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I N F C U SANNUAL REPORT 2005MULTI-CHEM LIMITED

Multi-Chem LimitedCompany’s Registration No. 198500318Z11 Tuas Avenue 5Singapore 639337Tel : (65) 6863 1318Fax : (65) 6863 1618www.multichem.com.sg

MU

LTI-CHEM

LIMITED

ANN

UAL REPORT 2005

C T E N T S 1 Definitions2 Corporate Profile3 Corporate Data4 Board of Directors7 Management Team8 Chairman’s Statement13 Operations Review17 Prospects and Future Plans20 Significant Events23 Group Structure24 Financial Highlights30 Financial Review33 Balance Sheet Review35 Value Added Statement36 Investor Relations38 Information on Employees40 Corporate Governance Report49 Corporate Directory51 Financial Contents

MULTI-CHEM LIMITED 2005 Annual Report 1

In this Annual Report, the following definitions apply throughout where the context so admits:

“Group” : The Company and its subsidiaries“Multi-Chem” or “Company” : Multi-Chem Limited“M.Tech” : One or more of the M.Tech companies

Subsidiaries“M-Precision” : M-Precision Tech Sdn. Bhd.“M.Tech China” : M.Tech (Shanghai) Co., Ltd.“M.Tech Indochina” : M-Security Technology Indochina Pte. Ltd.“M.Tech Indonesia” : PT. M.Tech Products“M.Tech Malaysia” : M-Security Technology Sdn. Bhd.“M.Tech Singapore” : M.Tech Products Pte Ltd“M.Tech Thailand” : M-Solutions Technology (Thailand) Co., Ltd.“M.Tech Training Centre” : M.Tech Training Centre Pte Ltd“Multi-Chem Laser” : Multi-Chem Laser Technology (Suzhou) Co., Ltd.“Multi-Chem Suzhou” : Multi-Chem (Suzhou) Co., Ltd.“Multi-Chem Wuxi” : Multi-Chem Electronics (Wuxi) Co., Ltd“SecureOneAsia” : SecureOneAsia Pte. Ltd.

Associates“HPTec HK” : Hawera Precision Tec (HK) Limited“HPTec Singapore” : Hawera Precision Tec Pte Ltd“Multi-Chem Philippines” : Multi-Chem Electronics Philippines Corporation

Others“HPTec” : HPTec GmbH

Other Terms“AC” : Audit Committee“Board” : Board of Directors“CNC” : Computer numeric controlled“FY” : Financial year“IT” : Information technology“M” : Million“NC” : Nominating Committee“PAT” : Profit after tax“PBT” : Profit before tax“PCB” : Printed circuit board“RC” : Remuneration Committee

Definitions

2 MULTI-CHEM LIMITED 2005 Annual Report

Corporate Profile

Multi-Chem is a drilling and routing service specialistand a major distributor of specialty chemicals andmaterials to PCB manufacturers. Incorporated in 1985,Multi-Chem was listed on SESDAQ in January 2000and upgraded to the Main Board of The SingaporeExchange in November 2000.

Already established in South East Asia, we expandedto Suzhou, China in March 2002 and Wuxi, Chinain April 2003. In May 2003, we commenced theprovision of routing services to our customers. InApril 2004, we moved into laser drilling in Chinawhich complements our strengths in mechanicaldrilling and allow us to drill microvia of sizes notachievable by mechanical drilling.

We are currently the leading PCB drilling and routingspecialist, in terms of both capacity and technology inSingapore and in the Huadong area in China (EasternChina, in particular, Shanghai, Suzhou, Kunshan andWuxi regions).

While we are traditionally in the PCB-related industry,in May 2002, we diversified to the business of IT

distribution. In this area, we aim to be a market leaderand a preferred provider of best-of-breed solutions inAsia. Through Multi-Chem’s subsidiaries under theM.Tech umbrella, our IT security business has expandedin both product range and geographical coveragesince commencement and now spans Singapore,Malaysia, Thailand, Vietnam, Indonesia and China.

We continue to focus on the best-of-breed internetsecurity products and now carry products from industryleading principals, namely, Nokia, Check Point, RSASecurity, Allot, Foundry Networks, Tripwire, TippingPoint,SurfControl, ServGate, Bluesocket, Patchlink, PGP andnCipher. We also partnered Network Appliances Inc.(“Netapp”) to distribute its network storage solutionsin Malaysia, Thailand, and Vietnam. In addition, westarted an IT training centre in late second quarter of2004 and are authorised to conduct training for Nokia,Check Point and Foundstone.

Today, the Group comprises the Company, 12subsidiaries, 2 representative offices and 3 associatedcompanies, with operations spanning South East Asiaand China, and with a staff strength of more than 700.


Board of DirectorsFoo Suan SaiHan Juat HoonHo Boon Chuan WilsonToshiaki SuzukiWong Meng YengChew Thiam KengLim Keng Jin

Company SecretariesHo Boon Chuan WilsonLow Mei Mei Maureen

Audit CommitteeWong Meng Yeng (Chairman)Chew Thiam KengToshiaki SuzukiLim Keng Jin

Nominating CommitteeChew Thiam Keng (Chairman)Foo Suan SaiWong Meng YengLim Keng Jin

Remuneration CommitteeLim Keng Jin (Chairman)Wong Meng YengChew Thiam KengToshiaki Suzuki

Registered Office11 Tuas Ave 5Singapore 639337Tel: (65) 6863 1318Fax: (65) 6863 1618

Share RegistrarM & C Services Private Limited138 Robinson Road #17-00The Corporate OfficeSingapore 068906

Independent AuditorsPricewaterhouseCoopers8 Cross Street #17-00PWC BuildingSingapore 048424Audit partner: Soh Kok LeongYear of appointment: 2004

Internal AuditorsC.C.Yang & Co.10 Anson Road #13-16International PlazaSingapore 079903

Principal BankersDBS Bank Ltd6 Shenton WayDBS Building Tower OneSingapore 068809

KBC Bank N.V.Singapore Branch30 Cecil Street #12-01Prudential TowerSingapore 049712

HSBC Limited21 Collyer Quay #08-01HSBC BuildingSingapore 049320

Share ListingThe Company’s shares are listed on the MainBoard of the Singapore Exchange SecuritiesTrading Limited since November 2000

GeneralFor further information about Multi-Chem, pleasecontact the secretariat at the registered office

E-mail:[email protected]@mtechpro.com

Websites:http://www.multichem.com.sghttp://www.mtechpro.com

Chinese website:http://ir.zaobao.com/multichem/multichem.html

Corporate Data


Board of Directors

Foo Suan SaiChairman and Chief Executive OfficerMember of NC

Mr Foo, one of the founding shareholders of Multi-Chem, has more than 20 years of experience in thePCB industry, of which the last 17 years were spentbuilding up the Company. Mr Foo is currentlyresponsible for the overall direction and developmentof the Group. He holds a Diploma in Chemical ProcessTechnology from the Singapore Polytechnic and aDiploma in Management Studies from the SingaporeInstitute of Management.

Han Juat HoonChief Operating Officer

Mdm Han is a founding shareholder of Multi-Chem.She has been a Director of the Company since 1987and commenced working in an executive capacity withthe Company in 1992. Mdm Han is well versed in factoryoperations, having held the appointment of factorymanager with a chemical company for 12 years from1980 to 1992. She is responsible for the overalloperations of the Group. Mdm Han holds a Diploma inChemical Process Technology from the SingaporePolytechnic and a Diploma in Management Studiesfrom the Singapore Institute of Management.



Ho Boon Chuan WilsonChief Financial Officer

Mr Ho was appointed as a Director of the Companyin April 2005. He has been with the Company sinceMarch 2000. Before joining Multi-Chem, he workedfor six years in DBS Bank Ltd, specialising in the areaof corporate finance. A certified public accountantand a chartered financial analyst, he is responsiblefor the Group’s finance, taxation, investments andinvestor relations. Since May 2002, he has beenresponsible for the development of the Group’s ITsecurity business. Mr Ho is also currently the CompanySecretary of Multi-Chem.


Toshiaki SuzukiNon-Executive DirectorMember of ACMember of RC

Mr Suzuki was appointed as a Director of the Companyin January 2000. He is currently involved in the Group’smarketing efforts, particularly to Japanese customers.Mr Suzuki graduated from Sophia University of Tokyoin 1958 and has close to 40 years of experience in thePCB industry.

6 MULTI-CHEM LIMITED 2005 Annual Report6 MULTI-CHEM LIMITED 2005 Annual Report

Wong Meng YengIndependent DirectorChairman of ACMember of RCMember of NC

Mr Wong was appointed as aDirector in January 2000. He hasbeen an advocate and solicitor inSingapore for 22 years, with thepast 16 years spent as a corporatelawyer. He holds a Bachelor of Law(Hons) degree from the NationalUniversity of Singapore. He iscurrently a director in Alliance LLC,a law corporation he co-founded.

Chew Thiam KengIndependent DirectorChairman of NCMember of ACMember of RC

Mr. Chew has been on the Boardsince January 2000. He is the CEOof KS Energy Services Limited andis overall in charge of the Group’soperations. Prior to joining KSEnergy Services Limited, he wasthe Executive Director of anotherlisted company between 1996and November 2001. Before that,he was with The DBS Bank Ltdfor nine years working in theareas of banking such as corporatefinance and retail banking. Heis also a director and an auditcommittee member of severalother listed companies. He holds aMBA from the University of Hulland a Bachelor Degree (Hons) inMechanical Engineering from theNational University of Singapore.

Lim Keng JinIndependent DirectorChairman of RCMember of ACMember of NC

Mr Lim was appointed as aDirector of the Company in April2005. He is currently the non-executive director of G.K.GohHoldings Limited and has morethan 25 years of experience in thestock broking industry. He is afellow member of the Institute ofChartered Accountants of Englandand Wales. He was an auditorand accountant in Singapore andEngland before he joined thestock broking industry in 1971.

Board of Directors


Management Team

Koh HenrySenior ManagerOperations

Mr Koh joined the Company asa Service Engineer in May 2000after completing his universityeducation. He was promoted fromQA & Process Manager to SeniorManager (Operations) in November2005. He is currently responsiblefor all quality assurance mattersand process improvements in theGroup’s Manufacturing ServicesDivision. From 1996 to 1997, heworked as an assistant engineer inHitachi Chemical Asia Pacific PteLtd. Mr Koh left the job to furtherhis studies, adding a Bachelor’sdegree in Mechanical & ProductionEngineering from the NanyangTechnological University to theDiploma in Mechanical Engineeringfrom Ngee Ann Polytechnic healready held.

Yang Wen KuaiSenior ManagerBusiness (China Operations)

Mr Yang has been with theCompany since August 2001. Heworked with Multi-Chem for2 months before being postedto Multi-Chem Suzhou as salesmanager and he is based therefor the last 5 years. He currentlyoversees the marketing andbusiness development of theGroup‘s operations in China.Before joining the Company,Mr Yang has 8 years of salesexperience in the automotiveindustry in Taiwan.


Pui Boon Tiong EugeneSenior ManagerEquipment & System

Mr Pui worked as an engineerwith local PCB manufacturers,Motorola Electronics Pte Ltd andWUS Printed Circuits Pte Ltd priorto joining the Company inDecember 1999. He worked hisway up in Multi-Chem fromAssistant Production Managerand Equipment Manager toOperations Manager beforebeing named Senior Manager(Equipment & System) in November2005. He currently oversees theoperations in the ManufacturingServices Division, which includequality assurance, production andmaintenance. He holds a Diploma inElectronics & Computers Engineeringfrom Ngee Ann Polytechnic.


Foo Suan SaiChairman

Chairman’s Statement



Dear shareholders

The Group had a year of solid performance in 2005 asit garnered its best set of financial results in terms ofrevenue and profit since it was formed in 1985. Fromthe year 2004 which we described as a year of recovery,to the year 2005, which can aptly be described as ayear of growth, the Group continues to focus onproviding value added services to customers. Whenthe business experienced a slowdown in the fourthquarter of 2004 after three good quarters that year,we had hoped that it was not a turning point but rather,a consolidation for the next push in 2005. From March2005, this materialised as the Group’s business pickedup and gathered momentum for the rest of 2005.Growth was particularly strong in the second half of2005, as our business continues to be driven by strongdemand for consumer electronic products, handset andpersonal computers.

The GroupThe Group continues to channel resources into themanufacturing service business in China. Since March2002, the Group has been investing in the Huadongarea in China, which is known to be one of the fastestgrowing regions in terms of PCB production volume.Many top PCB producers have invested in productionfacilities there and in 2005, a number of them havealso announced plans to increase capacity to copewith the higher demand for PCBs. Given that theelectronics industry in China is expected to show stronggrowth, the Group will continue to focus on buildingits China operations.

As at 31 December 2005, the Group, through Multi-Chem Suzhou and Multi-Chem Wuxi, operates a totalof 100 CNC drilling machines and 36 routing machinesin two separate locations in Suzhou and one in Wuxi,compared to just 8 CNC drilling machines when theGroup commenced operations in China in 2002. Multi-Chem Laser currently operates 5 laser drilling machines.

Despite the Group’s expansion in China, Multi-Chemcontinues to be the Group’s headquarters and stilloperates the most advanced CNC drilling machines andinspection equipment to service the high end PCBmanufacturers based in Singapore. As at 31 December2005, the Company had 59 CNC drilling machines and2 routing machines.

We intend to maintain our leading position in bothcapacity and technology in the manufacturing servicebusiness in both Singapore and the Huadong regionin China. Besides adding more CNC drilling machines,the Group also upgraded a number of its machines.We currently have 56 CNC drilling machines capableof drilling at speeds of 200,000 rpm, which can achievehigher accuracy for micro vias particularly for hole-sizeof 0.2mm and below.

The Group has through the M.Tech companies,diversified into the area of IT security in Singaporeand Malaysia in 2002. We have since increased ourgeographical coverage to include Thailand, Vietnam,Indonesia and China. In Vietnam, the Group has officesin Hanoi and Ho Chi Minh City and in China, the Grouphas offices in Shanghai and Beijing. In 2005, the Groupalso added more leading internet security products,including TippingPoint, Patchlink and PGP to its product




portfolio. In addition to distributing the leading internetsecurity products, M.Tech also partnered Netapp, todistribute its network storage solutions for the Thailand,Vietnam and Malaysia markets.

Financial PerformanceI am pleased to report that the Group achievedsignificantly better performance in 2005 compared to2004, with record revenue and profit in 2005. TheGroup registered an increase in revenue of 35%, from$53.0M in 2004 to $71.3M in 2005, the highest annualrevenue of the Group since inception. Comparing thefourth quarter of 2004 to fourth quarter of 2005,turnover grew by 62%, from $13.9M to $22.6M.

The better revenue performance was largely dueto the improvement in the electronics businesscommencing March 2005, with particularly strongdemand in the second half of 2005. The IT businessalso grew, with a significant increase in revenuecontribution coming from the regional offices.Revenue derived by the Group from the second halfof 2005 accounted for close to 60% of the totalrevenue in 2005. Geographically, 47% of the Group’srevenue is derived from Singapore, which remains asthe Group’s single most important market, whileChina and ASEAN accounted for 30% and 23%respectively of the Group’s revenue. Revenue from themanufacturing service business made up approximately50% of Group revenue in 2005, down from 55% in2004, while contribution from the M.Tech companiesmade up about 38% of Group revenue in 2005, upfrom 30% in 2004. Despite the absolute growth in thePCB distribution business of about 14%, this businessaccounted for only 12% of the Group’s revenue, down

from 15% in 2004, mainly due to the better growth inthe other two businesses.

Profit before tax increased from $9.7M in 2004 to$13.0M in 2005, an increase of 34%. In line with therecord revenue, this was the highest profit achievedby the Group since inception. This was due to bettergross profit, mainly due to economies of scale fromhigher utilisation particularly in the second half of2005. The Group achieved profit before tax of $5.5Min the fourth quarter of 2005 against $1.6M in thefourth quarter of 2004, an increase of 241%.

Financial PositionThe Group has kept its balance sheet strong andmaintained a healthy financial position. As at 31December 2005, the net working capital of the Groupstood at $11.5M, including cash and cash equivalentof $5.4M while gearing stood at 28%, which wasstill considered below industry norm. Shareholders’funds stood at approximately $54.9M and net assetvalue per share was 15.4 cents.

DividendsThe Company moved to a one-tier dividend structurein 2005, meaning that the tax payable by the Companyconstitutes the final tax and the dividend payment willbe received tax-exempt in the hands of shareholders.

The Directors are pleased to recommend a finaldividend of 1.403 cents per ordinary share. This,together with the interim dividend of 0.780 centsper ordinary share and the special dividend of 0.430cents, would amount to a total dividend of 2.613



cents in 2005. This represents, in 2005, a dividend rateof 52.3%, a dividend yield of 11.4% (based on closingprice of 23 cents as at 30 December 2005) and adividend payout of 82.7%.

Business Outlook

Since the pick up in demand for our manufacturingservices towards the end of the first quarter of 2005,the momentum has remained strong through the restof 2005. This momentum has carried into the firstquarter of 2006, as outlook for the business continuesto remain positive. Indications coming from ourcustomers are also generally positive. Several of theGroup’s customers have also announced expansionplans in China.

In the U.S., the North American PCB Industry book-to-bill ratio for January 2006 stood at 1.13, up from 1.06in December 2005. A ratio of more than 1.00 suggeststhat current demand is ahead of supply, whichindicates probably near term growth. In China, theflexible PCB market is expected to grow by 60% in2006, with demand coming mainly from mobile phonemanufacturers, especially those of domestic brands.Taiwan Printed Circuit Association also forecasts robustgrowth in 2006, mostly fuelled by expansion in China.As such, there is reason to believe that the demand forPCBs, at least in the near term, can be sustained.

The Group moved into laser drilling in mid 2004. Laserdrilling complements its existing business and providesanother value added service to customers. However,this business did not pick up for the rest of 2004 and itwas only in second half of 2005 that demand for laser

drilling services improved significantly over 2004, withrevenue growing by 362% year-on-year.

The mechanical drilling and routing operations ofMulti-Chem Suzhou are currently operated out of tworented factories in Suzhou. We plan to consolidatethem into a single factory of about 8,700 sq m in builtup area, which has been custom built per ourrequirements and which will be leased back to Multi-Chem Suzhou by the developer. The relocation wassupposed to be carried out back in 2005 but did nottake place due to delays in the construction andrenovation of the factory. The relocation, which tookplace in phases since March 2006, is now targeted tobe completed before the end of April 2006, is notexpected to cause a material disruption to the business.

The Group aims to maintain its position as the leaderboth in terms of capacity and technology in the area ofPCB drilling and routing services both in Singaporeand the Huadong area in China, where we currentlyserve most of the major PCB producers. Furthermore,the trend in outsourcing in the precision drilling androuting of PCBs is expected to continue as the benefitsof outsourcing are increasingly recognised. Being aleader in this drilling and routing services, Multi-Chem is poised to benefit from any additional capacityrequirements. As our customers produce more, therewill also be additional demand for the products underour Distribution Division, including the specialtychemicals that we distribute.

In the IT business, the Group will continue to focus onthe distribution of only the top names in IT securityproducts, and will continue to look for suitableproducts to add to its product suite. The Group has




also rationalised its product line by dropping certainproducts in order to focus on the key ones, includingNokia, which affirmed its partnership with M.Tech byappointing us as its only distributor for its internetsecurity products in Singapore, Malaysia, Thailand andVietnam in 2006. The Group also started its Beijingoffice in early 2006 to extend its reach into North China,after the establishment of offices in Shanghai, Jakartaand Ho Chi Minh City in 2005. These overseas officesare expected to contribute to the Group’s performancein 2006.

IT has already become an integral part of doing businessin Singapore and around the region, and the awarenessand the importance of IT security have been growing.As economies and companies mature, a higher amountof the IT budget is expected to be incurred for IT securityand that can only augur well for the Group.

The IT business commenced in May 2002 and in 2005,contributed $27M to and accounted for around 38%of Group revenue. More will be expected in 2006.

AppreciationOn behalf of the Board of Directors of Multi-Chem, Iwish to thank our management and staff for theircommitment and dedication during the past year.Special thanks to my colleagues on the Board for theirstrong support and valuable contribution.

I also like to extend a warm welcome to Mr Lim Keng Jinand Mr Wilson Ho to Multi-Chem’s Board of Directors.Mr Lim has also been appointed as Chairman of theRC and a member of the AC and NC of the Company.

