Reinventing Ourselves Touching Lives -...

Reinventing OurselvesTouching LivesHyflux Ltd Annual Report 2007

03 Message from Group CEO, President and Managing Director06 Our Global Presence08 About Hyflux10 Board of Directors14 Corporate Senior Management16 Business Units Senior Management18 Financial Highlights & Review24 Corporate Social Responsibility25 The Year in Review28 Human Capital

Contents

Cover Image (from left to right)Top Row: Freddy Ong (Facilities, Security & Administration), Fadelah Ibrahim (Membrane Production).Middle Row:Joseph Almaraj (Technology, Non-Water), Benedict Lim (Finance),Gerald Manceau (O&M), Tracy Chia (EPC).Bottom Row: Gursharon Kaur (Human Resources), Esther New (CEO Office).

Financial Report 200749 Directors’ Report55 Statement by Directors56 Independent Auditors’ Report57 Consolidated Income Statement58 Balance Sheets60 Statements of Changes in Equity63 Consolidated Cash Flow Statement67 Notes to the Financial Statements131 Corporate Governance Statement141 Supplementary Information 143 Statistics of Shareholdings144 Substantial Shareholders145 Notice of Annual General Meeting149 Notice of Books Closure Proxy form Corporate Information

30 Awards & Accolades32 Our Water Business38 Our Industrial Manufacturing Processes Business40 Our Specialty Materials Business 42 Our Energy Business46 Our Research & Development

1Hyflux Ltd Annual Report 2007

OUR VISION

To be the leading company that the world seeks for innovative and effective environmental solutions.

OUR MISSION

To provide efficient and cost- effective solutions to meet our clients’ needs through innovation and technological advancement.

OUR VALUES

BoldnessDare to dream, dare to do and dare to excel.

EntrepreneurshipNurture the entrepreneurial spirit, embrace challenge and master change.

SatisfactionExceed internal and external customer satisfaction, take pride in work and deliver excellence.

TestimonyBe the face behind the brand, excel in business conduct and embrace best practices in corporate governance.

Reinventing Ourselves Touching Lives

2 Hyflux Ltd Annual Report 2007

Reinventing OurselvesTouching Lives Since we started our business 19 years ago, we have evolved from selling water treatment systems, to building NEWater plants, raw water treatment plants, and seawater desalination plants, to providing a complete suite of turnkey project solutions.

We have also reinvented ourselves. In new ventures like our energy business, we tap on the experience we have gained from our membrane-based solutions for our water business.

Through our integrated solutions, our products and services, we touch the lives of many people, customers and stakeholders, directly and indirectly, in both emerging and mature markets.



Message from Group CEO, President and Managing Director

REINVENTINg OURSELVESThe year 2007 was an exciting year for Hyflux as we laid the essential building blocks in human capital, technology platforms and effective capital structures to manage anticipated higher growth. We built on the momentum gained in 2006 in our water and oil recycling businesses, as well as our asset-light strategy. We are glad that we have created significant milestones in these areas in 2007.

Thank you for staying with us on this journey as we grew from a modest three-staff company in 1989 to what we are today with over 1,000 staff. Hyflux was the first water company listed in Singapore in January 2001 with a market capitalisation of just over S$50 million. We have since grown more than 30 times. We remain committed to growing shareholder value. In December 2007, we listed the first pure play business trust - Hyflux Water Trust - to focus on water projects, with an initial portfolio of 13 China projects. We are glad to share with shareholders that Hyflux Water Trust has been nominated for the 2008 Global Water Intelligence Deal of the Year.

Our business environment remains very positive especially in water. To date, we have a robust pipeline of about 40 plants.

With the rapid industrialisation of Asia and the Middle East and North Africa (MENA) region and growing awareness to handle environment issues, we are well positioned for further growth. I am pleased that several new colleagues have joined our management team in the last year bringing their depth and experience to fuel our growth. More importantly, they share my vision and passion for Hyflux and are committed to bring Hyflux to greater heights.

“We have to make visible the Hyflux values not seen by others so that we can attract and retain the best people to join us, and deliver what we promise to our shareholders. We will keep pushing the boundary and stretching our limits as we reinvent ourselves to become a global player.”

Message from group CEO, President and Managing Director


In strengthening initiatives in our oil recycling business launched in 2006, we have since collaborated and formed joint ventures with major players in Singapore, China, Saudi Arabia, and Vietnam.

We will continue to set new benchmarks as we expand in our four business pillars: water, industrial manufacturing processes, specialty materials and energy. As we enlarge our overseas footprints, we will continue to try out new things and new ways of doing things, with the same energy, nimbleness and passion. We have to make visible the Hyflux values not seen by others so that we can attract and retain the best people to join us, and deliver what we promise to our shareholders. We will keep pushing the boundary and stretching our limits as we reinvent ourselves to become a global player.

FINANCIAL PERFORMANCE2007 saw the progressive reaping of the fruits of our labour planted in 2006. We fulfilled our commitment of unlocking the value of our water assets with the divestment of the SingSpring desalination plant in the beginning of the year and the launch of our Hyflux Water Trust in year-end.

Our revenue in 2007 jumped by 35% to S$192.8 million with net earnings of S$32.9 million, compared to S$142.4 million in revenue with net earnings of S$15.5 million in 2006.

Operating expenses – personnel and development costs – in 2007 increased in line with our growth. We will continue to invest in human capital which is necessary to support the Group’s expansion plans as well as research and development activities. While we seek aggressive growth, we practise prudent spending across the company amidst increasing costs of goods and fierce competition around the world.

Our order book has doubled to S$863 million in 2007 and the Group has long-term operation and maintenance contracts that will generate recurring income for the next 25 to 30 years.

PUSHINg BOUNDARIES Our municipal sales increased by 96% to S$89 million in 2007 compared to S$45.3 million in 2006. We also registered steady growth in the industrial sector with revenue of S$102.3 million in 2007 compared to S$90.1 million in 2006. China continues to be the key growth driver, contributing 81% of the total revenue as compared to 74% in the previous year, with the Chinese

government placing more emphasis in building water treatment plants throughout the cities.

Since our early pioneering efforts in the China municipal market in 2004, we have today more than 30 projects, covering wastewater treatment and water recycling across China. In line with today’s trend of government utilities seeking design-build-operate as well as design-build-finance-operate expertise, we are well positioned to provide our integrated environmental solutions from membrane technology to EPC to financing to installation to operation for the burgeoning China market.

On the industrial front, we have also been active in the biotechnology, chemical, electronics, petrochemical, and pharmaceutical sectors in 26 provinces for more than 12 years, serving some 500 clients. In addition to having two L-lactic acid manufacturing facilities in China, we are also building used oil recycling centres in the country.

We will continue to expand our presence and success in China, where we have made a name for ourselves.

Revenue from Middle East & North Africa (MENA) and other regions contributed 12% of the Group’s revenue, close to a two-fold increase from 2006. We expect strong growth from this region. We entered into a joint venture (jointly with Malakoff Berhad) with Algerian Energy Company to design, develop, finance, construct, operate and maintain a seawater desalination plant of 200,000 m3/day at Tlemcen, Algeria for a period of 25 years, making this the largest plant to date for Hyflux. This project achieved financial close in January 2008.

SUCCESS IN OUR ENERgy BUSINESS PILLARLeveraging on the success of our membrane technologies, 2007 was a year of building a strong foundation for our used oil recycling business.

“Our order book has doubled to S$863 million in 2007 and the Group has long-term operation and maintenance contracts that generate recurring income for the next 25 to 30 years.”


5Hyflux Ltd Annual Report 2007Message from group CEO, President and Managing Director

We forged a collaboration with BP International Ltd and the Dalian Institute of Chemical Physics to jointly develop and commercialise the use of zeolite dewatering membranes in the production of biofuels.

Together with Saudi Economic Development Company (SEDCO) and Lube Oil Re-refining Co (LUBREC), we invested S$45 million in a 24,000 tonnes/year used oil recycling plant in Jeddah, Saudi Arabia. This marks the first membrane-based oil recycling plant in Saudi Arabia that treats used oil from power, petrochemical, marine and automotive industries to recover high grade base oil. We expect to deliver revenue from this joint venture in 2008.

An additional joint venture was formed with Success Blossom Environment Vietnam Joint Stock Company of Vietnam, amounting to more than S$14 million worth of oil recycling projects.

RESEARCH AND DEVELOPMENT As a technology company, research and development will continue to play a significant role as we strive towards more commercialisation of technologies, bringing new environmental solutions to meet customers’ needs. We will seek strategic alliances that will complement our technologies and know-how to make our solutions more affordable and efficient.

We will leverage on our technology applications, human talent and financial capabilities, and build long-term shareholder value to drive sustainable growth in our key markets to give us the competitive edge.

TOUCHINg LIVES At Hyflux, we persist with our ideas and aspirations. The spirit of Hyflux goes beyond the conventional as we have demonstrated over the years. But, what sets us apart is our passion. We always do things with passion.

Even as we grow regionally, we remain rooted in our core values as we continue to touch the lives of the millions of people across the globe directly and indirectly benefiting from the solutions we provide.

yOUR PARTNERSHIP IS PARAMOUNT We are optimistic about the overall environment on the water, wastewater and used oil recovery sectors in China, India, South East Asia and the MENA region as countries are increasingly seeking solutions to address their environmental and water issues.

Our established track record, know-how and differentiated capabilities and your partnership will provide us with a strong platform to continue our growth in the municipal and industrial sectors.

I would like to express my heartfelt appreciation to each of you – our shareholders, directors, partners and customers. I would also like to thank Mr Rajnish Gopinath, who served as Executive Director with Hyflux in 2006. We are proposing a final exempt (one-tier) dividend of 1.89 cents per share.

To our Hyflux staff, I thank each one of you for your dedication and for living out the Hyflux spirit. Your zeal and contributions will be the foundation upon which we will achieve our vision of becoming the leading company that the world looks to for innovative and effective environmental solutions.

Olivia Lum Ooi LinGroup CEO, President and Managing Director


Our Global Presence

Water

Industrial Manufacturing Processes

Specialty Materials

Energy

Water Project Partners / JVs

Industrial Manufacturing Processes Project Partners / JVs

Specialty Materials Project Partners / JVs

Energy Project Partners / JVs

Singapore Offices:Headquarters @ Hyflux Building202 Kallang BahruSingapore 339339

5 Changi SouthSingapore 486793

Malaysia Office:B11-LG-2, Block B, Megan, Corporate Park, Jalan 1/125E, Taman DesaPetaling, 57100Kuala Lumpur

China Offices:99 Ju Li RoadZhangjiang High-Tech ParkPudong Area Shanghai 201203 PRC

1517 Central Plaza188 Jiefangbei RoadHeping District Tianjin 300042 PRC

Algeria Office:Rue HALES Said No. 47, La Redoute, Property 33, No. 21 Municipality of EL Mouradia Algiers



Hyflux’s humble beginnings can be traced back to nearly two decades ago. Today, we have evolved into a leading player in the global arena, providing novel environmental solutions using membrane technology. We have international operations and projects in Singapore and Southeast Asia, China, India, as well as in the Middle East and North Africa regions.

global Presence

Dubai Office:PO box 261475 Office No. LB10 106 Jebel Ali Dubai, U.A.E

India Office: Unit 7A & 7B Doshi Towers156 Poonamallee High RoadKilpauk Chennai 600010 India

The Netherlands Office:Lage Djik 29B5705 BX HelmondPO Box 21285700 DA HelmondThe Netherlands

Not to scale.


About Hyflux

“Hyflux’s fundamentals remain strong…the company is making good progress on its oil recycling venture in Saudi Arabia and that it is optimistic on China, where it had been awarded 20 municipal water treatment plant projects and is developing another 30 municipal and industrial projects.”

– The Business Times, 16 May 2007

9Hyflux Ltd Annual Report 2007About Hyflux

These are just some of the many areas in which Hyflux has a strong presence.

Headquartered in Singapore, Hyflux’s expertise in harnessing membrane technologies has gained international recognition as Asia’s leading company to provide innovative and effective environmental solutions to the world. We continue to establish our footprints globally, in addition to our operations and projects spanning across China, India, the Middle East and North Africa region as well as Singapore and Southeast Asia.

Founded in 1989 by Ms Olivia Lum Ooi Lin, Group CEO, President and Managing Director, Hyflux has grown from a fledging company into what it is today. Hyflux initially started as Hydrochem (S) Pte Ltd to sell water treatment systems with a modest start-up capital of S$20,000 and three staff, including Olivia herself.

As a leading integrated solutions provider, we offer services that cover the whole spectrum of research and development, process design and development, manufacturing and systems assembly, engineering, procurement and construction (EPC), and financing, operation and maintenance of a wide range of water treatment and liquid separation projects.

In 2001, Hyflux became the first water treatment specialist to be listed on the Singapore Stock Exchange. In 2007, we marked another first on the Singapore Stock Exchange by listing the Hyflux Water Trust (HWT) on the mainboard. HWT is the first pure-play global water trust to be listed in Asia. It offers investors a financial platform to invest in water infrastructure assets in China, India, the MENA region, and other high-growth markets globally.

Hyflux’s strength as a membrane technology company has enabled it to identify niche applications in several sectors other than water – moving into the fields of clean energy in environmental applications such as the recycling of used oil, processing of bioethanol as well as in the production of bio-based materials, such as lactic acid.

Hyflux will continue to capitalise on the global market growth in offering environmental solutions in the four business pillars, through R&D, technologies, human capital, technical know-how and strategic partnerships.

Water. Industrial Manufacturing Processes. Specialty Materials. Energy.


Board of Directors


OLIVIA LUM OOI LINGroup CEO, President andManagingDirector

gAy CHEE CHEONgNon-ExecutiveIndependentDirector

PROFESSORTAN TECK MENgNon-ExecutiveIndependentDirector

TEO KIANg KOKNon-Executive Non-Independent Director

CHRISTOPHER MURUgASUNon-Executive Non-Independent Director

LEE JOO HAINon-ExecutiveIndependentDirector

RAJ MITTANon-ExecutiveIndependentDirector


OLIVIA LUM OOI LINgroup CEO, President and Managing DirectorMs Lum started corporate life as a chemist with Glaxo Pharmaceutical and left in 1989 to start up Hydrochem (S) Pte Ltd, the precursor to Hyflux Ltd.

Managing the Group for 19 years now, Ms Lum is the driving force behind Hyflux’s growth and business expansion, responsible for policy and strategy formulation and corporate direction.

A former Nominated Member of Parliament, Ms Lum holds several positions in the public service. Presently, she sits on the board of a number of companies. She is a Member of the NUS Board of Trustees and serves as a Director for Singapore Exchange Ltd, Temasek Life Sciences Laboratory Limited as well as National University Health System. In addition to her commitments in Hyflux, Ms Lum is also the President of the Singapore Water Association as well as a member of Singapore-Tianjin Economic & Trade Council, Singapore-Liaoning Economic & Trade Council, and Singapore-Jiangsu Cooperation Council.

Among the many accolades Ms Lum has received for her entrepreneurial achievements are: the Winner of the Regional Growth Award by Nihon Keizai Shimbun at the 11th Nikkei Asia Prize 2006, and most recently the Rising Asia - The Next 10 Years Award by the Singapore Institute of International Affairs (SIIA) and AXN ASIA. She was also awarded Asiamoney’s Corporate Executive of the Year 2005 in Singapore.

Ms Lum holds an Honours degree in Science from the National University of Singapore.

TEO KIANg KOKNon-Executive Non-Independent DirectorMr Teo has been a Non-Executive Non-Independent Director of Hyflux Ltd since December 2000. He is also a member of the company’s Nominating, Audit, Remuneration, Risk Management and Executive Committees.

A lawyer with more than 20 years, Mr Teo is a senior partner of Shook Lin & Bok, a firm of advocates and solicitors. He is currently the finance partner and head of corporate finance and China practice groups in Shook Lin & Bok. His main areas of practice are corporate finance, international finance and securities. He has advised listed companies extensively on corporate law and compliance requirements.

Mr Teo serves on the boards of a number of other companies including Memtech International Limited, Jadason Enterprises Ltd, Ocean Sky International Ltd and Unisteel Technology Limited.

Mr Teo holds an Honours degree in Law from the University of Hull and is a Barrister-at-Law from Lincoln’s Inn.

LEE JOO HAINon-Executive Independent DirectorMr Lee has been a Non-Executive Independent Director of Hyflux Ltd since December 2000. He is also the Chairman of the Audit Committee and a member of the Nominating, Remuneration, Risk Management and Executive Committees.

Mr Lee is a CPA and a member of both the Institute of Certified Public Accountants of Singapore and the Institute of Chartered Accountants in England and Wales. He is currently a partner in a public accounting firm in Singapore and has more than 20 years of experience in accounting and auditing.

Board of Directors


Mr Lee also sits on the board of other listed companies, including Lung Kee (Bermuda) Holdings Ltd and Unisteel Technology Limited.

gAy CHEE CHEONgNon-Executive Independent DirectorMr Gay has been a Non-Executive Independent Director of Hyflux Ltd since August 2001. He is also the Chairman of the Remuneration and Nominating Committees and a member of the Audit and Executive Committees. He also serves on the Boards of Raffles Education Corporation Limited and Midas Holdings Limited.

Mr Gay co-founded and was the CEO of 2G Capital Private Limited, a private investment company investing in equities and private companies in the Asia Pacific economies. The company was awarded Highest Net Profit in 2006 and Net Profit Excellence in 2007 in the annual SME 500 ranking.

Mr Gay was the Group Executive Director of JIT Electronics Pte Ltd for four years responsible for corporate development, business strategy and investments of the JIT Group. He established operational subsidiaries in Singapore, China and Hungary and served concurrently as their respective Managing Directors. He initiated and was responsible for the public listing of JIT Electronics in November 1997 and the subsequent merger of JIT with Flextronics International valued at $1.16 billion in August 2000.

Mr Gay was awarded the Singapore Armed Forces Overseas Training Award (Graduating) and attended the Royal Military Academy (RMA), Sandhurst and the Royal Military College of Science, Shrivenham, United Kingdom. At RMA, Sandhurst, Mr Gay won the Nigeria Prize for Best Overseas Student Officer and at the Singapore Command and Staff College, the Top Student Prize.

Mr Gay holds Honours degrees in Electronics Engineering from the Royal Military College of Science, Shrivenham United Kingdom, and in Economics from University of London. He also has a Masters of Business Administration from the National University of Singapore.

CHRISTOPHER MURUgASUNon-Executive Non-Independent DirectorMr Murugasu has been a Non-Executive Non- Independent Director of Hyflux Ltd since February 2005.

Mr Murugasu is also the Chairman of the Risk Management Committee and a member of the Remuneration Committee.

Previously Senior Vice President for Corporate Services at Hyflux Ltd, he was responsible for the Group’s human resources, procurement and general administration functions. Prior to joining Hyflux, Mr Murugasu had accumulated over 15 years of experience in the public sector as well as with a foreign bank.

He holds an Honours degree in Computing Science from Imperial College, United Kingdom, and a Master’s degree from the London School of Economics, United Kingdom.

RAJ MITTANon-Executive Independent DirectorMr Raj Mitta has been a Non-Executive Independent Director of Hyflux since April 2007. He is also a member of the Risk Management Committee.

Mr Mitta is currently the Chairman of Essential Value Associates Pte Ltd, a boutique high-powered consultancy firm, providing hands-on personal counselling on issues of managing change and strategic implementation with the result of driving lasting change in organisations and developing high growth businesses with quality governance and sustainability.



Mr Mitta has advised some of the world’s best consumer goods and customer-intensive companies, technology-intensive corporations and regional governments. His client list includes multinationals like PepsiCo, Gillette, Kelloggs, and the Governments of Singapore, Malaysia, Indonesia, Philippines, Australia and India. He has also worked with regional conglomerates like Hutchisons (HK), Jardines (HK), Bakrie Group (Indonesia), Reliance (India), Amex, Citicorp, British Airways and telecom operators like Optus, Orange, Singapore Telecom and Deutsche Telekom.

Prior to his experience of over 14 years in consulting, Mr Mitta worked in senior marketing roles with Pepsico (US and Cyprus) and Mars Inc. (UK).

Mr Mitta is a seasoned negotiator and deal maker with well developed cross cultural sensitivity developed through living and working across diverse countries and consulting with an expansive list of clients. His main areas of professional interest is in strategy development and value extraction through enhancing marketing and sales effectiveness, the competitive repositioning of brands/services and issues relating to managing change within organisations.

Mr Mitta holds a Bachelors degree in Chemical Engineering from the University of Bombay, India and a Masters in Business Administration from the Indian Institute of Management, Ahmedabad.

PROFESSOR TAN TECK MENgNon-Executive Independent DirectorProfessor Tan has been a Non-Executive Independent Director of Hyflux Ltd since April 2007. He is also a member of Audit and Remuneration Committees.

Professor Tan is currently Professor of Accounting in the School of Accountancy at Singapore Management

University. He chairs the Singapore National Council for Pacific Economic Cooperation (SINCPEC), K K Women & Children Hospital’s Medifund Committee and the Advisory Committee of Meridian Junior College. In October 2007, he was appointed as a Council Member of the Accounting Standard Council.

Professor Tan also sits on the board of a number of companies including: Singapore Reinsurance Corporation Limited; Kim Eng Holdings Limited; Singapore Shipping Corporation Ltd; k1 Ventures Ltd; Raffles Education Corporation; and Oriental Century Limited.

Professor Tan has a Bachelor of Accountancy (BAcc) Degree from the University of Singapore and a Masters of Commerce (MCom) (Honours) from the University of New South Wales in Australia. In 1996, he was awarded an Honorary PhD by Liaoning University (China). In 1997, he became the first Singaporean to garner the (US-based) Wilford L. White Award.

He holds Fellowships in the Institute of Certified Public Accountants of Singapore (FCPA), Australian Society of CPAs (FCPA), Institute of Chartered Secretaries and Administrators (FCIS), and Chartered Management Institute, UK (FCMI).

Board of Directors


Corporate Senior Management

CHO WEE PENgSenior Vice President, Group Treasurer &Investment Director

LIM LAI CHINgSenior Vice President,Group FinancialController

SAM ONg ENg KEANgGroup Deputy CEO & Chief Financial Officer

OLIVIA LUM OOI LINGroup CEO, President andManagingDirector

FONg CHUN HOEGroup Executive Vice President & Chief Technology Officer

FOO HEE KIANgSenior Advisor



FREDDy SOON HOCK CHOONgSenior Vice President, Group Communications & Relations

gU JIA LONgSenior Advisor

HOE KUM yOKEAdvisor

yANg AI CHIANSenior Vice President,Legal & CompanySecretary

LESLIE CHAPPLEGroup TechnologyDirector

JENNIFER HOALIM General Manager, Head of Membrane Production

Corporate Senior Management


gIREESH BHATGeneral Manager, Head of IndiaIndustrial Products

KANg THIAN JIANManaging Director, Head of Electrical, Instrumentation & Control and System Manufacturing

POH TECK HEOKManaging Director,Head of Oil RecyclingBusiness

BENJAMIN TAN ENg SENgManaging Director,Head of MENA

ALLAN TOH KHOON WAIGeneral Manager,Head of SoutheastAsia Industrial Products

yEOW KOK KON General Manager,Head of SpecialisedIndustrial Products

Business UnitsSenior Management



gE WEN yUEManaging Director,Head of China Industrial Products

SAUD SIDDIQUECEO, Hyflux WaterTrust ManagementPte Ltd

gRACE gOHBEE KHENgChief Financial Officer,Chief Investment Officer & Company Secretary, Hyflux Water Trust Management Pte Ltd

WONg KHAI THEENManaging Director,Head of EPC

gOH ENg KWANgManaging Director,Infrastructure & EPC (Asia)

Business Units Senior Management

PETER WUSIU KINManaging Director, Head of China Structured Projects


Financial Highlights& Review

S$’ 000 FY2003 FY2004 FY2005 FY2006 FY2007

Revenue 81,172 88,655 131,504 142,379 192,786Profit Before Tax and Minority Interests 19,941 28,844 50,374 20,178 38,693Minority Interests 246 1,772 2,910 (116) 3,696Profit Attributable to Shareholders 19,510 26,104 46,393 15,473 32,949

Shareholders’ Equity 85,479 112,647 189,563 199,601 238,772Total Assets 115,854 300,131 401,087 443,398 563,781Net Assets 85,479 112,647 197,286 218,066 247,067

Net Asset Value per share (cents) 27.35 35.68 38.30 38.43 45.70Earnings per share (cents) 5.08 5.55 9.24 3.00 6.32Dividend per share (cents) 0.70 1.27 1.35 1.35 1.89

Return on Revenue (%) 24.0% 29.4% 35.3% 10.9% 17.1%Return on Equity (%) 22.8% 23.2% 24.5% 7.8% 13.7%

KeY FinanciaL Data

0.76.7

24.0

10.6

23.032.1

72.9 73.5

104.8

157.0

48.4

9.1

34.027.0

12.8

0

20

40

60

80

100

120

140

160

FY03 FY04 FY05 FY06 FY07

Group Revenue by Country

Singapore

China

Others

SGD

mill

ion

0.76.7

24.0

10.6

23.032.1

72.9 73.5

104.8

157.0

48.4

9.1

34.027.0

12.8

0

20

40

60

80

100

120

140

160


Singapore China Others

SGD

mill

ion

GROUP ReVenUe BY cOUntRY

Reinventing Ourselves touching Lives


FINANCIAL REVIEW

S$’mil Fy2007 Fy2006 Increase

Revenue 192.8 142.4 35%Operating Profit 35.4 22.0 61%Profit before tax 38.7 20.2 92%PATMI 32.9 15.5 112%EPS - basic 6.32 cents 3.00 cents 111%Net Debt-to-Equity Ratio 0.32 0.43

32,949

15,473

46,393

26,104

19,510

05,000

10,00015,00020,00025,00030,00035,00040,00045,00050,000


6.32

3.00

9.24

5.555.08

0.001.002.003.004.005.006.007.008.009.00

10.00


SGD'

000

S$ C

ents

13.7%

7.8%

24.5%23.2%22.8%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%


45.70

38.4338.3035.68

27.35

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10.0015.0020.0025.0030.0035.0040.0045.0050.00


S$ C

ents

Financial Review & Highlights

PROFIT ATTRIBUTABLE TO SHAREHOLDERS EARNINgS PER SHARE

RETURN ON EQUITy NET ASSET VALUE PER SHARE


China continued to be the main revenue driver, contributing 81% of total revenue for the year as compared to 74% in the previous year. MENA accounted for 12% of total revenue in this financial year as compared to 7% in the previous year.

The fundamentals of environmental and water industries remain favorable and the Group is expected to benefit from these strong industry fundamentals. The Group will continue to leverage on our proprietary membrane technologies and integrated environmental solutions to focus on our growth plan in target markets such as China, India and the MENA.

Others1%

Municipal46%

Industrial53%

FY2007

Others5%

Municipal32%

Industrial63%

FY2006

gROUP REVENUE By SEgMENT/COUNTRy

(a) OverviewFor 2007, net profit for the Group increased by 112% to S$32.9 million. Basic earnings per share have increased by 111% to 6.32 cents.

(b) RevenueThe Group’s revenue increased by 35% to S$192.8 million for the year ended 31 December 2007, compared to S$142.4 million for the previous year.

Municipal sales were higher by 96% to S$89.0 million for this financial year from S$45.3 million for the previous year mainly due to higher municipal revenue from China and the Middle East and North Africa (“MENA”).

Industrial sales were higher by 14% to S$102.3 million from S$90.1 million, mainly contributed by our strong China industrial sector.



China remains to be a significant market for the Group. Our established track record, know-how and differentiated capabilities provide us with a strong platform to continue our growth in this key market. To date in China, we see a steady pipeline of 31 municipal projects which comprise a total of 39 water treatment plants in China. In addition, the Group has long-term operation and maintenance contracts which will generate recurring income for the next 25-30 years.

