beng kuang marine limited beng kuang marine limited prospectus ... [PDF]

PROSPECTUS DATED 5 OCTOBER 2004 (Registered by the Monetary Authority of Singapore on 5 October 2004) This document is important. If you are in any doubt as to the action you should take, you should consult your stockbroker, bank manager, solicitor, accountant, or other professional adviser.

OUR BUSINESS We are principally engaged in the provision of corrosion prevention services, and infrastructure engineering services, as well as the supply and distribution of hardware equipment and tools, mainly to the marine, and oil and gas industries. (a) Corrosion Prevention Services

This Prospectus is issued in connection with our application to the Singapore Exchange Securities Trading Limited (“SGX-ST”) for permission to deal in and for quotation of all the ordinary shares of $0.08 each (“Shares”) in the capital of Beng Kuang Marine Limited (“Company”) already issued and the new Shares which are the subject of the Invitation (“New Shares”). Such permission will be granted when we have been admitted to the Official List of the SGX-ST Dealing and Automated Quotation System (“SGX SESDAQ”). Acceptance of applications will be conditional upon, inter alia, permission being granted by the SGX-ST to deal in and for quotation of all our existing issued Shares and the New Shares. Monies paid in respect of any application accepted will be returned to you, without interest or any share of revenue or other benefit arising therefrom and at your own risk, if the said permission is not granted and you will not have any claim against us or the Manager.

We provide corrosion prevention services to shipyards which require our blasting and painting services as part of their shipbuilding, ship conversion and ship repair activities. We also provide corrosion prevention services on steel work structures and piping modules of oil rigs and jack-up rigs for our customers in the oil and gas and other industries. (b) Infrastructure Engineering

The SGX-ST assumes no responsibility for the correctness of any of the statements or opinions made or reports contained in this Prospectus. Admission to the Official List of SGX SESDAQ is not to be taken as an indication of the merits of the Invitation, our Company, our subsidiaries, our Shares or the New Shares.

We provide turnkey engineering services from planning, project management to implementation involving fabrication, corrosion prevention, testing, installation and pre-commissioning of steel work modules and structures mainly for our customers in the oil and gas industry.

BENG KUANG MARINE LIMITED

A copy of this Prospectus has been lodged with and registered by the Monetary Authority of Singapore ( “Authority”). The Authority assumes no responsibility for the contents of the Prospectus. Registration of this Prospectus by the Authority does not imply that the Securities and Futures Act (Chapter 289) of Singapore, or any other legal or regulatory requirements, have been complied with. The Authority has not, in any way, considered the merits of our Shares or the New Shares, as the case may be, being offered or in respect of which an invitation is made, for investment.

(c) Supply and Distribution No Shares shall be allotted or allocated on the basis of this Prospectus later than 6 months after the date of registration of this Prospectus. Investing in our Shares involves risks which are described in the section entitled “Risk Factors” beginning on page 24 of this Prospectus.

We supply over 300 types of hardware equipment, tools and other products under our house brand “Master” that are used in the marine, oil and gas, and construction industries. Some of these products are supplied to our corrosion prevention and infrastructure engineering divisions.

PROSPECTS

BENG KUANG MARINE LIMITED (Company Registration Number : 199400196M) (Incorporated in the Republic of Singapore on 8 January 1994)

Marine, Oil and Gas Industries

Infrastructure Engineering

• Our business prospects is dependent on the growth in the marine, and oil and gas industries

• We believe that the expected increase in demand for infrastructure engineering services is attributable to attractive oil prices, increasing oil exploration and production activities, and the aging of current fleet of oil vessels

• We believe that we would benefit from Singapore’s status as a leading one-stop maritime hub in the region and Batam’s lower operating costs

Invitation in respect of 21,000,000 New Shares of $0.08 each comprising:(a) 2,100,000 Offer Shares at $0.23 for each Offer Share by way of public offer; and (b) 18,900,000 Placement Shares by way of placement, comprising:(i) 16,800,000 Placement Shares at $0.23 for each Placement Share; and (ii) 2,100,000 Reserved Shares at $0.23 for each Reserved Share reserved for our Non-Executive Directors, Independent Directors and employees who have contributed to the success of our Group, payable in full on application.

BENG KUANG MARINE LIMITED

55 Shipyard Road, Singapore 628141, Tel: 6266 0010, Fax: 6264 0010, Email: [email protected]

SNP SPrint Pte Ltd6417136

Manager, Underwriter and Placement Agent

KIM ENG CAPITAL PTE. LTD. (Company Registration Number : 200207700C)

Corrosion Prevention

Supply and Distribution

• We expect corrosion prevention activities to grow due to anticipated increases in regional marine activities, and new vessel construction by Singapore and Batam shipyards

• We believe that our supply and distribution division will be able to capitalise on the expected growth in marine, and oil and gas industries, to further develop our business

• New vessel construction is expected to increase as a result of higher shipping volumes, replacement demand due to aging of existing vessels, and earlier deadline for phasing out single hull oil tankers from 2015 to 2010 by the International Maritime Organisation.

TABLE OF CONTENTS Page CORPORATE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4

DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6

GLOSSARY OF TECHNICAL TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11

DETAILS OF THE INVITATION — Listing on the SGX SESDAQ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

13

— Indicative Timetable for Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

15

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS . . . . . . . . . . . . .

16

SELLING RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17

PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

18

THE INVITATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

21

PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

23

RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

24

INVITATION STATISTICS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

32

CAPITALISATION AND INDEBTEDNESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

34

DILUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

36

GENERAL INFORMATION ON OUR GROUP — Share Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

37

— Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

39

— Moratorium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

40

— Restructuring Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

40

— Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

41

— Group Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

42

HISTORY AND BUSINESS — Our History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

43

— Principal Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

45

— Quality Assurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

57

— Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

58

— Credit Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

59

— Research and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

61

— Inventory Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

61

— Sales and Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

62

1

TABLE OF CONTENTS Page — Copyrights, Patents, Trademarks and Other Intellectual Property Rights . . . . . . . . . . . .

63

— Seasonality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

65

— Staff Training . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

65

— Major Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

66

— Major Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

67

— Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

68

— Competitive Strengths . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

69

— Properties and Fixed Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

70

— Government Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

71

— Exchange Controls. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

74

SUMMARY OF PROFORMA GROUP FINANCIAL INFORMATION — Proforma Operating Results of our Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

75

— Proforma Financial Position of our Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

76

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION — Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

78

— Review of Operating Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

82

— Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

85

— Review of Financial Position. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

85

— Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

87

— Capital Expenditures and Divestments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

88

— Foreign Exchange Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

89

— Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

89

PROSPECTS, BUSINESS STRATEGIES AND FUTURE PLANS — Prospects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

90

— Business Strategies and Future Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

91

DIRECTORS, MANAGEMENT AND STAFF — Management Reporting Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

92

— Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

93

— Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

94

— Staff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

96

— Directors’ and Executive Officers’ Remuneration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

97

— Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

98

— Board Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

100

— Service Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

100

2

TABLE OF CONTENTS Page INTERESTED PERSON TRANSACTIONS AND CONFLICTS OF INTEREST — Potential Conflicts of Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

102

— Past Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

105

— Present and On-Going Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

106

— Shareholders’ Mandate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

113

CLEARANCE AND SETTLEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

118

GENERAL AND STATUTORY INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

119

APPENDIX 1

: PROFORMA CONSOLIDATED FINANCIAL INFORMATION . . . . . . . . . .

133

APPENDIX 2

: AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS OF OUR COMPANY AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001, 2002 AND 2003 . . . . . . . . . . . .

170

APPENDIX 3

: EXTRACTS OF ARTICLES OF ASSOCIATION OF OUR COMPANY . . . .

202

APPENDIX 4

: DESCRIPTION OF SINGAPORE COMPANY LAW RELATING TO SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

221

: DESCRIPTION OF SINGAPORE LAW AND REGULATIONS RELATING TO TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

226

: TERMS AND CONDITIONS AND PROCEDURES FOR APPLICATION AND ACCEPTANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

229

: LETTER FROM G.K. GOH STOCKBROKERS PTE. LTD. TO THE INDEPENDENT DIRECTORS OF BENG KUANG MARINE LIMITED . .

243

APPENDIX 5

APPENDIX 6

APPENDIX 7

3

CORPORATE INFORMATION BOARD OF DIRECTORS

:

Tan Boy Tee (Chairman and Non-Executive Director) Chua Beng Kuang (Managing Director) Chua Meng Hua (Executive Director) Yong Thiam Fook (Non-Executive Director) Goh Chee Wee (Independent Director) Wong Chiang Yin (Independent Director)

COMPANY SECRETARY

:

Wee Woon Hong, LL.B. (Hons) (Singapore)

REGISTERED OFFICE AND BUSINESS ADDRESS

:

55 Shipyard Road Singapore 628141

REGISTRAR AND SHARE TRANSFER OFFICE

:

M & C Services Private Limited 138 Robinson Road The Corporate Office #17-00 Singapore 068906

MANAGER, UNDERWRITER AND PLACEMENT AGENT

:

Kim Eng Capital Pte. Ltd. 9 Temasek Boulevard #39-00 Suntec Tower Two Singapore 038989

AUDITORS AND REPORTING ACCOUNTANTS

:

Ernst & Young, Singapore Certified Public Accountants 10 Collyer Quay #21-01 Ocean Building Singapore 049315 Partner-in-charge: Philip Ling Soon Hwa (a member of the Institute of Certified Public Accountants of Singapore)

SOLICITORS TO THE INVITATION

:

Loo & Partners 88 Amoy Street Level Three Singapore 069907

INDEPENDENT FINANCIAL ADVISER

:

G.K. Goh Stockbrokers Pte. Ltd. 50 Raffles Place #33-00 Singapore Land Tower Singapore 048623

PRINCIPAL BANKERS

:

United Overseas Bank Limited 80 Raffles Place UOB Plaza Singapore 048624 KBC Bank N.V., Singapore Branch 30 Cecil Street #12-01 Prudential Tower Singapore 049712

4

CORPORATE INFORMATION DBS Bank Ltd 6 Shenton Way #41-00 DBS Building Tower One Singapore 068809 The Bank of Nova Scotia, Singapore Branch #15-01 Ocean Building 10 Collyer Quay Singapore 049315 Malayan Banking Berhad 2 Battery Road Maybank Tower Singapore 049907 RECEIVING BANK

:

The Hongkong and Shanghai Banking Corporation Limited 21 Collyer Quay #08-01 HSBC Building Singapore 049320

5

DEFINITIONS In this Prospectus, the accompanying Application Forms and, in relation to the Electronic Applications, the instructions appearing on the screens of the ATM or the Internet Banking websites of the relevant Participating Banks, the following definitions apply throughout where the context so admits:– Companies and business within the Group “Company”

:

Beng Kuang Marine Limited

“Group” or “Proforma Group”

:

Our Company and its subsidiaries as at the date of this Prospectus treated as if our Group structure had been in place since 1 January 2001

“ASE”

:

Asian Sealand Engineering Pte Ltd

“B & J”

:

B & J Marine Pte. Ltd. (formerly known as Jet Point Marine Pte. Ltd.)

“B & K”

:

B & K Marine Pte. Ltd.

“B&Chew Marine”

:

Beng Kuang Marine (B&Chew) Pte. Ltd.

“B&M Marine”

:

Beng Kuang Marine (B&M) Pte. Ltd.

“B&Y”

:

Beng Kuang Marine (B&Y) Pte. Ltd.

“BT Asia”

:

BT Asia Marketing & Engineering Pte Ltd

“NST”

:

Nexus Sealand Trading Pte Ltd

“PT Nexus”

:

PT. Nexus Engineering Indonesia

“PT Master”

:

PT. Master Indonesia

“Picco”

:

Picco Enterprise Pte. Ltd.

“SSC”

:

Superior Services Center, a sole proprietorship

“ASIC”

:

Asian Sealand Infrastructure & Construction Sdn. Bhd.

“CDP”

:

The Central Depository (Pte) Limited

“CPF”

:

The Central Provident Fund

“Heng Huat”

:

Heng Huat Shipbuilding & Construction Pte. Ltd.

“JSML”

:

Jurong SML Pte. Ltd.

“Jurong Shipyard”

:

Jurong Shipyard Pte. Ltd. (formerly known as “Jurong Shipyard Limited”)

“Keppel Shipyard”

:

A shipyard under the KOM group

“Kim Eng Capital”, “Manager”, “Placement Agent”, and “Underwriter”

:

Kim Eng Capital Pte. Ltd.

Other companies

6

DEFINITIONS “KOM”

:

Keppel Offshore & Marine Ltd.

“Labroy”

:

Labroy Marine Limited

“Labroy Group”

:

Labroy and its subsidiaries

“LSE”

:

Labroy Shipbuilding and Engineering Pte Ltd

“Ocean Tankers”

:

Ocean Tankers (Pte) Ltd.

“Pan-United”

:

Pan-United Marine Limited

“PT Nanindah”

:

PT Nanindah Mutiara Shipyard

“SCCS”

:

Securities Clearing & Computer Services (Pte) Ltd.

“SembCorp Marine”

:

SembCorp Marine Pte. Ltd.

“SGX-ST”

:

Singapore Exchange Securities Trading Limited

“ST Marine”

:

Singapore Technologies Marine Limited

“TEC”

:

Tellus Engineering Construction Pte Ltd

“TME”

:

Tellus Marine Engineering Pte Ltd

“Act”

:

The Companies Act (Chapter 50) of Singapore

“Application Forms”

:

The printed application forms to be used for the purpose of the Invitation and which form part of this Prospectus

“Application List”

:

The list of applications for subscription and/or purchase of the New Shares

“Associate”

:

(a)

In relation to a director, chief executive officer, substantial shareholder or controlling shareholder of a corporation who is an individual, means his immediate family (being spouse, child, sibling and parent); a trustee, when acting in his capacity as such trustee, of any trust of which the individual or his immediate family is a beneficiary or, in the case of a discretionary trust, is a discretionary object; or any corporation in which he and his immediate family together (directly or indirectly) have an interest of not less than 30% of the aggregate nominal amount of all the voting shares

(b)

In relation to a substantial shareholder or controlling shareholder (being a company) means any other company which is its subsidiary or holding company or is a subsidiary of such holding company or one in the equity of which it and/or such other company or companies taken together (directly or indirectly) have an interest of 30% or more

General

7

DEFINITIONS “ATM”

:

Automated teller machine of a Participating Bank

“ATM Application”

:

Applications for Offer Shares made through the ATMs of any of the Participating Banks in accordance with the terms and conditions of this Prospectus

“Audit Committee”

:

The audit committee of our Company as at the date of this Prospectus

“Authority”

:

The Monetary Authority of Singapore

“Batam”

:

Batam, Indonesia

“Board” or “Directors”

:

The directors of our Company as at the date of this Prospectus

“Bonus Issue”

:

The capitalisation of $6,302,622 out of the share premium and revenue reserves of Beng Kuang Marine Pte Ltd by way of a bonus issue of 6,302,622 ordinary shares of $1.00 each credited as fully paid to our Shareholders

“Consolidation”

:

Consolidation of four ordinary shares of $0.02 each in the capital of our Company into one ordinary share of $0.08 each in the capital of our Company as described in paragraph (f) under the “Share Capital” section on page 37 of this Prospectus

“Controlling Shareholder”

:

A person who holds directly or indirectly 15% or more of the nominal amount of our Shares, or in fact exercises control over our Company

“Electronic Applications”

:

Applications for the Offer Shares made through ATM or the IB websites of the relevant Participating Banks in accordance with the terms and conditions of this Prospectus

“EPS”

:

Earnings per Share

“Executive Director”

:

The executive Director of our Company as at the date of this Prospectus, unless otherwise stated, and “Non-Executive Director” refers to the non-executive Director of our Company

“Executive Officers”

:

The executive officers of our Group as at the date of this Prospectus, unless otherwise stated

“FY”

:

Financial year ended or ending 31 December

“IB”

:

Internet Banking

“Independent Directors”

:

The independent Directors of our Company as at the date of this Prospectus, unless otherwise stated

“Invitation”

:

Our invitation to the public in Singapore to subscribe for the New Shares, subject to and on the terms and conditions of this Prospectus

“Issue Price”

:

$0.23 for each New Share

“Latest Practicable Date”

:

24 August 2004, being the latest practicable date prior to the printing of this Prospectus

“Market Day”

:

A day on which the SGX-ST is open for trading in securities

8

DEFINITIONS “New Shares”

:

The 21,000,000 new Shares for which we invite applications to subscribe for under the Invitation, subject to and on the terms and conditions set out in this Prospectus

“Nominating Committee”

:

The nominating committee of our Company

“NTA”

:

Net tangible assets

“Offer”

:

The offer by our Company to the public in Singapore for subscription at the Issue Price, subject to and on the terms and conditions set out in this Prospectus

“Offer Shares”

:

2,100,000 of the New Shares which are the subject of the Offer

“Participating Banks”

:

DBS Bank Ltd (including POSB), Oversea-Chinese Banking Corporation Limited (“OCBC”), and United Overseas Bank Limited and its subsidiary, Far Eastern Bank Limited (the “UOB Group”)

“PER”

:

Price earnings ratio

“Placement”

:

The placement of the Placement Shares by the Placement Agent on behalf of our Company at the Issue Price, subject to and on the terms and conditions set out in this Prospectus

“Placement Shares”

:

18,900,000 of the New Shares which are the subject of the Placement

“Prospectus”

:

This Prospectus dated 5 October 2004 issued by our Company in respect of the Invitation

“Remuneration Committee”

:

The remuneration committee of our Company

“Reserved Shares”

:

2,100,000 of the Placement Shares reserved for our NonExecutive Directors, Independent Directors and employees who have contributed to our success

“Restructuring Exercise”

:

The restructuring exercise undertaken in connection with the Invitation as described under the “Restructuring Exercise” section on page 40 of this Prospectus

“Securities Account”

:

Securities account maintained by a Depositor with CDP

“SFA”

:

Securities and Futures Act (Chapter 289) of Singapore

“SFR”

:

The Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2002

“SGX SESDAQ”

:

SGX-ST Dealing and Automated Quotation System

“SGX-ST”

:

Singapore Exchange Securities Trading Limited

“Shares”

:

Ordinary shares of par value $0.08 each in the capital of our Company

“Shareholders”

:

Holders of Shares of our Company

“Substantial Shareholder”

:

A person who owns directly or indirectly 5% or more of the total issued share capital in our Company or in a company, as the case may be

9

DEFINITIONS “Sub-division”

:

The sub-division of one ordinary share of $1.00 each in the capital of our Company into 50 ordinary shares of $0.02 each in the capital of our Company as described in paragraph (e) under the “Share Capital” section on page 37 of this Prospectus

“S$” or “$” and “cents”

:

Singapore dollars and cents, respectively

“RM”

:

Malaysian Ringgit

“Rp”

:

Indonesian Rupiah

“US$”

:

United States dollars

“ft”

:

Foot

“m”

:

Metre

“mm”

:

Millimetre

“sq ft”

:

Square feet

“sq m”

:

Square metre

“%” or “per cent.”

:

Per centum or percentage

Currencies, Units and Others

The terms “Depositor”, “Depository Agent” and “Depository Register” shall have the same meanings ascribed to them respectively in Section 130A of the Act. The expressions “our”, “ourselves”, “us”, “we” or other grammatical variations thereof shall, unless otherwise stated, mean our Company and its subsidiaries. Any discrepancies in tables included herein between the total sum of amounts listed and the totals shown are due to rounding. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures which precede them. Words importing the singular shall, where applicable, include the plural and vice versa and words importing the masculine gender shall, where applicable, include the feminine and neuter genders and vice versa. References to persons shall include corporations. Any reference in this Prospectus, the Application Forms or Electronic Applications to any statute or enactment is a reference to that statute or enactment for the time being amended or re-enacted. Any word defined under the Act, the SFA or any statutory modification thereof and used in this Prospectus, the Application Forms or Electronic Applications shall, where applicable, have the meaning ascribed to it under the Act, the SFA or any statutory modification thereof, as the case may be. Any reference in this Prospectus and the Application Forms or Electronic Applications to Shares being allotted to an applicant includes allotment to CDP for the account of that applicant. Any reference to a time of day in this Prospectus and the Application Forms shall be a reference to Singapore time unless otherwise stated.

10

GLOSSARY OF TECHNICAL TERMS The glossary contains explanations of certain terms used in this Prospectus in connection with our Group and our businesses. The terms and their assigned meanings may not correspond to standard industry meanings or usage of these terms. For the purpose of this Prospectus, the following technical terms and abbreviations have, where appropriate, been used:– “barge”

:

A flat bottomed steel platform used for the transportation of cargoes. Customarily used in commercial ship canals and in ports where ships are unable to load or unload at the quay due to shallow depth. Commonly used for beaching operations for the purpose of loading/unloading cargoes in remote and shallow waters that are not accessible to conventional ships

“coating”

:

A liquefiable or mastic composition that has been converted to a solid protective or decorative film as a thin layer after application

“copper slag”

:

Recycled copper used as abrasives for surface blasting in our corrosion prevention operations

“CNC underwater plasma cutting machine”

:

Computer numerical controlled machine used for cutting carbon steel, aluminium alloy, stainless steel and non-ferrous metals

“dredger”

:

A barge-like vessel used for the purpose of dredging, that is, to dig, excavate or bring something up from the ground, canal or river

“FPSO”

:

Floating Production Storage and Offloading facility, its main function is to refine and store crude oil that has been extracted from the ocean

“grit”

:

A hard coarse-grained siliceous sandstone, or very small bits of stone or sand used in surface blasting during our corrosion prevention operations

“hardware equipment”

:

Tools and articles used by workmen, mechanics and other persons in the trade

“hullside”

:

External hull of vessel

“jack-up rig”

:

A self-contained combination drilling rig and floating barge, fitted with long support legs that can be raised or lowered independently of each other

“multi-purpose supply vessel”

:

A vessel designed for more than one function, including providing normal supply services between shore base and offshore installator

“oil and gas industry”

:

Refers to both onshore and offshore oil and gas industries and projects arising from such industries and includes those relating to refinery process plants, power plants, offshore oil rigs and support vessels used in offshore oil and gas exploration and production

11

GLOSSARY OF TECHNICAL TERMS “pre-commissioning”

:

A process of checking the fabricated steel structures, the piping systems and the equipment installed to ensure that they are in working condition before handing over to the customer for commissioning purposes

“primer”

:

First layer of coating on steel material after the blasting process to prevent rust from forming

“process module”

:

A component or segment of the oil and gas refinery and production process system used in a FPSO. The fabrication activities required for a ship conversion project to build a FPSO or in a newly-built FPSO encompass steel structures fabrication, piping works fabrication, installation of electrical and machinery equipment and corrosion prevention works

“tanker”

:

A vessel designed for the carriage of liquid cargo such as crude oil, refined products or marine fuel for ships

“VLCC”

:

Very Large Crude Carrier, a vessel commonly used for the transportation of crude oil

12

DETAILS OF THE INVITATION LISTING ON THE SGX SESDAQ This Prospectus is issued in connection with our application to the SGX-ST for permission to deal in and for quotation of all our Shares already issued and the New Shares which are the subject of the Invitation. Such permission will be granted when we have been admitted to the Official List of the SGX SESDAQ. Acceptance of applications will be conditional upon, inter alia, permission being granted to deal in and for quotation of all our existing issued Shares and the New Shares. Monies paid in respect of any application accepted will be returned to you, without interest or any share of revenue or other benefit arising therefrom and at your own risk, if the said permission is not granted and you will not have any claim against us or the Manager. The SGX-ST assumes no responsibility for the correctness of any of the statements or opinions made or reports contained in this Prospectus. Admission to the Official List of the SGX SESDAQ is not to be taken as an indication of the merits of the Invitation, our Company, our subsidiaries, our Shares or the New Shares. A copy of this Prospectus has been lodged with and registered by the Authority. The Authority assumes no responsibility for the contents of the Prospectus. Registration of the Prospectus by the Authority does not imply that the SFA, or any other legal or regulatory requirements, have been complied with. The Authority has not, in any way, considered the merits of the Shares or the New Shares, as the case may be, being offered or in respect of which an invitation is made, for investment. Where the Authority issues a stop order pursuant to Section 242 of the SFA, and (a)

in the case where the New Shares have not been issued to the applicants, the applications of the New Shares pursuant to the Invitation shall be deemed to have been withdrawn and cancelled and our Company shall, within 14 days from the date of the stop order, pay to the applicants all monies the applicants have paid on account of their applications for the New Shares; or

(b)

in the case where the New Shares have been issued to the applicants, the issue of the New Shares pursuant to the Invitation shall be deemed void and our Company shall, within 14 days from the date of the stop order, pay to the applicants all monies the applicants have paid on account of their applications for the New Shares.

This Prospectus has been seen and approved by our Directors and they individually and collectively accept full responsibility for the accuracy of the information given in this Prospectus and confirm, having made all reasonable enquiries, the facts contained in this Prospectus are true and accurate and not misleading, that all expressions of opinion, intention and expectation contained herein are honestly held and made after due and careful consideration, that to the best of their knowledge, information and belief, this Prospectus constitutes full and true disclosure of all material facts about the Invitation, our Group and our Shares and that there are no other facts the omission of which would make any statement herein misleading. No person is authorised to give any information or to make any representation not contained in this Prospectus in connection with the Invitation and, if given or made, such information or representation must not be relied upon as having been authorised by us or Kim Eng Capital. Neither the delivery of this Prospectus and the Application Forms nor the Invitation shall, under any circumstances, constitute a continuing representation or create any suggestion or implication that there has been no change in the affairs of our Company or our Group or in any statement of fact or information contained in this Prospectus since the date of this Prospectus. Where such changes occur, we will promptly make an announcement of the same to the SGX-ST and the public and, if required, lodge a supplementary or replacement document pursuant to Section 241 of the SFA. All applicants should take note of any such announcement and take immediate steps to comply with the requirements of Section 241 of the SFA and, upon the release of such announcement and/or documents, shall be deemed to have notice of such changes.

13

DETAILS OF THE INVITATION Save as expressly stated in this Prospectus, nothing herein is, or may be relied upon as, a promise or representation as to our future performance or policies. This Prospectus has been prepared solely for the purpose of the Invitation and may not be relied upon by any persons other than the applicants in connection with their application for the New Shares or for any other purpose. This Prospectus does not constitute an offer, or invitation or solicitation, to subscribe for the New Shares in any jurisdiction in which such offer or invitation or solicitation is unauthorised or unlawful nor does it constitute an offer or invitation or solicitation to any person to whom it is unlawful to make such an offer or invitation or solicitation. Copies of this Prospectus and the Application Forms may be obtained on request, subject to availability, during office hours from:– Kim Eng Capital Pte. Ltd. 9 Temasek Boulevard #13-00 Suntec Tower Two Singapore 038989 and from members of the Association of Banks in Singapore, members of the SGX-ST and merchant banks in Singapore. A copy of this Prospectus is also available on the SGX-ST website http://www.sgx.com. The Application List will open at 10.00 a.m. on 13 October 2004 and will remain open until 12.00 noon on the same day or such other period or periods as our Company may, in consultation with the Manager, decide subject to any limitation under all applicable laws. Where a supplementary document or replacement document has been lodged with the Authority, the Application List shall be kept open for at least 14 days after the lodgement of the supplementary document or replacement document. Where an applicant has notified our Company within 14 days from the date of lodgement of the supplementary document or replacement document of his wish to exercise his option under the SFA to withdraw his application, our Company shall pay to him all monies paid by him on account of his application for the New Shares pursuant to the Invitation without interest or any share of revenue or other benefit arising therefrom and at the applicant’s risk within 7 days from the receipt of such notification. Details of the procedures for application of the New Shares are set out in Appendix 6 of this Prospectus.

14

DETAILS OF THE INVITATION INDICATIVE TIMETABLE FOR LISTING In accordance with the SGX-ST’s News Release of 28 May 1993 on the trading of initial public offering shares on a “when issued” basis, an indicative timetable is set out below for the reference of applicants:– Indicative Time and Date

Event

13 October 2004, 12.00 noon

Close of Application List

14 October 2004

Balloting of applications, if necessary (in the event of over-subscription for the Offer Shares)

15 October 2004, 9.00 a.m.

Commence trading on a “when issued” basis

22 October 2004

Last day of trading on a “when issued” basis

25 October 2004, 9.00 a.m.

Commence trading on a “ready” basis

28 October 2004

Settlement date for all trades done on a “when issued” basis and for all trades done on a “ready” basis on 25 October 2004

The above timetable is only indicative as it assumes that the closing of the Application List takes place on 13 October 2004, the date of admission of the Company to the SGX SESDAQ will be 15 October 2004, the SGX-ST’s shareholding spread requirement will be complied with and the New Shares will be issued and fully paid prior to 15 October 2004. The actual date on which the Shares will commence trading on a “when issued” basis will be announced when it is confirmed by the SGX-ST. The above timetable and procedure may be subject to such modifications as the SGX-ST may in its discretion decide, including the decision to permit trading on a “when issued” basis and the commencement date of such trading. All persons trading in the Shares on a “when issued” basis, do so at their own risk. In particular, persons trading in the Shares before their Securities Accounts with CDP are credited with the relevant number of Shares do so at the risk of selling Shares which neither they nor their nominees, if applicable, have been allotted or are otherwise beneficially entitled to. Such persons are exposed to the risk of having to cover their net sell positions earlier if “when issued” trading ends sooner than the indicative date mentioned above. Persons who have net sell positions traded on a “when issued” basis should close their positions on or before the first day of “ready” basis trading. In the event of an early or extended closure of the Application List or the shortening or extension of the time period during which the Invitation is open, we will publicly announce the same:– (i)

through a MASNET announcement to be posted on the Internet at the SGX-ST website http://www.sgx.com; and

(ii)

in a major Singapore English newspaper such as The Straits Times or The Business Times.

We will provide details of the results of the Invitation through the channels described in (i) and (ii) above. Investors should consult the SGX-ST announcement on the “ready” trading date on the Internet (at SGX-ST website http://www.sgx.com), INTV or newspapers or check with their brokers on the date on which trading on a “ready” basis will commence.

15

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS All statements contained in this Prospectus, statements made in press releases and oral statements that may be made by us or our Directors, Executive Officers, or employees acting on our behalf that are not statements of historical fact constitute “forward-looking statements”. You can identify some of these forward-looking statements by terms such as “expects”, “believes”, “plans”, “intends”, “estimates”, “anticipates”, “may”, “will”, “would” and “could” or similar words. However, you should note that these words are not the exclusive means of identifying forward-looking statements. All statements regarding our expected financial position, business strategy, plans and prospects are forward-looking statements. These forward-looking statements, including statements as to:– (a)

our revenue and profitability;

(b)

expected growth in demand;

(c)

expected growth in our production capacity;

(d)

expected industry trends;

(e)

anticipated completion and start up dates for expansion plans or projects; and

(f)

other matters discussed in this Prospectus regarding matters that are not historical fact,

are only predictions. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These risks, uncertainties and other factors include, among others:– (a)

changes in political, social and economic conditions and the regulatory environment in Singapore and other countries in which we conduct business;

(b)

changes in currency exchange rates;

(c)

our anticipated growth strategies and expected internal growth;

(d)

changes in the availability and prices of raw materials we need to operate our business;

(e)

changes in customer preferences;

(f)

changes in competitive conditions and our ability to compete under these conditions;

(g)

changes in our future capital needs and the availability of financing and capital to fund these needs; and

(h)

other factors beyond our control.

Given the risks and uncertainties that may cause our actual future results, performance or achievements to be materially different from that expected, expressed or implied by the forward-looking statements in this Prospectus, we advise you not to place undue reliance on those statements which apply only as at the date of this Prospectus. Neither our Company, the Manager, the Placement Agent, the Underwriter nor any other person represents or warrants to you that our actual future results, performance or achievements will be as discussed in those statements. Our actual future results may differ materially from those anticipated in these forward-looking statements as a result of risks faced by us. Our Company, the Manager, the Underwriter and the Placement Agent disclaim any responsibility to update any of those forward-looking statements or publicly announce any revisions to those forward-looking statements to reflect future developments, events or circumstances. We are, however, subject to the provisions of the SFA and the Listing Manual of the SGX-ST regarding corporate disclosure. In particular, pursuant to Section 241 of the SFA, if after the Prospectus is registered but before the close of the Invitation, our Company becomes aware of (a) a false or misleading statement or matter in the Prospectus; (b) an omission from the Prospectus of any information that should have been included in it under Section 243 of the SFA; or (c) a new circumstance that has arisen since the Prospectus was lodged with the Authority and would have been required by Section 243 of the SFA to be included in the Prospectus, if it had arisen before the Prospectus was lodged and that is materially adverse from the point of view of an investor, our Company may lodge a supplementary or replacement prospectus with the Authority. 16

SELLING RESTRICTIONS This Prospectus does not constitute an offer, solicitation or invitation to subscribe for and/or purchase of our Shares in any jurisdiction in which such offer, solicitation or invitation is unlawful or is not authorised or to any person to whom it is unlawful to make such offer, solicitation or invitation. No action has been or will be taken under the requirements of the legislation or regulations of, or of the legal or regulatory authorities of, any jurisdiction, except for the filing and/or registration of this Prospectus in Singapore in order to permit a public offering of our Shares and the public distribution of the Prospectus in Singapore. The distribution of this Prospectus and the offering of our Shares in certain jurisdictions may be restricted by the relevant laws in such jurisdictions. Persons who may come into possession of this Prospectus are required by us, the Manager and Underwriter to inform themselves about, and to observe and comply with, any such restrictions.

17

PROSPECTUS SUMMARY The information contained in this summary is derived from and should be read in conjunction with the full text of this Prospectus. Prospective investors should read the entire Prospectus carefully, especially the matters set out under “Risk Factors”, before deciding to invest in our Shares. OVERVIEW OF OUR ACTIVITIES Our Company was incorporated on 8 January 1994 in Singapore under the Act as a private limited company under the name of “Beng Kuang Marine Pte Ltd”, and was converted to a public limited company and renamed as “Beng Kuang Marine Limited” on 30 August 2004. OUR BUSINESS We are principally engaged in the provision of corrosion prevention services, comprising blasting and painting work, to our customers in the marine, oil and gas and other industries. We also provide turnkey engineering services such as fabrication of steel work modules and structures mainly for the oil and gas industry. In addition, we supply and distribute hardware equipment and tools primarily to the marine and oil and gas industries. Our business is categorised into three broad divisions, namely (a) corrosion prevention services; (b) infrastructure engineering; and (c) supply and distribution. (a)

Corrosion Prevention Services We provide corrosion prevention services to shipyards which require our blasting and painting services as part of their shipbuilding, ship conversion and ship repair activities. We also provide corrosion prevention services for steel work structures and piping modules of oil rigs and jack-up rigs for our customers in the oil and gas and other industries. In addition, we provide used copper slag collection and recycling services as well as blasting and painting equipment rental services. For FY2003, our corrosion prevention division accounted for approximately 52.9% of our revenue.

(b)

Infrastructure Engineering We provide turnkey engineering services from planning, project management to implementation involving fabrication, corrosion prevention, testing, installation and pre-commissioning of steel work modules and structures mainly for our customers in the oil and gas industry. For FY2003, the infrastructure engineering division accounted for approximately 20.2% of our revenue.

(c)

Supply and Distribution We supply over 300 types of hardware equipment, tools and other products under our house brand “Master” that are used in the marine, oil and gas, and construction industries. Some of these products are supplied to our corrosion prevention and infrastructure engineering divisions. For FY2003, our supply and distribution division accounted for approximately 26.9% of our revenue.

OUR COMPETITIVE STRENGTHS We believe our competitive strengths are as follows:– •

We have an established track record as a corrosion prevention service provider with over 10 years of industry experience. Our Directors believe that we are one of the leading contractors for hullside corrosion prevention services in Singapore and Batam. Our hullside resident contractor status in nine established shipyards in Singapore and Batam for corrosion prevention work is testament to our market leading position.

18

PROSPECTUS SUMMARY •

We provide services and products of high quality standards. We were awarded the ISO 9001:2000 certificate for our operational processes and systems in respect of our infrastructure engineering activities. As a testimony of our commitment to quality, we have received numerous letters of appreciation from shipyard operators, vessel owners and other customers commending on our efficiency and quality of work performed.

•

Our Managing Director, Chua Beng Kuang, has about 25 years of working experience in providing corrosion prevention services to the marine industry. He is supported by an experienced management team that is constantly seeking more opportunities to expand our Group’s business activities.

•

We enjoy cost efficiency as our corrosion prevention services and infrastructure engineering divisions source most of their hardware equipment, tools and other supplies through our supply and distribution division. This reduces our reliance on third party suppliers and enables us to control costs and manage our work schedules more effectively.

•

We have long-standing relationships with our customers with approximately 83.0% of our FY2003 revenue derived from repeat customers. We are able to leverage on our relationships with our customers to obtain referrals as well as to obtain reliable updates and gain a competitive advantage in the industries that we operate in.

Please refer to the “Competitive Strengths” section on page 69 of this Prospectus for more details. OUR FINANCIAL PERFORMANCE The following tables present a summary of the consolidated financial highlights of our Group and should be read in conjunction with the sections entitled “Management’s Discussion and Analysis of Results of Operations and Financial Position” and “Proforma Consolidated Financial Information”. Selected items from the Proforma Operating Results of our Group

($’000)

FY2001

Proforma FY2002

FY2003

Revenue

37,410

39,296

37,390

Gross profit

9,960

8,954

9,698

Profit before taxation

2,832

1,480

2,986

Profit after taxation

2,025

1,047

2,506

Net profit attributable to shareholders

1,712

770

2,304

1.80

0.81

2.42

EPS (cents)

(1)

Note:– (1)

For comparative purposes, EPS for the period under review has been computed based on the net profit attributable to Shareholders of the Company and the pre-Invitation share capital of 95,236,875 Shares.

19

PROSPECTUS SUMMARY Selected items from the Proforma Financial Position of our Group Proforma Financial Information As at 31 December 2003

($’000) Fixed assets

7,947

Net current assets

5,048

Non-current liabilities

(1,287) 11,708

Proforma shareholders’ equity

10,812

Minority interests

896 11,708

OUR BUSINESS STRATEGIES AND FUTURE PLANS We intend to grow our business by:– •

Expanding our hydro-jetting services provided by our corrosion prevention division due to its increasing popularity with our customers and its environmental-friendly features.

•

Expanding our corrosion prevention capacity by acquiring additional grit blasting equipment and accessories.

•

Expanding our clientele base for our corrosion prevention and infrastructure engineering divisions by promoting our services to more customers based in Singapore and Indonesia, and by seeking larger scale projects for our infrastructure engineering division.

•

Extending our market reach for our supply and distribution business by expanding to overseas markets.

•

Expanding our product range under our house brand “Master”.

Please refer to the “Business Strategies and Future Plans” section on page 91 of this Prospectus for more details. OUR OWNERSHIP STRUCTURE Following the Invitation, our Group will be substantially owned by Labroy Marine Limited, Chua Beng Kuang, Chua Meng Hua, Chua Beng Yong and Chua Beng Hock. Together, they will own in aggregate approximately 81.94 % of our total issued share capital after the Invitation. OUR CONTACT DETAILS Our registered address is 55 Shipyard Road, Singapore 628141. Our telephone and fax numbers are (65) 6266 0010 and (65) 6264 0010 respectively. Our Company registration number is 199400196M.

20

THE INVITATION Issue Size

:

21,000,000 New Shares offered by way of public offer and placement, comprising 2,100,000 Offer Shares and 18,900,000 Placement Shares. The New Shares will, upon issue and allotment, rank pari passu in all respects with the existing issued Shares.

Issue Price

:

$0.23 for each New Share.

The Offer

:

The Offer comprises an offering of 2,100,000 New Shares to members of the public in Singapore.

The Placement

:

The Placement comprises 18,900,000 Placement Shares by way of placement comprising:–

Reserved Shares

:

(i)

16,800,000 Placement Shares for applications by way of application forms; and

(ii)

2,100,000 Reserved Shares reserved for our NonExecutive Directors, Independent Directors and employees who have contributed to our success.

Out of the Placement Shares, 2,100,000 Reserved Shares will be reserved for our Non-Executive Directors, Independent Directors and employees who have contributed to the success of our Group. In the event that any of the Reserved Shares are not taken up, they will be made available to satisfy applications made for the Placement Shares at the Issue Price, or in the event of an under-subscription for the Placement Shares, to satisfy excess applications made by members of the public in Singapore for the Offer Shares. The number of Reserved Shares that have been reserved for subscription by our Non-Executive Directors and Independent Directors are: Name

Number of Reserved Shares

Tan Boy Tee Yong Thiam Fook

Purpose of our Invitation

:

100,000 50,000

Goh Chee Wee

100,000

Wong Chiang Yin

100,000

Our Directors consider that the listing of our Company and the quotation of our Shares on the SGX SESDAQ will enhance our public image locally and internationally and enable us to tap the capital markets to raise equity funds for our business growth. The Invitation will also provide members of the public, our Non-Executive Directors, Independent Directors and our employees who have contributed to our success with an opportunity to participate in the equity of our Company.

21

THE INVITATION Use of Proceeds

:

The net proceeds from the issue of the New Shares (after deducting the estimated issue expenses of $0.93 million) are estimated to be $3.90 million, which we intend to use as follows:– (i)

approximately $2.0 million to be used for the purchase of machinery and equipment for our corrosion prevention division (Further details of our use of proceeds may be found under the “Business Strategies and Future Plans” section on page 91 of this Prospectus);

(ii)

an amount of $1.0 million to be used for repayment of our outstanding overdrafts described in “Capitalisation and Indebtedness” section on page 34 of this Prospectus; and

(iii)

the balance of approximately $0.9 million to be used as general working capital requirements and for the expansion of our businesses.

Pending the above specific deployment of funds, we may use the funds as working capital or invest in short-term money market instruments as our Directors may, in their absolute discretion, deem fit. There is no minimum amount which, in the reasonable opinion of our Directors, must be raised by the Invitation. Listing Status

:

Our Shares will be quoted on the SGX SESDAQ, subject to admission of the Company to the Official List of the SGX SESDAQ and permission for dealing in and for quotation of the Shares being granted by the SGX-ST.

22

PLAN OF DISTRIBUTION The Issue Price was arrived at after consultations between ourselves and Kim Eng Capital and after taking into consideration, inter alia, prevailing market conditions and estimated market demand for the New Shares. The Issue Price is the same for all New Shares and is payable in full on application. Offer Shares The Offer Shares are made available to members of the public in Singapore for subscription at the Issue Price. The terms and conditions and procedures for application and acceptance are described in Appendix 6 on pages 229 to 242 of this Prospectus. In the event of an under-subscription for Offer Shares as at the close of the Application List, the number of Offer Shares under-subscribed shall be made available to satisfy applications for Placement Shares to the extent that there is an over-subscription for Placement Shares as at the close of the Application List. In the event of an over-subscription of the Offer Shares as at the close of the Application List and the number of Placement Shares are fully subscribed or over-subscribed as at the close of the Application List, the successful applications for the Offer Shares will be determined by ballot or otherwise as determined by the Directors and approved by the SGX-ST. Pursuant to the terms and conditions contained in the Management and Underwriting Agreement as disclosed on pages 128 and 129 of this Prospectus, the Company appointed Kim Eng Capital to manage the Invitation and underwrite the Offer Shares. Placement Shares (excluding Reserved Shares) The Placement Shares (excluding the Reserved Shares) are made available to retail and institutional investors who apply through their brokers or financial institutions by way of application forms. Pursuant to the terms and conditions contained in the Placement Agreement as disclosed on pages 128 and 129 of this Prospectus, Kim Eng Capital has agreed to subscribe or procure subscriptions for the Placement Shares. In the event of an under-subscription for Placement Shares as at the close of the Application List, that number of Placement Shares under-subscribed shall be made available to satisfy applications for Offer Shares to the extent that there is an over-subscription for Offer Shares as at the close of the Application List. Reserved Shares Of the Placement Shares, 2,100,000 Reserved Shares will be reserved for our Non-Executive Directors, Independent Directors and employees who have contributed to the success of our Group at the Issue Price. They may accept, dispose of or transfer all or part of their respective Reserved Shares in our Company after the admission of our Company to the Official List of the SGX SESDAQ, except for our Chairman and Non-Executive Director, Tan Boy Tee, who shall be subject to the moratorium requirement described in page 40 of this Prospectus in the event that he subscribes for the Reserved Shares. Any Reserved Shares not taken up will be made available first to satisfy other applications for the Placement Shares to the extent that there is an over-subscription for the Placement Shares and then to satisfy applications for Offer Shares to the extent that there is an over-subscription for Offer Shares. As at the date of this Prospectus, we are not aware of any person who intends to subscribe for more than 5% of the New Shares. No shares shall be allotted on the basis of this Prospectus later than 6 months after the date of registration of this Prospectus.

23

RISK FACTORS Prospective investors should carefully consider and evaluate each of the following considerations and all other information set forth in this Prospectus before deciding to invest in our Shares. To the best of our Directors’ knowledge and belief, all risk factors that are material to investors in making an informed judgement have been set out below. If any of the following considerations and uncertainties develops into actual events, our business, financial conditions, results of operations and prospects could be materially and adversely affected. In such cases, the trading price of our Shares could decline and you may lose all or part of your investment in our Shares. This Prospectus also contains forward-looking statements having direct and/or indirect implications on our future performance. Our actual results may differ materially from those anticipated by these forward-looking statements due to certain factors including the risks and uncertainties faced by us, as described below and elsewhere in this Prospectus. RISK FACTORS RELATING TO OUR INDUSTRY AND BUSINESS We are dependent on the state of the marine industry Our corrosion prevention and supply and distribution divisions are dependent on the state of the marine industry in Singapore and Batam as well as the general global economic environment. A general global economic slowdown may affect global business conditions and international trade. Such an economic slowdown may result in a reduction in shipping activities, including the deferment of shipbuilding and ship repair activities, and hence less business opportunities for our Group. In the event that there is a decline in the level of activities in the marine industry resulting in a decrease in demand for our corrosion prevention services and the products we supply and distribute, our financial performance will be adversely affected. We are dependent on the state of the oil and gas industry Apart from the marine industry, our Group also provides services to plant engineering projects supporting the oil and gas industry. Our infrastructure engineering services are engaged to fabricate steel work modules and structures required for the construction of refinery process plants, power plants and other land-based structures. In addition, our infrastructure engineering division also fabricates steel work modules and structures for offshore oil rigs and components of process modules. The demand for our services is dependent on the market conditions and level of business activities in the oil and gas industry in Singapore, Indonesia and the neighbouring regions. In the event that there is a downturn in the oil and gas industry leading to a decrease in the demand for our infrastructure engineering services, our financial results may be adversely affected. We are dependent on the shipyard sector for our corrosion prevention business Revenue derived from our corrosion prevention services constituted approximately 52.9% of our revenue for FY2003, of which about 82% of such revenue was generated from services provided to various shipyards, including seven established shipyards in Singapore and two in Batam. In view of the significant contribution of business arising from shipyards to our revenue, we are reliant on the shipyard sector in achieving the continued growth for our business and financial performance. In the event that we are not able to meet the shipyards’ requirements in quality service, safety standards, competitive pricing and labour management, we may lose our status as hullside resident contractor of these shipyards and may eventually lose our market share in the shipyard sector. In such an event, our financial results may be adversely affected. In addition, the ability of Singapore shipyards to maintain its competitive edge vis-a`-vis shipyards in other parts of Asia and the Middle East will have a direct impact on our corrosion prevention business. In the event that Singapore shipyards lose their competitiveness, resulting in a decline of ship repair and shipbuilding activities, the revenue and profitability from our corrosion prevention business will be adversely affected. 24

RISK FACTORS Our business is affected by competition The business that we are present in are highly competitive and we face competition from many players in the market. We may, due to various factors such as deterioration in service quality and inability to provide cost competitive pricing, lose our current customers and market share to our existing competitors as well as new entrants into our markets. In particular, some of our competitors have strong financial resources, long operating history, extensive track records and established brand names in the market. In the event that we are unable to retain our existing customers and/or attract new customers amidst the competition, our financial results may be adversely affected. Furthermore, competition may lead to downward price pressure for the services and products we supply. In the event that we are unable to reduce our costs amidst declining selling prices, our profit margin will be affected. We are affected by labour shortages or increase in labour cost due to changes in government regulations Our corrosion prevention and infrastructure engineering divisions in Singapore rely, to a large extent, on a large pool of foreign workers. As such work is menial and there is a limited number of local workers available, we are dependent on foreign labour to execute these projects. As at 31 December 2003, we employ more than 403 foreign workers representing approximately 64% of our total number of full-time employees. For the last three financial years from FY2001 to FY2003, the foreign workers’ levies paid by us accounted for approximately 1.0%, 1.0%, and 0.6% of our cost of sales respectively. Any unfavourable changes to the employment regulations to be introduced by the Ministry of Manpower of Singapore such as a reduction in the quota for foreign employees, will affect our ability to employ foreign workers. As a result, we may have to employ workers at higher cost, or may not be able to complete our projects according to the agreed completion time due to manpower shortage. In the event that we are unable to hire replacement workers at reasonable rates, or there is an increase in foreign workers’ levies payable, our business and financial costs will increase. In addition, if we are unable to complete the project according to the agreed time schedule due to insufficient labour, we may be liable to our customers for liquidated or other damages, which may lead to an adverse effect on our financial results. We are dependent on sub-contractors in our infrastructure engineering division Our infrastructure engineering division generally sub-contracts certain components of the project (other than corrosion prevention services), such as steel and pipe fabrication work, to sub-contractors. We are dependent on the availability of sub-contractors who have the relevant skills to fulfil our contractual commitments for our infrastructure engineering projects on a timely basis. In the event that we face a shortage of sub-contractors with relevant skills resulting in us having to incur higher costs in engaging these sub-contractors or not being able to complete our project on a timely basis, our infrastructure engineering business and financial results will be adversely affected. We may not be able to complete our contractual obligations to our customers We undertake most of our corrosion prevention and infrastructure engineering projects on a contract basis, subject to the terms and conditions provided in each contract. We may either furnish a performance bond for a value of 5% of the contract value issued by a bank or our customers may retain a sum ranging from of 5% to 10% of the contract value as a retention fee as security for our due performance and completion of all conditions under the contract. In the event of any delay in the completion of our services, we may be liable to pay our customers liquidated or other damages under our contracts with them. If the delay continues beyond the time stipulated in the contracts due to force majeure events such as adverse weather or other acts of God, our customers may rescind their contracts with us. We may also face claims by our customers in respect of defective products, poor workmanship and non-compliance with contract specifications. This may adversely affect our financial performance. 25

RISK FACTORS We are exposed to potential liability arising from damages, injury or death due to accidents Due to the nature of our operations, there is a risk of accidents occurring either to our employees or to third parties while on our premises or our customers’ premises. These accidents may occur as a result of fire, explosions or other incidents. For instance, in March 2004, there was a fatal accident at one of our shipyard customers’ premises involving one of our workers who was accidentally electrocuted whilst laying cables on the floor of the floating dock. In the event that any accidents which are not covered by our insurance policies or workmen’s compensation taken by our Group, or if claims arising from such accidents which are in excess of our insurance or workmen’s compensation coverage are made against us, and/or any of our insurance claims are contested by any insurance company, we will be required to pay for such compensation and the financial performance of our Group may be adversely affected. We are exposed to risks arising from credit terms extended to customers We are exposed to payment delays and/or defaults by our customers who are granted credit terms. As at 31 December 2003, our trade receivables of $16.3 million accounted for approximately 50.4% of our current assets, of which approximately $3.28 million was still outstanding as at 31 August 2004. The credit terms extended to our customers are generally between 30 and 90 days. However, our trade debtors’ turnover days for FY2003 is approximately 195 days. In addition, confirmation and settlement of payment may, as a result of negotiation between us and our customers on additional work orders and variation works, take a relatively longer time to be finalised. There is no assurance on the timely repayment of such amounts by our customers or their ability to fulfill their payment obligations due to unforeseen events or circumstances. In the event that our customers are unable to pay such amounts due to us, our financial performance and operating cash flow may be adversely affected. We are dependent on key personnel for our continued growth Our continued growth is dependent on the commitment of our key personnel, especially our Executive Directors (Chua Beng Kuang and Chua Meng Hua), and our Executive Officers (Chua Beng Yong and Chua Beng Hock). Each of these key personnel plays an instrumental role in the performance and continued growth of our Group. They contribute through their industrial knowledge, technical expertise and wide business connections. In addition, our other Executive Officers also play instrumental roles in the success and growth of our Group. In the event that we lose the services of any of these key personnel without timely or suitable replacements or are unable to attract, train and retain qualified and experienced personnel, our business would be affected. This may have an adverse impact on our financial performance. We are reliant on our Controlling Shareholder, Labroy Marine Limited Our Group provides corrosion prevention and infrastructure engineering services as well as supplies our products to various entities within the Labroy Group. The aggregate value of our sales transactions to the Labroy Group accounted for approximately 13.2% of our revenue in FY2003. In the event that the Labroy Group ceases to engage our services or procure products from us, our revenue and profitability may be reduced. Furthermore, our fabrication yard in Batam is leased from LSE and PT Nanindah, and one of the premises used for our operations in Singapore is leased from Heng Huat (please refer to the “Interested Person Transactions” section on page 102 of this Prospectus for more details), all of which are subsidiaries of Labroy. In the event that LSE, PT Nanindah and/or Heng Huat discontinues our tenancy agreements, our operations in Batam and/or Singapore will be disrupted. This may in turn adversely affect our Group’s operations if we are unable to relocate in a timely manner. In addition, all our banking facilities (with the exception of the facility granted by The Bank of Nova Scotia, Singapore Branch as at the Latest Practicable Date) are granted in favour of a corporate guarantee given by Labroy and may not be discharged or transferred to another party even after our listing on the SGX-ST due to restrictions imposed by the banks. We are currently in negotiations with these banks to release these guarantees and there is no assurance that we would be able to procure 26

RISK FACTORS a discharge of these guarantees. We are currently in the process of amending the facility granted by The Bank of Nova Scotia, Singapore Branch, such that Labroy will no longer be a joint borrower, but will act as a corporate guarantor for the same. Labroy has agreed to continue to support us until we have obtained the release of guarantees from the banks. As such, we are dependent on Labroy for our external financing to meet our working capital requirements and there is no assurance that Labroy will not cease to provide such support to us due to unforeseen circumstances. In such an event, our financial ability will be adversely affected. We may face potential liability with respect to product defects Some of our corrosion prevention and infrastructure engineering contracts with customers include warranties that our products will be free of defects upon completion and will meet specific performance requirements. We do not have any product liability insurance covering our corrosion prevention and infrastructure engineering works, and to the extent that our products do not, or are deemed not to, satisfy such warranties, we may be required to indemnify or compensate our customers for any damage or losses as well as consequential damages if our products are defective. Such indemnification or compensation would not only result in additional cost but could also adversely affect our reputation in the industry as well, both of which will have an adverse effect on our business and financial results. We are exposed to project cost overruns In preparation for a tender submission for projects carried out by our corrosion prevention and/or infrastructure engineering divisions, internal costing and estimates of labour and materials costs are compiled by our tendering department. The contract value quoted in the tender submission is determined after the evaluation of our scope of work and all related costs including indicative prices of our suppliers and sub-contractors. However, unforeseen circumstances such as unanticipated price fluctuations of steel and other major raw materials in our fabrication process, damages and errors in estimation may arise during the course of fabrication. As these circumstances may require additional costs and work which is not factored into the contract value, they may lead to cost overruns which may erode our profit margin for the project and have an adverse impact on our overall profitability. In addition, unexpected discounts requested by customers may result in us being unable to collect our full tender price. In the event that we are unable to recoup our full costs, our financial results may be adversely affected. We rely heavily on the use of copper slag and steel grit and are vulnerable to any significant increase in the prices of such raw materials Copper slag and steel grit are some of the main raw materials required by our corrosion prevention division. In order to provide quality services at competitive prices, we need to obtain sufficient quantities of good quality raw materials at acceptable prices and in a timely manner. We are therefore vulnerable to the risk of any increase in the prices of such raw materials. In the event that we are unable to obtain sufficient quantities of good quality raw materials, and/or there is a significant increase in such prices and we are not able to pass on such increase to our customers, our operations and financial results may be adversely affected. We do not have any long term agreements with our suppliers We do not have any long term agreements with any of our suppliers for raw materials, hardware equipment, tools and other products in relation to our corrosion prevention, infrastructure engineering and supply and distribution divisions. There is no assurance that we will be able to continue sourcing these products from suppliers at prices which are favourable to us. In the event that our suppliers terminate the supply of their products to us, we may not be able to seek alternative sources in a timely manner and/or at reasonable prices. This may adversely affect our ability to meet our customers’ orders and thereby affect our revenue and profitability.

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RISK FACTORS There is no assurance that our expansion plans will be successful As described under “Business Strategies and Future Plans” on page 91 of the Prospectus, our growth strategies involve the expansion of our corrosion prevention, infrastructure engineering as well as supply and distribution businesses. These expansion plans will result in additional costs of investment in fixed assets, additional working capital tied up in stocks as well as additional working capital requirements. In the event that we fail to achieve a sufficient level of revenue or manage our costs efficiently, our future financial performance and position may be adversely affected. Our operations, customers and suppliers are vulnerable to natural disasters and other events beyond our control, which may seriously disrupt our operations The occurrence of earthquakes, floods, droughts and other natural disasters where our customers, suppliers and operations are located, as well as accidents such as fire or power losses, could interrupt our services and cause severe damage to our work-in-progress. A fire incident had occurred at our leased yard in Batam in 2002. While the fire incident did not cause any significant disruption to our operations, there can be no assurance that such events will not occur in the future. Any major disruption to our operations as a result of such disasters could have an adverse effect on our operations. Terrorist attacks and other acts of violence or war may affect the markets in which we operate, and consequently affect our business and financial performance. Terrorist attacks such as those that occurred in the United States of America in September 2001, in Bali in October 2002 and in Jakarta in August 2003 or armed conflict such as the recent war in Iraq had affected our operations negatively. They may directly impact our physical facilities or those of our suppliers or customers. Such terrorist attacks or armed conflict could have an adverse impact on the demand for our services and our ability to deliver our products to our customers in a timely and cost effective manner, which in turn could have an adverse impact on our sales, business and financial condition. Political and economic instability in some regions of the world may also result from such terrorist attacks and armed conflicts, and could negatively impact our business and financial condition. The consequences of any of these terrorist attacks or armed conflicts are unpredictable, and we are not able to foresee events that could have an adverse effect on our business. Our operations may be affected by the recurrence of Severe Acute Respiratory Syndrome (“SARS”) and other communicable diseases The SARS outbreak during mid-March 2003 to June 2003 period had an adverse impact on the Singapore economy. Similarly, the outbreak of the avian influenza in Indonesia in January 2004 had an impact on the Indonesian economy. There is no assurance that these or other infectious diseases will not make a comeback and affect economic activities in the region. The resurgence of such communicable diseases could have a negative effect on our operations. In the event that any of our employees is infected with a communicable disease, we may be required to shut down our yards or office premises to prevent the spread of the disease. The spread of any communicable disease could affect our operations in Singapore and Indonesia as well as the operations of our customers and suppliers. This would have an adverse impact on our business and financial performance. We are exposed to foreign exchange risk Our revenue and cost of sales are mostly denominated in S$. In FY2003, approximately 94% of our revenue was denominated in S$ and the remaining in US$. Approximately 87% of our cost of sales was denominated in S$ and the remaining in US$ and Rp. Our operating costs are mainly denominated in S$ and Rp.

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RISK FACTORS We are exposed to foreign exchange risk to the extent that there is a mismatch between the currency of our sales and the currency of our purchases and expenses as well as a timing difference between our collections and payments. Where there are adverse fluctuations of the various foreign currencies we transact in against S$, our earnings may be adversely affected. Profits from our Indonesian subsidiaries, when translated into S$, will be lower should there be an appreciation of S$ against Rp. Although profit contribution from our Indonesian subsidiaries was not significant in FY2003, the contribution may increase in future and will be subject to currency translation risk should S$ appreciate against Rp. Please refer to the “Foreign Exchange Management” section on page 89 of this Prospectus for further details. RISKS FACTORS RELATING TO OUR OVERSEAS OPERATIONS We are subject to political, economic and legal risks in Indonesia Our operations in Batam are subject to the risks of political unrest, labour problems, foreign exchange restrictions, inflation, changes in licensing requirements and unfavourable government policies and regulations. Any changes in policies by the Indonesian government may lead to changes in laws and regulations, in foreign ownership restriction, currency control policies, import and export restriction and taxation policies. These changes may have significant impact on our business operations and financial performance. We face risks associated with the introduction of new laws or changes to existing laws by the Indonesian government While Indonesia has opened up its economy to foreign investors and companies, the political, regulatory and economic outlook for investors and businesses in Indonesia is uncertain. Furthermore, the outcome of dispute resolution may not be as consistent or predictable as in the other more developed jurisdictions and to some extent it may be difficult to obtain swift enforcement of the laws in Indonesia. Judgements by courts of another jurisdiction will not be recognised and enforced in the courts of Indonesia whilst foreign arbitration awards may be recognised and enforced in Indonesia subject to certain requirements and such requirements include that the subject matter of the awards must relate to commerce, do not conflict with Indonesian public policy and has been issued in a country which enforces Indonesian arbitration awards on a reciprocal basis. At present, 100% foreign ownership of an Indonesia-incorporated company is allowed, subject to a divestment requirement under Indonesian law. Within 15 years from the date of commercial operations of an Indonesia-incorporated company, a part of the equity interest in the company must be divested to an Indonesian citizen(s) and/or Indonesian legal entity(ies) either through a private sale or public offering in Indonesian capital markets. In such an event, the share of profits attributable to our Group will be decreased. There is, however, as at the date of this Prospectus, no specific requirement on how much of the equity in our Indonesian subsidiaries, namely PT Nexus and PT Master, must be sold. Any future changes to government guidelines such as foreign ownership requirements, laws or regulation or the introduction of new regulation which would eliminate certain investment incentives for investors or businesses operating in Batam (such as no foreign restriction on equity ownership and the imports of certian items such as raw materials, machinery, equipment and spare parts are duty-free) could affect the operations of our Indonesian subsidiaries and may have an adverse impact on our profitability. Labour problems may disrupt our operations in Batam At present, our workforce in Batam is not unionised and we enjoy generally healthy relationships with our employees. There is no assurance that our workforce will continue to remain non-unionised. In the event of any concerted union actions such as work stoppages, our business activities and operations may be disrupted. In such cases, our financial performance would be adversely affected.

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RISK FACTORS In addition, should our subcontractors fail to pay the workers they have contracted to work for the projects of our Indonesian subsidiaries, these workers may look to us for compensation and/or disrupt our operations. In the event that there is a disruption to our operations and/or we are compelled to compensate them from our own funds, our operating results and financial performance may be adversely affected. RISK FACTORS RELATING TO AN INVESTMENT IN OUR SHARES Future sales of our Shares could adversely affect our Share price Any future sale or availability of our Shares in the public market can have a downward pressure on our Share price. The sale of a significant amount of our Shares in the public market after the Invitation, or the perception that such sales may occur, could adversely affect the market price of our Shares. These factors also affect our ability to sell additional equity securities. Except as otherwise described under the heading “Moratorium” on page 40 of this Prospectus, there will be no restriction on the ability of our Substantial Shareholders to sell their Shares either on the SGX-ST or otherwise. There has been no prior market for our Shares and the Invitation may not result in an active or liquid market for our Shares Prior to the Invitation, there had been no public market for our Shares. Therefore, we cannot predict the liquidity of a trading market or the extent to which it will develop. No assurance can be given that an active trading market for our Shares will develop or, if developed, will be sustained. The Issue Price of our Shares will be determined by us, in consultation with the Manager, based on market conditions and estimated market demand for our Shares determined through a book-building process. This may not be indicative of prices that will prevail in the trading market after the Invitation. Investors may not be able to sell their shares at or above the Issue Price. The trading price of our Shares could be subject to fluctuation in response to variation in our results of operation, changes in general economic conditions, changes in accounting principles or other development affecting us, our customers, or changes in financial estimates by securities analysts, the operating and stock price performance of other companies, general stock market fluctuation and other event or factors. Our Directors and Substantial Shareholders may retain significant control over our Company after the Invitation, which will allow them to influence the outcome of decisions requiring the approval of Shareholders Immediately upon completion of the Invitation, our Executive Directors, Chua Beng Kuang and Chua Meng Hua and their Associates, together with Labroy (our Controlling Shareholder), will collectively own approximately 81.94% of our Shares. These Shareholders, acting together, will be able to exercise significant influence over many matters requiring Shareholders’ approval, including the election of Directors and approval of significant corporate transactions and will have veto power with respect to any Shareholder action or approval requiring a majority vote. Such concentration of ownership may also delay, prevent or deter a change in control of our Company which may not benefit our Shareholders. Investors in our Shares will face immediate and substantial dilution in the NTA per Share and may experience future dilution Our Issue Price is substantially higher than our NTA per Share of 12.66 cents (after adjusting for the Restructuring Exercise, Bonus Issue, Sub-division and Consolidation and net proceeds from the Invitation) as at 31 December 2003. If we were put to liquidation based on NTA immediately following this Invitation, each Shareholder subscribing to this Invitation would receive less than the price they paid for their Shares. (Please refer to page 36 of the Prospectus under the “Dilution” section).

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RISK FACTORS Our Share price may be volatile, which could result in substantial losses for investors acquiring our Shares in the Invitation The market price of our Shares could be subject to significant fluctuations as a result of, inter alia, the following factors, some of which are beyond our control:– •

the success or failure of our management team in implementing business and growth strategies;

•

our announcements of significant contracts, acquisition, strategic alliances or capital commitments;

•

loss of our major customers or our failure to complete significant orders or contracts;

•

announcements of new products or services offered by us or our competitors;

•

changes in our operating results;

•

additions and/or resignations of key personnel;

•

changes in share prices of companies with similar business to our Company that are listed on the SGX-ST;

•

changes in securities analysts’ estimates of our financial performance and recommendation;

•

difference between our actual operating results and those estimated by investments and securities analysts; and

•

changes in general market conditions and broad market fluctuations.

In addition, our Share price will be under downward pressure if certain of our Directors, management staff or employees sell their Shares immediately after the Invitation. Save as disclosed in this Prospectus, and, in particular, the section on “Risk Factors”, our business or profitability is not materially dependent on any patent or licence, industrial, commercial or financial contract (including a contract with a customer or supplier) or new manufacturing process.

