Contents

Significant Corporate Events

Group CEO and President’s Message

Board of Directors

Corporate Information

Company Profile

Corporate Structure

Review of Operations

Financial Highlights

Financial Information

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Significant Corporate Events

January

April

June

July

August

September

October

December

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Listed on the Singapore Stock Exchange and made aninitial public offer of 17% of our issued share capital at$0.32 a share.

Official opening of our new HQ at 40 Changi South Street1, Singapore 486764.

Bought a 50-year leasehold land at Pudong, Shanghai,China for US$473,000 to erect our own factory buildingfor our China subsidiary.

Made a private placement of 5% of our issued sharecapital to 2G Capital Pte Ltd at $0.55 a share.

Bought a 60-year leasehold factory premise at 5 ChangiSouth Street 1, Singapore 486793 for $3.5 million toprovide additional space for production and forwarehousing.

Pre-qualified with Mirant Asia-Pacific Ltd as a consortiumto bid for the project to supply desalinated water by theprivate sector to the Public Utilities Board of Singapore(“PUB”).

Granted a 7-year tax pioneer certificate commencing on1 September for the manufacture of membranes subjectto certain conditions. (Officially notified of the award ofpioneer status in January 2002).

Acquired a 55% interest in Hangzhou Zheda HyfluxMembrane Technology Co Ltd for RMB 20 million.

Launched Hyflux Employees’ Share Option Scheme.

Awarded our maiden municipal and our biggest contractto date to supply PUB with process equipment for a high-grade water reclamation plant at Bedok, Singapore for$16.1 million.

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In 2001, we made great progress on the strategic frontsof strengthening our fundamentals and growing ourbusiness in a tough economic climate.

Our growth strategy is to make the quantum leap intothe big league by taking on bigger value projects bothin the industrial market, our niche business and in themunicipal sector, a new market for us. To support thisgrowth direction, we took strategic steps to strengthenour business fundamentals by way of:

• Increasing our equity base;• Building up our operational capabilities; and• Forming strategic alliances.

Increasing Our Equity Base

In January, we became a public company listed on theSingapore Stock Exchange and made an initial publicoffering of about 17% of our issued share capital at$0.32 a share. This was followed by a privateplacement of 5% of our issued share capital in Juneat $0.55 a share. As a result of these 2 exercises andaided by contributions from our retained earnings,our total shareholders’ equity grew to $31.4 millionas at 31 December 2001, an increase of $21.5 millionover the year.

Looking ahead, as we identify more strategicopportunities to grow the business, we may need toraise further capital.

Building Operational Capabilities

In Singapore, we bought a 60-year leasehold factorybuilding at 5 Changi South Street 1 for $3.5 million

Ms Lum Ooi Lin, Olivia

that doubles the available area for our operations. Thisallowed us to increase the number of our membranemodules production lines, expand our fabricationworkshop and upgrade our quality and research anddevelopment laboratory. Simultaneously we beefed upour engineering and our technical workforce.

In China, we have begun construction on our newfactory on a 50 year leasehold land bought forUS$473,000 (S$865,000). The first phase, whencompleted in mid-2002, will triple our fabricationcapabilities in China. Located in Pudong, Shanghai,this new facility will also serve as our sales andservicing centre and our administrative hub for ourfast growing China operations that include arepresentative office in Guangzhou and a newsubsidiary in Hangzhou, Zhejiang Province asdescribed below.

We took a 55% equity interest in Hangzhou ZhedaHyflux Membrane Technology Co Ltd for RMB 20million (S$4.2 million) to extend our reach in the vastChina market. The other major shareholder is ZhejiangUniversity in Hangzhou. This investment gives usaccess to patented membrane technology owned bythe joint venture and a pool of talents in membranetechnologies at Zhejiang University.

Forming Strategic Alliances

We formed an alliance with Mirant Asia-PacificLimited that was pre-qualified for the tender tobuild, own and operate Singapore’s first seawaterdesalination plant to supply potable water to thePublic Utilities Board of Singapore (“PUB”). Thisalliance merged with another pre-qualified

Group CEO andPresident’s Message

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consortium of Ondeo Services and Ondeo Degremontin 2002 to form a new consortium that is approvedby the PUB as a pre-qualified bidder for thedesalination project.

