A N N U A L R E P O R T 2 0 1 4

C O S M O S T E E L H O L D I N G S L I M I T E D

To be a world-class provider of industrial hardware and related

services that surpasses expectations of our customers through

consistent product quality, competitive pricing, reliable on-time

delivery, and service excellence with a strong commitment to

social and environmental responsibility.

MISSION

CONTENTS

02Our Products & Services

10Board of Directors

22Financial Highlights

04Joint Message from the Chairman & CEO

18RiskManagment

14Corporate Social Responsibility

13Corporate Information

24Operating & Financial Review

30Corporate Governance

48Financial Report

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CORPORATEPROFILE

SGX Mainboard-listed

CosmoSteel Holdings

Limited and its subsidiaries

(collectively CosmoSteel

or the Group) is backed by

over 30 years of established

track record as a service-

oriented and reliable solutions

provider in the sourcing and

distribution of piping system

components in the Energy,

Marine and other industries

in Southeast Asia and other

regions.

With a keen focus on product

quality, and timely and reliable

deliveries, CosmoSteel

has built a solid business

foundation with an extensive

network of strategic alliances

regionally and internationally.

Having developed a strong

and diversified base of over

400 customers including

local and multinational blue-

chip energy companies such

as Shell, Alstom, Keppel

and SembCorp, the Group

has proven its capacity and

capabilities to be at the

forefront of its steel products

and services business. The

Group is able to supply

consistently high-quality

products on a timely basis due

to the close ties it has forged

with major manufacturers in

Europe, US, Japan and the

Peoples Republic of China,

amongst others.

In line with its drive for

excellence, CosmoSteel has

gained recognition for its

best practices in corporate

transparency and business

operations. In 2014, the

Group was ranked 92nd out

of 644 companies on the

Governance and Transparency

Index (GTI) jointly launched

by The Business Times and

the Centre for Governance,

Institutions and Organisations

(CGIO) of NUS Business

School, National University of

Singapore. The Group has also

received numerous world-

class certifications including

ISO 9002:1994 in 2000; ISO

9001:2000 in 2003; ISO

9001:2008, ISO 14001:2004

and OHSAS 18001:2007 in

2009, and bizSAFE STAR

certification in 2012.

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CUSTOMERS

DRIVING

OUR GROWTH

Our customers use our products as components mainly to construct piping systems for the conduit of

liquids and gases in the production processes of the Energy, Marine

and other industries

Our products are used for offshore rig fabrication (including jack-up

and semi-submersible rigs), Floating Production Storage and Offloading

(FPSO) / Floating Storage and Offloading (FSO) vessel conversion and building, and onshore Energy

facilities fabrication

ENERGY INDUSTRY

We sell to traders who on-sell our products to their customers which may include end user customers

from the Energy and Marine industries

TRADERS

We supply our products to other industries such as the

manufacturing sector

OTHERS

Our products are used for shipbuilding and repair in this

industry and our customers include major local shipyards

in Singapore

MARINE INDUSTRY

We supply spiral welded pipes widely used in water treatment plants and other related infrastructure projects

in Singapore and the region

WATER INDUSTRY

OUR PRODUCTS

With over 25,000 line items

across three main product

categories, CosmoSteel has

one of the largest and most

extensive inventories of steel

pipes, fittings and flanges in

Singapore. Its capabilities as

an inventory specialist have

placed it in a strong position

to meet the steel product

requirements of its customers

readily and efficiently.

From carbon steel, low

temp carbon steel, stainless

steel, duplex steel, super

duplex steel to high yield

and low alloys, the Groups

steel products come in a

wide range of materials to

suit the diverse needs of

its customers. Apart from

material range, CosmoSteels

products are also available in

different product variations in

accordance with customers

required design, size,

chemical compositions,

mechanical strength and

testing requirements.

OUR PRODUCTS & SERVICES

Across the board, the

Groups steel products are

mainly categorised based

on international standards

promulgated by API, ANSI,

ASME, ASTM and/or EN.

Further expanding its product

offerings, CosmoSteel

supplies spiral welded pipes

up to dimensions of OD

2500mm for the water and

construction industries. The

Group also offers seamless

or welded constructed pipes,

which are widely used in

todays cross country line

pipes requirements.

OUR SERVICES

CosmoSteel provides pipe

roll grooving and product

customisation services,

through its in-house

machineries, to modify

product size and thread

dimensions of its products

to meet specific engineering

and fabrication designs and

requirements of its customers.

To ensure quality, the Group

also provides in-house

validation and testing services

as well as third-party testing

and inspection for materials

that require Hydrogen

Induction Cracking or Sulfide

Stress Cracking. Its range of in-

house Non-Destructive Testing

includes alloy verification, dye

penetrant testing, magnetic

particle testing, UT testing for

lamination and longitudinal

or transverse defects, wall

thickness check and ferrite

content check, amongst

others.

Tapping on strategic alliances

with an international network

of suppliers, CosmoSteel

is able to offer expedited

delivery services for material

grades that are difficult to

source.

Over and above all these,

CosmoSteel offers project

management services to

customers, an additional

set of value-adding service

that propels its service

excellence to the next

level. As part of this suite of

services, the Group is able

to provide procurement and

expediting services for the

specific materials required by

customers as well as inventory

management services to

customers without warehouse

or storage facilities. Its project

management services also

include just-in-time delivery

according to customers

requirements and logistics

arrangements for expedited

deliveries, both of which yield

significant time and storage

cost savings for its customers.

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JOINT MESSAGE FROM THE CHAIRMAN & CEO

DEAR SHAREHOLDERS,

On behalf of the Board of

Directors of CosmoSteel,

we are delighted to present

to you our Annual Report for

the financial year ended 30

September 2014 (FY2014).

FY2014 has been another

challenging but satisfying

year for CosmoSteel. The

main challenge has been the

continued dampening effects

of the uncertain global

economic climate. The global

economy has entered a new

norm of slower growth,

and every business has to

adapt to survive in this new

business landscape. The

proverbial silver lining is that

the Federal Reserve System,

which is the central banking

system of the United States,

has tapered off its bond

buying scheme1 and has

publicly discussed increasing

interest rates2, which indicate

positive signals for the US

economy, and by extension,

the global economy.

On top of that, the Group has

had to contend with tough

years for the steel industry

with volatile market prices,

growth overcapacity and

an increasingly competitive

environment.3

Backed by over 30 years of

track record and experience in

the industry, CosmoSteel has

become a nimble and strong

business unit with experienced

and resolute people to chart

the right course for our future.

Since our successful listing

in 2007 on the Singapore

Exchange, the Group has

delivered robust revenue and

profit every year, and just last

year, as a testament to our

confidence in the prospects of

CosmoSteel, we committed

to a formal dividend policy to

distribute at least 10% of the

Groups net profit attributable

to Shareholders4 as a reward

to shareholders who have put

their faith in us.

As such, the Group intends to

distribute a final cash dividend

BACkEd By OvER

30 yEARS Of TRACk

RECORd ANd

ExPERiENCE iN ThE

iNdUSTRy, ThE GROUP

hAS BECOME A

NiMBLE ANd STRONG

BUSiNESS UNiT wiTh

ExPERiENCEd ANd

RESOLUTE PEOPLE

TO ChART ThE RiGhT

COURSE fOR OUR

fUTURE.

1 Fed Minutes: QE likely to end with $15B reduction in October by CNBC (9 July 2014)

2 Fed on target to raise interest rates in Spring 2015 by Forbes (27 March 2014)

3 China Iron and Steel Industry is Facing Tough Times by e-fab (22 February 2014)

4 This is subject to a minimum net profit of at least $3 million and such other conditions as set out in the dividend policy.

SINGAPORE

INDONESIA

MAL AYSIA

THAILAND

NEW ZEAL AND

AUSTRALIA

JAPAN

KOREA

BRUNEI

MYANMAR

CHINAMIDDLE EAST

USA

SOUTH AFRICA

EUROPE

PHILIPPINESVIETNAM

OUR MARKETS

of 0.5 Singapore cents for

FY2014, reflecting a payout

ratio of 23.8%.

