Information Request

Online Q&A

MegaChem Limited

Management Online Q&A With Investors

Dear Investors,

Thank you very much for your questions and the opportunities to respond to them.

We hope you have a better understanding of our business through this online exchange.

Your questions are reposted in blue followed by our replies in black.

Rgds,
The Management Team
MegaChem Limited

1. Dear Jayster, you wrote:

The government has increased foreign labour levy substantially. What impact will it have on the profitability on the company? What measures has the company taken to increase productivity and reduce its reliance on foreign labour?

The increase in foreign workers level has an impact on our cost but not significant since we do not have many foreign workers. We will be exploring with the relevant government agencies to see how we can best utilise the various schemes available to us.

2. Dear Ah Huat, you wrote:

Oil price is surging on the back of political unrest in the middle east. The USD is devaluating. What impact will it have on the company?

Impact of Oil Price Increase

In general, the escalating oil price has both direct and indirect impact on the chemical industry at large.

When oil prices rise, costs for the raw materials used to make chemicals also increase.

Higher raw material costs affect companies that make basic chemicals or commonly known as the commodity chemicals most as the content of oil in such upstream products are high.

Not immune but slightly less susceptible to the pressures faced by commodity chemical companies, are companies that make specialty chemicals, which are more focused on targeted applications and markets. These are more downstream products whose oil content is smaller and their usage in finished products is also smaller.

As we are mainly in the specialty chemical business, the direct impact of rising oil prices on us is relatively less as compared to a commodity chemical company. This is evident in the fairly stable gross profit margin that we were able to maintain over the years.
The impact of higher oil price on end consumer demand will lead to reduction in chemical purchases by industries and manufacturers. This may translate into lower demand for our products.

Impact of Falling USD

We had been a net buyer of USD against SGD since purchases in USD is more than our sale in USD. A fall in USD in general is better for us. However we are also exposed to other currencies such as Euro, GBP. For FY2010, we had foreign exchange losses arising mainly from a fall in the Vietnamese Dong which suffered 2 devaluations in FY2010.

Given the increasing currency volatility, we will continue to be vigilant in managing our currency exposure by adopting a prudent hedging policy.

3. Dear Steven Lui, you wrote:

Has the company considered a secondary listing in Taiwan or Hong Kong? The company is expanding very slowly via organic growth. Any acquisition plans going forward?

From our observations companies that had secondary listing in Taiwan did well initially but interest in them faded away after a while. As we do not have business in Taiwan or Hongkong, there is currently no plan to seek a secondary listing there.

4. Dear David Tay, you wrote:

China and Korea seems to be growing very nicely in terms of revenue for the company. Any plans to expand on that?

We have a subsidiary in Shanghai and a branch office in Beijing. At the beginning its primary business was to import chemical materials and sell them in China. Over the past few years chemicals made in China had increasingly gained acceptance in the world markets. We have therefore started exporting chemicals from China to other markets. Our China presence now forms an important part of our global sourcing network and will act as a key sourcing arm for the Group in the future.

5. Dear Alvin Koh, you wrote:

You announced the company has successfully implemented a business continuity management program and has achieved the SS540 Singapore Standards for Business Continuity Management certification. Can you explain what is the program and certification is all about? What value does it add to the business?

Business Continuity Management, BCM in short, is a holistic management process that identifies potential impacts that threaten an organisation and provides a framework for building resilience and the capability for an effective response that safeguards the interests of its key stakeholders, reputation, brand and value creating activities.

Singapore Standard SS 540: 2008 is a BCM standard and is applicable to all organisations in all sectors. It allows potential gaps to be identified, and specifies the requirements for an organisation to build competence and readiness to respond to and recover from events which threaten to disrupt normal business operations.

BCM adds value to our business in the following ways :

enables us to be recognised as a reliable and sustainable business partner
enhances our business reputation and consumer confidence
protects our assets and the business infrastructure
maintains our operations and minimises financial impact during crises

Dear Investors,

Thank you for all your questions and your interest in MegaChem Limited. We have come to the end of this Q&A session.

We have enjoyed the session and have learnt much from your questions. We hope that through this Q&A, you have gained better insights to our Company and our operations.

Rgds,
The Management Team
MegaChem Limited

This announcement has been prepared by the Company and the contents have been reviewed by the Company's Sponsor, SAC Capital Private Limited, for compliance with the relevant rules of the Singapore Exchange Securities Trading Limited ("Exchange").The Company's Sponsor has not independently verified the contents of this announcement.

This announcement has not been examined or approved by the Exchange and the Exchange assumes no responsibility for the contents of this announcement, including the correctness of any of the statements or opinions made or reports contained in this announcement.

The contact person for the Sponsor is Mr Bernard Lim (tel : (65) 6221 5590) at 79 Anson Road, #15-03 Singapore 079906.