STE06 financial P90-195.indd - Morningstar

THE WINNING SPIRIT

ANNUAL REPORT 2006

STE cover AW-OK.indd 1 6/3/07 3:42:50

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CONTENTS

01 The Winning Spirit10 Letter to Shareholders16 Financial Highlights22 Board of Directors26 Senior Management30 Organisation Chart32 Corporate Governance44 Environment, Health and Safety45 Corporate Social Responsibility46 Investor Relations48 Investor Relations Calendar 200648 Financial Calendar 200749 Share Price Performance50 Human Resources54 Awards and Commendations56 Operating Financial Review62 ST Engineering at a Glance89 Financial Report


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The winning spirit entails more than performance. It is an active and adaptive mindset – one that defi es odds, embraces the courage to be different, and determination in the face of adversity.

ST Engineering empowers its people to direct positive energy into innovation and achievement. With the winning spirit, challenges are transformed into opportunities, problems into successes.

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ACCELERATING OUR INNOVATION

THE WINNING SPIRIT ST Engineering AR 2006

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Success in today’s challenging and unpredictable global marketplace is marked by the ability to push the boundaries of innovation – faster and more effectively. ST Engineering continually questions traditional assumptions and rules, and embraces fresh paradigms to redefi ne perspectives and create new solutions that transcend the ordinary.

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BUILDING OUR SCALE


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Scale is defi ned not just by an organisation’s numbers. As ST Engineering pursues scale to compete internationally, it is building a culture in its people – to achieve more, climb higher and go further.

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HARNESSING OUR TEAM POWER


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In a competitive and dynamic business environment, a collaborative culture engenders cohesiveness. ST Engineering believes in forming synergistic relationships with all its stakeholders – be they staff, business partners or customers – where each individual contributes to the overall achievement of the Group.

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ENHANCING OURCAPABILITIES


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ST Engineering seizes opportunities to acquire new capabilities while enhancing core competencies. This clear focus, coupled with an agility to adapt, enables the Group to continuously grow its portfolio of advanced, innovative and cost effective solutions.

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Dear ShareholdersGlobal markets continued their upward momentum in 2006, with Singapore’s growth at a new high compared to recent years. Higher interest rates and oil prices, however, threatened to hinder economic activity and exerted pressure on bottom lines for most industries. While higher oil prices have minimal direct impact on the Group, they affected the aviation industry, increasing the cost of operations for airlines already in a diffi cult market compounded by heightened competition from low cost carriers. China appears to have had some success in cooling its economy and growth continued to be strong, aided in part by the build up to the 2008 Olympics. India is another growing market where the Group seeks to increase its presence. Another area of opportunity is the booming Gulf States.

While various geographies pose different challenges, they serve as opportunities for the Group as we grow our presence globally.

Against this backdrop, the ST Engineering Group enjoyed another good year in 2006 with net profi t growing by 12% to $445.1m.

Becoming a Global EntityThe Group today is a global entity operating in fi ve continents, spanning 20 countries and 35 cities.

With our recent acquisitions, the profi le of our business mix is increasingly global and commercial, due to the nature and location of these new acquisitions. These new additions have steadily increased their contributions to the Group, enabling us to diversify our earnings stream. As a vital part of our total business mix, the Group’s defence business continues to grow with new solutions and product offerings. Customers are increasingly focused on the total cost of ownership and market best practices. Our fl exibility to leverage on the interplay between our defence and commercial businesses, and tapping the strengths of each, helps strengthen the Group’s ability to provide innovative and cost effective systems and solutions.

Group revenues outside of Asia has today grown to 47% from 28% in 2002, refl ecting our geographic spread and global customer base which covers more than 60 countries. Globalisation helps to diversify geographic-centric economic and political factors, thereby hedging the interests of the Group. Globalisation is the cornerstone of our strategy for growth and to build leading businesses to add vigour to the Group. We

The Group recorded double digit growth for a second straight year in 2006. Our net profi t rose by 12% to $445.1m on the strength of the Aerospace and Electronics sectors and higher contributions from our overseas acquisitions. Group turnover was up 34% to $4.49b, while profi t before tax increased 12% to $564.3m. Our earnings per share were 15.2 cents, an increase of 11%. Economic Value Added grew 13% to $327.8m. Return on equity was a very respectable 28.4%, higher than the 26.5% in 2005. Cash and cash equivalents, including funds under management, remained a healthy $1.4b.

Letter to Shareholders

THE WINNING SPIRIT ST Engineering AR 2006 10

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select each new addition carefully to enhance the value of our existing businesses, expand our technologies and capabilities, address new markets, enlarge our customer base, and infuse fresh talent into our cosmopolitan workforce.

In line with our globalisation thrust, this year we acquired two companies in the US – one in simulation and digital media, and another in specialty vehicles. In addition, a joint venture company was formed with Kalyani Group for the research, development and manufacture of military land-based products and solutions, specifi cally large calibre guns and small arms for India’s defence and security requirements. Our Aerospace sector is starting an aircraft maintenance facility in Panama in 2Q2007, which enhances our aerospace global network and complements the existing North American facilities in Mobile, Alabama, and San Antonio, Texas.

Growing by Double DigitThe Group recorded double digit growth for a second straight year in 2006. Our net profi t rose by 12% to $445.1m on the strength of the Aerospace and Electronics sectors and higher contributions from our overseas acquisitions. Group turnover was up 34% to $4.49b, while profi t before tax increased 12% to $564.3m. Our earnings per share were 15.2 cents,

an increase of 11%. Economic Value Added grew 13% to $327.8m. Return on equity was a very respectable 28.4%, higher than the 26.5% in 2005. Cash and cash equivalents, including funds under management, remained a healthy $1.4b.

ST Engineering’s market cap reached $9.07b as at end December 2006, compared to $8.33b at the close of 2005.

Recognising our ShareholdersThe ST Engineering Board of Directors is proposing to pay 100% of 2006 net profi t of $445.1m to our loyal shareholders as dividends. This will translate into a dividend of 15.11 cents per share, and a dividend yield of 5.1%. The dividends comprise an ordinary tax exempt (one-tier) dividend of 4 cents per share, and a special tax exempt (one-tier) dividend of 11.11 cents per share. The Group plans to start paying half-year interim ordinary dividends from 2007.

Winning the Trust of CustomersContracts announced during the year exceeded US$1.3b. The fi gure does not include smaller projects nor represent the Group’s total sales. These contract wins expanded our order book to an all time high of $7.37b by yearend.

Peter SEAH Lim Huat Chairman (left) TAN Pheng Hock President and CEO (right)

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Letter to Shareholders

We won several signifi cant contracts in 2006. Among them were the US$635m Airbus contract for total aviation support to Skybus, a new carrier in the US; two roll-on roll-off vessels to be used by Airbus to transport large aircraft components, including sections for their new A380 aircraft; and two shipbuilding contracts from the US Navy amounting to over US$360m, namely the Egyptian Navy fast missile craft project and a missile range instrumentation ship. The latter project is signifi cant as it marks the fi rst time we have won a contract from the US Navy since we acquired VT Halter Marine in 2002. Our Electronics sector’s foothold in the Chinese rail market now totals nearly $50m, including three projects in Guangzhou. It was also strengthened with the development of an integrated traffi c command centre system, the fi rst-of-its-kind aimed at effi ciently managing major rail lines in Beijing. This makes us the fi rst Singapore company to win a major Beijing Olympics related contract.

Many of the contracts for the Group came from existing customers. A repeat customer is a happy customer. For an organisation driven by performance and results, there is no better validation and recognition than having customers come back time after time.

Enhancing CapabilitiesThe Singapore Army commissioned into service an enhanced version of our Bionix armoured vehicle, BXII, in 2006. This latest Bionix boosts SAF’s 3rd Generation networked capability. Featuring innovations from the Electronics and Land Systems sectors, the BXII is integrated with the rest of the fi ghting forces through a battlefi eld management system and network-centric wireless communications systems. In support of the digitised army programme, this provides an integrated situation awareness capability, collaborative planning tools and knowledge-based command and control (C2). This enables ground commanders to make responsive decisions and exercise

highly effective C2 operations in a fast-moving battlefi eld – a prime example of how the Group delivers value to customers through innovation.

The need for continuous capability improvement is a given, particularly in an ever-evolving and competitive global market. This is supported by a corporate culture which encourages innovation in integrating technologies and collaboration with like-minded partners to add new solutions to meet our customers’ needs.

Some of these Group-wide capabilities and technologies were showcased at Asian Aerospace 2006. Many of these are dual-purpose or applicable to both the defence and commercial businesses, including a slew of homeland security solutions.

With our components companies in Scandinavia and the UK merged into one, our Aerospace sector has enlarged its product and services offerings in Europe, and added Scandinavian Airlines as a major customer. Together with the existing components repair capabilities, we now have expanded global coverage, as well as enhanced breadth and depth of our capabilities.

Living Up to Corporate CitizenryAs the Group expands, so does our Corporate Social Responsibility (CSR). Every country and every business has its own matrix of CSR hot buttons, ranging from the way we do business and preserve the environment to conservation/recycling practices, staff welfare and community programmes.

Good corporate governance is especially vital as the Group globalises. Transparent practices need to be applied with cultural and local sensitivity. ST Engineering constantly raises the bar in best practices, implementing a whistle-blowing process during the year.

We won several signifi cant contracts in 2006. Among them were the US$635m Airbus contract for total aviation support to Skybus Airlines, a new carrier in the US; two roll-on roll-off vessels to be used by Airbus to transport large aircraft components, including sections for their new A380 aircraft; and two shipbuilding contracts from the US Navy amounting to over US$360m, namely the Egyptian Navy fast missile craft project and a missile range instrumentation ship. The latter project is signifi cant as it marks the fi rst time we have won a contract from the US Navy since we acquired VT Halter Marine in 2002. Our Electronics sector’s foothold in the Chinese rail market now totals nearly $50m, including three projects in Guangzhou. It was also strengthened with the development of an integrated traffi c command centre system, the fi rst-of-its-kind aimed at effi ciently managing major rail lines in Beijing. This makes us the fi rst Singapore company to win a major Beijing Olympics related contract.

Many of the contracts for the Group came from existing customers. A repeat customer is a happy customer. For an organisation driven by performance and results, there is no better validation and recognition than having customers come back time after time.

Enhancing CapabilitiesThe Singapore Army commissioned into service an enhanced version of our Bionix armoured vehicle, BXII, in 2006. This latest Bionix boosts SAF’s 3rd Generation networked capability. Featuring innovations from the Electronics and Land Systems sectors, the BXII is integrated with the rest of the fi ghting forces through a battlefi eld management system and network-centric wireless communications systems. In support of the digitised army programme, this provides an integrated situation awareness capability, collaborative planning tools and knowledge-based command and control (C2). This enables ground commanders to make responsive decisions and exercise

highly effective C2 operations in a fast-moving battlefi eld – a prime example of how the Group delivers value to customers through innovation.

The need for continuous capability improvement is a given, particularly in an ever-evolving and competitive global market. This is supported by a corporate culture which encourages innovation in integrating technologies and collaboration with like-minded partners to add new solutions to meet our customers’ needs.

Some of these Group-wide capabilities and technologies were showcased at Asian Aerospace 2006. Many of these are dual-purpose or applicable to both the defence and commercial businesses, including a slew of homeland security solutions.

With our components companies in Scandinavia and the UK merged into one, our Aerospace sector has enlarged its product and services offerings in Europe, and added Scandinavian Airlines as a major customer. Together with the existing components repair capabilities, we now have expanded global coverage, as well as enhanced breadth and depth of our capabilities.

Living Up to Corporate CitizenryAs the Group expands, so does our Corporate Social Responsibility (CSR). Every country and every business has its own matrix of CSR hot buttons, ranging from the way we do business and preserve the environment to conservation/recycling practices, staff welfare and community programmes.

Good corporate governance is especially vital as the Group globalises. Transparent practices need to be applied with cultural and local sensitivity. ST Engineering constantly raises the bar in best practices, implementing a whistle-blowing process during the year.


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Looking AheadAs the Group spreads its wings globally, we are constantly mindful of the multitude of risks each new market entry brings, be they natural, political, economic or socio-cultural. The risk and business management framework that we have put in place, which is constantly being refi ned and reviewed, helps mitigate such business risks.

Hurricane Katrina remains an important lesson of what could have been had we been less prepared. It is a reminder for us to stay vigilant and adaptive to an array of business challenges as we continue to grow our businesses globally.

Going global also means making tough and painful decisions when necessary. We closed our UK aircraft maintenance facility in Bournemouth this year after being unable to turn it around since its setup in 2001. This was decided together with our joint venture partner in the long term interests of both companies and stakeholders.

In 2007, we will continue to grow our business organically in new markets, with new products and systems innovation, as well as develop new capabilities to address changing customer needs. In addition, the Group will focus on creating synergies among our businesses and leverage economies of scale in all four sectors.

At the same time, the Group will continue to seek companies and partners that enhance our core business through acquisitions, joint ventures, partnerships and collaborations. We adopt a pragmatic approach when developing new markets, realistically appraising the key performance indicators and adopting a fl exible strategy for a particular environment which may require the Group to be a subcontractor, licensor, or supplier to local players.

As an innovative organisation, we increasingly develop intellectual property to serve as a defensive measure in our global thrust and as leverage for market entry strategy where it makes sense.

For the coming year, the Group expects to achieve a higher turnover and profi t before tax, barring unforeseen circumstances.

Expressing our AppreciationWe formally express our appreciation to shareholders at the AGM and in the annual report. In reality, our gratitude for your support extends throughout the year. In the same light, we thank our customers for their continuing support through the years.

Our Board of Directors is the beacon which steers Group strategy and sets Group directions. The Directors’ experience and depth of knowledge, willingly shared, have mapped our course and continue to guide our future.

We would like to record our deep appreciation to our Director, Lieutenant-General Ng Yat Chung, who will be retiring at our coming AGM.

Not least of all, our special thanks to our family of over 17,000 members around the world. Your dedication and loyalty have contributed to our success and winning spirit.

Peter SEAH Lim Huat TAN Pheng HockChairman President and CEO

16 March 2007

In 2007, we will continue to grow our business organically in new markets, with new products and systems innovation, as well as develop new capabilities to address changing customer needs. In addition, the Group will focus on creating synergies among our businesses and leverage economies of scale in all four sectors.

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Financial Highlights

Group turnover rose 34% to $4,486m. EBIT, PBT and PATMI were $457.6m, $564.3m and $445.1m, representing growth rates of 17%, 12% and 12% respectively. Order book rose to a new high at $7.37b. Return on equity improved from 26.5% for FY2005 to 28.4% for FY2006. The Board is proposing to pay 100% of net profi ts as dividends or 15.11 cents per share.

06

05

04

03

02

TURNOVER BY SECTOR ($m)

06

05

04

03

02

PROFIT BEFORE TAX BY SECTOR ($m)

06

05

04

03

02

PROFIT AFTER TAX BY SECTOR ($m)

0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000

0 100 200 300 400 500 600

0 100 200 300 400 500

Aerospace Electronics Land Systems Marine Others


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Key Financial Data

2006 2005 2004 2003 2002

TURNOVER BY SECTOR ($m) 4,486 100% 3,338 100% 2,948 100% 2,819 100% 2,619 100%

Aerospace 1,673 37% 1,236 37% 1,118 38% 1,092 39% 1,043 40%

Electronics 951 21% 701 21% 626 21% 614 22% 571 22%

Land Systems 1,002 22% 600 18% 591 20% 717 25% 710 27%

Marine 702 16% 660 20% 484 16% 387 14% 280 11%

Others 158 4% 141 4% 129 5% 9 – 15 –

PROFIT BEFORE TAX BY SECTOR ($m) 564.3 100% 503.2 100% 446.2 100% 412.7 100% 413.0 100%

Aerospace 305.3 54% 255.4 51% 235.4 53% 225.2 55% 213.0 52%

Electronics 104.6 19% 76.0 15% 64.5 14% 61.4 15% 56.7 14%

Land Systems 70.0 12% 65.0 13% 71.5 16% 96.4 23% 96.9 23%

Marine 79.5 14% 87.9 17% 69.8 16% 35.2 9% 41.1 10%

Others 4.9 1% 18.9 4% 5.0 1% (5.5) (2%) 5.3 1%

PROFIT AFTER TAX BY SECTOR ($m) 445.1 100% 396.3 100% 354.2 100% 325.6 100% 330.7 100%

Aerospace 255.0 57% 210.3 53% 187.3 53% 176.3 54% 155.6 47%

Electronics 76.3 17% 58.0 15% 51.6 15% 48.0 15% 42.8 13%

Land Systems 51.9 12% 49.0 12% 58.1 16% 76.5 24% 100.6 30%

Marine 67.8 15% 70.3 18% 53.7 15% 30.8 9% 29.2 9%

Others (5.9) (1%) 8.7 2% 3.5 1% (6.0) (2%) 2.5 1%

1,043 40%

571 22%

710 27%

280 11%

15 –

1,092 39%

614 22%

717 25%

387 14%

9 –

1,236 37% 1,118 38%

701 21% 626 21%

600 18% 591 20%

660 20% 484 16%

141 4% 129 5%

213.0 52%

56.7 14%

96.9 23%

41.1 10%

5.3 1%

225.2 55%

61.4 15%

96.4 23%

35.2 9%

(5.5) (2%)

255.4 51% 235.4 53%

76.0 15% 64.5 14%

65.0 13% 71.5 16%

87.9 17% 69.8 16%

18.9 4% 5.0 1%

155.6 47%

42.8 13%

100.6 30%

29.2 9%

2.5 1%

176.3 54%

48.0 15%

76.5 24%

30.8 9%

(6.0) (2%)

210.3 53% 187.3 53%

58.0 15% 51.6 15%

49.0 12% 58.1 16%

70.3 18% 53.7 15%

8.7 2% 3.5 1%

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Key Financial Data

2006 2005 2004 2003 2002

Shareholders’ funds ($m) 1,565 1,493 1,358 1,324 1,452Total assets ($m) 5,514 4,566 4,042 4,122 4,351Net tangible assets ($m) 996.4 1,131 1,296 1,266 1,431Gross dividend per share (cents) 15.11 13.60 12.39 11.30 18.50Dividend yield (%) 5.09 5.24 5.67 6.12 9.25Dividend cover 1.00 1.00 1.00 1.00 0.74Earnings per share (cents) 15.15 13.64 12.26 11.29 11.47Return on turnover (%) 10.2 12.3 12.2 11.6 12.7Return on equity (%) 28.4 26.5 26.1 24.6 22.8Return on total assets (%) 8.3 9.0 8.9 7.9 7.7Net tangible assets per share (cents) 33.80 38.80 44.80 43.90 49.60

SHAREHOLDERS’ FUNDS ($m)

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05

02

04

03

1,565

1,4931,452

1,358

1,324

RETURN ON EQUITY (%)

06

05

04

03

02

28.4

26.5

26.1

24.6

22.8

NET TANGIBLE ASSETS PER SHARE (CENTS) 06

02

04

0305

33.8

49.6

44.8

43.938.8


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Productivity Data

2006 2005 2004 2003 2002

Average staff strength 15,912 13,099 11,684 11,702 11,413Sales per employee ($) 281,910 254,821 252,333 240,898 229,492Profi t after tax per employee ($) 27,974 30,255 30,316 27,823 28,977Employment costs ($m) 1,243.0 899.9 826.9 798.0 759.1Employment costs per $ of turnover ($) 0.28 0.27 0.28 0.28 0.29

Economic Value Added ($m) 327.8 290.6 234.5 240.9 190.2Economic Value Added spread (%) 12.3 16.2 13.7 13.9 11.3Economic Value Added per employee ($) 20,598 22,187 20,075 20,587 16,664

Value added ($m) 1,990.8 1,500.6 1,363.1 1,337.0 1,274.2Value added per employee ($) 125,112 114,559 116,668 114,253 111,646Value added per $ of employment costs ($) 1.60 1.67 1.65 1.68 1.68Value added per $ of gross property, plant and equipment ($) 0.99 1.02 1.03 1.05 1.03Value added per $ of turnover ($) 0.44 0.45 0.46 0.47 0.49

PROFIT AFTER TAX PER EMPLOYEE ($’000)

02 29.0

03 27.8

04 30.3 05 30.3

06 28.0

ECONOMIC VALUE ADDED PER EMPLOYEE ($’000)

02 16.7

03 20.604 20.1

05 22.2

06 20.6

VALUE ADDED PER EMPLOYEE ($’000)

02 111.6

03 114.3

04 116.7

05 114.6

06 125.1

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EVA ATTRIBUTABLE TO ORDINARY SHAREHOLDERS ($m)

02

190.2

04

234.5

03

240.9

05

290.6

06

327.8

Group Economic Value Added Statement

($m) 2006 2005 2004 2003 2002

Net profi t before tax 512.8 457.3 387.8 367.4 370.7Adjust for: Share of results of associated companies and joint ventures 51.5 45.9 58.4 45.3 42.3 Interest expense 45.1 10.4 8.0 3.7 5.0 Others 11.6 2.2 (4.8) 18.4 5.3

Adjusted profi t before interest and tax 621.0 515.8 449.4 434.8 423.3Cash operating taxes (Note 1) (112.8) (99.3) (85.7) (84.7) (76.3)

Net operating profi t after tax (NOPAT) – (a) 508.2 416.5 363.7 350.1 347.0

Average capital employed (Note 2) 2,691.9 1,865.4 1,725.0 1,712.1 1,685.8Weighted average cost of capital (Note 3) (%) 6.6 6.1 7.4 6.5 9.3

Capital charge – (b) (177.7) (113.8) (127.6) (111.3) (156.8)

Economic Value Added (EVA) – [(a) – (b)] 330.5 302.7 236.1 238.8 190.2Minority share of EVA (2.7) (12.1) (1.6) 2.1 –

EVA attributable to ordinary shareholders 327.8 290.6 234.5 240.9 190.2

Unusual items (UI) gains/(losses) (Note 4) (30.7) (7.0) 6.1 0.7 7.9EVA attributable to ordinary shareholders (exclude UI) 297.1 283.6 240.6 241.6 198.1

Note 1: The reported current tax is adjusted for the statutory tax impact of interest expense.

Note 2: Monthly average share capital plus interest bearing liabilities, timing provision, goodwill impaired/amortised, and present value of operating leases.

Major Capital Components: $m

Long term debt 834.1 Short term debt 178.5 Equity 1,438.0 Others 241.3

2,691.9

Note 3: The Weighted Average Cost of Capital is calculated in accordance to Singapore Technologies Engineering Group EVA Policy as follows:

i) Cost of Equity using Capital Asset Pricing Model with market risk premium at 6.0% (2005 @ 6.0%);

ii) Risk-free rate of 3.31% (2005 @ 2.62%) based on yield-to-maturity of Singapore Government 10 years Bonds;

iii) Ungeared beta at 0.65 (2005 @ 0.65) based on Singapore Technologies Engineering risk categorisation; and

iv) Cost of Debt rate at 3.54% (2005 @ 3.03%) using 5-year Singapore dollar Swap Offered Rate plus 25 basis point (2005 @ 75 basis point).

Note 4: Unusual Items (UI) refer to divestment of investment properties, subsidiary and associates, long term investments and disposal of major property, plant and equipment.


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02 1,274.203 1,337.0

04 1,363.1

05 1,500.6

06 1,990.8

TOTAL VALUE ADDED ($m)

Group Value Added Statement

($m) 2006 2005 2004 2003 2002

Value added from: Revenue earned 4,485.8 3,337.9 2,948.1 2,819.0 2,619.2Bought in materials and services (2,644.0) (1,959.0) (1,698.6) (1,578.5) (1,452.1)

1,841.8 1,378.9 1,249.5 1,240.5 1,167.1 Income from investments and interest 79.9 49.4 36.2 32.1 49.6Exchange loss (3.9) (1.8) (2.1) (1.2) (4.2)Other non-operating income 21.5 28.2 21.1 20.3 19.4Share of results of associated companies and joint ventures 51.5 45.9 58.4 47.3 43.8Amortisation of goodwill on acquisition of associated companies – – – (2.0) (1.5)

Total value added 1,990.8 1,500.6 1,363.1 1,337.0 1,274.2

Distribution of total value addedTo employees in wages, salaries and benefi ts 1,241.0 898.3 826.2 797.4 758.5To government in income and other taxes 116.8 99.6 93.8 93.1 83.8To providers of capital on: • Interest paid on borrowings 42.3 8.0 4.2 2.2 2.9• Dividends to shareholders 399.5 359.8 326.5 449.9 247.8

1,799.6 1,365.7 1,250.7 1,342.6 1,093.0

Balance retained in/(applied from) businessDepreciation 130.7 79.1 77.7 86.4 78.6Impairment of assets 9.3 16.5 1.0 1.1 1.9Retained profi ts (15.6) 5.3 (0.6) (149.7) 44.2

124.4 100.9 78.1 (62.2) 124.7

Non-production cost and incomeBad debts (9.2) (13.6) 0.2 25.7 11.1Income from investments and interest 79.9 49.4 36.2 32.1 49.6Exchange loss (3.9) (1.8) (2.1) (1.2) (4.2)

66.8 34.0 34.3 56.6 56.5

Total distribution 1,990.8 1,500.6 1,363.1 1,337.0 1,274.2

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Mr Peter SEAH Lim Huat, ChairmanMr Peter Seah Lim Huat, 60, was appointed non executive Chairman on 15 April 2002 and was last re-elected on 31 March 2006. He is currently a member of the Temasek Holdings Advisory Panel. Mr Seah was a banker for 33 years before retiring as Vice Chairman and CEO of the former Overseas Union Bank in 2001 and joining Singapore Technologies Pte Ltd as President and CEO. He held this position until 31 December 2004. Mr Seah is the Chairman of SembCorp Industries Limited* and Singapore Computer Systems Limited*. He also sits on the Boards of CapitaLand Limited*, Chartered Semiconductor Manufacturing Ltd#, STATS ChipPAC Ltd# and StarHub Ltd*.

Board of Directors

The names of the directors holding offi ce at the date of this report are set out below together with details of their academic and professional qualifi cations, age, date of fi rst appointment as director, date of last re-election as director as well as directorships in listed companies.

Mr Seah is also President Commissioner of PT Indosat Tbk, PT Bank Internasional Indonesia Tbk and Deputy Chairman of Global Crossing Limited and ST Telemedia Pte Ltd. His other appointments include being a member of the Board of Siam Commercial Bank Public Company Limited and the Government of Singapore Investment Corporation. He serves as a member of the Institute of Defence and Strategic Studies, Defence Science Technology Agency (DSTA), Singapore Chinese Chamber of Commerce and Industry and Singapore Business Federation Council. Mr Seah was awarded the Public Service Star (Bintang Bakti Masyarakat) in 1999 and made a Justice of the Peace in 2003. He graduated from the former University of Singapore (NUS) in 1968 with an Honours degree in Business Administration.

Mr TAN Pheng Hock Mr Tan Pheng Hock, 49, is the President and CEO of ST Engineering and an executive Director. He was appointed Director on 1 May 2001 and was last re-elected on 31 March 2005. Mr Tan sits on the Board of SembCorp Marine Ltd* and Neptune Orient Lines Limited*. He is Chairman of the Nanyang Polytechnic Board of Governors and Deputy Chairman of the Singapore Workforce Development Authority. Mr Tan began his career with the Group as an engineer in ST Marine in 1981. He was previously Executive Vice President of ST Marine, President of ST Kinetics, President and Chief Operating Offi cer of ST Engineering and ST Engineering Group President. Mr Tan holds a Bachelor of Science (First Class Honours) in Marine Engineering from the University of Surrey, UK and a Master of Science in Management from Stanford University, USA.

Mr KOH Beng Seng Mr Koh Beng Seng, 56, is the CEO of Octagon Advisers Pte Ltd. He was appointed an independent non executive Director on 15 September 2003 and will be due for re-election at this coming AGM under Article 98 of the Company’s Articles of Association. Mr Koh was Deputy President of United Overseas Bank Ltd (UOB) until 31 January 2005. Prior to UOB, Mr Koh was Senior Advisor to Asia Pulp & Paper Co Ltd and Advisor to Bank of China and the International Monetary Fund. Mr Koh has extensive experience in the fi nancial services sector. He was with the Monetary Authority of Singapore from 1973 to 1998, where he served as Deputy Managing Director from 1988 to 1998. Mr Koh is a Director of Bank of China (Hong Kong) Limited^, Fraser & Neave Ltd* and Sing-Han International Financial Services Limited. Mr Koh holds a Bachelor of Commerce (First Class Honours) from the former Nanyang University, Singapore, and a Master of Business Administration from Columbia University, USA.


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Lieutenant-GeneralNG Yat ChungLG Ng Yat Chung, 45, is the Chief of the Defence Force1. He was appointed a non executive Director on 15 June 2003 and will retire at this coming AGM. He joined the Singapore Armed Forces (SAF) in 1979 and was awarded the SAF Overseas Scholarship in 1980. In the course of his military career, he has held various key command andstaff positions in the Ministryof Defence (MINDEF). LG Ng is the Deputy Chairman of SRCC Pte Ltd. He is also a member of the Board of Trustees of the National University of Singapore and a Director of DSTA. LG Ng holds a Bachelor of Arts (Honours) in Engineering Tripos and a Master of Arts (Mathematics) from the University of Cambridge, UK, as well as a Master of Business Administration from Stanford University, USA.

Dr TAN Kim SiewDr Tan Kim Siew, 52, is Permanent Secretary (Defence Development), MINDEF. He was appointed a non executive Director on 15 December 2003 and will be due for re-election at this coming AGM under Article 98 of the Company’s Articles of Association. Prior to his present appointment with MINDEF, he was the Deputy Secretary (Policy) with the Ministry of Finance. He was formerly the CEO and Chief Planner of the Urban Redevelopment Authority (URA) from 1996 to 2001. Dr Tan is the Chairman of DSTA and also a Director of Singapore Technologies Holdings Pte Ltd. Dr Tan holds a Bachelor of Arts in Engineering Tripos and a PhD in Engineering from the University of Cambridge, UK.

Professor LUI Pao ChuenProf Lui Pao Chuen, 64, is the Chief Defence Scientist in MINDEF. He was appointed a non executive Director on 1 October 1997 and was last re-elected on 31 March 2006. Prof Lui sits on the management boards of various scientifi c and research institutes. He is an Adjunct Professor in the Engineering Faculty of NUS. He is also the Chairman of SembCorp Design and Construction Pte Ltd, a subsidiary of SembCorp Industries Ltd, and Chairman of the Management Boards of Temasek Defence Systems Institute, NUS, and Temasek Laboratories, NUS and NTU. Prof Lui graduated from the former University of Singapore with a Bachelor of Science (Honours) in Physics and obtained a Master of Science degree in Operations Research & Systems Analysis fromthe Naval Postgraduate School, USA.

PAST DIRECTORSHIPS IN THE LAST THREE YEARS

Mr Peter SEAH Lim Huat• Civil Aviation Authority

of Singapore• Board of Commissioners

of Currency Singapore• AF (Indonesia) Pte Ltd• EDBV Management Pte Ltd• EDB Ventures 2 Pte Ltd• EDB Ventures Pte Ltd• PSA International Pte Ltd• Singapore Technologies

Pte Ltd• Singapore Technologies

Semiconductors Pte Ltd

Mr TAN Pheng Hock• TranSys Pte Ltd• ST Training & Simulation

Pte Ltd• Unicorn International

Pte Limited

Mr KOH Beng Seng• Chartered Semiconductor

Manufacturing Ltd• STATS ChipPAC Ltd.• Far Eastern Bank Limited• Industrial & Commercial

Bank Limited• Overseas Union Bank Limited• United Overseas Bank Limited• United Overseas Bank

(Canada)

Lieutenant-GeneralNG Yat Chung• Singapore Technologies

Kinetics Ltd• Trade Development Board• Public Utilities Board

Dr TAN Kim Siew• HDB Corporation Pte Ltd• Keppel Offshore & Marine Ltd

Professor LUI Pao Chuen• SembCorp Engineers and

Constructors Pte Ltd

1 until 23 March 2007

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Mr Winston TAN Tien Hin Mr Winston Tan Tien Hin, 58, is the Managing Director of Corporate Brokers International Pte Ltd. He was appointed an independent non executive Director on 1 October 1997 and was last re-elected on 31 March 2006. Mr Tan is also a member of the Salvation Army Advisory Board. He holds a Bachelor of Science in Physics from the former University of Singapore.

Mr Lucien WONG Yuen KuaiMr Lucien Wong Yuen Kuai, 53, is the Managing Partner of Allen & Gledhill. He was appointed an independent non executive Director on 1 October 1997 and will be due for re-election at this coming AGM under Article 98 of the Company’s Articles of Association. Mr Wong is a Director of Cerebos Pacifi c Limited*. He is also a member of the Monetary Authority of Singapore and Board of Trustees of NUS. Mr Wong graduated from the former University of Singapore with a Bachelor of Law degree.

Dr Philip PILLAI Dr Philip Pillai, 59, is the Senior Partner of Shook Lin & Bok. He was appointed an independent non executive Director on 1 April 2000 and was last re-elected on 31 March 2005. Dr Pillai is a Director of Singapore Press Holdings Limited*, Hotung Investment Holdings Limited* and International Board of Trustees of Haggai Institute, Atlanta. Dr Pillai obtained his Bachelor of Law (First Class Honours) from the former University of Singapore and a Master of Law and SJD from Harvard University, USA.

Board of Directors


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Mr QUEK Poh Huat Mr Quek Poh Huat, 60, is the Group CEO of Singapore Power Ltd. He was appointed a non executive Director on 15 April 2002 and was last re-elected on 31 March 2006. Mr Quek is a Director of Singapore Power Ltd, SP PowerAssets Limited, SP AusNet@ and SP Services Limited. He is also the Chairman of PowerGas Ltd, SPI Management Services Pty Ltd, SP PowerGrid Limited and Temasek Management Services Pte Ltd. He is also Singapore’s non resident Ambassador to Sweden. Mr Quek was awarded the Public Service Star award in August 1994. He obtained a Bachelor of Science in Chemical Engineering from the University of Leeds, UK, and a Master of Science in Management from the Naval Postgraduate School, USA.

Mr Venkatachalam KRISHNAKUMARMr Venkatachalam Krishnakumar, 57, is a Senior Advisor to Barclays Bank PLC, Global Retail and Commercial Banking. Prior to his present appointment, he was a Senior Advisor to McKinsey and Co. He was the Chief Operating Offi cer and Chief Financial Offi cer for the Asia Pacifi c Consumer Bank of Citigroup until his retirement on 28 February 2005, after a 31-year career with them. He was appointed an independent non executive Director on 15 April 2002 and was last re-elected on 31 March 2005. He is a Director of Singapore Computer Systems Limited* and also a member of the Board of the Singapore Land Authority. He holds a Bachelor of Engineering and a Master of Business Administration from the Indian Institute of Management, India.

Brigadier-General Bernard TAN Kok KiangBG Bernard Tan Kok Kiang, 40, is the Director, Joint Intelligence Directorate of MINDEF. He was appointed Alternate Director to LG Ng Yat Chung on 1 June 2003. He has held various positions in the last 17 years and assumed his present offi ce in 2002. He joined the SAF in 1984 and was awarded the President cum SAF Scholarship in 1985. He was also awarded the Lee Kuan Yew Scholarship in 2001. BG Tan is currently the Director of URA, Chairman of Sembawang Country Club and Board member of St Joseph’s Institution. BG Tan holds a Bachelor of Social Science (First Class Honours) in Economics and Political Science from the University of Birmingham, UK, and a Master of Business Administration from the Massachusetts Institute of Technology, USA.

* listed on Singapore Exchange Securities Trading Limited# listed on both Singapore Exchange Securities Trading Limited and NASDAQ^ listed on Stock Exchange of Hong Kong@ A stapled group comprising SP Australia Networks (Transmission) Ltd, SP Australia Networks (Distribution) Ltd and

SP Australia Networks (Finance) Trust, acting through its responsible entity, SP Australia Networks (RE) Ltd. It is dual-listed on the Australian Stock Exchange and the Singapore Exchange Securities Trading Limited.

PAST DIRECTORSHIPS IN THE LAST THREE YEARS

Mr Winston TAN Tien Hin• Singapore Technologies

Electronics Limited• Enersave Holdings Ltd• Gintic Technologies Pte Ltd• Ascendas Pte Ltd

Mr Lucien WONG• CapitaLand Limited• Raffl es Hotel (1886) Ltd• John Hancock International

(Southeast Asia) Pte Ltd• John Hancock Life Assurance

Company Ltd• Construction Exchange Pte Ltd• Raffl es Investments (1993)

Pte Ltd• Raffl es Investments

(Singapore) Pte. Limited• Raffl es Investments Limited

Dr Philip PILLAI • Lindeteves-Jacoberg Ltd*• PT Agro Indomas

Mr QUEK Poh Huat• Shangri-la Asia Ltd• S I Technology Fund Limited• PSA Corporation Ltd• Asia Financial Holdings Pte Ltd• Singapore Power International

(Pte) Ltd• Singapore Telecommunications

Limited• Other subsidiaries of Temasek

Holdings (Private) Limited

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Senior Management


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Leadership is a team effort, drawing on individual strengths united by a common goal.

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Senior Management

1 Mr TAN Pheng Hockis President and CEO of ST Engineering and a Director of the ST Engineering Board.(Mr Tan’s profi le is on page 22)

2 Mr WEE Siew Kim Mr WEE Siew Kim, 46, was appointed Deputy CEO in May 2004, overseeing the Aerospace and Marine sectors. He is concurrently the President, Defence Business of ST Engineering, a position he has held since 1 May 2002. Prior to his current position, Mr Wee was President of ST Engineering’s Europe operations from July 2001. He joined ST Aerospace as an engineer in 1984. He was President of ST Aerospace from December 1997 to July 2001. Mr Wee is also a Member of Parliament for the Ang Mo Kio Group Representative Constituency. He has a Bachelor of Science (First Class Honours) in Aeronautical Engineering from the Imperial College of Science & Technology, University of London, UK, and a Master in Business Administration from Stanford University, USA.

3 Mr SEAH Moon Ming Mr SEAH Moon Ming, 50, was appointed Deputy CEO of ST Engineering, overseeing the Electronics and Land Systems sectors, and President, International Business in May 2004. He is concurrently President, ST Electronics, a position he has held since 8 December 1997, after serving as Managing Director from 1 July 1997. Mr Seah was General Manager of CET Technologies, a subsidiary of ST Electronics, from July 1994 to July 1997. He is Chairman of the Board of Governors of Temasek Polytechnic. Mr Seah also serves as Vice Chairman of ECS Holdings Limited and Trek 2000 Limited. He is a Fellow of the Institution of Engineers Singapore, a senior member of IEEE and a member of Eta Kappa Nu. Mr Seah holds a Master of Science (with distinction) in Electrical Engineering from the Naval Postgraduate School, USA.

4 Mr Raphael CHIN Mr Raphael Chin, 42, is currently Acting Chief Financial Offi cer of the ST Engineering Group. He began his career at ST Engineering in 1990 as an accountant in the Group’s Aerospace sector. He subsequently held various fi nance positions in its subsidiaries, including SASCO, Perth Aerospace Engineering and STA Systems. In 1999, he took up the position of Financial Controller at ST Marine. The following year, he was appointed VP/Financial Controller of ST Engineering and became SVP/Group Financial Controller in 2006. Mr Chin holds a Bachelor of Economics from Monash University, Australia, and a Master of Commerce (Hons) from the University of Auckland, New Zealand. He is a Fellow of the Institute of Certifi ed Public Accountants of Singapore.


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5 Mr TAY Kok KhiangMr TAY Kok Khiang, 57, was appointed President of ST Aerospace on 10 July 2001. Mr Tay joined ST Aerospace as Vice President/General Manager of ST Aerospace Engineering Pte Ltd in 1993 and held many senior management appointments before becoming President. He was Deputy President & Chief Operating Offi cer prior to his current appointment. Mr Tay holds a Bachelor of Engineering (Honours) and a Master of Science in Industrial Engineering from the National University of Singapore.

6 Mr SEW Chee Jhuen Mr SEW Chee Jhuen, 43,was appointed President ofST Kinetics on 1 September 2006. Prior to his current position, Mr Sew was the Deputy President (Operations) and President, Defence Business, of ST Kinetics. He joined ST Aerospace as an aeronautical engineer in 1988 and has held various management appointments before becoming Deputy President (Operations). Mr Sew holds a Bachelor of Science (with distinction) in Aeronautical Engineering and Mechanics from the University of Minnesota and a Master in Business Administration from Stanford University, USA.

7 Mr SEE Leong Teck Mr SEE Leong Teck, 56, was appointed President of ST Marine in December 1997. He began his career with Vosper Thornycroft (Singapore) and joined ST Marine as a naval architect in 1980, rising through the ranks to become Deputy General Manager and eventually President. Mr See holds a Master of Science in Naval Architecture from the University of London, UK and a Master of Business Administration from the Cranfi eld School of Management, UK.

8 General (Retired)John G COBURN Gen (Ret) John G COBURN, 64, was appointed Chairman and CEO of ST Engineering’s US subsidiary, VT Systems, Inc on 1 December 2001. Gen (Ret) Coburn joined the Group after an illustrious 39-year career with the US Department of Defense. Prior to taking up this position, he was Commanding General of the US Army Materiel Command (AMC), one of the largest commands in the army with 50,000 employees and activities in 42 states and over a dozen foreign countries. Gen (Ret) Coburn holds a Juris Doctor from the University of Missouri, USA.

29

65 4 2 1 3 7 8

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Organisation Chart AS AT 28 FEBRUARY 2007

Raphael CHINActing Chief Financial Offi cer

INTERNAL AUDIT

David EAWSenior Vice President

(Reporting to Audit Committee)

DEFENCE BUSINESS

LOW Yee KahSenior Vice President

INTERNATIONAL MARKETING

Patrick CHOYExecutive Vice President

TAN Pheng HockPresident and CEO

Members of Executive Offi ce

TECHNOLOGY

FONG Saik HayChief Technology Offi cer

NEW BUSINESS

Steven CHEONGSenior Vice President

HUMAN RESOURCE

TAN Nga KokSenior Vice President/

Director

LEGAL

LOW Meng WaiVice President/Director

INFORMATION TECHNOLOGY

TEO Chin SengChief Information Offi cer

STRATEGIC PLANS

Robin THEVATHASANSenior Vice President

CORPORATE COMMUNICATIONS

LIM Beng SeeVice President/Head

RISK MANAGEMENT

ONG Soon LeongVice President/Head

PROCUREMENT

GOH Bak NguanChief Procurement Offi cer/

Vice President

BUSINESSEXCELLENCE

Harnek SINGHVice President/Director

SPECIAL PROJECTS

WU Tzu ChienPresident

CHANG Cheow TeckPresident


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ADVANCED ENGINEERING CENTRE

FONG Saik HayPresident

INTEGRATED SERVICES

LIM Soon HengVice President/

General Manager

US OPERATIONS

John G COBURNChairman and CEO

EUROPE OPERATIONS

OOI Ling HeongExecutive Vice President

ELECTRONICS

SEAH Moon MingPresident

LEE Fook SunDeputy President,

Operations and President,Defence Business

NG Chong KhimPresident,

Communication and SensorSystems Group

Deputy President,Corporate Services and

Marketing

TAY Hun KiatPresident

Asia Pacifi c Operations

LAND SYSTEMS

SEW Chee JhuenPresident

TEO Boon SweeExecutive Vice President,

Specialty Vehicles & Services

GAN Boon JinSenior Vice President,

Land Systems & Solutions/Defence Business

Alex TEOVice President,

Total Support & Services

AEROSPACE

TAY Kok KhiangPresident

HO Yuen SangDeputy President,

Operations/Chief Operating Offi cer

& President,Defence Business

Jeremy CHANDeputy President, Marketing & Total Aviation Support

MARINE

SEE Leong TeckPresident

HAN Yew KwangChief Operating Offi cer,

Defence Business

WEE Siew KimDeputy CEO

AEROSPACE and MARINE President

DEFENCE BUSINESS

SEAH Moon MingDeputy CEO

ELECTRONICS and LAND SYSTEMSPresident

INTERNATIONAL BUSINESS

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Corporate Governance


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Board’s Conduct of Its Affairs (Principle 1)The Board’s corporate objective is the creation of long term value for shareholders. It strives to achieve this through its commitment to high standards of corporate governance by providing the leadership and guidance to management to develop and drive corporate strategy, business directions, acquisitions and divestments and risk policy for ST Engineering.

There are matters which the Board has reserved for its own decision making. These include major acquisitions and investments, shareholder matters, policies relating to corporate governance, CEO appointment, approval of budgets, board changes and appointments on board committees. Board members receive monthly consolidated management reports on the fi nancial performance of each business sector, capital commitments and signifi cant operational highlights.

Other matters are delegated to Board committees and the Executive Offi ce for review and decision making. The Executive Offi ce comprises the President and CEO; Dy CEO, Electronics and Land Systems/President, International Business; Dy CEO, Aerospace and Marine/President, Defence Business; and CFO.

The Board comprises 11 directors and an alternate director. On appointment, a new director is issued a formal letter of appointment setting out his duties and responsibilities under the various regulations. A new director is also given a briefi ng by the President and CEO on the strategies and performance of the Company and its key subsidiaries as well as an introduction to the senior management team.

The Board consists of members with established track records in fi nance, banking, technology, legal and management skills. Each non executive director brings to the Board an independent and objective perspective based on his training and expertise to enable balanced and well considered decisions to be made.

From time to time, the Board is updated on the relevant laws, continuing listing obligations and standards requiring compliance, and their implications for the Group as part of ongoing training for existing directors.

The Board meets at least twice a year and convenes special board meetings where necessary. The Company’s Articles of Association allows Board meetings to be conducted by way of teleconference or video conference. The Chairman has a second or casting vote. The Board is supported in its tasks by Board Committees which have been established to focus on the key areas of corporate governance oversight.

The number of Board and Board Committee meetings held during the year is tabulated below:

Minutes of the Board Committee meetings are made available to all Board members.


TYPE OF MEETING NO. OF MEETINGS

ATTENDANCE (AVERAGE %)

Board 2 77%

Audit Committee 5 100%

Business Investment and Divestment Committee

2 70%

Executive Resource and Compensation Committee

4 92%

Nominating Committee 1 100%

Senior Human Resource Committee 1 75%

Risk Review Committee 4 85%

Budget and Finance Committee 3 92%

Research, Development and Technology Committee

3 78%

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Independence of the Board (Principles 2 and 3)The Chairman of the Board is Mr Peter Seah, a non executive director. Mr Seah was appointed to the Board on 15 April 2002 as Chairman. He was re-elected at the 2006 AGM.

As a non executive director, Mr Seah is free from any relationship with the executive management of the Company that could materially interfere with the exercise of his independent judgment. However, as he is a Member of the Temasek Advisory Panel in Temasek Holdings, the Company’s major shareholder, he is not considered independent within the defi nition of the Corporate Governance Code (Code).

The President and CEO is Mr Tan Pheng Hock, who is an executive director. Save for Mr Tan Pheng Hock, our remaining 10 directors are non executive directors. The Nominating Committee (NC) has reviewed the provisions in the Code with regard to relationships and has concluded that fi ve directors are independent. The independent directors are Mr Koh Beng Seng, Mr Venkatachalam Krishnakumar, Dr Philip Pillai, Mr Winston Tan and Mr Lucien Wong. More than one third of the Board is independent as required under the Code.

According to the Corporate Governance Code guidelines, an independent director is 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. Relationship tests aside, it is the quality of the governance that counts and that distinguishes an independent and effective board. While not all the non executive directors are considered independent based on relationship tests, the Board has, at all times exercised independent judgment in decision making using its collective wisdom and experience to act in the best interests of the Company.

The Board held a total of two meetings during the year, in accordance with its planning cycle, for the approval of the FY2005 results and release of half year results respectively.

Board Committees (Principles 4, 7 and 11)Supporting the Board are the following Board Committees:

• Audit Committee• Business Investment and Divestment Committee• Executive Resource and Compensation Committee• Nominating Committee• Budget and Finance Committee • Research, Development and Technology Committee • Senior Human Resource Committee • Risk Review Committee• Tenders Committee

The composition of the Board Committees is found on thenext page.


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Mr Peter SEAH Lim Huat C C M C

Mr TAN Pheng Hock M M M M M

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Lieutenant-General NG Yat Chung M M M

Dr TAN Kim Siew M M

Professor LUI Pao Chuen C

Mr Winston TAN Tien Hin M M C

Mr Lucien WONG Yuen Kuai C M

Dr Philip Nalliah PILLAI M M C

Mr QUEK Poh Huat M M

Mr Venkatachalam KRISHNAKUMAR M M M M

Brigadier-General Bernard TAN Kok Kiang 1

NON BOARD MEMBER

Mr CHANG See Hiang CM

Denotes:C – Chairman M – Member CM – Co-opted Member

1 Alternate director to Lieutenant-General NG Yat Chung


BOARD COMPOSITION AND COMMITTEES AS AT 31 DECEMBER 2006

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Board Selection, Training and Evaluation of Performance (Principles 4 and 5)The NC is responsible for reviewing the composition of the Board regularly and identifying and selecting suitable candidates to the Board. The Committee also reviews the retirement and re-election of directors.

Dr Philip Pillai is the Chairman of the NC. The other members are Mr Peter Seah and Mr Venkatachalam Krishnakumar. Both Dr Pillai and Mr Krishnakumar are independent non executive directors.

The NC is charged with the responsibility of ensuring that the Company’s Board and its subsidiaries comprise individuals who are able to discharge their responsibilities as directors. The NC identifi es suitable candidates for appointment to the boards of the Group, in particular, candidates who can value add to the management through their contributions in the relevant strategic business.

The NC has the same members as the Executive Resource & Compensation Committee. This is because both committees share similar objectives of searching for talent and expertise for Board renewal and to strengthen management. During the year, the NC reviewed and affi rmed the independence of the Company’s independent directors and reviewed the composition of the Board and the profi le of Board members in relation to the needs of the ST Engineering Board. The NC also assessed the current board size and determined that it is adequate for the effective functioning of the Board. The NC also reviewed the directors who were due for retirement and re-election.

At each AGM, one third of the directors with the longest term in offi ce is required to retire and submit themselves for re-election. Mr Koh Beng Seng, LG Ng Yat Chung, Dr Tan Kim Siew and Mr Lucien Wong will retire. LG Ng has confi rmed that he will not be seeking re-election. Save for LG Ng, the retiring directors, being eligible, have offered themselves for re-election. The NC has reviewed their contributions and recommended that each of the retiring Directors be re-elected at the Company’s forthcoming AGM.

Access to Information (Principle 6) The Board receives monthly reports providing updates on key operational activities and fi nancial analysis. The Board also has unrestricted access to the President and CEO, the CFO, management and the Company Secretary as well as the internal and external auditors and the risk management team. The Board can also seek independent professional advice if deemed necessary.

Level and Mix of RemunerationDisclosure on Remuneration (Principles 7, 8 and 9) The Executive Resource & Compensation Committee (ERCC) performs the role of the Remuneration Committee. The Committee comprises Mr Peter Seah as Chairman, Dr Philip Pillai and Mr Venkatachalam Krishnakumar. The majority of members of the ERCC have held senior positions in large organisations and are experienced in the area of executive remuneration.

All the ERCC members are non executive directors. Apart from Mr Peter Seah, the other members of the ERCC are independent directors.

The ERCC has access to professional advice from appropriate external advisors where necessary. The ERCC may meet with these external advisors without the presence of management. All decisions at any meeting of the ERCC shall be decided by a majority of votes of the ERCC members present and voting (the decision of the ERCC shall at all times exclude the vote, approval or recommendation of any member who has a confl ict of interest in the subject matter under consideration).

The ERCC has been authorised by the Board to carry out the following key duties and responsibilities:

• Review and establish executive remuneration policy• Approve the remuneration package and service terms

for senior executives• Set targets for senior executives and approve equity based

incentive share plans and the granting of performance share awards

• Approve non executive director remuneration structure


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The ERCC met four times in 2006. Its key activities were centred on the assessment and development of the management team, target setting, and the determination of their compensation and incentive awards. In determining the overall remuneration package, the ERCC assesses executives’ contribution to the Group relative to preset targets, the performance of the Group, and the compensation and employment conditions of various industries.

During the year, the ERCC reviewed and approved the granting of share options. In accordance with the rules of the ST Engineering Share Option Plan (ESOP), share options are priced at market value, on a volume-weighted average for the shares on the Singapore Exchange (SGX) over the three consecutive trading days immediately preceding the date of grant. The computation is referenced against the daily offi cial list of the SGX and verifi ed by Finance. The subscription price of the share options granted cannot be modifi ed

during the term of the options, except for adjustments arising from variations to the share capital, as the ERCC considers appropriate.

As standing procedure, the ERCC, as the Plan Administrator, has determined that share options shall be granted twice a year on fi xed dates following the release of the audited FY end results and fi rst half year results, respectively. In the event that any announcement on any matter of an exceptional nature involving price-sensitive information is made, the ESOP rules require that options be granted on or after the fourth market day following release of the announcement.

During the year, the ERCC decided on conditional performance share awards under ST Engineering’s approved share plans as well as Economic Value Added-based incentives for senior executives.

The following information relates to remuneration of directors of ST Engineering:

NUMBER OF DIRECTORS IN REMUNERATION BANDS 2006 2005

Remuneration Bands $500,000 and above 1 1$250,000 to $499,999 – –Below $250,000 10 10

Total 11 11

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Summary compensation table for the year ended 31 December 2006 (Group):

STOCK OPTIONS DIRECTORS’ GRANTED EXERCISE NAME OF DIRECTOR SALARY * BONUS * FEES TOTAL IN 2006 PRICE EXERCISABLE PERIOD $ $ $ $ $

Peter Seah Lim Huat – – 182,000 182,000 44,500 3.01 10.2.2007 to 9.2.2011 44,500 2.84 11.8.2007 to 10.8.2011

Tan Pheng Hock 1,090,275 1,711,991 # 2,802,266 200,000 3.01 10.2.2007 to 9.2.2016 200,000 2.84 11.8.2007 to 10.8.2016

Koh Beng Seng – – 94,000 94,000 27,500 3.01 10.2.2007 to 9.2.2011 27,500 2.84 11.8.2007 to 10.8.2011

LG Ng Yat Chung – – 10,000✣ 10,000 – – –

Dr Tan Kim Siew – – 10,000✣ 10,000 – – –

Professor Lui Pao Chuen – – 97,500† 97,500 29,000 3.01 10.2.2007 to 9.2.2011

Winston Tan Tien Hin – – 142,000† 142,000 37,000 3.01 10.2.2007 to 9.2.2011 37,000 2.84 11.8.2007 to 10.8.2011

Lucien Wong Yuen Kuai – – 86,000 86,000 21,500 3.01 10.2.2007 to 9.2.2011 21,500 2.84 11.8.2007 to 10.8.2011

Dr Philip Nalliah Pillai – – 123,000† 123,000 33,000 3.01 10.2.2007 to 9.2.2011 33,000 2.84 11.8.2007 to 10.8.2011

Quek Poh Huat – – 128,000† 128,000 33,000 3.01 10.2.2007 to 9.2.2011 33,000 2.84 11.8.2007 to 10.8.2011

Venkatachalam Krishnakumar – – 116,000 116,000 25,500 3.01 10.2.2007 to 9.2.2011 25,500 2.84 11.8.2007 to 10.8.2011

BG Bernard Tan Kok Kiang (Alternate to LG Ng Yat Chung) – – – – – – –

1,090,275 1,711,991 988,500 3,790,766 873,000

* The salary and bonus amount shown is inclusive of allowances, CPF and performance shares earned.✣ Fees for public sector Directors are payable to government agencies.† Includes fees for directorship in subsidiary(ies).# Fees payable to Mr Tan Pheng Hock of $168,750 includes fees for directorship in subsidiaries and are payable to Singapore Technologies Engineering Ltd.


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The Board has delegated authority to the ERCC to determine the remuneration of the President and CEO and the senior management. The remuneration package for non executive directors is reviewed by the Board annually and the fees to be paid to Board members are subject to approval at the AGM.

A revised directors’ fee policy commensurate with the increased responsibilities of the Board was endorsed by the Board.

The Group has set out a group-wide cross section of executives’ remuneration by number of employees from $100,000 upwards in bands of $50,000 up to $250,000.

The Senior Human Resource Committee, chaired by Mr Peter Seah, comprises Mr Tan Pheng Hock, LG Ng Yat Chung and Dr Tan Kim Siew. The Committee reviewed the talent management and leadership development for the organisation and its senior staff. Through its support for and direction of the Group’s talent management and leadership initiatives, the Committee has helped to enhance the process of identifi cation and development of talents to be groomed for senior positions. The Committee has also reviewed the succession plans for key positions in the Group. Another signifi cant initiative that has materialised from the Committee’s support and direction is the establishment of the inaugural ST Engineering Overseas Scholarship and ST Engineering Scholarship in China.

Accountability (Principle 10)In September 2006, the SGX introduced a new requirement for directors to issue a Negative Assurance Statement to accompany its interim fi nancial results announcement, confi rming that nothing has come to the attention of the Board that may render the interim fi nancial results to be false or misleading. Certain internal procedures have been put in place that enable each member of the Board reviewing the interim fi nancial statements to immediately raise any material information known to him which would impact the accuracy of the statements prior to their release to SGX. Should there be any signifi cant adverse issue(s) raised by the Audit Committee (AC) or Board member which may affect the results in a material way, the scheduled date of the results announcement will be postponed to allow time for investigation or further review.

The re-appointment of auditors is subject to approval at each AGM. In making its recommendations to shareholders on the appointment and re-appointment of auditors, the Board relies on the review and recommendations of the AC.

