Forty is an important number. At forty you’ve taken some risks, had some knocks and gained wisdom in the process. You know who you are and where you’re going. You’ve honed your strengths, and you’re raring to go. The best is yet to come. life begins at f rty

Annual Report 2007 at forty Singapore Technologies Engineering Ltd 1 Annual Report 2007 foresight originality responsibility teamwork young

The growth of Singapore is buttressed by its engineering achievements, of which ST Engineering has played no small role. ST Engineering celebrated its 40th Anniversary in 2007 with aplomb and gratitude, and looks forward to the next 40 years.

A fervent supporter of the arts and community, ST Engineering is showcasing the rich illustrative styles of local artists in this annual report, which is printed entirely on recycled paper.

Contents

01 Life Begins at Forty 12 Letter to Shareholders 18 Financial Highlights 24 Board of Directors 28 Senior Management 32 Organisation Chart 34 Corporate Governance 45 40th Anniversary 48 Community and Environment 50 Investor Relations 50 – Investor Relations Calendar 51 – Share Price Performance 52 Awards and Commendations 55 Operating Financial Review 62 – ST Engineering at a Glance 89 Financial Report 2

forty

foresight

ST Engineering’s visionary approach drives its success. Over the past 40 years, it has anticipated changes and adapted its business focus to serve the global market. Singapore Technologies Engineering Ltd 3 Annual Report 2007

Illustrated by Michael Ng (Mindflyer) 4

forty

originality

ST Engineering values originality above all things. It spurs the Group to create novel solutions that transcend the ordinary and enhance our competitiveness. Singapore Technologies Engineering Ltd 5 Annual Report 2007

Illustrated by Michael Ng (Mindflyer) 6

forty

responsibility

Success in the business arena is not ST Engineering’s sole focus. Ever mindful of its responsibility to society, it proactively reaches out to the less fortunate, promotes the arts and education, engages local communities, and helps preserve the environment. Singapore Technologies Engineering Ltd 7 Annual Report 2007

Illustrated by Adeline Tan 8

forty

teamwork

ST Engineering’s success is dependent on the combined effort of its stakeholders – staff, business partners and customers – working together in a synergistic relationship to create value for all. Singapore Technologies Engineering Ltd 9 Annual Report 2007

Illustrated by Andrew Tan (Drewscape) 10

forty

young

At 40 years young, life is just beginning for ST Engineering. Youthfulness is a state of mind; and the energy and enthusiasm this produces are exhibited at all levels within the Group. Singapore Technologies Engineering Ltd 11 Annual Report 2007

Illustrated by Lee Wai Leng (Fleecircus) 12

Illustrated by Kristal Melson Singapore Technologies Engineering Ltd 13 Annual Report 2007

The Group registered double digit growth for the third consecutive year in 2007. Our net profi t rose by 13% to $503.5m on the strength of all sectors. Group turnover crossed the $5b mark with an increase of 13% to $5.05b, while profi t before tax increased 13% to $638.1m. Our earnings per share was 16.95 cents, an increase of 12%. Economic Value Added grew 19% to $388.8m. Return on equity was a respectable 30.8%, higher than the 28.4% in 2006. Cash and cash equivalents, including funds under management, remained a healthy $1.5b.

Dear Shareholders on a second customer and STARCO, our MRO facility The ST Engineering Group celebrated its 40th Anniversary in in Shanghai, is adding hangar capacity to cater to the 2007. While our history may not be long compared to many increasing demand. China continues to be a key market MNCs in the US and Europe, it marks a history that is filled for the Group, with the Aerospace, Electronics and Land with pride, pioneering achievements and record-breaking Systems sectors gaining a stronger foothold in the fast milestones. Since the amalgamation of the Aerospace, expanding market. Electronics, Land Systems and Marine sectors in 1997 to form the ST Engineering Group, we have enjoyed synergies Today, Group revenue from outside of Asia has grown to and an enlarged critical mass that allow us to compete in the 51%, reflecting the results of our globalisation efforts. global marketplace. Recent acquisitions have added to our revenue and bottom line and also re-shaped our geographical business profile The ST Engineering Group delivered a stellar performance in to one with a global customer base. While commercial 2007. For the third consecutive year, the Group registered business is growing at a faster pace than defence double digit growth with net profit growing by 13% to business, the ability of the Group to harness dual use $503.5m. This is despite the fact that the world economy technology is benefiting both business groups, enhancing faced a number of challenges in 2007 with oil prices close our competitiveness in the market place. Flexibility in to US$100 a barrel, cost of doing business escalating, a leveraging on the interplay between our defence and weakening USD and the sub-prime problem in the US and commercial businesses remains a key advantage of the Europe. Group. Evolving technologies also provide fodder for new ideas and solutions. We continually challenge the traditional Continuing the Journey of Globalisation and innovate cost effective solutions to meet customers’ The Group’s sterling performance amidst a changing and requirements. Our global customer base now covers more evolving economic landscape reaffirms its decision to than 70 countries. globalise. Leveraging on the globalisation and acquisition strategy of prior years, the Group continues to build on Globalisation continues to drive our growth strategy as it the new operations and synergise the complementary helps diversify our geographical and economic exposure, capabilities in the Group. Today, with a staff strength of over thereby hedging the interests of the Group. We are 18,000 spanning five continents, 21 countries and 35 cities, selective and stringent with our acquisition and joint the ST Engineering Group is well poised to seize global venture processes. Every new acquisition or partnership is opportunities and diversify our earnings stream. intended to add value to our existing businesses, expand our technologies and capabilities, address new markets, enlarge 2007 was a landmark year for the Group’s US operations our customer base, and/or infuse fresh talents into our as VT Systems and its operating units in the US reached global workforce. the US$1b revenue mark. This makes the US the single largest market for the Group outside of Asia. Elsewhere, During the year, the Aerospace sector signed agreements our Aerospace sector’s Panama MRO facility signed to set up ST Aviation Training Academy, a commercial pilot 14

training academy in Singapore, as well as an engines MRO 2007, the Company will have declared a total of 16.88 cents facility in Xiamen, China. The sector also acquired Sydney- per share in dividends for FY2007, giving a dividend yield of based Pacific Flight Services Pty Ltd (PFS) to complement 4.94%. our charter and training business. Winning Customers and Engaging Partners The Electronics sector entered into an agreement to The Group registered a strong order book of $9.49b in purchase Telematics Wireless Ltd, a key player in the high 2007. Significant contracts were clinched from existing and growth Machine-to-Machine industry in which machine new customers throughout the year. assets are connected through wireless infocommunication infrastructures to allow wireless transmission of information Some of the significant contracts, secured during the for remote monitoring and control. The acquisition was year included the FedEx Express’ Passenger-to-Freighter completed in January 2008. The sector divested its stake (PTF) conversion agreement for its B757-200 aircraft; in ECS Holdings Limited (ECS), a marketing and distribution Boeing’s contract to perform PTF conversions under the channel for the group’s information technology solutions 767-300 Boeing Converted Freighter (BCF) programme to customers in Singapore and other regional markets for ($208m); Delta Air Lines’ contracts for MRO work ($232m); the last three years. The sale of ECS’ shares presented an comprehensive engines maintenance and engineering opportunity to maximise shareholder value. support for Xiamen Airlines ($248m); MINDEF’s shared services and e-government services contract ($255m); The Land Systems sector further invested in Guizhou an integrated solutions commuter rail project in Turkey Jonyang Kinetics Co., Ltd. (GJK) to expand our facilities and ($123m); a weapons maintenance contract from the add new capabilities to strengthen our foothold in specialty Singapore Army ($78m); a contract from the Republic of vehicles in China. Singapore Navy to design, build, operate and maintain a

2008 is expected to be a year of uncertainties. The state of the US economy will affect world economic growth, which in turn will affect the Group’s global businesses. However, given our diversifi ed earnings stream and excellent business portfolio, we are cautiously optimistic that we will deliver in the year.

Celebrating another Year of Double Digit Growth ship and submarine rescue system ($400m); and a contract The Group registered double digit growth for the third to build 330,000-barrel tank barges for Crowley Maritime consecutive year in 2007. Our net profit rose by 13% to Corporation ($381m). $503.5m on the strength of all sectors. Group turnover crossed the $5b mark with an increase of 13% to $5.05b, The Marine sector successfully entered the Roll-on/Roll-off while profit before tax increased 13% to $638.1m. Our Passenger (Ropax) ferry newbuilding market with a contract earnings per share was 16.95 cents, an increase of 12%. from Louis Dreyfus Armateurs of France. This is a first for Economic Value Added grew 19% to $388.8m. Return on Singapore’s shipbuilding history. equity was a respectable 30.8%, higher than the 28.4% in 2006. Cash and cash equivalents, including funds under During the year, we further engaged our partners in growing management, remained a healthy $1.5b. the business. The Electronics sector signed a letter of intent with Corus Entertainment, Inc. to co-produce a series ST Engineering’s market capitalisation reached $11.2b as at of animated direct-to-video titles. It also launched The Ten end December 2007, compared to $9.1b at close of 2006. Commandments, which was co-produced with Promenade Pictures and Huhu Studios. We became the first Singapore- Rewarding our Shareholders based company to launch a 3-D digital animation movie in In recognition of shareholders’ loyalty, the Board of Directors US cinemas. is proposing to pay 100% of 2007 net profit of $503.5m to our shareholders as dividends. Subject to shareholders’ Winning the SQA with Special Commendation Award approval, ST Engineering proposes to declare a final One of the greatest achievements in 2007 for the Group dividend of 14.88 cents per share comprising an ordinary tax was winning the Singapore Quality Award (SQA) with exempt (one-tier) dividend of 4 cents per share and a special Special Commendation. The ST Engineering Group was tax exempt (one-tier) dividend of 10.88 cents per share at one of two inaugural winners of the prestigious award our AGM in April 2008. Together with our interim ordinary presented by the SQA Governing Council. The award is dividend of 2 cents per share which was paid in September the highest accolade in business excellence, and attests to ST Engineering’s world-class standard of performance excellence. Singapore Technologies Engineering Ltd 15 Annual Report 2007

The award means three things to us. Firstly, it inspires us For the coming year, the Group expects to achieve a to scale even greater heights. It spurs us to constantly modestly higher turnover and profit before tax compared to outdo ourselves and develop new strategies and platforms 2007, barring unforeseen circumstances. to grow our business. Secondly, it helps us benchmark against the best in the global marketplace. This is Expressing our Appreciation imperative since we are competing against the big boys in As we celebrate our 40 years of history and achievements, the global market. Thirdly, we see the process as a means we wish to thank all our shareholders, customers, partners, to help us address our gaps. Through this rigorous exercise, employees and friends of the ST Engineering Group for their all our staff, not just management, from our global network unstinting faith and deep trust in the Group. are put to the test. We published Under One Sun, a commemorative book Participating in Corporate Citizenry which chronicles ST Engineering’s vibrant history and growth The ST Engineering Group continues to play its part as a in the last 40 years and encapsulates many memorable good corporate citizen. Balancing profits and principles, moments of people involved in the Group. The birth of we will continue to demonstrate sensitivity and respect for ST Engineering is very much the result of the vision and people, communities and the environment. work of Dr Goh Keng Swee. Hence, we also commissioned a second book, Unchartered Territory, which pays tribute to Some of the corporate social responsibility initiatives Dr Goh Keng Swee for his incisive role in the creation and undertaken by the Group include ethical business conduct, development of Singapore’s defence industry. Together, the preservation of the environment, conservation and recycling two books present a holistic perspective of ST Engineering practices, advocacy of safety practices, and support for the – our history, our growth and our achievements as well as a arts and the disadvantaged. glimpse into the future.

The Group continues to embrace and inculcate good We wish to thank our Board Directors who have committed corporate governance practices. This is especially important their time to counsel, steer and guide the management. as we globalise. Transparent practices, applied with cultural and local sensitivity, will guide the Group. The Group’s On behalf of the ST Engineering Group, we record our senior management and Board of Directors constantly sincere appreciation to Lieutenant-General (NS) Ng Yat review the guidelines and practices to ensure their Chung, Brigadier-General (NS) Bernard Tan Kok Kiang relevance. and Mr Lucien Wong Yuen Kuai who stepped down from the Board in 2007. We also extend our deep appreciation Looking Ahead to Professor Lui Pao Chuen who stepped down from the 2008 is expected to be a year of uncertainties. The state of Board in March 2008. The Group has benefited from their the US economy will affect world economic growth, which wise counsel and guidance during their tenure as Board in turn will affect the Group’s global businesses. However, Directors. given our diversified earnings stream and excellent business portfolio, we are cautiously optimistic that we will deliver in To our over 18,000 employees worldwide, cheers to keeping the year. faith with the Group over the last 40 years! We look forward to many more good years ahead. We will remain focused on growing our businesses organically while keeping a watch on acquisition, joint venture and partnership opportunities to further propel our growth. Uncertainties can also be translated into opportunities. We will diligently explore opportunities that can help us gain entry into new markets, and deliberate on acquisitions or joint ventures to add to our capabilities and growth. The US, China, India, South America, Middle East and Central Asia continue to feature on our radar screen. Moving into and growing new markets will help us grow shareholder value in the long term. Peter SEAH Lim Huat TAN Pheng Hock The capabilities of our current businesses continue to Chairman President and CEO leverage on our global operations to create synergies. We envisage more cross marketing opportunities for the Group. We will continue to distinguish ourselves through innovation 18 March 2008 and quality. 16 Singapore Technologies Engineering Ltd 17 Annual Report 2007 18

Group turnover, PBT and PATMI rose 13% to $5,051m, $638.1m, and $503.5m respectively. EBIT increased by 20% to $550.3m. Order book as at end December 2007 was $9.49b. Return on equity crossed the 30% mark, improving from 28.4% for FY2006 to 30.8% for FY2007. The Board is proposing to pay 100% of FY2007 earnings to shareholders as dividends or a total of 16.88 cents per share for the full year.

TURNOVER BY SECTOR ($m) PROFIT BEFORE TAX PROFIT AFTER TAX BY SECTOR ($m) AND MINORITY INTERESTS BY SECTOR ($m)

6,000 800 600

700

5,000 5000

600

4,000 4000

500

3,000 400 3000

300

2,000 2000

200

1,000 1000

100

0 0 0

033 04 0 05506 06 07 03 04 05 06 07 03 04 05 06 07

AEROSPACE ELECTRONICS LAND SYSTEMS MARINE OTHERS Singapore Technologies Engineering Ltd 19 Annual Report 2007

TURNOVER BY SECTOR ($m)

2007 2006 2005 2004 2003 GROUP 5,051 100% 4,486 100% 3,338 100% 2,948 100% 2,819 100% AEROSPACE 1,835 36% 1,673 37% 1,236 37% 1,118 38%1,09239% ELECTRONICS 1,023 20% 951 21% 701 21% 626 21% 614 22% LAND SYSTEMS 1,178 23% 1,002 22% 600 18%59120%71725% MARINE 863 17% 702 16% 660 20% 48416%38714% OTHERS 152 4% 158 4% 141 4% 129 5% 9 –

PROFIT BEFORE TAX BY SECTOR ($m)

2007 2006 2005 2004 2003 GROUP 638.1 100% 564.3 100% 503.2 100% 446.2 100% 412.7 100% AEROSPACE 341.2 53% 305.3 54% 255.4 51% 235.4 53% 225.2 55% ELECTRONICS 115.3 18% 104.6 19% 76.0 15% 64.5 14% 61.4 15% LAND SYSTEMS 80.0 13% 70.0 12% 65.0 13% 71.5 16% 96.4 23% MARINE 96.6 15% 79.5 14% 87.9 17% 69.8 16% 35.2 9% OTHERS 5.0 1% 4.9 1% 18.9 4% 5.0 1% (5.5) (2%)

PROFIT AFTER TAX AND MINORITY INTERESTS BY SECTOR ($m)

2007 2006 2005 2004 2003 GROUP 503.5 100% 445.1 100% 396.3 100% 354.2 100% 325.6 100% AEROSPACE 270.5 54% 255.0 57% 210.3 53% 187.3 53% 176.3 54% ELECTRONICS 88.2 17% 76.3 17% 58.0 15% 51.6 15% 48.0 15% LAND SYSTEMS 70.8 14% 51.9 12% 49.0 12% 58.1 16% 76.5 24% MARINE 75.3 15% 67.8 15% 70.3 18%53.715%30.8 9% OTHERS (1.3) – (5.9) (1%) 8.7 2% 3.5 1% (6.0) (2%) 20

2007 2006 2005 2004 2003

Shareholders’ funds ($m) 1,632 1,565 1,493 1,358 1,324 Total assets ($m) 6,043 5,578 4,566 4,042 4,122 Net tangible assets ($m) 996.9 980.7 1,131 1,296 1,266 Gross dividend per share (cents) 16.88 15.11 13.60 12.39 11.30 Dividend yield (%) 4.94 5.09 5.24 5.67 6.12 Dividend cover 1.00 1.00 1.00 1.00 1.00 Earnings per share (cents) 16.95 15.15 13.64 12.26 11.29 Return on sales (%) 10.4 10.2 12.3 12.2 11.6 Return on equity (%) 30.8 28.4 26.5 26.1 24.6 Return on total assets (%) 8.7 8.2 9.0 8.9 7.9 Net tangible assets per share (cents) 33.4 33.3 38.8 44.8 43.9

SHAREHOLDERS’ RETURN NET TANGIBLE ASSETS FUNDS ($m) ON EQUITY (%) PER SHARE (cents)

2,000 35.0 50

1,900 33.5 48

1,800 32.0 46

1,700 30.5 44

1,600 29.0 42

1,500 27.5 40

1,400 26.0 38

1,300 24.5 36

1,200 23.0 34

1,100 21.5 32

1,000 20.0 30

03 04 05 06 07 03 04 05 06 07 03 04 05 06 07 Singapore Technologies Engineering Ltd 21 Annual Report 2007

2007 2006 2005 2004 2003

Average staff strength 17,750 15 , 912 13 , 0 9 9 11, 6 8 4 11,70 2 Sales per employee ($) 284,570 281,910 254,821 252,333 240,898 Profit after tax per employee ($) 28,367 27,974 30,255 30,316 27,823 Employment costs ($m) 1,360.3 1,243.0 899.9 826.9 798.0 Employment costs per $ of turnover ($) 0.27 0.28 0.27 0.28 0.28

Economic Value Added ($m) 388.8 327.8 290.6 234.5 240.9 Economic Value Added spread (%) 13.2 12.3 16.2 13.7 13.9 Economic Value Added per employee ($) 21,904 20,598 22,187 20,075 20,587

Value added ($m) 2,190.8 1,990.8 1,500.6 1,363.1 1,337.0 Value added per employee ($) 123,432 125 ,112 114 , 5 5 9 116 , 6 6 8 114 , 25 3 Value added per $ of employment costs ($) 1.61 1.60 1.67 1.65 1.68 Value added per $ of gross property, plant and equipment ($) 1.00 0.98 1.02 1.03 1.05 Value added per $ of turnover ($) 0.43 0.44 0.45 0.46 0.47

PROFIT AFTER TAX ECONOMIC VALUE ADDED VALUE ADDED PER EMPLOYEE ($’000) PER EMPLOYEE ($’000) PER EMPLOYEE ($’000)

35 24.0 150

34 23.5 144

33 23.0 138

32 22.5 132

31 22.0 126

30 21.5 120

29 21.0 114

28 20.5 108

27 20.0 102

26 19.5 96

25 19.0 90

03 04 05 06 07 03 04 05 06 07 03 04 05 06 07 22

FY 07 388.8

FY 06 327.8

FY 05 290.6

FY 04 234.5

FY 03 240.9

EVA ATTRIBUTABLE TO ORDINARY SHAREHOLDERS ($m)

($m) 2007 2006 2005 2004 2003

Net profit before tax 591.5 512.8 457.3 387.8 367.4 Adjust for: Share of results of associated companies and joint ventures 46.6 51.5 45.9 58.4 45.3 Interest expense 53.2 45.1 10.4 8.0 3.7 Others 10.3 11.6 2.2 (4.8) 18.4

Adjusted profit before interest and tax 701.6 621.0 515.8 449.4 434.8 Cash operating taxes (Note 1) (112.4) (112.8) (99.3) (85.7) (84.7)

Net operating profit after tax (NOPAT) – (a) 589.2 508.2 416.5 363.7 350.1

Average capital employed (Note 2) 2,988.5 2,691.9 1,865.4 1,725.0 1,712.1 Weighted average cost of capital (Note 3) (%) 6.5 6.6 6.1 7.4 6.5

Capital charge – (b) (194.3) (177.7) (113.8) (127.6) (111.3)

Economic Value Added (EVA) – [(a) – (b)] 394.9 330.5 302.7 236.1 238.8 Minority share of EVA (6.1) (2.7) (12.1) (1.6) 2.1

EVA attributable to ordinary shareholders 388.8 327.8 290.6 234.5 240.9

Unusual items (UI) (gains)/losses (Note 4) (10.8) (30.7) (7.0) 6.1 0.7 EVA attributable to ordinary shareholders (exclude UI) 378.0 297.1 283.6 240.6 241.6

Note 1: The reported current tax is adjusted for the statutory tax Note 3: The Weighted Average Cost of Capital is calculated in impact of interest expense. accordance to Singapore Technologies Engineering Group EVA Policy as follows: Note 2: Monthly average share capital plus interest bearing i) Cost of Equity using Capital Asset Pricing Model with liabilities, timing provision, goodwill impaired/amortised, market risk premium at 6.0% (2006 @ 6.0%); and present value of operating leases. ii) Risk-free rate of 3.05% (2006 @ 3.31%) based on yield-to-maturity of Singapore Government 10 years Bonds; Major Capital Components: iii) Ungeared beta at 0.67 (2006 @ 0.65) based $m on Singapore Technologies Engineering risk categorisation; and Long term debt 1,011.5 iv) Cost of Debt rate at 3.62% (2006 @ 3.54%) using Short term debt 233.0 5-year Singapore dollar Swap Offered Rate plus 25 Equity 1,522.3 basis point (2006 @ 25 basis point). Others 221.7 Note 4: Unusual Items refer to divestment of investment properties, 2,988.5 subsidiary and associates, long term investments and disposal of major property, plant and equipment. Singapore Technologies Engineering Ltd 23 Annual Report 2007

FY 07 2,190.8

FY 06 1,990.8

FY 05 1,500.6

FY 04 1,363.1

FY 03 1,337.0

TOTAL VALUE ADDED ($m)

($m) 2007 2006 2005 2004 2003

Value added from: Revenue earned 5,051.0 4,485.8 3,337.9 2,948.1 2,819.0 Bought in materials and services (2,998.3) (2,644.0) (1,959.0) (1,698.6) (1,578.5)

2,052.7 1,841.8 1,378.9 1,249.5 1,240.5

Income from investments and interest 81.7 79.9 49.4 36.2 32.1 Exchange loss, net (5.4) (3.9) (1.8) (2.1) (1.2) Other non-operating income 15.2 21.5 28.2 21.1 20.3 Share of results of associated companies and joint ventures 46.6 51.5 45.9 58.4 47.3 Amortisation of goodwill on acquisition of associated companies – – – – (2.0)

Total value added 2,190.8 1,990.8 1,500.6 1,363.1 1,337.0

Distribution of total value added To employees in wages, salaries and benefits 1,358.0 1,241.0 898.3 826.2 797.4 To government in income and other taxes 123.7 116.8 99.6 93.8 93.1 To providers of capital on: • Interest paid on borrowings 50.3 42.3 8.0 4.2 2.2 • Dividends to shareholders 508.2 399.5 359.8 326.5 449.9

2,040.2 1,799.6 1,365.7 1,250.7 1,342.6

Balance retained in/(applied from) business Depreciation 126.5 130.7 79.1 77.7 86.4 Impairment of assets (0.1) 9.3 16.5 1.0 1.1 Retained profits (53.5) (15.6) 5.3 (0.6) (149.7)

72.9 124.4 100.9 78.1 (62.2)

Non-production cost and income Bad debts 1.4 (9.2) (13.6) 0.2 25.7 Income from investments and interest 81.7 79.9 49.4 36.2 32.1 Exchange loss, net (5.4) (3.9) (1.8) (2.1) (1.2)

77.7 66.8 34.0 34.3 56.6

Total distribution 2,190.8 1,990.8 1,500.6 1,363.1 1,337.0 24

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.

1 University of Singapore in 1968 Mr Peter SEAH Lim Huat, with an honours degree in Business Chairman Administration. Mr Peter Seah Lim Huat, 61, was appointed non executive Chairman on 2 15 April 2002 and was last re-elected Mr TAN Pheng Hock as Director on 31 March 2006. He is Mr Tan Pheng Hock, 50, is the a member of the Temasek Holdings President and CEO of ST Engineering Advisory Panel. Mr Seah was a banker and an executive Director. He was for 33 years before retiring as Vice appointed Director on 1 May 2001 Chairman and CEO of the former and will be due for re-election at this Overseas Union Bank in 2001. He coming AGM under Article 98 of the then joined Singapore Technologies Company’s Articles of Association. Pte Ltd as President and CEO and Mr Tan sits on the Boards of held this position until 31 December SembCorp Marine Ltd* and Neptune 2004. Mr Seah is the Chairman of Orient Lines Limited*. He is Chairman SembCorp Industries Limited* and of the Nanyang Polytechnic Board Singapore Computer Systems Limited*. of Governors and the Singapore He also sits on the Boards of Bank of Workforce Development Authority. China Limited^, CapitaLand Limited*, Mr Tan began his career with the Siam Commercial Bank Public Group as an engineer in ST Marine Company Limited~, and Government in 1981. He has held various senior of Singapore Investment Corporation. appointments in the Group including Mr Seah is President Commissioner that of Executive Vice President of of PT Indosat Tbk and Deputy ST Marine, President of ST Kinetics, Chairman of Global Crossing Limited. President and Chief Operating Officer His other appointments include being of ST Engineering and ST Engineering a member of the Board of the Group President. Mr Tan holds a S. Rajaratnam School of International Bachelor of Science (First Class Studies, Defence Science Technology Honours) in Marine Engineering from Agency, Singapore Chinese Chamber the University of Surrey, UK and a of Commerce and Singapore Business Master of Science in Management Federation Council. Mr Seah was from Stanford University, USA. awarded the Public Service Star (Bintang Bakti Masyarakat) in 1999 and made a Justice of the Peace in 2003. He graduated from the former Singapore Technologies Engineering Ltd 25 Annual Report 2007

1

3 5 2 6

4

3 4 was appointed a non executive Mr KOH Beng Seng Lieutenant-General Director on 15 December 2003 and Mr Koh Beng Seng, 57, is the CEO Desmond KUEK Bak Chye was last re-elected as Director on of Octagon Advisors Pte Ltd. He LG Desmond Kuek Bak Chye, 44, is 25 April 2007. Prior to his present was appointed an independent non Chief of the Defence Force. He was appointment with MINDEF, he was executive Director on 15 September appointed a non executive Director the Deputy Secretary (Policy) with the 2003 and was last re-elected as on 27 April 2007 and will be due Ministry of Finance. He was formerly Director on 25 April 2007. Mr Koh for re-election at this coming AGM the CEO and Chief Planner of the was Deputy President of United under Article 104 of the Company’s Urban Redevelopment Authority from Overseas Bank Ltd (UOB) from June Articles of Association. He joined 1996 to 2001. Dr Tan is Chairman of 2000 to 31 January 2005. Prior to the Singapore Armed Forces (SAF) the Defence Science and Technology UOB, Mr Koh was Senior Advisor to in 1982 and was awarded the SAF Agency, DSO National Laboratories Asia Pulp & Paper Co Ltd and Advisor Overseas Scholarship in 1982, SAF and also a Director of Singapore to Bank of China and the International Postgraduate Scholarship (General Technologies Holdings Pte Ltd. Monetary Fund. Mr Koh has extensive Development) in 1997 and The Dr Tan holds a Bachelor of Arts in experience in the financial services Public Administration Medal (Gold) Engineering Tripos and a PhD in sector. He was with the Monetary in 2002. In the course of his military Engineering from the University of Authority of Singapore from 1973 to career, he has held various key Cambridge, UK. 1998, where he served as Deputy command and staff positions in the Managing Director from 1988 to 1998. Ministry of Defence. LG Kuek is a 6 Mr Koh is a Director of Bank of China Board member of the International Mr Davinder SINGH (Hong Kong) Limited^, BOC Hong Enterprise Singapore and a Member Mr Davinder Singh, 50, is the CEO Kong (Holdings) Ltd, Fraser & Neave of the Defence Science & Technology of Drew & Napier LLC. He was Ltd*, Sing-Han International Financial Agency. He holds a Bachelor of appointed an independent non Services Limited, Japan Wealth Arts (Hons) (Engineering Science) executive Director on 1 August 2007 Management Securities Company Ltd and a Master of Arts (Engineering and will be due for re-election at this and Great Eastern Holdings Limited*. Science) from the University of Oxford, coming AGM under Article 104 of the Mr Koh holds a Bachelor of Commerce UK, as well as a Masters in Public Company’s Articles of Association. (First Class Honours) from the former Administration from Harvard Mr Davinder Singh has been in legal Nanyang University, Singapore, and University, USA. practice for more than 20 years. He a Master of Business Administration was appointed Senior Counsel in 1997, from Columbia University, USA. 5 the first batch of Senior Counsels Dr TAN Kim Siew to be so appointed in Singapore. Dr Tan Kim Siew, 54, is Permanent Mr Davinder Singh holds a LL.B Secretary (Defence Development), (Honours) from the former University Ministry of Defence (MINDEF). He of Singapore. 26

8 9 10 7 11 12 13

Illustrated by Kristal Melson

7 SP PowerGrid Limited. Mr Quek is (Pte) Limited. He holds a Bachelor of Dr Philip PILLAI Singapore’s non resident Ambassador Engineering and Master of Business Dr Philip Pillai, 60, is the Senior to Sweden. Mr Quek was awarded the Administration from the Indian Institute Partner of Shook Lin & Bok. He Public Service Star award in August of Management, India. was appointed an independent non 1994. He obtained a Bachelor of executive Director on 1 April 2000 Science in Chemical Engineering 10 and will be due for re-election at this from the University of Leeds, UK, Professor LUI Pao Chuen# coming AGM under Article 98 of the and a Master of Science in Prof Lui Pao Chuen, 66, is the Chief Company’s Articles of Association. Management from the Naval Defence Scientist in MINDEF. He was Dr Pillai is a Director of Singapore Postgraduate School, USA. appointed a non executive Director Press Holdings Limited*, Hotung on 1 October 1997 and was last re- Investment Holdings Limited*, 9 elected as Director on 31 March 2006. Prudential Assurance Co. (Singapore) Mr Venkatachalam Prof Lui sits on the management Pte Ltd and International Board KRISHNAKUMAR boards of various scientific and Trustee of Haggai Institute, Atlanta. Mr Venkatachalam Krishnakumar, 58, research institutes. He is an Adjunct He was awarded the Public Service is a Senior Advisor to Barclays Bank Professor with the Engineering Faculty Star (Bintang Bakti Masyarakat) in PLC, Global Retail and Commercial of the National University of Singapore 2003. Dr Pillai obtained his Bachelor Banking. Prior to his present (NUS). He is also Chairman of of Law (First Class Honours) from appointment, he was a Senior Advisor SembCorp Design and Construction the former University of Singapore to McKinsey and Co. He was the Pte Ltd, a subsidiary of SembCorp and LLM and SJD from Harvard Chief Operating Officer and Chief Industries Ltd, ATREC Pte Ltd and University, USA. Financial Officer for the Asia Pacific Jurong Consultancy Holdings Pte Ltd. Consumer Bank of Citigroup until His other appointments include being 8 his retirement on 28 February 2005, the Chairman of the Management Mr QUEK Poh Huat after a 31 year career with the group. Boards of Temasek Defence Systems Mr Quek Poh Huat, 61, is the Group During his career with Citigroup, he Institute, Temasek Laboratories of CEO of Singapore Power Limited. held several senior appointments in NUS and Temasek Laboratories He was appointed a non executive India, Singapore and New York. He of NTU respectively. Prof Lui Director on 15 April 2002 and was was appointed an independent non graduated from the former University last re-elected as Director on 31 executive Director on 15 April 2002 of Singapore with a Bachelor of March 2006. Mr Quek is a Director and will be due for re-election at this Science (Honours) in Physics and of Singapore Power Limited, SP coming AGM under Article 98 of the obtained a Master of Science degree PowerAssets Limited, SP AusNet@, Company’s Articles of Association. He in Operations Research & Systems PowerGas Limited and SP Services is a Director of Singapore Computer Analysis from the Naval Postgraduate Limited. He is also Chairman of SPI Systems Limited* and also a member School, USA. Management Services Pty Ltd and of the Board of the Central Depository Singapore Technologies Engineering Ltd 27 Annual Report 2007

11 Desmond Kuek Bak Chye on Articles of Association. He joined Mr Winston TAN Tien Hin 1 August 2007. LTC Chia joined the the Defence Science Organisation of Mr Winston Tan Tien Hin, 59, is the SAF in 1991 and was awarded the MINDEF in 1980 and in the course Managing Director of Corporate SAF Overseas Scholarship in 1991 of his career, has held various key Brokers International Pte Ltd. and the SAF Postgraduate Scholarship appointments. From 1998 to 2004, Mr Tan was a banker for 24 years (General Development) in 2006. he was the Chief Executive Officer having spent over 16 years with He has held various positions in of the DSO National Laboratories. Citibank and over 7 years with MINDEF over the last 16 years Mr Quek is currently a member of Deutsche Bank; his last position and assumed his present office in the DSO National Laboratories was that of General Manager for the 2007. LTC Chia holds a Master of Board, the Defence Science and Singapore Branch. He was appointed Engineering (1st Class Honours) Technology Agency Board, the an independent non executive Director (Electrical & Electronic Engineering) Agency for Science, Technology & on 1 October 1997 and was last from the University College London- Research (A*Star) Board as well as re-elected as Director on 31 March UOL, UK, and a Master in Business the Intellectual Property Office of 2006. Mr Tan is also a member of Administration from the Massachusetts Singapore (IPOS) Board, and an the Salvation Army Advisory Board. Institute of Technology. Adjunct Professor at the Department He holds a Bachelor of Science in of Electrical & Computer Engineering Physics from the former University 13 of the National University of Singapore of Singapore. Mr QUEK Tong Boon (NUS). He holds a Bachelor of Arts Mr Quek Tong Boon, 52, is the (Hons) (Engineering) and Master of 12 Deputy Secretary (Technology & Arts (Engineering) from the University Lieutenant-Colonel Transformation) and Chief Research of Cambridge, UK and a Master of CHIA Choon Hoong & Technology Officer of MINDEF. Science (Electrical Engineering) LTC Chia Choon Hoong, 36, is the He was appointed a non executive from NUS. Deputy Assistant Chief of General Director on 1 March 2008 and will be Staff (Operations) in MINDEF. He was due for re-election at this coming AGM appointed Alternate Director to LG under Article 104 of the Company’s

PAST DIRECTORSHIPS IN THE LAST THREE YEARS

Mr Peter SEAH Lim Huat Lieutenant-General Desmond KUEK Mr QUEK Poh Huat • Civil Aviation Authority of Singapore Bak Chye • Shangri-la Asia Ltd • Board of Commissioners of Currency, • Singapore Technologies • S I Technology Fund Limited Singapore Kinetics Ltd • PSA Corporation Ltd • AF (Indonesia) Pte Ltd • Temasek Life Sciences Laboratories • EDBV Management Pte Ltd Dr TAN Kim Siew Limited • EDB Ventures 2 Pte Ltd • HDB Corporation Pte Ltd • EDB Ventures Pte Ltd • Keppel Offshore & Marine Ltd Mr Venkatachalam KRISHNAKUMAR • PSA International Pte Ltd • Citibank Korea Inc • P T Bank Internasional Professor LUI Pao Chuen • CitiBank Malaysia Berhad Indonesia Tbk • SembCorp Engineers and Constructors • Citibank Savings Inc • The National Kidney Foundation Pte Ltd • e-Serve International Limited • DSO National Laboratories • Polaris Software Lab Limited Mr TAN Pheng Hock • Singapore Land Authority • ST Synthesis Pte Ltd Mr Winston TAN Tien Hin • Ascendas Pte Ltd Mr Davinder SINGH Mr KOH Beng Seng • Singapore Airlines Limited • Far Eastern Bank Limited Dr Philip PILLAI • Zagro Asia Limited • Industrial & Commercial • Lindeteves-Jacoberg Ltd* Bank Limited • PT Agro Indomas • Overseas Union Bank Limited • United Overseas Bank Limited

* listed on Singapore Exchange Securities Trading Limited ^ listed on Stock Exchange of Hong Kong ~ listed on Stock Exchange of Thailand @ 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 # Professor Lui Pao Chuen resigned from the Board on 1 March 2008 28 Singapore Technologies Engineering Ltd 29 Annual Report 2007

Illustrated by Kristal Melson 30

1 2 3 4 Mr TAN Pheng Hock Mr WEE Siew Kim, Mr SEAH Moon Ming, Mr TAY Kok Khiang, is President and CEO of 47, was appointed Deputy 51, was appointed President, 59, was appointed President ST Engineering and CEO in May 2004, International Business of ST Aerospace on 10 a Director of the ST overseeing the Aerospace and Deputy CEO of ST July 2001. As President Engineering Board. and Marine sectors. He is Engineering in May 2004, of ST Aerospace, Mr Tay is (Mr Tan’s profile is on concurrently the President, overseeing the Electronics responsible for growing the page 24) Defence Business of ST and Land Systems Aerospace sector business Engineering, a position he sectors. He is concurrently as well as its financial and has held since 1 May 2002. President, ST Electronics, a operational performance. Prior to his current positions, position he has held since He joined ST Aerospace Mr Wee was President of 1 July 1997. Mr Seah was as Vice President/General ST Engineering’s Europe General Manager of CET Manager of ST Aerospace operations from July 2001 Technologies from July Engineering Pte Ltd in 1993 to April 2002. He joined 1994 to July 1997. He and has held many senior ST Aerospace as an serves as Chairman of management appointments engineer in 1984. He was the Board of Governors of before becoming President. appointed President, ST Temasek Polytechnic, Vice He was Deputy President & Aerospace from December Chairman of Trek 2000 Chief Operating Officer prior 1997 to July 2001. Limited, Director of the to his current appointment. Mr Wee is also a Director Infocomm Development Mr Tay holds a Bachelor of Basketball Enterprises Authority of Singapore, of Engineering (Honours) Singapore Pte Ltd, SBS and KTPH Private Limited. and a Master of Science in Transit Ltd and Changi He is a Board Member of Industrial Engineering from Airports International Pte International Enterprise the National University of Ltd. His other appointments Singapore. He is a Fellow of Singapore. include being a Member of the Institution of Engineers Parliament for the Ang Mo Singapore and a senior Kio Group Representative member of IEEE. He Constituency. Mr Wee was awarded the 2007 was awarded a Bachelor International Manager of Science (First Class Action Award in Singapore Honours) in Aeronautical and also 2007 Top Ten Engineering from the Financial and Intelligent Imperial College of Science Persons in China. Mr Seah & Technology, University holds a Master of Science of London, UK, and holds (with distinction) in Electrical a Master in Business Engineering from the Naval Administration from Stanford Postgraduate School, USA. University, USA. Singapore Technologies Engineering Ltd 31 Annual Report 2007

7 4 6 5 8

1 3 2

5 6 7 8 Mr SEW Chee Jhuen, Mr SEE Leong Teck#, General (Retired) Raphael CHIN, 44, was appointed President 57, was appointed President, John G COBURN, 43, is currently Group of ST Kinetics on 1 ST Marine in December 65, was appointed Financial Controller September 2006. Prior 1997. Mr See oversees Chairman and CEO of and was Acting Chief to his current position, ST Marine’s push to be a ST Engineering’s US Financial Officer of the Mr Sew was Deputy world class provider of niche subsidiary, VT Systems, ST Engineering Group from President (Operations) products and services in Inc. on 1 December March 2007 to February and President Defence shipbuilding and shiprepair. 2001. Gen (Ret) Coburn 2008. He began his career Business of ST Kinetics. Prior to his current position, joined the Group after an at ST Engineering as an He joined ST Aerospace as Mr See was Executive illustrious 39-year career accountant in ST Aerospace an aeronautical engineer Vice President/General with the US Department of in 1990. In 1999, in 1988 and has held Manager of ST Marine. Defense. Prior to taking he took up the position many senior management He joined ST Marine as up this position, he was of Financial Controller at appointments before Naval Architect in 1980 Commanding General of the ST Marine. The following becoming Deputy President and has held many senior US Army Materiel Command year, he was appointed (Operations). Mr Sew holds management appointments (AMC), one of the largest VP/Financial Controller of a Bachelor of Science (with before rising to his current commands in the army ST Engineering and became distinction) in Aeronautical position. Mr See holds a with 60,000 employees SVP/Group Financial Engineering and Mechanics Master of Science in Naval and activities in 42 states Controller in 2006. from the University of Architecture from the and 28 foreign countries. Mr Chin holds a Bachelor Minnesota and a Master in University of London, UK Gen (Ret) Coburn holds of Economics from Monash Business Administration and a Master of Business a Juris Doctor from the University and a Master of from Stanford University, Administration from University of Missouri, USA Commerce (Hons) from the USA. the Cranfield School of and a Doctor’s Degree from University of Auckland. He Management, UK. Eastern Michigan University is a Fellow of the Institute of and other degrees. Certified Public Accountants of Singapore.

