annual report 2016 - singapore exchange · this annual report has not been examined or approved by...

ANNUAL REPORT 2016

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Corporate Profile and Business Overview

Letter to Shareholders

Operations and Financial Review

Board of Directors

Corporate Information

Corporate Governance Report

Directors’ Statement

Independent Auditor’s Report

Statement of Financial Position

Consolidated Statement of Comprehensive Income

Consolidate Statement of Changes in Equity

Consolidated Statement of Cash Flows

Notes to the Financial Statements

Statistics of Shareholdings

Notice of Annual General Meeting

Proxy Form

CONTENTS

This Annual Report has been prepared by the Company and its contents have been reviewed by the Company’s Sponsor, PrimePartners

Corporate Finance Pte. Ltd. (the “Sponsor”) for compliance with the Singapore Exchange Securities Trading Limited (the “SGX-ST”)

Listing Manual Section B: Rules of Catalist. The Sponsor has not verified the contents of this Annual Report.

This Annual Report has not been examined or approved by the SGX-ST. The Sponsor and the SGX-ST assume no responsibility for the

contents of this Annual Report including the accuracy, completeness or correctness of any of the information, statements or opinions

made or reports contained in this Annual Report.

The contact person for the Sponsor is Mr. Lance Tan, Director, Continuing Sponsorship (Mailing Address: 16 Collyer Quay, #10-00

Income At Raffles, Singapore 049318 and E-mail: [email protected]).

ANNUAL REPORT 2016 01

Established in the 1970s, Serrano Limited (“Serrano” or the “Company” and, together with its subsidiaries, the “Group”) provides interior fit-out solutions for property development and refurbishment projects in Singapore and Southeast Asia.

Some of the Group’s past projects include D’Leedon, The Interlace, Reflections at Keppel Bay, Ritz-Carlton Residences and

ICON @ Tanjong Pagar in Singapore; the Star City Thanlyin township development and Traders Hotel (now known as the

Sule Shangri-La Hotel) in Yangon, Myanmar; The Estella condominium in Vietnam; and The Met condominium and The River

condominium in Thailand.

The Company is listed on the Catalist of the Singapore Exchange Securities Trading Limited since 28 October 2014.

BUSINESS OVERVIEW

The Group’s two business segments are the Interior Fit-Out Business and the Wholesale and Retail Furnishings Business.

Interior Fit-Out Business

The Group customises, manufactures, supplies, and installs panelling products for kitchen cabinets, wardrobes, vanity cabinets,

doors, and doorframes (“Panelling Products”) in the residential, hospitality, retail, and commercial sectors. It also constructs

and installs interior fit-out works for interior spaces on a turnkey basis, including supplying and installing Panelling Products,

other furnishings, ceilings, floors, partitions, and mechanical and electrical works.

Wholesale and Retail Furnishings Business

Complementing the Interior Fit-Out Business, the Group designs, manufactures and supplies a wide range of furnishings for

home, office and commercial use to various wholesale and retail customers.

CORPORATE PROFILE AND BUSINESS OVERVIEW

DEAR SHAREHOLDERS,

On behalf of the Board of Directors (the “Board”) of Serrano Limited (the “Company” and together with its subsidiaries, the

“Group”), we present to you the Group’s annual report for the financial year ended 31 December 2016 (“FY2016”).

Year in Review

It was a difficult year for the Group in FY2016 as revenues declined 82% to S$17.2m and total comprehensive losses increased

290% to S$114.9m. The Group began to face cash flow difficulties towards the end of FY2015 and even though the Group

managed to raise funds of S$8.2m in September 2015 through a rights issue, these funds were insufficient to enable the Group

to complete its projects. Whilst the Group was very successful in winning many interior fit-out contracts, it would appear that

a combination of poor project management and production quality issues affected the Group’s ability to complete its projects.

The resulting cost overruns, back charges, liquidated damages, contract terminations and write-downs of trade receivables and

amounts due from contract customers led to the losses reported for FY2016.

In order to restructure its debts, the Group entered into proposed Schemes of Arrangement (the “Schemes”) which was approved

by the Scheme Creditors on 26 October 2016. The Schemes called for a new investor to inject S$8.0m cash in exchange for

70% of the enlarged share capital of the Company post-scheme, with the Scheme Creditors receiving 25% of the same. An

investor expressed interest but withdrew before the Schemes were sanctioned by the High Court.

The Schemes were sanctioned by the High Court on 2 February 2017 when new investors were found (“New Investors”). Due

diligence performed by the New Investors quantified liabilities that have been excluded from the Schemes previously. Given that

the New Investors came in only after the Schemes were approved, the New Investors sought to reach individual settlements

with Non-Scheme Creditors, offering the same terms as the Scheme Creditors at the expense of the New Investors. However,

it soon became clear that a consensus could not be reached. Therefore, the New Investors requested the Group to appoint

new professionals for the Schemes, in order to begin the formal process of amending the Schemes to include the Non-Scheme

Creditors. FTI Consulting (Singapore) Pte Ltd was appointed as the new Scheme Manager on 21 September 2017 to take the

process forward, with Lawcraft LLC acting as legal advisors. The amended Schemes were passed by creditors on 20 December

2017, and sanctioned by the High Court of Singapore on 23 February 2018 and the Orders of Court were lodged with ACRA on

6 March 2018, upon which the Schemes have taken effect and are binding on the relevant parties.

Moving Forward

Over the next 12 months, the Board will work towards reviving the Group’s business. Additionally, as highlighted in the Schemes,

the Group is finalizing discussions for the acquisition of Sinbor Company Pte Ltd (“Sinbor”), a company principally engaged

in the supply of wall and floor finishes such as natural stone, tiles, wood, and bathroom products, business activities that are

synergistic and complementary to the Group’s current business. The Group also plans to expand its product range and develop

other complementary businesses, i.e. other building related activities for both the projects and retail renovation markets, so as to

leverage on the interior fit-out track record of the Group. Whilst market conditions remain challenging, the recent signs of revival

in the property market are encouraging and the Group intends to position itself quickly to capture these opportunities.

SERRANO LIMITED02

LETTER TO SHAREHOLDERS

Other than the above steps to revive the Group’s business, the Company is also working towards the resumption of trading for

the shares of the Company, following which various fund raising exercises as well as business diversification activities can be

reviewed and undertaken by the Company so as to bring back the confidence of shareholders.

Appreciation

We are grateful to the former Board members who stayed on to see the Company through the restructuring of the Group,

especially former Chairman Irving Choh, former Executive Director Karen Chia, former Independent Director James Kho, former

Independent Director Joshua Ong and to Advisor Winston Chia Wing Keong.

To the new Board, we are grateful that you are willing to serve and help to revive the Group.

To our bankers, we thank you for supporting the amendments to the Schemes so that the Group can move on to fight another

day. We look forward also to your continuing support as we seek to revive the Group’s business.

To our business associates and partners, we thank you also for supporting the amended Schemes and we look forward to

working with you again.

Last but not least, to our shareholders, we pledge our commitment to bringing back the value lost.

Winston Tan Tien Hin

Non-executive Director and Interim Chairman


LETTER TO SHAREHOLDERS

Revenue mix by business segment and by geography has

not changed significantly in that interior fit out projects in

Singapore remains the largest contributor to the Group’s

revenue.

By the end of FY2015, the Group was facing cash flow

difficulties and found it difficult to complete its interior fit out

contracts. It would appear that a combination of poor project

management and production quality led to this situation. The

resulting cost overruns, back charges, liquidated damages,

contract terminations and write-downs of trade receivables

and amounts due from contract customers led to the steep

FINANCIAL PERFORMANCE

Revenue by Business Segments

Revenue by Geographical Segments

FY 2016

FY 2016(S$’000)

FY 2015

FY 2015(S$’000)

15%

1,635

Singapore

Interior Fit Out S$14.7m Interior Fit Out S$90.9m

SingaporeVietnam VietnamMyanmar MyanmarOthers

Wholesale and Retail Furnishing S$2.5m Wholesale and Retail Furnishing S$3.8m

Others

13,385

342 2,195

138 1,535

4%

85%

15,118

77,548

96%

decline in revenue and significantly higher comprehensive loss

for FY2016.

The Group’s revenue for FY2016 decreased by S$77.5m (82%)

to S$17.2m compared to S$94.7m in FY2015 as existing

interior fit-out contracts were terminated and the Group was

unable to secure new contracts.

Costs of sales for FY2016 remained high at S$98.7m despite

the decline in revenue as charges arising from project delays,

quality issues and overhead costs continued to be incurred. In

particular, there was a charge of S$33.5m of overhead costs

SERRANO LIMITED04

OPERATIONS AND FINANCIAL REVIEW

in relation to the reversal of revenue recognized in prior periods

for four projects that were subjected to a reduction in scope of

work or contractual terminations.

Gross loss increased by S$68.3m (518%) to S$81.5m

compared to S$13.2m in FY2015 due to the factors above.

Other expenses increased by S$16.8m (308%) to S$22.3m

compared to S$5.5m in FY2015 due mainly to bad debts

written off (S$857k), late payment interest charges and fines

(S$1.4m), impairment losses on doubtful third parties trade

receivables (S$5.3m), other third party receivables (S$1.8m),

charges arising from corporate guarantee provided by

Serrano Holdings attributable to Sorrento Vietnam (S$4.6m),

impairment losses on available-for-sale financial assets

relating to the Company’s investment in J-Plan Associates

Pte Ltd (S$1.5m), plant and machinery (S$4.7m), intangible

assets (S$518k) and written off property, plant and equipment

(S$689k).

Finance costs decreased by S$946k (19%) to S$4.0m

in FY2016 compared to S$5.0m in FY2015 due to lower

utilization of term loans and trade-based credit facilities as

project activity declined in FY2016.

As at 31 December 2016, the Group’s leasehold properties

were revalued downwards by S$2.2m based on valuation

performed by an independent valuer on 27 February 2017.

As a result of the above, the total comprehensive loss for

FY2016 was S$114.9m.

Financial Position

By the end of FY2016, the Group had appointed a Scheme

Manager in order to propose a restructuring of its debts via

the Schemes of Arrangement (the ‘Schemes”) under Section

210(1) of the Companies Act (Cap. 50).

As a result, non-current assets of the Group were nil as at

31 December 2016 compared to S$13.9 as at 31 December

2015 due mainly to the reclassification of the Group’s two

leasehold properties at 49 Sungei Kadut Loop and 16 Sungei

Kadut Way to non-current assets held for sale (S$6.7m). In

addition, non-current assets relating to plant and machinery

(S$4.7m), available-for-sale financial assets relating to the

Company’s investment in J-Plan Associates Pte Ltd (S$1.5m)

and intangible assets relating to goodwill of the “Sanzio” trade

name (S$518k) were fully impaired to nil.

Current assets decreased by S$90.1m to S$7.6m as at 31

December 2016 compared to S$97.7m as at 31 December

2015 mainly due to decreases in inventory (S$1.2m), trade

and other trade receivables (S$18.2m) and amounts due from

contract customers (S$69.3m) as project activity declined and

impairment losses increased. Cash and cash equivalents and

fixed deposits decreased by S$8.1m as bank borrowings were

repaid. These were offset by the reclassification of the Group’s

leasehold properties to current assets (S$6.7m) from non-

current assets.

Non-current liabilities were nil compared to S$1.5m as at 31

December 2015 mainly due to the reclassification of the non-

current portion of finance lease payables and bank borrowings

to current liabilities, as well as a reversal of deferred tax liability

as a result of the Group’s losses.

Current liabilities increased by S$12.4m to S$117.2m as at 31

December 2016 compared to S$104.8m as at 31 December

2015 due to reclassification of non-current liabilities and the

net increase in amounts owing to the Scheme Creditors as

recorded in the Group’s management accounts in relation to

the claims adjudication process under the Schemes.

Equity attributable to shareholders declined to a deficit of

S$109.6m as at 31 December 2016 compared to a surplus of

S$5.3m as at 31 December 2015 due to the comprehensive

losses attributable to shareholders for FY2016 of S$114.9m.

Cashflow

The Group’s net cash from operating activities was S$2.8m

in FY2016 as project activity declined, compared to net cash

used in operating activities of S$4.0m in FY2015 after adjusting

for impairment losses and working capital changes.

Net cash used in investing activity was S$864k in FY2016

compared to S$501k in FY2015 mainly due to payment in part

for previously purchased automation equipment (S$1.3m),

partially offset by lower sales proceeds from disposal of motor

vehicles (S$381k).

Net cash used in financing activity was S$5.4m in FY2016

compared to S$963k in FY2015 due mainly to interest

payments of S$4.0m and repayments of borrowings and

finance leases of S$10.3m, offset by decrease in fixed deposits

pledged of S$5.7m and proceeds from borrowings of S$3.2m.


OPERATIONS AND FINANCIAL REVIEW

Winston Tan Tien Hin was appointed as Non-Executive Director of the Company on 2

November 2015 and was designated Interim Chairman on 16 January 2018 whilst the

Company undergoes restructuring. He is the founder and Managing Director of Winmark

Investments Pte Ltd and Corporate Brokers International Pte. Ltd., which are involved in

angel and private equity investments with high growth needs. Mr Tan sits on the board of

several SGX-ST listed companies, namely Roxy-Pacific Holdings Limited and Plastoform

Holdings Limited. Mr Tan has over 24 years of corporate and investment banking

experience. His previous appointments include being general manager of Deutsche

Bank AG (Singapore Branch), vice-president in Citibank N.A. and director of Singapore

Technologies Engineering Ltd. Mr Tan graduated from the University of Singapore with a

Bachelor of Science (Physics) degree and completed an Executive Development Program

at Columbia University in New York.

WINSTON TAN TIEN HIN

Non-Executive Director &

Interim Chairman

BOARD OF DIRECTORS

Ong Kian Guan was appointed as Lead Independent Director of the Company on 10

October 2014. He has been an audit partner of Baker Tilly TFW LLP since 2005, where he

heads the Assurance services. He is a practising member and a fellow of the Institute of

Singapore Chartered Accountants (the “ISCA”). He has more than 24 years of professional

experiences in financial audits of multinational corporations and public listed companies

from diverse industries. His experiences also includes consultancy, particularly initial public

offerings of companies, financial due diligence and outsourced internal audit assignments.

He is currently an independent director and the audit committee chairman of various public

listed companies.

Mr. Ong was admitted as a fellow of the Institute of Singapore Chartered Accountants

in January 2010. He obtained a Bachelor’s degree in accountancy from Nanyang

Technological University in Singapore in May 1992.

ONG KIAN GUAN

Lead Independent Director

SERRANO LIMITED06

REGISTERED OFFICE

7 Sungei Kadut Crescent

Singapore 728696

Tel : 62573384

Fax: 62572534

BOARD OF DIRECTORS


Non-Executive Director

& Interim Chairman

Ong Kian Guan

Lead Independent Director

AUDIT COMMITTEE

Ong Kian Guan, Chairman


NOMINATING COMMITTEE



REMUNERATION COMMITTEE



COMPANY SECRETARY

Elaine Beh Pur-Lin

COMPANY REGISTRATION NUMBER

201223004Z

SPONSOR

PrimePartners Corporate Finance Pte. Ltd.

16 Collyer Quay

#10-00 Income at Raffles

Singapore 049318

SHARE REGISTRAR AND SHARE TRANSFER OFFICE

Boardroom Corporate & Advisory

Services Pte. Ltd.

50 Raffles Place

#32-01 Singapore Land Tower

Singapore 048623

INDEPENDENT AUDITORS

BDO LLP

Public Accountants and

Chartered Accountants

600 North Bridge Road

#23-01 Parkview Square

Singapore 188778

Partner-in-charge: Leong Hon Mun Peter

(Appointed since the financial year ended

31 December 2012)


CORPORATE INFORMATION

CORPORATE GOVERNANCE REPORT

SERRANO LIMITED8

The Board of Directors (the “Board” or “Directors”) of Serrano Limited (the “Company” and, together with its subsidiaries, the “Group”)

is committed to maintaining high standards of corporate governance and places importance on its corporate governance processes and

systems so as to ensure greater transparency, accountability and maximisation of long-term shareholder value.

This report outlines the Company’s corporate governance practices that were in place during the fi nancial year ended 31 December 2016

(“FY2016”) with specifi c reference made to the principles of the Code of Corporate Governance 2012 (the “Code”) and the disclosure

guide developed by the Singapore Exchange Securities Trading Limited (the “SGX-ST”) in January 2015 (the “Guide”).

The Company has complied with the principles and guidelines as set out in the Code and the Guide, where applicable. Appropriate

explanations have been provided in the relevant sections below where there are deviations from the Code and/or the Guide.

Schemes of Arrangement

In FY2016, the Group has been experiencing tough operating conditions. Its tight liquidity position has stretched the performance of

ongoing projects, whilst not being able to secure new projects as a result of its fi nancial diffi culties.

Following the suspension of trading of the Company’s shares on 16 June 2017, the Company has pursuant to Section 210 of the

Companies Act (Cap. 50) of Singapore, been working with the new investors on the respective amended schemes of arrangement of the

Company and its wholly-owned subsidiary, Serrano Holdings Pte Ltd (“Schemes”), for the purposes of restructuring the Group’s debt

obligations and liabilities, and rehabilitation of its business operations.

On 20 December 2017, the scheme creditors approved the proposed Schemes at the respective court meetings. Subsequently on

23 February 2018, the Schemes were approved and sanctioned by the High Court of Singapore (the “Orders”) and the Orders were

lodged with ACRA on 6 March 2018. Accordingly, the Commencement Date (as defi ned in the respective Schemes Documents dated

28 November 2017 (“Schemes Documents”)) is 6 March 2018.

For further information on the Schemes, shareholders should refer to the Company’s SGXNET announcements and the respective

Schemes Documents, together with the explanatory statements to the Scheme Documents.

A. BOARD MATTERS

The Board’s Conduct of its Affairs

Principle 1: Every company should be headed by an effective Board to lead and control the company. The Board is collectively

responsible for the long-term success of the company. The Board works with Management to achieve this objective and the

Management remains accountable to the Board.

The primary function of the Board is to provide effective leadership and direction for the overall business and corporate affairs of the Group

to enhance the long-term value for the Company’s shareholders (“Shareholders”) and the Group’s stakeholders. Besides carrying out its

statutory responsibilities, the Board’s role is to:

Provide leadership and guide the formulation of the Group’s corporate strategy, business directions, risk management policies and

implementation of corporate objectives;

Ensure and monitor the effectiveness of management (“Management”) and oversee succession planning for Management;

Establish and oversee the processes of evaluating the adequacy of internal controls, risk management, fi nancial reporting and

compliance;

Review and approve, inter alia, the release of the interim and full year results announcements, the annual report and fi nancial

statements, material acquisitions and disposals of assets, diversifi cation of business and interested person transactions of the

Group;



Review and approve the annual budget;

Conduct periodic reviews of the Group’s fi nancial performance against the budget, internal controls and compliance with the

relevant statutory and regulatory requirements;

Consider sustainability issues of policies and proposals where appropriate;

Approve nominations to the Board and appointment of key management personnel;

Ensure the Group’s compliance with all relevant and applicable laws and regulations; and

Assume responsibility for corporate governance of the Group.

The Board has delegated certain responsibilities to the various board committees (“Board Committees”), which operate under clearly

defi ned terms of reference. These terms of reference are reviewed on a regular basis to ensure their continued relevance. The effectiveness

of each Board Committee is also reviewed by the Board. The three (3) Board Committees are:

the Audit Committee (“AC”);

the Nominating Committee (“NC”); and

the Remuneration Committee (“RC”)

The Board acknowledges that the Board Committees play an important role in ensuring good corporate governance of the Group and

actively engages the Board Committees on matters pertaining to the Group. The Board also acknowledges that while these Board

Committees have the authority to examine specifi c issues and report back to the Board with their decisions and recommendations, the

ultimate responsibility on all matters lies with the Board. Minutes of all Board Committee meetings held are made available to the Board

members.

The Board meets at least two (2) times a year to review and approve, inter alia, the half-year and full year results of the Group. The

Board also meets as warranted by circumstances to supervise, direct and control the Group’s business and affairs. Apart from approvals

obtained at Board meetings, important matters are also put to the Board for approval by way of circulating resolutions in writing together

with all relevant information pertaining to the matter. As provided in the Company’s Constitution, the Board may convene telephonic and

videoconferencing meetings as necessary.

The attendance of the Directors at meetings of the Board and Board Committees, as well as the frequency of such meetings held during

FY2016 are as follows:

BoardAudit

CommitteeNominatingCommittee

RemunerationCommittee

No. of meetings held 3 2 1 1

No. of meetings attended by the Directors

Choh Thian Chee Irving(1) 2 1 1 1

Ong Kian Guan 3 2 1 1

James Kho Chung Wah(2) 3 2 1 1

Tan Tien Hin Winston 3 2* 1* 1*

Chia Lay Kiong (Xie Lijuan)

(“Karen Chia”)(3)

Not applicable Not applicable Not applicable Not applicable

Winston Chia Wing Keong

(“Winston Chia”)(4)

3 2* 1 1*

Johnston Chia Wing Hock

(“Johnston Chia”)(5)

3 2* 1* 1*

Eugene Tse Yue-Jen

(“Eugene Tse”)(6)

3 2* 1* 1*

* By invitation


SERRANO LIMITED10

Notes:

(1) Choh Thian Chee Irving ceased to be the Independent Chairman of the Company on 16 January 2018. Concurrently, he relinquished his positions as

the RC Chairman and member of the AC and NC respectively.

(2) James Kho Chung Wah ceased to be the Independent Director of the Company on 16 January 2018. Concurrently, he relinquished his positions as the

NC Chairman and member of the AC and RC respectively.

(3) Karen Chia was appointed as the Executive Director of the Company on 24 November 2016. She ceased to be the Executive Director of the Company

on 16 January 2018.

(4) Winston Chia ceased to be the Executive Director and Chief Executive Offi cer (“CEO”) of the Company on 15 December 2016. Concurrently, he

relinquished his position as member of NC.

(5) Johnston Chia ceased to be the Executive Director of the Company on 17 November 2016. Subsequent to his cessation as Executive Director of the

Company, he was appointed as Senior Manager (Operations) of the Group on 24 November 2016.

(6) Eugene Tse ceased to be the Executive Director of the Company on 4 November 2016.

The Board has adopted a set of internal guidelines setting forth matters that require the Board’s review and approval. Matters that are

specifi cally reserved for the Board’s decision are those involving material acquisitions, disposals and funding proposals, diversifi cation

of business, reviewing and approving the Group’s corporate policies, monitoring the performance of the Group and transactions with

interested persons, share issuances, dividend release or changes in capital, budgets , fi nancial results announcement, annual report and

audited fi nancial statements, capital expenditures, capital borrowings and fi nancial commitments, and those relating to investment, funding,

legal and corporate secretarial matters.

The Board will review these internal guidelines on a periodic basis to ensure their relevance to the operations of the Group. All Directors

are required to objectively discharge their duties and responsibilities at all times as fi duciaries and take decisions in the interests of the

Company.

Management keeps the Directors up-to-date on pertinent developments in the Group’s business, including changes in laws and

regulations, fi nancial reporting standards and industry-related matters. Periodic updates are also provided to the Directors to facilitate the

discharge of their duties, responsibilities and obligations. Directors are encouraged to keep abreast of developments in regulatory, legal

and accounting frameworks that are of relevance to the Group through the extension of opportunities by the Company for participation in

training courses, seminars and workshops as relevant and/or applicable. The Company will arrange and will bear the cost of such training

for the Directors.

Newly appointed Directors will be provided with a formal letter setting out their duties and obligations. Orientation programs (including

onsite visits of the Group’s operational facilities and briefi ngs by Management) are also conducted for newly appointed Directors to provide

them with background information about the Group’s business operations, strategic direction, core values, corporate governance practices

as well as industry-specifi c knowledge.

Board Composition and Guidance

Principle 2: There should be a strong and independent element on the Board, which is able to exercise objective judgement

on corporate affairs independently, in particular, from Management and 10% shareholders. No individual or small group of

individuals should be allowed to dominate the Board’s decision making.



As at 30 December 2016, the Board comprises one (1) Executive Director, one (1) Non-Executive Director and three (3) Independent

Directors. For FY2016, the membership of the Directors on the Board Committees are as follows:

Name of Director Board Membership

Audit

Committee

Nominating

Committee

Remuneration

Committee

Karen Chia(1) Executive Director – – –

Choh Thian Chee Irving(2) Independent Director and Independent

Chairman

Member Member Chairman

Ong Kian Guan Lead Independent Director Chairman Member Member

James Kho Chung Wah(3) Independent Director Member Chairman Member

Tan Tien Hin Winston Non-Executive Director – – –

Winston Chia(4) Executive Director and CEO – Member –

Johnston Chia(5) Executive Director – – –

Eugene Tse(6) Executive Director – – –

Notes:

(1) Karen Chia was appointed as the Executive Director of the Company on 24 November 2016. She ceased to be the Executive Director of the Company

on 16 January 2018.





(4) Winston Chia ceased to be the Executive Director and Chief Executive Offi cer (“CEO”) of the Company on 15 December 2016. Concurrently, he

relinquished his position as member of NC.

(5) Johnston Chia ceased to be the Executive Director of the Company on 17 November 2016. Subsequent to his cessation as Executive Director of the

Company, he was appointed as Senior Manager (Operations) of the Group on 24 November 2016.


For FY2016, the NC has reviewed and is satisfi ed that the composition and size of the Board and Board Committees are appropriate for

effective decision making, having taken into consideration the nature and scope of the Group’s operations, the balance and diversity of,

amongst other factors, skills, experience and gender.

In FY2016, the Board comprised Directors who are qualifi ed and experienced in various fi elds including accounting and fi nance, legal,

business and management experience and the requisite industry knowledge. Therefore, the NC was of the view that the Board comprised

members who as a group possesses core competencies necessary to lead and manage the Group effectively. Further, the Independent

Directors made up the majority of the Board and provided the Board with independent and objective judgement in the corporate affairs of

the Group.

The independence of each Director is assessed and reviewed at least annually by the NC. In its deliberation as to the independence of a

Director, the Board takes into account existence of relationships, including those identifi ed by the Code that are relevant in its determination

as to whether a Director is independent.