As opportunities arise, we shall explore forming otheralliances that will give us access to strategic markets,technologies or both.

Impact on Performance

While pressing ahead with building up our businessinfrastructure despite an economic recession, we alsostepped up our marketing drive, especially into themunicipal water treatment market. Our efforts borefruits when we were awarded the open tender tosupply PUB with process equipment for a high-gradewater reclamation plant at Bedok, Singapore. With acontract value of $16.1 million, this order is our largestto date and our first in the municipal sector. Moresignificantly, it underlines our customers’ confidencein our delivery capabilities for large projects that nowform part of our marketing space. Indeed thesedevelopments already had a positive impact on ourfinancial performance in 2001 with revenue growingby 31% and profit after tax by 16%.

Outlook

We entered the New Year with a stronger balance sheetand a larger order book of about $20 million. I amoptimistic that the Group is on the right track toachieving another year of growth in 2002. My optimismstems from the resilient demand we are seeing in ourmarket. In Singapore, the industrial market shows signs

of picking up in tune with the economic rebound inthe USA. The municipal sector in Singapore also has anactive pipeline of projects as the Governmentimplements its Green Plan 2012 to conserve and torecycle up to 25% of the Republic’s water needs. InChina, demand from both the industrial and themunicipal markets continue to be robust. Elsewhere inthe region, we have opened a representative office inKuala Lumpur, Malaysia to increase our presence there.Together with our enhanced capabilities in Singapore,in Shanghai and in Hangzhou, we are poised to play abigger role in the regional market, especially inSingapore and in China.

On the global scene, in a message for this year’s WorldWater Day on 22 March 2002, United NationsSecretary-General, Kofi Annan warned, “Fiercecompetition over water resources has prompted fearsthat water issues contain the seeds of violent conflict.”Indeed in a report to mark this annual event, the UNestimates that by 2025, if present consumptionpatterns persist, about 5 billion people will be livingin areas where it will be difficult or impossible to meettheir needs for fresh water. Measures needed toaddress this increasingly grave water shortagesituation will underpin the continued strong growthin demand for water treatment world-wide.

In closing, I wish to thank our customers, our suppliersand our business partners for their continued support,particularly in the difficult economic climate of 2001.

I am also thankful for the support from ourshareholders and am pleased to propose a bonus issueof 1 share for every 4 shares held.

For the counsel and the contributions of our boardof directors, I am truly grateful and wish to takethis opportunity to welcome Mr Gay Chee Cheong tothe board.

To our dedicated employees, I wish to express myheartfelt appreciation. Working together as a team,I am confident that we will be able to achieve ourquest of building a world-class company that excelsin delivering top-notch products and services to ourcustomers, in creating superior returns to ourshareholders, in offering meaningful, rewardingcareers to our employees and in making positivecontributions to the societies in which we operate.

Ms Lum Ooi Lin, OliviaGroup CEO and President

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Board of DirectorsMs Lum Ooi Lin, OliviaGroup CEO and PresidentManaging Director of Hyflux Ltd

Dr Deirdre MurugasuExecutive Vice President

Mr Foo Hee KiangExecutive Vice President

Mr Lee Joo HaiIndependent Director

Mr Teo Kiang KokIndependent Director

Mr Gay Chee CheongIndependent Director(Appointed on 3 August, 2001)

Sitting front from left:Dr Deirdre MurugasuMs Lum Ooi Lin, Olivia

Standing behind from left:Mr Lee Joo HaiMr Gay Chee CheongMr Teo Kiang KokMr Foo Hee Kiang

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Corporate Information

Company Secretary

Audit Committee

Registered Office

Mr Lim Kim Seng

Mr Lee Joo Hai (Chairman)Mr Teo Kiang KokMs Lum Ooi Lin, Olivia

Mr Gay Chee CheongMs Lum Ooi Lin, Olivia

40 Changi South Street 1Singapore 486764Tel: (65) 6214 0777Fax: (65) 6214 1211

Lim Associates (Pte) Ltd10 Collyer Quay #19-08Ocean BuildingSingapore 049315

Arthur AndersenCertified Public Accountants10 Hoe Chiang Road #18-00Keppel TowersSingapore 089315

The DevelopmentBank of Singapore Ltd6 Shenton WayDBS Building Tower OneSingapore 068809

