Multi-Chem Limited Annual Report 2006 · “Multi-Chem” or “Company” : Multi-Chem Limited...

CONTENTS

Multi-Chem LimitedCompany’s Registration No. 198500318Z

11 Tuas Avenue 5Singapore 639337Tel: (65) 6863 1318Fax: (65) 6863 1618

www.multichem.com.sg

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Defi nitions • 1

Corporate Profi le • 2

Corporate Data • 3

Board of Directors • 4

Management Team • 6

Statement From The Chairman • 7

Operations Review • 12

Prospects and Future Plans • 14

Signifi cant Events • 17

Group Structure • 20

Financial Highlights • 21

Financial Review • 26

Value Added Statement • 32

Investor Relations • 33

Information on Employees • 34

Corporate Governance Report • 36

Corporate Directory • 46

Financial Contents • 48

CONTENTS

Multi-Chem has been engaged as a value added supplier to PCB manufacturers for close to two decades. With the ability to apply advanced technologies, a skilful and dedicated production team and customer oriented services, Multi-Chem has emerged as the leading drilling and routing service provider in terms of capacity and technology in South East Asia and Eastern China. In addition to being a service provider to PCB manufacturers, the Company is also in the complementary business of distribution of PCB specialty chemicals and related materials. Its distribution business extends to the IT arena, where Multi-Chem, through the M.Tech group, is engaged in the distribution of IT products since 2002. The M.Tech group is a leading regional IT products distributor, carrying best-of-breed products from industry leading vendors and with a presence in 11 cities in 8 countries.

THE MULTI-CHEM GROUP’S BUSINESS

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1Multi-Chem Limited AR 06

DEFINITIONS

In this Annual Report, the following defi nitions apply throughout where the context so admits:“Group” : The Company and its subsidiaries“Multi-Chem” or “Company” : Multi-Chem Limited“M.Tech” : One or more of the M.Tech companies

SUBSIDIARIES“M-Precision” : M-Precision Tech Sdn. Bhd.“M.Tech Shanghai” : M.Tech (Shanghai) Co., Ltd.“M.Tech Hong Kong” : M.Tech Products (HK) Pte Limited“M.Tech Indochina” : M-Security Technology Indochina Pte. Ltd.“M.Tech Indonesia” : PT. M.Tech Products“M.Tech Malaysia” : M-Security Technology Sdn. Bhd.“M.Tech Philippines” : M.Tech Products Philippines, Inc.“M.Tech Singapore” : M.Tech Products Pte Ltd“M.Tech Thailand” : M-Solutions Technology (Thailand) Co., Ltd.“M.Tech Training Centre” : M.Tech Training Centre Pte. Ltd.“Multi-Chem Laser” : Multi-Chem Laser Technology (Suzhou) Co., Ltd.“Multi-Chem Suzhou” : Multi-Chem (Suzhou) Co., Ltd.“Multi-Chem Wuxi” : Multi-Chem Electronics (Wuxi) Co., Ltd.“Multi-Chem Kunshan” : Multi-Chem Electronics (Kunshan) Co., Ltd“SecureOneAsia” : SecureOneAsia Pte. Ltd.

ASSOCIATES“HPTec Singapore” : Hawera Precision Tec Pte Ltd“Multi-Chem Philippines” : Multi-Chem Electronics Philippines Corporation

OTHER TERMS“AC” : Audit Committee“Board” : Board of Directors“CNC” : Computer numeric controlled“FY” : Financial year“IT” : Information technology“M” : Million“NC” : Nominating Committee“PAT” : Profi t after tax“PBT” : Profi t before tax“PCB” : Printed circuit board“RC” : Remuneration Committee


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2 Multi-Chem Limited AR 06

CORPORATE PROFILE

Multi-Chem is a drilling and routing service provider and a distributor of specialty chemicals and materials to PCB manufacturers. Incorporated in 1985, Multi-Chem was listed on SESDAQ in January 2000 and upgraded to the Main Board of The Singapore Exchange in November 2000.

Already established in South East Asia, we expanded to Suzhou, China in 2002. In 2003, we expanded into Wuxi, China and commenced the provision of routing

services to our customers in both China and Singapore. In 2004, we moved into laser drilling in China which complements our strengths in mechanical drilling and allows us to drill microvia of sizes not achievable by mechanical drilling. In 2006, we expanded into Kunshan, China.

We are currently the leading PCB drilling and routing provider, in terms of both capacity and technology, in Singapore, and in the Huadong area in China (Eastern China, in particular, Shanghai, Suzhou, Kunshan and Wuxi regions).

In May 2002, we diversified into the business of IT distribution where we carry internet security and network storage products from industry leading vendors.

Through Multi-Chem’s subsidiaries under the M.Tech umbrella, our IT business has expanded in both product range and geographical coverage since inception and now spans Singapore, Malaysia, Thailand, Vietnam, Indonesia, Philippines, Hong Kong and China.

We started an IT training centre in Singapore in late second quarter of 2004 and are authorised to conduct training for Nokia, Check Point and RSA courses. We were subsequently appointed as authorised training provider for Nokia courses in China.

Today, the Group comprises the Company, 15 subsidiaries, 2 representative offi ces, 2 branches and 2 associated companies, with a staff strength of more than 1000.



CORPORATE DATA

Board of Directors

Foo Suan SaiHan Juat HoonHo Boon Chuan WilsonToshiaki SuzukiWong Meng YengChew Thiam KengLim Keng Jin

Company Secretaries

Ho Boon Chuan WilsonLim Ka Bee

Audit Committee

Wong Meng Yeng (Chairman)Chew Thiam KengToshiaki SuzukiLim Keng Jin

Nominating Committee

Chew Thiam Keng (Chairman)Foo Suan SaiWong Meng YengLim Keng Jin

Remuneration Committee

Lim Keng Jin (Chairman)Wong Meng YengChew Thiam KengToshiaki Suzuki

Registered Offi ce

11 Tuas Avenue 5 Singapore 639337Tel: (65) 6863 1318Fax: (65) 6863 1618

Share Registrar

M & C Services Private Limited138 Robinson Road #17-00 The Corporate Offi ce Singapore 068906

Independent Auditor

PricewaterhouseCoopers8 Cross Street #17-00 PWC Building Singapore 048424Audit partner: Soh Kok LeongYear of appointment: 2004

Internal Auditor

Yang Lee & Associates10 Anson Road #13-16 International Plaza Singapore 079903

Principal Bankers

DBS Bank Ltd6 Shenton Way DBS Building Tower One Singapore 068809

HSBC Limited21 Collyer Quay #08-01 HSBC Building Singapore 049320

KBC Bank N.V. Singapore Branch30 Cecil Street #12-01 Prudential Tower Singapore 049712

Share Listing

The Company’s shares are listed on the Main Board of the Singapore Exchange Securities Trading Limited since November 2000

General

For further information about Multi-Chem, please contact the secretariat at the registered offi ce

E-mail: [email protected] [email protected]

Websites: http://www.multichem.com.sg http://www.mtechpro.com

Chinese website: http://ir.zaobao.com/multichem/multichem.html



Foo Suan Sai, Chairman, Chief Executive Offi cer and Member of NC

Mr Foo, one of the founding shareholders of Multi-Chem, has more than 20 years of experience in the PCB industry, of which the last 18 years were spent building up the Company. Mr Foo is currently responsible for the overall direction and development of the Group. He holds a Diploma in Chemical Process Technology from the Singapore Polytechnic and a Diploma in Management Studies from the Singapore Institute of Management.

Han Juat Hoon, Chief Operating Offi cer

Mdm Han is a founding shareholder of Multi-Chem. She has been a Director of the Company since 1987 and commenced working in an executive capacity with the Company in 1992. Mdm Han is well versed in factory operations, having held the appointment of factory manager with a chemical company for 12 years from 1980 to 1992. She is responsible for the overall operations of the Group. Mdm Han holds a Diploma in Chemical Process Technology from the Singapore Polytechnic and a Diploma in Management Studies from the Singapore Institute of Management.

Ho Boon Chuan Wilson, Chief Financial Offi cer

Mr Ho was appointed as a Director of the Company in April 2005. He has been with the Company since March 2000. Before joining the Company, he worked for six years in DBS Bank Ltd, specialising in the area of corporate fi nance. A certifi ed public accountant (CPA Singapore) and a chartered fi nancial analyst, he is responsible for the Group’s fi nance, tax and investor relations functions. Since May 2002, he has been responsible for the growth and development of the Group’s IT business. Mr Ho is also currently a Company Secretary of Multi-Chem.

Foo Suan Sai Han Juat Hoon Ho Boon Chuan Wilson

BOARD OF DIRECTORS



Toshiaki Suzuki Wong Meng Yeng Chew Thiam Keng Lim Keng Jin

Toshiaki Suzuki, Non-Executive Director, Member of AC and RC

Mr Suzuki was appointed as a Director of the Company in January 2000. He is currently involved in the Group’s marketing efforts, particularly to Japanese customers. Mr Suzuki graduated from Sophia University of Tokyo in 1958 and has close to 40 years of experience in the PCB industry.

Wong Meng Yeng, Independent Director, Chairman of AC, Member of RC and NC

Mr Wong was appointed as a Director in January 2000. He has been an advocate and solicitor in Singapore for 23 years, with the past 17 years spent as a corporate lawyer. He holds a Bachelor of Law (Hons) degree from the National University of Singapore. He is currently a director in Alliance LLC, a law corporation he co-founded.

Chew Thiam Keng, Independent Director, Chairman of NC, Member of AC and RC

Mr Chew has been on the Board since January 2000. He is currently the Executive Director of Nylect Technology Ltd. Prior to joining Nylect Technology Limited, Mr Chew was the Managing Director cum CEO of KS Energy Services Limited for about 5 years and was the Executive Director of Kian Ann Engineering Limited between 1996 and November 2001. Before that, Mr Chew was with DBS Bank Ltd for nine years working in the areas of banking such as corporate fi nance and retail banking. He is also a director and an audit committee member of several other listed companies. Mr Chew holds a Master degree in Business Administration from the University of Hull and a Bachelor’s degree (Hons) in Mechanical Engineering from the National University of Singapore.

Lim Keng Jin, Independent Director, Chairman of RC, Member of AC and NC

Mr Lim was appointed as a Director of the Company in April 2005. He is currently the non-executive director of G.K.Goh Holdings Limited and has more than 25 years of experience in the stock broking industry. He is a fellow member of the Institute of Chartered Accountants of England and Wales. He was an auditor and accountant in Singapore and England before he joined the stock broking industry in 1971.



MANAGEMENT TEAM

Koh Henry, Senior Manager, Operations

Mr Koh joined the Company as a Service Engineer in May 2000 after completing his university education. He was promoted from QA & Process Manager to Senior Manager (Operations) in November 2005. He is currently responsible for all quality assurance matters and process improvements in the Group’s Manufacturing Services Division. From 1996 to 1997, he worked as an assistant engineer in Hitachi Chemical Asia Pacifi c Pte Ltd. He holds a Bachelor’s degree in Mechanical & Production Engineering from the Nanyang Technological University.

Pui Boon Tiong Eugene, Senior Manager, Equipment & Systems

Mr Pui worked as an engineer with local PCB manufacturers, Motorola Electronics Pte Ltd and WUS Printed Circuits Pte Ltd prior to joining the Company in December 1999. He worked his way up in Multi-Chem from Assistant Production Manager and Equipment Manager to Operations Manager before being named Senior Manager (Equipment & Systems) in November 2005. He currently oversees the operations in the Manufacturing Services Division, which include quality assurance, production and maintenance. He holds a Diploma in Electronics & Computers Engineering from Ngee Ann Polytechnic.

Yang Wen Kuai, Senior Manager, Business (China Operations)

Mr Yang has been with the Company since August 2001. He worked with Multi-Chem for 2 months before being posted to Multi-Chem Suzhou as sales manager and he is based there for the last 6 years. He currently oversees the marketing and business development of the Group‘s operations in China. Before joining the Company, Mr Yang has 8 years of sales experience in the automotive industry in Taiwan.

Lim San San, Financial Controller

Ms Lim has been with the Company since October 2000, where she joined as an accountant and was promoted to Finance Manager and subsequently Financial Controller, a position she currently holds. She assists the Chief Financial Offi cer in the Group’s fi nancial reporting, fi nance and tax functions and works closely with internal and external auditors, tax agent and the bankers in performing her role. Prior to joining the Company, Ms Lim worked for 4 years as an auditor with a local accounting fi rm. Ms Lim is a certifi ed public accountant (CPA Singapore).

Standing from left to right Koh Henry

Pui Boon Tiong Eugene

SittingYang Wen Kuai

Lim San San



STATEMENT FROM THE CHAIRMAN

Dear Shareholders

The Group witnessed another record year in 2006, with a performance that exceeded even the solid performance in 2005, as we garnered our best set of fi nancial results in terms of revenue and profi t since the Company was formed in 1985. Group revenue and after-tax profi t in 2006 are respectively within touching distance of $100M and $15M.

The strong momentum built up from March 2005 continued into 2006 and, despite a slight dip in the second quarter of 2006, the Group’s business generally trended upwards until the end of the year as our business continues to be driven by the buoyant electronics industry and the strong demand for our IT products.

THE GROUPThe Group continues to focus on its China manufacturing services business, which has been the main engine of growth in recent years. With a considerable amount of resources channeled into the manufacturing services business in China in the form of technologically advanced machines and with our factories located in proximity to our customers, the Group has been able to capture new customers and retain existing ones. The Group is hence well positioned to benefi t from additional capacity requirements of the PCB manufacturers based there.

Since March 2002, the Group has been investing in the Huadong area in China, which is known to be one of the fastest growing regions in terms of PCB production volume. To further enhance our position in China, the production facility set up in Kunshan started operations in July 2006 and now houses 28 drilling machines and 20 routing machines. This facility enables the Group to support our customers in the Kunshan area with a faster turnaround time.

“Focusing on our core business area

has enabled Multi-Chem to grow

from strength to strength.”

Foo Suan Sai

Chief Executive Offi cer




As at 31 December 2006, the Group operated a total of 160 CNC drilling machines and 46 CNC routing machines in China, compared to just 8 CNC drilling machines when the Group initially commenced operations there in 2002. In addition to our mechanical drilling operations, the Group is also able to support customers which require laser drilling services, particularly those who manufacture handset PCBs. Multi-Chem Laser currently operates 6 laser drilling machines.

Despite the Group’s expansion in China, the Company continues to be the Group’s headquarter and operates the most advanced CNC drilling machines and inspection equipment to service the high end PCB manufacturers based in Singapore. As at 31 December 2006, the Company had 76 CNC drilling machines and 4 CNC routing machines.

The Group, through the M.Tech companies, diversifi ed into the area of IT security in Singapore and Malaysia in 2002. M.Tech’s geographical reach has since expanded regionally to include Thailand, Vietnam, Philippines, Indonesia, Hong Kong and China. In China, the Group expanded southwards by adding a new Guangzhou offi ce and it now has a presence in the three key cities of Shanghai, Beijing and Guangzhou. In 2006, the Group also added more leading internet security products, including Riverbed and Blue Coat to its product portfolio. In the area of IT security training, the Group is authorized to provide certifi ed IT training for Check Point in Singapore and Nokia and RSA courses regionally.

FINANCIAL PERFORMANCE I last reported record revenue and profi t for the Group for 2005 and I am pleased to report that in 2006, the Group improved on its performance in 2005. The Group registered an increase in revenue of 37%, from $71.3M in 2005 to $97.4M in 2006, the highest annual revenue of the Group since inception.

Approximately 40% of the Group’s revenue is derived from China, while Singapore and ASEAN accounted for 35% and 25% respectively of the Group’s revenue. Revenue from the manufacturing services business made up approximately 49% of the Group revenue while contribution from the IT and PCB distribution business made up about 43% and 8% of the Group revenue respectively in 2006.

The better revenue performance was largely due to the improvement in the electronics business since third quarter of 2005, with particularly strong demand in the second half of 2006. The IT business also grew, with a signifi cant increase in revenue contribution coming from the regional offi ces although Singapore remains the main market.

Profi t before tax increased from $13.0M in 2005 to $17.6M in 2006, an increase of 35%. In line with the record revenue, this was the highest profi t achieved by the Group since inception. This was mainly due to better gross profi t, mainly due to economies of scale from higher utilisation particularly in the manufacturing business in China.



FINANCIAL POSITIONThe Group has kept its balance sheet strong and maintained a healthy financial position. As at 31 December 2006, the net working capital of the Group stood at $12.4M, including cash and cash equivalents of $17.2M. Gearing stood at 66% excluding the convertible notes which is likely to be converted as it is in-the-money, was still considered below industry norm. Shareholders’ funds stood at approximately $59.9M and net asset value per share was 16.8 cents.

DIVIDENDSThe Company is now under the one-tier dividend structure, meaning that the tax payable by the Company constitutes the fi nal tax and the dividend payment will be received tax-exempt in the hands of shareholders.

The Company paid an interim dividend of 0.84 cents per ordinary share, which represents a dividend yield of 3.6% based on the closing price of 23.5 cents as at announcement date.

With a signifi cantly higher gearing in 2006 and with plans for further business expansion in 2007, there was no fi nal dividend declared for the fi nancial year ended 31 December 2006.

BUSINESS OUTLOOKOverall, demand for our products and services was strong in 2006. Moreover with the continuing and robust growth in China, the outlook for the business continues to remain positive.

In the US, the North American PCB industry book-to-bill ratio was 1.05 for February 2007. A ratio of more than 1.00 suggests current demand is ahead of supply, which indicates probable near term growth. PCB producers in Asia, particularly those based in China, continue to remain bullish. Taiwan PCB producers continues to speed up their expansion in China, especially in the Suzhou, Kunshan and Changsu regions of the Jiangsu Province and Taiwan makers of notebook PCBs expect sales to increase by more than 30% in 2007. As such, there is reason to believe that the demand for PCBs, at least in the near term, can be sustained.

The Group aims to maintain its position as the leader both in terms of capacity and technology in the area of PCB drilling and routing services both in Singapore and the Huadong area in China. Furthermore, the trend in outsourcing in the precision drilling and routing of PCBs is expected to continue as the benefi ts of outsourcing are increasingly recognised. Being the leader in this area, Multi-Chem is poised to benefi t from any additional capacity requirements. As our customers produce more, there will also be additional demand for the products under our Distribution Division, including the specialty chemicals that we distribute.



In the IT business, the Group will continue to focus on the distribution of only the top names in IT security products. The Group has also rationalised its product line in order to focus on the key ones, including Nokia, which affi rmed its partnership with M.Tech by appointing us as its only distributor for its internet security products in Singapore, Malaysia, Thailand, Indonesia and Vietnam. The Group extended its presence into Philippines and Hong Kong during the year, after the establishment of Beijing offi ce in early 2006. These overseas offi ces are expected to contribute to the Group’s performance in 2007. The Group will continue to look for further opportunities to expand its geographical reach and product range in 2007.

IT has already become an integral part of doing business. The awareness and the importance of IT security have been growing and applications of IT are now not confi ned only to business area but to homes and travel as well. As economies and companies mature, an increasing amount of the total IT budget is expected to be incurred for IT security. Legislation is also expected to increase awareness. With J-SOX in Japan and the Spam Control Bill recently read in Parliament in Singapore, affected companies are expected to pay more attention to IT security and that can only augur well for the Group.

The IT business commenced in May 2002 and in 2006, contributed $42M to and accounted for around 43% of the Group revenue. More will be expected in 2007.

APPRECIATIONOn behalf of the Board of Directors of Multi-Chem, I wish to thank our management and staff for their commitment and dedication during the past year. Special thanks to my colleagues on the Board for their strong support and valuable contribution.

I would also like to express my sincere appreciation to our shareholders, suppliers, customers and business partners for their valued support.

We will continue to work hard to grow the business and look forward to better performances in the years ahead.

Foo Suan Sai

Group Chairman & Chief Executive Offi cer




OPERATIONS REVIEW



PCB-RELATED BUSINESSThe PCB-related business of the Group performed well in 2006, the second year running that the Group volumes hit record levels. While there was a slight slowdown in the second quarter of 2006, the overall momentum remained strong in 2006 after the electronics sector picked up in late March 2005.

MANUFACTURING SERVICES DIVISIONThe demand for drilling services remained strong

overall for 2006, mainly due to the growth in the China operations. For the Singapore operations, the Group experienced slowdown in the second and fourth quarter of 2006. Drilling service revenue growth alone accounted for nearly 93% of the revenue increase in this Division.

The Group consolidated its leading position in the provision of PCB drilling service by adding new customers to its existing customer base, increasing its mechanical drilling capacity and achieving higher effi ciency from more advanced machines. With a customer base which includes the top PCB manufacturers in both Singapore and the Huadong area in China, the Group is in a good position to capture a signifi cant portion of any increase in demand for outsourced PCB manufacturing services and this translated into higher sales in 2006. To further enhance the Group’s position in China, a production facility was set up in Kunshan in July 2006 to support customers there.

The routing services provided in both Singapore and China recorded a 31% growth year-on-year as the Group increased its routing capacity to tap on the increasing demand in the region.

The laser drilling services since its commencement in April 2004, recorded a signifi cant improvement in 2006 which largely due to the demand for handset PCBs. Although there was a slowdown in second half of 2006, revenue grew by 195% year-on-year.

