ANNUAL REPORT 2004

CONTENTSCORPORATE PROFILE 1 CEO’s MESSAGE & FUTURE DIRECTIONS 9 BOARD OF

DIRECTORS 18 SENIOR MANAGEMENT - SINGAPORE OFFICE 26 SENIOR MANAGEMENT

- CHINA OFFICE 30 FINANCIAL HIGHLIGHTS & REVIEW 36 INVESTOR RELATIONS 42

CALENDAR OF EVENTS 44 AWARDS & ACCOLADES 45 OUTLOOK 50 OPERATIONS

REVIEW – WATER DIVISION 54 OPERATIONS REVIEW – INDUSTRIAL PROCESSES

DIVISION 62 OPERATIONS REVIEW – STRUCTURED PROJECTS DIVISION 64 OPERATIONS

REVIEW – CONSUMER PRODUCTS DIVISION 66 RESEARCH & DEVELOPMENT 72

HUMAN RESOURCE 74 INFORMATION TECHNOLOGY 76 COMMUNITY BONDING 77

GROWING THE HYFLUX BRAND 79 CORPORATE INFORMATION 80

Hyflux Ltd began in 1989 as Hydrochem (S) Pte Ltd, a trading companyselling water treatment systems in Singapore, Malaysia and Indonesia and,later, China. A little more than a decade later, Hyflux Ltd, became the firstwater treatment company to be listed on SESDAQ in January 2001.

In April 2003, it was upgraded to the Singapore Exchange’s mainboard,again making history as the first water treatment company to be listed onthe mainboard.

Today, Hyflux is one of Asia’s leading water and fluid treatment companieswith more than a decade of experience in the manufacture and use ofmembrane and related technologies for liquid/solid separation. Its productofferings range from customised liquid treatment plants for both industrialand municipal applications to water generating machines from ambient airand faucet filters using advanced membrane filtration technology for theconsumer market.

It is also an integrated solutions provider, offering a suite of activities includingprocess design and optimisation, engineering procurement and construction,pilot testing, fabrication, installation, commissioning, operation andmaintenance on a turnkey or Design-Build-Own-Operate (DBOO), or otherarrangement.

CORPORATE PROFILE

1

Hyflux is able to maintain its lead in its core business by engaging in asustained, market-driven programme of research and development. Withthe support of Singapore’s Economic Development Board, Hyflux launchedits advanced membrane and materials technology R&D Centre in 2004 –the largest in Asia outside Japan - to spearhead the development of cutting-edge technologies in water and environmental engineering.

The Group made its first foray into the consumer market in 2003, acquiringthe licence to use the breakthrough air-to-water technology. It is continuallyexpanding its product range to include air-to-water generators and otherhome filtration products.

The Group has also expanded its geographical footprint in recent years.In addition to a thriving presence in China and Singapore, the Group hassuccessfully penetrated the lucrative Middle Eastern market through a tie-up with Dubai-based Istithmar. Ahead, the Group is setting its sights onIndia, other parts of Southeast Asia and Africa.

Hyflux’s outstanding performance has been widely recognised. In 2002,Forbes magazine ranked Hyflux among the Best 200 Small Companiesglobally. The following year, Hyflux was accorded the Business Times/ DHLEnterprise Award 2003 at the prestigious Singapore Business Awards.

Hyflux currently focuses on five core businesses:

• Water – Seawater desalination, raw water purification, wastewater cleaning,water recycling, water reclamation and ultra pure water production formunicipal and industrial clients;

• Industrial Processes – Separation, concentration and purification treatmentsfor manufacturing process streams;

• Structured Projects – Privately financed projects structured either as Build-Own-Operate (BOO) or Build-Own-Transfer (BOT) schemes;

• Consumer – Air-to-water and home filtration products including faucetand under-sink filters for the consumer lifestyle market; and

• Hyflux Materials – The development of cutting-edge technology in materialsciences, to open its areas for membrane applications either throughin-house research or in collaboration with reputable institutions worldwide

2

"Water should not be judged by its history, but by its quality."

- Dr Lucas Van Vuuren,National Institute of Water Research, South Africa

Hyflux has becomea significant playerin the growth ofSingapore's waterindustry and will nodoubt play a keyrole in helping usachieve our visionof developingSingapore as aGlobal Hydrohub.”- Speech by Dr Yaacob Ibrahim, Minister for theEnvironment and Water Resources, at the officialopening of Hyflux Building on Nov 23, 2004

“

Ranked 68th in Singapore for market capitalisation in Feb 2005,Hyflux’s market capitalisation is…

Dec 31, 2004

CEO’s Message & Future Directions

Olivia Lum

To Our Shareholders

2004 – An Outstanding Year

From our spectacular steps forward in China to our entry into the MiddleEastern market, from the expansion in our consumer offerings toour advances in membrane technology - all these are major milestonesachieved in another outstanding year for Hyflux.

Promises Fulfilled

Last year, I mentioned that we would achieve a growth of 30 percentin profits over the next five years. I am pleased to report that weexceeded that target for financial year 2004. Hyflux recorded stronggrowth in earnings for 2004 with a net profit of S$26.8 million, a good37 percent increase from the previous year. Group revenue increased9 percent from S$81.2 million to S$88.7 million. Net margin improvedfrom 24 percent to 30 percent and earnings per share rose by36 percent to 8.53 cents.

While we have delivered on our promise and achieved another year ofprofitable growth, we will continue to strive to achieve strong growthand to enhance value for our shareholders in the years ahead.

Expanding Our Vision

During the year, we made a major breakthrough when we venturedbeyond our traditional markets of Singapore and China into the lucrativeMiddle Eastern market.

9

China

Our business in China took a major leap forward during the year whenwe clinched major projects such as the two water desalination plantcontracts in Tianjin and Liaoning worth a total of some S$240 million.These projects heralded our first foray into China’s huge municipalmarket. Meanwhile our industrial sales in China registered strong growthas we continued to increase our market share, particularly in thepharmaceutical, biotechnology, chemical and petrochemical sectors.

In June 2004, we were also awarded a S$24 million contract to builda membrane-based treatment plant for a pharmaceutical firm in Shanxiprovince. More recently, we secured another landmark deal to build,own and operate a S$107 million organic acid plant in Ningxia province.

Middle East

In 2004, Hyflux sealed a joint venture deal with Istithmar Private JointStock Co that opened the gateway for us into the Middle East watermarket.

Already the joint venture is participating in water treatment projects forprestigious developments such as The World and The Palm, which arethe world’s largest manmade islands located just off the coast of Dubai.These islands are developed to house world-class luxury hotels,residences, shopping malls and sports facilities.

This joint venture adds substantially to Hyflux’s track record and boostsits standing as a global player. The Middle Eastern market will be amajor driver for the Group’s growth in the years ahead.

10

Singapore

In Singapore, we successfully commissioned our 24,000 m3/day NEWaterplant at Seletar and we will continue to operate and maintain the plantover a two-year period. Meanwhile the construction of Singapore’s firstseawater desalination plant at Tuas is progressing well ahead of schedule.

Being Asia’s largest tropical seawater desalination plant, this projecthas captured the world’s attention and I look forward to having a firsttaste of Singapore’s very own desalinated water-produced by Hyflux,when the plant is commissioned in the second half of 2005.

Expanding Our Capabilities

The Hyflux family has grown in tandem with our expansion in businessboth locally and overseas. To meet the needs of our growing family aswell as to spearhead growth and strengthen our in-house capabilities,in particular our R&D. Hyflux moved into its new premises, an eight-storey building at Kallang Bahru.

The new building offers an operational area almost five times that ofHyflux’s former headquarters at Changi. The Hyflux Building nowhouses all the operations of the Group – from R&D to sales, corporateoffices, production and manufacturing – under one roof. This providesfor greater efficiency and productivity in work processes.

Expanding Our R&D Capabilities

In the last quarter of 2004, we launched our membrane and materialstechnology R&D Centre. The R&D Centre serves a key function inensuring that we are at the forefront of cutting edge membrane technology.Through continuous research and development, we strive to continuallyimprove on our technology and expand our in-house capabilities.

The centre has more than 10 research labs, including a knowledgecentre, an innovative process development centre, a novel materialsand membrane products development centre as well as advancedmachining, prototyping and industrial design functions. Our R&D Centreis the largest of its kind in Asia, outside Japan.

In his speech at the official opening ceremony of Hyflux Building,Dr. Yaacob Ibrahim, Minister for the Environment and Water Resources,outlined Singapore’s vision to become a Hydrohub. Hyflux is proud tobe part of this vision. We have a heart that beats in tune with Singapore’svision to be a globally leading water treatment epicentre and that heartis our new membrane and materials technology R&D Centre.

11

While our R&D Centre in Singapore will be the main hub for intellectualknow-how, we plan to establish another R&D centre in China with afocus on developmental work. We are also exploring the viability ofsetting up a research laboratory in the Middle East.