# Mr See Leong Teck retired on 29 February 08 32

as at 29 february 2008

TAN Pheng Hock President and CEO

Eleana TAN* Chief Financial Offi cer

INTERNAL AUDIT FINANCE INTERNATIONAL MARKETING Grace KWOK Raphael CHIN Patrick CHOY Senior Vice President Senior Vice President/ Executive Vice President (Reporting to Audit Committee) Group Financial Controller

TECHNOLOGY MERGERS & ACQUISITIONS HUMAN RESOURCE FONG Saik Hay Steven CHEONG TAN Nga Kok Chief Technology Offi cer Senior Vice President Senior Vice President/Director

LEGAL INFORMATION TECHNOLOGY STRATEGIC PLANS LOW Meng Wai TAN Hock Hai Robin THEVATHASAN Vice President/Director Chief Information Offi cer Senior Vice President

SPECIAL PROJECTS DEFENCE BUSINESS CORPORATE WU Tzu Chien LOW Yee Kah COMMUNICATIONS President Senior Vice President Sharolyn CHOY Vice President/Director

BUSINESS EXCELLENCE RISK MANAGEMENT PROCUREMENT Harnek SINGH Alice CHUA GOH Bak Nguan Vice President/Director Senior Vice President Chief Procurement Offi cer/Vice President

Members of Executive Offi ce Singapore Technologies Engineering Ltd 33 Annual Report 2007

SEAH Moon Ming WEE Siew Kim Deputy CEO Deputy CEO Electronics and Land Systems Aerospace and Marine President President International Business Defence Business

ELECTRONICS LAND SYSTEMS AEROSPACE MARINE SEAH Moon Ming SEW Chee Jhuen TAY Kok Khiang SEE Leong Teck# President President President President LEE Fook Sun GAN Boon Jin HO Yuen Sang CHANG Cheow Teck* Deputy President, Executive Vice President, Deputy President, Operations/ President Operations & President, Land Systems & Solutions Chief Operating Offi cer Defence Business and Defence Business & President, Defence Business HAN Yew Kwang Deputy President, NG Chong Khim Jeremy CHAN Corporate Development President, Communication and Deputy President, Marketing & President, Defence Business Sensor Systems Group & Total Aviation Support Deputy President, Parmesh SINGH Corporate Services and Marketing Chief Operating Offi cer

US OPERATIONS EUROPE OPERATIONS John G COBURN OOI Ling Heong Chairman and CEO Executive Vice President

ADVANCED INTEGRATED SERVICES ENGINEERING CENTRE GOH Lik Kok FONG Saik Hay Vice President/General Manager President

* Effective 1 Mar 2008 # Retired 29 Feb 2008 34

Illustrated by Cherie Tan Singapore Technologies Engineering Ltd 35 Annual Report 2007

The Board is committed to high • assesses and approves annual A formal letter is sent to a director standards of corporate governance and budgets, major funding proposals, upon his appointment setting out his provides the leadership and guidance investment and divestment duties and responsibilities. A new to management to develop and drive proposals; and director is also given a briefing by the corporate strategy, business directions, • approves Board changes President and CEO on the strategic acquisitions and divestments and risk and appointments on Board direction and performance of the policies for ST Engineering. committees. Company and its key subsidiaries as well as an introduction to the senior This Corporate Governance Report The Board meets on a quarterly management team. outlines ST Engineering’s corporate basis and when required to review governance processes and activities the Group’s performance, and to From time to time, the Board is updated in 2007 in accordance with the deliberate on specific issues including on the relevant laws, continuing listing principles of the Singapore Corporate major acquisitions and investments, obligations and standards requiring Governance Code 2005 (Code). shareholder matters, policies relating to compliance, and their implications for corporate governance, Chief Executive the Group. BOARD MATTERS Officer (CEO) appointment, approval Board’s Conduct of Its Affairs of budgets, Board changes and The Board convenes scheduled (Principle 1) appointments on Board committees. meetings on a quarterly basis to The fundamental responsibility of a Board members receive monthly coincide with the announcement of director is to act in the best interests consolidated management reports the Group’s quarterly results. Ad-hoc of the Company and its shareholders. on the financial performance of each meetings are convened as and when To this end, the Board relies on the business sector, capital commitments necessary. The Company’s Articles of integrity and due diligence of its senior and significant operational highlights. Association allows Board meetings to management and its external advisors be conducted by way of teleconference and auditors. In addition to its statutory Other matters are delegated to Board or video conference. The Chairman has responsibilities, the Board performs the committees and the Executive Office a second or casting vote. Decisions of following governance roles: for review and decision making. The the Board and Board committees may Executive Office comprises the also be obtained via circulation. • guides the Group’s overall long President and CEO; Deputy CEO, term strategic objectives; Electronics and Land Systems/ The Board monitors the performance • establishes a proper risk President, International Business; of the Group through its Board management system to ensure that Deputy CEO, Aerospace and Marine/ committees. key potential risks faced by the President, Defence Business; and Group are properly identified and Chief Financial Officer (CFO). The number of Board and Board managed; committee meetings held during the • provides oversight in the proper year is tabulated on the following page: conduct of the Group’s business; 36

Type of Meeting No. of Attendance Meetings (Average %)

Board 5 84% Audit Committee 6 94% Business Investment and Divestment Committee 1 60% Executive Resource and Compensation Committee 4 83% Nominating Committee 1 67% Senior Human Resource Committee 1 100% Risk Review Committee 4 75% Budget and Finance Committee 2 100% Research, Development and Technology Committee 2 83%

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

Board Composition and Guidance The Board has five independent Chairman and Chief Executive (Principle 2) directors. According to the Code, Officer (Principle 3) The Board comprises 11 directors an independent director is one who The Chairman and CEO roles and and an alternate director. The Board has no relationship with the Company, responsibilities are kept separate in consists of members with established its related companies or its officers order to maintain effective oversight. track record in finance, banking, that could interfere, or be reasonably No individual or small group of technology, legal and management perceived to interfere with the exercise individuals dominates the Board’s skills. Each non executive director of the director’s independent business decision making process. The CEO brings to the Board an independent judgment. The independence of and senior management regularly and objective perspective based each director is reviewed annually consult with individual Board members on his training and expertise to by the Nominating Committee (NC). and seek the advice of members of make balanced and well The independent directors are the Board committees through considered decisions. Mr Koh Beng Seng, Mr Venkatachalam meetings, telephone calls as well Krishnakumar, Dr Philip Pillai, as by electronic mail. The Chairman of the Board is Mr Peter Mr Winston Tan and Mr Davinder Singh. Seah, a non executive director. The Chairman, who is non executive, is Mr Seah was appointed to the Board Relationship tests aside, it is the quality responsible for the proper functioning on 15 April 2002 as Chairman. of the governance that counts and of the Board and acts independently that distinguishes an independent and in the best interests of the Company As a non executive director, Mr Seah effective board. While not all the non and its shareholders. The Chairman is free from any relationship with the executive directors are considered facilitates the relationship between the executive management of the Company independent based on relationship Board and the CEO and management, that could materially interfere with the tests, the Board has, at all times engaging them in constructive exercise of his independent judgment. exercised independent judgment in discussions over various matters, He is a Member of the Temasek decision making using its collective including strategic issues and Advisory Panel in Temasek Holdings, wisdom and experience to act in the business planning processes. the Company’s major shareholder. best interests of the Company. The CEO is accountable to the Board The President and CEO is Mr Tan The Board held a total of five meetings for the conduct and performance of the Pheng Hock, who is an executive during the year, in accordance with Group. The CEO is also responsible for director. Save for Mr Tan Pheng Hock, its planning cycle, for the approval of reporting to the Board and the various the remaining ten directors are non the FY2006 results and release of board committees set up to assist the executive directors. 1Q2007, 2Q2007 and 3Q2007 results. Board in its oversight function. Singapore Technologies Engineering Ltd 37 Annual Report 2007

Board Membership and Evaluation During the year, the NC reviewed and Supporting the Board are the following of Performance (Principles 4 and 5) affirmed the independence of the Board Committees: The NC is responsible for reviewing Company’s independent directors and the composition of the Board and the composition of the Board and the • Audit Committee identifying and selecting suitable profile of Board members in relation to • Business Investment and candidates to the Board. The the needs of the ST Engineering Board. Divestment Committee Committee also reviews the retirement The NC recommended to the Board • Executive Resource and and re-election of directors. the appointment of Mr Davinder Singh Compensation Committee as non-executive independent Director, • Nominating Committee The NC comprises three directors. LG Desmond Kuek Bak Chye and • Budget and Finance Committee Dr Philip Pillai is the Chairman of Mr Quek Tong Boon as non executive • Research, Development and the NC. The other members are Directors. Technology Committee Mr Peter Seah and Mr Venkatachalam • Senior Human Resource Krishnakumar. Both Dr Pillai and At each AGM, one third of the Committee Mr Krishnakumar are independent directors with the longest term in • Risk Review Committee non executive directors. office is required to retire and submit • Tenders Committee themselves for re-election. Under this The NC is charged with the provision, Mr Tan Pheng Hock, The composition of the Board responsibility of ensuring that the Dr Philip Pillai, and Mr Venkatachalam committees is found on the next page. Company’s Board and its subsidiaries Krishnakumar will retire. The newly comprise individuals who are able appointed directors, LG Desmond Kuek to discharge their responsibilities as Bak Chye, Mr Davinder Singh and directors. The NC identifies suitable Mr Quek Tong Boon will also retire. candidates for appointment to the The retiring directors, being eligible, boards of the Group, in particular, have offered themselves for re- candidates who can value add to the election. The NC has reviewed their management through contribution of contributions and recommended that their skills, knowledge and experience each of the retiring Directors be to the various businesses. re-elected at the Company’s forthcoming AGM. 38

BOARD MEMBER CommitteeAudit 5/1/1998) on (estbd Committee Divestment and Investment Business 8/9/1997) on (estbd Executive Resource and Compensation Committee 6/12/1997) on (estbd CommitteeNominating 4/12/2002) on (estbd Budget and Finance Committee 5/1/1998) on (estbd Research, Development and Technology Committee 1/8/2003) on (estbd Senior Human Resource Committee (estbd on 16/1/1998) Committee Review Risk 7/12/1998) on (estbd Committee Tenders 5/1/1998) on (estbd

Mr Peter SEAH Lim Huat C C M C Mr TAN Pheng Hock M M M M M Mr KOH Beng Seng C Lieutenant-General Desmond KUEK Bak Chye M M M Dr TAN Kim Siew M M Professor LUI Pao Chuen C Mr Winston TAN Tien Hin M M C Dr Philip Nalliah PILLAI M M C Mr QUEK Poh Huat M M

Mr Venkatachalam KRISHNAKUMAR M M M M Rolling list of any 3 Board Directors Mr Davinder SINGH C M LTC CHIA Choon Hoong +

NON BOARD MEMBER

Dr Stanley LAI Tze Chang CM

DENOTES: C – Chairman M – Member CM – Co-opted Member + Alternate director to LG Desmond Kuek Bak Chye Singapore Technologies Engineering Ltd 39 Annual Report 2007

Access to Information (Principle 6) Krishnakumar. The majority of • Set targets for senior executives The management furnishes Board members of the ERCC have held senior and approve equity based incentive members with monthly management positions in large organisations and are share plans and the granting of stock reports, providing updates on key experienced in the area of executive options, performance share awards operational activities and financial remuneration. and restricted stock awards analysis. The Board also has • Approve non executive director unrestricted access to the President All the ERCC members are non remuneration structure and CEO, the CFO, management and executive directors. Apart from the Company Secretary as well as the Mr Peter Seah, the other members of The ERCC met four times in 2007. internal and external auditors and the the ERCC are independent directors. Its key activities were centred on risk management team. The Board can the assessment and development also seek independent professional The ERCC has access to professional of the management team, target advice if necessary. advice from appropriate external setting, and the determination of advisors where necessary. The ERCC their compensation and incentive As a general rule, board papers are may meet with these external advisors awards. In determining the overall sent to directors at least three days without the presence of management. remuneration package, the ERCC prior to meetings in order for directors All decisions at any meeting of the assesses executives’ contributions to to be adequately prepared for the ERCC shall be decided by a majority the Group relative to preset targets, meeting. of votes of the ERCC members the performance of the Group, and present and voting (the decision of the compensation and employment REMUNERATION MATTERS the ERCC shall at all times exclude conditions of various industries, the vote, approval or recommendation including global remuneration Procedures for Developing of any member who has a conflict of benchmarking. Remuneration Policies (Principle 7) interest in the subject matter under Level and Mix of Remuneration consideration). During the year, the ERCC reviewed (Principle 8) and decided to gradually replace Disclosure on Remuneration The ERCC has been authorised by the share options with restricted shares (Principle 9) Board to carry out the following key under its Restricted Stock Plan. The duties and responsibilities: ERCC also decided on conditional The Executive Resource & performance share awards and Compensation Committee (ERCC) • Review and establish executive restricted stock awards under ST performs the role of the remuneration remuneration policy Engineering’s approved share plans as committee. The Committee comprises • Approve the remuneration package well as Economic Value Added-based Mr Peter Seah as Chairman, Dr Philip and service terms for senior incentives for senior executives. Pillai and Mr Venkatachalam executives

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

Number of Directors in Remuneration Bands 2007 2006

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

Total 11 11 40

Summary compensation table for the year ended 31 December 2007 (Group):

Stock options Directors’ granted Exercise Name of director Salary * Bonus * fees Total in 2007 price Exercisable period $ $ $ $ $

Peter Seah Lim Huat – – 187,000 187,000 44,500 3.23 16.3.2008 to 15.3.2012 44,500 3.61 11.8.2008 to 10.8.2012

Tan Pheng Hock 993,181 1,886,178 # 2,879,359 200,000 3.23 16.3.2008 to 15.3.2017

Koh Beng Seng – – 99,000 99,000 27,500 3.23 16.3.2008 to 15.3.2012 27,500 3.61 11.8.2008 to 10.8.2012

LG Desmond Kuek Bak Chye – – 13,125•@† 13,125 – – –

LG (NS) Ng Yat Chung – – 3,750•@1 3,750 – – –

Dr Tan Kim Siew – – 13,750• 13,750 – – –

Professor Lui Pao Chuen – – 118,000† 118,000 – – –

Winston Tan Tien Hin – – 147,000† 147,000 37,000 3.23 16.3.2008 to 15.3.2012 37,000 3.61 11.8.2008 to 10.8.2012

Lucien Wong Yuen Kuai – – 48,000@2 48,000 21,500 3.23 16.3.2008 to 15.3.2012

Dr Philip Nalliah Pillai – – 129,000† 129,000 33,000 3.23 16.3.2008 to 15.3.2012 33,000 3.61 11.8.2008 to 10.8.2012

Quek Poh Huat – – 128,000† 128,000 33,000 3.23 16.3.2008 to 15.3.2012 33,000 3.61 11.8.2008 to 10.8.2012

Venkatachalam Krishnakumar – – 116,000 116,000 25,500 3.23 16.3.2008 to 15.3.2012 25,500 3.61 11.8.2008 to 10.8.2012

Davinder Singh – – 37,333@3 37,333 – – –

LTC Chia Choon Hoong (Alternate to LG Desmond Kuek Bak Chye) – – – – – – –

993,181 1,886,178 1,039,958 3,919,317 622,500

* The salary and bonus amount shown is inclusive of allowances and CPF. @ Pro-rated. LG Desmond Kuek Bak Chye was appointed Director on 27 April 2007. @1 Pro-rated. LG (NS) Ng Yat Chung retired as Director on 25 April 2007. @2 Pro-rated. Mr Lucien Wong Yuen Kuai resigned as Director on 1 July 2007. @3 Pro-rated. Mr Davinder Singh was appointed Director on 1 August 2007. • Fees for public sector Directors are payable to a government agency. † Includes fees for directorship in subsidiary/subsidiaries. # Fees payable to Mr Tan Pheng Hock of $167,825 include fees for directorships in subsidiaries and are payable to Singapore Technologies Engineering Ltd. Singapore Technologies Engineering Ltd 41 Annual Report 2007

Remuneration Bands for Year 2007

Remuneration data for employees earning $200,000 and above per annum (as at 31 December 2007).

Compensation Band ($) No. of Employees Total Dollar Value ($)

200,000 to 249,999 123 27,092,300 250,000 to 499,999 120 39,522,931 500,000 to 749,999 15 8,690,684 750,000 to 999,999 5 4,353,109 1,000,000 to 1,249,999 2 2,252,785 1,250,000 to 1,499,999 3 4,079,135 1,500,000 to 1,749,999 1 1,720,305 => 1,750,000 3 6,569,626

Total 272 94,280,875

Note: Total compensation comprises all staff salaries (including CPF for Singapore staff), overtime pay, variable bonuses, special bonuses, annual wage supplement (13th month), benefits-in-kind plus overseas postees’ cost of living allowance.

The Board has delegated authority Group. By supporting and directing Following SGX’s introduction in to the ERCC to determine the the Group’s talent management and September 2006 of a new requirement remuneration of the President and leadership initiatives, the Committee for directors to issue a Negative CEO and the senior management. has helped to enhance the process Assurance Statement to accompany its The remuneration package for non of identification and development interim financial results announcement, executive directors is reviewed by the of talents to be groomed for senior certain internal procedures have Board annually and the fees to be positions. The Committee has also been put in place to enable each paid to Board members are subject to reviewed the succession plans for key member of the Board reviewing approval at the AGM. management positions in the Group. the interim financial statements to immediately raise any material The Group has set out a group- ACCOUNTABILITY AND AUDIT information known to him which may wide cross section of executives’ render the interim financial results to remuneration by number of employees Accountability (Principle 10) be false or misleading prior to their from $200,000 upwards in bands of The Board is responsible for providing release to SGX. Should there be any $50,000 and $250,000. a balanced assessment of the significant adverse issue(s) raised by Company’s performance, position and the Audit Committee (AC) or Board The Senior Human Resource prospects. In presenting the annual member which may affect the results Committee, chaired by Mr Peter Seah, financial statements and quarterly in a material way, the scheduled comprises Mr Tan Pheng Hock, announcements to shareholders date of the results announcement LG Desmond Kuek Bak Chye and promptly, it is the aim of the Board to will be postponed to allow time for Dr Tan Kim Siew. The Committee provide the shareholders with a detailed investigation or further review. reviewed the talent management and analysis, explanation and assessment leadership development initiatives of the Group’s performance, position to build a leadership pipeline for the and prospects. 42

The re-appointment of auditors is The AC has full authority to During the year, the AC reviewed subject to approval at each AGM. commission and review findings of and recommended to the Board In making its recommendations to internal investigations into matters the release of the 2006 full year, shareholders on the appointment where it is alerted of any suspected 1Q2007, 2Q2007 and 3Q2007 and re-appointment of auditors, fraud or irregularity or failure of financial statements, and considered the Board relies on the review and internal controls or infringement and approved the 2007 Audit Plan recommendations of the AC. of any law likely to have a material and the 2007 Internal Audit (IA) impact on the Group’s operating Plan. It also reviewed the adequacy Directors and key senior executives of results. It can investigate any of internal control procedures, the Group are prohibited from dealing matter within its terms of reference Interested Person transactions in ST Engineering shares two weeks and with the full cooperation of and the issues raised in IA reports before the announcement of management. with IA being given the authority ST Engineering’s first quarter, to rate risk issues according to second quarter, third quarter and The Company has put in place different risk levels, and to follow full year results up to the date of a Whistle-Blowing framework, up with remedial actions by the the announcement of the results. endorsed by the AC, where staff management. Additionally, all directors of may, in confidence and without the Group and employees are reminded fear of retaliation, raise concerns The AC reviewed the level of non not to trade in situations where the of incidents of possible wrongdoing audit services performed by its insider trading laws and rules would or breach of applicable laws, external auditors to satisfy itself prohibit trading. regulations or policies to the that non audit services performed respective chairmen of the audit by the auditors did not compromise The directors’ interests in shares of committees in the Group. As their independence under regulatory ST Engineering and its related ST Engineering has become a global requirements. companies during the year are found company with a presence in many on pages 90 to 98 of this Report. countries, it is aware of the need The AC also reviewed the to apply international corporate performance of the external Audit Committee (Principle 11) governance standards wherever it auditors. It recommended to the The AC is supported in its work operates. It takes a serious view Board the re-appointment of by the audit committees of the of all reports of violations received Ernst & Young as auditors for four main business sectors. The by initiating thorough investigations FY2007, after having been respective chairmen of the audit into each matter. satisfied with its standard of audit, committees of the four business independence and objectivity. sectors are invited to attend the The AC comprises Mr Koh Beng AC meetings of ST Engineering so Seng as Chairman, Dr Philip The AC reviewed the Group’s as to have a clear understanding Pillai and Mr Venkatachalam procurement framework and the of policies made at the holding Krishnakumar. All the members of measures that had been put in company level and to share any the AC are independent directors. place by the respective sectors’ feedback or raise any issue that the The AC held six meetings during managements both locally and sectors’ audit committees may have. the year, including a February overseas to provide for checks 2007 session with the external and balances. and internal auditors, without management. Singapore Technologies Engineering Ltd 43 Annual Report 2007

Internal Controls (Principle 12) management. Its IA Plan is submitted The Committee met four times during Internal Audit (Principle 13) to the AC for approval at the beginning the year to review the key risks and The AC oversees and appraises of each year. The AC also meets with the measures put in place as well as the quality of the audit effort of the IA at least once a year without the the key risk indicators of each sector. Company’s IA function. presence of management to gather Emerging risk perspectives facing the feedback on management’s level of Group were also discussed. The Board is ultimately responsible cooperation and other matters that for ensuring that a sound system warrant AC’s attention. All audit Budget and Finance Committee of internal controls to safeguard reports are submitted to the AC for Chaired by Mr Davinder Singh, the shareholders’ investment and the deliberation with copies of these Budget and Finance Committee Group’s assets is in place. The Board, reports extended to the relevant members include Mr Tan Pheng Hock, through the AC, the President and senior management, for prompt Mr Quek Poh Huat and Dr Tan Kim CEO and the CFO, considers that the corrective actions, as recommended. Siew. Group’s framework of internal controls Furthermore, IA’s summary of findings, and procedures is adequate to provide recommendations and updates on Budgets prepared by the respective reasonable assurance of the integrity, management’s actions taken are subsidiaries are consolidated at the confidentiality and availability of critical discussed at the quarterly AC meetings. ST Engineering level and presented to information, and the effectiveness and There were no significant control issues the Budget and Finance Committee efficiency of operations, safeguarding highlighted by IA in 2007. for review and recommendation to the of assets and compliance with Board for approval. applicable rules and regulations. During the year, IA briefed the AC on its It is also satisfied that problems are plan to carry out surprise audits across During the year, the Budget and identified on a timely basis and there the Group. The IA continued with its Finance Committee held two meetings is in place a process for best practices system of rating a company at the end to review the FY2007 budget and follow up actions to be taken of an internal audit for the purpose assumptions and forecast. The promptly to minimise unnecessary of differentiating the high risk issues Committee also met to review the lapses and for the identification and which require immediate attention. 2008 Plan and recommended to the containment of business risks. Board for approval. On an ongoing basis, IA ensures The IA supports the AC in reviewing that good practices are shared within Business Investment and the adequacy of the Company’s internal the Group. Divestment Committee control system. The Business Investment and Risk Review Committee Divestment Committee comprises Staffed by qualified auditors, IA has The Risk Review Committee, chaired Mr Peter Seah as Chairman, Mr Tan unrestricted direct access to the by Mr Winston Tan, comprises Pheng Hock, LG Desmond Kuek Bak AC. The Head of IA’s primary line of LG Desmond Kuek Bak Chye, Mr Chye, Mr Winston Tan and reporting is to the Chairman of the AC, Davinder Singh, Mr Venkatachalam Mr Quek Poh Huat. although she reports administratively to Krishnakumar, Mr Tan Pheng Hock the CFO of the Company. and Dr Stanley Lai, a co-opted member During the year, the Business and Board Director of ST Aerospace. Investment and Divestment Committee IA plans its internal audit schedules in The Committee oversees the risk met to consider an investment by consultation with, but independently of, management framework and reviews the Group. key risk exposures, including business continuity management. 44

COMMUNICATION WITH ST Engineering is committed to timely SHAREHOLDERS disclosures to ensure that the investing (Principles 14 and 15) community receives a balanced The Company believes in regular and updated view of the Group’s and timely communication with performance and businesses. shareholders as part of the Group’s effort to help shareholders better Board members attended the AGM understand its businesses. and EGM in 2007 where shareholders present were given an opportunity The Group has a comprehensive to seek clarification or question the investor relations programme aimed Board on issues pertaining to the at providing existing and potential resolutions proposed before they investors with comprehensive and were voted on. The external auditors prompt information, to enable them were also present at the AGM to to have a better understanding of assist the directors in answering the Group’s businesses, direction questions on audit related matters from and performance. ST Engineering shareholders. The Group fully supports maintains a regularly updated website the Code’s principle to encourage which provides a chronology of the active shareholder participation. More latest press releases and highlights of on Investor Relations can be found on corporate events of each sector and pages 50 to 51. its capabilities. Financial and other information are In 2007, ST Engineering’s investor made available on the Company’s relations team held over 350 investor website at http://www.stengg.com meetings in over 25 major cities, and these are regularly updated. participating in 13 investor roadshows and conferences in Australia, Canada, Europe, Hong Kong, Japan and the US. Singapore Technologies Engineering Ltd 45 Annual Report 2007 46

Turning 40 is a momentous event for most. ST Engineering marked the coming of age with a series of singular events, both to commemorate the occasion as well as to foster unity and team spirit among its over 18,000 staff.

A string of interactive activities A bamboo garden, the Garden of was held, engaging the participation Origin symbolises longevity and of staff members to promote the adaptability. Five time capsules collegial spirit within the Group. carrying emblematic items from ST Engineering’s Family Day on ST Engineering and each of its 21 July saw Siloso Beach at Sentosa business sectors were assembled, to turn into a giant carnival, with be displayed at each of their respective thousands of staff members and their offices. The capsules will be reopened families enjoying games, performances at ST Engineering’s 100th Anniversary. and fun-filled activities. The anniversary celebrations Employees from ST Engineering culminated in the launch of a two- and its global offices also gamely book set in November, comprising participated in the painting of the Under One Sun – which traces 1 insides of over 1,000 teacups, some ST Engineering’s historic development of which were eventually arranged and achievements, and Unchartered into a IV x X design as artpieces. In Territory – which pays tribute to September, about 160 staff took part Dr Goh Keng Swee for his incisive role in a series of races entitled Back in Singapore’s defence industry and to Our Roots, covering a distance of the formation of ST Engineering. 40km to mark the 40th Anniversary. At the same event, the Garden of Origin was unveiled at Jalan Boon Lay, the founding ground of ST Engineering.

2 Singapore Technologies Engineering Ltd 47 Annual Report 2007

6 7

5

9

4 8

FAMILY DAY 6 ST Engineering staff taking part 1 HE President S R Nathan presenting in a series of fun relays to mark its Chairman, Mr Peter Seah, with a token 40th Anniversary. of appreciation for ST Engineering’s 7 Guests and ST Engineering staff contribution towards the signing their well wishes for the 40th President’s Challenge. Anniversary. 2-3 Staff and their families being treated to a day of carnival fun at Siloso ST ENGINEERING’S Beach, Sentosa. 40TH ANNIVERSARY COMMEMORATIVE BOOK BACK TO OUR ROOTS 8 Mr Peter Seah launching the book 4 Ms Ho Ching, Executive Director with the cast from Phua Chu Kang. 3 and CEO, Temasek Holdings, officiating at the opening of the TEACUP PAINTING Garden of Origin. The Garden of 9 ST Engineering staff participating Origin was built on the site where the in the painting of teacups for the first seeds of ST Engineering were 40th Anniversary artpieces. planted. 5 Joining hands to set a new world record for the longest T-shirt chain. 48

OPERATING AS A RESPONSIBLE CORPORATE CITIZEN

Embracing Environment, Health A healthy and safe working Apart from financial donations, staff and Safety Initiatives environment is an essential component also gave readily of their time to visit ST Engineering regards its corporate of employee welfare. Safety homes such as the Melrose Home responsibility to the Environment, inspections and audits, systematic and St Andrew Home for the Aged, Health and Safety (EHS) with deep accident reporting audits and regular bearing goodies and spreading gravity. Most of the Group’s business training form part of ST Engineering’s cheer to the residents. The year saw units are ISO 14001 Environmental comprehensive measures to ensure ST Electronics sponsor computer Management System and/or OHSAS health and safety at the workplace. hardware and provide IT training to 18001 Occupational Health and two orphanages and a school for the Safety Management System certified. Aerospace and Land Systems blind in Kazakhstan. subsidiaries – STA Engines and During the year, its business units Advanced Material Engineering – The arts and education were also reviewed their EHS policies to ensure received the Workplace Safety and focus areas in ST Engineering’s continued relevance to the workplace. Health Performance Award 2007 community efforts. For the third (Silver), awarded by Singapore’s consecutive year, the Safety@Work Where possible, environmentally Ministry of Manpower. Creative Awards invited tertiary friendly practices are adopted, students to spread the message of sometimes leveraging technology, Making a Difference to the safety in a multimedia art competition. to preserve the environment. For Community instance, electricity and water ST Engineering is a fervent supporter As part of regular initiatives to promote consumption is reduced through of the community. By helping the less education, ST Engineering supported motion sensors and timers, while fortunate, as well as promoting arts prominent conferences such as the “straight-through” processes minimise and education, it is embracing its role IE Forum 2007, organised by the human intervention and enable a as a responsible corporate citizen. International Enterprise Singapore; and paperless working environment. the Shangri-La Dialogue, organised by During the year, ST Engineering and its the International Institute of Strategic ST Engineering’s subsidiaries and subsidiaries gave generously to several Studies. joint ventures are encouraged to worthy causes, including $668,000 to incorporate environmentally friendly the President’s Challenge in Singapore practices into their operations. and others like SingHealth Foundation, Recycling of office products and Great Singapore Duck Race, Kidney proper waste disposal are two of Dialysis Foundation, Thye Hua Kwan these initiatives. Charity, MINDS and Hospice Care Association. Singapore Technologies Engineering Ltd 49 Annual Report 2007

Safety@Work Creative Awards 2007 trophies.

Mr Tan Pheng Hock, President and CEO, with the winners of the Safety@Work Creative Awards 2007.

HE President S R Nathan posing for a photo with members of the Moral Home for the Disabled.

Mr Peter Seah, Chairman, and Mr Tan Pheng Hock, President and CEO, presenting a cheque of $668,000 to HE President S R Nathan for President’s Challenge 2007. 50

Analysts visiting MAE, the Group’s US Airframe MRO facility BREAKING in Mobile, Alabama. NEW GROUND

ST Engineering has an active investor roadshows and conferences in The Group constantly seeks ways to relations programme to help investors Australia, Canada, Europe, Hong Kong, reward shareholders. In response to fully comprehend the Group’s Japan and the US. investors’ feedback for more frequent developments and keep them updated dividend distribution, the Group paid its of its progress and strategies. The Group also focuses on enriching maiden interim dividend of two cents the depth of knowledge of over 20 per share in September. Today, the Group has a shareholder sell-side analysts who cover the base of about 30,000 with institutional stock, as they serve as independent Moving forward, ST Engineering shareholders in virtually all major voices providing analyses and will continue to build on its investor global financial markets. Its proactive recommendations to investors. This relations efforts to better address the investor relations efforts go a long year, ST Engineering organised its ever changing needs of the investment way towards promoting the stock and first ever analyst facility visit to the US, and analyst communities. cultivating shareholder loyalty. the Group’s largest market outside Asia, giving analysts the opportunity In 2007, ST Engineering’s investor to examine the Group’s US operations relations team held over 350 investor and hear first-hand from US senior meetings in over 25 major cities, management. participating actively in 13 investor

Investor Relations Calendar Highlights 2007

1st Quarter 2007 3rd Quarter 2007

• DBS Vickers The Pulse of Asia Conference – Singapore • Fund managers’ visit to ST Kinetics via Nomura Securities • US and Canada Investor Roadshow • Nomura Asia Equity Forum – Singapore • Hong Kong Investor Roadshow • Fund manager/analyst visit to ST Electronics • Live webcast of FY2006 results briefing • Live webcast of 2Q2007 results briefing • Post results investor lunch • Post results investor lunch • Credit Suisse Asian Investment Conference – Hong Kong • Australia Investor Roadshow • US and Canada Investor Roadshow 2nd Quarter 2007 • Payment of interim tax exempt (one-tier) dividend of 2.0 cents per share for first half ended 30 June 2007 • Live webcast of 1Q2007 results briefing • CLSA Investors’ Forum – Hong Kong • Post results investor lunch • Analyst visit to US operations 4th Quarter 2007 • Payment of first and final tax exempt (one-tier) dividend of 4.0 cents per share and a special tax exempt (one-tier) dividend of • Live webcast of 3Q2007 results briefing 11.11 cents per share for the year ended 31 December 2006 • Post results investor lunch • Citigroup ASEAN Mini Conference – Tokyo • Morgan Stanley Asia Pacific Summit – Singapore • Europe Investor Roadshow • Europe Investor Roadshow Singapore Technologies Engineering Ltd 51 Annual Report 2007

Analysts trying out a commercial class asphalt paver at VT LeeBoy in Analysts watching a staff member conduct a stringent water Lincolnton, North Carolina. submerging test of a ruggedised computer at VT Miltope in Montgomery, Alabama.

ST Engineering Share Price and Trading Volume in 2007

Trading volume Share price (millions) ($) Ex-date for the payment Ex-date for the payment of 2006 final dividend of of 2007 interim dividend of 45 4.0 15.11 cents per share 2.0 cents per share 40 3.9

3.8 35

3.7 30 3.6 25 3.5 20 3.4 15 3.3 10 3.2

5 3.1

0 3.0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Share price Trading volume Source: Bloomberg

ST Engineering Share Price History

Year 2007 2006 2005 2004 2003

High $3.98 $3.30 $2.86 $2.33 $2.06 Low $3.10 $2.62 $2.33 $1.89 $1.47 Average* $3.59 $2.95 $2.52 $2.09 $1.83

* Defined as the average closing prices of active trading days for the year. 52

RECOGNISING EXCEPTIONAL ACHIEVEMENT

ST Engineering celebrates its numerous Accreditation Programme (for Silver awards by SPRING Singapore at achievements and awards accorded non destructive testing) from the the National Innovation Quality Circles to both its outstanding companies and Performance Review Institute. STA for their efforts in upholding high quality individuals during the year. Systems was one of the few Singapore standards. companies to achieve such an Quality international certification. Business Excellence ST Engineering is honoured to be ST Engineering was, once again, rated one of two winners of the inaugural The Group’s sectors and their among the top 20 companies in the Singapore Quality Award (SQA) 2007 subsidiaries won a multitude of awards Singapore International 100 Ranking with Special Commendation. The by Singapore’s Ministry of Defence 2007, organised by International highest quality accolade in Singapore, (MINDEF) during the year, which Enterprise Singapore (IE Singapore). the award recognises past SQA acknowledged ST Engineering’s role in The ranking is a national initiative winners for continuing to scale greater Singapore’s Total Defence. One of these aimed at identifying and recognising heights in business excellence, and for awards was the Minister of Defence Singapore’s top 100 companies based demonstrating global leadership in key Award 2007, given to the Group’s on overseas revenue. business areas after winning the SQA. Electronics sector and Aerospace subsidiary, STA Systems. In addition, Across the globe, its US subsidiary, President and CEO, Mr Tan Pheng Hock, subsidiaries of its Electronics sector, iDirect, was named one of the 50 fastest was the first Singaporean to be awarded ST Electronics (Info-Comm Systems) growing companies in the Washington the Walter L. Hurd Executive Medal. and ST Electronics (Satcom & Sensor DC area by Washington Business The medal is given annually to a senior Systems), won the Distinguished Journal. The ranking was based on executive or owner of an organisation Defence Partner Award 2007. Land percentage revenue growth over three in recognition of his contributions Systems subsidiaries, Allied Ordnance of years from 2004 to 2006. iDirect towards the advancement of the quality Singapore and Ordnance Development achieved an annual revenue growth movement within the Pacific region. & Engineering Company of Singapore of 56%. (1996), also received the Distinguished The Aerospace sector’s San Antonio Defence Partner Award 2007. iDirect was also a recipient of the facility was awarded the Diamond Electronics subsidiary, ST Electronics Market Leadership Award 2007 by Certificate of Excellence, a Federal (Info-Software Systems), as well as the Frost & Sullivan, for its dominant market Aviation Administration (FAA) award Marine and Land Systems sectors, Land presence and growth in the Middle East for employers, for having all its Systems subsidiary, Advanced Material and Africa regions during the year. eligible employees clinch the Aviation Engineering, and Aerospace subsidiary, Maintenance Technician (AMT) award. STA Engines, were conferred the Another US subsidiary, MÄK, was Meritorius Defence Partner Award 2007. among Military Training Technology’s Subsidiary of the Aerospace sector, Aerospace subsidiaries – SASCO, Top 100 ranking 2007 which recognises STA Systems, received the National STA Engineering, STA Engines, STA companies that have made a significant Aerospace Defence for Contractor Systems – were awarded the Gold and impact on the military training industry. Singapore Technologies Engineering Ltd 53 Annual Report 2007

Product Excellence ST Engineering’s Electronics sector became the first manufacturer in Asia to attain the Det Norske Veritas (DNV) Product Certification for its Full Mission Ship Handling Simulator. The certification complies with the DNV Class ‘A’ Bridge Operation standard – the highest attainable grade – and is a testament to the sector’s expertise in designing and building world class simulators.

The Electronics sector clinched the Congrès de la Radiocommunication Professionnelle (CRP) 2007 Product Trophy for its SuperneT™ Radio Gateway ST2860 (SuperneT™ ST2860), in recognition of the product’s innovation, value and technological capabilities.

The sector also won the Boat Asia 2007 Innovation Award for its Harbour Craft Identification & Monitoring System. This award recognises technical innovation that benefits the boating industry.

Another electronics innovation, CityNet II The Next Generation Taxi Booking & Despatch System, received the IES Prestigious Engineering Achievement Award 2007 by the Institution of Engineers Singapore.

The Electronics sector also did well at the Asia Pacific Infocomm Technology Alliance (APICTA) Awards 2007, picking President and CEO, Mr Tan Pheng Hock receiving the SQA 2007 with Special Commendation. 54

Acting CFO, Raphael Chin receiving the award at the Singapore Corporate Awards 2008

up two awards. The first was in the from the Community Chest of Singapore People Tourism and Hospitality category for for their continued community support. Aerospace subsidiary, STA Systems, CityNet II The Next Generation of Taxi received the NTUC Model Worker Booking & Despatch System. The The Electronics sector and its Award 2007. second award was for the Common subsidiaries, ST Electronics (Training Application Platform – Third Generation & Simulation Systems), ST Electronics President of the Electronics sector, Mobilising System (CAP-TGMS), in the (Satcom & Sensor Systems); as well Mr Seah Moon Ming, was conferred e-Community & e-Government category. as the Land Systems sector and the 6th International Management The APICTA Awards is an international its subsidiaries, Allied Ordnance of Action Award. The award recognises awards programme that aims to increase Singapore, Ordnance Development & outstanding individuals who have Infocommunications Technology (ICT) Engineering Company of Singapore demonstrated exceptional management awareness and promote ICT research (1996), received the SHARE Gold ability to achieve sustainable, tangible among its 16 member economies. Award. results for an organisation, society or the nation. ST Engineering’s Aerospace and The Aerospace and Marine sectors Marine sectors won recognition for their and subsidiaries – STA Engineering Communications outstanding engineering capability when and STA Engines – received the The Group was recognised for its they received the Defence Technology 5-Year Outstanding SHARE Award communications initiatives. It clinched Prize 2007 Team Award from MINDEF. while Aerospace subsidiaries, SASCO the Gold award for Best Annual Report and STA Systems, were accorded the 2006 (for companies with $500m or Safety 10-Year Outstanding SHARE Award. more in market capitalisation) at the Aerospace subsidiary, STA Engines, and Singapore Corporate Awards 2008. It Land Systems subsidiary, Advanced Employee Welfare also received the Bronze award for Best Material Engineering, received the For its staunch support of NSmen Annual Report 2005 at the same event Workplace Safety & Health Performance employees, the Electronics sector’s the previous year. Award (Silver) from Singapore’s subsidiary, ST Electronics (Info-Comm Ministry of Manpower for implementing Systems), won a Special Award at the The Group’s 2006 Annual Report also effective safety and health management Home Team NS Awards for Employers won the Silver Award for Overall Annual processes to achieve a commendable 2007, organised by the Ministry of Report at the 2007 International ARC safety record. Home Affairs. ST Electronics (Info- Awards, for its success in communicating Software Systems), ST Electronics the theme of the report both in design Corporate Social Responsibility (Satcom & Sensor Systems) and Land and editorial. Aerospace sector and its subsidiaries Systems subsidiaries – Advanced – STA Engineering, SASCO, STA Material Engineering, Allied Ordnance of Engines, STA Systems; Land Systems Singapore and Ordnance Development sector subsidiary, Advanced Material & Engineering Company (1996) – Engineering; and the Marine sector attained commendation awards. received the SHARE Platinum Award 56 Group Overview 57 Entering a New Phase of Globalisation 58 Performance of the Group 62 ST Engineering at a Glance 66 Aerospace Sector 70 Electronics Sector 74 Land Systems Sector 78 Marine Sector 81 Dynamics and Risk Factors of the Business 81 Industry Review 82 Risk Management 85 Sensitivity Analysis 85 Shareholder Return 86 Financial Review 87 Accounting Policies 88 Prospects for 2008 56

GROUP OVERVIEW

December 1997 marked the GROUP VISION, MISSION, OBJECTIVES & THRUSTS establishment of the ST Engineering Group, with the historic amalgamation of four public listed companies – GROUP VISION ST Aerospace, ST Electronics, To be a global defence and ST Automotive and ST Marine. engineering group ST Kinetics was formed in 2000 when the Group acquired the Chartered Industries of Singapore group of GROUP MISSION companies and merged it with To bring value to our customers ST Automotive. and partners by delivering total Key Performance integrated quality solutions and Indicators Individually, each entity is a leader in support • Customer Satisfaction its own industry, with over 30 years • Customer Acceptance of operating history. The strengths 4 STRATEGIC OBJECTIVES Rate and synergy offered by each company • Enlarge Strategic Capabilities • Turnaround Time contribute to ST Engineering’s • Expand Global Networks Compliance reputation as one of the world’s • Embrace Partnerships • Employee Satisfaction foremost providers of integrated • Enhance Business Excellence • Innovations / New defence and engineering capabilities Products, Services or and solutions, with an extensive global Capabilities customer base. 6 STRATEGIC THRUSTS • Sales and Profit Growth • Customer Focus • Return on Equity Headquartered in Singapore, • Safety & Quality First • Economic Value Added ST Engineering has a staff strength • People Excellence of over 18,000, located in more than • Technology Edge 21 countries across the globe. It has • Operational Excellence established a strong international • Financial Strength presence, offering a comprehensive range of solutions through its Aerospace, Electronics, Land Systems and Marine sectors. Singapore Technologies Engineering Ltd 57 Annual Report 2007

ENTERING A NEW PHASE OF GLOBALISATION

US Billion Dollar Mark iDirect continues to be among The evolving alignment and synergistic 2007 was a landmark year for the top three global players in working partnerships with sister ST Engineering’s US operations, end-to-end broadband satellite companies, not just in the US but as VT Systems’ revenue reached communications, and is leveraging worldwide, will ensure continued US$1b. This constituted about 28% ST Engineering’s network to make revenue growth and sustainable of the Group’s turnover, a significant inroads into new markets such as business development. increase of more than four times China, India, the Middle East, North compared to 2001 when VT Systems Africa and Southeast Asia. VT Leveraging Opportunities in China was first incorporated. Miltope consistenty delivers on the In terms of revenue, China is the US military programmes, and to blue second largest market outside Today, the US is the single largest chip customers such as Airbus, Boeing Singapore for ST Engineering. With market for the Group outside Asia. and Lockheed Martin, adding to the a staff strength of over 3,500, the 2007 saw unprecedented success topline of the US group of companies. Group’s Aerospace, Electronics and through both organic growth within In 2007, MÄK signed a contract to Land Systems sectors are represented the US operating units as well as the further develop and field a simulation in 16 cities including Beijing, Chengdu, reaping of benefits from the cross supported training capability at six Hong Kong, Guangzhou, Shanghai, business and cross geographical US Air Force Air Support Operations Shenyang, Shenzhen and Yi Chun. synergies. Center (ASOC) squadrons. In 2007, the Group further invested Despite the challenges posed by the The specialty vehicles strategy is into China. This included building a US economic environment following making steady progress in the US second hangar complex at Shanghai’s the US sub-prime issue and the and China, creating and customising Pudong International Airport to weakening of the US dollar, several designs, products and solutions for complement STARCO’s hangar facility VT Systems companies maintained specific market segments. The group at Hongqiao. When completed in their leadership positions in the continues to implement strategies 2009, the new complex will add marketplace. VT LeeBoy, ST Mobile aimed at improving margins and another three narrow-body and two Aerospace Engineering (MAE), San market share for vehicles intended for wide-body bays, with a capacity for the Antonio Aerospace (SAA) and iDirect disaster relief, homeland security and A380 aircraft, to its global aerospace remained key players in the US market infrastructure development. VT Halter MRO network. as well as the global arena. Marine delivered another year of profits, building up a strong order book With China’s rising demand for MAE and SAA, along with their sister with new and repeat customers. infrastructure and equipment, companies in the Aerospace sector ST Engineering’s Land Systems in Asia and Europe, has established Developing opportunities with the and Electronics sectors envisage a firm position as the world’s largest US government was also a key growth opportunities for new sales. third party Maintenance, Repair and strategy, with the VT Systems group Construction and maintenance Overhaul (MRO) provider, recording of companies further building on vehicles and equipment, rail systems 8.1m airframe manhours in 2006 in relationships with US government and solutions and integrated traffic the biennial study by the Overhaul agencies. command systems are some of the & Maintenance magazine. The areas in which the Group has made newly formed Panama Aerospace Looking ahead, the US will continue substantial headway. Engineering (PAE) was awarded to be an important and growing certification by the Federal Aviation market for ST Engineering. The ST Engineering remains focused on Administration (FAA) in September VT Systems group will continue to China, expanding its presence and 2007, and is now capable of servicing play both a dominant role in the US market reach while leveraging local US registered aircraft. as well as a complementary role to resources to propel further growth in ST Engineering’s business areas. the market. 58

PERFORMANCE OF THE GROUP

a) Half yearly performance 2007 2006 In $m Except Per Share Amounts 1H 2H FY 1H 2H FY

Turnover 2,518 2,533 5,051 2,070 2,416 4,486 EBITDA 337.2 347.2 684.4 259.5 333.9 593.4 EBIT 272.3 278.0 550.3 205.3 252.3 457.6 Profi t before tax 307.0 331.1 638.1 259.4 304.9 564.3 Profi t after tax after minority interests 231.6 271.9 503.5 198.3 246.8 445.1 Basic earnings per share (cents) 7.84 9.11 16.95 6.78 8.37 15.15 Net asset value per share (cents) 47.9 54.7 54.7 45.4 53.1 53.1

Note: The half yearly figures are unaudited

The Group’s turnover for 2H2007 of $2,533m was The Group’s Profit Before Tax (PBT) for 2H2007 increased comparable to that achieved in the first half. Marine sector by 8% or $24.1m over the first half. Both Electronics and reported higher turnover, Electronics and Land Systems Marine sectors reported higher PBT, Aerospace sector had sectors had comparable turnover, while Aerospace sector comparable PBT, while Land Systems sector recorded lower had lower turnover in the second half vis-à-vis the first half. PBT in the second half versus the first half.

HALF YEARLY TURNOVER ($m) HALF YEARLY PROFIT BEFORE TAX ($m)

2nd half year 07 2nd half year 07 $2,533m $331.1m 1st half year 07 1st half year 07 $2,518m $307.0m

2nd half year 06 2nd half year 06 $2,416m $304.9m 1st half year 06 1st half year 06 $2,070m $259.4m Singapore Technologies Engineering Ltd 59 Annual Report 2007

b) Full year perfomance

Turnover Earnings Per Share (EPS) The Group’s turnover of $5,051m for FY2007 was higher The Group’s basic and diluted EPS for FY2007 were 16.95 than that of FY2006 by 13% or $565m. All sectors cents and 16.91 cents respectively (FY2006: 15.15 cents reported higher turnover. and 15.00 cents respectively). The higher EPS was a result of higher profit after tax for FY2007.

FY 07 16.95

FY 06 15.15

FY 05 13.64

FY 04 12.26 Aerospace 36% Electronics 20% FY 03 11.29 Land Systems 23% Marine 17% EARNINGS PER SHARE (CENTS) Others 4%

Profit Before Tax Economic Value Added (EVA) Group PBT for FY2007 of $638.1m was higher than The Group’s EVA for FY2007 was $388.8m, an increase of that achieved in FY2006 by 13% or $73.8m. All sectors 19% or $61.0m over FY2006. The Weighted Average Cost recorded higher PBT. of Capital was 6.5% for 2007 (2006: 6.6%).

61%

17%

13%

15%

(6%) Aerospace 53% Electronics 18% Land Systems 13% FY2007 EVA CONTRIBUTION BY SECTOR (%) Marine 15% Aerospace Electronics Land Systems Others 1% Marine Others 60

Capital Expenditure The Group incurred capital expenditure of $172m in FY2007. The addition of a new engine test cell, new hangars and related equipment and programme-related purchases, including components to support existing and new customers in 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.

FY 07

FY 06

$m 0 20 40 60 80 100 120 140 160 180 200

Aerospace Electronics Land Systems Marine Others

Total Assets As at end December 2007, total assets of the Group amounted to $6.04b compared to $5.58b as at end December 2006.

