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annual report 2010

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Key Financial Figures 01

Group Financial Highlights 02

Significant Events 04

Geographical Presence 06

Message fromGroup President & CEO 10

Contents Board of Directors 14Key Management 17

Financial Review 20

Operating Review 23

Corporate Social Responsibility 32

Investor Relations 34

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Hyflux Ltd Annual Report 2010

1

KeyFinancial Figures

PROFIT BEFORE TAX

S$100.5 million21%

PROFIT ATTRIBUTABLETO SHAREHOLDERS

S$88.5 million18%

EARNINGS PER SHARE

10.52 Singapore cents11%

REVENUE

S$569.7million9%

NET ASSET VALUE PER SHARE

58.60 Singapore cents27%

CASH POSITION

S$222.3 million33%

EBITDA PBT

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

34

20

83

105101

141

85

70

39

55

5750

33

29

22

20

14

12

11

90 20 40 60 80 100 120 140

EBITDA and PBTcompounded annual growth rate

33% and 31%respectively from 2001 - 2010

EBITDA & PBT

(S$ million)

Note:

EBITDA Earnings Before Interest, Taxes, Depreciation and Amortisation

PBT Profit Before Tax

(For year ended 31 December 2010)

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GroupFinancial Highlights

S$'000 2010 2009 2008 2007 2006

Revenue 569,737 524,814 554,224 192,786 142,379

Profit Before Tax 100,473 82,972 70,375 38,693 20,178

Profit After Tax 88,885 74,291 62,218 36,645 15,357

Profit Attributable to Shareholders 88,510 75,036 59,036 32,949 15,473

Shareholders' Equity 502,501 365,244 297,547 239,772 199,601

Total Assets 1,359,702 1,072,563 846,555 549,500 443,398

Net Assets 514,507 393,402 307,899 247,067 218,066

Net Asset Value per Share (cents) (1) (2) 58.60 46.10 37.80 30.50 25.70

Earnings per Share (cents) (2) 10.52 9.51 7.50 4.21 2.00

Dividend per Share (cents) (2) 4.17 3.33 2.29 1.26 0.90

Return on Revenue (%) 15.5 14.3 10.7 17.1 10.9

Return on Equity (%) 17.6 20.5 19.8 13.7 7.8

KEY FINANCIAL DATA

(For year ended 31 December)

(1) Net Asset Value excludes non-controlling interests(2) Restated to include the December 2010 issue of one bonus share for every two existing ordinary shares

GROUP REVENUE BY COUNTRY & REGION(S$ million)

2010

2009

2008

2007

2006

343.8

223.0

8.2

0.0

330.5

150.8

314.7

157.0

104.8

181.3

75.1

16.5

27.6

37.6

13.0

0 50 100 150 200 250 300 350 400

Singapore and Others China MENA

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RETURN ON EQUITY(%)

2010

2009

2008

2007

2006

0.0 5.0 10.0 15.0 20.0 25.0

17.6

20.5

19.8

13.7

7.8

DIVIDEND PER SHARE (2)

(Singapore Cents)

2010

2009

2008

2007

2006

0.0 1.00 2.00 3.00 4.00 5.00

4.17

3.33

2.29

1.26

0.90

EARNINGS PER SHARE (2)

(Singapore Cents)

2010

2009

2008

2007

2006

0.00 2.00 4.00 6.00 8.00 10.00 12.00

10.52

9.51

7.50

4.21

2.00

PROFIT ATTRIBUTABLE TO SHAREHOLDERS

(S$ million)

2010

2009

2008

2007

2006

0 20 40 60 80 100

88.5

75.0

59.0

32.9

15.5

NET ASSET VALUE PER SHARE (1) (2)

(Singapore Cents)

2010

2009

2008

2007

2006

0 10.00 20.00 30.00 40.00 50.00 60.00 70.00

58.60

46.10

37.80

30.50

25.70

(1) Net Asset Value excludes non-controlling interests(2) Restated to include the December 2010 issue of one bonus share for every two existing ordinary shares

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Signifi cantEvents

March

February

January

December

November

2011

2010

Hyflux was named preferred bidder for Singapores second andlargest seawater desalination plant by PUB, the national water agency.Hyflux will design, build, own and operate the 318,500 m3/day plant.The project is worth approximately S$890 million, and is Hyflux'slargest contract to date.

Hyflux and Mizuho Corporate Bank signed a memorandum ofunderstanding to collaborate on global water business developmentand explore various financing structures for water projects.

Hyflux was awarded a concession by the Peoples Government of ZunyiCity to develop a wastewater treatment plant to treat up to 150,000 m3/day

of domestic wastewater for Zunyi City in Guizhou province, China. Hyfluxwill invest approximately RMB200 million (US$31 million).

Hyflux signed three concession agreements with the PeoplesGovernment of Chongqing City, Hechuan District to develop two20,000 m3/day wastewater treatment plants and a 50,000 m3/day potablewater treatment plant at the Hechuan Industrial Park in Chongqing City,China. Hyflux will invest approximately US$45 million.

Galaxy NewSpring successfully completed its compulsory acquisitionand delisting of Hyflux Water Trust (HWT).

Hyflux launched HyfluxShop, Asias first online store dedicated

to a wide range of quality industrial products and systems for thewater industry.

Hyflux secured a US$100 million engineering, procurement andconstruction contract from the General Peoples Committee forUtilities of the Great Socialist People's Libyan Arab Jamahiriyato build a 40,000 m3/day desalination facility in Tobruk, Libya.

Hyflux booth at Singapore International Water Week 2010Joint venture signing ceremony with Mitsui & Co

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August

June

April

March

October

February

Hyflux was conferred Water Technology Company of the Yearat the Frost & Sullivan Asia Pacific Best Practices Awards 2010.

The Securities Investors Association of Singapore (SIAS) namedHyflux the Runner-Up (Services/Utilities/Agriculture category) forthe Most Transparent Company Award 2010.

Hyflux and Mitsui & Co signed a joint venture agreement to develop waterprojects in China. The 50/50 joint venture company, Galaxy NewSpring,proposed a voluntary delisting of HWT and an exit offer to acquire allremaining HWT units not controlled by Hyflux.

Hyflux launched its new generation of ultrafiltration membranes, theKristal 2000, and the Membrane Evaluation System for hollow fibremembranes at the Singapore International Water Week.

Hyflux won three awards at the Global Water Awards 2010 organisedby Global Water Intelligence: Desalination Company of the Year(Distinction), Desalination Deal of the Year (Highly Commended)for the worlds largest membrane-based desalination plant, MagtaaDesalination Plant in Algeria, and Desalination Plant of the Year (HighlyCommended) for Tianjin Dagang Desalination Plant in China.

Hyflux was awarded a S$43.8 million contract by TP Utilities,a wholly-owned unit of Tuas Power, to undertake the engineering,procurement and construction work for stage one of the 182,000 m 3/dayTembusu Seawater Desalination Plant on Jurong Island, Singapore.

Hyflux secured a S$35.8 million contract from PUB to design,construct, test and commission a 68,000 m3/day membrane bioreactorplant at Jurong Water Reclamation Plant. The membrane bioreactorplant will be Singapores largest.

Queen Noor of Jordan presents the Desalination Company of the Year(Distinction) Award to Hyflux at the Global Water Awards 2010

Hyflux wins Water Technology Company of the Year at theFrost & Sullivan Asia Pacific Best Practices Awards 2010

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GeographicalPresence

1000

400in more than

More than

membrane products

and systems installed

locations worldwide

Landmark projects

World's Largest SWRO Desalination PlantMagtaa Desalination Plant

China's Largest SWRO Desalination PlantTianjin Dagang Desalination Plant

Singapore's First SWRO Desalination PlantSingSpring Desalination Plant

Singapore's First NEWater PlantBedok NEWater Plant

Singapore's Largest Membrane Bioreactor PlantJurong Membrane Bioreactor

Note:SWRO Seawater reverse osmosis

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Our offices

Landmark plants

Membrane installations

Singapore

Malaysia

Algeria

India

ChinaFrance

Netherlands

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9

Toinspiregreaterpossibilities

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10

Message fromGroup President & CEO

10

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Dear Stakeholders,

FY2010 has been another record year for Hyflux as we registeredour highest revenue and net profit to date. Our Group revenue

showed a 9% rise to S$569.7 million while profit after tax andnon-controlling interests came in at S$88.5 million, an 18%increase over FY2009s net profit.

Hyfluxs performance was the result of effective cost-managementmeasures put in place to strike a balance between costs on onehand and growth on the other.

To reward shareholders, the Board of Directors has recommendeda final dividend of 3.50 Singapore cents per share. In addition tothe first interim dividend that was paid out on 15 September 2010,the full-year dividend payout will amount to 4.17 Singapore centsper share for FY2010. This is 25% higher than the dividend pershare for FY2009.