Remuneration Data for Year 2006

Remuneration data for employees earning $100,000 and above per annum (as at 31 Dec 2006).

TOTAL COMPENSATION BANDS ($) TOTAL NO. OF EMPLOYEES TOTAL DOLLAR VALUES ($)

100,000 to 149,999 843 100,059,481 150,000 to 199,999 252 43,235,882200,000 to 249,999 81 17,950,249250,000 to 499,999 91 30,606,716500,000 to 749,999 10 5,789,157750,000 to 999,999 5 4,380,4331,000,000 to 1,249,999 1 1,116,0741,250,000 to 1,499,999 3 4,086,7851,500,000 to 1,749,999 1 1,611,420=> 1,750,000 4 7,934,048

Total 1,291 216,770,245

Note: Total compensation comprises all staff salaries (including CPF for Singapore staff), overtime pay, variable bonuses, special bonuses, annual wage supplement (13th month), dollar contribution by the Group under the Employees’ Share Ownership Scheme, benefi ts-in-kind plus overseas postees’ cost of living allowance.

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During the year, the Board convened an EGM to adopt new Articles of Association updating changes made to the Companies Act (Chapter 50).

Directors and key senior executives of the Group are prohibited from dealing in ST Engineering shares two weeks before the announcement of ST Engineering’s fi rst quarter, half year, third quarter and full year results up to the date of the announcement of the results. Additionally, all directors of the Group and its employees are reminded not to trade in situations where the insider trading laws and rules would prohibit trading.

The directors’ interests in shares of ST Engineering and its related companies during the year are found on pages 91 to 99 of this Report.

Audit Committee (Principle 11)The AC is supported in its work by the audit committees of the four main business sectors. The respective chairmen of the audit committees of the four business sectors are invited to attend the AC meetings of ST Engineering so as to have a clear understanding of policies made at the holding company level and to give feedback from the sectors’ audit committees.

The AC has full authority to commission and review fi ndings of internal investigations into matters where it is alerted of any suspected fraud or irregularity or failure of internal controls or infringement of any law likely to have a material impact on the listed Group’s operating results. It can investigate any matter within its terms of reference and with the full cooperation of management.

During the year, the Board adopted a Whistle Blowing Policy with the objective of providing a process for staff to raise, in confi dence and without fear of retaliation, incidents of possible wrongdoing or breach of applicable laws, regulations or policies to the respective chairmen of the audit committees in the Group.

The AC comprises Mr Koh Beng Seng as Chairman, Dr Philip Pillai and Mr Venkatachalam Krishnakumar. All the members of the AC are independent directors. The AC held fi ve meetings during the year, including a January 2006 session with the external and internal auditors, without management, to review the FY2005 results.

During the year, the AC reviewed and recommended to the Board the release of the full year and half year fi nancial statements, and considered and approved the 2006 Audit Plan and the 2006 Internal Audit (IA) Plan. It also reviewed the adequacy of internal control procedures, Interested Person transactions and the issues raised in IA reports with IA being given the authority to rate risk issues according to different risk levels, and to follow up with remedial actions by the management.

During the year, the AC was briefed on the external auditors’ appointment of a US coordinating partner to coordinate the audit of the US group of companies with the local offi ce partner who would be overall in charge of both the local and overseas companies’ audits.

The AC also focused on the need to bring new acquisitions into alignment with policies in the ST Engineering Group and to integrate practices and activities with the Group post acquisition.

The AC reviewed the level of non audit services performed by its external auditors to satisfy itself that non audit services performed by the auditors did not compromise their independence under regulatory requirements.

Having been delegated authority by the Board, the AC approved the release of the fi nancial results for the fi rst quarter and third quarter of 2006.

In February 2007, the AC reviewed the audit observations on the fi nancial statements for FY2006 audit with the external auditors. The AC also met with the external and internal auditors, without management, to review 2006 results. There were no major issues highlighted and the auditors confi rmed that they would provide an unqualifi ed report.

The AC also reviewed the performance of the external auditors. It recommended to the Board the re-appointment of Ernst & Young as auditors for FY2007, after having been satisfi ed with its standard of audit, independence and objectivity.



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Internal Controls (Principle 12)Internal Audit (Principle 13)The AC oversees and appraises the quality of the audit effort of the Company’s IA function. The Board, through the AC, the President and CEO and the CFO, considers that the Group’s framework of internal controls and procedures is adequate to provide reasonable assurance of the integrity, confi dentiality and availability of critical information, and the effectiveness and effi ciency of operations, safeguarding of assets and compliance with applicable rules and regulations. It is also satisfi ed that problems are identifi ed on a timely basis and there is in place a process for best practices and follow up actions to be taken promptly to minimise unnecessary lapses and for the identifi cation and containment of business risks.

The IA supports the AC in reviewing the adequacy of the Company’s internal control system.

Staffed by qualifi ed auditors, IA has unrestricted direct access to the AC. The Head of IA’s primary line of reporting is to the Chairman of the AC, although he reports administratively to the CFO of the Company.

IA plans its internal audit schedules in consultation with, but independently of, management and its IA Plan is submitted to the AC for approval at the beginning of each year. The AC also meets with IA at least once a year without the presence of management to gather feedback on management’s level of cooperation and other matters that warrant AC’s attention. All audit reports are submitted to the AC for deliberation with copies of these reports extended to the relevant senior management, for prompt corrective actions, as recommended. Furthermore, IA’s summary of fi ndings, recommendations and updates on management’s actions taken are discussed at the quarterly AC meetings. There were no signifi cant control issues highlighted by IA in 2006.

During the year, IA briefed the AC on its plan to carry out surprise audits across the Group. The IA continued with its system of rating a company at the end of an internal audit for the purpose of differentiating the high risk issues which require more serious attention.

As part of the Group’s effort to continually improve on its control framework, IA has also introduced a quarterly Control Self Assessment Declaration for all auditable entities to sign off and declare that Management has reviewed and complied with all the requirements and that there are no material matters or issues that have not been highlighted.

On an ongoing basis, IA ensures that good practices are shared within the Group.

Risk ManagementThe Risk Review Committee, chaired by Mr Winston Tan, comprises LG Ng Yat Chung, Mr Lucien Wong, Mr Venkatachalam Krishnakumar, Mr Tan Pheng Hock and Mr Chang See Hiang, a co-opted member and Board Director of ST Aerospace. The Committee oversees the risk management framework and reviews key risk exposures, including business continuity management.

The Committee met four times during the year to review the key risks and the measures put in place as well as the key risk indicators of each sector. Emerging risk perspectives facing the Group were also discussed.

Budget and FinanceChaired by Mr Lucien Wong, the Budget and Finance Committee members include Mr Tan Pheng Hock, Mr Quek Poh Huat and Dr Tan Kim Siew.

Budgets prepared by the respective subsidiaries are consolidated at the ST Engineering level and presented to the Budget and Finance Committee for review and recommendation to the Board for approval.

During the year, the Budget and Finance Committee held three meetings to review the FY2006 budget assumptions and forecast. The Committee also met to review the 2007 Plan and recommended to the Board for approval.

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Business Investment and Divestment CommitteeThe Business Investment and Divestment Committee comprises Mr Peter Seah as Chairman, Mr Tan Pheng Hock, LG Ng Yat Chung, Mr Winston Tan and Mr Quek Poh Huat.

During the year, the Business Investment and Divestment Committee held two meetings to consider major investments by the Group.

Communication with Shareholders (Principle 14)Greater Shareholder Participation (Principle 15)The Group has a comprehensive investor programme aimed at providing existing and potential investors with comprehensive and prompt information to enable them to have a better understanding of the Group’s businesses, direction and performance. ST Engineering maintains a regularly updated website which provides a chronology of the latest press releases and highlights of corporate events of each of its sectors and their respective capabilities.

In 2006, ST Engineering hosted more than 300 investor meetings, including participation in 11 international investor roadshows and conferences in 25 cities. ST Engineering is committed to timely disclosures to ensure that the investing community receives a balanced and updated view of the Group’s performance and businesses.

Board members attended the AGM and EGM in 2006 where shareholders present were given an opportunity to seek clarifi cation or question the Board on issues pertaining to the resolutions proposed before they were voted on. The external auditors were also present at the AGM to assist the directors in answering questions on audit related matters from shareholders. The Group fully supports the Code’s principle to encourage active shareholder participation. More on Investor Relations can be found on pages 46 to 49.

Financial and other information are made available on the Company’s website at http://www.stengg.com and these are regularly updated.


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CODE PRINCIPLE REFERENCEPAGES

1 The Board’s Conduct of its Affairs Every company should be headed by an effective Board to lead and control the company. The Board is collectively responsible for the success of the company. The Board works with management to achieve this and the management remains accountable to the Board.

33

2 Board Composition and Guidance There should be a strong and independent element on the Board, which is able to exercise objective judgement on corporate affairs independently, in particular, from management. No individual or small group of individuals should be allowed to dominate the Board’s decision making.

34 and 35

3 Chairman and Chief Executive Offi cer There should be a clear division of responsibilities at the top of the company – the working of the Board and the executive responsibility of the company’s business – which will ensure a balance of power and authority, such that no one individual represents a considerable concentration of power.

34 and 35

4 Board Membership There should be a formal and transparent process for the appointment of new directors to the Board.

34 and 35

5 Board Performance There should be a formal assessment of the effectiveness of the Board as a whole and the contribution by each director to the effectiveness of the Board.

36

6 Access to Information In order to fulfi l their responsibilities, Board members should be provided with complete, adequate and timely information prior to board meetings and on an ongoing basis.

36

7 Procedures for Developing Remuneration Policies There should be a formal and transparent procedure for developing policy on executive remuneration and for fi xing the remuneration packages of individual directors. No director should be involved in deciding his own remuneration.

36


CODE PRINCIPLE REFERENCEPAGES

8 Level and Mix of Remuneration The level of remuneration should be appropriate to attract, retain and motivate the directors needed to run the company successfully but companies should avoid paying more than is necessary for this purpose. A signifi cant proportion of executive directors’ remuneration should be structured so as to link rewards to corporate and individual performance.

36 and 39

9 Disclosure on Remuneration Each company should provide clear disclosure of its remuneration policy, level and mix of remuneration, and the procedure for setting remuneration in the company’s annual report. It should provide disclosure in relation to its remuneration policies to enable investors to understand the link between remuneration paid to directors and key executives, and performance.

36 to 39

10 Accountability The Board should present a balanced and understandable assessment of the company’s performance, position and prospects.

39 and 40

11 Audit Committee The Board should establish an Audit Committee with written terms of reference which clearly set out its authority and duties.

40

12 Internal Controls The Board should ensure that the management maintains a sound system of internal controls to safeguard the shareholders’ investments and the company’s assets.

41 and 42

13 Internal Audit The company should establish an internal audit function that is independent of the activities it audits.

41

14 Communication with Shareholders Companies should engage in regular, effective and fair communication with shareholders.

42

15 Communication with Shareholders Companies should encourage greater shareholder participation at AGMs, and allow shareholders the opportunity to communicate their views on various matters affecting the company.

42

COMPLIANCE DIRECTORY

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Corporate Social Responsibility

TOUCHING LIVES IN THE COMMUNITY

An integral part of cultivating a winning spirit entails the inculcation of a passion to contribute to society. As a responsible corporate citizen, ST Engineering proactively participates in community activities, devoting time and effort to the less fortunate and promoting arts and education.

For the second successive year, the Safety@Work Creative Awards inspired tertiary students to spread the message of safety in a multimedia art competition. Over 200 entries were received, with increased participation from students of ten out of 13 key tertiary institutions in Singapore. The Group is also a sponsor of the NUS Yong Siew Toh Conservatory of Music.

In 2006, the Group’s companies joined hands to launchvarious charity drives, which included an auction and a cross country run, to raise $250,000 for the President’s Challengein Singapore. This was the third consecutive year thatST Engineering had supported this worthy cause.

The Group continued to be involved in its adopted homes and charities, through donations, visits and organised activities. These organisations included the Moral Home for the Disabled and the Spastic Children’s School.

Advancing the Creation and Transfer of KnowledgeApart from charity, ST Engineering is committed to education programmes and platforms that spark the exchange of knowledge and ideas. During the year, the Group supported prominent conferences such as the IE Forum 2006, organised by International Enterprise Singapore; the Global Entrepolis @ Singapore, organised by the Economic Development Board; and the Shangri-La Dialogue, a leading event for defence and security diplomacy in Asia Pacifi c by the International Institute for Strategic Studies.

ST Engineering is a pioneer sponsor of the Securities Investors Association (Singapore) and for the past six years, has supported its seminars and workshops to educate retail investors, enabling them to make informed investment decisions. In addition, the Group is a sponsor of the Temasek Defence Systems Institute – a centre for postgraduate education in defence technology and systems for Singapore and international students; and the Lee Kuan Yew School of Public Policy – an academic study and research centre in the areas of public policy and public management.

(from left to right)

Staff of ST Aerospace subsidiary SASCO and children from the Moral Home enjoying the games at the Fiesta by the Sea – SASCO’s Family Day on 24 June 2006.

Staff of ST Marine participating in Clean up the World at Sungei Buloh Wetland Reserve.


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Environment, Health and Safety

ADOPTING A HOLISTIC APPROACH

ST Engineering maintains a holistic approach in meeting the diverse needs of its stakeholders – from shareholders and customers to employees, partners and the community. While it continues its work on delivering economic value, the Group considers its corporate responsibility with regards to the Environment, Health and Safety (EHS) a top priority.

The Group’s efforts on EHS issues are focused on fi ve areas: a wise and balanced conservation of resources, waste minimisation, leveraging on environmentally-friendly technology, the active involvement of all its people, and a focus onsafety fi rst.

In line with its efforts to promote EHS issues within the Group, ST Engineering has, since 2004, organised the annual ST Engineering EHS Awards to laud exemplary contributions.

Today, almost all the Group’s business units are ISO 14001 Environmental Management System and/or OHSAS 18001 Occupational Health and Safety Management System certifi ed. Across the Group, ST Engineering has won industry awards for its ongoing improvements to health and safety standards (see chart).

EnvironmentST Engineering adopts environmentally-friendly practices where feasible, including the use of green products, throughout its operations. Efforts to conserve the environment areevident in its processes – reducing, reusing and recycling wherever possible.

Some of these practices include reducing electrical consumption, preventing wastage of electricity through theuse of motion sensors and timers, working towards a ‘paperless’ working environment, employing machines to maximise theuse of raw materials, and minimising wastage from the production process.

For ease of recycling, reusable items like photocopy paper, print cartridges, cardboard, aluminium, wooden pallets, crates and metal containers are collected and segregated according to the materials recycling process.

Procedures are also in place to ensure proper disposal of industrial waste.

Health and SafetyST Engineering puts a premium on ensuring a healthy and safe working environment for its employees. From the onset, each new employee undergoes a safety induction course as part of the orientation to the organisation. Regular health checks and talks are organised to raise awareness and educate staff on health and safety issues.

The senior management is actively involved in planning, monitoring and implementing health and safety standards, which range from monthly inspections, internal and external audits, to safety seminars and talks conducted both internally and externally. All health and safety incidents and near misses are promptly reported, investigated and learning points shared to prevent similar incidents from recurring.

ST Engineering will continue to benchmark itself against evolving international standards on EHS issues, and inculcate a corporate culture that constantly seeks to excel in these areas.

SBA / SBU ISO 9001

ISO 14001

OHSAS 18001

OTHERS

SASCO ✓ ✓

STA Engineering ✓ ✓

STA Engines ✓ ✓

STA Systems ✓ ✓

STA Supplies ✓ ✓

ST Electronics ✓ ✓

ST Electronics (Satcom & Sensor Systems)

✓ ✓

Kinetics Integrated Manufacturing

✓ ✓ ✓

Kinetics Design & Development

✓ ✓ ✓

Kinetics Integrated Services ✓ ✓ ✓

Allied Ordnance of Singapore ✓ ✓ ✓

Advanced Material Engineering

✓ ✓ ✓

STA Inspection ✓

Singapore Test Services ✓ ✓

ST Marine ISRS*

VT Miltope ✓

VT Halter Marine ✓

* International Safety Rating System

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Investor Relations

ENGAGING THE INVESTMENT COMMUNITY

Investor relations at ST Engineering is aimed at cultivatinga long term and synergistic relationship with current and potential investors, and analysts.

By broadening and deepening communication channels,ST Engineering is primed to keep investors and analysts abreast of the Group’s developments and communicate its strategic direction and operations, while at the same time, garner invaluable feedback and insights.

With the Group’s diverse institutional investors largely from key markets in the US, Europe and Hong Kong as well as Australia, Japan and the Middle East, the Group’s investor relations initiatives are planned and customised to suit the varying investment philosophies and needs of these investors.

In response to investors’ requests for more frequent meetings, ST Engineering stepped up its investors relations efforts. In 2006, it hosted more than 300 one-on-one investor meetings, over 70% of which were with overseas institutions as part of 11 investor roadshows and conferences in 25 cities around the world. Several of these were in new fi nancial markets. This was about three times more than the number of meetings conducted two years ago.

The Group also hosted visits to its Aerospace, Land Systems and Marine facilities, a luncheon at its exhibition pavilion at Asian Aerospace 2006, four quarterly results briefi ngs and an AGM.

In March 2006, the Group launched its Chinese language website with an investor relations section, thus opening a new communication channel to its Chinese stakeholders.

Recognising that investors rely on independent sources for information on the Group, ST Engineering is also committed to maintaining regular communication with analysts from about 20 securities fi rms who actively provide coverage on the Group, and helping them better understand the Group’s strategies and operations.

(from left to right)

ST Engineering’s Board of Directors listened and addressed investors’ issues and feedback at the AGM.

ST Aerospace hosted a facility tour for analysts and fund managers in June, where management showcased various aerospace operations including the MD-11 freighter conversion programme.

Analysts and fund managers visited ST Marine in November, and gained a better understanding of its shipyard operations, including a close up view of the Republic of Singapore Navy’s new stealth frigates and other commercial vessels under construction.


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Investor Relations

ST ENGINEERING WEB DIRECTORY

ITEM WEBSITE REMARKS

Homepage www.stengg.com Latest news updates, results and share price of the Group

Chinese homepage www.stengg.com/cn/home/home.aspx Newly launched in 2006

Share price performance

www.stengg.com/investorelations/stockperformance.aspx Charts historical share price performance with daily updates

Quarterly results and presentations

www.stengg.com/investorelations/webcasts.aspx Files available for downloading, typically within half an hour of announcement

Quarterly results webcasts

www.stengg.com/investorelations/webcasts.aspx Broadcast live; archive version available within four hours of the event

Annual reports www.stengg.com/investorelations/annualreports.aspx Electronic versions of current and previous annual reports dating back to FY2000

Investor relations calendar

www.stengg.com/investorelations/ircalendar.aspx Calendar of past and upcoming investor relations events of the Group, including dividend payment and results announcement dates

Mailing list subscription

www.stengg.com/mediacentre/mailinglistsubscribe.aspx For news and updates of the Group, disseminated via e-mail to investors

Frequently Asked Questions (FAQs)

www.stengg.com/investorelations/faq.aspx Answers to FAQs

Feedback www.stengg.com/contact/feedback.aspx Accepts feedback online

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Investor Relations

INVESTOR RELATIONS CALENDAR 2006

1st Quarter 2006

• Webcast media and analysts’ briefi ng of FY2005 results• Post results investor lunch • Analyst Lunch @ Asian Aerospace 2006• Release of Annual Report 2005• Macquarie Singapore Corporate Day – New York/Boston/

San Francisco• Europe Investor Roadshow• CSFB Asian Investment Conference – Hong Kong• Annual and Extraordinary General Meetings

2nd Quarter 2006

• Payment of fi rst and fi nal tax exempt (one-tier) dividend of 4.0 cents per share and a special tax exempt (one-tier) dividend of 9.6 cents per share for the year ended 31 December 2005

• Webcast media and analysts’ briefi ng of 1Q2006 results• Post results investor lunch• Citigroup Singapore Conference – Tokyo• Fund managers and analysts’ visit to ST Aerospace

3rd Quarter 2006

• Webcast media and analysts’ briefi ng of 2Q2006 results• Post results investor lunch• CLSA Investors’ Forum – Hong Kong• JP Morgan Asia Pacifi c Equity Conference – New York• US Investor Roadshow

4th Quarter 2006

• Australia Investor Roadshow• Webcast media and analysts’ briefi ng of 3Q2006 results• Post results investor lunch• Europe Investor Roadshow• Fund managers and analysts’ visit to ST Marine• Morgan Stanley Asia Pacifi c Summit – Singapore• Japan Investor Roadshow

FINANCIAL CALENDAR 2007

Date* Event

13 Feburary Announcement of FY2006 results

May Announcement of 1Q2007 results

27 April Proposed Ex-Date for dividend entitlement

18 May Proposed payment of fi rst and fi nal tax exempt (one-tier) dividend of 4.0 cents per share and a special tax exempt (one-tier) dividend of 11.11 cents per share for the year ended 31 December 2006

August Announcement of 2Q2007 results

November Announcement of 3Q2007 results

* The dates are indicative and subject to change. Please refer to ST Engineering website, www.stengg.com, for the

latest updates.


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Share Price Performance

ST ENGINEERING SHARE PRICE HISTORY

YEAR 2006 2005 2004 2003 2002

High $3.30 $2.86 $2.33 $2.06 $2.56Low $2.62 $2.33 $1.89 $1.47 $1.55Average* $2.95 $2.52 $2.09 $1.83 $1.99

* Defi ned as the average closing prices of active trading days for the year.

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Share price($)

Trading volume(millions)

0

5

10

15

20

25

30

35

40

45

Share price Trading volume

2.4

2.5

2.6

2.7

2.8

2.9

3.0

3.1

3.2

3.3

3.4

Source: Bloomberg

ST Engineering Straits Times Index Source: Bloomberg

Ex-Date for the payment of declared dividends of 13.6 cents per share

Share price ($)

Index

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec2,200

2,300

2,400

2,500

2,600

2,700

2,800

2,900

3,000

3,100

2.5

2.6

2.7

2.8

2.9

3.0

3.1

3.2

3.3

3.4

ST ENGINEERING SHARE PRICE AND TRADING VOLUME IN 2006

ST ENGINEERING SHARE PRICE COMPARED TO THE STRAITS TIMES INDEX IN 2006

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Human Resources


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HARNESSING THE POWER OF PEOPLE

Nurturing a Winning SpiritIn an age of globalisation and rapid change, companies need to remain innovative and adaptable to maintain their competitiveness.

Given that people are its most valued resource, ST Engineering’s intent is for its employees to internalise the winning spirit so that the Group can conquer new challenges and continue to succeed in a business landscape marked by uncertainty and global competition.

Achieving this requires a clear focus and direction on the part of management, supported by a cohesive, passionateand motivated workforce. ST Engineering’s fi ve core values form the compass that guides the organisation and breathes life and meaning to it. They are the software that drivesST Engineering’s thinking process, which is further expressed through the Group’s strategic objectives and thrusts.

A critical component of a winning spirit is a “can-do” attitude among staff. This involves nurturing a mindset which perseveres against the odds, ventures to take calculated risks and views setbacks as learning experiences, not failures.

Grooming Leaders through Holistic DevelopmentDeveloping people and helping them gain the required skill sets and competencies to succeed in these competitive times are key areas of focus. In any organisation, leaders play critical roles. In ST Engineering, the development of leaders and optimising their potential at all levels receive the utmost attention.

Over the past few years, eight leadership competencies have been identifi ed, following consultation with and feedback from key staff. These leadership competencies are aligned with the Group’s core values and business strategies, and they underpin the process of identifying and grooming potential leaders for growth and succession in critical roles.

The competencies are mapped out in a formal framework which forms the basis for leadership development within ST Engineering. Behavioural indicators for each of the competencies are tailored to leaders at different levels so as to guide their growth and development.

The Group continues to cultivate a corporate culture which empowers and engages its employees. A key initiative is its interactive online system, the Leadership EnhAncement Portal (LEAP), which enables staff to take ownership of their own learning by assessing themselves against the leadership competencies, discovering their learning styles, selecting the options for development and formulating a personal development action plan.

ST Engineering adopts an open approach to staff development, to cater to the varied learning styles and needs of employees. Apart from structured learning programmes, other avenues for staff development include on-the-job learning, participation in special projects, overseas postings and job rotation. Staff are also encouraged to seek like-minded learning partners for mutual motivation and encouragement.

At the same time, ST Engineering strives to develop a culture of mentorship and coaching. This is done through its mentoring scheme which has been introduced to leverage on the wealth of experience within the organisation, and to provide a channel for the effective transfer of knowledge, skills and experiences among staff.

Human Resources

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Human Resources

ST Aerospace (6,517) 38%

ST Electronics (3,491) 20%

Land Systems (5,508) 32%

ST Marine (1,412) 8%

Others (317) 2%

SECTOR

Managerial (819) 5%

Engineering (4,592) 27%

Corporate Function/Admin (2,177) 12%

Sales & Marketing (404) 2%

Technical & Others (9,253) 54%

JOB GROUP

Degree & Equivalent (4,236) 24%

Diploma & Equivalent (4,827) 28%

“O”/“A” Levels & Equivalent (2,687) 16%

Secondary Level & Lower (1,395) 8%

Trade Certifi cates (4,100) 24%

EDUCATIONAL QUALIFICATION

Singaporean/PR (9,098) 53%

American (3,015) 17%

British (36) 1%

PRC/Hong Kong (2,769) 16%

Indian (124) 1%

NATIONALITY

Malaysian (236) 2%

Others (1,967) 10%

WORKFORCE ANALYSIS (as at 31 December 2006) Total: 17,245


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Motivating Through Rewards & Recognition ST Engineering’s reward and compensation system is performance based. Every year, Key Performance Indicators (KPIs) are established for each business area, and staff are measured and rewarded according to the KPIs, Economic Value Added achieved and individual performance.

A variety of other reward and recognition schemes is also used. These include short and long term monetary incentives, such as salary increments, promotions, special bonuses, cash awards and share options. This remuneration model lays the ground for fair, objective and competitive compensation.

Acknowledging that motivation at work cannot be purely attributed to monetary incentives, ST Engineering recognises performance with a holistic range of non monetary incentives. Awards are conferred for exemplary performance, such as the model employee, long service, safety, housekeeping and Kaizen

awards. Staff are also recognised and rewarded for innovative excellence and for patents secured. Special acknowledgement letters are presented to employees for outstanding contributions or compliments received from the public.

Having a motivated workforce is a pivotal part of nurturing a winning spirit within the organisation. By developing effective policies and practices which cultivate a “can-do” attitude, grooming people to their fullest potential and rewarding them, ST Engineering aims to spur its employees to optimise their contribution to the organisation.

Human Resources

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Awards and Commendations

RECOGNISING EXCEPTIONAL ACHIEVEMENT

Finishing the race fi rst is only second to running the race well. It is the journey that helps to gel the organisation together. This is the guiding principle for ST Engineering – to inculcate a winning spirit in its people to not only emerge ahead of the competition, but also attain personal bests.

In 2006, ST Engineering was recognised for its outstanding achievement in various spheres, ranging from business excellence, quality and safety to corporate social responsibility, employee welfare, people and investor relations.

Business ExcellenceST Engineering was among the top 20 companies in the Singapore International 100 Ranking 2006, organised by International Enterprise Singapore. This ranks Singapore’s top 100 companies by their overseas revenues.

The Group’s Electronics sector was conferred several awards for its innovation. These included the inaugural Asia Brand – Ten Most Prospective Brands Award, jointly organised by government agencies and media in China to recognise companies which have shown innovation in developing and marketing quality products, technologies and businesses in Asia.

It was also a recipient of the National Infocomm Award (Merit) in the Most Innovative Infocomm Product/Service category by the Infocomm Development Authority of Singapore, for the Intelligent Transport Management System, as well as the Innovation in Engineering Award by the Institution of Engineering and Technology (IET), UK, and the Merit Award of the Asia Pacifi c InfoComm Technology Alliance Awards 2006, both in the Security category, for its StegMark ImageLite and Compact Flash products respectively.

The Group’s US satcom operations was awarded the Frost & Sullivan Product Innovation of the Year, for its GSM capable VSAT Hub. It also clinched the Marketing Campaign of the Year award by the American Marketing Association, for its groundbreaking 2005 campaign, No Constraints.

ST Engineering’s Marine and Land Systems sectors were each awarded the Defence Technology Prize 2006 Team Award by the Singapore Ministry of Defence (MINDEF).

QualitySubsidiaries of the Aerospace sector – SASCO, STA Engines, STA Systems – were recognised for their efforts in upholding high quality standards. They were awarded the Star, Gold and Silver awards respectively by SPRING Singapore at the National Innovation Quality Circles.

The Group’s Land Systems sector and its subsidiaries, Ordnance Development & Engineering Company and Advanced Material Engineering, received the Meritorious Defence Partner Award (Employers) from MINDEF. The sector was also awarded MINDEF’s Meritorious Defence Partner Award (Civil Resource Owners).

STAR Automotive Centre, a subsidiary of the Land Systems sector in China, was recognised for its Guangzhou and Zhejiang operations.

Its Guangzhou operations won the Customers Satisfactory Brand Award for Automotive Services in China, jointly awarded by the China Corporations Value Promotion League, the China Association of Small and Medium Business Enterprises and the Ren Ming Daily Press; as well as the 2006 Auto Industry Oscar Award for Outstanding Reliability & Service Excellence, awarded by the Guangzhou Nan Fang Daily and Xin Jin Press.

Its Zhejiang operations received the Quality Award for Reliability and Satisfactory Services in Zhejiang Province, which is a joint


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Awards and Commendations

award by the Zhejiang Industry & Economic Commission, the Zhejiang Corporation League, the Zhejiang Association of Enterprises and the Zhejiang Daily Press.

SafetySubsidiaries of the Group’s Aerospace sector, STA Engines and STA Engineering, achieved the Silver and Bronze respectively at the I-4-OSH Awards by the Singapore Ministry of Manpower (MOM).

STA Engines and Advanced Material Engineering, subsidiaries of the Aerospace and Land Systems sectors respectively, both received the Annual Safety & Health Performance Award 2006 (Silver) from MOM.

The Land Systems sector was a recipient of the Occupational Safety and Health Best Practices Awards 2006 (Outstanding Achievement Award – Safety Solutions), also awarded by MOM.

Corporate Social ResponsibilityThe Aerospace, Electronics and Land Systems sectors, with their subsidiaries – Advanced Material Engineering, SASCO, STA Engineering, STA Engines, STA Systems, STA Supplies and ST Electronics (Info-Software Systems) – as well as the Marine sector, received the SHARE Platinum Award by the Community Chest of Singapore.

Subsidiaries of the Group’s Electronics and Land Systems sectors – Allied Ordnance of Singapore, Chartered Pyrotechnics Industries, Ordnance Development & Engineering Company, Singapore Test Services, STA Inspection and ST Electronics (Training & Simulation Systems) – received the SHARE Gold Award. Allied Ordnance of Singapore and Ordnance Development & Engineering Company were also recipients of the 5-Year and 15-Year Outstanding SHARE Award respectively.

Employee WelfareThe Group’s Aerospace subsidiary, STA Systems, received the

SAF Award for Employer – Distinguished Defence Partner from MINDEF.

ST Electronics (Info-Software Systems), Ordnance Development & Engineering Company, subsidiaries of the Electronics and Land Systems sectors, received the MHA Award for NSMen’s Employers (Commendation), conferred by the Singapore Ministry of Home Affairs (MHA). In addition, ST Electronics (Info-Comm Systems) was one of fi ve recipients of the Special Award for NSmen’s Employers 2006 from MHA, in appreciation and recognition of employers’ support and contributions towards National Service activities.

For promoting a healthy lifestyle at the workplace, the Group’s Land Systems sector and subsidiaries of the Aerospace sector – STA Engineering, SASCO, STA Engines, STA Systems and STA Supplies – received the Singapore HEALTH Award 2006 (Gold) by the Health Promotion Board, Singapore Ministry of Health, while the Aerospace sector received the Platinum award. The Aerospace sector was also a recipient of the Sporting Singapore Inspiration Awards 2006 by the Singapore Sports Council.

The Group’s Land Systems sector was also one of six winners of the Lifelong Learners Award 2006 (Corporate Productivity), which recognised employers who provide a work environment that encourages learning. This was awarded by SPRING Singapore, Singapore Workforce Development Agency, National Trades Union Congress (NTUC), Mediacorp and Ernst &Young.

PeopleThe Group’s Aerospace subsidiary, STA Systems, received the NTUC Model Worker Award 2006 and the SLF Educational Tour Award for Model Workers.

Investor RelationsThe Group received the silver award for Best Annual Report 2005 at the Singapore Corporate Awards 2006.

(from left to right) ST Aerospace and its subsidiaries, STA Engineering, STA Engines, STA Systems and SASCO, were presented the SHARE Platinum Award by the Community Chest of Singapore at the Istana in October.

ST Electronics’ subsidiary received the Innovation in Engineering Award at the IET award ceremony in October.

The team from ST Kinetics received the Defence Technology Prize 2006 Team Award.

ST Electronics (Info-Comm Systems) received the National Infocomm Awards 2006 (Merit) in the Most Innovative Infocomm Product/Service category for its i-Transport System.

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57 Group Overview58 Growing the Global Footprint59 Performance of the Group62 ST Engineering at a Glance66 Aerospace Sector70 Electronics Sector74 Land Systems Sector78 Marine Sector81 Dynamics and Risk Factors of the Business81 Industry Review82 Risk Management85 Sensitivity Analysis85 Shareholder Return86 Financial Review88 Accounting Policies88 Prospect for 2007

Operating Financial Review

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GROUP OVERVIEW

Group History and OverviewST Engineering was formed in December 1997 through the merger of four public listed companies – ST Aerospace, ST Electronics, ST Automotive and ST Marine – within the then Singapore Technologies Group. In early 2000, the Group acquired the Chartered Industries of Singapore group of companies and merged it with ST Automotive to form ST Kinetics.

Each of these entities has over 30 years of operating history and is a leading and established player in its respective industry. As a Group, ST Engineering is a well recognised provider of integrated defence and engineering systems and solutions, dedicated to meeting the needs of global customers.

Headquartered in Singapore, ST Engineering today has a staff strength of over 17,000, most of whom are located in Singapore and the US. It has also established a strong presence in other parts of the world, offering a comprehensive range of products and services through its four sectors, namely Aerospace, Electronics, Land Systems and Marine.

GROUP VISION

To be a global defence and engineering group

GROUP MISSION

To bring value to its customers and partners by delivering total integrated quality solutions and support

GROUP VISION, MISSION & OBJECTIVES

STRATEGIC OBJECTIVES

• Enlarge Strategic Capabilities• Expand Global Networks• Embrace Partnerships• Enhance Business Excellence

STRATEGIC THRUSTS

• Customer Focus• Safety & Quality First• People Excellence• Technology Edge• Operational Excellence• Financial Strength

Key Performance Indicators

• New products/services and capabilities introduced

• Sales and profi t growth • Return on equity • Economic Value Added• R&D expenditure and

deliverables

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GROWING THE GLOBAL FOOTPRINT

Cementing Presence in the USThe ST Engineering Group’s US headquarters, Vision Technologies Systems (VT Systems), has today established operations in 20 locations throughout the US, Canada and Central America, with a total workforce of almost 4,000.

For 2006, VT Systems represented about 28% of the Group’s revenues compared to 13% in 2001 when it was incorporated.

VT Systems has successfully completed seven acquisitions, contributing to the overall growth of the Group’s four sectors. Acquisition of leading businesses has strengthened the Group’s presence in the Americas through a pioneering range of solutions by the VT Systems group of companies.

VT Miltope continues to support the US military programme by delivering various models of its rugged computer notebook, which can withstand the rigours of fi eld use and extreme temperatures. iDirect’s ground-based satellite communications platform was used as a primary means of communications immediately following Hurricane Katrina in 2005, when terrestrial communications were disrupted. iDirect’s products are also used in a tsunami warning system offered by the Survey of India.

VT Halter Marine’s four fi sheries survey vessels built for the National Oceanic and Atmospheric Administration (NOAA) are equipped with low acoustic signatures and are able to conduct multiple types of research in a single deployment – a combined capability unavailable in the private sector. VT SVC is America’s leader in emergency response vehicles, combining innovative body design with integrated advanced communications systems.

VT Systems has also forged various teaming agreements and alliances aimed at organic growth, facilitating the access of engineering excellence from affi liates in Singapore to the US market. VT Systems’ aerospace arm is part of a global network and a leading US third party provider of Maintenance, Repair and Overhaul (MRO) services for a wide range of commercial aircraft, bringing value to operators, OEMs and lessors through its broad range of capabilities. Moving forward, VT Systems will continue to align operations and leverage complementary

capabilities, not only among its US-based operating companies but also with the operations in Singapore and affi liates in other parts of the world. Initiatives to bring products to new markets, such as VT LeeBoy’s specialty vehicles into China, and the sourcing of raw materials and components through bundling of demand across business units as well as low cost sources, are but three initiatives to synergise across platforms and borders.

Through acquisitions, partnerships and collaborations, VT Systems has grown to be the Group’s largest presence outside of Singapore. VT Systems will continue to pursue profi table and growing companies with strong management teams that offer a strategic fi t with ST Engineering’s core business sectors, working towards the ultimate aim of spearheading the Group’s long term business growth in the Americas.

Expanding in ChinaST Engineering has fi rm presence in the booming China market, with representative offi ces in Beijing, Chengdu, Hong Kong, Guangzhou, Shanghai, Shenyang, Shenzhen and Yi Chun. With a China staff strength of almost 3,000, it has invested about US$100m in the Aerospace, Electronics and Land Systems sectors there. These include an aircraft MRO facility and electronics R&D centre in Shanghai, a software development centre in Shenzhen, commercial automotive maintenance facilities in Guangzhou and Hangzhou, and production plants for construction and mining vehicles in Beijing and Guiyang and electronics systems manufacturing in Beijing and Chengdu.

The Group’s current projects in China include rail and transportation work in Guangzhou, Suzhou and Beijing. In Beijing, the Group is installing an integrated traffi c command centre system for the effi cient management of major rail lines in the Chinese capital, making it the fi rst Singapore company to win a major contract related to the 2008 Olympics.

ST Engineering is currently looking to expand its current presence in 16 cities, targeting upcoming second tier cities such as Nanjing, Ningbo, Suzhou and Wuxi.


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PERFORMANCE OF THE GROUP

a) Half yearly performance 2006 2005 IN $m EXCEPT PER SHARE AMOUNTS 1H 2H FY 1H 2H FY

Turnover 2,070 2,416 4,486 1,530 1,808 3,338 EBITDA 259.5 333.9 593.4 216.0 254.1 470.1 EBIT 205.3 252.3 457.6 176.9 212.6 389.5 Profi t before tax 259.4 304.9 564.3 244.5 258.7 503.2 Profi t after tax and minority interests 198.3 246.8 445.1 189.4 206.9 396.3 Basic earnings per share (cents) 6.8 8.4 15.2 6.5 7.1 13.6 Net asset value per share (cents) 45.4 53.1 53.1 43.4 51.2 51.2

06

06

05

05

2nd half year $2,416m

1st half year $2,070m

2nd half year $1,808m

1st half year $1,530m

HALF YEARLY TURNOVER ($m)

HALF YEARLY PROFIT BEFORE TAX ($m)

06

06

05

2nd half year $304.9m

1st half year $259.4m

1st half year $244.5m

The Group’s turnover for 2H2006 increased by 17% or $346m compared to the fi rst half. All sectors reported higher turnover in the second half vis-à-vis the fi rst half.

The Group’s Profi t Before Tax (PBT) for 2H2006 increased by 18% or $45.5m over the fi rst half. All sectors reported higher PBT in the second half vis-à-vis the fi rst half.

05 2nd half year $258.7m

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b) Full year performance

Turnover The Group’s turnover of $4,486m for FY2006 was higher

than that of FY2005 by 34% or $1,148m. All sectors reported higher turnover.

Aerospace 37%

Electronics 21%

Land Systems 22%

Marine 16%

Others 4%

FY2006 TURNOVER

BY SECTORS

Aerospace 54%

Electronics 19%

Land Systems 12%

Marine 14%

Others 1%

FY2006 PROFIT BEFORE TAX BY SECTORS

Aerospace Electronics Land Systems

Marine Others

Profi t Group PBT for FY2006 of $564.3m was higher than

that achieved in FY2005 by 12% or $61.1m. All sectors, except Marine sector, recorded higher PBT.

EARNINGS PER SHARE (CENTS)

06

15.15

05

04

0302

13.64

12.26

11.2911.47

FY2006 EVA CONTRIBUTION BY SECTOR (%)

59%

21%

10%

15%

(5%)

Earnings Per Share (EPS) The Group’s basic and diluted EPS for FY2006 were 15.15

cents and 15.00 cents respectively (FY2005: 13.64 cents and 13.54 cents respectively). The higher EPS was a result of higher profi t after tax for FY2006.

Economic Value Added (EVA) The Group’s EVA for FY2006 was $327.8m, an increase of

13% or $37.2m over FY2005. The Weighted Average Cost of Capital was 6.6% for 2006 (2005: 6.1%).


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Property, Plant and Equipment 10%

Associated Companies & Investments 8%

Intangible Assets 7%

Deferred Tax Assets 2%

Stocks & WIP 19%

Debtors, Deposits & Prepayments 40%

Funds under Management 7%

Bank Balance & Other Liquid Funds 7%

DEPLOYMENT OF ASSETS – 2005

Property, Plant and Equipment 17%

Associated Companies & Investments 6%

Intangible Assets 10%

Deferred Tax Assets 2%

Stocks & WIP 20%

Debtors, Deposits & Prepayments 30%

Funds under Management 4%

Bank Balance & Other Liquid Funds 11%

DEPLOYMENT OF ASSETS – 2006

Total AssetsAs at end December 2006, total assets of the Group amounted to $5.51b compared to $4.57b as at end December 2005. The deployment of assets is as follows:

Capital ExpenditureThe Group incurred capital expenditure of $197.1m in FY2006. The addition of new hangars and related equipment and programme-related purchases such as engines for new capability setup and rotables by the Aerospace sector accounted for the bulk of the capital expenditure for the year. The details are shown in Note 7 to the Financial Statements.

06

05

CAPITAL EXPENDITURE BY SECTOR ($m)

0 20 40 60 80 100 120 140 160 180 200

Aerospace Electronics Land Systems Marine Others

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ST ENGINEERING

CORE CAPABILITIES

• A global engineering group providing integrated solutions for the aerospace, electronics, land systems and marine industries

• Specialises in dual use technologies, with both military and commercial applications which traverse traditional industry lines

• Provides customised solutions through a network-centric approach that leverages the strengths of the Electronics sector and harnesses innovative technology

MAJOR DEVELOPMENTS IN 2006

• Continued to grow global operations, with strategic acquisitions and investments worth over $230m

• Showcased latest technologies and solutions at Asian Aerospace 2006

• Expanded into new markets like Panama, Scandinavia and countries in the Middle East

• Launched the third successful Safety @ Work Creative Awards, a community programme to raise safety awareness

REVENUE IN $m

4,486

3,338

FY 06

FY 05

PROFIT BEFORE TAX IN $m

564

503

FY 06

FY 05

FACTS

• One of the largest companies listed in Singapore and one of Asia’s largest defence and engineering groups, with an order book of $7.4b and total assets of $5.5b as at end 2006

• Global footprint in 20 countries and 35 cities, with over 100 subsidiaries, joint ventures and associated companies

• VT Systems, ST Engineering’s US headquarters in Virginia, has extensive US operations across the Group’s core businesses

• Component stock of the FTSE/ASEAN 40, MSCI Singapore Free Index, S&P Asia Pacifi c 100 and Straits Times Index

• 98 patents granted to date, with 259 patents fi led

• Global workforce of over 17,000 with 4,592 engineering staff


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ELECTRONICS SECTORAEROSPACE SECTOR

REVENUE IN $m

1,673

1,236

FY 06

FY 05


305

255

FY 06

FY 05

REVENUE IN $m

951

701

FY 06

FY 05


105

76

FY 06

FY 05

CORE CAPABILITIES

• Aircraft Maintenance & Modifi cation – Line and base maintenance – Technical services and maintenance planning – Modifi cations, conversions and refurbishment – Design, development and technology integration

• Component & Engine Total Support – Engine maintenance, repair and overhaul – Aircraft mechanical and avionics component repair – Materials and spares support and management FACTS

• Offers Total Aviation Support in a wide range of services – airframe, engine and component maintenance; engineering design and technical services; and aviation materials and management services

• Ranked by Overhaul & Maintenance 2005 as the world’s largest airframe maintenance provider with 6.7m commercial airframe manhours in 2004

• Worldwide network of facilities with diverse global customer base that includes many of the world’s leading airlines, airfreight operators and military aircraft operators

• 6,517 staff


• Completed acquisition of SAS Component stake and subsequently merged it with Airline Rotables Ltd, increasing total shareholding to 71.3%

• Signed lease agreement for new facility in Panama• Secured contracts with Airbus and other new start-up airlines for Total

Aviation Support programmes• Redelivered 2,500th aircraft to long term customer, FedEx Express• Added capacity to Changi and Seletar facilities in Singapore

CORE CAPABILITIES

• Large-Scale Systems Group – Intelligent transportation systems – Intelligent building management systems – Combat systems integration

• Communication & Sensor Systems Group – e-Government communications and infocomm technologies solutions – Satellite communications systems – Communications, microwave, radar and sensor systems – Intelligent traffi c and fl eet management systems – Info-security solutions – Electro-optics systems

• Software Systems Group – e-Government solutions – Digital animation and media – Mobile realtime and homeland security systems – Training and simulation systems FACTS

• Specialises in rail transportation systems and solutions with projects in China, the Philippines, Singapore, Taiwan and Thailand

• One of the world’s leading providers of satellite communications systems and solutions as well as multi-channel multipoint distribution systems

• Provides tracking and management systems for more than 50,000 vehicles in the region

• Provides e-Government systems and solutions for governments internationally

• Filed 50 patents, of which 25 have been granted since 1998• 3,491 staff


• Acquired 80% of MÄK Technologies – a US specialist in simulation software and toolkits

• Acquired 70% of PM-B – a mission-critical environment specialist based in Singapore

• Expanded operations into new markets in Albania, Qatar, Dubai and new regions in China

• Won contracts to provide rail solutions in Guangzhou and Beijing, China• Launched exclusive collaboration agreement with SingTel to provide

high-speed two-way broadband connectivity to the maritime industry• Partnered Hewlett-Packard in a consortium shortlisted for Singapore’s

$2b e-Government project• Launched battlefi eld management system commissioned by the

Singapore Armed Forces for its 3rd Generation networked fi ghting force on the Bionix II platform

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MARINE SECTOR LAND SYSTEMS SECTOR

1,002

600

FY 06

FY 05

70

65

FY 06

FY 05

REVENUE IN $m


702

660

FY 06

FY 05

80

88

FY 06

FY 05

REVENUE IN $m


CORE CAPABILITIES

• Integrated Design – Multi role military platforms – Weapon systems and advanced munitions – Surveillance, remote operations, vetronics and fl eet

management systems – Military and homeland security protection solutions – Emergency response, commercial and specialty vehicles

• Integrated Operations and Support – Maintenance, repair and overhaul of vehicles, weapons and material

handling equipment – Accident repair and vehicle inspection – Engineering analysis and industrial test services – Asset preservation and spares management – Training and agency representation

• Integrated Production – Contract manufacturing – Industrial services FACTS

• Produces over 120 different types of specialty vehicles, including construction and mining equipment, multi-temperature trucks, distribution trailers and bodies

• World’s largest manufacturer of commercial class asphalt pavers and beverage trucks

• Offers defence products that are geared for network-centricity and increased connectivity

• One of few manufacturers in the world to offer both 40mm weapon systems and a wide range of supporting ammunition

• 37 patents granted to date, with 56 patents fi led• 5,508 staff


• Added VT LeeBoy, a leading US manufacturer of road construction and maintenance equipment, to its stable of specialty vehicles companies• Formed Advanced Technology Research Centre, a 50-50 joint venture

company with DSO National Laboratories, to undertake research and technology development in advanced materials for both defence and commercial applications

• Secured a three-year agreement from the Texas Government permitting any governmental or non-profi t agency in Texas to purchase emergency vehicles from VT SVC without competitive bids

• The Bionix II infantry fi ghting vehicle entered into service with the Singapore Armed Forces

CORE CAPABILITIES

• Project Management – Turnkey shipbuilding – Ship upgrading and conversion – Weapon systems integration and installation

• Inhouse Design Expertise – Custom designed naval and commercial vessels using inhouse

CAD/CAM facilities – Lightweight ship design – Stealth technology

• Shipbuilding – Extensive water jet expertise – Thin gauge steel and aluminium construction for naval vessels

• Maintenance – Overhaul and maintenance of high performance marine engines

• Shiprepair – Upgrading and retrofi tting – Conversion of commercial vessels FACTS

• Five shipyard facilities – two in Singapore and three in the US• Track record in the design and construction of sophisticated naval and

commercial vessels as well as high engineering content shiprepair services including ship conversions

• Designs and develops a variety of vessels including landing ship tanks, patrol vessels, feeder container vessels, platform supply vessels, fi sheries survey vessels, articulated tug barges, and pure car truck carriers

• 1,412 staff


• Delivered two locally built stealth frigates, RSS Intrepid and RSS Steadfast, and launched the fi fth and fi nal stealth frigate, RSS Supreme, for the Republic of Singapore Navy

• US operations secured contracts worth US$649m to build a fi sheries survey vessel, articulated tug barges, a SWATH vessel and a T-AGM(R) vessel

• Singapore operations secured contracts worth $177m to build two RoRo vessels, two seismic research vessel conversions, a cutter suction dredger modifi cation and a platform supply vessel conversion

• Launched the fi rst two of four 1030 TEU container vessels

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ST Engineering at a Glance

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Aerospace



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FLYING HIGH WITH TOTAL SUPPORT

In 2006, ST Aerospace maintained its leading positionas the world’s largest commercial airframe Maintenance,Repair and Overhaul (MRO) provider through the global expansion of existing airframe MRO operations. It also broadened its spectrum of aircraft components and engines maintenance capabilities.

To enhance the integration of its operations, ST Aerospace reorganised its core operations under two business segments – Aircraft Maintenance & Modifi cation (AMM), which now includes the engineering and development capabilities; and Component & Engine Total Support (CETS), which includes the integration of components and engines MRO with rotables management and support.

Aircraft Maintenance & Modifi cation (AMM)In 2006, ST Aerospace’s AMM business continued to extend its relationship with its core customers. New customers, both large and small, were added. It secured more work with key customers in Asia, Europe and the US, such as All Nippon Airways, FedEx Express, Japan Airlines, Northwest Airlines, UPS as well as Asiana Airlines, Copa Airlines, TransAsia Airways and many others.

During the year, ST Aerospace entered into a three-year agreement with Airbus that allowed Airbus to directly procure aircraft MRO services from any of ST Aerospace’s global network of facilities.

Key milestones were also reached with long term customers as ST Aerospace celebrated the redelivery of the 2,500th aircraft to FedEx Express, 330th to Northwest Airlines, 300th to UPS, and 100th to Japan Airlines.

ST Aerospace’s strategic partnership with the Republic of Singapore Air Force (RSAF) continued to grow through the

extension of its range of support. Following the success of the Transport Wings Course programme, the RSAF committed to a 20-year Rotary Wing Course (RWC) with ST Aerospace for the provision and maintenance of its helicopters. Through this RWC agreement, ST Aerospace acquired a fl eet of six EC120 helicopters, began modifi cations to the aircraft and received certifi cation from the Civil Aviation Authority of Singapore.

In the engineering and development arena, the group forged ahead with its engineering expertise in both technical services as well as design and development activities. Developing technical services capabilities enables ST Aerospace to undertake total support requirements for airlines under its Total Aviation Support. Its repertoire of technical services competencies includes maintenance planning, maintenance control, design and reliability engineering. This enhances civil aircraft operators’ aircraft and equipment performance and lifecycle supportability, thus reducing customers’ overall maintenance costs.

On the military engineering front, ST Aerospace continued to build on its range of profi ciencies to undertake major engineering enhancements to military aircraft. It took to market its integrated suite of tactical enhancements for fi xed and rotary-winged platforms. Featuring its military aircraft upgrade capabilities on board the Super Puma at Asian Aerospace 2006, the group demonstrated solutions that included systems and equipment such as a centralised communications, navigation and sensor management system, a digital moving map, a door gun system and an aircraft ship integrated secure and traverse system. The latter two were equipment designed and installed by ST Aerospace.

ST Aerospace also continued with developments on its indigenous FanTail and Skyblade unmanned platforms,which are now expanded into families of scalable mini Unmanned Aerial Vehicles (UAV) for use in home defenceand other applications.

ST Aerospace, world’s largest commercial airframe MRO, offers Total Aviation Support from its spectrum of airframe, components, engines and engineering capabilities.

Aerospace

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Component & Engine Total Support (CETS)In 2006, the CETS segment continued to add to its spectrumof repair and overhaul capabilities for both enginesand components.

It completed the acquisition of SAS Component in March as part of its strategy to provide a spectrum of components support, particularly in Europe. This enabled CETS to develop a more holistic Total Aviation Support proposition and components track record.

The group made strides in maintenance capabilities for the CFM56-3 and CFM56-7B engines and completed the capability setup for the CFM56-7B. It also started developing the CFM56-5B MRO capability, including the construction of a new engine test cell. Its subsidiary, STA Engines, secured long term contracts from operators of the Boeing 737NG andAirbus A320, as well as military customers from as far asSouth America.

During the year, CETS added some 402 new repair capabilities, primarily on pneumatic, hydraulic, electrical and avionics components for commercial and military aircraft. To further add value to its components MRO activities, its subsidiary, STA Systems, embarked on an initiative to build its own designated engineering representative library.

The group maintained the confi dence of major customers such as FedEx Express, Japan Airlines, UPS and many other air forces and airlines. Customers added include Adam Sky Connection Airlines (Adam Air), Aloha Airlines, Bangladesh Air Force, Peru Air Force, Shanghai Airlines, Xiamen Airlines and other airlines from China. ST Arospace has also set up service centres through collaborations with Original Equipment Manufacturers (OEM) such as Parker Aerospace, Eaton and Hamilton Sundstrand.

The newly formed CETS offers Maintenance-By-the-Hour (MBH™) and Free2Fly™ services to customers. MBHTM is a trademarked service through STA Systems and STA Supplies in Singapore while Free2Fly™ is a trademarked material supply programme by SAS Component, the group’s newly acquired European components business. Customers around the world can draw on capabilities within both groups, depending on their needs.

PERFORMANCE OF THE AEROSPACE SECTOR

Half Yearly PerformanceTurnover of the Aerospace sector in 2H2006 of $854m was $35m higher compared to 1H2006. The increase in turnover came from the three business groups namely, AMM, Component/Engine Repair & Overhaul (CERO) and Engineering & Materials Services (EMS). The higher turnover in AMM was contributed by higher redeliveries in ST Aviation Services Co (SASCO). In CERO, higher sales were due to six months of sales from the newly acquired SAS Component in 2H2006 versus four months of sales included in 1H2006. In EMS, the turnover increase was due mainly to project milestone completions.

Compared to 1H2006, PBT for 2H2006 at $168.9m was $32.6m higher. AMM and EMS registered higher profi ts. The higher PBT in AMM was due to higher turnover and improved profi tability, while the increased profi t in EMS was due to maturity of funds under management as well as higher dividend income. The profi t increase in these two business groups was partially offset by lower contributions from CERO as a result of post-acquisition business alignment initiatives and closure of the Stavanger facility at SAS Component.

Aerospace

(from left to right)In 2006, ST Aerospace inducted a new wide-body hangar at SASCO’s Changi location.

ST Aerospace advanced on its engineering expertise to enhance customers’ aircraft and equipment performance and life cycle supportability.

ST Aerospace made strides in maintenance capabilities for the B737 with the completed setup of its CFM56-7B MRO capability.

Newly acquired SAS Component merged with ARL for a more holistic Total Aviation Support proposition.


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Full Year PerformanceAerospace sector’s FY2006 turnover at $1,673m was higher than that of FY2005 by 35% or $437m. The higher turnover was due to higher redeliveries in AMM as well as the inclusion of sales from SAS Component in CERO, but these were partially offset by fewer project milestone completions and lower material sales in EMS.

Compared to FY2005, the Aerospace sector’s FY2006 PBT of $305.3m was higher by 20% or $49.9m. The higher PBT was mainly attributable to improved profi tability and higher turnover in AMM, but this was partially offset by lower contribution from CERO due to post-acquisition business alignment initiatives and closure of the Stavanger facility at SAS Component.

Major Acquisitions2006 saw the integration of Airline Rotables Limited (ARL) with the newly acquired SAS Component, when ST Aerospace transferred its stake in Airline Rotables (UK Holdings) to SAS Component for US$22.5m (about $35.5m). The transaction raised ST Aerospace’s shareholding in SAS Component from 67% to 71.3%.

Major ProjectsST Aerospace maintained a healthy order book in 2006 that included Passenger-To-Freighter (PTF) aircraft conversions, maintenance activities and engineering programmes.

Conversions for the MD-11 progressed steadily in 2006 for customers including FedEx Express and UPS. To date, the Aerospace sector has redelivered 42 converted MD-11 aircraft, with 12 completed in 2006.

Engineering achievements in 2006 included the initiation of engineering development efforts for the Boeing 757-200 PTF conversion programme for the Royal New Zealand Air Force. Designs for the required multi mission platform were reviewed and approved in 2006 for work to commence in 2007.