The NC has reviewed and confi rmed the independence of the Independent Directors in accordance with the Code. The Independent

Directors have also confi rmed their independence as such. None of the Independent Directors have any relationship with the Company or

its related corporations, its 10% Shareholders or its offi cers that could interfere or be reasonably perceived to interfere with the exercise of

their independent business judgement with a view to the best interests of the Group.

There are no Directors who are deemed independent by the Board, notwithstanding the existence of a relationship as stated in the Code

that would otherwise deem him not to be independent.

There is no Independent Director who has served on the Board beyond nine (9) years from the date of his fi rst appointment.


SERRANO LIMITED12

Chairman and Chief Executive Offi cer

Principle 3: There should be a clear division of responsibilities between the leadership of the Board and the executives

responsible for managing the company’s business. No one individual should represent a considerable concentration of power.

The Chairman and Executive Director of the Company are separate individuals. Their roles and responsibilities are clearly defi ned to ensure

a balance of power and authority within the Board.

For FY2016, the Independent Chairman of the Board was Choh Thian Chee Irving. As the Chairman, he assumed responsibility for the

smooth functioning of the Board, ensured the timely fl ow of information between Management and the Board, set the agenda for Board

meetings, ensured suffi cient allocation of time for thorough discussion of each agenda item, promoted a culture of openness and debated

at the Board and cultivated high standards of corporate governance.

Karen Chia was appointed as Executive Director of the Company on 24 November 2016. As the Executive Director of the Company, she

was involved in the overall management of the Group’s business operations even as she continued to oversee the Group’s Wholesale and

Retail Furnishings Business as the Group’s Wholesale and Retail Furnishings Director, a position held since June 2012. As the Wholesale

and Retail Furnishings Director, she was responsible for leading the day-to-day sales and operations of the Group’s Wholesale and Retail

Furnishings Business, and involved in expanding the Group’s clientele base.

The Board appointed Ong Kian Guan as the Lead Independent Director of the Company to co-ordinate and lead the Independent Directors

to provide a non-executive perspective and contribute to a balance of viewpoints on the Board. He is the principal liaison in the event that

any issues arise between the Independent Directors and the other Directors. He is available to address the concerns of Shareholders,

employees or other persons in the event that interactions with the Executive Director and/or the Group Financial Controller (the “FC”) has

failed to satisfactorily resolve their concerns or where such channel of communications is considered inappropriate. Ong Kian Guan will

also take the lead in ensuring compliance with the Code.

The Non-Executive Directors meet on a need-to basis amongst themselves and with the Company’s external auditors and internal auditors

without the presence of Management to discuss matters such as the Group’s fi nancial performance, corporate governance and risk

management initiatives, Board processes, any internal audit observations, succession planning as well as leadership development and the

remuneration of the Executive Director, and thereafter the Lead Independent Director would provide feedback to the Chairman after such

meetings.

Board Membership

Principle 4: There should be a formal and transparent process for the appointment and re-appointment of directors to the Board.

In FY2016, the NC comprises the following four (4) members, three (3) of whom, including the NC Chairman, are Independent Directors:

James Kho Chung Wah(1) (Chairman)

Ong Kian Guan (Member)

Choh Thian Chee Irving(2) (Member)

Winston Chia Wing Keong(3) (Member)

Notes:





(3) Winston Chia ceased to be the Executive Director and CEO of the Company on 15 December 2016. Concurrently, he relinquished his position as

member of NC.



The NC has adopted written terms of reference defi ning its membership, administration and duties. Some of the key duties and

responsibilities of the NC include:

reviewing the structure, size and composition of the Board and Board Committees and making recommendations to the Board,

where appropriate;

evaluating whether or not a Director is able to and has been adequately carrying out his duties as a Director of the Company;

developing processes for evaluating the performance of the Board, the Board Committees and Directors and implementing such

processes for assessing the effectiveness of the Board as a whole and the contribution of each individual Director;

nomination and re-nomination of Directors having regard to their contribution and ability to commit suffi cient time and attention

to the affairs of the Group, taking into account their respective commitments outside of the Group and the roles and scope of

responsibilities of such commitments;

determining the independence of the Directors, taking into consideration guidance from the Code and any other salient factors, at

least on an annual basis;

reviewing training and professional development programmes for the Board;

reviewing and approving any new employment of persons related to the Directors, CEO and substantial shareholders of the

Company (“Substantial Shareholders”) and the proposed terms of their employment;

reviewing and making recommendations to the Board on relevant matters relating to the succession plans of the Board and key

executives; and

performing such other duties or functions as may be delegated by the Board or required by regulatory authorities.

The NC is responsible for identifying candidates and reviewing all nominations for the appointment of Directors. When a vacancy on the

Board arises or when the Board is considering making a new Board appointment either to enhance the core competency of the Board or

for purpose of progressive renewal of the Board, the NC will review and assess candidates before making recommendations to the Board.

In recommending new appointments to the Board, the NC takes into consideration the balance and diversity of skills, calibre, experience,

expertise, attributes, ability and gender, amongst other factors, required to support the Group’s business activities or strategies, the current

composition and size of the Board, and strives to ensure that the Board has an appropriate balance of Independent Directors.

In identifying suitable candidates, the NC may:

advertise or use the services of external advisors to facilitate a search; and

consider candidates from a wide range of backgrounds from internal or external sources.

After shortlisting the candidates, the NC shall consider and interview candidates on merit against objective criteria, taking into consideration

whether the candidate can devote suffi cient time and attention to the affairs of the Group, to assess their suitability. The NC would

recommend the selected candidate to the Board for consideration and approval.

The role of NC also includes the recommendation of Directors for retirement by rotation pursuant to the Constitution of the Company. In

reviewing the re-nomination of Directors, the NC will take into consideration the results of the assessment conducted on the Board as a

whole and the various Board Committees, the Directors’ independence, contribution, performance (such as attendance and participation at

Board meetings and other board appointments and principal commitments outside of the Group) and any other factors as may be deemed

relevant by the NC.


SERRANO LIMITED14

Pursuant to the Constitution of the Company, at least one-third of the Board members are to retire from offi ce by rotation and be subject

to re-election by the Shareholders at every Annual General Meeting (“AGM”). In addition, the Constitution of the Company provides that a

newly appointed Director must retire and submit himself/herself for re-election at the next AGM following his/her appointment. Thereafter,

he is subject to re-election at least once every three (3) years. Directors who are due for retirement shall abstain from voting on any

resolution in respect of their re-appointment as a Director.

In this respect, the NC has recommended and the Board has agreed for the following Directors to retire and seek re-election at the

forthcoming AGM:

Pursuant to Article 98 of the Constitution of the Company:

Ong Kian Guan

Ong Kian Guan, being a member of the NC, had abstained from deliberation in respect of his nomination and assessment.

All Directors are required to declare their board representations. The Board has not set a numerical limit on the number of listed company

board representations each Director may hold. It will do so when deemed necessary. The NC is of the view that it is for each Director to

assess his own capacity and ability to undertake other obligations or commitments together with serving on the Board effectively. The NC

does not wish to omit from consideration outstanding individuals who, despite the demands on their time, have the capacity to participate

and contribute as members of the Board.

For FY2016, the NC has reviewed and is satisfi ed that notwithstanding their multiple board appointments and principal commitments,

Choh Thian Chee Irving, Ong Kian Guan, James Kho Chung Wah and Tan Tien Hin Winston, who sit on multiple boards of listed

companies outside of the Group, have been able to devote suffi cient time and attention to the affairs of the Group to adequately discharge

their duties as Directors of the Company. The Company does not have any alternate Directors as the Board does not encourage the

appointment of alternate Directors unless in exceptional cases.

As at the date of this Annual Report, key information of each member of the Board is set out below:

Name of Director

Date of fi rst

appointment

Date of last

re-election

Present directorships and

chairmanships in other listed

companies

Directorships and

chairmanships in other listed

companies over the preceding

three years

Ong Kian Guan 10 October 2014 27 April 2015 Director of and Chairman of Audit

Committee for:

(i) Alliance Mineral Assets

Limited

(ii) China XLX Fertiliser Ltd.

(iii) WeiYe Holdings Limited

(iv) RMH Holdings Limited

(v) IAG Holdings Limited

Director of and Chairman of Audit

Committee for China Haida Ltd.

Tan Tien Hin Winston 2 November 2015 29 April 2016 Non-Executive Chairman of

Plastoform Holdings Limited

Director of Roxy-Pacifi c Holdings

Limited

–

The profi les of the Directors are set out on page 07 of this Annual Report.



Board Performance

Principle 5: There should be a formal annual assessment of the effectiveness of the Board and its board committees as a whole

and the contribution by each Director to the effectiveness of the Board.

The NC has established a review process to assess the performance of the Board as a whole and the Board Committees on an

annual basis. The Board assesses, amongst others, the Board structure, operation, value and responsibilities of the Board and Board

Committees and the performance objectives of the Board. All Directors are requested on an annual basis to complete a Board assessment

checklist designed to seek their views on the various performance criteria set by the Board, so as to assess the overall performance and

effectiveness of the Board. The checklists are completed and submitted to the company secretary (the “Company Secretary”) for collation

and the consolidated responses are presented to the NC for review and discussion before making any recommendations to the Board.

The performance criteria will not change from year to year unless they are deemed necessary and the Board is able to justify the changes.

The key objective of the evaluation exercise is to obtain constructive feedback from each Director to continually improve the Board’s

performance against certain short and long-term fi nancial and non-fi nancial performance indicators and to identify areas for improvement

and to implement appropriate action.

The NC has decided unanimously that the Directors will not be evaluated individually, as each member of the Board and Board

Committees contributes in different aspects to the success of the Group, and therefore, it would be more appropriate to assess the

Board and Board Committees as a whole. Following its review, the NC is of the view that in FY2016, the Board and its Board Committees

operate effectively and despite multiple board representations in certain instances, each Director has been adequately contributing to the

overall effectiveness and objectives of the Board.

The Board has not engaged any external facilitator in conducting the assessment of the Board’s performance. Where relevant, the NC will

consider such engagement.

Access to Information

Principle 6: In order to fulfi ll their responsibilities, directors should be provided with complete, adequate and timely information

prior to Board meetings and on an on-going basis so as to enable them to make informed decisions to discharge their duties and

responsibilities.

Management recognizes the importance of ensuring the fl ow of complete, adequate and timely information to the Directors on an on-going

basis to enable them to make informed decisions in discharging their duties and responsibilities. Regular updates on the Group’s fi nancial

performance, position and prospects, amongst others, are provided to the Directors by Management at the Board and Board Committee

meetings. To allow the Directors suffi cient time to prepare for the meetings, all Board and Board Committee papers are distributed to the

Directors in advance of the meetings. Any additional material or information requested by the Directors is promptly furnished.

Board papers, if required, will be prepared and furnished to the Board for approval providing background and explanatory information

such as facts, resources needed, risk analysis and mitigation strategies, fi nancial impact, regulatory implications, expected outcomes,

conclusions and recommendations. Employees and professional advisors who can provide additional insight into matters to be discussed

will be present at the relevant time during the Board and Board Committee meetings. In order to keep Directors abreast of the Group’s

operations and to ensure that the Board is fully cognizant of the decisions and actions of the Management, Directors are also updated on

initiatives and developments on the Group’s business, as well as the fi nancial performance, position and prospects of the Group as soon

as practicable and/or possible and on an on-going basis.

To facilitate direct access to Management, Directors are also provided with the names and contact details of Management. All

Directors have unrestricted access to the Group’s records and information. The Directors also have separate and independent access

to the Company Secretary, the Company’s external auditors and other professional advisors, where relevant. The Company Secretary

assists in ensuring good information fl ows within the Board and Board Committees and between the Management and Directors. The

Company Secretary will assist the Board to ensure that Board procedures are observed and that the Company’s Constitution, relevant

rules and regulations including the Catalist Rules, are complied with. The Company Secretary also assists the Board in implementing and

strengthening corporate governance practices and processes, with a view to enhancing long-term Shareholders’ value.


SERRANO LIMITED16

As secretary for the Board Committees, the Company Secretary assists in ensuring co-ordination and liaison between the Board, the

Board Committees and Management. The Company Secretary assists the Directors, the Chairman of each Board Committee and

Management in the development of the agendas for the various Board and Board Committee meetings.

The appointment and removal of the Company Secretary are subject to the approval of the Board. The Directors either individually or as a

group have the right to seek independent legal and/or professional advice in the furtherance of their duties. The cost of such services will

be borne by the Company.

B. REMUNERATION MATTERS

Procedures for Developing Remuneration Policies

Principle 7: There should be a formal and transparent procedure for developing policy on executive remuneration and for fi xing

the remuneration packages of individual directors. No director should be involved in deciding his own remuneration.

For FY2016, the RC comprises the following three (3) members, all of whom are Independent Directors:

Choh Thian Chee Irving(1) (Chairman)

Ong Kian Guan (Member)

James Kho Chung Wah(2) (Member)

Notes:

(1) Choh Thian Chee Irving ceased to be the Independent Chairman of the Company on 16 January 2018. Concurrently, he relinquished

his positions as the RC Chairman and member of the AC and NC respectively.

(2) James Kho Chung Wah ceased to be the Independent Director of the Company on 16 January 2018. Concurrently, he relinquished

his positions as the NC Chairman and member of the AC and RC respectively.

The RC has adopted written terms of reference defi ning its membership, administration and duties. Some of the key duties and

responsibilities of the RC include:

reviewing and recommending to the Board for endorsement, a framework of remuneration for the Board and key management

personnel of the Group. The framework covers all aspects of remuneration, including but not limited to Director’s fees, salaries,

allowances, bonuses, share options, share-based incentives and awards and other benefi ts-in-kind with a goal to motivate, recruit

and retain employees through competitive compensation and progressive policies;

reviewing and recommending to the Board the remuneration packages of employees related to Directors, CEO and/or Substantial

Shareholders, to ensure that their remuneration packages are in line with the Group’s staff remuneration guidelines and

commensurate with their respective job scopes and levels of responsibility;

reviewing and approving any bonuses, pay increases and/or promotions for employees related to the Directors, CEO and/or

Substantial Shareholders;

administering the performance share plan and any other share option scheme or share plan established from time to time, in

accordance with the rules of such share plan or share option scheme and the Catalist Rules; and




Level and Mix of Remuneration

Principle 8: The level and structure of remuneration should be aligned with the long-term interest and risk policies of the

company, and should be appropriate to attract, retain and motivate (a) the directors to provide good stewardship of the

company, and (b) key management personnel to successfully manage the company. However, companies should avoid paying

more than is necessary for this purpose.

The RC has full authority to engage any external professional advice on matters relating to remuneration as and when the need arises.

The expense of such services will be borne by the Company. The Group does not intend to use contractual provisions to allow it to

reclaim incentive components of remuneration from the Executive Director(s) and key management personnel in exceptional circumstances

of misstatement of fi nancial results, or of misconduct resulting in fi nancial loss to the Group. The Executive Director(s) owes a fi duciary

duty to the Company, and the Company should be able to avail itself to remedies against the Executive Director(s) in the event of such

breach of fi duciary duties. In addition, the Company has in place alternative corporate governance practices described herein, such as

the establishment of whistle-blowing policies, rigorous selection criteria of its Directors and key management personnel by the NC, private

discussions between the Independent Directors with the external auditors and the granting of full access to all employees and documents

of the Group to the Directors, as checks and balances to prevent the occurrence of such instances.

As part of its review, the RC ensures that the Directors and key management personnel are adequately but not excessively remunerated

as compared to industry benchmarks and other comparable companies. The RC also takes into consideration the Group’s relative

performance and the performance of individual Directors and key management personnel.

On 15 October 2014, the Company had entered into separate service agreements with its former Directors, Winston Chia, Johnston

Chia and Eugene Tse (collectively, the “Former Executive Directors”) in relation to their then appointments as Executive Directors of the

Company. The service agreements were valid for an initial period of three (3) years with effect from the date of admission of the Company

to Catalist. Based on the terms of their service agreements, the Former Executive Directors were entitled to a basic monthly salary and an

annual fi xed bonus of one (1) month’s basic salary. They were also entitled to receive a performance bonus based on the Group’s audited

consolidated profi t before tax before payment of any performance bonus (“PBT”), provided that the director was under the employment of

the Group on the last day of the relevant fi nancial year.

The amount of performance bonus would have been determined as follows:

Amount of performance bonus

Where PBT is equal to

S$3 million or less than

S$6 million


S$6 million or less than

S$9 million


S$9 million or more

Performance bonus payable An amount equivalent to three (3)

months’ salary

An amount equivalent to fi ve (5)

months’ salary

An amount equivalent to eight (8)

months’ salary

In view of the Group’s fi nancial diffi culties, the Former Executive Directors have in FY2016, agreed to a reduction of their basic monthly

salaries.

Winston Chia, Johnston Chia and Eugene Tse ceased to be Executive Directors of the Company on 15 December 2016, 17 November

2016 and 4 November 2016, respectively. Pursuant to the bankruptcy orders made by the High Court of Singapore against Winston Chia

and Johnston Chia, their respective service agreements had been terminated in accordance with the terms and conditions therein. The

Company and Eugene Tse have also mutually agreed in writing to waive the requirements in his service agreement for six (6) months’

written notice of intention not to renew his employment, or in lieu of notice, payment equivalent to six (6) months’ salary based on his last

drawn monthly salary, as well as, any annual fi xed bonus or other benefi ts contractually due to him.

Karen Chia was appointed as the Executive Director of the Company on 24 November 2016. The Company has not entered into a service

agreement with her given the then fi nancial diffi culties of the Group. Karen Chia has ceased to be the Executive Director of the Company

on 16 January 2018.


SERRANO LIMITED18

The Non-Executive Directors receive directors’ fees for their services. The RC also ensures that the fees paid to them are appropriate

taking into account factors such as effort and time spent, and their responsibilities. The RC ensures that the Independent Director(s)

are not over-compensated to the extent that their independence may be compromised. No Director is involved in deciding his own

remuneration package.

Performance conditions such as the fi nancial performance and operations of the Group, as well as any other business objectives such

as service quality and adherence to corporate values which may from time to time be determined by the Board, are used to determine

the short-term incentive schemes employed on the remuneration of the Executive Directors and key management personnel. In addition,

all employees of the Group, including the Directors, are eligible to participate in the Company’s performance share plan known as the

“Serrano Performance Share Plan” (“PSP”). The RC has reviewed and is of the view that the performance conditions of the Executive

Directors and key management personnel were not met for FY2016 in view of the Group’s fi nancial situation in FY2016.

The PSP is employed as long-term incentives in the remuneration of the Executive Directors and key management personnel, and forms

an integral component of the Group’s compensation scheme. It is designed to reward, retain and motivate employees to achieve superior

performance to align the interests of employees with that of the Company’s Shareholders. The PSP is administered by the RC.

The performance conditions used to determine the entitlements of the Executive Director and key management personnel under the PSP

include specifi c performance targets imposed by the Group, taking into account factors such as (i) the business strategies, plans and

directions of the Company and the Group; (ii) the actual job scope and responsibilities of the employee; and (iii) the prevailing economic

conditions. As at the date of this Annual Report, no awards have been granted under the PSP.

All revisions to the remuneration packages of the Directors are subject to the review by and recommendation of the RC and the approval of

the Board. Directors’ fees are further subject to the approval of Shareholders at the AGM.

Disclosu re on Remuneration

Principle 9: Each company should provide clear disclosure of its remuneration policies, level and mix of remuneration, and the

procedure for setting remuneration in the company’s annual report. It should provide disclosure in relation to its remuneration

policies to enable investors to understand the link between remuneration paid to directors and key management personnel, and

performance.

The various components of the remuneration of the Directors for FY2016 in percentage terms are disclosed below.

Name of Director

Directors’ fees(1)

(%)

Salary(2)

(%)

Variable bonus(2)

(%)

Benefi ts in kind

(%)

Total

(%)

From S$250,000 to S$500,000

Winston Chia(3) – 79.3 2.9 17.8 100.0

Johnston Chia(4) – 81.3 2.6 16.1 100.0

Eugene Tse(5) – 74.9 2.9 22.2 100.0

Up to S$249,999

Karen Chia(6) – 84.4 2.1 13.53 100.0

Choh Thian Chee Irving 100.0 – – – 100.0

Ong Kian Guan 100.0 – – – 100.0

James Kho Chung Wah 100.0 – – – 100.0

Tan Tien Hin Winston 100.0 – – – 100.0

Notes:

(1) Directors’ fees are subject to Shareholders’ approval at the forthcoming AGM.

(2) Inclusive of employer provident funds.

(3) Winston Chia ceased to be the Executive Director and CEO of the Company on 15 December 2016. Winston Chia is the brother of Johnston Chia,

Frank Chia Wing Heng (“Frank Chia”) and Karen Chia.



(4) Johnston Chia ceased to be the Executive Director of the Company on 17 November 2016. Johnston Chia is the brother of Winston Chia, Frank Chia

and Karen Chia.


(6) Karen Chia was appointed as the Executive Director of the Company on 24 November 2016. Her remuneration in FY2016 above includes those paid or

payable in relation to her position as Wholesale and Furnishings Director of the Group. She ceased to be the Executive Director of the Company on 16

January 2018.

For the year under review, the Company had four (4) key management personnel. For FY2016, the breakdown of the remuneration of the

Group’s key management personnel (who are not Directors or the CEO) in percentage terms are as follows:

Name of key management personnel

Salary(1)

(%)

Variable bonus(1)

(%)

Benefi ts in kind

(%)

Total

(%)

Up to S$250,000

Chia Beng Hock, Philip(2) 73.7 3.6 22.7 100.0

Kung Guan Seng(3) 76.9 3.8 19.3 100.0

Frank Chia(4) 90.5 2.3 7.2 100.0

Yap Keck Meng(5) 100.0 0.0 0.0 100.0

Notes:


(2) Chia Beng Hock, Philip ceased to be the Chief Operating Offi cer of the Group on 29 July 2016.

(3) Kung Guan Seng ceased to be the Chief Financial Offi cer of the Group on 29 July 2016.

(4) Frank Chia ceased to be the Production Director of the Group on 4 November 2016. Frank Chia is the brother of Winston Chia, Johnston Chia and

Karen Chia.

(5) Yap Keck Meng was appointed as the Group Financial Controller on 25 July 2016 and his appointment ceased on 14 July 2017.

In considering the disclosure of remuneration of the Directors and key management personnel, the Company has considered the industry

conditions in which the Group operates as well as the confi dential nature of such remuneration. The Company believes that full detailed

disclosure of the remuneration of each Director and each key management personnel as recommended by the Code would be prejudicial

to the interests of the Group and hamper its ability to retain and nurture the Group’s talent pool. The Company has instead presented such

information in remuneration bands.

The total remuneration paid to the top 4 key management personnel for FY2016 was approximately S$342,000.

The remuneration of employees who are immediate family members of a Director or the CEO, and whose remuneration exceeds S$50,000

during FY2016 are as follows:-

Name of employee

Salary(1)

(%)

Variable bonus(1)

(%)

Benefi ts in kind

(%)

Total

(%)

From S$150,000 to S$199,999

Frank Chia(2) 90.5 2.3 7.2 100.0

From S$50,000 to S$99,999

How Choon Hiong(3) 70.0 1.8 28.2 100.0

Notes:


(2) Frank Chia ceased to be the Production Director of the Group on 4 November 2016. Frank Chia is the brother of Winston Chia, Johnston Chia and

Karen Chia.

(3) How Choon Hiong was the spouse of Winston Chia and ceased to be an employee of the Company in June 2017.


SERRANO LIMITED20

There are no termination, retirement, post-employment benefi ts that are granted to the Directors, the CEO and top 4 key management

personnel.

The Board is of the opinion that the information as disclosed above would be suffi cient for Shareholders to have an adequate appreciation

of the Group’s compensation policies and practices and therefore does not intend to issue a separate remuneration report. The

remuneration of employees related to the Directors, CEO and Substantial Shareholders of the Company, if any, will also be reviewed

annually by the RC.

C. ACCOUNTABILITY AND AUDIT

Accountability

Principle 10: The Board should present a balanced and understandable assessment of the company’s performance, position and

prospects.

One of the Board’s principal duties is to protect and enhance the long-term value and returns to the Shareholders of the Company. The

accountability of the Board to the Shareholders is demonstrated through the presentation of the interim and annual fi nancial statements,

results announcements as well as timely announcements and/or news releases of signifi cant corporate developments and activities so that

the Shareholders can have a detailed explanation and balanced assessment of the Group’s fi nancial performance, position and prospects.

In this respect, the AC reviews all fi nancial statements and recommends them to the Board for approval.

In accordance with the Catalist Rules, the Board has provided and will provide a negative assurance statement in respect of the interim

fi nancial results announcements, to confi rm that to the best of its knowledge, nothing has come to the attention of the Board which might

render the fi nancial statements false or misleading in any material aspect.

The Group recognizes the importance of providing the Board with accurate and relevant information on a timely basis. Management

provides the Board with, amongst others, the management accounts of the Group and the relevant accompanying explanatory information

on an ad-hoc and half-yearly basis. Management also highlights key business indicators and major issues that are relevant to the Group’s

performance on an on-going basis in order for the Board to make a balanced and informed assessment of the Group’s performance,

fi nancial performance, position and prospects as well as Management’s achievements of the goals and objectives determined by the

Board.

Risk Management and Internal Controls

Principle 11: The Board is responsible for the governance of risk. The Board should ensure that Management maintains a sound

system of risk management and internal controls to safeguard shareholders’ interests and the company’s assets, and should

determine the nature and extent of the signifi cant risks which the Board is willing to take in achieving its strategic objectives.

The Board is responsible for the governance of risks and the overall internal control framework. It ensures that Management maintains a

sound system of risk management and internal controls to safeguard Shareholders’ interests and the Group’s assets and determines the

nature and extent of the signifi cant risks which the Board is willing to take in achieving the Group’s strategic objectives.

Management is responsible to the Board for the design, implementation and monitoring of the Group’s risk management and internal

control systems and to provide the Board with a basis to determine the Group’s level of risk exposure, risk tolerance and risk policies.