EXPANDING CAPABILITIES

This year marks the 10th anniversary of Hyfluxs listing onthe Singapore Stock Exchange. Our Group has achieved acompounded annual growth rate of 33% in earnings beforeinterest, taxes, depreciation and amortisation and 31% in pre-tax profit from 2001 to 2010. Over the same period, we have

delivered total annualised shareholder returns of 37% since ourinitial public offer.

Over that 10-year period, we have experienced fast-track growth.We have steadily strengthened our business model, grown in sizeand profitability, and expanded globally.

In 2001, we had only two main markets Singapore and China but have since expanded into Southeast Asia, India and theMiddle East and North Africa (MENA) region. From a player inthe industrial space for water, we have progressed to become a

major player in the municipal water business. Today, municipalsales account for 90% of our Group revenue. From integrating

To take the Group forward into the next decade, we will continue toexpand our in-house capabilities in anticipation of the global trends andrequirements of the water industry.

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membrane systems in industrial plants, we havebeen named one of the dominant desalinationproviders in the world by the Global WaterIntelligence (GWI), the leading informationservice for the international water industry.

To take the Group forward into the next decade,we will continue to expand our in-housecapabilities in anticipation of the global trendsand requirements of the water industry. Hence

we took the strategic decision to enhance ourhuman capital to ensure that we have the rightpeople with the right expertise and right skills togrow the business, and to meet the increasingdemand from our customers worldwide.

In this respect, we took steps to:

Enhance our management bench strength;

Raise our project management expertisebeyond civil and structural works to

marine engineering;

Broaden our engineering and processknow-how to include power generationand management; and

Expand our financial management andmarket development expertise.

We strongly believe that by expanding ourcapabilities in these areas, we stand in goodstead to ride the uptrend in our key markets andto penetrate into the Integrated Water and PowerProject (IWPP) segment.

RIDING ON ORDER BOOK MOMENTUM

Over the first quarter of FY2011, we have beenable to ride on the momentum of order bookgrowth in Singapore and China.

In March 2011, we were named the preferred

bidder for the design, build, own and operatecontract for Singapores second seawaterdesalination plant by PUB, the nationalwater agency. Hyflux will supply water toPUB for a concession period of 25 years. At318,500 m3 daily capacity, it is Singaporeslargest desalination plant. This project, worthapproximately S$890 million, is also Hyfluxslargest contract to date. It is a testament of ourability to put together an innovative, competitive

and cost-effective solution incorporatingproject financing, our proprietary membranetechnology, our engineering, procurement andconstruction and operations and maintenanceexpertise to meet the requirements of ourclient. To enhance the operational cost-efficiencyof the plant, we will build an on-site 411MWcombined cycle gas turbine power plant whichwill provide an uninterruptible supply of goodquality, clean energy to the desalination plant.

When completed, this landmark project will beour springboard into the IWPP segment.

Our Group also scored project successesin China. Our subsidiaries in China signedconcession agreements to develop, own andoperate two wastewater treatment plants anda water treatment plant in Hechuan District,Chongqing City and a wastewater treatmentplant in Zunyi City, Guizhou. The projects carryconcession periods of 30 years.

FOCUSING ON ASIA

We will increase our focus on Asia, in particularChina, to balance our growth strategy.

We expect Asia to be the dominant revenuedriver in the next few years for two reasons.First, we are directing more resources in Asia togrow our revenues in China, Southeast Asia andIndia and this has started to yield results with

Message fromGroup President & CEO

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our recent contracts from China and Singapore.Second, the two large-scale desalination plantsthat Hyflux is developing in Tlemcen and Magtaain Algeria are near the close of the construction

phases. The former has been completed, whilewe have crossed the three-quarter mark onconstruction of the latter.

We see a new urgency in China to address itswater needs on all fronts from infrastructuredevelopment to addressing drought, waterpollution, water conservation and pricing ofwater and this urgency permeates throughall levels of government. We continue to haveconfidence in the potential of the municipal water

sector of China.We will continue to leverage on our knowledgeof the Chinese market built from more than15 years of experience in the country. Our jointventure platforms with Mitsui & Co and JGCCorporation will provide us the added flexibilityto pursue the opportunities in the Chinesewater market.

The political upheavals currently unfolding inMENA do not change the fundamental need

for water in the region, and demand for cleansafe water can only be expected to grow.Notwithstanding the prevailing risks involvedin investing in MENA countries, they remainlong-term compelling markets for Hyflux giventhe vast opportunities for wastewater recyclingand seawater desalination solutions. These arewhere our core strengths lie, and where we canleverage on our fully-integrated capabilities to addvalue and to deliver water at affordable prices.

ENSURING WATER SECURITY

Moving forward, we will continue to driveoperational excellence in all aspects of ourbusiness and plant operations and to continue

to invest in technologies that are relevant andcost-effective for our customers. With ourexpanding portfolio of water projects across theworld, we will also need to manage our assetsmore efficiently and to create higher returns forour Group.

At Hyflux, we believe that what we do on a dailybasis can impact the lives of the communitiesthat we operate in. In this aspect, we partnerboth the public and private sectors to provide

reliable long-term solutions to the challenges ofwater scarcity and water pollution.

For Hyflux, the water business is about makingclean, safe water accessible and affordable, andwe want to play an integral role as well in helpingnations and communities achieve water security.

Finally, on behalf of the Board of Directors,I would like to thank our shareholders, partners,customers and suppliers for their supportthrough the years.

I would also like to thank our committedemployees, without whom there would be noHyflux of today.

Olivia Lum Ooi Lin

Group President & CEO

For Hyfl ux, the water business is about making clean, safe wateraccessible and affordable, and we want to play an integral role as wellin helping nations and communities achieve water security.

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Boardof Directors

Olivia Lum Ooi LinGroup President & CEO

Ms Lum started corporate life as a chemist with GlaxoPharmaceutical and left in 1989 to start up Hydrochem(S) Pte Ltd, the precursor to Hyflux Ltd.

Managing the Group for more than 20 years now,Ms Lum is the driving force behind Hyflux's growth andbusiness expansion, responsible for policy and strategyformulation and corporate direction.

A former Nominated Member of Singapore Parliament,Ms Lum holds several positions in the public service.Currently, she sits on the board of a number ofcompanies. She is a Member of the NUS Board ofTrustees and National University Health System. Inaddition to her commitments in Hyflux, Ms Lum is alsoa member of the Singapore-Tianjin Economic & TradeCouncil, and the Singapore-Jiangsu CooperationCouncil as well as the President of the SingaporeCompact for CSR.

Among the many accolades Ms Lum has received forher entrepreneurial achievements are: the Winner of theRegional Growth Award by Nihon Keizai Shimbun at the11th Nikkei Asia Prize 2006, and most recently the Ernst

& Young Entrepreneur of the Year 2010 Singapore.

Ms Lum holds an Honours degree in Science from theNational University of Singapore.

Teo Kiang KokNon-Executive Independent DirectorMr Teo was admitted to the Singapore bar in 1983 andhas been a partner of Shook Lin & Bok LLP (SLB) since1988. Prior to joining SLB in 1987, he worked for briefperiods as an associate with an international law firm and

as a corporate finance executive with an internationalinvestment bank. He obtained his Bachelor of Law(Honours) degree from the University of Hull and is aBarrister-at-Law from Lincoln's Inn.

Mr Teo currently heads the Corporate & CorporateFinance and China practices of SLB. In his 28 years ofpractice, he has advised on a wide range of corporatefinance transactions, particularly securities offerings,mergers and acquisitions, joint ventures and strategicinvestments. He has significant experience in equitycapital markets and has advised on many public offeringsof securities by Singapore and foreign companies

including those from the People's Republic of China(PRC). Mr Teo also has expertise with mergers andacquisitions of Singapore and foreign companies

including those from the PRC. Mr Teo's regionalpractice includes foreign investment work in and out ofSingapore, PRC, India and the ASEAN countries.

In the course of his legal practice, Mr Teo has advisedlisted companies extensively on corporate law andregulatory compliance and in particular, the requirementsof the Singapore Exchange Securities Trading Limited.

Lee Joo HaiNon-Executive Independent Director

Mr Lee has been a Non-Executive Independent Directorof Hyflux Ltd since December 2000. He is also theChairman of the Audit Committee and a member of theRemuneration and Risk Management Committees.

Mr Lee is a Certified Public Accountant (CPA) anda member of both the Institute of Certified PublicAccountants of Singapore and the Institute ofChartered Accountants in England and Wales.

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He is currently a partner in a public accounting firm inSingapore and has more than 20 years of experience inaccounting and auditing.

Mr Lee also sits on the boards of other listed companies,including Lung Kee (Bermuda) Holdings Ltd.

Gay Chee CheongNon-Executive Independent Director

Mr Gay has been a Non-Executive IndependentDirector of Hyflux Ltd since August 2001. He is also theChairman of the Nominating Committee, as well as amember of the Remuneration and Audit Committees.