The deployment of assets is as follows:

DEPLOYMENT OF ASSETS – 2007 DEPLOYMENT OF ASSETS – 2006

Property, Plant and Equipment 17% Property, Plant and Equipment 17% Associated Companies & Investments 5% Associated Companies & Investments 6% Intangible Assets 11% Intangible Assets 10% Deferred Tax Assets 2% Deferred Tax Assets 3% Stocks & WIP 20% Stocks & WIP 20% Debtors, Deposits & Prepayments 32% Debtors, Deposits & Prepayments 29% Amounts under Fund Management 3% Amounts under Fund Management 4% Bank Balances & Other Liquid Funds 10% Bank Balances & Other Liquid Funds 11% Singapore Technologies Engineering Ltd 61 Annual Report 2007

Human Resource Statistics (as at 31 December 2007)

SECTOR

Aerospace (6,993) 38% Electronics (4,154) 23% Land Systems (5,191) 28% Marine (1,466) 8% Others (450) 3% Total (18,254) 100%

JOB GROUP

Managerial (1,018) 5% Engineering (5,102) 28% Corporate Function/Admin (2,693) 15% Sales & Marketing (527) 3% Technical & Others (8,914) 49% Total (18,254) 100%

EDUCATIONAL QUALIFICATION

Degree & Equivalent (5,035) 28% Diploma & Equivalent (5,149) 28% “O”/“A” Levels & Equivalent (2,459) 13% Secondary Level & Lower (1,289) 7% Trade Certifi cates (4,322) 24% Total (18,254) 100%

NATIONALITY

Singaporean/PR (10,100) 55% American (3,502) 19% PRC/Hong Kong (2,663) 15% Indian (171) 1% Malaysian (218) 1% Others (1,600) 9% Total (18,254) 100% 62

ST ENGINEERING

FACTS CORE CAPABILITIES

– One of the largest companies listed in – A global engineering group providing integrated Singapore and one of Asia’s largest defence solutions for the aerospace, electronics, land and engineering groups, with an order book systems and marine industries of $9.5b and total assets of $6.0b as at – Specialises in dual use technologies, with both end 2007 military and commercial applications traversing – Global footprint in 21 countries and 35 traditional industry lines cities, with over 100 subsidiaries, joint – Provides customised solutions through a ventures and associated companies network-centric and systems approach that – VT Systems, ST Engineering’s US leverages the strengths of the Electronics headquarters in Virginia, has extensive sector US operations across the Group’s core – Spearheads the search for new and emerging businesses technologies – Component stock of the FTSE/ASEAN 40, MSCI Singapore Free Index, S&P Asia MAJOR DEVELOPMENTS IN 2007 Pacific 100 and Straits Times Index – 126 patents granted to date, with 292 – Winner of inaugural Singapore Quality Award patents filed (SQA) 2007 with Special Commendation – – Global workforce of 18,254 with 5,102 the highest accolade awarded by Singapore engineering staff Quality Council in recognition of business excellence – Celebrated 40th Anniversary – commemorating four decades of achievements – Launched 4th Safety@Work Creative Awards – Organised inaugural analyst and media familiarisation trips to the Group’s US operations – US operations revenue reached the US billion dollar mark

REVENUE IN $m

FY 07 5,051

FY 06 4,486

PROFIT BEFORE TAX IN $m

FY 07 638

FY 06 564 Singapore Technologies Engineering Ltd 63 Annual Report 2007

AEROSPACE ELECTRONICS SECTOR SECTOR

CORE CAPABILITIES CORE CAPABILITIES – Aircraft Maintenance & Modifi cation – Large-Scale Systems Group • Line and base maintenance • Intelligent transportation systems • Technical services and maintenance planning • Intelligent building management systems • Modifi cation, conversions and refurbishment • Combat systems integration • Design, development and technology integration – Communication & Sensor Systems Group – Component & Engine Total Support • e-Government communications & Information • Engine maintenance, repair and overhaul Communications Technologies (ICT) solutions • Aircraft mechanical and avionics component repair • Satellite communication systems • Materials and spares support and management • Communications, microwave, radar and sensor systems • Intelligent traffi c and fl eet management systems FACTS • Info-security solutions – Ranked in an Overhaul & Maintenance 2007 survey as the • Electro-optics systems world’s largest third party maintenance provider for the third – Software Systems Group consecutive time, with 8.1m commercial airframe manhours • e-Government solutions and managed services in 2006 • Interactive digital media – Leverages a wide range of services – airframe, engine and • Mobile realtime and homeland security systems component maintenance; engineering design and technical • Training and simulation systems and education solutions services; and aviation materials and management services

– to offer Total Aviation Support FACTS – Worldwide network of facilities with diverse global customer – Singapore’s largest ICT solutions provider and systems integrator base that includes many of the world’s leading airlines, airfreight – Only provider of 3-in-1 rail solutions for command, control and operators and military aircraft operators communications, automatic fare collection and platform screen – 70 patents fi led of which 25 have been granted doors, with projects in China, the Philippines, Singapore, Taiwan, – 6,993 staff Thailand and Turkey – One of the world’s leading providers of multi-channel multipoint MAJOR DEVELOPMENTS IN 2007 distribution systems and satellite communications systems – Award by Boeing to perform freighter conversions under its and solutions 767-300 Boeing Converted Freighter programme – 53 patents fi led of which 28 have been granted – Won contract with FedEx Express for the freighter conversion of – 4,154 staff its 87 Boeing 757 aircraft – Won two contracts ($393m) from the RSAF for the MAJOR DEVELOPMENTS IN 2007 modernisation of its fl eet of ten C-130 transport aircraft and a – First Singapore ICT system company to cross the billion dollar TAS™ programme for its fl eet of 16 A-4SU/TA-4SU Skyhawk mark in revenues aircraft – Secured $104.5m rail contracts for Taiwan’s Taoyuan – Secured a 15-year MBH™ contract ($248m) with Xiamen International Airport, Songshan and Xinyi lines and a $123m Airlines for 22 of its CFM56-7B engines Marmaray Commuter Rail project in Istanbul, Turkey – Continued gaining component support business through – Strengthened presence in the Middle East with contracts in contracts with AirAsia, Juneyao Airlines and Martinair Saudi Arabia to provide a $60m integrated traffi c management – Expanded its global capacity with new hangars in Singapore solution and an integrated security system for the Dubai Festival and started new hangar construction in Shanghai City in UAE – Signed a joint venture agreement with Xiamen Aviation – Renamed subsidiaries to strengthen market branding – Industry Co to set up an engine MRO facility, ST Aerospace ST Electronics (Digital Media), ST Electronics (Software Technologies (Xiamen) Co (STATCO) Services) and ST Electronics (Info-Security) – Commenced operations at Panama Aerospace Engineering – iDirect opened a Dubai offi ce and made headway in Asia with (PAE) contracts in China, Indonesia and Pakistan. Set up iDirect – Received Design Organisation Approval by EASA which Government Technologies, Inc. to focus on government markets expands ST Aerospace’s engineering capability in aircraft – Entered into an agreement to acquire about 94% of Telematics modifi cations Wireless Ltd, a key player in the high growth Machine-to- Machine Industry

REVENUE IN $m REVENUE IN $m

FY 07 1,835 FY 07 1,023

FY 06 1,673 FY 06 951

PROFIT BEFORE TAX IN $m PROFIT BEFORE TAX IN $m

FY 07 341 FY 07 115

FY 06 305 FY 06 105 64

LAND SYSTEMS MARINE SECTOR SECTOR

CORE CAPABILITIES CORE CAPABILITIES – Land Systems & Solutions – Project Management • Design, development and production of integrated weapon • Turnkey shipbuilding and munitions systems • Ship upgrading and conversion • Design, development, production and upgrade of wheeled and • Weapon systems integration and installation tracked mobility systems – Inhouse Design Expertise • Integration of third party solutions for military and homeland • Custom designed naval and commercial vessels using security applications inhouse CAD/CAM facilities and CAE software – Specialty Vehicles & Services • Lightweight ship design • Design, development and production of vehicles and • Stealth technology equipment for use in construction, goods distribution and – Shipbuilding urban services • Extensive water jet expertise – Total Support & Services • Thin gauge steel and aluminium construction for naval vessels • Maintenance, repair and overhaul of military platforms, – Maintenance weapons systems and ground support equipment • Overhaul and maintenance of high performance marine • Inspection and accident repair of private and commercial engines vehicles • Through-life support of automotive assets including – Shiprepair preservation and spares management • Upgrading and retrofi tting • Industrial test services • Conversion of commercial vessels

FACTS FACTS – Leading 40mm payload solutions provider in the world – Five shipyard facilities – two in Singapore and three in the US – Market leader in commercial class asphalt pavers in North – Track record in the design and construction of sophisticated America naval and commercial vessels as well as high engineering – International clientele from more than 30 countries content shiprepair services, including ship conversions – 34 patents fi led of which 24 have been granted – Designs and develops a variety of vessels including landing ship – 5,191 staff tanks, stealth frigates, patrol vessels, feeder container vessels, RoRo vessels, platform supply vessels, LPG tankers, high speed MAJOR DEVELOPMENTS IN 2007 passenger ferries, fi sheries survey vessels, articulated tug barges – Secured $78m weapon maintenance contract from the SAF and pure car truck carriers – Secured hybrid electric tow tractor contract of over 70 units with – 31 patents fi led of which 16 have been granted Singapore Airport Terminal Services – 1,466 staff – Increased shareholding in STAR Automotive Center Guangzhou Co., Ltd. to 100% in line with business growth in the expanding MAJOR DEVELOPMENTS IN 2007 automotive repair market in China – Singapore operations secured contracts worth about $568m to – Increased investment in Guizhou Jonyang Kinetics Co., Ltd. to provide ship and submarine system and maintenance services grow the specialty vehicle business in China to the RSN, and to build a Ropax ferry for LDA – Received approval from the US Government Supply – US operations secured contracts worth US$319m (about Administration for VT SVC and VT LeeBoy to list products for $480.6m) including a contract modifi cation for the Egyptian direct sales to US government entities Fast Missile Craft project as well as the building of a platform – Launched mobile command vehicle for the law enforcement supply vessel and three 330,000-barrel tank barges market in North America – Delivered third and fourth locally-built stealth frigates, – Unveiled articulated dump truck and new excavators including a RSS Tenacious and RSN Stalwart, to the RSN hybrid version to complement its family of offerings in China – Delivered the fi rst and second of four 1030 TEU feeder – Launched Commercial Articulated Vehicle, a track-based container vessels and launched the last two platform designed for disaster relief operations – Completed conversions of fi shing trawler and platform supply vessels to seismic research vessels

REVENUE IN $m REVENUE IN $m

FY 07 1,178 FY 07 863

FY 06 1,002 FY 06 702

PROFIT BEFORE TAX IN $m PROFIT BEFORE TAX IN $m

FY 07 80 FY 07 97

FY 06 70 FY 06 80

66

ILLUSTRATION STYLE

Illustrated by Don Low Singapore Technologies Engineering Ltd 67 Annual Report 2007

KEEPING AIRCRAFT FLYING SAFELY

In 2007, ST Aerospace was once again ST Aerospace secured a contract from customers worldwide. The Aircraft recognised as the world’s largest third the Republic of Singapore Air Force Maintenance & Modification (AMM) party airframe MRO provider with (RSAF) for the TAS™ of its fleet of group added new capabilities to more than eight million commercial 16 A-4SU/TA-4SU Skyhawk aircraft provide a broader range of support airframe manhours. Through the (also known as RSAF’s Advanced Jet for customers. Fledgling STARCO global expansion of airframe MRO Training), operating in Cazaux, France. obtained certifications from Australia’s operations, broadening of aircraft Civil Aviation Safety Authority (CASA), engines and components maintenance In engineering development and European Aviation Safety Agency capabilities and businesses, and Total modification, ST Aerospace was (EASA), India’s Directorate General Aviation Support (TASTM) solutions, awarded a programme to upgrade the of Civil Aviation and Japan Civil ST Aerospace continued to deliver a avionic systems for RSAF’s fleet of ten Airworthiness Board (JCAB), as well sterling performance. C-130 transport aircraft, including the as an AS9100 quality standard, in aircraft’s navigation, communications addition to its certifications by Civil Growing Customer Base and flight management systems. Aviation Administration of China ST Aerospace continued to build Both contracts have a total value of (CAAC) and FAA. upon its relationship with existing about $393m. customers while adding new ones. In 2007, third party work continued to New customers such as Copa Airlines, On the commercial front, ST Aerospace grow, and STARCO won a three-year Delta Airlines and Lionair were added launched the operations of its major contract to support All Nippon Airways to the established customer base of TASTM programme for Skybus in (ANA) on its A320 fleet. In October, leading airlines as well as smaller and the US. STARCO broke ground for its new new airlines. hangar facility at Shanghai’s Pudong It also won two contracts involving International Airport. In engines and components support, the merging of an operational flight ST Aerospace won an $8.3m contract programme that provides growth in the The year also saw PAE commence from the Brazilian Air Force for the central processing unit and memory of operations with two hangars, capable overhaul of 12 Rolls Royce T56-A-15 the aircraft, as well as the design and of housing six narrow-body aircraft. engines that power its C-130 fleet. development of a new mini Unmanned This Panama startup promptly Other new engine customers included Aerial Vehicle (UAV) system that redelivered five aircraft to Copa Airlines those from Brazil, Ukraine and Asia. consists of camera payloads, a ground and won a contract from Transaero New total support programmes control station and a man-portable- within its inaugural year. in engines and components MRO receive-only station. were awarded by existing and new In Singapore, ST Aerospace added customers like AirAsia, JetX, Juneyao Extending Range of Capabilities two new hangars at the Seletar airport Airlines, Lionair, Martinair and Xiamen Around the World to meet the demands of its growing Airlines. ST Aerospace continued to invest in clientele, including many low cost and extend its range of capabilities carriers in Asia. to improve its service support for 68

ST Aerospace broke ground for STARCO’s new hangar complex at Pudong Airport.

(following page, from left to right) ST Aerospace signed a significant B757 PTF conversion contract with FedEx Express.

ST Aerospace selected by Boeing for the 767-300 BCF programme.

The Component & Engine Total In addition, the group signed a joint AMM had very high turnover in ST Support (CETS) group added some venture with Xiamen Aviation Industry Aviation Services Co (SASCO) and 400 new component MRO capabilities Co to set up an engine MRO facility San Antonio Aerospace due to timing for the A320, B737CG/NG, B757, in Xiamen, China. The joint venture of redeliveries. In CERO, the engines Q400 as well as the Apache, Chinook company will be named ST Aerospace division experienced very high turnover and F-16. These included expansion Technologies (Xiamen) Co (STATCO). in 1H2007 due to high inputs of of existing landing gear capabilities engines. In EMS, the turnover increase and build up of a pneumatic shop in Through its Engineering Development was due to more project milestone Stockholm. Centre, ST Aerospace became the completions and higher material sales. first company in Southeast Asia to ST Aerospace Solutions (Europe) receive EASA’s Design Organisation PBT for 2H2007 at $171.8m was (STA Solutions), formerly known as Approval (DOA). This expanded comparable to that achieved in SAS Component Group, continued to ST Aerospace’s ability to provide 1H2007 despite lower turnover. enhance its operations and integration engineering and modification services CERO registered higher PBT due with the rest of the group in providing on EU registered aircraft. Together to improved profitability, while EMS Component Total Support solutions with its ability to perform similar work achieved higher PBT on the back of to customers. under Supplemental Type Certificates higher turnover. The PBT increase (STC) for FAA registered aircraft, in both business groups was partially ST Aerospace also added an import ST Aerospace now has the ability offset by lower contributions from and export facility, Guangzhou to serve the US and European AMM as a result of lower turnover Aerospace Technologies and markets better through engineering in 2H2007. Engineering (GATE). It would serve developments. as a logistics centre for aircraft Full Year Performance components maintenance and material PERFORMANCE OF THE Aerospace sector’s FY2007 turnover support services in China. AEROSPACE SECTOR of $1,835m was higher than that achieved in FY2006 by 10% or On engines MRO, new capabilities for Half Yearly Performance $162m. The higher turnover was military and commercial engines were Turnover of the Aerospace sector in contributed by CERO and EMS. added to the group. This included a 2H2007 of $889m was $57m lower Higher sales in the engines and high speed grinder for the CFM56 compared to 1H2007. The turnover components divisions as well as the engines. ST Aerospace invested in decrease came from AMM and inclusion of a full year’s sales from STA a new engine test cell to support the Component/Engine Repair & Overhaul Solutions vis-à-vis ten-month sales testing of the CFM56-5B engines (CERO). This was partially offset by in FY2006 accounted for the higher that power the A320 family of aircraft higher turnover in the Engineering & turnover in CERO. The higher turnover and F110 engines on F-16 and F-15 Materials Services (EMS). In 1H2007, aircraft. Singapore Technologies Engineering Ltd 69 Annual Report 2007

in EMS was the result of more project completed in 2007, and the Aerospace (MPL) programme upon endorsements milestone completions and higher sector had, to date, redelivered 52 from relevant airworthiness authorities. material sales. converted MD-11 aircraft. The MPL programme would offer advances in teaching methodologies Compared to FY2006, Aerospace 2007 saw the award of a large and simulation technologies in a multi- sector’s FY2007 PBT of $341.2m PTF conversion programme of 87 crew cooperation environment over the was higher by 12% or $35.9m. All B757-200 aircraft by FedEx Express. traditional pilot training programme. three business groups recorded This would be performed under an This would allow pilots to be trained higher PBT in the current financial STC developed by ST Aerospace with in half the time compared to year. The higher PBT in AMM was due data from Boeing. Conversion work traditional training. to improved performance in SASCO commenced at MAE in the US and and ST Aerospace Engineering (STA STA Engineering in Singapore. Engineering) as well as lower losses from Bournemouth Aviation Services In addition, ST Aerospace was awarded Company (ceased operations in a contract by Boeing for the conversion December 2006). The performance of the B767-300 aircraft. The launch of CERO improved as the FY2006’s customer for this programme is ANA, performance was impacted by the and the door cutting (an activity that post-acquisition business alignment signifies the start of a major milestone initiatives and the closure of Stavanger in the PTF) was completed facility at STA Solutions. For EMS, the in November. higher PBT was in line with the higher turnover. In Singapore, ST Aerospace embarked on commercial pilot training Acquisitions through the set up of an academy, In 2007, ST Aerospace made a ST Aviation Training Academy (STATA). A$550,000 acquisition of PFS A Singapore-based joint venture Australia in New South Wales. company with a 70% stake owned by ST Aerospace, STATA would initially Major Projects provide traditional pilot training under ST Aerospace continued to the existing Commercial Pilot Licence perform Passenger-To-Freighter (CPL) and Air Transport Pilot Licence (PTF) conversions in 2007. Seven (ATPL) curricula, and eventually conversions for the MD-11 were develop a Multi-crew Pilot Licence 70

ILLUSTRATION STYLE

Illustrated by Adeline Tan Singapore Technologies Engineering Ltd 71 Annual Report 2007

PIONEERING NEW GENERATION TECHNOLOGIES FOR GLOBAL MARKETS

ST Electronics identifies three key of Singapore and set up Singapore’s (EO) solutions which include thermal areas for growth – interactive digital largest electro-magnetic compatibility weapons sights and EO maintenance. media, satellite communications chamber at the Nanyang Technological ST Electronics is pursuing the Next (satcom) and e-Government University. Generation National Infocomm solutions. It markets its Information Infrastructure project, Singapore’s Communications Technology (ICT) ST Electronics continued to build up new digital super highway for super and e-Government solutions to more its maintenance capabilities to support connectivity. than 70 countries worldwide and the the Republic of Singapore Navy number is set to grow. (RSN) New Frigate Programme. The A maritime broadband service was company also provided the RSN with a launched with SingTel using the Agilis 2007 marked a major milestone for skilled workforce and an experienced 1.2m C-Band maritime Very Small ST Electronics as it became the first and competent management team to Aperture Terminals (VSAT), currently ICT system company in Singapore undertake and operate maintenance, the smallest of its class in the world. to cross the billion dollar revenue management and engineering Ghana and Slovakia were added to threshold. services. the growing list of customers for satcom solutions which are currently In 2007, it gained foothold in new In 2007, it strengthened its market sold to 74 countries. territories including Africa, Central presence for rail electronics solutions Asia, Europe, India and the Middle in Taiwan and secured a foothold iDirect made headway into new East, while targeting markets in Africa, in Turkey. Its access control and markets in China, Indonesia, the India, Qatar, Saudi Arabia, Turkey and ticketing system for Singapore’s Middle East and Pakistan for its UAE for expansion. ST Electronics’ Sentosa Light Rail Transit (LRT) was satellite networking and remote core business activities are organised opened in January 2007, and the communications solutions. It was into three key business groups. Guangzhou Metro Line 4 in China and also awarded a contract by Intelsat Bangkok’s Mass Transit System were for its Network Broadband Global Large-Scale Systems Group (LSG) commissioned during the year. Maritime services. ST Electronics continued to enhance its capabilities in intelligent building Communication & Sensor Software Systems Group (SSG) solutions, carving a niche in carpark Systems Group (CSG) ST Electronics has made inroads guidance systems in India, Indonesia, ST Electronics’ Harbour Craft with its e-Government solutions Singapore and UAE. Its security Identification and Monitoring and managed services in China, access solutions are now being used System now enhances the security Kazakhstan, the Middle East and at Changi Airport terminals and by of Singapore’s port waters through Singapore. It set up ST Electronics the Port of Singapore Authority. GPS and GPRS technologies. (e-Services) Pte Ltd to meet the ST Electronics provides operations ST Electronics was also awarded rising demand for these services as and support services for the airport contracts by the Singapore Ministry of companies realise the benefits of systems of the Civil Aviation Authority Defence (MINDEF) for its electro-optic outsourcing non key functions. 72

Digital animation projects fuel ST Electronics’ interactive digital media initiatives.

(following page, from left to right)

The 1.2m C-Band Maritime VSAT system boosts communications for small vessels.

Managed services is set to grow as companies outsource their non core activities.

A second software development Botswana’s mobile aeronautical product sales. SSG and LSG recorded centre was set up in Yichun, China to services and Very High Frequency higher PBT largely due to higher meet increasing demand for software (VHF) voice communications. India’s investment income. solutions. ST Electronics is one of Airports Authority will implement the shortlisted participants in the ST Electronics’ Air Traffic Control Full Year Performance Singapore Ministry of Education’s Digital Voice Recording Systems. FY2007 turnover of $1,023m for the Call for Collaboration for the Electronics sector was higher than FutureSchools@Singapore project. Working with MÄK of the US, that of FY2006 by 8% or $72m. The It also signed a Memorandum of ST Electronics has expanded higher turnover was mainly contributed Understanding (MOU) with the its simulation and visualisation by SSG with milestone completions Institute of Automation, Chinese capabilities and modelling and of command and control system Academy of Science to conduct simulation solutions to include projects, a managed services project, joint research and develop new VR-Forces. MÄK was awarded data centre infrastructure projects technologies in interactive media. a contract to further develop and and simulator projects. CSG also field a simulation supported training recorded higher turnover with sales of Together with Nelvana Studios of capability at six US Air Force Air satcom products and electro-optics Canada, it co-produced The Future is Support Operations Centre squadrons. equipment, and milestone completions Wild, a 26-episode half-hour television The backbone of this system is of various intelligent transport system series. This is part of a partnership MÄK’s QuickStrike tactical desktop and communication projects. with Nelvana to co-produce multiple simulation. projects and is aired on Discovery Kids PBT of the Electronics sector in in the US and Teletoons in Canada. PERFORMANCE OF THE FY2007 of $115.3m was higher than The Ten Commandments, ELECTRONICS SECTOR that of FY2006 by 10% or $10.7m. co-produced with Promenade Pictures Both LSG and SSG had higher PBT, and Huhu Studios for the DVD market, Half Yearly Performance but these were partially offset by lower was screened in over 700 theatres in Turnover of the Electronics sector PBT in CSG. The higher PBT in LSG the US and in Singapore. This makes of $522m recorded in 2H2007 was was due to better overall performance ST Electronics the first Singapore comparable to the $501m achieved of overseas subsidiaries and higher company to launch a 3D digital in 1H2007. The increase was investment income, while the higher animation movie in US cinemas. contributed by LSG and CSG. PBT in SSG was in line with higher It plans for a total of 12 movies, ten turnover as well as higher investment DVDs and three TV series in its PBT of $67.2m for 2H2007 was income. In respect of CSG, the lower production pipeline. higher than that of 1H2007 by 40% PBT was mainly due to lower profit or $19.1m. All three business groups contribution from satcom product Marking its first contract for Air recorded higher PBT. CSG’s PBT was sales and lower investment income. Traffic Control Systems in Africa, higher mainly due to higher sales and Overall, the sector recorded a higher ST Electronics is to upgrade higher profit contribution from satcom investment income in FY2007. Singapore Technologies Engineering Ltd 73 Annual Report 2007

Acquisitions and Divestments driving the broader adoption of iDirect made its maiden entry into the To rationalise and streamline its its Internet Protocol (IP)-based Chinese market when it was awarded portfolio of associated companies, satellite networking solutions in the a contract by CrossSat Telecom and to re-allocate management government market. Technology to provide a satellite hub attention and resources to new growth and remote satellite routers to create a initiatives, ST Electronics diluted its Major Projects global IP network. stake in Polarsat Holdings Inc and In the Middle East, ST Electronics divested its entire stake in InfoWave won a contract from the General Back home, ST Electronics competed Pte Ltd, Sandz Solutions (Singapore) Traffic Directorate/Ministry of successfully against international Pte Ltd and ECS Holdings Limited. Interior of Saudi Arabia to provide players from Norway, UK and Ripple Systems Pty Limited and INFA Integrated Traffic Management and Singapore to win a contract to provide Systems Limited became wholly- Security Systems for the Automated and maintain Vessel Traffic Radars to owned subsidiaries during the year. Traffic Violations Administering and replace the Maritime Port Authority’s Monitoring project. ST Electronics will existing radars. ST Electronics sold its entire ordinary also implement an Integrated Security shareholding in Sino Stride Technology System for the Dubai Festival City. It will also be providing customised (Holdings) Limited for shares in It signed an MOU with Albacomp Forward Command Vehicles with Shougang Concord Technology Computers Company of Budapest to state-of-the-art communication and Holdings. jointly pursue and implement ICT- electronics systems to the Singapore based infrastructure projects for the Police Force, a contract won against ST Electronics entered into an public and private sectors in Hungary. stiff competition from international and agreement to acquire Telematics local players. Wireless Ltd and this was completed Taiwan Taoyuan International in January 2008. Telematics is a key Airport Access Mass Rapid Transit ST Electronics’ managed services player in the high growth Machine- Construction Project will install received a boost when it was awarded to-Machine industry and is currently communications, supervisory control a ten-year contract worth some among the largest terrestrial and and data acquisition, platform screen $250m by MINDEF to provide shared urban asset location system suppliers doors and maintenance management services to more than 350,000 active worldwide with customers from systems from ST Electronics. The personnel, regulars and NSmen from Argentina, Brazil, China and Korea. company won a contract for turnkey the Singapore Armed Forces. integrated solutions for the Marmaray iDirect appointed Yoel Gat to its Commuter Rail CR1 project in Istanbul, ST Electronics will implement a local Board of Directors and Mary Cotton Turkey. It ended the year with a rail and wide area network to connect ten as its new Chief Executive Officer. contract for Taipei’s Songshan and locations of the Bangladesh Bank. It set up a wholly-owned subsidiary, Xinyi MRT Lines. This is part of the bank’s Central Bank iDirect Government Technologies, Strengthening Project with financial Inc., to focus its business on assistance from the World Bank. Illustrated by Adeline Tan Singapore Technologies Engineering Ltd 75 Annual Report 2007

DELIVERING EXCELLENCE IN LAND SYSTEMS

ST Kinetics, the land systems arm of massive floods to the transportation of construction, goods distribution and ST Engineering, offers an integrated relief cargo. urban services. suite of innovative solutions for the defence, homeland security and During the year, ST Kinetics also In North America, ST Kinetics commercial markets. With customers showcased its defence products launched a mobile command vehicle in more than 30 countries, ST Kinetics’ at major exhibitions, including the for the law enforcement market. capabilities span the entire value Association of the United States During the year, ST Kinetics also chain from systems centric Army Annual Meeting and Exposition received approval from the US design and development to lean 2007 in Washington D.C., and the Government Supply Administration manufacturing and comprehensive inaugural Brunei International Defence (GSA) for VT Specialized Vehicles through-life support. Exhibition 2007. Corporation (VT SVC) and VT LeeBoy to list products for direct sales to US In 2007, ST Kinetics reorganised its Recognising robotics as a key growth government entities. core activities under three business area, ST Kinetics sponsored and groups to enhance the integration of participated with the team from Cornell In China, ST Kinetics unveiled an its operations. University in the prestigious US articulated dump truck and new Defense Advanced Research Projects excavators, including a hybrid version, Land Systems & Solutions Agency (DARPA) Urban Challenge. expanding its family of offerings. As an original equipment manufacturer The race required a vehicle to interact In addition, ST Kinetics injected for a wide range of mobility, weapon autonomously with traffic signals, US$16.9m (about $25.6m) into and munitions systems, 2007 saw pedestrians and other vehicles. The Guizhou Jonyang Kinetics Co., Ltd. ST Kinetics continue to help maintain Cornell team emerged as one of six (GJK) to increase production capacity the peace of nations by delivering teams, out of an initial group of 35, and enhance product lines, bringing its creative and versatile solutions for to successfully complete the race. total investment in GJK to US$28.9m the defence and homeland security ST Kinetics will continue to invest in (about $43.8m). markets. and develop such types of dual use technologies for both commercial and ST Kinetics also appointed new In March, ST Kinetics unveiled its defence applications. dealers throughout Asia, including new Commercial Articulated Vehicle, India, Indonesia, the Philippines, a track-based platform designed for Specialty Vehicles & Services as well as Australia, to market and disaster relief operations, at Global Working to raise end users’ support its range of specialty vehicles Security Asia. With a four-tonne productivity, ST Kinetics continued and equipment. payload, the vehicle provides great to develop new specialty vehicles versatility in a wide range of rescue and equipment with reliable product missions, from fire fighting and the performance, low cost of ownership recovery of trapped vehicles during and ease of maintenance for use in 76

ST Kinetics launched the hybrid electric excavator at BICES 2007.

(following page, from left to right)

The mobile command vehicle was developed specially for the law enforcement market.

ST Kinetics successfully developed a range of environmentally friendly specialty vehicles, including a hybrid electric luggage tow tractor.

Total Support & Services a subsidiary, impairment in value of an associated company, as well as In 2007, ST Kinetics continued to a long term investment and higher higher trading sales. M&W’s PBT maximise the uptime of its customers’ operating expenses. was impacted by lower turnover and specialised equipment, specialty product mix. vehicles and automotives through its Full Year Performance comprehensive through-life support Land Systems sector’s FY2007 Acquisitions services. turnover of $1,178m was higher than ST Kinetics increased its shareholding that achieved in FY2006 by 18% or in STAR Automotive Center STAR Automotive Centre in Singapore $176m. Higher turnover was recorded (Guangzhou) Co., Ltd. making it a secured a two-year renewal contract in Automotive (Auto) with higher wholly-owned subsidiary. The capital for taxi fleet maintenance from specialty vehicles sales, Bionix II and injection of an additional RMB11.36m SMART Automobile. Bronco deliveries, but this was partially (about $2.27m) was in line with offset by lower turnover in Munitions & business growth in the expanding Singapore Test Services, which is one Weapon (M&W). The lower turnover in automotive repair market in China. of the largest test services houses in M&W was mainly due to the absence Singapore, signed an agreement with of Primus and SAR 21 deliveries as Major Projects RHE Asia Pacific to provide repair, well as lower weapon export sales, but ST Kinetics won a $78m six-year maintenance, testing and certification these were partially offset by higher contract, with an option for another services of aircraft jacks and munitions sales. six years, to provide weapon associated ground support equipment maintenance and related services to exclusively in the Asia Pacific. Compared to FY2006, Land Systems the Singapore Armed Forces (SAF). sector’s PBT of $80.0m for FY2007 The contract enabled SAF, whose PERFORMANCE OF THE LAND was higher by 14% or $10.0m. Both weapon maintenance was previously SYSTEMS SECTOR Auto and Services, Trading and Others handled by various agencies and third (S&T) recorded higher PBT, but these parties, to consolidate and streamline Half Yearly Performance were partially offset by lower PBT in various weapon maintenance activities Turnover of the Land Systems sector M&W. The higher PBT of Auto was for greater efficiency and cost in 2H2007 of $594m was comparable attributable to higher contribution effectiveness. to the $584m achieved in 1H2007. from higher turnover, but this was partially offset by loss on disposal of a In the clean and green technology Compared to 1H2007, 2H2007 PBT subsidiary and the impairment in value arena, ST Kinetics successfully decreased by 47% or $24.4m to of a long term investment. For S&T, developed a range of environmentally $27.8m. The lower PBT was mainly the higher PBT was mainly due to the friendly and commercially viable attributable to loss on disposal of share of higher profits from CityCab, specialty vehicles. This included an Singapore Technologies Engineering Ltd 77 Annual Report 2007

innovatively designed hybrid electric luggage tow tractor, over 70 units of which had been ordered by Singapore Airport Terminal Services Ltd (SATS) for use at Changi Airport Terminal 3. ST Kinetics also unveiled a new hybrid electric excavator with significantly lower fuel consumption at the Beijing International Construction Machinery Exhibition and Seminar (BICES) 2007.

Using similar technologies, VT SVC launched UltraTemp – a hybrid system for refrigerated distribution that combines the benefits of both cold plate and mechanical refrigeration. The state-of-the-art system offers low operating costs, high reliability and long life expectations associated with cold plates while providing unlimited route capability, automatic defrost and lower weight advantages of a mechanical refrigeration system.

As part of its efforts to further protect the environment and contribute to the realisation of a sustainable society, ST Kinetics became a founding partner of the Fuel Cell Community in Singapore to help spearhead the drive towards the maturity and greater usage of fuel cell technology. 78

Illustrated by Don Low Singapore Technologies Engineering Ltd 79 Annual Report 2007

PROVIDING CUSTOMISED SOLUTIONS IN SHIPBUILDING AND SHIPREPAIR

ST Marine is a turnkey provider of shipbuilding history. The shipyard, PERFORMANCE OF shipbuilding, ship conversion in collaboration with James Fisher THE MARINE SECTOR and shiprepair services, serving a Defence Limited (JFD), also clinched global clientele that spans America, the first public-private partnership Half Yearly Performance Europe, Asia and the Middle East. (PPP) project from the RSN. VT Halter The Marine sector’s turnover for ST Marine’s operations in Singapore Marine received repeat orders from 2H2007 at $446m increased by are complemented by its US existing customers, most significantly, 7% or $29m over 1H2007 turnover shipbuilding facilities in Pascagoula, from Crowley Maritime Corporation’s of $417m, following higher shipbuilding Mississippi, under VT Halter Marine. subsidiary, Vessel Management activities. Services Inc. The year for the Marine sector was PBT for 2H2007 at $60.5m increased highlighted by new products, product Shiprepair by 67% or $24.4m over 1H2007, as a deliveries and launches, and expanding ST Marine continued to extend its result of better shiprepair performance business from existing customers reliable expertise and consistent and higher investment income from the requiring higher engineering expertise. service quality in shiprepair, maturity of a fund under management. Some of these customers included modification and conversion to a wide the Republic of Singapore Navy variety of vessels, maintaining its Full Year Performance (RSN), the US Navy, Crowley Maritime strong presence in the regional market. FY2007 turnover of $863m for the Corporation, Louis Dreyfus Armateurs Marine sector was higher than that S.A.S. (LDA), and Shreyas World The year’s shiprepair business was of FY2006 by 23% or $161m and Navigation. marked by the completion of several this was largely contributed by the notable conversion projects. Of shipbuilding and shiprepair businesses. Shipbuilding noteworthy mention was the conversion The higher shipbuilding turnover Leveraging on its strength in of Rubicon Intrepid’s Floating Storage was mainly contributed by the US designing and building customised and Offloading (FSO) system to the operation, while the higher shiprepair and sophisticated vessels, ST Marine Floating Production Storage and turnover was the result of a more continued to secure high value added Offloading (FPSO) system for Rubicon active shiprepair market. contracts and break new ground. Offshore. ST Marine also converted the BGP Pioneer from a fishing trawler PBT of the Marine sector in FY2007 ST Marine successfully entered the to a seismic research vessel for China of $96.6m was higher than that Roll-on/Roll-off Passenger (Ropax) National Petroleum Corporation’s BGP achieved in FY2006 by 21% or ferry newbuilding market, by securing Inc., one of the world’s leading onshore $17.1m. The higher PBT was mainly a contract to design and build a Ropax geo-physical exploration company. attributable to higher gross profit ferry for LDA – the first in Singapore’s contribution from higher turnover as well as higher investment income from the maturity of a fund under management. 80

(from left to right) Delivery of third ATB unit to Crowley Maritime.

ST Marine signing the Ropax contract with LDA.

Major Projects VT Halter Marine, clinched a contract VT Halter Marine delivered a double- In shipbuilding, ST Marine secured a valued at US$254m (about $381m) ended passenger/vehicle ferry to the contract worth about $400m to deliver to build three 330,000-barrel tank Nantucket Steamship Authority (SSA), submarine rescue and other related barges for Crowley Maritime’s and a catamaran lift barge to the services to the RSN over 20 years. subsidiary, Vessel Management Washington Group International (WGI) ST Marine will design and construct the Services Inc. VT Halter Marine and the Alberici Group for the Olmsted Submarine Support and Rescue Vessel currently has three contracts with Dam construction project on the (SSRV) necessary for the Submarine Vessel Management Services Inc. to Ohio River. Rescue Vehicle (SRV), which will be build the tugs and 185,000-barrel designed and built by JFD. On top barges for ten articulated tug barge In shiprepair, ST Marine has of this contract, ST Marine delivered (ATB) units. The third ATB unit and the accomplished several significant the third and fourth of five locally-built tug for the fourth unit were launched conversions and modifications stealth frigates, RSS Tenacious and in 2007. The tank barge project will worth more than $100m. The BGP RSS Stalwart, to the RSN. bring the total contractual value with Pioneer was successfully converted Vessel Management Services to about from a fishing trawler to a seismic ST Marine was awarded a $168m US$769m ($1.2b). The shipyard also research vessel for BGP Inc. Also contract to build a Ropax ferry for secured a contract worth US$23.5m completed was the extensive repair renowned French shipowner LDA, for (about $35.6m) to build a platform and modification of Phoenix, a cutter day and night crossing in the English supply vessel. suction dredger from Boskalis B.V., Channel. The Ropax ferry is the third of The Netherlands. The extensive newbuilding order awarded by LDA VT Halter Marine was awarded a modification work also saw the to ST Marine, following the order of contract modification worth US$41.5m upgrading of its dredging capacity, two Roll-on/Roll-off (RoRo) vessels in (about $64m) from the US Navy for fitting of new engines, generators, association with Norway’s Leif Hoegh the Egyptian Navy’s Fast Missile Craft dredging equipment, and the addition & Co. AS (LH) for the transportation (FMC) project under the Foreign of new accommodation spaces. of Airbus A380 aircraft components Military Sales (FMS) programme. The The Aquila Explorer, from Seabird in 2006. This brings the total value of contract modification will enable the Exploration Norway AS, was converted contracts awarded by LDA to US shipyard to procure long lead time from a platform supply vessel to a ST Marine to $288m. material for the command and control seismic research vessel. A second system. This is in addition to the earlier conversion contract was also awarded ST Marine delivered the first and Phase I functional design contract for to ST Marine by Rubicon Offshore, second of four 1030 TEU feeder US$28.8m (approximately $49m) and following the successful conversion of container vessels, OEL Singapore the first contract modification valued Rubicon Intrepid from an FSO to an and OEL Blessing, to Shreyas World at US$165m (about $263m). This FPSO this year. With these projects Navigation of Transworld Group. The second contract modification brings successfully completed, the shipyard last two vessels, OEL Dubai and the total amount awarded on the FMC continued to maintain its dominance in OEL India, were also launched at project to approximately US$235m the market for shiprepair, modification the shipyard. (about $376m). and conversion for a wide variety of vessels. Singapore Technologies Engineering Ltd 81 Annual Report 2007

DYNAMICS AND RISK FACTORS OF THE BUSINESS

Industry Review oil price induced cost pressure on margins in relation to businesses in The well diversified business portfolio the airlines could also lead to a lower the Marine and Land Systems sectors. of the ST Engineering Group provides manhour selling rate for MRO work. To mitigate the impact, the Group will a mechanism for the Group to leverage continue its strategy of locking in raw the dynamic economies of growing The US Economy materials prices ahead of schedule, markets while at the same time The sub-prime issue, rising prices capping price offers based on a range buffer the ones with weaker market of raw materials, oil price increase, of commodity prices and hedging performance. rising unemployment, falling consumer as well as shortening the validity of consumption and the financial market the proposals to customers, where Not unlike other large MNCs, the problems could push the US economy possible. Group’s operations and performance into a recession. Should this happen, are subject to changes in the the economic downturn would Currency Fluctuations economic and business environments, affect industries ranging from retail With substantive business operations external factors such as natural sales to infrastructure and property in the US and some in Europe, and man-made disasters, as well as development, and from banking to the Group is most concerned with other operating risks. The Group aviation. Naturally, ST Engineering’s fluctuations in the USD and the takes cognizance of these risk US operations would not be spared the Euro. Any continued weakening USD factors through its risk management effects of an impending slowdown. against the SGD would translate framework. Some of the key risk into a possibility of lowered revenue factors are discussed below. Interest Rates and earnings from the US as well The Fed rates ended the year at as from sales denominated in USD Oil Prices 4.25% and are expected to be further for our companies that are outside Surging oil prices, approaching the adjusted downwards during 2008. the US. This negative impact would US$100 level in the final month of A lower interest rate environment will be partially cushioned by the lower 2007, will continue to pose significant reduce the cost of doing business in cost of importing materials and parts challenges to the aviation sector the US. Given the Group’s net cash denominated in USD. and add to the global economic position and the lower borrowing uncertainties amidst the US sub-prime rates, ST Engineering is well placed As the Euro strengthens against other issue in 2007 and continuing to consider viable acquisitions currencies, demand for components into 2008. and brownfield projects that might services from STA Solutions, which complement or add to its capabilities. is located in the Euro zone, may slow With oil prices staying high, many down. However, the stronger Euro major airlines are led to continually Raw Materials could also contribute to higher Group restructure, which could result in The escalation of raw materials prices, revenue and earnings when the Euro is more outsourcing as part of cost in part attributable to the significant translated into SGD. containment efforts. However, such rise in crude oil prices, could impact 82

The Group’s diversified business related to e-Government, education, continuity planning is enhanced. The portfolio provides some room for transport and subway systems, and the experience has enabled the Group to balance and offsets. With operating public sector. develop equipment and products that units located in different countries, help with disaster recovery. These currency fluctuation risk is partially In the US, the defence budget is products are marketed to global mitigated. expected to be maintained at the prospects in both the defence and same level for 2008 in view of the commercial sectors. They help with Labour Supply continued geo-political unrest and emergency services and the rebuilding Shortage of skilled labour remains tension, and the need for enhanced of infrastructure. a concern as the Group continues homeland security. The Group, via its to expand. To address the need US operations, will continue to work Risk Management for skilled labour and talents in our closely with local partners to identify The Group’s risk appetite and operations located in different parts opportunities for partnerships and strategies are regularly reviewed to of the world, the Group has embarked contracts for the US military and local ensure alignment with its objectives on a series of initiatives, including authorities. as well as to respond to the constantly training, manpower retention schemes changing business landscape, both and looking at alternative sources Emerging Markets locally and globally. With a robust of supply. For instance, the Group New and emerging markets continue risk management framework, the engages the local communities and to feature on the Group’s radar screen. Group seeks to minimise any negative offers scholarships to hone skills Having made further inroads into surprises and losses while at the in areas such as aerospace and Central America via PAE, the Group same time enhance performance and animation for specific job needs. will tap on the relationships and market competitiveness when faced with knowledge to gain a stronger foothold opportunities. The Group will continue Defence Spending and in the market. Africa, Central Asia to build a robust risk management Government Budgets and the Middle East form the new culture as well as strengthen its Defence spending in Singapore markets which the Group identifies existing risk management practices. continues to increase year on year in as presenting gaps and opportunities. line with the growth in Gross Domestic Diversification into these new markets • Risk Management Governance: Product. Defence spending in will help the Group better enlarge The Group’s Risk Review Singapore forms over a quarter of total the revenue streams and manage Committee maintains risk government spending budget today. costs. The new markets very often oversight and works with the It is expected that the Singapore serve as lower cost manufacturing or management to ensure that government will continue to focus on procurement bases for the Group. the Group has adequately building a strong defence force and prioritised and addressed the homeland security for the country. The Group conscientiously leverages risk management issues within ST Engineering Group looks forward to the Free Trade Agreements (FTAs) the Group. providing the SAF with the necessary signed by the Singapore government maintenance services, upgrades, with various countries. FTAs help with • Risk Reporting Dashboard: and the development of integrated collaboration efforts and economic The structured dashboard provides technological solutions for a 3rd negotiations when establishing an overview of risk profile as well Generation SAF. operations in the overseas markets. as key risk indicators and risk incidents to management and With increased focus by the Singapore Disasters the Risk Review Committee. It government to enhance Information Having experienced the effects of enables the monitoring of key risks Communications Technologies (ICT) Hurricane Katrina along the Gulf and appropriate mitigating actions applications, ST Electronics is well Coast of the US, the Group’s readiness to be taken on a timely basis. poised to participate in initiatives in disaster preparedness and business Singapore Technologies Engineering Ltd 83 Annual Report 2007

• Risk Management b) Investment Risk require dual signatories. The Group Infrastructure: Various enabling The Group seeks to grow its has various other financial assets and policies, methodologies, guides, businesses on three fronts, liabilities such as trade receivables and checklists and IT applications are through: organic growth of its trade payables, which arise directly constantly being developed and existing capabilities and capacities; from its operations. improved in order to support the development of new capabilities; and practice of risk management at acquisitions of business entities and It is the Group’s policy not to engage both Group and business unit level. operating assets or joint ventures. in FX and/or derivatives speculation or trading. It is not in the interest of the a) Strategic and Operational Risk Investment activities, ranging from the Group to speculate or trade in treasury The Group operates in 21 countries identification of targets to conducting instruments. The purpose of engaging across the globe. As part of the due diligence, are supported by in treasury transactions is solely for Group’s plan to grow its business a dedicated team of investment hedging. internationally, it will continue to focus professionals and augmented by on increasing its operating activities external professionals for specialised The Group’s treasury policy allows and presence in Europe, Greater China services. The business proposals only FX spot and forward contracts, and the US. In 2007, 21% of the are guided by a given set of internal non-deliverable forward contracts, Group’s assets were in the US (2002: investment criteria, evaluated by senior FX call and put options, forward rate 10%). Revenue from customers management and endorsed by a agreements, interest rate swap and located outside Asia increased from Business Investment and Divestment interest rate cap and floor options 28% of the Group’s revenue in 2002 Committee before seeking final (“Permitted Transactions”); sale of to 51% in 2007. Board of Directors’ approval. options are expressly prohibited. These instruments are generic in As part of its business strategy, c) Financial Risks and Derivative nature with no embedded or leverage the Group seeks to increase the Financial Instrument Risk features and any deviation from these proportion of its international business The Group is exposed to financial instruments would require specific and customers, thereby achieving risks arising from its operations and approval from the Board of Directors. greater geographical diversification. the use of financial instruments. The Any complex FX or derivatives Likewise, the Group takes the Group’s principal financial instruments, transactions involving any combination initiative to raise the proportion of its other than foreign exchange (FX) of the Permitted Transactions or commercial business while maintaining contracts and derivatives, comprise any combination of the Permitted strong support towards the local bankers’ guarantees, performance Transactions and other derivatives defence business. The commercial bonds, bank loans and overdrafts, transactions are prohibited. business helps to bring commercially finance leases and hire purchase available technology and practices into contracts, investments, funds under The main financial risks arising from the defence business, thereby allowing management, and cash and short term the Group’s operations and the use of for more cost effective systems and deposits. All financial transactions financial instruments are interest rate, solutions. A more diversified base of with the banks are governed by FX, market, liquidity and credit risks. commercial and military customers banking facilities duly accepted with The policies for managing each of will reduce the risk of customer Board of Directors’ resolutions, with these risks are summarised below. concentration. banking mandates, which define the permitted financial instruments and facilities limits, approved by the Board of Directors. All financial transactions

Assets 21% located in US 10%

Revenue from 51% customers located outside Asia 28%

2007 2002 84

i) Interest Rate Risk from anticipated sale and purchase To mitigate market risk, the Group’s The Group has cash balances placed transactions denominated in foreign funds placed with fund managers are with reputable banks, financial currencies. guaranteed 95% to 100% of their institutions and a related corporation. principal values at the end of the fund The Group manages its interest rate The Company’s centralised Treasury management period. Also, before risks on its interest income by placing Unit facilitates intra-group FX a fund manager is allocated funds the cash balances in varying maturities transactions to net-off the FX for management, its management and interest rate terms. exposures within the Group. The capability and financial strength are remaining FX exposures are then carefully considered. The Group’s debt includes bank hedged via the banks. borrowings and lease commitments. iv) Liquidity Risk The Group seeks to minimise its The treasury transactions are executed To manage liquidity risk, the Group interest expense exposure through by the Company’s centralised Treasury monitors its net operating cash flow options to refinance the debt Unit, within which there is segregation and maintains an adequate level instruments and/or enter into interest of duties between back office and of cash and cash equivalents and rate swaps, where appropriate, over dealers. Only authorised dealers can has secured committed funding the duration of its borrowings. transact with the banks on behalf of facilities from financial institutions. the Group, with back office confirming In assessing the adequacy of these ii) Foreign Exchange Risk the deals. The dealers’ limits and funding facilities, management reviews The Group’s FX risk arises both from permitted treasury instruments in the its working capital requirements its subsidiaries operating in foreign form of an authorisation matrix and regularly. countries, generating revenue and mandates are communicated to the incurring costs denominated in foreign banks for compliance. v) Credit Risk currencies, and from operations of its Credit risk, or the risk of counterparties local subsidiaries which are transacted iii) Market Risk defaulting, is managed through the in foreign currencies. The Group’s The Group has strategic investments in application of credit approvals, credit FX exposures are primarily from quoted equity shares and placed funds limits and monitoring procedures. USD and Euro, and the Group enters with fund management companies. Where appropriate, the Company or into forward currency contracts to The market value of these investments its subsidiaries obtain collateral from hedge against its FX risk resulting will fluctuate with market conditions. customers or arrange master netting

FOREIGN EXCHANGE INTEREST RATE (%)

1.90 6 1.85 1.80 5 1.75 4 1.70

1.65 3 1.60 1.55 2 1.50 1 1.45

1.40 0 Jul 07 Jul 03 Jul 05 Jul 02 Jul 07 Jul 04 Jul 06 Jul 02 Jul 03 Jul 05 Jul 04 Jul 06 Jan 07 Jan 03 Jan 05 Jan 02 Jan 07 Jan 04 Jan 06 Jan 02 Jan 03 Jan 05 Jan 04 Jan 06 Apr 07 Apr 03 Apr 05 Apr 02 Apr 04 Apr 06 Oct 07 Oct 03 Oct 02 Oct 05 Mar 07 Oct 04 Oct 06 Mar 02 Mar 03 Mar 05 Mar 04 Mar 06 Nov 07 Nov 02 Nov 03 Nov 05 Nov 04 Nov 06 Sep 07 Sep 02 Sep 03 Sep 05 Sep 04 Sep 06