The Group increased its production capacity in 2006 with the net addition of 77 mechanical drilling machines and 12 routing machines. As at 31 December 2006, the Group had 50 CNC routing machines and 236 CNC drilling machines, majority of which are capable of drilling at speed of 160,000 rpm and above.

OPERATIONS REVIEW


DISTRIBUTION DIVISION

PCBThe Group currently supplies a range of PCB specialty chemicals for the wet processes in PCB production, as well as other PCB-related products, including dry fi lm, cleaning brushes, clean room products and entry and back-up materials to our customers.

The PCB distribution business slowed down in the fi rst quarter of 2006 after a strong second half of 2005. The Group continues to face price reduction pressure from customers and the drop in business for one product line in third quarter of 2006 due to pricing issues also affected the business. The performance was further weakened when a customer discontinued the use of our specialty chemical in mid 2006.

As PCB manufacturers continue to shift production to China and other low cost venues, this business is still expected to experience reduction in volumes, since its operation is mainly confi ned to South East Asia. As this business accounted for 8% of the Group’s revenue in 2006, the reduction is expected to be mitigated by the expected growth in other sectors.

IT The IT business of the Group under the M.Tech companies has expanded every year in both product range and geographical coverage since its commencement in May 2002.

In 2006, the Group started new offi ces in China (Beijing and Guangzhou), Philippines and Hong Kong. The Group also added more leading internet security products, including Riverbed and Blue Coat to its product suite during the year. Of the products that it carries, the Group is also sole distributor for several leading products in selected regions. Several vendors have also extended our partnership into Philippines and Hong Kong when we started our operations there.

The Group is selective of its product range and, unlike a broad based distribution house that carries hundreds of products, the Group has remained focused on selling the best-of-breed IT security products and on delivering value added services to major systems integrators and resellers in Singapore and the region.

The Group currently has a total of 11 offi ces in 8 countries and carries internet security and network storage products from industry leading vendors. The IT business of the Group employs more than 130 staff.



PROSPECTS AND FUTURE PLAN

PCBThe Group witnessed another record year in 2006 in terms of revenue and profitability for its PCB-related business due primarily to a buoyant electronics industry. The strong momentum in the China business from 2005 continued into 2006 which more than offset the slow down in the Singapore manufacturing business both in the second quarter of 2006 and fourth quarter of 2006. China has overtaken Singapore as the Group’s largest manufacturing base in terms of sales, capacity and customer base since 2004 and accounted for 61% of the Group revenue in the manufacturing services division in 2006, increasing from 51% in 2005.

In the US, the North American PCB industry book-to-bill ratio was 1.05 for February 2007. A ratio of more than 1.00 suggests current demand is ahead of supply, which indicates probably near term growth. PCB producers in Asia, particularly those based in China, continues to remain bullish. Taiwan PCB producers continues to speed up their expansion in China, especially in the Suzhou, Kunshan and Changsu regions of the Jiangsu Province (source: Tuesday, January 02, 2007|CENS, extracted from PCB007.com) and Taiwan makers of Notebook PCBs expect sales to increase by more than 30% in 2007 (source: DigiTimes.com Thursday 21 December 2006 “Taiwan notebook PCB makers expect strong sales growth in 2007”).

The Group’s main manufacturing facilities are located in the Suzhou, Kunshan and Wuxi regions of the Jiangsu province where it continues to serve the leading PCB manufacturers in Eastern China. Accordingly, the Group is well positioned to benefi t from any additional capacity requirements of the PCB manufacturers based in those areas.

In addition to its leading position in Singapore, the Group is also currently the leading PCB drilling and routing service provider in terms of capacity and technology in Eastern China and the setting up of a production facility in Kunshan, the operations of which commenced in July 2006, further enhanced our position. This production facility enables the Group to support its customers in the Kunshan area with a faster turnaround time due to proximity.

The PCB-related business of the Group is dependent on the overall electronics cycle. With a wider customer base and the available capacity, the Group is well poised to meet any increase in demand for the services we provide.

As at 31 December 2006, the Group has 236 CNC drilling machines, 6 laser drilling machines and 50 routing machines. Included in the Group’s machines currently are 206 drilling machines capable of drilling at speeds of 160,000 rpm and above, which can achieve higher accuracy for micro vias, particularly for hole-sizes of 0.2mm and below.

While the manufacturing services division is expected to grow, the performance of the Group’s PCB-related distribution business will be tied to the demands of its existing customers in South East Asia. In a growing PCB market, this business is expected to continue to grow. However, growth is expected to be limited to the volumes and price reduction pressure from those customers. Price competitiveness also remains a challenge.



IT For the IT distribution business, the Group, through the M.Tech group, will continue to focus on the best-of-breed internet security products. The Group currently carries industry leading products from Nokia, Check Point, RSA Security, NetApp, TippingPoint, Blue Coat, Riverbed, Allot, Foundry Networks, Sophos, Tripwire, Bluesocket, SurfControl, PGP, Patchlink, nCipher, Novell, nCircle and F5.

In addition to its current product business, the Group is also involved in providing certifi ed IT training through M.Tech Training Centre, which is authorised to conduct training for Nokia, Check Point and RSA courses. In China, the Group is also an authorised training provider for Nokia courses. This business is complementary to the core IT distribution business and is expected to bring about more awareness and technical knowledge through the courses conducted.

As at 31 December 2006, the Group’s IT business has a total of 11 offi ces in 8 countries, with a presence extending to North Asia. Following the commencement of its Shanghai operations in December 2004, its Beijing operations in December 2005 and its Guangzhou operations in June 2006, the Group’s IT business expanded further into Philippines (Manila) and Hong Kong in May 2006 and August 2006 respectively. These new overseas offi ces are expected to make positive contribution to the Group’s performance in 2007. For growth, the Group will focus on its best-of-breed products and will continue to look out for opportunities for regional expansion. The Group will also be selective of the products we carry so as to be able to do the best for the vendors that the M.Tech companies represent. The Group intends to work closely with key partners to further promote the products we carry, including organizing marketing events.

Despite the Group’s bright long term outlook in the IT business, events beyond our control could affect business in certain markets. The recent coup and the present political conditions in Thailand could slow growth due to uncertainties and delays in government projects. However, no adverse long term impact is expected.

IT has become an integral part of doing business and awareness of IT has been growing. Reliance on IT has been growing exponentially and applications of IT are now not confi ned only to the business area but to homes and travels as well. Governments around the region are also strong advocates of IT. With this higher reliance on IT comes the need for security.

The higher need for IT security also comes in the form of legislation. In the US, the Sarbanes-Oxley Act of 2002 was introduced in response to the US corporate scandals and has requirements for stringent internal controls, which includes IT controls. Chief information offi cers are responsible for the security, accuracy and the reliability of the systems that manage and report the fi nancial data. Following the lead from the US, Japan has also introduced J-SOX, effective for fi scal years beginning on or after 1 April 2008. J-SOX has similar requirements for internal controls, including a section on IT support, which was added as an internal control element to refl ect the importance of the IT environment to effective internal control.

With the standards imposed by the corporations themselves or by legislation, the needs for IT security are expected to grow. Also, as economies mature and awareness grows, an increasing amount of the total IT budget is expected to be incurred for IT security. These developments can only augur well for the Group.



PROSPECTS AND FUTURE PLAN

PROSPECTS STATEMENTWhile the IT business is expected to grow further in importance to the Group, the PCB-related business is still expected to form the bulk of the Group’s business in 2007. As the outlook in the business of distributing PCB specialty materials and related products continues to remain weak, the performance of the Group will be largely dependent on the performance of the Manufacturing services Division. Given the high fi xed costs nature of this business, a high sales turnover will ensure good profi tability and the reverse holds. As the Group plans to further expand its IT business territorially, the performance of the IT business will also depend on the political and economic climates of the markets the Group is operating in.

Based on the current visibility and market outlook in the region, the Directors are positive about 2007. If there is no let up in the electronics demand and no further deterioration of the political and economic environment of the Group’s key markets, the Directors are optimistic that the performance of the Group in 2007 to be better than 2006.

RISK FACTORSThe Group’s primary business risk is the exposure to the electronics products sector. Our customers are PCB manufacturers most of whom will be exposed to the cyclical nature of the electronics business. Any downturn in the electronics cycle will result in a cutback in outsourcing which will impact the Group negatively. Additionally, with the typically heavy capital investment required in the manufacturing services business, the Group will be adversely affected should there be a downturn in the electronics business due to the high fi xed costs in this business.

The Group’s success in the China market will depend on our ability to maintain our technological, quality assurance, capacity and pricing advantage over our competitors. Additionally, we have to monitor trade debts closely as collection of accounts receivable generally takes longer in China.

The Group, with signifi cant investment in China, is also exposed to the political, legal and economic climates of the country. Such risks pertaining to the political, legal and economic climates extend to the other markets which the Group is operating in.

We are also exposed to foreign exchange risks as we mainly transact with our vendors and customers in Singapore dollars, US dollars, Chinese renminbi, and to a lesser extent, European euro, Thailand baht, Malaysia ringgit, Indonesia rupiah, Philippines peso and Hong Kong dollars. The Company may, from time to time, enter into borrowing and foreign exchange arrangements as currency hedges.

In the area of IT distribution, the Group is subject to risk of reliance on a few key vendors, in respect of their channel strategies, as well as product roadmap. The Group is also exposed to the risks of product obsolescence in respect of the hardware carried. Despite such risks, the Group has taken steps to align with the leading names in the IT arena and as such, there is a good probability that such companies will take steps to ensure that their products maintain the technological edge. The Group also monitors its stock on a quarterly basis and will make provisions where necessary.



SIGNIFICANT EVENTSCORPORATE EVENTS 2006

1Q06

M.Tech became sole distributor for Nokia security solutions in Singapore, Malaysia and Thailand.

M.Tech opened its second offi ce in China in Beijing.

Netapp extends partnership with M.Tech to Vietnam.

M.Tech appointed as regional distributor for Sophos in Singapore, Malaysia, Indonesia and Vietnam.

2Q06

Multi-Chem signed the SGD16M term loan facility agreement with a bank to fi nance the purchase of new CNC mechanical drilling machines and laser machines.

Multi-Chem incorporated Multi-Chem Kunshan and invested a total of 21 CNC mechanical drilling machines and 20 routing machines.

Multi-Chem increased its investment amount and registered capital in Multi-Chem Wuxi to USD25M and USD10M respectively.

M.Tech opened a new offi ce and established a presence in the Philippines.

M.Tech appointed as regional distributor for nCircle, the leader in enterprise-class vulnerability and risk management solutions.

M.Tech appointed distributor for Riverbed, the market leader in enterprise-class wide-area data services (WDS) solutions, in Malaysia, Vietnam, Indonesia and the Philippines.

Sophos extended the partnership with M.Tech to China.

3Q06

M.Tech opened a new offi ce and established a presence in Hong Kong.

Increase in share capital of M.Tech Singapore from SGD1M to SGD4M.

M.Tech Singapore increased its investment in M.Tech Training Centre from 70% to 80% by subscribing to SGD100,000 of new shares.

Sophos extended the partnership with M.Tech to Thailand.

4Q06

Multi-Chem signed the USD6M term loan facility agreement with a bank to fi nance the purchase of new CNC mechanical drilling machines and laser machines.

Riverbed extended the partnership with M.Tech to South China and Hong Kong.

M.Tech appointed distributor for Blue Coat in Malaysia, Thailand and Vietnem. Blue Coat secures web communications and accelerates business applications across the distributed enterprise.



AWARDS AND RECOGNITION

Multi-Chem was selected as one of the 200 companies in FORBES ASIA’s annual Best Under a Billion Selections which showcase the region’s most dynamic publicly traded fi rms with sales of under a billion U.S. dollars.

SIGNIFICANT EVENTS

M.Tech extended its congratulation to Macroview Telecom in Hong Kong on its 15th Anniversary. Macroview Telecom is viewed as one of our major partners which focused on our distributed products in Hong Kong.

Ranked 7th out of 644 companies announcing results for the fi nancial year ends between 31 December 2004 and 31 December 2005.

CTI published on 1 February 2006

Ranked 8th out of 431 companies announcing results for the fi nancial year ends on 31 December 2005.CTI published on 27 June 2006

Ranked 12th out of 535 companies announcing results for the fi nancial year ends from 31 August 2005 to 31 March 2006.

CTI published on 11 September 2006

This is the fi fth year running that the company was ranked among the Top 20.

BUSINESS TIMES CORPORATE TRANSPARENCY INDEX (“CTI”) 2006

Multi-Chem won bronze award for “Best Annual Report Award 2005” for companies with less than $500M in market capitalization, under the Singapore Corporate Award, organized by The Business Times and supported by The Singapore Exchange.



FINANCIAL CALENDAR

28 April 2006

Annual General Meeting and Announcement of 2006 1st quarter results

11 May 2006

Book closure date

23 May 2006

Payment of 2005 fi nal dividends

28 July 2006

Announcement of 2006 half year results

30 October 2006

Announcement of 2006 3rd quarter results

27 January 2007

Announcement and analyst briefi ng of 2006 full year results

27 April 2007

Annual General Meeting and announcement of 2007 1st quarter results

July 2007

Announcement of 2007 half year results

October 2007

Announcement of 2007 3rd quarter results

January 2008

Announcement and analyst briefi ng of 2007 full year results



GROUP STRUCTURE

Dormant Companies

Under Multi-Chem:• M-Precision (100%)

• Multi-Chem Philippines (50%)

(1) M.Tech Thailand deemed to be a wholly owned subsidiary as the Company controls 100% of the voting rights and its fi nancial and operating policies.

(2) HPTec GmbH, a PCB tool manufacturer based in Germany, holds 65% of HPTec Singapore.

Multi-Chem Suzhou100%

Multi-Chem Kunshan

100%

Multi-Chem Wuxi100%

Multi-Chem Laser100%

SecureOneAsia100%

M.Tech Malaysia

100%

M.Tech Thailand1

49%

M.Tech Indonesia

100%

M.Tech Philippines

100%

M.Tech Hong Kong

100%

M.Tech Indochina

100%

M.Tech Shanghai

100%

M.Tech Singapore

73.75%

Guangzhou Branch

Beijing Branch

Hanoi Representive

Offi ce

Ho Chi Minh City Representive

Offi ce

M.Tech Training Centre80%

HPTecSingapore2

35%

MULTI-CHEMLIMITED



FINANCIAL HIGHLIGHTS

GROUP BALANCE SHEETAs At 31 December 2006 ($’000) 2006 2005 2004 2003 2002

Property, plant and equipment 65,982 48,019 40,664 33,059 26,898

Investment in an associated company 1,735 2,084 2,082 1,835 2,711

Investment in a joint venture - - - - 1,182

Other non-current assets 148 132 150 351 351

Other receivables and intangibles - - - - 32

Current assets 56,360 34,914 23,029 24,110 27,246

Current liabilities (43,912 ) (23,408 ) (13,568 ) (11,007 ) (11,601 )

Net current assets 12,448 11,506 9,461 13,103 15,645

Borrowings (18,495 ) (5,386 ) (6,298 ) (6,015 ) (3,174 )

Deferred income tax liabilities (502 ) (732 ) (626 ) (1,130 ) (1,530 )

Other payables - - - (100 ) (440 )

61,316 55,623 45,433 41,103 41,675

Share capital and share premium 36,559 35,604 27,461 27,025 27,214

Other reserves (1,534 ) 810 2,032 2,836 2,806

Retained earnings 24,881 18,486 15,425 11,074 11,536

59,906 54,900 44,918 40,935 41,556

Minority interests 1,410 723 515 168 119

Total equity 61,316 55,623 45,433 41,103 41,675




GROUP PROFIT & LOSSYear Ended ($’000) 2006 2005 2004 2003 2002

Turnover 97,418 71,330 53,002 34,041 26,698

Gross Profi t 31,038 23,084 17,610 10,144 6,413

Other gains/(losses) - net 1,666 953 (265 ) 879 893

Earnings before interest, tax, 27,271 20,804 16,156 9,862 8,323 depreciation & amortisation (EBITA)

Depreciation & amortisation (8,812 ) (7,472 ) (6,497 ) (5,665 ) (6,480 )

Interest expense (686 ) (322 ) (174 ) (771 ) (762 )

Profi t from operations 17,773 13,010 9,485 3,426 1,081

Share of profi t from an associated (119 ) 27 247 (504 ) 906 company/a joint venture

Profi t before income tax 17,654 13,037 9,732 2,922 1,987

Income tax expense (2,960 ) (1,584 ) (1,176 ) (734 ) (373 )

Net profi t 14,694 11,453 8,556 2,188 1,614

Minority interest (360 ) (178 ) (148 ) (49 ) (9 )

Equity holders of the company 14,334 11,275 8,408 2,139 1,605

ANALYSIS (%)Year 2006 2005 2004 2003 2002

Gross profi t margin 31.9 32.4 33.0 30.0 24.0

PBT margin 18.1 18.3 18.0 9.0 7.0

Turnover growth 36.6 34.6 55.7 27.5 15.8

Operating profi t growth 36.6 37.2 176.9 216.9 53.3

Net profi t growth 28.3 33.9 291.0 35.6 (12.9 )




PER SHARE DATA(cents, unless otherwise stated) 2006 2005 2004 2003 2002

Net earnings (basic)1 4.02 3.42 2.66 0.68 0.50

Net earnings (fully diluted)2 3.87 3.30 2.42 0.63 0.49

Net Dividend 0.84 2.61 1.27 1.29 0.63

Net Dividend payout (times) 0.21 0.76 0.48 1.90 1.26

Net assets value3 16.78 15.40 14.23 13.06 13.10

Gross dividend 0.84 2.61 1.58 1.37 0.81

Gross dividend yield (%)4 3.57 11.35 5.56 4.89 5.79

1Number of shares used in the above computation 356.5 329.9 315.7 314.9 324.0 2Number of shares used in the above computation 371.4 346.2 346.8 340.3 326.7 3Number of shares used in the above computation 357.0 356.4 315.7 313.5 317.3 4Based on the closing share price as at the last market day of the year

FINANCIAL RATIOS 2006 2005 2004 2003 2002

Current ratio (times) 1.28 1.49 1.70 2.19 2.35

Return on shareholder’s funds (%) 23.93 20.54 18.72 5.23 3.86

Return on assets employed (%) 11.54 13.24 12.75 3.60 2.75

Debt equity ratio 0.71 0.28 0.25 0.28 0.26

Debt interest cover ratio 1.05 2.00 3.16 1.53 1.21

Debt equity ratio has taken into account outstanding convertible notes. Debt equity ratio exclusive of convertible notes would be 0.66 (2005 : 0.22).

Earnings per shareCents Net DividendCents

3

2

1

0

0.63

1.29 1.27

2.61

0.84

2002 2003 2004 2005 2006

5

4

3

2

1

0

0.500.68

2.66

4.02

1.27

2002 2003 2004 2005 2006

3.42




$’000 Group Profi t Before Tax

6,000

5,000

4,000

3,000

2,000

1,000

0

1,938

1,740

3,858

5,501

4,999

3,185

5,157

4,313

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

Year 2005 Year 2006

$’000 Group Turnover

30,000

20,000

10,000

0

14,218

14,482

20,03222,598 22,100

26,574 26,899

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

Year 2005 Year 2006

21,845

Group Turnover By Geographical Regions

Singapore 35% ASEAN 25% China 40%

Singapore 48% ASEAN 22% China 30%

2006 2005




BY GEOGRAPHICAL REGIONSYear Ended Singapore ASEAN China Total ($’000) 2006 2005 2006 2005 2006 2005 2006 2005

Turnover

1st Quarter 9,284 7,793 5,600 3,487 7,216 2,938 22,100 14,218

2nd Quarter 8,351 7,471 4,508 3,198 8,986 3,813 21,845 14,482

3rd Quarter 8,438 9,488 7,009 3,793 11,127 6,751 26,574 20,032

4th Quarter 7,772 9,225 7,046 5,642 12,081 7,731 26,899 22,598

33,845 33,977 24,163 16,120 39,410 21,233 97,418 71,330

Year Ended Manufacturing Sevices IT Distribution PCB Distribution Group Total ($’000) 2006 2005 2006 2005 2006 2005 2006 2005

Turnover

1st Quarter 11,232 6,368 8,663 5,532 2,205 2,318 22,100 14,218

2nd Quarter 10,386 7,248 9,503 5,186 1,956 2,048 21,845 14,482

3rd Quarter 12,620 10,360 11,917 7,608 2,037 2,064 26,574 20,032

4th Quarter 13,120 11,491 12,205 8,677 1,574 2,430 26,899 22,598

47,358 35,467 42,288 27,003 7,772 8,860 97,418 71,330

Year Ended Manufacturing Sevices IT & PCB Distribution Group Total ($’000) 2006 2005 2006 2005 2006 2005

Segment results

1st Quarter 3,992 1,201 1,034 729 5,026 1,930

2nd Quarter 3,037 1,770 295 (5 ) 3,332 1,765

3rd Quarter 4,184 3,556 1,245 332 5,429 3,888

4th Quarter 2,401 4,678 1,534 1,076 3,935 5,754

13,614 11,205 4,108 2,132 17,722 13,337

SEGMENT INFORMATION



REVENUE

The Group grew at a robust rate of 36.6% for the year ended 31 December 2006 (“FY2006”). This was an increase of $26.1m as revenue grew to $97.4m in FY2006, from $71.3m for the year ended 31 December 2005 (“FY2005”). Revenue for the three months ended 31 December 2006 (“4Q2006”) of $26.9m also increased by 19.0% or $4.3m over revenue of $22.6m achieved for the three months ended 31 December 2005 (“4Q2005”). The overall improvement in revenue performance was mainly due to the growth in the Group’s manufacturing services business and the IT distribution business.

