CEI Contract Manufacturing Limited. Company Registration No: H ANNUAL REPORT

Transcription

1 CEI Contract Manufacturing Limited Company Registration No: H ANNUAL REPORT

2 Contents 1 Corporate Profile / Corporate Information 2 Chairman s Message 4 Board of Directors 5 Key Management Executives 6 Report on Corporate Governance 12 Risk Identification, Management Policies and Processes 14 Financial Highlights 15 Financial Report 64 Statistics of Shareholders 65 Notice of AGM 67 Proxy Form

3 Corporate Profile Founded in 1980 and listed on the main board of the Singapore Exchange Securities Trading Limited in March 2000, CEI Contract Manufacturing Limited is an established turnkey contract manufacturer. 2, Ang Mo Kio Avenue 12 Singapore The Company provides printed circuit board and box-build assembly services. It is also well equipped to provide value-added services such as materials management, circuit layout design, prototype engineering, product design & development engineering, and building up capabilities to provide full turnkey and metal stamping services. Batamindo Industrial Park Lot 312 Jalan Beringin, Muka Kuning Batam, Indonesia The Company serves customers within the industrial equipment market segment. These include electro-luminescent displays used in industrial, transportation, aerospace and medical applications; medical and health care equipment; office equipment as in digital photocopiers; analytical instruments as in gas and liquid chromatographs and measurement instruments; industrial safety controllers and environmental sensors. The Company is QS9000, ISO9001:2000, IS , AS9100 (Letter of Conformance) and People Developer certified. 2, Street 6 Vietnam Singapore Industrial Park Thuan An, Binh Duong Province Vietnam Board of Directors Tien Sing Cheong (Executive Chairman) Tan Ka Huat (Managing Director) Gan Chee Yen (Non-Executive Director) Tan Bien Chuan (Independent Director) Tang Martin Yue Nien (Independent Director) Nominating Committee Tan Bien Chuan (Chairman) Tang Martin Yue Nien Tien Sing Cheong Remuneration Committee Tang Martin Yue Nien (Chairman) Tan Bien Chuan Gan Chee Yen Audit Committee Tan Bien Chuan (Chairman) Tang Martin Yue Nien Gan Chee Yen CEI ESOS Committee Tan Bien Chuan (Chairman) Tang Martin Yue Nien Gan Chee Yen Tien Sing Cheong Tan Ka Huat Company Secretaries Teo Soon Hock Susie Low Geok Eng Registered Office 10 Collyer Quay #19-08 Ocean Building Singapore Share Registrar and Share Transfer Office Lim Associates (Pte) Ltd 10 Collyer Quay #19-08 Ocean Building Singapore Business Office 2 Ang Mo Kio Avenue 12 Singapore Auditors Ernst & Young Certified Public Accountants Simon Yeo (Engagement Partner)* 10 Collyer Quay #21-00 Ocean Building Singapore *Appointed in Financial Year 2003 Solicitors Colin Ng & Partners 50 Raffles Place #29-00 Singapore Land Tower Singapore Bankers Oversea-Chinese Banking Corporation Limited 65 Chulia Street #10-00 OCBC Centre Singapore The Hongkong and Shanghai Banking Corporation Limited 21 Collyer Quay #01-00 HSBC Building Singapore Citibank N.A. (Singapore Branch) 3 Temasek Avenue #17-00 Centennial Tower Singapore

4 C hairman s Message DEAR SHAREHOLDERS FINANCIAL YEAR 2005 In Financial Year (FY) 2005, the Group s Revenue increased by 13.0% or $8.1 million, from $62.5 million in FY 2004 to $70.6 million. Comparing the Group s Revenue on a half-year basis, the first and second half Group s Revenue for FY 2005 were $35.5 million and $35.1 million respectively. The Group recorded Profit After Taxation of $5.8 million, an increase of 8.8% over FY Profit After Taxation as a percentage of Revenue was 8.2% and 8.5% for FY 2005 and FY 2004 respectively. The increase in profit was due to (1) an increase in Revenue; (2) lower share of associated company losses; and (3) a decrease in Group tax arising from a lower provision for tax of a subsidiary company. During FY 2005, ten new customers were engaged. Sales to these customers were $1.2 million or 1.7% of Group s Revenue. This modest number is consistent with all our early engagement of new customers. We believe that some of these new customers will become significant contributors to our revenue in the years ahead. The Company was awarded the ISO This was an important development because it allowed us to address opportunities in the medical equipment industry. The company successfully installed the lead-free process capability; this positioned us to meet the RoHS directive which would take effect on 1 July We also added a new flying probe in-circuit tester, which enabled us to offer cost effective fixtureless in-circuit testing for those customers who need quick turn-around. In FY 2005, we integrated the Honeywell's 6 Sigma "Manufacturing Process Control" methodology in our factory for aerospace products. The fundamental objective of 6 Sigma was to establish a measurement-based strategy to focus on systematic process improvement and variation reduction. This year CEI had further engaged Neville-Clarke as our 6 Sigma corporate consultant to share their expert knowledge, provide training and project implementation organisation wide. During the year, the Company signed a joint development master agreement with the Institute of Microelectronics (IME) to explore business opportunities. This built on IME's semiconductor facility which offered integrated circuits (IC) design with low volume manufacturing services. During the year, the Company entered into a joint venture with Sumitomo Corporation (Singapore) Pte Ltd and Systems@Work Pte Ltd to offer mobile payment service in Vietnam. The Group's financial position remained strong with no borrowings and a net cash of $ 12.0 million at the end of FY

5 FINANCIAL YEAR 2006 We expect sustainable growth in the Group's Revenue in the first half of FY This is supported by a robust book-to-bill ratio. We are in a good position to take on new business opportunities with the additional production capabilities we have installed in Vietnam. We are also seeing increased customer visits since the beginning of FY We continue to work hard to be less dependent on any one major customer by increasing our customer base. Profit margin is expected to be lower in FY 2006 compared to FY This is due to pricing pressures from customers, which cannot be matched by concurrent reduction in material costs. The Group's profit after taxation as a percentage of revenue for FY 2006 will range from 7% to 8%. DIVIDENDS The Board is pleased to recommend payment of : A tax exempt second and final dividend of 0.34 cents per share amounting to approximately $1.1 million; and A tax-exempt special dividend of cents per share amounting to approximately $1.8 million. Total interim, special and final dividend declared for the financial year FY 2005 approximate to 2.69 cents or $8.8 million. ACKNOWLEDGEMENT I would like to express my sincere appreciation to our Customers, Partners in our supply chain, Shareholders and Members of CEI, for your continual support. Tien Sing Cheong Chairman 20 February

6 B oard of Directors Mr Tien Sing Cheong Executive Chairman Appointed as Executive Director on 28 August 1999 and was last re-elected on 8 April Mr Tien is also the Executive Chairman of the Company. Mr Tien holds a Bachelor of Science in Engineering degree from the University of Hong Kong, a Master of Science degree from Stanford University, California and a Master of Business Administration degree from the University of Santa Clara, California. Mr Tien is also a Fellow of the Institution of Mechanical Engineers, United Kingdom. Mr Tan Ka Huat Managing Director Appointed as Executive Director on 28 August 1999 and also Managing Director of the Company. Mr Tan holds a Bachelor of Science (Physics) degree from Nanyang University (now NTU), a Diploma in Business Administration from the National University of Singapore and a Master of Business degree from University of Technology, Sydney. Mr Gan Chee Yen Non-Executive Director Appointed as a Non-Executive Director since 28 August 1999 and was last re-elected on 8 April Mr Gan is the Senior Managing Director, Investments of Temasek Holdings (Private) Limited. He is also a member of the Board of Commissioner of PT Bank Danamon Indonesia, Tbk. Mr Gan holds a Bachelor of Accountancy degree from the National University of Singapore. He has also participated in the Program for Management Development at the Harvard Business School in September Mr Tan Bien Chuan Independent Director Appointed as an Independent and Non-Executive Director on 9 February 2000 and was last re-elected on 28 March Mr Tan is the co-founder and Managing Director of OCBC, Wearnes & Walden Management (Singapore) Pte Ltd, a venture capital firm. He is also a non-executive director of Goodpack Limited. Mr Tan holds a Bachelor of Science (Hons) degree in Computer Science and Accounting from the University of Manchester, United Kingdom and is a member of the Institute of Chartered Accountants in England and Wales. Mr Tang Martin Yue Nien Independent Director Appointed as an Independent and Non-Executive Director on 9 February 2000 and was last re-elected on 25 March Mr. Tang is Chairman, Asia of Spencer Stuart, a global executive search consulting firm, and is based in Hong Kong. Mr. Tang holds a Bachelor of Science degree in Electrical Engineering from Cornell University in Ithaca, New York and a Masters of Science degree from the Massachusetts Institute of Technology s Sloan School of Management and is a trustee of both Cornell University and Massachusetts Institute of Technology. 4

7 Key Management Executives Mr Seow Sin Leng Mr Seow Sin Leng is the Senior Director, Corporate Services. Mr Seow holds a Bachelor of Accountancy degree and a Master of Business Administration degree from the University of Singapore. Mr Ng Cheng Kung Mr Ng Cheng Kung is the General Manager, PT Surya Teknologi Batam. Mr Ng holds an Advanced Diploma in Automation in Manufacturing from the Singapore Polytechnic. Mr Heng Teck Yow Mr Heng Teck Yow is the Director, Business Development / Sales. Mr Heng holds a Diploma in Industrial Engineering. Mr Lim Piak Hwa Mr Lim Piak Hwa is the Senior Director, Materials Management. Mr Lim holds a Bachelor of Engineering degree from the National University of Singapore, a graduate diploma in Marketing Management from the Singapore Institute of Management and a Master of Business (Accounting) degree from Monash University, Melbourne. Ms Thng Ah Hiang Ms Thng Ah Hiang is the Senior Director, Customer Relations Management / Marketing. Ms Thng holds a Diploma in Industrial Management from the Singapore Polytechnic. Mr Hung Nyet Hiong Mr Hung Nyet Hiong is the Director, Engineering. Mr Hung holds a Bachelor of Engineering (Electrical) degree from the National University of Singapore. 5

8 REPORT ON CORPORATE GOVERNANCE CEI is committed to observing good standards of corporate governance and a continual process of developing procedures and policies in keeping with best business practice. This Report describes CEI s corporate governance practices with specific reference to the Code Of Corporate Governance ( Code ), a listing requirement under the SGX-ST Listing Manual. Where otherwise indicated, CEI believes that it has and will remain compliant with the Code. BOARD OF DIRECTORS In complying with the Code, The Company is headed by an effective Board to lead and control its operations and affairs (Principle 1); Attendance of Board meetings and Committee meetings held during the financial year are set out under Table A (Guidance Note 1.1); In ensuring that operations and Board executive time are not disrupted, Board and Committee meetings for the ensuing financial year are organised prior to the start of each ensuing financial year (Guidance Note 3.2(a)); The Executive Chairman sets the agenda for each board meeting in consultation with the Managing Director. As a general rule, board papers are disseminated to directors at least 5 days prior to a scheduled meeting. As and when required, management personnel are invited to Board meetings to provide additional information on any matters held for discussion (Guidance Note 3.2(b)); Apart from scheduled Board Meetings, all directors are appraised of the financial performance of the Company and the Group on a monthly basis (Guidance Note 3.2(c)); Article 120(2) of the Company s Articles provide for telephonic and video-conferencing meetings (Guidance Note 1.1); All transactions concerning mergers, acquisitions, investments and capital expenditures exceeding $500,000 are discussed and come under the Board s purview (Guidance Note 1.2); The Company will update newly appointed and existing directors on relevant new laws, regulations and changing commercial risks as and when they are made known (Guidance Note 1.3); The Company s Board composition and balance comprise independent directors making up at least one-third of the Board (Guidance Note 2.1); Directors are only considered independent under circumstances spelt out in Principle 2, Guidance Note 2.1 of the Code (Guidance Note 2.1); In considering the scope and nature of the operations of the Company and of the Group, the current size of the Board is considered appropriate. Additional members will be added to the Board as and when circumstances require (Guidance Note 2.3); There are adequate relevant competencies of the directors, who as a group carry specialist backgrounds in strategic planning and direction, industry knowledge and experience, accounting and finance, investment banking and corporate finance and human resource executive search and management (Guidance Note 2.4); The Company s Board assumes responsibility for corporate governance (Guidance Note 3.2). Should directors, whether as a group or individually, need independent professional advice, the Company Secretary will, upon direction by the Board, appoint a professional advisor selected by the group or the individual, to render the advice. Such costs from professional advice rendered will be borne by the Company (Principle 6.4 ); and 6

9 The Company Secretary attends all board meetings and is responsible to ensure that board procedures are followed. It is also the Company Secretary s responsibility to ensure that the Company complies with the requirements of the Companies Act and all other rules and regulations of the SGX (Guidance Note 6.3). To ensure an appropriate balance of power, increased accountability and greater capacity of the Board for independent decision making, the roles of chairman and chief executive officer are separated (Guidance Note 3.1). TABLE A DIRECTORS ATTENDANCE AT BOARD AND BOARD COMMITTEE MEETINGS Nominating Remuneration Audit Board Committee Committee Committee Attended Attended Attended Attended Tien Sing Cheong 100% 100% NA NA Tan Ka Huat 100% NA NA NA Gan Chee Yen 66 2/3% NA 66 2/3% 66 2/3% Tan Bien Chuan 100% 100% 100% 100% Tang Martin Yue Nien 100% 100% 100% 100% NOMINATING COMMITTEE (NC) The NC s establishment is mandated by Article 126 of the Articles with written terms of reference. In complying with the Code, - A formal and transparent process for the appointment of new directors and re-appointment of directors is in placed and empowered through the NC s Terms Of Reference (Principle 4). These principal functions include - Making recommendations to the Board on the appointment of new executive and non-executive directors, including making recommendations to the composition of the Board generally and the balance between executive and non-executive directors appointed to the Board (Guidance Note 4.1); Responsibility for identifying and nominating candidates for the approval of the Board, determining annually whether or not a director is independent (Guidance Note 4.3); Recommending Directors who are retiring by rotation to be put forward for re-election. All Directors are required to submit themselves for re-nomination and re-election at regular intervals and at least every three years. Article 107 of the Articles requires one-third of the Board to retire by rotation at every AGM (Guidance Note 4.2); Deciding whether or not a director is able to and has been adequately carrying out his duties as a director of the Company, particularly when a director has multiple board representations (Guidance Note 4.4); and To adopt internal guidelines that address the competing time commitments that are faced when directors serve on multiple boards (Guidance Note 4.4). Principle 5 of the Code provides that there should be a formal assessment of the effectiveness of the Board as a whole and the contribution by each director to the effectiveness of the Board. 7