In the MENA region, the Group has achieved financial close for the seawater desalination plant project in Tlemcen, establishing our footprint in this region. The Engineering, Procurement and Construction (“EPC’) works estimated at US$213 million (approximately S$304 million) will be undertaken by wholly owned subsidiaries of the Group. The construction of the Project is expected to complete within 24 months from financial close.

The orders from the Industrial sector remain robust and provide steady revenue contribution to the Group. Our used-oil recycling projects in China, Saudi Arabia and Vietnam continue to make good progress.

Our technology and research and development activities will continue to play a significant role in our overall business strategy and innovation efforts.

The Group delivers another milestone through the launch of the Hyflux Water Trust (“HWT”). With HWT, the Group will be able to continuously enhance shareholder value through our growing pipeline and portfolio of water projects.

China81%

Singapore7%

MENA/Others12%

FY2007

China74%

Singapore19%

MENA/Others7%

FY2006

gROUP REVENUE By SEgMENT/COUNTRy



COSTS AND ExPENSESRaw materials and consumables increased by 36% to S$106.0 million from S$77.8 million in line with the sales volume.

Personnel expenses increased by 54% to S$30.7 million from S$20.0 million for the previous year as the Group continues to invest in human capital which is necessary to support the Group’s expansion plans and research and development activities.

In February 2007, the Group recorded a S$8.2 million gain on partial sale of its 50% joint venture, SingSpring Pte Ltd (“SingSpring”) which owns a seawater desalination plant. Subsequent to the divestment, the Group holds 30% interest in the desalination plant via SingSpring Trust. As a result, the investment is classified as investment in associates as at 31 December 2007.

The finance income decreased mainly due to the decrease in interest income earned. The fair value loss on derivative financial instruments arose mainly from the transfer of approximately S$3.2 million of the hedging reserve to the profit and loss account upon the divestment of SingSpring in February 2007.

For the year ended 31 December 2007, the Group recognized a negative goodwill amounting to approximately S$2.6 million arising from acquisition of a business.

Foreign exchange gain in 2007 was mainly due to the translation of a loan facility denominated in US dollar as a result of the weakening US dollar.

The effective tax rate of the Group of approximately 5% was lower than the statutory tax rate due to tax exemptions on certain income for the year and tax incentives enjoyed by certain entities of the Group.

Overall, the net impact of the above resulted in profit after tax and minority interests for the Group of S$32.9 million for the financial year ended 31 December 2007.

EARNINgS PER SHAREThe increase in basic earnings per share and fully diluted earnings per share as compared to the previous year was due to the higher profit for the financial year ended 31 December 2007.

BALANCE SHEETS REVIEWThe Group’s shareholders’ equity increased from S$199.6 million in 2006 to S$239.8 million in 2007. The increase was mainly attributable to the profits for the year. This was partly offset by a total dividend payout of S$7.0 million in 2007.

Non-current assets decreased from S$249.3 million as at 31 December 2006 to S$224.2 million as at 31 December 2007. This was mainly due to the divestment of the SingSpring desalination plant in February 2007 and the sale of the Group’s 13 plants in China to Hyflux Water Trust in December 2007. These have resulted in a decrease in financial and lease receivables of S$147.4 million. The decrease in financial and lease receivables was offset by an increase in investment in associates of S$93.1 million, mainly due to the Group’s new investment in Hyflux Water



Trust in December 2007 representing 31.5% investment, as well as the reclassification of the Group’s investment in the SingSpring plant from a joint venture to an associate in February 2007. In addition, book value of property, plant and equipment increased by S$29.2 million mainly due to the expansion of overseas operations.

Non-current liabilities increased to S$196.3 million as at 31 December 2007 from S$119.5 million as at 31 December 2006. The increase was mainly due to the additional drawdown of bank loans during the financial year to support the Group’s expansion.

CASHFLOW AND LIQUIDITyThe Group’s cash position was S$121.0 million, up by S$65.2 million compared to 2006. In 2007, the Group generated cash from its operations of S$77.8 million mainly due to improvement in working capital.

Cash used in investing activities for this financial year was mainly on the acquisition of property, plant and equipment and investments in subsidiaries and associates.

The increase in cash generated from financing activities as compared to the previous year was due to the additional bank loan drawn down.

Note: Certain comparative figures have been restated to reflect the adoption of new and revised accounting standards.



Corporate SocialResponsibility

Corporate citizenship is one of Hyflux’s core values because we believe in making a distinctive contribution to society, academic, industry and business communities.

We focus on three Es:• EnvironmentandWater• EducationandCommunity• Entrepreneurship

We work closely with major industry players such as the Singapore Water Association (SWA), International Desalination Association, International Water Association and PUB in promoting environmental awareness and solutions in appropriate platforms locally and overseas.

In reaching out to the less fortunate in Singapore, we support a number of charitable organisations and fund-raising events. Some of these beneficiaries include: Community Chest, Singapore Red Cross Society, Club Rainbow, President’s Charity Challenge as well as National Day Parade.

We also believe in the importance of providing inspiration and encouragement to budding entrepreneurs and leaders. In line with this, Hyflux’s Group CEO, President and Managing Director, Ms Olivia Lum Ooi Lin, together with her management members take time off from their schedule to participate in public speaking engagements or sharing sessions. These sessions focus on topics relating to entrepreneurship and leadership. We also continue to host representatives from local and overseas academic institutions at our SingSpring plant and corporate headquarters.

“Thank you Hyflux for your contribution to ecological civilisation and world harmony.”- Mr Zhao Yang, Secretary of Tangshan Municipal Party Committee

“Hyflux’s support in a series of educational and community performances on water conservation creates a big impact on the awareness and the acknowledgement on this environmental issue…On the whole, we are very glad that we have joined Hyflux in this process of educating the youths on a very important message.”- Benny Lim, Artistic Director of The Fun Stage Limited

“Their (the physically challenged) smiles and gratitude shown on their faces alone are worth waking up early that morning...”- Allan Toh Khoon Wai, General Manager, Head of Southeast Asia Industrial Products (participant of the HeartStrings Walk organised by the Community Chest)

“During my visit to (SingSpring Desalination Plant), I found high technology being used to produce desalination water with efficient energy consumption.”- Dr Mohammed Saeed Al Kindi, Minister of Environment & Water, United Arab Emirates



The Year in Review

JANUARy Hyflux teamed up with Marmon Water LLC - one of the world’s largest manufacturers of residential and commercial water treatment systems – to establish two joint ventures (JVs) and licensing agreements on water treatment products. With a joint investment sum of S$80 million, the two JVs (R&D and manufacturing JVs) will focus on developing innovative and affordable products and technologies for both residential and commercial applications, and the manufacturing of residential water treatment and filtration products for worldwide markets respectively.

FEBRUARy Successful completion of the restructuring and divestment of Hyflux’s equity interest in SingSpring Pte Ltd to CitySpring Infrastructure Trust.

MARCHHyflux clinched seven water treatment projects in China – Jiangsu, Jiangxi, Heibei provinces and Tianjin city – worth S$115 million, with a daily capacity of 290,000 m3.

Hyflux and Malakoff Berhad entered into a joint venture agreement with the Algerian Energy Company (the government company handling power and water privatisation exercise in Algeria) to form a project company to design, develop, finance, construct, operate and maintain a seawater desalination plant of 200,000 m³/day at Tlemcen, Algeria for a period of 25 years.

The year in Review


JUNEHyflux was awarded two water treatment projects in China – Shandong Province and Tianjin City – worth about S$46 million, with a daily capacity of 130,000m3.

JULyHyflux held a groundbreaking ceremony for the second wastewater treatment plant (with a daily capacity of 50,000m3) in Beichen Science and Technology Park in Tianjin.

AUgUST Hyflux secured about S$59 million worth of water treatment projects in China in Hebei and Jiangsu provinces. The plants collectively can supply a daily capacity of 180,000m3.

MAy Hyflux formed a joint venture with Saudi Economic Development Company (SEDCO) and Lube Oil Re-refining Co (LUBREC) to jointly invest S$45 million to build and own a used oil recycling plant in Jeddah, Saudi Arabia. This will be the first membrane-based oil recycling plant in Saudi Arabia that treats used oil from the power, petrochemical, marine and automotive industries to recover high grade base oil.

APRIL Hyflux re-configured the water treatment plant for ISK Singapore Pte Ltd’s titanium dioxide plant at Tuas to supply deionised water from the intake of NEWater. The works include a five-year operations and maintenance contract.



SEPTEMBERHyflux participated in the 10th China International Membrane and Water Treatment Technology and Equipment Exhibition held in the Wuhan International Exhibition Centre in China. The exhibition was strongly supported by China’s Ministry of Science and Technology, Ministry of Water Resources, Ministry of Construction and the State Environmental Protection Administration.

OCTOBER Hyflux, BP International Ltd and the Dalian Institute of Chemical Physics will jointly develop and commercialise the use of zeolite dewatering membranes in the production of biofuels.

Hyflux entered into a joint venture agreement with Success Blossom Environment Vietnam Joint Stock Company to invest US$10.5 million (approximately S$14.5 million) to build a state-of-the-art used oil

NOVEMBERHyflux secured about RMB 291 million (approximately S$ 57.3 million) worth of water projects in China’s Shandong and Jiangsu provinces. The five plants collectively can supply a daily capacity of 130,000 m3.

DECEMBERHyflux successfully launched the first pure-play global water trust, listed on a securities exchange in Asia. It offers investors an opportunity to invest in water-related infrastructure assets in China, India, Middle East and North Africa region and other high-growth markets globally.

recycling plant near Hanoi, capital of Vietnam which will engage in the collection, treatment and recovery of used oil into high grade base oil for sale in Vietnam and other export markets such as Laos and Cambodia.


Human Capital

“We are a melting pot of talent and expertise working together to build Hyflux further. Every bright idea and contribution counts. No one should be left out so long as one has the passion and the perseverance to want to succeed.”

- Olivia Lum Ooi Lin, Group CEO, President and Managing Director

WORKFORCE & BUSINESS gROWTH


Revenue

Workforce

192.80

142.40

131.50

88.7081.20

45.30

0

20

40

60

80

100

120

140

160

180

200

352

495514

682

797

1228

0

200

400

600

800

1000

1200

1400

Reve

nue

(S$M

illio

n) Total Headcount

2002 2003 2004 2005 2006 2007


At Hyflux, we are committed to attracting, developing and retaining the best talent to propel our growth and development. Over the past few years, our workforce has expanded in tandem with our increased operations. In 2007, our total headcount stands at 1,228 – a 54% jump from 797 in 2006.

Hyflux will continue to work on strengthening our presence in the growth economies of China, India, the Middle East and North Africa as well as Singapore and Southeast Asia. We are currently building up our teams worldwide to manage, execute, and take on more projects.

Our Human Capital

Below Dip52%

Diploma11%

Degree25%

Masters9%

PhD3%

Below Dip23%

Diploma37%

Degree33%

PhD2% Masters

5%

Below Dip52%

Diploma11%

Degree25%

Masters9%

PhD3%

Below Dip23%

Diploma37%

Degree33%

PhD2% Masters

5%

EDUCATIONAL QUALIFICATION(AS AT 31 DEC 2006)

EDUCATIONAL QUALIFICATION(AS AT 31 DEC 2007)

From left to right: Susan Lee (Assistant Vice President, Human Resources), Joyce Ong (Vice President, Finance), Linden Ng (Vice President, Internal Controls & Compliance), Dan Tan (Vice President, Treasury & Investor Relations), Nah Tien Liang (Vice President, Investment), Doreen Houghton (Vice President, Purchasing & Logistics), Peggy Lim (Vice President, Legal) and Kelly Leong (Vice President, Finance).

Employees are our biggest and most important asset. As Hyflux continues to flex our wings overseas, we will ensure that people with the relevant competencies will assume greater responsibilities to support our global operations.


TECHNOLOgICAL INNOVATION

Frost and Sullivan – Technology Innovation of the year Award 2007, Desalination Technologies (Asia Pacific)Hyflux garnered this prestigious award for the superior development of our pioneering KristalTM membrane technology. This award further augments our technological standing as a leading company that specialises in membrane technology.

Frost and Sullivan – Technology Innovation of the year Award 2007, Residential Water Treatment Equipment Market (Southeast Asia)Hyflux was recognised for our unique development of the Aquavate ‘air-to-water’ technology which has been commercialised into a lifestyle consumer product known as dragon-flyTM that provides drinking water from the air, treated by our proprietary filtration technology.

global Water Awards 2006 – Water Company of the year Hyflux won the highest honour in the Global Water Awards as Water Company of the Year. This award, given by Global Water Intelligence, UK, recognised the significant contribution of Hyflux to the private water industry. The judges’ verdict: “Hyflux has brought a professionalism and entrepreneurial spirit to the water industry which sets a new standard for competitors worldwide.”

global Water Awards 2006 - Distinction Award for Desalination Plant of the yearIn 2006, the SingSpring Desalination Plant was awarded the Distinction Award for Desalination Plant of the Year at the Global Water Awards given by Global Water intelligence, UK, an international recognition of the contribution made by the SingSpring plant to the advancement of the desalination industry. The judges’ verdict: “The Tuas plant is a brilliant work of engineering which has challenged the global perception that desalination is a high cost source of water.”

International Aquatech Innovation Awards 2006, Category Winner Hyflux CEPAration, one of Hyflux’s joint ventures in Europe, was the winner for the Water Treatment/Point of Use category, for its InoCEPTM ceramic membrane. Selected by an

international jury of experts, InoCEPTM won amidst strong competition from Europe, North America and Asia for its originality, practicality (technical, economical, feasibility) and sustainability (environment, security, energy and efficiency).

BUSINESS ExCELLENCE

SIAS Investors’ Choice Awards – Most Transparent Company Award 2004, 2005, 2006 & 2007For four consecutive years, Hyflux was honoured at the Securities Investors Association of Singapore (SIAS) annual Investors’ Choice Awards 2007 for achieving a high level of corporate governance and transparency to enable investors to make informed decisions on their investments.

Awards & Accolades



Forbes Asia – Best under a Billion 2005 & 2006For two consecutive years, Hyflux made it among Forbes Asia’s top 200 small & midsize companies. Forbes Asia’s annual “Best under a Billion” selection showcases the region’s most dynamic publicly traded firms with sales under US$1 billion a year with a track record of sustained growth and profitability.

Fastest growing 50 – Fastest growing 50 Certification Awards 2005 Hyflux was saluted as one of the 50 fastest growing companies in Singapore at the Fastest Growing 50 Certification Awards 50, ranked by DP Information Group, and supported by Ernst & Young, IE Singapore, and SPRING Singapore.

Euromoney – Water Deal of the year 2003 (Asia Pacific) The project financing for the SingSpring Desalination Plant was named the Asia Pacific Water Deal of the Year 2003 by Euromoney Project Finance Magazine.

Singapore Business Awards – Enterprise Award 2003 Hyflux was accorded the Enterprise Award 2003 at The Singapore Business Awards presented by The Business Times and DHL.

Asiamoney – Best Small Company in Singapore 2002Hyflux was named Best Small Company in Singapore 2002 by Asiamoney, a Euromoney institutional investment company.

COMMUNITy

Friend of the Arts Award 2007Hyflux received the Friend of the Arts Award given by the National Arts Council in 2007 in recognition of our contributions towards the promotion, organisation, and participation of artistic activities.

Awards & Accolades


“Hyflux has brought a professional and entrepreneurial spirit to the water industry which sets a new standard for competitors worldwide.”

- Judges’ verdict for Hyflux being honoured as the Water Company of the Year in the Global Water Awards 2006

Our WaterBusiness


33Hyflux Ltd Annual Report 2007Our Water Business

As a technology company, Hyflux value-adds to the entire water value chain with our technological expertise, in areas ranging from water and wastewater treatment and recycling to seawater desalination.

Our beginnings in the water business can be traced back to our early days of supplying equipment to smaller plants to achieving a breakthrough in securing projects to install NEWater plants to building desalination plants to the listing of our pure-play water business trust.

Today, as an integrated one-stop solutions provider, we are a partner of choice for design-and-build projects for turnkey plants and treatment systems in countries such as China, Southeast Asia and in the MENA region. Backed by a well-rounded range of R&D, in-house EPC expertise, capital and financing capabilities, and engineering track, we have a robust pipeline of about 40 plants. Water will continue to remain a focal point for us and the numerous people whose lives have been touched by our technology.

HyFLUx – AN INTEgRATED ONE-STOP SOLUTIONS PROVIDER FOR WATER-RELATED CHALLENgESIn Singapore, Hyflux is a key player, supporting the government’s plan to ensure a diversified and sustainable supply of water for the country. Hyflux is treating some 35% of Singapore’s current water needs through landmark projects secured with the Public Utilities Board (PUB) namely, two NEWater plants at Bedok and Seletar, the raw water treatment plant at Chestnut Avenue Waterworks and the SingSpring Desalination Plant in Tuas.

SINgSPRINg DESALINATION PLANT, SINgAPORE For Singapore’s first public private partnership, PUB awarded Hyflux the project to build, own and operate (BOO) Singapore’s first seawater desalination plant in Tuas. The S$200 million plant was completed in 2005, some three months ahead of schedule. It now supplies some 136,380 m3/day of desalinated water to meet approximately 10% of Singapore’s water needs.

Our full suite of expertise

Research&

Development

Design&

Development

Manufacturing of

Components

SystemsAssembly

OverallProject

Management

Operations&

Maintenance

34 Hyflux Ltd Annual Report 2007 Reinventing Ourselves Touching Lives

The judges’ verdict: “The Tuas plant is a brilliant work of engineering which has challenged the global perception that desalination is a high cost source of water.”

The SingSpring Desalination Plant uses advanced cost-and-energy-efficient reverse osmosis (RO) technology and was the largest membrane-based seawater desalination plant in the world at the time of its completion. It also has the largest single-RO trains in the world. The BOO project was financed by a consortium of five international banks, led by DBS Bank. The financing was awarded the Euromoney Asia Pacific Water Deal of the Year in 2003.

In 2006, the SingSpring Desalination Plant was awarded the Distinction Award for Desalination Plant of the Year at the Global Water Awards given by Global Water intelligence UK, a peer recognition of the contribution made by SingSpring Desalination Plant to the advancement of the desalination industry internationally.

We hosted more than 1,600 visitors at our SingSpring Desalination Plant in 2007, a 15% increase from 2006. Among the distinguished guests were United Arab Emirates Minister of Environment & Water, Dr Mohammed Saeed Al Kindi; US Ambassador to Singapore, Mrs Patricia L. Herbold; Minister-President, State of Bavaria, Germany, Dr Edmund Stoiber; Australian Capital Territory Electricity & Water (ACTEW) Chief Minister, Jon Stanhope; and many high ranking Chinese officials.

SEAWATER DESALINATION PLANT, CHINAMarking our first entry into China’s municipal market in 2004, Hyflux is building one of the country’s largest seawater desalination plants in Tianjin. The S$155 million membrane-based desalination plant, with first-

phase capacity of 100,000m3/day and a second phase capacity of 150,000m3/day, employs Hyflux’s proprietary ultra-filtration technology. When completed, it will supply desalinated water to the district of Dagang in Tianjin for an initial period of 30 years.

SEAWATER DESALINATION PLANT, ALgERIAMarking a significant breakthrough in the MENA market, Hyflux was awarded the contract by Algeria Energy Company to design, develop, finance, construct, operate and maintain a 200,000 m³/day seawater desalination plant at Tlemcen, Algeria in October 2006.

The plant will supply desalinated water to L’Algerienne Des Eaux, the state-owned national water entity of Algeria and Sonatrach SPA, the national oil company of Algeria for a period of 25 years. The total project cost is estimated at S$380 million and Hyflux is undertaking the engineering, procurement and construction (EPC) works for S$328 million. This is the largest seawater desalination project undertaken by the Group. In January 2008, Hyflux achieved financial close of this project following successful project financing from Banque Nationale d’Algerie.

35Hyflux Ltd Annual Report 2007Our Water Business

OUR LIFESTyLE FILTRATION PRODUCTS Besides serving the industrial and commercial markets worldwide, our technologies have led to the development of a comprehensive range of lifestyle filtration products:

eLife Water TapeLife Shower FilterOur eLife range of products utilise a unique element conversion technology consisting of high energy magnetizers and active energy rocks. Water that passes through these materials becomes “activated” with smaller water molecules. Drinking activated water improves energy levels and enhances mental alertness. This technology is also extended to the development of eLife Shower Filter, that reduces chlorine and hydrates skin and hair.

dragon-flyUnlike other water dispensers, our proprietary technology extracts drinking water from the atmosphere and keeps the water fresh by continual re-circulation through Hyflux’s advanced membrane technology and ultra-violet (UV) purification.

K18 Track Membrane FilterHyflux’s K18 Track Membrane filter is a revolutionary product that solves worldwide water problem. Improving the water quality from various water sources, it offers filtered water without use of elaborate and expensive water treatment systems. It is the preferred choice for humanitarian purposes, disaster relief and crisis operations.

Hyflux Central Water Filtration SystemA point-of-entry product, the Hyflux Central Water Filtration System offers filtered water in the homes with little or no drop in water pressure with much convenience.

gurgle F38 This award-winning lifestyle home filtration product effectively removes turbidity and retains essential minerals, making it a healthy drink all year round.

Hyflux Reverse Osmosis Drinking Water SystemThis state-of-the-art filter will improve the quality of water from wells or municipal water supplies. These units reduce substances such as chlorine, sediment, nitrates, lead, cysts and detergents.

Pitcher P18Hyflux Pitcher P18 provides the simplest and most popular way of filtering drinking water. Complete with 3-stage filtration, it effectively removes contaminants, heavy metals and reduces chlorine and turbidity.

Hyflux Water SoftenerHard water can cause build up on glassware and damage due to scale in pipes and appliances. This water softener is an effective and cost-saving

solution to hard water problem.

Disclaimer: The information is meant for general information purposes only. It is not to be construed as implying any representation and/or warranty of any kind, whether expressed or implied, including without limitation, warranties of accuracy of information, warranties of merchantability, fitness for a particular purpose or performance of any products listed herein. Hyflux Ltd hereby disclaims to the fullest extent allowable by law, all responsibility for loss, damage, injury, claim or liability of any kind arising from or in connection with (a) any errors or omissions including but not limited to technical inaccuracies and typographical errors; or (b) the reader’s use of the information.


From left to right: Michael Repasky (Product Manager, Hyflux Marmon), Steve Dakolios (Vice President & General Manager, Hyflux Marmon).

“Combining Hyflux’s and Marmon’s strong international capabilities and respective technical strengths is a great strategic match…”- Mr John Goody, President of Marmon Water LLC

OUR COLLABORATION WITH MARMONA strategic partner for Hyflux is Marmon Water LLC, one of the world’s largest manufacturers of residential and commercial water treatment systems. In 2007, Hyflux teamed up with Marmon Water to set up a joint R&D Centre in Singapore and a manufacturing facility for consumer products in China. Under the joint venture, Hyflux and Marmon will jointly develop new products to provide clean, filtered and conditioned water for Asian homes. In addition, the partnership with Marmon will allow us to manufacture residential water treatment and filtration products for worldwide markets.

HyFLUx WATER TRUST As Hyflux moves into our next chapter of growth, we sponsored the establishment of the first pure-play global water business trust listed on a securities exchange, the Hyflux Water Trust (HWT). HWT provides investors with an opportunity to invest in water-related infrastructure assets in China, India, the Middle East and North Africa region, and other high-growth markets globally.

HWT is a business trust sponsored by Hyflux and managed by Hyflux Water Trust Management Pte Ltd, a wholly-owned subsidiary of Hyflux.

HWT was listed on the Main Board of SGX on 3 December 2007, raising S$234 million from an Initial Public Offering (IPO). A number of well-known institutional investors subscribed into the IPO, including Fidelity Investments Management (Hong Kong) Limited as a cornerstone investor. Hyflux retains a 31.5% stake in HWT.


A PORTFOLIO OF HIgH QUALITy ASSETSHWT’s initial portfolio consists of 13 plants, comprising three water treatment plants (WTPs), eight wastewater treatment plants (WWTPs) and two water recycling plants (WRPs), giving a total design capacity of 445,000m3/day. These plants are strategically located in high growth, coastal provinces in China. The plants operate under long-term concession agreements, giving them exclusive rights to provide water-related services to industrial and municipal users in their respective concession areas. These assets in HWT’s initial portfolio generate cash flows which will provide long-term, regular and predictable distribution to unit holders.

WELL POSITIONED FOR gROWTHIn addition to providing long-term regular and predictable cash flow for unit holders, HWT is also well positioned to grow its portfolio of assets by making yield-accretive investments. Pursuant to a ROFOAR Deed, HWT has certain rights of first offer and first refusal to purchase from Hyflux, existing and future water-related infrastructure assets subject to satisfaction of the terms and conditions under the ROFOAR Deed. The pipeline of assets currently comprises over 20 water plants with total design capacity in excess of 760,000m3/day.

In addition, HWT may also seek to acquire water-related infrastructure assets from third parties, as well as expanding its existing assets. As an example, in the first month after its IPO, HWT secured a project to the value of RMB 50 million to expand the Waste Water Treatment Plant in the Yangzhou Industrial Park, China. The expansion is required to meet growing industrial

demand for waste water treatment. Construction of the expansion plant is expected to begin in the second quarter of 2008, and operation is expected to commence in mid 2009.

SyNERgISTIC BUSINESS MODELS OF HyFLUx AND HWT – TOgETHER, A STRONg FUTURE The establishment of HWT is an important part of Hyflux’s asset-light strategy, allowing Hyflux to recycle our capital and to expand and develop our business. HWT provides us with an additional avenue of investment as it enables HWT to access our Hyflux’s established network, market reach and experience, know-how and membrane technologies. The overall outlook on the global water sector, and the market fundamentals of China’s water sector, remain very strong. The synergistic business models ensure that Hyflux and HWT remain at the forefront to capitalise on market opportunities, and to participate in the exciting growth of the global and water sectors in China.

From left to right (HWT): Wong Heng Hwie (Vice President, Finance), Daniel Yeung (Vice President, Investment), Joscelyn Tan (Vice President, Legal).


Our Industrial Manufacturing Processes Business

Hyflux’s proprietary membrane system has replaced many traditional stream separation methods for partners in various industries. It addresses the challenges which conventional treatment methods are unable to overcome.



In the field of industrial manufacturing processes, Hyflux’s membrane systems are used by companies in the management of wastewater treatment, clean water requirements, process stream separation, concentration, and purification. Our technology is applicable to industries dealing with petrochemicals, chemicals, textiles, biotechnology, pharmaceutical products, foods, fermentation, paper pulp and electronics.

In China, our subsidiaries, Hydrochem Engineering (Shanghai) Co. Ltd. and Hyflux Filtech Shanghai Co. Ltd., are responsible for the development of our industrial manufacturing processing business and have been active in these industries, serving some 500 clients

in the expanding industry. Our clients hail from the biopharmaceutical, food, water treatment, chemical fibre and electronic wastewater industries.

We also have an established presence in Europe through our subsidiary, Hyflux CEPAration BV, formed through a joint venture with CEPAration BV, a spin-off from the Netherlands Organization for Applied Scientific Research (TNO).

From left to right: Dr Shieh Jyh-Jeng (Vice President, Research), Dr Venkidachalam (Vice President, Development & Technology).


Hyflux’s proprietary advanced membrane technology ensures that the lactic acid is entirely free of reducing sugars and of a high L(+) purity level, utilising more environmentally-friendly processing techniques.