In 4Q2006, the Group experienced a slow down in both the manufacturing business in Singapore and the business of distributing PCB specialty chemicals and related products. However, the Group still managed to increase its revenue marginally as compared to the three months ended 30 September 2006 (“3Q2006”) by 1.2% or $325,000 from $26.6m to $26.9m and this was mainly due to the continuing growth in the manufacturing services business in China.

In FY2006, the manufacturing services business accounted for about 49% of the Group revenue, while the distribution business, comprising the distribution of PCB-related materials and IT distribution, accounted for the remaining 51%.

Manufacturing Services Division

Revenue in this Division grew by 33.5% or $11.9M, from $35.5M in FY2005 to $47.4M in FY2006. The year-on-year revenue growth was achieved due to the strong demand for drilling services and the Group having the additional capacity to meet this demand. Drilling service revenue alone grew by $11.1M and accounted for nearly 93% of the revenue increase in this Division.

The strong growth for drilling services extended across both the Group’s Singapore and China operations. While the pick up in demand for our services was a main factor, the better performance was also due to a more diverse customer base in China, an increase in the Group’s mechanical drilling capacity from an average of 145 mechanical drilling machines in FY2005 to 199 in FY2006 as well as higher effi ciency from more advanced machines. Mechanical drilling made up approximately 88% of the business in this Division.

The growth in the electronic sector also resulted in increase in demand for routing service in China and Singapore. With an increase of the Group’s routing capacity from an average of 30 routing machines in FY2005 to 39 routing machines in FY2006, the Group’s routing business increased by 30.5% or $924,000 from $3.0M to $4.0M.

FINANCIAL REVIEW

L35520-175 G5 Mul t i -C

hem I S . i nd26 26

L35520-175 G5 Multi-Chem IS .ind26 26/ 4/ 07 5: 11: 02 PM


In 4Q2006, performance of the manufacturing services business in Singapore weakened by 13.5% and 12.5% as compared to 4Q2005 and 3Q2006 respectively, mainly due to the lower demand for mechanical drilling services. Despite the slow down in Singapore, this Division recorded revenue of $13.1M in 4Q2006, an increase of 14.2% or $1.6M from $11.5M in 4Q2005 due to the strong demand in mechanical drilling business in China, a contrast of the situation in Singapore. Compared to 3Q2006, total manufacturing services revenue grew by 4.0% or $500,000 in 4Q2006, from $12.6M to $13.1M.

Distribution Division

The Group achieved a revenue growth of 39.6% or $14.2M, from $35.9M in FY2005 to $50.1M in FY2006 for the Distribution Division. On a quarterly basis, the Group achieved a revenue growth of 24.1% or $2.7M, from $11.1M in 4Q2005 to $13.8M in 4Q2006. The increase in revenue was contributed by growth in the IT business, offset by the decrease in revenue from the distribution of PCB specialty chemicals and related products. Comparing 4Q2006 to 3Q2006, revenue decreased marginally by 1.3% or $175,000 from $14.0M to $13.8M as the growth in the IT business did not fully offset the decrease in revenue from the distribution of PCB specialty chemicals and related products.

PCBRevenue derived from the distribution of PCB specialty chemicals and related materials dropped by 12.3% from $8.9M in FY2005 to $7.8M in FY2006. Comparing 4Q2006 to 4Q2005, this business achieved revenue of $1.6M in 4Q2006, a decrease of 35.3% or $857,000 from $2.4M in 4Q2005. The performance of the PCB distribution business started to weaken in 1Q2006 and did not pick up in FY2006. The weaker performance was mainly due to the continuing price reduction pressure from customers and drop in business for one product line commencing September 2006 due to pricing issues. The performance was further weakened when a customer discontinued the use of our specialty chemical in June 2006. Comparing 4Q2006 to 3Q2006, revenue decreased by 22.6% or $464,000 from $2.0M to $1.6M.

ITThe IT distribution business reported a signifi cant increase in revenue of 56.6% or $15.3M from $27.0M in FY2005 to $42.3M in FY2006. This Division recorded its highest quarterly revenue of $12.2M for FY2006 in 4Q2006, which was an increase of 2.4% or $290,000, from the revenue of $11.9M in 3Q2006. Comparing 4Q2006 to 4Q2005, revenue grew by 40.7% or $3.5M from $8.7M to $12.2M.

The growth in this business was largely due to the addition of several products and the expansion of the regional businesses. Offi ces in China (Beijing and Guangzhou), Philippines (Manila) and Hong Kong, which commenced operations for less than a year also contributed to the revenue for 4Q2006 and FY2006. The addition to sales and pre-sales personnel and new products to the Group’s product portfolio also played a part in the revenue growth.

FINANCIAL REVIEW



While Singapore remains as the main market for the IT business in FY2006, the regional subsidiaries of the Company are as a whole becoming more signifi cant through expansion. In FY2006, revenue from regional markets increased by 95% or $12.7M, from $13.3M in FY2005 to $26.0M in FY2006.

PROFIT BEFORE TAXThe Group achieved a PBT of $17.6M in FY2006, an increase of 35.4% or $4.6M over the PBT of $13.0M achieved in FY2005, largely in line with the higher revenue and gross profi t.

Additionally, this increase in PBT was also due to the following:-

(1) Increase in gain on disposal of fi xed assets of $705,000, from $10,000 in FY2005 to $715,000 in FY2006. The gain was mainly from the sales of 12 mechanical drilling machines to external parties; and

(2) Foreign exchange gain of $1.2M in FY2006 compared to $365,000 in FY2005. In FY2006, the effect of the weaker Chinese renminbi was offset by the effect of the weaker US dollar vis-à-vis the Singapore dollar.

The increase in PBT was offset mainly by the following:-

(1) Increase in machinery depreciation of $1.3M from $7.4M in FY2005 to $8.8M in FY2006 due to addition of new machines;

(2) An increase of $1.0M in travelling, transport, entertainment and other distribution expenses, from $1.5M in FY2005 to $2.5M in FY2006, mainly due to the regional expansion;

(3) An increase in payroll-related expenses of $3.5M from $9.5M in FY2005 to $13.0M in FY2006 due mainly to provision for directors’ share of profi ts, as provided for in their respective service agreements, and higher headcount from the expansion of the regional businesses;

(4) An increase in provision for inventory impairment from $254,000 in FY2005 to $654,000 in FY2006. The provision for inventory impairment relates to the IT stock, in line with the Group’s inventory provision policy; and

(5) Provision for impairment of debts of $158,000 in FY2006 as compared to write back for impairment of debts of $132,000 in FY2005.

On a quarterly basis, Group PBT decreased by 21.6% or $1.2M, from $5.5M in 4Q2005 to $4.3M in 4Q2006. Comparing 4Q2006 to 3Q2006, Group PBT decreased by 16.5% or $854,000, from $5.2M to $4.3M. The decrease was mainly due to the lower gross profi t attained by the manufacturing services business in Singapore, which slowed down in 4Q2006 and the business of distributing PCB specialty chemicals and related products, which continued to be pressured by price reduction.

FINANCIAL REVIEW



PROFIT AFTER TAXGroup PAT increased by 28.3% or $3.2M, from $11.5M in FY2005 to $14.7M in FY2006. These were largely in line with the changes in Group PBT.

Comparing 4Q2006 to 4Q2005, PAT decreased by 34.1% or $1.7M, from $5.0M to $3.3M. On a sequential basis, Group PAT decreased by $1.0M from $4.3M in 3Q2006 to $3.3M in 4Q2006. Despite a lower PBT in 4Q2006 as compared to 4Q2005, income tax expense increased by $519,000 or 104% from $499,000 in 4Q2005 to $1.0M in 4Q2006. The increase was mainly due to underprovision of income tax for the Company in prior years, adjusted in 4Q2006.

Provision for tax comprised mainly income tax and deferred tax of the Company and its subsidiaries. Multi-Chem Laser currently enjoys tax-free status on profi ts while Multi-Chem Suzhou and Multi-Chem Wuxi enjoy tax-free status on 50% of its profi ts.

BALANCE SHEET REVIEWBelow is a review of material changes in the key balance sheet items for the year ended 31 December 2006.

Cash and cash equivalents at the Group level increased from $5.4M to $17.2M. At the Company level, cash and cash equivalents increased from $2.5M to $10.2M. The increases at both the Group and Company level were mainly due to positive cash fl ow from working capital, proceed from disposal of property, plant and equipment and the drawdown of $25.3M loan from DBS Bank, net of repayments for drilling machines and dividend payment of $8.5M.

Trade and other receivables of the Group increased from $24.7M to $31.1M. The increase is in line with the increase in revenue in 4Q2006 as compared to 4Q2005. At the Company level, trade and other receivables increased from $12.4M to $18.3M mainly due to the sales of machinery to China subsidiaries for the expansion in China.

Inventories at the Group level increased from $4.1M to $7.3M mainly due to the increase in IT inventory resulting from the growth of the IT business in Singapore and regionally, offset by the provision for inventory impairment of $654,000. At the Company level, inventories which comprised PCB specialty chemicals and related materials decreased from $1.6M to $1.1M which is in line with the decrease in the PCB distribution business.

Investment in an associated company decreased from $2.1M to $1.7M mainly due to dividends paid amounting to $230,000. There is no change at the Company level as the investment is accounted for at cost, as opposed to the equity method at Group level.

FINANCIAL REVIEW



financial review

Property, plant and equipment increased from $48.0M to $66.0M at the Group level and increased from $16.4M to $19.7M at the Company level. The increase is mainly due to the addition of 89 units of new CNC drilling machines, 12 new routing machines and 1 new laser drilling machine for both the Singapore and China operations, offset by the sale of 12 units of used CNC drilling machines in Singapore and China to third parties and the depreciation charged.

Trade and other payables increased marginally from $4.9M to $5.0M at the Company level due mainly to the other payable arising from the provision for directors’ share of profits, offset by prompt payment to suppliers. The increase in payables at Group level from $11.9M to $16.5M includes increase in payables to vendors of the IT distribution business and increase in payables to suppliers for the Group’s China operations, resulting from the higher business volume.

Bills payable to banks increased from $9.0M to $14.4M at both the Group and the Company level. The increase is mainly due to additional bills payable amounting to $24.7M for financing the purchase of new machines, offset by repayment of $19.3M.

Borrowings increased at both the Group and Company levels mainly due to draw down of $25.3M loan from the Bank, offset by repayment of bank borrowings and finance leases.

indeBTedness

The amount of Group’s borrowings is as set out below:

2006 2005

Due within 1 year:

Bills payable 14,438 9,022

Bank borrowings 7,503 831

Convertible notes 2,920 -

Finance leases 202 228

25,063 10,081

Due after 1 year:

Bank borrowings 17,443 831

Convertible notes - 3,319

Finance leases 1,052 1,236

18,495 5,386

Total debt 43,558 15,467

Debt equity ratio 0.71 0.28

Debt interest cover ratio 1.05 2.00


CASH FLOW ANALYSIS

The movement in cash and cash equivalents is set out as follows:

Year Ended ($’000) 2006 2005

Cash fl ows provided by operating activities 18,775 12,556

Cash fl ows used in investing activities (26,162 ) (13,940 )

Cash fl ows provided by fi nancing activities 19,424 1,749

Net increase in cash and cash equivalents 12,037 365

Cash and cash equivalents at beginning of the fi nancial year 5,446 4,994

Effect of exchange rate changes on cash and cash equivalents (251 ) 87

Cash and cash equivalents at end of the fi nancial year 17,232 5,446

The Group generated a net cash of $18.8M from operating activities in FY2006, an increase of $6.2M, from $12.6M in FY2005. This was mainly due to the higher profi t after tax achieved in FY2006, as well as the increase of trade and other payables, resulting from higher business volume. The increase was offset by the higher inventory holdings due to the expansion of the IT distribution business, increase in trade and other receivables due to increase in revenue and higher tax paid due to better profi tability in the business. Comparing 4Q2006 to 4Q2005, the Group generated a net cash infl ow of $5.9m as compared to $3.9M in 4Q2005. Despite a lower profi t after tax recorded in 4Q2006, the increase in cash infl ow was achieved from the prompt collections from trade and other receivables as compared to 4Q2005.

Net cash of $26.2M was used in investing activities in FY2006, up from $13.9M in FY2005. This was due to $29.8M invested in the purchase of machinery in FY2006, which was also partly fi nanced by bills payable, offset by cash received from investing activities, namely dividends from an associated company and proceeds from the disposal of property, plant and equipment (mainly the older productive equipment), which collectively amounted to $2.8M. Comparing 4Q2006 to 4Q2005, net cash used in investing activities increased from $4.0M to $6.6M. The increase was mainly due to investment in property, plant and equipment.

Net cash of $19.4M was generated from fi nancing activities in FY2006, an improvement of $17.7M, from $1.7M in FY2005. This was mainly due to the drawdown of loans amounting to $25.3M in FY2006, proceeds from bills payable for purchase of fi xed assets and proceeds from issuance of ordinary shares to minority shareholders in subsidiaries. The increase was offset by the payment of dividends to shareholders and repayment of loan which collectively amounted to $10.5M. The Group generated net cash of $3.9M in 4Q2006 compared to cash used in 4Q2005 of $480,000 from fi nancing activities. The increase in cash in 4Q2006 was mainly due to drawdown of $9.2M loan in 4Q2006 as well as dividend paid to shareholders of $1.5M in 4Q2005 which did not occur in 4Q2006. The increase was offset by proceeds from issuance of ordinary shares upon exercise of warrants in 4Q2005 which did not occur in 4Q2006 and repayment of loan and bills payable of $4.2M in 4Q2006.

Cash and cash equivalents stood at $17.2M as at end of 31 December 2006, up from $5.4M as at end of 31 December 2005.

FINANCIAL REVIEW



Year Ended ($’000) 2006 2005

Sales 97,418 71,330

Purchase of goods & services (59,925 ) (42,359 )

Gross value added from operations 37,493 28,981

Other operating income 1,666 953

Share of results of an associated company before tax (119 ) 27

Exchange gain 1,157 360

Total value added 40,197 30,321

Distribution:

To employees in salaries & other staff related costs 13,045 9,490

To government in corporate and other taxes 2,960 1,584

To providers of capital

- Interest expense 686 322

Retained in the business

- Depreciation 8,812 7,472

- Minority interests 360 178

- Retained earnings 14,334 11,275

Total distribution 40,197 30,321

Productivity Data

Average numbers of employees 892 619

Sales per employees ($’000) 109 115

Value added per employee ($’000) 45 49

Value added per $ employment cost 3.08 3.20

Value added per $ net sales 0.41 0.43

VALUE ADDED STATEMENT



The Company has been keeping shareholders and the investing community updated on the key developments of the Group through regular announcements on MASNET. These announcements can also be found in Chinese under http://ir.zaobao.com/multichem in the Zaobao.com website.

Multi-Chem has always made efforts to announce our results early. To facilitate a better understanding of our results, plans and prospects, we held an analysts cum press meeting on 26 January 2007 to announce our full-year results for 2006. The presentation slides on our full year results and the investor on-line Q&A session with management were also made available in the Shareinvestor.com website. The Company continues to announce its quarterly results within the following month after each quarter to provide investors prompt quarterly updates of fi nancial and business developments of the Group.

In September 2006, Multi-Chem was ranked 12th out of 535 companies in The Business Times Corporate Transparency index for companies announcing results for the fi nancial year ends from 31 August 2005 to 31 March 2006, the fi fth year running that the Company was ranked among the Top 20. In March 2006, the Company won the bronze award for “Best Annual Report Award 2005” for companies with less than $500M in market capitalisation, under the Singapore Corporate Award, organised by The Business Times and supported by The Singapore Exchange.

The Company has its own corporate website www.multichem.com.sg while its IT security arm has its own website www.mtechpro.com to provide information on its products and services.

In order to reach out to our existing and potential investors, the Company renewed its participation in the SGX-MAS Research Incentive Scheme for 2007 in which two research fi rms are assigned to furnish two results reports and two research reports for us. These reports are posted on the SGX website www.sgx.com/research for easy and free access by investors.

The Company registered as a corporate member of Investor Relations Professionals Associate (Singapore) (“IRPAS”) during the year. IRPAS provides a platform to promote awareness of and best practices in investor relations thereby adding value to the relationship between the Company and the investment community.

We will continue to place emphasis on good investor relations and make efforts on improving the information fl ow so that awareness about the Group and its business can be build.

INVESTOR RELATIONS

L35520-175 G5 Multi-Chem IS .ind33 33L35520-175 G5 Multi-Chem IS .ind33 334/ 4/ 07 5: 11: 07 PM4/4/07 5:11:07 PM


The Group believes that our employees are key resources and we aim to recognise and reward capable and dedicated staff. Rewards are linked directly to employee’s performance, contribution to the Company and responsibility level. Promising employees are given the opportunity to work for a period in our overseas subsidiaries to further enhance their experience.

The Group conducts yearly appraisal to evaluate the performance of staff and provides staff with a sense of self-awareness to undertake training that will improve their skills and abilities.

The Manufacturing Services Division is in a business which is capital intensive and that further requires our employees to have the necessary knowledge in operating the machinery and equipment. Selected employees are sent for training conducted by machine manufacturers to learn about the operations, capability and maintenance of the equipment. In the Distribution Division, selected employees are sent for training by our vendors, as well as attached to our customers’ production lines in the region for on-the-job training. The employees of the M.Tech group are also given regular product updates and technical training both in-house and by our vendors.

The amount spent on employees providing them with on-the-job training, in-house and external training amounted to approximately $75,000.

INFORMATION ON EMPLOYEES



INFORMATION ON EMPLOYEES

Breakdown By Years Of Service

9%

Degree & above 13% Diploma & equivalent 5% O’ & A’ level & equivalent 27% Trade certifi cate & equivalent 43% Secondary level & lower 12%

78%

Managerial 7% Sales 2% Engineering 6% Administrative 7% Technical & others 78%

Breakdown By Job Group

7%2%

6%

Breakdown By Educational

Qualifi cation

5%

13%12%

27%43%

7%

10 years or more 1% 6 to 9+ years 1% 3 to 5+ years 6% 1 year to 2+ years 34% less than 1 year 58%

1%1% 6%

58%

34%


36 Multi-Chem Limited AR 0636 Multi-Chem Limited AR 06

Corporate governance refers to the processes and structure by which the business and affairs of the Company are directed and managed. The Board recognises that sound corporate governance is an essential part of good business practices and corporate accountability. Accordingly, the Company has adopted measures and practices set out in the Best Practices Guide issued by The Singapore Exchange and the Code of Corporate Governance 2005 issued (“Code”) by the Ministry of Finance on 14 July 2005.

Deviations from the Code if any is explained in the report below.

BOARD MATTERS The Board’s Conduct of Affairs The Board is responsible for setting the Group’s strategic vision, direction and long-term goal, management and internal control, approval of major projects and signifi cant fi nancing matters, and approval of the release of the quarterly reports.

The Board has adopted the recommendations of the internal auditors set out in the internal audit report. Additionally, Board approval has to be sought for transactions not in the ordinary course of business if such transaction exceeds $2.0M in value. To facilitate operational effi ciency, the Board approval would not be required for day-to-day decisions and matters that are operational in nature, even though such single transaction may exceed $2.0M in value.

To facilitate effective management, certain functions of the Board have been delegated to various Board committee, namely AC, NC and RC. Further information regarding the Board’s function and details of terms of reference of the respective Board Committee are set out in the later part of the report.

The Company works closely with the professional corporate secretarial fi rm, Tricor Evatthouse Corporate Services, to provide the Board with regular updates of the latest governance and listing policies. The Board is also updated regularly concerning any changes in company policies, relevant new laws, regulations and changing commercial risks.

Newly appointed Directors are given briefi ngs on the business activities of the Group, its strategic directions, governance practices and Director’s duties and obligations. They are given the opportunity to visit the Group’s operational facilities to gain a better understanding of the Group’s business operations. They can also request the Company to provide accounting, legal and industry-specifi c knowledge if needed.

The Board meets regularly on a quarterly basis to coincide with the announcement of the Group’s quarterly results. When circumstances require, the Board will arrange for telephonic and videoconference meetings.

CORPORATE GOVERNANCE REPORT



The number of board meetings held in 2006 and the attendance of every board member at the Board and committees meetings are disclosed as follows:

Board Composition and Guidance

The Board consists of seven members out of which four are non-executive, three of whom are independent Directors. The independence of each Director is reviewed annually by the NC which was formed on 2 December 2002. An independent Director shall notify the Company Secretary immediately of any change in circumstances that may result in him not being able to meet the criteria for independence. The Board may, after considering the change in circumstances, require the resignation of the Director.

The NC is of the view that Mr Wong Meng Yeng, Mr Chew Thiam Keng and Mr Lim Keng Jin are independent as at the date of this Annual Report and their experience in fi nance, business and law enables them to exercise objective judgement on corporate affairs independently. No individual or small group of individuals dominate the Board’s decision making process.