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INVITATION STATISTICS ISSUE PRICE

23 cents

NTA NTA per Share based on the audited balance sheet of our Group as at 31 December 2003 adjusted for the Restructuring Exercise, Bonus Issue, Subdivision and Consolidation referred to on page 37 of this Prospectus (“Adjusted NTA”):– (a)

before adjusting for the estimated net proceeds of the New Shares and based on the pre-Invitation share capital of 95,236,875 Shares

11.35 cents

(b)

after adjusting for the estimated net proceeds of the New Shares and based on the post-Invitation share capital of 116,236,875 Shares

12.66 cents

Premium of Issue Price per Share over the Adjusted NTA per Share as at 31 December 2003:– (a)

before adjusting for the estimated net proceeds of the New Shares and based on the pre-Invitation share capital of 95,236,875 Shares

102.64%

(b)

after adjusting for the estimated net proceeds of the New Shares and based on the post-Invitation share capital of 116,236,875 Shares

81.67%

EARNINGS Historical net EPS of our Group for FY2003 based on the pre-Invitation share capital of 95,236,875 Shares

2.42 cents

Historical net EPS of our Group had the service agreements set out on pages 100 to 101 of this Prospectus been effected for FY2003 and based on the pre-Invitation share capital of 95,236,875 Shares

2.24 cents

PRICE EARNINGS RATIO Historical price earnings ratio based on the historical net EPS of our Group for FY2003

9.50 times

Historical price earnings ratio based on the historical net EPS of our Group had the service agreements set out on pages 100 to 101 of this Prospectus been effected for FY2003

10.27 times

NET OPERATING CASH FLOW(1) Historical net operating cash flow per Share of our Group for FY2003 based on the pre-Invitation share capital of 95,236,875 Shares

3.68 cents

Historical net operating cash flow per Share of our Group for FY2003 had the Service Agreements set out on pages 100 to 101 of this Prospects been effected for FY2003 and based on the pre-Invitation share capital of 95,236,875 Shares

3.45 cents

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INVITATION STATISTICS PRICE TO NET OPERATING CASH FLOW Issue price to net operating cash flow ratio based on the historical net operating cash flow per Share for FY2003

6.25 times

Issue price to net operating cash flow ratio based on the historical net operating cash flow per Share had the service agreements set out on pages 100 to 101 of this Prospectus been effected for FY2003

6.67 times

MARKET CAPITALISATION Market capitalisation based on Issue Price of 23 cents per Share and post-Invitation share capital of 116,236,875 Shares

$26.73 million

Note:– (1)

Net operating cashflow is defined as the net cash generated from operating activities as shown on page 87 of this Prospectus.

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CAPITALISATION AND INDEBTEDNESS The following table shows our cash and bank balances, capitalisation and indebtedness based on our Group’s financial position as at 31 July 2004:– (i)

on a proforma basis (based on our management accounts as at 31 July 2004); and

(ii)

as adjusted to give effect to the Restructuring Exercise, Bonus Issue and the issuance of the New Shares pursuant to the Invitation and the application of the net proceeds. As at 31 July 2004

($’000) Cash and bank balances

As Adjusted

940

3,840

3,380

2,380

352

352

11,000

11,000

Bills payable, unsecured

2,501

2,501

Loans from related companies, unsecured

1,005

1,005

261

261

18,499

17,499

Share capital

1,316

9,299

Share premium

2,584

2,220

Revenue reserve

8,123

4,404

Total shareholders’ equity

12,023

15,923

TOTAL CAPITALISATION

30,522

33,422

Indebtedness Current Bank overdrafts, unsecured(1) Lease obligations, secured Short-term bank loans, unsecured(1)

Long Term Lease obligations, secured Total indebtedness Shareholders’ Equity

Note:– (1)

These facilities are guaranteed by Labroy, with the exception of the facility granted by The Bank of Nova Scotia, Singapore Branch, to which Labroy is a joint borrower (which facility is currently in the process of being amended such that Labroy will no longer be a joint borrower, but will act as a corporate guarantor for the same).

As at the Latest Practicable Date, we have total banking and credit facilities (comprising mainly shortterm bank loans, lease obligations, bank overdrafts and bills payable) of $22.6 million, of which $17.3 million had been utilised, and $5.3 million are not utilised and available for utilisation. We have been granted an overdraft facility of $2.0 million, short-term advance of $4.0 million and letter of credit/trust receipt/letter of guarantee facility of $1.0 million pursuant to a Letter of Offer dated 5 May 2000 from United Overseas Bank Limited (the successor-in-title of Overseas Union Bank Limited) and a subsequent supplemental Letter of Offer dated 19 June 2001. An amount being $1.0 million of the net proceeds from the Invitation would be used for the partial repayment of the amount utilised under the overdraft facility of $2.0 million provided by United Overseas Bank Limited. The amount utilised under the said overdraft facility within the past year was to fund our working capital needs and other expenditure incurred in our operations, and such overdrafts are repayable to the lending bank upon its demand. Our banking facilities are secured by corporate guarantees given by our Controlling Shareholder, Labroy.

34

CAPITALISATION AND INDEBTEDNESS As at the Latest Practicable Date, our bank overdrafts and bills payable bear interest ranging from 2.00% to 5.25% per annum. Our short-term bank loans bear interest ranging from 2.29% to 2.75% per annum, and are repayable over an average period of one to three months. The lease obligations relate to the hire-purchase of motor vehicles, machinery, tools and equipment. The lease obligations bear interest ranging from 2.24% to 4.57% per annum. Based on the above and to the best of their knowledge, our Directors are of the opinion that we have adequate working capital for our present requirements after taking into account the present banking facilities, shareholders’ funds and internal cash resources. Upon the listing of our Shares on the SGX SESDAQ, we intend to procure the discharge of the guarantees provided by Labroy, with respect to the banking facilities offered by the financial institutions. Please refer to the “Risk Factors” section on pages 24 to 31 of this Prospectus for more details. Operating Lease Commitments As at 31 December 2003, we have the following operating lease commitments:– $’000 Within 1 year

286

Within 2 to 5 years

393

More than 5 years

164

Total

843

The operating leases relate to our office and yard premises and workers’ accommodation for both our Singapore and Batam operations. Saved as disclosed above and on pages 133 to 169 of the Proforma Consolidated Financial Information, we have no other material borrowings or indebtedness, guarantees and contingent liabilities.

35

DILUTION Dilution is the amount by which the Issue Price to be paid by the applicants for our New Shares in the Invitation exceeds our NTA per Share after the Invitation. The NTA per Share as at 31 December 2003 after adjusting for the Restructuring Exercise, Bonus Issue, Sub-division and Consolidation but before adjusting for the net proceeds from the Invitation and based on the pre-Invitation issued and paid-up share capital of 95,236,875 Shares was 11.35 cents. Based on the issue of 21,000,000 New Shares at an Issue Price of $0.23 for each New Share pursuant to the Invitation and after deducting the estimated issue expenses, the Adjusted NTA of our Group as at 31 December 2003 would have been 12.66 cents per Share based on the post-Invitation issued and paid-up share capital of 116,236,875 Shares. This represents an immediate increase in NTA of 1.31 cents per Share to our existing Shareholders and an immediate dilution in NTA of 10.34 cents per Share to our new investors. The following table illustrates such dilution on a per Share basis:– Cents Issue Price

23.00

NTA per Share as at 31 December 2003 based on our pre-invitation share capital of 95,236,875 shares as adjusted for the Restructuring Exercise, Bonus Issue, Sub-division and Consolidation

11.35

Increase in NTA per Share contributed by new investors

1.31

NTA per Share after the Invitation

12.66

Dilution in NTA per Share to new investors

10.34

The following table summaries as at the Latest Practicable Date, the total number of Shares issued by us, the total consideration paid to us and the average price per Share paid by our existing Shareholders(1) and by the new public investors pursuant to the Invitation:–

%

Consideration $’000

%

Average price per Share cents

95,236,875

81.94

3,900

44.67

4.1

21,000,000

18.06

4,830

55.33

23.0

116,236,875

100.0

8,730

100.0

Number of Shares Existing Shareholders New investors Total

Note:– (1)

There were no shares acquired by our Directors or Substantial Shareholders during the period of three years prior to the Latest Practicable Date.

36

GENERAL INFORMATION ON OUR GROUP SHARE CAPITAL Our Company was incorporated in Singapore on 8 January 1994 under the Companies Act as a private limited company under the name of “Beng Kuang Marine Pte Ltd”. On 30 August 2004, our Company changed its name to “Beng Kuang Marine Limited”. Our authorised share capital was $2,000,000 divided into 2,000,000 ordinary shares of $1.00 each and our issued share capital was $1,316,328 divided into 1,316,328 ordinary shares of $1.00 each immediately prior to the Extraordinary General Meeting referred to below. At the Extraordinary General Meeting held on 25 August 2004, our Shareholders approved, inter alia, the following:– (a)

an increase in the authorised share capital of the Company from $2,000,000 divided into 2,000,000 ordinary shares of $1.00 each to $30,000,000 divided into 30,000,000 ordinary shares of $1.00 each;

(b)

the Restructuring Exercise as described on page 40 of this Prospectus;

(c)

the capitalisation of $6,302,622 out of the share premium and revenue reserves of Beng Kuang Marine Pte Ltd by way of a bonus issue of 6,302,622 ordinary shares of $1.00 each credited as fully paid to our shareholders (“Bonus Issue”);

(d)

the allotment and issue of 6,302,622 ordinary shares of $1.00 each pursuant to the Bonus Issue;

(e)

the sub-division of each ordinary share of $1.00 each in the authorised and issued and paid-up share capital of the Company into 50 ordinary shares of $0.02 each respectively (“Sub-division”);

(f)

the consolidation of every four ordinary shares of $0.02 each in the authorised and issued share capital of the Company into one ordinary share of $0.08 each (“Consolidation”);

(g)

the conversion of the Company into a public limited company and the change of its name to “Beng Kuang Marine Limited”;

(h)

the adoption of the new Articles of Association of the Company;

(i)

the issue of New Shares pursuant to the Invitation. The New Shares, when issued and fully paid, will rank pari passu in all respects with the existing issued and fully paid up Shares;

(j)

the authorisation for the Directors, pursuant to Section 161 of the Companies Act and the Articles of Association, to allot and issue Shares or convertible securities from time to time (whether by way of rights, bonus or otherwise) and upon such terms and conditions and for such purposes and to such persons as the Directors may in their absolute discretion deem fit, provided that the aggregate number of Shares and convertible securities which may be issued pursuant to such authority shall not exceed 50% of the issued (and paid-up) share capital of the Company, of which the aggregate number of Shares and convertible securities which may be issued other than on a pro-rata basis to our Shareholders shall not exceed 20% of the issued share capital of the Company (the percentage of issued share capital being based on the post-Invitation issued share capital of our Company after adjusting for new shares arising from the conversion or exercise of any convertible securities or employee share options on issue at the time such authority is given and any subsequent consolidation or subdivision of shares) and, unless revoked or varied by the Company in general meeting, such authority shall continue in force until the conclusion of the next Annual General Meeting (“AGM”) of the Company or on the date by which the next AGM is required by law to be held, whichever is earlier; and

(k)

the adoption of the Shareholders’ Mandate (the details of which are set out in the “Shareholders’ Mandate” section on pages 113 to 117 of this Prospectus).

37

GENERAL INFORMATION ON OUR GROUP As at the date of this Prospectus, our Company has only one class of Shares, being ordinary shares of $0.08 each. The rights and privileges of our Shares are stated in the Articles of Association of our Company. There is no founder, management, deferred or unissued Shares reserved for any purpose. Upon the allotment and issue of the New Shares which are the subject of the Invitation, the resultant issued and paid-up capital of our Company will be increased to $9,298,950 comprising 116,236,875 Shares. Details of the changes to the issued and paid-up share capital of our Company as at 31 December 2003 being the date of the last audited accounts of our Company, and our issued and paid-up share capital immediately after the Invitation are as follows:– Number of Shares

$

Issued and fully paid-up ordinary shares of $1.00 each as at 31 December 2003

1,316,328

1,316,328

Issue of new ordinary shares of $1.00 each pursuant to the Bonus Issue

6,302,622

6,302,622

7,618,950

7,618,950

Sub-division and Consolidation

95,236,875

7,618,950

New Shares to be issued pursuant to the Invitation

21,000,000

1,680,000

116,236,875

9,298,950

Post-Invitation share capital

The authorised share capital and the Shareholders’ equity of our Company as at 31 December 2003, before and after adjustments to reflect the increase in authorised share capital, Restructuring Exercise, Bonus Issue, Sub-division, Consolidation and the Invitation are set forth below. These statements should be read in conjunction with the Proforma Consolidated Financial Information set out on pages 133 to 169 of this Prospectus.

As at 31 December 2003 $’000

After adjusting for the increase in the authorised share capital, Restructuring Exercise, Bonus Issue, Sub-division and Consolidation $’000

After Invitation $’000

Authorised Share Capital Ordinary shares of $1.00 each

2,000

—

—

Ordinary shares of $0.08 each

—

30,000

30,000

Issued and paid-up share capital

1,316

7,619

9,299

Share premium

2,584

—

2,220

Revenue reserve

3,719

—

—

Total Shareholders’ Equity

7,619

7,619

11,519

Shareholders’ Equity

38

GENERAL INFORMATION ON OUR GROUP SHAREHOLDERS Our Shareholders and their respective shareholdings in our Company immediately before and after the Invitation are set out below:– Before the invitation Direct Interest No. of Shares

After the Invitation

Deemed Interest

%

No. of Shares

%

Direct interest No. of Shares

Deemed Interest

%

No. of Shares

%

Directors Tan Boy Tee(2)

(5)

Chua Beng Kuang Chua Meng Hua

(1)

Yong Thiam Fook Goh Chee Wee

(1)

—

—

48,570,875

51.00

—

—

48,570,875

41.78

11,666,500

12.25

—

—

11,666,500

10.04

—

—

11,666,500

12.25

—

—

11,666,500

10.04

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

(4) (5)

(5)

Wong Chiang Yin

(5)

Substantial Shareholders Labroy Marine Limited(3) Chua Beng Yong

48,570,875

51.00

—

—

48,570,875

41.78

—

—

(1)

11,666,500

12.25

—

—

11,666,500

10.04

—

—

(1)

11,666,500

12.25

—

—

11,666,500

10.04

—

—

—

—

—

—

21,000,000

18.06

95,236,875

100.00

116,236,875

100.00

Chua Beng Hock

Public (including Reserved Shares)(5) Total

Notes:– (1)

Chua Beng Kuang (our Managing Director), Chua Meng Hua (our Executive Director), Chua Beng Yong (our Executive Officer) and Chua Beng Hock (our Executive Officer) are brothers.

(2)

Tan Boy Tee is deemed to be interested in 48,570,875 Shares held by Labroy Marine Limited in our Company by virtue of his interest in shares representing 59.79% of the total issued share capital in Labroy at the Latest Practicable Date.

(3)

Labroy Marine Limited is a company incorporated in Singapore and is listed on the Main Board of the SGX-ST. Its business activities are mainly shipping, shipbuilding and repair, and technology. Its directors are Tan Boy Tee, Chan Sew Meng @ Chan Kwan Bian, Ong Lian Choon, Sitoh Yih Pin and Peter Chen Siow Hsing. Our Non-Executive Directors, Tan Boy Tee and Yong Thiam Fook, are nominated by Labroy Marine Limited as its representatives.

(4)

Yong Thiam Fook is the Chief Financial Officer of Labroy Marine Limited.

(5)

Our Non-Executive Director, Yong Thiam Fook, will be offered 50,000 Shares, and our Chairman and Non-Executive Director, Tan Boy Tee, and our Independent Directors, namely, Goh Chee Wee and Wong Chiang Yin, will each be offered 100,000 Shares pursuant to the Invitation. They may accept, dispose of or transfer all or part of their Reserved Shares in our Company after the admission of our Company to the SGX SESDAQ, save for our Chairman and Non-Executive Director, Tan Boy Tee, who shall be subject to the moratorium requirement described on page 40 of this Prospectus.

The Shares held by our Directors and Substantial Shareholders do not carry different voting rights from the New Shares which are the subject of the Invitation. There is no known arrangement, the operation of which may, at a subsequent date, result in a change in the control of our Company. There has not been any public take-over offer by a third party in respect of our Shares or by our Company in respect of the shares of another corporation which has occurred during the last and current financial year.

39

GENERAL INFORMATION ON OUR GROUP MORATORIUM To demonstrate their commitment to the Group, our Substantial Shareholders comprising Labroy Marine Limited, Chua Beng Kuang, Chua Meng Hua, Chua Beng Yong and Chua Beng Hock, who own in aggregate, 95,236,875 Shares representing 81.94% of our Company’s share capital after the Invitation, have undertaken not to sell, dispose of or transfer any part of their respective shareholding in our Company for a period of six months commencing on the date of listing of our Company on the SGX SESDAQ and not to sell, dispose of or transfer more than 50% of their respective shareholding in our Company in the following six months thereafter. Our Chairman and Non-Executive Director, Tan Boy Tee, who has been offered 100,000 Reserved Shares, has undertaken not to sell, dispose of or transfer any of such Reserved Shares, if he subscribes for them, for a period of six months commencing on the date of listing of our Company on the SGX SESDAQ and not to sell, dispose of or transfer more than 50% of such Reserved Shares subscribed by him in the following six months thereafter.

RESTRUCTURING EXERCISE Prior to the Invitation, we undertook a restructuring exercise to resolve a potential conflict of interest with Labroy as a result of both parties being involved in providing steel works for ship hulls in connection with shipbuilding, ship conversion and ship repair activities in Malaysia. We entered into a Share Sale Agreement dated 23 August 2004 with Heng Huat Shipbuilding & Construction Pte. Ltd. (“Heng Huat”) to sell our entire stake in ASIC (being 300,000 issued and paid up ordinary shares of RM1.00 each) to Heng Huat for an aggregate consideration of $141,868 based on the audited net tangible assets of ASIC as at 31 December 2003, which transfer took place on 23 August 2004. The consideration has been fully settled as at the Latest Practicable Date.

40

GENERAL INFORMATION ON OUR GROUP SUBSIDIARIES The details of our subsidiaries that are operating as at the date of this Prospectus are as follows:–

Issued and paid-up capital

Equity interest held by our Group (%)

Name of company

Date and place of incorporation and principal place of business

Asian Sealand Engineering Pte Ltd

24 September 1970 Singapore

Provision of infrastructure engineering services

S$1,000,000

100

Nexus Sealand Trading Pte Ltd

14 January 1994 Singapore

Supply and distribution of products

S$250,000

100

BT Asia Marketing & Engineering Pte Ltd

28 October 1998 Singapore

Trading of copper slag and waste management

S$200,000

51(1)

PT. Nexus Engineering Indonesia

10 November 2000 Indonesia

Provision of corrosion prevention and infrastructure engineering services

US$100,000

100(2)

Picco Enterprise Pte. Ltd.

13 December 2002 Singapore

Supply and distribution of products

S$1,000

B & J Marine Pte. Ltd. (formerly known as Jet Point Marine Pte. Ltd.)

29 January 2003 Singapore

Provision of hydrojetting and tank cleaning services

S$100,000

51(3)

PT. Master Indonesia

27 February 2003 Indonesia

Supply and distribution of products

US$100,000

100(2)

Beng Kuang Marine (B&Chew) Pte. Ltd.

9 February 2004 Singapore

Provision of corrosion prevention services

S$100,000

100

B & K Marine Pte. Ltd.

9 February 2004 Singapore

Provision of corrosion prevention services

S$100,000

100

Beng Kuang Marine (B&M) Pte. Ltd.

10 February 2004 Singapore

Provision of corrosion prevention services

S$100,000

100

Beng Kuang Marine (B&Y) Pte. Ltd.

10 February 2004 Singapore

Provision of corrosion prevention services

S$100,000

100

Principal business

100

Notes:– (1)

The remaining 49% of shareholding is held by an individual third party, who is unrelated to our Directors or Substantial Shareholders.

(2)

1% of the shareholding is held by our Executive Officer, Phoon Kim Sin, who held in trust for our Company.

(3)

The remaining 49% of shareholding is held by an individual third party, who is unrelated to our Directors or Substantial Shareholders.

None of our subsidiaries is listed in any other exchange.

41

GENERAL INFORMATION ON OUR GROUP GROUP STRUCTURE Our Group structure following the Restructuring Exercise but before the Invitation is as follows:– Labroy Marine Limited

Chua Beng Kuang

Chua Meng Hua

12.25%

12.25%

51.0%

Chua Beng Yong

Chua Beng Hock

12.25%

12.25%

Beng Kuang Marine Limited

42 100.0% ASE

100.0% B&Chew Marine

100.0% B&K

100.0% B&M Marine

51.0%

100.0% B&Y

B&J

(2)

100.0% NST

51.0% BT Asia

(3)

100.0% PT Master

100.0% Picco

Notes:– (1)

SSC is registered as a sole proprietorship in Singapore and is principally involved in the renting and repairing of blasting and painting equipment.

(2)

The remaining 49.00% of shareholding is held by an individual third party, who is unrelated to our Directors or Substantial Shareholders.

(3)

The remaining 49.00% of shareholding is held by an individual third party, who is unrelated to our Directors or Substantial Shareholders.

SSC

(1)

100.0% PT Nexus

HISTORY AND BUSINESS

OUR HISTORY Our Company was incorporated on 8 January 1994 in Singapore under the Act as a private limited company under the name of “Beng Kuang Marine Pte Ltd”. Our history can be traced back to December 1990 when Chua Beng Kuang established Beng Kuang Marine as a sole proprietorship to provide corrosion prevention services to the marine industry. Prior to this, Chua Beng Kuang had gained experience in corrosion prevention services, mainly involving blasting and painting activities, whilst working for a sub-contractor for Jurong Shipyard and Keppel Shipyard. With the relevant experience and skills, as well as the support and assistance of his three brothers (namely Chua Meng Hua, Chua Beng Yong and Chua Beng Hock), Chua Beng Kuang founded Beng Kuang Marine which undertook blasting and painting services to support ship repair activities at Jurong Shipyard and Keppel Shipyard. Due to our track record and reliability of our corrosion prevention services, we were appointed as hullside resident contractor for Jurong Shipyard and Keppel Shipyard in 1996 and 1998 respectively. To further enlarge our manpower resources to serve more shipyards in Singapore as hullside resident contractors and to position ourselves for larger scale corrosion prevention contracts, we partnered with various individuals to establish five partnership firms, namely, B & Tan Marine, B & Chew Marine, B & Y Marine, B&M Marine, and B&K Marine between 1994 and 1998. Consequently, we were appointed as the hullside resident contractor for corrosion prevention services by the established shipyards in Singapore and Batam including those under KOM group, ST Marine, Pan-United group, JSML and the Labroy group. Resident contractors are selected based on, amongst several factors, their track record and their service reliability. During the year 1998, we embarked on a few acquisitions to expand our business activities. In January 1998, we acquired BKM Industries & Engineering Pte Ltd (“BKMI”) which was principally engaged in corrosion prevention services from its existing shareholders, Chua Beng Yong and Chua Beng Hock, at a nominal consideration of $2.00 on a willing buyer willing seller basis. In March 1998, we acquired Asian Sealand Engineering Pte Ltd (“ASE”), which was formerly known as Asian Shipbuilding Industries (Pte) Ltd. from Jaya Offshore Pte. Ltd.. This consideration of $1,800,000 was based on a willing buyer willing seller basis after taking into account the fixed assets value of ASE at that time. ASE provided ship repair services and has a 104,142 sq ft waterfront yard facility in Tuas. Following the acquisition, we constructed a blasting chamber within the yard to expand our blasting and painting services to the non-marine sector such as construction and onshore oil and gas industries. In April 1998, our Company issued 416,328 new ordinary shares of $1.00 each to Labroy Marine Limited (“Labroy”) in return for a subscription consideration of $3,000,000 pursuant to a subscription agreement entered into in December 1997. The new share issue resulted in an increase in our paid-up capital from $400,000 to $816,328 with Labroy holding 51% of the enlarged issued and paid-up capital. In 1999, BKMI acquired a 51% equity stake in BT Asia Marketing & Engineering Pte Ltd (“BT Asia”), formerly known as BT Phua Enterprise Pte. Ltd., for a consideration of $102,000 by subscribing for 102,000 new ordinary shares of $1.00 each. As BT Asia was involved in the trading and distribution of copper slag (a main raw material for corrosion prevention activities), we were able to enjoy cost savings for our corrosion prevention services. BT Asia currently provides waste management services such as the collection of used copper slag and other industrial waste materials. In 1999, to position ourselves as a value-added supplier to customers and to fully utilise our yard facilities at ASE, we extended our services to include the fabrication of steel structures and pipes through our infrastructure engineering division. Capitalising on experience gained from the import, export and domestic sale of third party products, BKMI started to develop and market hardware equipment and tools under our registered trade name, “Master”, in 2000.

43

HISTORY AND BUSINESS

The partnership firm, B & Tan Marine, ceased operations in March 2000. In January 2001, our Company acquired full ownership of the partnerships of B & Chew Marine, B & Y Marine, B&M Marine, and B&K Marine, which were converted into sole proprietorships. In February 2001, BKMI was renamed as Nexus Sealand Trading Pte Ltd (“NST”) following a change in its focus from being a corrosion prevention service provider to a supplier of general hardware products such as harnesses, helmets and gloves. NST owns a sole-proprietorship, Superior Services Center (“SSC”), which rents and repairs blasting and painting equipment, such as compressors, dehumidifiers and vacuum machines. With NST and SSC in our Group, not only were we able to meet our internal requirements for equipment and hardware needs and hence reduce our dependency on external suppliers but also diversify our sources of revenue. Our paid-up capital was further increased by $500,000 to $1,316,328 in 30 June 2000 pursuant to a second new share issue by the capitalisation of a loan from Labroy. The new shares were allotted to Labroy and the other shareholders based on their respective shareholding proportion of 51%:49% respectively. In February 2002, we decided to focus our efforts on our corrosion prevention services and to expand our infrastructure engineering activities. As a result, we decided to cease our ship repair services in ASE. In August 2002, we ventured into the Malaysian market through the acquisition of Asian Sealand Infrastructure & Construction Sdn. Bhd. (“ASIC”). ASIC was principally involved in providing steel work for the ship hull and piping works in relation to ship repair services. With a view to resolving the potential conflicts of interest with the Labroy Group, we sold our entire stake in ASIC to Heng Huat for an aggregate consideration of $141,868, based on the audited net tangible assets of ASIC as at 31 December 2003 and the transfer was completed on 23 August 2004 pursuant to the Restructuring Exercise. In September 2002, three of our four sole proprietorships, namely B & Chew Marine, B & Y Marine and B&M Marine, were renamed as Beng Kuang Marine (B&Chew), Beng Kuang Marine (B&Y) and Beng Kuang Marine (B&M) respectively. Since late 2002, we have been expanding our business to Indonesia. In November 2002, we acquired PT. Nexus Engineering Indonesia (“PT Nexus”) from Nexus Engineering Pte Ltd, a wholly-owned subsidiary of Labroy to replicate our Singapore operations in relation to corrosion prevention and infrastructure engineering activities in Batam (Please refer to the “Interested Person Transactions” section on page 105 of this Prospectus for more details). PT Nexus leases a yard facility of an area of approximately 827,200 sq ft in Batam which has three workshops equipped with a blasting chamber, mobile and overhead cranes and a copper slag processing plant. Apart from engaging in infrastructure engineering activities, PT Nexus is a contractor for various shipyards in Batam for corrosion prevention services. In January 2003, Picco Enterprise Pte. Ltd. was set up by NST and a third party individual with the intention to venture into the supply and distribution business. In November 2003, we acquired the remaining shares in Picco Enterprise Pte. Ltd. resulting in it becoming our wholly-owned subsidiary. Presently, Picco Enterprise Pte. Ltd. distributes our “Master” brand products primarily in Singapore.

44

HISTORY AND BUSINESS

In anticipation of the developing market in Batam, we incorporated PT. Master Indonesia in February 2003 to distribute our products bearing the “Master” brand in Indonesia. In January 2003, we set up B & J Marine Pte. Ltd. (formerly known as Jet Point Marine Pte. Ltd.) with a third party individual, to specialise in blasting services using the hydro-jetting method. This was to further broaden our range of services in order to cater to customers’ preference for hydro-jetting requirements as well as tank cleaning services, which refer to the removal of contaminants from surfaces of the vessel’s internal compartments which are meant for holding or storing of gas and liquids. In February 2004, Beng Kuang Marine (B&Chew), Beng Kuang Marine (B&Y), Beng Kuang Marine (B&M) and B & K Marine were corporatised to manage their own corrosion prevention activities at different shipyards. On 30 August 2004, we were converted to a public limited company and changed our name to “Beng Kuang Marine Limited”. PRINCIPAL ACTIVITIES Our business activities can be broadly organised into three main divisions, namely corrosion prevention services, infrastructure engineering, and supply and distribution. Our supply and distribution division supports the other two divisions by providing most of the hardware equipment and tools requirements. Our supply and distribution division also leverages on the clientele base of the other two divisions for the promotion and sale of its products. Our infrastructure engineering division taps on our corrosion prevention services in fulfilling our customers’ requirements for corrosion prevention services for steel work modules and structures. The strategic interdependence of our three business divisions has enhanced our Group’s overall operational flow, cost effectiveness and growth potential. (a)

Corrosion Prevention Services Metal corrosion is the deterioration of metal caused by chemical or electrochemical reaction resulting from the exposure to elements such as weather, moisture, chemicals or other agents in the environment. The deterioration of metal structure due to oxidisation, erosion and rust weakens the chemical bonds and structural strength of the metal. Corrosion prevention generally involves the use of high pressure blasting equipment and cleaning processes to remove old coatings of paint and surface contaminants before the application of new coats of paint onto clean surfaces of the metal structures. We provide corrosion prevention services, comprising primarily blasting and painting work, which are carried out in shipyards and our fabrication yards both in Singapore and Batam. Our customers are mainly from the marine, oil and gas, and other industries, as further discussed below. As at the Latest Practicable Date, we are equipped with approximately 168 units of blasting pots, 66 units of air compressors and 103 units of spray pumps to support our blasting and painting assignments. Our fabrication yard in Singapore has a manual blasting chamber that can accommodate structures and pipe dimensions of up to 6 m by 18 m. Our fabrication yard in Batam operates an auto-blast machine within a semi-automatic blasting chamber with a dimensional capacity of 6 m by 24 m and a copper slag processing plant. Our corrosion prevention services accounted for approximately 55.8%, 52.5% and 52.9% of our revenue in FY2001, FY2002 and FY2003 respectively.

45

HISTORY AND BUSINESS

Marine Industry We mainly provide corrosion prevention services to shipyards which require our blasting and painting services as part of their shipbuilding, ship conversion and ship repair activities. Generally, we provide our corrosion prevention services for the hullside of ships and on board the vessel. Hullside corrosion prevention services mainly comprise the blasting and painting of the vessel’s hullside, whilst on board vessel corrosion prevention involves the blasting and painting of the vessel’s structures relating to ship tank internals, ship decks and oil storage tanks. Generally, shipbuilding, ship conversion and ship repair activities require a wide spectrum of work and services which include works on steel structures, piping systems, corrosion prevention, carpentry, electrical, engineering and mechanical systems. Ship conversion generally involves the conversion of one type of vessel to another type of vessel with a different function, for example, the conversion of a container ship to a livestock carrier, the extension of the length of a vessel and the conversion of a vessel to an FPSO. For converting a vessel to an FPSO, different process modules will need to be fabricated so that the vessel can carry out oil and gas exploration and production work. As hullside resident contractors for nine established shipyards in Singapore and Batam, we believe that we are one of the leading contractors for hullside corrosion prevention services. Usually, the hullside resident contractor of a particular shipyard is required to perform hullside corrosion prevention services within that particular shipyard. To qualify as a hullside resident contractor, we have to meet and maintain stringent requirements of the respective shipyards in terms of track record, service reliability, job quality and prompt delivery, amongst others. As at the Latest Practicable Date, we are the hullside resident contractors for nine established shipyards in Singapore and Batam providing corrosion prevention services for the hullside of ships, set out as follows:– Shipyards under KOM group Keppel Shipyard Limited (Tuas yard) Keppel Shipyard Limited (Benoi yard) Keppel SingMarine Pte. Ltd. (Gul yard) Shipyards under ST Marine ST Marine (Tuas Yard) ST Marine (Benoi Yard) Shipyards under Pan-United group Pan-United (Singapore yard) PT. Pan-United Shipyard Indonesia (Batam yard) Other yards JSML (Tuas yard) Labroy Group (Batam yard)

46

HISTORY AND BUSINESS

We station a permanent team of technical crew at the above-mentioned shipyards and the size of these teams varies according to the dock-size and activity level of the respective shipyards. We provide corrosion prevention services to the hullside of ships for all the shipyards where we are the hullside resident contractors. On the average, we complete about 400 to 500 hullside repair corrosion prevention projects in a year. Each project generally takes between five and seven days to complete. A detailed description of the corrosion prevention process for the hullside of a ship is found on pages 49 to 52 of this Prospectus. Apart from hullside corrosion prevention services, we are also engaged by shipyards to undertake corrosion prevention works for newly-built vessels. Such projects on newly-built vessels generally takes approximately ten to twelve months to complete. Our corrosion prevention services are applicable to various types of vessels such as multi-purpose supply vessels, tankers, dredgers and container ships. On board vessel corrosion prevention services are usually undertaken on a demand basis where vessel owners require more extensive repair work to be performed on their vessels. We are required to compete with other contractors to tender for such corrosion prevention services. The job is awarded based on several considerations including the track record, the quality of services as well as the tender price. Ships registered in Singapore need to carry out regular maintenance and repair work to meet the minimum requirements specified under the Merchant Shipping Act (Chapter 179 of Singapore)(“MSA”) relating to the hullside and the inside of the ship. A survey is required to be conducted for each ship around every two and a half years to ensure that its condition meets the requirements of the MSA. As such, ship owners will have to carry out routine maintenance and repairs for their ships. A specialised site-clearing team managed by our subsidiary, BT Asia, collects used copper slag and other industrial waste materials generated from the activities at certain shipyards in Singapore for disposal at designated recycling plants. SSC, a sole-proprietorship registered in Singapore that is part of our Group, handles equipment rental, repair and maintenance services to support our corrosion prevention division. Some of the significant completed projects for our hullside corrosion prevention services in terms of contract values up to end 2003 are as follows:– (i)

At Shipyard

Vessel Name

Year of Completion

Docking Repair (For contract value of more than $100,000) ST Marine

Jupiter

2000

ST Marine

Hidir Selek

2001

ST Marine

LGLOO Norse

2001

ST Marine

Lelystad

2001

KOM group

KP-1

2002

KOM group

Zekreet

2003

KOM group

Karen Maersk

2003

KOM group

VICTORIA SPIRIT

2003

KOM group

WEST PELAUT

2003

47

HISTORY AND BUSINESS

(i)

At Shipyard

Vessel Name

Year of Completion

New vessel construction (For contract value of more than $700,000)

(ii)

KOM group

Clipper Sterling

1998

Jurong Shipyard

M.V. New Confidence

2001

Jurong Shipyard

M.V. New Dynamic

2001

JSML

H. H. Ruth

2001

JSML

PAC AQUILA

2002

JSML

PAC ARIES

2002

For Customer

Vessel Name

Year of Completion

Tank Cleaning (For contract value of more than $200,000) Ocean Tankers

Ocean Power

2003

Ocean Tankers

Ocean Skill

2003

Ocean Tankers

Asean Prosperity

2003

Oil and Gas Industry For offshore projects from the oil and gas industry, we provide corrosion prevention services for steel structures and piping modules of oil rigs and jack-up rigs. Some of our major completed offshore oil and gas projects exceeding $500,000 in terms of contract value up to end 2003 are as follows:– For Customer

Vessel Name

Year of Completion

KOM group

Brasil (FPSO)

2002

PT McDermott Indonesia

CONOCO (Belanak Field Development)

2003

Other Industries We also provide corrosion prevention services for steel work modules and structures, piping systems, land-based structures and other articles to be used in the construction industry, as well as other industries. If such projects involve fabrication, they will be handled by our infrastructure engineering division.

48

HISTORY AND BUSINESS

Hullside Corrosion Prevention Process A brief description of the hullside corrosion prevention process is as follows:–

Vessel Docking

Cleaning Process

Inspection and specification

Blasting

No Pass Quality Check Yes Painting No Pass Quality Check Yes Vessel marking and inspection No Pass Quality Check Yes Vessel handover

49

HISTORY AND BUSINESS

Vessel Docking Vessel owners will dock at shipyards to seek ship repair services which include corrosion prevention, cargo or fuel tank cleaning, repair of mechanical parts, replacement of worn out parts, alteration of ships’ structures and painting services. Cleaning Process The cleaning process begins with the removal of marine growth that is attached to the vessel. We will then proceed to wash the vessel by applying a high pressure water jet to clear away common contaminants such as oil, grease and salts. Inspection and Specification of Work Scope After the cleaning process, the vessel owner’s representatives, shipyard’s representatives, paint manufacturer’s representatives and our representatives will jointly conduct an inspection of the vessel. Our purpose for this inspection is to determine and confirm the work scope required for the vessel and the fees to be charged to the shipyard owner. The paint manufacturer’s representative will advise the vessel owner’s representative on the type, quantity and quality of paints to be used. Upon confirmation and acceptance of our work scope and schedule, we will commence the corrosion prevention works. Blasting We will select a suitable blasting technique, either grit blasting, hydro-jetting or mechanical power tooling, according to our customers’ preferences. These blasting techniques are described below:– (i)

Grit blasting method This method involves the continuous battering of the surface of the hullside using abrasive particles such as steel grit and shot or copper slag, which are propelled through conveying hoses by compressed air. During this process, rust is removed from the metal surface. After the blasting process, compressed air is blown onto the surface so that it is free from dust or rust. The blasting process has been widely accepted in removing mill scale, rust, paint and other contaminants due to its effectiveness in cleaning metals.

(ii)

Hydro-jetting method This method involves the use of high pressure water jets to remove surface contaminants such as loose paint flakes and rust. This method preserves the surface of the structures and does not result in sparks which may be dangerous in the presence of highly inflammable chemicals. In addition, hydro-jetting does not cause micro-cracks and the process is dust free. The disadvantage of hydro-jetting is that rust tends to form during the period between drying and painting unless a rust inhibitor is applied during or immediately after hydro-jetting. Furthermore, unlike the grit blasting method, hydro-jetting does not etch the metal surface to create a surface profile that is better suited for the subsequent painting process. After the hydro-jetting process, an inspection is performed to ensure that all the surface contaminants have been removed and the surface is dry before commencing the next stage of work.

50

HISTORY AND BUSINESS

(iii)

Mechanical power tooling This involves the use of pneumatic and electric portable power tools to clean surfaces by power tool chipping, de-scaling, sanding, wire brushing and grinding. This method is usually used for smaller surface areas and is effective in removing stubborn scale or impurities and for cleaning areas that are inaccessible via grit blasting or hydro-jetting. Prior to painting, all salts, oil, grease and residue created during the drilling and cutting process must be removed and the metal surface thoroughly cleaned. This is done through washing with solvents such as methylethl ketone and methyl isobutyl ketone. To prevent the spread of the contaminants over a wider area after the washing, the surface is wiped clean thoroughly.

At the end of the blasting process, an inspection will be carried out by the paint manufacturer’s representative, shipyard’s representative and our quality control staff to ensure that the work done meets the desired standards and are in accordance with the manufacturer’s paint specifications. Painting The purpose of the painting process is to protect the metal surface from corrosion as well as for aesthetic purposes. The first layer of paint applied onto the surface is generally known as a primer which contains anti-corrosive pigments that inhibit metal corrosion. Painting is carried out in accordance with the paint manufacturer’s specifications such as the temperature of the metal surface and humidity of the environment. During the painting process, an inspection will usually be carried out after each coat is applied. The inspection is jointly carried out by our quality control staff and the respective representatives from the paint manufacturer and shipyard to ensure that the paint types, colour, quantity and thickness of the coating are consistent with our customer’s specifications. Vessel Marking and Inspection After painting, the vessel will be marked with symbols, numbers or letters to indicate its origin, ownership, quality or trade mark. Thereafter, we will conduct a joint inspection with the respective representatives from the paint manufacturer and shipyard to ensure that the completed marking is done in accordance with our customer’s specifications. A final inspection will also be conducted jointly to ensure that the vessel corrosion prevention work is properly performed and free of defects. Where defects are found or where there is an issue over workmanship, we will re-work the defective area. Vessel Handover We will receive a letter of acceptance from the relevant parties to confirm their satisfaction with our corrosion prevention services. Thereafter, the vessel will be handed back to the vessel owner. Chamber Blasting Process Chamber blasting is carried out in an enclosed blasting chamber located either at our yards in Singapore and Batam or in our customer’s shipyards. This process is suitable for either individual steel structures such as steel plates, pipes, beams and angle bars, or fabricated structures which consist generally of metal components such as roof trusses, offshore structures and storage tanks. Only grit blasting and mechanical power tooling methods are used for chamber blasting. The process for chamber blasting is similar to the process described above for “Hullside Corrosion Prevention Services”.

51

HISTORY AND BUSINESS

For smaller articles, chamber blasting is a preferred method as such blasting work may not be affected by weather conditions and there is less pollution to the environment. In addition, our costs of operations are lower due to our ability to recycle grits that are used for the chamber blasting process. (b)

Infrastructure Engineering We provide infrastructure engineering services to support the plant engineering projects of the oil and gas industry, whereby we fabricate steel work modules and structures required for the construction of refinery process plants and other land-based structures. In addition, we also fabricate steel work modules and structures for offshore oil rigs and components of process modules. These fabrication projects are generally turnkey engineering projects and our services include the fabrication of steel work modules (which are either components of a process module or steel work structures that form components of a system or a larger structure used in vessels and land-based structures), as well as corrosion prevention, testing, installation and precommissioning work. Principally, we are involved in the planning, management and implementation of the fabrication project, and we work with sub-contractors to fulfil our contractual commitments, except for corrosion prevention work which are carried out by our Group. Each project generally takes approximately three to twelve months to complete. Our infrastructure engineering activities are carried out through ASE and PT Nexus. Currently, ASE is registered as a grade C3 contractor with the Building and Construction Authority under the General Building category and thus eligible to tender for government construction projects of up to $0.5 million in value. Our Singapore and Batam yards can fabricate up to an aggregate of 500 tonnes of steel or 30,000 diameter-inch of pipe structures per month. In addition, our Batam yard operates a CNC underwater plasma cutting machine that can perform precision high speed cutting of steel plates of dimensions up to 10 ft wide and 50 mm thick. Through the Batam yard, we are able to undertake turnkey engineering projects for customers in Indonesia and expand our presence there. Our infrastructure engineering division accounted for approximately 26.7%, 27.7% and 20.2% of our revenue in FY2001, FY2002 and FY2003 respectively. Some of our major completed projects under our infrastructure engineering division exceeding $1 million in terms of contract value up to end 2003 are as follows:– Year of Completion

Customers

Project

Rotary Group

Mitsui Bisphenol Singapore Project (MBS) at Jurong Island — Chemical Plant

2001

Installation of process pipes for MBS plant 2

Thor Hydraulics & Engineering Pte. Ltd.

Material Handling System for Changi Naval Base

2001

Turnkey services which include mainly engineering, fabrication, corrosion prevention in connection with the construction of hydraulic lifts for Defence Science Technology Agency

SembCorp Group

“COGEN” plant on (Jurong Island)

2001

Turnkey services which include mainly engineering, fabrication, corrosion prevention and erection of steel structures and pipes

52

Details

HISTORY AND BUSINESS

Year of Completion

Customers

Project

Jurong Engineering Limited

Tuas power plant

2001

Turnkey services which include mainly engineering, fabrication, corrosion prevention and installation of power plant pipes and pipe supports

Amica Industries Corporation Pte. Ltd.

Mitsui Bisphenol Singapore Project 3 — Chemical Plant

2002

Turnkey services which include mainly engineering, fabrication, corrosion prevention and installation of process pipes and pipe supports

J. Ray McDermott Far East, Inc.

Devils Tower — Deep water oil rig

2002

Turnkey services which include mainly engineering, fabrication and corrosion prevention of structural steel modules of a underwater hull for deep water oil rig

Keppel Shipyard Limited

ESSO Early Production System — FPSO EAGLE

2003

Turnkey services which include mainly engineering, fabrication, corrosion prevention, and construction of pipe rack structure, including pipe fabrication and installation

FACI Asia Pacific Pte. Ltd.

Construction of a three-storey building, including a 62m by 25m warehouse

2003

Turnkey services, procurement, civil (including sewage system)

PT McDermott Indonesia

Conoco module

2003

Turnkey services which include mainly engineering, fabrication and corrosion prevention of steel structures for the process module

Natsteel Engineering Pte. Ltd.

Ram Spreader

On-going

Fabrication and assembly of spreader (which is the mechanical arms that are attached to the crane used for lifting objects)(1)

FPSO

process

Details

Note:– (1)

Such fabrication works are provided to Natsteel Engineering Pte. Ltd. on a regular basis.

53

material works piping

HISTORY AND BUSINESS

Fabrication Project Workflow A brief description of the fabrication project workflow is as follows:–

Project Commencement

Receipt of Materials and Inspection

No

Pass Quality Check

Return to customer/supplier

Yes Fabrication and Assembly

Testing

No

Pass Quality Check Yes Corrosion Prevention

No Pass Quality Check Yes Installation and Project Handover

54

HISTORY AND BUSINESS

Project Commencement Upon securing a contract, a project committee (“Project Committee”) will be formed and headed by a project manager (“Project Manager”). The Project Committee will identify the scope of work as spelt out in our customer’s specifications such as the type of materials to be used, the purchase of the materials and the structure’s dimension. The Project Committee will also determine the project schedule and the manpower requirements, including the engagement of sub-contractors for the necessary works and the material control plan. In collaboration with the Project Committee, our Engineering Department will prepare various technical documents such as the steel work drawings, fabrication and assembly sequence (including welding procedure), inspection and testing procedure and delivery procedure. Receipt of Materials and Inspection Upon our receipt of the raw materials, they are checked against our customer’s specification for their grade, quality and dimension. Any mismatched or defective raw material will be rejected and our customer or supplier will be informed and requested to issue replacements for the mismatched or defective materials. Fabrication and Assembly The steel materials are cut according to the steel work drawings. The various parts are then welded together according to the welding procedure to form a sub-component structure. The various sub-components are then assembled together to form the final structure. After assembly, the structure will be inspected by our quality control team to check for the fit, dimensional precision and alignment accuracy. Rework of the fabrication and assembly process will be performed until satisfactory results are achieved. An automatic welding machine is used for built-up sections when larger sections are required to be welded whilst qualified welders equipped with semi-automatic welding machines will perform the smaller welding jobs. Testing Our testing procedures consist of visual inspections and non-destructive tests. A visual inspection is conducted after the cutting and welding process to ensure that the parts conform to the steel work drawings and welding specifications. Non-destructive tests which include radiographic test, ultrasonic test, magnetic particle test and liquid dye penetrate test are performed to ensure that there are no welding defects which might affect the strength and rigidity of the structure. Hydrostatic or pneumatic pressure tests, using water and air as the test media respectively, may be carried out to ensure that there are no other surface defects on the fabricated product. Corrosion Prevention Upon the completion of the testing process, the fabricated products are sent for corrosion prevention work. At the end of the painting work, the painted components undergo a dry film thickness check to ensure compliance with job specifications. After the final surface preparation works are completed, a joint inspection on the fabricated structures will be carried out between our representative and our customer’s representative. The rework of the corrosion prevention process, where necessary, will be performed until satisfactory results are achieved. Installation and Project Handover Installation may be performed on-site according to our customers’ requirements. After installation, we will carry out pre-commissioning work to ensure the fabricated products meet their functional requirement. Once this is completed, the final products are handed over to our customers.

55

HISTORY AND BUSINESS

(c)

Supply and Distribution Our House Brand Products We supply more than 300 types of products comprising mainly hardware equipment, tools and other products under our house brand, “Master”, a trade mark registered by us. These products are used in diverse industries ranging from marine, construction, oil and gas and other industries for carrying out safety, welding, blasting and painting work. Apart from industrial end-users, we also sell our products through a network of wholesalers and retailers. In addition, some of the products that we supply and distribute are used for our corrosion prevention and infrastructure engineering services. We also supply and distribute other products under our “Master” brands including food and beverage products. We source our products mainly from China, Thailand, Malaysia and Korea. Our range of industrial safety belts, safety helmets and body harness have been awarded the Product Listing Scheme (“PLS”) certification by PSB Corporation Pte. Ltd.. The PLS certification is awarded to products which conform to the required safety and performance standards in accordance with national and international standards or relevant specifications. The table below sets out some of the products that we supply under our house brand “Master”:– Product Types

Examples of Products

For welding work

Regulator, Nozzle Cleaner, Cable Joint, Cutting Torch, Lever Block, Chain Block, Welding Head Shield, Welding Cables

For blasting work

Blasting Helmet, Blasting Nozzle, Blasting Hose, Nozzle Holder

For painting work

Airless Spray Pump, Airless Gun, Pole Gun, Paint Hose, Brush, Roller Refill

For safety requirements

Helmet, Masks, Gloves, Spectacles, Shock Absorbing Lanyard

Electrical items

Ventilation Fan, Flexible Duct, Panel Socket, Torchlight, Blasting Bulb

Air tools and other general tools

Angle Grinder, Die Grinder, Cup/Flat/Baby Brush, Cutting and Grinding Disc, Couplings and Fittings

Products of Third Party’s brands Apart from selling products under our house brand “Master”, we also supply painting equipment under the “Imperial” brand such as “Airless Pump”, “Gun Airless”, “Pole Gun” and electrodes manufactured by Kobe Welding (S) Pte. Ltd.. In addition, we are the exclusive dealer of Ilseung & Imperial Co. Ltd., a manufacturer based in Korea, to distribute its “Imperial Airless Spray Equipment” in Singapore, Malaysia, Indonesia, Thailand, Vietnam, Philippines and India. Our supply and distribution division accounted for approximately 17.5%, 19.8% and 26.9% of our revenue in FY2001, FY2002 and FY2003 respectively of which those products sold under our house brand, “Master”, accounted for approximately 66%, 71%, 57% of the supply and distribution division revenue respectively.

56

HISTORY AND BUSINESS

QUALITY ASSURANCE We place strong emphasis on achieving a consistent standard of work and are committed to providing our customers with quality, reliable and competitively priced services and products. Corrosion Prevention Services As described under “Hullside Corrosion Prevention Services”, we conduct joint inspections with vessels’ owners or their representatives, shipyard’s representative and paint manufacturer’s representative after the blasting and painting process to ensure that our blasting and painting work meet their required standards. Infrastructure Engineering As a testament of its commitment to quality, ASE has been accredited by the Lloyd’s Register Quality Assurance (Singapore) with ISO 9002:1994 in 1999 and was subsequently upgraded to ISO 9001:2000 in 2002. We are committed in ensuring quality standards when delivering our services to our customers. Our management ensures that the fabrication processes are carried out in compliance with the quality objectives and procedures set out in our quality control manual. Project Planning and Monitoring Upon securing a project, we will form a Project Committee to determine the manpower requirements, oversee the utilisation of materials and consumables, monitor and review our work progress on a weekly basis and implement corrective actions where necessary. The Project Manager, who heads the Project Committee, will hold weekly meetings with all key personnel involved in the project to evaluate the project’s progress, discuss any critical items obstructing work schedule and evaluate corrective actions and resources in order to adhere to the agreed schedule. Based on these meetings, the Project Supervisor will, where necessary, take appropriate remedial action. In-coming Controls Inspection of incoming materials is carried out as described under the “Fabrication Project Workflow” section. All steel work drawings will be reviewed and approved by the designated management personnel. This is to achieve a smooth fabrication process and minimise the need for any rework. Before the commencement of actual fabrication work, our quality control engineer will ensure that monitoring and measuring devices are properly calibrated and approved before usage. The monitoring and measuring devices are verified in external testing laboratories against industrial standards and certified for usage. Testing and Inspections Quality inspections are conducted at the end of each process by our customer’s representatives and our quality control personnel or site supervisors. Visual inspection is conducted to ensure that the workmanship complies with industrial standards and conform to our customers’ specifications. Where defects are discovered, the respective Project Managers will review and determine the remedial action according to the extent of defective workmanship. Corrective or preventive actions will also be implemented to prevent similar defects from recurring. Fabricated products will undergo a series of tests and dimensional checks for compliance with steel work drawings and job specifications. Selective tests are also performed to assess the mechanical properties of the fabricated products during the fabrication process. Final tests and visual checks will be carried out on-site where installation is performed to ensure that the fabricated product functions according to its specification. 57

HISTORY AND BUSINESS

In the past three financial years, none of our customers from our corrosion prevention and infrastructure engineering projects has utilised any retention fee (usually ranging from 5% to 10% of the contract sum retained by our customers as security for our due performance and completion of all conditions under the contract) for any necessary rectification works nor enforced any performance bond furnished to them in connection with the relevant project. Supply and Distribution For incoming goods, our logistics personnel will conduct random checks to verify the quantity and quality of the goods against purchase orders. Discrepancies and defects will be reported to the procurement team. Likewise, for out-going goods, random checks will be conducted to ensure that goods are in a proper condition and are of the right quantities. Feedback from Customers We started conducting surveys on an annual basis since 2002 to obtain feedback from our customers to evaluate our service quality and workmanship standards. Upon the receipt of any negative feedback from our customers, we will, where appropriate, implement measures to improve our technical skills, production processes, quality control procedures and product range. INSURANCE We maintain certain insurance policies in the course of our business, including the following:– Insurance

Interest Insured

Industrial All Risks

Buildings including workshops and sheds, and personal property including plant, machinery and stock-in-trade and fire risk

Money

Money whilst in the course of transit anywhere in Singapore, or which is in the custody of authorised employees whilst in the course of transit to and from Batam and West Malaysia and overseas, or which is kept locked in the office premises during and after business hours

Equipment All Risks

Fire, accidental loss or damage to certain specified machinery and equipment

Public Liability

Legal liability arising out of accidental damage to the property of the public and/or accidental bodily injury to the public anywhere in Singapore (including her offshore islands), Batam and West Malaysia in connection with our business including work performed onboard vessels and in shipyards

General Liability Insurance

Product liability for certain territories, excluding Australia, United States of America, Canada and US State Department sanctioned countries, relating to bodily injury and property damage arising from our canned drinks and bottled water

Workmen’s Compensation

Administrative staff, management staff, supervisors, foremen and other manual workers

Hospital and Surgical

Medical treatment of certain employees

Personal Accident

Bodily injury of certain employees caused by accidental means

58

HISTORY AND BUSINESS

Our Directors believe that the coverage from the above policies is adequate for our existing business operations. Save for the claim arising from the fatal accident that took place at one of our shipyard customers’ premises involving one of our workers in March 2004 (Please refer to “Risk Factors” section on page 26 of the Prospectus for more details) which is covered by the Workmen’s Compensation, our Directors are not aware of any other claim arising therefrom as at the Latest Practicable Date. CREDIT MANAGEMENT For our corrosion prevention services division, we usually extend credit terms ranging from 30 to 90 days to our customers. We may extend our credit terms to 180 days or more if fees are negotiated for additional work orders and this usually applies to our corrosion prevention and infrastructure engineering divisions. We have not encountered any material defaults by our customers that had significantly affected our financial performance. For our corrosion prevention projects which have a duration of three months or less, we usually bill our clients upon the completion of the project. For projects whose duration exceeds three months, we generally bill our clients progressively on a monthly or on a milestone basis. Specific provisions for rebates/discounts and doubtful debts will be made on a project-by-project basis. The amount for such provisions will be dependent on the transaction size of the project, the outstanding amount beyond their credit period and the negotiations for the final settlement upon the completion of the project. For our infrastructure engineering division, we usually extend credit terms ranging from 30 to 90 days to our customers. For infrastructure engineering projects which are expected to have a duration of two months or less, we bill our clients upon completion of the project. If the duration of the project exceeds two months, we generally bill our clients progressively on a monthly or on a milestone basis. For infrastructure engineering projects which include the supply of materials and/or specialty equipment from third parties, we usually collect an initial deposit of 20% of the total contract value from our customers before we commence work. Subsequently, we will bill our customers (less the initial deposit) progressively according to the terms set out in the contract. Specific provisions for doubtful debts will be made on a project-by-project basis. The amount for such provisions will be dependent on the transaction size of the project, the outstanding amount beyond their credit period and the negotiations for the final settlement upon the completion of the project. For our supply and distribution division, we usually extend credit terms of 30 days to our existing customers. This may be extended on a case-by-case basis taking into consideration their financial capabilities, payment records and size of transactions. For new customers, we usually do not grant any credit terms. Specific provisions for doubtful debts will be made on a case-by-case basis. In addition, we maintain a general provision balance of approximately 15% to 20% of the outstanding trade debt balance (excluding trade debts with specific trade provisions made against them) arising from our supply and distribution customers for trade debts that are outstanding for more than 120 days. The head of each business division conducts monthly meetings to review the debtors’ aging. Legal actions to recover debts, upon approval by the respective head of each business division, will be taken against customers who default on payments. A monthly update of such legal actions is submitted to the finance department. In the event that our customers fail to respond positively to these legal actions, the head of the business division and finance department will determine the amount of specific provision for the debts to be made.

59

HISTORY AND BUSINESS

Our overall trade debtors’ turnover days for FY2001, FY2002 and FY2003 are as follows:– FY2001 Trade debtors’ turnover (days)(1),

(2)

FY2002

FY2003

240

185

195

General provision

148

142

60

Specific provision

275

252

31

10

74

1

433

468

92

15.3%

31.6%

3.1%

Provision for doubtful trade debts and bad debts written off as reflected in the Proforma Operating Results of our Group ($’000)

Bad debts written off Total Provision for doubtful trade debts and bad debts written off as a percentage of profit before tax Write-back of provision for doubtful debts

(41)

(88)

(214)

Notes:– (1)

If trade debts owing by the Labroy Group are not included, our trade debtors’ turnover days would be 232, 175 and 184 for FY2001, FY2002 and FY2003 respectively.

(2)

This is derived from using the formula (Trade debtors at year end/revenue) X 360 days.

In line with our accounting policy, trade debtors are recognised and carried at original invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when identified. Trade debtors’ turnover days decreased from 240 days in FY2001 to 185 days in FY2002 due to the settlement of a long outstanding trade debt in FY2002. Trade debtors’ turnover days was 195 days in FY2003 which was fairly consistent with that of FY2002. The relatively long trade debtors’ turnover days was mainly attributable to the negotiation of fees in respect of the additional work orders and variation works in our corrosion prevention and infrastructure engineering businesses. The write-back of provision for doubtful debts of approximately $160,000 in FY2003 was due to lower general provisions required as a result of improved debtor aging for our supply and distribution division. The remaining provision written back was due to doubtful debts recovered. The nature of the shipbuilding, ship repair, ship conversion and oil and gas industries, which most of our corrosion prevention and infrastructure engineering projects relate to, is such that it is not uncommon for customers to request for additional work orders and variation works after work has commenced for the projects. The confirmation and settlement of payment for these additional work orders and variation works usually take a relatively longer time to be finalised. We are currently working closely with some of our major customers, which are mostly established shipyards, to implement additional measures in our effort to streamline our work order process and improve our trade debtors’ turnover days. Such measures include the agreement of job scope and pricing for each project, and in particular, the requested additional work orders and variation works, before the commencement of work to minimise the time taken for the settlement of the payments. In addition, we will also conduct monthly management meetings to review and monitor the debtors’ aging.

60

HISTORY AND BUSINESS

The credit terms granted by our suppliers vary from 30 days to 120 days. Purchases from overseas suppliers in China and Korea are normally made on letters of credit payment terms. Trade creditors’ turnover days had moved consistently with trade debtors’ turnover days and declined from 114 days in FY2001 to 90 days in FY2002. In FY2003, trade creditors’ turnover days increased to 126 days due to slower repayments during the year end. RESEARCH AND DEVELOPMENT We do not undertake any research and development activities. INVENTORY MANAGEMENT As at 31 December 2003, approximately 81.9% of our inventory are stocks for our supply and distribution division while the remaining 18.1% (including the steel plates inventory which we received from one of our customers as payment for our services) are consumables for our corrosion prevention and infrastructure engineering divisions. Minimal stocks are maintained by our corrosion prevention and infrastructure engineering divisions as materials are generally procured based on specific project requirements. Our supply and distribution division maintains a ready supply of products at our leased warehouses in Singapore (located at 38 Tuas View Square) and Batam (located at JL. Brigjen Katamso Bundaran, Tanjung Uncang, Pulau Batam, Indonesia) to ensure that our customers’ demand can be met within a short notice of time. We maintain our inventory level based on anticipated market demand and delivery lead-time which are derived from various sources such as customer order trends, feedback from sales personnel and market analysis. Our stocks are stated at the lower of cost (determined on a weighted average basis) and net realisable value. Our stocks are monitored through a computerised inventory system that tracks in-coming and out-going stocks. Our procurement team reviews monthly stock reports prepared by our inventory control personnel and makes purchases where necessary to maintain the desired stock level. We will introduce measures such as trade discounts to sell off slow-moving stocks which have been in stock for more than 183 days in both our Singapore and Batam warehouses. Provision for stock obsolescence is made for slow-moving goods which are more than 365 days old and goods that we identify as obsolete in accordance with our accounting policy. Other than our food and beverage products, which generally have an average shelf life of two years, our hardware equipment and tools do not have a limited lifespan. FY2001 Provision for stock obsolescence as reflected in the Proforma Operating Results of our Group (S$’000) Stock turnover (days)

(1)

FY2002

FY2003

—

21

—

147

138

156(2)

Notes:– (1)

This is derived from the formula (Year end stock level/Cost of Goods Sold) X 360 days.

(2)

This figure does not include the steel plates inventory which we received from one of our customers as payment for our services, as such inventory does not arise from our normal course of supply and distribution business.

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HISTORY AND BUSINESS

The increase in stock turnover days in FY2003 was primarily due to more purchases towards the year end in anticipation of higher sales, thereby resulting in a higher inventory level towards the end of FY2003. We conduct internal monthly stock take as part of our review and preparation of our monthly stock report on a sample product basis. We perform annual stock take in the presence of our external auditors. SALES AND MARKETING Our Group’s overall marketing and business development activities are headed by our Managing Director and assisted by our General Manager and Assistant General Manager of the respective business divisions. They are responsible for planning and formulating our business development strategies and long-term marketing plans. Apart from our hullside corrosion prevention services which we provide as hullside resident contractors to shipyards, all other projects under our corrosion prevention and infrastructure engineering divisions are generally procured via a tender process. Upon receipt of an invitation to tender for a project, we will perform a quality audit to assess the technical complexity and profitability of the entire project and review our production resources and skills competency. We are usually awarded the project based on our pricing, track record, industry reputation, quality of services and technical expertise. We have a sales and marketing team in our supply and distribution division, which comprises 25 sales executives in Singapore and 8 sales executives in Batam as at the end of 2003. Our sales and marketing team is responsible for generating new customer accounts and managing relationships with existing customers. We enjoy repeat sales as well as receive referral orders due to our established relationship with our customers. Through our interaction with our customers, we are able to better ensure that our products conform to the current demand and trend to meet our customers’ requirements. In September 2003, we participated in the 14th Asian International Exhibition on Precision Engineering, Machine Tools and Networking Technology to create greater brand awareness for our products. We plan to participate in future major trade shows and exhibitions in Singapore and overseas to improve our brand profile and to enable us to acquire a network of overseas contacts to facilitate our expansion into the overseas market.

