Annual Report - Hyfluxinvestors.hyflux.com/Annual_Reports/HyfluxAR2000.pdfMISSION STATEMENT The...

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MISSION STATEMENT

The Group’s mission is to “achieve superior financial returns for its shareholders” by providing world class solutions to customers in the regionalmarket in water treatment and membrane applications.

This mission statement spells out why the Group exists and what it is committed to accomplish in the long term, through efforts and resourcefulnessof its employees.

The Group’s mission focuses on returns to shareholders and not to other stakeholders such as employees and the community. Shareholders putup the capital to form the Group, thus enabling others to have stakes in the Group. By giving superior financial returns to our shareholders, weensure they continue to invest in the Group.

VALUES

The Group subscribes to a core set of values that it believes will distinguish it from and will give it the edge over its competitors. Accordingly thesecore values should be our guiding principles in our interactions with each other and with external parties.

Every employee of the Group is expected to embrace these core values, which are to:

a) render exemplary service to our customersb) conduct oneself ethically and with integrityc) contribute to a safe and healthy working environmentd) respect one anothere) communicate openly, honestly and sensitivelyf) be a team playerg) seek continuous improvement in oneself and others

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A Watershed Year

Year 2000 was a watershed year for the Group.

The Group attained several milestones during 2000 that will serve to anchor the Group for sustained growth in the future. These included thefollowing:

1. The incorporation of Hyflux and the receipt of approval in-principle to list its shares on the Singapore Exchange;

2. The acquisition of our own corporate building largely from our own resources;

3. The first commercial application of our membrane filtration system developed and manufactured in-house;

4. The good growth in sales, operating margins and profits.

Going Public

In preparation for our tapping the capital market to enlarge our share capital base, we formed Hyflux in March 2000 to be the holding companyof the Group. Hyflux Ltd received a capital injection of $2.4 million each from DBS Capital Investments Ltd and Gimmill Industrial Pte Ltd in June2000, giving each a 10% equity interest in the Company. In December 2000, Hyflux’s application to list its shares on the Singapore Exchange wasapproved in-principle. We launched our initial public offer of its shares in January 2001, thereby becoming the first water treatment company tobe floated on the local bourse and the first IPO in Singapore in the new millennium.

Building for the Future

During the year, we continued to build our core competencies and our performance record. This was recognized by our customers who respondedby awarding us bigger and more demanding projects, particularly in the higher end microelectronics and the pharmaceuticals industries, our

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niche market segments. As our two former rented premises at Kaki Bukit Industrial Estate were grossly lacking in space and in facilities to satisfy the more stringentrequirements of these MNC customers, we bought a larger leasehold property at 40 Changi South Street 1 for $2.8 million to be our corporate HQ. This facility houses ourproduction facilities, fabrication workshop, R & D laboratory and administrative office.

First-Fruit of our R & D Effort

In 2000, we harvested the first-fruit of our research and development effort with the first commercial application of our membrane. The water recycling plant we designedand built for Jurong BirdPark uses a hybrid membrane filtration system we developed with grants from the National Science and Technology Board and manufactured at ournew facilities at Changi South. Indeed we fabricated about 80% of this plant in-house. With the commissioning of this water conservation project, Jurong BirdPark holds thedistinction of being the first zoological institution in the world to recycle treated water for use by its live exhibits.

Encouraging Maiden Results

In 2000, sales tripled to over $20.7 million from $6.9 million in 1999, outperforming our budget of $20.1 million. Most of the increases were in sales to the electronics and thepharmaceuticals industries that together accounted for 90% of turnover as against 66% in 1999. Singapore and China continued to be our largest markets, representingbetween 94% and 95% of our sales in the 2 years under review.

We stepped up fabrication of more of the critical components used in our products. Thus our customers enjoyed the triple benefits of having their plants built with highquality, customized components with a shorter delivery lead-time and at prices that are more competitive; on our part, we were able to squeeze out cost savings that helpedto improve our margin. To extract further economy of scale from our operation, we tightened spending on our overhead. These and other initiatives resulted in our operatingmargin rising to 41% from 6% in the previous year. Our profit after tax of $6.4 million met our profit after tax forecast in the IPO prospectus.

The Board of Directors is pleased to recommend a final dividend of 0.5 cent a share less tax at 24.5% for the financial year ended 31 December 2000 to be payable in cashon 20 June 2001 to members as at book closure on 5 June 2001.

Strategies for Sustainable Growth

Our strategies centering on our critical success areas are as follows:

1. Focusing on high-value industries and bigger dollar projects

Leveraging on our proven record, we will continue to target the high-growth, high-value pharmaceutical and biotechnology industries. At the same time, our enhancedcapital base will enable us to pursue even bigger dollar value projects, including the municipal water treatment jobs. This may be undertaken in alliance with strategicpartners. We foresee China to be a growing market for us and will intensify our marketing effort there by setting up sales and servicing hubs in southern and innorthern China to support our Shanghai operation.

2. Strengthening our technological base

We shall seek to keep our portfolio of membrane technology at the cutting edge both through in-house applied research and external acquisition of emerging,synergistic technologies, thus enabling us to continue to provide innovative, cost effective solutions to our customers.

3. Growing our delivery capability

To position us to service the larger and more technically demanding projects, we shall be expanding and modernizing our production facilities in both Singapore andChina. Simultaneously we shall be upgrading our workforce to attain world-class calibre through an integrated programme of competency training, performance-

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linked compensation and the induction of outside talents.

4. Sharpening our value offering

With the predicted slowdown in the US economy in 2001, we anticipate international players from the US and Europe to step up their forays into our markets in Asia.This will lead to stiffer competition and greater pressure on our margin. To defend our market share, we shall leverage on our low-cost producer advantage to offer ourleading edge products and services to our discerning customers at even more competitive prices.

Outlook

We started the New Year with an order book of about $5 million. As at end of March 2001, our order book stands at about $11 million. As part of our ongoing collaboration withcustomers and research bodies, we will be participating with the Environmental Technology Institute in a study to evaluate the effectiveness of various proposed methods andtechnologies to treat the liquid waste stream from the production facilities of GlaxoSmithKline in Singapore.

2001 ushers in a challenging yet promising beginning to the new millennium. Our target markets in South-east Asia and in China are forecast to grow at between 5% and 15%a year on average for the foreseeable future. While competition in this budding market is expected to hot up, I am optimistic that, with our solid fundamentals, we will be ableto continue to grow our business and to create value for our shareholders.

On behalf of the Board, I wish to thank our employees for their dedication and commitment in driving the Group towards achieving the several high watermarks. We are alsograteful to our shareholders and our business partners for their continuing support, especially as we embark on a new phase in the Group’s development.

Ms Olivia Lum Ooi Lin

CEO and Managing Director

Hyflux Ltd

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MS OLIVIA LUM OOI LINCEO AND MANAGING DIRECTOR

DR DEIRDRE MURUGASUEXECUTIVE DIRECTOR

MR FOO HEE KIANGEXECUTIVE DIRECTOR

MR TEO KIANG KOKINDEPENDENT DIRECTOR

MR LEE JOO HAIINDEPENDENT DIRECTOR

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Ms Lum Ooi Lin Olivia, CEO and Managing Director

Ms Lum founded the Group in 1989 and has been the main

driving force behind the Group’s growth and expansion,

responsible for the overall strategic planning, policies and

corporate direction. Prior to that, Ms Lum was a chemist

with Glaxo Pharmaceuticals Pte Ltd for three years. She

holds a Bachelor of Science (Hons) degree from the

National University of Singapore.

Dr Deirdre Murugasu, Executive Director

Business Development Director of the Group, Dr Murugasu is involved in the

development, application and marketing of the Group’s products and services.

Before that, she was a senior doctor with the Ministry of Health specialising in

family medicine. Dr Murugasu holds a Master of Medicine (Family Medicine)

from the National University of Singapore.

Mr Foo Hee Kiang, Executive Director

The Sales Director of the Group, Mr Foo was a

Sales Manager with Multico System Engineers Pte Ltd

from 1990 to 1998. Mr Foo graduated with a Bachelor

of Engineering degree from the National University of

Singapore.

Mr Teo Kiang Kok

Appointed as an Independent Director in December 2000, Mr Teo is a senior partner

of Shook Lin & Bok and currently heads the corporate finance and China practice

groups.

Mr Lee Joo Hai

An Independent Director since December 2000, Mr Lee currently works as a partner

in a public accounting firm in Singapore. He is a Certified Public Accountant of Singa-

pore and a member of the Institute of Chartered Accountants in England and Wales.

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COMPANY PROFILE

Started out in 1989, we are today a water treatment specialist providing state-of-the-art integrated treatment systems for advanced water

treatment and membrane filtration.

With offices in Singapore and PRC and 133 employees, we count ourselves as one of the leaders in membrane technologies servicing multina-

tionals across diverse industries such as electronics, pharmaceuticals and biotechnology.

We are proud to be the first company in the water treatment industry to list on the Singapore Exchange on January 17, 2001.

OUR BUSINESS

We provide one-stop shop services to our customers in the design, fabrication, installation, commissioning and maintenance of treatment

systems, utilising membrane filtration technology.

• Water Purification

This involves the purification of raw water from various sources (such as river water, sea water, well water, rainwater, etc) to water for

consumption and even ultra-pure water for industries like electronics, pharmaceuticals and biotechnology.

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• Wastewater Treatment

Treatment plants are built to process the wastewater

of industries to allowable discharge standards set by

the relevant regulatory authorities in the respective

countries in which Hyflux serves. We also review our

customers’ water streams and recommend ways to

minimise waste effluent and the number of subsequent

treatments.

• Water Recycling

Water recycling is the recovery of water for reuse. For companies that use

substantial volumes of water, our water treatment systems assist our customers

to recycle their wastewater. Depending on the characteristics of the wastewater,

we can recover between 50% and 90% of the wastewater for reuse.

• Advanced Membrane Filtration

We utilise advanced membrane technology to recover

or purify certain products (such as antibiotics, Vitamin

C, dyes, urea) in process streams. Membrane filtration

involves four physical separation processes: purification,

recovery, concentration and fractionation. We will select

the appropriate types of membranes depending on the

needs of customers. Currently, the Group is able to manufacture some of the

membranes used in our advanced membrane filtration plants.

• High Purity Piping Systems and Equipment Hook-up

We design, engineer and install high-purity piping systems to convey extremely

pure products such as water, gases and chemicals required, to the production

area. Advanced production equipment and machinery employed in the

microelectronics and pharmaceutical manufacturing processes require the supply

of several types of services such as compressed air, specialty gases, cooling

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water, ultra-pure water and vacuum for their operations. Proper hooking-up between the distribution piping and the equipment is crucial to guarantee optimised functions.

