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ANNUAL REPORT 2007

B R E A D TA L K
CONTENTS

G R O U P
Corporate Profile 1
Financial Highlights 2
Talking to Shareholders 4

L I M I T E D
Group Structure 6
ADDING
Brands that TALK
FLAVOUR - Bakery 9

A N N U A L
- Food Atrium 13
- Restaurant 17
Board of Directors 20

R E P O R T
Senior Management 22
Corporate Information 23
Corporate Governance 25

2 0 0 7
Financial Statements 38
Statistics of Shareholdings 113
Notice of Annual General Meeting 115
Proxy Form 119

BREADTALK GROUP LIMITED


171 Kampong Ampat
#05-01 to 06 KA FoodLink
Singapore 368330
Tel: (65) 6285 6116
Fax: (65) 6285 1661
Website: www.breadtalk.com
Email: enquiry@breadtalk.com

ANNUAL REPORT 2007


ANNUAL REPORT 2007

B R E A D TA L K
CONTENTS

G R O U P
Corporate Profile 1
Financial Highlights 2
Talking to Shareholders 4

L I M I T E D
Group Structure 6
ADDING
Brands that TALK
FLAVOUR - Bakery 9

A N N U A L
- Food Atrium 13
- Restaurant 17
Board of Directors 20

R E P O R T
Senior Management 22
Corporate Information 23
Corporate Governance 25

2 0 0 7
Financial Statements 38
Statistics of Shareholdings 113
Notice of Annual General Meeting 115
Proxy Form 119

BREADTALK GROUP LIMITED


171 Kampong Ampat
#05-01 to 06 KA FoodLink
Singapore 368330
Tel: (65) 6285 6116
Fax: (65) 6285 1661
Website: www.breadtalk.com
Email: enquiry@breadtalk.com

ANNUAL REPORT 2007


BREADTALK ANNUAL REPORT 07 1

is what BreadTalk Group Limited sets out to achieve. Founded in 2000 and listed on
ADDING the SGX in 2003, our business is about innovating and creating distinctive flavours

FLAVOUR to satisfy your palate – literally! This has earned us numerous awards and growing
popularity with customers here and in other markets.

TO YOUR LIFE In just over 7 years, we have flapped our wings across 11 countries, leaving our mark
with more than 170 bakery outlets, 24 food courts and 6 restaurants, supported by
a global staff strength in excess of 2,000 employees. For 2007 particularly, we have
delivered yet again a seventh straight year of unprecedented revenue growth on the
back of broad-based improvements across all business and geographical segments, as
well as record high earnings.

We have a shared vision to be an international trend-setting lifestyle brand. To this


end, we have taken bold strides in introducing new food culture with revolutionary
changes and ingenious differentiation. Our products are also crafted with passion and
vibrancy to the highest quality. We are confident that our strategies will lend us a
distinct competitive advantage and a platform for continued growth.
2 BREADTALK ANNUAL REPORT 07

FINANCIAL HIGHLIGHTS

REVENUE ($ million) PROFIT BEFORE TAX ($ million)

168 156.6 12 11.2

144
10
123.6
120
8
95.3
96 6.5

6
72

50.2
4
48
2.7

24 2 0.9

2004 2005 2006 2007 2004 2005 2006 2007

REVENUE MIX BY BUSINESS SEGMENT REVENUE MIX BY GEOGRAPHICAL SEGMENT

Restaurant Bakery Hong Kong Singapore


18% 44% 6% 51%

Food Court Franchise PRC Others


31% 7% 38% 5%
BREADTALK ANNUAL REPORT 07 3

FINANCIAL HIGHLIGHTS

BREADTALK GROUP LIMITED & ITS SUBSIDIARIES GROUP FINANCIAL HIGHLIGHTS

Financial Results ($'000) FY2004 FY2005 FY2006 FY2007

Revenue 50,186 95,297 123,569 156,610


Operating profit 1,182 3,582 7,394 12,150
Profit before tax 900 2,666 6,466 11,228
Profit after tax and minority interests (31) 164 3,476 7,319

Financial Positions ($'000) FY2004 FY2005 FY2006 FY2007

Property, plant and equipment 12,151 24,571 34,141 44,893


Investment in associate / joint ventures 582 2,644 2,877 1,333
Intangible assets 751 8,881 8,427 9,665
Other non-current assets – 38 625 710
Current assets 15,293 28,492 36,833 59,089
Current liabilities (12,791) (35,097) (47,488) (62,996)
Non-current liabilities (2,123) (4,793) (6,417) (5,428)
Minority interests (1,262) (1,938) (3,058) (3,170)
Shareholders' equity 12,601 22,798 25,940 44,096

Ratios FY2004 FY2005 FY2006 FY2007

Earnings per share (cents) - Basic & Diluted(1) (0.02) 0.09 1.73 3.23
(2)
Net asset per share (cents) 7.73 11.35 12.91 18.77
(2)
Net tangible asset per share (cents) 7.27 6.93 8.72 14.66
(3)
Gearing (times) 0.29 0.39 0.46 0.25
(4)
Return on shareholders' fund (%) (0.2) 0.9 14.3 20.9

(1) The earnings per ordinary share for FY2007 is computed based on the weighted average of
226,411,034 ordinary shares for the year.
(2) Net asset per share and net tangible asset per share as at end of financial year 2007 are
computed based on the share capital of 234,911,034 ordinary shares, representing shares
issued and fully paid as at end of the year.
(3) Gearing is computed based on total borrowings divided by total equity.
(4) Return on shareholders’ fund is the profit after taxation and minority interests expressed as a
percentage of the average shareholders’ fund.
4 BREADTALK ANNUAL REPORT 07

TALKING TO SHAREHOLDERS

Dear Shareholders,

The BreadTalk Group recorded a seventh consecutive


year of unprecedented revenue growth in 2007 backed by
broad-based double-digit increases across all business
and geographical segments.

Group revenue rose 26.7% from $123.6 million to an all-time high of $156.6 at Paragon Shopping Centre and the new look outlet at City Link Mall attest
million driven by higher contribution from our bakery, franchise, restaurant and to our ongoing commitment to revamp existing BreadTalk outlets, introduce
food court businesses. Revenue from Singapore made up the lion’s share of new products and improve store appearance, packaging and service to boost
51.1% or $80.1 million, while our operations in the People’s Republic of China the business. Revenue from PRC grew 28.1% to $29.3 million driven by the
(PRC), Hong Kong and the rest of the world contributed $59.2 million, $8.7 addition of 5 new outlets and improved same store sales.
million and $8.2 million respectively.
Higher master franchise fees, increases in royalty fees and raw material sales
Operating profits surged 64.3% from $7.4 million to $12.2 million in FY2007 due to the larger number of franchised outlets boosted our franchise revenue
on the back of all-round improvements. Net profit attributable to shareholders by 45.0% to $11.0 million. This represents 7.0% of the Group’s total revenue.
soared 110.6% to $7.3 million for the year in review, while net margins During the year, we signed on a new master franchise in Korea, as well as
improved from 2.8% in FY2006 to 4.7% this financial year. added 5 new franchisees in the PRC covering Qingdao, Suzhou, Wuhan,
Xiamen and Xian.
We attribute the Group’s stellar performance to several strategic
accomplishments in 2007, key of which is our continued focus on broadening Overall, the Bakery segment recorded a 111.8% increase in operating profit to
and nurturing strong brands that represent unique concepts relevant to $3.9 million on the back of stronger sales from Singapore, while PRC accounted
a modern lifestyle. This has accounted for the Group’s steady success and for slightly over half of total profits driven by rapid franchise growth. At the
growing popularity across a broad spectrum of today’s affluent consumers. The same time, repossession and efforts to restructure our franchise operations
ongoing efforts to update and renew retail concepts have led to the launch of in Malaysia and Hong Kong resulted in lower losses and improved brand
BreadTalk Silver and J.CO Donuts & Coffee in May and December respectively. perception in these markets.
These efforts introduce new revenue streams, boost same store sales and
propel our brands towards higher levels of consumer recognition. As at 31 December 2007, the Group owned and operated 73 bakeries compared
to 64 outlets in the previous year. These comprised 56 BreadTalk stores and 17
Another important driving force is our aggressive market expansion and Toast Box outlets spread across Singapore, Malaysia, Hong Kong, Shanghai,
diversification strategy. The year saw the addition of 41 new bakeries including Beijing, Tianjin and Thailand. Our fast-growing network of franchised outlets
franchised outlets and introduction of 6 new food courts to our portfolio, stood at 97, compared to 65 in 2006. These include 36 outlets each in
bringing the Group’s presence in Singapore and the region to new heights. Our Indonesia and PRC, 11 in the Philippines, 6 in Kuwait, 4 in India, 3 in Dubai
fledging Toast Box outlets are multiplying rapidly in local shopping malls, while and 1 in Taiwan.
gaining successful beachheads into Malaysia, PRC and the Philippines. The
sizeable contribution from our overseas operations continues to underscore Food Court Business
the success of our market diversification efforts, notably in PRC and Hong
Kong. The Food Court segment accounted for 30.9% (FY2006: 31.1%) or $48.4
million of Group revenue in 2007, representing a 26.2% increase due mainly
Earnings per share rose 86.7% to 3.23 cents, while net asset value per share to full year contribution from our Singapore Vivo City food court, which
increased 45.7% to 18.8 cents. commenced operation in late 2006, and the maiden contribution from our
Suntec City operation, which started in May 2007. Higher revenues were also
SEGMENTAL REVIEW reported by our food courts in PRC despite the deconsolidation of revenue
from restructuring our directly-owned steamboat stalls into a 50:50 joint
Bakery Business venture with the operator, and a two-month closure to renovate our 34,000
sq ft premises at Metro City in Shanghai. The Metro City food court raked in
The Bakery segment remains our largest revenue contributor, accounting for record sales following its upgrading to introduce new dining concepts and an
43.9% (FY2006: 45.0%) or $68.8 million of Group revenue in 2007. This reflects interesting tenant mix, helping to elevate the Food Republic label as a leading
a 23.9% increase over last year, due mainly to rapid expansion in Singapore and and innovative brand in the market. In Hong Kong, the second food atrium at
PRC. Sales from Singapore operations rose 24.5% to $39.1 million, attributable the Citigate Mall which opened in September 2007 was another testimony to
to 5 new outlets and higher same store sales. The premium BreadTalk Silver Food Republic’s popularity in the territory. In November 2007, we entered the
BREADTALK ANNUAL REPORT 07 5

SINGAPORE 34 PRC SINGAPORE 3 PRC


INDONESIA 36 • Shanghai 15 HONG KONG 2 • Shanghai 11
PHILIPPINES 11 • Beijing 14 MALAYSIA 1 • Beijing 4
KUWAIT 6 • Shenzhen 8 • Chongqing 2
MALAYSIA 5 • Chengdu 4 • Tianjin 1
INDIA 4 • Chongqing 3
DUBAI 3 • Hangzhou 3
THAILAND 3 • Nanjing 3
HONG KONG 2 • Ningbo 3
TAIWAN 1 • Suzhou 3 SINGAPORE 5
• Guangzhou 2
• Wuhan 2
• Xian 2
• Changzhou 1
• Qingdao 1
• Xiamen 1 SINGAPORE 1

Malaysian market with its very first Food Republic at the upmarket Pavilion expansion. With the success of Din Tai Fung model in Singapore, the Group is
Shopping Centre in Kuala Lumpur. The success of our food courts in these looking to expand the brand outside of Singapore. We have recently secured
upcoming markets have positioned us strategically for fresh opportunities. the Din Tai Fung franchise rights for Thailand in April 2008.

Operating profit for the segment grew 62.2% from $2.1 million to $3.5 million During the year, the Group acquired the franchise rights for J.CO Donuts &
spurred by expansion and rising sales from both PRC and Singapore. Start-up Coffee in Singapore. We launched the first J.CO Donuts & Coffee (“J.CO”)
costs for 2 new food courts in Hong Kong accounted for the softer performance outlet at Raffles City in February 2008 and response has been overwhelming.
in that market, while operating profit from PRC food courts included the one- We are planning to roll out more J.CO outlets as soon as suitable locations
off recognition of $0.7 million from expired food court stored value cards and are identified.
a government grant of $0.9 million. Excluding income from these one-off
items, operating profit from PRC food courts increased 18.0% to $1.3 million DIVIDEND
in 2007.
To reward our shareholders for their strong support, the Board is pleased to
In December 2007, the Group acquired the remaining 50% stake it holds propose a first and final exempt (one-tier) dividend of 0.55 cent per ordinary
in a joint venture for the Wisma Atria food atrium, turning it into a wholly- share for FY2007 (FY2006: 0.42 cent per share). This represents 17.7% of the
owned subsidiary. We are sanguine about its growth prospect in the heart of Group’s net profits for the year and a 31.0% increase from 2006. While the
Singapore’s prime shopping belt. Group has a cash balance of $38.2 million as at 31 December 2007, we are
committed to steady business expansions in our key markets in years to come.
As at end 2007, the Group owned and operated 24 food courts including 11 As such, it is necessary at this time of aggressive expansion to reinvest as
in Shanghai, 4 in Beijing, 1 in Tianjin, 2 in Chongqing, 2 in Hong Kong, 3 in much as possible into the business. We will revisit our dividend policy at an
Singapore and 1 in Malaysia. opportune time.

Restaurant Business ACCOLADES

The Restaurant segment included 5 Din Tai Fung restaurants and 1 Noodle Bar In recognition of our efforts in raising corporate governance and transparency
in Singapore and contributed 18.1% (FY2006: 17.8%) or $28.3 million of Group levels, I am pleased to note that we clinched the “Most Transparent Company
revenue in 2007. The 28.5% improvement in revenue over last year was driven Award 2007”, Sesdaq Category, awarded by the Securities Investors’
by higher Din Tai Fung restaurant sales and maiden full-year contributions Association of Singapore. We are encouraged and shall endeavour to keep
from the Raffles City and St James Power Station outlets, which were opened our stakeholders and the investment communities abreast of our progress and
in 2006. The restaurant operation at St James Power Station reported $1.7 plans.
million revenue in its first year of business. Operating profit for the segment
grew 31.0% from $3.5 million in 2006 to $4.6 million, propelled by rising APPRECIATION
revenue contribution from the Din Tai Fung restaurants.
We owe our success to you, our loyal customers, valued shareholders,
BUSINESS OUTLOOK committed business partners and above all, our dedicated staff. On behalf
of the Board, I would like to convey our deepest gratitude for your continued
In the year ahead, we will continue to strengthen existing markets and enhance support and patronage, which we will call upon as the journey towards
Group margins through tighter operational controls, business streamlining and excellence unfolds.
new investments. We will also seek out new areas of growth, exemplified by
the rolling out of new concepts at our BreadTalk outlets, introduction of Toast
Box outlets at airport terminals, and leverage our BreadTalk and Food Republic
brand equity for regional expansion, particularly in PRC and Hong Kong. As
we gain stronger footholds in the region and beyond, we believe there is vast GEORGE QUEK
potential for us to extend our geographical footprints through franchise outlet Chairman
6 BREADTALK ANNUAL REPORT 07

GROUP STRUCTURE AS AT 31 DECEMBER 2007


BREADTALK
GROUP LIMITED

100% 100%

BreadTalk
BreadTalk Pte Ltd
International Pte Ltd

Hong Kong Shanghai BreadTalk


Taster Food Pte Ltd
70% 25% BreadTalk Ltd 100% Co. Ltd

Taiwan BreadTalk Shanghai BreadTalk


Charcoal Pte Ltd
75% 30% Co. Ltd 100% Gourmet Co. Ltd

Twin Peaks Venture Beijing BreadTalk


70% Singapore Pte Ltd 100% Restaurant Mgmt Co. Ltd

BreadTalk (Thailand)
100% Co. Ltd

ML BreadWorks
90% Sdn Bhd

AWARDS

Most Transparent Most Transparent Enterprise 50 Start Up Superbrand Status Design for Asia Award 2004 Finalist in Franchisor
Company Award 2007 Company Award Award 2002 Singapore version 2002/2003 Hong Kong Design Centre of the Year Award 2005
Sesdaq Category Runner-up: 2004 and 2005 Ranked Number 1 Singapore Superbrands Council Franchising and Licensing
Securities Investors’ Sesdaq Category Accenture and The Business Times Association of Singapore (FLA)
Association of Singapore SIAS
(SIAS)
BREADTALK ANNUAL REPORT 07 7

Investment Holding Food Court

Bakery Restaurant

Others

100%

Topwin Investment Holding Pte Ltd

Chongqing Food Republic Food & Beverage Co. Ltd


100%
Shanghai Xin Jia Fang Food & Beverage Co. Ltd
100%
Shanghai Hong Bu Rang
50% Food & Beverage Mgmt Co. Ltd
Beijing Da Shi Dai Food & Beverage Co. Ltd
100%

Megabite Hong Kong Ltd BreadTalk Concept Hong Kong Ltd


85% 100%

Food Republic Pte Ltd


100%

Megabite (S) Pte Ltd MWA Pte Ltd


100% 100%
100%

Megabite Eatery (M) Sdn Bhd Food Art Pte Ltd


100%

Apex Excellent Sdn Bhd


50%

Out of The Box Pte Ltd


33.33%

Five Star Diamond Brand Award 2006 Regional Brand Award 2006 Most Promising Brand 2002 to 2005 Entrepreneur of the Year 2002 Entrepreneur of the Year 2006
Five Star Diamond Brand Singapore Promising Brand Award Most Popular Brand 2002, 2005 George Quek George Quek
Association of Small and Medium Enterprises Most Distinctive Brand 2003 to 2005 ASME and The Rotary Club Emerging Entrepreneur Category
(ASME) and Singapore Press Holdings (SPH) Silver Award 2004 Ernst & Young
Gold Award 2005
Singapore Promising Brand Award - ASME and SPH
8 BREADTALK ANNUAL REPORT 07

NURTURING
GROWTH
BREADTALK ANNUAL REPORT 07 9

In just over 7 years, BreadTalk and Toast Box have travelled far and wide, leaving
BAKERY footprints in 11 countries with more than 170 stores worldwide. As of end 2007,
we owned and operated 73 bakery outlets across Asia – with 56 BreadTalk and
17 Toast Box outlets spanning Singapore, Malaysia, Thailand, Hong Kong and the PRC.
Our franchise network has since expanded to 97 stores in Asia and the Middle East.
J.CO Donuts & Coffee, a lifestyle cafe, is the latest addition to our bakery offerings.
10 BREADTALK ANNUAL REPORT 07

BREADTALK individual personalities, incorporating elements of European and Asian


cuisine, including such delectable confections as Cures of the Golden
Distinctive, stylish and so delicious, every one of our baked creations Flower and DragonEye. BreadTalk Silver also serves up one of Singapore’s
has garnered a loyal following, turning BreadTalk into an award-winning most luxurious cakes – the exquisite Katherina Tiramisu, a captivating
boutique carrying over 500 different breads, buns and cakes, each premium dessert oozing with Italian mascarpone cheese, aromatic Kahlua
endowed with its own unique name, personality and flavour. and robust espresso.

Drawing inspiration from Europe’s chic bakeries, our new 1,600 sq ft In preparation for our milestone 8th Anniversary celebration this July, we
BreadTalk Silver boutique bakery at Paragon Shopping Mall in Singapore unveiled our new bakery boutique concept at Singapore’s City Link Mall
boasts Italian marble flooring, elegant floral arrangements, and staff in November 2007 along with 12 sumptuous signature breads, new staff
uniform resembling French couture. The sleek concept store stocks an uniforms and packaging. As the blueprint for all BreadTalk outlets, the
exclusive range of some 150 pastries and desserts specially prepared new store concept is part of our continual efforts to elevate BreadTalk as
by BreadTalk’s renowned, overseas trained chefs using state-of-the- a pleasurable lifestyle bakery boutique.
art baking equipment. BreadTalk’s signature “see-through” kitchens
showcase the expertise of our bakers, who ensure that every lovingly The new concepts will be progressively rolled out to stores in other
handcrafted bun, sandwich and cake reaches our customers fresh from the countries to further reinforce a cohesive branding effort that will leave an
oven. The new range at BreadTalk Silver continues to feature breads with indelible mark in the hearts of consumers all across the globe.
BREADTALK ANNUAL REPORT 07 11

TOAST BOX J.CO DONUTS & COFFEE

Toast Box was developed in October 2005 to recreate the warm atmosphere The Group secured the Master Franchise to operate J.CO Donuts &
of local coffee shops in the 60s and 70s. This welcomed nostalgia is now Coffee in Singapore for 10 years and on 9 February 2008, we opened
enjoyed in 17 Asian outlets – 12 in Singapore, 2 in Malaysia, and 1 each in our first J.CO lifestyle café at Raffles City’s newly renovated Basement
Shanghai, Beijing and Thailand. Toast Box serves up traditional favourites One. With its luxe beverages and inventive “light-as-air” donuts, J.CO
like toast with sugar, mee siam, pork floss toast, soft-boiled eggs, and nasi is a rapidly expanding chain with more than 35 outlets in Asia in just
lemak in a wood-panelled, old-world setting complete with gramophones, 2 1/2 years. The vibrant J.CO concept is both stylish and customer-friendly.
Rediffusion sets and other memorabilia. The food court stall in Food J.CO offers 25 different varieties of donuts, each with its own quirky
Republic has grown immensely since its humble beginnings, and is now identity and name, as well as a selection of 30 beverages, many of which
a hugely popular chain with outlets at prominent, trendy locations such are unique to the brand. We aim to open more J.CO cafés in other busy,
as Vivo City, Plaza Singapura, Suntec City and Centrepoint. In addition to strategic locations. A second J.CO café is expected to open at Bugis
being well poised at shopping malls, Toast Box has also made its way into Junction Basement One in the middle of 2008.
airport retail space with its 2 newly opened outlets at Terminals 1 and 3 of
the Singapore Changi Airport.
12 BREADTALK ANNUAL REPORT 07

BUILDING
TRUST
BREADTALK ANNUAL REPORT 07 13

The Group began its foray into the food atrium business with its acquisition of an
FOOD ATRIUM award-winning chain comprising 13 food courts in the PRC back in 2005. Since then,
we have reinvented the brand and spread the Food Republic culture from the PRC to
other Asian countries. With great food, affordable prices and strong cultural concepts,
Food Republic adds another dimension to the dining experience through an exploration
of diverse food cultures from different countries and eras, staying true to its motto of
uniting citizens of good taste.
14 BREADTALK ANNUAL REPORT 07

During the year, Food Republic added 6 food atria and upgraded 1 across experience. With 13 stalls and 4 mini-restaurants carefully handpicked
Singapore, Malaysia, Hong Kong and the PRC. The oldest and largest for their consistently mouth-watering fare, diners can enjoy culinary
34,000 sq ft food atrium at Metro City in Shanghai was upgraded to give favourites such as Yong Heng Hokkien Mee’s King Kong Mee, Yong Soon
it a truly Food Republic touch that captures the essence of charming You Tiao’s fried fritters, Hamoru Japanese Restaurant’s exotic Japanese
nostalgia. cuisine, JB Ah Koong’s renowned fishballs and handmade noodles, and
Fortunate Restaurant’s traditional dim sum.
Conceptualised as a 19th century European library, the 600-seat atrium
at Suntec City in Singapore combines old world glamour with modern In September 2007, Hong Kong opened its second Food Republic at
elegance. Designer wallpaper featuring book-lined shelves make the Citygate Mall in Tung Chung. The artfully crafted 770-seat atrium aims
perfect backdrop for our special displays of antique bookends, chandeliers to marry city dwellers’ deep passion for food with an exceptional dining
and other historic curios, bringing old world charm to this unique dining experience. Offering a diverse range of quality food to choose from
BREADTALK ANNUAL REPORT 07 15

among 18 stalls and 4 mini-restaurants, Food Republic is set to excite the Taiwanese, Hong Kong, Japanese, Korean, Italian, Indonesian, Thai and
palate with a presentation of delectable Southeast Asian cuisines that Vietnamese cuisine. Vendors are selected for excellent and authentic
include Hong Kong style noodles, Malaysia laksa and Singapore boneless taste, consistently high standards in preparation, flavour and presentation,
Hainanese chicken rice. as well as superior service.