Challenges Ahead

Going forward, we will continue to build and expand on our in-housecapabilities and resources to ensure timely and on budget delivery ofprojects. We will also focus on developments in R&D to provide us witha competitive edge in membrane technology so as to ensure costefficiency and effective treatment processes.

Clearly the water industry will attract other players who will be competingfiercely for a share of the growing market. With our landmark projectsin Singapore, China and the Middle East and our successful executiontrack record, plus our strength in membrane technology, we are confidentof overcoming the challenge.

In the years ahead, we expect the operating performance of the Group’sbusinesses to be better than 2004 as we continue to grow our marketsand generate income in the international arena.

Ahead, A Dynamic Path Of Opportunities

We continue to set our sights on expanding our business in our keybusiness areas. The water business will continue to be our principalsphere. We will also continue to develop our industrial projects, wherewe have established a track record in China. Following our first fewmunicipal projects in China last year, we will continue to work towardssecuring more municipal-size seawater desalination and water treatmentprojects there.

We will also continue to develop our consumer products business. Inthis regard, we have embarked on a strategic programme to increaseour product range and geographic coverage. While the Middle Eastand China markets will remain key contributors to our growth, we arealso looking at expanding into countries like India and Thailand as wellas other parts of the region.

12

Corporate Governance And Transparency

We remain committed to implementing best practices in corporategovernance. During the year, Hyflux was recognised for its efforts indisclosure and transparency when it won the Most Transparent Awardat the SIAS Investors’ Choice Awards 2004.

We acknowledge that high standards in governance and outstandingperformance go hand in hand. We undertake to achieve both.

My Thanks To All

No company can be successful on a single person’s effort. Our abilityto deliver outstanding performance in 2004 was the result of the excellentstaff I have at Hyflux and the leadership provided by the managementteam. I would like to salute them for the passion and dedication theyhave put into their work and I thank them for all the hard work andcontributions they have made. I take this opportunity to welcomeMr Christopher Murugasu, our new director who joined the Board inFebruary 2005.

I would also like to express my appreciation for the support of ourshareholders and I am pleased to propose a final dividend of 1.27 centsper share and a bonus issue of one share for every two shares held.

Finally, I would like to thank all our customers, business partners andsuppliers for their continuing support. With the excellent team we haveat Hyflux and the support of our stakeholders, I look forward to yetanother successful year in 2005. Most companies try to go the fulldistance. At Hyflux, we strive for the full distance - and beyond

Olivia LumGroup CEO & President

13

We like Hyflux’sstrategy of securing3 growth platforms –industrial, municipaland retail businesses– with focus on watertreatment… Thisstrategy will providethe platform for its30% p.a. growth from2004 to 2008.”- DBS Vickers Securities, June 15, 2004

“

Between 2000 and 2003, Hyflux’s profits and sales grew by a compounded annualgrowth rate (CAGR) of 60%. Over the next five years, the targeted CAGR is…

Board Of Directors

Olivia Lum

Ms Lum is Group CEO and President as well as founder of the Hyflux Group.

She started corporate life as a chemist with Glaxo Pharmaceutical andleft in 1989 to start up Hydrochem (S) Pte Ltd, the precursor to Hyflux Ltd.

Managing the Group for 15 years now, Olivia Lum is the driving forcebehind Hyflux’s growth and business expansion, responsible for policyand strategy formulation and corporate direction. She also heads theResearch and Development function.

18

Ms Lum holds several positions in public service. She is a board memberof SPRING Singapore, the National University of Singapore Council andthe Singapore Exchange Ltd.

She is also President of the Singapore Water Association (SWA) as wellas a member of the Singapore Green Plan 2012 Co-ordinating Committeeand the UNESCAP Business Advisory Council.

Ms Lum was named Businesswoman of the Year 2004 at the SingaporeBusiness Awards. She also won the International Management ActionAward (IMAA) in 2003, together with many other accolades recognisingher entrepreneurial achievements.

She holds an Honours degree in Science from the National Universityof Singapore.

19

Lee Joo Hai

Mr Lee has been an Independent Director of Hyflux Ltd since December2000. He is also the Chairman of the audit committee and member of thenominating and remuneration committees.

A CPA with memberships to ICPAS and Institute of Chartered Accountantsin England and Wales, Mr Lee is currently a partner in a public accountingfirm in Singapore. He has more than 20 years of experience in accountingand auditing. He also sits on the boards of other listed companies,including IPC Corporation and Unisteel Technology Limited.

Gay Chee Cheong

Mr Gay has been a Non-Executive Non-Independent Director of HyfluxLtd since August 2001. He is also a member of the audit, nominating andremuneration committees.

The Deputy Chairman of 2G Capital Pte Ltd, Mr Gay was JIT Group’sExecutive Director and Managing Director of various JIT companies inSingapore and overseas during the four years that he was with the Group.

He currently serves on the board of Raffles Education Group, AccordCustomer Care Solutions, Excelpoint Technology Ltd, Midas Holdings Ltdand Avaplas Ltd.

Mr Gay holds an Honours degree in Electronic Engineering from the RoyalMilitary College of Shrivernham, UK, and in Economics from the Universityof London. He also has an MBA from the National University of Singapore.

20

Teo Kiang Kok

Mr Teo has been an Independent Director of Hyflux Ltd since December2000. He is also the Chairman of the nominating and remuneration committeesand a member of the audit committee.

A lawyer with more than 20 years’ experience in legal practice, Mr Teo isa senior partner of ShookLin & Bok, a firm of advocates and solicitors.He is currently the finance partner and head of corporate finance and Chinapractice groups in ShookLin & Bok. His main areas of practice are corporatefinance, international finance and securities. He has advised listed companiesextensively on corporate law and compliance requirements.

He serves on the boards of a number of other companies including FoodJunction Holdings Ltd, Giant Wireless Technology Limited, JadasonEnterprises Ltd and Unisteel Technology Limited.

Mr Teo holds an honours degree in Law from the University of Hull and isa Barrister-at-Law of Lincoln’s Inn.

S. Iswaran

Mr Iswaran has been a Non-Executive Director of Hyflux Ltd since June2003.

Managing Director of Temasek Holdings Pte Ltd, Member of Parliamentfor West Coast GRC and Deputy Speaker for Parliament, Mr Iswaran holdsdirectorships in Sunningdale Precision Industries and SciGen Ltd.

He has also held down various appointments at the Ministry of Trade &Industry, National Trades Union Congress and Singapore TechnologiesPte Ltd.

Mr Iswaran holds a First Class Honours degree in Economics from theUniversity of Adelaide and a Master of Public Administration from HarvardUniversity, USA.

Christopher Murugasu

Mr Murugasu was appointed a Non-Independent Director and member ofthe remuneration committee in February 2005.

Previously Senior Vice President for Corporate Services at Hyflux Ltd, hewas responsible for the Group’s human resources, procurement andgeneral administration functions. Prior to joining Hyflux, Mr Murugasuaccumulated over 15 years of experience in both the public sector as wellas a foreign bank.

He holds an Honours degree in Computing Science from the ImperialCollege, UK, and a Masters degree from the London School of Economics

21

We believe thedragon-fly air-to-water product hasexciting potential…demand will beparticularly strongfrom regions withno ready access toquality drinking water.”- BNP Paribas Peregine, Nov 4, 2004

“

Hyflux holds exclusive manufacturing rights to the dragon-fly.Number of countries where the patent is filed…

Senior Management - Singapore Office

Deirdre Murugasu (Dee Dee Ng)

Dr Dee Dee Ng is the Deputy Chief Executive, Operations, and ExecutiveVice President for the Hyflux Group.

She worked for nine years with the Ministry of Health before joining Hyfluxin 1996. Her last appointment was as a specialist in Family Medicine.Her previous appointment in Hydrochem (S) Pte Ltd was as Head ofBusiness Development responsible for the development, application andmarketing of new products and services.

Her current appointment entails overseeing the Group’s operations, salesand marketing and assuming responsibility for the Group’s facilities globally.She is also a key player in formulating corporate strategies andcharting new directions and growth for the Hyflux Group.

Dr Dee Dee Ng holds a Masters of Medicine (Family Medicine) from theNational University of Singapore.

Lim Kim Seng

Mr Lim is the Deputy Chief Executive and Executive Vice President, Finance& Legal, of the Hyflux Group as well as Company Secretary for Hyflux Ltd.

He oversees the Group’s financial management, as well as legal andcorporate secretarial and investor relations functions.

Mr Lim has over 25 years of experience in industry and banking. Prior tojoining the Group in 2000, he held senior positions in finance, corporatesecretarial functions and human resources with major American MNCs aswell as a leading local bank.

Mr Lim graduated with a degree in accountancy from the University ofSingapore and holds an MBA from the National University of Singapore.He is a fellow (non-practising) of the Institute of Certified Public Accountantsof Singapore.

26

Grace Goh

Ms Goh is the Chief Financial Officer and Executive Vice President, Finance,for the Hyflux Group.