I would also like to express my sincere appreciation toour shareholders, suppliers, customers and businesspartners for their valued support.

We will continue to work hard to grow the businessand look forward to better performances in theyears ahead.

Foo Suan SaiGroup Chairman & Chief Executive Officer



PERATIONS REVIEW


Operations Review

PCB-related BusinessThe PCB-related business of the Group performed wellin 2005 as volumes hit record levels. After a slow firstquarter, business picked up from late March 2005 anddid not slow down for the rest of the year. Demand forour products and services was particularly strong inthe second half of 2005, fuelled by demand for handset,personal computers and consumer electronics.

Manufacturing Service DivisionAfter a difficult three years from 2001 to 2003 withovercapacity and declining margins, the manufacturingservice business experienced a turnaround in 2004,with strong showing in the first three quarters of 2004.Business slowed down in the last quarter of 2004and first quarter of 2005 but from late March 2005,demand picked up and remained strong for the rest ofthe year. Customers continued to outsource theirrequirements for drilling and routing as in-housecapacity cannot cope with the strong demand,particularly in the second half of 2005. Businessfrom the second half of 2005 accounted for 62% ofthe Group’s Manufacturing Service Division revenuefor 2005.

In contrast to the poor demand in 2004 for laser drillingservices since its commencement in April 2004, therewas a turnaround in 2005 as even demand for laserdrilling services picked up, largely due to the demandfor handset PCBs. Utilisation for the Group’s five laserdrilling machines improved, particularly in the secondhalf of 2005.

The Group further consolidated its leading position in2005 as it added new customers to its existing customerbase, which includes the top PCB manufacturers inboth Singapore and the Huadong area in China. TheGroup was therefore in a good position to capture asignificant portion of any increase in demand foroutsourced PCB manufacturing services and thistranslated into higher sales in 2005.

Multi-Chem Suzhou had planned to consolidate itsoperations from two locations by moving into onesingle factory, custom built by the local authorities forlease to Multi-Chem Suzhou around mid 2005. However,due to delays in the construction and renovation of thenew factory, this has been delayed and the relocation,which started in March 2006, is now expected to becompleted before the end of April 2006.



The Group increased its production capacity in 2005with the net addition of 28 CNC drilling machines and18 routing machines. In addition to increasing capacityby adding new machines, the Group upgraded 11 CNCdrilling machines from 125,000 rpm to 160,000 rpmand 5 CNC drilling machines from 160,000 rpm to200,000 rpm. The higher drilling speeds allow forhigher accuracy for drilling smaller holes. As at 31December 2005, the Group had 38 routing machinesand 159 CNC drilling machines, of which 40 are capableof drilling at 200,000 rpm and 78 are capable ofdrilling at 160,000 rpm.

Distribution DivisionPCBThe Group currently supplies a range of PCB specialtychemicals for the wet processes in PCB production, aswell as other PCB-related products, including dry film,cleaning brushes, clean room products and entry andback-up materials to our customers.

During the year, the Group continues to focus onmaintaining its existing business in mainly Singaporeand Thailand. As business continues to be derived


from existing customers, the higher volume in 2005compared to 2004 was due to our customers usingmore of the specialty chemicals and materials whichwe distribute. This was mainly due to the more robustelectronics sector in 2005. This business also saw astronger second half in 2005.

The Group continues to face pricing pressure for itsexisting products, such as its specialty chemicals, mainlydue to competition. As PCB manufacturers continue toshift their production to China and other low costvenues, this business is still expected to experiencereduction in volumes, since its operation is mainlyconfined to South East Asia.


Operations Review

IT

The IT business of the Group under the M.Techcompanies has expanded every year in bothproduct range and geographical coverage since itscommencement in May 2002.

In 2005, the operations of new offices in Shanghai,Jakarta and Ho Chi Minh City kicked off. The Groupalso added TippingPoint, Patchlink and PGP to itsproduct suite during the year. Of the products that itcarries, the Group is also sole distributor for severalleading products in selected regions. Several of ourvendors have also extended our partnership into Chinawhen we commenced our Shanghai office.

The Group is selective of its product range and, unlikea broad based distribution house that carried hundredsof products, the Group has remained focused on sellingthe best-of-breed IT security products and on deliveringvalue added services to major systems integrators andresellers in Singapore and the region.

In the area of network storage, our vendor Netapp,has extended our area of coverage from Thailand toMalaysia and Vietnam.

The IT business of the Group currently has a totalof 8 offices in 6 countries and carries internet securityand network storage products from 16 industryleading vendors.

MULTI-CHEM LIMITED 2005 Annual Report 17MULTI-CHEM LIMITED 2005 Annual Report 17

Prospects and Future Plans

PCBThe electronics industry has been buoyant throughoutthe second half of 2005. Electronic products, includingPCs, notebooks and mobile phones, saw good growthsince the third quarter of 2005 and this led to the strongperformance in the Group’s manufacturing servicesbusiness. This momentum has continued into January2006 and outlook for the business remains positivewith PCB manufacturers expecting a boom in the firstquarter of 2006, normally the slow season. The Groupalso saw its laser drilling revenue improve by 221% inthe fourth quarter of 2005 driven by the demand forhandset PCBs.

Although the Group’s manufacturing service businessin China experienced a very weak first quarter of2005, the pick-up in demand from March 2005 sawdemand surged in the second half of 2005, whichaccounted for 67% of the total business in China inFY2005. Routing, mechanical and laser drilling serviceswere all in demand. Overall, the manufacturing servicebusiness in the second half of 2005 accounted for62% of the revenue achieved in FY2005. While Chinahas overtaken Singapore as the Group’s largestmanufacturing base in terms of sales, capacity andcustomer base since 2004, Singapore remains a keypart of the growth as it continues to provide servicesfor the manufacture of high end PCBs.

In the U.S., the North American PCB industry book-to-bill ratio was 1.13 for January 2006. A ratio of morethan 1.00 suggests current demand is ahead of supply,which indicates probable near term growth. In Asia,China’s flexible printed circuit market is predicted toincrease by 60% in 2006 (Source: Businesswireextracted from PCB007, 13 Jan 2006) and TPCA,

Taiwan’s PCB industry association, forecasts robustgrowth in 2006, mostly fuelled by expansion in China(Source: PCB007, 12 Jan 2006). PC shipments saw amore than 17% year-on-year growth in 4Q2005(Source: IDC, 19 Jan 2006) and IDC forecasts continueddouble digit PC market growth in 2006 (Source: IDC,20 Dec 2005) following a strong 2005. The above areindicative of the positive outlook in 2006. While thehigh oil prices could have a dampening effect in 2006,the effects have not been felt yet and the demandfor PCs, notebooks and mobile phones, among otherelectronics products, is expected to remain strong inthis region, with China among the leading markets.

The PCB-related business of the Group is very muchdependent on the overall electronics cycle. With abetter outlook, the customer base and the availablecapacity, the Group is poised to meet any increase indemand for the services we provide. As at 31 December2005, the Group had 100 CNC drilling machines, 5laser drilling machines and 36 routing machines inChina, and 59 CNC drilling machines and 2 routingmachines in Singapore. Included in the Group’smachines currently are 56 CNC drilling machinescapable of drilling at speeds of 200,000 rpm, whichcan achieve higher accuracy for micro vias. The Groupmoved into routing services in Singapore at therequest of customers, with 2 routing machines as at31 December 2005.

The Group will continue to serve the leading PCBmanufacturers in Singapore and the Shanghai, Suzhou,Kunshan and Wuxi regions where it is currently theleading PCB drilling and routing service provider interms of capacity and technology. With the numberof top PCB makers currently in the Eastern China area,


the Group will continue to focus on growing itsbusiness there. In this regard, the Group is currentlylooking into setting up a new facility in Kunshan tosupport existing customers there. The Group also plansto expand substantially its current drilling and routingcapacity of its existing factories to support theexpansion of at least two key customers in China.

The performance of the Group’s PCB-related distributionbusiness is tied to the demands of its existing customersin South East Asia. In a growing PCB market, thisbusiness is expected to continue to grow. However,growth is expected to be limited to the volumes ofthose customers.

ITFor the IT distribution business, the Group, throughthe M.Tech companies, will continue to focus on thebest-of-breed internet security products. The Group carriesindustry leading products from Nokia, Check Point,TippingPoint, RSA Security, Allot, Foundry Networks,Tripwire, ServGate, Bluesocket and SurfControl. InThailand, the Group entered into the IT storage businessas partner for Netapp, one of the leading IT storagevendors in the world. This partnership has since beenextended to Malaysia and Vietnam. The Group hasrecently added Patchlink and PGP, respectively theleading name in patch management and encryptiontechnology to its product suite and will continue toevaluate suitable products to add to its portfolio.

In addition to its current product business, the Groupis also involved in providing certified IT trainingthrough M.Tech Training Centre Pte Ltd, which isauthorised to conduct training for Nokia, Check Pointand Foundstone. This business is complementary to the

core IT distribution business and is expected to bringabout more awareness and technical knowledgethrough the courses conducted.

In December 2004, the Group’s regional presence inthe IT business was further enhanced with theestablishment of offices in Jakarta and Ho Chi MinhCity. Adding to the first Vietnam office in Hanoi, theGroup set up its Ho Chi Minh City office to expand itsreach into South Vietnam. The Group also establishedits presence in North Asia with the commencementof its Shanghai operations in December 2004 and itsBeijing operations in January 2006. These newoverseas offices, which are expected to buildawareness and market share in the first year, havemostly already made positive contribution to theGroup’s performance in FY2005. The Group plans to startan office in Southern China within the next quarter.

The Group will continue to be selective of the productswe carry so as to be able to do the best for the principalsthat the M.Tech companies represent. The Groupintends to work closely with key partners to furtherpromote the products it carries to end users, includingorganizing marketing events, such as the recentlyconcluded SX05 in Singapore, periodically.

IT has become an integral part of doing business andawareness of IT has been growing. Reliance on IT hasbeen growing exponentially and applications of IT arenow not confined only to the business area but tohomes and travels as well. With this higher reliance onIT comes the need for security because if IT fails, itmight prove inconvenient for some but damaging forothers. As economies mature, an increasing amount ofthe total IT budget is expected to be incurred for IT


Prospects and Future Plans


security. These developments can only augur well forthe Group.

While the IT business will grow further in importanceto the Group, the PCB-related business is still expectedto form the bulk of the Group’s business in 2006. Assuch, the performance of the Group in the current yearwill be largely dependent on the performance of thePCB-related business, particularly its ManufacturingService Division. Given the high fixed costs nature ofthis business, a high turnover will ensure goodprofitability and the reverse holds.

Based on current visibility and market outlook, theDirectors are positive about 2006. If there is no letup in the electronics demand, the Directors expectthe performance of the Group in FY2006 to be betterthan FY2005.

Risk FactorsThe Group’s primary business risk is the exposure tothe electronics products sector. Our customers aremainly PCB manufacturers most of whom will beexposed to the cyclical nature of the electronicsbusiness. Any downturn in the electronics cycle willresult in a cutback in outsourcing which will impactthe Group negatively.

Additionally, with the heavy capital investmentrequired in the manufacturing services business, theGroup will be adversely affected should there be adownturn in the electronics business due to the highfixed costs carried by this business.

The Group’s success in the China market will dependon our ability to maintain our technological, quality

assurance, capacity and pricing advantage over ourcompetitors. Additionally, we have to monitor tradedebts in China closely as collection of accountsreceivable generally takes longer.

The Group, with significant investment in China, is alsoexposed to the political, legal and economic climatesof the country.

We are also exposed to foreign exchange risks aswe mainly transact with our suppliers, vendors andcustomers in Singapore dollars, US dollars, Chineserenminbi, and to a lesser extent, European euro, Thailandbaht and Malaysia ringgit. The Company may, fromtime to time, enter into borrowing and foreign exchangearrangements as currency hedges.

As the Group has expanded into the distribution ofIT security products, we are exposed to the risks ofproduct obsolescence in respect of the hardwarewe carry. The Group aligns itself with the leadingnames in the IT security arena and as such, there is agood probability that such companies will takesteps to ensure that their products maintain thetechnological edge. The Group also monitors suchproducts on a quarterly basis and will make provisionswhere necessary.


Significant EventsCorporate EventsJan 2005 • Multi-Chem purchased 6 units of 200,000 rpm CNC drilling machines for drilling micro via of

diameter 0.2mm and below. By the end of 2005, Multi-Chem had a total of 40 of these 200,000

rpm CNC drilling machines

• M.Tech appointed as regional distributor for TippingPoint, the leading network based intrusion

prevention system

Mar 2005 • Check Point extended the partnership with M.Tech to Indonesia

Apr 2005 • Multi-Chem added 4 routing machines to its China operations. By the end of 2005, a total of 16

routing machines were added

• M.Tech appointed as regional distributor for Patchlink, the leading patch management company

• Nokia extended the partnership with M.Tech to Indonesia

Jun 2005 • Nokia & Check Point extended the partnership with M.Tech to China

Jul 2005 • Multi-Chem ranked 7th out of 630 companies in The Business Times Corporate Transparency

Index for companies announcing results for the financial year ended between 30 June 2004 and

31 March 2005, published in The Business Times on 11 July 2005

• M.Tech appointed as regional distributor for PGP, the leading file and email encryption vendor

Oct 2005 • Netapp extended the partnership with M.Tech to Malaysia

Nov 2005 • Multi-Chem named one of the top suppliers to WUS PCB in Kunshan

Jan 2006 • M.Tech became sole distributor for Nokia security solutions in Singapore, Malaysia and Thailand

• M.Tech opened its second office in China in Beijing


Feb 2006 • Netapp extended the partnership with M.Tech to Vietnam

• Multi-Chem ranked 7th out of 644 companies in The Business Times Corporate Transparency

Index for companies announcing results for the financial year ended between 31 December

2004 and 31 December 2005, published in The Business Times on 1 February 2006

Mar 2006 • Multi-Chem won the bronze award for “Best Annual Report Award 2005” for companies with

less than $500M in market capitalisation, under the Singapore Corporate Award, organised by

The Business Times and supported by The Singapore Exchange

Certificate of Appreciation


Financial Calendar

2005

Annual General Meeting 29 Apr 2005

Announcement of 2005 1st quarter results 29 Apr 2005

Books closure date 11 May 2005

Payment of 2004 final dividend on ordinary shares 20 May 2005

Announcement of 2005 half-year results 22 Jul 2005

Announcement of 2005 3rd quarter results 27 Oct 2005

Announcement and analyst briefing of 2005 full-year results 27 Jan 2006

2006

Annual General Meeting 28 Apr 2006

Announcement of 2006 1st quarter results 28 Apr 2006

Books closure date 11 May 2006

Payment of 2005 final dividend on ordinary shares 23 May 2006

Announcement of 2006 half-year results Jul 2006

Announcement of 2006 3rd quarter results Oct 2006

Announcement and analyst briefing of 2006 full-year results Jan 2007

Significant Events


Dormant Companies

Under Multi-Chem:• SecureOneAsia (100%)• M-Precision (100%)• Multi-Chem Philippines (50%)

Under HPTec Singapore:• HPTec HK (100%)

(1) M.Tech Thailand deemed to be a wholly owned subsidiary as the Company controls 100% of the voting rightsand its financial and operating policies.

(2) HPTec, a PCB tool manufacturer based in Germany, holds 65% of HPTec Singapore.(3) M.Tech Shanghai is now in the process of obtaining a license for its representative office in Beijing.

Group Structure

Multi-ChemSuzhou100%

Multi-ChemWuxi100%

Multi-ChemLaser100%

HPTechSingapore (2)

35%

M.TechShanghai (3)

100%

M.TechIndonesia

100%

M.TechIndochina

100%

M.TechThailand (1)

49%

M.TechMalaysia

100%

M.TechSingapore

80%

Ho Chi MinhCity

RepresentativeOffice

HanoiRepresentative

Office

M.TechTraining Centre

70%


Financial HighlightsGROUP BALANCE SHEETAs At 31 December 2005 ($’000) 2005 2004 2003 2002 2001

Property, plant and equipment 48,019 40,664 33,059 26,898 30,823

Investment in an associated company 2,084 2,082 1,835 2,711 4,129

Investment in a joint venture - - - 1,182 1,203

Other investments 132 150 351 351 461

Other receivables and intangibles - - - 32 348

Current assets 34,914 23,029 24,110 27,246 25,421

Current liabilities (23,408) (13,568) (11,007) (11,601) (9,575)

Net current assets 11,506 9,461 13,103 15,645 15,846

Borrowings (5,386) (6,298) (6,015) (3,174) (7,128)

Deferred income tax liabilities (732) (626) (1,130) (1,530) (2,630)

Other payables - - 100 (440) (769)

55,623 45,433 41,103 41,675 42,283

Share capital and share premium 35,604 27,461 27,025 27,214 27,851

Other reserves 810 2,032 2,836 2,806 2,195

Retained earnings 18,486 15,425 11,074 11,536 12,237

54,900 44,918 40,935 41,556 42,283

Minority interest 723 515 168 119 -

55,623 45,433 41,103 41,675 42,283


GROUP PROFIT & LOSSYear Ended ($’000) 2005 2004 2003 2002 2001

Turnover 71,330 53,002 34,041 26,698 23,047

Gross profit 23,084 17,610 10,144 6,413 3,179

Other gains/(losses) - net 953 (265) 879 893 1,835

Earnings before interest, tax, depreciation

& amortisation (EBITA) 20,804 16,156 9,862 82,253 8,794

Depreciation & amortisation (7,472) (6,497) (5,665) (6,480) (7,337)

Interest expense (322) (174) (771) (762) (752)

Profit from operations 13,010 9,485 3,426 1,081 705

Share of profit from an associated

company/a joint venture 27 247 (504) 906 1,585

Profit before income tax 13,037 9,732 2,922 1,987 2,290

Income tax expense (1,584) (1,176) (734) (373) (448)

Net profit 11,453 8,556 2,188 1,614 1,842

Minority interest (178) (148) (49) (9) 0

Equity holders of the Company 11,275 8,408 2,139 1,605 1,842

ANALYSIS (%)

Year 2005 2004 2003 2002 2001

Gross profit margin 32.4 33.0 30.0 24.0 14.0

PBT margin 18.3 18.0 9.0 7.0 1.0

Turnover growth 34.6 55.7 27.5 15.8 (23.3)

Operating profit growth 37.2 176.9 216.9 53.3 (92.7)

Net profit growth 33.9 293.1 33.3 (12.9) (79.9)

Financial Highlights


GROUP CASH FLOW STATEMENTYear Ended ($’000) 2005 2004 2003 2002 2001

Cash flows provided by/(used in)

operating activities 12,658 15,387 6,501 9,003 (1,134)

Cash flows (used in)/provided by

investing activities (13,940) (15,292) (6,291) 737 (3,449)

Cash flows provided by/(used in)

financing activities 1,754 (3,929) (7,561) (7,544) (10,440)

Net increase/(decrease) in cash and

cash equivalents 472 (3,834) (7,351) 2,196 (15,023)

Cash and cash equivalent at beginning

of the financial year 4,994 8,611 15,972 13,468 28,496

Effect of exchange rate changes on cash

and cash equivalents (20) 217 (10) 308 (5)

Cash and cash equivalent at end of the

financial year 5,446 4,994 8,611 15,972 13,468

PER SHARE DATA(cents, unless otherwise stated) 2005 2004 2003 2002 2001

Net earnings (basic) (1) 3.16 2.66 0.68 0.50 0.56

Net earnings (fully diluted) (2) 3.15 2.50 0.66 0.49 0.55

Net dividend 2.61 1.27 1.29 0.63 0.30

Net dividend payout (times) (3) 0.83 0.48 1.90 1.26 0.54

Net assets value (3) 15.40 14.23 13.06 13.10 12.81

Gross dividend 2.61 1.58 1.37 0.81 0.40

Gross dividend yield (%) (4) 11.35 5.56 4.89 5.79 3.20

Note:(1) Number of shares used in the above computation 356.4M 315.7M 314.9M 324.0M 330.0M(2) Number of shares used in the above computation 356.8M 335.8M 323.2M 326.7M 335.2M(3) Number of shares used in the above computation 356.4M 315.7M 313.5M 317.3M 330.0M(4) Based on the closing share price as at the last market day of the year

