CEI Contract Manufacturing Limited - 联合早报网ir.zaobao.com.sg/cei/docs/cei2005ar.pdf · CEI is committed to observing good standards of corporate governance and a continual

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Contact:

Tel: (65) 6481 1882 Fax: (65) 6481 9662

Address:

2 Ang Mo Kio Ave 12 Singapore 569707

E-mail:

[email protected]

ANNUAL REPORT2 0 0 5

CEI Contract Manufacturing Limited

Company Registration No: 199905114H


1 Corporate Profile / Corporate Information

2 Chairman’s Message

4 Board of Directors

5 Key Management Executives

6 Report on Corporate Governance

12 Risk Identification, Management Policies and Processes

14 Financial Highlights

15 Financial Report

64 Statistics of Shareholders

65 Notice of AGM

67 Proxy Form

Contents

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Corporate Profile

1

Board of DirectorsTien Sing Cheong (Executive Chairman)Tan Ka Huat (Managing Director)Gan Chee Yen (Non-Executive Director)Tan Bien Chuan (Independent Director)Tang Martin Yue Nien (Independent Director)

Nominating CommitteeTan Bien Chuan (Chairman)Tang Martin Yue NienTien Sing Cheong

Remuneration CommitteeTang Martin Yue Nien (Chairman)Tan Bien ChuanGan Chee Yen

Audit CommitteeTan Bien Chuan (Chairman)Tang Martin Yue NienGan Chee Yen

CEI ESOS CommitteeTan Bien Chuan (Chairman)Tang Martin Yue NienGan Chee YenTien Sing CheongTan Ka Huat

Company SecretariesTeo Soon HockSusie Low Geok Eng

Registered Office10 Collyer Quay#19-08 Ocean BuildingSingapore 049315

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

Business Office2 Ang Mo Kio Avenue 12Singapore 569707

AuditorsErnst & YoungCertified Public AccountantsSimon Yeo (Engagement Partner)*10 Collyer Quay#21-00 Ocean BuildingSingapore 049315

*Appointed in Financial Year 2003

SolicitorsColin Ng & Partners50 Raffles Place#29-00 Singapore Land TowerSingapore 048623

BankersOversea-ChineseBanking Corporation Limited65 Chulia Street#10-00 OCBC CentreSingapore 049513

The Hongkong and ShanghaiBanking Corporation Limited21 Collyer Quay#01-00 HSBC BuildingSingapore 049320

Citibank N.A. (Singapore Branch)3 Temasek Avenue#17-00 Centennial TowerSingapore 039190

Founded in 1980 and listed on the main board of the Singapore Exchange Securities

Trading Limited in March 2000, CEI Contract Manufacturing Limited is an established

turnkey contract manufacturer.

The Company provides printed circuit board and box-build assembly services. It is also

well equipped to provide value-added services such as materials management, circuit

layout design, prototype engineering, product design & development engineering,

and building up capabilities to provide full turnkey and metal stamping services.

The Company serves customers within the industrial equipment market segment. These

include electro-luminescent displays used in industrial, transportation, aerospace and

medical applications; medical and health care equipment; office equipment as in digital

photocopiers; analytical instruments as in gas and liquid chromatographs and measurement

instruments; industrial safety controllers and environmental sensors.

The Company is QS9000, ISO9001:2000, IS0 13485, AS9100 (Letter of Conformance) and

People Developer certified.

2, Ang Mo Kio Avenue 12Singapore 569707

Batamindo Industrial ParkLot 312 Jalan Beringin, Muka Kuning

Batam, Indonesia

2, Street 6 Vietnam Singapore Industrial ParkThuan An, Binh Duong Province

Vietnam

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Chairman’s Message

DEAR SHAREHOLDERS

FINANCIAL YEAR 2005

In Financial Year (FY) 2005, the Group’s Revenue increased by 13.0% or $8.1 million, from $62.5 million in FY 2004 to$70.6 million. Comparing the Group’s Revenue on a half-year basis, the first and second half Group’s Revenue for FY2005 were $35.5 million and $35.1 million respectively.

The Group recorded Profit After Taxation of $5.8 million, an increase of 8.8% over FY 2004. Profit After Taxation as apercentage of Revenue was 8.2% and 8.5% for FY 2005 and FY 2004 respectively. The increase in profit was due to (1)an increase in Revenue; (2) lower share of associated company losses; and (3) a decrease in Group tax arising from alower provision for tax of a subsidiary company.

During FY 2005, ten new customers were engaged. Sales to these customers were $1.2 million or 1.7% of Group’sRevenue. This modest number is consistent with all our early engagement of new customers. We believe that someof these new customers will become significant contributors to our revenue in the years ahead.

The Company was awarded the ISO 13485. This was an important development because it allowed us to addressopportunities in the medical equipment industry. The company successfully installed the lead-free process capability;this positioned us to meet the RoHS directive which would take effect on 1 July 2006. We also added a new flying probein-circuit tester, which enabled us to offer cost effective fixtureless in-circuit testing for those customers who need quickturn-around.

In FY 2005, we integrated the Honeywell's 6 Sigma "Manufacturing Process Control" methodology in our factoryfor aerospace products. The fundamental objective of 6 Sigma was to establish a measurement-based strategy to focuson systematic process improvement and variation reduction. This year CEI had further engaged Neville-Clarke asour 6 Sigma corporate consultant to share their expert knowledge, provide training and project implementationorganisation wide.

During the year, the Company signed a joint development master agreement with the Institute of Microelectronics (IME)to explore business opportunities. This built on IME's semiconductor facility which offered integrated circuits (IC) designwith low volume manufacturing services. During the year, the Company entered into a joint venture with SumitomoCorporation (Singapore) Pte Ltd and Systems@Work Pte Ltd to offer mobile payment service in Vietnam.

The Group's financial position remained strong with no borrowings and a net cash of $ 12.0 million at the endof FY 2005.

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FINANCIAL YEAR 2006

We expect sustainable growth in the Group's Revenue in thefirst half of FY 2006. This is supported by a robust book-to-billratio. We are in a good position to take on new businessopportunities with the additional production capabilities wehave installed in Vietnam.

We are also seeing increased customer visits since the beginningof FY 2006. We continue to work hard to be less dependent onany one major customer by increasing our customer base.

Profit margin is expected to be lower in FY 2006 compared toFY 2005. This is due to pricing pressures from customers, whichcannot be matched by concurrent reduction in material costs.The Group's profit after taxation as a percentage of revenuefor FY 2006 will range from 7% to 8%.

DIVIDENDS

The Board is pleased to recommend payment of :

• A tax exempt second and final dividend of 0.34 cents pershare amounting to approximately $1.1 million; and

• A tax-exempt special dividend of 0.555 cents per shareamounting to approximately $1.8 million.

Total interim, special and final dividend declared for the financialyear FY 2005 approximate to 2.69 cents or $8.8 million.

ACKNOWLEDGEMENT

I would like to express my sincere appreciation to ourCustomers, Partners in our supply chain, Shareholders andMembers of CEI, for your continual support.

Tien Sing Cheong

Chairman20 February 2006

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Board of Directors

4

Mr Tien Sing CheongExecutive Chairman

Appointed as Executive Director on 28 August 1999 and was last re-elected on 8 April2003. Mr Tien is also the Executive Chairman of the Company. Mr Tien holds a Bachelorof Science in Engineering degree from the University of Hong Kong, a Master of Sciencedegree from Stanford University, California and a Master of Business Administrationdegree from the University of Santa Clara, California. Mr Tien is also a Fellow of theInstitution of Mechanical Engineers, United Kingdom.

Mr Gan Chee YenNon-Executive Director

Appointed as a Non-Executive Director since 28 August 1999 and was last re-elected on8 April 2003. Mr Gan is the Senior Managing Director, Investments of Temasek Holdings(Private) Limited. He is also a member of the Board of Commissioner of PT Bank DanamonIndonesia, Tbk. Mr Gan holds a Bachelor of Accountancy degree from the NationalUniversity of Singapore. He has also participated in the Program for ManagementDevelopment at the Harvard Business School in September 2001.

Mr Tan Ka HuatManaging Director

Appointed as Executive Director on 28 August 1999 and also Managing Director of theCompany. Mr Tan holds a Bachelor of Science (Physics) degree from Nanyang University(now NTU), a Diploma in Business Administration from the National University ofSingapore and a Master of Business degree from University of Technology, Sydney.

Mr Tang Martin Yue NienIndependent Director

Appointed as an Independent and Non-Executive Director on 9 February 2000 and waslast re-elected on 25 March 2004. Mr. Tang is Chairman, Asia of Spencer Stuart, a globalexecutive search consulting firm, and is based in Hong Kong. Mr. Tang holds a Bachelorof Science degree in Electrical Engineering from Cornell University in Ithaca, New Yorkand a Masters of Science degree from the Massachusetts Institute of Technology’s SloanSchool of Management and is a trustee of both Cornell University and MassachusettsInstitute of Technology.

Mr Tan Bien ChuanIndependent Director

Appointed as an Independent and Non-Executive Director on 9 February 2000 and waslast re-elected on 28 March 2005. Mr Tan is the co-founder and Managing Director ofOCBC, Wearnes & Walden Management (Singapore) Pte Ltd, a venture capital firm. Heis also a non-executive director of Goodpack Limited. Mr Tan holds a Bachelor of Science(Hons) degree in Computer Science and Accounting from the University of Manchester,United Kingdom and is a member of the Institute of Chartered Accountants in Englandand Wales.

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Mr Seow Sin Leng

Mr Seow Sin Leng is the Senior Director, Corporate Services. Mr Seow holds a Bachelorof Accountancy degree and a Master of Business Administration degree from the Universityof Singapore.

Mr Ng Cheng Kung

Mr Ng Cheng Kung is the General Manager, PT Surya Teknologi Batam. Mr Ng holds anAdvanced Diploma in Automation in Manufacturing from the Singapore Polytechnic.

Mr Heng Teck Yow

Mr Heng Teck Yow is the Director, Business Development / Sales. Mr Heng holds a Diplomain Industrial Engineering.