Our Specialty Materials Business


41Hyflux Ltd Annual Report 2007Our Specialty Materials Business

Specialty Materials is a new pillar of growth for Hyflux. With our membrane technology, we develop and commercialise polymers and specialty materials (Lactic Acid and Polylactic Acid) from natural resources like corn and sugarcane. These polymers are widely used in cosmetics, pharmaceuticals, food and beverages, textiles, food packaging, and fibre industries.

Hyflux’s first joint venture company to design and build a L-lactic acid production facility in China is Sinolac (Huludao) Biotech Co., Ltd. Planned in anticipation of increased demand in polylactic acid in the near future, the Sinolac plant (20,000 tonnes/year capacity) has successfully begun operations in late 2007 and has obtained Halal and Kosher certifications. Following this success, Hyflux entered into a subsequent joint venture, namely Ningxia Hypow Bio-technology Co., Ltd to build another L-lactic acid plant in China with an even larger capacity of 30,000 tonnes/year.

Unlike traditional methods, our breakthrough processing techniques produce high quality products with less energy consumption. Moving into this emerging field of material science highlights our company’s commitment in addressing global environmental issues and in promoting environmental sustainability.


Hyflux’s proprietary technology gives high recovery efficiencies and high product quality. This is critical given the world’s insatiable hunger for energy and the escalating price of crude oil.

Our Energy Business


43Hyflux Ltd Annual Report 2007Our Energy Business

Many industrial processing including those in the marine, petrochemical, power, automobile, construction and airlines generate large quantities of used oil, which is considered as toxic industrial material. Yet, such used oil contains more than 80% of base oil that can be recovered as a high value resource.

Leveraging on our success in the water business, we entered the energy business in 2006 through the formation of Eflux Singapore Pte Ltd, our wholly owned subsidiary. Using our cutting-edge technologies, Hyflux aims to provide a total solution for used oil management, through recycling of used oil while ensuring minimal environmental impact, optimising societal benefits and stakeholder interests.

A joint venture – Eflux SK Pte Ltd – was formed with SK Oilchem Management Pte Ltd to collect, recycle and treat waste oil in Singapore using our Hyflux Advanced Membrane System (HAMS). HAMS can recycle used oil into high commercial base oil of which the product quality is comparable to that of virgin base oil. The plant started operations in end 2006. Eflux SK has the licence


from the Singapore National Environment Agency (NEA) to collect and treat used oil using the HAMS. On an average, Singapore attracts some 140,000 vessel calls annually, which provides a strong base for the provision of oil recycling service. This reinforces our commitment in protecting the environment while enhancing stakeholder value.

MORE USED OIL RECyCLINg PLANTS WERE BUILT IN 2007We formed a joint venture with Saudi Economic Development Company (SEDCO) and Lube Oil Re-refining Co (LUBREC) to jointly invest S$45 million to build and own a used-oil recycling plant in Jeddah, Saudi Arabia. This became the first membrane-based oil recycling plant in Saudi Arabia and will treat and recover used oil from the power, petrochemical and automotive industries. With the high oil prices and acute lube oil deficit in the Middle East and North Africa (MENA) region, we are strategically poised to harness the vast market potential. Saudi Arabia is one of the largest (per capita) consumers of lubricants. In 2006, its population of 24 million consumed some 350,000 metric tonnes of lubricants.

In Vietnam, Hyflux entered into a joint venture with Success Blossom Environment Vietnam Joint Stock Company to invest close to US$10.5m (approximately S$15 million) to build a state-of-the-art used oil recycling plant near Hanoi. The plant can collect and treat up to

12,000 tonnes of feed used oil per year, and recover into high grade base oil for sale in Vietnam and other export markets like Laos and Cambodia.

Hyflux will also be looking at other countries such as China and India where the demand for high grade lube oil is increasing. The supply of base oil has been aggravated further by the closure of several base oil refineries worldwide. The scarcity of base oil has continuously driven up oil prices.

Biofuels

WindPower

SolarPower

FuelCells

$20.5

$80.9

$17.9

$60.8

$15.6

$69.3

$1.4

$15.6

Source: Clean Edge, 2007

TOTAL$55.4

$226.5

$0 $25 $50 $75 $100 $125 $150 $175 $200 $225

20062016

Clean Energy Projected growth2006 - 2016 ($US Billions)


According to market reports Clean Energy Trends 2007 and Biofuel Market Worldwide (2006), global markets for biofuels are projected to grow to US$80.9 billion (approximately S$112.4 billion) by 2016. By 2020, the estimated global demand of bioethanol is estimated to reach 120,000 million litres. Our success in lube oil was also mirrored in the field of biofuels. We collaborated with BP International Ltd and the Dalian Institute of Chemical Physics (DICP) to jointly develop and commericialise the use of zeolite dewatering membranes in the production of biofuels.

Zeolite membrane technology has proven to be especially cost-effective in the dewatering process

and offers significant energy savings when compared with conventional processes. Our first project would involve the dewatering of

bioethanol using zeolite membranes.

From left to right: Lim Choon Noi (General Manager, Oil Recycling Business), Dr Tan Yi (Vice President, Technology Development), Willy Yeo (Assistant Vice President, CEO Office).


Hyflux is a leading technology company that is fully committed to developing new technology applications and intellectual property as our long-term competitive advantage.

Our Research &Development


47Hyflux Ltd Annual Report 2007Our Research & Development

In 2004, we launched our membrane and materials technology centre - the largest in Asia, outside Japan, to spearhead development in cutting-edge membranetechnology and environmental engineering solutions. We maintain more than 10 research and development laboratories in Singapore, including a knowledge centre, an innovative process development centre, a materials and membrane products development centre as well as advanced machining, prototyping and industrial design functions to support the Hyflux’s status as a leading provider of environmental solutions. Our R&D teams have been trained in the design and development of state-of-the-art membranes. Several patent applications have been filed and publications have been presented at international conferences. In addition, our R&D efforts have led to the commercialisation of our range of environmentally–friendly membrane products and systems. A huge variety of products are presently under market tests.

To tap expertise outside Hyflux, we collaborate with world-renowned research institutions and companies to develop and enhance our research programmes, expand areas of membrane applications, improve existing technologies and processes as well as commercialise novel technologies. Partners include the National University of Singapore, CEPAration BV (a spin-off from leading Dutch technology institute, Netherlands Organization for Applied Scientific Research), Marmon Water LLC (North America’s largest manufacturer of residential and commercial water treatment systems) and the Dalian Institute of Chemical Physics.

HyFLUx MEMBRANE APPLICATIONS Our R&D efforts have led to the commercialisation of a range of environmentally-friendly membrane products and systems.

• InoCEPTM Ceramic Hollow Fibre Membranes The award-winning InoCEPTM is able to tolerate high temperatures and extreme pH conditions as well as high solids content, making it ideal for waste/

wastewater treatment, chemical/oil, biopharmaceutical/life sciences, metal/surface engineering, food & beverage/sugar, industrial chemicals recycling, milk & diary.

• FerroCepTM Stainless Steel MF Tubular Membranes It is the membrane of choice for handling difficult industrial streams with high viscosity and solid contents under extreme conditions. Most ideal for various fermentation broths like amino acids, antibiotics, vitamins and clarification of other hydrolytes and plant extracts.

• KristalTM UF/MF Polymer Hollow Fibre Membranes It ensures consistent and strict filtrations, resulting in a robust membrane process with higher permeate quality; higher permeate flux; higher throughput, and higher system recovery.

• PoroCepTM Polypropylene Hollow Fibre Membranes This membrane is the preferred choice for microfiltration, where both performance and cost are critical. It combines higher particle retention with higher flux, excellent permeate quality and minimal pressure drop in a small compact design.

• Hyflux Advanced Membrane System (HAMS) Our proprietary Hyflux Advanced Membrane System (HAMS) has been developed as a “green” solution and is adopted to recover base oil from used oil. It is able to substantially reduce energy consumption generated during the treatment process and yet treat recycled used oil into high-grade commercial base oil suitable for sale.

Disclaimer: The information is meant for general information purposes only. It is not to be construed as implying any representation and/or warranty of any kind, whether expressed or implied, including without limitation, warranties of accuracy of information, warranties of merchantability, fitness for a particular purpose or performance of any products listed herein. Hyflux Ltd hereby disclaims to the fullest extent allowable by law, all responsibility for loss, damage, injury, claim or liability of any kind arising from or in connection with (a) any errors or omissions including but not limited to technical inaccuracies and typographical errors; or (b) the reader’s use of the information.


Financial Report 2007

49Hyflux Ltd Annual Report 2007Reinventing Ourselves Touching Lives

The directors are pleased to present their report to the members together with the audited consolidated financial statements of Hyflux Ltd (the “Company”) and its subsidiaries (collectively, the “Group”) and the balance sheet and statement of changes in equity of the Company for the financial year ended 31 December 2007.

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

Lum Ooi Lin Group CEO, President and Managing DirectorTeo Kiang KokLee Joo HaiGay Chee CheongChristopher MurugasuRaj Mitta (appointed on 28 April 2007)Professor Tan Teck Meng (appointed on 28 April 2007)

Professor Tan Teck Meng and Raj Mitta are due for retirement in accordance with Article 88 of the Company’s Articles of Association, and being eligible, have agreed to stand for re-election. In accordance with Article 89 of the Company’s Articles of Association, Lee Joo Hai and Gay Chee Cheong are due for retirement, and, being eligible, have agreed to stand for re-election.

ARRAngemenTs TO enAbLe DiRecTORs TO AcquiRe sHARes OR DebenTuResExcept for share options granted under the Hyflux Employees’ Share Option Scheme as described below, neither at the end of nor at any time during the financial year was the Company a party to any arrangement whose objects are, or one of whose object is, to enable the directors of the Company to acquire benefits by means of the acquisition of shares or debentures of the Company or any other body corporate.

HyfLux LTD AnD iTs subsiDiARies

DIRECTORS’ REPORTFinancial year ended 31 December 2007


DiRecTORs’ inTeResTs in sHARes OR DebenTuResThe following directors, who held office at the end of the financial year, had, according to the register of directors’ shareholdings required to be kept under Section 164 of the Singapore Companies Act, Cap. 50, an interest in shares and share options of the Company and related corporations (other than wholly-owned subsidiaries) as stated below:




There was no change in any of the abovementioned interests between the end of the financial year and 21 January 2008.

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

Except as disclosed in this report, no director who held office at the end of the financial year had interests in shares, share options, warrants or debentures of the Company, or of related corporations, either at the beginning of the financial year, or date of appointment if later, or at the end of the financial year.

DiRecTORs’ cOnTRAcTuAL benefiTsSince the end of the previous financial year, no director of the Company has received or become entitled to receive a benefit by reason of a contract made by the Company or a related corporation with the director, or with a firm of which the director is a member, or with a company in which the director has a substantial financial interest, except as disclosed in the accompanying financial statements and in this report, and except that Ms Lum Ooi Lin has an employment relationship with a subsidiary, and has received remuneration in that capacity.

Direct interest Deemed interest As at As at 1.1.2007 1.1.2007 or date of As at or date of As atname of director appointment 31.12.2007 appointment 31.12.2007

Ordinary shares of the Company Lum Ooi Lin 154,609,141 124,984,141 22,500,000 52,500,000

Gay Chee Cheong 450,000 450,000 – –

Christopher Murugasu 469,375 469,375 120,000 120,000

Professor Tan Teck Meng – 10,000 – 51,000 Share options of the Company Lum Ooi Lin 5,625,000 5,250,000 – –

Teo Kiang Kok 250,000 250,000 – –

Lee Joo Hai 250,000 250,000 – –

Gay Chee Cheong 200,000 200,000 – –

Christopher Murugasu 360,937 360,937 – –




OpTiOns AnD wARRAnTs

(a) employees’ share Option scheme:

The Hyflux Employees’ Share Option Scheme (the “Scheme”) was approved by the members of the Company at an Extraordinary General Meeting held on 27 September 2001. The Scheme provides an opportunity for employees and directors of the Company and its subsidiaries, other than substantial shareholders of the Company, to participate in the equity of the Company.

On 24 November 2003, the members of the Company approved a modification to the Scheme which allowed Ms Lum Ooi Lin, Group CEO, President and Managing Director, a substantial shareholder of the Company, to participate in the Scheme. The maximum entitlement of Ms Lum Ooi Lin is 10% of the total number of shares which may be issued by the Company under the Scheme.

The Scheme is administered by a committee (the “Committee”) comprising four directors. It shall continue to be in force at the discretion of the Committee for a period of 10 years from 27 September 2001. However, the period may be extended with the approval of members at a general meeting of the Company and of any relevant authorities which may then be required.

Details of the options to subscribe for ordinary shares of the Company granted to directors of the Company pursuant to the Scheme are as follows:

Aggregate options Options granted (including Aggregate options Aggregrate granted bonus issue) since exercised since options during the commencement of commencement of outstanding as financial the scheme to end of the scheme to end of at end of name of Director year financial year financial year financial year Lum Ooi Lin – 6,375,000 (1,125,000) 5,250,000

Teo Kiang Kok – 250,000 – 250,000

Lee Joo Hai – 250,000 – 250,000

Gay Chee Cheong – 200,000 – 200,000

Christopher Murugasu – 862,500 (501,563) 360,937

Total – 7,937,500 (1,626,563) 6,310,937

Except as disclosed in this report, since the commencement of the Scheme to the end of the financial year:

• NooptionshavebeengrantedtothecontrollingshareholdersoftheCompanyandtheirassociates;

• Noparticipanthasreceived5%ormoreoftheoptionsavailableundertheScheme;

• Nooptionshavebeengrantedtodirectorsandemployeesoftheholdingcompanyanditssubsidiaries;

• Nooptionsthatentitletheholdertoparticipate,byvirtueoftheoptions,inanyshareissueofanyother corporationhavebeengranted;and

• Theexcercisepriceoftheoptionsissetatthemarketprice,asdefinedintheScheme,atthetimeofgrant. No options have been granted at a discount.


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OpTiOns AnD wARRAnTs (cOnT’D)

(b) warrants:

On 23 November 2004, the Company entered into a Warrant Subscription Agreement with Istithmar PJSC (“Istithmar”), a company incorporated in Dubai, United Arab Emirates, in which Istithmar is entitled to subscribe for equity shares equal to 10% of the diluted share capital of the Company as adjusted under the terms of the Warrant Subscription Agreement. This was approved by the shareholders of the Company on 8 April 2005 at an Extraordinary General Meeting.

Pursuant to an agreement with Istithmar as announced on 18 March 2006, Istithmar’s entitlement to the warrant subscription was reduced from 10% to 7.5% of the diluted share capital of the Company on the date in which the warrants are exercised, subject to terms of the Warrant Subscription Agreement.

The exercise price is equivalent to the higher of (a) S$1.95 and (b) the lower of 70% of the volume-weighted average price for trades in the Company’s shares done on Singapore Exchange on the market day immediately preceding the exercise date or in the 30 calendar day period immediately preceding the exercise date.

The exercise period is from April 2008 to April 2010.

Except as disclosed above, no other options or warrants to take up unissued shares of the Company or its subsidiaries were granted and no other shares were issued by virtue of the exercise of options or warrants to take up unissued shares of the Company or its subsidiaries.

AuDiT cOmmiTTeeThe Audit Committee (“AC”) comprises the following members at the date of this report:

Mr Lee Joo Hai (Chairman)Mr Teo Kiang KokMr Gay Chee CheongProfessor Tan Teck Meng

The members of the AC, collectively, backed with legal, accounting, financial management expertise or business experience are qualified to discharge the AC’s responsibilities.

The primary functions of the AC are as follows:

(a) assisttheBoardindischargingitsstatutoryresponsibilitiesonfinancialandaccountingmatters;

(b) reviewthefinancialandoperatingresultsandaccountingpoliciesoftheGroup;

(c) review significant financial reporting issues and judgements relating to financial statements for each financial year, quarterlyandannualresultsannouncementbeforesubmissiontotheBoardforapproval;

(d) review the adequacy of the Company’s internal control (financial and operational) and risk management policies and systemsestablishedbythemanagement;

(e) review the audit plans and reports of the external and internal auditors and consider the effectiveness of the actions takenbymanagementontheauditors’recommendations;

(f) appraise and report to our Board on the audits undertaken by the external and internal auditors, the adequacy of the disclosureofinformation,andtheappropriatenessandqualityofthesystemofmanagementandinternalcontrols; and

(g) review the independence of external auditors annually and consider the appointment or re-appointment of external auditors and matters relating to the resignation or removal of the auditors and approve the remuneration and terms of engagement of the external auditors.




AuDiT cOmmiTTee (cOnT’D)

The AC held four meetings during the year. The AC has reviewed the non-audit services provided by the external auditors, including the fees paid for these services during the year, and is satisfied that the nature and extent of such services would not affect the independence of the external auditors. The AC has also reviewed the services provided by the Independent Directors’ firms and is satisfied that the provision of such services did not affect their independence.

The AC has full access to the external auditors and will hold meetings with them at least once a year without the presence of Management. The AC has authority to access all personnel, records, and other information to enable it to properly discharge its function. It has full authority and discretion to invite any Director or executive officer to attend its meetings.

The Audit Committee has recommended to the Board of Directors the nomination of Messrs KPMG in place of Messrs Ernst & Young as external auditors of the Company at the forthcoming Annual General Meeting.

On behalf of the board of directors,

Lum Ooi LinGroup CEO, President and Managing Director

Teo Kiang KokDirector

Singapore14 March 2008



STATEMENT BY DIRECTORS

We, Lum Ooi Lin and Teo Kiang Kok, being two of the directors of Hyflux Ltd, do hereby state that, in the opinion of the directors,

(i) the accompanying balance sheets, consolidated income statement, statements of changes in equity and consolidated cash flow statement together with notes thereto are drawn up so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2007, and the results of the business, changes in equity and cash flows of the Group and the changes in equity of the Company for the financial year then ended, and

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

On behalf of the board of directors:

Lum Ooi LinGroup CEO, President and Managing Director

Teo Kiang KokDirector




INDEPENDENT AUDITORS’ REPORT TO ThE MEMBERS OF hYFlUx lTD

We have audited the accompanying financial statements of Hyflux Ltd (the “Company”) and its subsidiaries (collectively, the “Group”) set out on pages 57 to 130, which comprise the balance sheets of the Group and the Company as at 31 December 2007, the statements of changes in equity of the Group and the Company, the income statement and cash flow statement of the Group for the year then ended, and a summary of significant accounting policies and other explanatory notes.

DiRecTORs’ RespOnsibiLiTy fOR THe finAnciAL sTATemenTsThe Company’s directors are responsible for the preparation and fair presentation of these financial statements in accordance with the provisions of the Singapore Companies Act, Cap. 50 (the “Act”) and Singapore Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due tofraudorerror;selectingandapplyingappropriateaccountingpolicies;andmakingaccountingestimatesthatarereasonable in the circumstances.

AuDiTORs’ RespOnsibiLiTyOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by directors, as well as evaluating the overall presentation of the financial statements.

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

OpiniOnIn our opinion,

(i) the consolidated financial statements of the Group and the balance sheet and statement of changes in equity of the Company are properly drawn up in accordance with the provisions of the Act and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2007 and the results, changes in equity and cash flows of the Group and the changes in equity of the Company for theyearendedonthatdate;and

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

eRnsT & yOungCertified Public Accountants




CONSOlIDATED INCOME STATEMENTfor the financial year ended 31 December 2007

notes 2007 2006 s$’000 s$’000 (Restated)

Revenue 3 192,786 142,379 Other income/(expenses) - net 4 108 (314)Raw materials and consumables (105,998) (77,767)Personnel expenses 5 (30,721) (20,042)Cost of share-based payment 5 (3,131) (3,150)Depreciation and amortisation (7,198) (4,969)Net (loss)/gain on sale of property, plant and equipment (4) 52Gain on sale of a subsidiary and an associate – 1,655Gain on sale of partial interest in a joint venture 8,185 –Finance income 6 2,548 5,534Finance expenses 7 (8,878) (9,078)Fair value (loss)/gain on derivative financial instruments (3,532) 115Share of profit/(loss) of associates 1,277 (910)Other operating expenses 8 (9,369) (17,166)Negative goodwill on acquisitions of subsidiaries/businesses 2,620 3,839 profit before taxation 38,693 20,178Tax expense 9 (2,048) (4,821) profit for the year 36,645 15,357 Attributable to: Shareholders of the Company 32,949 15,473Minority interests 3,696 (116) 36,645 15,357

earnings per share (cents) 10- Basic 6.32 3.00- Fully diluted 6.23 2.97

The accompanying accounting policies and explanatory notes form an integral part of the financial statements.



BAlANCE ShEETSas at 31 December 2007

group company notes 2007 2006 2007 2006 s$’000 s$’000 s$’000 s$’000 (Restated)

non-current assets Property, plant and equipment 11 62,573 33,403 7,612 4,347Investment property 12 2,373 2,502 – – Intangible assets 13 40,499 38,982 4,182 3,408Investments in subsidiaries 14 – – 134,377 104,654Investments in joint venture 15 – – 1,125 20,000Investments in associates 16 100,064 6,962 12,277 – Long-term investments 17 7,917 5,997 899 899Financial and lease receivables 18 9,570 156,990 – – Other receivables 22 – 3,979 – – Due from related parties (non-trade) 22 – – 18,833 14,515Deferred tax assets 29 1,218 505 – – Total non-current assets 224,214 249,320 179,305 147,823 current assets Gross amount due for contract work 19 93,257 48,907 9,527 14,031Inventories 20 20,641 11,193 17,498 8,506Trade receivables 21 46,110 30,734 1,148 1,165Financial and lease receivables 18 187 757 – – Other receivables and deposits 22 31,740 20,059 3,377 1,842Prepayments 6,582 5,571 1,327 1,608Due from related parties (trade) 21 15,216 15,741 22,673 15,929Due from related parties (non-trade) 22 4,787 1,433 155,412 31,145Short-term loans 23 – 98 – – Derivative financial instruments 36 – 3,758 – 228Cash and fixed deposits 24 121,047 55,827 6,074 4,694 Total current assets 339,567 194,078 217,036 79,148



BAlANCE ShEETS (CONT’D)as at 31 December 2007

group company 2007 2006 2007 2006 notes s$’000 s$’000 s$’000 s$’000 (Restated)

current liabilities Derivative financial instruments 36 – 4,995 – – Trade payables 25 55,022 35,277 1,172 1,012Other payables and accruals 26 17,747 13,884 3,216 2,030Progress payments from customers 25 25,989 3,358 2,080 2,062Interest-bearing loans and borrowings 27 5,245 33,663 5,000 30,902Finance lease liabilities 28 104 244 – – Deferred income 14,281 12,196 88 – Due to related parties (trade) 25 – – 845 30Due to related parties (non-trade) 26 1,796 1,273 36,741 9,952Tax payable 202 973 – –

Total current liabilities 120,386 105,863 49,142 45,988

net current assets 219,181 88,215 167,894 33,160 non-current liabilities

Interest-bearing loans and borrowings 27 193,266 115,001 190,596 36,518Finance lease liabilities 28 187 332 – – Deferred tax liabilities 29 2,875 4,136 159 159

Total non-current liabilities 196,328 119,469 190,755 36,677

net assets 247,067 218,066 156,444 144,306

equity attributable to shareholders of the company Share capital 30 95,820 91,142 95,820 91,142Capital reserves 31 1,064 987 – – Foreign currency translation reserve (1,815) (4,550) – – Hedging reserve 32 (4,222) (7,839) – 563Employee share option reserve 30 9,419 6,288 9,419 6,288Revenue reserve 139,506 113,573 51,205 46,313

239,772 199,601 156,444 144,306minority interests 7,295 18,465 – –

Total equity 247,067 218,066 156,444 144,306



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CONSOlIDATED CASh FlOW STATEMENTfor the financial year ended 31 December 2007

2007 2006 s$’000 s$’000 (Restated) cash flows from operating activities:Profit before taxation 38,693 20,178Adjustments: Cost of share-based payment 3,131 3,150 Fair value loss/(gain) on derivative financial instruments 3,532 (115) Gain on sale of partial interest in a joint venture (8,185) – Gain on sale of a subsidiary and an associate – (1,655) Net loss/(gain) on sale of property, plant and equipment 4 (52) Share of (profit)/loss of associates (1,277) 910 Depreciation and amortisation 7,198 4,969 Finance expenses 8,878 9,078 Finance income (2,548) (5,534) Negative goodwill on acquisitions of subsidiaries/businesses (2,620) (3,839) Impairment of trade and other receivables 45 1,433 Provision for inventory obsolescence and inventory written down 657 1,252 Goodwill arising from acquisition of interests from minority interests written-off 242 – Exchange differences 1,139 (5,355)

Operating cash flows before working capital changes 48,889 24,420 Working capital changes: Inventories (10,105) (1,118) Gross amount due for contract work (44,834) (10,096) Trade receivables (12,925) (620) Financial and lease receivables 65,261 (29,435) Other receivables, deposits and prepayments (13,572) 4,858 Due from related parties (2,153) 11,753 Trade payables 20,165 (25,440) Other payables and accruals 4,341 338 Progress payments from customers 22,631 (5,042) Deferred income 2,084 (21) Derivative financial instruments 111 166

Total working capital changes 31,004 (54,657)

Cash generated from/(used in) operating activities 79,893 (30,237)Tax paid (2,138) (1,582)

net cash from/(used in) operating activities 77,755 (31,819)



CONSOlIDATED CASh FlOW STATEMENT (CONT’D)for the financial year ended 31 December 2007

2007 2006 s$’000 s$’000 (Restated) cash flows from investing activities: Purchase of property, plant and equipment (30,393) (19,040)Acquisition of intangible assets (278) (11,000)Acquisitions of subsidiaries/businesses, net of cash acquired (Note A) (36,012) (10,871)Cash outflow from sales of a subsidiary and an associate (Note B) – (4,521)Sale of a joint venture, net of cash disposed (Note C) 16,059 – Proceeds from sale of property, plant and equipment 78 129Long-term investments (1,919) – Short-term investments – 2,000Acquisition of associates (91,875) (4,309)Interest received 2,047 1,649

net cash used in investing activities (142,293) (45,963)

cash flows from financing activities:Proceeds from issuance of new shares under Employees’ Share Option Scheme 4,678 3,007Proceeds from borrowings (net) 140,759 39,276Repayment of lease liabilities (286) (10)Interest paid (8,878) (9,078)Interest received from derivatives 501 3,886Minority shareholders’ contribution – 7,079Payments of dividends (7,016) (6,963)

net cash from financing activities 129,758 37,197

net increase/(decrease) in cash and cash equivalents 65,220 (40,585)Cash and cash equivalents at beginning of the financial year 55,827 96,412

cash and cash equivalents at end of the financial year (note 24) 121,047 55,827




note A

The fair value of the identifiable assets and liabilities of subsidiaries/businesses acquired were as follows:

2007 2006 s$’000 s$’000

Cash 4,594 3,332Current assets 36,231 14,073Non-current assets 24,228 37,730Current liabilities (9,516) (26,057)Non-current liabilities (12,553) (6,834)Minority interests – (7,114)

Fair value of net assets acquired 42,984 15,130Positive goodwill 242 3,969Negative goodwill (2,620) (3,839)

Purchase consideration 40,606 15,260Less: Deposits paid – (1,057)Less: Cash of subsidiaries acquired (4,594) (3,332) Net cash outflow on acquisitions of subsidiaries/businesses 36,012 10,871 note b

The values of assets and liabilities of a subsidiary and an associate disposed were as follows:

2007 2006 s$’000 s$’000

Current assets – 23,505Non-current assets – 7,218Current liabilities – (17,128)Non-current liabilities – (5)Minority interests – (3,044)

Net assets disposed – 10,546Gain on sale of a subsidiary and an associate – 1,655Professional fee incurred – 104 Cash proceeds from sale – 12,305Less: Cash in subsidiary and associate – (16,722)Less: Professional fees incurred – (104)

Net cash outflow on disposal of a subsidiary and an associate – (4,521)


note c

The value of assets and liabilities of joint venture disposed were as follows:

2007 2006 s$’000 s$’000 Current assets 4,248 – Non-current assets 39,667 – Current liabilities (2,827) – Non-current liabilities (31,699) –

Net assets sold 9,389 – Gain on partial disposal 8,185 – Professional fees incurred 143 –

Cash proceeds from sale 17,717 –Less: Professional fees incurred (143) – Less: Cash in a joint venture (1,515) –

Cash inflow on partial sale of interest in a joint venture 16,059 –






NOTES TO ThE FINANCIAl STATEMENTS31 December 2007

1. cORpORATe infORmATiOn

Hyflux Ltd (the “Company”) is a limited liability company, which is incorporated and domiciled in the Republic of Singapore, and publicly traded on the Singapore Exchange.