Maintaining its leadership in MRO services among Low Cost Carriers (LCC) and start-up airlines, ST Aerospace clinched contracts from fi ve of six emerging airlines in China and added programmes by other major LCCs. Of notable mention was the award of a US$635m (about $1b) agreement with Airbus to provide Total Aviation Support (including aircraft line and light maintenance, components management and support, engineering and technical services) for Skybus Airlines’ fl eet of 65 Airbus A320 family of aircraft over a period of 12 years. Skybus Airlines is a new LCC in the US.

Expanding into new markets, ST Aerospace signed a Memorandum of Understanding (MOU) to set up an airframe MRO centre in Panama. A lease agreement with the Agencia del Área Económica Especial Panamá-Pacífi co was signed for a new facility to commence operations in 2007. This latest addition of Panama Aerospace Engineering (PAE) would complement the sector’s MRO centres in Mobile and San Antonio, as well as enhance the group’s global network in the US, Europe and Asia Pacifi c. PAE would initially perform commercial aircraft maintenance and modifi cation works on narrow-body aircraft and aim to progressively build a capacity of more than 1.2m manhours and a workforce of 1,000 skilled engineers and technicians.

Its China facility, STARCO, has been operational for two years and has successfully completed major works on over 120 aircraft for China Eastern Airlines, and other Chinese and international carriers. Within its fi rst year of operations, STARCO was the fi rst non Chinese MRO company to attain a certifi cation from the US Federal Aviation Administration for the A310, A319/A320 and A330. In 2006, STARCO gained more approvals from the European Aviation Safety Agency and the Australian Civil Aviation Safety Authority, in addition to certifi cation from the Chinese airworthiness authorities.

Aerospace

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Electronics



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TRANSFORMING THE WORLD WITH INTELLIGENT SOLUTIONS

Established in 1969, ST Electronics is a leading electronics and Information Communications Technology (ICT) systems house in the region. Currently marketing to more than 60 countries, the sector identifi ed growth areas in e-Government and ICT, satellite communications and digital media.

Its Homeland Security (HLS) solutions, digital animation capability, intelligent building management and intelligent transportation solutions for infrastructure build up have become internationally accepted. In 2006, ST Electronics continued to extend its market reach into Qatar, Dubai, Albania and new regions in China.

Leveraging on China’s growth, ST Electronics has set up operations in more than eight cities in China, including Beijing, Chengdu, Guangzhou, Yichun, Hong Kong, Shanghai, Shenyang and Shenzhen. It now targets second tier cities such as Nanjing, Ningbo, Suzhou and Wuxi. A production plant was set up by its Chengdu offi ce and it is seeking new opportunities in the central-western region. ST Electronics also continued to tap on infrastructural opportunities in Dongbei, Huadong, Huanan and Huabei, as cities in these areas start to develop.

ST Electronics is part of a consortium with Hewlett-Packard, Cisco Systems, Microsoft and Accenture, that was shortlisted by the Infocomm Development Authority of Singapore for its $2b IT outsourcing Standard ICT Operating Environment project for 60,000 civil servants, expected to be awarded in 2007.

ST Electronics’ core business activities are organised into three key business groups.

Large-Scale Systems Group (LSG)Over the years, ST Electronics has won rail transportation projects in China, the Philippines, Singapore, Taiwan and Thailand. This year, it further strengthened its foothold in China with new rail projects.

In the area of intelligent building management and security systems, ST Electronics won international contracts for the Grand Indonesia Jakarta, Thai Airways Building in Bangkok and a parking guidance system in Sydney. Recent awards for building security systems were for CCTV, fi re protection and camera surveillance systems for Doha’s old Souq for the 2006 Asian Games.

On the homefront, ST Electronics secured contracts for various combat systems for the Singapore Navy’s frigates programme.

Communication & Sensor Systems Group (CSG)ST Electronics continued to lend its transport management expertise in international events. Its cetrac® fl eet telematics solution was used by buses to ferry delegates during Singapore 2006 in September. The highlight of this event was the annual meetings of the Boards of Governors of the International Monetary Fund and World Bank Group.

Together with iDirect, ST Electronics will support SingTel in its newly launched maritime satcom solutions for the Asian market. iDirect was selected to provide a communications platform for 600 sites in Mexico for Farmacias Similares’ pharmacy chain.

The Full Mission Ship Handling Simulator can be confi gured to handle all types of vessels.

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Electronics

VT Miltope received a contract for the F/A-22 integrated maintenance information system portable maintenance aid for the US Air Force.

Software Systems Group (SSG)ST Electronics’ e-Government and ICT solutions surged ahead during the year. It will be providing an information network system to the 16-member Regional Cooperation Agreement On Combating Piracy And Armed Robbery Against Ships In Asia (ReCAAP) – the fi rst regional government-to-government agreement to combat piracy in Asia.

Together with CrimsonLogic, ST Electronics will be implementing the TradeXchange – a neutral and secure trade platform facilitating the exchange of information within Singapore’s trade and logistics community.

The state-owned Qatar Security Services Company appointed ST Electronics to provide HLS consultancy.

The Electronics sector’s digital animation focus has earned recognition from renowned names like Nelvana, Promenade Pictures and Weta. The Ten Commandments, its jointly produced digital animation movie with Promenade Pictures, will be launched in the US in 2007.

PERFORMANCE OF THE ELECTRONICS SECTOR

Half Yearly Performance The turnover of $527m recorded in 2H2006 was higher than that of 1H2006 by 24% or $103m. All three business groups, namely LSG, CSG and SSG, contributed to the increased turnover.

The PBT of $59.7m for 2H2006 was higher than that of 1H2006 by 33% or $14.8m. At the business group level, the increase in profi t was contributed by LSG due mainly to higher sales and better overall performance of overseas subsidiaries. CSG’s profi t was higher due mainly to higher sales, but this was partially offset by lower investment income. The increased profi t for SSG was in line with its higher sales. Full Year Performance FY2006 turnover of $951m for the Electronics sector was higher than that of FY2005 by 36% or $250m. All three business groups contributed to the higher turnover with major contribution from CSG for the sales of satellite communication products and electro-optics equipment. Turnover for SSG was higher with the delivery and installation of educational multimedia laboratory systems in Kazakhstan and the milestone completions of a command and control system project, while milestone completions of the Land Transport Authority’s (LTA) Circle Line project and Taipei and Kaohsiung MRT projects accounted for the higher turnover in LSG.

The Electronics sector’s PBT for FY2006 at $104.6m was 38% or $28.6m higher than that of FY2005. Both CSG and SSG recorded higher PBT, while LSG had a lower PBT in FY2006 vis-à-vis FY2005. The higher PBT in CSG was due to increased turnover and investment income, while the higher PBT in SSG was in line with its higher turnover. LSG’s lower PBT was due to higher loss incurred by an overseas subsidiary. Overall, the sector recorded higher investment and interest income in FY2006 vis-à-vis FY2005.

Major AcquisitionsST Electronics acquired 80% of US-based MÄK Technologies, Inc in a bid to strengthen its simulation and digital media capability. MÄK’s tools and toolkit will allow ST Electronics to market its simulation solutions for desktop training and digital animation games.


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ST Electronics acquired the remaining stake in TranSys to widen its transportation system capability. STELCOMMS was set up with the objective of growing its HLS business for communications systems in Asia Pacifi c. Fifty-one percent owned Brightspot Interactive Learning will provide an avenue for online e-training business in China and the region, while 70% owned PM-B will offer mission-critical and command and control capabilities for command/data centres, business continuity and disaster recovery sites.

Major ProjectsST Electronics continued to secure projects in new markets. These include an integrated tower information system and navigational aids for Kukes Airport of Albania, in addition to security systems in Qatar and China.

Its foothold in the Chinese rail market has expanded with two new contracts. A fi rst-of-its-kind integrated traffi c command centre system will enable the effi cient management of major rail lines in Beijing, making ST Electronics the fi rst Singapore company to win a major Beijing Olympics related contract. In December, it won a contract to provide automatic fare collection systems for Guangzhou MRT Lines 2 and 8 andLine 4 North extensions.

In Singapore, Comfort Transportation Pte Ltd appointedST Electronics to provide a new wireless GPRS-based telematics system for its fl eet of 15,300 taxis. This new system will be integrated into an existing system used by its CityCab fl eet, implemented by ST Electronics in 2003.

The Singapore Prison Service will realise its long term goal of centralising all prison institutions network infrastructure for its new Changi Prison Complex Cluster B by 2008 with a system to be provided by ST Electronics. It will also be providing the Ministry of Home Affairs with electro-optics payloads for its Police Coast Guard vessels to aid in the surveillance of waters around Singapore.

The Singapore Civil Defence Force appointed ST Electronics to develop a HazMat incident management system, which will facilitate secured communications between fi xed sites, mobile command posts, commanders and fi rst responders on scenes to ensure comprehensive response to chemical threats.

ST Electronics was awarded a contract to deliver a 360-degree virtual aerodrome control simulator to the Singapore Aviation Academy, the training arm of the Civil Aviation Authorityof Singapore.

In defence, the Electronics sector was instrumental in transforming the Singapore Armed Forces into a 3rd Generation networked fi ghting force. Its pioneering, multi role advanced combat simulator system was commissioned by the Republic of Singapore Air Force, enabling its pilots to train as an integrated force. ST Electronics’ Battle Management System (BMS), which has been deployed on the BXII platform, was also commissioned this year. The BMS networks the fi ghting forces, providing a network-centric wireless communications systems for a truly 3rd Generation networked force.

(from left to right)HazMat management systems facilitate vital and secured communications for comprehensive response to chemical threats.

ST Electronics provides electronics systems and solutions for major rail systems in China, the Philippines, Singapore, Taiwan and Thailand.

iDirect’s solutions augment the group’s end-to-end satcom offerings.

The Battlefi eld Management System deployed in the BXII provides better situational awareness for engagement.

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Land Systems



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BREAKING NEW GROUND IN SPECIALTY VEHICLES AND TECHNOLOGIES

ST Kinetics is one of South East Asia’s largest defence companies, with a growing portfolio of products and services for the defence, homeland security and commercial markets.

The year saw the Land Systems sector expanding its markets and range of products, and actively aligning business operations to consolidate its commercial specialty vehicles business. It continued to serve the evolving needs of the defence and homeland security markets.

ST Kinetics is in two strategic business segments.

Integrated Systems and Services ST Kinetics achieved several milestones in 2006, chief of which was the commissioning of its Bionix II (BXII) infantry fi ghting vehicle by the Singapore Armed Forces (SAF). The BXII was designed with greater lethality, survivability and enhanced connectivity, enabling better response in today’s fast-moving battlefi eld. ST Kinetics also showcased its integrated system of systems solutions at two major exhibitions, namely Asian Aerospace in Singapore and Eurosatory in France. Its joint participation with the Defence Science and Technology Agency, DSO National Laboratories (DSO) and the SAF at such events, under the banner of “Task Force Singapore”, demonstrated how the Singapore defence ecosystem can come together to leverage emerging technologies in support of a 3rd Generation SAF.

Internationally, ST Kinetics forged further alliances with major Original Equipment Manufacturers (OEM) to establish a foothold in key markets around the world. These included partnership agreements with Cornell University of the US and Metal Storm of Australia, and a joint venture with Kalyani Group in India. Through such collaborations, ST Kinetics expanded

its product range and strengthened its capabilities in areas like unmanned technologies and advanced 40mm ammunition products, reinforcing its position as one of the few OEMs in the world to offer a comprehensive suite of 40mm weapon systems and their supporting ammunition.

Responding to the growing needs for homefront security,ST Kinetics engaged with civil and law enforcement agencies, both locally and in the region, to offer solutions for window and wall protection, emergency response vehicles as well as perimeter defence. Through partnerships, it imported unique technologies and commercialised them for the security market. An example is the People Portal, which uses a patented non intrusive detection capability belonging to EMIT Technologies, a partner from the US.

Specialty Vehicles and Services The Land Systems sector is harnessing its engineering expertise and growing network in China and the US to realise its vision of becoming a major specialty vehicles player. It is tapping on its value engineering inputs, and ability to aggregate resources and seek cheaper sources of supply, to enhance its effi ciency and competitive edge. In 2006, an international procurement centre was formed to tap on China’s global sub-components supplier status to reduce product costs for ST Kinetics worldwide. The formation of a sales and distribution group enabled ST Kinetics to promote and market itself globally.

ST Kinetics stayed focused in China and the US, given their market size and growth potential. In China, ST Kinetics’ joint venture companies, Beijing Zhonghuan Kinetics (BZK) and Guizhou Jonyang Kinetics (GJK), launched new dump trucks and excavator products to meet the rising demand for higher grade specialty construction vehicles.

The newly commissioned BXII infantry fi ghting vehicle demonstrates enhanced lethality, survivability and operational performance for today’s fast-moving battlefi eld.

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Land Systems

The newly acquired US-based VT LeeBoy, with its leadership position in commercial class asphalt pavers, brooms and related road construction and maintenance equipment, has signifi cantly boosted the Land Systems sector’s product range and strategic position in the construction market. The opening of its new and expanded production facility in Lincolnton, North Carolina, will provide ST Kinetics the capacity to meet its domestic and international growth needs in the years to come. Another US-based wholly-owned subsidiary, VT Specialized Vehicles Corporation (VT SVC), secured several contracts in 2006. It is the preferred or exclusive supplier to 15 of the top 20 US food service distributors with its range of multi-temperature trucks and trailer bodies. VT SVC expanded its homeland security offerings by selling a record number of emergency rescue bodies and trailers for municipal rescue departments.

In the automotive repairs business, ST Kinetics’ STAR automotive centres in Guangzhou and Zhejiang responded well to the increased demand for quality after-sales service coupled with a growing car population in China. Both centres achieved authorised quality repair workshop status for the top fi ve insurance companies in China and serve as independent damage assessment centres. In addition, STAR Automotive Centre (Zhejiang) secured a licence to import and export automotive spare parts in China for trading and repair, giving it an advantage over its competitors. In Guangzhou, STAR secured a major fl eet maintenance contract from the Construction Bank of China.

PERFORMANCE OF THE LAND SYSTEMS SECTOR

Half Yearly Performance Compared to 1H2006, 2H2006 turnover increased by 48% or $194m to $598m. This was largely due to higher delivery of Bronco and BXII as well as higher weapon export and specialty vehicles sales.

Compared to 1H2006, 2H2006 PBT increased by 53% or $14.6m to $42.3m. This was attributable mainly to higher turnover, but this was partially offset by higher operating expenses.

Full Year Performance The Land Systems sector’s FY2006 turnover of $1,002m was higher than that of FY2005 by 67% or $402m. The higher turnover was largely contributed by Automotive (Auto) and Munitions & Weapon (M&W). The higher turnover in Auto was the result of higher specialty vehicles sales, while higher weapon export and munitions sales accounted for the higher turnover in M&W.

Compared to FY2005, the Land Systems sector’s PBT of $70m for FY2006 was higher by 8% or $5m. This was mainly due to higher PBT in M&W, but this was partially offset by lower PBT in Auto and Services, Trading and Others (S&T). M&W’s higher profi t was in line with higher turnover, while the lower PBT in Auto was due to product mix and lower investment income, but this was partially offset by contribution from its specialty vehicles business. For S&T, the lower profi t was due to the share of lower profi ts from an associated company, CityCab, but this was partially offset by increased contribution from higher turnover.


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Major AcquisitionsThrough VT Land Systems, ST Kinetics acquired B. R. Lee Industries at an enterprise value of US$135m ($212m). The acquired entity, renamed VT LeeBoy, is a leader in the road construction and maintenance equipment market and the number one OEM in the US by unit volume for commercial class asphalt pavers and brooms.

The joint venture with Kalyani Group to collaborate in research, development and manufacture of military land-based products and solutions, specifi cally in the area of large calibre guns and small arms, marked ST Kinetics’ entry into the Indian defence market. ST Kinetics holds a 26% stake while Kalyani’s unit, BF Utilities, holds the remaining 74% stake.

ST Kinetics also established Advanced Technology Research Centre, a 50-50 joint venture company with DSO, for further research and technology development in advanced materials for defence and commercial applications.

In addition, ST Kinetics enlarged its stake in its STAR automotive centre in Zhejiang to 86.24%, increasing the total capital injection to RMB13m (about $2.6m), in line with the business growth in China.

Major Projects2006 saw the contractual delivery of major projects such as Bronco, BXII, SAR 21, Primus, Pegasus and munition products to the SAF. ST Kinetics also secured and delivered various munition and weapon contracts from overseas customers, penetrating new markets in the African continent and Latin America.

Another defence milestone was ST Kinetics’ successful demonstration of a range of low velocity 40mm electrically ignited munitions jointly developed with Metal Storm. It also unveiled an array of products and competencies during Asian Aerospace that included a light armoured multi role vehicle, all terrain vehicle, multi role unmanned ground vehicle, new 40mm ammunition products and the People Portal, among others.

On the commercial front, specialised truck bodies and trailers, off-road dump trucks and excavators, road construction and maintenance equipment were successfully delivered to international customers.

ST Kinetics showcased its range of specialty vehicles at BAUMA, one of the world’s largest exhibitions for the construction industry, held in Shanghai. It launched new dump trucks and excavators from BZK and GJK respectively, and introduced VT LeeBoy to the Chinese market. ST Kinetics also developed a new commercial articulated vehicle catered to search and rescue, mining, forestry as well as oil and gas industries around the world.

(from left to right)ST Kinetics’ commercial articulated vehicle made its debut to potential customers in the mining, oil, gas, forestry, and search and rescue industries around the world.

International partnerships with major OEMs like the Kalyani Group of India enable ST Kinetics to establish a foothold in key overseas markets and expand its product range.

The acquisition of VT LeeBoy, with its leadership position in commercial class asphalt pavers and brooms, enhanced ST Kinetics’ range of specialty vehicle products for the construction industry.

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Marine



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RAISING THE BAR ON SHIPBUILDING AND SHIPREPAIR

ST Marine has been providing turnkey shipbuilding, ship conversion and shiprepair services to a worldwide customer base in the naval and commercial markets for over three decades. It has operations in Singapore and the US, under VT Halter Marine.

The year for the Marine sector was highlighted by new products, expanding business from existing customers, and shiprepair projects requiring more engineering expertise. Collectively, these included customers like the Republic of Singapore Navy, US Army, National Oceanic and Atmospheric Administration, Crowley Maritime, Baggermaatschappij Boskalis BV, and China National Petroleum Corporation.

The wide ranging nature of the Marine sector’s shipbuilding and shiprepair competencies allows it to attract quality projects, leveraging on its design and engineering expertise to customise ship design to meet the specifi c needs of customers. Some key new customers that have placed shipbuilding orders are the US Navy, Shreyas World Navigation, Louis Dreyfus Armateurs SAS and Hoegh Autoliners.

ShipbuildingThe sector continued its efforts to secure high value added contracts, capitalising on its knowledge and skills in designing and building sophisticated vessels, as well as project management skills acquired through highly complex and tightly scheduled projects such as the frigates programme.

In September 2006 alone, there were repeat orders for its US operations from existing customers amounting to about US$450m ($735m), attesting to the level of confi dence and trust that customers have in VT Halter Marine.

ShiprepairDuring the year, ST Marine’s shiprepair business was highlighted by projects which required higher engineering expertise in both repairs and conversions, refl ecting its reputation for customisation and design capabilities.

It also saw expanding business from blue chip maritime customers all over the world, particularly established European shipowners from the Netherlands, Belgium and Germany and customers from the US and Asia. The sector maintained its presence as a key player in the Singapore shiprepair market, especially for tankers, containers and dredgers.

PERFORMANCE OF THE MARINE SECTOR

Half Yearly Performance The Marine sector’s turnover for 2H2006 at $365m increased by 8% or $28m over 1H2006 turnover of $337m due mainly to higher Shipbuilding turnover.

PBT for 2H2006 at $41.9m increased by 11% or $4.3m over 1H2006 due mainly to the higher turnover and other income.

Full Year Performance FY2006 turnover of $702m for the Marine sector increased by 6% or $42m compared to FY2005, largely contributed by Shipbuilding and Shiprepair. The higher Shipbuilding turnover was mainly contributed by the US operations, VT Halter Marine, while the higher Shiprepair turnover was the result of a more active shiprepair market.

The Marine sector’s PBT of $79.5m in FY2006 was lower than that of FY2005 by 10% or $8.4m. The lower PBT was due mainly to lower gross margins as a result of a different sales mix.

The fi rst of the four feeder container vessels for the Transworld Group, OEL Singapore, was launched inJune 2006.

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Marine

Major ProjectsIn 2006, ST Marine delivered two of the fi ve locally built frigates, RSS Intrepid and RSS Steadfast, to the Republic of Singapore Navy and launched the last frigate in the series, RSS Supreme.

ST Marine was awarded a $120m contract for two high end RoRo vessels to transport Airbus A380 sections and components for assembly in Toulouse, France. The customers are Seaplane One and Seaplane Two SAS, a joint venture company of Louis Dreyfus Armateurs SAS of France and Leif Hoegh & Co AS (LH) of Norway.

Its US operations won a US$199m (about $315m) contract from the US Navy to construct a missile range instrumentation ship T-AGM(R). This is the fi rst US Navy contract awarded to VT Halter Marine after it joined the ST Engineering Group.

The shipyard was commissioned to build a fourth fi sheries survey vessel, worth US$30m (about $50m), for the National Oceanic and Atmospheric Administration. It has delivered two vessels so far. This customer also awarded VT Halter Marine a US$15m (about $23.7m) contract for a small waterplane area twin hull coastal mapping vessel.

It was also contracted to build four additional articulated tug barge units for Crowley Maritime worth about US$240m ($378m), bringing the total order from Crowley Maritime to ten vessels, two of which were delivered this year.

In November 2006, VT Halter Marine was awarded a US$165m (about $262.7m) contract by the US Navy to procure long lead time materials and equipment for the Egyptian Navy’s fast missile craft project. This is in addition to an earlier contract of US$28.8m (approximately $49m) for ship design and brings the amount awarded for this project to date to US$194m. The total amount for this project, for which VT Halter Marine is the prime contractor, could exceed US$450m after Phase II is added to the contract.

In shiprepair, the Marine sector clinched two contracts to convert existing vessels to seismic research vessels. One was a $17m contract to convert a fi shing trawler for China National Petroleum Corporation‘s BGP, one of the world’s leading onshore geophysical service contractors in China, and the other was a $8m contract to convert a platform supply vessel for Seabird Exploration Norway AS.

It also won a $32m contract for the modifi cation and upgrading of a cutter suction dredger from its existing customer, Baggermaatschappij Boskalis BV, and launched the fi rst two of the four feeder container vessels for Transworld Group.

The last of the series of fi ve locally built frigates, RSS Supreme, was launched by Dr Ivy Ng (wife of Dr Ng Eng Hen, Minister for Manpower & 2nd Minister for Defence).


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DYNAMICS AND RISK FACTORS OF THE BUSINESS

INDUSTRY REVIEW

As the ST Engineering Group expands its global presence, more infl uencers come into play and with varying impact. A negative development in one country may open doors in another. This off-setting of infl uencers lends stability to the Group and diversifi es its earnings base, while the spread of businesses buffers each other, moderating extreme gyrations.

Oil PricesAlthough oil prices eased to below US$60 level in late 2006, they remained high relative to previous years and continued to exert pressure on bottom lines, particularly in the aviation industry. Many major airlines, some still recovering from 9/11, also face a proliferation of Low Cost Carriers (LCC), which intensifi es the competitive landscape. As a result, they may increase outsourcing as part of cost containment measures. This, together with the rise of LCCs, which generally do not have inhouse resources, benefi ts third party aircraft Maintenance, Repair and Overhaul (MRO) operators like ST Aerospace. Business from the low cost segment could augment work from the major airlines; the longer term concern is how the latter could further cap overheads.

For the specialty vehicles business, high oil prices could similarly have a dampening effect. While there are no immediate pressures on profi t margins, should this trend continue, there could be a cutback on infrastructural development, such as the construction of roads. In addition, oil is one of the components of asphalt, which is used in road paving, and this could lead to higher raw material costs, further exacerbating potential for reduced demand.

Any slowdown in the US economy, combined with higher interest rates and oil prices, may have far reaching implications across industries, ranging from reduced infrastructure and property development to a shrinking of the aviation industry.

High oil prices, however, do benefi t oil producers who would have greater need for offshore support vessels and tankers, and this may benefi t the Marine sector.

Interest RatesThe effect of interest rates on ST Engineering’s business is similar to that of oil. The Fed rates have been hovering at the 5.25% level since the second half of 2006, and any further hike would add to the cost of doing business. As the cost of doing business goes up, there could be cutbacks in investments or less appetite for business expansion. These could affect the demand for some of the Group’s products, such as road construction vehicles, and food and beverage vehicles.

Given the Group’s net cash position, the negative impact of the higher borrowing interest rates is largely mitigated by the higher bank deposit rates.

Raw MaterialsLike oil, the cost of steel eased in 2006. The prices of steel and related materials, such as aluminium, could impact the Marine and specialty vehicles businesses. Locking in prices ahead of schedule, as well as capping our price offers based on a range of commodity prices, helps to mitigate the impact.

Currency FluctuationsFluctuations in the currencies of USD and Euro will be most felt as these are the Group’s export currencies.

For USD denominated exports, weakness in USD relative to SGD could result in lower revenue. This negative impact would be partially cushioned by the lower SGD cost for materials and parts imports denominated in USD. Overall, this would have a negative impact on the bottom line. The currency fl uctuation risk of the Group is mitigated by the Group’s diversifi ed portfolio of operating units located in different countries with different functional currencies. It follows that losses from movements in one currency could be offset by gains from movements in another currency and vice versa.

The Group’s newly acquired components business in Denmark and Norway, SAS Component, conducts business in Euros. The strength of the Euro could have a negative impact on the demand of components which SAS Component supplies, however, a stronger Euro could contribute to higher Group earnings when translated into SGD.


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Labour SupplySkilled labour is a concern in the Aerospace sector as there is a high demand for skilled technicians both in the US and in the growing China aviation industries. Training, manpower retention incentives and alternative sources of supply are some ways in which the Group overcomes this skilled labour shortage.

Defence SpendingDefence spending in Singapore has generally been increasing year on year. However, this does not necessarily translate into more orders from the Singapore Armed Forces (SAF). Like the armed forces of other countries, the SAF is purchasing in smaller quantities to keep pace with technological change.

Technological advances also mean that new equipment, such as fi ghter jets and the ever more effi cient commercial aircraft, require less maintenance in their early years.

The Singapore government has introduced private-public partnerships, where public projects and services are outsourced to the private sector. This development brings new opportunities for the Group, particularly with its strong record in defence, government and public projects, ranging from transport and subway systems to homeland security and defence solutions. With emphasis on lowering total cost of ownership, the Group’s commercial business helps to bring commercially available technologies and practices into the defence business.

In the US, the defence budget has also grown, in view of global geo-political unrest and the war on terror, including expenditure on homeland security. The US Navy has proposed increasing its current fl eet to over 300 vessels, with US$8.9b requested for building seven new ships*, and the US Coast Guard‘s budget for 2007 has allocated US$1.06b to the 25-year long Deepwater programme to upgrade its fl eet.**

Training in the defence sector is also employing simulation techniques and programmes, in addition to ground combat exercises.

* source: American Shipbuilders dated March 2006** source: Defence News dated 9 October 2006

Homeland SecurityAs terrorism continues to be the scourge of world communities, governments are increasingly aware of the need for homeland protection technologies. This awareness will take time to be translated into budgets and implementation and, in the longer

term, presents opportunities for sensor, biometrics, surveillance and monitoring technologies, as well as patrol vessels and fast interceptors to guard coastal waters.

Similarly, some of the Group’s defence and homeland security products and technologies can be used in disaster recovery.

Emerging MarketsThe Group’s continued global expansion and inroad into new markets – South America, Africa, the Middle East, Central Asia – will further diversify its business, making the Group less dependent on traditional markets. The new markets can also serve as lower cost manufacturing or procurement bases for the Group. They are also potential new businesses for the Group in terms of infrastructure, such as transportation networks and intelligent buildings.

Free Trade Agreements, like the one between the Panama and Singapore governments, will further widen the scope of collaboration and economic exchange at various levels between nations.

DisastersBeing in new markets also exposes the Group to other risks, such as natural disasters and terrorism. For example, the Group’s Aerospace and Marine’s operations located along the Gulf Coast of the US are on hurricane watch each year from June to November, requiring preparedness and robust business continuity planning.

In the aftermath of a disaster, recovery operations often fi eld emergency response equipment and vehicles. Post disaster operations see the rebuilding of infrastructure as people’s lives slowly return to normal. New buildings, such as housing and schools, roads and other transportation systems benefi t providers of expertise and equipment in these areas.

RISK MANAGEMENT

As the Group drives towards globalisation to expand its market, much effort has also been focused on the Group’s aim to build a robust risk management practice. Such practice allows the Group to align its risk appetite and strategy; to identify, manage and monitor key risks; and to allocate resources more effi ciently. A clearer understanding of risks also enables risks to be taken knowingly and optimally. This would not only minimise surprises and losses, but also enhance the Group’s performance and competitiveness when faced with opportunities. The Group will


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continue to build a strong risk management culture as well as strengthen its existing risk management practices.

• Risk Management Governance: The Group’s Risk Review Committee works with the management to ensure that the Group has adequately prioritised and addressed the risk management issues within the Group.

• Risk Reporting Dashboard: A structured dashboard that provides an overview of risk profi le as well as key risk indicators and risk incidents to management and the Risk Review Committee. It enables the monitoring of key risks and appropriate mitigating actions being taken on a timely basis.

• Risk Management Infrastructure: Various enabling policies, methodologies, guides, checklists and IT applications are constantly being developed and improved in order to support the practice of risk management at both Group and business unit level.

a) Strategic and Operational RiskThe Group operates in 20 countries spread across the Asia Pacifi c, Europe, and North and South America. As part of the Group’s plan to grow its business internationally, it will continue to focus on increasing its operating activities and presence in Europe, Greater China and the US. In 2006, 23% of the Group’s assets were in the US (2001: 5%). Revenue from customers located outside Asia increased from 26% of Group revenue in 2001 to 47% in 2006.

As part of its business strategy, the Group seeks to increase the proportion of its international business and customers, thereby achieving greater geographical diversifi cation. Likewise, the Group also plans to raise the proportion of its commercial business while maintaining strong support towards the local defence business. The commercial business helps to bring commercially available technology and practices into the defence business, thereby allowing for more cost effective systems and solutions. A more diversifi ed base of commercial and military customers will reduce the risk of customer concentration. b) Investment RiskThe Group seeks to grow its businesses on three fronts: through organic growth of its existing capabilities and capacities; through development of new capabilities; and through acquisition or joint ventures of business entities or operating assets.

Investment activities, ranging from the identifi cation of targets to conducting due diligence, are supported by a dedicated team of investment professionals and augmented by external professionals for specialised services. The business proposals are guided by a given set of internal investment criteria, evaluated by senior management and endorsed by a Business Investment and Divestment Committee before seeking fi nal Board approval.

c) Interest Rate RiskThe Group’s cash balances are placed with reputable banks, fi nancial institutions and a related corporation. The Group manages its interest rate risk on its interest income by placing the cash balances in varying maturities and interest rate terms.

For loans taken by the Group, long term interest rate swaps are taken to mitigate short term interest rate risk.

01 5%

01 26%

06 23%

Assets located in US Revenue from customers located outside Asia

06 47%

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d) Foreign Exchange (FX) RiskThe Group’s FX risk arises both from its subsidiaries operating in foreign countries, which generate revenue and incur costs denominated in foreign currencies, and from operations of its local subsidiaries which are transacted in foreign currencies.

The Group enters into forward FX contracts to hedge against its FX risk resulting from anticipated sale and purchase transactions denominated in foreign currencies, primarily in Euro and USD.

e) Derivative Financial Instrument RiskThe Group uses forward FX and options to hedge its net foreign currency exposures in the management of FX risk. These derivative instruments are used for hedging and not for speculative transactions in foreign exchange.

f) Market RiskThe Group has investments in quoted equity shares and placed funds with fund management companies, with investments in quoted equity shares and bonds. The market value of these investments will fl uctuate with market conditions. To mitigate market risk, the Group’s funds with fund managers are guaranteed 95% to 100% of their principal values at the end of the fund management period. Also, before a fund manager is allocated funds for management, its management capability and fi nancial strength are carefully considered.

g) Liquidity RiskTo manage liquidity risk, the Group monitors its net operating cash fl ow and maintains an adequate level of cash and cash equivalents and has secured committed funding facilities from fi nancial institutions. In assessing the adequacy of these facilities, management reviews its working capital requirements.

h) Credit RiskCredit risk, or the risk of counterparties defaulting, is managed through the application of credit approvals, credit limits and monitoring procedures. Where appropriate, the Company or its subsidiaries obtain collateral from customers or arrange master netting agreements. Cash terms, advance payments and letters of credit or bank guarantees are required for customers of lower credit standing.

i) Acts of God and/or War RiskThe Group manages this risk through the development of business continuity plans so as to ensure quick recovery and resumption of critical business functions after a disruption. These plans have been communicated and the management has gone through simulated exercise of these plans. Regular reviews of these plans are performed to ensure that they stay relevant. Most contracts signed also include force majeure clauses to mitigate risk from Acts of God.

j) Legal and/or Political RiskLegal risk is managed through standardised contracts with terms and conditions that are pre-approved. Any deviation will be vetted and approved by appropriate party level of management. The management also vigilantly monitors the respective country’s business practices, environmental issues, political impact on the projects and overall business.

k) Reputation RiskRecognising the importance of providing timely and key information to our stakeholders, the Group put in place a communications programme to ensure effective communication with our stakeholders at all times.

USD/SGD Source: Bloomberg

Jan

02M

ar 0

2M

ay 0

2Ju

l 02

Sep

02

Nov

02

Jan

03M

ar 0

3M

ay 0

3Ju

l 03

Sep

03

Nov

03

Jan

04

Mar

04

Jul 0

4

Nov

04

Mar

05

Jul 0

5

Nov

05

Sep

05

May

05

Jan

05

Sep

04

May

04

Mar

06

Jul 0

6S

ep 0

6

May

06

Jan

06

Nov

06

1.50

1.55

1.60

1.65

1.70

1.75

1.80

1.85

1.90

FOREIGN EXCHANGE


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SENSITIVITY ANALYSIS

a) Interest RateThe Group’s cash and cash equivalents as well as funds under management are largely invested in fi xed deposits and fi xed income securities. Movements in interest rates will therefore have an impact on the interest and investment income for the Group. Based on the Group’s cash and cash equivalents of $1.2b as at end 2006, a one percentage point movement in effective fi xed deposit rates is estimated to result in an annual $12m change in interest income for the Group. Likewise, a one percentage point movement in effective borrowing rate is estimated to result in an annual $8.9m change in interest expense, based on the Group’s borrowings of $890m as at end 2006.

b) Gross Profi t MarginAt the 2006 turnover of $4.49b, a one percentage point movement in the gross profi t margin of the Group will lead to a $44.9m change in gross profi t for the Group. The many different programmes undertaken across the Group, with their accompanying variations in margin, have the effect of reducing the Group-wide impact of specifi c project fl uctuations.

c) OthersOther risk factors that have an impact on turnover and net profi ts tend to be sector or project specifi c. Hence, it is not practical to perform a sensitivity analysis in such instances.

SHAREHOLDER RETURN

Return On Equity The Return On Equity (ROE) improved 1.9 percentage points to 28.4% in 2006, as a result of higher profi t after tax and minority interests.

Dividend Per Share (DPS) and Earnings Per Share (EPS)The proposed dividend for 2006 of $445.1m is higher than the 2005 dividend of $399.5m paid in April 2006. The recommended 2006 dividend took into consideration the Group’s present cash position, positive cash fl ow generated from operations, and projected capital requirements. Payment of the dividends is subject to the approval of the shareholders of the Company at the coming AGM. The proposed 2006 dividend of $445.1m represents 100% of the earnings for FY2006.

USD SIBOR (3 months)SGD SIBOR (3 months)

Source: Bloomberg

Jan

02

Apr

02

Jul 0

2

Oct

02

Jan

03

Apr

03

Jul 0

3

Oct

03

Jan

04

Apr

04

Jul 0

4

Oct

04

Jan

05

Apr

05

Jul 0

5

Oct

05

Jan

06

Apr

06

Jul 0

6

Oct

06

0

1

2

3

4

5

6

INTEREST RATE (%)

DPS EPS

18.50

11.47 11.29 12.26 13.6415.15

11.30 12.3913.60

15.11

02 03 04 05 060

4

8

12

16

20

DIVIDEND/EARNINGS PER SHARE

RETURN ON EQUITY

06

0504

03

02

28.4%

26.5%26.1%

24.6%

22.8%

85

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Total Shareholder Return for ST Engineering Shares In 2006, ST Engineering shares generated a total shareholder return of 12.8% for its shareholders. This consists of 5.1% of dividend yield and 7.7% of capital gain for the period. Over the last four years, ST Engineering has been able to consistently generate good total shareholder returns for its shareholders with more than 5% of dividend yield and healthy appreciation in its share price.

In 2007, the ST Engineering Board will adopt a dividend policy, which is based on a half yearly ordinary dividend payout, and plans to declare a fi rst interim ordinary dividend payout starting from the announcement of the half year results ending 30 June 2007.

To maximise shareholder value, management will continue its policy of paying a high level of dividends to return excess cash generated from the operations, provided the cash is not required for major investments in the future. These investments may include potential mergers and acquisitions and the building of new facilities and capabilities to expand the existing operations.

Share Purchase MandateIn the coming EGM, the Company will again seek shareholders’ approval to renew the Share Purchase Mandate for the purchase of up to 10% of the number of ordinary shares in the capital of the Company. The share purchase can be effected either through market purchases or off market purchases. The fi nancial impact of various share purchase scenarios will be presented in a circular to members.

The purpose of the Share Purchase Plan is to give the Company the fl exibility to undertake the share purchase exercise expeditiously. The Share Purchase Plan provides the Company an alternate avenue to reward shareholders apart from the traditional dividend payment route.

FINANCIAL REVIEW

Treasury Policy and Capital StructureThe Group’s Treasury Unit seeks to minimise the Group’s fi nancial risk, to ensure suffi cient liquidity to meet day-to-day operational needs and to invest the cash and cash equivalents within the guidelines approved by the Board of Directors.

Cash and Foreign Exchange ManagementThe Group adopts the strategy of centralised cash management, where the excess cash of its business entities are swept to the Treasury Unit, which centrally manages the investment of the funds. Similarly, the FX requirements of the business entities are managed centrally. The business entities hedge their material FX exposures arising from sales and/or purchases in currencies other than the functional currencies. Their FX requirements are matched internally by the Treasury Unit where feasible and this procedure enables the Group to offset and minimise FX risk within the Group. The Treasury Unit then hedges unmatched FX requirements with external counterparties.

The aim of the Treasury Unit’s cash management and FX management strategies is to maximise the returns of the Group’s cash resources and to minimise FX exposures and associated costs. The most common fi nancial instruments used to manage the FX exposures are forward FX contracts and currency options.

0

5

10

15

20

25

30

%

04 05 06

5.7%

14.2%

5.2%

22.7%

Capital Gain Dividend Yield

5.1%

7.7%


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InsuranceWhere appropriate, the Group manages its insurance risks on a Group basis to leverage its position with the general insurance market.

The Group reviews its insurable risk profi le continually and makes the necessary adjustments on risk retention to optimise the coverage and cost. This is done with advice and support from selected insurance brokers. Major group insurance policies include Industrial Special Risk, Liabilities and Workmen Compensation, designed to protect the Group against properties risk, liabilities for its products and services, and workplace accidents respectively. The aviation and marine businesses have specialised insurance programmes.

The Group adopts a proactive strategy with advice and recommendations from insurance brokers to manage the insurance risk with specifi c risk management programmes covering the prevention of fi re and the adoption of behaviour based safety practices, among others.

Funding and BorrowingsThe Group funds its investments and operations through a mixture of shareholders’ funds, advance payments from customers, and some borrowings. Its borrowings amounted to $890m, about 57% of its shareholders’ funds.

Long term borrowings amounted to $282m and the balance is of a short term nature. The long term borrowings comprise mainly terms loans taken by SAS Component and an Industrial Revenue Bond, issued by ST Mobile Aerospace Engineering, to fund the initial purchase of plant and machinery for the facilities located at Mobile, Alabama in 1990; both entities are subsidiaries of the Aerospace sector. The short term loans are denominated in USD at a fl oating rate that commensurates with the Group’s Aaa credit rating from Moody’s. The rationale of borrowing in USD is to create a natural currency hedge position for the Group’s investments denominated in the currency.

The Group’s interest cover stays at a healthy 13 times, with a gross debt-to-equity ratio of 0.57.

CASH FLOWS AND LIQUIDITY

Operating ActivitiesIn 2006, the net cash generated from operating activities amounted to $460m. In 2005, the net cash generated from operating activities amounted to $303m. The improvement of $158m in FY2006 in net cash from operating activities was largely due to higher operating profi ts and favourable working capital movements, with positive variances in trade debtors, advance payments to suppliers and other creditors, accruals and provisions, but these were partially offset by the negative variance in stocks and work-in-progress.

Investing ActivitiesThe $369m net cash used in investing activities in FY2006 was lower by $66m compared to FY2005. This was mainly the result of much higher proceeds from the sale and maturity of investments, but these were partially offset by a higher cash outfl ow for the purchase of property, plant and equipment.

Financing ActivitiesThe $143m net cash used in fi nancing activities in FY2006 was lower than that of $184m in FY2005 by $41m. This was largely due to a higher cash infl ow from bank loans, but this was partially offset by a higher cash outfl ow for the payment of dividend to shareholders and interest expense.

06 05 06 05 06 05

608

340282

16

890

356

BORROWINGS ($m)

ST Borrowings LT Borrowings Total Borrowings

87

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Cash and Cash EquivalentsAs at 31 December 2006, the Group’s cash and cash equivalents stood at $1.2b, comparable to that of FY2005. The cash and cash equivalents are centrally managed by the Treasury Unit and the majority of the funds were invested in liquid assets such as fi xed deposits and placements with a related corporation. The cash and cash equivalents as at yearend is adequate to fund the committed and planned capital expenditure, as well as to service the Group’s borrowings. Notwithstanding the Group’s current positive cash and cash equivalents position, it has established short term fi nancing facilities with various fi nancial institutions for bridging fi nance. Such liquidity facilities can be tapped when requirements arise, in particular, for fi nancing signifi cant merger and acquisition deals.

ACCOUNTING POLICIES

The Group’s signifi cant accounting policies are presented in Notes to the Financial Statements, Note 2 (pg 112 to 126). The Group has applied the same accounting policies and methods of computation in the preparation of the fi nancial statements for the current reporting period compared with the audited fi nancial statements as at 31 December 2005.

PROSPECT FOR 2007

The global economy in 2006 was shrouded with uncertainties caused by the high and volatile oil prices and the risk of a US economic slowdown. Fortunately, the economy ended the year relatively unscathed. Financial markets around the world started positively in 2007, with many stock market indices reaching record highs. The geo-political tensions in the Middle

East remain and the high oil prices are likely to persist and continue to be volatile. The risk of economic slowdown in the US and the re-emerged threat of a bird-fl u pandemic continue to cause uncertainties in the global economy. As the Group continues its expansion into the global market, the impact of external risks on overall performance remains. Barring unforeseen circumstances, the Group expects to achieve a higher turnover and PBT in 2007.

In the Aerospace sector, high fuel prices and intense competition, especially from LCCs, will continue to exert pressure on the cost structure of the aviation industry. This could facilitate MRO outsourcing trend, as legacy airlines are compelled to improve operating cost effi ciency. The sector will focus on airframe heavy maintenance and modifi cation work, Total Aviation Support and implementing the recently secured seven-year FedEx Express Passenger-to-Freighter conversion contract. It will set up the required capabilities to support the operation of Skybus Airlines in the US. Through SAS Component in Europe and the expanding component support operations, the sector will continue its efforts to increase its presence in the global components and material services market.

With the enhanced simulation and digital media capabilities following the acquisition of MÄK Technologies, the Electronics sector will strengthen its market position and further broaden its customer base in 2007. iDirect will continue to extend the sector’s presence in the US and enable the sector to offer a full suite of satellite communications services globally.

The Land Systems sector will continue its strategy of growing its international businesses by expanding its sales and distribution network, developing niche products and fostering local partnerships in the global market. The sector will continue to apply its engineering capabilities to its commercial automotive businesses, and create synergies and operating effi ciencies from its specialty vehicles companies in the US and China.

The Marine sector succeeded in securing a few large contracts last year. Coupled with ongoing projects, these will keep the yards in Singapore and the US well utilised in 2007. The US yards had resumed full operations in 2006 after the disruption caused by Hurricane Katrina in August 2005. Apart from seeking new contracts and developing new products, the sector will concentrate on delivering its commitments to the customers and continue to pursue business opportunities in the naval and government industries, and niche segments of the commercial market.


06 05

06 05 06 05

460

303

(369)(435)

(143)(184)

CASH FLOW ($m)

Operating Activities

Investing Activities

Financing Activities


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FINANCIAL REPORT

90 Directors’ Report103 Statement by Directors104 Independent Auditors’ Report105 Financial Statements105 Balance Sheets106 Statement of Profi t and Loss107 Statements of Changes in Equity109 Consolidated Statement of Cash Flows112 Notes to the Financial Statements196 SGX Listing Manual Requirements198 Shareholding Statistics200 Sectoral Financial Review220 Group Structure225 Corporate Information226 Corporate Directory235 Notice of Annual General Meeting Proxy Form

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Directors’ Report AS AT 31 DECEMBER 2006(Currency – Singapore dollars unless otherwise stated)

We, the undersigned directors, on behalf of all the directors of the Company, submit this annual report to the members together with the audited fi nancial statements of the Group and of the Company for the fi nancial year ended 31 December 2006.

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

Peter Seah Lim Huat (Chairman)Tan Pheng Hock (President and Chief Executive Offi cer)Koh Beng SengLG Ng Yat ChungDr Tan Kim SiewProfessor Lui Pao ChuenWinston Tan Tien HinLucien Wong Yuen KuaiDr Philip Nalliah PillaiQuek Poh HuatVenkatachalam KrishnakumarBG Bernard Tan Kok Kiang (Alternate Director to LG Ng Yat Chung)

ARRANGEMENTS TO ENABLE DIRECTORS TO ACQUIRE SHARES OR DEBENTURESExcept for the Singapore Technologies Engineering Executives’ Share Option Scheme, Singapore Technologies Engineering Share Option Plan and Singapore Technologies Engineering Performance Share Plan (collectively the “ST Engineering Share Plans”), 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.

DIRECTORS’ INTERESTS IN SHARES OR DEBENTURESExcept as disclosed in this report, no director who held offi ce at the end of the fi nancial year had interests in shares or debentures of the Company or of related corporations either at the beginning (or date of appointment, if later) or at the end of the fi nancial year. There were no changes in any of the directors’ interests in the Company between the end of the fi nancial year and on 21 January 2007.

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DIRECTORS’ INTERESTS IN SHARES OR DEBENTURES (continued)According to the register kept by the Company for the purposes of Section 164 of the Singapore Companies Act, Chapter 50, particulars of interests of directors who held offi ce at the end of the fi nancial year in shares or debentures in the Company and its related corporations were as follows:

HOLDINGS IN THE NAME OF THE DIRECTOR, SPOUSE OR INFANT CHILDREN

1 JANUARY 2006 OR DATE OF APPOINTMENT IF LATER 31 DECEMBER 2006

The CompanyOrdinary SharesTan Pheng Hock 85,864 173,364Professor Lui Pao Chuen 181,444 181,444Winston Tan Tien Hin 200,000*1 315,000*1

Lucien Wong Yuen Kuai – 75,000Dr Philip Nalliah Pillai – 75,000Quek Poh Huat 763,228 813,728BG Bernard Tan Kok Kiang 9,164 9,164

Related CorporationsCEI Electronics Pte LtdOrdinary SharesWinston Tan Tien Hin 47,520 47,520

Chartered Semiconductor Manufacturing LtdOrdinary SharesTan Pheng Hock 7,000 7,000Koh Beng Seng 44,074 44,074Dr Tan Kim Siew 25,000 –Winston Tan Tien Hin – 20,000

Global Crossing LimitedCommon Stock of US$0.01 eachPeter Seah Lim Huat 750 1,785

SembCorp Industries Ltd Ordinary SharesPeter Seah Lim Huat 140,000 N.A.*2

Professor Lui Pao Chuen 66,189 N.A.*2

Quek Poh Huat 34,676 N.A.*2

BG Bernard Tan Kok Kiang 3,951 N.A.*2

SembCorp Logistics LtdOrdinary SharesProfessor Lui Pao Chuen 105,070 N.A.*2

SembCorp Marine LtdOrdinary SharesProfessor Lui Pao Chuen 60,000 N.A.*2

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DIRECTORS’ INTERESTS IN SHARES OR DEBENTURES (continued)



SIA Engineering Company LimitedOrdinary SharesProfessor Lui Pao Chuen 40,000 40,000

Singapore Airlines LimitedOrdinary Shares Professor Lui Pao Chuen 8,000 8,000Winston Tan Tien Hin 4,000 –Venkatachalam Krishnakumar 4,000 4,000BG Bernard Tan Kok Kiang 1,000 1,000

Singapore Airport Terminal Services LtdOrdinary SharesProfessor Lui Pao Chuen 50,000 90,000

Singapore Computer Systems LimitedOrdinary Shares Quek Poh Huat 15,000 15,000BG Bernard Tan Kok Kiang 1,000 1,000

Singapore Food Industries LimitedOrdinary SharesProfessor Lui Pao Chuen 20,000 20,000

Singapore Telecommunications LimitedOrdinary Shares Peter Seah Lim Huat 3,180 3,040Tan Pheng Hock 3,500 3,350Koh Beng Seng 1,600 1,520LG Ng Yat Chung 1,430 1,360Dr Tan Kim Siew 2,990 2,850Professor Lui Pao Chuen 3,370 3,210Winston Tan Tien Hin 105,223*3 137,980*4

Lucien Wong Yuen Kuai 4,800 4,580Dr Philip Nalliah Pillai 49,800 47,320Quek Poh Huat 3,370 5,210BG Bernard Tan Kok Kiang 380 380

SMRT Corporation LtdOrdinary SharesQuek Poh Huat 8,000 8,000


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SP AusNetStapled SecuritiesQuek Poh Huat 206,000 206,000

SNP Corporation LtdOrdinary SharesWinston Tan Tien Hin 54,494*5 54,494*5

StarHub LtdOrdinary Shares Peter Seah Lim Huat 60,000 133,720Tan Pheng Hock 32,000 27,430Venkatachalam Krishnakumar 20,000 17,144

TeleChoice International LimitedOrdinary SharesPeter Seah Lim Huat 50,000 50,000Tan Pheng Hock 30,000 30,000

Vertex Technology Fund LtdOrdinary Shares Winston Tan Tien Hin 10 10

Vertex Technology Fund (II) LtdOrdinary SharesTan Pheng Hock 5† 5†

Koh Beng Seng 15 15Winston Tan Tien Hin 20 20

Redeemable Preference Shares Koh Beng Seng 15 15Winston Tan Tien Hin 20 20

Vertex Investment (II) LtdOrdinary Shares Professor Lui Pao Chuen 20 20


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1 JANUARY 2006 OR DATE OF APPOINTMENT 31 DECEMBER EXERCISE IF LATER 2006 PRICE EXERCISABLE PERIOD $

The CompanyOptions to Subscribe for Ordinary SharesPeter Seah Lim Huat 89,000 89,000 1.92 13.8.2003 to 12.8.2007 44,500 44,500 1.79 7.2.2004 to 6.2.2008 40,500 40,500 1.86 12.8.2004 to 11.8.2008 44,500 44,500 2.09 10.2.2005 to 9.2.2009 44,500 44,500 2.12 11.8.2005 to 10.8.2009 44,500 44,500 2.37 8.2.2006 to 7.2.2010 44,500 44,500 2.57 11.8.2006 to 10.8.2010 – 44,500 3.01 10.2.2007 to 09.2.2011 – 44,500 2.84 11.8.2007 to 10.8.2011

Tan Pheng Hock 5,000 5,000 1.29 8.8.2000 to 7.8.2008 400,000 400,000 1.418 10.2.2001 to 9.2.2009 5,000 5,000 2.00 11.8.2001 to 10.8.2009 400,000 400,000 2.26 10.2.2002 to 9.2.2010 225,000 225,000 2.72 20.2.2002 to 19.2.2011 227,500 227,500 2.68 11.8.2002 to 10.8.2011 175,000 175,000 2.29 8.2.2003 to 7.2.2012 175,000 175,000 1.92 13.8.2003 to 12.8.2012 200,000 200,000 1.79 7.2.2004 to 6.2.2013 200,000 200,000 1.86 12.8.2004 to 11.8.2013 200,000 200,000 2.09 10.2.2005 to 9.2.2014 200,000 200,000 2.12 11.8.2005 to 10.8.2014 200,000 200,000 2.37 8.2.2006 to 7.2.2015 200,000 200,000 2.57 11.8.2006 to 10.8.2015 – 200,000 3.01 10.2.2007 to 9.2.2016 – 200,000 2.84 11.8.2007 to 10.8.2016

Koh Beng Seng 19,500 19,500 2.09 10.2.2005 to 9.2.2009 19,500 19,500 2.12 11.8.2005 to 10.8.2009 27,500 27,500 2.37 8.2.2006 to 7.2.2010 27,500 27,500 2.57 11.8.2006 to 10.8.2010 – 27,500 3.01 10.2.2007 to 9.2.2011 – 27,500 2.84 11.8.2007 to 10.8.2011

Professor Lui Pao Chuen 21,500 21,500 1.79 7.2.2004 to 6.2.2008 21,500 21,500 1.86 12.8.2004 to 11.8.2008 21,500 21,500 2.09 10.2.2005 to 9.2.2009 25,250 25,250 2.12 11.8.2005 to 10.8.2009 29,000 29,000 2.37 8.2.2006 to 7.2.2010 – 29,000 3.01 10.2.2007 to 9.2.2011


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The CompanyOptions to Subscribe for Ordinary SharesWinston Tan Tien Hin 115,000 – 2.72 20.2.2002 to 19.2.2006 105,000 105,000 2.29 8.2.2003 to 7.2.2007 56,500 56,500 1.79 7.2.2004 to 6.2.2008 46,500 46,500 1.86 12.8.2004 to 11.8.2008 48,500 48,500 2.09 10.2.2005 to 9.2.2009 37,000 37,000 2.37 8.2.2006 to 7.2.2010 37,000 37,000 2.57 11.8.2006 to 10.8.2010 – 37,000 3.01 10.2.2007 to 9.2.2011 – 37,000 2.84 11.8.2007 to 10.8.2011

Lucien Wong Yuen Kuai 75,000 – 2.72 20.2.2002 to 19.2.2006 59,000 59,000 2.29 8.2.2003 to 7.2.2007 23,500 23,500 1.79 7.2.2004 to 6.2.2008 19,500 19,500 1.86 12.8.2004 to 11.8.2008 19,500 19,500 2.09 10.2.2005 to 9.2.2009 19,500 19,500 2.12 11.8.2005 to 10.8.2009 19,500 19,500 2.37 8.2.2006 to 7.2.2010 19,500 19,500 2.57 11.8.2006 to 10.8.2010 – 21,500 3.01 10.2.2007 to 9.2.2011 – 21,500 2.84 11.8.2007 to 10.8.2011

Dr Philip Nalliah Pillai 75,000 – 2.72 20.2.2002 to 19.2.2006 62,000 62,000 2.29 8.2.2003 to 7.2.2007 31,000 31,000 1.79 7.2.2004 to 6.2.2008 29,000 29,000 1.86 12.8.2004 to 11.8.2008 31,000 31,000 2.09 10.2.2005 to 9.2.2009 31,000 31,000 2.12 11.8.2005 to 10.8.2009 31,000 31,000 2.37 8.2.2006 to 7.2.2010 31,000 31,000 2.57 11.8.2006 to 10.8.2010 – 33,000 3.01 10.2.2007 to 9.2.2011 – 33,000 2.84 11.8.2007 to 10.8.2011

Quek Poh Huat 43,000 12,750 1.92 13.8.2003 to 12.8.2007 35,000 14,750 1.79 7.2.2004 to 6.2.2008 33,000 33,000 1.86 12.8.2004 to 11.8.2008 33,000 33,000 2.09 10.2.2005 to 9.2.2009 33,000 33,000 2.12 11.8.2005 to 10.8.2009 33,000 33,000 2.37 8.2.2006 to 7.2.2010 33,000 33,000 2.57 11.8.2006 to 10.8.2010 – 33,000 3.01 10.2.2007 to 9.2.2011 – 33,000 2.84 11.8.2007 to 10.8.2011


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Venkatachalam Krishnakumar 25,250 25,250 2.37 8.2.2006 to 7.2.2010 25,250 25,250 2.57 11.8.2006 to 10.8.2010 – 25,500 3.01 10.2.2007 to 9.2.2011 – 25,500 2.84 11.8.2007 to 10.8.2011

Related CorporationsChartered Semiconductor Manufacturing LtdOptions to Subscribe for Ordinary SharesPeter Seah Lim Huat 23,443 23,443 3.46 22.2.2003 to 22.2.2007 46,887 46,887 1.86 30.8.2003 to 30.8.2007 40,000 40,000 0.72 28.2.2004 to 28.2.2008 45,000 45,000 1.10 29.8.2004 to 29.8.2008 85,000 85,000 1.70 27.2.2005 to 27.2.2009 85,000 85,000 1.16 26.8.2006 to 26.8.2010 – 95,000 1.21 25.8.2007 to 25.8.2011

Koh Beng Seng 5,860 – 4.05 28.3.2002 to 28.3.2006 11,721 – 4.26 15.8.2002 to 15.8.2006 29,304 29,304 1.86 30.8.2003 to 30.8.2007

Global Crossing LimitedOptions to Purchase Common Shares of US$0.01 eachPeter Seah Lim Huat 40,000 40,000 10.16 12.1.2005 to 11.1.2014

PT Indosat TbkOptions to Subscribe for Ordinary Shares of Rp100 eachPeter Seah Lim Huat 150,000 – 3702.6 1.8.2005 to 31.7.2006

SembCorp Industries LtdOptions to Subscribe for Ordinary SharesPeter Seah Lim Huat 140,000 N.A.*2 1.50 20.4.2002 to 19.4.2006 70,000 N.A.*2 1.54 8.5.2003 to 7.5.2007 70,000 N.A.*2 0.93 18.10.2003 to 17.10.2007 70,000 N.A.*2 1.09 3.6.2004 to 2.6.2008 70,000 N.A.*2 1.24 19.11.2004 to 18.11.2008 70,000 N.A.*2 1.30 18.5.2005 to 17.5.2009 70,000 N.A.*2 1.47 23.11.2005 to 22.11.2009 70,000 N.A.*2 2.68 2.7.2006 to 1.7.2010 70,000 N.A.*2 2.67 22.11.2006 to 21.11.2010


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SembCorp Marine LtdOptions to Subscribe for Ordinary SharesTan Pheng Hock 20,000 N.A.*2 0.66 28.9.2002 to 27.9.2006 40,000 N.A.*2 0.90 8.11.2003 to 7.11.2007 50,000 N.A.*2 0.99 9.8.2004 to 8.8.2008 50,000 N.A.*2 1.04 11.8.2005 to 10.8.2009 35,000 N.A.*2 2.96 12.8.2006 to 11.8.2010

StarHub LtdOptions to Subscribe for Ordinary SharesPeter Seah Lim Huat 37,500 – 0.88 30.11.2003 to 29.11.2007 18,750 – 0.88 31.5.2004 to 30.5.2008 18,750 6,250 0.88 29.11.2004 to 28.11.2008 18,750 6,250 0.96 3.4.2005 to 2.4.2009 18,750 12,500 0.985 27.11.2005 to 26.11.2009 25,500 17,000 1.52 31.5.2006 to 30.5.2010

STT Communications LtdOptions to Subscribe for Ordinary Shares Peter Seah Lim Huat 2,000 – 0.50 29.6.2003 to 28.6.2012 19,500 9,750 0.57 30.7.2004 to 29.7.2013 130,000 65,000 1.08 29.7.2005 to 28.7.2014

Singapore Telecommunications LimitedOptions to Subscribe for Ordinary Shares Quek Poh Huat 60,000 – 1.42 9.9.2003 to 9.9.2007

1 JANUARY 2006 OR DATE OF APPOINTMENT 31 DECEMBER IF LATER 2006 VESTING PERIOD

Global Crossing LimitedRestricted Stock Units of US$0.01 eachPeter Seah Lim Huat 6,750 5,625 8.3.2005 to 8.3.2009 – 3,294 15.8.2007


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The CompanyConditional Award of 250,000 performance shares to be delivered after 2005Tan Pheng Hock 0 to 500,000 #1 –

Conditional Award of 250,000 performance shares to be delivered after 2006Tan Pheng Hock 0 to 500,000 #2 0 to 500,000 #2

Conditional Award of 250,000 performance shares to be delivered after 2007Tan Pheng Hock 0 to 375,000 #3 0 to 375,000 #3

Conditional Award of 250,000 performance shares to be delivered after 2008Tan Pheng Hock – 0 to 375,000 #4

*1 Includes deemed interest in 200,000 shares held in the name of Winmark Investments Pte Ltd, a company in which Winston Tan Tien Hin has a 50% interest.