In November 2007, Food Republic entered Malaysia with a sleek new As of end 2007, we own and operate 24 food atria in Asia – 11 in
30,518 sq ft atrium on the first floor of Kuala Lumpur’s glamourous Pavilion Shanghai, 4 in Beijing, 1 in Tianjin, 2 each in Chongqing and Hong Kong, 3
Shopping Centre. The clean, modern décor brings to mind metropolitan in Singapore, and 1 in Malaysia.
New York, recreating the ambience of a city celebrated for its melting pot
of cultures. Here, you will find rich heritage food. The 23 self-serve units
and 4 mini-restaurants offer Malaysian, Singaporean, Chinese, Indian,
16 BREADTALK ANNUAL REPORT 07

EXTENDING
REACH
BREADTALK ANNUAL REPORT 07 17

Celebrating a time-honoured tradition of exquisite culinary indulgence, the Group’s


RESTAURANT restaurant offerings have delighted the taste buds of all ages since their various
inceptions. Be it winning international accolades to receiving local praise, our fine
restaurants continue to uphold a testament of presenting unique dining experiences
that will always tantalise and satisfy consumers.
18 BREADTALK ANNUAL REPORT 07

DIN TAI FUNG With an emphasis on fresh quality ingredients and superior cooking
techniques, Din Tai Fung’s food preparation and cooking methods have
Famous for its delicious and healthy house specialties - especially its been standardised worldwide with a view to quality preservation. In
renowned xiao long bao meat dumplings - Din Tai Fung originated in Singapore, customers can relax amid our restaurants’ elegant décor and
Taiwan over 30 years ago and was rated by The New York Times as “One oriental facade, and relish mouth-watering dishes such as Shanghainese
of the World’s Top TEN Best Restaurants” in 1993. In 2003, the Group won drunken chicken, fried pork chop, steamed chicken soup, not forgetting our
the franchise rights to operate the Din Tai Fung brand of restaurants in hearty and flavourful dumplings.
Singapore. In 2007, Din Tai Fung has been voted as “Taiwan’s Top Ten”
restaurant by Reader’s Digest and following suit, we, in Singapore, clinched Currently, the Group operates 5 Din Tai Fung restaurants in Singapore, all
the honour of “Singapore’s Best Restaurant” by both the Singapore Tatler in convenient, high-traffic locations – Paragon, Junction 8, Tampines Mall,
as well as Wine & Dine publications. Wisma Atria and Raffles City. With our recent award of the Din Tai Fung
franchise right in Thailand, this exquisite food culture will find its way to
the culturally rich land of smiles soon.
BREADTALK ANNUAL REPORT 07 19

THE STATION KITCHEN CHARCOAL

The Station Kitchen (TSK) is the Group’s integrated F&B concept for diners Charcoal is an offshoot of Yakiniku House, the popular Taiwanese charcoal
at the 70,000 sq ft St James Power Station, one of Singapore’s latest grill restaurant chain that has 5 branches in Taipei. With traditional tatami
clubbing hotspots. Established in December 2006, the 250-seat restaurant seatings, diners can enjoy hands-on grilling over burning charcoal. Only
offers 2 cuisine concepts in its 6,500 sq ft dining space – Charcoal and Ah the freshest meats, seafood and vegetables are offered.
Wok. TSK features BreadTalk’s signature open concept kitchens that allow
our chefs and guests to interact, and also houses brick walls, wooden AH WOK
benches and cast-iron lamps to create an inviting, congenial atmosphere.
Its strategic location – residing within an entertainment complex, opposite As a restaurant that serves up a host of local favourites such as bak kut
Sentosa Island and adjacent to Singapore’s largest retail mall, Vivo City, teh and fish head curry, Ah Wok is primed to strike a chord with food
makes it a popular hangout for clubbers, tourists, shoppers, office crowd lovers boasting a penchant for comfort food rich in traditional goodness
and residents. and flavour.

At TSK, diners can enjoy the wide variety of choice offered by Charcoal
and Ah Wok – all under one roof.
20 BREADTALK ANNUAL REPORT 07

1 GEORGE QUEK MENG TONG


2 KATHERINE LEE LIH LENG
3 CHEN KUO HUA
4 2
5 3 4 ONG KIAN MIN
1
5 CHAN SOO SEN
BREADTALK ANNUAL REPORT 07 21

BOARD OF DIRECTORS

GEORGE QUEK MENG TONG Responsible for product development of our Kian Min is currently a consultant with Drew &
Chairman overseas markets too, Katherine formulates Napier Llc and has been a practicing advocate and
product training and technical skill upgrade solicitor of the Supreme Court of Singapore since
George, founder of the Group, was appointed to programmes to ensure proper transfer of 1989. He serves as independent director and
the Board on 6 March 2003. Having led and grown knowledge and skills to our franchisees in line chairman of the audit committee of a number of
the Company to its outfit today, George continues with our local operations so as to sustain product listed companies in Singapore as well.
to drive our strategic direction and development. quality. In addition, Katherine spearheads product
With more than 30 years of industry experience, costing, which is an integral part of strategic In addition, Kian Min has been a Member of
he has been instrumental in setting fresh trends in pricing. Parliament since January 1997 and serves as
food culture as well as redefining the food stage Deputy Chairman of the Government Parliamentary
for the Group to present to consumers both locally Katherine has more than 15 years of experience Committee (GPC) for Transport. He was awarded
and abroad. in the industry. She was previously the Finance the President’s Scholarship and Singapore Police
Director of Topwin Singapore prior to which Force Scholarship in 1979, and graduated with a
George started his food and beverage business she was in charge of the human resource and Bachelor of Science (Honours) from the Imperial
in Taiwan in 1982, successfully growing it into a operations of more than 20 food and beverage College of Science and Technology, and Bachelor
chain of 21 outlets within a decade. Returning to outlets in Taiwan. of Laws (Honours) (ext) from the University of
Singapore in 1992, he founded Topwin Singapore London, England, UK.
and subsequently Megabite China in 1996, CHEN KUO HUA
establishing the food court businesses. In 2000, Non-Executive Director CHAN SOO SEN
he started our bakery business with BreadTalk Pte Independent Director
Ltd and eventually brought it to list on the SGX Kuo Hua was appointed to the Board on 30 April
in 2003. To facilitate expansion plans, the bakery 2003 and last re-elected on 26 April 2006. He sits Soo Sen was appointed to the Board on 14 August
and food court businesses were strategically in the Audit Committee, Nominating Committee 2006. He is the Chairman of the Remuneration
merged in 2005. and Remuneration Committee of the Company Committee, as well as member of the Audit
and is also the President of the Group’s China Committee and Nominating Committee of the
George holds a Doctorate in Business operations. Company.
Administration (Honorary) from Wisconsin
International University, USA. Amongst other Kuo Hua has more than 20 years of industry Soo Sen is currently the Director, Chairman’s
awards, he won the Ernst & Young “Entrepreneur of experience in providing consultation and strategic Office of Keppel Corporation Limited. He also
the Year 2006” (Emerging Entrepreneur Category) planning in various countries such as the PRC, holds directorships for a few listed companies in
and “Entrepreneur of the Year 2002” organised by Hong Kong, Taiwan and Singapore. He has held Singapore.
the Association of Small and Medium Enterprises various senior positions in Topwin Singapore
and The Rotary Club of Singapore. and Megabite China prior to joining the Group, Soo Sen is a Member of Parliament for Joo Chiat
whereby the food court businesses were merged Constituency. He was previously a Minister of State
George will be due for re-election at this into the Group. and had served in several ministries including the
forthcoming Annual General Meeting. Ministry of Community Development, Youth and
Kuo Hua holds a degree in Drama and Mass Sports, Ministry of Education, and Ministry of
KATHERINE LEE LIH LENG Communication from the Chinese Culture Trade and Industry. Before entering the political
Deputy Chairman University, Taipei, Taiwan. scene, he was involved in the starting up of the
China-Singapore Suzhou Industrial Park as its
Katherine was appointed to the Board on 6 March ONG KIAN MIN founding chief executive officer in 1994, laying
2003 and last re-elected on 30 April 2007. She Independent Director the foundation and framework for infrastructure
oversees the Group’s research and development and utilities development for the industrial park.
and plays a vital role in steering product Kian Min was appointed to the Board on 30 April He holds a Master in Management Science from
enhancement for our various brands, as well as 2003 and last re-elected on 30 April 2007. He is the University of Stanford, USA.
pioneering new ideas and concepts. the Lead Independent Director, Chairman of the
Audit Committee and Nominating Committee, and Soo Sen will be due for re-election at this
member of the Remuneration Committee of the forthcoming Annual General Meeting.
Company.
22 BREADTALK ANNUAL REPORT 07

SENIOR MANAGEMENT

GOH TONG PAK FRANKIE QUEK SWEE HENG CATHERINE LEE KHIA YEE
Chief Executive Officer Chief Operating Officer Chief Financial Officer

Tong Pak joined the company on 1 January Frankie assists our Chairman in overseeing Catherine oversees the Group’s financial
2008. As group CEO, Tong Pak oversees the the development and growth of the Group, function, including financial reporting,
Group’s global operations, focusing on strategic focusing on the Group’s expansion into the compliance, internal controls, financial planning
planning and business development. One of PRC. Frankie has been based in Shanghai since and treasury operations. She is also in charge
his main roles is to strategise on systems and January 2005 where he oversees the growing of investments and investor relations.
talent development. bakery operations in Shanghai and Beijing.
His expertise has further led to the successful A non-practicing Certified Public Accountant by
Prior to joining the company, Tong Pak was a export of the BreadTalk brand name to more training with more than 15 years of financial
well known veteran in the education sector, than 16 cities through a franchise model system management experience in various industries,
having spent 37 years with the Ministry of run by the in-house franchise team. Catherine is an experienced banker and
Education (MOE). He started out as a teacher investment professional with a strong corporate
and was promoted through the ranks to the Prior to joining the Group in 2001, Frankie finance and private equity background.
position of deputy director for MOE’s school was an Associate Manager in the residential
appraisal branch. With his years of professional properties division of the Dennis Wee Group. Prior to joining the Group in 2004, Catherine
and management experience, Tong Pak helps to From 1993 to 1999, Frankie held various worked for Transpac Capital where she
spearhead the Group’s expansion globally. His positions in Topwin Singapore where he helped managed an investment portfolio of public-
background and expertise in administrating set up the Raffles City food court and managed listed companies and private companies in
monitoring systems stands him in good stead as the operations of several food courts. the USA, Singapore, Malaysia, Indonesia
he works towards improvement of the Group’s and Australia. She was concurrently financial
quality control procedures and enhancement of Frankie holds a Master of Business controller and business development manager
the business operation systems. Administration (Honorary) from the American to companies from a spectrum of industries.
University of Hawaii, USA. She also sat on the board of several companies
Tong Pak who holds an honours degree in to assist in implementing good corporate
arts from the former Nanyang University and governance practices and participated in
a post graduate diploma in education from strategic planning.
the National Institute of Education (NIE) also
lectures part-time for the Master’s degree Catherine holds a Bachelor of Accountancy
course in Education Administration at NIE, (Honours) degree from the Nanyang
Singapore. Technological University, Singapore.
BREADTALK ANNUAL REPORT 07 23

CORPORATE INFORMATION

BOARD OF DIRECTORS COMPANY SECRETARY PRINCIPAL BANKERS

George Quek Meng Tong Tan Cher Liang DBS Bank Limited
Chairman
Malayan Banking Berhad
Katherine Lee Lih Leng REGISTERED OFFICE
Deputy Chairman Oversea-Chinese Banking Corporation Limited
171 Kampong Ampat
Chen Kuo Hua #05-05 KA FoodLink Standard Chartered Bank
Non-Executive Director Singapore 368330
Tel : (65) 6285 6116 United Overseas Bank Limited
Ong Kian Min Fax: (65) 6285 1661
Independent Director
INVESTOR RELATIONS
Chan Soo Sen SHARE REGISTRAR
Independent Director Spin Capital Asia
Boardroom Corporate & Advisory 158 Cecil Street
Services Private Limited #05-06B Dapenso Building
3 Church Street Singapore 069545
#08-01 Samsung Hub Tel : (65) 6227 7790
Singapore 049483
Michael Tan
Email : michael@spin.com.sg
AUDITORS
Dawn Soo
Ernst & Young Email : dawn@spin.com.sg
Certified Public Accountants
One Raffles Quay
North Tower Level 18
Singapore 048583

Partner-in-charge :
Philip Ling
(appointed since financial year ended
31 December 2006)
FINANCIAL CONTENTS
Corporate Governance 25
Financial Statements
- Directors’ Report 38
- Statement by Directors 41
- Independent Auditors’ Report 42
- Consolidated Income Statement 43
- Balance Sheet 44
- Statements of Changes in Equity 46
- Consolidated Cash Flow Statement 49
- Notes to Financial Statements 52
Statistics of Shareholdings 113
Notice of Annual General Meeting 115
Proxy Form 119
BREADTALK ANNUAL REPORT 07 25

CORPORATE GOVERNANCE

The Board of Directors (the “Board”) and Management recognise the importance of corporate governance and continue to be
committed to maintaining a high standard of corporate governance by complying with the benchmark set by the Singapore
Code of Corporate Governance 2005 (the “Code”) issued by the Ministry of Finance on 14 July 2005.

This report sets out BreadTalk Group Limited’s corporate governance processes and structures that were in place throughout
the financial year, with specific reference made to the principles and guidelines of the Code and the Best Practice Guide
issued by the Singapore Exchange Securities Trading Limited (the “SGX-ST”).

The Board is pleased to confirm that for the financial year ended 31 December 2007, the Company has generally adhered to
the framework as outlined in the Code and where there are deviations from the Code, the reasons for which deviation are
explained accordingly.

A. BOARD MATTERS

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 success of the company. The board works with management to achieve this and the management remains
accountable to the board.

The primary function of the Board is to protect and enhance long-term value and returns for Shareholders. Besides carrying
out its statutory responsibilities, the Board’s roles include:

1. Providing entrepreneurial leadership and setting strategic directions and overall corporate policies of the Group. Guideline 1.1 of the Code:
2. Supervising and monitoring the performance of the Management team. The Board’s role
3. Ensuring the adequacy of internal controls, risk management and periodic reviews of the Group’s financial performance
and compliance.
4. Setting the Company’s values and standards, ensuring that the necessary human resources are in place.
5. Approving annual budget, major investments and divestment proposals.
6. Assuming responsibility for good corporate governance practices.
7. Approving corporate or financial restructuring, share issuance, dividends and other returns to Shareholders, Interested
Person Transactions (IPT) of a material nature and release of the Group’s half year and full year results.

To assist in the execution of its responsibilities, the Board has established three (3) Board Committees, namely the Audit Guideline 1.3 of the Code:
Committee (AC), Nominating Committee (NC) and Remuneration Committee (RC), to which the Board has delegated decisions Disclosure on delegation
on certain Board matters to the specialised Board Committees. of authority by Board to
Board Committees
The Board met four (4) times during the financial year to discuss key activities and business strategies, review the operations Guideline 1.4 of the Code:
and performance, as well as address key policy matters of the Group. All Directors were furnished with relevant information Board to meet regularly
beforehand in order to enable them to obtain further explanation where necessary, and be adequately briefed prior to the
respective meetings. Minutes of the meetings are also available to the respective Board members. In addition, ad-hoc and
non-scheduled meetings are convened by Board members to deliberate on urgent and substantive matters. The Company’s
Articles of Association has been amended to provide for telephone, audio and video conferencing, or other electronic means
of communication to facilitate meetings of the Board.
26 BREADTALK ANNUAL REPORT 07

CORPORATE GOVERNANCE

Details of Directors’ attendance at Board and Board Committee meetings held during the financial year ended 31 December
2007 is summarised as follows:

ATTENDANCE AT BOARD AND BOARD COMMITTEE MEETINGS

Name of Director Board Audit Committee Nominating Committee Remuneration Committee


Number of Meetings Held 4 4 1 1
ATTENDANCE
George Quek Meng Tong 4 NA NA NA
Katherine Lee Lih Leng 3 NA NA NA
Chen Kuo Hua 4 4 1 1
Ong Kian Min 4 4 1 1
Chan Soo Sen 3 3 1 1

Matters that are specifically reserved to the Board for approval are: Guideline 1.5 of the Code:
Matters requiring Board
(a) matters involving a conflict of interest of a substantial Shareholder or Director; approval
(b) material acquisitions and disposal of assets;
(c) corporate or financial restructuring;
(d) share issuances, dividends and other returns to Shareholders;
(e) matters which require Board approval as specified in the Company’s IPT policy; and
(f) substantial expenditures exceeding a prescribed limit.

All Directors are appointed to the Board by way of a formal letter of appointment indicating the amount of time commitment Guideline 1.7 of the Code:
required and scope of duties. Formal appointment letter

The Company provides a comprehensive orientation programme to familiarise new Directors with the Company’s businesses Guidelines 1.6 and 1.8
and governance practices, as well as the Group’s history, core values, strategic direction and industry-specific knowledge so of the Code: Directors
as to assimilate them into their new roles. to receive appropriate
training
Directors also have the opportunity of visiting the Group’s operational facilities and meet with the Management team to
gain a better understanding of the Group’s business operations. Each Director is provided with an annually updated manual
containing Board and Company policies relating to the disclosure of interests in securities and conflicts of interests in
transactions involving the Company, prohibition on dealings in the Company’s securities, as well as restrictions on the
disclosure of price sensitive information.

Board members are encouraged to attend seminars and receive training to improve themselves in the discharge of their duties
as Directors. In addition, the Company works closely with professionals to apprise Directors with updates on risk management
and key changes to relevant regulatory requirements and accounting standards. In keeping abreast with the provisions of the
Companies (Amendment) Act 2005, the Company has amended its Articles of Association upon Shareholders’ approval at the
Company’s extraordinary general meeting held on 30 April 2007.
BREADTALK ANNUAL REPORT 07 27

CORPORATE GOVERNANCE

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. No individual or small group of individuals should be
allowed to dominate the board’s decision-making.

The Board has five (5) members with more than one-third (1/3) independent majority, comprising two (2) independent and Guideline 2.1 of the Code:
non-executive Directors, one (1) non-executive Director and two (2) executive Directors: Independence of Board

Dr George Quek Meng Tong (Chairman)


Ms Katherine Lee Lih Leng (Deputy Chairman)
Mr Chen Kuo Hua (Non-executive Director)
Mr Ong Kian Min (Independent Director)
Mr Chan Soo Sen (Independent Director)

The independence of the two (2) Independent Directors is reviewed by the NC annually. The NC considers an “independent” Guideline 2.2 of the Code:
Director as one who has no relationship with the Company, its related companies or its officers that could interfere or be Independent Directors
reasonably perceived to interfere, with the exercise of the Director’s independent judgement of the conduct of the Group’s
affairs, and is not a substantial Shareholder, or a partner (with 5% or more stake) or executive officer of any for profit business
organisation to which the Company has made or received significant payments (aggregated in excess of S$200,000 per year)
in the current or immediate past financial year. Moreover, the Chairman of the NC is not associated, directly or indirectly,
with a substantial Shareholder to enhance an independent view to the best interests of the Company. As a result of the
NC’s review for financial year 2007, the NC is of the view that the Independent Directors are independent of the Company’s
management as contemplated by the Code.

The Board, in view of the nature and scope of business operations, considers that though small, the present Board size and Guideline 2.3 of the Code:
composition facilitate efficient and effective decision-making with a strong independent element. Appropriate Board size

Each Director has been appointed on the strength of his calibre, experience, grasp of corporate strategy and potential to Guideline 2.4 of the
contribute to the Company and its businesses. As each of the Directors brings valuable insights from different perspectives Code: Board to comprise
vital to the strategic interests of the Company, the Board considers that its Directors possess the necessary competencies to Directors with core
provide Management with a diverse and objective perspective on issues so as to lead and govern the Company effectively. competencies

Once a year, a formal session is arranged for the non-executive Directors (NEDs) to meet without the presence of Management Guidelines 2.5 and 2.6 of
or executive Directors to review any matters that must be raised privately. The session is chaired by the Lead Independent the Code: Role of NEDs
Director, Mr Ong Kian Min, who is also the chairman of the NC. and regular meetings of
NEDs

Chairman and Chief Executive Officer

Principle 3: There should be a clear division of responsibilities at the top of the company – the working of the board and the
executive responsibility of the company’s business – which will ensure a balance of power and authority, such that no one
individual represents a considerable concentration of power.

With the appointment of Mr Goh Tong Pak as Group Chief Executive Officer (“CEO”) with effect from 1 January 2008, the Guideline 3.1 of the
Company currently adopts a dual leadership structure whereby the positions of chairman and chief executive officer are Code: Chairman and chief
separated. There is a clear division of responsibilities between the Company’s executive Chairman and CEO, which provides executive officer should be
a balance of power and authority. separate persons
28 BREADTALK ANNUAL REPORT 07

CORPORATE GOVERNANCE

As Chairman, Dr George Quek is responsible for ensuring Board effectiveness and conduct, as well as strategic development Guideline 3.2 of the Code:
of the Group in addition to which, he shall assume duties and responsibilities as may be required from time to time. The CEO, Chairman’s role
Mr Goh Tong Pak, has overall responsibility of the Group’s operations, organisational effectiveness and implementation of
Board policies and decisions.

Not withstanding the above, the non-executive and independent Directors fulfill a pivotal role in corporate accountability.
Their presence is particularly important as they provide unbiased and independent views, advice and judgement to take Guideline 3.3 of the Code:
care of the interests, not only of the Company but also of Shareholders, employees, customers, suppliers and the many Appointment of Lead
communities in which the Company conducts business. The Board appointed Independent Director, Mr Ong Kian Min as the Independent Director
Lead Independent Director on 14 August 2006 as an additional channel available to Shareholders.

Board Membership and Board Performance

Principle 4: There should be a formal and transparent process for the appointment of new directors to the board. As a principle
of good corporate governance, all directors should be required to submit themselves for re-nomination and re-election at
regular intervals.

Principle 5: There should be a formal assessment of the effectiveness of the board as a whole and the contribution by each
director to the effectiveness of the board.

The NC comprises the two (2) Independent Directors and the Non-executive Director who have been tasked with the authority Guideline 4.1 of the Code:
and responsibility to devise an appropriate process to review and evaluate the performance of the Board as a whole as well NC composition
as each Director on the Board. The chairman of the NC is an independent and non-executive Director, and is not a substantial
Shareholder or directly associated with a substantial Shareholder:

Mr Ong Kian Min – chairman


Mr Chen Kuo Hua – member
Mr Chan Soo Sen – member

At least one-third (1/3) of the Board of Directors shall retire from office by rotation and be subject to re-election at every Guidelines 4.2 to 4.6 of
Company annual general meeting, and the primary responsibilities of the NC are: the Code: Duties of the NC

1. To make recommendations to the Board on the appointment of new executive and non-executive Directors, including
making recommendations on the composition of the Board generally and the balance between executive and non-
executive Directors appointed to the Board, as well as ensuring there are procedures in place for the selection and
appointment of NEDs.

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

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

4. To make plans for succession, in particular for the Chairman and key executives.

5. To determine, on an annual basis, if a Director is independent. If the NC determines that a Director, who has one or
more of the relationships mentioned under the Code is in fact independent, the NC would disclose in full, the nature of
the Director’s relationship and bear responsibility for explaining why he should be considered independent.
BREADTALK ANNUAL REPORT 07 29

CORPORATE GOVERNANCE

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

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

8. To be responsible for assessing the effectiveness of the Board as a whole and for assessing the contribution of each
Director to the effectiveness of the Board and disclosing annually, this assessment process.

With the Board’s approval, the NC has decided for the year under review on how the Board’s performance is to be evaluated Guidelines 5.1 to 5.4 of
as a whole, and proposed objective performance criteria including Board composition, size and expertise, Board information the Code: Assessing the
and timeliness, as well as Board commitment and accountability. In assessing each Director’s contribution and performance Board’s effectiveness
to the effectiveness of the Board, the NC takes into consideration factors such as attendance, preparedness, participation
and candour.

The NC has met once during the financial year under review on 27 February 2007. Each member of the NC shall abstain from
voting on any resolution in respect of the assessment of his performance or re-nomination as a Director. Details of Board
members’ qualifications and experience including the year of initial appointment are presented in this Annual Report under
the heading “Board of Directors”.

Access to Information

Principle 6: In order to fulfill their responsibilities, board members should be provided with complete, adequate and timely
information prior to board meetings and on an on-going basis.