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HISTORY AND BUSINESS

COPYRIGHTS, PATENTS, TRADEMARKS AND OTHER INTELLECTUAL PROPERTY RIGHTS

(the “Master” brand) We have applied for trade mark registrations in Singapore for the above “Master” brand. As at the Latest Practicable Date, the status and details of our applications for the “Master” brand are as follows:– Trade Mark Number/ Application Number

Class

Specification of goods

Status

T00/09218Z

07

Brushes, electrically operated, including baby brush wire, cup brush, cup brush wire and flat wire brush; grinding disc being part of machines; cutting disc for use as parts of machines; all included in Class 7

Registered

T00/09219H

08

Hammers (hand tools), namely ball hammers, chipping hammers, claw hammers and sledge hammers; sanding disc (hand operated tools); scrapers (hand tools) and wire brushes (handoperated tools)

Registered

T00/09220A

09

Safety helmets; safety harnesses (other than for vehicles seats or being sporting equipments); safety belts for rescue purposes and electric cables for use in welding

Registered

T00/09221Z

16

Angle brush; art brush; artists paint brush; roller refill (roller for use by painter); round brush; all being goods included in Class 16

Registered

T00/09222H

22

Bags for packaging materials in bulk

Registered

T00/22215F

16

Brush for painters, namely, lacquer brush; under trays for painting, namely, painting tray

Registered

T00/22216D

25

Raincoats

Registered

T00/22217B

07

Abrasive stones (parts of machines); regulators for use in welding machines

Registered

T00/22218J

08

Steel brushes (hand-operated tools)

Registered

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HISTORY AND BUSINESS

Trade Mark Number/ Application Number

Class

Specification of goods

Status

T00/22219I

09

Cable lugs (electric terminal lugs) for welding; electrode holder for welding; face shields for workmen’s protection, namely face shields for hydrojetting; flexible cable for electrical transmission; shields for protecting faces, namely head shields; welding cable joint for electrical transmission; earthing clamps for welding; waterproof electrical plug and socket for electrical transmission

Registered

T00/22221J

11

Bulbs for lighting; drying apparatus, namely electrode dryer; igniting apparatus; torches for lighting

Registered

T01/02061A

07

Manual chain blocks hoist; manual lever blocks hoist (chain blocks); electrical grinder (machines); flashback arrestor being part of machines; all included in Class 7

Registered

T01/02062Z

08

Locking pliers

Registered

T01/02063H

09

Safety vest, namely, under vest (clothing) for protection against accident or injury; measuring tape; blasting jackets, namely, under jackets (clothing) for protection against accident or injury

Registered

T01/02064F

11

Torches for lighting

Registered

T01/02065D

16

Plastic cling film, extensible, for palletisation

Registered

T01/02066B

24

Canvas

Registered

T01/14901J

07

Fans being parts of machines; electrical fans (cooling) being parts of motors; electrical fans (cooling) being parts of machines; holding devices for attachment to spray nozzles being parts of machines

Registered

T01/14902I

08

Holders for hand tools

Registered

T01/20303A

09

Ear plugs being noise protection means in the form of deformable ear plugs

Registered

T02/11288I

07

Sanding machines

Registered

T02/11289G

09

Safety spectacles; working shoes (protective against accident or injury); anti-pollution masks for respiratory protection; all included in Class 9

Registered

T02/11290J

16

Hand rollers for applying paint; adhesive masking tapes for stationery purposes

Registered

T02/11291I

17

Joints for cable conduits; rubber hoses

Registered

T03/11932A

32

Beers; mineral and aerated waters and other nonalcoholic drinks; fruit drinks and fruit juices; syrups and other preparations or making beverages

Registered

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HISTORY AND BUSINESS

(the “B” brand) We have also filed trade mark registrations for the above “B” brand in Singapore. As at the Latest Practicable Date, our applications are still pending. To the best of our Directors’ knowledge, such applications are generally approved by the relevant authorities between one to two years from their filing dates, provided that no major objections are raised on the basis that the trademarks are similar to another registered one, or that the same are not sufficiently distinctive to qualify for registration. Trade Mark Number/ Application Number

Class

Specification of services

Status

T04/06278A filed on 23 April 2004

35

The bringing together, for the benefit of others, of a variety of goods, enabling customers to conveniently view and purchase those goods in a wholesale outlet

Pending

T03/15434H filed on 30 September 2003

37

Coating services (painting) services; coating services for the maintenance of ships; coating services for the repair of ships; fabrication (construction)

Pending

T03/15435F filed on 30 September 2003

39

Warehousing, wholesaling, transport, packaging and storage of goods

Pending

To the best of our Directors’ knowledge and barring unforeseen circumstances, we do not foresee difficulty in registering the above trademarks. SEASONALITY Our business is not seasonal in nature. STAFF TRAINING We believe that the technical competence and product knowledge of our employees are instrumental in maintaining our competitive position. Staff training is provided to our employees to ensure that their skills are constantly upgraded to meet customers’ expectations and the required standards of quality services. In addition to on-the-job training for blasting, painting and welding, our shipyard crew and production workers attend various courses conducted externally which are generally administered by the Ministry of Manpower in Singapore. These specialised external courses include courses on the operation of forklifts, cranes, and scaffolding erection. Our employees who perform supervisory roles are required by the Factories Act (Chapter 104 of Singapore) to undergo courses on safety training and supervision of lift and scaffolding operations. The mandatory attendance of these courses ensure that stringent safety standards are adhered to. Generally, our sales executives under the supply and distribution division undergo our in-house briefing every fortnight to ensure that they are equipped with updated and relevant product knowledge to attend to customers’ enquiries.

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HISTORY AND BUSINESS

We also send our corporate employees for training on information technology, accounting, marketing and business communication to equip them with the essential skills and expertise necessary for our business. Our total expenditure on staff training has not been significant for FY2001, FY2002 and FY2003. MAJOR SUPPLIERS The suppliers accounting for 5% or more of our total purchases are provided below:– Percentage of total purchases (%) Suppliers

Products Supplied

FY2001

FY2002

FY2003

JPL Industries Pte. Ltd.

copper slag

8.0

1.6

3.7

Tianjin Jinyongxin International Trading Co. Ltd.

hardware products

5.3

4.9

5.2

COFCO Shanghai Cereals & Oil Import & Export Co. Ltd.

hardware products

7.1

9.6

14.8

Kobe Welding (S) Pte. Ltd.

electrodes

1.4

6.7

10.7

copper slag

4.1

4.6

10.4

Keppel Slag

(1)

Note:– (1)

KOM is the sole proprietor of Keppel Slag.

JPL Industries Pte. Ltd. (“JPL”) is a supplier of copper slag. In FY2002, the proportion of purchases from JPL deceased mainly due to the substantial completion of several contracts in FY2001 at Jurong Shipyard. The proportion of purchases increased in FY2003 as JPL became the nominated supplier of copper slag to one of our customers, JSML. As a result, we had to purchase copper slag from JPL for those corrosion prevention services provided to JSML. Tianjin Jinyongxin International Trading Co. Ltd. (formerly known as “Northern International Holding Tianjin Textiles Co., Ltd.”) supplies us with hardware products such as cables, staging wires, rollers and roller refills. COFCO Shanghai Cereals & Oil Import & Export Co. Ltd. (formerly known as “China National Cereals, Oils and Foodstuffs Import and Export Corporation”) (“COFCO”) supplies mainly safety boots and welding equipment to our supply and distribution division. The proportion of purchases from COFCO had increased over the period from FY2001 to FY2003 as we increased the range of hardware products sourced from this supplier. Kobe Welding (S) Pte. Ltd. (“Kobe”) is a manufacturer of electrodes which we use for our welding activity and for resale mainly to the Labroy Group. In FY2001, the purchases from Kobe were for our own usage. The increase in purchases from Kobe is a result of us distributing Kobe electrodes to third party customers since March 2002. Keppel Slag is the nominated supplier of copper slag to all KOM shipyards. In FY2003, the percentage of purchases from Keppel Slag increased as a result of increased corrosion prevention activities at KOM shipyards undertaken by our Group. None of our Directors or Substantial Shareholders has any interest, direct or indirect, in any of the above suppliers. Save as disclosed in the “Risk Factors” section on page 27 of this Prospectus, we are not dependent on any other suppliers. 66

HISTORY AND BUSINESS

MAJOR CUSTOMERS The customers accounting for 5% or more of our total revenue are provided below:– Percentage of total revenue (%) FY2001 FY2002 FY2003

Customers

Type of Services

McDermott group(1)

Fabrication of steel structures corrosion prevention services

and

0.1

12.3

4.8

KOM group(2)

Corrosion prevention and infrastructure engineering services, waste material collection, and sale of hardware equipment and consumables

11.0

20.0

22.0

Pan-United group(3)

Corrosion prevention and infrastructure engineering, waste material collection, and sale of hardware equipment and consumables

7.9

8.7

11.2

Jurong Shipyard group(4)

Corrosion prevention services

16.1

3.8

1.6

Jurong Engineering Ltd.

Fabrication structures

steel

7.8

0.3

—

Labroy Group(5)

Corrosion prevention services, sale of hardware equipment and consumables and steel work fabrication services

13.8

13.1

13.2

ST Marine

Corrosion prevention, fabrication and erection of steel structures

10.5

9.9

8.1

and

erection

of

Notes:– (1)

McDermott group includes J. Ray McDermott Far East Inc. and PT McDermott Indonesia

(2)

KOM group comprises Keppel Shipyard Limited, Keppel SingMarine Pte. Ltd. and Keppel FELS Ltd.

(3)

Pan-United group comprises Pan-United Marine Limited and PT. Pan-United Shipyard Indonesia.

(4)

Jurong Shipyard group comprises JSML, SML Shipyard Pte. Ltd. and Jurong Shipyard Pte. Ltd.

(5)

Labroy Group comprises all the subsidiaries disclosed under the “Interested Person Transactions” section at pages 105 to 113 of this Prospectus.

In general, the proportion of our revenue from each of the above major customers may vary each year due largely to number of contracts awarded, different contract values and scope of services provided. In FY2002, we were awarded a few contracts by McDermott group to fabricate structural steel modules of the underwater hull of a deep water oil rig and structural steel modules for a FPSO project. By the end of FY2002, we had substantially completed the bulk of the projects. Hence, revenue contribution from this customer decreased in FY2003. The increase in the proportion of revenue derived from KOM group from approximately 11% in FY2001 to 20% in FY2002 was due to a mandate to fabricate various components of process modules for a major offshore FPSO project. In FY2003, the proportion of revenue increased further due to a higher volume of corrosion prevention projects undertaken at the shipyards of KOM group. The proportion of revenue derived from the Pan-United group increased from approximately 7.9% in FY2001 to 11.2% in FY2003. In FY2002, the proportion of revenue increased due to a full year contribution from PT Nexus which commenced its operations in the second quarter of 2001. The increase in contribution to 11.2% in FY2003 is mainly due to the completion of our projects to fabricate segments of four gantry cranes in Batam and the provision of corrosion prevention services on two newly-built ships. 67

HISTORY AND BUSINESS

The proportion of revenue derived from Jurong Shipyard group declined from approximately 16.1% in FY2001 to 3.8% in FY2002 and 1.6% in FY2003. Most of our corrosion prevention projects in Jurong Shipyard were related to on board vessels’ repairs and new vessel construction jobs undertaken by the Jurong Shipyard group. Most of our jobs were completed in FY2001. In FY2003, we did not undertake any significant projects from Jurong Shipyard group. The proportion of revenue derived from Jurong Engineering Ltd. decreased from 7.8% in FY2001 to 0.3% in FY2002 owing to the completion of a major project in FY2001. Since then, we have not had any major contracts with them. The proportion of revenue derived from the Labroy Group remained at approximately 13% in the last three financial years. For more details of our transactions with the Labroy Group, please refer to the section “Interested Person Transactions” on pages 105 to 113 of this Prospectus. Save as disclosed above, none of our Directors or Substantial Shareholders has any interest, direct or indirect, in any of the above named major customers. COMPETITION We believe that we are able to leverage on our principal competitive strengths under our corrosion prevention division which include pricing, track record, safety standards, labour management, quality workmanship and responsiveness to customers’ requests to distinguish ourselves in the competitive environment that we compete in. Our Directors believe that we are one of the leading contractors for hullside corrosion prevention work in Singapore and Batam as we are the hullside resident contractors for seven established shipyards in Singapore and two in Batam. For our infrastructure engineering division, our main competitive strengths include technical competence, efficient project management, safety standards and competitive pricing. Our primary competitors are other engineering and fabrication contractors who participate in the same tender for a project. For our supply and distribution division, our competitive strengths include customer service, quality and pricing of products, brand image and the extent of our wholesale and distribution channels. We compete against various groups ranging from hardware importers to wholesalers and retailers who carry similar products. To the best of our Directors’ knowledge, there are no public statistics or official sources of information that can be used to accurately measure our market share and industry ranking for the business divisions we operate. Based on our Directors’ knowledge and market experience in our different business divisions, our major competitors in the following divisions of our business are as follows:– Business Division

Competitors

Corrosion Prevention

See Hup Seng Limited Speedo Corrosion Control Pte. Ltd. Glenn Marine Service Pte. Ltd. Shipblast Marine Enterprise Pte. Ltd.

Infrastructure Engineering

PT Rotary Engineering Indonesia

Supply and Distribution

Unique Hardware Co. Pte. Ltd. Soon Hong Seng Pte. Ltd.

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HISTORY AND BUSINESS

COMPETITIVE STRENGTHS Our Directors consider the following to be our core competitive strengths:– Established Track Record as a Leading Corrosion Prevention Service Provider We have been in the corrosion prevention business for more than 10 years and pride ourselves as the hullside resident contractor of seven established shipyards in Singapore and two established shipyards in Batam. As such, we believe that we are one of the leading contractors for hullside corrosion prevention services in Singapore and Batam. The proven quality of our hullside corrosion prevention services has enabled us to secure jobs other than for hullside corrosion prevention works. These include corrosion prevention jobs for on board vessel repair work, ship conversion, newly-built vessels and offshore support vessels used in the oil and gas industry. Our expertise has also enabled us to expand our business to include the fabrication of oil and gas onshore structures, power plants and other land-based structures, which are undertaken by our infrastructure engineering division. Quality Service We are dedicated to providing quality services and products to our customers. To ensure that our customers are satisfied with our services and products, we have implemented strict control procedures to maintain the quality of our workmanship and the prompt completion of our projects. Our subsidiary, ASE, was awarded the ISO9001: 2000 certificate for its operational processes and systems, in respect of its infrastructure engineering activities. This is further complemented by our proactive and responsive approach in meeting customers’ needs and expectations. As further testimony of our commitment to quality, we have received numerous letters of appreciation from shipyard operators, vessel owners and other customers commending on our efficiency and quality of work performed. In addition, none of our customers of our corrosion prevention and infrastructure engineering projects has utilised any retention fee nor enforced any performance bond for any projects in the past three financial years (Please refer to the “Quality Assurance” section on page 57 of this Prospectus for more details). Experienced Management Team The growth and success of our business is attributed to our experienced and dedicated management team. Our management team is led by our Managing Director, Chua Beng Kuang, who has about 25 years of experience in providing corrosion prevention services to the marine industry. His reputation and established relationships with customers in the corrosion prevention business have been instrumental to our success in securing many projects over the years. Furthermore, our experienced Executive Directors and senior Executive Officers have steered the development of our Group and diversified our business from providing corrosion prevention services to infrastructure engineering services and engaging in supply and distribution business to achieve synergistic benefits for our Group. With the growth of the latter two business activities, we have established overseas entities in Batam to capitalise on Batam’s market potential and competitive cost structure. Our Executive Directors are also constantly exploring new opportunities to further our Group’s business interests and increase profitability. The details of the experience of our Directors and Executive Officers are found on pages 93 to 96 of this Prospectus. Integration of Services We are equipped with our own blasting and painting equipment such as hydro-jetting machines, air compressors, dehumidifiers and spray guns. In addition, our supply and distribution division leverages on the clientele base of the other two divisions. Our infrastructure engineering division taps on our corrosion prevention services in fulfilling our customers’ requirements for corrosion prevention services for steel work modules and structures. The strategic interdependence of our three business divisions has reduced our reliance on third party suppliers and enhanced our Group’s overall operational flow, cost effectiveness and growth potential.

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HISTORY AND BUSINESS

Long-standing Relationship with Customers Over the years of our business operations, our Group has grown steadily and we have developed close working relationships with our customers. We constantly strive to provide quality services and ensure on-time delivery to our customers. Due to our established relationships with customers, we receive repeated business and referrals from them. In FY2003, approximately 83.0% of our revenue was derived from customers who have previously used our services, which we believe attests to the level of customer satisfaction as well as the quality and reliability of our services. We expect to continue to leverage on these relationships to enable us to meet our customers’ requirements promptly and gain a competitive advantage in the industries that we operate in. PROPERTIES AND FIXED ASSETS The following properties are leased by our Group:–

Location

Gross Area (sq ft)

Tenure

Monthly rental ($)

Lessor

Use of Property

104,142

10 years commencing 1 September 2000(1)

17,000(1) JTC Corporation

Office premises, fabrication and blasting facilities

38 Tuas View Square Singapore 637770(2)

66,000

1 year commencing 1 January 2004(3)

35,000

Heng Huat Shipbuilding and Construction Pte. Ltd.

Office premises, warehouse and staff accommodation

JL. Brigjen Katamso Bundaran, Tanjung Uncang, Pulau Batam (fabrication facilities)(2)

749,650

1 year commencing 1 January 2004(3)

14,000

Labroy Shipbuilding and Engineering Pte Ltd

Office premises, warehouse, production and fabrication facilities

JL. Brigjen Katamso Bundaran, Tanjung Uncang, Pulau Batam (grit blasting recycling workshop)(2)

75,000

1 year commencing 1 July 2004

6,000

PT Nanindah Mutiara Shipyard

Grit blasting facilities

55 Shipyard Road Singapore 628141

Notes:– (1)

The tenancy agreement expires on 1 September 2010. The monthly rental charges paid may be lower than the amount stipulated in the agreement, subject to rebates granted by the landlord.

(2)

The tenancy agreements are described on pages 106 to 110 of the Prospectus under “Interested Person Transactions”.

(3)

The tenancy agreement provides for a 1-year tenancy period with the option to renew for another one year.

The aggregate net book value of our fixed assets, comprising mainly leasehold improvements, plant and machinery, and office equipment, was approximately $7.9 million as at 31 December 2003.

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HISTORY AND BUSINESS

GOVERNMENT REGULATIONS We have obtained the necessary business licences for our day-to-day operations. Save as disclosed under “Risk Factors” on pages 24 to 31 of this Prospectus and below, we are not subject to any government regulations in the countries where we operate, other than those generally applicable to companies and businesses in such countries, which will have a material effect on our business operations. Factories Act Premises used as factories in Singapore are required to be registered under the Factories Act, Chapter 104 of Singapore (the “Factories Act”). The Factories Act is administered by the Occupational Safety Department of the Ministry of Manpower which is responsible for the registration of factories. Applications for registration are made to the Chief Inspector of Factories who will issue a permit to the occupier on being satisfied that the premises are suitable for use as a factory. The permit is valid for a period of one year and may be renewed on payment of the prescribed fees. If the premises have become unfit for occupation as a factory, the Chief Inspector of Factories may issue a notice to the occupier to comply with such requirements as may be specified in the notice. If the occupier fails to comply with the requirements in the notice, the registration of the premises may be revoked. Besides providing for the registration of factories, the Factories Act also lays down the legal requirements for ensuring the health, safety and welfare of persons employed in a factory and the penalty for contravening or failing to comply with the standards. Our premises at 55 Shipyard Road is registered under the Factories Act, and the expiry dates for our current factory permits for carrying out marine industrial and mixed construction activities, and engineering are 28 February 2005 and 31 January 2005 respectively. Factories (Shipbuilding and Ship-Repairing) Regulations The Factories (Shipbuilding and Ship-Repairing) Regulations (the “FSSR”) impose minimum safety and health requirements for any work carried out in a shipyard or on board a ship in a harbour. The FSSR mandates contractors who appoint more than 20 persons to carry out any work in a shipyard to appoint a safety supervisor to ensure compliance with the Factories Act any subsidiary legislation made thereunder and to promote and ensure the safety, health and welfare of persons working in the shipyard or on board the ship. Shipyards are also required to ensure that ship repair managers and persons carrying out spray painting or painting in confined spaces are provided with adequate safety training. Factories (Abrasive Blasting) Regulations The Factories (Abrasive Blasting) Regulations (the “FABR”) set out the requirements on the use of abrasives such as grit in blasting apparatus and certain precautions to be undertaken in connection with the construction of the blasting chambers and the carrying out of any blasting work. We observe strict compliance with the requirements of the FABR such as the following:– (a)

Any blasting is carried out in our enclosed blasting chamber.

(b)

Our blasting chamber is of sound construction, well-illuminated and provided with inspection ports.

(c)

Dust generated in the enclosure is removed by a proper ventilation system.

(d)

All persons employed in blasting work are provided with air supply blasting helmets, with filtered air at a rate of not less than 0.17 m3 per minute and an efficient pressure-reducing device.

(e)

Suitable overalls, boots and gloves are provided.

(f)

All plant and equipment are properly maintained.

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HISTORY AND BUSINESS

Factories (Building Operations and Works of Engineering Construction) Regulations The Factories (Building Operations and Works of Engineering Construction) Regulations (the “FBWR”) stipulate the minimum safety and health requirements for premises where building operations and works of engineering construction are being carried out. Regulations on Employment of Foreign Workers in Singapore The employment of foreign workers in Singapore is governed by the Employment of Foreign Workers Act (Cap. 91A) (the “EFWA”) and regulated by the Work Permit Department in the Ministry of Manpower. In Singapore, under Section 5(1) of the EFWA, no person shall employ a foreign worker unless he has obtained in respect of the foreign worker a valid work permit, which allows the foreign worker to work for him. The foreign worker has to be employed and carrying out duties in respect of his work permit. Any person who fails to comply with or contravenes Section 5(1) of the EFWA shall be guilty of an offence and shall:– (a)

be liable on conviction to a fine of an amount of not less than 24 months’ levy and not more than 48 months’ levy or to imprisonment for a term not exceeding 12 months or to both; and

(b)

on a second or subsequent conviction, be punished – (i)

in the case of an individual, with imprisonment for a term of not less than one month and not more than 12 months and shall also be liable to a fine of an amount of not less than 24 months’ levy and not more than 48 months’ levy; and

(ii)

in the case of a body corporate, with a fine of an amount of not less than 48 months’ levy and not more than 96 months’ levy.

Registration with the International Enterprise Singapore Board We are registered with the International Enterprise Singapore Board under the Regulation of Imports and Exports Regulations, which registration enables legal entities in Singapore to conduct import, export, transhipment and other trading activities. As our business requires us to import materials from other countries for use in Singapore, we require registration with the International Enterprise Singapore Board. The registration is also necessary as there are occasions which require the assembly of parts to be carried out in Singapore and later to be exported for use outside Singapore. Registration with the Contractors Registry of the Building and Construction Authority (“BCA”) Our subsidiary, Asian Sealand Engineering Pte Ltd is registered with the Contractors Registry of the BCA for the following category:– Category of Registration C3 for CW01

Description

Tender Capacity

General Building which includes all types of building works in connection with any structure, being built or to be built, for the support, shelter and enclosure of persons, animals, chattels or movable property of any kind, requiring in its construction the use of more than two unrelated building trades and crafts. Such structure includes the construction of multi-storey carparks, buildings for parks and playgrounds and other recreational works, industrial plants, and utility plants. Scope of work includes the addition and alteration works on buildings involving structural changes and installation of roofs (firms which undertake waterproofing work should register under CR13).

72

$500,000

HISTORY AND BUSINESS

The Contractors Registry is administered by the BCA and was established to register contractors who are able to provide construction related goods and services to the public sector which includes government departments, statutory bodies and other public sector organisations. There are 5 major groups of registration workheads or categories, namely, Construction Workheads, Construction Related Workheads, Mechanical and Electrical Workheads, Supply Workheads and Maintenance Workheads. There are 7 financial registration grades for the Construction Workheads which limit the tender capacity of the registered contractor. The financial registration grades, their respective tender capacity and qualifying criteria are as follows:–

Grade

Tender Capacity

Financial (Minimum Paid-Up Capital and Net Worth)

Management (see table below for more details)

Track Record (past 3 years)

Additional Requirements

A1

Unlimited

$15 million

30P/T* ISO 9000:2000 ISO 14000 OHSAS 18000

$150 million of which $75 million PS $112.5 million MC $37.5 million SP

Annual submission of financial accounts

A2

$65 million

$6.5 million

12P/T* ISO 9000:2000 ISO 14000 OHSAS 18000

$5 million of which $32.5 million PS $48.75 million MC $16.25 million SP

Annual submission of financial accounts

B1

$30 million

$3 million

6P/T* ISO 9000:2000

$30 million of which $22.5 million MC $7.5 million SP

Annual submission of financial accounts

B2

$10 million

$1 million

3P/T* ISO 9000:2000

$10 million of which $7.5 million MC $2.5 million SP

—

C1

$3 million

$300,000

1P + 1T

$3 million

—

C2

$1 million

$100,000

1P or 2T

$1 million

—

C3

$500,000

$25,000

1T

$500,000

—

Notes:– (1)

Both minimum (min) paid-up capital and minimum net worth must be met.

(2)

PS — projects executed for public sector agencies in Singapore

(3)

MC — main contracts (nominated sub-contracts may be included)

(4)

SP — minimum size single project (main contract)

(5)

Percentage of sub-contract value taken into consideration shall be 50% for CW01 and 75% for CW02.

(6)

P/T — Professional and Technical personnel with relevant qualifications (see table below for more details).

(7)

PEB — Professional Engineers Board of Singapore

(8)

BOA — Board of Architects of Singapore

(9)

ISO 9000:2000 must be SAC accredited

(10) ISO 14000 and OHSAS 18000 (by 1 July 2004) *

One third of P/T personnel must possess relevant qualifications from universities recognised by PEB or BOA. The lists can be obtained from the internet at www.peb.gov.sg and www.boa.gov.sg respectively.

**

For renewal cases, projects completed satisfactorily in the past 5 years including ongoing projects and recently awarded projects will be considered as track record.

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HISTORY AND BUSINESS

Workhead

Title

CW01

General Building

Professional Qualifications “P” means a Professional qualification with a recognised degree in Architecture, Building, Civil/Structural Engineering or equivalent. “T” means a Technical qualifications in any of the following:– (a)

a recognised polytechnic diploma in Architecture, Building, and Civil/Structural Engineering;

(b)

a National Certificate in Construction Supervision (NCCS);

(c)

Certificate of M&E Coordination; or

(d)

other equivalent qualifications approved by BCA.

To the best of our Directors’ knowledge, we are in compliance with all the above-mentioned government rules and regulations. EXCHANGE CONTROLS Our revenue is primarily derived in Singapore and Batam. We are not subject to exchange controls (if any) in these countries. The following is a description of the exchange controls that exist in the jurisdictions which our Group operates in:– Singapore In Singapore, there are no governmental laws, decrees, regulations or other legislation that may affect the following:– (a)

the import or export of capital, including the availability of cash and cash equivalents for use by our Group; and

(b)

the remittance of dividends, interest or other payments to non-residential holders of the Company’s securities.

Batam In Indonesia, the government does not maintain exchange controls, however, resident companies that:– (a)

have total assets and/or annual gross sales in the amount of at least Rp100 billion; and

(b)

carry out foreign exchange activities not conducted through a domestic bank or financial institution; and/or

(c)

have offshore financial assets and/or liabilities;

shall be required to comprehensively, timely and accurately report to the Central Bank of Indonesia, Bank Indonesia, on their foreign exchange flow activities. This requirement may be extended to companies that currently do not meet such criteria in the next few years. The rupiah is freely convertible. Bank Indonesia controls the currency and oversees the conversion of Indonesian currency to foreign currencies. Conversion of the Indonesian currency may be effected at an approved foreign exchange bank. In principle, Indonesia does not restrict the repatriation of capital. Subject to the payment of withholding tax, dividends, interest and royalties are freely remittable out of Indonesia. 74

SUMMARY OF PROFORMA GROUP FINANCIAL INFORMATION

The following selected financial information should be read in conjunction with the full text of this Prospectus, including the Proforma Consolidated Financial Information set out on pages 133 to 169 of this Prospectus:– PROFORMA OPERATING RESULTS OF OUR GROUP(1) Proforma ($’000) Revenue Cost of sales Gross profit Other operating income (net)

FY2001

FY2002

FY2003

37,410

39,296

37,390

(27,450)

(30,342)

(27,692)

9,960

8,954

9,698

66

28

18

Administrative expenses

(5,381)

(5,571)

(4,869)

Selling and distribution expenses

(1,125)

(1,305)

(1,328)

3,520

2,106

3,519

15

1

18

Profit from operations Financial income Financial expenses

(703)

Profit before taxation

2,832

Taxation

(807)

Profit after taxation

2,025

Minority interests

(313)

Net profit attributable to shareholders EPS (cents)(2)

(627) 1,480 (433) 1,047 (277)

(551) 2,986 (481) 2,505 (201)

1,712

770

2,304

1.80

0.81

2.42

Notes:– (1)

The operating results of our Proforma Group for FY2001 to FY2003 have been prepared on a proforma basis assuming that the current Group structure as set out on page 42 of this Prospectus had been in place throughout the periods under review.

(2)

For comparative purposes, EPS for the period under review have been computed based on the net profit attributable to shareholders and the pre-Invitation share capital of 95,236,875 Shares.

(3)

Had the Service Agreements been in effect for FY2003, the profit before taxation, net profit attributable to Shareholders and EPS would have been $2.77 million, $2.13 million and 2.24 cents respectively.

75

SUMMARY OF PROFORMA GROUP FINANCIAL INFORMATION

PROFORMA FINANCIAL POSITION OF OUR GROUP As at 31 December 2003

($’000) FIXED ASSETS

7,947

CURRENT ASSETS Stocks

4,646

Work-in-progress in excess of progress billings

5,203

Trade debtors

16,277

Other debtors, deposits and prepayments

511

Due from related companies (trade)

3,172

Due from related companies (non-trade)

(1)

333

Due from related parties (trade)

393

Loan to a related company(2)

989

Cash and bank balances

763 32,287

CURRENT LIABILITIES Trade creditors

4,717

Bills payables to banks

2,234

Other creditors and accruals

2,884

Due to holding company (trade) Due to holding company (non-trade)

225 (3)

22

Due to related companies (trade)

1,084

Due to related companies (non-trade)(4)

486

Due to related parties (trade)

59

Loans from related companies

2,281

Provision for income tax

638

Lease obligations (current portion)

441

Bank overdrafts

1,147

Short-term bank loans

11,021 27,239

NET CURRENT ASSETS

5,048

NON-CURRENT LIABILITIES Lease obligations (non-current portion)

353

Deferred taxation

934 1,287 11,708

PROFORMA SHAREHOLDERS’ EQUITY

10,812

MINORITY INTERESTS

896 11,708

NTA per Share (cents)(5)

11.35

76

SUMMARY OF PROFORMA GROUP FINANCIAL INFORMATION

Notes:– (1)

Mainly consist of advances to ASIC of approximately $0.29 million as well as reimbursement of office related expenses such as telephone charges and rental of office equipment from other related companies. As at the Latest Practicable Date, such advances to ASIC have been fully repaid.

(2)

This relates to a loan to ASIC which was fully repaid as at the Latest Practicable Date.

(3)

Mainly consist of reimbursements for matters relating to professional and corporate secretarial services.

(4)

Mainly comprised electricity and water charges paid on our behalf by Labroy’s subsidiaries, namely Heng Huat and PT Nanindah, purchase of machinery and equipment by Nexus Engineering Pte Ltd (Labroy’s subsidiary) and a secondment of a staff from Heng Huat.

(5)

For comparative purposes, NTA per Share for the year under review has been computed based on the pre-invitation share capital of 95,236,875 Shares.

77

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION The following discussion of our financial position and results of operations should be read in conjunction with the Proforma Consolidated Financial Information and the related notes thereto included elsewhere in this Prospectus. OVERVIEW Sources of our revenue Our Group’s revenue is derived from three business divisions, namely, corrosion prevention services, infrastructure engineering and supply and distribution. The details of our Group’s revenue from each of our businesses are as follows:– (i)

Corrosion Prevention We provide corrosion prevention services mainly to shipyards in Singapore and Batam as part of their ship repair and shipbuilding activities. Our hullside corrosion prevention activities are applied to different types of vessels ranging from multi-purpose supply vessels, tankers, dredgers to container ships. Apart from hullside corrosion prevention services, we also undertake on board and tank cleaning and blasting services for various types of vessels. In addition to servicing the marine related industry, we engage in corrosion prevention work for steel structures and process modules in the oil and gas industry as well as pre-fabricated structures for the construction industry. We also provide used copper slag collection and recycling services, as well as blasting equipment rental services. Revenue from our corrosion prevention services is recognised when such services are rendered. Where the contract outcome cannot be reliably measured, revenue is recognised only to the extent of the expense recognised which are recoverable. For contracts with duration exceeding three months, revenue is recognised on a progressive basis, using the percentage-of-completion method. Rental income in relation to the rental of machinery and equipment is recognised on an accrual basis. Revenue generated by our corrosion prevention services division constituted approximately 55.8%, 52.5% and 52.9% of our Group’s revenue for FY2001, FY2002 and FY2003 respectively.

(ii)

Infrastructure Engineering Our infrastructure engineering division undertakes turnkey engineering projects for fabrication of steel work and structures and components of process modules, and piping systems used in offshore oil and gas exploration and production activities, power plants, process plants and other land-based infrastructure. We provide turnkey services that involve engineering work, fabrication, blasting and painting, testing, installation and pre-commissioning. Revenue earned from our infrastructure engineering business is recognised on a progressive basis, using the percentage-of-completion method. Revenue generated by our infrastructure engineering division constituted approximately 26.7%, 27.7% and 20.2% of our Group’s revenue for FY2001, FY2002 and FY2003 respectively.

(iii)

Supply and Distribution We carry more than 300 types of hardware equipment, tools and other products comprising safety, welding, blasting and painting equipment or tools under our registered trade mark “Master”. Our hardware equipment and tools are employed in diverse industries ranging from shipbuilding, ship conversion, ship repair and construction and oil and gas. Apart from our “Master” brand products, we are also the importer and exporter for hardware products under third party’s brands. Our “Master” brand products are mainly sold to industrial users, wholesalers and retailers in Singapore.

78

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION Revenue for the supply and distribution of our products is recognised upon the delivery and acceptance by the customer and is recorded after goods and services tax and discounts have been considered. Revenue generated by our supply and distribution division constituted approximately 17.5%, 19.8% and 26.9% of our Group’s revenue for FY2001, FY2002 and FY2003 respectively. Our supply and distribution division has a sales return policy which entitles a customer to return a product within seven days of the delivery date of the product in respect of defective products, an error made in delivery or if customer ordered a wrong product. The amount of sales return is generally expected to be no more than 2.5% of the annual revenue of the supply and distribution division. For FY2001, FY2002 and FY2003, the sales return amounted to approximately $145,000, $128,000 and $240,000 respectively. We will return the defective goods to our suppliers and obtain full refund from them. The breakdown of our revenue and profit before taxation according to the above business segments are as follows:– Revenue FY2001 $’000 %

FY2002 $’000 %

FY2003 $’000 %

20,882

55.8

20,623

52.5

19,767

52.9

Infrastructure Engineering

9,979

26.7

10,877

27.7

7,551

20.2

Supply and Distribution

6,549

17.5

7,796

19.8

10,072

26.9

37,410

100

39,296

100

37,390

100

Corrosion Prevention Services

Total

Profit before taxation

Corrosion Prevention Services Infrastructure Engineering Supply and Distribution Total

FY2001 $’000 %

FY2002 $’000 %

FY2003 $’000 %

2,359

83.3

1,731

1,888

63.2

48

1.7

(707)

(47.8)

280

9.4

425

15.0

456

30.8

818

27.4

2,832

100

1,480

100

2,986

100

117

The breakdown of our revenue and profit before taxation according to the various geographical locations are as follows:– Revenue

Singapore Other countries Total

(1)

FY2001 $’000 %

FY2002 $’000 %

FY2003 $’000 %

34,046

91.0

32,842

83.6

30,166

80.7

3,364

9.0

6,454

16.4

7,224

19.3

37,410

100

39,296

100

37,390

100

79

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION Profit before taxation FY2001 $’000 % Singapore Other countries

(1)

Total

FY2002 $’000 %

FY2003 $’000 %

2,576

91.0

953

64.4

2,324

77.8

256

9.0

527

35.6

662

22.2

2,832

100

1,480

100

2,986

100

Note:– (1)

Other countries mainly consist of Indonesia, Malaysia and East Timor.

Factors affecting our revenue Factors that can affect our revenue include the following:– (a)

The state of the marine and oil and gas industries in Singapore and the region.

(b)

The ability of the local shipyard industry to maintain its competitive edge vis-a`-vis regional shipyards in Asia and Middle East.

(c)

The price competitiveness of our products and services to our customers.

(d)

Our ability to increase and maintain our customer base and expand our geographical presence.

(e)

Our ability to maintain our service quality may have an impact on customer loyalty, attraction of new customers and our overall reputation in the market.

(f)

Our ability to secure new contracts for our infrastructure engineering division which may be affected by the general economic conditions of the industries our customers operate in. Any downturn in our customers’ industries may result in a decline in demand for our products or services, and lead to a corresponding decrease in our revenue.

(g)

Our ability to expand our existing range of products for our supply and distribution division.

(h)

Our ability to compete effectively with existing competitors in and new entrants to the industry.

Please refer to the “Risk Factors” section on pages 24 to 31 in this Prospectus for more details. Cost of sales The main components of our cost of sales are purchases, direct labour costs, sub-contracting costs, depreciation and other production overheads. Purchases accounted for approximately 38.7%, 44.7% and 38.7% of our total cost of sales in FY2001, FY2002 and FY2003 respectively. It comprised mainly the costs of copper slag, paint supplies, welding electrodes and hardware supplies. In respect of our supply and distribution business, purchases are largely related to hardware equipment and tools procured for sale. Direct labour costs accounted for approximately 26.5%, 18.1% and 19.1% of our total cost of sales in FY2001, FY2002 and FY2003 respectively. Direct labour costs comprised mainly salaries for local and foreign workers, and foreign workers’ levy. Our sub-contracting costs accounted for approximately 24.9%, 19.2% and 26.5% of our total cost of sales in FY2001, FY2002 and FY2003 respectively. These are incurred as a result of using external labourers and sub-contractors to undertake certain part of the work scope in relation to corrosion prevention services and infrastructure engineering projects.

80

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION Factors that can affect our cost of sales include:– (a)

Increases in prices of key raw materials such as copper slag and electrodes. Any adverse global supply and demand conditions may result in unfavourable price fluctuations for our key materials. Any failure to pass on the price increase to our customers will adversely affect our cost of sales and gross profit margins.

(b)

Increases in foreign exchange losses. The bulk of our overseas purchases under our supply and distribution division are denominated in US$. Any depreciation of S$ against US$ in exchange rates will lead to an increase in our purchase costs and hence, higher costs of sales.

(c)

Increases in direct labour costs due to increases in foreign workers’ levies or quota restrictions on foreign workers’ supply which may require us to hire local workers at higher wage rates and/or utilise more sub-contractors.

(d)

Availability of sub-contractors in the market which will affect our sub-contractor costs.

(e)

The prices of the products negotiated with our suppliers. The negotiated purchase prices of our products depend on our relationship with our suppliers and the projected volume and demand for each of the product we distribute.

(f)

Availability of skilled or unskilled local and foreign workers.

Other operating income (net) In the last three financial years, other operating income (net) comprised mainly miscellaneous income, offset by loss on disposal of fixed assets. Operating expenses Our operating expenses comprise administrative expenses and selling and distribution expenses. Administrative expenses accounted for approximately 82.7%, 81.1% and 78.6% of our total operating expenses in FY2001, FY2002 and FY2003 respectively. Administrative expenses consist mainly of salaries and other payroll costs of administrative staff, directors’ remuneration and other staff related expenses. These expenses represented approximately 60.1%, 67.3% and 77.4% of the total administrative expenses in FY2001, FY2002 and FY2003 respectively. Provision for doubtful debts accounted for approximately 7.9%, 7.1% and 1.9% of the administrative expenses over the same periods. Selling and distribution expenses accounted for approximately 17.3%, 18.9% and 21.4% of our total operating expenses in FY2001, FY2002 and FY2003 respectively. These include mainly salaries and other payroll related costs of our sales staff, travelling expenses, entertainment expenses and office related expenses. The remaining expenses include transport charges, freight costs, handling costs and advertising costs. Financial expenses Our financial expenses comprised mainly interest on short-term bank loans, bank overdrafts, lease obligations and bills payables. Our financial expenses amounted to approximately 9.8%, 8.4% and 8.2% of our total expenses which consists of operating and financial expenses in FY2001, FY2002 and FY2003 respectively.

81

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION REVIEW OF OPERATING RESULTS FY2001 to FY2002 Revenue Our revenue increased by approximately $1.9 million or 5.1% from approximately $37.4 million in FY2001 to approximately $39.3 million in FY2002. This was due mainly to increases in revenues generated from infrastructure engineering and supply and distribution activities, which offset a marginal decline in revenue from the corrosion prevention business. Revenue attributable to the infrastructure engineering division increased by approximately $0.9 million or 9.0% from approximately $10.0 million for FY2001 to approximately $10.9 million for FY2002. The increase was largely due to revenue contribution of $4.5 million derived from a turnkey engineering project related to the construction of structural steel modules of underwater hull for a deep-water oil rig in FY2002. This revenue contribution was mainly offset by the loss of revenue of approximately $3.2 million from projects that were substantially completed in FY2001. Revenue attributable to the supply and distribution division increased by approximately $1.3 million or 20.0% from approximately $6.5 million in FY2001 to approximately $7.8 million in FY2002. The increase in revenue was due to a net increase of about 80 new customers secured in FY2002, as well as higher sales from the wider product range carried by us, which include safety belts, safety harnesses, blasting hoses and paint hoses. The increase in new customers resulted in our customer base increasing to approximately 700 as at 31 December 2002. On the other hand, revenue attributable to the corrosion prevention division declined slightly by approximately $0.3 million or 1.4% from approximately $20.9 million for FY2001 to approximately $20.6 million for FY2002. We had substantially completed several new vessel construction projects in FY2001. During FY2002, most Singapore shipyards were facing stiff competition from overseas shipyards, such as those in China, for new shipbuilding orders. Hence, local shipyards had to offer very competitive prices to vessel owners to secure new shipbuilding orders. As we were unable to accept the lower prices offered, we undertook relatively fewer corrosion prevention projects in relation to new vessel construction. Revenue contribution from the Singapore market decreased by approximately $1.2 million or 3.5% from $34.0 million to $32.8 million due to a decrease in corrosion prevention projects undertaken for Singapore shipyards. The resultant decline in the corrosion prevention revenue was partially offset by an increase in revenue derived from corrosion prevention projects undertaken for Batam shipyards. Our revenue contribution from other countries increased by approximately $3.1 million or 91.2% from $3.4 million in FY2001 to $6.5 million in FY2002 due mainly to a full year revenue contribution from PT Nexus. Gross profit and gross profit margin Our gross profit decreased by approximately $1.0 million or 10.0% from $10.0 million in FY2001 to $9.0 million in FY2002. Gross profit margin had also declined from 26.6% in FY2001 to 22.8% in FY2002. This was due mainly to lower profit contribution from the corrosion prevention division and losses incurred by the infrastructure engineering division as explained below. We undertook several on board vessel corrosion prevention repair jobs for a shipyard customer in FY2001 for which payment was received in FY2002. However, the customer requested for a discount that we did not anticipate or provide for in FY2001. As such, we wrote off approximately $0.2 million in FY2002 and this affected the gross margin attributable to corrosion prevention division. Gross profit for the infrastructure engineering division decreased in FY2002 due largely to cost overruns experienced for a few projects. We had incurred higher direct labour costs compared to our initial cost estimates as a result of additional man-hours incurred from disruption and delays to project 82

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION schedule and job variations which we were not able to fully recover the relating costs from our customers. Our management has since taken steps to ensure that such cost overruns are minimised by factoring in sufficient cost overrun buffer in their project costing. Other operating income (net) The net decrease of other operating income (such as income derived from the provision of transportation and office supplies to our subcontractors) by approximately $38,000, or 57.6% from approximately $66,000 in FY2001 to approximately $28,000 in FY2002 was mainly due to the loss on disposal of fixed assets such as air compressors and equipment amounting to approximately $92,000 in FY2002. Operating expenses Our administrative expenses increased by approximately $0.2 million or 3.7% from approximately $5.4 million in FY2001 to approximately $5.6 million in FY2002. This was due to an increase in payroll costs arising from an average annual wage increment of about 5% as well as the addition of management and administrative staff to support higher sale activity from our supply and distribution division. Our selling and distribution expenses had increased by $0.2 million or 18.2% from $1.1 million in FY2001 to $1.3 million in FY2002 due mainly to salary increments for sales personnel and increase in headcount of six store and logistic personnel. Financial expenses Financial expenses decreased by approximately $0.1 million or 14.3% from approximately $0.7 million in FY2001 to approximately $0.6 million in FY2002. This was due mainly to lower interest rates on short-term bank loans in FY2002. Interest rates ranged from 2.18% to 2.92% per annum in FY2002 compared to the range of 2.65% to 4.42% per annum in FY2001. Profit before taxation As a result of the above, our profit before taxation decreased by approximately $1.3 million or 46.4% from $2.8 million in FY2001 to $1.5 million in FY2002. Taxation Our taxation expenses for FY2001 and FY2002 were approximately $0.8 million and $0.4 million, representing effective tax rates of approximately 28.5% and 29.3% respectively. The marginal increase in the effective tax rate in FY2002 was due to under-provision of deferred tax in respect of prior years totalling $112,848 being provided for in FY2002. FY2002 to FY2003 Revenue Our revenue decreased by approximately $1.9 million or 4.8% from approximately $39.3 million in FY2002 to approximately $37.4 million in FY2003. This was due mainly to decreases in revenues generated from corrosion prevention activities and infrastructure engineering activities, which more than offset the change in revenue from the supply and distribution business. Revenue attributable to the corrosion prevention business declined slightly by approximately $0.8 million or 3.9% from approximately $20.6 million for FY2002 to approximately $19.8 million for FY2003. This was largely due to the reduction in our used copper slag collection business under BT Asia from late FY2002. This resulted in a drop in revenue of approximately $2.3 million which was partially offset by revenue contribution of approximately $1.4 million from the tank cleaning business which commenced in early FY2003 with the set-up of B & J. 83

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION Revenue attributable to the infrastructure engineering division decreased by approximately $3.3 million or 30.3% from approximately $10.9 million for FY2002 to approximately $7.6 million for FY2003. The decrease was largely due to the completion of a turnkey engineering project related to the construction of structural steel modules of underwater hull for deep-water oil rig in FY2002. Revenue attributable to the supply and distribution business increased by approximately $2.3 million or 29.5% from approximately $7.8 million in FY2002 to approximately $10.1 million in FY2003. We continued with our efforts to enlarge our customer base and expanded our overseas sales to markets such as Batam, Indonesia and East Timor. Our customer base expanded further from approximately 700 as at 31 December 2002 to 1,100 customers as at 31 December 2003. Through our new set-up, PT Master, we increased our sales in Batam, Indonesia and derived approximately $0.8 million in revenue. Our Group registered a decline of approximately $2.6 million or 7.9% in revenue contribution from the Singapore market from approximately $32.8 million to approximately $30.2 million. This was attributed mainly to the decline of $4.5 million in revenue contribution with the completion of a turnkey engineering project related to the construction of structural steel modules of underwater hull for deep-water oil rig in FY2002 and partially offset by revenue earned from a new local customer from both our corrosion prevention and infrastructure engineering divisions and the increase in sales generated from an enlarged local customer base mainly from our supply and distribution division. Revenue contribution derived from other countries increased by approximately $0.7 million or 10.8% from approximately $6.5 million in FY2002 to approximately $7.2 million in FY2003. This was mainly due to the commencement of our distribution of hardware equipment and tools in Batam through PT Master. Gross profit and gross profit margin Our gross profit increased by approximately $0.7 million or 7.8% from approximately $9.0 million in FY2002 to approximately $9.7 million in FY2003. Gross profit margin had also increased from 22.8% in FY2002 to 25.9% in FY2003. Gross profit for our supply and distribution business improved in line with the growth in revenue which outweighed the increase in cost of sales. Our infrastructure engineering division incurred higher direct costs in FY2002 as a result of cost overruns on a few major projects. Hence, gross profit for our infrastructure engineering division reflected an improvement in FY2003. Other operating income (net) The net decrease of other operating income by approximately $10,000, or 35.7% from approximately $28,000 in FY2002 to approximately $18,000 in FY2003 as a result of the decline in miscellaneous income. Operating expenses Our administrative expenses decreased by approximately $0.7 million or 12.5% from approximately $5.6 million in FY2002 to approximately $4.9 million in FY2003. This was mainly due to a net write-back of provision of doubtful debts(1) no longer required of approximately $0.1 million in FY2003 compared to a net provision for doubtful debts and bad debts written off of approximately $0.4 million for FY2002. In FY2003, we have a write-back on provision for doubtful debts of approximately $214,000, of which $160,000 was due to lower general provision required as a result of improved debtor aging for our supply and distribution division. The remaining balance of the provision written back was due to recovery of some doubtful debts. Our selling and distribution expenses had remained relatively constant between FY2002 and FY2003. Note:– (1) Net write back of provision of doubtful debts is a positive balance resulting from the difference between the provision of doubtful debts and the write back of provision of doubtful debts.

84

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION Financial expenses Financial expenses decreased by approximately $0.1 million or 16.7% from approximately $0.6 million in FY2002 to approximately $0.5 million in FY2003 as interest rates for short-term bank loans decreased marginally in FY2003. Interest rates ranged from 2.14% to 2.53% per annum in FY2003 as compared to the range of 2.18% to 2.92% per annum in FY2002. Profit before taxation As a result of the above, our profit before taxation increased by approximately $1.5 million or 100% from approximately $1.5 million in FY2002 to approximately $3.0 million in FY2003. Taxation Our taxation expenses for FY2002 and FY2003 were approximately $0.4 million and $0.5 million, representing effective tax rates of approximately 29.3% and 16.1%, respectively. The decrease in the effective tax rates for FY2003 was due to a reversal of prior years tax provision no longer required of $216,000 in FY2003 as we had provided for tax in previous years for certain expenses that we deemed non-tax deductible on grounds of prudence. However, these expenses were subsequently allowed as tax deductible upon the finalisation of prior years tax matters by the Inland Revenue Authority of Singapore. As such, the excess tax provision was no longer required and was reversed out in FY2003. INFLATION In FY2001, FY2002 and FY2003, we have not experienced any material fluctuations in the inflation rates which had adversely affected our business and operating results. REVIEW OF FINANCIAL POSITION Fixed assets As at 31 December 2003, our fixed assets amounted to approximately $7.9 million. Our fixed assets comprise mainly tools and equipment amounting to approximately $5.3 million, motor vehicles amounting to approximately $1.0 million, leasehold building, improvements and renovations amounting to approximately $1.0 million and forklifts amounting to approximately $0.4 million. Current assets Our current assets comprise stocks, work-in-progress in excess of progress billings, trade debtors, deposits, prepayments and other debtors, amount due from related companies and related parties, and cash and bank balances. Our current assets amounted to approximately $32.3 million as at 31 December 2003. Stocks, net of provision for stock obsolescence, accounted for approximately $4.6 million or 14.4% of the total current assets. Work-in-progress in excess of progress billings accounted for approximately $5.2 million or 16.1% of the total current assets. It represents the excess costs incurred from incomplete projects plus recognised profit over recognised progress billings. As the majority of our business is project-based, our contract work-in-progress balance as at the end of 31 December 2003 depends on the amount of work completed and the timing of our project billings on this date. Trade debtors, net of provision for doubtful debts of approximately $0.4 million and provision for discounts of approximately $1.3 million, accounted for $16.3 million or 50.4% of the total current assets.

85

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION Amounts due from related companies and a loan extended to a related company accounted for approximately $4.5 million or 13.9% of the total current assets, and arose from trade debts, loans and advances. Please refer to the section on “Interested Person Transactions” found on pages 105 to 113 of this Prospectus for more details. Amounts due from related parties relate to trade receivables from Hwah Hong Lorry Crane Service (“HHL partnership”) and Well Commercial Pte Ltd (“Well Com”) and these accounted for approximately $0.4 million or 1.2% of the total current assets. Please refer to the section on “Interested Person Transactions” found on pages 105 to 113 of this Prospectus for more details. Cash and bank balances accounted for approximately $0.8 million or 2.4% of the total current assets. The remaining current assets consist of deposits, prepayments and other debtors totalling approximately $0.5 million. Current liabilities Total current liabilities amounted to approximately $27.2 million as at 31 December 2003. Current liabilities consist mainly of trade creditors, bills payables, bank overdrafts, amount due to holding company, related companies and related parties, other creditors and accruals, provision for income tax, lease obligations and short-term bank loans. Trade creditors accounted for approximately $4.7 million or 17.3% of the total current liabilities. Trade creditors arose mainly from cost of purchases and sub-contracting services incurred for projects. Amount due to our Controlling Shareholder, Labroy, and related companies accounted for approximately $4.1 million or 15.1% of the total current liabilities. The amounts due to related companies consist of mainly trade debts, loans and advances. For details of our transactions with related companies, please refer to pages 105 to 113 under “Interested Person Transactions”. Other creditors and accruals, which accounted for approximately $2.9 million or 10.6% of the total current liabilities, comprised mainly of accrued operating expenses and other creditors. Amounts due to related parties relate to trade payables to HHL partnership and Well Com. Provision for taxation amounted to approximately $0.6 million and is mainly attributable to the net profit we achieved in FY2003. The remaining current liabilities consist of bills payables, lease obligations, bank overdrafts and short-term loans. The bills payables of approximately $2.2 million were mainly used to finance purchase of stocks. The bank overdrafts of approximately $1.1 million and the bulk of short-term bank loans of approximately $11.0 million were obtained for working capital purposes. Lease obligations (current portion) of approximately $0.4 million were incurred for financing the purchase of plant and machinery, forklifts and motor vehicles. Non-current liabilities Our non-current liabilities amounted to approximately $1.3 million as at 31 December 2003, and comprised lease obligations (non-current portion) and deferred tax liabilities. Proforma Shareholders’ equity Proforma Shareholders’ equity amounted to approximately $10.8 million as at 31 December 2003. It consisted of issued and paid-up capital of $1.3 million, share premium of $2.6 million and revenue reserves of $6.9 million. 86

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION Minority Interests As at 31 December 2003, minority interests amounted to approximately $0.9 million and were mainly attributable to the minority shareholders of BT Asia and B & J. LIQUIDITY AND CAPITAL RESOURCES Our operations and expansion strategies are mainly financed through internal cash resources, external bank borrowings and shareholders’ loans. The principal uses of these cash resources are for the purchases of raw materials, acquisition of machinery and equipment and meeting operating expenses. As at the Latest Practicable Date, we have total banking facilities of approximately $22.6 million, of which approximately $17.3 million had been utilised and $5.3 million are available for utilisation. The total outstanding bank borrowings as at the Latest Practicable Date included bank overdrafts of approximately $3.1 million, lease obligations of approximately $0.6 million, bills payables of approximately $2.5 million, bankers’ guarantees of approximately $0.1 million and short term bank loans of approximately $11.0 million. In respect of the short-term revolving bank loans, the interest rate ranges from 2.29% to 2.75% per annum and their average tenure ranges from one to three months. Our cash and bank balances as at the Latest Practicable Date was approximately $0.5 million. Please refer to “Capitalisation and Indebtedness” on page 34 of this Prospectus for further details. Based on the above and to the best of their knowledge, our Directors are of the opinion that we have adequate working capital for our present requirements after taking into account the present banking facilities, shareholders’ funds and internal cash resources. We set out below a summary of our Proforma Group net cash flow for the year under review:– FY2003 $’000 Net cash generated from operating activities

3,504

Net cash used in investing activities

(931)

Net cash used in financing activities

(1,631)

Net increase in cash and bank balances

942

Cash and cash equivalents at beginning of financial year

(1,327) (385)(1)

Cash and cash equivalents at end of financial year

Note:– (1)

Cash and cash equivalents are presented after deducting bank overdrafts. As at 31 December 2003, our cash and bank balances was $762,659 and bank overdrafts was $1,147,428.

Net cash generated from operating activities In FY2003, net cash generated from operating activities amounted to approximately $3.5 million. This was mainly due to profits before taxation of approximately $3.0 million recorded for the year adjusted for depreciation expenses of approximately $1.7 million, provision for discounts of approximately $0.6 million, net increase in working capital requirement of approximately $1.1 million, tax payment of approximately $0.5 million and payment of financial expenses of approximately $0.6 million. Our working capital requirement increased by approximately $1.1 million due largely to: (a) an increase in trade and other debtors of approximately $1.0 million mainly due to an increase in trade debtors’ turnover days from 185 days in FY2002 to 195 days in FY2003 due to the negotiation of fees in respect of additional work orders and variation works in our corrosion prevention and infrastructure engineering 87

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION businesses; (b) an increase in stocks due mainly to the steel plates inventory of approximately $0.8 million which the Company had received from one of its customers as payment of the Company’s services and more purchases towards the end of FY2003 in anticipation of higher sales; and (c) work-in-progress in excess of progress billings of approximately $2.3 million mainly due to the corrosion prevention and infrastructure engineering jobs from a new customer which had commenced in the second half of FY2003 and were still in progress as at 31 December 2003, offset by an increase in trade and other creditors and bills payable of approximately $2.2 million due mainly to an increase in trade creditors’ turnover days from 90 days in FY2002 to 126 days in FY2003 due to slower repayments towards the end of FY2003. Net cash used in investing activities In FY2003, we recorded a net cash outflow from investing activities of approximately $0.9 million mainly for the purchase of fixed assets with an aggregate cost of approximately $1.2 million of which approximately $1.0 million was by means of cash payments, less receipts of approximately $0.1 million arising from the sale of fixed assets. Net cash used in financing activities In FY2003, our net cash outflow from financing activities amounted to approximately $1.6 million. This was mainly due to repayments on lease obligations of approximately $0.6 million and a loan to a related company of approximately $1.0 million. CAPITAL EXPENDITURES AND DIVESTMENTS The table below sets out the major capital expenditures and divestments in FY2001, FY2002 and FY2003. The purchase of the assets above is financed mainly through funds from operations and finance leases. $’000

FY2001

FY2002

FY2003

Acquisition —(1)

Forklifts Motor vehicles

—(1)

293

353

659

191

2,262

1,940

471

Leasehold improvement and renovation and building

438

133

154

Office equipment, furniture and fittings, computers and air-conditioners

217

Machinery, tools and equipment

3,270

—(1) 2,732

127 1,236

Divestments Motor vehicles

—(1)

176

—(1)

Forklifts

—(1)

103

—(1)

323

300

—(1)

323

579

—(1)

Machinery, tools and equipment

Note:– (1)

The amount is less than $100,000.

Our capital expenditure from 1 January 2004 to the Latest Practicable Date was approximately $613,000, which mainly relates to expenditure on motor vehicles and machinery, tools and equipment. 88

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION FOREIGN EXCHANGE MANAGEMENT Currency Translation Exposure The accounting records of our overseas subsidiaries, PT Master and PT Nexus, are maintained in their respective functional currency of S$. The financial statutory reporting currency for our Group is S$. Foreign currency transactions are converted into Singapore dollars at rates closely approximating those ruling at the transaction dates. Foreign currency monetary assets and liabilities outstanding at the balance sheet date are converted into the respective functional currencies at exchange rates approximating those ruling at that date. All resultant exchange differences are dealt with through the profit and loss account. Transactional Foreign Exchange Exposure Foreign exchange risks arise from the mismatch between the currency of our sales and the currency of our purchases and expenses as well as the extent of timing differences between our collections and payments. Our revenue and cost of sales are almost entirely denominated in S$. In FY2003, approximately 94% of our revenue was denominated in S$ and the remaining in US$. Approximately 87% of our cost of sales was denominated in S$ and the remaining in US$ and Rp. Our net foreign exchange gains/(loss) as a result of transaction differences are as follows:– FY2001

FY2002

FY2003

Foreign exchange gain/(loss) ($’000)

14

(49)

18

As a percentage (%) of Group’s profit before tax

0.5

(3.3)

0.6

Currently, we do not have a formal hedging policy with respect to our foreign exchange exposure. We have not used any financial hedging instruments to manage our foreign exchange risk. We will continue to monitor our foreign exchange exposure and may employ hedging instruments to manage our foreign exchange exposure should the need arise. DIVIDENDS Except for the dividends declared by BT Asia, as described below, none of the companies in our Group has declared or paid any dividend during the past three financial years. BT Asia declared and paid the following dividends to its shareholders, including NST. NST has a 51% stake in BT Asia for FY2001, FY2002 and FY2003. Dates declared

Gross amount declared (S$)

31 May 2001

100,000

24 May 2002

241,987

4 July 2003

100,000

We currently do not have a formal dividend policy. The form, frequency and amount of future dividends on our Shares will depend on our earnings and financial position, our results of operations, our capital needs, our plans for expansion and other factors as our Directors deem appropriate. We may declare dividends by ordinary resolution of our Shareholders at a general meeting, but may not pay dividends in excess of the amount recommended by our Board. We must pay dividends out of profits or pursuant to Section 69 of the Companies Act which permits us to apply our accumulated profits to pay dividends in the form of shares. Information relating to taxes payable on dividends are set out on pages 226 to 228 of this Prospectus under “Taxation”. 89

PROSPECTS, BUSINESS STRATEGIES AND FUTURE PLANS PROSPECTS Our Directors believe that business from the marine and oil and gas industries will continue to be our key revenue contributors. Our business prospects and future growth will be dependent on the outlook of these industries, our ability to increase our market share in our present locations and our ability to expand into new locations. In addition, our Directors are of the opinion that through our efforts to capitalise on the generally lower land costs and other operating costs in Batam, we will continue to maintain our competitive edge in our businesses. Industries Outlook To the best of our Directors’ experience and knowledge, Singapore is a leading one-stop maritime hub in the region focusing on marine-related and offshore oil and gas activities such as shipbuilding, ship conversion and ship repair activities and offshore engineering. Our Directors believe that Singapore’s leading position stems from several factors including its strategic location along major shipping routes, presence of a cluster of marine-related and offshore oil and gas engineering service providers, reputation for efficient and reliable services with quick turnaround time and existence of infrastructure support and skilled workforce. Corrosion Prevention To the best of our Directors’ knowledge and based on feedback from our customers, we expect corrosion prevention activities related to marine and offshore oil and gas industries to increase as a result of the expected increase in regional marine activities and new vessel construction by Singapore and Batam shipyards. The expected increase in new vessel construction is generally due to an expected increase in shipping volumes and growing demands for the replacement of vessels due to the aging of existing vessels. In addition, the International Maritime Organisation (“IMO”) had brought forward the deadline for phasing out single hull oil tankers from 2015 to 2010. This is expected to result in oil transportation companies having to place orders for new tankers earlier to replace existing tankers which do not comply with IMO standards. Infrastructure Engineering Our infrastructure engineering division obtains most of its business from the offshore oil and gas industry. Our Directors believe that the expected increase in demand for infrastructure engineering services are attributable to attractive oil prices, increasing oil exploration and production activities and the aging of the current fleet of oil exploration and production vessels. Our Directors expect that the anticipated growth and increasing demand for oil exploratory and production vessels will provide our Group with the opportunities to further develop our infrastructure engineering business. Supply and Distribution Based on the anticipated growth in the marine and oil and gas industries, our Directors believe that our supply and distribution division will be able to capitalise on the opportunities to further develop our business in this division. Trend information of our Group Since 31 December 2003 to the Latest Practicable Date, we have experienced an increase in the cost of steel grits and welding electrodes mainly due to increases in prices of steel materials worldwide. 90

PROSPECTS, BUSINESS STRATEGIES AND FUTURE PLANS Such increases in prices affect our cost of goods and services. However, in most instances, we will be able to pass these cost increases to our customers. For our corrosion prevention division, we secure contracts for on board vessel projects and offshore support vessels through tenders. As at the Latest Practicable Date, our order book for our corrosion prevention division has recorded 22 confirmed contracts which amounted to approximately $2.7 million, and for our infrastructure engineering division, our order book has recorded one confirmed contract amounting to approximately $0.6 million. BUSINESS STRATEGIES AND FUTURE PLANS Our business strategies and future plans are summarised as follows:– Expansion of Hydro-jetting Services Currently, we specialise in grit blasting activities. To expand the scope of our services and to meet the increasing demand for environmental-friendly blasting work by using hydro-jetting equipment, we intend to expand our hydro-jetting services. At present, we undertake hydro-blasting jobs with the use of the two units of hydro-jetting equipment we recently purchased as well as rented hydro-jetting equipment. In line with our expansion plans, we aim to acquire more hydro-jetting equipment and expect to utilise approximately $1.0 million of the Invitation proceeds to fund the purchase of these equipment. Expansion of Corrosion Prevention Capacity To meet increasing demand for our corrosion prevention services, we intend to acquire additional grit blasting equipment and accessories. These purchases will increase our ability and capacity to take on more corrosion prevention projects. We expect to utilise approximately $1.0 million of the Invitation proceeds to fund the purchase of these equipment. Expansion of Clientele Base For our corrosion prevention services, we intend to secure the role of hullside resident contractors for additional yards in Singapore and Batam in view of the continued growth in the shipping industries in these places. For infrastructure engineering, we intend to secure more projects in Indonesia in view of the increase in oil and gas activities in that region and to seek larger scale projects. We hope to achieve this by establishing alliances with local partners or setting up representative offices in Indonesia. Expansion of Market Coverage for Supply and Distribution Business We have made in-roads into Indonesia, Malaysia and East Timor for our supply and distribution business. We are actively seeking new opportunities to expand our supply and distribution business to overseas markets and promote our “Master” brand in both new and existing markets. In line with this, we intend to establish a network of local distributors and agents in these overseas markets to promote the brand awareness of our products. By tapping on these distributors, we are able to capitalise on their knowledge of local market trends and customer base rather than utilising additional resources to develop such markets on our own. Expansion of Product Range under our House Brand To better service our customers and to expand our product range, we are constantly looking for new products to carry under our house brand, “Master”. Some of these products include spray pumps and spray guns. We may also create new brands, or reposition some products under our existing brand with a view to increasing our market share. 91

DIRECTORS, MANAGEMENT AND STAFF MANAGEMENT REPORTING STRUCTURE The management reporting structure of our Group is set out below:–

Board of Directors

Managing Director Chua Beng Kuang

92

Executive Director Chua Meng Hua

Assistant General Manager (Head of Corrosion Prevention division) Chua Beng Hock

General Manager (Head of Infrastructure Engineering division) Chua Beng Yong

Assistant General Manager (Batam) Ong Hock Sze

Business Development Manager Chua Wui Wui

Senior Manager (Singapore) Neo Chee Giap

Human Resource Manager Won Siew Wan

Assistant General Manager (Head of Supply and Distribution division) Lee Choon Hwee

Financial Controller Phoon Kim Sin

Finance Manager Lee Wei Liang

DIRECTORS, MANAGEMENT AND STAFF DIRECTORS Our Board is entrusted with the responsibility for the overall management of our Group. The particulars of our Directors are as follows:– Name

Age

Address

Current Occupation

Tan Boy Tee

56

29 Lantana Avenue Singapore 277922

Chairman, Labroy Marine Limited

Chua Beng Kuang

47

61 Pavilion Circle Singapore 658518

Managing Director

Chua Meng Hua

50

Block 362 Woodlands Avenue 5 #11-412 Singapore 730362

Executive Director

Yong Thiam Fook

50

37 Jln Sempadan #02-07 Villa Marine Singapore 457406

Chief Financial Officer, Labroy Marine Limited

Goh Chee Wee

57

28 Kew Walk Singapore 465976

Consultant, NTUC Fairprice Co-Operative Ltd.

