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annual report 2010

Key Financial Figures 01 Group Financial Highlights 02Signifi cant Events 04Geographical Presence 06Message from Group President & CEO 10

Contents Board of Directors 14Key Management 17Financial Review 20Operating Review 23Corporate Social Responsibility 32Investor Relations 34

Hyfl ux Ltd Annual Report 2010

1

Key Financial Figures

PROFIT BEFORE TAX

S$100.5 million

21%

PROFIT ATTRIBUTABLE TO SHAREHOLDERS

S$88.5 million

18%EARNINGS PER SHARE

10.52 Singapore cents

11%

REVENUE

S$569.7million

9%

NET ASSET VALUE PER SHARE

58.60 Singapore cents

27%CASH POSITION

S$222.3 million

33%

EBITDA PBT

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

3420

83

105

101141

8570

3955

5750

3329

2220

1412

119

0 20 40 60 80 100 120 140

EBITDA and PBTcompounded annual growth rate

33% and 31% respectively from 2001 - 2010

EBITDA & PBT

(S$ million)

Note: EBITDA – Earnings Before Interest, Taxes, Depreciation and AmortisationPBT – Profi t Before Tax

(For year ended 31 December 2010)


2

Group Financial Highlights

S$'000 2010 2009 2008 2007 2006

Revenue 569,737 524,814 554,224 192,786 142,379

Profi t Before Tax 100,473 82,972 70,375 38,693 20,178

Profi t After Tax 88,885 74,291 62,218 36,645 15,357

Profi t Attributable to Shareholders 88,510 75,036 59,036 32,949 15,473

Shareholders' Equity 502,501 365,244 297,547 239,772 199,601

Total Assets 1,359,702 1,072,563 846,555 549,500 443,398

Net Assets 514,507 393,402 307,899 247,067 218,066

Net Asset Value per Share (cents) (1) (2) 58.60 46.10 37.80 30.50 25.70

Earnings per Share (cents) (2) 10.52 9.51 7.50 4.21 2.00

Dividend per Share (cents) (2) 4.17 3.33 2.29 1.26 0.90

Return on Revenue (%) 15.5 14.3 10.7 17.1 10.9

Return on Equity (%) 17.6 20.5 19.8 13.7 7.8

KEY FINANCIAL DATA(For year ended 31 December)

(1) Net Asset Value excludes non-controlling interests(2) Restated to include the December 2010 issue of one bonus share for every two existing ordinary shares

GROUP REVENUE BY COUNTRY & REGION (S$ million)

2010

2009

2008

2007

2006

343.8

223.0

8.2

0.0

330.5

150.8

314.7

157.0

104.8

181.3

75.1

16.5

27.6

37.6

13.0

0 50 100 150 200 250 300 350 400

Singapore and Others China MENA


3

RETURN ON EQUITY(%)

2010

2009

2008

2007

2006

0.0 5.0 10.0 15.0 20.0 25.0

17.6

20.5

19.8

13.7

7.8

DIVIDEND PER SHARE (2)

(Singapore Cents)

2010

2009

2008

2007

2006

0.0 1.00 2.00 3.00 4.00 5.00

4.17

3.33

2.29

1.26

0.90

EARNINGS PER SHARE (2)

(Singapore Cents)

2010

2009

2008

2007

2006

0.00 2.00 4.00 6.00 8.00 10.00 12.00

10.52

9.51

7.50

4.21

2.00

PROFIT ATTRIBUTABLE TO SHAREHOLDERS(S$ million)

2010

2009

2008

2007

2006

0 20 40 60 80 100

88.5

75.0

59.0

32.9

15.5

NET ASSET VALUE PER SHARE (1) (2)

(Singapore Cents)

2010

2009

2008

2007

2006

0 10.00 20.00 30.00 40.00 50.00 60.00 70.00

58.60

46.10

37.80

30.50

25.70

(1) Net Asset Value excludes non-controlling interests(2) Restated to include the December 2010 issue of one bonus share for every two existing ordinary shares


44

Signifi cantEvents

March

February

January

December

November

2011

2010

• Hyflux was named “preferred bidder” for Singapore’s second and largest seawater desalination plant by PUB, the national water agency. Hyflux will design, build, own and operate the 318,500 m3/day plant. The project is worth approximately S$890 million, and is Hyflux's largest contract to date.

• Hyflux and Mizuho Corporate Bank signed a memorandum of understanding to collaborate on global water business development and explore various financing structures for water projects.

• Hyflux was awarded a concession by the People’s Government of Zunyi City to develop a wastewater treatment plant to treat up to 150,000 m3/day of domestic wastewater for Zunyi City in Guizhou province, China. Hyflux will invest approximately RMB200 million (US$31 million).

• Hyflux signed three concession agreements with the People’s Government of Chongqing City, Hechuan District to develop two 20,000 m3/day wastewater treatment plants and a 50,000 m3/day potable water treatment plant at the Hechuan Industrial Park in Chongqing City, China. Hyflux will invest approximately US$45 million.

• Galaxy NewSpring successfully completed its compulsory acquisition and delisting of Hyflux Water Trust (HWT).

• Hyflux launched HyfluxShop, Asia’s first online store dedicated to a wide range of quality industrial products and systems for the water industry.

• Hyflux secured a US$100 million engineering, procurement and construction contract from the General People’s Committee for Utilities of the Great Socialist People's Libyan Arab Jamahiriya to build a 40,000 m3/day desalination facility in Tobruk, Libya.

Hyfl ux booth at Singapore International Water Week 2010Joint venture signing ceremony with Mitsui & Co


55

August

June

April

March

October

February

• Hyflux was conferred Water Technology Company of the Year at the Frost & Sullivan Asia Pacific Best Practices Awards 2010.

• The Securities Investors Association of Singapore (SIAS) named Hyflux the Runner-Up (Services/Utilities/Agriculture category) for the Most Transparent Company Award 2010.

• Hyflux and Mitsui & Co signed a joint venture agreement to develop water projects in China. The 50/50 joint venture company, Galaxy NewSpring, proposed a voluntary delisting of HWT and an exit offer to acquire all remaining HWT units not controlled by Hyflux.

• Hyflux launched its new generation of ultrafiltration membranes, the Kristal 2000, and the Membrane Evaluation System for hollow fibre membranes at the Singapore International Water Week.

• Hyflux won three awards at the Global Water Awards 2010 organised by Global Water Intelligence: Desalination Company of the Year (Distinction), Desalination Deal of the Year (Highly Commended) for the world’s largest membrane-based desalination plant, Magtaa Desalination Plant in Algeria, and Desalination Plant of the Year (Highly Commended) for Tianjin Dagang Desalination Plant in China.

• Hyflux was awarded a S$43.8 million contract by TP Utilities, a wholly-owned unit of Tuas Power, to undertake the engineering, procurement and construction work for stage one of the 182,000 m3/day Tembusu Seawater Desalination Plant on Jurong Island, Singapore.

• Hyflux secured a S$35.8 million contract from PUB to design, construct, test and commission a 68,000 m3/day membrane bioreactor plant at Jurong Water Reclamation Plant. The membrane bioreactor plant will be Singapore’s largest.

Queen Noor of Jordan presents the Desalination Company of the Year (Distinction) Award to Hyfl ux at the Global Water Awards 2010

Hyfl ux wins Water Technology Company of the Year at the Frost & Sullivan Asia Pacifi c Best Practices Awards 2010


66

GeographicalPresence

1000

400in more than

More than

membrane products and systems installed

locations worldwide

Landmark projects

World's Largest SWRO Desalination Plant Magtaa Desalination Plant

China's Largest SWRO Desalination Plant Tianjin Dagang Desalination Plant

Singapore's First SWRO Desalination PlantSingSpring Desalination Plant

Singapore's First NEWater PlantBedok NEWater Plant

Singapore's Largest Membrane Bioreactor Plant Jurong Membrane Bioreactor

Note:SWRO – Seawater reverse osmosis


77

Our offi ces

Landmark plants

Membrane installations

SingaporeMalaysia

Algeria

India

ChinaFrance

Netherlands


8


9

To inspire greater possibilities


10

Message from Group President & CEO

10


11

Dear Stakeholders,

FY2010 has been another record year for Hyfl ux as we registered our highest revenue and net profi t to date. Our Group revenue showed a 9% rise to S$569.7 million while profi t after tax and non-controlling interests came in at S$88.5 million, an 18% increase over FY2009’s net profi t.

Hyfl ux’s performance was the result of effective cost-management measures put in place to strike a balance between costs on one hand and growth on the other.

To reward shareholders, the Board of Directors has recommended a fi nal dividend of 3.50 Singapore cents per share. In addition to the fi rst interim dividend that was paid out on 15 September 2010, the full-year dividend payout will amount to 4.17 Singapore cents per share for FY2010. This is 25% higher than the dividend per share for FY2009.

EXPANDING CAPABILITIES

This year marks the 10th anniversary of Hyfl ux’s listing on the Singapore Stock Exchange. Our Group has achieved a compounded annual growth rate of 33% in earnings before interest, taxes, depreciation and amortisation and 31% in pre-tax profi t from 2001 to 2010. Over the same period, we have delivered total annualised shareholder returns of 37% since our initial public offer.

Over that 10-year period, we have experienced fast-track growth. We have steadily strengthened our business model, grown in size and profi tability, and expanded globally.

In 2001, we had only two main markets – Singapore and China – but have since expanded into Southeast Asia, India and the Middle East and North Africa (MENA) region. From a player in the industrial space for water, we have progressed to become a major player in the municipal water business. Today, municipal sales account for 90% of our Group revenue. From integrating

“To take the Group forward into the next decade, we will continue to expand our in-house capabilities in anticipation of the global trends and requirements of the water industry.”


12

membrane systems in industrial plants, we have been named one of the dominant desalination providers in the world by the Global Water Intelligence (GWI), the leading information service for the international water industry.

To take the Group forward into the next decade, we will continue to expand our in-house capabilities in anticipation of the global trends and requirements of the water industry. Hence we took the strategic decision to enhance our human capital to ensure that we have the right people with the right expertise and right skills to grow the business, and to meet the increasing demand from our customers worldwide.

In this respect, we took steps to:

• Enhance our management bench strength;

• Raise our project management expertise beyond civil and structural works to marine engineering;

• Broaden our engineering and process know-how to include power generation and management; and

• Expand our fi nancial management and market development expertise.

We strongly believe that by expanding our capabilities in these areas, we stand in good stead to ride the uptrend in our key markets and to penetrate into the Integrated Water and Power Project (IWPP) segment.

RIDING ON ORDER BOOK MOMENTUM

Over the fi rst quarter of FY2011, we have been able to ride on the momentum of order book growth in Singapore and China.

In March 2011, we were named the “preferred

bidder” for the design, build, own and operate contract for Singapore’s second seawater desalination plant by PUB, the national water agency. Hyfl ux will supply water to PUB for a concession period of 25 years. At 318,500 m3 daily capacity, it is Singapore’s largest desalination plant. This project, worth approximately S$890 million, is also Hyfl ux’s largest contract to date. It is a testament of our ability to put together an innovative, competitive and cost-effective solution – incorporating project fi nancing, our proprietary membrane technology, our engineering, procurement and construction and operations and maintenance expertise – to meet the requirements of our client. To enhance the operational cost-effi ciency of the plant, we will build an on-site 411MW combined cycle gas turbine power plant which will provide an uninterruptible supply of good quality, clean energy to the desalination plant. When completed, this landmark project will be our springboard into the IWPP segment.

Our Group also scored project successes in China. Our subsidiaries in China signed concession agreements to develop, own and operate two wastewater treatment plants and a water treatment plant in Hechuan District, Chongqing City and a wastewater treatment plant in Zunyi City, Guizhou. The projects carry concession periods of 30 years.

FOCUSING ON ASIA

We will increase our focus on Asia, in particular China, to balance our growth strategy.

We expect Asia to be the dominant revenue driver in the next few years for two reasons. First, we are directing more resources in Asia to grow our revenues in China, Southeast Asia and India – and this has started to yield results with

Message from Group President & CEO


13

our recent contracts from China and Singapore. Second, the two large-scale desalination plants that Hyfl ux is developing in Tlemcen and Magtaa in Algeria are near the close of the construction phases. The former has been completed, while we have crossed the three-quarter mark on construction of the latter.

We see a new urgency in China to address its water needs on all fronts – from infrastructure development to addressing drought, water pollution, water conservation and pricing of water – and this urgency permeates through all levels of government. We continue to have confi dence in the potential of the municipal water sector of China.

We will continue to leverage on our knowledge of the Chinese market built from more than 15 years of experience in the country. Our joint venture platforms with Mitsui & Co and JGC Corporation will provide us the added fl exibility to pursue the opportunities in the Chinese water market.

The political upheavals currently unfolding in MENA do not change the fundamental need for water in the region, and demand for clean safe water can only be expected to grow. Notwithstanding the prevailing risks involved in investing in MENA countries, they remain long-term compelling markets for Hyfl ux given the vast opportunities for wastewater recycling and seawater desalination solutions. These are where our core strengths lie, and where we can leverage on our fully-integrated capabilities to add value and to deliver water at affordable prices.

ENSURING WATER SECURITY

Moving forward, we will continue to drive operational excellence in all aspects of our business and plant operations and to continue to invest in technologies that are relevant and cost-effective for our customers. With our expanding portfolio of water projects across the world, we will also need to manage our assets more effi ciently and to create higher returns for our Group.

At Hyfl ux, we believe that what we do on a daily basis can impact the lives of the communities that we operate in. In this aspect, we partner both the public and private sectors to provide reliable long-term solutions to the challenges of water scarcity and water pollution.

For Hyfl ux, the water business is about making clean, safe water accessible and affordable, and we want to play an integral role as well in helping nations and communities achieve water security.

Finally, on behalf of the Board of Directors, I would like to thank our shareholders, partners, customers and suppliers for their support through the years.

I would also like to thank our committed employees, without whom there would be no Hyfl ux of today.

Olivia Lum Ooi LinGroup President & CEO

“For Hyfl ux, the water business is about making clean, safe water accessible and affordable, and we want to play an integral role as well in helping nations and communities achieve water security.”


14

Board of Directors

Olivia Lum Ooi LinGroup President & CEO

Ms Lum started corporate life as a chemist with Glaxo Pharmaceutical and left in 1989 to start up Hydrochem (S) Pte Ltd, the precursor to Hyfl ux Ltd.

Managing the Group for more than 20 years now, Ms Lum is the driving force behind Hyfl ux's growth and business expansion, responsible for policy and strategy formulation and corporate direction.

A former Nominated Member of Singapore Parliament, Ms Lum holds several positions in the public service. Currently, she sits on the board of a number of companies. She is a Member of the NUS Board of Trustees and National University Health System. In addition to her commitments in Hyfl ux, Ms Lum is also a member of the Singapore-Tianjin Economic & Trade Council, and the Singapore-Jiangsu Cooperation Council as well as the President of the Singapore Compact for CSR.

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 Ernst & Young Entrepreneur of the Year 2010 Singapore.

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

Teo Kiang KokNon-Executive Independent Director

Mr Teo was admitted to the Singapore bar in 1983 and has been a partner of Shook Lin & Bok LLP (SLB) since 1988. Prior to joining SLB in 1987, he worked for brief periods as an associate with an international law fi rm and as a corporate fi nance executive with an international investment bank. He obtained his Bachelor of Law (Honours) degree from the University of Hull and is a Barrister-at-Law from Lincoln's Inn.

Mr Teo currently heads the Corporate & Corporate Finance and China practices of SLB. In his 28 years of practice, he has advised on a wide range of corporate fi nance transactions, particularly securities offerings, mergers and acquisitions, joint ventures and strategic investments. He has signifi cant experience in equity capital markets and has advised on many public offerings of securities by Singapore and foreign companies including those from the People's Republic of China (PRC). Mr Teo also has expertise with mergers and acquisitions of Singapore and foreign companies

including those from the PRC. Mr Teo's regional practice includes foreign investment work in and out of Singapore, PRC, India and the ASEAN countries.

In the course of his legal practice, Mr Teo has advised listed companies extensively on corporate law and regulatory compliance and in particular, the requirements of the Singapore Exchange Securities Trading Limited.

Lee Joo HaiNon-Executive Independent Director

Mr Lee has been a Non-Executive Independent Director of Hyfl ux Ltd since December 2000. He is also the Chairman of the Audit Committee and a member of the Remuneration and Risk Management Committees.

Mr Lee is a Certifi ed Public Accountant (CPA) and a member of both the Institute of Certifi ed Public Accountants of Singapore and the Institute of Chartered Accountants in England and Wales.


15

He is currently a partner in a public accounting fi rm in Singapore and has more than 20 years of experience in accounting and auditing.

Mr Lee also sits on the boards of other listed companies, including Lung Kee (Bermuda) Holdings Ltd.

Gay Chee CheongNon-Executive Independent Director

Mr Gay has been a Non-Executive Independent Director of Hyfl ux Ltd since August 2001. He is also the Chairman of the Nominating Committee, as well as a member of the Remuneration and Audit Committees.

He is a member of the Board of Governors of Raffl es University and Temasek Polytechnic, an Advisory Board member of the Lee Kong Chian School of Business at Singapore Management University, a member of the Entrepreneurship Committee at the National University of Singapore and a Trustee of the United World College of South East Asia Foundation.

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 Pacifi c economies. The company was awarded Highest Net Profi t in 2006 and Net Profi t Excellence in 2007 in the annual SME 500 ranking.

Mr Gay graduated from the Royal Military Academy (RMA), Sandhurst and Royal Military College of Science, Shrivenham, United Kingdom. At RMA, Sandhurst, Mr Gay won the Nigeria Prize for Best Overseas Student Offi cer 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 the University of London. He also has a Masters of Business Administration from the National University of Singapore.

Left to right Rajsekar Kuppuswami Mitta, Christopher Murugasu, Olivia Lum Ooi Lin, Gay Chee Cheong, Lee Joo Hai, Professor Tan Teck Meng, Teo Kiang Kok


16

Christopher MurugasuNon-Executive Independent Director

Mr Murugasu has been a director of Hyfl ux Ltd since February 2005. He is also a member of the Risk Management and Remuneration Committees.

Previously Senior Vice President for Corporate Services at Hyfl ux Ltd, he was responsible for the Group’s human resources, procurement and general administration functions. Prior to joining Hyfl ux, 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.

Rajsekar Kuppuswami MittaNon-Executive Independent Director

Mr Mitta has been a Non-Executive Independent Director of Hyfl ux Ltd since April 2007. He is also Chairman of the Risk Management Committee.

Mr Mitta is currently the Chairman of Essential Value Associates Pte Ltd, a boutique consulting fi rm that works with selected Chairmen and CEOs who seek to create lasting change to develop high growth sustainable businesses with quality governance.

Mr Mitta was Chairman of Arthur D Little Asia and a Senior Member of Booz Allen Hamilton. He 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 consulting experience of over 20 years, Mr Mitta worked in senior marketing roles with Pepsico (US and Cyprus) and Mars Inc. (UK).

Board of Directors

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 are 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 Director

Professor Tan has been a Non-Executive Independent Director of Hyfl ux Ltd since April 2007. He is also the Chairman of the Remuneration Committee as well as a member of the Audit Committee.

Professor Tan is currently Professor of Accounting in the School of Accountancy at Singapore Management University. He chairs KK Women & Children Hospital’s Medifund Committee.

Professor Tan also sits on the board of a number of companies including Singapore Reinsurance Corporation Limited, Kim Eng Holdings Limited, k1 Ventures Ltd and Raffl es Education Corporation.

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 fi rst Singaporean to garner the (US-based) Wilford L. White Award.

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


1717

Key Management

Left to right Peter Wu, Oon Jin Teik, Foo Hee Kiang, Olivia Lum Ooi Lin, Sam Ong, Winnifred Heap, Dr Andrew Ngiam, Cho Wee Peng

01 Olivia Lum Ooi Lin Group President & CEO

02 Sam Ong Group EVP & Group Deputy CEO

03 Cho Wee Peng Group EVP & Group CFO

04 Winnifred Heap Group EVP, Capital Markets

05 Oon Jin Teik Group EVP & CEO, China

06 Dr Andrew Ngiam Group EVP & Group COO

07 Foo Hee Kiang Group EVP, Commercial Contracts & Industry Relations

08 Peter Wu Group Senior MD & CEO, Galaxy NewSpring


18


19

To deliver smarter solutions


20

FinancialReview

S$ million 2010 2009 % Change

Revenue 569.7 524.8 9

Profi t Before Tax 100.5 83.0 21

Profi t Attributable to Shareholders 88.5 75.0 18

Earnings per Share (cents) (1) 10.52 9.51 11

(1) Restated to include the December 2010 issue of one bonus share for every two existing ordinary shares

OVERVIEW

Hyfl ux registered our highest revenue and net profi t to date in 2010. The Group achieved revenue of S$569.7 million and profi t attributable to shareholders of S$88.5 million for FY2010. Basic earnings per share increased by 11% to 10.52 Singapore cents.

REVENUE

Group revenue for FY2010 increased by 9% to S$569.7 million as compared to S$524.8 million for FY2009.

Revenue from the municipal sector increased marginally by 9% from S$469.8 million for FY2009 to S$511.2 million for FY2010 and contributed 90% to the Group’s revenue. Municipal sector revenue from China and MENA for FY2010 was S$99.7 million and S$340.5 million respectively.

Revenue from the industrial sector increased by 1% from S$54.4 million for FY2009 to S$55.1 million for FY2010.

China accounted for 26% of the total revenue, while MENA contributed approximately 60% of the total revenue for FY2010.

Moving forward, the fundamentals and outlook of the global water industry remain robust. The municipal sector will continue to be the main driver of Group revenue. With our key markets in China, Southeast Asia and the MENA region facing critical water scarcity issues, the development of water infrastructure projects is expected to accelerate.

As a refl ection of the increasing momentum, we have announced the signing of four concession agreements worth a total of US$76 million in the fi rst two months of 2011 with the People's Government of Chongqing City,

Group Revenue by Segment

Industrial 10%

Industrial 10%

Municipal90%

Municipal90%

2010 2009

(For year ended 31 December)


21

Hechuan District and People's Government of Zunyi City for water projects in Chongqing City and Zunyi City in China.

However, risks remain that could impact our growth even though risk appetite has recovered signifi cantly from the lows in 2008. China's recent tightening measures and the debt crisis in the Eurozone will continue to rein in optimism and risk appetite. In addition, fl uctuations in foreign exchange rates and commodity prices will impact our fi nancial performance, as well as recent changes in the political climate in MENA. Projects in Libya are likely to be delayed in view of current developments.

COSTS AND EXPENSES

Raw materials and consumables used and subcontractors’ costs decreased by 2% from S$309.4 million for FY2009 to S$303.0 million for FY2010 due to cost management measures.

Staff costs increased from S$59.4 million for FY2009 to S$65.4 million for FY2010 which was in line with our expansion plan.

Finance costs increased from S$9.3 million for FY2009 to S$16.8 million for FY2010 which was in line with higher bank borrowings during the fi nancial year.

Depreciation, amortisation and impairment increased from S$16.5 million for FY2009 to S$27.5 million for FY2010 which was in line with the increase in property, plant and equipment and intangible assets.

Other expenses increased from S$57.9 million for FY2009 to S$68.1 million for FY2010 due to higher projects tender fees, costs on research and development and foreign exchange differences during the fi nancial year.

The effective tax rate for FY2010 was about 11.5% and remained at a level lower than the Singapore corporate tax rate mainly due to the tax exemptions and incentives enjoyed by certain entities within the Group.

EARNINGS PER SHARE

Basic and fully diluted earnings per share for FY2010 increased by 10.6% and 9.5% respectively to 10.52 Singapore cents and 10.23 Singapore cents respectively compared to FY2009.

Group Revenue by Country

Others14%

Others2%

MENA60%

MENA63%

China26%

China35%

2010 2009


22

BALANCE SHEET REVIEW

Shareholders’ equity expanded to a record S$502.5 million as at 31 December 2010 from S$365.2 million as at 31 December 2009. The increase was mainly attributable to the changes in share capital arising from the issue of shares under the Employees’ Share Option Scheme (the Scheme) and Warrant Subscription Agreement and Supplemental Warrant Subscription Agreement (Agreements) for FY2010. Net profi t in FY2010 further boosted our equity base.

Current assets rose to S$693.7 million as at 31 December 2010 from S$549.1 million as at 31 December 2009, which was mainly due to increases in amounts due for contract work and cash and fi xed deposits.

Non-current assets increased to S$666.0 million as at 31 December 2010 from S$523.4 million as at 31 December 2009. Property, plant and equipment and fi nancial receivables increased by S$20.9 million and S$70.2 million respectively. The increase was offset by the lower trade and other receivables for trade amounts due from associates as well as investments in associates.

Current liabilities decreased slightly to S$315.9 million as at 31 December 2010 from S$317.9 million as at 31 December 2009, mainly due to the decreases in trade-related payables during the fi nancial year.

Non-current liabilities increased to S$529.2 million as at 31 December 2010 from S$361.3 million as at 31 December 2009, resulting mainly from the increase in bank borrowings during the fi nancial year to support group expansion and investment activities. Included in the fi nancial liabilities as at 31 December 2010 was S$222.8 million of fi xed rate unsecured notes (Notes) issued under our Multicurrency Debt Issuance Programme. The Notes will mature in 2012 and 2015.

Our net gearing ratio as at 31 December 2010 stood at 0.73 times.

CASHFLOW AND LIQUIDITY

Hyfl ux’s cash position increased to S$222.3 million as at 31 December 2010 from S$166.7 million as at 31 December 2009.

In 2010, net cash of S$49.5 million was used in our operating activities, mainly towards working capital requirements. Cash used in investing activities for the fi nancial year was largely for capital expenditure of property, plant and equipment and intangible assets to support our expansion, including investments in joint ventures and associates. Cash generated from fi nancing activities for FY2010 was mainly from borrowing proceeds to fund group investments and from the issue of shares under the Scheme and Agreements.

FinancialReview


23

OperatingReview

ENGINEERING, PROCUREMENT AND CONSTRUCTION (EPC)

2010 saw further progress in our two large-scale desalination projects in Algeria. Our project in Souk Tleta in Tlemcen, with a designed capacity of 200,000 m3/day, has been completed and is awaiting client’s readiness, while good progress was made at our Magtaa project, which is 80% complete. At 500,000 m3/day, it will be the world’s largest seawater reverse osmosis desalination plant when completed in 2011.

During the year, Hyfl ux secured a number of EPC contracts, including two projects in Singapore. The fi rst was a S$35.8 million contract for Singapore’s largest membrane bioreactor (MBR) at the Jurong Water Reclamation Plant for PUB, the country’s national water agency. The second contract, valued at S$43.8 million, was for the fi rst stage development of a 182,000 m3/day desalination plant for Tuas Power’s Tembusu Multi-Utilities

Complex on Jurong Island. We were also awarded a US$100 million turnkey contract by the Libyan Ministry of Utilities, to build a 40,000 m3/day seawater reverse osmosis desalination plant in Tobruk, Libya. However, due to the heightened tensions in the country, we believe that the project will be delayed. We have no investments in Libya as work on the desalination plant in Tobruk has not begun and we have removed the US$100 million contract for Tobruk from the computation of the Group’s order book pending new developments.

To date, our projects in Algeria and Oman are progressing as planned and have not faced any disruptions.

In the fi rst quarter of 2011, Hyfl ux's subsidiaries in China were awarded concession agreements worth a total of US$76 million by the People’s Government of Chongqing City, Hechuan District and the People’s Government of Zunyi City. Hyfl ux will develop a water

Artist's impression of Tuas II desalination plant, Singapore


24

treatment plant and two wastewater treatment plants at Hechuan Industrial Park in Chongqing City:

• Hexin District Wastewater Treatment Plant and Weituo Wastewater Treatment Plant, each with a treatment capacity of 20,000 m3/day will process wastewater for the industrial park; and

• Weituo Water Treatment Plant will tap water from upstream Jialing River to produce up to 50,000 m3/day of potable water for industrial and domestic use.

At Zunyi City in north Guizhou province, Hyfl ux will develop a wastewater treatment plant to treat up to 150,000 m3/day of domestic wastewater. These projects carry concession periods of 30 years.

In addition, we were named the "preferred bidder" by PUB to design, build, own and operate Singapore’s second seawater desalination plant for a concession period of 25 years. With a daily capacity of 318,500 m3, the facility will be Singapore’s largest desalination plant. The project, worth approximately S$890 million, is also

Hyfl ux’s largest contract to date. To enhance operational cost effi ciency, Hyfl ux will build a 411MW combined cycle gas turbine power plant to supply energy to the desalination plant. Construction is expected to commence in the fourth quarter of 2011 after the water purchase agreement is signed with PUB and fi nancial close is achieved. When completed, this landmark project will sharpen our competitive edge for large-scale international seawater desalination projects in our key markets and be our springboard into the integrated water and power project (IWPP) segment.

This accelerating order book momentum brings our EPC order book to a strong S$1.3 billion at the end of March 2011.

OPERATIONS & MAINTENANCE (O&M)

Our order book for O&M was S$955 million in FY2010 compared to S$1.1 billion in FY2009 as a result of the 50/50 joint ventures we had formed with

OperatingReview

EPC O&M

Mar 11

Dec 09

Dec 08

Dec 07

Dec 06

Dec 05

0 500 1000 1500 2000 2500

ORDER BOOK(S$ million)

7481100 1848

1145335 1480

863254 1117

435166 601

465

1273955 2228

750 (1)

Note:(1) EPC value for Tuas II desalination plant(2) EPC order book excludes US$100 million from Tobruk as of March 2011(3) O&M order book is a summation of future revenues of our portfolio of plants over the concession periods

43530


25

Mitsui & Co and JGC Corporation of Japan. This saw the transfer of the O&M contracts for the portfolio of water treatment plants that were formerly held by Hyfl ux Water Trust (HWT) and Tianjin Dagang Desalination Plant to the two joint ventures. We expect our O&M order book to rise over the next three years as projects such as our large-scale desalination plants in Magtaa, Algeria and Tuas, Singapore begin operations, forming a steady stream of recurring income over the 20 to 30-year concession period.

