the purchase money, nor shall his title to the shares be affected by any irregularity or invalidity in theproceedings relating to the sale.

CALLS ON SHARES

25. Subject to these Articles and to the terms of allotment, the Board may from time to time make callsupon the Members in respect of any moneys unpaid on their shares (whether on account of the nominalvalue of the shares or by way of premium), and each Member shall (subject to being given at leastfourteen (14) clear days’ Notice specifying the time and place of payment) pay to the Company asrequired by such notice the amount called on his shares. A call may be extended, postponed or revokedin whole or in part as the Board determines but no Member shall be entitled to any such extension,postponement or revocation except as a matter of grace and favour.

26. A call shall be deemed to have been made at the time when the resolution of the Boardauthorising the call was passed and may be made payable either in one lump sum or by instalments.

27. A person upon whom a call is made shall remain liable for calls made upon him notwithstandingthe subsequent transfer ofthe shares in respect of which the call was made. The joint holders of a shareshall be jointly and severally liable to pay all calls and instalments due in respect thereof or other moneysdue in respect thereof.

28. If a sum called in respect of a share is not paid before or on the day appointed for paymentthereof, the person from whom the sum is due shall pay interest on the amount unpaid from the dayappointed for payment thereof to the time of actual payment at such rate (not exceeding twenty per cent.(20%) per annum) as the Board may determine, but the Board may in its absolute discretion waivepayment of such interest wholly or in part.

29. No Member shall be entitled to receive any dividend or bonus or to be present and vote (save asproxy for another Member) at any general meeting either personally or by proxy, or be reckoned in aquorum, or exercise any other privilege as a Member until all calls or instalments due by him to theCompany, whether alone or jointly with any other person, together with interest and expenses (if any)shall have been paid.

30. On the trial or hearing of any action or other proceedings for the recovery of any money due forany call, it shall be sufficient to prove that the name of the Member sued is entered in the Register as theholder, or one of the holders, of the shares in respect of which such debt accrued, that the resolutionmaking the call is duly recorded in the minute book, and that notice of such call was duly given to theMember sued, in pursuance of these Articles; and it shall not be necessary to prove the appointment ofthe Directors who made such call, nor any other matters whatsoever, but the proof of the mattersaforesaid shall be conclusive evidence of the debt.

31. Any amount payable in respect of a share upon allotment or at any fixed date, whether in respectof nominal value or premium or as an instalment of a call, shall be deemed to be a call duly made andpayable on the date fixed for payment and if it is not paid the provisions of these Articles shall apply as ifthat amount had become due and payable by virtue of a call duly made and notified.

32. On the issue of shares the Board may differentiate between the allottees or holders as to theamount of calls to be paid and the times of payment.



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33. The Board may, if it thinks fit, receive from any Member willing to advance the same, and either inmoney or money’s worth, all or any part of the moneys uncalled and unpaid or instalments payable uponany shares held by him and upon all or any of the moneys so advanced (until the same would, but forsuch advance, become presently payable) pay interest at such rate (if any) as the Board may decide. TheBoard may at any time repay the amount so advanced upon giving to such Member not less than onemonth’s Notice of its intention in that behalf, unless before the expiration of such notice the amount soadvanced shall have been called up on the shares in respect of which it was advanced. Such payment inadvance shall not entitle the holder of such share or shares to participate in respect thereof in a dividendsubsequently declared or in profits.

FORFEITURE OF SHARES

34. (1) If a call remains unpaid after it has become due and payable the Board may give to theperson from whom it is due not less than fourteen (14) clear days’ Notice:-

(a) requiring payment of the amount unpaid together with any interest which may haveaccrued and which may still accrue up to the date of actual payment; and

(b) stating that if the Notice is not complied with the shares on which the call was madewill be liable to be forfeited.

(2) If the requirements of any such Notice are not complied with, any share in respect of whichsuch Notice has been given may at any time thereafter, before payment of all calls and interest due inrespect thereof has been made, be forfeited by a resolution of the Board to that effect, and such forfeitureshall include all dividends and bonuses declared in respect of the forfeited share but not actually paidbefore the forfeiture.

35. When any share has been forfeited, notice of the forfeiture shall be served upon the person whowas before forfeiture the holder of the share. No forfeiture shall be invalidated by any omission or neglectto give such Notice.

36. The Board may accept the surrender of any share liable to be forfeited hereunder and, in suchcase, references in these Articles to forfeiture will include surrender.

37. A forfeited share shall be the property of the Company and may be sold, re-allotted or otherwisedisposed of either to the person who was before such forfeiture the holder thereof or entitled thereto or toany other person, upon such terms and in such manner as the Board determines, and at any time beforea sale, re-allotment or disposition the forfeiture may be annulled by the Board on such terms as theBoard determines.

37A. If any shares are forfeited and sold, any residue after the satisfaction of the unpaid calls and anyaccrued interests and expenses, shall be paid to the person whose shares have been forfeited, or hisexecutors, administrators or assignees or as he directs.

38. A person whose shares have been forfeited shall cease to be a Member in respect of the forfeitedshares but nevertheless shall remain liable to pay the Company all moneys which at the date of forfeiturewere presently payable by him to the Company in respect of the shares, with (if the Directors shall in theirdiscretion so require) interest thereon from the date of forfeiture until payment at such rate (not exceedingtwenty per cent. (20%) per annum) as the Board determines. The Board may enforce payment thereof if itthinks fit, and without any deduction or allowance for the value of the forfeited shares, at the date offorfeiture, but his liability shall cease if and when the Company shall have received payment in full of allsuch moneys in respect of the shares. For the purposes of this Article any sum which, by the terms ofissue of a share, is payable thereon at a fixed time which is subsequent to the date of forfeiture, whetheron account of the nominal value of the share or by way of premium, shall notwithstanding that time hasnot yet arrived be deemed to be payable at the date of forfeiture, and the same shall become due andpayable immediately upon the forfeiture, but interest thereon shall only be payable in respect of anyperiod between the said fixed time and the date of actual payment.



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39. A declaration by a Director or the Secretary that a share has been forfeited on a specified dateshall be conclusive evidence of the facts therein stated as against all persons claiming to be entitled tothe share, and such declaration shall (subject to the execution of an instrument of transfer by theCompany if necessary) constitute a good title to the share, and the person to whom the share isdisposed of shall be registered as the holder of the share and shall not be bound to see to theapplication of the consideration (if any), nor shall his title to the share be affected by any irregularity in orinvalidity of the proceedings in reference to the forfeiture, sale or disposal of the share. When any shareshall have been forfeited, notice of the declaration shall be given to the Member in whose name it stoodimmediately prior to the forfeiture, and an entry of the forfeiture, with the date thereof, shall forthwith bemade in the register, but no forfeiture shall be in any manner invalidated by any omission or neglect togive such notice or make any such entry.

40. Notwithstanding any such forfeiture as aforesaid the Board may at any time, before any shares soforfeited shall have been sold, re-allotted or otherwise disposed of, permit the shares forfeited to bebought back upon the terms of payment of all calls and interest due upon and expenses incurred inrespect of the share, and upon such further terms (if any) as it thinks fit.

41. The forfeiture of a share shall not prejudice the right of the Company to any call already made orinstalment payable thereon.

42. The provisions of these Articles as to forfeiture shall apply in the case of non-payment of any sumwhich, by the terms of issue of a share, becomes payable at a fixed time, whether on account of thenominal value of the share or by way of premium, as if the same had been payable by virtue of a call dulymade and notified.

RECORD DATES

45. Notwithstanding any other provision of these Articles the Company or the Directors may fix anydate as the record date for:-

(a) determining the Members entitled to receive any dividend, distribution, allotment or issueand such record date may be on, or at any time not more than thirty (30) days before orafter, any date on which such dividend, distribution, allotment or issue is declared, paid ormade; and

(b) determining the Members entitled to receive notice of and to vote at any general meeting ofthe Company.

TRANSFER OF SHARES

46. Subject to these Articles, any Member may transfer all or any of his shares by an instrument oftransfer in the form acceptable to the Board provided always that the Company shall accept forregistration an instrument of transfer in a form approved by the Designated Stock Exchange.

47. The instrument of transfer of any share shall be executed by or on behalf of both the transferor andthe transferee and be witnessed, provided that an instrument of transfer in respect of which thetransferee is the Depository shall be effective although not signed or witnessed by or on behalf of theDepository and provided further that when a corporation executes an instrument of transfer under seal,the affixation and attestation of the corporation’s seal may be accepted as compliance with therequirements of this Article. The Board may also resolve, either generally or in any particular case, uponrequest by either the transferor or transferee, to accept mechanically executed transfers. The transferorshall be deemed to remain the holder of the share until the name of the transferee is entered in theRegister in respect thereof. Nothing in these Articles shall preclude the Board from recognising arenunciation of the allotment or provisional allotment of any share by the allottee in favour of some otherperson.



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48. (1) The Board may, in its absolute discretion and without giving any reason therefor, refuse toregister a transfer of any share (not being a fully paid up share) to a person of whom it does not approve,or any share issued under any share incentive scheme for employees upon which a restriction on transferimposed thereby still subsists, and it may also, without prejudice to the foregoing generality, refuse toregister a transfer of any share (not being a fully paid up share) on which the Company has a lien or,except in the case of a transfer to executors, administrators or trustees of the estate of a deceasedMember, a transfer of any share to more than three (3) joint holders.

(2) No transfer shall be made to an infant or to a person of unsound mind or under other legaldisability.

(3) The Board in so far as permitted by any applicable law may, in its absolute discretion, at anytime and from time to time transfer any share upon the Register to any branch register or any share onany branch register to the Register or any other branch register. In the event of any such transfer, theshareholder requesting such transfer shall bear the cost of effecting the transfer unless the Boardotherwise determines.

(4) Unless the Board otherwise agrees (which agreement may be on such terms and subject tosuch conditions as the Board in its absolute discretion may from time to time determine, and whichagreement the Board shall, without giving any reason therefor, be entitled in its absolute discretion to giveor withhold), no shares upon the Register shall be transferred to any branch register nor shall shares onany branch register be transferred to the Register or any other branch register and all transfers and otherdocuments of title shall be lodged for registration, and registered, in the case of any shares on a branchregister, at the relevant Registration Office, and, in the case of any shares on the Register, at the Officeor such other place at which the Register is kept in accordance with the Law.

(5) Save as provided in the Articles, there shall be no restriction on the transfer of fully paid upshares (except where required by law, or the rules or regulations of the Designated Stock Exchange).

49. Without limiting the generality of the last preceding Article, the Board may decline to recognise anyinstrument of transfer unless:-

(a) a fee of such sum (not exceeding two Singapore dollars (S$2.00) or such other maximumsum as the Designated Stock Exchange may determine to be payable) as the Board mayfrom time to time require is paid to the Company in respect thereof;

(b) the instrument of transfer is in respect of only one class of share;

(c) the instrument of transfer is lodged at the Office or such other place at which the Register iskept in accordance with the Law or the Registration Office (as the case may be)accompanied by the relevant share certificate(s) and such other evidence as the Board mayreasonably require to show the right of the transferor to make the transfer (and, if theinstrument of transfer is executed by some other person on his behalf, the authority of thatperson so to do); and

(d) if applicable, the instrument of transfer is duly and properly stamped.

50. If the Board refuses to register a transfer of any share, it shall, within one (1) month after the dateon which the transfer was lodged with the Company, send to each of the transferor and transferee noticeof the refusal.

51. The registration of transfers of shares or of any class of shares may, after notice has been given inaccordance with applicable requirements of the Designated Stock Exchange be suspended at such timesand for such periods as the Board may determine.


GENERAL MEETINGS

55. Subject to Article 151(1), an annual general meeting of the Company shall be held in each yearother than the year of the Company’s incorporation at such time (within a period of not more thaneighteen (18) months after the date of incorporation or not more than fifteen (15) months after the holdingof the last preceding annual general meeting, unless a longer period would not infringe the rules orregulations of the Designated Stock Exchange, if any) and place as may be determined by the Board. Inaddition, for so long as the shares of the Company are listed on the Designated Stock Exchange, theinterval between the close of the Company’s financial year and the date of the Company’s annual generalmeeting shall not exceed four (4) months or such other period as may be prescribed or permitted by theDesignated Stock Exchange.

56. Each general meeting, other than an annual general meeting, shall be called an extraordinarygeneral meeting. General meetings may be held in any part of the world as may be determined by theBoard.

57. The Board may whenever it thinks fit call extraordinary general meetings, and, subject to the Law,Members holding at the date of deposit of the requisition not less than one-tenth of the paid up capital ofthe Company carrying the right of voting at general meetings of the Company shall at all times have theright, by written requisition to the Board or the Secretary of the Company, to require an extraordinarygeneral meeting to be called by the Board for the transaction of any business specified in suchrequisition; and such meeting shall be held within two (2) months after the deposit of such requisition. Ifwithin twenty-one (21) days of such deposit the Board fails to proceed to convene such meeting therequisitionists themselves may do so in the same manner, and all reasonable expenses incurred by therequisitionist(s) as a result of the failure of the Board shall be reimbursed to the requisitionist(s) by theCompany.

NOTICE OF GENERAL MEETINGS

58. (1) At least fourteen (14) days’ Notice of a general meeting shall be given to each Memberentitled to attend and vote thereat. A general meeting at which the passing of a special resolution is to beconsidered shall be called by not less than twenty-one (21) days’ Notice. A general meeting, whether ornot a special resolution will be considered at such meeting may be called by shorter notice if it is soagreed:-

(a) in the case of a meeting called as an annual general meeting, by all the membersentitled to attend and vote thereat; and

(b) in the case of any other meeting, by a majority in number of the Members having theright to attend and vote at the meeting, being a majority together holding not less thanninety-five per cent. (95%) in nominal value of the issued shares giving that right.

(2) For so long as the shares of the Company are listed on the Designated Stock Exchange, atleast fourteen (14) days’ notice of any general meeting shall be given by advertisement in any dailynewspaper in circulation in Singapore and in writing to the Designated Stock Exchange.

(3) The period of notice shall be exclusive of the day on which it is served or deemed to beserved and exclusive of the day on which the meeting is to be held, and the Notice shall specify the day,time and place of the meeting and, in case of special business, the general nature of the business. AnyNotice of a general meeting to consider special business shall be accompanied by a statement regardingthe effect of any proposed resolution on the Company in respect of such special business. The Noticeconvening an annual general meeting shall specify the meeting as such. Notice of every general meetingshall be given to all Members other than to such Members as, under the provisions of these Articles orthe terms of issue of the shares they hold, are not entitled to receive such notices from the Company, toall persons entitled to a share in consequence of the death or bankruptcy or winding-up of a Member andto each of the Directors and the Auditors.


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(4) The Secretary may postpone any general meeting called in accordance with the provisionsof these Articles (other than a meeting requisitioned under these Articles) provided that notice ofpostponement is given to each Member before the time for such meeting. Fresh notice of the date, timeand place for the postponed meeting shall be given to each Member in accordance with the provisions ofthese Articles.

59. The accidental omission to give Notice of a meeting or (in cases where instruments of proxy aresent out with the Notice) to send such instrument of proxy to, or the non-receipt of such Notice or suchinstrument of proxy by, any person entitled to receive such Notice shall not invalidate any resolutionpassed or the proceedings at that meeting.

PROCEEDINGS AT GENERAL MEETINGS

60. (1) Members may participate in any general meeting by means of such telephone, electronic orother communication facilities as permit all persons participating in the meeting to communicate witheach other simultaneously and instantaneously, and participation in such a meeting shall constitutepresence in person at such meeting.

(2) All business shall be deemed special that is transacted at an extraordinary general meeting,and also all business that is transacted at an annual general meeting, with the exception of sanctioningdividends, the reading, considering and adopting of the accounts and balance sheet and the reports ofthe Directors and Auditors and other documents required to be annexed to the balance sheet, theelection of Directors and appointment of Auditors and other officers in the place of those retiring, thefixing of the remuneration of the Auditors, and the voting of remuneration or extra remuneration to theDirectors.

(3) No business, other than the appointment of a chairman of a meeting, shall be transacted atany general meeting unless a quorum of Members is present at the time when the meeting proceeds tobusiness. Except as herein otherwise provided, two (2) Members present in person shall form a quorum,provided that if the Company shall at any time have only one Member, one Member present in person orby proxy, or being a corporation by its representative duly authorised, shall form a quorum for thetransaction of business at any general meeting of the Company held during such time. For the purposesof this Article Member includes a person attending as a proxy or as a duly authorised representative of acorporation which is a Member.

61. If within thirty (30) minutes (or such longer time not exceeding one hour as the chairman of themeeting may determine to wait) after the time appointed for the meeting a quorum is not present, themeeting, if convened on the requisition of Members, shall be dissolved. In any other case it shall standadjourned to the same day in the next week at the same time and place or to such time and place as theBoard may determine. If at such adjourned meeting a quorum is not present within half an hour from thetime appointed for holding the meeting, the meeting shall be dissolved.

62. The chairman of the Board (if one is appointed) shall preside as chairman at every generalmeeting. If at any meeting the chairman is not present within fifteen (15) minutes after the time appointedfor holding the meeting, or is not willing to act as chairman, the Directors present shall choose one oftheir number to act, or if one Director only is present he shall preside as chairman if willing to act. If noDirector is present, or if each of the Directors present declines to take the chair, or if the chairmanchosen shall retire from the chair, the Members present in person or by proxy and entitled to vote shallelect one of their number to be chairman.



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63. The chairman may, with the consent of any meeting at which a quorum is present (and shall if sodirected by the meeting), adjourn the meeting from time to time and from place to place as the meetingshall determine, but no business shall be transacted at any adjourned meeting other than the businesswhich might lawfully have been transacted at the meeting had the adjournment not taken place. When ameeting is adjourned for fourteen (14) days or more, at least seven (7) clear days’ Notice of theadjourned meeting shall be given specifying the time and place of the adjourned meeting but it shall notbe necessary to specify in such notice the nature of the business to be transacted at the adjournedmeeting and the general nature of the business to be transacted. Save as aforesaid, it shall beunnecessary to give notice of an adjournment.

64. If an amendment is proposed to any resolution under consideration but is in good faith ruled out oforder by the chairman of the meeting, the proceedings on the substantive resolution shall not beinvalidated by any error in such ruling. In the case of a resolution duly proposed as a special resolution,no amendment thereto (other than a mere clerical amendment to correct a patent error) may in any eventbe considered or voted upon.

VOTING

65. Subject to any special rights or restrictions as to voting for the time being attached to any sharesby or in accordance with these Articles, at any general meeting (i) on a show of hands every Memberpresent in person (or being a corporation, is present by a representative duly authorised under Article 83)or by proxy shall have one vote and the chairman of the meeting shall determine which proxy shall beentitled to vote where a Member (other than the Depository) is represented by two proxies, and (ii) on apoll every Member present in person or by proxy or, in the case of a Member being a corporation, by itsduly authorised representative shall have one vote for every fully paid share of which he is the holder orwhich he represents and in respect of which all calls due to the Company have been paid, but so that noamount paid up or credited as paid up on a share in advance of calls or instalments is treated for theforegoing purposes as paid up on the share. A resolution put to the vote of a meeting shall be decided ona show of hands unless (before or on the declaration of the result of the show of hands or on thewithdrawal of any other demand for a poll) a poll is demanded:-

(a) by the chairman of such meeting; or

(b) by at least three Members present in person (or in the case of a Member being acorporation by its duly authorised representative) or by proxy for the time being entitled tovote at the meeting; or

(c) by a Member or Members present in person (or in the case of a Member being a corporationby its duly authorised representative) or by proxy and representing not less than one-tenth ofthe total voting rights of all Members having the right to vote at the meeting; or

(d) by a Member or Members present in person (or in the case of a Member being a corporationby its duly authorised representative) or by proxy and holding shares in the Companyconferring a right to vote at the meeting being shares on which an aggregate sum has beenpaid up equal to not less than one-tenth of the total sum paid up on all shares conferringthat right; or

(e) where the Depository is a Member, by at least three proxies representing the Depository.

A demand by a person as proxy for a Member or in the case of a Member being a corporation by its dulyauthorised representative shall be deemed to be the same as a demand by a Member.

66. Unless a poll is duly demanded and the demand is not withdrawn, a declaration by the chairmanthat a resolution has been carried, or carried unanimously, or by a particular majority, or not carried by aparticular majority, or lost, and an entry to that effect made in the minute book of the Company, shall beconclusive evidence of the fact without proof of the number or proportion of the votes recorded for oragainst the resolution.



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67. If a poll is duly demanded the result of the poll shall be deemed to be the resolution of the meetingat which the poll was demanded.

68. A poll demanded on the election of a chairman, or on a question of adjournment, shall be takenforthwith. A poll demanded on any other question shall be taken in such manner (including the use ofballot or voting papers or tickets) and either forthwith or at such time (being not later than thirty (30) daysafter the date of the demand) and place as the chairman directs. It shall not be necessary (unless thechairman otherwise directs) for notice to be given of a poll not taken immediately.

69. The demand for a poll shall not prevent the continuance of a meeting or the transaction of anybusiness other than the question on which the poll has been demanded, and, with the consent of thechairman, it may be withdrawn at any time before the close of the meeting or the taking of the poll,whichever is the earlier.

70. On a poll votes may be given either personally or by proxy.

71. A person entitled to more than one vote on a poll need not use all his votes or cast all the votes heuses in the same way.

72. In the case of an equality of votes, whether on a show of hands or on a poll, the chairman of suchmeeting shall be entitled to a second or casting vote in addition to any other vote he may have.

73. Where there are joint holders of any share any one of such joint holder may vote, either in personor by proxy, in respect of such share as if he were solely entitled thereto, but if more than one of suchjoint holders be present at any meeting the vote of the senior who tenders a vote, whether in person orby proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purposeseniority shall be determined by the order in which the names stand in the Register in respect of the jointholding. Several executors or administrators of a deceased Member in whose name any share standsshall for the purposes of this Article be deemed joint holders thereof.

74. (1) A Member who is a patient for any purpose relating to mental health or in respect of whoman order has been made by any court having jurisdiction for the protection or management of the affairsof persons incapable of managing their own affairs may vote, whether on a show of hands or on a poll, byhis receiver, committee, curator bonis or other person in the nature of a receiver, committee or curatorbonis appointed by such court, and such receiver, committee, curator bonis or other person may vote ona poll by proxy, and may otherwise act and be treated as if he were the registered holder of such sharesfor the purposes of general meetings, provided that such evidence as the Board may require of theauthority of the person claiming to vote shall have been deposited at the Office, head office orRegistration Office, as appropriate, not less than forty-eight (48) hours before the time appointed forholding the meeting, or adjourned meeting or poll, as the case may be.

(2) Any person entitled under Article 53 to be registered as the holder of any shares may vote atany general meeting in respect thereof in the same manner as if he were the registered holder of suchshares, provided that forty-eight (48) hours at least before the time of the holding of the meeting oradjourned meeting, as the case maybe, at which he proposes to vote, he shall satisfy the Board of hisentitlement to such shares, or the Board shall have previously admitted his right to vote at such meetingin respect thereof.

75. No Member shall, unless the Board otherwise determines, be entitled to attend and vote and to bereckoned in a quorum at any general meeting unless he is duly registered and all calls or other sumspresently payable by him in respect of shares in the Company have been paid.