*2 SembCorp Industries Ltd, SembCorp Logistics Ltd and SembCorp Marine Ltd ceased to be related corporations of Temasek Holdings (Private) Limited during the fi nancial year.

*3 Includes deemed interest in 100,000 shares in Singapore Telecommunications Limited, held by Winmark Investments Pte Ltd, a company in which Winston Tan Tien Hin has a 50% interest.

*4 Includes deemed interest in 133,000 shares in Singapore Telecommunications Limited, held by Winmark Investments Pte Ltd, a company in which Winston Tan Tien Hin has a 50% interest.

*5 Includes deemed interest in 366 shares in SNP Corporation Ltd, held by Winmark Investments Pte Ltd, a company in which Winston Tan Tien Hin has a 50% interest.

† Held in trust by a trustee company on behalf of a director.

#1 The actual number of shares to be delivered will depend on the achievement of set targets over a three-year period from 2003 to 2005. Achievement of targets below 80% target level will mean no performance shares will be delivered, while achievement up to 200% will mean up to twice the number of performance shares can be delivered. For this period, Mr Tan Pheng Hock was awarded 87,500 new shares on 20 February 2006 upon partial achievement of targets set. The balance of the conditional performance shares award covering the period from 2003 to 2005 has thus lapsed.

#2 The actual number delivered will depend on the achievement of set targets over a three-year period from 2004 to 2006. Achievement of targets below 80% target level will mean no performance shares will be delivered, while achievement up to 200% will mean up to twice the number of performance shares can be delivered.


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DIRECTORS’ INTERESTS IN SHARES OR DEBENTURES (continued)#3 A minimum threshold performance over a three-year period from 2005 to 2007 is required for any performance shares to be

released and the actual number of performance shares to be released is capped at 150% of the conditional award.

#4 A minimum threshold performance over a three-year period from 2006 to 2008 is required for any performance shares to be released and the actual number of performance shares to be released is capped at 150% of the conditional award.

DIRECTORS’ INTERESTS IN CONTRACTSSince the end of the previous fi nancial year, no director has received or become entitled to receive a benefi t (other than a benefi t or any fi xed salary of a full-time employee of the Company included in the aggregate amount of emoluments shown in the fi nancial statements, or any emoluments received from related corporations and share options granted pursuant to the ST Engineering Share Plans) by reason of a contract made by the Company or a related corporation with the director or with a fi rm of which the director is a member, or with a company in which the director has a substantial fi nancial interest, except for professional fees paid to a fi rm of which a director is a member as shown in the fi nancial statements.

SHARE PLANSThe Executive Resource and Compensation Committee (“ERCC”) is responsible for administering the Singapore Technologies Engineering Share Option Plan (“ESOP”), the Singapore Technologies Engineering Performance Share Plan (“PSP”) and the Singapore Technologies Engineering Restricted Stock Plan (collectively “Share Plans”).

The Committee members are Mr Peter Seah Lim Huat (Chairman), Mr Venkatachalam Krishnakumar and Dr Philip Nalliah Pillai.

Following approval of the new Share Plans by shareholders at the Extraordinary General Meeting held on 23 November 2000, the Singapore Technologies Engineering Executives’ Share Option Scheme (“ESOS”) was terminated. As at 31 December 2006, no options have been granted to controlling shareholders of the Company or associates of the Company and no employees have received 5% or more of the total options available under the Share Plans.

The number of options granted and accepted under the ESOP and the number of conditional awards under the PSP is within the 15% limit allowed under the Share Plans.

During the fi nancial year, except as disclosed below, there were no options granted by the Company to any person to take up unissued shares of the Company:

(a) Options granted under the ESOS/ESOP (i) During the fi nancial year, the following options were granted under the ESOP:

NO. OF SHARES GRANTED UNDER DATE OF GRANT EXERCISABLE PERIOD OPTIONS EXERCISE PRICE $

9.2.2006 10.2.2007 to 9.2.2016 15,148,936 3.01 9.2.2006 10.2.2007 to 9.2.2011 504,250 3.01 10.8.2006 11.8.2007 to 10.8.2016 16,313,523 2.84 10.8.2006 11.8.2007 to 10.8.2011 402,000 2.84


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SHARE PLANS (continued)(a) Options granted under the ESOS/ESOP (continued) (ii) The options granted to directors under the ESOS/ESOP are as follows:

AGGREGATE OPTIONS GRANTED AND AGGREGATE OPTIONS OPTIONS GRANTED ACCEPTED SINCE EXERCISED SINCE AGGREGATE OPTIONS AND ACCEPTED DURING COMMENCEMENT OF COMMENCEMENT OF OUTSTANDING AS THE FINANCIAL YEAR ESOS/ESOP TO END ESOS/ESOP TO END AT END OF NAME OF PARTICIPANT UNDER REVIEW OF FINANCIAL YEAR OF FINANCIAL YEAR FINANCIAL YEAR

Director of the Company ESOS Tan Pheng Hock – 1,699,864 889,864 810,000

ESOP Peter Seah Lim Huat 89,000 441,000 – 441,000 Tan Pheng Hock 400,000 2,402,500 – 2,402,500 Koh Beng Seng 55,000 149,000 – 149,000 Professor Lui Pao Chuen 29,000 147,750 – 147,750 Winston Tan Tien Hin 74,000 519,500 115,000 404,500 Lucien Wong Yuen Kuai 43,000 298,000 75,000 223,000 Dr Philip Nalliah Pillai 66,000 387,000 75,000 312,000 Quek Poh Huat 66,000 309,000 50,500 258,500 Venkatachalam Krishnakumar 51,000 101,500 – 101,500

(iii) In respect of options granted to employees of related corporations, no options were granted during the fi nancial year. The total options granted from the commencement of the ESOS/ESOP to the end of the fi nancial year is 631,479.

(iv) The options granted by the Company do not entitle the holders of the options, by virtue of such holdings, to any right to participate in any share issue of any other company.

(v) No share options had been offered at a discount during the fi nancial year ended 31 December 2006.

(b) Issue of shares under option During the fi nancial year, 30,953,004 ordinary shares in the Company were issued pursuant to the exercise of options to take

up unissued shares of the Company.

(c) PSP The PSP is established with the objective of motivating senior executives to strive for sustained long-term growth and

performance in ST Engineering and its subsidiaries (“the ST Engineering Group”). Awards of performance shares are granted conditional on performance targets set based on the ST Engineering Group corporate objectives.

Pursuant to the PSP, the ERCC has decided to grant awards on an annual basis, conditional on targets set for a performance period, currently prescribed to be a three-year performance period. The performance shares will only be released to the recipient at the end of the performance qualifying period. A specifi ed number of performance shares shall be released by the ERCC to the recipient and the actual number of performance shares will depend on the achievement of set targets over the respective performance period. For achievements that are below 80% of these targets, no performance shares will be given while for achievements that exceed targets by more than 100%, more performance shares than the original award will be delivered up to a maximum of 200% of the conditional award.


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SHARE PLANS (continued)(c) PSP (continued) The medium-term stretched targets measured over a three-year performance period are set based on ST Engineering Group

corporate objectives. The performance measures used in PSP grant up to fi nancial year 2004 are ST Engineering Group Total Shareholders’ Return (“TSR”) against the MSCI Asia Pacifi c ex Japan Industrial Index, Value Added per Employment Cost and EVA Spread.

Pursuant to the PSP for the fi nancial year 2006, conditional awards aggregating 2,450,000 performance shares were made to 40 key executives of the ST Engineering Group, as part of the incentives plan to motivate key executives of the ST Engineering Group. The key executives include Mr Tan Pheng Hock, an executive Director of the Board, who was conditionally awarded 250,000 performance shares. This conditional award is for the performance qualifying period of 2006 to 2008.

With effect from fi nancial year 2005, the performance measures are ST Engineering Group TSR against the MSCI Asia Pacifi c ex Japan Industrial Index, EVA Spread and EPS Growth.

A minimum threshold performance is required for any performance share to be released and the actual number of

performance shares to be released is capped at 150% of the conditional award.

On 20 February 2006, 805,000 new shares were awarded upon the partial achievement of one of the three targets set for a grant of conditional award relating to the performance cycle from 2003 to 2005. The balance of the conditional award covering the period from 2003 to 2005 has thus lapsed.

The total number of shares in the remaining awards which are granted conditionally for the performance periods 2004 to 2006, 2005 to 2007 and 2006 to 2008 respectively, not due to be released yet, total 6,740,000. Depending on the actual performance, the total release of awards will range from zero to a maximum of 11,175,000 shares.

AUDIT COMMITTEEThe Audit Committee comprises three independent non-executive directors, one of whom is also the Chairman of the Committee. The members of the Audit Committee at the date of this report are as follows:

Koh Beng Seng (Chairman)Dr Philip Nalliah PillaiVenkatachalam Krishnakumar

The fi nancial statements, accounting policies and system of internal accounting controls are the responsibility of the Board of Directors acting through the Audit Committee. The Audit Committee met during the year to review the scope of the internal audit functions and the scope of work of the statutory auditors, and the results arising therefrom, including their evaluation of the system of internal controls. The Audit Committee also reviewed the assistance given by the Company’s offi cers to the auditors. The consolidated fi nancial statements of the Group and the fi nancial statements of the Company were reviewed by the Audit Committee prior to their submission to the directors of the Company for adoption.

In addition, the Audit Committee has reviewed the requirements for approval and disclosure of interested person transactions, reviewed the procedures set up by the Group and the Company to identify and report and where necessary, seek approval for interested person transactions and, with the assistance of the internal auditors, reviewed interested person transactions.

The Audit Committee has recommended to the Board of Directors that the auditors, Ernst & Young, be nominated for re-appointment as auditors at the forthcoming Annual General Meeting of the Company.


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AUDITORSErnst & Young have expressed their willingness to accept re-appointment as auditors of the Company.

On behalf of the Board of Directors

Peter Seah Lim Huat Tan Pheng HockDirector Director

Singapore13 February 2007


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We, Peter Seah Lim Huat and Tan Pheng Hock, being directors of Singapore Technologies Engineering Ltd, do hereby state that, in the opinion of the Directors:

(a) the fi nancial statements set out on pages 105 to 195 are drawn up so as to give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2006, and changes in equity of the Company and of the Group, the results of the business and cash fl ows of the Group for the year ended on that date; 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.

On behalf of the Board of Directors

Peter Seah Lim Huat Tan Pheng HockDirector Director


Statement by Directors

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Independent Auditors’ Report

INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF SINGAPORE TECHNOLOGIES ENGINEERING LTDWe have audited the accompanying fi nancial statements of Singapore Technologies Engineering Ltd (the “Company”) and its subsidiary companies (collectively the “Group”) set out on pages 105 to 195, which comprise the balance sheets of the Group and the Company as at 31 December 2006, the statements of changes in equity of the Group and the Company, and the statement of profi t and loss 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.

Directors’ responsibility for the fi nancial statementsThe Company’s directors are responsible for the preparation and fair presentation of these fi nancial statements in accordance with Singapore Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of fi nancial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors’ responsibilityOur 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 whether the fi nancial statements are free of 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 and fair presentation of the fi nancial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by directors, as well as evaluating the overall presentation of the 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.

OpinionIn our opinion,

(a) the consolidated fi nancial statements of the Group and the balance sheet and statement of changes in equity of the Company are properly drawn up in accordance with the provisions of the Singapore Companies Act, Chapter 50 (the “Act”) and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2006 and changes in equity of the Group and of the Company, the results and cash fl ows of the Group for the fi nancial year ended on that date; and

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

ERNST & YOUNGCertifi ed Public Accountants


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Balance Sheets AS AT 31 DECEMBER 2006(Currency – Singapore dollars)

GROUP COMPANY NOTE 2006 2005 2006 2005 $’000 $’000 $’000 $’000 (Restated)

Share capital and reservesShare capital 3 474,926 291,450 474,926 291,450Share premium – 117,197 – 117,197Capital reserve 4 115,948 115,948 – –Other reserves 5 13,973 52,957 11,917 1,974Unappropriated profi t 6 960,654 915,246 530,676 396,815

1,565,501 1,492,798 1,017,519 807,436Minority interests 142,883 49,058 – –

1,708,384 1,541,856 1,017,519 807,436

Property, plant and equipment 7 952,209 475,197 657 741Subsidiaries 8 – – 544,209 406,692Associated companies and joint ventures 9 294,145 281,963 50 50Investments 10 27,858 101,347 – –Intangible assets 11 556,711 344,682 – –Long-term receivables 12 5,203 15,329 – –Deferred tax assets 13 117,637 110,872 – –Current assetsStocks and work-in-progress 14 1,103,417 812,186 – –Trade debtors 15 858,211 665,466 – –Due from related corporations 16 516,440 898,703 238,783 275,133Advances and other debtors 17 229,039 242,562 199,172 122,530Long-term receivables, current 12 476 698 – 1Amounts under fund management 18 228,173 311,062 – –Bank balances and other liquid funds 19 624,723 306,328 145,655 47,406

3,560,479 3,237,005 583,610 445,070Current liabilitiesAdvance payments from customers, current 582,234 460,623 – –Creditors and accruals 22 1,338,928 1,142,937 50,078 38,023Provisions 23 184,911 177,064 – –Progress billings in excess of work-in-progress 14 298,938 291,304 – –Provision for taxation 213,931 208,764 6,644 6,904Short-term bank loans (unsecured) 24 595,850 323,594 – –Lease obligations, current 25 2,137 2,391 – –Long-term bank loans, current 29 6,859 9,430 – –Other loans, current 30 1,217 3,512 – –Bank overdrafts 1,737 731 – –

3,226,742 2,620,350 56,722 44,927Net current assets 333,737 616,655 526,888 400,143Non-current liabilitiesAdvance payments from customers, non-current 277,764 377,918 – –Deferred income 27 4,101 2,303 – –Deferred tax liabilities 28 15,190 7,751 285 190Lease obligations, non-current 25 9,113 12,201 – –Long-term bank loans, non-current 29 270,525 1,138 – –Other loans, non-current 30 2,423 2,878 – –Due to a subsidiary 31 – – 54,000 –

1,708,384 1,541,856 1,017,519 807,436

The accompanying notes are an integral part of the fi nancial statements.

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Statement of Profi t and Loss FOR THE YEAR ENDED 31 DECEMBER 2006(Currency – Singapore dollars)

GROUP NOTE 2006 2005 $’000 $’000

Turnover 32 4,485,758 3,337,895

Cost of sales (3,453,961) (2,621,679)

Gross profi t 1,031,797 716,216

Other operating income 33 88,134 54,847Distribution and selling expenses (116,635) (54,399)Administrative expenses (383,034) (226,546)Other operating expenses (74,501) (45,775)

Profi t from continuing operations before taxation,other income and fi nancial expenses 34 545,761 444,343

Other income, net 37 9,340 20,921Financial expenses 38 (42,252) (7,952)

512,849 457,312Share of results of associated companies and joint ventures 51,490 45,933

Profi t from continuing operations before taxation 564,339 503,245

Taxation 39 (108,895) (91,993)

Profi t from continuing operations after taxation 455,444 411,252

Attributable to:Shareholders of the Company 445,127 396,308Minority interests 10,317 14,944

455,444 411,252

Earnings per share (cents) 41Basic 15.15 13.64Diluted 15.00 13.54


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Statements of Changes in Equity FOR THE YEAR ENDED 31 DECEMBER 2006(Currency – Singapore dollars)

SHARE SHARE CAPITAL OTHER RETAINED MINORITY TOTAL CAPITAL PREMIUM RESERVE RESERVES EARNINGS TOTAL INTERESTS EQUITY $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

The GroupAt 1.1.2005 289,217 76,602 115,948 47,545 878,840 1,408,152 37,936 1,446,088

Net fair value changes onavailable-for-sale fi nancial assets – – – (1,931) – (1,931) – (1,931)

Net fair value changes oncash fl ow hedges – – – (2,550) – (2,550) – (2,550)

Foreign currency translationdifferences – – – 1,223 – 1,223 (61) 1,162

Net income recognised directlyin equity – – – (3,258) – (3,258) (61) (3,319)

Net profi t for the year – – – – 396,308 396,308 14,590 410,898

Total recognised net incomefor the year – – – (3,258) 396,308 393,050 14,529 407,579

Issue of shares 2,233 40,595 – – – 42,828 – 42,828Dilution of interest in a subsidiary – – – – – – (3,440) (3,440)Acquisition of subsidiaries – – – – – – 1,016 1,016Capital contribution – – – – – – 10,703 10,703Cost of share-based payment – – – 8,537 – 8,537 3 8,540Dividends (Note 40) – – – – (359,769) (359,769) (11,689) (371,458)Transfer from unappropriated

profi t to statutory reserve – – – 133 (133) – – –

At 31.12.2005 291,450 117,197 115,948 52,957 915,246 1,492,798 49,058 1,541,856

At 1.1.2006 291,450 117,197 115,948 52,957 915,246 1,492,798 49,058 1,541,856Transfer from share premium

account to share capital uponimplementation of theCompanies (Amendment)Act 2005 117,197 (117,197) – – – – – –

Net fair value changes onavailable-for-sale fi nancial assets – – – (14,542) – (14,542) – (14,542)

Net fair value changes oncash fl ow hedges – – – (879) – (879) – (879)

Foreign currency translationdifferences – – – (33,321) – (33,321) 4,196 (29,125)

Net income recognised directlyin equity – – – (48,742) – (48,742) 4,196 (44,546)

Net profi t for the year – – – – 445,127 445,127 10,038 455,165

Total recognised net incomefor the year – – – (48,742) 445,127 396,385 14,234 410,619

Issue of shares 66,279 – – – – 66,279 – 66,279Acquisition of subsidiaries – – – – – – 89,616 89,616Acquisition of additional interest

in a subsidiary – – – – – – 80 80Capital contribution – – – – – – 4,971 4,971Cost of share-based payment – – – 9,431 – 9,431 80 9,511Dividends (Note 40) – – – – (399,473) (399,473) (15,191) (414,664)Revaluation surplus – – – 81 – 81 35 116Transfer from unappropriated profi t

to statutory reserve – – – 246 (246) – – –

At 31.12.2006 474,926 – 115,948 13,973 960,654 1,565,501 142,883 1,708,384

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Statements of Changes in Equity FOR THE YEAR ENDED 31 DECEMBER 2006(Currency – Singapore dollars)

SHARE-BASED SHARE SHARE PAYMENT RETAINED CAPITAL PREMIUM RESERVE EARNINGS TOTAL $’000 $’000 $’000 $’000 $’000

The CompanyAt 1.1.2005 289,217 76,602 526 358,914 725,259Net profi t for the year – – – 397,670 397,670

Total recognised net income for the year – – – 397,670 397,670Issue of shares 2,233 40,595 – – 42,828Cost of share-based payment – – 1,448 – 1,448Dividends (Note 40) – – – (359,769) (359,769)

At 31.12.2005 291,450 117,197 1,974 396,815 807,436

At 1.1.2006 291,450 117,197 1,974 396,815 807,436Transfer from share premium account to share

capital upon implementation of theCompanies (Amendment) Act 2005 117,197 (117,197) – – –

Net profi t for the year – – – 533,334 533,334

Total recognised net income for the year – – – 533,334 533,334Issue of shares 66,279 – – – 66,279Cost of share-based payment – – 9,943 – 9,943Dividends (Note 40) – – – (399,473) (399,473)

At 31.12.2006 474,926 – 11,917 530,676 1,017,519


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Consolidated Statement of Cash Flows FOR THE YEAR ENDED 31 DECEMBER 2006(Currency – Singapore dollars)

2006 2005 $’000 $’000

Cash fl ows from operating activitiesProfi t before taxation including share of results of associated companies and joint ventures 564,339 503,245Adjustments:

Share of results of associated companies and joint ventures (51,490) (45,933)Depreciation of property, plant and equipment 130,676 79,092Provision for impairment in value of investments 8,428 3,905Provision for impairment in value of associated companies and joint ventures 4,865 700Property, plant and equipment written off 10,942 372Impairment of property, plant and equipment 297 12,213Gain on disposal of property, plant and equipment (11) (1,241)Gain on dilution of interest in an associated company (571) –Gain on disposal of investments (35,701) (13,199)Short-term loans from minority shareholders forgiven (2,766) –Profi t on maturity of amounts under fund management (6,491) (6,947)Negative goodwill written off (615) –Write-back of provision for loan to an investee company – (821)Share-based payment expense 9,885 8,540Changes in fair value of fi nancial instruments and hedged items 155 (657)Interest expense 42,252 7,952Interest income (40,151) (30,610)Dividends from investments (10,291) (3,012)Impairment of goodwill 8,135 4,483Amortisation of other intangible assets 5,135 1,522Impairment/(write-back of impairment) of other intangible assets 818 (234)

Operating profi t before working capital changes 637,840 519,370(Increase)/decrease in:

Stocks and work-in-progress (172,836) (82,942)Progress billings in excess of work-in-progress 7,634 49,502Assets held for disposal – 17,374Trade debtors (78,653) (123,228)Advance payments to suppliers 26,613 (5,181)Other debtors, deposits and prepayments (427) (24,263)Holding company and related corporations balances 1,150 2,430Associated companies (185) (5,537)Joint ventures 18,912 (3,567)Trade creditors 4,287 (4,648)Advance payments from customers 17,309 10,624Other creditors, accruals and provisions 47,461 3,095Loans to staff and third parties, net of repayments 97 5,792

Cash generated from operations 509,202 358,821Interest received 40,905 29,491Income tax paid (95,193) (83,416)Deferred income 1,798 243Exchange difference on operating activities 3,690 (1,626)

Net cash from operating activities 460,402 303,513

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2006 2005 $’000 $’000

Cash fl ows from investing activitiesProceeds from sale of property, plant and equipment 1,709 1,614Dividends from associated companies 48,237 45,262Dividends from investments 10,291 3,012Proceeds from sale and maturity of investments 166,545 15,714Proceeds from convertible loan/promissory note redemption – 4,872Purchase of property, plant and equipment (197,143) (117,535)Purchase of investments (880) (73,695)Proceeds from capital redemption of investments 170 238Loan to an investee company (140) (1,136)Additional investment/acquisition of associated companies and joint ventures (34,258) (12,293)Acquisition of other intangible assets (3,466) (10)Acquisition of subsidiaries (363,534) (298,471)Acquisition of additional interest in subsidiaries (1,669) –Dilution of interest in subsidiaries – (963)Loans to associated companies and joint ventures (1,235) (185)Exchange difference on investing activities 6,600 (1,542)

Net cash used in investing activities (368,773) (435,118)

Cash fl ows from fi nancing activitiesCapital contribution from minority shareholders of subsidiaries 233 2,231Proceeds from issue of shares 65,905 42,781Loan from minority shareholders 43 1,549Repayment of other loans (923) (79)Repayment of lease obligations, net (2,245) (476)Proceeds from bank loans, net 261,082 147,208Dividend paid to shareholders of the Company (399,473) (359,769)Dividend paid to minority shareholders of subsidiaries (15,191) (11,689)Interest paid (36,979) (7,556)Exchange difference on fi nancing activities (15,102) 1,762

Net cash used in fi nancing activities (142,650) (184,038)

Net decrease in cash and cash equivalents (51,021) (315,643)Cash and cash equivalents at beginning of year 1,198,248 1,515,661Exchange difference on cash and cash equivalents at beginning of year (12,757) (1,770)

Cash and cash equivalents at end of year (Note 43) 1,134,470 1,198,248

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Summary of Effect on Acquisition of Interest in Subsidiaries:In 2006, the fair value of the identifi able assets and liabilities of the subsidiaries acquired (as disclosed in Note 8(b)) and the effect thereof as at the date of acquisition were as follows: CARRYING RECOGNISED ON AMOUNT BEFORE ACQUISITION COMBINATION $’000 $’000

Property, plant and equipment 406,526 406,526Deferred tax assets 18,783 16,675Intangible assets 46,572 18,585Stocks and work-in-progress 115,970 115,849Debtors, deposits and prepayment 136,863 136,539Cash and cash equivalents 64,132 64,132Other non-current assets 312 312

789,158 758,618

Creditors and accruals (197,635) (195,494)Provisions (2,369) (2,369)Provision for taxation (973) (973)Deferred tax liabilities (10,771) (136)Other non-current liabilities (259,580) (259,580)

(471,328) (458,552)

Net identifi able assets 317,830 300,066

Goodwill arising on consolidation 207,479Negative goodwill written off (615)

524,694Minority interests (89,616)

Total purchase consideration 435,078

Cost of acquisitions:Cash paid in prior year 912Reclassifi cation from investment in a joint venture 6,500Cash paid in current year 427,666

435,078

Cash outfl ow on acquisitions:Cost of acquisitions (427,666)Net cash acquired with the subsidiaries 64,132

Net cash outfl ow on acquisition (363,534)

Included in the carrying amount before combination are the assets and liabilities of SAS Component Group A/S, VT LeeBoy, Inc., MÄK Technologies, Inc. and the group of companies under Brightspot Interactive Learning Pte. Ltd. and PM-B Pte Ltd. The purchase price allocation of these subsidiaries to goodwill, intangible assets (excluding goodwill) and other assets is currently being assessed and is expected to be fi nalised within 12 months from the date of acquisition in Note 8(b).

From the dates of acquisitions, the acquired subsidiaries have contributed $3.5 million in losses to the net profi t of the Group. If the acquisitions had taken place at the beginning of the year, the turnover and net profi t of the Group would have been $4.6 billion and $447.4 million respectively.


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Notes to the Financial Statements 31 DECEMBER 2006(Currency – Singapore dollars unless otherwise stated)

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

1. GENERALThe Company is a public limited company domiciled and incorporated in Singapore. The address of the Company’s registered offi ce and principal place of business is 51 Cuppage Road #09-08, StarHub Centre, Singapore 229469.

The Company’s immediate and ultimate holding company is Temasek Holdings (Private) Limited, a company incorporated in Singapore.

The principal activities of the Company, are those of an investment holding company and the provision of engineering and related services. The principal activities of the subsidiaries are set out in Note 8 to the fi nancial statements.

The fi nancial statements of Singapore Technologies Engineering Ltd and the consolidated fi nancial statements of Singapore Technologies Engineering Ltd and its subsidiaries as at 31 December 2006 and for the year then ended were authorised and approved by the Board of Directors for issuance on 13 February 2007.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(a) Basis of fi nancial statements preparation

The fi nancial statements are prepared in accordance with Singapore Financial Reporting Standards (“FRS”) as required by the Singapore Companies Act, Chapter 50.

The fi nancial statements have been prepared on the historical cost convention, except for derivative fi nancial instruments and held for trading and available-for-sale fi nancial assets that have been measured at their fair values.

The carrying values of recognised assets and liabilities that are designated as hedged items in a fair value hedge are adjusted to record the gain or loss on the hedged items attributable to the hedged risks.

The fi nancial statements are presented in Singapore dollars and all values are rounded to the nearest thousand ($’000) except when otherwise indicated.

The accounting policies have been consistently applied by the Company and the Group and except for changes in accounting policies discussed in Note 2(z), are consistent with those used in the previous year.

(b) Basis of consolidation(i) Subsidiaries

A subsidiary is an entity over which the Group has the power to govern the fi nancial and operating policies so as to obtain benefi ts from its activities. The Group generally has such power when it, directly or indirectly, holds more than 50% of the issued share capital, or controls more than half of the voting power, or controls the composition of the board of the directors.

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

(ii) The consolidated fi nancial statements include the fi nancial statements of the Company and its subsidiaries made up to the end of the fi nancial year. The results of subsidiaries acquired or disposed of during the fi nancial year are included from the effective date of acquisition or up to the effective date of disposal. All signifi cant inter-company balances and transactions are eliminated on consolidation.

In the consolidated fi nancial statements, subsidiaries are accounted for using the purchase method, except for the Company’s interests in Singapore Technologies Aerospace Ltd, Singapore Technologies Electronics Limited, Singapore Technologies Kinetics Ltd, and Singapore Technologies Marine Ltd [collectively referred to as the “Scheme Companies”] which resulted from the amalgamation of the Scheme Companies pursuant to a scheme of arrangement under Section 210 of the Companies Act, Chapter 50 in 1997.

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)(b) Basis of consolidation (continued)

As the amalgamation of the Scheme Companies constitutes a uniting of interests, the pooling of interests method has been adopted in the preparation of the consolidated fi nancial statements in connection with the amalgamation.

Under the pooling of interests method, the combined assets, liabilities and reserves of the pooled enterprises are recorded at their existing carrying amounts at the date of amalgamation. The excess or defi ciency of amount recorded as share capital issued (plus any additional consideration in the form of cash or other assets) over the amount recorded for the share capital acquired is recorded as merger reserve. The merger reserve had been utilised in prior years to partially write off the goodwill on acquisition of Founders Industries Pte Ltd and its subsidiaries.

Minority interests represent the portion of profi t or loss and net assets in subsidiaries not held by the Group. They are presented in the consolidated balance sheet within equity, separately from the parent shareholders’ equity, and are separately disclosed in the consolidated statement of profi t and loss.

(iii) The Group adopts the equity method to account for its interests in associated companies and joint ventures.

The Group’s share of the post-acquisition results of associated companies and joint ventures is included in the consolidated statement of profi t and loss. The Group’s share of the post-acquisition accumulated profi ts and reserves of associated companies and joint ventures is included in the carrying value of the investments in the consolidated balance sheet.

For this purpose, the audited fi nancial statements of the associated companies and joint ventures are used. Where audited fi nancial statements are not available, the share of results is arrived at from the last audited fi nancial statements available and unaudited management fi nancial statements to the end of the accounting period.

(iv) Goodwill or reserve on consolidation represents the excess or defi ciency of the purchase consideration over the fair value (assigned by the directors) of the underlying net assets of the subsidiaries, associated companies and joint ventures at the date of acquisition. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefi t from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated:

• represents the lowest level within the Group at which the goodwill is monitored for internal management purposes; and

• is not larger than a segment based on the Group’s reporting format determined in accordance with FRS 14 Segment Reporting.

Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units), to which the goodwill relates. Where the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognised. Impairment losses recognised in respect of cash-generating unit (group of cash-generating units) are allocated fi rst to reduce the carrying amount of any goodwill allocated to cash-generating unit (group of cash-generating units) and then, to reduce the carrying amount of the other assets in the cash-generating unit (group of cash-generating units) on a pro-rata basis.


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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)(b) Basis of consolidation (continued)

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

Any excess of the Group’s interest in the net fair value of identifi able assets, liabilities and contingent liabilities over the cost of business combination is recognised in the statement of profi t and loss on the date of acquisition.

(v) In the preparation of the consolidated fi nancial statements, the balance sheets of foreign subsidiaries, associated companies and joint ventures are translated into Singapore dollars at rates of exchange ruling at the balance sheet date except for share capital and reserves which are translated at historical rates of exchange. Operating results are translated at average rates of exchange for the year. Translation differences are taken to the Foreign Currency Translation Reserve.

Goodwill and fair value adjustments arising from the acquisition of a foreign subsidiary are treated as assets or liabilities and translated at exchange rates ruling at the balance sheet date.

(c) Investments in associated companies and joint venturesThe Group’s investment in its associated companies and joint ventures is accounted for under the equity method of accounting.

An associated company is a company not being a subsidiary or joint venture, in which the Group has a substantial interest of not less than 20 percent of the equity and in whose fi nancial and operating policy decisions the Group exercises signifi cant infl uence.

A joint venture is a company, not being a subsidiary or associated company, in which the Group has a long-term interest of not more than 50 percent of the equity and has joint control over the investee company’s fi nancial and operating policies.

Under the equity method, the investment in the associated company/joint venture is carried in the balance sheet at cost plus post-acquisition changes in the Group’s share of net assets of the associated company/joint venture. Goodwill relating to an associated company is included in the carrying amount of the investment and is not amortised. After application of the equity method, the Group determines whether it is necessary to recognise any additional impairment loss with respect to the Group’s net investment in the associated company/joint venture. The statement of profi t and loss refl ects the share of the results of operations of the associated company/joint venture. Where there has been a change recognised directly in the equity of the associated company/joint venture, the Group recognises its share of any changes and discloses this, where applicable, in the statement of changes in equity.

The reporting dates of the associated company/joint venture and the Group are identical and the accounting policies conform to those used by the Group for like transactions and events in similar circumstances.


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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)(d) Impairment of non-fi nancial assets

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash infl ows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. 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. Impairment losses of continuing operations are recognised in the statement of profi t and loss in those expense categories consistent with the function of the impaired asset.

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profi t or loss unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal the depreciation charged is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

The Group does not reverse in a subsequent period any impairment loss recognised for goodwill.

(e) Investments and other fi nancial assetsFinancial assets within the scope of FRS 39 are classifi ed as either fi nancial assets at fair value through profi t or loss, loans and receivables, or available-for-sale fi nancial assets, as appropriate. When fi nancial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profi t or loss, directly attributable transaction costs. The Group determines the classifi cation of its fi nancial assets after initial recognition and, where allowed and appropriate, re-evaluates this designation at each fi nancial year-end.

All regular way purchases and sales of fi nancial assets are recognised on the trade date i.e., the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of fi nancial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace. (i) Financial assets at fair value through profi t or loss

Financial assets classifi ed as held for trading are included in the category ‘fi nancial assets at fair value through profi t or loss’. Financial assets are classifi ed as held for trading if they are acquired for the purpose of selling in the near term. Derivatives are also classifi ed as held for trading unless they are designated as effective hedging instruments. Gains or losses on investments held for trading are recognised in income.

(ii) Loans and receivablesLoans and receivables are non-derivative fi nancial assets with fi xed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in income when the loans and receivables are derecognised or impaired, as well as through the amortisation process.


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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)(e) Investments and other fi nancial assets (continued)

(iii) Available-for-sale fi nancial assetsAvailable-for-sale fi nancial assets are those non-derivative fi nancial assets that are designated as available-for-sale or are not classifi ed in any of the two preceding categories. After initial recognition, available-for-sale fi nancial assets are measured at fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired at which time the cumulative gain or loss previously reported in equity is included in the statement of profi t and loss.

The fair value of investments that are actively traded in organised fi nancial markets is determined by reference to quoted market prices at the close of business on the balance sheet date. For investments where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions; reference to the current market value of another instrument, which is substantially the same; discounted cash fl ow analysis and option pricing models.

For investments where there is no active market and where fair value cannot be reliably measured, they are measured at cost.

(f) Amounts under fund managementAmounts under fund management are classifi ed as available-for-sale investments and the recognition criteria is as stated in Note 2(e)(iii) above, except for the impairment assessment.

Provision for impairment in value is made up to the non-guaranteed returns of the principal sums by the fund managers when the market value of the fund is below cost.

(g) Property, plant and equipment and depreciationProperty, plant and equipment are stated at cost or valuation, net of depreciation and any impairment loss. Depreciation is provided on the straight-line basis so as to write off the cost of these assets over their estimated useful lives as follows:Freehold land and buildings – 15 to 30 yearsLeasehold land and buildings – Over the period of the lease of between 5 to 60 yearsBuildings on rented properties – 30 yearsImprovements to premises – 3 to 30 yearsWharves and slipways – 10 to 16 yearsSyncrolift and fl oating docks – 5 to 10 yearsBoats and barges – 5 yearsPlant and machinery – 2 to 20 yearsProduction tools and equipment – 3 to 10 yearsFurniture, fi ttings, offi ce equipment and computers – 1 to 5 yearsTransportation equipment and vehicles – 4 to 5 yearsAircraft and aircraft engines – 5 to 15 years

Construction-in-progress is not depreciated until each stage of development is completed and becomes operational.

Assets purchased specifi cally for projects are depreciated over the useful life of the class of assets or the duration of the project, whichever is shorter.

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

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


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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (h) Stocks and work-in-progress

Stocks are stated at the lower of cost (principally on the fi rst-in, fi rst-out basis) and net realisable value. Allowance is made for deteriorated, damaged, obsolete and slow-moving stocks.

Work-in-progress is valued at cost less progress payments received and receivable. Cost includes all direct material and labour costs, equipment and sub-contracting services, together with appropriate overhead expenses. Provision for foreseeable losses on uncompleted contracts is made in the year in which such losses are determined.

(i) Trade and other debtorsTrade and other debtors are classifi ed as loans and receivables under FRS 39. The accounting policy for this category of fi nancial assets is stated in Note 2(e).

An allowance is made for uncollectible amounts when there is objective evidence that the Group will not be able to collect the debt. Known bad debts are written off. Further details on the accounting policy for impairment of fi nancial assets are stated in Note 2(k).

(j) Cash and cash equivalentsCash consists of cash on hand and cash with banks or fi nancial institutions, including fi xed deposits. Cash equivalents are short-term, highly liquid investments and short-term loans to related corporations that are readily convertible to known amounts of cash and that are subject to insignifi cant risk of changes in value.

For the purposes of the statement of cash fl ows, cash and cash equivalents are shown net of outstanding bank overdrafts.

Cash and cash equivalents carried in the balance sheets are classifi ed as loans and receivables under FRS 39. The accounting policy for this category of fi nancial assets is stated in Note 2(e).

(k) Impairment of fi nancial assetsThe Group assesses at each balance sheet date whether a fi nancial asset or group of fi nancial assets is impaired.

(i) Assets carried at amortised costsIf there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash fl ows (excluding future credit losses that have not been incurred) discounted at the fi nancial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset shall be reduced either directly or through use of an amortisation account. The amount of the loss shall be recognised in profi t or loss.

The Group fi rst assesses whether objective evidence of impairment exists individually for fi nancial assets that are individually signifi cant, and individually or collectively for fi nancial assets that are not individually signifi cant. If it is determined that no objective evidence of impairment exists for an individually assessed fi nancial asset, whether signifi cant or not, the assets is included in a group of fi nancial assets with similar credit risk characteristics and that group of fi nancial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.

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

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)(k) Impairment of fi nancial assets (continued)

(ii) Assets carried at costsIf there is objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash fl ows discounted at the current market rate of return for a similar fi nancial asset. The loss recognised is not reversed in future periods.

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

(l) Trade and other creditorsTrade and other creditors are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method.

Gains and losses are recognised in the statement of profi t and loss when the liabilities are derecognised as well as through the amortisation process.

(m) BorrowingsBorrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs.

After initial recognition, borrowings are subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in the statement of profi t and loss when the liabilities are derecognised as well through the amortisation process.

Borrowing costs are recognised as expenses in the period in which they are incurred.

(n) ProvisionsProvisions are recognised when the Group has a present obligation (legal or constructive) as a result of past events, it is probable that an outfl ow of resources embodying economic benefi ts will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

(i) WarrantiesThe warranty provision represents the best estimate of the Group’s contractual obligations at the balance sheet date. The provision is based on past experience and industry averages for defective products. The majority of the costs is expected to be incurred over the applicable warranty periods.

(ii) Liquidated damagesProvision for liquidated damages is made in respect of anticipated claims from customers on contracts of which deadlines are overdue or not expected to be completed on time in accordance with contractual obligations. The utilisation of provisions is dependent on the timing of claims.

(o) Income taxes(i) Current tax

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


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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)(o) Income taxes (continued)

(ii) Deferred taxationDeferred taxation is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for fi nancial reporting purposes. Deferred tax assets and liabilities are measured using the tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled based on tax rates enacted or substantively enacted at the balance sheet date.

Deferred tax liabilities are recognised for all taxable temporary differences associated with investments in subsidiaries, associated companies and interests in joint ventures, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profi t will be available against which the deductible temporary differences, carry-forward of unused tax assets and unused tax losses can be utilised.

At each balance sheet date, the Group re-assesses unrecognised deferred tax assets and the carrying amount of deferred tax assets. The Group recognises a previously unrecognised deferred tax asset to the extent that it has become probable that future taxable profi t will allow the deferred tax asset to be recovered. The Group conversely reduces the carrying amount of a deferred tax asset to the extent that it is no longer probable that suffi cient taxable profi t will be available to allow the benefi t of part or all of the deferred tax asset to be utilised.

(p) Employee benefi ts(i) Employee equity compensation benefi ts

Pursuant to the ST Engineering Share Option Plan, certain directors and employees are granted non-transferable options to purchase the Company’s shares. The fair value of options granted is determined using a binomial model and is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. In valuing the share option, no account is taken of any performance condition, other than market conditions, if any. The cumulative expense recognised for share options at each reporting date until the vesting date refl ects the extent to which the vesting period has expired and the Group’s best estimate of the number of share options that will ultimately vest. The charge or credit to the statement of profi t and loss for a period represents the movement in cumulative expense recognised as at the beginning and end of that period.

The proceeds received are credited to share capital when the options are exercised.

The dilutive effect of outstanding options is refl ected as additional share dilution in the computation of earnings per share.

Pursuant to the ST Engineering Performance Share Plan, the Company’s shares can be awarded to certain employees and directors of the Group. The details of the Performance Share Plan are described in Note 3.

The performance shares cost is amortised and recognised in the statement of profi t and loss on a straight-line basis over the three-year performance period. The fair value of the performance shares is determined at conditional grant date using the Monte Carlo simulation model which takes into account the market conditions and non-market conditions.

(ii) PensionsThe Group participates in the national pension schemes as defi ned by the laws of the countries in which it has operations. In particular, the Singapore companies in the Group make contributions to the Central Provident Fund scheme in Singapore, a defi ned contribution pension scheme. Contributions to national pension schemes are recognised as an expense in the period in which the related service is performed.


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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)(q) Income recognition

Income is recognised using the following methods:(i) Income from sale of goods and services rendered is recognised upon delivery of goods/services and acceptance by

customers.

(ii) Income from long-term contracts is recognised by reference to stage of completion which is measured by either:(a) the percentage of costs incurred to estimated total costs to complete the contracts; or(b) when goods and services, representing part of a contract, are delivered; or(c) upon completion of designated phases of a contract.

Provision for foreseeable losses on uncompleted contracts is made as soon as such losses are determinable.

(iii) Dividend income is recognised when the shareholder’s rights to receive payment is established.

(iv) Management fee income is recognised on an accrual basis upon which management services are rendered.

(v) For certain subsidiaries, the fi rst 15 percent of the total commission receivable for each contract is treated as downpayment and is deferred and taken up in the statement of profi t and loss only upon the discharge of specifi ed contractual obligations. Commission income in respect of each contract in excess of the fi rst 15 percent of the total amount receivable is taken up in the statement of profi t and loss as and when it is billed. For certain back to back contracts, commission income is recognised upon delivery of goods and services.

(vi) Any surplus arising from amounts under fund management can only be determined at the end of the relevant fund management period. Such surplus, if any, will be recognised as income then.

(vii) Finance charges from hire purchase fi nancing is recognised based on the sum of digits method over the fi nance period.

(viii) Interest income is recognised on an accrual basis.

(r) Foreign currency transactions/translation(i) Foreign currency transactions

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

Exchange differences arising on the settlement of monetary items or on translating monetary items at the balance sheet date are recognised in the statement of profi t and loss except for exchange differences arising on monetary items that form part of the Group’s net investment in foreign subsidiary companies, which are recognised initially in a separate component of equity as foreign currency translation reserve in the consolidated balance sheet and recognised in the consolidated statement of profi t and loss on disposal of the subsidiary. In the Company’s separate fi nancial statements, such exchange differences are recognised in the statement of profi t and loss.

Differences on foreign currency borrowings that provide a hedge against a net investment in a foreign operation are also taken directly to the foreign currency translation reserve until the disposal of the net investment, at which time they are recognised in the statement of profi t and loss. Tax charges and credits attributable to exchange differences on those borrowings are also dealt with in the foreign currency translation reserve.


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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)(r) Foreign currency transactions/translation (continued)

(ii) Foreign currency translationThe results and fi nancial position of foreign subsidiaries are translated into Singapore dollars using the following procedures:

• Assets and liabilities for each balance sheet presented are translated at the closing rate ruling at that balance sheet date; and

• Income and expenses for each income statement are translated at average exchange rates for the year, which approximates the exchange rates at the dates of the transactions.

All resulting exchange differences are recognised in a separate component of equity as foreign currency translation reserve.

Goodwill and fair value adjustments arising on the acquisition of foreign subsidiaries on or after 1 January 2005 are treated as assets and liabilities of the foreign subsidiaries and are recorded in the functional currency of the foreign subsidiaries and translated at the closing rate at the balance sheet date.

On disposal of a foreign subsidiary, the cumulative amount of exchange differences deferred in equity relating to that foreign subsidiary is recognised in the statement of profi t and loss as a component of the gain or loss on disposal.

(s) Intangible assetsIntangible assets acquired separately are measured on initial recognition at costs. The cost of intangible assets acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets are not capitalised and the expenditure is charged against profi ts in the year in which the expenditure is incurred. The useful lives of intangible assets are assessed to be either fi nite or indefi nite. Intangible assets with fi nite lives are amortised over the economic useful life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a fi nite useful life is reviewed at least at each fi nancial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefi ts embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and treated as changes in accounting estimates. The amortisation expense on intangible asset with fi nite lives is recognised in the statement of profi t and loss in the expense category consistent with the function of the intangible asset.

Intangible assets with indefi nite useful lives are tested for impairment annually either individually or at the cash-generating unit level. Such intangibles are not amortised. The useful life of an intangible asset with an indefi nite life is reviewed annually to determine whether indefi nite life assessment continues to be supportable. If not, the change in the useful life assessment from indefi nite to fi nite is made on a prospective basis.

(i) Research and development expenditure Research and development expenditure is charged to the statement of profi t and loss as and when incurred.

(ii) Commercial and intellectual property rights Costs relating to intellectual property rights, which are acquired are capitalised and amortised on a straight-line basis

over its estimated economic useful lives.

(iii) Other intangible assets Costs relating to dealer network, which are acquired are capitalised and amortised on a straight-line basis over its

estimated economic useful lives.


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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (t) Hire purchase and fi nance leases

(i) Assets acquired on hire purchase arrangements are capitalised in the fi nancial statements and the corresponding obligations treated as a liability. The total interest, being the difference between the total instalments payable and the capitalised amount, is charged to the statement of profi t and loss over the period of such hire purchase arrangements in equal monthly instalments to produce a constant rate of charge on the balance of capital repayments outstanding.

(ii) Finance leases are those leasing agreements which effectively transfer to the Group substantially all the risks and benefi ts incidental to ownership of the lease items. Assets fi nanced under such leases are treated as if they had been purchased outright at the present value of the minimum lease payments and the corresponding leasing commitments are shown as obligations to the lessors. Lease payments are treated as consisting of capital and interest elements and interest is charged to the statement of profi t and loss over the period of the lease to produce a constant rate of charge on the balance of capital repayments outstanding.

(iii) Assets acquired on hire purchase and fi nance lease arrangements are depreciated in accordance with the policy set out in Note 2(g) above.

(u) Operating leasesLeases where the lessor effectively retains substantially all the risks and benefi ts of ownership of the leased asset, are classifi ed as operating leases. Operating lease payments are recognised as an expense in the statement of profi t and loss on a straight-line basis over the lease term.

The aggregate benefi t of incentives provided by the lessor is recognised as a reduction of rental expense over the lease term on a straight-line basis.

(v) Government grantsGrants in recognition of specifi c expenses are taken to income in the same year as the relevant expenses. Grants related to depreciable assets are deferred and allocated to income over the period in which such assets are depreciated and used in the projects subsidised by the grants.

(w) Derivative fi nancial instruments and hedgingThe Group uses derivative fi nancial instruments such as forward currency contracts and interest rate swaps to hedge its risks associated with foreign currency and interest rate fl uctuations. Such derivative fi nancial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

Any gains or losses arising from changes in fair value on derivatives that do not qualify for hedge accounting are taken directly to profi t or loss for the year.

The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profi les. The fair value of interest rate swap contracts is determined by reference to market values for similar instruments.

The Group uses cash from time to time as a hedging instrument to hedge its risk associated with foreign currency fl uctuations.

For the purpose of hedge accounting, hedges are classifi ed either as fair value hedge or cash fl ow hedge.


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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)(w) Derivative fi nancial instruments and hedging (continued)

At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identifi cation of the hedging instrument, the hedge item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash fl ows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash fl ows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the fi nancial reporting periods for which they were designated.

Hedges which meet the strict criteria for hedge accounting are accounted for as follows:

(i) Fair value hedgesFor fair value hedges, the carrying amount of the hedged item is adjusted for gains and losses attributable to the risk being hedged, the hedging instrument is remeasured at fair value and gains and losses from both are taken to profi t or loss.

For fair value hedges relating to items carried at amortised cost, the adjustment to carrying value is amortised through profi t or loss over the remaining term to maturity. Any adjustment to the carrying amount of a hedging instrument for which the effective interest method is used is amortised to profi t or loss. Amortisation may begin as soon as an adjustment exists and shall begin no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged.

When an unrecognised fi rm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the fi rm commitment attributable to the hedged risk is recognised as an asset or liability with a corresponding gain or loss recognised in profi t or loss. The changes in the fair value of the hedging instrument are also recognised in profi t or loss.

The Group discontinues fair value hedge accounting if the hedging instrument expires or is sold, terminated or exercised, the hedge no longer meets the criteria for hedge accounting or the Group revokes the designation. Any adjustment to the carrying amount of a hedging instrument for which the effective interest method is used is amortised to profi t or loss. Amortisation may begin as soon as an adjustment exists and shall begin no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged.

(ii) Cash fl ow hedgesFor cash fl ow hedges the effective portion of the gain or loss on the hedging instrument is recognised directly in equity, while the ineffective portion is recognised in profi t or loss.

Amounts taken to equity are transferred to the statement of profi t and loss when the hedged transaction affects profi t or loss, such as when hedged fi nancial income or fi nancial expense is recognised or when a forecast sale or purchase occurs. When the hedged item is the cost of a non-fi nancial asset or liability, the amounts taken to equity are transferred to the initial carrying amount of the non-fi nancial asset or liability.

If the forecast transaction is no longer expected to occur, amounts previously recognised in equity are transferred to profi t or loss. If the hedging instrument expires or is sold, terminated, or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognised in equity remain in equity until the forecast transaction occurs. If the related transaction is not expected to occur, the amount is taken to profi t or loss.


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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)(x) Segments

For management purposes, the Group is organised on a worldwide basis into four major operating businesses which is the basis on which the Group reports its primary segment information.

Segment revenue, expenses and results include transfers between business segments and between geographical segments. Such transfers are accounted for on an arm’s length basis.

(y) Derecognition of fi nancial assets and liabilities(i) Financial assets

A fi nancial asset (or, where applicable a part of a fi nancial asset or part of a group of similar fi nancial assets) is derecognised where:

• The contractual rights to receive cash fl ows from the asset have expired;

• The Group retains the contractual rights to receive cash fl ows from the assets, but has assumed an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement; or

• The Group has transferred its rights to receive cash fl ows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash fl ows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

Where continuing involvement takes the form of a written and/or purchased option on the transferred asset, the extent of the Group’s continuing involvement is the amount of the transferred asset that the Group may repurchase, except that in the case of a written put option on an asset measured at fair value, the extent of the Group’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price.

On derecognition of a fi nancial asset in its entirety, the difference between the carrying amount and the sum of (a) the consideration received (including any new asset obtained less any new liability assumed) and (b) any cumulative gain or loss that has been recognised directly in equity is recognised in the statement of profi t and loss.

(ii) Financial liabilitiesA fi nancial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

When an existing fi nancial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modifi ed, such an exchange or modifi cation is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the statement of profi t and loss.

(z) Changes in accounting policies (i) Adoption of new and revised FRS

With effect from 1 January 2006, the Group has adopted all the new and revised FRS that are mandatory for fi nancial years beginning on or after 1 January 2006. The adoption of these FRS has no signifi cant impact to the Group.


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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)(z) Changes in accounting policies (continued)

(ii) FRS and INT FRS not yet effectiveThe Group has not applied the following FRS and INT FRS that have been issued but not yet effective:

EFFECTIVE DATE (ANNUAL PERIODS BEGINNING ON OR AFTER)

FRS 1 : Amendment to FRS 1 (revised), 1 January 2007 Presentation of fi nancial statements (Capital Disclosures)FRS 40 : Investment Property 1 January 2007FRS 107 : Financial Instruments: Disclosures 1 January 2007INT FRS 107 : Applying the Restatement Approach 1 March 2006 under FRS 29, Financial Reporting in Hyperinfl ationary EconomicsINT FRS 108 : Scope of FRS 102, Share-based Payment 1 May 2006INT FRS 109 : Reassessment of Embedded Derivatives 1 June 2006INT FRS 110 : Interim Financial Reporting and Impairment 1 November 2006

The Group expects that the adoption of the above pronouncements will not have a signifi cant impact on the fi nancial statements in the period of initial application.

(aa) Signifi cant accounting estimates and judgementsEstimates and assumptions concerning the future are made in the preparation of the fi nancial statements. They affect the application of the Group’s accounting policies, reported amounts of assets, liabilities, income and expenses, and disclosures made. They are assessed on an ongoing basis and are based on experience and relevant factors, including expectations of future events that are believed to be reasonable under the circumstances.

(i) Key sources of estimation uncertaintyThe key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a signifi cant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next fi nancial year are discussed below.

• Impairment of goodwill The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value-in-use of the cash-generating units to which the goodwill is allocated. Estimating the value-in-use requires the Group to make an estimate of the expected future cash fl ows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash fl ows. The carrying amount of the Group’s goodwill at 31 December 2006 was $494,818,000 (2005: $307,821,000). More details are provided in Note 11.

• Depreciation of property, plant and equipmentProperty, plant and equipment are depreciated on a straight-line basis over their estimated useful lives. Management estimates the useful lives of these property, plant and equipment to be within 1 to 60 years. The carrying amount of the Group’s property, plant and equipment at 31 December 2006 was $952,209,000 (2005: $475,197,000). Changes in the expected level of usage and technological developments could impact the economic useful lives and the residual values of these property, plant and equipment, therefore future depreciation charges could be revised.