The Board is of the view that its size is appropriate for effective decision making taking into account the scope and the nature of the operations of the Company.

Chairman and Chief Executive Offi cer

Mr Foo Suan Sai is both the Chairman and Chief Executive Offi cer. He is also an Executive Director.

The Board is of the opinion that currently, there is no need to separate the role of the Chairman and Chief Executive Offi cer taking into account the size, scope and the nature of the operations of the Company. As a principle of good corporate governance, the Board has set the condition that the Company should have separate persons as Chairman and Chief Executive Offi cer when the Company’s turnover exceeded S$100M.


Name Board AC NC RC

Foo Suan Sai 4 4 - - - 1 1 - - -

Han Juat Hoon 4 4 - - - - - - - - -

Ho Boon Chuan Wilson 4 4 - - - - - - - - -

Toshiaki Suzuki 4 4 4 4 - - - 3 3

Wong Meng Yeng 4 4 4 4 1 1 3 3

Chew Thiam Keng 4 4 4 4 1 1 3 3

Lim Keng Jin 4 4 4 4 1 1 3 3

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L35520-150Multi-chemGov .indd 37L35520-150Multi-chemGov .indd 37 4/4/07 5:16:52 PM4/4/07 5:16:52 PM


The role of the Chairman pertaining to Board proceedings includes:• Scheduling of meetings that enables the Board to perform its duties while not interfering with the fl ow

of the Company’s operations;• Preparing meeting agenda;• Exercising control over quality, quantity and timeliness of the fl ow of information between management

and the Board; • Assisting in ensuring compliance with the Company’s guidelines on corporate governance; and• Encouraging constructive relations between executive Directors and non-executive Directors and

facilitating the effective contribution of non-executive Directors in particular.

BOARD COMMITTEES

Board Membership

Board membership is under the purview of NC which comprises Mr Chew Thiam Keng as Chairman,Mr Foo Suan Sai, Mr Wong Meng Yeng and Mr Lim Keng Jin as members. A majority of the NC is independent.

The NC has a written terms of reference that describe its responsibilities, which include maintaining an effective Board and ensuring that only competent individuals capable of contributing to the success of the Company are appointed. Where new appointments are required, the NC will consider recommendations for new Directors, review their qualifi cations and meet with such candidates before a decision is made on a selection. The NC also promotes transparency in the selection and appointment of new Board members as well as their subsequent re-nomination/re-election.

A member who wishes to retire or resign should provide suffi cient notice to the Company so that a replacement may be appointed before he leaves. In the event of any vacancy in the NC, the Company shall endeavour to fi ll the vacancy within two months, but in any case not later than three months.

In reviewing for re-nomination/re-election, NC has to consider criteria such as the Director’s contribution and performance, attendance, preparedness, participation and candour and if applicable, assessment of the Director’s independence. The Committee should also decide whether the Director under review has been adequately carrying out his/her duties as Director of the Company. All Directors have to submit themselves for re-nomination/ re-election at regular intervals or at least once every three years in accordance with the Company’s Articles of Association.





Key information regarding the Directors are disclosed as follows:

Present Directorships Past Directorships Other major

Name in other listed in other listed appointments

companies companies over

last 3 years

Foo Suan Sai - - Managing Director, HPTec Singapore

Han Juat Hoon - - -

Ho Boon Chuan Challenger Technologies - - Wilson Limited Memory Devices Limited

Toshiaki Suzuki - - -

Wong Meng Yeng KS Energy Services Limited - - Novena Holdings Limited Pan Asian Water Solutions Limited Rotol Singapore Ltd

Chew Thiam Keng China Dairy Group Ltd. Ban Joo & Company - KS Energy Services Limited Limited Nylect Technology Limited Pharmesis International Ltd. Showy International Limited Sim Siang Choon Ltd

Lim Keng Jin - - -

As at 31 December 2006, the Directors of the Company are as follows:

(1) Re-appointed as Directors pursuant to Section 153(6) of the Companies Act, Cap 50.

Name Age Position Date of initial Date of last

appointment re-election

Foo Suan Sai 53 Chairman 30 Sep 1988 -Han Juat Hoon 50 Executive Director 16 May 1987 28 Apr 2006Ho Boon Chuan Wilson 36 Executive Director 29 Apr 2005 28 Apr 2006Toshiaki Suzuki 73 Non-executive Director 5 Jan 2000 28 Apr 2006 (1)

Wong Meng Yeng 48 Independent Director 5 Jan 2000 30 Apr 2004Chew Thiam Keng 44 Independent Director 5 Jan 2000 29 Apr 2005Lim Keng Jin 72 Independent Director 29 Apr 2005 28 Apr 2006 (1)



Board Performance

The Board’s performance is ultimately refl ected in the performance of the Group. The Board shall, at all times, act honestly and use reasonable diligence and care in the discharge of the duties of their offi ce. They have to carry their duties in the best interests of the Company and its shareholders. Board members must attend at least 75% of all Board Meetings.

The NC has established an appraisal process to access the performance and effectiveness of the Board as a whole annually. It focus on a set of performance criteria which includes the evaluation of the size and composition of the Board, the Board’s access to Information, Board process and accountibility, and the Board performance in relation to discharging its principal responsibilities.

Performance of Board members is also evaluated informally on a continual basis by the NC according to their contribution during meetings and also their input to the Company on e.g. corporate governance, legal or accounting matters, based on their individual expertise. The NC is of the opinion that the above performance evaluation criteria is currently adequate.

Access to Information

In order to ensure that the Board is able to fulfi l its responsibilities, the Company circulates the reports relating to operational and fi nancial performance of the Group and Company prior to the Board meetings held quarterly. The reports are also available upon request. Where a physical meeting is not possible, timely communication with members of the Board is effected through electronic means which include electronic mail and teleconferencing.

The Directors have also been provided with the phone numbers and email particulars of the Company Secretary for separate and independent access. The Board will refer issues to the AC for opinion on whether any independent advice is necessary. Should any independent advice be required, the cost of such professional advice will be borne by the Company.

The role of the Company Secretary was clearly defi ned and reported to the Board on 6 January 2003. It includes responsibility for ensuring Board procedures are followed and that applicable rules and regulations are complied with. The Company Secretary shall attend all Board Meetings. The appointment and the removal of the Company Secretary is a matter for the Board as a whole.

REMUNERATION COMMITTEE

Remuneration Matters

The RC comprises four members, three of whom are independent Directors. The RC is chaired by Mr Lim Keng Jin, an independent Director. The RC meets at least once a year and is responsible for reviewing the performance of the Chief Executive Offi cer, the Chief Operating Offi cer and senior management, as well as reviewing and approving executive remuneration including but not limited to Director’s fees, salaries, allowances, bonuses and benefi ts-in-kind. If necessary, the RC may seek expert advice inside and/or outside the Company on remuneration of all Directors.





Level and Mix of Remuneration

The executive Directors, Mr Foo Suan Sai and Mdm Han Juat Hoon are also the substantial shareholders of the Company. Their interests are therefore in line with the Company’s interest. Remuneration of these executive Directors is in accordance with their service contracts.

Remuneration of non-executive Directors takes into account the effort and time spent, including the responsibilities of each Director. Non-executive Director are paid Directors’ fees, subject to approval at the Annual General Meeting (“AGM”).

The Company currently does not have any share option scheme in place.

Disclosure on Remuneration

Remuneration is fi xed in accordance with the experience of the person in question, the role performed, market comparison, the contribution of the individual and/or the performance of the Company.

The annual remuneration bands of the Directors and the Executive Offi cers are set out below:

Base Variable Profi t Benefi ts-

FY2006 Salary Bonus Sharing in-kind Fees Total

% % % % % %

Director $1.75M to below $2M Foo Suan Sai 40 - 59 1 - 100

$1.25M to below $1.5M Han Juat Hoon 38 - 61 1 - 100 $250,000 to below $500,000 Ho Boon Chuan Wilson 84 - 13 3 - 100 Below $250,000 Toshiaki Suzuki - - - - 100 100 Wong Meng Yeng - - - - 100 100 Chew Thiam Keng - - - - 100 100 Lim Keng Jin - - - - 100 100 Executive Offi cers Below $250,000 Pui Boon Tiong Eugene 82 14 - 4 - 100 Koh Henry 86 14 - - - 100 Yang Wen Kuei 83 17 - - - 100 Lim San San 79 21 - - - 100




The number of directors whose remuneration falls within the following bands:

Remuneration of Mr Foo Suan Sai and Mdm Han Juat Hoon is in accordance with their respective service contract with the Company, which is renewed annually unless terminated by either party giving not less than three months notice to the other. For Mr Ho Boon Chuan Wilson and the key Executives, the remuneration is based on their respective employment contract with the Company and fi xed based on the above factors as well as negotiation between the parties concerned. Mr Ho Boon Chuan Wilson is also entitled to a profi t sharing scheme tied to the M.Tech Group’s performance, approved by the RC during the year. The profi t sharing scheme pays out a certain percentage of the profi t to those entitled when performance of certain entities within the Group exceeds the target.

The total remuneration of employees who are related to the substantial shareholders is subject to the annual review and majority approval of the AC. For FY2006, the total remuneration paid to these employees amounted to $359,269 (2005: $317,048).

None of the employees who are immediate family members of a Director or the Chief Executive Offi cer received more than $150,000 in remuneration during the year.

ACCOUNTABILITY AND AUDIT

Accountability

The Board is accountable to the shareholders and the management is accountable to the Board.

The Company has adopted quarterly results reporting since the third quarter of 2002. For its fi nancial reporting, the Company will continue to provide a balanced and understandable assessment of the Group’s performance, position and prospects on a quarterly basis.

Audit Committee

The AC comprises four members, three of whom are independent Directors. The AC is chaired by Mr Wong Meng Yeng, an independent Director. Mr Chew Thiam Keng and Mr Lim Keng Jin, the independent Director have fi nancial management expertise and experience while Mr Toshiaki Suzuki, a non-executive Director has close to 40 years of experience in the PCB industry.

Remuneration Bands 2006 2005

$1.75M to below $2M 1 -

$1.25M to below $1.5M 1 -

$1M to below $1.25M - 1

$750,000 to below $1M - 1

$250,000 to below $500,000 1 1

Below $250,000 4 4

Total 7 7




The NC is of the view that the members of the AC have the necessary expertise and experience to discharge its functions.

The AC has a set of terms of reference defi ning its scope of authority which includes:• To review the external auditors’ independence and objectivity annually;• To review the scope and results of the audit, whether it is cost effective and the independence and objectivity

of the external auditors;• To make recommendations to the Board on the appointment, reappointment and removal of the external

auditor, and approving the remuneration and term of engagement of the external auditors;• To review with the external auditors on their audit report, management letter and management’s

response;• To review the signifi cant fi nancial reporting issues and judgements so as to ensure the integrity of the

fi nancial statements of the Company and any formal announcement relating to the Company fi nancial performance;

• To review the quarterly, half-yearly and annual fi nancial statements before submission to the Board;• To review the assistance given by the management to the auditors;• To review the adequacy of the Company’s internal controls;• To review the scope and results of the internal audit procedures; and• To review interested party transactions periodically.

The AC is satisfi ed with the independence of the external auditors, PricewaterhouseCoopers, and there are no non-audit services provided to the Group by PricewaterhouseCoopers during the year.

The AC meets at least four times a year and, in addition to the members of the AC, such meetings are also attended by external auditors and appropriate members of the executive management by invitation. In FY2006, the AC has carried out the activities as set out above. The AC meets the external auditors and the internal auditors, without the presence of management at least once annually. In 2006, the AC met the internal and external auditors without management presence on 16 November 2006 and 20 November 2006 respectively.

The Company has put in place a whistle-blowing framework, endorsed by the AC, where employees of the Company may, in confi dence, raise concerns over any wrongdoing within the Company relating to unlawful conduct, fi nancial malpractice or dangers to the public or the environment. Details of the whistle-blowing policies and arrangements have been made available to all employees.

Other information pertaining to the AC is disclosed on page 37 of the annual report.

Internal Controls

The Board is responsible for ensuring that the Company maintains a sound system of internal controls to safeguard shareholders’ interest and Company’s assets. The Board also oversees matters relating to management of risks.



The effectiveness of the Company’s material internal controls is reviewed annually. The Board is of the opinion that the Company has adequate internal controls, including fi nancial, operational and compliance controls to safeguard shareholders’ investment and Company’s assets. In terms of risk management, the Board seeks to identify areas of signifi cant risks and apply appropriate measures to control and mitigate these risks. It also monitors the implementation of such measures.

Internal Audit

The internal audit function is outsourced to a public accounting fi rm, Yang Lee & Associates. They conduct reviews of the effectiveness of the Company’s material internal controls, including fi nancial, operational and compliance controls, and risk management annually.

The internal auditors meet with the Board and AC at least twice a year, to present their audit plans initially and to report their audit fi ndings subsequently. Management has to respond to the audit fi ndings and take action, where necessary, to improve any internal control weaknesses.

The internal auditors’ primary reporting line is to the Chairman of the AC. Material non-compliance and internal control weaknesses noted during the audit are reported to the AC.

It is the responsibility of the AC to ensure the adequacy of the internal audit.

COMMUNICATION WITH SHAREHOLDERS

The Company aims to engage in regular, effective and fair communication with shareholders, and be as descriptive, detailed and forthcoming as possible.

Its fi nancial results are disclosed on a quarterly basis through SGXNET within the mandatory period and the information is also available on the Company’s website, and investor relations sites, Zaobao.com and Shareinvestor.com. Information on the Company’s new initiatives or key developments are fi rst disseminated via SGXNET and also made available on-line to shareholders. Price sensitive information is announced through SGXNET. However, any information that may be regarded as undisclosed material information about the Group will not be given.

Shareholder Participation

All shareholders of the Company receive the annual report and notice of AGM. The notice is also advertised in the press and made available on the website. At AGM, the Company encourages shareholder participation and shareholders are given the opportunity to air their views and ask Directors or management questions regarding the Company.

The Company’s Articles of Associations allow a member of the Company to appoint one or two proxies to attend and vote instead of the member.

At every AGM, the chairpersons of the AC, NC and RC are present and available to address questions. The external auditors are also present to assist the Directors in addressing any relevant queries by shareholders and address shareholders’ queries about the conduct of audit and the preparation and content of the auditors’ report.





Each item of special business included in the notice of the meeting will be accompanied by a full explanation of the effects of a proposed solution. Separate resolutions are proposed for substantially separate issues at the meeting and the Chairman declares the number of proxy votes received both for and against each separate resolution.

A summary of the discussion, which includes substantial comments or queries from shareholders and responses from the Board and management at the AGM will be made available to shareholders upon their request.

DEALINGS IN SECURITIES

The Group has adopted internal codes pursuant to the SGX-ST’s Best Practices Guide applicable to all its offi cers in relation to dealing in the Company’s securities. Share trading guidelines, in particular, that offi cers should not deal in the Company’s securities(a) when in possession of unpublished material price sensitive information;(b) on short term considerations; and (c) during the period commencing two weeks before the announcement of the Company’s fi rst three quarter results and one month before the announcement of the Company’s annual results and ending on the date of the particular announcement,

have been disseminated to Directors and key employees (including employees with access to price sensitive information in relation to the Company’s shares). In addition, the guidelines require key employees to disclose in writing to the executive Directors on their dealings in the Company’s securities.

INTERESTED PERSON TRANSACTIONS

There was no interested party transactions entered into with value of more than $100,000 during the year.

MATERIAL CONTRACTS

There was no material contracts entered into by the Company or any of its subsidiaries involving the interest of the Chief Executive Offi cer, any Director or controlling shareholder, either still subsisting at the end of FY2006 or entered into since the end of FY2005.

Foo Suan Sai

Group Chairman & Chief Executive Offi cer



CORPORATE DIRECTORY

Chairman & Chief Executive Offi cer

Foo Suan Sai

Chief Operating Offi cer

Han Juat Hoon

Chief Financial Offi cer

Ho Boon Chuan Wilson

Finance, HR & Administration

Lim San SanKoh Hang Leng DickyLim Kok Soon Rayson

Distribution Division

Foo Fang Song MaxGoh Tian Keong Winston

Purchasing & Logistics

Foo Suan OoiLoo Lay Yeo JennySiow Mee Lin

Manufacturing Services Division

Pui Boon Tiong EugeneKoh HenryYang Wen KuaiLee Thiam Huat Daniel

OFFICES IN SINGAPORE

Head Offi ce

Multi-Chem Limited

11 Tuas Avenue 5Singapore 639337Tel : (65) 6863 1318Fax : (65) 6863 1618

Associated Company

Hawera Precision Tec Pte Ltd

11 Tuas Avenue 5Singapore 639337Tel : (65) 6863 1318Fax : (65) 6863 1618

M.Tech Products Pte Ltd

Phase Z.Ro, Technopreneur Park151 North Buona Vista Road #02-02 The Connection Singapore 139347Main Line: (65) 6779 6755Main Fax: (65) 6779 6553

M.Tech Training Centre Pte. Ltd.

Phase Z.Ro, Technopreneur Park151 North Buona Vista Road #01-28 The Connection Singapore 139347Main Line: (65) 6773 9035Main Fax: (65) 6779 6241

MANUFACTURING SERVICES BUSINESS IN CHINA

Multi-Chem (Suzhou) Co., Ltd.

No. 369, Jingmao RoadNorth Area of Luofeng DistrictSuzhou Industrial ParkJiangsu Province, P.R.C 215000Tel: (86 512) 8818 8868Fax: (86 512) 8818 8869

Multi-Chem Electronics (Kunshan) Co., Ltd.

No. 22 Zangji Road, Kunshan E.T.D.Zone Kunshan 215301, Jiangsu, PRCTel: (86 512) 8617 6689Fax: (86 512) 8617 6832

Multi-Chem Electronics (Wuxi) Co., Ltd.

No. 31 Tuanjie Road Xishan Economic Development ZoneWuxi, Jiangsu Province, PRC 214101Tel: (86 510) 8826 0498Fax: (86 510) 8826 0428

Multi-Chem Laser Technology

(Suzhou) Co., Ltd.

No. 5 Xing Han Street, Block F-Unit 02Suzhou Industrial ParkJiangsu Province, PRC 215021Tel : (86 512) 8818 8900Fax : (86 512) 8818 8898



CORPORATE DIRECTORY

IT BUSINESS OVERSEAS

M-Security Technology Sdn. Bhd.

Suite 16.03 & Suite 16.04, level 16, Menara Haw Par, Jalan Sultan Ismail50250 Kuala Lumpur MalaysiaMain Line: (603) 2381 8588Main Fax: (603) 2381 8589

M-Solutions Technology (Thailand)

Co., Ltd.

25 Bangkok Insurance Building,21st Floor, Sathorn Road,Thungmahamek, SathornBangkok 10120Main Line: (662) 677 4161Main Fax: (662) 677 4166

PT. M.Tech Products

Menara DEA, 10th Fl. Suite 1010Kawasan Mega KuninganJl. Mega Kuningan Barat Kav. E.4.3. No.1Jakarta 12950, IndonesiaMain Line: (62 21) 576 1011Main Fax: (62 21) 576 1012

M.Tech Products Philippines, Inc.

1100 88 Corporate Center,Valero cor. Sedeno Streets, Salcedo Village, Makati City 1227,PhilippinesMain Line: (63) 2754 8041Main Fax: (63) 2754 8000

M.Tech Products (HK) Pte Limited

2/F, Shui On Centre 6 - 8 Harbour RoadWanchai, Hong KongMain Line: (852) 2824 8677Main Fax: (852) 2824 8000

M.Tech (Shanghai) Co.,Ltd.

Shanghai Offi ce:Room E, 4th Floor, Crystal Century Tower,No. 567 Weihai Road, Shanghai, P.R.C 200041Main Line: (86 21) 6288 6069Main Fax: (86 21) 6288 6080

Beijing Offi ce Branch:Room 1507, Offi ce Tower A,Horizon International Tower,No.6 Zhichun Road Haidian District,Beijing, P.R.C. 100088Main Line: (86 10) 8280 0190Main Fax: (86 10) 8280 0180

Guangzhou Offi ce Branch:Room 802, New World Times Center,No.2191 Guangyuan Road East,Tianhe District,Guangzhou, P.R.C. 510500Main Line: (86 20) 8774 9390Main Fax: (86 20) 8774 9391

M-Security Technology

Indochina Pte. Ltd.

Hanoi Representative Offi ce5/F Unit 507 & 508 Tung Shing Square,2 Ngo Quyen Street, Hanoi, VietnamMain Line: (844) 935 0970 Main Fax: (844) 935 0971

Ho Chi Minh City Representative Offi ceRoom 412, Saigon Software Park 123Truong Dinh Street, District 3,Ho Chi Minh City, VietnamMain Line: (848) 290 5418Main Fax: (848) 290 5420


Multi-Chem Limited AR 0648

Directors’ Report • 49

Statement by Directors • 53

Independent Auditor’s Report ToThe Members of Multi-Chem Limited • 54

Consolidated Income Statement • 56

Balance Sheets • 57

Consolidated Statement of Changes in Equity • 59

Consolidated Cash Flow Statement • 61

Notes to the Financial Statements • 63

Additional Information for Shareholders • 110

Analysis of Shareholdings • 111

Notice of Annual General Meeting • 113

Proxy Form • 117

FINANCIALCONTENTS

L35520-150 (L)Multichem.PM7 4/4/07, 2:22 PM48

Multi-Chem Limited AR 06 49

DIRECTORS’ REPORTFor the financial year ended 31 December 2006

The directors present their report to the members together with the audited financial statements of theGroup for the financial year ended 31 December 2006 and the balance sheet of the Company at 31December 2006.