Financial Highlightscial Highlights


FINANCIAL RATIOS2005 2004 2003 2002 2001

Current ratio (times) 1.50 1.70 2.19 2.35 2.65Return on shareholder’s funds (%) 20.54 18.72 5.23 3.86 4.36Return on assets employed (%) 13.24 12.75 3.60 2.75 2.95Debt equity ratio (5) 0.28 0.25 0.28 0.26 0.36Debt interest cover (6) 2.03 3.16 1.53 1.21 1.18

(5) Debt equity ratio has taken into account outstanding convertible notes. Debt equity ratio exclusive of convertible notes

would be 0.22 (2004: 0.18)(6) Company fully repaid its transferable loan facility in Oct 2003


82.70

47.60

189.70

126.40

53.60

020406080

100120140160180200

52.30

31.7027.40

16.20

8.00

0

10

20

30

40

50

60 11.40

5.604.90

5.80

3.20

0

2

4

6

8

10

12

Net Dividend Per Share

Dividend Rate Dividend Yield

(%)

(%) (%)

2.61

1.271.29

0.63

0.30

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Net Dividend Payout

01 02 03 04 05 01 02 03 04 05

01 02 03 04 05 01 02 03 04 05

(cents)

(Year) (Year)

(Year) (Year)


QUARTERLY RESULTSYear Ended ($’000) 2005 2004 Change

Turnover

1st Quarter 14,218 12,720 12%

2nd Quarter 14,482 12,361 17%

3rd Quarter 20,032 13,993 43%

4th Quarter 22,598 13,928 62%

71,330 53,002 35%

Profit before income tax

1st Quarter 1,938 2,365 (18%)

2nd Quarter 1,740 2,923 (40%)

3rd Quarter 3,858 2,826 37%

4th Quarter 5,501 1,618 240%

13,037 9,732 34%

Financial HighlightsFinancial Highlights

0

5000

10000

15000

20000

25000

0

1000

2000

3000

4000

5000

6000

Turnover

($’000)

Profit before income tax

($’000)

Year 2004 Year 2005 Year 2004 Year 20051Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q


Year Ended ($’000) Singapore ASEAN China TotalBy Geographical Regions 2005 2004 2005 2004 2005 2004 2005 2004

Turnover1st Quarter 7,793 6,018 3,487 2,513 2,938 4,189 14,218 12,7202nd Quarter 7,471 5,722 3,198 2,174 3,813 4,465 14,482 12,3613rd Quarter 9,488 6,881 3,793 2,958 6,751 4,154 20,032 13,9934th Quarter 9,225 7,611 5,642 3,123 7,731 3,194 22,598 13,928

33,977 26,232 16,120 10,768 21,233 16,002 71,330 53,002

Segmental ResultsYear Ended ($’000) Manufacturing Services Distribution TotalBy Activities 2005 2004 2005 2004 2005 2004

Turnover1st Quarter 6,368 7,032 7,850 5,688 14,218 12,7202nd Quarter 7,248 7,269 7,234 5,092 14,482 12,3613rd Quarter 10,360 7,902 9,672 6,091 20,032 13,9934th Quarter 11,491 7,151 11,107 6,777 22,598 13,928

35,467 29,354 35,863 23,648 71,330 53,002Segmental results1st Quarter 1,201 1,941 729 442 1,930 2,3832nd Quarter 1,770 2,117 (5) 823 1,765 2,9403rd Quarter 3,556 2,515 332 273 3,888 2,7884th Quarter 4,673 1,392 1,076 156 5,749 1,548

11,200 7,965 2,132 1,694 13,332 9,659


2005Turnover byActivities

2005Segmental Results

by Activities

2005Turnover by

Geographical Regions

Manufacturing 50% Distribution 50%

Singapore 47% ASEAN 23% China 30%

Manufacturing 84% Distribution 16%


REVENUEThe Group recorded revenue of $71.3M for the year ended 31 December 2005 (“FY2005”), which was an increaseof 34.6% or $18.3M compared to revenue of $53.0M for the year ended 31 December 2004 (“FY2004”). Revenueachieved for the three months ended 31 December 2005 (“4Q2005”) of $22.6M was also an improvement,growing by 62.2% or $8.7M over revenue of $13.9M achieved for the three months ended 31 December 2004(“4Q2004”).

In FY2005 and 4Q2005, the revenue growth was achieved on the back of a surge in demand for the Group’smanufacturing services, particularly in the last two quarters of 2005. Additionally, there was also strong growthin the Distribution Division, particularly in the business of distribution of IT products. In FY2005, the ManufacturingService Division and Distribution Division each contributed about 50% to the Group revenue.

Despite a robust quarter for the three months ended 30 September 2005 (“3Q2005”), the Group still managedto chalk up an increase in revenue of 12.8% or $2.6M, from $20.0M in 3Q2005 to $22.6M in 4Q2005, as themomentum remained strong in 4Q2005.

Manufacturing Service DivisionIn 4Q2005, this Division achieved revenue of $11.5M, a strong growth of 60.7% over the revenue of $7.2Mrecorded in 4Q2004. While there were visible signs of pick-up in demand from March 2005, particularly for theChina operations, the surge in demand for our manufacturing services started in 3Q2005 and it did not slowdown for the rest of the year as demand for PCB remained strong from the demand for consumer electronics,PCs and handsets. Consequently, the second half of FY2005 accounted for approximately 62% of the revenue inthis Division.

In FY2005, revenue in this Division grew by 20.8% or $6.1M to $35.5M, from $29.4M in FY2004. Drilling servicerevenue alone grew by $4.5M and accounted for nearly 74% of the increase in this Division. The higher demandfor drilling services in FY2005 extends across both the Group’s Singapore and China operations. While the pick upin demand for our services was a main factor, the better performance was also due to a more diverse customerbase in China and an increase in its drilling capacity from the 47 higher performance machines for in the year2005. The higher demand for drilling services resulted in the Group drilling more high density interconnect PCBs,as well as ball grid array (BGA) boards, with efficiency improvements due to the higher performance machines.

The recent ramp up in demand for handphone PCBs from our customers in China from October 2005 alsocontributed the more than three-fold increase in revenue for the Group’s laser drilling business from $113,000 inFY2004 to $523,000 in FY2005.

Financial Review


Additionally, the overall pick-up in the electronics sector also resulted in higher demand for our PCB routingservice in China. With an increase of routing capacity from an average of 20 routing machines in FY2004 to anaverage of 28 routing machines in FY2005, revenue from the routing business grew by 71.5% or $1.2M, from$1.6M to $2.8M.

Comparing 3Q2005 to 4Q2005, revenue from the Manufacturing Service Division increased by 10.9% or$1.1M, from $10.4M to $11.5M. There was strong demand for our drilling and routing services in 3Q2005 andthis momentum was carried into 4Q2005.

Distribution DivisionThe Group achieved a revenue growth of 51.6% or $12.2M, from $23.6M in FY2004 to $35.9M in FY2005 for theDistribution Division. Revenue of the IT business grew by $11.1M and accounted for approximately 91% of thegrowth in this Division. In FY2005, the IT business made up about 75% of the business in this Division.

Revenue increased by 63.9% or $4.3M, from $6.8M in 4Q2004 to $11.1M in 4Q2005, with the IT businessaccounting for $3.7M or 86% of the growth. Business from the distribution of PCB specialty chemicals and PCBrelated products also grew, albeit by a lower amount of $617,000 over the two quarters. Business from the secondhalf of 2005 made up 58% of the business for FY2005 in the Distribution Division.

Comparing 3Q2005 to 4Q2005, the Division recorded an increase in revenue of $1.4M or 14.8%, from $9.7M to$11.1M. Both the IT and PCB distribution business recorded their highest quarterly revenue for FY2005 in thefourth quarter.

PCBRevenue from the distribution of PCB-related improved marginally by $1.1M or 14.0%, from $7.8M in FY2004to $8.9M in FY2005. Comparing 4Q2004 to 4Q2005, revenue also increased by $617,000 or 34.1%, from $1.8Min 4Q2004 to $2.4M in 4Q2005. The increase in revenue is in line with the strength of the electronics sector in2005 which resulted in our customers using more of the specialty chemicals and materials which we distribute inthe manufacture of PCBs.

ITRevenue in the distribution of IT products increased by 70.1% or $11.1M, from $15.9M in FY2004 to $27.0M inFY2005. Revenue of $8.7M was achieved in 4Q2005, which was an increase of 74.8% or $3.7M over the revenueof $5.0M achieved in 4Q2004. Comparing 3Q2005 to 4Q2005, revenue in this business grew by $1.1M or 14.0%,from $7.6M to $8.7M.


The growth in this business was largely due to the expansion of the regional businesses in Malaysia, Vietnam andThailand, as well as further growth in the Singapore operations. Offices in Shanghai and Indonesia, which were setup in 1Q2005, also contributed to the revenue for 4Q2005 and FY2005. The addition to sales and pre-salespersonnel and new products to its portfolio also played a part in the revenue growth.

While Singapore remains as the main contributor, accounting for 40% of the IT business in 4Q2005, the regionalsubsidiaries of the Company as a whole are becoming more significant through expansion and accounted for theremaining 60% of the IT business in the same period. Revenue from the regional markets increased by 139.7% or$3.0M, from $2.2M in 4Q2004 to $5.2M in 4Q2005.

PROFIT BEFORE TAXThe Group achieved a PBT of $13.0M in FY2005, compared to a PBT of $9.7M in FY2004, an increase of $3.3Mor 34.0%. On a quarterly basis, PBT increased by 240.0% or $3.9M, from $1.6M in 4Q2004 to $5.5M in 4Q2005.Comparing 4Q2005 to 3Q2005, the Group also recorded a 42.6% or $1.6M improvement in PBT, from $3.9Mto $5.5M.

The increase in PBT is largely in line with the higher revenue and gross profit, particularly in the second halfof 2005. Revenue in 4Q2005 was the highest across all segments of the Group’s business over the four quartersof 2005.

Additionally, the PBT increase in FY2005 compared to FY2004 was due to the following:

(1) A foreign exchange gain of $365,000 in FY2005 as compared to foreign exchange loss of $231,000 inFY2004, mainly due to the strengthening of the Chinese renminbi; and

(2) A net gain on disposal of fixed assets of $10,000 in FY2005 compared to a loss of $299,000 in FY2004, withthe bulk of the gain recorded in 4Q2005.

The increase in PBT in FY2005 was offset by the following:

(1) An increase in payroll-related expenses by $2.0M or 27.0%, from $7.4M in FY2004 to $9.4M in FY2005 dueto a larger headcount to support the business growth and from the expansion of the regional businesses;

(2) Commission expense and the Directors’ share of profits (due to attainment of the profit target, as provided forin their respective service agreements) increased by $549,000 or 70.5%, from $779,000 in FY2004 to $1.3Min FY2005 which is in line with the higher revenue and profits attained in FY2005.

Financial Review


(3) An increase of $278,000 or 54.5% in travelling and transport expenses, from $510,000 in FY2004 to $788,000in FY2005, mainly due to the on-going regional expansion; and

(4) Provision for obsolete stocks of $254,000 in FY2005 compared to $46,000 in FY2004.

PROFIT AFTER TAXThe Group PAT increased by 33.9% or $2.9M from $8.6M in FY2004 to $11.5M in FY2005. On a quarterly basis,Group PAT also increased from $1.4M in 4Q2004 to $5.0M in 4Q2005. These were largely in line with the increasein PBT.

Provision for tax comprised mainly income tax and deferred tax of the Company and its subsidiaries. Multi-ChemWuxi is currently enjoying tax-free status on profits while Multi-Chem Suzhou is enjoying tax-free status on 50%of its profits.

Balance Sheet ReviewBelow is a review of material changes in the key balance sheet items as at 31 December 2005.

Cash and cash equivalents of the Group increased from $5.0M as at 31 December 2004 to $5.4M as at 31December 2005. At the Company level, cash and cash equivalents increased from $1.4M to $2.5M. The increase atboth the Group and Company level were mainly due to positive cashflow from working capital, proceeds fromexercise of warrants, net of repayments of bills payable and dividend payment.

Trade and other receivables of the Group increased from $15.0M to $24.7M which is reflective of the growthin the Group’s business. The decrease in Company level from $17.7M to $12.4M is mainly due to the repaymentof amount owing by subsidiaries for the purchase of machineries.

Inventories at Group level increased from $2.5M to $4.1M mainly due to the increase in IT stock of $1.4Mresulting from the growth of the IT business including the new offices in Shanghai and Indonesia which were setup in 1Q2005. The inventories at Company level, which comprised PCB specialty chemicals and related materials,increased from $1.3M to $1.6M.

Investment in subsidiaries increased from $18.6M to $30.3M as the Company increased the paid up capital ofMulti-Chem Suzhou, Multi-Chem Wuxi and Multi-Chem Laser by $8.6M, $1.3M and $1.1M respectively. Newsubsidiaries for the IT business were also set up in Indonesia and China.


Balance Sheet Review

Debt Financing Structure Loans Letter Other TotalAs At 31 December 2005 of Credit Trade Facilities

Facilities

In dollar terms (S$’000)Amount available for drawdown 11,746 11,000 19,396 42,142Amount utilised 3,396 9,394 - 12,790Balance unutilised 8,350 1,606 19,396 29,352

In percentage terms (%)Amount available for drawdown 71 15 100 70Amount utilised 29 85 - 30Average effective cost of debts during the year 2005 3.46

Interest coverage ratioNet profit before interest and tax (S$’000) 20,804Interest expenses (S$’000) 322Interest coverage ratio (%) 64.61

Property, plant and equipment increased from $40.7M to $48.0M for the Group mainly due to addition of 47units of new CNC drilling machines and 18 new routing machines for both the Singapore and China operations,offset by sales of 19 units of used CNC drilling machines to third parties and return of one laser drilling machine tosupplier, net of depreciation. The decrease at Company level from $17.2M to $16.4M was due to the re-deploymentof 14 units of used CNC drilling machines from Singapore to China operations, net of the addition of new CNCdrilling machines in FY2005.

Trade and other payables decreased from $6.8M to $4.9M at Company level mainly due to payment made toMulti-Chem Suzhou for the costs of machineries returned to the Company. The increase at Group level from $6.8Mto $11.9M was due to an increase in payables to principals of the IT distribution business and an increase inpayables to suppliers for the Group’s China operations, resulting from the higher business volume.

Bills payable to banks increased by $5.3M for both the Group and the Company mainly due to the financing onthe purchase of new CNC drilling and routing machines during the year. These machines have already been deliveredand are operational in the Group’s factories.

Other borrowings decreased for both the Group and Company levels mainly due to repayment of bank borrowingsand finance leases.


Value Added Statement

Year Ended ($’000) 2005 2004

Sales 71,330 53,002Purchase of goods & services (41,799) (30,106)Value added from operations 29,531 22,896Other operating income 650 621Share of results of an associated company before tax 27 247

30,208 23,764

DistributionTo employees in salaries & other staff related costs 9,377 7,361To government in corporate and other taxes 1,584 1,176To providers of capital

- Finance costs 322 174Retained in the business

- Depreciation 7,472 6,497- Minority interests 178 148- Retained profits 11,275 8,408

30,208 23,764

Productivity DataAverage numbers of employees 619 481Sales per employees ($’000) 115 110Value added per employee ($’000) 48 48Value added per $ employment cost 3.15 3.11Value added per $ net sales 0.41 0.43


The Company has been keeping shareholders and the investing community updated on the key developments ofthe Group through regular announcements on MASNET. These announcements can also be found in Chineseunder http://ir.zaobao.com/multichem in the Zaobao.com website.

Multi-Chem has always made efforts to announce our results early. To facilitate a better understanding of ourresults, plans and prospects, we held an analysts cum press meeting on 27 January 2006 to announce our full-yearresults for 2005. The presentation slides on our full year results and the investor on-line Q&A session withmanagement were also made available in the Shareinvestor.com website. The Company continues to announce itsquarterly results within the following month after each quarter to provide investors prompt quarterly updates offinancial and business developments of the Group.

In February 2006, Multi-Chem was ranked 7th out of 644 companies in The Business Times Corporate Transparencyindex for companies announcing results for the financial year ended between 31 December 2004 and 31 December2005, the fourth year running that the Company was ranked among the Top 20. In March 2006, the Company wonthe bronze award for “Best Annual Report Award 2005” for companies with less than $500M in market capitalisation,under the Singapore Corporate Award, organised by The Business Times and supported by The Singapore Exchange.

The Company regularly updated its website www.multichem.com.sg for any material developments while its ITsecurity arm has its own website www.mtechpro.com to provide information on its products and services.

In order to reach out to our existing and potential investor, the Company renewed its participation in the SGX-MASResearch Incentive Scheme for 2006 and 2007 in which two research firms are assigned to furnish two resultsreports and two research reports for us. These reports are posted on the SGX website www.sgx.com/research foreasy and free access by investors.

We will continue to place emphasis on good investor relations and make efforts on improving the information flowso that awareness about the Group and its business can be build.

Investor Relations


Information on Employees

The Group believes that our employees are keyresources and we aim to recognise and reward capableand dedicated staff. Rewards are linked directly toemployee’s performance, contribution to the Companyand responsibility level. Promising employees are giventhe opportunity to work for a period in our overseassubsidiaries to further enhance their experience.

The Group conducts yearly appraisal to evaluate theperformance of staff and provides staff with a sense ofself-awareness to undertake training that will improvetheir skills and abilities.

The Manufacturing Services Division is in a businesswhich is capital intensive and that further requires ouremployees to have the necessary knowledge inoperating the machinery and equipment. Selectedemployees are sent for training conducted by machine

manufacturers to learn about the operations, capabilityand maintenance of the equipment. In the DistributionDivision, selected employees are sent for training byour principals, as well as attached to our customers’production lines in the region for on-the-job training.The employees of the M.Tech group are also givenregular product updates and technical training bothin-house and by our principals.

The amount spent on employees providing them withon-the-job training, in-house and external trainingamounted to approximately $53,000.

During the year, M.Tech Singapore participated in theinternship programme of a local polytechnic to givestudents a stint with a local corporate before they stepinto the working world, providing 24 weeks of trainingfor this purpose.


BREAKDOWN BYEDUCATIONAL QUALIFICATION

Degree & above 13% Diploma & equivalent 6% O’ & A’ level & equivalent 25% Trade certificate & equivalent 40% Secondary level & lower 16%

BREAKDOWN BYYEARS OF SERVICE

10 yrs or more 1% 6 to 9+ yrs 1% 3 to 5+ yrs 6% Less than 3 yrs 92%

BREAKDOWN BYJOB GROUP

Managerial 6% Sales 2% Engineering 6% Administrative 9% Technical & others 77%


Corporate governance refers to the processes and structure by which the business and affairs of the Companyare directed and managed. The Board recognises that sound corporate governance is an essential part of goodbusiness practices and corporate accountability. Accordingly, the Company has adopted measures and practicesset out in the Best Practices Guide and the Code of Corporate Governance issued by The Singapore Exchange.

The Company is currently reviewing the proposed recommendations from the Council on Corporate Disclosure andGovernance in its recent review of the Code of Corporate Governance. If not already adopted in 2006, most if notall of the recommendations will be adopted by the Company in 2007.

BOARD OF DIRECTORS

The Board’s Conduct of its Affairs

The Board meets regularly on a quarterly basis and is responsible for the Group’s overall business direction,management and internal control, approval of major projects and significant financing matters, and approval ofthe release of the quarterly reports. When circumstances require, the Board will arrange for telephonic andvideoconference meetings.

There will be at least one meeting of board members without the presence of the Chief Executive Officer. TheBoard held an informal meeting without the presence of the Chief Executive Officer on 16 September 2005. Thenumber of board meetings held in 2005 and the attendance of every board member at the Board and committeesmeetings are disclosed as follows:

The Board has adopted the recommendations of the internal auditors set out in the internal audit report.Additionally, Board approval has to be sought for transactions not in the ordinary course of business if suchtransaction exceeds $2.0M in value. To facilitate operational efficiency, the Board approval would not be requiredfor day-to-day decisions and matters that are operational in nature, even though such single transaction mayexceed $2.0M in value.