FY2014 IN REVIEW

In FY2014, the Group achieved

a net profit of $5.5 million

on the back of $157.6 million

in revenue, a set of results

which was in line with the

managements expectations

for the year. Despite an

increasingly competitive

business environment, the

Group managed to grow its

top-line by 1.2% in FY2014,

thanks to a number of

Energy-related projects in

markets such as Singapore,

China and Vietnam. We

managed to grow our gross

profit margin in FY2014

marginally to 19.2% from 18.8%

a year ago, while gross profit

grew 3.5% to $30.2 million.

However, due to higher costs

in the form of warehouse

rental, employee costs and

depreciation on our properties,

the Groups bottom-line was

shaved by 12.9%.

CORPORATE

AND BUSINESS

DEVELOPMENTS

DURING THE YEAR

Being a one-stop inventory

specialist holding over 25,000

line items gives us great

leverage over our competitors

to meet customers demands

and requirements on short

notice. We currently have five

warehouse facilities, four of

which are on long-term leases

and one rented, in Singapore,

giving us over 538,000 sq ft

of storage space. In July 2014,

we announced a lease

extension on our warehouse at

90 Second Lok Yang Road to

June 2032 at prevailing market

rates. With a tenure originally

slated to end in March 2019,

the extension enables us to

maintain our considerable

warehouse capacity, giving us

long-term operational security.

As part of the consideration for

the extension, we have agreed

to certain investment criteria

that will see us investing up

to $11.8 million within three

years.

FY2014 also saw the re-

classification of our Chairman,

Mr Low Beng Tin, to

Independent Non-Executive

Director of the Group from

Non-Executive Director.

This move will increase the

independence of the Board

which will give stakeholders

greater assurances about the

Groups management and

operations.

It is always the intention

of CosmoSteel to remain

committed to a policy

of transparency to all

stakeholders. On 27 August

2014, the Group announced

that I, Mr Ong Chin Sum, and

Executive Director, Mr Ong

Tong Yang, were asked by the

Corrupt Practices Investigation

Bureau to assist with an

investigation relating to the

giving of illegal gratification to

an agent under section 6(b) of

the Prevention of Corruption

Act, Chapter 241. As at this

juncture, neither of us has

been charged, and we cannot

reveal further details while the

investigation is ongoing.

Rest assured the Board and

Management of the Group will

stay steadfast in our obligation

to update all our stakeholders

with relevant developments

about this investigation at

the earliest appropriate

opportunity. Already, we have

gotten assurances from the

Groups customers, major

shareholders and business

partners that this will not affect

our relationship with them in

any way. It is business as usual

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LOW BENG TIN ONG CHIN SUM

for us as the Group remains

committed and focused on

driving its operations going

forward and growing the

business.

Underscoring this, CosmoSteel

entered into a conditional

subscription agreement with

a leading Japanese trading

company listed on the

Tokyo Stock Exchange that

is involved mainly in steel

products, Hanwa Co. Ltd.

(Hanwa), on 1 December

2014 for the issuance of 26.4

million new ordinary shares at

a subscription price of $0.58

per share, an approximately

48.7% premium to the Groups

volume weighted average

trading price of $0.3901 on

28 November 2014. The

26.4 million block represents

approximately 10% of the

existing issued share capital of

CosmoSteel. The Group will

raise net proceeds of $14.2

million which we plan to utilise

for the construction of a new

building at 90 Second Lok

Yang Way and the purchase of

machinery and equipment for

our new warehouse at 36 Tuas

Crescent among other uses.

Conditional on the completion

of the proposed subscription, I,

Mr Ong Chin Sum, entered

into a sale and purchase

agreement to sell approximately

56,217,982 shares, representing

21.29% of the existing issued

share capital of CosmoSteel,

to Hanwa at $0.58 per share.

Upon completion of the

above two transactions,

Hanwa will hold, in aggregate,

approximately 28.45% of

CosmoSteels enlarged share

capital of 290,399,997 shares.

At the same time, we have also

entered into a strategic alliance

agreement with Hanwa to

jointly reinforce marketing and

sales efforts relating to our

products. The partnership is an

exciting step forward for us as

CosmoSteel and Hanwa each

have complementary strengths

with different focus in terms of

specific markets and products.

We plan to tap on Hanwas

extensive customer network,

global reach and expertise

as a distribution specialist

to further grow our business.

Stemming from this alliance

with Hanwa, our range of

products will be expanded

horizontally to include steel

plates and sheets, enabling

CosmoSteel to reach out to

even more customers.

OUTLOOK AND STRATEGIES

CosmoSteel expects the

outlook for FY2015 to be

challenging, given the present

macroeconomic dynamics.

As highlighted in our previous

years annual report, we also

expect industry competition to

continue to step up locally and

globally.

That said, overall global

demand for steel has been

healthy and has seen a steady

uptick5 in spite of overcapacity

issues in China and softer steel

prices. There is further support

in the form of the Chinese

government putting mandates

in place to halt this growth in

steel overcapacity.6

Looking ahead, the Group

remains positive on the

prospects of our customers

in the Energy and Marine

industries, which will continue

to be important sectors for

us in FY2015. In particular, the

Group will continue to tap

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4 JOINT MESSAGE FROM THE CHAIRMAN & CEO(contd)

on the Energy industry for its

growth, driven by ongoing

global and regional exploration

and production activities.

We believe our strategy to

penetrate the upstream energy

segment to boost volume

sales in the region will pay off

given the significant order size

of each project. Despite the

greater competition present

in this market, attaining critical

mass will substantially enhance

the growth of CosmoSteel

and aid its long-term business

prospects. Already, we have

seen initial successes with this

strategy as the Group handled

orders of larger volume and

worked with multinational

customers during the year.

In terms of expanding the

pie, the Group has identified

China, the Philippines and

Vietnam as our geographical

focus given the healthy

growth potential arising from

Energy- and Marine-related

projects in the region. As such,

we plan to intensify our sales

and marketing efforts in these

markets to strengthen existing

relationships and to capture

new opportunities.

The Group will also continue

to drive forward its strategy

to be a one-stop inventory

specialist offering extensive

and ready stocks for quick

turnaround. We believe that

this is one of our strongest

draws although it comes

at a price in land-scarce

Singapore. With Hanwa as a

partner, we can better cater

to the wide-ranging needs

of our customers. Given our

requirements for substantial

warehouse space for inventory

storage, we are exploring

ways to mitigate the rising

cost of warehouse capacity

in Singapore. In line with this,

the Group has acquired the

warehouse located at 36 Tuas

Crescent. This single-storey

127,000 sq ft warehouse with

approximately 6 years left

on its tenure, will lower the

Groups overall rental costs

as well as give us scope for

greater expansion.

To protect our key

stakeholders, the Group

also upholds responsible

practices and policies as an

active corporate citizen. We

have implemented a vigorous

Enterprise Risk Management

(ERM) framework to track the

Groups risks and to ensure we

have adequate measures in

place. We have also engaged

an external professional party

to independently assess the

boards remuneration and

ensure that our practices

are aligned with industry

standards. In addition, we

have in place robust Quality,

Environmental, Occupational

Health and Safety standards

to ensure our operations are

safe and sustainable. We have

also embarked on a Business

Continuity Management

(BCM) programme to

attain the ISO 22301:2012

certification which will equip

the Group with knowledge to

respond to adverse impacts

on its operations and put in

place long-term mitigating

procedures.

Even as we pursue our

expansion plans, the Group

is ever mindful that it needs

to maintain prudence with

its financial management by

managing operating costs

and improving productivity to

ensure long-term sustainability

for the Group. We will also

need to stay especially vigilant

against financial pitfalls as we

expand into other countries in

the region. I am confident the

management and employees

will continue to demonstrate

their dedication and deliver

results in the coming years.