By the end of 2011, our large-scale municipal desalination plants will supply close to 1 million m3 of desalinated water daily to communities and industries in the countries where we operate.

Ultrafi ltration building at Tianjin Dagang Desalination Plant, China

INNOVATION

Hyfl ux’s research and development activities are focused on the development of membrane applications and commercialisation of membrane technologies. This enables us to constantly improve our operations and anticipate tomorrow’s challenges as countries become more industrialised. Our team of multidisciplinary specialists, researchers and scientists in our network of innovation centres in Singapore, China and The Netherlands, works in close cooperation with marketing, product development and engineering to push for breakthroughs that will deliver environmentally-friendly and effi cient solutions for a wide range of applications in water treatment and industrial manufacturing processes.

Kristal 2000T, a new generation of our fl agship Kristal ultrafi ltration membrane, which is installed in a number of our landmark water projects, was launched at the Singapore International Water Week 2010. Fabricated from polyvinylidene fl uoride, the membrane’s properties make it ideal for handling


26

OperatingReview

diffi cult and challenging conditions such as high solids wastewater treatment. Another member to join the Kristal family in 2010 was the Kristal 600ETN. With a shortened module housing of just 1.2 m compared to the other Kristal models which are over 2 m long, the Kristal 600ETN is designed to meet customer requirements for a more compact, high-performance solution for full scale process treatment systems.

Hyfl ux also unveiled a Membrane Evaluation System at the Singapore International Water Week 2010. The system is designed to evaluate and optimise the performance of hollow fi bre membranes for liquid-liquid or liquid-solid separation under different operating conditions, simplifying the membrane selection process for different applications.

Every year, Hyfl ux devotes a fi xed percentage of annual revenue to research and development spending. In addition, we are investing S$120 million over the next few years in the Hyfl ux Innovation Centre, a new design, R&D and commercialisation centre in Singapore to spearhead the development of membrane technologies for municipal and industrial applications. There will also be a new membrane manufacturing facility, Hyfl ux Production Hub. This commitment to research enables us to continually enhance our

technological and engineering processes, and create new value for our customers.

In fact, innovation is a way of life at Hyfl ux and permeates every level of the organisation. Our philosophy is to look at how innovation can create better value and effi ciency for customers. This extends beyond research and development to encompass the way we design our membrane systems and integrated water plants as well as arrange fi nancing for our projects.In recognition of our achievements, Hyfl ux was named Water Technology Company of the Year 2010, Asia Pacifi c by Frost and Sullivan, and Desalination Company of the Year (Distinction) at the Global Water Awards

Research lab at Tianjin Dagang Desalination Plant Kristal ultrafi ltration membrane installation in Ukraine


27

2010. Our Magtaa project also won a commendation for Desalination Deal of the Year at the same awards ceremony for achieving fi nancial close within one year from the award date, and on the back of one of the lowest tariffs in the world for a seawater reverse osmosis desalination plant.

GEOGRAPHICAL MARKETS

China

The Chinese market represented 26% or S$150.8 million of Group revenue in FY2010.

China presents tremendous opportunities for Hyfl ux and we intend to increase our focus in the coming years. The country recently outlined in a central policy document its plans to intensify investments in water projects as well as to promote water conservation and sustainable use of the scarce resource. This is the fi rst time the document has focused on water conservation, a refl ection of the urgency the government sees in boosting China’s water security. Hyfl ux is confi dent of the prospects the municipal sector offers and the potential for tariff growth.

Middle East North Africa (MENA)

The MENA region accounted for 60% or S$343.8 million of Group revenue in FY2010 with the progress in the Souk Tleta and Magtaa seawater desalination plants in Algeria and the seawater desalination facility at the Salalah IWPP in Oman.

Souk Tleta Desalination Plant, Algeria

Notwithstanding the prevailing risks involved in investing in MENA, the region remains a compelling market for Hyfl ux in the long-term as the fundamentals for water solutions like desalination and water reuse remain strong.

Singapore and Others

Singapore and other markets accounted for 14% or S$75.1 million of Group revenue in FY2010. Our home market saw a signifi cant increase in activity in 2010 with the development of two projects we had won in the fi rst quarter of the year – Singapore’s largest MBR plant at the Jurong Water Reclamation Plant and the fi rst stage development of a desalination plant for Tuas Power’s Tembusu Multi-Utilities Complex.

Markets such as Southeast Asia and India, where we have been undertaking small industrial projects, have contributed modestly to the Group’s revenue, but are expected to become signifi cant over time as we direct more resources to capture the growth opportunities ahead. As more countries across the region put in place concerted plans to improve water infrastructure and enhance their water security, attractive opportunities will open up for Hyfl ux to provide innovative, cost-effective and environmentally responsible solutions in seawater desalination, water recycling, wastewater treatment and potable water treatment.


28

Joint venture signing ceremony with Mitsui & Co

STRATEGIC PARTNERSHIPS

Strategic partnerships enable Hyfl ux to strengthenour competitiveness in the global water industry.

In August, Hyfl ux formed Galaxy NewSpring, a 50/50 joint venture with Mitsui & Co to serve as the vehicle for investing, developing and managing projects in the fast expanding water sector in China.

By combining our complementary strengths – Hyfl ux’s fully integrated water solutions, strong track record and experience in China, and Mitsui’s entrenched global network, comprehensive infrastructure services and robust capital structure – we have formed a powerful platform to accelerate investments in developing critical infrastructure

to meet China’s needs for clean, safe and affordable water. Galaxy NewSpring’s initial investment portfolio comprises 22 water and wastewater treatment plants – four acquired from Hyfl ux’s wholly-owned subsidiary, Spring China Utility, and 18 from HWT. The latter was taken private in December 2010 after its unitholders supported the voluntary delisting proposal by the joint venture.

Hyfl ux has also formed strategic partnerships with the Japan Bank for International Cooperation (JBIC) and JGC Corporation in 2009.

With these institutions and companies as our partners, we will have greater fi nancial leverage and fl exibility to accelerate investments in projects in our key growth markets of China, Southeast Asia, India and MENA. We will also be able to tap on the market knowledge and connections of our partners in markets which we have yet to establish a strong presence.

Hyfl ux will continue to explore new partnerships that complement our key strengths to boost our growth strategy and fi nancial fl exibility.

OperatingReview


29

INDUSTRY OUTLOOK

Access to water of adequate quality and quantity continues to be one of the major challenges confronting modern society. Many people do not have access to safe drinking water because water resources are limited or polluted by domestic and industrial wastewater. This situation is expected to become more critical with rapid population growth, increasing urbanisation and industrialisation, ageing water infrastructure and climate change, especially in regions with scarce natural water resources. To meet these challenges, comprehensive water policies as well as investments are required to implement and enforce effl uent discharge standards, improve water effi ciency and quality, promote water conservation and tariff reforms, and upgrade and expand water infrastructure.

Industry estimates put the size of the global water market at over US$480 billion in 2010. Of this, US$175 billion was for municipal and industrial water and wastewater capital expenditure. While the fi nancial crisis caused a decrease in water capital expenditure growth and delays in large infrastructure projects, global water capital expenditure is still expected to grow at a compounded annual growth rate of 6.2% in the period 2010 to 2016. The annual total global capital expenditure on desalination is also projected to rise from US$6 billion in 2010 to US$18.3 billion in 2016, a compounded annual growth rate of 20.4%.

In China, a key market where Hyfl ux has more than 40 water projects, the government has announced that it would make water conservation and sustainable water use a national priority. The country aims to double its average annual spending on water conservation over the next 10 years from RMB200 billion in 2010

to RMB400 billion, investing a total of RMB4 trillion (US$608 billion) in projects during the next decade. This will be supplemented by other measures including government funding, higher water tariffs to control water consumption and the implementation of targets for the quantity of water consumed, effi ciency of water use and water pollution levels for which local government offi cials will be held accountable. We will leverage on our knowledge of the Chinese market cultivated from more than 15 years of experience in the country and our joint ventures with Mitsui & Co and JGC Corporation to pursue the opportunities in China.

By building on our core capabilities and leveraging on our proprietary membrane technologies and fi nancial platform, Hyfl ux has created a competitive advantage that has enabled us to achieve strong growth and a leading position in the water industry. We are ranked one of the world’s top desalination suppliers by contracted capacity and Build-Own-Transfer / Build-Own-Operate desalination capacity according to Global Water Intelligence. As water scarcity becomes an increasingly grave issue for communities and industries, we seek to play an integral role in helping countries enhance their water security.


30

To grow people and communities


31


32

CorporateSocial Responsibility

HUMAN CAPITAL

To lead the company into the next phase of growth, Hyfl ux focuses on recruiting, engaging, motivating and retaining individuals whose skills, aspirations and values are aligned to the company’s strategic vision and core values. We employed close to 2,300 employees in seven countries around the world in 2010. We boosted our staff strength in Algeria as we prepared for the operations and maintenance of the desalination plants that we are building, expanded our presence in Malaysia and India, and opened a new offi ce in France to serve the European market. We also have plans to establish three engineering resource centres in Malaysia, China and India to tap on and divert resources for projects across the world.

A diversifi ed and inclusive work environment has been vital to our success. The varied skills and experiences of employees from different backgrounds, cultures, gender and age bring richness to the workplace, helping us to connect better with our clients around the world and build stronger relationships at a local level.

We believe in nurturing the full potential of our employees through professional training and development programmes, job rotation, overseas postings as well as participation in local and international industry conferences. In doing so, we develop their skills and talents and also strengthen our ability to improve lives in the communities we serve.

Hyfl ux encourages open communication and employee engagement through an orientation for new employees to familiarise them with the company, regular dialogue sessions with senior management, company-wide celebrations of festivities and programmes such as ‘Bring Your Child to Work Day’. This is complemented by an intranet portal which shares company news and events as well as general employee resources. In addition, regular learning sessions are organised for employees to give them an intimate understanding of the industry Hyfl ux is in, and to instil a strong sense of pride and ownership in our journey to deliver solutions to meet the world’s need for water.

QUALITY, ENVIRONMENT, HEALTH AND SAFETY (QEHS)

At Hyfl ux, a dedicated team is responsible for ensuring the health and safety of employees and integrating environmental best practices into our business. Our

commitment to QEHS practices starts from key management and fi lters down through the organisation.

Hyfl ux contributes to sustainable development by helping to meet the world’s growing water needs in environmentally and socially responsible ways. Our activities are guided by our goal of making a positive difference and reducing our impact on the environment.

In 2010, we were awarded the ISO 14001:2004 and BS OHSAS 18001:2007 certifi cations. They affi rm that Hyfl ux’s processes comply with international standards for occupational health and safety, and the environment. In addition, our fl agship ultrafi ltration membrane, Kristal, is the fi rst ultrafi ltration membrane certifi ed to remove the drinking water contaminants, cryptosporidium and giardia, under the new Public Drinking Water Equipment Performance Certifi cation Programme by America’s NSF International. Kristal has also achieved NSF Standard 61 (Drinking Water System Components – Health Effect) Certifi cation. This standard certifi es that products which have direct contact with drinking water, do not leach contaminants that would be a health concern.

Safe and reliable operations are fundamental to Hyfl ux. Our Environment, Safety and Health Committee continuously strives to strengthen our safety culture through processes, regular training programmes and sharing sessions and rewards for strong safety performance. Our goal is to create an accident-free environment that keeps our employees and contractors safe at every Hyfl ux facility.

Hyfl ux staff in the Economic Development Board's Heritage Run


33

COMMUNITY

As a water solutions company with entrepreneurial roots, Hyfl ux’s corporate social responsibility programme focuses on issues close to our heart: the environment, education, entrepreneurship and community relations.

In 2010, Hyfl ux contributed to charitable causes including fund raising events which benefi ted wildlife conservation funds as well as charity organisations that provide fi nancial and social assistance, eldercare, rehabilitation, knowledge and skills development. In support of the opening of PUB’s Active, Beautiful, Clean Waters project at Lower Seletar Reservoir, Hyfl ux sponsored a Vietnamese water puppet show. We also donated money and portable Hyfl ux track membrane water fi lters to aid humanitarian efforts for disaster relief in Qinghai and Haiti.

As a company actively involved in the Chinese market, we believe in the importance of an in-depth understanding of the rapidly evolving country. During the year in review, we were a Silver Sponsor of the inaugural FutureChina Global Forum, an annual event which provides a platform to promote dialogue and interaction among business, political, academic personalities from China and companies involved in the country.

Hyfl ux’s corporate social responsibility philosophy goes beyond philanthropy. We seek to foster a culture of volunteerism to inspire our employees to reach out to the communities in which we live and work.

During the year in review, our colleagues in Algeria participated in a ‘Beach Cleaning Day’. In Singapore, Hyfl ux sponsored Christmas lunch celebrations and goodie bags for Teck Ghee Youth Centre, a non-profi t organisation that reaches out to youth from less privileged families, while our volunteers entertained and befriended the youth and their families.

CommunityEnvironmentEntrepreneurship & EducationOthers

Community Initiatives

46%

17%

14%

23%

Vietnamese water puppet show


34

InvestorRelations

Hyfl ux adopts a proactive investor relations approach in our communications with investors and analysts. We strive to provide clear, consistent and timely information regarding the company’s performance and progress to facilitate informed investment decisions, nurture continued confi dence in the company and foster strong, enduring relations with the investment community. To achieve this, multiple communication channels such as shareholder meetings, briefi ngs to analysts, investors and the media, conference calls, investor conferences and the investor relations website are used. All fi nancial information, announcements, briefi ng materials to analysts and the media as well as annual reports are made available on www.hyfl ux.com.

Hyfl ux’s senior management and investor relations team continued to actively reach out to the investment community. During the year, we held over 220 meetings, including non-deal roadshows and investor conferences with shareholders, analysts and potential investors. The meetings provided a platform for senior management to engage and keep the investment community apprised of developments at Hyfl ux and gain insights into the equity market’s perceptions of the company.

When Galaxy NewSpring, the 50/50 joint venture between Hyfl ux and Mitsui & Co, proposed the acquisition and voluntary delisting of Hyfl ux Water Trust (HWT), an additional communication channel in the form

of a telephone hotline was provided during the entire offer period for unitholders of HWT to ask any basic questions about the offer. The approval from the majority of the unitholders was secured at HWT's EGM held in October 2010.

In recognition of our commitment to high standards of corporate disclosure and governance, Hyfl ux was awarded runner-up in the services/utilities/agriculture category of the Most Transparent Company Award 2010 at the Investors’ Choice Awards presented by the Securities Investors Association (Singapore).

Hyfl ux fi rmly believes in creating long-term value for our investors. We have delivered total annualised shareholder returns of 37%, or 22 times, over the last 10 years since our listing in 2001.

To reward shareholders for their continuous support of Hyfl ux, a bonus share issue of one bonus share for every two existing ordinary shares held by shareholders was given in December 2010. We have also continued to deliver good dividends to our shareholders. For FY2010, the directors have recommended a fi nal dividend of 3.50 Singapore cents per share, which together with our fi rst interim dividend of 0.67 (1) Singapore cents paid earlier in the year, brings the total dividend for the year to 4.17 (1) Singapore cents per share, compared to a total dividend of 3.33 (1) Singapore cents per share in FY2009.

RELATIVE SHARE PERFORMANCE: HYFLUX vs STI (16/01/2001 - 25/03/2011)

3000

2500

2000

1500

1000

500

100

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

(1) Restated to include the December 2010 issue of one bonus share for every two existing ordinary shares

STI HYFLUX

2318.1152

155.4667

Financial Statements

Directors’ Report 36Statement by Directors 42Independent Auditors’ Report 43Statement of Financial Position 44Consolidated Income Statement 45Consolidated Statement of Comprehensive Income 46Consolidated Statement of Changes in Equity 47

Consolidated Cash Flow Statement 49Notes to the Financial Statements 51Corporate Governance Statement 108Supplementary Information 118Statistics of Shareholdings 120Substantial Shareholders 121Hyflux Group of Companies 122Corporate Information 123Notice of Annual General Meeting 124


36

We are pleased to submit this annual report to the members of the Company together with the audited fi nancial statements for the fi nancial year ended 31 December 2010.

Directors

The directors in offi ce at the date of this report are as follows:

Olivia Lum Ooi Lin Group President & CEOTeo Kiang KokLee Joo HaiGay Chee CheongChristopher MurugasuRajsekar Kuppuswami MittaProfessor Tan Teck Meng

Directors’ interests

According to the register kept by the Company for the purposes of Section 164 of the Companies Act, Chapter 50 (the Act), particulars of interests of directors who held offi ce at the end of the fi nancial year in shares, debentures, warrants and share options in the Company and in related corporations (other than wholly-owned subsidiaries) are as follows:

Direct interest Deemed interestName of director and corporation in which interests are held

At beginningof the year

At endof the year

At 21/1/2011

At beginningof the year

At endof the year

At 21/1/2011

The CompanyOrdinary shares

Olivia Lum Ooi Lin 168,234,141 252,351,211 252,351,211 10,000,000 15,000,000 15,000,000Teo Kiang Kok – – – – – 300,000Gay Chee Cheong 450,000 675,000 915,000 – – –Christopher Murugasu 469,375 729,843 729,843 120,000 180,000 180,000Professor Tan Teck Meng 61,000 – – – 91,500 91,500

Share options

Olivia Lum Ooi Lin 4,500,000 6,750,000 6,750,000 – – –Teo Kiang Kok 250,000 750,000 450,000 – – –Lee Joo Hai 250,000 750,000 750,000 – – –Gay Chee Cheong 200,000 675,000 435,000 – – –Christopher Murugasu 360,937 740,625 740,625 – – –Rajsekar Kuppuswami Mitta – 375,000 375,000 – – –Professor Tan Teck Meng – 375,000 375,000 – – –

There were no changes in any of the above mentioned interests in the Company between the end of the fi nancial year and 21 January 2011, except as disclosed above.

By virtue of Section 7 of the Act, Olivia Lum Ooi Lin is deemed to have interests in the other subsidiaries of Hyfl ux Ltd, at the beginning and at the end of the fi nancial year.

Except as disclosed in this report, no director who held offi ce at the end of the fi nancial year had interests in shares, debentures, warrants or share options of the Company, or of related corporations, either at the beginning or at the end of the fi nancial year.

Directors’ Report


37

Except as disclosed under the “Share Options” section of this report, neither at the end of, nor at any time during the fi nancial year, was the Company a party to any arrangement whose objects are, or one of whose objects is, to enable the directors of the Company to acquire benefi ts by means of the acquisition of shares in or debentures of the Company or any other body corporate.

Except for salaries, bonuses and fees and those benefi ts that are disclosed in this report and in note 35 to the fi nancial statements, since the end of the last fi nancial year, no director has received or become entitled to receive, a benefi t by reason of a contract made by the Company or a related corporation with the director, or with a fi rm of which he is a member, or with a company in which he has a substantial fi nancial interest.

Share options

The Hyfl ux Employees’ Share Option Scheme (the Scheme) of the Company was approved and adopted by its members at an Extraordinary General Meeting held on 27 September 2001.

On 24 November 2003, the members of the Company approved a modifi cation to the Scheme which allowed Olivia Lum Ooi Lin, Group President & CEO, and a substantial shareholder of the Company, to participate in the Scheme. The maximum entitlement of Olivia 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 the Company’s Remuneration Committee. It was in force since 27 September 2001 and shall expire on 26 September 2011.

Directors’ Report (cont’d)


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39

Except as discussed above, there were no unissued shares of the Company or its subsidiaries under options granted by the Company or its subsidiaries as at the end of the fi nancial year.

Details of options granted to directors of the Company under the Scheme are as follows:

Name of director

Options granted for the fi nancial

year ended31 December 2010

Aggregate options granted since

commencement of Scheme to

31 December 2010

Aggregate optionsexercised since

commencementof Scheme to

31 December 2010

Aggregate options outstanding as at

31 December 2010

Olivia Lum Ooi Lin – 8,625,000 (1,875,000) 6,750,000Teo Kiang Kok 375,000 750,000 – 750,000Lee Joo Hai 375,000 750,000 – 750,000Gay Chee Cheong 375,000 675,000 – 675,000Christopher Murugasu 375,000 1,359,375 (618,750) 740,625Rajsekar Kuppuswami Mitta 375,000 375,000 – 375,000Professor Tan Teck Meng 375,000 375,000 – 375,000Total 2,250,000 12,909,375 (2,493,750) 10,415,625

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

• No options have been granted to the controlling shareholders of the Company or their associates;

• No participant has been granted 5% or more of the total options available under the Scheme;

• No options have been granted to directors and employees of the holding company and its related corporations under the Scheme;

• No options that entitle the holders of the options to participate, by virtue of such holding, to any share issue of any other corporation have been granted; and

• The exercise price of the options is set at the market price, as defi ned in the Scheme, at the time of grant. No options have been granted at a discount.

Warrants

By a warrant subscription agreement dated 23 November 2004 supplemented by a supplemental warrant subscription agreement dated 25 April 2008 (Agreements) entered into between the Company and Istithmar World PJSC (formerly known as Istithmar PJSC) (Istithmar), Istithmar was entitled to subscribe for 41,216,863 ordinary shares in the Company, subject to the terms and conditions of the Agreements and the Warrant Instrument. The exercise period is from April 2008 to April 2010.

The exercise price was 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 transacted on the Singapore Exchange on the market day immediately preceding the exercise date or in the 30 calendar day period immediately preceding the exercise date.

During the fi nancial year, 40,216,863 warrants were exercised, while 1,000,000 warrants were exercised in the fi nancial year ended 31 December 2009.



40

Audit Committee

The members of the Audit Committee during the year and at the date of this report are:

Lee Joo Hai (Chairman), non-executive independent directorGay Chee Cheong, non-executive independent directorTeo Kiang Kok, non-executive independent directorProfessor Tan Teck Meng, non-executive independent director

The members of the Audit Committee, collectively, have expertise and extensive experience in legal, accounting, fi nancial management and business, and are qualifi ed to discharge the Audit Committee’s responsibilities.

The primary functions of the Audit Committee are as follows:

1. assists the Board in discharging its statutory responsibilities on fi nancial and accounting matters;

2. reviews the fi nancial and operating results and accounting policies of the Group;

3. reviews signifi cant fi nancial reporting issues and judgements relating to fi nancial statements for each fi nancial year, interim and annual results announcement before submission to the Board for approval;

4. reviews the adequacy of the Company’s internal control (fi nancial and operational) and risk management policies and systems established by the Management;

5. reviews the audit plans and reports of the external and internal auditors and consider the effectiveness of the actions taken by the Management on the auditors’ recommendations;

6. appraises and reports to the 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;

7. reviews the independence of external auditors annually and considers 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; and

8. reviews interested person transactions, as defi ned in Chapter 9 of the SGX Listing Manual.

The Audit Committee has held 4 meetings since the last directors’ report. In fulfi lling its responsibilities, the Audit Committee receives regular reports from the Management. The Audit Committee has full access to and co-operation of the Management and meets with KPMG LLP in private at least once a year, and more frequently if necessary.

The Audit Committee has explicit authority within the scope of its responsibilities to seek any information it requires or investigate any matter within its terms of reference. The Audit Committee has adequate resources to enable it to discharge its responsibilities properly.

The Group has put in place a confi dential communication programme as endorsed by the Audit Committee. Employees may, in confi dence, raise concerns about possible corporate improprieties in matters of fi nancial reporting or other matters and to ensure that arrangements are in place for the independent investigations of such matters and for appropriate follow-up actions. The details of the confi dential communication policies and arrangements have been made available to all employees.



41

The Audit Committee is satisfi ed with the independence and objectivity of the external auditors and has recommended to the Board of Directors that the auditors, KPMG LLP, be nominated for re-appointment as auditors at the forthcoming Annual General Meeting of the Company.

Auditors

The auditors, KPMG LLP, have indicated their willingness to accept re-appointment.

On behalf of the Board of Directors

Olivia Lum Ooi LinDirector

Teo Kiang KokDirector

8 March 2011



42

In our opinion:

(a) the fi nancial statements set out on pages 44 to 107 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 2010 and the results, changes in equity and cash fl ows of the Group for the year ended on that date in accordance with the provisions of the Singapore Companies Act, Chapter 50 and Singapore Financial Reporting Standards; and

(b) 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.

The Board of Directors has, on the date of this statement, authorised these fi nancial statements for issue.

On behalf of the Board of Directors

Olivia Lum Ooi LinDirector

Teo Kiang KokDirector

8 March 2011

Statement by Directors


43

Independent Auditors’ Report

Members of the CompanyHyfl ux Ltd

Report on the financial statements

We have audited the accompanying fi nancial statements of Hyfl ux Ltd (the Company) and its subsidiaries (the Group), which comprise the statement of fi nancial position of the Group and the Company as at 31 December 2010, the income statement, statement of comprehensive income, statement of changes in equity and cash fl ow statement of the Group for the year then ended, and a summary of signifi cant accounting policies and other explanatory notes, as set out on pages 44 to 107.

Management’s responsibility for the financial statements

Management is responsible for the preparation of fi nancial statements that give a true and fair view in accordance with the provisions of the Singapore Companies Act, Chapter 50 (the Act) and Singapore Financial Reporting Standards, and for devising and maintaining a system of internal accounting controls suffi cient to provide a reasonable assurance that assets are safeguarded against loss from unauthorised use or disposition; and transactions are properly authorised and that they are recorded as necessary to permit the preparation of true and fair profi t and loss accounts and statement of fi nancial position and to maintain accountability of assets.

Auditors’ responsibility

Our responsibility is to express an opinion on these fi nancial 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 about whether the fi nancial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fi nancial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the fi nancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of fi nancial statements that give a true and fair view 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 management, as well as evaluating the overall presentation of the fi nancial statements.

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

Opinion

In our opinion, the consolidated fi nancial statements of the Group and the statement of fi nancial position of the Company are properly drawn up in accordance with the provisions of the Act and Singapore Financial Reporting Standards to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2010 and the results, changes in equity and cash fl ows of the Group for the year ended on that date.

Report on other legal and regulatory requirements

In our opinion, 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.

KPMG LLPPublic Accountants andCertifi ed Public Accountants

Singapore

8 March 2011


44The accompanying notes form an integral part of these fi nancial statements.

Group CompanyNote 2010 2009 2010 2009

$’000 $’000 $’000 $’000

Non-current assetsProperty, plant and equipment 4 155,826 134,926 – –Intangible assets 5 62,075 61,744 1,779 1,810Intangible assets arising from service concession arrangements 6 129,494 27,871 – –Investment property 7 – 2,116 – –Investments in subsidiaries 8 – – 119,820 130,920Investments in joint venture 9 – – 3,125 3,125Investments in associates 10 75,032 102,654 13,320 12,955Other investments 11 – 99 – –Financial receivables 12 226,149 155,947 – –Trade and other receivables 13 15,816 35,312 16,924 18,296Deferred tax assets 14 1,616 2,761 – –Total non-current assets 666,008 523,430 154,968 167,106

Current assetsGross amounts due for contract work 15 254,469 119,994 – –Inventories 16 26,261 32,497 – –Financial receivables 12 5,851 7,818 – –Trade and other receivables, including derivatives 13 182,398 222,089 608,382 524,628Other investments 11 2,429 – 2,429 –Cash and cash equivalents 17 222,286 166,735 65,656 62,860Total current assets 693,694 549,133 676,467 587,488

Current liabilitiesTrade and other payables, including derivatives 18 210,038 265,772 73,480 244,742Loans and borrowings 19 95,660 45,305 52,538 44,137Tax payable 10,251 6,794 2,893 –Total current liabilities 315,949 317,871 128,911 288,879

Net current assets 377,745 231,262 547,556 298,609

Non-current liabilitiesLoans and borrowings 19 503,606 355,018 443,668 297,233Deferred tax liabilities 14 25,640 6,272 – –Total non-current liabilities 529,246 361,290 443,668 297,233

Net assets 514,507 393,402 258,856 168,482

EquityShare capital 207,474 105,114 207,474 105,114Reserve for own shares (1,292) (1,292) (1,292) (1,292)Capital reserve 4,752 8,627 – –Foreign currency translation reserve (14,637) 4,543 – –Hedging reserve (3,560) (6,716) – –Employees’ share option reserve 18,609 16,780 18,609 16,780Retained earnings 291,155 238,188 34,065 47,880Total equity attributable to equity holders of the Company 502,501 365,244 258,856 168,482Non-controlling interests 12,006 28,158 – –Total equity 20 514,507 393,402 258,856 168,482

Statement of Financial PositionAs at 31 December 2010


45The accompanying notes form an integral part of these fi nancial statements.

Note 2010 2009$’000 $’000

Revenue 23 569,737 524,814Other income 6,855 6,707Changes in inventories of fi nished goods and work-in-progress 2,641 1,332Raw materials and consumables used and subcontractors’ cost (302,961) (309,371)Staff costs (65,408) (59,428)Depreciation, amortisation and impairment (27,501) (16,521)Other expenses (68,089) (57,936)Finance costs 24 (16,760) (9,259)Share of profi t of associates, net of income tax 1,959 2,634Profi t before income tax 25 100,473 82,972Income tax expense 26 (11,588) (8,681)Profi t for the year 88,885 74,291

Profi t attributable to:Owners of the Company 88,510 75,036Non-controlling interests 375 (745)Profi t for the year 88,885 74,291

Earnings per share (cents)Basic earnings per share 27 10.52 9.51Diluted earnings per share 27 10.23 9.34

Consolidated Income StatementYear ended 31 December 2010


46

2010 2009$’000 $’000

Profi t for the year 88,885 74,291

Other comprehensive incomeForeign currency translation differences for foreign operations (20,310) (5,117)Share of net fair value gain on derivative fi nancial instruments of associates 424 644Effective portion of changes in fair value of cash fl ow hedges 2,301 67Net change in fair value of cash fl ow hedges transferred to profi t or loss 431 6,069Share of reserve of associates (102) 102Other comprehensive (loss)/income for the year, net of income tax (17,256) 1,765Total comprehensive income for the year 71,629 76,056

Attributable to:Owners of the Company 72,384 77,204Non-controlling interests (755) (1,148)Total comprehensive income for the year 71,629 76,056

Consolidated Statement of Comprehensive IncomeYear ended 31 December 2010

The accompanying notes form an integral part of these fi nancial statements.