USD/SGD Source: Bloomberg USD SIBOR (3 months) Source: Bloomberg SGD SIBOR (3 months) Singapore Technologies Engineering Ltd 85 Annual Report 2007

agreements. Cash terms, advance f) Reputation Risk across the Group, with their payments and letters of credit or bank Recognising the importance of accompanying variations in margin, guarantees are required for customers providing timely and key information have the effect of reducing the Group- of lower credit standing. to our stakeholders, the Group put in wide impact of specific project margin place a communications programme to fluctuations. d) Acts of God and/or War Risk ensure effective communication with The Group manages this risk through our stakeholders at all times. c) Others the development of business continuity Other risk factors that have an impact plans so as to ensure quick recovery SENSITIVITY ANALYSIS on turnover and net profits tend to be and resumption of critical business sector or project specific. Hence, it is functions after a disruption. These a) Interest Rate not practical to perform a sensitivity plans have been communicated and The Group’s cash and cash analysis in such instances. the management has participated in equivalents as well as funds under simulated exercises of these plans. management are largely invested SHAREHOLDER RETURN Regular reviews of these plans ensure in fixed deposits and fixed income that they stay relevant. Force majeure securities. Movements in interest Return On Equity clauses are included in contracts to rates will therefore have an impact on The Return On Equity improved 2.4 mitigate risk from Acts of God. the interest and investment income percentage points to 30.8% in 2007, for the Group. Likewise, movements as a result of higher profit after tax and e) Legal and/or Political Risk in the effective borrowing rate will minority interests. Legal risk is, as far as commercially also have an impact on the interest acceptable, managed through expense for the Group. The impact Dividend Per Share (DPS) and standardised contracts with terms on the Group’s annual interest income Earnings Per Share (EPS) and conditions that are pre-approved. and interest expense based on a The proposed dividend for 2007 of Any deviation will be vetted and one percentage point movement in $503.5m (including interim dividend approved by the appropriate level of the effective fixed deposit rate and of $59.6m paid in September 2007) management. In instances where borrowing rate are estimated at $10m is higher than the 2006 dividend of the contract terms and conditions are and $7m respectively. Details of $448.6m paid in May 2007. The stipulated by the customer, deviations sensitivity analysis on the interest rate recommended 2007 dividend took into from our standard checklist template movements can be found in Note 50 in consideration the Group’s present cash will likewise require review and the Notes to the Financial Statements. position, positive cash flow generated approval by the appropriate level of from operations, and projected management. The management also b) Gross Profit Margin capital requirements. Payment of the vigilantly monitors its operating units At the 2007 turnover of $5.05b, a dividend is subject to the approval business practices, environmental one percentage point movement in of the shareholders of the Company issues, political impact on the projects the gross profit margin of the Group at the coming AGM. The proposed and overall business in the respective will lead to a $50.5m change in 2007 dividend of $503.5m represents countries. gross profit for the Group. The many 100% of the earnings for FY2007. different programmes undertaken

RETURN ON EQUITY (%) DIVIDEND/EARNINGS PER SHARE (cents)

32 30.8 20

30 18 16.95 28.4 16.88 28 16 26.5 15.15 26.1 13.64 15.11 26 14 24.6 12.39 13.60 11.30 24 12 12.26 11.29 22 10 03 04 05 06 07 03 04 05 06 07

DPS EPS 86

Total Shareholder Return for purchase exercise expeditiously. most common financial instruments ST Engineering Shares The Share Purchase Mandate provides used to manage the FX exposures are ST Engineering had paid its maiden the Company an alternate avenue to spot and forward FX contracts. 2007 interim ordinary dividend of two reward shareholders apart from the cents per share to shareholders in traditional dividend payment route. Insurance September 2007 and declared a 2007 Where appropriate, the Group final dividend of 14.88 cents per share. FINANCIAL REVIEW manages its insurance risks on a The dividend per share amounts to Group basis to leverage its position 16.88 cents. The total 2007 dividend, Treasury Policy and Capital with the general insurance market. for the fifth consecutive year, amounts Structure to 100% of the Group’s earnings. The Company’s centralised Treasury The Group reviews its insurable Unit seeks to minimise the Group’s risk profile continually and makes To maximise shareholder value, financial risk, to ensure sufficient the necessary adjustments on risk management will continue its policy liquidity to meet day-to-day operational retention to optimise the coverage of paying a high level of dividend to needs, and to invest the cash and and cost. This is done with advice return excess cash generated from its cash equivalents within the guidelines and support from selected insurance operations, provided the cash is not approved by the Board of Directors. brokers. Major group insurance required for major investments in the policies include Industrial Special future. These investments may include Cash and Foreign Exchange Risk, Liabilities and Workmen potential mergers and acquisitions Management Compensation, designed to protect the and the building of new facilities and The Group adopts the strategy of Group against properties risk, liabilities capabilities to expand the existing centralised cash management, where for its products and services, and operations. the excess cash of its business workplace accidents respectively. entities are swept to the centralised The aviation and marine businesses For 2007, ST Engineering shares Treasury Unit, which manages the have specialised insurance generated a total shareholder return investment of the funds. Similarly, programmes. of 26.7% for its shareholders. This the FX requirements of the business consists of 4.9% of dividend yield and entities are managed centrally. The The Group adopts a proactive strategy 21.8% of capital gain. business entities hedge their material with advice and recommendations FX exposures arising from sales and/ from insurance brokers to manage Share Purchase Mandate or purchases in currencies other than the insurance risk with specific risk In the coming EGM, the Company will the functional currencies. Their FX management programmes covering again seek shareholders’ approval to requirements are matched internally the prevention of fire and the adoption renew the Share Purchase Mandate by the centralised Treasury Unit where of behaviour based safety practices, for the purchase of up to 10% of feasible and this procedure enables among others. the number of ordinary shares in the the Group to offset and minimise FX capital of the Company. The share risk within the Group. The centralised Funding and Borrowings purchase can be effected either Treasury Unit then hedges unmatched The Group funds its investments through market purchases or off FX requirements with external and operations through a mixture market purchases. The financial counterparties. of shareholders’ funds, advance impacts of various share purchase payments from customers, and scenarios will be presented in a The aim of the centralised Treasury some borrowings. Its borrowings circular to members. Unit’s cash management and amounted to $869m, about 53% FX management strategies is to of its shareholders’ funds. The purpose of the Share Purchase maximise the returns of the Group’s Mandate is to give the Company the cash resources and to minimise FX Long term borrowings amounted flexibility to undertake the share exposures and associated costs. The to $291m and the balance is of a Singapore Technologies Engineering Ltd 87 Annual Report 2007

short term nature. The long term variances in advance payments to invested in liquid assets such as borrowings comprise mainly term suppliers, and other debtors, deposits fixed deposits and placements with loans taken by STA Solutions and an and prepayments. a related corporation. The cash and Industrial Revenue Bond, issued by cash equivalents as at yearend is MAE; both entities are subsidiaries Investing Activities adequate to fund the committed and of the Aerospace sector. The short In 2007, a net cash of $6m was planned capital expenditure, as well term loans are denominated in USD generated from investing activities as to service the Group’s borrowings. at a floating rate that commensurates as compared to a net cash used Notwithstanding the Group’s current with the Group’s Aaa credit rating from in investing activities of $362m in positive cash and cash equivalents Moody’s. The rationale of borrowing FY2006. The higher cash inflow position, it has established short in USD is to create a natural currency mainly came from proceeds from the term financing facilities with various hedge position for the Group’s sale of associated companies and financial institutions for bridging investments denominated in the the absence of cash outflow for the finance. Such liquidity facilities currency. acquisition of subsidiaries, but these can be tapped into when the were partially offset by lower cash requirements arise, in particular, The Group’s interest cover stays at a inflow from the sale and maturity of for financing significant merger and healthy 13 times, with a gross debt- investments. acquisition deals. to-equity ratio of 48.8%. The Group is in a net cash position (see details in Financing Activities ACCOUNTING POLICIES Note 53 in the Notes to the Financial The $513m net cash used in financing Statements). activities in FY2007 was higher than The Group’s significant accounting the $143m in FY2006 by $370m. policies are presented in Notes to the CASH FLOWS AND LIQUIDITY This was largely due to the absence of Financial Statements, Note 2 (pg 113 proceeds from bank loans in FY2007, to 129). The Group has applied the Operating Activities as well as a higher cash outflow for same accounting policies and methods In 2007, the net cash generated the payments of FY2006 dividend of computation in the preparation of from operating activities amounted and FY2007 interim dividend to the financial statements for the current to $662m, $201m higher than the shareholders. reporting period compared with the $461m in FY2006. The improvement audited financial statements as at in FY2007 net cash from operating Cash and Cash Equivalents 31 December 2006, except for the activities was largely due to higher As at 31 December 2007, the adoption of all the new and revised operating profits and favourable Group’s cash and cash equivalents Financial Reporting Standards (FRS), working capital movements, with stood at $1.28b, $141m higher that are mandatory for financial years positive variances in stocks and than that of FY2006. The cash beginning on or after 1 January 2007. work-in-progress, and advance and cash equivalents are managed The adoption of these FRS has no payments from customers, but these by the centralised Treasury Unit significant impact to the Group. were partially offset by the negative and the majority of the funds were

TOTAL SHAREHOLDER RETURN CASH FLOW ($m)

FY 07 21.8 % 4.9% 26.7% Operating 662 Activities 461 FY 06 7.7% 5.1% 12.8% Investing 6 FY 05 22.7% 5.2% 27.9% Activities (362) FY 04 14.2% 5.7% 19.9% Financing (513) Activities (143) Capital Gain Dividend Yield

2007 2006 88

PROSPECTS FOR 2008 as traditional airlines are under The Land Systems sector will immense pressure from high fuel continue its growth strategy for The world economy started prices to improve operating cost its defence and specialty vehicles promisingly in 2007, with many stock efficiency. Several US airlines had business, by broadening its sales market indices reaching record highs reported losses in the fourth quarter and distribution network in targeted until the US sub-prime mortgage crisis of 2007. The sector will continue to markets, developing niche products emerged and clouded the second half focus on airframe heavy maintenance and fostering local partnerships in the of 2007. The Fed has cut interest rate and modification work, implement the global market. It will also develop new down to 3% on 30 January 2008 in its various PTF conversion contracts, market opportunities for both defence efforts to stave off the possibility of a and offer Total Aviation Support to and specialty vehicles leveraging on recession in the US. The geo-political airlines. It will set up an engine facility its success in markets like UK and the tensions in the Middle East remain in Xiamen, China to expand its MRO Middle East for the defence business. and the high oil prices are likely to capacity in CFM56 engine. The sector In the light of market uncertainty, persist and continue to be volatile, will continue its efforts to grow its the sector will continue to rationalise which coupled with the increasing food presence in the global components its operations, create synergies and prices are adding to global inflationary and material services market improve operating efficiencies for the pressure. With the US experiencing an spearheaded by STA Solutions. commercial specialty vehicles business economic slowdown, and the potential in the US and China. spillover effects on her major trading The Electronics sector completed the partners, the world economy in 2008 strategic acquisition of Telematics The Marine sector won a few large is shrouded in uncertainty. We are Wireless Ltd., which enables the contracts in Singapore and US in cognizant of these developments and Group to enter the growing markets 2007. Coupled with ongoing projects, stand ready to manage the challenges of M2M applications and wireless these will keep the yards in Singapore ahead to maintain our market and telemetry around the world. In 2007, and the US well utilised in 2008. competitive positions and to seize the sector set up an e-Services The sector will continue to pursue opportunities that come along. Barring subsidiary to implement the shared business opportunities in the naval unforeseen circumstances, the Group services contract from MINDEF. This and government industries, and niche expects to achieve a modestly higher new entity will focus on the emerging segments of the commercial market, turnover and PBT for FY2008. e-Government Managed Services and concurrently focus on delivering market in Singapore and e-Enterprise, its commitments to the customers. It In the Aerospace sector, high fuel which includes e-Supply Chain will also continue to pursue high value prices and keen competition from the Management. The sector will continue added conversion projects, which was LCCs will continue to exert pressure to tap into new market opportunities in one of the key drivers in the profit on the cost structure of the traditional satcom and interactive digital media. growth in 2007. airlines. Cost pressure is likely to facilitate the MRO outsourcing trend, 90 Directors’ Report 103 Statement by Directors 104 Independent Auditors’ Report 105 Financial Statements 105 Balance Sheets 106 Statement of Profi t and Loss 107 Statements of Changes in Equity 109 Consolidated Statement of Cash Flows 113 Notes to the Financial Statements 213 SGX Listing Manual Requirements 214 Shareholding Statistics 216 Sectoral Financial Review 236 Group Structure 241 Corporate Information 242 Corporate Directory 251 Notice of Annual General Meeting 253 Proxy Form Illustrated by Cherie Tan 90

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 2007.

DIRECTORS The 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 Seng LG Desmond Kuek Bak Chye (Appointed on 27 April 2007) Dr Tan Kim Siew Professor Lui Pao Chuen Winston Tan Tien Hin Dr Philip Nalliah Pillai Quek Poh Huat Venkatachalam Krishnakumar Davinder Singh s/o Amar Singh (Appointed on 1 August 2007) LTC Chia Choon Hoong (Alternate Director to LG Desmond Kuek Bak Chye on 1 August 2007)

ARRANGEMENTS TO ENABLE DIRECTORS TO ACQUIRE SHARES OR DEBENTURES Except for the Singapore Technologies Engineering Executives’ Share Option Scheme, Singapore Technologies Engineering Share Option Plan, Singapore Technologies Engineering Performance Share Plan and Singapore Technologies Engineering Restricted Stock 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 DEBENTURES Except 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 2008.

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 2007 or date of appointment if later 31 December 2007 The Company Ordinary Shares Peter Seah Lim Huat – 307,500 Tan Pheng Hock 173,364 578,364 Professor Lui Pao Chuen 181,444 224,444 Winston Tan Tien Hin 315,000*1 420,000*1 Dr Philip Nalliah Pillai 75,000 137,000 Quek Poh Huat 813,728 841,228 LTC Chia Choon Hoong 7,000 7,000 Singapore Technologies Engineering Ltd 91 Annual Report 2007

DIRECTORS’ INTERESTS IN SHARES OR DEBENTURES (continued) Holdings in the name of the director, spouse or infant children

1 January 2007 or date of appointment if later 31 December 2007 Related Corporations Chartered Semiconductor Manufacturing Ltd Ordinary Shares Tan Pheng Hock 7,000 7,000 Koh Beng Seng 44,074 44,074 Winston Tan Tien Hin 20,000*2 200,000*2

Global Crossing Limited Common Stock of US$0.01 each Peter Seah Lim Huat 1,785 7,771

Mapletree Logistics Trust Management Ltd Unit holdings in Mapletree Logistics Trust Professor Lui Pao Chuen 63,000 63,000

Neptune Orient Lines Limited Ordinary Shares LTC Chia Choon Hoong 4,000 2,000

SIA Engineering Company Limited Ordinary Shares Professor Lui Pao Chuen 40,000 50,000

Singapore Airlines Limited Ordinary Shares Professor Lui Pao Chuen 8,000 7,600 Venkatachalam Krishnakumar 4,000 4,000 LTC Chia Choon Hoong 2,000 1,870

Singapore Airport Terminal Services Ltd Ordinary Shares Professor Lui Pao Chuen 90,000 90,000

Singapore Computer Systems Limited Ordinary Shares Quek Poh Huat 15,000 15,000

Singapore Food Industries Limited Ordinary Shares Professor Lui Pao Chuen 20,000 20,000 92

DIRECTORS’ INTERESTS IN SHARES OR DEBENTURES (continued) Holdings in the name of the director, spouse or infant children

1 January 2007 or date of appointment if later 31 December 2007 Singapore Telecommunications Limited Ordinary Shares Peter Seah Lim Huat 3,040 3,040 Tan Pheng Hock 3,350 3,350 Koh Beng Seng 1,520 1,520 LG Desmond Kuek Bak Chye 2,230 2,230 Dr Tan Kim Siew 2,850 2,850 Professor Lui Pao Chuen 3,210 3,210 Winston Tan Tien Hin 137,980*3 104,980*4 Davinder Singh s/o Amar Singh 3,170 3,170 Dr Philip Nalliah Pillai 47,320 47,320 Quek Poh Huat 5,210 5,210 LTC Chia Choon Hoong 4,610 4,610

SMRT Corporation Ltd Ordinary Shares Quek Poh Huat 8,000 8,000

SP AusNet Stapled Securities Quek Poh Huat 206,000 206,000

SNP Corporation Ltd Ordinary Shares Winston Tan Tien Hin 54,494*5 54,494*5

StarHub Ltd Ordinary Shares Peter Seah Lim Huat 133,720 147,560 Tan Pheng Hock 27,430 25,150 Venkatachalam Krishnakumar 17,144 15,716

STATS ChipPAC Ltd. Ordinary Shares Koh Beng Seng N.A.# 45,000 Quek Poh Huat N.A.# 1,000 Venkatachalam Krishnakumar N.A.# 1,000

TeleChoice International Limited Ordinary Shares Peter Seah Lim Huat 50,000 50,000 Tan Pheng Hock 30,000 30,000 Singapore Technologies Engineering Ltd 93 Annual Report 2007

DIRECTORS’ INTERESTS IN SHARES OR DEBENTURES (continued) Holdings in the name of the director, spouse or infant children

1 January 2007 or date of appointment if later 31 December 2007 Vertex Investment (II) Ltd Ordinary Shares Professor Lui Pao Chuen 20 20 Davinder Singh s/o Amar Singh 50 50

Vertex Technology Fund Ltd Ordinary Shares Winston Tan Tien Hin 10 10

Vertex Technology Fund (II) Ltd Ordinary Shares Tan Pheng Hock 5† 5† Koh Beng Seng 15 15 Winston Tan Tien Hin 20 20 Davinder Singh s/o Amar Singh 550 550

Redeemable Preference Shares Koh Beng Seng 15 15 Winston Tan Tien Hin 20 20 Davinder Singh s/o Amar Singh 500 500

1 January 2007 or date of appointment if later 31 December 2007 Exercise price Exercisable period $ The Company Options to Subscribe for Ordinary Shares Peter Seah Lim Huat 89,000 – 1.92 13.8.2003 to 12.8.2007 44,500 – 1.79 7.2.2004 to 6.2.2008 40,500 – 1.86 12.8.2004 to 11.8.2008 44,500 11,125 2.09 10.2.2005 to 9.2.2009 44,500 11,125 2.12 11.8.2005 to 10.8.2009 44,500 22,250 2.37 8.2.2006 to 7.2.2010 44,500 22,250 2.57 11.8.2006 to 10.8.2010 44,500 33,375 3.01 10.2.2007 to 9.2.2011 44,500 33,375 2.84 11.8.2007 to 10.8.2011 – 44,500 3.23 16.3.2008 to 15.3.2012 – 44,500 3.61 11.8.2008 to 10.8.2012 94

DIRECTORS’ INTERESTS IN SHARES OR DEBENTURES (continued)

1 January 2007 or date of appointment if later 31 December 2007 Exercise price Exercisable period $ The Company Options to Subscribe for Ordinary Shares Tan Pheng Hock 5,000 – 1.29 8.8.2000 to 7.8.2008 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 200,000 200,000 3.01 10.2.2007 to 9.2.2016 200,000 200,000 2.84 11.8.2007 to 10.8.2016 – 200,000 3.23 16.3.2008 to 15.3.2017

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 27,500 3.01 10.2.2007 to 9.2.2011 27,500 27,500 2.84 11.8.2007 to 10.8.2011 – 27,500 3.23 16.3.2008 to 15.3.2012 – 27,500 3.61 11.8.2008 to 10.8.2012

Professor Lui Pao Chuen 21,500 – 1.79 7.2.2004 to 6.2.2008 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 29,000 3.01 10.2.2007 to 9.2.2011 Singapore Technologies Engineering Ltd 95 Annual Report 2007

DIRECTORS’ INTERESTS IN SHARES OR DEBENTURES (continued)

1 January 2007 or date of appointment if later 31 December 2007 Exercise price Exercisable period $ The Company Options to Subscribe for Ordinary Shares Winston Tan Tien Hin 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 37,000 3.01 10.2.2007 to 9.2.2011 37,000 37,000 2.84 11.8.2007 to 10.8.2011 – 37,000 3.23 16.3.2008 to 15.3.2012 – 37,000 3.61 11.8.2008 to 10.8.2012

Dr Philip Nalliah Pillai 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 33,000 3.01 10.2.2007 to 9.2.2011 33,000 33,000 2.84 11.8.2007 to 10.8.2011 – 33,000 3.23 16.3.2008 to 15.3.2012 – 33,000 3.61 11.8.2008 to 10.8.2012

Quek Poh Huat 12,750 – 1.92 13.8.2003 to 12.8.2007 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 33,000 3.01 10.2.2007 to 9.2.2011 33,000 33,000 2.84 11.8.2007 to 10.8.2011 – 33,000 3.23 16.3.2008 to 15.3.2012 – 33,000 3.61 11.8.2008 to 10.8.2012

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 25,500 3.01 10.2.2007 to 9.2.2011 25,500 25,500 2.84 11.8.2007 to 10.8.2011 – 25,500 3.23 16.3.2008 to 15.3.2012 – 25,500 3.61 11.8.2008 to 10.8.2012 96

DIRECTORS’ INTERESTS IN SHARES OR DEBENTURES (continued)

1 January 2007 or date of appointment if later 31 December 2007 Exercise price Exercisable period $ Related Corporations Chartered Semiconductor Manufacturing Ltd Options to Subscribe for Ordinary Shares Peter Seah Lim Huat 23,443 – 3.46 22.2.2003 to 22.2.2007 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 95,000 1.21 25.8.2007 to 25.8.2011 – 47,500 1.07 31.8.2008 to 31.8.2012

Koh Beng Seng 29,304 – 1.86 30.8.2003 to 30.8.2007

Global Crossing Limited Options to Purchase Common Shares of US$0.01 each Peter Seah Lim Huat 40,000 40,000 10.16 12.1.2005 to 12.1.2014

StarHub Ltd Options to Subscribe for Ordinary Shares Peter Seah Lim Huat 6,250 – 0.88 29.11.2004 to 28.11.2008 6,250 – 0.96 3.4.2005 to 2.4.2009 12,500 6,250 0.985 27.11.2005 to 26.11.2009 17,000 8,500 1.52 31.5.2006 to 30.5.2010

STATS ChipPAC Ltd. Options to Subscribe for Ordinary Shares Peter Seah Lim Huat N.A.# 70,000 1.99 6.8.2004 to 5.8.2013 N.A.# 35,000 1.91 17.2.2005 to 16.2.2014

Koh Beng Seng N.A.# 50,000 1.99 6.8.2004 to 5.8.2008 N.A.# 25,000 1.91 17.2.2005 to 16.2.2009

STT Communications Ltd Options to Subscribe for Ordinary Shares Peter Seah Lim Huat 9,750 – 0.57 30.7.2004 to 29.7.2013 65,000 – 1.08 29.7.2005 to 28.7.2014

1 January 2007 or date of appointment if later 31 December 2007 Vesting period Global Crossing Limited Restricted Stock Units of Common Stock of US$0.01 each Peter Seah Lim Huat 5,625 4,125 8.3.2005 to 8.3.2009 3,294 – 15.8.2007 – 2,420 12.6.2008 Singapore Technologies Engineering Ltd 97 Annual Report 2007

DIRECTORS’ INTERESTS IN SHARES OR DEBENTURES (continued) Holdings in the name of the director, spouse or infant children

1 January 2007 or date of appointment if later 31 December 2007 The Company Conditional Award of 250,000 Performance Shares to be delivered after 2006 Tan Pheng Hock 0 to 500,000#1 –

Conditional Award of 250,000 Performance Shares to be delivered after 2007 Tan Pheng Hock 0 to 375,000#2 0 to 375,000#2

Conditional Award of 250,000 Performance Shares to be delivered after 2008 Tan Pheng Hock 0 to 375,000#3 0 to 375,000#3

Conditional Award of 200,000 Performance Shares to be delivered after 2009 Tan Pheng Hock – 0 to 300,000#4

Conditional Award of 45,000 Restricted Shares to be delivered after 2008 Tan Pheng Hock – 0 to 67,500#5

Related Corporations Chartered Semiconductor Manufacturing Ltd Conditional Award of Restricted Share Units to be delivered after 2008 Peter Seah Lim Huat – 20,190#6

STATS ChipPAC Ltd. Conditional Award of Restricted Share Units to be delivered after 2008 Peter Seah Lim Huat – 20,700#6

StarHub Ltd Conditional Award of Restricted Shares to be delivered after 2008 Peter Seah Lim Huat – 17,200#7 98

DIRECTORS’ INTERESTS IN SHARES OR DEBENTURES (continued)

*1 Includes deemed interest in 200,000 shares in Singapore Technologies Engineering Ltd, held by Winmark Investments Pte Ltd, a company in which Winston Tan Tien Hin has a 50% interest.

*2 Held by Winmark Investments Pte Ltd, a company in which Winston Tan Tien Hin has a 50% interest.

*3 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.

*4 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.

*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.

# STATS ChipPAC Ltd. became a related corporation on 13 April 2007.

† 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 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. For this period, no new shares were awarded. The conditional award covering the period from 2004 to 2006 have thus lapsed.

#2 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.

#3 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.

#4 A minimum threshold performance over a three-year period from 2007 to 2009 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.

#5 A minimum threshold performance over a two-year period from 2007 to 2008 is required for any restricted shares to be released and the actual number of restricted shares to be released is capped at 150% of the conditional award.

#6 The restricted share units will vest over a period of three years starting from the fi rst anniversary of grant.

#7 The actual number of shares to be delivered under the conditional award will depend on the level of achievement of set performance targets in the company over a two-year period from 1 January 2007 to 31 December 2008. No shares will be delivered if the threshold performance targets are not achieved, while up to 1.5 times the number of shares that are the subject of the award will be delivered if the stretched performance targets are met or exceeded. Shares will be delivered in phases according to the stipulated vesting periods. Singapore Technologies Engineering Ltd 99 Annual Report 2007

DIRECTORS’ INTERESTS IN CONTRACTS Since 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 PLANS The 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 (“RSP”) (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 2007, 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 and RSP 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 Date of grant Exercisable period under options Exercise price $ 15.3.2007 16.3.2008 to 15.3.2012 390,500 3.23 15.3.2007 16.3.2008 to 15.3.2017 16,694,011 3.23 10.8.2007 11.8.2008 to 10.8.2012 357,500 3.61 10.8.2007 11.8.2008 to 10.8.2017 15,400,873 3.61 100

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 Aggregate options Options granted granted and accepted exercised since and accepted since commencement commencement of Aggregate options during the fi nancial of ESOS/ESOP to ESOS/ESOP to outstanding as at Name of participant year under review end of fi nancial year end of fi nancial year end of fi nancial year Director of the Company ESOS Tan Pheng Hock – 1,699,864 1,294,864 405,000

ESOP Peter Seah Lim Huat 89,000 530,000 307,500 222,500 Tan Pheng Hock 200,000 2,602,500 – 2,602,500 Koh Beng Seng 55,000 204,000 – 204,000 Professor Lui Pao Chuen – 147,750 43,000 104,750 Winston Tan Tien Hin 74,000 593,500 220,000 373,500 Dr Philip Nalliah Pillai 66,000 453,000 137,000 316,000 Quek Poh Huat 66,000 375,000 78,000 297,000 Venkatachalam Krishnakumar 51,000 152,500 – 152,500

(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 2007.

(b) Issue of shares under option During the fi nancial year, 37,296,756 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 (“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. 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. Singapore Technologies Engineering Ltd 101 Annual Report 2007

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 for fi nancial years 2005 and 2006 are ST Engineering Group TSR against the MSCI Asia Pacifi c ex Japan Industrial Index, EVA Spread and EPS Growth.

With effect from fi nancial year 2007, the performance measures are Wealth Added and ST Engineering Group TSR against the MSCI Asia Pacifi c ex Japan Industrial Index.

No shares were released in 2007 for the award covering the performance period 2004 to 2006 as the achievement of the set targets was below 80%. The 2,130,000 shares conditionally awarded for this performance period have hence lapsed.

Pursuant to the PSP for the fi nancial year 2007, conditional awards aggregating 1,513,000 performance shares were made to 40 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 200,000 performance shares. This conditional award is for the performance qualifying period of 2007 to 2009.

The total number of shares in the remaining awards, which are granted conditionally for the performance periods 2005 to 2007, 2006 to 2008 and 2007 to 2009 respectively, total 5,823,000. Depending on the actual performance, the total release of awards will range from zero to a maximum of 8,734,500 shares.

(d) RSP The RSP is established with the objective of motivating managers and above to strive for sustained long-term growth and superior performance in ST Engineering Group. It also aims to foster a share ownership culture among staff within the ST Engineering Group and to better align staff’s incentive scheme with shareholders’ interest.

Pursuant to the RSP, the ERCC has decided to grant awards on an annual basis, conditional on targets set for a performance period, currently prescribed to be a two-year performance period. The actual number of restricted shares delivered will depend on the achievement of set targets over the respective performance period. This will be determined by the ERCC at the end of the qualifying performance period and released to the recipient over a three-year vesting period in the ratio of 50%, 25% and 25% each subsequent year.

A minimum threshold performance is required for any restricted share to be released while the maximum number of restricted shares to be delivered is capped at 150% of the conditional award.

The medium-term stretched targets measured over a two-year performance period are set based on ST Engineering Group corporate objectives. The performance measures used for the two-year performance period 2007 to 2008 are ST Engineering Group EVA Spread and EBITDA Margin.

Pursuant to the RSP for the fi nancial year 2007, conditional awards aggregating 897,000 restricted shares were made for the fi rst time and only to 48 key executives of the ST Engineering Group, in place of the 2nd tranche of ESOP they were to receive for 2007. The key executives include Mr Tan Pheng Hock, an executive Director of the Board, who was conditionally awarded 45,000 restricted shares. This conditional award is for the qualifying performance period of 2007 to 2008 with a three-year vesting period of 2009 to 2011. 102

AUDIT COMMITTEE The 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 Pillai Venkatachalam 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.

AUDITORS Ernst & 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 Hock Director Director

Singapore 26 February 2008 Singapore Technologies Engineering Ltd 103 Annual Report 2007

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 212 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 2007, 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 Hock Director Director

Singapore 26 February 2008 104

INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF SINGAPORE TECHNOLOGIES ENGINEERING LTD We 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 212, which comprise the balance sheets of the Group and the Company as at 31 December 2007, the statements of changes in equity of the Group and the Company, 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 statements The Company’s directors are responsible for the preparation and fair presentation of these fi nancial statements in accordance with the provisions of the Singapore Companies Act, Chapter 50 (the “Act”) and Singapore Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of 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’ responsibility Our responsibility is to express an opinion on these fi nancial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance 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.

Opinion In 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 Act and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2007 and 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 & YOUNG Certifi ed Public Accountants

Singapore 26 February 2008 Singapore Technologies Engineering Ltd 105 Annual Report 2007

Group Company Note 2007 2006 2007 2006 $’000 $’000 $’000 $’000 (Restated) Share capital and reserves Share capital 3 554,888 474,926 554,888 474,926 Capital reserve 4 115,948 115,948 – – Other reserves 5 5,419 13,842 28,246 11,917 Retained earnings 6 956,255 960,654 565,743 530,676 1,632,510 1,565,370 1,148,877 1,017,519 Minority interests 146,700 121,903 – – 1,779,210 1,687,273 1,148,877 1,017,519 Property, plant and equipment 7 1,014,623 948,150 843 657 Subsidiaries 8 – – 557,959 544,209 Associated companies and joint ventures 9 267,506 294,145 50 50 Investments 10 40,822 27,858 – – Intangible assets 11 629,981 572,273 – – Investment properties 12 18,379 16,959 – – Long-term receivables 13 3,898 5,203 – – Finance lease receivables 14 1,444 – – – Derivative fi nancial instruments 51 2,937 – – – Deferred tax assets 15 112,380 132,768 – – Current assets Stocks and work-in-progress 16 1,228,125 1,102,618 – – Trade debtors 17 953,703 858,265 – – Due from related corporations 18 662,913 516,440 302,638 238,783 Advances and other debtors 19 294,221 242,894 313,088 199,172 Long-term receivables, current 13 499 476 – – Finance lease receivables, current 14 6,922 – – – Short-term investment 20 338 – – – Amounts under fund management 21 178,781 228,173 – – Bank balances and other liquid funds 22 625,837 631,561 84,764 145,655 3,951,339 3,580,427 700,490 583,610 Current liabilities Advance payments from customers, current 606,526 582,381 – – Creditors and accruals 25 1,524,156 1,362,073 51,125 50,078 Provisions 26 191,571 185,232 – – Progress billings in excess of work-in-progress 16 368,757 328,609 – – Provision for taxation 201,324 213,931 4,968 6,644 Short-term bank loans 27 574,595 595,850 – – Lease obligations, current 28 1,675 2,137 – – Long-term bank loans, current 32 281,783 6,859 – – Other loans, current 33 234 1,217 – – Bank overdrafts 803 1,737 – – 3,751,424 3,280,026 56,093 56,722 Net current assets 199,915 300,401 644,397 526,888 Non-current liabilities Advance payments from customers, non-current 455,576 277,998 – – Deferred income 30 7, 079 4,101 – – Deferred tax liabilities 31 40,208 46,324 372 285 Lease obligations, non-current 28 7, 1 5 9 9,113 – – Long-term bank loans, non-current 32 583 270,525 – – Other loans, non-current 33 2,070 2,423 – – Due to a subsidiary 34 – – 54,000 54,000 1,779,210 1,687,273 1,148,877 1,017,519 The accompanying notes are an integral part of the fi nancial statements. 106

Group Note 2007 2006 $’000 $’000 Turnover 35 5,050,982 4,485,758

Cost of sales (3,922,708) (3,453,961) Gross profi t 1,128,274 1,031,797

Other operating income 36 88,392 88,134 Distribution and selling expenses (146,081) (116,635) Administrative expenses (362,851) (383,034) Other operating expenses (69,019) (74,501) Profi t from continuing operations before taxation, other income and fi nancial expenses 37 638,715 545,761 Other income, net 40 3,109 9,340 Financial expenses 41 (50,356) (42,252) 591,468 512,849 Share of results of associated companies and joint ventures 46,647 51,490 Profi t from continuing operations before taxation 638,115 564,339

Taxation 42 (114,606) (108,895) Profi t from continuing operations after taxation 523,509 455,444

Attributable to: Shareholders of the Company 503,503 445,127 Minority interests 20,006 10,317 523,509 455,444

Earnings per share (cents) 44 Basic 16.95 15.15 Diluted 16.91 15.00

The accompanying notes are an integral part of the fi nancial statements. Singapore Technologies Engineering Ltd 107 Annual Report 2007

Share Share Capital Other Retained Minority Total capital premium reserve reserves earnings Total interests equity $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 (Restated) (Restated) (Restated) (Restated) The Group At 1.1.2006 291,450 117,197 115,948 52,957 915,246 1,492,798 49,058 1,541,856 Transfer from share premium account to share capital upon implementation of the Companies (Amendment) Act 2005 117,197 (117,197) – – – – – – Net fair value changes on available-for-sale fi nancial assets – – – (14,542) – (14,542) – (14,542) Net fair value changes on cash fl ow hedges – – – (879) – (879) – (879) Foreign currency translation differences – – – (33,371) – (33,371) 4,151 (29,220) Net income recognised directly in equity – – – (48,792) – (48,792) 4,151 (44,641) Net profi t for the year – – – – 445,127 445,127 10,038 455,165 Total recognised net income for the year – – – (48,792) 445,127 396,335 14,189 410,524 Issue of shares 66,279 – – – – 66,279 – 66,279 Acquisition of subsidiaries, as previously reported – – – – – – 89,616 89,616 Finalisation of purchase price allocation – – – – – – (20,900) (20,900) Acquisition of subsidiaries, as restated – – – – – – 68,716 68,716 Acquisition of additional interest in a subsidiary – – – – – – 80 80 Capital contribution – – – – – – 4,971 4,971 Cost of share-based payment – – – 9,431 – 9,431 80 9,511 Dividends (Note 43) – – – – (399,473) (399,473) (15,191) (414,664) Revaluation surplus, as previously reported – – – 81 – 81 35 116 Effect of adopting FRS 40 – – – (81) – (81) (35) (116) Revaluation surplus, as restated – – – – – – – – Transfer from unappropriated profi t to statutory reserve – – – 246 (246) – – – At 31.12.2006 474,926 – 115,948 13,842 960,654 1,565,370 121,903 1,687,273 108

Share Capital Other Retained Minority Total capital reserve reserves earnings Total interests equity $’000 $’000 $’000 $’000 $’000 $’000 $’000 The Group At 1.1.2007 474,926 115,948 13,842 960,654 1,565,370 121,903 1,687,273

Net fair value changes on available-for-sale fi nancial assets – – (4,978) – (4,978) – (4,978) Net fair value changes on cash fl ow hedges – – 1,646 – 1,646 – 1,646 Foreign currency translation differences – – (21,113) – (21,113) 6,579 (14,534) Net income recognised directly in equity – – (24,445) – (24,445) 6,579 (17,866) Net profi t for the year – – – 503,503 503,503 19,451 522,954 Total recognised net income for the year – – (24,445) 503,503 479,058 26,030 505,088 Issue of shares 79,962 – – – 79,962 – 79,962 Acquisition of subsidiaries – – – – – 1,595 1,595 Acquisition of additional interest in a subsidiary – – – – – (313) (313) Capital contribution – – – – – 19,220 19,220 Cost of share-based payment – – 15,949 – 15,949 136 16,085 Dilution of interest in a subsidiary – – – – – (84) (84) Disposal of a subsidiary – – (321) 712 391 – 391 Dividends (Note 43) – – – (508,220) (508,220) (21,787) (530,007) Transfer from unappropriated profi t to statutory reserve – – 394 (394) – – – At 31.12.2007 554,888 115,948 5,419 956,255 1,632,510 146,700 1,779,210

Share-based Share Share payment Retained capital premium reserves earnings Total $’000 $’000 $’000 $’000 $’000 The Company At 1.1.2006 291,450 117,197 1,974 396,815 807,436 Transfer from share premium account to share capital upon implementation of the Companies (Amendment) Act 2005 117,197 (117,197) – – – Net profi t for the year – – – 533,334 533,334 Total recognised net income for the year – – – 533,334 533,334 Issue of shares 66,279 – – – 66,279 Cost of share-based payment – – 9,943 – 9,943 Dividends (Note 43) – – – (399,473) (399,473) At 31.12.2006 474,926 – 11,917 530,676 1,017,519

At 1.1.2007 474,926 – 11,917 530,676 1,017,519 Net profi t for the year – – – 543,287 543,287 Total recognised net income for the year – – – 543,287 543,287 Issue of shares 79,962 – – – 79,962 Cost of share-based payment – – 16,329 – 16,329 Dividends (Note 43) – – – (508,220) (508,220) At 31.12.2007 554,888 – 28,246 565,743 1,148,877

The accompanying notes are an integral part of the fi nancial statements. Singapore Technologies Engineering Ltd 109 Annual Report 2007

2007 2006 $’000 $’000 (Restated) Cash fl ows from operating activities Profi t before taxation including share of results of associated companies and joint ventures 638,115 564,339 Adjustments: Share of results of associated companies and joint ventures (46,647) (51,490) Depreciation charge 126,518 130,676 Impairment in value of investments 3,007 8,428 Impairment/(write-back of impairment) in value of associated companies (4,400) 4,865 Property, plant and equipment written off 8,721 10,942 Impairment/(write-back of impairment) of property, plant and equipment (105) 297 Gain on disposal of property, plant and equipment (909) (11) Gain on dilution of interest in a subsidiary (84) – Gain on dilution of interest in an associated company – (571) (Gain)/loss on disposal of investments 4,037 (35,701) Loss on disposal of a subsidiary 3,506 – Gain on disposal of associated companies (20,702) – Short-term loans from minority shareholders forgiven – (2,766) Profi t on maturity of amounts under fund management (24,490) (6,491) Negative goodwill written off – (615) Share-based payment expense 16,085 9,885 Changes in fair value of fi nancial instruments and hedged items 658 155 Interest expense 50,356 42,252 Interest income (42,462) (40,151) Dividends from investments (112) (10,291) Impairment of goodwill – 8,135 Amortisation of other intangible assets 7,556 5,135 Impairment/(write-back of impairment) of other intangible assets (27) 818 Operating profi t before working capital changes 718,621 637,840 (Increase)/decrease in: Stocks and work-in-progress (124,953) (192,116) Progress billings in excess of work-in-progress 40,148 7,634 Trade debtors (73,714) (78,653) Advance payments to suppliers (60,161) 26,613 Other debtors, deposits and prepayments (30,965) 18,262 Holding company and related corporations balances (743) 1,150 Associated companies (3,521) (185) Joint ventures 9,655 18,912 Trade creditors (19,853) 4,287 Advance payments from customers 201,729 17,900 Other creditors, accruals and provisions 54,796 47,461 Loans to staff and third parties, net of repayments (465) 97 Cash generated from operations 710,574 509,202 Interest received 41,544 40,905 Income tax paid (104,548) (95,193) Deferred income 2,962 1,798 Exchange difference on operating activities 10,739 3,690 Net cash from operating activities 661,271 460,402 110

2007 2006 $’000 $’000 (Restated) Cash fl ows from investing activities Proceeds from sale of property, plant and equipment 6,921 1,709 Proceeds from sale of associated companies 58,292 – Dividends from associated companies 23,935 48,237 Dividends from investments 112 10,291 Proceeds from sale and maturity of investments 78,892 166,545 Purchase of property, plant and equipment (172,044) (197,143) Purchase of investments (295) (880) Proceeds from capital redemption of investments – 170 Loan to an investee company – (140) Additional investment/acquisition of associated companies and joint ventures (18,452) (34,258) Acquisition of other intangible assets (5,514) (3,466) Acquisition of subsidiaries 7,091 (356,696) Acquisition of additional interest in subsidiaries 25,625 (1,669) Disposal of a subsidiary (1,044) – Loans to joint ventures – (1,235) Exchange difference on investing activities 2,592 6,600 Net cash from/(used in) investing activities 6,111 (361,935)

Cash fl ows from fi nancing activities Capital contribution from minority shareholders of subsidiaries 14,306 233 Proceeds from issue of shares 79,962 65,905 Loan from minority shareholders – 43 Repayment of other loans, net (210) (923) Repayment of lease obligations, net (8,637) (2,245) (Repayment of)/proceeds from bank loans, net (10) 261,082 Repayment of convertible loan (980) – Dividends paid to shareholders of the Company (508,220) (399,473) Dividends paid to minority shareholders of subsidiaries (21,787) (15,191) Interest paid (50,364) (36,979) Exchange difference on fi nancing activities (17,110) (15,102) Net cash used in fi nancing activities (513,050) (142,650)

Net increase/(decrease) in cash and cash equivalents 154,332 (44,183) Cash and cash equivalents at beginning of the year 1,141,308 1,198,248 Exchange difference on cash and cash equivalents at beginning of the year (12,916) (12,757) Cash and cash equivalents at end of the year (Note 46) 1,282,724 1,141,308 Singapore Technologies Engineering Ltd 111 Annual Report 2007

Summary of effect on acquisition of interest in subsidiaries In 2007, the fair value of the identifi able assets and liabilities of the subsidiaries acquired (as disclosed in Note 8) and the effect thereof as at the date of acquisition were as follows:

Recognised on Carrying amount acquisition before combination $’000 $’000 Property, plant and equipment 4,144 4,144 Other investments 1,445 1,445 Deferred tax assets 499 499 Stocks and work-in-progress 2,982 2,982 Debtors, deposits and prepayment 24,577 24,577 Short-term investment 338 338 Cash and cash equivalents 9,336 9,336 43,321 43,321 Creditors and accruals (13,276) (13,276) Advance payments from customers (13) (13) Provisions (45) (45) Provision for taxation (1,402) (1,402) (14,736) (14,736) Net identifi able assets 28,585 28,585 Goodwill arising on consolidation 93,788 122,373 Minority interests (1,595) Total purchase consideration 120,778 Cost of acquisitions: Cash paid in subsequent year 117,437 Reclassifi cation from investment in a joint venture 1,096 Cash paid in current year 2,245 120,778 Cash infl ow on acquisitions: Cost of acquisitions (2,245) Net cash acquired with the subsidiaries 9,336 Net cash infl ow on acquisition 7,091

Included in the carrying amount before combination are the assets and liabilities of Pacifi c Flight Services Pty Ltd and Telematics Wireless Ltd. The purchase price allocation of these subsidiaries to goodwill, intangible assets (excluding goodwill) and other assets and liabilities is currently being assessed and is expected to be fi nalised within 12 months from the date of acquisition (as disclosed in Note 8).

From the dates of acquisitions, the acquired subsidiaries have contributed $2.0 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 $5.4 billion and $503.6 million respectively. 112

Summary of effect on disposal of interest in a subsidiary The Group disposed Shanghai Elite Electric Vehicles Co., Ltd, a wholly-owned subsidiary during the year.

The value of assets and liabilities of Shanghai Elite Electric Vehicles Co., Ltd, recorded in the fi nancial statements as at disposal date, and the cash fl ow effect of the disposal were as follows:

$’000 Property, plant and equipment 392 Deferred tax assets 205 Stocks and work-in-progress 2,389 Debtors, deposits and prepayment 2,049 Cash and cash equivalents 2,519 7,554 Creditors and accruals (2,862) Provisions (102) (2,964) Foreign currency translation reserve 391 Net assets disposed 4,981 Loss on disposal of a subsidiary (3,506) Consideration received 1,475 Net cash disposed with a subsidiary (2,519) Net cash outfl ow on disposal (1,044)

The accompanying notes are an integral part of the fi nancial statements. Singapore Technologies Engineering Ltd 113 Annual Report 2007

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

1. GENERAL

The 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 2007 and for the year then ended were authorised and approved by the Board of Directors for issuance on 26 February 2008.

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(ab), 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 fi nancial statements of the subsidiaries used in the presentation of the consolidated fi nancial statements are prepared for the same reporting date as the Company. Consistent accounting policies are applied to like transactions and events in similar circumstances. 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. 114

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(b) Basis of consolidation (continued) 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.

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. Singapore Technologies Engineering Ltd 115 Annual Report 2007

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(b) Basis of consolidation (continued) 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.

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 fair 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 ventures The 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. 116

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 the statement of profi t and 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 assets Financial assets are recognised on the balance sheet when, and only when, the Group becomes a party to the contractual provisions of the fi nancial instrument. 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 and 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 concerned.

(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 the statement of profi t and loss.

(ii) Loans and receivables Loans 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 the statement of profi t and loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process. Singapore Technologies Engineering Ltd 117 Annual Report 2007

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(e) Investments and other fi nancial assets (continued) (iii) Available-for-sale fi nancial assets Available-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 management Amounts 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 depreciation Property, 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 years Leasehold land and buildings – Over the period of the lease of between 5 to 60 years Buildings on rented properties – 30 years Improvements to premises – 3 to 30 years Wharves and slipways – 10 to 16 years Syncrolift and fl oating docks – 5 to 10 years Boats and barges – 5 years Plant and machinery – 2 to 20 years Production tools and equipment – 3 to 10 years Furniture, fi ttings, offi ce equipment and computers – 1 to 5 years Transportation equipment and vehicles – 4 to 5 years Aircraft 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. 118

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(h) Investment properties Investment properties are stated at cost, net of depreciation and any impairment loss. Depreciation is provided on the straight-line basis so as to write off the cost of the investment properties over their estimated useful lives of 3 to 50 years.