APPRECIATION

The last few months have

been difficult. But we are truly

blessed to have the friendship,

trust and confidence of

everyone involved with the

CosmoSteel family. To our

fellow Board members, your

constant counsel has been

invaluable. To the management

and employees of CosmoSteel,

you make this Company tick

and its successes are your

triumphs. To our business

partners, your trust in us

throughout the years has given

us the confidence to fly higher

each year. And to our

loyal shareholders, your

support and faith in the

company spur us to work

harder and achieve positive

results each year. We sincerely

and wholeheartedly thank all

of you.

As always, we look forward to

meeting you at our AGM on

30 January 2015.

LOW BENG TIN

Chairman and independent

Non-Executive director

ONG CHIN SUM

Chief Executive Officer

and Executive director

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5 World steel in figures report by World Steel Association (2014) 6 Chinas runaway steel industry by Bloomberg View (2 September 2014)

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20149302014

2014 12

3

30 2007 4

0.52014 23.8

2014

201455015760

20141.2 18.8%19.2% 3.5%3020 12.9%

25000 53800020147 902032620193

1180

2014

2014827 2416(b)

30

,

,

,

1 Fed Minutes: QE likely to end with $15B reduction in October by CNBC (9 July 2014)

2 Fed on target to raise interest rates in Spring 2015 by Forbes (27 March 2014)

3 China Iron and Steel Industry is Facing Tough Times by e-fab (22 February 2014)

4 This is subject to a minimum net profit of at least $3 million and such other conditions as set out in the dividend policy.

5 World steel in figures report by World Steel Association (2014)

6 Chinas runaway steel industry by Bloomberg View (2 September 2014)

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2014121 0.582640 201411280.390148.7264010 1420 9036 56217982 21.29 0.58 (290399997) 28.45

2015

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LOW BENG TINCHAIRMAN & INDEPENDENT NON-EXECUTIVE DIRECTOR

Re-classified as the Groups Independent Non-Executive Chairman (formerly the Non-Executive Chairman) in September 2014, Mr Low is also the Executive Chairman and Managing Director of OEL (Holdings) Limited (formerly known as Oakwell Engineering Limited), a SGX Catalist listed company which he founded in 1984. Mr Low has close to 40 years of engineering experience in the oil and gas, petrochemical, chemical and marine industries. In recognition of his contribution to the community, he was conferred the Pingat Bakti Masyarakat (The Public Service Medal) in 2004 and the Bintang Bakti Masyarakat (The Public Service Star) in 2009 by the President of the Republic of Singapore. He holds a Diploma in Electrical Engineering from Singapore Polytechnic, a Diploma in Management Studies from Singapore Institute of Management and a Master in Business Administration (Chinese Programme) from the National University of Singapore.

ONG CHIN SUMCHIEF EXECUTIVE OFFICER & EXECUTIVE DIRECTOR

A founding member of CosmoSteel in 1984, Mr Ong has been instrumental in growing the Groups business to its present scale. He is responsible for spearheading and driving CosmoSteels corporate and business strategies. Mr Ong has close to 40 years of experience in the hardware supply industry. His background includes considerable expertise and knowhow in warehousing management, technical requirements and specifications and pricing of products and services, and a wide network of manufacturers and suppliers within the industry.

BOARD OFDIRECTORS

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ONG TONG YANGEXECUTIVE DIRECTOR

Mr Ong, who joined CosmoSteel in 1999, is responsible for developing and setting the strategic directions for the sales, marketing and purchasing functions. His area of focus and responsibility has largely been in sales and marketing, in particular for project-based contracts, as well as purchasing, quality control and certification processes. Since joining the Group, he has spearheaded the growth of CosmoSteels customer base in Singapore and the region, and the Groups range of product offerings. Mr Ong holds a Diploma in Mechanical Engineering from Ngee Ann Polytechnic.

ONG TONG HAIEXECUTIVE DIRECTOR

Mr Ong, who joined CosmoSteel in 1998, spearheads the development and implementation of policies and procedures to enhance the effectiveness and efficiency of the Groups logistics and operations functions. Since joining the Group, he has been largely involved in inventory and warehousing logistics and management, information systems and technology management and administration. One of his key achievements is the implementation of the ERP system for CosmoSteels subsidiary, Kim Seng Huat Hardware Pte. Ltd., which enables the Group to monitor and keep track of its inventory on a real-time basis. He holds a Bachelor of Business (Accountancy) from the Royal Melbourne Institute of Technology, Australia.

JOVENAL R. SANTIAGO INDEPENDENT DIRECTOR

Mr Santiago was appointed Independent Director on 28 March 2007. Retired as a Public Accountant since 1998, Mr Santiago is a Certified Public Accountant in the Philippines with more than 40 years of experience in the accounting and auditing profession in Singapore and the Philippines. From 1971 to 1998, he was an audit principal of Deloitte & Touche, Singapore, where he was in charge of audit engagements of a wide portfolio of clients including several publicly listed companies. He holds a Bachelor of Science degree in Commerce from the University of Santo Tomas, Philippines and a Master of Business Administration degree from New York University, USA. Mr Santiago is also an independent director of another public company listed on the SGX-ST.

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BOARD OFDIRECTORS(contd)

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GERALDINE ONG SIEW TINGINDEPENDENT DIRECTOR

Appointed as Independent Director on 28 March 2007, Ms Ong is an Advocate and Solicitor of the Supreme Court of Singapore and a Director of Drew & Napier LLC, a firm of advocates and solicitors, heading the Real Estate Practice. Ms Ong has over 27 years of experience in the legal field handling corporate, conveyancing and commercial practice areas and has represented clients in cross border transactions. Ms Ong is also the legal advisor to The Singapore Glass Association of Singapore and a Council Member in the Advisory Board, National University of Singapore, School of Design & Environment Advancement Advisory. Ms Ong graduated from the National University of Singapore with a Bachelor of Laws (Honours) degree.

TAN SIOK CHININDEPENDENT DIRECTOR

Appointed as Independent Director of the Company on 28 March 2007, Ms Tan is an Advocate and Solicitor of the Supreme Court of Singapore and a Director of ACIES Law Corporation, a firm of advocates and solicitors, heading its corporate practice group. Ms Tan has over 20 years of experience in legal practice. Her main areas of practice are corporate finance, mergers and acquisitions, capital markets and commercial matters. Ms Tan is also an independent director of several other public companies listed on the SGX-ST. Ms Tan graduated from the National University of Singapore with a Bachelor of Law (Honours) degree.

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CORPORATEINFORMATION

BOARD OF DIRECTORS

Low Beng Tin

Chairman and Independent

Non-Executive Director

Ong Chin Sum

Chief Executive Officer and

Executive Director

Ong Tong Yang

Executive Director

Ong Tong Hai

Executive Director

Jovenal R. Santiago

Independent Director

Geraldine Ong Siew Ting

Independent Director

Tan Siok Chin

Independent Director

AUDIT COMMIT TEE

Jovenal R. Santiago

(Chairman)

Geraldine Ong Siew Ting

Low Beng Tin

Tan Siok Chin

REMUNERATION

COMMIT TEE

Geraldine Ong Siew Ting

(Chairman)

Jovenal R. Santiago

Tan Siok Chin

NOMINATING

COMMIT TEE

Tan Siok Chin

(Chairman)

Geraldine Ong Siew Ting

Jovenal R. Santiago

COMPANY SECRETARY

Lee Pih Peng, MBA, LLB

REGISTERED OFFICE

50 Raffles Place

#06-00 Singapore Land Tower

Singapore 048623

PRINCIPAL PL ACE

OF BUSINESS

14 Lok Yang Way

Singapore 628633

SHARE REGISTRAR

Boardroom Corporate &

Advisory Services Pte Ltd

50 Raffles Place

#32-01 Singapore Land Tower

Singapore 048623

AUDITORS

RSM Chio Lim LLP

8 Wilkie Road #03-08

Wilkie Edge

Singapore 228095

Partner in-Charge:

Peter Jacob

(a member of the Institute of

Singapore Chartered

Accountants)

