Kian Ho Bearings Ltd

Brands & Partnership Kian Ho Bearings Ltd

Brands & Partnership There is something about having a matching set of tea pot and cups that is most fitting to the whole experience of enjoying the exquisiteness and quality of drinking Chinese tea. Similarly in approach, we only partner with brands that are fitting to the most stringent of the KHB quality standard. CONTENTS Corporate Profile 2 Corporate Information 3 Chairman s Statement 4 Letter to Shareholders 6 Board of Directors 8 Key Management Staff 10 Group Financial Highlights 12 Financial Statements 13

1 Kian Ho Bearings Ltd Keeping the World in Motion Kian Ho Bearings Ltd stocks and distributes a wide range of bearings, factory automation products and seal products for all your application needs.

Kian Ho Bearings Ltd 2 Corporate Profile Kian Ho Bearings Ltd Singapore 60% Ascend Bearings Co., Ltd Taiwan 100% Kian Ho (M) Sdn Bhd Malaysia 100% Zhenjiang Zhongjian Bearings Co., Ltd 100% Acker Machinery (Shanghai) Co., Ltd China 100% SNB (H.K.) Co., Ltd Hong Kong Kian Ho Bearings Ltd - a Mainboard-listed company in the Singapore Stock Exchange - was founded in 1956 and is now one of the largest stockists, distributors and retailers of bearings and seal products in South-East Asia and the Far East, catering primarily to the bearings wholesalers, replacement markets and Original Equipment Manufacturers ( OEM ). Kian Ho s strength lies in the universal applicability of its bearings and seal products. The Group carries more than 20,000 bearings and 15,000 seals, which are used in almost all industries and products, such as in transportation, electronics, construction, oil and gas, petrochemical, manufacturing print and publishing, disk drive, marine, etc. Kian Ho currently has three offices in Singapore and four branches in neighbouring Malaysia. She has several subsidiaries overseas including Malaysia, Hong Kong, Taiwan, Shanghai and Jiangsu Province, China with the latter being the company s overseas diverse business commitments in the manufacturing of water pump bearings, ball bearings and double-row ball bearings. Kian Ho has a huge local customer network such as automotive, part dealers, industrial suppliers, hardware dealers, ship chandlers and general trading companies to which it markets its products on a wholesale basis. In the last few years, Kian Ho has increased its customer base to the OEM market, particularly in the industrial automation sector. Kian Ho has developed its overseas market rapidly and has customers in South-East Asia, China, Taiwan, Korea, Australia, New Zealand, North America, Europe, Africa and the Middle East.

3 Kian Ho Bearings Ltd Corporate Information Directors Kwek Che Yong Chairman Ker Keng Thong Deputy Chairman Teo Teng Beng Managing Director Kerr Keng Hong Deputy Managing Director Lee Joo Hai Independent Director Lek Siang Pheng Independent Director Tan Lye Huat Independent Director Audit Committee Lee Joo Hai Chairman Lek Siang Pheng Tan Lye Huat Nominating Committee Tan Lye Huat Chairman Lee Joo Hai Lek Siang Pheng Remuneration Committee Lek Siang Pheng Chairman Lee Joo Hai Tan Lye Huat Company Secretaries Tan Cher Liang Caroline Yeo Poh Noi Registered Office 5 Changi South Street 3 Singapore 486117 Tel: 6287 5866 Fax: 6545 4517 Share Registrar Lim Associates (Pte) Ltd 10 Collyer Quay #19-08 Ocean Building Singapore 049315 Tel: 6536 5355 Fax: 6536 1360 Auditors Ernst & Young Certified Public Accountants 10 Collyer Quay #21-01 Ocean Building Singapore 049315 Tel: 6535 7777 Partner in charge: Winston Ngan (Since financial year 31 December 2004) Head Office Singapore Kian Ho Bearings Ltd No. 5, Changi South Street 3 Singapore 486117 Tel: (65) 6287-5866 Fax: (65) 6285-9852 / 3 Website: http://www.kianho.com.sg E-mail: kianho@singnet.com.sg Branches : 204/206 Jalan Besar Singapore 208892 Tel: (65) 6298-5866, 6294-2106 Fax: (65) 6294-7755 27A Jurong Port Road #01-42 Singapore 619101 Tel: (65) 6268-3410 / 1 Fax: (65) 6266-3367 Subsidiary Malaysia Johor Kian Ho Bearings (M) Sdn Bhd 43 Jalan Glasiar Taman Tasek 80200 Johor Baru, Malaysia Tel: (07) 237-2288 Fax: (07) 237-4996 Kuala Lumpur Modules 0009-0011 Resource Complex 33 Jalan Segamut Atas 51200 Kuala Lumpur, Malaysia Tel: (03) 6251-8828 Fax: (03) 6251-8818 Kluang 63 Jalan Lim Swee Sim Kluang Baru 86000, Kluang, Malaysia Tel: (07) 772-1636, 772-8922 Fax: (07) 772-8921 Penang 47 (1st Floor), Jalan Todak 4 Bandar Sunway 13700 Seberang Jaya Prai, Malaysia Tel: (04) 398-8828 Fax: (04) 398-6618 Taiwan Taipei Ascend Bearings Co., Ltd. No. 1-2, Lane 3, Wan Chuan Street Taipei, Taiwan R.O.C. Tel: (886) 2-2553-7288 Fax: (886) 2-2549-6032 China Zhenjiang Zhenjiang Zhongjian Bearing Co., Ltd Xinfeng Town Zhenjiang City Jiangsu Province, China Tel: (86) 511-332-2231 Fax: (86) 511-332-0513 Shanghai Acker Machinery (Shanghai) Co. Ltd Tian Mu Zhong Road No. 267, 1st Floor The Sapphire Tower Shanghai, China Tel: (86) 21-51016858/51016998 Fax: (86) 21-51015836 Hong Kong SNB (H.K.) Co., Limited Unit A, 6/F., Kin Yip Plaza, 9 Cheung Yee St., Lai Chi Kok Kowloon, H.K. Tel: (852) 27853669 Fax: (852) 27859661