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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)(aa) Signifi cant accounting estimates and judgements (continued)

• Income taxesThe Group has exposure to income taxes in numerous jurisdictions. Signifi cant judgement is involved in determining the group-wide provision for income taxes. There are certain transactions and computations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for expected tax issues based on estimates of whether additional taxes will be due. Where the fi nal tax outcome of these matters is different from the amounts that were initially recognised, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. The carrying amount of the Group’s tax payables at 31 December 2006 was $213,931,000 (2005: $208,764,000).

(ii) Critical judgements made in applying accounting policiesIn the process of applying the Group’s accounting policies, management has made certain judgements, apart from those involving estimations, which have signifi cant effect on the amounts recognised in the fi nancial statements.

• Impairment of investments and fi nancial assetsThe Group follows the guidance of FRS 39 on determining when an investment or fi nancial asset is other-than-temporarily impaired. This determination requires signifi cant judgement, the Group evaluates, among other factors, the duration and extent to which the fair value of an investment or fi nancial asset is less than its cost; and the fi nancial health of and near-term business outlook for the investment or fi nancial asset, including factors such as industry and sector performance, changes in technology and operational and fi nancing cash fl ow.

3. SHARE CAPITAL

GROUP AND COMPANY 2006 2005 $’000 $’000

Issued and fully paid:At beginning of the year

2,914,495,627 (2005: 2,892,164,909) ordinary shares 291,450 289,217Transfer from share premium account 117,197 –Issued during the year

31,758,004 (2005: 22,330,718) ordinary shares 66,279 2,233

At end of the year2,946,253,631 (2005: 2,914,495,627) ordinary shares 474,926 291,450

Included in share capital is a special share issued to the Minister for Finance (Incorporated). The special share enjoys all the rights attached to the ordinary shares. In addition, the special share carries the right to approve any resolution to be passed by the Company, either in general meeting or by its Board of Directors, on certain matters specifi ed in the Company’s Articles of Association. The special share may be converted at any time into an ordinary share.

The holders of ordinary shares are entitled to receive dividends as and when declared by the Company. All ordinary shares carry one vote per share without restriction.

On 30 January 2006, in accordance with the Companies (Amendment) Act 2005, the concepts of “par value” and “authorised capital” were abolished and on that date, the shares of the company ceased to have a par value. The amount standing to the credit of the Company’s share premium account became part of the Company’s share capital.

The Singapore Technologies Engineering Share Option Plan (“ESOP”) and the Singapore Technologies Engineering Performance Share Plan (“PSP”) of the Company were approved by its members at an Extraordinary General Meeting held on 23 November 2000. The ESOP and PSP are administered by the Executive Resource and Compensation Committee (“ERCC”) comprising three directors, Mr Peter Seah Lim Huat, Mr Venkatachalam Krishnakumar and Dr Philip Nalliah Pillai.


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3. SHARE CAPITAL (continued)Singapore Technologies Engineering Share Option Plan (“ESOP”)Information regarding ESOP is as follows:

(a) The exercise price of the options is equal to volume-weighted average price for the shares on the Singapore Exchange over the three consecutive trading days immediately preceding the date of grant.

(b) The options are exercisable at the end of the fi rst year after date of grant, in accordance with a vesting schedule to be determined by ERCC and are settled in cash.

(c) The options granted expire after fi ve years for non-executive directors, and 10 years for the employees of the Company and its subsidiaries.

During the fi nancial year, the Company issued 30,953,004 (2005: 22,230,518) ordinary shares for cash at the respective price per share upon the exercise of options granted by the Company under ESOS and ESOP:

GRANT NO. NO. OF ORDINARY SHARES ISSUED PRICE PER ORDINARY SHARE $

96R1 43,138 0.90596R5 257,698 0.37396R6 174,668 0.46597R1 35,000 0.42297R2 8 0.62998R1 574,250 1.39098R3 50,000 1.29099R1 1,718,730 1.4189902 803,100 2.0002001 6,203,973 2.2602002 529,740 1.8082003 771,371 2.3900102N 2,021,490 2.7200102ND 745,000 2.7200108N 2,818,209 2.6800202N 2,121,876 2.2900202ND 97,750 2.2900208N 2,380,149 1.9200208ND 30,250 1.9200302N 2,664,988 1.7900302ND 30,250 1.7900302P 10,000 1.7900308N 2,273,621 1.8600308ND 10,436 1.8600402N 1,847,610 2.0900402ND 11,225 2.0900408N 1,407,637 2.1200408ND 8,850 2.1200502N 959,798 2.3700502ND 7,125 2.3700508N 342,189 2.5700508ND 2,875 2.570


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3. SHARE CAPITAL (continued)At the end of the fi nancial year, unissued ordinary shares of the Company under options granted to eligible employees and directors of the Company are as follows:

(i) Options outstanding under the ESOS/ESOP

NUMBER OF SHARES 2006 2005

ESOSAt beginning of the year 40,533,204 53,425,717Exercised (11,161,676) (12,490,195)Lapsed (95,400) (402,318)

At end of the year 29,276,128 40,533,204

Exercisable at end of year 29,276,128 40,533,204

ESOPAt beginning of the year 117,256,385 99,799,055Granted and accepted 31,361,732 30,691,575Exercised (19,791,328) (9,740,323)Lapsed (3,734,148) (3,493,922)

At end of the year 125,092,641 117,256,385

Exercisable at end of year 45,687,091 48,001,526

(ii) Details of share options

2006Details of share options to subscribe for ordinary shares pursuant to ESOS are as follows:

BALANCE AS AT 1.1.2006 NO. OF OR DATE BALANCE HOLDERSDATE OF OF GRANT OPTIONS OPTIONS AS AT AT EXERCISEGRANT IF LATER LAPSED EXERCISED 31.12.2006 31.12.2006 PRICE EXERCISABLE PERIOD

$

6.12.1997 43,138 – 43,138 – – 0.905 18.5.1999 to 3.4.2006 6.12.1997 257,698 – 257,698 – – 0.373 18.5.1999 to 30.8.2006 6.12.1997 174,668 – 174,668 – – 0.465 18.5.1999 to 16.10.2006 6.12.1997 367,981 – 35,000 332,981 3 0.422 18.5.1999 to 2.4.2007 6.12.1997 8 – 8 – – 0.629 18.5.1999 to 7.4.2007 6.12.1997 262,002 – – 262,002 2 0.492 18.5.1999 to 24.4.2007 6.12.1997 92,471 – – 92,471 2 0.720 11.9.1999 to 9.9.2007 29.4.1998 2,155,000 – 574,250 1,580,750 33 1.390 30.4.2000 to 29.4.2008 7.8.1998 265,000 – 50,000 215,000 40** 1.290 8.8.2000 to 7.8.2008 9.2.1999 6,383,590 – 1,718,730 4,664,860 88** 1.418 10.2.2001 to 9.2.2009 10.8.1999 1,894,500 5,000 803,100 1,086,400 169* 2.000 11.8.2001 to 10.8.2009 9.2.2000 24,986,953 51,400 6,203,973 18,731,580 336** 2.260 10.2.2002 to 9.2.2010 9.2.2000 1,779,865 15,000 529,740 1,235,125 39 1.808 10.2.2002 to 9.2.2010 6.9.2000 1,870,330 24,000 771,371 1,074,959 35 2.390 7.9.2002 to 6.9.2010

Total 40,533,204 95,400 11,161,676 29,276,128


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3. SHARE CAPITAL (continued)

2006Details of share options to subscribe for ordinary shares pursuant to ESOP are as follows:


$

19.2.2001 9,297,650 69,099 1,796,490 7,432,061 633** 2.720 20.2.2002 to 19.2.2011 19.2.2001 225,000 – 225,000 – – 2.720 20.2.2002 to 19.2.2006 19.2.2001 745,000 – 745,000 – – 2.720 20.2.2002 to 19.2.2006 10.8.2001 452,500 452,500 – – – 2.680 11.8.2002 to 10.8.2006 10.8.2001 12,498,029 92,201 2,818,209 9,587,619 657** 2.680 11.8.2002 to 10.8.2011 7.2.2002 9,408,471 32,127 2,121,876 7,254,468 616** 2.290 8.2.2003 to 7.2.2012 7.2.2002 593,750 – 97,750 496,000 11# 2.290 8.2.2003 to 7.2.2007 12.8.2002 8,055,308 94,893 2,380,149 5,580,266 718** 1.920 13.8.2003 to 12.8.2012 12.8.2002 132,000 – 30,250 101,750 2# 1.920 13.8.2003 to 12.8.2007 6.2.2003 9,247,254 148,476 2,664,988 6,433,790 969** 1.790 7.2.2004 to 6.2.2013 6.2.2003 348,750 – 30,250 318,500 16# 1.790 7.2.2004 to 6.2.2008 6.2.2003 24,972 – 10,000 14,972 2 1.790 7.2.2004 to 6.2.2013 11.8.2003 10,446,835 226,885 2,273,621 7,946,329 1,016** 1.860 12.8.2004 to 11.8.2013 11.8.2003 330,500 – 10,436 320,064 17# 1.860 12.8.2004 to 11.8.2008 11.8.2003 28,754 – – 28,754 2 1.860 12.8.2004 to 11.8.2013 9.2.2004 11,554,310 270,907 1,847,610 9,435,793 995** 2.090 10.2.2005 to 9.2.2014 9.2.2004 325,325 – 11,225 314,100 16# 2.090 10.2.2005 to 9.2.2009 9.2.2004 31,426 – – 31,426 2 2.090 10.2.2005 to 9.2.2014 21.6.2004 100,000 – – 100,000 1 2.000 22.6.2005 to 21.6.2014 10.8.2004 12,988,412 454,008 1,407,637 11,126,767 1,129** 2.120 11.8.2005 to 10.8.2014 10.8.2004 286,325 – 8,850 277,475 16# 2.120 11.8.2005 to 10.8.2009 10.8.2004 31,426 – – 31,426 2 2.120 11.8.2005 to 10.8.2014 7.2.2005 14,035,878 589,074 959,798 12,487,006 1,171** 2.370 8.2.2006 to 7.2.2015 7.2.2005 355,750 – 7,125 348,625 17# 2.370 8.2.2006 to 7.2.2010 7.2.2005 31,426 – – 31,426 2 2.370 8.2.2006 to 7.2.2015 10.8.2005 15,312,742 721,566 342,189 14,248,987 1,313** 2.570 11.8.2006 to 10.8.2015 10.8.2005 337,166 – 2,875 334,291 17# 2.570 11.8.2006 to 10.8.2010 10.8.2005 31,426 – – 31,426 2 2.570 11.8.2006 to 10.8.2015 9.2.2006 14,802,585## 510,627 – 14,291,958 1,417** 3.010 10.2.2007 to 9.2.2016 9.2.2006 377,500## – – 377,500 18# 3.010 10.2.2007 to 9.2.2011 10.8.2006 15,810,147## 71,785 – 15,738,362 1,550** 2.840 11.8.2007 to 10.8.2016 10.8.2006 371,500## – – 371,500 18# 2.840 11.8.2007 to 10.8.2011

Total 148,618,117 3,734,148 19,791,328 125,092,641

* Includes 1 executive Director and 1 past Director of the Company** Includes 1 executive Director of the Company# Includes Directors of the Company and its subsidiaries## These numbers relate to options granted and accepted in 2006


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2005Details of share options to subscribe for ordinary shares pursuant to ESOS are as follows:

BALANCE AS AT 1.1.2005 NO. OF OR DATE OPTIONS BALANCE HOLDERSDATE OF OF GRANT LAPSED OPTIONS AS AT AT EXERCISEGRANT IF LATER ADJUSTMENTS EXERCISED 31.12.2005 31.12.2005 PRICE EXERCISABLE PERIOD

$

6.12.1997 34,723 1 34,722 – – 0.905 18.5.1999 to 2.6.2005 6.12.1997 90,113 – 90,113 – – 0.422 18.5.1999 to 17.6.2005 6.12.1997 72,056 – 72,056 – – 0.357 18.5.1999 to 6.12.2005 6.12.1997 54,089 (15,000) 25,951 43,138 2 0.905 18.5.1999 to 3.4.2006 6.12.1997 315,396 – 57,698 257,698 2 0.373 18.5.1999 to 30.8.2006 6.12.1997 174,668 – – 174,668 3 0.465 18.5.1999 to 16.10.2006 6.12.1997 407,981 – 40,000 367,981 3 0.422 18.5.1999 to 2.4.2007 6.12.1997 16 – 8 8 2 0.629 18.5.1999 to 7.4.2007 6.12.1997 262,002 – – 262,002 2 0.492 18.5.1999 to 24.4.2007 6.12.1997 169,530 – 77,059 92,471 2 0.720 11.9.1999 to 9.9.2007 29.4.1998 2,899,750 – 744,750 2,155,000 43 1.390 30.4.2000 to 29.4.2008 7.8.1998 355,000 5,000 85,000 265,000 86** 1.290 8.8.2000 to 7.8.2008 9.2.1999 8,653,160 – 2,269,570 6,383,590 104** 1.418 10.2.2001 to 9.2.2009 10.8.1999 2,652,236 15,000 742,736 1,894,500 290* 2.000 11.8.2001 to 10.8.2009 9.2.2000 29,667,132 317,107 4,363,072 24,986,953 393** 2.260 10.2.2002 to 9.2.2010 9.2.2000 1,250,000 – 1,250,000 – – 2.260 10.2.2002 to 9.2.2005 9.2.2000 4,143,865 – 2,364,000 1,779,865 50 1.808 10.2.2002 to 9.2.2010 6.9.2000 2,224,000 80,210 273,460 1,870,330 63 2.390 7.9.2002 to 6.9.2010

Total 53,425,717 402,318 12,490,195 40,533,204


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2005Details of share options to subscribe for ordinary shares pursuant to ESOP are as follows:


$

19.2.2001 9,644,703 333,646 13,407 9,297,650 859** 2.720 20.2.2002 to 19.2.2011 19.2.2001 225,000 – – 225,000 1*** 2.720 20.2.2002 to 19.2.2006 19.2.2001 745,000 – – 745,000 14# 2.720 20.2.2002 to 19.2.2006 10.8.2001 452,500 – – 452,500 1*** 2.680 11.8.2002 to 10.8.2006 10.8.2001 13,064,234 497,912 68,293 12,498,029 922** 2.680 11.8.2002 to 10.8.2011 7.2.2002 10,995,574 235,578 1,351,525 9,408,471 985** 2.290 8.2.2003 to 7.2.2012 7.2.2002 611,000 – 17,250 593,750 15# 2.290 8.2.2003 to 7.2.2007 12.8.2002 10,757,119 218,423 2,483,388 8,055,308 1,007** 1.920 13.8.2003 to 12.8.2012 12.8.2002 132,000 – – 132,000 2# 1.920 13.8.2003 to 12.8.2007 6.2.2003 11,888,051 258,037 2,382,760 9,247,254 1,026** 1.790 7.2.2004 to 6.2.2013 6.2.2003 351,625 – 2,875 348,750 16# 1.790 7.2.2004 to 6.2.2008 6.2.2003 27,944 – 2,972 24,972 2 1.790 7.2.2004 to 6.2.2013 11.8.2003 12,776,927 374,750 1,955,342 10,446,835 1,077** 1.860 12.8.2004 to 11.8.2013 11.8.2003 333,375 – 2,875 330,500 17# 1.860 12.8.2004 to 11.8.2008 11.8.2003 31,672 – 2,918 28,754 2 1.860 12.8.2004 to 11.8.2013 9.2.2004 12,879,933 443,892 881,731 11,554,310 1,064** 2.090 10.2.2005 to 9.2.2014 9.2.2004 328,200 – 2,875 325,325 16# 2.090 10.2.2005 to 9.2.2009 9.2.2004 31,426 – – 31,426 2 2.090 10.2.2005 to 9.2.2014 21.6.2004 100,000 – – 100,000 1 2.000 22.6.2005 to 21.6.2014 10.8.2004 14,102,146 544,497 569,237 12,988,412 1,215** 2.120 11.8.2005 to 10.8.2014 10.8.2004 289,200 – 2,875 286,325 16# 2.120 11.8.2005 to 10.8.2009 10.8.2004 31,426 – – 31,426 2 2.120 11.8.2005 to 10.8.2014 7.2.2005 14,505,761## 469,883 – 14,035,878 1,272** 2.370 8.2.2006 to 7.2.2015 7.2.2005 355,750## – – 355,750 17# 2.370 8.2.2006 to 7.2.2010 7.2.2005 31,426## – – 31,426 2 2.370 8.2.2006 to 7.2.2015 10.8.2005 15,430,046## 117,304 – 15,312,742 1,420** 2.570 11.8.2006 to 10.8.2015 10.8.2005 337,166## – – 337,166 17# 2.570 11.8.2006 to 10.8.2010 10.8.2005 31,426## – – 31,426 2 2.570 11.8.2006 to 10.8.2015

Total 130,490,630 3,493,922 9,740,323 117,256,385

* Includes 1 executive Director and 1 past Director of the Company** Includes 1 executive Director of the Company*** Includes 1 past Director of the Company# Includes Directors of the Company and its subsidiaries## These numbers relate to options granted and accepted in 2005


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3. SHARE CAPITAL (continued)(iii) Details of share options exercised

PROCEEDS EXERCISE FROM SHARE SHARE NO. OF SHARES PRICE ISSUE PRICE $ $’000 $

2006January to March 21,715,361 0.373 – 2.720 46,736 2.88 – 3.12April to June 3,454,019 1.390 – 2.720 7,417 2.63 – 3.30July to September 2,403,556 0.373 – 2.720 4,580 2.66 – 2.98October to December 3,380,068 1.290 – 2.720 7,172 2.94 – 3.20

30,953,004

2005January to March 11,128,494 0.357 – 2.680 21,126 2.35 – 2.59April to June 2,824,879 0.422 – 2.680 5,261 2.40 – 2.57July to September 4,315,761 1.290 – 2.680 8,622 2.48 – 2.63October to December 3,961,384 0.357 – 2.720 7,772 2.46 – 2.86

22,230,518

The fair value of services received in return for share options granted are measured by reference to the fair value of share options granted. The estimate of the fair value of the services received is measured based on a binomial model, taking into account the terms and conditions upon which the options were granted. The following table lists the inputs to the model used for the years ended 31 December 2006 and 2005.

2006 2005

Expected dividend yield (%) (-- Management’s forecast in line with dividend policy --)Expected volatility (%) 17.02 – 23.31 18.66 –19.20Risk-free interest rate (%) 2.71 – 3.19 1.90 – 2.38Expected life of option (years) 2.49 – 5.25 2.50 – 5.25Exercise price ($) 2.84 – 3.01 2.37 – 2.57Weighted average share price ($) 2.80 – 3.01 2.37 – 2.57

The expected life of the options is based on historical data and therefore not necessarily indicative of exercise patterns that may occur. The expected volatility refl ects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.

No other features of options were incorporated into the measurement of fair value.


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3. SHARE CAPITAL (continued)Singapore Technologies Engineering Performance Share Plan (“PSP”)Performance shares are granted on an annual basis, conditional on targets set for a performance period, currently prescribed to be a three-year performance period. The performance shares will only be released to the recipient at the end of the performance qualifying period. The fi nal number of performance shares given will depend on the level of achievement of those targets over the three-year performance period. A specifi ed number of performance shares shall be released by the ERCC to the recipient at the end of the performance period, provided a minimum threshold performance is achieved.

DATE OF GRANT 26 JANUARY 2006 5 AUGUST 2005 8 JULY 2004 TOTAL

Number of performance sharesAt grant date 2,450,000 2,160,000 2,130,000 6,740,000Lapsed – – – –

Outstanding as at 31.12.2006 2,450,000 2,160,000 2,130,000 6,740,000

During the year, performance shares amounting to 805,000 ordinary shares were awarded in respect of grants made in 2003.

The fair value of the performance shares is determined at conditional grant date using the Monte Carlo simulation methodology.

The signifi cant inputs to the model used for the conditional grants in 2004 to 2006 are as follows.

DATE OF GRANT 26 JANUARY 2006 5 AUGUST 2005 8 JULY 2004

Market conditionsVolatility of MSCI Index (%) 14.69 13.80 20.14Volatility of the Company’s shares (%) 15.22 17.44 22.84Correlation of volatility of MSCI vs the Company (%) 26.46 31.62 39.60Risk-free rate (%) 3.09 2.20 1.66Share price ($) 2.93 2.56 2.10Dividend yield (-- Management’s forecast in line with dividend policy --)

Non-market conditions(Best estimate* of number of shares expected to vest at end of three-year performance period)– EVA Spread (%) 61 79 –– EPS Growth 63 64 –

* Subject to revision when new information is available

4. CAPITAL RESERVEThis amount relates to share premium of the respective pooled enterprises, namely Singapore Technologies Aerospace Ltd, Singapore Technologies Electronics Limited, Singapore Technologies Kinetics Ltd and Singapore Technologies Marine Ltd classifi ed as capital reserve upon the pooling of interests during the fi nancial year ended 31 December 1997.


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5. OTHER RESERVES

FOREIGN CURRENCY FAIR SHARE-BASED ASSET TRANSLATION STATUTORY VALUE PAYMENT REVALUATION RESERVE RESERVE RESERVE RESERVE RESERVE TOTAL $’000 $’000 $’000 $’000 $’000 $’000

The GroupAt 1.1.2005 (7,594) 333 49,221 5,585 – 47,545Foreign currency translation differences 1,223 – – – – 1,223Net fair value changes on available-for-sale fi nancial assets – – (1,931) – – (1,931)Net fair value changes on cash fl ow hedges – – (2,550) – – (2,550)Total net income recognised directly in equity and for the year 1,223 – (4,481) – – (3,258)Cost of share-based payment – – – 8,537 – 8,537Transfer from unappropriated profi t to statutory reserve – 133 – – – 133

At 31.12.2005 (6,371) 466 44,740 14,122 – 52,957

At 1.1.2006 (6,371) 466 44,740 14,122 – 52,957Foreign currency translation differences (33,321) – – – – (33,321)Net fair value changes on available-for-sale fi nancial assets – – (14,542) – – (14,542)Net fair value changes on cash fl ow hedges – – (879) – – (879)Total net income recognised directly in equity and for the year (33,321) – (15,421) – – (48,742)Cost of share-based payment – – – 9,431 – 9,431Revaluation surplus – – – – 81 81Transfer from unappropriated profi t to statutory reserve – 246 – – – 246

At 31.12.2006 (39,692) 712 29,319 23,553 81 13,973

GROUP 2006 2005 $’000 $’000

Net fair value changes on available-for-sale fi nancial assets arises from:– Net gain on fair value changes during the year 9,795 5,016– Recognised in the statement of profi t and loss (24,337) (6,947)

(14,542) (1,931)

Foreign currency translation reserveThe foreign currency translation reserve is used to record exchange differences arising from the translation of the fi nancial statements of foreign subsidiaries whose functional currencies are different from that of the Group’s presentation currency.


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5. OTHER RESERVES (continued)Statutory reserveSubsidiaries in the People’s Republic of China follow the accounting principles and relevant fi nancial regulations of the People’s Republic of China (“PRC GAAP”) applicable to wholly foreign-owned enterprises and Sino-foreign equity joint venture enterprises in the preparation of the accounting records and statutory fi nancial statements, and the appropriation of the profi t arrived at under PRC GAAP for each year to a statutory reserve.

Fair value reserveFair value reserve records the cumulative fair value changes of available-for-sale fi nancial assets until they are derecognised or impaired as well as the portion of the fair value changes on the derivative fi nancial instruments designated as hedging instruments in cash fl ow hedges that is determined to be an effective hedge.

Share-based payment reserveShare-based payment reserve represents the equity-settled share options and performance shares granted to employees. The reserve is made up of the cumulative value of services received from employees recorded on grant of equity-settled share options and performance shares. The expense for services received will be recognised over the vesting period.

Asset revaluation reserveThe asset revaluation reserve records increases in the fair value of freehold land and buildings and decreases to the extent that such decrease relates to an increase on the same asset previously recognised in equity.

6. UNAPPROPRIATED PROFIT GROUP 2006 2005 $’000 $’000

Retained by:The Company 530,676 396,815Subsidiaries 335,670 422,686Associated companies and joint ventures 94,308 95,745

960,654 915,246


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7. PROPERTY, PLANT AND EQUIPMENT

VALUATION/COST ARISING ARISING FROM FROM ACQUISITION OF DILUTION OF AS AT INTEREST IN INTEREST IN RECLASSI- TRANSLATION AS AT 1.1.2005 ADDITIONS* DISPOSALS SUBSIDIARIES SUBSIDIARIES FICATIONS DIFFERENCE 31.12.2005 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

The GroupAt 1972 ValuationLeasehold land and buildings 1,919 – – – – – – 1,919Wharves and slipways 1,490 – – – – – – 1,490Syncrolift and fl oating docks 4,603 – – – – – – 4,603Plant and machinery 1,694 – – – – – – 1,694Furniture, fi ttings, offi ce equipment and computers 279 – – – – – – 279

At CostFreehold land and buildings 50,366 – – 14,294 – – 614 65,274Leasehold land and buildings 416,344 7,278 (35) – – – 532 424,119Buildings on rented properties 50,248 6,502 – – – 4,128 – 60,878Improvements to premises 29,360 1,365 (72) 504 (107) 31 129 31,210Wharves and slipways 19,825 – – – – – 1 19,826Syncrolift and fl oating docks 68,781 75 (75) – – – 1 68,782Boats and barges 5,458 5 – – – (30) 22 5,455Plant and machinery 344,853 43,049 (6,798) 3,450 (138) 50 832 385,298Production tools and equipment 135,670 15,288 (1,129) 524 – – 126 150,479Furniture, fi ttings, offi ce equipment and computers 131,444 12,923 (7,732) 4,416 (155) (31) (55) 140,810Transportation equipment and vehicles 10,886 1,727 (521) 196 – (20) 19 12,287Aircraft and aircraft engines 40,339 22,427 – – – – – 62,766Construction-in-progress 4,645 16,753 – 21 – (4,128) (311) 16,980

1,318,204 127,392 (16,362) 23,405 (400) – 1,910 1,454,149


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7. PROPERTY, PLANT AND EQUIPMENT (continued) VALUATION/COST ARISING ELIMINATION OF FROM ACCUMULATED ACQUISITION OF DEPRECIATION AS AT INTEREST IN RECLASSI- ON TRANSLATION AS AT 1.1.2006 ADDITIONS* DISPOSALS SUBSIDIARIES REVALUATION FICATIONS REVALUATION DIFFERENCE 31.12.2006 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

The GroupAt ValuationFreehold land and buildings – – – 1,874 116 – (40) – 1,950 Leasehold land and buildings 1,919 – – – – – – – 1,919 Wharves and slipways 1,490 – – – – – – – 1,490 Syncrolift and fl oating docks 4,603 – – – – – – – 4,603 Plant and machinery 1,694 – – – – – – – 1,694 Furniture, fi ttings, offi ce equipment and computers 279 – – – – – – – 279

At CostFreehold land and buildings 65,274 407 (117) – – 630 – (4,830) 61,364Leasehold land and buildings 424,119 22,446 (50) 1,412 – 4,179 – (4,501) 447,605Buildings on rented properties 60,878 10,165 – – – – – – 71,043Improvements to premises 31,210 3,698 (2,520) 7,712 – 4,573 – (1,462) 43,211Wharves and slipways 19,826 5,310 – – – 3,592 – (15) 28,713Syncrolift and fl oating docks 68,782 – – – – – – – 68,782Boats and barges 5,455 – – – – – – (167) 5,288Plant and machinery 385,298 99,608 (30,121) 378,464 – 4,888 – 17,150 855,287Production tools and equipment 150,479 19,787 (1,992) 9,399 – (101) – (1,834) 175,738Furniture, fi ttings, offi ce equipment and computers 140,810 16,698 (7,483) 3,350 – 1,506 – (1,928) 152,953Transportation equipment and vehicles 12,287 1,612 (903) 1,193 – – – (153) 14,036Aircraft and aircraft engines 62,766 – – – – – – – 62,766Construction-in- progress 16,980 22,415 (273) 3,122 – (19,267) – (1,203) 21,774

1,454,149 202,146 (43,459) 406,526 116 – (40) 1,057 2,020,495

* Additions during the year included property, plant and equipment of: (i) $5,003,339 (2005: $4,062,000) contributed by minority shareholders as part of capital injection; and (ii) $nil (2005: $5,795,000) offset against the net investment in a joint venture.


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7. PROPERTY, PLANT AND EQUIPMENT (continued) ACCUMULATED DEPRECIATION ARISING FROM DEPRECIATION DILUTION OF AS AT CHARGE FOR IMPAIRMENT INTEREST IN RECLASSI- TRANSLATION AS AT 1.1.2005 THE YEAR LOSS SUBSIDIARIES DISPOSALS FICATIONS DIFFERENCE 31.12.2005 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

The GroupAt 1972 ValuationLeasehold land and buildings 1,919 – – – – – – 1,919Wharves and slipways 1,490 – – – – – – 1,490Syncrolift and fl oating docks 4,603 – – – – – – 4,603Plant and machinery 1,694 – – – – – – 1,694Furniture, fi ttings, offi ce equipment and computers 279 – – – – – – 279

At CostFreehold land and buildings 7,070 1,537 11,890 – – – 75 20,572Leasehold land and buildings 221,199 16,958 – – (35) – 145 238,267Buildings on rented properties 19,416 2,227 – – – – – 21,643Improvements to premises 12,474 3,761 – (16) (72) – (4) 16,143Wharves and slipways 14,512 1,063 – – – – – 15,575Syncrolift and fl oating docks 57,482 3,644 – – (10) – (65) 61,051Boats and barges 4,619 470 352 – – – 14 5,455Plant and machinery 292,612 20,736 (29) (22) (6,267) (73) 382 307,339Production tools and equipment 114,938 11,199 – – (1,106) 73 75 125,179Furniture, fi ttings, offi ce equipment and computers 116,346 10,857 – (49) (7,632) – (12) 119,510Transportation equipment and vehicles 8,385 1,010 – – (495) – 27 8,927Aircraft and aircraft engines 23,676 5,630 – – – – – 29,306

902,714 79,092 12,213 (87) (15,617) – 637 978,952


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7. PROPERTY, PLANT AND EQUIPMENT (continued) ACCUMULATED DEPRECIATION ELIMINATION OF DEPRECIATION ACCUMULATED CHARGE DEPRECIATION AS AT FOR IMPAIRMENT RECLASSI- ON TRANSLATION AS AT 1.1.2006 THE YEAR LOSS DISPOSALS FICATIONS REVALUATION DIFFERENCE 31.12.2006 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

The GroupAt ValuationFreehold land and buildings – 40 – – – (40) – –Leasehold land and buildings 1,919 – – – – – – 1,919 Wharves and slipways 1,490 – – – – – – 1,490Syncrolift and fl oating docks 4,603 – – – – – – 4,603Plant and machinery 1,694 – – – – – – 1,694Furniture, fi ttings, offi ce equipment and computers 279 – – – – – – 279

At CostFreehold land and buildings 20,572 1,096 – (54) – – (1,523) 20,091Leasehold land and buildings 238,267 18,276 33 (22) – – (1,885) 254,669Buildings on rented properties 21,643 1,941 – – – – – 23,584Improvements to premises 16,143 5,308 – (2,452) – – (630) 18,369Wharves and slipways 15,575 1,495 – – – – (8) 17,062Syncrolift and fl oating docks 61,051 3,648 – – – – – 64,699Boats and barges 5,455 124 – – (280) – (170) 5,129Plant and machinery 307,339 59,386 264 (19,048) 353 – (4,026) 344,268Production tools and equipment 125,179 15,943 – (1,420) (101) – (1,084) 138,517Furniture, fi ttings, offi ce equipment and computers 119,510 15,744 – (7,096) 28 – (1,557) 126,629Transportation equipment and vehicles 8,927 1,357 – (531) – – (93) 9,660Aircraft and aircraft engines 29,306 6,318 – – – – – 35,624

978,952 130,676 297 (30,623) – (40) (10,976) 1,068,286


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7. PROPERTY, PLANT AND EQUIPMENT (continued) NET BOOK VALUE 2006 2005 $’000 $’000

The GroupAt ValuationFreehold land and buildings 1,950 –Leasehold land and buildings – –Wharves and slipways – –Syncrolift and fl oating docks – –Plant and machinery – –Furniture, fi ttings, offi ce equipment and computers – –

At CostFreehold land and buildings 41,273 44,702Leasehold land and buildings 192,936 185,852Buildings on rented properties 47,459 39,235Improvements to premises 24,842 15,067Wharves and slipways 11,651 4,251Syncrolift and fl oating docks 4,083 7,731Boats and barges 159 –Plant and machinery 511,019 77,959Production tools and equipment 37,221 25,300Furniture, fi ttings, offi ce equipment and computers 26,324 21,300Transportation equipment and vehicles 4,376 3,360Aircraft and aircraft engines 27,142 33,460Construction-in-progress 21,774 16,980

952,209 475,197

The Company

AT COST AS AT 1.1.2005 ADDITIONS AS AT 31.12.2005 $’000 $’000 $’000

Furniture, fi ttings, offi ce equipment and computers 871 499 1,370Transportation equipment and vehicles 298 – 298

1,169 499 1,668

ACCUMULATED DEPRECIATION DEPRECIATION CHARGE FOR AS AT 1.1.2005 THE YEAR AS AT 31.12.2005 $’000 $’000 $’000

Furniture, fi ttings, offi ce equipment and computers 712 150 862Transportation equipment and vehicles 5 60 65

717 210 927


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7. PROPERTY, PLANT AND EQUIPMENT (continued)

The Company AT COST AS AT 1.1.2006 ADDITIONS AS AT 31.12.2006 $’000 $’000 $’000

Furniture, fi ttings, offi ce equipment and computers 1,370 251 1,621Transportation equipment and vehicles 298 – 298

1,668 251 1,919

ACCUMULATED DEPRECIATION DEPRECIATION CHARGE FOR AS AT 1.1.2006 THE YEAR AS AT 31.12.2006 $’000 $’000 $’000

Furniture, fi ttings, offi ce equipment and computers 862 276 1,138Transportation equipment and vehicles 65 59 124

927 335 1,262

NET BOOK VALUE 2006 2005 $’000 $’000

Furniture, fi ttings, offi ce equipment and computers 483 508Transportation equipment and vehicles 174 233

657 741

The Group(a) Property, plant and equipment at valuation

As at 1 January 2006, property, plant and equipment which are shown at valuation are stated at values arrived at by an independent fi rm of professional valuers on 30 November 1972, on the basis of open market value for existing use. There is no fi xed frequency of revaluation. Revaluation will be performed as and when deemed appropriate by the Directors. These property, plant and equipment are fully depreciated as at 31 December 2006 and 2005.

During the year, a freehold building was valued by an independent fi rm of professional valuers on 8 January 2007 on the basis of open market value for existing use. The net book value of the building as at 31 December 2006 is $1,950,000.

(b) Property, plant and equipment pledged as security(i) Freehold land and buildings and leasehold buildings of subsidiaries with a carrying amount of $7,442,000 (2005:

$4,854,000) are pledged as security for long-term loans.

(ii) Plant and machinery of a subsidiary with carrying value of $223,358,000 (2005: $nil) are subject to a fl oating charge of Euro 210 million to secure two of the subsidiary’s bank loans.


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7. PROPERTY, PLANT AND EQUIPMENT (continued)(c) Property, plant and equipment under lease obligations

Included in the above are property, plant and equipment acquired under lease obligations with a net book value of:

GROUP 2006 2005 $’000 $’000

Leasehold land and buildings 2,927 3,680

(d) The major properties of the Group comprise:(i) Freehold land and buildings

NET BOOK VALUELOCATION DESCRIPTION LAND AREA 2006 2005 (SQ. M.) $’000 $’000

MalaysiaAwana Chalet 8th mile, Genting Highlands, Staff recreation and 58 2 9869000 Genting Highlands, Pahang apartment unit

USA47889 South K Street Tulare, California Industrial buildings 88,949 2,801 3,100

13442 Emerson Road Kidron, Ohio Industrial buildings 68,351 1,441 1,606

300 Hackney Ave, Independence, Kansas Industrial buildings 117,358 2,071 2,318

400 Hackney Ave, Washington, North Carolina Industrial buildings 39,942 2,248 2,517

914 Saegers Station Drive, Montgomery,Pennsylvania Industrial buildings 122,659 4,389 4,854

7801 Trinity Drive, Escatawpa, Mississippi Shipyard and buildings 839,564 4,896 5,102

5801 Elder Ferry Rd, Moss Point, Mississippi Shipyard and buildings 227,151 4,497 4,703

900 Bayou Casotte Parkway, Pascagoula,Mississippi Shipyard and buildings 331,803 13,258 14,304

3800 Richardson Road South, Hope Hull,Alabama Production facility 8,361 4,197 4,717

Singapore159 Sin Ming Road Amtech Building #04-05 Warehouse and offi ce building 575 1,950 –


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7. PROPERTY, PLANT AND EQUIPMENT (continued)(ii) Leasehold land, buildings and improvements

NET BOOK VALUELOCATION DESCRIPTION TENURE LAND AREA 2006 2005 (SQ. M.) $’000 $’000

Singapore501 Airport Road Factory and offi ce 20 years from 1.6.1993 23,899 3,158 3,664 building

503 Airport Road Factory and offi ce 20 years from 1.6.1993 7,175 890 1,023 building

540 Airport Road Warehouse and offi ce 30 years from 15.8.1985 5,850 1,354 1,508 building

Hangar and offi ce 30 years from 1.1.1984 18,918 3,936 4,443 building

8 Changi North Way Hangar and offi ce 30 years from 1.1.1992 75,713 37,292 39,778 building

Hangar and offi ce 22.5 years from 16.6.1999 14,860 3,605 3,845 building

Hangar and offi ce 16.3 years from 20.8.2005 9,764 15,012 – building

24 Ang Mo Kio Industrial and 30 years from 1.12.1982, 23,970 11,384 12,028Street 65 commercial buildings renewable to 2042

100 Jurong East Industrial and 30 years from 1.11.1988, 11,232 9,227 9,563Street 21 commercial buildings renewable to 2048

70 Ubi Crescent Factory 60 years from 5.7.1997 730 1,103 – Ubi Techpark #01-12

5 Portsdown Road Industrial and 3 years from 1.12.2005, 88,400 472 827 commercial buildings renewable to 2010

5 Ubi Close Car showroom cum 30 years from 1.8.1994 6,274 15,491 16,761 workshop

33 Tuas Avenue 2 Factory and offi ce 30 years from 1.4.1996 6,669 2,820 2,967 building

16 Benoi Crescent Industrial and 30 years from 16.7.1989 6,981 3,388 3,662 commercial buildings

249 Jalan Boon Lay Industrial and 27 years from 1.10.2001 120,000 6,851 7,678 commercial buildings to 31.12.2028 (renewable to 10.10.2065)


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7. PROPERTY, PLANT AND EQUIPMENT (continued)(ii) Leasehold land, buildings and improvements (continued)


Singapore2D Ayer Rajah Crescent Industrial and 3 years from 1.4.2004 29,904 – – commercial buildings to 31.3.2007

16 Tuas Avenue 7 Industrial buildings 30 years from 16.8.1983 12,029 1,294 1,479

601 Rifl e Range Road Industrial buildings Renewable every year * 1,380,983 1,724 2,584

15 Chin Bee Drive Industrial buildings 60 years from 1.8.1973 39,640 4,101 4,534

7 Benoi Road Buildings, foreshore 56 years from 1.6.1969 103,802 17,961 19,557 and workshops

60 Tuas Road Buildings, foreshore 30 years from 1.12.1992 125,262 6,265 6,927 and workshops

16 Benoi Road Administrative offi ces 56 years from 1.6.1969 20,244 – –

30/36 Kian Teck Workers’ dormitory 30 years from 1.9.1995 3,908 5,454 5,746Avenue

USA2100 9th Street Hangar and 22 years from 1.1.1991 103,825 22,294 23,382Brookley Complex, offi ce buildingMobile, Alabama

9800 John Saunders Hangar and 16 7/12 years from 195,663 8,848 10,622Road, San Antonio, offi ce building 1.6.2002Texas

People’s Republic of China555 Kanghua Road, Industrial buildings 50 years from 12.6.2003 15,890 3,538 3,987Kangqiao Industrial to 27.7.2052Zone, Shanghai

97 Zhong Cao Road Industrial and 41 years from 1.10.2005 276,633 6,094 –Guiyang, Guizhou commercial buildings to 30.9.2045

Europe405, Blazer Court, Residential apartment 130 years from 1.1.1998 74 395 – St John’s Wood Road,London NW 8

* This relates to buildings constructed by a subsidiary on properties rented from the Ministry of Defence on leases which are renewable every year. In view of the relationship between the landlord and the subsidiary, the cost of the buildings is depreciated over 30 years.


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7. PROPERTY, PLANT AND EQUIPMENT (continued)(iii) Buildings on rented properties


Singapore540 Airport Road Hangars and 3 years lease from 1.7.2006 48,882 28,891 30,239 offi ce building

540 Airport Road Hangars and 3 years lease from 5.10.2004 10,956 8,850 8,996 offi ce building

Seletar West Camp Hangars and 3 years lease from 12.9.2006 4,714 9,718 – offi ce building

The buildings on rented properties relate to buildings constructed by one of the subsidiaries on properties rented from the Ministry of Defence on leases which are renewable every three years. In view of the relationship between the landlord and the subsidiary, the cost of the buildings on rented properties, except for the hangar in Seletar West Camp, is depreciated over 30 years. The hangar in Seletar West Camp is depreciated over 10 years.

8. SUBSIDIARIES COMPANY 2006 2005 $’000 $’000

Unquoted shares, at cost:Singapore Technologies Aerospace Ltd 90,114 90,114Singapore Technologies Electronics Limited 26,982 26,982Singapore Technologies Kinetics Ltd 61,938 61,938Singapore Technologies Marine Ltd 56,000 56,000Vision Technologies Systems, Inc. 297,494 168,166Singapore Technologies Dynamics Pte Ltd 6,000 6,000ST Synthesis Pte Ltd 2,156 2,156FusionTech Pte. Ltd. 1,000 1,000Kaz-ST Engineering Bastau Limited Liability Partnership 578 336

542,262 412,692Provision for impairment (7,000) (6,000)

Carrying amount after provision for impairment 535,262 406,692Capital contribution in form of share options and

performance shares issued to employees of subsidiaries 8,947 –

544,209 406,692


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8. SUBSIDIARIES (continued)Details of the subsidiaries are as follows:

EFFECTIVE EQUITY INTEREST HELD BY THE GROUP 2006 2005 % %

(a) Singapore Technologies Aerospace Ltd and its subsidiaries 100 100ST Aerospace Engineering Pte Ltd and its subsidiaries: 100 100 ST PAE Holdings Pty Ltd 100 100 Pacifi c Flight Services Pte Ltd 100 100ST Aerospace Engines Pte Ltd 100 100ST Aerospace Systems Pte Ltd 100 100ST Aerospace Supplies Pte Ltd and its subsidiary: 100 100 iShopAero Pte Ltd 100 100ST Aerospace International Structures Pte Ltd 100 100ST Aviation Resources Pte Ltd and its subsidiary: 100 100 ST Aviation Resources 1 Limited 100 100ST Aviation Services Co Pte Ltd 80 80Visiontech Investment Pte Ltd 100 100Singapore Technologies Engineering (Europe) Ltd 100 100Singapore Aerospace Kabushiki Kaisha 100 100Visiontech Engineering Pte Ltd 51 51ST Airport Ground Services Pte Ltd 100 100Bournemouth Aviation Services Company Limited 81 81Singapore British Engineering Pte Ltd 51 51SAS Component Group A/S and its subsidiary: 71.3 – Airline Rotables (UK Holdings) Limited (formerly known as ST Aerospace (UK) Limited) and its subsidiary: 71.3 100 Airline Rotables Limited 71.3 100Panama Aerospace Engineering Inc. 100 –

(b) Singapore Technologies Electronics Limited and its subsidiaries 100 100 SEEL Electronic & Engineering Sdn Bhd 100 100 ST Electronics (Info-Software Systems) Pte. Ltd. and its subsidiaries: 100 100 INFA Systems Limited 70 70 ST Electronics (Software Services) Limited (formerly known as Xinke Information Systems Ltd) 100 100 PM-B Pte Ltd and its subsidiaries: 70 – PMB Project Management Business Sdn Bhd 70 – PT PM-B Indonesia 70 – Beijing Tong Fang Shi Cheng Ki Ji Pte Ltd 70 – ST Electronics (Training & Simulation Systems) Pte. Ltd. and its subsidiaries: 100 100 ST Electronics (Digital Media) Pte. Ltd. (formerly known as Interactive Visual Laboratory Pte. Ltd.) 100 100 ST Education & Training Private Limited and its subsidiaries: 70 70 STET Maritime Education Pte. Ltd. 70 70 STET Maritime Bureau Pte. Ltd. 70 70 Brightspot Interactive Learning Pte. Ltd. and its subsidiary: 51 16 Brightspot Interactive Learning Inc. 51 16


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8. SUBSIDIARIES (continued) EFFECTIVE EQUITY INTEREST HELD BY THE GROUP 2006 2005 % %

(b) Singapore Technologies Electronics Limited and its subsidiaries (continued) ST Electronics (Info-Comm Systems) Pte. Ltd. and its subsidiaries: 100 100 ST Electronics (Info-Security) Pte. Ltd. (formerly known as DigiSAFE Pte Ltd) and its subsidiary: 100 100 DataMark Technologies Pte Ltd 61.12 61.12 STELCOMMS Pte. Ltd. 100 –

ST Electronics (Satcom & Sensor Systems) Pte. Ltd. and its subsidiary: 100 100 ST Electronics (Sichuan) Co., Ltd 100 100ST Electronics (Shanghai) Co., Ltd and its subsidiary: 100 100 ST Electronics-PCI Co., Ltd 51 51iTS Technologies Pte Ltd 100 100ST Electronics (Taiwan) Limited 100 100Intelect Technologies, Incorporated 78.57 78.57Ripple Systems Pty Ltd 70 70STELOP Pte. Ltd. (formerly known as Chartered Electro-Optics Pte Ltd) 50.05 50.05TranSys Pte Ltd 100@ 50

(c) Singapore Technologies Kinetics Ltd and its subsidiaries 100 100 Singapore Ordnance Engineering Pte. Ltd. 100 100 Mobility Systems Pte Ltd and its subsidiaries: 100 100 Silvatech Global Systems Limited 100 50** Silvatech Systems Corporation Pte Ltd and its subsidiaries: 100 50** Kinetics Drive Solutions Inc. (formerly known as Int. Silvatech Industries Inc.) 100^^ 50** Silvatech Systems Marketing Inc. –^^ 50** STA Inspection Pte Ltd and its subsidiary: 100 100 JuzclickCar.com Pte Ltd 90 90 Singapore Commuter Private Limited 100 100 ST Automotive Industrial Pte Ltd 100 100 STA Investment Pte Ltd 100 100 ST Automotive (Vietnam) Pte Ltd 100 100 STA Detroit Diesel-Allison (Singapore) Pte Ltd 100 100 Shanghai Elite Electric Vehicles Co., Ltd 100 100 Expert Systems Pte Ltd 100 100 Singapore Test Services Private Limited and its subsidiary: 100 100 SAO Industrial Services Pte Ltd 100 100 Advanced Material Engineering Pte. Ltd. and its subsidiary: 100 100 Advanced Pyrotechnic Materials Private Limited (formerly known as Chartered Pyrotechnic Industries Private Limited) 51 51 Unicorn International Pte Limited 100 100 Allied Ordnance of Singapore (Pte) Limited 100 100 Ordnance Development and Engineering Company of Singapore (1996) Private Limited 100 100 Autonomous Technology Pte Ltd and its subsidiary: 100 100 Guizhou Jonyang Kinetics Co., Ltd. 60 60 Kinetics Systems (Shanghai) Co., Ltd. 100 100 Founders Industries Pte Ltd and its subsidiary: 100 100 Ordnance Development and Engineering Company of Singapore (Private) Limited – 100 STAR Automotive Center (Zhejiang) Co., Ltd. 86.24 70


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8. SUBSIDIARIES (continued) EFFECTIVE EQUITY INTEREST HELD BY THE GROUP 2006 2005 % %

(d) Singapore Technologies Marine Ltd and its subsidiary 100 100 STSE Engineering Services Pte Ltd 100 100

(e) Vision Technologies Systems, Inc. and its subsidiaries 100 100 Singapore Technologies Engineering (USA) Inc. 100 100 SA Supplies (USA) Inc. 100 100 VT Systems, Inc. 100 100 Vision Technologies Aerospace, Incorporated and its subsidiaries: 100 100 ST Mobile Aerospace Engineering, Inc. 100 100 DalFort Aerospace GP, Inc. 100 100 DalFort Aerospace, L.P. 100 100 San Antonio Aerospace GP, LLC 100 100 San Antonio Aerospace LP 100 100 Vision Technologies Electronics, Inc. and its subsidiary: 100 100 iDirect, Inc. and its subsidiaries: 100 100 iDirect Hong Kong Limited 100 100 iDirect UK Limited 100 100 iDirect Italy srl 100 100 iDirect International Corporation and its subsidiary: 100 100 iDirect Singapore Pte. Ltd. 100 – Vision Technologies Kinetics, Inc. and its subsidiaries: 100 100 Miltope Corporation 100 100 MÄK Technologies, Inc. 80 – Vision Technologies Land Systems, Inc. and its subsidiaries: 100 100 VT Dimensions, Inc. 100 100 VT LeeBoy, Inc. 100 – VT Specialized Vehicles Corporation (formerly known as Specialized Vehicles Corporation) 100 100 Vision Technologies Marine, Inc. and its subsidiary: 100 100 VT Halter Marine, Inc. 100 100

(f) Singapore Technologies Dynamics Pte Ltd 100 100

(g) ST Synthesis Pte Ltd 100 100

(h) FusionTech Pte. Ltd. 100 100

(i) Kaz-ST Engineering Bastau Limited Liability Partnership 51 51

@ During the year, following an additional acquisition of interest, TranSys Pte Ltd had become a subsidiary of the Group.** The Group owns 50% plus one share in these companies.^^ These entities were amalgamated as one company under the name Kinetics Drive Solutions Inc. during the year.


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8. SUBSIDIARIES (continued)Further details of the subsidiaries are as follows:

COUNTRY OF INCORPORATION/ PLACE OFNAME OF SUBSIDIARY PRINCIPAL ACTIVITIES BUSINESS

Singapore Technologies Aerospace Ltd Investment holding and provision of engineering, Singapore marketing and engineering support services

ST Aerospace Engineering Pte Ltd Repair, maintenance and servicing of aircraft Singapore

ST PAE Holdings Pty Ltd Investment holding Australia

Pacifi c Flight Services Pte Ltd Providing air transport services Singapore

ST Aerospace Engines Pte Ltd Repair and overhaul of aircraft engines Singapore

ST Aerospace Systems Pte Ltd Service, repair and overhaul of aircraft components Singapore

ST Aerospace Supplies Pte Ltd Trading, Maintenance-By-The-Hour services for Singapore component and repair management and warehousing services for aircraft equipment, parts and components

iShopAero Pte Ltd Trading, e-commerce and information technology Singapore related services for the aerospace industry

ST Aerospace International Designing, developing and manufacturing aircraft, SingaporeStructures Pte Ltd engines, equipment, accessories, components and such other parts

ST Aviation Resources Pte Ltd Investment holding Singapore

ST Aviation Resources 1 Limited# Investment holding and aircraft leasing business British Virgin Islands

ST Aviation Services Co Pte Ltd Repair, maintenance, modifi cation and servicing of Singapore commercial aircraft

Visiontech Investment Pte Ltd Investment holding and dealing Singapore

Singapore Technologies Engineering Providing marketing and investment services UK(Europe) Ltd to the Group

Singapore Aerospace Kabushiki Kaisha# Providing marketing services to the Group Japan

Visiontech Engineering Pte Ltd Provision of engineering services for the repair, Singapore maintenance and modifi cation of aircraft, aircraft equipment and components

ST Airport Ground Services Pte Ltd Investment holding and provision of airport ground Singapore cargo and passenger handling services


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8. SUBSIDIARIES (continued)


Bournemouth Aviation Services Repair and maintenance of aircraft UKCompany Limited+

Singapore British Engineering Pte Ltd Marketing and sale of a range of defence products and Singapore associated equipment and participating in the development of new products and systems

SAS Component Group A/S Supply aircraft components, including purchase, Denmark maintenance and logistics services

Airline Rotables (UK Holdings) Limited Investment holding UK(formerly known as ST Aerospace (UK) Limited)

Airline Rotables Limited Providing component management and support UK services for aircraft

Panama Aerospace Engineering Inc.^ Repair and maintenance of aircraft Republic of Panama

Singapore Technologies Electronics Limited Design, development, supply, installation, integration Singapore and maintenance of transportation, intelligent building, defence electronic and communication systems

SEEL Electronic & Engineering Sdn Bhd Sales of electronic instruments and equipment, Malaysia electronic engineering and systems integration services for infrastructure projects as well as maintenance and calibration of electronic equipment

ST Electronics (Info-Software Systems) Design, development and supply of real-time/mission SingaporePte. Ltd. critical systems and provision of related maintenance services

INFA Systems Limited Provision for services in consulting, designing and Hong Kong developing systems integration, the maintenance and support of operational and computer systems and sales and distribution of system equipment

ST Electronics (Software Services) Limited Providing IT outsourcing services, software applications People’s Republic(formerly known as Xinke Information development and turnkey solutions of ChinaSystems Ltd)

PM-B Pte Ltd Relate to mechanical, electrical and engineering works Singapore to design, build and provide facility management services for mission critical environments such as data centres, disaster recovery and business continuity sites


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PMB Project Management Business Relate to mechanical, electrical and engineering works MalaysiaSdn Bhd to design, build and provide facility management services for mission critical environments such as data centres, disaster recovery and business continuity sites

PT PM-B Indonesia Relate to mechanical, electrical and engineering works Indonesia to design, build and provide facility management services for mission critical environments such as data centres, disaster recovery and business continuity sites

Beijing Tong Fang Shi Cheng Ki Ji Pte Ltd Relate to mechanical, electrical and engineering works People’s Republic to design, build and provide facility management services of China for mission critical environments such as data centres, disaster recovery and business continuity sites

ST Electronics (Training & Simulation Design, development, supply, integration and SingaporeSystems) Pte. Ltd. maintenance of training and simulation systems

ST Electronics (Digital Media) Pte. Ltd. Design, development and manufacture of computers Singapore(formerly known as Interactive Visual and data processing systems, as well as provision ofLaboratory Pte. Ltd.) services for the processing and maintenance of data and information

ST Education & Training Private Limited Provision of education and training, management and Singapore consultancy services for operational and technical domains of maritime, aerospace and land services and industries

STET Maritime Education Pte. Ltd. Provision of education and training for operational and Singapore technical domains of the maritime industry

STET Maritime Bureau Pte. Ltd. Provision of marine audit, survey and consultancy services Singapore

Brightspot Interactive Learning Pte. Ltd. Investment holding and provision of training services Singapore such as soft skills and management skills to corporations, and other courses to individuals through satellites broadcast

Brightspot Interactive Learning Inc Provision of training services such as soft skills and People’s Republic management skills to corporations, and other courses of China to individuals through satellites broadcast

ST Electronics (Info-Comm Systems) Design, development, systems integration, manufacturing SingaporePte. Ltd. and sale of communication equipment, GPS-based fl eet management system, traffi c management system, info appliances and defence electronics


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ST Electronics (Info-Security) Pte. Ltd. Design, development, sale and provision of technical Singapore(formerly known as DigiSAFE Pte Ltd) support for information security products, solutions and services

DataMark Technologies Pte Ltd Develop and provide digital water marking and Singapore related solutions

STELCOMMS Pte. Ltd. Design, development and sale of communication Singapore related products and subsystems

ST Electronics (Satcom & Sensor Manufacture of microwave components and SingaporeSystems) Pte. Ltd. sub-systems, system integration and provision of related repairs and maintenance for the telecommunications and defence electronics industries

ST Electronics (Sichuan) Co., Ltd Maintenance of communication and other related People’s Republic apparatus and consultant service of telecommunication of China technology

ST Electronics (Shanghai) Co., Ltd Development and manufacturing of computer control People’s Republic and management systems, microwave control systems, of China simulation and training systems, security systems, MRT passenger information systems, MRT autofare collection system, MRT platform screen door system and related software. Provision of related technical consultation and aftersales services and sale of in-house products.

ST Electronics-PCI Co., Ltd Computer software and hardware R&D and manufacture, People’s Republic computer supervise and control management system, of China microwave system, simulation and training system, security management system and peripheral devices, selling in-house products, and offering relevant system integration and skill consultation and after-sales service. Electronic technologies, industry automatic equipment R&D, electronic consulting service, system integration and network engineering installation.

iTS Technologies Pte Ltd Development, marketing and maintenance of advance Singapore simulation and training systems for the aircraft and other industries

ST Electronics (Taiwan) Limited# Provide integration for large-scale system projects in Taiwan rail, expressway and intelligent building management solutions


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Intelect Technologies, Incorporated# Development and supply of a family of multi-access USA optical networking equipment

Ripple Systems Pty Ltd Design, develop and implement innovative software Australia systems for technically challenging integration applications. Key markets for these applications are rail command and control (ISCS) and intelligent transport systems (ITS) for road infrastructure.