10 NOMINATING COMMITTEE (NC) (cont d) Given the current size of the Board, and that both executive directors of the Company are the Executive Chairman and Managing Director and that each independent and non-executive director hold specialist and complementary backgrounds, the NC takes the view that an assessment of the Board s performance as a whole correspondingly reflects the contribution of each director (Guidance Note 5.1 & 5.3). Although there is no formal assessment of the Board's performance, the NC makes it a practice to review the Group s performance at all NC meetings. Therefore, in evaluating the Board s performance as a whole, the NC reviews Quantitative performance criteria such as return on assets, return on equity, return on investment, profitability on capital employed, dividend yield, share price performance measured against reasonably similar industries together with other financial ratios were considered (Guidance Note 5.1 & 5.2); and Qualitative performance criteria such as the Company s strategic longer term and short term goals were considered (Guidance Note 5.1 & 5.2). REMUNERATION COMMITTEE (RC) The RC s establishment is mandated by Article 126 of the Articles with written terms of reference. In complying with the Code The RC will review and recommend to the Board, a framework of remuneration for the Board and key executives. The RC s review will principally include Review all aspects of remuneration including directors fees, salaries, allowances, bonuses, options and benefitsin-kind (Principle 7); Review remuneration packages against those comparable within the industry and comparable companies where this is possible and that they are reasonable and that these should include a performance-related element coupled to the Company s financial performance (Guidance Note 7.3 and Principle 8); and Review remuneration packages of employees related to executive directors of the Company and of the Group and that these commensurate with their respective job scopes and levels of responsibility (Guidance Note 9.3). The RC notes the following with respect to the current financial year With respect to remuneration packages for executive directors, The Executive Chairman and Managing Director are currently on 2-year Service Agreements which commenced on 1 November 2005 under terms and conditions approved by the Remuneration Committee; and The terms of remuneration for the Executive Chairman and Managing Director include a performance bonus element based on the Group s profitability. Executive directors do not receive Directors fees. Non-executive directors are paid directors fees subject to approval at the AGM. The Company s CEI ESOS Scheme is administered by the CEI ESOS COMMITTEE of whom all members of the RC are also members of the CEI ESOS COMMITTEE. Details of the CEI ESOS Scheme are disclosed in the Directors Report (Guidance Note 9.4). 8

11 REMUNERATION COMMITTEE (RC) (cont d) A breakdown showing the level and mix of each individual director s remuneration payable for FY 2005 is as follows (Guidance Note 9.2): Directors Remuneration FEES SALARY BONUS BENEFITS NAME (S$) (S$) (S$) (S$) Tien Sing Cheong - 190, ,358 45,680 Tan Ka Huat - 235, ,278 40,128 Tan Bien Chuan 45, ,569 Tang Martin Yue Nien 45, ,569 Gan Chee Yen 39, ,569 Notes : Directors Fees are subject to approval by shareholders as a lump sum at the AGM for FY Directors interest in share options are disclosed in the Directors Report. For Senior Executives Remuneration (Who Are Not Directors Of The Company), disclosure of the top five executives remuneration in bands of $250,000 is disclosed under Note 25 (b) to the Accounts (Guidance Notes 9.1 & 9.2). The remuneration for Tien Sing Gee, General Director of CEI International Investment (VN) Limited, a wholly owned subsidiary of the Company is also disclosed under Note 25 (b) to the Accounts. Mr Tien Sing Gee is related to the Executive Chairman (Guidance Note 9.3). The Company adopts a remuneration policy for staff comprising a fixed component and variable component. The fixed component is in form of a base salary. The variable component is in the form of a variable bonus that is linked to the Company and individual performance (Principle 9). AUDIT COMMITTEE (AC) The AC s establishment is mandated by Article 126 of the Articles with written terms of reference. In complying with the Code The AC has explicit authority to investigate any matter within its terms of reference, full access and co-operation by Management and full discretion to invite any director or executive officer to attend its meetings (Guidance Note 11.3); The AC reviews the scope and results of the external and internal audit and its cost effectiveness and the independence and objectivity of the external auditors (Guidance Note 11.4); The AC has undertaken a review of all non-audit services provided by the external auditors and is of the opinion that the provision of such services does not affect the independence of the external auditors; 9

12 AUDIT COMMITTEE (AC) (cont d) The AC meets with the external auditors and with the internal auditors respectively, without the presence of the Company s management (Guidance Note 11.5); The AC will review the independence of the external and internal auditors annually (Guidance Note 11.6); and Nominate external and internal auditors for re-appointment. The Board has ultimate responsibility for the systems of internal control maintained and set in place by management. The systems are intended to provide reasonable assurance, but not an absolute guarantee against material financial misstatement or loss, safeguarding investments and assets, reliability of financial information, compliance with appropriate legislation, regulation and best practice and the identification of business risks (Principle 12). To a large extent, the Board s responsibilities are fulfilled through the AC (Guidance Note 12.1). The AC has reviewed the Company s risk assessment based on the Internal Auditor reports and given the scope of work done and findings for the year, is assured that the Company s systems of internal controls are adequately in place (Guidance Note 12.1). In addressing business risks and the adequacy of systems of internal controls, the AC has considered the following (Guidance Note 12.2) The review and identification of business risks is an ongoing process; and A reliance on management and the internal auditors to identify key business risks prior to determining the scope and nature of internal audit work required. The Company s internal audit function is independent of the business activities it audits (Principle 13) The internal audit function is outsourced to BDO Raffles (Guidance Notes 13.2 & 13.3) ; The internal auditor reports directly to the Chairman, AC (Guidance Note 13.1) ; The scope of internal audit work is proposed by the internal auditor and is approved by the AC (Guidance Note 13.4); and To ensure the adequacy of the internal audit function, the AC is appraised of the internal audit work, findings and follow-up work at all AC meetings. (Guidance Note 13.4) CEI ESOS COMMITTEE The CEI ESOS Committee comprises of five directors, two of whom hold executive positions. The role of the Committee is to Ensure that the Rules of the CEI Employee Share Option Scheme are adhered to; Select eligible employees of the group to participate in CEI ESOS, the Company s share option incentive scheme; and Determine the number of shares and the subscription price to be offered to each participant taking into consideration, the service and performance of the participant. The final CEI ESOS was granted on 6 September

13 COMMUNICATION WITH SHAREHOLDERS In complying with the Code The Company has adopted half-yearly reporting of its financial results based on its market capitalisation and are published through the SGXnet and news releases (Guidance Note 14.1); All information of the Company s business initiatives are disclosed on a timely basis and does not practice selective disclosure (Guidance Note 14.2); The Company has also engaged the services of Zaobao.com, an investor relations company, as a means of reaching out to its mandarin speaking audience; The Company s AGMs have been well attended and convenient venues have been selected in the past (Guidance Note 15.1); Shareholders are given ample time and opportunities to air their views and ask directors or management questions concerning the Company (Guidance Note 15.1); Separate resolutions for each distinct issue are tabled for shareholders approval Guidance Note 15.2); Article 90(2) of the Articles allows a member of the Company to appoint up to two proxies to attend and vote instead of the member (Guidance Note 15.1). SECURITIES TRANSACTIONS The Company has issued a Policy on Share Dealings to key employees of the Company, setting out the implications of insider trading and the recommendations of the Best Practices Guide issued by the Singapore Exchange Securities Trading Limited. To further provide guidance to employees on dealing in the Company s shares, the Company has adopted a code of conduct on transactions in the Company s shares. The code of conduct was modeled after the Best Practices Guide with some modifications. For example, the Company Secretary informs the directors, senior management and senior accounting personnel that they should not deal in the Company shares during the period commencing one month before half-year and full financial year announcements of the Company's financial statements. In addition, the Company Secretary also reminds the offence of insider trading under the Securities and Futures Act for the directors and employees to deal in the Company shares when they are in possession of unpublished material price-sensitive information in relation to the Company shares. The Directors have adopted the Best Practices Guide with regard to dealing in the Company s shares. On behalf of the Board, Tien Sing Cheong Director Tan Ka Huat Director Singapore 20 February

14 RISK IDENTIFICATION, MANAGEMENT POLICIES AND PROCESSES Operating and business risks and associated management responses and policies may be summarised as follows: (i) Customers A major customer, Planar, account for 41.2% (FY %) of the Group s revenue in FY Significant reductions in orders over a short period of time, from Planar will have adverse impact on our financial results. Over the years, the Group has aimed to decrease dependency on major customer accounts by increasing its customer base. Since its listing in FY 2000, we have secured 20 new customer accounts and sales to these customers account for 15.9% of FY 2005 Revenue. (ii) Availability and pricing of components We procure components needed in manufacturing for our customers. Some of these customers components are available only from a single supply source. In the event that such suppliers are unable to supply the customised components, we may not be able to develop an alternative source of supply in a timely manner. This will delay our production and delivery to customers and have a material adverse impact on our financial results. Furthermore, the price of electronic components will increase during periods of shortage. Any significant increase in such purchase price which cannot be absorbed by our customers will have a material adverse effect on our financial results. Working with our customers to accept alternate suppliers is an on-going effort. (iii) Currency Exchange Our sales revenue is denominated mainly in US dollars. Our purchases of components are denominated in US dollars and Euros. The percentages of our sales and expenses denominated in foreign currencies in FY 2005 are set out as follows : US Dollar Euro Sales in US dollars as a percentage of total revenue 99% NA Purchases in US dollars and Euros as a percentage of total costs 69% 7% In view of the above foreign currency exposures, given the Singapore dollar as our reporting currency, we have net exposures in US$ receivables and Euro payables. Therefore, a depreciation in the US dollar relative to the Singapore dollar will generally have an unfavourable effect on our financial results. Conversely, an appreciation in Euro relative to the Singapore dollar will generally have an unfavourable effect on our financial results. We will continue to monitor our foreign exchange exposure and are using hedging instruments to manage our foreign exchange risk on an ongoing basis. 12

15 (iv) (v) Industry competition We continue to focus on the high mix / low-to-moderate volume segment of the PCBA and Box-Build markets. We are not in any position to prevent competitors from entering into the market. Dependence on key management personnel The success of the Group depends on the continued services of our key management personnel. The Group encourages succession planning to ensure that there is timely backup. On behalf of the Board, Tien Sing Cheong Director Tan Ka Huat Director Singapore 20 February

16 FINANCIAL HIGHLIGHTS $ 000 Turnover , , , ,391 40, ,562 $ 000 Shareholder s fund 40 28, ,256 27, , ,728 17, , , $ 000 Profit after tax and extraordinary items ,297 5, ,709 4, ,458 3, , % Profit after tax and extraordinary items (as a percentage on turnover) Earnings per share

17 Directors' Report and Audited Financial Statements CEI Contract Manufacturing Limited & Subsidiary Companies 31 December 2005 Directors Tien Sing Cheong (Executive Chairman) Tan Ka Huat (Managing Director) Gan Chee Yen Tan Bien Chuan Tang Martin Yue Nien Company Secretaries Teo Soon Hock (appointed on 30 August 2005) Susie Low Geok Eng Registered office Address : 10 Collyer Quay, #19-08 Ocean Building, Singapore Telephone : (65) Fax : (65) susie.low@boardroomlimited.com Bankers Oversea-Chinese Banking Corporation Limited The Hongkong and Shanghai Banking Corporation Limited Citibank N.A. Share Registrar Lim Associates (Pte) Ltd 10 Collyer Quay, #19-08 Ocean Building, Singapore Auditors Ernst & Young Partner-in-charge (since financial year ended 31 December 2003): Simon Yeo Index Page Directors Report 16 Statement by the Directors 21 Auditors' Report 22 Consolidated Profit and Loss Account 23 Balance Sheets 24 Statements of Changes in Equity 25 Consolidated Cash Flow Statement 27 Notes to the Financial Statements 28 15

18 Directors' Report The directors are pleased to present their report to the members together with the audited consolidated financial statements of CEI Contract Manufacturing Limited (the Company) and its subsidiary companies (collectively, the Group) and the balance sheet and statement of changes in equity of the Company for the financial year ended 31 December Directors The directors of the Company in office at the date of this report are :- Tien Sing Cheong (Executive Chairman) Tan Ka Huat (Managing Director) Gan Chee Yen Tan Bien Chuan Tang Martin Yue Nien In accordance with Article 107 of the Company s Articles of Associations, Mr Tien Sing Cheong and Mr Gan Chee Yen will retire and, being eligible offer themselves for re-election. 2. Arrangements to enable directors to acquire shares and debentures Except as described in paragraph 5 below, neither at the end of nor at any time during the financial year was the Company a party to any arrangement whose objects are, or one of whose object, is to enable the directors of the Company to acquire benefits by means of the acquisition of shares or debentures of the Company or any other body corporate. 3. Directors interest in shares and debentures The following directors, who held office at the end of the financial year, had, according to the register of directors shareholdings required to be kept under Section 164 of the Companies Act, Cap. 50, an interest in shares and share options of the Company as stated below :- Direct interest At At beginning end Name of director of the year of the year The Company Ordinary shares of $0.05 each Tien Sing Cheong 33,807,600 34,687,600 Tan Ka Huat 15,021,360 15,901,360 Gan Chee Yen 475, ,200 Tan Bien Chuan 1,108,800 1,878,800 Tang Martin Yue Nien 158,400 1,268,800 16

