CEO's message

Dear Shareholders,

On behalf of Transcu Group Limited ("Transcu" or collectively with its subsidiaries, the "Group"), I am pleased to present the Group's annual report for the financial year ended 31 March 2011 ("FY2011").

FY2011 has been an eventful year for the Group as we achieved significant milestones during the year. In September 2010, we achieved a technological breakthrough by launching our first cosmetics product that uses our proprietary Ionic Passive® technology developed by our pharmaceutical R&D team. Subsequently in February 2011, we made significant progress in our Green Technology business as we moved into the commercialisation phase of the Nano-Emulsion Fuel System ("NEFS").

Financially, the Group is on a steady track of recovery in FY2011, gaining momentum with year-on-year improvement in revenue of 35.1% to US$11.1 million. The restructuring plan implemented in the fourth quarter of the financial year ended 31 March 2010 ("FY2010") to achieve a leaner cost structure and more efficient operations has also paid off, resulting in sharp reduction in operating expenses year-on-year.

Our Businesses

Our business strategy to capitalise on our multiple revenue platforms to sustain the Group's business growth remains unchanged. Our pharmaceutical business continues to be the Group's core business. As our pharmaceutical business requires longer gestation period, our cosmetics and green technology businesses will provide short- and medium-term revenues to the company.

Pharmaceutical Business

For the Group's pharmaceutical business in the proprietary Transdermal Drug Delivery System ("T-DDS"), restructuring is underway in both USA and Japan to realign our strategic direction and to improve cost management. Negotiations with prospective licensees in relation to licensing agreements for T-DDS remain active. In 2007, we signed a licensing agreement with a major pharmaceutical company to collaborate in developing a new drug delivery device, applying our Ionic Passive® technology to the active ingredient of the pharmaceutical company. The pre-clinical test for this device has been completed and the Phase 1 clinical trial has started. When successful, Transcu will receive fees from this company at each milestone during the development phase.

Cosmetics Business

We market our cosmetics skincare line for women and men under the Electore and giulianoFujiwara Electore brands respectively. With our continuous promotion and advertising activities, the recognition rate of our cosmetic skincare products has been increasing steadily in Japan. Starting July 2010, in addition to our traditional sales channels including mail and website orders, call centre and television shopping channels, we have expanded our sales and distribution network in Japan to retail outlets including a duty free outlet in Narita International Airport, departmental stores like Sogo, Seibu and large supermarket chains like Ito Yokado. As at March 2011, our distribution network spans across 424 locations in Japan.

We achieved a technological breakthrough in September 2010 with the official launch of our first cosmetics product, IP SERUM, an anti-wrinkle essence, which uses our proprietary Ionic Passive® technology. Our IP WHITENING, a cosmeceutical whitening essence which uses the same technology, was launched six months later. This Ionic Passive® technology resolves the conventional problem of effectively delivering water-soluble ingredients into the skin by focusing on the difference of electric potential between the skin surface and inner skin. IP WHITENING, containing 3-O-ETHYL ASCORBIC ACID as active ingredient, is the first product in the Electore line approved as "quasi-drug" in accordance with the Pharmaceutical Affairs Law of Japan. This approval allows us to advertise the pharmacological effects of the product within approved scope.

Going forward, the focus is on the launch of a cosmetic range targeted at the mass market, to be distributed by one of the most successful multimedia marketing companies in Japan. Leveraging on our ability to apply our proprietary technology to our cosmetics products, we also aim to create the next generation of our cosmetics products with even higher efficacy.

Green Technology Business

The Group's green technology business has three divisions, namely Nano-Emulsion Fuel technology, Renewable Energy technology and Thermal Solutions technology.

We own the exclusive global rights under a distributorship agreement with our joint venture partner, Nanomizer Inc. ("Nanomizer"), to market Nano-Emulsion Fuel Systems ("NEFS"), a technology that reduces greenhouse gas emissions and improves fuel combustion efficiency. In January 2011, Nanomizer successfully concluded a Joint Research Agreement with Nippon Kaiji Kyokai ("ClassNK"), a prominent international ship classification society in Japan, and Universal Shipbuilding Corporation ("Universal"), a major shipping company in Japan. Under this Agreement, the parties will perform a one-year feasibility study to evaluate and confirm the performance of the NEFS onboard a shipping vessel under actual sea conditions. This prestigious recognition from ClassNK, when obtained, will potentially serve as a standard for the usage of emulsified fuel with marine vessels.