Corporate Governance Report

(1) Attended two board meetings by invitation prior to his appointment as board member on 29 April 2005(2) Appointed as member of AC on 1 February 2005(3) Appointed as member of NC on 27 January 2005(4) Appointed as board member, member of AC, NC and RC on 29 April 2005


Name Board AC NC RC

Foo Suan Sai 4 4 - - - ✓ 3 3 - - -

Han Juat Hoon 4 4 - - - - - - - - -

Ho Boon Chuan Wilson(1) 4 4 - - - - - - - - -

Toshiaki Suzuki (2) 4 3 ✓ 4 2 - - - ✓ 2 1

Wong Meng Yeng (3) 4 4 ✓ 4 4 ✓ 3 3 ✓ 2 2

Chew Thiam Keng 4 4 ✓ 4 4 ✓ 3 3 ✓ 2 2

Lim Keng Jin(4) 4 2 ✓ 4 2 ✓ 3 1 ✓ 2 1

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The Company works closely with the professional corporate secretarial firm, FMG Corporate Services Pte Ltd,to provide the Board with regular updates of the latest governance and listing policies. The Board is alsoupdated regularly concerning any changes in company policies, relevant new laws, regulations and changingcommercial risks.

Newly appointed Directors are given briefings on the business activities of the Group, its strategic directionsand governance practices.

Board Composition and Balance

The Board consists of seven members out of which four are non-executive, three of whom are independentDirectors. The independence of each Director is reviewed annually by the NC which was formed on 2 December2002. An independent Director shall notify the Company Secretary immediately of any change in circumstancesthat may result in him not being able to meet the criteria for independence. The Board may, after consideringthe change in circumstances, require the resignation of the Director.

The NC is of the view that Mr Wong Meng Yeng, Mr Chew Thiam Keng and Mr Lim Keng Jin are independentas at the date of this Annual Report and their experience in finance, business and law enable them to exerciseobjective judgement on corporate affairs independently. No individual or small group of individuals dominatethe Board’s decision making process.

The Board is of the view that its size is appropriate for effective decision making taking into account the scopeand the nature of the operations of the Company.

Role of Chairman and Chief Executive Officer

Mr Foo Suan Sai is both the Chairman and Chief Executive Officer. He is also an Executive Director.

The Board is of the opinion that currently, there is no need to separate the role of the Chairman and ChiefExecutive Officer taking into account the size, scope and the nature of the operations of the Company. As aprinciple of good corporate governance, the Board has set the condition that the Company should haveseparate persons as Chairman and Chief Executive Officer when the Company’s turnover exceeded S$100M.

The role of the Chairman pertaining to Board proceedings includes:

• Scheduling of meetings that enables the Board to perform its duties while not interfering with the flow ofthe Company’s operations;

• Preparing meeting agenda;• Exercising control over quality, quantity and timeliness of the flow of information between management

and the Board; and• Assisting in ensuring compliance with the Company’s guidelines on corporate governance.

Access to Information

In order to ensure that the Board is able to fulfil its responsibilities, the Company circulates the reports relatingto operational and financial performance of the Group and Company prior to the Board meetings held quarterly.The reports are also available upon request. Where a physical meeting is not possible, timely communicationwith members of the Board is effected through electronic means which include electronic mail andteleconferencing.



(1) Mr Suzuki was re-appointed as a Director pursuant to Section 153(6) of the Companies Act.

The Directors have also been provided with the phone numbers and email particulars of the Company Secretary forseparate and independent access.

The Board will refer issues to the AC for opinion on whether any independent advice is necessary. Should anyindependent advice be required, the cost of such professional advice will be borne by the Company.

The role of the Company Secretary was clearly defined and reported to the Board on 6 January 2003. It includesresponsibility for ensuring Board procedures are followed and that applicable rules and regulations are compliedwith. The Company Secretary shall attend all Board Meetings. The appointment and the removal of the CompanySecretary is a matter for the Board as a whole.

BOARD COMMITTEES

Board Membership

Board membership is under the purview of NC which comprises Mr Chew Thiam Keng as Chairman, andMr Foo Suan Sai, Mr Wong Meng Yeng and Mr Lim Keng Jin as members. A majority of the NC is independent.

The NC has a written terms of reference that describe its responsibilities, which include maintaining an effectiveBoard and ensuring that only competent individuals capable of contributing to the success of the Company areappointed. Where new appointments are required, the NC will consider recommendations for new Directors,review their qualifications and meet with such candidates before a decision is made on a selection. The NCalso promotes transparency in the selection and appointment of new Board members as well as their subsequentre-nomination/re-election.

A member who wishes to retire or resign should provide sufficient notice to the Company so that a replacementmay be appointed before he leaves. In the event of any vacancy in the NC, the Company shall endeavour to fill thevacancy within two months, but in any case not later than three months.

In reviewing for re-nomination/re-election, NC has to consider criteria such as the Director’s contribution andperformance, attendance, preparedness, participation and candour and if applicable, assessment of the Director’sindependence. The Committee should also decide whether the Director under review has been adequately carryingout his/her duties as Director of the Company. All Directors have to submit themselves for re-nomination/re-election at regular intervals or at least every three years in accordance with the Company’s Articles of Association.

Name Age PositionDate of initial Date of lastappointment re-election

Foo Suan Sai 52 Chairman 30 Sep 1988 -

Han Juat Hoon 49 Executive Director 16 May 1987 30 Apr 2004

Ho Boon Chuan Wilson 35 Executive Director 29 Apr 2005 -

Toshiaki Suzuki 72 Non-executive Director 5 Jan 2000 29 Apr 2005(1)

Wong Meng Yeng 47 Independent Director 5 Jan 2000 30 Apr 2004

Chew Thiam Keng 42 Independent Director 5 Jan 2000 29 Apr 2005

Lim Keng Jin 71 Independent Director 29 Apr 2005 -

As at 31 December 2005, the Directors of the Company are as follows:




Key information regarding the Directors are disclosed as follows:

Present Directorships Past Directorships inOther majorName in other listed other listed companies

appointmentscompanies over last 3 years

Foo Suan Sai Nil Nil Managing Director,HPTec Singapore

Han Juat Hoon Nil Nil Nil

Ho Boon Chuan Wilson Challenger Technologies Nil Nil LimitedMemory Devices Limited

Toshiaki Suzuki Nil Nil Nil

Wong Meng Yeng KS Tech Ltd. Nil NilNovena Holdings LimitedPan Asian Water Solutions LimitedRotol Singapore Ltd

Chew Thiam Keng Ban Joo & Company Limited Flairis Technology NilChina Dairy Group Ltd. Corporation Limited(previously known as TSM Resources Ltd)KS Tech LtdPharmesis International Ltd.Showy International LimitedSim Siang Choon Ltd

Lim Keng Jin Nil Nil Nil

Board Performance

The Board’s performance is ultimately reflected in the performance of the Group. The Board shall, at all times, acthonestly and use reasonable diligence and care in the discharge of the duties of their office. They have to carrytheir duties in the best interests of the Company and its shareholders. Board members must attend at least 75% ofall Board Meetings.

Performance of Board members is also evaluated according to their contribution during meetings and also theirinput to the Company on e.g. corporate governance, legal or accounting matters, based on their individual expertise.The NC is of the opinion that the above performance evaluation criteria is currently adequate.



AUDIT COMMITTEE

Audit Committee

The AC comprises four members, three of whom are independent Directors. The AC is chaired by Mr Wong MengYeng, an independent Director. Mr Chew Thiam Keng and Mr Lim Keng Jin, an independent Director has financialmanagement expertise and experience while Mr Toshiaki Suzuki, a non-executive Director has close to 40 years ofexperience in the PCB industry.

The NC is of the view that the members of the AC have the necessary expertise and experience to dischargeits functions.

The AC has a set of terms of reference defining its scope of authority which includes:

• To review the external auditors’ independence and objectivity annually;• To review the scope and results of the audit, whether it is cost effective and the independence and objectivity of

the external auditors;• To review with the external auditors on their audit report, management letter and management’s response;• To review the quarterly, half-yearly and annual financial statements before submission to the Board;• To review the assistance given by the management to the auditors;• To review the scope and results of the internal audit procedures;• To review interested party transactions periodically.

The AC is satisfied with the independence of the external auditors, PricewaterhouseCoopers, and there are no non-audit services provided to the Group by PricewaterhouseCoopers during the year.

The AC meets at least four times a year and, in addition to the members of the AC, such meetings are also attendedby external auditors and appropriate members of the executive management by invitation. In FY2005, the AC hascarried out the activities as set out above. The AC meets the external auditors and with the internal auditors,without the presence of management at least once annually.

Other information pertaining to the AC is disclosed on page 40 of the annual report.

Internal Controls

The Board is responsible for ensuring that the Company maintains a sound system of internal controls to safeguardshareholders’ interest and Company’s assets. The Board also oversees matters relating to management of risks.

The effectiveness of the Company’s material internal controls is conducted annually. The Board is of the opinionthat the Company has adequate internal controls to safeguard shareholders’ investment and Company’s assets. Interms of risk management, the Board seeks to identify areas of significant risks and apply appropriate measuresto control and mitigate these risks. It also monitors the implementation of such measures.




Internal Audit

The internal audit function is outsourced to a public accounting firm, CC Yang & Co. They conduct reviews of theeffectiveness of the Company’s material internal controls, including financial, operational and compliance controls,and risk management annually.

The internal auditors meet with the Board and AC at least twice a year, to present their audit plans initially and toreport their audit findings subsequently. Management has to respond to the audit findings and take action, wherenecessary, to improve any internal control weaknesses.

The internal auditors’ primary reporting line is to the Chairman of the AC. Material non-compliance and internalcontrol weaknesses noted during the audit are reported to the AC.

It is the responsibility of the AC to ensure the adequacy of the internal audit.

REMUNERATION COMMITTEE

Remuneration Matters

The RC comprises four members, three of whom are independent Directors. The RC is chaired by Mr Lim Keng Jin,an independent Director. The RC meets at least once a year and is responsible for reviewing the performanceof the Chief Executive Officer, the Chief Operating Officer and senior management, as well as reviewing andapproving executive remuneration including but not limited to Director’s fees, salaries, allowances, bonuses andbenefits-in-kind. If necessary, the RC may seek expert advice inside and/or outside the Company on remunerationof all Directors.

Level and Mix of Remuneration

The executive Directors, Mr Foo Suan Sai and Mdm Han Juat Hoon are also the substantial shareholders of theCompany. Their interests are therefore in line with the Company’s interest. Remuneration of these executive Directorsis in accordance with their service contracts.

Remuneration of non-executive Directors takes into account the effort and time spent, including the responsibilitiesof each Director. Non-executives Directors are paid Directors’ fees, subject to approval at the AGM.

The Company currently does not have any share option scheme in place.

Disclosure on Remuneration

Remuneration is fixed in accordance with the experience of the person in question, the role performed, marketcomparison, the contribution of the individual and/or the performance of the Company.

Remuneration of Mr Foo Suan Sai and Mdm Han Juat Hoon is in accordance with their respective service contractwith the Company, which is renewed annually unless terminated by either party giving not less than three monthsnotice to the other. For Mr Ho Boon Chuan Wilson and the key Executives, the remuneration is based on theirrespective employment contract with the Company and fixed based on the above factors as well as negotiationbetween the parties concerned.



The total remuneration of employees who are related to the substantial shareholders is subject to the annualreview and majority approval of the AC. For FY2005, the total remuneration paid to these employees amountedto $317,048 (2004: $289,937).

None of the employees who are immediate family members of a Director or the Chief Executive Officer receivedmore than $150,000 in remuneration during the year.

ACCOUNTABILITY AND AUDIT

The Board is accountable to the shareholders and the management is accountable to the Board.

The Company has adopted quarterly results reporting since the third quarter of 2002. For its financial reporting,the Company will continue to provide a balanced and understandable assessment of the Group’s performance,position and prospects on a quarterly basis.

The annual remuneration bands of the Directors and the Executive Officers are set out below:

Base Variable Profit Benefits-FY2005 Salary Bonus Sharing in-kind Fees Total

% % % % % %

Director

$500,000 and above

Foo Suan Sai 65 - 34 1 - 100

Han Juat Hoon 61 - 37 2 - 100

$250,000 to below $500,000

Ho Boon Chuan Wilson 82 15 - 3 - 100

Below $250,000

Toshiaki Suzuki - - - - 100 100

Wong Meng Yeng - - - - 100 100

Chew Thiam Keng - - - - 100 100

Lim Keng Jin - - - - 100 100

Executive Officers

Below $250,000

Pui Boon Tiong Eugene 82 14 - 4 - 100

Koh Henry 86 14 - - - 100

Yang Wen Kuei 81 19 - - - 100




The Board currently has access to quarterly accounts and regular updates from the Company via emails, ad hocinformal meetings and through the telephone. Monthly accounts are available upon request.

In preparing the financial statements, the Directors have:

• selected suitable accounting policies and applied them consistently;• made judgements and estimates that are reasonable and prudent;• ensured that all applicable accounting standards have been followed; and• prepared financial statements on a going concern basis as the Directors have a reasonable expectation, having

made enquiries, that the Group and Company have adequate resources to continue in operational existence forthe foreseeable future.

COMMUNICATION WITH SHAREHOLDERS

The Company aims to engage in regular, effective and fair communication with shareholders, and be as descriptive,detailed and forthcoming as possible.

Its financial results are disclosed on a quarterly basis through SGXNET within the mandatory period and theinformation is also available on the Company’s website, and investor relations sites Zaobao.com andShareinvestor.com. Information on the Company’s new initiatives or key developments are first disseminatedvia SGXNET and also made available on-line to shareholders. Price sensitive information is announced throughSGXNET. However, any information that may be regarded as undisclosed material information about the Group willnot be given.

Although mandatory quarterly reporting for listed companies with market capitalisation of less than S$75M as at31 March 2003, is waived, the Company has chosen to continue with quarterly reporting to enhance communicationswith shareholders.

Shareholder Participation

All shareholders of the Company receive the annual report and notice of AGM. The notice is also advertised in thepress and made available on the website. At AGMs, the Company encourages shareholder participation andshareholders are given the opportunity to air their views and ask Directors or management questions regardingthe Company.

The Company’s Articles of Associations allow a member of the Company to appoint one or two proxies to attendand vote instead of the member.

At every general meeting, the chairpersons of the AC, NC and RC are present and available to address questions.The external auditors are also present to assist the Directors in addressing any relevant queries by shareholders.

Each item of special business included in the notice of the meeting will be accompanied by a full explanation of theeffects of a proposed solution. Separate resolutions are proposed for substantially separate issues at the meetingand the Chairman declares the number of proxy votes received both for and against each separate resolution.

A summary of the discussion at the Annual General Meeting will be made available to shareholders upon their request.



DEALINGS IN SECURITIES

The Group has adopted internal codes pursuant to the SGX-ST’s Best Practices Guide applicable to all its officers inrelation to dealing in the Company’s securities. Share trading guidelines, in particular, that officers should not dealin the Company’s securities

(a) when in possession of unpublished material price sensitive information;(b) on short term considerations; and(c) during the period commencing two weeks before the announcement of the Company’s first three quarter

results and one month before the announcement of the Company’s annual results and ending on the date ofthe particular announcement,

have been disseminated to Directors and key employees (including employees with access to price sensitiveinformation in relation to the Company’s shares). In addition, the guidelines require key employees to disclose inwriting to the executive Directors on their dealings in the Company’s securities.

INTERESTED PERSON TRANSACTIONS

There was no interested party transactions entered into with value of more than $100,000 during the year.

MATERIAL CONTRACTS

There was no material contracts entered into by the Company or any of its subsidiaries involving the interest of theChief Executive Officer, any Director or controlling shareholder, either still subsisting at the end of FY2005 orentered into since the end of FY2004.

Foo Suan SaiGroup Chairman & Chief Executive Officer




Corporate DirectoryChairman & Chief Executive OfficerFoo Suan Sai

Chief Operating OfficerHan Juat Hoon

Chief Financial OfficerHo Boon Chuan Wilson

Finance, HR & AdministrationLim San SanKoh Hang Leng DickyLim Kok Soon Rayson

Distribution DivisionFoo Fang Song MaxGoh Tian Keong WinstonYap Yen Ling Candy

Purchasing & LogisticsFoo Suan OoiLoo Lay Yeo JennySiow Mee Lin

Manufacturing Services DivisionPui Boon Tiong EugeneKoh HenryYang Wen KueiLee Thiam Huat Daniel

Overseas SubsidiariesMulti-Chem (Suzhou) Co., Ltd

No. 369, Jingmao RoadNorth Area of Luofeng DistrictSuzhou Industrial ParkJiangsu Province, P.R.C 215000Tel : (86 512) 8818 8868Fax : (86 512) 8818 8869

Multi-Chem Electronics (Wuxi) Co., LtdNo. 31 Tuanjie RoadXishan Economic Development ZoneWuxi, Jiangsu Province, PRC 214101Tel : (86 510) 8260 498Fax : (86 510) 8260 428

Multi-Chem Laser Technology (Suzhou) Co., LtdNo. 5 Xing Han Street, Block F-Unit 02Suzhou Industrial ParkJiangsu Province, PRC 215021Tel : (86 512) 8818 8900Fax : (86 512) 8818 8898

Associated CompanyHawera Precision Tec Pte Ltd

11 Tuas Avenue 5Singapore 639337Tel : (65) 6863 1318Fax : (65) 6863 1618

Overseas Joint VentureMulti-Chem Precision Philippines Corporation

SEPZ, First Cavite Industrial EstateBRGY, Langkaan, DasmarinasCavite 4114, PhilippinesTel : (63 46) 4020 361Fax : (63 46) 4020 362



M.Tech OfficesM.Tech Products Pte Ltd

Phase Z.Ro, Technopreneur Park151 North Buona Vista Road#02-02 The ConnectionSingapore 139347Tel : (65) 6779 6755Fax : (65) 6779 6553

M.Tech Training Centre Pte Ltd138 Cecil Street #12-01ASingapore 069538Tel : (65) 6822 8708Fax : (65) 6822 8709

M-Security Technology Sdn. Bhd.Suite 17.03, Level 17Menara Haw Par Jalan Sultan Ismail50250 Kuala Lumpur, MalaysiaTel : (60 3) 2381 8588Fax : (60 3) 2381 8589

M-Solutions Technology (Thailand) Co., Ltd.5th Floor, Unit 3, M.Thai TowerAll Seasons Place, 87 Wireless RoadPhatumwan, Bangkok 10330, ThailandTel : (66 2) 654 1181Fax : (66 2) 654 1184

PT. M.Tech ProductsMenara Dea 10 Floor, Suite 1010Kawasan Mega KuninganJl. Mega Kuningan Barat Kav. E.4.3 No.1Jakarta 12950, IndonesiaTel : (62 21) 576 1011Fax : (62 21) 576 1012

M.Tech (Shanghai) Co., LtdRoom E, 4th Floor,Crystal Century TowerNo. 567 Weihai Road, ShanghaiP.R.C 200041Tel : (86 21) 6288 6068/79Fax : (86 21) 6288 6080

Beijing Representative Office2nd Floor, Office Tower 2Landmark TowersNo. 8 Dongsanhuan RoadNorth, Beijing, P.R.C 100004Main Line : (86) 10 6590 7991-2091Main Fax : (86) 10 6590 7991-2092

M-Security Technology Indochina Pte. Ltd.Hanoi Representative Office5/F, Unit 507 Tung Shing Square2 Ngo Quyen StreetHanoi, VietnamTel : (84 4) 9350 970Fax : (84 4) 9350 971

Ho Chi Minh City Representative Office4/F Suite 412Saigon Software Park123 Truong Dinh StreetDistrict 3, HCMC VietnamTel : (84 8) 290 5418Fax : (84 8) 290 5420



FINANCIAL CONTENTS

Directors’ Report 52

Statement by Directors 56

Auditors’ Report 57

Consolidated Income Statement 58

Balance Sheets 59

Consolidated Statement of Changes in Equity 61

Consolidated Cash Flow Statement 62

Notes to the Financial Statements 64

Additional Information for Shareholders 106

Analysis of Shareholdings 107

Notice of Annual General Meeting 109

Proxy Form 113



Directors’ ReportFor the financial year ended 31 December 2005

The directors present their report to the members together with the audited financial statements of the Group forthe financial year ended 31 December 2005 and the balance sheet of the Company as at 31 December 2005.

Directors

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

Foo Suan SaiHan Juat HoonToshiaki SuzukiWong Meng YengChew Thiam KengHo Boon Chuan Wilson (appointed 29 April 2005)Lim Keng Jin (appointed 29 April 2005)

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 arrangementwhose object is to enable the directors of the Company to acquire benefits by means of the acquisition of sharesin, or debentures of, the Company or any other body corporate.