LEGAL ADVISORS

Lee & Lee

50 Raffles Place

#06-00 Singapore Land Tower

Singapore 048623

LPP Law Corporation

Level 39 Marina Bay Financial Centre

Tower 2

10 Marina Boulevard

Singapore 018983

PRINCIPAL BANKERS

Oversea-Chinese Banking

Corporation Limited

65 Chulia Street

OCBC Centre

Singapore 049513

Standard Chartered Bank

6 Battery Road

Singapore 049909

United Overseas Bank Limited

80 Raffles Place

UOB Plaza I

Singapore 048624

INVESTOR REL ATIONS

CosmoSteel Holdings Limited

E: ir@cosmosteel.com.sg

August Consulting

Silvia Heng

(silvia@august.com.sg)

Ho Lily

(lily@august.com.sg)

WEBSITE

www.cosmosteel.com

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ENVIRONMENTAL

MANAGEMENT

PROGRAMME

To reduce water consumption on a cubic centimetres per

employee basis

To reduce paper consumption on a copies used per $1,000 of sales

revenue basis

To reduce electricity consumption on a kilowatt

per employee basis

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14

The key objectives of the

programme include:

To reduce electricity

consumption on a

kilowatt per employee

basis;

To reduce paper

consumption on a copies

used per $1,000 of sales

revenue basis; and

To reduce water

consumption on a cubic

centimetres per employee

basis.

CosmoSteel conducts in-

house awareness training for

its new employees as well

as annual refresher training

for existing employees. This

training enforces energy, water

and paper saving initiatives

such as using energy and

water conserving appliances

and going paperless where

possible. In addition,

CosmoSteel also promotes

recycling of resources and

materials across its operations.

Since March 2013, the Group

has obtained the Water

Efficient Building Certification

from PUB in recognition of its

water saving efforts.

COMMITMENT TO

THE COMMUNIT Y:

An organisations success

is not solely measured by

its financial performance

and as such, the pursuit of

profitability should not be

its singular focus. As a good

corporate citizen, CosmoSteel

is committed to conducting

our business in a manner that

best serves our stakeholders

interests.

Our Quality, Environmental

and Occupational Health

and Safety (QEHS) policies,

which integrate and manage

the issues of sustainability and

social responsibility within our

operations, provides a guiding

principle for the way the

Group conducts its business.

COMMITMENT TO

THE ENVIRONMENT:

ENVIRONMENTAL

MANAGEMENT

PROGRAMME

CosmoSteel has adopted an

Environmental Management

Programme with clear-cut

objectives and pegged to

performance indicators as part

of our efforts to achieve

a greener footprint.

CORPORATE SOCIAL RESPONSIBILIT Y (CSR)

COSMOSTEEL

CONDUCTS IN-

HOUSE AWARENESS

TRAINING FOR ITS

NEW EMPLOYEES AS

WELL AS ANNUAL

REFRESHER TRAINING

FOR EXISTING

EMPLOYEES

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COMMITMENT TO

EMPLOYEES: HEALTH AND

SAFETY MANAGEMENT

PROGRAMME

The health and safety of

our staff and visitors at our

premises continues to be

one of the most important

priorities of the Group.

To this end, CosmoSteel

has implemented a Health

and Safety Management

Programme since 2007 with

the following objectives:

To improve safety in

general work operations

by reducing the

frequency and severity

rate of accidents per

million man hours; and

To reduce the percentage

of medical visits

associated with work by

promoting healthy life-

style of employees.

CHARITABLE INITIATIVES

As part of its efforts to give

back to the community,

CosmoSteel contributed

approximately $185,000 to

various charities and charity

fund raisers over the last

three financial years. For

FY2014, the Group donated

approximately $36,500 to

various beneficiaries, one of

which was the Metta Welfare

Association, a charity that the

Group has regularly supported

over the years.

Founded in 1992, Metta

Welfare Association runs

nine welfare centres across

Singapore that serves over

1,000 beneficiaries from

various races and religions.

These centres provide disability

care for the intellectually and

physically disabled, medical

care for the elderly and the

terminally ill, intervention

programmes to young children

with special needs, and special

education for children with

mild intellectual disability or

autism spectrum disorders.

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4 CORPORATE SOCIAL RESPONSIBILIT Y (CSR)(contd)

AS PART OF ITS

EFFORTS TO GIVE BACK

TO THE COMMUNITY,

COSMOSTEEL

CONTRIBUTED

APPROXIMATELY

$185,000 TO VARIOUS

CHARITIES AND

CHARITY FUND RAISERS

OVER THE LAST THREE

FINANCIAL YEARS.

Amongst many other

initiatives, the Group promotes

health and safety through

regular in-house and external

training courses, visual

reminders and advocating

the use of proper personal

protection equipment. The

Group also ensures that it

keeps abreast of the latest

requirements from various

government agencies and

workplace safety organisations

that are relevant to its business

operations. In FY2014, new

safety practices were issued by

these authorities for which the

Group is currently undergoing

training. They include

regulations and recommended

practices pertaining to:

Working At Heights (WAH)

Company Emergency

Response Team (CERT)

Safe Loading on Vehicles

CosmoSteel also encourages

sports and recreational

activities among employees as

part of its efforts to promote

team spirit and a healthy

lifestyle. The Group signed up

for corporate programmes

with the Singapore Sports

Council to allow its employees

easy access to gym facilities

across the island.

In recognition of its strong

quality, health and safety

focus, the Group has received

numerous world-class

certifications including ISO

9002:1994 in 2000; ISO

9001:2000 in 2003; ISO

9001:2008, ISO 14001:2004

and OHSAS 18001:2007 in

2009, and bizSAFE STAR

certification in 2012.

COMMITMENT TO

SHAREHOLDERS: INVESTOR

RELATIONS PROGRAMME

The Group is committed to

providing accurate, transparent

and timely information to

shareholders to keep them

constantly updated on the

Groups performance and

strategic initiatives.

As part of our Investor

Relations (IR) Programme,

all our corporate

announcements, press

releases and presentation

slides are released on the

Singapore Exchanges

SGXNET and on our corporate

website simultaneously.

We maintain a dedicated IR

section within our corporate

website, where investors can

easily access up-to-date

information relating to the

Group. Investors can also sign

up for an email alert service

to receive the latest IR news

from CosmoSteel or connect

with our IR team, whose

contacts are listed in our

website and annual report.

On an on-going basis,

CosmoSteel actively engages

in a two-way communication

with the investment

community via face-to-

face briefings, phone calls

or emails. In addition to our

annual general meeting, we

conduct results briefings

with analysts and media on a

regular basis.

In recognition of our best

practices in corporate

transparency, CosmoSteel

was ranked 92nd out of

644 companies on the

Governance and Transparency

Index (GTI) in 2014, which

was jointly launched by

The Business Times and

the Centre for Governance,

Institutions and Organisations

(CGIO) of NUS Business

School, National University

of Singapore. The Group

achieved an overall GTI

score of 57 points in 2014,

representing an improvement

over its score of 55 in 2013.

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Analyst briefing for its FY2014 financial results

18

CUSTOMER SATISFACTION

FEEDBACK

The Group has established and implemented a system of obtaining customers satisfaction feedback through surveys

to monitor overall level of customers services, thus providing opportunities for the Group to identify potential continual

improvement to its Quality Management System

Five or more non-conformance reports reported by the

customer within the year from the last review

Top 10% of customer by sales value over a period of

12 months from the last review

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responsible for the effective

implementation of the Groups

risk management strategy,

policies and processes to

facilitate the achievement of

its business plans and goals

within the risk tolerance set

by the Board. This team is

also responsible for setting

the direction of corporate risk

management and monitoring

the implementation of

risk management policies

and procedures. The Risk

Management Team provides

quarterly updates to the Audit

Committee and the Board

where there may be areas of

concern arising in relation to

any of the identified key risks

factors, if any, which the Audit

Committee and the Board

should take note of.