Mr Lim Piak Hwa

Mr Lim Piak Hwa is the Senior Director, Materials Management. Mr Lim holds a Bachelorof Engineering degree from the National University of Singapore, a graduate diplomain Marketing Management from the Singapore Institute of Management and a Master ofBusiness (Accounting) degree from Monash University, Melbourne.

Ms Thng Ah Hiang

Ms Thng Ah Hiang is the Senior Director, Customer Relations Management / Marketing.Ms Thng holds a Diploma in Industrial Management from the Singapore Polytechnic.

Mr Hung Nyet Hiong

Mr Hung Nyet Hiong is the Director, Engineering. Mr Hung holds a Bachelor ofEngineering (Electrical) degree from the National University of Singapore.

Key Management Executives

5

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REPORT ON CORPORATE GOVERNANCE

CEI is committed to observing good standards of corporate governance and a continual process of developingprocedures and policies in keeping with best business practice.

This Report describes CEI’s corporate governance practices with specific reference to the Code Of CorporateGovernance (“Code”), a “listing requirement” under the SGX-ST Listing Manual.

Where otherwise indicated, CEI believes that it has and will remain compliant with the Code.

BOARD OF DIRECTORS

In complying with the Code, –

• The Company is headed by an effective Board to lead and control its operations and affairs (Principle 1);

• Attendance of Board meetings and Committee meetings held during the financial year are set out under TableA (Guidance Note 1.1);

• In ensuring that operations and Board executive time are not disrupted, Board and Committee meetings for theensuing financial year are organised prior to the start of each ensuing financial year (Guidance Note 3.2(a));

• The Executive Chairman sets the agenda for each board meeting in consultation with the Managing Director.As a general rule, board papers are disseminated to directors at least 5 days prior to a scheduled meeting. Asand when required, management personnel are invited to Board meetings to provide additional information onany matters held for discussion (Guidance Note 3.2(b));

• Apart from scheduled Board Meetings, all directors are appraised of the financial performance of the Company and the Group on a monthly basis (Guidance Note 3.2(c));

• Article 120(2) of the Company’s Articles provide for telephonic and video-conferencing meetings (Guidance Note1.1);

• All transactions concerning mergers, acquisitions, investments and capital expenditures exceeding $500,000 arediscussed and come under the Board’s purview (Guidance Note 1.2);

• The Company will update newly appointed and existing directors on relevant new laws, regulations and changingcommercial risks as and when they are made known (Guidance Note 1.3);

• The Company’s Board composition and balance comprise independent directors making up at least one-thirdof the Board (Guidance Note 2.1);

• Directors are only considered independent under circumstances spelt out in Principle 2, Guidance Note 2.1 ofthe Code (Guidance Note 2.1);

• In considering the scope and nature of the operations of the Company and of the Group, the current size of theBoard is considered appropriate. Additional members will be added to the Board as and when circumstancesrequire (Guidance Note 2.3);

• There are adequate relevant competencies of the directors, who as a group carry specialist backgrounds instrategic planning and direction, industry knowledge and experience, accounting and finance, investmentbanking and corporate finance and human resource executive search and management (Guidance Note 2.4);

• The Company’s Board assumes responsibility for corporate governance (Guidance Note 3.2).

• Should directors, whether as a group or individually, need independent professional advice, the CompanySecretary will, upon direction by the Board, appoint a professional advisor selected by the group or the individual,to render the advice. Such costs from professional advice rendered will be borne by the Company (Principle6.4 ); and

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• The Company Secretary attends all board meetings and is responsible to ensure that board procedures arefollowed. It is also the Company Secretary’s responsibility to ensure that the Company complies with therequirements of the Companies Act and all other rules and regulations of the SGX (Guidance Note 6.3).

• To ensure an appropriate balance of power, increased accountability and greater capacity of the Board forindependent decision making, the roles of chairman and chief executive officer are separated (Guidance Note3.1).

TABLE A

DIRECTORS’ ATTENDANCE AT BOARD AND BOARD COMMITTEE MEETINGS

Nominating Remuneration Audit

Board Committee Committee Committee

Attended Attended Attended Attended

Tien Sing Cheong 100% 100% NA NA

Tan Ka Huat 100% NA NA NA

Gan Chee Yen 66 2/3% NA 66 2/3% 66 2/3%

Tan Bien Chuan 100% 100% 100% 100%

Tang Martin Yue Nien 100% 100% 100% 100%

NOMINATING COMMITTEE (NC)

The NC’s establishment is mandated by Article 126 of the Articles with written terms of reference.

In complying with the Code, -

A formal and transparent process for the appointment of new directors and re-appointment of directors is in placedand empowered through the NC’s Terms Of Reference (Principle 4).

These principal functions include -

• Making recommendations to the Board on the appointment of new executive and non-executive directors,including making recommendations to the composition of the Board generally and the balance between executiveand non-executive directors appointed to the Board (Guidance Note 4.1);

• Responsibility for identifying and nominating candidates for the approval of the Board, determining annuallywhether or not a director is independent (Guidance Note 4.3);

• Recommending Directors who are retiring by rotation to be put forward for re-election. All Directors are requiredto submit themselves for re-nomination and re-election at regular intervals and at least every three years. Article107 of the Articles requires one-third of the Board to retire by rotation at every AGM (Guidance Note 4.2);

• Deciding whether or not a director is able to and has been adequately carrying out his duties as a director ofthe Company, particularly when a director has multiple board representations (Guidance Note 4.4); and

• To adopt internal guidelines that address the competing time commitments that are faced when directors serveon multiple boards (Guidance Note 4.4).

Principle 5 of the Code provides that there “should be a formal assessment of the effectiveness of the Board as awhole and the contribution by each director to the effectiveness of the Board”.

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NOMINATING COMMITTEE (NC) (cont’d)

Given the current size of the Board, and that both executive directors of the Company are the Executive Chairman

and Managing Director and that each independent and non-executive director hold specialist and complementary

backgrounds, the NC takes the view that an assessment of the Board’s performance as a whole correspondingly

reflects the contribution of each director (Guidance Note 5.1 & 5.3). Although there is no formal assessment of

the Board's performance, the NC makes it a practice to review the Group’s performance at all NC meetings.

Therefore, in evaluating the Board’s performance as a whole, the NC reviews –

• Quantitative performance criteria such as return on assets, return on equity, return on investment, profitabilityon capital employed, dividend yield, share price performance measured against reasonably similar industriestogether with other financial ratios were considered (Guidance Note 5.1 & 5.2); and

• Qualitative performance criteria such as the Company’s strategic longer term and short term goals were considered(Guidance Note 5.1 & 5.2).

REMUNERATION COMMITTEE (RC)

The RC’s establishment is mandated by Article 126 of the Articles with written terms of reference.

In complying with the Code –

The RC will review and recommend to the Board, a framework of remuneration for the Board and key executives.The RC’s review will principally include –

• Review all aspects of remuneration including directors’ fees, salaries, allowances, bonuses, options and benefits-in-kind (Principle 7);

• Review remuneration packages against those comparable within the industry and comparable companies wherethis is possible and that they are reasonable and that these should include a performance-related elementcoupled to the Company’s financial performance (Guidance Note 7.3 and Principle 8); and

• Review remuneration packages of employees related to executive directors of the Company and of the Groupand that these commensurate with their respective job scopes and levels of responsibility (Guidance Note 9.3).

The RC notes the following with respect to the current financial year –

With respect to remuneration packages for executive directors,

• The Executive Chairman and Managing Director are currently on 2-year Service Agreements which

commenced on 1 November 2005 under terms and conditions approved by the Remuneration Committee; and

• The terms of remuneration for the Executive Chairman and Managing Director include a performance bonus

element based on the Group’s profitability.

Executive directors do not receive Directors’ fees.

Non-executive directors are paid directors’ fees subject to approval at the AGM.

The Company’s CEI ESOS Scheme is administered by the CEI ESOS COMMITTEE of whom all members of the RCare also members of the CEI ESOS COMMITTEE.

Details of the CEI ESOS Scheme are disclosed in the Directors’ Report (Guidance Note 9.4).

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REMUNERATION COMMITTEE (RC) (cont’d)

A breakdown showing the level and mix of each individual director’s remuneration payable for FY 2005 is as follows(Guidance Note 9.2):

Directors’ Remuneration

FEES SALARY BONUS BENEFITS

NAME (S$) (S$) (S$) (S$)

Tien Sing Cheong - 190,900 187,358 45,680

Tan Ka Huat - 235,740 191,278 40,128

Tan Bien Chuan 45,150 - - 4,569

Tang Martin Yue Nien 45,150 - - 4,569

Gan Chee Yen 39,900 - - 4,569

Notes :

Directors Fees are subject to approval by shareholders as a lump sum at the AGM for FY 2005.

Directors’ interest in share options are disclosed in the Directors’ Report.

For Senior Executives Remuneration (Who Are Not Directors Of The Company), disclosure of the top five executives’remuneration in bands of $250,000 is disclosed under Note 25 (b) to the Accounts (Guidance Notes 9.1 & 9.2).

The remuneration for Tien Sing Gee, General Director of CEI International Investment (VN) Limited, a wholly ownedsubsidiary of the Company is also disclosed under Note 25 (b) to the Accounts. Mr Tien Sing Gee is related to theExecutive Chairman (Guidance Note 9.3).

The Company adopts a remuneration policy for staff comprising a fixed component and variable component. Thefixed component is in form of a base salary. The variable component is in the form of a variable bonus that is linkedto the Company and individual performance (Principle 9).

AUDIT COMMITTEE (AC)

The AC’s establishment is mandated by Article 126 of the Articles with written terms of reference.


• The AC has explicit authority to investigate any matter within its terms of reference, full access and co-operation by Management and full discretion to invite any director or executive officer to attend its meetings (Guidance

Note 11.3);

• The AC reviews the scope and results of the external and internal audit and its cost effectiveness and theindependence and objectivity of the external auditors (Guidance Note 11.4);

• The AC has undertaken a review of all non-audit services provided by the external auditors and is of the opinion that the provision of such services does not affect the independence of the external auditors;

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AUDIT COMMITTEE (AC) (cont’d)

• The AC meets with the external auditors and with the internal auditors respectively, without the presence of the Company’s management (Guidance Note 11.5);

• The AC will review the independence of the external and internal auditors annually (Guidance Note 11.6); and

• Nominate external and internal auditors for re-appointment.

