PEOPLE S REPUBLIC OF CHINA

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1 CHARTING NEW WATERS rotary engineering limited annual report 2009 rotary engineering limited annual report 2009 CHARTING NEW WATERS

2 CHARTING NEW WATERS Every successful sailing team comprises of an experienced captain able to navigate the seas, recognise and predict patterns in weather, and adapt to existing vessel conditions. Equally important is a supportive and cooperative team of sailors who will carry out everything from reducing sail and hull trimming, to cooking and cleaning on board. Rotary Engineering draws similar comparisons to the art and science of yacht racing. Through the onslaught of the financial tsunami in the past year, our team of dedicated, passionate and meticulous leaders have managed to steer our vessel into calm waters by navigating the geography, predicting the on-coming conditions and adapting to the changing environment. As Rotary embarks on a voyage of globalisation, we have adopted the tagline Charting New Waters this year. Our team continues to seek new opportunities and break new ground.

3 ROTARY AT A GLANCE ROTARY ENGINEERING LIMITED is one of the region s leading oil and gas infrastructure services companies with an extensive international experience offering fully integrated engineering design, procurement, construction and maintenance ( EPCM ) services to the oil and gas, petroleum, petrochemical and pharmaceutical industries. Headquartered in Singapore, the Group has established a strong presence in the Asia-Pacific region and continues to make its mark as a global player. Established in 1972, the Group has forged a reputation built on its hallmark traits of providing quality services, within budget and on time delivery. Today, the Group boasts a total strength of over 7,800 employees which include a highly and multi-skilled workforce that forms the mainstay of its core EPCM services. Singapore remains a key market for the Group while it actively seeks business opportunities overseas. The Group has subsidiaries and associate companies in Malaysia, Thailand, Indonesia, India, China, Australia and the Middle East. Rotary Engineering Limited is ISO 9000, ISO14000, OHSAS certified and listed on the mainboard of the Stock Exchange of Singapore since CONTENTS 01 Rotary at a Glance 04 Chairman s Message 12 Board of Directors 16 Senior Management 28 Organisation Structure 32 Global Footprints 34 Operations Review 37 Rotary Scorecard 42 Code of Corporate Governance 53 Directors Report 57 Statement By Directors 58 Independent Auditors Report 60 Consolidated Statement of Comprehensive Income 61 Balance Sheets 63 Statements of Changes in Equity 66 Consolidated Cash Flow Statement 68 Notes to the Financial Statements 141 Statistics of Shareholdings 143 Notice of Annual General Meeting 149 Proxy Form

4 CORE VALUES S Safety above all, to protect our equipment, the environment and ourselves T Teamwork to achieve quality products and services R Recognition of employees contribution and development of their potential I Inculcation of continuous work improvement as our culture D Development of pride and ownership in our work E Excellence in all our efforts to meet our vision 2

5 OUR VISION We aspire to be an excellent global engineering, procurement and construction company. OUR MISSION Our mission is to provide quality services that consistently meet our clients needs and expectations through excellence in our operations. HSE POLICY STATEMENT Our mission is to provide a safe working environment for our employees, protection of the environment, safeguarding owners plants and equipment. 3

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7 EXPANDING HORIZONS If you want to build a ship, don t drum up PEOPLE together to collect wood and don t assign them tasks and work, but rather teach them to long for the endless immensity of the sea. Antoine de Saint Exupery 5

8 CHAIRMAN S MESSAGE Dear SHAREHOLDERS, On behalf of my fellow directors, I am pleased to present to you the performance of the Group for the financial year ended 31 December A great year We entered 2009 with some apprehension. As the credit crunch continued to take its toll on a global economy already deep in recession, project delays and cancellations were widely reported. Governments around the world, including Singapore sprung into action, putting in place stimulus packages. At Rotary, we have emerged stronger from the experience. All things considered, it s been a great year for Rotary. In FY2009, we achieved record profits and revenues, our order book as at 31 December 2009 stood at an all-time high of S$1.3 billion and we landed our single-largest EPC contract of S$1.1 billion amidst a difficult operating environment of diminishing prospects and intense competition. We posted our highest-ever net profit after tax and minority interest of S$54.2 million, compared with S$50.9 previously. This achievement came on the back of record revenues of S$551.9 million, a 6% increase over last year s S$520.1 million. Earnings per share grew by 7% at 9.6 cents for the 12 months to 31 December We ended the year in a strong financial position. Our assets totalled S$497.4 million, with net tangible assets of S$260.2 million and cash equivalents of S$132.4 million. The Board of Directors is recommending a final dividend of 3.8 cents per share, to our shareholders who have supported us unwaveringly. As a leading provider of engineering, procurement, construction and maintenance services specialising in the Oil & Gas and Petrochemical industries, we continued to stay the course, steering ourselves in a way that will help us to manoeuvre perilous seas, avoiding treacherous rocks. Growing the business Even in tough times, opportunities abounded. Rotary with its solid management and financials, culture of proactive client service and strong track record as a trusted business partner, pursued prospects aggressively and developed valuable propositions for both Rotary and its clients. We continuously strived to meet the expectations of investors, clients and business partners, yet the key motivation has always been our values and aspiration to do well for our own satisfaction. We held a realistic assessment of our capabilities, even as the last few years have seen us breaking our own records in terms of revenues and profits. It remained our desire to chart new waters, break new grounds and to move Rotary into another level altogether. 6