STELOP Pte. Ltd. (formerly known as Design, development, manufacture and sale of electro- SingaporeChartered Electro-Optics Pte Ltd) optical and electronic products and systems and the provision of related services

TranSys Pte Ltd Design, development, distribution, maintenance and Singapore marketing of railway related products

Singapore Technologies Kinetics Ltd Provision of design and engineering services, Singaporemanufacture, sales and knowhow transfer of military and commercial vehicles, automotive subsystems, armament, weapons, weapon systems, ammunition and explosives and the provision of engineering services for assembly, upgrading/modifi cations, maintenance,

repair and overhaul of vehicles and weapon systems, and trading in motor vehicles, equipment, vehicle spares and related accessories

Singapore Ordnance Engineering Pte. Ltd. Workshop and provision of engineering services Singapore

Mobility Systems Pte Ltd Investment holding Singapore

Silvatech Global Systems Limited# Owns the intellectual property rights to electro-hydraulic British Virgin drive, hydro-mechanical and electro-mechanical Islands

continuously variable transmissions technologies, and equipment powered by such drives

Silvatech Systems Corporation Pte Ltd Designing, manufacturing, marketing and managing Singaporelicencees of technologies and products using electro-hydraulic drive, hydro-mechanical and electro-mechanical continuously variable transmissions, and equipment powered by such drives, globally

Kinetics Drive Solutions Inc.# Research and development, manufacturing and sales of Canada(formerly known as Int. Silvatech electro-hydraulic drive, hydro-mechanical and electro-Industries Inc.) mechanical continuously variable transmissions technologies, and equipment powered by such drives


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STA Inspection Pte Ltd Inspection of heavy goods vehicles, light vehicles, Singaporemotor cars, buses and motorcycles, provision of vehicle inspection project management, provision of independent damage assessment services as well as to act as the commission agent for the sale and purchase of motor vehicle spare parts mainly conducted online via

the internet

JuzclickCar.com Pte Ltd# Dormant Singapore

Singapore Commuter Private Limited Dormant Singapore

ST Automotive Industrial Pte Ltd Dormant Singapore

STA Investment Pte Ltd Investment dealing Singapore

ST Automotive (Vietnam) Pte Ltd# Dormant Singapore

STA Detroit Diesel-Allison (Singapore) Assembling and marketing of diesel engines and SingaporePte Ltd related products and the provision of technical services, fi eld services, repair and maintenance services

Shanghai Elite Electric Vehicles Co., Ltd Manufacture and sale of electric bicycles and provision People’s Republic of vehicle repairs and consultancy services of China

Expert Systems Pte Ltd# Dormant Singapore

Singapore Test Services Private Limited Provision of professional engineering consultancy, tests, Singapore inspection, certifi cation and related services

SAO Industrial Services Pte Ltd Dormant Singapore

Advanced Material Engineering Pte. Ltd. Provision of design and engineering services, Singaporemanufacture, sales, disposal and knowhow transfer of precision munitions, ammunition, armament, weapon systems, military equipment, explosives, hand-grenades, thunder-fl ashes, pyrotechnic products and gunpowder and the provision of engineering services for assembly, upgrading/modifi cations, maintenance, repair and overhaul of ammunition and weapon systems, and related services

Advanced Pyrotechnic Materials Manufacture and sale of pyrotechnic products SingaporePrivate Limited (formerly known asChartered Pyrotechnic IndustriesPrivate Limited)

Unicorn International Pte Limited Trading and Marketing Singapore


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Allied Ordnance of Singapore (Pte) Limited Provision of design and engineering services, Singaporemanufacture, sales and knowhow transfer of armament, weapons, weapon systems, ammunition, explosives, weapon magazines, military equipment, machines, tools, spares and components and the provision of engineering services for assembly, upgrading/modifi cation, maintenance, repair and overhaul of guns and weapons systems, and related services

Ordnance Development and Engineering Provision of design and engineering services, SingaporeCompany of Singapore (1996) manufacture, sales and knowhow transfer of armament, Private Limited weapons, weapon systems, ammunition, explosives, weapon magazines, military equipment, machines, tools, spares and components and the provision of engineering services for assembly, upgrading/modifi cation, maintenance, repair and overhaul of guns and weapons systems, and related services

Autonomous Technology Pte Ltd Investment holding Singapore

Guizhou Jonyang Kinetics Co., Ltd. Design, manufacture, sales and services support of People’s Republic construction, engineering and industrial-related of China

machinery and accessories, provide engineering consultancy services to engineering and manufacturing

companies, be a contract manufacturer of construction, engineering and industrial-related machinery and accessories, as well as supplying of casting and forging parts for all industries, represent and sell other manufacturer’s construction, engineering, energy and industrial-related machinery and accessories in the domestic and international market. Kinetics Systems (Shanghai) Co. Ltd. Manufacture of vehicle drive systems, industrial drive People’s Republic motors, small external combustion engines, and sale of of China self manufactured products

Founders Industries Pte Ltd* Dormant Singapore

Ordnance Development and Engineering Dormant SingaporeCompany of Singapore (Private) Limited **

STAR Automotive Center (Zhejiang) Provide automotive services, including automotive fi xing, People’s RepublicCo., Ltd. maintaining, service, automotive examination and of China maintenance, damage fi xing, automotive beautifying and decorating, trading and supplying of automotive spare parts, training, technology consultation, tow truck service and after sales technical support, etc.


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Singapore Technologies Marine Ltd Construction and repair of naval and commercial vessels, Singapore design, integration, fabrication, installation of military and commercial engineering equipment and the provision of engineering consultancy and technical management services

STSE Engineering Services Pte Ltd Contractor, developer and sub-contractor of engineering Singapore and engineering related works and provider of turnkey engineering solutions

Vision Technologies Systems, Inc.# Investment holding USA

Singapore Technologies Engineering(USA) Inc.# Dormant USA

SA Supplies (USA) Inc.# Dormant USA

VT Systems, Inc.# Investment holding and providing investment services to the Group USA

Vision Technologies Aerospace, Investment holding and providing investment services USAIncorporated#

ST Mobile Aerospace Engineering, Inc. Repair and maintenance of aircraft USA

DalFort Aerospace GP, Inc.# Dormant USA

DalFort Aerospace, L.P. + +# Dormant USA

San Antonio Aerospace GP, LLC# Investment holding USA

San Antonio Aerospace LP Repair and maintenance of aircraft USA

Vision Technologies Electronics, Inc.# Investment holding USA

iDirect, Inc. Design, develop and market two-way internet USA protocol - (IP) based broadband satellite networking solutions that deliver voice, data and video services to enterprise and government customer locations worldwide iDirect Hong Kong Limited Markets two-way internet protocol – (IP) based Hong Kong broadband satellite networking solutions

iDirect UK Limited Markets two-way internet protocol – (IP) based UK broadband satellite networking solutions


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iDirect Italy srl Markets two-way internet protocol – (IP) based Italy broadband satellite networking solutions

iDirect International Corporation Markets two-way internet protocol – (IP) based USA broadband satellite networking solutions

iDirect Singapore Pte. Ltd. Markets two-way internet protocol- (IP) based Singapore broadband satellite networking solutions

Vision Technologies Kinetics, Inc.# Investment holding USA

Miltope Corporation# Manufacturer of militarised and rugged computer USA equipment for military applications and commercial computer related products for the commercial aerospace market including in-fl ight entertainment systems and wireless local area network equipment

MÄK Technologies, Inc.# Develop and supply software products and services for Networked Synthetic Environments USA

Vision Technologies Land Systems, Inc.# Investment holding USA

VT Dimensions, Inc.# Investment holding and licensing of intellectual USA properties

VT LeeBoy, Inc.# Manufacture of asphalt paving and road maintenance USA equipment including LeeBoy branded asphalt pavers, motor graders, compactors, force feed loaders, asphalt maintainers/patchers, tack distributors, and Rosco branded asphalt distributors, street fl ushers, brooms and asphalt spray patchers

VT Specialized Vehicles Corporation Manufacture and marketing of specialised aluminium USA(formerly known as Specialized drop-frame truck bodies, trailers, refrigerated truckVehicles Corporation)# bodies and trailers and speciality vehicle cabs

Vision Technologies Marine, Inc.# Investment holding and providing investment services USA to the Marine sector

VT Halter Marine, Inc.# Construction and repair of naval and commercial USA vessels, design, integration, fabrication, installation of engineering equipment and provision of engineering services

Singapore Technologies Dynamics Pte Ltd Technology development, advanced concept design Singapore and development and technology acquisition


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ST Synthesis Pte Ltd Provision of one-stop total integrated logistic Singapore support services

FusionTech Pte. Ltd. Investment holding Singapore

Kaz-ST Engineering Bastau Limited Provision of IT, engineering defence and KazakhstanLiability Partnership related services

# Not required to be audited under the law in the country of incorporation.+ This entity ceased operations in December 2006.^ Newly incorporated during the year and not required to be audited.* This entity was under members’ voluntary liquidation in the prior year and has completed its liquidation in January 2007.** This entity was under members’ voluntary liquidation in the prior year and has completed its liquidation during the year.++ This entity ceased operations in October 2003.

All subsidiaries that are required to be audited under the law in the country of incorporation are audited by Ernst & Young, Singapore except for the following:

NAME OF SUBSIDIARY NAME OF ACCOUNTING FIRM

ST PAE Holdings Pty Ltd Ernst & Young, PerthAirline Rotables (UK Holdings) Limited Ernst & Young, CambridgeSingapore Technologies Engineering (Europe) Ltd Ernst & Young, CambridgeAirline Rotables Limited Ernst & Young, CambridgeBournemouth Aviation Services Company Limited Ernst & Young, CambridgeST Mobile Aerospace Engineering, Inc Ernst & Young, BirminghamSAS Component Group A/S Ernst & Young, DenmarkSan Antonio Aerospace LP Ernst & Young, San AntonioSEEL Electronic & Engineering Sdn Bhd Ernst & Young, Kuala LumpurINFA Systems Limited Ernst & Young, Hong KongST Electronics (Sichuan) Co., Ltd Ernst & Young, ShanghaiST Electronics (Shanghai) Co., Ltd Ernst & Young, ShanghaiST Electronics-PCI Co., Ltd Ernst & Young, GuangzhouRipple Systems Pty Ltd Ernst & Young, PerthPMB Project Management Business Sdn Bhd Ernst & Young, Kuala LumpurPT PM-B Indonesia Ernst & Young, JakartaBeijing Tong Fang Shi Cheng Ki Ji Pte Ltd Ernst & Young, BeijingBrightspot Interactive Learning Inc. Ernst & Young, BeijingShanghai Elite Electric Vehicles Co., Ltd Ernst & Young, ShanghaiKinetics Systems (Shanghai) Co., Ltd. Ernst & Young, ShanghaiSTAR Automotive Center (Zhejiang) Co., Ltd. Ernst & Young, ShanghaiGuizhou Jonyang Kinetics Co., Ltd Ernst & Young, GuangzhouKaz-ST Engineering Bastau Limited Liability Partnership Ernst & Young, Kazakhstan


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8. SUBSIDIARIES (continued)(a) During the fi nancial year, the Group incorporated the following subsidiaries:

COUNTRY OF INCORPORATION DATE OFNAME OF COMPANY AND PLACE OF BUSINESS EQUITY INTEREST HELD INCORPORATION

%

Panama Aerospace Engineering Inc. Republic of Panama 100 27 May 2006

iDirect Singapore Pte. Ltd. Singapore 100 31 July 2006

(b) During the fi nancial year, the Group acquired the following companies:

NET TANGIBLE INTEREST ASSETS DATE OF

NAME OF COMPANY ACQUIRED CONSIDERATION ACQUIRED ACQUISITION % $’000 $’000

SAS Component Group A/S 71.3 155,926 244,441 15 March 2006

PM-B Pte Ltd (and its subsidiaries) 70 20,160 7,184 20 January 2006

STELCOMMS Pte. Ltd 100 1,020 1,015 3 January 2006

Brightspot Interactive Learning 51 3,428 1,135 14 March 2006Pte. Ltd. (and its subsidiary)

MÄK Technologies, Inc. 80 31,881 7,186 21 December 2006

VT LeeBoy, Inc. 100 212,205 40,476 9 June 2006

(c) During the fi nancial year, the Group acquired additional equity interests in the following companies:

NET TANGIBLE INTEREST INTEREST AFTER ASSETS

NAME OF COMPANY ACQUIRED ACQUISITION CONSIDERATION ACQUIRED % % $’000 $’000

TranSys Pte Ltd 50 100 – 615

STAR Automotive Center (Zhejiang) Co., Ltd. 16.24 86.24 2,566 2,344

Silvatech Systems Corporation Pte Ltd 50 100 – –(and its subsidiaries)


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9. ASSOCIATED COMPANIES AND JOINT VENTURES GROUP 2006 2005 $’000 $’000

Quoted shares, at cost 24,800 43,650Unquoted shares, at adjusted cost 200,165 155,240Preference shares, at cost 238 238Goodwill on acquisition written off (1,737) (1,737)

Share of net assets acquired 223,466 197,391Provision for impairment in value of investments (9,845) (4,973)Share of post-acquisition:

Profi ts 94,308 95,745Reserves (13,784) (6,200)

294,145 281,963

The investment in associated company of $50,000 in the Company represents the cost of investment in 2006 JV Pte. Ltd. (formerly known as Asian Aerospace 2006 Pte. Ltd.).

The Group has a call option to acquire up to 51% of one of the associated companies subject to certain terms and conditions.

Provision for impairment in value of investmentsMovements in provision for impairment in value of investments during the year are as follows:

At beginning of the year 4,973 5,271Charge to statement of profi t and loss 4,865 442Impairment written off against provision – (742)Translation difference 7 2

At end of the year 9,845 4,973

During the year, the Group made an impairment provision of $4.4 million for one of its associated companies as it had been delisted from the Hong Kong Stock Exchange. The impairment provision was made based on its estimated recoverable amount at the end of the current year.

Provision for impairment in value of a joint ventureMovements in provision for impairment in value of a joint venture during the year are as follows:

At beginning of the year – 2,999Charge to statement of profi t and loss – 258Transfer to offset against the acquisition of property, plant and equipment – (3,257)

At end of the year – –

On 1 November 2005, a joint venture transferred its property, plant and equipment to its joint venture partners due to a restructuring of a loan agreement. The cost of the property, plant and equipment that was transferred to the Group amounted to $5,795,000 and was offset against the net investment in the joint venture.


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9. ASSOCIATED COMPANIES AND JOINT VENTURES (continued)The summarised fi nancial information of the associated companies is as follows:

GROUP 2006 2005 $’000 $’000

ResultsTurnover 2,892,730 2,523,005

Net profi t for the year 108,545 103,243

Assets and liabilitiesNon-current assets 423,305 449,853Current assets 1,150,366 1,131,390Current liabilities (290,195) (715,258)Non-current liabilities (458,824) (102,693)

824,652 763,292

As at 31 December 2006, cumulative and current year’s unrecognised share of losses in associated companies amounted to $828,492 (2005: $696,146) and $448,049 (2005: $459,270) respectively.

The Group’s share of the joint ventures’ results, assets and liabilities are as follows:

ResultsTurnover 22,516 23,186

Net profi t for the year 228 1,993

Assets and liabilitiesNon-current assets 5,362 4,241Current assets 34,500 27,945Current liabilities (21,253) (13,308)Non-current liabilities (172) (24)

18,437 18,854


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9. ASSOCIATED COMPANIES AND JOINT VENTURES (continued)(a) Details of the associated companies are as follows: COUNTRY OF EFFECTIVE EQUITY INCORPORATION/ INTEREST HELDNAME OF ASSOCIATED COMPANY PRINCIPAL ACTIVITIES PLACE OF BUSINESS BY THE GROUP 2006 2005 % %

Aerospace Engineering Services Pty Ltd Maintenance and servicing Australia 50 50 of aircraft

Aerospace Engineering Services Pty Ltd Trustee of unit trust fund Australia 50 50Unit Trust

1988 JV Pte. Ltd. Promoting and organising Singapore 50 50 trade exhibitions in Singapore for systems, equipment, products and services in aerospace and defence-related applications on a biennial basis

Composite Technology International Pte Ltd Repairing and rebuilding Singapore 33.33 33.33 helicopter rotor blades

Eurocopter South East Asia Private Limited Selling, maintaining and Singapore 25 25 overhauling of helicopters

Shanghai Technologies Aerospace Aircraft and component People’s Republic 49 49Company Limited maintenance, repair, overhaul of China and other related maintenance business

Singapore Precision Repair and Overhaul Repair and overhaul of aircraft Singapore 50 50Pte Ltd and helicopter landing gears and its related components

Turbine Coating Services Pte Ltd Repair, refurbishment and Singapore 24.5 24.5 upgrading of aircraft jet engine turbine blades and vanes

Turbine Overhaul Services Pte Ltd Repair and service of gas and Singapore 49 49 steam turbine components

Autoscan Technology Pte Ltd Computer consultancy, trading Singapore 25.8 25.8 in computerised information retrieval equipment and related, rendering of technical support services and printing and trading of labels and book binding


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9. ASSOCIATED COMPANIES AND JOINT VENTURES (continued) COUNTRY OF EFFECTIVE EQUITY INCORPORATION/ INTEREST HELDNAME OF ASSOCIATED COMPANY PRINCIPAL ACTIVITIES PLACE OF BUSINESS BY THE GROUP 2006 2005 % %

COMAT Training Services Pte Ltd Operating of a computer Singapore 45.47 45.47 training school, providing training in computer software and applications

ECS Holdings Limited Relating to investment holding Singapore 20.86 20.86 and the distribution of information technology products

Green Dot Internet Services Pte Ltd Web hosting services and Singapore 22.66 23.8 development of e-commerce applications

Infowave Pte Ltd Design, development and Singapore 43 43 supply of mobile computing and wireless communications products and solutions

iWOW Technology Pte Ltd To carry out research and Singapore 21.74 26.6 development, consultancy services in telecommunication, electrical and related fi elds

Knowledge Alive Pte. Ltd. Offer technologically-driven Singapore 45.47 45.47 learning and knowledge solutions, products and services to corporate, tertiary and workforce markets

Mobile Solutions and Payment Mobile-commerce and mobile- Singapore 21.57 21.57Services Pte Ltd@ commerce related activities

mPayment Pte Ltd To provide internet and Singapore 31.78 31.78 telecommunication related services and consultancy services in information technologies

PM-B Project Management Business Relate to mechanical, electrical Thailand 34.3 –(Thailand) Ltd and engineering works to design, build and provide facility management services for mission critical environments such as data centres, disaster recovery and business continuity sites


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PolarSat Incß Development, manufacturing and Canada 38.98 38.98 marketing of multimedia VSAT (Very Small Aperture Terminals) and Satcom satellite networks

Prescient Systems & Technologies Pte. Ltd. Business of developing, producing Singapore 47.84 47.84 and marketing non-real time and real time instrumentation systems for defence and commercial applications

RF Korea Inc.ß Manufacture and sell wireless Korea 22 22 communication devices and related equipments

Sandz Solutions (Singapore) Pte Ltd Providing enterprise computing Singapore 25 25 solutions and trading in computer and peripherals

Sandz Solutions (HK) Pte Ltd Provider of enterprise business Hong Kong 25 25 IT solutions

Sentry Technologies Pte Ltd * Design, development and sale Singapore 35 35 of computer security products

Sino Stride Technology (Holdings) Limited Development and provision of Cayman Islands 28.01 28.01 system integration solutions

ST LogiTrack Pte Ltd Development and sales of radio Singapore 39.06 50 frequency identifi cation applications in the logistics and related industries

Trusted Hub Ltd Provision of an integrated Singapore 21.8 21.8 trusted environment for secured transactions and e-commerce

WizVision Pte. Ltd. Providing information technology Singapore 22.8 22.8 services and trading of computer accessories

WizVision (HK) Pte Limited Investment holding Hong Kong 22.8 22.8


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1699590 Ontario Incß Research and development Canada 49 –

CIS-Oerlikon Pte Ltd ** Dormant Singapore – 50

CityCab Pte Ltd Rental of taxis and provision Singapore 46.5 46.5 of premier bus service, charge card facilities and travel related services

Defence Electronics of Singapore Pte Ltd Manufacture of fuses Singapore 49 49

Nusantara Technologies Sdn. Bhd. Provision of non-destructive Malaysia 49 49 testing services, ultrasonic fl aw detection and gauging survey and pressure gauge calibration

Timoney Holdings Limited Design and prototyping services Republic of Ireland 25 25 and component supply for the automotive and aerospace engineering sectors

Anchorville Pte Ltd## Dormant Singapore 30 30

AquaGen International Pte Ltd## Dormant Singapore 25 25

PT SSE-Van der Horst Indonesia Provision of precision Indonesia 24 24 engineering services

2006 JV Pte. Ltd. (formerly known as Promoting and organising trade Singapore 50 50Asian Aerospace 2006 Pte. Ltd.) exhibitions in Singapore for systems, equipment, products and services in aerospace and defence-related applications on a biennial basis

NanoScience Innovation Pte Ltd Research and development, Singapore 27.06 38.33 manufacturing, distributing and trading of ultra fi ne structure, especially nano-scale, materials, devices, equipment and intellectual properties

* During the year, this entity has made an application to the Accounting and Corporate Regulatory Authority (“ACRA”) for strike off from the Registrar.

** During the year, this entity was struck off from the Registrar with ACRA.## These associated companies are under compulsory winding up by the Court.@ The company is under the process of members’ voluntary liquidation.


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9. ASSOCIATED COMPANIES AND JOINT VENTURES (continued)(b) Details of joint ventures are as follows:

COUNTRY OF EFFECTIVE EQUITY INCORPORATION/ INTEREST HELDNAME OF JOINT VENTURE PRINCIPAL ACTIVITIES PLACE OF BUSINESS BY THE GROUP 2006 2005 % %

GFM Electronics S.A. de C.V. Distribution and sales of high Mexico 50 50 technology systems, services and products in the communications area, as well as electronics systems, principally closed circuits and alarms for airports, malls, stadiums and highways ATREC Pte. Ltd. Research and technology Singapore 50 – development in advanced materials for both defence and commercial applications

Beijing Zhonghuan Kinetics Develop, manufacture and sale People’s Republic 50 50Heavy Vehicles Co. Ltd. of specialised heavy-duty of China vehicles and sale of related spare parts and provision of relevant technical consultancy and after sale technical support services

SMART Systems Pte Ltd Life systems integration of Singapore 50 50 weapon system

STAR Automotive Center (Guangzhou) Provide automotive services, People’s Republic 50 50Co., Ltd. including automotive fi xing, of China maintaining, service, automotive examination and maintenance, damage fi xing, automotive beautifying and decorating, trading and supplying of automotive spare parts, training, technology consultation, tow truck service and after sales technical support, etc. Takata CPI Singapore Pte Ltd Manufacture of pyrotechnic Singapore 49 49 components for seatbelts and air bags used in motor vehicles

Halter-Bollinger Joint Venture LLC To bid and secure US boat USA 50 50 fabrication contracts for its shareholders


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9. ASSOCIATED COMPANIES AND JOINT VENTURES (continued)

COUNTRY OF EFFECTIVE EQUITY INCORPORATION/ INTEREST HELDNAME OF JOINT VENTURE PRINCIPAL ACTIVITIES PLACE OF BUSINESS BY THE GROUP 2006 2005 % %

Joint Shipyard Management Services Construction and managing Singapore 30 30Pte Ltd workers’ dormitories

ß Not required to be audited under the law in the country of incorporation.

All associated companies and joint ventures that are required to be audited under the law in the country of incorporation, are audited by Ernst & Young, Singapore, except for the following:

NAME OF ASSOCIATED COMPANY/JOINT VENTURE NAME OF ACCOUNTING FIRM

1988 JV Pte. Ltd. KPMG, SingaporeComposite Technology International Pte Ltd Deloitte and Touche, SingaporeEurocopter South East Asia Private Limited KPMG, SingaporeShanghai Technologies Aerospace Company Limited Ernst & Young, ShanghaiTurbine Coating Services Pte Ltd PricewaterhouseCoopers, Singapore Turbine Overhaul Services Pte Ltd PricewaterhouseCoopers, SingaporeAutoscan Technology Pte Ltd Lee Seng Chan & CoCOMAT Training Services Pte Ltd BDO Raffl esECS Holdings Limited KPMG, SingaporeGFM Electronics S.A. de C.V. PricewaterhouseCoopers, MexicoGreen Dot Internet Services Pte Ltd KPMG, SingaporeInfowave Pte Ltd Lee Seng Chan & CoiWOW Technology Pte Ltd LW Ong & CoKnowledge Alive Pte. Ltd. BDO Raffl esMobile Solutions and Payment Services Pte Ltd KPMG, SingaporemPayment Pte Ltd Thong & LimPM-B Project Management Business (Thailand) Ltd SCI Audit Plus LimitedSandz Solutions (Singapore) Pte Ltd Jee Ah Chian & CoSandz Solutions (HK) Pte Ltd Ting Ho Kwan & ChanSino Stride Technology (Holdings) Limited Ernst & Young, Hong KongST LogiTrack Pte Ltd KPMG, SingaporeTrusted Hub Ltd KPMG, SingaporeWizVision Pte. Ltd. B H Gan & CoWizVision (HK) Pte Limited W.M Yuen & CoBeijing Zhonghuan Kinetics Heavy Vehicles Co. Ltd. Ernst & Young, BeijingCityCab Pte Ltd Deloitte and Touche, SingaporeNusantara Technologies Sdn. Bhd. Deloitte Kassimchan, MalaysiaSTAR Automotive Center (Guangzhou) Co., Ltd. Ernst & Young, GuangzhouTimoney Holdings Limited KPMG, IrelandPT SSE-Van der Horst Indonesia Kap Fitradewata Teramihardja, Bap, Indonesia2006 JV Pte. Ltd. KPMG, SingaporeNanoScience Innovation Pte Ltd Wong Mun Piaw & Co


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10. INVESTMENTS GROUP 2006 2005 $’000 $’000

Quoted investments (Available-for-sale)Equity shares, at fair value: Related corporations – 710 Non-related corporations 19,044 51,925

Total quoted investments 19,044 52,635

Unquoted investments Equity shares Related corporations, at cost 955 956 Non-related corporations, at cost 33,519 42,781 Non-related corporations, at fair value 1,321 2,401

35,795 46,138Venture capital funds and limited partnership, at fair value 4,079 5,539Convertible loans to non-related corporations# 1,258 882Short-term interest rate fund, at fair value – 20,109Loan to a related corporation 4,405 4,424Unit trust 42 –

45,579 77,092Impairment in value of unquoted investments: Unquoted investments, stated at cost (36,765) (28,380)

Total unquoted investments 8,814 48,712

Total investments 27,858 101,347

# During the current fi nancial year, a subsidiary extended an interest-free convertible loan to an investee company at a nominal value of US$300,000. The subsidiary is entitled, at any time during the following fi ve years from the date of disbursement of the loan, to convert from time to time into share equity of the investee company for the entire amount or such portion thereof on the basis of one ordinary share for every $1 of the loan amount.

Included in the convertible loans is an amount of $700,000 (2005: $700,000) extended by a subsidiary to an investee company at an interest rate of 1% (2005: 1%) above bank prime rate per annum. This loan is convertible to shares in the investee company.

The short-term interest rate fund in 2005 was the Fullerton Short-Term Interest Rate (“FSTIR”) Fund, an open end fund. FSTIR Fund is a pooled fund organised as a unit trust managed by Fullerton Fund Management Company Ltd, an indirect wholly owned subsidiary of Temasek Holdings (Private) Limited. Returns on FSTIR are benchmarked at 3-month Singapore Inter-bank bid (SIBID) rate. As at 31 December 2006, the investment has been fully redeemed.


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10. INVESTMENTS (continued)Impairment in value of unquoted investmentsMovements in impairment in value of unquoted investments during the year are as follows:

GROUP 2006 2005 $’000 $’000

At beginning of the year 28,380 24,531Charge to statement of profi t and loss 8,428 3,905Translation difference (43) (2)Utilised – (54)


11. INTANGIBLE ASSETS(a) Goodwill

GROUP 2006 2005 $’000 $’000 (Restated)

CostAt beginning of the year 318,165 59,569Acquisition of subsidiaries in prior year, as previously reported – 305,763Finalisation of purchase price allocation – (49,647)Acquisition of subsidiaries in prior year, as restated – 256,116Acquisition of subsidiaries in current year 224,886 –Acquisition of additional interest in a subsidiary 222 –Adjustment of goodwill – 3,114Translation difference (29,952) (634)


ImpairmentAt beginning of the year 10,344 5,877Impairment for the year 8,135 4,483Translation difference 24 (16)


Net book value 494,818 307,821


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11. INTANGIBLE ASSETS (continued)(b) Other intangible assets

COMMERCIAL AND INTELLECTUAL CORPORATE OTHER DEFERRED PROPERTY CLUB INTANGIBLE EXPENDITURE* RIGHTS MEMBERSHIP ASSETS TOTAL

$’000 $’000 $’000 $’000 $’000

The GroupCostAt 1.1.2005 – 5,101 – – 5,101Additions – 10 – – 10Acquisition of subsidiaries 1,076 – – – 1,076Translation difference – 46 – – 46 Reclassifi ed from investments – – 1,345 – 1,345

As at 31.12.2005, as previously reported 1,076 5,157 1,345 – 7,578Finalisation of purchase price allocation# – 34,124 – – 34,124

At 31.12.2005, as restated and at 1.1.2006 1,076 39,281 1,345 – 41,702Additions 4,742 520 – – 5,262Acquisition of subsidiaries 811 18,098 – 10,256 29,165Translation difference – (3,498) – (270) (3,768)

At 31.12.2006 6,629 54,401 1,345 9,986 72,361

Accumulated amortisationAt 1.1.2005 – 2,589 – – 2,589Amortisation for the year 413 796 313 – 1,522Translation difference – 32 – – 32Impairment loss reclassifi ed from investments – – 932 – 932Write-back of impairment loss – – (234) – (234)

At 31.12.2005 and 1.1.2006 413 3,417 1,011 – 4,841Amortisation for the year 424 3,823 28 860 5,135Translation difference (1) (299) – (26) (326)Impairment loss+ – 818 – – 818

At 31.12.2006 836 7,759 1,039 834 10,468

Net book valueAt 31.12.2006 5,793 46,642 306 9,152 61,893

At 31.12.2005 663 35,864 334 – 36,861

* Deferred expenditure includes a carrying amount of $4.6 million, of which amortisation has not commenced as the intangible asset has not begun to generate revenue.

# These adjustments relate to the purchase price allocation to goodwill, intangible assets (excluding goodwill) and other assets for iDirect Inc., which was fi nalised during the current year.

+ During the year, an impairment of $818,000 was recognised in respect of the commercial and intellectual property rights of a product for which sales prospects have become uncertain.


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11. INTANGIBLE ASSETS (continued)(c) Total intangible assets

GROUP 2006 2005 $’000 $’000 (Restated)

Net book value– Related to subsidiaries 556,711 344,682

Impairment testing of goodwillGoodwill acquired through business combinations has been allocated to the Group’s cash-generating units (“CGU”) identifi ed according to each individual business unit, for impairment testing. Goodwill in relation to SAS Component Group A/S, the group of companies under Brightspot Interactive Learning Pte. Ltd. and PM-B Pte Ltd, MÄK Technologies, Inc. and VT LeeBoy, Inc. has been determined provisionally and has not been allocated for impairment testing.

Carrying amount of goodwill allocated to each of the CGU:Bournemouth Aviation Services Company Limited – 1,389SAS Component Group A/S *^ 16,069 –ST Aviation Resources Pte Ltd – 615Brightspot Interactive Learning Pte. Ltd. and its subsidiary * 2,293 –DataMark Technologies Pte Ltd 124 124iDirect, Inc. 187,532 204,966MÄK Technologies, Inc. * 24,695 –PM-B Pte Ltd and its subsidiaries * 12,976 –Ripple Systems Pty Ltd – 2,375STELCOMMS Pte. Ltd. 5 –STELOP Pte. Ltd. 1,732 1,732Silvatech Group – 3,821VT Specialized Vehicles Corporation 42,565 48,841STAR Automotive Center (Zhejiang) Co., Ltd. 222 –VT LeeBoy, Inc. * 166,956 –Miltope Corporation 39,649 43,958

494,818 307,821

^ Included in the carrying amount is purchased goodwill of $19,045,000 and negative goodwill arising on consolidation of $2,976,000.

* The purchase price allocation to goodwill, intangible assets (excluding goodwill) and other assets is currently being assessed and is expected to be fi nalised within 12 months from the date of acquisition as disclosed in Note 8(b).

The recoverable amounts of the CGUs are determined based on value-in-use calculations, except for SAS Component Group A/S, the group of companies under Brightspot Interactive Learning Pte. Ltd. and PM-B Pte Ltd, MÄK Technologies, Inc. and VT LeeBoy, Inc. as described above.

The value-in-use calculations use cash fl ow projections based on fi nancial budgets approved by management. Management have considered and determined the factors applied in these fi nancial budgets which include budgeted gross margins and average growth rates. The budgeted gross margins are based on past performance and its expectation of market development. Average growth rates used are consistent with forecasts included in industry reports. The discount rate applied is assumed at 6.6% (2005: 6.1%) for value-in-use calculations, which is also the Group’s weighted average cost of capital.


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11. INTANGIBLE ASSETS (continued)During the year, the carrying goodwill relating to:– Bournemouth Aviation Services Company Limited was fully impaired as the company had gone under voluntary liquidation– ST Aviation Resources Pte Ltd was fully impaired due to the uncertainty in its future business developments– Ripple Systems Pty Ltd was fully impaired based on an assessment of its projected future cash fl ow– Silvatech Group was fully impaired due to the continued uncertainty in its business and operating environment

12. LONG-TERM RECEIVABLES (a) Long-term receivables comprise:

GROUP COMPANY 2006 2005 2006 2005 $’000 $’000 $’000 $’000

Housing and car loans and advances to staff 975 1,171 – 1Trade debtors * 2,657 6,600 – –Other debtors 99 – – –Loans to:

Associated company# 140 – – –Joint venture^ 1,808 8,256 – –

Loans to third parties 11,090 12,097 – –Allowance for doubtful loans to third parties (11,090) (12,097) – – – – – –

5,679 16,027 – 1

Receivable:Within 1 year 476 698 – 1After 1 year 5,203 15,329 – –

5,679 16,027 – 1

* Long-term trade debtors are unsecured and charged with half-yearly interest rate at LIBOR plus 0.5% per annum (2005: LIBOR plus 0.5% per annum)

# Loan to an associated company is unsecured and charged at an interest rate of 3% (2005: nil) per annum ^ Loan to joint venture bears interest of 4% (2005: nil) per annum, is unsecured and is repayable by 31 August 2008.

Movements in allowance for doubtful loans to third parties are as follows:

GROUP 2006 2005 $’000 $’000

At beginning of the year 12,097 13,855Write-back to statement of profi t and loss (944) (1,702)Translation difference (63) (56)


Loans and receivables are carried at amortised cost and are subjected to impairment.


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12. LONG-TERM RECEIVABLES (continued)(b) Included in the loans to third parties are:

(i) an amount of $2,010,000 (2005: $2,954,000) which is secured by the third party’s investment in a unit trust and the loan is repayable over a period of 12 years commencing from 1996. Interest is chargeable at 15% per annum calculated on the reducing balance basis.

(ii) an amount of approximately $8,312,000 (2005: $8,312,000) secured by intellectual property rights of that entity and is not expected to be repaid within the next 12 months. Interest is repriced every month and chargeable at the US dollar prime rate plus 2% (2005: 2%) per annum, which is also the effective interest rate. The loan is convertible to shares of that entity, subject to certain terms and conditions. In the prior year, a notice was given to that entity to convert the loan to shares of that entity but the conversion has not been effected as at the end of the year.

No interest income has been accrued for this fi nancial year for the loans stated due to the uncertainty over the collectibility of the interest income.

(iii) a bridging loan of $768,150 (US$500,000) (2005: $830,650 (US$500,000)) extended to a third party. The bridging loan is secured by way of a Deed of Debenture which creates a fl oating charge over the assets of the third party. This loan is treated as a net investment in the third party and is not expected to be repaid and is fully provided since fi nancial year 2005. The loan is stated at cost and has been fully provided for due to uncertainty of collectibility. Therefore, it is not practicable to determine its fair value.

13. DEFERRED TAX ASSETS GROUP 2006 2005 $’000 $’000 (Restated)

At beginning of the year 110,872 84,843(Write-back of provision)/provision during the fi nancial year (4,613) 631Acquisition of subsidiaries in prior year, as previously reported – 4,905Finalisation of purchase price allocation – 15,523Acquisition of subsidiaries in prior year, as restated – 20,428Acquisition of subsidiaries in current year 18,783 –Translation differences (3,158) (219)Transfer (to)/from provision for taxation (3,190) 4,804Changes in fair value of available-for-sale fi nancial assets (1,218) –Changes in fair value of derivative fi nancial instruments designated in cash fl ow hedges 161 385


The deferred tax assets arise as a result of:

Unabsorbed capital allowances and unutilised tax losses 39,257 23,698Allowance for doubtful debts and stock obsolescence 24,585 23,955Provision for warranties 32,561 29,982Provision for liquidated damages 1,879 1,579Provision for foreseeable losses 7,804 9,834Intangible assets (19,109) –Other temporary differences 30,257 21,368Changes in fair value of derivative fi nancial instruments designated in cash fl ow hedges 403 456

117,637 110,872


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14. STOCKS AND WORK-IN-PROGRESS GROUP 2006 2005 $’000 $’000

Stocks of equipment and spares 504,940 294,584Work-in-progress in excess of progress billingsWork-in-progress, including profi ts recognised 1,887,083 1,828,880Progress billings (1,288,606) (1,311,278) 598,477 517,602

Total stocks and work-in-progress at lower of cost and net realisable value 1,103,417 812,186

Progress billings in excess of work-in-progressWork-in-progress, including profi ts recognised 1,499,763 1,294,527Progress billings (1,798,701) (1,585,831)

(298,938) (291,304)

Stocks are stated after allowance for stock obsolescence of $106,230,000 (2005: $102,654,000) and work-in-progress in excess of progress billings are stated after provision for foreseeable losses of $26,311,000 (2005: $29,907,000).

15. TRADE DEBTORS

Trade debtors 872,270 660,539Allowance for doubtful debts (65,980) (75,091)

806,290 585,448Unbilled receivables 51,921 80,018

858,211 665,466

Trade debtors denominated in currencies other than the functional currencies as at 31 December 2006 are as follows:• $222,880,000 (2005: $189,236,000) denominated in US dollars• $34,277,000 (2005: $63,447,000) denominated in Euro

Movements in allowance for doubtful debts during the year are as follows:

At beginning of the year 75,091 87,128Write-back to statement of profi t and loss (7,378) (12,426)Bad debts written off against allowance (2,401) (2,829)Arising from acquisition of subsidiaries 1,920 3,061Translation difference (1,252) 157



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16. DUE FROM RELATED CORPORATIONS

GROUP COMPANY 2006 2005 2006 2005 $’000 $’000 $’000 $’000

Due from:Related corporations 516,440 898,703 238,783 275,133

Included in the amount due from related corporations are loans amounting to $511,484,000 (2005: $892,651,000) and $238,757,000 (2005: $275,107,000) from the Group and the Company respectively.

These loans are guaranteed by Fullerton Management Pte Ltd (“Fullerton”), a wholly owned subsidiary of Temasek Holdings (Private) Limited and mature on varying periods within 3 months (2005: 2 months) from the fi nancial year end. Interest rates range from 2.45% to 5.40% (2005: 1.37% to 4.37%) per annum, which are also the effective interest rates.

17. ADVANCES AND OTHER DEBTORS

GROUP COMPANY NOTE 2006 2005 2006 2005 $’000 $’000 $’000 $’000

Advance payments to suppliers 114,215 140,828 – –Other debtors, deposits and prepayments 20 91,890 67,887 1,413 3,782Due from:

Subsidiaries – – 197,759 118,748Associated companies 21 7,416 9,796 – –Joint ventures 13,455 23,623 – –

Derivative fi nancial instruments 2,063 428 – –

229,039 242,562 199,172 122,530

Amount due from joint ventures is stated after deducting allowance for doubtful debts of $nil (2005: $1,330,000).

18. AMOUNTS UNDER FUND MANAGEMENT

GROUP 2006 2005 $’000 $’000

Principal sum of amounts under fund management, at market value 228,173 311,062

Amounts under fund management are classifi ed as available-for-sale fi nancial assets with the fair value movements taken to equity. However, any defi ciency in fair value below principal amount is recognised to the extent of the guaranteed amount. This applies to impairment assessment as well.

The terms of the fund management agreements, which are for periods ranging from 2 to 3 years (2005: 2 to 3 years), provide for the following:

(a) the guarantee of the return of the principal sums from 95% to 100% (2005: 95% to 100%) by the fund managers at the end of the relevant fund management period;

(b) the fees payable to the fund manager include a share, in specifi ed proportions, of any surplus (determined at the end of the relevant fund management period) arising from the management of the fund; and


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18. AMOUNTS UNDER FUND MANAGEMENT (continued)(c) the Group can, pursuant to the terms, terminate the agreement by giving one month prior notice in writing to the fund

managers. In the event of early termination, the guarantee of the return of the principal sum will not be applicable.

Value of assets under fund management can be analysed as follows: GROUP 2006 2005 $’000 $’000

Quoted equity investments at market value 55,481 60,402Quoted bond investments at market value 167,220 223,283Cash 5,472 27,377

228,173 311,062

19. BANK BALANCES AND OTHER LIQUID FUNDS GROUP COMPANY 2006 2005 2006 2005 $’000 $’000 $’000 $’000

Fixed deposits with fi nancial institutions 333,695 148,187 90,645 25,743Cash and bank balances 291,028 158,141 55,010 21,663

624,723 306,328 145,655 47,406

Fixed deposits with fi nancial institutions mature on varying periods within 12 months (2005: 12 months) from the fi nancial year end. Interest rates range from 1.71% to 5.55% (2005: 0.08% to 5.1%) per annum, which are also the effective interest rates.

Cash and bank balances of $1,633,000 (2005: $nil) have been placed with banks as security for letters of credit issued to third party.

20. OTHER DEBTORS, DEPOSITS AND PREPAYMENTS

Deposits 6,875 8,259 168 167Prepayments 33,314 5,650 193 233Interest receivable 3,318 4,088 717 658Other recoverables 23,876 11,519 14 2,381Non-trade debtors 24,507 38,371 321 343

91,890 67,887 1,413 3,782

21. DUE FROM ASSOCIATED COMPANIES

GROUP 2006 2005 $’000 $’000

Trade balances 7,566 9,750Non-trade balances 243 241Allowance for doubtful debts – trade (393) (195)

7,416 9,796


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22. CREDITORS AND ACCRUALS NOTE 2006 2005 2006 2005 $’000 $’000 $’000 $’000

Trade creditors 545,766 495,229 – –Other creditors and accruals 26 787,469 641,189 49,458 37,189Due to:

Subsidiaries – – 620 769Related corporations 2,670 3,263 – 65Associated companies 841 2,171 – –Joint ventures 2,114 722 – –

Derivative fi nancial instruments 68 363 – –

1,338,928 1,142,937 50,078 38,023

Trade creditors denominated in currencies other than the functional currencies as at 31 December 2006 are as follows:• $31,440,000 (2005: $31,572,000) denominated in US dollars• $32,210,000 (2005: $85,191,000) denominated in Euro

23. PROVISIONS

GROUP 2006 2005 $’000 $’000

Provision for:Warranties 162,806 149,910Liquidated damages 9,396 7,893Foreseeable losses 12,709 19,261

184,911 177,064

(a) Movements in provision for warranties during the year are as follows:

At beginning of the year 149,910 139,512Charge to statement of profi t and loss 23,855 14,569Provision utilised (11,639) (8,593)Translation difference (1,689) 122Acquisition of subsidiaries 2,369 4,300


(b) Movements in provision for liquidated damages during the year are as follows:

At beginning of the year 7,893 7,984Charge to statement of profi t and loss 2,020 67Provision utilised (496) (193)Translation difference (21) (8)Acquisition of subsidiaries – 43



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23. PROVISIONS (continued) GROUP 2006 2005 $’000 $’000

(c) Movements in provision for foreseeable losses during the year are as follows:

At beginning of the year 19,261 22,833Write-back to statement of profi t and loss (448) (873)Provision utilised (6,104) (2,701)Translation difference – 2


24. SHORT-TERM BANK LOANS (UNSECURED) EFFECTIVE GROUP INTEREST RATE MATURITY 2006 2005 % $’000 $’000

Bank loans 4.65% to 5.85% Within 1 year 595,850 323,594

The bank loans are denominated in US dollars, Sterling pounds, Euro and Australian dollars.

25. LEASE OBLIGATIONSA subsidiary leases certain land, buildings, and equipment from a foreign Airport Authority (the “Authority”) under a capital lease related to industrial revenue bonds issued by the Authority. Assets being leased are pledged as collateral against the bonds. The bonds have staggered maturity dates and the lease payments have been structured to coincide with the staggered maturities of the bonds with the fi nal payment due on 1 November 2012, the expiration date of the lease.

In connection with the bond issue, the subsidiary entered into a letter of credit agreement for approximately US$10,610,000, which is used to guarantee payments on the bonds in the event that the subsidiary is unable to make required lease payments. The letter of credit expires on 3 April 2007.

The subsidiary also leases certain land, buildings, and equipment from the Authority under an operating lease. The lease term coincides with the term of the capital lease.

The obligations under the fi nance lease to be paid by the subsidiary are as follows:

MINIMUM PRESENT LEASE VALUE OF PAYMENT INTEREST PAYMENTS $’000 $’000 $’000

20061 to 5 years 11,109 (1,943) 9,166After 5 years 2,195 (96) 2,099

Total 13,304 (2,039) 11,265Discount (15) – (15)

13,289 (2,039) 11,250

Repayable:Within 1 year 2,137After 1 year 9,113

11,250


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25. LEASE OBLIGATIONS (continued) MINIMUM PRESENT LEASE VALUE OF PAYMENT INTEREST PAYMENTS $’000 $’000 $’000

20051 to 5 years 12,657 (2,366) 10,291After 5 years 4,647 (315) 4,332

Total 17,304 (2,681) 14,623Discount (31) – (31)

17,273 (2,681) 14,592

Repayable:Within 1 year 2,391After 1 year 12,201

14,592

Lease terms do not contain restrictions concerning dividends, additional debt or further leasing.

26. OTHER CREDITORS AND ACCRUALS GROUP COMPANY 2006 2005 2006 2005 $’000 $’000 $’000 $’000

Non-trade creditors 14,372 24,720 3,342 2,197Purchase of property, plant and equipment 1,209 45 – –Accrued operating expenses 755,170 615,288 46,116 34,992Accrued interest payable 6,375 1,136 – –Employee benefi t liabilities 10,343 – – –

787,469 641,189 49,458 37,189

27. DEFERRED INCOME GROUP 2006 2005 $’000 $’000

At beginning of the year 6,222 5,711Additions 1,975 3Acquisition of subsidiary – 508

8,197 6,222Less: deferred income recognised to-date (4,096) (3,919)


Movements in deferred income recognised to-date are as follows:

At beginning of the year 3,919 3,656Recognised in statement of profi t and loss 132 268Translation difference 45 (5)



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28. DEFERRED TAX LIABILITIES

GROUP COMPANY 2006 2005 2006 2005 $’000 $’000 $’000 $’000

At beginning of the year 7,751 8,554 190 161(Write-back of provision)/provision during the fi nancial year (5,025) (2,563) 95 29Translation difference (433) 15 – –Acquisition of subsidiaries 10,771 2,791 – –Changes in fair value of available-for-sale fi nancial assets 2,126 (1,046) – –

At end of the year 15,190 7,751 285 190

The deferred tax liabilities arise as a result of:

Excess of net book value over tax written down value of property, plant and equipment 913 1,495 75 59

Allowance for doubtful debts and stock obsolescence (271) (129) – –Unremitted offshore interest income – 10 – –Other temporary differences (48) 737 210 131Property, plant and equipment fair value adjustment arising

from acquisition of subsidiaries 2,589 2,784 – –Changes in fair value of available-for-sale fi nancial assets 2,126 2,854 – –Intangible assets 9,881 – – –

15,190 7,751 285 190

29. LONG-TERM BANK LOANS

EFFECTIVE GROUP INTEREST RATE MATURITY 2006 2005 % $’000 $’000

Bank loans 3.955 – 8.25 Up to 2012 277,384 10,568

Repayable:Within 1 year 6,859 9,430After 1 year 270,525 1,138

277,384 10,568

The bank loans are denominated in US dollars and Euro and secured by assets of subsidiaries.

Loans amounting to $271,461,000 are at EURIBOR with margin ranging from 0.5% to 1.1% and secured by a fl oating charge over a subsidiary’s plant and machinery.

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30. OTHER LOANSIncluded in other loans are:

(a) US dollar denominated term notes of $1.5 million (US$1.0 million) (2005: $1.7 million (US$1.0 million)) and $0.3 million (US$0.2 million) (2005: $0.4 million (US$0.2 million)) owing to the Pennsylvania Industrial Development Authority and the Industrial Properties Corporation, respectively, by a US entity of the Group. These notes are secured by assets of the entity and bear interest, respectively, at 2.75% and 4.0% (2005: 2.75% and 4.0%) per annum, which are also the effective interest rates, and are payable through 1 July 2019 and 28 June 2019, respectively.

Another US dollar denominated term note of $0.6 million (US$0.4 million) (2005: $0.6 million (US$0.4 million)) is owed by the same entity to the Pennsylvania Department of Community and Economic Development. This note is unsecured, bears interest of 2.75% (2005: 2.75%) per annum, which is also the effective interest rate, and is payable through 1 February 2012.

(b) an amount of $194,000 (2005: $194,000) relating to a long-term loan from a minority shareholder of a subsidiary. The loan is unsecured, interest-free and the shareholder has indicated that they will not request for the repayment of the loan within the next 12 months.

(c) Included in other loans in the prior year are the following:– an amount of $669,000 relating to a loan of an overseas subsidiary. The loan has been repaid during the year.

– an amount of $2,843,000 relating to short-term loans from minority shareholders of a subsidiary. The loans were unsecured, bore interest at 7% per annum, which was also the effective interest rate. The loans were forgiven during the year.

31. DUE TO A SUBSIDIARYAmount due to a subsidiary in the Company is unsecured, interest-free and is not repayable in the foreseeable future.

32. TURNOVERTurnover represents invoiced value of sales/services less returns and discounts given and billings recognised on contracts as follows:

GROUP 2006 2005 $’000 $’000

Sale of goods 2,495,426 1,330,439Service income 1,990,332 2,007,456

4,485,758 3,337,895


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33. OTHER OPERATING INCOME GROUP NOTE 2006 2005 $’000 $’000

Commission income 1,326 470Dividend income

– quoted equity investments 506 2,136– unquoted equity investments 9,785 876

Interest income– related corporations 24,287 19,483– bank deposits 14,638 10,212– staff loans 28 30– others 1,198 885

Impairment in value of investments– unquoted investments 10 (8,428) (3,905)– associated companies 9 (4,865) (442)

Gain on disposal of investments 35,701 13,199Profi t on maturity of amounts under fund management 6,491 6,947Fair value changes of fi nancial instruments

– gain on forward currency contract designated as hedging instrument in a fair value hedge 1,256 20

Fair value of hedged items (1,411) 637Gain on dilution of interest in an associated company 571 –Others 7,051 4,299

88,134 54,847


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34. PROFIT FROM CONTINUING OPERATIONS GROUP NOTE 2006 2005 $’000 $’000

Profi t from continuing operations is arrived at:

After chargingAuditors’ remuneration:

– auditors of the Company 1,555 1,406– other auditors 2,929 1,477

Non-audit fees:– auditors of the Company 330 190– other auditors 1,000 309

Fees and remuneration of directors 3,960 3,085Fees paid to a fi rm of which a director is a member 193 194Personnel expenses 35 1,245,704 901,682Depreciation of property, plant and equipment 7 130,676 79,092Allowance/(write-back of allowance) for:

Stock obsolescence 9,330 5,169Doubtful debts – trade 15 (7,378) (12,426)Loans receivable 12 (944) (1,702)

Provision/(write-back of provision) for:Foreseeable losses 23 (448) (873)Liquidated damages 23 2,020 67Warranties 23 23,855 14,569

Provision for impairment in value of investment in a joint venture 9 – 258Property, plant and equipment written off 10,942 372Research, design and development expenses incurred 58,435 37,480Operating lease expenses 22,412 30,016Amortisation of other intangible assets 11 5,135 1,522Impairment of goodwill 11 8,135 4,483Impairment loss – property, plant and equipment 7 297 12,213Impairment of commercial and intellectual property rights 11 818 –

And creditingGrants and subsidies received 1,204 1,464Write-back of impairment in value of other intangible assets 11 – 234Deferred income recognised 27 132 268


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35. PERSONNEL EXPENSES GROUP 2006 2005 $’000 $’000

Wages and salaries* 1,042,644 745,377Pension contributions 61,850 54,526Share-based payments 9,885 8,587Other personnel expenses 131,325 93,192

1,245,704 901,682

* Includes directors’ remuneration of $2,802,266 (2005: $2,207,748).

36. KEY MANAGEMENT PERSONNEL COMPENSATIONThe key management personnel compensation are as follows:

Short-term employee benefi ts 30,608 25,754Other long-term benefi ts 7 2Share-based payments 7,020 2,207

37,635 27,963

37. OTHER INCOME, NETGain on disposal of property, plant and equipment 11 1,241Losses arising from the impact of Hurricane Katrina (41,908) (26,716)Proceeds received/receivable from insurers (Hurricane Katrina) 41,118 18,734Exchange loss, net (3,914) (1,806)Rental income 3,798 4,043Income from settlement of a legal suit – 12,452Gain on sale of other assets – 8,032Short-term loans from minority shareholders forgiven 2,766 –Service fee 2,201 –Others 5,268 4,941

9,340 20,921

38. FINANCIAL EXPENSESInterest expense: Bank loans and overdrafts 41,182 7,063 Finance lease 711 680 Loans from minority shareholders of a subsidiary – 84 Others 359 125

42,252 7,952


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39. TAXATION GROUP 2006 2005 $’000 $’000

Current income taxCurrent year 115,321 95,554Overprovision in respect of prior years (13,762) (9,095)Associated companies 7,748 8,728

109,307 95,187Deferred income tax

Current year 894 (2,151)Overprovision in respect of prior years (1,306) (1,043)

108,895 91,993

Deferred income tax related to items charged or credited directly to equity:

Net change in fair value of available-for-sale fi nancial assets 3,344 (1,046)Net change in fair value of derivative fi nancial instruments designated in cash fl ow hedges (161) (385)

3,183 (1,431)

The GroupAs at 31 December 2006, subsidiaries of the Group have potential tax benefi ts of approximately $40,125,000 (2005: $36,885,000) arising from unutilised tax losses, unabsorbed wear and tear allowances and other temporary differences, which are available for set-off against future taxable profi ts. These tax benefi ts have not been recognised in the fi nancial statements due to the uncertainty of its recoverability. The use of these potential tax benefi ts is subject to the agreement of the tax authorities and compliance with certain provisions of the tax legislation of the respective countries in which the subsidiaries operate.

A reconciliation between tax expense and the product of accounting profi t multiplied by the applicable corporate tax rate for the years ended 31 December is as follows:

Profi t from continuing operations before taxation 564,339 503,245

Taxation at statutory tax rate of 20% 112,868 100,649Adjustments :

Income not subject to tax (21,892) (7,022)Expenses not deductible for tax purposes 20,264 6,608Higher effective tax rates of other countries 15,523 4,057Overprovision in prior years, net (15,068) (10,138)Income subject to concessionary tax rates (4,444) (3,010)Deferred tax assets not recognised 6,403 10,468Deferred tax assets previously not recognised now recognised (3,432) (6,304)Others (1,327) (3,315)

Current fi nancial year’s taxation charge 108,895 91,993


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40. DIVIDENDS GROUP 2006 2005 $’000 $’000

Final tax exempt dividend paid in respect of the previous fi nancial yearof 4.0 cents (2005: 4.0 cents) per share 116,580 115,686

Special tax exempt (one-tier) dividend paid in respect of the previousfi nancial year of 9.6 cents (2005: 8.39 cents) per share 279,792 242,653

396,372 358,339Additional fi nal dividend paid in respect of the previous year due to issue

of shares under ESOS/ESOP before books closure date 3,101 1,430

399,473 359,769

The directors propose a fi nal tax exempt (one-tier) dividend of 4.0 cents per share (2005: 4.0 cents) amounting to $117,850,000 (2005: $116,580,000) and a special tax exempt (one-tier) dividend of 11.11 cents per share (2005: 9.6 cents) amounting to $327,277,000 (2005: $279,792,000), in respect of the year ended 31 December 2006. The dividends have not been recognised as a liability as at year end as it is subject to approval at the Annual General Meeting of the Company.