She is responsible for the overall financial management of the Group,which covers accounting, treasury, tax and financial control and reporting.She also handles investor relations and assists in corporate secretarialfunctions. Ms Goh has more than 15 years of experience in financialmanagement and control as well as external and internal audit, with bothMNCs and SMEs.

She holds a degree in Accountancy from the University of Singapore andan MBA from the University of Wales and Manchester Business School,UK. Ms Goh is also a Certified Internal Auditor and a non-practicingmember of the Institute of Certified Public Accountants of Singapore.

Foo Hee Kiang

Mr Foo is the Chief Operating Officer and Executive Vice President for theHyflux Group. He was a Sales Manager with Multico Systems EngineersPte Ltd, a construction equipment and building materials company,for eight years before joining Hyflux in 1998.

With 7 years of experience in environmental engineering, Mr Foo headsthe overall management, sales, technical and process operations for thewater business. He is also instrumental in the Group’s engineeringexpansion, particularly in developing its engineering, procurement andconstruction capabilities, to support Hyflux’s growth globally.

Mr Foo has a degree in Engineering from the National University ofSingapore.

27

Freddy Soon

Mr Soon is the Senior Vice President, CEO Office, leading the businessdevelopment, corporate communications as well as government andinternational relations functions of the Hyflux Group.

Mr Soon has over 30 years of experience in productivity and competitivenesspolicy and strategy formulation, industrial design, quality assurance andstandardisation, business excellence management, international relations,and benchmarking. Prior to joining Hyflux, he was Deputy Chief Executiveof the Standards, Productivity and Innovation Board (SPRING Singapore).

Mr Soon chairs the Singapore Quality Award (SQA) Management Committeeand is a committee member of the Singapore Water Association (SWA).He is also a member of the Community Chest of Singapore.

He holds an Honours degree in Science from the University of WesternAustralia and a Certificate of the Advanced Management Programme fromINSEAD.

Hurn David Charles

Mr Hurn is the Senior Vice President for Structured Projects for the HyfluxGroup.

Prior to joining Hyflux, he worked for more than 10 years in the powerindustry, initially in the construction of power stations and, later, in thedevelopment and financing of independent power projects.

Mr Hurn leads development for the Group’s subsidiary, Hyflux Engineering,which invests in the growing market of privately financed water projectsand other process industries that utilise Hyflux’s membrane technologies.

He holds a Masters degree from Cambridge University, UK.

28

Rose Tong

Ms Tong is the Senior Vice President and head of Hyflux’s ConsumerProducts division.

She is responsible for spearheading the Group’s global growth in theconsumer products arena and securing new revenue streams fromthis segment.

Ms Tong has over 20 years of experience in consumer banking. Prior tojoining the Group in February 2004, she held senior positions in branding,product management and marketing and sales in major foreign and localbanks.

Ms Tong graduated with a degree in Science, majoring in ComputerScience and Economics from the National University of Singapore andis a member of the Chartered Institute of Marketing.

Peter Wu

Mr Wu is the Senior Vice President for Structured Projects, China, for theHyflux Group.

He joined the Hyflux Group in April 2004 and is responsible for thedevelopment of structured (DBOO, DBOT) and large-scale industrial andmunicipal projects in China.

Mr Wu has worked mainly in MNCs and has more than 15 years ofinternational experience in sales and marketing, business developmentand strategic planning.

He holds an Honours degree in Science and M.Phil. degree in MechanicalEngineering from the University of Hong Kong as well as an MBA from theUniversity of Wales and Manchester Business School, UK

Joseph Lee

Mr Lee is the Senior Vice President, Group Operations, for the Hyflux Group.

He oversees the operations of the seawater desalination plant in Tuas,and is responsible for new undertakings in major and small projects aswell as process re-engineering of existing operations.

Mr Lee has over 29 years of experience in commercial and consumerbanking. Prior to joining the Group in April 2004, he was Head of Creditand Operations in a major foreign bank.

Mr Lee graduated with a degree in Science, majoring in Mathematics,from the National University of Singapore.

29

Senior Management - China Office

Ge Wen Yue

Mr Ge is the Senior Vice President and General Manager for HydrochemEngineering (Shanghai) Co. Ltd, a wholly owned subsidiary of Hyflux Ltd.

He joined Hydrochem (Shanghai) in 1994 as an engineer and eventuallyworked his way up, to now lead the operations in China. Mr Ge headsthe industrial processes business division and oversees the businessdevelopment, and sales and marketing of membrane technology andrelated applications in China.

Mr Ge holds a degree in Chemistry from the Shanghai Science andTechnology University.

Gu Jia Long

Mr Gu is a Senior Consultant for Hydrochem Engineering (Shanghai) Co. Ltd.

His previous appointment in the Group was as Vice President for Finance& Administration and Vice General Manager responsible for the dailyoperations, financial jurisdiction and general administration of HydrochemShanghai.

As Senior Consultant, Mr Gu now advises on overall business strategy aswell as on financial and investment matters.

Mr Gu has more than 40 years of experience in a wide range of industries.Having headed chemical factories and institutions and developmentcompanies, he has also held down portfolios in finance and humanresource.

30

David Wei Chen

Mr Chen is Executive Director for Hyflux Filtech (Singapore) Pte Ltd,overseeing the corporate strategy and direction, business development,human resource as well as financial functions of Hyflux Filtech.

Mr Chen has more than 15 years of regional experience in strategicplanning, business development and management. Prior to joining theGroup in November 2003, Mr Chen was an executive in the liquid filtrationindustry and later served as CEO and Managing Director of two Chinesecompanies.

He holds a degree in Mechanical Engineering from Jiao Tong University,Shanghai.

Gary Guoxing Li

Mr Li is General Manager for Hyflux Filtech (Singapore) Pte Ltd. He isresponsible for the overall sales and marketing and the daily operationsof Hyflux Filtech.

When he joined the Group in November 2003, Mr Li brought with himover 10 years of experience in sales and marketing in the liquid filtrationindustry. He is also experienced in developing related applications in thechemical and petrochemical sectors.

Mr Li holds a degree in Mechanical Engineering from the ShanghaiChemical College and an MBA from Inter American University

31

Global WaterIntelligence estimatesChina’s desalinationmarket growing 160%over 2005-2015. Hyfluxis poised to capture aslice of this market.”- BNP Paribas Peregine, Nov 4, 2004

“

Among leading foreign players in China’s water market, Hyflux ranks…

Financial Highlights

3%

(S$’000)

RevenueProfit Before Tax and Minority InterestsMinority InterestsProfit Attributable to Shareholders

Shareholders’ EquityTotal AssetsNet Assets

Return on Revenue (%)Return on Equity (%)

Net Assets Value per share (cents)Earnings per share (cents)Dividend per share (cents)

2001 2002 2003 20042000

20,7598,631

–6,370

9,13117,92110,469

7.244.400.60

30.7%69.8%

27,2359,447

57,355

31,36643,24731,367

17.603.380.50

27.0%23.4%

45,26711,803

40212,261

53,91572,41453,915

22.825.331.50

27.1%22.7%

81,17219,941

24619,510

85,479115,85485,479

27.356.270.70

24.0%22.8%

88,65529,5071,772

26,767

112,647300,131112,647

35.688.531.27

30.2%23.8%

S$’000

Group Revenue By Country

504540353025

20151050

55

6065

7075

FY00 FY01 FY02 FY03 FY04

250

200

150

100

50

0

%

300

350

Singapore PRC Others

72.9

11.6

5.6

0.4

11.212.4

3.7

23.9

19.8

1.5

48.4

32.1

0.7

9.16.7

36

FY00 FY01 FY02 FY03 FY04

8,6319,447

11,803

19,9412000018000160001400012000100008000600040002000

0

S$’000

FY00 FY01 FY02 FY03 FY04

6,3707,355

19,5102000018000160001400012000100008000600040002000

0

S$’000

12,261

Profit After Tax (PAT)Profit Before Tax (PBT)

7.24

17.60

S$ CENTS

22.82

27.35

FY00 FY01 FY02 FY03 FY04

9,131

31,366

53,915

85,479900008000070000600005000040000300002000010000

0

S$’000

Net Assets Value/ShareShareholders’ Equity

30

25

20

15

10

5

0FY00 FY01 FY02 FY03 FY04

29,507

26,767

100000

112,647 35.68

2200024000260002800030000

22000240002600028000

110000120000

35

40

37

Financial Review

38

(a) OverviewFor FY 2004, net profit for the Group was S$26.8 million, an increaseof 37% over S$19.5 million in FY 2003, on the back of higher sales,improvement in gross margin and lower operating expenses.

Basic earnings per share was 8.53 cents and return on shareholders’equity was 24%. The corresponding figures for FY 2003 were 6.27cents and 23%.

(b) RevenueRevenue for the Group increased by 9% from S$81.2 million in FY 2003to S$88.7 million. The increase was attributed to higher sales of industrialand consumer products which were partially offset by lower municipalsales.