9 on SATORP to secure more work, and we believe we are well-placed to participate in tenders for new projects as Saudi Arabia rolls out its planned expansion of oil and gas infrastructure, which will transform the Kingdom from a source to a significant global processing hub for the petrochemical industry. In other countries, we plan to develop infrastructure support opportunities in line with the changing and growing industrial landscape to further consolidate our invested presence in the region. SATORP We were thrilled to be awarded our first megaproject in Saudi Arabia. Our US$745 million (about S$1.1 billion) Engineering, Procurement and Construction (EPC) contract, awarded by Saudi Aramco Total Refining and Petrochemical Company (SATORP), to build a refinery tank farm at Jubail, Saudi Arabia, was a huge achievement. I am pleased to report that this project is currently well on track, with engineering design work in advanced stages and the delivery of steel plates in progress. Construction work will begin in second quarter of It is to the credit of my management team that we are able to secure this contract, as well as put in place the supporting infrastructure to execute this project satisfactorily. For instance, we will need to engage about 1,500 more workers this year to meet the demands of this project. Our robust Human Resources Department, coupled with our Overseas Training and Test Centres (OTTCs), will play a huge role in ensuring adequate supply of skilled workers. Middle East Initiatives The SATORP contract has further consolidated our presence in a market where we have established a presence since We intend to capitalise Asia Nearer home, our intention is to continue building on the territories where we already have a foothold, as well as break into new areas, where possible, that will enable us to align our interests as partners with our clients and help us to scale the value chain gradually. We continue to actively develop prospects directly with our clients especially in Indonesia and Malaysia, and we hope that some of these projects will come to fruition in due course. Our projects nearer home are also ground-breaking in their own right. The construction contracts we are undertaking for oil majors are among the biggest we have worked on, involving some of the world s largest process plants in recent times. Others These are exciting times for Rotary as it accelerates into a mode that sees it scaling greater heights and breaking new ground in numerous ways. Other parts of our business also enjoyed good growth. On the revamp and maintenance front, in spite of tough market conditions and intense competition, we are able to secure a number of contracts with oil majors that come with the option for further extension. 7

10 CHAIRMAN S MESSAGE Building Strong Support Infrastructure As our growth momentum gathers, it is imperative that our internal support infrastructure is further strengthened in order to move us forward. As we pick up pace on the business development front, we are also mindful of the need to keep our internal support structures in order. Human Resources The importance of human capital cannot be underestimated as we move forward in our bid to become a bigger player in our selected space. With over 7,000 employees, our Human Resource Department adopts progressive and innovative strategies and initiatives to ensure that we continue to attract and retain talent at all levels. Our Global Workforce (GWF) scheme has indeed sharpened our competitive edge as we grow our own crop of engineers and craftsmen who are attuned to the Rotary brand of service delivery. To date, our four Overseas Training and Test Centres in China, India and Bangladesh have trained almost 1,000 personnel. As we prepare to take on more and bigger projects, this scheme will take on greater importance. With our enhanced presence in Saudi Arabia, plans are already in place to set up a training centre there, tapping on and developing local talent to meet our project demands. Health, Safety and Environment matters Our commitment to provide a safe and riskfree working environment for our people remains unwavering. Over the year, we continued to focus on informing, educating, reminding and reinforcing our principles relating to best Health, Safety and Environment practices. To this end, our team of dedicated HSE professionals has laboured tirelessly to create a safety culture so that it becomes second nature to our people. Many initiatives were launched in the course of the year and the clearest benefit is reflected in our accident frequency rate which in 2009, was reduced by 29% compared to the year before. Our target however is still to achieve zero injuries at our worksites. Rotary Globalisation Plan The Rotary Globalisation Plan, formally launched in 2008, is an internal restructuring programme that reflects Rotary s intent to position itself strategically. With our six key Business Units operational, the programme is now in the systems implementation and integration phase that includes the Enterprise Resource Planning (ERP) system, as well as the SmartPlant suite of engineering systems. We are confident that this will improve our work processes and enhance productivity. Outlook As we stand on the threshold of another year, the overall outlook is vastly different from a year ago. Even as there are signs that the global economy is turning around with major economies 8

11 emerging from recession, it is still some way from plain sailing conditions as economic weakness continued to be reported in other countries. Still, the current outlook for future energy demand appears encouraging and should underpin longterm prospects for oil and gas and petrochemical industries. With many infrastructure projects in the pipeline in the Middle East and the returning activity in Asia, Rotary is well-placed to capitalise on these projects to develop existing territories. Overall, we expect growth to come mainly from overseas markets, in particular the Middle East. We shall continue to work hard to deliver on our projects and focus on the most profitable opportunities. Our strong fundamentals will hold us in good stead as we look to reaping longterm rewards even as we overcome short-term challenges. A Note of Thanks On behalf of the Board of Directors, I would like to thank our customers, business associates and suppliers for their unwavering support, encouragement and assistance. To the management and staff of the Rotary Group of Companies, the Board and I wish to extend our thanks and appreciation for their commitment and dedication. Finally, thanks are due to all our shareholders who continue to believe in us and to support us. Mr. Chia Kim Piow Chairman & Managing Director 9

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13 PROVEN RELIABILITY FACTS FROM PAPER ARE NOT THE SAME AS FACTS FROM PEOPLE. the RELIABILITY OF THE PEOPLE GIVING YOU THE FACTS IS AS IMPORTANT AS THE FACTS THEMSELVES. Harold S. Geneen