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76. If:-

(a) any objection shall be raised to the qualification of any voter; or

(b) any votes have been counted which ought not to have been counted or which might havebeen rejected; or

(c) any votes are not counted which ought to have been counted;

the objection or error shall not vitiate the decision of the meeting or adjourned meeting on any resolutionunless the same is raised or pointed out at the meeting or, as the case may be, the adjourned meeting atwhich the vote objected to is given or tendered or at which the error occurs. Any objection or error shallbe referred to the chairman of the meeting and shall only vitiate the decision of the meeting on anyresolution if the chairman decides that the same may have affected the decision of the meeting. Thedecision of the chairman on such matters shall be final and conclusive.

PROXIES

77. (1) Any Member entitled to attend and vote at a meeting of the Company who is the holder oftwo or more shares shall be entitled to appoint not more than two proxies to attend and vote instead ofhim at the same general meeting provided that if the Member is the Depository:-

(a) the Depository may appoint more than two proxies to attend and vote at the samegeneral meeting and each proxy shall be entitled to exercise the same powers onbehalf of the Depository as the Depository could exercise, including, notwithstandingArticle 65, the right to vote individually on a show of hands;

(b) unless the Depository specifies otherwise in a written notice to the Company, theDepository shall be deemed to have appointed as the Depository’s proxies to vote onbehalf of the Depository at a general meeting of the Company each of the Depositorswho are individuals and whose names are shown in the records of the Depository asat a time not earlier than forty-eight (48) hours prior to the time of the relevant generalmeeting supplied by the Depository to the Company and notwithstanding any otherprovisions in these Articles, the appointment of proxies by virtue of this Article77(1)(b) shall not require an instrument of proxy or the lodgement of any instrument ofproxy;

(c) the Company shall accept as valid in all respects the form of instrument of proxyapproved by the Depository (the “CDP Proxy Form”) for use at the date relevant to thegeneral meeting in question naming a Depositor (the “Nominating Depositor”) andpermitting that Nominating Depositor to nominate a person or persons other thanhimself as the proxy or proxies appointed by the Depository. The Company shall, indetermining rights to vote and other matters in respect of a completed CDP ProxyForm submitted to it, have regard to the instructions given by and the notes (if any)set out in the CDP Proxy Form. The submission of any CDP Proxy Form shall notaffect the operation of Article 77(1)(b) and shall not preclude a Depositor appointed asa proxy by virtue of Article 77(1)(b) from attending and voting at the relevant meetingbut in the event of attendance by such Depositor the CDP Proxy Form submittedbearing his name as the Nominating Depositor shall be deemed to be revoked;

(d) the Company shall reject any CDP Proxy Form of a Nominating Depositor if his nameis not shown in the records of the Depository as at a time not earlier than forty-eight(48) hours prior to the time of the relevant general meeting supplied by the Depositoryto the Company; and



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(e) on a poll the maximum number of votes which a Depositor, or proxies appointedpursuant to a CDP Proxy Form in respect of that Depositor, is able to cast shall be thenumber of shares credited to the Securities Account of that Depositor as shown in therecords of the Depository as at a time not earlier than forty-eight (48) hours prior tothe time of the relevant general meeting supplied by the Depository to the Company,whether that number is greater or smaller than the number specified in any CDPProxy Form or instrument of proxy executed by or on behalf of the Depository.

(2) In any case where an instrument of proxy appoints more than one proxy (including the casewhen a CDP Proxy Form is used), the proportion of the shareholding concerned to be represented byeach proxy shall be specified in the instrument of proxy.

(3) A proxy need not be a Member. In addition, subject to Article 77(1), a proxy or proxiesrepresenting either a Member who is an individual or a Member which is a corporation shall be entitled toexercise the same powers on behalf of the Member which he or they represent as such Member couldexercise, including, notwithstanding Article 65, the right to vote individually on a show of hands. On a poll,a proxy need not use all the votes he is entitled to cast or cast all such votes in the same way.

78. The instrument appointing a proxy shall be in writing under the hand of the appointor or of hisattorney duly authorised in writing or, if the appointor is a corporation, either under its seal or under thehand of an officer, attorney or other person authorised to sign the same or, in the case of the Depository,signed by its duly authorised officer by some method or system of mechanical signature as theDepository may deem appropriate. In the case of an instrument of proxy purporting to be signed onbehalf of a corporation by an officer thereof it shall be assumed, unless the contrary appears, that suchofficer was duly authorised to sign such instrument of proxy on behalf of the corporation without furtherevidence of the fact.

79. The instrument appointing a proxy and (if required by the Board) the power of attorney or otherauthority (if any) under which it is signed on behalf of the appointor (which shall, for this purpose, includea Depositor), or a certified copy of such power or authority, shall be delivered to such place or one ofsuch places (if any) as may be specified for that purpose in or by way of note to or in any documentaccompanying the notice convening the meeting (or, if no place is so specified at the Registration Officeor the Office, as may be appropriate) not less than forty-eight (48) hours before the time appointed forholding the meeting or adjourned meeting at which the person named in the instrument proposes to voteor, in the case of a poll taken subsequently to the date of a meeting or adjourned meeting, not less thantwenty-four (24) hours before the time appointed for the taking of the poll and in default the instrument ofproxy shall not be treated as valid. No instrument appointing a proxy shall be valid after the expiration oftwelve (12) months from the date named in it as the date of its execution, except at an adjourned meetingor on a poll demanded at a meeting or an adjourned meeting in cases where the meeting was originallyheld within twelve (12) months from such date. Delivery of an instrument appointing a proxy shall notpreclude a Member from attending and voting in person at the meeting convened and in such event, theinstrument appointing a proxy shall be deemed to be revoked.

80. Instruments of proxy shall be in any usual or common form (including any form approved from timeto time by the Depository) or in such other form as the Board may approve (provided that this shall notpreclude the use of the two-way form) and the Board may, if it thinks fit, send out with the notice of anymeeting forms of instrument of proxy for use at the meeting. The instrument of proxy shall be deemed toconfer authority to demand or join in demanding a poll and to vote on any amendment of a resolution putto the meeting for which it is given as the proxy thinks fit. The instrument of proxy shall, unless thecontrary is stated therein, be valid as well for any adjournment of the meeting as for the meeting to whichit relates.



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81. A vote given in accordance with the terms of an instrument of proxy shall be valid notwithstandingthe previous death or insanity of the principal, or revocation of the instrument of proxy or of the authorityunder which it was executed, provided that no intimation in writing of such death, insanity or revocationshall have been received by the Company at the Office or the Registration Office (or such other place asmay be specified for the delivery of instruments of proxy in the notice convening the meeting or otherdocument sent therewith) two (2) hours at least before the commencement of the meeting or adjournedmeeting, or the taking of the poll, at which the instrument of proxy is used.

82. Anything which under these Articles a Member may do by proxy he may likewise do by his dulyappointed attorney and the provisions of these Articles relating to proxies and instruments appointingproxies shall apply mutatis mutandis in relation to any such attorney and the instrument under whichsuch attorney is appointed.

CORPORATIONS ACTING BY REPRESENTATIVES

83. (1) Any corporation which is a Member may by resolution of its directors or other governingbody authorise such person as it thinks fit to act as its representative at any meeting of the Company orat any meeting of any class of Members. The person so authorised shall be entitled to exercise the samepowers on behalf of such corporation as the corporation could exercise if it were an individual Memberand such corporation shall for the purposes of these Articles be deemed to be present in person at anysuch meeting if a person so authorised is present thereat.

(2) Where a Member is the Depository (or its nominee, in each case, being a corporation), itmay authorise such persons as it thinks fit to act as its representatives at any meeting of the Company orat any meeting of any class of Members provided that the authorisation shall specify the number andclass of shares in respect of which each such representative is so authorised. Each person so authorisedunder the provisions of this Article shall be entitled to exercise the same rights and powers as if suchperson was the registered holder of the shares of the Company held by the Depository (or its nominee) inrespect of the number and class of shares specified in the relevant authorisation including the right tovote individually on a show of hands.

(3) Any reference in these Articles to a duly authorised representative of a Member being acorporation shall mean a representative authorised under the provisions of this Article.

WRITTEN RESOLUTIONS OF MEMBERS

84. Subject to the Law, a resolution in writing signed (in such manner as to indicate, expressly orimpliedly, unconditional approval) by or on behalf of all persons for the time being entitled to receivenotice of and to attend and vote at general meetings of the Company shall, for the purposes of theseArticles, be treated as a resolution duly passed at a general meeting of the Company and, whererelevant, as a special resolution so passed. Any such resolution shall be deemed to have been passed ata meeting held on the date on which it was signed by the last Member to sign, and where the resolutionstates a date as being the date of his signature thereof by any Member the statement shall be primafacie evidence that it was signed by him on that date. Such a resolution may consist of severaldocuments in the like form, each signed by one or more relevant Members.

DIVIDENDS AND OTHER PAYMENTS

136. Subject to the Law, the Company in general meeting may from time to time declare dividends inany currency to be paid to the Members but no dividend shall be declared in excess of the amountrecommended by the Board.



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137. Dividends may be declared and paid out of the profits of the Company, realised or unrealised, orfrom any reserve set aside from profits which the Board determines is no longer needed. With thesanction of an ordinary resolution, dividends may also be declared and paid out of the share premiumaccount or any other fund or account which may be authorised for this purpose in accordance with theLaw, provided that no distribution or dividend may be paid to Members out of the share premium accountunless, immediately following the date on which the distribution or dividend is proposed to be paid, theCompany shall be able to pay its debts as they fall due in the ordinary course of business.

138. Except in so far as the rights attaching to, or the terms of issue of, any share otherwise provide:-

(a) all dividends shall be declared and paid according to the amounts paid up on the shares inrespect of which the dividend is paid, but no amount paid up on a share in advance of callsshall be treated for the purposes of this Article as paid up on the share; and

(b) all dividends shall be apportioned and paid pro rata according to the amounts paid up on theshares during any portion or portions of the period in respect of which the dividend is paid.

139. The Board may from time to time pay to the Members such interim dividends as appear to theBoard to be justified by the profits of the Company and in particular (but without prejudice to thegenerality of the foregoing) if at any time the share capital of the Company is divided into differentclasses, the Board may pay such interim dividends in respect of those shares in the capital of theCompany which confer on the holders thereof deferred or non-preferential rights as well as in respect ofthose shares which confer on the holders thereof preferential rights with regard to dividend and providedthat the Board acts bona fide the Board shall not incur any responsibility to the holders of sharesconferring any preference for any damage that they may suffer by reason of the payment of an interimdividend on any shares having deferred or non-preferential rights and may also pay any fixed dividendwhich is payable on any shares of the Company half-yearly or on any other dates, whenever such profits,in the opinion of the Board, justifies such payment.

140. The Board may deduct from any dividend or other moneys payable to a Member by the Companyon or in respect of any shares all sums of money (if any) presently payable by him to the Company onaccount of calls or otherwise.

141. No unpaid dividend or distribution or other moneys payable by the Company shall bear interest asagainst the Company.

142. Any dividend, interest or other sum payable in cash to the holder of shares may be paid by chequeor warrant sent through the post addressed to the holder at his registered address or, in the case of jointholders, addressed to the holder whose name stands first in the Register in respect of the shares at hisaddress as appearing in the Register or addressed to such person and at such address as the holder orjoint holders may in writing direct. Every such cheque or warrant shall, unless the holder or joint holdersotherwise direct, be made payable to the order of the holder or, in the case of joint holders, to the orderof the holder whose name stands first on the Register in respect of such shares, and shall be sent at hisor their risk and payment of the cheque or warrant by the bank on which it is drawn shall constitute agood discharge to the Company notwithstanding that it may subsequently appear that the same has beenstolen or that any endorsement thereon has been forged. Any one of two or more joint holders may giveeffectual receipts for any dividends or other moneys payable or property distributable in respect of theshares held by such joint holders.

143. All dividends or bonuses unclaimed for one (1) year after having been declared may be invested orotherwise made use of by the Board for the benefit of the Company until claimed. Any dividend orbonuses unclaimed after a period of six (6) years from the date of declaration shall be forfeited and shallrevert to the Company. The payment by the Board of any unclaimed dividend or other sums payable on orin respect of a share into a separate account shall not constitute the Company a trustee in respectthereof.



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144. Whenever the Board or the Company in general meeting has resolved that a dividend be paid ordeclared, the Board may further resolve that such dividend be satisfied wholly or in part by thedistribution of specific assets of any kind and in particular of paid up shares, debentures or warrants tosubscribe securities of the Company or any other company, or in any one or more of such ways, andwhere any difficulty arises in regard to the distribution the Board may settle the same as it thinksexpedient, and in particular may issue certificates in respect of fractions of shares, disregard fractionalentitlements or round the same up or down, and may fix the value for distribution of such specific assets,or any part thereof, and may determine that cash payments shall be made to any Members upon thefooting of the value so fixed in order to adjust the rights of all parties, and may vest any such specificassets in trustees as may seem expedient to the Board and may appoint any person to sign any requisiteinstruments of transfer and other documents on behalf of the persons entitled to the dividend, and suchappointment shall be effective and binding on the Members. The Board may resolve that no such assetsshall be made available to Members with registered addresses in any particular territory or territorieswhere, in the absence of a registration statement or other special formalities, such distribution of assetswould or might, in the opinion of the Board, be unlawful or impracticable and in such event the onlyentitlement of the Members aforesaid shall be to receive cash payments as aforesaid. Members affectedas a result of the foregoing sentence shall not be or be deemed to be a separate class of Members forany purpose whatsoever.

145. (1) Whenever the Board or the Company in general meeting has resolved that a dividend bepaid or declared on any class of the share capital of the Company, the Board may further resolve either:-

(a) that such dividend be satisfied wholly or in part in the form of an allotment of sharescredited as fully paid up, provided that the Members entitled thereto will be entitled toelect to receive such dividend (or part thereof if the Board so determines) in cash inlieu of such allotment. In such case, the following provisions shall apply:-

(i) the basis of any such allotment shall be determined by the Board;

(ii) the Board, after determining the basis of allotment, shall give not less than two(2) weeks’ Notice to the holders of the relevant shares of the right of electionaccorded to them and shall send with such notice forms of election and specifythe procedure to be followed and the place at which and the latest date andtime by which duly completed forms of election must be lodged in order to beeffective;

(iii) the right of election may be exercised in respect of the whole or part of thatportion of the dividend in respect of which the right of election has beenaccorded; and

(iv) the dividend (or that part of the dividend to be satisfied by the allotment ofshares as aforesaid) shall not be payable in cash on shares in respect whereofthe cash election has not been duly exercised (“the non-elected shares”) and insatisfaction thereof shares of the relevant class shall be allotted credited as fullypaid up to the holders of the non-elected shares on the basis of allotmentdetermined as aforesaid and for such purpose the Board shall capitalise andapply out of any part of the undivided profits of the Company (including profitscarried and standing to the credit of any reserves or other special account,share premium account, capital redemption reserve) as the Board maydetermine, such sum as may be required to pay up in full the appropriatenumber of shares of the relevant class for allotment and distribution to andamongst the holders of the non-elected shares on such basis; or



149


(b) that the Members entitled to such dividend shall be entitled to elect to receive anallotment of shares credited as fully paid up in lieu of the whole or such part of thedividend as the Board may think fit. In such case, the following provisions shall apply:-

(i) the basis of any such allotment shall be determined by the Board;

(ii) the Board, after determining the basis of allotment, shall give not less than two(2) weeks’ Notice to the holders of the relevant shares of the right of electionaccorded to them and shall send with such notice forms of election and specifythe procedure to be followed and the place at which and the latest date andtime by which duly completed forms of election must be lodged in order to beeffective;

(iii) the right of election may be exercised in respect of the whole or part of thatportion of the dividend in respect of which the right of election has beenaccorded; and

(iv) the dividend (or that part of the dividend in respect of which a right of electionhas been accorded) shall not be payable in cash on shares in respect whereofthe share election has been duly exercised (“the elected shares”) and in lieuthereof shares of the relevant class shall be allotted credited as fully paid up tothe holders of the elected shares on the basis of allotment determined asaforesaid and for such purpose the Board shall capitalise and apply out of anypart of the undivided profits of the Company (including profits carried andstanding to the credit of any reserves or other special account, share premiumaccount, capital redemption reserve) as the Board may determine, such sum asmay be required to pay up in full the appropriate number of shares of therelevant class for allotment and distribution to and amongst the holders of theelected shares on such basis.

(2) (a) The shares allotted pursuant to the provisions of paragraph (1) of this Article shallrank pari passu in all respects with shares of the same class (if any) then in issuesave only as regards participation in the relevant dividend or in any other distributions,bonuses or rights paid, made, declared or announced prior to or contemporaneouslywith the payment or declaration of the relevant dividend unless, contemporaneouslywith the announcement by the Board of their proposal to apply the provisions of sub-paragraph (a) or (b) of paragraph (2) of this Article in relation to the relevant dividendor contemporaneously with their announcement of the distribution, bonus or rights inquestion, the Board shall specify that the shares to be allotted pursuant to theprovisions of paragraph (1) of this Article shall rank for participation in suchdistribution, bonus or rights.

(b) The Board may do all acts and things considered necessary or expedient to giveeffect to any capitalisation pursuant to the provisions of paragraph (1) of this Article,with full power to the Board to make such provisions as it thinks fit in the case ofshares becoming distributable in fractions (including provisions whereby, in whole or inpart, fractional entitlements are aggregated and sold and the net proceeds distributedto those entitled, or are disregarded or rounded up or down or whereby the benefit offractional entitlements accrues to the Company rather than to the Membersconcerned). The Board may authorise any person to enter into on behalf of allMembers interested, an agreement with the Company providing for such capitalisationand matters incidental thereto and any agreement made pursuant to such authorityshall be effective and binding on all concerned.


150

(3) The Company may upon the recommendation of the Board by ordinary resolution resolve inrespect of any one particular dividend of the Company that notwithstanding the provisions of paragraph(1) of this Article a dividend may be satisfied wholly in the form of an allotment of shares credited as fullypaid up without offering any right to shareholders to elect to receive such dividend in cash in lieu of suchallotment.

(4) The Board may on any occasion determine that rights of election and the allotment ofshares under paragraph (1) of this Article shall not be made available or made to any Members withregistered addresses in any territory where, in the absence of a registration statement or other specialformalities, the circulation of an offer of such rights of election or the allotment of shares would or might,in the opinion of the Board, be unlawful or impracticable, and in such event the provisions aforesaid shallbe read and construed subject to such determination. Members affected as a result of the foregoingsentence shall not be or be deemed to be a separate class of Members for any purpose whatsoever.

(5) Any resolution declaring a dividend on shares of any class, whether a resolution of theCompany in general meeting or a resolution of the Board, may specify that the same shall be payable ordistributable to the persons registered as the holders of such shares at the close of business on aparticular date, notwithstanding that it may be a date prior to that on which the resolution is passed, andthereupon the dividend shall be payable or distributable to them in accordance with their respectiveholdings so registered, but without prejudice to the rights inter se in respect of such dividend oftransferors and transferees of any such shares. The provisions of this Article shall mutatis mutandis applyto bonuses, capitalisation issues, distributions of realised capital profits or offers or grants made by theCompany to the Members.

RESERVES

146. (1) The Board shall establish an account to be called the share premium account and shallcarry to the credit of such account from time to time a sum equal to the amount or value of the premiumpaid on the issue of any share in the Company. The Company may apply the share premium account inany manner permitted by the Law. The Company shall at all times comply with the provisions of the Lawin relation to the share premium account.

(2) Before recommending any dividend, the Board may set aside out of the profits of theCompany such sums as it determines as reserves which shall, at the discretion of the Board, beapplicable for any purpose to which the profits of the Company may be properly applied and pendingsuch application may, also at such discretion, either be employed in the business of the Company or beinvested in such investments as the Board may from time to time think fit and so that it shall not benecessary to keep any investments constituting the reserve or reserves separate or distinct from anyother investments of the Company. The Board may also without placing the same to reserve carryforward any profits which it may think prudent not to distribute.

CAPITALISATION

147. The Company may, upon the recommendation of the Board, at any time and from time to timepass an ordinary resolution to the effect that it is desirable to capitalise all or any part of any amount forthe time being standing to the credit of any reserve or fund (including share premium account and capitalredemption reserve and the profit and loss account) whether or not the same is available for distributionand accordingly that such amount be set free for distribution among the Members or any class ofMembers who would be entitled thereto if it were distributed by way of dividend and in the sameproportions, on the footing that the same is not paid in cash but is applied either in or towards paying upthe amounts for the time being unpaid on any shares in the Company held by such Members respectivelyor in paying up in full unissued shares, debentures or other obligations of the Company, to be allotted and


distributed credited as fully paid up among such Members, or partly in one way and partly in the other,and the Board shall give effect to such resolution provided that, for the purposes of this Article, a sharepremium account and any capital redemption reserve or fund representing unrealised profits, may beapplied only in paying up in full unissued shares of the Company to be issued to such Members creditedas fully paid. In carrying sums to reserve and in applying the same the Board shall comply with theprovisions of the Law.

148. The Board may settle, as it considers appropriate, any difficulty arising in regard to any distributionunder the last preceding Article and in particular may issue certificates in respect of fractions of shares orauthorise any person to sell and transfer any fractions or may resolve that the distribution should be asnearly as may be practicable in the correct proportion but not exactly so or may ignore fractionsaltogether, and may determine that cash payments shall be made to any Members in order to adjust therights of all parties, as may seem expedient to the Board. The Board may appoint any person to sign onbehalf of the persons entitled to participate in the distribution any contract necessary or desirable forgiving effect thereto and such appointment shall be effective and binding upon the Members.

WINDING UP

162. (1) The Board shall have power in the name and on behalf of the Company to present a petitionto the court for the Company to be wound up.

(2) A resolution that the Company be wound up by the court or be wound up voluntarily shall bea special resolution.

163. (1) Subject to any special rights, privileges or restrictions as to the distribution of availablesurplus assets on liquidation for the time being attached to any class or classes of shares, (i) if theCompany shall be wound up and the assets available for distribution amongst the Members of theCompany shall be more than sufficient to repay the whole of the capital paid up at the commencement ofthe winding up, the excess shall be distributed pari passu amongst such Members in proportion to theamount paid up on the shares held by them respectively and (ii) if the Company shall be wound up andthe assets available for distribution amongst the Members as such shall be insufficient to repay the wholeof the paid-up capital, such assets shall be distributed so that, as nearly as maybe, the losses shall beborne by the Members in proportion to the capital paid up, or which ought to have been paid up, at thecommencement of the winding up on the shares held by them respectively.

(2) If the Company shall be wound up (whether the liquidation is voluntary or by the court) theliquidator may, with the authority of a special resolution and any other sanction required by the Law,divide among the Members in specie or kind the whole or any part of the assets of the Company andwhether or not the assets shall consist of properties of one kind or shall consist of properties to bedivided as aforesaid of different kinds, and may for such purpose set such value as he deems fair uponany one or more class or classes of property and may determine how such division shall be carried outas between the Members or different classes of Members. The liquidator may, with the like authority, vestany part of the assets in trustees upon such trusts for the benefit of the Members as the liquidator withthe like authority shall think fit, and the liquidation of the Company may be closed and the Companydissolved, but so that no contributory shall be compelled to accept any shares or other property inrespect of which there is a liability.