(i) 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.

(j) Trade and other debtors Trade 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(l).

(k) Cash and cash equivalents Cash 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).

(l) Impairment of fi nancial assets The 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 costs If 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 the statement of profi t and 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. Singapore Technologies Engineering Ltd 119 Annual Report 2007

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(l) Impairment of fi nancial assets (continued) To determine whether there is objective evidence that an impairment loss on fi nancial assets has been incurred, the Group considers factors such as the probability of insolvency or signifi cant fi nancial diffi culties of the debtor and default or signifi cant delay in payments.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in the 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.

(ii) Assets carried at costs If there is objective evidence (such as signifi cant adverse changes in the business environment where the issuer operates, probability of insolvency or signifi cant fi nancial diffi culties of the issuer) 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 assets Signifi cant or prolonged decline in fair value below cost, signifi cant fi nancial diffi culties of the issuer or obligor, and the disappearance of an active trading market are considerations to determine whether there is objective evidence that investment securities classifi ed as available-for-sale fi nancial assets are impaired.

If an available-for-sale fi nancial asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in the statement of profi t and 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 the statement of profi t and loss. Reversals of impairment losses on debt instruments are reversed through the statement of profi t and 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 the statement of profi t and loss.

(m) Trade and other creditors Trade 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.

(n) Borrowings Borrowings 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. 120

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(o) Provisions Provisions 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) Warranties The 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 damages Provision 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.

(p) 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.

(ii) Deferred tax Deferred income tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for 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.

Deferred taxes are recognised in the statement of profi t and loss except that deferred tax relating to items recognised directly in equity is recognised directly in equity and deferred tax arising from a business combination is adjusted against goodwill on acquisition. Singapore Technologies Engineering Ltd 121 Annual Report 2007

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(q) Employee benefi ts (i) Employee equity compensation benefi ts • Share Option Plan 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.

• Performance Share Plan 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.

• Restricted Stock Plan Pursuant to the ST Engineering Restricted Stock Plan, the Company’s shares can be awarded to certain employees and directors of the Group. The details of the Restricted Stock Plan are described in Note 3.

The restricted shares cost is amortised and recognised in the statement of profi t and loss over the vesting period. The fair value of the restricted shares is determined on conditional grant date using the Monte Carlo simulation model.

(ii) Defi ned contribution plans The 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.

(r) 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. 122

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(r) Income recognition (continued) (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, including income arising from fi nance leases and other fi nancial instruments, is recognised on an accrual basis using the effective interest method.

(ix) Rental income arising from investment properties is accounted for on a straight-line basis over the lease terms.

(s) 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. Singapore Technologies Engineering Ltd 123 Annual Report 2007

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(s) Foreign currency transactions/translation (continued) (ii) Foreign currency translation The 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 statement of profi t and loss 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.

(t) Intangible assets Intangible 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) Film cost inventory Film production costs are capitalised as fi lm cost inventory. The fi lm cost inventory is amortised using the individual- fi lm-forecast computation method which amortises the fi lm costs in the same ratio that current gross revenue bear to anticipated total gross income for the fi lm. However, should this result in a book value for a fi lm which exceed the estimated net realisable value, then a corresponding reduction to its estimated net realisable value is to be made on a fi lm-by-fi lm basis. 124

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(t) Intangible assets (continued) (iii) 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.

(iv) Brands Costs relating to brands, which are acquired are capitalised and amortised on a straight-line basis over their estimated economic useful life of 70 years.

(v) Dealer network Costs relating to dealer network, which are acquired are capitalised and amortised on a straight-line basis over their estimated economic useful life of 7 years.

(u) Hire purchase 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. Assets acquired on hire purchase arrangements are depreciated in accordance with the policy set out in Note 2(g) above.

(v) Finance leases (i) As lessee 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. Assets acquired on fi nance lease arrangements are depreciated in accordance with the policy set out in Note 2(g) above.

(ii) As lessor Leases where the Group transferred substantially all the risks and rewards incidental to legal ownership of the leased assets, are classifi ed as fi nance lease.

The leased asset is derecognised and the present value of the lease receivables (net of initial direct costs for negotiating and arranging the lease) is recognised on the balance sheet. The difference between the gross receivables and the present value of the lease receivables is recognised as unearned fi nance income.

Each lease payment received is applied against the gross investment in the fi nance lease receivables to reduce both the principal and the unearned fi nance income. The fi nance income is recognised in the statement of profi t and loss on a basis that refl ects a constant periodic rate of return on the net investment in the fi nance lease receivables.

Initial direct costs incurred by the Group in negotiating and arranging fi nance leases are added to fi nance lease receivables and recognised as an expense in the statement of profi t and loss over the lease term on the same basis as the leased income. Singapore Technologies Engineering Ltd 125 Annual Report 2007

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(w) Operating leases Leases 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.

(x) Government grants Grants 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.

(y) Derivative fi nancial instruments and hedging The 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 the statement of profi t and 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.

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 hedges For 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 the statement of profi t and 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 in the statement of profi t and loss. 126

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(y) Derivative fi nancial instruments and hedging (continued) (i) Fair value hedges (continued) 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 the statement of profi t and loss. The changes in the fair value of the hedging instrument are also recognised in the statement of profi t and 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 in the statement of profi t and 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 hedges For 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 the statement of profi t and 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 the statement of profi t and 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 the statement of profi t and loss.

(z) 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.

(aa) 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. Singapore Technologies Engineering Ltd 127 Annual Report 2007

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(aa) Derecognition of fi nancial assets and liabilities (continued) (i) Financial assets (continued) 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 liabilities A 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.

(ab) Changes in accounting policies (i) Adoption of new and revised FRS With effect from 1 January 2007, the Group has adopted all the new and revised FRS and INT FRS that are mandatory for fi nancial years beginning on or after 1 January 2007. The adoption of these FRS and INT FRS has no signifi cant impact to the Group.

• FRS 40 The new FRS 40 Investment Property that came into effect for the Group in the fi nancial year beginning 1 January 2007 requires the properties (land or a building, or part of a building, or both) held to earn rentals to be classifi ed as “Investment Properties”. In adopting FRS 40, investment properties of the Group are measured at cost less accumulated depreciation and impairment losses. Under the provision of FRS 40, the change in accounting policy has resulted in the following accounts in the fi nancial statements as at 31 December 2006 being reclassifi ed with no impact to the statement of profi t and loss.

Balance Sheet $m Property, plant and equipment (17) Investment properties 17 128

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(ab) Changes in accounting policies (continued) (ii) FRS and INT FRS not yet effective The Group has not applied the following FRS and INT FRS that have been issued but not yet effective:

Effective for annual periods beginning on or after FRS 23 : Amendment to FRS 23, Borrowing Costs 1 January 2009 FRS 108 : Operating Segments 1 January 2009 INT FRS 111 : Group and Treasury Share Transactions 1 March 2007 INT FRS 112 : Service Concession Arrangements 1 January 2008

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, except for FRS 108 as indicated below.

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

(ac) Signifi cant accounting estimates and judgements Estimates 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 uncertainty The 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 2007 was $492,651,000 (2006: $425,130,000). More details are provided in Note 11.

• Impairment of investments and fi nancial assets The 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. Singapore Technologies Engineering Ltd 129 Annual Report 2007

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(ac) Signifi cant accounting estimates and judgements (continued) (i) Key sources of estimation uncertainty (continued) • Depreciation charge Property, plant and equipment and investment properties are depreciated on a straight-line basis over their estimated useful lives. Management estimates the useful lives of these property, plant and equipment and investment properties to be within 1 to 60 years. The carrying amount of the Group’s property, plant and equipment and investment properties at 31 December 2007 was $1,033,002,000 (2006: $965,109,000). 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 and investment properties, therefore future depreciation charges could be revised.

(ii) Critical judgements made in applying accounting policies In 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.

• Income taxes The 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 2007 was $201,324,000 (2006: $213,931,000).

3. SHARE CAPITAL

Group and Company 2007 2006 $’000 $’000 Issued and fully paid At beginning of the year 2,946,253,631 (2006: 2,914,495,627) ordinary shares 474,926 291,450 Transfer from share premium account – 117,197 Issued during the year 37,296,756 (2006: 31,758,004) ordinary shares 79,962 66,279 At end of the year 2,983,550,387 (2006: 2,946,253,631) ordinary shares 554,888 474,926

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. 130

3. SHARE CAPITAL (continued)

The Singapore Technologies Engineering Share Option Plan (“ESOP”), the Singapore Technologies Engineering Performance Share Plan (“PSP”) and the Singapore Technologies Engineering Restricted Stock Plan (“RSP”) of the Company were approved by its members at an Extraordinary General Meeting held on 23 November 2000. The ESOP, PSP and RSP 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.

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 37,296,756 (2006: 30,953,004) 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 $ 97R1 332,981 0.422 97R3 262,002 0.492 97R5 92,471 0.720 98R1 565,500 1.390 98R3 115,000 1.290 99R1 2,348,940 1.418 9902 381,490 2.000 2001 6,610,887 2.260 2002 471,000 1.808 2003 277,752 2.390 0102N 1,975,480 2.720 0108N 2,465,085 2.680 0202N 2,085,559 2.290 0202ND 496,000 2.290 0208N 2,271,909 1.920 0208ND 101,750 1.920 0302N 2,961,803 1.790 0302ND 90,750 1.790 0302P 10,000 1.790 0308N 2,827,938 1.860 0308ND 72,939 1.860 0308P 20,000 1.860 0402N 2,339,177 2.090 0402ND 42,800 2.090 0402P 15,000 2.090 0406N 50,000 2.000 0408N 2,474,261 2.120 0408ND 38,050 2.120 Singapore Technologies Engineering Ltd 131 Annual Report 2007

3. SHARE CAPITAL (continued)

Grant no. No. of ordinary shares issued Price per ordinary share $ 0408P 15,000 2.120 0502N 1,982,721 2.370 0502ND 27,000 2.370 0508N 1,789,015 2.570 0508ND 25,125 2.570 0602N 966,844 3.010 0602ND 15,875 3.010 0608N 662,777 2.840 0608ND 15,875 2.840

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 2007 2006 ESOS At beginning of the year 29,276,128 40,533,204 Exercised (11,458,023) (11,161,676) Lapsed (1,528,773) (95,400) At end of the year 16,289,332 29,276,128 Exercisable at end of the year 16,289,332 29,276,128

ESOP At beginning of the year 125,092,641 117,256,385 Granted and accepted 31,973,758 31,361,732 Exercised (25,838,733) (19,791,328) Lapsed (5,936,160) (3,734,148) At end of the year 125,291,506 125,092,641 Exercisable at end of the year 52,201,700 45,687,091 132

3. SHARE CAPITAL (continued)

(ii) Details of share options

2007 Details of share options to subscribe for ordinary shares pursuant to ESOS are as follows:

Balance as at 1.1.2007 or date Options Balance No. of Date of of grant lapsed/ Options as at holders at Exercise grant if later (adjustment) exercised 31.12.2007 31.12.2007 price Exercisable period $ 6.12.1997 332,981 – 332,981 – – 0.422 18.5.1999 to 2.4.2007 6.12.1997 262,002 – 262,002 – – 0.492 18.5.1999 to 24.4.2007 6.12.1997 92,471 – 92,471 – – 0.720 11.9.1999 to 9.9.2007 29.4.1998 1,580,750 (6,250) 565,500 1,021,500 16 1.390 30.4.2000 to 29.4.2008 7.8.1998 215,000 25,000 115,000 75,000 15 1.290 8.8.2000 to 7.8.2008 9.2.1999 4,664,860 286,180 2,348,940 2,029,740 46 1.418 10.2.2001 to 9.2.2009 10.8.1999 1,086,400 137,000 381,490 567,910 97* 2.000 11.8.2001 to 10.8.2009 9.2.2000 18,731,580 828,843 6,610,887 11,291,850 227** 2.260 10.2.2002 to 9.2.2010 9.2.2000 1,235,125 (65,000) 471,000 829,125 29 1.808 10.2.2002 to 9.2.2010 6.9.2000 1,074,959 323,000 277,752 474,207 24 2.390 7.9.2002 to 6.9.2010 Total 29,276,128 1,528,773 11,458,023 16,289,332 Singapore Technologies Engineering Ltd 133 Annual Report 2007

3. SHARE CAPITAL (continued)

2007 Details of share options to subscribe for ordinary shares pursuant to ESOP are as follows:

Balance as at 1.1.2007 or date Balance No. of Date of of grant Options Options as at holders at Exercise grant if later lapsed exercised 31.12.2007 31.12.2007 price Exercisable period $ 19.2.2001 7,432,061 357,308 1,975,480 5,099,273 441** 2.720 20.2.2002 to 19.2.2011 10.8.2001 9,587,619 289,176 2,465,085 6,833,358 465** 2.680 11.8.2002 to 10.8.2011 7.2.2002 7,254,468 249,256 2,085,559 4,919,653 394** 2.290 8.2.2003 to 7.2.2012 7.2.2002 496,000 – 496,000 – – 2.290 8.2.2003 to 7.2.2007 12.8.2002 5,580,266 245,643 2,271,909 3,062,714 312** 1.920 13.8.2003 to 12.8.2012 12.8.2002 101,750 – 101,750 – – 1.920 13.8.2003 to 12.8.2007 6.2.2003 6,433,790 310,152 2,961,803 3,161,835 353** 1.790 7.2.2004 to 6.2.2013 6.2.2003 318,500 – 90,750 227,750 12# 1.790 7.2.2004 to 6.2.2008 6.2.2003 14,972 – 10,000 4,972 1 1.790 7.2.2004 to 6.2.2013 11.8.2003 7,946,329 335,107 2,827,938 4,783,284 663** 1.860 12.8.2004 to 11.8.2013 11.8.2003 320,064 – 72,939 247,125 13# 1.860 12.8.2004 to 11.8.2008 11.8.2003 28,754 – 20,000 8,754 1 1.860 12.8.2004 to 11.8.2013 9.2.2004 9,435,793 344,675 2,339,177 6,751,941 986** 2.090 10.2.2005 to 9.2.2014 9.2.2004 314,100 – 42,800 271,300 16# 2.090 10.2.2005 to 9.2.2009 9.2.2004 31,426 – 15,000 16,426 2 2.090 10.2.2005 to 9.2.2014 21.6.2004 100,000 50,000 50,000 – – 2.000 22.6.2005 to 21.6.2014 10.8.2004 11,126,767 425,235 2,474,261 8,227,271 1,049** 2.120 11.8.2005 to 10.8.2014 10.8.2004 277,475 – 38,050 239,425 16# 2.120 11.8.2005 to 10.8.2009 10.8.2004 31,426 – 15,000 16,426 2 2.120 11.8.2005 to 10.8.2014 7.2.2005 12,487,006 465,051 1,982,721 10,039,234 1,097** 2.370 8.2.2006 to 7.2.2015 7.2.2005 348,625 – 27,000 321,625 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 14,248,987 635,643 1,789,015 11,824,329 1,229** 2.570 11.8.2006 to 10.8.2015 10.8.2005 334,291 – 25,125 309,166 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 9.2.2006 14,291,958 616,162 966,844 12,708,952 1,321** 3.010 10.2.2007 to 9.2.2016 9.2.2006 377,500 – 15,875 361,625 18# 3.010 10.2.2007 to 9.2.2011 10.8.2006 15,738,362 855,999 662,777 14,219,586 1,440** 2.840 11.8.2007 to 10.8.2016 10.8.2006 371,500 – 15,875 355,625 18# 2.840 11.8.2007 to 10.8.2011 15.3.2007 16,274,367## 591,135 – 15,683,232 1,562** 3.230 16.3.2008 to 15.3.2017 15.3.2007 360,000## – – 360,000 18# 3.230 16.3.2008 to 15.3.2012 10.8.2007 15,012,391## 165,618 – 14,846,773 1,698 3.610 11.8.2008 to 10.8.2017 10.8.2007 327,000## – – 327,000 16# 3.610 11.8.2008 to 10.8.2012 Total 157,066,399 5,936,160 25,838,733 125,291,506

* 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 2007 134

3. SHARE CAPITAL (continued)

2006 Details of share options to subscribe for ordinary shares pursuant to ESOS are as follows:

Balance as at 1.1.2006 or date Balance No. of Date of of grant Options Options as at holders at Exercise grant 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 Singapore Technologies Engineering Ltd 135 Annual Report 2007

3. SHARE CAPITAL (continued)

2006 Details of share options to subscribe for ordinary shares pursuant to ESOP are as follows:

Balance as at 1.1.2006 or date Balance No. of Date of of grant Options Options as at holders at Exercise grant if later lapsed exercised 31.12.2006 31.12.2006 price Exercisable period $ 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 136

3. SHARE CAPITAL (continued)

(iii) Details of share options exercised Exercise Proceeds from No. of shares price share issue Share price $ $’000 $ 2007 January to March 16,426,452 0.422 – 3.010 33,958 3.12 – 3.46 April to June 10,763,244 0.492 – 3.010 23,635 3.46 – 3.86 July to September 6,732,563 1.290 – 3.010 14,922 3.26 – 3.98 October to December 3,374,497 1.290 – 3.010 7,447 3.60 – 3.94 37,296,756

2006 January to March 21,715,361 0.373 – 2.720 46,736 2.88 – 3.12 April to June 3,454,019 1.390 – 2.720 7,417 2.63 – 3.30 July to September 2,403,556 0.373 – 2.720 4,580 2.66 – 2.98 October to December 3,380,068 1.290 – 2.720 7,172 2.94 – 3.20 30,953,004

The weighted average share price for options exercised during the year was $3.505 (2006: $3.022). The weighted average remaining contractual life for these options is 6.46 years (2006: 6.30 years).

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 2007 and 2006.

2007 2006 Expected dividend yield (%) (--Management’s forecast in line with dividend policy--) Expected volatility (%) 23.13 – 31.49 17.02 – 23.31 Risk-free interest rate (%) 2.29 – 2.71 2.71 – 3.19 Expected life of option (years) 2.49 – 5.23 2.49 – 5.25 Exercise price ($) 3.23 – 3.61 2.84 – 3.01 Weighted average share price ($) 3.31 – 3.72 2.80 – 3.01

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. Singapore Technologies Engineering Ltd 137 Annual Report 2007

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 2 July 2007 26 January 2006 5 August 2005 8 July 2004 Total Number of performance shares At grant date 1,513,000 2,450,000 2,160,000 2,130,000 8,253,000 Lapsed – (170,000) (130,000) (2,130,000) (2,430,000) Outstanding as at 31.12.2007 1,513,000 2,280,000 2,030,000 – 5,823,000

The fair value of the performance shares is determined on conditional grant date using the Monte Carlo simulation model.

The signifi cant inputs to the model used for the conditional grants in 2005 to 2007 are as follows:

Date of grant 2 July 2007 26 January 2006 5 August 2005 Market conditions Volatility of MSCI Index (%) 13.66 14.69 13.80 Volatility of the Company’s shares (%) 14.59 15.22 17.44 Correlation of volatility of MSCI vs the Company (%) 26.83 26.46 31.62 Risk-free rate (%) 2.43 3.09 2.20 Share price ($) 3.62 2.93 2.56 Cost of equity (%) 8.27 – – Dividend yield (-- Management’s forecast in line with dividend policy --)

Non-market conditions (Best estimate* of number of shares expected to vest at the end of three-year performance period) – EVA Spread (%) – 61 79 – EPS Growth – 63 64

* Subject to revision when new information is available 138

3. SHARE CAPITAL (continued)

Singapore Technologies Engineering Restricted Stock Plan (“RSP”) During the fi nancial year, a new share-based incentive plan, RSP, was introduced for senior management staff. Depending on the achievement of pre-determined targets over a two-year performance period, the fi nal number of restricted shares awarded could range between 0% and 150% of the initial grant of the restricted shares. Based on meeting stated performance conditions over a two-year period, 50% of the RSP award will vest. The balance will vest equally over the subsequent two years with fulfi lment of service requirements.

Date of grant 26 July 2007 Number of restricted shares At grant date 897,000 Lapsed (5,000) Outstanding as at 31.12.2007 892,000

The fair value of the restricted shares is determined at conditional grant date using the Monte Carlo simulation model.

The signifi cant inputs to the model used for the conditional grant in 2007 are as follows:

Date of grant 26 July 2007 Volatility of the Company’s shares (%) 14.59 Mark-to-market Company TSR achievement (%) 28.64 Risk-free rate (%) 2.41 – 2.50 Share price ($) 3.80 Dividend yield Management’s forecast in line with dividend policy

4. CAPITAL RESERVE

This 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. Singapore Technologies Engineering Ltd 139 Annual Report 2007

5. OTHER RESERVES

Foreign Share- currency Fair based Asset translation Statutory value payment Revaluation reserve reserve reserve reserve reserve Total $’000 $’000 $’000 $’000 $’000 $’000 (Restated) (Restated) The Group At 1.1.2006 (6,371) 466 44,740 14,122 – 52,957 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) Foreign currency translation differences (33,371) – – – – (33,371) Total net income recognised directly in equity and for the year (33,371) – (15,421) – – (48,792) Cost of share-based payment – – – 9,431 – 9,431 Revaluation surplus, as previously reported – – – – 81 81 Effect of adopting FRS 40 – – – – (81) (81) Revaluation surplus, as restated – – – – – – Transfer from unappropriated profi t to statutory reserve – 246 – – – 246 At 31.12.2006 (39,742) 712 29,319 23,553 – 13,842

At 1.1.2007 (39,742) 712 29,319 23,553 – 13,842 Net fair value changes on available-for-sale fi nancial assets – – (4,978) – – (4,978) Net fair value changes on cash fl ow hedges – – 1,646 – – 1,646 Foreign currency translation differences (21,113) – – – – (21,113) Total net income recognised directly in equity and for the year (21,113) – (3,332) – – (24,445) Cost of share-based payment – – – 15,949 – 15,949 Disposal of a subsidiary 391 (712) – – – (321) Transfer from unappropriated profi t to statutory reserve – 394 – – – 394 At 31.12.2007 (60,464) 394 25,987 39,502 – 5,419 140

5. OTHER RESERVES (continued) Group 2007 2006 $’000 $’000 Net fair value changes on available-for-sale fi nancial assets arises from: – Effect of reduction in tax rate (149) – – Net gain on fair value changes during the year 8,191 9,795 – Recognised in statement of profi t and loss, in other operating income (13,020) (24,337) (4,978) (14,542)

Net fair value changes on cash fl ow hedges arises from: – Effect of reduction in tax rate 40 – – Net gain on fair value changes during the year 786 (931) – Recognised in statement of profi t and loss, in other operating income 820 52 1,646 (879)

Foreign currency translation reserve The 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.

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

Fair value reserve Fair 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 reserve Share-based payment reserve represents the equity-settled share options, performance shares and restricted 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, performance shares and restricted shares. The expense for services received will be recognised over the vesting period.

6. RETAINED EARNINGS Group 2007 2006 $’000 $’000 Retained by: The Company 565,743 530,676 Subsidiaries 289,618 335,670 Associated companies and joint ventures 100,894 94,308 956,255 960,654 Singapore Technologies Engineering Ltd 141 Annual Report 2007

7. PROPERTY, PLANT AND EQUIPMENT

Valuation/Cost Arising from Finalisation acquisition of purchase Effect of As at of interest in price Reclassi- Re- adopting Translation As at 1.1.2006 Additions * Disposals subsidiaries allocation fi cations valuation FRS 40 difference 31.12.2006 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 (Restated) The Group At Valuation Freehold land and buildings – – – 1,874 – – 116 (1,990) – – 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 Cost Freehold land and buildings 65,274 407 (117) – – 630 – – (4,830) 61,364 Leasehold land and buildings 424,119 22,446 (50) 1,412 – 4,179 – (27,950) (4,501) 419,655 Buildings on rented properties 60,878 10,165 – – – – – – – 71,043 Improvements to premises 31,210 3,698 (2,520) 7,712 – 4,573 – – (1,462) 43,211 Wharves and slipways 19,826 5,310 – – – 3,592 – – (15) 28,713 Syncrolift and fl oating docks 68,782 – – – – – – – – 68,782 Boats and barges 5,455 – – – – – – – (167) 5,288 Plant and machinery 385,298 99,608 (30,121) 378,464 12,930 4,888 – – 17,150 868,217 Production tools and equipment 150,479 19,787 (1,992) 9,399 – (101) – – (1,834) 175,738 Furniture, fi ttings, offi ce equipment and computers 140,810 16,698 (7,483) 3,350 249 1,506 – – (1,928) 153,202 Transportation equipment and vehicles 12,287 1,612 (903) 1,193 – – – – (153) 14,036 Aircraft and aircraft engines 62,766 – – – – – – – – 62,766 Construction- in-progress 16,980 22,415 (273) 3,122 – (19,267) – – (1,203) 21,774 1,454,149 202,146 (43,459) 406,526 13,179 – 116 (29,940) 1,057 2,003,774 142

7. PROPERTY, PLANT AND EQUIPMENT (continued)

Valuation/Cost Arising from Due to acquisition disposal As at of interest in of a Reclassi- Translation As at 1.1.2007 Additions* Disposals subsidiaries subsidiary fi cations difference 31.12.2007 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 The Group At Valuation 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 Cost Freehold land and buildings 61,364 1,444 (152) – – 707 (3,520) 59,843 Leasehold land and buildings 419,655 24,698 (698) 1,446 – (3,815) (3,181) 438,105 Buildings on rented properties 71,043 33 – – – – – 71,076 Improvements to premises 43,211 3,962 (397) 114 (682) 152 (878) 45,482 Wharves and slipways 28,713 – (491) – – (672) (182) 27,368 Syncrolift and fl oating docks 68,782 – – – – – – 68,782 Boats and barges 5,288 – – – – – (121) 5,167 Plant and machinery 868,217 92,180 (33,731) 2,087 (321) 2,575 21,154 952,161 Production tools and equipment 175,738 22,792 (3,236) – – (26) (515) 194,753 Furniture, fi ttings, offi ce equipment and computers 153,202 15,859 (10,797) 435 (202) 235 (1,509) 157,223 Transportation equipment and vehicles 14,036 1,972 (1,769) 62 (266) 685 (138) 14,582 Aircraft and aircraft engines 62,766 344 (2,860) – – 17,801 – 78,051 Construction-in-progress 21,774 25,124 (38) – – (21,308) (140) 25,412 2,003,774 188,408 (54,169) 4,144 (1,471) (3,666) 10,970 2,147,990

* Additions during the year included property, plant and equipment of $16,364,000 (2006: $5,003,339) contributed by minority shareholders as part of capital injection. Singapore Technologies Engineering Ltd 143 Annual Report 2007

7. PROPERTY, PLANT AND EQUIPMENT (continued)

Accumulated depreciation Depreciation Effect of As at charge for Reclassi- adopting Translation As at 1.1.2006 the year Impairment Disposals fi cations FRS 40 difference 31.12.2006 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 (Restated) The Group At Valuation Freehold land and buildings – 40 – – – (40) – – 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 Cost Freehold land and buildings 20,572 1,096 – (54) – – (1,523) 20,091 Leasehold land and buildings 238,267 18,276 33 (22) – (12,825) (1,722) 242,007 Buildings on rented properties 21,643 1,941 – – – – – 23,584 Improvements to premises 16,143 5,308 – (2,452) – – (630) 18,369 Wharves and slipways 15,575 1,495 – – – – (8) 17,062 Syncrolift and fl oating docks 61,051 3,648 – – – – – 64,699 Boats and barges 5,455 124 – – (280) – (170) 5,129 Plant and machinery 307,339 59,386 264 (19,048) 353 – (4,026) 344,268 Production tools and equipment 125,179 15,943 – (1,420) (101) – (1,084) 138,517 Furniture, fi ttings, offi ce equipment and computers 119,510 15,744 – (7,096) 28 – (1,557) 126,629 Transportation equipment and vehicles 8,927 1,357 – (531) – – (93) 9,660 Aircraft and aircraft engines 29,306 6,318 – – – – – 35,624 978,952 130,676 297 (30,623) – (12,865) (10,813) 1,055,624 144

7. PROPERTY, PLANT AND EQUIPMENT (continued)

Accumulated depreciation Impairment/ Due to Depreciation (write- disposal As at charge for back of of a Reclassi- Translation As at 1.1.2007 the year impairment) Disposals subsidiary fi cations difference 31.12.2007 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 The Group At Valuation 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 Cost Freehold land and buildings 20,091 1,218 – (152) – (1,417) (1,185) 18,555 Leasehold land and buildings 242,007 18,105 – (181) – (1,153) (1,514) 257,264 Buildings on rented properties 23,584 2,192 – – – – – 25,776 Improvements to premises 18,369 4,563 – (372) (444) 1,369 (441) 23,044 Wharves and slipways 17,062 1,834 – (491) – (46) (19) 18,340 Syncrolift and fl oating docks 64,699 3,543 – – – – – 68,242 Boats and barges 5,129 83 – – – (306) (116) 4,790 Plant and machinery 344,268 55,542 (118) (22,161) (277) 376 (674) 376,956 Production tools and equipment 138,517 15,861 – (1,236) – (91) (630) 152,421 Furniture, fi ttings, offi ce equipment and computers 126,629 16,008 13 (10,642) (152) (33) (1,250) 130,573 Transportation equipment and vehicles 9,660 1,428 – (1,341) (206) 56 (80) 9,517 Aircraft and aircraft engines 35,624 5,140 – (2,860) – – – 37,904 1,055,624 125,517 (105) (39,436) (1,079) (1,245) (5,909) 1,133,367 Singapore Technologies Engineering Ltd 145 Annual Report 2007

7. PROPERTY, PLANT AND EQUIPMENT (continued) Net book value 2007 2006 $’000 $’000 (Restated) The Group At Valuation Leasehold land and buildings – – Wharves and slipways – – Syncrolift and fl oating docks – – Plant and machinery – – Furniture, fi ttings, offi ce equipment and computers – –

At Cost Freehold land and buildings 41,288 41,273 Leasehold land and buildings * 180,841 177,648 Buildings on rented properties 45,300 47,459 Improvements to premises * 22,438 24,842 Wharves and slipways 9,028 11,651 Syncrolift and fl oating docks 540 4,083 Boats and barges 377 159 Plant and machinery 575,205 523,949 Production tools and equipment 42,332 37,221 Furniture, fi ttings, offi ce equipment and computers 26,650 26,573 Transportation equipment and vehicles 5,065 4,376 Aircraft and aircraft engines 40,147 27,142 Construction-in-progress 25,412 21,774 1,014,623 948,150

* The net book value of property, plant and equipment amounting to $2,421,000 (2006: $nil) was reclassifi ed to investment properties following the change in a subsidiary’s occupation during the year.

The Company As at As at 1.1.2006 Additions 31.12.2006 $’000 $’000 $’000 At Cost Furniture, fi ttings, offi ce equipment and computers 1,370 251 1,621 Transportation equipment and vehicles 298 – 298 1,668 251 1,919

Depreciation As at charge for As at 1.1.2006 the year 31.12.2006 $’000 $’000 $’000 Accumulated depreciation Furniture, fi ttings, offi ce equipment and computers 862 276 1,138 Transportation equipment and vehicles 65 59 124 927 335 1,262 146

7. PROPERTY, PLANT AND EQUIPMENT (continued)

The Company As at As at 1.1.2007 Additions Disposals 31.12.2007 $’000 $’000 $’000 $’000 At Cost Furniture, fi ttings, offi ce equipment and computers 1,621 360 (180) 1,801 Transportation equipment and vehicles 298 331 (298) 331 1,919 691 (478) 2,132

Depreciation As at charge for As at 1.1.2007 the year Disposals 31.12.2007 $’000 $’000 $’000 $’000 Accumulated depreciation Furniture, fi ttings, offi ce equipment and computers 1,138 314 (180) 1,272 Transportation equipment and vehicles 124 62 (169) 17 1,262 376 (349) 1,289

Net book value 2007 2006 $’000 $’000 Furniture, fi ttings, offi ce equipment and computers 529 483 Transportation equipment and vehicles 314 174 843 657

The Group (a) Property, plant and equipment at valuation As at 1 January 2007, 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 2007 and 2006.

(b) Property, plant and equipment pledged as security (i) Freehold land and buildings and leasehold buildings of subsidiaries with a carrying value of $5,328,000 (2006: $5,696,000) are pledged as security for long-term loans.

(ii) Plant and machinery of a subsidiary with carrying value of $450,610,000 (2006: $427,396,000) are subject to a fl oating charge of Euro 210 million (2006: Euro 210 million) to secure two of the subsidiary’s bank loans. Singapore Technologies Engineering Ltd 147 Annual Report 2007

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 2007 2006 $’000 $’000 Leasehold land and buildings 2,271 2,927 Transportation equipment and vehicles 231 – 2,502 2,927

(d) The major properties of the Group comprise:

(i) Freehold land and buildings

Net book value Location Description Land area 2007 2006 (sq. m.) $’000 $’000 Malaysia Awana Chalet Staff recreation and apartment unit 58 2 2 8th mile, Genting Highlands, 69000 Genting Highlands, Pahang

USA 47889 South K Street Industrial buildings 88,949 2,581 2,801 Tulare, California

13442 Emerson Road Industrial buildings 68,351 1,320 1,441 Kidron, Ohio

300 Hackney Ave, Industrial buildings 117,358 1,928 2,071 Independence, Kansas

400 Hackney Ave, Industrial buildings 39,942 2,141 2,248 Washington, North Carolina

914 Saegers Station Drive, Industrial buildings 122,659 4,059 4,389 Montgomery, Pennsylvania

7801 Trinity Drive, Shipyard and buildings 839,564 4,592 4,896 Escatawpa, Mississippi

5801 Elder Ferry Rd, Shipyard and buildings 227,151 4,316 4,497 Moss Point, Mississippi

900 Bayou Casotte Parkway, Shipyard and buildings 331,803 15,279 13,258 Pascagoula, Mississippi

3800 Richardson Road Production facility 8,361 3,762 4,197 South, Hope Hull, Alabama 148

7. PROPERTY, PLANT AND EQUIPMENT (continued)

(ii) Leasehold land, buildings and improvements

Net book value Location Description Tenure Land area 2007 2006 (sq. m.) $’000 $’000 Singapore 501 Airport Road Factory and 20 years from 1.6.1993 23,899 2,674 3,158 offi ce building

503 Airport Road Factory and 20 years from 1.6.1993 7,175 758 890 offi ce building

540 Airport Road Warehouse and 30 years from 15.8.1985 5,850 1,200 1,354 offi ce building

Hangar and 30 years from 1.1.1984 18,918 3,429 3,936 offi ce building

8 Changi North Way Hangar and 30 years from 1.1.1992 75,713 34,806 37,292 offi ce building

Hangar and 22.5 years from 16.6.1999 14,860 3,365 3,605 offi ce building

Hangar and 16.3 years from 20.8.2005 9,764 14,012 15,012 offi ce building

24 Ang Mo Kio Street 65 Industrial and 30 years from 1.12.1982, 23,970 10,174 11,384 commercial buildings renewable to 2042

100 Jurong East Street 21 Industrial and 30 years from 1.11.1988, 11,232 8,590 9,227 commercial buildings renewable to 2048

70 Ubi Crescent Factory 60 years from 5.7.1997 730 1,282 1,307 Ubi Techpark #01-12

5 Portsdown Road Industrial and 3 years from 1.12.2005, 88,400 1,875 472 commercial buildings renewable to 2010

33 Tuas Avenue 2 Factory and 30 years from 1.4.1996 6,669 2,673 2,820 offi ce building

16 Benoi Crescent Industrial and 30 years from 16.7.1989 6,981 3,117 3,388 commercial buildings

249 Jalan Boon Lay Industrial and 27 years from 1.10.2001 120,000 6,059 6,851 commercial buildings to 31.12.2028, renewable to 10.10.2065 Singapore Technologies Engineering Ltd 149 Annual Report 2007

7. PROPERTY, PLANT AND EQUIPMENT (continued)

(ii) Leasehold land, buildings and improvements (continued) Net book value Location Description Tenure Land area 2007 2006 (sq. m.) $’000 $’000 Singapore 2D Ayer Rajah Crescent Industrial and 3 years from 1.4.2007 29,904 1,133 – commercial buildings to 31.3.2010

16 Tuas Avenue 7 Industrial buildings 30 years from 16.8.1983 12,029 1,110 1,294

601 Rifl e Range Road Industrial buildings Renewable every year * 1,380,983 1,478 1,724

15 Chin Bee Drive Industrial buildings 60 years from 1.8.1973 39,640 3,668 4,101

7 Benoi Road Buildings, foreshore 56 years from 1.6.1969 103,802 16,488 17,961 and workshops

60 Tuas Road Buildings, foreshore 30 years from 1.12.1992 125,262 5,602 6,265 and workshops

16 Benoi Road Administrative offi ces 56 years from 1.6.1969 20,244 – –

30/36 Kian Teck Avenue Workers’ dormitory 30 years from 1.9.1995 3,908 5,162 5,454

USA 2100 9th Street Hangar and 22 years from 1.1.1991 103,825 19,465 22,294 Brookley Complex, offi ce building Mobile, Alabama

7 9800 John Saunders Road, Hangar and 16 /12 years from 1.6.2002 195,663 7,325 8,848 San Antonio, Texas offi ce building

People’s Republic of China 555 Kanghua Road, Industrial buildings 50 years from 12.6.2003 15,890 892 3,538 Kangqiao Industrial Zone, to 27.7.2052 Shanghai #

97 Zhong Cao Road Industrial and 41 years from 1.10.2005 276,633 21,973 6,094 Guiyang, Guizhou commercial buildings to 30.9.2045

613 Xin Jiao Dong Road, Commercial building 15 years from 22.4.2005 9,751 1,385 – Hai Zhu District, Guangzhou, to 21.4.2020 Guangdong 150

7. PROPERTY, PLANT AND EQUIPMENT (continued)

(ii) Leasehold land, buildings and improvements (continued) Net book value Location Description Tenure Land area 2007 2006 (sq. m.) $’000 $’000 Panama Bryant Ave Hangar and offi ce 20 years from 18.8.2006 36,278 1,905 – Howard Balboa building

* 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.

# This leasehold land and building (excluding land use rights) is classifi ed as investment property following the change in a subsidiary’s occupation in the leasehold land and building during the year.

(iii) Buildings on rented properties Net book value Location Description Tenure Land area 2007 2006 (sq. m.) $’000 $’000 Singapore** 540 Airport Road Hangars and 3 years lease from 1.7.2006 48,882 27,145 28,891 offi ce building

Seletar West Camp Hangars and Yearly 15,670 18,122 18,568 offi ce building

People’s Republic of China Guangzhou Airport Warehouse 2 years lease from 1.11.2007 100 33 – Logistics Centre, Guangzhou Baiyun Aiport Logistics, Guangzhou 510890

** 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. Singapore Technologies Engineering Ltd 151 Annual Report 2007

8. SUBSIDIARIES Company 2007 2006 $’000 $’000 Unquoted shares, at cost: Singapore Technologies Aerospace Ltd 90,114 90,114 Singapore Technologies Electronics Limited 26,982 26,982 Singapore Technologies Kinetics Ltd 61,938 61,938 Singapore Technologies Marine Ltd 56,000 56,000 Vision Technologies Systems, Inc. 297,494 297,494 Singapore Technologies Dynamics Pte Ltd 6,000 6,000 ST Synthesis Pte Ltd 2,156 2,156 FusionTech Pte. Ltd. 1,000 1,000 Kaz-ST Engineering Bastau Limited Liability Partnership 578 578 542,262 542,262 Impairment in subsidiaries (7,000) (7,000) Carrying amount after impairment in subsidiaries 535,262 535,262

Capital contribution in the form of share options, performance shares and restricted shares issued to employees of subsidiaries 22,697 8,947 557,959 544,209

Details of the subsidiaries are as follows: Effective equity interest held by the Group 2007 2006 % % (a) Singapore Technologies Aerospace Ltd and its subsidiaries 100 100 ST Aerospace Engineering Pte Ltd and its subsidiaries: 100 100 ST PAE Holdings Pty Ltd 100 100 Pacifi c Flight Services Pte Ltd 100 100 Pacifi c Flight Services Pty Ltd 100 – ST Aviation Training Academy Pte. Ltd. and its subsidiary: 66 – Aviation Training Academy Australia Pty Ltd 66 – ST Aerospace Engines Pte Ltd 100 100 ST Aerospace Systems Pte Ltd 100 100 ST Aerospace Supplies Pte Ltd and its subsidiaries: 100 100 iShopAero Pte Ltd 100 100 Guangzhou Aerospace Technologies and Engineering Company Limited 100 – ST Aerospace International Structures Pte Ltd 100 100 ST Aviation Resources Pte Ltd and its subsidiary: 100 100 ST Aviation Resources 1 Limited 100 100 ST Aviation Services Co Pte Ltd 80 80 Visiontech Investment Pte Ltd 100 100 Singapore Technologies Engineering (Europe) Ltd 100 100 Singapore Aerospace Kabushiki Kaisha 100 100 Visiontech Engineering Pte Ltd 51 51 ST Airport Ground Services Pte Ltd 100 100 Bournemouth Aviation Services Company Limited 81 81 Singapore British Engineering (Pte) Ltd 51 51 152

8. SUBSIDIARIES (continued) Effective equity interest held by the Group 2007 2006 % % (a) Singapore Technologies Aerospace Ltd and its subsidiaries (continued) ST Aerospace Solutions (Europe) A/S (formerly known as SAS Component Group A/S) and its subsidiary: 71.3 71.3 Airline Rotables (UK Holdings) Limited and its subsidiary: 71.3 71.3 Airline Rotables Limited 71.3 71.3 Panama Aerospace Engineering Inc. 100 100

(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 100 70 ST Electronics (Software Services) Limited 100 100 ST Electronics (e-Services) Pte. Ltd. 100 – PM-B Pte Ltd and its subsidiaries: 70 70 PMB Project Management Business Sdn Bhd 70 70 PT PM-B Indonesia 70 70 PM-B (China) Ltd 70 70 ST Electronics (Training & Simulation Systems) Pte. Ltd. and its subsidiaries: 100 100 ST Electronics (Digital Media) 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 51 Brightspot Interactive Learning Inc. 51 51 ST Electronics (Info-Comm Systems) Pte. Ltd. and its subsidiaries: 100 100 ST Electronics (Info-Security) Pte. Ltd. and its subsidiary: 100 100 DataMark Technologies Pte Ltd 61.12 61.12 STELCOMMS Pte. Ltd. 51 100 Telematics Wireless Ltd 93.93 – ST Electronics (Satcom & Sensor Systems) Pte. Ltd. and its subsidiary: 100 100 ST Electronics (Sichuan) Co., Ltd 100 100 ST Electronics (Shanghai) Co., Ltd and its subsidiary: 100 100 ST Electronics-PCI Co., Ltd 51 51 iTS Technologies Pte Ltd 100 100 ST Electronics (Taiwan) Limited 100 100 Intelect Technologies, Incorporated 78.57 78.57 Ripple Systems Pty Ltd 100 70 STELOP Pte. Ltd. 50.05 50.05 TranSys Pte Ltd 100 100

(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 100 100 Silvatech Systems Corporation Pte Ltd and its subsidiary: 100 100 Kinetics Drive Solutions Inc. 100 100 STA Inspection Pte Ltd and its subsidiary: 100 100 JuzclickCar.com Pte Ltd 90 90 Singapore Technologies Engineering Ltd 153 Annual Report 2007

8. SUBSIDIARIES (continued) Effective equity interest held by the Group 2007 2006 % % (c) Singapore Technologies Kinetics Ltd and its subsidiaries (continued) Singapore Commuter Private Limited 100 100 Securedge Pte. Ltd. (formerly known as ST Automotive Industrial Pte Ltd) 100 100 STA Investment Pte Ltd 100 100 ST Kinetics International Pte. Ltd. (formerly known as ST Automotive (Vietnam) Pte Ltd) 100 100 STA Detroit Diesel-Allison (Singapore) Pte Ltd 100 100 Shanghai Elite Electric Vehicles Co., Ltd ^ – 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 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 * – 100 STAR Automotive Center (Zhejiang) Co., Ltd. 86.24 86.24 STAR Automotive Center (Guangzhou) Co., Ltd. @ 100 50

(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. 100 100 iDirect Government Technologies, Inc. 100 – Vision Technologies Kinetics, Inc. and its subsidiaries: 100 100 Miltope Corporation 100 100 MÄK Technologies, Inc. 80 80 154

8. SUBSIDIARIES (continued) Effective equity interest held by the Group 2007 2006 % % (e) Vision Technologies Systems, Inc. and its subsidiaries (continued) Vision Technologies Land Systems, Inc. and its subsidiaries: 100 100 VT Dimensions, Inc. 100 100 Lee Holding Company and its subsidiary: 100 100 VT LeeBoy, Inc. and its subsidiaries: 100 100 LeeBoy Rents, Inc. 100 100 Rosco Manufacturing Company 100 100 Force Feed Loader Parts, Inc. 100 100 VT 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

^ The entity was disposed of during the year. * This entity was fully liquidated during the year. @ During the year, following an additional acquisition of equity interest, STAR Automotive Center (Guangzhou) Co., Ltd. had become a subsidiary of the Group.