47

Con

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Sta

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––

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424

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–42

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––

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–43

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––

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72,3

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29

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––

––

––

6,18

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6,18

1

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––

––

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96,1

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––

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48

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49

Consolidated Cash Flow StatementYear ended 31 December 2010

Note 2010 2009$’000 $’000

Cash fl ows from operating activitiesProfi t before income tax 100,473 82,972Adjustments for:Employees’ share option expense 1,829 3,809Fair value (gain)/loss on derivative fi nancial instruments (754) 479Gain on sale of investment property 25 (1,186) –Remeasurement to fair value of an associate to joint venture 25 (22,787) –Gain on sale of other investments – (44)Loss on sale of property, plant and equipment 25 380 1,392Share of profi t of associates, net of income tax (1,959) (2,634)Depreciation, amortisation and impairment 27,501 16,521Finance costs 16,760 9,259Interest income (3,125) (3,258)Impairment of trade and other receivables 25 1,526 1,845Impairment of investments 25 264 2,058Allowance for inventory obsolescence 16 1,412 863

120,334 113,262Change in inventories 4,840 2,319Change in gross amounts due for contract work (134,475) (26,007)Change in trade and other receivables 10,154 (67,176)Change in fi nancial receivables 7,142 40,665Change in intangible assets arising from service concession arrangements 4,291 –Change in trade and other payables (53,448) 5,316Cash generated from operating activities (41,162) 68,379Income tax paid (8,305) (7,773)Net cash (used in)/from operating activities (49,467) 60,606

Cash fl ows from investing activitiesAcquisition of property, plant and equipment 4 (28,111) (8,594)Acquisition of intangible assets (12,858) (29,669)Acquisition of non-controlling interests 29 (20,491) –Acquisition of a subsidiary by a joint venture/subsidiaries, net of cash acquired 29 (27,212) (19,965)Investment in available-for-sale money market instrument (2,429) –Additional investment in an associate (23,691) (27,626)Proceeds from sale of investment property 3,237 –Proceeds from sale of property, plant and equipment 937 364Proceeds from sale of other investments – 853Dividends received from associates 10,179 1,260Change in amounts due from related parties (non-trade) 1,955 (12,393)Interest received 2,760 2,912Net cash used in investing activities (95,724) (92,858)



50

Consolidated Cash Flow Statement (cont’d)Year ended 31 December 2010

Note 2010 2009$’000 $’000

Cash fl ows from fi nancing activitiesProceeds from exercise of share options and warrants 102,360 5,996Purchase of treasury shares – (1,292)Proceeds from borrowings 383,447 425,698Repayment of borrowings (221,832) (291,003)Payment of fi nance lease liabilities (73) (99)Interest paid (16,297) (8,689)Dividends paid to equity holders of the Company (34,222) (18,020)Increase in deposits pledged (204) –Net cash from fi nancing activities 213,179 112,591

Net increase in cash and cash equivalents 67,988 80,339Cash and cash equivalents at 1 January 166,735 91,480Effect of exchange rate fl uctuations on cash held (12,641) (5,084)Cash and cash equivalents at 31 December 17 222,082 166,735



51

Notes to the Financial Statements

These notes form an integral part of the fi nancial statements.

The fi nancial statements were authorised for issue by the Board of Directors on 8 March 2011.

1 DOMICILE AND ACTIVITIES

Hyfl ux Ltd (the “Company”) is incorporated in the Republic of Singapore. The address of the Company’s registered offi ce is Hyfl ux Building, 202 Kallang Bahru, Singapore 339339.

The consolidated fi nancial statements relate to the Company and its subsidiaries (together referred to as the “Group” and individually as “Group entities”) and the Group’s interests in associates and jointly controlled entities.

The principal activities of the Company are those relating to investment holding.

The principal activities of the subsidiaries comprise the following:

Water

– Seawater desalination, raw water purifi cation, wastewater cleaning, water recycling, water reclamation and ultra pure water production for municipal and industrial clients as well as home consumer fi ltration and purifi cation products; and

– Design, building and sale of water treatment plants, seawater desalination plants, wastewater treatment plants and water recycling plants under service concession arrangements.

Renewable Resources Management

– Development of membrane applications in resource recovery, waste recycling and energy reclamation, including applications such as used oil recovery and recycling;

– Development and commercialisation of specialty materials, such as L-lactic acid from natural renewable resources; and

– Separation, concentration and purifi cation treatments for manufacturing process streams.

2 BASIS OF PREPARATION

2.1 Statement of compliance

The fi nancial statements have been prepared in accordance with Singapore Financial Reporting Standards (FRS).

2.2 Basis of measurement

The fi nancial statements have been prepared on the historical cost basis except for derivative fi nancial instruments which are measured at fair value.

2.3 Functional and presentation currency

These fi nancial statements are presented in Singapore dollars, which is the Company’s functional currency. Other signifi cant entities within the Group have Chinese Renminbi and Algerian Dinar as their functional currency. All fi nancial information presented in Singapore dollars has been rounded to the nearest thousand, unless otherwise stated.

2.4 Use of estimates and judgements

The preparation of the fi nancial statements in conformity with FRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.


52

2 BASIS OF PREPARATION (cont’d)

2.4 Use of estimates and judgements (cont’d)

Information about critical judgements in applying accounting policies that have the most signifi cant effect on the amounts recognised in the fi nancial statements is included in note 5 on capitalisation of development costs.

Information about assumptions and estimation uncertainties that have a signifi cant risk of resulting in a material adjustment within the next fi nancial year is included in the following notes:

• Note 4 – residual values and useful lives of property, plant and equipment; • Note 5 – useful lives and recoverability of development projects; • Note 22 – recoverability of trade and other receivables; and • Note 34 – contingencies.

2.5 Changes in accounting policies

Overview

On the adoption of new and revised FRSs as of 1 January 2010, the Group changed its accounting policies in the following areas:

• Accounting for business combinations • Accounting for acquisition of non-controlling interest and disposal of interest in subsidiary that resulted in loss of control

Accounting for business combinations

From 1 January 2010, the Group has applied FRS 103 Business Combinations (2009) in accounting for business combinations. Business combinations are now accounted for using the acquisition method as at the acquisition date (see note 3.1).

Previously, business combinations were accounted for under the purchase method. The cost of an acquisition was measured at the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. The excess of the Group’s interest in the net fair value of the identifi able assets, liabilities and contingent liabilities over the cost of acquisition was credited to profi t or loss in the period of the acquisition. For business acquisitions that were achieved in stages, any existing equity interests in the acquiree were not re-measured to their fair value. Contingent consideration was recognised as an adjustment to the cost of acquisition only when it was probable and can be measured reliably.

The change in accounting policy has been applied prospectively to new business combinations occurring on or after 1 January 2010. As a result of adopting the change in accounting policy, the Group recorded a gain arising from remeasurement to fair value arising from acquisition of additional interest in an associate to be a joint venture as disclosed in note 25.

Accounting for acquisitions of non-controlling interests and disposal of interest in subsidiary that resulted in loss of control

From 1 January 2010, the Group has applied FRS 27 Consolidated and Separate Financial Statements (2009) to account for acquisitions of non-controlling interests and disposal of interest in subsidiary that resulted in loss of control.

Previously, goodwill was recognised on the acquisition of non-controlling interests in a subsidiary, which represented the excess of the cost of the additional investment over the carrying amount of the interest in the net assets acquired at the date of the transaction. For disposal of interest in subsidiary that resulted in loss of control, any retained equity interests were not remeasured to their fair value and the gain or loss arising from the disposal was recognised on the portion of equity interest disposed.

The change in accounting policies have been applied prospectively.

Notes to the Financial Statements (cont’d)


53


3 SIGNIFICANT ACCOUNTING POLICIES

The accounting policies set out below have been applied consistently to all periods presented in these fi nancial statements, and have been applied consistently by Group entities, except as explained in note 2.5 which addresses changes in accounting policies.

3.1 Basis of consolidation

Business combinations

Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. Control is the power to govern the fi nancial and operating policies of an entity so as to obtain benefi ts from its activities. In assessing control, the Group takes into consideration potential voting rights that are currently exercisable.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profi t or loss.

Costs related to the acquisition, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred.

Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classifi ed as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognised in profi t or loss.

When share-based payment awards (replacement awards) are required to be exchanged for awards held by the acquiree’s employees (acquiree’s awards) and relate to past services, then all or a portion of the amount of the acquirer’s replacement awards is included in measuring the consideration transferred in the business combination. This determination is based on the market-based value of the replacement awards compared with the market-based value of the acquiree’s awards and the extent to which the replacement awards relate to past and/or future service.

For business acquisitions that were achieved in stages, the Group remeasures any existing interests in the acquiree and recognises the resulting gain or loss in profi t or loss. Subsequently, it is accounted for as a jointly controlled entity or a subsidiary, depending on the level of control obtained.

Subsidiaries

Subsidiaries are entities controlled by the Group. The fi nancial statements of subsidiaries are included in the consolidated fi nancial statements from the date that control commences until the date that control ceases.

The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a defi cit balance.

Loss of control

Upon the loss of control, the Group derecognises the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any surplus or defi cit arising on the loss of control is recognised in profi t or loss. If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently, it is accounted for as a jointly-controlled entity, an equity-accounted investee or as an available-for-sale fi nancial asset depending on the level of infl uence retained.

Joint ventures

Joint ventures are those entities over whose activities the Group has joint control, established by contractual agreement and requiring unanimous consent for strategic fi nancial and operating decisions. Joint ventures are accounted for using proportionate consolidation. The fi nancial statements of joint ventures are proportionately consolidated from the date that joint control commences until the date that joint control ceases. The accounting policies of joint ventures have been changed where necessary to align them with the policies adopted by the Group.


54


3 SIGNIFICANT ACCOUNTING POLICIES (cont’d)

3.1 Basis of consolidation (cont’d)

Associates

Associates are those entities in which the Group has signifi cant infl uence, but not control, over their fi nancial and operating policies. Significant influence is presumed to exist when the Group holds between 20% and 50% of voting power of another entity.

Associates are accounted for using the equity method and are recognised initially at cost. The Group’s investments include goodwill identifi ed on acquisition, net of accumulated impairment losses. The fi nancial statements include the Group’s share of the income and expenses and equity movements of associates, after adjustments to align the accounting policies with those of the Group, from the date that signifi cant infl uence commences until the date that signifi cant infl uence ceases. When the Group’s share of losses exceeds its interest in an associate, the carrying amount of that interest, including any long-term investments, is reduced to nil, and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee.

Acquisition of non-controlling interests

Acquisitions of non-controlling interests are accounted for as transactions with owners in their capacity as owners and therefore no goodwill is recognised as a result of such transactions. The adjustments to non-controlling interests are based on a proportionate amount of the net assets of the subsidiary.

Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated fi nancial statements.

Unrealised gains arising from transactions with joint ventures are eliminated to the extent of the Group’s interest in the joint ventures. Unrealised losses are eliminated in the same way as unrealised gains except that losses are recognised immediately when they represent a reduction in the net realisable value of assets or an impairment loss. Balances with joint ventures are eliminated to the extent of the Group’s interest in the joint ventures.

Unrealised gains arising from transactions with associates are eliminated against the investment to the extent of the Group’s interest in the associates. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

Accounting for subsidiaries, joint ventures and associates by the Company

Investments in subsidiaries, joint ventures and associates are stated in the Company’s statement of fi nancial position at cost less accumulated impairment losses.

3.2 Foreign currency

Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of Group entities at the exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the reporting period.

Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on translation are recognised in profi t or loss, except for differences arising on the translation of available-for-sale equity instruments, or qualifying cash fl ow hedges, which are recognised in other comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.


55



3.2 Foreign currency (cont’d)

Foreign operations

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to Singapore dollars at exchange rates at the reporting date. The income and expenses of foreign operations, excluding foreign operations in hyperinfl ationary economies, are translated to Singapore dollars at exchange rates at the dates of the transactions. Goodwill and fair value adjustments arising on the acquisition of a foreign operation on or after 1 January 2005 are treated as assets and liabilities of the foreign operation and translated at the closing rate. For acquisitions prior to 1 January 2005, the exchange rates at the date of acquisition were used.

Foreign currency differences are recognised in other comprehensive income, and presented in the foreign currency translation reserve (translation reserve) in equity. However, if the operation is a non-wholly-owned subsidiary, then the relevant proportionate share of the translation difference is allocated to the non-controlling interests. When a foreign operation is disposed of such that control, signifi cant infl uence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassifi ed to profi t or loss as part of the gain or loss on disposal. When the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interests. When the Group disposes of only part of its investment in an associate or joint venture that includes a foreign operation while retaining signifi cant infl uence or joint control, the relevant proportion of the cumulative amount is reclassifi ed to profi t or loss.

When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign exchange gains and losses arising from such a monetary item which is considered to form part of a net investment in a foreign operation are recognised in other comprehensive income, and are presented as equity in the foreign currency translation reserve.

3.3 Financial instruments

Non-derivative financial assets

The Group initially recognises loans and receivables and deposits on the date that they are originated. All other fi nancial assets are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a fi nancial asset when the contractual rights to the cash fl ows from the asset expire, or it transfers the rights to receive the contractual cash fl ows on the fi nancial asset in a transaction in which substantially all the risks and rewards of ownership of the fi nancial asset are transferred. Any interest in transferred fi nancial assets that is created or retained by the Group is recognised as a separate asset or liability.

Financial assets and liabilities are offset and the net amount presented in the statement of fi nancial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

The Group has the following non-derivative fi nancial assets: loans and receivables and available-for-sale fi nancial assets.

Loans and receivables

Loans and receivables are fi nancial assets with fi xed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses.

Loans and receivables comprise trade and other receivables and financial receivables arising from including service concession arrangements.

Cash and cash equivalents comprise cash balances and bank deposits.


56



3.3 Financial instruments (cont’d)

Non-derivative financial assets (cont’d)

Loans and receivables (cont’d)

The Group recognises a fi nancial asset arising from a service concession arrangement when it has an unconditional contractual right to receive cash or another fi nancial asset from or at the direction of the grantor for the construction or upgrade services provided. Such fi nancial assets are measured at fair value upon initial recognition. Subsequent to initial recognition, the fi nancial assets are measured at amortised cost.

If the Group is paid for the construction services partly by a fi nancial asset and partly by an intangible asset, each component of the consideration received or receivable is accounted for separately and is recognised initially at the fair value of the consideration received or receivable (see also note 3.5).

Available-for-sale financial assets

Available-for-sale fi nancial assets are non-derivative fi nancial assets that are designated as available-for-sale and that are not classifi ed in any of the previous categories. The Group’s investments in equity securities are classifi ed as available-for-sale fi nancial assets.

Where an investment in equity securities classifi ed as available-for-sale does not have a quoted market price in an active market and other methods of determining fair value do not result in a reasonable estimate, the investment is measured at cost less impairment losses.

Non-derivative financial liabilities

All fi nancial liabilities are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a fi nancial liability when its contractual obligations are discharged or cancelled or expired.

Financial assets and liabilities are offset and the net amount presented in the statement of fi nancial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

The Group has the following non-derivative fi nancial liabilities: loans and borrowings, and trade and other payables.

Such fi nancial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these fi nancial liabilities are measured at amortised cost using the effective interest method.

Intra-group financial guarantees

Financial guarantees are fi nancial instruments issued by the Group that requires the issuer to make specifi ed payments to reimburse the holder for the loss incurred because a specifi ed debtor fails to meet payment when due in accordance with the original or modifi ed terms of a debt instrument.

Financial guarantees are recognised initially at fair value and are classifi ed as fi nancial liabilities. Subsequent to initial measurement, the fi nancial guarantees are stated at the higher of the initial fair value less cumulative amortisation and the amount that would be recognised if they were accounted for as contingent liabilities. When fi nancial guarantees are terminated before their original expiry date, the carrying amount of the fi nancial guarantees is transferred to the income statement.

Share capital

Ordinary shares

Ordinary shares are classifi ed as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects.


57



3.3 Financial instruments (cont’d)

Share capital (cont’d)

Repurchase of share capital (treasury shares)

When share capital recognised as equity is repurchased, the amount of the consideration paid, which includes directly attributable costs, net of any tax effects, is recognised as a deduction from equity. Repurchased shares are classifi ed as treasury shares and are presented as a deduction from total equity. When treasury shares are sold or reissued subsequently, the amount received is recognised as an increase in equity, and the resulting surplus or defi cit on the transaction is transferred to / from retained earnings.

Derivative financial instruments, including hedge accounting

The Group holds derivative fi nancial instruments to hedge its foreign currency risk exposures. Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related, a separate instrument with the same terms as the embedded derivative would meet the defi nition of a derivative, and the combined instrument is not measured at fair value through profi t or loss.

On initial designation of the hedge, the Group formally documents the relationship between the hedging instrument and the hedged item, including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship. The Group makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, whether the hedging instruments are expected to be “highly effective” in offsetting the changes in the fair value or cash fl ows of the respective hedged items during the period for which the hedge is designated, and whether the actual results of each hedge are within a range of 80% - 125%. For a cash fl ow hedge of a forecast transaction, the transaction should be highly probable to occur and should present an exposure to variations in cash fl ows that could ultimately affect reported net income.

Derivatives are recognised initially at fair value; attributable transaction costs are recognised in profi t or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.

Cash flow hedges

When a derivative is designated as the hedging instrument in a hedge of the variability in cash fl ows attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction that could affect profi t or loss, the effective portion of changes in the fair value of the derivative is recognised in other comprehensive income and presented in the hedging reserve in equity. The amount recognised in other comprehensive income is removed and included in profi t or loss in the same period as the hedged cash fl ows affect profi t or loss under the same line item in the income statement as the hedged item. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profi t or loss.

If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated, or exercised, or if the designation is revoked, hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in other comprehensive income and presented in the hedging reserve in equity remains there until the forecast transaction affects profi t or loss. When the hedged item is a non-fi nancial asset, the amount recognised in other comprehensive income is transferred to the carrying amount of the asset when the asset is recognised. If the forecast transaction is no longer expected to occur, the balance in other comprehensive income is recognised immediately in profi t or loss. In other cases, the amount recognised in other comprehensive income is transferred to profi t or loss in the same period that the hedged item affects profi t or loss.

Separable embedded derivatives

Changes in the fair value of separable embedded derivatives are recognised immediately in profi t or loss.

Other non-trading derivatives

When a derivative fi nancial instrument is not held for trading, and is not designated in a qualifying hedge relationship, all changes in its fair value are recognised immediately in profi t or loss.


58



3.4 Property, plant and equipment

Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.

Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located, and capitalised borrowing costs. Cost may also include transfers from other comprehensive income of any gain or loss on qualifying cash fl ow hedges of foreign currency purchases of property, plant and equipment. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognised net within other expenses in profi t or loss.

Subsequent costs

The cost of replacing a part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefi ts embodied within the part will fl ow to the Group, and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profi t or loss as incurred.

Depreciation

Depreciation is calculated over the depreciable amount, which is the cost of an asset, or other amount substituted for cost, less its residual value.

Depreciation is recognised in profi t or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment, since this most closely refl ects the expected pattern of consumption of the future economic benefi ts embodied in the asset. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Construction-in-progress is not depreciated.

The estimated useful lives for the current and comparative periods are as follows:

Plant and machinery – 4 to 10 years Motor vehicles – 4 to 5 years Computers – 1 to 5 years Offi ce equipment – 4 to 5 years Leasehold properties and improvements – 4 to 5 years or over the lease period Furniture and fi ttings – 4 to 5 years

Depreciation methods, useful lives and residual values are reviewed at each fi nancial year-end and adjusted if appropriate.

3.5 Intangible assets

Goodwill

Acquisitions prior to 1 January 2001

Goodwill represents the excess of the cost of the acquisition over the Group’s interest in the net fair value of the identifi able assets and liabilities of the acquiree.

Goodwill and negative goodwill on acquisitions were written off against retained profi ts in the year of acquisition.

Goodwill and negative goodwill that have previously been taken to reserves are not taken to the income statement when (a) the business is disposed of or (b) the goodwill is impaired.


59



3.5 Intangible assets (cont’d)

Goodwill (cont’d)

Acquisitions occurring between 1 January 2001 and 1 January 2005

Goodwill represents the excess of the cost of the acquisition over the Group’s interest in the net fair value of the identifi able assets and liabilities of the acquiree.

Goodwill arising on the acquisition of subsidiaries and joint ventures is presented in intangible assets. Goodwill arising on the acquisition of associates is presented together with investments in associates.

Goodwill was stated at cost from the date of initial recognition and amortised over its estimated useful life of not more than 20 years. On 1 January 2005, the Group discontinued amortisation of this goodwill. This remaining goodwill balance is subject to testing for impairment.

Negative goodwill was derecognised by crediting retained profi ts on 1 January 2005.

Acquisitions on or after 1 January 2005

Goodwill represents the excess of the cost of the acquisition over the Group’s interest in the net fair value of the identifi able assets, liabilities and contingent liabilities of the acquiree.

Goodwill arising on the acquisition of subsidiaries and joint ventures is presented in intangible assets. Goodwill arising on the acquisition of associates is presented together with investments in associates.

Goodwill is measured at cost less accumulated impairment losses, and tested for impairment. Negative goodwill is recognised immediately in the income statement.

Research and development

Expenditure on research activities, undertaken with the prospect of gaining new scientifi c or technical knowledge and understanding, is recognised in profi t or loss as incurred.

Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditure is capitalised only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefi ts are probable, and the Group intends to and has suffi cient resources to complete development and to use or sell the asset. The expenditure capitalised includes the cost of materials, direct labour, overhead costs that are directly attributable to preparing the asset for its intended use, and capitalised borrowing costs. Other development expenditure is recognised in profi t or loss as incurred.

Capitalised development expenditure is measured at cost less accumulated amortisation and accumulated impairment losses.

Service concession arrangements

The Group recognises an intangible asset arising from a service concession arrangement when it has a right to charge for usage of the concession infrastructure. An intangible asset received as consideration for providing construction or upgrade services in a service concession arrangement is measured at fair value upon initial recognition. Subsequent to initial recognition the intangible asset is measured at cost, which includes capitalised borrowing costs, less accumulated amortisation and accumulated impairment losses.

Other intangible assets

Other intangible assets that are acquired by the Group and have fi nite useful lives are measured at cost less accumulated amortisation and accumulated impairment losses.

Subsequent expenditure

Subsequent expenditure is capitalised only when it increases the future economic benefi ts embodied in the specifi c asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in profi t or loss as incurred.


60



3.5 Intangible assets (cont’d)

Amortisation

Amortisation is calculated over the cost of the asset, less its residual value.

Amortisation is recognised in profi t or loss on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use, since this most closely refl ects the expected pattern of consumption of the future economic benefi ts embodied in the asset. The estimated useful lives for the current and comparative periods are as follows:

Intellectual property rights – 10 years Capitalised development costs – 8 years (2009: 10-15 years) Licensing fees – 10 to 20 years Service concession arrangements – 10 to 25 years

Amortisation methods, useful lives and residual values are reviewed at each fi nancial year-end and adjusted if appropriate.

During the year, the Group revised its estimates for the useful lives of development costs from 10-15 years to 8 years. The reasons and impact of the change are discussed in note 5.

The estimated useful life of an intangible asset in a service concession arrangement is the period from when the Group is able to charge the public for the use of the infrastructure to the end of the concession period.

3.6 Investment property

Investment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, or use in the production or supply of goods or services or for administrative purposes.

Investment properties are measured at cost less accumulated depreciation and impairment losses.

Depreciation on investment properties is recognised in the income statement on a straight-line basis over the lease term of 26 years.

Depreciation methods, useful lives and residual values are reviewed at each fi nancial year-end, and adjusted if appropriate.

3.7 Leased assets

Leases in which the Group assumes substantially all the risks and rewards of ownership are classifi ed as fi nance leases. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.

Other leases are operating leases and the leased assets are not recognised in the Group’s statement of fi nancial position.

3.8 Inventories

Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the weighted average cost principle, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity. Cost may also include transfers from other comprehensive income of any gain or loss on qualifying cash fl ow hedges of foreign currency purchases of inventories.

Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.


61



3.9 Gross amounts due for contract work

Gross amounts due for contract work represent the gross unbilled amount expected to be collected from customers for contract work performed to date. It is measured at cost plus profi t recognised to date less progress billings and recognised losses. Cost includes all expenditure related directly to specifi c projects and an allocation of fi xed and variable overheads incurred in the Group’s contract activities based on normal operating capacity.

Gross amounts due for contract work are presented as part of assets in the statement of fi nancial position. If payments received from customers exceed the income recognised, the difference is presented as part of liabilities in the statement of fi nancial position.

3.10 Impairment

Financial assets (including receivables)

A fi nancial asset not carried at fair value through profi t or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A fi nancial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash fl ows of that asset that can be estimated reliably.

Objective evidence that fi nancial assets are impaired can include default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, and indications that a debtor will enter bankruptcy.

The Group considers evidence of impairment for receivables at both a specifi c asset and collective level. All individually signifi cant receivables are assessed for specifi c impairment. All individually signifi cant receivables found not to be specifi cally impaired are then assessed collectively for any impairment that has been incurred but not yet identifi ed. Receivables that are not individually signifi cant are collectively assessed for impairment by grouping together receivables with similar risk characteristics.

In assessing collective impairment, the Group uses historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.

An impairment loss in respect of a fi nancial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash fl ows discounted at the asset’s original effective interest rate. Losses are recognised in profi t or loss and refl ected in an allowance account against receivables. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profi t or loss.

Impairment losses on available-for-sale investment securities are recognised by transferring the cumulative loss that has been recognised in other comprehensive income, and presented in the fair value reserve in equity, to profi t or loss. The cumulative loss that is removed from other comprehensive income and recognised in profi t or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss previously recognised in profi t or loss. Changes in impairment attributable to time value are refl ected as a component of interest income.

Any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in other comprehensive income.

Non-financial assets

The carrying amounts of the Group’s non-fi nancial assets, other than investment property, inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefi nite useful lives or that are not yet available for use, the recoverable amount is estimated each year at the same time.


62



3.10 Impairment (cont’d)

Non-financial assets (cont’d)

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash fl ows are discounted to their present value using a pre-tax discount rate that refl ects current market assessments of the time value of money and the risks specifi c to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash infl ows from continuing use that are largely independent of the cash infl ows of other assets or groups of assets (the “cash-generating unit, or CGU”). Subject to an operating segment ceiling test, for the purposes of goodwill impairment testing, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment is tested refl ects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefi t from the synergies of the combination.

The Group’s corporate assets do not generate separate cash infl ows. If there is an indication that a corporate asset may be impaired, the recoverable amount is determined for the CGU to which the corporate asset belongs.

An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognised in profi t or loss. Impairment losses recognised in respect of CGUs are allocated fi rst to reduce the carrying amount of any goodwill allocated to the units, and then to reduce the carrying amounts of the other assets in the unit (group of units) on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

Goodwill that forms part of the carrying amount of an investment in an associate is not recognised separately, and therefore is not tested for impairment separately. Instead, the entire amount of the investment in an associate is tested for impairment as a single asset when there is objective evidence that the investment in an associate may be impaired.

3.11 Non-current assets held for sale

Non-current assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale rather than through continuing use, are classifi ed as held for sale. Immediately before classifi cation as held for sale, the assets, or components of a disposal group, are remeasured in accordance with the Group’s accounting policies. Thereafter generally the assets, or disposal group, are measured at the lower of their carrying amount and fair value less costs to sell. Any impairment loss on a disposal group is fi rst allocated to goodwill, and then to remaining assets and liabilities on a pro rata basis, except that no loss is allocated to inventories, fi nancial assets, deferred tax assets, employee benefi t assets, and investment property, which continue to be measured in accordance with the Group’s accounting policies. Impairment losses on initial classifi cation as held for sale, and subsequent gains or losses on remeasurement, are recognised in profi t or loss. Gains are not recognised in excess of any cumulative impairment loss.

3.12 Employee benefits

Defined contribution plans

A defi ned contribution plan is a post-employment benefi t plan under which an entity pays fi xed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defi ned contribution pension plans are recognised as an employee benefi t expense in profi t or loss in the periods during which services are rendered by employees.

Short-term employee benefits

Short-term employee benefi t obligations are measured on an undiscounted basis and are expensed as the related service is provided.

A liability is recognised for the amount expected to be paid under short-term cash bonus or profi t-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.


63



3.12 Employee benefits (cont’d)

Share-based payment transactions

The grant date fair value of share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognised as an expense is adjusted to refl ect the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured to refl ect such conditions and there is no true-up for differences between expected and actual outcomes.

The fair value of the amount payable to employees in respect of share appreciation rights, which are settled in cash, is recognised as an expense with a corresponding increase in liabilities, over the period that the employees unconditionally become entitled to payment. The liability is remeasured at each reporting date and at settlement date. Any changes in the fair value of the liability are recognised as personnel expense in profi t or loss.

Share-based payment arrangements in which the Group receives goods or services as consideration for its own equity instruments are accounted for as equity-settled share-based payment transactions, regardless of how the equity instruments are obtained by the Group.