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APPENDIX 5 – AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THEGROUP FOR FY2010

152

The audited consolidated financial statements of the Company for FY 2010 and the accompanyingreport by the auditors of the Company to the members of the Company have been extracted fromthe Company’s 2010 Annual Report (“Annual Report”) and pages mentioned herein refer to thecorresponding pages in the Annual Report.

Independent auditors’ report For the financial year ended 30 June 2010

To the members of Hsu Fu Chi International Limited

We have audited the accompanying financial statements of Hsu Fu Chi International Limited (the“Company”) and its subsidiaries (collectively, the “Group”) set out on pages 31 to 68, which comprise thebalance sheets of the Group and the Company as at 30 June 2010, the statements of changes in equityof the Group and the Company, the statement of comprehensive income and consolidated cash flowstatement of the Group for the year then ended, and a summary of significant accounting policies andother explanatory notes.

Management’s responsibility for the financial statements

Management is responsible for the preparation and fair presentation of these financial statements inaccordance with Singapore Financial Reporting Standards. This responsibility includes devising andmaintaining a system of internal accounting controls sufficient to provide a reasonable assurance thatassets are safeguarded against loss from unauthorised use or disposition; and transactions are properlyauthorised and that they are recorded as necessary to permit the preparation of true and fair profit andloss accounts and balance sheets and to maintain accountability of assets; selecting and applyingappropriate accounting policies; and making accounting estimates that are reasonable in thecircumstances.

Auditors’ responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. Weconducted our audit in accordance with Singapore Standards on Auditing. Those standards require thatwe comply with ethical requirements and plan and perform the audit to obtain reasonable assurancewhether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures inthe financial statements. The procedures selected depend on the auditor’s judgment, including theassessment of the risks of material misstatement of the financial statements, whether due to fraud orerror. In making those risk assessments, the auditor considers internal control relevant to the entity’spreparation and fair presentation of the financial statements in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness ofthe entity’s internal control. An audit also includes evaluating the appropriateness of accounting policiesused and the reasonableness of accounting estimates made by management, as well as evaluating theoverall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis forour audit opinion.

Opinion

In our opinion, the consolidated financial statements of the Group and the balance sheet and statementof changes in equity of the Company are properly drawn up in accordance with Singapore FinancialReporting Standards so as to give a true and fair view of the state of affairs of the Group and of theCompany as at 30 June 2010, and the results, changes in equity and cash flows of the Group and thechanges in equity of the Company for the year ended on that date.

Ernst & Young LLPPublic Accountants and Certified Public Accountants Singapore

1 October 2010


153

Consolidated Statement of Comprehensive Income for the financial year ended 30 June 2010

(Amounts expressed in Renminbi)

Note 30.06.10 30.06.09Rmb’000 Rmb’000

(Restated)

Revenue 4 4,305,656 3,784,874

Cost of sales (2,279,968) (2,068,390)

Gross profit 2,025,688 1,716,484


Other income 5 39,119 39,242Financial income 6 12,961 9,894

Other items of expense

Selling and distribution expenses (1,122,337) (957,709)General and administrative expenses (198,617) (211,607)Financial expenses 6 (2,341) (11,934)

Profit before tax 7 754,473 584,370

Income tax 10 (152,278) (123,946)

Profit net of tax 602,195 460,424

Other comprehensive income:

Foreign currency translation reserve (8) 1,424

Other comprehensive income for the year, net of tax (8) 1,424

Total comprehensive income attributable to shareholders 602,187 461,848

Basic and diluted arnings per share (Rmb) 11 0.76 0.58


154

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

Balance sheets as at 30 June 2010


Group Company

Note 30.06.10 30.06.09 01.07.08 30.06.10 30.06.09Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000

(Restated) (Restated)

Investment in subsidiaries 12 – – – 982,197 982,197Property, plant and equipment 13 1,591,299 1,693,374 1,403,407 – –Land use rights 14 211,803 218,529 206,284 – –Intangible assets 15 2,029 1,262 1,358 – –Prepayments for property, plant and equipment 210,015 139,685 130,431 – –

Deferred tax assets 16 97,107 90,562 87,771 – –

2,112,253 2,143,412 1,829,251 982,197 982,197

Current assetsInventories 17 381,650 227,725 216,289 – –Trade, bills and other receivables 18 314,401 287,347 245,005 878,658 879,448Prepayments 47,208 29,265 122,927 1,111 1,587Cash and bank balances 1,291,828 1,008,135 846,636 2,968 52,593

2,035,087 1,552,472 1,430,857 882,737 933,628

TOTAL ASSETS 4,147,340 3,695,884 3,260,108 1,864,934 1,915,825

EQUITY AND LIABILITIESCurrent liabilitiesTrade and other payables 19 608,525 571,934 381,607 2,443 2,590Other liabilities 20 542,889 480,094 416,960 3,192 4,051Short-term bank loans – – 160,000 – –Term loans 21 – – 20,000 – –Provision for income tax 29,363 51,523 69,231 – –

1,180,777 1,103,551 1,047,798 5,635 6,641

NET CURRENT ASSETS 854,310 448,921 383,059 877,102 926,987

Non-current liabilitiesTerm loans 21 – 30,000 50,000 – –Deferred tax liabilities 16 109,007 76,414 18,989 – –

109,007 106,414 68,989 – –

TOTAL LIABILITIES 1,289,784 1,209,965 1,116,787 5,635 6,641

NET ASSETS 2,857,556 2,485,919 2,143,321 1,859,299 1,909,184

Equity attributable to equity holders of the parent

Share capital 22 40,124 40,124 40,124 40,124 40,124Share premium 1,445,020 1,445,020 1,445,020 1,445,020 1,445,020Translation reserve (101) (93) (1,517) – –Reserve fund 23 282,193 207,963 152,678 – –Restructuring reserve (716,588) (716,588) (716,588) – –Accumulated profits 1,806,908 1,509,493 1,223,604 374,155 424,040

TOTAL EQUITY 2,857,556 2,485,919 2,143,321 1,859,299 1,909,184

TOTAL EQUITY AND LIABILITIES 4,147,340 3,695,884 3,260,108 1,864,934 1,915,825


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Statements of changes in equity for the financial year ended 30 June 2010


Share Reservecapital Share Translation fund Restructuring Accumulated Total

Group (Note 22) premium reserve (Note 24) reserve profits equity Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000

Opening balance at 1 July 2009 40,124 1,445,020 (93) 207,963 (716,588) 1,509,493 2,485,919

Profit net of tax – – – – – 602,195 602,195Other comprehensive income for the year – – (8) – – – (8)

Total comprehensive incomefor the year – – (8) – – 602,195 602,187

Dividends (Note 24) – – – – – (230,550) (230,550)Appropriation to reserve fund – – – 74,230 – (74,230) –

Closing balance at 30 June 2010 40,124 1,445,020 (101) 282,193 (716,588) 1,806,908 2,857,556

Opening balance at 1 July 2008 40,124 1,445,020 (1,517) 152,678 (716,588) 1,223,604 2,143,321

Profit net of tax – – – – – 460,424 460,424Other comprehensive income forthe year – – 1,424 – – – 1,424

Total comprehensive income for the year – – 1,424 – – 460,424 461,848

Dividends (Note 24) – – – – – (119,250) (119,250)Appropriation to reserve fund – – – 55,285 – (55,285) –

Closing balance at 30 June 2009 40,124 1,445,020 (93) 207,963 (716,588) 1,509,493 2,485,919

Notes:

Restructuring reserve:

This represents the difference between the nominal value of shares issued by the Company in exchange for the nominal value ofshares and capital reserve of subsidiaries acquired which is accounted for under “merger accounting”.

Translation reserve:

The translation reserve is used to record exchange differences arising from the translation of the financial statements of foreignoperations whose functional currencies are different from that of the Group’s presentation currency.


156

Statements of changes in equity for the financial year ended 30 June 2010


Share capital Share Translation Accumulated Total

Company (Note 22) premium reserve profits equity Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000

Opening balance at 1 July 2009 40,124 1,445,020 – 424,040 1,909,184

Profit net of tax – – – 180,665 180,665Other comprehensive income – – – – –

Total comprehensive income for the year – – – 180,665 180,665

Dividends (Note 24) – – – (230,550) (230,550)

Closing balance at 30 June 2010 40,124 1,445,020 – 374,155 1,859,299

Opening balance at 1 July 2008 40,124 1,445,020 (4,220) 298,722 1,779,646

Profit net of tax – – – 244,568 244,568Other comprehensive income – – 4,220 – 4,220

Total comprehensive income for the year – – 4,220 244,568 248,788

Dividends (Note 24) – – – (119,250) (119,250)

Closing balance at 30 June 2009 40,124 1,445,020 – 424,040 1,909,184


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Consolidated cash flow statement for the financial year ended 30 June 2010


30.06.10 30.06.09Rmb’000 Rmb’000

Cash flows from operating activitiesProfit before tax 754,473 584,370

Adjustments for:Depreciation of property, plant and equipment 216,195 200,278Amortisation of land use rights 4,801 4,755Amortisation of intangible assets 383 305Loss on disposal of property, plant and equipment 2,533 2,892Impairment of plant and machinery 28,029 –Allowance for doubtful trade receivables 634 94Allowance for inventory obsolescence 2,165 11,271Interest expense and bank charges 2,341 11,934Interest income (12,961) (9,894)Translation difference (8) 1,424

Operating cash flows before changes in working capital 998,585 807,429

Changes in working capital:Increase in inventories (156,090) (22,707)Increase in trade, bills and other receivables (27,688) (42,436)(Increase)/decrease in prepayments (17,943) 93,662Increase in trade and other payables 36,591 207,116Increase in other liabilities 145,118 63,134Decrease/(increase) in bank deposits subject to restricted application 1,644 (2,922)

Cash flows generated from operations 980,217 1,103,276Interest income received 12,961 9,894Interest expense and bank charges paid (2,341) (11,934)Income taxes paid (148,390) (87,020)

Net cash generated from operating activities 842,447 1,014,216

Cash flows from investing activitiesPurchase of property, plant and equipment (Note B) (270,783) (520,629)Proceeds from sale of property, plant and equipment 17,643 1,449Purchase of intangible assets - Land use rights (Note C) (42,270) (17,000)Purchase of intangible assets - Computer software (1,150) (209)

Net cash used in investing activities (296,560) (536,389)

Cash flows from financing activitiesProceeds from bank loans – 261,000Repayment of bank loans (30,000) (461,000)Dividends paid (230,550) (119,250)

Net cash used in financing activities (260,550) (319,250)

Net increase in cash and cash equivalents 285,337 158,577

Cash and cash equivalents at beginning of the financial year 1,000,046 841,469

Cash and cash equivalents at the end of the financial year (Note A) 1,285,383 1,000,046


158

Consolidated cash flow statement for the financial year ended 30 June 2010 (cont’d)


Notes to the Consolidated Cash Flows Statement

A. Cash and cash equivalents

Cash and cash equivalents included in the consolidated statement of cash flows comprise thefollowing:

30.06.10 30.06.09Rmb’000 Rmb’000

Cash at bank and in hand 470,890 389,020Short term deposits 820,938 619,115

Cash and bank balances 1,291,828 1,008,135Bank deposits subject to restricted application (6,445) (8,089)

Cash and cash equivalents 1,285,383 1,000,046

Bank deposits subject to restricted application relate to bank balances placed in designated bankaccounts for the purpose of tax payments as required by the PRC tax authorities.

Cash at banks earns interest at floating rates based on daily bank deposit rates. Short-termdeposits are made for varying periods of between one week and six months depending on theimmediate cash requirements of the Group, and earn interests at the respective short term depositrates.


159

Consolidated cash flow statement for the financial year ended 30 June 2010 (cont’d)


Notes to the Consolidated Cash Flows Statement (cont’d)

B. Property, plant and equipment

30.06.10 30.06.09Rmb’000 Rmb’000

Current year additions to property, plant and equipment 162,325 494,586Less: Payables to creditors in current year (5,973) (44,101)

Prepayments in prior year (139,685) (130,431)

16,667 320,054Add: Payables to creditors in prior year 44,101 60,890

Prepayments in current year 210,015 139,685

Net cash outflow for purchase of property, plant and equipment 270,783 520,629

C. Land use rights

30.06.10 30.06.09Rmb’000 Rmb’000

Current year additions to land use rights – 17,000Add: Payments for prior year acquisitions 42,270 –

Net cash outflow for purchase of land use rights 42,270 17,000


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1. Corporate information

1.1 The Company

The Company is an exempt company with limited liability, incorporated in the Cayman Islands on18 October 2006 and is listed on the Singapore Exchange Securities Trading Limited (SGX-ST).

The registered office of the Company is at Cricket Square Hutchins Drive, P.O. Box 2681, GrandCayman KY1-1111, Cayman Islands and the principal place of business of the Group is located atZhouwu Industrial District, Dongcheng, Dongguan, Guangdong Province, 523118, People’sRepublic of China (“PRC”).

The principal activity of the Company is that of investment holding. The principal activities of thesubsidiaries are disclosed in Note 12.

2. Summary of significant accounting policies

2.1 Basis of preparation

The consolidated financial statements of the Group and the balance sheet and statement ofchanges in equity of the Company have been prepared in accordance with Singapore FinancialReporting Standards (“FRS”).

The financial statements have been prepared on the historical cost basis except as disclosed inthe accounting policies below.

The Group’s principal operations are conducted in the PRC and thus the consolidated financialstatements are prepared in Renminbi (“Rmb”), being the measurement and presentation currencyof the Group. All values are rounded to the nearest thousand (Rmb’000) except when otherwiseindicated.

2.2 Changes in accounting policies

The accounting policies adopted are consistent with those of the previous financial year except asfollows:

(a) Adoption of new and revised FRS and INT FRS

On 1 July 2009, the Group adopted the following standards and interpretations mandatoryfor annual financial periods beginning on or after 1 January 2009.

� FRS 1 Presentation of Financial Statements (Revised)� Amendments to FRS 18 Revenue� Amendments to FRS 23 Borrowing Costs� FRS 27 Consolidation and Separate Financial Statements (Revised)� Amendments to FRS 32 Financial Instruments: Presentation and FRS 1 Presentation

of Financial Statements – Puttable Financial Instruments and Obligations Arising onLiquidation

� Amendments to FRS 39 Financial Instruments: Recognition and Measurement –Eligible Hedged Item

� Amendments to FRS 101 First-time Adoption of Financial Reporting Standards andFRS 27 Consolidated and Separate Financial Statements – Cost of an Investment in aSubsidiary, Jointly Controlled Entity or Associate

� Amendments to FRS 102 Share-based Payment – Vesting Conditions andCancellations

� FRS 103 Business Combination (Revised)� FRS 105 Non-current Assets Held for Sale and Discontinued Operations


161

2. Summary of significant accounting policies (cont’d)

2.2 Changes in accounting policies (cont’d)

(a) Adoption of new and revised FRS and INT FRS (cont’d)

� Amendments to FRS 107 Financial Instruments: Disclosures� FRS 108 Operating Segments� Improvements to FRSs issued in 2008� Improvements to FRSs issued in 2009� INT FRS 116 Hedges of a Net Investment in a Foreign Operation� INT FRS 117 Distributions of Non-cash Assets to Owners� Amendments to INT FRS 109 Reassessment of Embedded Derivatives and FRS 39

Financial Instruments: Recognition and Measurement – Embedded Derivatives� INT FRS 118 Transfers of Assets from Customers

Adoption of these standards and interpretations did not have any effect on the financialperformance or position of the Group. They did however give rise to additional disclosures,including, in some cases, revisions to accounting policies.

The principal effects of these changes are as follows:

FRS 1 Presentation of Financial Statements – Revised Presentation

The revised FRS 1 separates owner and non-owner changes in equity. The statement ofchanges in equity includes only details of transactions with owners, with all non-ownerchanges in equity presented in the statement of other comprehensive income. In addition,the Standard introduces the statement of comprehensive income which presents incomeand expense recognised in the period. This statement may be presented in one singlestatement, or two linked statements. The Group has elected to present this statement as onesingle statement.

Amendments to FRS 107 Financial Instruments: Disclosures

The amendments to FRS 107 require additional disclosure about fair value measurementand liquidity risk. Fair value measurements are to be disclosed by source of inputs using athree level hierarchy for each class of financial instrument. In addition, reconciliation betweenthe beginning and ending balance for Level 3 fair value measurements is now required, aswell as significant transfers between Level 1 and Level 2 fair value measurements. Theamendments also clarify the requirements for liquidity risk disclosures. The fair valuemeasurement disclosures and liquidity risk disclosures are presented in Note 28(b) and Note27(b) to the financial statements respectively.

FRS 108 Operating Segments

FRS 108 requires disclosure of information about the Group’s operating segments andreplaces the requirement to determine primary and secondary reporting segments of theGroup. The Group determined that the reportable operating segments are the same as thebusiness segments previously identified under FRS 14 Segment Reporting. Additionaldisclosures about each of the segments are shown in Note 25, including revisedcomparative information.


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(a) Adoption of new and revised FRS and INT FRS (cont’d)

Improvements to FRSs issued in 2008

In 2008, the Accounting Standards Council issued an omnibus of amendments to FRS.There are separate transitional provisions for each amendment. The adoption of thefollowing amendments resulted in changes to accounting policies but did not have anyimpact on the financial position or performance of the Group:

� FRS 1 Presentation of Financial Statements: Assets and liabilities classified as heldfor trading in accordance with FRS 39 Financial Instruments: Recognition andMeasurement are not automatically classified as current in the balance sheet. TheGroup amended its accounting policy accordingly and analysed whetherManagement’s expectation of the period of realisation of financial assets and liabilitiesdiffered from the classification of the instrument. This did not result in any re-classification of financial instruments between current and non-current in the balancesheet.

� FRS 16 Property, Plant and Equipment: Replaces the term “net selling price” with “fairvalue less costs to sell”. The Group amended its accounting policy accordingly, whichdid not result in any change in the financial position.

� FRS 23 Borrowing Costs: The definition of borrowing costs is revised to consolidatethe two types of items that are considered components of “borrowing costs” into one –the interest expense calculated using the effective interest rate method calculated inaccordance with FRS 39. The Group has amended its accounting policy accordinglywhich did not result in any change in its financial position.

Improvements to FRSs issued in 2009

In 2009, the Accounting Standards Council issued another set of amendments to FRS.There are separate transitional provisions for each amendment. The adoption of thefollowing amendments for annual financial periods beginning on or after 1 July 2009 resultedin changes to accounting policies but did not have any impact on the financial position orperformance of the Group:

� FRS 27 Consolidated and Separate Financial Statements (Revised) require that achange in the ownership interests of a subsidiary (without loss of control) is accountedfor as an equity transaction. The Group amended its accounting policy accordingly,which did not result in any change in the financial position.

� FRS 103 Business Combinations (Revised) introduces a number of changes that willimpact the amount of goodwill recognised, the reported results in the period that anacquisition occurs, and future reported results. The Group amended its accountingpolicy accordingly, which did not result in any change in the financial position.

� Amendments to FRS 108 Operating Segments require the disclosures of total assetsand liabilities for each reportable segment if such measures are regularly provided tothe chief operating decision maker. The Group presented the measures of segmentassets and liabilities as shown in Note 25.


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(b) FRS and INT FRS not yet effective

The Group has not adopted the following standards and interpretations that have beenissued but not yet effective:

Effective for annual periods beginning on

Description or after

FRS 102 Share-based Payment – Group Cash-settled Share-based 1 January 2010Payment Transactions

Improvements to FRSs issued in 2009:– Amendments to FRS 1 Presentation of Financial Statements 1 January 2010– Amendments to FRS 7 Statement of Cash Flows 1 January 2010– Amendments to FRS 17 Leases 1 January 2010– Amendments to FRS 36 Impairment of Assets 1 January 2010– FRS 39 Financial Instruments: Recognition and Measurement 1 January 2010– Amendments to FRS 105 Non-current Assets Held for 1 January 2010

Sale and Discontinued OperationsAmendments to FRS 32 – Classification of Rights Issues 1 February 2010INT FRS 119 Extinguishing Financial Liabilities with Equity Instruments 1 July 2010FRS 24 Related Party Disclosures (Revised) 1 January 2011

The directors expect that the adoption of the other standards and interpretations above willhave no material impact on the financial statements in the period of initial application.

2.3 Functional and foreign currency

(a) Functional currency

The Group’s principal operations are conducted in the PRC. The management hasdetermined the currency of the primary economic environment in which the Group operatesi.e. functional currency, to be Renminbi (Rmb). Sales prices and major operating expensesincluding cost of production are primarily influenced by fluctuations in Rmb.

The functional currency of Hsu Fu Chi (Hong Kong) Trading Company Limited is Hong KongDollars (HKD).

(b) Foreign currency transactions

Transactions in foreign currencies are measured and recorded in the functional currencies ofthe Company and its subsidiaries and are recorded on initial recognition in the functionalcurrencies at exchange rates approximating those ruling at the transaction dates. Monetaryassets and liabilities denominated in foreign currencies are translated at the rate ofexchange ruling at the balance sheet date. Non-monetary items that are measured in termsof historical cost in a foreign currency are translated using the exchange rates as at thedates of the initial transactions. Non-monetary items measured at fair value in a foreigncurrency are translated using the exchange rates at the date when the fair value wasdetermined.


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2.3 Functional and foreign currency

(b) Foreign currency transactions (cont’d)

Exchange differences arising on the settlement of monetary items or on translating monetaryitems at the balance sheet date are recognised in profit or loss except for exchangedifferences arising on monetary items that form part of the Group’s net investment in foreignoperations, which are recognised initially in other comprehensive income and accumulatedunder foreign currency translation reserve in equity. The foreign currency translation reserveis reclassified from equity to profit or loss of the Group on disposal of the foreign operation.

(c) Foreign currency translation

The assets and liabilities of foreign operations are translated into Rmb at the rate ofexchange ruling at the balance sheet date and their statement of comprehensive incomesare translated at the weighted average exchange rates for the year. The exchangedifferences arising on the translation are taken directly to other comprehensive income. Ondisposal of a foreign operation, the cumulative amount recognised in other comprehensiveincome relating to that particular foreign operation is recognised in profit or loss.

2.4 Subsidiaries and principles of consolidation

(a) Subsidiaries

A subsidiary is an entity over which the Group has the power to govern the financial andoperating policies so as to obtain benefits from its activities.

In the Company’s separate financial statements, investments in subsidiaries are accountedfor at cost less any impairment losses.

(b) Principles of consolidation

The consolidated financial statements comprise the financial statements of the Companyand its subsidiaries as at the balance sheet date. The financial statements of thesubsidiaries used in the preparation of consolidated financial statements are prepared forthe same reporting date as the parent company. Consistent accounting policies are appliedfor like transactions and events in similar circumstances.

All intra-group balances, income and expenses and unrealised gain and losses resultingfrom intra-group transactions are eliminated in full.