Directors

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

Foo Suan SaiHan Juat HoonHo Boon Chuan WilsonToshiaki SuzukiWong Meng YengChew Thiam KengLim Keng Jin

Arrangements to enable directors to acquire shares and debentures

Neither at the end of nor at any time during the financial year was the Company a party to any arrangementwhose object is to enable the directors of the Company to acquire benefits by means of the acquisitionof shares in, or debentures of, the Company or any other body corporate.

Directors’ interests in shares or debentures

(a) According to the register of directors’ shareholdings, none of the directors holding office at theend of the financial year had any interest in the share capital or debentures of the Company or itsrelated corporations, except as follows:

Holdings registered in Holdings in which aname of director director is deemed to

or nominee have an interest

At At At At31.12.2006 1.1.2006 31.12.2006 1.1.2006

The Company(Ordinary shares)Foo Suan Sai 134,469,500 139,623,500 97,899,500 97,899,500Han Juat Hoon 97,899,500 97,899,500 134,469,500 139,623,500Ho Boon Chuan Wilson 136,000 74,000 33,000 33,000Toshiaki Suzuki 500,000 500,000 - -Wong Meng Yeng 34,000 34,000 - -Chew Thiam Keng 34,000 34,000 - -

Mr Foo Suan Sai and Mdm Han Juat Hoon are husband and wife and they are each deemed to beinterested in the shares held by the other.




Directors’ interests in shares or debentures (continued)

(b) Mr Foo Suan Sai and Mdm Han Juat Hoon, who by virtue of each of their interest of not less than20% of the issued capital of the Company, is deemed to have an interest in the whole of the sharecapital of the Company’s wholly-owned subsidiaries and in the shares held by the Group in thefollowing subsidiaries that are not wholly-owned by the Group:

Number of sharesAt 31.12.2006 At 1.1.2006

M.Tech Products Pte Ltd - Ordinary shares 2,950,000 800,000

M-Solutions Technology (Thailand) Co., Ltd - Ordinary shares of Baht100 each 25,000 25,000 - Preference shares of Baht100 each 25,000 25,000

M.Tech Training Centre Pte Ltd - Ordinary shares 240,000 140,000

(c) The directors’ interests in the ordinary shares of the Company as at 21 January 2007 were thesame as those at 31 December 2006.

Directors’ contractual benefits

Since the end of the previous financial year, no director has received or become entitled to receive abenefit by reason of a contract made by the Company or a related corporation with the director or with afirm of which he is a member or with a company in which he has a substantial financial interest, exceptas disclosed in the accompanying financial statements and in this report, and except that Mr Foo SuanSai, Mdm Han Juat Hoon and Mr Ho Boon Chuan Wilson have employment relationships with the Companyand certain subsidiaries, and have received remuneration in those capacities.




Share options

There were no options granted, including any to controlling shareholders or their associates, directorsand employees of the Company and its subsidiaries, during the financial year to subscribe for unissuedshares of the Company or its subsidiaries.

No shares of the Company was allocated and issued during the financial year by virtue of the exercise ofoptions to take up unissued shares of the Company or its subsidiaries.

There were no unissued shares of the Company under option at the end of the financial year.

Audit Committee

The members of the Audit Committee at the end of the financial year were as follows:

Wong Meng Yeng (Chairman)Chew Thiam KengLim Keng JinToshiaki Suzuki

Except for Mr Toshiaki Suzuki who is a non-executive director, all members of the Audit Committee areindependent directors.

The Audit Committee carried out its functions in accordance with Section 201B(5) of the SingaporeCompanies Act. In performing those functions, the Committee reviewed:

(a) the audit plans and results of the external auditors’ examination and evaluation of the Group’ssystems of internal accounting controls;

(b) the Group’s financial and operating results and accounting policies;

(c) the balance sheet of the Company and the consolidated financial statements of the Group beforetheir submission to the directors of the Company and the external auditors’ report on those financialstatements;

(d) the quarterly, half-yearly and annual announcements as well as the related press releases on theresults and financial position of the Company and the Group;

(e) the co-operation and assistance given by the management to the Group’s external auditors; and

(f) the re-appointment of the external auditors of the Group.




Audit Committee (continued)

The Audit Committee has full access to and co-operation of the management and has been given theresources required for it to discharge its function properly. It also has full discretion to invite any directorand executive officer to attend its meetings. The external auditors have unrestricted access to the AuditCommittee.

The Audit Committee has recommended to the Board that the auditors PricewaterhouseCoopers, benominated for re-appointment at the forthcoming Annual General Meeting of the Company.

Auditors

The auditors, PricewaterhouseCoopers, have expressed their willingness to accept re-appointment.

On behalf of the directors

FOO SUAN SAI HAN JUAT HOONDirector Director

16 March 2007



STATEMENT BY DIRECTORS

In the opinion of the directors,

(a) the balance sheet of the Company and the consolidated financial statements of the Group as setout on pages 56 to 109 are drawn up so as to give a true and fair view of the state of affairs of theCompany and of the Group at 31 December 2006 and of the results of the business, changes inequity and cash flows of the Group for the financial year then ended; and

(b) at the date of this statement, there are reasonable grounds to believe that the Company will beable to pay its debts as and when they fall due.

On behalf of the directors

FOO SUAN SAI HAN JUAT HOONDirector Director

16 March 2007



INDEPENDENT AUDITOR’S REPORT TOTHE MEMBERS OF MULTI-CHEM LIMITED

We have audited the accompanying financial statements of Multi-Chem Limited (the “Company”) and itssubsidiaries (the “Group”) set out on pages 56 to 109, which comprise the balance sheets of the Companyand of the Group as at 31 December 2006, and the consolidated income statement, consolidated statementof changes in equity and consolidated cash flow statement of the Group for the year then ended, and asummary of significant accounting policies and other explanatory notes.

Directors’ Responsibility for the Financial Statements

The Company’s directors are responsible for the preparation and fair presentation of these financialstatements in accordance with the provisions of the Singapore Companies Act and Singapore FinancialReporting Standards. This responsibility includes designing, implementing and maintaining internal controlrelevant to the preparation and fair presentation of financial statements that are free from materialmisstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; andmaking accounting estimates that are reasonable in the circumstances.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conductedour audit in accordance with Singapore Standards on Auditing. Those Standards require that we complywith ethical requirements and plan and perform the audit to obtain reasonable assurance as to whetherthe financial statements are free from material misstatement.

An audit includes performing procedures to obtain evidence about the amounts and disclosures in thefinancial statements. The procedures selected depend on the auditor’s judgement, including theassessment of the risks of material misstatement of the financial statements, whether due to fraud orerror. In making those risk assessments, the auditor considers internal control relevant to the entity’spreparation and fair presentation of the financial statements in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectivenessof the entity’s internal controls. An audit also includes evaluating the appropriateness of accountingpolicies used and the reasonableness of accounting estimates made by directors, as well as evaluatingthe overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis forour audit opinion.



INDEPENDENT AUDITOR’S REPORT TOTHE MEMBERS OF MULTI-CHEM LIMITED

Opinion

In our opinion,

(a) the balance sheet of the Company and the consolidated financial statements of the Group areproperly drawn up in accordance with the provisions of the Singapore Companies Act (the “Act”)and Singapore Financial Reporting Standards so as to give a true and fair view of the state ofaffairs of the Company and of the Group as at 31 December 2006, and the results, changes inequity and cash flows of the Group for the financial year ended on that date; and

(b) the accounting and other records required by the Act to be kept by the Company and by thosesubsidiaries incorporated in Singapore of which we are the auditors have been properly kept inaccordance with the provisions of the Act.

PricewaterhouseCoopersCertified Public Accountants

Singapore, 16 March 2007



CONSOLIDATED INCOME STATEMENTFor the financial year ended 31 December 2006

Group2006 2005

Notes $’000 $’000

Sales 4 97,418 71,330Cost of sales (66,380) (48,246)

Gross profit 31,038 23,084

Other gains - net 7 1,666 953

Expenses - Distribution and marketing (3,195) (2,155) - Administrative (11,787) (8,545)

Finance income/(cost) - net 8 51 (327)

Share of (loss)/profit of an associated company 16 (119) 27

Profit before income tax 17,654 13,037

Income tax expense 9 (2,960) (1,584)

Net profit 14,694 11,453

Attributable to:Equity holders of the Company 14,334 11,275Minority interests 360 178

14,694 11,453

Earnings per share attributable to equity holdersof the Company 10 - Basic 4.02 cents 3.42 cents - Diluted 3.87 cents 3.30 cents

The accompanying notes form an integral part of these financial statements.



BALANCE SHEETSAs at 31 December 2006

Group Company2006 2005 2006 2005

Notes $’000 $’000 $’000 $’000

ASSETSCurrent assetsCash and cash equivalents 11 17,232 5,446 10,235 2,467Trade and other receivables 12 31,139 24,689 18,295 12,403Inventories 13 7,312 4,133 1,136 1,619Other current assets 14 677 646 250 155

56,360 34,914 29,916 16,644

Non-current assetsOther non-current assets 15 127 132 - -Investment in an associated company 16 1,735 2,084 1,050 1,050Investment in a joint venture 17 - - - -Investments in subsidiaries 18 - - 45,595 30,347Property, plant and equipment 19 65,982 48,019 19,711 16,445Deferred income tax assets 24 21 - - -

67,865 50,235 66,356 47,842

Total assets 124,225 85,149 96,272 64,486

LIABILITIESCurrent liabilitiesTrade and other payables 20 16,459 11,870 5,025 4,870Current income tax liabilities 9 2,390 1,457 1,282 957Borrowings 21 25,063 10,081 24,291 9,250

43,912 23,408 30,598 15,077




Group Company2006 2005 2006 2005

Notes $’000 $’000 $’000 $’000

Non-current liabilitiesBorrowings 21 18,495 5,386 18,495 4,555Deferred income tax liabilities 24 502 732 502 725

18,997 6,118 18,997 5,280

Total liabilities 62,909 29,526 49,595 20,357

NET ASSETS 61,316 55,623 46,677 44,129

EQUITYCapital and reserves attributable to equity holders of the CompanyShare capital and share premium 25 36,559 35,604 36,559 35,604Other reserves 26 (1,534) 810 221 1,111Retained earnings 27 24,881 18,486 9,897 7,414

59,906 54,900 46,677 44,129Minority interests 1,410 723 - -

Total equity 61,316 55,623 46,677 44,129

BALANCE SHEETSAs at 31 December 2006



Attributable to equity Minority Totalholders of the Company interests equity

Notes Sharecapital

and share Other Retainedpremium reserves earnings Total

$’000 $’000 $’000 $’000 $’000 $’000

Balance at 1 January 2006 35,604 810 18,486 54,900 723 55,623

Net loss recognised directly in equity - Currency translation differences 26 - (1,454) - (1,454) - (1,454)Net profit - - 14,334 14,334 360 14,694

Total recognised (losses)/gains (1,454) 14,334 12,880 360 13,240

Effect of Companies (Amendment) Act 2005 25, 26 826 (826) - - - -Issue of shares pursuant to conversion of convertible notes 25, 26 129 (9) - 120 - 120Issue of shares by a subsidiary to minority interests 18(a) - - - - 850 850Dilution of minority interests’ equity interest in subsidiaries - - - - 7 7Transfer from other reserves to retained earnings upon expiry of unexercised warrants 26 - (55) 55 - - -Dividends paid 28 - - (7,994) (7,994) (530) (8,524)

Balance at 31 December 2006 36,559 (1,534) 24,881 59,906 1,410 61,316

CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor the financial year ended 31 December 2006



Attributable to equity Minority Totalholders of the Company interests equity

Notes Sharecapital

and share Other Retainedpremium reserves earnings Total

$’000 $’000 $’000 $’000 $’000 $’000

Balance at 1 January 2005 27,461 2,032 15,425 44,918 515 45,433

Net gain recognised directly in equity - Currency translation differences 26 - 814 - 814 - 814Net profit - - 11,275 11,275 178 11,453

Total recognised gains - 814 11,275 12,089 178 12,267

Issue of shares pursuant to exercise of warrants 25, 26 8,143 (2,036) - 6,107 - 6,107Issue of shares by a subsidiary to minority interests - - - - 30 30Dividends paid 28 - - (8,214) (8,214) - (8,214)

Balance at 31 December 2005 35,604 810 18,486 54,900 723 55,623

An analysis of the movements in each category within “other reserves” is presented in Note 26.


CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor the financial year ended 31 December 2006



CONSOLIDATED CASH FLOW STATEMENTFor the financial year ended 31 December 2006

2006 2005Notes $’000 $’000

Cash flows from operating activitiesNet profit 14,694 11,453Adjustments for: - Income tax 2,960 1,584 - Depreciation 5 8,812 7,472 - Interest (income)/cost - net (51) 327 - Interest income (370) (65) - Gain on disposal of property, plant and equipment (715) (10) - Gain on dilution of interest in a subsidiary 7 - - Share of loss/(profit) from an associated company 119 (27) - Unrealised currency exchange losses/(gains) - net 298 (107)

Operating cash flow before working capital changes 25,754 20,627

Change in operating assets and liabilities - Inventories (3,179) (1,671) - Trade and other receivables (6,450) (9,656) - Other assets (31) (106) - Trade and other payables 4,589 4,987

Cash generated from operations 20,683 14,181Interest received 370 65Income tax paid (2,278) (1,690)

Net cash provided by operating activities 18,775 12,556

Cash flows from investing activitiesProceeds from disposals of property, plant and equipment 2,547 2,236Proceeds from dilution of interest in a subsidiary 18 850 -Proceeds from disposal of available for-sale financial assets - 70Purchases of property, plant and equipment (29,789) (16,219)Purchases of club memberships - (52)Dividends received from an associated company 16 230 25

Net cash used in investing activities (26,162) (13,940)



2006 2005Notes $’000 $’000

Cash flows from financing activitiesProceeds from borrowings 25,334 -Proceeds from bills payable 24,787 15,197Proceeds from exercise of warrants - 6,107Proceeds from issuance of ordinary shares in a subsidiary to minority interests - 30Repayments of borrowings (1,956) (789)Repayments of lease liabilities (210) (318)Repayment of bills payable (19,371) (10,073)Interest paid (636) (191)Dividends paid to equity holders of the Company (7,994) (8,214)Dividends paid to minority interests (530) -

Net cash provided by financing activities 19,424 1,749

Net increase in cash and cash equivalents 12,037 365Cash and cash equivalents at beginning of financial year 5,446 4,994Effects of exchange rate changes on cash and cash equivalents (251) 87

Cash and cash equivalents at end of financial year 11 17,232 5,446

CONSOLIDATED CASH FLOW STATEMENTFor the financial year ended 31 December 2006




NOTES TO THE FINANCIAL STATEMENTSFor the financial year ended 31 December 2006

These notes form an integral part of and should be read in conjunction with the accompanying financialstatements.

1. General

Multi-Chem Limited (the “Company”) is incorporated and domiciled in Singapore. The address ofits registered office is 11 Tuas Avenue 5, Singapore 639337.

The Company is listed on the Singapore Exchange.

The principal activities of the Company are the provision of value added printed circuit board (“PCB”)manufacturing services, mainly in precision drilling, to PCB fabricators and the distribution ofspecialty chemicals and other PCB related products and equipment to PCB fabricators.

The principal activities of the subsidiaries are the provision of value added PCB manufacturingservices, mainly in precision drilling, to PCB fabricators, the distribution of specialty chemicalsand other PCB related products and equipment to PCB fabricators, distribution of hardware andsoftware relating to internet and network products, and provision of maintenance services forsuch products.

2. Significant accounting policies

2.1 Basis of preparation

The financial statements have been prepared in accordance with Singapore Financial ReportingStandards (“FRS”). The financial statements have been prepared under the historical cost convention,except as disclosed in the accounting policies below.

The preparation of financial statements in conformity with FRS requires management to exerciseits judgement in the process of applying the Group’s accounting policies. It also requires the use ofcertain critical accounting estimates and assumptions. The areas involving a higher degree ofjudgement or complexity, or areas where assumptions and estimates are significant to the financialstatements, are disclosed in Note 3.

Interpretations and amendments to published standards effective in 2006

On 1 January 2006, the Group adopted the new or revised FRS and interpretations to FRS (INT FRS)that are mandatory for application from that date. Changes to the Group’s accounting policies havebeen made as required, in accordance with the relevant transitional provisions in the respectiveFRS and INT FRS.




2. Significant accounting policies (continued)

2.1 Basis of preparation (continued)

The following are the FRS and INT FRS that are relevant to the Group:

FRS 19 (Amendment) Employee BenefitsFRS 21 (Amendment) The Effects of Changes in Foreign Exchange RatesFRS 32 (Amendment) Financial Instruments: Disclosure and PresentationFRS 39 (Amendment) Financial Instruments: Recognition and MeasurementINT FRS 104 Determining whether an Arrangement contains a Lease

The adoption of the above FRS or INT FRS did not result in any substantial changes to the Group’saccounting policies.

2.2 Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of goodsand rendering of services in the ordinary course of the Group’s activities. Revenue is presented,net of value-added tax, rebates and discounts, and after eliminating sales within the Group. Revenueis recognised as follows:

(a) Sale of goods

Revenue from the sale of goods is recognised when a Group entity has delivered the productsto the customer, the customer has accepted the products and collectibility of the relatedreceivables is reasonably assured.

(b) Rendering of services

Revenue from the drilling services is recognised in the period in which the services arerendered.

Revenue from provision of maintenance services for internet and network products isrecognised in the period in which the services are rendered, using a straight-line basis overthe term of the agreement.

(c) Interest income

Interest income is recognised on a time-proportion basis using the effective interest method.





2.3 Group accounting

(a) Subsidiaries

Subsidiaries are entities over which the Group has power to govern the financial and operatingpolicies, generally accompanying a shareholding of more than one half of the voting rights.The existence and effect of potential voting rights that are currently exercisable or convertibleare considered when assessing whether the Group controls another entity.

The purchase method of accounting is used to account for the acquisition of subsidiaries bythe Group. The cost of an acquisition is measured as the fair value of the assets given,equity instruments issued or liabilities incurred or assumed at the date of exchange, pluscosts directly attributable to the acquisition. Identifiable assets acquired and liabilities andcontingent liabilities assumed in a business combination are measured initially at their fairvalue on the date of acquisition, irrespective of the extent of any minority interest.

Subsidiaries are consolidated from the date on which control is transferred to the Group.They are de-consolidated from the date on which control ceases.

In preparing the consolidated financial statements, transactions, balances and unrealisedgains on transactions between group companies are eliminated. Unrealised losses are alsoeliminated but considered an impairment indicator of the asset transferred. Accountingpolicies of subsidiaries have been changed where necessary to ensure consistency with thepolicies adopted by the Group.

Minority interests are that part of the net results of operations and of net assets of a subsidiaryattributable to interests which are not owned directly or indirectly by the Group. It is measuredat the minorities’ share of the fair value of the subsidiaries’ identifiable assets and liabilitiesat the date of acquisition by the Group and the minorities’ share of changes in equity sincethe date of acquisition, except when the losses applicable to the minority interests in asubsidiary exceed the minority interests in the equity of that subsidiary. In such cases, theexcess and further losses applicable to the minority interests are attributed to the equityholders of the Company, unless the minority interests have a binding obligation to, and areable to, make good the losses. When that subsidiary subsequently reports profits, the profitsapplicable to the minority interests are attributed to the equity holders of the Company untilthe minority interests’ share of losses previously absorbed by the equity holders of theCompany have been recovered.

Please refer to the paragraph “Investments in subsidiaries, joint ventures and associatedcompanies” for the accounting policy on investments in subsidiaries in the separate financialstatements of the Company.





2.3 Group accounting (continued)

(b) Transactions with minority interests

The Group applies a policy of treating transactions with minority interests as transactionswith parties external to the Group. Disposals to minority interests, which result in gains andlosses for the Group, are recorded in the income statement. The difference between anyconsideration paid to minority interests for purchases of additional equity interest in asubsidiary and the incremental share of the carrying value of the net assets of the subsidiaryis recognised as goodwill.

(c) Associated companies

Associated companies are entities over which the Group has significant influence, but notcontrol, generally accompanying a shareholding of between and including 20% and 50% ofthe voting rights. Investments in associated companies are accounted for in the consolidatedfinancial statements using the equity method of accounting.

Investments in associated companies are initially recognised at cost. The cost of anacquisition is measured at the fair value of the assets given, equity instruments issued orliabilities incurred or assumed at the date of exchange, plus costs directly attributable to theacquisition.

In applying the equity method of accounting, the Group’s share of its associated companies’post-acquisition profits or losses is recognised in the income statement and its share ofpost-acquisition movements in reserves is recognised in equity directly. These post-acquisition movements are adjusted against the carrying amount of the investment. Whenthe Group’s share of losses in an associated company equals or exceeds its interest in theassociated company, including any other unsecured receivables, the Group does not recognisefurther losses, unless it has obligations or has made payments on behalf of the associatedcompany.