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16 BOARD OF DIRECTORS CHIA KIM PIOW CHAIRMAN & MANAGING DIRECTOR CHIA KIM CHUA EXECUTIVE DIRECTOR CHIA KIM PIOW is the Founder, Chairman and Managing Director of the Rotary Group of Companies. With more than 38 years of experience in plant and facility design and construction, he is instrumental in developing the Group from a sub-contractor to a multinational turnkey engineering design and construction group. Under his stewardship, the Group has gained recognition as one of the region s leading players in the oil and gas, petroleum, petrochemical and pharmaceutical industries. CHIA KIM CHUA was appointed to the Board in Since then, he has served as the head of Project Management Team and has overseen many major EPC projects in Singapore as well as overseas. He is also the Management Representative for the Group s ISO 9000, ISO and OHSAS certification. He holds a Diploma from Singapore Polytechnic. LAM KHIN KHUI INDEPENDENT DIRECTOR KEITH TAY AH KEE INDEPENDENT DIRECTOR LAM KHIN KHUI was appointed to the Board in He brought along with him a wealth of experience from the many years of working for both the private and government-linked companies. He is a partner with an international management consulting firm. He holds a Bachelor in Chemical Engineering from University of Melbourne and a Diploma in Business Administration from National University of Singapore. KEITH TAY is a Chartered Accountant by profession and was formerly Chairman and Managing Partner of an international accounting firm. He was President of Certified Public Accountants of Singapore from 1982 to Mr Tay is currently Chairman of Stirling Coleman Capital Ltd and holds directorships in several other companies. He is also on the Board of Singapore International Chamber of Commerce. He has also served as Adjunct Professor in the School of Accountancy and Business of Nanyang Technological University. 14

17 BADRI NARAYANAN SANTHANA KRISHNAN NON-EXECUTIVE DIRECTOR WONG OI MOI NON-EXECUTIVE DIRECTOR BADRI NARAYANAN SANTHANA KRISHNAN was appointed to the Board in He is currently working with Oman Investment Fund, as an integral part of the fund s Asia Pacific Investment Strategy team. Prior to joining the Fund, he held positions with Citigroup and Goldman Sachs in London, Dubai and India. Currently located in Oman, he specialises in investment and portfolio management. He is a Chartered Financial Analyst. WONG OI MOI has been associated with the Group since She is currently a Non-Executive and Non-Independent Director of the Board. QUEK WEE HONG INDEPENDENT DIRECTOR QUEK WEE HONG was appointed to the Board in He relinquished his executive position in 1995 and has since remained as a non-executive member of the Board. He was previously the Company Secretary and a member of the Audit Committee from 1993 to In 2001, he was re-appointed as a member of the Audit Committee. Prior to joining the Group, he held senior management positions in accounting, finance and management in both local and multinational companies. He holds a Masters in Business and is a Certified Public Accountant. He is also a Chartered Secretary and Administrator. 15

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20 Senior management KELLIN THAM MANAGING DIRECTOR ROTARY ELECTRICAL & INSTRUMENTATION PTE LTD SUPERMEC PTE LTD Kellin Tham is the General Manager of Rotary Logistics Pte Ltd, a one-stop shop logistics provider offering integrated warehousing, material logistics, procurement and total supply chain management services. Since 2001, she has played an instrumental role in overseeing the Group s procurement needs for local and overseas projects. In 2008, Rotary Electrical & Instrumentation was added to Kellin s portfolio and since assuming stewardship as its Managing Director, she has continued to steadily grow the subsidiary s business. Kellin is also the Managing Director of the Group s subsidiary, Supermec Pte Ltd. ALBERT LIEW YOON KONG CONSTRUCTION DIRECTOR ROTARY ENGINEERING LIMITED DEREK KOH CHIEF FINANCIAL OFFICER ROTARY ENGINEERING LIMITED Derek Koh is a Chartered Accountant with over 20 years of broad experience in professional practice and industry. Prior to joining the Group, he headed up various functions including Finance, Internal Controls, Corporate Affairs, and Information Technology in multinational and Asian companies. He also has Audit, Corporate Finance & Recovery and Risk Management experience from professional practice. Derek holds an Economics - Accounting & Finance degree from The London School of Economics. Albert Liew is the Construction Director of the Group s Construction Management Team. He has more than 29 years of construction experience gained from multinational companies. Albert is responsible for overseeing projects involving civil, steel structure, storage tanks, piping, electrical and instrumentation. He has spearheaded a myriad oil and gas plants, petrochemical complexes, water treatment plants and bridges in Southeast Asia, China and the Middle East. He specialises in storage tank construction work especially cryogenic (double-walled tank), spherical and double deck floating roof tanks. He is also certified in Construction Management Supervision and Construction Safety for Project Managers from Singapore PSB. 18

21 Ho Se Wai CHIEF INFORMATION OFFICER Rotary Engineering Limited Ho Se Wai joined the Group in June 2009 as CIO, with over 20 years of operational and professional experience in IT. Prior to joining the group, she held various positions in multinational companies, both in IT vendor environment as well as in in-house operations. These included heading up application support function, regional PMO for major IT outsource program, and managing a SAP consulting team. She graduated from the National University of Singapore with a Bachelor of Science degree (Computer Science and Information Systems). TONY FAM GENERAL MANAGER (ACTING) ROTARY-THAI CONSTRUCTION PTE LTD KHIN MAUNG MYINT PROJECT PROPOSAL GENERAL MANAGER ROTARY ENGINEERING LIMITED Khin Maung Myint is the General Manager of the Group s Project Proposal Department. He joined the Group in 1989, after spending 18 years in a petrochemical complex in Myanmar. Since then, he has been involved in project management, procurement, construction, testing and commissioning of oil and gas projects in Asia, Middle East and Africa. He holds a Bachelor of Mechanical Engineering from Rangoon Institute of Technology, Myanmar. Tony Fam is the Acting General Manager of Rotary- Thai Construction Pte Ltd ( RTC ), one of the strategic business units with the Group, responsible for Engineering, Procurement and Construction ( EPC ) of storage tanks. Concurrently, Tony is also the Vice President, Business Development/ Marketing of Group s wholly owned subsidiary, Thai Rotary Engineering Public Co. Ltd ( TREPCL ), and was appointed as the Director in January Prior joining the Group, Tony has over 20 years of experience in the fields of project management within the oil and gas industry, and specialist underground pipeline re-construction works using trenchless technologies. Tony graduated from Singapore Polytechnic in 1986, with a Diploma in Mechanical Engineering. He also holds an Advanced Diploma in Business Administration with University of Bradford (UK). 19