Business combinations involving entities under common control are accounted for byapplying the pooling of interest method. The assets and liabilities of the combining entitiesare reflected at their carrying amounts reported in the consolidated financial statements ofthe controlling holding company. Any difference between the consideration paid and theshare capital of the “acquired” entity is reflected within equity as restructuring reserve. Thestatement of comprehensive income reflects the results of the combining entities for the fullyear, irrespective of when the combination takes place. Comparatives are presented as ifthe entities had always been combined since the date the entities came under commoncontrol.

Consolidation of the subsidiaries in the PRC is based on the subsidiaries’ financialstatements prepared in accordance with FRS. Profits reflected in the financial statementsprepared in accordance with FRS may differ from those reflected in the PRC statutoryfinancial statements of the subsidiaries, prepared for PRC reporting purposes. Inaccordance with the relevant laws and regulations, profits available for distribution by thePRC subsidiaries are based on the amounts stated in the PRC statutory financialstatements.


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2.5 Related party

An entity or individual is considered a related party of the Group for the purposes of the financialstatements if: I) it possesses the ability (directly or indirectly) to control or exercise significantinfluence over the operating and financial decisions of the Group or vice versa; or II) it is subjectedto common control or common significant influence.

2.6 Property, plant and equipment

All items of property, plant and equipment are initially recorded at cost. The cost of an item ofproperty, plant and equipment is recognised as an asset if, and only if, it is probable that futureeconomic benefits associated with the item will flow to the Group and the cost of the item can bemeasured reliably.

Subsequent to recognition, property, plant and equipment are measured at cost less accumulateddepreciation and any accumulated impairment losses.

Depreciation of an asset begins when it is available for use and is computed on a straight-linebasis to write off the cost of property, plant and equipment less estimated residual value over theestimated useful life of the assets as follows:

Years

Buildings 20Plant and machinery 5 or 10Office equipment 3-5Motor vehicle 4-5

Construction-in-progress relates to the production facilities and office buildings under constructionand these are depreciated only when they become available for use.

The carrying values of property, plant and equipment are reviewed for impairment when events orchanges in circumstances indicate that the carrying values may not be recoverable.

The residual values, useful life and depreciation method are reviewed at each financial year-end toensure that the amount, method and period of depreciation are consistent with previous estimatesand the expected pattern of consumption of the future economic benefits embodied in the items ofproperty, plant and equipment.

An item of property, plant and equipment is derecognised upon disposal or when no futureeconomic benefits are expected from its use or disposal. Any gain or loss arising on derecognitionof the asset is included in profit or loss in the year the asset is derecognised.

2.7 Intangible assets

Intangible assets acquired separately are measured initially at cost. The cost of intangible assetsacquired in a business combination is their fair values as at the date of acquisition. Following initialrecognition, intangible assets are measured at cost less any accumulated amortisation and anyaccumulated impairment losses.


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2.7 Intangible assets (cont’d)

Intangible assets with finite useful lives are amortised over their estimated useful lives andassessed for impairment whenever there is an indication that the intangible asset may be impaired.The amortisation period and the amortisation method are reviewed at least at each financial year-end. Changes in the expected useful life or expected pattern of consumption of future economicbenefits embodied in the asset is accounted for by changing the amortization period or method, asappropriate, and are treated as changes in accounting estimates. The amortization expense onintangible assets with finite lives is recognised in profit or loss in the expense category consistentwith the function of the intangible asset.

Intangible assets with indefinite useful lives or not yet available for use are tested for impairmentannually, or more frequently if the events and circumstances indicate that the carrying value maybe impaired either individually or at the cash-generating unit level. Such intangible assets are notamortised. The useful life of an intangible asset with an indefinite useful life is reviewed annually todetermine whether the useful life assessment continues to be supportable. If not, the change inuseful life from indefinite to finite is made on a prospective basis.

Gains or losses arising from de-recognition of an intangible asset are measured as the differencebetween the net disposal proceeds and the carrying amount of the asset, and are recognised inprofit or loss when the asset is de-recognized.

(i) Computer software

Computer software is measured at cost less accumulated amortisation and any impairmentloss. It is amortised on a straight-line basis over its estimated useful life of 5 years.

2.8 Land use rights

Land use rights are initially measured at cost. Following initial recognition, land use rights aremeasured at cost less accumulated amortisation and accumulated impairment losses. The landuse rights are amortised over the lease term of 50 years.

2.9 Impairment of non-financial assets

The Group assesses at each reporting date whether there is an indication that an asset may beimpaired. If any such indication exists, or when annual impairment assessment for an asset isrequired, 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 lesscosts to sell and its value in use and is determined for an individual asset, unless the asset doesnot generate cash inflows that are largely independent of those from other assets. In assessingvalue in use, the estimated future cash flows expected to be generated by the asset arediscounted to their present value using a pre-tax discount rate that reflects current marketassessments of the time value of money and risks specific to the asset. Where the carryingamount of an asset exceeds its recoverable amount, the asset is written down to its recoverableamount.

Impairment losses are recognised in profit or loss.

An assessment is made at each reporting date as to whether there is any indication that previouslyrecognised impairment losses may no longer exist or may have decreased. A previouslyrecognised impairment loss is reversed only if there has been a change in the estimates used todetermine the asset’s recoverable amount since the last impairment loss was recognised. If that isthe case, the carrying amount of the asset is increased to its recoverable amount. That increasecannot exceed the carrying amount that would have been determined, net of depreciation, had noimpairment loss been recognised previously. Such reversal is recognised in profit or loss.


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2.10 Financial assets

Financial assets are recognised on the balance sheet when, and only when, the Group becomes aparty to the contractual provisions of the financial instrument.

When financial assets are recognised initially, they are measured at fair value, plus, in the case offinancial assets not at fair value through profit or loss, directly attributable transaction costs.

A financial asset is derecognised where the contractual right to receive cash flows from the assethas expired. On derecognition of a financial asset in its entirety, the difference between thecarrying amount and the sum of the consideration received and any cumulative gain or loss thathas been recognised directly in other comprehensive income is recognised in profit or loss.

All regular way purchases and sales of financial assets are recognised or derecognised on thetrade date i.e. the date that the Group commits to purchase or sell the asset. Regular waypurchases or sales are purchases or sales of financial assets that require delivery of assets withinthe period generally established by regulation or convention in the marketplace concerned.

Loans and receivables

Financial assets with fixed or determinable payments that are not quoted in an active market areclassified as loans and receivables. Subsequent to initial recognition, loans and receivables aremeasured at amortised cost using the effective interest method. Gains and losses are recognisedin profit or loss when the loans and receivables are derecognised or impaired, and through theamortisation process.

2.11 Cash and cash equivalents

Cash and cash equivalents comprise cash and bank balances and unpledged bank deposits.

2.12 Impairment of financial assets

The Group assesses at each balance sheet date whether there is any objective evidence that afinancial asset or group of financial assets is impaired.

(a) Assets carried at amortised cost

If there is objective evidence that an impairment loss on financial assets carried at amortisedcost has been incurred, the amount of the loss is measured as the difference between theasset’s carrying amount and the present value of estimated future cash flows discounted atthe financial asset’s original effective interest rate. The carrying amount of the asset isreduced through the use of an allowance account. The impairment loss is recognised inprofit or loss.

When the asset becomes uncollectible, the carrying amount of impaired financial assets isreduced directly or if an amount was charged to the allowance account, the amountscharged to the allowance account are written off against the carrying value of the financialasset.

To determine whether there is objective evidence that an impairment loss on financial assetshas been incurred; the Group considers factors such as the probability of insolvency orsignificant financial difficulties of the debtor and default or significant delay in payments.

If in a subsequent period, the amount of the impairment loss decreases and the decreasecan be related objectively to an event occurring after the impairment was recognised, thepreviously recognised impairment loss is reversed to the extent that the carrying amount ofthe asset does not exceed its amortised cost at the reversal date. The amount of reversal isrecognised in profit or loss.


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2.12 Impairment of financial assets (cont’d)

(b) Assets carried at cost

If there is objective evidence (such as significant adverse changes in the businessenvironment where the issuer operates, probability of insolvency or significant financialdifficulties of the issuer) that an impairment loss on financial assets carried at cost has beenincurred, the amount of the loss is measured as the difference between the asset’s carryingamount and the present value of estimated future cash flows discounted at the currentmarket rate of return for a similar financial asset. Such impairment losses are not reversed insubsequent periods.

2.13 Inventories

Inventories are stated at the lower of cost and net realisable value. Costs incurred in bringing theinventories to their present location and condition are accounted for as follows:

Raw materials - purchase cost on a weighted average basis

Semi-finished goods and - cost of direct materials and a proportion of manufacturingfinished goods overheads based on normal operating capacity but excluding

borrowing costs

Net realisable value is the estimated selling price in the ordinary course of business, lessestimated costs of completion and the estimated costs necessary to make the sale.

2.14 Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as aresult of a past event, it is probable that an outflow of economic resources will be required to settlethe obligation and the amount of the obligation can be estimated reliably.

Provisions are reviewed at each balance sheet date and adjusted to reflect the current bestestimate. If it is no longer probable that an outflow of economic resources will be required to settlethe obligation, the provision is reversed. If the effect of the time value of money is material,provisions are discounted using a current pre tax rate that reflects, where appropriate, the risksspecific to the liability. When discounting is used, the increase in the provision due to the passageof time is recognised as a finance cost.

2.15 Financial liabilities

Financial liabilities are recognised on the balance sheet when, and only when, the Group becomesa party to the contractual provisions of the financial instrument.

Financial liabilities are recognised initially at fair value, plus, in the case of financial liabilities otherthan derivatives, directly attributable transaction costs.

Subsequent to initial recognition, derivatives are measured at fair value. Other financial liabilities(except for financial guarantees) are measured at amortised cost using the effective interestmethod.

A financial liability is derecognised when the obligation under the liability is extinguished. Forfinancial liabilities other than derivatives, gains and losses are recognised in profit or loss when theliabilities are derecognised, and through the amortisation process. Any gains or losses arising fromchanges in the fair value of derivatives are recognised in profit or loss. Net gains or losses onderivatives include exchange differences.


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2.16 Borrowing costs

Borrowing costs are capitalised as part of the cost of a qualifying asset if they are directlyattributable to the acquisition, construction or production of that asset. Capitalization of borrowingcosts commences when the activities to prepare the asset for its intended use or sale are inprogress and the expenditures and borrowing costs are incurred. Borrowing costs are capitaliseduntil the assets are substantially completed for their intended use or sale.

2.17 Operating lease

As lessee

Operating lease payments are recognised as an expense in profit or loss on a straight-line basisover the lease term. The aggregate benefit of incentives provided by the lessor is recognised as areduction of rental expense over the lease term on a straight-line basis.

2.18 Employee benefits

(a) Defined contribution plans - pension benefits

The subsidiaries in the PRC are required to provide certain staff pension benefits to theiremployees under existing PRC regulations. Pension contributions are provided at ratesstipulated by PRC regulations and are contributed to a pension fund managed bygovernment agencies, which are responsible for administering these amounts for thesubsidiaries’ employees.

Pension contributions are recognised as an expense in the period in which the relatedservices are performed.

(b) Provision for PRC statutory welfare expenses

Provision for PRC statutory welfare expenses is recognised at 0.5% of the subsidiaries’ netprofits as stated in their PRC statutory financial statements. This amount is charged to profitor loss through the “General and administrative expenses” line item.

(c) Provision for retirement benefits

The cost of providing benefits under retirement benefits plan is determined using theprojected unit credit actuarial valuation method. Actuarial gains and losses are recognisedas income or expense when the net cumulative unrecognised actuarial gains or losses at theend of the previous reporting year exceed 10% of the higher of the defined benefit obligationand the fair value of plan assets as that date. These gains or losses are recognised over theexpected average remaining working lives of the employees participating in the plan. Onlycertain employees are under the retirement benefits plan and the cost of providing benefitsunder the retirement benefits plan is insignificant to the Group.

(d) Employee leave entitlement

Employee entitlements to annual leave are recognised as a liability when they accrue toemployees. The estimated liability for leave is recognised for services rendered byemployees up to the balance sheet date.


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2.19 Revenue

Revenue is recognised to the extent that it is probable that the economic benefits will flow to theGroup and the revenue can be reliably measured. Revenue is measured at the fair value ofconsideration received or receivable.

(a) Sale of goods

Revenue is recognised upon the transfer of significant risk and rewards of ownership of thegoods to the customers. Revenue is not recognised to the extent where there are significantuncertainties regarding recovery of the consideration due, associated costs or the possiblereturn of goods.

(b) Interest income

Interest income is recognised using the effective interest method.

2.20 Government grant

Grant income is received from the local PRC government at a discretionary amount as determinedby the government. It is recognised at its fair value where there is reasonable assurance that thegrant will be received and all attaching conditions will be complied with. When the grant relates toan expense item, it is recognised in profit or loss over the period necessary to match it on asystematic basis to the costs that it is intended to compensate. Grants related to income may bepresented as a credit in profit or loss, either separately or under a general heading such as “Otherincome”. Alternatively, they are deducted in reporting the related expenses. Where the grantrelates to an asset, the fair value is recognised as deferred grant income on the balance sheet andis amortised to profit or loss over the expected useful life of the relevant asset by equal annualinstalments.

2.21 Income taxes

(a) Current tax

Current tax assets and liabilities are measured at the amount expected to be recovered fromor paid to the taxation authorities. The tax rates and tax laws used to compute the amountare those that are enacted or substantively enacted by the balance sheet date.

Current taxes are recognised in profit or loss except that tax relating to items recognisedoutside profit or loss, either in other comprehensive income or directly in equity.

(b) Deferred tax

Deferred income tax is provided using the liability method on temporary differences at thebalance sheet date between the tax bases of assets and liabilities and their carryingamounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

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

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


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2.21 Income taxes (cont’d)

(b) Deferred tax (cont’d)

� In respect of deductible temporary differences and carry-forward of unused tax creditsand unused tax losses, if it is not probable that taxable profit will be available againstwhich the deductible temporary differences and carry-forward of unused tax creditsand unused tax losses can be utilised.

The carrying amount of deferred tax asset is reviewed at each balance sheet date andreduced to the extent that it is no longer probable that sufficient taxable profit will beavailable to allow all or part of the deferred tax asset to be utilised. Unrecognised deferredtax assets are reassessed at each balance sheet date and are recognised to the extent thatit has become probable that future taxable profit will allow the deferred tax asset to beutilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply tothe year when the asset is realised or the liability is settled, based on tax rates and tax lawsthat have been enacted or substantively enacted at the balance sheet date.

Deferred income tax relating to items recognised outside profit or loss is recognised outsideprofit or loss. Deferred tax items are recognised in correlation to the underlying transactioneither in other comprehensive income or directly in equity and deferred tax arising from abusiness combination is adjusted against goodwill on acquisition.

Deferred income tax assets and deferred income tax liabilities are offset, of a legallyenforceable right exists to set off current tax assets against current tax liabilities and thedeferred income taxes relate to the same taxable entity and the same taxation authority.

(c) Value-added-tax (“VAT”)

The Group’s sales of goods in the PRC are subjected to VAT at the applicable tax rate of17% for PRC domestic sales and 13% for agricultural products. Input tax on purchases canbe deducted from output VAT. The Group’s export sales are not subject to VAT.

Revenues, expenses and assets are recognised net of the amount of VAT except:

� Where the VAT incurred on a purchase of assets or services is not recoverable fromthe taxation authority, in which case the VAT is recognised as part of the cost ofacquisition of the asset or as part of the expense item as applicable; and

� Receivables and payables that are stated with the amount of VAT included.

The net amount of VAT recoverable from, or payable to, the taxation authority is included aspart of receivables or payables in the balance sheet.

2.22 Share capital and share issue expensesProceeds from issuance of ordinary shares are recognised as share capital in equity. Incrementalcosts directly attributable to the issuance of ordinary shares are deducted against share capital.


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2.23 Segment reporting

For management purposes, the Group is organised into operating segments based on theirproducts and services which are independently managed by the respective segment managersresponsible for the performance of the respective segments under their charge. The segmentmanagers report directly to the management of the Company who regularly review the segmentresults in order to allocate resources to the segments and to assess the segment performance.

The Group’s segments are based on products or categories that are subject to risks and returnsthat are different from those of other business segments. A geographical segment is adistinguishable component of the Group that is engaged in providing products or services within aparticular economic environment and that is subject to risks and returns that are different fromthose of components operating in other economic environments.

2.24 Contingencies

A contingent liability or asset is a possible obligation or asset that arises from past events andwhose existence will be confirmed only by the occurrence or non-occurrence of uncertain futureevent(s) not wholly within the control of the Group.

Contingent liabilities and assets are not recognised on the balance sheet of the Group.

3. Significant accounting estimates and judgements

The preparation of the Group’s financial statements requires management to make judgements,estimates and assumptions that affect the reported amounts of revenues, expenses, assets andliabilities, and the disclosure of contingent liabilities at the reporting date. However, uncertaintyabout these assumptions and estimates could result in outcomes that could require a materialadjustment to the carrying amount of the asset or liability affected in the future.

3.1 Judgements made in applying accounting policies

In the process of applying the Group’s accounting policies, management has made the followingjudgements, apart from those involving estimations, which has the most significant effect on theamounts recognised in the financial statements:

(i) Capitalisation of land use rights

The Group has land use rights with carrying value as at 30 June 2010 amounting toapproximately Rmb 211,803,000 (2009: Rmb 218,529,000). Whilst the Group hasconstructed manufacturing facilities and commenced operations on these land during theperiods under review, the transfer of certain land use rights from the relevant authorities tothe Group has not been completed as of 30 June 2010. These land use rights which aresubject to the completion of transfer from the authorities amounted to approximately Rmb49,046,000 as at 30 June 2010 (2009: Rmb 50,089,000). As the Group has fulfilled thenecessary requirements relating to the acquisition of these land use rights, the managementexpects the transfer of the land use rights to be completed in due course and it is thereforeappropriate to recognise these land use rights pending completion of transfer from theauthorities as assets of the Group.

(ii) Income taxes

The Group has exposure to income taxes in the PRC. Significant judgement is involved indetermining the Group-wide provision for income taxes. There are certain transactions andcomputations for which the ultimate tax determination is uncertain during the ordinarycourse of business. The Group recognises liabilities for expected tax issues based onestimates of whether additional taxes will be due. Where the final tax outcome of thesematters is different from the amounts that were initially recognised, such differences willimpact the income tax and deferred tax provisions in the period in which such determinationis made.


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3. Significant accounting estimates and judgements (cont’d)

3.2 Key sources of estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at thebalance sheet date, that have a significant risk of causing a material adjustment to the carryingamounts of assets and liabilities within the next financial year are discussed below.

(i) Useful lives of plant and machinery

The cost less estimated residual value of plant and machinery for the manufacture ofconfectionery products is depreciated on a straight-line basis over the estimated useful livesof the assets. Management estimates the useful lives of the production lines to be 5 to 10years. The carrying amount of the Group’s plant and machinery as at 30 June 2010 wasRmb 763,864,000 (2009: Rmb 939,975,000). Changes in the expected level of usage andtechnological developments could impact the economic useful lives and the residual valuesof the plant and machinery.

(ii) Useful lives of buildings

The cost of construction of buildings is depreciated on a straight-line basis over 20 years.The carrying amount of the Group’s buildings as at 30 June 2010 was approximately Rmb592,971,000 (2009: Rmb 402,727,000). Changes in the physical condition of the buildingscould impact the economic useful lives and the residual values of these assets, thereforefuture depreciation charges could be revised. As at 30 June 2010, there are no indicationsthat the remaining economic useful lives of the buildings are significantly lower than theirrespective remaining useful lives.

(iii) Impairment of loans and receivables

The Group assesses at each balance sheet date whether there is any objective evidencethat a financial asset is impaired. To determine whether there is objective evidence ofimpairment, the Group considers factors such as the probability of insolvency or significantfinancial difficulties of the debtor and default or significant delay in payments.

Where there is objective evidence of impairment, the amount and timing of future cash flowsare estimated based on historical loss experience for assets with similar credit riskcharacteristics. The carrying amount of the Group’s loans and receivables as at the balancesheet date is disclosed in Note 18 to the financial statements.

(v) Accruals for cost of land use rights

The total cost of the Group’s land use rights as at 30 June 2010 amounted to approximatelyRmb 238,686,000 (2009: Rmb 240,611,000), of which approximately Rmb 225,912,000(2009: Rmb 185,566,000) has been paid up. There was an over-accrual of Rmb 1,925,000that was reversed in the current year. As the transfer of certain land use rights from therelevant authorities to the Group has not been completed as of 30 June 2010, the final costof these land use rights has not been finalised. Accordingly, the management has accruedfor the remaining amounts payable on these land use rights based on the preliminarytransfer documents of these land use rights. The total accruals for these land use rights asat 30 June 2010 amounted to approximately Rmb 12,774,000 (2009: Rmb 55,045,000). Themanagement believes that the preliminary transfer documents provide the best estimate forthe cost of these land use rights and does not expect the eventual cost of the land use rightsto be significantly different.


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3. Significant accounting estimates and judgements (cont’d)

3.2 Key sources of estimation uncertainty (cont’d)

(vi) Provision for sales return

The Group’s provision for sales return as at 30 June 2010 amounted to Rmb 10,435,000(2009: 11,504,000). The provision for sales return is assessed based on the historical salesreturn and can vary from year to year.

4. Revenue

Revenue represents sales of goods net of discounts and value-added-tax (VAT).