Wong Chiang Yin

36

50A Toh Tuck Road #09-12 Singapore 596742

Chief Operating Officer, Changi General Hospital

Information on the business and working experience of our Directors is set out below:– Tan Boy Tee was appointed as our Chairman and Non-Executive Director on 28 April 1998. He is the Executive Chairman of Labroy Marine Limited since 1996 and is responsible for the general administration and business development, overall strategic planning and direction of the Labroy Group. He has been with Labroy Marine Limited since its incorporation in 1980 and was involved in the business of owning and managing tugs and barges, livestock carriers and cargo ships before it was subsequently listed in 1996. Prior to that, he founded Heng Huat Shipbuilding and Construction Pte. Ltd. and was responsible for providing sub-contracting services to major shipyards. He is a Patron of the Ulu Pandan Citizens’ Consultative Committee. He holds a Senior Cambridge Certificate. Chua Beng Kuang is our Managing Director and is one of our founders. He is in charge of the overall management of our Group and is responsible for developing and steering the corporate plans, directions and business strategies of our Group. He is also overseeing the business of our supply and distribution division. He has been involved in the corrosion prevention business in the marine industry for about 25 years. He has led the management in pursuing our Group’s mission and objectives and has been instrumental to our growth. He received formal education up to secondary one level. Chua Meng Hua is our Executive Director and one of our founders. He oversees the overall administrative and the operational aspects of our Group and is in charge of the business development of our Group. He has over 12 years of experience in the corrosion prevention business in the marine industry. From 1973 to 1991, he was with the Singapore Armed Forces (“SAF”) and he left the SAF holding the rank of Second Warrant Officer and the appointment of Company Sergeant Major. He is a member and treasurer of the Citizen’s Consultative Committee of the Canberra Community Centre. He attained a Cambridge General Certificate of Education (Normal Level). Yong Thiam Fook was appointed as our Non-Executive Director on 30 May 2002. He is currently the Chief Financial Officer of Labroy Marine Limited and is responsible for Labroy Group’s finance, accounting and financial control matters. He has been with Labroy since 1994. From 1989 to 1994, he 93

DIRECTORS, MANAGEMENT AND STAFF held positions as the Manager of the Accounts department of Kuok (Singapore) Ltd. and Island Concrete group of companies. From 1984 to 1988, he was the Manager of the Accounting and Corporate Budget department of Neptune Orient Lines Ltd. He was also the head of the Internal Audit department of the Singapore Polytechnic from 1982 to 1984 and the Audit Assistant to the Audit Senior of Citroen, Wells & Co, London from 1978 to 1982. He obtained a Bachelor of Science (Economics) from the University of London in 1978. Goh Chee Wee was appointed as an Independent Director of our Company on 30 August 2004. He is currently the Consultant to NTUC Fairprice Co-Operative Ltd., the Chairman of NTUC Board of Trustees, NTUC Foodfare Co-Operative Ltd., NTUC Media Co-Operative Ltd. and a director of several public listed companies. From 1980 to 2001, he was elected as a Member of Parliament and from 1993 to 1997, he served as the Minister of State for Trade and Industry, Labour and Communications. From 1997 to 2003, he was the Group Managing Director and Chief Executive Officer of Comfort Group Ltd. He obtained a Bachelor of Science (First Class Honours) from the then University of Singapore in 1969, a Master of Science (Engineering) from the University of Wisconsin in 1975 and a Diploma in Business Administration from the then University of Singapore in 1980. Wong Chiang Yin was appointed as an Independent Director of our Company on 30 August 2004. He is currently the Chief Operating Officer of the Changi General Hospital, the Director of the Business Development Department of the Singapore Health Services and the General Manager of Innovative Diagnostics Pte Ltd. From 1998 to April 2004, he held various senior positions, including the Chief Operating Officer of the Singapore General Hospital, Director of the Projects Office of the Singapore Health Services and Assistant Director in the Ministry of Health. He is the first Vice-President, Council member and Chairman of the Complaints Committee of the Singapore Medical Association. He is also the Secretary-General of the Medical Associations of ASEAN and a member of the Citizens’ Consultative Committee of the Holland-Bukit Panjang Group Representation Constituency, Ulu Pandan Division. He holds a Master of Medicine (Public Health) from the National University of Singapore in 1999 and a Master in Business Administration (Finance) from the University of Leicester in 2001. The list of present and past directorships of each Director other than in our Company for the five years preceding the date of this Prospectus is set out under the heading “General and Statutory Information” on pages 119 to 132 of this Prospectus. MANAGEMENT The day-to-day operations of our Group are entrusted to our Executive Officers whose particulars are as follows:– Name

Age

Address

Current Occupation

Chua Beng Yong

42

Block 341 Sembawang Close #08-65 Singapore 750341

General Manager (Head of Infrastructure Engineering division)

Chua Beng Hock

40

Block 78 Bayshore Road #01-22 Singapore 469991

Assistant General Manager (Head of Corrosion Prevention division)

Phoon Kim Sin

36

Block 526 Bukit Batok Street 51 #08-88 Singapore 650526

Financial Controller

Lee Wei Liang

31

57 Park Villas Rise Singapore 545351

Finance Manager

Lee Choon Hwee

37

Block 114 Marsiling Rise #02-408 Singapore 730114

Assistant General Manager (Head of Supply and Distribution division)

94

DIRECTORS, MANAGEMENT AND STAFF Name

Age

Address

Current Occupation

Neo Chee Giap

39

Block 605 Bedok Reservoir Road #07-562 Singapore 470605

Senior Manager (Singapore)

Ong Hock Sze

41

Block 788 Yishun Avenue 2 #13-1499 Singapore 760788

Assistant General Manager (Batam)

Won Siew Wan

48

Block 362 Woodlands Avenue 5 #11-412 Singapore 730362

Human Resource Manager

Chua Wui Wui

24

Block 362 Woodlands Avenue 5 #11-412 Singapore 730362

Business Development Manager

Information on the business and working experience of our Executive Officers is set out below:– Chua Beng Yong is our General Manager and is one of our founders. He is responsible for overseeing our Group’s infrastructure engineering division, including its marketing and business development. He has more than 14 years of experience in the corrosion prevention business in the marine industry, particularly in ship blasting and painting services. He is also the General Manager of ASE and has been pivotal in establishing ASE as an infrastructure engineering company. He has received formal education up to secondary four level. Chua Beng Hock is our Assistant General Manager and is one of our founders. He is responsible for overseeing the Group’s corrosion prevention business including its marketing and business development. He has more than 12 years of experience in the corrosion prevention business in the marine industry. He was responsible for the setting up of our corrosion prevention business in Indonesia. He has received formal education up to secondary one level. Phoon Kim Sin is our Financial Controller. He is primarily responsible for our financial and accounting functions. From 1992 to 1994, he was the Graduate Assistant of Pioneer Management Services Pte. Ltd. and was in charge of handling compliance and advisory work in relation to corporate and personal tax. During the same period, he was also attached to Low, Yap & Associates, a local audit firm as an Audit Assistant. From 1994 to 1996, he was an accountant of Labroy. From 1996 to 2000, he was the Finance Manager of Labroy and in 2000, he was seconded to Nexus Engineering Pte Ltd as a Financial Controller. He was officially transferred to our Group as an employee with effect from 2004. He obtained a Bachelor of Accountancy from the Nanyang Technological University in 1992. Lee Wei Liang is our Finance Manager assisting our Financial Controller. He is in charge of the consolidation, finance, accounting and management reporting of our Group. He was seconded by Labroy to our Group as an accountant handling finance and accounting work since 2001 and was officially transferred to our Group as an employee with effect from 2004. From 2001 to 2004, he was also the Finance Manager of Nexus Engineering Pte Ltd where he was responsible for the finance and accounting work. From 1998 to 2000, he was an Audit Assistant of Bob Low and Company before being promoted to Audit Senior in 2000. He is an Associate Member of the Australian Society of Certified Practicing Accountants. He obtained a Bachelor of Accountancy from the Queensland University of Technology in 1999. Lee Choon Hwee joined our Company since 1994 and is the Assistant General Manager of our supply and distribution division. He is in charge of the day-to-day operations including the sourcing and purchasing merchandise from both the local and overseas market for our supply and distribution division. Prior to becoming our Assistant General Manager, he was a Senior Manager involved in the operations, purchasing, merchandising and distribution aspects of our supply and distribution division. Prior to that, he was involved in the operations relating to our corrosion prevention division. He received formal education up to primary school level.

95

DIRECTORS, MANAGEMENT AND STAFF Neo Chee Giap is our Senior Manager. He is responsible for the operations and the budget control of our infrastructure engineering division in Singapore. He is also the Production Manager for ASE. From 1989 to 1998, he was an Estimator of ASE involved in quantity survey work and from 1998 to 2000, he was the Assistant Ship Repair Manager and Safety Officer of ASE. From 2000 to 2001, he was the Ship Repair Manager of ASE and from 2001 to 2003, he was the Commercial Manager of ASE involved in billing and quotation. He obtained a Diploma in Marketing Management in 1991 and a Diploma in Shipbuilding and Offshore Engineering in 1986 from the Ngee Ann Polytechnic of Singapore. Ong Hock Sze is our Assistant General Manager. He is in charge of overseeing our infrastructure engineering business activities in Batam and is responsible for the business operations and the day-to-day management of our operations in Batam. He is also the Assistant General Manager of PT Nexus. He joined the Group since 1990 and has about 15 years of experience in the marine industry, particularly in ship blasting and painting services. Prior to joining the Group in 1990, he was a ship painter. He received formal education up to secondary three level. Won Siew Wan is our Human Resource Manager and has been with our Group since its incorporation. She oversees all administrative and personnel matters of the Group. In particular, she is responsible for the overall welfare, performance, recruitment and training of our employees, deployment of human resource, payroll and data processing and is involved in legal compliance and formulating and implementing administrative policies of our Group. She has over 10 years of experience in human resource. She is also a sponsor of the charity, World Vision, a non-profit organisation which provides financial assistance to the poor in the less developed countries. She obtained a Diploma in Business Management from the Singapore Institute of Management in 2003. Chua Wui Wui is our Business Development Manager and has joined us since 2003. She is responsible for the sales and marketing activities of our Group. She is also in charge of the identifying, implementing and developing new business plans and strategies of the Group to broaden and diversify the business operations of the Group. Presently, she is actively involved in the development of our supply and distribution division. She obtained a Bachelor of Business Management (Marketing) from the University of Queensland in 2002. Our Executive Directors (Chua Beng Kuang and Chua Meng Hua) and our Executive Officers (Chua Beng Yong and Chua Beng Hock) are brothers and our Substantial Shareholders. Our Executive Officers, Won Siew Wan and Chua Wui Wui, are the wife and daughter of Chua Meng Hua respectively. Our Executive Officer, Phoon Kim Sin, is the nephew of our Chairman and Non-Executive Director, Tan Boy Tee. Save as disclosed above, none of our Directors or Executive Officers are related to each other or to our Substantial Shareholders. STAFF As at 31 December 2003, we had a total of 625 full-time employees, 563 of whom were based in Singapore and 62 in Batam, Indonesia. A breakdown of the number of full-time employees in our Group by geographical location is as follows:–

Location

31 December 2001

As at 31 December 2002

31 December 2003

Singapore

517

503

563

67

81

62

584

584

625

Batam Total number of full-time employees

96

DIRECTORS, MANAGEMENT AND STAFF The functional distribution of our full-time employees are as follows:– 31 December 2001

As at 31 December 2002

31 December 2003

Management (excluding Non-Executive Directors)

20

23

25

Administration and finance

39

47

51

Marketing and sales

11

12

18

Supervisors, technical crew and site personnel

330

349

361

Engineering and fabrication

165

128

140

19

25

30

584

584

625

Function

Store and logistics Total

The relationship and co-operation between the management and staff have been good and are expected to continue in the future. There has not been any incidence of work stoppages or labour disputes which affected our operations. Sub-contractors Generally, we engage subcontractors to carry out corrosion prevention services, welding works, quality testing and inspection for our corrosion prevention and infrastructure engineering projects. PT Nexus engages workers on a short-term basis for our Batam yard through a local employment agency. For FY2001, FY2002 and FY2003, our subcontract costs constituted approximately 24.9%, 19.2% and 26.5% of our Group’s cost of sales respectively. DIRECTORS’ AND EXECUTIVE OFFICERS’ REMUNERATION Directors The compensation paid or payable (including Directors’ fees) to each of our Directors and Executive Officers for services rendered to us and our subsidiaries on an individual basis for FY2002, FY2003 and FY2004, in bands of $250,000 per annum, were as follows:– FY2002(1)

FY2003(1)

FY2004 (estimated)(1)

A

A

A

B(4)

A

B

(4)

A

B

A

A

A

Goh Chee Wee

N.A.

N.A.

A

Wong Chiang Yin

N.A.

N.A.

A

Chua Beng Yong

B(4)

A

A

Chua Beng Hock

A

(4)

A

A

Phoon Kim Sin(2)

N.A.

N.A.

A

Lee Choon Hwee

A

A

A

Ong Hock Sze

A

A

A

Directors Tan Boy Tee Chua Beng Kuang(3) Chua Meng Hua

(3)

B

Yong Thiam Fook

Executive Officers

97

DIRECTORS, MANAGEMENT AND STAFF Notes:– (1)

Band A : Band B : N.A. :

compensation of between $0 to $250,000 per annum compensation of between $250,001 to $500,000 per annum not applicable

(2)

Phoon Kim Sin was formally employed by our Company on 1 February 2004. If he were formally employed in FY2002 and FY2003, his remuneration would be within the range of Band A .

(3)

The estimated compensation to each of Chua Beng Kuang and Chua Meng Hua for FY2004 does not include any incentive bonus payable under their respective Service Agreements described on pages 100 and 101 of this Prospectus.

(4)

The compensation to each of Chua Beng Kuang, Chua Meng Hua, Chua Beng Yong and Chua Beng Hock in FY2002 includes incentive bonuses which were taken into account in the accounts in FY2002 but was only paid out in FY2003.

Pension or retirement benefits We did not set aside or accrue any pension or retirement benefits during FY2003 for any of our employees, save for CPF. Review of remuneration of Directors, Executive Officers and Employees who are related to our Directors or Substantial Shareholders. Chua Beng Kuang and Chua Meng Hua, our Executive Directors and Substantial Shareholders, are the brothers of Chua Beng Yong and Chua Beng Hock, who are our Executive Officers and Substantial Shareholders. Won Siew Wan and Chua Wui Wui are Executive Officers who are related to our Executive Directors as they are the wife and daughter respectively of our Executive Director, Chua Meng Hua and their designations and responsibilities are described on pages 94 to 96 under “Executive Officers”. Sim Kong Yuen who is an Engineer of ASE is the nephew of our Executive Directors and our Substantial Shareholders. Chua Min Kong is the brother of our Executive Directors and our Substantial Shareholders and supervises the warehouse and trading operations at PT Master. Phoon Kim Sin, who is our Executive Officer, is the nephew of our Chairman and Non-Executive Director, Tan Boy Tee. Save for Phoon Kim Sin, who was formally employed by our Company on 1 February 2004, the aggregate remuneration (which included salaries and CPF contributions) of these related employees, namely Won Siew Wan, Chua Wui Wui, Sim Kong Yuen and Chua Min Kong, for FY2002 and FY2003 were approximately $91,000 and $160,000 respectively. These represent approximately 5.8% and 5.1% of our profit before taxation (before deduction of such remuneration) for FY2002 and FY2003 respectively. The basis of determining the remuneration of these related employees was the same as the basis of determining the remuneration of other unrelated employees. The remuneration of each of our Directors, Executive Officers and any employees who are related to our Directors or Substantial Shareholders shall be subject to the annual review and approval of the majority of our Remuneration Committee. This is to ensure that their remuneration packages are in accordance with our Group’s staff remuneration policy and commensurate with their respective job scopes and level of responsibilities. In the event that a member of our Remuneration Committee is related to any Director, Executive Officer or employee whose remuneration is under review, he will abstain from the review. CORPORATE GOVERNANCE Our Directors recognise the importance of corporate governance and the need for high standards of accountability to the shareholders of our Company and will follow closely the best practices outlined in the Best Practices Guide issued by the SGX-ST and the provisions of the Code of Corporate Governance. Our Board of Directors has formed three committees:– Audit Committee Our Group’s business and operations are currently under the management of our Managing Director, Chua Beng Kuang and our Executive Director, Chua Meng Hua. 98

DIRECTORS, MANAGEMENT AND STAFF Our Executive Directors will continue to manage the operations of our Company and our subsidiaries and our Audit Committee will provide the necessary checks and balances as set out below. Our Audit Committee comprises Goh Chee Wee, Wong Chiang Yin and Yong Thiam Fook. The chairman of the Audit Committee is Goh Chee Wee. Our Audit Committee will assist our Board in discharging their responsibility to safeguard our assets, maintain adequate accounting records and develop and maintain effective systems of internal control, with the overall objective of ensuring that our management creates and maintains an effective control environment in our Group. Our Audit Committee will provide a channel of communication between our Board, our management and our external auditors on matters relating to audit. In particular, our Audit Committee will meet periodically to perform the following:– (a)

review with the external auditors the audit plan, their evaluation of the system of internal accounting controls, their letter to management and the management’s response;

(b)

review the quarterly and annual financial statements and balance sheet and profit and loss accounts before submission to our Board for approval, focusing in particular on changes in accounting policies and practices, major risk areas, significant adjustments resulting from the audit, compliance with accounting standards and compliance with the SGX-ST Listing Manual and any other relevant statutory or regulatory requirements;

(c)

review the internal control procedures and ensure co-ordination between the external auditors and our management and review the assistance given by our management to the auditors and discuss problems and concerns, if any, arising from the interim and final audits and any matters which the auditors may wish to discuss (in the absence of our management, where necessary);

(d)

review and discuss with the external auditors any suspected fraud or irregularity, or suspected infringement of any relevant laws, rules or regulations, which has or is likely to have a material impact on our Group’s operating results or financial position and our management’s response;

(e)

consider the appointment or re-appointment of the external auditors and matters relating to the resignation or dismissal of the auditors;

(f)

review interested person transactions (if any) falling within the scope of Chapter 9 of the SGX-ST Listing Manual;

(g)

review potential conflicts of interest, if any;

(h)

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

(i)

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

Remuneration Committee Our Remuneration Committee comprises Goh Chee Wee, Wong Chiang Yin and Yong Thiam Fook. The Chairman of the Remuneration Committee is Yong Thiam Fook. Our Remuneration Committee will be responsible for recommending to our Board a framework of remuneration for the Directors and key executives and determine specific remuneration packages for each Executive Director. The recommendations of our Remuneration Committee will be submitted for endorsement by the entire Board. All aspects of remuneration, including but not limited to directors’ fees, salaries, allowances, bonuses, options and benefits in kind shall be covered by our Remuneration Committee. Each member of the Remuneration Committee shall abstain from voting on any resolutions and making recommendations and/or participating in any deliberations of the Remuneration Committee in respect of his remuneration package. 99

DIRECTORS, MANAGEMENT AND STAFF Nominating Committee Our Nominating Committee comprises Goh Chee Wee, Wong Chiang Yin and Yong Thiam Fook. The Chairman of the Nominating Committee is Wong Chiang Yin. Our Nominating Committee will be responsible for (i) re-nomination of our Directors having regard to the Director’s contribution and performance; (ii) determining annually whether or not a Director is independent; and (iii) deciding whether or not a Director is able to and has been adequately carrying out his duties as a director. The Nominating Committee will decide on how the Board’s performance is to be evaluated and propose objective performance criteria, subject to the approval of the Board, which address how the board has enhanced long-term shareholders’ value. The Board will also implement a process to be carried out by the Nominating Committee for assessing the effectiveness of the Board as a whole and for assessing the contribution by each individual Director to the effectiveness of the Board. Each member of the Nominating Committee shall abstain from voting on any resolutions and making any recommendations and/or participating in any deliberations of the Nominating Committee in respect of the assessment of his performance or re-nomination as Director. BOARD PRACTICES Our Directors are appointed by our Shareholders at a general meeting and an election of Directors takes place annually. One-third (or the number nearest one-third) of our Directors (other than the Managing Director, if any or a Director holding an equivalent position), are required to retire from office at each annual general meeting. Further, all our Directors (other than the Managing Director, if any or a Director holding an equivalent position) are required to retire from office at least once in every three years. However, a retiring Director is eligible for re-election at the meeting at which he retires. Further details on the appointment and retirement of Directors can be found under “Extracts of Articles of Association of our Company” in Appendix 3 of the Prospectus. SERVICE AGREEMENTS On 27 August 2004, our Company entered into separate service agreements with Chua Beng Kuang and Chua Meng Hua (collectively “the Appointees”, and each or any, the “Appointee”). Each service agreement is valid for an initial period of three years from 1 January 2004. Upon the expiry of the initial period of three years, the employment of each Appointee shall be automatically renewed on a three-year basis on such terms and conditions as the parties agree. During the initial period of three years, the Appointees or our Company may terminate the service agreement by giving to the other party not less than six months’ notice in writing, or in lieu of notice, payment of an amount equivalent to six months’ salary based on the Director’s last drawn salary. Our Company may also terminate the employment of the Appointee without notice or payment in lieu of notice under the following circumstances:– (i)

if the Appointee is guilty of any gross default or grave misconduct in connection with or affecting the business of our Group; or

(ii)

in the event of any serious or repeated breach or non-observance by the Appointee of any of the stipulations contained in the service agreement; or

(iii)

if the Appointee becomes bankrupt or makes any composition or enters into any deed of arrangement with his creditors; or

(iv) if the Appointee shall become of unsound mind. Pursuant to the terms of the respective service agreements, Chua Beng Kuang is entitled to receive a monthly salary of $20,000 and Chua Meng Hua is entitled to receive a monthly salary of $15,000. They will each be entitled to receive an annual wage supplement of up to one month’s salary, a fixed annual bonus of two months’ salary, an annual salary increment to be decided by and subject to the approval of the Remuneration Committee in addition to the incentive bonus described below.

100

DIRECTORS, MANAGEMENT AND STAFF Our Company will provide each Appointee with a fixed allowance of $5,000 per month for expenses incurred by him in connection with his car, such as expenses for car park charges, maintenance and repair expenses as well as the road tax and car insurance incurred for the said car. Each Appointee is also entitled to country club memberships and reimbursement for all expenses incurred in connection with the respective memberships. The Appointees are also provided full insurance coverage, including personal accident insurance and hospitalisation insurance coverage and full medical and dental benefits by our Company. Each Appointee will also be paid an incentive bonus based on our PBT, provided that our PBT equals to or exceeds $3,000,000 for the financial year. For this purpose, “PBT” shall refer to the audited consolidated profits before taxation and before profit sharing (excluding non-recurring exceptional items and extraordinary items) but before minority interests of the Group for the relevant financial year. The amount of incentive bonus that each Appointee will receive in each financial year will be determined as follows:–

PBT

Amount/Rate of Incentive bonus paid to each Appointee

Where the PBT is less than $3,000,000

NIL

Where the PBT is $3,000,000 or more but not more than $4,000,000

Two-point-five per cent. (2.5%) of the actual PBT achieved by the Group

Where the PBT is $4,000,000 or more but not more than $5,000,000

Three per cent. (3%) of the actual PBT achieved by the Group

Where the PBT is more than $5,000,000

Three-point-five per cent. (3.5%) of the actual PBT achieved by the Group

Under the service agreements, the remuneration of the Appointees are subject to review by the Remuneration Committee on the first day of January in each year of service. The Remuneration Committee shall review the terms of the service agreements when they are renewed upon expiry. The relevant Appointee shall abstain from voting in respect of any resolution or decision to be made by the Board of Directors in relation to the terms and renewal of his service agreement. Had the service agreements been in place in FY2003, the aggregate remuneration (including contribution to CPF and other benefits) paid to the Appointees would have been $0.69 million instead of $0.47 million and our profit before taxation and profit attributable to shareholders would have been $2.77 million and $2.13 million respectively instead of $2.99 million and $2.30 million respectively. Save as disclosed above, there are no other existing or proposed service agreements between our Group and any of our Directors or Executive Officers. There is no existing or proposed service contract entered or to be entered into by our Directors with our Company or any of our subsidiaries which provide for benefits upon termination of employment.

101

INTERESTED PERSON TRANSACTIONS AND CONFLICTS OF INTEREST POTENTIAL CONFLICTS OF INTEREST Labroy is our Controlling Shareholder and its business activities are organised into three divisions namely, shipping, shipbuilding and repair, and technology. Pursuant to the Restructuring Exercise, Labroy has three subsidiaries in its shipbuilding and repair division, namely Heng Huat Shipbuilding & Construction Pte. Ltd., Asian Sealand Infrastructure & Construction Sdn. Bhd. and Tellus Engineering Construction Pte Ltd, which provide steel works services. In addition, Labroy has another subsidiary, Tellus Marine Engineering Pte Ltd, which provides steel piping work services. Heng Huat Shipbuilding & Construction Pte. Ltd. (“Heng Huat”) and Asian Sealand Infrastructure & Construction Sdn. Bhd. (“ASIC”) Heng Huat and its subsidiary, ASIC, provide steel works services for ship hulls in connection with shipbuilding, ship conversion and ship repair activities serving both the Labroy Group and other third parties (mainly shipyards). The businesses of Heng Huat and ASIC and our infrastructure engineering activities are different in the following areas:– (a)

Scope of services — Heng Huat and ASIC focus on the welding services for ship hulls whereas our infrastructure engineering division covers the planning, project management and implementation of a fabrication project. Our projects typically cover a wider work scope that includes design and engineering, procurement of materials, cutting and corrosion prevention, in addition to welding of steel.

(b)

Industry focus — Heng Huat and ASIC provide on-site welding services on the hulls of ships that are docked at the shipyards. On the other hand, our services involve fabricating steel work modules or structures to be installed on offshore structures (e.g. vessels or oil rigs used in oil and gas industry), or land-based structures (e.g. buildings and power plants). Generally, we carry out the fabrication projects at our fabrication premises for installation at our customers’ worksite.

Notwithstanding that there is no actual conflict of interest between the business activities of Heng Huat, ASIC and our Group, our Company has entered into a Non-Competition Agreements dated 28 August and 30 August 2004 with Heng Huat and ASIC, respectively to deal with any potential conflicts of interest that may arise in future, which provide for, inter alia:– (a)

Heng Huat and ASIC will confine their business to the provision of services relating to ship hull works for shipbuilding, ship conversion and ship repair services in Singapore, Malaysia and Batam.

(b)

Our Group will not provide any services relating to ship hull works for shipbuilding, ship conversion and ship repair activities in Singapore, Malaysia and Batam.

(c)

The aforesaid agreement will terminate automatically when Labroy ceases to be our Controlling Shareholder, or ceases to hold any interest in Heng Huat, whichever is the earlier.

Tellus Engineering Construction Pte Ltd (“TEC”) TEC is in the process of winding down its operations with a view to cease operations and will be liquidated in due course.

102

INTERESTED PERSON TRANSACTIONS AND CONFLICTS OF INTEREST Tellus Marine Engineering Pte Ltd (“TME”) TME is a subsidiary of Labroy which provides the following services:– (a)

steel piping works (such as piping and mechanical fitting jobs) for ships in connection with shipbuilding, ship conversion and ship repair activities to the Labroy Group and other third parties (mainly shipyards);

(b)

fabrication of steel pipes for the offshore and land-based structures.

When TME is awarded a steel pipe fabrication project that involves steel structure works as a component, it will generally sub-contract the steel structure works to a third party, including us. Where our turnkey fabrication projects for steel work modules and structures require fabrication of steel pipes, we may carry out the fabrication of the steel pipes either by ourselves or sub-contract to third parties. However, our Group has no intention to develop a specialty in piping works as our Group’s core skills in fabrication projects are in planning and project management. Based on our Directors’ estimation of the extent of steel piping works constituting our infrastructure engineering projects, the contribution of steel piping works and the fabrication of steel pipes to our Group’s revenue for FY2001, FY2002 and FY2003 were approximately 11.1%, 1.8% and 1.1% respectively. To resolve any potential conflicts of interest that may arise from our Group and TME competing for fabrication works involving steel pipes, our Group and TME have entered into a Co-operation and Non-Competition Agreement dated 30 August 2004, such that TME will concentrate on steel piping works and fabrication of steel pipes whereas we will focus on fabrication of steel work modules and structures. The Co-operation and Non-Competition Agreement will provide, inter alia:– (a)

TME will not tender, pitch for or secure any work requiring primarily the fabrication of steel work structures (including pipe structures which are steel structures formed by using steel pipes) or process modules (other than works relating to steel pipe fabrication).

(b)

Where TME secures any project or job that requires the fabrication of steel works or structures as a component, it will invite our Group to quote and will offer to our Group the first right of refusal to sub-contract for such work provided that our quote is not higher than the lowest quote from at least two other independent third parties.

(c)

Where our Group secures any project or job that requires the fabrication of steel pipes as a component, it will invite TME to quote and will offer to TME the first right of refusal to sub-contract for such works provided that TME’s quote is not higher than the lowest quote from at least two other independent third parties.

(d)

TME and our Group will furnish documentary evidence to each other to satisfy the other that it has complied with its obligations under the aforesaid agreement.

(e)

The aforesaid agreement will terminate automatically when Labroy ceases to be our Controlling Shareholder, or ceases to hold any interest in TME, whichever is the earlier.

As at the date of this Prospectus, none of the Directors nominated by Labroy is holding an executive position in our Group. All sub-contract work between TME and our Group will be conducted at arm’s length basis and on normal commercial terms and subject to the review or approval (where necessary) of our Audit Committee after the listing of our Group. Where a matter relates to the sub-contract work between TME and our Group that requires our Board approval, all Directors who are nominated by Labroy will abstain from voting. Apart from TME, no other member of the Labroy Group is involved as contractors in steel piping work for the non-marine industry.

103

INTERESTED PERSON TRANSACTIONS AND CONFLICTS OF INTEREST Other Subsidiaries of Labroy Although other members of the Labroy Group (other than our Group) also handle steel and piping works in connection with shipbuilding, ship conversion and ship repair activities, they only provide such works at shipyards owned or operated by the Labroy Group. To the best of our Directors’ knowledge, none of the other members of the Labroy Group, save for Heng Huat, ASIC, TEC and TME as disclosed on pages 102 to 103 of the Prospectus, have provided such services at shipyards owned or operated by third parties. However, to resolve any potential conflict of interest whereby our Group or Labroy Group may tender or bid for the same project involving the fabrication of a process module or components of any process module, Labroy has entered into a written undertaking with our Company with the details as provided below. Generally, our infrastructure engineering projects are relatively small in terms of size and scope compared to the projects which the Labroy Group handles and as such, the scope of our projects will not overlap entirely the scope of Labroy Group’s projects. Therefore, our Directors believe that there are no conflicts of interest between the Labroy Group and our Group’s infrastructure engineering division. To align the interest of Labroy Group with our Group’s interest and to regulate any potential conflicts of interest that may arise in future, Labroy has entered into a written undertaking with our Company which provides as follows:– (a)

Labroy will not provide corrosion prevention services as a contractor outside its own shipyards;

(b)

In the event that our Group has tendered or bid for any project involving the fabrication of a process module or components of any process module for which the Labroy Group has also tendered or bid for, Labroy, if successful in the tender or bid, will offer our Group the first right of refusal to sub-contract for such work tendered or bid by our Group provided that our quote is not higher than the lowest quote from at least two other independent third parties;

(c)

In the event that the Labroy Group has tendered or bid for any project involving the fabrication of a process module or components of any process module for which our Group has tendered or bid for, our Group, if we are successful in the tender or bid, will offer the Labroy Group the first right of refusal to sub-contract for such work tendered or bid by the Labroy Group provided that their quote is not higher than the lowest quote from at least two other independent third parties; and

(d)

The aforesaid undertaking will terminate automatically when Labroy ceases to be our Controlling Shareholder.

Labroy has confirmed that, to the best of its knowledge, as at the Latest Practicable Date, save as disclosed in this Prospectus, it is not aware of any other past or on-going material interested person transactions or any other actual or potential conflict of interests between the then Beng Kuang Marine Pte Ltd and Labroy Marine Limited. Save as disclosed in this “Potential Conflicts of Interest” section and the “Interested Person Transactions” section on pages 102 to 113 of this Prospectus:– (i)

none of our Directors, Executive Officers or Controlling Shareholders or any of their Associates has any interest, direct or indirect, in any transaction to which our Group is a party;

(ii)

none of our Directors, Executive Officers or Controlling Shareholders or any of their Associates has had any interest, direct or indirect, in any company carrying on the same business or a similar trade which competes materially and directly with the existing business of our Group; and

(iii)

none of our Directors, Executive Officers or Controlling Shareholders or any of their Associates has any interest, direct or indirect, in any company that is our customer or supplier of goods and services.

104

INTERESTED PERSON TRANSACTIONS AND CONFLICTS OF INTEREST INTERESTED PERSON TRANSACTIONS Save as disclosed in this Prospectus, none of our Directors, Controlling Shareholders or Associates of such Directors or Controlling Shareholders, were or are interested in any material transactions undertaken by our Group within the past three financial years and for the period from 1 January 2004 up to the Latest Practicable Date. PAST TRANSACTIONS Acquisition of PT Nexus from Nexus Engineering Pte Ltd (“NEPL”) In November 2002, our Company acquired the entire issued share capital of $132,798 of PT Nexus from Nexus Engineering Pte Ltd, a wholly-owned subsidiary of Labroy. This acquisition was to facilitate our expansion into the Indonesian market. The purchase consideration of $133,012 was based on the NTA of PT Nexus as at 31 October 2002. The acquisition resulted in PT Nexus becoming a wholly-owned subsidiary of our Company. The transaction was conducted at arm’s length and on normal commercial terms. The consideration amount has been settled as at 31 December 2003. Purchase of machinery and equipments by NEPL During the set up of PT Nexus’ operation, NEPL purchased a CNC underwater plasma cutting machine, a motor vehicle, and office and workshop equipment for PT Nexus. The CNC underwater plasma cutting machine was subsequently transferred at cost for use by our wholly-owned subsidiary ASE in FY2001. Furthermore, as a result of our acquisition of PT Nexus in FY2002, we assumed the debt due to NEPL in relation to the purchases of the motor vehicle and office and workshop equipment. Our Group’s aggregate outstanding amount owing to NEPL were approximately $273,000, $224,000 and $108,000 as at end of FY2001, FY2002 and FY2003 respectively. As at the Latest Practicable Date, there are no outstanding balances. Management Fee to NEPL NEPL provides accounting, administrative and IT support services to us and other companies within the Labroy Group. NEPL charges management fees to these companies for the provision of these services. At the beginning of each financial year, NEPL estimates its operating costs plus a mark-up ranging from approximately three per cent. (3%) to five per cent. (5%) to derive the quantum of the fixed fees to be charged for that financial year. The fee is then apportioned to the respective companies based on factors such as the estimated time spent by their personnel. The fees are reviewed on an annual basis. Our Executive Officers, Phoon Kim Sin and Lee Wei Liang, were seconded from NEPL to our Group from 2000 to early 2004. The aggregate amount paid to NEPL as consideration for its support services for FY2001, FY2002 and FY2003 are as follows:– $’000 Aggregate amount of management fee

FY2001

FY2002

FY2003

192

72

72

The management fee charged by NEPL took into account the actual costs for the provision of such services. With the transfer of Phoon Kim Sin and Lee Wei Liang from NEPL to our Group, we have ceased this service arrangement with NEPL with effect from 1 February 2004. As at the Latest Practicable Date, the management fee due to NEPL was $12,000. Products sold and Services rendered to Nexus Sealand Engineering Sdn. Bhd. (“NSE”) NSE is a subsidiary of Labroy and engages in piping and steel construction works for the marine industry and land-based structures in West Malaysia. We started to supply hardware equipment and products to NSE in FY2001 and subsequently rendered our corrosion prevention services to them in FY2002. The aggregate amount charged to NSE were approximately $324,097, $295,300 and nil in 105

INTERESTED PERSON TRANSACTIONS AND CONFLICTS OF INTEREST FY2001, FY2002 and FY2003 respectively. The aggregate amount due from NSE as at 31 December 2003 was $507,109. As at the Latest Practicable Date, the aggregate amount due from NSE has been fully settled. The rates for our services and prices of our hardware equipment and products supplied to NSE were comparable to those charged to our other customers and such transactions have been conducted at arm’s length and on normal commercial terms. NSE has been dormant since mid 2003. PRESENT AND ON-GOING TRANSACTIONS Trade Transactions with Labroy Shipbuilding & Engineering Pte Ltd (“LSE”) LSE, a wholly-owned subsidiary of Labroy, is involved in ship repair, shipbuilding and ship conversion activities in Batam. Our transactions with LSE include mainly the provision of corrosion prevention services and the sale of hardware equipment to LSE since 1997. To a lesser extent, we have also procured steel materials and equipment from LSE on occasions when we do not have sufficient supplies necessary to complete our infrastructure engineering projects. The aggregate sales and purchases between our Group and LSE for FY2001, FY2002 and FY2003 are as follows:– $’000 Aggregate amount of sales to LSE Aggregate amount of purchases from LSE

FY2001

FY2002

FY2003

2,902

2,501

2,197

75

246

16

The total outstanding amount due from LSE and payable to LSE as at 31 December 2003 were approximately $981,000 and $342,000 respectively. As at the Latest Practicable Date, the amount due from and payable to LSE were approximately $1,239,000 and $390,000, respectively. The rates for our services and prices of our products supplied to LSE are comparable to those charged to our other customers and such transactions have been conducted at arm’s length basis and on normal commercial terms. Similarly, the prices of products purchased from LSE are comparable to market prices and the transactions have been conducted at arm’s length basis and on normal commercial terms. We intend to continue our transactions with LSE in the future and our Audit Committee will review these transactions on a periodic basis. Rental of Property from LSE We have leased the fabrication facilities at Batam from LSE since July 2001 for our Indonesian operations. The monthly rental charge is $14,000 and the current lease period is one year from 1 January 2004 with an option to renew for another year. Our rental amount is about ten per cent. (10%) lower than the fair market rental rate, and the other terms of the lease are based on normal commercial terms and entered into between the parties on an arm’s length basis. The aggregate amount of rental charges for FY2001, FY2002 and FY2003 are as follows: – $’000

FY2001

Aggregate amount of rental charges charged by LSE

—

(1)

FY2002

FY2003

252

168

Note:– (1)

Although we started to lease the facility in July 2001, the monthly rental charges for the period from July 2001 to December 2001 was only finalised and billed in FY2002.

The rental charges owing to LSE as at 31 December 2003 was $56,000. As at the Latest Practicable Date, the amount of rental charges due to LSE was approximately $28,000. 106

INTERESTED PERSON TRANSACTIONS AND CONFLICTS OF INTEREST We intend to continue our lease with LSE in the future and the terms of our future lease will be subject to the review of our Audit Committee. Trade Transactions with PT Nanindah Mutiara Shipyard (“PT Nanindah”) PT Nanindah is a wholly-owned subsidiary of LSE and engages in vessel construction and ship repair activities. PT Nanindah owns the Labroy Group’s shipyard in Batam. Our transactions with PT Nanindah include the provision of corrosion prevention services as well as the sale of copper slag, steel grit and other hardware products to PT Nanindah. In addition, we purchase from PT Nanindah steel materials and equipment on occasions when we do not have sufficient supplies necessary to complete our fabrication projects undertaken by PT Nexus. The aggregate sales and purchases between our Group and PT Nanindah for FY2001, FY2002 and FY2003 are as follows:– $’000 Aggregate amount of sales to PT Nanindah Aggregate amount of purchases from PT Nanindah

FY2001

FY2002

FY2003

699

816

843

12

22

8

The outstanding amount due from PT Nanindah as at 31 December 2003 was approximately $372,000. As at the Latest Practicable Date, the amount due from PT Nanindah was approximately $170,000. There were no amounts due to PT Nanindah as at 31 December 2003 and at the Latest Practicable Date. The rates for our services and prices of our products supplied to PT Nanindah are comparable to those charged to our other customers and such transactions have been conducted at arm’s length basis and on normal commercial terms. The prices of products purchased from PT Nanindah are comparable to market prices and these purchases have been conducted at arm’s length basis and on normal commercial terms. We intend to continue our transactions with PT Nanindah in the future and our Audit Committee will review these transactions on a periodic basis. Rental of Properties from PT Nanindah Since July 2002, we have leased premises at Batam from PT Nanindah. The premises are used as a recycling workshop for our grit blasting work. The monthly rental charge is $6,000 and the period of the current lease is one year commencing from 1 July 2004. Our rental amount is about ten per cent. (10%) below fair market rental rate, and the other terms of the lease are based on normal commercial terms, and entered into between the parties on an arm’s length basis. PT Nanindah had made certain payments on our behalf for water and electricity charges, incurred by us at the above premises. The aggregate rental and utility charges for the past three financial years are as follows:– $’000

FY2001

FY2002

FY2003

Aggregate amount of rental charges charged by PT Nanindah

—

36

72

Aggregate amount of utility charges charged by PT Nanindah

40

235

(13)(1)

Note:– (1)

PT Nanindah issued credit notes of approximately $110,500 against our electricity charges for prior years as a result of over-charges by PT Nanindah in respect of prior years’ electricity charges. As our electricity and water charges for FY2003 were approximately $97,500, the net effect resulted in an income of $13,000 in our favour for FY2003.

As our landlord, PT Nanindah will first make full payment of these utility charges to the local authorities in Batam and we will subsequently reimburse PT Nanindah for the amounts paid. The utility charge

107

INTERESTED PERSON TRANSACTIONS AND CONFLICTS OF INTEREST outstanding owing to PT Nanindah as at 31 December 2003 was approximately $259,000. As at the Latest Practicable Date, the outstanding balance owing to PT Nanindah was approximately $17,000. The rental charges due to PT Nanindah as at 31 December 2003 was $108,000. As at the Latest Practicable Date, the amount of rental charge due to PT Nanindah was approximately $18,000. We intend to continue our lease with PT Nanindah in the future and the terms of our future lease will be subject to the review of our Audit Committee. In addition, we intend to reimburse all future utility charges due to PT Nanindah within 60 days after being invoiced. Trade Transactions with Tellus Engineering Construction Pte Ltd (“TEC”) TEC is a subsidiary of Heng Huat Shipbuilding & Construction Pte. Ltd., which in turn is a wholly-owned subsidiary of Labroy. TEC specialises in steel works fabrication for ship repair, shipbuilding, ship conversion and offshore oil rigs. Its activities are carried out mainly at shipyards. During the last three financial years, our services to TEC included engineering fabrication, supply of hardware, supply and repair of equipment and provision of training to its workers. We had also engaged TEC to undertake some of our welding jobs. The aggregate amount of transactions between our Group and TEC for FY2001, FY2002 and FY2003 are as follows:– $’000 Aggregate amount of sales to TEC Aggregate amount of purchases from TEC

FY2001

FY2002

FY2003

627

495

331

5

—

5

The outstanding amount due from and payable to TEC as at 31 December 2003 were approximately $408,000 and $11,000, respectively. As at the Latest Practicable Date, the amount due from and payable to TEC was approximately $189,000 and $25,000, respectively. The rates for our services and prices of our products supplied to TEC were comparable to those charged to our other customers and such transactions have been conducted at arm’s length basis and on normal commercial terms. The rates for services rendered by TEC are comparable to market prices and such transactions have been conducted at arm’s length basis and on normal commercial terms. TEC is presently fulfilling its outstanding contractual commitments with a view to winding down its operations and will be liquidated in due course. We will continue to provide our products and services to TEC until the completion of its existing contractual commitments. Trade Transactions with Tellus Marine Engineering Pte Ltd (“TME”) TME, a subsidiary of Heng Huat Shipbuilding & Construction Pte. Ltd., is a piping works specialist which serves mainly at shipyards in Singapore. It handles piping and mechanical fitting jobs for ships and rigs relating to shipbuilding, ship conversion and ship repair activities. During the last three financial years, our services to TME included mainly the provision of engineering fabrication, training services and hardware supply. In addition, we also subcontracted to TME some of our pipe fabrication jobs under our turnkey engineering projects. The aggregate amount of transactions between our Group and TME for the FY2001, FY2002 and FY2003 are as follows:– $’000 Aggregate amount of sales to TME

108

FY2001

FY2002

FY2003

299

749

374

INTERESTED PERSON TRANSACTIONS AND CONFLICTS OF INTEREST $’000 Aggregate amount of purchases from TME

FY2001

FY2002

FY2003

42

37

55

The outstanding amount due from and payable to TME as at 31 December 2003 were approximately $580,000 and $63,000, respectively. As at the Latest Practicable Date, the amount due from and payable to TME was approximately $764,000 and $273,000, respectively. The rates for our services and prices of our products supplied to TME are comparable to those charged to our other customers and such transactions have been conducted at arm’s length basis and on normal commercial terms. Similarly, the rates for services rendered by TME are comparable to market prices and these transactions have been conducted at arm’s length basis and on normal commercial terms. We intend to continue our transactions with TME in the future and our Audit Committee will review these transactions to TME on a periodic basis. Trade Transactions with Heng Huat Shipbuilding & Construction Pte. Ltd. (“Heng Huat”) Heng Huat, a wholly owned subsidiary of Labroy, is in the business of providing services relating to steel works for vessels, such as naval and coast guard vessels. During the last three financial years, our services to Heng Huat included mainly hardware equipment and products, steel work fabrication and training for its workers. We had also outsourced some of our steel work welding jobs to Heng Huat. The aggregate sales and purchases arising from our transactions with Heng Huat for FY2001, FY2002 and FY2003 are as follows:– $’000 Aggregate amount of sales to Heng Huat Aggregate amount of purchases from Heng Huat

FY2001

FY2002

234

222

73

20

FY2003 1,069(1) (24)(2)

Notes:– (1)

In FY2003, Heng Huat engaged our subsidiary, ASE, to renovate its premises at 38 Tuas View Square, including providing civil works and electrical installation. ASE appointed sub-contractors, whose fees were approved by Heng Huat, to implement the renovation work. The aggregate amount for the renovation work charged to Heng Huat, including the sub-contractors’ fees, was approximately $928,000. The remaining balance of sales to Heng Huat in FY2003 is mainly attributable to the supply of our hardware equipment and products.

(2)

In FY2003, Heng Huat had issued a credit note for the amount of $24,000, of which $15,000 was related to services provided to our Group in FY2000 while the remaining amount was for services provided in FY2001.

The outstanding amount due from and payable to Heng Huat as at 31 December 2003 were approximately $251,000 and $360,000, respectively. As at the Latest Practicable Date, the amount due from and payable to Heng Huat were approximately $51,000 and $105,000, respectively. The rates for our services and prices of our products supplied to Heng Huat have been determined on arm’s length basis and on normal commercial terms. Similarly, the rates for services provided by Heng Huat are comparable to market prices and such transactions have been conducted at arm’s length basis and on normal commercial terms. We intend to continue our transactions with Heng Huat in the future and our Audit Committee will review these transactions with Heng Huat on a periodic basis. Please refer to our transactions with Well Commercial Pte Ltd for details of our other transactions involving Heng Huat set out on page 112 of this Prospectus. Rental of Property from Heng Huat With effect from 1 January 2004, we have leased premises at 38 Tuas View Square from Heng Huat. The leased property is used mainly for office premises, warehouse and workers’ accommodation. The

109

INTERESTED PERSON TRANSACTIONS AND CONFLICTS OF INTEREST monthly rental charge is $35,000 and the period of the lease is one year commencing from 1 January 2004 with an option to renew for another year. Our rental amount is about three per cent. (3%) lower than the fair market rental rate, and the other terms of the lease are based on normal commercial terms and entered into between the parties on an arm’s length basis. As at the Latest Practicable Date, the total outstanding payable to Heng Huat, in relation to the rental charges, was approximately $70,000. We intend to continue our lease with Heng Huat in the future and the terms of our future lease will be subject to the review of our Audit Committee. Heng Huat has made certain payments on our behalf amounting to approximately $1,100 and $3,100 for FY2001 and FY2002 respectively relating to workers’ quarters used by our Group’s employees. In FY2003, the charges from Heng Huat amounted to $123,000 and this was mainly due to wages for a staff that was seconded from Heng Huat to assist in our operation in ASIC as well as utility charges allocated for our use of Heng Huat’s premises at 38 Tuas View Square. The outstanding amount due from us as at 31 December 2003 was approximately $108,000. As at the Latest Practicable Date, the outstanding amount due from us was approximately $11,000. We intend to reimburse all such future non-trade payables to Heng Huat within 60 days after being invoiced. Loans, Advances and Reimbursements relating to Labroy and its subsidiaries We had, in the past, obtained loans from Heng Huat and NEPL to fund our working capital requirements. The loans were advanced to us at annual interest rates ranging from 3.43% to 5.0% in FY2001, 2.70% to 4.50% in FY2002 and 1.60% to 2.87% in FY2003 which were based on the prevailing bank lending rate. The loans are unsecured and have no fixed repayment terms. These loans have been entered into at arm’s length. The amount of outstanding loan and the related interest expense as at the end of FY2001, FY2002 and FY2003 are set out below. $’000

FY2001

FY2002

FY2003

Amount of loan owing as at year end —

Heng Huat

1,889

675

673

—

NEPL

1,617

1,610

1,607

Interest expense —

Heng Huat

60

38

—(1)

—

NEPL

45

49

41

Note: (1)

Interest of approximately $30,000 was waived due to an off-setting arrangement in respect of overdue outstanding trade receivables owing by some of Labroy’s subsidiaries in FY2003.

As at the Latest Practicable Date, the outstanding loans and interests owing to Heng Huat and NEPL have been fully paid and no amounts remain outstanding. The highest loan amounts owing to Heng Huat and NEPL over the last three financial years were approximately $2.1 million and $1.6 million respectively. We do not intend to obtain any further loans and advances from Heng Huat and NEPL in the future.

110

INTERESTED PERSON TRANSACTIONS AND CONFLICTS OF INTEREST Save for reimbursements for non-trade payables to PT Nanindah and Heng Huat (as mentioned on pages 107 and 109 respectively of the Prospectus), we also reimbursed Labroy and its other subsidiaries for expenses mainly relating to professional services, corporate secretarial matters and shared workers’ quarters that were paid on our behalf. Over the last three financial years, such reimbursements have not been more than $40,000 per year. We would expect a significant reduction of such non-trade payables as we would engage our own professionals for their services and corporate secretarial matters. Furthermore, since end-March 2004, we had ceased the shared workers’ quarters arrangement with Labroy Group. We have sought reimbursements from Labroy Group for use of our premises at 55 Shipyard Road. Such reimbursements relate to office-related expenses such as telephone charges, utilities charges and use of office equipment and other reimbursements include expenses relating to shared workers’ quarters that we paid on behalf of Labroy Group. These reimbursements have not been more than $120,000 per year over the last three financial years. We do not expect the non-trade receivables from Labroy Group to be significant in the future as we had ceased the shared workers’ quarters arrangement. Transportation Services rendered by Hwah Hong Lorry Crane Service (“HHL partnership”) Chua Beng Hock, who is the Assistant General Manager of our Group and the brother of our Executive Directors, is a co-owner of HHL partnership. HHL partnership provides us with transportation services for our corrosion prevention equipment and our infrastructure engineering projects. The aggregate amount charged by HHL partnership for its services was approximately $51,000 in FY2001, $63,000 in FY2002 and $97,000 in FY2003. As at 31 December 2003, the total amount due to HHL partnership was approximately $39,000. For our transactions with HHL partnership, we are generally granted credit terms of between 90 days and 120 days. Our sales to HHL partnership mainly include maintenance services and supply of spare parts and other consumables. The aggregate revenue derived from HHL partnership was approximately $180, $297 and $8,435 in FY2001, FY2002 and FY2003 respectively. As at 31 December 2003, the amount due from HHL partnership was approximately $6,800. As at the Latest Practicable Date, the amount due from HHL partnership was approximately $9,300. We generally grant HHL partnership with credit terms of between 90 days and 120 days. The transactions between HHL partnership and us have been conducted at arm’s length basis and on normal commercial terms. We intend to continue our transactions with HHL partnership in the future and our Audit Committee will review the terms of such transactions on a periodic basis. Transactions with Asian Sealand Infrastructure & Construction Sdn. Bhd. (“ASIC”) Pursuant to the Restructuring Exercise, ASIC became a wholly-owned subsidiary of Labroy which is engaged in the fabrication and installation of steel structure and pipes in relation to ship repair and shipbuilding activities. ASIC is currently a resident contractor of Malaysia Shipyard and Engineering Sdn Bhd. located in Johor, Malaysia. In FY2003, our sales to ASIC comprised mainly hardware equipment and supplies and amounted to approximately $104,000. There were no transactions between our Group and ASIC in FY2001 and FY2002. The sale transactions have been conducted at arm’s length basis and on normal commercial terms. As at 31 December 2003, the trade-related amount due from ASIC was approximately $87,000. As at the Latest Practicable Date, the amount due from ASIC was approximately $259,000. We intend to continue our transactions with ASIC in the future and our Audit Committee will review the terms of our sales to ASIC on a periodic basis. During FY2003, we extended working capital loans and advances to ASIC on interest-free basis. The outstanding amount due to us was approximately $1.28 million as at 31 December 2003. This outstanding amount due to us had been fully repaid to us as at the Latest Practicable Date.

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INTERESTED PERSON TRANSACTIONS AND CONFLICTS OF INTEREST Transactions with Well Commercial Pte Ltd (“Well Com”) Well Com is a company that engages in the trading of stationery products such as paper and office stationery. Yong Thiam Fook, who is our Non-Executive Director, is a director of Well Com. Heng Huat acquired seventy five per cent. (75%) of the total issued share capital of Well Com in August 2004. In FY2003, our wholly-owned subsidiary, NST, had supplied stationery products to Well Com amounting to approximately $521,000 in aggregate at a discount to market price. In FY2003, we also procured stationery products from Well Com amounting to approximately $198,000 both for our use and for resale to third parties. There were no transactions with Well Com for FY2001 and FY2002. As at 31 December 2003, the outstanding amount due from and payables due to Well Com amounted to approximately $386,000 and $20,000, respectively. As at the Latest Practicable Date, the amount due from and payable to Well Com amounted to approximately $218,000 and $40,000, respectively. The prices of products provided by Well Com are comparable to market prices and such transactions have been conducted at arm’s length basis and on normal commercial terms. We intend to continue our transactions with Well Com and the terms of our future transactions will be expected to be on arm’s length basis and normal commercial terms and subject to the review of our Audit Committee. NST had also seconded two of its employees, at the request of Heng Huat, to support Well Com’s accounting and marketing functions since August 2003. In consideration for such secondments, NST charged Heng Huat a monthly management fee of $3,000. For the period from August 2003 to December 2003, the aggregate management fees charged to Heng Huat was $15,000. As at the Latest Practicable Date, there are no outstanding management fees due from Heng Huat. As at the Latest Practiable Date, NST had ceased the secondment of employees to Well Com. Other Trade Related Transactions with Labroy and its other subsidiaries Over the past three financial years, our Group has also entered into transactions with Labroy’s other subsidiaries, excluding those subsidiaries as mentioned in the “Interested Person Transactions” section on pages 105 to 113 of this Prospectus. Our Group has provided shipyard related services (such as cleaning work and waste disposal) and has sold hardware equipment to these other subsidiaries of Labroy. The aggregate revenue derived from these transactions amounted to approximately $71,000, $60,000 and $13,000 for FY2001, FY2002 and FY2003 respectively. In addition, our Group procured services, mainly sea transportation services for our infrastructure engineering projects and for our products, from these other subsidiaries of Labroy. The aggregate purchases amounted to approximately $84,000, $161,000 and $51,000 for FY2001, FY2002 and FY2003 respectively. As at 31 December 2003, the outstanding trade-related amount due from and payable to these entities amounted to approximately $11,000 and $369,000 respectively. As at the Latest Practicable Date, the amount due from and payable to these entities was approximately $9,000 and $369,000 respectively. Such transactions have been conducted at arm’s length basis and on normal commercial terms. We intend to continue our transactions with them in the future and our Audit Committee will review the terms of such transactions on a periodic basis.

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INTERESTED PERSON TRANSACTIONS AND CONFLICTS OF INTEREST Corporate Guarantees from Labroy Labroy acts as a corporate guarantor for our banking facilities and the details of the corporate guarantees are set out below:–

Party to whom guarantee is granted

Total amount of credit facilities

The largest aggregate amount utilised during the three financial years ended 31 December 2003 and up to the Latest Practicable Date

United Overseas Bank Limited

$7.0 million

$6.3 million

Working capital

KBC Bank N.V., Singapore Branch

$6.0 million

$5.5 million

Working capital

DBS Bank Ltd

$4.0 million

$1.8 million

Working capital and Foreign Exchange Facility

The Bank of Nova Scotia, Singapore Branch

$3.0 million

$3.0 million

Working capital

Malayan Banking Berhad

$2.0 million

$1.6 million

Working capital

Outstanding amounting of $74,246 as at the Latest Practicable Date

$0.6 million

Hire Purchase

Hong Leong Finance Limited

Nature and purpose of Facilities

The interest payables on the borrowings range from 2.14% to 5.5% per annum over the last three financial years. The total outstanding amount of borrowings as at the Latest Practicable Date is $17.3 million. Upon the listing of our Shares on the SGX SESDAQ, we intend to procure the discharge of the guarantees provided by Labroy, with respect to the banking facilities offered by the financial institutions. Please refer to the “Risk Factors” section on pages 24 to 31 of this Prospectus for further details. SHAREHOLDERS’ MANDATE It is anticipated that our Group would, in the ordinary course of business, enter into transactions including but not limited to the transactions set out in this section with persons which are considered “Interested Persons” as defined in Chapter 9 of the Listing Manual (“Interested Person Transactions”). It is likely that such transactions will occur with some degree of frequency and could arise at any time and from time to time. Chapter 9 of the Listing Manual allows a listed company to seek a general mandate from its shareholders for recurrent transactions of a revenue or trading nature or those necessary for its day-to-day operations, such as the purchase and sale of supplies and materials, which may be carried out with the listed company’s interested persons, but not the purchase or sale of assets, undertakings or businesses provided such transactions are entered into at arm’s length basis and on normal commercial terms and are not prejudicial to the interests of the listed company and its minority shareholders. Our Company has on 25 August 2004 obtained a Shareholders’ mandate (“Shareholders’ Mandate”) to enter into certain Interested Person Transactions which would eliminate the need for our Company to convene separate general meetings on every occasion to seek Shareholders’ approval as and when such Interested Person Transactions arise, provided that the transactions are made at arm’s length basis and on normal commercial terms. This would reduce the administrative time and expenses in 113

INTERESTED PERSON TRANSACTIONS AND CONFLICTS OF INTEREST convening such meetings substantially. In addition, it would not be feasible to obtain Shareholders’ approval each and every time our Group enters into an Interested Person Transaction as the transactions would be recurrent in nature. The Shareholders’ Mandate will take effect from our admission to the Official List of the SGX SESDAQ and will be effective until the earlier of the following: (i) our first annual general meeting following our admission to the Official List of the SGX SESDAQ; or (ii) the first anniversary of our date of admission to the Official List of the SGX SESDAQ. Thereafter, approval from our Shareholders for a subsequent renewal of the Shareholders’ Mandate will be sought at each subsequent annual general meeting. Categories of Interested Persons The Shareholders’ Mandate will apply to our transactions (as identified below) with:– (a)

Labroy Marine Limited and its subsidiaries (“Labroy Group”); and

(b)

Hwah Hong Lorry Crane Service (“HHL partnership”).

Transactions with the Labroy Group, HHL partnership or any other Interested Person of the Group that do not fall within the ambit of the Shareholders’ Mandate shall be subject to the relevant provisions of Chapter 9 of the Listing Manual. Categories of Interested Person Transactions The Interested Person Transactions with the Labroy Group and/or HHL partnership which will be covered by the Shareholders’ Mandate (“Mandate Transactions”) includes the following:– (a)

our provision of corrosion prevention services and infrastructure engineering services to the Labroy Group;

(b)

our engagement of services and sub-contract work from the Labroy Group to fulfill our contractual commitments relating to our infrastructure engineering projects including but not limited to pipe fabrication services and steel welding services, and our purchase of items necessary from the Labroy Group to carry out such work including steel materials, angle bars and electrodes;

(c)

our supply of hardware equipment and tools (such as electrode holders, welding cables and wire brushes) and other consumables (such as electrodes and gloves) to the Labroy Group;

(d)

our engagement of sea transportation services from the Labroy Group for our projects and products; and

(e)

our engagement of lorry and crane services from HHL partnership.

The Shareholders’ Mandate will not cover any Mandate Transaction that is below S$100,000 in value as the threshold and aggregation requirements of Chapter 9 of the Listing Manual would not apply to such transactions. Interested Person Transactions entered or to be entered into by the Group that do not fall within the ambit of the Shareholders’ Mandate shall be subject to the relevant provisions of Chapter 9 of the Listing Manual. Rationale for and Benefits of the Shareholders’ Mandate The Mandate Transactions are entered into or are to be entered into by our Group in its ordinary course of business. The Mandate Transactions are recurring transactions which are likely to occur with some degree of frequency and may arise at any time and from time to time. Our Directors are of the view that it will be beneficial to our Group to transact with the Labroy Group and HHL partnership. It is intended that the Mandate Transactions shall continue in the future as long as the Labroy Group and/or HHL partnership (as the case may be) are Interested Persons of our Group and so long as the transactions are at arm’s length basis and on normal commercial terms and are not prejudicial to our Company and our minority Shareholders. 114

INTERESTED PERSON TRANSACTIONS AND CONFLICTS OF INTEREST The Shareholders’ Mandate and the renewal of the Shareholders’ Mandate on an annual basis will eliminate the need to announce and/or convene separate general meetings on each occasion in order to seek Shareholders’ prior approval for the entry by our Group into Mandate Transactions. This will substantially reduce the expenses associated with the convening of such general meetings from time to time, improve administrative efficiency and allow resources and time of the Group to be focused towards other corporate and business opportunities. The Shareholders’ Mandate is intended to facilitate the Mandate Transactions, provided that they are carried out at arm’s length basis and on normal commercial terms and are not prejudicial to our Company and minority Shareholders. Review Procedures for Mandate Transactions To ensure that Mandate Transactions are undertaken at arm’s length basis on normal commercial terms and are consistent with our Group’s usual business practices and policies, which are generally no more favourable to the Labroy Group and HHL partnership than those extended to unrelated third parties, we will adopt the specific guidelines and procedures as set out below:– (i)

(ii)

All Mandate Transactions of which are $100,000 and above in value shall not be entered into unless the terms are determined as follows:– (a)

In relation to the sale of products to Labroy Group, the selling price or fee shall not be more favourable to the Labroy Group than that offered to the Group’s unrelated third party customers in recent transactions after taking into consideration non-price factors such as customers’ credit standing, volume of transactions, delivery requirements, length of business relationship and potential for future repeated business;

(b)

In relation to the supply of services to Labroy Group, the fee shall not be more favourable to the Labroy Group than that offered to the Group’s unrelated third party customers in recent transactions after taking into consideration non-price factors as mentioned in (a) above and additional factors such as the type of facilities available and material requirements; and

(c)

In relation to the purchase of items and the engagement of services from Labroy Group and HHL partnership, our Group shall obtain two other quotations from non-Interested Persons for comparison. The purchase price or fee shall not be less favourable to our Group than the most competitive price or fee of the other quotations from non-Interested Persons. In determining the most competitive price or fee, non-price factors such as quality, delivery time, credit terms granted and track record will be taken account.

In the event that it is not possible for external quotations to be obtained (for instance, if there is no unrelated third party who is able to provide the same products or perform the same function) or there are no relevant successful sales of products or services to unrelated third party customers for our comparison, our Group will adopt the following procedures to determine whether the prices or fees offered by or to the Labroy Group and HHL partnership are in accordance with the industry norms, at arm’s length basis and on normal commercial terms:– (a)

For purchases of products and/or engagement of services from the Labroy Group and HHL partnership, our purchase price must be no less favourable to the Group than that charged by the Labroy Group and/or HHL partnership to their other unrelated customers after taking into consideration other non-price factors such as quality, delivery time, track record and credit terms granted. We will obtain from the Labroy Group, HHL partnership and elsewhere, the necessary evidence to satisfy ourselves that the basis set out herein have been adhered to in our purchases from them. We will also consider the cost and benefits of such transactions to our Group; and

115

INTERESTED PERSON TRANSACTIONS AND CONFLICTS OF INTEREST (b)

(iii)

For sale of products and services to the Labroy Group, the price charged by our Group shall be determined in accordance with the Group’s usual business practices and consistent with the Group’s profit margin to be obtained by the Group for the same or substantially the same products and services after taking into consideration non-price factors such as customers’ credit standing, volume of transactions, delivery requirements, length of business relationship, type of working facilities and equipment available, scope of supply of materials and potential for future repeat business.

In addition, the following review and approval procedures will be implemented by our Group. (a)

Any Mandate Transaction which equals or exceeds more than $100,000 but less than or equal to 3% of our Group’s latest audited NTA in value will be reviewed and approved by a Director, the Financial Controller or an Executive Officer of our Group (each of whom shall not be an Interested Person in respect of the particular transaction) prior to entering into the transaction;

(b)

Any Mandate Transaction which exceeds 3% of our Group’s latest audited NTA in value will be reviewed and approved by the Audit Committee prior to entering into the transaction.

(iv) Our Group has also implemented the following procedures for the identification of Interested Persons and the recording of Interested Person Transactions (including the Mandate Transactions):–

(v)

(a)

The Company will maintain a list of Interested Persons (which is to be updated immediately if there are any changes) and disclose the list to relevant key personnel of each subsidiary to enable identification of Interested Persons. The master list of Interested Persons which is maintained shall be reviewed on at least a quarterly basis;

(b)

The Company will maintain a register of transactions carried out with Interested Persons (recording the basis, including the quotations obtained to support such basis, on which they are entered into); and

Our Audit Committee will review the Interested Person Transactions on at least a quarterly basis as part of its standard procedures while examining the adequacy of the Group’s internal controls including those relating to Interested Person Transactions. Our Board will also ensure that all disclosures, approvals and other requirements on Interested Person Transactions, including those required by prevailing legislation, the Listing Manual and accounting standards, are complied with.

(vi) In the event that the Financial Controller, Executive Officer, Director or a member of our Audit Committee (where applicable) is interested in any Interested Person Transaction, he will abstain from reviewing and/or approving that particular transaction. Our Board will also ensure that all disclosure requirements on Interested Person Transactions, including those required by prevailing legislation, the Listing Manual and accounting standards, are complied with. (vii) Our Audit Committee shall review from time to time the above guidelines and procedures to determine if they are adequate and/or commercially practicable in ensuring that Mandate Transactions are conducted at arm’s length basis and on normal commercial terms and are not prejudicial to our Company and minority Shareholders. Further, if during these periodic reviews by our Audit Committee, our Audit Committee is of view that the guidelines and procedures as stated above are inappropriate or are not sufficient to ensure that the Mandate Transactions will be at arm’s length basis and on normal commercial terms and will not be prejudicial to our Company and minority Shareholders, our Company will (pursuant to Rule 920(1)(B)(IV) and (VII) of the Listing Manual) revert to Shareholders for a fresh mandate based on new guidelines and procedures.