In a move to uphold our competitive position and prepare ourselves to take advantage of the growing trend towards water recycling and conservation, we are constantly

enhancing our R&D capabilities that enable us to develop more proprietary membranes and improve performance in existing membranes.

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BOARD OF DIRECTORS

Ms Lum Ooi Lin Olivia (CEO and Managing Director)

Dr Deirdre Murugasu (Executive Director)

Mr Foo Hee Kiang (Executive Director)

Mr Teo Kiang Kok (Independent Director)

Mr Lee Joo Hai (Independent Director)

COMPANY SECRETARY

Mr Lim Kim Seng ( Appointed on 16 January 2001 )

AUDIT COMMITTEE

Mr Lee Joo Hai (Chairman)

Mr Teo Kiang Kok

Ms Lum Ooi Lin Olivia

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BANKER

The Development Bank of Singapore Ltd

6 Shenton Way

DBS Building Tower One

Singapore 068809

REGISTERED OFFICE

40 Changi South Street 1

Singapore 486764

SHARE REGISTRAR AND SHARE TRANSFER OFFICE

Lim Associates (Pte) Ltd

10 Collyer Quay #19-08

Ocean Building

Singapore 049315

AUDITORS

Arthur Andersen

Certified Public Accountants

10 Hoe Chiang Road #18-00

Keppel Towers

Singapore 089315

PARTNER-IN-CHARGE

Mr Max Loh Khum Whai

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GROUP STRUCTURE

Subsidiaries

The details of our Company’s subsidiaries are as follows: -

Name of company Date and place of Issued and paid-up capital Effective interest owned Principal business owned byincorporation by the Group the Group

Hydrochem (S) Pte Ltd 30 Jun 1989 $800,000 100% Manufacturing, processing and dealing inRepublic of Singapore water treatment equipment and turnkey

engineering installation of industrial equipmentand machines and other related activities

Hydrochem Engineering 9 Mar 1994(S) Pte Ltd Republic of Singapore $1,100,500 100% Consulting in the installation of equipment

for chemical processing, application ofchemicals and chemical preparation forcommercial or industrial use and wholesale ofchemical and fabricated products.

Hydrochem Engineering 24 Nov 1994 US$420,000 100% Development, manufacture of equipment and parts(Shanghai)Co.,Ltd. PRC primarily for membrane filtration technology, sale

of manufactured equipment and ancillary parts,provision of installation and commissioning ofrelevant projects and provision of technical servicesand consultation

Hyflux Engineering Pte Ltd 18 Nov 2000 $2.00 100% Operating of water and liquid treatment plants and Republic of Singapore sale of treated water

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Our Group structure is as shown below: -

Hyflux Ltd

100% 100% 100%

Hydrochem (S) Pte Ltd Hyflux Engineering Pte Ltd Hydrochem Engineering (S) Pte Ltd

100%

Hydrochem Engineering (Shanghai) Co., Ltd

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REVIEW OF OPERATIONS(Based on proforma results in pages 62, 63)

Overview

Operational highlights of the Group in 2000 were as follows:

1. We met our operating budget for the year;

2. Our year-end order book stood at $5 million against $2 million in 1999; and

3. Our year-end headcount increased to 133 from 81 in 1999.

Sales and Marketing Review

In 2000, we began to reap the benefits of years of proving our performance in smaller projects and in pilot plant testing, especially in the pharmaceutical and the electronicsindustries. As a result, sales to end-users in these two industries were up by 340% and 281% year-on-year to $10.1 million and $8.7 million respectively. Some of the majorprojects in 2000 were as follows:

Singapore Industry

Wyeth Pharmaceuticals (Singapore) Pte Ltd Pharmaceuticals

EPCOS Pte Ltd Electronics

Compass Technology Singapore Pte Ltd Electronics

FCI Singapore Pte Ltd Electronics

Hewlett-Packard Singapore Pte Ltd Electronics

Jurong BirdPark Others

China

China BBCA Biochemical Group Corp Pharmaceuticals

Amway (China) Co., Limited Pharmaceuticals

Gultech (Suzhou) Electronics Co., Ltd Electronics

Shanghai Guangdian Liquid Crystal Display Co., Ltd. Electronics

Ramatex Industrial (Suzhou) Ltd Textile

Malaysia

Malayan Sugar Manufacturing Co. Bhd Food

Flextronics (M) Sdn Bhd Electronics

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Our primary markets continued to be Singapore and China representing 52% and 41% respectively of our turnover. Other countries included Malaysia and Indonesia.

We ended the year with an order book of about $5 million. This excluded a build, operate and transfer contract with a Singapore customer, our first BOT project.

Production Facilities

In October 2000, we began production at our new premises at 40 Changi South Street 1 with a built-in area of about 1,580 sq metres. Our new facility has advancedequipment to carry out in-house membrane manufacturing and fabrication and assembly of water treatment plants and testing operations. We also undertake in-housemanufacturing of plant components and pilot plant testing at this new facility.

Financial Review

Sales rose from $6.9 million in 1999 to $20.7 million in 2000, exceeding our budget of $20.1 million. Sales were buoyed by strong flows of projects from the pharmaceuticaland the electronics industries as shown in the table below:

While turnover tripled in 2000, costs and expenses were up by only 88% to $12.6 million from $6.7 million in 1999. As a percentage of sales, direct materials cost constituted32% as compared to 50% in 1999. This was helped by more in-house fabrication of the critical components used in building our plants.

The next largest single cost was labour cost. We expanded our workforce in 2000 (please see ‘Organization’ on page 17) to handle the bigger volume of business and theincreased manufacturing activities. This lifted labour cost (including contract labour) by 148% to $2.7 million from $1.1 million in 1999.

Research and development continued to feature strategically in our operation as reflected in the 60% rise in spending to $621,000 in 2000 from $387,000 in 1999.

The net effect was an improvement in profit after tax from $79,000 in 1999 to $6.4 million in 2000. This was in line with the profit after tax estimate in our IPO.

We finished the year with a healthy working capital of $4.9 million compared to ($12,000) a year ago due to increases in trade debtors and work-in-progress as a result ofhigher sales. Our gearing (ratio of interest-bearing long-term debt to shareholders’ fund) was close to zero at year-end. Buoyed by investments from DBS Capital InvestmentsLtd and Gimmill Industrial (Pte) Ltd and retained profits, shareholders’ fund rose from $310,000 a year ago to $9.1 million as at 31 December 2000.

($’000) Pharmaceutical Electronics Other Industries Total

2000 1999 2000 1999 2000 1999 2000 1999

Singapore 5,496 - 5,075 2,044 345 406 10,916 2,450

China 4,629 2,301 3,322 233 635 1,613 8,586 4,147

Others - - 273 - 984 332 1,257 332

Total 10,125 2,301 8,670 2,277 1,964 2,351 20,759 6,929

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Organization

The staff strength of the Group as at 31 December was as follows:

Number of Employees 2000 1999

Singapore 84 39

China 49 36

Total 133 75

The biggest addition to our Singapore workforce was in our engineering and production personnel, rising from 26 in 1999 to 59 in 2000.

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SINGAPORE

VTS Batteries Electronics• recycling of hot water

Siemens Matsushita Components Pte Ltd Electronics• DI water production, wastewater treatment, recycling

and chemical delivery system

Hewlett Packard Singapore Pte Ltd Electronics

• further upgrading of DI water

FCI Singapore Pte Ltd Electronics

• DI water production and wastewater treatment system

Jurong BirdPark Theme Park• recycling of sewage water

EPCOS (S) Pte Ltd Electronics• DI water production and wastewater treatment system

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PRC

Shanghai Sunve Pharmaceutical Ltd Pharmaceutical• removal of protein from fermentation broth

Hyundai Electronics (Shanghai) Co Ltd Electronics• DI water production

Amway (China) Co., Limited Pharmaceutical• DI water (USP grade) production

Shanghai Liquid Crystal Co. Ltd Electronics• DI water production

Gultech Suzhou Electronics Co Ltd of China Electronics• pure water production

China BBCA Biochemical Group Corp of China Pharmaceutical• membrane separation of fermentation products

MALAYSIA

Ramatex Textiles Industrial Sdn Bhd Textile• river water treatment system

Flextronics (M) Sdn Bhd Electronics• DI water treatment

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THE MAKING OF HYFLUX WATER TREATMENT SYSTEM

Design

We first clarify on the specifications and requirements from our customer to better understand

their needs. Process and design engineers will proceed to produce a detailed diagram which

will be cleared internally before presenting to our customers. Upon approval, the layout of the

systems and construction drawings of the necessary components to be fabricated will be drawn

out accordingly.

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Procurement

Our purchasing department will obtain quotes from at least three vendors on the relevant com-

ponents and equipment for assessment and evaluation based on appropriateness, cost-com-

petitiveness, delivery, quality and after-sales support. Once the goods are delivered from the

selected vendor, we will carry out visual inspection to ensure the quality of the delivered goods.

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Fabrication and Assembly

For the fabrication of the components in-house, a timetable and construction sequence will be drawn out

for manpower and resource allocation. To ensure zero defects, we conduct regular inspection either by

visual inspection or non-destructive testing such as X-rays and dye penetrant tests. We will further con-

duct a pre-delivery inspection before we deliver the assembled equipment to site.

Installation

Our project manager will carry out a site survey, after which, an installation team will put together all the

equipment, piping, electrical and pneumatic connections. A round of inspection will be conducted to rectify

defects, if any, before the actual commissioning of the plant.

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Testing and Commissioning

Each equipment will be first tested on the mechanical, electrical, instrumentation and process perform-

ances before the whole plant is tested. Upon the successful testing and commissioning of the plant, we

will conduct training for the customer in the operation and maintenance of the plant.

Service and Maintenance

All our water systems have a one-year warranty. We conduct regular visits to ensure the smooth-running

of the plant. After the first year, we also provide different levels of maintenance and servicing work as

required by our customers, using a Supervisory Control and Data Application system, which allows

remote monitoring and troubleshooting of the plant.

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Overview

Looking at a macro perspective of the world’s water situation, 97.5% of all water on earth is salt water. Of the remaining 2.5% fresh water left, 70% is frozen in the polar icecaps

while the rest of the 30% is mostly present as soil moisture or lies buried in underground aquifers. That leaves less than 1% of the world’s fresh water supplies for human

consumption.

According to the World Health Organisation, one billion of the world’s population still lack access to safe

drinking water. A “freshwater crisis” is anticipated to arise in the first few decades of this millennium due to

pollution and over-exploitation of fresh water supplies. Aggravating the situation are factors such as rapid

population growth, urbanisation, global climate changes and degradation of natural purification capabilities.

Consequently, the need to treat poor quality water efficiently has become all the more pressing.