19 Directors' Report 3. Directors interest in shares and debentures (cont d) Direct interest At At beginning end Name of director of the year of the year The Company Share options of $ each exercisable from to Gan Chee Yen 475,200 - Tang Martin Yue Nien 475,200 - Share options of $ each exercisable from to Tang Martin Yue Nien 475,200 - Share options of $ each exercisable from to Gan Chee Yen 440, ,000 Tan Bien Chuan 440,000 - Tang Martin Yue Nien 440,000 - Share options of $ each exercisable from to Tien Sing Cheong 660,000 - Tan Ka Huat 660,000 - Gan Chee Yen 330, ,000 Tan Bien Chuan 330,000 - Tang Martin Yue Nien 330, ,000 Share options of $ each exercisable from to Tien Sing Cheong 220,000 - Tan Ka Huat 220,000 - Gan Chee Yen 132, ,000 Tan Bien Chuan 132, ,000 Tang Martin Yue Nien 132, ,000 17

20 Directors' Report 3. Directors interest in shares and debentures (cont d) There was no change in any of the above-mentioned interests between the end of the financial year and 21 January By virtue of Section 7 of the Companies Act, Cap. 50 Tien Sing Cheong and Tan Ka Huat are deemed to have interests in shares of the subsidiaries of the company, all of which are wholly-owned. Except as disclosed in this report, no director who held office at the end of the financial year had interests in shares, share options, warrants or debentures of the Company, or of related corporations, either at the beginning of the financial year, or at the end of the financial year. 4. Directors contractual benefits Except as disclosed in the financial statements, since the end of the previous financial year, no director of the Company has received or become entitled to receive a benefit by reason of a contract made by the Company or a related corporation with the director, or with a firm of which the director is a member, or with a Company in which the director has a substantial financial interest. 5. Options The CEI Contract Manufacturing Employees Share Option Scheme ( CEI ESOS ) is administered by the following members : Tan Bien Chuan (Chairman and Independent Director) Tang Martin Yue Nien (Independent Director) Gan Chee Yen (Non-executive Director) Tien Sing Cheong (Executive Chairman) Tan Ka Huat (Managing Director) Each share option entitles the employees of the Company to subscribe for one new ordinary share of $0.05 each in the Company. The options are granted in consideration of $1 per option for all the shares in respect of which the option is granted. The options may be exercised after two years but not later than 5 years from the date the share option was granted. The shares under option may be exercised in full or in blocks of 1,000 shares or a multiple thereof on the payment of the exercise price. The employees to whom the options have been granted do not have the right to participate, by virtue of the options, in a share issue of any other company. Options granted are cancellable when the option holder ceases to be in office or under full-time employment of the Company subject to certain exceptions at the discretion of the Company. 18

21 Directors' Report 5. Options (cont d) Details of all the options to subscribe for ordinary shares of $0.05 each of the Company pursuant to the CEI ESOS as at 31 December 2005 are as follows: Number of shares Exercisable granted Exercise Date of grant period under options option price ($) 2 February ,301, September ,207, February ,525, July ,607, September ,372, ,012,856 Balance as at Balance Number of Exercise Date of or date Options Options Options as at holders as at Price Exercisable grant of grant if later exercised lapsed forfeited $ period ,678,104 1,939,880 1,738, ,913,936 1,473, , ,508,400 3,197,000 2,311, ,920,000 4,600,000 3,320, ,431, ,000 33,000 1,749, ,372,000 2,372, ,823,440 11,859,012 1,738,224 33,000 10,193,204 Details of the options to subscribe for ordinary shares of $0.05 each of the Company granted to directors of the Company pursuant to the CEI ESOS are as follows: Name of director Aggregate options granted Aggregate options exercised Aggregate options lapsed Aggregate options since commencement of since commencement of since commencement of outstanding as at end scheme to end of the scheme to end of the scheme to end of the of financial year financial year financial year financial year Tien Sing Cheong 3,234,000 3,234,000 Tan Ka Huat 3,234,000 3,234,000 Gan Chee Yen 1,852, , , ,000 Tan Bien Chuan 1,852,400 1,720, ,000 Tang Martin Yue Nien 1,852,400 1,390, ,000 12,025,200 10,054, ,200 1,496,000 There are no participants who are controlling shareholders of the Company. Except for Tien Sing Cheong and Tan Ka Huat, no other participants have received 5% or more of the total number of options available under CEI ESOS. 19

22 Directors' Report 6. Audit Committee The Audit Committee (AC) comprises three members, all of whom are non-executive directors. The majority of the members including the Chairman, are independent. The members of the AC in office at the date of this report are :- Tan Bien Chuan Tang Martin Yue Nien Gan Chee Yen (Chairman and Independent Director) (Independent Director) The financial statements, accounting policies and system of internal accounting controls are the responsibility of the board of directors acting through the AC. The AC met as necessary and performed the functions specified in the Singapore Companies Act, Cap. 50. In performing its function, the AC reviewed the overall scope of the external audit. It met with the Company s external auditors to discuss the results of their examination and their evaluation of the Company s system of internal accounting controls. The AC also reviewed the assistance given by the officers to the auditors. The financial statements and the auditors report thereon were reviewed by the AC prior to their submission to the directors of the Company for adoption. In addition, the AC has reviewed the requirements for approval and disclosure of the interested persons transactions, reviewed the procedures set up by the Group and the Company to identify and report and where necessary, seek approval for interested persons transactions and reviewed interested persons transactions. The AC recommends to the board of directors that the auditors, Ernst & Young, be nominated for reappointment as auditors at the forthcoming Annual General Meeting of the Company. 7. Auditors Ernst & Young have expressed their willingness to accept reappointment as auditors. On behalf of the board of directors, Tien Sing Cheong Director Tan Ka Huat Director Singapore 20 February

23 Statement by the Directors We, Tien Sing Cheong and Tan Ka Huat, being two of the directors of CEI Contract Manufacturing Limited, do hereby state that, in the opinion of the directors, (a) the accompanying balance sheets, consolidated profit and loss account, statement of changes in equity, and consolidated cash flow statement together with notes thereto are drawn up so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2005 and of the results, changes in equity and cash flows of the Group and the changes in equity of the Company 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, Tien Sing Cheong Director Tan Ka Huat Director Singapore 20 February

24 Auditors Report To the Members of CEI Contract Manufacturing Limited We have audited the accompanying financial statements of CEI Contract Manufacturing Limited (the Company) and its subsidiary companies (collectively, the Group), set out on pages 23 to 63 for the year ended 31 December These financial statements are the responsibility of the Company s directors. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the directors, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, (a) (b) the consolidated financial statements of the Group and the balance sheet and statement of changes in equity of the Company are properly drawn up in accordance with the provisions of the Companies Act, Cap. 50 (the Act) and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2005 and the results, changes in equity and cash flows of the Group and the changes in equity of the Company for the year ended on that date; and 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 Certified Public Accountants Singapore 20 February

25 Consolidated Profit and Loss Account for the year ended 31 December 2005 Group Note $ $ (Restated) Revenue 4 70,562,352 62,450,800 Cost of sales (51,378,720) (43,859,155) Gross profit 19,183,632 18,591,645 Other income 474, ,353 General and administrative costs (9,680,376) (9,709,032) Selling and distribution costs (2,284,133) (1,765,101) Other operating income 90,611 Profit from operations 5 7,693,371 7,503,476 Share of results of associated company (59,000) (175,848) Profit from operations before taxation 7,634,371 7,327,628 Taxation 6 (1,869,586) (2,030,225) Profit after taxation 5,764,785 5,297,403 Earnings per share Basic cents 1.72 cents Diluted cents 1.68 cents The accompanying accounting policies and explanatory notes form an integral part of the financial statements. 23

26 Balance Sheets as at 31 December 2005 Group Company Note $ $ $ $ (Restated) (Restated) ASSETS LESS LIABILITIES Non-Current Assets Property, plant and equipment 8 7,782,328 7,835,608 1,148,414 1,470,729 Investments in subsidiary companies 9 9,480,338 7,623,518 Investments in associated companies , , , ,000 Investment securities 12 1,022,883 1,022,883 Deferred tax asset 6 550, , , ,000 8,954,578 9,508,491 11,860,002 10,767,130 Current Assets Cash and cash equivalents 13 12,031,169 16,747,968 11,222,694 16,010,569 Trade receivables 14 9,978,814 7,980,422 9,923,766 7,885,248 Other receivables , , , ,316 Amounts owing by subsidiary companies 16 3,417 1,659,382 Amounts owing by related companies, trade 5,347 5,347 Inventories 17 7,967,373 7,267,188 7,966,623 7,266,443 Investment securities 12 2,772,883 1,000,000 2,772,883 1,000,000 33,048,308 33,607,986 32,075,096 33,983,305 Current Liabilities Trade payables and accruals 18 11,087,319 10,029,737 10,559,342 9,481,387 Amounts owing to subsidiary company 16 5,223,690 6,008,317 Provision for taxation 2,358,320 2,709,757 1,915,611 1,896,757 Other liabilities 19 1,317,559 1,526,967 1,257,336 1,466,745 14,763,198 14,266,461 18,955,979 18,853,206 Net Current Assets 18,285,110 19,341,525 13,119,117 15,130,099 Net Assets 27,239,688 28,850,016 24,979,119 25,897,229 EQUITY Share capital 20 16,314,879 15,721,928 16,314,879 15,721,928 Share premium 2,944,715 1,591,813 2,944,715 1,591,813 Revenue reserve 7,568,056 10,921,279 5,307,487 7,968,492 Employee share options reserves , , , ,996 Total Equity 27,239,688 28,850,016 24,979,119 25,897,229 The accompanying accounting policies and explanatory notes form an integral part of the financial statements. 24

27 Statements of Changes in Equity for the year ended 31 December Group Employee share options Hedging Share capital Share Revenue reserves reserves Total (Note 20) Premium reserves (Note 21) (Note 22) equity $ $ $ $ $ $ At 31 December 2004 as previously reported 15,721,928 1,591,813 11,536,275 28,850,016 Cumulative effects of adopting FRS 102 (614,996) 614,996 At 31 December 2004 as restated 15,721,928 1,591,813 10,921, ,996 28,850,016 Effects of adopting FRS 39 (57,700) 88,520 30,820 At 1 January 2005 as restated 15,721,928 1,591,813 10,863, ,996 88,520 28,880,836 Net change in hedging reserve ( Note 22), representing net loss recognised directly in equity (88,520) (88,520) Profit for the year 5,764,785 5,764,785 Total recognised income and expenses for the year 5,764,785 (88,520) 5,676,265 Dividends on ordinary shares (Note 23) (9,060,308) (9,060,308) Grants of equity-settled share options to employees 114, ,230 Exercise of employee share options 592,951 1,352,902 (317,188) 1,628,665 At 31 December ,314,879 2,944,715 7,568, ,038 27,239, Group Employee share options Share capital Share Revenue reserves Total (Note 20) Premium reserves (Note 21) equity $ $ $ $ $ At 31 December 2003 as previously reported 15,119, ,210 10,479,147 25,964,360 Cumulative effects of adopting FRS 102 (223,783) 223,783 At 31 December 2003 as restated 15,119, ,210 10,255, ,783 25,964,360 Profit for the year 5,297,403 5,297,403 Dividends on ordinary shares (Note 23) (4,631,488) (4,631,488) Grants of equity-settled share options to employees 391, ,213 Exercise of employee share options 602,925 1,225,603 1,828,528 At 31 December ,721,928 1,591,813 10,921, ,996 28,850,016 The accompanying accounting policies and explanatory notes form an integral part of the financial statements. 25

28 Statements of Changes in Equity for the year ended 31 December Company Employee share options Hedging Share capital Share Revenue reserves reserves Total (Note 20) Premium reserves (Note 21) (Note 22) equity $ $ $ $ $ $ At 31 December 2004 as previously reported 15,721,928 1,591,813 8,583,488 25,897,229 Cumulative effects of adopting FRS 102 (614,996) 614,996 At 31 December 2004 as restated 15,721,928 1,591,813 7,968, ,996 25,897,229 Effects of adopting FRS 39 (57,700) 88,520 30,820 At 1 January 2005 as restated 15,721,928 1,591,813 7,910, ,996 88,520 25,928,049 Net change in hedging reserve (Note 22), representing net loss recognised directly in equity (88,520) (88,520) Profit for the year 6,457,003 6,457,003 Total recognised income and expenses for the year 6,457,003 (88,520) 6,368,483 Dividends on ordinary shares (Note 23) (9,060,308) (9,060,308) Grants of equity-settled share options to employees 114, ,230 Exercise of employee share options 592,951 1,352,902 (317,188) 1,628,665 At 31 December ,314,879 2,944,715 5,307, ,038 24,979,119 Employee share options Share capital Share Revenue reserves Total (Note 20) Premium reserves (Note 21) equity $ $ $ $ $ 2004 Company At 31 December 2003 as previously reported 15,119, ,210 7,200,505 22,685,718 Cumulative effects of adopting FRS 102 (223,783) 223,783 At 31 December 2003 as restated 15,119, ,210 6,976, ,783 22,685,718 Profit for the year 5,623,258 5,623,258 Dividends on ordinary shares (Note 23) (4,631,488) (4,631,488) Grants of equity-settled share options to employees 391, ,213 Exercise of employee share options 602,925 1,225,603 1,828,528 At 31 December ,721,928 1,591,813 7,968, ,996 25,897,229 The accompanying accounting policies and explanatory notes form an integral part of the financial statements. 26