3.13 Provisions

A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outfl ow of economic benefi ts will be required to settle the obligation. Provisions are determined by discounting the expected future cash fl ows at a pre-tax rate that refl ects current market assessments of the time value of money and the risks specifi c to the liability. The unwinding of the discount is recognised as fi nance cost.

3.14 Revenue

Construction revenue - Construction contracts and sale of plants under service concession arrangements

Contract revenue includes the initial amount agreed in the contract plus any variations in contract work, claims and incentive payments, to the extent that it is probable that they will result in revenue and can be measured reliably. As soon as the outcome of a construction contract can be estimated reliably, contract revenue is recognised in profi t or loss in proportion to the stage of completion of the contract. Contract expenses are recognised as incurred unless they create an asset related to future contract activity.

The stage of completion is assessed by reference to the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs. When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred that are likely to be recoverable. An expected loss on a contract is recognised immediately in profi t or loss. Net revenue from the sale of plants under service concession arrangements previously not recognised as construction revenue under the service concession arrangements is recognised when signifi cant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs can be estimated reliably, and the amount of revenue can be measured reliably.

Revenue relating to construction or upgrade services under a service concession arrangement is recognised based on the stage of completion of the work performed, consistent with the Group’s accounting policy on recognising revenue on construction contract (see above). Operation or service revenue is recognised in the period in which the services are provided by the Group. When the Group provides more than one service in a service concession arrangement, the consideration received is allocated by reference to the relative fair values of the services delivered.

Operating and maintenance income

Revenue from the provision of operating and maintenance services is recognised when the services are rendered.


64



3.14 Revenue (cont’d)

Goods sold

Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue is recognised when persuasive evidence exists, usually in the form of an executed sales agreement, that the signifi cant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably, the discount is recognised as a reduction of revenue as the sales are recognised.

Transfers of risks and rewards occur upon delivery to customers.

Finance income

Finance income represents the interest income on the fi nancial receivable arising from a service concession arrangement, and is recognised in the income statement using the effective interest method.

Finance lease income

Finance lease income is recognised on the accrual basis, taking into account the effective yield of the asset.

Others

Rental income from investment property is recognised in profi t or loss on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease.

Interest income is recognised as it accrues in profi t or loss, using the effective interest method.

3.15 Government grants

The government grants are deducted against the carrying amounts of the assets when there is reasonable assurance that government grants will be received to compensate the Group for the cost of an asset and the Group will comply with the conditions associated with the grant.

Jobs Credit Scheme

Cash grants received from the Singapore government in relation to the Jobs Credit Scheme are recognised as income upon receipt.

3.16 Lease payments

Payments made under operating leases are recognised in profi t or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.

Minimum lease payments made under fi nance leases are apportioned between the fi nance expense and the reduction of the outstanding liability. The fi nance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confi rmed.

3.17 Finance costs

Finance costs comprise interest expense on borrowings that are recognised in profi t or loss. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profi t or loss using the effective interest method.


65



3.18 Income tax

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognised in profi t or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income.

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for fi nancial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profi t or loss, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognised for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profi ts will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefi t will be realised.

3.19 Earnings per share

The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profi t or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period, adjusted for the Company’s holding of its own shares. Diluted EPS is determined by adjusting the profi t or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, less the Company’s own shares held, and adjusted for the effects of all dilutive potential ordinary shares, which comprise convertible notes and share options granted to employees.

3.20 Segment reporting

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. All operating segments’ operating results are reviewed regularly by the Group’s CEO to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete fi nancial information is available.

3.21 New standards and interpretations not yet adopted

A number of new standards amendments to standards and interpretations are effective for annual periods beginning after 1 January 2010, and have not been applied in preparing these fi nancial statements. None of these are expected to have a signifi cant effect on the fi nancial statements of the Group.


66


4 PROPERTY, PLANT AND EQUIPMENT

NotePlant and

machineryMotor

vehicles ComputersOffi ce

equipment

Leasehold properties and improvements

Furniture and

fi ttingsConstruction-

in-progress Total

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

GroupCostAt 1 January 2009 20,940 3,138 7,423 2,154 24,779 1,435 18,492 78,361Acquisitions

through business combinations 29 11,782 157 28 23 13,363 29 56,560 81,942

Additions 864 117 2,339 124 892 278 3,980 8,594Transfers 8,296 – 1,160 12 8,512 – (17,980) –Disposals (2,039) (252) (262) (32) (84) (16) – (2,685)Effect of movements in

exchange rates (1,026) (31) (58) (6) (685) (11) (1,188) (3,005)At 31 December 2009

and 1 January 2010 38,817 3,129 10,630 2,275 46,777 1,715 59,864 163,207Acquisitions

through business combinations 29 – – – – 6,942 328 – 7,270

Additions 2,195 788 1,103 390 4,688 181 18,766 28,111Transfers 583 – – (24) 7,712 25 (8,296) –Transfer from

intangible assets 5 3,058 – – – 104 – – 3,162Transfer from lease

prepayment – – – – 9,540 – – 9,540Disposals (1,992) (906) (69) (33) (361) (12) – (3,373)Effect of movements in

exchange rates (2,311) (128) (97) (50) (2,026) (23) (2,922) (7,557)At 31 December 2010 40,350 2,883 11,567 2,558 73,376 2,214 67,412 200,360

Accumulated depreciation and impairment losses

At 1 January 2009 9,397 1,805 4,386 1,258 4,213 445 – 21,504Depreciation for

the year 3,229 454 1,444 268 2,005 416 – 7,816Disposals (381) (224) (237) (17) (54) (16) – (929)Effect of movements in

exchange rates 25 (6) (27) 1 (105) 2 – (110)At 31 December 2009

and 1 January 2010 12,270 2,029 5,566 1,510 6,059 847 – 28,281Depreciation for

the year 3,874 350 2,092 246 3,287 263 – 10,112Disposals (1,123) (752) (53) (12) (104) (12) – (2,056)Impairment loss 2,901 – – – – – 4,956 7,857Transfer from lease

prepayment – – – – 1,343 – – 1,343Effect of movements in

exchange rates (721) (70) 9 (49) (183) 11 – (1,003)At 31 December 2010 17,201 1,557 7,614 1,695 10,402 1,109 4,956 44,534

Carrying amountsAt 1 January 2009 11,543 1,333 3,037 896 20,566 990 18,492 56,857At 31 December 2009

and 1 January 2010 26,547 1,100 5,064 765 40,718 868 59,864 134,926At 31 December 2010 23,149 1,326 3,953 863 62,974 1,105 62,456 155,826


67


4 PROPERTY, PLANT AND EQUIPMENT (cont’d)

ComputersFurniture

and fi ttings Total$’000 $’000 $’000

CompanyCost

At 1 January 2009, 31 December 2009, 1 January 2010 and 31 December 2010 1,018 11 1,029

Accumulated depreciationAt 1 January 2009 1,018 3 1,021Depreciation for the year – 8 8

At 31 December 2009, 1 January 2010 and 31 December 2010 1,018 11 1,029

Carrying amountsAt 1 January 2009 – 8 8

At 31 December 2009, 1 January 2010 and 31 December 2010 – – –

Leased assets

The Group leases motor vehicles under a number of fi nance lease agreements. The leased motor vehicles are the security for the lease obligations (see note 19). At 31 December 2010, the net carrying amount of such leased motor vehicles was nil (2009: $107,000).

Lease prepayments that relate to payments made for land use rights have been transferred to property, plant and equipment during the year to better refl ect the nature of the item. See note 13 for further details.

Estimation of residual values and useful lives of property, plant and equipment

The Group reviews the useful lives of the property, plant and equipment at the end of each reporting period in order to determine the amount of depreciation expense to be recorded during any reporting period. The useful lives are based on the Group’s historical experience with similar assets and taking into account anticipated technological changes. 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 net book value of the Group’s property, plant and equipment at 31 December 2010 was $155,826,000 (2009: $134,926,000) and the annual depreciation charge for the year ended 31 December 2010 was $10,112,000 (2009: $7,816,000).

Impairment loss

In 2010, due to the unfavourable market conditions, the Group has deferred the production and expected launch date of a new product in the industrial segment, which was originally expected to be available for sale in 2010. The Group has assessed the recoverable amount of the related production plant.

The recoverable amount was estimated based on its value in use, assuming that the production line would go live in 2012. Based on the assessment, the Group recognised an impairment loss of $4,956,000 (2009: nil).

The estimated value in use was determined using a pre-tax discount rate of 9%.

The Group has also assessed the recoverable amount of a plant that has been loss-making since the previous fi nancial year. The recoverable amount was estimated based on its value in use assuming that the plant will now be used to produce a product that will mainly be sold to companies within the Group. Based on the assessment, the Group recognised an impairment loss of $2,901,000 (2009: nil).

The estimated value in use was determined using a pre-tax discount rate of 8.5%.


68


5 INTANGIBLE ASSETS

Note Goodwill

Intellectual property

rights Development

costsLicensing

fees Total$’000 $’000 $’000 $’000 $’000

GroupCostAt 1 January 2009 4,806 4,715 41,237 5,567 56,325Additions – 42 – – 42Additions – internally developed – – 9,269 – 9,269Acquisition of non-controlling interest 1,715 – – – 1,715Acquisitions through business combinations 29 7,667 – 13 3,277 10,957Effect of movements in exchange rates – (2) (28) (128) (158)At 31 December 2009 and 1 January 2010 14,188 4,755 50,491 8,716 78,150Additions – 161 – – 161Additions – internally developed – – 5,377 – 5,377Acquisitions through business combinations 29 8,118 – – – 8,118Disposal of subsidiaries to a joint venture 102 – – – 102Transfer to property, plant and equipment 4 – – (3,162) – (3,162)Effect of movements in exchange rates – (56) (63) (317) (436)At 31 December 2010 22,408 4,860 52,643 8,399 88,310

Accumulated amortisationand impairment losses

At 1 January 2009 – 764 7,102 1,000 8,866Amortisation for the year – 68 1,870 410 2,348Impairment loss 1,525 61 2,288 1,459 5,333Effect of movements in exchange rates – (3) (29) (109) (141)At 31 December 2009 and 1 January 2010 1,525 890 11,231 2,760 16,406Amortisation for the year – 118 4,808 438 5,364Impairment loss 2,402 53 834 1,359 4,648Effect of movements in exchange rates – (62) (37) (84) (183)At 31 December 2010 3,927 999 16,836 4,473 26,235

Carrying amountsAt 1 January 2009 4,806 3,951 34,135 4,567 47,459At 31 December 2009 and 1 January 2010 12,663 3,865 39,260 5,956 61,744At 31 December 2010 18,481 3,861 35,807 3,926 62,075


69


5 INTANGIBLE ASSETS (cont’d)

Intellectual property

rightsLicensing

fees Total$’000 $’000 $’000

CompanyCostAt 1 January 2009 1,764 137 1,901Additions 15 – 15At 31 December 2009, 1 January 2010 and 31 December 2010 1,779 137 1,916

Accumulated amortisationAt 1 January 2009 61 14 75Amortisation for the year 18 13 31At 31 December 2009 and 1 January 2010 79 27 106Amortisation for the year 17 14 31At 31 December 2010 96 41 137

Carrying amountsAt 1 January 2009 1,703 123 1,826At 31 December 2009 and 1 January 2010 1,700 110 1,810At 31 December 2010 1,683 96 1,779

Capitalisation of development costs

Initial capitalisation of costs is based on management’s judgement that technological and economical feasibility is confi rmed, usually when a product development project has reached a defi ned milestone according to an established project management model. During the year, $3,162,000 (2009: nil) of laboratory equipment and leasehold improvement previously classifi ed as development costs were reclassifi ed to property, plant and equipment to better refl ect the nature of the assets.

Recoverability of development costs

The recoverable amounts of the cash-generating units are estimated based on their value in use. When value in use calculations are undertaken, management estimates the expected future cash fl ows from the cash-generating unit and chooses a suitable discount rate in order to calculate the present value of those cash fl ows. The recoverable amounts were estimated to be higher than the carrying amounts of the units, and no impairment was required, except for the amounts discussed below.

Impairment loss on development costs

In 2010, an impairment loss of $834,000 (2009: $2,288,000) was recognised in the income statement.

Estimation of useful lives of development costs

Signifi cant judgement is required in estimating the useful lives of development projects, which are affected by various factors, such as technological developments.


70


5 INTANGIBLE ASSETS (cont’d)

Changes in estimates

During the year ended 31 December 2010, the Group revised its estimates for the useful lives of development costs from 10-15 years to 8 years as a result of a review performed by the Group over the period the Group would enjoy the expected benefi ts of the development costs, taking into consideration the pace of technological developments and industry practices.

The effect of these changes on amortisation expense recognised in the income statement in current and future periods are as follows:

2010 2011 2012 20132014 and

beyond$’000 $’000 $’000 $’000 $’000

Increase/(decrease) in amortisation expenses 1,350 2,144 2,111 2,105 (7,710)

Impairment testing for cash-generating units (CGUs) containing goodwill

For the purpose of impairment testing, goodwill is allocated to the Group’s operating divisions which represent the lowest level within the Group at which the goodwill is monitored for internal management purposes, which is not higher than the Group’s operating segments as reported in note 28. The aggregate carrying amounts of goodwill allocated to each unit are as follows:

2010 2009$’000 $’000

Singapore- Others 192 192The Netherlands- Industrial 2,402 4,804Kingdom of Saudi Arabia- Industrial 5,802 5,802People’s Republic of China- Industrial 1,865 1,865- Municipal 8,220 –

18,481 12,663

In 2010, following a management review of the business portfolio, an impairment loss of $2,402,000 (2009: $1,525,000) on the goodwill from the Netherlands Industrial CGU (2009: Singapore Industrial CGU) is recognised in the income statement.

The recoverable amounts of the CGUs were based on their values in use.

Values in use were determined by discounting the future cash fl ows generated from the continuing use of the units. Unless indicated otherwise, values in use in 2010 were determined similarly as in 2009. The calculations of the values in use were based on the following key assumptions:

• Cash fl ows were projected based on fi nancial budgets approved by management covering a fi ve-year period.

• The anticipated annual revenue growth included in the cash fl ow projections was 2% to 5% (2009: 2% to 5%) for the years 2011 to 2015 (2009: 2010 to 2014).

• A pre-tax discount rate of 12.5% (2009: 10%) was applied in determining the recoverable amounts of the CGUs and refl ect specifi c risks relating to the relevant segments.

The values assigned to the key assumptions represent management’s assessment of future trends in the industries and are based on both external sources and internal sources (historical data).


71


6 INTANGIBLE ASSETS ARISING FROM SERVICE CONCESSION ARRANGEMENTS

Note$’000

GroupCostAt 1 January 2009 19,326Additions 9,696Effect of movements in exchange rates (443)At 31 December 2009 and 1 January 2010 28,579Acquisitions through business combinations 29 92,895Transfer to joint venture (1,329)Additions 10,628Effect of movements in exchange rates (839)At 31 December 2010 129,934

Accumulated amortisationand impairment losses

At 1 January 2009 262Amortisation for the year 450Effect of movements in exchange rates (4)At 31 December 2009 and 1 January 2010 708Amortisation for the year (545)Transfer to joint venture 2Effect of movements in exchange rates 275At 31 December 2010 440

Carrying amountsAt 1 January 2009 19,064At 31 December 2009 and 1 January 2010 27,871At 31 December 2010 129,494

At 31 December 2010, the Group owns water plants in China, including water treatment plants (“WTPs”) and wastewater treatment plants (“WWTPs”), through the special project companies (“SPCs”) incorporated in China. The principal activities of the SPCs are development and operation of WTPs and WWTPs, as well as sales of treated and recycled water. Each of these SPCs has entered into service concession arrangements with the respective local municipals (“the grantor”), via either Transfer-Operate-Transfer (“TOT”) or Build-Operate-Transfer (“BOT”) arrangements.

Under the TOT arrangements, the rights of use of the water plants were transferred to the Group and the Group is responsible for any upgrading services to bring the water plants into proper working conditions. Under the BOT arrangements, the Group is responsible for the construction of the water plants. Upon completion of the construction, the Group is responsible for operating the water plants and sale of the treated and recycled water to the industrial or domestic customers. The concession periods range from 20 years to 30 years.

During the concession period, the Group received the right to charge the customers for the sale of water. Additionally, some of the service concession arrangements provide the Group a guaranteed minimum annual payment for the initial years of the concession period, ranging from 3 years to 30 years. These guaranteed minimum annual payments are recognised as fi nancial receivables to the extent that the Group has contractual rights under the concession arrangements (see note 12). The fi nancial receivables are measured on initial recognition at their fair value.

Intangible assets arising from service concession arrangements represent the right to operate the water plants and to sell the water to the customers.

At the end of the concession period, the water plants will be transferred to the grantor.


72


7 INVESTMENT PROPERTY

Group2010 2009$’000 $’000

CostAt 1 January 3,348 3,348Disposal (3,348) –At 31 December – 3,348

Accumulated depreciation At 1 January 1,232 1,104Depreciation for the year 65 128Disposal (1,297) –At 31 December – 1,232

Carrying amountsAt 1 January 2,116 2,244At 31 December – 2,116

The fair value of the investment property, estimated by the directors of the Group, as at 31 December 2009 was approximately $2,324,000.

The investment property is a warehouse, leased to an external tenant. The lease contains an initial non-cancellable period of one year. Subsequent renewals are negotiated with the lessee. No contingent rents were charged.

8 INVESTMENTS IN SUBSIDIARIES

Company2010 2009$’000 $’000

Unquoted equity securities, at cost 109,649 109,649Impairment losses (14,338) (3,238)

95,311 106,411Loans to subsidiaries 24,509 24,509

119,820 130,920

The loans to subsidiaries are unsecured and interest-free, and settlement is neither planned nor likely to occur in the foreseeable future. As these balances are, in substance, part of the Company’s net investments in the subsidiaries, they are stated at cost less impairment losses, if any.


73


8 INVESTMENTS IN SUBSIDIARIES (cont’d)

Details of major subsidiaries are as follows:

Name of subsidiary NoteCountry of

incorporationOwnership

interest2010 2009

% %

Held by the CompanyHydrochem (S) Pte Ltd Singapore 100 100Hyfl ux Membrane Manufacturing (S) Pte. Ltd. Singapore 100 100SinoSpring Utility Ltd British Virgin Islands 100 100Spring China Utility Ltd British Virgin Islands 100 100

Held through subsidiariesHydrochem Engineering (Shanghai) Co., Ltd People’s Republic of China 100 100Hyfl ux CEPAration B.V. The Netherlands 100 100Hyfl ux Filtech (Shanghai) Co., Ltd People’s Republic of China 71 71Hyfl ux Hi-tech Product (Yangzhou) Co., Ltd People’s Republic of China 100 100

Hyfl ux NewSpring Construction Engineering (Shanghai) Co., Ltd People’s Republic of China 100 100

Hyfl ux Unitech (Shanghai) Co., Ltd People’s Republic of China 71 71Lube Oil Re-refi ning Co., LLC 29 Kingdom of Saudi Arabia 95 83Sinolac (Singapore) Pte. Ltd. 29 Singapore 100 51Hyfl ux Engineering (Shanghai) Co., Ltd People’s Republic of China 100 100

KPMG LLP, Singapore is the auditor of all signifi cant Singapore-incorporated subsidiaries. The foreign-incorporated subsidiaries that are considered signifi cant are Hyfl ux NewSpring Construction Engineering (Shanghai) Co., Ltd, and Lube Oil Re-refi ning Co., LLC. Their respective statutory auditors are Shanghai HDDY Certifi ed Public Accountants Co., Ltd, People’s Republic of China and Aldar Audit Bureau Abdullah Al Basri & Co, Kingdom of Saudi Arabia.

9 INVESTMENTS IN JOINT VENTURE

Company2010 2009$’000 $’000

Unquoted equity securities, at cost 3,125 3,125


74


9 INVESTMENTS IN JOINT VENTURE (cont’d)

Details of the joint ventures are as follows:

Name of joint ventureCountry of

incorporation NoteOwnership

interest2010 2009

% %

Held by the CompanyHyfl ux Marmon Development Pte. Ltd. Singapore 50 50

Held through subsidiariesGalaxy NewSpring Pte. Ltd. Singapore 50 –H.J. NewSpring Limited Hong Kong 50 50

Held through joint venturesTianjin Dagang NewSpring Co., Ltd People’s Republic of China 50 50Hyfl ux Water Trust Singapore 29 50 –Hyfl ux Utility WT (GCL) Limited Hong Kong 50 –Hyfl ux NewSpring (LiaoYang GongChangLing) Co., Ltd. People’s Republic of China 50 –Hyfl ux Utility WT (MG) Limited Hong Kong 50 –Hyfl ux NewSpring Water Treatment (Mingguang) Co., Ltd. People’s Republic of China 50 –Hyfl ux Utility (TY) Limited Hong Kong 50 –Hyfl ux NewSpring (Taoyuan) Co., Ltd. People’s Republic of China 50 –Hyfl ux Utility (LP) Limited Hong Kong 50 –Hyfl ux NewSpring (Leping) Co., Ltd. People’s Republic of China 50 –

KPMG LLP, Singapore is the auditor of the Singapore-incorporated joint ventures. The foreign-incorporated joint venture that is considered signifi cant is Tianjin Dagang NewSpring Desalination Co., Ltd and the statutory auditor is KPMG Huazhen, Shanghai, The People’s Republic of China.

The summarised fi nancial information of the joint ventures, which are adjusted for the percentage of ownership held by the Group, are as follows:

2010 2009$’000 $’000

Assets and liabilitiesNon-current assets 354,263 128,383Current assets 53,879 23,049Total assets 408,142 151,432

Non-current liabilities (81,054) (54,662)Current liabilities (109,159) (28,504)Total liabilities (190,213) (83,166)

ResultsRevenue 12,677 260Expenses (15,332) (838)Loss before income tax (2,655) (578)

Contingent liabilities in respect of bank guarantees for which the Group is liable (59,938) (54,662)


75


10 INVESTMENTS IN ASSOCIATES

Group Company2010 2009 2010 2009$’000 $’000 $’000 $’000

Quoted equity securities – 55,386 – –Unquoted equity securities 75,032 47,268 13,320 12,955

75,032 102,654 13,320 12,955

Fair value of investment in an associate for which there is a published price quotation – 66,105 – –

Unquoted equity securities of the Group with a carrying amount of $55,834,000 (2009: $36,575,000) have been pledged as collateral for banking facilities granted to the associates.

Details of major associates are as follows:

Name of associate NoteCountry of

incorporationOwnership

interest2010 2009

% %

Held by the CompanySingSpring Trust Singapore 30.0 30.0

Held through subsidiariesHyfl ux Water Trust 29 Singapore – 31.7Ningxia Hypow Bio-Technology Co., Ltd People’s Republic of China 25.0 25.0Tlemcen Desalination Investment Company France 30.0 30.0Tahlyat Myah Magtaa SpA Algeria 47.0 47.0

KPMG LLP, Singapore is the auditor of Hyfl ux Water Trust. SingSpring Trust is audited by Ernst & Young Singapore and Tahlyat Myah Magtaa SpA is audited by Cabinet Benmahsour Med El Bachir. An associated company is considered signifi cant as defi ned under the Singapore Exchange Limited Listing Manual if the Group’s share of its net tangible assets represents 20% or more of the Group’s consolidated net tangible assets, or if the Group’s share of its pre-tax profi ts accounts for 20% or more of the Group’s consolidated pre-tax profi ts.

The summarised fi nancial information of the associates, which are adjusted for the percentage of ownership held by the Group, are as follows:

2010 2009$’000 $’000

Assets and liabilitiesTotal assets 251,491 296,047Total liabilities (191,549) (168,604)

ResultsRevenue 36,972 29,873Profi t after income tax 1,959 2,634


76


11 OTHER INVESTMENTS

Group Company2010 2009 2010 2009$’000 $’000 $’000 $’000

Non-currentAvailable-for-sale unquoted equity securities, at cost – 99 – –

Current Available-for-sale money market instrument 2,429 – 2,429 –

12 FINANCIAL RECEIVABLES

Group 2010 2009

$’000 $’000

Non-currentFinancial receivables 226,087 155,630Lease receivables 62 317

226,149 155,947

CurrentFinancial receivables 5,596 7,549Lease receivables 255 269

5,851 7,818Total 232,000 163,765

The Group has receivables under fi nance leases as follows:

Minimum lease

payment receivables

Unearned fi nance income

Present value of

minimum lease

payment receivables

Minimum lease

payment receivables

Unearned fi nance income

Present value of

minimum lease

payment receivables

2010 2010 2010 2009 2009 2009$’000 $’000 $’000 $’000 $’000 $’000

GroupWithin one year 329 74 255 329 60 269Between one and fi ve years 81 19 62 410 93 317

410 93 317 739 153 586

Under the terms of the lease arrangements, no contingent rents are recognised and there are no unguaranteed residual values accruing to the Group.

The weighted average effective interest rate of the lease receivables at 31 December 2010 is 5.5% (2009: 5.5%) per annum.


77


13 TRADE AND OTHER RECEIVABLES

Group Company2010 2009 2010 2009$’000 $’000 $’000 $’000

Non-currentTrade receivables 261 537 – –Lease prepayments – 8,527 – –Amounts due from:- subsidiaries (non-trade) – – 16,924 18,296- associates (non-trade) 15,555 26,248 – –

15,816 35,312 16,924 18,296

CurrentTrade receivables 53,976 26,971 – 9Prepayments 1,865 3,180 245 571Deposits 18,441 2,102 15,712 3Advances to suppliers 11,278 26,172 – –Staff advances 312 477 – –Other receivables 13,958 10,406 – 634Derivatives 754 – 754 –Amounts due from:- subsidiaries (trade) – – 18,379 28,960- subsidiaries (non-trade) – – 549,817 487,903- joint ventures (trade) 30,806 27,301 16,927 –- joint ventures (non-trade) 2,218 22 1,101 –- associates (trade) 46,905 114,441 – –- associates (non-trade) 1,885 11,017 5,447 6,548

182,398 222,089 608,382 524,628Total 198,214 257,401 625,306 542,924

At 31 December 2010, trade receivables for the Group included a retention sum of $7,090,000 (2009: $5,139,000) relating to construction contracts in progress.

Included in current trade receivables of the Group are note receivables of $6,531,000 (2009: $2,516,000) relating to bank documents secured from customers for settlement of payment within the next six months.

Lease prepayments relate to payments made for land use rights and are charged to the income statement on a straight-line basis over the lease term ranging from 10 years to 30 years. The depreciation charge for the year ended 31 December 2010 of S$791,000 (2009: $446,000) is included in depreciation, amortisation and impairment in the income statement. The lease prepayments have been transferred to property, plant and equipment during the year to better refl ect the nature of the item.

Outstanding balances with subsidiaries, joint ventures and associates are unsecured. There is no allowance for doubtful debts arising from the outstanding balances.

The non-current non-trade amounts due from subsidiaries are interest-free, have no fi xed terms of repayment and are not expected to be repaid within the next 12 months. As these amounts are in substance, a part of the entity’s net investment in the subsidiaries, they are stated at cost.


78


13 TRADE AND OTHER RECEIVABLES (cont’d)

The non-current non-trade amounts due from associates bear interest at rates of 6.84% (2009: 4.23% - 6.84%) per annum and are repayable between 2011 to 2014.

The current amounts due from subsidiaries, joint ventures and associates are interest-free and are repayable on demand.

The Group’s and the Company’s exposure to credit and currency risks, and impairment losses related to trade and other receivables, are as set out in note 22.

14 DEFERRED TAX ASSETS AND LIABILITIES

Unrecognised deferred tax assets

Deferred tax assets have not been recognised in respect of the following items:

Group Company2010 2009 2010 2009$’000 $’000 $’000 $’000

Tax losses 25,857 13,332 – –Deductible temporary differences 18 18 – –

25,875 13,350 – –

The tax losses and deductible temporary differences are subject to agreement by the tax authorities and compliance with tax regulations in the respective countries in which the Company and certain subsidiaries operate. The tax losses and deductible temporary differences do not expire under current tax legislation. Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable profi t will be available against which the Group can utilise the benefi ts therefrom.

Recognised deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:

Assets Liabilities2010 2009 2010 2009$’000 $’000 $’000 $’000

GroupProperty, plant and equipment – – 791 667Intangible assets – – 3,732 5,605

Intangible assets arising from service concession arrangements (769) – 21,117 –

Tax loss carry-forwards (847) (2,761) – –Deferred tax (assets)/liabilities (1,616) (2,761) 25,640 6,272


79


14 DEFERRED TAX ASSETS AND LIABILITIES (cont’d)

Movement in temporary differences during the year

Balance as at

1 January 2009

Recognised in profi t or loss

(note 26)Exchange

differences

Balance as at

31 December 2009

Acquired in business

combination

Recognised in profi t or loss

(note 26)Exchange

differences

Balance as at

31 December 2010

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

GroupProperty, plant

and equipment 712 (45) – 667 – 124 – 791Intangible assets 5,548 57 – 5,605 – (1,873) – 3,732Intangible assets

arising from service concession arrangements – – – – 20,348 – – 20,348

Tax loss carry-forwards (2,799) 23 15 (2,761) – 1,606 308 (847)

3,461 35 15 3,511 20,348 (143) 308 24,024

CompanyProperty, plant

and equipment 95 (95) – – – – – –Intangible assets 64 (64) – – – – – –

159 (159) – – – – – –

15 GROSS AMOUNTS DUE FOR CONTRACT WORK

Group2010 2009$’000 $’000

Costs incurred and attributable profi ts 960,627 737,048Progress billings (706,158) (617,054)Gross amounts due for contract work 254,469 119,994

16 INVENTORIES

Group2010 2009$’000 $’000

Raw materials and consumables 13,456 21,384Work in progress 10,896 7,546Finished goods 1,909 3,567

26,261 32,497

During the year, the write-down of inventories to net realisable value amounted to $1,412,000 (2009: $863,000) for the Group. The write-down is included as part of other expenses in the income statement.