Industrial sales were up 88% from S$34.4 million to S$64.9 million withChina being the main growth market. Such sales comprised 73% ofthe Group total sales as compared to 42% in FY 2003. Municipal salesof S$16.6 million in FY 2004 were largely contributed from the designphase of the seawater desalination plant in Liaoning province, China,and comprised 19% of total revenue as compared against 55% lastyear. Sales from the Consumer Division grew by 157% to S$7.1 million,contributing 8% to Group revenue.

2003: Group Revenue By Sector

Industrial

Municipal

Consumer

73%

19%

8%

Industrial

Municipal

Consumer

42%

55%

3%

2004: Group Revenue By Sector

(S$ Million)

9%

50%

48%

37%

36%

30%

Revenue

Earnings before interest, tax,depreciation & amortisation (EBITDA)

Earnings before interest & tax (EBIT)

Profit after tax after MI

Earnings per share (EPS) (cents)

Net asset value (NAV) per share (cents)

Key Financial Data

2004 2003 Increase

81.2

22.3

20.2

19.5

6.27

27.35

88.7

33.4

29.9

26.8

8.53

35.68

For FY 2004, China was our dominant growth market, contributing 82%of the Group revenue compared to 40% last year. Middle East, a newmarket for the Group, contributed to 3% of total revenue for the year.

(c) Profit after TaxNet profit of S$26.8 million was higher by 37% as compared to theS$19.5 million that was achieved in FY 2003.

Gross margin strengthened from 55% to 59% on the back of higherindustrial sales. Personnel costs were higher by 60% due to thecommencement of operations of two new subsidiaries and the additionalsales and technical support headcount to support the enlarged businessand higher level of research & development activities. Other operatingexpenses amounted to S$9.8 million as compared to S$17.0 millionin the previous corresponding period with civil and subcontracting costsfor municipal contracts constituting a significant part of such expensesin the previous year. Higher depreciation and amortisation expenses in2004 were in line with the increase in fixed and intangible assets.

Financial expenses were higher due to higher interest expenses.The tax incentive in Singapore and tax exempt profits from Chinacontributed to the Group’s effective tax rate of 3.3% for the year ascompared to 3.4% in FY 2003.

Overall, net profit was up by 37% to S$26.8 million. Net margin improvedby 6% to 30%.

2004: Revenue By Country 2003: Revenue By Country

59%

40% 1%

China

Singapore

Middle East

Others

China

Singapore

Others

82%

10%3% 5%

39

(d) Earnings Per Share (EPS)Basic earnings per share rose 36% to 8.53 cents compared to 6.27cents in FY 2003, in line with the higher profit after tax for the Groupin FY 2004.

(e) Balance Sheet ReviewEquity for the Group strengthened from S$85.5 million in the beginningof the year to S$112.6 million as at 31 December 2004, mainly due toprofit generated from operations and issuance of new shares pursuantto employee stock options exercised. This was partially offset by dividendpayment.

Working capital increased by S$57.1 million to S$108.6 million. Theincrease reflected the increases in the cash balance by S$29.4 millionto S$61.3 million, trade receivables by S$12.6 million to S$32.1 million,other receivables, deposits and prepayments by S$19.3 million toS$22.2 million and contracts work-in-progress by S$18.7 million toS$34.4 million, partially offset by higher trade payables and otherpayables. The higher trade receivables and contracts work-in-progresswere primarily due to the award of contracts towards the later part offourth quarter of FY 2004. Other receivables, deposits and prepaymentsincreased mainly due to GST receivables and insurance prepayments.

Total non-current assets were up by S$109.0 million mainly due toprogress in construction of the S$92.5 million seawater desalinationplant, purchase of new office building and leasehold improvements ofS$11.3 million and product development costs of S$5.4 million. Forthe year under review, S$136.7 million of project financing loan wasdrawn for capital expenditure on the seawater desalination plant. Thisresulted in a net debt to equity ratio of 0.72. Excluding the projectfinancing loan, the Group debt to equity ratio was below 0.1.

Net asset value per share of the Group was up 30% from 27.4 centsto 35.7 cents.

40

(f) Cash Flows And LiquidityFor the year ended 31 December 2004, operating cash flow beforeworking capital changes was S$35.0 million, up by 49% compared tolast year. This was partially offset by an increase in working capitalarising from higher sales and the development of new markets.

Overall, the Group generated net cash from operations of S$5.8 million.

Cash used in investing activities of S$114.7 million was primarily forthe purchase of new office building, capital expenditure on the seawaterdesalination plant, acquisition of technology and capitalisation ofdevelopment expenditure. Cash generated from financing activities wasS$138.9 million largely due to the draw down of the project financingloan and short term loan. Overall, the Group improved its cash positionto S$61.3 million, compared to S$31.9 million at the beginning of theyear.

(g) Shareholder ReturnsReturn on Equity, Dividends and Earnings Per Share

Return on equity improved from 23% last year to 24%, not withstandingthe enlarged share capital due to the issuance of new shares duringthe year.

For FY 2004, the company is proposing a final dividend of 1.27 centsper ordinary share compared to 0.7 cents in FY 2003

41

Earnings/Dividend Per Share

EPS DPS

10.00

8.00

6.00

4.00

2.00

0.002000 2001 2002 2003 2004

3.38

5.33

8.53

1.27

7.7

0.71.5

0.50.6

4.40

CE

NT

S

Investor Relations

Multi-Faceted Communication Drive To Reach Out ToShareholders And Investors

In the year, Hyf lux act ively undertook investor relat ions andcommunications efforts, focusing particularly on the key markets ofChina and the Middle East.

The management played a key role in investor relations by meeting upwith fund managers regularly both in Singapore and overseas. InSingapore, Hyflux regularly held one-to-one or group meetings withanalysts and fund managers to communicate the Organisation’s keydevelopments and directions.

Familiarisation tours of the Company’s manufacturing and R&D facilitieswere also frequently arranged to allow analysts and fund managers afull appreciation of its focus on research and development as well asto acquaint them with its operational and business environment.

Roadshows

As part of its investor relations stratagem, Hyflux also participated inseveral roadshows in Hongkong, London and the US, where theOrganisation conveyed information on the growth prospects of Hyflux.Another component of investor relations communication efforts are thebriefings held twice a year when Hyflux releases its half-and full-yearresults.

The briefings provide the management a platform with which to outlinethe Organisation’s strategies, directions, financial and operationalperformance, and business and competitive environment to the media,analysts and investing public.

42

Throughout the year, the local and international media and the investingcommunity (comprising bankers, analysts, fund managers, shareholders,industry consultants and business associates) were also kept informedof important developments through regular corporate announcements,news releases, presentations and exclusive interviews.

Such materials are also posted online on Hyflux’s corporate website,serving as a rich source of information for the investing public on theOrganisation’s latest and previous financial results, share price information,announcements, news releases and research reports

SIAS Investors’ Choice Awards 2004CFO Grace Goh speaking to analysts.

43

Calendar Of Events

January

• Seletar NEWater Plant completed• Chestnut Avenue Waterworks completed• Groundbreaking Ceremony for Tuas Seawater Desalination Plant

June

• Clinched S$155 million deal to develop, design, build, own andoperate a 100,000 m3/day seawater desalination plant in the cityof Tianjin, PRC

• Clinched S$24 million deal to supply membrane process plant formedicinal product application in Shanxi Province, PRC

July

• Signed Memorandum of Understanding with the China NationalEnvironmental Protection Corporation to jointly invest in and developmunicipal and water treatment facilities

September

• Clinched S$85 million deal to design, build, own, operate andtransfer 50,000 m3/day seawater desalination plant in LiaoningProvince, PRC

October

• Topping Out Ceremony for the Tuas Seawater Desalination Plant,marking the completion of concrete works

• Set up joint venture (49:51) with Dubai-based Istithmar PJSC, thelargest property development conglomerate in the Middle East, todevelop, own and operate water utility projects in Dubai, the restof UAE and the Middle East.

November

• Official Opening Ceremony of Hyflux Building and launch of R&DCentre

• Signing Ceremony of the Joint Venture Agreement with IstithmarPJSC

44

Awards & Accolades

February

• Deal of the Year 2003, Asia Pacific Water

The Tuas seawater desalination project financing was named the AsiaPacific Water Deal of the Year 2003 by Euromoney Project Financemagazine. With a 20-year off-take contract with the Singapore PublicUtilities Board and a tenor of 18 years with four international banks,this award has set a new benchmark for Hyflux in terms of scope aswell as complexity of execution in the growing market of privatelyfinanced water projects.

March

• Enterprise Award 2003

Hyflux was accorded the Enterprise Award 2003 at The SingaporeBusiness Awards. Presented by The Business Times and DHL,the award, among Singapore's most prestigious, recognises homegrowncompanies for their outstanding record of innovation, entrepreneurialculture, financial performance and growth. It is conferred by a paneldrawn from business, government, academic and media fields.