The Board notes that the system of internal controls is designed to manage rather than eliminate the risk of failure to achieve business

objectives, and can provide only reasonable and not absolute assurance against material misstatement or loss. Nonetheless, the

Board acknowledges that it is responsible for reviewing the adequacy and effectiveness of the Group’s risk management and internal

control systems including fi nancial, operational, compliance and information technology (“IT”) controls. The Board also recognizes its

responsibilities in ensuring a sound system of internal controls to safeguard Shareholders’ interests and the Group’s assets. The Board will

look into the need for establishment of a separate Board risk committee at the relevant time.



The AC will ensure that a review of the effectiveness of the Group’s risk management policies and procedures and internal controls in

addressing material risks, including fi nancial, operational, compliance and IT risks are conducted annually. In this respect, the AC will

review the audit plans and the fi ndings of the external auditors and will ensure that Management follows up on the external auditors’

recommendations raised, if any, during the audit process.

The Group had previously engaged Nexia TS Risk Advisory Pte Ltd (“Nexia TS”) as the internal auditors of the Group to assist the Board

and the AC in their review of the Group’s risk management and internal control systems focusing on fi nancial, operational, compliance and

IT controls (the “Internal Audit”). However owing to the Group’s tight liquidity position and the Schemes, the Internal Audit has been since

suspended. The Group will assess the need to resume the internal audit review by Nexia TS or other external professional fi rms (whichever

applicable), once the restructuring of the debt obligations and liabilities of the Group is completed.

Taking into consideration the reasons for the fi nancial loss recorded by the Group in both FY2015 and FY2016, its current fi nancial situation

and the ongoing schemes, the Board with the concurrence of the AC, is of the view that the Group’s internal control systems (including

fi nancial, operational, compliance and information technology controls) and risk management systems are not adequate as at the date of

this Annual Report.

The external auditors will highlight any material weaknesses in fi nancial controls over the areas that are signifi cant to the audit. Such

material internal control weaknesses noted during their audit and recommendations if any, are reported to the AC. Subsequently, the AC

will follow up with the actions taken by the Management to address the weaknesses based on the said recommendations by the external

auditors.

The Board noted that there are some areas of internal control weaknesses requiring improvement/rectifi cation as identifi ed by the external

auditors during the course of their audit performed for FY2016. The Board accepts the external auditors’ recommendations and has tasked

Management with the implementation of the recommendations.

The Board has received assurance from Mr. Winston Chia, who was the CEO of the Company up to 15 December 2016, that (a) the

fi nancial records have been properly maintained and the fi nancial statements give a true and fair view of the company’s operations and

fi nances; and (b) regarding the effectiveness of the company’s risk management and internal control systems.

Audit Committee

Principle 12: The Board should establish an Audit Committee (“AC”) with written terms of reference which clearly set out its

authority and duties.

For FY2016, the AC comprises the following three (3) members, all of whom are Independent Directors:

Ong Kian Guan (Chairman)

James Kho Chung Wah(1) (Member)

Choh Thian Chee Irving(2) (Member)

Notes:

(1) James Kho Chung Wah ceased to be the Independent Director of the Company on 16 January 2018. Concurrently, he relinquished his positions as

the NC Chairman and member of the AC and RC respectively.



The AC has adopted written terms of reference defi ning its membership, administration and duties. Some of the key duties and

responsibilities of the AC include:

reviewing with the external and internal auditors their audit plans, scope of work, evaluation of the adequacy of the internal

controls, audit reports, management letters on internal controls, the Management’s response and any other relevant fi ndings or

matters, where applicable;


SERRANO LIMITED22

monitoring and reviewing the implementation of the external auditors’ and internal auditors’ recommendations concurred with

Management in relation to the adequacy and effectiveness of the Group’s internal controls addressing fi nancial, operational,

compliance and IT risks;

at least annually, reviewing and reporting to the Board on the adequacy and effectiveness of the Group’s internal controls

addressing fi nancial, operational, compliance and IT risks;

reviewing the periodic consolidated fi nancial statements of the Company and results announcements before submission to the

Board for review and approval, focusing on, in particular, the relevance and consistency of accounting policies, signifi cant fi nancial

reporting issues, recommendations and judgements made by Management and the external auditors, and compliance with

fi nancial reporting standards, Catalist Rules and any other statutory and regulatory requirements so as to ensure the integrity of the

periodic consolidated fi nancial statements of the Company and results announcements;

reviewing the independence and objectivity of the external auditors, the aggregate amount of fees paid or payable to the external

auditors for the fi nancial year and the breakdown of the fees paid in total for audit and non-audit services, respectively;

making recommendations to the Board, and in the case of the external auditors, to the Board on proposals to the Shareholders,

for the appointment, re-appointment and removal of the external auditors and internal auditors, and approve the remuneration and

terms of engagement of the external auditors and internal auditors;

reviewing the suitability of the FC and adequacy of the fi nance team on an on-going basis;

reviewing and recommending all hedging policies (if any) to the Board for approval;

reviewing any interested person transactions falling within the scope of Chapter 9 of the Catalist Rules (if any);

reviewing potential confl icts of interests (if any) and to set out a framework to resolve or mitigate any potential confl icts of interests;

reviewing the policy and arrangement by which staff or any other person may, in confi dence, raise concerns about possible

improprieties on matters of our business operations, fi nancial reporting or any other matters and to ensure that arrangements are in

place for the independent investigation of such matter and for appropriate follow-up; and


Apart from the duties listed above, the AC has explicit authority to investigate any matter within its terms of reference, and matters where

there is suspected fraud or irregularity, or failure of internal controls or infringement of any law, rule or regulation which has or is likely to

have a material impact on the Group’s operating results and/or fi nancial position, and to review its fi ndings.

The AC has full access to and has the full cooperation of Management. It also has the full discretion to invite any Director or any member

of Management to attend its meetings.

The Board considers Ong Kian Guan, a practising chartered accountant with the Institute of Singapore Chartered Accountants who has

extensive accounting and fi nancial management knowledge and experience, well-qualifi ed to chair the AC. The other members of the

AC, James Kho Chung Wah and Choh Thian Chee Irving, brings with them invaluable experience in fi nance and business management.

The Board is of the view that the AC members are appropriately qualifi ed in that they have suffi cient accounting or related fi nancial

management expertise and experience to discharge their duties and responsibilities.

The AC recommends to the Board on the proposals to the Shareholders on the appointment, re-appointment and removal of the external

auditors and approval of their remuneration. The AC has reviewed the scope and value of non-audit fees paid or payable by the Group to

the external auditors, BDO LLP. The aggregate amount of audit fees and non-audit fees paid or payable to the external auditors for FY2016

was S$23,000 and Nil respectively. The AC is satisfi ed with the independence and objectivity of the external auditors.



However, after review, the AC has decided to recommend the appointment of Foo Kon Tan LLP as external auditors of the Company for

FY2017, due to resources consideration and to enable the Group to benefi t from the new auditors’ fresh perspectives and views following

the Schemes. The current external auditors’ BDO LLP, will be retiring at the forthcoming AGM of the Company and will not be seeking

re-appointment. For more details on the change in auditors of the Company, please refer to the letter to shareholders dated 13 April 2018

despatched with this annual report.

The Company confi rms that it is in compliance with Rules 712 and 715 of the Catalist Rules in relation to the appointment of its external

auditors.

The AC meets with the external auditors without the presence of the Management, at least annually to discuss the results of their audit,

their evaluation of the Group’s system of internal controls and any other relevant matters or fi ndings that have come to the attention of

the external auditors. To keep abreast of the changes in accounting standards and issues which have a direct impact on the fi nancial

statements, the AC is encouraged to participate in training courses, seminars and workshops, as relevant, and to seek advice from the

external auditors.

None of the AC members were previous partners or directors of the Company’s external audit fi rm within the last twelve months and none

of the AC members hold any fi nancial interest in the external audit fi rm.

Whistle Blowing Policy

The Group has put in place a whistle-blowing framework (“Whistle Blowing Policy”) endorsed by the AC where the employees of the

Group or any other person may, in confi dence, raise concerns about possible corporate improprieties on matters of fi nancial reporting or

other matters. A dedicated secured email address has been set up to allow whistle-blowers to contact the AC directly.

Details of the Whistle Blowing Policy and arrangements have been made available to all employees of the Group. It has a well-defi ned

process which ensures independent investigation of issues/concerns raised and appropriate and timely follow-up action, and provides

assurance that whistle blowers will be protected from reprisal or victimization for whistle blowing in good faith and without malice, within

the limits of the law.

The AC reports to the Board on whistle blowing matters at the Board meetings. Should the AC receive reports relating to serious offences

and/or criminal activities in the Group, the AC and the Board have access to appropriate external advice where necessary.

No concerns involving possible corporate improprieties were brought to the attention of the AC in FY2016 up to the date of this Annual

Report.

Internal Audit

Principle 13: The Company should establish an effective internal audit function that is adequately resourced and independent of

the activities it audits.

The Board recognizes that it is responsible for maintaining a system of internal controls to safeguard Shareholders’ interests and the

Group’s businesses and assets while Management is responsible for establishing and implementing the internal control procedures in a

timely and appropriate manner. The role of the internal auditors is to assist the AC in ensuring that the controls are effective and functioning

as intended, to undertake investigations as directed by the AC, to conduct regular internal audits of high risk areas and to report their

fi ndings to the AC for review by both the AC and the Board.

As mentioned under Principle 11 above, the Group had previously engaged Nexia TS as the internal auditors of the Group to assist

the Board and the AC in their review of the Group’s risk management and internal control systems focusing on fi nancial, operational,

compliance and IT controls. However owing to the Group’s tight liquidity position and the Schemes, the Internal Audit has been since

suspended. The Group will assess the need to resume the internal audit review by Nexia TS or other external professional fi rms (whichever

applicable), once the restructuring of the debt obligations and liabilities of the Group is completed.


SERRANO LIMITED24

The then appointment of Nexia TS was considered appropriate by the AC, based on amongst others, the reputation and track record of

Nexia TS and the qualifi cations, experience and availability of resources and independence of the team at Nexia TS. The internal auditor

carries out their function, taking guidance from the Standards for the Professional Practice of Internal Auditing established by the Institute

of Internal Auditors.

D. SHAREHOLDER RIGHTS AND RESPONSIBILITIES

Shareholder Rights

Principle 14: Companies should treat all shareholders fairly and equitably, and should recognize, protect and facilitate the

exercise of shareholders’ rights, and continually review and update such governance arrangements

The Group’s corporate governance practices promote fair and equitable treatment of all the Company’s Shareholders. To facilitate

Shareholders’ ownership rights, the Company ensures that all material information is disclosed on a comprehensive and timely basis via

SGXNET, in particular, information pertaining to the Group’s business development and fi nancial performance which could have a material

impact on the share price of the Company, so as to enable Shareholders to make informed decisions in respect of their investments in the

Company.

Shareholders are informed of general meetings through notices published in the newspaper and the Company’s announcements and press

releases via SGXNET as well as through reports/circulars sent to all Shareholders. They are given the opportunity to participate actively and

vote at general meetings of the Company, where relevant rules and procedures governing the meetings are clearly communicated.

The Constitution of the Company allows each Shareholder to appoint up to two (2) proxies to attend and vote in general meetings on his

behalf.

On 3 January 2016, the legislation was amended, among other things to allow certain members, defi ned as “relevant intermediary” to

appoint more than two proxies to attend and vote in general meetings without being constrained by the two-proxy requirement. Relevant

intermediary includes corporations holding licenses in providing nominee and custodial services and CPF Board which purchases shares

on behalf of the CPF investors.

Communication with Shareholders

Principle 15: Companies should actively engage their shareholders and put in place an investor relations policy to promote

regular, effective and fair communication with shareholders.

In line with the continuing disclosure obligations under the Catalist Rules, the Company informs Shareholders promptly of all major

developments that may have a material impact on the Group. All of the Company’s announcements are released via SGXNET, including

fi nancial results, annual reports, distribution of notices, press releases, analyst briefi ngs, presentations, announcements on material

corporate actions and other developments. The Company does not practise selective disclosure of material information and price sensitive

information is publicly released as soon as is practicable as required by the Catalist Rules.

General meetings are still the principal forum for dialogue with Shareholders. To promote a better understanding of Shareholders’ views,

the Board encourages Shareholders to participate during the Company’s general meetings. At these meetings, Shareholders are able to

engage the Board and Management on the Group’s business activities, fi nancial performance and other business-related matters. The

Company could gather views and address Shareholders’ concerns at general meetings.

The Company also communicates through its corporate website, http://www.serrano.com.sg, to provide Shareholders access to the

Group’s corporate announcements, press releases, annual reports and corporate information.

Outside of the fi nancial announcement periods, when necessary and appropriate, the Management may also meet with analysts and fund

managers who like to seek a better understanding of the Group’s operations.



The Company does not have a formal dividend policy at present. The form, frequency and amount of dividends the Directors may

recommend or declare in respect of any particular fi nancial year or period will take into consideration the Group’s fi nancial performance,

cash position, working capital requirements and other factors as the Board may deem appropriate. The Board, having considered the

current fi nancial diffi culties of the Group, has not declared any dividend for FY2016.

Conduct of Shareholder Meetings

Principle 16: Companies should encourage greater shareholder participation at general meetings of shareholders, and allow

shareholders the opportunity to communicate their views on various matters affecting the company.

Shareholders are encouraged to attend, participate and vote at the Company’s general meetings to ensure a high level of accountability on

the part of the Board and Management, and to stay informed of the Group’s performance, strategies and growth plans. Notice of general

meetings are despatched to Shareholders, together with explanatory notes, or a circular on items of special businesses (if necessary),

at least 14 clear calendar days before the meetings. The Company supports active Shareholder participation at general meetings and

welcomes questions from Shareholders who wish to raise issues pertaining to the Group, either informally or formally, within the setting of

the general meetings.

Each item of special business included in the notice of the general meetings will be accompanied by explanatory notes as may be required.

Separate resolutions are proposed for approval on each substantially separate issue at general meetings. Resolutions are as far as

possible, structured separately and may be voted upon independently, unless the resolutions are interdependent and linked so as to form

one signifi cant proposal.

The Company requires all Directors (including the respective chairman of the Board Committees) to be present at all general meetings

of shareholders, unless of exigencies. The external auditors are also required to be present to address Shareholders’ queries about the

conduct of the audit and the preparation and content of the independent auditor’s report. The Company will make available minutes of

general meetings to Shareholders upon their written request.

All resolutions at general meetings of the Company will be put to vote by poll so as to better refl ect Shareholders’ shareholding interests

and ensure greater transparency. The results of the poll voting on each resolution tabled will be announced after the general meetings via

SGXNET and the Company’s website.

DEALINGS IN SECURITIES

Rule 1204(19) of the Catalist Rules

The Company has complied with Rule 1204(19) of the Catalist Rules in relation to dealings in the Company’s securities by the Directors

and offi cers of the Group. The Company has adopted a Code of Best Practices to provide guidance to its Directors and all offi cers of the

Group with regards to dealings in the Company’s securities.

The Directors and offi cers of the Group are prohibited from dealing in the securities of the Company while in possession of unpublished

price-sensitive information as well as during the period commencing one (1) month before the announcement of the Company’s half-year

and full-year results and ending on the date of the announcement of the relevant results. The Directors and offi cers of the Group are to

refrain from dealing in the Company’s securities on short-term considerations.

Directors and offi cers of the Group are also required to adhere to the provisions of the Securities and Futures Act, Chapter 289,

Companies Act, Chapter 50, the Catalist Rules and any other relevant laws, rules and regulations with regard to their securities

transactions. They are expected to observe insider trading laws at all times even when dealing with securities within the permitted trading

period.


SERRANO LIMITED26

INTERESTED PERSON TRANSACTIONS

The Company has established internal control policies to ensure that transactions with interested persons are properly documented

and submitted to the AC for their review and to ensure that such transactions are carried out on an arm’s length basis and on normal

commercial terms that will not be prejudicial to the Company and its minority Shareholders.

The Company does not have a general mandate from Shareholders for interested person transactions pursuant to Rule 920 of the Catalist

Rules. There were no interested person transactions which were $100,000 and above for FY2016.

MATERIAL CONTRACTS


Pursuant to the Schemes, the Company has on 31 January 2017 entered into a conditional investment agreement (“Investment

Agreement”) with Quek Wey Lon and Winmark Investments Pte. Ltd. (together with any additional investors, the “Investors”), pursuant

to which the Investors will subscribe for, and the Company will allot and issue to the Investors, 3,813,048,036 new ordinary shares in the

capital of the Company (“New Investor Shares”) for an aggregate consideration of S$8,000,000 or at an issue price of approximately

S$0.002 per New Investor Share, subject to and upon the terms and conditions of the Investment Agreement.

As announced by the Company on 1 March 2018, the date for which the relevant conditions precedent of the Investment Agreement is to

be fulfi lled and/or waived by the Investors in writing had been extended till 26 June 2018.

Save for the foregoing, the Company confi rms that other than as disclosed in the section entitled “General And Statutory Information –

Material Contracts” of the Offer Document, there were no other material contracts entered into by the Company or any of its subsidiaries

involving the interest of any Director, CEO or controlling Shareholder of the Company, either still subsisting as at 31 December 2016 or if

not then subsisting, which were entered into since the end of 31 December 2015.

NON-SPONSOR FEES


There were no non-sponsor fees paid or payable to the then Company’s sponsor, United Overseas Bank Limited, in FY2016.


DIRECTORS’ STATEMENT

The Directors of Serrano Limited (the “Company”) present their statement to the members together with the audited consolidated financial statements of the Company and its subsidiaries (the “Group”) for the financial year ended 31 December 2016 and the statement of financial position of the Company as at 31 December 2016. 1. Opinion of the Directors

In the opinion of the Board of Directors, (a) the consolidated financial statements of the Group and the statement of financial position of

the Company together with the notes thereon are drawn up so as to give a true and fair view of the financial position of the Group and of the Company as at 31 December 2016, and of the financial performance, changes in equity and cash flows of the Group for the financial year then ended; and

(b) at the date of this statement, after considering the matters as described in Note 4 to the financial statements with respect to the Group’s and the Company’s ability to continue as going concerns, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due if the plans can be successfully implemented.

2. Directors The Directors of the Company in office at the date of this statement are as follows: Ong Kian Guan (Lead Independent Director) Tan Tien Hin Winston (Non-Executive Director & Interim Chairman)

3. Arrangements to enable Directors to acquire shares or debentures Neither at the end of nor at any time during the financial year was the Company a party to any arrangement whose objects are, or one of whose objects is, to enable the Directors of the Company to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate.


SERRANO LIMITED28

4. Directors’ interests in shares or debentures

The Directors of the Company holding office at the end of the financial year had no interests in the shares or debentures of the Company and its related corporations as recorded in the register of directors’ shareholdings kept by the Company under Section 164 of the Singapore Companies Act, Chapter 50 (the “Act”), except as follows: Name of Directors and company in which interests are held

Shareholdings registered in name of Directors

Shareholdings in which Directors are deemed

to have an interest

Balance at 1 January

2016 or later date of

appointment

Balance at 31 December

2016

Balance at 1 January 2016 or

later date of appointment

Balance at 31 December

2016

Number of ordinary shares The Company Tan Tien Hin Winston - - 41,772,430 41,772,430 Chia Lay Kiong (Xie Lijuan) (1) 12,218,036 12,218,036 - - (1) Resigned on 16 January 2018 In accordance with the continuing listing requirements of the Singapore Exchange Securities Trading Limited (“SGX-ST”), the Directors of the Company state that, according to the register of the directors’ shareholdings, the Directors’ interests as at 21 January 2017 in the shares or debentures of the Company have not changed from those disclosed as at 31 December 2016.

5. Share options There were no share options granted by the Company or its subsidiary corporations during the financial year. There were no shares issued during the financial year by virtue of the exercise of options to take up unissued shares of the Company or its subsidiary corporations. There were no unissued shares of the Company or its subsidiary corporations under option as at the end of the financial year. Performance Share Plan (“PSP”) The Company has implemented a performance share plan known as the Serrano PSP. The Serrano PSP was approved and adopted by the shareholders at an Extraordinary General Meeting of the Company held on 14 October 2014. No performance shares have been granted or awarded pursuant to the Serrano PSP as at the date of this report.



6. Audit committee

The Audit Committee of the Company is chaired by Ong Kian Guan, an independent Director, and includes Tan Tien Hin Winston, a non-independent Director. The Audit Committee has met two times since the last Annual General Meeting and has carried out its functions in accordance with section 201B(5) of the Act, including reviewing the following, where relevant, with the executive Directors and external auditors of the Company: (i) reviewing the audit plans and results of the external audits;

(ii) reviewing the audit plans and evaluation of the Group’s and the Company’s system of internal

accounting controls;

(iii) reviewing the Group’s and the Company’s financial and operating results and accounting policies;

(iv) reviewing the consolidated financial statements of the Group and the statement of financial position of the Company before their submission to the Directors of the Company and the external auditor’s report on those financial statements;

(v) reviewing the half yearly and annual announcements on the results of the Group and the Company;

(vi) the co-operation and assistance given by the management to the Group’s and the Company’s external auditors;

(vii) reviewing the Interested Person Transactions as required and defined in Chapter 9 of the Rules of Catalist of the SGX-ST and ensuring that the transactions were on normal commercial terms and not prejudicial to the interests of the members of the Company.

The Audit Committee confirmed that it has undertaken a review of all non-audit services provided by the external auditors to the Group and is satisfied that the nature and extent of such services would not affect the independence of the external auditors. The Audit Committee has full access to and has the co-operation of the management and has been given the resources required for it to discharge its functions properly. It also has full discretion to invite any Director and Executive Officer of the Group to attend its meetings. The external auditors have unrestricted access to the Audit Committee.

7. Independent auditor

The retiring auditor, BDO LLP, will not be seeking for re-appointment. Foo Kon Tan LLP has expressed its willingness to accept the nomination as auditor.

Ong Kian Guan Tan Tien Hin Winston Director Director Singapore 29 March 2018

INDEPENDENT AUDITOR’S REPORTTO THE MEMBERS OF SERRANO LIMITED

SERRANO LIMITED30

Report on the Audit of the Financial Statements Disclaimer of Opinion We were engaged to audit the financial statements of Serrano Limited (the “Company”) and its subsidiaries (the “Group”) set out on pages 34 to 103, which comprise:

the consolidated statement of financial position of the Group and the statement of financial position of the Company as at 31 December 2016; the consolidated statement of comprehensive income, consolidated statement of changes in equity, and consolidated statement of cash flows of the Group for the financial year then ended; and notes to the financial statements, including a summary of significant accounting policies.

We do not express an opinion on the accompanying consolidated financial statements of the Group and the statement of financial position of the Company. Because of the significance of the matters described in the Basis for Disclaimer of Opinion section of our report, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on these financial statements.

Basis for Disclaimer of Opinion 1. Going concern

As disclosed in Note 4 to the financial statements, the Group incurred total comprehensive loss of $114,914,963 during the financial year ended 31 December 2016. In addition, as at 31 December 2016, the Group’s and the Company’s total and current liabilities exceeded their total and current assets by $109,646,494 and $53,383,852 respectively. Following receipt of demand letters and legal actions taken against the Group by some creditors during the financial year, the Group commenced an original Scheme of Arrangement (the “Original Scheme”) to restructure its liabilities. Pursuant to the Original Scheme, the Group entered into a conditional investment agreement (the “Investment Agreement”) in January 2017 with investors (the “Investors”) who will subscribe for new ordinary shares of the Company for a cash consideration of $8,000,000. Thereafter, on the Investors’ request to revise the Original Scheme, the Group proposed an amended Scheme of Arrangement (the “Amended Scheme”) which was approved by the scheme creditors (the “Scheme Creditors”) in December 2017 and sanctioned by the Court in February 2018. The Amended Scheme commenced on 6 March 2018 and the Original Scheme was thereby terminated. Both the Amended Scheme and the Investment Agreement are subject to the fulfilment of conditions precedent in accordance with their respective terms and conditions by 29 May 2018 and 26 June 2018 respectively. As at the date of our report, certain conditions precedent have not been fulfilled.



Basis for Disclaimer of Opinion (Continued) 1. Going concern (Continued)

These events or conditions, along with other matters as set forth in Note 4, indicate the existence of multiple material uncertainties that may cast significant doubts on the Group’s and the Company’s ability to continue as going concerns, which is premised entirely on the successful implementation of both the Amended Scheme and the Investment Agreement. Due to the multiple material uncertainties that may preclude the satisfactory fulfilment of all the remaining conditions precedent of both the Amended Scheme and the Investment Agreement, we are unable to form an opinion as to whether the use of the going concern basis of accounting in the preparation of the accompanying financial statements is appropriate.

2. Completeness, existence and accuracy of liabilities

As at 31 December 2016, the Group recorded total liabilities amounting to $117,227,292. As part of the Amended Scheme described above, the Group has appointed a Scheme Manager to carry out the adjudication process for proof of debts. The cut-off date for proof of debts is 16 March 2018 and will include debts submitted by the Scheme Creditors up to this date. As at the date of our report, the adjudication process is still ongoing. Management is unable to provide a reconciliation between the liabilities recorded as at 31 December 2016 and the amounts in the proof of debts submitted by the Scheme Creditors. Management is also unable to provide us with the necessary documents to perform alternative procedures. We were therefore unable to obtain sufficient appropriate audit evidence on the completeness, existence and accuracy of the Group’s and the Company’s liabilities. Consequently, we were unable to determine if any further adjustments to or disclosures in the accompanying financial statements for the financial year ended 31 December 2016 may be necessary.

3. Project revenue, contract costs and other items of expenses The Group’s main revenue stream is derived from project contracts wherein the revenue and costs are recognised by reference to the stage of completion of each project at the end of the reporting period. The stage of completion is measured by the proportion of project costs incurred for work performed to-date relative to the estimated total project costs. For the financial year ended 31 December 2016, the contract revenue and contract costs recognised was $12,761,197 and $93,802,928 respectively. As described in item 2 above, we were unable to obtain sufficient appropriate audit evidence on the completeness, existence and accuracy of the Group’s liabilities. Any adjustment arising therein may affect the completeness, existence, accuracy and classification of project costs (which in turn could affect the determination of the Group’s project revenue), other items of expenses recorded and provision for foreseeable losses, if any. Accordingly, we were unable to obtain sufficient appropriate audit evidence on the project revenue, contract costs, other items of expenses and provision for foreseeable losses that should be recognised by the Group for the financial year ended 31 December 2016. Consequently, we were unable to determine if any further adjustments to or disclosures in the accompanying financial statements for the financial year ended 31 December 2016 may be necessary.