5. Other income

Group30.06.10 30.06.09Rmb’000 Rmb’000

Sale of scrap materials 10,848 8,648Penalty charges on logistics service providers 460 66Government grant 24,894 27,327Others 2,917 3,201

39,119 39,242

6. Financial income and financial expenses

Group30.06.10 30.06.09Rmb’000 Rmb’000

Interest income- bank balances 12,961 9,894

Interest expense- bank loans 859 10,373Bank charges 1,482 1,561

2,341 11,934


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7. Profit from operations

This is determined after charging/(crediting) the following:

Group30.06.10 30.06.09Rmb’000 Rmb’000

Allowance for doubtful trade receivables, net 634 94Allowance for inventory obsolescence 2,165 11,271Amortisation of land use rights 4,801 4,755Amortisation of intangible assets 383 305Depreciation of property, plant and equipment 216,195 200,278Loss on disposal of property, plant and equipment 2,533 2,892Impairment of plant and machinery 28,029 –Directors’ fees 2,217 2,249Directors’ remuneration 6,055 4,491Personnel expenses, including directors’ remuneration (Note 8) 406,710 441,939Operating lease expense 39,109 31,272Contractual payment fees to distributors 173,254 152,477Product development expenses 167,586 213,248Transportation expenses 171,182 145,521Foreign exchange (gain)/loss, net (10,141) 28,422

8. Personnel expenses

Group30.06.10 30.06.09Rmb’000 Rmb’000

Salaries and bonus 317,892 353,476Contribution to defined contribution plans 69,524 63,055Welfare expenses 18,284 24,945Retirement benefits 1,010 463

406,710 441,939

9. Related party transactions

(a) In addition to those related party information disclosed elsewhere in the financial statements,the Group had the following transactions between the Group and related parties during thefinancial years ended 30 June 2010 and 2009 on terms agreed between the parties:

Group30.06.10 30.06.09Rmb’000 Rmb’000

Sale of goods 381 1,463Office rental expense 127 127


176

9. Related party transactions (cont’d)

(b) Compensation of key management personnel

Group30.06.10 30.06.09Rmb’000 Rmb’000

Directors’ fees 2,217 2,249Directors’ remuneration 6,055 4,491Other key management personnel 4,037 2,408

12,309 9,148

10. Income tax

Major components of income tax expense for the years ended 30 June 2010 and 2009 were:

Group30.06.10 30.06.09Rmb’000 Rmb’000

Current tax- current year 121,093 92,434- under/(over) provision in respect of prior year 5,137 (23,393)Deferred tax- current year 26,048 54,905

Tax expense 152,278 123,946

A reconciliation between tax expense and the product of profit before tax multiplied by theapplicable tax rate for the year ended 30 June 2010 and 2009 is as follows:

Group30.06.10 30.06.09Rmb’000 Rmb’000

Profit before tax 754,473 584,370

Tax at the domestic tax rates applicable to profit in the countries where the Group operates 115,108 95,742

Adjustments:- Expenses not deductible for tax purposes 387 105- Deferred tax provision relating to withholding tax for undistributed

profits of PRC subsidiaries (Note 16) 32,593 57,425- Under/(over) provision in respect of prior year 5,137 (23,393)- Deferred tax assets not recognised 2,473 1,354- Income not subject to tax (3,420) (7,302)- Others – 15

Tax expense 152,278 123,946


177

10. Income tax (cont’d)

(i) Dongguan Hsu Chi Food Co., Ltd. (Dongguan Hsu Chi)

Pursuant to the Enterprise Income Tax Law of the PRC (the “EIT Law”) promulgated by theNational People’s Congress on 16 March 2007 (effective from 1 January 2008), resident andnon-resident enterprises deriving income from the PRC are subject to Enterprise Income Tax(“EIT”). Under the EIT Law, EIT applies to all enterprises, including FIEs and domesticenterprises. The general applicable EIT tax rate in the PRC is 25%.

On 16 December 2008, Dongguan Hsu Chi qualified for the High and New TechnologyEnterprise Status granted by the Guangdong Province Science and Technology Bureau andis therefore entitled to a reduced tax rate of 15% from 1 January 2008 to 31 December2010. According to PRC National Tax Law (1994) 151 issued by the State Administration ofTax, a company is entitled to the preferential corporate income tax rate upon satisfaction ofspecified conditions.

(ii) Dongguan Hsu Fu Chi Food Co., Ltd. (Dongguan Hsu Fu Chi)

The general applicable EIT tax rate for this subsidiary is 25%.

(iii) Dongguan Andegu Plastic Packaging Material Ltd (Dongguan Andegu), Henan Hsu Fu Chi

Co., Ltd (Henan Hsu Fu Chi), Henan Hua Tai Xin Foodstuff and Commodity Limited (HenanHua Tai Xin), Henan Zhongyuan Madian Foodstuff and Commodity Limited (Henan

Zhongyuan Madian) , Huzhou Hsu Chi Foods Co., Ltd (Huzhou Hsu Chi), Huzhou Hsu FuChi Foods Co., Ltd (Huzhou Hsu Fu Chi) and Chengdu Hsu Chi Co., Ltd (Chengdu Hsu Chi)

Based on the “Income Tax Law of the PRC for Enterprises with Foreign Investments andForeign Enterprises”, these subsidiaries are entitled to full exemption from income tax for thefirst two years and a 50% reduction in income tax for the next three years. Accordingly,these subsidiaries are entitled to a 50% reduction in income tax for the three yearsbeginning from 1 January 2010 to 31 December 2012.

(iv) Hsu Fu Chi International Limited (the Company), Hsu Fu Chi Holdings Ltd (Hsu Fu ChiHoldings) and Top Ocean Trading Limited (Top Ocean)

The Company, Hsu Fu Chi Holdings and Top Ocean are incorporated in the Cayman Islands,British Virgin Islands and Western Samoa respectively and are not required to pay taxes.

(v) Hsu Fu Chi (Hong Kong) Trading Company Limited (Hsu Fu Chi Hong Kong) and Hsu FuChi International Holdings Limited (Hsu Fu Chi International Holdings)

Hsu Fu Chi Hong Kong and Hsu Fu Chi International Holdings are subject to a tax rate of16.5%.

11. Basic and diluted earnings per share

As there are no dilutive potential ordinary shares, the basic and diluted earnings per share are thesame.

Basic and diluted earnings per share are calculated by dividing the net profit attributable to equityshareholders of the Company by the weighted average share capital of 795,000,000 (2009:795,000,000) ordinary shares.


178

12. Investment in subsidiaries

Company30.06.10 30.06.09Rmb’000 Rmb’000

Unquoted shares, at cost 982,197 982,197

The Company had the following subsidiaries as at 30 June:

Effective equityCountry of Country of Principal interest held by

Name of company incorporation operation activities the Group30.06.10 30.06.09

% %

Hsu Fu Chi Holdings Ltd.(1) British Virgin PRC Investment 100 100Islands holding

Hsu Fu Chi International Hong Kong Hong Kong Investment 100 100Holdings Limited(2) holding

Held by Hsu Fu Chi Holdings Ltd.

Top Ocean Trading Western Hong Kong Sale and 100 100Limited(1) Samoa distribution of

confectioneryproducts

Hsu Fu Chi (Hong Kong) Hong Kong Hong Kong Sale and 100* 100*Trading Company distribution of Limited(3) confectionery

products

Hsu Fu Chi Foods Singapore Singapore Sale and – 100Pte Ltd(4) distribution of

confectioneryproducts

Dongguan Hsu Fu Chi PRC PRC Manufacture of 100 100 Foods Co., Ltd(5) confectionery

products

* Includes 1% equity interest held by a director on behalf of Hsu Fu Chi Holdings Ltd

Held by Hsu Fu Chi International Holdings Limited

Dongguan Hsu Chi Food PRC PRC Manufacture of 100 100Co., Ltd(5) confectionery

products and saleand distribution ofself-manufacturedconfectioneryproducts

Dongguan Andegu Plastic PRC PRC Production of plastic 100 100Packaging Material Ltd(5) products, plastic

packaging materials (including printing process) for sale to domestic and overseas markets


179

12. Investment in subsidiaries (cont’d)

Effective equityCountry of Country of Principal interest held by

Name of company incorporation operation activities the Group30.06.10 30.06.09

% %

Held by Hsu Fu Chi International Holdings Limited

Chengdu Hsu Chi Food PRC PRC Manufacture of 100 100 Co., Ltd(6)(9) confectionery

products and saleand distribution ofself-manufacturedconfectionery products

Huzhou Hsu Chi Food PRC PRC Manufacture of 100 100Co., Ltd(7)(9) confectionery

products and saleand distribution ofself-manufactured confectionery products

Huzhou Hsu Fu Chi Food PRC PRC Manufacture of 100 100Co., Ltd(7)(9) confectionery

products and saleand distribution ofself-manufacturedconfectioneryproducts

Henan Zhongyuan MaDian PRC PRC Sale and production 100 100Foodstuff and Commodity of nuts, groceries and Limited(8)(9) food additives

Henan Hsu Fu Chi PRC PRC Processing of 100 100Foods Co., Ltd(8)(9) agricultural products

Henan Hua Tai Xin Foodstuff PRC PRC Sale, production and 100 100and Commodity Limited(8) storage of foodstuff,

fruits and vegetables,processed meats, poultry and foodcommodities

Held by Hsu Fu Chi (Hong Kong) Trading Company Limited

Kyiochido Co., Ltd(9) Japan Japan Manufacturing, sale 100 100 (Formerly known as Marukyo and export ofConfectionery Co, Ltd) confectionery

products


180

12. Investment in subsidiaries (cont’d)

(1) Not required to be audited in the country of incorporation

(2) Audited by Ernst & Young, Hong Kong

(3) Audited by Lv Jing Wen Certified Public Accountants, Hong Kong

(4) On 22 January 2010, the subsidiary was struck off from the Register of Companies pursuant to Section344(4) of the Companies Act, Cap. 50.

(5) Audited by Dongguan City Diligent Certified Public Accountants, PRC. The de-registration of the subsidiaryhas been completed on 9 September 2010.

(6) Audited by Chengdu Zhongda Certified Public Accountants, PRC

(7) Audited by Zhejiang Zhengchenglianhe Certified Public Accountants, PRC

(8) Audited by Zhumadian Yongheng Certified Public Accountants, PRC

(9) Dormant

(1)-(3), (5)-(9) Audited by Ernst & Young LLP, Singapore, for the purposes of consolidation

13. Property, plant and equipment

Plant and Office Motor Construction-Group Buildings machinery equipment vehicles in-progress Total

Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000

30 June 2010CostAt the beginning of the year 501,931 1,618,103 59,758 74,528 278,277 2,532,597Additions – 28,466 11,859 19,908 102,092 162,325Disposals (5,831) (16,382) (2,876) (9,873) – (34,962)Reclassifications 217,397 – – – (217,397) –

At the end of the year 713,497 1,630,187 68,741 84,563 162,972 2,659,960

Accumulated depreciation and impairment loss

At the beginning of the year 99,204 678,128 29,976 31,915 – 839,223Depreciation charge for the year 24,366 165,040 11,521 15,268 – 216,195

Disposals (3,044) (4,874) (1,397) (5,471) – (14,786)Impairment loss – 28,029 – – – 28,029

At the end of the year 120,526 866,323 40,100 41,712 – 1,068,661

Net carrying amountAt the end of the year 592,971 763,864 28,641 42,851 162,972 1,591,299

An impairment loss of Rmb 28,029,000 was recognised in “Cost of Sales”, representing the fullwrite-down of certain plant and machinery to their recoverable amounts.


181

13. Property, plant and equipment (cont’d)

Plant and Office Motor Construction-Group Buildings machinery equipment vehicles in-progress Total

Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000

30 June 2009CostAt the beginning of the year 495,778 1,408,698 55,805 65,027 57,361 2,082,669Additions – 242,077 9,697 15,743 227,069 494,586Disposals – (32,672) (5,744) (6,242) – (44,658)Reclassifications 6,153 – – – (6,153) –

At the end of the year 501,931 1,618,103 59,758 74,528 278,277 2,532,597

Accumulated depreciationAt the beginning of the year 86,907 539,612 28,784 23,959 – 679,262Depreciation charge for the year 12,297 167,262 6,701 14,018 – 200,278

Disposals – (28,746) (5,509) (6,062) – (40,317)

At the end of the year 99,204 678,128 29,976 31,915 – 839,223

Net carrying amountAt the end of the year 402,727 939,975 29,782 42,613 278,277 1,693,374

14. Land use rights

Group30.06.10 30.06.09Rmb’000 Rmb’000

CostAt 30 June and 1 July 240,611 223,611Additions – 17,000Reversal of over accrual in prior years (1,925) –

At 30 June 238,686 240,611

Accumulated amortisationAt 30 June and 1 July 22,082 17,327Amortisation charge for the year 4,801 4,755

At 30 June 26,883 22,082

Net carrying amountAt 30 June 211,803 218,529

Land use rights have a remaining amortisation period of approximately 41.58 to 47.77 years (2009:42.58 to 48.77 years) as at 30 June 2010.


182

15. Intangible assets – Computer software

Group30.06.10 30.06.09Rmb’000 Rmb’000

CostAt 30 June and 1 July 1,742 1,533Additions 1,150 209

At 30 June 2,892 1,742

Accumulated amortisationAt 30 June and 1 July 480 175Amortisation charge for the year 383 305

At 30 June 863 480

Net carrying amountAt 30 June 2,029 1,262

Computer software has a remaining amortisation period of approximately 2.33 to 4.83 years (2009:3.33 to 5.00 years) as at 30 June 2010.

16. Deferred tax assets/(liabilities)

Deferred tax assets/(liabilities) arise as a result of:

Group30.06.10 30.06.09 01.07.08Rmb’000 Rmb’000 Rmb’000

(Restated) (Restated)

Deferred tax assetsDifferences in depreciation 18,693 14,716 17,219Differences in amortisation 1,409 1,293 1,875Provisions 71,302 66,520 62,015Other timing differences 5,703 8,033 6,662

97,107 90,562 87,771

Deferred tax liabilitiesWithholding tax on undistributed profits by PRC subsidiaries* 109,007 76,414 18,989

* On 22 February 2008, the State Administration of Taxation of China issued a circular Caishui [2008] No.001, whichimposes withholding tax on distribution of dividends from post 1 January 2008 profits to foreign investors. Accordingly,no deferred tax liabilities arise from undistributed profits of the Company’s PRC subsidiaries accumulated up till 31December 2007. Provision for deferred tax liabilities however, is required to the extent per FRS 12.39 on profitsaccumulated from 1 January 2008 onwards.

Unutilised tax losses

At balance sheet date, the Group has tax losses of approximately Rmb 19,795,000 (2009: Rmb4,237,000) that are available for offset against future taxable profits of the companies in which thelosses arose, for which no deferred tax asset is recognised due to uncertainty of its recoverability.The use of these tax losses is subject to the agreement of the tax authorities and compliance withthe relevant provisions of the tax legislation of the respective countries in which the companiesoperate.


183

17. Inventories

Group30.06.10 30.06.09Rmb’000 Rmb’000

Balance sheet:Raw materials 151,661 149,986Semi-finished goods 68,265 –Finished goods 161,724 77,739

Total inventories at lower of cost and net realisable value 381,650 227,725

Statement of comprehensive income:Inventories recognised as an expense in cost of sales 2,279,968 2,068,390

Inclusive of the following charge:- Inventories written-down 2,165 11,271

18. Trade, bills and other receivables

Group Company30.06.10 30.06.09 30.06.10 30.06.09Rmb’000 Rmb’000 Rmb’000 Rmb’000

Trade receivables 271,064 256,680 – –Bills receivables 9,547 5,532 – –Other receivables and deposits 33,790 25,135 – 790Due from subsidiary (non-trade) – – 878,658 878,658

314,401 287,347 878,658 879,448

Trade receivables

Group30.06.10 30.06.09Rmb’000 Rmb’000

Trade receivables 333,243 322,516Less: allowance for doubtful trade receivables (62,179) (65,836)

271,064 256,680


184

18. Trade, bills and other receivables (cont’d)

The Group’s trade receivables that are impaired at the balance sheet date and the movement ofthe allowance accounts used to record the impairment are as follows:

Group30.06.10 30.06.09Rmb’000 Rmb’000

Trade receivables – nominal amounts 62,179 65,836Less: Allowance for impairment (62,179) (65,836)

At end of financial year – –

At beginning of financial year 65,836 68,005Write back for the financial year (14,445) (18,550)Allowance for the financial year 15,079 18,644Write off against allowance (4,291) (2,263)

At end of financial year 62,179 65,836

Trade receivables that are individually determined to be impaired at the balance sheet date relateto debtors that are in financial difficulties and have defaulted on payments. These receivables arenot secured by any collateral or credit enhancements. Trade receivables are non-interest bearingand are normally settled on 90 to 180 days’ terms. They are recognised at their original invoicedamounts which represent their fair values on initial recognition.

Receivables that are past due but not impaired

The Group has trade receivables amounting to approximately Rmb 80,374,000 (2009: Rmb67,659,000) that are past due but not impaired at the balance sheet date. These receivables areunsecured and the analysis of their aging at the balance sheet date is as follows:

Group30.06.10 30.06.09Rmb’000 Rmb’000

Trade receivables past due:Less than 30 days 42,951 26,40330 to 60 days 28,328 17,66660 to 90 days 5,537 17,093More than 90 days 3,558 6,497

At end of financial year 80,374 67,659

Bills receivables

Bills receivables are non-interest bearing and are normally settled on 90 to 180 days’ terms.

Due from subsidiary (non-trade)

These amounts are unsecured, non-interest bearing and are repayable on demand.


185

19. Trade and other payables


Trade payables 287,526 270,441 – –Bills payables 49,720 53,898 – –Due to directors 2,217 2,259 2,217 2,259Due to subsidiaries (non-trade) – – 226 226Deposits from distributors 44,614 36,982 – –

Other payables 224,448 208,354 – 105

Total trade and other payables 608,525 571,934 2,443 2,590

Trade payables

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

Bills payable

Bills payable to banks are interest-free and have maturity periods ranging from 90 to 180 days.Certain bills payable to banks amounting to Rmb Nil (2009: Rmb 7,880,000) and Rmb 13,000,000(2009: Rmb 29,531,000) are secured by corporate guarantees from Dongguan Hsu Fu Chi FoodCo., Ltd. and Hsu Fu Chi Holdings Ltd. respectively.

Due to subsidiaries (non-trade)/due to directors

These amounts are unsecured, non-interest bearing and are repayable on demand.

Amounts due to directors comprise accrued directors’ remuneration.

20. Other liabilities


Advances from customers 23,633 24,857 – –Accrued payroll 185,691 141,533 – –Accruals for land use rights 12,775 55,045 – –Accrued operating expenses 269,869 174,833 3,192 4,051Accruals for purchase of property, plant and equipment 5,973 44,101 – –

Provision for PRC statutory welfare expenses 19,073 17,105 – –

Provision for retirement benefits 14,426 6,656 – –Provision for sales return 10,435 11,504 – –Provision on potential loss arising from exchange of goods with distributors 1,014 4,460 – –

542,889 480,094 3,192 4,051


186

21. Term loans

Term loans were fully repaid during the financial year.

22. Share capital

Group and CompanyNumber of

shares Value’000 S$’000

Authorised:At beginning and end of year- 3,000,000,000 ordinary shares of S$0.01 each 3,000,000 30,000

Issued and fully paid:At beginning and end of year- 795,000,000 ordinary shares of S$0.01 each 795,000 7,950*

* Equivalent to RMB 40,124,000

23. Reserve fund

In accordance with the relevant laws and regulations of the PRC, companies in the PRC arerequired to set aside a general reserve fund by way of appropriation from their statutory net profit,as reported in the PRC statutory financial statements, at a rate to be determined by the board ofdirectors of the Company. The board of directors have decided that in general 10% of the statutorynet profit, as reported in the PRC statutory financial statements, of the subsidiaries in the PRC beappropriated each year to the general reserve fund. Accordingly, the appropriations made for thefinancial years ended 30 June 2010 and 2009 are determined based on actual appropriations tothe reserve fund as reported in the PRC statutory financial statements of the PRC subsidiaries forthe relevant financial periods.

The reserve fund may be used to offset accumulated losses or increase the registered capital ofthese subsidiaries, subject to the approval from the PRC authorities and are not available fordividend distribution to the shareholders.

24. Dividends

Group and Company30.06.10 30.06.09Rmb’000 Rmb’000

Declared and paid during the financial year:Dividends on ordinary sharesFinal exempt (one-tier) dividend for 2009: Rmb 29 cents (2008: 15 cents) per share 230,550 119,250

Proposed but not recognised as a liability as at 30 June:Dividends on ordinary shares, subject to shareholders’ approval at the AGM :

- First and final exempt (one-tier) dividend for 2010: Rmb 75 cents (2009: Rmb 29 cents) per share 596,250 230,550


187

25. Segment information

For management purposes, the Group is organised into business segments based on their productcategories, and has three reportable operating segments as follows:

(i) Candy Products

This category consists primarily of candies, jelly, pudding and chocolate products are alsoincluded under this category as secondary products.

(ii) Cake and Cookie Products

The category consists mainly of different types of cakes and cookies produced under theHsu Fu Chi brand. The major products under this category are crisps with fillings, oat crispsand flapjacks.

(iii) Sachima Products

The major products under this category are egg Sachima, egg yolk Sachima, egg crispSachima and Sesame Sachima. Sachima is one of the best-known products of the Group.

Except as indicated above, no operating segments have been aggregated to form the abovereportable operating segments.

Geographical segments

The Group’s revenue by geographical segments is based on the location of its customers. With theexception of the People’s Republic of China (“PRC”). No other individual country contributedmaterially to the consolidated turnover during the financial years ended 30 June 2010 and 2009.

Allocation basis

Segment results include items directly attributable to a segment as well as those that can beallocated on a reasonable basis. Unallocated items comprise mainly other operating income andexpenses, financial income and expenses and tax expense which are managed on a group basis.

Group assets and liabilities are managed on a group basis and therefore cannot be directlyattributable to individual segments. Accordingly, it is not meaningful to disclose assets, liabilitiesand capital expenditure by business segments.

Information about a major customer

The Group does not have any major customer who contributes to ten percent or more of itsrevenues for the financial years ended 30 June 2010 and 2009.


188

25. Segment information (cont’d)

Business segments (cont’d)

Cake and Candy Cookie Sachima

Group Products Products Products TotalFY 2010 Rmb’000 Rmb’000 Rmb’000 Rmb’000

Revenue from external customers 2,178,186 1,355,945 771,525 4,305,656

Gross profit 1,002,446 630,224 393,018 2,025,688Unallocated expenses, net (1,281,835)Financial income 12,961Financial expenses (2,341)

Profit before tax 754,473Income tax (152,278)

Net profit attributable to shareholders 602,195

Allowance for inventory obsolescence 1,055 784 326 2,165Allowance for doubtful trade receivables 634Depreciation of property, plant and equipment 216,195

Amortisation of land use right 4,801Amortisation of intangible assets 383Impairment of plant and machinery 28,029

FY 2009

Revenue from external customers 1,868,830 1,250,048 665,996 3,784,874

Gross profit 902,835 521,812 291,837 1,716,484Unallocated expenses, net (1,130,074)Financial income 9,894Financial expenses (11,934)

Profit before tax 584,370Income tax (123,946)


Allowance for inventory obsolescence 8,433 2,131 707 11,271Allowance for doubtful trade receivables 94Depreciation of property, plant and equipment 200,278

Amortisation of land use right 4,755Amortisation of intangible assets 305


189

26. Commitments

(a) Capital expenditure and other commitments contracted for as at balance sheet dates but notrecognised in the financial statements is as follows:

Group30.06.10 30.06.09Rmb’000 Rmb’000

Capital expenditureCommitments in respect of purchase of property, plant and equipment 129,549 13,568

Commitments in respect of contracts entered into for construction-in-progress 35,400 52,603

(b) Operating lease commitments

The Group has operating lease agreements for its office premises, warehouses and staffquarters in the PRC and office premises in Hong Kong. Certain of these leases have optionsfor renewal. Lease terms do not contain restrictions on the Group’s activities concerningdividends, additional debt or further leasing. Future minimum rentals payable under non-cancellable operating leases as at 30 June are as follows:


Not later than 1 year 30,252 22,629 – –1 year through 5 years 28,322 18,421 – –More than 5 years 6,581 5,310 – –

65,155 46,360 – –

27. Financial risk management objectives and policies

The Group is exposed to financial risks arising from its operations and use of financial instruments.The Group’s principal financial instruments comprise bills payable, cash and short term deposits.The main purpose of these financial instruments is to raise funds for the Group’s operations. TheGroup has various other financial assets and liabilities such as trade and other receivables andtrade and other payables, which arise directly from its operations.

It is, and has been throughout the financial year under review, the Group’s policy that no trading inderivative financial instruments shall be undertaken.

The main risks arising from the Group’s financial instruments are interest rate risk (both fair valueand cash flow), liquidity risk, foreign currency risk and credit risk. The board reviews and agreespolicies for managing each of these risks and they are summarised below.