The registered office and principal place of business of the Company is located at Hyflux Building, 202 Kallang Bahru, Singapore 339339.

The principal activities of the Company are investment holding and manufacturing of membrane systems.

The principal activities of its subsidiaries comprise of the following:

• water - Seawater desalination, raw water purification, wastewater cleaning, water recycling, water reclamation and ultra pure water production for municipal and industrial clients as well as home consumer filtration and purificationproducts;

- Design, build and sale of water treatment plants, wastewater treatment plants and water recycling plants underconcessionarrangements;

• industrial manufacturing processes - Separation, concentration and purification treatments for manufacturing processstreams;

• speciality materials - Development and commercialisation of specialty materials utilising membrane technology, suchaslacticacidfromnaturalrenewableresourceslikecornandsugarcane;and

• energy - Development of membrane applications in resource recovery, waste recycling and energy reclamation such as used oil recovery and recycling.

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

2. summARy Of significAnT AccOunTing pOLicies

2.1 bAsis Of pRepARATiOn

The consolidated financial statements of the Group and the balance sheet and statement of changes in equity of the Company have been prepared in accordance with Singapore Financial Reporting Standards (“FRS”).

The financial statements have been prepared on a historical cost basis except as disclosed in the accounting policies below.

The financial statements are presented in Singapore Dollars (“S$”) and all values are rounded to the nearest thousand (“S$’000”) except when otherwise indicated.


2. summARy Of significAnT AccOunTing pOLicies (cOnT’D)

2.2 cHAnges in AccOunTing pOLicies

The accounting policies have been consistently applied by the Group and the Company and are consistent with those used in the previous financial year, except for the changes in accounting policies discussed below:

(a) Adoption of new and revised fRs

On 1 January 2007, the Group and the Company adopted the following standards effective for annual financial periods beginning on or after 1 January 2007:

(i) Amendments to FRS 1, Presentation of financial statements (Capital disclosures)

The amendments to FRS 1 require the Group to make new disclosures to enable users of the financial statements to evaluate the Group’s objectives, policies and processes for managing capital.

The required disclosures have been made accordingly in Note 37 of the financial statements.

(ii) FRS 40 Investment Property

Previously, the Group had accounted for its investment properties under FRS 16 Property, Plant and Equipment. Under FRS 16, property, plant and equipment are recorded at cost less accumulated depreciation and accumulated impairment losses. FRS 40 requires investment properties which represent the Group’s interests in leasehold buildings that are held for long term rental yields and/or capital appreciation to be classified and accounted for as investment properties. FRS 40 also requires companies to measure investment properties using either the fair value or cost method. The Group has elected to measure investment properties under the cost method. Investment properties are stated at cost less accumulated depreciation and accumulated impairment losses.

The adoption of FRS 40 does not have any significant impact on these financial statements.

(iii) FRS 107 Financial Instruments: Disclosures

FRS 107 introduces new disclosures to improve the information about financial instruments. It requires the disclosure of qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk, liquidity risk and market risk.

The required disclosures have been made accordingly in Notes 35 and 36 of the financial statements.







2.2 cHAnges in AccOunTing pOLicies (cOnT’D)

(b) fRs and inT fRs not yet effective

At the date of authorisation of these financial statements, the following FRS and INT FRS were issued but not yet effective: effective date (annual periods beginning on or after) INT FRS 111 Group and Treasury Share Transactions 1 March 2007 INT FRS 112 Service Concession Arrangements 1 January 2008 FRS 23 Amendment to FRS 23, Borrowing costs 1 January 2009 FRS 108 Operating Segments 1 January 2009

The Group has early adopted INT FRS 112. The effect of the change in this accounting policy is disclosed in Note 2.2(c).

The directors expect that the adoption of the other pronouncements above will have no material impact to the financial statements in the period of initial application.

FRS 108 requires the Group to disclose segment information based on the information reviewed by the Group’s chief operating decision maker. The impact of this standard on the other segment disclosures is still to be determined. As this is a disclosure standard, it will have no impact on the financial position or financial performance of the Group when implemented in 2009.

FRS 23 Borrowing costs has been revised to require capitalisation of borrowing costs when such costs relate to a qualifying asset. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. In accordance with the transitional requirements in the Standard, the Group will adopt this as a prospective change. Accordingly, borrowing costs will be capitalised on qualifying assets with a commencement date after 1 January 2009. No changes will be made for borrowing costs incurred to this date that have been expensed.

(c) early adoption of inT fRs 112 service concession Arrangements

On 1 January 2007, the Group and the Company adopted INT FRS 112 Service Concession Arrangements which is effective for annual financial periods beginning on or after 1 January 2008:

INT FRS 112 requires the recognition of construction revenue and the corresponding financial receivable and/or intangible asset for public-to-private service concession arrangement if:

• thepartythatgrantstheservicearrangement(the“grantor”)controlsorregulateswhatservicestheentity (the “operator”) must provide with the infrastructure asset, to whom it must provide them, and at what price;and

• the grantor controls, through ownership, beneficial entitlement or otherwise, any significant residual interest in the infrastructure asset at the end of the term of the arrangement.



2.2 cHAnges in AccOunTing pOLicies (cOnT’D)

(c) early adoption of inT fRs 112 service concession Arrangements (cont’d)

(i) Recognition of financial receivables

The Group recognises a financial receivable if it has a contractual right under the concession agreements to receive a fixed and determinable amount of payments during the Concession Period irrespective of the usage of the plants. The financial receivable is measured on initial recognition at its fair value. Subsequent to initial recognition, the financial receivable is measured at amortised cost using the effective interest method.

When the Group receives a payment during the Concession Period, it will apportion such payment between (i) a repayment of the financial receivable (if any), which will be used to reduce the carrying amount of the financial receivable on the balance sheet, (ii) interest income, which will be recognised as finance income in its income statement and (iii) revenue from operating the plants in its income statement.

(ii) Recognition of intangible assets

The Group recognises an intangible asset if it does not have any contractual right under the concession agreements to receive a fixed and determinable amount of payments during the Concession Period. The intangible asset is recognised to the extent that the Group has a right to charge fees for the usage of the plants and is amortised over the Concession Period from commencement of the operations of the plants.

The change in accounting policy is applied retrospectively. The financial effects of adoption to the balance sheet and income statement items are as follows:



2007 2006 s$’000 s$’000

consolidated balance sheet Increase/(decrease) in:

Property, plant and equipment (7,954) (13,003) Financial and lease receivables 9,757 15,653 Intangible assets (267) – Gross amounts due for contract work 2,838 (1,817) Other payables and accruals – 2,403 Foreign currency translation reserve * (1) Revenue reserve 3,143 (1,481) Minority interests – (88) consolidated income statement Increase/(decrease) in:

Revenue 19,070 12,542 Raw materials and consumables 15,234 13,435 Finance income (136) * Finance expense 743 – Personnel expenses 4 389 Depreciation and amortisation (206) 16 Other operating expenses 16 271 * Balance less than S$1,000.





2.3 significAnT AccOunTing esTimATes AnD juDgemenTs

The preparation of the Group’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenue, expenses, assets and liabilities, and the disclosure of contingent liabilities at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future.

(i) Useful lives of plant and equipment

The cost of plant and equipment is depreciated on a straight-line basis over the asset’s useful lives. Management estimates the useful lives of these plant and equipment to be within 1 to 10 years. Changes in the expected level of usage and technological developments could impact the economic useful lives and the residual values of these assets, therefore future depreciation charges could be revised. The carrying amount of the Group’s plant and equipment at 31 December 2007 is disclosed in Note 11 of the financial statements.

(ii) Impairment of non-financial assets

The Group assesses whether there are any indicators of impairment for all non-financial assets at each reporting date. Goodwill is tested for impairment annually and at other times when such indicators exist. Other non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable.

When value in use calculations are undertaken, management must estimate the expected future cash flows from the asset or cash-generating unit and choose a suitable discount rate in order to calculate the present value of those cash flows. Further details of the key assumptions applied in the impairment assessment of goodwill, are given in Note 13 of the financial statements.

(iii) Impairment of loans and receivables

The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset is impaired. To determine whether there is objective evidence of impairment, the Group considers factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments.

Where there is objective evidence of impairment, the amount and timing of future cash flows are estimated based on historical loss experience for assets with similar credit risk characteristics. The carrying amount of the Group’s loans and receivables at the balance sheet date is disclosed in Note 21 of the financial statements.

(iv) Income taxes

The Group has exposure to income taxes in numerous jurisdictions. Significant assumption is required in determining the provision for income taxes. There are certain transactions and computations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for expected tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recognised, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. The carrying amount of the Group’s income tax payables and deferred tax liabilities is disclosed in the balance sheet.



2.3 significAnT AccOunTing esTimATes AnD juDgemenTs (cOnT’D)

(v) Impairment of available-for-sale investments

The Group follows the guidance of FRS 39 in determining whether available-for-sale investments are considered impaired. The Group evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its costs, the financial health of and the near-term business outlook of the investee, including factors such as industry and sector performance, changes in technology and operational and financing cashflow.

(vi) Development costs

Development costs are capitalised in accordance with the accounting policy in Note 2.12(b)(i). Initial capitalisation of costs is based on management’s judgement that technological and economical feasibility is confirmed, usually when a product development project has reached a defined milestone according to an established project management model. The carrying amount of development costs capitalised at the balance sheet date is disclosed in Note 13 of the financial statements.

(vii) Construction contracts

The Group recognises contract revenue by reference to the stage of completion of the contract activity at the balance sheet date, when the outcome of a construction contract can be estimated reliably. The stage of completion is measured by reference to the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs. Significant assumptions are required to estimate the total contract costs and the recoverable variation works that will affect the stage of completion. The estimates are made based on past experience and knowledge of the project engineers. The carrying amounts of assets and liabilities arising from construction contracts at the balance sheet date are disclosed in Note 19 of the financial statements.

(viii) Service concession agreements

The revenue for the construction services provided under the concession agreements and the corresponding financial receivables and/or intangible assets arising are recognised based on the percentage of completion method during the construction phase.

The percentage of completion method during the construction phase is measured by reference to the construction costs incurred to-date to the estimated total construction costs. Significant judgement is required in determining the stage of completion, the extent of the construction costs incurred and the estimated total construction costs.

Judgement is also exercised in determining the fair values of the financial receivables. Discount rates, estimates of future cash flows and other factors are used in the valuation process. The assumptions used and estimates made can materially affect the fair value estimates.





2.4 fOReign cuRRency

Transactions in foreign currencies are measured in the respective functional currencies of the Company and its subsidiaries and are recorded on initial recognition in the functional currencies at exchange rates approximating those ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

Exchange differences arising on the settlement of monetary items or on translating monetary items at the balance sheet date are recognised in the income statement except for exchange differences arising on monetary items that form part of the Group’s net investment in foreign subsidiaries, which are recognised initially in equity as foreign currency translation reserve in the consolidated balance sheet and recognised in the consolidated income statement on disposal of the subsidiary.

On consolidation, the assets and liabilities of foreign operations are translated into S$ at the rate of exchange ruling at the balance sheet date and their income statements are translated at the weighted average exchange rates for the year. The exchange differences arising on the translation are taken directly to a separate component of equity as foreign currency translation reserve. On disposal of a foreign operation, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the income statement.

The foreign currency translation reserve represents exchange differences arising from the translation of the financial statements of foreign operations whose functional currencies are different from those of the Group’s presentation currency.

2.5 subsiDiARies

A subsidiary is an entity over which the Group has the power to govern the financial and operating policies so as to obtain benefits from its activities.

In the Company’s separate financial statements, investments in subsidiaries are accounted for at cost less accumulated impairment losses.

2.6 AssOciATes

An associate is an entity, not being a subsidiary or a joint venture, in which the Group has significant influence. The associate is equity accounted for from the date the Group obtains significant influence until the date the Group ceases to have significant influence over the associate.

The Group’s investments in associates are accounted for using the equity method. Under the equity method, the investment in associate is measured in the balance sheet at cost plus post-acquisition changes in the Group’s share of net assets of the associate. Goodwill relating to an associate is included in the carrying amount of the investment. Any excess of the Group’s share of the net fair value of the associate’s identifiable asset, liabilities and contingent liabilities over the cost of the investment is deducted from the carrying amount of the investment and is recognised as income as part of the Group’s share of profit or loss of the associate in the period in which the investment is acquired.





2.6 AssOciATes (cOnT’D)

When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

The financial statements of the associate are prepared as of the same reporting date as the Company. Where necessary, adjustments are made to bring the accounting policies into line with those of the Group.

In the Company’s separate financial statements, investments in associates are accounted for at cost less accumulated impairment losses.

2.7 jOinT venTuRes

A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control, where the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control. The Group recognised its interest in the joint ventures using proportionate consolidation. The Group combines its share of each of the assets, liabilities, income and expenses of the joint ventures with the similar items, line by line, in its consolidated financial statements. The financial statements of the joint ventures are prepared for the same reporting year as the Group. Consistent accounting policies are applied for like transactions and events in similar circumstances.

The joint ventures are proportionately consolidated until the date on which the Group ceases to have joint control over joint ventures.

In the Company’s separate financial statements, interests in joint ventures are accounted for at cost less accumulated impairment losses.

2.8 bAsis Of cOnsOLiDATiOn

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at the balance sheet date. The financial statements of the subsidiaries used in the preparation of the consolidated financial statements are prepared for the same reporting date as the Company. Consistent accounting policies are applied to like transactions and events in similar circumstances.

All intra-group balances, income and expenses and unrealised gains and losses resulting from intra-group transactions are eliminated in full.

Acquisitions of subsidiaries are accounted for by applying the purchase method. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Adjustments to those fair values relating to previously held interests are treated as a revaluation and recognised in equity. Any excess of the cost of business combination over the Group’s share in the net fair value of the acquired subsidiary’s identifiable assets, liabilities and contingent liabilities is recorded as goodwill on the balance sheet. The accounting policy for goodwill is set out in Note 2.12(a). Any excess of the Group’s share in the net fair value of the acquired subsidiary’s identifiable assets, liabilities and contingent liabilities over the cost of business combination is recognised as income in the income statement on the date of acquisition.

Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases.





2.9 TRAnsAcTiOn wiTH minORiTy inTeResTs Minority interests represent the portion of profit or loss and net assets in subsidiaries not held by the Group and are presented separately in the consolidated income statement and within equity in the consolidated balance sheet, separately from parent shareholders’ equity. Transactions with minority interests are accounted for as transactions with parties external to the Group. Disposals to minority interests result in gain and loss for the Group that are recognised in the income statement. Purchases from minority interests result in goodwill being the difference between any consideration paid and the Group’s incremental share of the carrying value of identifiable net assets of the subsidiary.

2.10 pROpeRTy, pLAnT AnD equipmenT

All items of property, plant and equipment are initially recorded at cost. The cost of an item of property, plant and equipment is recognised as an asset if, and only if, it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably.

Subsequent to recognition, property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.

Depreciation is computed on a straight-line basis over the estimated useful lives of the assets as follows:

Plant and machinery – 4 – 10 years Motor vehicles – 4 – 5 years Computers – 1 – 5 years Office equipment – 4 – 5 years Leasehold properties and improvements – 5 years or over the lease period Furniture and fittings – 4 to 5 years Renovation – 4 to 5 years

Assets under construction included in property, plant and equipment are not depreciated as these assets are not yet available for use.

The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.

The residual value, useful life and depreciation method are reviewed at each financial year-end to ensure that the amount, method and period of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the items of property, plant and equipment.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on derecognition of the asset is included in the income statement in the year the asset is derecognised.





2.11 invesTmenT pROpeRTy

Investment property is initially recorded at cost. Subsequent to recognition, investment property is stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is computed utilising the straight-line method to write off the cost of leasehold properties over their estimated useful lives. The estimated useful life is over the lease period of the investment property.

Investment property is derecognised when either it has been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognised in the income statement in the year of retirement or disposal. Transfers are made to or from investment property only when there is a change in use.

2.12 inTAngibLe AsseTs

(a) goodwill

Goodwill acquired in a business combination is initially measured at cost. Following initial recognition, goodwill is measured at cost less accumulated impairment losses. Goodwill is reviewed for impairment annually or more frequently if events and circumstances indicate that the carrying value may be impaired.

For the purpose of impairment testing, goodwill acquired is allocated to each of the Group’s cash-generating units that are expected to benefit from the synergies of the combination.

The cash-generating unit to which goodwill has been allocated is tested for impairment annually and whenever there is an indication that the cash-generating unit may be impaired, by comparing the carrying amount of the cash-generating unit, including the allocated goodwill, with the recoverable amount of the cash-generating unit. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised in the income statement. Impairment losses recognised for goodwill are not reversed in subsequent periods.

Where goodwill forms part of a cash-generating unit and part of the operation within that cash-generating unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative fair values of the operations disposed of and the portion of the cash-generating unit retained.

Goodwill and fair value adjustments arising on the acquisition of foreign operations on or after 1 January 2005 are treated as assets and liabilities of the foreign operations and are recorded in the functional currency of the foreign operations and translated in accordance with the accounting policy set out in Note 2.4.

Goodwill and fair value adjustments which arose on acquisitions of foreign operations before 1 January 2005 are deemed to be assets and liabilities of the Company and are recorded in S$ at the rates prevailing at the date of acquisition.





2.12 inTAngibLe AsseTs (cOnT’D)

(b) Other intangible assets

Intangible assets acquired separately or generated internally are measured initially at cost. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Following initial acquisition, intangible assets are measured at cost less any accumulated amortisation and accumulated impairment losses.

Intangible assets with finite useful lives are amortised over the estimated useful lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method are reviewed at least at each financial year-end.

(i) Research and development costs

Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in the income statement as an expense when it is incurred.

Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditure is capitalised when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete and the ability to measure reliably the expenditure during the development.

The carrying value of development costs is reviewed for impairment annually when the asset is not yet in use or more frequently when an indication of impairment arises during the reporting year. Upon completion, the development costs is amortised on a straight-line basis over the estimated useful life which normally does not exceed 15 years.

(ii) Intellectual property rights

The initial cost of acquiring intellectual property rights is capitalised and amortised on a straight-line basis over the period of their expected benefits, which normally does not exceed 10 years.

(iii) Licensing fees

The initial cost of acquiring licenses is capitalised and amortised on a straight-line basis over the period of the licensing agreements of between 10 and 20 years.





2.13 impAiRmenT Of nOn-finAnciAL AsseTs

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset (i.e. an intangible asset with an indefinite useful life, an intangible asset not yet available for use, or goodwill acquired in a business combination) is required, the Group makes an estimate of the asset’s recoverable amount.

An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or Groups of assets. In assessing value in use, the estimated future cash flows are discounted to their present value. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Impairment losses of continuing operations are recognised in the income statement.

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses recognised for an asset other than goodwill may no longer exist or may have decreased. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Reversal of an impairment loss is recognised in the income statement.

2.14 finAnciAL AsseTs

Financial assets are recognised on the balance sheet when, and only when, the Group becomes a party to the contractual provisions of the financial instrument.

When financial assets are recognised initially, they are measured at fair value, plus, in the case of financial assets not at fair value through profit or loss, directly attributable transaction costs.

A financial asset is derecognised where the contractual right to receive cash flows from the asset has expired. On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sum of the consideration received and any cumulative gain or loss that has been recognised directly in equity is recognised in the income statement.

All regular way purchases and sales of financial assets are recognised or derecognised on the trade date i.e. the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace concerned.

(a) Loans and receivables

Non-derivative financial assets with fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method. Gains and losses are recognised in the income statement when the loans and receivables are recognised or impaired, and through the amortisation process.





2.14 finAnciAL AsseTs (cOnT’D)

(b) Available-for-sale financial assets

Available-for-sale financial assets are financial assets that are not classified in any of the other categories.

The Group has investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured. These investments are measured and carried at cost less accumulated impairment losses.

2.15 cAsH AnD cAsH equivALenTs

Cash and cash equivalents comprise cash on hand, fixed deposits, and short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. These also include bank overdrafts that form an integral part of the Group’s cash management.

2.16 impAiRmenT Of finAnciAL AsseTs

The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or group of financial assets is impaired.

a) Assets carried at amortised cost

If there is objective evidence that an impairment loss on financial assets carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account. The impairment loss is recognised in the income statement.

When the asset becomes uncollectible, the carrying amount of impaired financial assets is reduced directly or if an amount was charged to the allowance account, the amounts charged to the allowance account are written off against the carrying value of the financial asset.

To determine whether there is objective evidence that an impairment loss on financial assets has been incurred, the Group considers factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments.

If in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in the income statement, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date.





2.16 impAiRmenT Of finAnciAL AsseTs (cOnT’D)

(b) Available-for-sale financial assets

Significant or prolonged decline in fair value below cost, significant financial difficulties of the issuer or obligor, and the disappearance of an active trading market are considerations to determine whether there is objective evidence that investment securities classified as available-for-sale financial assets are impaired.

If an available-for-sale financial asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in the income statement, is transferred from equity to the income statement. Reversals of impairment loss in respect of equity instruments are not recognised in the income statement. Reversals of impairment losses on debt instruments are reversed through the income statement, if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognised in the income statement.

2.17 cOnsTRucTiOn cOnTRAcTs When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs are recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the balance sheet date (“percentage-of-completion method”). When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred that are likely to be recoverable. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.

Contract revenue comprises the initial amount of revenue agreed in the contract and variations in the contract work and claims that can be measured reliably. A variation or a claim is recognised as contract revenue when it is probable that the customer will approve the variation or negotiations have reached an advanced stage such that it is probable that the customer will accept the claim.

The stage of completion is measured by reference to the contract costs incurred to date to the estimated total costs for the contract. Costs incurred during the financial year in connection with future activity on a contract are excluded from costs incurred to date when determining the stage of completion of a contract. Such costs are shown as construction contract work-in-progress on the balance sheet unless it is not probable that such contract costs are recoverable from the customers, in which case, such costs are recognised as an expense immediately.

At the balance sheet date, the aggregated costs incurred plus recognised profit (less recognised loss) on each contract is compared against the progress billings. Where costs incurred plus the recognised profits (less recognised losses) exceed progress billings, the balance is presented as “Gross amount due for contract work”. Where progress billings exceed costs incurred plus recognised profits (less recognised losses), the balance is presented as due to customers on construction contracts within “Trade and other payables”.

Progress billings not yet paid by customers and retentions and advances received are presented as “Progress payments from customers”.





2.18 invenTORies

Inventories are stated at the lower of cost and net realisable value.

Costs incurred in bringing the inventories to their present location and condition are accounted for as follows:

• Rawmaterials – purchasecostsonafirst-in,first-outbasis; • Finishedgoodsandwork-in-progress – costsofdirectmaterialsandlabourandaproportionof manufacturing overheads based on normal operating capacity.

2.19 finAnciAL LiAbiLiTies

Financial liabilities are recognised on the balance sheet when, and only when, the Group becomes a party to the contractual provisions of the financial instrument.

Financial liabilities are recognised initially at fair value, plus, in the case of financial liabilities other than derivatives, directly attributable transaction costs.

Subsequent to initial recognition, all financial liabilities are measured at amortised cost using the effective interest method, except for derivatives, which are measured at fair value.

A financial liability is derecognised when the obligation under the liability is extinguished. For financial liabilities other than derivatives, gains and losses are recognised in the income statement when the liabilities are derecognised or impaired, and through the amortisation process. Any gains or losses arising from changes in fair value of derivatives are recognised in the income statement. Net gains or losses on derivatives include exchange differences.

2.20 bORROwing cOsTs

Borrowing costs are recognised in the income statement as incurred except to the extent that they are capitalised. Borrowing costs are capitalised if they are directly attributable to the acquisition, construction or production of a qualifying asset. Capitalisation of borrowing costs commences when the activities to prepare the asset for its intended use or sale are in progress and the expenditures and borrowing costs are incurred. Borrowing costs are capitalised until the assets are ready for their intended use or sale.

2.21 pROvisiOns

Provisions are recognised when the Group has a present obligation 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 the amount of the obligation can be estimated reliably.

Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.





2.22 empLOyee benefiTs

(a) Defined contribution plans

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 make contributions to the Central Provident Fund scheme in Singapore, a defined contribution pension scheme. Contributions to national pension schemes are recognised as an expense in the period in which the related service is performed.

(b) employee leave entitlement

Employee entitlements to annual leave are recognised as a liability when they accrue to employees. The estimated liability for leave is recognised for services rendered by employees up to balance sheet date.

(c) employee share option plans

Employees of the Group receive remuneration in the form of share options as consideration for services rendered. The cost of these equity-settled transactions with employees is measured by reference to the fair value of the options at the date on which the options are granted. This cost is recognised in the income statement, with a corresponding increase in the employee share option reserve, over the vesting period. The cumulative expense recognised at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of options that will ultimately vest. The charge or credit to the income statement for a period represents the movement in cumulative expense recognised as at the beginning and end of that period.

No expense is recognised for options that do not ultimately vest, except for options where vesting is conditional upon a market condition which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance and/or service conditions are satisfied. The employee share option reserve is transferred to retain earnings upon expiry of the share options. When the options are exercised, the employee share option reserve is transferred to share capital as new shares are issued.

2.23 LeAses

(a) As lessee

Finance leases, which transfer to the Group substantially all the risks and rewards incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Any initial direct costs are also added to the amount capitalised. 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 to the income statement. Contingent rents, if any, are charged as expenses in the periods in which they are incurred.

Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term.

Leased assets in which the Group does not assume the risks and rewards of ownership are classified as operating leases. Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term. The aggregate benefit of incentives provided by the lessor is recognised as a reduction of rental expense over the lease term on a straight-line basis.





2.23 LeAses (cOnT’D)

(b) As lessor

Leases where the Group retains substantially all the risks and rewards of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same bases as rental income.

Leases where the Group transfer substantially all the risks and rewards of ownership of the leased asset to the lessee are classified as finance leases.

Lease receivables are apportioned between the finance lease income and reduction of the lease receivable so as to achieve a constant rate of interest on the remaining balance of the asset. Finance lease income is recognised in the income statement.

2.24 Revenue

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable.

(a) contract revenue

Revenue is recognised using the percentage-of-completion method. The stage of completion measured by relevance to, where appropriate, the contract value of work performed to date (based on project milestones) to estimated total contract value or the proportion that contract costs incurred for work performed to-date bear to the estimated total contract costs. Where the contract outcome cannot be measured reliably, revenue is recognised only to the extent of contract costs incurred that are recoverable.

(b) Operating and maintenance income

Revenue is recognised upon rendering of services.

(c) finance lease income

Accounting policy for recognising finance lease income is stated in Note 2.23.

(d) sale of goods

Revenue is recognised upon the transfer of significant risks and rewards of ownership of the goods to the customer, which generally coincides with delivery and acceptance of the goods sold. Revenue is not recognised to the extent where there are significant uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods.





2.24 Revenue (cOnT’D)

(e) Licence fee

Licence fees collected for the use of an enterprise’s assets are recognised in accordance with the substance of the agreement. This is usually on a straight-line basis over the life of the agreement. When the Group has fulfilled all obligations under the license fee agreement, the license fees collected will be recognised in full immediately.