SERRANO LIMITED32

Basis for Disclaimer of Opinion (Continued) 4. Impairment losses charged, write-down and write-off to profit or loss

For the financial year ended 31 December 2016, the Group recorded the following in the profit or loss:

- Impairment loss on plant and equipment amounted to $4,680,090 (Notes 5 and 24); - Impairment loss on available-for-sale financial assets amounted to $1,540,000 (Notes 9

and 24); - Write-down of inventories amounted to $1,061,746 (Notes 10 and 24); - Impairment loss on amounts due from contract customers (retention sums) amounted to

$4,123,749 (Notes 12 and 24); and - Write-off of amounts due from contract customers amounted to $34,394,731 (Note 24).

We were unable to obtain sufficient appropriate audit evidence on whether the above impairment, write-down or write-off of respective assets were appropriate as management was unable to provide relevant information or documents to support their basis. We were also unable to perform alternative audit procedures. Consequently, we were unable to determine if any further adjustments to or disclosures in the accompanying financial statements for the financial year ended 31 December 2016 may be necessary.

5. Subsequent events

Management has disclosed certain subsequent events in Notes 4 and 7 to the financial statements. As management is unable to provide us with the necessary documents and accounting records, we were unable to obtain sufficient appropriate audit evidence that all subsequent events that have occurred up to the date of our auditor’s report that may require adjustment to, or disclosure in the accompanying financial statements have been identified by management. Consequently, we were unable to determine if any further adjustments to or disclosures in the accompanying financial statements for the financial year ended 31 December 2016 may be necessary.



Responsibilities of Management and Directors for the Financial Statements Management is responsible for the preparation of financial statements that give a true and fair view in accordance with the provisions of the Singapore Companies Act, Chapter 50 (the “Act") and Financial Reporting Standards in Singapore (“FRSs”), and for devising and maintaining a system of internal accounting controls sufficient to provide a reasonable assurance that assets are safeguarded against loss from unauthorised use or disposition; and transactions are properly authorised and that they are recorded as necessary to permit the preparation of true and fair financial statements and to maintain accountability of assets. In preparing the financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. The directors’ responsibilities include overseeing the Group’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Financial Statements Our responsibility is to conduct an audit of the accompanying financial statements in accordance with Singapore Standards on Auditing and to issue an auditor’s report. However, because of the matters described in the Basis for Disclaimer of Opinion section of our report, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on these financial statements. We are independent of the Group in accordance with the Accounting and Corporate Regulatory Authority (“ACRA”) Code of Professional Conduct and Ethics for Public Accountants and Accounting Entities (“ACRA Code”) together with the ethical requirements that are relevant to our audit of the financial statements in Singapore, and have fulfilled our other ethical responsibilities in accordance with these requirements and the ACRA Code.

Report on Other Legal and Regulatory Requirements In our opinion, in view of the significance of the matters referred to in the Basis for Disclaimer of Opinion section of our report, we do not express an opinion on whether the accounting and other records required by the Act to be kept by the Company and by those subsidiary corporations incorporated in Singapore of which we are the auditors have been properly kept in accordance with the provisions of the Act.

The engagement partner on the audit resulting in this independent auditor’s report is Leong Hon Mun Peter. BDO LLP Public Accountants and Chartered Accountants Singapore 29 March 2018

STATEMENT OF FINANCIAL POSITIONAS AT 31 DECEMBER 2016

SERRANO LIMITED34

Group Company Note 2016 2015 2016 2015 $ $ $ $ ASSETS Non-current assets Property, plant and equipment 5 - 11,796,641 - - Intangible assets 6 - 518,237 - - Investments in subsidiaries 7 - - - 11,068,138 Investment in associate 8 - 8,129 - 108,066 Available-for-sale financial

assets 9 - 1,540,000 - 1,540,000 - 13,863,007 - 12,716,204 Current assets Inventories 10 174,347 1,370,922 - - Trade and other receivables 11 225,377 18,400,850 13,293 14,910,238 Prepayments 35,959 95,097 900 900 Amounts due from contract

customers 12 116,616 69,430,573 - - Cash and cash equivalents 13 308,499 8,441,151 30,645 80,966 860,798 97,738,593 44,838 14,992,104 Non-current assets held for

sale 14 6,720,000 - - - 7,580,798 97,738,593 44,838 14,992,104 Total assets 7,580,798 111,601,600 44,838 27,708,308

EQUITY AND LIABILITIES Equity Share capital 15 33,029,183 33,029,183 33,029,183 33,029,183 Other reserves 16 (8,496,296) (6,649,575) - - Accumulated losses (134,179,381) (21,111,139) (86,413,035) (5,708,913) Equity attributable to owners

of the parent (109,646,494) 5,268,469 (53,383,852) 27,320,270 Non-current liabilities Borrowings 17 - 372,488 - - Finance lease payables 18 - 451,173 - - Deferred tax liabilities 19 - 662,578 - - - 1,486,239 - - Current liabilities Trade and other payables 20 49,824,780 35,704,137 53,428,690 388,038 Borrowings 17 64,505,911 68,989,169 - - Finance lease payables 18 2,896,601 153,586 - - 117,227,292 104,846,892 53,428,690 388,038 Total liabilities 117,227,292 106,333,131 53,428,690 388,038 Total equity and liabilities 7,580,798 111,601,600 44,838 27,708,308 The accompanying notes form an integral part of these financial statements.


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2016

The accompanying notes form an integral part of these financial statements.

Note 2016 2015

$ $

Revenue 21 17,234,197 94,663,331 Cost of sales (98,684,388) (107,848,746) Gross loss (81,450,191) (13,185,415)

Other item of income Other income 22 627,198 585,189 Other items of expense Selling and distribution costs (960,379) (1,396,286) Administrative expenses (5,220,953) (5,094,511) Other expenses (22,328,091) (5,477,158) Finance costs 23 (4,012,031) (4,958,483) Share of results of associate, net of tax (8,129) (103,608) Loss before income tax 24 (113,352,576) (29,630,272) Income tax 25 284,334 (21,485) Loss for the financial year (113,068,242) (29,651,757)

Other comprehensive income: Items that will not be reclassified subsequently to

profit or loss Revaluation (loss)/gain on leasehold properties (2,224,965) 151,548 Income tax relating to items that will not be reclassified 378,244 - Other comprehensive income for the financial year, net of tax (1,846,721) 151,548 Total comprehensive income for the financial year (114,914,963) (29,500,209)

Loss attributable to owners of the parent (113,068,242) (29,651,757)

Total comprehensive income attributable to owners of

the parent (114,914,963) (29,500,209)

Loss per share - Basic and diluted (in cents) 26 (41.51) (16.40)

CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2016

SERRANO LIMITED36

Note Share

capital

Asset revaluation

reserve Merger reserve

Accumulated

losses

Total equity attributable to owners of

the parent

$ $ $ $ $

Balance at 1 January 2016 33,029,183 2,788,563 (9,438,138) (21,111,139) 5,268,469

Loss for the financial year - - - (113,068,242) (113,068,242)

Other comprehensive income: Revaluation loss on leasehold

properties - (2,224,965) - - (2,224,965) Income tax relating to

component of other comprehensive income - 378,244 - - 378,244

Total comprehensive income for the financial year - (1,846,721) - (113,068,242) (114,914,963)

Balance at 31 December 2016 33,029,183 941,842 (9,438,138) (134,179,381) (109,646,494)

Balance at 1 January 2015 24,802,397 2,637,015 (9,438,138) 8,540,618 26,541,892

Loss for the financial year - - - (29,651,757) (29,651,757)

Other comprehensive income: Revaluation gain on leasehold

properties - 151,548 - - 151,548 Total comprehensive income

for the financial year - 151,548 - (29,651,757) (29,500,209)

Contributions by owners of

the parent Issuance of ordinary shares

pursuant to rights issue 15 8,565,240 - - - 8,565,240

Share issue expenses (338,454) - - - (338,454) Total transactions with

owners of the parent 8,226,786 - - - 8,226,786

Balance at 31 December 2015 33,029,183 2,788,563 (9,438,138) (21,111,139) 5,268,469



CONSOLIDATED STATEMENT OF CASH FLOWSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2016

2016 2015 $ $ Operating activities Loss before income tax (113,352,576) (29,630,272)

Adjustments for: Allowance for impairment loss on available-for-sale

financial assets 1,540,000 260,000 Allowance for impairment loss on doubtful third parties

trade receivables 5,281,123 2,121,859 Allowance for impairment loss on doubtful third parties

trade receivables written back (27,388) (33,852) Allowance for impairment loss on doubtful third parties

non-trade receivables 1,816,511 2,234,119 Allowance for impairment loss on amounts due from contract customers 4,123,749 594,306 Allowance for amounts due from contract customers written back (104,452) - Amortisation of intangible asset - 47,040 Bad third parties trade receivables written off 857,268 22,260 Depreciation of property, plant and equipment 1,791,743 1,313,033 Impairment loss on intangible assets 518,237 - Impairment loss on plant and equipment 4,680,090 - Interest income (23,235) (28,634) Interest expenses 4,012,031 4,958,483 Loss/(Gain) on disposal of plant and equipment 45,805 (157,977) Plant and equipment written off 689,288 57,889 Unclaimed creditors written back (163,124) - Write-down of inventories 1,061,746 - Share of results of associate, net of tax 8,129 103,608 Operating cash flows before working capital changes (87,245,055) (18,138,138)

Working capital changes: Inventories 134,829 (34,840) Trade and other receivables 10,247,959 (1,917,674) Prepayments 59,138 98,125 Amounts due from contract customers 65,294,660 1,232,237 Trade and other payables 14,283,767 15,642,846 Cash generated from/(absorbed by) operations 2,775,298 (3,117,444) Income tax paid - (939,516) Net cash from/(used in) operating activities 2,775,298 (4,056,960) Investing activities Interest received 23,235 28,634 Investment in associate - (49,000) Proceeds from disposal of plant and equipment 381,328 832,159 Purchase of property, plant and equipment (1,268,377) (1,312,745) Net cash used in investing activities (863,814) (500,952)

CONSOLIDATED STATEMENT OF CASH FLOWSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2016

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2016 2015 $ $ Financing activities Decrease/(Increase) in fixed deposits pledged 5,705,426 (651,691) Interest paid (4,012,031) (4,958,483) Loan from a corporate shareholder - 5,500,000 Loan from a third party - 500,000 Proceeds from issue of right shares - 7,341,798* Proceeds from borrowings 3,169,501 93,782,216 Repayments of borrowings (9,105,022) (98,231,722) Repayments of finance leases (1,176,359) (906,921) Repayment of loan from a third party - (500,000) Repayment of loan from a corporate shareholder - (2,500,000) Share issue expenses - (338,454) Net cash used in financing activities (5,418,485) (963,257) Net change in cash and cash equivalents (3,507,001) (5,521,169) Cash and cash equivalents at beginning of financial year (8,263,112) (2,741,943) Cash and cash equivalents at end of financial year (Note 13) (11,770,113) (8,263,112) * net proceeds from the rights issue of $7,341,798 comprising the gross proceeds of $8,565,240 which

was partially offset against other payables of $1,223,442 owing to the Group’s suppliers who had subscribed for the right issue as shareholders.



NOTES TO THE FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2016

These notes form an integral part of and should be read in conjunction with the financial statements. 1. General corporate information

Serrano Limited (the “Company”) is a public limited liability company incorporated and domiciled in Singapore and its registered office and principal place of business are located at 7 Sungei Kadut Crescent Singapore 728696. The registration number of the Company is 201223004Z. The Company is listed on the Catalist board of the Singapore Exchange Securities Trading Limited. The principal activity of the Company is that of an investment holding company. The principal activities of the subsidiaries are set out in Note 7 to the financial statements. The statement of financial position of the Company as at 31 December 2016 and the consolidated financial statements of the Company and its subsidiaries (the “Group”) for the financial year ended 31 December 2016 were authorised for issue in accordance with a Directors’ resolution dated 29 March 2018.

2. Summary of significant accounting policies 2.1 Basis of preparation of financial statements

The financial statements have been prepared in accordance with the provisions of the Singapore Companies Act, Chapter 50 and Singapore Financial Reporting Standards (“FRS”). The financial statements have been prepared under the historical cost convention, except as disclosed in the accounting policies below and on a going concern basis as set out in Note 4 to the financial statements. Full IFRS convergence Singapore-incorporated companies listed on SGX-ST are required to apply a new financial reporting framework identical to the IFRS for annual periods beginning on or after 1 January 2018. The new framework is referred to as “Singapore Financial Reporting Standards (International) (SFRS(I)s”. The Group will adopt the new framework on 1 January 2018 and will apply SFRS(I) 1 First-time Adoption of Singapore Financial Reporting Standards (International) to the transition. This will involve restating the comparatives for the financial year ended 31 December 2017 and the opening statements of financial position as at 1 January 2017 in accordance with the new framework. The Group is still in the process of assessing the impact of transition and anticipates that the adoption of the new framework on 1 January 2018 (including the application of all the mandatory exceptions) will not have a material impact on the financial statements of the Group for the financial year ending 31 December 2018, other than the impact from the adoption of SFRS(I) 9 and SFRS(I) 15 which is expected to be similar to the impact of FRS 109 and FRS 115 as disclosed below.


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2. Summary of significant accounting policies (Continued)

2.1 Basis of preparation of financial statements (Continued)

The preparation of financial statements in conformity with FRS requires the management to exercise judgement in the process of applying the Group’s and the Company’s accounting policies and requires the use of accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the end of the reporting period, and the reported amounts of revenue and expenses during the financial year. Although these estimates are based on the management’s best knowledge of historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances, actual results may ultimately differ from those estimates. The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the financial year in which the estimate is revised if the revision affects only that financial year, or in the financial year of the revision and future financial years if the revision affects both current and future financial years. Critical accounting judgements and key sources of estimation uncertainty used that are significant to the financial statements are disclosed in Note 3 to the financial statements. During the financial year, the Group and the Company adopted the new or revised FRS that are relevant to their operations and effective for the current financial year. Changes to the Group’s and the Company’s accounting policies have been made as required in accordance with the relevant transitional provisions in the respective FRS. The adoption of the new or revised FRS did not result in any substantial changes to the Group’s and the Company’s accounting policies and has no material effect on the amounts reported for the current and prior financial years. FRS and Interpretations of FRS (“INT FRS”) issued but not yet effective As at the date of the authorisation of these financial statements, the following FRS and INT FRS were issued but not yet effective and have not been early adopted in these financial statements:

Effective date (annual periods beginning on or

after)

FRS 7 (Amendments) : Disclosure Initiative 1 January 2017 FRS 12 (Amendments) : Recognition of Deferred Tax Assets for 1 January 2017 Unrealised Losses FRS 28 (Amendments) : Long-term Interests in Associates and 1 January 2019 Joint Ventures FRS 40 (Amendments) : Transfers of Investment Property 1 January 2018 FRS 102 (Amendments) : Classification and Measurement of Share-based 1 January 2018 Payment Transactions FRS 104 (Amendments)

: Applying FRS 109 Financial Instruments with FRS 104 Insurance Contracts 1 January 2018

FRS 109 : Financial Instruments 1 January 2018 FRS 109 (Amendments) : Prepayment Features with Negative 1 January 2019 Compensation FRS 110 and FRS 28 : Sale or Contribution of Assets between an To be determined (Amendments) Investor and its Associate or Joint Venture





FRS and Interpretations of FRS (“INT FRS”) issued but not yet effective (Continued)

Effective date (annual periods beginning on or

after) FRS 115 : Revenue from Contracts with Customers 1 January 2018 FRS 115 (Amendments) : Clarifications to FRS 115 Revenue from 1 January 2018 Contracts with Customers FRS 116 : Leases 1 January 2019 FRS 117 : Insurance Contracts 1 January 2021 Improvements to FRSs (December 2016) - FRS 28 (Amendments) : Investments in Associates and Joint Ventures 1 January 2018 - FRS 101 (Amendments) : First-time Adoption of Financial Reporting 1 January 2018 Standards - FRS 112 (Amendments) : Disclosure of Interests in Other Entities 1 January 2017 Improvements to FRSs (March 2018) - FRS 103 : Business Combinations 1 January 2019 - FRS 111 : Joint Arrangements 1 January 2019

- FRS 12 : Income Taxes 1 January 2019

- FRS 23 : Borrowing Costs 1 January 2019

INT FRS 122 : Foreign Currency Transactions and Advance 1 January 2018 Consideration INT FRS 123 : Uncertainty over Income Tax Treatments 1 January 2019 Consequential amendments were also made to various standards as a result of these new or revised standards. The Group and the Company expect that the adoption of the above FRS and INT FRS, if applicable, will have no material impact on the financial statements in the period of initial application, except as discussed below. FRS 7 (Amendments) – Disclosure Initiative The amendments to FRS 7 require companies to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. The amendments will be applied from 1 January 2017 and the Group will include the additional disclosures in the financial statements for that financial year.


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FRS and Interpretations of FRS (“INT FRS”) issued but not yet effective (Continued) FRS 109 Financial Instruments FRS 109 supersedes FRS 39 Financial Instruments: Recognition and Measurement with new requirements for the classification and measurement of financial assets and liabilities, impairment of financial assets and hedge accounting. Under FRS 109, financial assets are classified into financial assets measured at fair value or at amortised cost depending on the Group’s and the Company’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. Fair value gains or losses will be recognised in profit or loss except for certain equity investments, for which the Group and the Company will have a choice to recognise the gains and losses in other comprehensive income. A third measurement category has been added for debt instruments – fair value through other comprehensive income. This measurement category applies to debt instruments that meet the Solely Payments of Principal and Interest contractual cash flow characteristics test and where the Group and the Company are holding the debt instrument to both collect the contractual cash flows and to sell the financial assets can also be measured at fair value through other comprehensive income. FRS 109 carries forward the recognition, classification and measurement requirements for financial liabilities from FRS 39, except for financial liabilities that are designated at fair value through profit or loss, where the amount of change in fair value attributable to change in credit risk of that liability is recognised in other comprehensive income unless that would create or enlarge an accounting mismatch. In addition, FRS 109 retains the requirements in FRS 39 for de-recognition of financial assets and financial liabilities. FRS 109 introduces a new forward-looking impairment model based on expected credit losses to replace the incurred loss model in FRS 39. This determines the recognition of impairment provisions as well as interest revenue. For financial assets at amortised cost or fair value through other comprehensive income, the Group and the Company will recognise (at a minimum) 12 months of expected losses in profit or loss. Lifetime expected losses will be recognised on these assets when there is a significant increase in credit risk after initial recognition under the three-stage model or from initial recognition if the simplified model is applied. The Group and the Company have commenced its preliminary assessment of the classification and measurement of their financial assets and financial liabilities, and does not expect any significant changes to the classification and measurement of its financial assets and liabilities currently measured at amortised cost upon adoption of the standard.





FRS and INT FRS issued but not yet effective (Continued) FRS 109 Financial Instruments (Continued) The new impairment requirements are expected to result in changes to and likely increases in impairment loss allowances on trade receivables and other receivables, due to earlier recognition of credit losses. The Group and the Company expect to adopt the simplified model for its trade receivables and will record an allowance for lifetime expected losses from initial recognition. The Group and the Company are still in the process of determining how it will estimate expected credit losses and the sources of forward-looking data. For other receivables, the Group and the Company will initially provide for 12 months expected losses under the three-stage model. The Group and the Company plan to adopt FRS 109 in the financial year beginning on 1 January 2018 with retrospective effect in accordance with the transitional provisions and intends to elect not to restate comparatives for the previous financial year and will include additional financial statements disclosures in the financial year when FRS 109 is adopted. FRS 115 Revenue from Contracts with Customers FRS 115 introduces a comprehensive model that applies to revenue from contracts with customers and supersedes all existing revenue recognition requirements under FRS. The model features a five-step analysis to determine whether, how much and when revenue is recognised, and two approaches for recognising revenue: at a point in time or over time. The core principle is that an entity recognises revenue when control over promised goods or services is transferred to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. FRS 115 also introduces extensive qualitative and quantitative disclosure requirements which aim to enable users of the financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Group is in the process of making a detailed assessment of FRS 115 implementation. Key issues for the Group include identifying performance obligations, accounting for contract modifications, applying the constraint to variable consideration, evaluating significant financing components, measuring progress toward satisfaction of a performance obligation, recognising contract cost assets and addressing disclosure requirements. The Group is currently assessing whether revenue from construction contracts can continue to be recognised over time. Under FRS 115, the Group would qualify for revenue recognition over time only if there is no alternative use for the interior fit-out constructed under contracts with customers and the Group has an enforceable right to receive payment for performance completed to date.


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FRS and INT FRS issued but not yet effective (Continued) FRS 115 Revenue from Contracts with Customers (Continued) In respect of the Group’s wholesale and retail furnishing business, it does not expect significant changes to the timing and profile of the Group’s revenue recognition on adoption of FRS 115 as the revenue arising from the sale of furnishings would be recognised at a point in time when the risk and rewards of ownership of these furnishings have been transferred to the purchasers. The Group plans to adopt the standard in the financial year beginning on 1 January 2018 with full retrospective effect in accordance with the transitional provisions, and will include the required additional disclosures in its financial statements for that financial year. FRS 116 Leases FRS 116 supersedes FRS 17 Leases and introduces a new single lessee accounting model which eliminates the current distinction between operating and finance leases for lessees. FRS 116 requires lessees to capitalise all leases on the statements of financial position by recognising a “right-of-use” asset and a corresponding lease liability for the present value of the obligation to make lease payments, except for certain short-term leases and leases of low-value assets. Subsequently, the lease assets will be depreciated and the lease liabilities will be measured at amortised cost. From the perspective of a lessor, the classification and accounting for operating and finance leases remains substantially unchanged under FRS 116. FRS 116 also requires enhanced disclosures by both lessees and lessors. On initial adoption of FRS 116, there may be a potentially significant impact on the accounting treatment for leases, which the Group and the Company as lessee currently accounts for as operating leases. On adoption of FRS 116, the Group and the Company will be required to capitalise its rented office premises and warehouses on the statements of financial position by recognising them as “right-of-use” assets and their corresponding lease liabilities for the present value of future lease payments. The Group and the Company plan to adopt the standard in the financial year beginning on 1 January 2019 in accordance with the transitional provisions, and will include the required additional disclosures in its financial statements for that financial year.




2.2 Basis of consolidation

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries made up to end of the reporting period. The financial statements of the subsidiaries are prepared for the same reporting date as that of the parent company. Accounting policies of subsidiaries have been changed where necessary to align them with the policies adopted by the Group to ensure consistency. Subsidiaries are consolidated from the date on which control is transferred to the Group up to the effective date on which that control ceases. In preparing the consolidated financial statements, inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment loss of the asset transferred. Changes in the Group’s interest in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the parent. When the Group loses control of subsidiaries, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. Amounts previously recognised in other comprehensive income in relation to the subsidiary are accounted for (i.e. reclassified to profit or loss or transferred directly to retained earnings) in the same manner as would be required if the relevant assets or liabilities were disposed of. The fair value of any investments retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under FRS 39 Financial Instruments: Recognition and Measurement or, when applicable, the cost on initial recognition of an investment in an associate or joint venture.

2.3 Business combinations Business combinations from 1 January 2010 The acquisition of subsidiaries is accounted for using the acquisition method. The consideration transferred for the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred. Consideration also includes the fair value of any contingent consideration. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under FRS 103 are recognised at their fair values at the acquisition date, except for non-current assets (or disposal groups) that are classified as held-for-sale in accordance with FRS 105 Non-Current Assets Held for Sale and Discontinued Operations, which are recognised and measured at the lower of cost and fair value less costs to sell. Where a business combination is achieved in stages, the Group’s previously held interests in the acquired entity are remeasured to fair value at the acquisition date (i.e. the date the Group attains control) and the resulting gain or loss, if any, is recognised in profit or loss.


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2.3 Business combinations (Continued)

Business combinations from 1 January 2010 (Continued) Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss, where such treatment would be appropriate if that interest were disposed of. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under FRS 103 are recognised at their fair values at the acquisition date, except that: deferred tax assets or liabilities and liabilities or assets related to employee benefit

arrangements are recognised and measured in accordance with FRS 12 Income Taxes and FRS 19 Employee Benefits respectively;

liabilities or equity instruments related to the replacement by the Group of an acquiree’s share-based payment awards are measured in accordance with FRS 102 Share-based Payment; and

assets (or disposal groups) that are classified as held for sale in accordance with FRS 105 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that standard.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see below), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date. The measurement period is the period from the date of acquisition to the date the Group obtains complete information about facts and circumstances that existed as of the acquisition date, and is subject to a maximum of one year. Goodwill arising on acquisition is recognised as an asset at the acquisition date and initially measured at cost, being the excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirer previously held equity interest (if any) in the entity over net acquisition-date fair value amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable net assets exceeds the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirer’s previously held equity interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.




2.3 Business combinations (Continued)

Acquisition under common control Business combination arising from transfers of interest in entities that are under common control are accounted for as if the acquisition had occurred at the beginning of the earliest comparative period presented or, if later, at the date that common control was established. For this purpose, comparatives are restated. The assets and liabilities acquired are recognised at the carrying amounts recognised previously and no adjustments are made to reflect the fair values or recognised any new assets or liabilities, including no goodwill is recognised as a result of the combination. The components of equity of the acquired entities are added to the same components within the Group equity. Any difference between the consideration paid for the acquisition and share capital of acquiree is recognised directly to equity as merger reserve.