He is a member of the Board of Governors of RafflesUniversity and Temasek Polytechnic, an Advisory Boardmember of the Lee Kong Chian School of Business atSingapore Management University, a member of theEntrepreneurship Committee at the National University ofSingapore and a Trustee of the United World College ofSouth East Asia Foundation.

Mr Gay co-founded and was the CEO of 2G CapitalPrivate Limited, a private investment company investingin equities and private companies in the Asia Pacificeconomies. The company was awarded Highest NetProfit in 2006 and Net Profit Excellence in 2007 in theannual SME 500 ranking.

Mr Gay graduated from the Royal Military Academy(RMA), Sandhurst and Royal Military College of Science,Shrivenham, United Kingdom. At RMA, Sandhurst,Mr Gay won the Nigeria Prize for Best Overseas StudentOfficer and at the Singapore Command and StaffCollege, the Top Student Prize.

Mr Gay holds Honours degrees in ElectronicsEngineering from the Royal Military College of Science,Shrivenham, United Kingdom, and in Economics fromthe University of London. He also has a Masters ofBusiness Administration from the National Universityof Singapore.

Left to right Rajsekar Kuppuswami Mitta, Christopher Murugasu, Olivia Lum Ooi Lin, Gay Chee Cheong, Lee Joo Hai, Professor Tan Teck Meng, Teo Kiang Kok

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Christopher MurugasuNon-Executive Independent Director

Mr Murugasu has been a director of Hyflux Ltd sinceFebruary 2005. He is also a member of the RiskManagement and Remuneration Committees.

Previously Senior Vice President for Corporate Servicesat Hyflux Ltd, he was responsible for the Groups humanresources, procurement and general administrationfunctions. Prior to joining Hyflux, Mr Murugasu hadaccumulated over 15 years of experience in the publicsector as well as with a foreign bank.

He holds an Honours degree in ComputingScience from Imperial College, United Kingdom,and a Masters degree from the London School ofEconomics, United Kingdom.

Rajsekar Kuppuswami MittaNon-Executive Independent Director

Mr Mitta has been a Non-Executive Independent Directorof Hyflux Ltd since April 2007. He is also Chairman ofthe Risk Management Committee.

Mr Mitta is currently the Chairman of Essential ValueAssociates Pte Ltd, a boutique consulting firm thatworks with selected Chairmen and CEOs who seekto create lasting change to develop high growthsustainable businesses with quality governance.

Mr Mitta was Chairman of Arthur D Little Asia anda Senior Member of Booz Allen Hamilton. He hasadvised some of the worlds best consumer goods andcustomer-intensive companies, technology-intensivecorporations and regional governments. His client listincludes multinationals like PepsiCo, Gillette, Kelloggs,

and the Governments of Singapore, Malaysia,Indonesia, Philippines, Australia and India. He has alsoworked with regional conglomerates like Hutchisons(HK), Jardines (HK), Bakrie Group (Indonesia), Reliance(India), Amex, Citicorp, British Airways and telecomoperators like Optus, Orange, Singapore Telecom andDeutsche Telekom.

Prior to his consulting experience of over 20 years,Mr Mitta worked in senior marketing roles with Pepsico(US and Cyprus) and Mars Inc. (UK).

Boardof Directors

Mr Mitta is a seasoned negotiator and deal maker withwell developed cross cultural sensitivity developedthrough living and working across diverse countriesand consulting with an expansive list of clients. Hismain areas of professional interest are in strategydevelopment and value extraction through enhancingmarketing and sales effectiveness, the competitiverepositioning of brands/services and issues relating tomanaging change within organisations.

Mr Mitta holds a Bachelors degree in ChemicalEngineering from the University of Bombay, India and

a Masters in Business Administration from the IndianInstitute of Management, Ahmedabad.

ProfessorTan Teck MengNon-Executive Independent Director

Professor Tan has been a Non-Executive IndependentDirector of Hyflux Ltd since April 2007. He is also theChairman of the Remuneration Committee as well as amember of the Audit Committee.

Professor Tan is currently Professor of Accounting in

the School of Accountancy at Singapore ManagementUniversity. He chairs KK Women & Children HospitalsMedifund Committee.

Professor Tan also sits on the board of a numberof companies including Singapore ReinsuranceCorporation Limited, Kim Eng Holdings Limited,k1 Ventures Ltd and Raffles Education Corporation.

Professor Tan has a Bachelor of Accountancy (BAcc)degree from the University of Singapore and a Mastersof Commerce (MCom) (Honours) from the University ofNew South Wales in Australia. In 1996, he was awardedan Honorary PhD by Liaoning University (China). In

1997, he became the first Singaporean to garner the(US-based) Wilford L. White Award.

He holds Fellowships in the Institute of Certified PublicAccountants of Singapore (FCPA), Australian Societyof CPAs (FCPA), Institute of Chartered Secretaries andAdministrators (FCIS), and Chartered ManagementInstitute, UK (FCMI).

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1717

KeyManagement

Left to right Peter Wu, Oon Jin Teik, Foo Hee Kiang, Olivia Lum Ooi Lin, Sam Ong, Winnifred Heap, Dr Andrew Ngiam, Cho Wee Peng

01 Olivia Lum Ooi Lin Group President &

CEO

02 Sam Ong Group EVP &

Group Deputy CEO

03 Cho Wee Peng Group EVP &

Group CFO

04 Winnifred Heap Group EVP,

Capital Markets

05 Oon Jin Teik Group EVP &

CEO, China

06 Dr Andrew Ngiam Group EVP &

Group COO

07 Foo Hee Kiang Group EVP,

Commercial Contracts &Industry Relations

08 Peter Wu Group Senior MD &

CEO, Galaxy NewSpring

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Todeliversmartersolutions

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FinancialReview

S$ million 2010 2009 % Change

Revenue 569.7 524.8 9

Profit Before Tax 100.5 83.0 21

Profit Attributable to Shareholders 88.5 75.0 18

Earnings per Share (cents) (1) 10.52 9.51 11

(1)

Restated to include the December 2010 issue of one bonus share for every two existing ordinary shares

OVERVIEW

Hyflux registered our highest revenue and net profit to

date in 2010. The Group achieved revenue of S$569.7million and profit attributable to shareholders of S$88.5million for FY2010. Basic earnings per share increasedby 11% to 10.52 Singapore cents.

REVENUE

Group revenue for FY2010 increased by 9% to S$569.7million as compared to S$524.8 million for FY2009.

Revenue from the municipal sector increased marginallyby 9% from S$469.8 million for FY2009 to S$511.2million for FY2010 and contributed 90% to the Groups

revenue. Municipal sector revenue from China andMENA for FY2010 was S$99.7 million and S$340.5million respectively.

Revenue from the industrial sector increased by 1%from S$54.4 million for FY2009 to S$55.1 millionfor FY2010.

China accounted for 26% of the total revenue, whileMENA contributed approximately 60% of the totalrevenue for FY2010.

Moving forward, the fundamentals and outlook of theglobal water industry remain robust. The municipalsector will continue to be the main driver of Grouprevenue. With our key markets in China, SoutheastAsia and the MENA region facing critical water scarcityissues, the development of water infrastructure projectsis expected to accelerate.

As a reflection of the increasing momentum, we haveannounced the signing of four concession agreementsworth a total of US$76 million in the first two months of2011 with the People's Government of Chongqing City,

Group Revenue by Segment

Industrial10%

Industrial10%

Municipal90%

Municipal90%

2010 2009

(For year ended 31 December)

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Hechuan District and People's Government of Zunyi Cityfor water projects in Chongqing City and Zunyi City

in China.

However, risks remain that could impact our growth eventhough risk appetite has recovered significantly fromthe lows in 2008. China's recent tightening measuresand the debt crisis in the Eurozone will continue to reinin optimism and risk appetite. In addition, fluctuations inforeign exchange rates and commodity prices will impactour financial performance, as well as recent changes inthe political climate in MENA. Projects in Libya are likelyto be delayed in view of current developments.

COSTS AND EXPENSES

Raw materials and consumables used andsubcontractors costs decreased by 2% from S$309.4million for FY2009 to S$303.0 million for FY2010 due tocost management measures.

Staff costs increased from S$59.4 million for FY2009to S$65.4 million for FY2010 which was in line with ourexpansion plan.

Finance costs increased from S$9.3 million for FY2009to S$16.8 million for FY2010 which was in line with

higher bank borrowings during the financial year.

Depreciation, amortisation and impairment increasedfrom S$16.5 million for FY2009 to S$27.5 million forFY2010 which was in line with the increase in property,plant and equipment and intangible assets.

Other expenses increased from S$57.9 millionfor FY2009 to S$68.1 million for FY2010 due tohigher projects tender fees, costs on research anddevelopment and foreign exchange differences duringthe financial year.

The effective tax rate for FY2010 was about 11.5% andremained at a level lower than the Singapore corporatetax rate mainly due to the tax exemptions and incentivesenjoyed by certain entities within the Group.