116

INTERESTED PERSON TRANSACTIONS AND CONFLICTS OF INTEREST Disclosure We will disclose in our annual report the aggregate value of the transactions conducted pursuant to the Shareholders’ Mandate during FY2004 and likewise in our annual reports for the subsequent financial years during which the Shareholders’ Mandate is in force. We will announce the aggregate value of transactions conducted pursuant to the Shareholders’ Mandate for the financial periods which we are required to report on pursuant to Rule 705 of the Listing Manual within the required time frame while the Shareholders’ Mandate remain in force. Opinion of the Independent Financial Adviser G. K. Goh Stockbrokers Pte. Ltd. (“GK Goh”) has been appointed as the independent financial adviser to provide an opinion to the independent directors of the Company (“Independent Directors”) on whether the review procedures set out in the Shareholders’ Mandate (“Review Procedures”) are sufficient to ensure that the Mandate Transactions will be carried out at arm’s length basis and on normal commercial terms and will not be prejudicial to the interests of the Company and the minority Shareholders. Based on the evaluation of GK Goh on the Review Procedures and the discussions with the Directors and management of the Company and subject to the qualifications and assumptions made in their letter (the “IFA Letter”), GK Goh is of the opinion that the Review Procedures are sufficient to ensure that the Mandate Transactions will be carried out at arm’s length basis and on normal commercial terms and will not be prejudicial to the interests of the Company and the minority Shareholders. The IFA Letter is reproduced in Appendix 7 on pages 243 to 246 of this Prospectus. Review by Audit Committee Our Audit Committee will review all other existing and future Interested Person Transactions, not subject to the Shareholders’ Mandate to ensure that they are carried out at arm’s length basis and on normal commercial terms and are not prejudicial to the interests of our Company and its minority Shareholders. Our Audit Committee will also review all Interested Person Transactions to ensure that the then prevailing rules and regulations of the SGX-ST (in particular, Chapter 9 of the Listing Manual) are complied with. Our Company will also endeavour to comply with the principles of and best practices set out in the “Best Practices Guides” of the Listing Manual.

117

CLEARANCE AND SETTLEMENT Upon listing and quotation on the SGX SESDAQ, our Shares will be traded under the book-entry settlement system of CDP and all dealings in and transactions of our Shares through the SGX SESDAQ will be effected in accordance with the terms and conditions for the operation of securities accounts with CDP, as amended from time to time. Our Shares will be registered in the name of CDP or its nominee and held by CDP for and on behalf of persons who maintain, either directly or through depository agents, securities accounts with CDP. Persons named as direct securities account holders and depository agents in the depository register maintained by CDP, rather than CDP itself, will be treated, under our Articles of Association and the Companies Act, as members of our Company in respect of the number of Shares credited to their respective securities accounts. Persons holding our Shares in securities account with CDP may withdraw the number of Shares they own from the book-entry settlement system in the form of physical share certificates. Such share certificates will, however, not be valid for delivery pursuant to trades transacted on the SGX SESDAQ, although they will be prima facie evidence of title and may be transferred in accordance with our Articles of Association. A fee of $10.00 for each withdrawal of 1,000 Shares or less and a fee of $25.00 for each withdrawal of more than 1,000 Shares is payable upon withdrawing our Shares from the book entry settlement system and obtaining physical share certificates. In addition, a fee of $2.00 or such other amount as our Directors may decide, is payable to the share registrar for each share certificate issued and a stamp duty of $10.00 is also payable where our Shares are withdrawn in the name of the person withdrawing our Shares or $0.20 per $100.00 or part thereof of the last transacted price where it is withdrawn in the name of a third party. Persons holding physical share certificates who wish to trade on the SGX SESDAQ must deposit with CDP their share certificates together with the duly executed and stamped instruments of transfer in favour of CDP and have their respective securities accounts credited with the number of Shares deposited before they can affect the desired trades. A fee of $20.00 is payable upon the deposit of each instrument of transfer with CDP. Transactions in our Shares under the book-entry settlement system will be reflected by the seller’s securities account being debited with the number of Shares sold and the buyer’s securities account being credited with the number of Shares acquired. No transfer of stamp duty is currently payable for our Shares that are settled on a book-entry basis. A Singapore clearing fee for trades in Shares on the SGX SESDAQ is payable at the rate of 0.05% of the transaction value subject to a maximum of $200.00 per transaction. The clearing fee, instrument of transfer deposit fee and share withdrawal fee may be subject to Singapore Goods and Services Tax of 5%. Dealing in our Shares will be carried out in Singapore dollars and will be effected for settlement on CDP on a scripless basis. Settlement of trades on a normal “ready” basis on the SGX SESDAQ generally takes place on the third business day following the transaction date and payment for the securities is generally settled on the following business day. CDP holds securities on behalf of investors in securities accounts. An investor may open a direct account with CDP or a sub-account with a CDP depository agent. The CDP depository agent may be a member company of the SGX SESDAQ, bank, merchant bank or trust company.

118

GENERAL AND STATUTORY INFORMATION INFORMATION ON DIRECTORS AND EXECUTIVE OFFICERS 1.

The names, addresses, ages and principal occupations of each of our Directors and Executive Officers are set out on pages 93 to 96 of this Prospectus.

2.

Information on the business and working experience of our Directors and Executive Officers is set out on pages 93 to 96 of this Prospectus.

3.

The present and past directorships of each of our Directors held in the last 5 years preceding the date of this Prospectus, excluding that held in our Company are set out below:– Name

Present Directorships

Past Directorships

Tan Boy Tee

Group Companies

Group Companies

—

—

Other Companies

Other Companies

Crown Shipping Pte Ltd Datum Pointt Holdings Pte Ltd Datum Pointt Pte Ltd Dinar Venture Pte Ltd Eastern Bricks Pte Ltd Elastrade (Pte) Ltd Grandsand Construction Pte. Ltd. Heng Huat Shipbuilding & Construction Pte. Ltd. HyLynx Pte. Ltd. Intone Pte. Ltd. Jordon International Food Processing Pte Ltd KLEANS Corporation Pte. Ltd. KMECH Corporation Pte. Ltd. Labroy Bulk Carriers Pte Ltd Labroy Livestock Carriers Pte Ltd Labroy Marine Limited Labroy Product Tankers Pte Ltd Labroy Shipbuilding and Engineering Pte Ltd Labroy Shipping Pte. Ltd. Multi Building Products Pty. Ltd. Nusa Dredging Pte Ltd Premier Shipping Pte Ltd PT Kencana Gloria Marine PT Nanindah Mutiara Shipyard Rooney Shipping and Trading (Singapore) Pte Ltd Sabre Systems International Pte Ltd Seaspec Marine Services Pte Ltd Singlights Pte. Ltd. Sitebark Pty. Ltd. Yi Jin Marine Pte Ltd Yukon Marine Pte Ltd

Earth9.com Pte. Ltd.

119

GENERAL AND STATUTORY INFORMATION Name

Present Directorships

Past Directorships

Chua Beng Kuang

Group Companies

Group Companies

Picco Enterprise Pte. Ltd.

—

Other Companies

Other Companies

—

—

Group Companies

Group Companies

Asian Sealand Engineering Pte Ltd B & J Marine Pte. Ltd. (formerly known as Jet Point Pte. Ltd.) B & K Marine Pte. Ltd. Beng Kuang Marine (B&Chew) Pte. Ltd. Beng Kuang Marine (B&M) Pte. Ltd. Beng Kuang Marine (B&Y) Pte. Ltd. BT Asia Marketing & Engineering Pte Ltd Nexus Sealand Trading Pte Ltd Picco Enterprise Pte. Ltd. PT. Master Indonesia PT. Nexus Engineering Indonesia

—

Other Companies

Other Companies

—

—

Group Companies

Group Companies

Asian Sealand Engineering Pte Ltd Nexus Sealand Trading Pte Ltd PT. Master Indonesia

—

Other Companies

Other Companies

Datum Pointt Pte Ltd Datum Pointt Holdings Pte Ltd KMECH Corporation Pte. Ltd. KLEANS Corporation Pte. Ltd. Nexus Engineering Pte Ltd PT Nanindah Mutiara Shipyard Rooney Shipping & Trading Pty Ltd Singlights Pte. Ltd. Tellus Engineering Construction Pte Ltd Tellus Marine Engineering Pte Ltd Well Commercial Pte Ltd

—

Chua Meng Hua

Yong Thiam Fook

120

GENERAL AND STATUTORY INFORMATION Name

Present Directorships

Past Directorships

Goh Chee Wee

Group Companies

Group Companies

—

—

Other Companies

Other Companies

AGVA Corporation Limited Chip Eng Seng Corporation Ltd. Foodfare Catering Pte Ltd GCT Investment Pte. Ltd. GrandVision Investment Holdings Pte. Limited King Wan Corporation Limited RTRC Asia Pte. Ltd. SLF International Pte. Ltd. Stamford Tyres Corporation Limited The Little Skool-House International Pte. Ltd.

Barcelona Motors Pte. Ltd. Boon Lay Executive Condominiums Pte Ltd Comfort (China) Pte. Ltd. Comfort Ads Pte. Ltd. Comfort Bus Pte. Ltd. Comfort Courier Services Pte. Ltd. Comfort Delgro Engineering Pte. Ltd. Comfort Driving Centre Pte. Ltd. Comfort Group Investments Pte. Ltd. Comfort Group Ltd. Comfort Myanmar Pte. Ltd. Comfort Nominees Pte. Ltd. Comfort Properties Pte. Ltd. Comfort Transportation Pte. Ltd. Comtrucks Pte. Ltd. Eurocom Motors Pte. Ltd. GA Holdings Ltd. General Automotive Services Pte. Ltd. German Automobiles Pte. Ltd. NCH (Tampines) Pte. Ltd. NTUC Childcare Co-operative Ltd. Ong Teng Cheong Institute of Labour Studies Perocom Motors Pte. Ltd. Setsco Services Pte. Ltd. Sinamex Car Rental & Leasing Pte. Ltd. ST Mobile Data Pte. Ltd. Suzhou Comfort Taxi Co., Ltd. Trans-Island Limousine Service Limited Transportation High Tech Inc. Tye Soon Limited Vicom Assessment Centre Pte. Ltd. Vicom Inspection Centre Pte. Ltd. Vicom Ltd. Vicom Nominee Investment Pte. Ltd. Vicom-Unichamps Pte. Ltd. Xiamen Comfort Taxi Co., Ltd. Yellow-Top Cab Pte. Ltd. Zhengzhou Comfort Tour Bus Co., Ltd.

121

GENERAL AND STATUTORY INFORMATION

4.

Name

Present Directorships

Past Directorships

Wong Chiang Yin

Group Companies

Group Companies

—

—

Other Companies

Other Companies

Innovative Diagnostics Private Limited Positron Tracers Pte. Ltd. SGH Technology Ventures Pte. Ltd. Singapore Medical Association Pte. Ltd.

—

Save as disclosed below, none of our Executive Officers has any present and past directorships over the last 5 years:– Name

Present Directorships

Past Directorships

Chua Beng Hock

Group Companies

Group Companies

B & J Marine Pte. Ltd. (formerly known as Jet Point Marine Pte. Ltd.) B & K Marine Pte. Ltd. Beng Kuang Marine (B&Chew) Pte. Ltd. Beng Kuang Marine (B&M) Pte. Ltd. Beng Kuang Marine (B&Y) Pte. Ltd. BT Asia Marketing & Engineering Pte Ltd

—

Other Companies

Other Companies

—

Asian Sealand Infrastructure & Construction Sdn. Bhd.

Group Companies

Group Companies

—

—

Other Companies

Other Companies

—

Nexus Sealand Engineering Sdn. Bhd. Tellus Engineering Construction Pte Ltd Tellus Marine Engineering Pte Ltd

Group Companies

Group Companies

—

Beng Kuang Marine Pte Ltd (Alternate Director)

Phoon Kim Sin

Chua Beng Yong

122

GENERAL AND STATUTORY INFORMATION 5.

Save as disclosed in the “Shareholders” and “Group Structure” sections on pages 39 and 42 of this Prospectus respectively and in paragraph 17 below, none of our Directors and Executive Officers has any shareholding interests in our Company or any of our subsidiaries as at the date of this Prospectus. Our Non-Executive Directors, Independent Directors and Executive Officers will be offered Reserved Shares at the Issue Price pursuant to the Invitation in recognition of their past and/or future contributions to our Group. They may accept, dispose of or transfer all or part of their respective Reserved Shares in our Company after the admission of our Company to the SGX SESDAQ, save for our Chairman and Non-Executive Director, Tan Boy Tee, who shall be subject to the moratorium requirement described on page 40 of this Prospectus in the event that he subscribes for the Reserved Shares.

6.

None of our Directors and Executive Officers:– (a)

has at any time during the last 10 years, had a petition under any bankruptcy laws of any jurisdiction filed against him or against a partnership of which he was a partner;

(b)

has at any time during the last 10 years, had a petition under any law of any jurisdiction filed against a corporation of which he was a director or key executive for the winding up of that corporation on the ground of insolvency;

(c)

has any unsatisfied judgement against him;

(d)

has ever been convicted of any offence, in Singapore or elsewhere, involving fraud or dishonesty which is punishable with imprisonment for 3 months or more, or has been the subject of any criminal proceedings (including any pending criminal proceedings which he is aware of) for such purpose;

(e)

has ever been convicted of any offence, in Singapore or elsewhere, involving a breach of any law or regulatory requirement that relates to the securities or futures industry in Singapore or elsewhere, or been the subject of any criminal proceedings (including any pending criminal proceedings which he is aware of) for such breach;

(f)

has at any time during the last 10 years, had judgement entered against him in any civil proceedings in Singapore or elsewhere involving a breach of any law or regulatory requirement that relates to the securities or futures industry in Singapore or elsewhere, or a finding of fraud, misrepresentation or dishonesty on his part, or has he been the subject of any civil proceedings (including any pending civil proceedings which he is aware of) involving an allegation of fraud, misrepresentation or dishonesty on his part;

(g)

has ever been convicted in Singapore or elsewhere of any offence in connection with the formation or management of any corporation;

(h)

has ever been disqualified from acting as a director of any corporation, or from taking part directly or indirectly in the management of any corporation;

(i)

has ever been the subject of any order, judgement or ruling of any court, tribunal or governmental body, permanently or temporarily enjoining him from engaging in any type of business practice or activity;

(j)

has ever, to his knowledge, been concerned with the management or conduct, in Singapore or elsewhere, of the affairs of:– (i)

any corporation which has been investigated for a breach of any law or regulatory requirement governing corporations in Singapore or elsewhere; or

(ii)

any corporation or partnership which has been investigated for a breach of any law or regulatory requirement that relates to the securities or futures industry in Singapore or elsewhere,

in connection with any matter occurring or arising during the period when he was so concerned with the corporation or partnership.

123

GENERAL AND STATUTORY INFORMATION 7.

The compensation paid (other than Directors’ fees) to our Directors and Executive Officers in FY2003 was approximately $0.47 million and $0.71 million respectively. The estimated compensation payable to our Directors and Executive Officers in FY2004 under the arrangements in force at the date of this Prospectus, including the Service Agreements referred to on pages 100 and 101 of this Prospectus (other than the estimated amount of incentive bonus to be paid and Directors’ fees), is approximately $0.69 million and $0.73 million respectively.

8.

Save as disclosed under the “Shareholders” and “Directors, Management and Staff” section on page 39 of this Prospectus, none of our Directors and Executive Officers is related by blood or marriage to one another nor are they so related to any of our Substantial Shareholders.

9.

Save as disclosed under the “Shareholders” section on page 39 of this Prospectus, none of our Directors and Executive Officers was appointed pursuant to an arrangement or understanding with any of our customers or suppliers.

10. No option to subscribe for shares in, or debentures of, our Company or our subsidiaries has been granted to, or was exercised by, any Director or Executive Officer within the 2 financial years preceding the date of this Prospectus. 11.

No person has been, or is entitled to be, given an option to subscribe for any shares in or debentures of our Company or any of our subsidiaries.

12. Save as disclosed in the “Restructuring Exercise” section on page 40 of this Prospectus and in the “Interested Person Transaction” section on pages 105 to 113 of this Prospectus, no Director or expert is interested, directly or indirectly, in the promotion of, or in any assets acquired or disposed of by, or leased to, our Company or any of our subsidiaries within the 2 years preceding the date of this Prospectus, or in any proposal for such acquisition or disposal or lease as aforesaid. 13. Save for the Service Agreement between our Company and our Executive Directors, Chua Beng Kuang and Chua Meng Hua, no Director has any interest in any existing contract or arrangement, which is significant in relation to the business of our Group taken as a whole. 14. Save as disclosed on pages 102 to 113 of this Prospectus, none of our Directors, substantial Shareholders or Executive Officers has any interest, direct or indirect, in any company carrying on the same business as our Group or dealing in similar products as our Group. 15. There is no shareholding qualification for our Directors in our Articles of Association. 16. No sum or benefit has been paid or is agreed to be paid to any Director or expert, or to any firm in which such Director or expert is a partner or any corporation in which such Director or expert holds shares or debentures, in cash or in shares or otherwise, by any person to induce him to become, or qualify him as, a Director, or otherwise for services rendered by him or by such firm or corporation in connection with the promotion or formation of our Company.

124

GENERAL AND STATUTORY INFORMATION 17. The interests of our Directors and Substantial Shareholders in our Shares as at the date of this Prospectus and as recorded in the Register of Directors’ Shareholdings and the Register of Substantial Shareholders maintained under the provisions of the Act are as follows:–

Number of Shares each registered in the names of our Directors and Substantial Shareholders

Names

%

Number of Shares each in which our Directors and Substantial Shareholders are deemed to have an interest

%

DIRECTORS Tan Boy Tee(2)

(5)

—

—

48,570,875

51.00

Chua Beng Kuang(1)

11,666,500

12.25

—

—

Chua Meng Hua(1)

11,666,500

12.25

—

—

—

—

—

—

—

—

—

—

—

—

—

—

Yong Thiam Fook Goh Chee Wee

(4) (5)

(5)

Wong Chiang Yin(5) SUBSTANTIAL SHAREHOLDERS Labroy Marine Limited(3)

48,570,875

51.00

—

—

(1)

11,666,500

12.25

—

—

Chua Beng Hock(1)

11,666,500

12.25

—

—

Chua Beng Yong

Notes:– (1) Chua Beng Kuang (our Managing Director), Chua Meng Hua (our Executive Director), Chua Beng Yong (our Executive Officer) and Chua Beng Hock (our Executive Officer) are brothers. (2)

Tan Boy Tee is deemed to be interested in 48,570,875 Shares held by Labroy Marine Limited in our Company by virtue of his interest in shares representing 59.79% of the total issued share capital in Labroy at the Latest Practicable Date.

(3)

Labroy Marine Limited is a company incorporated in Singapore and is listed on the Main Board of the SGX-ST. Its business activities are mainly shipping, shipbuilding and repair, and technology. Its directors are Tan Boy Tee, Chan Sew Meng @ Chan Kwan Bian, Ong Lian Choon, Sitoh Yih Pin and Peter Chen Siow Hsing. Our Non-Executive Directors, Tan Boy Tee and Yong Thiam Fook, are nominated by Labroy Marine Limited as its representatives. Yong Thiam Fook is the Chief Financial Officer of Labroy Marine Limited. Our Non-Executive Director, Yong Thiam Fook, will be offered 50,000 Shares, and our Chairman and Non-Executive Director, Tan Boy Tee, and our Independent Directors, namely, Goh Chee Wee and Wong Chiang Yin, will each be offered 100,000 Shares pursuant to the Invitation. They may accept, dispose of or transfer all or part of their Reserved Shares in our Company after the admission of our Company to the SGX SESDAQ, save for our Chairman and Non-Executive Director, Tan Boy Tee, who shall be subject to the moratorium requirement described on page 40 of this Prospectus.

(4) (5)

Save as disclosed above and on page 39 of this Prospectus, no Director has any interest in our Shares. SHARE CAPITAL 18. As at the date of this Prospectus, there is only one class of shares in the capital of our Company. The rights and privileges attached to our Shares are stated in our Articles of Association. There are no founders, management, deferred or unissued shares reserved for any purpose. Our substantial Shareholders are not entitled to any different voting rights from other Shareholders. 19. Save as disclosed under the “Shareholders” and “Group Structure” sections on pages 39 and 42 of this Prospectus and in paragraph 17 above, our Company is not directly or indirectly owned or controlled by another corporation, any government or other natural or legal person whether severally or jointly. 125

GENERAL AND STATUTORY INFORMATION 20. As at the date of this Prospectus, to the best of the knowledge of our Directors, our Directors are not aware of any arrangements, the operation of which may at a subsequent date result in the change in the control of our Company. 21. As at the date of this Prospectus, to the best of the knowledge and belief of our Directors, our Directors are not aware of, nor have they received any indications of, public take-over offers by third parties in respect of our Shares during the last and current financial year. 22. Save as disclosed below and on page 41 of this Prospectus, there were no changes in the issued and paid-up share capital/registered capital (as the case may be) of our Company or our subsidiaries within the 3 years prior to the date of lodgement of this Prospectus:–

Date of issue

Number of Shares Issued

Issue price of each share

Purpose of Issue

Resultant issued share capital

Beng Kuang Marine Pte Ltd

—

—

—

—

—

Asian Sealand Engineering Pte Ltd

—

—

__

—

—

Nexus Sealand Trading Pte Ltd

—

—

__

—

—

BT Asia Marketing & Engineering Pte Ltd

—

—

__

—

—

10 November 2000

100

US$1,000

Incorporation

US$100,000(1)

PT. Master Indonesia

27 February 2003

100,000

US$1

Incorporation

US$100,000(1)

B & J Marine Pte. Ltd. (formerly known as Jet Point Marine Pte. Ltd.)

29 January 2003

2

$1

Incorporation

$2

28 March 2003

99,998

$1

Working Capital

$100,000

Picco Enterprise Pte. Ltd.

13 December 2002

2

$1

Incorporation

$2

13 March 2003

998

$1

Working Capital

$1,000

Beng Kuang Marine (B&Chew) Pte. Ltd.

9 February 2004

2

$1

Incorporation

$2

28 February 2004

99,998

$1

Working Capital

$100,000

9 February 2004

2

$1

Incorporation

$2

28 February 2004

99,998

$1

Working Capital

$100,000

Beng Kuang Marine (B&M) Pte. Ltd.

10 February 2004

2

$1

Incorporation

$2

28 February 2004

99,998

$1

Working Capital

$100,000

Beng Kuang Marine (B&Y) Pte. Ltd.

10 February 2004

2

$1

Incorporation

$2

28 February 2004

99,998

$1

Working Capital

$100,000

Company

PT. Nexus Engineering Indonesia

B & K Marine Pte. Ltd.

Notes:– (1)

1% of the shareholding is held by our Executive Officer, Phoon Kim Sin, who held in trust for our Company.

(2)

None of our subsidiaries is listed in any other exchange.

126

GENERAL AND STATUTORY INFORMATION 23. Save as disclosed above, no shares or debentures were issued or agreed to be issued by our Company or our subsidiaries for cash or for a consideration other than cash during the last 3 years preceding the date of this Prospectus. 24. There are no shares in the Company that are held by or on behalf of our Company or by subsidiaries of the Company. MEMORANDUM AND ARTICLES OF ASSOCIATION 25. (a)

The nature of the business of our Company has been stated earlier in this Prospectus. Our objects can be found in Clause 3 of our Memorandum of Association which is available for inspection at our registered office in accordance with the paragraph under the heading “Documents Available for Inspection” on page 132 of this Prospectus.

(b)

An extract of our Articles of Association providing for, inter alia, transferability of shares, directors’ voting rights, borrowing powers of directors and dividend rights are set out in Appendix 3 on pages 202 to 220 to this Prospectus. The Articles of Association of our Company is available for inspection at our registered office in accordance with the paragraph under the heading “Documents Available for Inspection” on page 132 of this Prospectus.

BANK BORROWINGS AND WORKING CAPITAL 26. Save as disclosed on page 34 of this Prospectus and in the Proforma Consolidated Financial Information, we have no other borrowings or indebtedness in the nature of borrowings including bank overdrafts and liabilities under acceptances (other than normal trading bills) or acceptances credits, mortgages, charges, hire purchase commitments, guarantees or other material contingent liabilities as at 31 December 2003. 27. In the opinion of our Directors, there are no minimum amounts which must be raised by the issue of the New Shares. 28. We and our Directors are of the opinion that, after taking into account amounts available under our existing bank facilities, our Group has adequate working capital to meet its present requirements. MATERIAL CONTRACTS 29. The following contracts, not being contracts entered into in the ordinary course of business of our Company and our subsidiaries (as the case may be), have been entered into by our Company and our subsidiaries (as the case may be) within the 2 years preceding the date of this Prospectus and are or may be material:– (a)

Share Sale Agreement for our divestment of ASIC to Heng Huat referred to in page 40 of this Prospectus.

(b)

Undertaking between our Company and Labroy Marine Limited referred to in page 104 of this Prospectus.

(c)

Non-Competition Agreements between our Company and Heng Huat and its subsidiary, ASIC, referred to in page 102 of this Prospectus.

(d)

Co-operation and Non-Competition Agreement between our Company and TME referred to in page 103 of this Prospectus.

(e)

Lease Agreement between ASE and LSE for the lease of the property (for fabrication facilities, equipment and warehouses) at JL. Brigjen Katamso Bundaran, Tanjung Uncang, Pulau Batam from LSE referred to in page 106 of this Prospectus.

127

GENERAL AND STATUTORY INFORMATION (f)

Lease Agreement between PT Nexus and PT Nanindah for the lease of the property (for recycling workshop for grit blasting) at JL. Brigjen Katamso Bundaran, Tanjung Uncang, Pulau Batam from PT Nanindah referred to in page 107 of this Prospectus.

(g)

Lease Agreement between Beng Kuang Marine Pte Ltd and Heng Huat for the lease of property at 38 Tuas View Square from Heng Huat referred to in page 109 of this Prospectus.

(h)

The Management and Underwriting Agreement dated 5 October 2004 made between our Company and Kim Eng Capital referred to in paragraph 31 below.

(i)

Placement Agreement dated 5 October 2004 made between our Company and Kim Eng Capital referred to in paragraph 31 below.

(j)

The Depository Agreement dated 5 October 2004 made between our Company and CDP pursuant to which CDP agreed to act as central depository for the Company’s securities for trades in the securities of the Company through the SGX-ST.

LITIGATION 30. Neither our Company nor any of our subsidiaries is engaged in any legal or arbitration proceedings either as plaintiff or defendant in respect of any claims or amounts which may have or have had during the previous 12 months a significant effect on our Group’s financial position. Our Directors have no knowledge and are not aware of any proceedings, litigation or claim of material importance which are pending or threatened against our Company or any of our subsidiaries or of any facts likely to give rise to any such litigation, arbitration or claim. Our Directors are also not aware of any legal or arbitration proceedings involving third parties which may have or have had in the past 12 months any material adverse effects on the financial position or profitability of our Group. MANAGEMENT, UNDERWRITING AND PLACEMENT ARRANGEMENTS 31. (a)

Pursuant to the management and underwriting agreement dated 5 October 2004 (“Management and Underwriting Agreement”), the Company appointed Kim Eng Capital to manage the Invitation and underwrite the Offer Shares for a commission of 2.25% of the Issue Price for each Offer Share, payable by the Company. Kim Eng Capital will receive a management fee from our Company for its services rendered in connection with the Invitation.

(b)

Brokerage will be paid by our Company on the New Shares at the rate of 0.25% of the Issue Price for each Offer Share to members of the SGX-ST, merchant banks and members of the Association of Banks in Singapore in respect of accepted applications made on Application Forms bearing their respective stamps, or to Participating Banks in respect of successful applications made through Electronic Applications at the ATMs of the relevant Participating Banks.

(c)

Pursuant to the placement agreement (the “Placement Agreement”) dated 5 October 2004, Kim Eng Capital agreed to subscribe or procure subscriptions for the Placement Shares for a placement commission of 2.5% of the Issue Price for each Placement Share, payable by the Company. Subscribers to the Placement Shares (other than Reserved Shares) may be required to pay a commission to the Placement Agent (and if so required, such brokerage will be up to 1.0% of the Issue Price).

(d)

Save as aforesaid, no commission, discount, or brokerage, has been paid or other special terms granted within the two years preceding the date of this Prospectus or is payable to any Director, promoter, expert, proposed Director or any other person for subscribing or agreeing to subscribe or procuring or agreeing to procure subscriptions for any shares in or debentures of our Company.

128

GENERAL AND STATUTORY INFORMATION (e)

The Management and Underwriting Agreement may be terminated by the Underwriter at any time on or before the closing of the Application List on the occurrence of certain events including:– (i)

(ii)

any adverse change or crisis or any development likely to lead to an adverse change or crisis in national or international political, financial, monetary or economic conditions (including but without limitation conditions in the stock market, foreign exchange market, conditions with respect to interest rates and money markets, in Singapore or any other jurisdiction) or a combination of any such changes or development or crisis, or deterioration thereof and any such conditions which in the opinion of Kim Eng Capital (exercised in good faith) would:– —

result or be likely to result in a material adverse fluctuation or adverse conditions in the stock market in Singapore; or

—

be likely to prejudice the success or the subscription or offer of the New Shares (whether in the primary market or in respect of dealings in the secondary market); or

—

make it impracticable, inadvisable, inexpedient or uncommercial to proceed with any of the transactions contemplated in the Management and Underwriting Agreement; or

—

be likely to have an adverse effect on the business, trading position, operations or prospects of our Company or of our Group as a whole; or

—

be such that no reasonable underwriter would have entered into the Management and Underwriting Agreement; or

—

result or be likely to result in the issue of a stop order by the Authority pursuant to the SFA; or

—

make it uncommercial or otherwise contrary to or outside the usual commercial practices of underwriters in Singapore for Kim Eng Capital to observe or perform or be obliged to observe or perform the terms of the Agreement; or

any change or introduction, or any prospective change or introduction of any legislation, regulation, policy, directive, order, guideline, request or interpretation or application thereof, by any government body in Singapore or elsewhere, the Securities Industry Council of Singapore, the SGX-ST or the Authority, whether or not having the force of law, which, in the opinion of the Manager:– —

adversely affects or is likely to adversely affect the listing and quotation of the Shares on the SGX SESDAQ; or the business, operations, financial condition, performance or prospects of the Company or the Group; or

—

results or is likely to result in the success of the Invitation being prejudiced; or

—

the issue of a stop order by the Authority in accordance with Section 242 of the SFA.

(f)

In the event that the Management and Underwriting Agreement is terminated, our Company reserves the right, at its absolute discretion, to cancel the Invitation.

(g)

The Placement Agreement is conditional upon the Management and Underwriting Agreement not having been terminated or rescinded pursuant to the provisions of the Management and Underwriting Agreement and may be terminated on the occurrence of certain events, including those specified in paragraph (e) above.

(h)

Save as disclosed above, we do not have any material relationship with the Manager, Underwriter and Placement Agent.

129

GENERAL AND STATUTORY INFORMATION MISCELLANEOUS 32. The nature of the business of our subsidiaries is stated on page 41 of this Prospectus. At the date of this Prospectus, all the corporations which are, by virtue of Section 6 of the Act, deemed to be related to our Company, are set out in the Proforma Consolidated Financial Information on pages 133 to 169 of this Prospectus. 33. The time of opening of the Application List is set out on page 14 of this Prospectus. 34. The amount payable on application is $0.23 for each New Share. Save as disclosed in the section under the Section “Share Capital” on page 37 of this Prospectus, there has been no previous issue of Shares by our Company or offer for sale of its Shares to the public within the 2 years preceding the date of this Prospectus. 35. Application monies received by our Company in respect of all successful applications (including successfully balloted applications which are subsequently rejected) will be placed in a separate non-interest bearing account with The Hongkong and Shanghai Banking Corporation Limited (the “Receiving Bank”). There is no sharing arrangement between the Receiving Bank and our Company in respect of interest or revenue or any other benefit in respect of the deployment of application monies in the inter-bank monies market, if any. Any refund of the application monies to unsuccessful or partially successful applicants will be made without any interest or share of such revenue or other benefit arising therefrom. 36. No property has been purchased or acquired or proposed to be purchased or acquired by our Group which is to be paid for, wholly or partly, out of the proceeds of the Invitation or the purchase or acquisition of which has not been completed at the date of this Prospectus, other than property the contract for the purchase or acquisition whereof was entered into in the ordinary course of business of our Company or our subsidiaries, such contract not being made in contemplation of the Invitation nor the Invitation in consequence of the contract. 37. The estimated amount of the expenses in connection with the Invitation is approximately $0.93 million, including the underwriting commission, placement commission, brokerage, management, audit and legal fees, advertising and printing expenses, as well as fees payable to the SGX-ST and the Authority. All these will be borne by our Company. A breakdown of these estimated expenses is as follows:– $’000 Listing fee

10

Professional fees

516

Underwriting commission, placement commission and brokerage

121

Miscellaneous expenses

283

Total estimated expenses

930

38. Save as disclosed under the heading “Restructuring Exercise” on page 40 of this Prospectus and under the heading “Interested Person Transactions” on pages 105 to 113 of this Prospectus, no amount of cash or securities or benefit has been paid or given to any promoter within the two years preceding the date of this Prospectus or is proposed or intended to be paid or given to any promoter at any time. 39. Save as disclosed in this Prospectus, our Directors are not aware of any relevant material information, including trading factors or risks not mentioned elsewhere in this Prospectus which is unlikely to be known or anticipated by the general public and which could materially affect the profits of our Company or our subsidiaries. 130

GENERAL AND STATUTORY INFORMATION 40. Save as disclosed in this Prospectus, the financial condition and operations of our Group are not likely to be affected by any of the following:– (a)

known trends or known demands, commitments, events or uncertainties that will result in or are reasonably likely to result in our Group’s liquidity increasing or decreasing in any material way;

(b)

material commitments for capital expenditures;

(c)

unusual or infrequent events or transactions or any significant economic changes that will materially affect the amount of reported income from operations; and

(d)

known trends or uncertainties that have had or that the Group reasonably expects to have a material favourable or unfavourable impact on revenues or operating income.

41. This Prospectus is dated 5 October 2004. No shares will be allotted and issued on the basis of this Prospectus later than 6 months after the date of registration of this Prospectus. 42. Our Directors currently have no intention of changing the auditors of the various companies in our Group after the listing of our Company on the SGX SESDAQ. CONSENTS 43. The Auditors and Reporting Accountants have given and have not withdrawn their written consent to the issue of this Prospectus with the inclusion of the Report on Examination of the Proforma Consolidated Financial Information and the Auditors’ Report in relation to the Consolidated Financial Statements of Beng Kuang Marine Limited and Subsidiaries for the Financial Years ended 31 December 2001, 2002 and 2003 in the form and context in which they are included in this Prospectus and references to their name in the form and context in which they appear in this Prospectus and to act in such capacity in relation to this Prospectus. 44. G.K. Goh Stockbrokers Pte. Ltd. as the independent financial adviser to our Independent Directors, has given and has not withdrawn its consent to the inclusion herein of its name and its letter addressed to our Independent Directors set out in Appendix 7 of this Prospectus in the form and context in which it appears in this Prospectus and to act in such capacities in relation to this Prospectus. 45. The Manager, Underwriter and Placement Agent, the Solicitors to the Invitation, the Principal Bankers, the Receiving Bank and the Share Registrar do not make or purport to make any statement in this Prospectus and are not aware of any statement in this Prospectus which purports to be based on a statement made by it and each of them makes no representation regarding any statement in this Prospectus and, to the extent permitted by law, takes no responsibility for any statement in or omission from this Prospectus. RESPONSIBILITY STATEMENT BY THE DIRECTORS OF OUR COMPANY 46. This Prospectus has been seen and approved by our Directors and they collectively and individually accept full responsibility for the accuracy of the information given in this Prospectus and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, the facts stated and the opinions expressed in this Prospectus are fair and accurate in all material respects as at the date of this Prospectus and that there are no other material facts the omission of which would make any statements herein misleading and that this Prospectus constitutes full and true disclosure of all material facts about the Invitation and our Company and our subsidiaries.

131

GENERAL AND STATUTORY INFORMATION DOCUMENTS AVAILABLE FOR INSPECTION 47. Copies of the following documents may be inspected at the registered office of our Company at the registered office during normal business hours for a period of 6 months from the date of registration of this Prospectus:– (a)

the Memorandum and Articles of Association of our Company;

(b)

the Proforma Consolidated Financial Information as set out on pages 133 to 169 of this Prospectus;

(c)

the material contracts referred to on pages 127 and 128 of this Prospectus;

(d)

the letters of consent referred to on page 131 of this Prospectus;

(e)

the Service Agreements referred to on pages 100 to 101 of this Prospectus; and

(f)

the Auditors’ Report and Consolidated Financial Statements of our Company and Subsidiaries for the Financial Years Ended 31 December 2001, 2002 and 2003 as set out on pages 170 to 201 of this Prospectus.

132

APPENDIX 1: PROFORMA CONSOLIDATED FINANCIAL INFORMATION A.

Proforma Consolidated Financial Information For The Financial Years Ended 31 December 2001, 2002 and 2003

A.1 The Proforma Group At the date of this report, the Proforma Group comprises the Company and the following subsidiaries:–

Name of subsidiary

Principal activities

Country of incorporation and place of business

Effective equity held by the Proforma Group %

Issued and paid-up capital

Held by the Company Nexus Sealand Trading Pte Ltd

Supply and distribution of products

Singapore

100

S$250,000

Asian Sealand Engineering Pte Ltd

Provision of infrastructure engineering services

Singapore

100

S$1,000,000

PT. Nexus Engineering Indonesia

Provision of corrosion prevention and infrastructure engineering services

Indonesia

100(1)

US$100,000

B & J Marine Pte. Ltd. (formerly known as Jet Point Marine Pte. Ltd.)

Provision of hydrojetting and tank cleaning services

Singapore

51

S$100,000

PT. Master Indonesia

Supply and distribution of products

Indonesia

100(1)

US$100,000

B & K Marine Pte. Ltd.

Provision of corrosion prevention services

Singapore

100

S$100,000

Beng Kuang Marine (B&Chew) Pte. Ltd.

Provision of corrosion prevention services

Singapore

100

S$100,000

Beng Kuang Marine (B&M) Pte. Ltd.

Provision of corrosion prevention services

Singapore

100

S$100,000

Beng Kuang Marine (B&Y) Pte. Ltd.

Provision of corrosion prevention services

Singapore

100

S$100,000

BT Asia Marketing & Engineering Pte Ltd

Trading of copper slag and waste management

Singapore

51

S$200,000

Picco Enterprise Pte. Ltd.

Supply and distribution of products

Singapore

100

S$1,000

Held by Nexus Sealand Trading Pte Ltd

Note:– (1)

1% of the shareholding is held by an Executive Officer who held in trust for the Company.

133

APPENDIX 1: PROFORMA CONSOLIDATED FINANCIAL INFORMATION A.

Proforma Consolidated Financial Information For The Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

A.1 The Proforma Group (cont’d) The statutory financial statements of the companies in the Proforma Group incorporated in Singapore for the financial years covered by this report were audited by the following firms of Certified Public Accountants of Singapore (CPA):– Name of Company

Auditors

Financial year

Beng Kuang Marine Pte Ltd

Arthur Andersen

For the financial year ended 31 December 2001

Ernst & Young

For the financial years ended 31 December 2002 and 2003

Arthur Andersen

For the financial year ended 31 December 2001

Ernst & Young

For the financial years ended 31 December 2002 and 2003

Arthur Andersen

For the financial year ended 31 December 2001

Ernst & Young

For the financial years ended 31 December 2002 and 2003

B & J Marine Pte. Ltd. (formerly known as Jet Point Marine Pte. Ltd.)

Ernst & Young

For the financial period from the date of incorporation, 29 January 2003 to 31 December 2003

BT Asia Marketing & Engineering Pte Ltd

Arthur Andersen

For the financial year ended 31 December 2001

Ernst & Young

For the financial years ended 31 December 2002 and 2003

Ernst & Young

For the financial period from the date of incorporation, 13 December 2002 to 31 December 2003

Nexus Sealand Trading Pte Ltd

Asian Sealand Engineering Pte Ltd

Picco Enterprise Pte. Ltd.

(i)

The audited financial statements of the companies in the Proforma Group incorporated in Singapore were prepared in accordance with Singapore Financial Reporting Standards as required by the Singapore Companies Act.

(ii)

PT. Nexus Engineering Indonesia and PT. Master Indonesia are not required to be audited by the laws of their country of incorporation.

(iii)

The auditors’ reports on the financial statements of the companies in the Proforma Group for the financial years covered by this report were not subject to any qualification.

134

APPENDIX 1: PROFORMA CONSOLIDATED FINANCIAL INFORMATION A.

Proforma Consolidated Financial Information For The Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

A.2 Basis of Presentation of Proforma Consolidated Financial Information The proforma consolidated financial information set out in this report has been prepared for illustrative purposes only. It has been prepared based on certain assumptions and after making certain adjustments to show what the historical financial information of the Group would have been had the Proforma Group structure, pursuant to the Restructuring Exercise as set out below, been in place since 1 January 2001 and throughout the financial periods covered by this report and what the financial position of the Group as at 31 December 2003 would have been if the Group structure at the date of registration of the Prospectus had been in place on that date. The financial information has been prepared in accordance with the accounting policies of the Proforma Group set out in section A.8 and in accordance with Singapore Financial Reporting Standards. The financial information is based on the audited financial statements of the companies in the Proforma Group for the respective years as appropriate. In arriving at the Proforma Group financial information, adjustments have been made as considered necessary in order to present the financial information on a consistent and comparable basis, including adjustments to reflect the investment of the Company in its subsidiaries as if the Proforma Group at the date of registration of the Prospectus had been in place on that date. The proforma financial information is prepared for illustrative purposes only. The objective is to show what the historical financial information might have been had the Proforma Group existed at an earlier date. However, the financial information of the Proforma Group, by its nature may not give a true picture of the Group’s actual financial position and results and is not necessarily indicative of the results of the operations or the related effects on the financial position that would have been attained had the abovementioned Proforma Group existed earlier. Restructuring Exercise (the “Restructuring Exercise”) On 23 August 2004, the Company entered into a Share Sale Agreement with Heng Huat Shipbuilding and Construction Pte. Ltd. (“Heng Huat”) to sell its entire stake in Asian Sealand Infrastructure & Construction Sdn. Bhd. (“ASIC”) (being 300,000 issued and paid up ordinary shares of RM1 each) to Heng Huat for an aggregate consideration of $141,868 based on the audited net tangible assets of ASIC as at 31 December 2003.

135

APPENDIX 1: PROFORMA CONSOLIDATED FINANCIAL INFORMATION A.

Proforma Consolidated Financial Information For The Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

A.3 Proforma Group Statements of Profit and Loss The financial results of the Proforma Group after making such adjustments as considered appropriate are set out below:–

Revenue

Note

2003 $

2002 $

2001 $

A.8.3

37,389,799

39,296,193

37,410,457

(27,692,209)

(30,342,968)

(27,449,884)

9,697,590

8,953,225

9,960,573

18,448

28,491

65,700

Cost of sales Gross profit Other operating income — net

A.8.4

Administrative expenses

(4,868,660)

(5,570,707)

(5,381,327)

Selling and distribution expenses

(1,327,911)

(1,305,318)

(1,124,777)

Profit from operations

A.8.6

3,519,467

2,105,691

3,520,169

Financial income

A.8.7

18,310

621

14,937

Financial expenses

A.8.8

(551,121)

Profit before taxation Taxation

2,986,656 A.8.9

Profit after taxation

2,505,612

Minority interests

(201,369)

Net profit attributable to shareholders Earnings per share (cents)* *

(481,044)

(626,704) 1,479,608 (432,811) 1,046,797 (276,541)

(703,169) 2,831,937 (807,230) 2,024,707 (313,122)

2,304,243

770,256

1,711,585

2.42

0.81

1.80

Proforma earnings per share has been computed based on net profit for the year and the pre-invitation share capital of 95,236,875 ordinary shares of $0.08 each. No dilution of earnings per share since there is presently no share option scheme on unissued shares.

136

APPENDIX 1: PROFORMA CONSOLIDATED FINANCIAL INFORMATION A.

Proforma Consolidated Financial Information For The Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

A.4 Proforma Group Balance Sheet The balance sheet of the Proforma Group as at 31 December 2003 as set out below has been prepared based on the financial statements of the companies within the Proforma Group and on the basis that the Proforma Group Structure as of the date of registration of the Prospectus had been in place on that date. Note

2003 $

Fixed assets Current assets Stocks Work-in-progress in excess of progress billings

A.8.10

7,947,208

A.8.11 A.8.12

4,646,041 5,202,552

Trade debtors Other debtors, deposits and prepayments

A.8.13 A.8.14

16,276,800 510,796

Due from related companies (trade) Due from related companies (non-trade) Due from related parties (trade) Loan to a related company Cash and bank balances

A.8.15 A.8.16

3,171,728 333,739 392,884 989,487 762,659 32,286,686

Current liabilities Trade creditors Bills payable to banks Other creditors and accruals Due to holding company (trade) Due to holding company (non-trade) Due to related companies (trade) Due to related companies (non-trade) Due to related parties (trade)

A.8.17 A.8.18 A.8.15 A.8.15 A.8.19

4,716,882 2,234,101 2,884,078 224,953 21,790 1,083,760 486,308 58,885

Loans from related companies Provision for income tax Lease obligations (current portion)

A.8.20

2,281,089 638,102 440,863

Bank overdrafts Short-term bank loans

A.8.17 A.8.21

1,147,428 11,020,602 27,238,841

Net current assets

5,047,845

Non-current liabilities Lease obligations (non-current portion) Deferred taxation

A.8.20 A.8.9

353,236 934,000 11,707,817

Proforma shareholders’ equity Minority interests

10,811,873 895,944 11,707,817

137

APPENDIX 1: PROFORMA CONSOLIDATED FINANCIAL INFORMATION A.

Proforma Consolidated Financial Information For The Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

A.5 Proforma Consolidated Statement of Changes in Shareholders’ Equity The movements in the proforma shareholders’ equity of the Proforma Group for the years ended 31 December 2001, 2002 and 2003 are as follows:–

Balance as at 1 January 2001

Share capital

Share premium

Revenue reserves

Total

$

$

$

$

1,316,328

2,583,672

2,125,789

6,025,789

—

—

1,711,585

1,711,585

1,316,328

2,583,672

3,837,374

7,737,374

—

—

770,256

770,256

1,316,328

2,583,672

4,607,630

8,507,630

—

—

2,304,243

2,304,243

1,316,328

2,583,672

6,911,873

10,811,873

Net profit for the year Balance as at 31 December 2001 Net profit for the year Balance as at 31 December 2002 Net profit for the year Balance as at 31 December 2003

A.6 Statement of Adjustments The following adjustments have been made to the audited consolidated financial statements of Beng Kuang Marine Limited and subsidiaries for the respective financial years covered by this report in arriving at the Proforma Group financial information:– Proforma Group Statements of Profit and Loss

2001 Revenue

Audited financial statements 2001 $ 37,947,269

Proforma adjustments 2001 $ 1,144,863(1)

Proforma financial information 2001 $ 37,410,457

(1,681,675)(2) Cost of sales

(28,172,170)

(959,389)(1) 1,681,675

Gross profit

9,775,099

Other operating income — net

64,496

Administrative expenses

(5,110,145)

Selling and distribution expenses

(1,124,777)

Profit from operations

—

Financial expenses Profit before taxation

(701,846) 2,902,827

Taxation Profit after taxation

9,960,573 1,204(1) (271,182)

(1)

(807,230) 2,095,597

138

65,700 (5,381,327) (1,124,777)

3,604,673

Financial income

(27,449,884)

(2)

3,520,169 14,937

(1)

(1,323)

(1)

14,937 (703,169) 2,831,937 (807,230) 2,024,707

APPENDIX 1: PROFORMA CONSOLIDATED FINANCIAL INFORMATION A.

Proforma Consolidated Financial Information For The Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

A.6 Statement of Adjustments (cont’d) Proforma Group Statements of Profit and Loss (cont’d)

2002 Revenue

Audited financial statements 2002 $ 37,778,868

Proforma adjustments 2002 $ 3,408,013(1) (1,759,243)

Proforma financial information 2002 $ 39,296,193

(2)

(131,445)(3) Cost of sales

(29,272,457)

(2,934,723)(1)

(30,342,968)

1,759,243(2) 104,969(3) Gross profit

8,506,411

Other operating (expenses)/income — net Administrative expenses

(56,948) (5,117,131)

8,953,225 85,439

(1)

(486,180)

(1)

28,491 (5,570,707)

32,604(3) Selling and distribution expenses Profit from operations

(1,305,318)

(1,305,318)

2,027,014

Financial income

138

Financial expenses

(626,290)

2,105,691 483

(1)

(2,142)

(1)

621 (626,704)

1,728(3) Profit before taxation

1,400,862

Taxation

(432,811)

Profit after taxation

968,051

139

1,479,608 (432,811) 1,046,797

APPENDIX 1: PROFORMA CONSOLIDATED FINANCIAL INFORMATION A.

Proforma Consolidated Financial Information For The Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

A.6 Statement of Adjustments (cont’d) Proforma Group Statements of Profit and Loss (cont’d)

2003 Revenue

Audited financial statements 2003 $

Proforma adjustments/ reclassification 2003 $

Proforma financial information 2003 $

41,243,856

(3,884,162)(3)

37,389,799

30,105 Cost of sales

(31,424,613)

(4)

3,762,509(3) (30,105)

Gross profit

9,819,243

Other operating income — net

19,591

Administrative expenses

(4,933,462)

Selling and distribution expenses

(1,327,911)

Profit from operations

3,577,461

Financial income

332

Financial expenses

(566,387)

9,697,590 (1,143)(3) 64,802

(3)

Profit after taxation

(493,373) 2,518,033

140

(4,868,660)

3,519,467 17,978

(5)

33,244(3)

18,310 (551,121)

(5)

3,011,406

Taxation

18,448

(1,327,911)

(17,978) Profit before taxation

(27,692,209)

(4)

2,986,656 12,329

(3)

(481,044) 2,505,612

APPENDIX 1: PROFORMA CONSOLIDATED FINANCIAL INFORMATION A.

Proforma Consolidated Financial Information For The Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

A.6 Statement of Adjustments (cont’d) Adjustments to the Proforma Group Statements of Profit and Loss for the Financial Years Ended 31 December 2001, 2002 and 2003 Details of the adjustments made to the audited financial statements of the companies in the Proforma Group for the respective financial years in arriving at the Proforma Group statements of profit and loss are as follows:– Note

Description

(1)

This relates to adjustments made to include the financial results of PT. Nexus Engineering Indonesia (“PT Nexus”) as follows:–

(2)

(3)

2003 $

—

3,408,013

Cost of sales

—

(2,934,723)

Other operating income — net

—

85,439

Administrative expenses

—

(486,180)

Financial income

—

Financial expenses

—

(2,142)

(1,323)

Revenue

—

(1,759,243)

(1,681,675)

Cost of sales

—

1,759,243

1,681,675

483

1,144,863 (959,389) 1,204 (271,182) 14,937

Elimination of intra-group trading sales with PT Nexus:–

This relates to adjustments made to exclude the financial results of Asian Sealand Infrastructure & Construction Sdn. Bhd. (“ASIC”):–

Cost of sales

(3,884,162)

(131,445)

—

3,762,509

104,969

—

—

—

Other operating income — net

(1,143)

Administrative expenses

64,802

32,604

—

Financial expenses

33,244

1,728

—

Tax

12,329

—

—

This relates to adjustments made to exclude the elimination of intra-group trading sales with ASIC:– Revenue

30,105

—

—

(30,105)

—

—

Financial income

17,978

—

—

Financial expense

(17,978)

—

—

Cost of sales (5)

2001 $

Revenue

Revenue

(4)

2002 $

Reclassification of accounts:–

141

APPENDIX 1: PROFORMA CONSOLIDATED FINANCIAL INFORMATION A.

Proforma Consolidated Financial Information For The Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

A.6 Statement of Adjustments (cont’d) Proforma Group Balance Sheet as at 31 December 2003

Fixed assets Current assets Stocks Work-in-progress in excess of progress billings Trade debtors Other debtors, deposits and prepayments Due from related companies (trade)

Proforma adjustments 2003 $ (154,135)(1)

4,680,445

(34,404)(1)

4,646,041

6,341,682

(1,139,130)(1)

16,609,889 514,524 3,182,815

(333,089)(1) (3,728)(1) (97,944)(1) 86,857(3) (3,920)(1) 137,724(2) 151,769(3)

5,202,552 16,276,800 510,796 3,171,728

Due from related companies (non-trade)

48,166

Due from related parties (trade) Loan to a related company Cash and bank balances

392,884 — 977,749

989,487(3) (215,090)(1)

32,748,154 Current liabilities Trade creditors Bills payable to banks Other creditors and accruals Due to holding company (trade)

4,845,904 2,234,101 3,169,387 224,953

Due to holding company (non-trade) Due to related companies (trade)

532,089

Due to related parties (trade) Loan from holding company

Lease obligations (current portion) Bank overdrafts Short-term bank loans

Net current assets

(129,022)(1) (285,309)(1) (132,552)(1) 132,552(3) (99,923)(1) 83,908(3) (67,947)(1) 22,166(3)

58,885 —

(989,487)(1)

2,331,089 645,865

989,487(3) (50,000)(1) (7,763)(1)

457,832 1,147,428 11,020,602

7,947,208

333,739

392,884 989,487 762,659 32,286,686

21,790 1,099,775

Due to related companies (non-trade)

Loans from related companies Provision for income tax

Proforma financial information 2003 $

Audited financial statements 2003 $ 8,101,343

(16,969)(1)

4,716,882 2,234,101 2,884,078 224,953 21,790 1,083,760 486,308 58,885 — 2,281,089 638,102 440,863 1,147,428 11,020,602

27,789,700

27,238,841

4,958,454

5,047,845

142

APPENDIX 1: PROFORMA CONSOLIDATED FINANCIAL INFORMATION A.

Proforma Consolidated Financial Information For The Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

A.6 Statement of Adjustments (cont’d) Proforma Group Balance Sheet as at 31 December 2003 (cont’d) Audited financial statements 2003 $

Proforma adjustments 2003 $

Proforma financial information 2003 $

Non-current liabilities (60,600)(1)

Lease obligations (non-current portion)

413,836

Deferred taxation

934,000

934,000

11,711,961

11,707,817

Proforma shareholders’ equity

10,816,017

(141,868)(1) 137,724

Minority interests

353,236

10,811,873

(2)

895,944

895,944

11,711,961

11,707,817

Adjustments to the Proforma Group Balance Sheet as at 31 December 2003 Details of the adjustments made to the audited financial statements of the companies in the Proforma Group in arriving at the Proforma Group balance sheet as at 31 December 2003 are as follows:– (1)

Adjustment to exclude ASIC’s financial statements.

(2)

Adjustment to exclude the elimination of investment in ASIC.

(3)

Adjustment to exclude the elimination of inter-company balances with ASIC.

143

APPENDIX 1: PROFORMA CONSOLIDATED FINANCIAL INFORMATION A.

Proforma Consolidated Financial Information For The Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

A.7 Proforma Consolidated Cash Flow Statement Year ended 31 December 2003 $ Cash flows from operating activities Profit before taxation Adjustments:– Bad trade debts written off Fixed assets written off Provision for doubtful trade debts Write-back of provision for doubtful trade debts no longer required Provision for rebates/discounts Write-back of provision for rebates/discounts Loss on disposal of fixed assets Depreciation of fixed assets Interest income Interest expenses

2,986,656 1,729 19,777 90,585 (214,647) 624,300 (20,553) 2,529 1,641,733 (332) 533,334

Operating profit before working capital changes (Increase)/decrease in:– Stocks Work-in-progress in excess of progress billings Trade debtors Other debtors, deposits and prepayments Due from related companies, net Due from related parties Increase/(decrease) in:– Trade creditors Bills payables to banks Other creditors and accruals Due to holding company, net Due to related companies, net Due to related parties

5,665,111 (1,458,006) (806,755) (981,124) 195,632 120,666 (392,634) 1,694,745 391,818 254,787 (25,573) (142,763) 47,263

Cash generated from operations Interest income Interest paid Income taxes paid

4,563,167 332 (560,849) (498,638)

Net cash generated from operating activities

3,504,012

Cash flows from investing activities Proceeds from disposal of fixed assets Purchase of fixed assets Proceeds from a minority shareholder of a subsidiary

(b)

61,550 (1,041,908) 49,000

Net cash used in investing activities

(931,358)

Cash flows from financing activities Repayment of finance lease liabilities Loan to a related company Repayment of loans to related companies Dividends paid to a minority shareholder of a subsidiary

(597,449) (989,487) (5,205) (38,220)

Net cash used in financing activities

(1,630,361)

Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year

942,293 (1,327,062)

Cash and cash equivalents at end of year

(a)

144

(384,769)

APPENDIX 1: PROFORMA CONSOLIDATED FINANCIAL INFORMATION A.

Proforma Consolidated Financial Information For The Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

A.7 Proforma Consolidated Cash Flow Statement (cont’d) (a)

Cash and cash equivalents Cash and cash equivalents included in the proforma consolidated statement of cash flow comprise the following balance sheet amounts:– 2003 $ Cash and bank balances

762,659

Bank overdrafts

(1,147,428) (384,769)

(b)

Purchase of fixed assets During the financial year, the Proforma Group acquired fixed assets with an aggregate cost of $1,235,971 of which $194,063 were acquired by means of lease agreements and cash payments of $1,041,908.

A.8 Notes to the Proforma Group Financial Information These notes are an integral part of and should be read in conjunction with the accompanying proforma financial information. 1.

General The Company was incorporated as a private limited liability company in Singapore on 8 January 1994 under the name of Beng Kuang Marine Pte Ltd. On 30 August 2004, the Company was converted into a public limited company and changed its name to Beng Kuang Marine Limited. For the years ended 31 December 2001, 2002 and 2003, its immediate and ultimate holding company is Labroy Marine Limited (“LML”), incorporated in Singapore. Related companies refer to LML and its subsidiaries. Related parties refer to entities in which the Company’s and its subsidiaries’ shareholders or directors exercise significant control over their financial and operating policy decisions. The registered office and principal place of business of the Company is located at 55 Shipyard Road, Singapore 628141. The principal activities of the Company are provision of corrosion prevention services relating to repair of ships, tankers and other ocean-going vessels. The principal activities of the subsidiaries are shown in section A.1 to the proforma consolidated financial information. There have been no significant changes in the nature of these activities during the financial years. The Proforma Group employed 625, 584 and 584 employees as of 31 December 2003, 2002 and 2001 respectively.

145

APPENDIX 1: PROFORMA CONSOLIDATED FINANCIAL INFORMATION A.

Proforma Consolidated Financial Information For The Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

A.8 Notes to the Proforma Group Financial Information (cont’d) 2.

Summary of significant accounting policies Basis of preparation The proforma consolidated financial information which are expressed in Singapore dollars, have been prepared under the historical cost convention in accordance with Singapore Financial Reporting Standards (“FRS”) as required by the Singapore Companies Act with effect from 1 January 2003. Prior to 1 January 2003, the proforma consolidated financial information was prepared in accordance with Singapore Statements of Accounting Standard (“SAS”). The transition from SAS to FRS did not result in any significant change in accounting policies. The accounting policies have been consistently applied and are consistent with those used in the previous financial year. Changes in accounting estimates The Proforma Group revised its estimate for the useful life of certain motor vehicles and forklifts from 5 years to 10 years on 1 January 2003 to better reflect its economic useful life. The revised depreciation rates are applied prospectively without adjustments to previously reported amounts. This change has reduced the depreciation charges of the Proforma Group by $113,281 for the year ended 31 December 2003. Basis of consolidation The proforma consolidated financial information includes the financial statements of the Company and its subsidiaries made up to the end of each financial year. The results of the subsidiaries are included in the proforma consolidated financial information on the basis that the Proforma Group had been in existence since 1 January 2001. All intercompany balances and transactions, and any unrealised profit or loss on intercompany transactions are eliminated on consolidation. The equity and net profit attributable to minority shareholders’ interests are shown separately in the consolidated balance sheet and consolidated statement of profit and loss, respectively. Goodwill represents the excess of cost of acquisition over the fair value of the net identifiable assets acquired and is recognised as an asset in the balance sheet. Goodwill is amortised on a systematic basis over its useful life of five years during which future economic benefits are expected to flow to the enterprise. The proforma consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. Subsidiaries A subsidiary is defined as a company, in which the Group has a long-term interest of more than 50% of the equity or in whose financial and operating policy decisions the Group controls. Investment in subsidiaries are stated in the Company’s balance sheet at cost less impairment losses.

146

APPENDIX 1: PROFORMA CONSOLIDATED FINANCIAL INFORMATION A.

Proforma Consolidated Financial Information For The Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

A.8 Notes to the Proforma Group Financial Information (cont’d) 2.

Summary of significant accounting policies (cont’d) Foreign currencies Foreign currency transactions are measured in Singapore dollars and recorded at exchange rates closely approximating those ruling at the transaction dates. Foreign currency monetary assets and liabilities outstanding at the balance sheet date are measured in Singapore dollars at the rates of exchange approximating those ruling at balance sheet date. All exchange difference arising on conversion are included in the statement of profit and loss. Translation of foreign currency financial statements Assets and liabilities of the foreign subsidiary are translated into Singapore dollars at the exchange rates ruling at balance sheet date. The results of the foreign subsidiary are translated into Singapore dollars at the weighted average exchange rates applicable for the financial year. Foreign currency translation adjustments arising on consolidation are accumulated in the separate component of equity. Fixed assets Fixed assets are stated at cost less accumulated depreciation and any impairment loss. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to working condition for its intended use. Expenditure for additions, improvements and renewals are capitalised and expenditure for maintenance and repairs are charged to the statement of profit and loss. When assets are sold or retired, their cost and accumulated depreciation are removed from the financial statements and any gain or loss resulting from their disposal is included in the statement of profit and loss. Depreciation Depreciation is calculated on the straight-line method to write off the cost of fixed assets over their estimated useful lives as follows:– Motor vehicles Computers Office equipment Furniture and fittings Forklifts Machinery, tools and equipment Air-conditioners Leasehold improvement and renovation Leasehold building

5–10 years 3 years 10 years 10 years 5–10 years 10 years 5 years 3–10 years over the lease period of 20 years

Fully depreciated fixed assets are retained in the financial statements until they are no longer in use and no further charge for depreciation is made in respect of these assets.

147

APPENDIX 1: PROFORMA CONSOLIDATED FINANCIAL INFORMATION A.

Proforma Consolidated Financial Information For The Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

A.8 Notes to the Proforma Group Financial Information (cont’d) 2.

Summary of significant accounting policies (cont’d) Leases Finance leases, which effectively transfer to the Group substantially all the risks and benefits incidental to ownership of the lease item, are capitalised at the present value of the minimum lease payments at the inception of the lease term and disclosed as leased fixed assets. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to the statement of profit and loss. Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased assets are classified as operating leases. Operating lease payments are recognised as an expense in the statement of profit and loss on a straight line basis over the lease term. Stocks and work-in-progress Stocks relate to trading goods which are stated at the lower of cost (determined on a weighted average basis) and net realisable value. Net realisable value is the estimated normal selling price, less estimated costs necessary to make the sale. Provision is made for deteriorated, damaged, obsolete and slow-moving stocks. Work-in-progress comprises uncompleted repair and fabrication contracts and includes cost of materials, all direct expenditure and an attributable proportion of overheads plus recognised profit less recognised losses and progress billings. Provision for foreseeable losses on uncompleted contracts is made in the year in which such losses are determined. Cash and cash equivalents Cash and cash equivalents are defined as cash on hand and cash with banks, including bank overdrafts that are readily convertible to known amounts of cash and subject to insignificant risk of changes in values. Cash and cash equivalents are carried at cost. Trade and other debtors Trade and other debtors are recognised and carried at original invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when identified. Receivables from related companies and related parties are recognised and carried at cost less an allowance for any uncollectible amounts. Trade and other creditors Liabilities for trade and other creditors are carried at cost which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the Group. Payables to related companies and related parties are carried at cost.

148

APPENDIX 1: PROFORMA CONSOLIDATED FINANCIAL INFORMATION A.

Proforma Consolidated Financial Information For The Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

A.8 Notes to the Proforma Group Financial Information (cont’d) 2.

Summary of significant accounting policies (cont’d) Loans and borrowings Loans and borrowings are initially recognised at cost, being the fair value of the consideration received, net of issue costs associated with the borrowings. Borrowing costs are recognised as expenses in the period in which they are incurred. Impairment of assets Fixed assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. Whenever the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognised in the statement of profit and loss. The recoverable amount is the greater of the asset’s net selling price and value in use. The net selling price is the amount obtainable from the sale of an asset in an arm’s length transaction. Value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of the useful life. Recoverable amounts are estimated for individual assets or, if it is not possible, for the cash-generating unit to which the asset belongs. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation, if no impairment loss had been recognised. All reversals of impairment are recognised in the statement of profit and loss. Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Employee benefits Defined contribution plan The Group participates in the national pension schemes as defined by the laws of the countries in which it has operations. In particular, the Singapore companies in the Group makes contributions to the Central Provident Fund (“CPF”) a defined contribution pension scheme in Singapore. Contributions are recognised as compensation expense in the same period as the employment that gives rise to the contribution. Employment leave entitlement Employee entitlements to annual leave are recognised when they accrue to employees. An accrual is made for the estimated liability for annual leave as a result of services rendered by employees up to the balance sheet date.

149

APPENDIX 1: PROFORMA CONSOLIDATED FINANCIAL INFORMATION A.

Proforma Consolidated Financial Information For The Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

A.8 Notes to the Proforma Group Financial Information (cont’d) 2.