29 Consolidated Cash Flow Statement for the year ended 31 December 2005 Cash flows from operating activities : Group $ $ (Restated) Profit from operations before taxation 7,634,371 7,327,628 Adjustments for : Depreciation of fixed assets 1,390,279 1,252,523 Interest income (470,274) (241,920) Negative goodwill arising on consolidation (194,000) Impairment of goodwill 100,000 Gain on sale of fixed assets (35,462) Expense of share-based payment 114, ,213 Fair value adjustment of investment securities 192,300 Share of results of associated company 59, ,848 Operating income before reinvestment in working capital 8,919,906 8,775,830 Increase in receivables (1,684,052) (2,497,102) Increase in inventories (700,185) (2,854,089) Increase in creditors 849,799 1,520,530 Increase in associated company, joint venture and related companies balances (257,504) Cash generated from operations 7,385,468 4,687,665 Interest received 470, ,920 Income tax paid (2,321,023) (1,298,158) Net cash flows provided by operating activities 5,534,719 3,631,427 Cash flows from investing activities : Purchase of fixed assets (1,338,625) (1,113,156) Proceeds from sale of fixed assets 199,431 Proceeds from redemption of unquoted debt securities 4,001,687 Investment in associated company (481,250) (300,000) Purchase of investment securities (1,000,000) (959,228) Net cash flows (used in) / provided by investing activities (2,819,875) 1,828,734 Cash flows from financing activities : Dividends paid (9,060,308) (4,631,488) Proceeds from issuance of share capital 1,628,665 1,828,528 Net cash flows used in financing activities (7,431,643) (2,802,960) Net (decrease) / increase in cash and cash equivalents (4,716,799) 2,657,201 Cash and cash equivalents at beginning of the year (Note 13) 16,747,968 14,090,767 Cash and cash equivalents at end of the year (Note 13) 12,031,169 16,747,968 The accompanying accounting policies and explanatory notes form an integral part of the financial statements. 27

30 Notes to the Financial Statements - 31 December Corporate information CEI Contract Manufacturing Limited (the Company), domiciled in Singapore, is a limited liability company incorporated in Singapore. The registered office of the Company is located at 10 Collyer Quay, #19-08 Ocean Building, Singapore The principal place of business of the Company is located at 2 Ang Mo Kio Ave 12, Singapore The principal activities of the Company are those of contract manufacturing services. Such services include printed circuit board assemblies, box-build assemblies, prototype assemblies and value add engineering works such as circuit layout and functional design. The principal activities of the subsidiary companies are set out in Note 3 to the financial statements. There have been no significant changes in the nature of these activities during the year. 2. Summary of significant accounting policies 2.1 Basis of preparation The consolidated financial statements of the Group and the balance sheet and statement of changes in equity of the Company have been prepared in accordance with Singapore Financial Reporting Standards (FRS). The financial statements have been prepared on a historical cost basis except for derivative financial instruments and held for trading financial 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 financial statements are presented in Singapore Dollars (SGD or $). 2.2 Changes in accounting policies The accounting policies have been consistently applied by the Group and the Company and are consistent with those used in the previous financial year, except for the changes in accounting policies discussed below. a) Adoption of new FRS On 1 January 2005, the Group and the Company adopted the following standards mandatory for annual financial periods beginning on or after 1 January FRS 39, Financial Instruments: Recognition and Measurement FRS 102, Share-based Payment i) FRS 39, Financial Instruments: Recognition and Measurement The Group and Company had adopted FRS 39 prospectively on 1 January At that date, financial assets within the scope of FRS 39 were classified as either financial assets at fair value through profit or loss, loans and receivables, held to maturity investments or available-for-sale financial assets, as appropriate. Financial assets that were classified as financial assets at fair value through profit or loss and available-for-sale financial assets were measured at fair value while loans and receivables and held to maturity investments were measured at amortised cost using the effective interest rate method. At 1 January 2005, differences between the carrying values and fair values of financial assets at fair value through profit or loss were recognised in accumulated profits while the differences between carrying values and fair values of available-for-sale financial assets were recognised in the fair value adjustment reserve. For investments carried at amortised cost, any differences between the carrying values and amortised costs as at 1 January 2005 were recognised in accumulated profits. At 1 January 2005, financial liabilities (other than derivative financial instruments) within the scope of FRS 39 were measured at amortised costs using the effective interest rate method. Any difference between the carrying values and amortised costs as at 1 January 2005 were recognised in accumulated profits. 28

31 Notes to the Financial Statements - 31 December Summary of significant accounting policies (cont d) 2.2 Changes in accounting policies (cont d) a) Adoption of new FRS (cont d) i) FRS 39, Financial Instruments: Recognition and Measurement (cont d) According to FRS 39, all derivative financial instruments held by the Group and the Company were recognised as assets or liabilities in the balance sheets and classified as financial assets or financial liabilities at fair value through profit or loss. Fair value adjustments of derivative financial instruments, except for those designated as hedging instruments in cash flow hedges, were recognised in accumulated profits at 1 January At 1 January 2005, the Company held forward currency contracts that were designated as hedging instruments in cash flow hedges of the foreign currency risks of firm commitments. The portion of the gain or loss on these hedging instruments that is determined to be an effective hedge was recognised directly in the hedging reserve at that date. Under the transitional provisions of FRS 39, the change in accounting policy on 1 January 2005 resulted in the following adjustments at that date: $57,700 to the Group s and the Company s revenue reserves; and $88,520 to the Group s and the Company s hedging reserves. ii) FRS 102, Share-based Payment The main impact of FRS 102 on the Group and the Company is the recognition of an expense and a corresponding entry to equity for share options granted to senior executives and general employees. The Group and the Company have applied FRS 102 retrospectively and have taken advantage of the transitional provisions of FRS 102 in respect of equity-settled awards. As a result, the Group and the Company have applied FRS 102 only to equity-settled awards granted after 22 November 2002 that had not vested on 1 January Under the transitional provisions of FRS 102, the change in accounting policy has resulted in the following: At 1 January 2005, the Group s and the Company s: o Employee share option reserves increased by $614,996 (2004 : increased by $223,783); o Revenue reserves decreased by $614,916 (2004 : decreased by $223,783). For the year ended 31 December 2005, the Group s: o o o Profit for the year decreased by $114,229 (2004 : decreased by $391,213) due to an increase in the employee benefits expense; Basic earnings per share decreased by 0.04 cents (2004 : decreased by 0.13 cents); and Diluted earnings per share decreased by 0.04 cents (2004 : decreased by 0.12 cents). b) Adoption of revised FRS The Group adopted the following revised standards mandatory for annual periods beginning on or after 1 January The adoption of these standards did not result in any significant change in accounting policies: FRS 1 (revised), Presentation of Financial Statements FRS 2 (revised), Inventories FRS 8 (revised), Effects of Changes in Accounting Policies FRS 10 (revised), Events after the Balance Sheet Date FRS 16 (revised), Property, Plant and Equipment FRS 17 (revised), Leases FRS 19 (revised), Employee Benefits FRS 21 (revised), The Effects of Changes in Foreign Exchange Rates FRS 24 (revised), Related Party Disclosures FRS 27 (revised), Consolidated and Separate Financial Statements FRS 28 (revised), Investments in Associates FRS 31 (revised), Interests in Joint Ventures FRS 32 (revised), Financial Instruments: Disclosure and Presentation FRS 33 (revised), Earnings Per Share 29

32 Notes to the Financial Statements - 31 December Summary of significant accounting policies (cont d) 2.2 Changes in accounting policies (cont d) c) FRS and INT FRS not yet effective The Group has not applied the following FRS and INT FRS that have been issued but are only effective for future financial periods. The Group expects that the adoption of the pronouncements listed below will have no impact on the financial statements in the period of initial application. i) FRS 40, Investment Property This standard is effective 1 January 2007 and does not apply to the activities of the Group. ii) FRS 106, Exploration for and Evaluation of Mineral Resources This standard is effective 1 January 2006 and does not apply to the activities of the Group. iii) INT FRS 104, Determining Whether an Arrangement Contains a Lease This interpretation requires the determination of whether an arrangement is, or contains a lease to be based on the substance of the arrangement and requires an assessment of whether the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. This interpretation is effective 1 January iv) INT FRS 105, Rights to Interests This interpretation is effective 1 January 2006 and is not expected to be relevant to the activities of the Group. 2.3 Significant accounting estimates and judgments Estimates, assumptions concerning the future and judgments are made in the preparation of the financial 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 on-going basis and are based on experience and relevant factors, including expectations of future events that are believed to be reasonable under the circumstances. a) 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 significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. i) Impairment of property, plant and equipment The carrying values of property, plant and equipment are reviewed for impairment in accordance with FRS 36 Impairment of Assets. As at 31 December 2005, the carrying amount of property, plant and equipment held by CEI International Investments (Vietnam) Limited amounted to $1,801,178 (2004: $1,753,089). In the determination of the value in use of the above property, plant and equipment, the Group is required to estimate the expected cash flows from the use of the property, plant and equipment and also to choose a suitable discount rate in order to calculate the present value of those cash flows. More details are included in Note 8. 30

33 Notes to the Financial Statements - 31 December Summary of significant accounting policies (cont d) 2.3 Significant accounting estimates and judgments (cont d) a) Key sources of estimation uncertainty (cont d) ii) Impairment of investments in subsidiary companies The carrying values of investments in subsidiary companies are reviewed for impairment in accordance with FRS 36 Impairment of Assets. As at 31 December 2005, the carrying amount of investment in CEI International Investment Pte Ltd was $2,494,341 (2004: $2,494,341). In the determination of the value in use of the investment, the Company is required to estimate the expected cash flows from the investment and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The cash flows from the investment in CEI International Investment Pte Ltd is dependent on the expected cash flows from the Company s investment in CEI International Investments (Vietnam) Limited whose underlying assets are assessed in 2.3 (a) (i) above. iii) Impairment of investment in associated company The carrying values of investments in associated companies and the related goodwill are reviewed for impairment in accordance with FRS 28 Investments in Associates. As at 31 December 2005, the Group s carrying amount of investment in Santec Corporation Pte Ltd was $449,000 (2004: $200,000). In the determination of the value in use of the investment, the Group is required to estimate the expected cash flows to be generated by the associated company and also to choose a suitable discount rate in order to calculate the present value of those cash flows. More details are included in Note 10. iv) Depreciation of plant and equipment The costs of plant and equipment used for the provision of contract manufacturing services is depreciated on a straight-line basis over their estimated useful lives. Management estimates the useful lives of these plant and equipment to be within 3 to 5 years. These are common life expectancies applied in the contract manufacturing industry. The carrying amount of the Group's plant and equipment as at 31 December 2005 was $1,343,539 (2004: $1,023,647). Changes in the expected level of usage and technological developments could impact the economic useful lives and the residual values of these assets, therefore future depreciation charges could be revised. v) Provision for taxation The Group has exposure to income taxes in a few jurisdictions. Significant judgment 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 final 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 as at 31 December 2005 was $2,358,320 (2004: $2,709,757). b) Critical judgments made in applying accounting policies The following are the judgments made by management in the process of applying the Group s accounting policies that have the most significant effect on the amounts recognised in the financial statements. i) Investment in an associated company The carrying values of investments in associated companies and the related goodwill are reviewed for impairment when there are indicators of impairment. There has been no indicators of impairment assessed by management in respect of the investment in TeleMoney Asia Pte Ltd as the company s business plans had been assessed to be viable. As at 31 December 2005, the zcarrying amount of investment in TeleMoney Asia Pte Ltd was $173,250 (2004: Nil). 31

34 Notes to the Financial Statements - 31 December Summary of significant accounting policies (cont d) 2.4 Functional and foreign currency a) Functional currency The management has determined the currency of the primary economic environment in which the Company operates i.e. functional currency, to be SGD. Sales prices and major costs of providing goods and services including major operating expenses are primarily influenced by fluctuations in SGD. b) 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 profit and loss account except for exchange differences arising on monetary items that form part of the Group s net investment in foreign subsidiaries, which are recognised initially in a separate component of equity as foreign currency translation reserve in the consolidated balance sheet and recognised in the consolidated profit and loss account on disposal of the subsidiary. In the Company s separate financial statements, such exchange differences are recognised in the profit and loss account. c) Foreign currency translation The results and financial position of foreign operations are translated into SGD using the following procedures: Assets and liabilities for each balance sheet presented are translated at the closing rate ruling at that balance sheet date; and Income and expenses for each income statement are translated at average exchange rates for the year, which approximates the exchange rates at the dates of the transactions. All resulting exchange differences are recognised in a separate component of equity as foreign currency translation reserve. Goodwill and fair value adjustments which arose on acquisitions of foreign subsidiaries before 1 January 2005 are deemed to be assets and liabilities of the parent company and are recorded in SGD at the rates prevailing at the date of acquisition. On disposal of a foreign operation, the cumulative amount of exchange differences deferred in equity relating to that foreign operation is recognised in the profit and loss account as a component of the gain or loss on disposal. 2.5 Subsidiary companies and principles of consolidation a) Subsidiary companies A subsidiary is an entity over which the Group has the power to govern the financial and operating policies so as to obtain benefits from its activities. 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 directors. In the Company s separate financial statements, investments in subsidiary companies are accounted for at cost less any impairment losses. 32

35 Notes to the Financial Statements - 31 December Summary of significant accounting policies (cont d) 2.5 Subsidiary companies and principles of consolidation (cont d) b) Principles of consolidation The consolidated financial statements comprise the financial statements of the company and its subsidiary companies as at the balance sheet date. The financial statements of the subsidiary companies are prepared for the same reporting date as the Company. Consistent accounting policies are applied for like transactions and events in similar circumstances. All intra-group balances, transactions, income and expenses and profits and losses resulting from intra-group transactions that are recognised in assets, are eliminated in full. Subsidiary companies are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. Acquisitions of subsidiary companies are accounted for using the purchase method. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. Any excess of the cost of the business combination over the Group s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities represents goodwill. The goodwill is accounted for in accordance with the accounting policy for goodwill stated in Note 2.9 below. Any excess of the Group s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of business combination is recognised in the profit and loss account on the date of acquisition. 2.6 Associated companies An associated company is an entity, not being a subsidiary company or a joint venture company, in which the Group has significant influence. This generally coincides with the Group having 20% or more of the voting power, or has representation on the board of directors. The Group's investments in associated companies are accounted for using the equity method. Under the equity method, the investments in associated companies are carried in the balance sheet at cost plus postacquisition changes in the Group s share of net assets of the associated companies. The Group s share of the profit or loss of the associated companies is recognised in the consolidated profit and loss account. Where there has been a change recognised directly in the equity of the associated companies, the Group recognises its share of such changes. 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 companies. The associated companies are equity accounted for from the date the Group obtains significant influence until the date the Group ceases to have significant influence over the associated companies. Goodwill relating to associated companies is included in the carrying amount of the investments. Any excess of the Group s share of the net fair value of the associated companies identifiable assets, liabilities and contingent liabilities over the cost of the investments are excluded from the carrying amount of the investments and are instead included as income in the determination of the Group s share of the associated companies profit or loss in the period in which the investments are acquired. When the Group s share of losses in associated companies equal or exceed its interest in the associated companies, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associated companies. In the Company s separate financial statements, investments in associated companies are accounted for at cost less impairment losses. 33