Kian Ho Bearings Ltd 4 Chairman s Statement As with the reputation of the finest tea leaves that is enjoyed for generations, the building of strong globally renowned brands is the key to long term competitive advantage and value creation. Kwek Che Yong Chairman Year Under Review On behalf of the Board of Directors, we are pleased to present the Annual Report and Accounts of the Group and Company for the year ended 31 December 2005. Kian Ho had achieved strong growth in 2005, with both turnover and after tax profits reaching record level since the Company s listing on the Stock Exchange of Singapore in 1995. However, the Group remains extremely cautious due to its exposure and dependence on the volatile Asian and Asean regions. The gross margins for our core products (i.e. bearings and seals) had continued to decline in 2005 due to intense competition. Over the short and medium term, we expect the external market conditions to remain competitive but stable. To cope with the new business environment, the Company has made strategic changes to the way we conduct our business. Since early 2005, more efforts were focused on staff training and establishment of product agencies/ distributorships in new geographical areas. Today s Kian Ho is no longer a traditional bearings and seals trader, but a service-oriented company that provides value-added services for OEMs (Original Equipment Manufacturers), replacement markets, and other end-users/ distributors. We managed to capitalise on our strengths in customer service, inventory management (as a stockist) and global distribution network to enhance operational performance. Over the next two years, the Company aims to further increase revenue by expanding its geographical marketing base within Asia. Specifically, we have made plans to establish/ boost our presence for countries with emerging economies like China and India. Setting Up Of New Company In Hong Kong As part of our marketing initiative to expand the China market, we have set up a new company in Hong Kong, namely SNB (H.K.) Co., Limited ( SNB ), to serve as a platform to provide operational and logistics support. SNB was officially formed in May 2005.

5 Kian Ho Bearings Ltd Ker Keng Thong, Deputy Chairman Dividends Subject to shareholders approval at the forthcoming Annual General Meeting, the Board is pleased to recommend a first and final dividend of 0.2 cents per ordinary share less 20% tax, plus a special dividend of 0.4 cents per ordinary share less 20% tax. The proposed dividends, if approved at the Annual General Meeting on 17 April 2006, will be paid on 25 May 2006. success of the Group. We are confident that the Group will continue to remain profitable and maintain its financial performance in 2006. Kwek Che Yong Chairman Appreciation On behalf of the Board, we would like to thank our shareholders, customers, business associates and bankers for their continuous support. Ker Keng Thong Deputy Chairman Our deepest appreciation is extended to our fellow directors, management and staff members who have contributed tremendously to the

Kian Ho Bearings Ltd 6 Letter to Shareholders Like drinking and appreciating a good pot of Chinese tea is meant to be shared, we believe that our shareholders should share the goodness of our performance. Teo Teng Beng Managing Director Dear Shareholders, Financial Performance Amid the highly competitive environment, we had performed credibly for the year ended 31 December 2005. Group turnover grew 10% to S$91.8 million. This came mainly from the increase in Company level turnover which rose 16% to S$81.0 million. The increase is mainly due to higher sales to countries such as Asean, China, India and Singapore. Generally, the demand for bearings in these countries remained strong and the Company managed to capture more sales in these countries. With the substantial sales growth, group pre-tax profit from operations was up 14% to S$7.6 million as compared to S$6.6 million in the previous year. Return on Equity for the Group was a strong 13.7%, compared to 2004 s 11.9%. Earnings per share had also increased from 3.04 cents per ordinary share in FY2004 to 4.02 cents in FY2005. This was after accounting for an increase in directors performance benefit effected since the second half of 2004, impairment of fixed assets and increased staff costs in line with the better results of the Group. Expanding Operations As part of our plan to further penetrate into the China market, we have translated our strategy into action by: Incorporating a new wholly-owned subsidiary in Hong Kong SNB (H.K.) Co. Limited in May 2005. This subsidiary serves as a logistic and distribution centre to cater for the demand in the southern part of China for bearings and oil seal products. Injecting an additional US$120,000 into our wholly-owned China subsidiary Acker Machinery (Shanghai) Co. Ltd ( AMS ) in January 2006. AMS has not been active for the past few years. It has since been activated in 2006 to capture more business, as a Group, in China.

7 Kian Ho Bearings Ltd Kerr Keng Hong Deputy Managing Director Looking Ahead to 2006 In 2006, we will intensify our efforts to further expand our Asia markets. Despite the global increase in competition in the bearings and oil seals industries and the uncertainty in world demand and business conditions, we are confident of overcoming the challenges which we may face ahead and remain profitable in the coming year. Teo Teng Beng Managing Director Kerr Keng Hong Deputy Managing Director Acknowledgements We would like to thank all our business partners, customers, suppliers, shareholders and bankers for their continuing support and confidence in our Company and we look forward to a better year ahead.

Kian Ho Bearings Ltd 8 Board of Directors First row from left to right: Mr Kerr Keng Hong, Executive Director / Deputy Managing Director, Mr Teo Teng Beng Executive Director / Managing Director, Mr Kwek Che Yong, Executive Director / Chairman, Mr Ker Keng Thong, Executive Director / Deputy Chairman. Back row from left to right: Mr Lek Siang Pheng, Independent Director, Mr Lee Joo Hai, Independent Director and Mr Tan Lye Huat, Independent Director. Mr Kwek Che Yong Executive Director/Chairman Mr Kwek has been an Executive Director of the Company since its date of incorporation in November 1973. He is also the Chairman of the Company for more than 28 years and was last re-elected as a Director in 2005. With over 40 years of experience and industry knowledge in the business, he will, together with a strong management team, lead the Group towards success. Mr Ker Keng Thong Executive Director/Deputy Chairman Appointed as an Executive Director and Deputy Chairman of the Company in August 2002, Mr Ker has been at the helm of businesses in textile trading, fabric manufacturing, construction and property development locally & overseas. He has brought with him his strong business acumen and strategic mind which is essential for the development of the Group s business. Mr Ker was last re-elected as a Director in 2003.