September

• Winner of the Most Transparent Company Award 2004

Hyf lux netted the Most Transparent Company Award for theServices/Uti l i t ies/Agriculture Sector at the Securit ies InvestorsAssociation of Singapore (SIAS) Investors’ Choice Awards 2004.This award recognises corporations for the timeliness, substantialityand clarity of their news releases as well as the degree of mediaaccess, frequency of corporate results, availability of segmentalinformation and communication channels. This award is a strong voteof confidence in the stringency of Hyflux’s corporate governanceand financial accounts management.

October

• Arts Supporter Award

National Arts Council presented Hyflux with the Arts SupporterAward at the Distinguished Patron of the Arts Award 2004. This awardrecognises individuals and organisations for their contr ibutiontowards the promotion of cultural and artistic activities in Singapore

45

Hyflux’s consistentpeformance hasincreased ourconfidence in its abilityto grow and capitaliseon the increasingdemand for water.”- DBS Vickers Securities, Feb 24, 2005

“

The outlook for Hyflux is bright as its order book jumped from $62m in FY03 to FY04’s…

Outlook

Global Water Shortage

Global water usage has jumped six-fold from the last century. And thisincrease has surged: Over the last 50 years, water usage nearly doubled,driven by population growth, industrialisation and urbanisation. Thesupply side of the equation has, however, lagged in terms of policies,infrastructure and facilities to renew, treat and distribute water resources.

The United Nations expects the global water cr isis to reachunprecedented levels in the years to come with “growing per capitalscarcity of water in many parts of the developing world”. There are 500million people living in water-stressed countries and the World Bankexpects the number to leap to three billion by 2025. Some S$460 billionin investments are needed in the Asia Pacific alone to cater to the steep rise.

China is among the principal countries that are expected to be besetwith the twin problems of acute water shortages and water pollution.It has 20 percent of the world’s population but only 8 percent of thefresh water supply. This is further aggravated by the poor geographicdistribution of water resources within the country.

This could prove a critical constraint to China’s economic growth. Tocurtail water wastage, more than half the cities in China are presentlyforced to impose water restrictions while Beijing recently increased itswater tariffs for the ninth time in fourteen years, from 2.9 yuan per tonto 3.7 yuan per ton.

With the China market estimated to be worth some S$8.6 billion, thistranslates to tremendous opportunities for the water treatment industry.

Similarly, economic development and population growth in the UAEexert great strain on water resources. The UAE’s consumption of waterper head now ranks among the world’s highest. In 2000, its demandfor freshwater was 453 million gallons a day. This is expected to increaseby 30 percent in 2010.

50

"Despite the technological advances made by man, thefact remains that he has yetto find a substitute for water."

- Anonymous

Desalination

In its report Desalination Markets 2005-2015, Global Water Intelligence,a UK-based publication that provides analysis and strategic data onthe international water market, highlighted that the world desalinationmarket is expected to double in 10 years.

Already China and India are poised to turn to large-scale seawaterdesalination for their immediate water needs. The 650,000 m3/dayadditional capacity these two countries are expected to bring online by2015 could spark a massive move into desalination in the longer run.

The largest market for desalination, the Gulf area, is expected to investsome $25 bill ion to fund standalone desalination plants and thedesalination portion of integrated power and water projects over 2005-2015.

Membrane Technology

As water shortages worsen, China is studying the possibility of applyingmembrane technology towards sustainable development. This is partof the nation’s five-year plan for the Development of Science andTechnology, as formulated by the Science and Technology Ministry.

Given growing applications in the petrochemical, medical, pharmaceutical,electrical and food industries, the market for membrane technologylooks even more promising. Based on the current annual growth of 15percent in output value, it is predicted that China’s membrane marketwill be worth S$4.1 billion come 2015.

Improvements in membrane performance have resulted in reducedcapital and operating costs in applications employing membranetechnology. The membrane process, particularly reverse osmosis (RO),is also gaining popularity in the realm of desalination. Reflecting this,some 59 percent of total new-built capacity is membrane-based.

52

Promising Trends

All these trends bode well for Hyflux’s prospects. Its RO desalinationproject in Tuas will achieve a world record low in desalination cost.Having made inroads into China’s desalination market and the Gulfregion, Hyflux is positioned for more orders in the years ahead wheninstalled capacity of over 40 million m3/day comes onboard over thenext 20 years.

Hyflux also enjoys a strong competitive position as it manufactures itsown proprietary membranes and is thus able to offer a better valueproposition to its clients.

With its comprehensive suite of integrated membrane-based engineeringexpertise and range of membrane products, Hyflux is well poised toalleviate the global water deficit by capitalising on its capabilities in theareas of water recycling, water desalination and air-to-water conversion

53

Operations Review - Water Division

The Water Division is involved in the design, supply, operation andmaintenance of custom-built water treatment plants. It uses advancedmembrane systems for applications such as seawater desalination, rawwater purification, wastewater cleaning, water recycling, sewage waterreclamation and ultra-pure water production for municipalities andindustries.

It provides one-stop services as an engineering, procurement andconstruction (EPC) contractor and, if required, as an operation andmaintenance (O&M) contractor. It also provides outright sales, Design-Build-Own-Operate (DBOO) and Design-Build-Operate (DBO) models.

Middle East

The highlight of the year was undoubtedly Hyflux’s entry into the MiddleEast market. In October, the Organisation inked a deal with IstithmarPrivate Joint Stock Co (PJSC) to set up a joint venture (49:51) in Dubai.An investment holding company, Istithmar PJSC is part of a group ofcompanies that include the Ports, Customs and Free Zone Corporationand Nakheel Corporation of Dubai, United Arab Emirates.

The Istithmar deal will give Hyflux immediate access to major waterinfrastructure projects in UAE and its neighbouring countries over thenext three years.

Hyflux will support the joint venture in developing, owning and operatingwater utility projects (seawater desalination plants, commercial andindustrial water treatment plants, wastewater treatment and recyclingplants, distribution networks and collection networks) for Nakheel, oneof the biggest real estate developers in the Middle East.

A joint press conference held by Hyflux and its Dubai partners.

54

Nakheel is involved in some of the globe’s most spectacular multibillion-dollar projects. These include the world’s two largest manmade islandsjust off the coast of Dubai, known as The Palm Jumeirah and The PalmJebel Ali. Its other highly acclaimed, groundbreaking project is TheWorld, an exclusive, private water retreat comprising over 200 islandsof varying sizes positioned to form the shape of the world. These islandswill boast shopping malls and sports facilities as well as apartmentsand luxury hotels.

Already the Hyflux/Istithmar joint venture has been awarded two DBOOcontracts worth S$103 million from Nakheel for the construction of:

(a) A seawater desalination plant located on the eastern part of themain crescent of the Palm Jumeirah in Dubai; and

(b) A membrane bioreactor treatment plant at the Dubai Metals and Commodities Centre.

Both plants will utilise advanced membrane treatment systems. Theseawater desalination plant has a designed capacity of 38,000 m3/dayfor the production of potable water, and the membrane bioreactorplant has a designed capacity of 40,000 m3/day - expandable to60,000 m3/day - for the production of irrigation quality water.

Both plants are expected to be completed by 2005.

This strategic alliance provides the gateway for Hyflux’s entry into thewater-scarce but economically flourishing Middle East market. As well,it marks a breakthrough for Hyflux beyond the Asia Pacific market.

The Palm

55

Singapore

NEWater plant at SeletarThe Seletar NEWater plant, designed and built by Hyflux using itsproprietary kristal300 ultrafiltration membrane system, was completedlast year and officially opened by the then Minister for the Environment,Mr Lim Swee Say, on June 18, 2004. Hyflux will continue to operateand maintain the plant for Public Utilities Board (PUB) over the nexttwo years.

Most recently in March, the Seletar NEWater plant was highly commendedby Global Water Intelligence at the Global Water Awards 2005. Thejudges’ verdict: The Seletar NEWater plant sets the standard for waterrecycling projects around the world.

Ms Olivia Lum explaining to then Minister for the Environment,

Mr Lim Swee Say, the intricacies of the Kristal300 Membrane

Technology at the official opening of the Seletar NEWater factory.

56

Seawater desalination plant at Tuas

In 2004, Hyflux embarked on the construction of the Tuas seawaterdesalination plant. Located at the western tip of Singapore, thedesalination plant will contribute 136,380 m3/day of water to the PUB’spotable water mains.

SingSpring Pte Ltd, a wholly owned subsidiary of Hyflux, is the developerand owner of the plant. SingSpring has awarded the EPC contract forthe plant to another Hyflux subsidiary, Hydrochem (S) Ptd Ltd. HyfluxEngineering Pte Ltd, yet another Hyflux subsidiary, will operate andmaintain the plant.