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24 Senior management LOH ENG KEE MANAGING DIRECTOR THAI ROTARY ENGINEERING PUBLIC COMPANY LIMITED Loh Eng Kee is the Managing Director of Thai Rotary Engineering Public Company Limited ( TREPCL ). Under his leadership and his wealth of experience, TREPCL is now widely known as one of the leading companies in turnkey EPC storage terminal construction and reliable main contractor in the oil and gas industry in Southeast Asia and Africa. He is also the Project Director of Project Management Team. In 2009, he was appointed Project Manager to the SATORP project, the Group s biggest project to date in Saudi Arabia. KOH CHUN PENG BUSINESS DEVELOPMENT DIRECTOR ROTARY ENGINEERING LIMITED JOSEPH KHOW MANAGING DIRECTOR ROTARY IMC PTE LTD Joseph Khow is the Managing Director of Rotary IMC Pte Ltd ( RIMC ). Since 2000, Joseph has led RIMC to become a leading player in thirdparty maintenance service provider to the process industries in Singapore. Joseph has a Masters in Science (Industrial and Systems Engineering) from National University of Singapore, a Bachelor (Hons) in Mechanical Engineering from Nanyang Technological University and a Diploma (Mechanical) from Singapore Polytechnic. He is a member of the Institute of Engineers in Singapore, and has served as President of the Association of Process Industry from July 2002 to June Heading the Group s business development activities, Koh Chun Peng develops new prospective clients in Singapore and globally, and matures prospects to clients for the Group. Joined in August 2007, Mr Koh is concurrently the General Manager (China) overseeing the Group s business in China. He runs Rotary Engineering (Shanghai) Ltd and Rotary Engineering (Dalian) Ltd. Mr Koh brings with him business and market development expertise, and almost ten years of China business experience. A former government scholar, he held managerial positions in Singapore government s overseas investment promotion arm, IE Singapore. Mr Koh has also professional experience in strategy consulting. He holds a MSc (Management) and BBA(Hons) from the National University of Singapore, a Chinese Language Proficiency Certificate from Beijing University, and has attended an Executive Program for senior government officials jointly conducted by Beijing University and Fudan Univesity. 22

25 DR. M. MAHALINGAM ENGINEERING DIRECTOR ROTARY ENGINEERING LIMITED LAM CHOON VOON General Manager ROTARY MECHANICAL AND CONSTRUCTION COMPANY PTE ltd Dr. M. Mahalingam joined the Group in January 2010 as Engineering Director with more than 32 years of experience in engineering design and development in the fields of oil and gas, petrochemical, chemical and infrastructure projects. He works closely with other Directors and Senior Management to formulate the Group s engineering policies, procedures and engineering execution methods. He holds three engineering degrees which includes a PhD in Mechanical Engineering. Lam Choon Voon was previously the CEO of a local firm engaged in Facility Services as well as a founder of a medical device distribution company. Prior to that, he was involved in venture capital investment work from the private sector and government agencies. Choon Voon has a Masters Degree awarded by Curtin University of Technology. THAM PENG WENG GENERAL MANAGER SHOPGLOBAL PTE ltd SARJIT SINGH GENERAL MANAGER ROTARY MEC (M) SDN BHD Tham Peng Weng is the General Manager of ShopGlobal Pte Ltd which handles all shop fabrication works to support all business units in the Group. With over 31 years of experience in construction, fabrication, maintenance and workshop facilities, he is able to handle all aspects of project management. As head of the Singapore and Batam fabrication workshops, he is able to meet international demands given his wealth of technical know-how and practical experience. Sarjit Singh is the General Manager of Rotary MEC (M) Sdn Bhd ( RMEC ). Since 2001, Sarjit has led RMEC to be the subcontracting company of choice with many international EPC contractors. Under his leadership, RMEC has ventured successfully into Sudan and now are looking for opportunities in Central Asia and other parts of the world, especially where Petronas has a presence. He holds a Bachelor (Hons) in Mechanical Engineering from United Kingdom. He is a registered professional engineer with the Institute of Engineers, and a member of the Board of Engineers in Malaysia. 23