36 Notes to the Financial Statements - 31 December Summary of significant accounting policies (cont d) 2.7 Joint venture company The Group has an interest in a joint venture company which is a jointly controlled entity. A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control, and a jointly controlled entity is a joint venture that involves the establishment of a separate entity in which each venturer has an interest. The Group recognises its interest in the joint venture using proportionate consolidation. The Group combines its share of each of the assets, liabilities, income and expenses of the joint venture with the similar items, line by line, in its consolidated financial statements. The financial statements of the joint venture are prepared for the same reporting year as the Company. Consistent accounting policies are applied for like transactions and events in similar circumstances. The joint venture is proportionately consolidated until the date on which the Group ceases to have joint control over the joint venture. In the Company s separate financial statements, investment in joint venture is accounted for at cost less impairment losses. 2.8 Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and any impairment in value. All items of property, plant and equipment are initially recorded at cost. The initial cost of property, plant and equipment comprises its purchase price, including import duties and non-refundable purchase taxes and any directly attributable costs of bringing the asset to its working condition and location for its intended use, any trade discounts and rebates are deducted in arriving at the purchase price. Expenditure incurred after the property, plant and equipment have been put into operation, such as repairs and maintenance and overhaul costs, is normally charged to the profit and loss account in the period in which the costs are incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property, plant and equipment beyond its originally assessed standard of performance, the expenditure is capitalised as an additional cost of property, plant and equipment. Depreciation of an asset begins when it is available for use and is computed on a straight-line basis over the estimated useful lives of the assets as follows :- Leasehold land - Over lease period Leasehold buildings - Shorter of lease period and 25 years Plant and machinery years Office furniture, fittings and equipment - 5 years Motor vehicles years Computer equipment - 2 years Renovation - 5 years The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. The residual values, useful life and depreciation method are reviewed at each financial year-end to ensure that the amount, method and period of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the items of property, plant and equipment. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset is included in the profit and loss account in the year the asset is derecognised. 34

37 Notes to the Financial Statements - 31 December Summary of significant accounting policies (cont d) 2.9 Goodwill Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Group s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. 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 benefit 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 either the Group s primary or the Group s secondary reporting format. A cash-generating unit (or group of cash-generating units) to which goodwill has been allocated are tested for impairment annually and whenever there is an indication that the unit may be impaired, by comparing the carrying amount of the unit, including the goodwill, with the recoverable amount of the unit. Where the recoverable amount of the cash-generating unit (or group of cash-generating units) is less than the carrying amount, an impairment loss is recognised. Where goodwill forms part of a cash-generating unit (or group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained Impairment of non-financial assets The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset (i.e. goodwill acquired in a business combination) is required, the Group makes an estimate of the asset s recoverable amount. An asset s recoverable amount is the higher of an asset s or cash-generating unit s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Impairment losses of continuing operations are recognised in the profit and loss account as impairment losses. 35

38 Notes to the Financial Statements - 31 December Summary of significant accounting policies (cont d) 2.10 Impairment of non-financial assets (cont d) An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses recognised for an asset other than goodwill may no longer exist or may have decreased. 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. Reversal of an impairment loss is recognised in the profit and loss account. After such a reversal, the depreciation charge 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 Financial assets Financial assets within the scope of FRS 39 are classified as either financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, or available-for-sale financial assets, as appropriate. Financial assets are recognised on the balance sheet when, and only when, the Group becomes a party to the contractual provisions of the financial instrument. When financial assets are recognised initially, they are measured at fair value, plus, in the case of financial assets not at fair value through profit or loss, directly attributable transaction costs. The Group determines the classification of its financial assets after initial recognition and, where allowed and appropriate, reevaluates this designation at each financial year-end. All regular way purchases and sales of financial assets are recognised on the trade date i.e. the date that the Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace concerned. a) Financial assets at fair value through profit or loss Financial assets classified as held for trading are included in the category financial assets at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivative financial instruments are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on investments held for trading are recognised in the profit and loss account. The Group does not designate any financial assets not held for trading as financial assets at fair value through profit and loss. b) Held-to-maturity investments Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as heldto-maturity when the Group has the positive intention and ability to hold the assets to maturity. Investments intended to be held for an undefined period are not included in this classification. Other long-term investments that are intended to be held-to-maturity, such as bonds, are subsequently measured at amortised cost using the effective interest method. This cost is computed as the amount initially recognised minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initially recognised amount and the maturity amount and minus any reduction for impairment or uncollectibility. This calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums and discounts. For investments carried at amortised cost, gains and losses are recognised in the profit and loss account when the investments are derecognised or impaired, as well as through the amortisation process. 36

39 Notes to the Financial Statements - 31 December Summary of significant accounting policies (cont d) 2.11 Financial assets (cont d) c) Loans and receivables Non-derivative financial assets with fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in profit and loss account when the loans and receivables are derecognised or impaired, as well as through the amortisation process. d) Available-for-sale financial assets Available-for-sale financial assets are those non-derivative financial assets that are designated as availablefor-sale or are not classified in any of the three preceding categories. After initial recognition, available-for sale financial assets are measured at fair value with gains or losses being recognised in the fair value adjustment reserve 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 profit and loss account Investment securities Investment securities are classified as financial assets at fair value through profit and loss or held-to-maturity investments, as appropriate. The accounting policies for the aforementioned categories of financial assets are stated in Note Cash and cash equivalents Cash and cash equivalents comprise cash on hand and at bank, demand deposits and short-term, highly liquid investments readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. Cash and short-term deposits carried in the balance sheets, are classified for as loans and receivables. The accounting policy for this category of financial assets is stated in Note Trade and other receivables Trade and other receivables, including amounts due from subsidiary, associated, related companies and loans to related companies are classified and accounted for as loans and receivables under FRS 39. The accounting policy for this category of financial assets is stated in Note An allowance is made for uncollectible amounts when there is objective evidence that the Group will not be able to collect the debt. Bad debts are written off when identified. Further details on the accounting policy for impairment of financial assets are stated in Note 2.15 below Impairment of financial assets The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or group of financial assets is impaired. a) Assets carried at amortised cost If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective interest rate (i.e. the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced through the use of an allowance account. The amount of the loss is recognised in the profit and loss account. 37

40 Notes to the Financial Statements - 31 December Summary of significant accounting policies (cont d) 2.15 Impairment of financial assets (cont d) a) Assets carried at amortised cost (cont d) 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 profit and loss account, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date. b) Assets carried at cost If there is objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument has been incurred, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses are not reversed in subsequent periods. c) Available-for-sale financial assets If an available-for-sale financial asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in the profit and loss account, is transferred from equity to the income statement. Reversals in respect of equity instruments classified as available-for-sale are not recognised in the profit and loss account. Reversals of impairment losses on debt instruments are reversed through the profit and loss account, 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 profit and loss account Inventories Inventories are stated at the lower of costs (determined principally on standard costs which approximate the actual costs) and net realisable value. In arriving at net realisable value, due allowance is made for all obsolete and slow-moving items. Net realisable value is the estimated selling price in the ordinary course of business, less estimated cost of completion and the estimated costs necessary to make the sale. Cost of finished goods and work-in-progress include cost of direct materials, labour and an appropriate portion of fixed and variable factory overheads Trade and other payables Liabilities for trade and other amounts payable which are normally settled on day terms, and payables to related parties are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in the profit and loss account when the liabilities are derecognised as well as through the amortisation process. 38

41 Notes to the Financial Statements - 31 December Summary of significant accounting policies (cont d) 2.18 Derecognition of financial assets and liabilities a) Financial assets A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when: The contractual rights to receive cash flows from the asset have expired; The Group retains the contractual rights to receive cash flows from the asset, 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 flows 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. Where the Group has transferred its rights to receive cash flows 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 financial 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 profit and loss account. b) Financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification 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 profit and loss account Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) where, as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the profit and loss account net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as finance costs. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed. 39

42 Notes to the Financial Statements - 31 December Summary of significant accounting policies (cont d) 2.20 Employee benefits a) Defined contribution plans The Group participates in the national pension schemes as defined by the laws of the countries in which it has operations. In particular, the Singapore companies in the Group make contributions to the Central Provident Fund scheme in Singapore, a defined contribution pension scheme. Contributions to national pension schemes are recognised as an expense in the period in which the related service is performed. b) Employee leave entitlement Employee entitlements to annual leave are recognised as a liability when they accrue to employees. The estimated liability for leave is recognised for services rendered by employees up to balance sheet date. c) Employee share option plans Employees (including senior executives) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for share options ( equity-settled transactions ). The cost of equity-settled transactions with employees is measured by reference to the fair value at the date on which the share options are granted. In valuing the share options, no account is taken of any performance conditions, other than conditions linked to the price of the shares of the Company ( market conditions ), if applicable. The cost of equity-settled transactions is recognised, together with a corresponding increase in the employee share option reserve, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award ( the vesting date ). The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group s best estimate of the number of equity instruments that will ultimately vest. The profit or loss charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vested irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied. Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any modification, which increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification. Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph. The Group has taken advantage of the transitional provisions of FRS 102 in respect of equity-settled awards and has applied FRS 102 only to equity-settled awards granted after 22 November 2002 that had not vested on or before 1 January Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before the revenue is recognised. 40

43 Notes to the Financial Statements - 31 December Summary of significant accounting policies (cont d) 2.21 Revenue recognition (cont d) a) Sales of goods Revenue is recognised upon the transfer of significant risks and rewards of ownership of the goods to the customer, which generally coincides with delivery and acceptance of the goods sold. Revenue is not recognised to the extent where there are significant uncertainties regarding the recovery of the consideration due, associated costs or the possible return of goods. b) Interest income Revenue is recognised as the interest accrues (using the effective interest method) unless collectibility is in doubt Income taxes a) Current tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date. b) Deferred tax Deferred income tax is provided using the liability method on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary differences, except: Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax credits and unused tax losses can be utilised except: Where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Income tax relating to items recognised directly in equity is recognised in equity. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. 41

44 Notes to the Financial Statements - 31 December Summary of significant accounting policies (cont d) 2.22 Income taxes (cont d) c) Sales tax Revenues, expenses and assets are recognised net of the amount of sales tax except: Where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and Receivables and payables that are stated with the amount of sales tax included. The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet Derivative financial instruments and hedging activities The Group uses derivative financial instruments such as forward currency contracts to hedge its risks associated with foreign currency. Such derivative financial 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. Derivative financial instruments are carried as assets when the fair value is positive and as liabilities when the fair value is negative. Any gains or losses arising from changes in fair value on derivative financial instruments that do not qualify for hedge accounting are taken to the profit and loss account for the year. The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. For the purpose of hedge accounting, hedges are classified as Fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability or an unrecognised firm commitment, that is attributable to a particular risk and could affect profit or loss; Cash flow hedges when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction and could affect profit or loss; or Hedges of a net investment in a foreign operation 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 identification of the hedging instrument, the hedged 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 flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated. Hedges which meet the strict criteria for hedge accounting are accounted for as follows: a) 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 derivative is remeasured at fair value and gains and losses from both are taken to the profit and loss account. For fair value hedges relating to items carried at amortised cost, the adjustment to carrying value is amortised through the profit and loss account over the remaining term to maturity. Any adjustment to the carrying amount of a hedged financial instrument for which the effective interest method is used is amortised to the profit and loss account. Amortisation begins as soon as an adjustment exists but no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged. 42

45 Notes to the Financial Statements - 31 December Summary of significant accounting policies (cont d) 2.23 Derivative financial instruments and hedging activities (cont d) a) Fair value hedges (cont d) When an unrecognised firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognised as an asset or liability with a corresponding gain or loss recognised in the profit and loss account. The changes in the fair value of the hedging instrument are also recognised in the profit and loss account. 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 hedged financial instrument for which the effective interest method is used is amortised to the profit and loss account. Amortisation begins as soon as an adjustment exists but no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged. b) Cash flow hedges For cash flow hedges, the effective portion of the gain or loss on the hedging instrument is recognised directly in the hedging reserve, while the ineffective portion is recognised in the profit and loss account. Amounts taken to hedging reserve are transferred to the profit and loss account when the hedged transaction affects profit or loss, such as when hedged financial income or financial expense is recognised or when a forecast sale or purchase occurs. Where the hedged item is the cost of a non-financial asset or liability, the amounts taken to hedging reserve are transferred to the initial carrying amount of the non-financial asset or liability. If the forecast transaction is no longer expected to occur, amounts previously recognised in hedging reserve are transferred to the profit and loss account. 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 hedging reserve remain in equity until the forecast transaction occurs. If the related transaction is not expected to occur, the amount is taken to the profit and loss account. c) Hedges of a net investment Hedges of a net investment in a foreign operation, including a hedge of a monetary item that is accounted for as part of the net investment, are accounted for in a way similar to cash flow hedges. Gains or losses on the hedging instrument relating to the effective portion of the hedge are recognised directly in the foreign currency translation reserve while any gains or losses relating to the ineffective portion are recognised in the profit and loss account. On disposal of the foreign operation, the cumulative value of any such gains or losses recognised directly in the foreign currency translation reserve is transferred to the profit and loss account Operating leases Operating lease payments are recognized as an expense in the profit and loss account on a straight line basis over the lease term. The aggregate benefit of incentives provided by the lessor is recognized as a reduction of rental expense over the lease term on a straight line basis Segment reporting Segment information is presented in respect of the Group s geographical segments. The primary format, geographical segments, is based on the location of the Group s customers. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items mainly comprise corporate assets, liabilities and expenses. Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period. Segment accounting policies are the same as the policies of the Group. The Group generally accounts for inter-segment sales and transfers as if the sales or transfers were to third parties at current market price. These transfers are eliminated on consolidation. 43