The Board receives complete and adequate information on an on-going basis. Management provides the Chairman and Deputy Guidelines 6.1 and 6.2 of
Chairman with monthly management accounts and the rest of the Board members with quarterly management accounts. The the Code: Information to
agenda for Board meetings is prepared in consultation with the Chairman and it will be circulated one (1) week in advance the Board
to Board members of each meeting.

Managers who can provide additional insight into the matters at hand are invited to be present at the relevant time during a
Board meeting. Furthermore, the Board has separate and independent access to the Company Secretary and senior executives,
and there is no restriction of access to the senior Management team of the Company or Group at all times in carrying out
its duties. NEDs have also been invited to various functions whereby they may be informally introduced to officers of the
Group.

The Company Secretary attends all formal Board meetings to respond to the queries of any Director, ensure that Board Guideline 6.3 of the Code:
procedures are followed and that all applicable rules and regulations are complied with. Access to and role of the
Company Secretary
Where decisions to be taken by the Board require specialised knowledge or expert opinion, the Board takes independent
professional advice as and when necessary to enable it or the Independent Directors to discharge the responsibilities Guideline 6.5 of the Code:
effectively. Access to independent
professional advice
30 BREADTALK ANNUAL REPORT 07

CORPORATE GOVERNANCE

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

The RC, established for the purpose of ensuring that there is a formal and transparent procedure for fixing the remuneration Guideline 7.1 of the Code:
packages of individual Directors, comprises the two (2) Independent Directors and the Non-executive Director. The chairman RC to consist entirely
of the RC is an independent and non-executive Director: of NEDs and majority,
including RC chairman,
Mr Chan Soo Sen – chairman must be independent
Mr Chen Kuo Hua – member
Mr Ong Kian Min – member

The overriding principle is that no Director should be involved in deciding his own remuneration. The RC has adopted a written
term of reference that defines its membership, roles, functions and administration.

The primary responsibilities of the RC are as follows:

1. To review and recommend to the Board in consultation with the Chairman of the Board, a framework of remuneration
and to determine the specific remuneration packages and terms of employment for each of the executive Directors and Guideline 7.2 of the Code:
senior executives or divisional Directors (those reporting directly to the Chairman or CEO) and those employees related RC’s responsibilities
to the executive Directors and controlling Shareholders of the Group.

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

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

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

5. As part of its review, the RC shall ensure that:

(i) all aspects of remuneration including but not limited to Directors’ fees, salaries, allowances, bonuses, options
and benefits-in-kind should be covered.

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

(iii) the remuneration package of employees related to executive Directors and controlling Shareholders are in line
with the Group’s staff remuneration guidelines and commensurate with their respective job scopes and levels of
responsibility.
BREADTALK ANNUAL REPORT 07 31

CORPORATE GOVERNANCE

Level and Mix of Remuneration

Principle 8: The level of remuneration should be appropriate to attract, retain and motivate the directors needed to run the
company successfully but companies should avoid paying more than is necessary for this purpose. A significant proportion
of remuneration, especially that of executive directors, should be structured so as to link rewards to corporate and individual
performance.

The Company advocates a performance based remuneration system for executive Directors and key executives that is Guidelines 8.1 to 8.5 of the
flexible and responsive to the market, comprising a base salary and other fixed allowances, as well as variable performance Code: RC to recommend
bonus and participation in an employee share award or Scheme based on the Company’s performance and linking it to the remuneration of Directors
individual’s performance. and review remuneration of
key executives
In determining such remuneration packages, the RC will ensure that they are adequate by considering, in consultation with
the Chairman or CEO amongst other things, the respective individuals’ responsibilities, skills, expertise and contribution to
the Company’s performance, and whether they are competitive and sufficient to ensure that the Company is able to attract
and retain the best available executive talent, meanwhile keeping tabs that they are not excessive.

In addition to the Scheme, the Company will be proposing a Restricted Share Grant Plan (the “Plan”) to reward and retain
qualified and experienced employees so as to optimise their performance standards and enhance corporate efficiency in the
strive for sustainable growth and prosperity for the Group. The Plan is subject to approval of Shareholders at the forthcoming
Extraordinary General Meeting to be held on 28 April 2008 (the “EGM”).

The RC has adopted a framework which consists of a base fee to remunerate NEDs based on their appointments and roles
in the respective Committees, as well as the fees paid in comparable companies. Fees for the NEDs will be tabled at the
forthcoming Annual General Meeting to be held on 28 April 2008 (the “AGM”) for Shareholders’ approval.

The Company has entered into a service agreement with the Chairman, Dr George Quek, for an initial period of three (3) years Guideline 8.6 of the Code:
commencing 2003 and renewable thereafter unless otherwise terminated by either party by giving six (6) months’ notice in Notice periods in service
writing. The RC has reviewed the existing terms and conditions of all service agreements and recommended to the Board contracts to be six (6)
any changes to such terms and conditions at the expiry of such service agreements. All recommendations by the RC are months or less
submitted for endorsement by the entire Board. The Company confirms that there is no onerous removal clause in any of the
service contracts.
32 BREADTALK ANNUAL REPORT 07

CORPORATE GOVERNANCE

Disclosure on Remuneration

Principle 9: Each company should provide clear disclosure of its remuneration policy, level and mix of remuneration, and
the procedures 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 executives,
and performance.

A breakdown showing the level and mix of each Director’s remuneration for the year ended 31 December 2007 is set out Guidelines 9.1 to 9.3 of
below: the Code: Directors’, key
executives’and related
employees’ remuneration
REMUNERATION OF DIRECTORS AND KEY EXECUTIVES

Bonus/
Name of Director Salary(1) Profit-Sharing Benefits-In-Kind Director Fee(2) Total
Above S$500,000 % % % % %
George Quek Meng Tong 45 49 6 - 100
S$250,000 to below S$500,000
Chen Kuo Hua 68 32 - - 100
Katherine Lee Lih Leng 50 50 - - 100
Below S$250,000
Ong Kian Min - - - 100 100
Chan Soo Sen - - - 100 100

Name of Key Executive Bonus /


(who is not a Director) Designation Salary(1) Profit-Sharing Total
Above S$250,000 to below S$500,000 % % %
Frankie Quek Swee Heng(3) Chief Operating Officer 61 39 100
Catherine Lee Khia Yee Chief Financial Officer 63 37 100
Chen Poh On Chief Executive Officer, Megabite China 71 29 100
Jenson Ong Chin Hock Managing Director, Megabite Hong Kong 84 16 100
Ricky Lim Chor Pah General Manager, BreadTalk Beijing 83 17 100
S$250,000 and below
Henry Lee(4) Executive Vice President, BreadTalk Singapore 73 27 100

Notes:
(1) Salary is inclusive of fixed allowance and CPF contribution.
(2) Directors’ fees only payable after approval by Shareholders at the AGM.
(3) Frankie Quek is the brother of George Quek.
(4) Henry Lee is the brother of Katherine Lee.

No other employee whose remuneration exceeded S$150,000 during the year is the immediate family of any of the members
of the Board.
BREADTALK ANNUAL REPORT 07 33

CORPORATE GOVERNANCE

C. ACCOUNTABILITY AND AUDIT

Accountability

Principle 10: The board is accountable to the shareholders while the management is accountable to the board. The board
should present a balanced and understandable assessment of the company’s performance, position and prospects.

For all announcements (including financial performance reporting) made to the public via SGXNET and the annual Guideline 10.1 of
report or circulars to Shareholders, as required by the SGX-ST, the Board has a responsibility to present a fair the Code: Board’s
assessment of the Group’s position, including the prospects of the Group. responsibility to the public

To enable effective monitoring and decision-making by the Board, Management provides the Board with a continual Guideline 10.2 of the
flow of relevant information on a timely basis as well as quarterly management accounts of the Group. Particularly, Code: Management’s
prior to the release of half year and full year results to the public, Management will present the Group’s financial responsibility to the Board
performance together with explanatory details of its operations to the AC, which will review and recommend the
same to the Board for approval and authorisation for the release of the results.

Audit Committee

Principle 11: The board should establish an audit committee with written terms of reference, which clearly set out its authority
and duties.

The role of the AC is to assist the Board in the execution of its corporate governance responsibilities within the Guidelines 11.1, 11.2
established Board’s references and requirements. The financial statements, accounting policies and system of internal and 11.8 of the Code:
accounting controls are responsibilities that fall under the ambit of the AC. The AC has its set of written terms of Board to establish AC and
reference defining its scope of authority and some of its major functions are set out below. composition of AC

The AC comprises three (3) members who are all NEDs, two (2) of whom are also independent. The chairman of the AC
is an independent and non-executive Director:

Mr Ong Kian Min – chairman


Mr Chen Kuo Hua – member
Mr Chan Soo Sen – member

The members of the AC collectively have expertise or experience in financial management, and are qualified to discharge
the AC’s responsibilities.

In performing its functions, the AC confirms that it has explicit authority to investigate any matter within its terms Guideline 11.3 of the
of reference, full access to and co-operation from the Management, and has been given full discretion to invite any Code: AC’s authority
Director or executive officer to attend its meetings, as well as reasonable resources to enable it to discharge its
functions properly.
34 BREADTALK ANNUAL REPORT 07

CORPORATE GOVERNANCE

The main functions of the AC are as follows: Guideline 11.4 of the


Code: Duties of AC
1. Review the audit plan of the Company’s external auditors and adequacy of the system of internal accounting
control.

2. Discuss and review external auditors’ reports.

3. Review significant financial reporting issues and judgements so as to ensure the integrity of the financial
statements and any formal announcements relating to the Company’s or Group’s financial performance.

4. Review and recommend the nomination of the External Auditors for appointment or re-appointment.

5. Review the IPT.

6. Review the scope and result of the internal audit procedures.

7. Review the remuneration packages of the employees who are related to the Directors or substantial
Shareholders.

The AC held four (4) meetings during the financial year under review. It has reviewed the financial statements of Guidelines 11.5 and 11.6
the Group for the purpose of the half-yearly and annual results release before they were submitted to the Board for of the Code: Meeting with
approval. It has also met with the Company’s Internal and External Auditors to review their audit plans and results, auditors and review of
and has separate and independent access to the auditors. Upon reviewing the non-audit services provided by the their independence
External Auditors which comprise tax services, the AC is satisfied that the independence of the External Auditors is
not impaired.

Where there is any suspected fraud or irregularity, or failure of internal controls, or infringement of any Singapore Guideline 11.7 of the
law, rule or regulation which has a material impact on the Company’s operating results, the AC will commission and Code: Whistle-blowing
review the findings of internal investigations into the matters. Endorsed by the AC, the Company has in place a whistle- arrangements
blowing framework. This is to encourage and provide an avenue for employees to report in good faith and confidence
without fear of reprisals or concerns, about possible improprieties enabling independent investigation of such matters
by the AC. Contact details of the AC members have been made available to all staff.

Internal Control

Principle 12: The board should ensure that the management maintains a sound system of internal controls to safeguard the
shareholders’ investments and the company’s assets.

In recognising the importance of internal controls and so as to tap on the expertise of professionals with a view to Guideline 12.1 of the
harnessing industry best practices, the Group has appointed external firms which are qualified and specialised in the Code: AC to review
area as Internal Auditors to carry out periodic checks on the Group’s system of internal controls. In the course of their adequacy of internal
statutory audit, the Group’s External Auditors also considered internal controls which are relevant to the Company’s controls
preparation and fair presentation of its financial statements in order to design audit procedures that are appropiate in
the circumstances.
BREADTALK ANNUAL REPORT 07 35

CORPORATE GOVERNANCE

Any material non-compliance and internal control weaknesses, as well as recommendations for improvements are
reported to the AC. Where areas of internal controls had been found to require further Management attention and
improvement upon, Management had since taken action to enhance upon them, as well as implement more proactive,
precautionary and preventive monitoring procedures to avoid error or abuse. The AC, on behalf of the Board, also
reviews the effectiveness of the actions taken by Management in response to the findings and recommendations made
by the Internal and External Auditors in this respect.

In the absence of any evidence to the contrary, the system of internal controls maintained by Management that was
in place throughout the financial period provides reasonable, though not absolute assurance against material financial
misstatements or loss, and also confidence in the safeguarding of assets, maintenance of proper accounting records,
reliability of financial information, compliance with appropriate legislation, regulation and best practice, and the
identification and management of business risk.

The Board notes that no system of internal control can provide absolute assurance against the occurrence of material Guideline 12.2 of the
error, poor judgement in decision-making, human error, loss, fraud or other irregularities. Based on the reports submitted Code: Board to comment
by the Internal and External Auditors, as well as the various controls put in place by the Management, the AC is on the adequacy of
satisfied that there are adequate internal controls to meet the needs of the Group in its current business environment. internal controls

Internal Audit

Principle 13: The company should establish an internal audit function that is independent of the activities it audits.

As discussed above, the internal audit function of the Group is outsourced. The Company has appointed Stone Forest Guidelines 13.1 to 13.4 of
Consulting as its Internal Auditors since 2006 and the Internal Auditors report primarily to the chairman of the AC. The the Code: Internal Auditors
audit work carried out is guided by the Standards for Professional Practice of Internal Auditing set by the Institute of to report to AC
Internal Auditors, which has its headquarters in the United States of America.

The Internal Auditors plan their audit schedules in consultation with, but independent of the Management and the
audit plan is submitted to the AC for approval prior to the commencement of the internal audit. The AC has reviewed
and approved the internal audit plan proposed by the Internal Auditors for financial year 2008. The AC also reviews the
activities of the Internal Auditors on an annual basis, including overseeing and monitoring the implementation of the
improvements required on internal control weaknesses identified.

Communication with Shareholders

Principle 14: A company should engage in regular, effective and fair communication with its shareholders.

Principle 15: A company should encourage greater shareholder participation at annual general meetings, and allow its
shareholders the opportunity to communicate their views on various matters affecting the company.

The Board has adopted a policy of openness and transparency in the conduct of the Company’s affairs while preserving Guidelines 14.1 and
the commercial interests of the Company. The Company has been reporting its financial results on a half-yearly basis and 14.2 of the Code:
holding media or analyst meetings to coincide with the results announcements. Other than the routine announcements Regular, effective and
made in accordance with the requirements of the SGX-ST, the Company has issued additional announcements and fair communication with
press releases to update Shareholders on the activities of the Company and the Group during the year. Shareholders
36 BREADTALK ANNUAL REPORT 07

CORPORATE GOVERNANCE

Financial results and all other material or price-sensitive information are released to Shareholders and the general
public via SGXNET in accordance with the requirements of the SGX-ST before being disseminated through press
releases, the Company’s website, as well as media and analyst briefings. The Board strives to ensure that pertinent
information is made available to all Shareholders on an adequate and timely basis.

The Company has in place an investor relations programme to keep investors informed of material developments in
the Company’s business and affairs beyond that which is prescribed, but without prejudicing the business interests
of the Company. The Chief Financial Officer has lead responsibility for investor relations with the active involvement
of the Chairman and CEO. They are supported in these efforts by external investor relations consultants engaged
by the Company who schedule roadshows, arrange meetings and organise presentations for analysts and investors.
The Company values strengthening Shareholder and investor relations through regular dialogues with the investing
community.

In addition to being broadcasted on SGXNET, notices of general meetings are advertised in the local newspapers Guidelines 15.1 to 15,5
and despatched to Shareholders, together with the annual report or circulars within the timeframe prescribed by the of the Code: Conduct of
SGX-ST. At general meetings, Shareholders are given opportunities to voice their views and direct their questions to general meetings
Directors or Management regarding the Company. The chairpersons of the AC, NC and RC are present and available
to address questions at general meetings. The External Auditors will also be present at the Company’s annual general
meetings to assist the Board in addressing queries about the conduct of the statutory audit, and preparation and
content of their Auditors’ Report.

The Company’s Articles of Association do not restrict the number of proxies Shareholders can appoint to attend and
vote on their behalf at all general meetings. Shareholders are encouraged to attend and participate at the Company’s
general meetings whereby resolutions are seperated for each distinct issue. Minutes of all general meetings are
always prepared and kept, and will be made available to Shareholders upon their requests to the Company Secretary.

Most Transparent Company

The Company won the “Most Transparent Company” under the “Sesdaq” category by the Securities Investors’
Association of Singapore (SIAS) at the SIAS Investors Choice Awards 2007 in October 2007. The award is based
on key criteria such as timelines, substantiality and clarity of news releases, degree of media access, frequency of
corporate results, availability of segmental information, as well as communication channels. Winners are selected
from nominations received from investment analysts, heads of research, fund managers and members of the mass
media.

Dealing in Securities

The Company has adopted and implemented the Singapore Exchange’s Best Practice Guide in relation to the dealing
in Shares of the Company. It has been highlighted that it is an offence for Directors and officers who are in possession
of unpublished material or price sensitive information, to use such information for their own material gain in relation
to those securities. The Company, while having provided the window periods for dealing in the Company’s securities,
has its own internal compliance code in providing guidance to its officers with regards to dealing in the Company’s
securities, including reminders that the law on insider trading is applicable at all times.
BREADTALK ANNUAL REPORT 07 37

CORPORATE GOVERNANCE

Interested Person Transactions

When a potential conflict pertaining to IPT arises, the Directors concerned do not participate in discussions and refrains from exercising any
influence over other members of the Board.

The AC has reviewed the IPT entered into during the financial year by the Group and the aggregate value of IPT entered during the financial year
under review is as follows:

Aggregate value (S$’000) of all IPT during


the financial year under review (excluding Aggregate value of all IPT conducted during
transactions less than S$100,000 and the financial year under review under
transactions conducted under Shareholders’ Shareholders’ mandate pursuant to Rule 920
Name of Interested Person mandate pursuant to Rule 920) (excluding transactions less than S$100,000)
Ah Koong Foods Pte Ltd
- food court rental income / 405.6
miscellaneous income
Not applicable - the Company does not have
Express Teppan-Yaki (S) Pte Ltd 43.7
a Shareholders’ mandate under Rule 920
- food court rental income / (ceased to be interested
miscellaneous income with effect from February 2007)
Sky One Art Investment Pte Ltd 2.4
- office rental income (rental ceased since April 2007)

Material Contracts

Except as disclosed in the Interested Person Transactions section above, there is no material contract or loan entered between the Company and
any of its subsidiaries involving interests of any Director or controlling Shareholder during the financial year ended 31 December 2007.

Risk Management

The Group regularly reviews and improves its business and operational activities to identify areas of significant business risks, and take appropriate
measures to control and mitigate these risks. The Group reviews all significant control policies and procedures, and highlights all significant
matters to the AC and the Board. The financial risk management objectives and policies are outlined in the financial statements section of this
Annual Report.
38 BREADTALK ANNUAL REPORT 07

DIRECTORS’ REPORT

The directors are pleased to present their report to the members together with the audited financial statements of BreadTalk Group Limited (the Company)
and its subsidiaries (collectively, the Group) and the balance sheet and statement of changes in equity of the Company for the financial year ended 31
December 2007.

DIRECTORS

The directors of the Company in office at the date of this report are:

George Quek Meng Tong (Chairman)


Katherine Lee Lih Leng (Deputy Chairman)
Chen Kuo Hua (Non-Executive Director)
Ong Kian Min (Independent Director)
Chan Soo Sen (Independent Director)

ARRANGEMENTS TO ENABLE DIRECTORS TO ACQUIRE SHARES AND DEBENTURES

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

DIRECTORS’ INTERESTS IN SHARES AND DEBENTURES

The following directors, who held office at the end of the financial year, had, according to the register of directors’ shareholdings required to be kept under
section 164 of the Singapore Companies Act, Cap. 50, an interest in shares of the Company as stated below:

Direct interest Deemed interest


Name of director As at 1 As at 31 As at 1 As at 31
January December As at 21 January December As at 21
The Company 2007 2007 January 2008 2007 2007 January 2008
(Ordinary shares )

George Quek Meng Tong 79,440,384 79,440,384 79,440,384 43,550,850 43,550,850 43,550,850
Katherine Lee Lih Leng 43,550,850 43,550,850 43,550,850 79,440,384 79,440,384 79,440,384
Chen Kuo Hua 12,443,100 12,443,100 12,443,100 – – –
Ong Kian Min 100,000 100,000 100,000 – – –

By virtue of Section 7 of the Companies Act, Cap 50, George Quek Meng Tong and Katherine Lee Lih Leng are deemed to be interested in the shares held
by the Company in its subsidiaries.

Except as disclosed in this report, no other director who held office at the end of the financial year had interest in shares or debentures of the Company,
or of related corporations, either at the beginning or the end of the financial year or on 21 January 2008.
BREADTALK ANNUAL REPORT 07 39

DIRECTORS’ REPORT

DIRECTORS’ CONTRACTUAL BENEFITS

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

OPTIONS

The Company has an employee share incentive plan, BreadTalk Group Limited Employees’ Share Option Scheme. The Scheme was approved at an
Extraordinary General Meeting held on 30 April 2003 to enable directors (including non-executive directors) and employees of the Group to participate in
the equity of the Company so as to motivate them to greater dedication, loyalty and higher standards of performance, and to give recognition to those who
have contributed significantly to the growth and performance of the Company and/or the Group. The following persons are eligible to participate in the
Scheme at the absolute discretion of the Remuneration Committee:

(i) Employees and Directors


Employees, executive directors and non-executive directors of the Group who are not on probation and have attained the age of 21 years on or
before the Offering Date.

(ii) Controlling shareholders and their associates


Controlling shareholders or their associates whose participation and actual number of shares issued to them must be approved by independent
shareholders in general meeting.

Size of plan

The total number of new shares over which options may be granted pursuant to the Scheme shall not exceed 15% of the issued share capital of the
Company on the date preceding the grant of an option.

Grant of options

Options may be granted from time to time during the year when the Scheme is in force, except that options shall be granted on or after the second market
day on which an announcement of any matter involving unpublished price sensitive information is released.

Acceptance of option

The grant of an option shall be accepted not more than 30 days from the offering date of that option and accompanied by payment to the Company of a
nominal consideration of $1 or such other amount as required by the Remuneration Committee.

During the financial year, there were:

(i) no options granted by the Company or its subsidiaries to any person to take up unissued shares of the Company and its subsidiaries;

(ii) no shares issued by virtue of any exercise of option to take up unissued shares of the Company or its subsidiaries; and

(iii) no unissued shares of the Company or its subsidiaries under option.


40 BREADTALK ANNUAL REPORT 07

DIRECTORS’ REPORT

AUDIT COMMITTEE

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

AUDITORS

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

On behalf of the board of directors:

George Quek Meng Tong


Director

Katherine Lee Lih Leng


Director

Singapore
18 March 2008
BREADTALK ANNUAL REPORT 07 41

STATEMENT BY DIRECTORS

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

(i) the accompanying balance sheets, consolidated income statement, statements of changes in equity, and consolidated cash flow statement together
with notes thereto are drawn up so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2007
and the results of the business, changes in equity and cash flows of the Group and the changes in equity of the Company for the year ended on that
date, and

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

On behalf of the board of directors:

George Quek Meng Tong


Director

Katherine Lee Lih Leng


Director

Singapore
18 March 2008
42 BREADTALK ANNUAL REPORT 07

INDEPENDENT AUDITORS’ REPORT


TO THE MEMBERS OF BREADTALK GROUP LIMITED

We have audited the accompanying financial statements of BreadTalk Group Limited (the “Company”) and its subsidiaries (the “Group”) set out on pages
43 to 112, which comprise the balance sheets of the Group and the Company as at 31 December 2007, the statements of changes in equity of the Group
and the Company, the income statement and cash flow statement of the Group for the year then ended, and a summary of significant accounting policies
and other explanatory notes.

DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL STATEMENTS

The Company’s directors are responsible for the preparation and fair presentation of these financial statements in accordance with the provisions of the
Singapore Companies Act, Cap. 50 (the “Act”) and Singapore Financial Reporting Standards. This responsibility includes: designing, implementing and
maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether
due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

AUDITORS’ RESPONSIBILITY

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Singapore
Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance
whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected
depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial
statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of
accounting estimates made by directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OPINION

In our opinion,

(i) the consolidated financial statements of the Group, and the balance sheet and statement of changes in equity of the Company are properly drawn
up in accordance with the provisions of the Act and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs
of the Group and of the Company as at 31 December 2007 and the results, changes in equity and cash flows of the Group and the changes in equity
of the Company for the year ended on that date; and

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

ERNST & YOUNG


Certified Public Accountants

Singapore
18 March 2008
BREADTALK ANNUAL REPORT 07 43

CONSOLIDATED INCOME STATEMENT


FOR THE YEAR ENDED 31 DECEMBER 2007

Notes 2007 2006


Restated
$’000 $’000

Revenue 3 156,610 123,569

Cost of sales (69,863) (55,523)

Gross profit 86,747 68,046

Other operating income 4 6,319 3,362


Distribution and selling expenses (55,632) (44,367)
Administrative expenses (25,284) (19,647)

Profit from operations 5 12,150 7,394

Interest income 7 173 113


Interest expense 7 (908) (858)
Financial expenses, net (735) (745)

Profit before taxation and share of results of associates and joint ventures 11,415 6,649

Share of results of associates (454) (517)


Share of results of joint ventures 267 334

Profit before taxation 11,228 6,466

Taxation 8 (2,791) (2,020)

Profit for the year 8,437 4,446

Attributable to:

Equity holders of the Company 7,319 3,476


Minority interests 1,118 970

8,437 4,446

Earnings per share (cents)

Basic and diluted 9 3.23 1.73

The accompanying accounting policies and explanatory notes form an integral part of the financial statements.
44 BREADTALK ANNUAL REPORT 07

BALANCE SHEETS
AS AT 31 DECEMBER 2007

Notes Group Company


2007 2006 2007 2006
Restated
$’000 $’000 $’000 $’000
Non-current assets
Property, plant and equipment 10 44,893 34,141 15 5
Intangible assets 11 9,665 8,427 – –
Investment securities 12 316 316 – –
Investment in subsidiaries 13 – – 23,139 21,639
Investment in associates 14 1,051 665 – –
Investment in joint ventures 15 282 2,212 – –
Deferred tax assets 8 394 309 – –

56,601 46,070 23,154 21,644

Current assets
Inventories 16 2,506 2,003 – –
Trade receivables 17 3,027 2,855 – –
Other receivables and deposits 18 13,105 9,748 11 3
Prepayments 1,798 507 11 10
Due from subsidiaries (non-trade) 19 – – 8,761 210
Amount due from related parties (non-trade) 19 – 78 – –
Amount due from associates (trade) 19 – 1,425 – –
Amount due from associates (non-trade) 19 7 216 – –
Amount due from joint ventures (trade) 19 64 113 – –
Amount due from joint ventures (non-trade) 19 237 176 – –
Amount due from minority shareholders 19 – 150 – –
Fixed deposits 20 2,814 1,107 2,509 –
Cash on hand and at bank 35,531 18,455 2,586 603
59,089 36,833 13,878 826
Current liabilities
Trade payables 21 8,861 7,922 – –
Other payables 22 25,074 15,677 159 96
Other liabilities 22 17,048 13,217 1,304 640
Provision for reinstatement costs 1,487 648 – –
Amount due to subsidiaries (non-trade) 19 – – 4 443
Amount due to associates (trade) 19 5 – – –
Amount due to associates (non-trade) 19 – 360 – –
Amount due to joint ventures (non-trade) 19 11 28 – –
Amount due to landlord (non-trade) 27 190 – – –
Finance lease obligations, secured 24 244 107 – –
Loan from minority shareholder of a subsidiary 23 125 59 – –
Short-term loans, secured 25 3,283 4,958 – –
Long-term loans, secured 26 3,701 3,044 – –
Tax payable 2,967 1,468 43 38
62,996 47,488 1,510 1,217
Net current (liabilities) assets (3,907) (10,655) 12,368 (391)
BREADTALK ANNUAL REPORT 07 45

BALANCE SHEETS
AS AT 31 DECEMBER 2007

Notes Group Company


2007 2006 2007 2006
Restated
$’000 $’000 $’000 $’000

Non-current liabilities

Long-term loans, secured 26 3,977 4,843 – –


Finance lease obligations, secured 24 366 303 – –
Amount due to landlord (non-
trade) 27 240 402 – –
Deferred tax liabilities 8 845 869 – –

5,428 6,417 – –

Net assets 47,266 28,998 35,522 21,253

Equity attributable to equity holders of the Company

Share capital 28 33,303 21,516 33,303 21,516


Accumulated profits (losses) 10,394 4,551 2,219 (263)
Statutory reserve fund 29 612 123 – –
Translation reserve 30 (213) (250) – –

44,096 25,940 35,522 21,253


Minority interests 3,170 3,058 – –

Total Equity 47,266 28,998 35,522 21,253

The accompanying accounting policies and explanatory notes form an integral part of the financial statements.
46 BREADTALK ANNUAL REPORT 07

STATEMENTS OF CHANGES IN EQUITY


FOR THE YEAR ENDED 31 DECEMBER 2007

Attributable to equity holders of the Company

Statutory
2006 Share Share Accumulated reserve Translation Minority Total
Group capital premium profits fund reserve Total interests equity
$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
(Note 28) (Note 29) (Note 30)

At 1 January 2006
- As previously stated 8,036 13,480 2,074 – 88 23,678 2,076 25,754
- Effect of prior year adjustments
(Note 38) – – (876) – (4) (880) (138) (1,018)

- As restated 8,036 13,480 1,198 – 84 22,798 1,938 24,736


Net effect of currency translation differences – – – – (334) (334) – (334)

Net loss recognised directly in equity – – – – (334) (334) – (334)


Net profit for the year – – 3,476 – – 3,476 970 4,446

Total recognised income and expense for the


year – – 3,476 – (334) 3,142 970 4,112
Transfer to statutory reserve – – (123) 123 – – – –
Transfer of share premium reserve to share
capital 13,480 (13,480) – – – – – –
Issuance of new shares to minority shareholders – – – – – – 150 150

At 31 December 2006 21,516 – 4,551 123 (250) 25,940 3,058 28,998


BREADTALK ANNUAL REPORT 07 47

STATEMENTS OF CHANGES IN EQUITY


FOR THE YEAR ENDED 31 DECEMBER 2007

Attributable to equity holders of the Company

Statutory
2007 Share Share Accumulated reserve Translation Minority Total
Group capital premium profits fund reserve Total interests equity
$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
(Note 28) (Note 29) (Note 30)

At 1 January 2007
- As previously stated 21,516 – 6,258 123 (303) 27,594 3,221 30,815
- Effect of prior year adjustments
(Note 38) – – (1,707) – 53 (1,654) (163) (1,817)

- As restated 21,516 – 4,551 123 (250) 25,940 3,058 28,998


Net effect of currency translation differences – – – – 37 37 – 37

Net income recognised directly in equity – – – – 37 37 – 37


Net profit for the year – – 7,319 – – 7,319 1,118 8,437

Total recognised income for the year – – 7,319 – 37 7,356 1,118 8,474
Dividends paid – – (987) – – (987) (1,148) (2,135)
Transfer to statutory reserve – – (489) 489 – – – –
Issuance of new shares 12,240 – – – – 12,240 – 12,240
Share issue expense (453) – – – – (453) – (453)
Issuance of new shares to minority shareholders (1) – – – – – – 58 58
Acquisition of a subsidiary – – – – – – 84 84

At 31 December 2007 33,303 – 10,394 612 (213) 44,096 3,170 47,266

(1)
Issuance of new shares to minority shareholders via capitalisation of shareholders’ loan.
48 BREADTALK ANNUAL REPORT 07

STATEMENTS OF CHANGES IN EQUITY


FOR THE YEAR ENDED 31 DECEMBER 2007

Share Accumulated
capital Share premium (losses) profits Total equity
$’000 $’000 $’000 $’000
(Note 28)

2006

Company

1 January 2006 8,036 13,480 (217) 21,299


Net loss for the year – – (46) (46)

Total recognised net expenses for the year – – (46) (46)


Transfer of share premium reserve to share capital 13,480 (13,480) – –

At 31 December 2006 21,516 – (263) 21,253

2007

Company

1 January 2007 21,516 – (263) 21,253


Net profit for the year – – 3,469 3,469

Total recognised net income for the year – – 3,469 3,469


Dividends paid – – (987) (987)
Issuance of new shares 12,240 – – 12,240
Share issue expense (453) – – (453)

At 31 December 2007 33,303 – 2,219 35,522

The accompanying accounting policies and explanatory notes form an integral part of the financial statements.
BREADTALK ANNUAL REPORT 07 49

CONSOLIDATED CASH FLOW STATEMENT


FOR THE YEAR ENDED 31 DECEMBER 2007

Notes 2007 2006


Restated
$’000 $’000

Cash flows from operating activities


Profit before taxation 11,228 6,466
Adjustments for:
Depreciation expense 10 9,793 7,976
Amortisation of intangible assets 11 555 532
Impairment of intangible asset 11 – 99
Loss (gain) on disposal of plant and equipment 130 (51)
Plant and equipment written off 593 289
Share of results of associates 454 517
Share of results of joint ventures (267) (334)
Interest expense 908 858
Interest income (173) (113)
Impairment for trade receivables 10 –
Impairment of amount due from associates (non-trade) 275 –
Bad debts written off 8 –
Dividend income from investment securities (55) –
Gain on liquidation of subsidiary 13 – (98)
Gain on disposal of associate (83) –
Translation difference 17 530

Operating profit before working capital changes 23,393 16,671


(Increase) decrease in:
Inventories (354) (314)
Trade receivables (180) (380)
Other receivables and deposits (2,298) (3,613)
Prepayments (1,192) 102
Amount due from related parties 78 (78)
Amount due from associates (trade) 897 (1,014)
Amount due from associates (non-trade) (140) 1,038
Amount due from joint ventures (trade) 50 (113)
Amount due from joint ventures (non-trade) (258) 137
Amount due from minority shareholders (non-trade) 150 (150)
Increase (decrease) in:
Trade payables 464 162
Other payables, other liabilities and provision for reinstatement costs 10,456 10,702
Amount due to associates (trade) 5 (71)
Amount due to associates (non-trade) (360) 99
Amount due to joint ventures (non-trade) 25 22

Cash flows generated from operations 30,736 23,200


Tax paid (2,040) (2,559)

Net cash flows from operating activities 28,696 20,641


50 BREADTALK ANNUAL REPORT 07

CONSOLIDATED CASH FLOW STATEMENT


FOR THE YEAR ENDED 31 DECEMBER 2007

Notes 2007 2006


Restated
$’000 $’000

Cash flows from investing activities


Interest income received 173 113
Dividend income received 235 –
Purchase of property, plant and equipment B (17,987) (18,637)
Acquisition of intangible assets (157) (177)
Investment securities – (316)
Investment in associates (1,200) (261)
Loan to an associate – (225)
Investment in joint ventures (334) –
Proceeds from sale of plant and equipment 367 286
Proceeds from disposal of associate 178 –
Net cash inflow on acquisition of subsidiaries 13 1,874 –
Net cash outflow on liquidation of subsidiary 13 – (31)

Net cash flows used in investing activities (16,851) (19,248)

Cash flows from financing activities


Interest paid (884) (833)
Dividends paid to shareholders of the Company (987) –
Dividends paid to minority shareholders (1,148) –
Proceeds from issuance of shares 12,240 –
Share issue expense (453) –
Net (repayment) proceeds of long-term loans (157) 1,924
Net (repayment) proceeds of short term loans (1,657) 1,665
Capital injection from minority shareholders of a subsidiary – 150
Net repayment of finance lease obligations (146) (327)
Loan from minority shareholder of a subsidiary 130 (82)
Decrease in fixed deposits pledged 1,000 496

Net cash flows from financing activities 7,938 2,993

Net increase in cash and cash equivalents 19,783 4,386


Cash and cash equivalents at the beginning of the year 18,455 14,069

Cash and cash equivalents at the end of the year A 38,238 18,455
BREADTALK ANNUAL REPORT 07 51

CONSOLIDATED CASH FLOW STATEMENT


FOR THE YEAR ENDED 31 DECEMBER 2007

Note A. Cash and cash equivalents

Cash and cash equivalents consist of cash on hand and at bank and unpledged fixed deposits. Fixed deposits pledged to banks for banking facilities granted
to the Group are excluded from cash and cash equivalents.

For the purpose of the consolidated cashflow statement, cash and cash equivalents comprise the following as at 31 December:

2007 2006
$’000 $’000

Cash on hand and at bank 35,531 18,455


Fixed deposits 2,814 1,107

38,345 19,562
Less: Fixed deposits pledged (107) (1,107)

Cash and cash equivalents at the end of year 38,238 18,455

Cash and cash equivalents include amounts denominated in foreign currencies as follows:

United States dollar 540 230


Renminbi 9,618 7,169
Hongkong dollar 865 570
Thai Baht 52 12
Ringgit Malaysia 728 –

Note B. Plant and equipment held under finance leases

During the year, the Group acquired property, plant and equipment with an aggregate cost of approximately $18,179,000 (2006: $19,072,000) of which
$192,000 (2006: $435,000) was financed via finance lease. Cash payments of $17,987,000 (2006: $18,637,000) were made to acquire property, plant and
equipment.

The accompanying accounting policies and explanatory notes form an integral part of the financial statements.
52 BREADTALK ANNUAL REPORT 07

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

1. GENERAL

1.1 Corporate information

BreadTalk Group Limited (the Company) is a limited liability company, which is incorporated in the Republic of Singapore and listed on the Singapore
Exchange Securities Trading Ltd.

The registered office and principal place of business of the Company is located at 171 Kampong Ampat, #05-05 KA Foodlink, Singapore 368330.

The principal activity of the Company is that of investment holding. The principal activities of the subsidiaries are shown in Note 13 to the financial
statements.

1.2 Fundamental accounting assumption

The financial statements of the Group have been prepared on a going concern basis. The Group’s net current liabilities position as at 31 December
2007 of $3,907,000 (2006 Restated: $10,655,000) arose mainly from the use of cash and short-term bank borrowings to finance the purchase of plant
and equipment for the bakery, food court and restaurant businesses during the year.

Included in other payables and other liabilities are food court tenant and stored value card deposits of $5,195,000 (2006: $2,808,000) and deferred
revenue of $3,703,000 (2006: $3,120,000) respectively. Deferred revenue relates to unearned franchise fees received, unredeemed cash vouchers
sold and the unutilised value on the food court stored value cards. These current liabilities, because of their nature, are not expected to result in
significant cash outflow from the Group within the next 12 months.

In addition, the Group has unutilised banking facilities available for future use. The directors are confident that the Group will be able to pay its
debts as and when they fall due.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.1 Basis of preparation

The consolidated financial statements of the Group and the balance sheet and statement of changes in equity of the Company have been prepared
in accordance with Singapore Financial Reporting Standards (“FRS”).

The financial statements have been prepared on a historical cost basis.

The financial statements are presented in Singapore Dollars (SGD or $) and all values are rounded to the nearest thousand ($’000) except when
otherwise indicated.
BREADTALK ANNUAL REPORT 07 53

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

2.2 Future changes in accounting policies

The Group has not adopted the following FRS and INT FRS that have been issued but not yet effective:

Reference Description Effective for annual periods beginning on or after

FRS 23 Amendment to FRS 23, Borrowing Costs 1 January 2009


FRS 108 Operating Segments 1 January 2009
INT FRS 111 Group and Treasury Share Transactions 1 March 2007
INT FRS 112 Service Concession Arrangements 1 January 2008

The directors expect that the adoption of the above pronouncements will have no material impact to the financial statements in the period of initial
application, except for FRS 108 as indicated below.

FRS 108 requires entities to disclose segment information based on the information reviewed by the entity’s chief operating decision maker. The
impact of this standard on the other segment disclosures is still to be determined. As this is a disclosure standard, it will have no impact on the
financial position or financial performance of the Group when implemented in 2009.

2.3 Significant accounting estimates and judgements

Estimates, assumptions concerning the future and judgements are made in the preparation of the financial statements. They affect the application
of the Group’s accounting policies, reported amounts of assets, liabilities, income and expenses, and disclosures made. They are assessed on an
on-going basis and are based on experience and relevant factors, including expectations of future events that are believed to be reasonable under
the circumstances.

Key sources of estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of
causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(i) Impairment of goodwill

The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-
generating units to which the goodwill are allocated. Estimating the value in use requires the Group to make an estimate of the expected
future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those
cash flows. The carrying amount of the Group’s goodwill at 31 December 2007 was $6,173,000 (2006: $4,578,000). More details are given
in Note 11.
54 BREADTALK ANNUAL REPORT 07

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

2.3 Significant accounting estimates and judgements (cont’d)

(ii) Valuation and estimated useful life of brand value arising from acquisition of a subsidiary, Topwin Investment Holding Pte Ltd (“Topwin”)

Brand value amounting to $3,308,000 arising from the acquisition of Topwin was separately identified and recognised by management
using the “relief from royalty method”. The premise of this valuation method is the assumption that the Group would be compelled to
pay the rightful owner of the brand name if the Group did not have the legal right to utilise the brand name. The ownership of the brand
therefore relieves the Group from making such royalty payments. This requires an estimation of the royalty payments including initial fees
and continuing royalty payments based on a percentage of projected revenue. The basis used to determine the revenue projections is the
revenue for each food court of Topwin achieved in the financial year ended 31 December 2004 projected into the future. The useful life of
the brand value is estimated by the directors to be 15 years as this is the length of time that they expect the benefits of the brand to flow to
the Group. Amortisation of the brand amounted to $213,000 (2006: $217,000) for the financial year ended 31 December 2007. More details
are given in Note 11.

(iii) Income taxes

The Group has exposure to income taxes in numerous jurisdictions. Significant judgement is involved in determining the Group-wide provision
for income taxes. There are certain transactions and computations for which the ultimate tax determination is uncertain during the ordinary
course of business. The Group recognises liabilities for expected tax issues based on estimates of whether additional taxes will be due.
Where the final tax outcome of these matters is different from the amounts that were initially recognised, such differences will impact the
income tax and deferred tax provisions in the period in which such determination is made. The carrying amount of the Group’s tax payable at
31 December 2007 was approximately $2,967,000 (2006: $1,468,000).

A subsidiary, BreadTalk Pte Ltd (“BTPL”) obtained the Development and Expansion Incentive (“DEI”) which entitles the qualifying income of
the company earned during the financial years ended 31 December 2003 to 2007 to be subject to the concessionary tax rate of 10%, subject
to certain conditions to be met by year 2007. On 15 August 2006, the company was granted approval by the Economic Development Board
(EDB) on the amendment of certain conditions laid down in its DEI award letter dated 19 February 2004. In view of the amendments, the
company has met all qualifying conditions laid down by the EDB for the DEI incentive by 2007. Accordingly, income from the qualifying DEI
activities has been brought to tax at the concessionary tax rate of 10%.

On 24 January 2008, BTPL was granted an extension of the DEI for a period of another 5 years commencing 1 January 2008.

(iv) Depreciation of property, plant and equipment

Property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives. Management estimates the useful
lives of these assets to be within 2 to 20 years. The carrying amount of the Group’s property, plant and equipment as at 31 December 2007
was $44,893,000 (2006: $34,141,000). Changes in the expected level of usage and technological developments could impact the economic
useful lives and the residual values of these assets, therefore future depreciation charges could be revised. In particular, renovation costs
incurred and capitalised for bakery outlets, food courts and restaurants may be subject to immediate impairment upon their unforeseen
closure due to unfavourable operations.
BREADTALK ANNUAL REPORT 07 55

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

2.4 Functional and foreign currency

(a) Functional currency

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

(b) Foreign currency transactions

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

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

(c) Foreign currency translation

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

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

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

All resulting exchange differences are recognised in a separate component of equity as foreign currency translation reserve.

On disposal of a foreign operation, the cumulative amount of exchange differences deferred in equity relating to that foreign operation is
recognised in the income statement as a component of the gain or loss on disposal.

2.5 Related party

An entity or individual is considered a related party of the Group for the purposes of the financial statements if: i) it possesses the ability (directly
or indirectly) to control or exercise significant influence over the operating and financial decisions of the Group or vice versa; or ii) it is subject to
common control or common significant influence.
56 BREADTALK ANNUAL REPORT 07

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

2.6 Subsidiaries, minority interests and principles of consolidation

(a) Subsidiaries

A subsidiary is an entity over which the Group has the power to govern the financial and operating policies so as to obtain benefits from its
activities. The Group generally has such power when it directly or indirectly, holds more than 50% of the issued share capital, or controls
more than half of the voting power, or controls the composition of the board of directors.

In the Company’s separate financial statements, investments in subsidiaries are accounted for at cost less any impairment losses.

(b) Principles of consolidation

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at the balance sheet date.
The financial statements of the subsidiaries are prepared for the same reporting date as the parent company. Consistent accounting policies
are applied for like transactions and events in similar circumstances.

All intra-group balances, transactions, income and expenses and profits and losses resulting from intra-group transactions that are recognised
in assets, are eliminated in full.

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be
consolidated until the date that such control ceases.

Acquisitions of subsidiaries are accounted for using the purchase method. The cost of an acquisition is measured as the fair value of the
assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the
acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at
their fair values at the acquisition date, irrespective of the extent of any minority interest.

Adjustments to those fair values relating to previously held interests are treated as a revaluation and recognised in equity.

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

Any excess of the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of business
combination is recognised in the income statement on the date of acquisition.

(c) Transactions with minority interests

Minority interests represent the portion of profit or loss and net assets in subsidiaries not held by the Group. They are presented in the
consolidated balance sheet within equity, separately from the parent shareholders’ equity, and are separately disclosed in the consolidated
income statement.

On acquisition of minority interests, the difference between the consideration and the book value of the share of the net assets acquired is
recognised in goodwill. Gain or loss on disposal to minority interests is recognised in the income statement.
BREADTALK ANNUAL REPORT 07 57

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

2.7 Associates

An associate is an entity, not being a subsidiary or a joint venture, in which the Group has significant influence. This generally coincides with the
Group having 20% or more of the voting power, or has representation on the board of directors.

The Group’s investment in associates is accounted for using the equity method. Under the equity method, the investment in associate is carried in
the balance sheet at cost plus post-acquisition changes in the Group’s share of net assets of the associate. The Group’s share of the profit or loss of
the associate is recognised in the consolidated income statement. Where there has been a change recognised directly in the equity of the associate,
the Group recognises its share of such changes. After application of the equity method, the Group determines whether it is necessary to recognise
any additional impairment loss with respect to the Group’s net investment in the associate. The associate is equity accounted for from the date the
Group obtains significant influence until the date the Group ceases to have significant influence over the associate.

Goodwill relating to an associate is included in the carrying amount of the investment.

Any excess of the Group’s share of the net fair value of the associate’s identifiable assets, liabilities and contingent liabilities over the cost of the
investment is excluded from the carrying amount of the investment and is, instead included as income in the determination of the Group’s share of
the associate’s profit or loss in the period in which the investment is acquired.

When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the
Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

The financial statements of the associate are 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.

2.8 Joint ventures

A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control, and a jointly
controlled entity is a joint venture that involves the establishment of a separate entity in which each venturer has an interest.

The Group’s investment in joint ventures is accounted for using the equity method. Under the equity method, the investment in joint ventures is
carried in the balance sheet at cost plus post-acquisition changes in the Group’s share of net assets of the joint venture. The Group’s share of the
profit or loss of the joint venture is recognised in the consolidated income statement. Where there has been a change recognised directly in the
equity of the joint venture, the Group recognises its share of such changes. After application of the equity method, the Group determines whether it
is necessary to recognise any additional impairment loss with respect to the Group’s net investment in the joint venture. The joint venture is equity
accounted for from the date the Group obtains joint control until the date the Group ceases to have joint control over the joint venture.

The financial statements of the joint venture are 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.
58 BREADTALK ANNUAL REPORT 07

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

2.9 Property, plant and equipment

All items of property, plant and equipment are initially recorded at cost. The cost of an item of property, plant and equipment is recognised as an
asset if, and only if, it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be
measured reliably. Subsequent to recognition, property, plant and equipment are stated at cost less accumulated depreciation and any accumulated
impairment losses.

Depreciation of an asset begins when it is available for use and is computed on a straight-line basis over the estimated useful life of the asset as
follows:

Leasehold property – 20 years


Machinery and equipment – 5 - 6 years
Electrical works – 5 - 6 years
Furniture and fittings – 5 - 6 years
Office equipment – 3 - 6 years
Renovation – 2 - 9 years
Motor vehicles – 5 - 6 years

Construction-in-progress is stated at cost. No depreciation is provided for construction-in-progress as these assets are not available for use.