9 Kian Ho Bearings Ltd Mr Teo Teng Beng Executive Director / Managing Director Mr Teo was appointed as an Executive Director and Deputy Chairman of the Company in September 2000. He stepped down as Deputy Chairman in August 2002 to take on the role of the Managing Director and is currently responsible for the daily operations of the Group. He was last re-elected as a Director in 2001. Mr Teo holds directorship in private companies operating in industries such as property development and foreign exchange management. Mr Teo holds a Bachelor of Science, Bachelor of Engineering and Graduate Diploma in Industrial Engineering from the University of New South Wales. Mr Kerr Keng Hong Executive Director / Deputy Managing Director Appointed as an Executive Director of the Company in August 2002 and Deputy Managing Director in January 2005, Mr Kerr is a successful trader with sharp business sense. His experience from his own textile business complements the strengths of his fellow Board members. With his international procurement experience, he is leading the Group s sourcing and purchasing function. He is also the leading force in business development and expansion. Mr Kerr was last re-elected as a Director in 2003. Mr Lee Joo Hai Independent Director Mr Lee is a Non-Executive Director and Chairman of the Audit Committee since October 1995. He was appointed as a Member of the Remuneration and Nominating Committees in December 2002. He was last re-elected as a Director in April 2004. Mr Lee also holds directorship in other companies and has considerable experience in accounting and auditing spanning more than 20 years. He is a Certified Public Accountant of Singapore and a member of the Institute of Chartered Accountants in England and Wales. Mr Lek Siang Pheng Independent Director Mr Lek was appointed as a Non-Executive Director and a Member of the Audit Committee in October 1995. He was appointed as the Chairman of the Remuneration Committee and a Member of the Nominating Committee since December 2002. He was last re-elected as a Director in April 2004. Mr Lek is an advocate and solicitor. He is a partner in the law firm of Rodyk & Davidson and has had 17 years experience in civil and commercial litigation, banking and insolvency work, tort law and professional malpractice litigation, international arbitration and China investment disputes. Mr Lek is a fellow of the Singapore Institute of Arbitrators, a fellow of the insolvency Practitioners Association of Singapore and a Member of the Chartered Institute of Arbitrators. Mr Tan Lye Huat Independent Director Mr Tan is an Independent Non-Executive Director since December 1999, a Member of the Audit Committee since March 2001, a Member of the Remuneration Committee and Chairman of the Nominating Committee since December 2002. He was last re-elected as a Director in 2005. He is also an Independent Non-Executive Director of two other listed companies on the Singapore Exchange. Mr Tan is currently actively engaged in corporate governance work as the CEO of HIM Governance Private Limited as well as volunteering at a number of other governance-related associations. Mr Tan is a Fellow of the Chartered Association of Certified Accountants (FCCA), Fellow of the Chartered Institute of Management Accountants (FCMA), member of the Institute of Certified Public Accountants of Singapore (ICPAS) and a Chartered Director of the Institute of Directors, UK (C Dir).

Kian Ho Bearings Ltd 10 Key Management Staff Chua Hoo Tai, Chief Operating Officer Mr Chua joined the Company in April 2002, and was appointed as Chief Operating Officer in July 2004. Previously, he worked as a senior officer with a foreign bank. He brought along with him valuable experience that strengthened the qualitative and quantitative aspects in operations and financial management. He also oversees the Group s businesses. Wong Lam Wo, Assistant Chief Operating Officer Mr Wong joined the Company in June 2002 and brought with him vast experience which includes more than 20 years in the public sector. Amongst his responsibilities, he leads the Sales and Marketing function of the Company. He is also a Director of the Taiwan and Malaysia subsidiary companies. William Kwek Hong Seng, Associate Director Mr Kwek joined the Company in November 1996. He heads the Bearings Division and is also involved in the development of new markets in the Asia Pacific Region. He holds a Bachelor degree from Nanyang Technological University of Singapore, majoring in materials engineering. Mr Kwek is also a Director of the Taiwan, Hong Kong and China subsidiary companies. Rebecca Kwok Lo Chu, Associate Director Ms Kwok joined the Company in August 2002. She is in charge of the Seals Division and Branch Operations. She is also an Executive Director of the Malaysia and Hong Kong subsidiary company. She has nearly 20 years of experience in the Banking and Finance industry. Ms Kwok holds a Bachelor degree majoring in International Finance as well as a MBA from National University of Singapore. She is also a part-time lecturer at the Singapore Chinese Chamber Institute of Business. Koh Hai Yang, Associate Director, Malaysia Operations and Corporate Support Mr Koh joined the Company in March 2000. He is responsible for the Group s operation in Malaysia, as well as the corporate support function at Company level. He is a member of CPA Australia. Mr Koh is currently a Director of the Malaysia and China subsidiary companies. He has relevant working experience in the field of auditing, accounting and corporate restructuring.