Directors’ interests in shares or debentures

(a) According to the register of directors’ shareholdings, none of the directors holding office at the end of thefinancial year had any interest in the share capital or debentures of the Company or related corporations,except as follows:

Holdings registered in Holdings in which a directorname of director or nominee is deemed to have an interest

At 1.1.2005 At 1.1.2005or date of or date of

At appointment, At appointment,31.12.2005 if later 31.12.2005 if later

The Company(Ordinary shares of $0.05 each)Foo Suan Sai 139,623,500 122,338,500 97,899,500 86,104,500Han Juat Hoon 97,899,500 86,104,500 139,623,500 122,338,500Toshiaki Suzuki 500,000 500,000 - -Wong Meng Yeng 34,000 30,000 - -Chew Thiam Keng 34,000 30,000 - -Ho Boon Chuan Wilson 74,000 65,000 33,000 30,000



Directors’ interests in shares or debentures (continued)

Holdings registered in Holdings in which a directorname of director or nominee is deemed to have an interest

At 1.1.2005 At 1.1.2005or date of or date of

At appointment, At appointment,31.12.2005 if later 31.12.2005 if later

(Warrants to subscribe forordinary shares of $0.05 each)Foo Suan Sai - 14,415,000 - 11,481,000Han Juat Hoon - 11,481,000 - 14,415,000Wong Meng Yeng - 4,000 - -Chew Thiam Keng - 4,000 - -Ho Boon Chuan Wilson - 9,000 - 3,000

Mr Foo Suan Sai and Mdm Han Juat Hoon are husband and wife and they are each deemed to be interestedin the shares held by the other.

(b) Mr Foo Suan Sai and Mdm Han Juat Hoon, who by virtue of each of their interest of not less than 20% of theissued capital of the Company, is deemed to have an interest in the whole of the share capital of theCompany’s wholly-owned subsidiaries and in the shares held by the Group in the following subsidiaries thatare not wholly owned by the Group:

Number of sharesAt 31.12.2005 At 1.1.2005

M.Tech Products Pte Ltd - Ordinary shares of $1 each 800,000 800,000

M-Solutions Technology (Thailand) Co., Ltd - Ordinary shares of Baht100 each 25,000 25,000 - Preference shares of Baht100 each 25,000 25,000

M.Tech Training Centre Pte Ltd - Ordinary shares of $1 each 140,000 70,000

(c) The directors’ interests in the shares and convertible securities of the Company at 21 January 2006 were thesame at 31 December 2005.


Directors’ contractual benefits

Since the end of the previous financial year, no director has received or become entitled to receive a benefit byreason of a contract made by the Company or a related corporation with the director or with a firm of which heis a member or with a company in which he has a substantial financial interest, except as disclosed in thefinancial statements and in this report, and except that Mr Foo Suan Sai, Mdm Han Juat Hoon and Mr Ho BoonChuan Wilson have employment relationships with the Company and certain subsidiaries and have receivedremuneration in those capacities.

Share options

There were no options granted, including any to controlling shareholders or their associates, directors and employeesof the Company and its subsidiaries, during the financial year to subscribe for unissued shares of the Company orits subsidiaries.

No shares have been issued during the financial year by virtue of the exercise of options to take up unissuedshares of the Company or its subsidiaries.

There were no unissued shares of the Company or its subsidiaries under option at the end of the financial year.

Warrants

On 20 November 2000, the Company issued 44,000,000 warrants at $0.05 per warrant in conjunction with atransferable loan facility granted to the Company. Each warrant entitles the warrant holder to subscribe for onenew ordinary share in the Company at the exercise price of $0.15 per share on or before 26 November 2005.The new ordinary shares will rank pari passu in all respects with the then existing ordinary shares save for anydividends, rights, allotment or other distributions, the record date for which is on or before the relevant exercisedate of the warrants.

During the financial year, the Company issued 40,711,550 ordinary shares of $0.05 each at a premium of$0.15 upon the exercise of 40,711,550 warrants. 1,104,850 unexercised warrants lapsed upon the expiry ofthe warrants on 26 November 2005. There are no unissued shares of the Company under warrants at the endof the financial year.

Audit Committee

The Audit Committee of the Company is chaired by Mr Wong Meng Yeng, an independent director, and includesMr Chew Thiam Keng and Mr Lim Keng Jin, also independent directors, and Mr Toshiaki Suzuki, a non-executivedirector. The Audit Committee has met 4 times since the last Annual General Meeting and has reviewed thefollowing, where relevant, with the executive directors, the external auditors and internal auditors of the Company:

(a) the audit plans and results of the external auditors’ examination and evaluation of the Group’s systems ofinternal accounting controls;

(b) the Group’s financial and operating results and accounting policies;




Audit Committee (continued)

(c) the financial statements of the Company and the consolidated financial statements of the Group beforetheir submission to the directors of the Company and the external auditors’ report on those financialstatements;

(d) the quarterly, half-yearly and annual announcements as well as the related press releases on the results andfinancial position of the Company and the Group;

(e) the co-operation and assistance given by the management to the Group’s external auditors; and

(f) the re-appointment of the external auditors of the Group.

The Audit Committee has full access to and co-operation of the management and has been given the resourcesrequired for it to discharge its function properly. It also has full discretion to invite any director and executiveofficer to attend its meetings. The external auditors have unrestricted access to the Audit Committee.

The Audit Committee has nominated PricewaterhouseCoopers for re-appointment as auditors of the Company atthe forthcoming Annual General Meeting.

Auditors

The auditors, PricewaterhouseCoopers, have expressed their willingness to accept re-appointment.

On behalf of the directors

FOO SUAN SAI HAN JUAT HOONDirector Director

15 March 2006


Statement by Directors

In the opinion of the directors,

(a) the balance sheet of the Company and the consolidated financial statements of the Group as set out onpages 58 to 105 are drawn up so as to give a true and fair view of the state of affairs of the Company andof the Group at 31 December 2005 and of the results of the business, changes in equity and cash flows ofthe Group for the financial year then ended; and

(b) at the date of this statement, there are reasonable grounds to believe that the Company will be able topay its debts as and when they fall due.

On behalf of the directors

FOO SUAN SAI HAN JUAT HOONDirector Director

15 March 2006


Auditors’ ReportTo the members of Multi-Chem Limited

We have audited the accompanying financial statements of Multi-Chem Limited set out on pages 58 to 105 forthe financial year ended 31 December 2005, comprising the balance sheet of the Company and the consolidatedfinancial statements of the Group. 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 weplan and perform our audit to obtain reasonable assurance whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the accounting principles used and significant estimatesmade by the directors, as well as evaluating the overall financial statement presentation. We believe that ouraudit provides a reasonable basis for our opinion.

In our opinion,

(a) the accompanying balance sheet of the Company and the consolidated financial statements of the Groupare properly drawn up in accordance with the provisions of the Companies Act, Cap 50 (“the Act”) andSingapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of theCompany and of the Group as at 31 December 2005, and the results, changes in equity and cash flows ofthe Group for the financial year ended on that date; and

(b) the accounting and other records required by the Act to be kept by the Company and by those subsidiariesincorporated in Singapore of which we are the auditors have been properly kept in accordance with theprovisions of the Act.

PricewaterhouseCoopersCertified Public Accountants

Singapore15 March 2006


The Group2005 2004

Notes $’000 $’000

Sales 3 71,330 53,002Cost of sales (48,246) (35,392)

Gross profit 23,084 17,610

Other gains/(losses) - net 3 953 (265)

Expenses - Distribution and marketing (2,155) (1,318) - Administrative (7,727) (6,044) - Others (823) (324) - Finance 6 (322) (174)

Share of profit of associated company 27 247

Profit before income tax 13,037 9,732

Income tax expense 7 (1,584) (1,176)

Net profit 11,453 8,556

Attributable to:Equity holders of the Company 11,275 8,408Minority interests 178 148

11,453 8,556

Earnings per share 8 - Basic 3.16 cents 2.66 cents - Diluted 3.15 cents 2.50 cents

Consolidated Income StatementFor the financial year ended 31 December 2005

The accompany notes form an integral part of these Financial Statements.Auditors’ Report – Page 57.


Balance SheetsAs at 31 December 2005

The Group The Company2005 2004 2005 2004

Notes $’000 $’000 $’000 $’000

ASSETSCurrent assetsCash and cash equivalents 9 5,446 4,994 2,467 1,379Trade and other receivables 10 24,689 15,033 12,403 17,656Inventories 11 4,133 2,462 1,619 1,302Other current assets 12 646 540 155 257

34,914 23,029 16,644 20,594Non-current assetsAvailable-for-sale financial assets 13 - 70 - 70Club memberships 14 132 80 - -Investment in an associated company 15 2,084 2,082 1,050 1,050Investment in a joint venture 16 - - - -Investments in subsidiaries 17 - - 30,347 18,571Property, plant and equipment 18 48,019 40,664 16,445 17,197

50,235 42,896 47,842 36,888

Total assets 85,149 65,925 64,486 57,482

LIABILITIESCurrent liabilitiesTrade and other payables 19 11,870 6,883 4,870 6,822Current income tax liabilities 7 1,457 1,669 957 1,483Borrowings 20 10,081 5,016 9,250 4,199

23,408 13,568 15,077 12,504



Notes $’000 $’000 $’000 $’000

Non-current liabilitiesBorrowings 20 5,386 6,298 4,555 4,664Deferred income tax liabilities 23 732 626 725 626

6,118 6,924 5,280 5,290

Total liabilities 29,526 20,492 20,357 17,794

NET ASSETS 55,623 45,433 44,129 39,688

EQUITYCapital and reserves attributable to the Company’s equity holdersShare capital and share premium 24 35,604 27,461 35,604 27,461Other reserves 25 810 2,032 1,111 3,147Retained earnings 26 18,486 15,425 7,414 9,080

54,900 44,918 44,129 39,688Minority interests 723 515 - -

Total equity 55,623 45,433 44,129 39,688

Balance SheetsAs at 31 December 2005



Consolidated Statement of Changes in EquityFor the financial year ended 31 December 2005

Attributable to equity Minority Totalholders of the Company interest equity

Notes Sharecapital

and share Other Retainedpremium reserves earnings

$’000 $’000 $’000 $’000 $’000

Balance at 1 January 2005 27,461 2,032 15,425 515 45,433

Net gain recognised directly in equity - Currency translation differences 25 - 814 - - 814Net profit for the financial year - - 11,275 178 11,453Total recognised gains for the financial year - 814 11,275 178 12,267

Dividends 27 - - (8,214) - (8,214)Issue of shares by a subsidiary - - - 30 30Issuance of shares pursuant to exercise of warrants 24, 25 8,143 (2,036) - - 6,107

Balance at 31 December 2005 35,604 810 18,486 723 55,623

Balance at 1 January 2004 27,025 2,836 11,074 168 41,103

Net loss recognised directly in equity - Currency translation differences 25 - (695) - - (695)Net profit for the financial year - - 8,408 148 8,556Total recognised gains and losses for the financial year - (695) 8,408 148 7,861

Dividends relating to 2003 paid 27 - - (4,057) - (4,057)Issue of shares by a subsidiary - - - 30 30Disposal of interest in a subsidiary - - - 169 169Issuance of shares pursuant to exercise of warrants 24, 25 436 (109) - - 327

Balance at 31 December 2004 27,461 2,032 15,425 515 45,433

An analysis of the movements in each category within “other reserves” is presented in Note 25.



Consolidated Cash Flow StatementFor the financial year ended 31 December 2005

2005 2004Notes $’000 $’000

Cash flows from operating activitiesProfit after income tax 11,453 8,556Adjustments for: - Tax 1,584 1,176 - Depreciation 7,472 6,497 - Interest expense 322 174 - Interest income (65) (44) - (Gain)/loss on disposal of property, plant and equipment (10) 299 - Loss on disposal of interest in a subsidiary - 69 - Share of profit from associated company (27) (247)

Operating cash flow before working capital changes 20,729 16,480

Change in operating assets and liabilities - Inventories (1,671) (244) - Trade and other receivables (9,656) (2,161) - Other assets (106) 150 - Trade and other payables 4,987 2,207

Cash generated from operations 14,283 16,432Interest received 65 44Income tax paid (1,690) (1,089)

Net cash provided by operating activities 12,658 15,387

Cash flows from investing activitiesPurchases of property, plant and equipment (16,219) (16,905)Purchases of club memberships (52) (57)Proceeds from disposals of property, plant and equipment 2,236 1,570Proceeds from disposal of interest in a subsidiary - 100Proceeds from disposal of available-for-sale financial assets 70 -Dividends received from associated company 25 -

Net cash used in investing activities (13,940) (15,292)


2005 2004Notes $’000 $’000

Cash flows from financing activities(Repayments of)/proceeds from bills payable (318) 1,543Repayments of borrowings (789) (603)Proceeds from/(repayments of) lease liabilities 5,124 (995)Interest paid (186) (174)Dividends paid to shareholders (8,214) (4,057)Proceeds from issuance of ordinary shares upon exercise of warrants 6,107 327Proceeds from issuance of ordinary shares to minority shareholder of a subsidiary 30 30

Net cash provided by/(used in) financing activities 1,754 (3,929)

Net increase/(decrease) in cash and cash equivalents 472 (3,834)Cash and cash equivalents at beginning of the financial year 4,994 8,611Effects of exchange rate changes on cash and cash equivalents (20) 217

Cash and cash equivalents at end of the financial year 9 5,446 4,994

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

Consolidated Cash Flow StatementFor the financial year ended 31 December 2005



Notes to the Financial StatementsFor the financial year ended 31 December 2005

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

1. General

Multi-Chem Limited (the “Company”) is incorporated and domiciled in Singapore and is publicly tradedon the Singapore Exchange. The address of its registered office is 11 Tuas Avenue 5, Singapore 639337.

The principal activities of the Company are the provision of value added printed circuit board (“PCB”)manufacturing services, mainly in precision drilling, to PCB fabricators and the distribution of specialtychemicals and other PCB related products and equipment to PCB fabricators.

The principal activities of the subsidiaries are the provision of value added PCB manufacturing services,mainly in precision drilling, to PCB fabricators, the distribution of specialty chemicals and other PCB relatedproducts and equipment to PCB fabricators, distribution of hardware and software relating to internet andnetwork products, and provision of maintenance services for such products.

2. Significant accounting policies

2.1 Basis of preparation

The financial statements have been prepared in accordance with Singapore Financial Reporting Standards(“FRS”). The financial statements have been prepared under the historical cost convention.

The preparation of financial statements in conformity with FRS requires management to exercise itsjudgement in the process of applying the Group’s accounting policies. It also requires the use of accountingestimates and assumptions that affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements, and the reported amounts ofrevenues and expenses during the financial year. Although these estimates are based on management’sbest knowledge of current events and actions, actual results may ultimately differ from those estimates.

In 2005, the Group and the Company adopted the new or revised FRS and Interpretations to FRS (INT FRS)that are applicable in the current financial year. The 2004 financial statements have been amended asrequired, in accordance with the relevant transitional provisions in the respective FRS and INT FRS. Thefollowing are the FRS that are relevant to the Group:

FRS 1 (revised 2004) Presentation of Financial StatementsFRS 2 (revised 2004) InventoriesFRS 8 (revised 2004) Accounting Policies, Changes in Accounting Estimates and ErrorsFRS 10 (revised 2004) Events after the Balance Sheet DateFRS 16 (revised 2004) Property, Plant and EquipmentFRS 17 (revised 2004) LeasesFRS 21 (revised 2004) The Effects of Changes in Foreign Exchange RatesFRS 24 (revised 2004) Related Party Disclosures



2. Significant accounting policies (continued)

2.1 Basis of preparation (continued)

FRS 27 (revised 2004) Consolidated and Separate Financial StatementsFRS 28 (revised 2004) Investments in AssociatesFRS 31 (revised 2004) Interests in Joint VenturesFRS 32 (revised 2004) Financial Instruments: Disclosure and PresentationFRS 33 (revised 2004) Earnings per ShareFRS 36 (revised 2004) Impairment of AssetsFRS 39 (revised 2004) Financial Instruments: Recognition and MeasurementFRS 103 Business Combinations

The adoption of the above FRS did not result in substantial change to the Group’s and the Company’saccounting policies except as disclosed in Note 31.

2.2 Revenue recognition

Revenue for the Group comprises the fair value of the consideration received or receivable for the sale ofgoods and rendering of services, net of goods and services tax, rebates and discounts, and after eliminatingsales within the Group. Revenue is recognised as follows:

(a) Rendering of services

Revenue from the rendering of services is recognised over the period in which the services arerendered by reference to completion of the specific transaction assessed on the basis of the actualservice provided as a proportion of the total services to be performed.

(b) Sale of goods

Revenue from the sale of goods is recognised when a Group entity has delivered the products to thecustomer, the customer has accepted the products and collectibility of the related receivables isreasonably assured.

(c) Interest income

Interest income is recognised on a time-proportion basis using the effective interest method.

(d) Dividend income

Dividend income is recognised when the right to receive payment is established.




2.3 Group accounting

(a) Subsidiaries

Subsidiaries are entities over which the Group has power to govern the financial and operatingpolicies, generally accompanying a shareholding of more than one half of the voting rights. Theexistence and effect of potential voting rights that are currently exercisable or convertible areconsidered when assessing whether the Group controls another entity.

The purchase method of accounting is used to account for the acquisition of subsidiaries. The costof an acquisition is measured as the fair value of the assets given, equity instruments issued orliabilities incurred or assumed at the date of exchange, plus costs directly attributable to theacquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a businesscombination are measured initially at their fair values on the date of acquisition, irrespective of theextent of any minority interest.

Subsidiaries are consolidated from the date on which control is transferred to the Group to the dateon which that control ceases. In preparing the consolidated financial statements, intercompanytransactions, balances and unrealised gains on transactions between group companies are eliminated.Unrealised losses are also eliminated unless the transaction provides evidence of an impairment ofthe asset transferred. Where necessary, adjustments are made to the financial statements ofsubsidiaries to ensure consistency of accounting policies with those of the Group.

Minority interest is that part of the net results of operations and of net assets of a subsidiaryattributable to interests which are not owned directly or indirectly by the Group. It is measured atthe minorities’ share of the fair value of the subsidiaries’ identifiable assets and liabilities at thedate of acquisition by the Group and the minorities’ share of changes in equity since the date ofacquisition, except when the losses applicable to the minority in a subsidiary exceed the minorityinterest in the equity of that subsidiary. In such cases, the excess and further losses applicable tothe minority are attributed to the equity holders of the Company, unless the minority has a bindingobligation to, and is able to, make good the losses. When that subsidiary subsequently reportsprofits, the profits applicable to the minority are attributed to the equity holders of the Companyuntil the minority’s share of losses is fully recovered by the equity holders of the Company.

Please refer to Note 2.5 for the Company’s accounting policy on investments in subsidiaries.

(b) Associated companies

Associated companies are entities over which the Group has significant influence, but not control,generally accompanying a shareholding of between and including 20% and 50% of the votingrights. Investments in associated companies are accounted for in the consolidated financial statementsusing the equity method of accounting. Investments in associated companies in the consolidatedbalance sheet includes goodwill (net of accumulated amortisation) identified on acquisition, whereapplicable.




2.3 Group accounting (continued)

(b) Associated companies (continued)

Equity accounting involves recording investments in associated companies initially at cost, andrecognising the Group’s share of its associated companies’ post-acquisition results and its share ofpost-acquisition movements in reserves against the carrying amount of the investments. When theGroup’s share of losses in an associated company equals or exceeds its interest in the associatedcompany, including any other unsecured receivables, the Group does not recognise further losses,unless it has incurred obligations or made payments on behalf of the associated company.

In applying the equity method of accounting, unrealised gains on transactions between the Groupand its associated companies are eliminated to the extent of the Group’s interest in the associatedcompanies. Unrealised losses are also eliminated unless the transaction provides evidence of animpairment of the asset transferred. Where necessary, adjustments are made to the financialstatements of associated companies to ensure consistency of accounting policies with those of theGroup.

Please refer to Note 2.5 for the Company’s accounting policy on investments in associated companies.

(c) Joint ventures

Joint ventures are entities over which the Group has contractual arrangements to jointly share thecontrol with one or more parties. The Group’s interest in joint ventures is accounted for in theconsolidated financial statements using the equity method of accounting.