EARNINGS PER SHARE

Basic and fully diluted earnings per share for FY2010increased by 10.6% and 9.5% respectively to 10.52Singapore cents and 10.23 Singapore cents respectivelycompared to FY2009.

Group Revenue by Country

Others14%

Others2%

MENA60%

MENA63%

China26%

China35%

2010 2009

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BALANCE SHEET REVIEW

Shareholders equity expanded to a record S$502.5million as at 31 December 2010 from S$365.2 millionas at 31 December 2009. The increase was mainlyattributable to the changes in share capital arising fromthe issue of shares under the Employees Share OptionScheme (the Scheme) and Warrant SubscriptionAgreement and Supplemental Warrant SubscriptionAgreement (Agreements) for FY2010. Net profit inFY2010 further boosted our equity base.

Current assets rose to S$693.7 million as at 31 December

2010 from S$549.1 million as at 31 December 2009, whichwas mainly due to increases in amounts due for contractwork and cash and fixed deposits.

Non-current assets increased to S$666.0 millionas at 31 December 2010 from S$523.4 million as at31 December 2009. Property, plant and equipmentand financial receivables increased by S$20.9million and S$70.2 million respectively. The increasewas offset by the lower trade and other receivablesfor trade amounts due from associates as well asinvestments in associates.

Current liabilities decreased slightly to S$315.9 millionas at 31 December 2010 from S$317.9 million as at31 December 2009, mainly due to the decreases intrade-related payables during the financial year.

Non-current liabilities increased to S$529.2 millionas at 31 December 2010 from S$361.3 million as at31 December 2009, resulting mainly from the increasein bank borrowings during the financial year to supportgroup expansion and investment activities. Includedin the financial liabilities as at 31 December 2010was S$222.8 million of fixed rate unsecured notes(Notes) issued under our Multicurrency Debt IssuanceProgramme. The Notes will mature in 2012 and 2015.

Our net gearing ratio as at 31 December 2010 stood at0.73 times.

CASHFLOW AND LIQUIDITY

Hyfluxs cash position increased to S$222.3 millionas at 31 December 2010 from S$166.7 million as at31 December 2009.

In 2010, net cash of S$49.5 million was used in ouroperating activities, mainly towards working capitalrequirements. Cash used in investing activities for thefinancial year was largely for capital expenditure ofproperty, plant and equipment and intangible assets tosupport our expansion, including investments in jointventures and associates. Cash generated from financingactivities for FY2010 was mainly from borrowingproceeds to fund group investments and from the issueof shares under the Scheme and Agreements.

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OperatingReview

ENGINEERING, PROCUREMENT AND

CONSTRUCTION (EPC)

2010 saw further progress in our two large-scaledesalination projects in Algeria. Our project in Souk Tletain Tlemcen, with a designed capacity of 200,000 m3/day,has been completed and is awaiting clients readiness,while good progress was made at our Magtaa project,which is 80% complete. At 500,000 m3/day, it will be theworlds largest seawater reverse osmosis desalinationplant when completed in 2011.

During the year, Hyflux secured a number of EPC

contracts, including two projects in Singapore. The firstwas a S$35.8 million contract for Singapores largestmembrane bioreactor (MBR) at the Jurong WaterReclamation Plant for PUB, the countrys national wateragency. The second contract, valued at S$43.8 million,was for the first stage development of a 182,000 m3/daydesalination plant for Tuas Powers Tembusu Multi-Utilities

Complex on Jurong Island. We were also awarded aUS$100 million turnkey contract by the Libyan Ministryof Utilities, to build a 40,000 m3/day seawater reverseosmosis desalination plant in Tobruk, Libya. However, dueto the heightened tensions in the country, we believe thatthe project will be delayed. We have no investments inLibya as work on the desalination plant in Tobruk has notbegun and we have removed the US$100 million contractfor Tobruk from the computation of the Groups orderbook pending new developments.

To date, our projects in Algeria and Oman are progressing

as planned and have not faced any disruptions.

In the first quarter of 2011, Hyflux's subsidiaries inChina were awarded concession agreements wortha total of US$76 million by the Peoples Governmentof Chongqing City, Hechuan District and the PeoplesGovernment of Zunyi City. Hyflux will develop a water

Artist's impression of Tuas II desalination plant, Singapore

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treatment plant and two wastewater treatment plants atHechuan Industrial Park in Chongqing City:

Hexin District Wastewater Treatment Plant andWeituo Wastewater Treatment Plant, each witha treatment capacity of 20,000 m3/day will processwastewater for the industrial park; and

Weituo Water Treatment Plant will tap water fromupstream Jialing River to produce up to 50,000 m3/dayof potable water for industrial and domestic use.

At Zunyi City in north Guizhou province, Hyflux willdevelop a wastewater treatment plant to treat up to150,000 m3/day of domestic wastewater. These projectscarry concession periods of 30 years.

In addition, we were named the "preferred bidder" byPUB to design, build, own and operate Singaporessecond seawater desalination plant for a concessionperiod of 25 years. With a daily capacity of 318,500 m3,the facility will be Singapores largest desalination plant.The project, worth approximately S$890 million, is also

Hyfluxs largest contract to date. To enhance operationalcost efficiency, Hyflux will build a 411MW combinedcycle gas turbine power plant to supply energy tothe desalination plant. Construction is expected tocommence in the fourth quarter of 2011 after the waterpurchase agreement is signed with PUB and financialclose is achieved. When completed, this landmarkproject will sharpen our competitive edge for large-scaleinternational seawater desalination projects in our keymarkets and be our springboard into the integrated waterand power project (IWPP) segment.

This accelerating order book momentum brings ourEPC order book to a strong S$1.3 billion at the endof March 2011.

OPERATIONS & MAINTENANCE (O&M)

Our order book for O&M was S$955 million in

FY2010 compared to S$1.1 billion in FY2009 as aresult of the 50/50 joint ventures we had formed with

OperatingReview

EPC O&M

Mar 11

Dec 09

Dec 08

Dec 07

Dec 06

Dec 05

0 500 1000 1500 2000 2500

ORDER BOOK(S$ million)

7481100 1848

1145335 1480

863254 1117

435166 601

465

1273955 2228

750 (1)

Note:(1) EPC value for Tuas II desalination plant(2) EPC order book excludes US$100 million from Tobruk as of March 2011(3) O&M order book is a summation of future revenues of our portfolio of plants over the concession periods

43530

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Mitsui & Co and JGC Corporation of Japan. This sawthe transfer of the O&M contracts for the portfolioof water treatment plants that were formerly heldby Hyflux Water Trust (HWT) and Tianjin DagangDesalination Plant to the two joint ventures. We expectour O&M order book to rise over the next three yearsas projects such as our large-scale desalinationplants in Magtaa, Algeria and Tuas, Singapore beginoperations, forming a steady stream of recurringincome over the 20 to 30-year concession period.

By the end of 2011, our large-scale municipal desalination plants

will supply close to 1 million m3of desalinated water daily tocommunities and industries in the

countries where we operate.

Ultrafiltration building at Tianjin Dagang Desalination Plant, China

INNOVATION

Hyfluxs research and development activities are focusedon the development of membrane applications andcommercialisation of membrane technologies. Thisenables us to constantly improve our operations andanticipate tomorrows challenges as countries become

more industrialised. Our team of multidisciplinaryspecialists, researchers and scientists in our networkof innovation centres in Singapore, China and TheNetherlands, works in close cooperation with marketing,product development and engineering to push forbreakthroughs that will deliver environmentally-friendly andefficient solutions for a wide range of applications in watertreatment and industrial manufacturing processes.

Kristal 2000T, a new generation of our flagshipKristal ultrafiltration membrane, which is installedin a number of our landmark water projects, waslaunched at the Singapore International Water Week2010. Fabricated from polyvinylidene fluoride, themembranes properties make it ideal for handling

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OperatingReview

difficult and challenging conditions such as high solidswastewater treatment. Another member to join theKristal family in 2010 was the Kristal 600ETN. Witha shortened module housing of just 1.2 m comparedto the other Kristal models which are over 2 m long,the Kristal 600ETN is designed to meet customerrequirements for a more compact, high-performancesolution for full scale process treatment systems.

Hyflux also unveiled a Membrane Evaluation Systemat the Singapore International Water Week 2010.The system is designed to evaluate and optimise the

performance of hollow fibre membranes for liquid-liquidor liquid-solid separation under different operatingconditions, simplifying the membrane selection processfor different applications.

Every year, Hyflux devotes a fixed percentage of annualrevenue to research and development spending. Inaddition, we are investing S$120 million over thenext few years in the Hyflux Innovation Centre, anew design, R&D and commercialisation centre inSingapore to spearhead the development of membranetechnologies for municipal and industrial applications.There will also be a new membrane manufacturing

facility, Hyflux Production Hub. This commitmentto research enables us to continually enhance our

technological and engineering processes, and createnew value for our customers.