11 Kian Ho Bearings Ltd Jimson Lai Swee Peng, General Manager, Bearings Division Mr Lai is responsible for the Sales and Marketing function of the Bearings Division of the Company. With the Company for 16 years, he has several years of relevant experience from his previous employments with NOK Singapore and UMW. Tan Kah Huat, General Manager, Bearings Division Mr Tan joined the Company in September 1981 and is a veteran in the bearings trade. He is jointly responsible for the Sales and Marketing function of the Bearings Division of the Company, and supervises the local branch. Raymond Quak Kiam Sim, General Manager, Seals Division Mr Quak joined the Company in March 1980 and is another veteran in the Company, specialising in the seals trade. He heads the Seals Division of the Company. David Loh Mun Choong, Assistant General Manager, Bearings Division Mr Loh joined the Company in June 1998. He is responsible for the Company s regional sales and marketing function. He holds a Bachelor degree in Business Administration from Royal Melbourne Institute of Technology majoring in Finance. Tan Wee Boon, Finance Manager Mr Tan started his career with the Company as the Internal Audit Manager in November 2003. In August 2004, he was re-designated as the Finance Manager of the Company and oversees the Finance Department. Mr Tan is a Certified Public Accountant of Singapore and a member of the Association of Chartered Certified Accountants (ACCA). He also holds a Bachelor degree in Business Administration from the National University of Singapore majoring in Finance.

Kian Ho Bearings Ltd 12 Group Financial Highlights 2001-2005 2001 2002 2003 2004 2005 Turnover ($ 000) 64,023 58,247 68,639 83,695 91,781 Profit/(Loss) after taxation before minority interests ($ 000) 418 19 1,610 4,810 6,359 Shareholders equity, net of minority interests ($ 000) 34,348 33,910 35,838 39,724 45,719 Net tangible assets per share (cents) 22.01 21.73 22.97 25.46 29.30 Basic earnings/(loss) per share (cents) 0.29 0.16 1.37 3.04 4.02 Turnover ($ 000) Profit/(Loss) after taxation before minority interests ($ 000) 64,023 58,247 83,695 91,781 68,639 4,810 6,359 1,610 418 19 01 02 03 04 05 01 02 03 04 05 Net tangible assets per share (cents) Basic earnings/(loss) per share (cents) 22.01 21.73 22.97 25.46 29.30 3.04 4.02 1.37 0.29 0.16 01 02 03 04 05 01 02 03 04 05

13 Kian Ho Bearings Ltd talking numbers Financial Statements Corporate Governance 14 Report of the Directors 20 Statement by Directors 23 Auditors Report 24 Profit and Loss Accounts 25 Balance Sheets 27 Statements of Changes in Equity 29 Consolidated Statement of Cash Flows 31 Notes to the Financial Statements 33

Kian Ho Bearings Ltd 14 Corporate Governance Report Kian Ho Bearings Ltd (the Company ) strives to observe the standards of corporate governance and believes that it is compliant with most of the Code of Corporate Governance s (the Code ) requirements. This Report describes the Company s Corporate Governance processes and activities with specific reference to the Code. BOARD OF DIRECTORS Principle 1 Board s Conduct of its Affairs The principal functions of the Board are: Overseeing the processes for evaluating the adequacy of internal controls, risk management, financial reporting and compliance. Approving the broad policies, strategies and financial objectives of the Company and monitoring the performance of Management. Approving annual budgets, major funding proposals, investment and divestment proposals. Assuming responsibility for corporate governance. The Board conducts regular scheduled meetings. Ad-hoc meetings are convened as and when circumstances require. The attendance of the Directors at meetings of the Board and Board Committees, as well as the frequency of such meetings, is disclosed in this report. Principle 2 Board Composition and Balance More than one-third of the Board members are independent. The Board comprises the following directors: Executive Directors Kwek Che Yong (Chairman of the Board) Ker Keng Thong (Deputy Chairman) Teo Teng Beng (Managing Director) Kerr Keng Hong (Deputy Managing Director) Independent Non-Executive Directors Lee Joo Hai Lek Siang Pheng Tan Lye Huat The Board Chairman has more than 40 years experience in the bearings trade while the other three Executive Directors are entrepreneurial veterans in their own trades. The three independent directors are also experienced in their respective area of expertise, namely, accounting, finance and legal. They bring with them a wealth of experience that enhances the overall quality of the Board.

15 Kian Ho Bearings Ltd The Nominating Committee ( NC ) is of the view that the current Board size and composition is adequate taking into account the scope, nature and size of operations of the Group. The key information regarding the Directors is disclosed separately in this Annual Report. Principle 3 Role of Chairman and Chief Executive The Company has an executive Chairman and a Managing Director who is the de facto Chief Executive Officer. Both have separate roles in the Company. The Managing Director is involved in the day-to-day running of the business whereas the Chairman has an overseeing role that is executive in nature. Board proceedings are generally initiated and conducted by the Chairman. Principle 6 Access to Information To enable the Board to function effectively and to fulfill its responsibilities, Management strives to provide board members with quarterly management accounts for the Group and Company and other relevant information from time to time. This is deemed to be adequate by the Board in terms of timely dissemination of financial information. Each Director has been provided with the contact particulars of the Company s senior management staff and the Company Secretary to facilitate access to any required information. The Company Secretary attends all Board Meetings and is responsible in ensuring that board procedures are followed. Should the Directors, whether as a group or individually, need independent professional advice, such advice will be sought by the Director(s) with the Board s mandate and the professional expenses borne by the Group. NOMINATING COMMITTEE Principle 4 Board Membership The NC comprises the following directors who are all independent: Tan Lye Huat (Chairman) Lek Siang Pheng Lee Joo Hai The principal functions of the NC as set out in its Terms of Reference are: To identify and review candidates for nomination for appointment or re-appointment to the Board of Directors and to propose their appointment or re-appointment to the Board for approval.