2.4 Property, plant and equipment Leasehold building is initially measured at cost and subsequently carried at its revalued amount, being the fair value at the date of revaluation, less accumulated depreciation and impairment loss, if any, recognised after the date of the revaluation. Valuations are performed with sufficient regularity to ensure that the carrying amounts do not differ materially from the fair values at the end of the reporting period. When an asset is revalued, any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset. The net amount is then restated to the revalued amount of the asset. Revaluation surpluses are taken to the asset revaluation reserve, unless they offset previous revaluation losses of the same asset that were recognised in profit or loss. Revaluation losses are taken to the asset revaluation reserve, to the extent that they offset previous revaluation surpluses of the same asset that were taken to the asset revaluation reserve. Other revaluation surpluses or losses are recognised in profit or loss. The whole of the revaluation surplus included in the asset revaluation reserve in respect of an asset is transferred directly to accumulated losses on retirement or disposal of the asset. Plant and equipment are initially recognised at cost and subsequently stated at cost less accumulated depreciation and impairment loss, if any. The cost of property, plant and equipment includes expenditure that is directly attributable to the acquisition of the items. Dismantlement, removal or restoration costs are included as part of the cost of property, plant and equipment if the obligation for dismantlement, removal or restoration is incurred as a consequence of acquiring or using the property, plant and equipment. Subsequent expenditure relating to the property, plant and equipment that has already been recognised is added to the carrying amount of the asset when it is probable that the future economic benefits, in excess of the standard of performance of the asset before the expenditure was made, will flow to the Group and the Company, and the cost can be reliably measured. Other subsequent expenditure is recognised as an expense during the financial year in which it is incurred. An item of property, plant and equipment is derecognised upon disposed or when no future economic benefits are expected from its use or disposal. Any gain or loss on derecognition of the asset is included in profit or loss in the financial year when the asset is derecognised.


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2.4 Property, plant and equipment (Continued)

Depreciation is calculated using the straight-line method to allocate the depreciable amounts of property, plant and equipment over their estimated useful life as follows:

Years

Leasehold properties Over lease term of 9.9 to 18 Furniture, fittings and office equipment 5 Motor vehicles 8 to 10 Plant and machinery 5 to 10 Renovation 5 to 8 The residual values, estimated useful life and depreciation method are reviewed at each financial year-end to ensure that the residual values, period of depreciation and depreciation method are consistent with previous estimates and expected pattern of consumption of the future economic benefits embodied in the items of property, plant and equipment. Asset held under finance lease is depreciated over its expected useful life on the same basis as owned asset or, if there is no certainty that the lessee will obtain ownership by the end of the lease term, the asset shall be fully depreciated over the shorter of the lease term and its useful life.

2.5 Intangible assets Intangible assets acquired separately are measured initially at cost. The cost of intangible assets acquired in a business combination is their fair values as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less accumulated amortisation and accumulated impairment losses, if any. The useful life of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite life are amortised on a straight-line basis over the estimated economic useful life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite useful life is recognised in profit or loss. Intangible assets with indefinite useful life or not yet available for use are tested for impairment annually or more frequently if the events or changes in circumstances indicate that the carrying amount may be impaired either individual or at the cash-generating unit level. Such intangible assets are not amortised. The useful life of an intangible asset with an indefinite useful life is reviewed annually to determine whether the useful life assessment continues to be supportable. If not, the changes in useful life from indefinite to finite is made on prospective basis. Gains or losses arising from derecognition of an intangible asset are measured at the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in profit or loss when the asset is derecognised.




2.5 Intangible assets (Continued)

Goodwill Goodwill arising on the acquisition of a subsidiary represents the excess of the consideration transferred, the amount of any non-controlling interests in the acquiree and the acquisition date fair value of any previously held equity interest in the acquiree over the acquisition date fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary recognised at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the gain or loss on disposal. Trade name Trade name was acquired through business combinations, and measured at fair value as at the date of acquisition. Subsequently, trade name is carried at cost less accumulated amortisation and impairment losses, if any. Amortisation is recognised in profit or loss on a straight-line basis over 3 years. Trade name is assessed for impairment whenever there is an indication that the intangible asset may be impaired. The useful life and amortisation method are reviewed at the end of each reporting period to ensure that the period of amortisation and amortisation method are consistent with previous estimates and the expected pattern of consumption of the future economic benefits.

2.6 Subsidiaries Subsidiaries are entities over which the Group has control. The Group controls an investee if the Group has power over the investee, exposure to variable returns from the investee, and the ability to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control. Investments in subsidiaries are carried at cost, less any impairment loss, in the Company’s statement of financial position.


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2.7 Associate

Associate is entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. Investment in associate is accounted for in the consolidated financial statements using the equity method of accounting. Associate is equity accounted for from the date the Group obtains significant influence until the date the Group ceases to have significant influence over the associate. Investment in associate in the consolidated financial statements are initially recognised at cost. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued or liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. In applying the equity method of accounting, the Group’s share of its associate’s post-acquisition profits or losses is recognised in profit or loss and its share of post-acquisition movements in reserves is recognised in other comprehensive income. These post-acquisition movements are adjusted against the carrying amount of the investments. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured non-current receivables, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or has made payments on behalf of the associate. If the associate subsequently reports profits, the Group resumes recognising its share of those profits after its share of the profits equals the share of losses not recognised. Unrealised gains on transactions between the Group and its associate are eliminated to the extent of the Group’s interest in the associate. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. After application of the equity method of accounting, the Group determines whether it is necessary to recognise any additional impairment loss with respect to the Group’s net investment in associate. The financial statements of the associate is prepared as of the same reporting date as the Company. Where necessary, adjustments are made to bring the accounting policies into line with those of the Group. Upon loss of significant influence over the associate, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the aggregate of the retained investment and proceeds from disposal is recognised in profit or loss. Investment in associate is carried at cost, less any impairment loss, in the Company’s statement of financial position.

2.8 Impairment of non-financial assets excluding goodwill The carrying amounts of non-financial assets excluding goodwill are reviewed at the end of each reporting period to determine whether there is any indication of impairment loss and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If any such indication exists, or when annual impairment testing for an asset is required, the asset’s recoverable amount is estimated.




2.8 Impairment of non-financial assets excluding goodwill (Continued)

An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that largely are independent from other assets and groups of assets. Impairment loss is recognised in profit or loss unless it reverses a previous revaluation credited to other comprehensive income, in which case it is charged to other comprehensive income up to the amount of any previous revaluation. The recoverable amount of an asset or cash-generating unit is the higher of its fair value less costs to sell and its value-in-use. Recoverable amount is determined for individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. If this is the case, the recoverable amount is determined for the cash-generating unit to which the assets belong. The fair value less costs to sell is the amount obtainable from the sale of an asset or cash-generating unit in an arm’s length transaction between knowledgeable willing parties less costs of disposal. Value-in-use is the present value of estimated future cash flows expected to be derived from the continuing use of an asset and from its disposal at the end of its useful life, discounted at pre-tax rate that reflects current market assessment of the time value of money and the risks specific to the asset or cash-generating unit for which the future cash flow estimates have not been adjusted. An assessment is made at the end of each reporting period as to whether there is any indication that an impairment loss recognised in prior periods for an asset may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. An impairment loss recognised in prior periods is reversed only if there has been a change in the estimates used to determine the recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Reversals of impairment loss are recognised in profit or loss unless the asset is carried at revalued amount, in which case the reversal in excess of impairment losses recognised in profit or loss in prior periods is treated as a revaluation increase. After such a reversal, the depreciation or amortisation is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

2.9 Non-current assets held for sale Non-current assets are classified as held-for-sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Non-current assets classified as held-for-sale are measured at the lower of the asset’s previous carrying amount and fair value less costs to sell. The assets are not depreciated or amortised while classified as held-for-sale. Any impairment loss on initial classification and subsequent measurement is recognised as an expense. Any subsequent increase in fair value less costs to sell (not exceeding the accumulated impairment loss that has been previously recognised) is recognised in profit or loss.


SERRANO LIMITED52


2.10 Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined on a “first-in, first-out” basis and includes all costs of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition. Net realisable value is the estimated selling price at which inventories can be realised in the ordinary course of business, less estimated costs of completion and costs incurred in marketing and distribution. Where necessary, allowance is made for obsolete, slow-moving and defective inventories to adjust the carrying value of those inventories to the lower of cost and net realisable value.

2.11 Contract work-in-progress Contract costs are recognised as and when they are incurred. When the outcome of a contract can be estimated reliably, contract revenue and costs are recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the end of the reporting period (percentage-of-completion method). When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred that are likely to be recoverable. When it is probable that the total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. Contract revenue comprises the initial amount of revenue agreed in the contract and variations in the contract work and claims that can be measured reliably. A variation or a claim is only included in contract revenue when it is probable that the customer will approve the variation or negotiations have reached an advanced stage such that it is probable that the customer will accept the claim. At the end of the reporting period, the aggregated costs incurred plus recognised profit (less recognised loss) on each contract is compared against the progress billings. Where costs incurred plus the recognised profits (less recognised losses) exceed progress billings, the balance is presented as “amounts due from contract customers” as current asset in the statements of financial position. Where progress billings exceed costs incurred plus recognised profits (less recognised losses), the balance is presented as “amounts due to contract customers” as current liability in the statements of financial position. Progress billings not yet paid by customers are included within “trade and other receivables”. Retentions are included within “amounts due from contract customers” as the amounts are pending customers’ approval after defect liability period.




2.12 Financial assets

The Group and the Company classify their financial assets as loans and receivables and available-for-sale financial assets. The classification depends on the purpose of which the assets were acquired. The management determines the classification of the financial assets at initial recognition and re-evaluates this designation at the end of the reporting period, where allowed and appropriate. (i) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are classified within “trade and other receivables” and “cash and cash equivalents” on the statements of financial position.

(ii) Available-for-sale financial assets Available-for-sale financial asset is non-derivative financial asset that is either designated as available-for-sale or not classified in any of the other categories. It is presented as non-current assets unless the management intends to dispose of the asset within 12 months after the end of the reporting period.

Recognition and derecognition Financial assets are recognised on the statements of financial position when, and only when, the Group and the Company become parties to the contractual provisions of the financial instruments. Regular way purchases and sales of financial assets are recognised on trade-date, the date on which the Group and the Company commit to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group and the Company have transferred substantially all risks and rewards of ownership. On derecognition of a financial asset, the difference between the carrying amount and the net consideration proceeds is recognised in profit or loss. Any cumulative gain or loss in the fair value reserve relating to the asset is also recognised in profit or loss. Initial and subsequent measurement Financial assets are initially recognised at fair value plus in the case of financial assets not at fair value through profit or loss, directly attributable transaction costs. After initial recognition, loans and receivables are carried at amortised cost using the effective interest method, less impairment loss, if any. After initial recognition, investments in equity instruments classified as available-for-sale financial assets that have no active market prices and whose fair value cannot be reliably measured are carried at cost less impairment.


SERRANO LIMITED54


2.12 Financial assets (Continued)

Initial and subsequent measurement (Continued) The effective interest method is a method of calculating the amortised cost of a financial instrument and of allocating interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial instrument, or where appropriate, a shorter period. Income and expense is recognised on an effective interest basis for debt instruments. Impairment The Group and the Company assess at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. (i) Loans and receivables

An allowance for impairment loss of loans and receivables is recognised when there is objective evidence that the Group and the Company will not be able to collect all amounts due according to the original terms of the receivables. The amount of allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account. The amount of the loss is recognised in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognised, the previously recognised impairment loss is reversed either directly or by adjusting an allowance account. Any subsequent reversal of an impairment loss is recognised in profit or loss, to the extent that the carrying amount of the asset does not exceed its amortised cost at the reversal date.

(ii) Available-for-sale financial assets Significant or prolonged decline in fair value below cost, significant financial difficulties of the issuer or obligor are considerations to determine whether there is objective evidence that investment securities classified as available-for-sale financial assets are impaired. If an available-for-sale financial asset is impaired, an amount comprising the difference between its cost (net of any principal repayment and amortisation) and its current fair value, less any impairment loss previously recognised in equity, is transferred from equity to profit or loss. In respect of available-for-sale equity instruments, any subsequent increase in fair value after an impairment loss is recognised directly in equity, except for impairment losses on equity instruments at cost which are not revised.

2.13 Cash and cash equivalents Cash and cash equivalents comprise cash on hand, cash and deposits with banks and financial institutions. Cash and cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. For the purpose of consolidated statement of cash flows, cash and cash equivalents comprise cash on hand, cash at bank and fixed deposits net of fixed deposits pledged and bank overdrafts.




2.14 Financial liabilities

Financial liabilities are classified as either financial liabilities at fair value through profit or loss (“FVTPL”) or other financial liabilities. Financial liabilities are classified as at FVTPL if the financial liability is either held for trading or it is designated as such upon initial recognition. The Group and the Company have not designated any financial liabilities as FVTPL upon initial recognition. The accounting policies adopted for other financial liabilities are set out below: (i) Trade and other payables

Trade and other payables are recognised initially at cost which represents the fair value of the consideration to be paid in the future, less transaction cost, for goods received or services rendered, whether or not billed to the Group and the Company, and are subsequently measured at amortised cost using the effective interest method.

(ii) Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost using the effective interest method. Any difference between the proceeds (net of transaction costs) and the redemption value is taken to profit or loss over the period of the borrowings using the effective interest method. Borrowings which are due to be settled within 12 months after the end of the reporting period are presented as current borrowings even though the original terms were for a period longer than 12 months and an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the end of the reporting period and before the financial statements are authorised for issue. Other borrowings due to be settled more than 12 months after the end of the reporting period are presented as non-current borrowings in the statements of financial position.

(iii) Financial guarantee contracts The Group and the Company have issued corporate guarantees to banks for borrowings of subsidiaries and third party and these guarantees qualify as financial guarantees because the Group and the Company are required to reimburse the banks if these subsidiaries and third party breach any repayment term. Financial guarantee contract liabilities are measured initially at their fair values, net of transaction costs. Subsequent to initial recognition, financial guarantees are recognised as income in profit or loss over the period of the guarantee. If it is probable that the liability will be higher than the amount initially recognised less amortisation, the liability is recorded at the higher amount with the difference charged to profit or loss.


SERRANO LIMITED56


2.14 Financial liabilities (Continued)

Recognition and derecognition Financial liabilities are recognised on the statements of financial position when, and only when, the Group and the Company become parties to the contractual provisions of the financial instruments. Financial liabilities are derecognised when the contractual obligation has been discharged or cancelled or expired. On derecognition of a financial liability, the difference between the carrying amount and the consideration paid is recognised in profit or loss. When an existing liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such exchange or modification is treated as derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss.

2.15 Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Ordinary shares are classified as equity and recognised at the fair value of the consideration received. Incremental costs directly attributable to the issuance of new equity instruments are shown in the equity as a deduction from the proceeds.

2.16 Revenue recognition Revenue is measured at the fair value of the consideration received or receivable for the sale of goods and services rendered in the ordinary course of business. Revenue is recognised to the extent that it is probable that the economic benefits associated with the transaction will flow to the entity and the revenue can be measured reliably. Revenue is presented net of rebates, discounts and sales related taxes. Revenue from sale of goods is recognised when goods are delivered to the customer and the significant risks and rewards of ownership has been transferred to the customer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably. Revenue from project contracts is recognised based on the “percentage-of-completion” method. The stage of completion is determined based on the proportion of contract costs incurred for work performed up to the end of the reporting period over the estimated total contract costs. Revenue from services income is recognised when the services have been performed and accepted by the customers in accordance with the relevant terms and conditions of the contract. Rental income under operating leases is recognised in profit or loss on a straight-line basis over the term of the lease. Interest income is recognised on a time-proportion basis using the effective interest method.




2.17 Grants

Grants are recognised at the fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. Where the grants relate to expenditures, which are not capitalised, the fair value of grants are credited to profit or loss as and when the underlying expenses are included and recognised in profit or loss to match such related expenditures.

2.18 Leases When the Group is the lessee of operating leases Leases of assets in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are recognised in profit or loss on a straight-line basis over the period of the lease. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the financial year in which termination takes place. When the Group as lessee of finance leases Leases in which the Group assumes substantially the risks and rewards of ownership are classified as finance leases. Upon initial recognition, plant and equipment acquired through finance leases are capitalised at the lower of their fair value and the present value of the minimum lease payments. Any initial direct costs are also added to the amount capitalised. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Lease payments are apportioned between finance charge and reduction of the lease liability. The finance charge is allocated to each period during the lease term so as to achieve a constant periodic rate of interest on the remaining balance of the finance lease liability. Finance charge is recognised in profit or loss.

2.19 Employee benefits Defined contribution plans Contributions to defined contribution plans are recognised as an expense in profit or loss in the same financial year as the employment that gives rise to the contributions. Employee leave entitlement Employee entitlements to annual leave are recognised when they accrue to employees. An accrual is made for the estimated liability for unutilised annual leave as a result of services rendered by employees up to the end of the reporting period.


SERRANO LIMITED58


2.20 Borrowing costs

Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised as expenses in profit or loss in the financial year in which they are incurred. Borrowing costs are recognised on a time-proportion basis in profit or loss using the effective interest method.

2.21 Income tax Income tax expense comprises current and deferred taxes. Income tax expense is recognised in profit or loss except to the extent that it relates to a business combination or items recognised directly in equity, or in other comprehensive income. Current income tax expense is the expected tax payable on the taxable income for the financial year, using tax rates enacted or substantively enacted at the end of the reporting period, and any adjustment to income tax payable in respect of previous financial years. Taxable income differs from profit reported as profit or loss because it excluded items of income or expenses that are taxable or deductible in other years and it further excludes items of income or expenses that are not taxable or tax deductible. Deferred tax is provided, using the balance sheet liability method, for temporary differences at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax is measured using the tax rates expected to be applied to the temporary differences when they are realised or settled, based on tax rates enacted or substantively enacted at the end of the reporting period. Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. Deferred tax assets are reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that the related tax benefit will be realised. Unrecognised deferred tax assets are reassessed at the end of each reporting period and are recognised to the extent that it has become probable that future taxable profits will be available against which the temporary differences can be utilised. Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity and deferred tax arising from a business combination is adjusted against goodwill on acquisition. Deferred tax assets and liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same tax authority and where there is intention to settle the current tax assets and liabilities on a net basis. Deferred tax liabilities are recognised for all taxable temporary differences associated with investments in subsidiaries and associate, except where the timing of the reversal of the temporary difference can be controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.




2.22 Foreign currencies

Items included in the individual financial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates (“functional currency”). The consolidated financial statements of the Group and the statement of financial position of the Company are presented in Singapore dollar, which is the functional currency of the Company and the presentation currency for the financial statements. In preparing the financial statements, transactions in a currency other than the entity’s functional currency (“foreign currencies”) are recorded at the rates of exchange prevailing on the date of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are re-translated at the rates prevailing on the end of the reporting period. Non-monetary items carried at fair value that are denominated in foreign currencies are re-translated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not re-translated. Exchange differences arising on the settlement of monetary items and on re-translating of monetary items are recognised in profit or loss for the financial year. Exchange differences arising on the re-translation of non-monetary items carried at fair value are recognised in profit or loss for the financial year except for differences arising on the re-translation of non-monetary items in respect of which gains and losses are recognised in other comprehensive income. For such non-monetary items, any exchange component of that gain or loss is also recognised in other comprehensive income.

2.23 Segment reporting An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses (including revenue and expenses relating to transactions with other components of the Group) and whose operating results are regularly reviewed by the Group’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance.


SERRANO LIMITED60

3. Critical accounting judgements and key sources of estimation uncertainty

3.1 Critical judgements made in applying the accounting policies

In the process of applying the accounting policies, the management is of the opinion that there are no critical judgements involved that have a significant effect on the amounts recognised in the financial statements except as discussed below. (i) Project contracts

The Group recognises contract revenue to the extent of contract costs incurred where it is probable that those costs will be recoverable and based on the stage of completion method. The stage of completion is determined based on the proportion of contract costs incurred for work performed up to the end of the reporting period over the estimated total contract costs. Significant judgement is required in determining the stage of completion, the extent of the contract costs incurred, the estimated total contract revenue and contract costs, as well as the recoverability of the contracts. Total contract revenue also includes an estimation of the recoverable variation works that are recoverable from the customers. In making the judgement, the Group evaluates by relying on past experience and the work of specialists.

(ii) Classification of available-for-sale financial assets Significant influence is presumed to exist (or not exist) when an entity holds 20% or more (or less than 20%) of the voting rights of another entity, unless it can be clearly demonstrated otherwise. The Group holds a 30% equity interest in J-Plan Associates Pte. Ltd. which the Group has considered that it does not have the power to exercise any influence over the entity as the Group has no representation on the Board of Directors. This investment is intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in the market conditions. As a result, the investment is classified as available-for-sale financial assets instead of investment in associate.

3.2 Key sources of estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities and the reported amounts of revenue and expenses within the next financial year are discussed below: (i) Allowance for impairment loss on doubtful receivables

The management establishes allowance for doubtful receivables when it believes that payment of amounts owed is unlikely to occur. In establishing the allowance, the management considers the historical experience and changes to the customers’ financial position. If the financial conditions of these receivables were to deteriorate, resulting in impairment of the ability to make the required payments, additional allowance may be required. The carrying amounts of trade and other receivables of the Group and of the Company as at 31 December 2016 were $225,377 (2015: $18,400,850) and $13,293 (2015: $14,910,238) respectively.



3. Critical accounting judgements and key sources of estimation uncertainty (Continued)

3.2 Key sources of estimation uncertainty (Continued)

(ii) Fair value of non-current assets held for sale

Non-current assets held for sale is measured at the lower of carrying amount and fair value less costs to sell. Fair value in respect of non-current assets held for sale is assessed with reference to the forced sale value whereby a 20% downward adjustment was considered against their market value. The valuation was performed by an independent valuer and based on the market comparison approach. The carrying amount of non-current assets held for sale of the Group as at 31 December 2016 was $6,720,000 (2015: $Nil).

4. Going Concern and Scheme of Arrangement The Group incurred total comprehensive loss of $114,914,963 for the financial year ended 31 December 2016. In addition, as at 31 December 2016, the Group’s and the Company’s total and current liabilities exceeded their total and current assets by $109,646,494 and $53,583,852 respectively. During the financial year, the Group received demand letters from banks, financial institutions and creditors to request for immediate repayment which resulted in legal actions against the Group. Thereafter, the Company and its subsidiary, Serrano Holdings Pte Ltd, commenced an original scheme of arrangement (the “Original Scheme”) that involves certain creditors (the “Phase One Scheme Creditors”) which was approved by the Phase One Scheme Creditors in October 2016. In January 2017, pursuant to the Original Scheme, the Group entered into a conditional investment agreement (the “Investment Agreement”) with proposed investors (the “Investors”) who will subscribe for new ordinary shares of the Company for a cash consideration of $8,000,000. However, the Company was informed by the Investors in June 2017 of the Investors’ request to revise the Original Scheme to include other creditors that are currently not part of the scheme so as to preserve the working capital position of Group after the Original Scheme is implemented. Otherwise, the Investors will not proceed with the Investment Agreement. Therefore, the Investors requested the Group to appoint new professionals in order to begin the formal process of amending the Original Scheme to include the other creditors that are currently not part of the scheme (“Phase Two Scheme Creditors”). The Group proposed an amended scheme of arrangement (the “Amended Scheme”) and was approved by the Phase One and Phase Two Scheme Creditors (the “Scheme Creditors”) in December 2017. The Amended Scheme commenced on 6 March 2018 and the Original Scheme was thereby terminated.


SERRANO LIMITED62

4. Going Concern and Scheme of Arrangement (Continued)

The Amended Scheme comprises principally the following elements: a) subscription by Investors for shares amounting to (70 – A)% of the enlarged share capital of the

Company for a cash consideration of $8,000,000. The cash consideration of $4,000,000 will be used to pay Phase One Scheme Creditors on a pro-rata basis; and the remaining cash consideration of $4,000,000 will be used to pay Phase Two Scheme Creditors on a pro-rata basis and contribute to the general working capital of the Company to finance existing ongoing projects;

b) distribution of new shares amounting to 25% and A% of the enlarged share capital of the Company to Phase One Scheme Creditors and Phase Two Scheme Creditors, respectively, on a pro-rata basis in accordance with the balance remaining of their approved claims after giving credit for any cash distributions received as stated in (a) above; and

c) execution of supplemental agreement to the Investment Agreement to be entered into by the

Company and the Investors in order to make amendments to the Investment Agreement so as to incorporate the principal terms which are in line with the Amended Scheme.

As part of the Amended Scheme, the Group also appointed a Scheme Manager to carry out the adjudication process for proof of debts submitted by the Scheme Creditors. The cut-off date for the submission of proof of debts is 16 March 2018. As at the date of the financial statements, the adjudication process is still ongoing. The successful completion of the Amended Scheme and the Investment Agreement are subject to fulfilment of conditions precedent in accordance with their respective terms and conditions by 29 May 2018 and 26 June 2018 respectively. These events or conditions indicate the existence of material uncertainties that may cast significant doubts about the Group’s and the Company’s ability to continue as going concerns. Notwithstanding the presence of these material uncertainties, the management and Directors of the Company are of the opinion that it is appropriate to prepare the financial statements on a going concern basis as there is presently no substantial grounds that the Group will have to be liquidated or to cease trading. The management and Directors of the Company are taking active steps to fulfil the conditions precedent of the Amended Scheme and the Investment Agreement which they believe, when implemented, will enable the Group to revive its core business activities. Having regard to the cash flow projections of the Group, which are prepared assuming that the Amended Scheme and the Investment Agreement are successfully implemented, the Directors of the Company are of the opinion that the Group and the Company are able to meet their obligations as and when they fall due. If the Group and the Company are unable to continue in operational existence for the foreseeable future, the Group and the Company may be unable to discharge its liabilities in the normal course of business and adjustments may have to be made to reflect the situation that assets may need to be realised other than in the ordinary course of business and at amounts which could differ significantly from the amounts at which they are currently recorded in the consolidated statement of financial position of the Group and the statement of financial position of the Company. No such adjustments have been made to these financial statements.