The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the
carrying value may not be recoverable.

The residual values, useful life and depreciation method are reviewed at each financial year-end to ensure that the amount, method and period
of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the
items of property, plant and equipment.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal.
Any gain or loss arising on derecognition of the asset is included in the income statement in the year the asset is derecognised.

2.10 Intangible assets

(a) Goodwill

Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the
Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is
measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually or more frequently if events or
changes in circumstances indicate that the carrying value may be impaired.

For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the Group’s cash-generating units,
or groups of cash-generating units, that are expected to benefit from the synergies of the combination.

A cash-generating unit (or group of cash-generating units) to which goodwill has been allocated is tested for impairment annually and
whenever there is an indication that the unit may be impaired, by comparing the carrying amount of the unit, including the goodwill, with the
recoverable amount of the unit. Where the recoverable amount of the cash-generating unit (or group of cash-generating units) is less than
the carrying amount, an impairment loss is recognised in the income statement.
BREADTALK ANNUAL REPORT 07 59

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

2.10 Intangible assets (cont’d)

(a) Goodwill (cont’d)

Impairment losses recognised for goodwill are not reversed in subsequent periods.

Where goodwill forms part of a cash-generating unit (or group of cash-generating units) and part of the operation within that unit is disposed
of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain
or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation
disposed of and the portion of the cash-generating unit retained.

Goodwill and fair value adjustments arising on the acquisition of foreign operations on or after 1 January 2005 are treated as assets and
liabilities of the foreign operations and are recorded in the functional currency of the foreign operations and translated in accordance with
the accounting policy set out in Note 2.4.

Goodwill and fair value adjustments which arose on acquisitions of foreign operations before 1 January 2005 are deemed to be assets and
liabilities of the Company and are recorded in SGD at the rates prevailing at the date of acquisition.

(b) Other intangible assets

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

Intangible assets with indefinite useful lives 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 value may be impaired either individually or at the cash-generating unit level. Such
intangibles are not amortised. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether the
useful life assessment continues to be supportable.

Gain or loss arising from derecognition of an intangible asset is measured as the difference between the net disposal proceeds and the
carrying amount of the asset and are recognised in the income statement when the asset is derecognised.

(i) Trade mark

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

(ii) Franchise rights

Costs relating to master franchise fees paid are capitalised and amortised on a straight-line basis over the lease/franchise period
ranging from 4 to 10 years.
60 BREADTALK ANNUAL REPORT 07

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

2.10 Intangible assets (cont’d)

(b) Other intangible assets (cont’d)

(iii) Location premium

Consideration paid to previous tenants to vacate premises in order to secure the lease arrangement are amortised on a straight-line
basis over the new lease agreement period of 4 years.

(iv) Brand value

Brand value was acquired through a business combinations. The useful life of the brand is assessed to be finite and estimated to be 15
years because this is the length of time that the management expects the economic benefits of the brand to flow to the Group.

Brand value is amortised on a straight-line basis over its estimated economic useful life.

2.11 Impairment of non-financial assets

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when
annual impairment testing for an asset (i.e. an intangible asset with an indefinite useful life, an intangible asset not yet available for use, or
goodwill acquired in a business combination) is required, the Group makes an estimate of the asset’s recoverable amount.

An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use and is determined
for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the asset. Where the carrying amount of an asset exceeds its recoverable
amount, the asset is considered impaired and is written down to its recoverable amount. Impairment losses of continuing operations are recognised
in the income statement except for assets that are previously revalued where the revaluation was taken to equity. In this case the impairment is
also recognised in equity up to the amount of any previous revaluation.

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses recognised for an
asset other than goodwill may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously
recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since
the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased
amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the
asset in prior years. Reversal of an impairment loss is recognised in the income statement unless the asset is measured at revaluated amount, in
which case the reversal is treated as a revaluation increase. After such a reversal, the depreciation charge is adjusted in future periods to allocate
the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.
BREADTALK ANNUAL REPORT 07 61

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

2.12 Financial assets

Financial assets are recognised on the balance sheet when, and only when, the Group becomes a party to the contractual provisions of the financial
instrument.

When financial assets are recognised initially, they are measured at fair value, plus, directly attributable transaction costs.

(a) Loans and receivables

Non-derivative financial assets with fixed or determinable payments that are not quoted in an active market are classified as loans and
receivables. Subsequent to initial recognition, such assets are carried at amortised cost using the effective interest method. Gains and losses
are recognised in the income statement when the loans and receivables are derecognised or impaired, as well as through the amortisation
process.

(b) Available-for-sale financial assets

The Group classifies its investment securities as available-for-sale financial assets.

Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified in
any of the other categories.

Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably
measured are measured at cost less impairment losses.

2.13 Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and at bank, unpledged fixed deposits and short-term highly liquid investments which are readily
convertible to known amounts of cash and which are subject to insignificant risk of changes in value.

2.14 Impairment of financial assets

The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or group of financial assets is
impaired.

(a) Assets carried at amortised cost

If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of
the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding
future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest
rate computed at initial recognition). The carrying amount of the asset is reduced through the use of an allowance account. The amount of
the loss is recognised in the income statement.

When the asset becomes uncollectible, the carrying amount of impaired financial assets is reduced directly or if an amount was charged to
the allowance account, the amounts charged to the allowance account are written off against the carrying value of the financial asset.

To determine whether there is objective evidence that an impairment loss on financial assets has been incurred, the Group considers factors
such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments.
62 BREADTALK ANNUAL REPORT 07

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

2.14 Impairment of financial assets (cont’d)

(a) Assets carried at amortised cost (cont’d)

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring
after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss
is recognised in the income statement, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal
date.

(b) Assets carried at cost

If there is objective evidence that an impairment loss on a financial asset carried at cost has been incurred, the amount of the loss is
measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the
current market rate of return for a similar financial asset. Such impairment losses are not reversed in subsequent periods.

2.15 Inventories

Inventories comprise raw materials, consumables, semi-finished goods and base inventory.

Inventories are valued at the lower of cost and net realisable value. Costs comprise purchase costs accounted for on a weighted average cost basis.
In the case of semi-finished goods, costs also include an appropriate share of production overheads based on normal operating capacity.

Base inventory, comprising mainly cutlery and dining utensils, are written down to 50% of the original cost and all further replacement costs
incurred in maintaining the base inventory is expensed.

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs
necessary to make the sale.

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

2.16 Financial liabilities

Financial liabilities include trade payables, which are normally settled on 30-90 day terms, other amounts payable, payables to related parties and
interest-bearing loans and borrowings. Financial liabilities are recognised on the balance sheet when, and only when, the Group becomes a party to
the contractual provisions of the financial instrument. Financial liabilities are initially recognised at fair value of consideration received less directly
attributable transaction costs and subsequently measured at amortised cost using the effective interest method.

Gains and losses are recognised in the income statement when the liabilities are derecognised or impaired as well as through the amortisation
process. The liabilities are derecognised when the obligation under the liability is discharged or cancelled or expired.

2.17 Borrowing costs

Borrowing costs are generally expensed as incurred.


BREADTALK ANNUAL REPORT 07 63

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

2.18 Derecognition of financial assets

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

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

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

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

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

2.19 Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) where, as a result of a past event, it is probable that an
outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of
the obligation.

Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of
resources embodying economic benefits will be required to settle the obligation, the provision is reversed. If the effect of the time value of money is
material, provisions are discounted using a current pre tax rate that reflects, where appropriate, the risks specific to the liability. When discounting
is used, the increase in the provision due to the passage of time is recognised as a finance cost.

2.20 Leases

Finance leases, which transfer to the Group substantially all the risks and rewards incidental to ownership of the leased item, are capitalised at the
inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Any initial direct costs
are also added to the amount capitalised. Lease payments are apportioned between the finance charges and reduction of the lease liability so as
to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to the income statement. Contingent
rents, if any, are charged as expenses in the periods in which they are incurred.

Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term, if there is no reasonable
certainty that the group will obtain ownership by the end of the lease term.

Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term. The aggregate benefit
of incentives provided by the lessor is recognised as a reduction of rental expense over the lease term on a straight-line basis.
64 BREADTALK ANNUAL REPORT 07

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

2.21 Employee benefits

(a) Defined contribution plans

The Group participates in the national pension schemes as defined by the laws of the countries in which it has operations.

Singapore

The Group makes contributions to the Central Provident Fund (CPF) scheme in Singapore, a defined contribution pension scheme. The Group
makes monthly contributions based on stipulated contribution rates.

People’s Republic of China (“PRC”)

Subsidiaries incorporated and operating in the PRC are required to provide certain staff pension benefits to their employees under existing
PRC regulations. Contributions are provided at rates stipulated by PRC regulations and are contributed to a pension fund managed by
government agencies, which are responsible for administering these amounts for the subsidiaries’ PRC employees.

Hong Kong

Subsidiaries incorporated and operating in Hong Kong pay contributions to publicly or privately administered pension insurance plans on
a mandatory basis. The subsidiaries have no further payment obligations once the contributions have been paid. The contributions are
recognised as employee benefit expense when they are due and are not reduced by contributions forfeited by those employees who leave
the scheme prior to vesting fully in the contributions. Prepaid contributions are recognised as an asset to the extent that a cash refund or a
reduction in the future payments is available.

Contributions to national pension schemes are recognised as an expense in the period in which the related services are performed.

(b) Employee leave entitlement

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

2.22 Income recognition

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

(a) Bakery sales, restaurant sales and sales to franchisee

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

(b) Franchise income

Initial franchise income is recognised upon the grant of rights, completion of the designated phases of the franchise setup and transfer of
know-how to the franchisee in accordance with the terms stated in the franchise agreement. Recurring franchise income is recognised on a
periodic basis as a percentage of the franchisees’ revenue in accordance with terms as stated in the franchise agreement.
BREADTALK ANNUAL REPORT 07 65

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

2.22 Income recognition (cont’d)

(c) Food court revenue

Revenue from operation of food court is recognised when rental is charged to the food court tenants based on a percentage of their gross
sales. Revenue from sales of food and beverage is recognised upon delivery and acceptance by customers, net of sales discounts.

(d) Management fee

Management fee is recognised on an accrual basis.

(e) Interest income

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

(f) Dividend income

Dividend income is recognised when the Group’s right to receive payment is established.

2.23 Government grants

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

2.24 Income taxes

(a) Current tax

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

(b) Deferred tax

Deferred income tax is provided using the liability method on temporary differences at the balance sheet date between the tax bases of
assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

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

• In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures,
where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will
not reverse in the foreseeable future.
66 BREADTALK ANNUAL REPORT 07

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

2.24 Income taxes (cont’d)

(b) Deferred tax (cont’d)

• In respect of deductible temporary differences and carry-forward of unused tax credits and unused tax losses, if it is not probable that
taxable profit will be available against which the deductible temporary differences and carry-forward of unused tax credits and unused
tax losses can be utilised.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income
tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit
will allow the deferred tax asset to be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the
liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Deferred taxes are recognised in the income statement except that deferred tax relating to items recognised directly in equity is recognised
directly in equity and deferred tax arising from a business combination is adjusted against goodwill on acquisition.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax
liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

(c) Sales tax

Revenues, expenses and assets are recognised net of the amount of sales tax except:

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

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

The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the
balance sheet.

2.25 Segment reporting

A business segment is a distinguishable component of the Group that is engaged in providing products or services that are subject to risks and
returns that are different from those of other business segments. A geographical segment is a distinguishable component of the Group that is
engaged in providing products or services within a particular economic environment and that is subject to risks and returns that are different from
those of components operating in other economic environments.

2.26 Share capital and share issue expenses

Proceeds from issuance of ordinary shares are recognised as share capital in equity. Incremental costs directly attributable to the issuance of
ordinary shares are deducted against share capital.
BREADTALK ANNUAL REPORT 07 67

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

2.27 Contingencies

A contingent liability or asset is a possible obligation or asset that arises from past events and whose existence will be confirmed only by the
occurrence or non-occurrence of uncertain future event(s) not wholly within the control of the Group.

Contingent liabilities and assets are not recognised on the balance sheet of the Group.

3. REVENUE
Group
2007 2006
$’000 $’000

Bakery sales 68,841 55,552


Restaurant sales 28,345 22,051
Sales to franchisee 5,951 3,454
Franchise income 5,031 4,120
Food court income 48,442 38,392

156,610 123,569

4. OTHER OPERATING INCOME


Group
2007 2006
Restated
$’000 $’000
Management fee income
- Food court management 2,306 1,868
- Others 406 481
Dividend income from investment securities 55 –
Government grant (1) 1,153 –
Gain on disposal of plant and equipment – 51
Gain on liquidation of subsidiary (2) – 98
Gain on disposal of associate 83 –
Income from expired food court stored value cards 938 –
Sponsorship income 241 –
Sundry sales 627 586
Miscellaneous income 510 278

6,319 3,362

(1)
Government grant in relation to business expansion activities undertaken by certain subsidiaries in the PRC

(2)
This relates to gain on liquidation of Nanning Da Shi Dai Food and Beverage Co., Ltd
68 BREADTALK ANNUAL REPORT 07

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

5. PROFIT FROM OPERATIONS

This is determined after charging the following:


Group
2007 2006
Restated
$’000 $’000

Non-audit fees to auditors of the Company 126 30


Amortisation of intangible assets (Note 11) 555 532
Bad trade debts written off 8 –
Impairment of loans and receivables
- trade receivables 10 –
- amount due from associates (non-trade) 275 –
Directors’ fees 96 96
Depreciation expense (Note 10) 9,793 7,976
Employee benefits (Note 6) (1) 42,001 32,679
Foreign exchange loss, net 89 38
Loss on disposal of plant and equipment 130 –
Operating lease expenses
- fixed portion (2) 27,230 21,499
- variable portion 4,817 4,134
Plant and equipment written off 593 289
Pre-operating expenses 1 199

(1)
This includes directors’ remuneration (Note 6)

(2)
Net of sublease rental income received from a related party amounting to approximately $2,400 (2006: $10,000)

6. EMPLOYEE BENEFITS
Group
2007 2006
$’000 $’000

Staff costs (including directors)


Salaries and bonuses 32,201 26,450
Central Provident Fund and other pension contributions 2,859 2,237
Sales incentives and commission 2,143 858
Other personnel benefits 4,798 3,134

42,001 32,679

Included are directors’ remuneration of:


-Directors of the Company 1,465 1,089
-Directors of subsidiaries 1,260 1,102

2,725 2,191
BREADTALK ANNUAL REPORT 07 69

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

7. INTEREST INCOME AND INTEREST EXPENSE

Group
2007 2006
$’000 $’000
Interest income from loans and receivables
- Bank deposits 173 113

Interest expense
- Term loans (859) (837)
- Finance lease obligations (25) (21)
- Others (24) –

(908) (858)

8. TAXATION

Major components of income tax expense were:

Group
2007 2006
Restated
$’000 $’000
Current tax
- Current year 2,595 1,848
- (Over) Under-provision in prior year (55) 148

Deferred tax
- Origination and reversal of temporary differences 187 (280)
- (Over) Under-provision in prior year (251) 26

Withholding tax 315 278

Taxation expense 2,791 2,020


70 BREADTALK ANNUAL REPORT 07

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

8. TAXATION (CONT’D)

A reconciliation between the tax expense and the product of accounting profit multiplied by the applicable tax rate for the year ended 31 December
is as follows:

Group
2007 2006
Restated
$’000 $’000

Profit before taxation 11,228 6,466

Tax at the domestic rates applicable to profits in the countries where the Group operates(1) 2,832 1,889

Tax effect of :
Expenses not deductible for tax purposes 584 319
Income not subject to taxation (60) –
Effect of reduction in tax rate (49) –
Share of associates’ and joint ventures’ tax (189) –
Tax savings arising from development and expansion incentive (124) (83)
(Over)/Underprovision in prior years
- Current year (55) 148
- Deferred tax (251) 26
Withholding tax expense 315 278
Effect of partial tax exemption and tax relief (587) (617)
Deferred tax assets not recognised 369 430
Benefits from previously unrecognised deferred tax assets (22) (258)
Others 28 (112)

Taxation expense 2,791 2,020

(1)
This is prepared by aggregating separate reconciliations for each national jurisdiction

(2)
In February 2004, the Economic Development Board granted the Development and Expansion Incentive under the International Headquarters
(IHQ-DEI) Award to a subsidiary. Subject to certain conditions, the subsidiary enjoys a concessionary tax rate of 10% on its qualifying income
for a period of 5 years commencing 1 January 2003. On 24 January 2008, the subsidiary was granted an extension of the DEI for another 5
years commencing 1 January 2008

The corporate income tax rate applicable to Singapore companies of the Group was reduced to 18% for the year of assessment 2008 onwards from
20% for year of assessment 2007. The corporate income tax rate applicable to Malaysian companies of the Group was reduced from 28% to 27%
and 26% for the year of assessment 2007 and the year of assessment 2008 onwards respectively.
BREADTALK ANNUAL REPORT 07 71

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

8. TAXATION (CONT’D)

Deferred income tax as at 31 December relates to the following:

Group
Balance sheet Income statement
2007 2006 2007 2006
Restated Restated
$’000 $’000 $’000 $’000
Deferred tax liabilities:
Differences in depreciation for tax purposes (950) (961) 21 55
Provisions 105 92 – –

(845) (869)

Deferred tax assets:


Provisions 389 309 (80) (309)
Unutilised tax losses 5 – (5) –

394 309

Deferred income tax (64) (254)

In accordance with the “Income Tax Law of the PRC for Enterprises with Foreign Investment and Foreign Enterprises”, Shanghai BreadTalk Co., Ltd
(“SHBT”), a wholly-owned subsidiary registered in the PRC, is entitled to full exemption from Enterprise Income Tax (“EIT”) for the first two years
and a 50% reduction in EIT for the next three years, commencing from the first profitable year after offsetting all tax losses carried forward from the
previous five years. SHBT achieved its third profitable year in the current financial year end.

Unrecognised tax losses and capital allowances

As at 31 December 2007, the Group has tax losses of approximately $3,226,000 (2006: $2,123,000) and unutilised capital allowances of approximately
$1,787,000 (2006: nil) that are available for offset against future taxable profits. No deferred tax assets are recognised on these amounts due to
uncertainty of their utilisation. The utilisation of the tax losses is subject to the agreement of the tax authorities and compliance with certain
provisions of the tax legislation of the respective countries in which the companies operate.

Tax consequences of proposed dividends

There are no income tax consequences attached to the dividends to the shareholders proposed by the Company but not recognised as a liability in
the financial statements (Note 37).
72 BREADTALK ANNUAL REPORT 07

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

9. EARNINGS PER SHARE

Basic earnings per share is calculated by dividing the Group’s profit for the year attributable to ordinary equity holders of the Company of $7,319,000
(2006 Restated: profit for the year of $3,476,000) by the weighted average number of ordinary shares of 226,411,034 (2006: 200,911,034) in issue
during the year.

The basic and diluted earnings per share are the same as there are no potential dilutive shares.

10. PROPERTY, PLANT AND EQUIPMENT


Leasehold Machinery and Electrical Furniture and Office
property equipment works fittings equipment
$’000 $’000 $’000 $’000 $’000
Group
Cost
As at 1.1. 2006 3,172 8,771 3,998 4,901 2,037
Additions 5,320 1,877 1,956 1,688 602
Reclassifications – 35 6 (3) 4
Write offs – (123) (237) (74) (15)
Disposals – (186) (38) (12) (47)
Liquidation of subsidiary – (19) – (3) (20)
Translation difference (224) (166) (78) (238) (70)

As at 31.12.2006 and 1.1.2007 8,268 10,189 5,607 6,259 2,491


Additions – 2,503 3,059 3,636 631
Reclassifications – – 12 – –
Write offs – (247) (297) (290) (49)
Disposals – (164) (22) (83) (11)
Acquisition of subsidiaries – 400 341 267 43
Translation difference 63 10 (109) (195) 12

As at 31.12.2007 8,331 12,691 8,591 9,594 3,117

Accumulated depreciation
As at 1.1. 2006 116 3,820 1,804 1,078 664
Charge for the year 345 1,653 851 941 460
Write offs – (100) (195) (55) (12)
Disposals – (149) (27) (7) (36)
Liquidation of subsidiary – (5) – (1) (6)
Translation difference (10) (60) (9) (74) (13)

As at 31.12.2006 and 1.1.2007 451 5,159 2,424 1,882 1,057


Charge for the year 369 1,828 1,217 1,555 513
Reclassifications – – 1 – –
Write offs – (179) (271) (212) (37)
Disposals – (49) (6) (26) (4)
Translation difference 3 (85) (26) 67 (3)

As at 31.12.2007 823 6,674 3,339 3,266 1,526

Net book value


As at 31.12.2006 7,817 5,030 3,183 4,377 1,434

As at 31.12.2007 7,508 6,017 5,252 6,328 1,591


BREADTALK ANNUAL REPORT 07 73

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

10. PROPERTY, PLANT AND EQUIPMENT (CONT’D)

Construction
Renovation Motor vehicles -in-progress Total
$’000 $’000 $’000 $’000
Group
Cost
As at 1.1.2006 14,195 1,020 – 38,094
Additions 6,838 (1) 507 515 19,303
Reclassifications 76 – (118) –
Write offs (1,273) – – (1,722)
Disposals (149) (492) – (924)
Liquidation of subsidiary (82) – – (124)
Translation difference (855) (13) (3) (1,647)

As at 31.12.2006 and 1.1.2007 18,750 1,022 394 52,980


Additions 4,854 (1) 541 3,514 18,738
Reclassifications (12) – – –
Write offs (1,514) – – (2,397)
Disposals (603) (212) – (1,095)
Acquisition of subsidiaries 1,909 – – 2,960
Translation difference 164 5 6 (44)

As at 31.12.2007 23,548 1,356 3,914 71,142

Accumulated depreciation
As at 1.1.2006 5,570 471 – 13,523
Charge for the year 3,498 228 – 7,976
Write offs (835) – – (1,197)
Disposals (85) (385) – (689)
Liquidation of subsidiary (28) – – (40)
Translation difference (565) (3) – (734)

As at 31.12.2006 and 1.1.2007 7,555 311 – 18,839


Charge for the year 4,085 226 – 9,793
Reclassification (1) – – –
Write offs (1,105) – – (1,804)
Disposals (322) (191) – (598)
Translation difference 63 – – 19

As at 31.12.2007 10,275 346 – 26,249

Net book value


As at 31.12.2006 11,195 711 394 34,141

As at 31.12.2007 13,273 1,010 3,914 44,893

(1)
Amount includes provision for reinstatement costs of $559,000 (2006: $231,000).
74 BREADTALK ANNUAL REPORT 07

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

10. PROPERTY, PLANT AND EQUIPMENT (CONT’D)

As at 31 December 2007, the net book values of property, plant and equipment acquired under finance lease are as follows:

Group
2007 2006
$’000 $’000

Machinery and equipment 172 72


Renovation 106 –
Motor vehicles 545 472

Property, plant and equipment written off during the year arose mainly due to the refurbishment/closure of certain bakery outlets and food courts.
The amount written off represents the total carrying value of the plant and equipment attributable to the bakery outlets and food courts at the date
of refurbishment/closure.

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


Furniture Office
and fittings equipment Total
$’000 $’000 $’000
Company
Cost
As at 1.1.2006 – – –
Additions – 6 6

As at 31.12.2006 and 1.1.2007 – 6 6


Additions 1 13 14

As at 31.12.2007 1 19 20

Accumulated depreciation
As at 1.1.2006 – – –
Charge for the year – 1 1

As at 31.12.2006 and 1.1.2007 – 1 1


Charge for the year – 4 4

As at 31.12.2007 – 5 5

Net book value

As at 31.12.2006 – 5 5

As at 31.12.2007 1 14 15
BREADTALK ANNUAL REPORT 07 75

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

11. INTANGIBLE ASSETS

Group
Brand Trade Franchise Location
Goodwill value Mark rights Premium Total
$’000 $’000 $’000 $’000 $’000 $’000

Cost
As at 1.1.2006 4,578 3,308 438 661 474 9,459
Additions – – 145 32 – 177
Impairment – (99) (1) – – – (99)

As at 31.12.2006 and 1.1.2007 4,578 3,209 583 693 474 9,537


Additions – – 99 58 – 157
Acquisition of subsidiaries 1,595 – 10 – 31 1,636

As at 31.12.2007 6,173 3,209 692 751 505 11,330

Accumulated amortisation
As at 1.1.2006 – 221 171 156 30 578
Amortisation – 217 109 88 118 532

As at 31.12.2006 and 1.1.2007 – 438 280 244 148 1,110


Amortisation – 213 127 95 120 555

As at 3.12.2007 – 651 407 339 268 1,665

Net book value


As at 31.12.2006 4,578 2,771 303 449 326 8,427

As at 31.12.2007 6,173 2,558 285 412 237 9,665

(1)
This relates to impairment loss of intangible asset - brand value associated with Nanning Da Shi Dai Food & Beverage Co., Ltd. which was
liquidated in June 2006.