Please refer to Note 2.3(b) for the Group’s policy on the equity method of accounting and Note 2.5for the Company’s accounting policy on investments in joint ventures.

(d) Transaction costs

Costs directly attributable to an acquisition are included as part of the cost of acquisition.

2.4 Property, plant and equipment

(a) Measurement

Freehold land is stated at cost less accumulated impairment losses. All other property, plant andequipment are stated at cost less accumulated depreciation and accumulated impairment losses.

The cost of property, plant and equipment includes expenditure that is directly attributable to theacquisition of the items. Dismantlement, removal or restoration costs are included as part of thecost of property, plant and equipment if the obligation for dismantlement, removal or restoration isincurred as a consequence of acquiring or using the asset.




2.4 Property, plant and equipment (continued)

(b) Depreciation

Freehold land is not depreciated. Depreciation on other property, plant and equipment is calculatedusing the straight-line method to allocate their depreciable amounts over their estimated usefullives. The estimated useful lives are as follows:

Useful lives

Freehold buildings 50 yearsLeasehold properties Over the lease terms of 25 - 331/3 yearsOffice plant and equipment 1 - 10 yearsFactory plant and machinery 5 - 141/3 years

The residual values and useful lives of property, plant and equipment are reviewed, and adjusted asappropriate, at each balance sheet date.

(c) Subsequent expenditure

Subsequent expenditure relating to property, plant and equipment that has already been recognisedis added to the carrying amount of the asset when it is probable that future economic benefits, inexcess of the standard of performance of the asset before the expenditure was made, will flow tothe Group and the cost can be reliably measured. Other subsequent expenditure is recognised asan expense during the financial year in which it is incurred.

(d) Disposal

On disposal of an item of property, plant and equipment, the difference between the net disposalproceeds and its carrying amount is taken to the income statement.

2.5 Investments

Investments in subsidiaries, joint ventures and associated companies are stated at cost less accumulatedimpairment losses in the Company’s balance sheet. On disposal of investments in subsidiaries, jointventures and associated companies, the difference between net disposal proceeds and the carrying amountof the investment is taken to the income statement.



2.6 Impairment of assets

Property, plant and equipment and investments in subsidiaries, associated companies and joint venturesare reviewed for impairment whenever there is any indication that these assets may be impaired. If anysuch indication exists, the recoverable amount (i.e. the higher of the fair value less cost to sell and value inuse) of the asset is estimated to determine the amount of impairment loss.

For the purpose of impairment testing of these assets, recoverable amount is determined on an individualasset basis unless the asset does not generate cash flows that are largely independent of those from otherassets. If this is the case, recoverable amount is determined for the cash-generating unit (CGU) to whichthe asset belongs to.

If the recoverable amount of the asset (or CGU) is estimated to be less than its carrying amount, thecarrying amount of the asset (or CGU) is reduced to its recoverable amount. The impairment loss is recognisedin the income statement.

An impairment loss for an asset other than goodwill is reversed if, and only if, there has been a change inthe estimates used to determine the assets’ recoverable amount since the last impairment loss wasrecognised. The carrying amount of an asset is increased to its revised recoverable amount, provided thatthis amount does not exceed the carrying amount that would have been determined (net of depreciation)had no impairment loss been recognised for the asset in prior years. A reversal of impairment loss for anasset is recognised in the income statement.

2.7 Trade receivables

Trade receivables are recognised initially at fair value and subsequently carried at amortised cost using theeffective interest method, less allowance for impairment. An allowance for impairment of trade receivablesis established when there is objective evidence that the Group will not be able to collect all amounts dueaccording to the original terms of the receivables. The amount of the allowance is the difference betweenthe asset’s carrying amount and the present value of estimated future cash flows, discounted at theoriginal effective interest rate. The amount of the allowance is recognised in the income statement.

2.8 Borrowings

(a) Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings aresubsequently stated at amortised cost. Any difference between the proceeds (net of transactioncosts) and the redemption value is taken to the income statement over the period of the borrowingsusing the effective interest method.

Borrowings which are due to be settled within twelve months after the balance sheet date areincluded in current borrowings in the balance sheet. Other borrowings due to be settled more thantwelve months after the balance sheet date are included in non-current borrowings in the balancesheet.





2.8 Borrowings (continued)

(b) Convertible notes

When convertible notes are issued, the fair value of the liability portion is determined using amarket interest rate for an equivalent non-convertible note; this amount is recorded as a non-current liability on the amortised cost basis until it extinguished on conversion or maturity of thenotes. The remainder of the proceeds is allocated to the conversion option, which is recognised andincluded in shareholders’ equity. The carrying amount of the conversion option is not changed insubsequent periods.

When a conversion option is exercised, the carrying amount of the conversion option will be takento share capital and share premium. When the conversion option is allowed to lapse, the carryingamount of the conversion option will be taken to retained earnings.

2.9 Trade payables

Trade payables are initially measured at fair value, and subsequently measured at amortised cost, usingthe effective interest method.

2.10 Leases

When a group company is the lessee:

Finance leases

Leases of assets in which the Group assumes substantially the risks and rewards of ownership are classifiedas finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair valueof the leased property and the present value of the minimum lease payments. Each lease payment isallocated between the liability and finance charges so as to achieve a constant rate on the finance balanceoutstanding. The corresponding rental obligations, net of finance charges, are included in borrowings. Theinterest element of the finance cost is taken to the income statement over the lease period so as toproduce a constant periodic rate of interest on the remaining balance of the liability for each period.

Operating leases

Leases of assets in which a significant portion of the risks and rewards of ownership are retained by thelessor are classified as operating leases. Payments made under operating leases (net of any incentivesreceived from the lessor) are taken to the income statement on a straight-line basis over the period of thelease.

When an operating lease is terminated before the lease period has expired, any payment required tobe made to the lessor by way of penalty is recognised as an expense in the period in which terminationtakes place.




2.11 Inventories

Inventories are measured at the lower of cost and net realisable value. Cost is determined on a first-in,first-out basis. The cost of inventories comprises all costs of purchase, costs of conversion and other directcosts. Net realisable value is the estimated selling price in the ordinary course of business, less the cost ofselling expenses.

2.12 Deferred income taxes

Deferred income tax is provided in full, using the liability method, on temporary differences arising betweenthe tax bases of assets and liabilities and their carrying amounts in the financial statements. However, ifthe deferred income tax arises from initial recognition of an asset or liability in a transaction other than abusiness combination that at the time of the transaction affects neither accounting nor taxable profit orloss, it is not accounted for. Deferred income tax is determined using tax rates (and laws) that have beenenacted or substantially enacted by the balance sheet date and are expected to apply when the relateddeferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will beavailable against which the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associatedcompanies and joint ventures, except where the timing of the reversal of the temporary difference can becontrolled and it is probable that the temporary difference will not reverse in the foreseeable future.

2.13 Provisions for other liabilities and charges

Provisions for other liabilities and charges are recognised when the Group has a legal or constructiveobligation as a result of past events, it is more likely than not that an outflow of resources will be requiredto settle the obligation and a reliable estimate of the amount can be made.

Provisions for asset dismantlement, removal or restoration, restructuring and legal claims are recognisedwhen the Group has a legal or constructive obligation as a result of past events, it is more likely than notthat an outflow of resources will be required to settle the obligation and a reliable estimate of the amountcan be made. Restructuring provisions comprise lease termination penalties and employee terminationpayments. Provisions are not recognised for future operating losses.

The Group recognises the estimated costs of dismantlement, removal or restoration items of property,plant and equipment arising from the acquisition or use of assets. This provision is estimated based on thebest estimate of the expenditure required to settle the obligation, taking into consideration time value.




2.14 Employee benefits

(a) Defined contribution plans

Defined contribution plans are post-employment benefit plans under which the Group pays fixedcontributions into separate entities such as Central Provident Fund, and will have no legal orconstructive obligation to pay further contributions if any of the funds does not hold sufficientassets to pay all employee benefits relating to employee service in the current and preceding financialyears. The Group’s contribution to defined contribution plans are recognised in the financial year towhich they relate.

(b) Employee leave entitlement

Employee entitlements to annual leave are recognised when they accrue to employees. A provisionis made for the estimated liability for annual leave as a result of services rendered by employees upto the balance sheet date.

2.15 Currency translation

(a) Functional and presentation currency

Items included in the financial statements of each entity in the Group are measured using thecurrency of the primary economic environment in which the entity operates (‘the functional currency’).The consolidated financial statements are presented in Singapore Dollars, which is the Company’sfunctional and presentation currency.

(b) Transactions and balances

Transactions in a currency other than the functional currency (“foreign currency”) are translatedinto the functional currency using the exchange rates prevailing at the dates of the transactions.Currency translation gains and losses resulting from the settlement of such transactions and fromthe translation at year-end exchange rates of monetary assets and liabilities denominated in foreigncurrencies are recognised in the income statement, except for currency translation differences onnet investment in foreign operations in the consolidated financial statements.

(c) Translation of Group entities’ financial statements

The results and financial position of all the group entities (none of which has the currency of ahyperinflationary economy) that have a functional currency different from the presentation currencyare translated into the presentation currency as follows:

(i) Assets and liabilities for each balance sheet presented are translated at the closing rate atthe date of the balance sheet;




2.15 Currency translation (continued)

(c) Translation of Group entities’ financial statements (continued)

(ii) Income and expenses for each income statement are translated at average exchange rate(unless this average is not a reasonable approximation of the cumulative effect of the ratesprevailing on the transaction dates, in which case income and expenses are translated usingthe exchange rates at the dates of the transactions); and

(iii) All resulting exchange differences are taken to the foreign currency translation reserve withinequity.

(d) Consolidation adjustments

On consolidation, currency translation differences arising from the net investment in foreign operationsare taken to the foreign currency translation reserve. When a foreign operation is disposed of, suchcurrency translation differences are recognised in the income statement as part of the gain or losson disposal.

2.16 Segment reporting

A business segment is a group of assets and operations engaged in providing products or services that aresubject to risks and returns that are different from those of other business segments. A geographicalsegment is engaged in providing products or services within a particular economic environment that issubject to risks and returns that are different from those of segments operating in other economicenvironments.

2.17 Cash and cash equivalents

Cash and cash equivalents include cash at bank and on hand and deposits with financial institutions.

2.18 Share capital

Ordinary shares are classified as equity. Where share capital recognised as equity is repurchased, the sharecapital is reduced by the par value of the shares repurchased and transferred to a capital redemptionreserve. The costs associated with the repurchase are set off against retained earnings.

2.19 Warrants

The proceeds received from the subscription price for the issue of warrants are credited to a capital reserve.As and when the warrants are exercised, the subscription price for the warrants exercised will be transferredfrom capital reserve to share premium. Upon the expiry of the warrants, the balance of the capital reserverepresenting the subscription price for the warrants not exercised will remain as reserves of the Company.

2.20 Dividends

Interim dividends are recorded in the financial year in which they are declared payable. Final dividends arerecorded in the financial year in which the dividends are approved by the shareholders.



3. Revenue and other gains/(losses) - net

The Group2005 2004

$’000 $’000

Rendering of services 43,068 33,730Sales of goods 28,262 19,272

Total sales 71,330 53,002

Other gains/(losses) - net: - Foreign currency gain/(loss) - net 365 (231) - Gain/(loss) on disposal of property, plant and equipment 10 (299) - Interest income - banks 65 39 - Interest income - associated company - 5 - Loss on disposal of interest in subsidiary - (69) - Scrap sales 483 188 - Others 30 102Total other gains/(losses) - net 953 (265)

72,283 52,737

4. Expenses by nature

The Group2005 2004

$’000 $’000

Auditors’ remuneration paid/payable to: - Auditors of the Company 75 70 - Other auditors 22 12Changes in inventories 1,671 244Depreciation of property, plant and equipment (Note 18) 7,472 6,497Employee benefits (Note 5) 9,377 7,361Inventories purchased 32,123 22,713Rental on operating leases 865 560Utilities expense 2,349 1,850Other expenses 4,997 3,771Total cost of sales, distribution and marketing costs, administrative and other operating expenses 58,951 43,078



5. Employee benefits

The Group2005 2004

$’000 $’000

Wages and salaries 8,875 6,599Employer’s contribution to defined contribution plans including Central Provident Fund 502 481Other benefits - 281

9,377 7,361

6. Finance expense

The Group2005 2004

$’000 $’000

Interest expense: - Bank borrowings 103 86 - Convertible notes 136 - - Finance lease liabilities 83 88

322 174

7. Income taxes

(a) Income tax expense

The Group2005 2004

$’000 $’000

Tax expense attributable to profit is made up of:

Current income tax - Singapore 1,050 1,382 - Foreign 428 298

1,478 1,680Deferred income tax 106 (504)

1,584 1,176



7. Income taxes (continued)

(a) Income tax expense (continued)

The tax expense on profit differs from the amount that would arise using the Singapore standardrate of income tax due to the following:

The Group2005 2004

$’000 $’000

Profit before income tax 13,037 9,732

Tax calculated at a tax rate of 20% (2004: 20%) 2,607 1,945Effects of: - Changes in tax rate - (99) - Different tax rates in other countries (270) (201) - Overseas statutory income exemption (1) (764) (405) - Singapore step income exemption (39) (32) - Expenses not deductible for tax purposes 137 93 - Income not subject to tax (132) (148) - Tax benefits not recognised 45 23

Tax charge 1,584 1,176

(1) Pursuant to the Chinese income tax regulations, the subsidiaries in the People’s Republic ofChina (“PRC”) are entitled to exemptions from PRC income tax for the first two years commencingfrom their first profit making year followed by 50% reduction in their income tax for the nextthree years. A profit-making year is defined as the first year for which an enterprise would needto pay income tax after absorption of any loss carried forward.

Deferred income tax assets are recognised for tax losses and deductible temporary differences tothe extent that realisation of the related tax benefits through future taxable profits are probable.The Group has unrecognised tax losses of $243,000 (2004: $73,000) and deductible temporarydifferences of $97,000 (2004: $42,000) which can be carried forward and used to offset againstfuture taxable income subject to meeting certain statutory requirements by those companies withunrecognised tax losses in their respective countries of incorporation.



7. Income taxes (continued)

(a) Income tax expense (continued)

The Group is subject to income taxes in numerous jurisdictions. Significant judgment is required indetermining the capital allowances and deductibility of certain expenses during the estimation ofthe provision for income taxes. There are many transactions and calculations for which the ultimatetax determination is uncertain during the ordinary course of business. The Group recognises liabilitiesfor anticipated tax audit issues based on estimates of whether additional taxes will be due. Wherethe final tax outcome of these matters is different from the amounts that were initially recorded,such differences will impact the income tax and deferred income tax provisions in the period inwhich such determination is made.

(b) Movements in current income tax liabilities


$’000 $’000 $’000 $’000

Balance at beginning of financial year 1,669 1,078 1,483 937Income tax paid (1,690) (1,089) (1,248) (624)Tax expense on profit for the current financial year 1,478 1,680 722 1,170

Balance at end of financial year 1,457 1,669 957 1,483

8. Earnings per share

(a) Basic earnings per share

Basic earnings per share is calculated by dividing the net profit attributable to equity holders of theCompany by the weighted average number of ordinary shares outstanding during the financial year.

The Group2005 2004

Net profit attributable to members of Multi-Chem Limited ($’000) 11,275 8,408

Weighted average number of ordinary shares in issue for basic earnings per share (’000) 356,381 315,670

Basic earnings per share (cents per share) 3.16 2.66



8. Earnings per share (continued)

(b) Diluted earnings per share

For the purpose of calculating diluted earnings per share, profit attributable to members of theCompany and the weighted average number of ordinary shares outstanding are adjusted for theeffects of all dilutive potential ordinary shares. The Company has two categories of dilutive potentialordinary shares: convertible notes and warrants.

The convertible notes are assumed to have been converted into ordinary shares. For the warrants, acalculation is done to determine the number of shares that could have been acquired at fair value(determined as the average annual market share price of the Company’s shares) based on themonetary value of the subscription rights attached to outstanding warrants. The number of sharescalculated as above is compared with the number of shares that would have been issued assumingthe exercise of the warrants. The differences are added to the denominator as an issuance of ordinaryshares for no consideration. No adjustment is made to earnings (numerator).

Diluted earnings per share attributable to equity holders of the Company is calculated based on thefollowing data.

The Group2005 2004

Net profit attributable to members of Multi-Chem Limited and used to determine diluted earnings per share ($’000) 11,275 8,408

Weighted average number of ordinary shares in issue for basic earnings per share (’000) 356,381 315,670Adjustments for - Assumed conversion of convertible notes 1,438 5,401 - Warrants - 14,750

357,819 335,821

Diluted earnings per share (cents per share) 3.15 2.50



9. Cash and cash equivalents


$’000 $’000 $’000 $’000

Cash at bank and on hand 4,032 3,876 1,053 1,379Short-term bank deposits 1,414 1,118 1,414 -

5,446 4,994 2,467 1,379

The carrying amounts of cash and cash equivalents approximate their fair value.

Cash and cash equivalents are denominated in the following currencies:


$’000 $’000 $’000 $’000

Singapore Dollar 1,163 800 447 209United States Dollar 2,832 1,569 1,989 1,107Chinese Renminbi 1,091 1,074 - -Malaysian Ringgit 202 1,228 - -Others 158 323 31 63

5,446 4,994 2,467 1,379

Short-term bank deposits have an average maturity of 1 month (2004: 1 month) from the end of thefinancial year with the following weighted average effective interest rates per annum:


Singapore Dollar 2.69% - 2.69% -United States Dollar 4.18% - 4.18% -Malaysian Ringgit - 2.8% - -



10. Trade and other receivables


$’000 $’000 $’000 $’000

Finance lease receivables: - Associated company - 59 - 59

Trade receivables: - Third parties 23,885 14,475 7,896 5,996 - Subsidiaries - - - 45 - Associated company 7 56 7 56

23,892 14,531 7,903 6,097Less: Provision for impairment of receivables - third parties (36) (168) - (17)

Trade receivables - net 23,856 14,363 7,903 6,080

Non-trade receivables: - Third parties 823 574 4 376 - Subsidiaries - - 5,236 11,854 - Associated company 10 37 10 37

833 611 5,250 12,267Less: Provision for impairment of receivables - subsidiary - - (750) (750)

Other receivables - net 833 611 4,500 11,517

24,689 15,033 12,403 17,656

The non-trade receivables from subsidiaries and associated company are unsecured, interest-free and arerepayable on demand.

The carrying amounts of current trade and other receivables approximate their fair value.

Trade and other receivables are denominated in the following currencies:


$’000 $’000 $’000 $’000

Singapore Dollar 9,301 5,799 6,433 7,408United States Dollar 3,025 3,121 5,948 10,241Chinese Renminbi 9,552 4,457 22 -Others 2,811 1,656 - 7

24,689 15,033 12,403 17,656



11. Inventories


$’000 $’000 $’000 $’000

Finished goods 4,133 2,462 1,619 1,302

The cost of inventories recognised as expense and included in “cost of sales” amounted to $33,794,000(2004: $22,957,000).

12. Other current assets


$’000 $’000 $’000 $’000

Deposits 314 380 129 217Prepayments 332 160 26 40

646 540 155 257

The carrying amounts of deposits approximate their fair value.

13. Available-for-sale financial assets

The Group andThe Company

2005 2004$’000 $’000

Marketable securities at fair value - 70

Available for sale financial assets relate to marketable securities (unit trusts) which were disposed ofduring the financial year.



14. Club memberships

The Group2005 2004

$’000 $’000

Club memberships, at cost 132 80

Club memberships comprise memberships to clubs in the People’s Republic of China (“PRC”). There is noactive market for the club memberships in PRC, as such, it is not practicable to determine with sufficientreliability the fair value of the club memberships. However, the directors do not anticipate that the carryingamount of club memberships will be significantly in excess of its fair value.

15. Investment in an associated company


$’000 $’000 $’000 $’000

Equity investment at cost 1,050 1,050

Balance at beginning of financial year 2,082 1,835Share of profits 27 247Dividends received, net of tax (25) -

Balance at end of financial year 2,084 2,082

The summarised financial information of the associated company are as follows:

2005 2004$’000 $’000

Assets 7,158 8,678Liabilities 1,204 2,729Revenue 9,875 13,181Net profit for the financial year 77 701



15. Investment in an associated company (continued)

Details of the associated company are as follows:

Country ofbusiness/ Effective

Name Principal activities incorporation equity holding2005 2004

% %

Hawera Precision Tec Supply of precision drills Singapore 35 35 Pte Ltd and provision of regrinding

services

The associated company is audited by PricewaterhouseCoopers, Singapore.