The Board has ultimate responsibility for the systems of internal control maintained and set in place by management.The systems are intended to provide reasonable assurance, but not an absolute guarantee against material financialmisstatement or loss, safeguarding investments and assets, reliability of financial information, compliance withappropriate legislation, regulation and best practice and the identification of business risks (Principle 12).

To a large extent, the Board’s responsibilities are fulfilled through the AC (Guidance Note 12.1).

The AC has reviewed the Company’s risk assessment based on the Internal Auditor reports and given the scopeof work done and findings for the year, is assured that the Company’s systems of internal controls are adequatelyin place (Guidance Note 12.1).

In addressing business risks and the adequacy of systems of internal controls, the AC has considered the following(Guidance Note 12.2) –

• The review and identification of business risks is an ongoing process; and

• A reliance on management and the internal auditors to identify key business risks prior to determining the scope and nature of internal audit work required.

The Company’s internal audit function is independent of the business activities it audits (Principle 13) –

• The internal audit function is outsourced to BDO Raffles (Guidance Notes 13.2 & 13.3) ;

• The internal auditor reports directly to the Chairman, AC (Guidance Note 13.1) ;

• The scope of internal audit work is proposed by the internal auditor and is approved by the AC (Guidance Note 13.4); and

• To ensure the adequacy of the internal audit function, the AC is appraised of the internal audit work, findingsand follow-up work at all AC meetings. (Guidance Note 13.4)

CEI ESOS COMMITTEE

The CEI ESOS Committee comprises of five directors, two of whom hold executive positions.

The role of the Committee is to –

• Ensure that the Rules of the CEI Employee Share Option Scheme are adhered to;

• Select eligible employees of the group to participate in CEI ESOS, the Company’s share option incentive scheme;and

• Determine the number of shares and the subscription price to be offered to each participant taking intoconsideration, the service and performance of the participant.

The final CEI ESOS was granted on 6 September 2005.

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COMMUNICATION WITH SHAREHOLDERS


• The Company has adopted half-yearly reporting of its financial results based on its market capitalisation andare published through the SGXnet and news releases (Guidance Note 14.1);

• All information of the Company’s business initiatives are disclosed on a timely basis and does not practiceselective disclosure (Guidance Note 14.2);

• The Company has also engaged the services of Zaobao.com, an investor relations company, as a means ofreaching out to its mandarin speaking audience;

• The Company’s AGMs have been well attended and convenient venues have been selected in the past (GuidanceNote 15.1);

• Shareholders are given ample time and opportunities to air their views and ask directors or managementquestions concerning the Company (Guidance Note 15.1);

• Separate resolutions for each distinct issue are tabled for shareholders approval Guidance Note 15.2);

• Article 90(2) of the Articles allows a member of the Company to appoint up to two proxies to attend and voteinstead of the member (Guidance Note 15.1).

SECURITIES TRANSACTIONS

The Company has issued a Policy on Share Dealings to key employees of the Company, setting out the implicationsof insider trading and the recommendations of the Best Practices Guide issued by the Singapore Exchange SecuritiesTrading Limited. To further provide guidance to employees on dealing in the Company’s shares, the Company hasadopted a code of conduct on transactions in the Company’s shares. The code of conduct was modeled after theBest Practices Guide with some modifications. For example, the Company Secretary informs the directors, seniormanagement and senior accounting personnel that they should not deal in the Company shares during the periodcommencing one month before half-year and full financial year announcements of the Company's financialstatements. In addition, the Company Secretary also reminds the offence of insider trading under the Securitiesand Futures Act for the directors and employees to deal in the Company shares when they are in possession ofunpublished material price-sensitive information in relation to the Company shares.

The Directors have adopted the Best Practices Guide with regard to dealing in the Company’s shares.

On behalf of the Board,

Tien Sing Cheong Tan Ka HuatDirector Director

Singapore20 February 2006

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RISK IDENTIFICATION, MANAGEMENT POLICIES AND PROCESSES

Operating and business risks and associated management responses and policies may be summarised as follows:

(i) CustomersA major customer, Planar, account for 41.2% (FY 2004 – 43.7%) of the Group’s revenue in FY 2005. Significantreductions in orders over a short period of time, from Planar will have adverse impact on our financial results.

Over the years, the Group has aimed to decrease dependency on major customer accounts by increasing itscustomer base. Since its listing in FY 2000, we have secured 20 new customer accounts and sales to thesecustomers account for 15.9% of FY 2005 Revenue.

(ii) Availability and pricing of componentsWe procure components needed in manufacturing for our customers. Some of these customers’ componentsare available only from a single supply source. In the event that such suppliers are unable to supply thecustomised components, we may not be able to develop an alternative source of supply in a timely manner.This will delay our production and delivery to customers and have a material adverse impact on our financialresults.

Furthermore, the price of electronic components will increase during periods of shortage. Any significantincrease in such purchase price which cannot be absorbed by our customers will have a material adverse effecton our financial results.

Working with our customers to accept alternate suppliers is an on-going effort.

(iii) Currency ExchangeOur sales revenue is denominated mainly in US dollars. Our purchases of components are denominated inUS dollars and Euros. The percentages of our sales and expenses denominated in foreign currencies in FY2005 are set out as follows :

US Dollar Euro_______________________________________________________________________________________________________Sales in US dollars as a percentage of total revenue 99% NA_______________________________________________________________________________________________________Purchases in US dollars and Euros as apercentage of total costs 69% 7%_______________________________________________________________________________________________________

In view of the above foreign currency exposures, given the Singapore dollar as our reporting currency, wehave net exposures in US$ receivables and Euro payables. Therefore, a depreciation in the US dollar relativeto the Singapore dollar will generally have an unfavourable effect on our financial results. Conversely, anappreciation in Euro relative to the Singapore dollar will generally have an unfavourable effect on our financialresults.

We will continue to monitor our foreign exchange exposure and are using hedging instruments to manageour foreign exchange risk on an ongoing basis.

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(iv) Industry competitionWe continue to focus on the high mix / low-to-moderate volume segment of the PCBA and Box-Build markets. We are not in any position to prevent competitors from entering into the market.

(v) Dependence on key management personnelThe success of the Group depends on the continued services of our key management personnel.

The Group encourages succession planning to ensure that there is timely backup.

On behalf of the Board,



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FINANCIAL HIGHLIGHTS

2000 2001 20020.0

0.5

1.0

1.5

2.0¢ Earnings per share

2003 2004

2000 2001 20020

1000

2000

3000

4000

5000

$’000 Profit after tax and extraordinary items

2003 2004

6000

2000 2001 20020

2

4

6

8

10

12

% Profit after tax and extraordinary items(as a percentage on turnover)

2003 2004

14

2000 2001 20020

5

10

15

20

25

30

$’000 Shareholder’s fund

2003 2004

40

2000 2001 20020

10

20

30

40

50

60

$’000 Turnover

2003 2004

70

2005 2005

2005

2005

2005

80

45,879

53,597

42,39140,978

62,451

70,562

17,872

22,728

25,964

25,256

28,850

27,239

5,2974,709

4,236

3,462

3,458

5,765

1.15

1.68

1.42

1.58

1.21

1.83

7.5

10.0

8.88.4

8.5

8.2

1999

25,143

1999

6,963

7.3

19991999

1,828

0.89

1999

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Directors' Report and Audited Financial Statements

CEI Contract Manufacturing Limited & Subsidiary Companies31 December 2005

Directors

Tien Sing Cheong (Executive Chairman)Tan Ka Huat (Managing Director)Gan Chee YenTan Bien ChuanTang Martin Yue Nien

Company Secretaries

Teo Soon Hock (appointed on 30 August 2005)Susie Low Geok Eng

Registered office

Address : 10 Collyer Quay, #19-08 Ocean Building, Singapore 049315Telephone : (65) 6536 5355Fax : (65) 6536 1360Email : [email protected]

Bankers

Oversea-Chinese Banking Corporation LimitedThe Hongkong and Shanghai Banking Corporation LimitedCitibank N.A.

Share Registrar

Lim Associates (Pte) Ltd10 Collyer Quay, #19-08Ocean Building,Singapore 049315

Auditors

Ernst & YoungPartner-in-charge (since financial year ended 31 December 2003): Simon Yeo

Index Page

Directors’ Report 16

Statement by the Directors 21

Auditors' Report 22

Consolidated Profit and Loss Account 23

Balance Sheets 24

Statements of Changes in Equity 25

Consolidated Cash Flow Statement 27

Notes to the Financial Statements 28

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Directors' Report

The directors are pleased to present their report to the members together with the audited consolidated financialstatements of CEI Contract Manufacturing Limited (the Company) and its subsidiary companies (collectively, theGroup) and the balance sheet and statement of changes in equity of the Company for the financial year ended 31December 2005.

1. Directors

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

Tien Sing Cheong (Executive Chairman)Tan Ka Huat (Managing Director)Gan Chee YenTan Bien ChuanTang Martin Yue Nien

In accordance with Article 107 of the Company’s Articles of Associations, Mr Tien Sing Cheong and Mr GanChee Yen will retire and, being eligible offer themselves for re-election.

2. Arrangements to enable directors to acquire shares and debentures

Except as described in paragraph 5 below, neither at the end of nor at any time during the financial year wasthe Company a party to any arrangement whose objects are, or one of whose object, is to enable the directorsof the Company to acquire benefits by means of the acquisition of shares or debentures of the Company or anyother body corporate.