In instances whereby licence fee will be received is contingent on the occurrence of a future event, the revenue is recognised only when it is probable that the licence fee will be received, which is normally when the event has occurred.

(f) finance income

Accounting policy for recognising finance income is stated in Note 2.2(c)(i).

(g) Rental income

Rental income arising on investment property is accounted for on a straight-line basis over the lease period.

(h) interest income

Interest income is recognised as interest accrues (using the effective interest method).

2.25 incOme TAxes

(a) current tax

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date. Current taxes are recognised in the income statement.

(b) Deferred tax

Deferred income tax is provided using the liability method on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.





2.25 incOme TAxes (cOnT’D)

(b) Deferred tax (cont’d)

Deferred tax liabilities are recognised for all taxable temporary differences, except:

• Wherethedeferredtaxliabilityarisesfromtheinitialrecognitionofgoodwillorofanassetorliabilityina transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profitnortaxableprofitorloss;

• Inrespectoftaxabletemporarydifferencesassociatedwithinvestmentsinsubsidiaries,associatesand interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and itisprobablethatthetemporarydifferenceswillnotreverseintheforeseeablefuture;and

• Inrespectofdeductibletemporarydifferencesandcarry-forwardofunusedtaxcreditsandunusedtaxlosses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax credits and unused tax losses can be utilised.

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Deferred taxes are recognised in the income statement.

(c) sales tax

Revenues, expenses and assets are recognised net of the amount of sales tax except:

• Where thesales tax incurredonapurchaseofassetsorservices isnot recoverable fromthe taxation authority, in which case the sales tax is recognised as part of the cost of acquisition of the asset or as part oftheexpenseitemasapplicable;and

• Receivablesandpayablesthatarestatedwiththeamountofsalestaxincluded.

The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet.

2.26 DeRivATive finAnciAL insTRumenTs AnD HeDging AcTiviTies

A derivative financial instruments is initially recognised at fair value on the date of the contract is entered into and are subsequently remeasured at fair value. Derivative financial instruments are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

Any gains or losses arising from changes in fair value on derivative financial instruments that do not qualify for hedge accounting are taken to the income statement.





2.27 gOveRnmenT gRAnTs

Government grants are recognised at their fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. Where the grant relates to an asset, the fair value is recognised as deferred capital grant on the balance sheet and is amortised to the income statement over the expected useful life of the relevant asset by equal annual instalments.

When the grant relates to an expense item, it is recognised in the income statement over the period necessary to match them on a systematic basis to the costs that it is intended to compensate. Grants related to income is presented as a credit in the income statement, either separately or under a general heading such as “Other income”.

2.28 segmenT RepORTing

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

2.29 sHARe cApiTAL AnD sHARe issue expense

Proceeds from issuance of ordinary shares are recognised as share capital in equity. Incremental costs directly attributable to the issuance of ordinary shares are deducted against share capital.

2.30 cOnTingencies

A contingent liability or asset is a possible obligation or asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of uncertain future event(s) not wholly within the control of the Group.

Contingent liabilities and assets are not recognised on the balance sheet of the Group.

3. Revenue group 2007 2006 s$’000 s$’000 (Restated)

Revenue from construction contracts and service concession arrangements 181,906 110,619 Operating and maintenance income 6,562 7,929 Finance lease income 1,630 11,695 Sale of goods 1,264 5,369 Licence fee 37 6,443 Finance income 1,387 324 192,786 142,379




4. OTHeR incOme/(expenses) – neT group 2007 2006 s$’000 s$’000

Rental income : - Investment property (Note 12) 228 228 - Others 56 127

284 355 Net foreign exchange loss arising from derivative financial instruments (6) (283) Goodwill arising from acquisition of interests from minority interests written off (242) – Others 72 (386) 108 (314)

5. empLOyees cOmpensATiOn group 2007 2006 s$’000 s$’000 (Restated)

Wages, salaries and bonuses 23,165 15,031 Pension contributions 2,419 1,881 Other personnel expenses 5,137 3,130 Total personnel expenses 30,721 20,042 Cost of share-based payments 3,131 3,150 33,852 23,192 Details of the key management personnel compensation included in the employees compensation are as follows:

Directors’ fees 457 305 Short-term employee benefits 2,286 1,958 Cost of share-based payments 1,600 1,436 Total compensation for key management personnel 4,343 3,699 Comprise amounts payable to: - Directors of the Company 2,057 1,967 - Other key management personnel 2,286 1,732 4,343 3,699 The remuneration of key management personnel is determined by the Remuneration Committee having regard to the performance of individuals and market trends.




6. finAnce incOme

group 2007 2006 s$’000 s$’000 Interest income from: - loans and receivables 2,548 5,534 7. finAnce expenses

group 2007 2006 s$’000 s$’000

Interest expense on: - bank loans 8,092 9,558 - obligation under finance lease 27 4

8,119 9,562 Amortised interest on loans and receivables 1,697 – Less: Interest expense capitalise in plant and equipment (Note 11) (938) (484) Finance expenses recognised in the income statement 8,878 9,078

8. OTHeR OpeRATing expenses

The following items have been included in arriving at other operating expenses:

group 2007 2006 s$’000 s$’000 (Restated) Crediting/(charging):

Non-audit fees paid to auditors of the Company (156) (165) Provision for inventory obsolescence (378) – Inventory written down (279) (1,252) Impairment of financial assets - trade receivables (Note 21) (1,022) (197) - other receivables (Note 22) – (1,236) Reversal of impairment of trade receivables (Note 21) 977 – Foreign exchange gain/(loss) - net 8,805 (2,530)




9. TAx expense

(a) major components of income tax expense

The major components of income tax expense for the years ended 31 December 2007 and 2006 are:

(i) Income statement:

group 2007 2006 s$’000 s$’000

Current income tax - current income taxation 1,065 1,345 - (over)/under provision in respect of previous years (242) 55

823 1,400 Deferred income tax - originated and reversal of temporary differences 1,587 335 - effect of reduction in tax rate (362) – - underprovision in respect of previous years – 3,086 1,225 3,421

Income tax expense recognised in the income statement 2,048 4,821 (ii) Statement of changes in equity:

Net change in hedging reserve for derivative financial instruments designated as hedging instruments in cash flow hedges:

- commodity swaps – (706) - interest rate swaps – 999 Fair value adjustments on acquisition of subsidiaries – (809) Income tax expense reported in equity – (516)




9. TAx expense (cOnT’D)

(b) Relationship between tax expense and profit before taxation

A reconciliation between tax expense and profit before taxation multiplied by the applicable corporate tax rate for the years ended 31 December 2007 and 2006 is as follows:

group 2007 2006 s$’000 s$’000 Profit before taxation 38,693 20,178 Tax at the domestic rates applicable to profits in the countries where the Group operates (1) 9,170 5,201 Adjustments: Non-deductible expenses 2,028 948 Income not subject to taxation (6,222) (2,273) Effect of reduction in tax rate (362) – Effect of partial tax exemption and tax relief (5,874) (3,600) Deferred tax assets not recognised (Note 29) 3,550 1,404 (Over)/under provision in respect of previous years (242) 3,141

Income tax expense recognised in the income statement 2,048 4,821

(1) The reconciliation is prepared by aggregating separate reconciliations for each national jurisdiction.

The corporate income tax rate applicable to Singapore companies of the Group was reduced to 18% for the Year of Assessment 2008 onwards from 20% for the Year of Assessment 2007.

The Company has been granted Pioneer Status in respect of production and sale of membrane systems. Accordingly, the Company enjoys for a period of seven years, commencing from 1 September 2001, tax exemption on income arising from sale of membrane systems subject to the terms and conditions of the Pioneer Status.

In accordance with the “Income Tax Law of the People’s Republic of China for Enterprises with Foreign Investment and Foreign Enterprises”, Hyflux Filtech (Shanghai) Co., Ltd, Hyflux Unitech (Shanghai) Co., Ltd and Hyflux NewSpring Construction (Shanghai) Co., Ltd are entitled to full exemption from Enterprise Income Tax (“EIT”) for the first two years and a 50% reduction in EIT for the next three years, commencing from the first profitable year after offsetting all tax losses carried forward from the previous five years. Hyflux Filtech (Shanghai) Co., Ltd is in its fourth profitable year after offsetting all accumulated losses. Accordingly, 50% of EIT is payable for the current year. Hyflux Unitech (Shanghai) Co., Ltd is in its first profitable year after offsetting all accumulated losses. Accordingly, its profit is exempted from EIT in the current financial year. Hyflux NewSpring Construction (Shanghai) Co., Ltd is in its second profitable year after offsetting all accumulated losses. Accordingly, its profit is exempted from EIT in the current financial year.




9. TAx expense (cOnT’D)

(b) Relationship between tax expense and profit before taxation (cont’d)

In addition, Hydrochem Engineering (Shanghai) Co., Ltd has been granted “Hi-Tech Incentive” for a period of five years commencing from 2006 to 2010. Under this incentive, the Company is refunded 2.1% of the income tax by the Pudong New District Treasury Authority.

Subsidiaries incorporated in the British Virgin Islands (“BVI”) are exempted from all income taxes in BVI in accordance with local tax laws.

10. eARnings peR sHARe

Basic earnings per share amounts are calculated by dividing profit for the year attributable to shareholders of the Company by the weighted average number of ordinary shares outstanding during the financial year.

Diluted earnings per share amounts are calculated by dividing profit for the year attributable to shareholders of the Company by the weighted average number of ordinary shares outstanding during the financial year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.

The following table reflects the income statement and share data used in the computation of basic and diluted earnings per share for the years ended 31 December:

group 2007 2006

Profit net of tax attributable to shareholders of the Company used in computation of basic and diluted earnings per share (S$’000) 32,949 15,473 Weighted average number of ordinary shares for basic earnings per share computation 521,256,402 516,507,735 Dilutive effect of share options 7,695,573 5,002,528 Weighted average number of ordinary shares adjusted for the effect of dilution 528,951,975 521,510,263 Nil (2006: 2,550,000) share options granted to employees under the existing employee share option plans have not been included in the calculation of diluted earnings per share because they are anti-dilutive for the current and previous financial years.

Warrants granted to a shareholder, details of which are disclosed in Note 30(b), have not been included in the calculation of diluted earnings per share because the dilutive effect of the warrants could not be reliably estimated.




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11.

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12. invesTmenT pROpeRTy group s$’000

cost: At 1.1.2006 – Adoption of FRS 40 3,348 At 1.1.2006 (restated), 31.12.2006 and 31.12.2007 3,348

Accumulated depreciation: At 1.1.2006 – Adoption of FRS 40 717

At 1.1.2006 (restated) 717 Charge for the year 129

At 31.12.2006 (restated) 846 Charge for the year 129

At 31.12.2007 975

net carrying amount: At 31.12.2007 2,373

At 31.12.2006 2,502

group 2007 2006 s$’000 s$’000 (Restated)

Credited/(charged) to income statement:

Rental income from investment property 228 228 Direct operating expenses arising from investment property (59) (59)

The fair value of the investment property at 31 December 2007 is approximating S$3,115,000.




13. inTAngibLe AsseTs intellectual goodwill on property Development Licensing concession consolidation rights costs fees rights Total s$’000 s$’000 s$’000 s$’000 s$’000 s$’000 group cost At 1.1.2006 223 2,561 17,406 3,591 – 23,781 Additions – 103 5,183 2,358 4,506 12,150 Acquisition of subsidiaries 4,065 2,403 – – 1,898 8,366 Disposals – – (98) (193) – (291) Net exchange differences – (385) (7) (8) – (400)

At 31.12.2006 and 1.1.2007 4,288 4,682 22,484 5,748 6,404 43,606 Additions – 49 9,419 746 – 10,214 Acquisition of businesses – – – – 3,559 3,559 Disposals – (16) (142) (1,022) (9,963) (11,143) Net exchange differences – 77 4 – – 81

At 31.12.2007 4,288 4,792 31,765 5,472 – 46,317

Accumulated amortisation At 1.1.2006 – 592 1,321 819 – 2,732 Amortisation – 47 1,652 213 – 1,912 Disposals – – (10) – – (10) Net exchange differences – – (8) (2) – (10)

At 31.12.2006 and 1.1.2007 – 639 2,955 1,030 – 4,624 Amortisation – 51 1,557 357 308 2,273 Disposals – – (77) (697) (308) (1,082) Net exchange differences – – 3 – – 3

At 31.12.2007 – 690 4,438 690 – 5,818

net carrying amount At 31.12.2007 4,288 4,102 27,327 4,782 – 40,499 At 31.12.2006 4,288 4,043 19,529 4,718 6,404 38,982




13. inTAngibLe AsseTs (cOnT’D)

intellectual property Development Licensing rights costs fees Total s$’000 s$’000 s$’000 s$’000

company cost At 1.1.2006 1,711 259 – 1,970 Additions 51 – 1,479 1,530

At 31.12.2006 and 1.1.2007 1,762 259 1,479 3,500 Additions 17 8 888 913

At 31.12.2007 1,779 267 2,367 4,413 Accumulated amortisation At 1.1.2006 19 30 – 49 Amortisation 13 26 4 43

At 31.12.2006 and 1.1.2007 32 56 4 92 Amortisation 15 26 98 139

At 31.12.2007 47 82 102 231 net carrying amount At 31.12.2007 1,732 185 2,265 4,182

At 31.12.2006 1,730 203 1,475 3,408 Impairment testing of goodwill

Goodwill is allocated to the Group’s cash-generating units (CGUs) identified according to country of operation and business segment.

A segment-level summary of the goodwill allocation is presented below:

industrial Others Total s$’000 s$’000 s$’000 Singapore 1,525 360 1,885 Netherlands 2,403 – 2,403 3,928 360 4,288




13. inTAngibLe AsseTs (cOnT’D)

The recoverable amount of CGU is determined based on value-in-use calculations. The calculations use cash flow projections based on financial budgets approved by management covering a five-year period.

The assumptions used for the analysis of each CGU within the business segment are consistent with the industry forecast and the discount rates used of 8% are pre-tax and reflect specific risks relating to the relevant segments.

14. invesTmenTs in subsiDiARies company 2007 2006 s$’000 s$’000 Unquoted equity shares, at cost 113,106 82,470 Loans due from subsidiaries 24,509 25,422

137,615 107,892 Impairment losses (3,238) (3,238)

Carrying amount of investments 134,377 104,654 The directors have determined that the loans due from subsidiaries form part of the Company’s investment and are therefore included in the cost of investments in subsidiaries. These loans are unsecured and non-interest bearing. They have no fixed repayment terms and are repayable only when cash flows of the subsidiaries permit. Accordingly, the fair values are not determinable as the timing of the future cash flows arising from the loans cannot be estimated reliably.

Details of the significant subsidiaries are as follows:

country of incorporation effective equity and place of interest held by name of companies principal activities business the group 2007 2006 % % Held by the company Hydrochem (S) Pte Ltd Engineering, procurement, Singapore 100 100 construction (“EPC”), installation, testing, commissioning, operation and maintenance of liquid treatment plants

Hydrochem Engineering Provision of management services Singapore 100 100 (S) Pte Ltd and supply of fabricated components

Hyflux Engineering Pte Ltd Operation and maintenance of liquid Singapore 100 100 treatment plants and sale of treated liquids Hyflux International Ltd(1) Investment holding British Virgin 100 100 Islands




14. invesTmenTs in subsiDiARies (cOnT’D) country of incorporation effective equity and place of interest held by name of companies principal activities business the group 2007 2006 % % Held by the company (cont’d) Hyflux Lifestyle Products (S) Research, development, manufacture, Singapore – 100 Pte Ltd(7) marketing and distribution of consumer lifestyle products and merchandise

Hyflux Aquosus (Singapore) Manufacture and sale of consumer Singapore – 100 Pte Ltd(7) products

Hyflux Filtech (Singapore) Investment holding Singapore 71 71 Pte Ltd Hyflux NewSpring EPC, installation, testing, commissioning, People’s 100 100 Construction Engineering operation and maintenance of liquid and Republic of (Shanghai) Co., Ltd(2) non-liquid treatment plants China

Hyflux IP Resource Pte Ltd Investment holding Singapore 100 100

SinoSpring Utility Ltd(1)(8) Investment holding British Virgin 100 80 Islands

Eflux Singapore Pte Ltd Collection, processing, recycling, Singapore 100 100 purification and sale of spent/ solvent products

Hyflux Consumer Products Investment holding Singapore 100 100 Pte Ltd(7)

Hyflux Water Projects Ltd Investment holding British Virgin 100 – Islands

Spring China Utility Ltd(1) Investment holding British Virgin 100 – Islands

New Spring Utility Pte Ltd Investment holding Singapore 100 – Held through subsidiaries Hydrochem Engineering EPC, installation, testing, and People’s 100 100 (Shanghai) Co., Ltd(4) commissioning of industrial liquid Republic of separation and treatment systems China

Hyflux Filtech Shanghai EPC, installation, testing, commissioning People’s 71 71 Co., Ltd(2) of industrial liquid separation and Republic of treatment systems China Eflux SK Pte Ltd Manufacture and blending of Singapore 51 51 lubricating oil






14. invesTmenTs in subsiDiARies (cOnT’D) country of incorporation effective equity and place of interest held by name of companies principal activities business the group 2007 2006 % % Held through subsidiaries (cont’d) CEPAration B.V(5) Manufacturing, developing and trading Netherlands 51 51 of ceramic hollow membranes CEPAration N.V(5) Manufacturing, developing and trading Netherlands 51 51 of ceramic hollow membranes Hyflux Utility Ltd(1) (8) Investment holding British Virgin – 80 Islands Hyflux NewSpring Development and operation of water People’s – 80 (Nan Tong) Co., Ltd(8) treatment plant and sale of treated water Republic of China Hyflux NewSpring Development and operation of water People’s – 80 (Dafeng) Co., Ltd(8) treatment plant and sale of treated water Republic of China

Hyflux NewSpring Development and operation of water People’s – 80 (Liao Yang) Co., Ltd(8) treatment plant and sale of treated water Republic of China Tianjin Dagang NewSpring Development and operation of seawater People’s 100 76 Co., Ltd(3) treatment plant and sale of treated water Republic of China Hyflux NewSpring Development and operation of water People’s – 80 (Wuxi) Co., Ltd(8) treatment plant and sale of treated water Republic of China Hyflux NewSpring Development and operation of water People’s – 80 (Tian Tai) Co., Ltd(8) treatment plant and sale of treated water Republic of China

Hyflux NewSpring Development and operation of water People’s – 80 (Changshu) Co., Ltd(8) treatment plant and sale of treated water Republic of China Hyflux Aquosus (Singapore) Manufacture and sale of consumer Singapore 100 – Pte Ltd(7) products Hyflux Lifestyle Products (S) Research, development, manufacture, Singapore 100 – Pte Ltd(7) marketing and distribution of consumer lifestyle products and merchandise




14. invesTmenTs in subsiDiARies (cOnT’D) country of incorporation effective equity and place of interest held by name of companies principal activities business the group 2007 2006 % % Held through subsidiaries (cont’d) Hyflux NewSpring Development and operation of water People’s – 80 (Taizhou) Co., Ltd(8) treatment plant and sale of treated water Republic of China Hyflux NewSpring Development and operation of water People’s – 76 (Yangzhou) Co., Ltd(8) treatment plant and sale of treated water Republic of China Hyflux Newspring (GuanYun) Development and operation of water People’s 100 – WTP Co., Ltd(6) treatment plant and sale of treated water Republic of China Hyflux Newspring (Funing) Development and operation of water People’s 100 – Co., Ltd(6) treatment plant and sale of treated water Republic of China Hyflux Newspring (Guan Yun) Development and operation of waste water People’s 100 – WWTP Co., Ltd(6) treatment plant and sale of treated water Republic of China Hyflux Newspring (Leping) Development and operation of water People’s 100 – Co., Ltd(6) treatment plant and sale of treated water Republic of China Hyflux Newspring (Dezhou) Development and operation of water People’s 100 – Co., Ltd(3) treatment plant and sale of treated water Republic of China

The subsidiaries incorporated in Singapore are audited by Ernst & Young, Singapore.

(1) Not required to be audited by the law of the country of incorporation.

(2) Audited by Shu Lun Pan Certified Public Accountants Co., Ltd, PRC.

(3) Audited by Tianjing GuangXing Cai Certified Public Accountants, PRC. In 2006, Tianjin Dagang NewSpring Co., Ltd was 95% owned by SinoSpring Utility Ltd, which was 80% owned by the Company. During the financial year, minority shareholders of Tianjin Dagang NewSpring Co., Ltd exited and SinoSpring Utility Ltd transferred its equity interest in Tianjin Dagang NewSpring Co., Ltd to Spring China Utility Ltd, a wholly owned subsidiary of the Company.

(4) Audited by Shanghai Hddy Certified Public Accountants Co., Ltd, PRC.

(5) Audited by overseas affiliates of Ernst & Young.

(6) Not required to be audited by the law of the country of incorporation for the current financial year.

(7) During the financial year, the Company transferred its 100% equity interest in Hyflux Lifestyle Products (S) Pte Ltd and Hyflux Aquosus (Singapore) Pte Ltd to a subsidiary, Hyflux Consumer Products Pte Ltd.

(8) During the financial year, SinoSpring Utility Ltd disposed 13 China plants held by Hyflux Utility Ltd and its subsidiaries to Hyflux Water Trust in December 2007. Subsequent to this disposal, SinoSpring Utility Ltd became a wholly-owned subsidiary of Hyflux Ltd after the Company acquired the 20% interests held by its minority shareholder.




15. invesTmenTs in jOinT venTuRe company 2007 2006 s$’000 s$’000 Unquoted equity shares, at cost 1,125 20,000 Details of the significant joint ventures are as follows:

country of incorporation effective equity and place of interest held by name of companies principal activities business the group 2007 2006 % % Held by the company SingSpring Pte Ltd(1) Operation of seawater desalination Singapore – 50 plant and sale of treated water Hyflux Marmon Research and development Singapore 50 – Development Pte Ltd(2)

(1) During the financial year, the Company divested 20% of its interests in SingSpring Pte Ltd in February 2007. As a result, this investment was reclassified from a joint venture to an associate (Note 16).

(2) During the financial year, the Company acquired 50% of the issued share capital of a newly incorporated company, Hyflux Marmon

Development Pte Ltd.

The aggregate amounts of each of current assets, non-current assets, current liabilities, non-current liabilities, income and expenses related to the Group’s interests in the joint ventures are as follows:

group 2007 2006 s$’000 s$’000

Assets and liabilities: Current assets 419 11,376 Non-current assets 456 99,254 Total assets 875 110,630 Current liabilities (106) (8,473) Non-current liabilities – (98,461) Total liabilities (106) (106,934) income and expenses: Income 37 15,293 Expenses (399) (11,852)


16. invesTmenTs in AssOciATes group company 2007 2006 2007 2006 s$’000 s$’000 s$’000 s$’000 Shares, at cost 99,313 7,150 12,277 – Share of post-acquisition reserves, including translation differences 751 (188) – – Carrying amount of investments 100,064 6,962 12,277 –

Fair value of investment in an associate for which there is published price quotation 76,545 – – – Goodwill amounting to S$1,800,000 (2006: Nil) is included in the carrying amount of investments in associates.

Details of the significant associates are as follows:

country of incorporation effective equity and place of interest held by name of companies principal activities business the group 2007 2006 % % Held by the company SingSpring Trust(4) Operation of seawater desalination Singapore 30.0 – plants and sale of treated water Held though subsidiaries

Beijing Shouren Water Development, manufacture and sale of People’s 18.5 18.5 Engineering Co., Ltd(1) manufactured equipment and parts of Republic of liquid separation and treatment systems. China Provision of technical and consultancy services New Spring (Huludao) Development and operation of seawater People’s 49.0 39.2 Co., Ltd(3) desalination plant and sale of treated Republic of water China

Ningxia Hypow Manufacturing and marketing of L-lactic People’s 25.0 25.0 Bio-Technology Co., Ltd(7) acid and L-lactic acid products Republic of China Hyflux Water Trust(2) Business Trust Singapore 31.5 – Lube Oil Re-fining Co., Collection of used oil, processing, Kingdom of 41.5 – LLC (“LUBREC”)(5) recycling and/or purification of used Saudi Arabia lube oil and sale of processed oil

Marmon Hyflux Investment Investment holding Singapore 49.0 – Pte Ltd(6)




16. invesTmenTs in AssOciATes (cOnT’D)

(1) Audited by Beijing Huatong Certified Public Accountants Co., Ltd, PRC.

(2) During the financial year, a wholly-owned subsidiary of the Company acquired 31.5% of the issued share capital of Hyflux Water Trust for a cash consideration of approximately S$73.7 million.

(3) Audited by Liao Ning Zhong Zhi Certified Public Accountants Co., Ltd. In 2006, New Spring (Huludao) Co., Ltd was 49% owned by SinoSpring Utility Ltd, which was 80% owned by the Company. During the financial year, SinoSpring Utility Ltd transferred its 49% equity interest in New Spring (Huludao) Co., Ltd to Spring China Utility Ltd, a wholly owned subsidiary of the company.

(4) During the financial year, the Company’s interests in SingSpring Pte Ltd was reduced from 50% to 30% in February 2007. As a result, this investment was reclassified from a joint venture to an associate (Note 15). In addition, this investment in associate was pledged to the associate’s principal bank for banking facilities granted to the associate.

(5) The Company’s wholly-owned subsidiary, Eflux Singapore Pte Ltd acquired 41.5% of the issued capital of LUBREC for a cash consideration of approximately S$10.8 million in August 2007.

(6) During the financial year, the Company acquired 49% of the issued share capital of a newly incorporated company, Marmon Hyflux Investment Pte Ltd.

(7) Audited by Beijing Wulian Fang Yuan Public Accountants Co., Ltd, PRC.

The summarised financial information of the associates are as follows:

group 2007 2006 s$’000 s$’000

Assets and liabilities: Current assets 59,491 21,506 Non-current assets 126,457 2,501 Total assets 185,948 24,007 Current liabilities (17,945) (960) Non-current liabilities (61,050) – Total liabilities (78,995) (960) Results: Revenue 10,258 210 Profit/(loss) for the year 1,277 (125) 17. LOng-TeRm invesTmenTs

group company 2007 2006 2007 2006 s$’000 s$’000 s$’000 s$’000 Available-for-sale financial assets: Unquoted equity shares, at cost 7,917 5,997 899 899




18. finAnciAL AnD LeAse ReceivAbLes

The Group has concession arrangements with the various governing bodies or agencies of the government of the People’s Republic of China (the “grantors”) to supply treated water from water treatment plants, and operate wastewater treatment plants and water recycling plants. Under the concession arrangements, the Group will construct and/or operate the plants for Concession Periods of between 20 to 30 years and transfer the plants to the grantors at the end of the Concession Periods. Such concession arrangements fall within the scope of INT FRS 112. The Group has previously accounted for these arrangements as finance lease in accordance with INT FRS 104. On adoption of INT FRS 112, certain water purchase agreements and water treatment concessions are now recognised as financial receivables in accordance with Note 2.2(c)(i) instead of finance lease arrangement. Under INT FRS 112, the revenue for the construction services provided under the arrangements and the corresponding financial receivables and/or intangible assets arising are recognised based on the percentage of completion method during the construction phase.

group 2007 2006 s$’000 s$’000 (Restated) Financial receivables 9,757 57,736 Lease receivables – 100,011 Total financial and lease receivables 9,757 157,747 Less: Current portion (187) (757)

9,570 156,990 Future minimum lease receivable under finance leases together with the present value of the net minimum lease receivable were as follows: group 2007 2006 s$’000 s$’000 (Restated)

Minimum lease receivable: Not later than one year – 11,822 Later than one year but not later than five years – 47,322 Later than five years – 165,126 Total minimum lease receivable – 224,270 Less: Future finance income – (153,032) Present value of minimum lease receivable – 71,238 Unguaranteed residual value – 28,773 Net investment in finance lease – 100,011

Present value of the finance lease receivable was analysed as follows: Not later than one year – 757 Later than one year but not later than five years – 4,451 Later than five year – 66,030 Present value of minimum lease receivable – 71,238




19. gROss AmOunT Due fOR cOnTRAcT wORK group company 2007 2006 2007 2006 s$’000 s$’000 s$’000 s$’000 (Restated)

Aggregate amount of costs incurred and recognised profits to date 169,474 98,075 14,038 20,960 Less: Progress billings (76,217) (49,168) (4,511) (6,929) Gross amounts due from customers for contract work 93,257 48,907 9,527 14,031

20. invenTORies group company 2007 2006 2007 2006 s$’000 s$’000 s$’000 s$’000 Raw materials 14,570 6,368 12,924 3,954 Work-in-progress 3,955 1,003 2,860 898 Finished goods 2,116 3,822 1,714 3,654 Total inventories at lower of cost and net realisable value 20,641 11,193 17,498 8,506 During the financial year, the Group has provided for inventories obsolescence of $378,000 (2006: Nil) and has written down inventories of S$279,000 (2006: S$1,252,000), which are recognised as an expense in the income statement.