Water Treatment Business

Water conservation has become a pressing concern in many industrialised countries as water consumption

is outstripping fresh water availability. Locally, water consumption has been growing annually by 4.6% over the past decade. However, with the manufacturing sector growing at

a faster rate of 7.3% a year, added stress will be put on Singapore’s limited water sources. As a result, the market for water conservation and recycling systems is projected to

expand by 10% to 15% annually over the next three years, and by 20% to 25% annually in the longer term. Currently, the present market size of water purification systems is

estimated at US$330 million.

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In PRC, water consumption is growing at an annual rate of 5%. With the

brisk pace of industrial development, the shortage of potable water will

further intensify demand for water treatment systems in the country. What

we will have is a huge untapped market for efficient and low-cost water

recycling technologies where Hyflux is well positioned to set the trend

and lead the water treatment business in this region.

Advanced Membrane Technology

According to a study by an industrial market research firm, Freedonia Group, demand for membrane

materials in the US totalled US$1.2 billion in 1999 and is projected to grow by 7.8% per annum to US$1.8

billion in 2004. The expanding use of membrane in food processing, medical applications and on-going

development of new uses in hazardous waste remediation, air pollution control and radioactive wastewater

testing and treatment will drive consumption further. Currently, Asia’s demand for membrane is largely

met by the US producers. This limited access bodes well for us and provides opportunities to increase

our market share in Asia.

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STATEMENT ON CORPORATE GOVERNANCE 29DIRECTOR’S REPORT 31AUDITOR’S REPORT 35BALANCE SHEET 37STATEMENT OF PROFIT AND LOSS 39STATEMENT OF CHANGES IN EQUITY 40CONSOLIDATED STATEMENT OF CASHFLOW 42NOTES TO FINANCIAL STATEMENTS 44PROFORMA STATEMENTS 62STATISTICS OF SHAREHOLDINGS 64NOTICE OF ANNUAL GENERAL MEETING 65PROXY FORM 67

CONTENTS

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Hyflux Ltd is committed to maintaining a high standard of corporate governance to protect the interests of its shareholders. For effective corporate governance, the Boardof Directors has put in place the following self-regulating and monitoring mechanism that is in conformity with the principles and best practices set out in the Best PracticesGuide introduced by The Singapore Exchange Limited (SGX).

Board of Directors

The Board of Directors comprises five directors; two of whom are independent directors. The overall management of the Group is overseen by Ms Lum Ooi Lin, Olivia.

The Board is also responsible for establishing a healthy corporate environment conducive to maintaining and promoting good corporate governance within the Group andconfirms that the Company has complied with the Best Practices Guide relating to Audit Committee and Dealings in Securities issued by the SGX.

The Board reviews and approves the overall direction of the Group and determines and sets the corporate strategy and business affairs of the Group. Apart from itsstatutory responsibilities, the Board approves major investments, funding decisions, strategies to be implemented by the management and reviews the financialperformance of the Group and its system of internal control. Since the initial public offering (IPO) of the Company in January 2001, the Board had met once to review andapprove the announcement of the full-year results and the strategic direction of the Group in 2001.

The Board carries out its functions directly through the Board or its key management personnel.

Audit Committee

The Board has adopted the principles of corporate governance under the Best Practices Guide with respect to the Audit Committee issued by the SGX.

The Audit Committee comprises 3 members. The members of the Audit Committee are Mr Lee Joo Hai (Chairman and Independent Director),Mr Teo Kiang Kok (Independent Director) and Ms Lum Ooi Lin, Olivia (Managing Director).

The Committee has adopted a Terms of Reference to regulate and govern its role, responsibilities and proceedings.

The Committee meets to perform the following functions:

1. review with the external auditors the audit plan, their evaluation of the system of internal controls, their audit report, their management letter and the management’sresponse;

2. review the half-year and annual financial statements and balance sheet and profit and loss accounts before submission to the Board for approval, focusing inparticular, on changes in accounting policies and practices, major risk areas, significant adjustments resulting from the audit, the going concern statement,compliance with accounting standards as well as compliance with any Stock Exchange and statutory/regulatory requirements;

3. review the internal control and procedures and ensure co-ordination between the external auditors and the management, reviewing the assistance given by themanagement to the auditors, and discuss problems and concerns, if any arising from the interim and final audits, and any matters which the auditors may wish todiscuss;

4. consider the appointment or re-appointment of the external auditors;

STATEMENT ON CORPORATE GOVERNANCE

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5. review transactions falling within the scope of Chapter 9A and Clause 1006 of the SGX Listing Manual;

6. undertake such other reviews and projects as may be requested by the Board and will report to the Board its findings from time to time on matters arising andrequiring the attention of the Audit Committee; and

7. generally undertake such other functions and duties as may be required by statute or the Listing Manual, and by such amendments made thereto from time to time.

Since the IPO of the Company, the Committee had met once to review the full-year results before they were presented to the Board for approval, and monitored the extentof the Group’s compliance with the Listing Manual of the SGX. The Committee had also recommended the re-appointment of Messrs Arthur Andersen as Auditors of theCompany at the forthcoming Annual General Meeting.

Securities Transactions

The Group has issued a policy on securities dealings by officers of the Group and adopted a Code of Best Practices on Securities Dealings (“the Code”) to govern andregulate such transactions. The Code was based on the Best Practices Guide issued by the SGX and has been circulated to all relevant parties.

STATEMENT ON CORPORATE GOVERNANCE

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HYFLUX LTD(Formerly known as Hyflux Pte Ltd) AND SUBSIDIARIES(Incorporated in Singapore)

The directors are pleased to present their report to the members together with the auditedfinancial statements of the Company and the consolidated financial statements of theCompany and its subsidiaries (the Group) for the financial period from the date of incorpora-tion, 31 March 2000, to 31 December 2000.

Directors

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

Lum Ooi Lin (appointed on 31 March 2000)Murugasu Deirdre (appointed on 31 March 2000)Foo Hee Kiang (appointed on 8 September 2000)Teo Kiang Kok (appointed on 19 December 2000)Lee Joo Hai (appointed on 19 December 2000)

Principal Activities

The Company was incorporated in Singapore on 31 March 2000 as an exempt privatelimited company under the name of Hyflux Pte Ltd. On 20 December 2000, its name waschanged to Hyflux Ltd.

The Company was admitted to the official list of the Singapore Exchange Securities TradingLimited on 17 January 2001.

The principal activity of the Company is that of an investment holding company.

The principal activities of the subsidiaries are shown in Note 7 of the financial statements.

There have been no significant changes in the nature of these activities during the financialperiod.

Employees

The total number of employees in the Group at the end of the financial period was 133 .

DIRECTORS’ REPORT31 DECEMBER 2000(Amounts in Singapore dollars)

Results for the Financial Period Group Company $ $

Profit after tax 4,937,709 2,344,926Dividends proposed (2,344,362) (2,344,362)

Accumulated profit carried forward 2,593,347 564

Transfers to or from Reserves or Provisions

Except as shown below and in the financial statements, there were no material transfers to orfrom reserves or provisions during the financial period.

Share premium account Group and Company $

Issue of 435,840 ordinary shares of $0.10 each at a premium of $3.65 per share 1,590,816

Issue of 6,084,348 ordinary shares of $0.10 each at a premium of $0.6889 per share 4,191,565

Bonus issue of 15,901,558 ordinary shares of $0.10 each at par via the capitalisationof share premium account (1,590,156)

Bonus issue of 83,844,500 ordinary shares of $0.05 each at par via the capitalisationof share premium account (4,192,225)

_________-

_________

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Acquisition and Disposal of Subsidiaries

During the financial period, the Company acquired / incorporated the following subsidiariespursuant to a group restructuring exercise.

Name of subsidiary Interest acquired Consideration Net tangible assets at date of acquisition % $ $

Acquired

Hydrochem (S) Pte Ltd 100 800,000* 1,033,293*

Hydrochem Engineering 100 1,634,400# 584,690#(S) Pte Ltd

Incorporated

Hyflux Engineering Pte Ltd 100 2 -

Apart from the above, there were no other acquisitions or disposals of subsidiaries duringthe financial period.

* Consideration of $800,000 was for the acquisition of 100% interest in Hydrochem(S)Pte Ltd,which owns 50.5% of Hydrochem Engineering (S)Pte Ltd

# Consideration of $1,634,400 was for the acquisition of the remaining 49.5% ofHydrochem Engineering (S) Pte Ltd.

Issue of Shares, Debentures and Options

The Company, upon incorporation with an authorised share capital of 500,000,000ordinary shares of $0.10 each, issued 20 subscriber shares at par for cash to its firsttwo shareholders.

During the financial period, the Company and its subsidiary issued the following shares :

The Company

(i) 7,999,980 ordinary shares of $0.10 each at par as consideration for the acquisitionof 800,000 ordinary shares of $1 each of Hydrochem (S) Pte Ltd;

(ii) 435,840 ordinary shares of $0.10 each at $3.75 per share as consideration for theacquisition of 544,800 ordinary shares of $1 each of Hydrochem Engineering (S) PteLtd;

(iii) Bonus issue of 15,901,558 ordinary shares of $0.10 each at par credited as fullypaid via the capitalisation of $1,590,156 from the share premium account;

(iv) 6,084,348 ordinary shares of $0.10 each at $0.7889 per share for cash;

(v) Sub-division of each existing ordinary share of $0.10 each in the authorised as wellas issued and paid up share capital of the Company into 2 ordinary shares of $0.05each; and

(vi) Bonus issue of 83,844,500 ordinary shares of $0.05 each at par credited as fullypaid via the capitalisation of $4,192,225 from the share premium account.

Subsidiary

Hyflux Engineering Pte Ltd was incorporated with an authorised share capital of 100,000ordinary shares of $1 each, and issued 2 subscriber shares of $1 each at par for cash to itsfirst two directors.

No other shares or debentures were issued by the Company or its subsidiaries and nooptions to take up unissued shares were granted during the financial period. As at 31December 2000, no options over unissued shares of the Company or its subsidiaries wereoutstanding.

Arrangements to Enable Directors to Acquire Shares or Debentures

Neither at the end of nor at any time during the financial period ended 31 December 2000was the Company a party to any arrangement whose object was to enable the directors ofthe Company to acquire benefits by means of the acquisition of shares or debentures of theCompany or any other body corporate, except for the issue of ordinary shares of $0.10each at par to certain directors of the Company pursuant to the Group restructuringexercise.