This 20-year water purchase agreement (WPA) to build Singapore’s firstseawater desalination plant marks many firsts. It is Singapore’s firstpublic-private partnership project. It is the first large-scale use of reverseosmosis desalination technology in Singapore. It is also Asia’s largesttropical seawater desalination plant and is expected to be one of themost energy-efficient desalination plants in the world. The financing ofthe project by four international banks led by DBS Bank gainedinternational recognition, resulting in Euromoney Project Finance Magazinehailing it the Asia Pacific Water Deal of the Year 2003.

Overview of Infilter DAFF system at the Tuas seawater desalination plant.

57

Project Milestones

The first piling works for the Tuas project started in January 2004. Theproject progressed well on schedule and all concrete works werecompleted by October, after which a topping out ceremony was held.By then, the project team and all contractors were mobilised on siteand moving towards peak production.

By December, the project was over 75% completed, well ahead ofschedule. The 66kV substation was energised and the project teamstarted testing and commissioning the plant, just under a year from thedate when construction commenced. The Project Commercial OperationDate (PCOD) is expected to be brought forward to June/July 2005,ahead of the scheduled December date.

The Tuas desalination underscores Hyflux’s award-winning track recordin executing BOO schemes. The company’s experienced commercialand financial teams have now acquired the necessary project structuringexpertise, including the funding of capital investment required to keepconstruction of the plant to a firm schedule, and providing full operationsand maintenance services to ensure the plant’s performance andreliability.

Testing and commissioning of infilter DAFF system at the Tuas seawater desalination plant.

58

Administration and Control Building of the Tuas seawater desalination plant.

China

With the strong track record it has built up, Hyflux made furtherinroads into the China municipal market last year with the signing of aMemorandum of Understanding with the China National EnvironmentalProtection Corporation to collaborate on municipal water and wastewaterprojects.

In June, Hyflux secured a project to build, own and operate China’slargest seawater desalination plant in Tianjin City. The S$155 millionmembrane-based treatment plant will supply 100,000 m3/day of industrial-and city-grade water to the district of Dagang in Tianjin for an initialperiod of 30 years when it is completed in 2006. There are also plansto expand the capacity of the plant to 150,000 m3/day by 2008.Negotiation of key contracts is in progress.

In September 2004, Hyflux signed an agreement in Huludao, LiaoningProvince, to build, own, operate and transfer a 50,000 m3/day seawaterdesalination plant. The partners set up Newspring (Huludao) Co as thevehicle to undertake the S$86 million project.

Hyflux Filtech (Shanghai) Co Ltd, one of Hyflux’s subsidiaries in China,and Liaoning Zhengye Group Real Estate Development Co Ltd will eachown 49% of Newspring (Huludao). Hydrochem (S) Pte Ltd, a whollyowned subsidiary of Hyflux, will be providing the technical support indeveloping the project and will take on the role of turnkey engineering,procurement and construction contractor for the plant.

Newspring (Huludao) will undertake the operational and maintenancework. The project will be funded by equity and by non-recourse orlimited recourse borrowing. The Huludao Municipal People’s Governmenthas also agreed to provide credit and other support for the project.

When completed in 2006, this membrane-based plant will supplyindustrial grade water and potable water to the municipality of Huludaoin Liaoning Province for an initial period of 30 years, with plans to expandthe capacity of the plant to 100,000 m3/day after 2008. S$96 millionworth of design and construction contracts have been awardedto Hyflux.

The Tianjin and Huludao orders have enabled Hyflux to hold its own inChina against other leading non-PRC water treatment players.

Looking ahead, Hyflux plans to continue to explore technology acquisitionsand business ventures in the region, including India, Thailand, Africaand the Middle East

60

Hyflux in China

Ha Er Bin

Beijing

Wu Xi

Shanghai

Shenzhen

Tianjin

Xi’an Nanjing

ShanxiHebei

Shandong

Henan Suzhou

Hubei

Guandong

Zhejiang

Ningxia

Hunan

Hangzhou

Guangxi

Tangshan

Jiangnan

61

Operations Review - Industrial Processes Division

The Industrial Processes Division focuses on the design, fabricationand installation of a wide range of liquid treatment systems for thebiotechnology, pharmaceutical, agri-food, chemicals and petrochemicalssegments sectors.

Hyflux adopts an environmentally friendly solution to such liquid processing– using its membrane technology for the separation, concentration andpurification of process industry fluids.

With biotechnology an up-and-coming industry in China, Hyflux’smembrane systems capable of treating these liquid streams will bein demand.

Last year, Hyflux also made inroads into the green food process industryfor cane sugar process technology where Hyflux’s stainless steelmembrane separation technology developed in-house improved thevarious processes in sugar mills considerably. Sugar mills now are ableto enjoy higher product yield and quality, better efficiency and significantcost reductions.

In June 2004, Hyflux won a S$24 million contract to build a membrane-based treatment plant for the manufacturing facility of Shanxi Heyi FineChemical Industry Ltd, a fine and specialty chemical company in ShanxiProvince. The plant will manufacture Shanxi Heyi’s core medicinalproducts and will have an annual capacity of 160 tonnes once it iscompleted in 2005.

Shanxi Heyi Fine Chemical Industry Ltd specialises in the manufactureand sale of medicinal products like abamectic. The selection of Hyflux’smembrane system is further evidence of the versatility and the cost-effectiveness of its membrane technology and process know-how.

In July, Hyflux obtained Beijing's permission to improve the wastesituation at a pulp-and-paper mill in Shanghai. At the moment, anaverage 95 percent of pulp waste generated by the mill is dischargedinto rivers. Using Hyflux technology, the mill will be able to remove mostof the organic compounds in the waste discharge. The purified watercan then be recycled for reuse.

62

The pulp and paper industry in China is the third biggest polluter in thecountry. The industry produces pulp waste totaling over one billiontonnes a year, or 11 percent of the country’s annual waste.

If its membranes prove successful in this specific application, Hyfluxwould be able to reap first-mover advantage in a billion-dollar industry,as well as pilot a key polluting industry onto a new chapter in wastemanagement. Hyflux has embarked on similar waste-managementprojects in other industries - namely for Dandong Fibre Co. Ltd andXinxiang Fibre Co. Ltd.

More recently in January 2005, Hyflux clinched its largest industrial dealworth S$107 million.

It established a joint venture company with Ningxia Electric PowerDevelopment & Investment Co. Ltd (NEPDIC) and Western PVC Co.Ltd (WPVC) to build, own and operate an organic acid plant in ShizuishanCity, Ningxia Province, using its in-house membrane process technology.

NEPDIC is a state-owned company incorporated in Ningxia that engagesin the investment and operation of power plants and related propertyand high technology projects as well as investment management andconsultancy. WPVC is one of the largest manufacturers in China ofpolyvinyl chloride resins and other chemical raw materials.

Hyflux will undertake the engineering, procurement and construction(EPC) of the plant as well as operate and maintain it. The first phaseis slated for completion in 2006. This affirms Hyflux’s position as aleading supplier of liquid treatment plants to the biotechnology sectorusing advanced membrane that it developed

63

Operations Review - Structured Projects Division

The Structured Projects Division targets the growing market for privately-financed water projects. It plans to undertake these projects chiefly on aBuild-Own-Operate (BOO) or Build-Operate-Transfer (BOT) basis.

On a BOO project, a project sponsor undertakes the development,funding, design, construction, ownership and operation of the project for adefined period of time. The arrangement involves a long-term supply contractwith the client, who is charged accordingly for the services delivered. Witha BOT scheme, the sponsor undertakes the same functions. However theproject is transferred to the client at the end of the supply contract term.

By combining its strong engineering, procurement and construction (EPC)management capability with its substantial operational experience andfinancial expertise, the Structured Projects Division helps its customers realisethe most cost-effective solutions for their water treatment and liquidseparation needs.

The Division has set its sights on the following market sectors:

• Desalination• Water treatment for municipalities, governments and cities• Water treatment for industrial processes• Liquid treatment for industrial processes

Our Horizon Has Opened Up Considerably

With the Group increasingly drawing water supply projects that are morecomplex in structural framework, a good number of the landmark projectsclinched in 2004 were BOT and BOO in nature.

The growing contribution from structured projects, such as the seawaterdesalination plants in Tianjin and Liaoning, PRC, the organic acid plant inNingxia, PRC, as well as the projects clinched in the Middle East offer theGroup steady income streams.

Apart from providing the Group with greater recurring income, undertakingprojects through BOO and BOT schemes also spurs the Group to developnew applications and processes and expand existing ones to meet projectneeds. This enriches the Group’s knowledge pool and proprietary technology- both of which are linchpins of the Group’s success.

The year also saw Hyflux embarking on a securitisation exercise for theTuas desalination project that is expected to be operational in June/July2005. This ongoing exercise is part of the Group’s asset-light strategy,intended to lend the Group greater financial flexibility to allow it to spread itswings even more

64

“Of all the social and natural crisis we humans face,the water crisis is the one that lies at the heart of our

survival and that of our planet Earth…”

- UNESCO Director-General, Koichiro Matsuura.