Brand value, trade mark, franchise rights and location premium are determined to have finite useful lives and are amortised on a straight-line basis
over their respective estimated economic useful lives and assessed for impairment whenever there is an indication that the intangible assets may
be impaired. Brand value, trade mark, franchise rights and location premium have remaining useful lives of 12 years, 1 to 5 years, 4 to 9 years and
2 years as at 31 December 2007 respectively.
76 BREADTALK ANNUAL REPORT 07

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

11. INTANGIBLE ASSETS (CONT’D)

Impairment testing of goodwill

Goodwill arising from the acquisition of Topwin Investment Holding Pte Ltd and its subsidiaries in 2005 was allocated to 2 cash-generating units
(“CGU”), which represent the 2 geographical segments (i.e Shanghai and Beijing segments) in which the acquired food courts are located. The food
courts located in the same geographical segment are managed by the same management team.

Goodwill arising form the acquisition of ML Breadworks Sdn Bhd during the year has been allocated to the legal entity acquired which represents
the CGU. Meanwhile, goodwill on the acquisition of MWA Pte Ltd in December 2007 is primarily attributable to the food court operation at Wisma
Atria, Singapore.

Allocated goodwill based on the CGUs is as follows:

Carrying amount Basis on which


as at recoverable values
31 December 2007 are determined Pre-tax discount rate
$’000

Shanghai segment 3,569 Value in use 10%

Beijing segment 1,009 Value in use 10%

ML Breadworks Sdn Bhd 327 Value in use 8%

Food court operation at Wisma Atria, Singapore 1,268 Value in use 8%

6,173

The recoverable amount is determined based on a value in use calculation using the cash flow projections based on financial budgets approved by
management covering a five-year period. The discount rates applied to the cash flow projections are derived from cost of capital plus a reasonable
risk premium at the date of assessment of the respective cash generating units.

No impairment loss on goodwill was required for the financial year ended 31 December 2007 as the recoverable amount was in excess of the
carrying value.

12. INVESTMENT SECURITIES

Investment securities relate to unquoted shares. They are stated at cost as they have no market prices and their fair values cannot be reliably
measured using valuation techniques.
BREADTALK ANNUAL REPORT 07 77

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

13. INVESTMENT IN SUBSIDIARIES

Company
2007 2006
$’000 $’000

Unquoted equity shares at cost 23,139 21,639

Details of the subsidiaries are as follows:

Country of Proportion of Cost of investment


Name incorporation Principal activities ownership interest by the Company
2007 2006 2007 2006
% % $’000 $’000

Held by the Company


BreadTalk Pte Ltd (1) Singapore Bakers and manufacturers of and 100 100 6,739 5,239
(Note (a)) dealers in bread, flour and biscuits

BreadTalk International Pte Ltd (1) Singapore Investment holding 100 100 6,158 6,158

Topwin Investment Holding Pte Ltd (1) Singapore Investment holding 100 100 10,242 10,242

Held through subsidiaries


Taster Food Pte Ltd (1) Singapore Operators of food and drinks outlets, 70 70 – –
eating houses and restaurants

Charcoal Pte Ltd (1) Singapore Operators of food and drinks outlets, 75 75 – –
eating houses and restaurants

Shanghai BreadTalk Co., Ltd (2) People’s Republic Bakers and manufacturers of and 100 100 – –
of China dealers in bread, flour and biscuits

Shanghai BreadTalk Gourmet Co., People’s Republic Management of food and beverage, 100 100 – –
Ltd (2) of China manufacture and retail of bakery,
confectionery products
Beijing BreadTalk Restaurant People’s Republic Management of food and beverage, 100 100 – –
Management Co., Ltd (2) of China manufacture and retail of bakery,
confectionery products
Shanghai Xin Jia Fang Food & People’s Republic Food court operator 100 100 – –
Beverage Co., Ltd (2) of China
Beijing Da Shi Dai Food and People’s Republic Food court operator 100 100 – –
Beverage Co., Ltd (2) of China
Chongqing Food Republic Food & People’s Republic Food court operator 100 100 – –
Beverage Co., Ltd (3) of China
78 BREADTALK ANNUAL REPORT 07

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

13. INVESTMENT IN SUBSIDIARIES (CONT’D)

Country of Proportion of Cost of investment


Name incorporation Principal activities ownership interest by the Company
2007 2006 2007 2006
% % $’000 $’000

Held through subsidiaries (cont’d)


Megabite Hong Kong Limited (4) Hong Kong Food court operator 85 85 – –

Megabite (S) Pte Ltd (1) Singapore Investment holding and operator of 100 100 – –
Food & Beverage outlets
Food Republic Pte Ltd (1) Singapore Food court operator 100 100 – –
BreadTalk (Thailand) Company Thailand Management of food and beverage, 100 100 – –
Limited (5) manufacture and retail of bakery,
confectionery products
Megabite Eatery (M) Sdn Bhd (6) Malaysia Operator of food and beverage 100 – – –
(Note (b)) outlets
BreadTalk Concept Hong Kong Hong Kong Management of food and beverage, 85 – – –
Limited (4) manufacture and retail of bakery,
(Note (c)) confectionery products

ML Breadworks Sdn Bhd (7) Malaysia Bakers and manufacturers of and 90 – – –


(Note (d)) dealers in bread, flour and biscuits
MWA Pte Ltd (1) Singapore Food court operator 100 – – –
(Note (e))

Food Art Pte Ltd (1) Singapore Operators of food and beverage 100 – – –
(Note (e)) outlets

Twin Peaks Venture Singapore Pte Singapore Retail of bakery and confectionery 70 – – –
Ltd (8) (Note (f)) products

23,139 21,639

(1)
Audited by Ernst & Young, Singapore
(2)
Audited by Ernst & Young, People’s Republic of China
(3)
Audited by Shanghai Xin Gao Xin Certified Public Accountants Co., Ltd, People’s Republic of China
(4)
Audited by S.F. Kwok & Co. Certified Public Accountants, Hong Kong
(5)
Audited by CNN & S Co., Ltd
(6)
Audited by RSM Robert Teo, Kuan & Co., Malaysia
(7)
Audited by Ernst & Young, Malaysia
(8)
The subsidiary has not commenced operations as at 31 December 2007. Unaudited financial statements have been used for the preparation
of the consolidated financial statements of the Group.
BREADTALK ANNUAL REPORT 07 79

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

13. INVESTMENT IN SUBSIDIARIES (CONT’D)

(a) Increase in cost of investment of the Company

During the year, BreadTalk Pte Ltd increased its issued and paid up share capital by $1,500,000 with an allotment of 1,500,000 shares to the
Company.

(b) Incorporation of subsidiary, Megabite Eatery (M) Sdn Bhd

Topwin Investment Holding Pte Ltd incorporated a wholly-owned subsidiary, Megabite Eatery (M) Sdn Bhd on 24th May 2007 with an issued
and paid up share capital of RM100,000.

(c) Acquisition of subsidiary, BreadTalk Concept Hong Kong Limited

Megabite Hong Kong Limited, a 85% owned subsidiary of Topwin Investment Holding Pte Ltd, acquired 1 ordinary share of HKD1.00,
representing 100% shareholding in BreadTalk Concept Hong Kong Limited on 9 August 2007. On the same date, a further 499,999 ordinary
shares of HKD1.00 each were allotted at par to Megabite Hong Kong Limited.

(d) Acquisition of subsidiary, ML Breadworks Sdn Bhd

On 20 September 2007, BreadTalk International Pte Ltd (“BTI”) entered into an Investment and Shareholders Agreement with Memory Lane
Sdn Bhd (“ML”) and ML Breadworks Sdn Bhd (“MLB”), a 49% owned associate.

Pursuant to the Investment Agreement, BTI would invest an additional RM2,000,000 ($873,000) in MLB in the form of an allotment of
2,000,000 new ordinary shares of RM1 each (the “Ordinary Shares”). In consideration of BTI’s investment, ML agreed to transfer a total of
1,030,000 ordinary shares owned by it in MLB upon the allotment of the Ordinary Shares to BTI, at nil consideration.

As a result of the above transactions, MLB has a paid up and issued share capital of RM5,000,000 represented by 5,000,000 ordinary shares
of RM1 each, with BTI holding 90% equity interest and ML, the remaining 10%. Accordingly, MLB became a subsidiary of BTI.
80 BREADTALK ANNUAL REPORT 07

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

13. INVESTMENT IN SUBSIDIARIES (CONT’D)

(d) Acquisition of subsidiary, ML Breadworks Sdn Bhd (cont’d)

The fair values of the identifiable assets and liabilities of MLB as at the date of acquisition were as follows:

Recognised on Carrying amount


acquisition before combination
$’000 $’000

Plant and equipment 682 682


Trademark – 364
Inventories 130 130
Other receivables and deposits 394 394
Prepayments 30 30
Cash on hand and at bank 70 70
Trade payables (324) (324)
Other payables and accrued expenses (259) (259)
Amount due to related companies (604) (604)
Finance lease obligations, secured (154) (154)

Net identifiable (liabilities) assets (35) 329


Add: Additional capital injection by BTI 873

Net assets after additional capital injection 838


Less: Carrying value of investment in associate (199)
Less: Minority interest (84)

Net assets acquired 555


Goodwill arising from acquisition 327

Total purchase consideration 882


Less: Cash and cash equivalents acquired (943)

Net cash inflow 61


BREADTALK ANNUAL REPORT 07 81

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

13. INVESTMENT IN SUBSIDIARIES (CONT’D)

(e) Acquisition of subsidiary, MWA Pte Ltd

On 10 December 2007, Megabite (S) Pte Ltd, a wholly-owned subsidiary, acquired the remaining 50% equity interest in its joint venture,
MWA Pte Ltd (“MWA”) and its subsidiary, Food Art Pte Ltd (“FAPL”) for a cash consideration of $3,800,000. Upon the acquisition, MWA and
FAPL became subsidiaries of the Group.

The fair values of the identifiable assets and liabilities of MWA and its subsidiary as at the date of acquisition were as follows:

Recognised on Carrying amount


acquisition before combination
$’000 $’000

Plant and equipment 2,278 2,278


Location premium 31 31
Trademark 10 10
Deferred tax assets 43 43
Inventories 19 19
Trade receivables 11 11
Other receivables and deposits 666 666
Prepayments 69 69
Amount due from related companies 42 42
Cash on hand and at bank 5,613 5,613
Trade payables (151) (151)
Other payables and accrued expenses (2,588) (2,588)
Provision for reinstatement cost (280) (280)
Provision for income tax (683) (683)
Amount due to shareholders (6) (6)
Amount due to related companies (non-trade) (191) (191)

Net identifiable assets 4,883 4,883


Less: Carrying value of investment in joint ventures (2,351)

Net assets acquired 2,532


Goodwill arising from acquisition 1,268

Total purchase consideration 3,800

Net cash inflow from acquisition:


Total purchase consideration 3,800
Less: Cash balances acquired (5,613)

Net cash inflow 1,813


82 BREADTALK ANNUAL REPORT 07

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

13. INVESTMENT IN SUBSIDIARIES (CONT’D)

(e) Acquisition of subsidiary, MWA Pte Ltd (cont’d)

As at 31 December 2007, the fair values of the assets and liabilities of MWA and FAPL were based on provisional amounts. Goodwill arising
from this acquisition will be adjusted on a retrospective basis when the fair values are determined in 2008.

(f) Incorporation of subsidiary, Twin Peaks Venture Singapore Pte Ltd

BreadTalk Pte Ltd incorporated a 70% owned subsidiary, Twin Peaks Venture Singapore Pte Ltd with an issued and paid up capital of $10
consisting of 10 ordinary shares on 14 December 2007.

(g) Liquidation of Nanning Da Shi Dai Food and Beverage Co., Ltd in prior year

On 16 July 2004, Topwin incorporated a wholly-owned subsidiary, Nanning Da Shi Dai Food and Beverage Co., Ltd (“NNDSD”) with a
registered and paid up capital of US$60,000. On 15 June 2006, NNDSD was liquidated.

The carrying values of assets and liabilities of NNDSD as at date of liquidation were as follows:

$’000

Property, plant and equipment 84


Inventories 11
Other receivables 24
Cash at bank 4
Trade payables (97)
Other payables and accruals (364)
Security deposits forfeited 107
Compensation to tenants and workers 27
Compensation payable to landlord (included in other payables) 106

Gain on liquidation of subsidiary (98)

Net proceeds from liquidation of subsidiary –


Cash compensation to tenants and workers (27)
Cash of liquidated subsidiary (4)

Net cash outflow on liquidation of subsidiary (31)


BREADTALK ANNUAL REPORT 07 83

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

14. INVESTMENT IN ASSOCIATES

Group
2007 2006
$’000 $’000

Investment in shares, unquoted


Shares, at cost 1,439 1,193
Loan to an associate 614 582
Share of post-acquisition results of associates (977) (1,070)
Unrealised profit on transaction with an associate (40) (40)
Exchange difference 15 –

At end of year 1,051 665

Loan to an associate is quasi-capital in nature, non-interest bearing and has no fixed terms of repayment.

Details of the associates are as follows:

Country of Proportion of
Name incorporation Principal activities ownership interest
2007 2006
% %

Held through subsidiaries

ML Breadworks Sdn Malaysia Bakers and manufacturers of and dealers in bread, – 49


Bhd (3) flour and biscuits

Hong Kong BreadTalk Ltd(1) Hong Kong Bakers and manufacturers of and dealers in bread, 25 25
flour and biscuits

Taiwan BreadTalk Co., Ltd(1) Taiwan Bakers and manufacturers of and dealers in bread, 30 30
flour and biscuits

Shenzhen BreadTalk Restaurant People’s Republic Bakers and manufacturers of and dealers in bread, – 30
Management Co., Ltd(2) of China flour and biscuits

Out of The Box Pte Ltd(1) Singapore Marketing and distribution of 33.33 –
canned drinks

(1)
Not a significant associate and unaudited financial statements have been used for the preparation of the consolidated financial statements
of the Group
(2)
On 19 January 2007, the Group has divested its remaining 30% interest in Shenzhen BreadTalk Restaurant Management Co., Ltd.
(3)
The Company became a subsidiary during the year (Note 13)
84 BREADTALK ANNUAL REPORT 07

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

14. INVESTMENT IN ASSOCIATES (CONT’D)

During the year, the subsidiary, Topwin Investment Holding Pte Ltd acquired a 33.33% equity interest in Out of The Box Pte Ltd for a cash consideration
of $1,200,000. The acquisition resulted in a goodwill of $408,000.

The summarised financial information of the associates, not adjusted for the proportion of ownership interest held by the Group, is as follows:

Group
2007 2006
$’000 $’000

Assets and liabilities

Total assets 2,345 5,362

Total liabilities 3,708 6,203

Results

Revenue 3,775 11,054

Net loss for the year (1,982) (1,820)

15. INVESTMENT IN JOINT VENTURES

Group
2007 2006
Restated
$’000 $’000

Investment in shares, unquoted

Shares, at cost 334 2,000


Share of post-acquisition results of joint ventures (52) 212

282 2,212
BREADTALK ANNUAL REPORT 07 85

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

15. INVESTMENT IN JOINT VENTURES (CONT’D)

Details of the joint ventures are as follows:

Country of Proportion of
Name incorporation Principal activity ownership interest
2007 2006
% %

Held through subsidiaries


MWA Pte Ltd (1) (4) Singapore Operators of food court – 50

Shanghai Hong Bu Rang Food & Beverage People’s Republic Operators of food and beverage outlets 50 –
Management Co., Ltd(2) of China

Apex Excellent Sdn Bhd(3) Malaysia Operators of food court 50 –

Held through a joint venture


Food Art Pte Ltd (1) (4) Singapore Operators of food and beverage outlets – 50

(1)
Audited by Ernst and Young, Singapore
(2)
Audited by Shanghai Xin Gao Xin Certified Public Accountants Co., Ltd, People’s Republic of China
(3)
Audited by RSM Robert Teo, Kuan & Co., Malaysia
(4)
These companies became subsidiaries during the year (Note 13)

During the year, the subsidiaries, Shanghai Xin Jia Fang Food & Beverage Co., Ltd and Topwin Investment Holding Sdn Bhd incorporated the new
joint venture companies, Shanghai Hong Bu Rang Food & Beverage Management Co., Ltd and Apex Excellent Sdn Bhd respectively at a total cost
of $334,000.

The aggregate amounts of each of the current assets, non-current assets, current liabilities, non-current liabilities, income and expenses related to
the Group’s interests in the joint ventures are as follows:

Group
2007 2006
Restated
$’000 $’000
Assets and liabilities
Current assets 1,333 2,465
Non-current assets 317 1,863

Total assets 1,650 4,328

Current and total liabilities 1,368 2,116

Results
Revenue 5,360 4,223
Other income 450 318
Expenses (5,543) (4,207)

Profit for the year 267 334


86 BREADTALK ANNUAL REPORT 07

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

16. INVENTORIES

Group Company
2007 2006 2007 2006
$’000 $’000 $’000 $’000

Raw materials and consumables, at cost 2,152 1,762 – –


Semi-finished goods 299 200 – –
Base inventories (1) 55 41 – –

Total inventories at lower of cost and net realisable value 2,506 2,003 – –

(1)
This is stated after writing down 50% of the original cost of base inventories

17. TRADE RECEIVABLES

Group Company
2007 2006 2007 2006
$’000 $’000 $’000 $’000

Trade receivables 3,027 2,855 – –

Trade receivables include amounts denominated in foreign currencies as follows:

Group Company
2007 2006 2007 2006
$’000 $’000 $’000 $’000

United States dollar 44 132 – –


Renminbi 2,099 1,732 – –
Thai Baht 135 121 – –

Trade receivables are non-interest bearing and are generally on 30 to 90 days terms. They are recognised at their original invoice amounts which
represents their fair values on initial recognition.
BREADTALK ANNUAL REPORT 07 87

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

17. TRADE RECEIVABLES (CONT’D)

Receivables that are past due but not impaired

The Group has trade receivables amounting to $554,000 (2006: $507,000) that are past due at the balance sheet date but not impaired. These
receivables are unsecured and the analysis of their aging at the balance sheet date is as follows:

Group
2007 2006
$’000 $’000

Trade receivables past due:


Lesser than 30 days 225 158
30 to 60 days 46 32
61-90 days 37 77
91-120 days 246 240

554 507

Receivables that are impaired

The Group’s trade receivables that are impaired at the balance sheet date and the movement of the allowance accounts used to record the
impairment are as follows:

Group
Individually impaired
2007 2006
$’000 $’000

Trade receivables – nominal amounts 10 –


Less: Allowance for impairment (10) –

– –

Movement in allowance accounts:

At 1 January – –
Charge for the year 10 –

At 31 December 10 –

Trade receivables that are individually determined to be impaired at the balance sheet date relate to debtors that are in financial difficulties. These
receivables are not secured by any collateral or credit enhancements.
88 BREADTALK ANNUAL REPORT 07

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

18. OTHER RECEIVABLES AND DEPOSITS

Group Company
2007 2006 2007 2006
$’000 $’000 $’000 $’000

Other receivables 3,422 3,456 11 3


Deposits 9,683 6,292 – –

13,105 9,748 11 3

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

Group Company
2007 2006 2007 2006
$’000 $’000 $’000 $’000

United States dollar 353 24 – –


Renminbi 3,962 4,022 – –
Hong Kong dollar 2,550 1,120 – –
Thai Baht 133 122 – –
Ringgit Malaysia 381 – – –

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

Other receivables that are past due

The Group has other receivables amounting to $1,038,000 (2006: $101,000) that are past due at the balance sheet date but not impaired. These
receivables are unsecured and the analysis of their aging at the balance sheet date is as follows:

Group
2007 2006
$’000 $’000

Other receivables past due:


Lesser than 30 days 270 16
30 to 60 days 512 16
61-90 days 184 41
91-120 days 9 23
More than 120 days 63 5

1,038 101
BREADTALK ANNUAL REPORT 07 89

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

19. DUE FROM/TO SUBSIDIARIES, RELATED PARTIES, ASSOCIATES, JOINT VENTURES AND MINORITY SHAREHOLDERS

The amount due from/to related parties, associates, joint ventures and minority shareholders are unsecured and non-interest bearing.

The amount due from/to subsidiaries are unsecured and non-interest bearing except for an amount due from a subsidiary of $1,200,000 (2006: Nil)
which bears interest of 7.5% per annum.

The trade and non-trade amounts due from subsidiaries, associates and joint ventures are generally 30 to 60 days term while the amounts due from
related parties and minority shareholders are repayable on demand.

The following amounts are denominated in foreign currencies:

Group Company
2007 2006 2007 2006
$’000 $’000 $’000 $’000

Amount due from associates (trade)


United States dollar – 250 – –
Renminbi – 877 – –

Amount due from associates (non-trade)


United States dollar – 13 – –
Renminbi – 24 – –

Amount due from joint ventures (trade)


Ringgit Malaysia 64 – – –

Group

Receivables that are past due but not impaired

Joint
(a) Trade Associates Ventures
$’000 $’000
2007
Less than 30 days – –
30 to 60 days – 14
61 to 90 days – –
91 to 120 days – –
More than 120 days – –

Total as at 31 December 2007 – 14


90 BREADTALK ANNUAL REPORT 07

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

19. DUE FROM/TO SUBSIDIARIES, RELATED PARTIES, ASSOCIATES, JOINT VENTURES AND MINORITY SHAREHOLDERS (CONT’D)

Group (cont’d)

Receivables that are past due but not impaired (cont’d)

Joint
(a) Trade (cont’d) Associates Ventures
$’000 $’000
2006
Less than 30 days – 2
30 to 60 days – –
61 to 90 days 12 –
91 to 120 days 508 –
More than 120 days – –

Total as at 31 December 2006 520 2

Joint
(b) Non-trade Associates Ventures
$’000 $’000
2007
Less than 30 days – –
30 to 60 days – –
61 to 90 days – –
91 to 120 days – –
More than 120 days – –

Total as at 31 December 2007 – –

Joint
Associates ventures
$’000 $’000
2006
Less than 30 days 29 2
30 to 60 days 8 –
61 to 90 days 39 –
91 to 120 days 107 –
More than 120 days – –

Total as at 31 December 2006 183 2


BREADTALK ANNUAL REPORT 07 91

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

19. DUE FROM/TO SUBSIDIARIES, RELATED PARTIES, ASSOCIATES, JOINT VENTURES AND MINORITY SHAREHOLDERS (CONT’D)

Receivables that are impaired

Amount due from associates that are impaired at the balance sheet date and the movement of the allowance accounts used to record the impairment
are as follows:

2007 2006
$’000 $’000

Due from associates (non-trade) that are individually impaired - nominal amounts 282 –
Less: Allowance for impairment (275) –

7 –

Movement in allowance accounts


At 1 January – –
Charge for the year 275 –

At 31 December 275 –

Company

Receivables that are past due but not impaired

Amount due from subsidiaries (non-trade)

2007 2006
$’000 $’000

Less than 30 days 243 –


30 to 60 days 243 –
61 to 90 days 243 –
91 to 120 days 243 –
More than 120 days 243 –

Total 1,215 –

20. FIXED DEPOSITS

As at 31 December 2007, fixed deposits amounting to $107,000 (2006: $1,107,000) were pledged to banks for banking facilities granted to a
subsidiary and letters of guarantees issued by banks to lessors of premises occupied by a subsidiary as disclosed in Notes 25, 26 and 31 below.