46 Notes to the Financial Statements - 31 December Subsidiary, associated and joint venture companies Details of the subsidiary, associated and joint venture companies as at 31 December 2005 are :- Name of company Principal activities Cost Percentage of (Country of incorporation) (Place of business) equity held $ $ % % Subsidiary companies Held by the Company *** PT Surya Printed circuit board 2,999,035 2,999, Teknologi Batam assembly and contract (Indonesia) manufacturing (Indonesia) * CEI International Investment holding 2,494,341 2,494, Investments Pte (Singapore) Ltd (Singapore) * Tangera Pte Ltd Holding of 3,539,365 3,539, (Singapore) industrial property (Singapore) 9,032,741 9,032,741 Subsidiary companies Held through subsidiary company ** CEI International Printed circuit board Investments (VN) assembly and contract Ltd (Vietnam) manufacturing (Vietnam) Associated company Held by the Company # Santec Corporation Precision engineering, 608, , Pte Ltd stamping and tool and (Singapore) die making (People s Republic of China) ^ TeleMoney Asia Provision of online 173, Pte Ltd and mobile payment (Singapore) services (Vietnam) 781, ,000 Joint venture company Held through subsidiary company * CEI-TOYO Contract manufacturing Singapore Pte Ltd services (Singapore) (Singapore) * Audited by Ernst & Young, Singapore. ** Audited by member firm of Ernst & Young Global in Vietnam. *** Audited by Kantor Akuntan Publik Drs. Sukimto Sjamsuli. # Audited by Diong T.P. & Co. ^ Audited by Chan-Soh & Co. 44

47 Notes to the Financial Statements - 31 December Revenue Revenue represents the net invoiced value of goods sold. 5. Profit from operations Group $ $ (Restated) This is stated after charging/(crediting) the following :- Non-audit fees paid to - Auditors of the company 14,000 9,800 - Other auditors 33,210 23,400 Depreciation of fixed assets 1,390,279 1,252,523 Allowance for impairment of goodwill in respect of an associated company 100,000 Negative goodwill arising on consolidation (194,000) Write-back of allowance for doubtful debts (299,761) Write-back of allowance for inventory obsolescence (31,011) Allowance for inventory obsolescence 186, ,716 Interest income on fixed deposits (470,274) (241,920) Exchange (gain)/ loss (105,941) 107,852 Loss/ (gain) on disposal of fixed assets 1,426 (35,462) Staff costs - Central Provident Fund contributions 463, ,854 - Salaries, wages, bonuses and other costs 8,059,702 7,556,842 - Expense of share-based payments 114, ,213 Fair value adjustment of investment securities 192,300 45

48 Notes to the Financial Statements - 31 December Taxation The major components of income tax expense for the years ended 31 December are:- Group $ $ Current taxation 1,969,586 2,232,648 Deferred taxation (100,000) (30,000) 1,869,586 2,202,648 Over-provision of current taxation in respect of prior years (175,204) Share of associated company s taxation 2,781 Income tax recognized in profit and loss account 1,869,586 2,030,225 A reconciliation between the tax expense and the product of accounting profit multiplied by the applicable tax rate for the years ended 31 December were as follows : Group $ $ Profit before tax 7,634,371 7,327,628 Income tax at statutory tax rate of 20% (2004 : 20%) 1,526,875 1,465,526 Adjustments : Expense not deductible for tax purposes 159, ,838 Different effective tax rates of other countries 170, ,020 Tax effect of change in statutory tax rate 36,332 Tax effect of partial tax exemption (10,500) (10,500) Others 23,329 33,432 1,869,586 2,202,648 There are no income tax consequences attached to the dividends to the shareholders proposed by the Company but not recognized as a liability in the financial statements (Note 23). 46

49 Notes to the Financial Statements - 31 December Taxation (cont d) Deferred income tax Deferred income tax as at 31 December relates to the following: Deferred tax liabilities Group and Company $ $ Excess of net book value over tax written down value of property, plant and equipment 87, ,340 Deferred tax assets Allowance for stock obsolescence 492, ,131 Allowance for doubtful debts 10,595 10,595 Fair value changes of financial instruments 50,000 Other deferred tax assets 84,026 90,614 Gross deferred tax assets 637, ,340 Net deferred tax asset 550, , Earnings per share Basic earnings per share is calculated by dividing the net profit for the year attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share is calculated by dividing the net profit attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all dilutive potential options into ordinary shares. The following reflects the income and share data used in the computation of basic and diluted earnings per share for the years ended 31 December : $ $ (Restated) Net profit attributable to ordinary shareholders for basic and diluted earnings per share 5,764,785 5,297,403 No. of shares No. of shares Weighted average number of ordinary shares for basic earnings per share computation 312,148, ,500,432 Effects of dilution arising from employee share options scheme 2,270,150 6,679,407 Weighted average number of ordinary shares adjusted for the effects of dilution 314,419, ,179,839 In the calculation of diluted earnings per share, 2,372,000 (2004: Nil) share options granted to employees under the existing employee share option plans have not been included in the calculation because they are anti-dilutive for the current financial year presented. 47

50 Notes to the Financial Statements - 31 December Property, plant and equipment Office Leasehold furniture, land and Plant and Motor fitting and Computer Group buildings machinery vehicles equipment equipment Renovation Total $ $ $ $ $ $ $ Cost As at 1 January ,822,913 5,067,136 1,577, , , ,697 12,781,006 Due to acquisition of a subsidiary 2,556,231 8,148 75,672 2,640,051 Additions 14, ,268 80,000 32, ,273 1,113,156 Disposal/Write-off (94,667) (163,000) (1,120) (29,325) (288,112) As at 31 December ,393,399 5,476,737 1,494, ,908 1,176, ,369 16,246,101 and 1 January 2005 Additions 334, ,890 78,300 67, ,972 6,000 1,338,625 Disposal/Write-off (650) (6,600) (7,250) As at 31 December ,728,355 6,217,627 1,572, ,815 1,286, ,369 17,577,476 Accumulated depreciation As at 1 January ,636,743 4,114, , , , ,907 7,282,114 Depreciation charge for the year 232, , ,862 28, ,904 90,474 1,252,523 Disposal/Write-off (17,978) (76,941) (1,025) (28,200) (124,144) As at 31 December ,869,095 4,453, , , , ,381 8,410,493 and 1 January 2005 Depreciation charge for the year 310, , ,493 38, ,414 42,485 1,390,279 Disposal/Write-off (649) (4,975) (5,624) As at 31 December ,179,603 4,874,088 1,016, ,994 1,084, ,866 9,795,148 Net carrying amount As at 31 December ,548,752 1,343, , , ,645 20,503 7,782,328 As at 31 December ,524,304 1,023, ,262 83, ,087 56,988 7,835,608 48

51 Notes to the Financial Statements - 31 December Property, plant and equipment (cont d) Office furniture, Plant and Motor fitting and Computer Company machinery vehicles equipment equipment Renovation Total $ $ $ $ $ $ Cost As at 1 January ,034 1,512, , , ,897 2,966,112 Additions 326,995 80,000 1, , ,238 Disposal/Write-off (163,000) (470) (522) (163,992) As at 31 December 2004 and 1 January ,029 1,429, ,847 1,008, ,897 3,680,358 Additions 194,760 1,300 46,225 98, ,540 Disposal/Write-off (650) (6,600) (7,250) As at 31 December ,789 1,430, ,472 1,106, ,897 4,013,648 Accumulated depreciation As at 1 January , ,472 87, , ,198 1,649,726 Depreciation charge for the year 43, ,630 24, ,039 69, ,220 Disposal/Write-off (76,941) (376) (77,317) As at 31 December 2004 and 1 January , , , , ,909 2,209,629 Depreciation charge for the year 83, ,077 23, ,898 1, ,229 Disposal/Write-off (649) (4,975) (5,624) As at 31 December , , , , ,097 2,865,234 Net carrying amount As at 31 December , ,517 56, , ,148,414 As at 31 December , ,295 35, ,785 1,988 1,470,729 Property, plant and equipment held by CEI International Investments (Vietnam) Limited The recoverable value of the property, plant and equipment held by CEI International Investments (Vietnam) Limited is determined based on a value in use calculation using the cash flow projections based on financial budgets approved by management covering a five year period. The discount rate applied to cash flow projections is 10% (2004: 10%) and the cash flows beyond the 5 year period are extrapolated using a Nil growth rate. The key assumptions for the cash flow projections is the budgeted gross margins and the expected production volumes. The basis used to determine the budgeted gross margins is approximately the average gross margins achieved in the year immediately before the budgeted year achieved by the Group. The expected production volumes is based on either actual volumes achieved in the year immediately before the budgeted year achieved by the Group and the order book quantities as at 31 December Details of leasehold land and buildings held through subsidiary companies are as follows : Location Description Tenure Land Area (sq m) Batamindo Industrial Park, Detached single-storey 21 April 1998 to Batam, Indonesia factory with mezzanine floor 18 December ,788 Vietnam Singapore Industrial Detached single-storey 6 March 2002 to Park, Binh Duong, Vietnam factory with mezzanine floor 11 February ,000 Vietnam Singapore Industrial Land parcel 7 December 2004 to Park, Binh Duong, Vietnam 11 February ,500 Ang Mo Kio Industrial Park II, Detached three-storey 1 March 2004 to Singapore factory building 28 February ,617 49

52 Notes to the Financial Statements - 31 December Investments in subsidiary companies Company $ $ Unquoted shares, at cost (Note 3) 9,032,741 9,032,741 Impairment losses (1,409,223) (1,409,223) Carrying amount of investments 7,623,518 7,623,518 Amounts owing by a subsidiary company 1,856,820 9,480,338 7,623,518 The amounts owing by a subsidiary company are effectively quasi-equity loans to the subsidiary company. 10. Investments in associated companies Group Company $ $ $ $ Unquoted shares, at cost (Note 3) 781, , , ,000 Share of post-acquisition reserves (59,000) Impairment of goodwill # (100,000) (100,000) (100,000) (100,000) Carrying amount 622, , , ,000 Goodwill arising from acquisition of Santec Corporation Pte Ltd 265, ,000 # Impairment loss (100,000) (100,000) Carrying amount 165,000 Investments in Santec Corporation Pte Ltd The recoverable value of the investment in Santec Corporation Pte Ltd, including the related goodwill, is determined based on a value in use calculation using the cash flow projections based on financial budgets approved by management covering a five year period. The discount rate applied to cash flow projections is 13% and the cash flows beyond the 5 year period are extrapolated using a Nil growth rate. The key assumptions for the cash flow projections is the budgeted gross margins and the expected production volumes. The basis used to determine the budgeted gross margins is approximately the average gross margins achieved in the year immediately before the budgeted year achieved, after elimination of one-off items that had affected the historical margins. The expected production volumes is based on the growth rates of the actual volumes achieved in the 2 years immediately before the budgeted year. 50

53 Notes to the Financial Statements - 31 December Investments in associated companies (cont d) The summarised financial information of the associated companies are as follows: $ $ Assets and Liabilities Current assets 2, Non-current assets 1,429 1,093 Total assets 3,783 1,870 Current liabilities (1,601) (464) Non-current liabilities (61) (95) Total liabilities (1,662) (559) Profit and loss Revenue 2,698 1,036 (Loss) / profit for the year (159) Interest in joint venture company The Group has 53.33% interest in the assets, liabilities, expenses and revenue of CEI-TOYO Singapore Pte Ltd. The Group s share of the assets, liabilities, revenue and expenses of the joint venture, which are included in the consolidated financial statements, are as follows : $ $ Assets and Liabilities Current assets 359, ,128 Non-current assets Total assets 359, ,249 Current liabilities (128,449) (138,174) Total liabilities (128,449) (138,174) Profit and loss Revenue 6,893 31,473 Cost of sales (6,204) (30,027) Other income 5,085 41,964 Expenses (7,059) (46,418) Loss for the year (1,285) (3,008) 51

54 Notes to the Financial Statements - 31 December Investment securities Group and Company $ $ (Restated) Held-to-maturity investments Secured bonds 1,022,883 1,022,883 Secured variable rate notes 1,000,000 Held for trading investments Callable target return surf deposit 750,000 1,000,000 2,772,883 2,022,883 Made up of : Non-current 1,022,883 Current 2,772,883 1,000,000 2,772,883 2,022,883 Secured bonds The secured bonds will mature on 7 December 2006 and earned an interest of 5.625% per annum which approximates its effective interest rate. The interest is received semi annually in arrears. Secured variable rate notes The secured variable rate notes will mature on 3 March 2006 and earned an interest of 3.33% per annum which approximates its effective interest rate. The interest is received on a quarterly basis in arrears. Callable target return surf deposit The callable target return surf deposit earned an interest of 7.3% over the life of the deposit. The deposit will mature on 2 April 2014 but it will be redeemed by the Bank upon the achievement of the target return. The deposit can be traded by the Group at its discretion. 13. Cash and cash equivalents Cash and cash equivalents comprise the following balance sheet amounts : Group Company $ $ $ $ Fixed deposits 7,227,396 12,170,732 6,900,666 11,822,421 Cash at bank 4,792,131 4,567,948 4,312,568 4,181,498 Cash on hand 11,642 9,288 9,460 6,650 12,031,169 16,747,968 11,222,694 16,010,569 The fixed deposits bear interest rates ranging from 1.5% to % (2004 : 0.5% to 1.5%) per annum, which are also the effective interest rates. The short term fixed deposits are made for varying periods of between one week and three months. 52

55 Notes to the Financial Statements - 31 December Trade receivables Group and Company $ $ Trade receivables are stated after deducting allowance for doubtful debts of : 52,976 52,976 Analysis of allowance for doubtful debts Balance at beginning of year 52, ,737 Written back during the year (Note 5) (299,761) Balance at end of year 52,976 52, Other receivables Group Company $ $ $ $ Deposits 127, ,849 49,340 55,340 Prepayments 134, , , ,976 Others 36,183 36, , , , , Amounts owing by/to subsidiary companies Amounts owing by subsidiary companies The amount owing by subsidiary companies are non-trade in nature, unsecured, interest-free and repayable on demand. Amounts owing to a subsidiary company Company $ $ Trade 4,730,985 5,162,283 Non-trade 492, ,034 5,223,690 6,008,317 The trade and non-trade balances owing to a subsidiary company are unsecured, interest-free and repayable on demand. 53