Kian Ho Bearings Ltd 16 Corporate Governance Report To determine the criteria for identifying candidates and reviewing nominations for the appointments referred to above. To decide how the Board s performance may be evaluated and propose objective performance criteria for the Board s approval. To assess the effectiveness of the Board as a whole and the contribution by each individual Director to the effectiveness of the Board. To review the independence of the Directors on an annual basis. The NC has reviewed the independence of the Directors and also reviewed and proposed the re-appointment of Messrs Ker Keng Thong and Kerr Keng Hong as Directors. Both are retiring as Directors by rotation at the Annual General Meeting (AGM) and, being eligible, will be offering themselves for re-election. Principle 5 Board Performance The NC assesses the performance and effectiveness of the Board and the contribution of each Director to the Board as a whole on an annual basis. An assessment for FY2005 was carried out. AUDIT COMMITTEE (AC) Principle 11 Audit Committee Principle 12 Internal Controls The AC comprises the following three independent Directors: Lee Joo Hai (Chairman) Lek Siang Pheng Tan Lye Huat The AC is governed by a set of written Terms of Reference and meets at least twice a year and on an ad hoc basis as and when deemed necessary. During the year, the AC met twice for the following purposes: Reviewed and approved the external and internal audit plans and the scope and the results of the external and internal audit with the external auditors and the internal auditor. Reviewed the adequacy of internal controls with the internal auditor. Reviewed follow up reports on pertinent issues arising from the internal and external audits with Management. Reviewed and recommended the announcements of the half year and full year results to the Board for approval prior to their release to the Singapore Exchange Limited ( SGX ). Reviewed all non-audit services performed by the external auditors and was satisfied with the independence of the external auditors.

17 Kian Ho Bearings Ltd Reviewed all interested persons transactions conducted and was satisfied that the transactions were on arms-length and did not require any announcement to the SGX or the approval of shareholders. Recommended the re-appointment of Messrs Ernst & Young as external auditors for the ensuing year. Principle 13 Internal Audit The internal audit function has been outsourced to BDO Raffles Consultants Pte Ltd. REMUNERATION COMMITTEE Principle 7 Procedures for Developing Remuneration Policies Principle 8 Level and Mix of Remuneration Principle 9 Disclosure of Remuneration The RC comprises the following independent directors: Lek Siang Pheng (Chairman) Lee Joo Hai Tan Lye Huat The principal responsibilities of the RC as set out in its Terms of Reference are to: Recommend to the Board base pay levels, benefits and incentive opportunities. Approve the structure of the compensation programme for Executive Directors and senior management to ensure that the programme is competitive and sufficient to attract, retain and motivate senior management of the required quality to run the Company successfully. Recommend the remuneration framework for independent Non-Executive Directors. Review Directors and key executives (as designated by the Executive Directors) compensation annually to determine its reasonableness and to seek appropriate independent professional advice where necessary. Consider the appropriateness or otherwise of formulating long-term incentive schemes for Directors. Directors fees are set in accordance within a remuneration framework which was determined by the RC. They are paid only after approval by shareholders at each AGM.

Kian Ho Bearings Ltd 18 Corporate Governance Report Key Executives The remuneration of the top five executives of the Group for the financial year ended 31 December 2005 is shown in the following bands: Below S$250,000 Chua Hoo Tai Wong Lam Wo Jimson Lai Swee Peng Tan Kah Huat Raymond Quak Kiam Sim There were no employees in the Group who are immediate family members of Directors or Chief Executive Officer earning more than S$150,000 a year. COMMUNICATION WITH SHAREHOLDERS Principle 10 Accountability and Audit Principle 14 Communication with Shareholders Principle 15 Greater Shareholder Participation The Company does not practice selective disclosure. Price sensitive information is always released via SGXNet on a timely basis. Results and annual reports are announced or issued within the mandatory periods. The Annual Report and Notice of AGM are sent to all shareholders of the Company. The Notice of AGM is also advertised in a major local newspaper. At the General Meetings, shareholders are given the opportunity to air their views and ask the Directors or Management questions regarding the Group. DEALINGS IN SECURITIES The Company has issued an internal code on dealings in the Company s securities to the Directors and key employees (including employees with access to price-sensitive information to the Company s shares) of the Group based on the recommendations of the Best Practices Guide issued by the Singapore Exchange Securities Trading Limited ( SGX-ST ). The Directors and the key employees covered by this code are prohibited from dealing in the Company s securities at least four (4) weeks before the announcement of the Company s full year or half year results until two (2) days after the announcements. Notification of the closed window period is sent out to the persons involved. The key employees are also required to notify the Company of any dealings in the Company s securities within two (2) days of the transaction and to submit an annual confirmation on their compliance with the internal code. Based on the processes in place, the Board is of the opinion that the Company has complied with the Best Practices Guide by the SGX-ST.

19 Kian Ho Bearings Ltd DIRECTORS ATTENDANCE AT BOARD AND BOARD SUB-COMMITTEES MEETINGS Meetings of Board, Audit Committee, Nominating Committee and Remuneration Committee Meetings. Directors Attendance At Board & Committee Meetings Audit Committee Nominating Committee Remuneration Committee Board of Directors Meeting Meetings Meetings Meetings Name of Director No. held No. attended Membership No. held No. attended Membership No. held No. attended Membership No. held No. attended Kwek Che Yong 4 4 No 2 - No 1 - No 1 - Ker Keng Thong 4 4 No 2 - No 1 - No 1 - Teo Teng Beng 4 4 No 2 *2 No 1 - No 1 - Kerr Keng Hong 4 4 No 2 - No 1 - No 1 - Lee Joo Hai 4 4 Yes (Chairman) 2 2 Yes 1 1 Yes 1 1 Lek Siang Pheng 4 3 Yes 2 2 Yes 1 1 Yes (Chairman) 1 1 Tan Lye Huat 4 4 Yes 2 2 Yes (Chairman) 1 1 Yes 1 1 Note: * Attendance was by invitation. On behalf of the Board, Kwek Che Yong Chairman Teo Teng Beng Managing Director Singapore 15 March 2006