Further details of the subsidiaries are as follows:

Country of incorporation/ Name of subsidiary Principal activities place of 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

Pacifi c Flight Services Pty Ltd Flight training school operation and aircraft management Australia

ST Aviation Training Academy Pte. Ltd. Flight training school operation and aircraft management Singapore

Aviation Training Academy Australia Flight training school operation and aircraft management Australia Pty Ltd

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 Singapore Technologies Engineering Ltd 155 Annual Report 2007

8. SUBSIDIARIES (continued)

Country of incorporation/ Name of subsidiary Principal activities place of business ST Aerospace Supplies Pte Ltd Trading, Maintenance-By-The-Hour services for component Singapore and repair management and warehousing services for aircraft equipment, parts and components

iShopAero Pte Ltd Trading, e-commerce and information technology related Singapore services for the aerospace industry

Guangzhou Aerospace Technologies Import/export for aircraft component leasing, repair, People’s Republic and Engineering Company Limited exchange and trading, warehousing, packaging, distribution of China and other related services

ST Aerospace International Structures Designing, developing and manufacturing aircraft, engines, Singapore Pte Ltd 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 to the Group UK (Europe) Ltd

Singapore Aerospace Kabushiki Providing marketing services to the Group Japan Kaisha #

Visiontech Engineering Pte Ltd Provision of engineering services for the repair, maintenance Singapore and modifi cation of aircraft, aircraft equipment and components

ST Airport Ground Services Pte Ltd Investment holding and provision of airport ground cargo Singapore and passenger handling services

Bournemouth Aviation Services Dormant UK Company 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

ST Aerospace Solutions (Europe) Supply aircraft components, including purchase, maintenance Denmark A/S (formerly known as SAS and logistics services Component Group A/S)

Airline Rotables (UK Holdings) Limited Investment holding UK

Airline Rotables Limited Providing component management and support services for aircraft UK 156

8. SUBSIDIARIES (continued)

Country of incorporation/ Name of subsidiary Principal activities place of business Panama Aerospace Engineering Inc. Repair and maintenance of aircraft Republic of Panama

Singapore Technologies Design, development, supply, installation, integration and Singapore Electronics Limited maintenance of transportation, intelligent building, defence electronic and communication systems

SEEL Electronic & Engineering Sales of electronic instruments and equipment, electronic Malaysia Sdn Bhd 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 critical Singapore Pte. Ltd. systems and provision of related maintenance services

INFA Systems Limited Provision for services in consulting, designing and developing Hong Kong systems integration, the maintenance and support of operational and computer systems and sales and distribution of system equipment

ST Electronics (Software Services) Providing IT outsourcing services, software applications People’s Republic Limited development and turnkey solutions of China

ST Electronics (e-Services) Pte. Ltd. Providing shared services to government ministries, agencies Singapore and enterprises

PM-B Pte Ltd Relate to mechanical, electrical and engineering works to Singapore design, build and provide facility management services for mission critical environments such as data centres, disaster recovery and business continuity sites

PMB Project Management Business Relate to mechanical, electrical and engineering works to Malaysia Sdn Bhd 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 to Indonesia design, build and provide facility management services for mission critical environments such as data centres, disaster recovery and business continuity sites

PM-B (China) Ltd Relate to mechanical, electrical and engineering works to People’s Republic design, build and provide facility management services for of China mission critical environments such as data centres, disaster recovery and business continuity sites

ST Electronics (Training & Simulation Design, development, supply, integration and maintenance Singapore Systems) Pte. Ltd. of training and simulation systems Singapore Technologies Engineering Ltd 157 Annual Report 2007

8. SUBSIDIARIES (continued)

Country of incorporation/ Name of subsidiary Principal activities place of business ST Electronics (Digital Media) Pte. Ltd. Design, development and manufacture of computers and Singapore data processing systems, provision of services for the processing and maintenance of data and information and production of animation pictures

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 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 such Singapore 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 to of China individuals through satellites broadcast

ST Electronics (Info-Comm Systems) Design, development, systems integration, manufacturing Singapore Pte. Ltd. and sale of communication equipment, GPS-based fl eet management system, traffi c management system, info appliances and defence electronics

ST Electronics (Info-Security) Pte. Ltd. Design, development, sale and provision of technical support Singapore for information security products, solutions and services

DataMark Technologies Pte Ltd Develop and provide digital water marking and related solutions Singapore

STELCOMMS Pte. Ltd. Design, development and sale of communication related Singapore products and subsystems

Telematics Wireless Ltd Development, manufacture, and marketing of products for Israel locating and directing vehicles, other mobile and stationery objects, people, equipment and merchandise, systems for managing vehicular fl eets, systems for locating and thwarting car theft, vehicular wireless equipment and communications for purposes of identifi cation and provision of information, electronics toll-road systems, and electronic systems for reading water meters

ST Electronics (Satcom & Sensor Manufacture of microwave components and sub-systems, Singapore Systems) Pte. Ltd. system integration and provision of related repairs and maintenance for the telecommunications and defence electronics industries 158

8. SUBSIDIARIES (continued)

Country of incorporation/ Name of subsidiary Principal activities place of business ST Electronics (Sichuan) Co., Ltd Maintenance of communication and other related apparatus People’s Republic and consultant service of telecommunication technology of China

ST Electronics (Shanghai) Development and manufacturing of computer control and People’s Republic Co., Ltd management systems, microwave control systems, simulation of China 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 rail, Taiwan expressway and intelligent building management solutions

Intelect Technologies, Incorporated # Development and supply of a family of multi-access optical USA networking equipment

Ripple Systems Pty Ltd Design, develop and implement innovative software systems Australia 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. Design, development, manufacture and sale of electro-optical Singapore and electronic products and systems and the provision of related services

TranSys Pte Ltd Design, development, distribution, maintenance and marketing Singapore of railway related products

Singapore Technologies Kinetics Ltd Provision of design and engineering services, manufacture, Singapore 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 Technologies Engineering Ltd 159 Annual Report 2007

8. SUBSIDIARIES (continued)

Country of incorporation/ Name of subsidiary Principal activities place of business Singapore Ordnance Engineering Workshop and provision of engineering services Singapore Pte. Ltd.

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 continuously Islands variable transmissions technologies, and equipment powered by such drives

Silvatech Systems Corporation Pte Ltd Designing, manufacturing, marketing and managing licencees Singapore 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 electro-hydraulic drive, hydro-mechanical and electro-mechanical continuously variable transmissions technologies, and equipment powered by such drives

STA Inspection Pte Ltd Inspection of heavy goods vehicles, light vehicles, motor cars, Singapore 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

Securedge Pte. Ltd. (formerly known Dormant Singapore as ST Automotive Industrial Pte Ltd)

STA Investment Pte Ltd Investment dealing Singapore

ST Kinetics International Pte. Ltd. Dormant Singapore (formerly known as ST Automotive (Vietnam) Pte Ltd) #

STA Detroit Diesel-Allison Assembling and marketing of diesel engines and related products Singapore (Singapore) Pte Ltd and the provision of technical services, fi eld services, repair and maintenance services

Expert Systems Pte Ltd # Dormant Singapore

Singapore Test Services Private Limited Provision of professional engineering consultancy, tests, Singapore inspection, certifi cation and related services 160

8. SUBSIDIARIES (continued)

Country of incorporation/ Name of subsidiary Principal activities place of business SAO Industrial Services Pte Ltd Dormant Singapore

Advanced Material Engineering Pte. Ltd. Provision of design and engineering services, manufacture, Singapore 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 Singapore Private Limited

Unicorn International Pte Limited Trading and Marketing Singapore

Allied Ordnance of Singapore Provision of design and engineering services, manufacture, Singapore (Pte) Limited 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 Provision of design and engineering services, manufacture, Singapore Engineering Company of Singapore sales and knowhow transfer of armament, weapons, weapon (1996) Private Limited 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 China of self manufactured products Singapore Technologies Engineering Ltd 161 Annual Report 2007

8. SUBSIDIARIES (continued)

Country of incorporation/ Name of subsidiary Principal activities place of business STAR Automotive Center (Zhejiang) Provide automotive services, including automotive fi xing, People’s Republic Co., 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.

STAR Automotive Center (Guangzhou) Provide automotive services, including automotive fi xing, People’s Republic Co., 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.

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 Dormant USA (USA) Inc. #

SA Supplies (USA) Inc. # Dormant USA

VT Systems, Inc. # Investment holding and providing investment services to USA the Group

Vision Technologies Aerospace, Investment holding and providing investment services USA Incorporated #

ST Mobile Aerospace Engineering, Repair and maintenance of aircraft USA Inc. #

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 162

8. SUBSIDIARIES (continued)

Country of incorporation/ Name of subsidiary Principal activities place of business iDirect, Inc. # Design, develop and market two-way internet protocol USA – (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 broadband Hong Kong satellite networking solutions

iDirect UK Limited Markets two-way internet protocol – (IP) based broadband UK satellite networking solutions

iDirect Italy srl Markets two-way internet protocol – (IP) based broadband Italy satellite networking solutions

iDirect International Corporation # Markets two-way internet protocol – (IP) based broadband USA satellite networking solutions

iDirect Singapore Pte. Ltd. Markets two-way internet protocol – (IP) based broadband Singapore satellite networking solutions

iDirect Government Technologies, Inc. # Design, develop and market two-way internet protocol USA – (IP) based broadband satellite networking solutions that deliver voice, data and video services to government customers

Vision Technologies Kinetics, Inc. # Investment holding USA

Miltope Corporation # Development of computers and peripheral equipment for USA rugged and other specialized applications for military and commercial customers, both domestic and international

MÄK Technologies, Inc. # Develop and supply software products and services for USA Networked Synthetic Environments

Vision Technologies Land Systems, Inc. # Investment holding USA

VT Dimensions, Inc. # Investment holding and licensing of intellectual properties USA

Lee Holding Company # Investment holding USA

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 Singapore Technologies Engineering Ltd 163 Annual Report 2007

8. SUBSIDIARIES (continued)

Country of incorporation/ Name of subsidiary Principal activities place of business LeeBoy Rents, Inc. # Rental of asphalt paving and road maintenance equipment USA 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

Rosco Manufacturing Company # Dormant USA

Force Feed Loader Parts, Inc. # Dormant USA

VT Specialized Vehicles Corporation # Manufacture and marketing of specialised aluminium drop-frame USA truck bodies, trailers, refrigerated truck bodies and trailers and speciality vehicle cabs

Vision Technologies Marine, Inc. # Investment holding and providing investment services to the Marine sector USA

VT Halter Marine, Inc. # Construction and repair of naval and commercial vessels, design, USA integration, fabrication, installation of engineering equipment and provision of engineering services

Singapore Technologies Dynamics Technology development, advanced concept design and Singapore Pte Ltd development and technology acquisition

ST Synthesis Pte Ltd Provision of one-stop total integrated logistic support services Singapore

FusionTech Pte. Ltd. Investment holding Singapore

Kaz-ST Engineering Bastau Limited Provision of IT, engineering defence and related services Kazakhstan Liability Partnership #

# Not required to be audited under the law in the country of incorporation. + This entity ceased operations in December 2006 and has commenced members’ voluntary liquidation in January 2008. ++ 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 fi rm ST PAE Holdings Pty Ltd Ernst & Young, Perth Pacifi c Flight Services Pty Ltd Ernst & Young, Sydney Guangzhou Aerospace Technologies and Engineering Company Limited Ernst & Young, Guangzhou Singapore Technologies Engineering (Europe) Ltd Ernst & Young, Cambridge ST Aerospace Solutions (Europe) A/S Ernst & Young, Denmark Airline Rotables (UK Holdings) Limited Ernst & Young, Cambridge Airline Rotables Limited Ernst & Young, Cambridge Panama Aerospace Engineering Inc. Ernst & Young, Panama San Antonio Aerospace LP Ernst & Young, San Antonio SEEL Electronic & Engineering Sdn Bhd Ernst & Young, Kuala Lumpur 164

8. SUBSIDIARIES (continued)

Name of subsidiary Name of accounting fi rm INFA Systems Limited Ernst & Young, Hong Kong ST Electronics (Software Services) Limited Ernst & Young, Shenzhen PMB Project Management Business Sdn Bhd Ernst & Young, Kuala Lumpur PT PM-B Indonesia Ernst & Young, Jakarta PM-B (China) Ltd Ernst & Young, Beijing Brightspot Interactive Learning Inc. Ernst & Young, Beijing ST Electronics (Sichuan) Co., Ltd Ernst & Young, Shanghai ST Electronics (Shanghai) Co., Ltd Ernst & Young, Shanghai ST Electronics-PCI Co., Ltd Ernst & Young, Guangzhou ST Electronics (Taiwan) Limited Ernst & Young, Taiwan Ripple Systems Pty Ltd Ernst & Young, Perth Guizhou Jonyang Kinetics Co., Ltd. Ernst & Young, Guangzhou

(a) During the fi nancial year, the Group incorporated the following companies:

Name of company Country of incorporation/ Equity interest held Date of incorporation place of business % ST Aviation Training Academy Pte. Ltd. Singapore 66 1 June 2007

Aviation Training Academy Australia Pty Ltd Australia 66 3 July 2007

Guangzhou Aerospace Technologies and People’s Republic 100 25 July 2007 Engineering Company Limited of China

ST Electronics (e-Services) Pte. Ltd. Singapore 100 22 January 2007

iDirect Government Technologies, Inc. USA 100 23 April 2007

(b) During the fi nancial year, the Group acquired the following companies:

Net tangible Name of company Interest acquired Consideration assets acquired Date of acquisition % $’000 $’000 Pacifi c Flight Services Pty Ltd 100 – (554) 12 April 2007

Telematics Wireless Ltd 93.93 117,437 24,682 31 December 2007

(c) During the fi nancial year, the Group acquired additional equity interests in the following companies:

Interest after Net tangible Name of company Interest acquired acquisition Consideration assets acquired % % $’000 $’000 Ripple Systems Pty Ltd 30 100 – –

INFA Systems Limited 30 100 313 313

STAR Automotive Center 50 100 931 1,766 (Guangzhou) Co., Ltd.

(d) During the fi nancial year, the Group made capital contributions in Panama Aerospace Engineering Inc. of $3,051,000. The effective equity interest in the company remains the same at 100%. Singapore Technologies Engineering Ltd 165 Annual Report 2007

9. ASSOCIATED COMPANIES AND JOINT VENTURES

Group Note 2007 2006 $’000 $’000 Quoted shares, at cost – 24,800 Unquoted shares, at adjusted cost 190,031 200,165 Preference shares, at cost – 238 Goodwill on acquisition written off (1,737) (1,737) Share of net assets acquired 188,294 223,466 Impairment in associated companies and joint ventures (5,441) (9,845) Share of post-acquisition: Profi ts 100,894 94,308 Reserves (16,241) (13,784) 267,506 294,145

The investment in associated company of $50,000 in the Company represents the cost of investment in 2006 JV 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.

Impairment in associated companies and joint ventures Movements in impairment in associated companies and joint ventures during the year are as follows:

At beginning of the year 9,845 4,973 Charge/(write-back) to statement of profi t and loss 36 (4,400) 4,865 Translation difference (4) 7 At end of the year 5,441 9,845

During the year, the Group wrote-back impairment of $4.4 million for one of its associated companies following a divestment arising from a share swap transaction.

The summarised fi nancial information of the associated companies is as follows:

Results Turnover 723,928 2,892,730

Net profi t for the year 95,414 108,545

Assets and liabilities Non-current assets 327,411 423,305 Current assets 521,152 1,150,366 Current liabilities (221,851) (290,195) Non-current liabilities (28,763) (458,824) 597,949 824,652

As at 31 December 2007, cumulative and current year’s unrecognised share of losses in associated companies amounted to $946,808 (2006: $828,492) and $573,021 (2006: $448,049) respectively. 166

9. ASSOCIATED COMPANIES AND JOINT VENTURES (continued)

The Group’s share of the joint ventures’ results, assets and liabilities are as follows: Group 2007 2006 $’000 $’000 Results Turnover 19,974 22,516

Net profi t/(loss) for the year (5,115) 228

Assets and liabilities Non-current assets 3,335 5,362 Current assets 23,132 34,500 Current liabilities (16,790) (21,253) Non-current liabilities (111) (172) 9,566 18,437

(a) Details of the associated companies are as follows:

Country of Effective equity incorporation/ interest held by Name of associated company Principal activities place of business the Group 2007 2006 % % Aerospace Engineering Services Maintenance and servicing of aircraft Australia 50 50 Pty Ltd

Aerospace Engineering Services Trustee of unit trust fund Australia 50 50 Pty Ltd Unit Trust

1988 JV Pte. Ltd. ++ Dormant Singapore 50 50

Composite Technology Repairing and rebuilding helicopter Singapore 33.33 33.33 International Pte Ltd rotor blades

Eurocopter South East Asia Selling, maintaining and overhauling Singapore 25 25 Private Limited of helicopters

Shanghai Technologies Aerospace Aircraft and component maintenance, People’s Republic 49æ 49 Company Limited repair, overhaul and other related of China maintenance business

Singapore Precision Repair and Repair and overhaul of aircraft and helicopter Singapore 50 50 Overhaul Pte Ltd landing gears and its related components

Turbine Coating Services Pte Ltd Repair, refurbishment and upgrading of Singapore 24.5 24.5 aircraft jet engine turbine blades and vanes

Turbine Overhaul Services Pte Ltd Repair and service of gas and steam Singapore 49 49 turbine components Singapore Technologies Engineering Ltd 167 Annual Report 2007

9. ASSOCIATED COMPANIES AND JOINT VENTURES (continued)

Country of Effective equity incorporation/ interest held by Name of associated company Principal activities place of business the Group 2007 2006 % % Autoscan Technology Pte Ltd * Computer consultancy, trading in Singapore – 25.8 computerised information retrieval equipment and related, rendering of technical support services and printing and trading of labels and book binding

COMAT Training Services Pte Ltd Operating of a computer training school, Singapore 45.47 45.47 providing training in computer software and applications

ECS Holdings Limited * Relating to investment holding and the Singapore – 20.86 distribution of information technology products

Green Dot Internet Services Web hosting services and development of Singapore – 22.66 Pte Ltd * e-commerce applications

Infowave Pte Ltd * Design, development and supply of mobile Singapore – 43 computing and wireless communications products and solutions

iWOW Technology Pte Ltd To carry out research and development, Singapore 21.74 21.74 consultancy services in telecommunication, electrical and related fi elds

Knowledge Alive Pte. Ltd. Offer technologically-driven learning and Singapore 45.47 45.47 knowledge solutions, products and services to corporate, tertiary and workforce markets

Mobile Solutions and Payment Mobile-commerce and mobile-commerce Singapore 21.57 21.57 Services Pte Ltd @ related activities

mPayment Pte Ltd Provide mobile payment and mobile Singapore 31.78 31.78 commerce solutions and applications for business communities and consumers

PM-B Project Management Relate to mechanical, electrical and Thailand 34.3 34.3 Business (Thailand) Ltd engineering works to design, build and provide facility management services for mission critical environments such as data centres, disaster recovery and business continuity sites

Polarsat Holdings Inc (formerly Development, manufacturing and marketing Canada 26.67 38.98 known as PolarSat Inc) ß of multimedia VSAT (Very Small Aperture Terminals) and Satcom satellite networks 168

9. ASSOCIATED COMPANIES AND JOINT VENTURES (continued)

Country of Effective equity incorporation/ interest held by Name of associated company Principal activities place of business the Group 2007 2006 % % Prescient Systems & Business of developing, producing and Singapore 47.84 47.84 Technologies Pte. Ltd. marketing non-real time and real time instrumentation systems for defence and commercial applications

RF Korea Inc. ß Manufacture and sell wireless communication Korea 22 22 devices and related equipments

Sandz Solutions (Singapore) Providing enterprise computing solutions Singapore – 25 Pte Ltd * and trading in computer and peripherals

Sandz Solutions (HK) Pte Ltd * Provider of enterprise business IT solutions Hong Kong – 25

Sentry Technologies Pte Ltd ** Design, development and sale of computer Singapore – 35 security products

Sino Stride Technology Development and provision of system Cayman Islands – 28.01 (Holdings) Limited + integration solutions

ST LogiTrack Pte Ltd Development and sales of radio frequency Singapore 39.06 39.06 identifi cation applications in the logistics and related industries

Trusted Hub Ltd Provision of an integrated trusted Singapore 21.8 21.8 environment for secured transactions and e-commerce

WizVision Pte. Ltd. Providing information technology services Singapore 22.8 22.8 and trading of computer accessories

WizVision (HK) Pte Limited Investment holding Hong Kong 22.8 22.8

Ximaera Technologies Canada Inc. ß Research and development Canada 49 49 (formerly known as 1699590 Ontario Inc)

CityCab Pte Ltd Rental of taxis and provision of premier Singapore 46.5 46.5 bus service, charge card facilities and travel related services Singapore Technologies Engineering Ltd 169 Annual Report 2007

9. ASSOCIATED COMPANIES AND JOINT VENTURES (continued)

Country of Effective equity incorporation/ interest held by Name of associated company Principal activities place of business the Group 2007 2006 % % Defence Electronics of Singapore Manufacture of fuses Singapore 49 49 Pte Ltd

Nusantara Technologies Sdn. Bhd. Provision of non-destructive testing services, Malaysia 49 49 ultrasonic fl aw detection and gauging survey and pressure gauge calibration

Timoney Holdings Limited Design and prototyping services and Republic of 25 25 component supply for the automotive and Ireland 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 engineering services Indonesia 24 24

2006 JV Pte. Ltd. Dormant Singapore 50 50

NanoScience Innovation Pte Ltd Research and development, manufacturing, Singapore 27.06 27.06 distributing and trading of ultra fi ne structure, especially nano-scale, materials, devices, equipment and intellectual properties

(b) Details of joint ventures are as follows:

Country of Effective equity incorporation/ interest held by Name of joint venture Principal activities place of business the Group 2007 2006 % % GFM Electronics S.A. de C.V. Distribution and sales of high technology Mexico 50 50 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 development in Singapore 50 50 advanced materials for both defence and commercial applications

Beijing Zhonghuan Kinetics Develop, manufacture and sale of specialised People’s Republic 50 50 Heavy Vehicles Co. Ltd. heavy-duty vehicles and sale of related spare of China parts and provision of relevant technical consultancy and after sale technical support services 170

9. ASSOCIATED COMPANIES AND JOINT VENTURES (continued)

Country of Effective equity incorporation/ interest held by Name of joint venture Principal activities place of business the Group 2007 2006 % % SMART Systems Pte Ltd Life systems integration of weapon system Singapore 50 50

Takata CPI Singapore Pte Ltd Manufacture of pyrotechnic components for Singapore 49 49 seatbelts and air bags used in motor vehicles

Halter-Bollinger Joint Venture LLC ß To bid and secure US boat fabrication USA 50 50 contracts for its shareholders

Joint Shipyard Management Construction and managing workers’ Singapore 30 30 Services Pte Ltd dormitories

++ This entity is under members’ voluntary liquidation.

æ During the fi nancial year, the Group made additional capital contribution in this entity for a consideration of $18,452,000. The effective equity interest in this entity remains the same at 49%.

* These entities were disposed of during the year.

@ The company was under members’ voluntary liquidation in the prior year and has completed its liquidation in January 2008.

ß Not required to be audited under the law in the country of incorporation.

** During the year, this entity was struck off from the Registrar with ACRA.

+ The shares of this company held were swapped with shares of Shougang Concord Technology Holdings during the fi nancial year.

## These associated companies are under compulsory winding up by the Court. Singapore Technologies Engineering Ltd 171 Annual Report 2007

9. ASSOCIATED COMPANIES AND JOINT VENTURES (continued)

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 fi rm

Composite Technology International Pte Ltd Deloitte and Touche, Singapore Eurocopter South East Asia Private Limited KPMG, Singapore Shanghai Technologies Aerospace Company Limited Ernst & Young, Shanghai Turbine Coating Services Pte Ltd PricewaterhouseCoopers, Singapore Turbine Overhaul Services Pte Ltd PricewaterhouseCoopers, Singapore COMAT Training Services Pte Ltd BDO Raffl es GFM Electronics S.A. de C.V. PricewaterhouseCoopers, Mexico iWOW Technology Pte Ltd LW Ong & Co Knowledge Alive Pte. Ltd. BDO Raffl es mPayment Pte Ltd Thong & Lim PM-B Project Management Business (Thailand) Ltd SCI Audit Plus Limited ST LogiTrack Pte Ltd KPMG, Singapore Trusted Hub Ltd KPMG, Singapore WizVision Pte. Ltd. B H Gan & Co WizVision (HK) Pte Limited Peter Cheng & Company Beijing Zhonghuan Kinetics Heavy Vehicles Co. Ltd. Ernst & Young, Beijing CityCab Pte Ltd Deloitte and Touche, Singapore Nusantara Technologies Sdn. Bhd. Deloitte Kassimchan, Malaysia Timoney Holdings Limited KPMG, Ireland PT SSE-Van der Horst Indonesia Kap Fitradewata Teramihardja, Bap, Indonesia 2006 JV Pte. Ltd. KPMG, Singapore NanoScience Innovation Pte Ltd NSC & Associates 172

10. INVESTMENTS Group Note 2007 2006 $’000 $’000 Quoted investments (Available-for-sale) Equity shares, at fair value Non-related corporations 34,271 19,044 Impairment in value of quoted investments 36 (3,007) – Total quoted investments 31,264 19,044

Unquoted investments Equity shares Related corporations, at cost 955 955 Non-related corporations, at cost 24,365 33,519 Non-related corporations, at fair value 384 1,321 25,704 35,795 Venture capital funds and limited partnership, at fair value 4,043 4,079 Convertible loan, at amortised cost * 579 – Convertible loan to non-related corporations # 700 1,258 Loan to a related corporation 4,393 4,405 Unit trust – 42 35,419 45,579 Impairment in value of unquoted investments, at cost (25,861) (36,765) Total unquoted investments 9,558 8,814

Total investments 40,822 27,858

* 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 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 loan is an amount of $700,000 (2006: $700,000) extended by a subsidiary to an investee company at an interest rate of 1% (2006: 1%) above bank prime rate per annum. This loan is convertible to shares in the investee company.

For those unquoted investments where it is not practicable to determine the fair value, the Group has no intention to dispose such investments at the balance sheet date.

Impairment in value of quoted investments in non-related corporations During the fi nancial year, the Group recognised an impairment loss of $3,007,000 (2006: $nil) pertaining to quoted investments refl ecting the write-down in the carrying value of the investments with a signifi cant and prolong decline in the market price.

Singapore Technologies Engineering Ltd 173 Annual Report 2007

10. INVESTMENTS (continued)

Impairment in value of unquoted investments Movements in impairment in value of unquoted investments are as follows:

Group Note 2007 2006 $’000 $’000 At beginning of the year 36,765 28,380 Charge to statement of profi t and loss 36 – 8,428 Translation difference (105) (43) Utilised (10,799) – At end of the year 25,861 36,765

11. INTANGIBLE ASSETS

(a) Goodwill Group Note 2007 2006 $’000 $’000 (Restated) Cost At beginning of the year 443,633 318,165 Acquisition of subsidiaries in prior year, as previously reported – 224,886 Finalisation of purchase price allocation – (69,688) Acquisition of subsidiaries in prior year, as restated – 155,198 Acquisition of subsidiaries in current year 93,788 – Acquisition of additional interest in subsidiaries (2,052) 222 Translation difference (24,081) (29,952) At end of the year 511,288 443,633

Impairment At beginning of the year 18,503 10,344 Impairment for the year 37 – 8,135 Translation difference 134 24 At end of the year 18,637 18,503

Net book value 492,651 425,130 174

11. INTANGIBLE ASSETS (continued)

(b) Other intangible assets Commercial and Deferred intellectual Corporate club expenditure* property rights + membership Brands # Others Total $’000 $’000 $’000 $’000 $’000 $’000

The Group Cost At 1.1.2006 1,076 39,281 1,345 – – 41,702 Additions 4,742 520 – – – 5,262 Acquisition of subsidiaries, as previously reported 811 18,098 – – 10,256 29,165 Finalisation of purchase price allocation – (3,087) – 88,337 – 85,250 Acquisition of subsidiaries, as restated 811 15,011 – 88,337 10,256 114,415 Translation difference – (3,498) – – (270) (3,768) At 31.12.2006, as restated and at 1.1.2007 6,629 51,314 1,345 88,337 9,986 157,611 Additions 5,513 1 – – – 5,514 Translation difference 1 (2,591) – (5,227) (591) (8,408) At 31.12.2007 12,143 48,724 1,345 83,110 9,395 154,717

Accumulated amortisation At 1.1.2006 413 3,417 1,011 – – 4,841 Amortisation for the year 424 3,823 28 – 860 5,135 Translation difference (1) (299) – – (26) (326) Impairment loss – 818 – – – 818 At 31.12.2006 and 1.1.2007 836 7,759 1,039 – 834 10,468 Amortisation for the year 482 4,416 27 1,234 1,397 7,556 Translation difference – (461) – (47) (102) (610) Write-back of impairment – – (27) – – (27) At 31.12.2007 1,318 11,714 1,039 1,187 2,129 17,387

Net book value At 31.12.2007 10,825 37,010 306 81,923 7,266 137,330 At 31.12.2006 5,793 43,555 306 88,337 9,152 147,143

* Deferred expenditure includes a carrying amount of $9.2 million (2006: $4.6 million), of which amortisation has not commenced as the intangible asset has not begun to generate revenue.

+ During the year, an impairment of $nil (2006: $818,000) was recognised in respect of the commercial and intellectual property rights of a product for which sales prospects have become uncertain.

# These adjustments relate to the purchase price allocation to goodwill, intangible assets (excluding goodwill) and other assets and liabilities for VT LeeBoy, Inc., which was fi nalised during the current fi nancial year. The related amortisation on other intangible assets (Brands) in respect of the previous fi nancial year was not signifi cant to the Group, hence, no amortisation was charged in 2006. Singapore Technologies Engineering Ltd 175 Annual Report 2007

11. INTANGIBLE ASSETS (continued)

(c) Total intangible assets Group 2007 2006 $’000 $’000 (Restated) Net book value 629,981 572,273

Impairment testing of goodwill Goodwill 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 Pacifi c Flight Services Pty Ltd and Telematics Wireless Ltd has been determined provisionally and has not been allocated for impairment testing.

Carrying amount of goodwill allocated to each of the CGU: ST Aerospace Solutions (Europe) A/S 1,186 1,186 Pacifi c Flight Services Pty Ltd * 554 – Brightspot Interactive Learning Pte. Ltd. and its subsidiary 2,287 2,293 DataMark Technologies Pte Ltd 124 124 iDirect, Inc. 172,709 187,532 MÄK Technologies, Inc. 25,328 25,222 PM-B Pte Ltd and its subsidiaries 11,673 11,639 STELCOMMS Pte. Ltd. 5 5 STELOP Pte. Ltd. 1,732 1,732 Telematics Wireless Ltd * 92,755 – STAR Automotive Center (Zhejiang) Co., Ltd. 224 222 STAR Automotive Center (Guangzhou) Co., Ltd. 479 – VT LeeBoy, Inc. 105,905 112,598 VT Specialized Vehicles Corporation 40,387 42,928 Miltope Corporation 37,303 39,649 492,651 425,130

* The purchase price allocation to goodwill, intangible assets (excluding goodwill) and other assets and liabilities is currently being assessed and is expected to be fi nalised within 12 months from the date of acquisition (as disclosed in Note 8).

The recoverable amounts of the CGUs are determined based on value-in-use calculations, except for Pacifi c Flight Services Pty Ltd and Telematics Wireless Ltd 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 6.5% (2006: 6.6%) for value-in-use calculations, which is also the Group’s weighted average cost of capital. 176

12. INVESTMENT PROPERTIES Group 2007 2006 $’000 $’000 (Restated) At Cost At beginning of the year, as previously reported – – Effect of adopting FRS 40 – 29,824 At beginning of the year, as restated 29,824 29,824 Transfer from property, plant and equipment 3,666 – At end of the year 33,490 29,824

Accumulated depreciation At beginning of the year, as previously reported – – Effect of adopting FRS 40 – 11,458 At beginning of the year, as restated 12,865 11,458 Depreciation charge for the year 1,001 1,407 Transfer from property, plant and equipment 1,245 – At end of the year 15,111 12,865

Net book value 18,379 16,959

The property rental income of the Group for the year ended 31 December 2007 from its investment properties, which are leased out under operating leases, amounted to $935,000 (2006: $1,001,000). Direct operating expenses (including repairs and maintenance) arising on the rental-earning investment properties amounted to $1,107,000 (2006: $1,423,000).

The fair value of the investment properties as at 31 December 2007 of $27,823,000 are based on market values, being the estimated amount for which a property could be exchanged on the date of the valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.

The investment properties held by the Group as at end of the year are as follows:

Location Existing Use Tenure Land area (sq. m.) Singapore 5 Ubi Close Car showroom cum workshop 30 years from 1.8.1994 6,274

159 Sin Ming Road Warehouse and offi ce building Freehold 575 Amtech Building #04-05 *

People’s Republic of China 555 Kanghua Road, Industrial building 50 years from 15,890 Kangqiao Industrial Zone, 12.6.2003 to 27.2.2052 Shanghai

* Carrying amount of $1,428,000 (2006: $1,468,000) is pledged as security for long-term loan. Singapore Technologies Engineering Ltd 177 Annual Report 2007

13. LONG-TERM RECEIVABLES

(a) Long-term receivables comprise: Group Note 2007 2006 $’000 $’000 Housing and car loans and advances to staff 953 975 Trade debtors* 1,229 2,657 Other debtors 4 99 Loans to: Associated company# 140 140 Allowance for doubtful debts (140) – – 140 Joint venture^ 1,629 1,808 Minority shareholder@ 582 – Third parties 10,156 11,090 Allowance for doubtful loans (10,156) (11,090) – – 4,397 5,679 Receivable: Within 1 year 499 476 After 1 year 3,898 5,203 4,397 5,679

* Long-term trade debtors are unsecured and charged with half-yearly interest rate at LIBOR plus 0.5% per annum (2006: LIBOR plus 0.5% per annum).

# Loan to an associated company is unsecured and charged at an interest rate at SIBOR plus 2% per annum or such other rates as the parties may have agreed (2006: fi xed interest rate of 3% per annum).

^ Loan to a joint venture bears interest of 4% (2006: 4%) per annum, is unsecured and is repayable by 31 August 2008.

@ Loan to a minority shareholder is unsecured, interest-free and is repayable within fi ve years from the date of the disbursement of the loan.

Movements in allowance for doubtful loans to third parties are as follows:

At beginning of the year 11,090 12,097 Write-back to statement of profi t and loss 37 (889) (944) Translation difference (45) (63) At end of the year 10,156 11,090

Loans and receivables are carried at amortised cost and are subject to impairment. 178

13. LONG-TERM RECEIVABLES

(b) Included in the loans to third parties are:

(i) an amount of $1,121,000 (2006: $2,010,000) 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% (2006: 15%) per annum calculated on the reducing balance basis.

(ii) an amount of approximately $8,312,000 (2006: $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% (2006: 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 $722,700 (US$500,000) (2006: $768,150 (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. The loan is stated at cost and has been fully provided for since fi nancial year 2005 due to uncertainty of collectibility. Therefore, it is not practicable to determine its fair value.

14. FINANCE LEASE RECEIVABLES

During the fi nancial year, the Group entered into fi nance lease arrangements with customers with terms ranging from 1 to 3 years and effective interest rate of 3.1% to 27.4% per annum. These lease receivables of $504,000 (2006: $nil) are either secured by (i) banker’s guarantees or (ii) the leased assets in cases where the legal title of the assets will only be transferred to the customers at the end of the lease term.

Group 2007 $’000 Gross investment in fi nance leases Not later than 1 year 8,021 1 year through 3 years 1,558 9,579 Unearned interest Not later than 1 year 289 1 year through 3 years 114 403 Present value of minimum lease receivables Not later than 1 year 7,732 1 year through 3 years 1,444 9,176

Allowance for doubtful minimum lease receivables Not later than 1 year (810) 1 year through 3 years – (810) Singapore Technologies Engineering Ltd 179 Annual Report 2007

14. FINANCE LEASE RECEIVABLES (continued) Group Note 2007 $’000 Net investment in fi nance lease Not later than 1 year 6,922 1 year through 3 years 1,444 8,366

Not past due and not impaired 5,513 Past due and not impaired 2,853 8,366

Individually assessed Doubtful lease receivables 810 Allowance for doubtful lease receivables (810) –

8,366

Movements in allowance for doubtful lease receivables are as follows:

At beginning of the year – Charge to statement of profi t and loss 37 (811) Translation difference 1 At end of the year (810)

Finance leases that are individually assessed to be impaired relate to customers who have defaulted on payments.

Ageing of net investment in minimum lease receivables that are past due but not impaired:

0 – 90 days 1,381 91 – 180 days 933 181 – 360 days 472 >360 days 67 2,853 180

15. DEFERRED TAX ASSETS Group 2007 2006 $’000 $’000 (Restated) At beginning of the year 132,768 110,872 Write-back to statement of profi t and loss 9,369 (4,613) Effect of reduction in tax rate (9,727) – Acquisition of subsidiaries in prior year, as previously reported – 18,783 Finalisation of purchase price allocation – 15,131 Acquisition of subsidiaries in prior year, as restated – 33,914 Acquisition of subsidiaries in current year 499 – Disposal of a subsidiary in current year (205) – Translation difference 474 (3,158) Transfer to provision for taxation (22,669) (3,190) Changes in fair value of available-for-sale fi nancial assets 1,637 (1,218) Changes in fair value of derivative fi nancial instruments designated in cash fl ow hedges 234 161 At end of the year 112,380 132,768

The deferred tax assets arise as a result of:

Unabsorbed capital allowances and unutilised tax losses 42,151 52,601 Allowance for doubtful debts and stock obsolescence 18,414 24,585 Provision for warranties 37,763 36,379 Provision for liquidated damages 2,049 1,879 Provision for foreseeable losses 5,848 7,813 Intangible assets (820) (19,109) Other temporary differences 6,091 29,498 Changes in fair value of available-for-sale fi nancial assets (7) (1,495) Changes in fair value of derivative fi nancial instruments designated in cash fl ow hedges 891 617 112,380 132,768

16. STOCKS AND WORK-IN-PROGRESS

Stocks of equipment and spares 479,126 484,861 Work-in-progress in excess of progress billings Work-in-progress, including profi ts recognised 2,482,041 1,905,536 Progress billings (1,733,042) (1,287,779) 748,999 617,757 Total stocks and work-in-progress at lower of cost and net realisable value 1,228,125 1,102,618

Progress billings in excess of work-in-progress Work-in-progress, including profi ts recognised 983,295 1,499,763 Progress billings (1,352,052) (1,828,372) (368,757) (328,609)

Stocks are stated after allowance for stock obsolescence of $140,477,000 (2006: $135,183,000) and work-in-progress in excess of progress billings are stated after provision for foreseeable losses of $28,656,000 (2006: $26,311,000). Singapore Technologies Engineering Ltd 181 Annual Report 2007

17. TRADE DEBTORS Group 2007 2006 $’000 $’000 (Restated) Not past due and not impaired 389,713 447,967 Past due and not impaired 301,598 317,243 691,311 765,210 Collectively assessed Impaired receivable (Gross) 174,601 42,425 Allowance for doubtful debts (15,188) (19,690) 159,413 22,735 Individually assessed Impaired receivable (Gross) 48,522 63,263 Allowance for doubtful debts (40,479) (46,290) 8,043 16,973 Unbilled receivables 94,936 53,347 Trade debtors, net 953,703 858,265

Trade debtors denominated in currencies other than the functional currencies as at 31 December 2007 are as follows: • $213,479,000 (2006: $222,880,000) denominated in US dollars • $14,073,000 (2006: $34,277,000) denominated in Euro

Movements in allowance for doubtful debts are as follows: Group Note 2007 2006 $’000 $’000 At beginning of the year 65,980 75,091 Charge/(write-back) to statement of profi t and loss 37 3,047 (7,378) Bad debts written off against allowance (13,162) (2,401) Acquisition of subsidiaries 15 1,920 Translation difference (213) (1,252) At end of the year 55,667 65,980

Ageing of receivables that are past due but not impaired: Group 2007 2006 $’000 $’000 (Restated) 0 – 90 days 202,569 211,275 91 – 180 days 44,121 70,475 181 – 360 days 24,648 27,109 >360 days 30,260 8,384 301,598 317,243

Trade debtors that are individually determined to be impaired at the balance sheet date relates to debtors that are insolvent or in fi nancial diffi culties or who have signifi cant delay or defaulted in payments.

Trade debtors amounting to $15,480,000 (2006: $7,609,000) are arranged to settle via letter of credits issued by reputable banks. 182

18. DUE FROM RELATED CORPORATIONS

Group Company 2007 2006 2007 2006 $’000 $’000 $’000 $’000 Due from: Related corporations 662,913 516,440 302,638 238,783

Included in the amount due from related corporations are loans amounting to $657,690,000 (2006: $511,484,000) and $302,611,000 (2006: $238,757,000) extended from the Group and the Company respectively.

These loans are guaranteed by Fullerton Management Pte Ltd, a wholly-owned subsidiary of Temasek Holdings (Private) Limited and mature on varying periods within 4 months (2006: 3 months) from the fi nancial year end. Interest rates range from 1.45% to 5.74% (2006: 2.45% to 5.40%) per annum, which are also the effective interest rates.

19. ADVANCES AND OTHER DEBTORS

Group Company Note 2007 2006 2007 2006 $’000 $’000 $’000 $’000 (Restated) Advance payments to suppliers 174,404 114,215 – – Other debtors, deposits and prepayments 23 98,549 105,745 5,170 1,413 Due from: Subsidiaries – – 307,918 197,759 Associated companies 24 12,431 7,416 – – Joint ventures 3,776 13,455 – – Derivative fi nancial instruments 51 5,061 2,063 – – 294,221 242,894 313,088 199,172

20. SHORT-TERM INVESTMENT

Group 2007 2006 $’000 $’000 Quoted investment (Available-for-sale) Equity shares, at fair value Non-related corporation 338 –

21. AMOUNTS UNDER FUND MANAGEMENT

Principal sum of amounts under fund management, at market value 178,781 228,173

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 1 to 3 years (2006: 2 to 3 years), provide for the following:

(a) the guarantee of the return of the principal sums from 95% to 100% (2006: 95% to 100%) by the fund managers at the end of the relevant fund management period; Singapore Technologies Engineering Ltd 183 Annual Report 2007

21. AMOUNTS UNDER FUND MANAGEMENT (continued)

(b) the fees payable to the fund managers 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

(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 2007 2006 $’000 $’000 Quoted equity investments at market value 35,735 55,481 Quoted bond investments at market value 90,395 167,220 Cash 52,651 5,472 178,781 228,173

22. BANK BALANCES AND OTHER LIQUID FUNDS

Group Company Note 2007 2006 2007 2006 $’000 $’000 $’000 $’000 (Restated) Fixed deposits with fi nancial institutions 371,933 333,695 26,811 90,645 Cash and bank balances 253,904 297,866 57,953 55,010 625,837 631,561 84,764 145,655

Fixed deposits with fi nancial institutions mature at varying periods within 7 months (2006: 12 months) from the fi nancial year end. Interest rates range from 0.4% to 8.5% (2006: 1.71% to 5.55%) per annum, which are also the effective interest rates.

Cash and bank balances of $3,946,000 (2006: $1,633,000) have been placed with banks as security for letters of credit issued to third party.

23. OTHER DEBTORS, DEPOSITS AND PREPAYMENTS

Deposits 8,167 6,698 182 168 Prepayments 22,633 14,673 151 193 Interest receivable 4,215 3,318 1,154 717 Other recoverables 21,694 26,840 3,379 14 Non-trade debtors 41,840 54,216 304 321 98,549 105,745 5,170 1,413

24. DUE FROM ASSOCIATED COMPANIES

Group 2007 2006 $’000 $’000 Trade balances 12,659 7,566 Non-trade balances 302 243 Allowance for doubtful debts – trade (530) (393) 12,431 7,416 184

25. CREDITORS AND ACCRUALS

Group Company Note 2007 2006 2007 2006 $’000 $’000 $’000 $’000 (Restated) Trade creditors 551,575 545,996 – – Other creditors and accruals 29 966,307 810,384 48,520 49,458 Due to: Subsidiaries – – 2,605 620 Related corporations 2,168 2,670 – – Associated companies 2,195 841 – – Joint ventures 1,911 2,114 – – Derivative fi nancial instruments 51 – 68 – – 1,524,156 1,362,073 51,125 50,078

Trade creditors denominated in currencies other than the functional currencies as at 31 December 2007 are as follows: • $52,972,000 (2006: $31,440,000) denominated in US dollars • $23,991,000 (2006: $32,210,000) denominated in Euro

26. PROVISIONS

Group Note 2007 2006 $’000 $’000 (Restated) Provision for: Warranties 179,972 163,127 Liquidated damages 11,247 9,396 Foreseeable losses 352 12,709 191,571 185,232

(a) Movements in provision for warranties are as follows:

At beginning of the year 163,127 149,910 Charge to statement of profi t and loss 37 33,893 23,855 Provision utilised (15,297) (11,639) Translation difference (1,694) (1,689) Acquisition of subsidiaries in prior year, as previously reported – 2,369 Finalisation of purchase price allocation – 321 Acquisition of subsidiaries in prior year, as restated – 2,690 Acquisition of subsidiaries in current year 45 – Disposal of a subsidiary (102) – At end of the year 179,972 163,127 Singapore Technologies Engineering Ltd 185 Annual Report 2007

26. PROVISIONS (continued)

Group Note 2007 2006 $’000 $’000 (b) Movements in provision for liquidated damages are as follows:

At beginning of the year 9,396 7, 8 9 3 Charge to statement of profi t and loss 37 2,324 2,020 Provision utilised (468) (496) Translation difference (5) (21) At end of the year 11,247 9,396

(c) Movements in provision for foreseeable losses are as follows:

At beginning of the year 12,709 19,261 Write-back to statement of profi t and loss 37 (3,257) (448) Provision utilised (9,100) (6,104) At end of the year 352 12,709

27. SHORT-TERM BANK LOANS

Effective Group interest rate Maturity 2007 2006 % $’000 $’000 Bank loans 5.04% to 8.22% Within 1 year 574,595 595,850

The bank loans are denominated in US dollars, Sterling pounds, Euro, Australian dollars and Chinese Yuan.

Short-term bank loans amounting to $527,742,000 (2006: $571,627,000) are unsecured and loans amounting to $46,853,000 (2006: $24,223,000) are secured by a fl oating charge over a subsidiary’s plant and machinery.

28. LEASE OBLIGATIONS

A 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$10,969,000, 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 2012.

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. 186

28. LEASE OBLIGATIONS (continued)

The obligations under the fi nance lease to be paid by the subsidiary are as follows:

Present Minimum value of lease payment Interest payments $’000 $’000 $’000 2007 1 to 5 years 10,119 (1,318) 8,801 After 5 years 50 (17) 33 10,169 (1,335) 8,834

Repayable: Within 1 year 1,675 After 1 year 7,159 8,834

2006 1 to 5 years 11,109 (1,943) 9,166 After 5 years 2,195 (96) 2,099 13,304 (2,039) 11,265 Discount (15) – (15) 13,289 (2,039) 11,250

Repayable: Within 1 year 2,137 After 1 year 9,113 11,250

Lease terms do not contain restrictions concerning dividends, additional debt or further leasing.

29. OTHER CREDITORS AND ACCRUALS

Group Company 2007 2006 2007 2006 $’000 $’000 $’000 $’000 (Restated) Non-trade creditors 194,232 17,666 4,679 3,342 Purchase of property, plant and equipment 702 1,209 – – Accrued operating expenses 761,618 783,415 43,841 46,116 Accrued interest payable 6,367 6,375 – – Employee benefi t liabilities 3,388 1,719 – – 966,307 810,384 48,520 49,458 Singapore Technologies Engineering Ltd 187 Annual Report 2007

30. DEFERRED INCOME

Group Note 2007 2006 $’000 $’000 At beginning of the year 8,197 6,222 Additions 5,286 1,975 Translation difference (28) – 13,455 8,197 Deferred income recognised to-date (6,376) (4,096) At end of the year 7, 079 4,101

Movements in deferred income recognised to-date are as follows:

At beginning of the year 4,096 3,919 Recognised in statement of profi t and loss 37 2,324 132 Translation difference (44) 45 At end of the year 6,376 4,096

31. DEFERRED TAX LIABILITIES

Group Company 2007 2006 2007 2006 $’000 $’000 $’000 $’000 (Restated) At beginning of the year 46,324 7,751 285 190 Charge/(write-back) to statement of profi t and loss (1,030) (5,025) 115 95 Effect of reduction in tax rate (68) – (28) – Translation difference (2,914) (433) – – Transfer to provision for taxation 200 – – – Acquisition of subsidiaries in prior year, as previously reported – 10,771 – – Finalisation of purchase price allocation – 31,134 – – Acquisition of subsidiaries in prior year, as restated – 41,905 – – Changes in fair value of available-for-sale fi nancial assets (3,038) 2,126 – – Changes in fair value of derivative fi nancial instruments designated in cash fl ow hedges 734 – – – At end of the year 40,208 46,324 372 285

The deferred tax liabilities arise as a result of: Excess of net book value over tax written down value of property, plant and equipment 3,826 913 94 75 Allowance for doubtful debts and stock obsolescence (5,488) (271) – – Other temporary differences (4,568) (5,977) 278 210 Property, plant and equipment fair value adjustment arising from acquisition of subsidiaries – 2,589 – – Changes in fair value of available-for-sale fi nancial assets 5,174 4,140 – – Changes in fair value of derivative fi nancial instruments designated in cash fl ow hedges 734 – – – Intangible assets 40,530 44,930 – – 40,208 46,324 372 285 188

32. LONG-TERM BANK LOANS

Effective Group interest rate Maturity 2007 2006 % $’000 $’000 Bank loans 5.168 Up to 2012 282,366 277,384

Repayable: Within 1 year 281,783 6,859 After 1 year 583 270,525 282,366 277,384

The bank loans are denominated in Euro (2006: US dollars and Euro) and secured by assets of subsidiaries.