Summary of significant accounting policies (cont’d) Revenue recognition (i)

Revenue Revenue from corrosion prevention and infrastructure engineering services is recognised, using the percentage-of-completion method. The percentage of completion for a given project is determined after considering the relationship of the value of work done to-date to total contract revenue for the project. Supply and distribution revenue is recognised net of goods and services tax and discounts when goods have been delivered and accepted by the customer. Group revenue excludes intercompany transactions.

(ii)

Interest income Interest income is recognised on an accrual basis.

Income tax Deferred income tax is provided using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax assets and liabilities are measured using the tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled based on tax rates enacted or substantively enacted at the balance sheet date. Deferred tax liabilities are recognised for all taxable temporary differences associated with investments in subsidiaries, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. At each balance sheet date, the Group re-assesses unrecognised deferred tax assets and the carrying amount of deferred tax assets. The Group recognises a previously unrecognised deferred tax asset to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. The Group conversely reduces the carrying amount of a deferred tax asset to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of the deferred tax asset to be utilised. Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, carry-forward of unused tax assets and unused tax losses can be utilised. Current tax and deferred tax are charged or credited directly to equity if the tax relates to items that are credited or charged, in the same or a different period, directly to equity.

150

APPENDIX 1: PROFORMA CONSOLIDATED FINANCIAL INFORMATION A.

Proforma Consolidated Financial Information For The Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

A.8 Notes to the Proforma Group Financial Information (cont’d) 2.

Summary of significant accounting policies (cont’d) Financial instruments Financial assets and financial liabilities carried on the balance sheet include cash and cash equivalents, trade and other debtors and creditors, loans, borrowings and investments. The accounting policies on recognition and measurement of these items are disclosed in the respective accounting policies found in this Note. Segment reporting A segment is a distinguishable component of the Group that is engaged in providing services/ products (business segment), or in providing such services/products within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. Segment information is presented in respect of the Group’s business and geographical segments. The primary format, business segments, is based on the Group’s management and internal reporting structure. Inter-segment pricing, if any, is determined on an arms’ length basis.

3.

Revenue 2003 $

2002 $

2001 $

19,766,423

20,623,435

20,881,825

Infrastructure engineering services

7,551,389

10,876,629

9,978,855

Supply and distribution of products

10,071,987

7,796,129

6,549,777

37,389,799

39,296,193

37,410,457

2003 $

2002 $

2001 $

Corrosion prevention services

4.

Other operating income — net

Fixed assets written off

(19,777)

—

—

Loss on disposal of fixed assets

(2,529)

(92,373)

(3,271)

Other income

40,754

120,864

68,971

18,448

28,491

65,700

151

APPENDIX 1: PROFORMA CONSOLIDATED FINANCIAL INFORMATION A.

Proforma Consolidated Financial Information For The Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

A.8 Notes to the Proforma Group Financial Information (cont’d) 5.

Personnel expenses 2003 $

2002 $

2001 $

9,118,952

8,918,304

10,288,796

Pension contributions

384,591

391,270

401,227

Other personnel expenses

697,142

815,146

699,906

10,200,685

10,124,720

11,389,929

Wages, salaries and bonuses

Total

The above includes the amount shown as Directors’ and Executive Officers’ remuneration in Note 24. 6.

Profit from operations This is determined after charging/(crediting) the following:– 2003 $

2002 $

2001 $

1,729

74,000

10,660

90,585

394,455

422,596

(214,647)

(87,685)

(41,019)

Provision for rebates/discounts

624,300

701,200

Write-back of provision for rebates/discounts

(20,553)

(115,000)

Bad trade debts written off Provision for doubtful trade debts Write-back of provision for doubtful trade debts no longer required

Provision for stock obsolescence Depreciation of fixed assets

7.

1,060,946 (47,546)

—

21,000

—

1,641,733

1,607,475

1,135,343

2003 $

2002 $

2001 $

Financial income

Exchange gain- net Interest income

152

17,978

—

14,215

332

621

722

18,310

621

14,937

APPENDIX 1: PROFORMA CONSOLIDATED FINANCIAL INFORMATION A.

Proforma Consolidated Financial Information For The Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

A.8 Notes to the Proforma Group Financial Information (cont’d) 8.

Financial expenses 2003 $ Exchange loss, net

2002 $

2001 $

—

48,486

—

135,168

131,161

139,095

Interest expense —

bank overdrafts

—

loan from related companies

41,318

86,694

88,736

—

finance leases

66,262

72,262

59,310

—

short-term bank loans

252,589

235,980

360,124

—

bills payable

37,997

34,467

40,839

17,787

17,654

15,065

551,121

626,704

703,169

2003 $

2002 $

2001 $

642,632

270,243

641,606

(216,588)

32,971

85,724

87,872

16,749

62,911

(32,872)

112,848

16,989

481,044

432,811

807,230

Bank charges

9.

Taxation

Current tax —

current year

—

(over)/underprovision in prior year

Deferred tax —

current year

—

(over)/underprovision in prior year

The Group has unutilised capital allowances of approximately $50,000 (2002 & 2001 : $95,000) available for offset against future taxable profits, subject to the agreement of the tax authorities and compliance with certain provisions of the Singapore Income Tax Act.

153

APPENDIX 1: PROFORMA CONSOLIDATED FINANCIAL INFORMATION A.

Proforma Consolidated Financial Information For The Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

A.8 Notes to the Proforma Group Financial Information (cont’d) 9.

Taxation (cont’d) A reconciliation of the amount determined by multiplying the statutory tax rate against the accounting profit to the Group’s tax expense for the years ended 31 December is as follows:–

Accounting profit Tax at the applicable tax rate – (FY2003 : 22%, FY2002 : 22%, FY2001: 24.5%) Tax effect of expenses that are not deductible in determining taxable profit Tax exemption and rebates Reduction of tax rates

2003 $

2002 $

2001 $

2,986,656

1,479,608

2,831,937

657,064

322,103

693,825

76,547

57,428

35,205

(46,200)

(34,650)

(47,295)

—

(82,485)

—

(Over)/underprovision of current tax in respect of prior years

(216,588)

32,971

85,724

(Over)/underprovision of deferred tax in respect of prior years

(32,872)

112,848

16,989

Others — net

43,093

24,596

22,782

Tax expense

481,044

432,811

807,230

Deferred taxation at 31 December 2003 relate to the following:– 2003 $ Deferred tax liabilities:– —

excess of net book value over tax written down value of fixed assets

993,377

—

provisions

(48,377)

—

unutilised capital allowances

(11,000) 934,000

154

APPENDIX 1: PROFORMA CONSOLIDATED FINANCIAL INFORMATION

A.

Proforma Consolidated Financial Information For The Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

A.8 Notes to the Proforma Group Financial Information (cont’d) 10. Fixed assets Leasehold improvement Machinery, and tools and Airequipment conditioners renovation

Motor vehicles

Computers

Office equipment

Furniture and fittings

$

$

$

$

$

$

$

2,077,622

301,295

342,042

132,953

519,563

8,589,397

Additions

190,846

35,821

78,529

12,744

292,763

470,895

Disposals

(34,922)

(13,286)

(11,336)

(2,052)

(56,500)

(30,100)

Forklifts

Leasehold building

Total

$

$

$

90,680

2,197,233

527,827

14,778,612

—

90,470

63,903

1,235,971

Cost As at 1.1.2003

155

—

—

—

—

—

—

—

—

—

—

2,233,546

323,830

409,235

143,645

755,826

9,030,192

90,680

2,287,703

564,134

15,838,791

Write off As at 31.12.2003

— (27,596)

(148,196) (27,596)

Accumulated depreciation As at 1.1.2003

994,969

193,660

253,530

58,366

381,889

2,686,931

75,122

1,282,346

414,973

6,341,786

Charge for the year

241,379

58,249

24,398

18,027

52,279

1,098,449

3,575

124,828

20,549

1,641,733

Disposals

(22,961)

(6,228)

(1,845)

(40,675)

Write off As at 31.12.2003

—

—

—

(910) —

—

—

—

(11,498) —

—

—

—

1,213,387

250,999

271,700

74,548

393,493

3,773,882

78,697

1,407,174

427,703

7,891,583

1,020,159

72,831

137,535

69,097

362,333

5,256,310

11,983

880,529

136,431

7,947,208

(7,819)

(84,117) (7,819)

Net book value As at 31.12.2003

As at 31 December 2003, the Group had motor vehicles and machinery, tools and equipment and forklift purchased under finance lease contracts with net book value of $617,248 , $986,628 and $121,708 respectively (Note 20).

APPENDIX 1: PROFORMA CONSOLIDATED FINANCIAL INFORMATION

A.

Proforma Consolidated Financial Information For The Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

A.8 Notes to the Proforma Group Financial Information (cont’d) 11.

Stocks 2003 $ Stocks, at cost

4,667,041

Provision for stock obsolescence

(21,000) 4,646,041

Movements in provision for stocks obsolescence during the year are as follows:– At beginning and end of year

(21,000)

12. Work-in-progress in excess of progress billings 2003 $ Costs incurred to date

9,309,595

Add: Attributable profits

2,987,508 12,297,103

Less: Progress billings

(7,094,551) 5,202,552

13. Trade debtors 2003 $ Trade debtors

17,920,657

Provision for doubtful trade debts

(376,657)

Provision for rebates/discounts

(1,267,200) 16,276,800

Movements in provision for doubtful trade debts during the year are as follows:– At beginning of year

(890,850)

Provision for the year

(90,585)

Write back of provision

214,647

Written off against provision

390,131

At end of year

(376,657)

Bad debts written off directly to statement of profit and loss

156

1,729

APPENDIX 1: PROFORMA CONSOLIDATED FINANCIAL INFORMATION

A.

Proforma Consolidated Financial Information For The Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

A.8 Notes to the Proforma Group Financial Information (cont’d) 13. Trade debtors (cont’d) Movements in provision for discount/rebates during the year are as follows:– 2003 $ At beginning of year

(1,039,200)

Provision for the year

(624,300)

Write back of provision

20,553

Written off against provision

375,747

At end of year

(1,267,200)

14. Other debtors, deposits and prepayments 2003 $ Staff loans

58,244

Sundry debtors

343,318

Deposits

24,743

Prepayments

84,491 510,796

15. Due from/(to) holding company/related companies (non-trade) These amounts are unsecured, interest-free and are repayable on demand. 16. Loan to a related company The amount is unsecured, interest-free and is repayable on demand. 17. Bank overdrafts/bills payable to banks The bank overdrafts and bills payable to banks bear interest at 4.25% to 5.25% per annum and 2.1% to 2.45% per annum respectively, which are also the effective interest rates and are supported by a corporate guarantee from the holding company.

157

APPENDIX 1: PROFORMA CONSOLIDATED FINANCIAL INFORMATION

A.

Proforma Consolidated Financial Information For The Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

A.8 Notes to the Proforma Group Financial Information (cont’d) 18. Other creditors and accruals 2003 $ Other creditors

(538,119)

Accrued operating expenses

(2,345,959) (2,884,078)

19. Loans from related companies These amounts are unsecured, bear interest at a range of 1.6% to 2.87% per annum and are repayable on demand. 20. Lease obligations 2003 Minimum lease payments $

Interest $

Present value of payments $

Within 1 year

490,454

49,591

440,863

Within 2 to 5 years More than 5 years

407,451 758

54,870 103

352,581 655

408,209

54,973

353,236

898,663

104,564

794,099

Finance leases bear interest ranging from 2.2% to 4.6% per annum. The effective interest rates range from 4.3% to 8.74% per annum. All assets acquired under finance leases are secured. The net book value of assets acquired under finance leases are disclosed in Note 10. The finance leases do not contain any escalation clauses and do not provide for contingent rents. Lease terms do not contain restrictions on the Group activities concerning dividends, additional debts or entering into other leasing agreements. 21. Short-term bank loans The short-term bank loans bear interest ranging from 2.14% to 2.53% per annum which are also the effective interest rates. Bank loans of $8,000,000 are supported by a corporate guarantee from the holding company.

158

APPENDIX 1: PROFORMA CONSOLIDATED FINANCIAL INFORMATION

A.

Proforma Consolidated Financial Information For The Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

A.8 Notes to the Proforma Group Financial Information (cont’d) 22. Share capital 2003 $ Authorised:– —

2,000,000 ordinary shares of $1 each

2,000,000

Issued and fully paid:– —

1,316,328 ordinary shares of $1 each

1,316,328

The holders of ordinary shares are entitled to receive dividends as and when declared by the Company. All ordinary shares carry one vote per share without restriction. 23. Share premium The share premium account may be applied only for the purposes specified in the Companies Act. The balance is not available for distribution of dividends except in the form of shares. 24. Related party information In addition to the related party information disclosed elsewhere in the financial statements, significant transactions with related parties on terms agreed between the parties, were as follows:– 2003 $

2002 $

2001 $

Income Sales to holding company Sales to related companies Sales to a related party Services rendered to holding company Services rendered to related companies Services rendered to a related party Management fees from a related party

159

—

1,650

2,693

1,880,527

1,962,286

1,844,867

521,172

—

—

4,159

5,612

3,565

3,047,152

3,168,541

3,304,183

8,435

297

180

15,000

—

—

APPENDIX 1: PROFORMA CONSOLIDATED FINANCIAL INFORMATION

A.

Proforma Consolidated Financial Information For The Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

A.8 Notes to the Proforma Group Financial Information (cont’d) 24. Related party information (cont’d) 2003 $

2002 $

2001 $

22,997

25,143

97,051

197,725

—

—

Services from related companies

88,701

461,123

193,371

Interest expense to related companies

41,318

86,695

106,598

Management fees to a related company

72,000

72,000

191,650

Rental expenses to related companies

240,000

288,000

—

Transport services from a related party

97,063

62,551

50,705

17,000

17,000

12,000

Directors’ remuneration

467,707

562,635

472,080

Executive Officers’ remuneration

718,250

777,988

639,183

Expenses Purchases from related companies Purchases from a related party

Directors’ and Executive Officers’ remuneration Directors’ fees

25. Operating lease commitments The Group has various operating lease agreements for office premises and workers’ accommodation. 2003 $

2002 $

2001 $

Future minimum lease payments —

Within 1 year

286,000

364,000

484,000

—

Within 2 to 5 years

393,000

393,000

430,000

—

More than 5 years

164,000

262,000

—

843,000

1,019,000

914,000

Rental expense was $556,756, $483,256 and $425,522 for the years ended 31 December 2003, 2002 and 2001 respectively. The lease terms do not contain restrictions on the Group’s activities concerning dividends, additional debt or further leasing, escalation clauses and do not provide for contingent rents for the financial years ended 31 December 2003, 2002 and 2001. For the financial year ended 31 December 2003, lease agreements do not contain any renewable options. For the financial years ended 31 December 2002 and 2001, one of the lease agreements contains renewal option for additional lease period of 1 year at prevailing market rates. 160

APPENDIX 1: PROFORMA CONSOLIDATED FINANCIAL INFORMATION

A.

Proforma Consolidated Financial Information For The Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

A.8 Notes to the Proforma Group Financial Information (cont’d) 26. Segment information (A)

Business segments The Proforma Group’s primary format for reporting segment information is business segments, with each segment representing a strategic business segment that offers different products/services. The Proforma Group has 3 main business segments as detailed below. Corrosion Prevention: This relates to the provision of corrosion prevention, mainly blasting and painting services as part of the shipbuilding, ship conversion and ship repair activities in the marine, oil and gas and other industries. It also includes corrosion prevention services for steel work structures and piping modules of oil rigs and jack-up rigs. Infrastructure Engineering: This relates to the provision of turnkey engineering services from planning project management to implementation involving fabrication, corrosion prevention, testing, installation and pre-commissioning of steelwork modules and structures. Supply and Distribution: This relates to the supply and distribution of hardware equipment, tools and other products used in the marine, oil and gas, and construction industries. Segment assets consist primarily of fixed assets, trade debtors, stocks and work-in-progress in excess of progress billings. Segment liabilities comprise mainly operating liabilities and exclude income tax liabilities.

161

APPENDIX 1: PROFORMA CONSOLIDATED FINANCIAL INFORMATION

A.

Proforma Consolidated Financial Information For The Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

A.8 Notes to the Proforma Group Financial Information (cont’d) 26. Segment information (cont’d) (A)

Business segments (cont’d) Corrosion Infrastructure Prevention Engineering $ $

Supply and Distribution $

Elimination Consolidated $ $

2003 Sales to external customers Intersegment sales

Segment results Financial expenses Financial income Profit before taxation

19,766,423

7,551,389

10,071,987

905,693

1,469,257

2,170,081

(4,545,031)

—

20,672,116

9,020,646

12,242,068

(4,545,031)

37,389,799

2,049,850

445,017

1,024,600

(170,605)

(174,851)

8,981

10,009

1,888,226

280,175

—

—

37,389,799

3,519,467

(205,665)

—

(551,121)

(680)

—

18,310

—

2,986,656

818,255

Taxation

(481,044)

Profit after taxation

2,505,612

Minority interests

(201,369)

Net profit

2,304,243

Segment assets

36,794,926

10,242,113

13,911,240

(20,714,385)

40,233,894

Segment liabilities

27,515,547

9,297,691

10,855,122

(20,714,385)

26,953,975

Unallocated liabilities

1,572,102

Total liabilities Capital expenditure Depreciation Non-cash expenses

28,526,077 791,360

222,505

222,106

—

1,235,971

1,041,671

484,768

115,294

—

1,641,733

646,530

3,823

88,567

—

738,920

162

APPENDIX 1: PROFORMA CONSOLIDATED FINANCIAL INFORMATION

A.

Proforma Consolidated Financial Information For The Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

A.8 Notes to the Proforma Group Financial Information (cont’d) 26. Segment information (cont’d) (A)

Business segments (cont’d) Corrosion Infrastructure Prevention Engineering $ $

Supply and Distribution $

Elimination Consolidated $ $

2002 Sales to external customers Intersegment sales

Segment results Financial expenses Financial income Profit before taxation

20,623,435

10,876,629

7,796,129

578,127

391,461

2,530,256

(3,499,844)

—

21,201,562

11,268,090

10,326,385

(3,499,844)

39,296,193

1,947,993 (217,397)

(509,050)

666,748

—

(198,860)

(210,447)

—

— 1,730,596

—

621 (707,289)

39,296,193

2,105,691 (626,704)

—

—

621

456,301

—

1,479,608

Taxation

(432,811)

Profit after taxation

1,046,797

Minority interests

(276,541)

Net profit

770,256

Segment assets

29,122,746

12,229,562

10,160,875

(14,900,455)

36,612,728

Segment liabilities

20,792,458

11,825,674

8,113,933

(14,900,455)

25,831,610

Unallocated liabilities

1,589,695

Total liabilities Capital expenditure

27,421,305 1,751,937

982,272

133,469

—

2,867,678

Depreciation

986,944

448,619

171,912

—

1,607,475

Non-cash expenses

831,463

213,539

238,026

—

1,283,028

163

APPENDIX 1: PROFORMA CONSOLIDATED FINANCIAL INFORMATION

A.

Proforma Consolidated Financial Information For The Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

A.8 Notes to the Proforma Group Financial Information (cont’d) 26. Segment information (cont’d) (A)

Business segments (cont’d) Corrosion Infrastructure Prevention Engineering $ $

Supply and Distribution $

Elimination Consolidated $ $

2001 Sales to external customers Intersegment sales

Segment results Financial expenses Financial income Profit before taxation

20,881,825

9,978,855

6,549,777

832,034

299,954

2,457,348

(3,589,336)

—

21,713,859

10,278,809

9,007,125

(3,589,336)

37,410,457

2,701,461

183,324

635,384

—

(143,811)

(210,340)

—

(703,169)

(349,018)

—

37,410,457

3,520,169

6,786

8,151

—

—

14,937

2,359,229

47,664

425,044

—

2,831,937

Taxation

(807,230)

Profit after taxation

2,024,707

Minority interests

(313,122)

Net profit

1,711,585

Segment assets

30,859,147

11,926,394

8,866,453

(13,105,917)

38,546,077

Segment liabilities

23,787,421

10,651,752

7,241,378

(13,105,917)

28,574,634

Unallocated liabilities

1,734,328

Total liabilities

30,308,962

Capital expenditure

539,779

2,417,002

385,312

—

3,342,093

Depreciation

754,807

275,186

105,350

—

1,135,343

1,169,975

210,115

117,383

—

1,497,473

Non-cash expenses

164

APPENDIX 1: PROFORMA CONSOLIDATED FINANCIAL INFORMATION

A.

Proforma Consolidated Financial Information For The Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

A.8 Notes to the Proforma Group Financial Information (cont’d) 26. Segment information (cont’d) (B)

Geographical segments Revenue is based on the billing location of customers. Assets and additions to property, plant and equipment are based on the location of the companies that own those assets. Sales by geographical markets are as follows:–

Singapore Others

2003 $

2002 $

2001 $

30,166,233

32,841,908

34,046,719

7,223,566

6,454,285

3,363,738

37,389,799

39,296,193

37,410,457

Carrying amount of segment assets by geographical market is as follows:– 2003 $

2002 $

2001 $

34,697,073

32,205,855

35,440,611

5,536,821

4,406,873

3,105,466

40,233,894

36,612,728

38,546,077

2003 $

2002 $

2001 $

1,091,540

2,491,191

2,465,539

144,431

376,487

876,554

1,235,971

2,867,678

3,342,093

2003 $

2002 $

2001 $

Performance guarantee given to customers

153,761

21,157

194,461

Guarantee given in connection with rental of workers’ accommodation

77,000

77,000

77,000

230,761

98,157

271,461

Singapore Others

Capital expenditure by geographical market are as follows:–

Singapore Others

27. Contingent liabilities

165

APPENDIX 1: PROFORMA CONSOLIDATED FINANCIAL INFORMATION

A.

Proforma Consolidated Financial Information For The Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

A.8 Notes to the Proforma Group Financial Information (cont’d) 28. Financial instruments Financial risk management objectives and policies The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk, foreign exchange risk and credit risk. The Board reviews and agrees on policies for managing each of these risks and they are summarised below. Interest rate risk The Group obtains additional financing through bank borrowings and leasing arrangements. The Group’s policy is to obtain the most favourable interest rates available in the market. Information relating to the Group’s interest rate exposure is also disclosed in the notes on the Group’s borrowings. Liquidity risk In the management of liquidity risk, the Group monitors and maintains a level of cash and cash equivalents deemed adequate by the management to finance the Group’s operations and mitigate the effects of fluctuations in cash flows. Short-term funding is obtained from short-term bank loans and overdraft facilities. Foreign exchange risk Foreign exchange rate fluctuations arise from its investments in foreign subsidiaries. As this exposure is not considered as significant by management, the Group does not hedge this foreign currency risk. It is the Group’s policy not to trade in derivative contracts. Credit risk Credit risk, or the risk of counterparties defaulting, is managed through the application of credit approvals, credit limits and debt monitoring procedures. Where appropriate, the Company or its subsidiaries obtain guarantees from the customer or arrange netting agreements. Cash terms, advance payments, and letters of credit are required for customers of lower credit standing. The extent of the Group’s credit exposure is represented by aggregate carrying amount of cash and cash equivalents, trade debtors and other debtors. As at 31 December 2003, the Group has no significant concentrations of credit risk.

166

APPENDIX 1: PROFORMA CONSOLIDATED FINANCIAL INFORMATION

A.

Proforma Consolidated Financial Information For The Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

A.8 Notes to the Proforma Group Financial Information (cont’d) 28. Financial instruments (cont’d) Fair value of financial instruments Fair value is defined as the amount at which the instrument could be exchanged in a current transaction between knowledgeable willing parties in an arm’s length transaction, other than a forced or liquidation sale. Fair values are obtained from quoted market prices, discounted cash flow models and option pricing models as appropriate. The following methods and assumptions are used to estimate the fair value of each class of financial instrument:– Cash and cash equivalents and other current assets The carrying amount approximates fair value due to the relatively short-term maturity of these financial instruments. Short-term borrowings and other current liabilities The carrying amount approximates fair value because of the short period to maturity of these instruments. Lease obligations The fair value of lease obligations is determined by discounting the relevant cash flow using current interest rate for similar instruments as of balance sheet date. As at 31 December 2003, the fair value of financial liabilities which do not approximate the carrying amounts in the balance sheet are presented in the following table.

Note

Carrying amount $

Estimated fair value $

20

794,099

863,725

Group Lease obligations

29. Subsequent events On 10 February 2004, 4 business firms wholly owned by the Company, namely Beng Kuang Marine (B&Chew), Beng Kuang Marine (B&Y), Beng Kuang Marine (B&M) and B & K Marine, were converted into private limited companies each with a paid-up capital of $2 to manage their own corrosion prevention activities at different shipyards. On 28 February 2004, these companies increased their issued and paid-up share capital to $100,000 each for additional working capital by way of capitalisation of amounts owing to the Company.

167

APPENDIX 1: PROFORMA CONSOLIDATED FINANCIAL INFORMATION

A.

Proforma Consolidated Financial Information For The Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

A.8 Notes to the Proforma Group Financial Information (cont’d) 29. Subsequent events (cont’d) At the Extraordinary General Meeting held on 25 August 2004, the Company’s Shareholders approved, inter alia, the following:– (a)

an increase in the authorised share capital of the Company from $2,000,000 divided into 2,000,000 ordinary shares of $1.00 each to $30,000,000 divided into 30,000,000 ordinary shares of $1.00 each;

(b)

the Restructuring Exercise as described on page 40 of the Prospectus;

(c)

the Capitalisation of $6,302,622 out of the share premium and revenue reserves of the Company by way of a bonus issue of 6,302,622 ordinary shares of $1.00 each credited as fully paid to its shareholders (“Bonus Issue”);

(d)

the allotment and issue of 6,302,622 ordinary shares of $1.00 each pursuant to the Bonus Issue;

(e)

the sub-division of each ordinary share of $1.00 each in the authorised and issued and paid-up share capital of the Company into 50 ordinary shares of $0.02 each respectively (“Sub-division”);

(f)

the consolidation of every four ordinary shares of $0.02 each in the authorised and issued share capital of the Company into one ordinary share of $0.08 each (“Consolidation”);

(g)

the conversion of the Company into a public limited company and the change of its name to “Beng Kuang Marine Limited”;

(h)

the adoption of the new Articles of Association of the Company;

(i)

the issue of New Shares pursuant to the Invitation. The New Shares, when issued and fully paid, will rank pari passu in all respects with the existing issued and fully paid up Shares;

(j)

the authorisation for the Directors, pursuant to Section 161 of the Companies Act and the Articles of Association, to allot and issue Shares or convertible securities from time to time (whether by way of rights, bonus or otherwise) and upon such terms and conditions and for such purposes and to such persons as the Directors may in their absolute discretion deem fit, provided that the aggregate number of Shares and convertible securities which may be issued pursuant to such authority shall not exceed 50% of the issued (and paid-up) share capital of the Company, of which the aggregate number of Shares and convertible securities which may be issued other than on a pro-rata basis to our Shareholders shall not exceed 20% of the issued share capital of the Company (the percentage of issued share capital being based on the post-Invitation issued share capital of our Company after adjusting for new shares arising from the conversion or exercise of any convertible securities or employee share options on issue at the time such authority is given and any subsequent consolidation or subdivision of shares) and, unless revoked or varied by the Company in general meeting, such authority shall continue in force until the conclusion of the next Annual General Meeting (“AGM”) of the Company or on the date by which the next AGM is required by law to be held, whichever is earlier; and

(k)

the adoption of the Shareholders’ Mandate (the details of which are set out in the “Shareholders’ Mandate” section on pages 113 to 117 of the Prospectus).

168

APPENDIX 1: PROFORMA CONSOLIDATED FINANCIAL INFORMATION B.

Report on Examination of the Proforma Consolidated Financial Information

5 October 2004 The Board of Directors Beng Kuang Marine Limited 55 Shipyard Road Singapore 628141 Dear Sirs: We report on the proforma consolidated financial information set out on pages 133 to 168 of the Prospectus dated 5 October 2004, which has been prepared, for illustrative purposes only and based on certain assumptions after making certain adjustments to show what:– (i) the financial results and changes in equity of Beng Kuang Marine Limited (the “Company”) and its subsidiaries (the “Group”) for the financial years ended 31 December 2001, 2002 and 2003 would have been if the group structure as of date of registration of the Prospectus had been in place since the beginning of the periods being reported on; (ii) the cash flows of the Group for the financial year ended 31 December 2003 would have been if the group structure as of date of registration of the Prospectus had been in place since the beginning of that financial year; and (iii) the financial position of the Group as of the date of the balance sheet as at 31 December 2003 would have been if the group structure as of date of registration of the Prospectus had been in place on that date. The proforma consolidated financial information, because of its nature, may not give a true picture of the Group’s actual financial position, results, changes in equity or cash flows. The proforma consolidated financial information is the responsibility of the Directors of the Company. Our responsibility is to express an opinion on the proforma consolidated financial information based on our work. We carried out procedures in accordance with Singapore Statement of Auditing Practice: SAP 24: “Auditors and Public Offering Documents”. Our work, which involved no independent examination of the underlying financial statements, consisted primarily of comparing the proforma financial information to the Company’s financial statements (or where information is not available in the Company’s financial statements, to accounting records), considering the evidence supporting the adjustments and discussing the proforma financial information with the Directors of the Company. (a) In our opinion, the proforma financial information has been properly prepared:– (i) in a manner consistent with the format of the financial statements and the accounting policies of the Company, which are in accordance with Singapore Financial Reporting Standards, and (ii) on the basis stated in Note A.2; and (b) each material adjustment made to the information used in the preparation of the proforma consolidated financial information is appropriate for the purpose of preparing such financial information. Yours faithfully,

Ernst & Young Certified Public Accountants Singapore Partner in charge: Philip Ling Soon Hwa 169

APPENDIX 2: AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS OF OUR COMPANY AND SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001, 2002 AND 2003 C.

Auditors’ Report in relation to the Consolidated Financial Statements of Beng Kuang Marine Limited and Subsidiaries for the Financial Years Ended 31 December 2001, 2002 and 2003

5 October 2004 The Board of Directors Beng Kuang Marine Limited 55 Shipyard Road Singapore 628141 Dear Sirs: We have audited the consolidated financial statements of Beng Kuang Marine Limited (the “Company”) and its subsidiaries (the “Group”) set out on pages 171 to 201 for the financial years ended 31 December 2001, 2002 and 2003. These consolidated financial statements are the responsibility of the Company’s Directors. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Directors, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements of the Group are properly 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 of affairs of the Group as at 31 December 2001, 2002 and 2003 and the results, changes in equity and cash flow of the Group for the financial years then ended. This report has been prepared for inclusion in the Prospectus in connection with the Invitation in respect of the issue of 21,000,000 new ordinary shares of $0.08 each in the share capital of the Company. No audited financial statements of the Company or its subsidiaries have been prepared for any period subsequent to 31 December 2003.

Yours faithfully,

Ernst & Young Certified Public Accountants Singapore Partner in charge : Philip Ling Soon Hwa

170

APPENDIX 2: AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS OF OUR COMPANY AND SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001, 2002 AND 2003 D.

Consolidated Financial Statements of Beng Kuang Marine Limited and Subsidiaries for the Financial Years Ended 31 December 2001, 2002 and 2003

D.1 Consolidated Balance Sheets as at 31 December 2001, 2002 and 2003 Note Fixed assets Subsidiaries Current assets Stocks Work-in-progress in excess of progress billings Trade debtors Other debtors, deposits and prepayments Due from related companies (trade) Due from related companies (non-trade) Due from related parties (trade) Cash and bank balances

3 4 5 6 7 8 9

Current liabilities Trade creditors Bills payable to banks Other creditors and accruals Due to holding company (trade) Due to holding company (non-trade) Due to related companies (trade) Due to related companies (non-trade) Due to related parties (trade) Loans from related companies Provision for income tax Lease obligations (current portion) Bank overdrafts Short-term bank loans

10 11 9 9 12 13 10 14

Net current assets Non-current liabilities Lease obligations (non-current portion) Deferred taxation Loans from related companies

13 23 12

Share capital and reserves Share capital Share premium Revenue reserves Translation reserves

15 16

Minority interests

2003 $ 8,101,343 —

2002 $ 8,449,596 —

2001 $ 6,641,647 —

4,680,445 6,341,682 16,609,889 514,524 3,182,815 48,166 392,884 977,749

3,188,035 4,437,170 15,777,090 671,518 3,604,722 18,536 250 507,556

2,385,486 3,017,891 20,490,453 583,742 4,147,282 155,195 95 266,041

32,748,154

28,204,877

31,046,185

4,845,904 2,234,101 3,169,387 224,953 21,790 1,099,775 532,089 58,885 2,331,089 645,865 457,832 1,147,428 11,020,602

3,022,137 1,842,284 2,630,454 266,830 5,485 1,094,137 666,953 11,622 — 710,696 563,308 1,809,234 11,048,117

3,716,376 1,256,271 3,099,539 302,304 8,074 858,960 164,993 15,179 — 1,008,428 396,565 2,812,288 11,029,431

27,789,700

23,671,257

24,668,408

4,958,454

4,533,620

6,377,777

413,836 934,000 —

634,177 879,000 2,286,293

478,735 725,900 3,506,784

11,711,961

9,183,746

8,308,005

1,316,328 2,583,672 4,599,774 177

1,316,328 2,583,672 3,908,264 —

10,816,017 895,944

8,499,951 683,795

7,808,264 499,741

11,711,961

9,183,746

8,308,005

1,316,328 2,583,672 6,916,438 (421)

The accounting policies and explanatory notes form an integral part of the financial statements.

171

APPENDIX 2: AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS OF OUR COMPANY AND SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001, 2002 AND 2003 D.

Consolidated Financial Statements of Beng Kuang Marine Limited and Subsidiaries for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

D.2 Consolidated Statements of Profit and Loss for the Financial Years Ended 31 December 2001, 2002 and 2003

Revenue

Note

2003 $

2002 $

2001 $

17

41,243,856

37,778,868

37,947,269

(31,424,613)

(29,272,457)

(28,172,170)

Cost of sales Gross profit

9,819,243

Other operating income/(expenses) — net

18

19,591

8,506,411

9,775,099

(56,948)

64,496

Administrative expenses

(4,933,462)

(5,117,131)

(5,110,145)

Selling and distribution expenses

(1,327,911)

(1,305,318)

(1,124,777)

Profit from operations

20

3,577,461

2,027,014

3,604,673

Financial income

21

332

138

—

Financial expenses

22

Profit before taxation

(566,387) 3,011,406

Taxation

23

Profit after taxation

(493,373) 2,518,033

Minority interests

(201,369)

Net profit attributable to members of the Company

2,316,664

(626,290) 1,400,862 (432,811) 968,051 (276,541)

691,510

The accounting policies and explanatory notes form an integral part of the financial statements.

172

(701,846) 2,902,827 (807,230) 2,095,597 (313,122)

1,782,475

APPENDIX 2: AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS OF OUR COMPANY AND SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001, 2002 AND 2003 D.

Consolidated Financial Statements of Beng Kuang Marine Limited and Subsidiaries for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

D.3 Consolidated Statements of Changes in Equity for the Financial Years Ended 31 December 2001, 2002 and 2003 Share capital $

Share premium $

Revenue reserves $

1,316,328

2,583,672

2,125,789

—

6,025,789

—

—

1,782,475

—

1,782,475

1,316,328

2,583,672

3,908,264

—

7,808,264

Net profit for the year

—

—

691,510

—

691,510

Currency translation differences

—

—

—

177

177

1,316,328

2,583,672

4,599,774

177

8,499,951

Net profit for the year

—

—

2,316,664

—

2,316,664

Currency translation differences

—

—

—

(598)

1,316,328

2,583,672

6,916,438

(421)

Balance as at 31 December 2000 Net profit for the year Balance as at 31 December 2001

Balance as at 31 December 2002

Balance as at 31 December 2003

Translation reserves $

Total $

(598)

10,816,017

The accounting policies and explanatory notes form an integral part of the financial statements.

173

APPENDIX 2: AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS OF OUR COMPANY AND SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001, 2002 AND 2003 D.

Consolidated Financial Statements of Beng Kuang Marine Limited and Subsidiaries for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

D.4 Consolidated Cash Flow Statements for the Financial Years Ended 31 December 2001, 2002 and 2003 Note

2003 $

2002 $

2001 $

3,011,406

1,400,862

2,902,827

1,729 90,585

74,000 394,455

10,660 422,596

(214,648) — 624,300 (20,553) 2,529 19,777 1,676,208 (332) 535,632

(87,685) 21,000 701,200 (115,000) 92,373 — 1,607,922 (138) 560,564

(41,019) — 1,060,946 (47,546) 3,271 — 1,097,329 — 688,104

5,726,633

4,649,553

6,097,168

(1,492,410) (1,904,512) (1,314,212) 156,994 392,277 (392,634)

(1,509,631) (33,003) 4,649,504 51,784 1,059,783 (155)

312,854 1,131,685 (6,948,187) 1,325 (2,441,387) (95)

1,823,767 391,817 538,933 (25,572) (129,225) 47,263

(1,232,075) 586,013 (651,239) (38,063) (1,485,563) (3,557)

(963,240) (354,853) 512,847 5,808 (418,711) 15,179

Cash generated from/(used in) operations Interest received Interest paid Income taxes paid

3,819,119 332 (563,147) (503,204)

6,043,351 138 (526,907) (577,443)

(3,049,607) — (688,104) (367,702)

Net cash generated from/(used in) operating activities

2,753,100

4,939,139

(4,105,413)

61,550 (1,128,798) —

211,190 (1,859,043) (19,280)

309,392 (1,698,241) —

Cash flows from operating activities Profit before taxation Adjustments:– Bad trade debts written off Provision for doubtful trade debts Write-back of provision for doubtful trade debts no longer required Provision for stocks obsolescence Provision for rebates/discounts Write-back of provision for rebates/discounts Loss on disposal of fixed assets Fixed assets written off Depreciation of fixed assets Interest income Interest expenses Operating profit before working capital changes (Increase)/decrease in:– Stocks Work-in-progress in excess of progress billings Trade debtors Other debtors, deposits and prepayments Due from related companies, net Due from related parties Increase/(decrease) in:– Trade creditors Bills payables to banks Other creditors and accruals Due to holding company, net Due to related companies, net Due to related parties

Cash flows from investing activities Proceeds from disposal of fixed assets Purchase of fixed assets Acquisition of subsidiaries Proceeds from a minority shareholder of a subsidiary

28(b) 28(c)

49,000

Net cash used in investing activities

(1,018,248)

174

— (1,667,133)

— (1,388,849)

APPENDIX 2: AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS OF OUR COMPANY AND SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001, 2002 AND 2003 D.

Consolidated Financial Statements of Beng Kuang Marine Limited and Subsidiaries for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

D.4 Consolidated Cash Flow Statements for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d) Note Cash flows from financing activities Proceeds from short-term loans Repayment of short-term loans Repayment of finance lease liabilities Proceeds/(repayment) of loans from related companies Dividends paid to a minority shareholder of a subsidiary

2003 $ — — (608,830) 44,795

Net cash (used in)/generated from financing activities Net effect of exchange rate changes in consolidating subsidiaries Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year 28(a)

289,943 (304,914) (699,664) (1,220,491)

(38,220)

(92,488)

(602,255)

(2,027,614)

(598)

Cash and cash equivalents at end of year

2002 $

2001 $ 1,500,000 (56,075) (473,075) 2,664,170 (36,995) 3,598,025

177

—

1,131,999

1,244,569

(1,896,237)

(1,301,678)

(2,546,247)

(650,010)

(169,679)

(1,301,678)

(2,546,247)

The accounting policies and explanatory notes form an integral part of the financial statements.

175

APPENDIX 2: AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS OF OUR COMPANY AND SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001, 2002 AND 2003 D.

Consolidated Financial Statements of Beng Kuang Marine Limited and Subsidiaries for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

D.5 Consolidated Notes to the Financial Statements for the Financial Years Ended 31 December 2001, 2002 and 2003 1.

General (a)

Corporate information The Company was incorporated as a private limited liability company in Singapore on 8 January 1994 under the name of Beng Kuang Marine Pte Ltd. On 30 August 2004, the Company was converted into a public limited company and changed its name to Beng Kuang Marine Limited. Its immediate and ultimate holding company is Labroy Marine Limited (“LML”), incorporated in Singapore. Related companies refer to LML and its subsidiaries. Related parties refer to entities in which the Company’s and its subsidiaries’ shareholders or directors exercise significant control over their financial and operating policy decisions. The registered office and principal place of business of the Company is located at 55 Shipyard Road, Singapore 628141. The principal activities of the Company are provision of corrosion prevention services relating to repair of ships, tankers and other ocean-going vessels. The principal activities of the subsidiaries are shown in Note 4 below. There have been no significant changes in the nature of these activities during the financial year. The Group employed 635, 585 and 517 employees as of 31 December 2003, 2002 and 2001.

(b)

Auditors The statutory financial statements of the companies in the Group incorporated in Singapore for the financial years covered by this report were audited by the following firms of Certified Public Accountants of Singapore (CPA):– Name of company

Auditors

Financial year

Beng Kuang Marine Pte Ltd

Arthur Andersen

For the financial year ended 31 December 2001

Ernst & Young

For the financial years ended 31 December 2002 and 2003

Arthur Andersen

For the financial year ended 31 December 2001

Ernst & Young

For the financial years ended 31 December 2002 and 2003

Arthur Andersen

For the financial year ended 31 December 2001

Ernst & Young

For the financial years ended 31 December 2002 and 2003

Nexus Sealand Trading Pte Ltd

Asian Sealand Engineering Pte Ltd

176

APPENDIX 2: AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS OF OUR COMPANY AND SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001, 2002 AND 2003 D.

Consolidated Financial Statements of Beng Kuang Marine Limited and Subsidiaries for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

D.5 Consolidated Notes to the Financial Statements for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d) 1.

General (cont’d) (b)

Auditors (cont’d) Name of company

Auditors

Financial year

B & J Marine Pte. Ltd. (formerly known as Jet Point Marine Pte. Ltd.)

Ernst & Young

For the financial period from the date of incorporation, 29 January 2003 to 31 December 2003

BT Asia Marketing & Engineering Pte Ltd

Arthur Andersen

For the financial year ended 31 December 2001

Ernst & Young

For the financial years ended 31 December 2002 and 2003

Ernst & Young

For the financial period from the date of incorporation, 13 December 2002 to 31 December 2003

Picco Enterprise Pte. Ltd.

The statutory financial statements of the subsidiary incorporated in Malaysia were audited by the following firm, being a member of the Malaysian Institute of Accountants:– Asian Sealand Infrastructure & Construction Sdn. Bhd. (formerly known as Tai Gala Sdn. Bhd.)

Ernst & Young

For the financial period from the date of incorporation on 2 November 2001 to 31 December 2002 and the financial year ended 31 December 2003

The statutory financial statements of the Company and its subsidiaries for the financial years covered by this report were not subject to any qualification. 2.

Summary of significant accounting policies (a)

Basis of preparation The financial statements which are expressed in Singapore dollars, have been prepared under the historical cost convention in accordance with Singapore Financial Reporting Standards (“FRS”) as required by the Singapore Companies Act with effect from 1 January 2003. Prior to 1 January 2003, the financial statements were prepared in accordance with Singapore Statements of Accounting Standard (“SAS”). The transition from SAS to FRS did not result in any significant changes in accounting policies.

177

APPENDIX 2: AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS OF OUR COMPANY AND SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001, 2002 AND 2003 D.

Consolidated Financial Statements of Beng Kuang Marine Limited and Subsidiaries for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

D.5 Consolidated Notes to the Financial Statements for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d) 2.

Summary of significant accounting policies (cont’d) (b)

Changes in accounting policy From 1 January 2002, the Group adopted SAS 12 (2001) Income Taxes which became effective for financial statements covering periods beginning on or after 1 April 2001. Under SAS 12 (2001), deferred tax is recognised for all taxable temporary differences. Previously, deferred tax was provided on account of timing differences only to the extent that a tax liability or asset was expected to materialise in the foreseeable future. Arising from the adoption of SAS 12 (2001), the Group commenced to recognise deferred tax assets for all deductible temporary differences, when it is probable that sufficient taxable profit will be available against which the deductible temporary differences can be utilised. There is no significant impact on the financial statements of the Company and of the Group as a result of the adoption of SAS 12 (2001).

(c)

Changes in accounting estimates The Group revised its estimate for the useful life of certain motor vehicles and forklifts from 5 years to 10 years on 1 January 2003 to better reflect its economic useful life. The revised depreciation rates are applied prospectively without adjustments to previously reported amounts. This change has reduced the current year depreciation charges of the Group by $113,281 respectively.

(d)

Basis of consolidation The accounting year of the Company and all its subsidiaries ends on 31 December and the consolidated financial statements comprise financial statements of the Company and its subsidiaries. The results of subsidiaries acquired or disposed during the financial year are included in or excluded from the consolidated financial statements with effect from the respective dates of acquisition or disposal. All intercompany balances and transactions, and any unrealised profit or loss on intercompany transactions are eliminated on consolidation. The consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. Goodwill represents the excess of cost of acquisition over the fair value of the net identifiable assets acquired and is recognised as an asset in the balance sheet. Goodwill is amortised on a systematic basis over its useful life of five years during which future economic benefits are expected to flow to the enterprise. Assets, liabilities and results of the foreign subsidiaries are translated into Singapore dollars on the basis outlined in paragraph (g) below.

178

APPENDIX 2: AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS OF OUR COMPANY AND SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001, 2002 AND 2003 D.

Consolidated Financial Statements of Beng Kuang Marine Limited and Subsidiaries for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

D.5 Consolidated Notes to the Financial Statements for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d) 2.

Summary of significant accounting policies (cont’d) (e)

Subsidiaries A subsidiary is defined as a company, in which the Group has a long-term interest of more than 50% of the equity or in whose financial and operating policy decisions the Group controls. Investment in subsidiaries are stated in the Company’s balance sheet at cost less impairment losses.

(f)

Foreign currencies The accounting records of the companies in the Group are maintained in their respective measurement currency. Foreign currency transactions are measured in Singapore dollars and recorded at exchange rates closely approximating those ruling at the transaction dates. Foreign currency monetary assets and liabilities outstanding at the balance sheet date are measured in Singapore dollars at the rates of exchange approximating those ruling at balance sheet date. All exchange difference arising on conversion are included in the statement of profit and loss.

(g)

Translation of foreign currency financial statements Assets and liabilities of the foreign subsidiaries are translated into Singapore dollars at the exchange rates ruling at balance sheet date. The results of foreign subsidiaries are translated into Singapore dollars at the average exchange rates applicable for the financial year. Foreign currency translation adjustments arising on consolidation are taken directly to translation reserves until the disposal of the subsidiary.

(h)

Fixed assets Fixed assets are stated at cost less accumulated depreciation and any impairment loss. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to working condition for its intended use. Expenditure for additions, improvements and renewals are capitalised and expenditure for maintenance and repairs are charged to the statement of profit and loss. When assets are sold or retired, their cost and accumulated depreciation are removed from the financial statements and any gain or loss resulting from their disposal is included in the statement of profit and loss. Depreciation on the relevant assets are charged to the statement of profit and loss on the basis outlined in paragraph (i) below.

179

APPENDIX 2: AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS OF OUR COMPANY AND SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001, 2002 AND 2003 D.

Consolidated Financial Statements of Beng Kuang Marine Limited and Subsidiaries for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

D.5 Consolidated Notes to the Financial Statements for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d) 2.

Summary of significant accounting policies (cont’d) (i)

Depreciation Depreciation is calculated on the straight-line method to write off the cost of fixed assets over their estimated useful lives as follows:– Motor vehicles Computers Office equipment Furniture and fittings Forklifts Machinery, tools and equipment Air-conditioners Leasehold improvement and renovation Leasehold building

5–10 years 3 years 10 years 10 years 5–10 years 10 years 5 years 3–10 years over the lease period of 20 years

Fully depreciated fixed assets are retained in the financial statements until they are no longer in use and no further charge for depreciation is made in respect of these assets. (j)

Leases Finance leases, which effectively transfer to the Group substantially all the risks and benefits incidental to ownership of the lease item, are capitalised at the present value of the minimum lease payments at the inception of the lease term and disclosed as leased fixed assets. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to the statement of profit and loss. Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased assets are classified as operating leases. Operating lease payments are recognised as an expense in the statement of profit and loss on a straight line basis over the lease term.

(k)

Stocks and work-in-progress Stocks relate to trading goods which are stated at the lower of cost (determined on a weighted average basis) and net realisable value. Net realisable value is the estimated normal selling price, less estimated costs necessary to make the sale. Provision is made for deteriorated, damaged, obsolete and slow-moving stocks. Work-in-progress comprises uncompleted repair and fabrication contracts and includes cost of materials, all direct expenditure and an attributable proportion of overheads plus recognised profit less recognised losses and progress billings. Provision for foreseeable losses on uncompleted contracts is made in the year in which such losses are determined. 180

APPENDIX 2: AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS OF OUR COMPANY AND SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001, 2002 AND 2003 D.

Consolidated Financial Statements of Beng Kuang Marine Limited and Subsidiaries for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

D.5 Consolidated Notes to the Financial Statements for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d) 2.

Summary of significant accounting policies (cont’d) (l)

Cash and cash equivalents Cash and cash equivalents consist of cash on hand and cash with banks, including bank overdrafts that are readily convertible to known amounts of cash and subject to insignificant risk of changes in values. Cash and cash equivalents are carried at cost on the balance sheet.

(m) Trade and other debtors Trade and other debtors are recognised and carried at original invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when identified. Receivables from related companies and related parties are recognised and carried at cost less an allowance for any uncollectible amounts. (n)

Trade and other creditors Liabilities for trade and other creditors are carried at cost which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the Group. Payables to related companies and related parties are carried at cost.

(o)

Loans and borrowings Loans and borrowings are initially recognised at cost, being the fair value of the consideration received, net of issue costs associated with the borrowings. Borrowing costs are recognised as expenses in the period in which they are incurred.

(p)

Impairment of assets Fixed assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. Whenever the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognised in the statement profit and loss. The recoverable amount is the greater of the asset’s net selling price and value in use. The net selling price is the amount obtainable from the sale of an asset in an arm’s length transaction. Value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of the useful life. Recoverable amounts are estimated for individual assets or, if it is not possible, for the cash-generating unit to which the asset belongs. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation, if no impairment loss had been recognised. All reversals of impairment are recognised in the statement of profit and loss. 181

APPENDIX 2: AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS OF OUR COMPANY AND SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001, 2002 AND 2003 D.

Consolidated Financial Statements of Beng Kuang Marine Limited and Subsidiaries for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

D.5 Consolidated Notes to the Financial Statements for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d) 2.

Summary of significant accounting policies (cont’d) (q)

Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

(r)

Employee benefits Defined contribution plan The Group participates in the national pension schemes as defined by the laws of the countries in which it has operations. In particular, the Singapore companies in the Group makes contributions to the Central Provident Fund (“CPF”) a defined contribution pension scheme in Singapore. Contributions are recognised as compensation expense in the same period as the employment that gives rise to the contribution. Employment leave entitlement Employee entitlements to annual leave are recognised when they accrue to employees. An accrual is made for the estimated liability for annual leave as a result of services rendered by employees up to the balance sheet date.

(s)

Revenue recognition (i)

Revenue Revenue from corrosion prevention and infrastructure engineering services is recognised, using the percentage-of-completion method. The percentage of completion for a given project is determined after considering the relationship of the value of work done to-date to total contract revenue for the project. Supply and distribution revenue is recognised net of goods and services tax and discounts when goods have been delivered and accepted by the customer. Revenue from the repairing of ships is taken to the statement of profit and loss in the period in which repair works are completed and accepted by the customers. Group revenue excludes intercompany transactions.

(ii)

Interest income Interest income is recognised on an accrual basis.

182

APPENDIX 2: AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS OF OUR COMPANY AND SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001, 2002 AND 2003 D.

Consolidated Financial Statements of Beng Kuang Marine Limited and Subsidiaries for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

D.5 Consolidated Notes to the Financial Statements for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d) 2.

Summary of significant accounting policies (cont’d) (t)

Income tax Deferred income tax is provided using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax assets and liabilities are measured using the tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled based on tax rates enacted or substantively enacted at the balance sheet date. Deferred tax liabilities are recognised for all taxable temporary differences associated with investments in subsidiaries, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. At each balance sheet date, the Group re-assesses unrecognised deferred tax assets and the carrying amount of deferred tax assets. The Group recognises a previously unrecognised deferred tax asset to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. The Group conversely reduces the carrying amount of a deferred tax asset to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of the deferred tax asset to be utilised. Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, carry-forward of unused tax assets and unused tax losses can be utilised. Current tax and deferred tax are charged or credited directly to equity if the tax relates to items that are credited or charged, in the same or a different period, directly to equity.

(u)

Financial instruments Financial assets and financial liabilities carried on the balance sheet include cash and cash equivalents, trade and other debtors and creditors, loans, borrowings and investments. The accounting policies on recognition and measurement of these items are disclosed in the respective accounting policies found in this Note.

183

APPENDIX 2: AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS OF OUR COMPANY AND SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001, 2002 AND 2003 D.

Consolidated Financial Statements of Beng Kuang Marine Limited and Subsidiaries for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

D.5 Consolidated Notes to the Financial Statements for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d) 3.

Fixed assets Leasehold Machinery, improvement tools and Airand equipment conditioners renovation $ $ $

Motor vehicles $

Computers $

Office equipment $

Furniture and fittings $

Cost As at 1.1.2003 Additions Disposals Write off

2,077,622 302,290 (34,922) —

301,295 35,821 (13,286) —

342,328 88,266 (11,336) —

132,953 20,182 (2,052) —

519,563 305,092 (56,500) —

8,602,328 505,787 (30,100) —

90,680 — — —

As at 31.12.2003

2,344,990

323,830

419,258

151,083

768,155

9,078,015

Accumulated depreciation As at 1.1.2003 994,969 Charge for the year 254,459 Disposals (22,961) Write off —

193,660 58,249 (910) —

253,535 25,703 (6,228) —

58,366 19,428 (1,845) —

381,889 54,128 (40,675) —

As at 31.12.2003

1,226,467

250,999

273,010

75,949

278,069

60,602

29,888

Net book value As at 31.12.2003

1,118,523

72,831

As at 31.12.2002

1,082,653

107,635

2003

184

Depreciation charge for 2002

Leasehold building $

Total

2,197,233 90,470 — —

527,827 63,903 — (27,596)

14,791,829 1,411,811 (148,196) (27,596)

90,680

2,287,703

564,134

16,027,848

2,687,373 1,115,289 (11,498) —

75,122 3,575 — —

1,282,346 124,828 — —

414,973 20,549 — (7,819)

6,342,233 1,676,208 (84,117) (7,819)

395,342

3,791,164

78,697

1,407,174

427,703

7,926,505

22,056

50,404

987,283

4,703

166,389

8,528

1,607,922

146,248

75,134

372,813

5,286,851

11,983

880,529

136,431

8,101,343

88,793

74,587

137,674

5,914,955

15,558

914,887

112,854

8,449,596

Forklifts $

As at 31 December 2003, the Group had motor vehicles, machinery, tools and equipment and forklifts purchased under finance lease contracts with net book value of $712,872, $986,628 and $121,708 (2002: $473,082, $707,697 and nil) respectively (Note 13).

APPENDIX 2: AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS OF OUR COMPANY AND SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001, 2002 AND 2003 D.

Consolidated Financial Statements of Beng Kuang Marine Limited and Subsidiaries for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

D.5 Consolidated Notes to the Financial Statements for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d) 3.

Fixed assets (cont’d) 2002

185

Cost As at 1.1.2002 Additions Arising from acquisition of subsidiaries Disposals As at 31.12.2002

Leasehold Machinery, improvement tools and Airand equipment conditioners renovation $ $ $

Motor vehicles $

Computers $

Office equipment $

Furniture and fittings $

1,440,657 658,951

211,781 38,205

305,590 30,051

110,662 4,658

492,000 63,000

17,152 (10,465)

17,633 —

67,263 (102,700)

301,295

342,328

132,953

519,563

8,602,328

90,680

2,197,233

527,827

14,791,829

133,770

225,096

35,025

409,602

1,827,911

70,419

1,128,098

403,500

5,006,960

1,285 22,056 —

1,936 50,404 (80,053)

153,600 (175,586) 2,077,622

Accumulated depreciation As at 1.1.2002 773,539 Arising from acquisition of subsidiaries 7,249 Charge for the year 278,069 Disposals (63,888)

58,835 (7,526)

4,643 60,602 (5,355)

2,236 29,888 (3,685)

Forklifts $

6,476,324 1,952,670 473,710 (300,376)

17,719 987,283 (145,540)

90,680 — — —

— 4,703 —

2,081,447 133,358 — (17,572)

— 166,389 (12,141)

Leasehold building $

Total $

439,466 —

11,648,607 2,880,893

88,361 —

2,945 8,528 —

876,558 (614,225)

38,013 1,607,922 (310,662)

As at 31.12.2002

994,969

193,660

253,535

58,366

381,889

2,687,373

75,122

1,282,346

414,973

6,342,233

Depreciation charge for 2001

198,841

52,121

13,478

12,060

52,823

644,371

5,826

112,605

5,204

1,097,329

Net book value As at 31.12.2002

1,082,653

107,635

88,793

74,587

137,674

5,914,955

15,558

914,887

112,854

8,449,596

As at 31.12.2001

667,118

78,011

80,494

75,637

82,398

4,648,413

20,261

953,349

35,966

6,641,647

As at 31 December 2002, the Group had motor vehicles and machinery, tools and equipment purchased under finance lease contracts with net book value of $473,082 and $707,697 (2001: $472,118 and $999,898) respectively (Note 13).

APPENDIX 2: AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS OF OUR COMPANY AND SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001, 2002 AND 2003 D.

Consolidated Financial Statements of Beng Kuang Marine Limited and Subsidiaries for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

D.5 Consolidated Notes to the Financial Statements for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d) 3.

Fixed assets (cont’d) Leasehold Machinery, improvement tools and Airand equipment conditioners renovation

Motor vehicles

Computers

Office equipment

Furniture and fittings

$

$

$

$

$

$

$

$

$

1,251,613

148,263

277,548

96,792

504,810

5,010,792

74,550

1,731,676

439,466

9,535,510

Additions

199,044

64,888

28,042

13,870

5,690

1,788,103

16,130

349,771

—

2,465,538

Disposals

(10,000)

(1,370)

—

—

—

—

—

211,781

305,590

110,662

492,000

6,476,324

90,680

2,081,447

439,466

11,648,607

2001

Forklifts

Leasehold building

Total

Cost As at 1.1.2001

186

As at 31.12.2001

1,440,657

(18,500)

(322,571)

(352,441)

Accumulated depreciation As at 1.1.2001

580,148

83,019

211,618

22,965

361,558

1,211,719

64,593

1,015,493

398,296

3,949,409

Charge for the year

198,841

52,121

13,478

12,060

52,823

644,371

5,826

112,605

5,204

1,097,329

—

—

(4,779)

(28,179)

—

—

—

Disposals

(5,450)

(1,370)

(39,778)

As at 31.12.2001

773,539

133,770

225,096

35,025

409,602

1,827,911

70,419

1,128,098

403,500

5,006,960

Depreciation charge for 2000

173,272

41,658

8,634

6,524

56,762

496,336

7,040

30,558

4,110

824,894

As at 31.12.2001

667,118

78,011

80,494

75,637

82,398

4,648,413

20,261

953,349

35,966

6,641,647

As at 31.12.2000

671,465

65,244

65,930

73,827

143,252

3,799,073

9,957

716,183

41,170

5,586,101

Net book value

As at 31 December 2001, the Group had motor vehicles, office equipment and machinery, tools and equipment purchased under finance lease contracts with net book value of $472,118, $Nil and $999,898 (2000: $337,509, $9,636 and $471,167) respectively (Note 13).

APPENDIX 2: AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS OF OUR COMPANY AND SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001, 2002 AND 2003 D.

Consolidated Financial Statements of Beng Kuang Marine Limited and Subsidiaries for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

D.5 Consolidated Notes to the Financial Statements for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d) 4.

Subsidiaries Details of the subsidiaries as at 31 December are as follows:– Name of subsidiary (Country of incorporation and place of business)

Principal activities

Effective equity held by the Group 2003 2002 2001 % % %

Held by the Company Nexus Sealand Trading Pte Ltd (Singapore)

Supply and distribution of products

100

100

100

Asian Sealand Engineering Pte Ltd (Singapore)

Provision of infrastructure engineering services

100

100

100

PT. Nexus Engineering Indonesia* (Indonesia)

Provision of corrosion prevention and infrastructure engineering services

100(1)

100(1)

—

Asian Sealand Infrastructure & Construction Sdn. Bhd. # (Malaysia)

Provision of shipbuilding and repair services and engineering construction business

100

100

—

B & J Marine Pte. Ltd. (formerly known as Jet Point Pte. Ltd.) (Singapore)

Provision of hydro-jetting and tank cleaning services

51

—

—

PT. Master Indonesia* (Indonesia)

Supply and distribution of products

100(1)

—

—

51

51

51

100

—

—

Held by Nexus Sealand Trading Pte Ltd BT Asia Marketing & Engineering Pte Ltd (Singapore)

Trading of copper slag and waste management

Picco Enterprise Pte. Ltd. (Singapore)

Supply and distribution of products

#

Audited by member firm of Ernst & Young Global.

*

Not required to be audited by the laws of country of incorporation.

(1)

1% of the shareholding is held by an Executive Officer who held in trust for the Company.

187

APPENDIX 2: AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS OF OUR COMPANY AND SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001, 2002 AND 2003 D.

Consolidated Financial Statements of Beng Kuang Marine Limited and Subsidiaries for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

D.5 Consolidated Notes to the Financial Statements for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d) 5.

Stocks

Stocks, at cost Provision for stock obsolescence

2003 $

2002 $

2001 $

4,701,445

3,209,035

2,385,486

(21,000) 4,680,445

(21,000) 3,188,035

— 2,385,486

Movements in provision for stocks obsolescence during the year are as follows:– At beginning of year Provision for the year At end of year

6.

—

—

—

21,000

—

21,000

21,000

—

2003 $

2002 $

Work-in-progress in excess of progress billings 2001 $

Costs incurred to date

11,888,859

10,825,245

8,040,385

Add: Attributable profits

3,009,057

1,732,921

1,967,578

14,897,916

12,558,166

10,007,963

(8,556,234)

(8,120,996)

(6,990,072)

6,341,682

4,437,170

3,017,891

2003 $

2002 $

2001 $

Less: Progress billings

7.

21,000

Trade debtors

Trade debtors

18,253,745

Provision for doubtful trade debts

17,707,140

22,461,479

(376,656)

(890,850)

(584,080)

Provision for rebates/discounts

(1,267,200)

(1,039,200)

(1,386,946)

At end of year

16,609,889

15,777,090

20,490,453

188

APPENDIX 2: AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS OF OUR COMPANY AND SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001, 2002 AND 2003 D.

Consolidated Financial Statements of Beng Kuang Marine Limited and Subsidiaries for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

D.5 Consolidated Notes to the Financial Statements for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d) 7.

Trade debtors (cont’d) Movements in provision for doubtful trade debts during the year are as follows:– 2003 $

2002 $

2001 $

At beginning of year

890,850

584,080

202,503

Provision for the year

90,585

394,455

422,596

Write back of provision

(214,648)

(87,685)

(41,019)

Written off against provision

(390,131)

At end of year Bad debts written off directly to statement of profit and loss

—

—

376,656

890,850

584,080

1,729

74,000

10,660

Movements in provision for rebates/discounts during the year are as follows:– At beginning of year

1,039,200

1,386,946

603,946

Provision for the year

624,300

701,200

1,060,946

Write back of provision

(20,553)

(115,000)

(47,546)

(375,747)

(933,946)

(230,400)

Written off against provision At end of year

8.

1,267,200

1,039,200

1,386,946

58,244

62,245

42,785

344,843

428,109

392,456

Deposits

26,947

86,975

74,865

Prepayments

84,490

94,189

73,636

514,524

671,518

583,742

Other debtors, deposits and prepayments Staff loans Sundry debtors

9.

Due from/(to) related companies/holding company (non-trade) These amounts are unsecured, interest-free and are repayable on demand.

189

APPENDIX 2: AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS OF OUR COMPANY AND SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001, 2002 AND 2003 D.

Consolidated Financial Statements of Beng Kuang Marine Limited and Subsidiaries for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

D.5 Consolidated Notes to the Financial Statements for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d) 10. Bank overdrafts/bills payable to banks Interest rates on bank overdrafts and bills payable to banks per annum, which are also the effective interest rates, are as follows:– 2003 % Bank overdrafts Bills payable to banks

2002 %

2001 %

4.25 to 5.25

4.5 to 5.5

5.0 to 6.0

2.1 to 2.45

2.22 to 2.92

2.05 to 5.5

These amounts are supported by a corporate guarantee from the holding company. 11.

Other creditors and accruals

Other creditors Accrued operating expenses

2003 $

2002 $

2001 $

538,119

576,497

1,142,375

2,631,268

2,053,957

1,957,164

3,169,387

2,630,454

3,099,539

12. Loans from related companies These amounts are unsecured, bear interest at a range of 1.6% to 2.87%, 2.7% to 4.5% and 3.43% to 5% per annum for the financial years ended 31 December 2003, 2002 and 2001 respectively. For the financial year ended 31 December 2003, loans from related companies are repayable on demand and are classified as current liabilities. For the financial years ended 31 December 2002 and 2001, loans were not expected to be repayable within twelve months after the balance sheet date, and were classified as non-current liabilities. 13. Lease obligations 2003 Minimum lease payments $

Interest $

Present value of payments $

Within 1 year

511,632

53,800

457,832

Within 2 to 5 years

470,404

61,691

408,713

More than 5 years

7,303

2,180

5,123

477,707

63,871

413,836

989,339

117,671

871,668

190

APPENDIX 2: AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS OF OUR COMPANY AND SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001, 2002 AND 2003 D.