Unrealised gains on transactions between the Group and its associated companies areeliminated to the extent of the Group’s interest in the associated companies. Unrealisedlosses are also eliminated unless the transaction provides evidence of an impairment of theasset transferred. Accounting policies of associated companies have been changed wherenecessary to ensure consistency with the accounting policies adopted by the Group.

Please refer to the paragraph “Investment in subsidiaries, joint ventures and associatedcompanies” for the accounting policy on investments in associated companies in the separatefinancial statements of the Company.





2.3 Group accounting (continued)

(d) Joint ventures

Joint ventures are entities over which the Group has contractual arrangements to jointlyshare the control over the economic activity of the entities with one or more parties. TheGroup’s interest in joint ventures is accounted for in the consolidated financial statementsusing the equity method of accounting.

Please refer to Note 2.3(c) for the Group’s policy on the equity method of accounting and theparagraph “Investment in subsidiaries, joint ventures and associated companies” for theaccounting policy on investments in joint ventures in the separate financial statements ofthe Company.

2.4 Property, plant and equipment

(a) Measurement

Property, plant and equipment are initially recognised at cost and subsequently carried atcost less accumulated depreciation and accumulated impairment losses. The cost of an itemof property, plant and equipment includes its purchase price and any cost that is directlyattributable to bringing the asset to the location and condition necessary for it to be capableof operating in the manner intended by management.

(b) Depreciation

Depreciation on property, plant and equipment is calculated using the straight-line methodto allocate their depreciable amounts over their estimated useful lives as follows:

Useful lives

Leasehold properties Over the lease terms of 25 - 331/3 yearsOffice plant and equipment 1 - 10 yearsFactory plant and machinery 5 - 8 years

The residual values and useful lives of property, plant and equipment are reviewed, andadjusted as appropriate, at each balance sheet date. The effects of any revision of theresidual values and useful lives are included in the income statement for the financial yearin which the changes arise.

The Group has adjusted the residual values and useful lives of certain factory plant andequipment on 1 January 2006 [Note 19(b)].





2.4 Property, plant and equipment (continued)

(c) Subsequent expenditure

Subsequent expenditure relating to property, plant and equipment that has already beenrecognised is added to the carrying amount of the asset when it is probable that futureeconomic benefits associated with the item will flow to the Group and the cost can bemeasured reliably. Other subsequent expenditure is recognised as repair and maintenanceexpense in the income statement during the financial year in which it is incurred.

(d) Disposal

On disposal of an item of property, plant and equipment, the difference between the net




2.7 Borrowing costs

Borrowing costs are recognised on a time-proportion basis in the income statement using theeffective interest method.

2.8 Trade and other receivables

Trade and other receivables are initially recognised at fair value plus transaction cost andsubsequently measured at amortised cost using the effective interest method.

Trade and other receivables are derecognised when the rights to receive cash flows from thefinancial assets have expired or have been transferred or received and the Group has transferredsubstantially all risks and rewards of ownership.

The Group assesses at each balance sheet date whether there is objective evidence that trade andother receivables are impaired.

An allowance for impairment is established when there is objective evidence that the Group willnot be able to collect all amounts due according to the original terms of the receivables. Significantfinancial difficulties of the debtor, probability that the debtor will enter bankruptcy or financialreorganisation, and default or delinquency in payments are considered indicators that the receivableis impaired. The amount of the allowance is the difference between the asset’s carrying amountand the present value of estimated future cash flows, discounted at the original effective interestrate. The amount of the allowance is recognised in the income statement within “administrativeexpense”.

2.9 Borrowings

(a) Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowingsare subsequently stated at amortised cost. Any difference between the proceeds (net of transactioncosts) and the redemption value is taken to the income statement over the period of the borrowingsusing the effective interest method.

Borrowings which are due to be settled within twelve months after the balance sheet date arepresented as current borrowings in the balance sheet. Other borrowings due to be settled morethan twelve months after the balance sheet date are presented as non-current borrowings in thebalance sheet.





2.9 Borrowings (continued)

(b) Convertible notes

When convertible bonds are issued, the liability component and the equity component areseparately presented on the balance sheet. The liability component is recognised at its fair value,determined using a market interest rate for equivalent non-convertible bonds. It is subsequentlycarried at amortised cost until the liability is extinguished on conversion or redemption of thebonds.

The remainder of the proceeds of the bond issue is allocated to the conversion option (equitycomponent), which is presented in shareholders’ equity, net of the deferred tax effect. The carryingamount of the conversion option is not changed in subsequent periods. When a conversion optionis exercised, the carrying amount of the conversion option will be taken to share capital. Whenthe conversion option is allowed to lapse, the carrying amount of the conversion option will betaken to retained earnings.

2.10 Trade and other payables

Trade and other payables are initially measured at fair value, and subsequently measured atamortised cost, using the effective interest method.

2.11 Fair value estimation

The carrying amounts of current financial assets and liabilities, carried at amortised cost, areassumed to approximate their fair values.

The fair values of financial liabilities carried at amortised cost are estimated by discounting thefuture contractual cash flows at the current market interest rates that are available to the Groupfor similar financial liabilities.





2.12 Leases

When a group company is the lessee:

Finance leases

Leases of property, plant and equipment where the Group assumes substantially the risks andrewards of ownership are classified as finance leases.

The leased assets and the corresponding lease liabilities (net of finance charges) under financeleases are recognised on the balance sheet as property, plant and equipment and borrowingsrespectively at the inception of the leases at the lower of the fair values of the leased assets andthe present value of the minimum lease payments.

Each lease payment is apportioned between the finance charge and the reduction of the outstandinglease liability. The finance charge is recognised in the income statement and allocated to eachperiod during the lease term so as to achieve a constant periodic rate of interest on the remainingbalance of the finance lease liability.

Operating leases

Leases of property, plant and equipment where a significant portion of the risks and rewards ofownership are retained by the lessor are classified as operating leases. Payments made underoperating leases (net of any incentives received from the lessor) are taken to the income statementon a straight-line basis over the period of the lease.

When an operating lease is terminated before the lease period has expired, any payment requiredto be made to the lessor by way of penalty is recognised as an expense in the financial year inwhich termination takes place.

2.13 Inventories

Inventories are carried at the lower of cost and net realisable value. Cost is determined using thefirst-in, first-out method. The cost of inventories comprises costs of purchase and other directcosts. Net realisable value is the estimated selling price in the ordinary course of business, lessapplicable variable selling expenses.





2.14 Income taxes

Current income tax liabilities (and assets) for current and prior periods are recognised at the amountsexpected to be paid to (or recovered from) the tax authorities, using the tax rates (and tax laws)that have been enacted or substantially enacted by the balance sheet date.

Deferred income tax assets/liabilities are recognised for all deductible taxable temporary differencesarising between the tax bases of assets and liabilities and their carrying amounts in the financialstatements except when the deferred income tax assets/liabilities arise from the initial recognitionof an asset or liability in a transaction that is not a business combination and at the time of thetransaction, affects neither accounting nor taxable profit or loss.

Deferred income tax liability is recognised on temporary differences arising on investments insubsidiaries, associated companies and joint ventures, except where the Group is able to controlthe timing of the reversal of the temporary difference and it is probable that the temporary differencewill not reverse in the foreseeable future.

Deferred income tax asset is recognised to the extent that it is probable that future taxable profitwill be available against which the temporary differences can be utilised.

Deferred income tax assets and liabilities are measured at:

(i) the tax rates that are expected to apply when the related deferred income tax asset is realisedor the deferred income tax liability is settled, based on tax rates (and tax laws) that havebeen enacted or substantially enacted by the balance sheet date; and

(ii) the tax consequence that would follow from the manner in which the Group expects, at thebalance sheet date, to recover or settle the carrying amounts of its assets and liabilities.

Current and deferred income tax are recognised as income or expenses in the income statement forthe period.





2.15 Employee benefits

Defined contribution plans

Defined contribution plans are post-employment benefit plans under which the Group pays fixedcontributions into separate entities such as the Central Provident Fund on a mandatory, contractual orvoluntary basis. The Group has no further payment obligations once the contributions have been paid.The Group’s contributions are recognised as employee compensation expense when they are due.

2.16 Currency translation

(a) Functional and presentation currency

Items included in the financial statements of each entity in the Group are measured using thecurrency of the primary economic environment in which the entity operates (“functional currency”).The consolidated financial statements are presented in Singapore Dollars, which is the Company’sfunctional currency.

(b) Transactions and balances

Transactions in a currency other than the functional currency (“foreign currency”) are translatedinto the functional currency using the exchange rates prevailing at the dates of the transactions.Currency translation gains and losses resulting from the settlement of such transactions and fromthe translation at year-end exchange rates of monetary assets and liabilities denominated inforeign currencies are recognised in the income statement, except for currency translationdifferences on net investment in foreign operations, which are included in the currency translationreserve within equity in the consolidated financial statements.

(c) Translation of Group entities’ financial statements

The results and financial position of all the group entities (none of which has the currency of ahyper inflationary economy) that have a functional currency different from the presentation currencyare translated into the presentation currency as follows:

(i) Assets and liabilities for each balance sheet presented are translated at the closingrate at the date of the balance sheet;





2.16 Currency translation (continued)

(c) Translation of Group entities’ financial statements (continued)

(ii) Income and expenses for each income statement are translated at average exchangerate (unless this average is not a reasonable approximation of the cumulative effect ofthe rates prevailing on the transaction dates, in which case income and expenses aretranslated using the exchange rates at the dates of the transactions); and

(iii) All resulting exchange differences are taken to the foreign currency translation reservewithin equity.

(d) Consolidation adjustments

On consolidation, currency translation differences arising from the net investment in foreignoperations are taken to the currency translation reserve. When a foreign operation is disposedof, such currency translation differences recorded in the currency translation reserve arerecognised in the income statement as part of the gain or loss on sale.

2.17 Segment reporting

A business segment is a distinguishable component of the Group engaged in providing products orservices that are subject to risks and returns that are different from those of other businesssegments. A geographical segment is a distinguishable component of the Group engaged inproviding products or services within a particular economic environment that is subject to risksand returns that are different from those of segments operating in other economic environments.

2.18 Cash and cash equivalents

Cash and cash equivalents are initially recognised at fair value, and subsequently carried atamortised cost using the effective interest method. Cash and cash equivalents include cash atbank and on hand and deposits with financial institutions.

2.19 Share capital

Ordinary shares are classified as equity.

2.20 Dividends

Interim dividends are recorded in the financial year in which they are declared payable. Finaldividends are recorded in the financial year in which the dividends are approved by the shareholders.




3. Critical accounting estimates, assumptions and judgements

Estimates, assumptions and judgements are continually evaluated and are based on historicalexperience and other factors, including expectations of future events that are believed to bereasonable under the circumstances.

Critical accounting estimates and assumptions

The Group makes estimates and assumptions concerning the future. The resulting accountingestimates will, by definition, seldom equal the related actual results. The estimates and assumptionsthat have a significant risk of causing a material adjustment to the carrying amounts of assets andliabilities within the next financial year are discussed below.

(i) Income taxes

The Group is subject to income taxes in numerous jurisdictions. Significant judgement isrequired in determining the capital allowances and deductibility of certain expenses duringthe estimation of the provision for income taxes. There are many transactions and calculationsfor which the ultimate tax determination is uncertain during the ordinary course of business.The Group recognises liabilities for anticipated tax audit issues based on estimates of whetheradditional taxes will be due. Where the final tax outcome of these matters is different fromthe amounts that were initially recorded, such differences will impact the income tax anddeferred income tax provisions in the period in which such determination is made.

(ii) Useful lives and residual values of property, plant and equipment

The Group reviews the appropriateness of the useful lives and residual values of property,plant and equipment at each balance sheet date. Changes in the expected level of usage andtechnological advancements could impact the economic useful lives and residual values ofthese assets. Where there is a material change in the useful lives and residual values ofproperty, plant and equipment, such a change will impact the future depreciation charges inthe financial period in which the change arises.

4. Revenue

Group2006 2005

$’000 $’000

Rendering of services 55,837 43,068Sales of goods 41,581 28,262

Total sales 97,418 71,330




5. Expenses by nature

Group2006 2005

$’000 $’000

Depreciation of property, plant and equipment (Note 19) 8,812 7,472Employee compensation (Note 6) 13,045 9,490Inventories purchased (Note 13) 46,803 33,794Inventory write-down (Note 13) 654 254Rental on operating leases 1,192 865Utilities expense 3,168 2,349Other expenses 7,688 4,722Total cost of sales, distribution and marketing costs and administrative expenses 81,362 58,946

6. Employee compensation

Group2006 2005

$’000 $’000

Wages and salaries 11,929 8,875Employer’s contribution to defined contribution plans including Central Provident Fund 971 502Directors’ fees 145 113

13,045 9,490

7. Other gains-net

Group2006 2005

$’000 $’000

Currency exchange gain - net 420 365Gain on disposal of property, plant and equipment 715 10Gain on dilution of interest in a subsidiary 7 -Interest income 370 65Scrap sales 274 483Others (120) 30

1,666 953




8. Finance (income)/cost - net

Group2006 2005

$’000 $’000

Interest expense: - Bank borrowings 579 103 - Convertible notes 50 136 - Finance lease liabilities 57 83

686 322Currency exchange (gain)/loss (737) 5

Finance (income)/cost-net (51) 327

9. Income taxes

(a) Income tax expenseGroup

2006 2005$’000 $’000

Tax expense attributable to profit is made up of:

Current income tax - Singapore 1,234 1,050 - Foreign 1,607 428

2,841 1,478Deferred income tax (Note 24) (251) 106

2,590 1,584Under provision in preceding financial years 370 -

2,960 1,584

The Group’s and Company’s deferred tax liabilities have been computed based on the corporate taxrate and tax laws prevailing at balance sheet date. On 15 February 2007, the Singapore SecondMinister of Finance announced changes to the Singapore tax laws, including a reduction in corporatetax rate from 20% to 18% with effect from the year of assessment 2008. The Group’s and Company’sdeferred tax expense for the current financial year have not taken into consideration the effect ofthe changes in the tax laws and reduction in the corporate tax rate, which will be accounted for inthe Group’s and Company’s deferred tax expense in the year ending 31 December 2007. The Group’sand Company’s deferred tax liabilities as of 31 December 2006 will be reduced by approximately$50,000 when the new tax laws and corporate tax rate of 18% are applied.




9. Income taxes (continued)

(a) Income tax expense (continued)

The tax expense on profit differs from the amount that would arise using the Singapore standardrate of income tax as explained below:

Group2006 2005

$’000 $’000

Profit before tax 17,654 13,037

Tax calculated at a tax rate of 20% (2005: 20%) 3,531 2,607Effects of: - Different tax rates in other countries 76 (270) - Overseas statutory income exemption (1) (1,043) (764) - Singapore step income exemption (41) (39) - Expenses not deductible for tax purposes 153 137 - Income not subject to tax (112) (132) - Tax benefits not recognised 26 45

Tax charge 2,590 1,584

Pursuant to the Chinese income tax regulations, the subsidiaries in the People’s Republic of China(“PRC”) are entitled to exemptions from PRC income tax for the first two years commencing fromtheir first profit making year followed by 50% reduction in their income tax for the next threeyears. A profit-making year is defined as the first year for which an enterprise would need to payincome tax after absorption of any loss carried forward.




9. Income taxes (continued)

(b) Movements in current income tax liabilities

Group Company2006 2005 2006 2005

$’000 $’000 $’000 $’000

Beginning of financial year 1,457 1,669 957 1,483Income tax paid (2,278) (1,690) (865) (1,248)Tax expense on profit for the current financial year 2,841 1,478 830 722Under provision in preceding financial years 370 - 360 -

End of financial year 2,390 1,457 1,282 957

10. Earnings per share

(a) Basic earnings per share

Basic earnings per share is calculated by dividing the net profit attributable to equity holdersof the Company by the weighted average number of ordinary shares outstanding during thefinancial year.

2006 2005

Net profit attributable to equity holders of the Company ($’000) 14,334 11,275

Weighted average number of ordinary shares in issue for basic earnings per share (‘000) 356,534 329,894

Basic earnings per share (cents per share) 4.02 3.42

Multi-chem - A/C 2006 29/3 3/30/07, 7:15 PM79



(b) Diluted earnings per share

For the purpose of calculating diluted earnings per share, profit attributable to equity holders ofthe Company and the weighted average number of ordinary shares outstanding are adjusted forthe effects of all dilutive potential ordinary shares. The Company’s dilutive potential ordinary sharesare convertible notes. The convertible notes are assumed to have been converted into ordinaryshares and the net profit is adjusted to eliminate the interest expense.

Diluted earnings per share attributable to equity holders of the Company is calculated based onthe following data:

Group2006 2005

Net profit attributable to equity holders of the Company ($’000) 14,334 11,275Interest expense on convertible notes 50 136

Net profit used to determine diluted earnings per share 14,384 11,411

Weighted average number of ordinary shares in issue for basic earnings per share (’000) 356,534 329,894Adjustments for - Assumed conversion of convertible notes 14,823 16,340

371,357 346,234

Diluted earnings per share (cents per share) 3.87 3.30

11. Cash and cash equivalents

Group Company2006 2005 2006 2005

$’000 $’000 $’000 $’000

Cash at bank and on hand 8,500 4,032 1,503 1,053Short-term bank deposits 8,732 1,414 8,732 1,414

17,232 5,446 10,235 2,467




11. Cash and cash equivalents (continued)

At the balance sheet date, the carrying amounts of cash at bank and on hand and short-term bankdeposits approximate their fair values.

Cash at bank and on hand and short-term bank deposits are denominated in the following currencies:

Group Company2006 2005 2006 2005

$’000 $’000 $’000 $’000

Singapore Dollar 6,166 1,163 4,039 447United States Dollar 7,906 2,832 6,093 1,989Chinese Renminbi 2,689 1,091 - -Others 471 360 103 31

17,232 5,446 10,235 2,467

Short-term bank deposits at the balance sheet date have an average maturity of 1 month (2005: 1month) from the end of the financial year with the following weighted average effective per annuminterest rates:

Group Company2006 2005 2006 2005

Singapore Dollar 5.02% 2.69% 5.02% 2.69%United States Dollar 2.48% 4.18% 2.48% 4.18%Hong Kong Dollar 3.2% - 3.2% -




12. Trade and other receivablesGroup Company

2006 2005 2006 2005$’000 $’000 $’000 $’000

Trade receivables: - Non-related parties 30,965 23,885 8,596 7,896 - An associated company 77 7 77 7

31,042 23,892 8,673 7,903Less: Allowance for impairment of receivables - non-related parties (188) (36) (115) -

Trade receivables - net 30,854 23,856 8,558 7,903

Non-trade receivables: - Non-related parties 274 823 - 4 - Subsidiaries - - 10,476 5,236 - An associated company 11 10 11 10

285 833 10,487 5,250Less: Allowance for impairment of

receivables - subsidiary - - (750) (750)

Non-trade receivables - net 285 833 9,737 4,500

31,139 24,689 18,295 12,403

The non-trade receivables from subsidiaries and an associated company are unsecured, interest-free and are repayable on demand.

At the balance sheet date, the carrying amounts of current trade and other receivables approximatetheir fair values.

During the year, impairment loss on trade receivables of $158,000 (2005: Write-back of impairmentloss of $132,000) was recognised as an expense and included in “other gains-net” in the incomestatement.




12. Trade and other receivables (continued)

Trade and other receivables are denominated in the following currencies:

Group Company2006 2005 2006 2005

$’000 $’000 $’000 $’000

Singapore Dollar 7,190 9,301 8,079 6,433United States Dollar 4,601 3,025 8,574 5,948Chinese Renminbi 15,124 9,552 1,064 22Thai Baht 2,326 2,153 - -Others 1,898 658 578 -

31,139 24,689 18,295 12,403

13. Inventories

Group Company2006 2005 2006 2005

$’000 $’000 $’000 $’000

Finished goods 7,312 4,133 1,136 1,619

The cost of inventories recognised as expense and included in “cost of sales” amounted to$46,803,000 (2005: $33,794,000).

During the year, the Group made an inventory write-down of $654,000 (2005: $254,000) recognisedas expense and included in “cost of sales” in the income statement.

14. Other current assets

Group Company2006 2005 2006 2005

$’000 $’000 $’000 $’000

Deposits 345 314 177 129Prepayments 332 332 73 26

677 646 250 155

The carrying amounts of deposits approximate their fair values.




15. Other non-current assets

Group2006 2005

$’000 $’000

Other non-current assets 127 132

Other non-current assets comprise memberships for clubs in the People’s Republic of China (“PRC”).There is no active market for the club memberships in PRC, and as such, it is not practicable todetermine with sufficient reliability the fair value of the club memberships. However, the directorsdo not anticipate that the carrying amounts of club memberships will be significantly in excess oftheir fair values.