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SERRANO LIMITED64

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uary

201

5 5,

500,

000

438,

273

2,45

9,43

0 1,

269,

646

951,

796

10,6

19,1

45

Addi

tion

s 4,

938,

600

172,

467

- 16

,100

84

1,57

8 5,

968,

745

Disp

osal

s -

(28,

944)

(1

,377

,198

) (6

,300

) -

(1,4

12,4

42)

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tten

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-

(9,0

59)

- -

(83,

653)

(9

2,71

2)

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ent

(1,4

90,5

06)

- -

- -

(1,4

90,5

06)

Bala

nce

at 3

1 De

cem

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2015

8,

948,

094

572,

737

1,08

2,23

2 1,

279,

446

1,70

9,72

1 13

,592

,230

Repr

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ting

:

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572,

737

1,08

2,23

2 1,

279,

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1,70

9,72

1 4,

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136

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tion

8,

948,

094

- -

- -

8,94

8,09

4

8,94

8,09

4 57

2,73

7 1,

082,

232

1,27

9,44

6 1,

709,

721

13,5

92,2

30

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umul

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n

Ba

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1 J

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015

901,

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248,

785

973,

449

407,

136

367,

291

2,89

7,69

3 De

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1,02

2 71

,057

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5,94

2 12

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2 18

0,99

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313,

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(16,

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1 De

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2015

-

299,

488

453,

762

524,

858

517,

481

1,79

5,58

9

Net

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g am

ount

Ba

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31

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8,94

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3,24

9 62

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4,58

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192,

240

11,7

96,6

41



5. Property, plant and equipment (Continued)

On 31 December 2016, the Group classified its leasehold properties and renovation with a net carrying amount of $6,720,000 from property, plant and equipment to “Non-current assets held for sale” as the management has committed to sell these properties within next financial year as disclosed in Note 14 to the financial statements. As at 31 December 2016, the Group’s leasehold properties were revalued based on valuation performed by an independent valuer on 27 February 2017 having appropriate professional qualification and experience. The valuation was based on the market comparison approach. Details of valuation techniques and inputs used are disclosed in Note 30.5 to the financial statements. If the revalued property has been included in the financial statements at historical cost less accumulated depreciation, the carrying amount of the Group’s leasehold property as at 31 December 2016 would have been $Nil (2015: $1,859,876). As at 31 December 2016, the carrying amount of the Group’s leasehold properties of $Nil (2015: $8,948,094) was pledged for banking facilities as set out in Note 17 to the financial statements and the carrying amounts of plant and equipment which were acquired under finance lease arrangements were as follows:

Group 2016 2015 $ $

Motor vehicles - 628,470 Plant and machinery - 592,117 - 1,220,587 Finance leased assets are pledged as a security for the related finance lease payables as disclosed in Note 18 to the financial statements. As at 31 December 2016, motor vehicles with net carrying amounts of $Nil (2015: $474,081) were registered in the names of the Directors of the Company and employees of the Group who are holding the motor vehicles in trust for the Group. During the financial year, the Group carried out a review of the recoverable amount of its plant and equipment following the downsizing of its operations causing material uncertainty that may cast a significant doubt about the Group’s ability to continue as going concern as disclosed in Note 4 to the financial statements. The review led to the recognition of an impairment loss of $4,680,090 recognised in profit or loss, and was included in “other expenses” line item of profit or loss. The recoverable amount of the plant and equipment was determined on the basis of their value in use, which is expected to be $Nil due to the Group’s recent corporate restructuring for its liabilities. For the purpose of consolidated statement of cash flows, the Group’s additions to property, plant and equipment during the financial year were financed as follows:

Group 2016 2015 $ $

Additions of property, plant and equipment 4,736,578 5,968,745 Acquired under finance lease payables/borrowings (3,468,201) (4,656,000) Cash payments to acquire property, plant and equipment 1,268,377 1,312,745


SERRANO LIMITED66

6. Intangible assets

Goodwill Trade name Total $ $ $ Group Cost Balance at 1 January 2016 and 31 December 2016 518,237 141,120 659,357

Accumulated amortisation and impairment Balance at 1 January 2016 - 141,120 141,120 Impairment loss during the financial year 518,237 - 518,237 Balance at 31 December 2016 518,237 141,120 659,357

Net carrying amount Balance at 31 December 2016 - - -

Remaining useful life at 31 December 2016 - -

Cost Balance at 1 January 2015 and 31 December 2015 518,237 141,120 659,357

Accumulated amortisation Balance at 1 January 2015 - 94,080 94,080 Amortisation for the financial year - 47,040 47,040 Balance at 31 December 2015 - 141,120 141,120

Net carrying amount Balance at 31 December 2015 518,237 - 518,237

Remaining useful life at 31 December 2015 Indefinite - Goodwill arising on consolidation relates to the acquisition of a subsidiary, Sanzio Space Planner Pte. Ltd. (“Sanzio”). Amortisation expense and impairment loss were included in “other expenses” line item of profit or loss. Impairment test for goodwill Goodwill arising from the business combination were related to the wholesale and retail furnishings business, which is an individual cash-generating unit (“CGU”). As at 31 December 2016, owing to the competitive environment, the management had downsized Sanzio’s operations and therefore has impaired goodwill of $518,237 in full during the financial year.



7. Investments in subsidiaries

Company 2016 2015 $ $

Unquoted equity shares, at cost 18,268,138 18,268,138 Capital contributions (Note 11) 13,634,245 - 31,902,383 18,268,138 Allowance for impairment losses (31,902,383) (7,200,000) - 11,068,138 Movement in allowance for impairment losses was as follows:

Company 2016 2015 $ $

Balance at beginning of financial year 7,200,000 - Impairment loss during the financial year 24,702,383 7,200,000 Balance at end of financial year 31,902,383 7,200,000 As at 31 December 2016, the management carried out a review of the recoverable amount of the investments in subsidiaries due to the losses reported by subsidiaries as a result of increased project costs and operations downsized causing a material uncertainty that may cast a significant doubt about the Group’s ability to continue as going concern as disclosed in Note 4 to the financial statements. The review led to the Company recognising full impairment loss of $24,702,383 (2015: $7,200,000) in the Company’s profit or loss. The details of the subsidiaries are as follows:

Name of company

Principal place of business Principal activities

Proportion of ownership

interest held 2016 2015 % %

Artiwood Supervina Pte Ltd (1) (2)

Singapore Manufacturing, wholesale and retailing of furniture and other related products

100 100

Serrano Design Pte. Ltd.(1) (2) Singapore Project work, interior design

and related services 100 100

Serrano Holdings Pte Ltd. (1)

Singapore Non-building construction and wholesale of furniture for projects purposes

100 100

Sanzio Space Planner Pte.

Ltd.(1) (2)

Singapore Wholesale of furniture and fittings, renovation and interior design

100 100

(1) Audited by BDO LLP, Singapore for consolidation purposes. (2) On 30 January 2018, the subsidiaries have been placed under Provisional Liquidation.


SERRANO LIMITED68

8. Investment in associate

Group Company 2016 2015 2016 2015 $ $ $ $

Unquoted equity shares, at cost 108,066 108,066 108,066 108,066 Share of post-acquisition results (108,066) (99,937) - - Allowance for impairment losses - - (108,066) - - 8,129 - 108,066 Movement in allowance for impairment losses was as follows:

Company 2016 2015 $ $

Balance at beginning of financial year - - Impairment loss during the financial year 108,066 - Balance at end of financial year 108,066 - As at 31 December 2016, the management carried out a review of the recoverable amount of the investment in associate due to the continuing losses reported by the associate. The review led to the recognition of an impairment loss of $108,066 (2015: $Nil) in profit or loss. On 23 January 2015, the Group injected additional share capital in Serrano Thailand by way of cash of $49,000 (THB1,176,000), representing an equity interest of 49% and, the other shareholders of Serrano Thailand have also contributed cash of $51,000 (THB1,224,000) representing its proportionate equity interest of 51%. Accordingly, the effective interest held by the Group remained unchanged. The details of the associate are as follows:

Name of company Principal place

of business Principal activities Effective equity interest 2016 2015 % %

Serrano (Thailand) Co., Ltd.(1) (2)

Thailand Project management and interior fit-out

49 49

(1) Not considered as a significant associate as defined under Rule 718 of the Listing Manual of the Singapore Exchange

Securities Trading Limited. Serrano Thailand’s primary business is in alignment with the Group’s interior fit-out business in Southeast Asia. For the purpose of equity accounting for share of results of associate, the management accounts have been used as the audited financial statements is not available.



8. Investment in associate (Continued)

The summarised financial information below reflects the amounts presented in the financial statements of the associate (and not the Group’s share of those amounts), adjusted for differences in accounting policies between the Group and the associate.

Group 2016 2015 $ $ Assets and liabilities Current assets 1,263,150 2,453,969 Non-current assets 32,266 50,628 Total assets 1,295,416 2,504,597 Current liabilities (1,289,614) (2,470,829) Non-current liabilities (5,802) (17,178) Total liabilities (1,295,416) (2,488,007) Net assets - 16,590 Proportion of the Group’s ownership 49% 49% Share of net assets - 8,129

Revenue and expenses Revenue 2,775,591 3,788,577 Total comprehensive income (16,590) (211,445) The investment in an associate had no contingent liabilities and capital commitments as at 31 December 2016.

9. Available-for-sale financial assets

Group and Company 2016 2015 $ $

Unquoted equity investment, at cost 1,800,000 1,800,000 Allowance for impairment losses (1,800,000) (260,000) - 1,540,000 Movement in allowance for impairment losses was as follows:

Group and Company 2016 2015 $ $

Balance at beginning of financial year 260,000 - Impairment loss during the financial year 1,540,000 260,000 Balance at end of financial year 1,800,000 260,000


SERRANO LIMITED70

9. Available-for-sale financial assets (Continued)

The available-for-sale financial assets represents 30% (2015: 30%) equity interest in J-Plan Associates Pte Ltd. The shareholding interest exceeds 20% of the total shareholding in the investee company but the Group considers that it does not have the power to exercise any influence over the entity as the Group has no representation on the Board of Directors. This investment is intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in the market conditions. The investment in J-Plan Associates Pte Ltd is measured at cost less impairment as these equity instruments do not have active market quoted prices and therefore the fair value of these instruments cannot be reliably measured. The management assesses the fair value of its available-for-sale financial assets at the end of each reporting period to determine whether there is any indication of impairment. As at 31 December 2015, the fair value was based on net realisable value of the investee’s net assets. During the financial year ended 31 December 2016, the Group and the Company recognised an impairment loss of $1,540,000 (2015: $260,000) in profit or loss subsequent to the assessment performed by the management on the fair value of the available-for-sale financial assets. Allowance for impairment loss was included in the “other expenses” line item in the profit or loss of the Group for the financial year ended 31 December 2016. The currency profile of available-for-sale financial assets as at the end of the reporting period was Singapore dollar.

10. Inventories

Group 2016 2015 $ $

Finished goods 174,347 1,370,922 The cost of inventories recognised as an expense and included in “cost of sales” line item in the Group’s profit or loss for the financial year ended 31 December 2016 amounted to $33,312,652 (2015: $20,974,495). During the financial year, the management carried out a review of the realisable values of its inventories and the review led to the recognition of a write down for inventory obsolescence of $1,061,746 (2015: $Nil) that has been included in “cost of sales” line item in the Group’s profit or loss.



11. Trade and other receivables

Group Company 2016 2015 2016 2015 $ $ $ $ Trade receivables - third parties 7,087,197 14,642,082 - - - related parties 34,189 68,981 - - - associated company - 129,121 - - 7,121,386 14,840,184 - - Allowance for impairment losses -

third parties (6,911,608) (2,197,888) - - 209,778 12,642,296 - - Non-trade receivables - third parties 1,912 1,514,052 13,293 51,000 - subsidiaries - - - 14,859,238 - associated company - 450,000 - - Loan to a third party 3,575,775 3,731,905 - - 3,577,687 5,695,957 13,293 14,910,238 Allowance for impairment losses -

loan to third party (3,575,775) (2,234,119) - - 1,912 3,461,838 13,293 14,910,238 Deposits 13,687 225,907 - - Advance payment to suppliers - third parties - 1,751,405 - - - related companies - 319,404 - - - 2,070,809 - - 225,377 18,400,850 13,293 14,910,238 Trade receivables are unsecured, non-interest bearing and generally on 30 to 120 (2015: 30 to 120) days’ credit terms. The non-trade amounts due from subsidiaries and associated company are unsecured, non-interest bearing and repayable on demand. The loan to a third party is unsecured and bears effective interest at 6.14% (2015: 6.14%) per annum. The loan has a maximum repayment term of 24 months and the Group reserves the right for immediate repayment of the loan at any time upon the issue of a demand letter. During the financial year, the management performs debt recovery assessment and made a waiver of debts for non-trade receivables due from its subsidiaries amounting to $13,624,245 and the balances are recorded as a capital contribution by the Company as disclosed in Note 7 to the financial statements.


SERRANO LIMITED72

11. Trade and other receivables (Continued)

Movements in allowance for impairment losses on third parties trade receivables were as follows:

Group 2016 2015 $ $

Balance at beginning of financial year 2,197,888 121,961 Allowance written back during the financial year (27,388) (33,852) Bad receivables written off (540,015) (12,080) Charged for the financial year 5,281,123 2,121,859 Balance at end of financial year 6,911,608 2,197,888 Movements in allowance for impairment losses on third parties non-trade receivables were as follows:

Group 2016 2015 $ $

Balance at beginning of financial year 2,234,119 - Bad receivables written off (474,855) - Charged for the financial year 1,816,511 2,234,119 Balance at end of financial year 3,575,775 2,234,119 Allowance for impairment losses on doubtful trade and non-trade receivables are made in respect of estimated irrecoverable amounts subsequent to debt recovery assessment made by the management by reference to past default experience and aging of the receivables. The currency profiles of trade and other receivables as at the end of the reporting period were as follows:

Group Company 2016 2015 2016 2015 $ $ $ $

Singapore dollar 180,023 14,067,066 13,293 14,910,238 United States dollar 45,354 4,333,784 - - 225,377 18,400,850 13,293 14,910,238

12. Amounts due from contract customers

Group 2016 2015 $ $ Aggregate amount of costs incurred plus recognised profits less

recognised losses to date 35,072,562 285,750,345 Less: progress billings (30,342,343) (215,725,466) 4,730,219 70,024,879 Less: Allowance for impairment losses (4,613,603) (594,306) Amounts due from contract customers 116,616 69,430,573



12. Amounts due from contract customers (Continued)

As at 31 December 2016, retention sums amounting to $Nil (2015: $6,955,919) are included in the amounts due from contract customers. The project costs amounting to $93,802,928 (2015: $101,798,455) are included in “cost of sales” line item in Group’s profit or loss. Movements in allowance for impairment losses were as follows:

Group 2016 2015 $ $

Balance at beginning of financial year 594,306 - Allowance written back during the financial year (104,452) - Impairment loss during the financial year 4,123,749 594,306 Balance at end of financial year 4,613,603 594,306

13. Cash and cash equivalents

Group Company 2016 2015 2016 2015 $ $ $ $

Fixed deposits with bank - 5,705,426 - - Cash and bank balances 308,499 2,735,725 30,645 80,966 Cash and cash equivalents on

statements of financial position 308,499 8,441,151 30,645 80,966

Bank overdrafts (12,078,612) (10,998,837) Fixed deposits pledged - (5,705,426) Cash and cash equivalents on

consolidated statement of cash flows (11,770,113) (8,263,112)

Fixed deposits were placed for a period of 12 months and bore effective interest rates between 0.15% to 1.03% per annum in previous financial year. As at 31 December 2016, fixed deposits of the Group amounting to $Nil (2015: $5,705,426) are pledged to banks for facilities granted to the Group as referred to in Note 17 to the financial statements. The currency profiles of cash and cash equivalents on statements of financial position as at the end of the reporting period were as follows:

Group Company 2016 2015 2016 2015 $ $ $ $

Singapore dollar 293,031 7,177,837 30,645 80,966 United States dollar 15,468 1,260,244 - - Euro - 3,070 - - 308,499 8,441,151 30,645 80,966


SERRANO LIMITED74

14. Non-current assets held for sale

Group 2016 2015 $ $

Balance at beginning of financial year - - Transferred from property, plant and equipment (Note 5) 6,720,000 - Balance at end of financial year 6,720,000 - On 31 December 2016, the Group classified its leasehold properties and renovation with a net carrying amount of $6,720,000 from property, plant and equipment to “Non-current assets held for sale” as the management has committed to sell these properties within next financial year as part of the Scheme of Arrangement to settle its bank obligations. As at 31 December 2016, borrowings were secured against the Group’s leasehold properties classified under “Non-current assets held for sale” with a carrying amount of $43,331,208 as disclosed in Note 17 to the financial statements.

15. Share capital

Group and Company 2016 2015 2016 2015

Number of

ordinary shares $ $ Issued and fully paid: Balance at beginning of financial year 272,360,574 150,000,000 33,029,183 24,802,397 Issuance of ordinary shares pursuant

to rights issue - 122,360,574 - 8,565,240 Share issue expenses - - - (338,454) Balance at end of financial year 272,360,574 272,360,574 33,029,183 33,029,183 The holders of ordinary shares are entitled to receive dividends as and when declared by the Company. All ordinary shares have no par value and carry one vote per share without restriction. On 1 October 2015, the Company received acceptance of and issue for a total of 122,360,574 rights shares at an issue price of $0.07 for each rights share for an aggregate consideration of $8,565,240, on the basis of one (1) rights share for every one (1) existing ordinary share of the Company held by the shareholders (“Rights Issue”). The total rights shares issued represented approximately 81.57% of the total number of up to 150,000,000 rights shares that were available for subscription under the Rights Issue.



16. Other reserves

Group 2016 2015 $ $

Asset revaluation reserve 941,842 2,788,563 Merger reserve (9,438,138) (9,438,138) (8,496,296) (6,649,575) Movements in other reserves are set out in the consolidated statement of changes in equity. Asset revaluation reserve The asset revaluation reserve arises from the revaluation of leasehold properties and is not available for distribution. Merger reserve Merger reserve represents the differences between the consideration paid and the issued share capital of subsidiaries under common control that are accounted for by applying the “pooling-of-interest” method.

17. Borrowings

Group 2016 2015 $ $ Current liabilities Secured Term loan I 105,607 249,133 Term loan II 422 71,905 Term loan III 6,142,194 6,564,813 Term loan IV - Portion of term loan due for repayment within one year 1,905,991 1,200,000 - Portion of term loan due for repayment after one year which

are subject to a repayment on demand clause - 598,099 Term loans V 2,455,499 1,901,412 Term loan VI 1,189,775 1,109,171 Term loans VII 3,541,988 3,335,606 Term loan VIII 1,978,202 1,850,000 Term loan IX - Portion of term loan due for repayment within one year 3,477,724 460,618 - Portion of term loan due for repayment after one year which

are subject to a repayment on demand clause - 3,154,973 Term loan X - Portion of term loan due for repayment within one year 3,527,606 - - Portion of term loan due for repayment after one year which

are subject to a repayment on demand clause - 3,394,637


SERRANO LIMITED76

17. Borrowings (Continued)

Group 2016 2015 $ $ Current liabilities Secured Term loan XI 143,483 402,208 Term loan XII 998,617 955,245 Term loan XIII 299,871 563,092 Term loan XIV 184,803 261,435 Term loan XV - Portion of term loan due for repayment within one year 599,445 286,500 - Portion of term loan due for repayment after one year which

are subject to a repayment on demand clause - 289,663 Term loan XVI 222,370 311,711 Term loan XVII - Portion of term loan due for repayment within one year 8,077 286,003 - Portion of term loan due for repayment after one year which

are subject to a repayment on demand clause - 404,224 Term loan XVIII 174,087 160,000 Term loan XIX - Portion of term loan due for repayment within one year 1,067,152 499,465 - Portion of term loan due for repayment after one year which

are subject to a repayment on demand clause - 528,593 Term loan XX - Portion of term loan due for repayment within one year 330,324 336,402 - Portion of term loan due for repayment after one year which

are subject to a repayment on demand clause - 28,893 Term loan XXI - Portion of term loan due for repayment within one year 1,370,608 990,899 - Portion of term loan due for repayment after one year which

are subject to a repayment on demand clause - 936,489 Term loan XXII 2,847,498 3,090,777 Term loan XXIII 1,997,249 3,000,000 Term loan XXIV - Portion of term loan due for repayment within one year 350,677 166,453 - Portion of term loan due for repayment after one year which

are subject to a repayment on demand clause - 236,906 Factoring 680,118 1,555,139 Bank overdrafts 12,078,612 10,998,837 Trust receipts 16,827,912 18,809,888 64,505,911 68,989,169

Non-current liabilities Secured Term loan I - 372,488 - 69,361,657




Non-current borrowings are repayable as follows:

Group 2016 2015 $ $ Later than one financial year but not later than five

financial years - 372,488 During the financial years ended 31 December 2015 and 31 December 2016, the average effective interest rates per annum of the borrowings were as follows:

Group 2016 2015 % %

Terms loan I to XXIV, except for term loan XXIII 3.00 - 7.85 3.00 - 7.85 Term loan XXIII 26.00 26.00 Bank overdrafts 5.25 – 6.50 5.25 – 6.50 Trust receipts 6.25 – 6.50 6.25 – 6.50

Borrowings are arranged at floating rates, thus exposing the Group to interest rate risk. As at the end of the reporting period, the fair values of non-current borrowings approximate its carrying amounts due to floating rates charged. Term loan I is repayable over 120 months commencing from May 2008 to May 2018. Term loan II is repayable over 48 months commencing from April 2012 to March 2016. Term loan III is repayable over 18 months commencing from January 2015 to June 2016 (inclusive of 6 months interest servicing in arrears). Term loan IV is repayable over 15 months commencing from December 2014 to May 2017 (inclusive of 11 months interest servicing in arrears). Term loans V are repayable over 9 months commencing from December 2014 to May 2017 (inclusive of 5 months interest servicing in arrears). Term loan VI is repayable over 11 months commencing from December 2014 to April 2016 (inclusive of 5 months interest servicing in arrears). Term loans VII are repayable over 11 months commencing from December 2014 to July 2016 (inclusive of 9 months interest servicing in arrears). Term loan VIII is repayable in May 2016 (inclusive of 7 months interest servicing in arrears). Term loan IX is repayable over 96 months commencing from July 2015 to June 2023 (inclusive of 7 months interest servicing in arrears). Term loan X is repayable over 37 months commencing from January 2015 to January 2018 (inclusive of 8 months interest servicing in arrears). Term loan XI is repayable over 18 months commencing from January 2015 to June 2016 (inclusive of 2 months interest servicing in arrears).


SERRANO LIMITED78


Term loan XII is repayable over 24 months commencing from January 2015 to December 2016 (inclusive of 8 months interest servicing in arrears). Term loan XIII is repayable over 19 months commencing from January 2015 to July 2016 (inclusive of 3 months interest servicing in arrears). Term loan XIV is repayable over 17 months commencing from April 2015 to August 2016 (inclusive of 4 months interest servicing in arrears). Term loan XV is repayable over 33 months commencing from May 2015 to March 2017 (inclusive of 8 months interest servicing in arrears). Term loan XVI is repayable over 14 months commencing from July 2015 to August 2016 (inclusive of 4 months interest servicing in arrears). Term loan XVII is repayable over 36 months commencing from May 2015 to April 2018 (inclusive of 3 months interest servicing in arrears). Term loan XVIII is repayable over 15 months commencing from April 2015 to June 2016 (inclusive of 7 months interest servicing in arrears). Term loans XIX and XX are repayable over 36 months and 18 months commencing from January 2015 to December 2017 and from August 2015 to May 2017 respectively (inclusive of 9 months interest servicing in arrears). As at 31 December 2016, term loans XIX and XX are supported by corporate guarantees provided by the Company. Term loan XXI is repayable over 24 months commencing from December 2015 to November 2017 (inclusive of 7 months interest servicing in arrears). As at 31 December 2016, term loan XXI was secured by fixed deposits (Note 13), and supported by joint and several guarantees of certain shareholders of the Company, corporate guarantee provided by a corporate shareholder of the Company and corporate guarantee provided by the Company. Term loan XXII is repayable over 15 months commencing from March 2015 to May 2016. As at 31 December 2016, term loan XXII is supported by legal assignment of a contract proceeds and corporate guarantees provided by the Company. Term loan XXIII which is due to a corporate shareholder of the Company and is repayable over 11 months commencing from January 2016 to November 2016 (inclusive of 6 months interest servicing in arrears). As at 31 December 2016, term loan XXIII is supported by a shareholder of the Company. 'Term loan XXIV is repayable over 36 months commencing from July 2015 to June 2018. As at 31 December 2016, term loan XXIV is supported by joint and several guarantees of certain shareholders of the Company and corporate guarantee provided by a subsidiary. Factorings are repayable over 1 to 3 months. As at 31 December 2016, term loans I, II, IV, V, VI, VII, VIII, XVII, XVIII and factorings were secured as follows: a) legal mortgage over the leasehold property of the Group (Noted 5 and 14); b) fixed deposits (Note 13); c) supported by a shareholder of the Company amounting to $45,700,000 (2015: $45,700,000); d) corporate guarantee provided by a corporate shareholder of the Company amounting to

$42,400,000 (2015: $42,400,000); and e) corporate guarantee provided by the Company amounting to $31,968,000 (2015: $31,968,000).




As at 31 December 2016, term loans III, IX, X, XI, XII, XIII, XIV, XV and XVI were secured as follows: a) legal mortgage over the leasehold property of the Group (Notes 5 and 14); b) fixed deposits (Note 13); c) supported by a shareholder of the Company; d) corporate guarantee provided by the Company; and e) corporate guarantee provided by a corporate shareholder of the Company. As at 31 December 2015, current borrowings in respect of the term loans IV, IX, X, XV, XVII, XIX, XX, XXI and XXIV were not scheduled for repayment within 12 months from the end of the reporting period but were classified as current liabilities as the Group did not have the unconditional right at the end of the reporting period to defer settlement for at least 12 months after the end of the reporting period and the loan can be recalled by the bank or financial institution leaders at any times even there is no default. Further details of the management of liquidity risk are set out in Note 30.3 to the financial statements. Trust receipts have maturities of between 120 to 150 (2015: 120 to 150) days. As at 31 December 2016, the bank overdrafts and trust receipts facilities are secured by the legal mortgage over the leasehold properties of the Group (Note 14), fixed deposits (Note 13), supported by joint and several guarantees of certain shareholders of the Company, corporate guarantees provided by the Company, corporate guarantees provided by a corporate shareholder of the Company and corporate guarantees provided by a subsidiary. As at 31 December 2015, certain of the Group’s subsidiaries are not in compliance with financial covenants set out in the respective banking/credit facilities letters as follows: a) the ratio of total liabilities to tangible networth of the Group amounting to 22.4 times has

exceeded the maximum ratio stated in the banking facility granted by the bank to a subsidiary; b) the tangible networth of the Group and certain subsidiaries has breached the minimum tangible

networth stated in the banking facilities granted by the bank; and c) term loan XXVI representing 76% of the remaining value of a contract had exceeded the maximum

70% of remaining value of the contract as stated in the credit facilities granted by the financial institution.