3. Directors’ interest in shares and debentures

The following directors, who held office at the end of the financial year, had, according to the register of directors’shareholdings required to be kept under Section 164 of the Companies Act, Cap. 50, an interest in shares andshare options of the Company as stated below :-

Direct interest

At At

beginning end

Name of director of the year of the year

The Company

Ordinary shares of $0.05 each

Tien Sing Cheong 33,807,600 34,687,600Tan Ka Huat 15,021,360 15,901,360Gan Chee Yen 475,200 475,200Tan Bien Chuan 1,108,800 1,878,800Tang Martin Yue Nien 158,400 1,268,800

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Directors' Report

3. Directors’ interest in shares and debentures (cont’d)

Direct interest

At At

beginning end

Name of director of the year of the year

The Company

Share options of $0.1803 each

exercisable from 5.6.2002 to 5.6.2005

Gan Chee Yen 475,200 -Tang Martin Yue Nien 475,200 -



Tang Martin Yue Nien 475,200 -



Gan Chee Yen 440,000 440,000Tan Bien Chuan 440,000 -Tang Martin Yue Nien 440,000 -



Tien Sing Cheong 660,000 -Tan Ka Huat 660,000 -Gan Chee Yen 330,000 330,000Tan Bien Chuan 330,000 -Tang Martin Yue Nien 330,000 330,000



Tien Sing Cheong 220,000 -Tan Ka Huat 220,000 -Gan Chee Yen 132,000 132,000Tan Bien Chuan 132,000 132,000Tang Martin Yue Nien 132,000 132,000

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Directors' Report

3. Directors’ interest in shares and debentures (cont’d)

There was no change in any of the above-mentioned interests between the end of the financial year and 21January 2006.

By virtue of Section 7 of the Companies Act, Cap. 50 Tien Sing Cheong and Tan Ka Huat are deemed to haveinterests in shares of the subsidiaries of the company, all of which are wholly-owned.

Except as disclosed in this report, no director who held office at the end of the financial year had interests inshares, share options, warrants or debentures of the Company, or of related corporations, either at the beginningof the financial year, or at the end of the financial year.

4. Directors’ contractual benefits

Except as disclosed in the financial statements, since the end of the previous financial year, no director of theCompany has received or become entitled to receive a benefit by reason of a contract made by the Companyor a related corporation with the director, or with a firm of which the director is a member, or with a Companyin which the director has a substantial financial interest.

5. Options

The CEI Contract Manufacturing Employees’ Share Option Scheme (“CEI ESOS”) is administered by the followingmembers :

Tan Bien Chuan (Chairman and Independent Director)Tang Martin Yue Nien (Independent Director)Gan Chee Yen (Non-executive Director)Tien Sing Cheong (Executive Chairman)Tan Ka Huat (Managing Director)

Each share option entitles the employees of the Company to subscribe for one new ordinary share of $0.05 eachin the Company. The options are granted in consideration of $1 per option for all the shares in respect of whichthe option is granted. The options may be exercised after two years but not later than 5 years from the date theshare option was granted. The shares under option may be exercised in full or in blocks of 1,000 shares or amultiple thereof on the payment of the exercise price. The employees to whom the options have been granteddo not have the right to participate, by virtue of the options, in a share issue of any other company. Optionsgranted are cancellable when the option holder ceases to be in office or under full-time employment of theCompany subject to certain exceptions at the discretion of the Company.

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Directors' Report

5. Options (cont’d)

Details of all the options to subscribe for ordinary shares of $0.05 each of the Company pursuant to the CEIESOS as at 31 December 2005 are as follows:

Number of shares

Exercisable granted Exercise

Date of grant period under options option price ($)

2 February 2001 2.2.2003 – 2.2.2006 6,301,856 0.149018 September 2002 18.9.2004 – 18.9.2007 9,207,000 0.121513 February 2003 13.2.2005 – 13.2.2008 8,525,000 0.12367 July 2003 7.7.2005 – 7.7.2008 2,607,000 0.15786 September 2005 6.9.2007 – 6.9.2010 2,372,000 0.1520

29,012,856

Balance as at Balance Number of ExerciseDate of 1.1.2005 or date Options Options Options as at holders as at Price Exercisablegrant of grant if later exercised lapsed forfeited 31.12.2005 31.12.2005 $ period

5.6.2000 3,678,104 1,939,880 1,738,224 – – – 0.1803 5.6.2002 – 5.6.20052.2.2001 1,913,936 1,473,132 – – 440,804 29 0.1490 2.2.2003 – 2.2.2006

18.9.2002 5,508,400 3,197,000 – – 2,311,400 29 0.1215 18.9.2004 – 18.9.200713.2.2003 7,920,000 4,600,000 – – 3,320,000 30 0.1236 13.2.2005 – 13.2.20087.7.2003 2,431,000 649,000 – 33,000 1,749,000 22 0.1578 7.7.2005 – 7.7.20086.9.2005 2,372,000 – – – 2,372,000 68 0.1520 6.9.2007 – 6.9.2010

23,823,440 11,859,012 1,738,224 33,000 10,193,204

Details of the options to subscribe for ordinary shares of $0.05 each of the Company granted to directors of theCompany pursuant to the CEI ESOS are as follows:

Name of director Aggregate options granted Aggregate options exercised Aggregate options lapsed Aggregate optionssince commencement of since commencement of since commencement of outstanding as at end

scheme to end of the scheme to end of the scheme to end of the of financial year financial year financial year financial year

Tien Sing Cheong 3,234,000 3,234,000 – –Tan Ka Huat 3,234,000 3,234,000 – –Gan Chee Yen 1,852,400 475,200 475,200 902,000Tan Bien Chuan 1,852,400 1,720,400 – 132,000Tang Martin Yue Nien 1,852,400 1,390,400 – 462,000

12,025,200 10,054,000 475,200 1,496,000

There are no participants who are controlling shareholders of the Company. Except for Tien Sing Cheong andTan Ka Huat, no other participants have received 5% or more of the total number of options available under CEIESOS.

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Directors' Report

6. Audit Committee

The Audit Committee (AC) comprises three members, all of whom are non-executive directors. The majority ofthe members including the Chairman, are independent. The members of the AC in office at the date of thisreport are :-

Tan Bien Chuan (Chairman and Independent Director)Tang Martin Yue Nien (Independent Director)Gan Chee Yen

The financial statements, accounting policies and system of internal accounting controls are the responsibilityof the board of directors acting through the AC. The AC met as necessary and performed the functions specifiedin the Singapore Companies Act, Cap. 50. In performing its function, the AC reviewed the overall scope of theexternal audit. It met with the Company’s external auditors to discuss the results of their examination and theirevaluation of the Company’s system of internal accounting controls. The AC also reviewed the assistance givenby the officers to the auditors. The financial statements and the auditors’ report thereon were reviewed by theAC prior to their submission to the directors of the Company for adoption.

In addition, the AC has reviewed the requirements for approval and disclosure of the interested personstransactions, reviewed the procedures set up by the Group and the Company to identify and report and wherenecessary, seek approval for interested persons transactions and reviewed interested persons transactions.

The AC recommends to the board of directors that the auditors, Ernst & Young, be nominated for reappointmentas auditors at the forthcoming Annual General Meeting of the Company.

7. Auditors

Ernst & Young have expressed their willingness to accept reappointment as auditors.

On behalf of the board of directors,



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We, Tien Sing Cheong and Tan Ka Huat, being two of the directors of CEI Contract Manufacturing Limited, do herebystate that, in the opinion of the directors,

(a) the accompanying balance sheets, consolidated profit and loss account, statement of changes in equity, andconsolidated cash flow statement together with notes thereto are drawn up so as to give a true and fair viewof the state of affairs of the Group and of the Company as at 31 December 2005 and of the results, changesin equity and cash flows of the Group and the changes in equity of the Company for the year ended on thatdate, and

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

On behalf of the board of directors,



Statement by the Directors

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To the Members of CEI Contract Manufacturing Limited

We have audited the accompanying financial statements of CEI Contract Manufacturing Limited (the Company) andits subsidiary companies (collectively, the Group), set out on pages 23 to 63 for the year ended 31 December 2005.These financial statements are the responsibility of the Company’s directors. Our responsibility is to express anopinion 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 the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosuresin the financial statements. An audit also includes assessing the accounting principles used and significant estimatesmade by the directors, as well as evaluating the overall financial statements presentation. We believe that our auditprovides a reasonable basis for our opinion.

In our opinion,

(a) the consolidated financial statements of the Group and the balance sheet and statement of changes in equityof the Company are properly drawn up in accordance with the provisions of the Companies Act, Cap. 50 (theAct) and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs ofthe Group and of the Company as at 31 December 2005 and the results, changes in equity and cash flows ofthe Group and the changes in equity of the Company for the 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 subsidiarycompanies incorporated in Singapore of which we are the auditors have been properly kept in accordance withthe provisions of the Act.

ERNST & YOUNGCertified Public Accountants


Auditors’ Report

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Group

Note 2005 2004

$ $

(Restated)

Revenue 4 70,562,352 62,450,800

Cost of sales (51,378,720) (43,859,155)

Gross profit 19,183,632 18,591,645

Other income 474,248 295,353General and administrative costs (9,680,376) (9,709,032)Selling and distribution costs (2,284,133) (1,765,101)Other operating income – 90,611

Profit from operations 5 7,693,371 7,503,476

Share of results of associated company (59,000) (175,848)

Profit from operations before taxation 7,634,371 7,327,628Taxation 6 (1,869,586) (2,030,225)

Profit after taxation 5,764,785 5,297,403

Earnings per share

Basic 7 1.85 cents 1.72 cents

Diluted 7 1.83 cents 1.68 cents

The accompanying accounting policies and explanatory notes form an integral part of the financial statements.