80


17 CASH AND CASH EQUIVALENTS

Group Company2010 2009 2010 2009$’000 $’000 $’000 $’000

Cash at bank and in hand 104,464 98,861 3,446 4,939Fixed deposits with fi nancial institutions 117,822 67,874 62,210 57,921

222,286 166,735 65,656 62,860Less: Deposits pledged (204) –Cash and cash equivalents in the cash fl ow statement 222,082 166,735

18 TRADE AND OTHER PAYABLES

Group Company2010 2009 2010 2009$’000 $’000 $’000 $’000

Trade payables 169,519 219,109 – –Progress payments from customers 9,972 11,026 – –Derivatives – 479 – 479Accrued expenses 19,790 15,609 747 948Other payables 8,637 7,974 3,826 3,655Amounts due to:- subsidiaries (trade) – – 37 58- subsidiaries (non-trade) – – 68,870 237,173- associates (trade) – 8,746 – –- associates (non-trade) – 2,801 – 2,429- joint ventures (trade) 1,834 28 – –- joint ventures (non-trade) 286 – – –

210,038 265,772 73,480 244,742

Amounts due to subsidiaries, joint ventures and associates are unsecured, interest-free and repayable on demand.

The Group’s and the Company’s exposure to currency and liquidity risk related to trade and other payables are described in note 22.


81


19 LOANS AND BORROWINGS

This note provides information about the contractual terms of the Group’s and the Company’s loans and borrowings, which are measured at amortised cost. For more information about the Group’s and Company’s exposures to interest rate, foreign currency and liquidity risk, see note 22.

Group Company2010 2009 2010 2009$’000 $’000 $’000 $’000

Non-current liabilitiesUnsecured bank loans 280,818 203,943 220,880 149,282Loan from minority shareholders – 3,097 – –Unsecured notes 222,788 147,951 222,788 147,951Finance lease liabilities – 27 – –

503,606 355,018 443,668 297,233

Current liabilitiesSecured bank loans 43,122 1,122 – –Unsecured bank loans 52,538 34,137 52,538 34,137Unsecured notes – 10,000 – 10,000Finance lease liabilities – 46 – –

95,660 45,305 52,538 44,137Total 599,266 400,323 496,206 341,370

Secured bank loans of the Group at 31 December 2010 are secured by a joint venture’s share mortgages of all its shares of China subsidiaries. Secured bank loans of the Group at 31 December 2009 were secured by a lien over the inventories and receivables of a subsidiary with carrying amounts of $68,000 and $40,000 respectively.

Unsecured bank loans of the Group totalling $294,295,000 (2009: $233,080,000) are guaranteed by the Company and certain subsidiaries of the Group.

Unsecured bank loans of the Company totalling $234,357,000 (2009: $178,419,000) are guaranteed by certain subsidiaries of the Group.

The loan from minority shareholders at 31 December 2009 was unsecured, interest-free, had no fi xed terms of repayment and was not expected to be repaid within the next 12 months. The fair value of this balance was not determinable as the timing of the future cash fl ow cannot be reliably determined.

In 2008, the Company established a $300 million unsecured multi-currency debt issuance programme pursuant to which the Company may, issue notes which bear currency, interest and maturity terms that vary with each series, as may be agreed between the Company and the dealers. As at 31 December 2010, $224 million (2009: $159 million) of unsecured fi xed rate notes were in issue.


82


19 LOANS AND BORROWINGS (cont’d)

Terms and debt repayment schedule

Terms and conditions of outstanding loans and borrowings are as follows:

2010 2009

CurrencyNominal

interest rate Year of maturity

Facevalue

Carryingamount

Facevalue

Carryingamount

$’000 $’000 $’000 $’000

GroupUnsecured bank loans SGD 3.09% 2010 – – 5,000 5,000Unsecured bank loans SGD SIBOR + 0.93% 2010-2011 30,000 30,000 10,000 10,000Unsecured bank loans USD LIBOR + 0.93% 2011 139,254 139,254 171,516 171,516Unsecured bank loans USD COF* + 2.25% 2013 65,102 65,102 – –Unsecured bank loans USD COF* + 1.75% 2011 39,062 39,062 – –Unsecured bank loans RMB 5.31% - 5.94% 2023 60,539 59,938 56,990 54,661Secured bank loans SGD SOR + margin 2011 43,159 43,122 – –Secured bank loans EURO 6.00% 2010 – – 1,122 1,122Unsecured notes SGD 4.00% - 5.68% 2010-2015 223,500 222,788 158,500 157,951Finance lease liabilities SGD 6.54% - 6.80% 2010-2011 – – 86 73Total loans and borrowings 600,616 599,266 403,214 400,323

CompanyUnsecured bank loans SGD 3.09% 2010 – – 5,000 5,000Unsecured bank loans SGD SIBOR + 0.93% 2010-2011 30,000 30,000 10,000 10,000Unsecured bank loans USD LIBOR + 0.93% 2011 139,254 139,254 168,419 168,419Unsecured bank loans USD COF* + 2.25% 2013 65,102 65,102 – –Unsecured bank loans USD COF* + 1.75% 2011 39,062 39,062 – –Unsecured notes SGD 4.00% - 5.68% 2010-2015 223,500 222,788 158,500 157,951Total loans and borrowings 496,918 496,206 341,919 341,370

COF* : The rate per annum determined by the bank to be the aggregate of: i. The rate at which the bank would be able to acquire funds in the Singapore interbank market (or from

such sources as the bank may select for the purpose), and

ii. The rate determined by the bank to represent the bank’s costs of compliance with liquidity, reserve or similar requirements imposed by any relevant authority (if any).

Finance lease liabilities

Finance lease liabilities are payable as follows:

Future minimum

lease payments Interest Principal

Future minimum

lease payments Interest Principal

2010 2010 2010 2009 2009 2009$’000 $’000 $’000 $’000 $’000 $’000

GroupWithin one year – – – 54 8 46Between one and fi ve years – – – 32 5 27

– – – 86 13 73


83


20 CAPITAL AND RESERVES

Share capital

Group and Company2010 2009

No. of shares’000 ’000

Ordinary sharesOn issue at 1 January 528,365 525,271Issue of bonus shares 285,977 –Exercise of share options 3,372 2,594Exercise of warrants 40,217 1,000Purchase of treasury shares – (500)On issue at 31 December 857,931 528,365

Issuance of ordinary shares

43,589,000 (2009: 3,594,000) ordinary shares were issued as a result of the exercise of vested options and warrants arising from the 2001 share option programme granted to key management staff and warrant subscription agreements. Options and warrants were exercised at an average price of $1.218^ (2009: $1.491^) per option and $2.392* (2009: $2.133*) per warrant respectively. All issued shares were fully paid.

^ The share prices have been restated to adjust for the effect of bonus issuance in 2010 for comparative purposes. * The share prices were not adjusted for the effect of bonus issuance during the year as all the warrants had been exercised prior to bonus issuance

(see below).

Ordinary shares

The holders of ordinary shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at meetings of the Company. All shares rank equally with regard to the Company’s residual assets. All issued shares are fully paid up.

Bonus issue

On 27 December 2010, 285,977,000 fully paid ordinary shares were issued to existing shareholders as bonus shares, in the proportion of one share for every two shares held.

Warrant

By a warrant subscription agreement dated 23 November 2004 supplemented by a supplemental warrant subscription agreement dated 25 April 2008 (“Agreements”) entered into between the Company and Istithmar World PJSC (formerly known as Istithmar PJSC) (“Istithmar”), Istithmar was entitled to subscribe for 41,216,863 ordinary shares in the Company, subject to the terms and conditions of the Agreements and the warrant instrument. The exercise period was from April 2008 to April 2010.

The exercise price was the higher of (a) $1.95 and (b) the lower of 70% of the volume-weighted average price for trades in the Company’s shares transacted on the Singapore Exchange on the market day immediately preceding the exercise date or in the 30 calendar day period immediately preceding the exercise date. All the outstanding warrants have been exercised during the year and there are no outstanding warrants at 31 December 2010.

Reserve for own shares

The reserve for the Company’s own shares comprises the cost of the Company’s shares held by the Group. At 31 December 2010, the Group held 500,000 (2009: 500,000) of the Company’s shares.


84


20 CAPITAL AND RESERVES (cont’d)

Capital reserve

The capital reserve comprises:

(a) capital gain arising from the payment of the Group’s subscription to the share capital of a subsidiary by a non-controlling interest; and

(b) Statutory Reserve Fund (“SRF”)

In accordance with the Foreign Enterprise Law in the People’s Republic of China (“PRC”), the Group’s subsidiaries in the PRC are required to appropriate earnings to a SRF. 10% of the statutory profi ts after tax as determined in accordance with the applicable PRC accounting standards and regulations are allocated to the SRF annually until the cumulative total of the SRF reaches 50% of the subsidiaries’ 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 subsidiaries. The SRF is not available for dividend distribution to shareholders.

(c) Difference between the consideration paid and net assets acquired in acquisition of non-controlling interest.

Foreign currency translation reserve

The translation reserve comprises all foreign exchange differences arising from the translation of the fi nancial statements of foreign operations.

Hedging reserve

The hedging reserve comprises:

(a) the effective portion of the cumulative net change in the fair value of cash fl ow hedging instruments relating to hedged transactions that have not yet occurred; and

(b) the Group’s share of the hedging reserve of associates.

Employees’ share option reserve

The employees’ share option reserve represents the equity-settled share options granted to employees. This 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.

Dividends

The following dividends were declared and paid by the Group and the Company:

For the year ended 31 December

Group and Company2010 2009$’000 $’000

Final tax-exempt dividend paid of 5.00 cents (2009: 3.43 cents) per share in respect of previous fi nancial year

28,515 18,020

Interim tax-exempt dividend paid of 1.00 cent (2009: nil) per share in respect of current fi nancial year

5,707 –

34,222 18,020


85


20 CAPITAL AND RESERVES (cont’d)

Dividends (cont’d)

After the respective reporting dates, the following dividends were proposed by the directors. The dividends have not been provided for and there are no income tax consequences.

Group and Company2010 2009$’000 $’000

Final proposed tax-exempt dividend of 3.50 cents (2009: 5.00 cents) per share 30,027 26,418

21 SHARE-BASED PAYMENT

Description of the share-based payment arrangements

At 31 December 2010, the Group has the following share-based payment arrangements.

Share option scheme (equity-settled)

The Hyfl ux Employees’ Share Option Scheme (“the Scheme”) of the Company was approved and adopted by its members 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 modifi cation to the Scheme which allowed Olivia Lum Ooi Lin, Group President & CEO, a substantial shareholder of the Company, to participate in the Scheme. The maximum entitlement of Olivia 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 the Remuneration Committee. It shall continue to be in force at the discretion of the Remuneration Committee for a period of ten years from 27 September 2001. However, the period may be extended with the approval of the members of the Company at a general meeting of the Company and of any relevant authorities which may then be required. The vesting of the options is conditional upon various factors including the directors and employees completing their years of service to the Group. Once these options have vested, the options are exercisable by an employee during a contractual option term of 10 years (5 years for a non-executive director) from the date of grant of that option. 20% of the options granted are exercisable after the director or employee completed each year of service from the date of the grant. All options are to be settled by physical delivery of shares.


86


21 SHARE-BASED PAYMENT (cont’d)

Disclosure of share option scheme

The number and weighted average exercise prices of share options are as follows:

Weightedaverageexercise

priceNumber

of options

Weightedaverageexercise

priceNumber

of options2010 2010 2009 2009

$ $

Outstanding at 1 January 1.492 25,279,093 1.495^ 28,746,655Forfeited during the year 1.657 (2,338,000) 1.587^ (2,963,562)Exercised during the year 1.218 (3,372,187) 1.007^ (2,594,000)Granted during the year 2.297 4,200,000 1.471^ 2,090,000Bonus options 1.655 11,871,463 – –Outstanding at 31 December 1.656 35,640,369 1.492^ 25,279,093

Exercisable at 31 December 1.583 18,497,469 1.453^ 11,613,293

The options outstanding at 31 December 2010 have an exercise price in the range of $0.179 to $2.419 (2009: $0.179^ to $2.419 )̂ and a weighted average contractual life of 6.28 years (2009: 6.66 years).

The weighted average share price at the date of exercise for share options exercised in 2010 was $1.485 (2009: $1.401^) per share.

^ The share prices have been restated to adjust for the effect of bonus issuance in 2010 for comparative purposes.

Inputs for measurement of grant date fair values

The grant date fair value of the share-based payment plans was measured based on the Black-Scholes standard option valuation model. Expected volatility is estimated by considering historic average share price volatility. The inputs used in the measurement of the fair values at grant date of the share-based payment plans are the following:

Fair value of share options and assumptions

Date of grant of options 26/02/2010 16/11/2010

Fair value at grant date $0.756 $0.367Share price at grant date $3.520* $3.260*Exercise price $3.540* $3.286*Expected volatility (weighted average volatility) 32% 19%Option life (expected weighted average life) 100 days 100 daysExpected dividends 1.01% 1.73%Risk-free interest rate (based on government bonds) 0.86% 0.83%

* The share prices were not adjusted for the effect of bonus issuance as they were granted prior to bonus issue.


87


22 FINANCIAL INSTRUMENTS

Credit risk

Exposure to credit risk

The carrying amount of fi nancial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:

Group CompanyNote 2010 2009 2010 2009

$’000 $’000 $’000 $’000

Financial receivables 12 232,000 163,765 – –Trade receivables 13 54,237 27,508 – 9Deposits 13 18,441 2,102 15,712 3Advances to suppliers 13 11,278 26,172 – –Staff advances 13 312 477 – –Other receivables 13 13,958 10,406 – 634Derivatives 13 754 – 754 –Amounts due from:- subsidiaries (trade) 13 – – 18,379 28,960- subsidiaries (non-trade) 13 – – 566,741 506,199- joint ventures (trade) 13 30,806 27,301 16,927 –- joint ventures (non-trade) 13 2,218 22 1,101 –- associates (trade) 13 46,905 114,441 – –- associates (non-trade) 13 17,440 37,265 5,447 6,548Loans and receivables 428,349 409,459 625,061 542,353Cash and cash equivalents 17 222,286 166,735 65,656 62,860Available-for-sale money market instrument 11 2,429 – 2,429 –Recognised fi nancial assets 653,064 576,194 693,146 605,213

The maximum exposure to credit risk for loans and receivables at the reporting date by type of counterparty was:

Group Company2010 2009 2010 2009$’000 $’000 $’000 $’000

Municipal 325,518 360,472 – –Industrial 100,431 47,040 – –Subsidiaries – – 585,120 535,159Joint ventures – – 18,028 –Associates – – 5,447 6,548Others 2,400 1,947 16,466 646

428,349 409,459 625,061 542,353


88


22 FINANCIAL INSTRUMENTS (cont’d)

Credit risk (cont’d)

Impairment losses

The ageing of loans and receivables at the reporting date was:

Gross Impairment Gross Impairment 2010 2010 2009 2009$’000 $’000 $’000 $’000

GroupNot past due 410,152 – 399,403 –Past due 0 to 60 days 7,007 – 566 –Past due 61 to 120 days 4,501 – 1,881 –More than 120 days 11,969 5,280 12,484 4,875

433,629 5,280 414,334 4,875

CompanyNot past due 625,061 – 542,353 –

The movement in the allowance for impairment in respect of loans and receivables during the year was as follows:

Group2010 2009$’000 $’000

At 1 January 4,875 5,044Impairment loss recognised 2,411 2,820Impairment loss written off (828) (1,918)Impairment loss written back (885) (975)Effect of movements in exchange rates (293) (96)At 31 December 5,280 4,875

The impairment loss recognised and written back is included as part of other expenses in the income statement.

The Group and the Company believe that the unimpaired amounts that are past due are still collectible, based on historic payment behaviour and analysis of the customers’ underlying credit ratings.

Based on historic default rates, the Group believes that, apart from the above, no impairment allowance is necessary in respect of the Group’s loans and receivables not past due or past due by up to 120 days at 31 December 2010 as these loans and receivables are mainly due from governing bodies or agencies of the People’s Republic of China, or customers that have a good payment record with the Group. Management believes that no impairment allowance is necessary on the Company’s loans and receivables as at 31 December 2010.


89



Liquidity risk

The following are the contractual maturities of fi nancial liabilities, including estimated interest payments and excluding the impact of netting agreements:

Cash fl ows

Carrying amount

Contractualcash fl ows

Within1 year

Between 1 and 5 years

More than5 years

$’000 $’000 $’000 $’000 $’000

Group2010Non-derivative fi nancial liabilitiesVariable interest rate loans 376,478 (423,820) (121,189) (102,635) (199,996)Fixed interest rate notes 222,788 (257,049) (11,051) (245,998) –Finance lease liabilities – – – – –Trade and other payables* 210,038 (210,038) (210,038) – –

809,304 (890,907) (342,278) (348,633) (199,996)

Derivative fi nancial liabilitiesForward exchange contracts- Outfl ow – – – – –- Infl ow – – – – –

2009Non-derivative fi nancial liabilitiesVariable interest rate loans 242,299 (277,038) (41,148) (175,598) (60,292)Fixed interest rate notes 157,951 (186,056) (17,966) (168,090) –Finance lease liabilities 73 (86) (54) (32) –Trade and other payables* 265,293 (265,293) (265,293) – –

665,616 (728,473) (324,461) (343,720) (60,292)

Derivative fi nancial liabilitiesForward exchange contracts- Outfl ow 484 (40,182) (40,182) – –- Infl ow (5) 39,703 39,703 – –

* Excludes derivatives (shown separately).

It is not expected that the cash fl ows included in the maturity analysis could occur signifi cantly earlier, or at signifi cantly different amounts.


90



Currency risk

Exposure to currency risk

The Group’s and Company’s exposure to foreign currency risk is as follows based on notional amounts:

31 December 2010

US dollars

31 December 2009

US dollars

$’000 $’000

GroupTrade and other receivables 362,798 214,861Cash and cash equivalents 82,080 92,912Loans and borrowings (243,418) (171,516)Trade and other payables (132,760) (97,139)

68,700 39,118

CompanyTrade and other receivables 294,960 256,244Cash and cash equivalents 40,183 58,437Loans and borrowings (243,418) (168,419)Trade and other payables (49,018) (180,820)

42,707 (34,558)

Sensitivity analysis

A 10% strengthening of the Singapore dollar, as indicated below, against the US dollars at 31 December would have increased/(decreased) equity and profi t before income tax in the income statement by the amounts shown below. This analysis is based on foreign currency exchange rate variances that the Group considered to be reasonably possible at the end of the reporting period. The analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2009, albeit that the reasonably possible foreign exchange rate variances were different, as indicated below:

Group CompanyProfi t before

income taxEquity Profi t before

income taxEquity

$’000 $’000 $’000 $’000

31 December 2010US dollars (10% strengthening) (6,870) – (4,271) –

31 December 2009US dollars (10% strengthening) (13,153) 9,241 3,456 –

A weakening of the Singapore dollar against the above currency at 31 December would have had the equal but opposite effect to the amounts shown above, on the basis that all other variables remain constant.


91



Interest rate risk

Profile

At the reporting date, the interest rate profi le of the interest-bearing fi nancial instruments was:

Group CompanyCarrying amount Carrying amount

2010 2009 2010 2009$’000 $’000 $’000 $’000

Fixed rate instrumentsFinance lease liabilities – (73) – –Unsecured notes (222,788) (157,951) (222,788) (157,951)

(222,788) (158,024) (222,788) (157,951)

Variable rate instrumentsVariable interest rate loans (376,478) (242,299) (273,418) (183,419)

Fair value sensitivity analysis for fixed rate instruments

The Group does not account for any fi xed rate fi nancial assets and liabilities at fair value through profi t or loss, and the Group does not designate derivatives (interest rate swaps) as hedging instruments under a fair value hedge accounting model. Therefore a change in interest rates at the reporting date would not affect profi t or loss.

Cash flow sensitivity analysis for variable rate instruments

A change of 75 basis points in interest rates at the reporting date would have increased/ (decreased) profi t before income tax in the income statement by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed on the same basis for 2009.

Profi t before income tax75 bp

increase75 bp

decreaseGroup $’000 $’00031 December 2010Variable rate instruments (2,824) 2,824

31 December 2009Variable rate instruments (1,817) 1,817

Company31 December 2010Variable rate instruments (2,051) 2,051

31 December 2009Variable rate instruments (1,376) 1,376


92



Fair values

Fair values versus carrying amounts

The carrying amounts of the Group’s and the Company’s fi nancial instruments carried at cost or amortised cost are not materially different from their fair values as at 31 December 2010 and 2009 except as follows:

31 December 2010 31 December 2009

NoteCarryingamount

Fairvalue

Carryingamount

Fairvalue

$’000 $’000 $’000 $’000

GroupAssets carried at amortised costAmounts due from associates (non-trade) 13 15,555 15,692 26,248 26,322

Liabilities carried at amortised costUnsecured notes 19 222,788 (232,801) (157,951) (168,122)

CompanyLiabilities carried at amortised costUnsecured notes 19 222,788 (232,801) (157,951) (168,122)

The basis for determining fair values is described in note 30.

Interest rates used for determining fair value

The interest rates used to discount estimated cash fl ows, when applicable, are based on the government yield curve at the reporting date plus an adequate credit spread, and are as follows:

Group2010 2009

Amounts due from associates (non-trade) 6.0% 6.0%Unsecured notes 3.0% 3.0%

Fair value hierarchy

The table below analyses fi nancial instruments carried at fair value, by valuation method. The different levels have been defi ned as follows:

• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities

• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices)

• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Level 1 Level 2 Level 3 Total$’000 $’000 $’000 $’000

Group and Company31 December 2010Derivatives – 754 – 754Available-for-sale money market instrument – 2,429 – 2,429

– 3,183 – 3,183

31 December 2009Derivatives – (479) – (479)


93


23 REVENUE

Group2010 2009$’000 $’000

Construction revenue 513,127 488,055Operating and maintenance income 32,816 21,848Sale of goods 17,780 7,632Finance income 3,697 5,684Finance lease income 378 363Others 1,939 1,232

569,737 524,814

24 FINANCE COSTS

Group2010 2009$’000 $’000

Interest expense:- bank loans 16,756 9,241- fi nance lease liabilities 4 18

16,760 9,259

25 PROFIT BEFORE INCOME TAX

The following items have been included in arriving at profi t before income tax:

Group2010 2009$’000 $’000

Net foreign currency exchange loss 16,355 2,110Rental income from investment property (323) (329)Interest income:- fi xed deposits with fi nancial institutions (325) (426)- associates (2,800) (2,832)Fair value (gain)/loss on derivative fi nancial instruments (754) 479Gain on sale of investment property (1,186) –Remeasurement to fair value of an associate to joint venture (22,787) –Loss on sale of property, plant and equipment 380 1,392Operating expenses arising from rental of investment property 88 79Impairment of investments 264 2,058Impairment of trade and other receivables 1,526 1,845Gain on sale of other investments – (44)Operating lease expense 6,023 4,715Professional fees paid to fi rms in which a director is member 3 26Contribution to defi ned contribution plans, included in staff costs 5,669 4,323Employees’ share option expense, included in staff costs 1,829 3,809Research expense 2,166 990Government grant under Jobs Credit Scheme (260) (1,360)


94


26 INCOME TAX EXPENSE

Group2010 2009$’000 $’000

Current tax expenseCurrent year 11,561 9,153Under/(over)provided in prior years 170 (507)

11,731 8,646

Deferred tax expenseOrigination and reversal of temporary differences (314) 359Reduction in tax rate – (334)Underprovided in prior years 171 10

(143) 35Income tax expense 11,588 8,681

Reconciliation of effective tax rate

Profi t before income tax 100,473 82,972

Income tax using Singapore tax rate of 17% 17,080 14,105Effect of different tax rates in foreign jurisdictions 773 1,051Reduction in tax rate – (334)Tax exempt income (2,650) (3,750)Non-deductible expenses 2,388 3,416Effect of partial tax exemption and tax reliefs (6,344) (5,310)Under/(over)provided in prior years 341 (497)

11,588 8,681

A subsidiary was granted Pioneer Status in Singapore in respect of the production and sale of membrane systems. Accordingly, the subsidiary enjoys tax exemption on income arising from sale of membrane systems subject to the terms and conditions of the Pioneer Status.

Another subsidiary was awarded a 7-year Development and Expansion Incentive. Qualifying income earned during this period is taxed at a concessionary rate of 5%.

In accordance with the “Income Tax Law of the People’s Republic of China for Enterprises with Foreign Investment and Foreign Enterprises”, certain subsidiaries are entitled to full exemption from Enterprise Income Tax (“EIT”) for the fi rst two years and a 50% reduction in EIT for the next three years, commencing from the fi rst profi table year after offsetting all tax losses carried forward from the previous fi ve years. A new Corporate Income Tax Law which took effect on 1 January 2008 stated that subsidiaries in the People’s Republic of China which have not utilised their fi ve-year tax concessions under the old tax law were required to utilise their fi rst year of tax concession commencing from 2008. In addition, one of the subsidiaries has High-Technology Status which is subject to a tax rate of 15%.

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


95


27 EARNINGS PER SHARE

Basic earnings per share

The calculation of basic earnings per share at 31 December 2010 is based on the profi t attributable to ordinary shareholders of $88,510,000 (2009: $75,036,000), and a weighted average number of ordinary shares outstanding of 841,682,000 (2009: 789,259,000^), calculated as follows:

Weighted average number of ordinary shares

GroupNote 2010 2009

’000 ’000

Issued ordinary shares at 1 January 20 528,365 525,271Effect of own shares held – (208)Effects of share options and warrants exercised 32,756 1,110Effect of bonus issue 280,561 263,086^Weighted average number of ordinary shares at 31 December 841,682 789,259^

Diluted earnings per share

The calculation of diluted earnings per share at 31 December 2010 was based on profi t attributable to ordinary shareholders of $88,510,000 (2009: $75,036,000), and a weighted average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares of 865,351,000 (2009: 803,212,000^), calculated as follows:

Weighted average number of ordinary shares (diluted)

Group2010 2009’000 ’000

Weighted average number of ordinary shares (basic) 841,682 789,259^Effect of share options on issue 23,669 3,289^Effect of warrants on issue – 10,664^Weighted average number of ordinary shares (diluted) at 31 December 865,351 803,212^

The average market value of the Company’s shares for purposes of calculating the dilutive effect of share options was based on quoted market prices for the period during which the options were outstanding.

^ For comparative purposes, the number of ordinary shares as at 31 December 2009 was adjusted to include issue of one bonus share for every two existing ordinary shares in the calculation of basic earnings per share and diluted earnings per share.

28 SEGMENT REPORTING

(a) Operating segments

The Group has two reportable segments, as described below, which are the Group’s strategic business units. The strategic business units offer different products and services, and are managed separately because they require different technology and marketing strategies. For each of the strategic business units, the Group’s CEO (the chief operating decision maker) reviews internal management reports on at least a quarterly basis. The following summary describes the operations in each of the Group’s reportable segments:

• Municipal. Supplier of comprehensive range of innovative water and fl uid treatment solutions to municipalities and governments, including commissioning, operation and maintenance of a wide range of water treatment and liquid separation plants on a turnkey or Design-Build-Own-Operate-Transfer arrangements.


96


28 SEGMENT REPORTING (cont’d)

(a) Operating segments (cont’d)

• Industrial. Liquid separation applications for the manufacturing sector such as the pharmaceutical, biotechnology, food processing and petrochemical oil-related industries.

Other operations include emerging segments such as the renewable resources management business. None of these segments meets any of the quantitative thresholds for determining reportable segments in 2010 or 2009.

Information regarding the results of each reportable segment is included below. Performance is measured based on segment profi t before income tax, as included in the internal management reports that are reviewed by the Group’s CEO. Segment profi t is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries. Inter-segment pricing is determined on an arm’s length basis.

(b) Geographical segments

The Group operates in 3 principal geographical areas: Singapore, China and Middle East and North Africa. In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers. Segment assets are based on the geographical location of the assets.

Information about reportable segments

Municipal Industrial All other segments Total2010 2009 2010 2009 2010 2009 2010 2009$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

External revenues 511,180 469,832 55,144 54,394 3,413 588 569,737 524,814

Interest revenue – 1,854 1,203 – 175 – 1,378 1,854

Interest expense (3,783) – (16) (359) 115 – (3,684) (359)

Depreciation, amortisation and impairment (3,378) (4,342) (14,967) (3,288) (2,593) (3,713) (20,938) (11,343)

Reportable segment profi t/(loss)before income tax 132,687 103,753 (11,355) (7,431) (3,178) (4,685) 118,154 91,637

Share of profi t/(loss) of associates,net of income tax 1,774 3,262 (1,103) (236) 1,288 (392) 1,959 2,634

Reportable segment assets 900,623 595,778 249,208 241,998 14,015 14,903 1,163,846 852,679

Investments in associates 66,549 93,645 3,445 4,911 5,038 4,098 75,032 102,654

Capital expenditure 125,171 3,635 2,673 74,548 318 12,970 128,162 91,153

Reportable segment liabilities 261,439 280,163 23,778 37,105 63,771 8,379 348,988 325,647


97



Reconciliations of reportable segment revenues, profit or loss, assets and liabilities and other material items

2010 2009$’000 $’000

RevenuesTotal revenue for reportable segments 566,324 524,226Other revenue 3,413 588Consolidated revenue 569,737 524,814

Profi t or lossTotal profi t or loss for reportable segments 121,332 96,322Other profi t or loss (3,178) (4,685)

118,154 91,637Unallocated amounts:- Other corporate expenses (19,640) (11,299)Share of profi t of associates, net of income tax 1,959 2,634Consolidated profi t before income tax 100,473 82,972

AssetsTotal assets for reportable segments 1,149,831 837,776Other assets 14,015 14,903Investments in associates 75,032 102,654Other unallocated amounts 120,824 117,230Consolidated total assets 1,359,702 1,072,563

LiabilitiesTotal liabilities for reportable segments 285,217 317,268Other liabilities 63,771 8,379Other unallocated amounts 496,207 353,514Consolidated total liabilities 845,195 679,161

Other material items in 2010

Reportable segment totals Adjustments

Consolidated totals

$’000 $’000 $’000

Interest revenue 1,203 1,922* 3,125Interest expense (3,799) (12,961)* (16,760)Capital expenditure 127,844 21,408^ 149,252Depreciation, amortisation and impairment (18,345) (9,156)^ (27,501)


98



Other material items in 2009

Reportable segment totals Adjustments

Consolidated totals

$’000 $’000 $’000

Interest revenue 1,854 1,404* 3,258Interest expense (359) (8,900)* (9,259)Capital expenditure 78,183 24,954^ 103,137Depreciation, amortisation and impairment (7,630) (8,891)^ (16,521)

* This represents interest revenue and interest expense that are not allocated to segments, as this activity is driven by Group Treasury, which manages the cash position of the Group.