Pursuant to the terms stated in the banking/credit facilities letter, the bank and financial institution can immediately cancel or recall the facilities and request the Group to make immediate repayments to the bank and financial institution. As at the date of the auditor’s report for the financial year ended 31 December 2015, the bank agreed to grant an indulgence for the breach of the gearing ratio of 4.0 times for the Group till financial year ended 31 December 2017. As at 31 December 2016, the Group had received letters of demand from banks and financial institutions to demand the immediate payment for its borrowings. As disclosed in Note 4 to the financial statements, the Group is currently under the Amended Scheme and the borrowings form part of the arrangement which will be settled at agreed sum in accordance to the Scheme.


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As at the end of the reporting period, the Group had banking/credit facilities as follows:

Group 2016 2015 $ $

Facilities granted - 92,487,791 Facilities unutilised - 15,606,888 The currency profile of borrowings as at the end of the reporting period was Singapore dollar.

18. Finance lease payables

Minimum lease

payments

Future finance charges

Present value of minimum

lease payments

$ $ $ Group 2016 Current liabilities Not later than one financial year 3,220,643 (324,042) 2,896,601 2015 Current liabilities Not later than one financial year 174,804 (21,218) 153,586 Non-current liabilities Later than one financial year but not later

than five financial years 464,827 (33,543) 431,284 Later than five financial years 20,127 (238) 19,889 484,954 (33,781) 451,173

659,758 (54,999) 604,759 The finance lease terms range from between 5 to 7 years (2015: 1 to 10 years). Included in “current liabilities” portion of finance lease amounted to $2,117,660, which is due for repayment after one financial year as it is subjected to a repayment on demand clause. The effective interest rates charged for the finance lease obligations range from 3.57% to 6.09% (2015: 3.52% to 6.45%) per annum. As at the end of the reporting period, the fair values of the Group’s finance lease payables approximated their carrying amounts. All finance leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments. The Group’s obligations under finance leases are secured by the leased assets, which will revert to the lessors in the event of default by the Group, and supported by joint and several guarantees of certain shareholders of the Company for all amounts owing to the financial institution. The currency profile of finance lease payables as at the end of the reporting period was Singapore dollar.



19. Deferred tax liabilities

Group 2016 2015 $ $

Balance at beginning of financial year 662,578 672,975 Credited to profit or loss - profit or loss (284,334) (10,397) - other comprehensive income (378,244) - Balance at end of financial year - 662,578 Deferred tax liabilities are attributable to the following temporary differences computed at statutory income tax rate of 17% (2015: 17%):

Group 2016 2015 $ $

Accelerated tax depreciation - 194,626 Accrued unutilised leave - (14,626) Revaluation surplus on leasehold property - 482,578 - 662,578

20. Trade and other payables

Group Company 2016 2015 2016 2015 $ $ $ $ Trade payables - third parties 40,651,446 19,193,074 - - - related parties - 393,612 - - - associated company - 139,175 - - 40,651,446 19,725,861 - - Other payables - third parties 2,997,051 835,556 811,281 202,705 - related parties 25,089 - - - - associated company - 1,813 - - 3,022,140 837,369 811,281 202,705 Accrued expenses 1,286,735 12,303,742 252,900 185,333 Advance payments from

customers 90,967 2,515,674 - - Liabilities arising from corporate

guarantees 4,613,187 - 52,364,509 - Refundable deposit from

customers 160,305 239,479 - - Unutilised annual leave - 82,012 - - 49,824,780 35,704,137 53,428,690 388,038


SERRANO LIMITED82

20. Trade and other payables (Continued)

Trade payables are unsecured, non-interest bearing and are normally settled between 30 to 120 (2015: 30 to 120) days’ terms. The non-trade amount due to associated company is unsecured, non-interest bearing and repayable on demand except for advanced payment from customer of $Nil (2015: $2,500,000) which is unsecured, bear effective interest of 2.5% per annum and to be settled within 18 months. Liabilities arising from corporate guarantees arose from letters of demand from banks relate to financial guarantee contracts provided by the Group and the Company in respect of loans taken up by a third party and subsidiaries. The currency profiles of trade and other payables as at the end of the reporting period were as follows:

Group Company 2016 2015 2016 2015 $ $ $ $

Singapore dollar 42,342,607 34,869,096 53,428,690 388,038 United States dollar 5,834,374 717,260 - - Euro 130,678 63,941 - - Renminbi 1,517,121 53,840 - - 49,824,780 35,704,137 53,428,690 388,038

21. Revenue

Group 2016 2015 $ $

Sales of goods 1,386,931 14,409,133 Services rendered 3,085,398 3,917,593 Project revenue 12,761,868 76,336,605 17,234,197 94,663,331



22. Other income

Group 2016 2015 $ $ Allowance for impairment loss on doubtful third parties trade

receivables written back 27,388 33,852 Allowance for amounts due from contract customers written back 104,452 - Foreign exchange gain, net - 122,826 Gain on disposal of plant and equipment - 157,977 Government grants 194,586 198,630 Interest income 23,235 28,634 Unclaimed creditors written back 163,124 - Services rendered - 170 Others 114,413 43,100 627,198 585,189

23. Finance costs

Group 2016 2015 $ $ Interest expenses - bank overdrafts 750,422 300,409 - factoring 94,595 142,910 - finance leases 118,375 47,438 - interest charges 95,500 366,801 - term loans 1,667,334 2,400,617 - trust receipts 1,285,805 1,700,308 4,012,031 4,958,483


SERRANO LIMITED84

24. Loss before income tax

In addition to the charges and credits disclosed elsewhere in the notes to the financial statements, the above includes the following charges:

Group 2016 2015 $ $ Cost of sales Allowance for impairment loss on amounts due from contract customers 4,123,749 594,306 Amounts due from contract customers written off 34,394,731 - Back charges by main contractors/subcontractors 10,017,990 - Depreciation of property, plant and equipment 1,439,750 865,044 Employee benefits expense - salaries, bonus and other benefits 6,636,196 10,737,684 - defined contribution plans 267,498 343,047 Operating lease expenses - rental of motor vehicles 872,690 227,679 Subcontractor charges 8,402,364 18,635,437 Write-down of inventories 1,061,746 -

Selling and distribution costs Advertisement and sponsorship 44,617 58,381 Exhibition expenses 555,378 640,034 Telephone charges 95,854 170,603 Travelling expenses 180,602 242,056

Administrative expenses Audit fees - Auditors of the Company 23,000 104,000 Non-audit fees - Auditors of the Company - - Depreciation of property, plant and equipment 351,993 447,989 Directors of the Company - fees 170,000 128,000 - salaries, bonus and other benefits 611,734 787,506 - defined contribution plans 37,894 33,108 Directors of the subsidiaries - salaries, bonus and other benefits 102,000 124,363 - defined contribution plans 11,730 10,583 Employee benefits expense - salaries, bonus and other benefits 588,128 861,093 - defined contribution plans 76,767 120,963 Operating lease expenses - rental of land 208,198 156,525 - rental of offices and warehouses 512,694 821,658



24. Loss before income tax (Continued)

Group 2016 2015 $ $ Other expenses Allowance for impairment loss on available-for-sale financial

assets 1,540,000 260,000 Allowance for impairment loss on doubtful third parties trade

receivables 5,281,123 2,121,859 Allowance for impairment loss on doubtful third parties non-

trade receivables 1,816,511 2,234,119 Amortisation of intangible asset - 47,040 Bad third parties trade receivables written off 857,268 22,260 Foreign exchange loss, net 113,548 - Impairment loss on intangible assets 518,237 - Impairment loss on plant and equipment 4,680,090 - Initial public offering expenses - 188,893 Liabilities arising from corporate guarantee attributable to a

third party 4,613,187 - Late payment interest and fine 1,425,719 27,161 Loss on disposal of plant and equipment 45,805 - Plant and equipment written off 689,288 57,889 Employee benefits expense includes the remuneration of key management personnel of the Group as disclosed in Note 29 to the financial statements.


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25. Income tax

Group 2016 2015 $ $ Current income tax - under provision in prior financial years - 31,882 - 31,882 Deferred tax - current financial year (256,095) (21,541) - (over)/under provision in prior financial years (28,239) 11,144 (284,334) (10,397)

Total income tax recognised in profit or loss (284,334) 21,485 Reconciliation of effective income tax rate

Group 2016 2015 $ $

Loss before income tax (113,352,576) (29,630,272) Less: Share of results of associate, net of tax 8,129 103,608 (113,344,447) (29,526,664)

Income tax calculated at Singapore’s statutory income tax rate of 17% (2015: 17%) (19,268,556) (5,019,533)

Tax effect of non-deductible expenses for income tax purposes 1,924,130 408,663 Tax effect of income not subject to income tax - (65,490) Under provision of current income tax in prior financial years - 31,882 (Over)/Under provision of deferred tax in prior financial years (28,239) 11,144 Deferred tax assets not recognised 17,102,959 4,689,709 Enhance tax deduction (23,070) (30,609) Others 8,442 (4,281) Total income tax recognised in profit or loss (284,334) 21,485 As at 31 December 2016, the Group had unutilised tax losses of approximately $123,264,000 (2015: $24,844,000) available for offset against future taxable profits subject to the agreement by the tax authorities and provisions of the tax legislations in which the Group operates. These deferred tax assets have not been recognised as it is not certain whether future taxable profits will be available against which the Group can utilise these benefits. Accordingly, these deferred tax assets have not been recognised in the financial statements in accordance with the accounting policy in Note 2.21 to the financial statements.



26. Loss per share

The calculations for earnings per share are based on:

Group 2016 2015

Loss attributable to owners of the parent ($) (113,068,242) (29,651,757)

Weighted average number of ordinary shares applicable to

earnings per share 272,360,574 180,841,569

Loss per share (in cents) - Basic (41.51) (16.40)

- Diluted (41.51) (16.40) Basic loss per share is calculated by dividing the net loss for the financial year attributable to owners of the parent by the weighted average number of ordinary shares in issue during the financial year. As the Group has no dilutive potential ordinary shares, the diluted loss per share is equivalent to basic loss per share for the financial year.

27. Commitments 27.1 Operating lease commitments

The Group as lessee The Group lease office spaces, warehouses and motor vehicles under non-cancellable operating leases. The operating lease commitments are based on existing rental rates. The leases have lease term range from 1 to 10 years and rentals are fixed during the lease term. As at the end of the reporting period, the future minimum lease payable under non-cancellable operating leases contracted for but not recognised as liabilities were as follows:

Group 2016 2015 $ $

Within one financial year 214,943 1,028,856 After one financial year but within five financial years 1,241,394 2,547,930 More than five financial years 866,010 1,714,728 2,322,347 5,291,514

27.2 Capital commitment As at 31 December 2016, the Group has commitment of $Nil (2015: $2,731,379) in respect of capital expenditure for plant and machinery.


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28. Significant related party transactions

During the financial year, in addition to the related party information disclosed elsewhere in the financial statements, the following were significant related party transactions at rates and terms agreed between the Group and the Company and their related parties during the financial year:

Group Company 2016 2015 2016 2015 $ $ $ $ With related parties* Sales 31,200 - - - Advances from - 100,000 - - Advances to - 90,000 - - Hire purchase reimbursements

and administrative fees payable to 56,108 162,927 - -

Labour costs 38,451 99,927 - - Loan from - 5,500,000 - - * Related parties refer to (i) entities in which the directors of the Group’s entities have beneficial

interests and (ii) corporate shareholders

Group Company 2016 2015 2016 2015 $ $ $ $ With associated company Sales of goods 53,837 126,575 - - Purchases of goods 550,200 446,940 - - Advances to 600,000 - - -

With subsidiaries Waiver of debts - - 13,634,245 - Advances to - - - 11,417,806 Management fee income - - - 2,216,200 Payment on behalf - - 249,448 1,223,021



28. Significant related party transactions (Continued)

Compensation of key management personnel Key management personnel are Directors of the Company and those persons having authority and responsibility for planning, directing and controlling the activities of the Group and the Company, directly and indirectly. The remuneration of Directors of the Company and key management personnel of the Group during the financial year was as follows:

Group 2016 2015 $ $ Directors of the Company - short-term employee benefits 781,734 915,506 - post-employment benefits 37,894 33,108 819,628 948,614 Directors of the subsidiaries - short-term employee benefits 102,000 124,363 - post-employment benefits 11,730 10,583 113,730 134,946 Other key management personnel - short-term employee benefits 313,724 622,677 - post-employment benefits 28,616 32,005 342,340 654,682 1,275,698 1,738,242


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29. Segment information

Management considers the business from both geographical and business segment perspective. Geographically, management manages and monitors the business in these primary geographic areas: Singapore, Vietnam, Myanmar and Others. All these locations are engaged in interior fit-out and wholesale and retail furnishings businesses. Management has determined the operating segment based on the reports reviewed by the chief operating decision maker. For management purposes, the Group is organised into business units based on its services, and has two reportable operating segments as follows: (a) Interior fit-out business; and (b) Wholesale and retail furnishings business. The interior fit-out segment is business derived from property development and refurbishment projects in respect of customisation, manufacture, supply and installation of Panelling Products; and construction and installation of interior fit-out works for interior spaces on a turnkey basis, including the supply and installation of Panelling Products, other furnishings, ceilings, floors, partitions, and M&E works. The wholesale and retail furnishings segment relates to the business of sales and distribution of a wide range of furnishings suitable for home, office and commercial use. The Group’s reportable segments are strategic business units that are organised based on their function and targeted customer groups. They are managed separately because each business unit requires different skill sets and marketing strategies. Management monitors the operating results of the segment separately for the purposes of making decisions about resources to be allocated and of assessing performance. Segment performance is evaluated based on operating profit or loss which is similar to the accounting profit or loss. Income taxes are managed by the management on a Group basis. The accounting policies of the operating segments are the same of those described in the summary of significant accounting policies. There is no asymmetrical allocation to reportable segments. Management evaluates performance on the basis of profit or loss from operation before income tax expense not including non-recurring gains and losses. There is no change from prior periods in the measurement methods used to determine reported segment profit or loss. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. The Group accounts for intersegment sales and transfer as if the sales or transfers were to third parties, which approximate market prices. These intersegment transactions are eliminated on consolidation. Segment assets comprise primarily of property, plant and equipment, inventories, operating receivables, cash and cash equivalents. Segment liabilities comprise operating liabilities and exclude tax liabilities. Segment capital expenditure is the total cost incurred during the financial year to acquire segment assets that are expected to be used for more than one financial year.



29. Segment information (Continued)

Business segment

Interior fit-out

business

Wholesale and retail

furnishings business

Inter- segment

elimination Consolidated $ $ $ $ 2016 Revenue External revenue 14,727,166 2,507,031 - 17,234,197 Inter-segment sales 5,377,985 473,385 (5,851,370) - Total revenue 20,105,151 2,980,416 (5,851,370) 17,234,197

Results Segment results (103,625,616) (5,730,035) (109,355,651) Interest income 23,235 - 23,235 Finance costs (3,730,978) (281,053) (4,012,031) Loss before income tax (107,333,359) (6,011,088) (113,344,447)

Income tax 284,334 Share of results of associate,

net of tax (8,129) Loss for the financial year (113,068,242) Non-cash items Allowance for impairment loss

on available-for-sale financial assets (1,540,000) - (1,540,000)

Allowance for impairment loss on doubtful third parties trade receivables (3,018,992) (2,262,131) (5,281,123)

Allowance for impairment loss on doubtful third parties trade receivables written back - 27,388 27,388

Allowance for impairment loss on doubtful third parties non-trade receivables (1,816,511) - (1,816,511)

Allowance for impairment loss on amounts due from contract customers (4,123,749) - (4,123,749)

Amounts due from contract customers written off (34,394,731) - (34,394,731)

Allowance for amounts due from contract customers written back 104,452 - 104,452

Bad third parties trade receivables written off (280,025) (577,243) (857,268)

Depreciation of property, plant and equipment (1,657,378) (134,365) (1,791,743)

Impairment loss on intangible assets (518,237) - (518,237)

Impairment loss on plant and equipment (4,680,090) - (4,680,090)

Loss on disposal of plant and equipment (45,542) (263) (45,805)


SERRANO LIMITED92


Business segment

Interior fit-out

business



Inter- segment

elimination Consolidated $ $ $ $ 2016 Non-cash items (Continued) Plant and equipment written off (642,494) (46,794) (689,288) Write-down of inventories (1,061,746) - (1,061,746)

Capital expenditure Plant and equipment 4,187,081 549,497 4,736,578

Assets and liabilities Segment assets 7,131,784 449,014 7,580,798

Segment liabilities 112,243,618 4,983,674 117,227,292

2015 Revenue External revenue 90,882,662 3,780,669 - 94,663,331 Inter-segment sales 9,114,624 2,322,597 (11,437,221) - Total revenue 99,997,286 6,103,266 (11,437,221) 94,663,331

Results Segment results (23,357,714) (1,239,101) (24,596,815) Interest income 28,634 - 28,634 Finance costs (4,788,712) (169,771) (4,958,483) Loss before income tax (28,117,792) (1,408,872) (29,526,664)

Income tax expense (21,485) Share of results of associate,

net of tax (103,608) Loss for the financial year (29,651,757)




Business segment

Interior fit-out

business



Inter- segment

elimination Consolidated $ $ $ $ 2015 Non-cash items Allowance for impairment loss

on available-for-sale financial assets (260,000) - (260,000)

Allowance for impairment loss on doubtful third parties trade receivables (2,069,309) (52,550) (2,121,859)

Allowance for impairment loss on doubtful third parties trade receivables written back - 33,852 33,852

Allowance for impairment loss on doubtful third parties non-trade receivables (2,234,119) - (2,234,119)

Allowance for impairment loss on amounts due from contract customers (594,306) - (594,306)

Amortisation of intangible asset - (47,040) (47,040) Bad third parties trade

receivables written off - (22,260) (22,260) Depreciation of property,

plant and equipment (1,279,209) (33,824) (1,313,033) Gain on disposal of plant and

equipment 153,159 4,818 157,977 Plant and equipment written off - (57,889) (57,889)

Capital expenditure Plant and equipment 5,854,493 114,252 5,968,745

Assets and liabilities Segment assets 107,491,572 4,110,028 111,601,600

Segment liabilities 100,412,615 5,257,938 105,670,553 - deferred tax liabilities 662,578 - 662,578 101,075,193 5,257,938 106,333,131


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Geographical information Revenue from interior fit-out business is based on the country in which the interior fit-out projects are located, while revenue from wholesale and retail furnishings business is based on the country in which the customers are located. Non-current assets comprise primarily of property, plant and equipment, intangible assets and investment in associate. Non-current assets are shown by the geographical area in which the assets are located.

Singapore Vietnam Myanmar Others Total $ $ $ $ $ Group 2016 Total revenue from

external customers 15,118,036 342,432 138,335 1,635,394 17,234,197

Non-current assets - - - - -

2015 Total revenue from

external customers 77,548,605 13,384,544 1,535,041 2,195,141 94,663,331

Non-current assets 12,288,740 34,267 - - 12,323,007 Major customers Revenue from 3 (2015: 3) major customers of the Group’s interior fit-out business represents approximately $6,267,000 (2015: $38,426,000) or 36.4% (2015: 40.6%) of the total revenue for the financial year ended 31 December 2016.

30. Financial instruments, financial risks and capital management The Group’s and the Company’s activities have exposure to credit risks, market risks (including foreign currency risks and interest rates risks) and liquidity risks arising in the ordinary course of business. The Group’s and the Company’s overall risk management strategy seek to minimise adverse effects from the volatility of financial markets on the Group’s and the Company’s financial performance. The Board of Directors is responsible for setting the objectives and underlying principles of financial risk management for the Group and the Company. The Group’s and the Company’s management then establish the detailed policies such as risk identification and measurement, exposure limits and hedging strategies, in accordance with the objectives and underlying principles approved by the Board of Directors. There has been no change to the Group’s and the Company’s exposure to these financial risks or the manner in which the risks are managed and measured. The Group and the Company do not hold or issue derivative financial instruments for trading purposes or to hedge against fluctuations, if any, in interest rates and foreign exchange rates.



30. Financial instruments, financial risks and capital management (Continued)

30.1 Credit risks

Credit risks refer to the risk that counterparty will default on its contractual obligations resulting in a loss to the Group and the Company. The Group and the Company have adopted a policy of only dealing with creditworthy counterparties as a means of mitigating the risk of financial loss from defaults. The Group and the Company have performed on-going credit evaluation of its counterparties’ financial condition and generally do not require collaterals. As at 31 December 2016, the Group has no significant credit exposure to any single counterparty or any group of counterparties having similar characteristics concentrations of credit risk except for trade and other receivables from third parties which accounts for Nil (2015: 66%) of the total trade and other receivables. As at 31 December 2016, the Company has significant credit exposure arising from the non-trade amounts due from subsidiaries amounting to $Nil (2015: $14,859,238). The Group’s and the Company’s major classes of financial assets are available-for-sale financial assets, trade and other receivables and cash and cash equivalents. Trade receivables that are neither past due nor impaired are substantially companies with good collection track record with the Group and the Company. Bank deposits are mainly deposits with reputable banks with minimum risk of default. As at the end of the reporting period, the age analysis of trade receivables past due but not impaired was as follows:

Group 2016 2015 $ $

Past due less than 1 month - 1,069,888 Past due 1 to 2 months 875 632,564 Past due over 2 to 3 months - 1,186,157 Past due over 3 months 143,757 6,044,827

30.2 Market risks Foreign currency risks The Group incurs foreign currency risk on transactions and balances that are denominated in currencies other than the functional currency of entities within the Group. The currencies giving rise to this risk are primarily from United States dollar, Euro, Hong Kong dollar and Renminbi. Exposure to foreign currency risk is monitored on an on-going basis to ensure that the net exposure is at an acceptable level. As at the end of the reporting period, the carrying amounts of monetary assets and monetary liabilities denominated in currencies other than the respective entity’s functional currency are disclosed in the respective notes to the financial statements. The Group has not entered into any currency forward exchange contracts during the financial year.


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30.2 Market risks

Foreign currency risks (Continued) The carrying amounts of the Group’s monetary assets and monetary liabilities in foreign currencies as at the end of the reporting period were as follows:

Group 2016 2015 $ $ Monetary assets United States dollar 60,822 5,594,028 Euro - 3,070

Monetary liabilities United States dollar 5,834,374 717,260 Euro 130,678 63,941 Renminbi 1,517,121 53,840 The Company has investment in a foreign associate, whose net assets are exposed to foreign currency translation risk. Foreign currency sensitivity analysis The following table details the Group’s sensitivity to a 5% (2015: 10%) change in United States dollar and Chinese renminbi against Singapore dollar. The sensitivity analysis assumes an instantaneous 5% (2015: 10%) change in the foreign currency exchange rates from the end of the reporting period, with all other variables held constant. The results of the model are also constrained by the fact that only monetary items, which are denominated in United States dollar and Chinese renminbi are included in the analysis.

Increase/(Decrease) Profit or Loss 2016 2015 $ $ Group United States dollar Strengthened against Singapore dollar (288,678) 487,677 Weakened against Singapore dollar 288,678 (487,677)

Chinese renminbi Strengthened against Singapore dollar (75,856) (2,692) Weakened against Singapore dollar 75,856 2,692




30.2 Market risks (Continued)

Foreign currency sensitivity analysis (Continued) The potential impact of foreign exchange rate fluctuation on profit or loss of the Group as described in the sensitivity analysis above is attributable mainly to foreign exchange rate fluctuations from the Group’s exposure of non-reporting currency receivables and payables as at the end of the reporting period. Interest rate risks The Group’s exposure to market risks for changes in interest rates relates primarily to interest-bearing borrowings as shown in Note 17 to the financial statements. The Group’s results are affected by changes in interest rates due to the impact of such changes on interest income and expenses from time deposit and interest-bearing borrowings which are floating interest rates. It is the Group’s policy to obtain quotes from reputable banks to ensure that the most favourable rates are made available to the Group. Interest rate sensitivity analysis The sensitivity analysis below has been determined based on the exposure to interest rate risks for financial liabilities at the end of the reporting period. For floating liabilities, the analysis is prepared assuming the amount of liability outstanding at the end of the reporting period was outstanding for the whole year. The sensitivity analysis assumes an instantaneous 0.5% (2015: 0.5%) change in the interest rates from the end of the reporting period, with all variables held constant. If the interest rate increases or decreases by 0.5% (2015: 0.5%), the Group’s profit or loss/equity will decrease or increase by:

Profit or Loss 2016 2015 $ $ Group Borrowings 322,530 346,808

30.3 Liquidity risks Liquidity risks refer to the risks in which the Group and the Company encounter difficulties in meeting their short-term obligations. Liquidity risks are managed by matching the payment and receipt cycle. The Group and the Company actively manage operating cash flows so as to ensure that all payment obligations are met. As part of overall prudent liquidity management, the Group and the Company minimise liquidity risk by ensuring the availability of funding through an adequate amount of committed credit facilities from financial institutions and maintain sufficient levels of cash to meet working capital requirements.


SERRANO LIMITED98


30.3 Liquidity risks (Continued)

Contractual maturity analysis The following tables detail the Group’s and the Company’s remaining contractual maturity for their non-derivative financial instruments. The tables have been drawn up based on undiscounted cash flows of financial instruments based on the earlier of the contractual date or when the Group and the Company are expected to pay.