33

Directors’ Interest in Shares and Debentures

The interests of the directors who held office at the end of the financial period in theshares or debentures of the Company and related corporations were as follows:

Shareholdings registered in the name of directors

Date of incorporation or date

of appointment, if later 31 December 2000 21January 2001

Hyflux Ltd

Lum Ooi Lin 10+ 101,023,092* 98,691,576*

Murugasu Deirdre 10+ 6,886,016* 6,919,016*

Foo Hee Kiang - 2,572,326* 2,627,326*

+ Ordinary shares of $0.10 each

* Ordinary shares of $0.05 each

By virtue of Section 7 of the Companies Act, Cap 50, Lum Ooi Lin is deemed to have aninterest in the shares held by the Company in all its subsidiaries.

No other director had an interest in the shares or debentures of any company in theGroup.

Directors’ Contractual Benefits

Since the date of incorporation, no director has received or become entitled to receive abenefit (other than a benefit included in the aggregate amount of emoluments shown inthe financial statements and except for emoluments received from related corporations)by reason of a contract made by the Company or a related corporation with the director orwith a firm of which the director is a member, or with a company in which the director hasa substantial financial interest, except for any professional fees payable to a firm of whicha director is a member and the significant related party transactions as shown in thefinancial statements.


Dividends

Dividends proposed since the date of incorporation were as follows:$

An interim dividend of 7.401 cents per share, less tax at 24.5%in respect of the financial period ended 31 December 2000,based on 30,421,746 ordinary shares of $0.10 each,approved by the directors 1,700,000

A final dividend of 0.503 cents per share, less tax at 24.5% inrespect of the financial period ended 31 December 2000,based on 169,687,994 ordinary shares of $0.05 each,proposed by the directors and subject to approval at theannual general meeting of the Company 644,362

Bad and Doubtful Debts

Before the financial statements of the Company were prepared, the directors took reason-able steps to ascertain that proper action had been taken in relation to the writing off of baddebts and providing for doubtful debts of the Company, and satisfied themselves that allknown bad debts of the Company had been written off as bad and adequate provision hadbeen made for doubtful debts.

At the date of this report, the directors are not aware of any circumstances which wouldrender the amount of bad debts written off or the amount of provision for doubtful debts inthe group of companies inadequate to any substantial extent.

Current Assets

Before the financial statements of the Company were prepared, the directors took reason-able steps to ascertain that any current assets of the Company which were unlikely torealise their book values in the ordinary course of business had been written down to theirestimated realisable values or that adequate provision had been made for the diminution inthe value of such current assets.

At the date of this report, the directors are not aware of any circumstances which wouldrender the values attributed to current assets in the consolidated financial statementsmisleading.

34


Charges on Assets and Contingent Liabilities

At the date of this report, no charge on the assets of the Company or any other corporationin the Group which secures the liabilities of any other person has arisen since the end of thefinancial period and no contingent liability of the Company or any other corporation in theGroup has arisen since the end of the financial period.

Ability to Meet Obligations

No contingent or other liability has become enforceable or is likely to become enforceable,within the period of twelve months after the end of the financial period which, in the opinionof the directors, will or may substantially affect the ability of the Company and of the Groupto meet their obligations as and when they fall due.

Other Circumstances Affecting Financial Statements

At the date of this report, the directors are not aware of any circumstances not otherwisedealt with in this report or the consolidated financial statements which would render anyamount stated in the financial statements of the Company and the consolidated financialstatements misleading.

Unusual Items

In the opinion of the directors, the results of the operations of the Company and of theGroup for the financial period have not been substantially affected by any item, transactionor event of a material and unusual nature.

Unusual Items after the Financial Period

Except as disclosed in Note 33, in the opinion of the directors, no item, transaction or eventof a material and unusual nature has arisen in the interval between the end of the financialperiod and the date of this report, which would affect substantially the results of the opera-tions of the Company and of the Group for the financial year in which this report is made.

Audit Committee

The Audit Committee comprises Teo Kiang Kok, Lee Joo Hai and Lum Ooi Lin. The AuditCommittee is chaired by Lee Joo Hai. Lum Ooi Lin is the Managing Director of the Companywhile Teo Kiang Kok and Lee Joo Hai are Independent Directors of the Company.

The Audit Committee will meet periodically to discuss and review the following:-

(a) review with the external auditors the audit plan, their evaluation of the system ofinternal controls, their audit report and their management letter relating to improve-ments in internal control;

(b) review the half-year and annual financial statements and balance sheet and profitand loss accounts before submission to the Board of Directors for approval, focus-ing in particular, on changes in accounting policies and practices, major risk areas,significant adjustments resulting from the audit, the going concern statement, com-pliance with accounting standards as well as compliance with any stock exchangeand statutory/ regulatory requirements;

(c) review the internal control and procedures and ensure co-ordination between theexternal auditors and the management, reviewing the assistance given by themanagement to the auditors, and discuss problems and concerns, if any arisingfrom the interim and final audits, and any matters which the auditors may wish todiscuss (in the absence of the management where necessary);

(d) review and discuss with the external auditors any suspected fraud or irregularity,or suspected infringement of any relevant laws, rules or regulations, which has oris likely to have a material impact on the Group’s operating results or financialposition;

(e) consider the appointment or re-appointment of the external auditors and mattersrelating to resignation or dismissal of the auditors;

(f) review transactions falling within the scope of Chapter 9A and Clause 1006 of theSGX-ST Listing Manual;

(g) undertake such other reviews and projects as may be requested by the Board andwill report to the Board of Directors its findings from time to time on matters arisingand requiring the attention of the Audit Committee; and

(h) generally undertake such other functions and duties as may be required by statuteor the Listing Manual, and by such amendments made thereto from time to time.

The Audit Committee recommends to the Board of Directors the nomination of ArthurAndersen for re-appointment as auditors at the forthcoming Annual General Meeting of theCompany.

35

AUDITORS’ REPORT31 DECEMBER 2000(Amounts in Singapore dollars)

Auditors

Arthur Andersen have expressed their willingness to accept re-appointment as auditors ofthe Company.

Other information Required by the Singapore Exchange Securities Trading Limited

No material contracts to which the Company or any of its subsidiaries is a party and whichinvolve directors’ interests subsisted at the end of the financial period or have been enteredinto since the date of incorporation.

On behalf of the Board of Directors

LUM OOI LIN MURUGASU DEIRDREDirector Director

Singapore12 April 2001

Statement by Directors

In the opinion of the directors, the financial statements set out on pages 37 to 61 are drawnup so as to give a true and fair view of the state of affairs of the Company and of the Groupas at 31 December 2000 and of the results and changes in equity of the Company and ofthe Group and cash flows of the Group for the period from the date of incorporation, 31March 2000, to 31 December 2000 and at the date of this statement, there are reasonablegrounds to believe that the Company will be able to pay its debts as and when they falldue.

On behalf of the Board of Directors

LUM OOI LIN MURUGASU DEIRDREDirector Director

Singapore

Auditors’ Report to the Members of Hyflux Ltd

We have audited the financial statements of Hyflux Ltd and the consolidated financialstatements of Hyflux Ltd and its subsidiaries as at 31 December 2000 and for the period fromthe date of incorporation, 31 March 2000, to 31 December 2000 set out on pages 37 to 61.These financial statements are the responsibility of the Company’s directors. Our responsibilityis to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with Singapore Standards on Auditing. Those Standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financial statements. An auditalso includes assessing the accounting principles used and significant estimates made by thedirectors, as well as evaluating the overall financial statement presentation. We believe thatour audit provides a reasonable basis for our opinion.

In our opinion:

(a) the financial statements and consolidated financial statements are properly drawnup in accordance with the provisions of the Companies Act and Statements ofAccounting Standard in Singapore and so as to give a true and fair view of:

(i) the state of affairs of the Company and of the Group as at 31 December 2000and of the results and changes in equity of the Company and of the Group andcash flows of the Group for the period from the date of incorporation, 31 March2000, to 31 December 2000; and

(ii) the other matters required by section 201 of the Act to be dealt with in thefinancial statements and consolidated financial statements;

(b) the accounting and other records and the registers required by the Act to be kept bythe Company and by those subsidiaries incorporated in Singapore have been properlykept in accordance with the provisions of the Act.

We have considered the financial statements and auditors’ reports of the subsidiary of whichwe have not acted as auditors, and the financial statements of a subsidiary which are notrequired to present audited financial statements by laws of its country of incorporation,beingfinancial statements included in the consolidated financial statements. The names of thesubsidiaries are shown in Note 7 to the financial statements.

12 April 2001

36

AUDITORS’ REPORT31 DECEMBER 2000(Amounts in Singapore dollars)

We are satisfied that the financial statements of the subsidiaries that have beenconsolidated with the financial statements of the Company are in form and contentappropriate and proper for the purposes of the preparation of the consolidated financialstatements and we have received satisfactory information and explanations as required byus for those purposes.

The auditors’ reports on the financial statements of the subsidiaries were not subject to anyqualification and in respect of the subsidiaries incorporated in Singapore, did not includeany comment made under Section 207(3) of the Act.

Arthur AndersenCertified Public Accountants

Singapore12 April 2001

37

BALANCE SHEETSAS AT 31 DECEMBER 2000(Amounts in Singapore dollars)

Note Group Company $ $

Share capital and reservesShare capital 3 7,234,400 7,234,400Reserves 4 2,590,178 564

________ ________9,824,578 7,234,964

Goodwill on consolidation 5 693,955 -Fixed assets 6 4,860,696 145,000Subsidiaries 7 - 3,080,522

Current assetsStocks, less provision for stock obsolescence $Nil 8 658,457 -Trade debtors 9 5,448,211 -Work-in-progress 10 2,105,271 -Other debtors, deposits and prepayments 11 926,659 238,888Due from subsidiaries (non-trade) 12 - 5,008,935Due from affiliated companies (trade) 645,970 -Dividend receivable - 707,027Short-term notes 13 500,000 500,000Fixed deposits 397,367 -Cash and bank balances 1,684,022 70,895

12,365,957 6,525,745

HYFLUX LTD(Formerly known as Hyflux Pte Ltd) AND SUBSIDIARIES (Incorporated in Singapore)

38

BALANCE SHEETSAS AT 31 DECEMBER 2000 (Amounts in Singapore dollars)

Note Group Company $ $

Current liabilities

Trade creditors 1,177,665 -Other creditors and accruals 14 616,795 84,092Progress billings in excess of work-in-progress 10 261,546 -Provision for income tax 2,464,550 350Provision for warranty 15 244,176 -Hire purchase creditors (current portion) 16 178,063 87,499Finance lease creditors (current portion) 17 3,096 -Term loan (secured) 18 167,120 -Bank overdrafts (secured) 18 41,771 -Proposed dividends 2,344,362 2,344,362

7,499,144 2,516,303

Net current assets 4,866,813 4,009,442

Non-current liabilitiesHire purchase creditors (non-current portion) 16 172,722 -Finance lease creditors (non-current portion) 17 7,164 -Deferred tax 417,000 -

________ _________9,824,578 7,234,964

The accompanying notes are an integral part of the financial statements.