Fixed deposits of the Group and the Company have maturity periods ranging from 3 months to 12 months (2006: 1 week to 12 months) with effective
interest rates ranging from 1.8% to 2.5% (2006: 1.7% to 1.8%) per annum.
92 BREADTALK ANNUAL REPORT 07

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

21. TRADE PAYABLES

Group Company
2007 2006 2007 2006
Restated
$’000 $’000 $’000 $’000

Trade payables 8,861 7,922 – –

Trade payables include amounts denominated in foreign currencies as follows:

Group Company
2007 2006 2007 2006
Restated
$’000 $’000 $’000 $’000

United States dollar 98 201 – –


Renminbi 3,510 3,548 – –
Hongkong dollar 322 113 – –
Ringgit Malaysia 398 1 – –
Thai Baht 110 40 – –
New Taiwan dollar 1 – – –

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

22. OTHER PAYABLES AND OTHER LIABILITIES

Group Company
2007 2006 2007 2006
Restated
$’000 $’000 $’000 $’000

Other payables 25,074 15,677 159 96

Other liabilities

Accrued operating expense 13,345 10,097 1,304 640


Deferred revenue 3,703 3,120 – –

17,048 13,217 1,304 640


BREADTALK ANNUAL REPORT 07 93

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

22. OTHER PAYABLES AND OTHER LIABILITIES (CONT’D)

Other payables and accrued expenses include amounts denominated in foreign currencies as follows:

Group Company
2007 2006 2007 2006
Restated
$’000 $’000 $’000 $’000

Taiwan dollar – 4 – –
United States dollar 785 131 – –
Renminbi 19,426 14,141 – –
Hongkong dollar 3,886 2,180 – –
Ringgit Malaysia 397 – – –
Thai Baht 124 97 – –

Other payables are non-interest bearing and have an average of 30 to 90 days term, except for retention sums included therein which have repayment
terms of up to 1 year. Included in other payables are food court tenant and stored value card deposits of $5,195,000 (2006: $2,808,000).

23. LOAN FROM MINORITY SHAREHOLDER OF A SUBSIDIARY

The loan from minority shareholder of a subsidiary, Megabite Hong Kong Limited is unsecured, non-interest bearing and has no fixed terms of
repayment.

24. FINANCE LEASE OBLIGATIONS, SECURED

The Group has finance leases for certain items of machinery and equipment, motor vehicles and renovation (Note 10).

Future minimum lease payments under finance leases together with the present value of the net minimum lease payments are as follows:

Group
Total minimum Total minimum
lease Present value lease Present value
payments of payments payments of payments
2007 2007 2006 2006
$’000 $’000 $’000 $’000

Not later than one year 268 244 128 107


Later than one year but not later than five years 396 366 329 298
Later than five years – – 5 5

Total minimum lease payments 664 610 462 410


Less: amounts representing finance charges (54) – (52) –

Present value of minimum lease payments 610 610 410 410


94 BREADTALK ANNUAL REPORT 07

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

24. FINANCE LEASE OBLIGATIONS, SECURED (CONT’D)

The leases have options to purchase at the end of the lease term. The effective interest rates of the leases range from 4.82% to 6.10% (2006: 5.22%
to 6.11%) per annum. Lease terms do not contain restrictions concerning dividends, additional debt or further leasing.

25. SHORT-TERM LOANS, SECURED

Group
2007 2006
$’000 $’000

RMB Bank loan 1 – 1,968


USD Bank loan 2 – 1,611
USD Bank loan 3 869 –
HKD Bank loan 4 556 592
RMB Bank loan 5 793 787
HKD Bank loan 6 371 –
RMB Bank loan 7 694 –

3,283 4,958

The effective interests on these short-term loans range from 5.86% to 7.44% (2006: 5.86% to 6.43%) per annum. The interest rates of these floating
rate loans are repriced from time to time at the discretion of the respective banks.

Security

Bank loan 1 is a 1-year term loan and secured by several continuing guarantees by the Company.

Bank loan 2 is secured by (i) a first and/ or third party pledge of no less than USD 200,000 in fixed deposit of a subsidiary placed with the bank
together with interest accrued thereof and (ii) joint and several personal guarantees from directors of a subsidiary.

Bank loans 3, 6 and 7 are 6-month revolving term loans and secured by several continuing guarantees by the Company.

Bank loan 4 is a 6-month (2006: 1-month) revolving term loan and secured by several continuing guarantees by the Company.

Bank loan 5 is a revolving term loan and secured by guarantees by the Company.
BREADTALK ANNUAL REPORT 07 95

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

26. LONG-TERM LOANS, SECURED

Group
2007 2006
$’000 $’000

Due within 1 year 3,701 3,044


Due after 1 year but not more than 5 years 3,977 4,843

Total long-term loans 7,678 7,887

Details of the long term loans are:

Group
Term loans Repayment terms 2007 2006
$’000 $’000

SGD Term loan 1 48 monthly instalments from April 2003 – 125


SGD Term loan 2 24 monthly instalments from September 2005 – 357
SGD Term loan 3 36 monthly instalments from December 2005 73 147
SGD Term loan 4 36 monthly instalments from June 2005 420 576
SGD Term loan 5 48 monthly instalments from September 2005 657 1,039
SGD Term loan 6 36 monthly instalments from July 2006 100 167
SGD Term loan 7 36 monthly instalments from August 2006 950 1,550
HKD Term loan 8 12 quarterly instalments from December 2005 487 814
SGD Term loan 9 32 monthly instalments from April 2007 215 –
SGD Term loan 10 36 monthly instalments from May 2007 1,556 –
RMB Term loan 11 24 quarterly instalments from February 2006 1,896 2,325
RMB Term loan 12 8 quarterly instalments from February 2006 397 787
HKD Term loan 13 42 monthly instalments from February 2008 927 –

7,678 7,887
96 BREADTALK ANNUAL REPORT 07

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

26. LONG-TERM LOANS, SECURED (CONT’D)

Except for term loan 10, which is a fixed rate loan bearing an interest rate of 4.25% per annum, all other term loans are floating rate loans with
effective interest rates ranging from 4.25% to 7.56% (2006: 3.96% to 6.86%) per annum. The interest rates of these floating rate loans are repriced
from time to time at the discretion of the respective banks.

Securities

Term loans 1 and 2 were secured by:

(a) Fixed deposits of a subsidiary amounting to $nil (2006: $1,000,000); and


(b) Several continuing guarantees by the Company.

Term loans 3 to 10 are secured by continuing guarantees by the Company.

Term loan 11 is secured by a charge over a leasehold property held by Shanghai BreadTalk Co., Ltd.

Term loan 12 is secured by continuing guarantees by the Company and Shanghai Xin Jia Fang Food & Beverage Co., Ltd, a wholly owned
subsidiary.

Term loan 13 is secured by continuing guarantees by the Company and Topwin Investment Holding Pte Ltd, a wholly owned subsidiary.

27. AMOUNT DUE TO LANDLORD (NON-TRADE)

The balance is payable to a landlord, who paid renovation costs on behalf of a subsidiary. This amount is unsecured and non-interest bearing.

28. SHARE CAPITAL

Company
2007 2006
Number of Number of
shares $’000 shares $’000

Issued and fully paid

At beginning of year 200,911,034 21,516 200,911,034 8,036


Issuance of shares 34,000,000 12,240 – –
Share issue expense – (453) – –
Transfer of share premium to share capital – – – 13,480

At end of the year 234,911,034 33,303 200,911,034 21,516


BREADTALK ANNUAL REPORT 07 97

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

28. SHARE CAPITAL (CONT’D)

The holders of ordinary shares are entitled to receive dividends as and when declared by the Company. All ordinary shares carry one vote per share
without restriction.

On 30 January 2006, in accordance with the Companies (Amendment) Act 2005, the concepts of “par value” and “authorised capital” were abolished
and on that date, the shares of the Company ceased to have a par value and the amount standing in the share premium reserve became part of the
Company’s share capital.

29. STATUTORY RESERVE FUND

In accordance with the Foreign Enterprise Law applicable to subsidiaries in the People’s Republic of China (“PRC”), the subsidiaries are required
to make appropriation to a Statutory Reserve Fund (“SRF”). At least 10% of the statutory after tax profits as determined in accordance with the
applicable PRC accounting standards and regulations must be allocated to the SRF until the cumulative total of the SRF reaches 50% of the
subsidiaries’ registered capital. Subject to the approval from the relevant PRC authorities, the SRF may be used to offset any accumulated losses or
increase the registered capital of the subsidiaries. The SRF is not available for dividend distribution to shareholders.

30. TRANSLATION RESERVE

The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign
operations whose functional currencies are different from that of the Group’s presentation currency.

31. COMMITMENTS AND CONTINGENCIES

(a) Commitments

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

Group Company
2007 2006 2007 2006
$’000 $’000 $’000 $’000

Commitment in respect of plant and equipment 16 18 – –


98 BREADTALK ANNUAL REPORT 07

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

31. COMMITMENTS AND CONTINGENCIES (CONT’D)

(b) Contracted operating lease commitments

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

Future minimum lease payments payable under non-cancellable operating leases as at 31 December are as follows:

Group Company
2007 2006 2007 2006
$’000 $’000 $’000 $’000

Not later than one year 33,411 22,438 – –


Later than one year but not later than five years 77,496 50,082 – –
Later than five years 21,471 6,916 – –

132,378 79,436 – –

(c) Operating lease income

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

Group Company
2007 2006 2007 2006
$’000 $’000 $’000 $’000

Not later than one year 19,480 13,786 – –


Later than one year but not later than five years 12,024 9,319 – –

31,504 23,105 – –

(d) Letters of guarantees, secured

As at 31 December 2007, the banks issued letters of guarantees on behalf of the Group to lessors of premises amounting to approximately
$2,938,000 (2006: $1,481,000). These letters of guarantees are secured by fixed deposits of the Group amounting to approximately $107,000
(2006: $1,107,000), a part of which is also pledged for long term loans (Note 26).
BREADTALK ANNUAL REPORT 07 99

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

32. RELATED PARTY DISCLOSURES

(a) Sale and purchase of goods and services

In addition to those related party information disclosed elsewhere in the financial statements, the following significant transactions between
the Group and related parties took place during the year on terms agreed between the parties:

Group
2007 2006
$’000 $’000
Income
Rental income earned from a company in which a director of the Company has an interest 2 10
Rental income earned from an associate 216 321
Sale of goods to associates 271 488
Sale of goods to joint ventures 32 –
Management fee income from joint ventures 406 438
Management fee income from associates – 10
Management fee income from a company in which a director of the Company has an interest – 376
Franchise income from associates 161 264
Dividend income from joint venture 180 –
Rental and miscellaneous income from a party related to a director 406 75

Expenses
Purchases from a party related to a director – 13
Rental expense to joint ventures 327 312
Royalty fees to minority shareholders 813 661

Others
Purchase of plant and equipments from an associate 126 –
Purchase of furniture and fittings from a company in which a director of the Company has an interest – 39
Franchise fee to minority shareholders 57 32

(b) Compensation of key management personnel

Salaries and bonus 4,536 3,705


Central Provident Fund contributions and other pension contributions 165 127
Directors’ fee 96 96
Other personnel expenses 566 264

Total compensation paid to key management personnel 5,363 4,192

Comprise amounts paid to:


Directors of the Company 1,561 1,185
Directors of subsidiaries 1,260 1,102
Other key management personnel 2,542 1,905

5,363 4,192
100 BREADTALK ANNUAL REPORT 07

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

33. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group and the Company is exposed to financial risks arising from its operations and the use of financial instruments. The key financial risks
include interest rate risk, foreign currency risk, credit risk and liquidity risk. The Audit Committee provides independent oversight to the effectiveness
of the risk management process.

The Group’s and Company’s principal financial instruments comprise bank loans, finance leases and cash and short term deposits. The main purpose
of these financial instruments is to raise finance for the Group’s and Company’s operations. The Group and Company has various other financial
assets and liabilities such as trade and other receivables, trade and other payables and related company balances, which arise directly from its
operations.

It is, and has been throughout the year under review, the Group’s and Company’s policy that no trading in derivative financial instruments shall be
undertaken.

The following sections provide details regarding the Group’s and Company’s exposure to the above-mentioned financial risks and the objectives,
policies and processes for the management of these risks.

(a) Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of the Group’s and the Company’s financial instruments will fluctuate
because of changes in market interest rates.

The Group’s and the Company’s exposure to market risk for changes in interest rates relates primarily to its investment portfolio in fixed
deposits and its debt obligations. The Group does not use derivative financial instruments to hedge its investment portfolio. The Group
obtains additional financing through bank borrowings and leasing arrangements. The Group’s policy is to obtain the most favourable interest
rates available without increasing its foreign exchange exposure.

Surplus funds are placed with reputable banks.

Sensitivity analysis for interest rate risk


Group
Effect on profit net of tax

100 basis points 100 basis points


increase decrease
$’000 $’000

2007

- Singapore dollar (1) 1


- Renminbi (33) 33
- Hong Kong dollar (23) 23
- US dollar (6) 6
BREADTALK ANNUAL REPORT 07 101

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

33. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT’D)

Group
Effect on profit net of tax

100 basis points 100 basis points


increase decrease
$’000 $’000

2006

- Singapore dollar (28) 28


- Renminbi (57) 57
- Hong Kong dollar (14) 14
- US dollar (6) 6

(b) Foreign currency risk

The Group has transactional currency exposures arising from sales, purchases and borrowings that are denominated in a currency other than
the respective functional currencies of Group entities, primarily SGD, Renminbi (RMB) and Hong Kong Dollar (HKD). The foreign currency in
which these transactions are denominated is mainly US dollars (USD).

Currently, the Chinese government imposes control over foreign currency. RMB, the official currency in China, is not freely convertible.
Enterprises operating in the PRC can enter into exchange transactions through the People’s Bank of China or other authorised financial
institutions. Payments for imported materials or services and remittance of earnings outside of the PRC are subject to the availability of
foreign currency which depends on the foreign currency denominated earnings of the enterprises, or exchanges of RMB for foreign currency
must be arranged through the People’s Bank of China or other authorised financial institutions. Approval for exchanges at the People’s Bank of
China or other authorised financial institutions is granted to enterprises in the PRC for valid reasons such as purchase of imported materials
and remittance of earnings. While conversion of RMB into Singapore dollars or other currencies can generally be effected at the People’s
Bank of China or other authorised financial institutions, there is no guarantee that it can be effected at all times.

The Group is also exposed to currency translation risk arising from its net investments in foreign operations, in Malaysia, the PRC, Hong Kong,
Thailand and Taiwan. The Group’s net investments in these countries are not hedged as currency positions in Ringgit Malaysia, RMB, Hong
Kong dollar, Thai Baht and Taiwan dollar are considered to be long-term in nature.

Sensitivity analysis for foreign currency risk

The following table demonstrates the sensitivity to a reasonably possible change in the USD (against SGD) and USD (against RMB) exchange
rates, with all other variables held constant, of the Group’s profit net of tax.
102 BREADTALK ANNUAL REPORT 07

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

33. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT’D)

Group
Effect on profit net of tax
2007 2006
$’000 $’000

Against SGD:

USD - strengthened 6% (2006: 6%) 40 10

- weakened 6% (2006: 6%) (40) (10)

Against RMB:

USD - strengthened 6% (2006: 6%) (63) (37)

- weakened 6% (2006: 6%) 63 37

(c) Credit risk

Credit risk is the risk of loss that may arise on outstanding financial instruments should a counterparty default on its obligations. The
Group’s and the Company’s exposure to credit risk arises primarily from trade and other receivables. For other financial assets (including
investment securities, cash and cash equivalents), the Group and the Company minimise credit risk by dealing exclusively with high credit
rating counterparties.

The Group trades only with recognised and creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit
terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result that
the Group’s exposure to bad debts is not significant.

Exposure to credit risk

At the balance sheet date, the Group’s and the Company’s maximum exposure to credit risk is represented by:

- the carrying amount of each class of financial assets recognised in the balance sheets; and

- a nominal amount of $27,128,000 (2006: $17,123,000) relating to corporate guarantees provided by the Company to financial institutions
on subsidiaries’ borrowings and other banking facilities.
BREADTALK ANNUAL REPORT 07 103

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

33. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT’D)

Credit risk concentration profile

The Group determines concentrations of credit risk by monitoring the country of its trade receivables (included related company and related party
balances) on an on-going basis. The credit risk concentration profile of the Group’s trade receivables at the balance sheet date is as follows:

Group
2007 2006
% of % of
$’000 total $’000 total

By country:
Singapore 416 14% 453 10%
People’s Republic of China 2,141 69% 2,692 61%
Indonesia 154 5% 394 9%
The Philippines 97 3% 97 2%
Thailand 135 4% 121 3%
Kuwait 81 3% 126 3%
Malaysia 64 2% 415 10%
Others 3 - 95 2%

3,091 100% 4,393 100%

Financial assets that are neither past due nor impaired

Trade and other receivables that are neither past due nor impaired are creditworthy debtors with good payment record with the Group. Cash and
cash equivalents that are neither past due nor impaired are placed with or entered into with reputable financial institutions or companies with high
credit ratings and no history of default. Investment securities, which refer to unquoted shares, are not impaired based on the positive financial
position of the company invested.

Financial assets that are either past due or impaired

Information regarding financial assets that are either past due or impaired is disclosed in Notes 17, 18 and 19 to the financial statements.

(d) Liquidity risk

Liquidity risk is the risk that the Group or the Company will encounter difficulty in meeting financial obligations due to shortage of funds. The
Group’s and the Company’s exposure to liquidity risk arises primarily from mismatches of the maturities of financial assets and liabilities.
The Group’s and the Company’s objective is to maintain a balance between continuity of funding and flexibility through the use of stand-by
credit facilities.

The Group monitors and maintains a level of cash and cash equivalents deemed adequate by the management to finance the operations of
the Group.

Short-term funding may be obtained from short-term loans where necessary.


104 BREADTALK ANNUAL REPORT 07

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

33. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT’D)

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

2007 2006
1 year or Over 5 1 year or Over 5
less 1 to 5 years years Total less 1 to 5 years years Total
Group $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Trade and other payables 33,935 – – 33,935 23,599 – – 23,599


Other liabilities 13,345 – – 13,345 10,097 – – 10,097
Amount due to associates, joint
ventures and landlord 206 240 – 446 388 402 – 790
Loans and borrowings 7,353 4,343 – 11,696 8,168 5,031 115 13,314

54,839 4,583 – 59,422 42,252 5,433 115 47,800

Company

Trade and other payables 159 – – 159 96 – – 96


Other liabilities 1,304 – – 1,304 640 – – 640
Amount due to subsidiaries 4 – – 4 443 – – 443

1,467 – – 1,467 1,179 – – 1,179


BREADTALK ANNUAL REPORT 07 105

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

34. FINANCIAL INSTRUMENTS

(a) Financial assets and liabilities

The carrying amount by category of financial assets and liabilities are as follows:

Group
2007 2006
$’000 $’000
Loans and receivables

Trade receivables 3,027 2,855


Other receivables and deposits 13,105 9,748
Amount due from related parties (non-trade) – 78
Amount due from associates (trade) – 1,425
Amount due from associates (non-trade) 7 216
Amount due from joint-ventures (trade) 64 113
Amount due from joint-ventures (non-trade) 237 176
Amount due from minority shareholders (non-trade) – 150
Fixed deposits 2,814 1,107
Cash on hand and at bank 35,531 18,455

Total 54,785 34,323

Available-for-sale financial assets

Investment securities 316 316

Financial liabilities carried at amortised cost

Trade payables 8,861 7,922


Other payables 25,074 15,677
Accrued operating expense (note 22) 13,345 10,097
Amount due to associates (trade) 5 –
Amount due to associates (non-trade) – 360
Amount due to joint-ventures (non-trade) 11 28
Amount due to landlord (non-trade) (note 27) 430 402
Finance lease obligations, secured (note 24) 610 410
Short term loans, secured 3,283 4,958
Long term loans, secured (note 26) 7,678 7,887
Loan from minority shareholder of a subsidiary 125 59

Total 59,422 47,800


106 BREADTALK ANNUAL REPORT 07

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

34. FINANCIAL INSTRUMENTS (CONT’D)

(b) Fair values

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

Financial instruments carried at fair value

The Group has no financial instruments that are classified as held for trading, available-for-sale financial assets, or derivative financial
instruments, which would have been carried at their respective fair values as required by FRS 39.

Financial instruments whose carrying amount approximate fair value

Management has determined that the carrying amounts of cash and bank balances, fixed deposits, trade and other receivables, trade and
other payables, related company balances, amount due to landlord and current bank loans, based on their notional amounts, reasonably
approximate their fair values because these are mostly short term in nature or are repriced frequently.

Fixed interest rate term loan of $1,556,000 (2006: nil) approximates fair value based on available market information on similar loans as at
financial year end.

Financial instruments carried at other than fair value

Set out below is a comparison of the carrying amount and fair value of the financial instrument that is carried in the financial statements at
other than fair value as at 31 December.

Carrying amount Fair value


2007 2006 2007 2006
$’000 $’000 $’000 $’000

Financial liabilities:
Obligations under finance leases 610 410 603 412

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

No disclosure of fair values are made for the quasi-capital loan to an associate, loan from minority shareholder of a subsidiary and long-term
amount due to landlord as it is not practical to determine their fair values with sufficient reliability since the balances have no fixed terms
of repayment. Investment securities are stated at cost as they have no market prices and their fair values cannot be reliably measured using
valuation techniques.

No amount has been recognised in the income statement in relation to the change in fair value of financial assets or financial liabilities
estimated using a valuation technique for the financial years ended 31 December 2007 and 2006.
BREADTALK ANNUAL REPORT 07 107

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

35. CAPITAL MANAGEMENT

The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to
support business and maximise shareholder value.

The Group manages its capital structure and makes adjustments to it, in the light of changes in economic conditions. To maintain or adjust the
capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were
made in the objectives, policies or processes during the years ended 31 December 2007 and 2006.

As disclosed in Note 29, subsidiaries of the Group operating in the PRC are required by the Foreign Enterprise Law of the PRC to contribute to and
maintain a non-distributable statutory reserve fund whose utilisation is subject to approval by the relevant PRC authorities. This externally imposed
capital requirement has been complied with by the respective subsidiaries for the financial years ended 31 December 2007 and 2006.

The Group monitors capital using gearing ratio (which is total borrowings divided by total equity) and net gearing ratio (which is total borrowings
less cash and cash equivalents divided by total equity)

Group
2007 2006
$’000 $’000

Total borrowings(1) 11,696 13,314


Less: Cash and cash equivalents(2) (38,345) (19,562)
Net borrowings (26,649) (6,248)

Total Equity 47,266 28,998

Gearing ratio 0.25 0.46

Net gearing Net cash Net cash

(1)
including bank loans, finance lease obligations and loan from minority shareholder of a subsidiary
(2)
including all fixed deposits
108 BREADTALK ANNUAL REPORT 07

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

36. SEGMENT INFORMATION

Reporting format

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

Business segments

The Group’s primary format for reporting segment information is business segments, with each segment representing a strategic business activity.
For management purposes, the Group is organised into three business segments, namely bakery operations, food courts operations and restaurant
operations.

Bakery operations: This relates to the manufacture and retail of all kinds of food, bakery and confectionery products including franchising.

Food court operations: This relates to the management and operation of food courts and operation of food and drinks outlets within the food
courts.

Restaurant operations: This relates to the operation of food and drinks outlets, eating houses and restaurants.

Geographical segments

The Group’s main operations are in Singapore, the PRC and Hong Kong. Sales to external customers disclosed in geographical segments are based
on geographical location of its customers.

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

Allocation basis

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.
Unallocated items comprise mainly provision for taxation, borrowings, financial expenses and share of results of associates and joint ventures.

