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With the recovery in the global and regional economies from the global financial crisis, our Directors expect the global demand for HVAC&R products to increase in tandem with the economic recovery in the next few years. The global demand for HVAC products is expected to increase by more than 6% per annum through 2014. In particular, the demand for HVAC products in the Asia Pacific region is expected to outpace the global average and increase by 6.6% per annum with the PRC contributing to the largest share of the global demand1. Similarly, our Directors believe that the growth potential in the refrigeration industry would augur well for our Group's business.

Based on the above, our Directors believe that, barring unforeseen circumstances, the following factors will drive our growth:-

Continual growth of the global and regional economies, in particular, that of the Asia Pacific region

The GDP of Asia Pacific, as a whole, is expected to grow by 7.3% in FY20112. With continued growth, modernisation and/or industrialisation, the per-capita income is also expected to increase, leading to growing consumer affluence and higher consumer spending power.

Our Directors believe that the above factors will lead to the growth and development of some key industries which typically have strong demand for HVAC&R products and services. These industries include property (residential and commercial), food and beverage, pharmaceutical as well as hospitality and tourism. In particular, our Directors expect the growth in tourism in the Asia Pacific countries will lead to an increase in the number of hotels as well as food and beverage outlets, thus resulting in higher demand for cold storage facilities.

With our current extensive sales and distribution network which covers many countries in the Asia Pacific, our Group is well positioned to tap the growth of the Asia Pacific region.

Growth in the frozen food market

With growing affluence, consumers are increasingly demanding on the quality of food in terms of freshness and nutritional value. The cold chain process, which involves the unbroken link of processing, handling, transport, storage, distribution and retail under chilling temperatures, ensures that food (in particular, fish and meat) is preserved in a manner that retains freshness, flavour and nutritional quality. In addition, freezing will kill or reduce many potentially harmful microbes which cause food poisoning, and extends the shelf life of food.

In 2009, the global and Asia Pacific frozen food markets grew by 3.9% and 5.0% respectively. By 2014, the global and Asia Pacific frozen food markets are forecasted to grow by 20.6% and 26.9% respectively from 20093.

Our Directors believe that the growth in the frozen food market will lead to an increase in the demand for our refrigeration products which cater to various applications in the cold chain process. With our comprehensive range of HVAC&R products and experience in this industry, our Directors believe that we have the capability to capitalise on the growth trend in the frozen food market.

Increased demand for HVAC products due to climate change

Our Directors observe that many countries have been experiencing abnormal weather patterns, including unusually hot temperatures as well as heat waves in many parts of the world due to global warming. With increasing temperatures, people need and seek comfortable temperatures, humidity as well as ventilation and circulation in their homes, offices, stores and factories. There is increasing demand for appropriate ventilation and cooling systems in both residential and non-residential buildings.

As a result, there will be an increasing demand for our HVAC products in the consumer and industry sectors, both regionally and globally.

Increased awareness of global warming

There is increased public awareness of global warming and its negative impact on the environment in recent years, and various nations are also making concerted efforts to address resulting environmental issues. Our Directors have observed that there is a growing trend where consumers are advocating bio-energy, alternative energy and environmentally friendly products that directly or indirectly reduce greenhouse emissions which is one of the key contributors to global warming.

In view of the above, suppliers of HVAC&R products are now more aware of the urgency and importance of introducing and implementing products that are more environmentally friendly. For instance, pursuant to the Montreal Protocol, the R-22 refrigerant (a non-environmentally friendly but widely used refrigerant throughout the world) is expected to be phased out by 2015, with R-410A and R-507 as viable alternative refrigerants for air-conditioning and refrigeration applications respectively. However, with the introduction of the R-410A and R-507 refrigerants, adjustments and alterations to current refrigeration and airconditioning systems and products are required to replace and/or retrofit those that are non-conforming.

Moving forward, our Directors believe that current HVAC&R products are expected to be re-engineered to be more environmentally friendly with the introduction of new regulatory codes and standards. We believe that the demand for re-engineered HVAC&R products and services will gradually increase in the future, replacing the current ones in the market.

Our continual research and development activities, focusing on developing more energy-efficient and environmentally friendly products in conjunction with our Green Program, should equip us with the competitive advantage to meet future market demands and expectations.

TREND INFORMATION AND ORDER BOOK

Our Directors have observed the following trends based on the sales and operations of our Group as at the Latest Practicable Date:-

  1. The demand for our products is expected to increase in FY2011, on the back of improving economic conditions, both regionally and globally.

  2. The unit costs of our agency products and raw materials (such as copper and aluminium) are expected to increase in FY2011. Such price increases may generally be passed on in the form of higher average selling prices to our customers, in particular, in the commercial and light industrial (refrigeration) and oil, marine and gas (refrigeration and air-conditioning) business segments.

  3. With increased competition in the residential and commercial (air-conditioning) business segment, generally more competitive product selling prices to our customers are expected in this business segment.

For the period from 1 January 2011 to the Latest Practicable Date, we have confirmed sales orders amounting to approximately S$17.4 million, of which S$13.6 million has been fulfilled as at the Latest Practicable Date. Our confirmed sales orders are usually fulfilled within a period ranging from one to five months. These confirmed sales orders are however subject to cancellation, deferral or rescheduling by our customers. As such, the state of our order books at any point in time is not fully reflective or indicative of our Group's overall financial results and performance at the relevant point in time.

Save as disclosed above and in the “Risk Factors” and the “Management's Discussion and Analysis of Results of Operations and Financial Position” sections of this Offer Document, and barring any unforeseen circumstances, our Directors are not aware of any significant recent trends in manufacturing, sales and inventory, and in the costs and selling prices of products and services, or other known trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on our net sales or revenue, profitability, liquidity or capital resources, or that would cause financial information disclosed in this Offer Document to be not necessarily indicative of our future operating results or financial position.

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Note:-

1 The information was derived from an article titled “Global HVAC market to hit US88bn in 2014”, obtained from the internet website of http://www.constructionweekonline.com, published by ITP Business Publishing Ltd, which was accessed on 4 May 2011. ITP Business Publishing Ltd has not consented for the inclusion of the above information in this Offer Document for the purposes of Secion 249 of the Securities and Futures Act and is therefore not liable for the relevant information under Sections 253 and 254 of the Securities and Futures Act. While our Directors have taken reasonable action to ensure that the information is extracted accurately and fairly and has been included in this Offer Document in its proper form and context, they have not independently verified the accuracy of the relevant information.

2 The information was derived from an article titled “Asia-Pacific region economic growth to reach 7.3% in 2011: UN report”, obtained from the internet website of Xinhua News Agency, which was accessed on 18 May 2011. Xinhua News Agency has not consented for the inclusion of the above information in this Offer Document for the purposes of Secion 249 of the Securities and Futures Act and is therefore not liable for the relevant information under Sections 253 and 254 of the Securities and Futures Act. While our Directors have taken reasonable action to ensure that the information is extracted accurately and fairly and has been included in this Offer Document in its proper form and context, they have not independently verified the accuracy of the relevant information.

3 The information was derived from the reports titled “Global Frozen Food” and “Frozen Food in Asia-Pacific” dated October 2010 published by Datamonitor. Datamonitor has not consented for the inclusion of the above information in this Offer Document for the purposes of Secion 249 of the Securities and Futures Act and is therefore not liable for the relevant information under Sections 253 and 254 of the Securities and Futures Act. While our Directors have taken reasonable action to ensure that the information is extracted accurately and fairly and has been included in this Offer Document in its proper form and context, they have not independently verified the accuracy of the relevant information.