39

Note Group Company2000 2000 $ $

Turnover 19 17,571,190 3,218,339

Other operating income 20 347,881 -Raw materials and consumables used (5,714,504) -Personnel expenses 21 (2,430,600) -Research and development costs 22 (473,807)Depreciation of fixed assets (301,462) (5,000)Other operating expenses (2,231,866) (63,158)

________ ________Profit from operations 23 6,766,832 3,150,181Financial income - net 25 24,237 6,407

________ ________Profit before tax 6,791,069 3,156,588Tax 26 (1,853,360) (811,662)

________ ________

Profit after tax 4,937,709 2,344,926Dividends 27 (2,344,362) (2,344,362)

________ ________Accumulated profit carried forward 2,593,347 564

________ ________

Earnings per share (cents) 28- Weighted average 9.65- Fully diluted 9.65


STATEMENTS OF PROFIT AND LOSS.FOR THE PERIOD FROM THE DATE OF INCORPORATION 31 MARCH 2000, TO 31 DECEMBER 2000

(Amounts in Singapore dollars)

40

The Group Share capital Share Premium Translation reserve Accumulated profit Total $ $ $ $ $

At date of incorporation 2 - - - 2

Issue of shares arising from acquisition of subsidiaries 843,582 1,590,816 - - 2,434,398

Issue of shares for cash 608,435 4,191,565 - - 4,800,000

Issue of bonus shares via capitalisation of share premium 5,782,381 (5,782,381) - - -

Foreign currency translation differences - - (3,169) - (3,169)

Net profit for the period - - - 4,937,709 4,937,709

Dividends (Note 27) - - - (2,344,362) (2,344,362)

Balance as at 31 December 2000 7,234,400 - (3,169) 2,593,347 9,824,578


STATEMENT OF CHANGES IN EQUITYFOR THE PERIOD FROM THE DATE OF INCORPORATION, 31 MARCH 2000, TO 31 DECEMBER 2000 (Amounts in Singapore dollars)

41

The Company Share capital Share Premium Translation reserve Accumulated profit Total $ $ $ $ $

At date of incorporation 2 - - - 2

Issue of shares arising from acquisition of subsidiaries 843,582 1,590,816 - - 2,434,398

Issue of shares for cash 608,435 4,191,565 - - 4,800,000

Issue of bonus shares via capitalisation of share premium 5,782,381 (5,782,381) - - -

Net profit for the period - - - 2,344,926 2,344,926

Dividends (Note 27) - - - (2,344,362) (2,344,362)

_________________________________________________________________________________________

Balance as at 31 December 2000 7,234,400 - - 564 7,234,964_________________________________________________________________________________________


STATEMENT OF CHANGES IN EQUITYFOR THE PERIOD FROM THE DATE OF INCORPORATION, 31 MARCH 2000, TO 31 DECEMBER 2000 (Amounts in Singapore dollars)

42

CONSOLIDATED STATEMENT OF CASHFLOWFOR THE PERIOD FROM THE DATE OF INCORPORATION, 31 MARCH 2000, TO 31 DECEMBER 2000 (Amounts in Singapore dollars)

2000 $

6,791,069

122,46288,005

165,77563,590

301,4625,408

33,503(57,740)

(332,780)__________

7,180,754(61,473)

(3,903,724)(2,105,271)

(690,909)(645,970)

41,252490,014(85,618)261,546

__________480,601(33,503)(77,627)

__________369,471

__________

1,964,385(4,079,778)

(500,000)57,740

332,780__________(2,224,873)

__________

Cash flows from operating activitiesProfit before taxAdjustments:Amortisation of goodwill on consolidationProvision for doubtful trade debtsProvision for warrantyBad trade debts written offDepreciation of fixed assetsWrite-off of deferred expenditureInterest expenseInterest incomeGrant

Operating profit before working capital changesIncrease in stocksIncrease in trade debtorsIncrease in work-in-progressIncrease in other debtors, deposits and prepaymentsIncrease in due from affiliated companies (trade)Decrease in due from a directorIncrease in trade creditorsDecrease in other creditors and accrualsIncrease in progress billings in excess of work progress

Cash generated from operationsInterest paidIncome taxes paid

Net cash from operating activities

Cash flows from investing activitiesAcquisition of subsidiaries, net of cash acquired (Note 29)Purchase of fixed assets (Note 6)Purchase of short-term notesInterest receivedGrant received

Net cash used in investing activities

43

Cash flows from financing activitiesProceeds from issue of new sharesProceeds from term loan, netPayment of hire purchase creditorsPayment of finance lease creditorsPayment of dividends

Net cash from financing activities

Net increase in cash and cash equivalentsCash and cash equivalents at beginning of periodEffect of exchange rate changes

Cash and cash equivalents at end of period (Note 30)

CONSOLIDATED STATEMENT OF CASH FLOWFOR THE PERIOD FROM THE DATE OF INCORPORATION, 31 MARCH 2000, TO 31 DECEMBER 2000 (Amounts in Singapore dollars)

2000 $

4,800,000167,120

(170,195)(4,736)

(894,000)__________

3,898,189__________

-

2,042,787-

(3,169)

__________2,039,618

__________

The accompanying notes are an integral part of the financial statements

44

HYFLUX LTD(Formerly known as Hyflux Pte Ltd) AND SUBSIDIARIES(Incorporated in Singapore)

These notes are an integral part of and should be read in conjunction with theaccompanying financial statements.

1. GENERAL

The Company was incorporated in Singapore on 31 March 2000 as an exempt privatelimited company under the name of Hyflux Pte Ltd. On 20 December 2000, its name waschanged to Hyflux Ltd.

The Company was admitted to the official list of the Singapore Exchange SecuritiesTrading Limited on 17 January 2001.

The address of the Company’s registered office is 40, Changi South Street 1, Singapore486764.

The principal activity of the Company is that of an investment holding company.

The principal activities and details of the subsidiaries are disclosed in Note 7 to thefinancial statements.

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation

The financial statements, which are expressed in Singapore dollars, are prepared inaccordance with Statements of Accounting Standard in Singapore and under thehistorical cost convention.

NOTES TO THE FINANCIAL STATEMENTS31 DECEMBER 2000 (Amounts in Singapore dollars)

Basis of consolidation

The consolidated financial statements include the financial statements of the Companyand its subsidiaries. The results of subsidiaries acquired or sold during the period areconsolidated for the periods from or to the date of acquisition or disposal. All intercompanybalances and any unrealised profit or loss on intercompany transactions are eliminated onconsolidation.

When subsidiaries are acquired, any difference between the consideration paid and thefair values of net assets acquired is amortised to the consolidated profit and loss accountin equal instalments over the period of expected benefit not exceeding 5 years.

The results of foreign subsidiaries are translated into Singapore dollars at the averageexchange rates for the period and balance sheet items are translated at exchange ratesruling at the balance sheet date. Exchange differences arising on translating the openingnet assets are taken directly to the translation reserve until the disposal of the subsidiaries.

Subsidiaries

Investments in subsidiaries are stated in the financial statements of the Company at cost.Provision is made where there is a decline in value that is other than temporary.

A subsidiary is a company in which the Group, directly or indirectly, holds more than half ofthe issued share capital, or controls more than half of the voting power, or controls thecomposition of the board of directors.

Affiliated company

An affiliated company is a company, not being a subsidiary or an associated company,in which one or more of the directors or shareholders of the Company have a significantequity interest or exercise significant influence.

45

Fixed assets

Fixed assets are stated at cost, net of depreciation and any impairment loss.

Depreciation is provided on all fixed assets at the following rates calculated to write off thecost, less estimated residual value, of each asset on a straight-line basis over its estimateduseful life:

Years

Plant and machinery 4 - 5Motor vehicles 4 - 5Computers 1 - 4Office equipment 4 - 5Leasehold properties and improvements over the lease periodFurniture and fittings 4 - 10Renovation 4 - 5Research equipment 5

Hire purchase and finance lease

Fixed assets acquired under hire purchase or finance lease are capitalised and depreciatedover their useful lives. The capital elements of future hire purchase or lease obligations arerecorded as liabilities, while the interest elements are charged to income over the period ofthe lease to produce a constant rate of charge on the balance of capital repaymentsoutstanding.

Research and development expenditure

Research and development costs are charged against income in the period incurred.

Preliminary expenses

During the period, the Group adopted the new Statement of Accounting Standard 34,Intangible Assets, and wrote off all preliminary expenses incurred in the current financialperiod to the profit and loss account.


Stocks

Stocks are stated at the lower of cost and net realisable value. In the case of finishedgoods and work-in-progress, cost includes raw materials, labour and an attributableportion of overhead costs, determined on a first-in, first-out basis. Provision is made fordeteriorated, damaged, obsolete and slow-moving stocks.

Work-in-progress

Work-in-progress is stated at cost plus attributable profit net of progress billings andprovision for foreseeable losses. Costs include cost of materials, direct labour and directand indirect overheads incurred in connection with the contracts.

Turnover and revenue recognition

Revenue from contracts is recognised using the percentage-of-completion method,measured by reference to the value of work performed to date to total estimated contractvalue for each contract. Provision is made for any foreseeable losses as soon as they areknown.

Dividend income is recognised gross on the date it is declared payable by the investeecompany.

Group turnover excludes intercompany transactions.

Grants

These relate to grants received from the National Science and Technology Board(“NSTB”) and the Economic Development Board (“EDB”) for certain projects undertakenby the Company. Such grants received are recognised as income through the profit andloss account and matched against related costs incurred during the period which they areintended to compensate.

46

Income tax

Income tax expense is determined on the basis of tax effect accounting, using the liabilitymethod and is applied to all significant timing differences. Deferred tax benefits are notrecognised unless there is reasonable expectation of their realisation.

Foreign currencies

Transactions in foreign currencies are recorded at exchange rates approximating thoseruling at the transaction dates. Foreign currency monetary assets and liabilities at thebalance sheet date are translated into the respective reporting currencies at exchangerates approximating those ruling at that date. All resulting exchange differences arerecognised in the profit and loss account.

Reserve fund

In accordance with the relevant laws and regulations of the People’s Republic of China(“PRC”), Hydrochem Engineering (Shanghai) Co., Ltd is required to set up a reserve fundby way of appropriations from its statutory net profit.

The general reserve fund may be used to offset accumulated losses or increase theregistered capital of the subsidiary, subject to approval from the PRC authorities.

The reserve fund is not available for dividend distribution to the shareholders.