Employee ShareOption Committee

Share Registrarand Share

Transfer Office

Auditors andReporting

Accountants

Banker

ManagementTeam – China

Management Team– Singapore

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Company ProfileHyflux… A Preview

Since starting business in 1989, Hyflux and itssubsidiaries (“the Group”) have evolved to becamea specialist in manufacturing customised, membrane-based water treatment systems for both the industrialand the municipal markets. The Group provides anintegrated suite of turnkey services, including design,engineering, fabrication, commissioning, operationand maintenance of liquid treatment plants forvarious applications such as water treatment, high-grade water production, process stream purification,wastewater treatment and water recycling. Hyfluxis the first home-grown company in the watertreatment industry to be listed on the SingaporeExchange on January 17, 2001.

The Group’s facilities in Singapore encompassmembrane manufacturing lines, a fabrication yard, aQuality and Research & Development laboratory andthe corporate headquarters. These are housed in 2leasehold factory premises at Changi South Street 1.In 1994, the Group set up operations in Shanghai,

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In addition to serving the industrial market, theGroup, in 2001, made a groundbreaking inroad intothe municipal water treatment market. It wasawarded a contract by the Public Utilities Board ofSingapore for the turnkey supply of a high-gradewater reclamation plant at Bedok, Singapore.

As at year-end 2001, the Group has a workforceof 257 employees. Just under half of these areengineering and technical personnel. In the Singaporeoperation, the engineering team is a mix of local andforeign talents while the China operations, have alargely local workforce both at the management andthe staff level.

China to provide a base for its sales, fabrication andcustomer servicing activities in China. To extend itsreach in this huge market, the Group also has arepresentative office in Guangdong, GuangzhouProvince and a membrane manufacturing subsidiaryin Hangzhou, Zhejiang Province.

The Group has, over the years, built many watertreatment systems for multinational and othercustomers in Asia and as far as Africa. With in-houseResearch & Development capabilities, the Groupdevelops and applies proprietary membranetechnology to serve customers in diverse industrialsectors such as electronics, life sciences, chemicals,textiles, and food and beverage.

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Hyflux Ltd

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Hydrochem (S)Pte Ltd

HyfluxEngineering

Pte Ltd

HangzhouZheda HualuMembrane

EngineeringCo. Ltd

HydrochemEngineering (S)

Pte Ltd

HydrochemEngineering(Shanghai)

Co., Ltd

100% 100% 55% 100%

100%

Corporate Structure

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Marketing Review

In 2001, we extended our marketing space into themunicipal water treatment sector by winning the opentender to supply the Public Utilities Board of Singapore(“PUB”) with process equipment for a high-gradewater reclamation plant at Bedok, Singapore. Thisorder, at a contract value of $16.1 million, is our largestto date and our first from the PUB. In addition, PUBhas pre-qualified our consortium with Mirant Asia-Pacific Limited to bid for the supply of desalinatedwater.

In our bread-and-butter industrial water treatmentmarket, though we had to contend with a widespreadeconomic slowdown in 2001, we were able to growsales in this market by 8% year-on-year to $22.4million. Sales to China rose 44% to S$12.4 million,thanks to stronger demand from the life science

industry. As a result, China overtook Singapore as ourlargest industrial market, accounting for 55% of totalindustrial sales. Sales in Singapore fell victim to therecession, plunging by 41% to $6.4 million. Even so,Singapore sales still represented 29% of totalindustrial sales. The balance 16% of our industrial saleswas to other countries such as Malaysia, Thailand andSouth Africa. These sales, attributable to customersin other industries such as textiles and chemicals, roseby 191% to $3.7 million.

Our order book carried over into the New Yearincreased from about $5 million in 2000 to $20 millionin 2001. Going forward, our strategy is to continue togrow our industrial market while selectively pursuingthe larger municipal projects. Our market focus willcontinue to be on Singapore, China and the otherASEAN nations.

Review of Operations

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Production Facilities

In November 2001, we took possession of a newlypurchased factory at 5 Changi South Street 1,Singapore 486793. This facility, with a built-in areaof about 2,818 sq metres, was renovated to houseour fabrication workshop, additional membranemanufacturing lines and warehouse.

Personnel

Our total number of employees grew from 133 in thebeginning of the year to 257 by year-end, largely dueto the inclusion of the headcount from our Hangzhouinvestment. In our Shanghai office, the increase in staffstrength was mainly in our engineering and technicalteams and our sales force.