^ This represents capital expenditure and its related depreciation, amortisation and impairment incurred as a result of the overall business strategy

adopted by the Group. The allocation of these resources to the various reportable segments cannot be determined.

Geographical information

31 December 2010

RevenuesNon-current

assets$’000 $’000

Middle East and North Africa 343,810 60,247People’s Republic of China 150,797 488,263Singapore 75,130 117,498

569,737 666,008

31 December 2009

RevenuesNon-current

assets$’000 $’000

Middle East and North Africa 330,523 62,404People’s Republic of China 181,327 382,308Singapore 12,964 78,718

524,814 523,430


99


29 ACQUISITIONS OF A JOINT VENTURE AND NON-CONTROLLING INTERESTS

Business combination for the year ended 31 December 2010

In December 2010, the Group acquired additional 18.3% interest in Hyfl ux Water Trust (“HWT”), increasing its ownership from 31.7% to 50%. The investment was reclassifi ed from an associate to a joint venture subsequent to the additional investment.

The acquisition had the following effect on the Group’s assets and liabilities on acquisition date:

Pre-acquisition carrying

amounts

Fair value adjustments

Recognised values on

acquisition

$’000 $’000 $’000

Property, plant and equipment 7,270 – 7,270Intangible assets 69,602 23,293 92,895Financial receivables 78,895 – 78,895Deferred tax assets 445 324 769Cash and cash equivalents 15,582 – 15,582Trade and other receivables 8,921 – 8,921Trade and other payables (24,918) – (24,918)Tax payable (366) – (366)Loans and borrowings (43,122) – (43,122)Deferred tax liabilities (9,522) (8,534) (18,056)

102,787 15,083 117,870

Fair value of the Group’s existing interest of 31.7% on acquisition date (74,701)

Goodwill on acquisition 8,118Cash consideration not yet paid (8,493)

Consideration paid, satisfi ed in cash 42,794Cash acquired (15,582)Net cash outfl ow 27,212

Pre-acquisition carrying amounts were determined based on applicable FRS immediately before the acquisition. The values of assets and liabilities recognised on acquisition are their estimated fair values.

The gain arising from the remeasurement to fair value of the Group’s existing interest in the associate represents the realisation of revenue from previous sales of plants under service concession arrangements previously not recognised as construction revenue under the service concession arrangements. As such, the gain has been recorded as part of revenue, consistent with the Group’s accounting policy at note 3.14.

The goodwill recognised on the acquisition is attributable mainly to the future profi tability and synergies related to customers’ contracts portfolio.

If the acquisition had occurred on 1 January 2010, management estimates that consolidated revenue would have been $587,237,000 and consolidated profi t for the year would have been $89,580,000. In determining these amounts, management has assumed that the fair value adjustments that arose on the date of acquisition would have been the same if the acquisition had occurred on 1 January 2010.


100


29 ACQUISITIONS OF A JOINT VENTURE AND NON-CONTROLLING INTERESTS (cont’d)

Acquisition of non-controlling interest

In February 2010, the Group acquired an additional 12% interest in Lube Oil Re-refi ning Co., LLC (“Lubrec”), increasing its ownership from 83% to 95%.

In October 2010, the Group acquired an additional 49% interest in Sinolac (Singapore) Pte. Ltd. (“Sinolac”), increasing its ownership from 51% to 100%.

The following summarises the effect of changes in the Company’s ownership interests in Lubrec and Sinolac:

Lubrec Sinolac$’000 $’000

Company’s ownership at beginning of the year 12,520 15,318Effect of increase in Company’s ownership interest 1,735 13,662Share of comprehensive income (4,025) (1,646)Company’s ownership at the end of the year 10,230 27,334

Acquisitions of non-controlling interests are accounted for as transactions with owners in their capacity as owners and therefore no goodwill is recognised as a result of such transactions.

Business combinations for the year ended 31 December 2009

On 9 July 2009, the Group acquired an additional 41.5% interest in Lube Oil Re-refi ning Co., LLC, increasing its ownership from 41.5% to 83.0%.

On 6 October 2009, the Group acquired an additional 23.5% interest in Sinolac (Singapore) Pte. Ltd., increasing its ownership from 27.5% to 51.0%. Out of the 23.5% additional interest acquired, 1.0% was acquired from a director of the Company at a consideration of $371,000.

The companies became subsidiaries of the Group after the acquisitions and the investments were reclassifi ed from associates to subsidiaries accordingly. The companies’ contributions to the Group’s consolidated net profi t for the year ended 31 December 2009 were not signifi cant. The Group’s revenue and net profi t for the year ended 31 December 2009 would not be signifi cantly different from those recognised in the consolidated income statement had the acquisitions occurred on 1 January 2009.


101


29 ACQUISITIONS OF A JOINT VENTURE AND NON-CONTROLLING INTERESTS (cont’d)

Business combinations for the year ended 31 December 2009 (cont’d)

The acquisitions had the following effect on the Group’s assets and liabilities on acquisition date:

Pre-acquisition carrying

amountsFair value

adjustments

Recognised values on

acquisition$’000 $’000 $’000

Property, plant and equipment 80,460 1,482 81,942Intangible assets 3,290 – 3,290Inventories 1,871 – 1,871Trade and other receivables 8,684 – 8,684Cash and cash equivalents 1,307 – 1,307Loans and borrowings (38,377) – (38,377)Trade and other payables (11,056) – (11,056)Net identifi able assets and liabilities 46,179 1,482 47,661

Non-controlling interests (18,954)Goodwill on acquisition 7,667Amount previously accounted for as investments in associates (15,102)

Consideration paid, satisfi ed in cash 21,272Cash acquired (1,307)Net cash outfl ow 19,965

30 DETERMINATION OF FAIR VALUES

A number of the Group’s accounting policies and disclosures require the determination of fair value, for both fi nancial and non-fi nancial assets and liabilities. Fair values have been determined for measurement and disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specifi c to that asset or liability.

Property, plant and equipment

The fair value of property, plant and equipment recognised as a result of a business combination is based on market values. The market value of property is the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably and willingly.

Intangible assets

The fair value of intangible assets received as consideration for providing construction services in a service concession arrangement is estimated by reference to the fair value of the construction services provided. The fair value of the construction services provided is calculated as the estimated total cost plus a profi t margin which the Group considers as a reasonable margin. When the Group receives an intangible asset and a fi nancial asset as consideration for providing construction services in a service concession arrangement, the Group estimates the fair value of intangible assets as the difference between the fair value of the construction services provided and the fair value of the fi nancial asset received.

The fair value of other intangible assets is based on the discounted cash fl ows expected to be derived from the use and eventual sale of the assets.


102


30 DETERMINATION OF FAIR VALUES (cont’d)

Inventories

The fair value of inventories acquired in a business combination is determined based on the estimated selling price in the ordinary course of business less the estimated costs of completion and sale, and a reasonable profi t margin based on the effort required to complete and sell the inventories.

Investments in equity securities

It is not practicable to reliably estimate the fair value of available-for-sale unquoted investments due to the lack of quoted market prices in an active market, signifi cant range of reasonable fair value estimates, and the inability to reasonably assess the probabilities of the various estimates.

Trade and other receivables

The fair value of trade and other receivables, including service concession receivables, is estimated as the present value of future cash fl ows, discounted at the market rate of interest at the reporting date.

Non-derivative financial liabilities

Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash fl ows, discounted at the market rate of interest at the reporting date. For fi nance leases, the market rate of interest is determined by reference to similar lease agreements.

Intra-group financial guarantees

The value of fi nancial guarantees provided by the Company to its subsidiaries is determined by reference to the difference in the interest rates, by comparing the actual rates charged by the bank with these guarantees made available, with the estimated rates that the banks would have charged had these guarantees not been made available.

Share-based payment transactions

The fair value of the employees’ share options is measured using the Black-Scholes standard option valuation model. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), weighted average expected life of the instruments (based on historical experience and general option holder behaviour), expected dividends, and the risk-free interest rate (based on government bonds). Service and non-market performance conditions attached to the grants are not taken into account in determining the fair value of the options.

31 FINANCIAL RISK MANAGEMENT

The Group has exposure to the following risks from its use of fi nancial instruments:

• credit risk • liquidity risk • market risk

This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital. Further quantitative disclosures are included throughout these fi nancial statements.


103


31 FINANCIAL RISK MANAGEMENT (cont’d)

Risk management framework

The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Board has established the Risk Management Committee, which is responsible for developing and monitoring the Group’s risk management policies. The committee reports regularly to the Board of Directors on its activities.

The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to refl ect changes in market conditions and the Group’s activities.

The Group Audit 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 Group Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes regular reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.

Credit risk

Credit risk is the risk of fi nancial loss to the Group if a customer or counterparty to a fi nancial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers.

Trade and other receivables

The Group’s exposure to credit risk is infl uenced mainly by the individual characteristics of each customer. However, management also considers the demographics of the Group’s customer base, including the default risk of the industry and country in which customers operate, as these factors may have an infl uence on credit risk.

The Group has a credit policy in place which establishes credit limits 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 specifi c loss component that relates to individually signifi cant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identifi ed. The collective loss allowance is determined based on historical data of payment statistics for similar fi nancial assets.

Guarantees

The Group’s policy is to provide fi nancial guarantees only to subsidiaries and joint ventures.

Liquidity risk

Liquidity risk is the risk that the Group will encounter diffi culty in meeting the obligations associated with its fi nancial liabilities that are settled by delivering cash or another fi nancial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have suffi cient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.

Typically the Group ensures that it has suffi cient cash on demand to meet expected operational expenses, including the servicing of fi nancial obligations; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. In addition, the Group maintains lines of credit that can be drawn down to meet short-term fi nancing needs.


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31 FINANCIAL RISK MANAGEMENT (cont’d)

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of fi nancial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

The Group buys and sells derivatives, and also incurs fi nancial liabilities, in order to manage market risks. All such transactions are carried out within the guidelines set by the Risk Management Committee. Generally the Group seeks to apply hedge accounting in order to manage volatility in profi t or loss.

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.

The Group monitors capital using a gearing ratio, which is net debt divided by total capital. The Group includes within net debt, loans and borrowings, less cash and cash equivalents. Total equity of the Group represents capital for the Group.

Group2010 2009$’000 $’000

Loans and borrowings 599,266 400,323Less: Cash and cash equivalents (222,286) (166,735)Net debt 376,980 233,588

Total equity 514,507 393,402

Gearing ratio 73% 59%

From time to time, the Group purchases its own shares on the market; the timing of these purchases depends on market prices. Primarily the shares are intended to be used for issuing shares under the Group’s share option programme. Buy and sell decisions are made on a specifi c transaction basis by the Risk Management Committee; the Group does not have a defi ned share buy-back plan.

There were no changes in the Group’s approach to capital management during the year.

The Group and its subsidiaries are not subject to externally imposed capital requirements other than the following:

(i) Certain subsidiaries of the Group are required by the Foreign Enterprise Law of the People’s Republic of China (“PRC”) to contribute to and maintain a non-distributable Statutory Reserve Fund (“SRF”) whose utilisation is subject to approval by the relevant PRC authorities (see note 20).

(ii) The Company is required under a fi nancial covenant clause to maintain a consolidated total tangible net worth for the Group of not less than $160 million.

These externally imposed capital requirements have been complied with by the Company and the relevant subsidiaries for the fi nancial year ended 31 December 2010.


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32 OPERATING LEASES

Leases as lessee

Non-cancellable operating lease rentals are payable as follows:

Group2010 2009$’000 $’000

Within one year 4,340 4,047Between one and fi ve years 16,579 15,538More than fi ve years 59,677 52,327

80,596 71,912

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

Leases as lessor

The Group leases out its investment property held under operating leases (see note 7). The future minimum lease payments under non-cancellable leases are as follows:

Group2010 2009$’000 $’000

Within one year – 336

33 CAPITAL COMMITMENTS

(i) At 31 December 2010, the Group has outstanding commitments in respect of uncalled capital of approximately US$33,300,000 (2009: US$40,500,000) in an associate.

(ii) At 31 December 2010, the Group has outstanding capital commitments of $49,462,000 (2009: $6,252,000).

34 CONTINGENCIES

The Company has given formal undertakings to provide fi nancial support to certain subsidiaries with defi cit in shareholders’ equity for at least the next twelve months from the end of the reporting period.

The Group has potential contingencies arising from the delayed completion of a water plant construction project. However, the Group has a counter-claim against the customer for the additional costs incurred as a result of the customer’s prolongation of the project, as well as a claim for additional mobilisation fees due to the delay in the handing over of the water plant by the customer. At 31 December 2010, the Group is still in negotiation with the customer and currently, no contingent liabilities or assets have been recognised by the Group.


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35 RELATED PARTIES

Transactions with key management personnel

Key management personnel

Key management personnel of the Group are those persons having the authority and responsibility for planning, directing and controlling the activities of the Group. The directors and management committee of the Company and the Group are considered as key management personnel of the Company and the Group.

Key management personnel compensation comprised:

Group2010 2009$’000 $’000

Directors’ fees 490 577Short-term employee benefi ts 4,678 3,393Share-based payments 761 690

5,929 4,660

Comprise amounts paid/payable to:- Directors of the Company 2,277 1,764- Other key management personnel 3,652 2,896

5,929 4,660

The directors of the Company also participate in the Hyfl ux Employees’ Share Option Scheme. Details of options granted to the directors under the Scheme are described in note 21.

Other related party transactions

Other than as disclosed elsewhere in the fi nancial statements, transactions carried out in the normal course of business on terms agreed with related parties are as follows:

Group2010 2009$’000 $’000

DirectorAcquisition of non-controlling interest 774 371

Joint ventureRental income 36 27

AssociatesRevenue from construction contracts 293,754 335,631Revenue from maintenance contracts 30,594 17,731Management fee income 883 885


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36 SUBSEQUENT EVENTS

On 19 January 2011, the Group has issued 5-year fi xed rate notes with principal amount of $55 million (“the notes”) under the $300 million unsecured multi-currency debt issuance programme. The notes carry a coupon rate of 3.89% per annum and will mature in January 2016. The notes will be used to fund the refi nancing of existing banking facilities as well as certain construction projects.

On 21 January 2011, the Group has successfully completed the book-build of its new 5-year US dollar syndicated loan facility (the “new facility”). The new facility replaces the existing US$138,000,000 facility that will be maturing in August 2011. However, in 2010, the Group has obtained unconditional underwriting from the lead arrangers and bookrunners of the new facility.

On 7 March 2011, the Group has been named as the preferred bidder by PUB, Singapore’s national water agency, to design, build, own and operate a seawater desalination plant for a concession period of 25 years. The project includes the construction of a power plant to the desalination plant, and the excess electricity will be sold to the power grid. Total project costs of the desalination plant and power plant is $890,000,000. The project is expected to commence operation by 2013.


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Corporate Governance Statement

INTRODUCTION

Hyfl ux continues to place great importance on the governance of the Company and its subsidiaries, which it believes is vital to its well being and success. Hyfl ux is committed to best practice corporate governance and processes that will enhance the Group’s effectiveness, ensure the appropriate degree of accountability and transparency and an increase in long term value and return to shareholders.

The Group subscribes to the Code of Corporate Governance 2005 (“Code”) and believes that this forms a sound platform for supporting good corporate governance practices.

This statement outlines the main corporate governance practices of the Group with specifi c reference made to the principles and guidelines of the Code, forming part of the Continuing Obligations set out in the Singapore Exchange Securities Trading Limited’s Listing Manual.

Hyfl ux will continue to review and refi ne its practices especially in light of the Audit Committee Guidance Committee (“ACGC”) guidebook, and other standards of best practice that develop in the market, consistent with the needs and the circumstances of the Group.

In developing the appropriate corporate governance practices, the Group takes into account all applicable legislation and recognised standards. Hyfl ux is committed to instilling and maintaining good corporate governance at all times.

The Board is pleased to report that throughout the reporting period for the fi nancial year ended 31 December 2010, Hyfl ux complied with the Code’s principles and guidelines.

BOARD MATTERS

BOARD’S CONDUCT OF ITS AFFAIRS:

Principle 1: Effective Board to lead and control the Company

Role of the Board

The primary role of the Board is to protect and enhance long-term shareholders value and on ensuring that the Company is run in accordance with best international management and corporate governance practices, appropriate to the needs and development of the Company.

The Board is responsible for general oversight of the Company’s activities and performance and for setting the Company’s overall strategic direction. It 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.

In delegating responsibility for the day-to-day operation and leadership of the Company to the Executive Director and Chief Executive Offi cer and the Management team, the Board has processes and systems in place to ensure that signifi cant issues, risks and major strategic decisions are monitored and considered at Board level.

To assist in the execution of its responsibilities, the Board has established several Board Committees namely; Audit Committee, Nominating Committee, Remuneration Committee and Risk Management Committee. These Committees function within clearly defi ned terms of reference, which are reviewed on a regular basis.

Matters which are specifi cally reserved to the full Board for decision are those involving material acquisitions, disposal of assets, corporate or fi nancial restructuring, share issuances, dividends and other returns to shareholders, confl ict of interest for substantial shareholder or Director, as well as interested person transactions.

The Board held four meetings in the 2010 fi nancial year. The Board may convene additional meetings to address any specifi c signifi cant matters that may arise from time to time.

A summary of attendance by Directors at Board and Committee Meetings for the fi nancial year ended 31 December 2010 is as follows:


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Board of Directors

Audit Committee

Nominating Committee

Remuneration Committee

Risk Management Committee

Name

No. of Meetings

Held

No. of Meetings Attended

No. of Meetings

Held


No. of Meetings

Held


No. of Meetings

Held


No. of Meetings

Held


Olivia Lum Ooi Lin 4 4 4 4* 2 2 2 2* 6 3*Teo Kiang Kok 4 4 4 4 2 2 NA NA 6 4Lee Joo Hai 4 4 4 4 NA NA 2 2 6 6Gay Chee Cheong 4 4 4 4 2 2 2 2 NA NAChristopher Murugasu 4 4 NA NA NA NA 2 2 6 5

Professor Tan Teck Meng 4 2 4 2 NA NA 2 1 NA NA

Rajsekar Kuppuswami Mitta 4 4 NA NA NA NA NA NA 6 6

Legend:* Attendance by invitation

NA Not Applicable

BOARD COMPOSITION AND GUIDANCE

Principle 2: Strong and independent element on the Board

The seven members’ board of the Company in offi ce as at the date of this report is set out as follows:

Name BoardAudit

CommitteeNominating Committee

Remuneration Committee

Risk Management Committee

Olivia Lum Ooi Lin Executive Director Member

Teo Kiang KokNon-Executive

Independent Director Member Member Member

Lee Joo HaiNon-Executive

Independent Director Chairman Member Member

Gay Chee CheongNon-Executive

Independent Director Member Chairman Member

Christopher MurugasuNon-Executive

Independent Director Member Member

Professor Tan Teck MengNon-Executive

Independent Director Member Chairman

Rajsekar Kuppuswami MittaNon-Executive

Independent Director Chairman

The Board considers an independent Director as one who has no relationship with the Company, its related companies or its offi cers that could interfere or be reasonably perceived to interfere, with the exercise of the Director’s independent business judgment acting in the interest of the Company.

While all the Directors have equal responsibilities for the performance of the Group, Non-Executive members of the Board exercise no management function in the Company or any of its subsidiaries. The role of Non-Executive Directors is primarily to ensure that the strategies proposed by the 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 believes the composition of the Board requires consideration of a number of factors, including the mix in skills, abilities and expertise, the mix in the length of time Directors have had on the Board, as well as experience on other boards. The general policy of the Company is to seek to have the Board comprised of at least half independent Directors.

Corporate Governance Statement (cont’d)


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The Board is of the view that there is a strong and independent element on the Board in that all Directors, other than Ms Olivia Lum Ooi Lin, are Non-Executive Independent Directors. The present Board size and number of Board Committees facilitate effective decision making and is appropriate for the nature and scope of the Group’s business and operations.

The Board consists of respected business leaders and professionals whose collective core competencies and experience are extensive, diverse and relevant to the Group. The names, qualifi cations and relevant skills, experience and expertise of the Directors can be found on pages 14 - 16 of this report. As evidenced by this information, the Directors bring to the Board a broad range of experience and expertise.

CHAIRMAN AND CHIEF EXECUTIVE OFFICER (“CEO”)

Principle 3: Clear division of responsibilities at the top of the Company

The Board does not have a chairman on the Board of Directors. Responsibilities for various functions and departments in the Group are well defi ned. 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 infl uence.

BOARD MEMBERSHIP

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

The Nominating Committee (“NC”) has been tasked by the Board to identify, select and recommend individuals with the appropriate skills, expertise and experience for appointment, thereby ensuring a balanced and effective Board at all times.

Newly appointed Directors are provided with a training and induction programme, so as to familiarise him with the Group’s structure and its business.

The NC comprises of three Directors:

Mr Gay Chee Cheong (Chairman) Mr Teo Kiang KokMs Olivia Lum Ooi Lin

The primary function and duties of the NC are outlined as follows:

1. 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 salient factors);

2. to ensure that all Directors would be required to submit themselves for re-nomination and re-election at regular intervals and at least once in every three years;

3. to determine annually whether a Director is independent, in accordance with the independence guidelines in the Code;

4. to review whether a Director is able to and has adequately carried out his duties as a Director of the Company in particular where the Director concerned has multiple board representations; and

5. to consider how the Board’s performance may be evaluated and to propose objective performance criteria.

The NC conducts an annual review of Directors’ independence and based on the Code’s criteria for independence, the NC is of the view in respect of fi nancial year ended 31 December 2010, Mr Teo Kiang Kok, Mr Lee Joo Hai, Mr Gay Chee Cheong, Professor Tan Teck Meng, Mr Rajsekar Kuppuswami Mitta and Christopher Murugasu are deemed independent.

The NC has recommended the nomination of Directors retiring by rotation under the Company’s Articles of Association, namely, Mr Rajsekar Kuppuswami Mitta and Professor Tan Teck Meng.

In reviewing the nomination of the retiring directors, the NC 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.



111

BOARD PERFORMANCE

Principle 5: Formal assessment of the effectiveness of the Board and contributions by each Director.

The Code recommends that the NC be responsible for assessing the Board as a whole and the individual Directors’ contribution. The NC 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 NC in conducting the evaluation and appraisal process 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 processes and accountability, Board performance in relation to discharging its principal responsibilities and the Directors’ standards of conduct.

The Board is of the view that the fi nancial indicators, as set out in the Code as a guide for the evaluation of the Board and its Directors, may not be appropriate as they are more relevant as a form of measurement of the Management’s performance. The NC conducted a Board performance evaluation to assess the effectiveness of the Board throughout the fi nancial year ended 31 December 2010 and is satisfi ed that suffi cient effort, time and attention has been given by the Directors to the affairs of the Group.

ACCESS TO INFORMATION

Principle 6: Board members to have complete, adequate and timely information

The Board has separate and independent access to senior Management 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 minutes of meetings held by the Board and Board Committees, 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 the 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 POLICIES

Principle 7: Formal and transparent procedure for fi xing remuneration packages of Directors and senior management

The Remuneration Committee (“RC”) comprises of four Directors:

Professor Tan Teck Meng (Chairman)Mr Gay Chee Cheong Mr Lee Joo Hai Mr Christopher Murugasu

The RC is committed to the principles of accountability and transparency; and to ensuring that remuneration arrangements demonstrate a clear link between reward and performance.

The RC is responsible for ensuring a formal and transparent procedure for developing policy on executive remuneration, and for fi xing the remuneration packages of individual Directors and senior Management employees.

The RC’s review covers all aspects of remuneration including but not limited to, Directors’ fees, salaries, allowances, bonus, employees share options and benefi ts in kind and specifi c remuneration package for each Director.

In structuring a compensation framework for Executive Director and senior Management employees, the RC seeks to link a proportion of the compensation to the Group’s performance. Its recommendations 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 RC, when deemed necessary, may obtain expert advice with regard to remuneration matters.



112

LEVEL AND MIX OF REMUNERATION

Principle 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 members of the senior Management team.

The Executive Director does not receive Directors’ fees. The Executive Director and senior Management employees’ remuneration packages are based on service contracts and their remuneration is determined having due regard to the performance of the individuals, the Group as well as market trends.

Non-Executive Directors are paid yearly 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 REMUNERATION

Principle 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 for executive director and employees consists of both fi xed and variable components. The variable component is determined based on the performance of the individual employee and the Group’s performance in the relevant fi nancial year. Annual increments and adjustments to remuneration are reviewed and approved taking into account the outcome of the annual appraisal of the employees.

Non-Executive Directors are paid Directors’ fees that are subject to shareholders’ approval at the Company’s Annual General Meeting (“AGM”). The RC recommends a total Directors’ fees of $490,000 be paid to Non-Executive Directors for the fi nancial ended 31 December 2010. This will be tabled for the shareholders’ approval at the forthcoming AGM.

Details of the Directors receiving remuneration from the Group for the year ended 31 December 2009 and 2010 are set out as follows:

Number of DirectorsRemuneration band 2010 2009

Between S$1,500,000 to S$1,750,000 1 0Between S$250,000 to S$1,500,000 0 1Below S$250,000 6 7



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The following table sets out the summary compensation table for Directors and top fi ve key executives for the fi nancial year ended 31 December 2010:

Salary Bonus Fees

Employees’ Share option Scheme

Allowances and other benefi ts Total

DIRECTORSBetween S$1,500,000 to S$1,750,000Olivia Lum Ooi Lin 39% 55% 0% 4% 2% 100%

Below S$250,000Gay Chee Cheong 0% 0% 67% 33% 0% 100%Lee Joo Hai 0% 0% 69% 31% 0% 100%Teo Kiang Kok 0% 0% 64% 36% 0% 100%

Christopher Murugasu 0% 0% 64% 36% 0% 100%

Professor Tan Teck Meng 0% 0% 67% 33% 0% 100%

Rajsekar Kuppuswami Mitta 0% 0% 64% 36% 0% 100%

TOP FIVE KEY EXECUTIVES Between S$1,500,000 to S$1,750,000Olivia Lum Ooi Lin 39% 55% 0% 4% 2% 100%

S$1,000,000 to S$1,250,000Sam Ong 37% 44% 0% 15% 5% 100%

S$750,000 to S$1,000,000Cho Wee Peng 44% 43% 0% 11% 2% 100%

Below S$750,000Winnifred Heap 52% 31% 0% 15% 2% 100%Fong Chun Hoe 56% 30% 0% 12% 2% 100%Foo Hee Kiang 63% 22% 0% 3% 12% 100%

Immediate Family members of Directors

There are no immediate family members of Directors or controlling shareholders in employment with the Group and whose remuneration exceeds S$150,000 during fi nancial year ended 31 December 2010.

ACCOUNTABILITY

Principle 10: Board should present a balanced and understandable assessment of the Company’s performance, position and prospects

The Board promotes timely and balanced disclosure of all material matters concerning the Group. It 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 SGX-ST’s Listing Manual requirements and other relevant rules and regulations.

The Board is accountable to shareholders for the management of the Group and the Management is accountable to the Board by providing the Board with the necessary fi nancial information for the discharge of its duties.



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AUDIT COMMITTEE

Principle 11: Establishment of Audit Committee with written terms of reference

The Audit Committee (“AC”) comprises the following members:

Mr Lee Joo Hai (Chairman) Mr Gay Chee Cheong Mr Teo Kiang Kok Professor Tan Teck Meng

In accordance with the principles in the Code, the AC comprises of all Non-Executive Directors. The members of AC, collectively, have expertise and extensive experience in legal, accounting, fi nancial management and business, and are qualifi ed to discharge the AC’s responsibilities.

The primary functions of the AC are as follows:

1. assists the Board in discharging its statutory responsibilities on fi nancial and accounting matters;

2. reviews the fi nancial and operating results and accounting policies of the Group;

3. reviews signifi cant fi nancial reporting issues and judgments relating to fi nancial statements for each fi nancial year, interim and annual results announcement before submission to the Board for approval;

4. reviews the adequacy of the Company’s internal control (fi nancial and operational) and risk management policies and systems established by the Management;

5. reviews the audit plans and reports of the external and internal auditors and consider the effectiveness of the actions taken by Management on the auditors’ recommendations;

6. appraises and reports to the 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;

7. reviews 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; and

8. reviews interested person transactions, as defi ned in the Listing Manual of the SGX-ST.

In fulfi lling its responsibilities, the AC receives regular reports from the Management and the external auditors, KPMG LLP. The AC has full access to and co-operation of the Management and meets with KPMG LLP in private at least once a year, and more frequently if necessary.