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28 Senior management KUNIO NAKAMURA CHIEF OPERATING OFFICER ROTARY ENGINEERING LIMITED KUNIO Nakamura possesses a Bachelor Degree in Polymer Chemistry awarded by Tokyo Institute of Technology in 1997, and he brings with him 32 years of extensive experience in multi-disciplinary projects in petroleum and petrochemical industry. His first project as a Project Engineer was for the SRC Expansion Project in Singapore from 1978 to 1980 in which he was in charge of the offsite facilities including two 1 million barrels crude tanks. Previously, Mr. Nakamura was the Managing Director for JGC Singapore, and he was instrumental in strengthening the EPC capabilities for the company, making it an established market leader in the industry. BERNARD SOH HEALTH, SAFETY & ENVIRONMENT DIRECTOR ROTARY ENGINEERING LIMITED LEE KIT TONG PROJECT DIRECTOR ROTARY ENGINEERING LIMITED Lee Kit Tong joined the Group in December 2009 as Project Director. Prior to joining the Group, he was the Turnaround Manager with Shell Chemicals Seraya. He has more than 20 years of experience in Maintenance, Engineering and Project Management and was active in promoting worker skill upgrading and standardisation in the petrochemical industry in Singapore. Two of the notable standardisation projects spearheaded by him was the adoption of internet-based software, Primos, for managing foreign worker quota application and worker skill upgrading, and the development of Safety Management Standard, SS506. He graduated from the National University of Singapore with an Honours degree in Electrical Engineering. Bernard Soh joined the Group in 2007 as the HSE Director. He is responsible for the health, safety and environment system policies and practices across the Group. He has more than 19 years of occupational safety and health experience in the regional construction and process industries. He graduated from the University of New South Wales with a Bachelor of Science degree (Major in Safety Science). He also holds a Diploma in Mechanical Engineering with Ngee Ann Polytechnic. In addition to his academic qualification, he is a registered Workplace Safety and Health Officer with the Ministry of Manpower as well as a registered Environmental Control Officer with the National Environment Agency. He is also a member in the Workplace Safety and Health (WSH) Council Construction and Landscaping Committee as well as an executive committee (coopted) member of Singapore Institution of Safety Officers. 26

29 RICK GOH HUMAN RESOURCE DIRECTOR ROTARY ENGINEERING LIMITED WONG KHEK SIN DEPUTY CONSTRUCTION DIRECTOR ROTARY ENGINEERING LIMITED Rick Goh joined the Group in 2006 as the Human Resource Director with more than 15 years experience in human resource management and development. He is responsible for the human resource development policies and practices across the Group. He graduated from the Latrobe University of Australia with a Bachelor of Business Administration degree (major in human resource management). He also holds a Graduate Diploma in Personnel Management with Singapore Institute of Management and a Diploma in Electronic Electrical Engineering with Ngee Ann Polytechnic. In addition to his academic qualifications, he is a certified performance management and teambuilding facilitators with professional bodies. Wong Khek Sin joined the Group in 1991 as Construction Manager. Since then he has successfully managed multi-million dollar projects in Singapore and the region, including China, India, Malaysia and Thailand. He has more than 25 years of experience in the oil and gas industry. He was responsible for projects which involve civil, tankage, piping, electrical and instrumentation as well as testing and commissioning works. Mr Wong possesses a National Certificate in Supervision and was also certified under the Construction Safety Course for Project Managers. TAN TECK SENG DEPUTY PROJECT DIRECTOR ROTARY ENGINEERING LIMITED PAUL TAN GENERAL MANAGER ROTARY MECHANICAL AND CONSTRUCTION COMPANY PTE LTD Tan Teck Seng is the Deputy Project Director of the Group s Project Management Team. He first joined the Group in 1992 and over the years, he rose from a project engineer to heading a team of project managers for various projects in Singapore and overseas. Teck Seng has a Honours degree in Mechanical Engineering from the University of Liverpool (UK). Paul Tan is the General Manager of the Rotary Mechanical And Construction Company Pte Ltd (RMC). He joined the Group in 2007, after spending 19 years in the oil and gas and petrochemical industry. His experience involved project management, procurement, construction of major refineries and petrochemical plants located at Southeast Asia and China. He holds a Diploma in Mechanical Engineering from Ngee Ann Polytechnic. 27

30 Organisation Structure Chairman & Managing Director CHIA KIM PIOW Executive Director CHIA KIM CHUA LEGEND Chief Operating Officer KUNIO NAKAMURA ENTITIES Project Management Team/ Construction Management Team LOH ENG KEE (Project Director) LEE KIT TONG (Project Director) TAN TECK SENG (Deputy Project Director) ALBERT LIEW (Construction Director) WONG KHEK SIN (Deputy Construction Director) Quality Assurance & Control CHIA KIM CHUA (Executive Director) Health, Safety & Environment BERNARD SOH (Director) Country Senior Management Electrical Instrumentation KELLIN THAM (Managing Director) Mechanical PAUL TAN (GM) LAM CHOON VOON (GM) Tankage TONY FAM (Acting General Manager) Singapore CHIA KIM PIOW (Chairman/MD) Rotary Electrical & Instrumentation Pte Ltd Rotary Mechanical & Construction Company (Private) Ltd Rotary-Thai Construction Pte Ltd Thailand LOH ENG KEE (Managing Director) Thai Rotary Engineering Public Company Limited Saudi Arabia CHIA KIM PIOW (Chairman) Petrol Steel Company Limited Rotary Arabia Company Limited 28 Malaysia SARJIT SINGH (General Manager) China KOH CHUN PENG (General Manager) Indonesia TBA India AMITAVA DAS (General Manager) Rotary MEC (Malaysia) Sdn Bhd Rotary Engineering (Shanghai) Company Limited Rotary Engineering (Dalian) Company Limited Rotary International Trading (Shanghai) Company Limited P.T. Rotary Engineering Indonesia Rotary MEC Engineering (India) Pvt Ltd

31 Corporate Services Finance DEREK KOH (Chief Financial Officer) Human Resource RICK GOH (Director) Information Systems HO SE WAI (Chief Information Officer) Corporate Planning DEREK KOH (Chief Financial Officer) Planning & Control VELMOND LIM (Manager) Project Proposal KHIN MAUNG MYINT (General Manager) Business Development KOH CHUN PENG (Director) Contract & Legal WONG JIT ONN (Manager) Civil CHIA KIM CHUA (Executive Director) Maintenance JOSEPH KHOW (Managing Director) Technical Services BuildGlobal Pte Ltd Rotary IMC Pte Ltd Rotary Production Services Network Pte Ltd Engineering MASILAMANI MAHALINGAM (Director) Procurement & Logistics (Rotary Logistics Pte Ltd) KELLIN THAM (General Manager) Workshop (ShopGlobal Pte Ltd) THAM PENG WENG (General Manager) 29