Transfer prices between business segments are set on an arm’s length basis in a manner similar to transactions with third parties. Segment
revenue, expenses and results include transfers between business segments. These transfers are eliminated on consolidation.
BREADTALK ANNUAL REPORT 07 109

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

36. SEGMENT INFORMATION (CONT’D)

(a) Analysis of business segment

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

Bakery Restaurant Food court


2007 operations (1) operations operations Others (2) Elimination Group
$’000 $’000 $’000 $’000 $’000 $’000
Revenue
External sales 79,823 28,345 48,442 – – 156,610
Inter-segment sales 201 – 774 – (975) –

Total revenue 80,024 28,345 49,216 – (975) 156,610

Profit from operations 3,873 4,571 3,457 250 (1) 12,150


Financial expenses, net (735)

Profit before tax and associates and joint


ventures’ results 11,415
Share of associates’ results (454)
Share of joint ventures’ results 267

Profit before tax 11,228


Tax (2,791)

Profit for the year 8,437

Assets and liabilities


Segment assets 39,814 17,374 60,110 13,165 (16,500) 113,963
Investment in associates 1,051
Investment in joint ventures 282
Deferred tax assets 394

Total assets 115,690

Segment liabilities 22,182 6,629 38,700 1,475 (16,500) 52,486


Unallocated liabilities 15,938

Total liabilities 68,424

Other information
Capital expenditure
- Property, plant and equipment 4,312 1,588 12,823 15 – 18,738
- Intangible assets 49 57 51 – – 157
Depreciation and amortisation 4,291 1,763 4,290 4 – 10,348
110 BREADTALK ANNUAL REPORT 07

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

36. SEGMENT INFORMATION (CONT’D)

(a) Analysis of business segment (cont’d)

Bakery Restaurant Food court


2006 (Restated) operations (1) operations operations Others (2) Elimination Group
$’000 $’000 $’000 $’000 $’000 $’000
Revenue
External sales 63,126 22,051 38,392 – – 123,569
Inter-segment sales 345 – – – (345) –
Total revenue 63,471 22,051 38,392 – (345) 123,569

Profit from operations 1,829 3,487 2,185 (54) (53) 7,394


Financial expenses, net (745)

Profit before tax and associates and joint


ventures’ results 6,649
Share of associates’ results (517)
Share of joint ventures’ results 334

Profit before tax 6,466


Tax (2,020)

Profit for the year 4,446

Assets and liabilities


Segment assets 33,744 14,880 37,731 870 (7,508) 79,717
Investment in associates 665
Investment in joint ventures 2,212
Deferred tax assets 309

Total assets 82,903

Segment liabilities 17,210 4,107 22,338 1,701 (7,504) 37,852


Unallocated liabilities 16,053

Total liabilities 53,905

Other information
Capital expenditure
- Property, plant and equipment 10,803 1,665 6,829 6 – 19,303
- Intangible assets 47 32 98 – – 177
Depreciation and amortisation 3,914 1,433 3,160 1 – 8,508
Impairment of intangible asset – – 99 – – 99
BREADTALK ANNUAL REPORT 07 111

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

36. SEGMENT INFORMATION (CONT’D)

(a) Analysis by geographical segments

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

Revenue Segment Assets Capital expenditure


2007 2006 2007 2006 2007 2006
Restated
$’000 $’000 $’000 $’000 $’000 $’000

Singapore 80,107 56,555 62,805 42,382 6,775 7,200


PRC 59,242 52,324 39,695 34,528 8,020 11,092
Hong Kong 8,740 7,625 8,216 4,580 3,561 1,035
Rest of the world 8,521 7,065 3,247 852 539 153
Elimination – – – (2,625) – –

Total 156,610 123,569 113,963 79,717 18,895 19,480

(1)
Bakery operations comprise operation of bakery retail outlets as well as that operated through franchising.
(2)
The business segment “Others” pertains to investment holding activities and Out Of The Box Pte Ltd, a 33.33% owned associated
company which is engaged in the business of marketing and distribution of canned drinks under the “Anything” and “Whatever”
trademarks.

37. DIVIDENDS

Proposed but not recognised as a liability as at 31 December :

Group and Company


2007 2006
$’000 $’000

Dividends on ordinary shares, subject to shareholders’ approval at the Annual General Meeting :

• First and final exempt (one-tier) dividend for 2007 of 0.55 cent per share (2006 : 0.42 cent per share) 1,292 844(1)

(1)
The proposed dividends for financial year ended 31 December 2006 was based on total number of ordinary shares in issue of 200,911,034
then. The actual dividends paid out in May 2007 amounted to $987,000 based on shares in issue of 234,911,034 as at book closing date on
15 May 2007, after the placement of 34 million new shares in April 2007.
112 BREADTALK ANNUAL REPORT 07

NOTES TO THE FINANCIAL STATEMENTS


31 DECEMBER 2007

38. PRIOR YEAR ADJUSTMENTS AND COMPARATIVES

In prior years, the Group recognised lease expenses on an incurred basis. In compliance with FRS 17 ‘Leases’, the Group has in the current year,
recognised operating lease expenses in the income statement on a straight line basis over the lease term.

The change in accounting for leases has been applied retrospectively.

In addition, certain comparative figures have been reclassified to conform with the current year’s presentation.

The effects of the above on comparatives are as follows:

Previously Lease Reclassi-


stated adjustment fication Restated
$’000 $’000 $’000 $’000

Group

Balance sheet at 31 December 2006


Investment in joint ventures 2,272 (60) – 2,212
Deferred tax assets – 309 – 309
Trade payables 9,137 – (1,215) 7,922
Other payables 14,462 – 1,215 15,677
Other liabilities 11,059 2,158 – 13,217
Deferred tax liabilities 961 (92) – 869
Translation reserve (303) 53 – (250)
Minority interests 3,221 (163) – 3,058
Statutory reserve fund – – 123 123
Accumulated profits brought forward 2,074 (876) – 1,198
Accumulated profits carried forward 6,381 (1,707) (123) 4,551

Income statement for the year ended 31 December 2006


Cost of sales 55,551 (28) – 55,523
Other operating income 5,343 – (1,981) 3,362
Distribution and selling expenses 45,209 1,139 (1,981) 44,367
Share of results of joint ventures 382 (48) – 334
Profit before taxation 7,625 (1,159) – 6,466
Taxation 2,323 (303) – 2,020
Profit for the year 5,302 (856) – 4,446

39. AUTHORISATION OF FINANCIAL STATEMENTS

The financial statements for the year ended 31 December 2007 were authorised for issue in accordance with a resolution of the directors on 18
March 2008.
BREADTALK ANNUAL REPORT 07 113

STATISTICS OF SHAREHOLDINGS
AS AT 19 MARCH 2008

Issued and fully Paid-up Capital : S$33,302,916


Number of Ordinary Shares in Issue (excluding treasury shares) : 234,911,034
Number of Treasury Shares held : Nil
Class of Shares : Ordinary Shares
Voting rights : One vote per share

DISTRIBUTION OF SHAREHOLDINGS

Size of Shareholdings No. of Shareholders % No. of Shares %

1 - 999 0 0.00 0 0.00


1,000 - 10,000 502 63.70 2,723,000 1.16
10,001 - 1,000,000 266 33.76 22,930,075 9.76
1,000,001 and above 20 2.54 209,257,959 89.08
Total 788 100.00 234,911,034 100.00

TWENTY LARGEST SHAREHOLDERS

Name No. of Shares %

1 Citibank Nominees Singapore Pte Ltd 31,591,000 13.45


2 Katherine Lee Lih Leng 30,550,850 13.01
3 Hong Leong Finance Nominees Pte Ltd 23,830,000 10.14
4 United Overseas Bank Nominees Pte Ltd 21,898,000 9.32
5 DBS Nominees Pte Ltd 18,034,000 7.68
6 HL Bank Nominees (S) Pte Ltd 13,000,000 5.53
7 Mayban Nominees (S) Pte Ltd 10,500,000 4.47
8 SBS Nominees Pte Ltd 10,000,000 4.26
9 HSBC (Singapore) Nominees Pte Ltd 8,948,000 3.81
10 Quek Meng Tong George 8,847,609 3.77
11 Merrill Lynch (Singapore) Pte Ltd 6,935,100 2.95
12 Oversea-Chinese Bank Nominees Private Limited 5,872,775 2.50
13 Morgan Stanley Asia (S’pore) Securities Pte Ltd 4,127,000 1.76
14 Chen Kuo Hua 3,223,100 1.37
15 Kim Eng Securities Pte. Ltd. 2,760,000 1.17
16 Pineapples of Malaya Private Limited 2,420,000 1.03
17 DBS Vickers Securities (S) Pte Ltd 2,404,000 1.02
18 Kusdianto Soewarno 1,930,000 0.82
19 Quak Bee Guat 1,353,000 0.58
20 Go Kun Heng 1,033,525 0.44
Total 209,257,959 89.08

Based on information available to the Company as at 19 March 2008, approximately 27.72% of the Company’s shares are held in the held in the hands of
public. Accordingly, the Company has complied with Rule 723 of the Listing Manual of SGX-ST.
114 BREADTALK ANNUAL REPORT 07

STATISTICS OF SHAREHOLDINGS
AS AT 19 MARCH 2008

SUBSTANTIAL SHAREHOLDERS
(As recorded in the Register of Substantial Shareholders as at 19 March 2008)

Name of Substantial Shareholders Direct Interest Deemed Interest


Number of Shares % Number of Shares %

1. George Quek Meng Tong (1) 79,440,384 33.82 43,550,850 18.54


2. Katherine Lee Lih Leng (1) 43,550,850 18.54 79,440,384 33.82
3. Chen Kuo Hua 12,443,100 5.30 - -
4. UBS AG (2) - - 21,279,000 9.05
5. Keywise Capital Management (HK) Ltd (holds in the name of 21,133,000 9.00 - -
(i) Keywise Greater China Master Fund; and (ii) Keywise Asia
Master Fund) (2)

(1) Katherine Lee Lih Leng is the spouse of George Quek Meng Tong. Saved as disclosed above, there are no family relationship among our Directors
and Substantial Shareholders.

(2) Positions held on behalf of prime brokerage clients which includes the 21,133,000 shares held by Keywise Capital Management (HK) Ltd.
BREADTALK ANNUAL REPORT 07 115

NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that the Annual General Meeting of BreadTalk Group Limited (“the Company”) will be held at 171 Kampong Ampat #05-05, KA FoodLink,
Singapore 368330 on Monday, 28 April 2008 at 10.00 a.m. for the following purposes:

AS ORDINARY BUSINESS

1. To receive and adopt the Directors’ Report and the Audited Financial Statements of the Company for the year ended 31 December 2007 together with the
Auditors’ Report thereon.
(Resolution 1)

2. To declare a first and final exempt (one-tier) dividend of 0.55 cent per share for the financial year ended 31 December 2007 (2006:0.42 cent)
(Resolution 2)

3. To re-elect the following Directors retiring pursuant to Article 104 of the Company’s Articles of Association:

Mr George Quek Meng Tong (Resolution 3)


Mr Chan Soo Sen (Resolution 4)

Mr Chan Soo Sen will, upon re-election as a Director of the Company, remain as the Chairman of the Remuneration Committee and a member of the
Audit Committee and Nominating Committee. Mr Chan will be considered independent for the purposes of Rule 704(8) of Listing Manual of the Singapore
Exchange Securities Trading Limited.

4. To approve the payment of Directors’ fees of S$96,250 for the year ended 31 December 2007 (2006: S$96,250). (Resolution 5)

5. To re-appoint Messrs Ernst & Young as the Company’s Auditors and to authorise the Directors to fix their remuneration. (Resolution 6)

6. To transact any other ordinary business which may properly be transacted at an Annual General Meeting.
116 BREADTALK ANNUAL REPORT 07

NOTICE OF ANNUAL GENERAL MEETING

AS SPECIAL BUSINESS

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

7. Authority to issue shares up to 50 per centum (50%) of the issued shares in the capital of the Company

That pursuant to Section 161 of the Companies Act, Cap. 50 and Rule 806 of the Listing Manual of the Singapore Exchange Securities Trading Limited, the
Directors of the Company be authorised and empowered to:

(a) (i) issue shares in the Company (“shares”) whether by way of rights, bonus or otherwise; and/or
(ii) make or grant offers, agreements or options (collectively, “Instruments”) that might or would require shares to be issued, including but not
limited to the creation and issue of (as well as adjustments to) options, warrants, debentures or other instruments convertible into shares,

at any time and upon such terms and conditions and for such purposes and to such persons as the Directors of the Company may in their absolute
discretion deem fit; and

(b) (notwithstanding the authority conferred by this Resolution may have ceased to be in force) issue shares in pursuance of any Instrument made or
granted by the Directors of the Company while this Resolution was in force,

provided that:

(1) the aggregate number of shares (including shares to be issued in pursuance of the Instruments, made or granted pursuant to this Resolution) and Instruments
to be issued pursuant to this Resolution shall not exceed fifty per centum (50%) of the total number of issued shares (excluding treasury shares) in the capital
of the Company (as calculated in accordance with sub-paragraph (2) below), of which the aggregate number of shares and Instruments to be issued other
than on a pro rata basis to existing shareholders of the Company shall not exceed twenty per centum (20%) of the total number of issued shares (excluding
treasury shares) in the capital of the Company (as calculated in accordance with sub-paragraph (2) below);

(2) (subject to such calculation as may be prescribed by the Singapore Exchange Securities Trading Limited) for the purpose of determining the aggregate
number of shares and Instruments that may be issued under sub-paragraph (1) above, the percentage of issued shares and Instruments shall be based on the
total number of issued shares (excluding treasury shares) in the capital of the Company at the time of the passing of this Resolution, after adjusting for:

(a) new shares arising from the conversion or exercise of the Instruments or any convertible securities;
(b) new shares arising from exercising share options or vesting of share awards outstanding and subsisting at the time of the passing of this Resolution;
and
(c) any subsequent bonus issue, consolidation or subdivision of shares;

(3) in exercising the authority conferred by this Resolution, the Company shall comply with the provisions of the Listing Manual of the Singapore Exchange
Securities Trading Limited for the time being in force (unless such compliance has been waived by the Singapore Exchange Securities Trading Limited) and
the Articles of Association of the Company; and

(4) unless revoked or varied by the Company in a general meeting, such authority shall continue in force (i) until the conclusion of the next Annual General
Meeting of the Company or the date by which the next Annual General Meeting of the Company is required by law to be held, whichever is earlier or (ii) in
the case of shares to be issued in pursuance of the Instruments, made or granted pursuant to this Resolution, until the issuance of such shares in accordance
with the terms of the Instruments.

[See Explanatory Note (i)] (Resolution 7)


BREADTALK ANNUAL REPORT 07 117

NOTICE OF ANNUAL GENERAL MEETING

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

That pursuant to Section 161 of the Companies Act, Cap. 50, the Directors of the Company be authorised and empowered to offer and grant options under
the BreadTalk Group Limited Employees’ Share Option Scheme (“the Scheme”) and to issue from time to time such number of shares in the capital of the
Company as may be required to be issued pursuant to the exercise of options granted by the Company under the Scheme, whether granted during the
subsistence of this authority or otherwise, provided always that the aggregate number of additional ordinary shares to be issued pursuant to the Scheme
shall not exceed fifteen per centum (15%) of the total number of issued shares (excluding treasury shares) in the capital of the Company from time to time
and that such authority shall, unless revoked or varied by the Company in a general meeting, continue in force until the conclusion of the next Annual
General Meeting of the Company or the date by which the next Annual General Meeting of the Company is required by law to be held, whichever is
earlier.

[See Explanatory Note (ii)] (Resolution 8)

9. Renewal of Share Purchase Mandate

That for the purposes of Sections 76C and 76E of the Companies Act, Cap. 50, the Directors of the Company be and are hereby authorised to make purchases
or otherwise acquire issued shares in the capital of the Company from time to time (whether by way of market purchases or off-market purchases on an
equal access scheme) of up to ten per centum (10%) of the total issued shares (excluding treasury shares) in the capital of the Company (as ascertained as at
the date of Annual General Meeting of the Company) at the price of up to but not exceeding the Maximum Price as defined in paragraph 3.4 of the Appendix
to the Annual Report to Shareholder dated 12 April 2008, in accordance with the Terms of the Share Purchase Mandate set out in the Appendix, and this
mandate shall, unless revoked or varied by the Company in general meeting, continue in force until the conclusion of the next Annual General Meeting of
the Company or the date by which the next Annual General Meeting of the Company is required by law to be held, whichever is earlier.

[See Explanatory Note (iii)] (Resolution 9)

By Order of the Board

Tan Cher Liang


Company Secretary
Singapore
12 April 2008
118 BREADTALK ANNUAL REPORT 07

NOTICE OF ANNUAL GENERAL MEETING

Explanatory Notes:

(i) The Ordinary Resolution 7 in item 7 above, if passed, will empower the Directors of the Company from the date of this Meeting until the date of the next
Annual General Meeting of the Company, or the date by which the next Annual General Meeting of the Company is required by law to be held or such
authority is varied or revoked by the Company in a general meeting, whichever is the earlier, to issue shares, make or grant instruments convertible into
shares and to issue shares pursuant to such instruments, up to a number not exceeding, in total, 50% of the total number of issued shares (excluding
treasury shares) in the capital of the Company, of which up to 20% may be issued other than on a pro-rata basis to existing shareholders of the Company.

For determining the aggregate number of shares that may be issued, the percentage of issued shares in the capital of the Company will be calculated based
on the total number of issued shares (excluding treasury shares) in the capital of the Company at the time this Ordinary Resolution is passed after adjusting
for new shares arising from the conversion or exercise of the Instruments or any convertible securities, the exercise of share options or the vesting of share
awards outstanding or subsisting at the time when this Ordinary Resolution is passed and any subsequent bonus issue, consolidation or subdivision of
shares.

(ii) The Ordinary Resolution 8 in item 8 above, if passed, will empower the Directors of the Company, from the date of this Meeting until the next Annual
General Meeting of the Company, or the date by which the next Annual General Meeting of the Company is required by law to be held or such authority is
varied or revoked by the Company in a general meeting, whichever is the earlier, to issue shares in the Company pursuant to the exercise of options granted
or to be granted under the Scheme up to a number not exceeding in total (for the entire duration of the Scheme) fifteen per centum (15%) of the total number
of issued shares (excluding treasury shares) in the capital of the Company from time to time.

(iii) The Ordinary Resolution 9 proposed in item 9 above, if passed, will empower the Directors of the Company from the date of the above Meeting until the next
Annual General Meeting of the Company or the date by which the next Annual General Meeting of the Company is required by law to be held, whichever
is the earlier, to repurchase ordinary shares of the Company by way of market purchases or off-market purchases of up to ten per centum (10%) of the
total number of issued shares (excluding treasury shares) in the capital of the Company at the Maximum Price as defined in Paragraph 3.4 to the Appendix.
The rationale for, the authority and limitation on, the sources of funds to be used for the purchase or acquisition including the amount of financing and the
financial effects of the purchase or acquisition of ordinary shares by the Company pursuant to the Share Purchase Mandate on the audited consolidated
financial accounts of the Group for the financial year ended 31 December 2007 are set out in greater detail in Paragraph 2.1 to the Appendix.

Notes:

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

2. The instrument appointing a proxy must be deposited at the Registered Office of the Company at 171 Kampong Ampat #05-05, KA FoodLink, Singapore
368330 not less than 48 hours before the time appointed for holding the Meeting.
BREADTALK ANNUAL REPORT 07 119

BREADTALK GROUP LIMITED IMPORTANT


Company Registration No. 200302045G 1. For investors who have used their CPF monies to buy BreadTalk Group
(Incorporated in Singapore) Limited’s shares, this Report is forwarded to them at the request of the CPF
Approved Nominees and is sent solely FOR INFORMATION ONLY.
2. This Proxy Form is not valid for use by CPF investors and shall be ineffective
for all intents and purposes if used or purported to be used by them.
PROXY FORM 3. CPF investors who wish to attend the Meeting as an observer must
submit their requests through their CPF Approved Nominees within the
(Please see notes overleaf before completing this Form)
time frame specified. If they also wish to vote, they must submit their
voting instructions to the CPF Approved Nominees within the time frame
specified to enable them to vote on their behalf.

I/We,

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

Name NRIC/Passport No. Proportion of Shareholdings


No. of Shares %
Address

and/or (delete as appropriate)


Name NRIC/Passport No. Proportion of Shareholdings
No. of Shares %
Address

or failing him/her, the Chairman of the Meeting as my/our proxy/proxies to vote for me/us on my/our behalf at the Annual General
Meeting (the “Meeting”) of the Company to be held on 28 April 2008 at 10.00 a.m. at 171 Kampong Ampat #05-05, KA FoodLink,
Singapore 368330 and at any adjournment thereof. I/We direct my/our proxy/proxies to vote for or against the Resolutions proposed
at the Meeting as indicated hereunder. If no specific direction as to voting is given or in the event of any other matter arising at the
Meeting and at any adjournment thereof, the proxy/proxies will vote or abstain from voting at his/her discretion. The authority herein
includes the right to demand or to join in demanding a poll and to vote on a poll.

(Please indicate your vote “For” or “Against” with a tick [√ ] within the box provided.)

No. Resolutions relating to: For Against


1 Directors’ Report and Audited Financial Statements for the year ended 31 December 2007.
2 Payment of proposed first & final exempt (one-tier) dividend.
3 Re-election of Mr George Quek Meng Tong as a Director.
4 Re-election of Mr Chan Soo Sen as a Director.
5 Approval of Directors’ fees amounting to S$96,250 for the year ended 31 December 2007.
6 Re-appointment of Messrs Ernst & Young as Auditors.
7 Authority to issue new shares.
Authority to allot and issue shares under the BreadTalk Group Limited Employees’ Share
8
Option Scheme.
9 Renewal of Share Purchase Mandate

Dated this day of 2008

Total number of Shares in: No. of Shares


(a) CDP Register
Signature of Shareholder(s)


(b) Register of Members


or, Common Seal of Corporate Shareholder
120 BREADTALK ANNUAL REPORT 07

Notes :

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

2. A member of the Company entitled to attend and vote at a meeting of the Company is entitled to appoint such number of proxies as required to
attend and vote in his/her stead. A proxy need not be a member of the Company.

3. Where a member appoints more than one proxy, the appointments shall be invalid unless he/she specifies the proportion of his/her shareholding to
be represented by each proxy. If no proportion or number of shares is specified, the first named proxy may be treated as representing 100% of the
shareholding and any second named proxy as an alternate to the first named.

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

5. The instrument appointing a proxy or proxies must be executed under the hand of the appointor or of his attorney duly authorised in writing. Where
the instrument appointing a proxy or proxies is executed by a corporation, it must be executed either under its seal or under the hand of an officer
or attorney duly authorised or in such manner as appropriate under applicable laws. Where the original instrument appointing a proxy or proxies is
executed by an attorney on behalf of the appointor, the original power of attorney or other authority, if any, under which the instrument of proxy is
signed or a duly certified copy of that power of attorney or other authority (failing previous registration with the Company) shall be attached to the
original instrument of proxy and must be left at the Registered Office, not less than forty-eight hours before the time appointed for the holding of
the Meeting or the adjourned Meeting at which it is to be used failing which the instrument may be treated as invalid.

6. A corporation which is a member may authorise by resolution of its directors or other governing body such person as it thinks fit to act as its
representative at the Meeting, in accordance with Section 179 of the Companies Act, Chapter 50 of Singapore. The Company shall be entitled
to treat an original certificate under the seal of the corporation as conclusive evidence of the appointment or revocation of appointment of a
representative.

General:

The Company shall be entitled to reject the instrument appointing a proxy or proxies if it is incomplete, improperly completed or illegible or where the
true intentions of the appointor are not ascertainable from the instructions of the appointor specified in the instrument appointing a proxy or proxies. In
addition, in the case of Shares entered in the Depository Register, the Company may reject any instrument appointing a proxy or proxies lodged if the
member, being the appointor, is not shown to have Shares entered against his name in the Depository Register as at 48 hours before the time appointed
for holding the Meeting, as certified by The Central Depository (Pte) Limited to the Company.
ANNUAL REPORT 2007

B R E A D TA L K
CONTENTS

G R O U P
Corporate Profile 1
Financial Highlights 2
Talking to Shareholders 4

L I M I T E D
Group Structure 6
ADDING
Brands that TALK
FLAVOUR - Bakery 9

A N N U A L
- Food Atrium 13
- Restaurant 17
Board of Directors 20

R E P O R T
Senior Management 22
Corporate Information 23
Corporate Governance 25

2 0 0 7
Financial Statements 38
Statistics of Shareholdings 113
Notice of Annual General Meeting 115
Proxy Form 119

BREADTALK GROUP LIMITED


171 Kampong Ampat
#05-01 to 06 KA FoodLink
Singapore 368330
Tel: (65) 6285 6116
Fax: (65) 6285 1661
Website: www.breadtalk.com
Email: enquiry@breadtalk.com

ANNUAL REPORT 2007