In fact, innovation is a way oflife at Hyfl ux and permeatesevery level of the organisation.Our philosophy is to look at howinnovation can create better valueand effi ciency for customers.This extends beyond researchand development to encompassthe way we design our membranesystems and integrated waterplants as well as arrangefi nancing for our projects.In recognition of our achievements, Hyflux was namedWater Technology Company of the Year 2010, AsiaPacific by Frost and Sullivan, and Desalination Companyof the Year (Distinction) at the Global Water Awards

Research lab at Tianjin Dagang Desalination Plant Kristal ultrafiltration membrane installation in Ukraine

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2010. Our Magtaa project also won a commendationfor Desalination Deal of the Year at the same awardsceremony for achieving financial close within one yearfrom the award date, and on the back of one of thelowest tariffs in the world for a seawater reverse osmosisdesalination plant.

GEOGRAPHICAL MARKETS

China

The Chinese market represented 26% or S$150.8million of Group revenue in FY2010.

China presents tremendous opportunities for Hyflux and

we intend to increase our focus in the coming years. Thecountry recently outlined in a central policy document itsplans to intensify investments in water projects as wellas to promote water conservation and sustainable use ofthe scarce resource. This is the first time the documenthas focused on water conservation, a reflection ofthe urgency the government sees in boosting Chinaswater security. Hyflux is confident of the prospects themunicipal sector offers and the potential for tariff growth.

Middle East North Africa (MENA)

The MENA region accounted for 60% or S$343.8million of Group revenue in FY2010 with the progress inthe Souk Tleta and Magtaa seawater desalination plantsin Algeria and the seawater desalination facility at theSalalah IWPP in Oman.

Souk Tleta Desalination Plant, Algeria

Notwithstanding the prevailing risks involved in investing inMENA, the region remains a compelling market for Hyfluxin the long-term as the fundamentals for water solutionslike desalination and water reuse remain strong.

Singapore and Others

Singapore and other markets accounted for 14% orS$75.1 million of Group revenue in FY2010. Our homemarket saw a significant increase in activity in 2010 withthe development of two projects we had won in the firstquarter of the year Singapores largest MBR plant atthe Jurong Water Reclamation Plant and the first stagedevelopment of a desalination plant for Tuas Powers

Tembusu Multi-Utilities Complex.Markets such as Southeast Asia and India, where wehave been undertaking small industrial projects, havecontributed modestly to the Groups revenue, but areexpected to become significant over time as we directmore resources to capture the growth opportunitiesahead. As more countries across the region put in placeconcerted plans to improve water infrastructure andenhance their water security, attractive opportunities willopen up for Hyflux to provide innovative, cost-effectiveand environmentally responsible solutions in seawaterdesalination, water recycling, wastewater treatment andpotable water treatment.

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Joint venture signing ceremony with Mitsui & Co

STRATEGIC PARTNERSHIPS

Strategic partnerships enable Hyflux to strengthenour competitiveness in the global water industry.

In August, Hyflux formed Galaxy NewSpring, a 50/50joint venture with Mitsui & Co to serve as the vehicle forinvesting, developing and managing projects in the fastexpanding water sector in China.

By combining our complementarystrengths Hyfl uxs fullyintegrated water solutions, strongtrack record and experience inChina, and Mitsuis entrenchedglobal network, comprehensiveinfrastructure services androbust capital structure wehave formed a powerful platformto accelerate investments in

developing critical infrastructure

to meet Chinas needs for clean,safe and affordable water.Galaxy NewSprings initial investment portfoliocomprises 22 water and wastewater treatmentplants four acquired from Hyfluxs wholly-ownedsubsidiary, Spring China Utility, and 18 from HWT.The latter was taken private in December 2010 afterits unitholders supported the voluntary delistingproposal by the joint venture.

Hyflux has also formed strategic partnerships with theJapan Bank for International Cooperation (JBIC) andJGC Corporation in 2009.

With these institutions and companies as our partners,we will have greater financial leverage and flexibility toaccelerate investments in projects in our key growthmarkets of China, Southeast Asia, India and MENA.We will also be able to tap on the market knowledgeand connections of our partners in markets which wehave yet to establish a strong presence.

Hyflux will continue to explore new partnerships thatcomplement our key strengths to boost our growth

strategy and financial flexibility.

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INDUSTRY OUTLOOK

Access to water of adequate quality and quantitycontinues to be one of the major challenges confrontingmodern society. Many people do not have access tosafe drinking water because water resources are limitedor polluted by domestic and industrial wastewater.This situation is expected to become more critical withrapid population growth, increasing urbanisation andindustrialisation, ageing water infrastructure and climatechange, especially in regions with scarce natural waterresources. To meet these challenges, comprehensivewater policies as well as investments are required toimplement and enforce effluent discharge standards,improve water efficiency and quality, promote waterconservation and tariff reforms, and upgrade and expandwater infrastructure.

Industry estimates put the size of the global water marketat over US$480 billion in 2010. Of this, US$175 billionwas for municipal and industrial water and wastewatercapital expenditure. While the financial crisis caused adecrease in water capital expenditure growth and delaysin large infrastructure projects, global water capitalexpenditure is still expected to grow at a compoundedannual growth rate of 6.2% in the period 2010 to

2016. The annual total global capital expenditure ondesalination is also projected to rise from US$6 billion in2010 to US$18.3 billion in 2016, a compounded annualgrowth rate of 20.4%.

In China, a key market where Hyflux has more than 40water projects, the government has announced that itwould make water conservation and sustainable wateruse a national priority. The country aims to doubleits average annual spending on water conservationover the next 10 years from RMB200 billion in 2010

to RMB400 billion, investing a total of RMB4 trillion(US$608 billion) in projects during the next decade.This will be supplemented by other measures includinggovernment funding, higher water tariffs to control waterconsumption and the implementation of targets for thequantity of water consumed, efficiency of water useand water pollution levels for which local governmentofficials will be held accountable. We will leverage onour knowledge of the Chinese market cultivated frommore than 15 years of experience in the country and ourjoint ventures with Mitsui & Co and JGC Corporation topursue the opportunities in China.

By building on our corecapabilities and leveragingon our proprietary membranetechnologies and fi nancialplatform, Hyfl ux has created acompetitive advantage that hasenabled us to achieve strong

growth and a leading positionin the water industry.We are ranked one of the worlds top desalinationsuppliers by contracted capacity and Build-Own-Transfer / Build-Own-Operate desalination capacityaccording to Global Water Intelligence. As waterscarcity becomes an increasingly grave issue forcommunities and industries, we seek to play an integralrole in helping countries enhance their water security.

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Togrowpeople andcommunities

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CorporateSocial Responsibility

HUMAN CAPITAL

To lead the company into the next phase of growth,Hyflux focuses on recruiting, engaging, motivating andretaining individuals whose skills, aspirations and valuesare aligned to the companys strategic vision and corevalues. We employed close to 2,300 employees inseven countries around the world in 2010. We boostedour staff strength in Algeria as we prepared for theoperations and maintenance of the desalination plantsthat we are building, expanded our presence in Malaysiaand India, and opened a new office in France to servethe European market. We also have plans to establishthree engineering resource centres in Malaysia, Chinaand India to tap on and divert resources for projectsacross the world.

A diversified and inclusive work environment has beenvital to our success. The varied skills and experiences ofemployees from different backgrounds, cultures, genderand age bring richness to the workplace, helping us toconnect better with our clients around the world andbuild stronger relationships at a local level.

We believe in nurturing the full potential of our employeesthrough professional training and development

programmes, job rotation, overseas postings as wellas participation in local and international industryconferences. In doing so, we develop their skills andtalents and also strengthen our ability to improve lives inthe communities we serve.

Hyflux encourages open communication and employeeengagement through an orientation for new employeesto familiarise them with the company, regular dialoguesessions with senior management, company-widecelebrations of festivities and programmes such asBring Your Child to Work Day. This is complementedby an intranet portal which shares company news

and events as well as general employee resources. Inaddition, regular learning sessions are organised foremployees to give them an intimate understanding of theindustry Hyflux is in, and to instil a strong sense of prideand ownership in our journey to deliver solutions to meetthe worlds need for water.

QUALITY, ENVIRONMENT, HEALTHAND SAFETY (QEHS)

At Hyflux, a dedicated team is responsible for ensuringthe health and safety of employees and integrating

environmental best practices into our business. Our

commitment to QEHS practices starts from keymanagement and filters down through the organisation.

Hyflux contributes to sustainable development byhelping to meet the worlds growing water needs inenvironmentally and socially responsible ways. Ouractivities are guided by our goal of making a positivedifference and reducing our impact on the environment.