In FY2013, the Group engaged

an external consultant,

Deloitte & Touche Enterprise

Risk Services Pte Ltd to

conduct a rigorous company-

wide risk assessment review

to evaluate and ascertain the

main risk categories pertinent

in the current business

environment as well as

ascertain the robustness of the

Groups mitigating practices.

As part of this exercise, the

Group has set out key risk

factors that it faces in its

business and operations and

categorised them according

to compliance, financial and

operational risks; ranking

of the risk factors in terms

of their relative importance

or implications for the

Group should such risks

materialise; and the risk

mitigating practices (where

applicable) which may be

in place to address such

risks. The Company has also

requested its internal auditors,

Nexia TS Public Accounting

Corporation, to take such risk

factors into consideration in

drawing up the annual internal

audit plan, so that there is a

system and process review

of the identified key risk

areas. In the event that the

Group intends to enter into

any new markets, business

venture or business sector, the

Group may, where necessary

or appropriate, appoint

and commission external

professional parties to review

or advise on, inter alia, any

additional areas of risk factors

to consider in connection with

such forays.

COMPLIANCE RISKS

The regulatory landscape

is constantly evolving and

the Group remains vigilant

in tracking regulatory

developments to ensure

that it stays in compliance

with law, standards and/

or requirements issued by

regulators that are applicable

to its business. The Groups

Company Secretary advises

the Board on changes in

legal and regulatory

issues while its external

auditors provide changes

in accounting standards

to management for their

consideration.

To better manage compliance

risk oversight, the Audit

Committee of the Group has

requested its internal auditors

to assist the Management

in evaluating and assessing

the effectiveness of internal

controls implemented by

the Company, including

review of the adequacy and

effectiveness of the Groups

systems of internal controls

to identify risks of non-

compliance in various areas.

In line with CosmoSteels

commitment to deliver

sustainable value to its

shareholders as a public-

listed company and protect

stakeholders interests, the

Group is fully committed to

a robust system of internal

controls and risk management.

The Group has set in place an

Enterprise Risk Management

(ERM) Framework consisting of

potential risks and mitigating

best practices, to provide

guidance to all its business

divisions to identify and

manage the risks they face

during the course of day-to-

day operations and long-term

business planning.

The ERM is administered

by a Risk Management

Team comprising members

from Management who are

RISKMANAGEMENT

THE REGULATORY

LANDSCAPE IS

CONSTANTLY EVOLVING

AND THE GROUP

REMAINS VIGILANT IN

TRACKING REGULATORY

DEVELOPMENTS TO

ENSURE THAT IT STAYS

IN COMPLIANCE WITH

LAW, STANDARDS AND/

OR REQUIREMENTS

ISSUED BY REGULATORS

THAT ARE APPLICABLE

TO ITS BUSINESS.

The Group is ISO14001:2004

and OHSAS 18001:2007

certified. To ensure compliance

with Environmental Health and

Safety laws and regulations,

the Group subscribes to

quarterly updates with Neville-

Clark (Singapore) Pte Ltd

and undergoes surveillance

audits by BVQI annually and

recertification audits every

three years.

The Group also ensures that

the terms and conditions of

its contractual agreements

are reviewed by its Finance

Department and/or external

lawyers, where applicable,

before acceptance to ensure

adherence with applicable

laws and regulations.

The Company has also put in

place a whistle blowing policy

and has implemented relevant

procedures, as approved by

the Audit Committee and

adopted by the Board, for

the purposes of handling

complaints, concerns or

issues relating to activities or

affairs relating to the business,

customers, suppliers, partners

or associates, activities or

affairs of the Group or conduct

of any officer, Management or

employee of the Group. Staff

of the Group has access to the

Company Secretary and may,

in confidence, raise concerns

about possible improprieties

in any such corporate matters

by sending an email or a letter

in writing to the Company

Secretary, who would re-direct

and/or send such email or

letter in writing to the Audit

Committee (in the event such

concerns relates to any of the

Directors or the Chief Financial

Officer of the Company) or the

whistle blowing committee

(for all other concerns), as the

case may be. During FY2014,

there were no complaints,

concerns or issues received.

In addition, as part of our

ISO9001 policy, a customer

satisfaction survey is done

annually to determine our

customers level of satisfaction

with our services.

The Group also ensures that

its Employees Health and

Welfare benefits are in keeping

with regulations and industry

standards. It maintains Human

Resource practices to ensure

employee benefits are in place

and healthcare insurance

is taken out for eligible

employees. In addition, the

Groups overall compensation

and benefits structure follows

closely the basic requirements

by the Ministry of Manpower

(MOM). The Group also

receives regular updates from

MOM.

OPERATIONAL RISKS

The space-intensive nature

of the Groups operations,

namely storing and dealing

with large transactions of bulky

materials on-site, poses several

inherent risks it has to cater

for. Being highly important

to the Groups reputation for

on-time delivery, product

quality and the conduct of

its business, supply chain

management is handled by

the adequate sourcing of

accredited suppliers in line

with its ISO9001 policy and

effective planning of inventory

stock and costs.

Human resources is also high

on the agenda of the Group as

it searches for quality people

to add to its workforce and

retain its valued employees. To

this end, the Group ensures it

has training and development

programmes beyond the

scope required by authorities

and has implemented a Health

and Safety Management

programme. In addition,

CosmoSteel provides highly

incentivised working benefits

which include insurance,

medical and dental coverage.

The Group also has a

robust Sales, Marketing and

Communication strategy in

place to ensure its message to

stakeholders are aligned and

it delivers on its sales targets.

In order to achieve this, it

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4 RISKMANAGEMENT(contd)

has a sales strategy based on

regular management review

and a greatly incentivised

remuneration based on

achieving sales targets.

The Group has also established

and implemented a system

of obtaining customers

satisfaction feedback through

surveys to monitor overall

level of quality work and

services, thus providing

opportunities for the Group

to identify potential continual

improvement to its Quality

Management System. The

feedback obtained is evaluated

to assess customer perception

and brought up for discussion

during the management

review. Where appropriate,

other means of monitoring

customer satisfaction may be

identified on an ad-hoc basis.

The selection for conducting

customer satisfaction survey

is based on the following

criteria:

Top 10% of customer by

sales value over a period

of 12 months from the

last review

Five or more non-

conformance reports

reported by the customer

within the year from the

last review

CosmoSteel actively seeks

to reduce its operational

impact on the environment,

and has stringent corporate

responsibility and sustainability

practices in place to manage

its industrial waste by recycling

and reusing where possible

and engaging licensed waste

collectors.

To safeguard the Groups

legal interests, CosmoSteel

hires professionals such as

lawyers and accountants

who are able to provide their

professional advice in relation

to operational risks. To ensure

continuous operationality,

the Groups IT infrastructure

is partially outsourced to

professional vendors ensuring

reliability of our IT systems

and installation of stringent

security measures to prevent

information leaks or losses.

In addition, the Groups

inventories are protected by

adequate insurance covering

all industrial risks in addition

to its utilisation of on-site

security devices.

Understanding that many

of its operational risks can

be inter-related, the Group

has decided to synergise the

way it currently manages

the fragmented mitigating

procedures under a single

process. To this end, the

Group has embarked on

a Business Continuity

Management (BCM)

programme to attain the

ISO 22301:2012 certification.

Undertaking this certification

will improve the Groups

resilience to business

disruptions, minimising the

negative impacts of these

disruptions and ensuring

rapid recovery of critical

business functions.

FINANCIAL RISKS

Cashflow health is vital to

every trading business. To

mitigate liquidity risks, the

Group employs a tight capital

management system to

ensure that it has sufficient

working capital to meet

debt obligations. The Group

also pays close attention to

critical financial ratios such as

inventory turnover, accounts

receivable/payable, gearing

and current ratio for the

early detection of red flags.

Information on the Groups

Key Performance Indicators

and ratios are reported

regularly to the Board.

As a steel pipe, fittings and

flanges stockist, CosmoSteels

business performance is only

as good as the relevance

of the inventory stock

it maintains. To remain

resilient amidst changing and

increasingly diverse customer

demands and an uncertain

global economy, the Group

constantly keeps itself abreast

of market conditions, and stays

close to its customers through

regular visits and tracking of

their purchasing patterns. This

is to ensure that CosmoSteel

continues to stock up

inventory that is relevant

to its existing and potential

customers.