41. EARNINGS PER SHAREBasic earnings per shareThe calculation for basic earnings per share is based on:

Consolidated profi t after taxation and minority interests 445,127 396,308

GROUP 2006 2005

Number of shares (’000)The weighted average number of ordinary shares is arrived at as follows:

Issued ordinary shares at beginning of the year 2,914,496 2,892,165Weighted average number of ordinary shares issued during the year 23,234 13,701

Weighted average number of ordinary shares 2,937,730 2,905,866

Diluted earnings per shareWhen calculating diluted earnings per share, the weighted average number of shares is adjusted for the effect of all dilutive potential ordinary shares. The number of unissued shares under option granted under the ESOS/ESOP and their exercise prices are set out in Note 3. The average fair value of one ordinary share during the fi nancial year ended 31 December 2006 was $2.97 (2005: $2.54) per share. The weighted average number of ordinary shares adjusted for the unissued shares under option is as follows:

Number of shares (’000)Weighted average number of ordinary shares (used in the calculation of 2,937,730 2,905,866

basic earnings per share)Weighted average number of unissued shares under option 134,206 114,494Number of shares that would have been issued at fair value (104,474) (93,972)

Weighted average number of ordinary shares (diluted) 2,967,462 2,926,388


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42. RELATED PARTY INFORMATIONIn addition to related party information disclosed elsewhere in the fi nancial statements, the Group has signifi cant transactions with fellow subsidiaries within Temasek Group on terms agreed between the parties as follows:

GROUP 2006 2005 $’000 $’000

Sales and services rendered 7,978 32,984Purchases and services received 41,398 76,381Property, plant and equipment purchases 3,145 294Interest income 24,287 19,483Dividend income 525 826Loan – 1,085Rental income 3,239 –

43. CASH AND CASH EQUIVALENTSCash and cash equivalents comprise the following:

Fixed deposits with fi nancial institutions 333,695 148,187Cash and bank balances 291,028 158,141Short-term loans to related corporation 511,484 892,651Bank overdrafts (1,737) (731)

1,134,470 1,198,248

Cash and cash equivalents denominated in currencies other than the functional currencies as at 31 December are as follows:

US dollars 115,699 158,429Euro 75,157 96,757

44. COMMITMENTS(a) Capital commitments

Capital expenditure contracted but not provided for in the fi nancial statements 60,625 34,312

Share of associate’s capital commitments in respect of property, plant and equipment 2,443 4,451

(b) LeasesFuture minimum lease payments under non-cancellable operating leases are as follows:

Within 1 year 25,188 164,620Within 2 to 5 years 66,190 108,619After 5 years 129,041 133,583

220,419 406,822

The Group has several operating lease agreements for leasehold land and buildings, offi ce premises and computers. The lease for the leasehold land and buildings and offi ce premises contain renewal options but not purchase options. Certain leases contain escalation clauses but do not provide for contingent rents. Lease terms do not contain restrictions on the Group activities concerning dividends, additional debt or further leasing.


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44. COMMITMENTS (continued)(c) Operating lease commitments – As lessor

The Group has entered into a commercial lease on two of its engines. The non-cancellable lease has an average lease team of about 3 to 10 years.

Future lease payment receivable under non-cancellable operating lease as at 31 December 2006 is as follows:

GROUP 2006 2005 $’000 $’000

Not later than one year 807 561Later than one year but not later than 5 years 1,206 981Later than 5 years 769 –

2,782 1,542

(d) Investments(i) As at 31 December 2006, the Group has outstanding commitments in respect of uncalled capital to the extent of $0.2

million (2005: $7.8 million) in a subsidiary.

(ii) As at 31 December 2006, the Group has outstanding commitments in respect of uncalled capital to the extent of $18.2 million (US$11.8 million) (2005: $47.1 million (US$28.2 million)) in an associated company.

(iii) As at 31 December 2006, in respect of investments in unquoted equity shares of venture capital fund companies, there is uncalled capital contribution amounting to $0.6 million (2005: $0.7 million) for the Group.

(iv) As at 31 December 2006, the Group has outstanding commitments in respect of uncalled capital to the extent of $2.4 million (2005: $nil) in a joint venture.

On 2 November 2006, an agreement was signed between Singapore Technologies Kinetics Ltd and BF Utilities Limited to form an Equity Joint Venture Company in Pune, India. The joint venture company will have a registered capital of US$6 million to be contributed by each party in the proportion of 26% and 74% respectively, which is to be contributed over three years.

45. CONTINGENT LIABILITIES (UNSECURED)(a) Corporate guarantees given by the Company to banks in respect of loan facilities extended to certain US subsidiaries

amounted to $753 million (US$490 million) (2005: $481.8 million (US$290 million)).

(b) Guarantee given by subsidiaries in respect of banking facilities granted to subsidiaries as at 31 December 2006 amounted to $59.5 million (2005: $41.9 million).

(c) A subsidiary in the Aerospace sector has commenced arbitration proceedings against one of its suppliers for unpaid invoices of approximately $9.3 million to $13.6 million including interest (Euro 4.6 million to Euro 6.8 million including interest). The subsidiary received counter claims of estimated value of $8.4 million (Euro 4.2 million) from this supplier for damages based on non-performance. Arbitration proceedings are in progress. No provision against this claim has been made as the subsidiary is of the opinion that the likelihood of a loss is unlikely.


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45. CONTINGENT LIABILITIES (UNSECURED) (continued)(d) In April 2005, the Company entered into a Letter of Intent with ASA Management Aps (“ASA”) and a fi nancial partner to

form a consortium to explore an acquisition of SAS Component Group A/S.

After the withdrawal of the fi nancial partner sometime in end August 2005, the consortium broke up. ASA alleged that the Company had, in breach of the contract with ASA, concluded its acquisition of SAS Component Group A/S without involving ASA.

ASA commenced arbitration in late November 2006, which arbitration will be heard in Paris, claiming for (i) Euro 5,600,000 as compensation plus interest and (ii) future exit fee. The Company is disputing these claims. The Company is of the opinion that the claim will not have a material fi nancial impact on the Group.

46. SEGMENT INFORMATION(a) Analysis by business segments

The Group is organised on a worldwide basis into four main operating segments, namely:

(i) Aerospace Provides a spectrum of aerospace maintenance and engineering services for a wide range of military and commercial

aircraft through its three operational divisions; Aircraft Maintenance & Modifi cation, Component/Engine Repair & Overhaul, and Engineering & Materials Services.

(ii) Electronics A leading provider of electronics and information communications technologies solutions in the region. Its core

capabilities lie in its innovative design, development and integration of advanced electronics systems for commercial, industrial, defence and public services applications worldwide.

(iii) Land Systems Provides integrated systems, specialty vehicles and their related services for defence, government and commercial

applications. This includes design and development, systems integration, production, operations & support and life cycle management.

(iv) Marine Provides turnkey shipbuilding, shipconversion and shiprepair services. The shipyard’s design capabilities give it the

edge in providing sophisticated, highly customised solutions for a wide spectrum of naval and commercial vessels.

Other operations include research and development, treasury, investment holding and provision of management, consultancy, warehousing and other support services.

Inter-segment pricing is on an arm’s length basis.


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46. SEGMENT INFORMATION (continued)

LAND AEROSPACE ELECTRONICS SYSTEMS MARINE OTHERS ELIMINATION GROUP

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

2006Turnover

External sales 1,673,209 951,336 1,001,847 701,520 157,846 – 4,485,758Inter-segment sales 2,284 14,421 12,052 1,348 580,253 (610,358) –

1,675,493 965,757 1,013,899 702,868 738,099 (610,358) 4,485,758

Segment results 241,983 91,818 63,940 72,823 538,661 (534,036) 475,189Investment income, net 28,271 11,930 388 733 (3,254) 1,693 39,761Interest income 9,805 5,107 7,952 9,123 31,500 (23,336) 40,151

Operating profi t 280,059 108,855 72,280 82,679 566,907 (555,679) 555,101Financial expenses (11,962) (8,879) (6,579) (3,519) (27,954) 16,641 (42,252)Share of results of associated companies

and joint ventures 37,183 4,674 4,270 340 – 5,023 51,490

Profi t from continuing operationsbefore taxation 305,280 104,650 69,971 79,500 538,953 (534,015) 564,339

Taxation (43,621) (26,515) (16,360) (11,677) (8,299) (2,423) (108,895)Minority interests (6,623) (1,817) (1,685) – – (192) (10,317)

Net profi t attributable to shareholders 255,036 76,318 51,926 67,823 530,654 (536,630) 445,127

Assets 1,795,720 1,113,178 1,087,739 632,310 2,219,861 (1,783,104) 5,065,704Associated companies and joint ventures 111,781 61,573 114,667 290 1,670 4,164 294,145Unallocated assets 154,393

Total assets 5,514,242

Liabilities 1,308,067 1,047,341 1,053,419 526,140 815,520 (1,193,121) 3,557,366Unallocated liabilities 248,492

Total liabilities 3,805,858

Capital expenditure 172,804 58,078 181,980 11,845 2,806 – 427,513Depreciation and amortisation 84,384 15,520 17,236 16,391 2,280 – 135,811Impairment loss 621 15,187 5,174 – 1,561 – 22,543Other non-cash expenses 10,826 2 114 – – – 10,942


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46. SEGMENT INFORMATION (continued)

LAND AEROSPACE ELECTRONICS SYSTEMS MARINE OTHERS ELIMINATION GROUP

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

2005Turnover

External sales 1,235,641 701,368 599,722 659,671 141,493 – 3,337,895Inter-segment sales 270 10,855 4,925 176 450,424 (466,650) –

1,235,911 712,223 604,647 659,847 591,917 (466,650) 3,337,895

Segment results 195,425 73,455 46,388 83,406 430,878 (413,709) 415,843Investment income, net 12,347 3,154 3,073 1,322 (1,085) – 18,811Interest income 10,420 2,506 6,531 5,676 12,318 (6,841) 30,610

Operating profi t 218,192 79,115 55,992 90,404 442,111 (420,550) 465,264Financial expenses (919) (1,495) (702) (2,472) (6,915) 4,551 (7,952)Share of results of associated companies

and joint ventures 38,170 (1,598) 9,720 – (359) – 45,933

Profi t from continuing operationsbefore taxation 255,443 76,022 65,010 87,932 434,837 (415,999) 503,245

Taxation (32,239) (16,110) (16,093) (17,665) (30,810) 20,924 (91,993)Minority interests (12,910) (1,904) 80 – – (210) (14,944)

Net profi t attributable to shareholders 210,294 58,008 48,997 70,267 404,027 (395,285) 396,308

Assets 1,262,941 980,168 871,969 657,295 1,653,131 (1,266,088) 4,159,416Associated companies and joint ventures 100,530 63,727 115,883 – 2,363 (540) 281,963Unallocated assets 125,016

Total assets 4,566,395

Liabilities 801,935 892,039 784,302 548,791 587,852 (810,527) 2,804,392Unallocated liabilities 220,147

Total liabilities 3,024,539

Capital expenditure 86,973 213,822 57,227 18,473 6,075 – 382,570Depreciation and amortisation 39,092 8,781 11,461 19,123 2,157 – 80,614Impairment (gain)/loss (431) 966 6,737 12,710 1,085 – 21,067Other non-cash expenses 54 29 9 280 – – 372


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46. SEGMENT INFORMATION (continued)(b) Analysis by country of incorporation

Turnover is based on the country of incorporation regardless of where the goods are produced or services rendered. Assets and additions to property, plant and equipment and intangibles are based on the location of those assets.

CAPITAL TURNOVER ASSETS EXPENDITURE 2006 2005 2006 2005 2006 2005 $’000 $’000 $’000 $’000 $’000 $’000 (Restated)

Asia 2,836,921 2,644,277 3,498,380 3,644,028 138,785 90,497USA 1,240,985 616,218 1,263,959 845,464 210,507 289,939Europe 406,770 68,626 732,691 45,683 78,106 1,928Others 1,082 8,774 19,212 31,220 115 206

4,485,758 3,337,895 5,514,242 4,566,395 427,513 382,570

(c) Analysis by geographical areasTurnover is based on the location of customers regardless of where the goods are produced or services rendered.

TURNOVER 2006 2005 $’000 $’000

Asia 2,365,334 2,216,400USA 1,478,907 836,683Europe 481,292 135,918Others 160,225 148,894

4,485,758 3,337,895

47. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIESThe Group’s principal fi nancial instruments, other than derivatives, comprise bankers’ guarantees, performance bonds, bank loans and overdrafts, fi nance leases and hire purchase contracts, investments, funds under management, and cash and short-term deposits. The Group has various other fi nancial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations.

The Group also enters into derivative transactions, including principally interest rate swaps and forward currency contracts. The purpose is to manage the interest rate and currency risks arising from the Group’s operations and its sources of fi nance.

The main risks arising from the Group’s fi nancial instruments are interest rate, foreign exchange, market, liquidity and credit risks. The policies for managing each of these risks are summarised below.

The Group’s accounting policies in relation to derivatives are set out in Note 2. It is the Group’s policy not to trade in derivative contracts for profi t.


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47. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)Interest rate riskThe Group has cash balances placed with reputable banks, fi nancial institutions and a related corporation. The Group manages its interest rate risks on its interest income by placing the cash balances in varying maturities and interest rate terms.

The Group’s debt includes bank borrowings and lease commitments. The Group seeks to minimise its interest exposure through options to refi nance the debt instruments and/or enter into interest rate swaps, where appropriate, over the duration of its borrowings.

Information relating to the Group’s interest rate exposure is also disclosed in the notes on the Group’s borrowings, investments and loan receivables, where applicable.

Foreign exchange riskThe Group’s foreign exchange risk arises both from its subsidiaries operating in foreign countries, which generate revenue and incur costs denominated in foreign currencies and from those operations of its local subsidiaries which are in foreign currencies.

The Group enters into forward currency contracts to hedge against its foreign exchange risk resulting from anticipated sale and purchase transactions denominated in foreign currencies, primarily in US dollars and Euro.

Market riskThe Group has investments in quoted equity shares and bonds, and has placed funds with fund management companies. The market value of these investments will fl uctuate with market conditions. To mitigate market risk, the Group’s funds placed with fund managers are guaranteed 95% to 100% of their principal values at the end of the fund management period. Also, before a fund manager is given funds for management, its fi nancial strength is carefully considered.

Liquidity riskTo manage liquidity risk, the Group monitors its net operating cash fl ows and maintains an adequate level of cash and cash equivalents and secured committed funding facilities from fi nancial institutions. In assessing the adequacy of these facilities, management reviews its working capital requirements.

Credit riskCredit risk, or the risk of counterparties defaulting, is managed through the application of credit approvals, credit limits and monitoring procedures. Where appropriate, the Company or its subsidiaries obtain collaterals from customers or arrange master netting agreements. Cash terms, advance payments, and letters of credit or bank guarantees are required for customers of lower credit standing.

Counterparties to fi nancial instruments consist of prime fi nancial institutions and related corporations, as disclosed in Notes 10 and 16.

As at 31 December 2006, there were no signifi cant concentrations of credit risk, except for 37% (2005: 43%) of trade debts relating to three major customers of the respective subsidiaries.

48. FAIR VALUE OF FINANCIAL INSTRUMENTSFair value is defi ned as the amount at which the instrument could be exchanged in a current transaction between knowledgeable willing parties in an arm’s length transaction, other than in a forced or liquidation sale. Fair values are obtained from quoted market prices, discounted cash fl ow models and option pricing models as appropriate.


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48. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)The following methods and assumptions are used to estimate the fair value of each class of fi nancial instruments:

Bank balances, other liquid funds and short-term receivablesThe carrying amounts approximate fair values due to the relatively short-term maturity of these instruments.

Quoted and unquoted investmentsThe fair values of quoted investments are estimated based on quoted market prices for these investments. For unquoted investments, it is not practicable to determine the fair values because of the lack of quoted market prices and the assumptions used in valuation models to value these investments cannot be reasonably determined. However, for unquoted investment in related and non-related corporations as stated in Note 10, the fair value is determined by reference to valuation provided by related and non-related corporations and fund managers.

Loans receivableThe fair values of loans receivable are estimated based on the expected cash fl ows discounted to present value, except as disclosed in Note 12.

Short-term borrowings and other current payablesThe carrying amounts approximate fair values because of the short period to maturity of these instruments.

Forward currency contractsAs at 31 December 2006, the Group has the following forward currency contracts amounting to $135,485,000 (2005: $100,000,000) designated as hedges of confi rmed sales in foreign currencies, fi rm purchase commitments in foreign currencies and accounts receivable in foreign currencies.

2006 2005 CONTRACTUAL/ CONTRACTUAL/ NOTIONAL ESTIMATED NOTIONAL ESTIMATED NOTE AMOUNT FAIR VALUE AMOUNT FAIR VALUE $’000 $’000 $’000 $’000

Cash fl ow hedgesForward currency contracts:– to hedge confi rmed sales in foreign currencies (i) 4,918 15 2,419 149– to hedge fi rm purchase commitments in

foreign currencies (i) 18,081 143 17,043 (319)

Fair value hedgesForward currency contracts:– to hedge confi rmed sales in foreign currencies (i) 98,571 1,599 60,263 465– to hedge accounts receivable in foreign currencies (i) 13,915 153 20,275 (146)

(i) The maturity dates of the forward currency contracts approximate the timing of the expected cash fl ow of their respective hedged items, which are on varying periods up to 13 months from the fi nancial year end.

As at 31 December 2006, the Group has the following outstanding forward currency contracts amounting to $5,834,000 (2005: $11,962,000) which are not designated as hedges of confi rmed sales in foreign currencies and fi rm purchase commitments in foreign currencies.

Forward currency contracts– purchase 1,489 28 9,792 (108)– sale 4,345 57 2,170 24


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49. COMPARATIVE FIGURESComparatives in the fi nancial statements have been changed from the previous year due to fi nalisation of the purchase price allocation to goodwill, intangible assets (excluding goodwill) and other assets for iDirect, Inc. during the current year.

PREVIOUSLY RESTATED REPORTED 2005 2005 $’000 $’000

Presented in the Balance SheetIntangible assets 344,682 360,205Deferred tax assets 110,872 95,349

Presented in the Notes to the Financial Statements

Note 11:Goodwill 307,821 357,468Other intangible assets 36,861 2,737

Note 13:Deferred tax assets 110,872 95,349

50. SUBSEQUENT EVENTIncrease in equity share of joint ventureThe Group has increased its interest in its joint venture company, STAR Automotive Center (Guangzhou) Co., Ltd. (“STAR GZ”) from 50% to 100% for a purchase consideration of RMB7.36 million ($1,470,000). Additionally, the Group has injected RMB4 million ($800,000) to increase the registered capital of STAR GZ.


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SGX Listing Manual Requirements 31 DECEMBER 2006(Currency – Singapore dollars)

1. INTERESTED PERSON TRANSACTIONS

Interested person transactions carried out during the fi nancial year pursuant to the Shareholders’ Mandate obtained under Chapter 9 of the Listing Manual of the Singapore Exchange Securities Trading Limited (“SGX”) by the Group are as follows:

AGGREGATE VALUE AGGREGATE VALUE OF ALL TRANSACTIONS OF ALL TRANSACTIONS EXCLUDING TRANSACTIONS CONDUCTED UNDER A CONDUCTED UNDER A SHAREHOLDERS’ SHAREHOLDERS’ MANDATE MANDATE PURSUANT PURSUANT TO RULE 920 OF THE TO RULE 920 OF THE SGX LISTING MANUAL SGX LISTING MANUAL

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

Transactions for the Sale of Goods and Services

Keppel Corporation Ltd and its Associates – – – 1,297 SembCorp Industries Ltd and its Associates – – 770 7,299 SembCorp Logistics Ltd and its Associates – – – 952 Singapore Airport Terminal Services Ltd and its Associates – – 252 – Singapore Computer Systems Limited and its Associates – – 475 103 Singapore Telecommunications Limited and its Associates – – 3,604 – StarHub Ltd and its Associates – – – 446 Temasek Holdings (Private) Limited and its Associates – – 7,787 546

– – 12,888 10,643

Transactions for the Purchase of Goods and Services

SembCorp Industries Ltd and its Associates – – – 19,386 SembCorp Logistics Ltd and its Associates – – 101 748 SembCorp Marine Ltd and its Associates – – 1,914 2,914 Singapore Computer Systems Limited and its Associates – – 2,389 3,203 Singapore Telecommunications Limited and its Associates – – 168 – StarHub Ltd and its Associates – – 130 – Temasek Holdings (Private) Limited and its Associates – – 14,317 6,291

– – 19,019 32,542

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SGX Listing Manual Requirements 31 DECEMBER 2006(Currency – Singapore dollars)

1. INTERESTED PERSON TRANSACTIONS (continued)

AGGREGATE VALUE AGGREGATE VALUE OF ALL TRANSACTIONS OF ALL TRANSACTIONS EXCLUDING TRANSACTIONS CONDUCTED UNDER A CONDUCTED UNDER A SHAREHOLDERS’ SHAREHOLDERS’ MANDATE MANDATE PURSUANT PURSUANT TO RULE 920 OF THE TO RULE 920 OF THE SGX LISTING MANUAL SGX LISTING MANUAL

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

Investment/Divestment/Leasing Transactions

Singapore Computer Systems Limited and its Associates 238 238 – – SMRT Corporation Ltd and its Associates 6,500 – – – Temasek Holdings (Private) Limited and its Associates – 3,109 – 660

6,738 3,347 – 660

Treasury Transactions

Temasek Holdings (Private) Limited and its Associates – – 889,681 959,680

Total Interested Person Transactions 6,738 3,347 921,588 1,003,525

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Shareholding Statistics AS AT 5 MARCH 2007

SHARE CAPITALPaid-Up Capital : $498,190,192.411Class of Shares : Ordinary Shares One Special Share held by the Minister for Finance (Incorporated)Voting Rights : One vote per ordinary share

SHAREHOLDING HELD IN HANDS OF PUBLICBased on the information available to the Company as at 5 March 2007, 31.3962% of the issued ordinary shares of the Company is held by the public and therefore, Rule 723 of the Listing Manual issued by SGX-ST is complied with.

ANALYSIS OF SHAREHOLDINGS

NO. OF NO. OFRANGE OF SHAREHOLDINGS SHAREHOLDERS % SHARES %

1 – 999 1,732 6.76 521,305 0.021,000 – 10,000 19,713 76.98 83,073,519 2.8110,001 – 1,000,000 4,131 16.13 156,211,320 5.281,000,001 and above 34 0.13 2,717,758,687 91.89

25,610 100.00 2,957,564,831 100.00

NUMBER OF SHARES DIRECT DEEMED TOTALSUBSTANTIAL SHAREHOLDERS INTEREST INTEREST INTEREST %

Temasek Holdings (Private) Limited 1,474,168,719 122,509,855(1) 1,596,678,574 53.99The Capital Group Companies, Inc. – 199,958,000(2) 199,958,000 6.7609Aberdeen Asset Management PLC and its subsidiaries – 253,658,100(3) 253,658,100 8.5766

Notes:(1) Temasek Holdings (Private) Limited is deemed to have an interest in the following shares held by:

Name of Company No. of Shares

Temasek a/c with DBS custodian 107,410,855 DBS Group Holdings Ltd 10,829,000 Keppel Corporation Limited 4,032,000 The Rohatyn Group Asia Opportunity Master Fund, Ltd. 238,000 (2) The Capital Group Companies, Inc. is deemed to have an interest in the following shares held by:

Name of Company No. of Shares

Raffl es Nominees Pte. Ltd. 195,977,000 Bank of Tokyo (Singapore) 278,000 BBH Dublin 182,000 Chase Manhattan Bank (Hong Kong) 80,000 DBS Nominees Pte. Ltd. 1,992,000 HongKong & Shanghai Banking Corp 439,000 HSBC 129,000 HSBC (Singapore) Nominees Pte. Ltd. 487,000 Standard Chartered Bank (Hong Kong) 141,000 State Street Australia Limited 46,000 United Overseas Bank Nominees Pte. Ltd. 207,000

(3) Details of their deemed interest are not available.

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Shareholding Statistics AS AT 5 MARCH 2007

MAJOR SHAREHOLDERS LIST – TOP 20

NO. NAME NO. OF SHARES HELD %

1 Temasek Holdings (Private) Limited 1,474,168,719 49.842 DBS Nominees Pte Ltd 382,838,815 12.953 DBSN Services Pte Ltd 282,587,801 9.564 HSBC (Singapore) Nominees Pte Ltd 243,744,891 8.245 Raffl es Nominees Pte Ltd 112,183,036 3.796 Citibank Nominees Singapore Pte Ltd 105,668,858 3.577 United Overseas Bank Nominees Pte Ltd 49,957,834 1.698 UOB Kay Hian Pte Ltd 8,762,372 0.309 OCBC Nominees Singapore Pte Ltd 4,955,960 0.1710 DB Nominees (S) Pte Ltd 4,797,964 0.1611 OCBC Securities Private Ltd 4,068,585 0.1412 KI Investments (HK) Limited 4,032,000 0.1413 Selected Holdings Pte Ltd 3,025,000 0.1014 Raffl es Investments Limited 3,000,000 0.1015 Merrill Lynch (S’pore) Pte Ltd 2,885,196 0.1016 Phillip Securities Pte Ltd 2,666,634 0.0917 The Asia Life Assurance Society Ltd - Par Fund 2,401,809 0.0818 BNP Paribas Nominees S’pore Pte Ltd 2,378,528 0.0819 DBS Vickers Securities (S) Pte Ltd 2,143,956 0.0720 Shanwood Development Pte Ltd 2,077,000 0.07

2,698,344,958 91.24

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SECTORAL FINANCIAL REVIEW – AEROSPACE

STATEMENT OF PROFIT AND LOSS

2006 2005 $’000 $’000 Turnover 1,675,493 1,235,911Cost of sales (1,287,577) (962,407)

Gross profi t 387,916 273,504Other operating income 41,433 24,562Distribution and selling expenses 5,489 946Administrative expenses (137,116) (63,101)Other operating expenses (19,209) (16,859)

Profi t from continuing operations before taxation, other income and fi nancial expenses 278,513 219,052Other income/(expenses), net 1,546 (860)Financial expenses (11,962) (919)


Profi t from continuing operations before taxation 305,280 255,443Taxation (43,621) (32,239)


Attributable to:Shareholders of the company 255,036 210,294Minority interests 6,623 12,910

261,659 223,204

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BALANCE SHEET

2006 2005 $’000 $’000 Share capital and reserves 417,680 463,025Minority interests 115,574 34,958

533,254 497,983

Property, plant and equipment 722,359 244,620Associated companies and joint ventures 111,781 100,530Investments 4,173 32,153Intangible assets 16,204 2,157Long-term receivables 275 417Deferred tax assets 57,011 37,104 Current assets Stocks and work-in-progress 271,466 163,561Debtors, deposits and prepayments 441,372 485,382Long-term receivables, current 367 373Amounts under fund management 170,700 259,680Bank balances and other liquid funds 169,451 75,389

1,053,356 984,385 Current liabilities Advance payments from customers, current 152,324 113,940Creditors and accruals 642,160 460,825Provisions 53,106 47,372Progress billing in excess of work-in-progress 52,674 45,412Provision for taxation 103,212 96,004Short-term bank loans (unsecured) 24,223 2,845Long-term bank loans, current 5,571 –Lease obligations, current 1,567 1,628

1,034,837 768,026Net current assets 18,519 216,359 Non-current liabilities Advance payments from customers, non-current 63,936 66,066Deferred income 478 606Deferred tax liabilities 4,696 4,554Lease obligations, non-current 9,019 11,415Long-term bank loans, non-current 265,890 –Loans from related corporation 53,049 52,716

397,068 135,357

533,254 497,983

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STATEMENT OF CASH FLOWS

2006 2005 $’000 $’000


Net cash used in investing activities (136,545) (110,741) Proceeds from sale of property, plant and equipment 406 954 Dividends from associated companies 42,630 36,260 Dividends from investments 9,637 187 Proceeds from sale and maturity of investments 136,435 12,656 Purchase of investments (155) (70,051) Purchase of property, plant and equipment (158,373) (86,973) Acquisition of a subsidiary (119,538) – Acquisition of additional interest in subsidiaries (1,520) – Additional investment in an associated company (27,647) (3,588) Exchange difference on investment activities (18,420) (186)

Net cash used in fi nancing activities (218,708) (275,214) Capital contribution from minority shareholders of a subsidiary – 880 Loans from/(to) related corporations 92,270 (48,090) Repayment of lease obligations (1,477) (1,505) Dividends paid to shareholders (299,699) (215,321) Dividends paid to minority shareholders of subsidiaries (14,204) (10,614) Interest paid (11,876) (908) Proceeds from short-term bank loans 3,243 – Exchange difference on fi nancing activities 13,035 344

Net decrease in cash and cash equivalents (63,918) (202,144)Cash and cash equivalents at beginning of year 291,149 493,120Exchange difference on cash and cash equivalents at beginning of year (2,366) 173

Cash and cash equivalents at end of year 224,865 291,149

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VALUE ADDED STATEMENT

2006 2005 2004 2003 2002 $’000 $’000 $’000 $’000 $’000

Value added from:Revenue earned 1,675,493 1,235,911 1,118,309 1,092,173 1,044,110Bought in materials and services (774,346) (567,862) (507,429) (473,460) (485,544)

901,147 668,049 610,880 618,713 558,566Income from investments and interest 29,789 22,767 23,370 7,599 11,435Exchange gain/(loss) 935 (864) (770) (906) (2,606)Other non-operating income 12,255 1,799 8,235 7,490 9,884Share of results of associated companies and joint ventures 37,183 38,170 37,475 34,047 39,333

Total value added 981,309 729,921 679,190 666,943 616,612

Distribution of total value added To employees in wages, salaries and benefi ts 588,048 437,014 404,562 375,946 342,724To government in income and other taxes 47,123 35,294 42,609 46,611 54,807To providers of capital on:• Interest paid on borrowings 11,962 919 965 972 2,307• Dividends to shareholder 299,699 215,321 183,719 174,912 156,774

946,832 688,548 631,855 598,441 556,612

Balance retained in/(applied from) businessDepreciation 84,366 39,092 34,117 39,604 38,734Impairment of assets 1,784 (431) 852 1,112 1,882Retained profi ts (68,764) (14,020) (10,961) (759) (5,116)

17,386 24,641 24,008 39,957 35,500

Non-production cost and income Bad debts (13,633) (5,171) 727 21,852 15,671Income from investments and interest 29,789 22,767 23,370 7,599 11,435Exchange gain/(loss) 935 (864) (770) (906) (2,606)

17,091 16,732 23,327 28,545 24,500

Total distribution 981,309 729,921 679,190 666,943 616,612

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FINANCIAL HIGHLIGHTS

2006 2005 2004 2003 2002 $’000 $’000 $’000 $’000 $’000

Turnover 1,675,493 1,235,911 1,118,309 1,092,173 1,044,110Profi t before tax 305,280 255,443 235,400 225,189 212,993Profi t after tax (before extraordinary items) 255,036 210,294 187,275 176,297 155,580Shareholders’ funds 417,680 463,025 452,329 456,130 458,962Total assets 1,965,159 1,401,366 1,373,110 1,431,936 1,434,821Net tangible assets 401,476 460,868 450,325 456,074 458,870Return on turnover (%) 15.6 18.1 17.5 16.6 15.4Earnings per share (¢) 127.52 105.15 93.64 88.15 77.79Return on equity (%) 54.2 40.8 37.1 34.6 30.4Return on total assets (%) 13.3 15.9 14.2 12.6 11.2Net tangible assets per share (¢) 200.7 230.4 225.2 228.0 229.4 Productivity data Average staff strength (number) 5,880 5,057 4,869 4,877 4,716Sales per employee ($) 284,948 244,396 229,679 223,944 221,397Profi t after tax per employee ($) 43,373 41,585 38,463 36,149 32,990Employment costs 589,440 438,163 405,125 376,390 343,194Employment costs per $ of turnover ($) 0.35 0.35 0.36 0.34 0.33 Economic Value Added 194,390 175,200 136,694 149,843 118,054Economic Value Added spread (%) 19.5 25.8 20.3 22.7 17.9Economic Value Added per employee ($) 33,060 34,645 28,074 30,724 25,033 Value added 981,309 729,921 679,190 666,943 616,612Value added per employee ($) 166,889 144,339 139,493 136,753 130,749Value added per $ of employment costs ($) 1.66 1.67 1.68 1.77 1.80Value added per $ of gross property, plant and equipment ($) 0.81 1.09 1.16 1.24 1.14Value added per $ of turnover ($) 0.59 0.59 0.61 0.61 0.59

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SECTORAL FINANCIAL REVIEW – ELECTRONICS


2006 2005 $’000 $’000

Turnover 965,757 712,223Cost of sales (664,529) (553,354)

Gross profi t 301,228 158,869Other operating income 17,674 5,522Distribution and selling expenses (69,034) (28,592)Administrative expenses (103,265) (40,986)Other operating expenses (37,847) (16,908)

Profi t from continuing operations before taxation, other income and fi nancial expenses 108,756 77,905Other income, net 99 1,210Financial expenses (8,879) (1,495)

99,976 77,620Share of results of associated companies and joint ventures 4,674 (1,598)



Attributable to: Shareholders of the company 76,318 58,008Minority interests 1,817 1,904

78,135 59,912

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BALANCE SHEET

2006 2005 $’000 $’000 (Restated)

Share capital and reserves 103,619 137,282Minority interests 10,555 3,743

114,174 141,025

Property, plant and equipment 39,365 35,754Associated companies and joint ventures 61,573 63,727Investments 8,299 45,663Intangible assets 278,407 243,984Long-term receivables 2,872 14,285Deferred tax assets 25,487 28,771 Current assets Stocks and work-in-progress 313,867 234,838Trade debtors 267,009 196,101Due from related corporations 66,201 99,705Debtors, deposits and prepayments 23,910 31,991Advance payments to suppliers 21,642 15,481Long-term receivables, current 43 54Bank balances and other liquid funds 92,300 47,172

784,972 625,342 Current liabilities Advance payments from customers, current 89,568 81,819Creditors and accruals 336,773 219,681Provisions 27,983 25,683Progress billings in excess of work-in-progress 210,692 230,961Provision for taxation 33,969 24,270Short-term bank loans (unsecured) 19,868 5,355Long-term bank loans, current 231 –Lease obligations, current 51 45Other loan, current 980 –Bank overdrafts 800 731

720,915 588,545Net current assets 64,057 36,797 Non-current liabilities Advance payments from customers, non-current 60,490 47,367Loans from a related corporation 298,325 279,791Deferred income 76 142Deferred rent 736 508Deferred tax liabilities 5,351 2Lease obligations, non-current 89 146Long-term bank loans, non current 819 –

365,886 327,956

114,174 141,025

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2006 2005 $’000 $’000

Net cash from operating activities 34,760 3,042 Net cash used in investing activities (19,998) (269,921) Proceeds from sale of property, plant and equipment 262 9 Dividends from associated companies 2,025 732 Dividends from investments 378 1,999 Proceeds from sale of investments 29,264 1,813 Proceed from convertible loan/promissory note redemption – 4,872 Proceed from capital redemption of an associated company 170 238 Purchase of property, plant and equipment (12,006) (7,125) Purchase of investments/convertible loan (725) (3,644) Investment in associated companies/joint venture (6,611) (6,654) Acquisition of subsidiaries (32,615) (261,143) Dilution of interest in subsidiary – (963) Loan to an investee company – (55) Loan to an associated company (140) - Net cash from fi nancing activities 19,242 273,106 Capital contribution from minority shareholders of a subsidiary – 133 Repayment of lease obligations (51) (9) Proceeds from inter-company loans, net of repayment 98,040 327,437 Proceeds from bank loans, net of repayment 2,591 5,355 Dividends paid to shareholder (76,000) (58,300) Dividend paid to minority shareholders of a subsidiary (889) (1,075) Interest paid (4,449) (435) Net increase in cash and cash equivalents 34,004 6,227Cash and cash equivalents at beginning of year 106,809 101,400Exchange difference on cash and cash equivalents at beginning of year (3,307) (818)


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2006 2005 2004 2003 2002 $’000 $’000 $’000 $’000 $’000

Value added from: Revenue earned 965,757 712,223 636,681 621,100 579,376Bought in materials and services (580,970) (443,918) (396,458) (389,430) (351,621)

384,787 268,305 240,223 231,670 227,755Income from investments and interest 17,037 5,660 1,953 84 4,288Exchange gain/(loss) (726) 321 (263) 385 (76)Other operating income/(expenses) 637 (138) 209 22 –Other non-operating income 825 889 1,484 1,494 1,398Share of results of associated companies and joint ventures 4,674 (1,598) 345 (269) (840)Amortisation of goodwill on acquisition of associated companies – – – (258) (73)


Distribution of total value addedTo employees in wages, salaries and benefi ts 270,816 187,600 167,821 161,920 167,955To government in income and other taxes 27,170 16,731 14,821 15,686 15,363To providers of capital on:• Interest paid on borrowings 8,879 1,495 113 48 5• Dividends to shareholder 76,000 58,300 52,800 45,600 40,260

382,865 264,126 235,555 223,254 223,583

Balance retained in/(applied from) businessDepreciation 15,520 8,781 8,750 7,884 8,332Retained profi ts (12,481) (4,059) (4,097) 969 (2,497)

3,039 4,722 4,653 8,853 5,835

Non-production cost and incomeBad debts 5,019 (1,390) 2,053 552 (1,178)Income from investments and interest 17,037 5,660 1,953 84 4,288Exchange gain/(loss) (726) 321 (263) 385 (76)

21,330 4,591 3,743 1,021 3,034


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2006 2005 2004 2003 2002 $’000 $’000 $’000 $’000 $’000

Turnover 965,757 712,223 636,681 621,100 579,376Profi t before tax 104,650 76,022 64,506 61,390 56,699Profi t after tax (before extraordinary items) 76,318 58,008 51,592 48,018 42,800Shareholders’ funds 103,619 137,282 108,095 107,882 105,121Total assets 1,200,975 1,057,526 568,990 592,583 697,544Net tangible assets (182,493) (118,966) 103,297 99,894 99,968Return on turnover (%) 8.1 8.4 7.9 7.4 7.2Earnings per share (¢) 72.65 55.22 49.11 45.71 40.74Return on equity (%) 32.8 23.3 47.7 44.5 40.7Return on total assets (%) 6.4 5.5 9.1 8.1 6.1Net tangible assets per share (¢) (173.7) (113.3) 98.3 95.1 95.2 Productivity dataAverage staff strength (number) 3,256 2,828 2,649 2,662 2,586Sales per employee ($) 296,608 251,847 240,348 233,321 224,043Profi t after tax per employee ($) 23,439 20,512 19,476 18,038 16,551Employment costs 270,901 187,664 167,845 161,965 167,976Employment costs per $ of turnover ($) 0.28 0.26 0.26 0.26 0.29 Economic Value Added 67,295 47,378 44,681 39,299 20,157Economic Value Added Spread (%) 12.5 25.6 28.7 27.0 13.8Economic Value Added per employee ($) 20,668 16,753 16,867 14,763 7,795

Value added 407,234 273,439 243,951 233,128 232,452Value added per employee ($) 125,072 96,690 92,092 87,576 89,889Value added per $ of employment costs ($) 1.50 1.46 1.45 1.44 1.38Value added per $ of gross property, plant and equipment ($) 3.00 2.00 2.10 2.22 2.31Value added per $ of turnover ($) 0.42 0.38 0.38 0.38 0.40

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SECTORAL FINANCIAL REVIEW – LAND SYSTEMS


2006 2005 $’000 $’000

Turnover 1,013,899 604,647Cost of sales (808,188) (465,261)


Profi t from continuing operations before taxation, other income and fi nancial expenses 66,384 50,164Other income, net 5,896 5,828Financial expenses (6,579) (702)




Attributable to: Shareholders of the company 51,926 48,997Minority interests 1,685 (80)

53,611 48,917

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BALANCE SHEET

2006 2005 $’000 $’000

Share capital and reserves 110,954 173,597Minority interests 15,825 9,834

126,779 183,431

Property, plant and equipment 87,098 82,706Associated companies and joint ventures 114,667 115,883Investments 14,048 19,450Intangible assets 222,185 54,221Long-term receivables 58,042 573Deferred tax assets 17,085 16,187

Current assetsStocks and work-in-progress 376,814 298,477Trade debtors 158,285 137,038Debtors, deposits and prepayments 48,886 37,530Long-term receivables, current 9 63Bank balances and other liquid funds 86,475 90,157Due from related corporations 35,807 151,754Forward currency contracts 90 –

706,366 715,019

Current liabilitiesAdvance payments from customers, current 223,916 138,266Creditors and accruals 310,786 215,953Provisions 54,140 59,971Provision for taxation 34,450 33,301Forward currency contract 24 208Long-term loans, current 237 925Short-term bank loan 2,458 –Bank overdrafts 937 –Short-term loans from minority shareholders of a subsidiary – 2,843

626,948 451,467Net current assets 79,418 263,552

Non-current liabilitiesAdvance payments from customers, non-current 153,338 264,485Forward currency contract 39 –Loans from related corporation 302,310 97,395Due to a joint venture – 331Long-term loans 2,229 2,684Long-term loan from minority shareholder of a subsidiary 194 194Deferred income 2,811 1,047Deferred tax liabilities 4,843 3,005

465,764 369,141

126,779 183,431

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2006 2005 $’000 $’000


Net cash used in investing activities (220,486) (37,128) Proceeds from disposal of property, plant and equipment 919 1,102 Distribution from unquoted long-term investment 250 – Dividends from unquoted long-term investments 138 414 Dividends from associated companies 3,606 8,270 Purchase of property, plant and equipment (12,116) (7,808) Purchase of commercial and intellectual property rights (517) – Investment in an associated company and a joint venture – (2,051) Acquisition of additional interest in a subsidiary (150) – Acquisition of a subsidiary (211,381) (37,328) Contribution from minority shareholders – 895 Deconsolidation of a subsidiary – (92) Long-term loan to a joint venture (1,235) (573) Exchange difference on investing activities – 43

Net cash from fi nancing activities 94,036 1,583 Interest paid (3,752) (102) Proceeds from loans from minority shareholders 43 1,549 Proceeds from long-term loans from related corporation 211,798 91,658 Proceeds from short-term loans from related corporation 21,631 – Proceeds from short-term bank loan 2,510 – Proceeds from short-term loan from immediate holding company 20,000 – Long-term loan to immediate holding company (54,000) – Repayment of long-term bank loan – (30,861) Repayment of short-term loan – (11,914) Repayment of long-term loans (923) (43) Dividends paid to shareholder of the Company (103,173) (48,316) Dividends paid to minority shareholders of a subsidiary (98) – Exchange difference on fi nancing activities – (388)

Net decrease in cash and cash equivalents (113,578) (28,343)Cash and cash equivalents at beginning of year 234,752 264,335Exchange difference on cash and cash equivalents at beginning of year (5,256) (1,240)


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2006 2005 2004 2003 2002 $’000 $’000 $’000 $’000 $’000

Value added from: Revenue earned 1,013,899 604,647 594,300 717,711 711,160Bought in materials and services (707,581) (428,872) (423,482) (487,411) (443,416)

306,318 175,775 170,818 230,300 267,744Income from investments and interest 8,340 9,604 2,068 9,911 11,166Exchange gain/(loss) (3,121) (329) (796) (806) (1,568)Other non-operating income 9,250 7,604 4,638 6,652 3,385Share of results of associated companies and joint ventures 4,270 9,720 20,576 11,970 3,123


Distribution of total value addedTo employees in wages, salaries and benefi ts 224,622 124,881 117,191 135,401 169,147To government in income and other taxes 18,378 17,668 16,294 23,401 (2,243)To providers of capital on:• Interest paid on borrowings 6,579 702 85 29 110• Dividends to shareholder 103,173 48,316 78,000 105,000 40,000

352,752 191,567 211,570 263,831 207,014

Balance retained in/(applied from) businessDepreciation 15,489 10,740 10,594 15,560 17,603Retained profi ts (47,860) (3,780) (22,270) (35,588) 53,702

(32,371) 6,960 (11,676) (20,028) 71,305

Non-production cost and incomeBad debts (543) (5,428) (3,862) 5,119 (4,067)Income from investments and interest 8,340 9,604 2,068 9,911 11,166Exchange gain/(loss) (3,121) (329) (796) (806) (1,568)

4,676 3,847 (2,590) 14,224 5,531


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2006 2005 2004 2003 2002 $’000 $’000 $’000 $’000 $’000

Turnover 1,013,899 604,647 594,300 717,711 711,160Profi t before tax 69,971 65,010 71,549 96,458 96,877Profi t after tax (before extraordinary items) 51,926 48,997 58,066 76,538 100,602Shareholders’ funds 110,954 173,597 164,471 183,807 213,373Total assets 1,219,491 1,004,039 883,498 1,014,346 1,169,273Net tangible assets (115,549) 115,058 149,890 168,841 198,040Return on turnover (%) 5.3 8.1 9.5 10.4 13.9Earnings per share (¢) 43.07 40.64 48.16 63.48 83.44Return on equity (%) 20.2 22.9 34.9 41.3 47.1Return on total assets (%) 4.4 4.9 6.4 7.3 8.5Net tangible assets per share (¢) (95.8) 95.4 124.3 140.0 164.3

Productivity data Average staff strength (number) 4,961 3,417 2,389 2,483 2,738Sales per employee ($) 204,374 176,953 248,765 289,050 259,737Profi t after tax per employee ($) 10,467 14,339 24,306 30,825 36,743Employment costs 224,828 125,030 117,116 135,417 169,111Employment costs per $ of turnover ($) 0.22 0.21 0.20 0.19 0.24

Economic Value Added 32,994 34,087 34,821 62,799 81,320Economic Value Added spread (%) 6.8 12.0 11.3 18.2 29.4Economic Value Added per employee ($) 6,651 9,976 14,576 25,292 29,701


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SECTORAL FINANCIAL REVIEW – MARINE


2006 2005 $’000 $’000

Turnover 702,868 659,847Cost of sales (602,581) (551,530)


Profi t from continuing operations before taxation, other income and fi nancial expenses 82,198 87,760Other income, net 481 2,644Financial expenses (3,519) (2,472)

79,160 87,932Share of results of associated companies and joint ventures 340 –



Attributable to: Shareholders of the company 67,823 70,267Minority interests – –

67,823 70,267

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BALANCE SHEET

2006 2005 $’000 $’000

Share capital and reserves 124,345 111,992

Property, plant and equipment 92,807 100,697Associated companies and joint ventures 290 –Investments 1,321 2,402Intangible assets 171 181Long-term receivables 198 54Deferred tax assets 15,612 15,412

Current assetsStocks and work-in-progress 104,549 70,152Trade debtors 89,214 116,566Due from related corporations 132,134 173,834Debtors, deposits and prepayments 9,191 24,530Advance payments to suppliers 56,749 93,248Long-term receivables, current 20 180Amounts under fund management 57,473 51,382Bank balances and other liquid funds 123,138 54,137

572,468 584,029

Current liabilitiesAdvance payments from customers, current 115,974 138,807Creditors and accruals 228,251 250,007Provisions 48,450 42,258Progress billings in excess of work-in-progress 37,072 14,291Provision for taxation 29,155 39,440Lease obligations, current – 12

458,902 484,815Net current assets 113,566 99,214

Non-current liabilitiesLoans from a related corporation 97,013 102,763Accrued staff benefi ts 2,607 3,205

99,620 105,968

124,345 111,992

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2006 2005 $’000 $’000


Net cash used in investing activities (7,635) (11,829) Dividends from investments 138 412 Proceeds from sale and maturity of investments 596 952 Proceeds from sale of property, plant and equipment 122 20 Purchase of property, plant and equipment (11,845) (12,678) Exchange difference on investing activities 3,354 (535)

Net cash used in fi nancing activities (68,261) (72,407) Dividends paid to shareholder of the Company (60,079) (70,249) Interest paid (3,519) (2,472) Proceeds from/(repayment of) loans from related corporation, net 1,648 (837) Repayment of lease obligations (12) (64) Repayment of loan by a joint venture – 388 Exchange difference on fi nancing activities (6,299) 827

Net increase in cash and cash equivalents 25,714 5,222Cash and cash equivalents at beginning of year 221,663 216,436Exchange difference on cash and cash equivalents at beginning of year (463) 5


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2006 2005 2004 2003 2002 $’000 $’000 $’000 $’000 $’000

Value added from:Revenue earned 702,868 659,847 484,364 387,323 281,231Bought in materials and services (510,787) (444,879) (298,043) (249,406) (190,567)

192,081 214,968 186,321 137,917 90,664Income from investments and interest 9,856 6,998 7,944 14,520 18,023Exchange (loss)/gain (59) (334) (231) 47 4Other non-operating income 4,535 5,300 6,152 4,401 3,324Share of results of associated companies and joint ventures 340 – – – –


Distribution of total value addedTo employees in wages, salaries and benefi ts 105,791 104,216 104,072 97,909 54,676To government in income and other taxes 13,432 19,986 18,506 6,595 13,079To providers of capital on:• Interest paid on borrowings 3,519 2,472 1,253 1,184 556• Dividends to shareholder 60,079 70,249 55,133 – 70,000

182,821 196,923 178,964 105,688 138,311

Balance retained in/(applied from) businessDepreciation 16,381 18,974 22,241 22,811 13,338Retained profi ts (2,043) 5,913 (9,105) 16,241 (58,826)

14,338 24,887 13,136 39,052 (45,488)

Non-production cost and incomeBad debts (203) (1,542) 373 (2,422) 1,165Income from investments and interest 9,856 6,998 7,944 14,520 18,023Exchange (loss)/gain (59) (334) (231) 47 4

9,594 5,122 8,086 12,145 19,192


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2006 2005 2004 2003 2002 $’000 $’000 $’000 $’000 $’000

Turnover 702,868 659,847 484,364 387,323 281,231Profi t before tax 79,500 87,932 69,786 35,172 41,132Profi t after tax 67,823 70,267 53,741 30,808 29,201Shareholders’ funds 124,345 111,992 107,779 109,316 78,808Total assets 682,867 702,775 664,556 594,272 530,419Net tangible assets 124,174 111,811 107,449 109,316 78,808Return on turnover (%) 9.6 10.6 11.1 8.0 10.4Earnings per share (¢) 34.68 35.93 27.48 15.75 14.93Return on equity (%) 45.0 50.8 40.1 22.7 27.8Return on total assets (%) 9.9 10.0 8.1 5.2 5.5Net tangible assets per share (¢) 63.5 57.2 54.9 55.9 40.3

Productivity DataAverage staff strength (number) 1,404 1,416 1,514 1,490 1,168Sales per employee ($) 500,618 465,994 319,923 259,948 240,780Profi t after tax per employee ($) 48,307 49,624 35,496 20,677 25,001Employment costs 106,086 104,448 104,238 98,028 54,809Employment costs per $ of turnover ($) 0.15 0.16 0.22 0.25 0.19

Economic Value Added 49,903 49,061 32,501 10,363 5,056Economic Value Added spread (%) 18.7 18.0 11.7 3.9 2.4Economic Value Added per employee ($) 35,543 34,648 21,467 6,955 4,329


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Group Structure – Singapore Technologies Engineering LtdSUBSIDIARIES AND ASSOCIATED COMPANIES (AS AT 28 FEBRUARY 2007)

+ Ceased operations in 2003* Balance 1% held by DalFort Aerospace GP, Inc.** Balance 1% held by San Antonio Aerospace GP, LLCItalics Indicates Associated Companies. Others are Subsidiaries

(both directly and indirectly held)

Singapore Technologies Aerospace Ltd(100%)

Singapore Technologies Electronics Limited(100%)

Singapore Technologies Kinetics Ltd(100%)

Singapore Technologies Marine Ltd(100%)

Singapore Technologies Dynamics Pte Ltd(100%)

ST Synthesis Pte Ltd(100%)

FusionTech Pte. Ltd.(100%)

2006 JV Pte. Ltd. (formerly known as Asian Aerospace 2006 Pte. Ltd.)

(50%)

KAZ-ST Engineering Bastau Limited Liability Partnership

(51%)

Vision Technologies Systems, Inc.(100%)

NanoScience Innovation Pte Ltd(38.33%)

SA Supplies (USA) Inc.(100%)

Singapore Technologies Engineering (USA) Inc.(100%)

Vision Technologies Aerospace, Incorporated(100%)

Vision Technologies Electronics, Inc(100%)

Vision Technologies Kinetics, Inc.(100%)

Vision Technologies Marine, Inc.(100%)

VT Systems, Inc.(100%)

Vision Technologies Land Systems, Inc.(100%)

San Antonio Aerospace GP, LLC(100%)

San Antonio Aerospace LP(99%)**

ST Mobile Aerospace Engineering, Inc.(100%)

DalFort Aerospace GP, Inc.+

(100%)

DalFort Aerospace, L.P.+

(99%)*

iDirect, Inc.(100%)

Miltope Corporation(100%)

VT Halter Marine, Inc.(100%)

Halter-Bollinger Joint Venture LLC(50%)

VT Dimensions, Inc.(100%)

VT Specialized Vehicles Corporation(100%)

Lee Holding Company(100%)

VT LeeBoy, Inc(100%)

iDirect UK Limited(100%)

iDirect Italy srl(100%)

iDirect Hong Kong Limited(100%)

iDirect Canada, Inc(49%)

LeeBoy Rents, Inc(100%)

Rosco Manufacturing Company(100%)

Force Feed Loader Parts, Inc.(100%)

iDirect International Corporation(100%)

iDirect Singapore Pte. Ltd.(100%)

MÄK Technologies, Inc.(80%)

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Group Structure – Singapore Technologies Aerospace LtdSUBSIDIARIES AND ASSOCIATED COMPANIES (AS AT 28 FEBRUARY 2007)

ST Aerospace Engineering Pte Ltd(100%)

ST Aerospace Engines Pte Ltd(100%)

ST Aerospace International Structures Pte Ltd(100%)

ST Aerospace Systems Pte Ltd(100%)

ST Aerospace Supplies Pte Ltd(100%)

ST Airport Ground Services Pte Ltd(100%)

ST Aviation Resources Pte Ltd(100%)

Visiontech Investment Pte Ltd(100%)

Panama Aerospace Engineering Inc.(100%)

Singapore Aerospace Kabushiki Kaisha(100%)

Singapore Technologies Engineering (Europe) Ltd(100%)

SAS Component Group A/S(71.3%)

Bournemouth Aviation Services Company Limited+

(81%)

ST Aviation Services Co Pte Ltd(80%)

Singapore British Engineering Pte Ltd(51%)

Visiontech Engineering Pte Ltd(51%)

1988 JV Pte. Ltd.(50%)

Shanghai Technologies Aerospace Company Limited

(49%)

Turbine Overhaul Services Pte Ltd(49%)

Turbine Coating Services Pte Ltd(24.5%)

Pacifi c Flight Services Pte Ltd(100%)

ST PAE Holdings Pty Ltd(100%)

Composite Technology International Pte Ltd(33.33%)

Eurocopter South East Asia Private Limited(25%)

Singapore Precision Repair and Overhaul Pte Ltd(50%)

iShopAero Pte Ltd(100%)

ST Aviation Resources 1 Limited(100%)

Airline Rotables (UK Holdings) Limited (formerly known as ST Aerospace (UK) Limited)

(100%)

Aerospace Engineering Services Pty Ltd Unit Trust(50%)

Aerospace Engineering Services Pty Ltd(50%)

Airline Rotables Limited(100%)

+ Ceased operations in 2006Italics Indicates Associated Companies. Others are Subsidiaries


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Group Structure – Singapore Technologies Electronics LimitedSUBSIDIARIES AND ASSOCIATED COMPANIES (AS AT 28 FEBRUARY 2007)

* In the process of striking-offItalics Indicates Associated Companies. Others are Subsidiaries


ST Electronics (Satcom & Sensor Systems)Pte. Ltd. (100%)

ST Electronics (Taiwan) Limited(100%)

SEEL Electronic & Engineering Sdn Bhd(100%)

TranSys Pte Ltd(100%)

ST Electronics (Training & Simulation Systems) Pte. Ltd.(100%)

Intelect Technologies, Incorporated(78.57%)

Ripple Systems Pty Ltd(70%)

STELOP Pte. Ltd.(50.05%)

ST LogiTrack Pte Ltd(39.06%)

GFM Electronics S.A. de C.V.(50%)

Sino Stride Technology (Holdings) Limited(28%)

RF Korea Inc.(22%)

Trusted Hub Ltd(21.8%)

Mobile Solutions and Payment Services Pte Ltd(21.57%)

ST Electronics (Sichuan) Co., Ltd(100%)

Polarsat Holdings Inc. (formerly known as PolarSat Inc)

(38.98%)

ST Electronics (Info-Security) Pte. Ltd. (formerly known as DigiSAFE Pte Ltd)

(100%)

STELCOMMS Pte. Ltd.(100%)

Infowave Pte Ltd(43%)

Sentry Technologies Pte Ltd(35%)*

mPayment Pte Ltd(31.78%)

iWOW Technology Pte Ltd(21.74%)

ST Electronics-PCI Co., Ltd(51%)

Prescient Systems & Technologies Pte. Ltd.(47.84%)

ST Electronics (Digital Media) Pte. Ltd. (formerly known as Interactive Visual Laboratory Pte. Ltd.)