In 2010, we were awarded the ISO 14001:2004 andBS OHSAS 18001:2007 certifications. They affirmthat Hyfluxs processes comply with international

standards for occupational health and safety, and theenvironment. In addition, our flagship ultrafiltrationmembrane, Kristal, is the first ultrafiltration membranecertified to remove the drinking water contaminants,cryptosporidium and giardia, under the new PublicDrinking Water Equipment Performance CertificationProgramme by Americas NSF International. Kristalhas also achieved NSF Standard 61 (Drinking WaterSystem Components Health Effect) Certification.This standard certifies that products which have directcontact with drinking water, do not leach contaminantsthat would be a health concern.

Safe and reliable operations are fundamental to Hyflux.Our Environment, Safety and Health Committeecontinuously strives to strengthen our safety culturethrough processes, regular training programmesand sharing sessions and rewards for strong safetyperformance. Our goal is to create an accident-freeenvironment that keeps our employees and contractorssafe at every Hyflux facility.

Hyflux staff in the Economic Development Board's Heritage Run

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COMMUNITY

As a water solutions company with entrepreneurial roots,Hyfluxs corporate social responsibility programmefocuses on issues close to our heart: the environment,education, entrepreneurship and community relations.

In 2010, Hyflux contributed to charitable causesincluding fund raising events which benefited wildlifeconservation funds as well as charity organisationsthat provide financial and social assistance, eldercare,rehabilitation, knowledge and skills development. Insupport of the opening of PUBs Active, Beautiful,

Clean Waters project at Lower Seletar Reservoir, Hyfluxsponsored a Vietnamese water puppet show. We alsodonated money and portable Hyflux track membranewater filters to aid humanitarian efforts for disaster reliefin Qinghai and Haiti.

As a company actively involved in the Chinesemarket, we believe in the importance of an in-depthunderstanding of the rapidly evolving country. During theyear in review, we were a Silver Sponsor of the inauguralFutureChina Global Forum, an annual event whichprovides a platform to promote dialogue and interactionamong business, political, academic personalities from

China and companies involved in the country.

Hyfluxs corporate social responsibility philosophy goesbeyond philanthropy. We seek to foster a culture ofvolunteerism to inspire our employees to reach out to thecommunities in which we live and work.

During the year in review, our colleagues in Algeriaparticipated in a Beach Cleaning Day. In Singapore,Hyflux sponsored Christmas lunch celebrations andgoodie bags for Teck Ghee Youth Centre, a non-profit organisation that reaches out to youth from lessprivileged families, while our volunteers entertained andbefriended the youth and their families.

Community

Environment

Entrepreneurship & Education

Others

Community Initiatives

46%

17%

14%

23%

Vietnamese water puppet show

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InvestorRelations

Hyflux adopts a proactive investor relations approachin our communications with investors and analysts. Westrive to provide clear, consistent and timely informationregarding the companys performance and progress tofacilitate informed investment decisions, nurture continuedconfidence in the company and foster strong, enduringrelations with the investment community. To achieve this,multiple communication channels such as shareholdermeetings, briefings to analysts, investors and the media,conference calls, investor conferences and the investorrelations website are used. All financial information,announcements, briefing materials to analysts and the

media as well as annual reports are made available onwww.hyflux.com.

Hyfluxs senior management and investor relationsteam continued to actively reach out to the investmentcommunity. During the year, we held over 220 meetings,including non-deal roadshows and investor conferenceswith shareholders, analysts and potential investors. Themeetings provided a platform for senior management toengage and keep the investment community apprised ofdevelopments at Hyflux and gain insights into the equitymarkets perceptions of the company.

When Galaxy NewSpring, the 50/50 joint venturebetween Hyflux and Mitsui & Co, proposed theacquisition and voluntary delisting of Hyflux Water Trust(HWT), an additional communication channel in the form

of a telephone hotline was provided during the entireoffer period for unitholders of HWT to ask any basicquestions about the offer. The approval from the majorityof the unitholders was secured at HWT's EGM held inOctober 2010.

In recognition of our commitment to high standardsof corporate disclosure and governance, Hyflux wasawarded runner-up in the services/utilities/agriculturecategory of the Most Transparent Company Award2010 at the Investors Choice Awards presented by theSecurities Investors Association (Singapore).

Hyflux firmly believes in creating long-term value for ourinvestors. We have delivered total annualised shareholderreturns of 37%, or 22 times, over the last 10 years sinceour listing in 2001.

To reward shareholders for their continuous support ofHyflux, a bonus share issue of one bonus share for everytwo existing ordinary shares held by shareholders wasgiven in December 2010. We have also continued todeliver good dividends to our shareholders. For FY2010,the directors have recommended a final dividend of 3.50Singapore cents per share, which together with our firstinterim dividend of 0.67 (1)Singapore cents paid earlier inthe year, brings the total dividend for the year to 4.17 (1)Singapore cents per share, compared to a total dividendof 3.33 (1) Singapore cents per share in FY2009.

RELATIVE SHARE PERFORMANCE: HYFLUX vs STI (16/01/2001 - 25/03/2011)

3000

2500

2000

1500

1000

500

100

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

(1) Restated to include the December 2010 issue of one bonus share for every two existing ordinary shares

STI

HYFLUX

2318.1152

155.4667

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Financial

Statements

Directors Report 36

Statement by Directors 42

Independent Auditors Report 43

Statement o Financial Position 44

Consolidated Income Statement 45

Consolidated Statement

o Comprehensive Income 46Consolidated Statemento Changes in Equity 47

Consolidated Cash Flow Statement 49

Notes to the Financial Statements 51

Corporate Governance Statement 108

Supplementary Inormation 118

Statistics o Shareholdings 120

Substantial Shareholders 121

Hyfux Group o Companies 122

Corporate Inormation 123

Notice o Annual General Meeting 124

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36

We are pleased to submit this annual report to the members of the Company together with the audited financial statements for thefinancial year ended 31 December 2010.

Directors

The directors in office at the date of this report are as follows:

Olivia Lum Ooi Lin Group President & CEOTeo Kiang KokLee Joo HaiGay Chee CheongChristopher MurugasuRajsekar Kuppuswami MittaProfessor Tan Teck Meng

Directors interests

According to the register kept by the Company for the purposes of Section 164 of the Companies Act, Chapter 50 (the Act),particulars of interests of directors who held office at the end of the financial year in shares, debentures, warrants and share optionsin the Company and in related corporations (other than wholly-owned subsidiaries) are as follows:

Direct interest Deemed interest

Name of director andcorporation in whichinterests are held

At beginningof the year

At endof the year

At21/1/2011

At beginningof the year

At endof the year

At21/1/2011

The Company

Ordinary shares

Olivia Lum Ooi Lin 168,234,141 252,351,211 252,351,211 10,000,000 15,000,000 15,000,000

Teo Kiang Kok 300,000

Gay Chee Cheong 450,000 675,000 915,000

Christopher Murugasu 469,375 729,843 729,843 120,000 180,000 180,000

Professor Tan Teck Meng 61,000 91,500 91,500

Share options

Olivia Lum Ooi Lin 4,500,000 6,750,000 6,750,000

Teo Kiang Kok 250,000 750,000 450,000

Lee Joo Hai 250,000 750,000 750,000

Gay Chee Cheong 200,000 675,000 435,000 Christopher Murugasu 360,937 740,625 740,625

Rajsekar Kuppuswami Mitta 375,000 375,000

Professor Tan Teck Meng 375,000 375,000

There were no changes in any of the above mentioned interests in the Company between the end of the financial year and 21 January2011, except as disclosed above.

By virtue of Section 7 of the Act, Olivia Lum Ooi Lin is deemed to have interests in the other subsidiaries of Hyflux Ltd, at the beginningand at the end of the financial year.

Except as disclosed in this report, no director who held office at the end of the financial year had interests in shares, debentures,

warrants or share options of the Company, or of related corporations, either at the beginning or at the end of the financial year.

Directors Report

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Except as disclosed under the Share Options section of this report, 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 objects is, to enable the directors of the Companyto acquire benefits by means of the acquisit ion of shares in or debentures of the Company or any other body corporate.

Except for salaries, bonuses and fees and those benefits that are disclosed in this report and in note 35 to the financial statements,since the end of the last financial year, no director has received or become entitled to receive, a benefit by reason of a contract madeby the Company or a related corporation with the director, or with a firm of which he is a member, or with a company in which he hasa substantial financial interest.

Share options

The Hyflux Employees Share Option Scheme (the Scheme) of the Company was approved and adopted by its members at anExtraordinary General Meeting held on 27 September 2001.

On 24 November 2003, the members of the Company approved a modification to the Scheme which allowed Olivia Lum Ooi Lin,Group President & CEO, and a substantial shareholder of the Company, to participate in the Scheme. The maximum entitlement ofOlivia Lum Ooi Lin is 10% of the total number of shares which may be issued by the Company under the Scheme.

The Scheme is administered by the Companys Remuneration Committee. It was in force since 27 September 2001 and shall expireon 26 September 2011.

Directors Report (contd)

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Except as discussed above, there were no unissued shares of the Company or its subsidiaries under options granted by the Companyor its subsidiaries as at the end of the financial year.