Kian Ho Bearings Ltd 20 Report of the Directors The Directors are pleased to present their report together to the members with the audited consolidated financial statements of Kian Ho Bearings Ltd ( the Company ) and its subsidiary companies (collectively, the Group ) and the financial statements of the Company for the year ended 31 December 2005. Directors of the Company The Directors of the Company in office at the date of this report are :- Kwek Che Yong Ker Keng Thong Teo Teng Beng Kerr Keng Hong Lee Joo Hai Lek Siang Pheng Tan Lye Huat Arrangements to enable Directors to acquire shares and debentures Neither at the end of, nor at any time during the financial year was the Company a party to any arrangement 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. Directors interests 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 of the Company, its subsidiary companies or its related corporations as stated below :- Held in the name of Director Deemed interest At At At At beginning end of beginning end of Name of Director of the year the year of the year the year The Company Ordinary shares of $0.10 each Kwek Che Yong 28,439,800 28,439,800 Ker Keng Thong 14,420,000 14,629,000 Teo Teng Beng 2,650,000 2,650,000 14,000,000 14,000,000 Kerr Keng Hong 20,604,000 20,604,000 There was no change in any of the above mentioned interests between the end of the financial year and 21 January 2006. Except as disclosed in this report, no Director who held office at the end of the financial year had interests in shares or debentures of the Company, its subsidiary companies or related corporations, either at the beginning (or date of appointment, if later) or end of the financial year or on 21 January 2006.

21 Kian Ho Bearings Ltd Directors contractual benefits Since the end of the previous financial year, no Director of the Company has received or become entitled to receive a benefit (other than a benefit or any fixed salary of a full-time employee of the Company included in the aggregate amount of emoluments shown in the financial statements, or any emoluments received from related corporations) 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, except for transactions with related parties as disclosed in Note 26 to the accompanying financial statements. Options There is presently no option scheme on unissued shares of the Company or its subsidiary companies. Audit Committee The Audit Committee comprises three board members, all of whom are Non-Executive and Independent Directors. The members of the Audit Committee during the financial year and at the date of this report are: Lee Joo Hai Lek Siang Pheng Tan Lye Huat (Chairman) The Audit Committee performed the functions specified in the Companies Act. The Audit Committee may examine whatever aspects it deems appropriate of the Group s financial affairs, its internal and external audits and its exposure to risks of a regulatory or legal nature. It keeps under review the effectiveness of the Company and the Group s system of accounting and internal financial controls, for which the Directors are responsible. In performing its functions, the Committee reviewed the overall scope of both internal and external audits and the assistance given by the Company s officers to the auditors. The Committee met with the external auditors to discuss the results of their respective examinations and their evaluation of the Company s and the Group s system of accounting internal control. The Committee also reviewed the financial statements of the Company and the consolidated financial statements of the Group for the financial year ended 31 December 2005 as well as the external auditors report thereon. The Audit Committee has full access to and co-operation by the Company s management and has full discretion to invite any Director or executive officer to attend its meetings. The auditors have unrestricted access to the Audit Committee. The Audit Committee has reasonable resources to enable it to discharge its functions properly. The Committee recommends to the Board of Directors the nomination of Ernst & Young as external auditors at the forthcoming annual general meeting of the Company.

Kian Ho Bearings Ltd 22 Report of the Directors Auditors Ernst & Young have expressed their willingness to accept re-appointment as auditors. On behalf of the Board of Directors, Kwek Che Yong Chairman Teo Teng Beng Managing Director Singapore 15 March 2006

23 Kian Ho Bearings Ltd Statement by Directors Pursuant to Section 201(15) We, Kwek Che Yong and Teo Teng Beng, being two of the Directors of Kian Ho Bearings Ltd, do hereby state that, in the opinion of the Directors : (i) (ii) the accompanying balance sheets, profit and loss accounts, statements of changes in equity and consolidated statement of cash flows together with the 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 the results, and changes in equity of the Group and of the Company, and cash flows of the Group for the year ended on that date, and 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, Kwek Che Yong Chairman Teo Teng Beng Managing Director Singapore 15 March 2006

Kian Ho Bearings Ltd 24 Auditors Report to the member of Kian Ho Bearings Ltd We have audited the financial statements of Kian Ho Bearings Ltd ( the Company ) and its subsidiary companies (collectively, the Group ) set out on pages 25 to 77 for the year ended 31 December 2005. 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 statement 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 financial statements of the Company are properly drawn up in accordance with the provisions of the Singapore 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, the results and changes in equity of the Group and of the Company, and cash flows of the Group for the financial year ended on that date; and the accounting and other records, required by the Act to be kept by the Company have been properly kept in accordance with the provisions of the Act. ERNST & YOUNG Certified Public Accountants Singapore 15 March 2006

25 Kian Ho Bearings Ltd Profit and Loss Accounts for the year ended 31 December 2005 (Amounts in Singapore dollars) Revenue Group Company Note 2005 2004 2005 2004 $ 000 $ 000 $ 000 $ 000 Turnover 4 91,781 83,695 81,020 69,647 Other income 5 372 111 398 172 Total revenue 92,153 83,806 81,418 69,819 Costs and expenses Changes in inventory 8,971 3,619 6,657 2,821 Raw materials and consumables used (78,082) (65,271) (70,688) (55,238) Directors fees and remuneration 26 - Company (1,566) (1,401) (1,566) (1,401) - Subsidiary companies (375) (374) Staff costs 5 (7,415) (6,762) (5,823) (5,447) Depreciation 9 (1,001) (1,267) (708) (725) Amortisation of long-term prepayment 10 (8) Foreign exchange gain/(loss), net 254 (18) 367 (117) Provision for non-trade doubtful debts (61) Provision for trade doubtful debts, net (98) (36) (121) (166) Bad debts written off, trade (36) (36) (18) (14) Write-down of stocks (161) (538) (265) Gain on disposal of fixed assets 4 1 1 Gain on disposal of land use rights 191 Loss on impairment of fixed assets (482) (46) (131) (46) Fixed asset written off (78) (78) Provision for impairment in value of a subsidiary company (460) (403) Loss on impairment of investment properties (5) (5) Loss on impairment of properties held for sale (235) (235) Gain on disposal of quoted investments 6 6 Other operating expenses 5 (3,354) (3,403) (2,101) (2,295) Profit from continuing operating activities 9,004 7,953 6,766 6,211 Finance costs 6 (1,452) (1,308) (1,256) (1,105) Profit from continuing operations before taxation 7,552 6,645 5,510 5,106 Taxation 7 (1,193) (1,835) (549) (1,383) Profit for the year 6,359 4,810 4,961 3,723