Consolidated Profit and Loss Account for the year ended 31 December 2005

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Group Company

Note 2005 2004 2005 2004

$ $ $ $

(Restated) (Restated)

ASSETS LESS LIABILITIES

Non-Current Assets

Property, plant and equipment 8 7,782,328 7,835,608 1,148,414 1,470,729Investments in subsidiary companies 9 – – 9,480,338 7,623,518Investments in associated companies 10 622,250 200,000 681,250 200,000Investment securities 12 – 1,022,883 – 1,022,883Deferred tax asset 6 550,000 450,000 550,000 450,000

8,954,578 9,508,491 11,860,002 10,767,130

Current Assets

Cash and cash equivalents 13 12,031,169 16,747,968 11,222,694 16,010,569Trade receivables 14 9,978,814 7,980,422 9,923,766 7,885,248Other receivables 15 298,069 607,061 185,713 156,316Amounts owing by subsidiary

companies 16 – – 3,417 1,659,382Amounts owing by related

companies, trade – 5,347 – 5,347Inventories 17 7,967,373 7,267,188 7,966,623 7,266,443Investment securities 12 2,772,883 1,000,000 2,772,883 1,000,000

33,048,308 33,607,986 32,075,096 33,983,305

Current Liabilities

Trade payables and accruals 18 11,087,319 10,029,737 10,559,342 9,481,387Amounts owing to subsidiary

company 16 – – 5,223,690 6,008,317Provision for taxation 2,358,320 2,709,757 1,915,611 1,896,757Other liabilities 19 1,317,559 1,526,967 1,257,336 1,466,745

14,763,198 14,266,461 18,955,979 18,853,206

Net Current Assets 18,285,110 19,341,525 13,119,117 15,130,099

Net Assets 27,239,688 28,850,016 24,979,119 25,897,229

EQUITY

Share capital 20 16,314,879 15,721,928 16,314,879 15,721,928Share premium 2,944,715 1,591,813 2,944,715 1,591,813Revenue reserve 7,568,056 10,921,279 5,307,487 7,968,492Employee share options reserves 21 412,038 614,996 412,038 614,996

Total Equity 27,239,688 28,850,016 24,979,119 25,897,229


Balance Sheets as at 31 December 2005

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Statements of Changes in Equity for the year ended 31 December 2005

Employeeshare options Hedging

Share capital Share Revenue reserves reserves Total(Note 20) Premium reserves (Note 21) (Note 22) equity

$ $ $ $ $ $

2005 Group

At 31 December 2004as previously reported 15,721,928 1,591,813 11,536,275 – – 28,850,016

Cumulative effects ofadopting FRS 102 – – (614,996) 614,996 – –

At 31 December 2004as restated 15,721,928 1,591,813 10,921,279 614,996 – 28,850,016

Effects of adopting FRS 39 – – (57,700) – 88,520 30,820

At 1 January 2005 asrestated 15,721,928 1,591,813 10,863,579 614,996 88,520 28,880,836

Net change in hedgingreserve ( Note 22),representing net lossrecognised directlyin equity – – – – (88,520) (88,520)

Profit for the year – – 5,764,785 – – 5,764,785

Total recognised incomeand expenses for the year – – 5,764,785 – (88,520) 5,676,265

Dividends on ordinaryshares (Note 23) – – (9,060,308) – – (9,060,308)

Grants of equity-settledshare options to employees – – – 114,230 – 114,230

Exercise of employeeshare options 592,951 1,352,902 – (317,188) – 1,628,665

At 31 December 2005 16,314,879 2,944,715 7,568,056 412,038 – 27,239,688

Employeeshare options

Share capital Share Revenue reserves Total(Note 20) Premium reserves (Note 21) equity

$ $ $ $ $

2004 Group

At 31 December 2003 aspreviously reported 15,119,003 366,210 10,479,147 – 25,964,360

Cumulative effects of adopting FRS 102 – – (223,783) 223,783 –

At 31 December 2003 as restated 15,119,003 366,210 10,255,364 223,783 25,964,360

Profit for the year – – 5,297,403 – 5,297,403

Dividends on ordinary shares (Note 23) – – (4,631,488) – (4,631,488)

Grants of equity-settled shareoptions to employees – – – 391,213 391,213

Exercise of employee share options 602,925 1,225,603 – – 1,828,528

At 31 December 2004 15,721,928 1,591,813 10,921,279 614,996 28,850,016


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Employeeshare options Hedging

Share capital Share Revenue reserves reserves Total(Note 20) Premium reserves (Note 21) (Note 22) equity

$ $ $ $ $ $

2005 Company

At 31 December 2004 aspreviously reported 15,721,928 1,591,813 8,583,488 – – 25,897,229

Cumulative effects ofadopting FRS 102 – – (614,996) 614,996 – –

At 31 December 2004as restated 15,721,928 1,591,813 7,968,492 614,996 – 25,897,229

Effects of adopting FRS 39 – – (57,700) – 88,520 30,820

At 1 January 2005as restated 15,721,928 1,591,813 7,910,792 614,996 88,520 25,928,049

Net change in hedgingreserve (Note 22),representing net lossrecognised directlyin equity – – – – (88,520) (88,520)

Profit for the year – – 6,457,003 – – 6,457,003

Total recognised incomeand expenses for the year – – 6,457,003 – (88,520) 6,368,483

Dividends on ordinaryshares (Note 23) – – (9,060,308) – – (9,060,308)

Grants of equity-settledshare options to employees – – – 114,230 – 114,230

Exercise of employeeshare options 592,951 1,352,902 – (317,188) – 1,628,665

At 31 December 2005 16,314,879 2,944,715 5,307,487 412,038 – 24,979,119

Employeeshare options

Share capital Share Revenue reserves Total(Note 20) Premium reserves (Note 21) equity

$ $ $ $ $

2004 Company

At 31 December 2003 as previously reported 15,119,003 366,210 7,200,505 – 22,685,718

Cumulative effects of adopting FRS 102 – – (223,783) 223,783 –

At 31 December 2003 as restated 15,119,003 366,210 6,976,722 223,783 22,685,718

Profit for the year – – 5,623,258 – 5,623,258

Dividends on ordinary shares (Note 23) – – (4,631,488) – (4,631,488)

Grants of equity-settled shareoptions to employees – – – 391,213 391,213

Exercise of employee share options 602,925 1,225,603 – – 1,828,528

At 31 December 2004 15,721,928 1,591,813 7,968,492 614,996 25,897,229


26

Statements of Changes in Equity for the year ended 31 December 2005

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Consolidated Cash Flow Statement for the year ended 31 December 2005

Group

2005 2004

$ $

(Restated)

Cash flows from operating activities :

Profit from operations before taxation 7,634,371 7,327,628

Adjustments for :Depreciation of fixed assets 1,390,279 1,252,523

Interest income (470,274) (241,920) Negative goodwill arising on consolidation – (194,000) Impairment of goodwill – 100,000 Gain on sale of fixed assets – (35,462) Expense of share-based payment 114,230 391,213 Fair value adjustment of investment securities 192,300 – Share of results of associated company 59,000 175,848

Operating income before reinvestment in working capital 8,919,906 8,775,830Increase in receivables (1,684,052) (2,497,102)Increase in inventories (700,185) (2,854,089)Increase in creditors 849,799 1,520,530Increase in associated company, joint venture

and related companies balances – (257,504)

Cash generated from operations 7,385,468 4,687,665Interest received 470,274 241,920Income tax paid (2,321,023) (1,298,158)

Net cash flows provided by operating activities 5,534,719 3,631,427

Cash flows from investing activities :

Purchase of fixed assets (1,338,625) (1,113,156)Proceeds from sale of fixed assets – 199,431Proceeds from redemption of unquoted debt securities – 4,001,687Investment in associated company (481,250) (300,000)Purchase of investment securities (1,000,000) (959,228)

Net cash flows (used in) / provided by investing activities (2,819,875) 1,828,734

Cash flows from financing activities :

Dividends paid (9,060,308) (4,631,488)Proceeds from issuance of share capital 1,628,665 1,828,528

Net cash flows used in financing activities (7,431,643) (2,802,960)

Net (decrease) / increase in cash and cash equivalents (4,716,799) 2,657,201Cash and cash equivalents at beginning of the year (Note 13) 16,747,968 14,090,767

Cash and cash equivalents at end of the year (Note 13) 12,031,169 16,747,968


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Notes to the Financial Statements - 31 December 2005

1. Corporate information

CEI Contract Manufacturing Limited (the Company), domiciled in Singapore, is a limited liability companyincorporated in Singapore.

The registered office of the Company is located at 10 Collyer Quay, #19-08 Ocean Building, Singapore 049315.The principal place of business of the Company is located at 2 Ang Mo Kio Ave 12, Singapore 569707.

The principal activities of the Company are those of contract manufacturing services. Such services includeprinted circuit board assemblies, box-build assemblies, prototype assemblies and value add engineering workssuch as circuit layout and functional design. The principal activities of the subsidiary companies are set outin Note 3 to the financial statements.

There have been no significant changes in the nature of these activities during the year.

2. Summary of significant accounting policies

2.1 Basis of preparation

The consolidated financial statements of the Group and the balance sheet and statement of changes in equityof the Company have been prepared in accordance with Singapore Financial Reporting Standards (FRS).

The financial statements have been prepared on a historical cost basis except for derivative financial instrumentsand held for trading financial assets that have been measured at their fair values.

The carrying values of recognised assets and liabilities that are designated as hedged items in a fair valuehedge are adjusted to record the gain or loss on the hedged items attributable to the hedged risks.

The financial statements are presented in Singapore Dollars (SGD or $).

2.2 Changes in accounting policies

The accounting policies have been consistently applied by the Group and the Company and are consistentwith those used in the previous financial year, except for the changes in accounting policies discussed below.

a) Adoption of new FRS

On 1 January 2005, the Group and the Company adopted the following standards mandatory for annualfinancial periods beginning on or after 1 January 2005.

• FRS 39, Financial Instruments: Recognition and Measurement• FRS 102, Share-based Payment

i) FRS 39, Financial Instruments: Recognition and Measurement

The Group and Company had adopted FRS 39 prospectively on 1 January 2005. At that date, financial assetswithin the scope of FRS 39 were classified as either financial assets at fair value through profit or loss, loansand receivables, held to maturity investments or available-for-sale financial assets, as appropriate. Financialassets that were classified as financial assets at fair value through profit or loss and available-for-sale financialassets were measured at fair value while loans and receivables and held to maturity investments were measuredat amortised cost using the effective interest rate method. At 1 January 2005, differences between the carryingvalues and fair values of financial assets at fair value through profit or loss were recognised in accumulatedprofits while the differences between carrying values and fair values of available-for-sale financial assets wererecognised in the fair value adjustment reserve. For investments carried at amortised cost, any differencesbetween the carrying values and amortised costs as at 1 January 2005 were recognised in accumulated profits.

At 1 January 2005, financial liabilities (other than derivative financial instruments) within the scope of FRS 39were measured at amortised costs using the effective interest rate method. Any difference between the carryingvalues and amortised costs as at 1 January 2005 were recognised in accumulated profits.

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2. Summary of significant accounting policies (cont’d)

2.2 Changes in accounting policies (cont’d)

a) Adoption of new FRS (cont’d)

i) FRS 39, Financial Instruments: Recognition and Measurement (cont’d)

According to FRS 39, all derivative financial instruments held by the Group and the Company were recognisedas assets or liabilities in the balance sheets and classified as financial assets or financial liabilities at fair valuethrough profit or loss. Fair value adjustments of derivative financial instruments, except for those designatedas hedging instruments in cash flow hedges, were recognised in accumulated profits at 1 January 2005.