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33 maintaining relations SOME PEOPLE COME INTO OUR LIVES AND QUICKLY GO. SOME STAY FOR A WHILE, LEAVE FOOT PRINTS ON OUR HEARTS, AND WE ARE NEVER, EVER THE SAME. Flavia Weedn 31

34 GLOBAL FOOTPRINTS singapore malaysia thailand indonesia india china middle east 32 SAR Rotary 25/03/ :55 11_Rotary_AR_operations review.indd

35 Rotary Engineering (Dalian) Co. Ltd Rotary Engineering (Shanghai) Co. Ltd Rotary International Trading (Shanghai) Co. Ltd Thai Rotary Engineering Public Company Limited Rotary Arabia Co Ltd Petrol Steel Co Ltd Rotary MEC Engineering (India) Private Limited Rotary MEC (M) Sdn Bhd Rotary Engineering Limited P.T. Rotary Engineering Indonesia 33

36 OPERATIONS REVIEW A remarkable year Rotary Engineering stayed busy, and ahead of the competition, despite the challenging operating environment in Even though there were project delays, and cancellations were widely reported across countries and industries, we were kept busy executing and delivering our projects in hand. The prospect of diminishing opportunities amidst a global recession also spurred us to pursue every opportunity zealously, and we secured a number of new contracts, including our single largest EPC contract in Saudi Arabia. As at 31 December 2009, the Group s order book stands at S$1.3 billion; of this, more than 80% originates from outside Singapore with projects lasting up to the end of Singapore remained the Group s largest revenue contributor in FY2009 with S$347.9 million with our overseas business contributing the remaining 37%, or S$204.0 million. Saudi Arabia contributed S$111.5 million, or 20% of revenue, while Thailand s share of revenue came to S$67.8 million. Projects: completed and on-going A number of EPC projects saw completion in 2009, mostly on time and with good safety and quality records. Oiltanking Rotary completed four projects for the Oiltanking Group, a valued client of over two decades. Indeed, the fruit of our hard work is reflected in our financial results. The Group saw a record turnover of S$551.9 million, an increase of 6% over Operationally, we were busy on all fronts. As a provider of engineering, procurement, construction and maintenance services serving the oil and gas and petrochemical sectors, this meant that all our different business units were actively engaged in supporting the execution of our projects. Depending on clients needs, the projects may involve some or all our business units. These projects were: Chem 6 project which involved the engineering design and construction of a 60,000 cubic metre (cbm) chemical storage facility at its existing site on Seraya, Jurong Island with connectivity to petrochemical complexes, refineries and downstream chemical companies in and around Jurong Island; Oiltanking Phase 10 project involving a 120,000 cbm facility for clean petroleum products situated at the terminal along Jurong Island Highway; 34

37 the engineering design and construction of Mono Ethylene Glycol (MEG) and Propylene Oxide (PO) storage tanks and related facilities adjacent to the existing OOTS chemical storage terminal on Jurong Island (Chem 5); and the project for PT Oiltanking Merak which involved the engineering, procurement and construction of a 274,000 cbm capacity storage terminal comprising 24 tanks in Merak, West Java, Indonesia. We are currently still working on a number of projects for Oiltanking. The scope of these works include piping, civil and structure, electrical and instrumentation and are due for completion in Shell Our relationship with Shell Eastern Petroleum has been built and cemented over the years. The level of rapport and trust is evident in the numerous projects that they have entrusted to us. In 2009, we completed a number of projects for Shell. These were mainly for work we did in relation to the 750,000 tonnes per annum Mono Ethylene Glycol (MEG) downstream plant and the world-scale 800,000 tonnes per annum Ethylene Cracker Complex on Pulau Bukom, part of the Shell Eastern Petrochemicals Complex. Rotary s scope of work involved mechanical works including tankage, field construction of structure, piping and equipment installation as well as electrical and instrumentation works. In addition, we were also involved in modification projects to Shell s Pulau Bukom refinery, as part of the Houdini Project. Our work for Shell also extends to revamp and maintenance and the year saw us completing major shutdown works for Shell Chemicals Seraya. At the same time, we also renewed our anchor maintenance contract in Shell Chemicals Seraya for another three years up to 2012, with an option of two years extension up to We have also been awarded maintenance contracts for Shell s MEG plant, and two revamp and maintenance packages for Shell s Long Residue Catalytic Cracking Unit (LRCCU) at its Pulau Bukom refinery. Other projects that saw completion in the year were: Power Seraya: This project saw Rotary involved in the extension of pipeline to three tanks as well as electrical and instrumentation works. 35