The Group also has a stringent

credit policy in place that

covers credit evaluation,

approval and monitoring, as a

safeguard to minimise all credit

risks. In FY2013, the Group has

taken up trade credit insurance

on its trade receivables which

covers protracted default and

insolvency, depending on the

customers credit worthiness

and credit limit history.

In anticipation of unforeseen

financial losses, the Group

adopts hedging policies

and is insured in relation

to the following: workmen

compensation; product

liability; directors and

executive officers liability;

loss of keyman insurance;

industrial risks; marine

insurance; vehicles insurance;

trade credit insurance; as well

as travel, health and personal

accidents insurance for

the Group.

21

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GROSSPROFIT

EARNINGSPER

SHARE

NETPROFIT

REVENUE

2.130.2m

5.5m

157.6m

$

$

$

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FINANCIALHIGHLIGHTS

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FY2

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FY2

012

FY2

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FY2

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5.4

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24

KEY REVENUE

DRIVERS

ENERGY INDUSTRY

MARINE INDUSTRY

Against a backdrop of ongoing exploration and

production activities worldwide, the Energy and

Marine segments continued to be the main revenue

generator for the Group in FY2014, collectively

accounting for 95.1% or $150.0 million of total

Group revenue

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150.0m

$

OPERATING &FINANCIAL REVIEW

A REVIEW

OF FY2014

Despite a business environment

that remained competitive

and challenging, CosmoSteel

achieved revenue of $157.6

million for the financial year

ended 30 September 2014

(FY2014), a slight increase

of 1.2% as compared to the

preceding financial year

(FY2013).

The higher revenue was

propelled by the Energy and

Marine industries in which the

Group has a strong foothold

in. In terms of geographical

locations, Singapore,

Vietnam and Other markets,

predominantly made up by

China and the Philippines,

were the main drivers behind

CosmoSteels revenue growth.

On the back of this revenue

growth, the Groups gross

profit and gross profit margins

turned in a better performance

in FY2014, with gross profit

increasing 3.5% to $30.2 million

in FY2014, and a corresponding

0.4 percentage point increase

in gross profit margin to reach

19.2%.

CosmoSteel has sustained

a healthy profitable streak

since its listing in FY2007.

However, due to higher

distribution and administrative

expenditures that comprised

warehouse rental, employee

costs and depreciation on

its properties, CosmoSteels

earnings fell 12.9% to $5.5

million.

Higher warehouse rental was

incurred during FY2014, as

the Group has expanded its

warehousing capacity to cater

for a wider range of products

in anticipation of evolving

customer demands. This,

coupled with the hiring of new

managers for its Sales divisions,

pushed up distribution costs

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by 10.7% to $11.1 million in

FY2014.

Administrative expenses

increased 10.2% year-on-

year (y-o-y) to $11.0 million

in FY2014 which resulted

from higher depreciation

on properties, hiring of new

managers for its Information

Technology, Human Resource

and Finance Divisions, as well

as bonus payments as a form of

employee retention incentive,

augmenting employee costs.

Finance costs rose 7.7% to $1.5

million mainly from higher

interest paid on long-term

loans.

As a result of foreign currency

gains, the Group recorded a

credit of $0.1 million in FY2014

as compared to a charge of

$0.6 million in FY2013.

INCOME STATEMENT

GROUP

FY2014S$000

FY2013S$000

Change%

Revenue 157,642 155,712 1.2

Cost of sales (127,409) (126,514) 0.7

Gross profit 30,233 29,198 3.5

Other Items of Income

Interest Income 39 25 56.0

Other Items of Expense

Finance Costs (1,460) (1,356) 7.7

Distribution Costs (11,146) (10,070) 10.7

Administrative Expenses (10,991) (9,977) 10.2

Other Credits/ (Charges) - Net 148 (559) (126.5)

Profit Before Tax from Continuing Operations 6,823 7,261 (6.0)

Income Tax Expense (1,283) (897) 43.0

Profit from Continuing Operations, Net of Tax 5,540 6,364 (12.9)

26

REVENUE ANALYSIS

BY CUSTOMER T YPE

Over the years, CosmoSteel

has cultivated solid and

longstanding relationships

with its customers, many of

which are blue chips hailing

from the Energy and Marine

Sectors in the region.

Against a backdrop of

ongoing exploration and

production activities

worldwide, the Energy and

Marine segments continued

to be the main revenue

generator for the Group

in FY2014, collectively

accounting for 95.1% of total

Group revenue at about

$150.0 million.

Specifically, with an

incremental revenue growth

of 1.2% to $128.0 million, the

Energy segment remains the

major revenue contributor at

a share of 81.2%, consistent

with FY2013. Revenue from

the Marine segment climbed

2.5% to $21.9 million which

represents 13.9% of total

revenue.

FY2014 FY2013 Change

S$000 S$000 S$000 %

Energy 128,023 126,454 1,569 1.2

Marine 21,948 21,416 532 2.5

Trading 6,689 5,722 967 16.9

Others 982 2,120 (1,138) (53.7)

Total Revenue 157,642 155,712 1,930 1.2

REVENUE BY CUSTOMER T YPE

REVENUE BY CUSTOMER T YPE (%)

4.2 Trading 0.7 Others

2014

81.2

13.9

Energy

Marine

3.7 Trading 1.4 Others

2013

81.2

13.7

Energy

Marine

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REVENUE ANALYSIS BY

GEOGRAPHICAL MARKET

The Groups geographical

revenue contribution is

recorded based on the

domicile of the customers and

not where the products are

ultimately put into use.

In FY2014, Singapore remained

the biggest contributor to the

Groups revenue, accounting

for 60.3% of total revenue, a

notch higher than the 42.6%

recorded in FY2013.

Besides Singapore, the Group

also derived substantially

higher sales revenue from

Vietnam and Others markets

including China, the Philippines

and New Zealand, largely

driven by Energy-related

projects.

REVENUE BY GEOGRAPHICAL MARKET (%)

FY2014 FY2013 Change

S$000 S$000 S$000 %

Brunei 8,635 14,191 (5,556) (39.2)

Europe 874 2,758 (1,884) (68.3)

Indonesia 1,662 4,593 (2,931) (63.8)

Japan 4,725 36,873 (32,148) (87.2)

Malaysia 750 2,068 (1,318) (63.7)

Middle East 84 49 35 71.4

Singapore 95,118 66,306 28,812 43.5

Thailand 123 251 (128) (51.0)

Vietnam 22,466 10,650 11,816 110.9

Others 23,205 17,973 5,232 29.1

Total Revenue 157,642 155,712 1,930 1.2

REVENUE BY GEOGRAPHICAL MARKET

The Others market was the

second largest contributor

to Group revenue after

Singapore, representing 14.7%

of total revenue. Revenue

from this segment increased

29.1% y-o-y to $23.2 million.

Vietnam was the third most

significant revenue contributor

to the Group in FY2014,

accounting for 14.3% of total

revenue as compared to 6.8%

in FY2013. Revenue from

this emerging market soared

110.9% to hit $22.5 million in

FY2014.

The Singapore, Vietnam and

Others markets collectively

accounted for 89.3% of total

revenue to the Group, as

compared to 60.9% in FY2013.

These markets and the Middle

East reported higher revenue

whilst the other markets saw a

decline in FY2014.

Revenue contribution from the Middle East and Thailand were not plotted as the figures were not material

Revenue contribution from the Middle East was not plotted as the figure was not material

60.3 42.6Singapore Singapore

2014

2013

14.3

6.8

5.5 9.1

23.7

0.6 Europe

1.8 Europe

1.1 Indonesia

3.0 Indonesia

0.2Thailand

3.0 Japan0.5 Malaysia

1.3 Malaysia

14.7 11.5

Vietnam

Vietnam

Others Others

BruneiBrunei

Japan

28

GROUP

FY2014S$000

FY2013S$000

Change%

ASSETS

Non-Current Assets

Property, Plant and Equipment 24,063 20,502 17.4

Available-For-Sale Financial Assets 130 130 N.A.