Loans amounting to $281,546,000 (2006: $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. Due to the non-compliance of two of the fi ve fi nancial undertakings of the covenant clauses, as at 31 December 2007, the bank is contractually entitled to request for immediate repayment of the outstanding long-term bank loan of $281,546,000 and short-term bank loan of $46,853,000. Consequently, the outstanding balance of the bank loan of $281,546,000 was presented as a current liability as at 31 December 2007. Management has obtained a letter from the bank dated 6 February 2008 to waive its rights as at 31 December 2007 under the loan agreement as a consequence of the breach of the loan covenants. The bank had not requested early repayment of the loan as of the date when the fi nancial statements were approved by the Board of Directors.

33. OTHER LOANS

Included in other loans are:

(a) US dollar denominated term notes of $1.4 million (US$0.9 million) (2006: $1.5 million (US$1.0 million)) and $0.3 million (US$0.2 million) (2006: $0.3 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% (2006: 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 $0.4 million (US$0.3 million) (2006: $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% (2006: 2.75%) per annum, which is also the effective interest rate, and is payable through 1 February 2012.

(b) an amount of $194,000 (2006: $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.

34. DUE TO A SUBSIDIARY

Amount due to a subsidiary of the Company is unsecured, interest-free and is not repayable in the foreseeable future. Singapore Technologies Engineering Ltd 189 Annual Report 2007

35. TURNOVER

Turnover represents invoiced value of sales/services less returns and discounts given and billings recognised on contracts as follows: Group 2007 2006 $’000 $’000 Sale of goods 2,751,918 2,495,426 Service income 2,299,064 1,990,332 5,050,982 4,485,758

36. OTHER OPERATING INCOME Group Note 2007 2006 $’000 $’000 Commission income 358 1,326 Dividend income – quoted equity investments 13 506 – unquoted equity investments 99 9,785 Interest income – related corporations 19,864 24,287 – bank deposits 21,077 14,638 – staff loans 15 28 – fi nance lease 173 – – others 1,333 1,198 (Impairment)/write-back of impairment in value of investments – quoted investments 10 (3,007) – – unquoted investments 10 – (8,428) – associated companies 9 4,400 (4,865) Gain/(loss) on disposal of – a subsidiary company (3,506) – – associated companies 20,702 – – investments (4,037) 35,701 Profi t on maturity of amounts under fund management 24,490 6,491 Fair value changes of fi nancial instruments – gain on forward currency contract designated as hedging instrument in fair value hedges 3,837 1,256 – ineffective portion of forward currency contract designated as hedging instrument in cash fl ow hedges (820) (52) Fair value of hedged items (3,675) (1,359) Gain on dilution of interest in – a subsidiary company 84 – – an associated company – 571 Others 6,992 7,051 88,392 88,134 190

37. PROFIT FROM CONTINUING OPERATIONS Group Note 2007 2006 $’000 $’000 Profi t from continuing operations is arrived at:

After charging Auditors’ remuneration – auditors of the Company 1,656 1,555 – other auditors 3,478 2,929 Non-audit fees – auditors of the Company 419 330 – other auditors 1,180 1,000 Fees and remuneration of directors 4,087 3,960 Fees paid to a fi rm of which a director is a member 74 193 Personnel expenses 38 1,368,839 1,245,704 Depreciation charge 7, 12 126,518 130,676 Allowance/(write-back of allowance) for – Stock obsolescence 12,941 9,330 – Doubtful debts (trade) 17 3,047 (7,378) – Loan receivables 13 (889) (944) – Doubtful lease receivables 14 811 – Provision/(write-back of provision) for – Foreseeable losses 26 (3,257) (448) – Liquidated damages 26 2,324 2,020 – Warranties 26 33,893 23,855 Property, plant and equipment written off 8,721 10,942 Research, design and development expenses incurred 65,956 58,435 Operating lease expenses 28,976 22,412 Amortisation of other intangible assets 11 7,556 5,135 Impairment of goodwill 11 – 8,135 Impairment/(write-back of impairment) of property, plant and equipment 7 (105) 297 Impairment/(write-back of impairment) in value of other intangible assets 11 (27) 818

And crediting Grants and subsidies received 192 1,204 Deferred income recognised 30 2,324 132 Singapore Technologies Engineering Ltd 191 Annual Report 2007

38. PERSONNEL EXPENSES

GROUP 2007 2006 $’000 $’000 Wages and salaries * 1,137,016 1,042,644 Pension contributions 70,938 61,850 Share-based payments 16,085 9,885 Other personnel expenses 144,800 131,325 1,368,839 1,245,704 * Includes directors’ remuneration of $2,879,359 (2006: $2,802,266).

39. KEY MANAGEMENT PERSONNEL COMPENSATION

The key management personnel compensation are as follows:

Short-term employee benefi ts 34,583 30,202 Pension contributions 461 406 Other long-term benefi ts 1 7 Share-based payments 1,271 781 36,316 31,396

40. OTHER INCOME, NET

Gain on disposal of property, plant and equipment 909 11 Losses arising from the impact of Hurricane Katrina (277) (41,908) Proceeds received/receivable from insurers (Hurricane Katrina) 323 41,118 Exchange loss, net (5,402) (3,914) Rental income 3,690 3,798 Short-term loans from minority shareholders forgiven – 2,766 Service fee – 2,201 Others 3,866 5,268 3,109 9,340

41. FINANCIAL EXPENSES

Bank loans and overdrafts 49,363 41,182 Finance lease 540 711 Others 453 359 50,356 42,252 192

42. TAXATION

Group 2007 2006 $’000 $’000 Current income tax Current year 123,208 115,321 Overprovision in respect of prior years (13,394) (13,762) Associated companies and joint ventures 5,641 7,74 8 115,455 109,307 Deferred income tax Current year (1,532) 894 Overprovision in respect of prior years (8,867) (1,306) Effect of reduction in tax rate 9,550 – 114,606 108,895

Deferred income tax related to items charged or credited directly to equity:

Net change in fair value of available-for-sale fi nancial assets (4,675) 3,344 Net change in fair value of derivative fi nancial instruments designated in cash fl ow hedges 500 (161) Effect of reduction in tax rate 109 – (4,066) 3,183

The Group

Unrecognised tax losses As at 31 December 2007, subsidiaries of the Group have potential tax benefi ts of approximately $24,731,000 (2006: $40,707,000) 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.

Unrecognised temporary differences relating to investments in subsidiaries At the balance sheet date, no deferred tax liability (2006: $nil) has been recognised for taxes that would be payable on the undistributed earnings of certain of the Group’s subsidiaries as the Group has determined that the undistributed profi ts of some of its overseas subsidiaries will not be remitted to Singapore in the foreseeable future, but be retained for organic growth and acquisitions. Singapore Technologies Engineering Ltd 193 Annual Report 2007

42. TAXATION (continued)

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: Group 2007 2006 $’000 $’000 Profi t from continuing operations before taxation 638,115 564,339

Taxation at statutory tax rate of 18% (2006: 20%) 114,861 112,868 Adjustments: Income not subject to tax (13,932) (21,892) Expenses not deductible for tax purposes 11,817 20,264 Higher effective tax rates of other countries 18,908 15,523 Overprovision in prior years, net (22,261) (15,068) Effect of change in tax rates 9,550 – Income subject to concessionary tax rates (2,807) (4,444) Deferred tax assets not recognised 6,574 6,403 Deferred tax assets previously not recognised now recognised (5) (3,432) Others (8,099) (1,327) Current fi nancial year’s taxation charge 114,606 108,895

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

43. DIVIDENDS

Final tax exempt (one-tier) dividend paid in respect of the previous fi nancial year of 4.0 cents (2006: 4.0 cents) per share 117,850 116,580 Special tax exempt (one-tier) dividend paid in respect of the previous fi nancial year of 11.11 cents (2006: 9.6 cents) per share 327,277 279,792 Interim tax exempt (one-tier) dividend paid in respect of the current fi nancial year of 2.0 cents (2006: nil) per share 59,562 – 504,689 396,372 Additional fi nal dividend paid in respect of the previous fi nancial year due to issue of shares under ESOS/ESOP before books closure date 3,531 3,101 508,220 399,473

The Directors propose a fi nal tax exempt (one-tier) dividend of 4.0 cents (2006: 4.0 cents) per share amounting to $119.3 million (2006: $117.9 million) and a special tax exempt (one-tier) dividend of 10.88 cents (2006: 11.11 cents) per share amounting to $324.6 million (2006: $327.3 million), in respect of the fi nancial year ended 31 December 2007. 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. 194

44. EARNINGS PER SHARE

Group 2007 2006 $’000 $’000 Basic earnings per share The calculation for basic earnings per share is based on: Consolidated profi t after taxation and minority interests 503,503 445,127

Group 2007 2006 Number of shares (‘000) The weighted average number of ordinary shares is arrived at as follows: Issued ordinary shares at beginning of the year 2,946,254 2,914,496 Weighted average number of ordinary shares issued during the year 24,486 23,234 Weighted average number of ordinary shares 2,970,740 2,937,730

Diluted earnings per share When 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 2007 was $3.60 (2006: $2.97) 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 basic earnings per share) 2,970,740 2,937,730 Weighted average number of unissued shares under option 34,854 134,206 Number of shares that would have been issued at fair value (28,039) (104,474) Weighted average number of ordinary shares (diluted) 2,977,555 2,967,462

31,217,005 (2006: 30,779,320) of share options granted to employees under the existing employee share option plans have not been included in the calculation of diluted earnings per share because they are anti-dilutive for the current and previous fi nancial years presented.

45. RELATED PARTY INFORMATION

In 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 2007 2006 $’000 $’000 Sales and services rendered 17,044 7, 978 Purchases and services received 52,761 41,398 Property, plant and equipment purchases 237 3,145 Interest income 19,864 24,287 Dividend income 99 525 Rental income 3,214 3,239 Rental expenses 2,243 2,918 Singapore Technologies Engineering Ltd 195 Annual Report 2007

46. CASH AND CASH EQUIVALENTS

Group Note 2007 2006 $’000 $’000 (Restated) Cash and cash equivalents comprise the following: Fixed deposits with fi nancial institutions 22 371,933 333,695 Cash and bank balances 22 253,904 297,866 Short-term loans to a related corporation 18 657,690 511,484 Bank overdrafts (803) (1,737) 1,282,724 1,141,308

Group 2007 2006 $’000 $’000 Cash and cash equivalents denominated in currencies other than the functional currencies as at 31 December are as follows:

US dollars 270,186 115,699 Euro 47,393 75,157

47. COMMITMENTS

(a) Capital commitments Capital expenditure contracted but not provided for in the fi nancial statements 38,589 60,625

(b) Leases Future minimum lease payments under non-cancellable operating leases are as follows:

Within 1 year 23,861 25,188 Within 2 to 5 years 64,631 66,190 After 5 years 98,435 129,041 186,927 220,419

The Group has several operating lease agreements for leasehold land and buildings, offi ce premises and computers. The leases for 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.

(c) Operating lease commitments – As lessor The Group has entered into a commercial lease on two of its aircraft engines. The non-cancellable lease has an average lease term of about 3 to 10 years.

Future lease payment receivables under non-cancellable operating lease are as follows:

Not later than 1 year 549 807 Later than 1 year but not later than 5 years 739 1,206 Later than 5 years 538 769 1,826 2,782 196

47. COMMITMENTS (continued)

(d) Investments

(i) As at 31 December 2007, the Group has outstanding commitments in respect of uncalled capital to the extent of $2.4 million (2006: $0.2 million) in subsidiaries.

(ii) As at 31 December 2007, in respect of investments in unquoted equity shares of venture capital fund companies, there is uncalled capital contribution amounting to $0.6 million (2006: $0.6 million) for the Group.

(iii) Under the Shareholders Agreement in respect of the overseas subsidiary, ST Aerospace Solutions (Europe) A/S (“STA Solutions”) dated 15 March 2006, Singapore Technologies Aerospace Ltd (“ST Aerospace”) grants a put option to STA Solutions’ minority shareholder SAS Technical Services AB (“STS”), who in turn grants a call option for ST Aerospace to acquire the remaining 28.7% stake in STA Solutions. ST Aerospace may exercise its option from the fourth anniversary to the seventh anniversary of 15 March 2006, while STS may exercise its option from the second anniversary to the seventh anniversary of 15 March 2006. The Option Notice can be given from the relevant anniversary dates of 15 March 2006 by ST Aerospace or STS respectively as the case may be and the price, subject to a fl oor and ceiling, is the fair market value to be determined in accordance with the principles set forth in the Shareholders Agreement.

(iv) On 3 September 2007, ST Aerospace Engineering Pte Ltd (“STA Engineering”) signed an agreement with Aviation Training Academy (Singapore) Pte Ltd (“ATAS”) to set up a commercial pilot training academy in Singapore known as ST Aviation Training Academy Pte Ltd (“STATA”) with a 66% and 34% shareholding respectively.

Pursuant to the agreement, if STATA and its subsidiaries are able to achieve the agreed profi t before tax excluding minority interests for the second and fi fth fi nancial years, STA Engineering will grant two independent options which will entitle ATAS to purchase STA Engineering’s shareholdings of STATA, amounting to 5% of the total share capital of STATA for each option on the date of the exercise of the option (“First Option” and “Second Option”). If ATAS does not exercise the First Option by the expiry date, the First Option shall lapse and will not be carried forward to the Second Option.

The First Option may be exercised at any time during a six-month period from the date of the audited fi nancial statements of STATA for the second fi nancial year, while the Second Option may be exercised at any time during a six- month period from the date of the audited fi nancial statements of STATA for the fi fth fi nancial year.

The price for the shares of the First Option and Second Option shall be at fair values as determined by an appraiser to be jointly appointed by shareholders and the appraiser shall determine the fair value in accordance with the principles set out in the agreement.

(v) ST Aerospace Engines Pte Ltd (“STA Engines”) has signed a joint venture agreement with Xiamen Aviation Industry Co. (“XAICO”) to set up an engine maintenance, repair and overhaul facility in Xiamen, China, on 23 December 2007. A joint venture company, to be registered as “ST Aerospace Technologies (Xiamen) Company Limited” (“STATCO”), will have a total investment of US$78 million. STA Engines will own an 80% stake of STATCO, while XAICO will own 20%.

(vi) As at 31 December 2007, the Group has outstanding commitments in respect of additional investment to the extent of $13.0 million (2006: $nil) in a subsidiary.

(vii) As at 31 December 2007, the Group has outstanding commitments in respect of uncalled capital to the extent of $2.4 million (2006: $2.4 million) 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. To-date, the joint venture company has not been set up. Singapore Technologies Engineering Ltd 197 Annual Report 2007

48. CONTINGENT LIABILITIES (UNSECURED)

(a) Corporate guarantees given by the Company to banks in respect of loan facilities extended to certain subsidiaries incorporated in the USA amounted to $781 million (US$540 million) (2006: $753 million (US$490 million)).

(b) Guarantee given by subsidiaries in respect of banking facilities granted to subsidiaries as at 31 December 2007 amounted to $56.6 million (2006: $59.5 million).

(c) A subsidiary in the Group, who is the subcontractor of a project, is in dispute with the main contractor of the project regarding the performance of the work under the subcontract. During the current fi nancial year, a provision of $3 million for costs involved had been made.

49. 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 full spectrum of maintenance and engineering services which include airframe, engine and component maintenance, repair and overhaul; engineering design and technical services; and aviation materials and management services, including Total Aviation Support.

(ii) Electronics Delivers innovative system solutions to government, commercial, defence, and industrial customers worldwide. It specialises in the design, development and integration of advanced electronics and communications systems, such as broadband radio frequency and satellite communication, e-Government solutions, information communications technologies and IT, rail and traffi c management, real-time command and control, training and simulation, intelligent building management, and information security and mobile commerce solutions.

(iii) Land Systems Delivers integrated land systems, specialty vehicles and their related through life support for defence, homeland security and commercial applications.

(iv) Marine Provides turnkey building, repair and conversion services for a wide spectrum of naval and commercial vessels. In shipbuilding, it has the proven capabilities to provide turnkey solutions from concept defi nition to detailed design, construction, on-board system installation and integration, testing, commissioning to through-life support. It has also established a track record in providing high engineering content shiprepair and ship conversion services for a worldwide clientele.

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. 198

49. SEGMENT INFORMATION (continued)

Land Aerospace Electronics Systems Marine Others Elimination Group $’000 $’000 $’000 $’000 $’000 $’000 $’000 2007 Turnover External sales 1,834,885 1,023,240 1,178,033 863,184 151,640 – 5,050,982 Inter-segment sales 2,884 15,044 10,284 1,410 13,169 (42,791) – 1,837,769 1,038,284 1,188,317 864,594 164,809 (42,791) 5,050,982

Segment results 304,905 85,858 86,195 77,356 538,356 (532,546) 560,124 Investment income, net 6,196 25,182 (6,177) 14,037 (24) 24 39,238 Interest income 11,489 4,866 7,946 8,558 37,507 (27,904) 42,462 Operating profi t 322,590 115,906 87,964 99,951 575,839 (560,426) 641,824 Financial expenses (17,418) (9,461) (9,628) (3,430) (30,766) 20,347 (50,356) Share of results of associated companies and joint ventures 35,990 8,891 1,667 46 – 53 46,647 Profi t from continuing operations before taxation 341,162 115,336 80,003 96,567 545,073 (540,026) 638,115 Taxation (54,925) (24,893) (6,995) (21,303) (6,943) 453 (114,606) Minority interests (15,758) (2,220) (2,219) – – 191 (20,006) Net profi t attributable to shareholders 270,479 88,223 70,789 75,264 538,130 (539,382) 503,503

Assets 1,910,388 1,358,504 1,271,504 650,278 2,315,936 (1,870,626) 5,635,984 Associated companies and joint ventures 141,335 8,971 110,983 353 1,646 4,218 267,506 Unallocated assets 139,819 Total assets 6,043,309

Liabilities 1,498,292 1,272,918 1,188,777 531,583 782,224 (1,258,808) 4,014,986 Unallocated liabilities 249,113 Total liabilities 4,264,099

Capital expenditure 111,645 109,843 24,881 20,687 2,238 – 269,294 Depreciation and amortisation 78,416 15,524 20,910 17,096 2,065 63 134,074 Impairment loss/(write-back of impairment) (188) (4,400) 3,063 – 24 (24) (1,525) Other non-cash expenses 8,446 203 72 – – – 8,721 Singapore Technologies Engineering Ltd 199 Annual Report 2007

49. SEGMENT INFORMATION (continued)

Land Aerospace Electronics Systems Marine Others Elimination Group $’000 $’000 $’000 $’000 $’000 $’000 $’000 2006 (Restated) Turnover External sales 1,673,209 951,336 1,001,847 701,520 157,846 – 4,485,758 Inter-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) 475,189 Investment income, net 28,271 11,930 388 733 (3,254) 1,693 39,761 Interest 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) 555,101 Financial 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 operations before 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 1,804,936 1,115,622 1,121,083 632,310 2,219,119 (1,778,956) 5,114,114 Associated companies and joint ventures 111,781 61,573 114,667 290 1,670 4,164 294,145 Unallocated assets 169,524 Total assets 5,577,783

Liabilities 1,351,496 1,055,564 1,051,714 526,140 816,111 (1,190,306) 3,610,719 Unallocated liabilities 279,791 Total liabilities 3,890,510

Capital expenditure 157,921 57,268 127,985 11,845 2,806 – 357,825 Depreciation and amortisation 84,384 15,520 17,236 16,391 2,280 – 135,811 Impairment loss 621 15,187 5,174 – 1,561 – 22,543 Other non-cash expenses 10,826 2 114 – – – 10,942 200

49. 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.

Turnover Assets Capital expenditure 2007 2006 2007 2006 2007 2006 $’000 $’000 $’000 $’000 $’000 $’000 (Restated) (Restated)

Asia 3,177,681 2,836,921 3,993,349 3,545,778 192,748 122,565 USA 1,420,556 1,240,985 1,244,805 1,303,511 38,322 157,039 Europe 446,215 406,770 772,198 709,282 32,613 78,106 Others 6,530 1,082 32,957 19,212 5,611 115 5,050,982 4,485,758 6,043,309 5,577,783 269,294 357,825

(c) Analysis by geographical areas Turnover is based on the location of customers regardless of where the goods are produced or services rendered.

Turnover 2007 2006 $’000 $’000 Asia 2,485,993 2,365,334 USA 1,588,870 1,478,907 Europe 655,403 481,292 Others 320,716 160,225 5,050,982 4,485,758

50. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group and the Company is exposed to fi nancial risks arising from its operations and the use of fi nancial instruments. The Group’s principal fi nancial instruments, other than foreign exchange contracts and 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. All fi nancial transactions with the banks are governed by banking facilities duly accepted with Board of Directors’ resolutions, with banking mandates, which defi ne the permitted fi nancial instruments and facilities limits, approved by the Board of Directors. All fi nancial transactions require dual signatories. The Group has various other fi nancial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations.

It is the Group’s policy not to engage in foreign exchange and/or derivatives speculation or trading. It is not in the interest of the Group to speculate or trade in treasury instruments. The purpose of engaging in treasury transactions is solely for hedging.

The Group’s treasury policy allows only foreign exchange spot and forward contracts, non-deliverable forward contracts, foreign exchange call and put options, forward rate agreements, interest rate swap and interest rate cap and fl oor options (“Permitted Transactions”); sale of options are expressly prohibited. These instruments are generic in nature with no embedded or leverage features and any deviation from these instruments would require specifi c approval from the Board of Directors. Any complex foreign exchange or derivatives transactions involving any combination of the Permitted Transactions or any combination of the Permitted Transactions and other derivatives transactions are prohibited. Singapore Technologies Engineering Ltd 201 Annual Report 2007

50. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

The main fi nancial risks arising from the Group’s operations and the use of 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.

Interest rate risk The 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.

Movements in interest rates will therefore have an impact on the Group. A change of 100 basis points in interest rate at the reporting date would increase/decrease equity and profi t or loss by the amounts shown below. This analysis assumes that all other variables remain constant.

Profi t and loss 100bp 100bp increase decrease $’000 $’000 The Group 2007 Fixed deposits with fi nancial institutions 3,719 (3,719) Short-term loans to related corporations 6,577 (6,577) Bank loans (7,162) 7,162 3,134 (3,134)

2006 Fixed deposits with fi nancial institutions 3,337 (3,337) Short-term loans to related corporations 5,115 (5,115) Bank loans (8,732) 8,732 (280) 280

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 risk The Group’s foreign exchange risk arises both from its subsidiaries operating in foreign countries, generating revenue and incurring costs denominated in foreign currencies, and from operations of its local subsidiaries which are transacted in foreign currencies. The Group’s foreign exchange exposures are primarily from US dollars and Euro and 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.

The Company’s centralised Treasury Unit facilitates intra-group foreign exchange transactions to net-off the foreign exchange exposures within the Group. The remaining foreign exchange exposures are then hedged via the banks.

The treasury transactions are executed by the Company’s centralised Treasury Unit, within which there is segregation of duties between back offi ce and dealers. Only authorised dealers can transact with the banks on behalf of the Group, with back offi ce confi rming the deals. The dealers’ limits and permitted treasury instruments in the form of an authorisation matrix and mandates are communicated to the banks for compliance. 202

50. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

Market risk The Group has strategic 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.

The table below summarises the impact to the Group’s fair value reserve in equity arising as a result of a 10% increase/ decrease in the fair value of the quoted investments and funds with fund management companies. This analysis assumes that all other variables remain constant.

Equity 10% increase 10% decrease $’000 $’000 The Group 2007 Quoted investments 3,427 (3,427) Amounts under fund management 17,878 (17,878) 21,305 (21,305)

2006 Quoted investments 1,904 (1,904) Amounts under fund management 22,817 (22,817) 24,721 (24,721)

Liquidity risk To 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 funding facilities, management reviews its working capital requirements regularly.

The table below analyses the Group’s fi nancial liabilities that will be settled on a net basis and certain derivative fi nancial instruments that will be settled on a gross basis into relevant maturity groupings based on the remaining period at reporting date to the contractual maturity date. The amounts disclosed in the table below are the contractual undiscounted cash fl ows.

Within More than No specifi c Total 1 year 1 to 5 years 5 years terms $’000 $’000 $’000 $’000 $’000 The Group 2007 Bank loans 856,961 856,378 583 – – Other loans 2,304 234 911 1,159 – Lease obligations 10,169 2,024 8,095 50 – Bank overdrafts 803 803 – – – Trade and other payables 1,520,768 1,520,768 – – – Derivative fi nancial instruments: • Forward currency contracts – gross payments 35,160 35,160 – – – • Forward currency contracts – gross receipts 159,888 159,888 – – –

Singapore Technologies Engineering Ltd 203 Annual Report 2007

50. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

Liquidity risk (continued) Within More than No specifi c Total 1 year 1 to 5 years 5 years terms $’000 $’000 $’000 $’000 $’000 The Group 2006 Bank loans 873,234 602,709 58,411 212,114 – Other loans 3,640 1,217 2,229 194 – Lease obligations 13,289 2,222 8,872 2,195 – Bank overdrafts 1,737 1,737 – – – Trade and other payables 1,360,354 1,360,354 – – – Derivative fi nancial instruments: • Forward currency contracts – gross payments 19,570 19,570 – – – • Forward currency contracts – gross receipts 121,749 121,749 – – –

The Company 2007 Creditors and accruals 51,125 51,125 – – – Due to a subsidiary 54,000 – – – 54,000

2006 Creditors and accruals 50,078 50,078 – – – Due to a subsidiary 54,000 – – – 54,000

Credit risk Credit 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 18.

As at 31 December 2007, there were no signifi cant concentrations of credit risk, except for 39% (2006: 37%) of trade debts relating to three major customers of the respective subsidiaries. The table below analyses the trade debtors by the Group’s four main operating segments. Group 2007 2006 $’000 $’000 (Restated) Aerospace 382,671 321,702 Electronics 288,091 269,720 Land Systems 150,423 158,285 Marine 103,774 89,214 Others 29,973 22,001 954,932 860,922 204

51. FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair 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.

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 receivables The carrying amounts approximate fair values due to the relatively short-term maturity of these instruments.

Quoted and unquoted investments The 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.

Loan receivables The fair values of loan receivables are estimated based on the expected cash fl ows discounted to present value, except as disclosed in Note 13.

Short-term borrowings and other current payables The carrying amounts approximate fair values because of the short period to maturity of these instruments. Singapore Technologies Engineering Ltd 205 Annual Report 2007

51. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

Set out below is a comparison by category of carrying amounts of all the Group’s fi nancial instruments that are carried in the fi nancial statements:

Classifi cation of fi nancial instruments

Fair value Derivatives Liabilities Non-fi nancial Loans and through profi t used for Available- at amortised assets/ receivables or loss hedging for-sale cost liabilities Total $’000 $’000 $’000 $’000 $’000 $’000 $’000 The Group 2007 Assets Property, plant and equipment – – – – – 1,014,623 1,014,623 Associated companies and joint ventures – – – – – 267,506 267,506 Investments 1,279 – – 39,543 – – 40,822 Intangible assets – – – – – 629,981 629,981 Investment properties – – – – – 18,379 18,379 Long-term receivables 4,397 – – – – – 4,397 Finance lease receivables 8,366 – – – – – 8,366 Derivative fi nancial instruments – – 2,937 – – – 2,937 Deferred tax assets – – – – – 112,380 112,380 Stocks and work-in-progress – – – – – 1,228,125 1,228,125 Trade debtors 953,703 – – – – – 953,703 Due from related corporations 662,913 – – – – – 662,913 Advances and other debtors 92,123 3,017 2,044 – – 197,037 294,221 Short-term investments – – – 338 – – 338 Amounts under fund management – – – 178,781 – – 178,781 Bank balances and other liquid funds 625,837 – – – – – 625,837 2,348,618 3,017 4,981 218,662 – 3,468,031 6,043,309

Liabilities Advance payments from customers – – – – – 1,062,102 1,062,102 Creditors and accruals – – – – 1,520,768 3,388 1,524,156 Provisions – – – – – 191,571 191,571 Progress billings in excess of work-in-progress – – – – – 368,757 368,757 Provision for taxation – – – – – 201,324 201,324 Short-term bank loans – – – – 574,595 – 574,595 Lease obligations – – – – 8,834 – 8,834 Long-term bank loans – – – – 282,366 – 282,366 Other loans – – – – 2,304 – 2,304 Bank overdrafts – – – – 803 – 803 Deferred income – – – – – 7,079 7,079 Deferred tax liabilities – – – – – 40,208 40,208 – – – – 2,389,670 1,874,429 4,264,099 206

51. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

Fair value Derivatives Liabilities Non-fi nancial Loans and through profi t used for Available- at amortised assets/ receivables or loss hedging for-sale cost liabilities Total $’000 $’000 $’000 $’000 $’000 $’000 $’000 The Group 2006 (Restated) Assets Property, plant and equipment – – – – – 948,150 948,150 Associated companies and joint ventures – – – – – 294,145 294,145 Investments 1,258 – – 26,600 – – 27,858 Intangible assets – – – – – 572,273 572,273 Investment properties – – – – – 16,959 16,959 Long-term receivables 5,679 – – – – – 5,679 Deferred tax assets – – – – – 132,768 132,768 Stocks and work-in-progress – – – – – 1,102,618 1,102,618 Trade debtors 858,265 – – – – – 858,265 Due from related corporations 516,440 – – – – – 516,440 Advances and other debtors 111,943 1,204 859 – – 128,888 242,894 Amounts under fund management – – – 228,173 – – 228,173 Bank balances and other liquid funds 631,561 – – – – – 631,561 2,125,146 1,204 859 254,773 – 3,195,801 5,577,783

Liabilities Advance payments from customers – – – – – 860,379 860,379 Creditors and accruals – – 68 – 1,360,286 1,719 1,362,073 Provisions – – – – – 185,232 185,232 Progress billings in excess of work-in-progress – – – – – 328,609 328,609 Provision for taxation – – – – – 213,931 213,931 Short-term bank loans – – – – 595,850 – 595,850 Lease obligations – – – – 11,250 – 11,250 Long-term bank loans – – – – 277,384 – 277,384 Other loans – – – – 3,640 – 3,640 Bank overdrafts – – – – 1,737 – 1,737 Deferred income – – – – – 4,101 4,101 Deferred tax liabilities – – – – – 46,324 46,324 – – 68 – 2,250,147 1,640,295 3,890,510 Singapore Technologies Engineering Ltd 207 Annual Report 2007

51. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

Liabilities Non-fi nancial Loans and at amortised assets/ receivables cost liabilities Total $’000 $’000 $’000 $’000 The Company 2007 Assets Property, plant and equipment – – 843 843 Subsidiaries – – 557,959 557,959 Associated companies and joint ventures – – 50 50 Due from related corporations 302,638 – – 302,638 Advances and other debtors 312,937 – 151 313,088 Bank balances and other liquid funds 84,764 – – 84,764 700,339 – 559,003 1,259,342

Liabilities Creditors and accruals – 51,125 – 51,125 Provision for taxation – – 4,968 4,968 Deferred tax liabilities – – 372 372 Due to a subsidiary – 54,000 – 54,000 – 105,125 5,340 110,465 208

51. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

Liabilities Non-fi nancial Loans and at amortised assets/ receivables cost liabilities Total $’000 $’000 $’000 $’000 The Company 2006 Assets Property, plant and equipment – – 657 657 Subsidiaries – – 544,209 544,209 Associated companies and joint ventures – – 50 50 Due from related corporations 238,783 – – 238,783 Advances and other debtors 198,979 – 193 199,172 Bank balances and other liquid funds 145,655 – – 145,655 583,417 – 545,109 1,128,526

Liabilities Creditors and accruals – 50,078 – 50,078 Provision for taxation – – 6,644 6,644 Deferred tax liabilities – – 285 285 Due to a subsidiary – 54,000 – 54,000 – 104,078 6,929 111,007

Forward currency contracts As at 31 December 2007, the Group has the following forward currency contracts amounting to $183,122,000 (2006: $135,485,000) designated as hedges of confi rmed sales in foreign currencies, fi rm purchase commitments in foreign currencies and accounts receivable in foreign currencies.

Note 2007 2006 Contractual/ Contractual/ notional Estimated notional Estimated amount fair value amount fair value $’000 $’000 $’000 $’000 Cash fl ow hedges Forward currency contracts: – to hedge confi rmed sales in foreign currencies (i) 10,390 464 4,918 15 – to hedge fi rm purchase commitments in foreign currencies (i) 26,352 775 18,081 143

Fair value hedges Forward currency contracts: – to hedge confi rmed sales in foreign currencies (i) 139,212 3,650 98,571 1,599 – to hedge accounts receivable in foreign currencies (i) 7,168 70 13,915 153

(i) The maturity dates of the forward currency contracts approximate the timing of the expected cash fl ows of their respective hedged items, which are on varying periods up to one year from the fi nancial year end. Singapore Technologies Engineering Ltd 209 Annual Report 2007

51. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

As at 31 December 2007, the Group has the following outstanding forward currency contracts amounting to $11,926,000 (2006: $5,834,000), which are not designated as hedges of confi rmed sales in foreign currencies and fi rm purchase commitments in foreign currencies.

2007 2006 Contractual/ Contractual/ notional Estimated notional Estimated amount fair value amount fair value $’000 $’000 $’000 $’000 Forward currency contracts: – purchase 8,808 82 1,489 28 – sale 3,118 20 4,345 57

Interest rate swap As at 31 December 2007, the Group has the following outstanding interest rate swap amounting to $140,560,000, which is designated as a cash fl ow hedge. The swap is being used to hedge the exposure to changes in the fair value of the 50% secured long-term loan. The swap receives a fi xed rate interest of 3.96% and pays a variable rate equal to the EURIBOR on the notional amount. The secured long-term loan and interest rate swap have the same terms and conditions.

2007 Contractual/ notional Estimated amount fair value $’000 $’000 Cash fl ow hedges Interest rate swap 140,560 2,937 210

52. CAPITAL MANAGEMENT

The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value.

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

The Group is currently in a net cash position. The Group will continue to be guided by prudent fi nancial policies of which gearing is an important aspect.

Group 2007 2006 $’000 $’000 (Restated) Gross debt Bank loans 856,961 873,234 Capitalised lease obligations 8,834 11,250 Other borrowings 2,304 3,640 868,099 888,124 Bank overdrafts 803 1,737 868,902 889,861

Shareholders’ funds Share capital 554,888 474,926 Other reserves 121,367 129,790 Retained earnings 956,255 960,654 1,632,510 1,565,370 Minority interests 146,700 121,903 1,779,210 1,687,273

Gross debt equity ratio 48.8% 52.7%

Cash and cash equivalents 1,282,724 1,141,308 Amounts under fund management 178,781 228,173 1,461,505 1,369,481 Gross debt (excluding bank overdrafts) (868,099) (888,124) Net cash position 593,406 481,357 Singapore Technologies Engineering Ltd 211 Annual Report 2007

53. COMPARATIVE FIGURES

Comparatives 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), other assets and liabilities for ST Aerospace Solutions (Europe) A/S, MÄK Technologies, Inc., the group of companies under PM-B Pte Ltd and Brightspot Interactive Learning Pte. Ltd. and VT LeeBoy, Inc. during the year and the reclassifi cation of investment properties from property, plant and equipment as a result of the adoption of FRS 40. Previously Restated reported 2006 2006 $’000 $’000 Presented in the Balance Sheet Other reserves 13,842 13,973 Minority interests 121,903 142,883 Property, plant and equipment 948,150 952,209 Intangible assets 572,273 556,711 Investment properties 16,959 – Deferred tax assets 132,768 117,637 Stocks and work-in-progress 1,102,618 1,103,417 Trade debtors 858,265 858,211 Advances and other debtors 242,894 229,039 Bank balances and other liquid funds 631,561 624,723 Advance payments from customers, current 582,381 582,234 Creditors and accruals 1,362,073 1,338,928 Provisions 185,232 184,911 Progress billings in excess of work-in-progress 328,609 298,938 Advance payments from customers, non-current 277,998 277,764 Deferred tax liabilities 46,324 15,190

Presented in the Notes to the Financial Statements

Note 5: Asset revaluation reserve – 81

Note 7: Property, plant and equipment 948,150 952,209

Note 11: Goodwill 425,130 494,818 Other intangible assets 147,143 61,893

Note 12: Investment properties 16,959 –

Note 15: Deferred tax assets 132,768 117,637

Note 16: Stocks and work-in-progress 1,102,618 1,103,417 Progress billings in excess of work-in-progress (328,609) (298,938)

212

53. COMPARATIVE FIGURES (continued) Previously Restated reported 2006 2006 $’000 $’000 Note 17: Trade debtors 858,265 858,211

Note 19: Other debtors, deposits and prepayments 105,745 91,890

Note 22: Cash and bank balances 297,866 291,028

Note 23: Deposits 6,698 6,875 Prepayments 14,673 33,314 Other recoverables 26,840 23,876 Non-trade debtors 54,216 24,507

Note 25: Trade creditors 545,996 545,766 Other creditors and accruals 810,384 787,469

Note 26: Provision for warranties 163,127 162,806

Note 29: Non-trade creditors 17,666 14,372 Accrued operating expenses 783,415 755,170 Employee benefi t liabilities 1,719 10,343

Note 31: Deferred tax liabilities 46,324 15,190 Singapore Technologies Engineering Ltd 213 Annual Report 2007

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 of all Aggregate value of all transactions transactions conducted excluding transactions conducted under a Shareholders’ under a Shareholders’ Mandate pursuant to Mandate pursuant to Rule 920 Rule 920 of the SGX of the SGX Listing Manual Listing Manual 2007 2006 2007 2006 $’000 $’000 $’000 $’000 Transactions for the Sale of Goods and Services Keppel Corporation Ltd and its Associates – – 247 – SembCorp Industries Ltd and its Associates – – 1,419 770 Singapore Airport Terminal Services Limited and its Associates – – 17,510 252 Singapore Computer Systems Limited and its Associates – – 489 475 Singapore Telecommunications Limited and its Associates – – 3,274 3,604 SMRT Corporation Ltd and its Associates – – 6,629 – StarHub Ltd and its Associates – – 6,906 – Temasek Holdings (Private) Limited and its Associates – – 4,413 7,787 – – 40,887 12,888

Transactions for the Purchase of Goods and Services SembCorp Logistics Ltd and its Associates – – – 101 SembCorp Marine Ltd and its Associates – – 180 1,914 Singapore Computer Systems Limited and its Associates – – 3,410 2,389 Singapore Telecommunications Limited and its Associates – – 118 168 StarHub Ltd and its Associates – – 241 130 Temasek Holdings (Private) Limited and its Associates – – 23,509 14,317 – – 27,458 19,019

Investment/Divestment/Leasing Transactions Singapore Computer Systems Limited and its Associates 1,017 238 – – SMRT Corporation Ltd and its Associates – 6,500 – – Temasek Holdings (Private) Limited and its Associates – – – – 1,017 6,738 – –

Treasury Transactions Temasek Holdings (Private) Limited and its Associates – – 821,246 889,681

Total Interested Person Transactions 1,017 6,738 889,591 921,588 214

SHARE CAPITAL Paid-Up Capital : S$566,284,662.967 Class of Shares : Ordinary Shares One Special Share held by the Minister for Finance (Incorporated) Voting Rights : One vote per share

SHAREHOLDING HELD IN HANDS OF PUBLIC Based on the information available to the Company as at 11 March 2008, 34.543% 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. of Range of shareholdings shareholders % shares % 1 – 999 1,748 6.81 519,278 0.02 1,000 – 10,000 19,806 77.20 81,996,865 2.74 10,001 – 1,000,000 4,069 15.86 156,379,952 5.23 1,000,001 and above 32 0.13 2,749,960,575 92.01 25,655 100.00 2,988,856,670 100.00

Number of shares Direct Deemed Total Substantial shareholders interest interest interest % Temasek Holdings (Private) Limited 1,474,168,719 44,299,713 (1) 1,518,468,432 50.80 The Capital Group Companies, Inc. – 209,965,000 (2) 209,965,000 7.0249 Aberdeen Asset Management PLC and its subsidiaries – 228,114,100 (3) 228,114,100 7.6321

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 25,000,800 DBS Group Holdings Limited Group 6,281,913 Keppel Corporation Limited Group 4,032,000 Fullerton Fund Management Company Ltd 8,985,000

(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. 206,748,000 Bank of Tokyo (Singapore) 198,000 BBH Dublin 102,000 DBS Bank 113,000 DBS Nominees Pte. Ltd. 1,752,000 HongKong & Shanghai Banking Corp 342,000 HSBC 129,000 HSBC (Singapore) Nominees Pte. Ltd. 464,000 Standard Chartered Bank (Hong Kong) 71,000 State Street Australia Limited 46,000

(3) Details of their deemed interest are not available. Singapore Technologies Engineering Ltd 215 Annual Report 2007

MAJOR SHAREHOLDERS LIST – TOP 20

No. Name No. of shares held % 1 Temasek Holdings (Private) Limited 1,474,168,719 49.32 2 DBS Nominees Pte Ltd 394,149,951 13.19 3 DBSN Services Pte Ltd 325,013,612 10.87 4 HSBC (Singapore) Nominees Pte Ltd 257,087,109 8.60 5 Citibank Nominees Singapore Pte Ltd 133,556,108 4.47 6 Raffl es Nominees Pte Ltd 47,766,234 1.60 7 United Overseas Bank Nominees Pte Ltd 45,933,252 1.54 8 DB Nominees (S) Pte Ltd 10,417,914 0.35 9 UOB Kay Hian Pte Ltd 8,540,391 0.28 10 OCBC Securities Private Ltd 5,150,237 0.17 11 OCBC Nominees Singapore Pte Ltd 4,741,360 0.16 12 KI Investments (HK) Limited 4,032,000 0.13 13 Phillip Securities Pte Ltd 3,485,563 0.12 14 Selected Holdings Pte Ltd 3,025,000 0.10 15 Raffl es Investments Limited 3,000,000 0.10 16 Oversea Chinese Bank Nominees Pte Ltd 2,652,070 0.09 17 Royal Bank Of Canada (Asia) Ltd 2,503,000 0.08 18 Morgan Stanley Asia (Singapore) Securities Pte Ltd 2,355,173 0.08 19 Amalgamated Holdings Pte Ltd 2,300,000 0.08 20 TM Asia Life Singapore Ltd - Par Fund 2,270,809 0.08 2,732,148,502 91.41 216

STATEMENT OF PROFIT AND LOSS

2007 2006 $’000 $’000 Turnover 1,837,769 1,675,493 Cost of sales (1,413,383) (1,287,577) Gross profi t 424,386 387,916 Other operating income 20,611 41,433 Distribution and selling expenses (8,591) 5,489 Administrative expenses (97,186) (137,116) Other operating expenses (15,168) (19,209) Profi t from continuing operations before taxation, other income and fi nancial expenses 324,052 278,513 Other income/(expense), net (1,462) 1,546 Financial expenses (17,418) (11,962) 305,172 268,097 Share of results of associated companies and joint ventures 35,990 37,183 Profi t from continuing operations before taxation 341,162 305,280 Taxation (54,925) (43,621) Profi t from continuing operations after taxation 286,237 261,659

Attributable to: Shareholder of the Company 270,479 255,036 Minority interests 15,758 6,623 286,237 261,659 Singapore Technologies Engineering Ltd 217 Annual Report 2007

BALANCE SHEET

2007 2006 $’000 $’000 (Restated) Share capital and reserves 409,977 417,680 Minority interests 97,307 94,540 507,284 512,220

Property, plant and equipment 775,254 735,289 Associated companies and joint ventures 141,335 111,781 Investments 4,066 4,173 Intangible assets 1,884 1,321 Long-term receivables 217 275 Derivative fi nancial instruments 2,937 – Deferred tax assets 54,842 70,355

Current assets Stocks and work-in-progress 366,751 271,088 Trade debtors 382,670 321,702 Due from related corporations 42,120 56,183 Advances and other debtors 62,593 75,200 Long-term receivables, current 376 367 Amounts under fund management 128,743 170,700 Bank balances and other liquid funds 143,370 169,451 1,126,623 1,064,691 Current liabilities Advance payments from customers, current 132,686 152,324 Creditors and accruals 679,901 654,548 Provisions 58,466 53,106 Progress billing in excess of work-in-progress 100,093 82,327 Provision for taxation 96,456 103,212 Short-term bank loans 46,853 24,223 Lease obligations, current 1,539 1,567 Long-term bank loans, current 281,546 5,571 1,397,540 1,076,878 Net current liabilities (270,917) (12,187)

Non-current liabilities Advance payments from customers, non-current 137,372 63,936 Deferred income 317 478 Deferred tax liabilities 1,238 4,696 Lease obligations, non-current 6,970 9,019 Provision for pension benefi ts 3,388 1,719 Long-term bank loans, non-current – 265,890 Loans from related corporations 53,049 53,049 202,334 398,787

507,284 512,220 218

STATEMENT OF CASH FLOWS

2007 2006 $’000 $’000 (Restated) Net cash from operating activities 255,610 291,335

Net cash used in investing activities (36,620) (136,545) Proceeds from sale of property, plant and equipment 5,760 406 Dividends from associated companies 18,437 42,630 Dividends from investments 13 9,637 Proceeds from sale and maturity of investments 64,573 136,435 Purchase of investments – (155) Purchase of property, plant and equipment (111,091) (158,373) Additional investment in an associated company (18,452) (27,647) Acquisition of a subsidiary 23 (119,538) Acquisition of additional interest in subsidiaries 24,841 (1,520) Exchange difference on investing activities (20,724) (18,420)

Net cash used in fi nancing activities (257,183) (218,708) Capital contribution from minority shareholders of a subsidiary 12,002 – Proceeds from inter-company loans, net 31,153 92,270 Repayment of lease obligations, net (1,450) (1,477) Proceeds from bank loans, net 16,441 3,243 Dividends paid to shareholder (293,000) (299,699) Dividends paid to minority shareholders of subsidiaries (20,232) (14,204) Interest paid (17,453) (11,876) Exchange difference on fi nancing activities 15,356 13,035

Net decrease in cash and cash equivalents (38,193) (63,918) Cash and cash equivalents at beginning of the year 224,865 291,149 Exchange difference on cash and cash equivalents at beginning of the year (3,699) (2,366) Cash and cash equivalents at end of the year 182,973 224,865 Singapore Technologies Engineering Ltd 219 Annual Report 2007

VALUE ADDED STATEMENT

2007 2006 2005 2004 2003 $’000 $’000 $’000 $’000 $’000 Value added from: Revenue earned 1,837,769 1,675,493 1,235,911 1,118,309 1,092,173 Bought in materials and services (849,035) (774,346) (567,862) (507,429) (473,460) 988,734 901,147 668,049 610,880 618,713 Income from investments and interest 17,685 38,076 22,767 23,370 7,599 Exchange gain/(loss), net (3,805) 935 (864) (770) (906) Other non-operating income 5,269 3,968 1,799 8,235 7,490 Share of results of associated companies and joint ventures 35,990 37,183 38,170 37,475 34,047 Total value added 1,043,873 981,309 729,921 679,190 666,943

Distribution of total value added To employees in wages, salaries and benefi ts 603,658 588,048 437,014 404,562 375,946 To government in income and other taxes 58,634 47,123 35,294 42,609 46,611 To providers of capital on: • Interest paid on borrowings 17,418 11,962 919 965 972 • Dividends to shareholder 293,000 299,699 215,321 183,719 174,912 972,710 946,832 688,548 631,855 598,441

Balance retained in/(applied from) business Depreciation 78,398 84,366 39,092 34,117 39,604 Impairment of assets (170) 1,784 (431) 852 1,112 Retained profi ts (20,643) (77,051) (14,020) (10,961) (759) 57,585 9,099 24,641 24,008 39,957