(a) Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of the Group’s financialinstruments will fluctuate because of changes in market interest rates. The Group’s exposureto interest rate risk arises primarily from their floating rate cash at bank balances for thefinancial year. The Group’s policy is to obtain the most favourable interest rates available.


190

27. Financial risk management objectives and policies (cont’d)

(a) Interest rate risk (cont’d)

Surplus funds are placed with reputable banks.

Sensitivity analysis for interest rate risk

At the balance sheet date, if RMB interest rates had been 100 basis points (2009: 100 basispoints) lower/higher with all other variables held constant, the Group’s profit net of tax wouldhave been Rmb 3,905,000 (2009: Rmb 3,046,000) lower/higher, arising mainly as a result oflower/higher interest income/expenses on floating rate cash at bank balances and bankborrowings.

(b) Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting financial obligationsdue to shortage of funds. The Group’s exposure to liquidity risk arises primarily frommismatches of the maturities of financial assets and liabilities. The Group’s objective is tomaintain a balance between continuity of funding and flexibility through the use of stand-bycredit facilities.

The Group’s liquidity risk management policy is to maintain sufficient liquid financial assetsand stand-by credit facilities with several different banks. In addition, the Group monitors andmaintains a level of cash and cash equivalents deemed adequate by the management tofinance the Group’s operations and mitigate the effects of fluctuations in cash flows.

The table below summarises the maturity profile of the Group’s and Company’s financialassets and financial liabilities at the balance sheet date based on contractual undiscountedpayments.

1 year or less 1 to 5 years TotalRmb’000 Rmb’000 Rmb’000

2010GroupFinancial assets:Trade, bills and other receivables 314,401 – 314,401Cash and bank balances 1,291,828 – 1,291,828

1,606,229 – 1,606,229

Financial liabilities:Trade and other payables 608,525 – 608,525Accrued payroll (Note 20) 185,691 – 185,691Accruals for land use rights (Note 20) 12,775 – 12,775Accrued operating expenses (Note 20) 269,869 – 269,869Accruals for purchase of property, plant and equipment (Note 20) 5,973 – 5,973

1,082,833 – 1,082,833

Total net undiscounted financial assets 523,396 – 523,396


191


(b) Liquidity risk (cont’d)


2010CompanyFinancial assets:Trade, bills and other receivables 878,658 – 878,658Cash and bank balances 2,968 – 2,968

881,626 – 881,626

Financial liabilities:Trade and other payables 2,443 – 2,443Accrued operating expenses (Note 20) 3,192 – 3,192

5,635 – 5,635


2009GroupFinancial assets:Trade, bills and other receivables 287,347 – 287,347Cash and bank balances 1,008,135 – 1,008,135

1,295,482 – 1,295,482

Financial liabilities:Trade and other payables 571,934 – 571,934Accrued payroll (Note 20) 141,533 – 141,533Accruals for land use rights (Note 20) 55,045 – 55,045Accrued operating expenses (Note 20) 174,833 – 174,833Accruals for purchase of property, plant and equipment (Note 20) 44,101 – 44,101

Term loans (Note 21) – 32,041 32,041

987,446 32,041 1,019,487

Total net undiscounted financial assets 308,036 (32,041) 275,995


192


(b) Liquidity risk (cont’d)


2009CompanyFinancial assets:Trade, bills and other receivables 879,448 – 879,448Cash and bank balances 52,593 – 52,593

932,041 – 932,041

Financial liabilities:Trade and other payables 2,590 – 2,590Accrued operating expenses (Note 20) 4,051 – 4,051

6,641 – 6,641


(c) Foreign currency risk

The Group has transactional currency exposures arising from sales that are denominated ina currency other than the respective functional currencies of Group entities, primarilyRenminbi (RMB) and Hong Kong Dollar (HKD). The Group’s trade receivable balances at thebalance sheet date have similar exposures. During the financial year ended 30 June 2010,approximately 0.12% and 0.23% (2009: 0.18% and 0.03%) of the Group’s sales weredenominated in USD and HKD respectively.

The Group and Company also hold cash and cash equivalents denominated in foreigncurrencies for working capital purposes. At the balance sheet date, such foreign currencybalances, mainly in USD and SGD, amounted to $36,257,000 and $58,814,000 respectively.

The Group has not used any financial instrument to hedge its foreign currency risk as therisk exposure is not considered to be significant.

The Group’s operations are primarily conducted in the PRC in Rmb.

Currently, the PRC government imposes control over foreign currencies. Rmb, the officialcurrency in the PRC, is not freely convertible. Enterprises operating in the PRC can enterinto exchange transactions through the People’s Bank of China or other authorised financialinstitutions.

Payments for imported materials or services, which are outside of the PRC, are subject tothe availability of foreign currency which depends on the foreign currency denominatedearnings of the enterprises. Exchanges of Rmb for foreign currency must be arrangedthrough the People’s Bank of China or other authorized financial institutions and is grantedto enterprises in the PRC for valid reasons such as purchase of imported materials andremittance of earnings. While conversion of Rmb into Singapore dollars or other currenciescan generally be effected at the People’s Bank of China or other authorised financialinstitutions, there is no guarantee that it can be affected at all times.


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(c) Foreign currency risk (cont’d)

Sensitivity analysis for foreign currency risk

The following table demonstrates the sensitivity of the Group’s profit net of tax to areasonably possible change in the USD and SGD exchange rates (against Rmb), with allother variables held constant.

Group30.06.10 30.06.09Profit net Profit net

of tax of taxRmb’000 Rmb’000

USD – strengthened 3% (2009: 3%) 828 1,590USD – weakened 3% (2009: 3%) (828) (1,590)

SGD – strengthened 3% (2009: 3%) 1,549 1,745SGD – weakened 3% (2009: 3%) (1,549) (1,745)

(d) Credit risk

Credit risk is the risk of loss that may arise on outstanding financial instruments should acounterparty default on its obligations. The Group’s exposure to credit risk arises primarilyfrom trade and other receivables. For other financial assets (including cash and cashequivalents), the Group minimises credit risk by dealing exclusively with high credit ratingcounterparties.

The Group’s objective is to seek continual revenue growth while minimising losses incurreddue to increased credit risk exposure. The Group trades only with recognised andcreditworthy third parties. It is the Group’s policy that all customers who wish to trade oncredit terms are subject to credit verification procedures. In addition, receivable balances aremonitored closely on an ongoing basis.

Exposure to credit risk

At the balance sheet date, the Group’s and the Company’s maximum exposure to credit riskis represented by the carrying amount of each class of financial assets recognised in thebalance sheets.

Credit risk concentration profile

The Group determines concentrations of credit risk by monitoring the industry sector profileof its trade receivables on an on-going basis. The credit risk concentration profile of the

Group’s trade receivables at the balance sheet date is as follows:

Group30.06.10 30.06.09

Rmb’000 % of total Rmb’000 % of total

By industry sectors:Supermarkets 269,277 80.8 237,454 73.6Distributors 18,116 5.4 56,454 17.5Mini-marts or provision shops 45,850 13.8 28,608 8.9

333,243 100.0 322,516 100.0

At the balance sheet date, approximately 25% (2009: 29%) of the Group’s trade receivableswere due from 5 major customers located in the PRC.


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(d) Credit risk (cont’d)

Financial assets that are neither past due nor impaired

Trade receivables that are neither past due nor impaired are creditworthy debtors with goodpayment record with the Group. Cash and cash equivalents that are neither past due norimpaired are placed with or entered into with reputable financial institutions or companieswith high credit ratings and no history of default.

Financial assets that are either past due or impaired

Information regarding financial assets that are either past due or impaired is disclosed inNote 18.

28. Financial instruments

(a) Financial assets and liabilities

The carrying amount by category of financial assets and liabilities are as follows:

2010 2009Rmb’000 Rmb’000

Loan and receivablesTrade, bills and other receivables 314,401 287,347Cash and bank balances 1,291,828 1,008,135

Total 1,606,229 1,295,482

Financial liabilities carried at amortised costTrade and other payables 608,525 571,934Accrued payroll (Note 20) 185,691 141,533Accruals for land use rights (Note 20) 10,200 53,359Accruals for land use tax (Note 20) 2,575 1,686Accrued operating expenses (Note 20) 269,869 174,833Accruals for purchase of property, plant and equipment (Note 20) 5,973 44,101Term loans – 30,000

Total 1,082,833 1,017,446

(b) Fair values

Financial instruments carried at other than fair value

Set out below is a comparison by category of the carrying amounts and fair values of theGroup’s financial instruments that are carried in the financial statements at other than fairvalues:


Term loans (Note 21):Carrying amount – 30,000 – –

Fair value – 32,041 – –


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28. Financial instruments (cont’d)

(b) Fair values (cont’d)

Financial instruments whose carrying amount approximate fair value

Management has determined that the carrying amounts of cash and short term deposits,current trade and other receivables, current trade and other payables, short term bank loans,based on their notional amounts, reasonably approximate their fair values because these aremostly short term in nature or are repriced frequently.

During the current and previous financial year, no amount has been recognised in thestatement of comprehensive income in relation to the change in fair value of financial assetsor financial liabilities estimated using a valuation technique.

29. Capital management

The primary objective of the Group’s capital management is to ensure that it maintains a strongcredit rating and healthy capital ratios in order to support its business and maximise shareholdervalue.

The Group manages its capital structure and makes adjustments to it, in light of changes ineconomic conditions. To maintain or adjust the capital structure, the Group may adjust the dividendpayment to shareholders, return capital to shareholders or issue new shares. No changes weremade in the objectives, policies or processes during the financial years ended 30 June 2010 and2009.

As disclosed in Note 23, the Group’s PRC subsidiaries are required by the Foreign Enterprise Lawof the PRC to contribute to and maintain a non-distributable statutory reserve fund whoseutilisation is subject to approval by the relevant PRC authorities. This externally imposed capitalrequirement has been complied with by the PRC subsidiaries for the financial years ended 30 June2010 and 2009.

The Group monitors capital using a gearing ratio, which is total debt divided by total capital plustotal debt. The Group includes within total debt, trade and other payables and other liabilities.Capital includes equity attributable to the equity holders of the parent less the restricted statutoryreserve fund.

Group and Company30.06.10 30.06.09Rmb’000 Rmb’000

Trade and other payables (Note 19) 608,525 571,934Other liabilities (Note 20) 542,889 480,094Bank loans – 30,000

Total debt 1,151,414 1,082,028

Equity attributable to equity holders of the Company 2,857,556 2,485,919Less: Reserve fund (282,193) (207,963)

Total capital 2,575,363 2,277,956

Capital and total debt 3,726,777 3,359,984

Gearing ratio 30.9% 32.3%


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30. Reclassification of comparatives

During the year, the Group reclassified sales office expenses from general and administrationexpenses to selling and distribution expenses. The effects of the reclassification for the financialyear ended 30 June 2009 are as follows:

GroupAs previously

reported Reclassification As restated30.06.09 30.06.09Rmb’000 Rmb’000 Rmb’000

Profit or loss Selling and distribution expenses 786,025 171,684 957,709General and administrative expenses 383,291 (171,684) 211,607

The Group has reclassified the following amounts to better reflect the nature of the balances.

GroupAs previously

reported Adjustment As restated30.06.09 30.06.09Rmb’000 Rmb’000 Rmb’000

Balance sheet Deferred tax assets 33,537 57,025 90,562Income tax recoverable 5,502 (5,502) –Provision for tax – (51,523) (51,523)

31. Authorisation of financial statements

The consolidated financial statements for the year ended 30 June 2010 were authorised for issuein accordance with a resolution of the directors on 1 October 2010.


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APPENDIX 6 – UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP FOR FY2011

Hsu Fu Chi International Limited (Incorporated in the Cayman Islands on 18 October 2006)

(Co. Registration No: CT-175834)

Full Year Financial Statements and Dividend Announcement for the year ended 30 June 2011

1. The Company was incorporated in the Cayman Islands on 18 October 2006 under the laws of theCayman Islands as an exempt company with limited liability and was listed on the Main Board of the SGX-ST on 1 December 2006. The principal activity of the Company is that of investmentholding.

2. The main operations of the Company and its subsidiaries (collectively the “Group”) wereoriginally carried out by Dongguan Hsu Chi Foods Co., Ltd. which was established with limitedliability in the PRC on 3 November 1997, which is 100% owned by Hsu Fu Chi Holdings Ltd. (“HFC Holdings”), an exempt company incorporated under the British Virgin Islands InternationalBusiness Companies Ordinance on 28 July 1997.

3. Financial Year commences on 1st July and ends 30th June the following year.

4. Currency in use for business is RENMINBI (RMB).


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PART I - INFORMATION REQUIRED FOR ANNOUNCEMENTS OF QUARTERLY (Q1, Q2,Q3 & Q4), HALF-YEARAND FULL YEAR RESULTS

1(a) An income statement (for the group) together with a comparative statement for the corresponding periodof the immediately preceding financial year.

Group Fourth Quarter Full Year2011 2010 Increase/ 2011 2010 Increase/

Unaudited Unaudited (decrease) Unaudited Audited (decrease) RMB’000 RMB’000 % RMB’000 RMB’000 %

Revenue 784,070 749,508 4.6 5,157,501 4,305,656 19.8

Cost of sales (504,879) (487,659) 3.5 (2,959,147) (2,279,968) 29.8

Gross profit 279,191 261,849 6.6 2,198,354 2,025,688 8.5

Other items of income Other income 3,945 9,708 (59.4) 52,052 39,119 33.1Financial income 14,294 7,091 101.6 34,179 12,961 163.7

Other items of expense Selling and distribution expenses (232,844) (178,004) 30.8 (1,236,910) (1,122,337) 10.2

General and administrative expenses (47,817) (59,111) (19.1) (216,513) (208,758) 3.7

Foreign exchange (loss)/gain (8,268) 4,205 (296.6) (4,811) 10,141 (147.4)Financial expense (1,838) (790) 132.7 (4,141) (2,341) 76.9

Profit before tax 6,663 44,948 (85.2) 822,210 754,473 9.0Income tax expense (6,212) (17,433) (64.4) (145,905) (152,278) (4.2)

Net profit attributable to shareholders 451 27,515 (98.4) 676,305 602,195 12.3

Statement of Comprehensive Income: Net profit attributable to shareholders 451 27,515 (98.4) 676,305 602,195 12.3

Other comprehensive income for the periodExchange differences on translating foreign operations (3) 15 (120) (18) (8) 125.0

Total comprehensive income for the period attributable to shareholders

448 27,530 (98.4) 676,287 602,187 12.3

The profit before taxation is arrived at after charging (crediting) the following: Fourth Quarter Full Year

2011 2010 2011 2010 Unaudited Unaudited Unaudited Audited

Group

RMB’000 RMB’000 RMB’000 RMB’000 Depreciation of property, plant & equipment 53,373 53,303 223,445 216,195 Amortisation of land use rights 1,342 1,196 4,986 4,801Amortisation of intangible assets 212 117 946 383Loss on disposal of property, plant and equipment, net 3,302 1,904 3,414 2,533(Write back)/allowance for doubtful trade receivables (8,324) 5,389 (9,282) 634Allowance for inventory obsolescence 9,052 2,892 41,314 2,165Impairment loss on plant and equipment 7,807 28,029 23,298 28,029 Reversal of deferred tax liabilities - - (39,237) -


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1(b)(i) A balance sheet (for the issuer and group), together with a comparative statement as at the end of theimmediately preceding financial year.

Group Company30/6/2011 30/6/2010 30/6/2011 30/6/2010 RMB '000 RMB '000 RMB '000 RMB '000 Unaudited Audited Unaudited Audited

ASSETS Non-current assets Investment in subsidiaries - - 982,197 982,197 Property, plant and equipment 1,764,993 1,591,299 - -Land use rights 241,850 211,803 - -Intangible assets 2,965 2,029 - -Prepayments for property, plant and equipment 53,532 210,015 - -Deferred tax assets 151,493 97,107 - -

2,214,833 2,112,253 982,197 982,197

Current assets Inventories 319,185 381,650 - -Trade receivables 230,785 271,064 - -Bills receivables 4,077 9,547 - -Other receivables and deposits 25,994 33,790 - -Amount due from subsidiaries - - 526,694 878,658 Prepayments 50,726 47,208 648 1,111Cash and bank balances 2,045,768 1,291,828 3,357 2,968

2,676,535 2,035,087 530,699 882,737

TOTAL ASSETS 4,891,368 4,147,340 1,512,896 1,864,934

EQUITY AND LIABILITIES

Current liabilities Trade payables 224,427 287,526 - -Bills payables 54,570 49,720 - -Other payables 264,519 269,062 - -Amount due to subsidiaries - - - 226Due to directors 3,161 2,217 3,161 2,217Other liabilities 562,934 542,889 1,851 3,192Income tax 70,481 29,363 - -Short-term bank loans 520,772 - - -

1,700,864 1,180,777 5,012 5,635

NET CURRENT ASSETS 975,671 854,310 525,687 877,102

Non-current liabilities Deferred tax liabilities 82,721 109,007 - -Provision for retirement benefits 170,190 - - -

252,911 109,007 - -

TOTAL LIABILITIES 1,953,775 1,289,784 5,012 5,635

NET ASSETS 2,937,593 2,857,556 1,507,884 1,859,299


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Group Company30/6/2011 30/6/2010 30/6/2011 30/6/2010 RMB '000 RMB '000 RMB '000 RMB '000 Unaudited Unaudited Unaudited Audited

Equity attributable to equity holders of the parent Share capital 40,124 40,124 40,124 40,124 Share premium 1,445,020 1,445,020 1,445,020 1,445,020 Translation reserves (119) (101) - -Reserve fund 376,652 282,193 - -Restructuring reserves (716,588) (716,588) - -Accumulated profits 1,792,504 1,806,908 22,740 374,155

TOTAL EQUITY 2,937,593 2,857,556 1,507,884 1,859,299

TOTAL EQUITY AND LIABILITIES 4,891,368 4,147,340 1,512,896 1,864,934

1(b)(ii) Aggregate amount of group’s borrowings and debt securities.

Amount repayable in one year or less, or on demand

As at 30 Jun 2011 As at 30 June 2010 Secured Unsecured Secured Unsecured RMB ’000 RMB ’000 RMB ’000 RMB ’000

Bills payable 2,154 52,416 13,241 36,479

Short-term bank loans - 520,772 - -

Details of any collateral

As at 30 June 2011, certain bills payable amounting to RMB 2 million were secured by security deposits from one of itssubsidiaries, Henan Hsu Fu Chi Foods Co. Ltd.


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1(c) A cash flow statement (for the group), together with a comparative statement for the correspondingperiod of the immediately preceding financial year.

Fourth Quarter Full Year 2011 2010 2011 2010

Group Unaudited Unaudited Unaudited Audited RMB '000 RMB '000 RMB '000 RMB '000

Profit before tax 6,663 44,948 822,210 754,473 Adjustments for: Depreciation of property, plant & equipment 53,373 53,303 223,445 216,195 Amortisation of land use rights 1,342 1,196 4,986 4,801Amortisation of intangible assets 212 117 946 383Loss on disposal of property, plant and equipment, net 3,302 1,904 3,414 2,533(Write back)/allowance of doubtful trade receivables (8,324) 5,389 (9,282) 634Allowance for inventory obsolescence 9,052 2,892 41,314 2,165Impairment loss on plant and equipment 7,807 28,029 23,298 28,029 Interest expense and bank charges 1,838 789 4,141 2,341Interest income (14,294) (7,091) (34,179) (12,961) Translation reserve (3) 15 (18) (8)Total adjustments 54,305 86,543 258,065 244,112Operating cash flows before changes in working capital 60,968 131,491 1,080,275 998,585 Changes in working capital:Decrease/(increase) in inventories 32,238 (107,025) 21,151 (156,090) Decrease/(increase) in trade and other receivables 490,794 482,930 62,827 (27,688) Increase in prepayments (14,917) (5,673) (3,518) (17,943) (Decrease)/increase in trade and other payables (134,997) (125,528) (61,848) 36,591 (Decrease)/increase in other liabilities (64,634) (91,699) 164,842 145,118 Increase in bank deposit subject to restricted application 3,246 18,162 1,752 1,644Total changes in working capital 311,730 171,167 185,206 (18,368) Cash flows from operations 372,698 302,658 1,265,481 980,217 Interest income received 14,294 7,091 34,179 12,961 Interest expense and bank charges paid (1,838) (789) (4,141) (2,341)Income taxes paid (47,800) (84,346) (185,459) (148,390) Net cash flows from operating activities 337,354 224,614 1,110,060 842,447

INVESTING ACTIVITIESPurchase of property, plant and equipment (7,966) (27,624) (262,439) (270,783) Proceeds from sale of property, plant and equipment 481 13,072 1,409 17,643 Payments for land use rights - (25,184) (15,978) (42,270) Purchase of intangible assets – software 497 - (1,882) (1,150)Net cash flows used in investing activities (6,988) (39,736) (278,890) (296,560) FINANCING ACTIVITIES Proceeds from bank loans - - 553,774 -Repayment of bank loans (33,002) - (33,002) (30,000) Dividends paid (5,276) - (596,250) (230,550) Net cash flows used in financing activities (38,278) - (75,478) (260,550) Net increase in cash and cash equivalents 292,088 184,878 755,692 285,337

Cash and cash equivalents at beginning of financial period 1,748,987 1,100,505 1,285,383 1,000,046 Cash and cash equivalents at end of financial period 2,041,075 1,285,383 2,041,075 1,285,383


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Notes to the combined statement of cash flows

Cash and cash equivalents included in the combined statement of cash flows comprise the following: 30/6/2011 30/6/2010 RMB '000 RMB '000

Cash and bank balances 2,045,768 1,291,828 Bank deposits subject to restricted application (4,693) (6,445)

Cash and cash equivalents 2,041,075 1,285,383

The bank deposits subject to restricted application relate to the bank balances placed in designated bank accounts for the purpose of value-added-tax payments as required by the PRC tax authorities.


204

1(d)(i) A statement (for the issuer and group) showing either (i) all changes in equity or (ii) changes in equityother than those arising from capitalisation issues and distributions to shareholders, together with a comparative statement for the corresponding period of the immediately preceding financial year.