56 Notes to the Financial Statements - 31 December Inventories Group Company $ $ $ $ Finished products 763,847 1,135, ,847 1,135,186 Work-in-progress 591, , , ,472 Raw materials 6,612,046 5,664,530 6,611,296 5,663,785 Total inventories at lower of cost and net realisable value 7,967,373 7,267,188 7,966,623 7,266,443 Group and Company $ $ Inventories are stated after deducting allowance for inventory obsolescence of 2,462,365 2,275,656 Analysis of allowance for inventory obsolescence: Balance at beginning of year 2,275,656 1,750,951 Written back during the year (Note 18) (31,011) Allowance made during the year (Note 18) 186, ,716 Balance at end of year 2,462,365 2,275, Trade payables and accruals Group Company $ $ $ $ Trade payables 7,999,674 6,761,928 7,850,892 6,621,772 Accruals for operating expenses 3,087,645 3,267,809 2,708,450 2,859,615 11,087,319 10,029,737 10,559,342 9,481,387 54

57 Notes to the Financial Statements - 31 December Other liabilities Group Company $ $ $ $ Deposits by customers 321, , , ,235 Advanced billings to customers 995,885 1,276, ,885 1,276,510 1,317,559 1,526,967 1,257,336 1,466, Share capital Group and Company $ $ Authorised : Balance at beginning and end of year 1,000,000,000 ordinary shares of $0.05 each 50,000,000 50,000,000 Issued and fully paid : At beginning of year 314,438,562 (2004 : 302,380,050) ordinary shares of $0.05 each 15,721,928 15,119,003 Issuance of 11,859,012 (2004 : 12,058,512) ordinary shares of $0.05 each for cash under employee share option scheme 592, ,925 Balance at end of year 326,297,574 (2004 : 314,438,562) ordinary shares of $0.05 each 16,314,879 15,721,928 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. The Company has 6 employee share option schemes (Note 24) under which options to subscribe for the Company s ordinary shares have been granted to employees. 55

58 Notes to the Financial Statements - 31 December Employee share options reserves Employee share option reserves represents the equity-settled share options granted to employees (Note 24). The reserve is made up of the cumulative value of services received from employees recorded on grant of equity-settled share options. 22. Hedging reserves Hedging reserves record the portion of the fair value changes on derivative financial instruments designated as hedging instruments in cash flow hedges that is determined to be an effective hedge. The net change in the reserve arises from recognition in the profit and loss account on occurrence of hedged transactions. 23. Dividends Group and Company $ $ Dividends declared and paid :- Interim dividends: - Exempt (one-tier) for 2005 at 3.32% (2004 : 4.15% less tax) 541, ,881 Special dividends : - Exempt (one-tier) for 2005 at 14.13% (2004 : 16.52% less tax) 2,303,343 2,053,579 Second interim dividends : - Exempt (one-tier) for 2005 at 18.4% (2004 : Nil) 2,999,705 Final dividends: - For 2004 at 8.5% less tax (2003 : 8.5% less tax) 1,104,508 1,031,014 Special dividends: - Exempt (one-tier) for 2004 at 13.0% (2003 : 8.5% less tax) 2,111,555 1,031,014 9,060,308 4,631,488 Proposed but not recognized as a liability as at 31 December :- Dividends on ordinary shares, subject to shareholder s approval at AGM - Final exempt (one-tier) dividend for 2005 at 6.8% (2004 : 8.5% less tax) 1,109,412 1,069,083 - Special exempt (one-tier) dividend for 2005 at 11.1% (2004 : 13.0%) 1,810,952 2,043,804 2,920,364 3,112, Employee benefits The Company has an employee share incentive plan, CEI Contract Manufacturing Employees Share Option Scheme for the granting of non-transferable options. Options are granted at the prevailing market price determined as the average price of the five (5) consecutive trading days immediately preceding the Date of Grant of option. The subscription of price for each share in respect of which an Option is exercisable shall be a discount of between zero (0) and 20% of the prevailing market price. The quantum of discount is performance driven, formula-based and considers the Group s audited profit after taxation for two consecutive financial years starting with the financial year in which the Option was granted. All the options issued are at a 20% discount off market price at date of grant. Options may only be exercised after the second anniversary of the Date of Grant of that Option but before the fifth anniversary of the Date of Grant of that Option. Options granted are cancelled when the option holder ceases to be under full employment of the Company or any corporation in the Group subject to certain exceptions at the discretion of the Company. 56

59 Notes to the Financial Statements - 31 December Employee benefits (cont d) Information with respect to the number of options granted under the CEI Contract Manufacturing Employees Share Option Scheme is as follows : i) Options outstanding under Employees Share Options Scheme Number of shares Outstanding at beginning of the year 21,451,440 35,001,296 Granted (3) 2,372,000 Exercised (1) (11,859,012) (12,058,512) Lapsed (1,738,224) Forfeited (33,000) (1,491,344) Outstanding at end of the year (2) 10,193,204 21,451,440 Exercisable at end of year 7,821,204 11,100,440 (1) The weighted average share price at the date of exercise for the options was $ (2004: $0.2050). (2) The range of exercise prices for options outstanding at the end of the year was $ to $ (2004: $ to $0.1803). The weighted average remaining contractual life for these options is 2.6 years (2004: 2.5 years). (3) The fair value of options granted during the year was $0.049 (2004: Nil). The fair value of share options as at the date of grant, is estimated by an external valuer using Bloomberg Executive Option Valuation Model ("BEOVM"), taking into account the terms and conditions upon which the options were granted. The inputs to the model used for the year ended 31 December 2005 are shown below. Dividend yield (%) 4.15 and 8.5 Expected volatility (%) 35 Historical volatility (%) 35 Risk-free interest rate (%) Expected life of option (years) 1.5 Weighted average share price ($) Dividend yield The projected interim and final dividends are set at 4.15% and 8.5% of the par value of $0.05 for each financial year over the expected life of the options. Special dividends are uncertain and non-recurring, and thus not included in the projection. Expected and historical volatility An expected volatility of 35% has been applied in the BEOVM, after considering the Group's market profile, major corporate transactions, expectations on the Company's performance and industry outlook. Risk-free interest rate The annual yield, at the measurement date, of a Singapore Government Securities Bond with comparable maturity to the expected life of the options, based on the Singapore Sovereign yield curve, has been applied as a proxy to risk-free rate. This rate is assumed to be relatively stable over the life of the options. Expected life of option The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. No other features of the option grant were incorporated into the measurement of fair value. Weighted average share price The last traded price as at the date of grant has been used in the valuation of the Options. 57

60 Notes to the Financial Statements - 31 December Employee benefits (cont d) (ii) Details of share options 2005 Balance as at Number of or date of Balance holders Exercise ESOS Date of grant Options Options Options as at as at Price Exercisable grant if later exercised lapsed forfeited $ period ,678,104 1,939,880 1,738, ,913,936 1,473, , ,508,400 3,197,000 2,311, ,920,000 4,600,000 3,320, ,431, ,000 33,000 1,749, ,372,000 2,372, ,823,440 11,859,012 1,738,224 33,000 10,193, Number of Balance Balance holders Exercise Date of as at Options Options as at as at Price Exercisable ESOS grant exercised forfeited $ period ,360,440 4,128, ,704 3,678, ,301,856 4,387, ,913, ,207,000 3,542, ,200 5,508, ,525, ,000 7,920, ,607, ,000 2,431, ,001,296 12,058,512 1,491,344 21,451,440 (iii) Details of share options exercised 2005 ESOS No. of shares exercised Exercise price $ Proceeds from share issue $ 1 1,939, , ,473, , ,197, , ,600, , , ,412 11,859,012 1,628, ESOS No. of shares exercised Exercise price $ Proceeds from share issue $ 1 4,128, , ,387, , ,542, ,402 12,058,512 1,828,528 A total of 28,154,436 (2004: 16,295,424) options have been exercised as at the date of this report. 58

61 Notes to the Financial Statements - 31 December Related party disclosures An entity or individual is considered a related party of the Group for the purposes of the financial statements if : i) it possesses the ability (directly or indirectly) to control or exercise significant influence over the operating and financing decisions of the Group or vice versa; or ii) it is subject to common control or common significant influence. During the year, there were the following significant transactions with related parties based on terms agreed by the parties :- a) Sale and purchase of goods and services Group Company $ $ $ $ Sales made to related companies 2,902,676 2,738,735 Subcontract cost paid to subsidiary company 3,712,612 3,295,787 Rental paid to subsidiary company 257, ,974 Rental paid to associated company 133, ,974 These transactions were conducted on an arm s length basis on normal commercial terms. b) Compensation of key management personnel Group $ $ Central Provident Fund 81,965 75,850 Salaries, wages, bonuses and other costs 2,091,686 2,479,977 Share-based payments 221,272 67,006 Total compensation paid to key management personnel 2,394,923 2,622,833 Comprise amounts paid to: Directors of the Company 961, ,348 Other key management personnel 1,433,113 1,669,485 Total compensation paid to key management personnel 2,394,923 2,622,833 The remuneration of key management personnel are determined by the remuneration committee having regard to the performance of individuals and market trends. The table below shows the ranges of gross remuneration received by the top 5 executives (excluding directors) of the Company. Number of executives of the Group in remuneration bands : $250,000 to $499, Below $250, Total 5 5 Note: Remuneration paid to Mr Tien Sing Gee, who is related to the Executive Chairman amounted to $250,448 (2004: $220,650) 59

62 Notes to the Financial Statements - 31 December Related party disclosures (cont d) c) Director s remuneration The table below shows the ranges of gross remuneration received by the directors of the Company. Number of directors of the Group in remuneration bands : $250,000 to $499, Below $250, Total Financial instruments Financial risk management objectives and policies The Group is exposed to market risk, including primarily changes in interest rates and currency exchange rates and uses derivatives and other instruments in connection with its risk management activities. The Group does not hold or issue derivative financial instruments for trading purposes. The board reviews and agrees policies for managing each of these risks and they are summarised below. Interest rate risk The Group has cash balances placed with reputable banks, financial institutions. The Group manages its interest rate risks on its interest income by placing the cash balances in fixed deposits / products of varying maturities and interest rate terms. The Group does not engage in external financing. Information relating to the Group s interest rate exposure is also disclosed in the notes on the Group s investment securities, cash and cash equivalents. Foreign currency risk The Group uses foreign exchange contracts in managing its foreign currency risk arising from cash flows from anticipated transactions and financing arrangements denominated in foreign currencies, primarily the US dollar. Transaction risk is calculated in each foreign currency and includes foreign currency denominated assets and liabilities and firm probable purchases and sales commitments. As at the balance sheet date, after taking into account the effects of forward foreign exchange contracts, the Group s currency exposures are insignificant. Credit risk Credit risk arising from the inability of a counterparty to meet the terms of the Group s financial instrument contracts is generally limited to the amounts, if any, by which the counterparty s obligations exceed the obligations of the Group. It is the Group s policy to enter into financial instruments with a diversity of creditworthy counterparties. Therefore, the Group does not expect to incur material credit losses on its risk management or other financial instruments. Fair value of financial instruments Fair value is defined 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 flow models and option pricing models as appropriate. 60

63 Notes to the Financial Statements - 31 December Financial instruments (cont d) Fair value of financial instruments (cont d) The following methods and assumptions are used to estimate the fair value of each class of financial instruments: Cash and cash equivalents, investment securities, short-term receivables and short term payables The carrying amounts approximate fair value due to the relatively short-term maturity of these instruments. Derivatives The fair value of foreign exchange forward contracts is estimated based on the difference between the applicable forward rates prevailing at the balance sheet date and the contracted forward rates, multiplied by the notional amount and discounted to present value. As of 31 December 2005, the notional principal amounts and estimated fair values for foreign exchange contracts for the Group and Company are presented in the following table: Contractual Estimated Contractual Estimated notional fair value notional fair value amount amount $ 000 $ 000 $ 000 $ 000 Foreign exchange forward contracts 2,661 (25) 9, The maturity date of the foreign exchange forward contract approximate the timing of the expected cash flow of the hedged item, which are on varying periods up to 6 months from the financial year end. Credit risk exposures The Group s maximum exposure to credit risk (not taking into account the value of any collateral or other security held) in the event the counterparties fail to perform their obligations as of 31 December 2005 in relation to each class of recognised financial assets, other than derivatives, is the carrying amount of these assets as indicated in the balance sheet. With respect to derivative financial instruments, credit risk arises from the potential failure of counterparties to meet their obligations under the contract or arrangement. The Group and Company s maximum credit risk exposure for derivative instruments is as follows : Foreign exchange contracts the full amount of the foreign currency the Group and Company will be required to pay or purchase when settling the forward exchange contracts, should the counterparties not pay the currency they are committed to deliver to the Group and Company. Significant concentrations of credit risk Concentrations of credit risk exist when changes in economic industry or geographical factors similarly affects groups of counterparties whose aggregate credit exposure is significant in relation to the Group s total credit exposure. The Group s portfolio of financial instruments is broadly diversified along industry, product and geographical lines, and transactions are entered into with diverse creditworthy counterparties, thereby mitigating any significant concentration of credit risk. 61