16. Investment in a joint venture


$’000 $’000 $’000 $’000

Equity investment at cost 1,161 1,161Less: Accumulated impairment loss (1,161) (1,161)

- -

Balance at beginning and end of financial year - -

At 31 December 2005, the joint venture is inactive and does not have any assets or liabilities. Details ofthe joint venture are as follows:



% %

Multi-Chem Precision Under members’ voluntary Philippines 50 50 Philippines liquidation Corporation

The joint venture is not required to be audited as it is under members’ voluntary liquidation.



17. Investments in subsidiaries

The Company2005 2004

$’000 $’000

Equity investments at cost 30,585 18,809Less: Accumulated impairment losses (238) (238)

30,347 18,571

Details of the subsidiaries are as follows:



% %

Held by the Company

Multi-Chem (Suzhou) Provision of value added PCB People’s 100 100 Co., Ltd (c) manufacturing services, mainly Republic of

in precision drilling, to PCB China fabricators

Multi-Chem Electronics Provision of value added PCB People’s 100 100 (Wuxi) Co., Ltd (d) manufacturing services, mainly Republic of

in precision drilling, to PCB China fabricators

M.Tech Products Distribution of hardware Singapore 80 80 Pte Ltd (a) and software relating to

internet and network products, and provision of maintenance services for such products

M-Solutions Distribution of hardware Thailand 49 49 Technology and software relating to (Thailand) internet and network Co., Ltd (e), (f) products, and provision

of maintenance services for such products



17. Investments in subsidiaries (continued)



% %

M-Security Technology Distribution of information Malaysia 100 100 Sdn. Bhd. (b) technology products and

related services

SecureOneAsia Provision of internet Singapore 100 100 Pte. Ltd (a) security services and

the operation and provision of internet and telecommunication services

M. Security Technology Distribution of hardware Singapore 100 100 Indochina Pte. Ltd (a) and software relating to

internet and network products, and provision of maintenance services for such products

M-Precision Tech Provision of value added Malaysia 100 100 Sdn. Bhd. (b) PCB manufacturing

services, mainly in precision drilling, to PCB fabricators

Multi-Chem Laser Provision of value added PCB People’s 100 100 Technology (Suzhou) manufacturing services, mainly Republic of Co., Ltd (c) in precision drilling, to PCB China

fabricators

M.Tech (Shanghai) Distribution of hardware People’s 100 100 Co., Ltd (g) and software relating to Republic of

internet and network China products, and provision of maintenance services for such products



17. Investments in subsidiaries (continued)



% %

PT. M.Tech. Products (h) Distribution of hardware Indonesia 99 - and software relating to internet and network products, and provision of maintenance services for such products

Held by M.Tech Products Pte Ltd

M.Tech Training Centre Provision of information Singapore 56 56 Pte Ltd (a) communication and information

technology training programmes

(a) Audited by PricewaterhouseCoopers, Singapore(b) Audited by Horwath Wong & Co., Malaysia(c) Audited by Jiangsu Huaxing Certified Public Accountants Co., Ltd, People’s Republic of China(d) Audited by Jiangsu GongZheng Certified Public Accountants Co., Ltd, People’s Republic of China(e) Audited by Sum Hak-Ngan A.M.C. Co. Ltd, Thailand(f) Deemed to be a subsidiary as the Company controls the voting rights and the financial and operating

policies of the entity(g) Audited by Willsonn Partners, People’s Republic of China(h) Incorporated on 17 February 2005, audited by Rama Wendra Registered Public Accountant, Indonesia



18. Property, plant and equipment

Office plant FactoryFreehold Freehold Leasehold and plant and

land buildings properties equipment equipment Total$’000 $’000 $’000 $’000 $’000 $’000

The GroupCostAt 1 January 2005 - - 4,292 2,732 55,107 62,131Currency translation differences - - - 11 960 971Additions - - - 314 15,905 16,219Disposals - - - (36) (3,751) (3,787)

At 31 December 2005 - - 4,292 3,021 68,221 75,534

Accumulated depreciationAt 1 January 2005 - - 801 1,197 19,469 21,467Currency translation differences - - - 2 135 137Depreciation charge - - 175 443 6,854 7,472Disposals - - - (28) (1,533) (1,561)

At 31 December 2005 - - 976 1,614 24,925 27,515

Net book valueAt 31 December 2005 - - 3,316 1,407 43,296 48,019

CostAt 1 January 2004 416 1,157 4,292 2,403 40,109 48,377Currency translation differences (17) (46) - (8) (920) (991)Additions - - - 568 16,337 16,905Disposals (399) (1,111) - (231) (419) (2,160)

At 31 December 2004 - - 4,292 2,732 55,107 62,131

Accumulated depreciationAt 1 January 2004 - 59 626 951 13,682 15,318Currency translation differences - (2) - (1) (54) (57)Depreciation charge - - 175 375 5,947 6,497Disposals - (57) - (128) (106) (291)

At 31 December 2004 - - 801 1,197 19,469 21,467

Net book valueAt 31 December 2004 - - 3,491 1,535 35,638 40,664



18. Property, plant and equipment (continued)

Office FactoryLeasehold plant and plant andproperties equipment equipment Total

$’000 $’000 $’000 $’000

The CompanyCostAt 1 January 2005 4,291 1,634 20,316 26,241Additions - 27 7,234 7,261Disposals - (23) (4,856) (4,879)

At 31 December 2005 4,291 1,638 22,694 28,623

Accumulated depreciationAt 1 January 2005 800 942 7,302 9,044Depreciation charge 175 247 3,990 4,412Disposals - (23) (1,255) (1,278)

At 31 December 2005 975 1,166 10,037 12,178

Net book valueAt 31 December 2005 3,316 472 12,657 16,445

CostAt 1 January 2004 4,291 1,458 17,539 23,288Additions - 329 13,228 13,557Disposals - (153) (10,451) (10,604)

At 31 December 2004 4,291 1,634 20,316 26,241

Accumulated depreciationAt 1 January 2004 625 779 10,498 11,902Depreciation charge 175 268 3,629 4,072Disposals - (105) (6,825) (6,930)

At 31 December 2004 800 942 7,302 9,044

Net book valueAt 31 December 2004 3,491 692 13,014 17,197

The carrying amount of office plant and equipment and factory plant and equipment in the consolidatedfinancial statements held under finance leases at 31 December 2005 amounted to $246,000(2004: $360,000) and $1,115,000 (2004: $1,487,000) respectively.



19. Trade and other payables


$’000 $’000 $’000 $’000

Trade payables: - Third parties 7,321 3,158 2,252 1,031 - Associated company 123 64 123 64

7,444 3,222 2,375 1,095

Non-trade payables: - Third parties 578 1,131 189 809 - Director 67 66 - - - Subsidiaries - - 736 3,672 - Associated company 10 108 10 108

655 1,305 935 4,589

Customers’ advances received 172 265 - -Other accrual for operating expenses 3,599 2,091 1,560 1,138

11,870 6,883 4,870 6,822

The non-trade payables to director, subsidiaries and associated company are unsecured, interest-free andare repayable on demand.

The carrying amounts of trade and other payables approximate their fair value.

Trade and other payables are denominated in the following currencies:


$’000 $’000 $’000 $’000

Singapore Dollar 3,463 2,626 2,354 1,895United States Dollar 5,092 2,577 2,331 4,839Chinese Renminbi 2,761 1,301 - -Others 554 379 185 88

11,870 6,883 4,870 6,822



20. Borrowings


$’000 $’000 $’000 $’000

CurrentBills payable to banks (unsecured) 9,022 3,898 9,022 3,898Bank borrowings 831 817 - -Finance lease liabilities (Note 22) 228 301 228 301

10,081 5,016 9,250 4,199

Non-currentBank borrowings 831 1,634 - -Convertible notes (Note 21) 3,319 3,183 3,319 3,183Finance lease liabilities (Note 22) 1,236 1,481 1,236 1,481

5,386 6,298 4,555 4,664

Total borrowings 15,467 11,314 13,805 8,863

(a) Corporate guarantee from Multi-Chem Limited

Total borrowings include bank borrowings of $1,662,000 (2004: $2,451,000) of a subsidiary securedby a corporate guarantee from the Company.

(b) Secured finance lease liabilities

Finance lease liabilities of the Group are secured by the rights to the leased motor vehicles andfactory plant and equipment [Note 18(a)], which would revert to the lessor in the event of defaultby the Group.

(c) Maturity of borrowings

The current borrowings have an average maturity of 4 months (2004: 7 months) from the end of thefinancial year. The non-current borrowings [excluding finance lease liabilities (Note 22)] have thefollowing maturity:


$’000 $’000 $’000 $’000

Later than one year but not later than five years 4,150 4,817 3,319 3,183



20. Borrowings (continued)

(d) Currency risk

The carrying amounts of total borrowings are denominated in the following currencies:


$’000 $’000 $’000 $’000

Singapore Dollar 1,464 1,782 1,464 1,782United States Dollar 14,003 9,532 12,341 7,081

15,467 11,314 13,805 8,863

(e) Interest rate risks

The weighted average effective per annum interest rates of total borrowings at the balance sheetdate are as follows:

2005 2004S$ US$ S$ US$

The GroupBank borrowings - 6.1% - 4.6%Convertible notes - 1.7% - 1.7%Finance lease liabilities 4.5% - 4.5% -

The CompanyConvertible notes - 1.7% - 1.7%Finance lease liabilities 4.5% - 4.5% -

(f) Carrying amounts and fair values

The carrying amounts of current borrowings approximate their fair value. The fair values of non-current borrowings are as follows:


$’000 $’000 $’000 $’000

Bank borrowings 831 1,634 - -Convertible notes 3,105 2,905 3,105 2,905Finance lease liabilities 1,236 1,481 1,236 1,481

The fair values are determined from the discounted cash flows analysis, using a discount rate basedupon the borrowing rate which the directors expect would be available to the Group at the balancesheet date.



21. Convertible notes

On 16 May 2003, the Company issued convertible notes of nominal value US$2 million to a fund managedby an independent third party fund manager. The notes are repayable on 31 May 2007 at their nominalvalue of US$2 million unless converted into the Company’s ordinary shares at the holder’s option at theexercise price of $0.20 during the exercise period from 1 July 2006 to 31 May 2007.

The fair value of the liability component, included in long-term borrowings, was calculated using a marketinterest rate for an equivalent non-convertible note at date of inception of convertible notes and subsequentlycarried at amortised cost until it extinguished on conversion or maturity of the notes The residual amount,representing the value of the equity conversion component, is included in shareholders’ equity in otherreserves (Note 25).

The convertible notes are recognised on the balance sheet as follows:


2005 2004$’000 $’000

Liability component at the end of financial year (Note 20) 3,319 3,183Equity conversion component (Note 25) 230 230

22. Finance lease liabilities


2005 2004$’000 $’000

Minimum lease payments due:- Not later than one year 290 379- Later than one year but not later than five years 1,090 1,107- Later than five years 295 590

1,675 2,076Less: Future finance charges (211) (294)

Present value of finance lease liabilities 1,464 1,782



22. Finance lease liabilities (continued)

The present value of finance lease liabilities may be analysed as follows:


2005 2004$’000 $’000

Not later than one year (Note 20) 228 301Later than one year (Note 20): - Later than one year but not later than five years 948 920 - Later than five years 288 561

1,236 1,481

1,464 1,782

23. Deferred income taxes

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set offcurrent income tax assets against current income tax liabilities and when the deferred income taxes relateto the same fiscal authority. The amounts, determined after appropriate offsetting, are shown on thebalance sheets as follow:


$’000 $’000 $’000 $’000

Deferred income tax liabilities - To be settled within 12 months 112 232 105 232 - To be settled after more than 12 months 620 394 620 394

732 626 725 626



23. Deferred income taxes (continued)

The movement in the deferred income tax account (comprising deferred income tax liabilities arising fromaccelerated tax depreciation) is as follows:


$’000 $’000 $’000 $’000

Balance at beginning of financial year 626 1,130 626 1,100Effect of changes in tax rate - (99) - (99)Charged/(credited) to incomestatement 106 (405) 99 (375)

Balance at end of financial year 732 626 725 626

24. Share capital and share premium

(a) Authorised share capital

The total authorised number of ordinary shares is 600 million shares (2004: 600 million shares)with a par value of $0.05 per share (2004: $0.05 per share).

(b) Issued and fully paid share capital

Total sharecapital and

Issued Share Share shareshares capital premium premium

’000 $’000 $’000 $’000

2005Balance at beginning of financial year 315,670 15,783 11,678 27,461Proceeds from share issue 40,711 2,036 6,107 8,143

Balance at end of financial year 356,381 17,819 17,785 35,604



24. Share capital and share premium (continued)

Total sharecapital and

Issued Share Share shareshares capital premium premium

’000 $’000 $’000 $’000

2004Balance at beginning of financial year 313,488 15,674 11,351 27,025Proceeds from share issue 2,182 109 327 436

Balance at end of financial year 315,670 15,783 11,678 27,461

The Company issued 40,711,550 (2004: 2,182,100) ordinary shares of $0.05 each pursuant to the exerciseof 40,711,550 (2004: 2,182,100) warrants by warrant holders to subscribe for ordinary shares of theCompany at a price of $0.20 each (see Note (c) below). The newly issued shares rank pari passu in allrespects with the previously issued shares.

(c) Warrants

On 20 November 2000, the Company issued 44,000,000 warrants at $0.05 per warrant in conjunctionwith a transferable loan facility granted to the Company. Each warrant entitles the warrant holderto subscribe for one new ordinary share in the Company at the exercise price of $0.15 per share onor before 26 November 2005. The new ordinary shares will rank pari passu in all respects with thethen existing ordinary shares save for any dividends, rights, allotment or other distributions, therecord date for which is on or before the relevant exercise date of the warrants.

During the financial year, the Company issued 40,711,550 (2004: 2,182,100) ordinary shares of$0.05 each at a premium of $0.15 upon the exercise of 40,711,550 (2004: 2,182,100) warrants.1,104,850 unexercised warrants lapsed upon the expiry of the warrants on 26 November 2005.

There are no unissued ordinary shares of the Company under warrants at the end of the financialyear.



25. Other reserves


$’000 $’000 $’000 $’000

(a) Composition

Capital redemption reserve 826 826 826 826Foreign currency translation reserve (301) (1,115) - -Capital reserve 55 2,091 55 2,091Equity component of convertible notes 230 230 230 230

810 2,032 1,111 3,147

b) Movements

Capital redemption reserveBalance at beginning and end of financial year 826 826 826 826

Foreign currency translation reserveBalance at beginning of financial year (1,115) (420) - -Net currency translation differences on financial statements of foreign subsidiaries 814 (695) - -

Balance at end of financial year (301) (1,115) - -

Capital reserveBalance at beginning of financial year 2,091 2,200 2,091 2,200Transfer to share capital and share premium pursuant to exercise of warrants (2,036) (109) (2,036) (109)

Balance at end of financial year 55 2,091 55 2,091

Equity component of convertible notesBalance at beginning and end of financial year 230 230 230 230

Capital redemption reserve, foreign currency translation reserve, capital reserve and equity componentof convertible notes are non-distributable.



26. Retained earnings

(a) Retained profits of the Group and the Company are distributable except for accumulated retainedprofits of associated company amounting to $1,034,000 (2004: $1,032,000) which are included inthe Group’s retained earnings.

(b) Movements in retained earnings for the Company are as follows:

The Company2005 2004

$’000 $’000

Balance at beginning of financial year - As previously reported 10,112 7,868 - Effect of changes in accounting policies adjusted retrospectively (Note 31) (1,032) (768)

- As restated 9,080 7,100

Net profit for the financial year 6,548 6,037Dividends paid (Note 27) (8,214) (4,057)

Balance at end of financial year 7,414 9,080

Movement in retained earnings for the Group is shown in the Consolidated Statement of Changesin Equity.

27. Dividends


2005 2004$’000 $’000

Ordinary dividends paid or proposedFinal taxable dividend of 1.584 cents per share (2004: final taxable dividend of 0.420 cents per share and tax exempt dividend of 0.950 cents per share) paid in respect of the previous financial year 4,024 4,057Interim exempt (one-tier) dividend of 0.780 cents per share paid in respect of the current financial year 2,665 -Special exempt (one-tier) dividend of 0.430 cents per share paid in respect of the current financial year 1,525 -

8,214 4,057

At the Annual General Meeting on 28 April 2006, a final exempt (one-tier) dividend of 1.403 cents pershare amounting to a total of approximately $5,000,000 will be recommended. These financial statementsdo not reflect this dividend, which will be accounted for in shareholders’ equity as an appropriation ofretained earnings in the financial year ending 31 December 2006.



28. Commitments

(a) Capital commitments

Capital expenditures contracted for at the balance sheet date but not recognised in the financialstatements are as follows:


$’000 $’000 $’000 $’000

Property, plant and equipment - 1,167 - 1,167

At the balance sheet date, the Company has outstanding investment commitments amounting toapproximately $22,617,000 (US$13,600,000) [2004: $32,933,000 (US$20,155,000)] in respectof commitments to inject share capital into its foreign subsidiaries.

(b) Operating lease commitments

The Group leases various properties, plant and machinery under non-cancellable operating leaseagreements. These leases have varying terms, escalation rights and renewal rights. The futureaggregate minimum lease payments under non-cancellable operating leases contracted for at thereporting date but not recognised as liabilities, are as follows:


$’000 $’000 $’000 $’000

Not later than one year 694 538 125 125Later than one year but not later than five years 1,512 1,738 501 501Later than five years 1,742 1,905 1,742 1,868

3,948 4,181 2,368 2,494



28. Commitments (continued)

(c) Other commitments

The Group and the Company have contingent liabilities in respect of bank guarantees given tothird parties as a result of employment of foreign workers at the balance sheet date as follows:


2005 2004$’000 $’000

Bank guarantees (unsecured) 55 20

29. Financial risk management

The Group’s overall risk management programme seeks to minimise potential adverse effects on thefinancial performance of the Group. Risk management is carried out under policies approved by the Boardof Directors.

(a) Price risk

Foreign currency risk

The Group transacts business in various foreign currencies and therefore is exposed to foreigncurrency risk. These risks are managed through monitoring foreign exchange rates closely andminimising the amounts of net foreign currency exposures whenever possible.

Market risk

The Group is not exposed to any significant equity securities market risk because it does not haveany equity investments.

(b) Cash flow and fair value interest rate risk

Cash flow interest rate risk is the risk that the future cash flows of a financial instrument willfluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that thevalue of a financial instrument will fluctuate due to changes in market interest rates.

The Group’s interest rate risk mainly arises from cash and cash equivalents and borrowings. Cashand cash equivalents and borrowings at variable rates expose the Group to cash flow interest raterisk. Cash and cash equivalents and borrowings at fixed rates expose the Group to fair valueinterest rate risk.



29. Financial risk management (continued)

(b) Cash flow and fair value interest rate risk (continued)

The tables below set out the Group and the Company’s exposure to interest rate risks. Included inthe tables are cash and cash equivalents and borrowings at carrying amounts, categorised by theearlier of contractual repricing or maturity dates.

The GroupVariable rates Fixed rates

Less Over Non-6 to 12 1 to 5 than 6 6 to 12 1 to 5 5 interestmonths years months months years years bearing Total$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

At 31 December 2005Cash and cash equivalents 4,032 - 1,414 - - - - 5,446Borrowings 831 831 114 114 948 288 12,341 15,467

At 31 December 2004Cash and cash equivalents 3,876 - 1,118 - - - - 4,994Borrowings 817 1,634 150 151 920 561 7,081 11,314

The Company

At 31 December 2005Cash and cash equivalents 1,053 - 1,414 - - - - 2,467Borrowings - - 114 114 948 288 12,341 13,805

At 31 December 2004Cash and cash equivalents 1,379 - - - - - - 1,379Borrowings - - 150 151 920 561 7,081 8,863

(c) Credit risk

The Group has no significant concentration of credit risk. The Group has policies in place to ensurethat the sales of products and services are made to customers with an appropriate credit history.Cash and fixed deposits are held with credit-worthy financial institutions.