Total Non-Current Assets 24,193 20,632 17.4

Current Assets

Inventories 109,214 119,819 (8.9)

Trade and Other Receivables 41,171 29,503 39.5

Financial Assets at Fair Value

Through Profit or Loss 1,454 1,492 (2.5)

Other Assets 1,368 486 181.5

Cash and Cash Equivalents 33,177 20,444 62.3

Total Current Assets 186,384 171,744 8.5

Total Assets 210,577 192,376 9.5

EQUITY AND LIABILITIES

Equity

Share Capital 42,062 42,062 N.A

Retained Earnings 50,642 47,000 7.7

Other Reserves 14,380 10,302 39.6

Total Equity 107,084 99,364 7.8

Non-Current Liabilities

Deferred Tax Liabilities 3,556 2,735 30.0

Provisions 64 - 100

Other Financial Liabilities 4,679 5,064 (7.6)

Total Non-Current Liabilities 8,299 7,799 6.4

Current Liabilities

Income Tax Payable 1,537 1,289 19.2

Trade and Other Payables 25,976 23,905 8.7

Other Liabilities 2,190 355 516.9

Other Financial Liabilities 65,491 59,618 9.9

Finance Leases - 46 n.m.

Total Current Liabilities 95,194 85,213 11.7

Total Liabilities 103,493 93,012 11.3

Total Equity and Liabilities 210,577 192,376 9.5

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STATEMENT OF FINANCIAL POSITION

OPERATING &FINANCIAL REVIEW(contd)

N.A.: Not applicable / n.m.: Not meaningful

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FINANCIAL POSITION

ANALYSIS

CosmoSteel upheld a strong

financial position in FY2014,

improving shareholders equity

to $107.1 million at the end of

FY2014, up 7.8% from $99.4

million as at the end of FY2013.

With upward revaluation of the

Groups leasehold properties

offsetting depreciation,

non-current assets increased

17.4% to $24.2 million in

FY2014.

An increase in the Groups

trade and other receivables

as well as cash and cash

equivalents boosted current

assets by 8.5% to $186.4

million in FY2014. Trade and

other receivables increased

39.5% to $41.2 million, with

the bulk of trade receivables

(76.4%) not due for payment

or have been overdue for less

than 30 days.

As the Group adopted more

stringent controls on its

inventory procurement,

while at the same time

ensuring competitiveness

through its ready stocks and

timely delivery turnaround,

inventories decreased 8.9% to

$109.2 million. This reduction

in inventories was the main

driving factor behind the

62.3% jump in cash and cash

equivalents to $33.2 million in

FY2014.

Non-current liabilities

increased by 6.4% to $8.3

million in FY2014 mainly from

an increase in deferred tax

which resulted from upward

revaluations of the leasehold

properties of the Group in

FY2014.

Similarly, current liabilities

increased 11.7% to $95.2

million in FY2014. The

increase was mainly

attributable to both short term

borrowings and trade and

other payables. Other current

financial liabilities increased

9.9% to $65.5 million from

the drawdown of short-term

loans which were not due for

repayments. Trade and other

payables also increased by

8.7% to $26.0 million in

FY2014 mainly from longer

credit terms extended by

suppliers.

CASHFLOW ANALYSIS

CosmoSteels management

team maintains constant

vigilance over cashflow

balances to ensure the Group

stays in a healthy financial

position with adequate

cashflow for the sound

operation of its business.

In the financial year under

review, net cashflow from

operating activities surged

by $10.7 million y-o-y to $13.9

million in FY2014, primarily

as a result of reduced

inventories.

To enhance CosmoSteels

service capabilities, the Group

purchased testing equipment

during the financial year,

resulting in an increase in net

cash used in investing activities

to $0.4 million, compared with

$0.2 million in FY2013.

To finance the long-term

expansion of the Group, long-

term borrowings increased,

translating to less net cash

being used in financing

activities in FY2014 at $0.8

million, in comparison with

$2.2 million in FY2013.

S$000 FY2014 FY2013

Net cash flows from operating activities 13,925 3,198

Net cash flows used in investing activities (378) (179)

Net cash flows used in financing activities (829) (2,200)

Net increase in cash and cash equivalents 12,718 819

Cash at end of the year* 33,107 20,389

* Excluding cash restricted in use over three months

STATEMENT OF CASH FLOWS

CORPORATEGOVERNANCE

The Company is committed to good standards of corporate governance to enhance corporate

performance and accountability. The Company has adopted principles and practices of corporate

governance in line with the recommendations of the Code of Corporate Governance 2012 (the

Code) issued by the Corporate Governance Committee as part of its continuing obligations as a

listed company under the listing manual (the SGX-ST Listing Manual) of the Singapore Exchange

Securities Trading Limited (SGX-ST).

The SGX-ST Listing Manual requires an issuer to describe their corporate governance practices

with specific reference to the principles of the Code in its annual report, as well as disclose and

explain any deviation from any guideline of the Code.

This statement outlines the policies adopted during the financial year ended 30 September 2014

(FY2014) and practised by the Group with specific reference to the relevant provisions of the

Code.

BOARD MAT TERS

Principle 1: Boards Conduct of its Affairs

The board of directors of the Company (the Board) effectively leads the Company, working

together with the Companys senior management (the Management) to achieve success for the

Company and its subsidiaries (the Group). Management remains accountable to the Board.

In addition to its statutory duties, the Boards principal functions are:-

a) to provide guidance and entrepreneurial leadership for the purposes of the Groups strategic

plans, key operational initiatives, major investments and divestments and funding requirements

and to ensure that the necessary financial and human resources are in place for the Group to

meet its objectives;

b) to approve the budget, review the performance of the business and the release of the financial

results of the Group to shareholders;

c) to provide guidance in the overall management of the business and affairs of the Group and to

review Managements performance;

d) to establish a framework of prudent and effective controls to assess, manage and oversee

processes for risk management, financial reporting and compliance;

e) to set and adopt, from time to time, internal guidelines for the relevant matters and the type of

material transactions that require Board approval, on a case by case basis as applicable;

f) to set the Companys values and standards and to provide guidance to Management to ensure

that the Companys obligations to its shareholders and the public are met; and

g) to approve the recommended framework of remuneration for the Board and key management

personnel proposed by the Remuneration Committee.

The Board has adopted a set of internal guidelines setting forth matters that require its approval.

Matters which are specifically reserved to the Board for approval include but are not limited to the

following:

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i) any proposed acquisitions and disposal of assets;

ii) any proposed changes in the capital of the Company;

iii) any interested person transaction (as defined under chapter 9 of the Listing Manual);

iv) dividends and other returns to shareholders; and

v) capital expenditure or commitment exceeding S$1 million per transaction which is not

considered to be in the ordinary course of business.

No new Directors have been appointed to the Board since the initial public offering of the

Companys shares in June 2007. Newly appointed Directors, if any, will be briefed on the history

and business operations and corporate governance practices of the Group. All Directors will, if

necessary, be briefed on or memoranda will be circulated to the Directors to update them from

time to time on legal or regulatory changes, where such changes have a material bearing on the

Company. The Company will issue a formal letter of appointment to new Directors setting out

their duties and obligations when they are appointed.

The Board is supported by three sub-committees, namely the Audit Committee, the Nominating

Committee and the Remuneration Committee, whose powers, functions and duties are described

below. The Board and sub-committees of the Board (Committees) meet regularly throughout

the year. Ad hoc meetings and/or discussions (including via email correspondences) are convened

when circumstances require. Details relating to the number of Board and Committee meetings

held during FY2014 and the attendance of the Directors are set out on page 36 of this Report.

The Company takes up directors and officers (D&O) liability insurance of an appropriate quantum

to cover the Board in the discharge of their duties.