A significant milestone was achieved in February 2011 as we moved into the commercialisation stage of our NEFS with our first sales order for an aluminum smelting plant in Japan. This is a momentous step for us, opening the doors to more sales opportunities. Moving forward, we will intensify the marketing efforts for NEFS by expanding the distribution network both in Japan and globally, and accelerate our efforts to introduce it to other industries including land-based applications and engines manufacturers.

For our Renewable Energy technology, Nanomizer has in November 2010 signed an outsourcing agreement with New Energy and Industrial Technology Development Organization ("NEDO"), Japan's largest public management organisation promoting Research & Development ("R&D") as well as deployment of industrial, energy and environmental technologies, to undertake the development of a new type of bio-fuel using crude palm oil. Under this agreement, NEDO will fund the R&D expenses of up to 50 million yen over a period of one year. When the project is successful, Transcu's subsidiary, Transcu Green Fuel Pte. Ltd. will have the distribution rights for this system and the related products globally. Separately, Transcu, through its subsidiary, Biomass Energy Corporation, will continue to explore and develop novel technologies to create fuel using inedible and inexhaustible biomass so as not to damage the planet or deplete vital food stocks.

For our Thermal Solutions division, Transcu is the sole global distributor of the products of Advanced Materials Technologies Inc. ("AMT") outside of Japan. AMT is a manufacturer of ceramics and metal compound materials, having developed an advanced themolytic material that have properties of higher heat dissipation efficiency. In February 2011, AMT concluded a sales order of LED lighting equipment from the largest telecommunication group in Japan, NTT Group, helping to increase the marketability and market acceptance of the advanced thermolytic material used in the LED lighting equipment. Leveraging on this momentum, we will continue to explore business opportunities to distribute LED lighting equipment and application of the advanced themolytic material for other heat dissipation usage to countries outside of Japan.

Financial Overview

In 3QFY2011, we undertook a non-renounceable underwritten rights issue with warrants. As at the close of the exercise, valid acceptances and excess applications for a total of 2,472.7 million rights shares with 2,472.7 million warrants were received, representing approximately 341.5% of the total number of rights shares with warrants available under this exercise. Net proceeds of approximately US$10.2 million raised were used to reduce borrowings and for general working capital purposes.

For FY2011, the Group is on a steady track of recovery, gaining momentum with year-on-year improvement in the financial performance. The Group's revenue increased by 35.1% from approximately US$8.2 million in FY2010 to US$11.1 million in FY2011. This was mainly attributable to increased revenue from the cosmetics business, due to the increased recognition of the products, as a result of the branding and advertising activities carried out in FY2010.

Through our restructuring efforts to achieve a leaner cost structure and more efficient operations in 4QFY2010, our operating expenses for R&D, selling and administration for FY2011 have also reduced sharply by approximately 28.2%, compared to the previous financial year.

As we seek new growth in the various businesses, we will continue to monitor and optimise our resource deployment as well as streamline our operations to achieve higher cost efficiency.

Moving forward

We have witnessed milestone developments in FY2011 for our three different business segments, particularly those in the green technology business, with strong endorsement from third parties in our technologies. For the new financial year, besides expecting growth from our cosmetics business, we expect our green technology business to be an additional revenue driver for the Group. We continue to aim to achieve both technological and performance breakthroughs, towards our mission of enhancing quality of life through technology.

The Board and I would like to express our heartfelt thanks and gratitude for the contributions of Mr Lim Kok Hoong, Mrs Lee Suet Fern and Mr Lim Ho Kee, who retired as Independent Directors during the year, and extend a warm welcome to Mr Wang Nan Chee, Mr Teo Lai Wah Timothy and Mr Leong Mun Wai who joined the board as Independent Directors. I would also like to convey my appreciation to our shareholders, strategic partners, staff and associates, customers and other stakeholders for their invaluable support to the Group.

Akihiko Matsumura
Chief Executive Officer