Pension scheme

Hydrochem Engineering (Shanghai) Co., Ltd is required to provide certain staff pensionbenefits to their employees under existing People’s Republic of China legislation.Pension contributions are provided at 30% of total basic salary of contracted Chineseemployees and are contributed to a pension fund managed by government agencies,which are responsible for paying pensions to the company’s Chinese retired employees.These benefits are accounted for on an accrual basis and charged to the profit and lossaccount.

Value-added tax (“VAT”)

In accordance with the relevant People’s Republic of China tax laws, the subsidiary is


subject to Value-added Tax (“VAT”), which is charged on top of the selling price at a generalrate of 17%. An input credit is available whereby VAT previously paid on purchases ofsemi-finished products or raw materials etc. can be offset against the VAT on sales todetermine the net VAT payable.

Warranties

Provision for warranty claims is made on the basis of estimated cost to fulfil warrantyobligations.

Segments

For management purposes, the Group is organised into 2 major geographical segments.The divisions are the basis on which the Group reports its primary segment information.

Segment revenue, expenses and results include transfers between geographical segmentsand business segments. Such transfers are accounted for on an arm’s length basis.

3. SHARE CAPITAL 2000

$

Authorised- 1,000,000,000 ordinary shares of $0.05 each 50,000,000

Issued and fully paid- 144,687,992 ordinary shares of $0.05 each 7,234,400

The Company, upon incorporation with an authorised share capital of 500,000,000 ordinary shares of $0.10 each, issued 20 subscriber shares at par for cash to its first 2 shareholders.

During the financial period, the Company issued the following shares:

47

(i) 7,999,980 ordinary shares of $0.10 each at par as consideration for the acquisition of 800,000 ordinary shares of $1 each of Hydrochem (S) Pte Ltd;

(ii) 435,840 ordinary shares of $0.10 each at $3.75 per share as consideration for the acquisition of 544,800 ordinary shares of $1 each of Hydrochem Engineering (S) Pte Ltd;

(iii) Bonus issue of 15,901,558 ordinary shares of $0.10 each at par credited as fully paid via the capitalisation of $1,590,156 from the share premium account;

(iv) 6,084,348 ordinary shares of $0.10 each at $0.7889 per share for cash;

(v) Sub-division of each existing ordinary share of $0.10 each in the authorised as well as issued and paid up share capital of the company into 2 ordinary shares of $0.05 each; and

(vi) Bonus issue of 83,844,500 ordinary shares of $0.05 each at par credited as fully paid via the capitalisation of $4,192,225 from the share premium account.

4. RESERVES

The share premium account may be applied only for the purposes specified in theCompanies Act. The balance is not available for distribution as dividends except in the formof shares. With the exception of the share premium account, the reserves of the Companyare available for distribution as dividends.

Group 2000 $

Retained in:- the Company 564- subsidiaries 2,589,614

________2,590,178________


5. GOODWILL ON CONSOLIDATION

Group2000

$

Goodwill on consolidation arising from acquisition of subsidiaries 816,417Less: accumulated amortisation (122,462)

_________

693,955_________

48


6. FIXED ASSETS

(a) Group

Plant and machinery Motor vehicles Computers Office equipment Leasehold properties and improvements Furniture and fittings Renovation Research equipment Total

$ $ $ $ $ $ $ $

Cost

Balance attributable

to subsidiaries

acquired during

the period 273,447 567,163 85,246 157,372 124,545 51,928 130,442 - 1,390,143

Additions 342,618 278,560 127,698 74,653 3,319,651 23,999 115,823 74,764 4,357,766

_______________________________________________________________________________________________________________________________________________________________________________________________

As at 31.12.2000 616,065 845,723 212,944 232,025 3,444,196 75,927 246,265 74,764 5,747,909

_______________________________________________________________________________________________________________________________________________________________________________________________

Accumulated depreciation

Balance attributable to

subsidiaries acquired during

the period 47,410 253,315 56,132 105,326 6,034 26,770 90,764 - 585,751

Charge for the period 70,166 72,654 42,846 26,621 67,223 4,913 12,322 4,717 301,462

____________________________________________________________________________________________________________________________________________________________________________________________

As at 31.12.2000 117,576 325,969 98,978 131,947 73,257 31,683 103,086 4,717 887,213

____________________________________________________________________________________________________________________________________________________________________________________________

Net book value

As at 31.12.2000 498,489 519,754 113,966 100,078 3,370,939 44,244 143,179 70,047 4,860,696

49

6. FIXED ASSETS

(b) Company Motor vehicle$

CostAs at 31.3.2000 -Additions 150,000

As at 31.12.2000 150,000

Accumulated depreciationAs at 31.3.2000 -Charge for the period 5,000

As at 31.12.2000 5,000

Net book valueAs at 31.12.2000 145,000

As at 31 December 2000, the Company and the Group had motor vehicles, plant and machinery and office equipmentunder hire purchase and finance lease with a net book value of approximately $145,000 and $572,000 respectively.

As at 31 December 2000, the Group’s leasehold residential property in the People’s Republic of China with a net book value of approximately $87,000 was frozenby the Pudong New District People’s Court arising from a dispute between the developers of the property with the People’s Republic of China authorities.

During the financial period ended 31 December 2000, the Group acquired fixed assets with an aggregate cost of $4,357,766of which $277,988 was acquired by means of hire purchase. Cash payments of $4,079,778 were made to purchase fixed assets.


50


7. SUBSIDIARIESCompany 2000

(a) This comprises : $

Unquoted equity shares, at cost 3,080,522

(b) Details of the subsidiaries as at 31 December 2000 are as follows:

Name of subsidiary Principal activities Country of incorporation Percentage of equity Cost of investment by the Company and place of business held by the Group

% $Held by the Company

Hydrochem (S) Pte Ltd Manufacturing,processing anddealing in water treatment equipmentand turnkey engineering installationof industrial equipment and machinesand other related activities Singapore 100 800,000

HydrochemEngineering (S) Pte Ltd Consulting in the installation of

equipment for chemical processing,applications of chemicals and chemicalspreparation for commercial or industrialuse and wholesale of chemical andfabricated products Singapore 100 2,280,520

Hyflux Engineering PteLtd # Operating of water and liquid treatmentplants and sale of treated water Singapore 100 2

Held by a subsidiaryHydrochem Engineering (Shanghai) Co., Ltd * Development, manufacture of

equipment and parts primarily for membrane filtration technology, sale of manufactured equipment and ancillary parts, provision of installation and commissioning of relevant projects and provision of technical services _________

and consultation People’s Republic of China 100 3,080,522_________

# Not required to present audited financial statements for the financial period ended31 December 2000 under the laws of its country of incorporation.

* Audited by the auditors

51

8. STOCKS

Group2000 $

Raw materials, at cost 658,457_______

9. TRADE DEBTORSGroup2000 $

Trade debtors 5,618,033Provision for doubtful trade debts (169,822)

_________5,448,211_________

Movements in provision for doubtful trade debts during the period:

Balance attributable to subsidiaries acquired during the period 81,817Provision for the period 88,005

_______At end of period 169,822

_______

10. WORK-IN-PROGRESS

Work-in-progress Group2000 $

Project costs and attributable profits 6,153,715Less progress billings (4,048,444)

__________

2,105,271__________

Progress billings in excess of work-in-progress Group 2000 $

Project costs and attributable profits 3,315,201Less progress billings (3,576,747)

_________

(261,546)_________

11. OTHER DEBTORS, DEPOSITS AND PREPAYMENTS

Group Company 2000 2000 $ $

Deposits 34,088 -Prepayments 675,230 238,888Sundry debtors 217,341 -

926,659 238,888

12. DUE FROM SUBSIDIARIES (NON-TRADE)

These non-trade balances are unsecured, interest-free and repayable on demand.

13. SHORT-TERM NOTES

These short-term notes bear interest at rates from 2.825% to 2.9% per annum withmaturities within one year.


52

14. OTHER CREDITORS AND ACCRUALS

Group Company 2000 2000 $ $

Other creditors 380,630 64,092Accrued operating expenses 226,025 20,000Advance payments from customers 10,140 -

_______ ______616,795 84,092_______ ______

15. PROVISION FOR WARRANTY

Group2000 $

Provision for warranty 244,176__________________

Movements in provision for warranty during the period:

Balance attributable to subsidiaries acquired during the period 78,401Provision for the period 165,775

__________________At end of period 244,176


53


16. HIRE PURCHASE CREDITORS

Group CompanyPayments Interest Principal Payments Interest Principal

$ $ $ $ $ $

1 year to 5 years 177,274 23,652 153,622 - - -Later than 5 years 22,760 3,660 19,100 - - -

200,034 27,312 172,722 - - -

Not later than 1 year 190,531 12,468 178,063 89,163 1,664 87,499

________________________________________________________________________________390,565 39,780 350,785 89,163 1,664 87,499________________________________________________________________________________

Hire purchase terms range from 2 to 7 years. Hire purchase terms do not contain restrictions concerning dividends, additional debt or further hire purchase.

17. FINANCE LEASE CREDITORS

GroupPayments Interest Principal

$ $ $

1 year to 5 years 9,000 1,836 7,164

Not later than 1 year 4,320 1,224 3,096__________________________________________________________________

13,320 3,060 10,260__________________________________________________________________

Lease terms range from 3 to 5 years with options to purchase at the end of the lease term. Lease terms do not contain restrictions concerning dividends, additional debt or further leasing.

54


18 TERM LOAN AND BANK OVERDRAFTS (SECURED)

The term loan of Hydrochem Engineering (Shanghai) Co., Ltd is secured by letter of credit granted by Hydrochem Engineering (S) Pte Ltd and is repayable within one year. Interest ispayable at approximately 6% per annum.

The bank overdrafts of Hydrochem Engineering (S) Pte Ltd are secured by a corporate guarantee from Hydrochem (S) Pte Ltd and a joint and several personal guarantee fromcertain directors.

19. TURNOVER

Turnover represents contract revenue recognised using the percentage-of-completion method. Intra-group transactions have been excluded from Group turnover.

Turnover for the Company comprises dividend income from unquoted equity shares in subsidiaries.