Principle 2: Board Composit ion and Guidance

The Board exercises objective judgment independently from Management on corporate affairs of

the Group and no individual or small group of individuals dominate the decisions of the Board.

As at the date of this Report, the Board comprises seven Directors, four of whom are independent

non-executive Directors (Independent Non-Executive Directors), representing at least one-third

of the Board.

The Directors in office at the date of this Report are:

Executive DirectorsDate of First Appointment as Director

Date of Last Re-Appointment as Director

Mr Ong Chin Sum 09 November 2005 23 January 2013

Mr Ong Tong Yang 09 November 2005 17 January 2014

Mr Ong Tong Hai 09 November 2005 17 January 2014

Independent Non-Executive Directors

Date of First Appointment as Director

Date of Last Re-Appointment as Director

Mr Low Beng Tin 09 November 2005 23 January 2013

Ms Geraldine Ong Siew Ting 28 March 2007 17 January 2014

Mr Jovenal R. Santiago 28 March 2007 17 January 2014

Ms Tan Siok Chin 28 March 2007 23 January 2013

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There are no permanent alternate Directors. Further information about each Director is found

under the section on Board of Directors on pages 10 to 12 of this Report. Further information on

the shareholding held by each Director in the Company and its related corporations is found on

page 49 of this Report.

The Nominating Committee determines on an annual basis whether or not a Director is

independent. The criterion for independence is based on the definition given in the Code and

guidance thereunder as to relationships the existence of which would deem a director not to be

independent. The Board considers an Independent Non-Executive Director as one who, inter

alia, has no relationship with the Company, its related corporations, its 10% shareholders or its

officers that could interfere, or be reasonably perceived to interfere, with the exercise of the

Directors independent business judgment with a view to the best interests of the Company. In

line with the guidance in the Code, the Board takes into account the existence of relationships

or circumstances that are relevant in its determination as to whether a Director is independent,

including the employment of a Director by the Company or any of its related corporations during

the financial year in question or any of the previous three financial years; the acceptance by a

Director of any significant compensation from the Company or any of its related corporations for

the provision of services during the financial year in question or the previous financial year, other

than compensation for board service; and a Director being related to any organisation from which

the Company or any of its subsidiaries received significant payments or material services during

the financial year in question or the previous financial year.

The Nominating Committee carried out the review on the independence of each Independent

Non-Executive Director in November 2014 based on the foregoing considerations, the respective

Directors self-declaration in the Directors Independence Checklist and their actual performance

on the Board and Committees, and is satisfied that the Independent Non-Executive Directors are

able to act with independent judgment.

With effect from 4 September 2014, Mr Low Beng Tin, formerly the non-executive Chairman of the

Board, was re-classified as an Independent Non-Executive Director of the Company. The factors

taken into consideration for determining his independence for the purpose of the re-classification

were set out in the Companys announcement dated 4 September 2014. In addition, as Mr Low

Beng Tin, who was appointed to the Board on 9 November 2005, has served on the Board for

more than nine years, the Board had reviewed his independence taking into consideration, inter

alia, the criterion for independence as provided for under the Code and as further elaborated

above, and was satisfied that Mr Low has, and will continue to exercise independent business

judgment with the view to the best interests of the Company, notwithstanding the length of tenure

of his service.

The Board is of the view that given the nature and scope of the Groups operations, the present

Board size of seven members is appropriate for the Company and to provide for effective

decision-making. Given the diverse qualifications, experience, background and profile of the

Independent Non-Executive Directors, the Board collectively possesses core competencies in

areas such as accounting or finance, legal and regulatory matters, risk management, business or

management experience and industry knowledge. As such, the Board is of the opinion that the

current Board members as a group provides an appropriate balance and diversity of the relevant

skills, experience and expertise for effective management of the Group.

Management regularly puts up proposals or reports for the Boards consideration and approval

(where appropriate), for instance, proposals on the annual budget of the Group, proposals relating

to specific proposed transactions or general business direction or strategy of the Group, as well

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as regular reports or updates on the Groups inventory management and risk management.

Independent Non-Executive Directors, when presented with these proposals or reports for their

consideration, evaluate the proposals or reports made by Management and these Directors also

review the performance of Management in meeting agreed goals and objectives and monitor the

reporting of performance and, where appropriate, provide guidance to Management on relevant

aspects of the Groups business. In addition, Independent Non-Executive Directors meet regularly

without the presence of Management, in the meetings with the external auditors and internal

auditors at least annually and on such other occasions as may be required.

Principle 3: Chairman and Chief Executive Officer

The Independent Non-Executive Chairman and the Chief Executive Officer of the Company are

separate individuals. As the most senior executive in the Company, the Chief Executive Officer, Mr

Ong Chin Sum, assumes executive responsibilities for the Groups performance and the Groups

business. As the Chairman, Mr Low Beng Tin leads the Board, ensures that the Directors receive

accurate, timely and clear information, encourages constructive relations between the Board

and Management, as well as between Board members, ensures effective communication with

shareholders and endeavours to promote a high standard of corporate governance.

The Chairman also ensures that Board meetings are held regularly and on an ad hoc basis where

required and, when necessary, sets the Board meeting agendas in consultation with the Chief

Executive Officer. The Chairman presides over each Board meeting and ensures full discussion of

agenda items. Management staff, as well as external experts who can provide additional insights

into the matters to be discussed, are invited when necessary, to attend at the relevant time during

the Board meetings. In assuming their roles and responsibilities, the Chairman and the Chief

Executive Officer consult with the Board and the Committees on major issues.

Principle 4: Board Membership

The Company has established a Nominating Committee. The Nominating Committee comprises

three Directors, all of whom, including its Chairman, are Independent Non-Executive Directors.

As at the date of this Report, the members of the Nominating Committee are:

Ms Tan Siok Chin / Chairman

Ms Geraldine Ong Siew Ting

Mr Jovenal R. Santiago

The Nominating Committee is governed by written terms of reference under which it is

responsible for:

a) determining annually, and as and when circumstances require, whether a Director is

independent, and providing its views to the Board in relation thereto for the Boards

consideration;

b) reviewing the independence of any director who has served on the Board for more than

nine (9) years from the date of his first appointment and the reasons for considering him as

independent;

c) where a Director or proposed Director has multiple board representations, deciding whether

the Director is able to and has been adequately carrying out his duties as a Director, taking

into consideration the Directors number of listed company board representations and other

principal commitments;

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d) where the appointment of an alternate Director to a Director is proposed, determining whether

the alternate Director is familiar with the Companys affairs, appropriately qualified and (in the

case of an alternate Director to an independent) whether the alternate Director would similarly

qualify as an independent Director, and providing its views to the Board in relation thereto for

the Boards consideration;

e) making recommendations to the Board on relevant matters relating to:

i. the review of board succession plans for directors, in particular, the Chairman and for the

CEO;

ii. the development of a process for evaluation of the performance of the Board, its board

committees and directors;

iii. the review of training and professional development programs for the Board; and

iv. the appointment and re-appointment of directors (including alternate directors, if

applicable);

f) proposing objective performance criteria for evaluation of the Boards performance as a whole

which allows for comparison with industry peers and address how the Board has enhanced

long-term shareholder value;

g) carrying out, at least annually, a formal assessment of the performance and effectiveness of the

Board as a whole and its board committees and (if applicable) the contributions of individual

Directors to the effectiveness of the Board, based on the process implemented by the Board; and

h) based on the results of the performance evaluation, providing its views and recommendations

to the Board, including any appointment of new members.

Each member of the Nominating Committee will abstain from voting on any resolution (if

applicable) in respect of the assessment of his performance or re-nomination as Director.

The Board has implemented certain performance criteria and process recommended by the

Nominating Committee for evaluation and assessment of the effectiveness and performance of

the Board as a whole. The performance criteria which the Board has adopted include the Boards

ability to discharge their duties in terms of timeliness and effective communications with third

parties such as shareholders and the regulatory authorities, each individual Directors commitment

of time to attending Board and Committee meetings and contributions to discussions at Board

and Committee meetings, a