The Consumer Products Division was set up as a new business unitin 2003 to launch Hyflux into a market segment new to the Group - theconsumer market made up of both residential and corporate end-users.

Key products designed for this market include the dragon-fly series ofair-to-water generat ion and puri f icat ion units. Based upon agroundbreaking, patented air-to-water technology, these machinesextract water from the atmosphere, which is then purified through Hyflux’sproprietary membrane technology.

Hyflux holds exclusive manufacturing rights to the dragon-fly and itspatents for the machine are filed in more than 37 countries.

In addition, Hyflux Consumer Products Division also presented to thismarket a range of other water purification products such as faucet filters.

The Group’s entry into the consumer market represents anotherexample of Hyflux’s ability to leverage on its strength in membrane andpurification technology to develop groundbreaking products that benefitpeople and the environment.

It is Hyflux’s vision to transform the potable water industry through itsconsumer products by offering users in regions with no ready accessto clean water the means to easily generate high quality drinking water.

A Beginning Full Of Promise

The Consumer Products Division unleashed its flagship dragon-flyair-to-water machines on the global marketplace in 2004.

T16, the first model to be launched, was greeted enthusiastically bythe market. It has since been shipped to many countries including India,Malaysia, Mexico, Sri Lanka, Taiwan, the USA and the UAE.

Hyflux has now moved on to develop the second model of dragon-fly,M18, which sits easily on a kitchen tabletop. With its attractive designand intuitive user-friendly features, the M18 is designed to fit the lifestyleneeds of modern homes and offices.

Operations Review - Consumer Products Division

66

Apart from pre-orders received by property developers, the M18 willalso be sold through distributors appointed in the USA. This model isscheduled to be unveiled to the market in the middle of 2005.

As for other lifestyle water purification products such as the innovativefaucet filters, the division has embarked on a strategic programme toincrease both product range and geographic coverage. In this segment,it operates as an Original Design Manufacture (ODM) and market thiscategory of products to consumers through appointed distributors.

The Hyflux Consumer Products Division’s vision is to draw upon theinnovative technology and environmentally friendly practices currentlydeployed in its Water and Industrial Processes divisions to improve thelife of the individual consumer, creating a trusted global brand for itsconsumer products

Training Seminar on membrane technology for its faucet

filters.

67

dragon-fly M18 dragon-fly T16

Hyflux has been oneof the most outstandingperformers in theSingapore Exchange.Despite its amazingperformance, we seeroom for more rises.”- BNP Paribas Peregine, Nov 4, 2004

“

Growth in share price since 2001 listing…

The Business Times, Dec 12, 2004

Research & Development

Technology – A Key Driver

The Group CEO, Ms Olivia Lum, personally oversees the R&D function,shaping its work in line with Hyflux’s key growth strategy, which is toleverage upon the company’s proprietary membrane technology andprocess know-how to break into the global market. Recognising thelimitations in just being a systems integrator, Hyflux appreciates that itmust possess its own technology and develop its own brand name inorder to become a leader in the water treatment field.

Hyflux is cognisant that these two developments will give the Organisationa competitive edge in the market as well as the capability to providecomplete one-stop solutions to its clients.

Since it embarked on membrane research in the early 1990s, Hyfluxhas been developing its own membranes, which have been deployedin a number of key projects including the Seletar NEWater Plant. Today,membrane technology is not only used in treating water but also appliedtowards a wide range of liquid treatments for the fermentation, millingand refining industry.

Fundamentally Hyflux views R&D not just as a vehicle to stay ahead butas the chief instrument that will put the Organisation on the world map.The Organisation invested some S$6.1 million in R&D last year andover the next two years, it will set aside some 5 to 8 percent of its totalrevenue for R&D activities.

Singapore As A Global Hydrohub

In 2004, the Economic Development Board (EDB) announced that itwill embark on a strategic focus on growing the water industry, with thegoal of developing Singapore into a Global Hydrohub targeting 3 to 5percent of the global water industry market worth some S$430million and another 5 to 10 percent of the global membrane market.

Supported by the Economic Development Board, Hyflux invested in amultimillion-dollar membrane and materials technology R&D Centre. Thecentre was officially launched last November by Dr Yaacob Ibrahim,Singapore’s Minister for the Environment and Water Resources.

The largest membrane and materials technology centre in Asia outsideJapan, the facil ity wil l focus on research applications aimed atspearheading the development of cutting-edge technologies in waterand environmental engineering solutions.

72

The research covers:a) The development of hollow fibre membranes and modules, including

flat sheet membranes;

b) The development of various types of novel membranes with differentconfigurations;

c) New applications for membranes used in environmentally-friendlysolutions by industries;

d) The development of biodegradable plastics from renewable resources;

e) The application of green plastics in various fields, including medical;and

f) The application of membranes in the sphere of consumer products.

The centre will eventually have more than 10 research laboratories,including a knowledge centre, an innovative process developmentcentre, a novel materials and membrane products development centreas well as advanced machining, prototyping and industrial designfunctions. It will employ a further 100 research and developmentpersonnel to beef up the existing team. All these will support Hyflux’splanned evolvement into a leading global fluid management company.

Manufacturing

Upon the Organisation’s move to its new premise at Kallang Bahru inJuly 2004, a one-storey extension workshop with a mezzanine floorwas built on the adjacent land to cope with growing fabrication activitiesand storage needs. With a built-in area of 15,935 square feet, theworkshop, together with the new eight-storey Hyflux Building, occupiesa land area of some 144,000 square feet. With this, all of the operationsof the company - the R&D, sales, corporate, manufacturing andproduction divisions - are now housed under one roof

73

Human Resource

Personnel

As Hyflux expands its global footprint, developing an international poolof competent managers and committed staff becomes increasinglycritical. The quest for talented manpower saw our total number ofemployees in Singapore grow from 277 at the beginning of 2004 to302 by the end of the year. The new recruits add muscle mainly to theConsumer Products and R&D divisions as well as augment Hyfluxcorporate management team.

The recruitment strategy was largely led by demand. Orders for theOrganisation’s consumer products had increased substantially towardthe second half of FY 2004. The Organisation was also bumping up itsR&D efforts. As a result, Hyflux increased its R&D strength to a totalof 41 by 31 December 2004.

Open Communication

Hyflux believes in open communication among staff. In line with this,twice a month, the Organisation hosts lunches or dinners at which staffof all levels come together to partake of a ‘family meal’. This offers aplatform for new staff to be introduced to existing staff and for staff fromvarious departments to mingle and exchange ideas outside their regularwork areas.

In addition, a CEO Communication Session is organised every quarter,during which the Group CEO, Ms Olivia Lum, shares with all employeesthe vision, values, directions and corporate performance and strategiesof Hyflux.

2004 also saw the launch of Hyflux’s staff newsletter, HYNEWS. Thisnewsletter ensures that as the Organisation expands and becomesgeographically more dispersed, employees are kept informed andabreast of news about every member of the Hyflux family. This form ofkeeping communication open is crucial not only from an operationalstandpoint but also critical in forging a common Hyflux culture in whichall staff are united by shared values and a common sense of purpose.

Headcount as at 31 Dec 2004

Group Total

-

-

1063

4754

303

1

---

210

514

Singapore

Malaysia

ChinaHydrochem Engineering (Shanghai) Co. LtdHyflux Aquosus (Shanghai) Co. LtdHyflux Filtech (Shanghai) Co. LtdHangzhou Zheda Hualu Membrane Tech Co. Ltd

74

Nurturing the Hyflux Family

To reinforce the sense of fellowship and pride among the Hyflux family,a number of recreational activities were organised in the year. Sincemoving into its new building at Kallang Bahru in July 2004, theOrganisation has held a National Day Celebration barbeque as well asseveral evening parties at the rooftop garden-cum-staff lounge. Thesebashes were highly successful events, with staff unwinding and gettingto know their fellow workers better.

Recognising the importance of a healthy and happy workforce, theOrganisation took an active lead in launching in-house fitness programmesat its new auditorium. Of these, Pilates and Boxercise classes haveproven the most popular.

Training & Development

As Hyflux strives to be an employer of choice, one of its key prioritieswill be the pursuit of initiatives that will enhance and strengthen itshuman capital. For as Hyflux expands, it is its human resource that willprovide the Organisation its greatest leverage for growth. Hyflux willfocus on strengthening its human capital through continuous trainingto develop and upgrade the skills of its employees. During the year,a host of courses pertinent to Hyflux’s strategic direction and pertainingto the building of professional expertise and relevant skills were providedfor the staff. Training programmes to improve safety and quality at workwere also stepped up.

The Organisation carries out a performance review on a half-yearly basisas part of its ongoing programme to retain employees and help themdevelop. This formal feedback system is carried out in three phases:goals setting, performance review, and training and development. Thefeedback session during these reviews forges better understandingbetween employees and supervisors. It also provides staff with a greaterappreciation of their strengths and enables them to develop to theirfullest potential

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Information Technology

A New Management Platform

To support Hyflux’s growing global footprint, the Organisation set up a newOracle Application-based enterprise management platform in 2004.