Kian Ho Bearings Ltd 26 Profit and Loss Accounts for the year ended 31 December 2005 (cont d) (Amounts in Singapore dollars) Group Company Note 2005 2004 2005 2004 $ 000 $ 000 $ 000 $ 000 Attributable to: Equity holders of the Company 6,270 4,742 4,961 3,723 Minority interest 89 68 6,359 4,810 4,961 3,723 Earnings per share 8 - Basic (cents) 4.02 3.04 - Fully diluted (cents) 4.02 3.04 The accounting policies and explanatory notes on pages 33 to 77 form an integral part of the financial statements.

27 Kian Ho Bearings Ltd Balance Sheets as at 31 December 2005 (Amounts in Singapore dollars) Group Company Note 2005 2004 2005 2004 $ 000 $ 000 $ 000 $ 000 (As restated) (As restated) ASSETS LESS LIABILITIES Non-current assets Fixed assets 9 18,198 19,213 15,289 16,011 Long term prepayment 10 259 Subsidiary companies 11 3,563 3,807 Investment properties 12 1,520 1,520 Other investments 13 237 264 237 264 19,955 19,736 20,609 20,082 Current assets Properties held for sale 14 1,525 1,525 Trade debtors 15 16,727 15,446 12,513 11,641 Other debtors 16 742 431 368 40 Amounts due from subsidiary companies 11 4,986 787 Stocks 17 57,845 48,874 46,342 39,685 Fixed deposits 23 407 452 Cash at bank and in hand 23 2,473 2,619 1,461 1,282 78,194 69,347 65,670 54,960 Current liabilities Bank borrowings 18 21,693 16,215 17,963 12,615 Trade creditors and accruals 10,464 10,075 7,507 6,295 Other creditors 19 258 684 30 110 Amounts due to subsidiary companies 11 3,339 441 Provision for taxation 1,864 2,318 1,722 2,210 34,279 29,292 30,561 21,671 Net current assets 43,915 40,055 35,109 33,289 Non-current liabilities Bank borrowings 18 17,048 18,874 16,500 18,500 Deferred taxation 20 246 330 214 300 17,294 19,204 16,714 18,800 Net assets 46,576 40,587 39,004 34,571

Kian Ho Bearings Ltd 28 Balance Sheets as at 31 December 2005 (cont d) (Amounts in Singapore dollars) Group Company Note 2005 2004 2005 2004 $ 000 $ 000 $ 000 $ 000 (As restated) (As restated) Equity attributable to equity holders of the Company Share capital 21 15,604 15,604 15,604 15,604 Share premium 8,506 8,506 8,506 8,506 Asset revaluation reserve 596 596 140 140 Other reserve 96 96 Foreign currency translation reserve (26) (279) Revenue reserve 20,943 15,297 14,658 10,321 45,719 39,724 39,004 34,571 Minority interest 857 863 Total equity 46,576 40,587 39,004 34,571 The accounting policies and explanatory notes on pages 33 to 77 form an integral part of the financial statements.

29 Kian Ho Bearings Ltd Statements of Changes in Equity for the year ended 31 December 2005 (Amounts in Singapore dollars) Minority Total Attributable to equity holders of the Company interest equity Foreign Asset currency Group Share Share revaluation Hedge translation Revenue capital premium reserve reserve reserve reserve $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 Balance at 31 December 2003 15,604 8,506 596 78 11,054 1,176 37,014 Net profit for the year 4,742 68 4,810 Currency translation differences (357) 26 (331) Dividend (Note 22) (499) (499) Purchase of shares from minority interest of a subsidiary company (407) (407) Balance at 31 December 2004 15,604 8,506 596 (279) 15,297 863 40,587 Net profit for the year 6,270 89 6,359 Currency translation differences 253 (15) 238 Dividend (Note 22) (624) (80) (704) Hedging reserve arising from cashflow hedge (Note 29) 96 96 Balance at 31 December 2005 15,604 8,506 596 96 (26) 20,943 857 46,576 The accounting policies and explanatory notes on pages 33 to 77 form an integral part of the financial statements.

Kian Ho Bearings Ltd 30 Statements of Changes in Equity for the year ended 31 December 2005 (Amounts in Singapore dollars) Total Attributable to equity holders of the Company equity Asset Share Share revaluation Hedge Revenue Company capital premium reserve reserve reserve $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 Balance at 31 December 2003 15,604 8,506 140 7,097 31,347 Net profit for the year 3,723 3,723 Dividend (Note 22) (499) (499) Balance at 31 December 2004 15,604 8,506 140 10,321 34,571 Net profit for the year 4,961 4,961 Hedging reserve arising from cashflow hedge 96 96 Dividend (Note 22) (624) (624) Balance at 31 December 2005 15,604 8,506 140 96 14,658 39,004 The accounting policies and explanatory notes on pages 33 to 77 form an integral part of the financial statements.