Consolidated Financial Statements of Beng Kuang Marine Limited and Subsidiaries for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

D.5 Consolidated Notes to the Financial Statements for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d) 13. Lease obligations (cont’d) 2002 Minimum lease payments $

Interest $

Present value of payments $

Within 1 year

626,222

62,914

563,308

Within 2 to 5 years

721,230

87,053

634,177

1,347,452

149,967

1,197,485

2001 Minimum lease payments $

Interest $

Present value of payments $

Within 1 year

448,208

51,643

396,565

Within 2 to 5 years

544,225

65,490

478,735

992,433

117,133

875,300

Finance leases bear interest ranging from 2.2% to 4.6%, 2.6% to 5% and 2.6% to 5% per annum for the years ended 31 December 2003, 2002 and 2001 respectively. The effective interest rates range from 3.3% to 8.74%, 3.3% to 9.56% and 5% to 9.56% per annum for the years ended 31 December 2003, 2002 and 2001 respectively. All assets acquired under finance leases are secured. The net book value of assets acquired under finance leases are disclosed in Note 3. The finance leases do not contain any escalation clauses and do not provide for contingent rents. Lease terms do not contain restrictions on the Group activities concerning dividends, additional debts or entering into other leasing agreements. 14. Short-term bank loans The short-term bank loans are unsecured and bear interest ranging from 2.14% to 2.53%, 2.18% to 2.92% and 2.65% to 4.42% per annum which are also the effective interest rates for the financial years ended 31 December 2003, 2002 and 2001 respectively. Bank loans of $8,000,000 are supported by a corporate guarantee from the holding company for the financial years ended 31 December 2003, 2002 and 2001.

191

APPENDIX 2: AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS OF OUR COMPANY AND SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001, 2002 AND 2003 D.

Consolidated Financial Statements of Beng Kuang Marine Limited and Subsidiaries for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

D.5 Consolidated Notes to the Financial Statements for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d) 15. Share capital 2003 $

2002 $

2001 $

2,000,000

2,000,000

2,000,000

1,316,328

1,316,328

1,316,328

Authorised:– 2,000,000 ordinary shares of $1 each Issued and fully paid:– 1,316,328 ordinary shares of $1 each

The holders of ordinary shares are entitled to receive dividends as and when declared by the Company. All ordinary shares carry one vote per share without restriction. 16. Share premium The share premium account may be applied only for the purposes specified in the Companies Act. The balance is not available for distribution of dividends except in the form of shares. 17. Revenue 2003 $ Corrosion prevention services

2002 $

2001 $

19,766,423

18,801,035

20,847,747

Infrastructure engineering services

7,551,389

11,050,259

10,006,985

Supply and distribution of products

10,041,882

7,796,129

7,092,537

3,884,162

131,445

—

41,243,856

37,778,868

37,947,269

Ship repairs services

18. Other operating income/(expenses) — net 2003 $ Loss on disposal of fixed assets

(2,529)

Fixed assets written off

(19,777)

Other income

192

2002 $ (92,373)

2001 $ (3,271)

—

—

41,897

35,425

67,767

19,591

(56,948)

64,496

APPENDIX 2: AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS OF OUR COMPANY AND SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001, 2002 AND 2003 D.

Consolidated Financial Statements of Beng Kuang Marine Limited and Subsidiaries for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

D.5 Consolidated Notes to the Financial Statements for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d) 19. Personnel expenses 2003 $

2002 $

9,196,995

8,478,836

10,153,585

Pension contributions

391,814

391,326

401,227

Other personnel expenses

705,599

979,005

548,229

10,294,408

9,849,167

11,103,041

Wages, salaries and bonuses

Total

2001 $

The personnel expenses include the amounts shown as Directors’ and Executive Officers’ remuneration in Note 24. 20. Profit from operations This is determined after charging/(crediting) the following:– 2003 $

2002 $

2001 $

1,729

74,000

10,660

90,585

394,455

422,596

(214,648)

(87,685)

(41,019)

Provision for rebates/discounts

624,300

701,200

Write-back of provision for rebates/discounts

(20,553)

(115,000)

Bad trade debts written off Provision for doubtful trade debts Write-back of provision for doubtful trade debts no longer required

Provision for stock obsolescence Depreciation of fixed assets

1,060,946 (47,546)

—

21,000

—

1,676,208

1,607,922

1,097,329

2003 $

2002 $

2001 $

21. Financial income

Interest income

332

193

138

—

APPENDIX 2: AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS OF OUR COMPANY AND SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001, 2002 AND 2003 D.

Consolidated Financial Statements of Beng Kuang Marine Limited and Subsidiaries for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

D.5 Consolidated Notes to the Financial Statements for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d) 22. Financial expenses — net 2003 $

2002 $

10,323

50,214

—

135,168

131,161

139,095

Loan from related companies

41,318

86,694

88,736

Finance leases

68,560

72,262

59,310

252,589

235,980

360,124

37,997

34,467

40,839

20,432

15,512

13,742

566,387

626,290

701,846

2003 $

2002 $

2001 $

654,961

270,243

641,606

(216,588)

32,971

85,724

87,872

16,749

62,911

(32,872)

112,848

16,989

493,373

432,811

807,230

Exchange loss, net

2001 $

Interest expense:– Bank overdrafts

Short-term bank loans Bills payable Bank charges

23. Taxation

Current tax:– Current year (Over)/underprovision in prior year Deferred tax:– Current year (Over)/underprovision in prior year

The Group has unutilised capital allowances of approximately $50,000, $95,000 and $95,000 for the financial years ended 31 December 2003, 2002, and 2001 respectively, available for offset against future taxable profits, subject to the agreement of the tax authorities and compliance with certain provisions of the Singapore Income Tax Act.

194

APPENDIX 2: AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS OF OUR COMPANY AND SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001, 2002 AND 2003 D.

Consolidated Financial Statements of Beng Kuang Marine Limited and Subsidiaries for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

D.5 Consolidated Notes to the Financial Statements for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d) 23. Taxation (cont’d) A reconciliation of the amount determined by multiplying the statutory tax rate against the accounting profit to the Group’s tax expense for the years ended 31 December is as follows:– 2003 $

2002 $

2001 $

3,011,406

1,400,862

2,902,827

Tax at the applicable tax rate of 22% (2002: 22% and 2001: 24.5%)

662,509

308,189

711,192

Tax effect of expenses that are not deductible in determining taxable profit

87,049

57,428

35,205

(46,200)

(34,650)

(47,295)

Accounting profit

Tax exemption and rebates Reduction of tax rates

—

(Over)/underprovision of current tax in respect of prior years

(82,485)

—

(216,588)

32,971

85,724

(32,872)

112,848

16,989

Others — net

39,475

38,510

5,415

Tax expense

493,373

432,811

807,230

(Over)/underprovision of deferred tax in respect of prior years

Deferred taxation at 31 December relate to the following:– 2003 $

2002 $

2001 $

Excess of net book value over tax written down value of fixed assets

993,377

998,900

826,000

Provisions

(48,377)

(99,000)

(77,100)

Unutilised capital allowances

(11,000)

(20,900)

(23,000)

934,000

879,000

725,900

Deferred tax liabilities:–

195

APPENDIX 2: AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS OF OUR COMPANY AND SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001, 2002 AND 2003 D.

Consolidated Financial Statements of Beng Kuang Marine Limited and Subsidiaries for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

D.5 Consolidated Notes to the Financial Statements for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d) 24. Related party information In addition to the related party information disclosed elsewhere in the financial statements, significant transactions with related parties on terms agreed between the parties, were as follows:– 2003 $

2002 $

2001 $

Income Sales to holding company

—

1,650

2,693

1,776,424

1,962,286

2,630,445

521,172

—

—

4,159

5,612

3,565

3,082,611

3,297,021

3,516,575

8,435

297

180

15,000

—

—

36,623

25,143

441,379

197,725

—

—

Services from related companies

88,701

438,309

1,160,912

Interest expense to related companies

41,318

86,694

106,598

Management fees to a related company

72,000

72,000

191,650

240,000

264,000

—

97,063

62,551

50,705

23,000

23,000

23,000

Directors’ remuneration

669,730

812,104

677,136

Executive Officers’ remuneration

513,227

525,529

431,127

Sales to related companies Sales to a related party Services rendered to holding company Services rendered to related companies Services rendered to a related party Management fees from a related party Expenses Purchases from related companies Purchases from a related party

Rental of premises from related companies Transport services from a related party Directors’ and Executive Officers’ remuneration Directors’ fees

196

APPENDIX 2: AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS OF OUR COMPANY AND SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001, 2002 AND 2003 D.

Consolidated Financial Statements of Beng Kuang Marine Limited and Subsidiaries for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

D.5 Consolidated Notes to the Financial Statements for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d) 25. Operating lease commitments The Group has various operating lease agreements for office premises and workers’ accommodation. 2003 $

2002 $

2001 $

Future minimum lease payments —

Within 1 year

286,000

328,000

484,000

—

Within 2 to 5 years

393,000

393,000

430,000

—

More than 5 years

164,000

262,000

—

843,000

983,000

914,000

Rental expense was $561,151, $483,256 and $325,522 for the financial years ended 31 December 2003, 2002 and 2001 respectively. The lease terms do not contain restrictions on the Group’s activities concerning dividends, additional debt or further leasing, escalation clauses and do not provide for contingent rents for the financial years ended 31 December 2003, 2002 and 2001. For the financial year ended 31 December 2003, lease agreements do not contain any renewable options. For the financial years ended 31 December 2002 and 2001, one of the lease agreements contains renewal option for additional lease period of 1 year at prevailing market rates. 26. Capital expenditure commitments Capital expenditure approved but not provided for in the financial statements are as follows:– 2003 $ Purchase of fixed assets approved but not provided for in the financial statements as at 31 December

6,301

2002 $

—

2001 $

—

27. Contingent liabilities 2003 $ Performance guarantee given to customers Guarantee given in connection with rental of workers’ accommodation

197

2002 $

2001 $

153,761

21,157

194,461

77,000

77,000

77,000

230,761

98,157

271,461

APPENDIX 2: AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS OF OUR COMPANY AND SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001, 2002 AND 2003 D.

Consolidated Financial Statements of Beng Kuang Marine Limited and Subsidiaries for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

D.5 Consolidated Notes to the Financial Statements for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d) 28. Notes to consolidated cash flow statement (a)

Cash and cash equivalents Cash and cash equivalents included in the consolidated cash flow statement comprise the following balance sheet amounts:–

Cash and bank balances Bank overdrafts

(b)

2003 $

2002 $

2001 $

977,749

507,556

266,041

(1,147,428)

(1,809,234)

(2,812,288)

(169,679)

(1,301,678)

(2,546,247)

2,880,893

2,465,538

Purchase of fixed assets Aggregate cost of fixed assets acquired

1,411,811

Adjustment Finance leases

(283,013)

Cash payments to acquire fixed assets

(c)

1,128,798

(1,021,850) 1,859,043

(767,297) 1,698,241

Acquisition of subsidiaries The attributable net assets acquired and the net cash flows resulting from the acquisition of subsidiaries during the financial year are as follows:– 2003 $

2002 $

2001 $

Fixed assets

—

838,541

—

Current assets

—

2,283,458

—

Current liabilities

—

(2,942,690)

—

Net assets acquired, representing attributable net assets acquired

—

179,309

—

Less: Cash and bank balances acquired

—

(160,029)

—

Net outflow from acquisition of subsidiaries

—

19,280

—

198

APPENDIX 2: AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS OF OUR COMPANY AND SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001, 2002 AND 2003 D.

Consolidated Financial Statements of Beng Kuang Marine Limited and Subsidiaries for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

D.5 Consolidated Notes to the Financial Statements for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d) 29. Financial instruments Financial risk management objectives and policies The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk, foreign exchange risk and credit risk. The Board reviews and agrees on policies for managing each of these risks and they are summarised below. Interest rate risk The Group obtains additional financing through bank borrowings and leasing arrangements. The Group’s policy is to obtain the most favourable interest rates available in the market. Information relating to the Group’s interest rate exposure is also disclosed in the notes on the Group’s borrowings. Liquidity risk In the management of liquidity risk, the Group monitors and maintains a level of cash and cash equivalents deemed adequate by the management to finance the Group’s operations and mitigate the effects of fluctuations in cash flows. Short-term funding is obtained from short-term bank loans and overdraft facilities. Foreign exchange risk Foreign exchange rate fluctuations arise from its investments in foreign subsidiaries. As this exposure is not considered as significant by management, the Group does not hedge this foreign currency risk. It is the Group’s policy not to trade in derivative contracts. Credit risk Credit risk, or the risk of counterparties defaulting, is managed through the application of credit approvals, credit limits and debt monitoring procedures. Where appropriate, the Company or its subsidiaries obtain guarantees from the customer or arrange netting agreements. Cash terms, advance payments, and letters of credit are required for customers of lower credit standing. The extent of the Group’s credit exposure is represented by aggregate carrying amount of cash and cash equivalents, trade debtors and other debtors. As at 31 December 2003, 2002 and 2001 the Group has no significant concentrations of credit risk. Fair value of financial instruments Fair value is defined as the amount at which the instrument could be exchanged in a current transaction between knowledgeable willing parties in an arm’s length transaction, other than a forced or liquidation sale. Fair values are obtained from quoted market prices, discounted cash flow models and option pricing models as appropriate. 199

APPENDIX 2: AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS OF OUR COMPANY AND SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001, 2002 AND 2003 D.

Consolidated Financial Statements of Beng Kuang Marine Limited and Subsidiaries for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

D.5 Consolidated Notes to the Financial Statements for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d) Fair value of financial instruments (cont’d) The following methods and assumptions are used to estimate the fair value of each class of financial instrument:– Cash and cash equivalents and other current assets The carrying amount approximates fair value due to the relatively short-term maturity of these financial instruments. Short-term borrowings and other current liabilities The carrying amount approximates fair value because of the short period to maturity of these instruments. Loan from related companies No disclosure of the fair value of the loan from related companies as it is not practicable to determine their fair values with sufficient reliability since these balances have no fixed terms of repayment. Lease obligations The fair value of lease obligations is determined by discounting the relevant cash flow using current interest rate for similar instruments as of balance sheet date. The fair value of financial liabilities which do not approximate the carrying amounts in the balance sheet are presented in the following table.

Note

2003 Estimated Carrying fair amount value $ $

2002 Estimated Carrying fair amount value $ $

2001 Estimated Carrying fair amount value $ $

Group Lease obligations

13

871,668

941,294

1,197,485

1,256,210

875,300

961,110

30. Subsequent events On 10 February 2004, 4 business firms wholly owned by the Company, namely Beng Kuang Marine (B&Chew), Beng Kuang Marine (B&Y), Beng Kuang Marine (B&M) and B & K Marine, were converted into private limited companies each with a paid-up capital of $2 to manage their own corrosion prevention activities at different shipyards. On 28 February 2004, these companies increased their issued and paid-up share capital to $100,000 each for additional working capital by way of capitalisation of amounts owing to the Company.

200

APPENDIX 2: AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS OF OUR COMPANY AND SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001, 2002 AND 2003 D.

Consolidated Financial Statements of Beng Kuang Marine Limited and Subsidiaries for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d)

D.5 Consolidated Notes to the Financial Statements for the Financial Years Ended 31 December 2001, 2002 and 2003 (cont’d) 30. Subsequent events (cont’d) At the Extraordinary General Meeting held on 25 August 2004, the Company’s Shareholders approved, inter alia, the following:– (a)

an increase in the authorised share capital of the Company from $2,000,000 divided into 2,000,000 ordinary shares of $1.00 each to $30,000,000 divided into 30,000,000 ordinary shares of $1.00 each;

(b)

the Restructuring Exercise as described on page 40 of the Prospectus;

(c)

the Capitalisation of $6,302,622 out of the share premium and revenue reserves of the Company by way of a bonus issue of 6,302,622 ordinary shares of $1.00 each credited as fully paid to its shareholders (“Bonus Issue”);

(d)

the allotment and issue of 6,302,622 ordinary shares of $1.00 each pursuant to the Bonus Issue;

(e)

the sub-division of each ordinary share of $1.00 each in the authorised and issued and paid-up share capital of the Company into 50 ordinary shares of $0.02 each respectively (“Sub-division”);

(f)

the consolidation of every four ordinary shares of $0.02 each in the authorised and issued share capital of the Company into one ordinary share of $0.08 each (“Consolidation”);

(g)

the conversion of the Company into a public limited company and the change of its name to “Beng Kuang Marine Limited”;

(h)

the adoption of the new Articles of Association of the Company;

(i)

the issue of New Shares pursuant to the Invitation. The New Shares, when issued and fully paid, will rank pari passu in all respects with the existing issued and fully paid up Shares;

(j)

the authorisation for the Directors, pursuant to Section 161 of the Companies Act and the Articles of Association, to allot and issue Shares or convertible securities from time to time (whether by way of rights, bonus or otherwise) and upon such terms and conditions and for such purposes and to such persons as the Directors may in their absolute discretion deem fit, provided that the aggregate number of Shares and convertible securities which may be issued pursuant to such authority shall not exceed 50% of the issued (and paid-up) share capital of the Company, of which the aggregate number of Shares and convertible securities which may be issued other than on a pro-rata basis to our Shareholders shall not exceed 20% of the issued share capital of the Company (the percentage of issued share capital being based on the post-Invitation issued share capital of our Company after adjusting for new shares arising from the conversion or exercise of any convertible securities or employee share options on issue at the time such authority is given and any subsequent consolidation or subdivision of shares) and, unless revoked or varied by the Company in general meeting, such authority shall continue in force until the conclusion of the next Annual General Meeting (“AGM”) of the Company or on the date by which the next AGM is required by law to be held, whichever is earlier; and

(k)

the adoption of the Shareholders’ Mandate (the details of which are set out in the “Shareholders’ Mandate” section on pages 113 to 117 of the Prospectus).

201

APPENDIX 3: EXTRACTS OF ARTICLES OF ASSOCIATION OF OUR COMPANY EXTRACTS OF MEMORANDUM AND ARTICLES OF ASSOCIATION OF OUR COMPANY The description below provides, among other things, information on the principal objects of our Company as set out in our Memorandum and Articles of Association and a summarised version of the main provisions in our Articles of Association which relate to the Directors’ borrowing powers and remuneration, Directors’ retirement and restrictions on voting powers of Directors in interested transactions. It also describes shareholders’ voting rights, restrictions on the transferability of shareholdings and shareholders’ rights to share in any surplus in the event of liquidation. Also included is a description of how we conduct our general meetings and the provisions relating to changes in the capital of our Company. This description is only a summary and is qualified by reference to Singapore law and our Memorandum and Articles of Association. Place of incorporation We are registered in Singapore with the Registry of Companies and Businesses (now known as the Accounting and Corporate Regulatory Authority of Singapore). Our company registration number is 199400196M. Our objects as contained in our Memorandum of Association The main object of our Company as set out in our Memorandum of Association is to sell, construct, build, fit out, service and repair ships, tugboats, tankers and ocean-going vessels and engines, scaffolding, boilers, machinery, tools and other marine instruments, equipment, parts, systems, marine automation and to provide other marine engineering services and related activities. The objects of our Company are set out in full in Clause 3 of our Memorandum of Association which is available for inspection at our registered office during normal business hours for a period of six months from the date of this Prospectus. Extract of our Articles of Association Provisions relating to Directors (a)

Power to vote on a proposal, arrangement or contract in which the director is materially interested Article 105(1) A Director who is in any way whether directly or indirectly interested in a contract or proposed contract with the Company shall declare the nature of his interest at a meeting of the Directors in accordance with Section 156 of the Act. Article 105(2) A Director shall not vote in respect of any contract or proposed contract or arrangement with the Company in which he has directly or indirectly a personal material interest and if he shall do so his vote shall not be counted nor save as provided by Article 106 shall he be counted in the quorum present at the meeting. Article 105(3) A Director may hold any other office or place of profit under the Company (other than the office of Auditor) in conjunction with his office of Director for such period and on such terms (as to remuneration and otherwise) as the Directors may determine. No Director or intending Director shall be disqualified by his office from contracting with the Company either with regard to his tenure of any such other office or place of profit or as a vendor, purchaser or otherwise. Subject to this Article 105, no such contract and no contract or arrangement entered into by or on behalf 202

APPENDIX 3: EXTRACTS OF ARTICLES OF ASSOCIATION OF OUR COMPANY of the Company in which any Director is in any way interested shall be liable to be avoided nor shall any Director so contracting or being so interested be liable to account to the Company for any profit realised by any such contract or arrangement by reason of such Director holding that office or of the fiduciary relationship thereby established. Article 106 Subject to Article 105(2) above, a Director notwithstanding his interest may be counted in the quorum present at any meeting whereat he or any other Director is appointed to hold any such office or place of profit under the Company or whereat the terms of any such appointment are arranged. (b)

Directors’ power to vote for compensation to themselves or any members of their body in the absence of an independent quorum Article 101(3) An alternate Director shall be entitled to contract and be interested in and benefit from contracts, arrangements or transactions to the same extent mutatis mutandis as if he were a Director but he shall not be entitled to receive from the Company any remuneration in respect of his appointment as alternate Director except only such part (if any) of the remuneration otherwise payable to his appointor in which event any fee paid by the Company to an alternate Director shall be deducted from the fees of the Director appointing the alternate. Article 102(1) The Directors shall be entitled to receive by way of fees for their services as Directors in each year such sum as shall from time to time, subject to Section 169 of the Act, be determined by the Company by resolution passed at a General Meeting, the notice of which shall specify the proposals concerning the same. Such remuneration shall be divided amongst the Directors as they shall determine or failing agreement equally. Article 102(2) The fees payable to the Directors shall not be increased except pursuant to a resolution passed at a General Meeting, where notice of the proposed increase has been given in the notice convening the Meeting. Article 102(3) The remuneration of a non-executive Director shall be by a fixed sum and not by a commission on or percentage of profits or revenue. The remuneration of an executive Director may not include a commission on or a percentage of revenue. Article 102(4) The provisions of this Article are without prejudice to the power of the Directors to appoint any of their number to be employee or agent of the Company at such remuneration and upon such terms as they think fit without the approval of the Members in General Meeting provided that such remuneration may include a commission on or percentage of profits but not a commission on or percentage of revenue. Article 102(5) Subject to the provisions of the Statutes, the Directors shall have power to pay and agree to pay pensions or other retirement, superannuation, death or disability benefits to (or to any person in respect of) any Director for the time being holding any executive office and for the purpose of providing any such pensions or other benefits to contribute to any scheme of fund to pay premiums. 203

APPENDIX 3: EXTRACTS OF ARTICLES OF ASSOCIATION OF OUR COMPANY Article 103 If any Director, being willing and having been called upon to do so, shall hold an executive office in the Company, shall render or perform extra or special services of any kind, including services on any committee established by the Directors, or shall travel or reside abroad for any business or purposes of the Company, he shall be entitled to receive such sum as the Directors may think fit for expenses, and also such remuneration as the Directors may think fit, either as a fixed sum or as provided in Article 102(3) (but not by way of commission on or percentage of revenue) and such remuneration may, as the Directors shall determine, be either in addition to or in substitution for any other remuneration he may be entitled to receive, and the same shall be charged as part of the ordinary working expenses of the Company. Article 105(3) A Director may hold any other office or place of profit under the Company (other than the office of Auditor) in conjunction with his office of Director for such period and on such terms (as to remuneration and otherwise) as the Directors may determine. No Director or intending Director shall be disqualified by his office from contracting with the Company either with regard to his tenure of any such other office or place of profit or as a vendor, purchaser or otherwise. Subject to this Article 105, no such contract and no contract or arrangement entered into by or on behalf of the Company in which any Director is in any way interested shall be liable to be avoided nor shall any Director so contracting or being so interested be liable to account to the Company for any profit realised by any such contract or arrangement by reason of such Director holding that office or of the fiduciary relationship thereby established. Article 114 The Directors shall (subject to the provisions of any contract between the Managing Director or person holding an equivalent position and the Company) from time to time fix the remuneration of the Managing Director or person holding an equivalent position which may be by way of fixed salary, commission or participation in profits (but not revenue) of the Company or by any or all of these modes. (c)

Borrowing powers exercisable by the Directors and how such borrowing powers can be varied Article 62 The Directors may, from time to time, exercise all the powers of the Company to raise or borrow or secure the payment of any sum or sums of money for the purposes of the Company. Article 63 The Directors may raise or secure the repayment of such sum or sums in such manner and upon such terms and conditions in all respects as they think fit, and, in particular, by the issue of debentures or debenture stock of the Company, perpetual or otherwise, charged upon or by mortgage charge or lien of and on the undertaking of the whole or any part of the property of the Company (both present and future), including its uncalled capital for the time being, or by making, accepting, endorsing or executing any cheque, promissory note or bill of exchange.

(d)

Retirement or non-retirement of directors under an age limit requirement Article 98 Until otherwise determined by a Special Resolution at a General Meeting, the number of Directors shall not be less than three or more than eleven. All the Directors of the Company shall be natural persons.

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APPENDIX 3: EXTRACTS OF ARTICLES OF ASSOCIATION OF OUR COMPANY Article 101(1) Any Director may at any time and from time to time appoint any other person approved by a majority of the Directors for the time being to be his alternate. An alternate Director shall be entitled (subject to his giving to the Company an address within the Republic of Singapore at which notices may be served on him) to receive notice of meetings of the Directors and to attend and vote as a Director at any such meeting at which the Director appointing him is not present, and generally at such meeting to exercise all the powers, rights, duties and authorities of the Director appointing him. Every person acting as an alternate Director shall be an officer of the Company and shall alone be responsible to the Company for his own acts and defaults and he shall not be deemed to be the agent of or for the Director appointing him. All the appointments and removals of alternate Directors made by any Director in pursuance of this Article, shall be in writing under the hand of the Director making the same and shall be sent to or left at the Office. A Director may not act as an alternate for another Director. A person may not act as an alternate Director for more than one Director of the Company. Article 101(2) An alternate Director may be removed by his appointor and (subject to the approval of the Directors) may appoint another in his place. An alternate Director may be removed from office by a resolution of the Directors, but he shall be entitled to vote on such resolution and he shall, ipso facto, cease to be an alternate Director if his appointor ceases for any reason to be a Director. The appointment of an alternate Director shall also determine on the happening of any event which, if he were a Director, would cause him to vacate such office. Article 104(1) The office of a Director shall be vacant if the Director:– (a)

ceases to be a Director by virtue of the Statutes; or

(b)

becomes bankrupt or makes any arrangement or composition with his creditors generally; or

(c)

is or becomes prohibited from being a Director by reason of any order made under the Statutes; or

(d)

becomes of unsound mind or a person whose person or estate is liable to be dealt with in any way under any law relating to mental disorder; or

(e)

resigns his office by notice in writing to the Company; or

(f)

for more than six months is absent without permission of the Directors from meetings of the Directors held during that period and his alternate Director (if any) shall not during such period have attended in his stead; or

(g)

is directly or indirectly interested in any contract or proposed contract with the Company and fails to declare the nature of his interest in manner required by the Statutes; or

(h)

is removed from office pursuant to the Statutes.

Article 104(2) The appointment of any Director to the office of Managing or Joint Managing Director or equivalent position shall automatically terminate if he ceases to be a Director but without prejudice to any claim for any damage or breach of any contract of service between him and the Company. Article 104(3) The appointment of any Director to any other executive office shall automatically terminate if he ceases from any cause to be a Director only if the contract or resolution under which he holds office expressly so provides, in which case such termination shall be without prejudice to any claim for damages or breach of any contract of service between him and the Company. 205

APPENDIX 3: EXTRACTS OF ARTICLES OF ASSOCIATION OF OUR COMPANY Article 107 An election of Directors shall take place each year in accordance with the provisions hereinafter contained. At the Annual General Meeting in every year one-third of the Directors for the time being (other than the Managing Director or a Director holding an equivalent position), or, if their number is not three or a multiple of three, then the number nearest one-third, shall retire from office Provided Always that all Directors (except the Managing Director or a Director holding an equivalent position) shall retire from office at least once every three years. Article 108 The Directors to retire in every year shall be those who have been longest in office since their last election, but as between persons who became Directors on the same day those to retire shall (unless they otherwise agree among themselves) be determined by lot. Article 109 Subject to the Statutes, a retiring Director shall be eligible for re-election at the meeting at which he retires. (e)

Number of Shares, if any, required for Director’s qualification Article 100 A Director shall not be required to hold any share in the Company.

(f)

Nomination of Directors Article 110 No person not being a retiring Director shall be eligible for election to the office of Director at any General Meeting unless some Member intending to propose him has, at least eleven clear days before the meeting, left at the Office a notice in writing duly signed by the nominee, giving his consent to the nomination and signifying his candidature for the office, or the intention of such Member to propose him Provided Always that in the case of a person recommended by the Directors for election, nine clear days’ notice only shall be necessary, and notice of each and every candidate for election to the board of Directors shall be served on the Members at least seven days prior to the meeting at which the election is to take place. Article 111 The Company by Special Resolution in General Meeting may, from time to time, increase or reduce the number of Directors, and may alter their qualification, if any. Article 112 The Directors may from time to time appoint one or more of their body to the office of Managing Director or equivalent position for such period (not exceeding five years) and on such terms as they think fit, and subject to the terms of any agreement entered into in any particular case, may revoke such appointment. A Managing Director or a person holding an equivalent position shall be subject to the control of the Directors. A Director so appointed shall not, while holding that office be subject to retirement but his appointment shall be automatically determined if he ceases from any cause to be a Director.

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APPENDIX 3: EXTRACTS OF ARTICLES OF ASSOCIATION OF OUR COMPANY Article 117 The Directors shall have power at any time and from time to time to appoint any other qualified person as a Director either to fill a casual vacancy or as an addition to the Board. But any Director so appointed shall hold office only until the next Annual General Meeting of the Company, and shall be eligible for re-election. Article 118 The Company may from time to time by Ordinary Resolution remove any Director before the expiration of his period of office, and may by an Ordinary Resolution appoint another person in his stead. The person so appointed shall continue to hold office until the next Annual General Meeting. Article 125 The continuing Directors may act notwithstanding any vacancy in their body, but if and so long as their number is reduced below the minimum number fixed by or pursuant to these Articles, the continuing Directors may, except in an emergency, act for the purpose of increasing the number of Directors to that number, or of summoning a General Meeting of the Company, notwithstanding that there shall not be a quorum, but for no other purpose. Provisions relating to Shares (a)

Dividend rights Article 135 The profits of the Company, subject to any special rights relating thereto created or authorised to be created by these Articles and subject to the provisions of these Articles as to the reserve fund shall be divisible among the Members in proportion to the amount of capital paid-up on the shares held by them respectively. Article 136 The Company in General Meeting may by Ordinary Resolution declare a dividend on or in respect of any share to the Members according to their rights and interest in the profits and may fix the time for payment. No larger dividend shall be declared than is recommended by the Directors but the Company in General Meeting may declare a smaller dividend. Article 137 No dividend shall be payable except out of the profits of the Company. No dividend shall carry interest. Article 138 The declaration of the Directors as to the net profits of the Company shall be conclusive. Article 139 The Directors may from time to time pay to the Members such interim dividends as in their judgment the position of the Company justifies provided no such dividends shall be declared more than once in six months.

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APPENDIX 3: EXTRACTS OF ARTICLES OF ASSOCIATION OF OUR COMPANY Article 140 The Directors may retain any dividends on which the Company has a lien and may apply the same in or towards satisfaction of the debts, liabilities, or engagements in respect of which the lien exists. Article 141 A transfer of shares shall not pass the right to any dividend declared thereon before the registration of the transfer or the entry of the shares against the Depositor’s name in the Depository Register, as the case may be. Article 142 Any General Meeting declaring a dividend may direct payment of such dividend wholly or in part by the distribution of specific assets, and in particular of wholly or partly paid-up shares, debentures, or debenture stock of the Company, or wholly or partly paid-up shares, debentures or debenture stock of any other company, or in any one or more of such ways, and the Directors shall give effect to such resolution; and where any difficulty arises in regard to the distribution, they may settle the same as they think expedient, and in particular may issue fractional certificates, and may fix the value for distribution of such specific assets, or any part thereof and may determine that cash payment shall be made to any Member upon the footing of the value so fixed, in order to adjust the rights of all parties, and may vest any such specific assets in trustees upon such trusts for the persons entitled to the dividends as may seem expedient to the Directors. Where requisite, a proper contract shall be filed in accordance with Section 63 of the Act, and the Directors may appoint any person to sign such contract on behalf of the persons entitled to the dividend, and such appointment shall be effective. Article 143 The Directors may retain the dividends payable upon shares in respect of which any person is under the provisions as to the transmissions of shares hereinbefore contained entitled to become a Member, or which any person under those provisions is entitled to transfer until such person shall become a Member in respect of such shares or shall duly transfer the same. Article 144 In case several persons are registered in the Register or entered in the Depository Register, as the case may be, as the holders of any share, any resolution of the Directors or the Company in General Meeting declaring a dividend on shares of any class may specify that the dividend shall be payable to such persons at the close of business on a particular date and thereupon the dividend shall be payable in accordance with their respective holdings so registered. Any person registered in the Register or in the Depository Register, as the case may be, as the holder or joint holder of any share or is entitled jointly to a share in consequence of the death or bankruptcy of the holder may give effectual receipts for dividends, bonuses, other moneys payable or properties distributable and payment on account of dividends on or in respect of such shares. Article 145 Notice of declaration of any dividend, whether interim or otherwise, may be given by advertisement. Article 146 Unless otherwise directed, any dividend may be paid by cheque, dividend warrant or Post Office Order, sent through the post to the registered address appearing in the Register or the Depository Register, as the case may be, of the Member or person entitled, or where two or more persons are registered in the Register or entered in the Depository Register, as the case may be, as joint holders or are entitled to the dividend as a result of the death or bankruptcy of the holder, to that 208

APPENDIX 3: EXTRACTS OF ARTICLES OF ASSOCIATION OF OUR COMPANY one whose name shall stand first on the Register or the Depository Register, as the case may be, in respect thereof and every cheque, dividend warrant or Post Office Order so sent shall be made payable to the order of the person to whom it is sent or to any person and address as such Member(s) or person(s) may direct in writing. The Company shall not be responsible for the loss of any cheque, dividend warrant or Post Office Order, which shall be sent by post duly addressed to and at the sole risk of the Member or person for whom it is intended. Payment of the cheque, dividend warrant or Post Office Order by the bank upon which they are respectively drawn shall be a full and valid discharge to the Company. Notwithstanding the provisions of these Articles, payment by the Company to the Depository of any dividend payable to a Depositor shall also be a full and valid discharge of the Company from liability to the Depositor in respect of that payment to the extent of the payment made to the Depository. Article 147 The Depository will hold all dividend unclaimed for six years after having been declared and paid before release to the Directors, and the Directors may invest or otherwise make use of the unclaimed dividends for the benefit of the Company until claimed. (b)

Voting rights Article 10 Preference shareholders shall have the same rights as ordinary Members as regards the receiving of notices, reports and balance sheets and the attending of General Meetings of the Company. Preference shareholders shall also have the right to vote at any meeting convened for the purpose of reducing the capital of the Company or winding up or sanctioning the sale of the undertaking of the Company or where the proposal to be submitted to the meeting directly affects their rights and privileges or when the dividend on the preference shares is more than six months in arrears. Article 13(3) The joint holder first named in the Register or the Depository Register, as the case may be, shall as regards voting, proxy, service of notices and delivery of certificates and dividend warrants, be deemed to be the sole owner of such share. Article 80 At every General Meeting a resolution put to the vote of the meeting shall be decided on a show of hands by the Members present in person and entitled to vote, unless before or upon the declaration of the result of the show of hands a poll be demanded by:– (a)

the Chairman of the meeting; or

(b)

not less than two Members present in person or by proxy and entitled to vote; or

(c)

a Member or Members present in person or by proxy, holding or representing, as the case may be:– (i)

not less than one-tenth of the total voting rights of all Members entitled to vote at the meeting; or

(ii)

shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid-up equal to not less than one-tenth of the total sum paid-up on all the shares conferring that right.

Article 81(1) If a poll is duly demanded it shall be taken in such manner as the Chairman directs, and the results of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded. 209

APPENDIX 3: EXTRACTS OF ARTICLES OF ASSOCIATION OF OUR COMPANY Article 81(2) No poll shall be demanded on the election of a Chairman of a meeting or on a question of adjournment. A poll demanded on any other question shall be taken at such time as the Chairman of the meeting directs. Article 82 Unless a poll be so demanded, a declaration by the Chairman of the meeting that a resolution has been carried, or has been carried by a particular majority, or lost, or not carried by a particular majority shall be conclusive, and an entry to that effect in the minute book of the Company shall be conclusive evidence thereof, without proof of the number or proportion of the votes recorded in favour of or against such resolution. Article 83(1) No objection shall be raised as to the admissibility of any vote except at the meeting or adjourned meeting, as the case may be, at which the vote objected to is or may be given, tendered or cast, and every vote not disallowed at such meeting shall be valid for all purposes. Any such objection shall be referred to the Chairman of the meeting whose decision shall be final and conclusive. Article 83(2) If any votes shall be counted which ought not to have been counted, or might have been rejected, the error shall not vitiate the result of the voting unless it be pointed out at the same meeting, or at any adjournment thereof, and unless in the opinion of the Chairman at the meeting or at any adjournment thereof as the case may be, it shall be of sufficient importance to vitiate the result of the voting. Article 84 In case of an equality of votes, whether on a show of hands or on a poll, the Chairman of the meeting at which the show of hands takes place or at which the poll is demanded, as the case may be, shall have a second or casting vote. Article 85(1) Subject to and without prejudice to any special privileges or restriction as to voting for the time being attached to any special class of shares for the time being forming part of the capital of the Company:– (a)

every Member who is present in person or by proxy shall have one vote on a show of hands, the Chairman shall be entitled to treat the first named proxy as the authorised representative to vote where a Member is represented by two proxies; and

(b)

every Member who is present in person or by proxy, in case of a poll, shall have one vote for every share which he holds or represents and upon which all calls or other sums due thereon to the Company have been paid.

Article 85(2) For the purpose of determining the number of votes which a Member, being a Depositor, or his proxy may cast at any General Meeting upon a poll being called, the number of shares held or represented shall, in relation to the shares of that Depositor, be the number of shares entered against his name in the Depository Register as at the Cut-Off Time as certified by the Depository to the Company.

210

APPENDIX 3: EXTRACTS OF ARTICLES OF ASSOCIATION OF OUR COMPANY Article 86 In the case of joint holders the vote of the senior who tenders a vote whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders; and for this purpose seniority shall be determined by the order in which the names stand in the Register or the Depository Register, as the case may be. Article 87 Unless the Directors otherwise determine, no person other than a Member who shall have paid everything for the time being due from him and payable to the Company in respect of his shares, shall be entitled to be present or to vote on any question either personally or by proxy at any General Meeting. Article 88 A Member of unsound mind, or in respect of whom an order has been made by any Court having jurisdiction in lunacy, may vote, whether on a show of hands or on a poll by the committee, curator bonis, or other person in the nature of committee or curator bonis appointed by that Court, and any such committee, curator bonis, or other person may, on a poll, vote by proxy. Article 89 On a poll, votes may be given either personally or by proxy and a person entitled to more than one vote need not use all his votes or cast all the votes he uses in the same way. Article 90(1) A proxy need not be a Member. Article 90(2) A Member shall not be entitled to appoint more than two proxies to attend and vote at the same General Meeting Provided Always that where the Member is a Depositor, the Company shall be entitled and bound:– (a)

to reject any instrument of proxy lodged if the Depositor is not shown to have any shares entered against his name in the Depository Register as at the Cut-Off Time as certified by the Depository to the Company;

(b)

to accept as the maximum number of votes which in aggregate the proxy or proxies appointed by the Depositor is or are able to cast on a poll a number which is the number of shares entered against the name of that Depositor in the Depository Register as at the Cut-Off Time as certified by the Depository to the Company, whether that number be greater or smaller than the number specified in any instrument of proxy executed by or on behalf of that Depositor; and

(c)

in determining rights to vote and other matters in respect of a completed instrument of proxy submitted to it, to have regard to the instructions (if any) given by and the notes (if any) set out in the instrument of proxy.

Article 90(3) In any case where a form of proxy appoints more than one proxy, the proportion of the shareholding concerned to be represented by each proxy shall be specified in the form of proxy. If no proportion is specified, the Company shall be entitled to treat the first named proxy as representing the entire number of shares entered against his name in the Depository Register and any second named proxy as an alternate to the first named or at the Company’s option to treat the instrument of proxy as invalid.

211

APPENDIX 3: EXTRACTS OF ARTICLES OF ASSOCIATION OF OUR COMPANY Article 91 Any corporation which is a Member may, by resolution of its directors or other governing body, authorise any person to act as its representative at any meetings of the Company or any class of Members of the Company, and such representative shall be entitled to exercise the same powers on behalf of the corporation which he represents as if he had been an individual shareholder. Article 92 An instrument appointing a proxy shall be in writing in any usual or common form (including the form approved from time to time by the Depository) or in any other form which the Directors may approve and:– (1)

in the case of an individual shall be signed by the appointor or his attorney;

(2)

in the case of a corporation shall be either given under its common seal or signed on its behalf by an attorney or a duly authorised officer of the corporation.

Article 93 Where an instrument appointing a proxy is signed on behalf of the appointor by an attorney, the letter or the power of attorney or other authority, if any, or a duly certified copy thereof shall (failing previous registration with the Company) if required by law, be duly stamped and be deposited at the Office, not less than forty-eight hours before the time for holding the meeting or adjourned meeting at which the person named in the instrument proposes to vote and in default the instrument of proxy shall not be treated as valid. Article 94 The signature on an instrument of proxy need not be witnessed. Article 95 A vote given in accordance with the terms of an instrument of proxy shall be valid notwithstanding the previous death of the principal or revocation of the proxy or transfer of the share in respect of which the vote is given Provided Always that no notice in writing of the death or revocation or transfer shall have been received at the Office one hour at least before the time fixed for holding the meeting. Article 96 An instrument appointing a proxy shall be deemed to confer authority to demand or join in demanding a poll and to speak at the meeting. Article 97 Where the capital of the Company consists of shares of different monetary denominations, voting rights shall be prescribed in such manner that a unit of capital in each class, when reduced to a common denominator, shall carry the same voting power when such right is exercisable. (c)

Right to share in the Company’s profits Article 148(1) The Company in General Meeting may, upon the recommendation of the Directors, resolve that it is desirable to capitalise any part of the amount for the time being standing to the credit of the Company’s reserve funds or to the credit of the profit and loss account or otherwise available for distribution; and accordingly that such sum be set free for distribution amongst the holders of shares in the Register or in the Depository Register, as the case may be, who would have been entitled thereto if distributed by way of dividends and in the same proportions on condition that the 212

APPENDIX 3: EXTRACTS OF ARTICLES OF ASSOCIATION OF OUR COMPANY same be not paid in cash but be applied either in or towards paying up any amounts for the time being unpaid on any shares held by such Members respectively or paying up on full unissued shares or debentures of the Company to be allotted and distributed credited as fully paid-up to and amongst such holders or in their nominees in the proportion aforesaid or partly in the one way and partly in the other and the Directors shall give effect to such resolution Provided Always that a capital redemption reserve fund may, for the purpose of this Article, only be applied in the paying up of unissued shares to be issued to such holders as fully paid bonus shares unless otherwise permitted by the provisions of the Act. Article 148(2) Whenever such resolution as aforesaid shall have been passed, the Directors shall make all appropriations and applications of the amounts resolved to be capitalised thereby and all allotments and issues of fully paid shares or debentures, if any, and generally shall do all acts and things required to give effect thereto with full power to the Directors to make such provision for the satisfaction of the right of the holders of such shares in the Register or in the Depository Register, as the case may be, under such resolution to a fractional part of a share by the issue of fractional certificates or by payment in cash or otherwise as they think fit and also to authorise any persons to enter on behalf of such holders entitled thereto or their nominees into an agreement with the Company providing for the allotment to them respectively credited as fully paid-up of any further shares to which they may be entitled upon such capitalisation; and any agreement made under such authority shall be effective and binding on all such holders and their nominees. (d)

Right to share in any surplus in the event of liquidation Article 169 If the Company shall be wound up, and the assets available for distribution among the Members as such shall be insufficient to repay the whole of the paid-up capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the Members in proportion to the capital paid-up, or which ought to have been paid-up, at the commencement of the winding up, on the shares held by them respectively. And if in a winding up the assets available for distribution among the Members shall be more than sufficient to repay the whole of the capital paid-up at the commencement of the winding up, the excess shall be distributed amongst the Members in proportion to the capital at the commencement of the winding up paid-up or which ought to have been paid-up on the shares held by them respectively. But this Article is to be without prejudice to the rights of the holders of shares issued upon special terms and conditions. Article 170 If the Company shall be wound up, the liquidators may, with the sanction of a Special Resolution, divide among the Members in specie any part of the assets of the Company and any such division may be otherwise than in accordance with the existing rights of the Members, but so that if any division is resolved or otherwise than in accordance with such rights, the Members shall have the same right of dissent and consequential rights as if such resolution were a Special Resolution passed pursuant to Section 306 of the Act. A Special Resolution sanctioning a transfer or sale to another company duly passed pursuant to the said Section may in like manner authorise the distribution of any share or other consideration receivable by the Liquidators amongst the Members otherwise than in accordance with their existing rights; and any such determination, shall be binding upon all the Members subject to the right of dissent and consequential rights conferred by the said Section. Article 171 On the voluntary liquidation of the Company, no commission or fee shall be paid to a liquidator unless it shall have been ratified by the Members. The amount of such payment shall be notified to all Members at least seven days prior to the meeting at which it is to be considered. 213

APPENDIX 3: EXTRACTS OF ARTICLES OF ASSOCIATION OF OUR COMPANY (e)

Redemption provisions Article 60(2) The Company may by Special Resolution reduce its share capital, any capital redemption reserve fund or share premium account in any manner and with and subject to any requirement authorised and consent required by law. Without prejudice to the generality of the foregoing, upon cancellation of any share purchased or otherwise acquired by the Company pursuant to these Articles and the Act, the nominal amount of the issued ordinary share capital of the Company shall be diminished by the nominal amount of the share so cancelled.

(f)

Sinking fund provisions Article 149 The Directors may, before declaring any dividend or bonus in respect of any class of shares out of or in respect of the earnings or profits of the Company for any yearly or other period, cause to be reserved or retained and set aside out of such sums as they may determine to form a Reserve Fund to meet contingencies or depreciation in the value of the property of the Company, or for equalising dividends or for special dividends or for distribution of bonuses or for repairing, improving and maintaining any of the property of the Company, or for such other purposes the Directors shall, in their absolute discretion, think conducive to the interest of the Company.

(g)

Liability to further capital calls by the Company Article 26 The Directors may from time to time make calls upon the Members in respect of any money unpaid on their shares or on any class of shares (whether on account of the nominal value of the shares or by way of premium) and not by the conditions of allotment thereof made payable at fixed times, and each Member shall (subject to his having been given at least fourteen days’ notice specifying the time or times and place of payment) pay to the Company at the time or times and place so specified the amount called on his shares. A call may be made payable by instalments. A call may be revoked or postponed as the Directors may determine. A call shall be deemed to have been made at the time when the resolution of the Directors authorising the call was passed. Article 27 The joint holders of a share shall be jointly and severally liable to pay all calls and interest (if any) in respect thereof. Article 28 If before or on the day appointed for payment thereof a call payable in respect of a share is not paid, the person from whom the amount of the call is due shall pay interest on such amount at the rate of eight per cent. per annum from the day appointed for payment thereof to the time of actual payment, but the Directors shall have power to waive payment of such interest or any part thereof. Article 29 Any sum which by the terms of allotment of a share is made payable upon issue or at any fixed date whether on account of the nominal value of the share or by way of premium and any instalment of a call shall for all purposes of these Articles be deemed to be a call duly made and payable on the date fixed for payment, and in case of non-payment the provisions of these Articles as to payment of interest and expenses, forfeiture and the like, and all the other relevant provisions of these Articles or the Statutes shall apply as if such sum were a call duly made and notified as hereby provided.

214

APPENDIX 3: EXTRACTS OF ARTICLES OF ASSOCIATION OF OUR COMPANY Article 30 The Directors may from time to time make arrangements on the issue of shares for a difference between the holders of such shares in the amount of calls to be paid and in the time of payment of such calls. Article 31 The Directors may, if they think fit, receive from any Member willing to advance the same all or any part of the moneys uncalled and unpaid upon any share held by him, and upon all or any part of the moneys so advanced may (until the same would, but for the advance, become payable) pay interest at such rate not exceeding (unless the Company in General Meeting shall otherwise direct) eight per cent. per annum as may be agreed upon between the Directors and the Member paying the sum in advance. Capital paid on shares in advance of calls shall not, whilst carrying interest, confer a right to participate in profits. (h)

Discrimination against any existing or prospective holder of such securities as a result of such shareholder owning a substantial number of shares There is no provision relating to such discrimination in our Articles of Association.

(i)

Change in Capital Article 56 The Company in General Meeting may from time to time by Ordinary Resolution, whether all the shares for the time being authorised shall have been issued or all the shares for the time being issued have been fully paid up or not, increase its capital by the creation and issue of new shares, such aggregate increase to be of such amount and to be divided into shares of such respective amounts as the Company by the resolution authorising such increase shall direct. Article 57(1) Unless otherwise determined by the Company in General Meeting or except as permitted by the listing rules of the Exchange, all new shares shall, before issue, be offered to such persons who as at the date of the offer are entitled to receive notices from the Company of General Meetings, in proportion, as nearly as the circumstances admit, to the amount of the existing shares to which they are entitled. Article 57(2) The offer shall be made by notice specifying the number of shares offered and limiting a time within which the offer, if not accepted, will be deemed to be declined, and, after the expiration of that time, or on the receipt of an intimation from the person to whom the offer is made that he declines to accept the shares offered, the Directors may dispose of those shares in such manner as they think most beneficial to the Company. The Directors may likewise so dispose of any new shares which (by reason of the ratio which the new shares bear to shares held by persons entitled to an offer of new shares) cannot, in the opinion of the Directors, be conveniently offered in the manner hereinbefore provided. Article 58 Notwithstanding Article 56 above, the Company may pursuant to Section 161 of the Act by Ordinary Resolution in General Meeting give to the Directors a general authority, either unconditionally or subject to such conditions as may be specified in the Ordinary Resolution, to issue shares whether by way of rights, bonus or otherwise, and make or grant offers, agreements or options (collectively, “Instruments”) that might or would require shares to be issued, including but not limited to the creation and issue of (as well as adjustments to) warrants, debentures or 215

APPENDIX 3: EXTRACTS OF ARTICLES OF ASSOCIATION OF OUR COMPANY other instruments convertible into shares, and (notwithstanding the authority conferred by the Ordinary Resolution may have ceased to be in force) issue shares in pursuance of any Instrument made or granted by the Directors while the Ordinary Resolution was in force, provided that:– (a)

the aggregate number of shares to be issued pursuant to the Ordinary Resolution (including shares to be issued in pursuance of Instruments made or granted pursuant to the Ordinary Resolution) does not exceed fifty per cent. (or such other limit as may be prescribed by the Exchange) of the issued share capital of the Company (as calculated in accordance with sub-paragraph (b) below), of which the aggregate number of shares to be issued other than on a pro-rata basis to the Members of the Company (including shares to be issued in pursuance of Instruments made or granted pursuant to the Ordinary Resolution) does not exceed twenty per cent. (or such other limit as may be prescribed by the Exchange) of the issued share capital of the Company (as calculated in accordance with sub-paragraph (b) below);

(b)

(subject to such manner of calculation as may be prescribed by the Exchange) for the purpose of determining the aggregate number of shares that may be issued under subparagraph (a) above, the percentage of issued share capital shall be based on the issued share capital of the Company at the time that the Ordinary Resolution is passed, after adjusting for new shares arising from the conversion or exercise of any convertible securities or employee share options on issue at the time that the Ordinary Resolution is passed, and any subsequent consolidation or subdivision of shares provided that if a general mandate is obtained before the listing of the Company on the Exchange, the percentage of issued share capital shall be based on the post-invitation issued share capital of the Company after adjusting for new shares arising from the conversion or exercise of any convertible securities or employee share options on issue at the time such authority is given, and for any consolidation or subdivision of shares; and

(c)

unless previously revoked or varied by the Company in General Meeting, such authority conferred by the Ordinary Resolution shall not continue beyond the conclusion of the Annual General Meeting of the Company next following the passing of the Ordinary Resolution or the date by which such Annual General Meeting is required by law to be held, or the expiration of such other period as may be prescribed by the Act (whichever is the earliest).

Article 59 Subject to any directions that may be given in accordance with the powers contained in the Memorandum of Association or these Articles, any capital raised by creation of new shares shall be considered as part of the original capital and all new shares shall be subject to the same provisions with reference to the payment of calls, transfer, transmission, forfeiture, lien and otherwise as if it had been part of the original capital. Article 60(1) The Company may by Ordinary Resolution:– (a)

consolidate and divide its capital into shares of larger amount than its existing shares; or

(b)

cancel any shares which at the date of the passing of the resolution have not been taken or agreed to be taken by any person and diminish the amount of its share capital by the amount of the shares so cancelled; or

(c)

by subdivision of its existing shares or any of them divide its capital or any part thereof into shares of smaller amount than is fixed by the Memorandum of Association. The resolution by which the subdivision is effected may determine that, as between the holders of the resulting shares, one or more of such shares may have any such preferred, deferred or other special rights or be subject to any restriction as the Company has power to attach to unissued or new shares; or

(d)

subject to the Statutes, convert any class of shares into any other class of shares. 216

APPENDIX 3: EXTRACTS OF ARTICLES OF ASSOCIATION OF OUR COMPANY Article 60(2) The Company may by Special Resolution reduce its share capital, any capital redemption reserve fund or share premium account in any manner and with and subject to any requirement authorised and consent required by law. Without prejudice to the generality of the foregoing, upon cancellation of any share purchased or otherwise acquired by the Company pursuant to these Articles and the Act, the nominal amount of the issued ordinary share capital of the Company shall be diminished by the nominal amount of the share so cancelled. (j)

Variation of Shareholders’ rights Article 9 Subject to the provisions of the Statutes, all or any of the special rights or privileges for the time being attached to any preference share for the time being issued may from time to time (whether or not the Company is being wound up) be modified, affected, altered or abrogated and preference capital other than redeemable preference shares may be repaid if authorised by a Special Resolution passed by holders of such preference shares at a special meeting called for the purpose. To any such special meeting, all provisions of these Articles as to General Meetings of the Company shall mutatis mutandis apply but so that the necessary quorum shall be two persons at least holding or representing by proxy not less than one third of the issued preference shares concerned and that every holder of the preference shares concerned shall be entitled on a poll to one vote for every such share held by him and that any holder of the preference shares concerned present either in person or by proxy may demand a poll Provided Always that where the necessary majority for such a Special Resolution is not obtained at the meeting, consent in writing if obtained from holders of three-fourths of the preference shares concerned within two months of the meeting shall be as valid and effectual as a Special Resolution carried at the meeting. Article 61 Subject to the Statutes and save as provided by these Articles, all or any of the special rights or privileges attached to any class of shares in the capital of the Company for the time being issued may, at any time, as well before as during liquidation, be modified, affected, altered or abrogated, either with the consent in writing of the holders of not less than three-fourths of the issued shares of the class or with the sanction of a Special Resolution passed at a separate General Meeting, but so that the quorum thereof shall be not less than two persons personally present and holding or representing by proxy one-third of issued shares of the class, and that any holder of shares of the class, present in person or by proxy, shall on a poll be entitled to one vote for each share of the class held or represented by him, and if at any adjourned meeting of such holders such quorum as aforesaid is not present, any two holders of shares of the class who are personally present shall be a quorum. The Directors shall comply with the provisions of Section 186 of the Act as to forwarding a copy of any such consent or Resolution to the Registrar of Companies.

(k)

Arrangements for transfer and any restrictions on the free transferability of the shares Article 40 Save as provided by these Articles, there shall be no restriction on the transfer of fully paid shares (except where required by law or by the rules, bye-laws or listing rules of the Exchange). All transfers of shares may be effected by way of book-entry in the Depository Register Provided Always that the legal title in the shares may be transferred by the registered holders thereof by an instrument of transfer in the form approved by the Directors and the Exchange. The instrument of transfer shall be left at the Office accompanied by the certificate of the shares to be transferred and such other evidence (if any) as the Directors may reasonably require to show the right of the transferor to make the transfer. The transferor shall be deemed to remain the registered holder of the shares until the name of the transferee is entered in the Register in respect thereof. 217

APPENDIX 3: EXTRACTS OF ARTICLES OF ASSOCIATION OF OUR COMPANY Article 41 The instrument of transfer shall be signed both by the transferor and by the transferee, and it shall be witnessed Provided Always that an instrument of transfer in respect of which the transferee is the Depository shall be effective although not signed or witnessed by or on behalf of the Depository. Article 42 Shares of different classes shall not be comprised in the same instrument of transfer. Article 43 No share shall in any circumstances be transferred to any infant, bankrupt or person of unsound mind. Article 44 All instruments of transfer which are registered shall be retained by the Company, but any instrument of transfer which the Directors may refuse to register shall (except in any case of fraud) be returned to the party presenting the same. Article 45 The Directors may decline to accept any instrument of transfer unless:– (a)

all or any part of the stamp duty (if any) payable on each share transfer is paid to the Company; and

(b)

such fee not exceeding two Singapore Dollars as the Directors may from time to time determine or such other sum as may from time to time be prescribed by the Exchange is paid to the Company in respect of the registration of any instrument of transfer, probate, letters of administration, certificate of marriage or death, power of attorney or any document relating to or affecting the title to the shares.

Article 46 The Directors may refuse to register the transfer of shares or allow the entry of or against a person’s name in the Depository Register in respect of shares transferred or to be transferred to such person:– (a)

which are not fully paid-up; or

(b)

on which the Company has a lien.

Article 47 If the Directors refuse to register any transfer of any share they shall, where required by the Statutes, serve on the transferor and transferee, within one month beginning with the day on which the transfer was lodged with the Company, a notice in writing informing each of them of such refusal and of the facts which are considered to justify the refusal. Article 48 The Register may be closed at such times and for such periods as the Directors may from time to time determine Provided Always that the Register shall not be closed for more than thirty days in any year Provided Always that the Company shall give prior notice of such closure as may be required to the Exchange stating the period and purpose or purposes for which such closure is to be made.

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APPENDIX 3: EXTRACTS OF ARTICLES OF ASSOCIATION OF OUR COMPANY (l)

Necessary actions to change the rights of holders of the stock There is no provision relating to the necessary actions to change the rights of holders of the stock in our Articles of Association.

(m) General meetings Article 66 In addition to any other meetings, a General Meeting shall be held at least once in every calendar year, at such time and place as may be determined by the Directors, but so that no more than fifteen months shall be allowed to elapse between any two such General Meetings. Article 67 The abovementioned General Meetings shall be called Annual General Meetings. All other General Meetings shall be called Extraordinary General Meetings. Article 68 The First Annual General Meeting of the Company shall be held at such time within a period of not more than eighteen months from the date of incorporation of the Company and at such time and place as the Directors may determine. Article 69 The Directors may call an Extraordinary General Meeting of the Company whenever they think fit in accordance with the Statutes. Article 70 The Directors shall, on the requisition of the holders of not less than one-tenth of the issued capital of the Company upon which all calls or other sums then due have been paid, forthwith proceed to convene an Extraordinary General Meeting of the Company, and in the case of such requisition the following provisions shall have effect:– (a)

The requisition must state the objects of the meeting and must be signed by the requisitionists and deposited at the Office, and may consist of several documents in like form each signed by one or more requisitionists.

(b)

If the Directors of the Company do not proceed to cause a meeting to be held within twenty-one days from the date of the requisition being so deposited, the requisitionists or any of them representing more than one-half of the voting rights of all of them may themselves convene the meeting, but any meeting so convened shall not be held after three months from the date of the deposit.

(c)

In the case of a meeting at which a resolution is to be proposed as a Special Resolution the Directors shall be deemed not to have duly convened the meeting if they do not give such notice as is required by the Statutes.

(d)

Any meeting convened under this Article by the requisitonists shall be convened in the same manner as nearly as possible as that in which meetings are to be convened by Directors.

Article 71 Subject to the Statutes relating to the convening of meetings to pass Special Resolutions, at least fourteen days’ notice specifying the place, day and hour of the meeting, and in case of special business, a notice setting out the general nature of such special business, accompanied by a statement regarding the effect of any proposed resolution in respect of such special business, shall be given to all Members other than such as are not entitled under these Articles to receive such notices from the Company. At least fourteen days’ notice in writing of any General Meeting 219

APPENDIX 3: EXTRACTS OF ARTICLES OF ASSOCIATION OF OUR COMPANY shall be given and at least twenty-one days’ notice in writing in the case of a Meeting to pass Special Resolution shall be given to the Exchange. Every such notice shall be published in at least one English Language daily newspaper circulating in Singapore at least fourteen days before the meeting. Whenever any meeting is adjourned for fourteen days or more, at least seven days’ notice of the place and hour of such adjourned meeting shall be given in like manner Provided Always that when a meeting is adjourned for thirty days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. (n)

Limitations on rights to hold or exercise voting rights on ordinary shares There are no limitations imposed by Singapore law or by our Articles of Association on the rights of Shareholders to hold or exercise voting rights on our ordinary shares.

(o)

Delaying, deferring or preventing change in control of the Company There is no provision in our Articles of Association which would have an effect of delaying, deferring or preventing a change in control of the Company and which would operate only with respect to a merger, acquisition or corporate restructuring involving the Company.

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APPENDIX 4: DESCRIPTION OF SINGAPORE COMPANY LAW RELATING TO SHARES The following statements are brief summaries of the rights and privileges of our shareholders conferred by the laws of Singapore, the Listing Manual and our Articles of Association (“Articles”). These statements summarise the material provisions of our Articles but are qualified in entirely by reference to our Articles, a copy of which will be available for inspection at our offices during normal business hours for a period of six months from the date of registration of this Prospectus. Ordinary Shares All of our Shares are in registered form. We may, subject to the provisions of the Companies Act and the rules of the SGX-ST, purchase our own Shares. However, we may not, except in circumstances permitted by the Companies Act, grant any financial assistance for the acquisition or proposed acquisition of our Shares. New Shares New Shares may only be issued with the prior approval of our shareholders in a general meeting. The aggregate number of Shares to be issued pursuant to such approval may not exceed 50% (or such other limit as may be prescribed by the SGX-ST) of our issued share capital, of which the aggregate number of Shares to be issued other than on a pro rata basis to our shareholders may not exceed 20% (or such other limit as may be prescribed by the SGX-ST) of our issued share capital (the percentage of issued share capital being calculated based on the maximum potential share capital at the time such authority is given (taking into account the conversion or exercise of any convertible securities and employee share options on issue at the time such authority is given and which were issued pursuant to previous shareholders’ approval) adjusted for any subsequent consolidation or subdivision of Shares). The approval, if granted, will lapse at the conclusion of the annual general meeting following the date on which the approval was granted or the date by which the annual general meeting is required by law to be held, whichever is the earlier. Subject to the foregoing, the provisions of the Companies Act and any special rights attached to any class of shares currently issued, all new Shares are under the control of our Board of Directors who may allot and issue the same with such rights and restrictions as it may think fit. Shareholders Only persons who are registered in our Register of Shareholders and, in cases in which the person so registered is CDP, the persons named as the depositors in the depository register maintained by CDP for the Shares, are recognised as our shareholders. We will not, except as required by law, recognise any equitable, contingent, future or partial interest in any Share or other rights for any Share other than the absolute right thereto of the registered holder of that Share or of the person whose name is entered in the depository register for that Share. We may close our Register of Shareholders for any time or times if we provide the Registrar of Companies and Businesses with at least 14 days’ notice and the SGX-ST at least 10 clear Market Days’ notice. However, the Register of Shareholders may not be closed for more than 30 days in aggregate in any calendar year. We typically close our Register of Shareholders to determine shareholders’ entitlement to receive dividends and other distributions. Transfer of Shares There is no restriction on the transfer of fully paid Shares except where required by law or the Listing Manual or the rules or by-laws of any stock exchange on which our Company is listed. Our Board of Directors may decline to register any transfer of Shares which are not fully paid Shares or Shares on which we have a lien. Our Shares may be transferred by a duly signed instrument of transfer in a form approved by the SGX-ST or any stock exchange on which our Company is listed. Our Board of Directors may also decline to register any instrument of transfer unless, among other things, it has been duly stamped and is presented for registration together with the share certificate and such other evidence of title as they may require. We will replace lost or destroyed certificates for Shares if it is properly notified and if the applicant pays a fee which will not exceed S$2 and furnishes any evidence and indemnity that our Board of Directors may require. 221

APPENDIX 4: DESCRIPTION OF SINGAPORE COMPANY LAW RELATING TO SHARES General Meetings of Shareholders We are required to hold an annual general meeting every year. Our Board of Directors may convene an Extraordinary General Meeting whenever it thinks fit and must do so if shareholders representing not less than 10% of the total voting rights of all shareholders request in writing that such a meeting be held. In addition, two or more shareholders holding not less than 10% of our issued share capital may call a meeting. Unless otherwise required by law or by our Articles, voting at general meetings is by ordinary resolution, requiring an affirmative vote of a simple majority of the votes cast at the meeting. An ordinary resolution suffices, for example, for the appointment of directors. A special resolution, requiring the affirmative vote of at least 75% of the votes cast at the meeting, is necessary for certain matters under Singapore law, including voluntary winding up, amendments to the Memorandum of Association and our Articles, a change of our corporate name and a reduction in our share capital, share premium account or capital redemption reserve fund. We must give at least 21 days’ notice in writing for every general meeting convened for the purpose of passing a special resolution. Ordinary resolutions generally require at least 14 days’ notice in writing. The notice must be given to each of our shareholders who have supplied us with an address in Singapore for the giving of notices and must set forth the place, the day and the hour of the meeting and, in the case of special business, the general nature of that business. Voting Rights A holder of our Shares is entitled to attend, speak and vote at any general meeting, in person or by proxy. Proxies need not be shareholders. A person who holds Shares through the SGX-ST book-entry settlement system will only be entitled to vote at a general meeting as a Shareholder if his name appears on the depository register maintained by CDP 48 hours before the general meeting. Except as otherwise provided in our Articles, two or more shareholders must be present in person or by proxy to constitute a quorum at any general meeting. Under our Articles, on a show of hands, every Shareholder present in person and by proxy shall have one vote (provided that in the case of a Shareholder who is represented by two proxies, the chairman of the meeting shall be entitled to treat the first named proxy as the authorised representative to vote on a show of hands), and on a poll, every Shareholder present in person or by proxy shall have one vote for each Share which he holds or represents. A poll may be demanded in certain circumstances, including by the chairman of the meeting or by any Shareholder present in person or by proxy and representing not less than 10% of the total voting rights of all shareholders having the right to attend and vote at the meeting or by any two shareholders present in person or by proxy and entitled to vote. In the case of an equality of votes, whether on a show of hands or a poll, the chairman of the meeting shall be entitled to a casting vote. Dividends We may, by ordinary resolution of our shareholders, declare dividends at a general meeting, but we may not pay dividends in excess of the amount recommended by our Board of Directors. We must pay all dividends out of our profits. However, we may capitalise our share premium account and apply it to pay dividends, if such dividends are satisfied by the issue of Shares to our shareholders. See “Bonus and Rights Issue” below. All dividends are paid pro rata among our shareholders in proportion to the amount paid up on each Shareholder’s Shares, unless the rights attaching to an issue of any Share provides otherwise. Unless otherwise directed, dividends are paid by cheque or warrant sent through the post to each Shareholder at his registered address. Notwithstanding the foregoing, the payment by us to CDP of any dividend payable to a Shareholder whose name is entered in the depository register shall, to the extent of payment made to CDP, discharge us from any liability to that Shareholder in respect of that payment.