(100%)

ST Education & Training Private Limited(70%)

Brightspot Interactive Learning Pte. Ltd.(51%)

Knowledge Alive Pte. Ltd.(45.47%)

DataMark Technologies Pte Ltd(61.12%)

Autoscan Technology Pte Ltd(60%)

STET Maritime Bureau Pte. Ltd.(100%)

STET Maritime Education Pte. Ltd.(100%)

Comat Training Services Pte Ltd(100%)

ST Electronics (Info-Comm Systems) Pte. Ltd.(100%)

ST Electronics (Shanghai) Co., Ltd(100%)

iTS Technologies Pte Ltd(100%)

ST Electronics (Info-Software Systems) Pte. Ltd. (100%)

ST Electronics (Software Services) Limited (formerly known as Xinke Information Systems Ltd)

(100%)

PM-B Pte Ltd(70%)

INFA Systems Limited(70%)

Sandz Solutions (Singapore) Pte Ltd(25%)

WizVision Pte. Ltd.(22.8%)

ECS Holdings Limited(20.86%)

Sandz Solutions (HK) Pte Ltd(100%)

WizVision (HK) Pte Limited(100%)

ST Electronics (e-Services) Pte. Ltd.(100%)

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Group Structure – Singapore Technologies Kinetics LtdSUBSIDIARIES AND ASSOCIATED COMPANIES (AS AT 28 FEBRUARY 2007)

Italics Indicates Associated Companies. Others are Subsidiaries (both directly and indirectly held)

Advanced Material Engineering Pte. Ltd.(100%)

Advanced Pyrotechnic Materials Private Limited (formerly known as Chartered Pyrotechnic

Industries Private Limited)(51%)

SMART Systems Pte Ltd(50%)

Takata CPI Singapore Pte Ltd(49%)

Autonomous Technology Pte Ltd(100%)

Guizhou Jonyang Kinetics Co., Ltd.(60%)

Allied Ordnance of Singapore (Pte) Limited(100%)

Defence Electronics of Singapore Pte Ltd (49%)

Expert Systems Pte Ltd(100%)

Kinetics Systems (Shanghai) Co. Ltd.(100%)

Mobility Systems Pte Ltd(100%)

Silvatech Systems Corporation Pte Ltd(100%)

Kinetics Drive Solutions Inc.(100%)

Ordnance Development and Engineering Company of Singapore (1996) Private Limited

(100%)

Silvatech Global Systems Limited(100%)

Shanghai Elite Electric Vehicles Co., Ltd(100%)

Timoney Holdings Limited(25%)

Singapore Commuter Private Limited(100%)

Singapore Ordnance Engineering Pte. Ltd.(100%)

Singapore Test Services Private Limited(100%)

ST Automotive Industrial Pte Ltd(100%)

ST Automotive (Vietnam) Pte Ltd(100%)

STA Detroit Diesel-Allison (Singapore) Pte Ltd(100%)

STA Inspection Pte Ltd(100%)

STA Investment Pte Ltd(100%)

Unicorn International Pte Limited(100%)

STAR Automotive Center (Zhejiang) Co., Ltd.(86.24%)

ATREC Pte. Ltd.(50%)

Beijing Zhonghuan Kinetics Heavy Vehicles Co. Ltd. (50%)

STAR Automotive Center (Guang Zhou) Co., Ltd.(100%)

CityCab Pte Ltd(46.5%)

SAO Industrial Services Pte Ltd(100%)

Nusantara Technologies Sdn. Bhd.(49%)

JuzclickCar.com Pte Ltd(90%)

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Group Structure – Singapore Technologies Marine Ltd SUBSIDIARIES AND ASSOCIATED COMPANIES (AS AT 28 FEBRUARY 2007)

* In Compulsory Winding Up by the CourtItalics Indicates Associated Companies. Others are subsidiaries


STSE Engineering Services Pte Ltd(100%)

PT SSE-Van der Horst Indonesia(24.4%)

Joint Shipyard Management Services Pte Ltd(30%)

Anchorville Pte Ltd*(30%)

AquaGen International Pte Ltd*(25%)

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CORPORATE INFORMATION

BOARD OF DIRECTORSMr Peter SEAH Lim Huat (Chairman)Mr TAN Pheng Hock (President and CEO)Mr KOH Beng Seng (Director)Lieutenant-General NG Yat Chung (Director)Dr TAN Kim Siew (Director)Professor LUI Pao Chuen (Director)Mr Winston TAN Tien Hin (Director)Mr Lucien WONG Yuen Kuai (Director)Dr Philip Nalliah PILLAI (Director)Mr QUEK Poh Huat (Director)Mr Venkatachalam KRISHNAKUMAR (Director)Brigadier-General Bernard TAN Kok Kiang (Alternate Director to Lieutenant-General NG Yat Chung)

COMPANY SECRETARYMrs CHUA Su Li

REGISTERED OFFICE51 Cuppage Road #09-08StarHub CentreSingapore 229469Tel : (65) 6722 1818Fax : (65) 6720 2293http : //www.stengg.com

SHARE REGISTRARM & C Services Private Limited138 Robinson Road #17-00The Corporate Offi ceSingapore 068906

AUDITORSErnst & Young One Raffl es QuayNorth Tower, Level 18Singapore 048583Mr TAN Wee Khim (Partner-in-charge)(Date of Appointment: 01/07/2005)

PRINCIPAL BANKERSCalyon 168 Robinson Road #22-01 Capital Tower Singapore 068912

Citibank N.A.3 Temasek Avenue#17-00 Centennial TowersSingapore 039190

The Development Bank of Singapore Ltd 6 Shenton Way DBS Building Tower OneSingapore 068809

Oversea-Chinese Banking Corporation Limited 65 Chulia Street #10-00 OCBC Centre Singapore 049513

United Overseas Bank Limited80 Raffl es PlaceUOB Plaza 1Singapore 048624

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Directory of Subsidiaries, Associated and Investment Companies

CORPORATE

SINGAPORE TECHNOLOGIESENGINEERING LTD (ST ENGINEERING)51 Cuppage Road#09-08 StarHub CentreSingapore 229469Tel : (65) 6722 1818Fax : (65) 6720 2293Website : www.stengg.comContact : TAN Pheng Hock, President and CEOEmail : [email protected] : Letticia Fong, Manager Corporate CommunicationsEmail : [email protected]

Defence BusinessTel : (65) 6722 1878Fax : (65) 6720 2293Contact : WEE Siew Kim, President, Defence BusinessEmail : [email protected]

International MarketingTel : (65) 6660 7631Fax : (65) 6265 8862Contact : Patrick CHOY, Executive Vice President, International MarketingEmail : [email protected]

FUSIONTECH PTE. LTD.249 Jalan Boon LaySingapore 619523Tel : (65) 6660 7028Fax : (65) 6261 6566Contact : FONG Saik Hay, DirectorEmail : [email protected]

SINGAPORE TECHNOLOGIESDYNAMICS PTE LTD249 Jalan Boon LaySingapore 619523Tel : (65) 6660 7028Fax : (65) 6261 6566Contact : FONG Saik Hay, PresidentEmail : [email protected]

ST SYNTHESIS PTE LTD249 Jalan Boon LaySingapore 619523Tel : (65) 6660 7530Fax : (65) 6262 2707Contact : LIM Soon Heng, Vice President/General ManagerEmail: [email protected]

ASIA

Liaison Offi ce – IndiaB-21, 1st Floor, Friends Colony (West)Mathura Road, New Delhi 110065, IndiaTel : (91) 11 4104 8411Fax : (91) 11 4104 8410Contact : Harpal SINGH, Director – Marketing (South Asia)Email : [email protected]

CENTRAL ASIA

SINGAPORE TECHNOLOGIESENGINEERING LTDRepresentative Offi ce12, Samal Microdistrict12th Floor, Astana Tower473000, AstanaRepublic of KazakhstanTel : (7) 3172 580 310Fax : (7) 3712 580 409Contact : MAILYBAYEVA Aisulu, Administrative ManagerEmail : [email protected]

EUROPE

SINGAPORE TECHNOLOGIESENGINEERING (EUROPE) LTDMarquis House68 Jermyn StreetLondon SW1Y 6NYUnited KingdomTel : (44) 20 7930 8989Fax : (44) 20 7930 7828Contact : OOI Ling Heong, Executive Vice PresidentEmail : [email protected]

MIDDLE EAST

SINGAPORE TECHNOLOGIES ENGINEERING LTD

Representative Offi ce – United Arab EmiratesPO Box 31303DubaiUnited Arab EmiratesTel : (971) 4 3197708Fax : (971) 4 3197703Contact : LIM Chong How, Regional DirectorEmail : [email protected]

Liaison Offi ce – Omanc/o Seven Seas – Victory Knights TechnologiesSeven Seas Co LLC18th November StreetUnit 380 Al-Azaiba, MuscatSultanate of OmanTel : (968) 24497287Fax : (968) 24497297Contact : Anil KURUP, Director – Business DevelopmentEmail : [email protected]

USA

VISION TECHNOLOGIES SYSTEMS, INC. (VTS)99 Canal Center Plaza, Suite 210Alexandria, Virginia 22314United States of AmericaTel : (1) 703 739 2610Fax : (1) 703 739 2611Contact : John G. COBURN, Chairman and CEOEmail : [email protected] : Martin RIED, SVP/Head, Corporate OperationsEmail : [email protected]

MILTOPE CORPORATION (VT MILTOPE)3800 Richardson Road SouthHope Hull, Alabama 36043United States of AmericaTel : (1) 334 284 8665Fax : (1) 334 613 6591Contact : Thomas R. DICKINSON, President and CEOEmail : [email protected]

VISION TECHNOLOGIES AEROSPACE, INCORPORATED99 Canal Center Plaza, Suite 210Alexandria, Virginia 22314United States of AmericaTel : (1) 210 293 3001Fax : (1) 210 293 2642Contact : ANG Chye Kiat, PresidentEmail : [email protected]

VISION TECHNOLOGIES ELECTRONICS, INC.99 Canal Center Plaza, Suite 210Alexandria, Virginia 22314United States of AmericaTel : (1) 703 739 2610Fax : (1) 703 739 2611Contact : Martin RIED, Company SecretaryEmail : [email protected]

VISION TECHNOLOGIES KINETICS, INC.3800 Richardson Road SouthHope Hull, Alabama 36043United States of AmericaTel : (1) 334 284 8665Fax : (1) 334 613 6591Contact : Thomas R. DICKINSON, President and CEOEmail : [email protected]

VISION TECHNOLOGIES LAND SYSTEMS, INC.99 Canal Center Plaza, Suite 210Alexandria, Virginia 22314United States of AmericaTel : (65) 9818 4548Fax : (65) 6262 3135Contact : CHANG Cheow Teck, PresidentEmail : [email protected]

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VISION TECHNOLOGIES MARINE, INC.99 Canal Center Plaza, Suite 210Alexandria, Virginia 22314United States of AmericaTel : (1) 703 739 2610Fax : (1) 703 739 2611Contact : Martin RIED, Company SecretaryEmail : [email protected]

VT DIMENSIONS, INC.99 Canal Center Plaza, Suite 210Alexandria, Virginia 22314United States of AmericaTel : (1) 703 739 2610Fax : (1) 703 739 2611Contact : Martin RIED, Company SecretaryEmail : [email protected]

AEROSPACE SECTOR

SINGAPORE TECHNOLOGIESAEROSPACE LTD (ST AEROSPACE)540 Airport RoadPaya Lebar – HQSingapore 539938Tel : (65) 6287 1111Fax : (65) 6280 9713/8213Website : www.staero.aeroContact : TAY Kok Khiang, PresidentEmail : [email protected] : Audrey TAN, Head, Corporate CommunicationsEmail : [email protected]

Defence BusinessTel : (65) 6287 1111Fax : (65) 6280 9713Contact : HO Yuen Sang, Deputy President (Operations)/Chief Operating Offi cer &President, Defence BusinessEmail : [email protected]

MarketingTel : (65) 6380 6181Fax : (65) 6280 8213Contact : Jeremy CHAN, Deputy President (Marketing & Total Aviation Support)Email : [email protected]

Aircraft Maintenance & Modifi cation (AMM)Tel : (65) 6380 6287Fax : (65) 6280 9713Contact : LIM Serh Ghee, Executive Vice President, AMMEmail : [email protected]

Component & Engine Total Support (CETS)Tel : (65) 6380 6768Fax : (65) 6282 3010Contact : TAN Seow Juay, Executive Vice President, CETSEmail : [email protected]

Engineering & DevelopmentTel : (65) 6380 6294Fax : (65) 6280 7141Contact : LIM Tau Fuie, Senior Vice President, Engineering & Development and Defence BusinessEmail : [email protected]

Marketing Offi ce

ASIA PACIFIC

JAPANSINGAPORE AEROSPACEKABUSHIKI KAISHA1-19-3 Wakabacho, TachikawaTokyo 190-0001, JapanTel : (81) 42 537 6005Fax : (81) 42 537 6882Contact : Taijo SATO, Representative DirectorEmail : [email protected]

SUBSIDIARIES

ASIA PACIFIC

SINGAPOREPACIFIC FLIGHT SERVICES PTE LTD (PFS)ST Aerospace Engineering Building600 West Camp RoadSeletar AirportSingapore 797654Tel : (65) 6481 3756Fax : (65) 6482 1727Contact : Capt. Terry Kenneth ABBOTT, Chief PilotEmail : charter_fl ight@pacifi c.net.sgContact : Katharine YEO, Assistant Marketing ManagerEmail : charter_fl ight@pacifi c.net.sg

ST AEROSPACE ENGINEERING PTE LTD (STA Engineering)540 Airport Road, Paya LebarSingapore 539938Tel : (65) 6380 6599Fax : (65) 6284 8575Contact : GOH Yong Kiat, Vice President/General ManagerEmail : [email protected]

ST AEROSPACE ENGINES PTE LTD (STA Engines)501 Airport Road, Paya LebarSingapore 539931Tel : (65) 6380 6600Fax : (65) 6282 3010Contact : CHOO Han Khoon, Vice President/General ManagerEmail : [email protected]

ST AEROSPACE INTERNATIONAL STRUCTURES PTE LTD (STAIS)540 Airport Road, Paya LebarSingapore 539938Tel : (65) 6380 6815Fax : (65) 6380 6292Contact : CHAI Kean Keat, General ManagerEmail : [email protected]

ST AEROSPACE SUPPLIES PTE LTD (STA Supplies)540 Airport Road, Paya LebarSingapore 539938Tel : (65) 6380 6282Fax : (65) 6383 4757/6284 3637Contact : CHU Min En, Deputy General ManagerEmail : [email protected]

ST AEROSPACE SYSTEMS PTE LTD (STA Systems)505A Airport Road, Paya LebarSingapore 539934Tel : (65) 6380 4613Fax : (65) 6284 0236Contact : ANG Chong Yew, Vice President/General ManagerEmail : [email protected]

ST AVIATION SERVICES CO PTE LTD (SASCO)8 Changi North WaySingapore 499611Tel : (65) 6540 5600Fax : (65) 6545 6757Contact : Stephen LOW, Senior Vice President/General ManagerEmail : [email protected]

VISIONTECH ENGINEERING PTE LTD (VTE)540 Airport Road, Paya LebarSingapore 539938Tel : (65) 6380 6819Fax : (65) 6287 6164Contact : R BALAKRISHNAN, Vice President/General ManagerEmail : [email protected]

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EUROPE

UNITED KINGDOM AIRLINE ROTABLES LIMITED (ARL)Building 6002, Taylors EndStansted Airport, StanstedEssex CM24 1RLUnited KingdomTel : (44) 1279 681 770Fax : (44) 1279 680 598Contact : PS TAN, General ManagerEmail : [email protected]

DENMARKSAS COMPONENT GROUP A/SAmager Strandvej 392DK-2770 KastrupDenmarkTel : (45) 32 32 2686Fax : (45) 32 32 2454Contact : Claus MORTENSEN, Deputy CEOEmail : [email protected]

NORTH AMERICA

USAST MOBILE AEROSPACE ENGINEERING, INC. (MAE)2100 9th Street, Brookley ComplexMobile, Alabama 36615United States of AmericaTel : (1) 251 438 8810Fax : (1) 251 438 8892Contact : Joseph NG, PresidentEmail : [email protected]

SAN ANTONIO AEROSPACE LP (SAA)9800 John Saunders RoadSan Antonio, Texas 78216United States of AmericaTel : (1) 210 293 3006Fax : (1) 210 293 3680Contact : LOH Moh Loong, PresidentEmail : [email protected]

ASSOCIATED AND INVESTMENT COMPANIES

ASIA PACIFIC

AUSTRALIAAEROSPACE ENGINEERING SERVICES PTY LTD (AES)PO Box 213, BullsbrookWestern Australia 6084AustraliaTel : (61) 8 9571 6170Fax : (61) 8 9571 6191Contact : Albert CHAN, Director (Operations)Email : [email protected]

CHINASHANGHAI TECHNOLOGIES AEROSPACE COMPANY LIMITED (STARCO)Hongqiao International Airport(Hongqiao Road 2550)Airport Road 3Shanghai 200335, ChinaTel : (86) 21 5118 8293Fax : (86) 21 5118 8264Contact : CHEW Sin Chor, Vice President/General ManagerEmail : [email protected]

SINGAPORECOMPOSITE TECHNOLOGY INTERNATIONAL PTE LTD (CTI)39 Loyang WaySingapore 508735Tel : (65) 6542 1121Fax : (65) 6542 5383Contact : PHUA Poey Chor, General ManagerEmail : [email protected]

EUROCOPTER SOUTH EAST ASIA PRIVATE LIMITED (ESEA)48 Loyang WaySingapore 508740Tel : (65) 6543 4108Fax : (65) 6542 8797Contact : Gerard MAITREPIERRE, PresidentEmail : [email protected]

SINGAPORE PRECISION REPAIR AND OVERHAUL PTE LTD (S-PRO)51 Loyang DriveSingapore 508956Tel : (65) 6545 3088Fax : (65) 6545 0833Contact : HWANG Tseng Ho, General ManagerEmail : [email protected]

TURBINE COATING SERVICES PTE LTD (TCS)5 Tuas Drive IISingapore 638639Tel : (65) 6860 2260Fax : (65) 6862 1068Contact : William C. KIRCHER, Managing DirectorEmail : [email protected]

TURBINE OVERHAUL SERVICESPTE LTD (TOS)5 Tuas Drive IISingapore 638639Tel : (65) 6860 2260Fax : (65) 6862 1068Contact : William C. KIRCHER, Managing DirectorEmail : [email protected]

ELECTRONICS SECTOR

SINGAPORE TECHNOLOGIES ELECTRONICS LIMITED (ST ELECTRONICS)24 Ang Mo Kio Street 65Singapore 569061Tel : (65) 6481 8888Fax : (65) 6482 1079Website : www.stee.stengg.comContact : SEAH Moon Ming, PresidentEmail : [email protected] : Magdalen LOH, Assistant Vice President/Head, Corporate CommunicationsEmail : [email protected]

Defence BusinessTel : (65) 6413 1751Fax : (65) 6481 1073Contact : LEE Fook Sun, Deputy President (Operations) and President (Defence Business)Email : [email protected]

Asia-Pacifi c OperationsTel : (65) 6413 3192Fax : (65) 6484 4700Contact : TAY Hun Kiat, President, Asia Pacifi c OperationsEmail : [email protected]

Corporate Services & MarketingTel : (65) 6413 3153Fax : (65) 6482 1913Contact : NG Chong Khim, Deputy President, Corp Services & Marketing and President, Communication & Sensor Systems GroupEmail : [email protected]

Large-Scale Systems GroupTel : (65) 6481 8888Fax : (65) 6483 2454Contact : YONG Thiam Chong, PresidentEmail : [email protected]

Branch Offi ces

BOTSWANAST ELECTRONICS (BOTSWANA)Postnet Kgale View Private Bag 351#307 Gaborone, BotswanaTel : (267) 391 2945Mobile : (267) 726 2726/(65) 9681 2719Fax : (267) 391 0924Contact : TAN Wee Hoe, General ManagerEmail : [email protected]

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HONG KONGSINGAPORE TECHNOLOGIES ELECTRONICS LIMITEDUnit 1804-09, Two Chinachem Exchange Square338 – 348 King’s Road, North PointHong Kong, S.A.R.Tel : (852) 3582 3868Fax : (852) 3579 2655Contact : Patrick LIM, Vice President/ General ManagerEmail : [email protected]

REPUBLIC OF KAZAKHSTANST ELECTRONICS (KAZAKHSTAN)Park Palace Bldg, B-Wing, 3rd Floor41 Kazibek Bi Str, 050100, AlmatyRepublic of KazakhstanTel : (7) 3272 980 188 Fax : (7) 3272 980 128Contact : Gary CHAN, General DirectorEmail : [email protected]

THAILANDSINGAPORE TECHNOLOGIES ELECTRONICS LTDBangkok Insurance (BKI) Building 18th Floor 25 South Sathorn Road Thoongmagamek, SathornBangkok 10120, ThailandTel : (66) 2677 4445/6/7Fax : (66) 2677 4448Contact : LEE Wee Song, General ManagerEmail : [email protected]

SUBSIDIARIES

ASIA PACIFIC

AUSTRALIARIPPLE SYSTEMS PTY LTD65 Burswood Road, BurswoodWestern Australia 6100Tel : (61) 8 9442 8800Fax : (61) 8 9442 8899Contact : Dr Paul NICHOLSON, CEOEmail : [email protected]

CHINAST ELECTRONICS (SHANGHAI) CO., LTDFloor 1&3, Block 6No. 1151 Lianxi RoadPudong New AreaShanghai 201204, ChinaTel: (86) 21 5042 7980Fax: (86) 21 6892 6327Contact : Mark CHAN Chee Meng, General ManagerEmail : [email protected]

Beijing Branch Offi ceSuite 1206, Tower A, Jianwai SOHONo. 39 Dongsanhuanzhong Road Chaoyang DistrictBeijing 100004, ChinaTel : (86) 10 5869 5585Fax : (86) 10 5869 5567Contact : Margaret TAN, ManagerEmail : [email protected]

Shenyang Branch Offi ceSuite 9-F, Hua Xin International TowerNo 219 Qing Nian Da JieShen He District, Shenyang 110016, ChinaTel : (86) 24 2396 3489Fax : (86) 24 2396 5021Contact : Mark CHAN Chee Meng, General ManagerEmail : [email protected]

ST ELECTRONICS (SICHUAN) CO., LTDIncubation Service Centre, D350No. 4 Xi Xin RoadHi-Tech Development West ZoneChengdu 611731, ChinaTel : (86) 28 6625 9228Fax : (86) 28 6625 9229Contact : CHAN On Yu, General ManagerEmail : [email protected]

ST ELECTRONICS (SOFTWARE SERVICES) LIMITED (formerly Xinke Information Systems Ltd) 3/F Shenzhen International Commerce BuildingTower B, Fu Tian District, Fuhua 1st Road Shenzhen, Guangdong Province 518048 ChinaTel : (86) 755 8228 8468Fax : (86) 755 8228 8428Contact : Mackay GOH, General ManagerEmail : [email protected]

Yichun BranchRoom No. 102, Kang Nai Xin BuildingYuan Zhou Industrial Park Yi Chun, Jiang Xi Postal Code 336000, ChinaTel : (86) 755 8293 1719Fax : (86) 755 8293 1979Contact : Mackay GOH, General ManagerEmail : [email protected]

ST ELECTRONICS-PCI CO. LTD.PCI Building, No. 50 Jianzhong RoadTianhe Software ParkGuangzhou 510665, ChinaTel : (86) 20 8552 9888Fax : (86) 20 8552 9216Contact : CHONG Ming Da, CEOEmail : [email protected]

BRIGHTSPOT INTERACTIVE LEARNING INC.13F ChangXin BuildingNo. 39 Anding RoadChaoYang DistrictBeijing 100029, ChinaTel: (86) 10 6442 5151Fax: (86) 10 6442 3686Contact : Ken CHOU, Executive DirectorEmail : [email protected]

HONG KONGINFA SYSTEMS LIMITEDUnit 3104-3105, Universal Trade Centre3 Arbuthnot Road, CentralHong Kong, S.A.R.Tel : (852) 2231 0808Fax : (852) 2806 1829Contact : Jeremy GOH, General ManagerEmail : [email protected]

MALAYSIASEEL ELECTRONIC & ENGINEERING SDN BHD15B & 17B Jln Petaling Utama 11(Off Jln Kelang Lama)46000 Petaling JayaSelangor, MalaysiaTel : (60) 3 7781 1573Fax : (60) 3 7783 2308Contact : PRASAD s/o Gobinathan, Acting General ManagerEmail : [email protected]

SINGAPOREKey SubsidiariesST ELECTRONICS (INFO-COMM SYSTEMS) PTE. LTD.100 Jurong East Street 21ST Electronics Jurong East BuildingSingapore 609602Tel : (65) 6567 6769Fax : (65) 6567 6300Contact : LAU Thiam Beng, PresidentEmail : [email protected]

ST ELECTRONICS (INFO-SOFTWARE SYSTEMS) PTE. LTD.24 Ang Mo Kio Street 655th Floor, Block DSingapore 569061Tel : (65) 6481 8888Fax : (65) 6481 0693Contact : CHANG Yew Kong, PresidentEmail : [email protected]

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ST ELECTRONICS (SATCOM & SENSOR SYSTEMS) PTE. LTD.100 Jurong East Street 21, Level 4ST Electronics Jurong East BuildingSingapore 609602Tel : (65) 6567 6791Fax : (65) 6567 6370Contact : TANG Kum Chuen, Senior Vice President/General ManagerEmail : [email protected]

ST ELECTRONICS (TRAINING & SIMULATION SYSTEMS) PTE. LTD. 24 Ang Mo Kio Street 654th Floor, Block DSingapore 569061Tel : (65) 6413 1307Fax : (65) 6482 6162Contact : Eric CHAN Meng Koo, General ManagerEmail : [email protected]

Other Subsidiaries

DATAMARK TECHNOLOGIES PTE LTD100 Jurong East Street 21ST Electronics Jurong East BuildingSingapore 609602Tel : (65) 6568 7118Fax : (65) 6568 7226Contact : Andrew CHOW, General ManagerEmail : [email protected]

iDIRECT SINGAPORE PTE. LTD.One Marina Boulevard #28-00 Singapore 018989Tel : (65) 6430 6789Fax : (65) 6782 5738 Contact : Andrew BOND-WEBSTER, Managing Director, Asia Pacifi cEmail : [email protected]

PM-B PTE LTD70 Ubi Crescent #01-12 Ubi TechparkSingapore 408570Tel : (65) 6848 1333Fax : (65) 6848 2026Contact : Nicky TING, CEOEmail : [email protected]

ST EDUCATION & TRAINING PRIVATE LIMITED1 Maritime SquareHarbourFront Centre, #11-19Singapore 099253Tel : (65) 6477 6688Fax : (65) 6477 6677Contact : Mike CHEN, CEOEmail : [email protected]

ST ELECTRONICS (DIGITAL MEDIA) PTE. LTD. (formerly Interactive Visual Laboratory Pte Ltd – IV Lab) 108B Amoy StreetSingapore 069928Tel : (65) 6325 2986Fax : (65) 6227 2249Contact : Cosmas LEE, Business Development ManagerEmail : [email protected]

ST ELECTRONICS (E-SERVICES) PTE. LTD.5 Depot Road, #08-06, Tower BDefence Technology TowersSingapore 109681Tel : (65) 6373 1185Fax : (65) 6373 1248Contact : CHANG Yew Kong, DirectorEmail : [email protected]

ST ELECTRONICS (INFO-SECURITY) PTE. LTD. (formerly DigiSAFE Pte Ltd) 100 Jurong East Street 21ST Electronics Jurong East BuildingSingapore 609602Tel : (65) 6568 7118Fax : (65) 6568 7226Contact : Andrew CHOW, General ManagerEmail : [email protected]

STELCOMMS PTE. LTD.100 Jurong East Street 21ST Electronics Jurong East BuildingSingapore 609602Tel : (65) 6568 6388Fax : (65) 6568 6368Contact : FOO Kim Peng, General ManagerEmail : [email protected]

STELOP PTE. LTD.(formerly Chartered Electro-Optics Pte Ltd)24 Ang Mo Kio Street 65BIock D, 5th Floor, Singapore 569061Tel : (65) 6481 1801Fax : (65) 6481 1337Contact : Jeremy FOO, General ManagerEmail : [email protected]

TRANSYS PTE LTD24 Ang Mo Kio Street 654th Floor, Block ASingapore 569061Tel : (65) 6481 0002Fax : (65) 6484 4728Contact : Kuber Tammanna TUKOL, General ManagerEmail : [email protected]

TAIWANST ELECTRONICS (TAIWAN) LIMITED6th Floor, No 9, Lane 3Ming Sheng West Road, Taipei 104Taiwan, R.O.C.Tel : (886) 2 2521 6388Fax : (886) 2 2521 4880Contact : KOH Chan Tia, General ManagerEmail : [email protected]

USAiDIRECT, INC.13865 Sunrise Valley DriveHerndon, Virginia 20171United States of AmericaTel : (1) 703 648 8000Fax : (1) 703 648 8014Contact : Toni Lee Rudnicki, Chief Marketing Offi cerEmail : [email protected]

INTELECT TECHNOLOGIES, INCORPORATED1225 Commerce StreetRichardson, Texas 75081United States of AmericaTel : (1) 972 367 2100Fax : (1) 972 367 2200Contact : NG Kim Hock, CEOEmail : [email protected]

MÄK TECHNOLOGIES, INC.68 Moulton StreetCambridge, Massachusetts 02138United States of AmericaTel : (1) 617 876 8085Fax : (1) 617 876 9208Contact : Marc SCHLACKMAN, Vice President Marketing and SalesEmail : [email protected]


ASIA PACIFIC

CHINASINOSTRIDE TECHNOLOGY CO LTDBldg G, Zhejiang University Science Park525, Xixi RoadHangzhou, ChinaTel : (86) 571 8821 9519Fax : (86) 571 8821 0596Contact : CHAU Chit, ChairmanEmail : [email protected]

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NEW ZEALANDCADMUS TECHNOLOGY LIMITED66 Hillside RoadGlenfi eld, P.O. Box 100490, NSMCAuckland, New ZealandTel : (64) 9442 2700Fax : (64) 9442 2722Contact : Ian BAILEY, Managing DirectorEmail : [email protected]

SINGAPOREECS HOLDINGS LIMITEDBlock 19, Kallang Avenue #06-151Singapore 339410Tel : (65) 6299 9433Fax : (65) 6298 3629Contact : TAY Eng Hoe, Group CEOEmail : [email protected]

INFOWAVE PTE LTD600 Sin Ming Avenue4th Floor CityCab BuildingSingapore 575733Tel : (65) 6483 0228Fax : (65) 6483 0388Contact : LOH Choon Seng, Managing DirectorEmail : [email protected]

iWOW TECHNOLOGY PTE LTD1 Lorong 2 Toa Payoh #04-01Yellow Pages BuildingSingapore 319637Tel : (65) 6748 8123Fax : (65) 6748 2668Contact : Raymond BO, Managing DirectorEmail : [email protected]

PRESCIENT SYSTEMS & TECHNOLOGIES PTE. LTD.24 Ang Mo Kio Street 653rd Floor, Block DSingapore 569061Tel : (65) 6413 1370Fax : (65) 6482 1181Contact : Jonathan RATNAM, General Manager Email : [email protected]

SANDZ SOLUTIONS (SINGAPORE) PTE LTD261 Kaki Bukit Avenue 1Shun Li Industrial ParkSingapore 416065Tel : (65) 6741 1535Fax : (65) 6741 1444Contact : Lawrence LIAW, Managing Director Email : [email protected]

ST LOGITRACK PTE LTDBlock 1003, Bukit Merah Central#03-10, Redhill Industrial EstateSingapore 159836Tel : (65) 6277 2882/3Fax : (65) 6277 2886Contact : TANG Kwai Leng, General ManagerEmail : [email protected]

TRUSTED HUB LTD7 Bedok South RoadSingapore 469272Tel : (65) 6827 3268Fax : (65) 6827 3173Contact : Bryan WONG, PresidentEmail : [email protected]

WIZVISION PTE LTD73 Bukit Timah Road #04-01 Rex House, Singapore 229832Tel : (65) 6392 0542Fax : (65) 6392 0790Contact : LIM Kah Chuan, CEOEmail : [email protected]

CANADAiDIRECT CANADA, INC495 Richmond Road, Suite 101Ottawa, OntarioCanada K2A OK5Tel: (1) 613 265 4631Fax: (1) 613 482 4836Contact : John CLARKE, Managing DirectorEmail : [email protected]

POLARSAT HOLDINGS INC.18, 105 Trans Canada HighwayKirkland, QuebecH9J 3Z4, CanadaTel : (514) 694 2244Fax : (514) 694 5288Contact : Cosimo MODAFFERI, President and CEOEmail : [email protected]

MEXICOGFM ELECTRONICS S.A. DE C.V.Av Pedro Ramirez Vazquez 200-10Colonia Valle Oriente, Garza Garcia, N.L.C.P. 66269, MexicoTel : (52) 8152 1532/8152 1562Fax : (52) 8152 1583Contact : Roberto Rivero LARREA, DirectorEmail : [email protected]

LAND SYSTEMS SECTOR

SINGAPORE TECHNOLOGIES KINETICS LTD(ST KINETICS)5 Portsdown RoadSingapore 139296Tel : (65) 6473 6311Fax : (65) 6471 0662Website : www.stengg.comContact : SEW Chee Jhuen, PresidentEmail : [email protected] : Natalie MAH, Assistant Vice President/Head, Corporate CommunicationsEmail : [email protected]

Defence BusinessTel : (65) 6660 8383Fax : (65) 6264 0913 Contact : GAN Boon Jin, Senior Vice President, Land Systems & Solutions/Defence BusinessEmail : [email protected]

Commercial BusinessTel : (65) 6660 7001Fax : (65) 6262 3135Contact : TEO Boon Swee, Executive Vice President, Specialty Vehicles & ServicesEmail : [email protected]

International MarketingTel : (65) 6660 7631Fax : (65) 6265 8862Contact : Patrick CHOY, Executive Vice President, International MarketingEmail : [email protected]

STAR AUTOMOTIVE CENTRE

Portsdown Centre (HQ)5 Portsdown RoadSingapore 139296Tel : (65) 6562 0000Fax : (65) 6475 1991Contact: LEE Thian Chye, Operations ManagerEmail: [email protected]

INDEPENDENT DAMAGE ASSESSMENTCENTRE (IDAC)

Bedok CentreBlk 3012 Bedok Industrial Park E#01-2072 Bedok North Ave 4Singapore 489978Tel : (65) 6555 6333Fax : (65) 6243 5019Contact : TEO Tse Keng, ManagerEmail : [email protected]

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Portsdown Centre5 Portsdown RoadSingapore 139296Tel : (65) 6555 6111Fax : (65) 6476 0057Contact : TEO Tse Keng, ManagerEmail : [email protected]

Sin Ming Centre302 Sin Ming RoadSingapore 575627Tel : (65) 6555 6888Fax : (65) 6454 3279Contact : TEO Tse Keng, ManagerEmail : [email protected]

Ubi Centre5 Ubi CloseSingapore 408605Tel : (65) 6555 6777Fax : (65) 6742 9846Contact : TEO Tse Keng, ManagerEmail : [email protected]

SUBSIDIARIES

ASIA PACIFIC

CHINAGUIZHOU JONYANG KINETICS CO., LTD. 97 Zhongcao RoadGuiyang, Guizhou 550006ChinaTel : (86) 851 3833 160Fax : (86) 851 3834 602Contact : Lincoln JIANG, Corporate Liaison & Business ManagerEmail : [email protected]

SHANGHAI ELITE ELECTRIC VEHICLESCO., LTD 555 Kang Hua RoadKang Qiao, Industrial ZonePudong, Shanghai 201315ChinaTel : (86) 21 6819 4138Fax : (86) 21 6819 2681Mobile: (86) 1350 1291 820Contact : TEE Song Huat, Vice President, CommercialEmail : [email protected]

STAR AUTOMOTIVE CENTER (GUANGZHOU) CO., LTD.128 Xin Jiao Dong Road Hai Zhu District, Guangzhou 510320 ChinaTel : (86) 20 3408 6618 Fax : (86) 20 3408 6722 Contact : PEE Yap Aik, General ManagerEmail : [email protected]

STAR AUTOMOTIVE CENTER (ZHEJIANG) CO., LTD.8 Liuxiang RoadHangzhou 310011ChinaTel : (86) 571 8817 2277Fax : (86) 571 8817 3288Contact : David YEOW, General ManagerEmail : [email protected]

SINGAPOREALLIED ORDNANCE OF SINGAPORE(PTE) LIMITED 2D Ayer Rajah Crescent#08-01, AOS BuildingSingapore 139938Tel : (65) 6779 7955Fax : (65) 6779 0284Contact : Alex TEO, General ManagerEmail : [email protected]

ADVANCED MATERIAL ENGINEERING PTE. LTD. 249 Jalan Boon LaySingapore 619523Tel : (65) 6660 7231Fax : (65) 6268 7579Contact : JWAY Ching Hua, Senior Vice President/General ManagerEmail : [email protected]

ADVANCED PYROTECHNIC MATERIALSPRIVATE LIMITED249 Jalan Boon LaySingapore 619523Tel : (65) 6468 3211Fax : (65) 6467 2989Contact : CHAN Sun Fatt, General Manager Email : [email protected]

MOBILITY SYSTEMS PTE LTD5 Portsdown RoadSingapore 139296Tel : (65) 6660 7001Fax : (65) 6262 3135Contact : TEO Boon Swee, DirectorEmail : [email protected]

ORDNANCE DEVELOPMENT AND ENGINEERINGCOMPANY OF SINGAPORE (1996) PRIVATE LIMITED15 Chin Bee DriveSingapore 619863Tel : (65) 6265 5322Fax : (65) 6265 2285Contact : TOH Beng Khoon, Vice President/General ManagerEmail : [email protected]

SILVATECH GLOBAL SYSTEMS LIMITED249 Jalan Boon LaySingapore 619523Tel : (65) 6660 7001Fax : (65) 6262 3135Contact : MAH Chi Jui, CEOEmail : [email protected]

SILVATECH SYSTEMS CORPORATIONPTE LTD 249 Jalan Boon LaySingapore 619523Tel : (65) 6660 7001Fax : (65) 6262 3135Contact : MAH Chi Jui, CEOEmail : [email protected]

SINGAPORE ORDNANCE ENGINEERINGPTE. LTD. 5 Portsdown RoadSingapore 139296Tel : (65) 6481 8463Fax : (65) 6481 9159Contact : Alex TEO, General ManagerEmail : [email protected]

SINGAPORE TEST SERVICES PRIVATE LIMITED249 Jalan Boon LaySingapore 619523Tel : (65) 6660 7316Fax : (65) 6261 2617Contact : Sudheer PRABHAKARAN, General ManagerEmail : [email protected]

STA DETROIT DIESEL-ALLISON (SINGAPORE) PTE LTD16 Benoi CrescentSingapore 629979Tel : (65) 6265 5222Fax : (65) 6265 3669Contact : CHIN Yang Pin, Vice President/General ManagerEmail : [email protected]

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STA INSPECTION PTE LTD

Sin Ming Centre (HQ)302 Sin Ming RoadSingapore 575627Tel : (65) 6210 4700Fax : (65) 6453 8244Contact : Dennis HENG, Vice President/General ManagerEmail : [email protected]

Ayer Rajah Centre2E Ayer Rajah CrescentSingapore 139958Tel : (65) 6476 0988Fax : (65) 6476 3034Contact : TEO Kee Jin, ManagerEmail : [email protected]

STA INVESTMENT PTE LTD 5 Portsdown RoadSingapore 139296Tel : (65) 6470 8700Fax : (65) 6472 3246Contact : Laurence ONG, Senior Vice President/Group Financial ControllerEmail : [email protected]

UNICORN INTERNATIONAL PTE LIMITED249 Jalan Boon LaySingapore 619523Tel : (65) 6660 7573Fax : (65) 6266 6971Contact : CHENG Tee Yeow, Vice President/General ManagerEmail : [email protected]

TAIWANAOS TAIPEI OFFICE7F-1A, 65-1Rui An Street, TaipeiTaiwan, R.O.C.Tel : (8862) 2707 1526Fax : (8862) 2707 1664Contact : WU Hsin Chieh, AOS RepresentativeEmail : [email protected]

CANADAKINETICS DRIVE SOLUTIONS INC.27489-56th AvenueLangley, British Columbia, V4W 3X1CanadaTel : (1604) 607 8877Fax : (1604) 607 8825Contact : MAH Chi Jui, CEO Email : [email protected]

USAVT LEEBOY, INC500 Lincoln County Pkwy. ExtLincolnton, North Carolina 28092United States of AmericaTel : (1) 704 966 3300Fax : (1) 704 483 5802Contact : Kelly MAJESKIE, President and CEOEmail : [email protected]

VT SPECIALIZED VEHICLES CORPORATION125 Edinburgh South, Suite 100Cary, North Carolina 27511United States of AmericaTel : (65) 9818 4548Fax : (65) 6262 3135Contact : CHANG Cheow Teck, DirectorEmail : [email protected]


ASIA PACIFIC

CHINABEIJING ZHONGHUAN KINETICS HEAVYVEHICLES CO. LTD. No. 15, Xingguang 5 Jie, Tong Zhou YuanZhong Guan Cun Ke Ji YuanBeijing 101111ChinaTel : (86) 10 8150 3508Fax : (86) 10 8150 3525Mobile: (86) 1350 1291 820Contact : TEE Song Huat, Vice President, CommercialEmail : [email protected]

KOREANESSCAP CO., LTDGomae-Ri, 750-8 Kiheung-Eup Yongin-SiKyonggi-Do, 449-901KoreaTel : (65) 6660 7001Fax : (65) 6262 3135Contact : TEO Boon Swee, Executive Vice PresidentEmail : [email protected]

MALAYSIANUSANTARA TECHNOLOGIES SDN. BHD.No. 5 Jalan Anggerik Mokara 31/45Seksyen 31, Kota Kemuning40460 Shah AlamSelangor, Darul Ehsan, MalaysiaTel : (03) 5122 9766/9767Fax : (03) 5122 8766/8767Contact : Pamela CHAN, Finance & Admin ManagerEmail : [email protected]

SINGAPORECITYCAB PTE LTD383 Sin Ming DriveSingapore 575717Tel : (65) 6555 1188Fax : (65) 6454 3305Contact : YANG Ban Seng, CEO, Taxi BusinessEmail : [email protected]

DEFENCE ELECTRONICS OF SINGAPOREPTE LTD2B/2C Ayer Rajah CrescentSingapore 139937Tel : (65) 6770 7846Fax : (65) 6779 0284Contact : KHAW Pe Soo, Industrial ManagerEmail : [email protected]

SMART SYSTEMS PTE LTD601 Rifl e Range RoadSingapore 588398Tel : (65) 6466 2345Fax : (65) 6466 3313Contact : Francis CHONG, General ManagerEmail : [email protected]

TAKATA CPI SINGAPORE PTE LTD249 Jalan Boon LaySingapore 619523Tel : (65) 6466 5180Fax : (65) 6465 6616Contact : George C. MARJANSKI, CEOEmail : [email protected]

EUROPETIMONEY HOLDINGS LIMITEDGibbstown, NavanCo. Meath, IrelandTel : 353 46 905 5100Fax : 353 46 905 4424Contact : Shane O’NEILL, CEOEmail : [email protected]

USAAZURE DYNAMICS CORPORATION9 Forbes RoadWoburn, Massachusetts 01801United States of AmericaTel : (1) 78 1932 9009Fax : (1) 78 1932 9219Contact : MAH Chi Jui, Vice President, New BusinessEmail : [email protected]

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MARINE SECTOR

SINGAPORE TECHNOLOGIES MARINE LTD(ST MARINE)7 Benoi RoadSingapore 629882Tel : (65) 6861 2244 (mainline)Fax : (65) 6861 3028Website : www.stengg.comContact : SEE Leong Teck, PresidentEmail : [email protected] : Assistant Vice President/Head, Corporate CommunicationsEmail : [email protected]

Defence BusinessTel : (65) 6860 9138Fax : (65) 6861 3028Contact : HAN Yew Kwang, Chief Operating Offi cer (Defence Business)Email : [email protected]

Main YardTel : (65) 6860 9237Fax : (65) 6861 3028Contact : TWOON Kok Yam, Vice President (Yard – Benoi)Email : [email protected]

Commercial MarketingTel : (65) 6860 9281Fax : (65) 6861 3028Contact : LIM Siew Koon, Senior Vice President, Commercial Marketing & Business DevelopmentEmail : [email protected]

Naval MarketingTel : (65) 6860 9283Fax : (65) 6861 3028Contact : Charles LOKE, Senior Regional Director, Naval MarketingEmail : [email protected]

Tel : (65) 6860 9178Fax : (65) 6861 3028Contact : Gabriel HENG, Regional Marketing Manager, Naval MarketingEmail: [email protected]

Tuas Yard60 Tuas RoadSingapore 638501Tel : (65) 6862 2902/3Fax : (65) 6862 5382

Tel : (65) 6864 8608Fax : (65) 6862 5382Contact : TEH Yew Shyan, Senior Vice President (Yard – Tuas)Email : [email protected]

USAVT HALTER MARINE, INC.900 Bayou Casotte ParkwayPascagoula, Mississippi 39581United States of AmericaTel : (1) 228 696 6888Fax : (1) 228 696 6899Contact : Boyd E. KING, CEOEmail : [email protected]

SUBSIDIARIES

STSE ENGINEERING SERVICES PTE LTD7 Benoi RoadSingapore 629882Tel : (65) 6860 9281Fax : (65) 6861 3028Contact : LIM Siew Koon, Senior Vice President, Commercial Marketing & Business DevelopmentEmail : [email protected]


ASIA PACIFIC

INDONESIAPT SSE-VAN DER HORST INDONESIA(PT-SSE)Gedung Artha Graha, 25th FloorJl Jendral Sudirman Kav 52-53, JakartaIndonesia 12190Tel : (62) 21 515 4271Fax : (62) 21 515 4272Contact : WEE Boon Chye, DirectorEmail : [email protected]

SINGAPOREJOINT SHIPYARD MANAGEMENT SERVICES PTE LTD (JSMS)29 Tanjong Kling RoadSingapore 628054Tel : (65) 6265 1766Fax : (65) 6261 0738Contact : POON Ter Ter, DirectorEmail : [email protected] : TWOON Kok Yam, DirectorEmail : [email protected]


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Notice of Tenth Annual General Meeting

NOTICE IS HEREBY GIVEN THAT the Tenth Annual General Meeting of the Company will be held at Crystal Suite, Level 2, Holiday Inn Park View Singapore, 11 Cavenagh Road, Singapore 229616 on Wednesday, 25 April 2007 at 2.30 p.m. to transact the following business:

AS ORDINARY BUSINESS

Resolution 1To receive and adopt the Directors’ Report and Audited Accounts for the year ended 31 December 2006 and the Auditors’ Report thereon.

Resolution 2To declare a fi rst and fi nal tax exempt (one-tier) dividend of 4.0 cents per share and a special tax exempt (one-tier) dividend of 11.11 cents per share for the year ended 31 December 2006.

Resolution 3(a) To re-elect the following Directors, each of whom will retire by

rotation pursuant to Article 98 of the Articles of Association of the Company and who, being eligible, will offer themselves for re-election.

(i) Mr Koh Beng Seng* (ii) Dr Tan Kim Siew (iii) Mr Lucien Wong Yuen Kuai

* Mr Koh Beng Seng will, upon re-election as a Director of the Company, continue as Chairman of the Audit Committee. Mr Koh is considered an independent director for the purpose of Rule 704(8) of the Singapore Exchange Securities Trading Limited (“SGX-ST”) Listing Manual.

(b) To record the retirement of LG Ng Yat Chung, a Director retiring by rotation pursuant to Article 98 of the Articles of Association of the Company, who has decided not to seek re-election.

Resolution 4To approve the sum of $866,000 as Directors’ fees for the year ended 31 December 2006. (2005: $630,111)

Resolution 5To re-appoint Ernst & Young as Auditors of the Company and to authorise the Directors to fi x their remuneration.

AS SPECIAL BUSINESS

To consider and, if thought fi t, to pass with or without modifi cations, the following resolutions which will be proposed as Ordinary Resolutions:

Resolution 6That authority be and is hereby given to the Directors to:

(a) (i) issue shares in the capital of 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) 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 fi t; and

(b) (notwithstanding the authority conferred by this Resolution may have ceased to be in force) issue shares in pursuance of any Instrument made or granted by the Directors while this Resolution was in force,

provided that:

(1) the aggregate number of shares to be issued pursuant to this Resolution (including shares to be issued in pursuance of Instruments made or granted pursuant to this Resolution) does not exceed 50 per cent. of the issued shares in the capital of the Company (as calculated in accordance with paragraph (2) below), of which the aggregate number of shares to be issued other than on a pro rata basis to shareholders of the Company (including shares to be issued in pursuance of Instruments made or granted pursuant to this Resolution) does not exceed 20 per cent. of the issued shares in the capital of the Company (as calculated in accordance with paragraph (2) below);

(2) (subject to such manner of calculation as may be prescribed by the SGX-ST) for the purpose of determining the aggregate number of shares that may be issued under paragraph (1) above, the percentage of issued shares shall be based on the number of issued shares in the capital of the Company at the time this Resolution is passed, after adjusting for:

(i) new shares arising from the conversion or exercise of any convertible securities or share options or vesting of share awards which are outstanding or subsisting at the time this Resolution is passed; and

(ii) any subsequent consolidation or subdivision of shares;

(3) in exercising the authority conferred by this Resolution, the Company shall comply with the provisions of the Listing Manual of the SGX-ST for the time being in force (unless such compliance has been waived by the SGX-ST) and the Articles of Association for the time being of the Company; and

SINGAPORE TECHNOLOGIES ENGINEERING LTD(INCORPORATED IN THE REPUBLIC OF SINGAPORE)(Regn No: 199706274H)

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(4) (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 7THAT approval be and is hereby given to the Directors to:

(a) offer and grant options in accordance with the provisions of the Singapore Technologies Engineering Share Option Plan (“Share Option Plan”) and/or to grant awards in accordance with the provisions of the Singapore Technologies Engineering Performance Share Plan (“Performance Share Plan”) and/or the Singapore Technologies Engineering Restricted Stock Plan (“Restricted Stock Plan”) (the Share Option Plan, the Performance Share Plan and the Restricted Stock Plan, together the “Share Plans”); and

(b) allot and issue from time to time such number of ordinary

shares in the capital of the Company as may be required to be issued pursuant to the exercise of options under the Share Option Plan and/or such number of fully paid shares as may be required to be issued pursuant to the vesting of awards under the Performance Share Plan and/or the Restricted Stock Plan,

provided that the aggregate number of ordinary shares to be issued pursuant to the Share Plans shall not exceed fi fteen per cent. (15%) of the total number of issued shares in the capital of the Company from time to time. STATEMENT PURSUANT TO ARTICLE 60 OF THE ARTICLES OF ASSOCIATION OF THE COMPANY

Resolution No. 6 is to empower the Directors to issue shares in the capital of the Company and to make or grant instruments (such as warrants or debentures) convertible into shares, and to issue shares in pursuance of such instruments, up to a number not exceeding in total fi fty per cent. (50%) of the issued shares in the capital of the Company, with a sub-limit of twenty per cent. (20%) for issues other than on a pro rata basis to shareholders. For the purpose of determining the aggregate number of shares that may be issued, the percentage of issued shares shall be based on the number of issued shares in the capital of the Company at the time that Resolution No. 6 is passed, after adjusting for (a) new shares arising from the conversion or exercise of any convertible securities or share options or vesting of share awards which are outstanding or subsisting at the time that Resolution No. 6 is passed, and (b) any subsequent consolidation or subdivision of shares.

Resolution No. 7 is to empower the Directors to offer and grant options and/or grant awards and to issue ordinary shares in the capital of the Company pursuant to the Singapore Technologies Engineering Share Option Plan, Singapore Technologies

Engineering Performance Share Plan and Singapore Technologies Engineering Restricted Stock Plan (collectively the “Share Plans”). Approval for the adoption of the Share Plans was given by shareholders at an Extraordinary General Meeting of the Company held on 23 November 2000. The grant of options and awards under the respective Share Plans will be made in accordance with their respective provisions. The aggregate number of ordinary shares which may be issued pursuant to the Share Plans is limited to fi fteen per cent. (15%) of the total number of issued shares in the capital of the Company over the 10-year duration of the Share Plans.

BY ORDER OF THE BOARD

CHUA SU LI (Mrs)Company Secretary

Singapore, 2 April 2007

NOTES:

1. A member of the Company entitled to attend and vote at the Annual General Meeting is entitled to appoint not more than two proxies to attend and vote in his stead. A proxy need not be a member of the Company.

2. The instrument appointing a proxy must be lodged at the registered offi ce of the Company at 51 Cuppage Road, #09-08, StarHub Centre, Singapore 229469 not less than 48 hours before the time appointed for the Annual General Meeting.

BOOKS CLOSURE AND DIVIDEND PAYMENT DATES

Duly completed transfers in respect of ordinary shares in the capital of the Company together with all relevant documents of title received by the Company’s share registrar, M & C Services Private Limited, 138 Robinson Road, #17-00, The Corporate Offi ce, Singapore 068906 up to the close of business at 5.00 p.m. on 2 May 2007 (the “Books Closure Date”) will be registered to determine members’ entitlements to the proposed dividends, subject to approval of members to the proposed dividends at the Tenth Annual General Meeting to be convened on 25 April 2007. Subject as aforesaid, members whose Securities Accounts with The Central Depository (Pte) Limited are credited with ordinary shares in the capital of the Company as at 5.00 p.m. on the Books Closure Date will be entitled to the dividends. The Register of Members and Share Transfer Books will be closed on 3 May 2007 for the purpose of determining members’ entitlements to the proposed dividends. The proposed dividends, if so approved by members, will be paid on 18 May 2007.

Notice of Tenth Annual General Meeting


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IMPORTANT

1. For investors who have used their CPF moneys to buy ordinary shares in the capital of Singapore Technologies Engineering Ltd, the 2006 Annual Report is forwarded to them at the request of their 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.


PROXY FORM

I I/We, NRIC/Passport Number

of

being a member/members of the abovenamed Company, hereby appoint

II

(a)

(b)

Name Address NRIC/Passport Number Proportion of Shareholdings (%)

and/or (delete as appropriate)

as my/our proxy/proxies to attend and to vote for me/us on my/our behalf and, if necessary, to demand a poll, at the Tenth Annual General Meeting of the Company to be held at Crystal Suite, Level 2, Holiday Inn Park View Singapore, 11 Cavenagh Road, Singapore 229616 on Wednesday, 25 April 2007 at 2.30 p.m. and at any adjournment thereof.

(Please indicate with an “X” in the spaces provided whether you wish your vote(s) to be cast for or against the Ordinary Resolutions as set out in the Notice of the Annual General Meeting. In the absence of specifi c directions, the proxy/proxies will vote or abstain as he/they may think fi t, as he/they will on any other matter arising at the Annual General Meeting.)

III No Ordinary Resolutions For Against

Ordinary Business

1 Adoption of Accounts and Reports

2Declaration of First and Final Tax Exempt (one-tier) Dividend and Special Tax Exempt (one-tier) Dividend

3 (a)Re-election of Directors retiring by rotation pursuant to Article 98 of the Articles of Association of the Company

(i) Mr Koh Beng Seng

(ii) Dr Tan Kim Siew

(iii) Mr Lucien Wong Yuen Kuai

4 Approval of Directors’ Fees

5 Re-appointment of Ernst & Young as Auditors

Special Business

6 Authority for Directors to issue shares

7

Authority for Directors to offer and grant options and/or grant awards and allot shares, pursuant to the Singapore Technologies Engineering Share Option Plan, Singapore Technologies Engineering Performance Share Plan and Singapore Technologies Engineering Restricted Stock Plan

Signature(s) of Member(s) or Common Seal

Total Number of Shares held

IMPORTANTPLEASE READ NOTES OVERLEAF

Dated this day of 2007

Global Reports LLC

Postage will be paid by

addressee. For posting in

Singapore only.

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 defi ned in Section 130A of the Companies Act, Chapter 50 of Singapore), you should insert that number of shares. If you have shares registered in your name in the Register of Members, you should insert that number of shares. 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 member 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. Such proxy need not be a member of the Company.

3 Where a member appoints two proxies, the appointments shall be invalid unless he specifi es the proportion of his shareholding (expressed as a percentage of the whole) to be represented by each proxy.

4 The instrument appointing a proxy or proxies must be deposited at the registered offi ce of the Company at 51 Cuppage Road, #09-08, StarHub Centre, Singapore 229469, not less than 48 hours before the time appointed for the Tenth Annual General Meeting.

5 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 offi cer or attorney duly authorised.

6 A corporation which is a member may authorise by a resolution of its directors or other governing body such person as it thinks fi t to act as its representative at the Tenth Annual General Meeting, in accordance with Section 179 of the Companies Act, Chapter 50 of Singapore.

General:

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 specifi ed in the instrument appointing a proxy or proxies. In addition, in the case of shares entered in the Depository Register, the Company may reject any instrument appointing a proxy or proxies lodged if the member, being the appointor, is not shown to have shares entered against his name in the Depository Register as at 48 hours before the time appointed for holding the Tenth Annual General Meeting, as certifi ed by The Central Depository (Pte) Limited to the Company.

Singapore Technologies Engineering Ltd51 Cuppage Road

#09-08 StarHub CentreSingapore 229469

(Regn No: 199706274H)

< 1 fold this dotted line >

< 2 fold this dotted line >

BUSINESS REPLY SERVICE PERMIT NO. 07705

(077055)

Global Reports LLC


Global Reports LLC

SINGAPORE TECHNOLOGIES ENGINEERING LTD51 Cuppage Road #09-08StarHub CentreSingapore 229469 Tel: (65) 6722 1818 Fax: (65) 6720 2293http://www.stengg.com(Regn. No.: 199706274H)

ST Engineering Group

The winning spirit in an organisation begins with the will of its management and is realised in the collective mindset of its employees.

An integrated engineering group, ST Engineering delivers innovative solutions and services in the Aerospace, Electronics, Land Systems and Marine sectors. The Group leverages on its multi-sector capabilities to be a one-stop solutions provider for its customers in over 60 countries.

The Group’s internationalisation efforts have spawned over 100 subsidiaries and associated companies in 20 countries and 35 cities, spanning the US, Europe, Middle East, Central Asia and Australasia. In the Americas, ST Engineering has established a signifi cant presence, with operations in 20 locations across the US, Canada and Central America. In China, the Group has grown its reach considerably, with operations in 16 cities, including Beijing, Shanghai and Guangzhou.

One of the largest companies listed on The Singapore Exchange with a market capitalisation of more than $9b (about US$6b) as at end December 2006, ST Engineering achieved revenues of $4.49b and net earnings of S$445.1m in FY2006.

ST Engineering’s solutions add value, build capabilities, as well as facilitate transformational outcomes for customers. It fulfi ls this through strategies and practices that promote the winning spirit among its 17,000 staff worldwide.


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