Non-production cost and income Bad debts (302) (13,633) (5,171) 727 21,852 Income from investments and interest 17,685 38,076 22,767 23,370 7,599 Exchange gain/(loss), net (3,805) 935 (864) (770) (906) 13,578 25,378 16,732 23,327 28,545

Total distribution 1,043,873 981,309 729,921 679,190 666,943 220

FINANCIAL HIGHLIGHTS

2007 2006 2005 2004 2003 $’000 $’000 $’000 $’000 $’000 Turnover 1,837,769 1,675,493 1,235,911 1,118,309 1,092,173 Profi t before tax 341,162 305,280 255,443 235,400 225,189 Profi t after tax and minority interests 270,479 255,036 210,294 187,275 176,297 Shareholders’ funds 409,977 417,680 463,025 452,329 456,130 Total assets 2,107,158 1,987,885 1,401,366 1,373,110 1,431,936 Net tangible assets 408,093 416,359 460,868 450,325 456,074 Earnings per share (cents) 135.24 127.52 105.15 93.64 88.15 Return on sales (%) 15.6 15.6 18.1 17.5 16.6 Return on equity (%) 58.4 54.2 40.8 37.1 34.6 Return on total assets (%) 13.6 13.2 15.9 14.2 12.6 Net tangible assets per share (cents) 204.0 208.2 230.4 225.2 228.0

Productivity data Average staff strength (number) 6,757 5,880 5,057 4,869 4,877 Sales per employee ($) 271,980 284,948 244,396 229,679 223,944 Profi t after tax per employee ($) 40,029 43,373 41,585 38,463 36,149 Employment costs 605,220 589,440 438,163 405,125 376,390 Employment costs per $ of turnover ($) 0.33 0.35 0.35 0.36 0.34

Economic Value Added 235,931 194,390 175,200 136,694 149,843 Economic Value Added spread (%) 22.5 19.5 25.8 20.3 22.7 Economic Value Added per employee ($) 34,917 33,060 34,645 28,074 30,724

Value added 1,043,873 981,309 729,921 679,190 666,943 Value added per employee ($) 154,488 166,889 144,339 139,493 136,753 Value added per $ of employment costs ($) 1.72 1.66 1.67 1.68 1.77 Value added per $ of gross property, plant and equipment ($) 0.79 0.81 1.09 1.16 1.24 Value added per $ of turnover ($) 0.57 0.59 0.59 0.61 0.61 Singapore Technologies Engineering Ltd 221 Annual Report 2007

STATEMENT OF PROFIT AND LOSS

2007 2006 $’000 $’000 Turnover 1,038,284 965,757 Cost of sales (719,077) (664,529) Gross profi t 319,207 301,228 Other operating income 30,027 17,674 Distribution and selling expenses (78,786) (69,034) Administrative expenses (107,486) (103,265) Other operating expenses (47,187) (37,847) Profi t from continuing operations before taxation, other income and fi nancial expenses 115,775 108,756 Other income, net 131 99 Financial expenses (9,461) (8,879) 106,445 99,976 Share of results of associated companies and joint venture 8,891 4,674 Profi t from continuing operations before taxation 115,336 104,650 Taxation (24,893) (26,515) Profi t from continuing operations after taxation 90,443 78,135

Attributable to: Shareholder of the Company 88,223 76,318 Minority interests 2,220 1,817 90,443 78,135 222

BALANCE SHEET

2007 2006 $’000 $’000 (Restated) Share capital and reserves 75,611 103,488 Minority interests 14,396 10,609 90,007 114,097 Property, plant and equipment 42,262 37,867 Investment property 1,428 1,468 Associated companies and joint venture 8,971 61,573 Investments 28,827 8,299 Intangible assets 351,722 274,510 Long-term receivables 1,815 2,872 Deferred tax assets 22,581 27,274

Current assets Stocks and work-in-progress 321,890 313,853 Trade debtors 286,862 267,063 Due from related corporations 92,567 66,201 Debtors, deposits and prepayments 21,068 23,403 Advance payments to suppliers 22,537 21,642 Short term investment 338 – Loan receivables, current 78 43 Bank balances and other liquid funds 189,551 99,138 934,891 791,343

Current liabilities Advance payments from customers, current 88,463 89,358 Creditors and accruals 482,343 342,683 Provisions 29,975 27,983 Progress billings in excess of work-in-progress 214,466 210,710 Provision for taxation 28,293 33,969 Short-term bank loans (unsecured) 12,343 19,868 Lease obligations, current 53 51 Long-term bank loans, current 237 231 Other loan, current – 980 Bank overdrafts 800 800 856,973 726,633 Net current assets 77,918 64,710

Non-current liabilities Advance payments from customers, non-current 72,737 60,490 Deferred income 35 76 Deferred rent 1,136 736 Deferred tax liabilities 1,193 1,436 Lease obligations, non-current 33 89 Long-term bank loans, non current 583 819 Loan from immediate holding company 76,757 – Loans from a related corporation 293,043 300,830 445,517 364,476

90,007 114,097 Singapore Technologies Engineering Ltd 223 Annual Report 2007

STATEMENT OF CASH FLOWS

2007 2006 $’000 $’000 (Restated) Net cash from operating activities 92,949 34,760

Net cash from/(used in) investing activities 51,599 (15,516) Proceeds from sale of property, plant and equipment 34 262 Proceeds from sale of associated companies 58,292 – Dividends from associated companies 1,138 2,025 Dividend from investment – 378 Proceeds from sale of investments 45 29,264 Purchase of property, plant and equipment (13,627) (12,006) Purchase of investment/convertible loans (295) (725) Proceed from capital redemption of an associated company – 170 Investment in associated company/joint venture – (6,611) Acquisition of subsidiaries 6,325 (28,133) Acquisition of additional interest in a subsidiary (313) – Loan to an associated company – (140)

Net cash from/(used in) fi nancing activities (10,697) 21,598 Capital contribution from minority shareholders of subsidiaries 2,304 – Proceeds from inter-company loans, net of repayment 105,830 100,396 Repayment of lease obligations (54) (51) (Repayment of)/proceeds from bank loans, net (7,993) 2,591 Repayment of convertible loan (980) – Dividends paid to shareholder (103,308) (76,000) Dividends paid to minority shareholders of subsidiaries (1,259) (889) Interest paid (5,237) (4,449)

Net increase in cash and cash equivalents 133,851 40,842 Cash and cash equivalents at beginning of the year 144,344 106,809 Exchange difference on cash and cash equivalents at beginning of the year (2,612) (3,307) Cash and cash equivalents at end of the year 275,583 144,344 224

VALUE ADDED STATEMENT

2007 2006 2005 2004 2003 $’000 $’000 $’000 $’000 $’000 Value added from: Revenue earned 1,038,284 965,757 712,223 636,681 621,100 Bought in materials and services (627,091) (580,970) (443,918) (396,458) (389,430) 411,193 384,787 268,305 240,223 231,670 Income from investments and interest 30,048 17,037 5,660 1,953 84 Exchange gain/(loss), net (449) (726) 321 (263) 385 Other operating income/(expenses) (21) 637 (138) 209 22 Other non-operating income 580 825 889 1,484 1,494 Share of results of associated companies and joint ventures 8,891 4,674 (1,598) 345 (269) Amortisation of goodwill on acquisition of associated companies – – – – (258) Total value added 450,242 407,234 273,439 243,951 233,128

Distribution of total value added To employees in wages, salaries and benefi ts 306,377 270,816 187,600 167,821 161,920 To government in income and other taxes 25,534 27,170 16,731 14,821 15,686 To providers of capital on: • Interest paid on borrowings 9,461 8,879 1,495 113 48 • Dividends to shareholder 103,308 76,000 58,300 52,800 45,600 444,680 382,865 264,126 235,555 223,254

Balance retained in/(applied from) business Depreciation 15,524 15,520 8,781 8,750 7,884 Retained profi ts (42,464) (12,481) (4,059) (4,097) 969 (26,940) 3,039 4,722 4,653 8,853

Non-production cost and income Bad debts 2,903 5,019 (1,390) 2,053 552 Income from investments and interest 30,048 17,037 5,660 1,953 84 Exchange gain/(loss), net (449) (726) 321 (263) 385 32,502 21,330 4,591 3,743 1,021

Total distribution 450,242 407,234 273,439 243,951 233,128

Singapore Technologies Engineering Ltd 225 Annual Report 2007

FINANCIAL HIGHLIGHTS

2007 2006 2005 2004 2003 $’000 $’000 $’000 $’000 $’000 Turnover 1,038,284 965,757 712,223 636,681 621,100 Profi t before tax 115,336 104,650 76,022 64,506 61,390 Profi t after tax and minority interests 88,223 76,318 58,008 51,592 48,018 Shareholders’ funds 75,611 103,488 137,282 108,095 107,882 Total assets 1,392,497 1,205,206 1,057,526 568,990 592,583 Net tangible assets (277,001) (178,727) (118,966) 103,297 99,894 Earnings per share (cents) 83.99 72.65 55.22 49.11 45.71 Return on sales (%) 8.7 8.1 8.4 7.9 7.4 Return on equity (%) 43.2 32.9 23.3 47.7 44.5 Return on total assets (%) 6.5 6.5 5.7 8.8 7.8 Net tangible assets per share (cents) (263.7) (170.1) (113.3) 98.3 95.1

Productivity data Average staff strength (number) 3,823 3,256 2,828 2,649 2,662 Sales per employee ($) 271,589 296,608 251,847 240,348 233,321 Profi t after tax per employee ($) 23,077 23,439 20,512 19,476 18,038 Employment costs 306,468 270,901 187,664 167,845 161,965 Employment costs per $ of turnover ($) 0.30 0.28 0.26 0.26 0.26

Economic Value Added 64,997 67,295 47,378 44,681 39,299 Economic Value Added spread (%) 11.1 12.5 25.6 28.7 27.0 Economic Value Added per employee ($) 17,002 20,668 16,753 16,867 14,763

Value added 450,242 407,234 273,439 243,951 233,128 Value added per employee ($) 117,772 125,072 96,690 92,092 87,576 Value added per $ of employment costs ($) 1.47 1.50 1.46 1.45 1.44 Value added per $ of gross property, plant and equipment ($) 3.06 2.99 2.00 2.10 2.22 Value added per $ of turnover ($) 0.43 0.42 0.38 0.38 0.38 226

STATEMENT OF PROFIT AND LOSS

2007 2006 $’000 $’000 Turnover 1,188,317 1,013,899 Cost of sales (944,823) (808,188) Gross profi t 243,494 205,711 Other operating income 2,253 8,573 Distribution and selling expenses (45,499) (39,459) Administrative expenses (88,112) (71,544) Other operating expenses (28,263) (36,897) Profi t from continuing operations before taxation, other income and fi nancial expenses 83,873 66,384 Other income, net 4,091 5,896 Financial expenses (9,628) (6,579) 78,336 65,701 Share of results of associated companies and joint ventures 1,667 4,270 Profi t from continuing operations before taxation 80,003 69,971 Taxation (6,995) (16,360) Profi t from continuing operations after taxation 73,008 53,611

Attributable to: Shareholder of the Company 70,789 51,926 Minority interests 2,219 1,685 73,008 53,611 Singapore Technologies Engineering Ltd 227 Annual Report 2007

BALANCE SHEET

2007 2006 $’000 $’000 (Restated) Share capital and reserves 110,179 110,954 Minority interests 34,281 15,825 144,460 126,779 Property, plant and equipment 92,895 71,607 Associated companies and joint ventures 110,983 114,667 Investments 7,527 14,048 Intangible assets 238,910 256,527 Investment properties 16,951 15,491 Long-term receivables 61,091 58,042 Finance lease receivables 1,444 – Deferred tax assets 12,797 17,085

Current assets Stocks and work-in-progress 409,742 375,816 Trade debtors 150,423 158,285 Debtors and deposits 108,198 41,178 Prepayments 14,407 7,708 Long-term receivables, current 9 9 Finance lease receivables, current 6,922 – Bank balances and other liquid funds 114,844 86,475 Due from related corporations 47,366 35,807 Forward currency contracts 775 90 852,686 705,368 Current liabilities Advance payments from customers, current 298,040 223,916 Creditors and accruals 299,825 311,575 Provisions 43,659 54,461 Progress billing in excess of work-in-progress 844 – Provision for taxation 24,790 34,450 Forward currency contract – 24 Long-term loans, current 234 237 Short-term bank loans 10,885 2,458 Bank overdrafts 3 937 678,280 628,058 Net current assets 174,406 77,310 Non-current liabilities Advance payments from customers, non-current 245,467 153,338 Non-trade creditor 31 – Forward currency contract – 39 Loans from related corporation 282,079 299,495 Due to joint venture 49 – Long-term loans 1,876 2,229 Long-term loan from minority shareholder of a subsidiary 194 194 Deferred income 5,591 2,811 Deferred tax liabilities 37,257 39,892 572,544 497,998

144,460 126,779 228

STATEMENT OF CASH FLOWS

2007 2006 $’000 $’000 Net cash from operating activities 129,050 12,872

Net cash used in investing activities (19,144) (220,486) Proceeds from disposal of property, plant and equipment 659 919 Dividends from associated companies and joint venture 4,360 3,606 Dividends from unquoted long-term investments 99 138 Proceeds from sale and maturity of investments 237 250 Purchase of property, plant and equipment (24,550) (12,116) Purchase of commercial and intellectual property rights – (517) Purchase price adjustment for acquisition of a subsidiary 2,026 – Acquisition of additional interest in a subsidiary (931) (150) Acquisition of subsidiaries – (211,381) Disposal of a subsidiary (1,044) – Long-term loan to joint venture – (1,235)

Net cash from/(used in) fi nancing activities (74,045) 94,036 Proceeds from loans from minority shareholders – 43 Proceeds from long-term loans from related corporation – 211,798 Proceeds from short-term loans from related corporation 3,528 21,631 Repayment of long-term loans (210) (923) Proceeds from short-term bank loans 8,412 2,510 (Repayment of)/proceeds from short-term loan from immediate holding company (20,000) 20,000 Long-term loan to immediate holding company – (54,000) Dividends paid to shareholder (64,500) (103,173) Dividends paid to minority shareholders of a subsidiary (296) (98) Interest paid (979) (3,752)

Net increase/(decrease) in cash and cash equivalents 35,861 (113,578) Cash and cash equivalents at beginning of the year 115,918 234,752 Exchange difference on cash and cash equivalents at beginning of the year (4,737) (5,256) Cash and cash equivalents at end of the year 147,042 115,918 Singapore Technologies Engineering Ltd 229 Annual Report 2007

VALUE ADDED STATEMENT

2007 2006 2005 2004 2003 $’000 $’000 $’000 $’000 $’000 Value added from: Revenue earned 1,188,317 1,013,899 604,647 594,300 717,711 Bought in materials and services (824,681) (707,581) (428,872) (423,482) (487,411) 363,636 306,318 175,775 170,818 230,300 Income from investments and interest 5,275 8,340 9,604 2,068 9,911 Exchange gain/(loss), net (1,037) (3,121) (329) (796) (806) Other non-operating income 2,106 9,250 7,604 4,638 6,652 Share of results of associated companies and joint ventures 1,667 4,270 9,720 20,576 11,970 Total value added 371,647 325,057 202,374 197,304 258,027

Distribution of total value added To employees in wages, salaries and benefi ts 259,184 224,622 124,881 117,191 135,401 To government in income and other taxes 9,106 18,378 17,668 16,294 23,401 To providers of capital on: • Interest paid on borrowings 9,628 6,579 702 85 29 • Dividends to shareholder 64,500 103,173 48,316 78,000 105,000 342,418 352,752 191,567 211,570 263,831

Balance retained in/(applied from) business Depreciation 17,869 15,489 10,740 10,594 15,560 Retained profi ts 7, 3 67 (47,860) (3,780) (22,270) (35,588) 25,236 (32,371) 6,960 (11,676) (20,028)

Non-production cost and income Bad debts (245) (543) (5,428) (3,862) 5,119 Income from investments and interest 5,275 8,340 9,604 2,068 9,911 Exchange gain/(loss), net (1,037) (3,121) (329) (796) (806) 3,993 4,676 3,847 (2,590) 14,224

Total distribution 371,647 325,057 202,374 197,304 258,027 230

FINANCIAL HIGHLIGHTS

2007 2006 2005 2004 2003 $’000 $’000 $’000 $’000 $’000 Turnover 1,188,317 1,013,899 604,647 594,300 717,711 Profi t before tax 80,003 69,971 65,010 71,549 96,458 Profi t after tax and minority interests 70,789 51,926 48,997 58,066 76,538 Shareholders’ funds 110,179 110,954 173,597 164,471 183,807 Total assets 1,395,284 1,252,835 1,004,039 883,498 1,014,346 Net tangible assets (133,049) (149,891) 115,058 149,890 168,841 Return on sales (%) 6.1 5.3 8.1 9.5 10.4 Earnings per share (cents) 58.71 43.07 40.64 48.16 63.48 Return on equity (%) 27.6 20.2 22.9 34.9 41.3 Return on total assets (%) 5.2 4.3 4.9 6 .4 7.3 Net tangible assets per share (cents) (110.4) (124.3) 95.4 124.3 140.0

Productivity data Average staff strength (number) 5,299 4,961 3,417 2,389 2,483 Sales per employee ($) 224,253 204,374 176,953 248,765 289,050 Profi t after tax per employee ($) 13,359 10,467 14,339 24,306 30,825 Employment costs 259,424 224,828 125,030 117,116 135,417 Employment costs per $ of turnover ($) 0.22 0.22 0.21 0.20 0.19

Economic Value Added 50,593 32,994 34,087 34,821 62,799 Economic Value Added spread (%) 8.8 6.8 12.0 11.3 18.2 Economic Value Added per employee ($) 9,548 6,651 9,976 14,576 25,292

Value added 371,647 325,057 202,374 197,304 258,027 Value added per employee ($) 70,135 65,522 59,226 82,589 103,917 Value added per $ of employment costs ($) 1.43 1.45 1.62 1.68 1.91 Value added per $ of gross property, plant and equipment ($) 1.01 0.96 0.62 0.66 0.84 Value added per $ of turnover ($) 0.31 0.32 0.33 0.33 0.36 Singapore Technologies Engineering Ltd 231 Annual Report 2007

STATEMENT OF PROFIT AND LOSS

2007 2006 $’000 $’000 Turnover 864,594 702,868 Cost of sales (757,254) (602,581) Gross profi t 107,340 100,287 Other operating income 25,898 13,851 Distribution and selling expenses (3,733) (5,532) Administration expenses (24,211) (20,067) Other operating expenses (6,188) (6,341) Profi t from continuing operations before taxation, other income and fi nancial expenses 99,106 82,198 Other income, net 845 481 Financial expenses (3,430) (3,519) 96,521 79,160 Share of results of associated companies and joint ventures 46 340 Profi t from continuing operations before taxation 96,567 79,500 Taxation (21,303) (11,677) Profi t from continuing operations after taxation 75,264 67,823

Attributable to: Shareholder of the Company 75,264 67,823 Minority interests – – 75,264 67,823 232

BALANCE SHEET

2007 2006 $’000 $’000 Share capital and reserves 122,767 124,345 Property, plant and equipment 94,124 92,807 Associated companies and joint ventures 353 290 Investments 384 1,321 Intangible assets 162 171 Long-term receivables 237 198 Deferred tax assets 20,904 15,612

Current assets Stocks and work-in-progress 90,959 104,549 Trade debtors 103,774 89,214 Due from related corporations 195,385 132,134 Advances and other debtors 47,600 65,940 Long-term receivables, current 23 20 Amounts under fund management 50,038 57,473 Bank balances and other liquid funds 90,843 123,138 578,622 572,468

Current liabilities Advance payments from customers, current 94,196 115,974 Creditors and accruals 246,577 228,251 Provisions 56,329 48,450 Progress billings in excess of work-in-progress 52,444 37,072 Provision for taxation 36,899 29,155 Lease obligations, current 77 – 486,522 458,902 Net current assets 92,100 113,566

Non-current liabilities Loans from related corporations 84,159 97,013 Accrued staff benefi ts 1,182 2,607 Lease obligations, non-current 156 – 85,497 99,620

122,767 124,345 Singapore Technologies Engineering Ltd 233 Annual Report 2007

STATEMENT OF CASH FLOWS

2007 2006 $’000 $’000 Net cash from operating activities 127,341 101,610

Net cash used in investing activities (4,110) (7,635) Proceeds from sale of property, plant and equipment 32 122 Dividends from investments – 138 Proceeds from sale and maturity of investments 14,037 596 Purchase of property, plant and equipment (20,443) (11,845) Exchange difference on investing activities 2,264 3,354

Net cash used in fi nancing activities (94,103) (68,261) Proceeds from inter-company loans, net (15,988) 1,648 Repayment of lease obligations, net (11) (12) Dividends paid to shareholder (70,894) (60,079) Interest paid (3,430) (3,519) Exchange difference on fi nancing activities (3,780) (6,299)

Net increase in cash and cash equivalents 29,128 25,714 Cash and cash equivalents at beginning of the year 246,914 221,663 Exchange difference on cash and cash equivalents at beginning of the year (695) (463) Cash and cash equivalents at end of the year 275,347 246,914 234

VALUE ADDED STATEMENT

2007 2006 2005 2004 2003 $’000 $’000 $’000 $’000 $’000 Value added from: Revenue earned 864,594 702,868 659,847 484,364 387,323 Bought in materials and services (639,035) (510,787) (444,879) (298,043) (249,406) 225,559 192,081 214,968 186,321 137,917 Income from investments and interest 22,595 9,856 6,998 7,944 14,520 Exchange gain/(loss), net (21) (59) (334) (231) 47 Other non-operating income 4,169 4,535 5,300 6,152 4,401 Share of results of associated companies and joint ventures 46 340 – – – Total value added 252,348 206,753 226,932 200,186 156,885

Distribution of total value added To employees in wages, salaries and benefi ts 133,855 105,791 104,216 104,072 97,909 To government in income and other taxes 23,940 13,432 19,986 18,506 6,595 To providers of capital on: • Interest paid on borrowings 3,430 3,519 2,472 1,253 1,184 • Dividends to shareholder 70,894 60,079 70,249 55,133 – 232,119 182,821 196,923 178,964 105,688

Balance retained in/(applied from) business Depreciation 17,087 16,381 18,974 22,241 22,811 Retained profi ts (18,195) (2,043) 5,913 (9,105) 16,241 (1,108) 14,338 24,887 13,136 39,052

Non-production cost and income Bad debts (1,237) (203) (1,542) 373 (2,422) Income from investments and interest 22,595 9,856 6,998 7,944 14,520 Exchange gain/(loss), net (21) (59) (334) (231) 47 21,337 9,594 5,122 8,086 12,145

Total distribution 252,348 206,753 226,932 200,186 156,885 Singapore Technologies Engineering Ltd 235 Annual Report 2007

FINANCIAL HIGHLIGHTS

2007 2006 2005 2004 2003 $’000 $’000 $’000 $’000 $’000 Turnover 864,594 702,868 659,847 484,364 387,323 Profi t before tax 96,567 79,500 87,932 69,786 35,172 Profi t after tax and minority interests 75,264 67,823 70,267 53,741 30,808 Shareholders’ funds 122,767 124,345 111,992 107,779 109,316 Total assets 694,786 682,867 702,775 664,556 594,272 Net tangible assets 122,605 124,174 111,811 107,449 109,316 Earnings per share (cents) 38.48 34.68 35.93 27.48 15.75 Return on sales (%) 8.7 9.6 10.6 11.1 8.0 Return on equity (%) 50.5 45.0 50.8 40.1 22.7 Return on total assets (%) 10.8 9.9 10.0 8.1 5.2 Net tangible assets per share (cents) 62.7 63.5 57.2 54.9 55.9

Productivity data Average staff strength (number) 1,439 1,404 1,416 1,514 1,490 Sales per employee ($) 600,830 500,618 465,994 319,923 259,948 Profi t after tax per employee ($) 52,303 48,307 49,624 35,496 20,677 Employment costs 134,252 106,086 104,448 104,238 98,028 Employment costs per $ of turnover ($) 0.16 0.15 0.16 0.22 0.25

Economic Value Added 60,453 49,903 49,061 32,501 10,363 Economic Value Added spread (%) 24.1 18.7 18.0 11.7 3.9 Economic Value Added per employee ($) 42,010 35,543 34,648 21,467 6,955

Value added 252,348 206,753 226,932 200,186 156,885 Value added per employee ($) 175,363 147,260 160,263 132,223 105,292 Value added per $ of employment costs ($) 1.88 1.95 2.17 1.92 1.60 Value added per $ of gross property, plant and equipment ($) 0.78 0.67 0.75 0.70 0.54 Value added per $ of turnover ($) 0.29 0.29 0.34 0.41 0.41 236

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. NanoScience Innovation Pte Ltd (100%) (27.06%)

2006 JV Pte. Ltd. (50%) Kaz-ST Engineering Bastau Limited Liability Partnership (51%) Vision Technologies Systems, Inc. (100%)

SA Supplies (USA) Inc. (100%)

Singapore Technologies Engineering (USA) Inc. (100%)

Vision Technologies Aerospace, Incorporated San Antonio Aerospace GP, LLC (100%) (100%)

San Antonio Aerospace LP (99%)**

ST Mobile Aerospace Engineering, Inc. (100%)

DalFort Aerospace GP, Inc. (100%)

DalFort Aerospace, L.P.+ (99%)*

Vision Technologies Electronics, Inc. iDirect, Inc. iDirect UK Limited (100%) (100%) (100%)

Vision Technologies Kinetics, Inc. Miltope Corporation iDirect Italy srl (100%) (100%) (100%)

MÄK Technologies, Inc. iDirect Hong Kong Limited (80%) (100%)

Vision Technologies Marine, Inc. VT Halter Marine, Inc. iDirect Government Technologies, Inc. (100%) (100%) (100%)

VT Systems, Inc. Halter-Bollinger Joint Venture LLC Ximaera Technologies Canada, Inc (100%) (50%) (49%)

Vision Technologies Land Systems, Inc. VT Dimensions, Inc. iDirect International Corporation (100%) (100%) (100%)

VT Specialized Vehicles Corporation iDirect Singapore Pte. Ltd. (100%) (100%)

Lee Holding Company VT LeeBoy, Inc (100%) (100%) LeeBoy Rents, Inc (100%)

Rosco Manufacturing Company (100%)

+ Ceased operations in 2003 Force Feed Loader Parts, Inc. * Balance 1% held by DalFort Aerospace GP, Inc. (100%) ** Balance 1% held by San Antonio Aerospace GP, LLC Italics Indicates Associated Companies. Others are Subsidiaries (both directly and indirectly held) Singapore Technologies Engineering Ltd 237 Annual Report 2007

ST Aerospace Engineering Pte Ltd ST Aviation Training Academy Pte. Ltd. Aviation Training Academy Australia Pty Ltd (100%) (70%) (100%)

Pacifi c Flight Services Pty Ltd (100%)

Pacifi c Flight Services Pte Ltd (100%)

ST PAE Holdings Pty Ltd Aerospace Engineering Services Pty Ltd Unit Trust (100%) (50%)

ST Aerospace Engines Pte Ltd Composite Technology International Pte Ltd Aerospace Engineering Services Pty Ltd (100%) (33.33%) (50%)

ST Aerospace International Structures Pte Ltd Eurocopter South East Asia Private Limited (100%) (25%)

ST Aerospace Systems Pte Ltd Singapore Precision Repair and Overhaul Pte Ltd (100%) (50%)

ST Aerospace Supplies Pte Ltd iShopAero Pte Ltd (100%) (100%)

ST Airport Ground Services Pte Ltd Guangzhou Aerospace Technologies and (100%) Engineering Company Limited (100%) ST Aviation Resources Pte Ltd (100%)

Visiontech Investment Pte Ltd ST Aviation Resources 1 Limited (100%) (100%)

Panama Aerospace Engineering Inc. (100%)

Singapore Aerospace Kabushiki Kaisha (100%)

Singapore Technologies Engineering (Europe) Ltd (100%)

ST Aerospace Solutions (Europe) A/S Airline Rotables (UK Holdings) Limited Airline Rotables Limited (formerly known as SAS Component Group A/S) (100%) (100%) (71.3%)

Bournemouth Aviation Services Company Limited* (81%)

ST Aviation Services Co Pte Ltd (80%)

ST Aerospace Technologies (Xiamen) Company Limited (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%) * In members’ voluntary winding up Italics Indicates Associated Companies. Others are Subsidiaries (both directly and indirectly held) 238

ST Electronics (Satcom & Sensor Systems) ST Electronics (Sichuan) Co., Ltd Pte. Ltd. (100%) (100%) Polarsat Holdings Inc. (26.67%)

ST Electronics (Info-Comm Systems) Pte. Ltd. ST Electronics (Info-Security) Pte. Ltd. DataMark Technologies Pte Ltd (100%) (100%) (61.12%)

Telematics Wireless Ltd (93.93%)

STELCOMMS Pte. Ltd. (51%)

mPayment Pte Ltd (31.78%)

iWOW Technology Pte Ltd (21.74%)

ST Electronics (Shanghai) Co., Ltd ST Electronics-PCI Co., Ltd (100%) (51%)

iTS Technologies Pte Ltd Prescient Systems & Technologies Pte. Ltd. (100%) (47.84%)

ST Electronics (Training & Simulation Systems) ST Electronics (Digital Media) Pte. Ltd. Pte. Ltd. (100%) (100%) Brightspot Interactive Learning Pte. Ltd. Brightspot Interactive Learning Inc. ST Electronics (Taiwan) Limited (51%) (100%) (100%) ST Education & Training Private Limited STET Maritime Bureau Pte. Ltd. SEEL Electronic & Engineering Sdn Bhd (70%) (100%) (100%) Antycip Simulation Limited STET Maritime Education Pte. Ltd. (60%) (100%)

Knowledge Alive Pte. Ltd. COMAT Training Services Pte Ltd TranSys Pte Ltd (45.47%) (100%) (100%)

ST Electronics (Info-Software Systems) Pte. Ltd. ST Electronics (Software Services) Limited (100%) (100%)

Intelect Technologies, Incorporated ST Electronics (e-Services) Pte. Ltd. (78.57%) (100%)

Ripple Systems Pty Ltd INFA Systems Limited (100%) (100%)

STELOP Pte. Ltd. WizVision Pte. Ltd. WizVision (HK) Pte Limited (50.05%) (22.8%) (100%)

ST LogiTrack Pte Ltd PM-B Pte Ltd PMB Project Management Business Sdn Bhd (39.06%) (70%) (100%)

GFM Electronics S.A. de C.V. PT PM-B Indonesia (50%) (100%)

RF Korea Inc. PM-B (China) Ltd (22%) (100%)

Trusted Hub Ltd PM-B Project Management Business (Thailand) (21.8%) Ltd (49%)

Italics Indicates Associated Companies. Others are Subsidiaries (both directly and indirectly held) Singapore Technologies Engineering Ltd 239 Annual Report 2007

Advanced Material Engineering Pte. Ltd. Advanced Pyrotechnic Materials Private Limited (100%) (51%)

SMART Systems Pte Ltd (50%)

Takata CPI Singapore Pte Ltd (49%)

Autonomous Technology Pte Ltd Guizhou Jonyang Kinetics Co., Ltd. (100%) (60%)

Allied Ordnance of Singapore (Pte) Limited Defence Electronics of Singapore Pte Ltd (100%) (49%)

Expert Systems Pte Ltd (100%)

Kinetics Systems (Shanghai) Co., Ltd. (100%)

Mobility Systems Pte Ltd Silvatech Systems Corporation Pte Ltd Kinetics Drive Solutions Inc. (100%) (100%) (100%)

Ordnance Development and Engineering Company Silvatech Global Systems Limited of Singapore (1996) Private Limited (100%) (100%) Timoney Holdings Limited Singapore Commuter Private Limited (25%) (100%)

Singapore Ordnance Engineering Pte. Ltd. (100%)

Singapore Test Services Private Limited SAO Industrial Services Pte Ltd (100%) (100%)

Securedge Pte. Ltd. Nusantara Technologies Sdn. Bhd. (formerly known as ST Automotive Industrial Pte Ltd) (49%) (100%)

ST Kinetics International Pte. Ltd. (formerly known as ST Automotive (Vietnam) Pte Ltd) (100%)

STA Detroit Diesel-Allison (Singapore) Pte Ltd (100%)

STA Inspection Pte Ltd JuzclickCar.com Pte Ltd (100%) (90%)

STA Investment Pte Ltd (100%)

Unicorn International Pte Limited (100%)

STAR Automotive Center (Guangzhou) Co., Ltd. (100%)

STAR Automotive Center (Zhejiang) Co., Ltd. (86.24%)

ATREC Pte. Ltd. (50%)

Beijing Zhonghuan Kinetics Heavy Vehicles Co. Ltd. (50%)

CityCab Pte Ltd (46.5%)

Italics Indicates Associated Companies. Others are Subsidiaries (both directly and indirectly held) 240

STSE Engineering Services Pte Ltd Anchorville Pte Ltd* (100%) (30%)

PT SSE-Van der Horst Indonesia AquaGen International Pte Ltd* (24%) (25%)

Joint Shipyard Management Services Pte Ltd (30%)

* Under compulsory winding up by Court Italics Indicates Associated Companies. Others are Subsidiaries (both directly and indirectly held) Singapore Technologies Engineering Ltd 241 Annual Report 2007

Board of Directors Principal Bankers Mr Peter SEAH Lim Huat (Chairman) Calyon Mr TAN Pheng Hock (President & CEO) 168 Robinson Road Mr KOH Beng Seng #22-01 Capital Tower Lieutenant-General Desmond KUEK Bak Chye Singapore 068912 Dr TAN Kim Siew Professor LUI Pao Chuen # Citibank N.A. Mr Winston TAN Tien Hin 3 Temasek Avenue Dr Philip Nalliah PILLAI #17-00 Centennial Towers Mr QUEK Poh Huat Singapore 039190 Mr Venkatachalam KRISHNAKUMAR Mr Davinder SINGH s/o Amar Singh DBS Bank Ltd Mr QUEK Tong Boon 6 Shenton Way Lieutenant-Colonel CHIA Choon Hoong (Alternate Director to DBS Building Tower One Lieutenant-General Desmond KUEK Bak Chye) Singapore 068809

Company Secretary FIH Erhvervsbank A/S Mrs CHUA Su Li Langeline Allé 43 DK-2100 Copenhagen Ø Registered Office Denmark 51 Cuppage Road #09-08 StarHub Centre Oversea-Chinese Banking Corporation Limited Singapore 229469 65 Chulia Street Tel: (65) 6722 1818 #10-00 OCBC Centre Fax: (65) 6720 2293 Singapore 049513 http://www.stengg.com United Overseas Bank Limited Share Registrar 80 Raffles Place M & C Services Private Limited UOB Plaza 1 138 Robinson Road #17-00 Singapore 048624 The Corporate Office Singapore 068906

Auditors Ernst & Young One Raffles Quay North Tower, Level 18 Singapore 048583 Mr TAN Wee Khim (Partner-in-charge) (Date of Appointment: 01/07/2005)

# Professor Lui Pao Chuen resigned from the Board on 1 March 2008. Singapore Technologies Engineering Ltd 251 Annual Report 2007

NOTICE IS HEREBY GIVEN THAT the Eleventh Annual General (a) (i) issue shares in the capital of the Company (“shares”) Meeting of the Company will be held at Crystal Suite, Level 2, whether by way of rights, bonus or otherwise; and/or Holiday Inn Park View Singapore, 11 Cavenagh Road, Singapore 229616 on Friday, 25 April 2008 at 2.30 p.m. to transact the (ii) make or grant offers, agreements or options (collectively, following business: “Instruments”) that might or would require shares to be issued, including but not limited to the creation and issue AS ORDINARY BUSINESS of (as well as adjustments to) warrants, debentures or other instruments convertible into shares, at any time and Resolution 1 upon such terms and conditions and for such purposes To receive and adopt the Directors’ Report and Audited Accounts and to such persons as the Directors may, in their absolute for the year ended 31 December 2007 and the Auditors’ Report discretion, deem fit; and thereon. (b) (notwithstanding the authority conferred by this Resolution Resolution 2 may have ceased to be in force) issue shares in pursuance of To declare a final tax exempt (one-tier) dividend of 4.0 cents per any Instrument made or granted by the Directors while this share and a special tax exempt (one-tier) dividend of 10.88 cents Resolution was in force, per share for the year ended 31 December 2007. provided that: Resolution 3 (a) To re-elect the following Directors, each of whom will retire by (1) the aggregate number of shares to be issued pursuant to this rotation pursuant to Article 98 of the Articles of Association Resolution (including shares to be issued in pursuance of of the Company and who, being eligible, will offer themselves Instruments made or granted pursuant to this Resolution) does for re-election: not exceed 50 per cent. of the total number of issued shares (excluding treasury shares) in the capital of the Company (as (i) Mr Tan Pheng Hock calculated in accordance with paragraph (2) below), of which (ii) Dr Philip Nalliah Pillai* the aggregate number of shares to be issued other than on (iii) Mr Venkatachalam Krishnakumar* a pro rata basis to shareholders of the Company (including shares to be issued in pursuance of Instruments made or * Dr Philip Nalliah Pillai and Mr Venkatachalam Krishnakumar granted pursuant to this Resolution) does not exceed 10 per will, upon re-election as Directors of the Company, continue cent. of the total number of issued shares (excluding treasury as Members of the Audit Committee. Dr Pillai and Mr shares) in the capital of the Company (as calculated in Krishnakumar are considered independent directors for the accordance with paragraph (2) below); purpose of Rule 704(8) of the Singapore Exchange Securities Trading Limited (“SGX-ST”) Listing Manual. (2) (subject to such manner of calculation as may be prescribed by the SGX-ST) for the purpose of determining the aggregate (b) To re-elect the following Directors, each of whom will cease number of shares that may be issued under paragraph (1) to hold office pursuant to Article 104 of the Articles of above, the percentage of issued shares shall be based on Association of the Company and who, being eligible, will offer the total number of issued shares (excluding treasury shares) themselves for re-election: in the capital of the Company at the time this Resolution is passed, after adjusting for: (i) Lieutenant-General Desmond Kuek Bak Chye (ii) Mr Davinder Singh (i) new shares arising from the conversion or exercise of any (iii) Mr Quek Tong Boon convertible securities or share options or vesting of share awards which are outstanding or subsisting at the time this Resolution 4 Resolution is passed; and To approve the sum of $901,833 as Directors’ fees for the year ended 31 December 2007. (2006: $866,000) (ii) any subsequent bonus issue or consolidation or subdivision of shares; Resolution 5 To re-appoint Ernst & Young as Auditors of the Company and to (3) in exercising the authority conferred by this Resolution, the authorise the Directors to fix their remuneration. Company shall comply with the provisions of the Listing Manual of the SGX-ST for the time being in force (unless such AS SPECIAL BUSINESS compliance has been waived by the SGX-ST) and the Articles of Association for the time being of the Company; and To consider and, if thought fit, to pass with or without modifications, the following resolutions which will be proposed as (4) (unless revoked or varied by the Company in General Meeting) Ordinary Resolutions: the authority conferred by this Resolution shall continue in force until the conclusion of the next Annual General Meeting Resolution 6 of the Company or the date by which the next Annual General That authority be and is hereby given to the Directors to: Meeting of the Company is required by law to be held, whichever is the earlier. 252

Resolution 7 shares which may be issued pursuant to the Share Plans is limited THAT approval be and is hereby given to the Directors to: to fifteen per cent. (15%) of the total number of ordinary issued shares in the capital of the Company (excluding treasury shares) (a) offer and grant options in accordance with the provisions of over the 10-year duration of the Share Plans. the Singapore Technologies Engineering Share Option Plan (“Share Option Plan”) and/or to grant awards in accordance BY ORDER OF THE BOARD with the provisions of the Singapore Technologies Engineering Performance Share Plan (“Performance Share Plan”) and/ CHUA SU LI (Mrs) or the Singapore Technologies Engineering Restricted Stock Company Secretary Plan (“Restricted Stock Plan”) (the Share Option Plan, the Performance Share Plan and the Restricted Stock Plan, Singapore, 9 April 2008 together the “Share Plans”); and NOTES (b) allot and issue from time to time such number of ordinary shares in the capital of the Company as may be required to 1. A member of the Company entitled to attend and vote at the be issued pursuant to the exercise of options under the Share Annual General Meeting is entitled to appoint not more than Option Plan and/or such number of fully paid ordinary shares two proxies to attend and vote in his stead. A proxy need not as may be required to be issued pursuant to the vesting be a member of the Company. of awards under the Performance Share Plan and/or the Restricted Stock Plan, 2. The instrument appointing a proxy must be lodged at the registered office of the Company at 51 Cuppage Road, provided that the aggregate number of ordinary shares to be #09-08, StarHub Centre, Singapore 229469 not less than issued pursuant to the Share Plans shall not exceed fifteen 48 hours before the time appointed for the Annual General per cent. (15%) of the total number of issued ordinary shares Meeting. in the capital of the Company (excluding treasury shares) from time to time. BOOKS CLOSURE AND DIVIDEND PAYMENT DATES

STATEMENT PURSUANT TO ARTICLE 60 OF THE ARTICLES OF Duly completed transfers in respect of ordinary shares in the ASSOCIATION OF THE COMPANY capital of the Company together with all relevant documents of title received by the Company’s share registrar, M & C Services Resolution No. 6 is to empower the Directors to issue shares in Private Limited, 138 Robinson Road, #17-00, The Corporate the capital of the Company and to make or grant instruments Office, Singapore 068906 up to the close of business at 5.00 p.m. (such as warrants or debentures) convertible into shares, and to on 5 May 2008 (the “Books Closure Date”) will be registered issue shares in pursuance of such instruments, up to a number to determine members’ entitlements to the proposed dividends, not exceeding in total fifty per cent. (50%) of the total number subject to approval of members to the proposed dividends at of issued shares (excluding treasury shares) in the capital of the the Eleventh Annual General Meeting to be convened on 25 Company, of which up to ten per cent. (10%) of the total number April 2008. Subject as aforesaid, members whose Securities of issued shares (excluding treasury shares) may be issued Accounts with The Central Depository (Pte) Limited are credited other than on a pro rata basis to shareholders. For the purpose with ordinary shares in the capital of the Company as at 5.00 p.m. of determining the aggregate number of shares that may be on the Books Closure Date will be entitled to the dividends. The issued, the percentage of issued shares shall be based on the Register of Members and Share Transfer Books will be closed on total number of issued shares (excluding treasury shares) in the 6 May 2008 for the purpose of determining members’ entitlements capital of the Company at the time that Resolution No. 6 is passed, to the proposed dividends. The proposed dividends, if so approved after adjusting for (a) new shares arising from the conversion or by members, will be paid on 21 May 2008. 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 bonus issue, 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 IMPORTANT 1. For investors who have used their CPF moneys to buy ordinary shares in the capital of Singapore Technologies Engineering Ltd, the 2007 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.

I I/We, NRIC/Passport Number of being a member/members of the abovenamed Company, hereby appoint

II Proportion of Name Address NRIC/Passport Number Shareholdings (%)

(a)

and/or (delete as appropriate)

(b)

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 Eleventh 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 25 April 2008 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

2 Declaration of Final Tax Exempt (one-tier) Dividend and Special Tax Exempt (one-tier) Dividend Re-election of Directors retiring by rotation pursuant to Article 98 of the Articles of Association of 3 (a) the Company (i) Mr Tan Pheng Hock

(ii) Dr Philip Nalliah Pillai

(iii) Mr Venkatachalam Krishnakumar

3 (b) Re-election of Directors retiring pursuant to Article 104 of the Articles of Association of the Company

(i) Lieutenant-General Desmond Kuek Bak Chye

(ii) Mr Davinder Singh

(iii) Mr Quek Tong Boon

4 Approval of Directors’ Fees

5 Re-appointment of Ernst & Young as Auditors Special Business 6 Authority for Directors to issue shares

Authority for Directors to offer and grant options and/or grant awards and allot shares, pursuant to the 7 Singapore Technologies Engineering Share Option Plan, Singapore Technologies Engineering Performance Share Plan and Singapore Technologies Engineering Restricted Stock Plan

Dated this day of 2008 Total Number of Shares held

IMPORTANT Signature(s) of Member(s) or Common Seal PLEASE READ NOTES OVERLEAF < 2 fold this dotted line >

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Singapore Technologies Engineering Ltd 51 Cuppage Road #09-08 StarHub Centre Singapore 229469 (Regn No: 199706274H)

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Notes: 5 The instrument appointing a proxy or proxies must be under the 1 Please insert the total number of shares held by you. If you have hand of the appointor or of his attorney duly authorised in writing. shares entered against your name in the Depository Register Where the instrument appointing a proxy or proxies is executed by (as defi ned in Section 130A of the Companies Act, Chapter 50 a corporation, it must be executed either under its seal or under of Singapore), you should insert that number of shares. If you the hand of an offi cer or attorney duly authorised. have shares registered in your name in the Register of Members, you should insert that number of shares. If you have shares 6 A corporation which is a member may authorise by a resolution of entered against your name in the Depository Register and shares its directors or other governing body such person as it thinks fi t to registered in your name in the Register of Members, you should act as its representative at the Eleventh Annual General Meeting, insert the aggregate number of shares entered against your name in accordance with Section 179 of the Companies Act, Chapter in the Depository Register and registered in your name in the 50 of Singapore. Register of Members. If no number is inserted, the instrument appointing a proxy or proxies shall be deemed to relate to all the General: shares held by you. The Company shall be entitled to reject the instrument appointing a 2 A member of the Company entitled to attend and vote at a meeting proxy or proxies if it is incomplete, improperly completed or illegible of the Company is entitled to appoint one or two proxies to attend or where the true intentions of the appointor are not ascertainable and vote instead of him. Such proxy need not be a member of the from the instructions of the appointor specifi ed in the instrument Company. appointing a proxy or proxies. In addition, in the case of shares entered in the Depository Register, the Company may reject any 3 Where a member appoints two proxies, the appointments shall instrument appointing a proxy or proxies lodged if the member, being be invalid unless he specifi es the proportion of his shareholding the appointor, is not shown to have shares entered against his name (expressed as a percentage of the whole) to be represented by in the Depository Register as at 48 hours before the time appointed each proxy. for holding the Eleventh Annual General Meeting, as certifi ed by The Central Depository (Pte) Limited to the Company. 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 Eleventh Annual General Meeting. survey life begins at f rty

ST ENGINEERING ANNUAL REPORT 2007 Thank you for reading our annual report. We would appreciate your feedback, both good and bad, to help us to improve this annual publication. Kindly complete this survey and return it either via prepaid mail or fax to +65 6720 2293 before 30 May 2008 or in person at our Annual General Meeting on 25 April 2008. Eleana Tan CFO, ST Engineering Please tick “ ” accordingly

1. Please help us to assess each of the following sections in terms of how they helped you understand the operations and strategic directions of the Group: DID NOT GOOD AVERAGE POOR READ a. Page 34 Corporate Governance b. Page 48 Community and Environment c. Page 50 Investor Relations d. Page 56 Operating Financial Review e. Page 62 ST Engineering at a Glance

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Singapore Technologies Engineering Ltd 51 Cuppage Road #09-08 StarHub Centre Singapore 229469 (Regn No: 199706274H)

< 1 fold this dotted line > SINGAPORE TECHNOLOGIES ENGINEERING LTD 51 Cuppage Road #09-08 StarHub Centre Singapore 229469 Tel: (65) 6722 1818 Fax: (65) 6720 2293 http://www.stengg.com (Regn. No.: 199706274H)