The AC has explicit authority within the scope of its responsibilities to seek any information it requires or investigate any matter within its terms of reference. The AC has adequate resources to enable it to discharge its responsibilities properly.

The Group has put in place a confi dential communication programme as endorsed by the AC. Employees may, in confi dence, raise concerns about possible corporate improprieties in matters of fi nancial reporting or other matters and to ensure that arrangements are in place for the independent investigations of such matters and for appropriate follow up actions. The details of the confi dential communication programme and arrangements have been made available to all employees.



115

INTERNAL CONTROLS

Principle 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 AC 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 fi nancial information, compliance with appropriate legislation, regulation and best practice, and the identifi cation and containment of business risks.

The Group regularly reviews and improves its business and operational activities to identify areas of signifi cant business risks as well as taking appropriate measures to control and mitigate these risks. The Group reviews all signifi cant control policies and procedures and highlights all signifi cant matters to the AC and the Board. The fi nancial risk management objectives and policies are outlined in the fi nancial statements. Risk Management alone does not guarantee that business undertakings will not fail. However, by identifying and managing risks that may arise, the Group is in a position to make more informed decisions and will benefi t from a better balance between risk and reward. This will assist in protecting and creating shareholders’ value.

Based on the information provided to the AC, it is not aware of any issues causing it to believe that the system of internal controls and risk management as inadequate.

INTERNAL AUDIT

Principle 13: Setting up independent internal audit function

The Group has put in a place a dedicated team of internal auditors. The internal audit function includes reviewing the effectiveness of the material internal controls of the Group. The Internal Audit Director reports directly to the Chairman of the AC and has an appropriate standing within the Group. The AC meets with the Internal Auditor in private at least once a year. The AC also ensures that the internal audit function is adequately resourced, and reviews annually the adequacy of the internal audit function. The internal audit team meets the standards set by nationally and 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 provides reasonable assurance that the risks incurred by the Group in each major activity will be identifi ed, 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 SHAREHOLDERS

Principle 14: Regular, effective and fair communication with shareholders

Principle 15: Shareholders’ participation at AGM

The Company is committed to regular and proactive communication with its shareholders. It aims to provide shareholders with clear, balanced, useful and material information on a timely basis to ensure that shareholders receive a balanced and up-to-date 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 publicly as soon as practicable. Communication is made through:

1. 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 required by the Companies’ Act, Chapter 50, and Singapore Statements of Accounting Standards;

2. quarterly and full-year fi nancial statements comprising a summary of the fi nancial information and affairs of the Group for the relevant period;

3. explanatory memoranda for AGM and extraordinary general meetings;



116

4. press releases on major developments of the Group;

5. disclosures to the SGX-ST via SGXNET; and

6. the Group’s website at www.hyfl ux.com at which shareholders can access information on the Group at all times.

In addition, shareholders are encouraged to attend the Company’s AGM to ensure a high level of accountability and to stay informed of the Group’s strategies and growth.

In accordance with the principles in the Code, the full Board of Directors and the external auditor in offi ce are required to attend the Company’s AGM and will address any question raised at the meeting. The Group fully supports the Code’s principle to encourage active shareholder participation.

RISK MANAGEMENT COMMITTEE

The Risk Management Committee (“RMC”) comprises the following members:-

Mr Rajsekar Kuppuswami Mitta (Chairman)Mr Christopher MurugasuMr Lee Joo Hai Mr Teo Kiang Kok

The functions of the RMC are as follows:

1. to review with Management, and, where needed, with external consultants on areas of risk that may affect the viability and smooth operations of the Company, as well as Management’s risk mitigation efforts, with the view of safeguarding shareholder’s interest and Group assets;

2. to direct and work with Management to develop and review policies and processes to address and manage identifi ed areas of risk in a systematic and structured manner;

3. to make recommendations to the Board in relation to business risks that may affect the Company, as and when these may arise;

4. to review new investments; and

5. to perform any other functions as may be agreed by the Board.

Executive Committee

As part of the streamlining of decision-making measures, the Board dispensed with the Executive Committee in February 2010.

Management Committee

The members of the Management Committee for fi nancial year ending 31 December 2010 are:

Ms Olivia Lum Ooi Lin (Chairman)Mr Sam OngMr Cho Wee PengMs Winnifred HeapMr Fong Chun HoeMr Foo Hee Kiang



117

DEALING IN SECURITIES

The 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 offi cers in relation to their dealings in the Company’s securities. Its offi cers 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 offi cers 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.

MATERIAL CONTRACTS

There are no material contracts of the Company or its subsidiaries involving the interests of the Group CEO, each Director or controlling shareholders, either still subsisting at the end of the fi nancial year or entered into since the end of the previous fi nancial year.

INTERESTED PARTY TRANSACTION

The Group has established procedures to ensure that all transactions with interested persons are reported on a timely manner to the AC and that the transactions are at arm’s length basis. All interested person transactions are subject to review by the AC to ensure compliance with the established procedures.



118

Supplementary Information

INTERESTED PARTY TRANSACTION

The Group has established procedures to ensure that all transactions with interested persons are reported on a timely manner to the AC and that the transactions are at arm’s length basis. All interested person transactions are subject to review by the AC to ensure compliance with the established procedures.

Name of interested person

Aggregate value of all interested person transactions

during the fi nancial year under review (excluding transactions

conducted under shareholders' mandate pursuant to Rule 920 under SGX-ST Listing Manual)

Aggregate value of all interested person transactions

conducted under shareholders' mandate pursuant to Rule 920 under SGX-ST Listing Manual

Shook Lin & Bok S$3,000 in respect of professional services rendered

Nil

Gay Chee Cheong S$774,000 in respect of consideration paid for 2.15% of interest held by him

in a subsidiary of the Company

Nil


119

Supplementary Information (cont’d)

Major properties held for development

Description LocationSite area

(sqm) Intended use

Approximate total lettable

area (sqm)Stage of completion

Expected date of completion

Group effective interest

(%)

Factory and warehouse building

8 Tuas South Lane Singapore 637302

77,172 Commercial 19,000 59% 3rd Quarter of 2011

100

Offi ce and factory building

Bendemeer Road 17,174 Commercial 34,800 6% 1st Quarter of 2012

100

Description LocationSite area

(sqm) Existing use

Approximate total lettable

area (sqm)

Group’s effective

interest (%) Tenure

Other major properties


5 Changi South Street 1 Singapore 486764

10,472 Commercial 5,630 100 60 years commencing

from 1 March 1997

Factory building No. 99 Juli Road Zhangjiang High-Tech Park Pudong Shanghai, China 201203

8,297 Commercial 7,647 100 50 years commencing from 26 April

2001


8# Factory in EPZ, 9# Yang Zi Jiang South Road, Yangzhou Jiangsu Province, China

18,040 Commercial 23,115 100 50 years commencing

from 2007


No 99 Tai Zhen Road, Bin Jiang Industrial Park, Taizhou Economic Development Zone, Taizhou City, JiangSu Province, China

25,959 Commercial 12,980 100 50 years commencing from 12 June

1994

Offi ce building 1307-1309 Centre Plaza 188, Jiefangbei HePing District Tianjin, China 300042

384 Commercial 232 100 50 years commencing from 12 June

1994


Long Gang District, Beigang Industrial Park, Long Cheng Road, Huludao City, Liaoning Province, China 125003

112,555 Commercial 93,565 100 50 years commencing 31 October

2006


120

Statistics of Shareholdings as at 14 March 2011

SHARE CAPITAL

Class of shares : Ordinary shares Voting rights : One vote per share Total number of issued shares : 860,347,364 No. of issued shares (excluding Treasury Shares) : 859,847,364 No. of Treasury Shares and percentage : 500,000 (0.06%)

DISTRIBUTION OF SHAREHOLDINGS

Size of Shareholdings No. of Shareholders % No. of Shares %

1 - 999 256 1.92 128,768 0.021,000 - 10,000 10,542 78.95 45,496,008 5.2910,001 - 1,000,000 2,525 18.91 78,180,193 9.091,000,001 and above 30 0.22 736,042,395 85.60Total 13,353 100.00 859,847,364 100.00

TWENTY LARGEST SHAREHOLDERS

S/No. Name No. of Shares %

1. Olivia Lum Ooi Lin 252,351,211 29.352. Citibank Nominees Singapore Pte Ltd 147,771,447 17.193. DBS Nominees Pte Ltd 138,727,695 16.134. HSBC (Singapore) Nominees Pte Ltd 53,458,254 6.225. DBSN Services Pte Ltd 19,524,377 2.276. Nomura Singapore Limited 16,226,000 1.897. United Overseas Bank Nominees Pte Ltd 15,481,863 1.808. Raffl es Nominees (Pte) Ltd 14,840,045 1.739. Murugasu Deirdre 12,306,267 1.4310. DB Nominees (S) Pte Ltd 10,893,414 1.2711. Morgan Stanley Asia (Singapore) Securities Pte Ltd 8,616,457 1.0012. OCBC Securities Private Ltd 4,458,021 0.5213. Merrill Lynch (Singapore) Pte Ltd 4,432,937 0.5214. UOB Kay Hian Pte Ltd 4,385,405 0.5115. Phillip Securities Pte Ltd 3,991,180 0.4616. Foo Hee Kiang 3,976,368 0.4617. Yong Siew Yoon 3,000,000 0.3518. OCBC Nominees Singapore Private Limited 2,616,427 0.3019. Koh Lip Lin 2,386,183 0.2820. BNP Paribas Securities Services Singapore Pte Ltd 2,307,831 0.27

Total 721,751,382 83.95

Approximately 63.58% of the Company’s shares are held in the hands of the public.Accordingly, the Company has complied with Rule 723 of the Listing Manual of SGX-ST.


121

Substantial Shareholders as at 14 March 2011

Name of Shareholder Direct Interest Deemed Interest %

Olivia Lum Ooi Lin 252,351,211 15,000,0001 31.09Mondrian Investment Partners Limited

– 43,463,2482 5.05

Note:

¹ Shares held in the name of nominees.

² Mondrian Investment Partners Limited (“Mondrian”) is a London-based discretionary investment manager. In respect of assets managed under investment management agreement between Mondrian and its clients, various clients (in this regard) are the benefi cial owners of holdings which are held in custody by the client’s own appointed custodian.


122

Hyflux Group of Companies

SingaporeAcquaSpring Utility (Benghazi) Pte LtdAcquaSpring Utility (S) Pte LtdAcquaSpring Utility (Tobruk) Pte LtdAcquaSpring Utility (Tripoli East) Pte LtdEfl ux Singapore Pte LtdEfl ux SK Pte Ltd (in Members’ Voluntary liquidation)Efl ux Vietnam Pte LtdEnergy Life Pte LtdGalaxy NewSpring Pte Ltd Galaxy NewSpring Capital Pte Ltd Galaxy Operation and Management Pte Ltd H.J. Technical Consultant Pte LtdHydrochem Engineering (S) Pte LtdHydrochem (S) Pte LtdHyfl ux Asset Management Pte LtdHyfl ux Aquosus (Singapore) Pte LtdHyfl ux Capital (Singapore) Pte LtdHyfl ux Consumer Products Pte LtdHyfl ux Energy Pte LtdHyfl ux Engineering Pte LtdHyfl ux EPC Pte LtdHyfl ux Filtech (Singapore) Pte LtdHyfl ux Filtration (S) Pte LtdHyfl ux Innovation Centre Pte LtdHyfl ux International Engineering Pte LtdHyfl ux IP Resources Pte LtdHyfl ux Lifestyle Products (S) Pte LtdHyfl ux Management and Consultancy Pte LtdHyfl ux Marmon Development Pte LtdHyfl ux Membrane Manufacturing (S) Pte LtdHyfl ux SIP Pte LtdHyfl ux Utility (India) Pte LtdHyfl ux Utility (Indonesia) Pte LtdHyfl ux Utility WT (HCWT) Pte LtdHyfl ux Utility WTP (DZ) Pte LtdHyfl ux Utility WTP (FN) Pte Ltd Hyfl ux Utility WWT (HCHX) Pte LtdHyfl ux Utility WWT (HCWT) Pte LtdHyfl ux Utility WWT (ZY) Pte LtdHyfl ux Utility WWTP (LP) Pte LtdHyfl ux Water Trust Management Pte LtdHyfl uxShop Pte LtdMarmon Hyfl ux Investments Pte LtdMenaSpring Utility (S) Pte LtdMenaSpring Utility (Tlemcen) Pte LtdNewSpring Utility Pte LtdSinolac (Singapore) Pte LtdTuaSpring Pte Ltd

ChinaBeijing Shouren Water Engineering & Technology Co., LtdEfl ux Resources (Taizhou) Co., LtdGalaxy Operation and Management (Shanghai) Co., LtdHydrochem Engineering (Shanghai) Co., LtdHyfl ux (Tianjin) Sewage Disposal Co., LtdHyfl ux Design Engineering (Shanghai) Co., LtdHyfl ux Engineering (Shanghai) Co., LtdHyfl ux Filtech (Shanghai) Co., LtdHyfl ux Hi-tech Product (Yangzhou) Co., LtdHyfl ux Investment Management & Consultancy (Tianjin) Co., LtdHyfl ux NewSpring (Changshu) Co., LtdHyfl ux NewSpring (Dafeng) Co., LtdHyfl ux NewSpring (Dafeng North) Co., LtdHyfl ux NewSpring (Dezhou) Co., LtdHyfl ux NewSpring (Funing) Co., LtdHyfl ux NewSpring (Guanyun) Co., Ltd

Hyfl ux NewSpring (Jiawang) Co., LtdHyfl ux NewSpring (Leping) Co., LtdHyfl ux NewSpring (Liaoyang) Co., LtdHyfl ux NewSpring (LiaoYangGongChangLing) Co., LtdHyfl ux NewSpring (Nantong) Co., LtdHyfl ux NewSpring (Nantong) WT Co., LtdHyfl ux NewSpring (Nantong) WWT Co., LtdHyfl ux NewSpring (Taizhou) Co., LtdHyfl ux NewSpring (Taoyuan) Co., LtdHyfl ux NewSpring (Tianjin) Co., LtdHyfl ux NewSpring (Tiantai) Co., LtdHyfl ux NewSpring (Wuxi) Co., LtdHyfl ux NewSpring (Yangzhou) Co., LtdHyfl ux NewSpring (Zunhua) Co., LtdHyfl ux NewSpring Construction Engineering (Shanghai) Co., LtdHyfl ux NewSpring Sewage Disposal (Jiawang) Co. LtdHyfl ux NewSpring Sewage Disposal (Rudong) Co., LtdHyfl ux NewSpring Sewage Disposal (Wuxi) Co., LtdHyfl ux NewSpring Waste Water Treatment (Funing) Co., LtdHyfl ux NewSpring Waste Water Treatment (Guanyun) Co., LtdHyfl ux NewSpring Waste Water Treatment (Leping) Co., LtdHyfl ux NewSpring Water Treatment (Linyi) Co., LtdHyfl ux NewSpring Water Treatment (Minguang) Co., LtdHyfl ux NewSpring Waste Water Treatment (Mingguang) Co., LtdHyfl ux Salt Industry Technology Development (Tianjin) Co., LtdHyfl ux Unitech (Shanghai) Co., LtdHyfl uxshop (Shanghai) Co., LtdKunshan Eco Water Systems Co., LtdLangfang Hyfl ux NewSpring Co., LtdNingxia Hypow Bio-Technology Co., LtdSinolac (Huludao) Biotech Co., LtdTaizhou Kairunda Used Oil Collection Co., LtdTianjin Dagang NewSpring Co., Ltd

Hong KongH.J. NewSpring LimitedHyfl ux Utility (DF) LimitedHyfl ux Utility (HLD) LimitedHyfl ux Utility (LP) LimitedHyfl ux Utility (PJ) LimitedHyfl ux Utility (TJ) LimitedHyfl ux Utility (TY) LimitedHyfl ux Utility (WX) LimitedHyfl ux Utility (YK) LimitedHyfl ux Utility (YL) LimitedHyfl ux Ut T (YKG) LimitedHyfl ux Utility WT (YL) LimitedHyfl ux Utility WTP (GY) LimitedHyfl ux Utility WWT (BC) LimitedHyfl ux Utility WWT (GY) LimitedHyfl ux Utility WWT (MG) LimitedHyfl ux Utility WWT (XC) LimitedHyfl ux Utility WWT (YKG) LimitedHyfl ux Utility WWT (YL) LimitedHyfl ux Utility WWTP (GY) Limited

British Virgin IslandsHyfl ux Advanced Technology LtdHyfl ux International LtdHyfl ux Utility LtdHyfl ux Water Projects Ltd

IndoSpring Utility LtdSinoSpring Utility LtdSpring China Utility LtdSpring Environment LtdSpring Utility Ltd

EuropeFranceTlemcen Desalination Investment Company SAS

NetherlandsHyfl ux CEPAration B.V.Hyfl ux CEPAration Technologies (Europe) B.V.

Netherlands AntillesHyfl ux CEPAration N.V.

IndiaEfl ux Oil India Pvt LimitedHyfl ux Engineering (India) Pvt LtdHyfl ux Lifestyle Products (India) Pvt Ltd

MalaysiaHyfl ux (Malaysia) Sdn Bhd

MENAAlgeriaAlmiyah Attilemcania SPAHyfl ux Engineering Algeria EURLHyfl ux Operations & Maintenance Algeria EURLHyfl ux-TJSB Algeria SPATahlyat Myah Magtaa SPA

Saudi ArabiaLube Oil Re-refi ning Company

VietnamEfl ux Success Blossom Company Ltd

Cayman IslandsHyfl ux Asset Investment (CWF) LtdHyfl ux Asset Management (CWF) Ltd


123

CorporateInformation

Audit CommitteeLee Joo Hai (Chairman)Teo Kiang KokGay Chee CheongProfessor Tan Teck Meng

Nominating CommitteeGay Chee Cheong (Chairman)Olivia Lum Ooi LinTeo Kiang Kok

Remuneration CommitteeProfessor Tan Teck Meng (Chairman)Gay Chee CheongLee Joo HaiChristopher Murugasu

Risk Management CommitteeRajsekar Kuppuswami Mitta (Chairman)Christopher MurugasuTeo Kiang KokLee Joo Hai

Management Committee Olivia Lum Ooi Lin (Chairman)Sam Ong Cho Wee PengWinnifred HeapOon Jin TeikAndrew NgiamFoo Hee KiangPeter Wu

Company SecretaryLim Poh Fong

Registered OfficeHyfl ux Building202 Kallang BahruSingapore 339339Tel : +65 6214 0777Fax : +65 6214 1211

Registrar Boardroom Corporate & Advisory Services Pte Ltd50 Raffl es Place#32-01 Singapore Land TowerSingapore 048623

AuditorsKPMG LLP16 Raffl es Quay #22-00Hong Leong Building Singapore 048581

Partner-in-charge (since 2010):Lau Kam Yuen

BankersAgricultural Bank of China Limited, Singapore Branch7 Temasek Boulevard #30-01/02/03 Suntec Tower 1 Singapore 038987

Arab Bank Plc80 Raffl es Place#32-20 UOB Plaza 2Singapore 048624

Arab Banking Corporation (B.S.C)9 Raffl es Place#60-03 Republic PlazaSingapore 048619

Australia and New Zealand Banking Group Limited1 Rafl les Place #32-00 One Raffl es Place Singapore 048616

Bangkok Bank Public Company Limited180 Cecil StreetBangkok Bank BuildingSingapore 069546

Bank of China Limited, Singapore Branch4 Battery Road, 15th Floor Bank of China Building Singapore 049908

Bank of Communications Co., Ltd, Singapore Branch50 Raffl es Place #18-01 Singapore Tower Singapore 048623

Bank of Taiwan, Singapore Branch80 Rafl les Place#28-20 UOB Plaza 2Singapore 048624

BNP Paribas, Singapore Branch20 Collyer QuayTung CentreSingapore 049319

Chang Hwa Commercial Bank Ltd, Singapore BranchNo. 1 Finlayson Green, #08-00Singapore 049246

Chinatrust Commercial Bank Co., Ltd, Singapore Branch1 Raffl es Place #29-02/03 One Raffl es Place Singapore 048616

CIMB Bank Berhad (ex-Bumiputra-Commercial Bank), Singapore Branch50 Raffl es Place#09-01 Singapore Land TowerSingapore 048623

Citibank, N.A.3 Temasek Avenue #10-01 Centennial Tower Singapore 039190

Credit Agricole Corporate & Investment Bank, Singapore Branch168 Robinson Road#22-01 Capital TowerSingapore 068912

DBS Bank Ltd6 Shenton WayDBS Building Tower OneSingapore 068809

Deutsche Bank AG, Singapore BranchOne Raffl es Quay#16-00 South TowerSingapore 048583

First Commercial Bank, Singapore Branch77 Robinson Road #01-01 Singapore 068896

Hua Nan Commercial Bank, Ltd., Singapore Branch80 Robinson Road, #14-03Singapore 068898

ING Bank N.V., Singapore Branch9 Raffl es Place, #19-02 Republic Plaza, Singapore 048619

Land Bank of Taiwan, Singapore Branch80 Raffl es Place#34-01 UOB Plaza 1Singapore 048624

Mega International Commercial Bank Co.,Ltd. (ex-ICBC), Singapore Branch80 Raffl es Place#23-20 UOB Plaza IISingapore 048624

Mizuho Corporate Bank, Ltd., Singapore Branch168 Robinson RoadCapital Tower #13-00Singapore 068912

Natixis, Singapore Branch50 Raffl es Place#41-01 Singapore Land TowerSingapore 048623

Norddeutsche Landesbank Girozentrale, Singapore Branch6 Shenton Way #16-00 DBS Building Tower 2 Singapore 068809

Overseas Chinese Banking Corporation Limited65 Chulia StreetOCBC CentreSingapore 049513

Rabobank International, Singapore Branch77 Robinson Road#09-00 SIA BuildingSingapore 068896

Standard Chartered Bank6 Battery Road, Level 23Singapore 049909

State Bank of India6 Shenton Way#22-08 DBS Building Tower 2Singapore 068809

Sumitomo Mitsui Banking Corporation3 Temasek Avenue #06-01 Centennial Tower Singapore 039190

The Bank of East Asia Limited, Singapore Branch137 Market StreetBEA BuildingSingapore 048943

The Bank of Tokyo-Mitsubishi UFJ, Ltd9 Raffl es Place #01-01 Republic Plaza Singapore 048619

The Royal Bank of Scotland PlcLevel 23, One Raffl es QuaySouth TowerSingapore 048583

United Overseas Bank Limited1 Raffl es PlaceOUB CentreSingapore 048616

Hyflux Ltd Annual Report 2010

124

NOTICE IS HEREBY GIVEN that the Annual General Meeting of Hyflux Ltd (“Company”) will be held at 202 Kallang Bahru, Hyflux Building, Singapore 339339 on 27 April 2011 at 2.00p.m. for the following purposes:

AS ORDINARY BUSINESS

Resolution 1

To receive and adopt the Directors’ Report and the Audited Accounts for the year ended 31 December 2010 together with the Auditors’ Report thereon.

Resolution 2

To declare a final dividend of 3.5 Singapore cents per ordinary share (one-tier tax exempt) for the year ended 31 December 2010 (previous year: 3.33 Singapore cents per ordinary share – restated to include one-for-two bonus share issue).

Resolution 3

To re-elect Mr. Rajsekar Kuppuswami Mitta who retires in accordance with Article 89 of the Company’s Articles of Association and who, being eligible, offers himself for re-election.

Resolution 4

To re-elect Professor Tan Teck Meng who retires in accordance with Article 89 of the Company’s Articles of Association and who, being eligible, offers himself for re-election.

Resolution 5

To approve the payment of Directors’ fees of S$490,000 for the year ended 31 December 2010 (previous year: S$576,667).

Resolution 6

To re-appoint Messrs KPMG LLP as external auditors and to authorise the Directors to fix their remuneration.

AS SPECIAL BUSINESS

To consider and if thought fit, to pass the following resolutions as Ordinary Resolutions, with or without any modifications:

Resolution 7

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 “Listing Manual”) the Directors be authorised and empowered to:

(a) (i) issue shares in the Company (“shares”) whether by way of rights, bonus or otherwise; 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 may in their absolute discretion deem fit; and

(b) issue shares in pursuance of any Instrument made or granted by the Directors while this Resolution was in force (notwithstanding the authority conferred by this Resolution may have ceased to be 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);

Notice of Annual General Meeting


125

(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 (excluding treasury shares) at the time of the passing of this Resolution, after adjusting for:

(a) new shares arising from the conversion or exercise of the Instruments or any convertible securities;

(b) new shares arising from the exercising of share options or vesting of share awards outstanding and subsisting at the time of the passing of this Resolution; and

(c) any subsequent bonus issue 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 for the time being in force (unless such compliance has been waived by the Singapore Exchange Securities Trading Limited) and the Articles of Association of the Company; and

(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.

Resolution 8

That:

(1) authority be and is hereby given to the Directors to:

(a) allot and issue preference shares referred to in Articles 8C and 8E of the Articles of Association of the Company in the capital of the Company whether by way of rights, bonus or otherwise; and/or

(b) make or grant offers, agreements or options that might or would require preference shares referred to in sub-paragraph (a) above to be issued, not being ordinary shares to which the authority referred to in Resolution 7 above relates,

at any time and upon such terms and conditions and for such purposes and to such persons as the Directors may in their absolute discretion deem fit, and (notwithstanding the authority conferred by this Resolution may have ceased to be in force) issue preference shares referred to in sub-paragraph (a) above in pursuance of any offers, agreements or options made or granted by the Directors while this Resolution was in force; and

(2) (unless revoked or varied by the Company in General Meeting) the authority conferred by this Resolution shall 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.

Resolution 9

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 (“Scheme”) and (notwithstanding the authority conferred by this Resolution may have ceased to be in force) 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, 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.

Notice of Annual General Meeting (cont’d)


126

Resolution 10

That the Directors of the Company be and are hereby authorised to make purchases of issued and fully-paid ordinary shares in the capital of the Company from time to time (whether by way of market purchases or off-market purchases on an equal access scheme) of up to ten per centum (10%) of the issued ordinary shares in the capital of the Company (ascertained as at the date of the last Annual General Meeting of the Company or at the date of the EGM, whichever is the higher, but excluding any shares held as treasury shares) at the price of up to but not exceeding the Maximum Price as defined in the Company’s Circular dated 4 April 2008 and in accordance with the Guidelines on Share Purchase set out in Appendix 1 of the said Circular and this mandate shall, unless revoked or varied by the Company in general meeting, continue in force until the conclusion of the next Annual General Meeting of the Company is held or is required by law to be held, whichever is earlier.

To transact any other ordinary business which may properly be transacted at an Annual General Meeting.

By Order of the Board

Lim Poh FongCompany SecretarySingapore, 11 April 2011



127


Explanatory 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. 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.

(2) In relation to Resolution 3, Mr. Rajsekar Kuppuswami Mitta, will upon re-election as a Director of the Company, remain as Chairman of the Risk Management Committee and is considered a non-executive and independent director.

(3) In relation to Resolutions 4, Professor Tan Teck Meng will, upon re-election as a Director of the Company, remain as Chairman of the Remuneration Committee and a member of the Audit Committee and is considered non-executive and independent director.

(4) Ordinary Resolution 7 has been proposed for voting annually at the Company’s AGM since 2002. Pursuant to Section 161 of the Companies Act, Cap. 50 and Rule 806 of the Listing Manual of the Singapore Exchange Securities Trading Limited, and upon passing of this Ordinary Resolution, the Directors will be empowered from the date of this Meeting until the date of the next AGM, or the date by which the next AGM is required by law to be held or such authority is varied or revoked by the Company in a general meeting, whichever is the earliest, 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. In 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.

(5) Ordinary Resolution 8 relates to the renewal of the preference share issue mandate, which was approved by the shareholders on 31 March 2011. Upon passing of this Ordinary Resolution, the Directors will be empowered from the date of this Meeting until the date of the next AGM, or the date by which the next AGM is required by law to be held or such authority is varied or revoked by the Company in a general meeting, whichever is the earliest, to issue new preference share shares and/or make or grant offers, agreements or options that might or would require such preference shares to be issued, provided that the aggregate number of preference shares does not exceed 20% of the total number of issued shares (excluding treasury shares) in the capital of the Company at the time of passing of this Ordinary Resolutions and such issue be on such other terms and condition as the Directors may deem fit.

(6) Ordinary Resolution 9 has been proposed for voting and passed annually since 2002. The Directors believe that an appropriate remuneration package is required to recruit, retain and reward talents for performance. Pursuant to Section 161 of the Companies Act, Cap. 50 and upon passing of the Ordinary Resolutions, the Director will be empowered, from the date of this Meeting until the next AGM, or the date by which the next AGM is required by law to be held or such authority is varied or revoked by the Company in a general meeting, whichever is the earliest, 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.

(7) Ordinary Resolution 10 relates to the renewal of the share purchase mandate, which was originally approved by the shareholders on 25 April 2008. Ordinary Resolution 9, if passed, will empower the Directors of the Company from the date of this Meeting until the next AGM, or the date by which the next AGM is required by law to be held, whichever is the earlier, to purchase ordinary shares of the Company by way of market purchases or off-market purchases of up to 10% of the total number of issued shares in the capital of the Company at the Maximum Price as defined in the Company’s Circular dated 4 April 2008. Please refer to Appendix 1 of this Notice of AGM for details.


128

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 5 May 2011 for the preparation of dividend warrants.

Duly completed registrable transfers received by the Company’s Share Registrar, Boardroom Corporate & Advisory Services Pte. Ltd., 50 Raffles Place, #32-01, Singapore Land Tower, Singapore 048623 up to 5.00 p.m. on 5 May 2011 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 5 May 2011 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 27 April 2011, will be made on 20 May 2011.