(d) Liquidity risk

The Group adopts prudent liquidity risk management by maintaining sufficient cash and cashequivalents and having sufficient internally generated cash flows to fund its activities.



30. Related party transactions

In addition to the related party information disclosed elsewhere in the financial statements, the followingtransactions took place between the Group and related parties during the financial year:

(a) Sales and purchases of goods and services and other income

The Group2005 2004

$’000 $’000

Sales of goods/services to associated company 404 458Purchases of goods/services from associated company 538 536Interest paid/payable to associated company - finance leases 76 80

(b) Key management personnel compensation

Key management personnel compensation is as follows:

The Group2005 2004

$’000 $’000

Salaries and other short-term employee benefits 3,074 3,042Post-employment benefits - contribution to CPF 133 124Directors’ fees 113 100

3,320 3,266

Included in above is total compensation to directors of the Company amounting to $2,324,000(2004: $1,979,000).

31. Effects on financial statements on adoption of revised FRS

FRS 28 (revised 2004) Investments in Associates

Previously, the investment in an associated company that is included in the separate financial statementsof the Company that issued consolidated financial statements was accounted for using the equity methodas allowed by FRS 28 [superseded by FRS 28 (revised 2004)]. With the adoption of FRS 28 (revised 2004),an investment in an associated company is now to be accounted for in the investor’s separate financialstatements at cost or in accordance with FRS 39 (revised 2004). Consequently, the Company has accountedfor the investment in an associated company at cost.



31. Effects on financial statements on adoption of revised FRS (continued)

FRS 28 (revised 2004) Investments in Associates (continued)

This change was effected retrospectively and affected the following previously reported balances of theCompany at 31 December 2004 as follows:

The Company$’000

Decrease in:Retained earnings (1,032)Investment in associated company (1,032)

The effect on the balance sheet of the Company at 31 December 2005 is as follows:

The Company$’000

Decrease in:Retained earnings (1,034)Investment in associated company (1,034)

This change has no impact on the Group’s financial statements.

32. Segment information

Primary reporting format - business segments

Manufacturingservices Distribution Group$’000 $’000 $’000

Financial year ended 31 December 2005Sales - External sales 35,467 35,863 71,330

Segment result 10,464 1,915 12,379Other gains - net 736 217 953

13,332Finance costs (322)Share of results of associated company 27

Profit before income tax 13,037Income tax expense (1,584)

Net profit 11,453



32. Segment information (continued)

Primary reporting format - business segments (continued)


Segment assets 63,246 17,194 80,440Investment in associated company 2,084Unallocated assets 2,625

Consolidated total assets 85,149

Segment liabilities 16,203 6,755 22,958Unallocated liabilities 6,568

Consolidated total liabilities 29,526

Other segment items

Capital expenditure - property, plant and equipment 15,931 288 16,219Depreciation 7,163 309 7,472

Financial year ended 31 December 2004Sales - External sales 29,354 23,648 53,002

Segment result 8,416 1,508 9,924Other (losses)/gains - net (451) 186 (265)

9,659Finance costs (174)Share of results of associated company 247

Profit before income tax 9,732Income tax expense (1,176)

Net profit 8,556




Primary reporting format - business segments (continued)


Segment assets 50,028 11,673 61,701Investment in associated company 2,082Unallocated assets 2,142

Consolidated total assets 65,925

Segment liabilities 9,590 3,701 13,291Unallocated liabilities 7,201

Consolidated total liabilities 20,492

Other segment items

Capital expenditure - property, plant and equipment 16,623 282 16,905Depreciation 6,253 244 6,497

The Group is organised into two operating divisions - manufacturing services and distribution. Thesedivisions are the basis on which the Group reports its primary segment information. The manufacturingservices segment provides precision drilling services to PCB fabricators. The distribution segment relates tothe distribution of specialty chemicals and other PCB-related products and equipment to PCB fabricators,as well as, distribution of hardware and software relating to internet and network products and theprovision of maintenance services for such products.

Unallocated costs represent corporate expenses. Segment assets consist primarily of property, plant andequipment, inventories, receivables and operating cash, and exclude deferred tax assets, short-term bankdeposits, other financial assets and club memberships. Segment liabilities comprise operating liabilitiesand exclude items such as tax liabilities, bank borrowings and convertible notes. Capital expenditurecomprises additions to property, plant and equipment.



Secondary reporting format - geographical segments

The Group’s two business segments operate in three main geographical areas:

• Singapore - The Company is headquartered and has operations in Singapore. The operations in thisarea are principally manufacturing services and distribution of PCB-related chemicals and IT securityproducts;

• ASEAN - Distribution of PCB-related chemicals and IT security products; and• People’s Republic of China - The operations in this area are manufacturing services and distribution

of PCB-related chemicals and IT security products.

With the exception of Singapore and the People’s Republic of China, no other individual country contributedmore than 10% of consolidated sales and assets. Sales are based on the country in which the customer islocated. Total assets and capital expenditure are shown by the geographical area where the assets arelocated.

Sales Total assets Capital expenditure2005 2004 2005 2004 2005 2004

$’000 $’000 $’000 $’000 $’000 $’000

Singapore 33,977 26,232 32,370 28,921 7,364 10,207ASEAN 16,120 10,768 3,930 3,611 117 41People’s Republic of China 21,233 16,002 44,140 29,169 8,738 6,657

71,330 53,002 80,440 61,701 16,219 16,905

Associated company 2,084 2,082Unallocated assets 2,625 2,142

85,149 65,925

33. Authorisation of financial statements

These financial statements were authorised for issue in accordance with a resolution of the Board ofDirectors of Multi-Chem Limited on 15 March 2006.



Additional Information for Shareholders

As atIn 2005 Highest Lowest Average 15 March 2006Share Price (S$) 0.300 0.180 0.220 0.245Share Volume 1,372,000 1,000* 66,332 291,000

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In 2005 Highest Lowest AverageWarrant Price (S$) 0.150 0.020 0.070Warrant Volume 387,000 1,000* 22,000

1,104,850 unexercised warrants lapsed upon the expiry of the warrants on 26 November 2005.

* Lowest share and warrant volume do not take into account market days where no transaction is carried out.

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Share Price Chart

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Analysis of Shareholdingsas at 15 March 2006

Share Capital

Issued & fully paid-up capital - S$17,819,058

Number of Issued Shares - 356,381,150

Class of Equity Shares - Ordinary

Voting Rights of Ordinary Shareholders - On show of hands: 1 vote for each members

On a poll: 1 vote for each ordinary share

SHAREHOLDING HELD IN HANDS OF PUBLIC

As at 15 March 2006, 20.91% of the issued ordinary shares of the Company is held by the public andtherefore, Rule 723 of the Listing Manual issued by the Singapore Exchange Securities Trading Limited hasbeen complied with.

Range of Shareholdings Number of Shareholders % Number of Shares %

1 - 999 190 2.66 87,583 0.021,000 - 10,000 6,024 84.30 16,822,860 4.7210,001 - 1,000,000 923 12.91 43,392,458 12.181,000,001 and above 9 0.13 296,078,249 83.08

Total 7,146 100.00 356,381,150 100.00


MAJOR SHAREHOLDERS AS AT 15 MARCH 2006

No Name of Shareholder Number of Shares Held %

1 FOO SUAN SAI 139,218,000 39.072 HAN JUAT HOON 96,969,500 27.213 YAOWALAK PHOOWARACHAI 42,672,000 11.974 UNITED OVERSEAS BANK NOMINEES PTE LTD 7,152,500 2.015 GOH KOK KIAN 3,105,000 0.876 KIM ENG SECURITIES PTE. LTD. 2,610,000 0.737 DBS NOMINEES PTE LTD 1,638,749 0.468 DBS VICKERS SECURITIES (S) PTE LTD 1,389,500 0.399 CITIBANK NOMINEES SINGAPORE PTE LTD 1,323,000 0.3710 HO FOON PHIN 772,000 0.2211 PHILLIP SECURITIES PTE LTD 741,400 0.2112 MERRILL LYNCH (SINGAPORE) PTE LTD 739,500 0.2113 RAFFLES NOMINEES PTE LTD 676,500 0.1914 OCBC SECURITIES PRIVATE LTD 573,500 0.1615 PHUA SOO HONG 538,500 0.1516 HERMAN HALIM 534,000 0.1517 GADGETSTUFF PTE LTD 524,000 0.1518 OCBC NOMINEES SINGAPORE PTE LTD 515,500 0.1419 SUZUKI TOSHIAKI 500,000 0.1420 FOO CHIK HEE 480,000 0.13

Total 302,673,149 84.93

Analysis of Shareholdingsas at 15 March 2006

SUBSTANTIAL SHAREHOLDERS

Name of Substantial Shareholder Direct Interest Deemed Interest Total %

Foo Suan Sai 140,440,500 97,899,500 238,340,000 66.88Han Juat Hoon 97,899,500 140,440,500 238,340,000 66.88Yaowalak Phoowarachai 42,672,000 - 42,672,000 11.97

Mr Foo Suan Sai and Mdm Han Juat Hoon are husband and wife and they are each deemed to be interestedin the shares held by the other.

Number of shares as at 15 March 2006


Notice of Annual General MeetingMULTI-CHEM LIMITEDRegistration No. 198500318Z(Incorporated in Singapore)

Resolution 1

NOTICE IS HEREBY GIVEN that the Annual General Meeting of the shareholders of the Company will beheld at 11 Tuas Avenue 5, Singapore 639337 on Friday, 28 April 2006 at 11:30 a.m. to transact the followingbusinesses :

ORDINARY BUSINESS :

1. To receive and consider the Directors’ Report and Audited Accounts for the year ended31 December 2005 and the Auditors’ Report thereon.

2. To declare a final tax exempt (one-tier) dividend of 1.403 cents per ordinary share for thefinancial year ended 31 December 2005.

3. To re-elect the following Directors, each of whom will retire by rotation pursuant to theCompany’s Articles of Association, and who, being eligible, will offer themselves forre-election : -

(a) Mdm Han Juat Hoon (Article 106)(b) Mr Ho Boon Chuan Wilson (Article 90)

4. To approve the payment of Directors’ fees of S$113,000 for the financial year ended31 December 2005.

5. To re-appoint Messrs PricewaterhouseCoopers as Auditors and to authorise the Directorsto fix their remuneration.

SPECIAL BUSINESS :

6. To consider, and if thought fit, to pass the following Ordinary Resolutions:-

That pursuant to Section 153(6) of the Companies Act, Cap. 50, the following directorsbe re-appointed as Directors of the Company to hold office until the next Annual GeneralMeeting.

(a) Mr Toshiaki Suzuki(b) Mr Lim Keng Jin

(Mr Toshiaki Suzuki will, upon re-appointment as a Director of the Company, remain as amember of the Audit Committee and he will not be considered independent for thepurposes of Rule 704(8) of the Listing Manual of the Singapore Exchange SecuritiesTrading Limited (“SGX-ST”)).

(Mr Lim Keng Jin will, upon re-appointment as a Director of the Company, remain as amember of the Audit Committee and will be considered independent for the purposes ofRule 704(8) of the Listing Manual of the Singapore Exchange Securities Trading Limited(“SGX-ST”)).

Resolution 2

Resolution 3Resolution 4

Resolution 5

Resolution 6

Resolution 7Resolution 8


Notice of Annual General Meeting

To consider and, if thought fit, to pass with or without any modifications, the followingresolution as Ordinary Resolutions:

7. Ordinary Resolution : Authority to allot and issue shares up to 50% of theCompany’s issued share capital

“That pursuant to Section 161 of the Companies Act, Chapter. 50 and the listing rules ofthe Singapore Exchange Securities Trading Limited, authority be and is hereby given tothe Directors to allot and issue shares and convertible securities in the Company (whetherby way of rights, bonus or otherwise) at any time and from time to time thereafter to suchpersons and on such terms and conditions and for such purposes as the Directors may intheir absolute discretion deem fit provided always that the aggregate number of sharesand convertible securities to be issued shall not exceed 50% of the issued share capital ofthe Company, of which the aggregate number of shares and convertible securities to beissued other than on a pro rata basis to existing shareholders shall not exceed 20% of theissued share capital of the Company (the percentage issued share capital being based onthe Company’s issued share capital at the time this Resolution is passed after adjustingfor new shares arising from the conversion or exercise of any convertible securities orshare options or vesting of share awards which are outstanding at the time this Resolutionis passed and any subsequent consolidation or sub-division of shares) and unless revokedor varied by the Company in general meeting, such authority shall continue in force untilthe conclusion of the next Annual General Meeting or the expiration of the period withinwhich the next Annual General Meeting of the Company is required by law to be held,whichever is the earlier.” (See Explanatory Note (i))

8. To transact any other business which may be properly transacted at an Annual GeneralMeeting.

Explanatory Notes:(i) Resolution 9, if passed, will empower the directors from the date of the above Meeting

until the date of the next Annual General Meeting, to allot and issue shares and convertiblesecurities in the Company. The number of shares and convertible securities which thedirectors may allot and issue under this Resolution would not exceed 50 per cent of theissued share capital of the Company at the time this Resolution is passed. For allotmentand issue of shares and convertible securities other than on a pro-rata basis to allshareholders, the aggregate number of shares and convertible securities to be allottedand issued shall not exceed 20 per cent of the total issued share capital of the Companyat the time this Resolution is passed.

Resolution 9


Notice of Annual General Meeting

NOTICE OF BOOKS CLOSURE

NOTICE IS HEREBY GIVEN that the Share Transfer Books and Register of Members of the Company will beclosed on 11 May 2006, for the purpose of determining members’ entitlements to the final dividend to beproposed at the Annual General Meeting of the Company to be held on 28 April 2006.

Duly completed registrable transfers in respect of the shares in the Company received up to the close ofbusiness at 5:00 p.m. on 10 May 2006 by the Company’s Share Registrar, M & C Services Private Limited, 138Robinson Road, #17-00 The Corporate Office, Singapore 068906 will be registered to determine members’entitlements to the final dividend. Members whose Securities Accounts with The Central Depository (Pte) Ltdare credited with shares in the Company as at 5:00 p.m. on 10 May 2006 will be entitled to such proposedfinal dividend.

The proposed final dividend, if approved at the Annual General Meeting will be paid on 23 May 2006.

BY ORDER OF THE BOARD

Ho Boon Chuan WilsonLow Mei Mei MaureenCompany Secretaries

Singapore: 11 April 2006

Proxies :

1. A member of the Company is entitled to attend and vote at the above Meeting and may appoint not morethan two proxies to attend and vote instead of him.

2. Where a member appoints two proxies, he shall specify the proportion of this shareholding to be representedby each proxy in the instrument appointing the proxies. A proxy need not be a member of the Company.

3. If the member is a corporation, the instrument appointing the proxy must be under seal of the hand of anofficer or attorney duly authorised.

4. The instrument appointing a proxy must be deposited at the Registered Officer of the Company at 11 TuasAve 5 Singapore 639337 not less than 48 hours before the time appointed for holding the above Meeting.


This page has been intentionally left blank.


Proxy Form

✁

I / We

of

being a member/members of Multi-Chem Limited (the “Company”) hereby appoint

NRIC/Passport Proportion ofName Address Number Shareholdings (%)

and/or (delete as appropriate)

NRIC/Passport Proportion ofName Address Number Shareholdings (%)

as my/our proxy/proxies to attend and to vote for me/us on my/our behalf and, if necessary, to demand a poll at theAnnual General Meeting of the Company to be held at 11 Tuas Avenue 5, Singapore 639337 on Friday, 28 April 2006at 11:30 a.m. and at any adjournment thereof.

(Please indicate with an “X” in the spaces provided whether you wish your vote(s) to be cast for or against theresolutions as set out in the Notice of Annual General Meeting. In the absence of specific directions, the proxy/proxies will vote or abstain as he/they may think fit, as he/they will on any other matter arising at the Annual GeneralMeeting.)

No. Resolutions For Against

ORDINARY BUSINESS

1 To receive and consider Directors’ and Auditors’ Reports and Audited Accounts

2 To approve payment of a final dividend

3 To re-elect Director – Mdm Han Juat Hoon

4 To re-elect Director – Mr Ho Boon Chuan Wilson

5 To approve payment of Directors’ fees of S$113,000

6 To re-appoint Auditors

SPECIAL BUSINESS

7 That pursuant to Section 153(6) of the Companies Act, Cap. 50, Mr Toshiaki Suzuki be re-appointedas a Director of the Company to hold office until the next Annual General Meeting.

8 That pursuant to Section 153(6) of the Companies Act, Cap. 50, Mr Lim Keng Jin be re-appointedas a Director of the Company to hold office until the next Annual General Meeting.

9 To authorise Directors to allot and issue shares and convertible securities pursuant to Section 161of the Companies Act, Cap. 50

Dated this day of 2006

Signature(s) of member(s) or common seal

IMPORTANT: PLEASE READ NOTES OVERLEAF

Total number of Shares held

IMPORTANT1. For investors who have used their CPF monies to buy the Company’s shares, this Annual

Report is forwarded to them at the request of their CPF Approved Nominees and issent solely FOR INFORMATION ONLY.

2. This Proxy Form is not valid for use by CPF investors and shall be ineffective for allintents and purposes if used or purported to be used by them.

MULTI-CHEM LIMITEDRegistration No. 198500318Z(Incorporated in Singapore)


Proxy Form

NOTES :

1. Please insert the total number of shares held by you. If you have shares entered against your name in the DepositoryRegister (as defined in Section 130A of the Companies Act, Chapter 50), you should insert that number of shares. Ifyou have shares registered in your name in the Register of Members, you should insert that number of shares. If youhave shares entered against your name in the Depository Register and shares registered in your name in the Registerof Members, you should insert the aggregate number of shares. If no number is inserted, this form of proxy will bedeemed to relate to all the shares held by you.

2. A member of the Company entitled to attend and vote at a meeting of the Company is entitled to appoint not morethan two proxies to attend and vote on his behalf. A proxy need not be a member of the Company.

3. Where a member appoints more than one proxy, he shall specify the proportion of his shareholding to be representedby each proxy.

4. The instrument appointing a proxy or proxies must be under the hand of the appointor or his attorney duly authorisedin writing. Where the instrument appointing a proxy or proxies is executed by a corporation, it must be executed eitherunder its common seal or under the hand of its attorney or duly authorised officer.

5. A corporation which is a member of the Company may authorise by resolution of its directors or other governing bodysuch person as it thinks fit to act as its representative at the Annual General Meeting, in accordance with its Articles ofAssociation and Section 179 of the Companies Act, Chapter 50.

6. The instrument appointing a proxy or proxies, together with the power of attorney or other authority (if any) underwhich it is signed, or notarially certified copy thereof, must be deposited at the registered office of the Company at 11Tuas Avenue 5, Singapore 639337 not later than 48 hours before the time set for the Annual General Meeting.

7. The Company shall be entitled to reject the instrument appointing a proxy or proxies if it is incomplete, improperlycompleted or illegible or where the true intentions of the appointor are not ascertainable from the instructions of theappointor specified in the instrument appointing a proxy or proxies. In addition, in the case of members of the Companywhose shares are entered against their names in the Depository Register, the Company may reject any instrumentappointing a proxy or proxies lodged if such members are not shown to have shares entered against their names in theDepository Register at 48 hours before the time appointed for holding the Annual General Meeting as certified by TheCentral Depository (Pte) Limited to the Company.

IMPORTANT

1. For investors who have used their CPF monies to buy the Company’s shares, this Annual Report is forwarded to themat the request of their CPF Approved Nominees and is sent solely FOR INFORMATION ONLY.

2. This Proxy Form is not valid for use by CPF investors and shall be ineffective for all intents and purposes if used orpurported to be used by them.

C T E N T S 1 Definitions2 Corporate Profile3 Corporate Data4 Board of Directors7 Management Team8 Chairman’s Statement13 Operations Review17 Prospects and Future Plans20 Significant Events23 Group Structure24 Financial Highlights30 Financial Review33 Balance Sheet Review35 Value Added Statement36 Investor Relations38 Information on Employees40 Corporate Governance Report49 Corporate Directory51 Financial Contents

I N F C U SANNUAL REPORT 2005MULTI-CHEM LIMITED

Multi-Chem LimitedCompany’s Registration No. 198500318Z11 Tuas Avenue 5Singapore 639337Tel : (65) 6863 1318Fax : (65) 6863 1618www.multichem.com.sg

MU

LTI-CHEM

LIMITED

ANN

UAL REPORT 2005

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