OtherCountry Life Sciences Electronics Municipal Industries Total

($’000) ($’000) ($’000) ($’000) ($’000)

2001 2000 2001 2000 2001 2000 2001 2000 2001 2000

Singapore 3,900 5,496 1,705 5,075 4,831 – 783 345 11,219 10,916

China 6,918 4,629 3,579 3,322 – – 1,867 635 12,364 8,586

Others – – – 273 – – 3,652 984 3,652 1,257

Total 8,623 10,125 7,479 8,670 4,831 – 6,302 1,964 27,235 20,759

Number of Employees 2001 2000

Singapore 82 84

Hydrochem Engineering (Shanghai) Co., Ltd. andGuangzhou representative office 85 49

Hangzhou Zheda Hyflux MembraneTechnology Co Ltd and subsidiary 90 0

Total 257 133

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Financial Review

In 2001, sales grew by 31% to $27.2 million on theback of strong demand from China and the municipalmarket in Singapore. Raw materials at $8.7 millionwere the biggest cost item, accounting for 32% ofsales. This yielded a gross profit margin of 68%,unchanged from last year.

Other operating costs and expenses rose by 72% to$8.6 million. This reflected our increased investmentin people, technology and facilities to build a world-class business. At the bottom line, the Group’s profitattributable to shareholders increased 16% to $7.4million, giving a net profit margin of 27%, comparedto 31% last year.

Higher work-in-progress and stocks lifted workingcapital to a high of $21.2 million as at 31 December2001, from an opening balance of $5.5 million.Boosted by share issues and retained earnings,shareholders’ equity increase from $9.1 million atthe start of the year to $31.4 million at year-end.This yielded a return on equity in 2001 of 23% asagainst 70% in 2000 based on the year-end equitybalances. Debt to equity ratio stood at 0.09 at year-end 2001, compared to 0.06 a year ago, due to loanfacilities extended to the Hangzhou subsidiary.

Barring unforeseen circumstances, we expect tocontinue to grow both sales and profit in thecurrent year.

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Proforma Group Financial SummaryFinancial Year End - 31 December

S$’000 1998 1999 2000 2001

Turnover 6,391 6,929 20,759 27,235Profit Before Tax 1,058 430 8,631 9,448Minority Interests – – – 5Profit Attributable to Shareholders 681 79 6,370 7,355

Fixed Assets 332 795 4,861 15,067Current Assets 4,239 4,467 12,366 28,180Current Liabilities 2,595 4,479 7,499 7,018Non-current Liabilities 284 482 597 1,513Shareholders’ Equity 1,719 310 9,131 31,366Minority Interests – – – 3,350

Net Tangible Assets per share (cents) 1.17 0.21 6.30 15.6Earnings per share (cents) 0.47 0.05 4.40 4.23Dividend per share (cents) 0.00 0.00 0.60 –

Financial Performance – TurnoverFinancial Year Ended 31 December

Financial Performance – PBTFinancial Year Ended 31 December

1998

1999

2000

2001

S$m

Geographical Breakdown – TurnoverFinancial Year Ended 31 December

1998

1999

2000

2001

S$m 5 100 15 20 25

6.4

6.9

20.8

1998

1999

2000

2001

S$m 0 2.0 4.0 6.0 8.0 10.0 12.0

2.42.7

1.32.5

4.10.3

10.98.6

1.3

0 2.0 4.0 6.0 8.0 10.0 12.0

2.70.2

3.62.3

2.32.4

8.710.1

2.0

Electronics Life Sciences OthersSingapore PRC Others

Segmental Breakdown – TurnoverFinancial Year Ended 31 December

0 1PBT Margin

1998

1999

2000

2001

S$m

Financial Highlights

2 3 4 5 6 7 8 9 10

1.1

0 5 %10 15 20 25 30 35 40 45

0.4

16.6

41.68.8

6.2

Margin

Breakdown in Turnover Financial Year Ended 31 December, 2001

By Customers’ Industry By Geographical Region

Electronics 27%

Others 23% Others 14%

PRC 45%

Singapore 41%

30

27.2

7.58.6

6.34.8

14.0

11.212.4

3.7

Municipal

9.434.6

Life Sciences 32%

Municipal 18%

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