222

APPENDIX 4: DESCRIPTION OF SINGAPORE COMPANY LAW RELATING TO SHARES Bonus and Rights Issue Our Board of Directors may, with approval of our shareholders at a general meeting, capitalise any reserves or profits (including profits or moneys carried and standing to any reserve or to the share premium account) and distribute the same as bonus Shares credited as paid-up to our shareholders in proportion to their shareholdings. Our Board of Directors may also issue rights to take up additional Shares to shareholders in proportion to their shareholdings. Such rights are subject to any conditions attached to such issue and the regulations of any stock exchange on which we are listed. Takeovers Under the Singapore Code on Take-overs and Mergers (“Singapore Take-over Code”), issued by the MAS pursuant to Section 321 of the Securities and Futures Act, any person acquiring an interest, either on his own or together with parties acting in concert with him, in 30% or more of the voting Shares must extend a takeover offer for the remaining voting Shares in accordance with the provisions of the Singapore Take-over Code. In addition, a mandatory takeover offer is also required to be made if a person holding, either on his own or together with parties acting in concert with him, between 30% and 50% of the voting shares acquires additional voting shares representing more than 1% of the voting shares in any six month period. Under the Singapore Take-over Code, the following individuals and companies will be presumed to be persons acting in concert with each other unless the contrary is established:– (a)

the following companies:– (i)

a company

(ii)

the parent company of (i);

(iii)

the subsidiaries of (i);

(iv) the fellow subsidiaries of (i); (v)

the associated companies of (i), (ii), (iii) or (iv); and

(vi) companies whose associated companies include any of (i), (ii), (iii), (iv) or (v); (b)

a company with any of its directors (together with their close relatives, related trusts as well as companies controlled by any of the directors, their close relatives and related trusts);

(c)

a company with any of its pension funds and employee share schemes;

(d)

a person with any investment company, unit trust or other fund whose investment such person manages on a discretionary basis, but only in respect of the investment account which such person manages;

(e)

a financial or other professional adviser, including a stockbroker, with its client in respect of the shareholdings of:– (i)

the adviser and persons controlling, controlled by or under the same control as the adviser; and

(ii)

all the funds which the adviser manages on a discretionary basis, where the shareholdings of the adviser and any of those funds in the client total 10% or more of the client’s equity share capital;

(f)

directors of a company (together with their close relatives, related trusts and companies controlled by any of such directors, their close relatives and related trusts) which is subject to an offer or where the directors have reason to believe a bona fide offer for their company may be imminent;

(g)

partners; and

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APPENDIX 4: DESCRIPTION OF SINGAPORE COMPANY LAW RELATING TO SHARES (h)

the following persons and entities:– (i)

an individual;

(ii)

the close relatives of (i);

(iii)

the related trusts of (i);

(iv) any person who is accustomed to act in accordance with the instructions of (i); and (v)

companies controlled by any of (i), (ii), (iii) or (iv).

Under the Singapore Take-over Code, a mandatory offer made with consideration other than cash must be accompanied by a cash alternative at not less than the highest price paid by the offeror or any person acting in concert within the preceding 6 months. Liquidation or Other Return of Capital If we liquidate or in the event of any other return of capital, holders of our Shares will be entitled to participate in any surplus assets in proportion to their shareholdings, subject to any special rights attaching to any other class of shares. Indemnity As permitted by Singapore law, our Articles provide that, subject to the Companies Act, our Board of Directors and officers shall be entitled to be indemnified by us against any liability incurred in defending any proceedings, whether civil or criminal, which relate to anything done or omitted to have been done as an officer, director or employee and in which judgement is given in their favour or in which they are acquitted or in connection with any application under any statute for relief from liability in respect thereof in which relief is granted by the court. We may not indemnify our Directors and officers against any liability which by law would otherwise attach to them in respect of any negligence, default, breach of duty or breach of trust of which they may be guilty in relation to us. Limitations on Rights to Hold or Vote Shares Except as described in “Voting Rights” and “Takeovers” above, there are no limitations imposed by Singapore law or by our Articles on the rights of non-resident shareholders to hold or vote in respect of our Shares. Minority Rights The rights of minority shareholders of Singapore-incorporated companies are protected under Section 216 of the Companies Act, which gives the Singapore courts a general power to make any order, upon application by any of our shareholders, as they think fit to remedy any of the following situations where:– (a)

our affairs are being conducted or the powers of our Board of Directors are being exercised in a manner oppressive to, or in disregard of the interests of, one or more of our shareholders; or

(b)

we take an action, or threaten to take an action, or our shareholders pass a resolution, or propose to pass a resolution, which unfairly discriminates against, or is otherwise prejudicial to, one or more of our shareholders, including the applicant.

224

APPENDIX 4: DESCRIPTION OF SINGAPORE COMPANY LAW RELATING TO SHARES Singapore courts have a wide discretion as to the reliefs they may grant and those reliefs are in no way limited to those listed in the Companies Act itself. Without prejudice to the foregoing, the Singapore courts may:– (a)

direct or prohibit any act or cancel or vary any transaction or resolution;

(b)

regulate the conduct of our affairs in the future;

(c)

authorise civil proceedings to be brought in our name of, or on behalf of, by a person or persons and on such terms as the court may direct;

(d)

provide for the purchase of a minority shareholder’s Shares by our other shareholders or by us and, in the case of a purchase of Shares by us, a corresponding reduction of our share capital; or

(e)

provide that we be wound up.

225

APPENDIX 5: DESCRIPTION OF SINGAPORE LAW AND REGULATIONS RELATING TO TAXATION TAXATION The discussion below is not intended to constitute a complete analysis of all tax consequences relating to ownership of our Shares. Prospective purchasers of our Shares should consult their own tax advisors concerning the tax consequences of their particular situations. This description is based on laws, regulations and interpretations now in effect and available in Singapore as of the date of this Prospectus. The laws, regulations and interpretations, however, may change at any time, and any change could be retroactive to the date of issuance of our Shares. These laws and regulations are also subject to various interpretations and the relevant tax authorities or the courts could later disagree with the explanations or conclusions set out below. It is emphasised that neither our Company, our Directors nor any other persons involved in this Invitation accepts responsibility for any tax effects or liabilities resulting from the subscription for, holding or disposal of our Shares. The following discussion describes the material Singapore income tax, capital gains tax, stamp duty, estate duty and GST consequences of the subscription for, ownership and disposal of our Shares. Income Tax General Singapore resident taxpayers are subject to Singapore income tax on income accruing in or derived from Singapore and on foreign income received or deemed received in Singapore, subject to certain exceptions. With effect from 1 June 2003, foreign income in the form of dividends, branch profit and service income will, however, be tax exempt if such income has been subjected to tax in the foreign jurisdiction and the headline tax rate of such foreign jurisdiction is at least 15% when the said foreign income is remitted or deemed remitted by the Singapore tax resident. In the 2004 Budget Statement, the Finance Minister has proposed to exempt from tax certain Singapore-sourced investment income derived by individuals on or after 1 January 2004 and all foreign-sourced personal income remitted or deemed remitted by Singapore resident individuals with effect from year of assessment 2005. A corporate entity is regarded as resident in Singapore if its business is controlled and managed in Singapore (for example, if the board of directors meets and conducts the company’s business in Singapore). An individual is regarded as resident in Singapore if the individual is physically present in Singapore or exercises an employment in Singapore (other than as a director of a company) for 183 days or more in a calendar year, or if the individual resides in Singapore. Non-resident corporate taxpayers are subject to Singapore income tax on income accruing in or derived from Singapore, and on foreign income received or deemed received in Singapore, subject to certain exceptions. Non-resident individuals, subject to certain exceptions, are subject to Singapore income tax only on the income accruing in or derived from Singapore. The corporate tax rate in Singapore for the year of assessment 2004 (i.e. financial year ending in 2003) is 22.0%. In the 2004 Budget Statement announced on 27 February 2004, it was proposed that with effect from the year of assessment 2005 (i.e. financial year ending in 2004), the corporate tax rate will be reduced to 20%. In addition, 75.0% of the first S$10,000 of a company’s chargeable income and 50.0% of up to the next S$90,000 of a company’s chargeable income is exempt from corporate tax. The remaining chargeable income (after the partial tax exemption) is taxed at 22.0% for year of assessment 2004 (20% with effect from the year of assessment 2005). The above partial tax exemption is not applicable to Singapore dividends received by companies.

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APPENDIX 5: DESCRIPTION OF SINGAPORE LAW AND REGULATIONS RELATING TO TAXATION For a resident individual, the rate of tax will vary according to the individual’s circumstances but is subject to a current maximum rate of 22.0%. In the 2004 Budget Statement announced on 27 February 2004, the Finance Minister reaffirmed the Government’s intention to reduce the individual tax rate to 20.0% but indicated that the proposed reduction will be deferred until such time as the economic conditions permit. Dividend Distributions Up to 31 December 2002, Singapore adopted a full imputation system. Under this system, dividends paid by a Singapore tax resident company are franked by the Singapore income tax that the company paid on its profits. These franked dividends are taxable in the hands of shareholders and they can claim the tax credits attached to the dividends as a set-off against their final tax payable in Singapore. A non-resident taxpayer will be taxed at the same rate on which the credit is computed. Consequently, the non-resident will not pay any further Singapore tax on the dividend received. Singapore moved to the one-tier corporate tax system with effect from 1 January 2003. Under this system, the tax collected from corporate profits is final and all Singapore dividends paid by Singapore tax resident companies to their shareholders are exempt from tax (referred hereinafter as “one-tier tax exempt dividends”.) Singapore tax resident companies which have unutilised franking credits as at 31 December 2002 are, however, given a 5 year transition period from 1 January 2003 to 31 December 2007 to use these credits to frank dividends. They are allowed to continue to pay dividends under the imputation system during this period, subject to the availability of franking credits. Shareholders will continue to receive these dividends with tax credits attached. We will continue to be in the imputation system until the credits are utilised and we will then move into the one-tier corporate tax system. Under this system, one-tier tax exempt dividends on our Shares are tax exempt in the hands of our shareholders. Gains on Disposal of our Shares Singapore does not impose tax on capital gains. However, there are no specific laws or regulations which deal with the characterization of capital gains, hence, gains may be construed to be of an income nature and subject to tax especially if they arise from activities which the Inland Revenue Authority of Singapore regards as the carrying on of a trade in Singapore. Any profits from the disposal of our Shares are not taxable in Singapore unless the seller is regarded as having derived these gains of an income nature, in which case, the disposal profits would be taxable. Stamp Duty There is no stamp duty payable on the subscription of our Shares. Stamp duty is payable on the instrument of transfer of our Shares at the rate of $2.00 for every $1,000 market value of our Shares registered in Singapore. The purchaser is liable for stamp duty, unless there is an agreement to the contrary. No stamp duty is payable if no instrument of transfer is executed or the instrument of transfer is executed outside Singapore. However, stamp duty may be payable if the instrument of transfer which is executed outside Singapore is received in Singapore. The above stamp duty is not applicable to electronic transfers of our shares through the CDP.

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APPENDIX 5: DESCRIPTION OF SINGAPORE LAW AND REGULATIONS RELATING TO TAXATION Estate Duty Singapore estate duty is imposed on the value of immovable property situated in Singapore owned by individuals who are not domiciled in Singapore, subject to specific exemption limits. Movable assets of non-domiciles will be exempt from estate duty with respect to deaths occurring on or after 1 January 2002. Singapore estate duty is imposed on the value of most immovable property situated in Singapore and on most movable property, wherever it may be, owned by individuals who are domiciled in Singapore, subject to specific exemption limits. Our Shares are considered to be movable property situated in Singapore as we are a company incorporated in Singapore. Accordingly, our Shares held by an individual domiciled in Singapore are subject to Singapore estate duty upon such individual’s death. Singapore estate duty is payable to the extent that the value of our Shares aggregated with any other assets subject to Singapore estate duty exceeds $600,000. Unless other exemptions apply to the other assets, for example, the separate exemption limit for residential properties, any excess beyond $600,000 will be taxed at 5% of the first $12,000,000 of the individual’s Singapore chargeable assets and thereafter at 10%. Individuals should consult their own tax advisors regarding the Singapore estate duty consequences of their ownership of our Shares. Goods and Services Tax (“GST”) The sale of our Shares by an investor belonging in Singapore to another person belonging in Singapore is an exempt sale not subject to GST. Any GST directly or indirectly incurred by the investor in respect of this exempt sale is a cost to the investor. Where our Shares are sold by a GST-registered investor to a person belonging outside Singapore, the sale is a taxable sale subject to GST at zero-rate. Any GST incurred by the investor in the making of this sale, if the same is a supply in the course of furtherance of a business, is claimable as a refund from the Comptroller of GST. Services such as brokerage, handling and clearing services rendered by a GST-registered person to an investor belonging in Singapore in connection with the investor’s purchase, sale or holding of our Shares will be subject to GST at the current rate of 5%. Similar services rendered to an investor belonging outside Singapore are subject to GST at zero-rate.

228

APPENDIX 6: TERMS AND CONDITIONS AND PROCEDURES FOR APPLICATION AND ACCEPTANCE Applications are invited for the subscription of the 21,000,000 New Shares at the Issue Price for each New Share subject to the following terms and conditions:– 1.

YOUR APPLICATION FOR THE NEW SHARES MUST BE MADE IN LOTS OF 1,000 SHARES AND HIGHER INTEGRAL MULTIPLES THEREOF. APPLICATIONS FOR ANY OTHER NUMBER OF SHARES WILL BE REJECTED.

2.

Your application for Offer Shares may be made by way of printed WHITE Offer Shares Application Forms or by way of Electronic Applications through ATMs of the Participating Banks (“ATM Electronic Applications”) or through Internet Banking (“IB”) websites of the relevant Participating Banks (“Internet Electronic Applications” which, ATM Electronic Applications, shall be referred to as “Electronic Applications’’). Applications for the Placement Shares (other than Reserved Shares) may only be made by way of printed BLUE Placement Shares Application Forms. Applications for the Reserved Shares may only be made by way of printed PINK Reserved Shares Application Forms. APPLICANTS MAY NOT USE CENTRAL PROVIDENT FUND (“CPF”) FUNDS TO APPLY FOR THE NEW SHARES.

3.

You are allowed to submit only one application in your own name for either the Offer Shares or the Placement Shares (other than Reserved Shares). If you are submitting an application for Offer Shares by way of a printed Offer Shares Application Form, you MAY NOT submit another application for Offer Shares by way of an Electronic Application and vice versa. Such separate applications shall be deemed to be multiple applications and shall be rejected. If you submit an application for Offer Shares by way of Internet Electronic Application, you MAY NOT submit another application for Offer Shares by way of ATM Electronic Application and vice versa. Such separate applications shall be deemed to be multiple applications and shall be rejected. If you (not being an approved nominee company) have submitted an application in your own name, you should not submit any other application whether by way of a printed Application Form or by way of an Electronic Application, for any other person. Such separate applications shall be deemed to be multiple applications and shall be rejected. If you have been procured by a placement agent to subscribe for Placement Shares (other than Reserved Shares), you shall not make any application for Offer Shares either through an Electronic Application or by way of a printed Offer Shares Application Form and vice versa. Such separate applications shall be deemed to be multiple applications and shall be rejected. If you have made an application for Reserved Shares using the Reserved Shares Application Form, you may submit one separate application for the Offer Shares in your own name either by way of a printed Offer Shares Application Form or by way of an Electronic Application or submit one separate application for Placement Shares (other than Reserved Shares) provided that you adhere to the terms and conditions of this Prospectus. Such separate applications shall not be treated as multiple applications. Joint or multiple applications shall be rejected. If you submit or procure submissions of multiple share applications (whether for Offer Shares, Placement Shares or both Offer Shares and Placement Shares), you may be deemed to have committed an offence under the Penal Code (Chapter 224) of Singapore and the Securities and Futures Act (Chapter 289) of Singapore (“SFA”), and your applications may be referred to the relevant authorities for investigation. Multiple applications or those appearing to be or suspected of being multiple applications will be liable to be rejected at our discretion.

229

APPENDIX 6: TERMS AND CONDITIONS AND PROCEDURES FOR APPLICATION AND ACCEPTANCE 4.

We will not accept applications from any person under the age of 21 years, undischarged bankrupts, sole-proprietorships, partnerships, chops or non-corporate bodies, joint Securities Account holders of CDP and applicants whose addresses (furnished in their Application Forms or, in the case of Electronic Applications, contained in the records of the relevant Participating Banks) bear post office box numbers.

5.

We will not recognise the existence of a trust. Any application by a trustee or trustees must be made in his/their own name(s) and without qualification. Applications made by way of an Application Form in the name(s) of an approved nominee company or approved nominee companies must comply with paragraph 6 below.

6.

WE WILL NOT ACCEPT APPLICATIONS FROM NOMINEES EXCEPT THOSE MADE BY APPROVED NOMINEE COMPANIES ONLY. Approved nominee companies are defined as banks, merchant banks, finance companies, insurance companies, licensed securities dealers in Singapore and nominee companies controlled by them. Applications made by persons acting as nominees other than approved nominee companies shall be rejected.

7.

IF YOU ARE NOT AN APPROVED NOMINEE COMPANY, YOU MUST MAINTAIN A SECURITIES ACCOUNT WITH CDP IN YOUR OWN NAME AT THE TIME OF YOUR APPLICATION. If you do not have an existing Securities Account with CDP in your own name at the time of your application, your application will be rejected (if your application is by way of an Application Form), or you will not be able to complete your Electronic Application (if your application is by way of an Electronic Application). If you have an existing Securities Account but fail to provide your Securities Account number or provide an incorrect Securities Account number in section B of the Application Form or in your Electronic Application, as the case may be, your application is liable to be rejected. Subject to paragraph 8 below, your application shall be rejected if your particulars such as name, NRIC/passport number, nationality and permanent residence status provided in your Application Form or in the records of the relevant Participating Bank at the time of your Electronic Application, as the case may be, differ from those particulars in your Securities Account as maintained with CDP. If you possess more than one individual direct Securities Account with CDP, your application shall be rejected.

8.

If your address stated in the Application Form or, in the case of an Electronic Application, in the records of the relevant Participating Bank, as the case may be, is different from the address registered with CDP, you must inform CDP of your updated address promptly, failing which the notification letter on successful allotment and other correspondence from the CDP will be sent to your address last registered with CDP.

9.

We reserve the right to reject any application which does not conform strictly to the instructions set out in the Application Form and in this Prospectus or which does not comply with the instructions for Electronic Applications or with the terms and conditions of this Prospectus or, in the case of an application by way of an Application Form, which is illegible, incomplete, incorrectly completed or which is accompanied by an improperly drawn or improper form of remittance. We further reserve the right to treat as valid any applications not completed or submitted or effected in all respects in accordance with the terms and conditions of this Prospectus, the instructions set out in the Application Forms or the instructions for the Electronic Applications and also to present for payment or other processes all remittances at any time after receipt and to have full access to all information relating to, or deriving from, such remittances or the processing thereof.

10. We reserve the right to reject or accept any application or to accept any application, in whole or in part, or to scale down or ballot any application, without assigning any reason therefor, and no enquiry and/or correspondence on the decision of our Company will be entertained. This right applies to applications made by way of Application Forms and by way of Electronic Applications.

230

APPENDIX 6: TERMS AND CONDITIONS AND PROCEDURES FOR APPLICATION AND ACCEPTANCE In deciding the basis of acceptance allotment, due consideration will be given to the desirability of allotting the New Shares to a reasonable number of applicants with a view to establishing an adequate market for the Shares. 11.

Share certificates will be registered in the name of CDP and will be forwarded only to CDP. It is expected that CDP will send to you, at your own risk, within 15 Market Days after the close of the Application List, a statement of account stating that your Securities Account has been credited with the number of New Shares allotted to you. This will be the only acknowledgement of application monies received and is not an acknowledgement by us. You irrevocably authorise CDP to complete and sign on your behalf as transferee or renouncee any instrument of transfer and/or other documents required for the issue or transfer of the New Shares allotted to you. This authorisation applies to applications made by way of Application Forms and by way of Electronic Applications.

12. In the event that our Company lodges a supplementary or replacement prospectus pursuant to the SFA or any applicable legislation in force from time to time prior to the close of the Invitation, and the new Shares have not been issued, we will (as required by law) at our sole and absolute discretion either:– (a)

within 7 days of the lodgement of the supplementary or replacement prospectus, give you a copy of the supplementary or replacement prospectus, as the case maybe, and provide you with an option to withdraw your application; or

(b)

deem your application as withdrawn and cancelled and refund your application monies (without interest or any share of revenue or other benefit arising therefrom) to you within 7 days from the lodgement of the supplementary or replacement prospectus.

In the event that at any time of the lodgement, the New Shares have already been issued but trading has not commenced, we will (as required by law) at our sole and absolute discretion either:– (a)

within 7 days of the lodgement of the supplementary or replacement prospectus, give you a copy of the supplementary or replacement prospectus, as the case may be, and provide you with an option to return the New Shares; or

(b)

deem the issue of the New Shares as void and refund your payment for the New Shares (without interest or any share of revenue or other benefit arising therefrom) to you within 7 days from the lodgement of the supplementary or replacement prospectus.

Additional terms and instructions applicable upon the lodgement of the supplementary or replacement instructions, including instructions on how you can exercise the option to withdraw your application or return the New Shares allotted to you, may be found in such supplementary or replacement prospectus. Where an applicant has notified us within 14 days from the date of lodgement of the supplementary or replacement prospectus of his wish to exercise his option under the SFA to withdraw his application or return the New Shares allotted to him, we shall pay to him all monies paid by him on account of his application for the New Shares without interest or any share of revenue or other benefit arising therefrom and at his own risk, within 7 days from the receipt o such notification. 13. By completing and delivering an Application Form and, in the case of an Electronic Application, by pressing the “Enter” or “OK” or “Confirm” or “Yes” key on the ATM (as the case may be) or by (in the case of an Internet Electronic Application) clicking “Submit” or “Continue” or “Yes” or “Confirm” on the IB website screen (as the case may be) in accordance with the provisions of this Prospectus herein, you:–

231

APPENDIX 6: TERMS AND CONDITIONS AND PROCEDURES FOR APPLICATION AND ACCEPTANCE (a)

irrevocably offer to subscribe for the number of New Shares specified in your application (or such smaller number for which the application is accepted) at the Issue Price and agree that you will accept such New Shares as may be allotted to you, in each case on the terms of, and subject to the conditions set out in, this Prospectus and our Memorandum and Articles of Association;

(b)

agree that in the event of any inconsistency between the terms and conditions for application set out in this Prospectus and those set out in the ATMs of the Participating Banks, or the IB websites of the relevant Participating Banks, the terms and conditions set out in this Prospectus shall prevail;

(c)

agree that the aggregate Issue Price for the New Shares applied for is due and payable to us forthwith; and

(d)

warrant the truth and accuracy of the information provided in your application.

14. In the event of an under-subscription for Offer Shares as at the close of the Application List, the number of Offer Shares under-subscribed shall be made available to satisfy applications for Placement Shares to the extent that there is an over-subscription for Placement Shares as at the close of the Application List. In the event of an under-subscription for Placement Shares (including the Reserved Shares) as at the close of the Application List, that number of Placement Shares under-subscribed shall be made available to satisfy applications for Offer Shares to the extent that there is an oversubscription for Offer Shares as at the close of the Application List. Any Reserved Shares not taken up will be made available first to satisfy other applications for the Placement Shares to the extent that there is an over-subscription for the Placement Shares and then to satisfy applications for Offer Shares to the extent that there is an over-subscription for Offer Shares. In the event of an over-subscription for the Offer Shares and the number of Placement Shares (including the Reserved Shares) are fully subscribed or over-subscribed as at the close of the Application List, the successful applications for the Offer Shares will be determined by ballot or otherwise as determined by our Directors and approved by the SGX-ST. In the event of an under-subscription for the Offer Shares and/or Placement Shares as at the close of the Application List, the number of Offer Shares and/or Placement Shares undersubscribed shall be subscribed by the Underwriter and/or the Placement Agent respectively. 15. You irrevocably authorise CDP to disclose the outcome of your application, including the number of New Shares allotted to you pursuant to your application, to authorised operators. 16. Our acceptance of applications will be conditional upon, inter alia, the Company being satisfied that:– (a)

permission has been granted by the SGX-ST to deal in and for quotation of all the existing Shares and, the New Shares on the SGX SESDAQ;

(b)

no stop order has been issued by the Authority under the SFA; and

(c)

the Management and Underwriting Agreement and the Placement Agreement referred to on pages 128 and 129 of this Prospectus have become unconditional and have not been terminated or cancelled prior to such date as our Company may determine.

17. No application will be held in reserve. 18. This Prospectus is dated 5 October 2004. No Shares will be allotted on the basis of this Prospectus later than 6 months after the date of registration of this Prospectus.

232

APPENDIX 6: TERMS AND CONDITIONS AND PROCEDURES FOR APPLICATION AND ACCEPTANCE 19. Additional terms and conditions for applications by way of Application Forms are set out on pages 233 to 236 of this Prospectus. 20. Additional terms and conditions for applications by way of Electronic Applications are set out on pages 236 to 242 of this Prospectus. 21. Any reference to “you” or the “applicant” in this section shall include an individual, a corporation, an approved nominee and trustee applying for the Offer Shares by way of an Offer Shares Application Form or by way of an Electronic Application, an individual, a corporation, an approved nominee and trustee applying for the Placement Shares by way of a Placement Shares Application Form, or an individual, a corporation, an approved nominee and trustee applying for the Reserved Shares by way of a Reserved Shares Application Form. 22. The Issue Price for each Offer Share and each Placement Share is $0.23. The Issue Price for each Reserved Share is $0.23. ADDITIONAL TERMS AND CONDITIONS FOR APPLICATIONS USING APPLICATION FORMS You shall make an application by way of an Application Form on and subject to the terms and conditions of this Prospectus including but not limited to the terms and conditions appearing below as well as those set out under this section on “TERMS AND CONDITIONS AND PROCEDURES FOR APPLICATIONS AND ACCEPTANCE” on pages 229 to 242 of this Prospectus, as well as our Memorandum and Articles of Association. 1.

Your application must be made using the WHITE Application Form and official envelopes “A” and “B” for Offer Shares and the BLUE Application Form for Placement Shares (other than Reserved Shares) accompanying and forming part of this Prospectus. Applications for Reserved Shares must be made using the PINK Application Forms for Reserved Shares forming part of this Prospectus. We draw your attention to the detailed instructions contained in the respective Application Forms and this Prospectus for the completion of the Application Forms which must be carefully followed. We reserve the right to reject applications which do not conform strictly to the instructions set out in the Application Forms and this Prospectus or to the terms and conditions of this Prospectus or which are illegible, incomplete, incorrectly completed or which are accompanied by improperly drawn or improper forms of remittances.

2.

Your Application Forms must be completed in English. Please type or write clearly in ink using BLOCK LETTERS.

3.

All spaces in the Application Forms except those under the heading “FOR OFFICIAL USE ONLY” must be completed and the words “NOT APPLICABLE” or “N.A.” should be written in any space that is not applicable.

4.

Individuals, corporations, approved nominee companies and trustees must give their names in full. If you are an individual, you must make your application using your full name as it appears in your identity card (if you have such an identification document) or in your passport and, in the case of a corporation, in your full name as registered with a competent authority. If you are not an individual and you are completing the Application Form under the hand of an official, you must state the name and capacity in which that official signs. If you are a corporation completing the Application Form, you are required to affix your Common Seal (if any) in accordance with your Memorandum and Articles of Association or equivalent constitutive documents. If you are a corporate applicant and your application is successful, a copy of your Memorandum and Articles of Association or equivalent constitutional documents must be lodged with our Share Registrar and Share Transfer Office. We reserve the right to require you to produce documentary proof of identification for verification purposes.

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APPENDIX 6: TERMS AND CONDITIONS AND PROCEDURES FOR APPLICATION AND ACCEPTANCE 5.

(a)

You must complete page 1 and Sections A and B and sign page 1 of the Application Forms.

(b)

You are required to delete either paragraph 7(a) or 7(b) on page 1 of the Application Forms. Where paragraph 7(a) is deleted, you must also complete Section C of the Application Forms with particulars of the beneficial owner(s).

(c)

If you fail to make the required declaration in paragraph 7(a) or 7(b), as the case may be, on page 1 of the Application Forms, your application is liable to be rejected.

6.

You (whether an individual or corporate applicant, whether incorporated or unincorporated and wherever incorporated or constituted) will be required to declare whether you are a citizen or a permanent resident of Singapore or a corporation in which citizens or permanent residents of Singapore or any body corporate constituted under any statute of Singapore have an interest in the aggregate of more than 50% of the issued share capital of or interests in such corporations. If you are an approved nominee company, you are required to declare whether the beneficial owner of the New Shares is a citizen or permanent resident of Singapore or a corporation (whether incorporated or unincorporated and wherever incorporated or constituted) in which citizens or permanent residents of Singapore or any body corporate (whether incorporated or unincorporated and wherever incorporated or constituted under any statute of Singapore) have an interest in the aggregate of more than 50% of the issued share capital of or interests in such corporation.

7.

Your application must be accompanied by a remittance in Singapore currency for the full amount payable, in respect of the number of New Shares applied for, in the form of a BANKER’S DRAFT or CASHIER’S ORDER drawn on a bank in Singapore, made out in favour of “BKM SHARE ISSUE ACCOUNT” crossed “A/C PAYEE ONLY”, with your name and address written clearly on the reverse side. WE WILL NOT ACCEPT APPLICATIONS NOT ACCOMPANIED BY ANY PAYMENT OR ACCOMPANIED BY ANY OTHER FORM OF PAYMENT. We will REJECT REMITTANCES BEARING “NOT TRANSFERABLE” or “NON TRANSFERABLE” crossings. No acknowledgement of receipt will be issued by our Company or the Manager for applications and application monies received.

8.

By completing and delivering the Application Form, you agree that: – (a)

In consideration of us having distributed the Application Form to you and agreeing to close the Application List at 12.00 noon on 13 October 2004 or such other time or date as we may, in consultation with the Manager, decide and by completing and delivering the Application Form, you agree that:– (i)

your application is irrevocable; and

(ii)

your remittance will be honoured on first presentation and that any application monies returnable may be held pending clearance of your payment without interest or any share of revenue or other benefit arising therefrom;

(b)

all applications, acceptances and contracts resulting therefrom under the Invitation shall be governed by and construed in accordance with the laws of Singapore and that you irrevocably submit to the non-exclusive jurisdiction of the Singapore courts;

(c)

in respect of the New Shares for which your application has been received and not rejected, acceptance of your application shall be constituted by written notification by or on behalf of us and not otherwise, notwithstanding any remittance being presented for payment by or on our behalf of us;

(d)

you will not be entitled to exercise any remedy of rescission for misrepresentation at any time after acceptance of your application; and

234

APPENDIX 6: TERMS AND CONDITIONS AND PROCEDURES FOR APPLICATION AND ACCEPTANCE (e)

9.

in making your application, reliance is placed solely on the information contained in this Prospectus and neither we, the Manager, the Underwriter and the Placement Agent nor any other person involved in the Invitation shall have any liability for any information not herein so contained.

Monies paid in respect of unsuccessful applications are expected to be returned to you by ordinary post (without interest or any share of revenue or other benefit arising therefrom) within 24 hours after balloting at your own risk. Where your application is rejected or accepted in part only, the full amount or the balance of the application monies, as the case may be, will be refunded (without interest or any share of revenue or other benefit arising therefrom) to you by ordinary post at your own risk within 14 days after the close of the Application List.

10. Capitalised terms used in the Application Forms and defined in this Prospectus shall bear the meanings assigned to them in this Prospectus. Applications for Offer Shares 1.

Your application for Offer Shares MUST be made using the WHITE Offer Shares Application Form and WHITE official envelopes “A” and “B”. ONLY ONE APPLICATION should be enclosed in each envelope.

2.

You must:– (a)

enclose the WHITE Offer Shares Application Form, duly completed and signed, together with the correct remittance in accordance with the terms and conditions of this Prospectus in the WHITE envelope “A” provided;

(b)

in the appropriate spaces on WHITE envelope “A”:– (i)

write your name and address;

(ii)

state the number of Offer Shares applied for;

(iii)

tick the relevant box to indicate the form of payment; and

(iii)

affix adequate Singapore postage;

(c)

SEAL WHITE OFFICIAL ENVELOPE “A”;

(d)

write, in the special box provided on the larger WHITE envelope “B”, addressed TO M & C SERVICES PRIVATE LIMITED, the number of Offer Shares for which you have the application is made applied for; and insert WHITE envelope “A” into WHITE envelope “B”, seal WHITE envelope “B”, affix adequate Singapore postage on WHITE envelope “B” (if despatching by ordinary post) and thereafter DESPATCH BY ORDINARY POST OR DELIVER BY HAND at your own risk to M & C Services Private Limited, 138 Robinson Road, The Corporate Office, #17-00, Singapore 068906, so as to arrive by 12.00 noon on 13 October 2004 or such other date and time as we may, in consultation with the Manager, decide. Local Urgent Mail or Registered Post must NOT be used.

3.

No acknowledgement of receipt will be issued for any application or remittance received.

4.

Applications that are illegible, incomplete or incorrectly completed or accompanied by improperly drawn remittances or improper form of remittance or which are not honoured upon their first presentation are liable to be rejected.

235

APPENDIX 6: TERMS AND CONDITIONS AND PROCEDURES FOR APPLICATION AND ACCEPTANCE Applications for Placement Shares (other than Reserved Shares) 1.

Your application for Placement Shares MUST be made using the BLUE Placement Shares Application Form. ONLY ONE APPLICATION should be enclosed in each envelope.

2.

The completed BLUE Placement Shares Application Form and your remittance in accordance with the terms and conditions of this Prospectus for the full amount payable in respect of the number of Placement Shares applied for, with your name and address written clearly on the reverse side, must be enclosed and sealed in an envelope to be provided by you. You must affix adequate Singapore postage (if despatching by ordinary post) and thereafter, the sealed envelope must be DESPATCHED BY ORDINARY POST OR DELIVERED BY HAND at your own risk to M & C Services Private Limited, 138 Robinson Road, The Corporate Office, #17-00, Singapore 068906, so as to arrive by 12.00 noon on 13 October 2004 or such other date and time as we may, in consultation with the manager, decide. local urgent mail or registered post must not be used.

3.

No acknowledgement of receipt will be issued for any application or remittance received.

Applications for Reserved Shares 1.

Your application for Reserved Shares MUST be made using the PINK Reserved Shares Application Form. ONLY ONE APPLICATION should be enclosed in each envelope.

2.

The completed PINK Reserved Shares Application Form and your remittance with your name and address written clearly on the reverse side, in accordance with the terms of this Prospectus, must be enclosed and sealed in an envelope to be provided by you. The sealed envelope must be DESPATCHED BY ORDINARY POST OR DELIVERED BY HAND at your own risk to our Company’s registered address at 55 Shipyard Road, Singapore 628141, so as to arrive by 12.00 noon on 13 October 2004 or such other date and time as we may, in consultation with the Manager, decide. Local Urgent Mail or Registered Post must NOT be used.

3.

No acknowledgement of receipt will be issued for any application or remittance received.

ADDITIONAL TERMS AND CONDITIONS FOR ELECTRONIC APPLICATIONS The procedures for Electronic Applications are set out on the ATM screens (in the case of ATM Electronic Applications) and the IB website screens (in the case of Internet Electronic Applications) of the relevant Participating Banks. Currently, DBS Bank Ltd (“DBS Bank”) and the United Overseas Bank Limited (“UOB”) Group are the only Participating Banks through which Internet Electronic Applications can be made. For illustration purposes, the procedures for Electronic Applications through ATMs of DBS Bank and the IB website of DBS Bank are set out respectively in the “Steps for Electronic Applications through ATMs of DBS Bank (including POSB) and the IB website of DBS Bank (the “Steps”) appearing on pages 241 and 242 of this Prospectus. The Steps set out the actions that you must take at an ATM of DBS Bank or the IB website of DBS Bank to complete an Electronic Application. Please read carefully the terms of this Prospectus, the Steps and the terms and conditions for Electronic Applications set out below before making an Electronic Application. Any reference to “you” in the additional terms and conditions for Electronic Applications and the Steps shall refer to you making an application for Offer Shares through an ATM or the IB website of a relevant Participating Bank.

236

APPENDIX 6: TERMS AND CONDITIONS AND PROCEDURES FOR APPLICATION AND ACCEPTANCE You must have an existing bank account with and be an ATM cardholder of one of the Participating Banks before you can make an Electronic Application at the ATMs. An ATM card issued by one Participating Bank cannot be used to apply for Offer Shares at an ATM belonging to other Participating Banks. For an Internet Electronic Application, you must have an existing bank account with and an IB User Identification (“User ID”) and a Personal Identification Number/Password given by a relevant Participating Bank. The Steps set out the actions that you must take at ATMs of DBS Bank or the IB website of DBS Bank to complete an Electronic Application. The actions that you must take at ATMs or the IB websites of other Participating Banks are set out on the ATM screens or the IB website screens of the relevant Participating Banks. Upon the completion of your Electronic Application transaction, you will receive an ATM transaction slip (“Transaction Record”), confirming the details of your Electronic Application. The Transaction Record is for your retention and should not be submitted with any Application Form. For an Internet Electronic Application, you must have an existing bank account with and an IB User Identification (“User ID”) and a Personal Identification Number/Password given by a relevant Participating Bank. The Steps set out the actions that you must take at ATMs of DBS Bank or the IB website of DBS Bank to complete an Electronic Application. The actions that you must take at ATMs or the IB websites of other Participating Banks are set out on the ATM screens or the IB website screens of the relevant Participating Banks. Upon completion of your Internet Electronic Application, there will be an on-screen confirmation (“Confirmation Screen”) of the application which you can print out for your record. The Transaction Record or your printed record of the Confirmation Screen is for your retention and should not be submitted with any Application Form. You must ensure that you enter your own Securities Account number when using the ATM card issued to you in your own name. If you operate a joint bank account with any of the Participating Banks, you must ensure that you enter your own Securities Account number when using the ATM card issued to you in your own name. Using your own Securities Account number with an ATM card which is not issued to you in your own name will render your Electronic Application liable to be rejected. You must ensure, when making an Internet Electronic Application, that your mailing address is in Singapore and the application is being made in Singapore and you will be asked to declare accordingly. Otherwise, your application is liable to be rejected. You shall make an Electronic Application on the terms and subject to the conditions of this Prospectus including but not limited to the terms and conditions appearing below and those set out under the section on “TERMS AND CONDITIONS AND PROCEDURES FOR APPLICATION AND ACCEPTANCE” on pages 229 to 242 of this Prospectus as well as the Memorandum and Articles of Association of our Company. 1.

In connection with your Electronic Application for Offer Shares, you are required to confirm statements to the following effect in the course of activating your Electronic Application:– (a)

that you have received a copy of this Prospectus and have read, understood and agreed to all the terms and conditions of application for Offer Shares in this Prospectus prior to effecting the Electronic Application and agree to be bound by the same;

(b)

that you consent to the disclosure of your name, NRIC/passport number, address, nationality, permanent resident status, CDP Securities Account number, CPF investment account number (if applicable) and share application amount (the “Relevant Particulars”) from your account with that Participating Bank to the Share Registrar, CDP, CPF, SCCS, our Company and the Manager (the “Relevant Parties”); and

(c)

that the Electronic Application made is your only application for Offer Shares and it is made in your own name and at your own risk.

237

APPENDIX 6: TERMS AND CONDITIONS AND PROCEDURES FOR APPLICATION AND ACCEPTANCE Your application will not be successfully completed and cannot be recorded as a completed transaction unless you press the “Enter” or “OK” or “Confirm” or “Yes” key or any other relevant key in the ATM. By doing so, you shall be treated as signifying your confirmation of each of the 3 statements. In respect of statement 1(b) above, your confirmation, by pressing the “Enter” or “OK” or “Confirm” or “Yes” key, shall signify and shall be treated as your written permission, given in accordance with the relevant laws of Singapore including Section 47(4) of the Banking Act, Chapter 19 of Singapore to the disclosure by that Participating Bank of the Relevant Particulars to the Relevant Parties. 2.

BY MAKING AN ELECTRONIC APPLICATION, YOU CONFIRM THAT YOU ARE NOT APPLYING FOR OFFER SHARES AS NOMINEE OF ANY OTHER PERSON AND THAT ANY ELECTRONIC APPLICATION THAT YOU MAKE IS THE ONLY APPLICATION MADE BY YOU AS BENEFICIAL OWNER. YOU SHOULD MAKE ONLY ONE ELECTRONIC APPLICATION FOR OFFER SHARES AND SHOULD NOT MAKE ANY OTHER APPLICATION FOR THE OFFER SHARES, WHETHER AT THE ATMS OR IB WEBSITES OF ANY PARTICIPATING BANK OR ON THE APPLICATION FORMS. WHERE YOU HAVE MADE AN APPLICATION FOR OFFER SHARES OR PLACEMENT SHARES (OTHER THAN RESERVED SHARES) ON AN APPLICATION FORM, YOU SHALL NOT MAKE AN ELECTRONIC APPLICATION FOR OFFER SHARES.

3.

You must have sufficient funds in your bank account with your Participating Bank at the time you make your Electronic Application, failing which your Electronic Application will not be completed. Any Electronic Application which does not conform strictly to the instructions set out in this Prospectus or on the screens of the ATM or IB website through which your Electronic Application is being made shall be rejected. You may make an Electronic Application using cash only by authorising such participating bank to deduct the full amount payable from your account with such Participating Bank.

4.

You irrevocably agree and undertake to subscribe for and to accept the number of Offer Shares applied for as stated on the Transaction Record or confirmation screen. You also irrevocably agree and undertake to subscribe for and to accept any lesser number of Offer Shares that may be allotted to you in respect of your Electronic Application. In the event that we decide to allot any lesser number of such Offer Shares or not to allot any Offer Shares to you, you agree to accept such decision as final. If your Electronic Application is successful, your confirmation (by your action of pressing the “Enter” or “OK” or “Confirm” or “Yes” key on the ATM or clicking “Confirm” or “OK” on the IB website screen) of the number of Offer Shares applied for shall signify and shall be treated as your acceptance of the number of Offer Shares that may be allotted to you and your agreement to be bound by our Memorandum and Articles of Association.

5.

We will not keep any applications in reserve. Where your Electronic Application is unsuccessful, the full amount of the application monies will be refunded in Singapore dollars (without interest or any share of revenue or other benefit arising therefrom) to you by being automatically credited to your account with your Participating Bank within 24 hours after balloting at your own risk. Trading on a “WHEN ISSUED” basis, if applicable, is expected to commence after such refund has been made. Where your Electronic Application is rejected or accepted in part only, the full amount or the balance of the application monies, as the case may be, will be refunded in Singapore dollars (without interest or any share of revenue or other benefit arising therefrom) to you by being automatically credited to your account with your Participating Bank within 14 days after the close of the Application List.

238

APPENDIX 6: TERMS AND CONDITIONS AND PROCEDURES FOR APPLICATION AND ACCEPTANCE Responsibility for timely refund of application monies from unsuccessful or partially unsuccessful Electronic Applications lies solely with the respective Participating Banks. Therefore, you are strongly advised to consult your Participating Bank as to the status of your Electronic Application and/or the refund of any monies to you from an unsuccessful or partially successful Electronic Application, to determine the exact number of Offer Shares allotted to you before trading the Offer Shares on SGX-ST. Neither the SGX-ST, the CDP, the SCCS, the Participating Banks, we nor the Manager assume any responsibility for any loss that may be incurred as a result of your having to cover any net sell positions or from buy-in procedures activated by the SGX-ST. 6.

If your Electronic Application is made through an ATM of one of the Participating Banks and is unsuccessful, no notification will be sent by the relevant Participating Banks. If your Internet Electronic Application made through the IB website of DBS Bank or the UOB Group is unsuccessful, no notification will be sent by such Participating Bank. If your Electronic Application is made through an ATM of one of the following Participating Banks, you may check the provisional results of your Electronic Application as follows:– Service expected from

Bank

Telephone

Available at ATM/Internet

Operating Hours

DBS Bank

1 800 339 6666 (POSB Account holders)

Internet Banking

24 hours

Evening of the balloting day

ATM/Phone Banking — 24 hours a day

Evening of the balloting day

www.dbs.com

(1)

1 800 111 1111 (DBS Account holders) UOB Group

1 800 222 2121

ATM (“Other Transactions – “IPO Enquiry”) www.uobgroup.com

OCBC Group

1 800 363 3333

ATM

(1), (2)

Internet Banking — 24 hours a day Phone Banking/ATM — 24 hours a day

Evening of the balloting day

Notes:–

7.

(1)

If you have made your Internet Electronic Application through the IB websites of DBS Bank or UOB Group, you may check the results through the same channels listed in the table above in relation to ATM Electronic Applications made at ATMs of DBS Bank or UOB Group.

(2)

If you have made your Electronic Application through the ATM or IB website of UOB Group, you may check the results of your application through UOB Personal UniBanking, UOB ATMs or UOB PhoneBanking services.

Electronic Applications shall close at 12.00 noon on 13 October 2004 or such other date and time as we may, in consultation with the Manager, decide. All Internet Electronic Applications must be received by 12.00 noon on 13 October 2004. Subject to the paragraph above, an Internet Electronic Application is deemed to be received only upon its completion, that is, when there is an on-screen confirmation of the application.

239

APPENDIX 6: TERMS AND CONDITIONS AND PROCEDURES FOR APPLICATION AND ACCEPTANCE 8.

9.

You are deemed to have requested and authorised us to:– (a)

register the Offer Shares allotted to you in the name of CDP for deposit into your Securities Account;

(b)

send the relevant Share certificate(s) to CDP;

(c)

return or refund (without interest or any share of revenue or other benefit arising therefrom) the application monies in Singapore currency dollar, should your Electronic Application be rejected, by automatically crediting your bank account with your Participating Bank with the relevant amount within three Market Days after the close of the Application List/24 hours after balloting; and

(d)

return or refund (without interest or any share of revenue or other benefit arising therefrom) the balance of the application monies in Singapore currency, should your Electronic Application be accepted in part only, by automatically crediting your bank account with your Participating Bank with the relevant amount within 14 days after the close of the Application List.

You irrevocably agree and acknowledge that your Electronic Application is subject to risks of electrical, electronic, technical and computer-related faults and breakdowns, fires, acts of God and other events beyond the control of the Participating Banks, us and the Manager and if, in any such event, we and the Manager and/or the relevant Participating Bank do not record or receive your Electronic Application, or data relating to your Electronic Application or the tape containing such data is lost, corrupted, destroyed or not otherwise accessible, whether wholly or partially for whatever reason, you shall be deemed not to have made an Electronic Application and you shall have no claim whatsoever against us and the Manager and/or the relevant Participating Bank for the Offer Shares applied for or for any compensation, loss or damage.

10. We do not recognise the existence of a trust. Any Electronic Application by a trustee must be made in his own name(s) and without qualification. We will reject any Electronic Application by any person acting as nominee. 11.

All particulars in the records of your Participating Bank at the time you make your Electronic Application shall be deemed to be true and correct and your Participating Bank and the Relevant Parties shall be entitled to rely on the accuracy thereof. If there has been any change in your particulars after making your Electronic Application, you shall promptly notify your Participating Bank.

12. You should ensure that your personal particulars as recorded by both CDP and the relevant Participating Bank are correct and identical, otherwise, your Electronic Application is liable to be rejected. You should promptly inform CDP of any change in address, failing which the notification letter on successful allotment and other correspondence from the CDP will be sent to your address last registered with CDP. 13. By making and completing an Electronic Application, you are deemed to have agreed that:– (a)

in consideration of our Company making available the Electronic Application facility through the ATMs of the Participating Banks acting as our agents, the ATMs and the IB websites (if any) and agreeing to close the Application List at 12.00 noon on 13 October 2004 or such other time or date as our Directors may, in consultation with the Manager, decide, and by making and completing an Electronic Application, you agree that:– (i)

your Electronic Application is irrevocable; and

240

APPENDIX 6: TERMS AND CONDITIONS AND PROCEDURES FOR APPLICATION AND ACCEPTANCE (ii)

your Electronic Application, the acceptance by us and the contract resulting therefrom under the Invitation shall be governed by and construed in accordance with the laws of Singapore and you irrevocably submit to the non-exclusive jurisdiction of the Singapore courts;

(b)

neither we, the Manager nor the Participating Banks shall be liable for any delays, failures or inaccuracies in the recording, storage or in the transmission or delivery of data relating to your Electronic Application to us or CDP due to a breakdown or failure of transmission, delivery or communication facilities or any risks referred to in paragraph 9 on page 240 of this Prospectus or to any cause beyond their respective controls;

(c)

in respect of Offer Shares for which your Electronic Application has been successfully completed and not rejected, acceptance of your Electronic Application shall be constituted by written notification by or on behalf of us and not otherwise, notwithstanding any payment received by or on behalf of us;

(d)

you will not be entitled to exercise any remedy of rescission or misrepresentation at any time after acceptance of your application; and

(e)

reliance is placed solely on information contained in this Prospectus and that none of the Company, the Manager, the Underwriter, the Placement Agent nor any other person involved in the Invitation shall have any liability for any information not so contained.

Steps for Electronic Applications for Offer Shares through ATMs of DBS Bank (including POSB) Instructions for ATM Electronic Applications will appear on the ATM screens of the Participating Bank. For illustration purposes, the steps for making an ATM Electronic Application through a DBS Bank or POSB ATM are shown below. Certain words appearing on the screen are in abbreviated form (“A/c”, “amt”, “appln”, “&”, “I/C”, “No.” and “Max” refer to “Account”, “amount”, “application”, “and”, “NRIC”, “Number” and “Maximum”, respectively). Instructions for ATM Electronic Applications on the ATM screens of Participating Banks (other than DBS Bank (including its POSB Services Division)) may differ slightly from those represented below. Step

1

:

Insert your personal DBS Bank or POSB ATM Card.

2

:

Enter your Personal Identification Number.

3

:

Select “CASHCARD & MORE SERVICES”.

4

:

Select “ESA-IPO SHARE/BOND/RIGHTS”.

5

:

Select “ELECTRONIC SECURITY APPLN (IPO-SHARE/BOND)” to “BKM”.

6

:

Press the “ENTER” key to acknowledge:– •

You have read, understood and agreed to all terms of the application & the Prospectus.

•

You consent to disclose your name, NRIC/Passport No., address, nationality, CDP Securities A/c No., and share application amount from your Bank Account(s) to share registrars, SCCS, CDP, CPF, issuer.

•

For FIXED and MAX price security application, this is your only application and it is made in your own name and at your own risk.

•

For TENDER security application, this is your only application at the selected tender price and it is made in your own name and at your own risk.

•

The maximum price for each share is payable in full on application and subject to refund if the final price is lower.

241

APPENDIX 6: TERMS AND CONDITIONS AND PROCEDURES FOR APPLICATION AND ACCEPTANCE •

You are not a US Person as referred to in the Prospectus/Document, where applicable.

7

:

Select your nationality.

8

:

Select the DBS Bank account (Autosave/Current/Savings/Savings Plus) or the POSB account (current/savings) from which to debit your application monies.

9

:

Enter the number of securities you wish to apply for using cash.

10

:

Enter your own 12-digit CDP Securities Account number. (Note: This step will be omitted automatically if your CDP Securities Account number has already been stored in the Bank’s records).

11

:

Check the details of your Unit share application, your NRIC or passport number and CDP Securities Account number and number of securities on the screen and press the “ENTER” key to confirm application.

12

:

Remove the Transaction Record for your reference and retention only.

Steps for an Internet Electronic Application through the IB website of DBS Bank For illustrative purposes, the steps for making an Internet Electronic Application through the DBS Bank IB website are shown below. Certain words appearing on the screen are in abbreviated form (“A/C”, “amt”, “&”, “I/C” and “No.” refer to “Account”, “Amount”, “and”, “NRIC” and “Number” respectively). Step

1

:

Click on to DBS Bank website (www.dbs.com)

2

:

Login to Internet Banking

3

:

Enter your User ID and PIN

4

:

Select “Electronic Security Application”

5

:

Click “Yes” to proceed and to warrant that you have observed and complied with all applicable laws and regulations

6

:

Click on “BKM” and click the “Submit” button

7

:

Click “Confirm” to confirm:– (a)

You have read, understood & agreed to all terms of application and the Prospectus

(b)

You consent to disclose your name, NRIC or Passport No., address, nationality, CDP Securities A/C No., CPF Investment A/C No. (if applicable) and share application amount from your DBS/POSB Account(s) to share registrars, SCCS, CDP, CPF Board and issuer(s)

(c)

This application is made in your name and at your own risk

(d)

For FIXED/MAX price securities application, this is your only application. For TENDER price securities application, this is your only application at the selected tender price

(e)

You are not a US Person as referred to in the Prospectus/Document, where applicable

8

:

Fill in details for share application and click “Submit”

9

:

Check details of your share application, your IC/passport No. and no. of shares on the screen and click “OK” to confirm your application

10

:

Print Confirmation Screen (optional) for your reference & retention only

242

APPENDIX 7: LETTER FROM G. K. GOH STOCKBROKERS PTE. LTD. TO THE INDEPENDENT DIRECTORS OF BENG KUANG MARINE LIMITED 5 October 2004 The Independent Directors BENG KUANG MARINE LIMITED 55 Shipyard Road Singapore 628141 Dear Sirs BENG KUANG MARINE LIMITED (THE “COMPANY”) — SHAREHOLDERS’ MANDATE FOR INTERESTED PERSON TRANSACTIONS PURSUANT TO CHAPTER 9 OF THE SINGAPORE EXCHANGE SECURITIES TRADING LIMITED’S LISTING MANUAL (“LISTING MANUAL”) 1.

INTRODUCTION We understand from the directors of the Company (“Directors”) that it is envisaged that the Company and its subsidiaries would, in the ordinary course of business, enter into transactions with Labroy Marine Limited and its subsidiaries (“Labroy Group”) and Hwah Hong Lorry Crane Service (“HHL partnership”) which are considered “Interested Persons” as defined in Chapter 9 of the Listing Manual. It is likely that such transactions will occur with some degree of frequency and could arise at any time and from time to time. The Company proposes to obtain a general mandate (“Shareholders’ Mandate”) from the shareholders of the Company (“Shareholders”) which will enable the Company and its subsidiaries to engage in the following transactions:– (a)

provision of corrosion prevention services and infrastructure engineering services to the Labroy Group;

(b)

engagement from the Labroy Group of services and sub-contract work to fulfil the contractual commitments of the Company and its subsidiaries relating to its infrastructure engineering projects including but not limited to pipe fabrication services and steel welding services, and the purchase of items necessary from the Labroy Group to carry out such work including steel materials, angle bars and electrodes;

(c)

supply of hardware equipment and tools (such as electrode holders, welding cables, wire brushes, etc.) and other consumables (such as electrodes, gloves, etc. ) to the Labroy Group;

(d)

the engagement of sea transportation services from the Labroy Group for the projects and products of the Company and its subsidiaries; and

(e)

engagement of lorry and crane services from HHL partnership, as the case may be (“Mandate Transactions“) provided that such transactions are made at arm’s length, on normal commercial terms and not prejudicial to the interests of the Company and its minority Shareholders (“Minority Shareholders”).

243

APPENDIX 7: LETTER FROM G. K. GOH STOCKBROKERS PTE. LTD. TO THE INDEPENDENT DIRECTORS OF BENG KUANG MARINE LIMITED If approved at the extraordinary general meeting of the Company convened to seek, inter alia, Shareholders’ approval for the Shareholders’ Mandate (“EGM”), the proposed Shareholders’ Mandate will take effect from the admission of the Company to the Official List of the SGX SESDAQ and will be effective until the earlier of the following: (i) the first annual general meeting following the admission of the Company to the Official List of the SGX SESDAQ; or (ii) the first anniversary of our date of admission to the Official List of the SGX SESDAQ. Thereafter, approval from the Shareholders for a subsequent renewal of the Shareholders’ Mandate will be sought at each subsequent annual general meeting. To comply with the requirements of Chapter 9 of the Listing Manual, G. K. Goh Stockbrokers Pte. Ltd. (“GK Goh”) has been appointed as the independent financial adviser to provide an opinion to the independent directors of the Company (“Independent Directors”) on whether the review procedures set out in the Shareholders’ Mandate (“Review Procedures”) are sufficient to ensure that the Mandate Transactions will be carried out on normal commercial terms and will not be prejudicial to the interests of the Company and the Minority Shareholders. This Letter has been prepared for use by the Independent Directors and will form part of the Company’s prospectus dated 5 October 2004 (“Prospectus”) issued in connection with the invitation by the Company in respect of 21,000,000 new ordinary shares of S$0.08 each in the capital of the Company, which provides, inter alia, the details of the Interested Persons, the Mandate Transactions, the Review Procedures and the Shareholders’ Mandate. Unless otherwise defined or the context otherwise requires, all terms defined in the Prospectus shall have the same meaning in this Letter. 2.

OUR TERMS OF REFERENCE The objective of this Letter is to provide our independent opinion, for the purposes of Chapter 9 of the Listing Manual, on whether the Review Procedures (described on page 115 of the Prospectus) are sufficient to ensure that the categories of Mandate Transactions (described on page 114 of the Prospectus) will be entered into on normal commercial terms and will not be prejudicial to the interests of the Company and the Minority Shareholders. GK Goh is not and was not involved, in any way, in the deliberations on, or in the structuring and formulation of the Shareholders’ Mandate, the Mandate Transactions and the Review Procedures. Such deliberations, structuring and formulation remain the responsibility of the Directors and management of the Company. We have not been requested to opine on, and we do not express any opinion on the merits of the Mandate Transactions and the Shareholders’ Mandate. As such, we do not warrant or make any representation in relation to the merits of the Mandate Transactions and the Shareholders’ Mandate. Our terms of engagement do not require us to conduct, and we have not conducted, a comprehensive review of the business, operations and financial condition of the Company and/or its subsidiaries. We have neither conducted an audit of the Mandate Transactions nor do we warrant the actual implementation of the Review Procedures by the Company. In the course of our evaluation of the Review Procedures, we have held discussions with the Directors and management of the Company. We have not independently verified such information furnished by the Directors and management of the Company or any representation, opinion or assurance expressed by them, whether written or verbal, and accordingly cannot and do not warrant or accept responsibility for the accuracy, adequacy or completeness of such information, representation, opinion or assurance.

244

APPENDIX 7: LETTER FROM G. K. GOH STOCKBROKERS PTE. LTD. TO THE INDEPENDENT DIRECTORS OF BENG KUANG MARINE LIMITED The Directors have confirmed to us that to the best of their knowledge and belief, the information provided to us, whether written or verbal, as well as the information contained in the Prospectus constitutes full and true disclosure of all material facts relating to the Mandate Transactions, the Shareholders’ Mandate and the Review Procedures and there is no information the omission of which would make any of the information contained herein or in the Prospectus relating thereto inaccurate, incomplete or misleading in any material respect. We have further assumed that all statements of fact, belief, opinion and intention made by the Directors in the Prospectus relating to the Mandate Transactions, the Shareholders’ Mandate and the Review Procedures have been made after due and careful enquiry. However, we have made such enquiries and used our judgement as we deemed necessary in assessing such information and have found no reason to doubt the reliability of such information. 3.

EVALUATION OF THE REVIEW PROCEDURES FOR MANDATE TRANSACTIONS In evaluating and arriving at our opinion on whether the Review Procedures, as set out on page 115 of the Prospectus are sufficient to ensure that the categories of Mandate Transactions, as set out on page 114 of the Prospectus, will be carried out on normal commercial terms and will not be prejudicial to the interests of the Company and the Minority Shareholders, we have duly noted and took into consideration:– (i)

the rationale for the Shareholders’ Mandate as set out on page 114 of the Prospectus;

(ii)

the scope of the Shareholders’ Mandate as set out on page 114 of the Prospectus;

(iii)

the benefits to the Company and to Shareholders arising from the Mandate Transactions and the Shareholders’ Mandate as set out on page 114 of the Prospectus;

(iv) the categories of Interested Persons as set out on page 114 of the Prospectus; (v)

the categories of Mandate Transactions as set out on page 114 of the Prospectus;

(vi) the Review Procedures as set out on page 115 of the Prospectus. 4.

OUR CONCLUSION Based on our evaluation of the Review Procedures and our discussions with the Directors and management of the Company and subject to the qualifications and assumptions made herein, GK Goh is of the opinion that the Review Procedures are sufficient to ensure that the Mandate Transactions will be carried out on normal commercial terms and will not be prejudicial to the interests of the Company and the Minority Shareholders. We have prepared this Letter for the benefit of the Independent Directors in their consideration of the Shareholders’ Mandate and this Letter may not be reproduced or copied except with our prior written consent in each specific case. The recommendations made by the Independent Directors in respect of the Shareholders’ Mandate shall remain the sole responsibility of the Independent Directors. Our opinion should not be relied upon as a recommendation to any Shareholder as to how such Shareholder should vote on the Shareholders’ Mandate. As each Shareholder may have different investment objectives and considerations, they should seek professional advice if they have any doubts in the context of their specific investment objectives and considerations.

245

APPENDIX 7: LETTER FROM G. K. GOH STOCKBROKERS PTE. LTD. TO THE INDEPENDENT DIRECTORS OF BENG KUANG MARINE LIMITED Our views as set forth in this Letter are based on the market and economic conditions prevailing as at the date of this Letter as well as the information contained in the Prospectus and those provided to us by the Directors and management of the Company as at the date of this Letter. Accordingly, our opinion shall not take into account any events, conditions or disclosure of information which occur after the date of this Letter. This Letter is governed by, and construed in accordance with, the laws of Singapore, and is strictly limited to the matters stated herein and does not apply by implication to any other matter.

Yours faithfully G. K. Goh Stockbrokers Pte. Ltd.

Mah Kah Loon Senior Vice President Corporate Finance

Jason Chian Siet Heng Vice President Corporate Finance

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COMPETITIVE STRENGTHS

FINANCIAL HIGHLIGHTS Revenue (S$’Mil)

Our Sources of Revenue

Integrated Services Provider

Profit Before Tax (S$’Mil) 3.0

FY2003

Corrosion Prevention

S$’Million 39.3

Corrosion Prevention - 52.9%

37.4

3

2.8

37.4

S$’Million 40 1.5

2 30

20

Infrastructure Engineering - 20.2%

1

10

Supply and Distribution - 26.9%

FY2003 0

Infrastructure Engineering

FY2002 FY2001

FY2003 0

FY2001

FY2002

Supply and Distribution FUTURE PLANS Expansion of Hydro-jetting Services

Integration of Services

Established Track Record

• Our three business divisions are interdependent through the provision of services as well as through leveraging on the clientele base of each division

• Over 10 years of experience in the corrosion prevention business

• Our infrastructure engineering division taps on our corrosion prevention division to fulfil customers’ requirements for corrosion prevention on steel modules and structures • Our supply and distribution division leverages on the clientele base of the other two divisions

Quality Service • Dedicated to providing quality services and products to our customers • Awarded the ISO 9001: 2000 certificate in recognition of our infrastructure engineering activities • Received numerous letters of appreciation from shipyard operators, vessel owners and other customers commending us on our efficiency and quality of work performed • None of our customers of our corrosion prevention and infrastructure engineering projects has utilised any retention fee nor enforced any performance bond for any project for the last three financial years

• We intend to expand our hydro-jetting services in order to expand the scope of our services and meet the increasing demand for environmentally-friendly blasting work

• One of the leading contractors for hullside corrosion prevention services in Singapore and Batam

• We intend to acquire more hydro-jetting equipment in line with our expansion plans

• Hullside resident contractor of seven established shipyards in Singapore and two established shipyards in Batam

Expansion of Corrosion Prevention Capacity

Experienced Management Team

• We intend to acquire additional grit blasting equipment and accessories to increase our ability and capacity to take on more corrosion prevention projects

• Our Managing Director, Chua Beng Kuang, has about 25 years of experience in providing corrosion prevention services to the marine industry • Our experienced Executive Directors and Executive Officers have helped to diversify our business from providing corrosion prevention services to infrastructure engineering and supply and distribution businesses

Expansion of Clientele Base • For corrosion prevention, we intend to secure the role of hullside resident contractors for additional yards in Singapore and Batam in view of the continued growth in the shipping industries in these places

Long-standing Relationship with Customers • We are able to leverage on our close working relationships with our customers to obtain referrals and repeated businesses from them • Approximately 83% of our revenue in FY2003 was derived from repeat customers

• For infrastructure engineering, we intend to secure more projects in Indonesia in view of the increase in oil and gas activities in that region and to seek larger scale projects. We hope to achieve this by establishing alliances with local partners or setting up representative offices in Indonesia

Expansion of Market Coverage for Supply & Distribution Business • We are actively seeking new opportunities to expand our supply and distribution business to overseas markets and promote our “Master” brand in both new and existing markets • We intend to establish a network of local distributors and agents in these overseas markets to promote brand awareness of our products

Expansion of Product Range under our House Brand • We are constantly looking for new products to carry under our house brand, “Master”. We may also create new brands, or reposition some products under our existing brand with a view to increase our market share