20. OTHER OPERATING INCOME Group2000$

Grants received 332,780Miscellaneous income 15,101

_______347,881_______

21. PERSONNEL EXPENSESGroup2000$

Wages, salaries and bonuses 1,954,744CPF contributions 191,523Other social expenses 284,333

________2,430,600

Wages and salaries included in research and development costs (Note 22) 331,9352,762,535

22. RESEARCH AND DEVELOPMENT COSTSGroup2000 $

Material costs 141,872Wages and salaries

Group2000

$332,78015,101

_______347,881

_______

Group2000

$1,954,744

191,523284,333

________2,430,600

331,9352,762,535

Group2000

$141,872331,935

________473,807

________

55


23. PROFIT FROM OPERATIONS

This is determined after charging (crediting) the following:Group Company2000 2000$ $

Amortisation of goodwill on consolidation 122,462 -Auditors’ remuneration- auditors of the Company 50,000 20,000- other auditors 1,455Bad trade debts written off 63,590 -Depreciation of fixed assets 301,462 5,000Directors’ fees- directors of a subsidiary 35,000 -Directors’ remuneration- directors of a subsidiary 400,620 -Foreign exchange gain, net (138,858) -Operating lease expenses 285,967 -Preliminary expenses written off 41,850 39,475Provision for doubtful trade debts 88,005 -Provision for warranty 165,775 -

24. DIRECTORS’ REMUNERATION

Number of directors of the Company in the various remuneration bands is as follows:

Group2000

$500,000 and above -$250,000 to $499,000 -Below $250,000 5

______________

5 _______________

56

25. FINANCIAL INCOME - NETGroup Company2000 2000 $ $

Interest expense on:-bank overdrafts 2,211 --finance lease 1,564 --hire purchase 9,324 333-bills payable 1,258 --term loan 19,146Interest income from fixed deposits (57,740) (6,740)

______________________(24,237) (6,407)______________________

26. TAXGroup Company2000 2000 $ $

Current tax-current year 1,705,360 811,662

Deferred tax- current year 148,000 -

_________________________1,853,360 811,662

__________________________

The Company’s and Group’s current tax charge are higher than the amount obtained by applying the statutory income tax rate to profit before taxation mainly due to certain expensesthat are not deductible for income tax purposes.

27. DIVIDENDSCompany2000 $

Interim dividend of 7.401 cents per share, less tax at 24.5% 1,700,000Final proposed dividend of 0.503 cents per share, less tax at 24.5% 644,362

________2,344,362________


57

28. EARNINGS PER SHARE

Earnings per share is calculated by dividing the Group’s profit after tax by the weighted average number of shares in issue during the financial period of 51,178,117 shares.As there were no share options and warrants granted during the financial period, the basic and fully diluted earnings per share are the same.

29. ANALYSIS OF ACQUISITION OF SUBSIDIARIES

The attributable net assets of the subsidiaries acquired during the year are as follows:Group2000 $

Stocks 596,984Trade debtors 1,696,082Due from a director 41,252Other debtors, deposits and prepayments 235,750Cash and bank balances 1,878,522Fixed deposits 61,125Trade creditors (687,651)Other creditors and accruals (702,413)Provision for warranty (78,401)Proposed dividend (894,000)Provision for income tax (836,817)Hire purchase creditors (242,992)Finance lease liabilities (14,996)Fixed assets, net 804,392Deferred expenditure 5,408Deferred tax (269,000)

_________1,593,245

Goodwill on consolidation 816,417_________

Total purchase price 2,409,662Less: Purchase consideration satisfied via share issue (2,434,400)Less: Cash and bank balances (1,878,522)Less: Fixed deposits (61,125)

__________Cash inflow from acquisition (1,964,385)

__________


Group 2000 $

596,9841,696,082

41,252235,750

1,878,52261,125

(687,651)(702,413)

(78,401)(894,000)(836,817)(242,992)

(14,996)804,392

5,408(269,000)

_________1,593,245

816,417_________

2,409,662(2,434,400)(1,878,522)

(61,125)__________(1,964,385)

__________

58

30. CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of cash and bank balances, fixed deposits and bank overdrafts. Cash and cash equivalents included in the consolidated statement of cash flowscomprise the following balance sheet amounts:

Group2000$

Cash and bank balances 1,684,022Fixed deposits 397,367Bank overdrafts (41,771)

________2,039,618________

31. RELATED PARTY INFORMATION

The Group has significant transactions with related parties on terms agreed between the parties as follows:

Group2000$

IncomeContract revenue from affiliated companies 633,020

ExpensesRental expenses paid to directors 54,000

OthersFees payable to a firm of which a director is a member 80,000


Group 2000 $1,684,022

397,367(41,771)

________2,039,618________

Group 2000 $

633,020

54,000

80,000

59

32. COMMITMENTS

(b) Non-cancellable operating lease commitments

The Group has various operating lease agreements for offices and rental of land. Most leases contain renewable options. Lease terms do not contain restrictions on the Group’s activitiesconcerning dividends, additional debt or further leasing.

Group2000$

Future minimum lease payments- not later than 1 year 168,000- 1 year to 5 years 631,000- later than 5 years 1,414,000

________2,213,000________

33. SUBSEQUENT EVENTS

Subsequent to the financial period ended 31 December 2000,

(i) the Company issued 2 ordinary shares of $0.05 each at $1.3 million per share for cash;(ii) the Company was admitted to the official list of the Singapore Exchange Securities Trading Limited on 17 January 2001; and(iii) the Company issued 25,000,000 new ordinary shares of $0.05 each at $0.32 per share pursuant to the initial public offering of the Company. The new shares rank pari passu in all respects with the existing ordinary shares of the Company.


Group 2000 $

168,000631,000

1,414,000________2,213,000________

60

34. SEGMENT INFORMATION

(a) Geographical segments

The Group is organised into 2 main geographical segments, namely:- Singapore- Chinaothers included revenue from Malaysia and other countries and dividend income.

Inter-segment pricing is on an arm’s length basis.

2000 Singapore People’s Republic Others Elimination Group of China

Turnover $ $ $ $ $

External sales 11,547,180 5,582,363 441,647 - 17,571,190Inter-segment sales 1,257,699 199,960 - (1,457,659) -Dividends - - 3,218,339 (3,218,339) -

____________________________________________________________________Total revenue 12,804,879 5,782,323 3,659,986 (4,675,998) 17,571,190

____________________________________________________________________

Segment result 3,687,145 1,276,714 1,802,973 - 6,766,832

Financial expenses (33,503)Financial income 57,740Tax (1,853,360)

_____________Net profit after tax 4,937,709

_____________

Other information

Segment Assets 9,527,199 3,393,135 4,306,319 - 17,226,653Unallocated corporateasset 693,955Consolidated total _________assets 17,920,608

Segment Liabilities (3,404,217) (655,391) (1,154,872) - (5,214,480)Unallocated corporatelliabilities (2,881,550)

___________Consolidated totalliabilities (8,096,030)

___________


61

2000 Singapore People’s Republic Others Elimination Group of China

Turnover $ $ $ $ $

Capital expenditure 4,147,941 59,825 150,000 - 4,357,766Depreciation 252,378 44,084 5,000 - 301,462Amortisation of goodwill 122,462Other non-cash expenses 99,495 217,875 - - 317,370

(b) Business segments

Turnover, assets and capital expenditure are reported according to business segment as follows:

Turnover Assets Capital expenditure 2000 2000 2000 $ $ $

Electronics 8,688,953 8,518,580 2,154,915Pharmaceuticals 7,146,203 7,006,080 1,772,303Others 1,736,034 1,701,993 430,548

___________________________________________________________________17,571,190 17,226,653 4,357,766___________________________________________________________________

35. COMPARATIVE FIGURES

There are no comparative figures as the Company was incorporated and the Group was formed only in the current financial period.


62

$’0002000 1999

Shareholders’ funds 9,131 310

Non-current assetsFixed assets 4,861 795Preliminary expenditure - 9Total non-current assets 4,861 804

Current assetsStock less provision for obsolescence $NIL 659 648Trade debtors 5,448 1,011Work-in-progress 2,105 -Other debtors, deposits and prepayments 927 160Due from affiliated companies (trade) 646 13Due from a director - 24Short-term notes and fixed deposits 897 61Cash and bank balances 1,684 2,550Total current assets 12,366 4,467

Current liabilitiesTrade creditors 1,178 1,307Bills payable - 575Other creditors and accruals 616 982Due to directors 209Progress billings in excess of work-in-progress 262 -Provision for income tax 2,465 427Provision for warranty 244 -Hire purchase and finance lease creditors (current portion) 181 85Term loan (secured) 167 -Bank overdraft (secured) 42 -Proposed dividend 2,344 894Total current liabilities 7,499 4,479

Net current assets/(Liabilities) 4,867 (12)

Non-current liabilitiesHire purchase and finance lease creditors (non-current portion) 180 197Deferred tax 417 285Total non-current liabilities 597 482

Net assets 9,131 310

HYFLUX LTD(formerly known as Hyflux Pte Ltd) AND ITS SUBSIDIARIES PROFORMA FINANCIAL STATEMENTS (Incorporated in Singapore)

The following additional information does not form part of the audited financial statements.PROFORMA BALANCE SHEET AS AT 31 DECEMBER

The accompanying notes are an integral part of the proforma financial statements

63

PROFORMA PROFIT AND LOSS STATEMENT FOR THE YEAR ENDED 31 DECEMBER

The accompanying notes are an integral part of the proforma financial statements


$’000 NOTE 2000 1999Operating RevenueTurnover 20,759 6,929Other operating revenue 449 182Total operating revenue 21,208 7,111

Operating costs and expensesRaw materials and consumables used 6,720 3,432Personel expenses 2,710 1,093Research and development 622 387Depreciation 325 143Other operating expenses 2,235 1,639Total operating costs and expenses 12,612 6,694

Profit from operation 8,596 417Financial income (net) 35 13Profit before tax 8,631 430Income tax 2,261 351Profit after tax 6,370 79Earnings per share (cents) - cBasic 4.4 0.05Diluted 4.4 0.05

64

A. BASIS OF PRESENTATION OF 2000 PROFORMA GROUP

The consolidated financial statements for the Proforma Group for the year ended 31December 2000 is arrived at after making adjustments as were considered necessary inorder to present the financial statements on a consistent and comparable basis, includingnotional adjustments to reflect the investments and share capital of the Company, as if theProforma Group had existed from 1 January 1995.

B. RECONCILIATION OF PROFORMA GROUP’S RESULTS TO STATUTORYACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2000

Profit before taxation $’000

As reflected in the Proforma Statement of Profit and Loss 8,631Less:Subsidiaries’ profits taken as pre-acquisition profits in statutory accounts (1,717)Amortisation of goodwill on consolidation (123)

As reflected in the statutory accounts 6,791

C. EARNINGS PER SHARE

Earnings per share for the year ended 31 December 2000 is calculated based on 144,687,994(1999 : 144,687,994) ordinary shares, the pre-invitation share capital after adjusting for thesub-division of shares.

As there were no share options and warrants granted during the year, the basic and fullydiluted earnings per share are the same.