At 1 January 2005, the Company held forward currency contracts that were designated as hedging instrumentsin cash flow hedges of the foreign currency risks of firm commitments. The portion of the gain or loss on thesehedging instruments that is determined to be an effective hedge was recognised directly in the hedging reserveat that date.

Under the transitional provisions of FRS 39, the change in accounting policy on 1 January 2005 resulted in thefollowing adjustments at that date:• $57,700 to the Group’s and the Company’s revenue reserves; and• $88,520 to the Group’s and the Company’s hedging reserves.

ii) FRS 102, Share-based Payment

The main impact of FRS 102 on the Group and the Company is the recognition of an expense and a correspondingentry to equity for share options granted to senior executives and general employees.

The Group and the Company have applied FRS 102 retrospectively and have taken advantage of the transitionalprovisions of FRS 102 in respect of equity-settled awards. As a result, the Group and the Company have appliedFRS 102 only to equity-settled awards granted after 22 November 2002 that had not vested on 1 January 2005.

Under the transitional provisions of FRS 102, the change in accounting policy has resulted in the following:

• At 1 January 2005, the Group’s and the Company’s:

o Employee share option reserves increased by $614,996 (2004 : increased by $223,783);o Revenue reserves decreased by $614,916 (2004 : decreased by $223,783).

• For the year ended 31 December 2005, the Group’s:

o Profit for the year decreased by $114,229 (2004 : decreased by $391,213) due to an increase in the employee benefits expense;o Basic earnings per share decreased by 0.04 cents (2004 : decreased by 0.13 cents); ando Diluted earnings per share decreased by 0.04 cents (2004 : decreased by 0.12 cents).

b) Adoption of revised FRS

The Group adopted the following revised standards mandatory for annual periods beginning on or after 1January 2005. The adoption of these standards did not result in any significant change in accounting policies:

FRS 1 (revised), Presentation of Financial StatementsFRS 2 (revised), InventoriesFRS 8 (revised), Effects of Changes in Accounting PoliciesFRS 10 (revised), Events after the Balance Sheet DateFRS 16 (revised), Property, Plant and EquipmentFRS 17 (revised), LeasesFRS 19 (revised), Employee BenefitsFRS 21 (revised), The Effects of Changes in Foreign Exchange RatesFRS 24 (revised), Related Party DisclosuresFRS 27 (revised), Consolidated and Separate Financial StatementsFRS 28 (revised), Investments in AssociatesFRS 31 (revised), Interests in Joint VenturesFRS 32 (revised), Financial Instruments: Disclosure and PresentationFRS 33 (revised), Earnings Per Share

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2.2 Changes in accounting policies (cont’d)

c) FRS and INT FRS not yet effective

The Group has not applied the following FRS and INT FRS that have been issued but are only effective forfuture financial periods. The Group expects that the adoption of the pronouncements listed below will haveno impact on the financial statements in the period of initial application.

i) FRS 40, Investment Property

This standard is effective 1 January 2007 and does not apply to the activities of the Group.

ii) FRS 106, Exploration for and Evaluation of Mineral Resources

This standard is effective 1 January 2006 and does not apply to the activities of the Group.

iii) INT FRS 104, Determining Whether an Arrangement Contains a Lease

This interpretation requires the determination of whether an arrangement is, or contains a lease to be basedon the substance of the arrangement and requires an assessment of whether the arrangement is dependenton the use of a specific asset or assets and the arrangement conveys a right to use the asset. This interpretationis effective 1 January 2006.

iv) INT FRS 105, Rights to Interests

This interpretation is effective 1 January 2006 and is not expected to be relevant to the activities of the Group.

2.3 Significant accounting estimates and judgments

Estimates, assumptions concerning the future and judgments are made in the preparation of the financialstatements. They affect the application of the Group’s accounting policies, reported amounts of assets, liabilities,income and expenses, and disclosures made. They are assessed on an on-going basis and are based onexperience and relevant factors, including expectations of future events that are believed to be reasonableunder the circumstances.

a) Key sources of estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the balancesheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets andliabilities within the next financial year are discussed below.

i) Impairment of property, plant and equipment

The carrying values of property, plant and equipment are reviewed for impairment in accordance with FRS 36Impairment of Assets. As at 31 December 2005, the carrying amount of property, plant and equipment heldby CEI International Investments (Vietnam) Limited amounted to $1,801,178 (2004: $1,753,089).

In the determination of the value in use of the above property, plant and equipment, the Group is required toestimate the expected cash flows from the use of the property, plant and equipment and also to choose asuitable discount rate in order to calculate the present value of those cash flows. More details are included inNote 8.

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2.3 Significant accounting estimates and judgments (cont’d)

a) Key sources of estimation uncertainty (cont’d)

ii) Impairment of investments in subsidiary companies

The carrying values of investments in subsidiary companies are reviewed for impairment in accordance withFRS 36 Impairment of Assets. As at 31 December 2005, the carrying amount of investment in CEI InternationalInvestment Pte Ltd was $2,494,341 (2004: $2,494,341).

In the determination of the value in use of the investment, the Company is required to estimate the expectedcash flows from the investment and also to choose a suitable discount rate in order to calculate the presentvalue of those cash flows. The cash flows from the investment in CEI International Investment Pte Ltd isdependent on the expected cash flows from the Company’s investment in CEI International Investments(Vietnam) Limited whose underlying assets are assessed in 2.3 (a) (i) above.

iii) Impairment of investment in associated company

The carrying values of investments in associated companies and the related goodwill are reviewed for impairmentin accordance with FRS 28 Investments in Associates. As at 31 December 2005, the Group’s carrying amountof investment in Santec Corporation Pte Ltd was $449,000 (2004: $200,000).

In the determination of the value in use of the investment, the Group is required to estimate the expected cashflows to be generated by the associated company and also to choose a suitable discount rate in order tocalculate the present value of those cash flows. More details are included in Note 10.

iv) Depreciation of plant and equipment

The costs of plant and equipment used for the provision of contract manufacturing services is depreciated ona straight-line basis over their estimated useful lives. Management estimates the useful lives of these plantand equipment to be within 3 to 5 years. These are common life expectancies applied in the contract manufacturingindustry. The carrying amount of the Group's plant and equipment as at 31 December 2005 was $1,343,539(2004: $1,023,647). Changes in the expected level of usage and technological developments could impact theeconomic useful lives and the residual values of these assets, therefore future depreciation charges couldbe revised.

v) Provision for taxation

The Group has exposure to income taxes in a few jurisdictions. Significant judgment is involved in determiningthe Group-wide provision for income taxes. There are certain transactions and computations for which theultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilitiesfor expected tax issues based on estimates of whether additional taxes will be due. Where the final outcomeof these matters is different from the amounts that were initially recognised, such differences will impact theincome tax and deferred tax provisions in the period in which such determination is made. The carrying amountof the Group's tax payables as at 31 December 2005 was $2,358,320 (2004: $2,709,757).

b) Critical judgments made in applying accounting policies

The following are the judgments made by management in the process of applying the Group’s accountingpolicies that have the most significant effect on the amounts recognised in the financial statements.

i) Investment in an associated company

The carrying values of investments in associated companies and the related goodwill are reviewed for impairmentwhen there are indicators of impairment. There has been no indicators of impairment assessed by managementin respect of the investment in TeleMoney Asia Pte Ltd as the company’s business plans had been assessedto be viable. As at 31 December 2005, the zcarrying amount of investment in TeleMoney Asia Pte Ltd was$173,250 (2004: Nil).

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2.4 Functional and foreign currency

a) Functional currency

The management has determined the currency of the primary economic environment in which the Companyoperates i.e. functional currency, to be SGD. Sales prices and major costs of providing goods and servicesincluding major operating expenses are primarily influenced by fluctuations in SGD.

b) Foreign currency transactions

Transactions in foreign currencies are measured in the respective functional currencies of the Company andits subsidiary companies and are recorded on initial recognition in the functional currencies at exchange ratesapproximating those ruling at the transaction dates. Monetary assets and liabilities denominated in foreigncurrencies are translated at the closing rate of exchange ruling at the balance sheet date. Non-monetary itemsthat are measured in terms of historical cost in a foreign currency are translated using the exchange rates asat the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency aretranslated using the exchange rates at the date when the fair value was determined.

Exchange differences arising on the settlement of monetary items or on translating monetary items at thebalance sheet date are recognised in the profit and loss account except for exchange differences arising onmonetary items that form part of the Group’s net investment in foreign subsidiaries, which are recognisedinitially in a separate component of equity as foreign currency translation reserve in the consolidated balancesheet and recognised in the consolidated profit and loss account on disposal of the subsidiary. In the Company’sseparate financial statements, such exchange differences are recognised in the profit and loss account.

c) Foreign currency translation

The results and financial position of foreign operations are translated into SGD using the following procedures:

• Assets and liabilities for each balance sheet presented are translated at the closing rate ruling at thatbalance sheet date; and

• Income and expenses for each income statement are translated at average exchange rates for the year, which approximates the exchange rates at the dates of the transactions.

All resulting exchange differences are recognised in a separate component of equity as foreign currencytranslation reserve.

Goodwill and fair value adjustments which arose on acquisitions of foreign subsidiaries before 1 January 2005are deemed to be assets and liabilities of the parent company and are recorded in SGD at the rates prevailingat the date of acquisition.

On disposal of a foreign operation, the cumulative amount of exchange differences deferred in equity relatingto that foreign operation is recognised in the profit and loss account as a component of the gain or loss ondisposal.

2.5 Subsidiary companies and principles of consolidation

a) Subsidiary companies

A subsidiary is an entity over which the Group has the power to govern the financial and operating policiesso as to obtain benefits from its activities. The Group generally has such power when it directly or indirectly,holds more than 50% of the issued share capital, or controls more than half of the voting power, or controlsthe composition of the board of directors.

In the Company’s separate financial statements, investments in subsidiary companies are accounted for at costless any impairment losses.