64 Notes to the Financial Statements - 31 December Information by segment on the Group s operations (a) By business activity : The Group s principal activity consists wholly of printed circuit board assembly and box-build operations, therefore, no segment reporting of business activity is appropriate. (b) By geographical areas : The Group s geographical segments are based on the location of customers. The Group s assets are based mainly in Singapore, Indonesia and Vietnam where the Group operates. The following table presents revenue and expenditure information regarding geographical segments for the year ended 31 December 2005 and 2004 and certain asset and liability information regarding geographical segments at 31 December 2005 and Asia-Pacific USA Europe Consolidated $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 Segment turnover Sales 10,915 7,993 47,841 41,952 11,806 12,506 70,562 62,451 Cost of sales (8,297) (6,065) (35,147) (29,586) (7,935) (8,208) (51,379) (43,859) Segment result 2,618 1,928 12,694 12,366 3,871 4,298 19,183 18,592 Operating profit 7,694 7,503 Share of results of associated company (59) (176) (59) (176) Profit before taxation 7,635 7,327 Tax expense (1,870) (2,030) Net profit for the year 5,765 5,297 Other geographical information Segment assets 3,621 2,221 11,074 10,141 3,075 2,722 17,770 15,084 Interests in associated company Unallocated assets* 23,610 27,832 Total assets 42,002 43,116 Unallocated and total liabilities 14,763 14,266 Other segment information: Impairment of goodwill * Capital expenditures of approximately $1,338,000 (2004: $1,113,000) and depreciation charge of approximately $1,390,000 (2004: $1,253,000) relate to that of the unallocated assets. 62

65 Notes to the Financial Statements - 31 December Comparatives Comparatives in the financial statements have been changed from the previous financial year due to the changes in accounting policies as disclosed in Note 2 and to be consistent with current year presentation. The following comparatives have also been reclassified to better reflect the nature of the balances. Consolidated profit and loss account Group As restated As previously reported Distribution costs 402,934 Selling and distribution costs 1,765,101 1,114,137 Balance sheet Group Company As restated As previously As restated As previously reported reported $ $ $ $ Cash and cash equivalents 16,747,968 17,747,968 16,010,569 17,010,569 Investments securities (current portion) 1,000,000 1,000, Authorisation of financial statements for issue The financial statements for the year ended 31 December 2005 were authorised for issue in accordance with a resolution of the directors on 20 February

66 Statistics Of Shareholdings As At 20 February 2006 Issued and fully paid-up capital : S$16,326, Class of shares : Ordinary Share Voting rights : One vote per share Distribution of Shareholdings Size of Shareholdings No of Shareholders % No of Shares % , ,000 10,000 1, ,275, ,001 1,000,000 2, ,584, ,000,001 and above ,384, Total 4, ,392, Twenty Largest Shareholders Name No of Shares % 1. Republic Technologies Pte Ltd 62,726, Tien Sing Cheong 34,687, Tan Ka Kaharianto Tanmalano 15,901, Ng Cheng Kung 6,878, Hong Leong Finance Nominees Pte Ltd 6,025, DBS Nominees Pte Ltd 5,941, United Overseas Bank Nominees Pte Ltd 5,742, Tan Cheok Hoong 5,360, Heng Teck Yow 4,620, Thng Ah Hiang 3,908, DBS Vickers Securities (Singapore) Pte Ltd 3,659, OCBC Nominees Singapore Pte Ltd 3,387, The Asia Life Assurance Society Ltd - Par Fund 3,135, Lim Sea Leang 3,120, UOB Kay Hian Pte Ltd 2,707, Lim Piak Hwa 2,505, Kuan Bon Heng 2,300, OCBC Securities Private Ltd 1,892, Phillip Securities Pte Ltd 1,888, Tan Bien Chuan 1,878, Total 178,268, Substantial Shareholders Substantial shareholders as recorded in the Register of Substantial Shareholders as at 20 February 2006 No of Shares Held By No of Shares Held By Substantial Shareholders Substantial Shareholders Direct Interest % Deemed Interest % Temasek Holdings (Private) Limited 1 62,726, Temasek Capital (Private) Limited 1 62,726, Seletar Investments Pte Ltd 1 62,726, Republic Technologies Pte Ltd 62,726, Tien Sing Cheong 34,687, Note: 1 Temasek Holdings (Private) Limited, Temasek Capital (Private) Limited and Seletar Investments Pte Ltd are deemed to have an interest in 62,746,400 shares held by Republic Technologies Pte Ltd. Based on the information available to the Company, approximately 65.28% of the Company s shares listed on the Singapore Exchange Securities Trading Limited were in the hands of the public. Therefore, the Company has complied with Rule 723 of the SGX Listing Manual. 64

67 CEI CONTRACT MANUFACTURING LIMITED Company Registration No: H (Incorporated in the Republic of Singapore) NOTICE OF ANNUAL GENERAL MEETING NOTICE IS HEREBY GIVEN that the Seventh Annual General Meeting of CEI Contract Manufacturing Limited ( the Company ) will be held at Swissotel Merchant Court, Merchant Court Ballroom (Section A), 20 Merchant Road, Singapore on Monday, 27 March 2006 at a.m. for the following purposes: AS ORDINARY BUSINESS 1. To receive and adopt the Directors Report and the Audited Accounts of the Company for the year ended 31 December 2005 together with the Auditors Report thereon. (Resolution 1) 2. To declare Tax Exempt Second and Final dividend of cents per ordinary share for the year ended 31 December 2005 (2004: cents per ordinary share). (Resolution 2) 3. To declare a Tax Exempt Special Dividend of cents per ordinary share for the year ended 31 December 2005 (2004: cents per ordinary share) (Resolution 3) 4. To re-elect Mr Tien Sing Cheong, who is retiring under Article 107 of the Company s Articles of Association, as a Director of the Company. Mr Tien Sing Cheong will, upon re-election as a Director of the Company, remain an Executive Chairman of the Board and a Member of the Nominating Committee. (Resolution 4) 5. To re-elect Mr Gan Chee Yen, who is retiring under Article 107 of the Company s Articles of Association, as a Director of the Company. Mr Gan Chee Yen will, upon re-election as a Director of the Company, remain a member of the Audit Committee and Remuneration Committee and will be considered as non-executive for the purposes of Rule 704(8) of Listing Manual of the Singapore Exchange Securities Trading Limited. (Resolution 5) 6. To approve the payment of Directors fees of S$138,000 for the year ended 31 December 2005 (31 December 2004: S$130,200). (Resolution 6) 7. To re-appoint Ernst & Young as the Company s Auditors and to authorise the Directors to fix their remuneration. (Resolution 7) 8. To transact any other ordinary business which may properly be transacted at an Annual General Meeting. AS SPECIAL BUSINESS To consider and if thought fit, to pass the following resolutions as Ordinary Resolutions, with or without any modifications: 9. Authority to allot and issue shares up to 50 per centum (50%) of issued share capital "That pursuant to Section 161 of the Companies Act, Cap. 50 and Rule 806 of the Listing Manual of the Singapore Exchange Securities Trading Limited, the Directors be empowered to allot and issue shares and convertible securities in the capital of the Company at any time and upon such terms and conditions and for such purposes as the Directors may, in their absolute discretion, deem fit provided that the aggregate number of shares (including shares to be issued in accordance with the terms of convertible securities issued, made or granted pursuant to this Resolution) to be allotted and issued pursuant to this Resolution shall not exceed fifty per centum (50%) of the issued share capital of the Company at the time of the passing of this Resolution, of which the aggregate number of shares and convertible securities to be issued other than on a pro rata basis to all shareholders of the Company shall not exceed twenty per centum (20%) of the issued share capital of the Company and that such authority shall, unless revoked or varied by the Company in general meeting, continue in force until the conclusion of the Company s next Annual General Meeting or the date by which the next Annual General Meeting of the Company is required by law to be held, whichever is earlier." [See Explanatory Note (i)] (Resolution 8) 65

68 AS SPECIAL BUSINESS (cont d) 10. Authority to allot and issue shares under the CEI ESOS That pursuant to the provisions of Section 161 of the Companies Act, Cap. 50, the Directors be empowered to allot and issue from time to time such number of shares in the capital of the Company as may be required to be issued pursuant to the exercise of the options that may be granted under the CEI Contract Manufacturing Employees Share Option Scheme (the Scheme ) provided always that the aggregate number of shares to be issued pursuant to the Scheme shall not exceed ten per centum (10%) of the issued share capital of the Company for the time being and that such authority shall, unless revoked or varied by the Company in general meeting, continue in force until the conclusion of the Company s next Annual General Meeting. [See Explanatory Note (ii)] (Resolution 9) By Order of the Board Susie Low Geok Eng / Teo Soon Hock Company Secretaries 10 March 2006 Explanatory Notes: (i) The Ordinary Resolution 8 proposed in item 9 above, if passed, will empower the Directors from the date of this Meeting until the date of the next Annual General Meeting, or the date by which the next Annual General Meeting is required by law to be held or when varied or revoked by the Company in general meeting, whichever is the earlier, to allot and issue shares and convertible securities in the Company. The number of shares and convertible securities that the Directors may allot and issue under this resolution would not exceed fifty per centum (50%) of the issued capital of the Company at the time of the passing of this resolution. For issue of shares and convertible securities other than on a pro rata basis to all shareholders, the aggregate number of shares and convertible securities to be issued shall not exceed twenty per centum (20%) of the issued capital of the Company. For the purpose of this resolution, the percentage of issued capital is based on the Company s issued capital at the time this proposed Ordinary Resolution is passed after adjusting for new shares arising from the conversion or exercise of convertible securities, the exercise of share options or the vesting of share awards outstanding or subsisting at the time when this proposed Ordinary Resolution is passed and any subsequent consolidation or subdivision of shares. (ii) The Ordinary Resolution 9 proposed in item 10 above, if passed, will empower the Directors of the Company, from the date of the above Meeting until the next Annual General Meeting, to allot and issue shares in the Company of up to a number not exceeding in total ten per centum (10%) of the issued share capital of the Company from time to time pursuant to the exercise of the options under the Scheme. Notes: 1. A Member entitled to attend and vote at the Annual General Meeting (the Meeting ) is entitled to appoint a proxy to attend and vote in his/her stead. A proxy need not be a Member of the Company. 2. The instrument appointing a proxy must be deposited at the Registered Office of the Company at Lim Associates (Pte) Ltd 10 Collyer Quay #19-08 Ocean Building Singapore not less than 48 hours before the time appointed for holding the Meeting. 66

69 IMPORTANT 1. For investors who have used their CPF monies to buy CEI shares, the 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 purpose if used or purported to be used by them. 3. CPF Investors who wish to vote and/or attend should contact their CPF Approved Nominees. CEI CONTRACT MANUFACTURING LIMITED Company Registration No: H (Incorporated In The Republic Of Singapore) PROXY FORM (Please see notes overleaf before completing this Form) I/We, (Name) of (Address) being a member/members of CEI CONTRACT MANUFACTURING LIMITED (the Company ), hereby appoint: Name Address NRIC/Passport Proportion of Number Shareholdings (%) and /or (delete as appropriate) Name Address NRIC/Passport Proportion of Number Shareholdings (%) or failing him/her, the Chairman of the meeting as my/our proxy to vote for me/us on my/our behalf and, if necessary, demand for a poll at the Annual General Meeting of the Company to be held on 27 March 2006 at a.m. and at any adjournment thereof. The proxy is to vote on the business before the meeting as indicated below. If no specific direction as to voting is given, the proxy will vote or abstain from voting at his/her discretion, as he/she will on any other matter arising at the Meeting: Resolutions relating to: For Against 1 The adoption of Directors Report and the Audited Accounts together with the Auditors Report thereon 2 Declaration of Tax Exempt Second and Final Dividend of cents per ordinary share 3 Declaration of Tax Exempt Special Dividend of cents per ordinary share 4 Re-election of Mr Tien Sing Cheong as a Director of the Company 5 Re-election of Mr Gan Chee Yen as a Director of the Company 6 Approval of the payment of Directors fees of S$138,000 7 Re-appointment of Ernst & Young as the Company s Auditors and to authorise Directors to fix their remuneration 8 Authority to allot and issue shares up to 50% of issued share capital 9 Authority to allot and issue shares under CEI ESOS (Please indicate with a cross [X] in the space provided whether you wish your vote to be cast for or against the Resolutions as set out in the Notice of the Meeting.) Dated this day of 2006 Signature of Shareholder(s) or, Common Seal of Corporate Shareholder Total number of Shares (a) CDP Register (b) Register of Members No. of Shares 67

70 CEI CONTRACT MANUFACTURING LIMITED Company Registration No: H (Incorporated In The Republic Of Singapore) PROXY FORM (Cont d Page 2) Notes: 1. Please insert the total number of Shares held by you. If you have Shares entered against your name in the Depository Register (as defined in Section 130A of the Companies Act, Chapter 50 of Singapore), you should insert that number of Shares. If you have Shares registered in your name in the Register of Members, you should insert that number of Shares. If you have Shares entered against your name in the Depository Register and Shares registered in your name in the Register of Members, you should insert the aggregate number of Shares entered against your name in the Depository Register and registered in your name in the Register of Members. If no number is inserted, the instrument appointing a proxy or proxies shall be deemed to relate to all the Shares held by you. 2. A member of the Company entitled to attend and vote at a meeting of the Company is entitled to appoint one or two proxies to attend and vote instead of him/her. A proxy need not be a member of the Company. 3. Where a member appoints two proxies, the appointments shall be invalid unless he/she specifies the proportion of his/her shareholding (expressed as a percentage of the whole) to be represented by each proxy. 4. The instrument appointing a proxy or proxies must be deposited at the registered office of the Company at 10 Collyer Quay #19-08, Ocean Building, Singapore not less than forty-eight (48) hours before the time appointed for the Annual General Meeting. 5. The instrument appointing a proxy or proxies must be under the hand of the appointor or of his attorney duly authorised in writing. Where the instrument appointing a proxy or proxies is executed by a corporation, it must be executed either under its seal or under the hand of an officer or attorney duly authorised. 6. A corporation which is a member may authorise by resolution of its directors or other governing body such person as it thinks fit to act as its representative at the Meeting, in accordance with Section 179 of the Companies Act, Chapter 50 of Singapore. General: The Company shall be entitled to reject the instrument appointing a proxy or proxies if it is incomplete, improperly completed or illegible or where the true intentions of the appointor are not ascertainable from the instructions of the appointor specified in the instrument appointing a proxy or proxies. In addition, in the case of Shares entered in the Depository Register, the Company may reject any instrument appointing a proxy or proxies lodged if the member, being the appointor, is not shown to have Shares entered against his name in the Depository Register as at forty-eight (48) hours before the time appointed for holding the Meeting, as certified by The Central Depository (Pte) Limited to the Company. 68

71