D. SEGMENTAL INFORMATION

Sales ($’000) Profit before tax($’000)2000 1999 2000 1999

By geographical segmentSingapore 10,916 2,450 4,743 140China 8,586 4,147 3,557 274Others 1,257 332 331 16

Total 20,759 6,929 8,631 430

PROPERTY OF THE GROUP AS AT 31 DECEMBER 2000

Major property of the Group is as follows:Held by a subsidiary

Land area/ Net bookDescription Location Built-in area (sq.m.) Tenure of lease Value $

Production, R & D 40, Changi South Street 2,436/1,580 30 years from 2,841,262 and office building 1, Singapore 486764 1 December 1996

INTERESTED PERSONS TRANSACTIONSInterested persons transactions carried out during 2000 by the Group are as follows:

Group$

Income 633,020Contract revenue from affiliated companies

Expenses 54,000Rental expenses paid to directors

Others 80,000Fees payable to a firm of which a director is a member

NOTES TO THE PROFORMA STATEMENTS 31 DECEMBER 2000 (Amounts in Singapore dollars)These notes are an integral part of and should be read in conjunction with the accompanying proforma financial statements.


65

Distribution of Shareholdings

Size of Shareholdingss No. of Shareholders % No. of Shares %______________________________________________________________________________________________________________

1 – 1,000 143 5.80 143,000 0.091,001 – 10,000 1,601 64.87 10,135,770 5.9710,001 – 1,000,000 716 29.01 32,909,050 19.391,000,001 and above 8 0.32 126,500,174 74.55Total 2,468 100.00 169,687,994 100.00

Twenty Largest Shareholders

Name No. of Shares %

1. Lum Ooi Lin 98,691,576 58.162. HSBC (Singapore) Nominees Pte Ltd 7,950,000 4.693. Murugasu Deirdre 6,913,016 4.074. DBS Nominees Pte Ltd 4,668,555 2.755. DB Nominees (S) Pte Ltd 3,464,000 2.046. Foo Hee Kiang 2,627,326 1.557. OCBC Securities Private Ltd 1,098,000 0.658. Ng Koon Hwi 1,087,701 0.649. Koh Lip Lin 935,977 0.5510. Wong Ming Keong 723,161 0.4311. Gan Leong Ming 703,770 0.4112. Phillip Securities Pte Ltd 679,000 0.4013. United Overseas Bank Nominees Pte Ltd 647,000 0.3814. UOB Kay Hian Pte Ltd 576,000 0.3415. Oversea-Chinese Bank Nominees Pte Ltd 416,000 0.2516. Lim & Tan Securities Pte Ltd 409,000 0.2417. Koh Ee Fong 400,000 0.2418. Kwa Ching Tze 300,000 0.1819. Loh Boon Song Kevin 300,000 0.1820. Tan Kok Chee 300,000 0.18Total 133,890,082 78.33

Register of Substantial Shareholders

Name No. of Shares held as Direct Interest No. of Shares held as Deemed Interest1. Lum Ooi Lin 98,691,576 Nil

STATISTICS OF SHAREHOLDINGS AS AT 16 APRIL 2001

66

HYFLUX LTD(Incorporated in the Republic of Singapore)

NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN THAT the Annual General Meeting of the Company will be held at Ocean 7, Level 2, The Pan Pacific Hotel, Marina Square,7 Raffles Boulevard, Singapore 039595 at 2.00 pm for the following purposes :

AS ORDINARY BUSINESS

1. To receive and adopt the Directors’ Report and the Audited Accounts for the financial period from 31 March 2000 (date of incorporation) to 31 December 2000,together with the Auditors’ Report thereon. (Resolution 1)

2. To declare a final dividend of 0.5 cents per share, less tax at 24.5% amounting to S$644,362 for the financial period ended 31 December 2000. (Resolution 2)

3. To re-elect the following Director retiring by rotation pursuant to Article 89 of the Company’s Articles of Association :

1) Dr Deirdre Murugasu (Resolution 3)

4. To re-elect the following Directors retiring by rotation pursuant to Article 88 of the Company’s Articles of Association :

1) Mr Lee Joo Hai (Chairman of Audit Committee) (Resolution 4)2) Mr Teo Kiang Kok (Member of Audit Committee) (Resolution 5)

5. To re-appoint Messrs Arthur Andersen as Auditors and to authorise the Directors to fix their remuneration. (Resolution 6)


67

AS SPECIAL BUSINESS

6. To consider and, if thought fit, to pass the following resolution as an Ordinary Resolution, with or without modifications :

“THAT pursuant to the provisions of Section 161 of the Companies Act (Chapter 50) and subject to Clause 941(3) of the Listing Manual of Singapore ExchangeSecurities Trading Limited, authority be and is hereby given to the Directors of the Company to issue Shares in the Company (whether by way of rights, bonus orotherwise) at any time and upon such terms and conditions and for such purposes and to such persons as the Directors may in their absolute discretion deem fit,provided that the aggregate number of Shares to be issued pursuant to this resolution does not exceed 50% of the then existing issued share capital of theCompany, of which the aggregate number of Shares to be issued other than on a pro-rata basis to shareholders of the Company does not exceed 20% of the thenexisting issued share capital of the Company, and, unless revoked or varied by the Company in general meeting, such authority shall continue in force until theconclusion 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 the earlier.”

(Resolution 7)

7. To transact any other business that may be properly transacted at an annual General Meeting.

BY ORDER OF THE BOARD

Lim Kim SengCompany Secretary

Date : 10 May 2001Singapore


68

Explanatory Notes on Special Business to be transacted :

1. Mr Lee Joo Hai and Mr Teo Kiang Kok, when re-elected, will remain as Chairman of Audit Committee and member of the Audit Committee respectively.Both are considered as Independent Directors.

2. The ordinary resolution (7) proposed in item 6 above, if passed, will empower the Directors of the Company from the date of the above Meeting until the next AnnualGeneral Meeting to issue shares in the Company not exceeding 50% of the issued share capital of the Company for the time being, of which the aggregate number ofshares issued other than on a pro-rata basis to existing shareholders does not exceed 20% of the Company’s issued share capital, for such purposes as they considerwould be in the interest of the Company. This authority will, unless revoked or varied at a general meeting expire at the next Annual General Meeting of the Company.

Notes :

1. A member of the Company entitled to attend and vote at the Annual General Meeting is entitled to appoint not more than two proxies to attend and vote on his/herbehalf. A proxy need not be a member of the Company.

2. A member of the Company which is a corporation is entitled to appoint its authorised representatives or proxies to vote on its behalf.

3. The instrument appointing the proxy must be deposited at the registered office of the Company at 40 Changi South Street 1, Singapore 486764 not less than 48hours before the time appointed for holding the Annual General Meeting or any adjournment thereof.

NOTICE OF BOOKS CLOSURE DATE

NOTICE IS HEREBY GIVEN that the Share Transfer Books and Register of Members of the Company will be closed from 6 June 2001 to 7 June 2001, both dates inclusivefor the purpose of determining Members’ entitlements to the dividend to be proposed at the Annual General Meeting of the Company to be held on 25 May 2001.

Duly completed registrable transfers in respect of shares in the Company received up to the close of business at 5.00 pm on 5 June 2001 by the Company’s Share Registrar,Lim Associates (Pte) Ltd, will be registered to determine Members’ entitlements to such dividend. Members whose Securities Accounts with the Central Depository (Pte)Ltd are credited with shares in the Company as at 5.00 pm on 5 June 2001 will be entitled to such proposed dividend.

The proposed dividend, if approved at the Annual General Meeting to be held on 25 May 2001, will be paid on 20 June 2001.

69

HYFLUX LTD(Incorporated in the Republic of Singapore)PROXY FORM

I/We, __________________________________________________________________________ (name) of

________________________________________________________________________________ (Address)being a member/members of Hyflux Ltd (“Company”), hereby appoint

Name Address NRIC/Passport Number Proportion of Shareholdings (%)

And/or (delete as appropriate)

Name Address NRIC/Passport Number Proportion of Shareholdings (%)

as my/our proxy/proxies to vote for me/us on my/our behalf and, if necessary, to demand a poll, at the Annual General Meeting of the Company to be held on 25 May 2001and at any adjournment thereof.The proxy shall vote on the Resolutions set out in the Notice of the Meeting in accordance with my/our direction as indicated with an “X” in the appropriate space below.Where no such direction is given the proxy may vote as he will or abstain from voting on any matter at the Meeting or any adjournment thereof.

ORDINARY BUSINESS FOR AGAINSTResolution 1 To receive and adopt the Directors’ Report and the Audited Accounts for the financial period

from 31 March 2000 (date of incorporation) to 31 December 2000, together with the Auditors’Report thereon.

Resolution 2 To declare a final dividend of 0.5 cents per share, less tax at 24.5% amounting toS$644,362 for the financial period ended 31 December 2000.

Resolution 3 Re-election of the following Director pursuant to Article 89 of the Company’s Articles of Association :1) Dr Deirdre Murugasu

Re-election of the following Directors pursuant to Article 88 of the Company’s Articles of Association :

Resolution 4 1) Mr Lee Joo Hai

Resolution 5 2) Mr Teo Kiang Kok

Resolution 6 Re-appointment of Auditors.

IMPORTANT: Please read notes overleaf

70

SPECIAL BUSINESS FOR AGAINST

Resolution 7Ordinary Resolution : -Authority to issue shares

Dated this day of 2001Total number of Shares

__________________________________________________Signature(s) of member(s) or Common Seal

NOTES:

1. Please insert in the space provided the total number of Shares held by you. If you have Shares entered against your name in the Depository Register (as definedin 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 ofMembers of the Company, you should insert that number of Shares. If you have Shares entered against your name in the Depository Register and registered in your namein 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 theRegister 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 entitled to attend and vote at a meeting of the Company is entitled to appoint one or two proxies to attend and vote in his stead. A proxy need not be amember of the Company.

3. Where a member appoints two proxies, the appointments shall be invalid unless he specifies the proportion of his shareholding (expressed as a percentage of thewhole) to be represented by each proxy.

4. The instrument appointing a proxy or proxies must be deposited at the registered office of the Company at 40 Changi South Street 1, Singapore 486764 not lessthan 48 hours before the time appointed for holding the Annual General Meeting.

5. The instrument appointing a proxy or proxies must be under the hand of the appointor or of his attorney duly authorised in writing. Where the instrument appointinga proxy or proxies is executed by a corporation, it must be executed either under its common seal or under the hand of an officer or attorney duly authorised.

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 theAGM, in accordance with Section 179 of the Companies Act, Chapter 50 of Singapore.

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 theappointor 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 enteredin the Depository Register, the Company may reject any the instrument appointing a proxy or proxies if the member, being the appointor, is not shown to have Sharesentered against his name in the Depository Register as at 48 hours before the time appointed for holding the AGM, as certified by The Central Depository (Pte) Limited tothe Company.

PROXY FORM

HYFLUX LTD

40,Changi South Street 1. Singapore 486764Tel : (65) 214 0777 Fax : (65) 214 1211

email : [email protected]

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