Group Share Capital

Share Premium

Restructuring

ReservesReserveFunds

Translation Reserve

Accumulated Profits

Total Equity

RMB ’000 RMB ’000 RMB ’000 RMB ’000 RMB ’000 RMB ’000 RMB ’000 Balance as at 1 Apr 2010 40,124 1,445,020 (716,588) 278,308 (116) 1,783,278 2,830,026Total comprehensive income for the period - - - - 15 27,515 27,530

Appropriation to reserve fund - - - 3,885 - (3,885) -

Balance as at 30 Jun 2010 40,124 1,445,020 (716,588) 282,193 (101) 1,806,908 2,857,556

Balance as at 1 Jul 2009 40,124 1,445,020 (716,588) 207,963 (93) 1,509,493 2,485,919Total comprehensive income for the period - - - - (8) 602,195 602,187

Dividends - - - - - (230,550) (230,550) Appropriation to reserve fund - - - 74,230 - (74,230) -

Balance as at 30 Jun 2010 40,124 1,445,020 (716,588) 282,193 (101) 1,806,908 2,857,556

Group ShareCapital

SharePremium

Restructuring Reserves

ReserveFunds

TranslationReserve

Accumulated Profits Total Equity

RMB ’000 RMB ’000 RMB ’000 RMB ’000 RMB ’000 RMB ’000 RMB ’000

Balance as at 1 Apr 2011 40,124 1,445,020 (716,588) 355,296 (116) 1,813,409 2,937,145

Total comprehensive income for the period - - - - (3) 451 448


Balance as at 30 Jun 2011 40,124 1,445,020 (716,588) 376,652 (119) 1,792,504 2,937,593

Balance as at 1 Jul 2010 40,124 1,445,020 (716,588) 282,193 (101) 1,806,908 2,857,556

Total comprehensive income for the period - - - - (18) 676,305 676,287

Dividends - - - - - (596,250) (596,250)


Balance as at 30 Jun 2011 40,124 1,445,020 (716,588) 376,652 (119) 1,792,504 2,937,593


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Company Share capital Share Premium

Accumulated Profits Total

RMB'000 RMB'000 RMB'000 RMB'000 Balance as at 1 Apr 2010 40,124 1,445,020 376,341 1,861,485 Total comprehensive income for the period - - (2,186) (2,186)Balance as at 30 Jun 2010 40,124 1,445,020 374,155 1,859,299

Balance as at 1 Jul 2009 40,124 1,445,020 424,040 1,909,184 Total comprehensive income for the period - - 180,665 180,665Dividends - - (230,550) (230,550) Balance as at 30 Jun 2010 40,124 1,445,020 374,155 1,859,299

Company Share capital Share Premium

Accumulated Profits Total

RMB'000 RMB'000 RMB'000 RMB'000 Balance as at 1 Apr 2011 40,124 1,445,020 25,675 1,510,819

Total comprehensive income for the period - - (2,935) (2,935)

Balance as at 30 Jun 2011 40,124 1,445,020 22,740 1,507,884

Balance as at 1 Jul 2010 40,124 1,445,020 374,155 1,859,299 Total comprehensive income for the period - - 244,835 244,835 Dividends - - (596,250) (596,250) Balance as at 30 Jun 2011 40,124 1,445,020 22,740 1,507,884

1(d)(ii) Details of any changes in the company's share capital arising from rights issue, bonus issue, share buy-backs, exercise of share options or warrants, conversion of other issues of equity securities, issue of shares for cash or as consideration for acquisition or for any other purpose since the end of the previous period reported on. State also the number of shares that may be issued on conversion of all the outstanding convertibles as at the end of the current financial period reported on and as at the end of the corresponding period of the immediately preceding financial year.

Not applicable.

1(d)(iii) To show the total number of issued shares excluding treasury shares as at the end of the current financial period and as at the end of the immediately preceding year.

30 Jun 2011 30 Jun 2010 No. of issued shares excluding treasury shares

795,000,000 ordinary shares

795,000,000 ordinary shares

The Company does not have any treasury shares.

1(d)(iv) A statement showing all sales, transfers, disposal, cancellation and/or use of treasury shares as at the end of the current financial period reported on. Not applicable.

2. Whether the figures have been audited or reviewed and in accordance with which auditing standard orpractice. (E.g. the Singapore Standard on Auditing 910 (Engagements to Review Financial Statements),or an equivalent standards. The figures have not been audited or reviewed by the auditors.

3. Where the figures have been audited or reviewed, the auditors’ report (including any qualifications oremphasis of a matter). Not applicable.


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4. Whether the same accounting policies and methods of computation as in the issuer’s most recentlyaudited annual financial statements have been applied. The Group has adopted the same accounting policies and methods of computations in the Group’s financial statements for the current reporting period as compared with the audited financial statements for the financial year ended 30 June 2010.

5. If there are any changes in the accounting policies and methods of computation, including any requiredby an accounting standard, what has changed, as well as the reasons for, and the effect of, the change. There are no changes in the accounting policies and methods of computation.

6. Earnings per ordinary share of the group for the current financial period reported on and thecorresponding period of the immediately preceding financial year, after deducting any provision for preference dividends.

Fourth Quarter Full YearGroup

2011 2010 2011 2010

Weighted average number of ordinary shares in issue applicable to basic earnings per share 795,000,000 795,000,000 795,000,000 795,000,000

(RMB cents) 0.06 3.46 85.07 75.75Basic earnings per share (Singapore cents) 0.01* 0.71** 16.18* 15.58**

*Based on the exchange rate: @ 5.2590 on 30 Jun 2011 **Based on the exchange rate: @ 4.8607 on 30 Jun 2010

Notes: 1. Basic earnings per share is computed based on the weighted average number of ordinary shares in issue during each

period/year. 2. Diluted earnings per share amount has not been computed as no diluting event existed during the period/year.

7. Net asset value (for the issuer and group) per ordinary share based on issued share capital of the issuer at the end of the: (a) Current financial period reported on; and (b) Immediately preceding financial year.

Group Company

30/6/2011 30/6/2010 30/6/2011 30/6/2010

(RMB cents) 369.5 359.4 189.7 233.9Net asset value per ordinary share based on issued share capital at the end of theyear (Number of ordinary shares in issue : 795,000,000 shares)

(Singapore cents) 70.3* 73.9** 36.1* 48.1**

* Based on the exchange rate: @ 5.2590 on 30 Jun 2011 **Based on the exchange rate: @ 4.8607 on 30 Jun 2010


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8. A review of the performance of the group, to the extent necessary for a reasonable understanding of the group’s business. It must include a discussion of the following:

(a) any significant factors that affected the turnover, costs, and earnings of the group for the currentfinancial period reported on, including (where applicable) seasonal or cyclical factors; and

(b) any material factors that affected the cash flow, working capital, assets or liabilities of the groupduring the current financial period reported on.

Performance Review

Revenue

For the fourth quarter FY2011 (“4Q11”), the Group’s revenue increased by RMB 35 million or 4.6% to RMB 784 millioncompared to the previous corresponding period. The increase in revenue was due to an increase in selling price of the Group’s products.

The Group’s revenue for the FY2011 increased by RMB 852 million or 19.8% to RMB 5,158 million. The increase in revenuewas attributable to the enhanced Group’s distribution and sales channels and an increase in selling price during the year.

Gross profit margin

The Group’s gross profit margin for 4Q11 was 35.6%, which was 0.7% higher compared to the previous corresponding period. The increase in gross profit margin was due to an increase in selling price of the Group’s products.

The Group’s gross profit margin for FY 2011 was 42.6%, a 4.4% decrease compared to the previous corresponding period.The decrease in gross profit margin was due mainly to an increase in raw material prices and labour wages.


Other income for 4Q11 decreased by approximately RMB 6 million or 59.4% to RMB 4 million. The decrease was due to the Research & Development Reward awarded by the Provincial Government of Dongguan in 4Q10.

The increase in other income for FY 2011 by approximately RMB 13 million or 33.1% to RMB 52 million arose from the incentive granted by the County Government of Suiping (in Henan Province) and the Research and Development Reward awarded by the City Government of Dongguan.

Financial income for 4Q11 increased by RMB 7 million or 101.6% to RMB 14 million. Financial income for FY 2011 increasedby RMB 21 million or 163.7% to RMB 34 million. This increase was due mainly to an increase in interest income as a result ofhigher bank balances.

Operating expenses

The number of sales offices throughout the PRC increased from 110 in FY 2010 to 128 in FY 2011.

Selling and distribution expenses for 4Q11 increased by RMB 55 million or 30.8% to RMB 233 million. The increase was due to an increase in the number of sales offices and higher salaries.

Selling and distribution expenses in FY 2011 increased by RMB 115 million or 10.2% to RMB 1,237 million. The increase wasdue mainly to an increase in promotional activities, transport expenses, number of sales offices and salaries.

General and administrative expenses for 4Q11 decreased by RMB 11 million or 19.1% to RMB 48 million compared to the same period in FY 2010. General and administrative expenses for FY 2011 increased by RMB 8 million or 3.7% to RMB 217 million compared to the previous corresponding period. The increase was attributable to an upward revision in salaries.

Foreign exchange loss increased by RMB 12 million and RMB 15 million in 4Q11 and FY 2011 respectively. The increasemainly arose from foreign exchange loss on USD and HKD-denominated bank balances as a result of weaker USD and HKD.

Financial expenses for 4Q11 and FY 2011 increased by RMB 1 million and RMB 2 million respectively due to new bank loansundertaken in 4Q11. These bank loans were in USD for the purpose of dividend pay-out and to take advantage of the lowerinterest rates on USD-denominated borrowings and expected strengthening of the RMB in the future. The increaserepresented a 132.7% and 76.9% increase in 4Q11 and FY 2011 respectively.

Income tax

Tax expenses for 4Q11 decreased by RMB 11 million or 64.4%. The decrease was in line with the lower net profits.

Tax expenses for FY 2011 decreased by RMB 6 million or 4.2% compared to the previous corresponding period. The decrease was due to a RMB 39 million write back on over accrual of deferred tax liabilities on the undistributed profits.

Net profit attributable to shareholders

As a result of an increase in selling and distribution expenses, net profit attributable to shareholders of the Group for 4Q11 decreased by RMB 27 million or 98.4% to RMB 0.5 million.

The Group’s net profit for FY 2011 increased by RMB 74 million or 12.3% to RMB 676 million compared to the previouscorresponding period.


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Balance Sheet

Non-current assets:

Property, plant and equipment increased by approximately RMB 174 million to RMB 1,765 million as at 30 June 2011. Theincrease was due mainly to the Group’s acquisition of new property, plant and equipment, and construction-in-progressprimarily for its Dongguan, Henan, Huzhou and Chengdu subsidiaries, which amounted to approximately RMB 295 million,RMB 101 million, RMB 18 million and RMB 6 million respectively. The increase was partially offset by depreciation charges ofapproximately RMB 223 million and impairment of plant and machinery of approximately RMB 23 million.

Prepayments for property, plant and equipment decreased by RMB 156 million to RMB 54 million following the receipt ofproduction equipment duly delivered.

Current assets:

Inventories

Inventories decreased by RMB 62 million or 16.4% to approximately RMB 319 million as at 30 June 2011. This decrease wasdue to less stocking up of raw materials and finished goods. Inventory turnover days for FY 2011 was 39 days compared to61 days as at 30 June 2010.

Trade and bills receivables

As at 30 June 2011, the Group’s trade and bills receivables decreased by RMB 46 million or 16.3% to approximately RMB235 million compared to 30 June 2010. The decrease arose mainly from the tightened credit control and increased cash salesin FY 2011. As a result, trade and bills receivable turnover decreased from 24 days in FY2010 to 17 days in FY 2011.

Other receivables and deposits

Other receivables and deposits decreased by approximately RMB 8 million or 23.1% to RMB 26 million, compared to 30 June 2010. This decrease was mainly due to the lower VAT credit.

Prepayments

Prepayments increased by about RMB 4 million or 7.5% to approximately RMB 51 million as at 30 June 2011. The increase was attributable to the advance payments for acquisition of raw materials.

Current liabilities

Trade and bills payables

As at 30 June 2011, the Group’s trade payables and bills payables decreased by approximately RMB 58 million or 17.3%, to RMB 279 million. The decrease was due to an increase in cash purchase of raw materials such as sugar, of which pricescontinue to rise since FY2010. Trade and bills payable turnover days for FY 2011 decreased from 54 days in FY2010 to 34days in FY2011.

Other payables

Other payables decreased by RMB 5 million or 1.7% to RMB 265 million, compared to 30 June 2010.

Other liabilities

Other liabilities increased by RMB 20 million or 3.7% to RMB 563 million compared to 30 June 2010. This was due mainly to an increase in amount payable for supermarket promotional fees incurred during FY 2011.

Short-term bank loans

Short-term bank loans increased by RMB 521 million or 100% compared to 30 June 2010. Due to the favourable loan interestrates compared with the interest rates generated from bank deposits, the Group obtained short-term bank loans for payment of cash dividends.

Non current liabilities

Deferred tax liabilities

The Group is required to provide for deferred tax liabilities on the undistributed profits of Hsu Fu Chi International HoldingsLtd’s subsidiaries located in the PRC from 1 January 2008. Subject to the agreement of the tax authority, HFC InternationalHoldings Ltd, being a company incorporated in Hong Kong, the applicable withholding tax rate is 5%.

Provision for retirement benefits

The retirement pension scheme was implemented by the Group during FY2011. The provision was based on an independent valuation by a professional actuary.


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9. Where a forecast, or a prospect statement, has been previously disclosed to shareholders, any variancebetween it and the actual results. The Group’s FY2011 performance is in line with the Group’s 3QFY2011 results announcement made on 6 May 2011where it was disclosed that the impact from increasing operational costs and higher income tax rate would result in a decrease in both its Gross and Net Profit margins.

10. A commentary at the date of the announcement of the significant trends and competitive conditions ofthe industry in which the group operates and any known factors or events that may affect the group in the next reporting period and the next 12 months. Proposed delisting by way of scheme of arrangement of Hsu Fu Chi International Limited

On 11 July 2011, the Company and Nestle S.A (“Nestle”) jointly announced (“the Joint Announcement”) the proposed establishment of a joint venture between Nestle and the current major shareholders of the Company, namely Mr Hsu Chen,Mr Hsu Hang, Mr Hsu Pu and Mr Hsu Keng (the “Majority Shareholders”).

The Company and Nestle had also entered into an Implementation Agreement for Nestle to acquire the Scheme Sharesrepresenting approximately 43.52% of all the Shares by way of a scheme of arrangement (the “Scheme”) under Section 86 of the Cayman Companies Law (2010 revision) and in accordance with the Singapore Code on Takeovers and Mergers and (ii)subject to the Scheme becoming effective, Nestle will acquire a 16.48% interest from the Majority Shareholders.

The Scheme is subject to approval by a majority in number of, and representing not less than seventy five percent (75%) in value of the Scheme Shares held by, Scheme Shareholders present and voting, either in person or by proxy, at the Court Meeting to be convened and the approval of the Scheme by the Grand Court of the Cayman Islands.

Upon the proposed transactions becoming effective, Nestle will own 60% of the issued shares of the Company with the remaining 40% owned indirectly by the Majority Shareholders. The Company will apply to be delisted from the Official List of the Singapore Exchange Securities Trading Limited.

The Company will make the relevant announcement on the above matter as and when appropriate.

Increasing operational costs

The Group will continue to face rising raw material prices and labour costs. Such increasing operational costs remain majorchallenges to the Group and would have an impact on the Group’s performance.

Change in tax rate

The tax incentive of the Group’s subsidiary Dongguan Hsu Chi, with a preferential income tax rate of 15% had expired at theend of 2010. The higher income tax rate of 25% would have an effect to the Group’s net profit after tax in the next reportingquarter and for the financial year ending 30 June 2012.

11. Dividend (a) Current Financial Period Reported On

None

(b) Corresponding Period of the Immediately Preceding Financial Year A total dividend of RMB 75 cents per share (tax not applicable), comprising a final dividend of RMB 38 cents per share and a special dividend of RMB 37 cents per share, was proposed and paid during the year in respect of FY2010.

(c) Date payable Not applicable.

(d) Books closure date Not applicable.

12. If no dividend has been declared/recommended, a statement to that effect. No dividend has been declared for FY2011.

With reference to item 2.3 of the Joint Announcement made by the Company on 11 July 2011, the Scheme Consideration (of S$4.35 in case for each Scheme Share) is on the basis that the Company will not make or agree to make any distribution or other payments of any kind to any person in his capacity as a shareholder of the Company on or prior to the Effective Date(as defined in item 2.5 of the Joint Announcement).


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PART II - ADDITIONAL INFORMATION REQUIRED FOR FULL YEAR ANNOUNCEMENT (THIS PART IS NOTAPPLICABLE TO Q1, Q2, Q3 OR HALF YEAR RESULTS)

13. Segmented revenue and results for business or geographical segments (of the Group) in the formpresented in the issuer’s most recently audited annual financial statements, with comparative information for the immediately preceding year.

Business segments

The Group’s business segments are organised into three product categories, namely:

(i) Candy Products

This category consists primarily of candies, such as Chinese New Year candies, jelly and pudding. Chocolate products are also included under this category as secondary products.

(ii) Cake and Cookie Products

The category consists mainly of different types of cakes and cookies produced under the Hsu Fu Chi brand. The majorproducts under this category are crisps with fillings, oat crisps and flapjacks.

(iii) Sachima Products

The major products under this category are egg Sachima, egg yolk Sachima, egg crisp Sachima and Sesame Sachima.Sachima is one of the best-known products of the Group.

Geographical segments

The Group’s revenue by geographical segments is based on the location of its customers. With the exception of the People’sRepublic of China (“PRC”), no other individual country contributed to more than 10% of consolidated revenue.

Allocation basis and transfer pricing

Segmental results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly of other operating income, operating expenses, financial income and expensesand tax expense.

Group assets and liabilities cannot be directly attributable to the individual segments as it is impracticable to allocate theminto the various segments. Accordingly, it is not meaningful to disclose assets, liabilities and capital expenditure by businesssegments.


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FY2010Candy

Products

Cake and Cookie

Products Sachima Products Total

Rmb’000 Rmb’000 Rmb’000 Rmb’000 Revenue 2,178,186 1,355,945 771,525 4,305,656

Gross profit 1,002,385 630,264 393,039 2,025,688

Unallocated expenses, net (1,268,874)

Financial expenses, net (2,341)

Profit before tax 754,473

Income tax (152,278)


Allowance for inventory obsolescence 3,698 1,138 542 5,378

Allowance for doubtful trade receivables 634

Depreciation of property, plant and equipment 200,278

Amortisation of land use rights 4,755

Amortisation of intangible assets 305

Impairment for plant and equipment 28,029

FY2011Candy

Products Cake and

Cookie Products

Sachima Products Total

Rmb’000 Rmb’000 Rmb’000 Rmb’000 Revenue 2,665,134 1,502,459 989,908 5,157,501

Gross profit 1,164,507 643,368 390,479 2,198,354 Unallocated expenses, net (1,372,003) Financial expenses, net (4,141)Profit before tax 822,210 Income tax (145,905)


Allowance for inventory obsolescence 35,698 3,854 1,762 41,314Allowance for doubtful trade receivables (9,282)Depreciation of property, plant and equipment 223,445 Amortisation of land use rights 4,986Amortisation of intangible assets 946Impairment for plant and equipment 23,298

14. In the review of performance, the factors leading to any material changes in contributions to turnover and earnings by the business or geographical segments.

Please refer to paragraphs 8 and 13.


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15. A breakdown of sales

Sales%

Variance Profit after tax%

Variance RMB’000 FY2011 FY2010 +/(-) FY2011 FY2010 +/(-)

First 6 months 2,864,058 2,028,713 41.2 470,188 328,519 43.1

Last 6 months 2,293,443 2,276,943 0.7 206,117 273,676 (24.7)

Total 5,157,501 4,305,656 19.8 676,305 602,195 12.3

16. A breakdown of the total annual dividend (in dollar value) for the issuer’s latest full year and its previousfull year.

Final DividendRMB’000 FY 2011 FY 2010

Ordinary NA 596,250 Preference NA NA

Total NA 596,250

BY ORDER OF THE BOARD

Hsu Chen Executive Chairman

26th Aug 2011

APPENDIX 7 – SCHEME CONDITIONS

213

The following provisions are extracted from the Implementation Agreement. All capitalised termsused and not defined in this Appendix 7 have the same meanings given to them in theImplementation Agreement. A copy of the Implementation Agreement is available for inspection atthe offices of Loo & Partners LLP at 16 Gemmill Lane, Singapore 069254, during normal businesshours until the Effective Date.

The Parties agree that the Scheme and the completion of the Acquisition will be conditional upon thefollowing occurring (or, if applicable, waived) on or prior to 5.00 p.m. (Singapore time) on the Long StopDate (the “Scheme Conditions”):

1. Regulatory Approvals

Prior to the first application to the Court for an order to convene the Court Meeting, the followingregulatory approvals having been obtained, satisfied, and not having been withdrawn or revoked (ifapplicable) on or before the Effective Date:

(a) confirmation from the SIC that Rules 14, 15, 16, 17, 20.1, 21, 22 , 28, 29 and 33.2 and note1(b) to Rule 19 of the Code will not apply to the Scheme subject to any conditions the SICmay deem fit to impose;

(b) the approval-in-principle from the SIC and SGX-ST of the Scheme, the Scheme Document,the acquisition of the Sale Shares by the Purchaser and for the proposed delisting of theCompany from the SGX-ST; and

(c) confirmation from the SIC that it has no objection to the transfer of Shares from the MajorityShareholders to FHC and such transfer will not trigger a mandatory general offer under theCode.

2. Court Meeting

The approval of the Scheme having been granted by the shareholders at the Court Meeting incompliance with the requirements of Section 86 of the Cayman Companies Law.

3. Court Order

The grant of the Court Order by the Court and such Court Order having become final.

4. Lodgement with Registrar

The lodgement and registration of the Court Order with the Registrar pursuant to Section 86 of theCayman Companies Law.

5. Anti-trust Approvals

Approval or clearance of the Acquisition having been granted by the competent CompetitionAuthorities, including MOFCOM pursuant to the merger control laws of PRC, and such approvals orclearances not having been withdrawn or revoked (if applicable) on or before the Effective Date.

6. Authorisations

The following having been obtained prior to the Effective Date and not having been withdrawn orrevoked (if applicable):

(a) in relation to the Purchaser, all authorisations, consents, clearances, permissions andapprovals as are necessary or required by the Purchaser under any and all applicable lawsfrom all relevant Authorities for or in respect of the Acquisition and the implementation of theScheme; and

(b) in relation to the Company, all authorisations, consents, clearances, permissions andapprovals as are necessary or required by the Company under any and all applicable lawsfrom all relevant Authorities for or in respect of the Acquisition and the implementation of theScheme,

and if any such authorisations, consents, clearances, permissions and approvals is subject to anyconditions or requires any actions or obligations to be taken or performed, all such actions havingbeen duly taken or performed on or prior to the first application to the Court for the order toconvene the Court Meeting.

7. Warranties and Covenants

7.1 The Warranties given by each of the Parties being true and correct in all material aspects and notmisleading in any material respect as at the date of the Implementation Agreement and as of theEffective Date as if they had been made on and as of the Effective Date except (i) to the extent ofany matters or events relating to facts, circumstances or events arising or occurring after the dateof this Agreement notified by either Party to the other Party in accordance with Clause 10.4 and (ii)any such Warranty expressly relates to an earlier date (in which case as at such earlier date).

7.2 The Parties having, as at the Effective Date, performed and complied in all material respects withall covenants and agreements contained in the Implementation Agreement which are required tobe performed or complied with by each of them, on or prior to the Effective Date.

8. No Material Adverse Effect

No Material Adverse Effect having occurred or being likely to occur between the date of theImplementation Agreement and the Effective Date.

9. Irrevocable Undertakings

The Irrevocable Undertakings having been provided and delivered duly executed to the Purchaserprior to or on the date of the Implementation Agreement.