16. Investment in an associated company

Group Company2006 2005 2006 2005

$’000 $’000 $’000 $’000

Equity investment at cost 1,050 1,050

Beginning of financial year 2,084 2,082Share of (loss)/profit (119) 27Dividends received (230) (25)

End of financial year 1,735 2,084

The summarised financial information of the associated company are as follows:

2006 2005$’000 $’000

Assets 6,709 7,158Liabilities 1,746 1,204Revenue 7,504 9,875Net (loss)/profit (340) 77




16. Investment in an associated company (continued)

Details of the associated company are as follows:

Country ofbusiness/ Effective

Name Principal activities incorporation equity holding

2006 2005% %

Hawera Precision Tec Supply of precision Singapore 35 35 Pte Ltd drills and provision of

regrinding services

The associated company is audited by PricewaterhouseCoopers, Singapore.

17. Investment in a joint venture

Group Company2006 2005 2006 2005

$’000 $’000 $’000 $’000

Equity investment in a jointly controlled entity, at cost 1,161 1,161Less: Accumulated impairment loss (1,161) (1,161)

- -

Beginning and end of financial year - -

At 31 December 2006 and 31 December 2005, the joint venture is dormant and does not have anyassets or liabilities. Details of the joint venture are as follows:



2006 2005% %

Multi-Chem Precision Under members’ Philippines 50 50 Philippines Corporation voluntary liquidation

The joint venture is not required to be audited in its country of incorporation as it is under members’voluntary liquidation.




18. Investments in subsidiaries

Company2006 2005

$’000 $’000

Equity investments at cost 45,833 30,585Less: Accumulated impairment losses (238) (238)

45,595 30,347

(a) Issue of shares by a subsidiary

On 20 July 2006, the issued and paid-up capital of a subsidiary of the Company, M.TechProducts Pte Ltd, was increased from $1,000,000 to $4,000,000. The Company and the minorityshareholder subscribed for 2,150,000 and 850,000 ordinary shares respectively in the capitalof M.Tech Products Pte Ltd for a total consideration of $2,150,000 and $850,000 respectively.Following the abovementioned share issue exercise, the Company’s shareholding in M.TechProducts Pte Ltd stands at 73.75% from the original 80% shareholding.

(b) Incorporation of subsidiaries

On 23 May 2006, the Company incorporated a wholly-owned subsidiary, M.Tech Philippines,Inc, with a paid-up capital of Peso10,380,000.

On 26 May 2006, the Company registered a wholly-owned subsidiary, Multi-Chem ElectronicsKunshan Co., Ltd, with a registered capital of US$1,500,000.

On 10 August 2006, the Company incorporated a wholly-owned subsidiary, M.Tech Products(HK) Pte Limited, with a paid-up capital of HK$10,000.

(c) Details of the subsidiaries are as follows:



2006 2005% %

Held by the Company

Multi-Chem (Suzhou) Provision of value added People’s 100 100 Co., Ltd. (c) PCB manufacturing Republic

services, mainly in of China precision drilling, to PCB fabricators




18. Investments in subsidiaries (continued)



2006 2005% %

Held by the Company (continued)

Multi-Chem Electronics Provision of value added People’s 100 100 (Wuxi) Co., Ltd. (d) PCB manufacturing Republic of

services, mainly in China precision drilling, to PCB fabricators

M.Tech Products Distribution of hardware Pte Ltd. (a) and software relating to Singapore 73.75 80

internet and network products, and provision of maintenance services for such products

M-Solutions Technology Distribution of hardware Thailand 49 49 (Thailand) and software relating to Co., Ltd. (e), (f) internet and network

products, and provision of maintenance services for such products

M-Security Technology Distribution of information Malaysia 100 100 Sdn. Bhd. (b) technology products and

related services

SecureOneAsia Pte. Ltd. (a) Provision of internet Singapore 100 100 security services and the operation and provision of internet and telecommunication services







2006 2005% %


M-Security Technology Distribution of hardware Singapore 100 100 Indochina Pte. Ltd. (a) and software relating to


M-Precision Tech Provision of value added Malaysia 100 100 Sdn. Bhd. (b) PCB manufacturing

services, mainly in precision drilling, to PCB fabricators. This subsidiary was inactive during the financial year

Multi-Chem Laser Provision of value added People’s 100 100 Technology PCB manufacturing services, Republic of (Suzhou) Co., Ltd. (c) mainly in precision drilling, China

to PCB fabricators

M.Tech (Shanghai) Distribution of hardware People’s 100 100 Co., Ltd. (g) and software relating to Republic of

internet and network China products, and provision of maintenance services for such products

PT. M.Tech. Products (h) Distribution of hardware Indonesia 99 99 and software relating to internet and network products, and provision of maintenance services for such products







2006 2005% %


M.Tech Products Distribution of hardware Philippines 100 - Philippines, Inc. (i) and software relating to


Multi-Chem Electronics Provision of value added People’s 100 - (Kunshan) Co., Ltd (j) PCB manufacturing services, Republic of

mainly in precision drilling, China to PCB fabricators

M.Tech Products (HK) Distribution of hardware and Hong Kong 100 - Pte Limited (k) software relating to internet

and network products, and provision of maintenance services for such products

Held by M.Tech Products Pte Ltd

M.Tech Training Centre Provision of information Singapore 59 56 Pte. Ltd. (a) communication and

information technology training programmes

(a) Audited by PricewaterhouseCoopers, Singapore(b) Audited by Horwath Wong & Co., Malaysia(c) Audited by Jiangsu Huaxing Certified Public Accountants Co., Ltd, People’s Republic of China(d) Audited by Jiangsu GongZheng Certified Public Accountants Co., Ltd, People’s Republic of China(e) Audited by Sum Hak-Ngan A.M.C. Co. Ltd, Thailand(f) Deemed to be a subsidiary as the Company controls the voting rights and the financial and operating

policies of the entity(g) Audited by Willsonn Partners, People’s Republic of China(h) Audited by Rama Wendra Registered Public Accountant, Indonesia(i) Audited by Anthony L. Pellas & Associates, Philippines(j) Audited by Suzhou New Dahua Certified Public Accountants Co., Ltd., People’s Republic of China(k) Not required to be audited under the laws of the country of incorporation




19. Property, plant and equipment

Office FactoryLeasehold plant and plant andproperties equipment equipment Total

$’000 $’000 $’000 $’000

Group2006Cost1 January 2006 4,292 3,021 68,221 75,534Currency translation differences - (18) (1,407) (1,425)Additions - 1,355 28,434 29,789Disposals - (794) (2,490) (3,284)

At 31 December 2006 4,292 3,564 92,758 100,614

Accumulated depreciationAt 1 January 2006 976 1,614 24,925 27,515Currency translation differences - (9) (234) (243)Depreciation charge 174 497 8,141 8,812Disposals - (600) (852) (1,452)

At 31 December 2006 1,150 1,502 31,980 34,632

Net book valueAt 31 December 2006 3,142 2,062 60,778 65,982

2005CostAt 1 January 2005 4,292 2,732 55,107 62,131Currency translation differences - 11 960 971Additions - 314 15,905 16,219Disposals - (36) (3,751) (3,787)

At 31 December 2005 4,292 3,021 68,221 75,534

Accumulated depreciationAt 1 January 2005 801 1,197 19,469 21,467Currency translation differences - 2 135 137Depreciation charge 175 443 6,854 7,472Disposals - (28) (1,533) (1,561)

At 31 December 2005 976 1,614 24,925 27,515

Net book valueAt 31 December 2005 3,316 1,407 43,296 48,019




19. Property, plant and equipment (continued)

Office FactoryLeasehold plant and plant andproperties equipment equipment Total

$’000 $’000 $’000 $’000

Company2006CostAt 1 January 2006 4,292 1,637 22,694 28,623Additions - 739 12,354 13,093Disposals - (712) (8,704) (9,416)

At 31 December 2006 4,292 1,664 26,344 32,300

Accumulated depreciationAt 1 January 2006 976 1,165 10,037 12,178Depreciation charge 174 254 3,932 4,360Disposals - (541) (3,408) (3,949)

At 31 December 2006 1,150 878 10,561 12,589

Net book valueAt 31 December 2006 3,142 786 15,783 19,711

2005CostAt 1 January 2005 4,292 1,633 20,316 26,241Additions - 27 7,234 7,261Disposals - (23) (4,856) (4,879)

At 31 December 2005 4,292 1,637 22,694 28,623

Accumulated depreciationAt 1 January 2005 801 941 7,302 9,044Depreciation charge 175 247 3,990 4,412Disposals - (23) (1,255) (1,278)

At 31 December 2005 976 1,165 10,037 12,178

Net book valueAt 31 December 2005 3,316 472 12,657 16,445




19. Property, plant and equipment (continued)

(a) The carrying amount of factory plant and equipment held under finance leases at 31 December2006 amounted to $743,000 (2005: $1,115,000) for the Group and the Company.

(b) The Group and the Company have adjusted the residual values and useful lives of certain factoryplant and equipment on 1 January 2006 to reflect their expected level of usage for the Group andthe Company as follows:

- Change in residual values from nil to 10% of cost of the factory plant and equipment; and- Change in useful lives from 5 years and 141/3 years to 8 years.

These changes did not materially affect the financial statements for the year ended 31 December2006.

20. Trade and other payables

Group Company2006 2005 2006 2005

$’000 $’000 $’000 $’000

Trade payables: - Non-related parties 8,402 7,321 824 2,252 - Subsidiary - - 9 - - An associated company 152 123 152 123

8,554 7,444 985 2,375

Non-trade payables: - Non-related parties 1,093 578 219 189 - Director 67 67 - - - Subsidiaries - - 977 736 - An associated company 2 10 2 10

1,162 655 1,198 935

Customers’ advances received 1,715 172 - -Other accrual for operating expenses 5,028 3,599 2,842 1,560

16,459 11,870 5,025 4,870

The non-trade payables to director, subsidiaries and an associated company are unsecured,interest-free and are repayable on demand.

At the balance sheet date, the carrying amounts of trade and other payables approximate their fairvalues.




20. Trade and other payables (continued)

Trade and other payables are denominated in the following currencies:

Group Company2006 2005 2006 2005

$’000 $’000 $’000 $’000

Singapore Dollar 4,504 3,463 3,776 2,354United States Dollar 5,606 5,092 871 2,331Chinese Renminbi 5,209 2,761 103 -Others 1,140 554 275 185

16,459 11,870 5,025 4,870

21. Borrowings

Group Company2006 2005 2006 2005

$’000 $’000 $’000 $’000

CurrentBills payable to banks (unsecured) 14,438 9,022 14,438 9,022Bank borrowings 7,503 831 6,731 -Convertible notes (Note 22) 2,920 - 2,920 -Finance lease liabilities (Note 23) 202 228 202 228

25,063 10,081 24,291 9,250

Non-currentBank borrowings 17,443 831 17,443 -Convertible notes (Note 22) - 3,319 - 3,319Finance lease liabilities (Note 23) 1,052 1,236 1,052 1,236

18,495 5,386 18,495 4,555

Total borrowings 43,558 15,467 42,786 13,805



21. Borrowings (continued)

(a) Corporate guarantee from Multi-Chem Limited

Total borrowings include bank borrowings of $772,000 (2005: $1,662,000) of a subsidiary securedby a corporate guarantee from the Company.

(b) Secured finance lease liabilities

Finance lease liabilities of the Group are secured by the rights to the leased factory plant andequipment (Note 19), which would revert to the lessor in the event of default by the Group.

(c) Maturity of borrowings

The current borrowings (excluding finance lease liabilities) have an average maturity of 4 months(2005: 7 months) from the end of the financial year. The non-current borrowings [excluding financelease liabilities (Note 23)] have the following maturity:

Group Company2006 2005 2006 2005

$’000 $’000 $’000 $’000

Between two and five years 17,443 4,150 17,443 3,319

(d) Currency risk

The carrying amounts of total borrowings are denominated in the following currencies at the balancesheet date:

Group Company2006 2005 2006 2005

$’000 $’000 $’000 $’000

Singapore Dollar 16,187 1,464 16,187 1,464United States Dollar 26,280 14,003 25,508 12,341Others 1,091 - 1,091 -

43,558 15,467 42,786 13,805




21. Borrowings (continued)

(e) Interest rate risks

The weighted average effective per annum interest rates of total borrowings at the balance sheetdate are as follows:

2006 2005S$ US$ S$ US$

GroupBank borrowings 4.8% 6.5% - 6.1%Convertible notes - 1.7% - 1.7%Finance lease liabilities 4.5% - 4.5% -

CompanyBank borrowings 4.8% 6.6% - -Convertible notes - 1.7% - 1.7%Finance lease liabilities 4.5% - 4.5% -

(f) Carrying amounts and fair values

The carrying amounts of current borrowings approximate their fair values.

The fair values of non-current borrowings are determined from the cash flows analyses, discountedat the borrowing rates which the directors expect to be available to the Group at the balance sheetdate. The fair values of non-current borrowings at the balance sheet date approximate their carryingamounts except for the fair values of non-current convertible notes and finance lease liabilities asfollows:

Carrying amounts Fair values2006 2005 2006 2005

$’000 $’000 $’000 $’000

Group and CompanyConvertible notes - 3,319 - 3,105Finance lease liabilities 1,052 1,236 1,090 1,286




22. Convertible notes

On 16 May 2003, the Company issued convertible notes of nominal value US$2 million to a fundmanaged by an independent third party fund manager. The notes are repayable on 31 May 2007 attheir nominal value of US$2 million unless converted into the Company’s ordinary shares at theholder’s option at the exercise price of $0.20 during the exercise period from 1 July 2006 to 31 May2007.

The fair value of the liability component, included in long-term borrowings, was calculated using amarket interest rate for an equivalent non-convertible note at date of inception of convertiblenotes and subsequently carried at amortised cost until it extinguished on conversion or maturity ofthe notes. The residual amount, representing the value of the equity conversion component, isincluded in shareholders’ equity in other reserves (Note 26), net of deferred income taxes.

The convertible notes recognised on the balance sheet at 16 May 2003 and the carrying amount ofthe liability component of the convertible notes at the balance sheet date is as follows:

Group and Company2006 2005

$’000 $’000

Face value of convertible notes issued on 16 May 2003 3,413 3,413Equity conversion component (230) (230)

Liability component on initial recognition at 16 May 2003 3,183 3,183

Liability component at the end of financial year (Note 21) 2,920 3,319

The carrying amounts of the liability component of the convertible bond, repayable on 31 May2007, approximate their fair values at 31 December 2006 (2005: $3,105,000).

Interest expense on the convertible bond was calculated on the effective interest basis by applyingthe interest rate of 1.7% per annum for an equivalent non-convertible bond at the date of issue ofthe convertible bond to the liability component of the convertible bond.

During the current financial year, convertible notes amounting to $120,000 were converted into600,000 ordinary shares at $0.20 per share.




23. Finance lease liabilities

The Group leases factory plant and machinery (Note 19) from an associated company under non-cancellable finance lease agreements with purchase options at the end of the lease period. Theseleases have varying terms. The future aggregate minimum lease payments under non-cancellablefinance leases recognised as liabilities are as follows:


$’000 $’000

Minimum lease payments due to an associated company: - Not later than one year 272 290 - Between two and five years 1,090 1,090 - Later than five years 45 295

1,407 1,675Less: Future finance charges (153) (211)

Present value of finance lease liabilities 1,254 1,464

The present value of finance lease liabilities may be analysed as follows:


$’000 $’000

Not later than one year (Note 21) 202 228Later than one year (Note 21): - Between two and five years 1,007 948 - Later than five years 45 288

1,052 1,236

1,254 1,464




24. Deferred income taxes

Deferred income tax assets and liabilities are offset when there is a legally enforceable right toset off current income tax assets against current income tax liabilities and when the deferredincome taxes relate to the same fiscal authority. The amounts, determined after appropriateoffsetting, are shown on the balance sheets as follow:

Group Company2006 2005 2006 2005

$’000 $’000 $’000 $’000

Deferred income tax assets - To be settled within one year (21) - - -

Deferred income tax liabilities - To be settled within one year 45 112 45 105 - To be settled after one year 457 620 457 620

502 732 502 725

481 732 502 725

The movement in the deferred income tax assets and liabilities (prior to offsetting of balanceswithin the same tax jurisdiction) and the deferred income tax account during the financial year isas follows:

Group Company

Deferred Deferred Deferredincome tax income tax income taxliabilities assets Total liabilities

Accelerated Acceleratedtax Tax tax

depreciation losses depreciation$’000 $’000 $’000 $’000

2006Beginning of financial year 732 - 732 725Credited to income statement (230) (21) (251) (223)

End of financial year 502 (21) 481 502

2005Beginning of financial year 626 - 626 626Charged to income statement 106 - 106 99

End of financial year 732 - 732 725



24. Deferred income taxes (continued)

Deferred income tax assets are recognised for tax losses carried forward and deductible temporarydifferences to the extent that realisation of the related tax benefits through future taxable profitsare probable. The Group has unrecognised tax losses of $359,000 (2005: $243,000) and deductibletemporary differences of $91,000 (2005: $97,000) at the balance sheet date which can be carriedforward and used to offset against future taxable income subject to meeting certain statutoryrequirements by those companies with unrecognised tax losses in their respective countries ofincorporation.

25. Share capital and share premium

Number of shares Amount

Totalshare

Authorised Authorised capitalshare Issued share Share Share and share

capital shares capital capital premium premium’000 ’000 $’000 $’000 $’000 $’000

2006

Beginning of financial year 600,000 356,381 30,000 17,819 17,785 35,604Effect of Companies

(Amendment) Act 2005- Abolishment of

authorised sharecapital (600,000) - (30,000) - - -

- Transfer of sharepremium to sharecapital - - - 17,785 (17,785) -

- Transfer of capitalredemption reserve toshare capital [Note26(b)] - - - 826 - 826

Share issue pursuant toconversion of convertiblenotes (Note 22) - 600 - 129 - 129

End of financial year - 356,981 - 36,559 - 36,559




25. Share capital (continued)

Number of shares Amount

Totalshare

Authorised Authorised capitalshare Issued share Share Share and share

capital shares capital capital premium premium’000 ’000 $’000 $’000 $’000 $’000

2005

Beginning of financial year 600,000 315,670 30,000 15,783 11,678 27,461Share issue pursuant to exercise of warrants - 40,711 - 2,036 6,107 8,143

End of financial year 600,000 356,381 30,000 17,819 17,785 35,604

Under the Companies (Amendment) Act 2005 that came into effect on 30 January 2006, the conceptsof par value and authorised share capital were abolished and the amount in the share premiumaccount and capital redemption reserve as at 30 January 2006 became part of the Company’sshare capital.

The newly issue shares rank pari passu in all respects with previously issued shares.

26. Other reserves

Group Company2006 2005 2006 2005

$’000 $’000 $’000 $’000

(a) Composition

Capital redemption reserve - 826 - 826Currency translation reserve (1,755) (301) - -Capital reserve - 55 - 55Equity component of convertible notes 221 230 221 230

(1,534) 810 221 1,111




26. Other reserves (continued)

Group Company2006 2005 2006 2005

$’000 $’000 $’000 $’000

(b) Movements

Capital redemption reserveBeginning of financial year 826 826 826 826Effect of Companies (Amendment) Act 2005 (Note 25) (826) - (826) -

End of financial year - 826 - 826

Currency translation reserveBeginning of financial year (301) (1,115) - -Net currency translation differences on financial statements of foreign subsidiaries (1,454) 814 - -

End of financial year (1,755) (301) - -

Capital reserveBeginning of financial year 55 2,091 55 2,091Transfer to share capital and share premium pursuant to exercise of warrants - (2,036) - (2,036)Transfer to retained earnings upon expiry of unexercised warrants (Note 27) (55) - (55) -

End of financial year - 55 - 55

Equity component of convertible notesBeginning of financial year 230 230 230 230Transfer to share capital pursuant to conversion of convertible notes (9) - (9) -

End of financial year 221 230 221 230

The currency translation reserve and equity component of convertible notes are non-distributable.




27. Retained earnings

(a) Retained profits of the Group and the Company are distributable except for accumulated retainedprofits of an associated company amounting to $685,000 (2005: $1,034,000) which are included inthe Group’s retained earnings.

(b) Movements in retained earnings for the Company are as follows:

Company2006 2005

$’000 $’000

Beginning of financial year 7,414 9,080Net profit 10,422 6,548Dividends paid (Note 28) (7,994) (8,214)Transfer from capital reserve upon expiry of unexercised warrants (Note 26) 55 -

End of financial year 9,897 7,414

Movement in retained earnings for the Group is shown in the Consolidated Statement of Changesin Equity.

28. DividendsGroup and Company2006 2005

$’000 $’000

Ordinary dividends paid or proposedFinal exempt (one-tier) dividend of 1.403 cents (2005: final taxable dividend of 1.584 cents) per share paid in respect of the previous financial year 5,000 4,024Interim exempt (one-tier) dividend of 0.84 (2005: 0.78 cents) per share paid in respect of the current financial year 2,994 2,665Special exempt (one-tier) dividend of nil (2005: 0.43 cents) per share paid in respect of the current financial year - 1,525

7,994 8,214




29. Commitments

(a) Commitments to inject share capital in subsidiaries

At the balance sheet date, the Company has outstanding commitments amounting to approximately$31,724,000 (US$20,600,000) [2005: $22,617,000 (US$13,600,000)] in respect of commitments toinject share capital into its foreign subsidiaries.