31 Kian Ho Bearings Ltd Consolidated Statement of Cash Flows for the year ended 31 December 2005 (Amounts in Singapore dollars) 2005 2004 $ 000 $ 000 Cash flows from operating activities : Profit from continuing operations before taxation 7,552 6,645 Adjustments for : Bad debts written off, trade 36 36 Amortisation 8 Depreciation 1,001 1,267 Dividend income (21) Fixed assets written off 78 Foreign currency adjustments 103 (127) Gain on disposal of quoted investments (6) Gain on disposal of fixed assets (4) (1) Gain on disposal of land use rights (191) Interest expense 1,452 1,308 Interest income (31) (20) Loss on impairment of fixed assets 482 46 Loss on impairment of investment properties 5 Loss on impairment of properties held for sale 235 Loss on impairment of quoted investment 1 Provision for trade doubtful debts, net 98 36 Write-down of stocks 161 538 Write-back of negative goodwill (32) Operating income before reinvestment in working capital 10,659 9,996 (Increase)/decrease in trade debtors (1,415) 2,369 (Increase)/decrease in other debtors (215) 447 Increase in stocks (9,131) (4,156) Increase/(decrease) in trade creditors 384 (2,962) Increase/(decrease) in other creditors 16 (58) Cash provided by operations 298 5,636 Dividend received 21 Income tax paid (1,732) (1,785) Interest income received 31 20 Interest paid (1,452) (1,308) Net cash (used in)/provided by operating activities (2,855) 2,584 Cash flows from investing activities : Proceeds from disposal of fixed assets 5 1 Proceeds from disposal of land use rights 458 Proceeds from sale of investments 36 Purchase of fixed assets (341) (216) Net cash generated from/(used in) investing activities 158 (215)

Kian Ho Bearings Ltd 32 Consolidated Statement of Cash Flows for the year ended 31 December 2005 (cont d) (Amounts in Singapore dollars) 2005 2004 $ 000 $ 000 Cash flows from financing activities : (Repayment of)/proceeds from term loans (1,350) 280 Dividends paid (624) (499) Dividends paid to minority shareholder (80) Proceeds from/(repayment of) trust receipts 5,565 (2,453) Purchase of shares from a minority shareholder of a subsidiary company (375) Repayment of net amount due to related parties (442) (154) Net cash generated from/(used in) financing activities 3,069 (3,201) Net increase/(decrease) in cash and cash equivalents 372 (832) Cash and cash equivalents at beginning of year 2,300 3,132 Cash and cash equivalents at end of year (Note 23) 2,672 2,300 The accounting policies and explanatory notes on pages 33 to 77 form an integral part of the financial statements.

33 Kian Ho Bearings Ltd Notes to the Financial Statements 31 December 2005 (Amounts in Singapore dollars) 1. Corporate information Kian Ho Bearings Ltd ( the Company ) is a limited liability company which is incorporated in Singapore. The registered office and principal place of business of the Company is located at 5 Changi South Street 3, Singapore 486117. The principal activities of the Company are those of stockists, distributors and retailers in bearings and seal products. The principal activities of the subsidiary companies are disclosed below. There have been no significant changes in the nature of these activities during the financial year. The subsidiary companies at 31 December 2005 are :- Name of company Percentage (Country of Principal activities of equity held incorporation) (Place of business) Cost by the Group 2005 2004 2005 2004 $ 000 $ 000 % % Kian Ho (China) Dormant # # 100 100 Investments Pte Ltd (Singapore) (Singapore) ** Kian Ho Bearings Dealer in ball 359 359 100 100 (M) Sdn. Bhd.* bearings and seals (RM630) (RM630) (Malaysia) (Malaysia) Zhenjiang Zhongjian Manufacturer of 3,068 3,068 100 100 Bearing Co. Ltd water pump and (US$2,084) (US$2,084) (China)+ double roll bearings (China) Ascend Bearings Dealer in ball 913 913 60 60 Co., Ltd bearings (NTD18,000) (NTD18,000) (Taiwan)* (Taiwan) Acker Machinery Dealer in ball bearings 1,470 1,470 100 100 (Shanghai) Co., Ltd (China) (RMB7,450) (RMB7,450) (China)++ SNB (HK) Co Ltd +++ Dealer in ball bearing 216 100 and seals (HKD1,000) (Hong Kong) 6,026 5,810

Kian Ho Bearings Ltd 34 Notes to the Financial Statements 31 December 2005 (cont d) (Amounts in Singapore dollars) 1. Corporate information (cont d) # Cost $2 ** Audited by Lee Kok Poh & Co. * Audited by member firms of Ernst & Young Global. + Audited by Shanghai Acumen Certified Public Accountants Co., Ltd. ++ Audited by Shanghai Jia Hwa, Certified Public Accountants, China. +++ Audited by Maradebbie & Partners (Practising), Certified Public Accountants. 2. Summary of significant accounting policies 2.1 Basis of preparation of financial statements The consolidated financial statements of the Group and the financial statements of the Company have been prepared in accordance with Singapore Financial Reporting Standards ( FRS ). The financial statements have been prepared on a historical cost basis, except for land and buildings, investment properties, derivative financial instruments and available-for-sale financial assets that have been measured at their fair values. The financial statements, which are presented in Singapore Dollars ($), are expressed to the nearest thousand dollars. 2.2 Changes in accounting policies The accounting policies have been consistently applied by the Company and are consistent with those used in the previous financial year, except for the changes in accounting policies discussed below. i) 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 2005. FRS 39, Financial Instruments: Recognition and Measurement FRS 103, Business Combinations, including amendments to FRS 36 (revised), Impairment of Assets and FRS 38 (revised), Intangible Assets FRS 105, Non-Current Assets Held for Sale and Discontinued Operation