21. TRADe ReceivAbLes AnD AmOunTs Due fROm ReLATeD pARTies

group company 2007 2006 2007 2006 s$’000 s$’000 s$’000 s$’000 Trade receivables: - third parties 46,110 30,734 1,148 1,165 Due from related parties (trade): - subsidiaries – – 22,673 15,929 - joint venture – 1,348 – – - associates 15,216 14,393 – – 15,216 15,741 22,673 15,929 Trade receivables and amounts due from related parties 61,326 46,475 23,821 17,094 Add: - Financial and lease receivables (Note 18) 9,757 157,747 – – - Other receivables and deposits and non-trade amounts due from related parties (Note 22) 36,527 25,471 177,622 47,502 - Short-term loans (Note 23) – 98 – – - Cash and fixed deposits (Note 24) 121,047 55,827 6,074 4,694

Total loans and receivables 228,657 285,618 207,517 69,290

Included in the trade receivables from external parties for the Group are notes receivable of S$4,372,000 (2006: S$2,814,000) which are non-interest bearing and relate to bank documents secured from customers for settlement of payment within the next six months.






21. TRADe ReceivAbLes AnD AmOunTs Due fROm ReLATeD pARTies (cOnT’D)

Trade receivables are non-interest bearing and are generally on 30 to 90 days’ terms. They are recognised at their original invoice amounts which represents their fair values on initial recognition.

The significant foreign currencies which the trade receivables and amounts due from related parties are denominated in at 31 December are as follows: group company 2007 2006 2007 2006 s$’000 s$’000 s$’000 s$’000 US Dollars 18,604 30,055 10,616 3,886 RMB 32,924 7,058 – – Receivables that are past due but not impaired

The Group has trade receivables amounting to S$27,895,000 (2006: S$9,650,000) that are past due at the balance sheet date but not impaired. These receivables are unsecured and the analysis of their aging at the balance sheet date is as follows: group 2007 2006 s$’000 s$’000

Trade receivables past due: - Lesser than 60 days 5,062 2,209 - 61 to 120 days 7,192 3,229 - More than 120 days 15,731 4,212

27,985 9,650 Receivables that are impaired

The Group’s trade receivables that are impaired at the balance sheet date and the movement of the allowance accounts used to record the impairment are as follows: group collectively impaired 2007 2006 s$’000 s$’000 Trade receivables - nominal amounts 2,405 2,515 Less: Allowance for impairment (1,902) (2,009) 503 506 Movements in allowance accounts: At 1 January 2,009 1,812 Charge for the year 1,022 197 Written off (105) – Written back (977) – Exchange differences (47) –

At 31 December 1,902 2,009


22. OTHeR ReceivAbLes AnD DepOsiTs AnD nOn-TRADe AmOunTs Due fROm ReLATeD pARTies

group company 2007 2006 2007 2006 s$’000 s$’000 s$’000 s$’000 current Other receivables and deposits: - third parties 24,812 13,080 3,353 1,816 - staff advances 680 104 21 23 - deposits 6,248 6,875 3 3 31,740 20,059 3,377 1,842 Due from related parties (non-trade): - subsidiaries – – 152,505 30,734 - joint venture 11 1,333 – 411 - associates 4,776 100 2,907 – 4,787 1,433 155,412 31,145 non-current Other receivables: - third parties – 3,979 – – Due from related parties (non-trade): - subsidiaries – – 18,833 11,766 - joint venture – – – 2,749 – – 18,833 14,515

Other receivables and deposits and non-trade amounts due from related parties 36,527 25,471 177,622 47,502 Other receivables are unsecured, non-interest bearing and repayable on demand.

The current non-trade amounts due from subsidiaries are unsecured, non-interest bearing and are expected to be repaid within the next 12 months except for a receivable which bears interest at rates ranging from 4.15% to 5.79% (2006: 4.15% to 5.79%) per annum.

The current non-trade amounts due from joint ventures and associates are unsecured, non-interest bearing and expected to be repaid within the next 12 months.

The non-trade non-current amounts due from subsidiaries and joint venture are unsecured, non-interest bearing and not expected to be repaid within the next 12 months.




22. OTHeR ReceivAbLes AnD DepOsiTs AnD nOn-TRADe AmOunTs Due fROm ReLATeD pARTies (cOnT’D)

The significant foreign currencies which the other receivables and deposits and non-trade amounts due from related parties are denominated in at 31 December are as follows:

group company 2007 2006 2007 2006 s$’000 s$’000 s$’000 s$’000 US Dollars 1,517 7,002 108,864 11,758 RMB 12,081 4,843 – 3 Euro 847 3,959 3,057 91 At the balance sheet date, the Group has provided an allowance of S$1,658,000 (2006: S$1,725,000) for the impairment of unsecured receivables with a nominal amount of S$1,658,000 (2006: S$1,725,000).

23. sHORT-TeRm LOAns

These loans were unsecured, bore interest ranging from 4.0% to 7.0% per annum and were repaid in full during the financial year.

24. cAsH AnD fixeD DepOsiTs

group company 2007 2006 2007 2006 s$’000 s$’000 s$’000 s$’000 Cash at banks and on hand 50,076 40,594 3,175 311 Fixed deposits 70,971 15,233 2,899 4,383 121,047 55,827 6,074 4,694 Cash at banks earns interest at floating rates based on daily bank deposit rates ranging from 0.9 % to 3.9% (2006: 1.0% to 5.0%) per annum. Fixed deposits are made for varying periods of between one day to three months depending on the immediate cash requirements of the Group and earn interests at rates ranging from 0.3% to 5.2% (2006: 1.5% to 6.0%) per annum with maturities within the next 12 months.

As at 31 December 2007, the Company had approximately available undrawn committed borrowing facilities of S$14,800,000 (2006: S$175,600,000) in respect of which all conditions prevalent had been met.

The significant foreign currencies which the cash and fixed deposits are denominated in at 31 December are as follows:

group company 2007 2006 2007 2006 s$’000 s$’000 s$’000 s$’000 US Dollars 20,325 16,420 2,331 1,781 RMB 29,196 22,693 – –




25. TRADe pAyAbLes AnD AmOunTs Due TO ReLATeD pARTies

group company 2007 2006 2007 2006 s$’000 s$’000 s$’000 s$’000 Trade payables: - third parties 55,022 35,277 1,172 1,012 Due to related parties (trade): - subsidiaries – – 845 30 Trade payables and amounts due to related parties 55,022 35,277 2,017 1,042 Add: - Other payables and accruals and non-trade amount due to related parties (Note 26) 19,543 15,157 39,957 11,982 - Progress payments from customers 25,989 3,358 2,080 2,062 - Interest-bearing loans and borrowings (Note 27) 198,511 148,664 195,596 67,420 - Finance lease liabilities (Note 28) 291 576 – – Total financial liabilities carried at amortised cost 299,356 203,032 239,650 82,506 Trade payables are normally settled on 30 to 60-day terms.

The trade amounts due to related parties are unsecured, non-interest bearing and are repayable on demand.

The significant foreign currencies which the trade payables and amounts due to related parties are denominated in at 31 December are as follows: group company 2007 2006 2007 2006 s$’000 s$’000 s$’000 s$’000 US Dollars – – 27 28 RMB 37,570 20,494 – – Euro 228 193 – –




26. OTHeR pAyAbLes AnD AccRuALs AnD nOn-TRADe AmOunTs Due TO ReLATeD pARTies

group company 2007 2006 2007 2006 s$’000 s$’000 s$’000 s$’000 (Restated) Other payables and accruals: - payables 10,071 5,178 2,917 1,737 - accrued operating expenses 7,676 8,706 299 293 17,747 13,884 3,216 2,030 Due to related parties (non-trade): - subsidiaries – – 36,741 9,851 - joint venture – 1,273 – 101 - associates 1,796 – – – 1,796 1,273 36,741 9,952 Other payables and accruals and non-trade amounts due to related parties 19,543 15,157 39,957 11,982 Other payables are normally settled on an average term of two to three months.

The non-trade amounts due to related parties are unsecured, non-interest bearing and are repayable on demand.

The significant foreign currencies which the other payables and accruals and non-trade amounts due to related parties are denominated in at 31 December are as follows:

group company 2007 2006 2007 2006 s$’000 s$’000 s$’000 s$’000 US Dollars 2,532 3,350 10,915 5,871 RMB 6,349 3,877 2,833 1,767




27. inTeResT-beARing LOAns AnD bORROwings

weighted average effective interest group company rate p.a. maturities 2007 2006 2007 2006 % s$’000 s$’000 s$’000 s$’000 current S$ bank loan 3.76 2008 5,245 30,902 5,000 30,902 Euro bank loans – – – 778 – – Share of a joint venture’s bank loan – – – 1,983 – – 5,245 33,663 5,000 30,902 non-current S$ bank loans 3.17 2011 12,000 15,000 12,000 15,000 US$ bank loans 6.22 2011 178,596 21,518 178,596 21,518 Euro bank loans 4.71 2017 2,670 2,394 – – Share of a joint venture’s bank loan – – – 76,089 – – 193,266 115,001 190,596 36,518 198,511 148,664 195,596 67,420 (i) S$ bank loan (current)

The interest on this S$ bank loan is based on floating interest rates (inclusive of an applicable margin), unsecured and fully repayable by March 2008.

(ii) S$ bank loans (non-current) The interest on these bank loans are based in the floating applicable interest rates of the respective currencies borrowed, inclusive of a margin, unsecured and fully repayable in 2011.

Certain subsidiaries in the Group have provided corporate guarantees to the financial institutions for the loans extended to the Company.

(iii) Share of a joint venture’s bank loan

During the financial year, the Company divested its interest in this joint venture. In 2006, the loan bears floating interest at rates ranging from 4.52% to 4.6% per annum, including margin. The Group has swapped the floating rates with a fixed rate of 4.6%, including margin, using an interest rate swap.




27. inTeResT-beARing LOAns AnD bORROwings (cOnT’D)

(iii) Share of a joint venture’s bank loan (cont’d) The loan is secured by a charge on all present and future assets and intellectual property of a joint venture in the Group and a mortgage on the land where the desalination plant of the joint venture is located. In addition, the shareholders of the joint venture (including the Company) have also pledged all the issued ordinary shares in the joint venture to the principal banks as security for the loan.

(iv) Euro bank loans

One of the Euro bank loan is secured by a lien over the inventory and receivables of a subsidiary and partially guaranteed by a director of the subsidiary and a financial institution.

(v) US$ bank loan

The interest on this bank loan is based on the floating applicable interest rates of the respective currencies borrowed, inclusive of a margin, unsecured and fully repayable in 2011.

Certain subsidiaries in the Group have provided corporate guarantees to the financial institutions for the loans extended to the Company.



28. finAnce LeAse LiAbiLiTies

The Group has finance leases for certain items of plant and equipment (Note 11). These leases have terms of renewal but no purchase options and escalation clauses. There are no restrictions placed upon the Group by entering into these leases. Renewals are at the option of the specific entity that holds the lease. The average discount rate implicit in the leases is 6.5% (2006: 7.2%) per annum.

Future minimum lease payments under finance leases together with the present value of the net minimum lease payments are as follows:

group minimum present minimum present lease value of lease value of payments payments payments payments 2007 2007 2006 2006 s$’000 s$’000 s$’000 s$’000 Not later than one year 135 104 267 244 Later than one year but not later than five years 200 187 381 332 335 291 648 576 Less: Amounts representing finance charges (44) – (72) – Present value of minimum lease payments 291 291 576 576


29. DefeRReD TAx

Deferred income tax as at 31 December relates to the following:

group company consolidated consolidated balance sheet income statement balance sheet 2007 2006 2007 2006 2007 2006 s$’000 s$’000 s$’000 s$’000 s$’000 s$’000

Deferred tax liabilities Differences in depreciation for tax purposes (1,285) (2,517) 679 2,517 (95) (95) Intangible assets (1,590) (1,103) 1,241 1,103 (64) (64) Fair value adjustment on derivative financial instruments – 293 – – – – Fair value adjustments on acquisition of subsidiaries – (809) – – – – (2,875) (4,136) (159) (159)

Deferred tax assets Fair value adjustments on acquisition of subsidiaries – 306 – – – – Unutilised tax losses 1,200 199 (695) (199) – – Other items 18 – – – – – 1,218 505 – – Deferred tax expense 1,225 3,421 Unrecognised tax losses and capital allowances

The Group has tax losses and capital allowances of approximately S$28,990,000 (2006: S$9,187,000) and S$1,569,000 (2006: S$279,000) respectively that are available for offset against future taxable profits of the companies in which the losses arose for which no deferred tax asset is recognised due to uncertainty of its recoverability. The Company has tax losses and capital allowances of approximately S$1,262,000 (2006: Nil) and S$3,938,000 (2006: S$1,562,000) respectively.

The use of these tax losses and capital allowances is subject to the agreement of the tax authorities and compliance with certain provisions of the tax legislation of the respective countries in which the companies operate.




29. DefeRReD TAx (cOnT’D)

Unrecognised temporary differences relating to investments in subsidiaries, associates and joint venture

As at 31 December 2007, there was no recognition of deferred tax liability (2006: Nil) for taxes that would be payable on the unremitted earnings of certain of the Company’s subsidiaries, associates or joint venture, as:

• The Company has determined that undistributed profits of its subsidiaries will not be distributed in the foreseeablefuture;

• TheCompanyhaveagreementswithitsassociatesthattheprofitsoftheassociatewillnotbedistributeduntil it obtains the consent of the Company. The Company does not foresee giving such consent in the foreseeable future;and

• ThejointventureoftheCompanycannotdistributeitsprofitsuntilitobtainstheconsentofboththeventurers. The Company does not foresee giving such consent in the foreseeable future.

30. sHARe cApiTAL AnD empLOyee sHARe OpTiOn ReseRve

group and company 2007 2006 no. of shares no. of shares share capital ‘000 s$’000 ‘000 s$’000 At 1 January 518,885 91,142 514,557 25,728 Exercise of employee share options 4,495 4,678 4,328 3,007 Transfer of share premium reserve to share capital – – – 62,407 At 31 December 523,380 95,820 518,885 91,142 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 restrictions.

In accordance with the Companies (Amendment) Act 2005, on 30 January 2006, the shares of the Company ceased to have a par value and the amount standing in the share premium reserve became part of the Company’s share capital.

The Company has an employee share option scheme under which options to subscribe for the Company’s ordinary shares have been granted to employees of the Group.

employee share Option Reserve

Employee share option reserve represents the equity-settled share options granted to employees (Note 30(a)). The reserve is made up of the cumulative value of services received from employees recorded over the vesting period commencing from the grant date of equity-settled share options, and is reduced by the expiry or exercise of the share options.




30. sHARe cApiTAL AnD empLOyee sHARe OpTiOn ReseRve (cOnT’D) (a) employee share Option scheme

The Hyflux Employees’ Share Option Scheme (the “Scheme”) was approved by the members of the Company at an Extraordinary General Meeting held on 27 September 2001. The Scheme provides an opportunity for employees and directors of the Company and its subsidiaries, other than substantial shareholders of the Company, to participate in the equity of the Company.

On 24 November 2003, the members of the Company approved a modification to the Scheme which allowed Ms Lum Ooi Lin, Group CEO, President and Managing Director, a substantial shareholder of the Company, to participate in the Scheme. The maximum entitlement of Ms Lum Ooi Lin is 10% of the total number of shares which may be issued by the Company.

The Scheme is administered by a committee (“the Committee”) comprising four directors. It shall continue to be in force at the discretion of the Committee for a period of 10 years from 27 September 2001. However, the period may be extended with the approval of members at a general meeting of the Company and of any relevant authorities which may then be required. The contractual life of the option is ten years and there are no cash settlement alternatives.

The fair value of equity share options as at the date of grant is estimated by an external valuer using the Trinomial Option Pricing Module, taking into account the terms and conditions upon which the options were granted. The inputs to the model used for the years ended 31 December 2007 and 31 December 2006 are described below.

Discrete dividend payments are based on historical and forecasted dividend trend which range from S$0.004 to S$0.014 (2006: S$0.004 to S$0.014). The expected volatility of 36.09% to 37.93% (2006: 32.79% to 34.87%) reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. Risk-free rate refers to the annual yield at date of grant of options, of a Singapore Government Securities Bond with comparable maturity based on the Singapore Sovereign yield curves. It ranges from 2.27% to 2.53% (2006: 2.87% to 2.95%). The expected life of the options of 92 days (2006: 92 days) is based on historical data and is not necessarily indicative of exercise patterns that may occur. Share price of underlying shares are based on the last traded price as at the date of grant option. No other features of the option grant were incorporated into the measurement of fair value.




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30. sHARe cApiTAL AnD empLOyee sHARe OpTiOn ReseRve (cOnT’D)

(a) employee share Option scheme (cont’d)

Details of the options to subscribe for ordinary shares of the Company granted to directors of the Company pursuant to the Hyflux Employees’ Share Option Scheme:

Aggregate options granted (including Aggregate options bonus issue) since exercised since Options commencement commencement Aggregate options granted of the scheme of the scheme outstanding as during the to end of to end of at end of name of director financial year financial year financial year financial year

Lum Ooi Lin – 6,375,000 (1,125,000) 5,250,000 Teo Kiang Kok – 250,000 – 250,000 Lee Joo Hai – 250,000 – 250,000 Gay Chee Cheong – 200,000 – 200,000 Christopher Murugasu – 862,500 (501,563) 360,937 Total – 7,937,500 (1,626,563) 6,310,937 (b) warrants

On 23 November 2004, the Company entered into a Warrant Subscription Agreement with Istithmar PJSC (“Istithmar”), a company incorporated in Dubai, United Arab Emirates and a shareholder of the Company, in which Istithmar is entitled to subscribe for equity shares equal to 10% of the diluted share capital of the Company as adjusted under the terms of the Warrant Subscription Agreement. This was approved by the shareholders of the Company on 8 April 2005 at an Extraordinary General Meeting.

Pursuant to an agreement with Istithmar as announced on 18 March 2006, Istithmar’s entitlement to the warrant subscription was reduced from 10% to 7.5% of the diluted share capital of the Company on the date in which the warrants are exercised, subject to terms of the Warrant Subscription Agreement.

The exercise price is equivalent to the higher of (a) S$1.95 and (b) the lower of 70% of the volume-weighted average price for trades in the Company’s shares done on Singapore Exchange on the market day immediately preceding the exercise date or in the 30 calendar day period immediately preceding the exercise date.

The exercise period is from April 2008 to April 2010.




31. cApiTAL ReseRves

Capital reserves comprise the following:-

(i) Capital gain for the Group wherein the Group’s portion of contribution of share capital for a subsidiary was paid on behalf by a minority interest.

(ii) Statutory reserve fund

In accordance with the Foreign Enterprise Law applicable to the subsidiary in the People’s Republic of China (“PRC”), the subsidiary is required to make appropriation to a Statutory Reserve Fund (“SRF”). At least 10% of the statutory after tax profits as determined in accordance with the applicable PRC accounting standards and regulations must be allocated to the SRF until the cumulative total of the SRF reaches 50% of the subsidiary’s registered capital. Subject to approval from the relevant PRC authorities, the SRF may be used to offset any accumulated losses or increase the registered capital of the subsidiary. The SRF is not available for dividend distribution to shareholders.

32. HeDging ReseRve

Hedging reserve represents the Group’s share of the hedging reserve of a joint venture in 2006.

During the financial year, the Group divested 20% of its interest in the joint venture and as a result, this investment was reclassified from a joint venture to an associate. An amount of S$4,180,000 transferred from the hedging reserve to the income statement represented the Group’s share of the net loss on the hedging instruments.

33. cOmmiTmenTs AnD cOnTingencies

(i) Operating lease commitments

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

Minimum lease payments recognised as an expense in the income statement for the financial year ended 31 December 2007 amounted to S$2,689,000 (2006: S$2,285,000).

Future minimum rental payable under non-cancellable leases as at balance sheet date are as follows:

group 2007 2006 s$’000 s$’000 Not later than one year 2,370 2,309 Later than one year but not later than five years 8,616 8,155 Later than five years 19,030 20,076

30,016 30,540




33. cOmmiTmenTs AnD cOnTingencies (cOnT’D)

(ii) Capital commitments

As at 31 December 2007, the Group has outstanding commitments in respect of uncalled capital of approximately US$70,000,000 (2006: US$38,000,000) in joint ventures and associates.

(iii) Guarantees

The Group has provided the following guarantees at the balance sheet date:

– It has provided bankers’ guarantees to customers and suppliers amounting to S$16,000,000 (2006: S$17,000,000).

– It has provided security bonds amounting to S$1,280,000 (2006: S$870,000) to the Controller of Immigration in relation to the employment of foreign workers.

The Company has given formal undertakings to provide financial support to certain subsidiaries with deficit shareholders’ funds for at least the next twelve months from the balance sheet date.

34. ReLATeD pARTy DiscLOsuRes

An entity or individual is considered a related party of the Group for the purposes of the financial statements if:

(i) it possesses the ability (directly or indirectly) to control or exercise significant influence over the operating and financialdecisionsofthegrouporviceversa;or

(ii) it is subject to common control or common significant influence.

In addition to the related party information disclosed elsewhere in the financial statements, the following significant transactions between the Group and related parties took place on terms agreed between the parties during the financial year: group 2007 2006 s$’000 s$’000

Revenue from manufacturing and construction contracts Investee company – 8,316 Associates 45,214 – Revenue from maintenance contracts Joint venture – 2,522 Associates 904 – Revenue from licensing contract Associate – 4,860 Management fees received from associates 1,000 – Rental income received from Associates 334 – Joint venture 24 – Professional service paid to firms related to a director 69 52




35. finAnciAL RisK mAnAgemenT ObjecTives AnD pOLicies

Risk management is integral to the whole business of the Group. The Group has a system of controls in place to create an acceptable balance between cost of risks occurring and the cost of managing the risks. The management continually monitors the Group’s risk management process to ensure that an appropriate balance between risk and control is achieved. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities.

The Risk Management Committee oversees how management monitors compliance with the Group’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group.

The following sections provide details regarding the Group’s and Company’s exposure to the above-mentioned financial risks and the objectives, policies and processes for the management of these risks.

(a) credit risk

Credit risk is the risk of loss that may arise on outstanding financial instruments should a counterparty default on its obligations. The Group’s and the Company’s exposure to credit risk arises primarily from trade and other receivables.

The Group has a credit policy in place which establishes credit evaluations for all customers and monitors their balances on an ongoing basis.

The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical date of payment statistics for similar financial assets.

The allowance account in respect of trade and other receivables is used to record impairment losses when the Group is satisfied that no recovery of the amount owing is possible. At that point, the financial asset is considered irrecoverable and the amount charged to the allowance account is written off against the carrying amount of the impaired financial asset.




35. finAnciAL RisK mAnAgemenT ObjecTives AnD pOLicies (cOnT’D)

(a) credit risk (cont’d)

Credit risk concentration profile

The credit risk concentration profile of the Group’s trade receivables at the balance sheet date is as follows:

group 2007 2006 s$’000 % of total s$’000 % of total by country: Singapore 6,363 14 6,276 20 People’s Republic of China 37,824 82 24,254 79 Other countries 1,923 4 204 1 46,110 100 30,734 100 by industry sectors: Municipal 18,453 40 1,575 5 Industrial 21,392 46 25,150 82 Others 6,265 14 4,009 13 46,110 100 30,734 100 At the balance sheet date, approximately 82% (2006: 79%) of the Group’s trade receivables were due from the Municipal and Industrial business segments located in the People’s Republic of China.

Financial assets that are neither past due nor impaired

Trade and other receivables that are neither past due nor impaired are creditworthy debtors with good payment record with the Group. Cash and short-term deposits, that are neither past due nor impaired are placed with or entered into with reputable financial institutions or companies with high credit ratings and no history of default.

Financial assets that are either past due or impaired

Information regarding financial assets that are either past due or impaired is disclosed in Note 21 of the financial statements.





(b) Liquidity risk

Liquidity risk is the risk that the Group or the Company will encounter difficulty in meeting financial obligations due to shortage of funds. The Group’s and the Company’s exposure to liquidity risk arises primarily from the timing of the maturities of financial assets and liabilities. The Group monitors its liquidity risk and maintains a level of cash and cash equivalent demand adequate for management to finance the Group’s operations and to migitate the effects of fluctuation in cash flows. For long-term projects which require long-term funding, the Group may arrange project financing or other long-term financing programme as appropriately.

At the balance sheet date, approximately 3% (2006: 23%) of the Group’s loans and borrowings (Note 27) will mature in less than one year based on the carrying amount reflected in the financial statements. 3% (2006: 46%) of the Company’s loans and borrowings will mature in less than one year at the balance sheet date.

The table below summarises the maturity profile of the Group’s and the Company’s financial liabilities at the balance sheet date based on contractual undiscounted payments.

2007 2006 1 year or 1 to 5 Over 5 1 year or 1 to 5 Over 5 less years years Total less years years Total s$’000 s$’000 s$’000 s$’000 s$’000 s$’000 s$’000 s$’000 group Derivative financial instruments – – – – 4,995 – – 4,995 Trade payables 55,022 – – 55,022 35,277 – – 35,277 Other payables and accruals 17,747 – – 17,747 13,884 – – 13,884 Progress payments from customers 25,989 – – 25,989 3,358 – – 3,358 Interest-bearing loans and borrowings 5,245 193,266 – 198,511 33,663 51,317 63,684 148,664 Finance lease liabilities 104 187 – 291 244 332 – 576 104,107 193,453 – 297,560 91,421 51,649 63,684 206,754 company Trade payables 1,172 – – 1,172 1,012 – – 1,012 Other payables and accruals 3,216 – – 3,216 2,030 – – 2,030 Progress payments from customers 2,080 – – 2,080 2,062 – – 2,062 Interest-bearings loans and borrowings 5,000 190,596 – 195,596 30,902 36,518 – 67,420 11,468 190,596 – 202,064 36,006 36,518 – 72,524





(c) interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of the Group’s and the Company’s financial instruments will fluctuate because of changes in market interest rates. The Group’s and the Company’s exposure to interest rate risk arises primarily from their loans and borrowings and interest-bearing loans given to related parties.

Sensitivity analysis for interest rate risk

At the balance sheet date, if S$ and US$ interest rates had been 75 (2006: 75) basis points lower/higher with all other variables held constant, the Group’s profit net of tax would have been higher/lower by S$1,379,000 (2006: S$252,000), arising mainly as a result of lower/higher interest expense on floating rate loans and borrowings, and the Group’s other reserve in equity would have been S$ Nil (2006: S$232,000) higher/lower, arising mainly as a result of an increase/decrease in the fair value of derivatives classified as available-for-sale.