10. Consent and Waiver

The written consent and waiver (in the agreed form) in relation to the Acquisition or theimplementation of the Scheme having been obtained by Company from the relevant counterpartyin relation to any agreement, and such agreement continuing in force and not terminating as aconsequence of the Acquisition or the implementation of the Scheme and if any such consent andwaiver is subject to any conditions, all such conditions being reasonably acceptable to thePurchaser.

11. No Legal or Regulatory Restraint

Between the date of the Implementation Agreement and up to the Effective Date, no injunction orother order, legal or regulatory restraint, prohibition or condition preventing the consummation ofthe Acquisition or the implementation of the Scheme (or the proposed transactions relating to theScheme) having been issued by any Governmental Authority or by any court of competentjurisdiction, and remaining in effect as at the Effective Date.

12. No Termination

The Implementation Agreement has not been terminated pursuant to Clause 11 (Termination) ofthe Implementation Agreement.

APPENDIX 7 – SCHEME CONDITIONS

214


9.1 From the date of this Agreement until the earlier of (i) the Effective Date and (ii) the termination ofthis Agreement in accordance with its terms, the Company will not, and will procure that nomember of its Group will, without the prior written consent of the Purchaser (to the extent lawful todo so):

(a) carry on its business other than in the ordinary and usual course as conducted prior to thedate of this Agreement, consistently with past practices and in compliance with all applicablelaws and regulations;

(b) take any frustrating action referred to in Rule 5 of the Code (including the Notes to Rule 5);and

(c) agree to, or publicly announce or announce to a third party an intention to agree to, do anyof the above.

APPENDIX 8 – MATERIAL COVENANTS

215


Nestlé represents and warrants to the Company that:

1. The Purchaser is a company duly incorporated and validly existing under the laws of Switzerland.

2. The Purchaser has full power and authority to enter into and perform this Agreement and theAgreement constitutes legal, valid and binding obligations of the Purchaser in accordance with itsrespective terms.

3. The execution, delivery and performance by the Purchaser of the Agreement will not constitute abreach of any laws or regulations in any relevant jurisdiction or result in a breach of or constitute adefault under (i) any provision of the articles of association or equivalent constitutional documentsof the Purchaser; (ii) any order, judgment or decree of any court or governmental authority bywhich the Purchaser is bound; or (iii) any agreement or instrument to which the Purchaser is aparty or by which it is bound.

4. The Purchaser has the financial resources to undertake and complete the Acquisition and is ableto provide such evidence as may be required by the SIC to support the statement that sufficientresources are available to satisfy the Purchaser’s obligations to complete the Acquisition.

APPENDIX 9 – REPRESENTATIONS AND WARRANTIES OF NESTLE

216


The Company represents and warrants to Nestlé that:

Share capital

1. As at the date of this Agreement, the Company has an authorised share capital of US$30,000,000divided into Shares of US$0.01 each, of which 795,000,000 Shares have been issued and fullypaid up and listed on the SGX-ST with 449,000,000 directly or indirectly held by the MajorityShareholders.

Announcement

2. All statements of fact contained in the Announcement are true and accurate and not misleading;and all statements of opinion, intention or expectation of the Directors in relation to the Companyor the Group contained therein (if any) are truly and honestly held and have been made onreasonable grounds after due and careful consideration, and there is no other fact or matteromitted therefrom the omission of which would make any statement therein misleading or which isotherwise material in the context of the proposed Scheme.

Non-public information

3. As at the date of this Agreement and save for the transactions contemplated in the Announcement,the Company is not in possession of any non-public information relating to the Company or itsbusinesses the release of which (i) is necessary to avoid the establishment of a false market in theCompany’s securities or (ii) would be likely to materially affect the price or value of its securities,and there is not in existence any material or information relating to the Company which is requiredto be but has not been disclosed by the Company under the Listing Manual or the Securities andFutures Act, Chapter 289 of Singapore. Without prejudice to the generality of the foregoing, there isno material information (including, without limitation, any information regarding any materialadverse change or prospective material adverse change in the condition of, or any actual, pendingor (to the knowledge of the Company) threatened litigation, arbitration or similar proceedinginvolving, the Group) that is not described in the Company’s most recent annual report orsubsequent public information releases (the “Company Information”) which information isnecessary to enable investors to make an informed assessment of the assets and liabilities,financial position, profits and losses and prospects of the Group; the Company Information doesnot include any untrue statement of a material fact or omit to state any material fact necessary inorder to make the statements therein not misleading.

Litigation

4. There is no claim, litigation, arbitration, prosecution or other legal proceedings or investigation orenquiry in progress or pending or (to the knowledge of the Company) threatened against anymember of the Group or any of their respective directors and officers nor is there any claim or anyfacts or circumstances of a material nature which would be reasonably likely to give rise to a claimagainst any member of the Group or any of their respective directors and officers, which in anysuch case would have or have had a Material Adverse Effect.

No Material Adverse Effect

5. Save as publicly disclosed up to and including the Effective Date, there have been no MaterialAdverse Effect since 1st January 2011 and in particular:

5.1 its business has been carried on solely in the ordinary and usual course of business, withoutany material interruption or alteration in its nature, scope or manner, and so as to maintainthe same as a going concern; and

APPENDIX 10 – REPRESENTATIONS AND WARRANTIES OF THE COMPANY

217

5.2 it has not entered into any unusual, long-term and onerous commitments and contracts thatwould have a Material Adverse Effect.

Incorporation

6. Each member of the Group is duly incorporated and validly existing under the laws of the place ofits incorporation and each member of the Group has power to own its assets and to conduct itsbusiness in the manner presently conducted and there has been no petition filed, order made oreffective resolution passed for the liquidation or winding up of any member of the Group.

Licenses

7. Each Group Company has obtained all licences, consents and other authorisations or approvals(other than those in respect to Intellectual Property which are the subject of the warranties inparagraph 22 to 25 below) which are necessary for the carrying on of its business in the placesand in the manner in which the business is currently conducted (the “Licences”).

8. Each Licence is in full force and effect and has been complied with in all material respects and, sofar as the Company is aware, no Governmental Authority (including any local government) hastaken any action for the termination or revocation or refused the renewal of any Licence and so faras the Company is aware, there are no circumstances which are likely to give rise to any suchactions or refusal, and the consummation of the transactions contemplated under the Agreementwill not result in the termination or revocation of any of such Licences.

Compliance with Laws

9. Each Group Company has carried on and is carrying on its business and operations so that therehave been no material breaches of applicable laws, regulations and bye-laws in each country inwhich they are carried on and in particular, the Company is not in breach of any rules, regulationsor requirements of the SGX-ST.

No Judgements

10. There is no order, decree or judgement of any court or governmental agency or regulatory bodyoutstanding or (to the knowledge of the Company) anticipated against any member of the Groupwhich may have or has had a Material Adverse Effect.

Indebtedness

11. No material outstanding indebtedness of any member of the Group has become payable orrepayable by reason of any default of any member of the Group and no event has occurred or (tothe knowledge of the Company) is impending which may result in such indebtedness becomingpayable or repayable prior to its maturity date, in a demand being made for such indebtedness tobe paid or repaid or (to the knowledge of the Company) in any step being taken to enforce anysecurity for any such indebtedness of any member of the Group other than amounts payable tocreditors in the ordinary course which are the subject of a bona fide dispute.

Non-contravention

12. No member of the Group is in breach of or in default of its constitutional documents or any contractor agreement which may have or has had a Material Adverse Effect or which is material in thecontext of the proposed Scheme; neither this Agreement nor the proposed Scheme will constituteor give rise to a material breach of or default under the constitutional documents or any agreementor other arrangement to which any member of the Group is party or give rise to any rights of anythird party in respect of any assets of the Group.

Financial statements

13. The Accounts have been prepared in accordance with the accounting principles and practicesgenerally accepted in the jurisdiction of incorporation of each relevant Group Company and, inrespect of the Company, with IFRS.


218

14. No change has been made to the accounting policies or to any other accounting treatment of anyGroup Company for at least three (3) years prior to the Accounts Date.

15. The Accounts are complete and accurate in all respects and give a true and fair view of the assets,liabilities and profit or loss and of the state of affairs of each Group Company and of the Group asa whole at the Accounts Date.

For the purposes of this paragraph 16, the words “true and fair” will be substituted with theequivalent terminology applicable under local auditing or statutory regulations to denote accountsin respect of which an unqualified auditor’s certificate has been given.

16. At the Accounts Date, no Group Company had any other liability (whether actual, contingent,unquantified or disputed) or outstanding capital commitment which, under the relevant accountingpolicies used to prepare the relevant Accounts is required to be disclosed, provided for or notedand is not so disclosed, provided for or noted in the Accounts.

17. The accounting and other records of each Group Company are up-to-date and have been fully,properly and accurately maintained and are in the possession of the relevant Group Company.

Authority

18. The Company has full right, power and authority under its constitutional documents to permit itsentry into this Agreement in the manner set out herein and this Agreement has been dulyauthorised (such authorisation remaining in full force and effect) and executed by, and constituteslegally binding and enforceable obligations of the Company in accordance with its terms.

Pre-emptive Rights and Options

19. No unissued share capital of any member of the Group is under any option or agreed conditionallyor unconditionally to be put under any option and no Person has an outstanding warrant, pre-emptive right or any other right of any description to require shares to be allotted or issued by anymember of the Group.

Competing Offer

20. It is not currently in any discussions and/or negotiations with any third party which could result in aCompeting Offer being announced or made.

21. Any discussions with any third party which could result in a Competing Offer being announced ormade which have taken place before the date of this Agreement have been terminated.

Intellectual Property Rights

22. So far as the Company is aware, the Owned IP is not being opposed, nor is any third partyseeking its invalidation or revocation. No Group Company has received notice of any opposition tothe grant of, or notice of any legal proceedings or claims relating to, any Owned IP.

23. All Owned IP (to the extent they are capable of being registered) has been or is in the process ofbeing registered in the name of a Group Company and all Owned IP is valid and enforceable andthere has been no act or omission by a Group Company that would reasonably be expected tojeopardise its validity, subsistence or enforceability.

24. No Group Company has issued any notice of any legal proceedings, claims or complaints againsta third party regarding the infringement of the Owned IP. So far as the Company is aware, no thirdparty has infringed or is infringing the Owned IP and no Group Company is or has or is infringingany Intellectual Property (provided that for the purpose of this sentence, Intellectual Property willnot include software).

25. The Company has delivered to the Purchaser true and complete copies of all of the Licensed IP.


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Product Liability

26. So far as the Seller is aware after making reasonable and practicable enquiries with relevantdepartment heads of the Group, no Group Company has manufactured, sold or provided anyproduct or service which did not comply in all material respects with all laws, regulations,standards and requirements then applicable.


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IN THE GRAND COURT OF THE CAYMAN ISLANDSFINANCIAL SERVICES DIVISION

CAUSE NO. FSD 135 OF 2011

IN THE MATTER of section 86 of the Companies Law (2010 Revision) (as amended)

AND IN THE MATTER of the Grand Court Rules 1995 Order 102

AND IN THE MATTER of Hsu Fu Chi International Limited

PRELIMINARY

(A) In this Scheme of Arrangement, unless inconsistent with the subject or context, the followingexpressions shall have the meanings respectively set opposite them:

“Acquisition Price” S$4.35 per Scheme Share payable in cash by the Offeror to theScheme Shareholders

“Books Closure Date” is the date and time on which the entitlements of the SchemeShareholders under the Scheme of Arrangement are determined

“Business Day” a day (except a Saturday or Sunday) on which banks are generallyopen for business in the Cayman Islands, Singapore, Switzerland(Canton de Vaud) and the People’s Republic of China (Beijing)

“Companies Law” Companies Law, Cap.22 (Law 3 of 1961) as consolidated andrevised of the Cayman Islands

“Company” Hsu Fu Chi International Limited, a company incorporated in theCayman Islands with limited liability, the shares of which arecurrently listed on the SGX-ST

“Court” the Grand Court of the Cayman Islands

“Effective Date” is the date on which the Scheme of Arrangement, if sanctioned bythe Court, becomes effective in accordance with the CompaniesLaw and the terms of the Scheme of Arrangement

“holder(s)” a registered holder and includes a person entitled by transmission tobe registered as such and joint holders

“Individual Holders” Mr. Hsu Chen, Mr. Hsu Pu, Ophira Finance Ltd and SuncoveInvestments Ltd

“Latest Practicable Date” 26 August 2011 being the latest practicable date prior to the printingof this document for ascertaining certain information containedherein

“Offeror” Nestlé S.A., a company incorporated in Switzerland and listed onthe SIX Swiss Exchange

“Register” the register of members of the Company

THE SCHEME

221

“Scheme of Arrangement” a scheme of arrangement between the Company and the SchemeShareholders pursuant to Section 86 of the Companies Law in itspresent form or with or subject to any modification(s) or addition(s)or condition(s) which the Court may approve or impose

“Scheme Shares” Share(s) held by the Scheme Shareholders

“Scheme Shareholders” Shareholder(s) other than the Individual Holders

“Share(s)” Ordinary share(s) of S$0.01 each in the share capital of theCompany

“Shareholder(s)” Registered holder(s) of the Share(s)

“S$” Singapore dollars, the lawful currency of Singapore

“SGX-ST” Singapore Exchange Securities Trading Limited

(B) The Company was incorporated as an exempted company on 18 October 2006 in the CaymanIslands under the Companies Law.

(C) The authorised share capital of the Company as at the Latest Practicable Date was S$30,000,000divided into 3,000,000,000 ordinary shares of par value S$0.01 each, 795,000,000 of which havebeen issued fully paid-up or credited as fully paid-up, and the remainder are unissued.

(D) The Offeror has proposed the acquisition of the Scheme Shares by way of the Scheme ofArrangement.

(E) The primary purpose of the Scheme of Arrangement is to provide for the transfer of all of theScheme Shares to the Offeror in consideration and exchange for the Acquisition Price.

(F) On the Latest Practicable Date, an aggregate of 449,000,000 Shares representing 56.48% of theShares in issue were beneficially owned by the Individual Holders and parties acting in concertwith them and Scheme Shareholders held an aggregate of 346,000,000 Scheme Sharesrepresenting 43.52% of the Shares in issue.

(G) The Offeror and the Company have agreed to appear by Counsel at the hearing of the petition tosanction the Scheme of Arrangement and to undertake to the Court (whether at the hearing orbefore hand) to be bound by the Scheme of Arrangement and will execute and do and procure tobe executed and done all such documents, acts and things as may be necessary or desirable forthe purpose of giving effect to and satisfying their respective obligations under the Scheme ofArrangement.

THE SCHEME OF ARRANGEMENT

PART I

Transfer of the Scheme Shares to the Offeror

1. On the Effective Date, all Scheme Shares shall be transferred from the Scheme Shareholders tothe Offeror (or its nominee) by removing the name of each Scheme Shareholder from the Registerand recording on the Register the Offeror (or its nominee) as the transferee of the Scheme Shares,who thereafter shall be the legal and beneficial registered owner of the Scheme Shares, free andclear of any encumbrances, and the Scheme Shareholders shall cease to have any rights withrespect to the Scheme Shares, except their rights under this Scheme.

THE SCHEME

222

PART II

Consideration for the acquisition of the Scheme Shares

2. As consideration for the transfer of the Scheme Shares each Scheme Shareholder will receive theAcquisition Price from the Offeror for each Scheme Share held. To the extent the Companydeclares or makes any distribution or other payment of any kind to the Scheme Shareholders on orprior to the Effective Date, the Acquisition Price will be reduced on a per Scheme Share basis byany amount which is due and payable (whether paid or unpaid as at the Effective Date) to theScheme Shareholders.

PART III

General

3. As from the Effective Date, any instruments of transfer relating to and all certificates representing,the Scheme Shares shall cease to have effect as documents of title and every SchemeShareholder shall be bound on the request of the Company to deliver up to the Company thecertificates relating to the Scheme Shares for acquisition.

4. (a) Not later than ten (10) days after the Effective Date, the Company shall issue a sharecertificate to the Offeror (or its nominee).

(b) Not later than ten (10) days after the Effective Date, the Offeror shall either pay theAcquisition Price by direct credit into the bank accounts of Scheme Shareholders or shallsend or cause to be sent cheques representing the Acquisition Price to the SchemeShareholders.

(c) All cheques to be despatched to Scheme Shareholders shall be sent by post in pre-paidenvelopes addressed to Scheme Shareholders at their respective addresses as appearing inthe Register at the Books Closure Date or, in the case of joint holders, at the addressappearing in the Register at the Books Closure Date of the joint holder whose name thenstands first in the Register in respect of the relevant joint holding.

(d) Cheques shall be posted at the risk of the addressees and neither the Offeror nor theCompany shall be responsible for any loss or delay in receipt.

(e) Cheques shall be in favour of the person to whom, in accordance with the provisions of thisClause 4, the envelope containing the same is addressed and the encashment of any suchcheques shall be a good discharge to the Offeror for the monies represented thereby.

(f) On or after the day being six (6) calendar months after the posting of the cheques pursuantto this Clause 4, the Offeror shall have the right to cancel or countermand payment of anysuch cheque which has not been cashed or has been returned uncashed and shall place allmonies represented thereby in a dedicated deposit account in the Company’s name with alicensed bank in Singapore selected by the Company. The Company shall hold such monieson trust for those entitled under the terms of the Scheme of Arrangement until the expirationof six (6) years from the Effective Date and shall prior to such date pay out of such moniesthe sums payable pursuant to the Scheme of Arrangement to persons who satisfy theCompany that they are entitled thereto. Any payments made by the Company shall notinclude any interest accrued on the sums to which the respective persons are entitled. TheCompany shall exercise its absolute discretion in determining whether or not it is satisfiedthat any person is so entitled and a certificate of the Company to the effect that anyparticular person is so entitled or not so entitled, as the case may be, shall be conclusiveand binding upon all persons claiming an interest in the relevant monies.

THE SCHEME

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(g) On the expiration of six (6) years from the Effective Date, the Offeror and the Company shallbe released from any further obligation to make any payments under the Scheme ofArrangement and the Company shall transfer to the Offeror the balance (if any) of the sumsstanding to the credit of the deposit account referred to in this Clause 4 including accruedinterest subject, if applicable, to the deduction of interest or any withholding tax or other taxor any other deductions required by law and subject to the deduction of any expenses.

(h) Paragraph (g) of this Clause 4 shall take effect subject to any prohibition or conditionimposed by law.

5. All mandates or relevant instructions to or by the Company in force at the Books Closure Daterelating to any of the Scheme Shares shall cease to be valid as effective mandates or instructions.

6. The Scheme of Arrangement shall become effective, subject to the satisfaction or waiver of theconditions precedent to the Scheme of Arrangement set out in the Composite Scheme Document,within five (5) Business Days of a copy of the Order of the Court sanctioning the Scheme ofArrangement having been delivered to the Registrar of Companies in the Cayman Islands forregistration pursuant to section 86(3) of the Companies Law.

7. Unless the Scheme of Arrangement shall have become effective on or before 31 March 2012 theScheme of Arrangement shall lapse.

8. The Company and the Offeror may jointly consent for and on behalf of all concerned to anymodification of or addition to the Scheme of Arrangement or to any condition which the Court maythink fit to approve or impose.

9. All court lodgement and court fees will be borne by the Company.

Date 31 August 2011

THE SCHEME

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IN THE GRAND COURT OF THE CAYMAN ISLANDSFINANCIAL SERVICES DIVISION

CAUSE NO. FSD 135 OF 2011

IN THE MATTER of section 86 of the Companies Law (2010 Revision) (as amended)

AND IN THE MATTER of the Grand Court Rules 1995 Order 102

AND IN THE MATTER of Hsu Fu Chi International Limited

NOTICE OF COURT MEETING

NOTICE IS HEREBY GIVEN that, by an order dated 30 August 2011 (the “Order”) made in the abovematter, the Grand Court of the Cayman Islands (the “Court”) has directed a meeting (the “Court Meeting”)to be convened of the Scheme Shareholders (as defined in the Scheme of Arrangement hereinaftermentioned) for the purpose of considering and, if thought fit, approving, with or without modifications, ascheme of arrangement (the “Scheme of Arrangement”) proposed to be made between Hsu Fu ChiInternational Limited (the “Company”) and the Scheme Shareholders as follows:

“THAT a scheme of arrangement (the “Scheme of Arrangement”) dated 31 August 2011 betweenthe Company and the holders of the Scheme Shares (as defined in Scheme of Arrangement) inthe form of the print thereof which has been produced to the meeting and, for the purpose ofidentification signed by the chairman of the meeting, or in such other form and on such terms andconditions as may be approved or imposed by the Grand Court of the Cayman Islands, be and ishereby approved.”

and that the Court Meeting will be held simultaneously at 108 Robinson Road, Level 11, The FinexisBuilding, Singapore 068900 and at Meeting Room 707, Dongguan Hsu Chi Foods Co. Ltd, ZhouwuIndustrial District, Dongcheng, Dongguan, Guangdong Province, 523118, People’s Republic of China on26 September 2011 at 6.00 p.m. (Singapore time) at which places and time all Scheme Shareholders areinvited to attend.

A copy of the Scheme of Arrangement and a copy of an explanatory memorandum explaining the effectof the Scheme of Arrangement are incorporated in the composite scheme document of which this Noticeforms part. A copy of the composite scheme document can also be obtained by the SchemeShareholders from the office of the Company’s Share Transfer Agent at Boardroom Corporate AdvisoryServices Pte. Ltd., 50 Raffles Place #32-01, Singapore Land Tower, Singapore 048623.

The Scheme Shareholders may vote in person at the Court Meeting or they may appoint one or moreproxies, whether a member of the Company or not, to attend and vote in their stead. A pink form ofproxy for use at the Court Meeting is enclosed with the composite scheme document dated 31 August2011 despatched to members of the Company on 2 September 2011.

In the case of joint holders of a share, the vote of the senior holder who tenders a vote, whether inperson or by proxy, will be accepted to the exclusion of the vote(s) of the other joint holder(s) and, for thispurpose, seniority will be determined by the order in which the names stand in the register of members ofthe Company in respect of the relevant joint holding.

It is requested that forms appointing proxies be deposited at the office of the Company’s Share TransferAgent at Boardroom Corporate Advisory Services Pte. Ltd., 50 Raffles Place #32-01, Singapore LandTower, Singapore 048623, not later than 6.00 p.m. (Singapore time) on 23 September 2011, but if formsare not so lodged they may be handed to the chairman of the Court Meeting, at the Court Meetingpursuant to the Order.


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By the Order, the Court has appointed Mr. Lim Hock San, a director of the Company, or failing him, Mr.Hu Chia-Hsun, also a director of the Company, or failing him, any other person who is a director of theCompany as at the date of the Order, to act as the chairman of the Court Meeting and has directed thechairman of the Court Meeting to report the results of the Court Meeting to the Court.

The Scheme of Arrangement will be subject to a subsequent application seeking the sanction of theCourt.

By order of the CourtHsu Fu Chi International Limited

Dated 31 August 2011

Registered OfficeCricket SquareHutchins DriveP.O. Box 2681Grand Cayman KY1-1111Cayman Islands


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Tel: (65) 63278398

NESTLÉ S.A. HSU FU CHI INTERNATIONAL LIMITED · CREDIT SUISSE (SINGAPORE) LIMITED (Incorporated in...

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