Details of options granted to directors of the Company under the Scheme are as follows:

Name of director

Options grantedfor the financial

year ended31 December 2010

Aggregate optionsgranted since

commencement ofScheme to

31 December 2010

Aggregate optionsexercised since

commencementof Scheme to

31 December 2010

Aggregate optionsoutstanding as at

31 December 2010

Olivia Lum Ooi Lin 8,625,000 (1,875,000) 6,750,000

Teo Kiang Kok 375,000 750,000 750,000

Lee Joo Hai 375,000 750,000 750,000

Gay Chee Cheong 375,000 675,000 675,000

Christopher Murugasu 375,000 1,359,375 (618,750) 740,625

Rajsekar Kuppuswami Mitta 375,000 375,000 375,000

Professor Tan Teck Meng 375,000 375,000 375,000

Total 2,250,000 12,909,375 (2,493,750) 10,415,625

Except as disclosed in this report, since the commencement of the Scheme to the end of the financial year:

No options have been granted to the controlling shareholders of the Company or their associates;

No participant has been granted 5% or more of the total options available under the Scheme;

No options have been granted to directors and employees of the holding company and its related corporations under the Scheme;

No options that entitle the holders of the options to participate, by virtue of such holding, to any share issue of any othercorporation have been granted; and

The exercise price of the options is set at the market price, as defined in the Scheme, at the time of grant. No options havebeen granted at a discount.

Warrants

By a warrant subscription agreement dated 23 November 2004 supplemented by a supplemental warrant subscription agreementdated 25 April 2008 (Agreements) entered into between the Company and Istithmar World PJSC (formerly known as Istithmar PJSC)(Istithmar), Istithmar was entitled to subscribe for 41,216,863 ordinary shares in the Company, subject to the terms and conditions ofthe Agreements and the Warrant Instrument. The exercise period is from April 2008 to April 2010.

The exercise price was the higher of (a) S$1.95 and (b) the lower of 70% of the volume-weighted average price for trades in theCompanys shares transacted on the Singapore Exchange on the market day immediately preceding the exercise date or in the 30calendar day period immediately preceding the exercise date.

During the financial year, 40,216,863 warrants were exercised, while 1,000,000 warrants were exercised in the financial year ended31 December 2009.


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Audit CommitteeThe members of the Audit Committee during the year and at the date of this report are:

Lee Joo Hai (Chairman), non-executive independent directorGay Chee Cheong, non-executive independent directorTeo Kiang Kok, non-executive independent directorProfessor Tan Teck Meng, non-executive independent director

The members of the Audit Committee, collectively, have expertise and extensive experience in legal, accounting, financial managementand business, and are qualified to discharge the Audit Committees responsibilities.

The primary functions of the Audit Committee are as follows:

1. assists the Board in discharging its statutory responsibil ities on financial and accounting matters;

2. reviews the financial and operating results and accounting policies of the Group;

3. reviews significant financial reporting issues and judgements relating to financial statements for each financial year, interim andannual results announcement before submission to the Board for approval;

4. reviews the adequacy of the Companys internal control (financial and operational) and risk management policies and systemsestablished by the Management;

5. reviews the audit plans and reports of the external and internal auditors and consider the effectiveness of the actions taken bythe Management on the auditors recommendations;

6. appraises and reports to the Board on the audits undertaken by the external and internal auditors, the adequacy of the disclosureof information, and the appropriateness and quality of the system of management and internal controls;

7. reviews the independence of external auditors annually and considers the appointment or re-appointment of external auditorsand matters relating to the resignation or removal of the auditors and approve the remuneration and terms of engagement of theexternal auditors; and

8. reviews interested person transactions, as defined in Chapter 9 of the SGX Listing Manual.

The Audit Committee has held 4 meetings since the last directors report. In fulfilling its responsibilities, the Audit Committee receivesregular reports from the Management. The Audit Committee has full access to and co-operation of the Management and meets withKPMG LLP in private at least once a year, and more frequently if necessary.

The Audit Committee has explicit authority within the scope of its responsibilities to seek any information it requires or

investigate any matter within its terms of reference. The Audit Committee has adequate resources to enable it to discharge itsresponsibilities properly.

The Group has put in place a confidential communication programme as endorsed by the Audit Committee. Employees may, inconfidence, raise concerns about possible corporate improprieties in matters of financial reporting or other matters and to ensure thatarrangements are in place for the independent investigations of such matters and for appropriate follow-up actions. The details of theconfidential communication policies and arrangements have been made available to all employees.


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The Audit Committee is satisfied with the independence and objectivity of the external auditors and has recommended to the Boardof Directors that the auditors, KPMG LLP, be nominated for re-appointment as auditors at the forthcoming Annual General Meeting ofthe Company.

Auditors

The auditors, KPMG LLP, have indicated their willingness to accept re-appointment.

On behalf of the Board of Directors

Olivia Lum Ooi LinDirector

Teo Kiang KokDirector

8 March 2011


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In our opinion:

(a) the financial statements set out on pages 44 to 107 are drawn up so as to give a true and fair view of the state of affairs of theGroup and of the Company as at 31 December 2010 and the results, changes in equity and cash flows of the Group for the yearended on that date in accordance with the provisions of the Singapore Companies Act, Chapter 50 and Singapore FinancialReporting Standards; 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 whenthey fall due.

The Board of Directors has, on the date of this statement, authorised these financial statements for issue.

On behalf of the Board of Directors

Olivia Lum Ooi Lin

Director

Teo Kiang KokDirector

8 March 2011

Statement by Directors

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43

Independent Auditors Report

Members of the CompanyHyflux Ltd

Report on the financial statements

We have audited the accompanying financial statements of Hyflux Ltd (the Company) and its subsidiaries (the Group), which comprisethe statement of financial position of the Group and the Company as at 31 December 2010, the income statement, statement ofcomprehensive income, statement of changes in equity and cash flow statement of the Group for the year then ended, and a summaryof significant accounting policies and other explanatory notes, as set out on pages 44 to 107.

Managements responsibility for the financial statements

Management is responsible for the preparation of financial statements that give a true and fair view in accordance with the provisions ofthe Singapore Companies Act, Chapter 50 (the Act) and Singapore Financial Reporting Standards, and for devising and maintaininga system of internal accounting controls sufficient to provide a reasonable assurance that assets are safeguarded against loss fromunauthorised use or disposition; and transactions are properly authorised and that they are recorded as necessary to permit thepreparation of true and fair profit and loss accounts and statement of financial position and to maintain accountability of assets.

Auditors responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance withSingapore Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit toobtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. Theprocedures selected depend on the auditors judgement, including the assessment of the risks of material misstatement of the financialstatements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to theentitys preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. An audit also includesevaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, aswell as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements of the Group and the statement of financial position of the Company are properlydrawn up in accordance with the provisions of the Act and Singapore Financial Reporting Standards to give a true and fair view of thestate of affairs of the Group and of the Company as at 31 December 2010 and the results, changes in equity and cash flows of theGroup for the year ended on that date.

Report on other legal and regulatory requirements

In our opinion, the accounting and other records required by the Act to be kept by the Company and by those subsidiaries incorporatedin Singapore of which we are the auditors have been properly kept in accordance with the provisions of the Act.

KPMG LLP

Public Accountants andCertified Public Accountants

Singapore

8 March 2011

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44The accompanying notes form an integral part of these financial statements.

Group CompanyNote 2010 2009 2010 2009

$000 $000 $000 $000

Non-current assets

Property, plant and equipment 4 155,826 134,926

Intangible assets 5 62,075 61,744 1,779 1,810

Intangible assets arising from service concession arrangements 6 129,494 27,871

Investment property 7 2,116

Investments in subsidiaries 8 119,820 130,920

Investments in joint venture 9 3,125 3,125

Investments in associates 10 75,032 102,654 13,320 12,955

Other investments 11 99 Financial receivables 12 226,149 155,947

Trade and other receivables 13 15,816 35,312 16,924 18,296

Deferred tax assets 14 1,616 2,761

Total non-current assets 666,008 523,430 154,968 167,106

Current assets

Gross amounts due for contract work 15 254,469 119,994

Inventories 16 26,261 32,497

Financial receivables 12 5,851 7,818

Trade and other receivables, including derivatives 13 182,398 222,089 608,382 524,628

Other investments 11 2,429 2,429

Cash and cash equivalents 17 222,286 166,735 65,656 62,860Total current assets 693,694 549,133 676,467 587,488

Current liabilities

Trade and other payables, including derivatives 18 210,038 265,772 73,480 244,742

Loans and borrowings 19 95,660 45,305 52,538 44,137

Tax payable 10,251 6,794 2,893

Total current liabilities 315,949 317,871 128,911 288,879

Net current assets 377,745 231,262 547,556 298,609

Non-current liabilities

Loans and borrowings 19 503,606 355,018 443,668 297,233

Deferred tax liabilities 14 25,640 6,272

Total non-current liabilities 529,246 361,290 443,668 297,233

Net assets 514,507 393,402 258,856 168,482

Equity

Share capital 207,474 105,114 207,474 105,114

Reserve for own shares (1,292) (1,292) (1,292) (1,292)

Capital reserve 4,752 8,627

Foreign currency translation reserve (14,637) 4,543

Hedging reserve (3,560) (6,716)

Employees share option reserve 18,609 16,780 18,609 16,780

Retained earnings 291,155 238,188 34,065 47,880Total equity attributable to equity holders of the Company 502,501 365,244 258,856 168,482

Non-controlling interests 12,006 28,158

Total equity 20 514,507 393,402 258,856 168,482

Statement of Financial PositionAs at 31 December 2010

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45The accompanying notes form an integral part of these financial statements.