(d) foreign currency risk

The Group is exposed to foreign currency risk on sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of the Group entities. The currencies giving rise to this risk are primarily US dollar and Chinese Renminbi.

The Group monitors its exposure in respect of trade receivables, trade payables and borrowings denominated in foreign currencies, as well as forecast sales and purchases over the following 12 months. The Group, when necessary, uses forward exchange contracts to hedge its foreign currency risk.

Approximately 98% (2006: 76%) of the Group’s sales are denominated in foreign currencies whilst almost 89% (2006: 72%) of costs are denominated in the respective functional currencies of the Group’s entities. The Group’s trade receivable and trade payable balances at the balance sheet date have similar exposures.

In respect of other monetary assets and liabilities held in currencies other than the US dollar, the Group ensures that the net exposure is kept to an acceptable level.

The Group and the Company also hold cash and short-term deposits denominated in foreign currencies for working capital purposes. At the balance sheet date, such foreign currency balances (mainly in US$ and RMB) amount to S$49,521,000 (2006: S$39,113,000) and S$2,331,000 (2006: S$1,781,000) for the Group and the Company respectively.





(d) foreign currency risk (cont’d)

Sensitivity analysis for foreign currency risk

A 3% strengthening of Singapore dollar against the following currencies at the reporting date would increase/ (decrease) equity and profit by the amount shown below. This analysis assumes that all other variables remain constant. profit net of tax equity 2007 2006 2007 2006 s$’000 s$’000 s$’000 s$’000 US Dollars (3,149) 858 – – RMB 2,948 662 – – A 3% weakening of Singapore dollar against the above currencies would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.

(e) market price risk

Market price risk does not have a significant impact to the Group as the Group does not have interest in quoted securities.

36. finAnciAL insTRumenTs

(a) Derivative financial instruments and hedging activities

Derivative financial instruments included in the balance sheets at 31 December are as follows:

group company 2007 2006 2007 2006 s$’000 s$’000 s$’000 s$’000

Current assets: Interest rate swaps – 228 – 228 Commodity swaps – 3,530 – – – 3,758 – 228 Current liabilities: Interest rate swaps – (4,995) – – Cashflow hedges

As at 31 December 2006, the Group held 5 financial derivatives, namely 2 interest rate swaps and 3 commodity swaps. These swaps were designated as hedges of expected future interest and utilities expenses where the Group’s 50% joint venture company and the Company had firm commitments. The interest rate swaps were being used to hedge the interest rate risks of the existing bank loans of the Group’s 50% joint venture company and the Company. The commodity swaps were used to hedge the fuel price risk that directly impacts the Group’s 50% joint venture company’s existing commitment under an energy supply contract.




36. finAnciAL insTRumenTs (cOnT’D)

(a) Derivative financial instruments and hedging activities (cont’d)

The terms of these swaps have been negotiated to match the terms of the commitments.

The cash flow hedge of the expected future interest expense was assessed to be highly effective and a fair value gain of S$581,000 for the financial year ended 31 December 2006, with a related deferred tax charge of S$101,000 relating to the hedging instruments is included in the hedging reserve.

During the financial year, the Group divested its interest in this joint venture.

(b) fair value of financial instruments

The fair value of financial assets and liabilities by classes that are not carried at fair value and whose carrying amounts are not reasonable approximation of fair value are as follows :

group company 2007 2006 2007 2006 s$’000 s$’000 s$’000 s$’000 carrying fair carrying fair carrying fair carrying fair amount value amount value amount value amount value s$’000 s$’000 s$’000 s$’000 s$’000 s$’000 s$’000 s$’000 financial assets: Unquoted equity shares, at cost (Note 17) 7,917 – 5,997 (1) 899 (1) 899 (1)

Lease receivables (Note 18) – – 100,011 253,043 – – – – Other receivables from third parties (Note 22) – – 3,979 (2) – – – – Due from subsidiaries (Note 22) – – – – 18,833 (2) 11,766 (2)

Due from a joint venture (Note 22) – – – – – – 2,749 (2)

financial liabilities: Finance lease liabilities (Note 28) 187 200 332 381 – – – – (1) These equity instruments represent ordinary shares in companies that are not quoted on any market and do not have any comparable industry peer that is listed. In addition, the variability in the range of reasonable fair value estimates derived from valuation techniques is significant. As such, these equity instruments are carried at cost at balance sheet date. The Group does not intend to dispose of these investments in the foreseeable future.

(2) The fair value of other receivables from third parties, amounts due from subsidiaries and amounts due from a joint venture are not

determinable as the timing of the future cash flows arising from these receivables cannot be estimated reliably.




36. finAnciAL insTRumenTs (cOnT’D)

(b) fair value of financial instruments (cont’d)

Determination of fair value

Lease receivables (Note 18)

The fair value of finance lease receivable has been determined using discounted cash flows. Where repayment terms are not fixed, future cash flows are projected based on management’s best estimates. The discount rate used is the current risk-free adjusted by market risk premium for similar type of arrangement.

Financial assets and liabilities (Notes 18, 21, 22, 24, 25 and 26) Non-current loans and borrowings at floating rate (Note 27)

The carrying amounts of these financial assets and liabilities are reasonable approximation of fair values, either due to their short-term nature or that they are floating rate instruments that are repriced to market interest rates on or near the balance sheet date.

37. cApiTAL mAnAgemenT

The primary objective of the Group’s capital management is to support the Group’s growth strategy and maximise shareholder value with the optimal capital structure.

The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the years ended 31 December 2007 and 31 December 2006.

As disclosed in Note 31(ii), a subsidiary of the Group is required by the Foreign Enterprise Law of the PRC to contribute to and maintain a non-distributable statutory reserve fund whose utilisation is subject to approval by the relevant PRC authorities. This externally imposed capital requirement has been complied with by the abovementioned subsidiary for the financial year ended 31 December 2007.

The Group monitors capital using a gearing ratio, which is net debt divided by total capital. The Group includes within net debt, interest-bearing loans and borrowings, finance lease liabilities, less cash and fixed deposits. Total equity of the Group represents capital for the Group.

group 2007 2006 s$’000 s$’000 Interest bearing loans and borrowings 198,511 148,664 Finance lease liabilities 291 576 Less: Cash and fixed deposits (121,047) (55,827) Net debt 77,755 93,413 Total capital equity - total 247,067 218,066 Gearing ratio 32% 43%




38. segmenT infORmATiOn

Reporting format

The primary segment reporting format is determined to be business segments as the Group’s risks and rates of return are affected predominantly by differences in the products and services produced. Secondary information is reported geographically. The operating businesses are organised and managed separately according to the nature of the products and services provided, with each segment representing a strategic business unit that offers different products and serves different markets.

Business segments

The Municipal segment is a supplier of comprehensive range of innovative water and fluid treatment solutions to municipalities and governments, including commissioning, operation & maintenance of a wide range of water treatment and liquid separation plants on a turnkey or Design-Build-Own-Operate (“DBOO”) arrangement.

The Industrial segment is in the business of liquid separation applications for the manufacturing sector such as the pharmaceutical, biotechnology, food processing and petrochemical oil-related industries.

Geographical segments

The Group’s geographical segments are based on the location of the Group’s customers. Sales to external customers disclosed in geographical segments are based on the geographical location of its customers.

Allocation basis and transfer pricing

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets, income tax and deferred tax liabilities, interest-bearing loans and borrowings and related expenses.

Transfer prices between business segments are set on an arm’s length basis in a manner similar to transactions with third parties. Segment revenue, expenses and results include transfers between business segments. These transfers are eliminated on consolidation.




38. segmenT infORmATiOn (cOnT’D)

(a) business segment

The following tables present revenue and results information, assets, liabilities and other segment information regarding the Group’s business segments as at and for the years ended 31 December 2007 and 2006.

2007 municipal industrial Others group s$’000 s$’000 s$’000 s$’000 Revenue: External sales 88,971 102,347 1,468 192,786 Results: Segment results 27,304 10,253 (1,188) 36,369 Net loss on sale of property, plant and equipment (4) Gain on sale of partial interest in a joint venture 8,185 Finance income 2,548 Finance expenses (8,878) Fair value loss on derivative financial instruments (3,532) Share of profit of associates 1,277 Other income - net 108 Negative goodwill on acquisitions of subsidiaries/businesses 2,620 Profit before taxation 38,693 Tax expense (2,048) Profit for the year 36,645

Assets and liabilities: Segment assets 267,824 112,588 13,097 393,509 Unallocated assets 170,272 Total assets 563,781 Segment liabilities 75,476 40,935 1,031 117,442 Unallocated liabilities 199,272 Total liabilities 316,714 Other segment information: Capital expenditure 12,636 21,050 1,430 35,116 Depreciation and amortisation 4,347 995 1,856 7,198





(a) business segment (cont’d)

2006 municipal industrial Others group (Restated) s$’000 s$’000 s$’000 s$’000 Revenue: External sales 45,264 90,148 6,967 14,379 Results: Segment results 5,291 15,513 (1,519) 19,285 Net gain on sale of property, plant and equipment 52 Gain on sale of a subsidiary and an associate 1,655 Finance income 5,534 Finance expenses (9,078) Fair value gain on derivative financial instruments 115 Share of loss of associates (910) Other expenses - net (314) Negative goodwill on acquisitions of subsidiaries/businesses 3,839 Profit before taxation 20,178 Tax expense (4,821) Profit for the year 15,357 Assets and liabilities: Segment assets 276,888 121,689 15,896 414,473 Unallocated assets 28,925 Total assets 443,398 Segment liabilities 125,670 19,446 1,536 146,652 Unallocated liabilities 78,680 Total liabilities 225,332 Other segment information: Capital expenditure 10,560 8,408 2,084 21,052 Depreciation and amortisation 991 3,064 914 4,969





(b) geographical segments

The following table presents revenue, capital expenditure and certain assets information regarding the Group’s geographical segments for the years ended 31 December 2007 and 2006.

people’s Republic singapore of china Others Total 2007 2006 2007 2006 2007 2006 2007 2006 s$’000 s$’000 s$’000 s$’000 s$’000 s$’000 s$’000 s$’000 (Restated) (Restated)

Revenue: External sales 12,830 27,018 156,933 104,763 23,023 10,598 192,786 142,379 Other Segment assets 189,083 230,575 194,665 175,408 9,761 8,490 393,509 414,473 Unallocated assets 170,272 28,925 Total assets 563,781 443,398 Capital expenditure 19,582 7,196 14,501 8,198 1,033 5,658 35,116 21,052

39. DiviDenDs group and company 2007 2006 s$’000 s$’000

Ordinary dividends paid: Final exempt (one-tier) dividend for 2006 : 1.35 cents (2005 : 1.35 cents) per share 7,016 6,963 The directors propose a final exempt (one-tier) dividend of 1.89 cents per share amounting to a total of S$9,892,000 for 2007, subject to shareholders’ approval at the forthcoming Annual General Meeting.

40. cOmpARATive figuRes

Comparative figures in the financial statements have been restated from the previous year to reflect the adoption of new and revised accounting standards.

41. AuTHORisATiOn Of finAnciAL sTATemenTs

The financial statements for the financial year ended 31 December 2007 were authorised for issue in accordance with a resolution of the directors on 14 March 2008.




CORPORATE GOVERNANCE STATEMENT

Hyflux is committed to achieving a high standard of corporate governance. The Group’s corporate governance practices translate into an increase in long-term value and ultimately, return to shareholders. As part of this commitment, the Group subscribes to the Code of Corporate Governance (the “Code”). This statement outlines the main corporate governance practices of the Company with specific reference made to the principles and guidelines of the Code which forms part of the Continuing Obligations of the Singapore Exchange Securities Trading Limited’s (“SGX-ST”) Listing Manual.

The Board is pleased to confirm that for the financial year ended 31 December 2007, the Company has generally adhered to the principles and guidelines as set out in the Code.

bOARD mATTeRs

bOARD’s cOnDucT Of iTs AffAiRsPrinciple 1: Effective Board to lead and control the Company

Role of the boardThe primary role of the board of directors (the “Board”) is to protect and enhance long-term shareholders’ value. Apart from its fiduciary duties, the Board sets the overall strategy of the Group and supervises executive management. The Board also provides leadership and guidance on corporate strategy, business directions, risk policy and implementation of corporate objectives, thereby taking responsibility for the overall corporate governance of the Group.

Toassistintheexecutionofitsresponsibilities,theBoardhasestablishedseveralBoardCommitteesnamely;theAuditCommittee, Nominating Committee, Remuneration Committee, Risk Management Committee, Executive Committee and Management Committee. These committees function within clearly defined terms of reference, which are reviewed on a regular basis.

Matters which are specifically reserved to the Board for decision are those involving material acquisitions, disposal of assets, corporate or financial restructuring, share issuances, dividends and other returns to shareholders, conflict of interest for substantial shareholder or director, and matters which require Board approval as specified under the Company’s interested person transaction policy.

The Board holds regular meetings each year. It held four meetings in the 2007 financial year. The Board may convene additional meetings to address any specific significant matters that may arise from time to time.



The Directors’ attendance at the Board and Committee Meetings for the financial year ended 31 December 2007 is as follows: board of Audit nominating Remuneration Risk management Directors committee committee committee committee no. of no. of no. of no. of no. of no. of no. of no. of no. of no. of name meetings meetings meetings meetings meetings meetings meetings meetings meetings meetings

Held Attended Held Attended Held Attended Held Attended Held Attended

Olivia Lum Ooi Lin 4 4 na na na na 1 1* na na

Teo Kiang Kok 4 3 4 4 1 1 1 1 3 2

Lee Joo Hai 4 4 4 4 1 1 1 1 3 2

Gay Chee Cheong 4 3 4 4 1 1 1 1 na na

Christopher Murugasu 4 4 na na na na 1 1 3 3

Professor Tan Teck Meng1 4 3 4 1 na na na na na na

Raj Mitta1 4 2 na na na na na na 3 2

Rajnish Gopinath2 4 1 na na na na na na na na

na : not applicable

1 Professor Tan Teck Meng and Mr Raj Mitta were appointed as directors on 28 April 2007. Professor Tan was appointed as a member of the Audit Committee and Remuneration Committee and Mr Raj Mitta as a member of Risk Management Committee.2 Mr Rajnish Gopinath retired as a director on 27 April 2007.

* Attended by invitation.

TRAining fOR DiRecTORsThe Board has in place programmes for each newly appointed director to receive appropriate training, including an orientation programme to familiarise him with the Group’s structure and its business.

bOARD cOmpOsiTiOn AnD guiDAncePrinciple 2: Strong and independent element on the Board

The directors of the Company in office as at the date of this report are set out in the Director’s report. Presently, the Board comprises of one Executive Director, two Non-Executive Non-Independent Directors and four Non-Executive Independent Directors. The Board consists of respected business leaders and professionals whose collective core competencies and experience are extensive, diverse and relevant to the industry. Individual directors’ profiles can be found in the “Board of Directors” section of this Annual Report.

executive Director (group ceO, president and managing Director) Ms Olivia Lum Ooi Lin

non-executive non-independent DirectorsMr Teo Kiang KokMr Christopher Murugasu non-executive independent DirectorsProfessor Tan Teck MengMr Raj MittaMr Lee Joo Hai Mr Gay Chee Cheong



There is presently a good balance between the executive and non-executive directors and a strong and independent element on the Board. The Board considers an ‘independent’ director as one who has no relationship with the Company, its related Companies or its officers that could interfere or be reasonably perceived to interfere, with the exercise of the director’s independent business judgement.

Non-Executive members of the Board exercise no management function in the Company or any of its subsidiaries. Although all the directors have equal responsibilities for the performance of the Group, the role of non-executive directors is primarily to ensure that the strategies proposed by the executive management are fully discussed, vigorously examined, taking into consideration the long-term interest of the shareholders, employees, customers, suppliers and the communities in which the Group conducts its business.

The Board is of the view that the present board size and number of committees facilitate effective decision-making and are appropriate for the nature and scope of the Company’s operations.

cHAiRmAn AnD cHief execuTive OfficeRPrinciple 3: Clear division of responsibilities at the top of the Company

The Company does not have a chairman on the Board of Directors. Responsibilities for various functions and departments in Company are well defined. The Board is of the opinion that the process of decision making by the Board has been independent, based on collective decisions without any individual exercising any considerable concentration of power or influence.

bOARD membeRsHipPrinciple 4: Formal and transparent process for appointment of new directors to the Board

The Nominating Committeehas been tasked by the Board to recommend individuals of relevant background, possessing experience and knowledge in business, legal, finance and management skills, critical to the Group’s business to be appointed to the Board.

The Nominating Committee comprises three Directors, majority of whom including the Chairman, are Independent Directors:

nominating committee:Mr Gay Chee Cheong (Chairman)Mr Lee Joo Hai Mr Teo Kiang Kok

The primary function of the Nominating Committee is to determine the criteria for identifying candidates and to review nominations for the appointment of directors to the Board, to consider how the Board’s performance may be evaluated and to propose objective performance criteria for the Board’s approval. Its duties and functions are outlined as follows: (a) to make recommendations to the Board on all board appointments and re-nomination having regard to the Director’s contribution and performance (e.g. attendance, preparedness, participation, candour, and any other salientfactors);

(b) to ensure that all Directors would be required to submit themselves for re-nomination and re-election at regular intervalsandatleastonceineverythreeyears;

(c) to determine annually whether a director is independent, in accordance with the independence guidelines containedintheCode;


(d) to review whether a director is able to and has adequately carried out his duties as a director of the Company in particularwheretheDirectorconcernedhasmultipleboardrepresentations;and

(e) to consider how the Board’s performance may be evaluated and to propose objective performance criteria. The Nominating Committee conducts an annual review of directors’ independence and based on the Code’s criteria for independence, the Nominating Committee is of the view that Professor Tan Teck Meng, Mr Gay Chee Cheong, Mr Lee Joo Hai and Mr Raj Mitta, are deemed independent.

The Nominating Committee has recommended the nomination of directors retiring pursuant to the Company’s Articles of Association, namely, Professor Tan Teck Meng, Mr Raj Mitta, Mr Lee Joo Hai and Mr Gay Chee Cheong.

In reviewing the nomination of the retiring directors, the Nominating Committee considered the performance and contribution of each of the retiring directors, having regards not only to their attendance and to participation at Board and Board Committee meetings but also the time and efforts devoted to the Group’s business and affairs, especially the operational and technical contributions.

bOARD peRfORmAncePrinciple 5: Formal assessment of the effectiveness of the Board and contributions by each Director

The Code recommends that the Nominating Committee be responsible for assessing the Board as a whole and also assessing the individual director’s contribution.

But the Nominating Committee believes that it is more appropriate and effective to assess the Board as a whole, bearing in mind that each member of the Board contributes in different ways to the success of the Group.

The Nominating Committee has conducted a Board performance evaluation to assess the effectiveness of the Board in the financial year 2007 and is satisfied that sufficient time and attention has been given by the directors to the affairs of the Group.



The Nominating Committee in conducting the appraisal process to assess the performance and effectiveness of the Board as a whole, focuses on a set of performance criteria which includes the evaluation of the size and composition of the Board, the Board’s access to information, Board’s processes and accountability, Board’s performance in relation to discharging its principal responsibilities and the directors’ standards of conduct.

The Board has taken the view that the financial indicators, as set out in the Code as a guide for the evaluation of the Board and its directors, may not be appropriate as these are more of a measurement of Management’s performance and therefore less applicable to directors.

Access TO infORmATiOnPrinciple 6: Board members to have complete, adequate and timely information

The Board has separate and independent access to members of the senior management team of the Group, the Company Secretary and the external auditors at all times. The directors also have unrestricted access to the Company’s records and information, all Board and Board committees’ minutes, and management accounts to enable them to carry out their duties.

The Company Secretary attends all Board and Board Committee meetings. The Company Secretary administers, attends and prepares minutes of Board and Board Committee meetings, and assists in ensuring that Board procedures are followed and reviewed in accordance with the Company’s Articles of Association so that the Board functions effectively and the relevant rules and regulations applicable to the Company are complied with. The Company Secretary’s role is to advise the Board on all governance matters, ensuring that legal and regulatory requirements as well as board policies and procedures are complied with.

Should Directors whether as a group or individually require professional advice, the Company shall upon the direction of the Board, appoint a professional advisor selected by the Group or the individual, approved by Management, to render the service. The costs of such service shall be borne by the Company.

pROceDuRes fOR DeveLOping RemuneRATiOn pOLiciesPrinciple 7: Formal and transparent procedure for fixing remuneration packages of Directors and key management executives

The Remuneration Committee comprises entirely of Non-Executive Directors.

As at the date of this Report, the Remuneration Committee members are:

Remuneration committeeMr Gay Chee Cheong (Chairman)Mr Lee Joo Hai Mr Teo Kiang Kok Professor Tan Teck Meng Mr Christopher Murugasu

The Remuneration Committee is responsible for ensuring a formal and transparent procedure for developing policy on executive remuneration, and for fixing the remuneration packages of individual directors and senior management employees. The Remuneration Committee’s review covers all aspects of remuneration including but not limited to Directors’ fees, salaries, allowances, bonus, share options and benefits in kind and specific remuneration package for each Director. In structuring a compensation framework for executive Director and key executives, the Remuneration Committee seeks to link a proportion of executive compensation to the Group’s performance. The Remuneration Committee’s recommendation are made in consultation with the Executive Committee and submitted for endorsement by the Board. No Director is involved in deciding his own remuneration.



The Remuneration Committee has access to expert advice inside and/or outside the Company with regard to remuneration matters.

LeveL AnD mix Of RemuneRATiOnPrinciple 8 : The level of remuneration for Directors should be adequate, not excessive, and linked to performance

The remuneration policy of the Company is to provide compensation packages at market rates, which reward performance and attract, retain and motivate directors and senior management employees.

The Executive Director does not receive Directors’ fees. The Executive Director’s and key senior management employees’ remuneration packages are based on service contracts and their remuneration are determined by having regard to the performance of the individuals, performance of the Group and market trends.

Non-Executive Directors are paid an annual Directors’ fees of an agreed amount based on their contributions, taking into account factors such as effort and time spent, responsibilities of the Directors and the need to pay competitive fees to attract, motivate and retain the Directors.

DiscLOsuRe On RemuneRATiOnPrinciple 9 : Clear disclosure of remuneration policy, level and mix of remuneration, and the procedure for setting the remuneration

An appropriate and attractive level of remuneration has been set to attract, retain and motivate Directors and employees. The remuneration package consists of both fixed and variable components. The variable component is determined based on the performance of the individual employee and the Group’s performance. Annual increments and adjustments to remuneration are reviewed and approved taking into account the outcome of the annual appraisal of the employees by Management and Executive Committees and the various heads of department. All Non-Executive Directors’ fees are recommended by the Board and are subject to shareholders’ approval at the Annual General Meeting.

For the financial ended 31 December 2007, the Remuneration Committee has recommended to the Board a total Directors’ fees of $456,667 for the Non-Executive Directors, which will be tabled by the Board at the forthcoming Annual General Meeting for shareholders’ approval.

Company’s directors receiving remuneration from the Group for the year ended 31 December 2007 and 2006 are as follows:

number of directorsRemuneration band 2007 2006

S$500,000 and above 0 0S$250,000 to below S$500,000 1 1Below S$250,000 7 5



Summary compensation table for directors and management committee for the year ended 31 December 2007 (Group) is as follows: Allowances and other salary bonus fees benefits Total

DiRecTORs between s$250,000 to s$500,000 Olivia Lum Ooi Lin 89% 8% 0% 3% 100%

below s$250,000Gay Chee Cheong 0% 0% 100% 0% 100%Lee Joo Hai 0% 0% 100% 0% 100%Teo Kiang Kok 0% 0% 100% 0% 100%Christopher Murugasu 0% 0% 100% 0% 100%Raj Mitta** 0% 0% 100% 0% 100% Professor Tan Teck Meng** 0% 0% 100% 0% 100%Rajnish Gopinath* 0% 0% 100% 0% 100%

mAnAgemenT cOmmiTTeebetween s$250,000 to s$500,000Sam Ong Eng Keang 71% 18% 0% 11% 100%Benjamin Tan Eng Seng 71% 12% 0% 17% 100%

below s$250,000Fong Chun Hoe 92% 8% 0% 0% 100%Wong Khai Theen 83% 14% 0% 3% 100%Peter Wu Siu Kin 82% 18% 0% 0% 100%Foo Hee Kiang 89% 3% 0% 8% 100%Ge Wen Yue 100% 0% 0% 0% 100%

immeDiATe fAmiLy membeRs Of DiRecTORbelow s$250,000Deirdre Murugasu 100% 0% 0% 0% 100%Teo Yuan Cheng Casey 86% 9% 0% 5% 100%

* Mr Rajnish Gopinath retired as director on 27 April 2007.** Professor Tan Teck Meng and Mr Raj Mitta were appointed as directors on 28 April 2007. Compensation reflected in table excludes entitlement under employment share options scheme.

immediate family members of DirectorsThere are no immediate family members of Directors or controlling shareholders in employment with the Group and whose remuneration exceeds S$150,000 during financial year ended 31 December 2007.

AccOunTAbiLiTyPrinciple 10: Board should present a balanced and understandable assessment of the Company’s performance, position and prospects

The Board is accountable to shareholders for the management of the Group. The Board updates shareholders on the operations and financial position of the Group through, quarterly, half yearly and full year results announcements as well as timely announcements of other matters as prescribed by the relevant rules and regulations. The Management is accountable to the Board by providing the Board with the necessary financial information for the discharge of its duties.



AuDiT cOmmiTTeePrinciple 11: Establishment of Audit Committee with written terms of reference

The Audit Committee comprises the following members at the date of this report:

Mr Lee Joo Hai (Chairman)Mr Gay Chee Cheong Mr Teo Kiang Kok Professor Tan Teck Meng

The members of Audit Committee, collectively, backed with legal, accounting, financial management expertise or business esperience are qualified to discharge the Audit Committee’s responsibilities.

The primary functions of the Audit Committee are as follows:

(a) assisttheBoardindischargingitsstatutoryresponsibilitiesonfinancialandaccountingmatters;

(b) reviewthefinancialandoperatingresultsandaccountingpoliciesoftheGroup;

(c) review significant financial reporting issues and judgements relating to financial statements for each financial year,quarterlyandannualresultsannouncementbeforesubmissiontotheBoardforapproval;

(d) review the adequacy of the Company’s internal control (financial and operational) and risk management policies andsystemsestablishedbythemanagement;

(e) review the audit plans and reports of the external and internal auditors and consider the effectiveness of the actionstakenbymanagementontheauditors’recommendations;

(f) appraise and report to our Board on the audits undertaken by the external and internal auditors, the adequacy of the disclosure of information, and the appropriateness and quality of the system of management and internal controls;

(g) review the independence of external auditors annually and consider the appointment or re-appointment of external auditors and matters relating to the resignation or removal of the auditors and approve the remuneration andtermsofengagementoftheexternalauditors;and

(h) review interested person transactions, as defined in the Listing Manual of the SGX-ST.

The Audit Committee held four meetings during the year. The Audit Committee has reviewed the non-audit services provided by the external auditors, including the fees paid for these services during the year, and is satisfied that the nature and extent of such services would not affect the independence of the external auditors. The Audit Committee has also reviewed the services provided by the Independent Directors’ firms and is satisfied that the provision of such services did not affect their independence.