Within one financial

year

After one financial year but

within five financial

years

After five financial

years Total $ $ $ $ Group 2016 Financial liabilities Trade and other payables 49,733,813 - - 49,733,813 Borrowings 64,505,911 - - 64,505,911 Finance lease payables 3,220,643 - - 3,220,643 Total undiscounted financial

liabilities 117,460,367 - - 117,460,367

2015 Financial liabilities Trade and other payables 33,106,451 - - 33,106,451 Obligation under corporate

guarantees 14,642,000 - - 14,642,000 Borrowings 60,468,899 9,599,797 762,884 70,831,580 Finance lease payables 174,804 464,827 20,127 659,758 Total undiscounted financial

liabilities 108,392,154 10,064,624 783,011 119,239,789 As at the end of the reporting period, included in the Group’s borrowings with contractual maturity after one year but within five financial years of $Nil (2015: $9,572,477) in relation to borrowings not scheduled for repayment within 12 months from the end of the reporting period but were classified as within one financial year as the Group did not have the unconditional right at the end of the reporting period to defer settlement for at least 12 months after the end of the reporting period and the loan can be recalled by the bank or financial institution leaders at any time even there is no default.




30.3 Liquidity risks (Continued)

Contractual maturity analysis (Continued)

Within one financial

year $ Company 2016 Financial liabilities Other payables 53,428,690 Total undiscounted financial liabilities 53,428,690

2015 Financial liabilities Other payables 388,038 Total undiscounted financial liabilities 388,038

Financial guarantee contracts 85,336,791 The disclosed amounts for the financial guarantee contracts represent the maximum amount of issued financial guarantees in the earliest period for which the guarantees could be called upon in the contracted maturity analysis. The Group’s and the Company’s operations are financed mainly through equity, retained earnings and borrowings. Adequate lines of credits are maintained to ensure the necessary liquidity is available when required. The repayment terms of the Group’s non-current borrowings and finance lease payables are disclosed in Notes 17 and 18 to the financial statements respectively.

30.4 Capital management policies and objectives The Group and the Company manage capital to ensure that the Group and the Company are able to continue as a going concern and maintain an optimal capital structure so as to maximise shareholders’ value. The capital structure of the Group consists of equity attributable to equity holders of the parent, comprising issued capital, reserves and accumulated losses as disclosed in Notes 15 and 16. The Group’s and the Company’s management review the capital structure to ensure that the Group and the Company are able to service any debt obligations (including principal repayment and interest) based on operating cash flows. Upon review, the Group and the Company will balance the overall capital structure through new share issues and the issue of new debt or the redemption of existing debt, if necessary. The Group’s and the Company’s overall strategy remain unchanged from 2015.


SERRANO LIMITED100


30.4 Capital management policies and objectives (Continued)

The Group and the Company monitor capital based on gearing ratio of total liabilities to tangible networth, which is total liabilities divided by tangible networth. The Group’s and the Company’s total liabilities include trade and other payables, borrowings, finance lease payables, current income tax payable and deferred tax liabilities. Tangible networth comprises net assets less intangible assets.

Group Company 2016 2015 2016 2015 $ $ $ $

Trade and other payables 49,824,780 35,704,137 53,428,690 388,038 Borrowings 64,505,911 69,361,657 - - Finance lease payables 2,896,601 604,759 - - Deferred tax liabilities - 662,578 - - Total liabilities 117,227,292 106,333,131 53,428,690 388,038 Net (liabilities)/assets (109,646,494) 5,268,469 (53,383,852) 27,320,270 Less: intangible assets - (518,237) - - Tangible networth (109,646,494) 4,750,232 (53,383,852) 27,320,270

Gearing ratio (times) n.m. 22.4 n.m. n.m. n.m.: Not meaningful The Group is subject to and has not complied with externally imposed capital requirements for the financial years ended 31 December 2015 and 31 December 2016 as disclosed in Note 17 to the financial statements.

30.5 Fair value of financial assets and financial liabilities The fair values of financial assets and financial liabilities are determined as follows:

the fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices; and

the fair value of other financial assets and financial liabilities (excluding derivative

instruments) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis.




30.5 Fair value of financial assets and financial liabilities (Continued)

Fair value hierarchy The Group and the Company classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels: Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 - inputs other than quoted prices included within Level 1 that are observable

for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

Level 3 - inputs for the asset or liability that are not based on observable market data

(unobservable inputs). Revaluation of leasehold properties For the financial year ended 31 December 2015, the fair value of leasehold properties was been determined based on its highest and best use which was in line with its current use. For the financial year ended 31 December 2016, the fair value of leasehold properties was determined based on its forced sale value as the management had committed to sell these properties within next financial year. The valuation was determined using the market comparison approach that reflects most recent transaction prices for similar properties, after adjusting for relevant factors such as location, land area, land shape, floor area, floor loading, ceiling height, age, condition, tenure, design and layout, dates of transaction and the prevailing market conditions etc. The leasehold properties are held for the Group’s own use as corporate headquarters, operation office, exhibition and production facility in Singapore. Level 3 fair value measurements (i) Information about significant unobservable inputs used in Level 3 fair value

measurements The following table shows the information about fair value measurements using significant unobservable inputs (Level 3):

Description

Fair value as at 31 December

2016 Unobservable

inputs Leasehold property: Held for the Group’s own use as

corporate headquarters and production facility in Singapore

$3,040,000 (2015: $4,300,000)

Length of remaining lease (1)

Leasehold property: Held for the Group’s own use as

operation office and exhibition $3,680,000

(2015: $4,648,094) Length of remaining

lease (1) (1) The longer the length of remaining lease in place, the higher the valuation.


SERRANO LIMITED102


30.5 Fair value of financial assets and financial liabilities (Continued)

Revaluation of leasehold properties (Continued) Level 3 fair value measurements (Continued) (ii) Valuation policies and procedures

Management of the Group oversees the Group’s financial reporting valuation process and is responsible for setting and documenting the Group’s valuation policies and procedures. For all significant financial reporting valuations using valuation models and significant unobservable inputs, it is the Group’s policy to engage external valuation experts to perform the valuation. Management is responsible for selecting and engaging valuation experts that possess the relevant credentials and knowledge on the subject of valuation, valuation methodologies, and FRS 113 fair value measurement guidance. For valuations performed by external valuation experts, the management reviews the appropriateness of the valuation methodologies and assumptions adopted. The management also evaluates the appropriateness and reliability of the inputs used in the valuations. Significant changes in fair value measurements from period to period are evaluated by management for reasonableness. Key drivers of the changes are identified and assessed for reasonableness against relevant information from independent sources, or internal sources if necessary and appropriate.

Fair value of financial instruments that are not carried at fair value The carrying amounts of the current financial assets and current financial liabilities that are not carried at fair value approximate their respective fair values as at the end of the reporting period due to the relatively short-term maturity of these financial instruments. In the previous financial year, the fair values of non-current financial liabilities that are not carried at fair value in relation to borrowings and finance lease payables approximate their carrying amounts as disclosed in Notes 17 and 18 to the financial statements. The fair values are determined using discounted cash flow pricing model. Significant inputs to the valuation include adjustments to the discount rate for credit risk associated with the Group. The fair values of investments in unquoted equity investments as disclosed in Note 9 to the financial statements are carried at cost and have not been disclosed because it is not practicable to determine the fair values due to the lack of quoted market prices and the assumptions used in valuation models to value these instruments cannot be reliably measured. The Group does not intend to dispose these investments in the foreseeable future.




30.6 Categories of financial instruments

The following table sets out the financial instruments as at the end of the reporting period:

Group Company 2016 2015 2016 2015 $ $ $ $ Financial assets Loans and receivables 533,876 24,771,192 13,293 14,991,204 Available-for-sale financial

assets - 1,540,000 - 1,540,000 533,876 26,311,192 13,293 16,531,204

Financial liabilities Other financial liabilities, at

amortised cost 117,136,325 103,072,867 53,428,690 388,038

STATISTICS OF SHAREHOLDINGSAS AT 22 MARCH 2018

SERRANO LIMITED104

Number of shares issued : 272,360,574

Class of shares : Ordinary shares

Voting rights : 1 vote for each ordinary share

Number of treasury shares : Nil

Number of subsidiary holdings : Nil

DISTRIBUTION OF SHAREHOLDINGS

SIZE OF SHAREHOLDINGS

NO. OF

SHAREHOLDERS % NO. OF SHARES %

1 - 99 3 0.41 110 0.00

100 - 1,000 48 6.58 22,400 0.01

1,001 - 10,000 184 25.24 1,013,300 0.37

10,001 - 1,000,000 468 64.20 87,645,581 32.18

1,000,001 AND ABOVE 26 3.57 183,679,183 67.44

TOTAL 729 100.00 272,360,574 100.00

SHAREHOLDING HELD IN HANDS OF PUBLIC

Based on information available to the Company as at 22 March 2018, approximately 55.1% of the issued ordinary shares of the Company

is held in the hands of the public as defi ned in the Listing Manual Section B: Rules of Catalist of the Singapore Exchange Securities Trading

Limited (the “Catalist Rules”). Accordingly, Rule 723 of the Catalist Rules is complied with.

TWENTY LARGEST SHAREHOLDERS

NO. NAME NO. OF SHARES %

1 CHIA LAY KIONG (XIE LIJUAN) 44,872,036 16.48

2 UOB KAY HIAN PRIVATE LIMITED 42,197,473 15.49

3 SINBOR COMPANY (PRIVATE) LIMITED 28,000,000 10.28

4 HL BANK NOMINEES (SINGAPORE) PTE LTD 13,772,430 5.06

5 HOW CHOON HIONG 7,579,142 2.78

6 COMPASS INVESTMENT HOLDINGS PTE LTD 6,521,000 2.39

7 PEH BEE HONG 4,690,000 1.72

8 LIU ZHIYONG 4,000,000 1.47

9 YEO HEE IN 4,000,000 1.47

10 CHUA CHYE PING CHRISTINE 3,523,800 1.29

11 LEVIN LEE KENG WENG 2,796,400 1.03

12 YONG DE-RHONG (YANG DERONG) 2,149,884 0.79

13 LIM HENG KIAK 1,800,000 0.66

14 RAMASWAMY SURESHKUMAR 1,762,400 0.65

15 YAO WANZHU 1,740,000 0.64

16 TEE LYNN 1,563,400 0.57

17 VENKATARAMAN KRISHNAN 1,550,000 0.57

18 CHEW HOE HOCK 1,500,000 0.55

19 LI YUFANG 1,327,500 0.49

20 SOH HOCK SIAN 1,302,000 0.48

TOTAL 176,647,465 64.86


STATISTICS OF SHAREHOLDINGSAS AT 22 MARCH 2018

SUBSTANTIAL SHAREHOLDERS

As recorded in the Register of Substantial Shareholders as at 22 March 2018

Direct Interest Deemed Interest

Name of Shareholders No. of Shares % No. of Shares %

Chia Lay Kiong (Xie Lijuan) 44,872,036 16.48 – –

Sinbor Company (Private) Limited(2) 28,000,000 10.28 – –

Chen Qingliao 21,461,992 7.88 – –

Winston Chia Wing Keong(3) 14,300,014 5.25 – –

Winmark Investments Pte Ltd(1) 13,772,430 5.06 28,000,000 10.28

Tan Tien Hin Winston(1) – – 41,772,430 15.34

Lim Sioh Tin Amy(1) – – 41,772,430 15.34

Quek Meng Liat(2) – – 28,000,000 10.28

Quek Wey Lon(2) – – 28,000,000 10.28

Notes:–

1) Tan Tien Hin Winston and his spouse, Lim Sioh Tin Amy, each holds 50.00% of the issued and paid-up capital of Winmark

Investments Pte Ltd. Each of them is therefore deemed to have an interest in the Shares held by Winmark Investments Pte Ltd

pursuant to Section 7 of the Companies Act, Cap. 50 of Singapore.

2) Winmark Investments Pte Ltd, Quek Meng Liat and Quek Wey Lon hold 25.00%, 52.76% and 22.24% of the issued and paid- up

share capital of Sinbor Company (Private) Limited, respectively. Each of them is therefore deemed to have an interest in the Shares

held by Sinbor Company (Private) Limited pursuant to Section 7 of the Companies Act, Cap. 50 of Singapore.

3) The Shares held by Winston Chia Wing Keong are administered by the offi cial assignee pursuant to the bankruptcy order against

him.

NOTICE OF ANNUAL GENERAL MEETING

SERRANO LIMITED106

NOTICE IS HEREBY GIVEN that the Annual General Meeting of Serrano Limited will be held at 7 Sungei Kadut Crescent Singapore 728696

on 30 April 2018 at 4.00 p.m. to transact the following business:-

AS ORDINARY BUSINESS

1. To receive and adopt the Directors’ Statement and Audited Financial Statements for the fi nancial year ended 31

December 2016 together with the Auditors’ Report thereon.

Resolution 1

2. To re-elect Mr Ong Kian Guan who is retiring in accordance with Article 98 of the Company’s Constitution, as a

Director of the Company.

Mr Ong Kian Guan shall, upon re-election as a Director of the Company, remain as the Lead Independent Director

and the Chairman of the Audit Committee, the Remuneration Committee and the Nominating Committee,

respectively. The Board considers Mr Ong Kian Guan to be independent for the purpose of Rule 704(7) of the

Listing Manual of the Singapore Exchange Securities Trading Limited (“SGX-ST”), Section B: Rules of Catalist

(“Catalist Rules”).

Resolution 2

3. To approve the payment of Directors’ fees of S$168,000 for the fi nancial year ended 31 December 2017, payable

quarterly in arrears. [FY2016: S$168,000]

Resolution 3

4. To appoint Foo Kon Tan LLP as independent auditors of the Company in place of BDO LLP and to authorise the

Directors to fi x their remuneration.

This Resolution, if passed, is to approve the appointment of Foo Kon Tan LLP as the auditors of the Company in

place of the retiring auditors, BDO LLP, and to authorise the Directors to fi x the terms of their remuneration. Please

refer to the letter to shareholders dated 13 April 2018, despatched together with the Annual Report for more

details on the proposed change of auditors.

Resolution 4

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

AS SPECIAL BUSINESS

To consider and, if thought fi t, to pass the following as ordinary resolutions, with or without amendments:

6. Authority to allot and issue shares

That pursuant to Section 161 of the Companies Act, Cap. 50. (“Companies Act”) and Rule 806 of the Catalist

Rules of the SGX-ST, authority be and is hereby given to the Directors of the Company to allot and issue shares

and convertible securities in the capital of the Company (whether by way of rights, bonus or otherwise) at any time

and upon such terms and conditions and for such purposes and to such persons as the Directors may in their

absolute discretion deem fi t provided that:-

(i) the aggregate number of shares and convertible securities to be issued pursuant to this Resolution does

not exceed 100 per cent (100%) of the total number of issued shares excluding treasury shares of the

Company and subsidiary holdings (as calculated in accordance with sub-paragraph (ii) below), of which

the aggregate number of shares and convertible securities to be issued other than on a pro rata basis to

existing shareholders of the Company does not exceed fi fty per cent (50%) of the total number of issued

shares excluding treasury shares of the Company and subsidiary holdings (as calculated in accordance

with sub-paragraph (ii) below);

Resolution 5



(ii) (subject to such manner of calculations as may be prescribed by the SGX-ST), for the purpose of

determining the aggregate number of shares that may be issued under sub-paragraph (i) above, the

percentage of the total number of issued shares excluding treasury shares and subsidiary holdings shall

be based on the total number of issued shares excluding treasury shares of the Company and subsidiary

holdings at the time this Resolution is passed after adjusting for:-

(a) new shares arising from the conversion or exercise of any convertible securities;

(b) new shares arising from exercising share options or vesting of share awards outstanding or

subsisting at the time this Resolution is passed, provided the share options or share awards (as

the case may be) were granted in compliance with Part VIII of Chapter 8 of the Catalist Rules; and

(c) any subsequent bonus issue, consolidation or sub-division of shares,

(iii) in exercising the authority conferred by this Resolution, the Company shall comply with the provisions of

the Catalist Rules for the time being in force (unless such compliance has been waived by the SGX-ST), all

applicable legal requirements under the Companies Act, and otherwise, and the Company’s Constitution

for the time being; and

(iv) unless revoked or varied by the Company in general meeting, the authority conferred by this Resolution

shall continue in force until the conclusion of the next Annual General Meeting or the date by which the

next Annual General Meeting of the Company is required by law to be held, whichever is the earlier.

[See Explanatory Note (i)]

7. Authority to grant awards and to allot and issue shares under the Serrano Performance Share Plan

That pursuant to Section 161 of the Companies Act and the Catalist Rules, approval be and is hereby given to the

Directors of the Company to:

a) grant awards in accordance with the provisions of the Serrano Performance Share Plan (the “Plan”); and

b) allot and issue from time to time such number of fully paid-up shares of the Company as may be required

to be allotted and issued pursuant to the release of awards under the Plan provided that the aggregate

number of shares to be allotted and issued pursuant to the Plan shall not exceed 15% of the total number

of issued shares of the Company (excluding treasury shares of the Company and subsidiary holdings) from

time to time.

[See Explanatory Note (ii)]

Resolution 6

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

Explanatory Notes:

(i) Resolution 5, if passed, will empower the Directors from the date of this Annual General Meeting until the date of

the next Annual General Meeting, to allot and issue shares and convertible securities in the Company. The number

of shares and convertible securities, which the Directors may allot and issue under this Resolution shall not exceed

100% of the total number of issued shares of the Company (excluding treasury shares of the Company and

subsidiary holdings) at the time of passing this Resolution. For allotment and issue of Shares and convertible

securities other than on a pro-rata basis to all shareholders of the Company, the aggregate number of Shares and

convertible securities to be allotted and issued shall not exceed 50% of the total number of issued shares of the

Company (excluding treasury shares of the Company and subsidiary holdings). This authority will, unless revoked

or varied at a general meeting, expire at the next Annual General Meeting, or by the date by which the next Annual

General Meeting is required by law to be held, whichever is earlier.


SERRANO LIMITED108

(ii) Resolution 6, if passed, will empower the Directors to grant awards and to issue and allot Shares pursuant to the Plan. The grant

of awards under the Plan will be made in accordance with the provisions of the Plan. The aggregate number of shares which may

be issued pursuant to the Plan shall not exceed 15% of the total number of issued shares of the Company (excluding treasury

shares of the Company and subsidiary holdings) from time to time.

By Order Of the Board

Elaine Beh Pur-Lin

Company Secretary

Date: 13 April 2018

Notes:

a) A member entitled to attend and vote at a general meeting is entitled to appoint no more than two proxies to attend, speak and

vote on his behalf. Where a member appoints more than one proxy, he shall specify the proportion of his shares to be represented

by each proxy.

b) Pursuant to Section 181 of the Companies Act, Cap. 50., any member who is a relevant intermediary is entitled to appoint one or

more proxies to attend, speak and vote at a general meeting. Relevant intermediary is either:

(i) a banking corporation licensed under the Banking Act (Cap. 19) or its wholly-owned subsidiary which provides nominee

services and holds shares in that capacity;

(ii) a capital market services license holder which provides custodial services for securities under the Securities and Futures

Act (Cap. 289) and holds in that capacity; or

(iii) the Central Provident Fund (“CPF”) Board established by the Central Provident Fund Act (Cap. 36), in respect of shares

purchased on behalf of CPF investors.

c) If a proxy is to be appointed, the form must be deposited at the registered offi ce of the Company at 7 Sungei Kadut Crescent

Singapore 728696 not less than 48 hours before the meeting.

d) A proxy need not be a member of the Company.

Personal Data Privacy:

By submitting an instrument appointing a proxy(ies) and/or representatives to attend, speak and vote at the AGM and/or any adjournment

thereof, a member of the Company (i) consents to the collection, use and disclosure of the member’s personal data by the Company (or its

agents) for the purpose of the processing and administration by the Company (or its agents) of proxies and representatives appointed for

the AGM (including any adjournment thereof) and the preparation and compilation of the attendance lists, minutes and other documents

relating to the AGM (including any adjournment thereof), and in order for the Company (or its agents) to comply with any applicable

laws, listing rules, regulations and/or guidelines (collectively, the “Purposes”), (ii) warrants that where the member discloses the personal

data of the member’s proxy(ies) and/or representative(s) to the Company (or its agents), the member has obtained the prior consent

of such proxy(ies) and/or representative(s) for the collection, use and disclosure by the Company (or its agents) of the personal data of

such proxy(ies) and/or representative(s) for the Purposes, and (iii) agrees that the member will indemnify the Company in respect of any

penalties, liabilities, claims, demands, losses and damages as a result of the member’s breach of warranty hereof.

SERRANO LIMITED(Company Registration No: 201223004Z)

(Incorporated in the Republic of Singapore

on 18 September 2012)

PROXY FORM

IMPORTANT1. A relevant intermediary may appoint more than two proxies to attend the Annual General

Meeting and vote (please see Note 3 for the defi nition of “relevant intermediary”).

2. This Proxy form is not valid for use and shall be ineffective for all intents and purposes if

used or purported to be used by CPF/SRS investors who hold ordinary shares through

their CPF/SRS funds. CPF/SRS investors should contact their respective Agent Banks/SRS

Operators if they have any queries regarding their appointment as proxies.

3. Please read the notes to the Proxy Form.

I/We* (Name) , NRIC/Passport number*

of (Address)

being a member/members* of Serrano Limited (the “Company”) hereby appoint:

Name Address NRIC/Passport

Number

Proportion of

Shareholdings

(%)

and/or*

Name Address NRIC/Passport

Number

Proportion of

Shareholdings

(%)

as my/our* proxy/proxies* to attend and to vote for me/us* on my/our* behalf at the Annual General Meeting of the Company to be held at

7 Sungei Kadut Crescent Singapore 728696 on 30 April 2018 at 4.00 p.m. and at any adjournment thereof.

(If you wish to exercise all your votes For or Against, please tick with “√” within the relevant box. Alternatively, please indicate the number of

votes For or Against each resolution. In the absence of specifi c directions, the proxy/proxies will vote or abstain as he/they may think fi t, as

he/they will on any other matter arising at the Annual General Meeting.)

No. Resolutions Number of Votes

For

Number of Votes

Against

ORDINARY BUSINESS

1 To receive and adopt the Directors’ Statements and Audited Financial Statements

for the fi nancial year ended 31 December 2016 together with the Auditors’ Report

thereon.

2 To re-elect Mr Ong Kian Guan as Director

3 To approve the Directors’ fees of S$168,000 for the fi nancial year ended 31

December 2017, payable quarterly in arrears.

4 To appoint Foo Kon Tan LLP as Independent Auditors in place of BDO LLP, and to

authorise the Directors to fi x their remuneration

5 To authorise the Directors to allot and issue shares

6 To authorise the Directors to grant awards and to allot and issue shares in

accordance with the provisions of the Serrano Performance Share Plan

Note: Please note that the short descriptions given above to the Resolutions to be passed do not in any way whatsoever refl ect the intent

and purposes of the Resolutions. The short descriptions have been inserted for convenience only. Shareholders are encouraged to refer to

the Notice of Annual General Meeting for the full purpose and intent of the Resolutions to be passed.

Dated this day of 2018

Total number of Shares held

Signature(s) of member(s) or common seal

IMPORTANT: PLEASE READ NOTES OVERLEAF

NOTES :

1. Please insert the total number of shares held by you. If you have shares entered against your name in the Depository Register

(as defi ned in Section 81SF of the Securities and Futures Act, Cap. 289), you should insert that number of shares. If you have

shares registered in your name in the Register of Members, you should insert that number of shares. If you have shares entered

against your name in the Depository Register and shares registered in your name in the Register of Members, you should insert the

aggregate number of shares. If no number is inserted, this form of proxy will be deemed to relate to all the shares held by you.

2. A member who is not a relevant intermediary is entitled to appoint not more than two proxies to attend, speak and vote on his

behalf at the general meeting. Where a member appoints more than one proxy, he shall specify the proportion of his shares to be

represented by each such proxy.

3. Pursuant to Section 181 of the Companies Act, Cap. 50 of Singapore, any member who is a relevant intermediary is entitled to

appoint one or more proxies to attend and vote at the general meeting. Relevant intermediary is either:

(i) a banking corporation licensed under the Banking Act (Cap. 19) or its wholly-owned subsidiary which provides nominee

services and holds shares in that capacity;

(ii) a capital market services license holder which provides custodial services for securities under the Securities and Futures

Act (Cap. 289) and holds in that capacity; or

(iii) the Central Provident Fund (“CPF”) Board established by the Central Provident Fund Act (Cap. 36), in respect of shares

purchased on behalf of CPF investors.

4. The instrument appointing a proxy or proxies must be deposited at the registered offi ce of the Company at 7 Sungei Kadut

Crescent Singapore 728696 not later than 48 hours before the time set for the Annual General Meeting.

5. The instrument appointing a proxy or proxies must be under the hand of the appointor or his attorney duly authorised in writing.

Where the instrument appointing a proxy or proxies is executed by a corporation, it must be executed under its common seal or

signed on its behalf by an attorney duly authorized in writing or by an authorised offi cer of the corporation.

6. Where an instrument appointing a proxy or proxies is signed on behalf of the appointer by an attorney the letter or power of

attorney (or other authority) or a duly certifi ed copy thereof must (failing previous registration with the Company) be lodged with the

instrument of proxy, failing which the instrument may be treated as invalid.

7. A corporation which is a member may by resolution of its directors or other governing body authorise such person as it thinks fi t to

act as its representative at the Annual General Meeting.

8. The Company shall be entitled to reject the instrument appointing a proxy or proxies if it is incomplete, improperly completed

or illegible or where the true intentions of the appointor are not ascertainable from the instructions of the appointor specifi ed in

the instrument appointing a proxy or proxies. In addition, in the case of members of the Company whose shares are entered

against their names in the Depository Register, the Company may reject any instrument appointing a proxy or proxies lodged if

such members are not shown to have shares entered against their names in the Depository Register at 72 hours before the time

appointed for holding the Annual General Meeting as certifi ed by The Central Depository (Pte) Limited to the Company.

Personal Data Privacy:

By submitting an instrument appointing a proxy(ies) and/or representative(s), the member accepts and agrees to the personal data privacy

terms set out in the Notice of Annual General Meeting dated 13 April 2018.

www.serrano.com.sg

SERRANO LIMITED(Company Registration No.: 201223 004Z)

(Incorporated in the Republic of Singapore on 18 September 2012)7 Sungei Kadut Crescent

Singapore 728696Tel: +65 6257 3384Fax: +65 6257 2534