Note 2010 2009$000 $000

Revenue 23 569,737 524,814

Other income 6,855 6,707

Changes in inventories of finished goods and work-in-progress 2,641 1,332

Raw materials and consumables used and subcontractors cost (302,961) (309,371)

Staff costs (65,408) (59,428)

Depreciation, amortisation and impairment (27,501) (16,521)

Other expenses (68,089) (57,936)

Finance costs 24 (16,760) (9,259)

Share of profit of associates, net of income tax 1,959 2,634

Profit before income tax 25 100,473 82,972Income tax expense 26 (11,588) (8,681)

Profit for the year 88,885 74,291

Profit attributable to:

Owners of the Company 88,510 75,036

Non-controlling interests 375 (745)


Earnings per share (cents)

Basic earnings per share 27 10.52 9.51

Diluted earnings per share 27 10.23 9.34

Consolidated Income StatementYear ended 31 December 2010

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2010 2009$000 $000


Other comprehensive income

Foreign currency translation differences for foreign operations (20,310) (5,117)

Share of net fair value gain on derivative financial instruments of associates 424 644

Effective portion of changes in fair value of cash flow hedges 2,301 67

Net change in fair value of cash flow hedges transferred to profit or loss 431 6,069

Share of reserve of associates (102) 102

Other comprehensive (loss)/income for the year, net of income tax (17,256) 1,765

Total comprehensive income for the year 71,629 76,056

Attributable to:

Owners of the Company 72,384 77,204

Non-controlling interests (755) (1,148)

Total comprehensive income for the year 71,629 76,056

Consolidated Statement of Comprehensive IncomeYear ended 31 December 2010

The accompanying notes form an integral part of these financial statements.

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47

Con

solidatedStateme

ntofChangesinEquity

Yearen

de

d31Decem

ber

2010

Share

cap

ita

l

Reserve

forown

shares

Cap

ita

l

reserve

Fore

ign

currency

trans

lation

reserve

He

dg

ing

reserve

Emp

loyees

shareop

tion

reserve

Re

taine

d

earn

ings

To

talequ

ity

attri

bu

table

toequ

ity

ho

lders

ofthe

Company

Non-

con

tro

lling

in

teres

ts

To

tal

equ

ity

Group

$000

$000

$000

$000

$000

$000

$000

$000

$000

$000

At1January2010

105,114

(1,292)

8,627

4,543

(6,716)

16,780

238,188

365,244

28,158

393,402

To

talcompre

hens

ive

income

for

theyear

Profitfortheyear

88,510

88,510

375

88,885

Othercomprehensiveincome

Foreign

currencytranslationdifferencesfor

foreig

noperations

(19,180)

(19,180)

(1,130)

(20,310)

Shareofnetfairvaluegainonderivativefinancial

instru

mentsofassociates

424

424

424

Effective

portionofchangesinfairvalueofcash

flow

hedges

2,301

2,301

2,301

Netchangeinfairvalueofcashflow

hedges

transferredtoprofitorloss

431

431

431

Shareofreserveofassociates

(102)

(102)

(102)

Totalcomprehensive(loss)/incomefortheyear

(102)

(19,180)

3,156

88,510

72,384

(755)

71,629

Transac

tionsw

ithowners,

recorde

ddirec

tly

ineq

uity

Contribu

tionsbyanddistributionstoowners

Issueof

sharesforcashunderEmployeesShare

Optio

nScheme

6,181

6,181

6,181

Issueof

sharesforcashunderwarrant

subscriptionagreements

96,179

96,179

96,179

Valueof

employeeservicesreceivedforissueof

share

options

1,829

1,829

1,829

Transfer

tocapitalreserve

1,321

(1,321)

Dividend

stoequityholders

(34,222)

(34,222)

(34,222)

Totalcontributionsbyanddistributionstoowners

102,360

1,321

1,829

(35,543)

69,967

69,967

Changesinownershipinterestsinsubsidiaries

Acquisitionofnon-controllinginterestswithout

acha

ngeincontrol

(5,094)

(5,094)

(15,397)

(20,491)

Totalcha

ngesinownershipinterestsinsubsidiarie

s

(5,094)

(5,094)

(15,397)

(20,491)

Totaltransactionswithowners

102,360

(3,773)

1,829

(35,543)

64,873

(15,397)

49,476

At31De

cember2010

207,474

(1,292)

4,752

(14,637)

(3,560)

18,609

291,155

502,501

12,006

514,507

Theacc

ompanyingnotesformanintegralpart

ofthesefinancialstatements.

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48

Con

solidatedStateme

ntofChangesinEquity(contd)

Yearen

de

d31Decem

ber

2010

Theacc

ompanyingnotesformanintegralpart

ofthesefinancialstatements.

Share

cap

ita

l

Reserve

forown

shares

Cap

ita

l

reserve

Fore

ign

currency

trans

lation

reserve

He

dg

ing

reserve

Emp

loyees

shareop

tion

reserve

Re

taine

d

earn

ings

To

talequ

ity

attri

bu

table

toequ

ity

ho

lders

ofthe

Company

Non-

con

tro

lling

in

teres

ts

To

tal

equ

ity

Group

$000

$000

$000

$000

$000

$000

$000

$000

$000

$000

At1January2009

99,118

7,204

9,257

(13,496)

12,971

182,493

297,547

10,352

307,899

To

talco

mpre

hens

ive

income

for

theyear

Profit/(lo

ss)fortheyear

75,036

75,036

(745)

74,291

Othercomprehensiveincome

Foreign

currencytranslationdifferencesfor

foreig

noperations

(4,714)

(4,714)

(403)

(5,117)

Shareofnetfairvaluegainonderivativefinancial

instru

mentsofassociates

644

644

644

Effective

portionofchangesinfairvalueofcash

flow

hedges

67

67

67

Netchangeinfairvalueofcashflow

hedges

transferredtoprofitorloss

6,069

6,069

6,069

Shareofreserveofassociates

102

102

102

Totalcomprehensiveincome/(loss)fortheyear

102

(4,714)

6,780

75,036

77,204

(1,148)

76,056

Transac

tionsw

ithowners,

recorde

ddirec

tly

ineq

uity

Contributionsbyanddistributionstoowners

Issueof

sharesforcashunderEmployeesShare

Optio

nScheme

3,863

3,863

3,863

Issueof

sharesforcashunderwarrant

subscriptionagreements

2,133

2,133

2,133

Ownsharesacquired

(1,292)

(1,292)

(1,292)

Valueof

employeeservicesreceivedforissueof

share

options

3,809

3,809

3,809

Transfer

tocapitalreserve

1,321

(1,321)

Dividend

stoequityholders

(18,020)

(18,020)

(18,020)

Totalcontributionsbyanddistributionstoowners

5,996

(1,292)

1,321

3,809

(19,341)

(9,507)

(9,507)

Changesinownershipinterestsinsubsidiaries

Acquisitionofnon-controllinginterests

18,954

18,954

Totalchangesinownershipinterestsinsubsidiaries

18,954

18,954

Totaltransactionswithowners

5,996

(1,292)

1,321

3,809

(19,341)

(9,507)

18,954

9,447

At31December2009

105,114

(1,292)

8,627

4,543

(6,716)

16,780

238,188

365,244

28,158

393,402

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Consolidated Cash Flow StatementYear ended 31 December 2010

Note 2010 2009$000 $000

Cash flows from operating activities

Profit before income tax 100,473 82,972

Adjustments for:

Employees share option expense 1,829 3,809

Fair value (gain)/loss on derivative financial instruments (754) 479

Gain on sale of investment property 25 (1,186)

Remeasurement to fair value of an associate to joint venture 25 (22,787)

Gain on sale of other investments (44)

Loss on sale of property, plant and equipment 25 380 1,392

Share of profit of associates, net of income tax (1,959) (2,634)Depreciation, amortisation and impairment 27,501 16,521

Finance costs 16,760 9,259

Interest income (3,125) (3,258)

Impairment of trade and other receivables 25 1,526 1,845

Impairment of investments 25 264 2,058

Allowan

110414 ar2010

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