The Audit Committee has full access to the external auditors and will hold meetings with them at least once a year without the presence of Management. The Audit Committee has authority to access all personnel, records, and other information to enable it to properly discharge its function. It has full authority and discretion to invite any Director or executive officer to attend its meetings.



inTeRnAL cOnTROLsPrinciple 12:The Board to ensure that the management maintains a sound system of internal controls to safeguard the shareholders’ investments and the company’s assets

The Audit Committee is fully aware of the need to put in place a system of internal controls within the Group to safeguard the shareholders’ interests and the Group’s assets, and to manage risks. The system is intended to provide reasonable but not absolute assurance against material misstatements or loss, and to safeguard assets and ensure maintenance of proper accounting records, reliability of financial information, compliance with appropriate legislation, regulation and best practice, and the identification and containment of business risks.

The Group regularly reviews and improves its business and operational activities to identify areas of significant business risks as well as taking appropriate measures to control and mitigate these risks. The Group reviews all significant control policies and procedures and highlights all significant matters to the Audit Committee and the Board. The financial risk management objectives and policies are outlined in the financial statements. Risk Management alone does not guarantee that business undertakings will not fail. However, by identifying and managing risks that may arise, the Group can make more informed decisions and benefit from a better balance between risk and reward. This will help protect and create shareholders’ value.

Based on the information provided to the Audit Committee, nothing has come to the its attention to cause the Audit Committee to believe that the system of internal controls and risk management is inadequate.

inTeRnAL AuDiTPrinciple 13: Setting up independent internal audit function

The Group has appointed a professional firm, BDO Raffles Consultants Pte Ltd to undertake the functions of an internal auditor. The internal audit function includes reviewing the effectiveness of the material internal controls of the Group. The Internal Auditor reports directly to the Audit Committee and has an appropriate standing within the Company and the Group and meets the standards set by nationally or internationally recognized professional bodies including the Standards for the Professional Practice of Internal Auditing set by The Institute of Internal Auditors.

Within this framework, the internal audit function will provide reasonable assurance that the risks incurred by the Group in each major activity will be identified, analysed and managed by Management. The Internal Auditor will also make recommendations to enhance the effectiveness and security of the Group’s operations.

cOmmunicATiOn wiTH sHAReHOLDeRsPrinciple 14: Regular, effective and fair communication with shareholdersPrinciple 15: Shareholders’ participation at Annual General Meeting

The Company is committed to regular and proactive communication with its shareholders. It aims to provide shareholders with clear, balanced and useful information on a timely basis to ensure that shareholders receive a balanced and updated view of the Group’s performance and business.

Where there is inadvertent disclosure made to a selected group, the Company will make the same disclosure public as soon as practicable. Communication is made through:

(a) annual reports that are prepared and issued to all Shareholders. The Board makes every effort to ensure that the annual report includes all relevant information about the Group, including future development and other disclosures requiredbytheCompanies’Act,Chapter50,andSingaporeStatementsofAccountingStandards;(b) quarterly and full-year financial statements comprising a summary of the financial information and affairs of the Groupfortherelevantperiod;(c) explanatorymemorandaforAnnualGeneralMeetingandExtraordinaryGeneralMeetings;(d) pressreleasesonmajordevelopmentsoftheGroup;(e) disclosurestotheSGX-STviaSGXNET;and(f) the Group’s website at http://www.hyflux.com at which Shareholders can access information on the Group.



In addition, shareholders are encouraged to attend the annual general meetings to ensure a high level of accountability and to stay informed of the Group’s strategies and growth. As the Annual General Meeting is the principal forum for dialogue with shareholders, the presence of the chairpersons of the audit, nominating and remuneration committees are required so as to address any question raised at the Annual General Meeting. The Group fully supports the Code’s principle to encourage active shareholder participation.

Risk management committeeThe Risk Management Committee comprises the following members:

Mr Christopher Murugasu (Chairman) Mr Lee Joo Hai Mr Teo Kiang Kok Mr Raj Mitta

The functions of the Risk Management Committee are as follows:

(a) review with Management, and, when needed, with external consultants on areas of risks that may affect the viability and smooth operations of the Company, as well as Management’s risk migitation efforts, with the view of safeguardingshareholder’sinterestandGroupassets;(b) direct and work with Management to develop and review policies and processes to address and manage identified areasofriskinasystematicandstructuredmanner;(c) make recommendations to the Board in relation to business risks that may affect the Company, as and when these mayarise;and(d) perform any other functions as may be agreed by the Board.

executive committeeThe members of the Executive Committee are:

Ms Olivia Lum Ooi Lin (Chairman) Mr Lee Joo Hai Mr Teo Kiang Kok Mr Gay Chee Cheong

management committeeAs at the date of this report, the Management Committee comprise of the following members:

Ms Olivia Lum Ooi Lin (Chairman)Mr Sam Ong Eng KeangMr Fong Chun HoeMr Foo Hee KiangMr Wong Khai Theen Mr Ge Wen YueMr Peter Wu Siu KinMr Benjamin Tan Eng Seng

DeALing in secuRiTiesThe Company has adopted its own internal compliance code pursuant to the SGX-ST’s best practices on dealings in securities and these are applicable to all its officers in relation to their dealings in the Company’s securities. Its officers are advised not to deal in the Company’s shares during the period commencing two weeks or one month before the announcement of the Company’s interim or full year results respectively, or if they are in possession of unpublished price-sensitive information of the Company. In addition, its directors and officers are expected to observe insider trading laws at all times even when dealing in securities within the permitted trading period.

The Group has complied with the Best Practices Guide on Securities Transactions issued by the Singapore Exchange.



SUPPlEMENTARY INFORMATION

mATeRiAL cOnTRAcTsThere were no material contracts of the Company or its subsidiaries involving the interests of the Chief Executive Officer (as defined in the SGX-ST Listing Manual), each Director or Controlling shareholder, either still subsisting at the end of the financial year or entered into since the end of the previous financial year.

inTeResTeD pARTy TRAnsAcTiOnThe Group has established procedures to ensure that all transactions with interested persons are reported on a timely manner to the Audit Committee and that the transactions are at arm’s length basis. All interested person transactions are subject to review by the Audit Committee to ensure compliance with the established procedures.

Aggregate value of all interested person transactions during the financial year under Aggregate value of all interested person review (excluding transactions conducted under transactions conducted undername of shareholders’ mandate pursuant to Rule 920 shareholders’ mandate pursuant tointerested person under sgx-sT Listing manual) Rule 920 under sgx-sT Listing manual

BDO Raffles Consultants S$53,000 in respect of the internal audit NILPte Ltd services rendered

Shook Lin & Bok S$16,000 in respect of trademark application NIL services rendered


SUPPlEMENTARY INFORMATION

summARy Of mAjOR pROpeRTies

Approximate group’s site area total lettable effective Description Location (sq m) existing use area (sq m) interest (%) Tenure

Office and 5 Changi South 10,472 Office and 5,630 100 60 yearsfactory Street 1, factory commencing Singapore 486764 from 1 March 1997

Office 40 Changi South 2,426 Office 1,328 100 60 years Street 1, commencing Singapore 486764 from 1 December 1996

Factory No. 99 Juli Road 5,633 Office and 3,241 100 50 yearsbuilding Zhangjiang factory commencing High-Tech Park from 26 April Pudong Shanghai, 2001 China 201203

Apartment Jinqiao Garden 32 Staff quarters 59 100 70 years Service Apartment commencing Block A, Floor 9, from 15 Unit 2, Shanghai, February China 1994

Office and 8# Factory in 18,040 Office and 23,180 100 50 yearsfactory EPZ, 9# Yang factory commencing Zi Jiang South from 2007 Road, Yangzhou Jiangsu Province, China

Office 1307-1309 Centre 384 Office 232 100 50 years Plaza 188, commencing Jiefangbei HePing, from 12 June District Tianjin, 1994 China 300042


DisTRibuTiOn Of sHAReHOLDings no. ofsize of Holdings shareholders % no. of shares %

1 - 999 328 6.09 157,011 0.031,000 - 10,000 4,423 82.17 15,980,647 3.0510,001 - 1,000,000 614 11.41 26,924,963 5.141,000,001 and above 18 0.33 480,858,739 91.78

Total 5,383 100.00 523,921,360 100.00


STATISTICS OF ShAREhOlDINGSas at 14 March 2008

TwenTy LARgesT sHAReHOLDeRs

name no. of shares %

1 Olivia Lum Ooi Lin 124,984,141 23.86 2 HSBC (Singapore) Nominees Pte Ltd 72,026,250 13.75 3 Raffles Nominees Pte Ltd 67,814,600 12.94 4 DBS Nominees Pte Ltd 58,475,430 11.16 5 Citibank Nominees Singapore Pte Ltd 49,066,429 9.37 6 Merrill Lynch (S’pore) Pte Ltd 26,386,908 5.04 7 DBSN Services Pte Ltd 23,650,700 4.51 8 United Overseas Bank Nominees Pte Ltd 17,047,366 3.25 9 Morgan Stanley Asia (S’pore) Securities Pte Ltd 14,574,144 2.78 10 DB Nominees (S) Pte Ltd 7,609,738 1.45 11 Murugasu Deirdre 3,931,178 0.75 12 Tommie Goh Thiam Poh 3,022,375 0.58 13 ABN Amro Nominees Singapore Pte Ltd 2,745,000 0.52 14 Foo Hee Kiang 2,691,912 0.51 15 UOB Kay Hian Pte Ltd 2,209,937 0.42 16 Koh Lip Lin 1,590,789 0.30 17 Phillip Securities Pte Ltd 1,531,842 0.29 18 Yong Siew Yoon 1,500,000 0.29 19 DBS Vickers Securities (S) Pte Ltd 924,000 0.18 20 OCBC Nominees Singapore Pte Ltd 853,803 0.16

Total 482,636,542 92.11

Approximately 48.89% of the Company’s shares are held in the hands of public. Accordingly, the Company has complied with Rule 723 of the Listing Manual of SGX-ST.


subsTAnTiAL sHAReHOLDeRs

name of shareholder Direct interest Deemed interest % 1 Olivia Lum Ooi Lin 124,984,141 52,500,000* 33.882 Istithmar PJSC 50,834,131* – 9.703 Matthews International Capital Management, LLC 31,746,999* – 6.06

* Shares held in the name of nominees


SUBSTANTIAl ShAREhOlDERSas at 14 March 2008


nOTice Of AnnuAL geneRAL meeTing

nOTice is HeReby given that the Annual General Meeting of Hyflux Ltd (“the Company”) will be held at Taurus, Level 1, Marina Mandarin, 6 Raffles Boulevard, Marina Square, Singapore 039594 on 25 April 2008 at 10.00 a.m. for the following purposes:

As ORDinARy business

1. To receive and adopt the Directors’ Report and the Audited Accounts for the year ended 31 December 2007 together with the Auditors’ Report thereon.

(ResOLuTiOn 1)

2. To declare a first and final dividend of 1.89 Singapore cents per ordinary share (one-tier tax exempt) for the year ended 31 December 2007 (previous year: 1.35 Singapore cents per ordinary share).

(ResOLuTiOn 2) 3. To re-elect the following Directors retiring pursuant to the Company’s Articles of Association:

Professor Tan Teck Meng (Retiring under Article 88) (ResOLuTiOn 3) Mr Raj Mitta (Retiring under Article 88) (ResOLuTiOn 4) Mr Lee Joo Hai (Retiring under Article 89) (ResOLuTiOn 5) Mr Gay Chee Cheong (Retiring under Article 89) (ResOLuTiOn 6)

[See Explanatory Note (i)]

4. To approve the appointment of Mr Ahmed Butti Ahmed as a director pursuant to the Company’s Article of Assciation: (Article 75)

(ResOLuTiOn 7)

5. To approve the payment of Directors’ fees of S$456,667 for the year ended 31 December 2007 (previous year: S$305,166).

(ResOLuTiOn 8)

6. To appoint Messrs KPMG as external auditors in place of Messrs Ernst & Young, and to authorise the Directors to fix their remuneration.

In accordance with the requirements of Rule 1203(5) of the Listing Manual of the Singapore Exchange Securities Trading Limited: (a) the outgoing Auditors, Messrs Ernst & Young, have confirmed that they are not aware of any professional reasonswhythenewAuditorsshouldnotacceptappointmentasAuditorsoftheCompany;and

(b) the Company confirms that there were no disagreements with the outgoing Auditors, Messrs Ernst & Young, on accountingtreatmentswithinthelast12months;and

(c) the Company confirms that it is not aware of any circumstances connected with the change of Auditors that should be brought to the attention of shareholders.

(ResOLuTiOn 9)

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

hYFlUx lTDCompany Registration No. 200002722Z

(Incorporated in the Republic of Singapore with limited liability)




As speciAL business

To consider and if thought fit, to pass the following resolutions as Ordinary Resolutions, with or without any modifications: 8. Authority to issue shares up to 50 per centum (50%) of the issued shares in the capital of the Company

That pursuant to Section 161 of the Companies Act, Cap. 50 and Rule 806 of the Listing Manual of the Singapore Exchange Securities Trading Limited, the Directors be authorised and empowered to:

(a)(i) issuesharesintheCompany(“shares”)whetherbywayofrights,bonusorotherwise;and/or

(ii) 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) options, warrants, debentures or other instruments convertible into shares,

at any time and upon such terms and conditions and for such purposes and to such persons as the Directors mayintheirabsolutediscretiondeemfit;and

(b) (notwithstanding the authority conferred by this Resolution may have ceased to be in force) issue shares in pursuance of any Instrument made or granted by the Directors while this Resolution was in force, provided that:

(1) the aggregate number of shares (including shares to be issued in pursuance of the Instruments, made or granted pursuant to this Resolution) and Instruments to be issued pursuant to this Resolution shall not exceed fifty per centum (50%) of the issued shares in the capital of the Company (as calculated in accordance with sub-paragraph (2) below), of which the aggregate number of shares and Instruments to be issued other than on a pro rata basis to existing shareholders of the Company shall not exceed twenty per centum (20%) of the issued shares in the capital of the Company (as calculated in accordance with sub-paragraph (2) below);

(2) (subject to such calculation as may be prescribed by the Singapore Exchange Securities Trading Limited) for the purpose of determining the aggregate number of shares and Instruments that may be issued under sub- paragraph (1) above, the percentage of issued shares and Instruments shall be based on the number of issued shares in the capital of the Company at the time of the passing of this Resolution, after adjusting for:

(a)newsharesarisingfromtheconversionorexerciseoftheInstrumentsoranyconvertiblesecurities; (b) new shares arising from the exercising share options or vesting of share awards outstanding and subsisting atthetimeofthepassingofthisResolution;and (c) any subsequent consolidation or subdivision of shares.

(3) in exercising the authority conferred by this Resolution, the Company shall comply with the provisions of the Listing Manual of the Singapore Exchange Securities Trading Limited for the time being in force (unless such compliance has been waived by the Singapore Exchange Securities Trading Limited) and the Articles of AssociationoftheCompany;and


As speciAL business (cOnT’D)

8. Authority to issue shares up to 50 per centum (50%) of the issued shares in the capital of the Company (cont’d)

(4) unless revoked or varied by the Company in a general meeting, such authority shall continue in force (i) until the conclusion of the next Annual General Meeting of the Company or the date by which the next Annual General Meeting of the Company is required by law to be held, whichever is earlier or (ii) in the case of shares to be issued in pursuance of the Instruments, made or granted pursuant to this Resolution, until the issuance of such shares in accordance with the terms of the Instruments.

[See Explanatory Note (ii)] (ResOLuTiOn 10)

9. Authority to issue shares under the Hyflux Employees’ Share Option Scheme

That pursuant to Section 161 of the Companies Act, Cap. 50, the Directors be authorised and empowered to offer and grant options under the Hyflux Employees’ Share Option Scheme (“the Scheme”) and to issue from time to time such number of shares in the capital of the Company as may be required to be issued pursuant to the exercise of options granted by the Company under the Scheme, whether granted during the subsistence of this authority or otherwise, provided always that the aggregate number of additional ordinary shares to be allotted and issued pursuant to the Scheme shall not exceed fifteen per centum (15%) of the issued shares in the capital of the Company from time to time and that such authority shall, unless revoked or varied by the Company in a general meeting, continue in force until the conclusion of the next Annual General Meeting of the Company or the date by which the next Annual General Meeting of the Company is required by law to be held, whichever is the earlier.

[See Explanatory Note (iii)] (ResOLuTiOn 11)

By Order of the Board

yang Ai chianCompany SecretarySingapore, 4 April 2008




expLAnATORy nOTes:

(i) Professor Tan Teck Meng, will upon re-election as a Director of the Company, become Chairman of the Renumeration Committee and remain as a member of the Audit Committee. He is considered as non-executive independent for the purpose of Rule 704(8) of the Listing Manual of the Singapore Exchange Securities Trading Limited. Mr Raj Mitta will upon re-election as a Director, become Chairman of Risk Management Committee and is considered as a non-executive independent director. Mr Lee Joo Hai, will upon re-election as a Director of the Company, remain as Chairman of the Audit Committee and is considered as non-executive independent for the purpose of Rule 704(8) of the Listing Manual of the Singapore Exchange Securities Trading Limited. Mr Lee will also remain as a member of the Risk Management, Remuneration and Nominating Committees. Mr Gay Chee Cheong, will upon re-election as a Director of the Company, remain as a member of the Audit and Remuneration Committees and is considered as non-executive independent for the purpose of Rule 704(8) of the Listing Manual of the Singapore Exchange Securities Trading Limited. Mr Gay will also remain as Chairman of the Nominating Committee. (ii) The Ordinary Resolution 9, if passed, will empower the Directors from the date of this Meeting until the date of the next Annual General Meeting, or the date by which the next Annual General Meeting is required by law to be held or such authority is varied or revoked by the Company in a general meeting, whichever is the earlier, to issue shares, make or grant instruments convertible into shares and to issue shares pursuant to such instruments, up to a number not exceeding, in total, 50% of the issued shares in the capital of the Company, of which up to 20% may be issued other than on a pro-rata basis to existing shareholders.

For determining the aggregate number of shares that may be issued, the percentage of issued shares in the capital of the Company will be calculated based on the issued shares in the capital of the Company at the time this Ordinary Resolution is passed after adjusting for new shares arising from the conversion or exercise of the Instruments or any convertible securities, the exercise of share options or the vesting of share awards outstanding or subsisting at the time when this Ordinary Resolution is passed and any subsequent consolidation or subdivision of shares.

(iii) The Ordinary Resolution 10, if passed, will empower the Directors of the Company, from the date of this Meeting until the next Annual General Meeting, or the date by which the next Annual General Meeting is required by law to be held or such authority is varied or revoked by the Company in a general meeting, whichever is the earlier, to issue shares in the Company pursuant to the exercise of options granted or to be granted under the Scheme up to a number not exceeding in total (for the entire duration of the Scheme) fifteen per centum (15%) of the issued shares in the capital of the Company from time to time.

pROfiLe Of mR AHmeD buTTi AHmeD – TO be ReAD in cOnjuncTiOn wiTH ResOLuTiOn 7

Mr Ahmed Butti Ahmed is the Director General of Dubai Customs and CEO of the Ports, Customs and Free Zone Corporation (PCFC). In addition, he holds the following offices: Chairman of Imdaad (Facilities Management), Chairman of Palm Utilities (District Cooling & Water Treatment), Chairman of Dubai Security Services, Board Member of Dubai World, Board Member of Tamweel and Board Member of Federal Customs Authority Board of Directors. Mr Ahmed Butti Ahmed completed his Masters degree in Science from Denver University in the United States.

notes:

1. A Member entitled to attend and vote at the Annual General Meeting (the “Meeting”) is entitled to appoint a proxy to attend and vote in his/her stead. A proxy need not be a Member of the Company. 2. The instrument appointing a proxy must be deposited at the Registered Office of the Company at 202 Kallang Bahru, Hyflux Building, Singapore 339339 not less than 48 hours before the time appointed for holding the Meeting.






nOTice Of bOOKs cLOsuRe

nOTice is HeReby given that the Share Transfer Books and Register of Members of Hyflux Ltd (the “Company”) will be closed at 5.00 p.m. on 6 May 2008 for the preparation of dividend warrants.

Duly completed registrable transfers received by the Company’s Share Registrar, Boardroom Corporate & Advisory Services Pte. Ltd., 3 Church Street #08-01 Samsung Hub, Singapore 049483 up to 5.00 p.m. on 6 May 2008 will be registered to determine shareholders’ entitlements to the said dividend. Members whose Securities Accounts with The Central Depository (Pte) Limited are credited with shares at 5.00 p.m. on 6 May 2008 will be entitled to the proposed dividend.

Payment of the dividend, if approved by the members at the Annual General Meeting to be held on 25 April 2008, will be made on 16 May 2008.

Hyflux Group of Companies

SingaporeEflux Singapore Pte Ltd

Eflux SK Pte Ltd

Eflux Philippines Pte Ltd

Eflux Vietnam Pte Ltd

Energy Life Pte Ltd

Hydrochem (S) Pte Ltd

Hydrochem Engineering (S) Pte Ltd

Hyflux Aquosus (Singapore) Pte Ltd

Hyflux Capital (Singapore) Pte Ltd

Hyflux Consumer Products Pte Ltd

Hyflux Engineering Pte Ltd

Hyflux EPC Pte Ltd

Hyflux Filtech (Singapore) Pte Ltd

Hyflux Filtration (S) Pte Ltd

Hyflux IP Resources Pte Ltd

Hyflux Lifestyle Products (S) Pte Ltd

Hyflux Marmon Development Pte Ltd

Hyflux Management And Consultancy Pte Ltd

Hyflux Membrane Manufacturing (S) Pte Ltd

Hyflux SIP Pte Ltd

Hyflux Utility (India) Pte Ltd

Hyflux Water Trust Management Pte Ltd

IndoSpring Utility (S) Pte Ltd

Marmon Hyflux Investments Pte Ltd

NewSpring Utility Pte Ltd

SingSpring Pte Ltd

Sinolac (Singapore) Pte Ltd

MenaSpring Utility (S) Pte Ltd

People’s Republic of China Eflux (Taizhou) Co., Ltd Hangzhou Zheda Hyflux Hualu Membrane Technology Co., Ltd

Hydrochem Engineering (Shanghai) Co., Ltd

Hyflux Aquosus (Shanghai) Co., Ltd

Hyflux Design Engineering (Shanghai) Co., Ltd

Hyflux Engineering (Shanghai) Co., Ltd

Hyflux Filtech Shanghai Co., LtdHyflux Hi-Tech Product (Yangzhou) Co., Ltd Hyflux Investment Management AndConsultancy Services (Tianjin) Co., Ltd

Hyflux NewSpring (De Zhou) Co., Ltd

Hyflux NewSpring (Fu Ning) Co., Ltd

Hyflux NewSpring (Guan Yun) Co., Ltd

Hyflux NewSpring (Jia Wang) Co., Ltd

Hyflux NewSpring (Le Ping) Co., LtdHyflux NewSpring (Liao Yang Gong Chang Ling) Co., Ltd

Hyflux NewSpring Construction Engineering (Shanghai) Co., Ltd

Hyflux NewSpring Sewage Disposal (Guan Yun) Co., Ltd

Hyflux NewSpring Sewage Disposal (Jia Wang) Co., Ltd

Hyflux NewSpring Sewage Disposal (Ru Dong) Co., Ltd

Hyflux Unitech (Shanghai) Co., Ltd

Kunshan Ecowater Systems Co., Ltd

NewSpring Huludao Co., Ltd.

Ningxia Hypow Bio-technology Co., Ltd

Sinolac (Huludao) Biotech Co., Ltd

Tianjin Dagang NewSpring Co., Ltd

Wu Xi Kai Quan Waste Water Treatment Co., Ltd

Hong KongHyflux Utility (TJ) Limited

Hyflux Utility (HLD) Limited

Hyflux Utility (WX) Limited

Hyflux Utility (YK) Limited

Hyflux Utility (LB) Limited

Hyflux Utility (PJ) Limited

Hyflux Utility WT (MG) Limited

Hyflux Utility WWT (MG) Limited

Hyflux Utility WT (XC) Limited

Hyflux Utility WWT (XC) Limited

Hyflux Utility WT (GCL) Limited

Hyflux Utility (TY) Limited

Hyflux Utility (DF) Limited

Hyflux Utility (YL) Limited

Hyflux Utility (DG) Limited

Hyflux Utility (LP) Limited

Hyflux Utility WT (LY) Limited

British Virgin IslandsHyflux Advanced Technology Ltd

Hyflux International Ltd

Hyflux Water Projects Ltd

IndoSpring Utility Ltd

SinoSpring Utility Ltd

Spring China Utility Ltd

Spring Environment Ltd

Spring Utility Ltd

EuropeFranceTlemcen Desalination Investment Company SAS

NetherlandsHyflux CEPAration B.V.

Netherlands AntillesHyflux CEPAration N.V.

IndiaEflux Oil India Private Limited

Hyflux Engineering (India) Pte Ltd

Hyflux Lifestyle Products (India) Pte Ltd

MalaysiaHyflux Malaysia Sdn Bhd

MENASaudi Arabia

Lube Oil Re-refining Company

Dubai

Hyflux (Middle East) FZCO

Palm Water LLC

Algeria

Hyflux Engineering Algeria

Hyflux-TJSB Algeria

SPA/Almiyah Attilemcania

VietnamSuccess Blossom Environment Vietnam

Joint Stock Company

Corporate Information

Audit CommitteeLee Joo Hai (Chairman)Teo Kiang KokGay Chee CheongProfessor Tan Teck Meng

Nominating CommitteeGay Chee Cheong (Chairman)Lee Joo HaiTeo Kiang Kok

Remuneration CommitteeGay Chee Cheong (Chairman)Teo Kiang Kok Lee Joo HaiChristopher MurugasuProfessor Tan Teck Meng

Risk Management CommitteeChristopher Murugasu (Chairman)Lee Joo HaiTeo Kiang KokRaj Mitta

Executive Committee Olivia Lum Ooi Lin (Chairman) Lee Joo Hai Teo Kiang Kok Gay Chee Cheong

Management CommitteeOlivia Lum Ooi Lin (Chairman)Sam Ong Eng KeangPeter Wu Siu KinBenjamin Tan Eng SengWong Khai TheenFong Chun HoeFoo Hee KiangGe Wen Yue

Company SecretaryYang Ai Chian

Registered OfficeHyflux Building202 Kallang Bahru Singapore 339339Tel: +65 6214 0777Fax: +65 6214 1211

Share Registrar and Share Transfer OfficeBoardroom Corporate & AdvisoryServices Pte Ltd (a member of Boardroom Limited)3 Church Street#08-01 Samsung HubSingapore 049483

AuditorsErnst & YoungCertified Public AccountantsOne Raffles QuayNorth Tower, Level 18Singapore 048583

Partner-in-Charge (since 2005):Steven Phan

BankersDBS Bank Ltd6 Shenton Way DBS Building Tower OneSingapore 068809

Oversea-Chinese Banking Corporation Limited65 Chulia StreetOCBC Centre Singapore 049513

United Overseas Bank Limited1 Raffles PlaceOUB CentreSingapore 048616

Mizuho Corporate Bank Limited Singapore Branch168 Robinson Road Capital TowersSingapore 068912

BNP Paribas, Singapore Branch20 Collyer QuayTung CentreSingapore 049319

Arab Bank80 Raffles Place#32-32 UOB Plaza 2Singapore 048624

NATIXIS, Singapore Branch50 Raffles Place #41-01Singapore Land TowerSingapore 048623

Bank of ChinaSingapore Branch4 Battery Road Bank of China BuildingSingapore 049908

Deutsche Bank AG Singapore BranchOne Raffles Quay #17-00South TowerSingapore 048583

Investor RelationsWebsite: www.hyflux.com Contact: Sam Ong Eng KeangEmail: [email protected]

Hyflux Ltd Hyflux Building202 Kallang BahruSingapore 339339Tel: (65) 6214 0777Fax: (65) 6214 1211

www.hyflux.com

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