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2.5 Subsidiary companies and principles of consolidation (cont’d)

b) Principles of consolidation

The consolidated financial statements comprise the financial statements of the company and its subsidiarycompanies as at the balance sheet date. The financial statements of the subsidiary companies are preparedfor the same reporting date as the Company. Consistent accounting policies are applied for like transactionsand events in similar circumstances.

All intra-group balances, transactions, income and expenses and profits and losses resulting from intra-grouptransactions that are recognised in assets, are eliminated in full.

Subsidiary companies are fully consolidated from the date of acquisition, being the date on which the Groupobtains control, and continue to be consolidated until the date that such control ceases.

Acquisitions of subsidiary companies are accounted for using the purchase method. The cost of an acquisitionis measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumedat the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired andliabilities and contingent liabilities assumed in a business combination are measured initially at their fair valuesat the acquisition date, irrespective of the extent of any minority interest.

Any excess of the cost of the business combination over the Group’s interest in the net fair value of theidentifiable assets, liabilities and contingent liabilities represents goodwill. The goodwill is accounted for inaccordance with the accounting policy for goodwill stated in Note 2.9 below.

Any excess of the Group’s interest in the net fair value of the identifiable assets, liabilities and contingentliabilities over the cost of business combination is recognised in the profit and loss account on the date ofacquisition.

2.6 Associated companies

An associated company is an entity, not being a subsidiary company or a joint venture company, in which theGroup has significant influence. This generally coincides with the Group having 20% or more of the votingpower, or has representation on the board of directors.

The Group's investments in associated companies are accounted for using the equity method. Under theequity method, the investments in associated companies are carried in the balance sheet at cost plus post-acquisition changes in the Group’s share of net assets of the associated companies. The Group’s share of theprofit or loss of the associated companies is recognised in the consolidated profit and loss account. Wherethere has been a change recognised directly in the equity of the associated companies, the Group recognisesits share of such changes. After application of the equity method, the Group determines whether it is necessaryto recognise any additional impairment loss with respect to the Group’s net investment in the associatedcompanies. The associated companies are equity accounted for from the date the Group obtains significantinfluence until the date the Group ceases to have significant influence over the associated companies.

Goodwill relating to associated companies is included in the carrying amount of the investments.

Any excess of the Group’s share of the net fair value of the associated companies’ identifiable assets, liabilitiesand contingent liabilities over the cost of the investments are excluded from the carrying amount of theinvestments and are instead included as income in the determination of the Group’s share of the associatedcompanies’ profit or loss in the period in which the investments are acquired.

When the Group’s share of losses in associated companies equal or exceed its interest in the associatedcompanies, including any other unsecured receivables, the Group does not recognise further losses, unlessit has incurred obligations or made payments on behalf of the associated companies.

In the Company’s separate financial statements, investments in associated companies are accounted for atcost less impairment losses.

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2.7 Joint venture company

The Group has an interest in a joint venture company which is a jointly controlled entity. A joint venture is acontractual arrangement whereby two or more parties undertake an economic activity that is subject to jointcontrol, and a jointly controlled entity is a joint venture that involves the establishment of a separate entity inwhich each venturer has an interest. The Group recognises its interest in the joint venture using proportionateconsolidation. The Group combines its share of each of the assets, liabilities, income and expenses of the jointventure with the similar items, line by line, in its consolidated financial statements. The financial statementsof the joint venture are prepared for the same reporting year as the Company. Consistent accounting policiesare applied for like transactions and events in similar circumstances.

The joint venture is proportionately consolidated until the date on which the Group ceases to have joint controlover the joint venture.

In the Company’s separate financial statements, investment in joint venture is accounted for at cost lessimpairment losses.

2.8 Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and any impairment in value.All items of property, plant and equipment are initially recorded at cost.

The initial cost of property, plant and equipment comprises its purchase price, including import duties andnon-refundable purchase taxes and any directly attributable costs of bringing the asset to its working conditionand location for its intended use, any trade discounts and rebates are deducted in arriving at the purchaseprice. Expenditure incurred after the property, plant and equipment have been put into operation, such asrepairs and maintenance and overhaul costs, is normally charged to the profit and loss account in the periodin which the costs are incurred. In situations where it can be clearly demonstrated that the expenditure hasresulted in an increase in the future economic benefits expected to be obtained from the use of an item ofproperty, plant and equipment beyond its originally assessed standard of performance, the expenditure iscapitalised as an additional cost of property, plant and equipment.

Depreciation of an asset begins when it is available for use and is computed on a straight-line basis over theestimated useful lives of the assets as follows :-

Leasehold land - Over lease periodLeasehold buildings - Shorter of lease period and 25 yearsPlant and machinery - 3 - 5 yearsOffice furniture, fittings and equipment - 5 yearsMotor vehicles - 5 - 6 yearsComputer equipment - 2 yearsRenovation - 5 years

The carrying values of property, plant and equipment are reviewed for impairment when events or changesin circumstances indicate that the carrying value may not be recoverable.

The residual values, useful life and depreciation method are reviewed at each financial year-end to ensure thatthe amount, method and period of depreciation are consistent with previous estimates and the expected patternof consumption of the future economic benefits embodied in the items of property, plant and equipment.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefitsare expected from its use or disposal. Any gain or loss arising on derecognition of the asset is included in theprofit and loss account in the year the asset is derecognised.

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2.9 Goodwill

Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of thebusiness combination over the Group’s interest in the net fair value of the identifiable assets, liabilities andcontingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulatedimpairment losses. Goodwill is reviewed for impairment, annually or more frequently if events or changesin circumstances indicate that the carrying value may be impaired.

For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisitiondate, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that areexpected to benefit from the synergies of the combination, irrespective of whether other assets or liabilitiesof the Group are assigned to those units or groups of units. Each unit or group of units to which the goodwillis so allocated:

• Represents the lowest level within the Group at which the goodwill is monitored for internal managementpurposes; and

• Is not larger than a segment based on either the Group’s primary or the Group’s secondary reporting format.

A cash-generating unit (or group of cash-generating units) to which goodwill has been allocated are testedfor impairment annually and whenever there is an indication that the unit may be impaired, by comparingthe carrying amount of the unit, including the goodwill, with the recoverable amount of the unit. Where therecoverable amount of the cash-generating unit (or group of cash-generating units) is less than the carryingamount, an impairment loss is recognised.

Where goodwill forms part of a cash-generating unit (or group of cash-generating units) and part of theoperation within that unit is disposed of, the goodwill associated with the operation disposed of is includedin the carrying amount of the operation when determining the gain or loss on disposal of the operation.Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposedof and the portion of the cash-generating unit retained.

2.10 Impairment of non-financial assets

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. Ifany such indication exists, or when annual impairment testing for an asset (i.e. goodwill acquired in a businesscombination) is required, the Group makes an estimate of the asset’s recoverable amount.

An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to selland its value in use and is determined for an individual asset, unless the asset does not generate cash inflowsthat are largely independent of those from other assets or groups of assets. In assessing value in use, theestimated future cash flows are discounted to their present value using a pre-tax discount rate that reflectscurrent market assessments of the time value of money and the risks specific to the asset. Where the carryingamount of an asset exceeds its recoverable amount, the asset is considered impaired and is written downto its recoverable amount. Impairment losses of continuing operations are recognised in the profit and lossaccount as ‘impairment losses’.

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2.10 Impairment of non-financial assets (cont’d)

An assessment is made at each reporting date as to whether there is any indication that previously recognisedimpairment losses recognised for an asset other than goodwill may no longer exist or may have decreased.If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss isreversed only if there has been a change in the estimates used to determine the asset’s recoverable amountsince the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increasedto its recoverable amount. That increased amount cannot exceed the carrying amount that would have beendetermined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Reversalof an impairment loss is recognised in the profit and loss account. After such a reversal, the depreciationcharge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value,on a systematic basis over its remaining useful life.

The Group does not reverse in a subsequent period, any impairment loss recognised for goodwill.

2.11 Financial assets

Financial assets within the scope of FRS 39 are classified as either financial assets at fair value through profitor loss, loans and receivables, held-to-maturity investments, or available-for-sale financial assets, as appropriate.Financial assets are recognised on the balance sheet when, and only when, the Group becomes a party tothe contractual provisions of the financial instrument.

When financial assets are recognised initially, they are measured at fair value, plus, in the case of financialassets not at fair value through profit or loss, directly attributable transaction costs. The Group determinesthe classification of its financial assets after initial recognition and, where allowed and appropriate, re-evaluates this designation at each financial year-end.

All regular way purchases and sales of financial assets are recognised on the trade date i.e. the date that theGroup commits to purchase the asset. Regular way purchases or sales are purchases or sales of financialassets that require delivery of assets within the period generally established by regulation or convention inthe marketplace concerned.

a) Financial assets at fair value through profit or loss

Financial assets classified as held for trading are included in the category ‘financial assets at fair value throughprofit or loss’. Financial assets are classified as held for trading if they are acquired for the purpose of sellingin the near term. Derivative financial instruments are also classified as held for trading unless they aredesignated as effective hedging instruments. Gains or losses on investments held for trading are recognisedin the profit and loss account.

The Group does not designate any financial assets not held for trading as financial assets at fair value throughprofit and loss.

b) Held-to-maturity investments

Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity when the Group has the positive intention and ability to hold the assets to maturity. Investmentsintended to be held for an undefined period are not included in this classification. Other long-term investmentsthat are intended to be held-to-maturity, such as bonds, are subsequently measured at amortised cost usingthe effective interest method. This cost is computed as the amount initially recognised minus principalrepayments, plus or minus the cumulative amortisation using the effective interest method of any differencebetween the initially recognised amount and the maturity amount and minus any reduction for impairmentor uncollectibility. This calculation includes all fees and points paid or received between parties to the contractthat are an integral part of the effective interest rate, transaction costs and all other premiums and discounts.For investments carried at amortised cost, gains and losses are recognised in the profit and loss accountwhen the investments are derecognised or impaired, as well as through the amortisation process.