Its scaleable information infrastructure means that daily operational datacan now be captured and archived so that value-adding processes suchas advanced planning, supply-chain management, balanced scorecardand other operation management tools can be employed as the Organisation’soperation grows in complexity.

The Oracle system also integrates the day-to-day operations of differentdepartments of the Organisation by routing transactions automatically to theappropriate departments for processing, thereby improving productivity andthe quality of the transactional reporting process.

As the Organisation continues to build on its technology edge with intensificationof its R&D efforts, a sound framework is needed to anchor the company inits management of emerging issues such as the protection of proprietaryinformation.

By standardising internal business processes and ensuring qualitymanagement, process control and data security, the Oracle system willprovide the business the robust platform requisite for further growth.

Initial phase of the implementation was completed in Singapore in the year.Subsequent phases will involve the Organisation’s operations oversea

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Community Bonding

Hyflux recognises that its business rests on the support of the communitiesit operates and invests in. The management thus views corporate citizenshipas an integral part of the decisions and actions taken by the Organisation.Making its own distinctive contribution to society through its carefully selectedcorporate activities, the Organisation continues to focus its efforts on theenvironment, community and education in the year.

Helping Society And The Nation

On the corporate front, the year saw Hyflux supporting numerous charitableorganisations and events. They include the Community Chest, SingaporeRed Cross Society, Philippine Bayanihan Society of Singapore as well asthe Community Development Council fund raising activities.

Hyflux also provided sponsorship and donations to the National Day Parade2004, the Singapore Institute of International Affairs 2004 fund raising effortsand the Association of Small And Medium Enterprises of Singapore.

Individually, Hyflux employees also engaged in local community work bycontributing their time, financial resources and business know-how towardsraising funds for causes such as the Children’s Charities Association andTan Tock Seng Hospital Medifund.

Patron Of The Arts

Hyflux’s support of the arts was recognised in the year, when it was conferredthe Arts Supporter Award at the Patron of the Arts Award 2004 for itsinvolvement with the Singapore Chinese Orchestra.

Education And Environment

Hyflux recognises the importance of education and continues to developand contribute to programmes that open up educational opportunities.

A key programme championed by Hyflux is the Education Trust Fund, whichaims to meet the education needs of Malay and Muslim children fromdisadvantaged families in Singapore. In addition, Hyflux supports institutionslike the National University of Singapore, Hwa Chong Junior College, NgeeAnn Polytechnic, Juying Primary School and Causuarina Primary School.

Pioneer Secondary School is another school that Hyflux took under its wings,collaborating with it on several projects. Among them was the school’scommemoration of Clean & Green Week 2004, where Hyflux teamed upwith the school to present a joint environmental project. Hyflux also workedwith a group of Pioneer Secondary students to participate in the Asia-EuropeScientists of Tomorrow Programme at the Genoa Science Festival 2004.

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Tsunami Efforts

Hyflux was quick to respond to the Tsunami tragedy that struck many countrieson Boxing Day, 2004. In the aftermath of the natural disaster, one of theprincipal fears was the danger of a cholera epidemic due to water contaminationfollowing the full-scale destruction of infrastructure. To address this, theOrganisation instantly placed 1,200 units of its dragon-fly water dispenserson standby.

Hyflux further pledged 10 units to the Andaman and Nicobar islands throughCorbett Foundation, a Non-governmental Organisation, as well as 20 unitsto Sri Lanka and 10 units to the Maldives.

Through a coordinated effort with its business associates in the affectedcountries and several organisations, the Organisation also customised twoseawater desalination plants as well as four water generation plants.

Within the Organisation, six Hyflux staff from India whose families wereaffected by the disaster were assisted by a Hyflux Staff Tsunami Fund inwhich contributions by staff were matched dollar for dollar by the Organisation.

Inspiring Budding Entrepreneurs

Hyflux believes in the importance of providing inspiration and encouragementto budding entrepreneurs and leaders. In line with this, the Organisation’schief executive, Ms Olivia Lum, maintains a heavy schedule of public speakingengagements.

In 2004, Ms Lum made various presentations on entrepreneurship andleadership to a large number of organisations and institutions including FarEast Organisation, Urban Redevelopment Authority, Singapore Institute ofManagement, GlaxoSmithKline, Stanford Graduate MBA Study Group andthe Singapore Council of Women’s Organisations

Clean & Green Week, Schools Carnival, 2004. Ms Olivia Lum with her ex-colleagues at GlaxoSmithKline.

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We believe in providing our clients with a total solution. We fully understand the heart of the matterbecause we have the expertise and the experience in being an integrated solutions provider, offeringservices that include design, supply, operation and maintenance of a wide range of liquid treatmentsystems. More importantly, we have our own proprietary membrane technology, developed throughyears of research and using cutting-edge technologies. For the record, the Hyflux Group has beeninstrumental in designing and building the largest membrane-based municipal water treatment plantin Asia and two municipal NEWater plants, which treats secondary treated wastewater to producehigh-grade water. The Hyflux Group is also building Asia’s largest tropical seawater desalination plantto supply 136,000 cubic metres of potable water per day under a public private partnershiparrangement. We have met the needs of governments and municipalities around the world, and wehave provided solutions for the agri-food, pharmaceutical, biotech, chemicals and petrochemicalindustries. Hyflux has the solution to meet your needs. To get a clearer picture, visit us at www.hyflux.com

Singapore Head Office • HYFLUX LTD • Hyflux Group of CompaniesHyflux Building, 202 Kallang Bahru, Singapore 339339. Tel: (65) 6214 0777 Fax: (65) 6214 1211 Email: sales@hyflux.com www.hyflux.com

China Office • Hydrochem Engineering (Shanghai) Co Ltd • A Hyflux Group Company99 Ju Li Road, Zhangjiang Park, Pudong New Area, Shanghai 201203, PRC. Tel: (8621) 5080 5118 Fax: (8621) 5080 5128

Contrary to popular belief, Hyflux does not just produce water.Contrary to popular belief, Hyflux does not just produce water.

Growing The Hyflux Brand

In 2004, Hyflux’s branding strategy was aimed at changing publicperception that it is just a water treatment company.

In Singapore, Hyflux is well known for building the Bedok NEWater plantand the Tuas seawater desalination plant. However few are aware thatit also built the Seletar NEWater plant using its proprietary kristal300membranes as well as the Chestnut Ave Waterworks, one of the largestmembrane-based potable water treatment plants in Asia.

Even fewer people know that the Organisation is also a leading namein industrial separation processes, with its membranes extensivelyemployed in pharmaceutical and chemical manufacturing facilities forseparation, purification and production processes.

To address this lack of knowledge, Hyflux ran an advertising campaignrevolving around the tagline “Contrary to popular belief, Hyflux doesn’tjust produce water”. Carried in a spectrum of business magazines anddirectories, the campaign features the visual of an image of a membranethat has been digitally morphed into that of a water droplet, to highlightthe Organisation’s core strength in membrane technology.

The year also saw Hyflux adopting the dragonfly motif in its corporatebranding efforts as a symbol that reflects the nimbleness, adaptabilityand responsiveness that the Organisation strives for

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Corporate Information

Company SecretaryLim Kim Seng

Audit CommitteeLee Joo Hai (Chairman)Teo Kiang KokGay Chee CheongOlivia Lum Ooi Lin

Nominating CommitteeTeo Kiang Kok (Chairman)Lee Joo HaiGay Chee CheongOlivia Lum Ooi Lin

Remuneration CommitteeTeo Kiang Kok (Chairman)Lee Joo HaiGay Chee CheongChristopher MurugasuOlivia Lum Ooi Lin

Executive CommitteeOlivia Lum Ooi Lin (Chairman)Dr Deirdre MurugasuLim Kim SengFoo Hee KiangGrace GohDavid Charles HurnRose Tong

Registered OfficeHyflux Building202 Kallang BahruSingapore 339339Tel: +65 6214 0777Fax: +65 6214 1211

Share Registrar AndShare Transfer OfficeLim Associates (Pte) Ltd10 Collyer Quay#19-08 Ocean BuildingSingapore 049315

AuditorsErnst & YoungCertified Public Accountants10 Collyer Quay#21-01 Ocean BuildingSingapore 049315

Partner in ChargeMax Loh Khum Whai

BankersDBS Bank Ltd6 Shenton WayDBS BuildingTower oneSingapore 068809

Oversea-Chinese BankingCorporation Limited65 Chulia StreetOCBC CentreSingapore 049513

Mizuho Corporate Bank Ltd168 Robinson Road#13-00 Capital TowerSingapore 068912

HYFLUX LTDHyflux Building202 Kallang BahruSingapore 339339T: (65) 62140777F: (65) 62141211www.hyflux.com