Notice of Books Closure


129

Appendix 1

SUMMARY SHEET FOR RENEWAL OF SHARES PURCHASE MANDATE

The SGX-ST assumes no responsibility for the correctness of any of the statements made, reports contained or opinions expressed in this Appendix. If you are in doubt as to the action that you should take, you should consult your stockbroker or other professional adviser immediately.

(A) SHARES PURCHASED IN THE PREVIOUS TWELVE MONTHS

Pursuant to the Shares Purchase Mandate obtained at the Annual General Meeting on 30 April 2010, the Company had not bought back any ordinary shares in the capital of the Company (the “Shares”) by way of market or off-market acquisitions.

(B) RENEWAL OF THE SHARES PURCHASE MANDATE

The Ordinary Resolution No. 10 if passed at the Annual General Meeting, will renew the Shares Purchase Mandate approved by the shareholders of the Company from the date of the Annual General Meeting until the date that the next annual general meeting of the Company is held or is required by law to be held, whichever is the earlier.

(C) RATIONALE FOR THE SHARES PURCHASE MANDATE

Short-term speculation may at times cause the market price of the Company’s Shares to be depressed below the true value of the Company and the Group. The proposed Shares Purchase Mandate will provide the Directors with the means to restore investors’ confidence and to protect existing shareholders’ investments in the Company in a depressed share-price situation through judicious Shares purchases to enhance the earnings per Share and/or the net asset value per Share. The Shares purchases will enhance the net asset value per Share if the Shares purchases are made at a price below the net asset value per Share.

The proposed Shares Purchase Mandate will also provide the Company with an expedient and cost-effective mechanism to facilitate the return of surplus cash reserves to the shareholders, as and when the Directors are of the view that this would be in the best interests of the Company and the shareholders.

The Directors will only make a Shares purchase as and when the circumstances permit and only if the Directors are of the view that such purchases are in the best interests of the Company and the shareholders. The Directors will decide whether to purchase Shares only after taking into account, among other things, the market conditions at such time, the Company’s financial condition and whether such purchases will cause the Company to become insolvent (i.e. the Company is unable to pay its debts as they become due in the ordinary course of business, or the value of the Company’s assets is less than the value of its liabilities including contingent liabilities), and whether such purchases represent the most efficient and cost-effective approach to enhance Share value. Shares purchases will only be made if the Directors believe that such purchases are likely to benefit the Company and increase economic value for shareholders.

The Directors will ensure that the Shares purchases will not have any effect on the listing of the Company’s securities including the Shares listed on the Singapore Exchange Securities Trading Limited (the “SGX-ST”). Rule 723 of the Listing Manual of the SGX-ST requires at least ten per cent (10%) of any class of a company’s listed securities to be held by the public at all times. The Directors shall safeguard the interests of public shareholders before undertaking any Shares purchases. Before exercising the Shares Purchase Mandate, the Directors shall at all times take due cognisance of (a) the then shareholding spread of the Company in respect of the number of Shares held by substantial shareholders and by non-substantial shareholders and (b) the volume of trading on the SGX-ST in respect of the Shares immediately before the exercise of any Shares purchase.

Currently, 546,491,562 Shares (63.58%) of a total of 859,847,364 Shares issued by the Company are held by 13,345 public shareholders. The Company is of the view that there is sufficient number of Shares in issue held by public shareholders which would permit the Company to undertake Shares purchases of up to ten per cent (10%) of its issued ordinary share capital without affecting the listing status of the Shares on the SGX-ST. The Company will ensure that the Shares purchases will not cause market illiquidity or affect orderly trade.

(D) FINANCIAL IMPACT OF THE PROPOSED SHARES PURCHASES

1. The purchased Shares shall be cancelled immediately on purchase or acquisition unless held in treasury in accordance with Section 76H of the Companies Act (Cap. 50) (the “Act”). Section 76H of the Act allows purchased Shares to be:


130

(i) held by the Company; or

(ii) dealt with, at any time, in accordance with Section 76K of the Act, as Treasury Shares.

Section 76K of the Act allows the Company to:

(i) sell the Shares (or any of them) for cash;

(ii) transfer the Shares (or any of them) for the purposes of or pursuant to an employees’ share scheme;

(iii) transfer the Shares (or any of them) as consideration for the acquisition of shares in or assets of another company or assets of a person; or

(iv) cancel the Shares (or any of them).

The aggregate number of Shares held as Treasury Shares shall not at any time exceed ten per cent (10%) of the total number of Shares at that time. Any Shares in excess of this limit shall be disposed of or cancelled in accordance with Section 76K of the Act within six (6) months.

Any Shares purchases will:

(i) reduce the amount of the Company’s share capital where the Shares were purchased or acquired out of the capital of the Company;

(ii) reduce the amount of the Company’s profits where the Shares were purchased or acquired out of the profits of the Company; or

(iii) reduce the amount of the Company’s share capital and profits proportionately where the Shares were purchased or acquired out of both the capital and the profits of the Company;

by the total amount of the purchase price paid by the Company for the Shares cancelled.

The Company cannot exercise any right in respect of Treasury Shares. In particular, the Company cannot exercise any right to attend or vote at meetings and for the purposes of the Act, the Company shall be treated as having no right to vote and the Treasury Shares will be treated as having no voting rights.

2. The financial effects on the Company and the Group arising from the proposed purchases of the Company’s Shares which may be made pursuant to the proposed Shares Purchase Mandate will depend on, inter alia, the aggregate number of Shares purchased and the consideration paid at the relevant time.

3. Based on the existing issued and paid-up share capital of the Company as at 14 March 2011 (the “Latest Practicable Date”), the proposed purchases by the Company of up to a maximum of ten per cent (10%) of its issued share capital under the Shares Purchase Mandate will result in the purchase of 85,984,736 Shares.

4. An illustration of the impact of Shares purchases by the Company pursuant to the Shares Purchase Mandate on the Group’s and the Company’s financial position is set out below based on the following assumptions:

(a) audited accounts of the Group and the Company as at 31 December 2010;

(b) in full exercise of the Shares Purchase Mandate, 85,984,736 Shares were purchased;

(c) the maximum price for the market purchases is $2.1525 per Share, which is five per cent (5%) above the average closing prices of the Shares over the last five market days preceding the Latest Practicable Date on which the transactions in Shares were recorded on the SGX-ST; and

(d) the maximum amount of funds required for the Shares purchases in the aggregate is $185,082,145.

Appendix 1 (cont’d)


131

Market Purchases and Off-Market Purchases and held as Treasury Shares or cancelled

Group before Shares

purchase($’000)

Group after Shares

purchase($’000)

Company before Shares

purchase($’000)

Company after Shares

purchase($’000)

As at 31 December 2010Shareholders’ funds 502,501 317,419 258,856 73,774Net assets value 514,507 329,425 258,856 73,774Current assets 693,694 508,612 676,466 491,384Current liabilities 315,949 315,949 128,910 128,910Cash and cash equivalents 222,286 37,204 65,656 (119,427)Number of shares (‘000) 857,931 771,946 857,931 771,946

Financial RatiosNet assets value per share (cents) 58.57 41.12 30.17 9.56Earnings per share (cents) 10.52 11.71 2.42 2.70Gearing (%) 0.73 1.71 1.66 8.34Current ratio 2.20 1.61 5.25 3.81

5. Shareholders should note that the financial effects set out above are based on the audited financial accounts of the Group and the Company for the financial year ended 31 December 2010 and are for illustration only. The results of the Group and the Company for the financial year ended 31 December 2010 may not be representative of future performance.

6. The Company intends to use its internal sources of funds to finance its purchases of the Shares. The Company does not intend to obtain or incur any borrowings to finance its purchases of the Shares. The Directors do not propose to exercise the Shares Purchase Mandate in a manner and to such extent that the working capital requirements of the Group would be materially affected.

7. The Company will take into account both financial and non-financial factors, among other things, the market conditions at such time, the Company’s financial condition, the performance of the Shares and whether such Shares purchases would represent the most efficient and cost-effective approach to enhance the Share value. Shares purchases will only be made if the Board believes that such purchases are likely to benefit the Company and increase economic value for shareholders.

(E) CONSEQUENCES OF SHARES PURCHASES UNDER THE SINGAPORE CODE ON TAKE-OVERS AND MERGERS

1. In accordance with The Singapore Code on Take-overs and Mergers (the “Take-over Code”), a person will be required to make a general offer for a public company if:

(a) he acquires 30 per cent (30%) or more of the voting rights of the company; or

(b) he already holds between 30 per cent (30%) and 50 per cent (50%) of the voting rights of the company, and he increases his voting rights in the company by more than one per cent (1%) in any six-month period.



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2. As at the Latest Practicable Date and before the proposed Shares Purchase Mandate, the substantial shareholders’ and Directors’ interests are as follows:

Direct Interest Deemed Interest Total Interest

DirectorsNumber

of Shares %Number

of Shares %Number

of Shares %

Olivia Lum Ooi Lin (1) 252,351,211 29.35 15,000,000 1.74 267,351,211 31.09Teo Kiang Kok (2) NIL NA 300,000 0.03 300,000 0.03Lee Joo Hai 300,000 0.03 NIL NA 300,000 0.03Gay Chee Cheong 940,000 0.11 NIL NA 940,000 0.11Christopher Murugasu (3) 729,843 0.08 180,000 0.02 909,843 0.10Professor Tan Teck Meng (4) NIL NA 91,500 0.01 91,500 0.01Rajsekar Kuppuswami Mitta NIL NA NIL NA NIL NA

NOTES:

(1) Olivia Lum Ooi Lin is deemed interested in the Shares held by Citibank Nominees Singapore Pte Ltd

(2) Teo Kiang Kok is deemed interested in the Shares held by Citibank Nominees Singapore Pte Ltd

(3) Christopher Murugasu is deemed interested in the Shares held by his spouse, Bernadette Oei Lian Hua

(4) Professor Tan Teck Meng is deemed interested in the Shares held by his spouse, Tan Kiang Nee

In the event the Company undertakes Shares purchases of up to ten per cent (10%) of the issued share capital of the Company as permitted by the Shares Purchase Mandate, the shareholdings and voting rights of Ms Olivia Lum Ooi Lin may be increased from 31.09 % to 34.55%. Ms Olivia Lum Ooi Lin’s shareholdings and voting rights may thus be increased by more than one per cent (1%) within a six-month period. Accordingly, Ms Olivia Lum Ooi Lin may be required to make a general offer to the other shareholders under Rule 14.1(b) of the Take-over Code.

3. The Securities Industry Council has granted approval in-principle to exempt Ms Olivia Lum Ooi Lin from the requirement to make a general offer under Rule 14.1(b) of the Take-over Code after any Shares purchase subject to the following conditions:

(a) the Circular contains advice to the effect that by voting for the Shares Purchase Mandate, shareholders are waiving their rights to a general offer at the required price from Ms Olivia Lum Ooi Lin and parties acting in concert with her, if any; the names of Ms Olivia Lum Ooi Lin and her concert parties, if any, and the voting rights of such persons at the time of resolution and after the proposed Shares Purchases are disclosed in the Circular;

(b) the resolution to approve the Shares Purchase Mandate is approved by a majority of those shareholders present and voting at the meeting on a poll who could not become obliged to make an offer for the Company as a result of the Shares Purchase;

(c) Ms Olivia Lum Ooi Lin and her concert parties, if any, do not vote for and/or recommend shareholders to vote in favour of the resolution to approve the Shares Purchase Mandate; and

(d) Ms Olivia Lum Ooi Lin and her concert parties, if any, have not acquired and will not acquire any Shares between the date on which they know that the announcement of the approval of the Shares Purchase Mandate is imminent and the earlier of:

(i) the date on which the Shares Purchase Mandate expires; and

(ii) the date the Company announces that it has bought back such number of Shares as authorised under the Shares Purchase Mandate or the date the Company decides to cease buying back its Shares, as the case may be,


133

if such acquisitions, taken together with shares bought by the Company under the Shares Purchase Mandate, would cause their aggregate voting rights in the Company to increase by more than 1% in the any six–month period.

If the Company ceases to buy back its Shares and the increase in the voting rights held by Ms Olivia Lum Ooi Lin and her concert parties, if any, as a result of the Shares Purchase at the time of such cessation is less than 1% in any six-month period, Ms Olivia Lum Ooi Lin and her concert parties, if any, will be allowed to acquire Shares. However, any increase in Ms Olivia Lum Ooi Lin and her concert parties’ percentage of voting rights as a result of the Shares Purchase will be taken into account together with any Shares acquired by Ms Olivia Lum Ooi Lin and her concert parties, if any, (by whatever means) in determining whether Ms Olivia Lum Ooi Lin and her concert parties, if any, have increased their aggregate voting rights in the Company by more than 1% in any six-month period.

The Directors hereby confirm that the substantial shareholders are not acting in concert with any other person to assist any shareholder (or his concert party or parties) to obtain or consolidate control of the Company and that the proposed Shares Purchases are not for any such purpose.

It should be noted that approving the Shares Purchase Mandate will constitute a waiver by the shareholders in respect of their right to a general offer by the substantial shareholders at the Required Price.

(F) MISCELLANEOUS

1. Any Shares purchases undertaken by the Company shall be at a price of up to but not exceeding the Maximum Price. The Maximum Price is a sum which shall not exceed the sum constituting five per cent (5%) above the average closing price of the Shares over the period of five (5) trading days in which transactions in the Shares on the SGX-ST were recorded, in the case of a Market Purchase, before the day on which such purchase is made, and, in the case of an Off-Market Purchase, immediately preceding the date of offer by the Company, as the case may be, and adjusted for any corporate action that occurs after the relevant five (5) day period.

2. In making Share purchases, the Company will comply with the requirements of the SGX-ST Listing Manual, in particular, Rule 886 with respect to notification to the SGX-ST of any Shares purchases. Rule 886 is reproduced below:

“(1) An issuer must notify the Exchange of any share buy-back as follows:

(a) In the case of a market acquisition, by 9.00 am on the market day following the day on which it purchased shares,

(b) In the case of an off market acquisition under an equal access scheme, by 9.00 am on the second market day after the close of acceptances of the offer.

(2) Notification must be in the form of Appendix 8.3.1 (or 8.3.2 for an issuer with a dual listing on another stock exchange).”

3. Shares purchases will be made in accordance with the “Guidelines on Shares Purchases” as set out in Appendix 2 of the Company’s Circular to shareholders dated 4 April 2008, a copy of which is annexed. All information required under the Act relating to the Shares Purchase Mandate is contained in the said Guidelines.

4. The SGX-ST Listing Manual does not expressly prohibit any purchase of shares by a listed company during any particular time or times. However, as a listed company would be considered an “insider” in relation to any proposed purchase or acquisition of its shares, the Company will undertake not to purchase or acquire Shares pursuant to the proposed Share Purchase Mandate at any time after a price sensitive development has occurred or has been the subject of a decision until the price sensitive information has been publicly announced. In particular, the Company will not purchase or acquire any Shares during the period commencing one month immediately preceding the announcement of the Company’s full-year and half year results and the period of two weeks immediately preceding the announcement of its quarterly results.

(G) DIRECTORS’ RESPONSIBILITY STATEMENT

The Directors of the Company collectively and individually accept full responsibility for the accuracy of the information given herein and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, the facts stated in this Appendix are accurate and that there are no material facts the omission of which would make any statement in this Appendix misleading.



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(H) SHAREHOLDERS WHO WILL ABSTAIN FROM VOTING

Ms Olivia Lum Ooi Lin and her concert parties will abstain from voting at the Annual General Meeting in respect of Ordinary Resolution 10 relating to the Shares Purchase Mandate.

(I) DIRECTORS’ RECOMMENDATION

The Directors of the Company, other than Ms Olivia Lum Ooi Lin who has abstained from making any recommendation, are of the opinion that the renewal of the proposed Shares Purchase Mandate is in the best interests of the Company. Accordingly, the Directors of the Company recommend that shareholders vote in favour of Ordinary Resolution 10.

(J) TAXATION

Shareholders who are in doubt as to their respective tax positions or any tax implications, or who may be subject to tax in a jurisdiction outside Singapore, should consult their own professional tax advisers.

(K) DOCUMENTS FOR INSPECTION

Copies of the following documents may be inspected at the registered office of the Company at 202 Kallang Bahru, Hyflux Building, Singapore 339339 during normal business hours up to and including the date of the Annual General Meeting:

(a) the Memorandum and Articles of Association of the Company; and

(b) the audited financial statements of the Company for the financial year ended 31 December 2010.


135

Appendix 2

GUIDELINES ON SHARES PURCHASES

1. SHAREHOLDERS’ APPROVAL

(a) Purchases of Shares by the Company must be approved in advance by the Shareholders at a general meeting of the Company, by way of a general mandate.

(b) A general mandate authorising the purchase of Shares by the Company representing up to ten per cent (10%) of the issued ordinary shares in the capital of the Company (excluding any Shares held as Treasury Shares) will expire on the earlier of:

(i) the conclusion of the next annual general meeting of the Company;

(ii) the expiration of the period within which the next annual general meeting of the Company is required by law to be held; or

(iii) the time when such mandate is revoked or varied by an ordinary resolution of the Shareholders of the Company in general meeting.

(c) The authority conferred on the Directors by the Shares Purchase Mandate to purchase Shares shall be renewed at the next annual general meeting of the Company.

(d) When seeking Shareholders’ approval for the renewal of the Shares Purchase Mandate, the Company shall disclose details pertaining to the purchases of Shares made during the previous 12 months, including the total number of Shares purchased, the purchase price per Share or the highest and lowest price for such purchases of Shares, where relevant, and the total consideration paid for such purchases.

2. MODE OF PURCHASE

Shares Purchases can be effected by the Company in either one of the following two ways or both:

(a) by way of market purchases of Shares on the Official List of SGX-ST, which means a purchase transacted through the ready market; or

(b) by way of off-market acquisitions on an equal access scheme in accordance with Section 76C of the Act.

3. FUNDING OF SHARES PURCHASES

(a) In purchasing the Shares, the Company may only apply funds legally permitted for such purchase in accordance with its Articles of Association, and the relevant laws and regulations enacted or prescribed by the relevant competent authorities in Singapore.

(b) Any purchase by the Company may be made out of capital or profits that are available for distribution as dividends, so long as the Company is solvent (as defined by Section 76F(4) of the Act) .

(c) The Company may not purchase its Shares on the Official List of SGX-ST for a consideration other than cash or for settlement otherwise than in accordance with the trading rules of SGX-ST.

4. TRADING RESTRICTIONS

The number of Shares which can be purchased pursuant to the Shares Purchase Mandate is such number of Shares which represents up to a maximum of ten per cent (10%) of the issued ordinary shares in the capital of the Company (excluding Treasury Shares) as at date of the last annual general meeting of the Company.

5. PRICE RESTRICTIONS

Any Shares Purchase undertaken by the Company shall be at the price of up to but not exceeding the Maximum Price.

“Maximum Price” means the maximum price at which the Shares can be purchased pursuant to the Shares Purchase Mandate, which shall not exceed the sum constituting five per cent (5%) above the average closing price of the Shares over the period of


136

five (5) trading days in which transactions in the Shares on SGX-ST were recorded, in the case of a Market Purchase, before the day on which such purchase is made, and, in the case of an Off-Market Purchase, immediately preceding the date of offer by the Company, as the case may be, and adjusted for any corporate action that occurs after the relevant five (5) day period.

6. OFF-MARKET PURCHASES

(a) For purchases of Shares made by way of an Off-Market Purchase, the Company shall issue an offer document to all Shareholders. The offer document shall contain, inter alia, the following information:

(i) the terms and conditions of the offer;

(ii) the period and procedures for acceptances;

(iii) the reasons for the proposed Shares Purchase;

(iv) the consequences, if any, of Shares purchased by the Company that will arise under the Singapore Code on Take-overs and Mergers or any other applicable take-over rules;

(v) whether the purchase of Shares, if made, would have any effect on the listing of the Company’s securities on the Official List of SGX-ST; and

(vi) details of any purchase of Shares made by the Company in the previous 12 months whether through Market Purchases or Off-Market Purchases, including the total number of Shares purchased, the purchase price per Share or the highest and lowest prices paid for such purchases of Shares, where relevant, and the total consideration paid for such purchases.

(b) All Offeree Shareholders shall be given a reasonable opportunity to accept any offer made by the Company to purchase their Shares under the Shares Purchase Mandate.

(c) The Company may offer to purchase Shares from time to time under the Shares Purchase Mandate subject to the requirement that the terms of any offer to purchase. Shares by the Company shall be pari passu in respect of all Offeree Shareholders save under the following circumstances:

(i) where there are differences in consideration attributable to the fact that an offer relates to Shares with different dividend entitlements;

(ii) where there are differences in consideration attributable to the fact that an offer relates to Shares with different amounts remaining unpaid; and

(iii) where there are differences in an offer introduced solely to ensure that every Shareholder is left with a whole number of Shares in board lots of 1,000 Shares after the Shares Purchases, in the event there are Offeree Shareholders holding odd numbers of Shares.

7. STATUS OF PURCHASED SHARES

The purchased Shares shall be cancelled immediately on purchase or acquisition unless held in treasury in accordance with Section 76H of the Act. Section 76H of the Act allows purchased Shares to be:

(i) held by the Company; or

(ii) dealt with, at any time, in accordance with Section 76K of the Act, as Treasury Shares.

Section 76K of the Act allows the Company to:

(i) sell the Shares (or any of them) for cash;

(ii) transfer the Shares (or any of them) for the purposes of or pursuant to an employees’ share scheme;



137


(iii) transfer the Shares (or any of them) as consideration for the acquisition of shares in or assets of another company or assets of a person; or

(iv) cancel the Shares (or any of them).

The aggregate number of Shares held as Treasury Shares shall not at any time exceed ten per cent (10%) of the total number of Shares at that time. Any Shares in excess of this limit shall be disposed of or cancelled in accordance with Section 76K of the Act within six (6) months.

Any Shares Purchase will:

(i) reduce the amount of the issued shares in the capital of the Company where the Shares were purchased or acquired out of the capital of the Company;

(ii) reduce the amount of the Company’s profits where the Shares were purchased or acquired out of the profits of the Company; or

(iii) reduce the amount of the Company’s share capital and profits proportionately where the Shares were purchased or acquired out of both the capital and the profits of the Company;

by the total amount of the purchase price paid by the Company for the Shares cancelled.

The Company cannot exercise any right in respect of Treasury Shares. In particular, the Company cannot exercise any right to attend or vote at meetings and for the purposes of the Act, the Company shall be treated as having no right to vote and the Treasury Shares will be treated as having no voting rights.

8. NOTIFICATION TO ACCOUNTING AND CORPORATE REGULATORY AUTHORITY (“ACRA”)

(a) Within thirty (30) days of the passing of a Shareholders’ resolution to approve any purchase of Shares, the Company shall lodge a copy of such resolution with ACRA.

(b) The Company shall notify ACRA within thirty (30) days of a purchase of Shares. Such notification shall include details of the date of the purchase, the total number and nominal value of Shares purchased by the Company, the issued shares in the capital of the Company as at the date of the Shareholders’ resolution approving the purchase, the Company’s issued shares in the capital after the purchase and the amount of consideration paid by the Company for the purchase.

9. NOTIFICATION TO SGX-ST

(a) For purchases of Shares made by way of an Off-Market Purchase, the Company shall notify SGX-ST in respect of any acquisition or purchase of Shares in the relevant form prescribed by SGX-ST from time to time, not later than 9.00 a.m. on the second trading day after the close of acceptances of an offer, or within such time period that may be prescribed by SGX-ST from time to time.

(b) For purchases of Shares made by way of a Market Purchase, the Company shall notify SGX-ST in respect of any acquisition or purchase of Shares in the relevant form prescribed by SGX-ST from time to time, not later than 9.00 a.m. on the trading day following the date of market acquisition by the Company, or within such time period that may be prescribed by SGX-ST from time to time.

10. SUSPENSION OF PURCHASE

(a) The Company may not undertake any Shares Purchase prior to the announcement of any price-sensitive information by the Company, until such time as the price sensitive information has been publicly announced or disseminated in accordance with the requirements of the Listing Manual.

(b) The Company may not effect any repurchases of Shares on SGX-ST during the period commencing two weeks before the announcement of the Company’s financial statements for each of the first three quarters of its financial year, or one month before half year or financial year, as the case may be, and ending on the date of announcement of the relevant results.

IMPORTANT:1. For investors who have used their CPF monies to buy Hyflux Ltd’s

shares, this Report is forwarded to them at the request of the CPF Approved Nominees and is sent solely FOR INFORMATION ONLY.

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

3. CPF investors who wish to attend the Meeting as an observer must submit their requests through their CPF Approved Nominees within the time frame specified. If they also wish to vote, they must submit their voting instructions to the CPF Approved Nominees within the time frame specified to enable them to vote on their behalf.

HYFLUX LTDCompany Registration No. 200002722Z(Incorporated in the Republic of Singapore with limited liability)

PROXY FORM(Please see notes overleaf before completing this Form)

I/We (Name & NRIC No.)

of (Address)

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

Name NRIC/Passport No. Proportion of ShareholdingsNo. of Shares %

Address

and/or (delete as appropriate)

Name NRIC/Passport No. Proportion of ShareholdingsNo. of Shares %

Address

or failing the person, or either or both of the persons, referred to above, the Chairman of the Meeting as my/our proxy/proxies to vote for me/us on my/our behalf at the Annual General Meeting (the “Meeting”) of the Company to be held on 27 April 2011 at 2.00pm and at any adjournment thereof. I/We direct my/our proxy/proxies to vote for or against the Resolutions proposed at the Meeting as indicated hereunder. If no specific direction as to voting is given or in the event of any other matter arising at the Meeting and at any adjournment thereof, the proxy/proxies will vote or abstain from voting at his/her discretion. The authority herein includes the right to demand or to join in demanding a poll and to vote on a poll.

To be used on a show of hands

To be used in the event of a poll

No. Resolutions For* Against* No. of Votes For**

No. of Votes Against**

Ordinary Business1 Adoption of Directors’ Report and Audited Accounts2 Declaration of Dividends3 Re-election of Mr Rajsekar Kuppuswami Mitta

as Director

4 Re-election of Professor Tan Teck Meng as Director5 Approval of Directors’ fees6 Re-appointment of Auditors

Special Business7 Authority to issue shares up to 50 per centum (50%)

of the issued shares in the capital of the Company

8 Renewal of Preference Share Mandate9 Authority to issue shares under Hyflux Employees’

Share Option Scheme

10 Renewal of Share Purchase Mandate

* Please indicate your vote “For” or “Against”, with an “X” within the box provided.** If you wish to exercise all your votes “For” or “Against”, please indicate with an “X” within the box provided. Alternatively, please

indicate the number of votes as appropriate.

Dated this day of 2011

Signature of Shareholder(s), Common Seal of Corporate Shareholder Total number of

Shares held

Notes:

1. Please insert the total number of shares held by you. If you have Shares entered against your name in the Depository Register (as defined in Section 130A of the Companies Act, Chapter 50 of Singapore), you should insert that number of Shares. If you only have Shares registered in your name in the Register of Members, you should insert that number if Shares. However, if you have Shares entered against your name in the Depository Register and Shares registered in your name in the Register of Members, you should insert the aggregate number of Shares entered against your name in the Depository Register and registered in your name in the Register of Members. If no number is inserted, the instrument appointing a proxy or proxies shall be deemed to relate to all the Shares held by you.

2. A Shareholder of the Company entitled to attend and vote at a meeting of the Company is entitled to appoint one or two proxies to attend and vote instead of him. A proxy need not to be a Shareholder of the Company. Where a Shareholder appoints two proxies, the proportion of the shareholding concerned to be represented by each proxy shall be specified in the proxy form. If no percentage is specified, the first named proxy shall be deemed to represent 100 percent of the shareholding and the second named proxy shall be deemed to be an alternate to the first named proxy.

3. The instrument appointing a proxy or proxies must be deposited at the registered office of the Company at 202 Kallang Bahru, Singapore 339339 not less than 48 hours before the time appointed for the Meeting.

4. The instrument appointing a proxy or proxies must be under the hand of the appointor or of his attorney duly authorised in writing. Where the instrument appointing a proxy or proxies is executed by a corporation, it must be executed either under its seal or under the hand of an officer or attorney duly authorised. Where an instrument appointing a proxy is signed on behalf of the appointor by an attorney, the letter or power of attorney or a duly certified copy thereof must (unless previously registered with the Company) be lodged with the instrument of proxy, failing which, the instrument may be treated as unvalid.

5. A corporation which is a Shareholder may authorise, by resolution of its directors or other governing body, such person as it thinks fit to act as its representative at the Annual General Meeting, in accordance with Section 179 of the Companies Act, Chapter 50 of Singapore.

6. The Company shall be entitled to reject the instrument appointing a proxy or proxies if it is incomplete, improperly completed or illegible or where the true intentions of the appointor are not ascertainable from the instructions of the appointor specified in the instrument appointing a proxy or proxies. In addition, in the case of Shareholders whose Shares are entered in the Depository Register, the Company may reject any instrument appointing a proxy or proxies lodged if such Shareholders are not shown to have Shares entered against their name in the Depository Register 48 hours before the time appointed for the holding of the Annual General Meeting, as certified by The Central Depository (Pte) Limited to the Company.

7. Completion and return of this instrument appointing a proxy shall preclude a member from attending and voting at the Meeting. Any appointment of a proxy or proxies shall be deemed to be revoked if a member attends the meeting in person, and in such an event, the Company reserves the right to refuse to admit any person or persons appointed under the instrument of proxy to the Meeting.

The Company SecretaryHYFLUX LTD

Hyflux Building 202 Kallang Bahru Singapore 339339

fold along this line (1)

fold along this line (2)

Affix Postage Stamp

Hyfl ux Ltd202 Kallang BahruHyfl ux Building Singapore 339339www.hyfl ux.com

Company reg. no.: 200002722Z

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