38 OPERATIONS REVIEW delighted for the opportunity to work with this new client. Jurong Rock Cavern (JRC): We have been contracted to carry out further engineering works in relation to this project. The JRC is an innovative initiative driven by JTC to increase underground oil storage capacity on Jurong Island. JRC will comprise an oil storage complex to be built at subterranean depths beneath the seabed of Banyan Basin. Neste Oil Biofuel Plant: We have been awarded two packages for this project. Apart from the Engineering, Procurement & Construction contract to erect 11 storage tanks for Neste Oil s new generation biofuel plant in Tuas, Rotary is also undertaking electrical and instrumentation works. Saudi Kayan Petrochemical Complex: We constructed 24 tanks for the Saudi Kayan Petrochemical Company at its petrochemical complex in AI-Jubail, Kingdom of Saudi Arabia. This project involved the engineering, supply, fabrication, construction, testing and pre-commissioning of 24 tanks. Singapore Petroleum Company Facility Upgrade: We were contracted to upgrade the roofs of two storage tanks. The projects that we are currently working on include: Chevron Singapore Plant Upgrade: For this plant upgrade project at Penjuru Terminal in Jurong, Rotary has been tasked with upgrading and revamping of existing fuel oil systems, pumps and related facilities. ExxonMobil Singapore Parallel Train: The scope of our contract relating to ExxonMobil s second world-scale petrochemical project, known as the Singapore Parallel Train, includes mechanical work, piping, structure installation, electrical and instrumentation installation and testing works. Air Liquide Hermes Hydrogen Plant: Our work for Singapore Oxygen Air Liquide in relation to the Hermes Hydrogen Plant involves mainly electrical and instrumentation work. We are Tankstore Ltd Facility Upgrade: This contract is for the upgrading of the roofs of four storage tanks for the Singapore-based oil trading company. Saudi Arabia Since our initial entry into the Middle East in 2006, we have steadily delivered three projects and in 2009, we landed our single largest contract to date: a US$745 million (about S$1.1 billion) Engineering, Procurement and Construction (EPC) contract, awarded by Saudi Aramco Total Refining and Petrochemical Company (SATORP), to build a refinery tank farm at Jubail, Saudi Arabia. The project is progressing well and work on site is scheduled to begin in second quarter of Thailand In 2009, we secured an Engineering, Procurement and Construction (EPC) contract from Thailand s PTT Tank Terminal Company Limited for the PTT Tank Terminal Project. Work is underway to construct an ammonia storage tank and facilities at Map Ta Phut petrochemical hub at Rayong Province, Thailand. Our other project at the offsite and utility tank farm unit for Ma Ta Phut Olefins Co Ltd saw completion in February This tank farm, comprising nine spherical tanks and 11 atmospheric tanks, is housed within a naphtha cracker complex with an annual production capacity of 800,000 tonnes. 36

39 Rotary Scorecard FINANCIAL Enhancing shareholders value Strong revenue growth to continue to deliver sustainable value to our shareholders. EARNINGS (S$ MILLION) EARNINGS per share (cents) MARKET CAPITALISATION (S$ MILLION)

40 Rotary Scorecard CUSTOMERS Striving for total customer satisfaction Customer satisfaction is our most important goal , ,200 15,000 legend (S$ million) Revenue Order book revenue breakdown by geographical segment Singapore 57.7% Malaysia 0.8% China 0.5% Thailand 17.5% Singapore 63% Others 0.9% Indonesia 3.6% Thailand 12.3% fy2008 s$520m Other 23.5% fy2009 s$552m Saudi Arabia 20.2% 38

41 Rotary Scorecard PROCESSES & BEST PRACTICES What we excel in Doing the right thing & doing it right the first time Continuous improvement and process redesign to streamline our operations to drive efficiency and productivity LEGEND (%) Net Profit Margin Return On Equity Return On Assets PEOPLE Our Greatest Asset Our people makes the difference People are the foundation of our success past, present and future , , , ,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 39

42 CALCULATED MOVES The pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails. William A. Ward 40

43 FINANCIAL REPORTS 42 Code of Corporate Governance 53 Directors Report 57 Statement by Directors 58 Independent Auditors Report 60 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 61 Balance Sheets 63 Statements of Changes in Equity 66 Consolidated Cash Flow Statement 68 Notes to the Financial Statements 141 Statistics of Shareholdings 143 NOTICE OF ANNUAL GENERAL MEETING 149 PROXY FORM 41

44 CODE OF CORPORATE GOVERNANCE INTRODUCTION The Board of Directors (the Board ) and management of Rotary Engineering Limited (the Company ) and its subsidiaries (the Group ) are committed to maintaining high standards of corporate governance by complying with the benchmark set by the Code of Corporate Governance 2005 (the Code ). Good corporate governance establishes and maintains an ethical environment, which strives to enhance the interests of all shareholders. The following report outlines the Company s corporate governance policies and practices that were in place. BOARD OF DIRECTORS Principles 1, 2, 4 and 6 The Board of Directors is accountable to the shareholders and is responsible for maintaining a high standard of corporate governance and promoting continuing improvements in Board effectiveness. The Group strives to be consistent with the Code. The Board comprises seven Directors, of whom two are executive, two are non-executive and three are independent Directors. The Board is made up of individuals from different professional, technical and financial backgrounds. Their core competencies, qualifications, skills and experience are extensive and complementary. There is a strong balance between the Executive and Non-Executive Directors and a strong and independent element on the Board. Key information on Directors is set out on pages 12 to 15 of the Annual Report. The Board oversees the management of the business and affairs of the Group; approves the Group s corporate and strategic directions, appoints directors to the Board and approves the appointment of key managerial personnel, major funding, investment proposals and divestment, and reviews the financial performance of the Group. Where necessary, additional Board meetings are held to address significant issues or approve major transactions. 42 The two Executive Directors form the Executive Committee that acts for the Board in supervising the management of the Group s business and affairs. Monthly business review meetings, presided by at least one Executive Director, are held to review the progress of projects and operational performance. Major issues are highlighted for follow-up and corrective actions.