(b) Operating lease commitments

The Group leases various properties, plant and machinery under non-cancellable operating leaseagreements. These leases have varying terms, escalation rights and renewal rights. The futureaggregate minimum lease payments under non-cancellable operating leases contracted for at thebalance sheet date but not recognised as liabilities, are as follows:

Group Company2006 2005 2006 2005

$’000 $’000 $’000 $’000

Not later than one year 1,145 694 125 125Between two and five years 3,010 1,512 501 501Later than five years 3,163 1,742 1,617 1,742

7,318 3,948 2,243 2,368

30. Financial risk management

The Group’s overall risk management programme seeks to minimise potential adverse effects onthe financial performance of the Group. Risk management is carried out under policies approvedby the Board of Directors.

(a) Price risk

Currency risk

The Group transacts business in various foreign currencies and therefore is exposed tocurrency risk. These risks are managed through monitoring currency exchange rates closelyand minimising the amounts of net foreign currency exposures whenever possible.




30. Financial risk management (continued)

(c) Credit risk

The Group has no significant concentration of credit risk. The Group has policies in place toensure that the sales of products and services are made to customers with an appropriatecredit history. Cash and fixed deposits are held with credit-worthy financial institutions.

(d) Liquidity risk

The Group adopts prudent liquidity risk management by maintaining sufficient cash and cashequivalents and having sufficient internally generated cash flows to fund its activities.

31. Related party transactions

In addition to the related party information disclosed elsewhere in the financial statements, thefollowing transactions took place between the Group and related parties during the financial year:

(a) Sales and purchases of goods and services

Group2006 2005

$’000 $’000

Sales of goods/services to an associated company 467 404Purchases of goods/services from an associated company 810 538Interest paid/payable to an associated company - finance leases 57 76Finance leases payments made to an associated company 210 318

(b) Key management personnel compensation

Key management personnel compensation is analysed as follows:

Group2006 2005

$’000 $’000

Salaries and other short-term employee benefits 4,362 3,074Post-employment benefits - contribution to CPF 116 133Directors’ fees 145 113

4,623 3,320

Included in above is total compensation to directors of the Company amounting to $3,710,000(2005: $2,324,000).




32. Segment information

Primary reporting format - business segments

Manufacturing IT PCBservices Distribution Distribution Group

$’000 $’000 $’000 $’000

Financial year ended 31 December 2006Sales - External sales 47,358 42,288 7,772 97,418

Segment result 12,183 3,664 209 16,056Other gains - net 1,431 165 70 1,666

17,722Finance income - net 51Share of loss of an associated company - - (119) (119)

Profit before income tax 17,654Income tax expense (2,960)

Net profit 14,694

Segment assets 84,318 22,183 5,483 111,984Investment in an associated company - - 1,735 1,735Unallocated assets 10,506

Consolidated total assets 124,225




32. Segment information (continued)

Primary reporting format - business segments (continued)

Manufacturing IT PCBservices Distribution Distribution Group

$’000 $’000 $’000 $’000

Segment liabilities 21,770 8,758 403 30,931Unallocated liabilities 31,978

Consolidated total liabilities 62,909

Other segment itemsCapital expenditure - property, plant and equipment 29,043 376 370 29,789Depreciation 8,474 169 169 8,812

Financial year ended 31 December 2005Sales - External sales 35,467 27,003 8,860 71,330

Segment result 10,469 1,835 80 12,384Other gains - net 736 118 99 953

13,337Finance cost (327)Share of profit of an associated company - - 27 27

Profit before income tax 13,037Income tax expense (1,584)

Net profit 11,453

Segment assets 63,246 12,281 4,913 80,440Investment in an associated company - - 2,084 2,084Unallocated assets 2,625

Consolidated total assets 85,149

Segment liabilities 16,203 5,312 1,443 22,958Unallocated liabilities 6,568

Consolidated total liabilities 29,526

Other segment itemsCapital expenditure - property, plant and equipment 15,931 274 14 16,219Depreciation 7,163 143 166 7,472




32. Segment information (continued)

Primary reporting format - business segments (continued)

As at 31 December 2006, the Group is organised into three business segments - manufacturingservices, IT distribution and PCB distribution. These business segments are the basis on which theGroup reports its primary segment information. The manufacturing services segment providesprecision drilling services to PCB fabricators. The IT distribution segment relates to the distributionof hardware and software relating to internet and network products and the provision of maintenanceservices for such products. The PCB distribution segment relates to the distribution of specialtychemicals and other PCB related products and equipment to PCB fabricators.

Unallocated costs represent corporate expenses. Segment assets consist primarily of property,plant and equipment, inventories, receivables and operating cash, and exclude deferred tax assets,short-term bank deposits and club memberships. Segment liabilities comprise operating liabilitiesand exclude items such as tax liabilities, bank borrowings and convertible notes. Capital expenditurecomprises additions to property, plant and equipment.

Secondary reporting format - geographical segments

The Group’s three business segments operate in three main geographical areas:

• Singapore - the Company is headquartered and has operations in Singapore. The operationsin this area are principally manufacturing services and distribution of PCB-related chemicalsand IT security products;

• ASEAN - distribution of PCB-related chemicals and IT security products; and

• People’s Republic of China - the operations in this area are principally manufacturing servicesand distribution of PCB-related chemicals and IT security products.

With the exception of Singapore and the People’s Republic of China, no other individual countrycontributed more than 10% of consolidated sales and assets. Sales are based on the country inwhich the customer is located. Total assets and capital expenditure are shown by the geographicalarea where the assets are located.

Sales Total assets Capital expenditure2006 2005 2006 2005 2006 2005

$’000 $’000 $’000 $’000 $’000 $’000

Singapore 33,845 33,977 40,933 34,454 11,339 7,364ASEAN 24,162 16,120 7,622 3,930 297 117People’s Republic of China 39,411 21,233 65,164 44,140 18,153 8,738

97,418 71,330 113,719 82,524 29,789 16,219

Unallocated assets 10,506 2,625

124,225 85,149



33. New accounting standards and FRS interpretations

Certain new standards, amendments and interpretations to existing standards have been publishedand they are mandatory for the Group’s accounting periods beginning on or after 1 January 2007 orlater periods which the Group has not early adopted. The Group’s assessment of the impact ofadopting those standards, amendments and interpretations that are relevant to the Group is setout below:

FRS 107, Financial Instruments: Disclosures, and a complementary Amendment to FRS 1,Presentation of Financial Statements - Capital Disclosures

The Group has adopted FRS 107 on 1 January 2007, which is the effective date of the Standard.

FRS 107 introduces new disclosures to improve the information about financial instruments. Itrequires the disclosure of qualitative and quantitative information about exposure to risks arisingfrom financial instruments, including minimum disclosures about credit risk, liquidity risk and marketrisk (including sensitivity analysis to market risk). It replaces the disclosure requirements in FRS32, Financial Instruments: Disclosure and Presentation.

The amendment to FRS 1 introduces disclosures about the level of an entity’s capital and how itmanages capital. The Group has assessed the impact of FRS 107 and the amendment to FRS 1 andconcluded that the main additional disclosures will be the capital disclosures required by theamendment of FRS 1.

34. Authorisation of financial statements

These financial statements were authorised for issue in accordance with a resolution of the Boardof Directors of Multi-Chem Limited on 16 March 2007.




ADDITIONAL INFORMATION FOR SHAREHOLDERS

0.30

0.25

0.20

0.15

0.10

0.05

0.0JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

Share Price Chart

As atHighest Lowest Average 15 March 2007

Share Price (S$) 0.285 0.205 0.236 0.220

Share Volume 7,686,000 1,000 268,000 51,000

S$

2006

In 2006



ANALYSIS OF SHAREHOLDINGSas at 15 March 2007

Class of Shares - Ordinary sharesVoting Rights - One Vote per share

DISTRIBUTION OF SHAREHOLDERS BY SIZE OF SHAREHOLDINGS

Range of Shareholdings Number of Shareholders % Number of Shares %

1 - 999 201 2.90 91,852 0.03

1,000 - 10,000 5,680 82.06 15,881,648 4.41

10,001 - 1,000,000 1,031 14.90 49,421,901 13.71

1,000,001 and above 10 0.14 294,985,749 81.85

TOTAL 6,922 100.00 360,381,150 100.00

LIST OF TWENTY LARGEST SHAREHOLDERS(as shown in the Register of Members)

No Name of Shareholder Number of Shares Held %

1 FOO SUAN SAI 133,247,000 36.972 HAN JUAT HOON 96,969,500 26.913 YAOWALAK PHOOWARACHAI 42,672,000 11.844 UNITED OVERSEAS BANK NOMINEES PTE LTD 7,314,500 2.035 KIM ENG SECURITIES PTE. LTD. 7,011,500 1.946 DBS NOMINEES PTE LTD 2,214,249 0.617 RAFFLES NOMINEES PTE LTD 1,444,500 0.408 DBS VICKERS SECURITIES (S) PTE LTD 1,425,500 0.409 UOB KAY HIAN PTE LTD 1,364,000 0.3810 CITIBANK NOMINEES SINGAPORE PTE LTD 1,323,000 0.3711 OCBC SECURITIES PRIVATE LTD 729,000 0.2012 HSBC (SINGAPORE) NOMINEES PTE LTD 694,000 0.1913 LEE TIAN GEOK 668,000 0.1914 CIMB - GK SECURITIES PTE LTD 624,132 0.1715 OCBC NOMINEES SINGAPORE PTE LTD 608,500 0.1716 KWAN CHOON YING or LOKE KWAN YING 548,000 0.1517 HERMAN HALIM 534,000 0.1518 GADGETSTUFF PTE LTD 524,000 0.1519 SUZUKI TOSHIAKI 500,000 0.1420 FOO CHIK HEE 480,000 0.13

300,895,381 83.49



SUBSTANTIAL SHAREHOLDERSas at 15 March 2007(as shown in the Register of Substantial Shareholders)

Direct Interest Deemed InterestNo. Name of Shareholder No. of Shares % No. of Shares %

1. Foo Suan Sai 134,469,500 37.31 97,899,500 27.17

2. Han Juat Hoon 97,899,500 27.17 134,469,500 37.31

3. Yaowalak Phoowarachai 42,672,000 11.84 - -

Mr Foo Suan Sai and Mdm Han Juat Hoon are husband and wife and they are each deemed to be interestedin the shares held by the other.

COMPLIANCE WITH RULE 723 OF THE SGX-ST LISTING MANUAL

As at 15 March 2007, based on the registers of shareholders and to the best knowledge of the Company,the percentage of shareholding held in the hands of the public is 23.43%. The Company is therefore incompliance with Rule 723 of the SGX-ST Listing Manual.



NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN THAT the Annual General Meeting of the Company will be held at 11 TuasAvenue 5 Singapore 639337 on Friday, 27 April 2007 at 11.30 a.m., for the purpose of transacting thefollowing businesses:

As Ordinary Business

1. To receive and adopt the Audited Accounts of the Company for the financial yearended 31 December 2006 together with the Directors’ Report and the Auditors’Report thereon. (Resolution 1)

2. To re-elect the following directors, who retires by rotation in accordance withArticle 106 of the Articles of Association of the Company:

(a) Mr Wong Meng Yeng (See Explanatory Note 1) (Resolution 2)(b) Mr Chew Thiam Keng (See Explanatory Note 2) (Resolution 3)

3. To approve the payment of Directors’ fees of S$145,000 for the financial yearended 31 December 2006. (Resolution 4)

4. To re-appoint Messrs PricewaterhouseCoopers as Auditors and to authorise theDirectors to fix their remuneration. (Resolution 5)

As Special Business

To consider and, if thought fit, to pass the following as Ordinary Resolutions, with orwithout modifications:

5. Re-appointment of directors under Section 153(6) of the Companies Act, Cap. 50

“That pursuant to Section 153(6) of the Companies Act, Cap. 50, the followingdirectors be re-appointed as Directors of the Company to hold office until thenext annual general meeting of the Company:

(a) Mr Toshiaki Suzuki (See Explanatory Note 3) (Resolution 6)(b) Mr Lim Keng Jin (See Explanatory Note 4) (Resolution 7)

6. Authority to issue shares“That pursuant to Section 161 of the Companies Act, Cap. 50 and in accordance (Resolution 8)with Rule 806 of the Listing Manual (“Listing Manual”) of the SingaporeExchange Securities Trading Limited (“SGX-ST”), approval be and is hereby givento the Directors to issue:-

(a) shares in the Company (whether by way of bonus, rights or otherwise); or(b) convertible securities; or(c) additional convertible securities arising from adjustments made to the

number of convertible securities previously issued in the event of rights,bonus or capitalisation issues; or




(d) shares arising from the conversion of convertible securities,

at any time and upon such terms and conditions and for such purposes as theDirectors may in their absolute discretion deem fit provided that :-

(i) the aggregate number of shares and convertible securities that may beissued shall not be more than 50% of the issued share capital of theCompany or such other limit as may be prescribed by the SGX-ST as at thedate the general mandate is passed;

(ii) the aggregate number of shares and convertible securities to be issuedother than on a pro-rata basis to existing shareholders shall not be morethan 20% of the issued share capital of the Company or such other limit asmay be prescribed by the SGX-ST as at the date the general mandate ispassed;

(iii) for the purpose of determining the aggregate number of shares that maybe issued under sub-paragraphs (i) and (ii) above, the percentage of issuedshare capital shall be calculated based on the issued share capital of theCompany as at the date the general mandate is passed after adjusting fornew shares arising from the conversion or exercise of any convertiblesecurities or employee stock options in issue as at the date the generalmandate is passed and any subsequent consolidation or subdivision of theCompany’s shares; and

(iv) unless earlier revoked or varied by the Company in general meeting, suchauthority shall continue in force until the next Annual General Meeting orthe date by which the next Annual General Meeting is required by law tobe held, whichever is earlier.” (See Explanatory Note 5)

7. To transact any other ordinary business which may be properly transacted at anAnnual General Meeting.

BY ORDER OF THE BOARD

Ho Boon Chuan WilsonLim Ka BeeCompany Secretaries

Singapore, 11 April 2007




Explanatory Notes on Businesses to be Transacted

1. Mr Wong Meng Yeng, if re-elected, will remain as Chairman of the Audit Committee and will beconsidered independent for the purposes of Rule 704(8) of the Listing Manual of the SingaporeExchange Securities Trading Limited. He will also remain as a member of the RemunerationCommittee and Nominating Committee.

2. Mr Chew Thiam Keng, if re-elected, will remain as a member of the Audit Committee and will beconsidered independent for the purposes of Rule 704(8) of the Listing Manual of the SingaporeExchange Securities Trading Limited. He will also remain as Chairman of the Nominating Committeeand member of the Remuneration Committee.

3. Mr Toshiaki Suzuki, if re-elected, will remain as a member of the Audit Committee and will not beconsidered independent for the purposes of Rule 704(8) of the Listing Manual of the SingaporeExchange Securities Trading Limited. He will also remain as a member of the RemunerationCommittee.

4. Mr Lim Keng Jin, if re-elected, will remain as a member of the Audit Committee and will beconsidered independent for the purposes of Rule 704(8) of the Listing Manual of the SingaporeExchange Securities Trading Limited. He will also remain as Chairman of the RemunerationCommittee and member of the Nominating Committee.

5. Ordinary Resolution no. 8 is to authorise the Directors of the Company from the date of the aboveMeeting until the next Annual General Meeting to issue shares and/or convertible securities in theCompany up to an amount not exceeding in aggregate 50 percent of the issued share capital of theCompany of which the total number of shares and convertible securities issued other than on apro-rata basis to existing shareholders shall not exceed 20 percent of the issued share capital ofthe Company at the time the resolution is passed, for such purposes as they consider would be inthe interests 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

i. A member entitled to attend and vote at this meeting and may appoint not more than two proxiesto attend and vote in his stead.

ii. Where a member appoints two proxies, he/she should specify the proportion of his/her shareholding(expressed as a percentage of the whole) to be represented by each proxy and if no percentage isspecified, the first named proxy shall be treated as representing 100 per cent of the shareholdingand the second named proxy shall be deemed to be an alternate to the first named.

iii. A proxy need not be a member of the Company.

iv. A corporation which is a member of the Company may authorise by resolution of its directors orother governing body, such person as it thinks fit to act as its representative at the meeting.

v. The instrument appointing a proxy must be deposited at the registered office of the Company at 11Tuas Avenue 5, Singapore 639337 not less than 48 hours before the time appointed for holding themeeting.



This page is intentionally left blank.



PROXY FORM

✁MULTI-CHEM LIMITED(Company Registration No.: 198500318Z)(Incorporated in Singapore)

IMPORTANT

1. For investors who have used their CPF monies to buy shares of Multi-ChemLimited, the Annual Report is forwarded to them at the request of their CPFApproved Nominees and is sent FOR INFORMATION ONLY.

2. This Proxy Form is not valid for use by CPF investors and shall be ineffectivefor all intents and purposes if used or purported to be used by them.

I/We

of

being *a member/members of Multi-Chem Limited (the “Company”), hereby appoint

Proportion ofNRIC/Passport Shareholdings to be

Name Address Number represented by proxy(%)

*and/or

as *my/our *proxy/proxies to vote for *me/us on *my/our behalf and, if necessary, to demand a poll, atthe Annual General Meeting of the Company to be held at 11 Tuas Avenue 5, Singapore 639337 onFriday, 27 April 2007 at 11.30 a.m. and at any adjournment thereof.

*I/we direct *my/our *proxy/proxies to vote for or against the Ordinary Resolutions to be proposed atthe Annual General Meeting as indicated with an “X” in the spaces provided hereunder. If no specifieddirections as to voting are given, the *proxy/proxies will vote or abstain from voting at *his/their discretion.

No. Resolutions For Against

1. To receive and adopt the Audited Accounts, Directors’ Report and Auditors’Report.

2. To re-elect Mr Wong Meng Yeng as Director.

3. To re-elect Mr Chew Thiam Keng as Director.

4. To approve payment of Directors’ fees.

5. To re-appoint auditors and to authorise the Directors to fix their remuneration.

6. To re-appoint Mr Toshiaki Suzuki as Director to hold office until next AnnualGeneral Meeting.

7. To re-appoint Mr Lim Keng Jin as Director to hold office until next AnnualGeneral Meeting.

8. To authorise Directors to issue shares pursuant to Section 161 of theCompanies Act, Cap. 50.

Dated this day of 2007

Signature(s) of Member(s)/Common Seal

* Delete accordingly

Total Number of Shares Held

IMPORTANT. Please read notes overleaf


Multi-Chem Limited AR 06118Notes:

1. A member entitled to attend and vote at the Meeting is entitled to appoint not more than two proxies to attend and vote in hisstead. A proxy need not be a member of the Company.

2. Where a member appoints more than one proxy, he should specify the proportion of his shareholding (expressed as a percentageof the whole) to be represented by each proxy and if no percentage is specified, the first named proxy shall be treated asrepresenting 100 per cent of the shareholding and the second named proxy shall be deemed to be an alternate to the first named.

3. A member should insert the total number of shares held. If the member has shares entered against his name in the DepositoryRegister (as defined in Section 130A of the Companies Act, Cap. 50 of Singapore), he should insert that number of shares. If themember has shares registered in his name in the Register of Members of the Company, he should insert the number of shares. Ifthe member has shares entered against his name in the Depository Register and shares registered in his name in the Register ofMembers of the Company, he should insert the aggregate number of shares. If no number is inserted, this form of proxy will bedeemed to relate to all the shares held by the member of the Company.

4. The instrument appointing proxy or proxies must be deposited at the registered office of the Company at 11 Tuas Avenue 5,Singapore 639337 not later than 48 hours before the time set for the Meeting.

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

6. Where an instrument appointing a proxy or proxies is signed on behalf of the appointor by an attorney, the letter or power ofattorney or a duly certified copy thereof must (failing previous registration with the Company) be lodged with the instrument ofproxy and deposited at the registered office of the Company at 11 Tuas Avenue 5, Singapore 639337 not later than 48 hoursbefore the time set for the Meeting, failing which the instrument may be treated as invalid.

7. A corporation which is a member of the Company may, in accordance with Section 179 of the Companies Act, Cap. 50 of Singapore,authorise by resolution of its directors or other governing body such person as it thinks fit to act as its representative at theMeeting.

8. The Company shall be entitled to reject the instrument appointing a proxy or proxies if it is incomplete, improperly completed orillegible or where the true intentions of the appointor are not ascertainable from the instructions of the appointor specified in theinstrument appointing a proxy or proxies. In addition, in the case of members of the Company whose shares are entered againsttheir names in the Depository Register, the Company may reject any instrument appointing a proxy or proxies lodged if suchmembers are not shown to have shares entered against their names in the Depository Register 48 hours before the time appointedfor holding the Meeting as certified by The Central Depository (Pte) Limited to the Company.

IMPORTANT

1. For investors who have used their CPF monies to buy shares of Multi-Chem Limited, the Annual Report is forwarded to them atthe request of their CPF Approved Nominees and is sent FOR INFORMATION ONLY.

2. This Proxy Form is not valid for use by CPF investors and shall be ineffective for all intents and purposes if used or purported tobe used by them.

FOLD ALONG THIS LINE

The Company SecretaryMULTI-CHEM LIMITED

11 Tuas Avenue 5Singapore 639337

FOLD ALONG THIS LINE

AFFIX

STAMP

Multi-chem - A/C 2006 29/3 3/30/07, 8:09 PM118

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