45 CODE OF CORPORATE GOVERNANCE To facilitate effective management, certain functions have been assigned to various Board committees, each of which has its own written terms of reference. The composition of the Board and Board Committees are: Committee Membership Director Nature of Board Member Audit Nominating Remuneration Chia Kim Piow Chairman & Managing Director Member Chia Kim Chua Executive Keith Tay Ah Kee Independent Chairman Member Member Quek Wee Hong Independent Member Chairman Member Lam Khin Khui Independent Member Member Chairman Badri Narayanan Santhana Krishnan Non-Executive Member Wong Oi Moi Non-Executive The Board of Directors is familiar with the Group s business and governance practices. The Directors also receive updates and relevant training, particularly on relevant new laws, regulations and changing commercial risks, from time to time. There is a programme to ensure new directors receive relevant training and orientation before appointment to the Board. All Directors have direct access to senior management and to the Company Secretary. The role of the Company Secretary is clearly defined and includes the responsibility of ensuring that Board procedures are followed and that applicable rules and regulations are complied with. The number of Board meetings held in the year and the attendance of every Board member at those meetings are as follows: Meetings of: Board Audit Committee Nominating Committee Remuneration Committee No. of Meetings held in 2009: Name & Attendance of Director Chia Kim Piow 4 1 Chia Kim Chua 4 Keith Tay Ah Kee Quek Wee Hong Lam Khin Khui Badri Narayanan Santhana Krishnan Wong Oi Moi 4 1 Mr Krishnan was appointed as a member of the Audit Committee on 24 February

46 CODE OF CORPORATE GOVERNANCE CHAIRMAN AND MANAGING DIRECTOR Principle 3 Mr. Chia Kim Piow, who is both Chairman and Managing Director of the Company, leads the Board. This practice has been carried on since inception and he leads the Board meetings because of his in-depth knowledge of the Group s operations as well as his excellent relationship with customers, suppliers and other external parties that carry on business with the Group. The Board members unanimously support Mr. Chia s role as both Chairman and Managing Director. The Board is of the view that the current single leadership arrangement works well, in particular it does not hinder the decision-making process of the Company unnecessarily. NOMINATING COMMITTEE Principle 5 The Nominating Committee ( NC ) comprises Mr. Quek Wee Hong, Mr. Keith Tay, Mr. Lam Khin Khui and Mr. Chia Kim Piow. Mr. Quek, as Chairman of the Committee, Mr. Lam and Mr. Tay, are Independent Directors. The NC, which has written terms of reference approved by the Board, recommends to the Board any new Board appointments and nominates Directors for re-election, determining whether or not such nominee has the requisite qualifications and experience. Accordingly, in selecting potential new directors, the NC will seek to identify the competencies required to enable the Board to fulfill its responsibilities. In doing so, the NC will have regard to the results of the annual appraisal of the Board s performance. The NC may engage consultants to search or assess candidates for new positions on the Board, or to engage such other independent experts as it considers necessary to carry out its duties and responsibilities. In line with this, the NC also determines the independence of Board members. In considering the appointment of any new director, the NC ensures that the new director possesses the necessary skills, knowledge and experience that could facilitate the Board in the making of sound and well considered decisions. 44 In reviewing the nomination of the retiring directors, the NC considered the performance and contribution of each of the retiring directors, having regard not only to their attendance and participation at Board and Board Committee meetings but also the time and effort devoted to the Group s business and affairs, especially the operational and technical contributions. Further, it sets objective performance criteria and the measurement processes to evaluate the performance of the Board once a year. The NC conducted an evaluation of the Board s performance as a whole for the year ended 31 December The NC is responsible for identifying and recommending to the Board new Board members, after considering the necessary and desirable competencies.

47 CODE OF CORPORATE GOVERNANCE While the Code recommends that the NC be responsible for assessing the Board as a whole and for assessing the contribution of each individual director to the effectiveness of the Board as a whole, NC felt it is more appropriate and more effective to assess the Board as a whole bearing in mind that the each member of the Board contributes in different ways to the success of the Company. Information on Directors position, date of initial appointment and date of last re-election are listed below. Director Age Position Date of Initial Appointment Date of Last Re-election Chia Kim Piow 61 Executive Chairman & Managing Director 02-Dec-1980 N.A. Chia Kim Chua 59 Executive Director 01-Mar Apr-2009 Keith Tay Ah Kee 65 Independent Director 01-Feb Apr-2008 Quek Wee Hong 68 Independent Director 01-Jan Apr-2007 Lam Khin Khui 61 Independent Director 01-Feb Apr-2007 Badri Narayanan Santhana Krishnan 29 Non-Executive Director 22-Sep Apr-2009 Wong Oi Moi 55 Non-Executive Director 04-May Apr-2009 Pursuant to the Company s Articles of Association, other than the Managing Director, all Directors submit themselves for re-election at least once every three years. In accordance with Article 117 and Article 107 of the Company s Articles of Association, new Directors must submit themselves for re-election at the next Annual General Meeting of the Company and one third of the Directors who are eligible for re-election must retire by rotation at every Annual General Meeting. The Committee has recommended the nomination of Mr. Lam Khin Khui and Mr. Quek Wee Hong for re-election at the forthcoming Annual General Meeting. REMUNERATION COMMITTEE Principles 7, 8 and 9 The Remuneration Committee ( RC ) comprises entirely of non-executive directors of the Company. The RC members are Mr. Lam Khin Khui as Chairman, Mr. Quek Wee Hong and Mr. Keith Tay who are non-executive directors and independent of management. The RC, when required, has access to expert advice, both within and outside the Company. The role of the RC, which has written terms of reference approved by the Board, is to review and recommend to the Board a framework of remuneration for the Board of Directors and senior key executives (MDs and EDs of major subsidiaries) of the Group. It determines specific remuneration packages for each Executive Director and reviews the terms of their service contracts. In line with the above, it considers and approves guidelines on salary, bonus, and other terms and conditions for members of senior management, as well as the granting of share options in accordance with the rules of the Company s Share Option Scheme. 45