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2.11 Financial assets (cont’d)

c) Loans and receivables

Non-derivative financial assets with fixed or determinable payments that are not quoted in an active marketare classified as loans and receivables. Such assets are carried at amortised cost using the effective interestmethod. Gains and losses are recognised in profit and loss account when the loans and receivables arederecognised or impaired, as well as through the amortisation process.

d) Available-for-sale financial assets

Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified in any of the three preceding categories. After initial recognition, available-forsale financial assets are measured at fair value with gains or losses being recognised in the fair valueadjustment reserve until the investment is derecognised or until the investment is determined to be impairedat which time the cumulative gain or loss previously reported in equity is included in the profit and lossaccount.

2.12 Investment securities

Investment securities are classified as financial assets at fair value through profit and loss or held-to-maturityinvestments, as appropriate.

The accounting policies for the aforementioned categories of financial assets are stated in Note 2.11.

2.13 Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and at bank, demand deposits and short-term, highlyliquid investments readily convertible to known amounts of cash and which are subject to an insignificantrisk of change in value.

Cash and short-term deposits carried in the balance sheets, are classified for as loans and receivables. Theaccounting policy for this category of financial assets is stated in Note 2.11.

2.14 Trade and other receivables

Trade and other receivables, including amounts due from subsidiary, associated, related companies andloans to related companies are classified and accounted for as loans and receivables under FRS 39. Theaccounting policy for this category of financial assets is stated in Note 2.11.

An allowance is made for uncollectible amounts when there is objective evidence that the Group will notbe able to collect the debt. Bad debts are written off when identified. Further details on the accounting policyfor impairment of financial assets are stated in Note 2.15 below.

2.15 Impairment of financial assets

The Group assesses at each balance sheet date whether there is any objective evidence that a financial assetor group of financial assets is impaired.

a) Assets carried at amortised cost

If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investmentscarried at amortised cost has been incurred, the amount of the loss is measured as the difference betweenthe asset’s carrying amount and the present value of estimated future cash flows (excluding future creditlosses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. theeffective interest rate computed at initial recognition). The carrying amount of the asset is reduced throughthe use of an allowance account. The amount of the loss is recognised in the profit and loss account.

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2.15 Impairment of financial assets (cont’d)

a) Assets carried at amortised cost (cont’d)

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be relatedobjectively to an event occurring after the impairment was recognised, the previously recognised impairmentloss is reversed. Any subsequent reversal of an impairment loss is recognised in the profit and loss account,to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date.

b) Assets carried at cost

If there is objective evidence that an impairment loss on an unquoted equity instrument that is not carriedat fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to andmust be settled by delivery of such an unquoted equity instrument has been incurred, the amount of the lossis measured as the difference between the asset’s carrying amount and the present value of estimated futurecash flows discounted at the current market rate of return for a similar financial asset. Such impairmentlosses are not reversed in subsequent periods.

c) Available-for-sale financial assets

If an available-for-sale financial asset is impaired, an amount comprising the difference between its cost (netof any principal payment and amortisation) and its current fair value, less any impairment loss previouslyrecognised in the profit and loss account, is transferred from equity to the income statement. Reversals inrespect of equity instruments classified as available-for-sale are not recognised in the profit and loss account.Reversals of impairment losses on debt instruments are reversed through the profit and loss account, if theincrease in fair value of the instrument can be objectively related to an event occurring after the impairmentloss was recognised in the profit and loss account.

2.16 Inventories

Inventories are stated at the lower of costs (determined principally on standard costs which approximatethe actual costs) and net realisable value. In arriving at net realisable value, due allowance is made for allobsolete and slow-moving items.

Net realisable value is the estimated selling price in the ordinary course of business, less estimated cost ofcompletion and the estimated costs necessary to make the sale.

Cost of finished goods and work-in-progress include cost of direct materials, labour and an appropriateportion of fixed and variable factory overheads.

2.17 Trade and other payables

Liabilities for trade and other amounts payable which are normally settled on 30-90 day terms, and payablesto related parties are initially recognised at fair value and subsequently measured at amortised cost usingthe effective interest method.

Gains and losses are recognised in the profit and loss account when the liabilities are derecognised as wellas through the amortisation process.

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2.18 Derecognition of financial assets and liabilities

a) Financial assets

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets)is derecognised when:

• The contractual rights to receive cash flows from the asset have expired;• The Group retains the contractual rights to receive cash flows from the asset, but has assumed an obligation

to pay them in full without material delay to a third party under a ‘pass-through’ arrangement; or• The Group has transferred its rights to receive cash flows from the asset and either (a) has transferred

substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantiallyall the risks and rewards of the asset, but has transferred control of the asset.

Where the Group has transferred its rights to receive cash flows from an asset and has neither transferrednor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the assetis recognised to the extent of the Group’s continuing involvement in the asset. Continuing involvement thattakes the form of a guarantee over the transferred asset is measured at the lower of the original carryingamount of the asset and the maximum amount of consideration that the Group could be required to repay.

Where continuing involvement takes the form of a written and/or purchased option on the transferred asset,the extent of the Group’s continuing involvement is the amount of the transferred asset that the Group mayrepurchase, except that in the case of a written put option on an asset measured at fair value, the extent ofthe Group’s continuing involvement is limited to the lower of the fair value of the transferred asset and theoption exercise price.

On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sumof (a) the consideration received (including any new asset obtained less any new liability assumed) and (b)any cumulative gain or loss that has been recognised directly in equity is recognised in the profit and lossaccount.

b) Financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled orexpires.

Where an existing financial liability is replaced by another from the same lender on substantially differentterms, or the terms of an existing liability are substantially modified, such an exchange or modification istreated as a derecognition of the original liability and the recognition of a new liability, and the differencein the respective carrying amounts is recognised in the profit and loss account.

2.19 Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) where, as a resultof a past event, it is probable that an outflow of resources embodying economic benefits will be requiredto settle the obligation and a reliable estimate can be made of the amount of the obligation. Where theGroup expects some or all of a provision to be reimbursed, the reimbursement is recognised as a separateasset but only when the reimbursement is virtually certain. The expense relating to any provision is presentedin the profit and loss account net of any reimbursement.

If the effect of the time value of money is material, provisions are discounted using a current pre-tax ratethat reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase inthe provision due to the passage of time is recognised as finance costs.

Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it isno longer probable that an outflow of resources embodying economic benefits will be required to settle theobligation, the provision is reversed.

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2.20 Employee benefits

a) Defined contribution plans

The Group participates in the national pension schemes as defined by the laws of the countries in which ithas operations. In particular, the Singapore companies in the Group make contributions to the CentralProvident Fund scheme in Singapore, a defined contribution pension scheme. Contributions to nationalpension schemes are recognised as an expense in the period in which the related service is performed.

b) Employee leave entitlement

Employee entitlements to annual leave are recognised as a liability when they accrue to employees. Theestimated liability for leave is recognised for services rendered by employees up to balance sheet date.

c) Employee share option plans

Employees (including senior executives) of the Group receive remuneration in the form of share-basedpayment transactions, whereby employees render services as consideration for share options (‘equity-settledtransactions’).

The cost of equity-settled transactions with employees is measured by reference to the fair value at the dateon which the share options are granted. In valuing the share options, no account is taken of any performanceconditions, other than conditions linked to the price of the shares of the Company (‘market conditions’), ifapplicable.

The cost of equity-settled transactions is recognised, together with a corresponding increase in the employeeshare option reserve, over the period in which the performance and/or service conditions are fulfilled, endingon the date on which the relevant employees become fully entitled to the award (‘the vesting date’). Thecumulative expense recognised for equity-settled transactions at each reporting date until the vesting datereflects the extent to which the vesting period has expired and the Group’s best estimate of the number ofequity instruments that will ultimately vest. The profit or loss charge or credit for a period represents themovement in cumulative expense recognised as at the beginning and end of that period.

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditionalupon a market condition, which are treated as vested irrespective of whether or not the market condition issatisfied, provided that all other performance conditions are satisfied.

Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if theterms had not been modified. In addition, an expense is recognised for any modification, which increasesthe total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee asmeasured at the date of modification.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, andany expense not yet recognised for the award is recognised immediately. However, if a new award issubstituted for the cancelled award, and designated as a replacement award on the date that it is granted,the cancelled and new awards are treated as if they were a modification of the original award, as describedin the previous paragraph.

The Group has taken advantage of the transitional provisions of FRS 102 in respect of equity-settled awardsand has applied FRS 102 only to equity-settled awards granted after 22 November 2002 that had not vestedon or before 1 January 2005.

2.21 Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group andthe revenue can be reliably measured. The following specific recognition criteria must also be met beforethe revenue is recognised.

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2.21 Revenue recognition (cont’d)

a) Sales of goods

Revenue is recognised upon the transfer of significant risks and rewards of ownership of the goods to thecustomer, which generally coincides with delivery and acceptance of the goods sold. Revenue is not recognisedto the extent where there are significant uncertainties regarding the recovery of the consideration due,associated costs or the possible return of goods.

b) Interest income

Revenue is recognised as the interest accrues (using the effective interest method) unless collectibility is in doubt.

2.22 Income taxes

a) Current tax

Current tax assets and liabilities for the current and prior periods are measured at the amount expected tobe recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amountare those that are enacted or substantively enacted by the balance sheet date.

b) Deferred tax

Deferred income tax is provided using the liability method on temporary differences at the balance sheet datebetween the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

• Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability ina transaction that is not a business combination and, at the time of the transaction, affects neither theaccounting profit nor taxable profit or loss; and

• In respect of taxable temporary differences associated with investments in subsidiaries, associates andinterests in joint ventures, where the timing of the reversal of the temporary differences can be controlledand it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unusedtax credits and unused tax losses, to the extent that it is probable that taxable profit will be available againstwhich the deductible temporary differences, and the carry-forward of unused tax credits and unused tax lossescan be utilised except:

• Where the deferred income tax asset relating to the deductible temporary difference arises from the initialrecognition of an asset or liability in a transaction that is not a business combination and, at the time ofthe transaction, affects neither the accounting profit nor taxable profit or loss; and

• In respect of deductible temporary differences associated with investments in subsidiaries, associates andinterests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that thetemporary differences will reverse in the foreseeable future and taxable profit will be available againstwhich the temporary differences can be utilised.

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced tothe extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of thedeferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at eachbalance sheet date and are recognised to the extent that it has become probable that future taxable profit willallow the deferred tax asset to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the yearwhen the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enactedor substantively enacted at the balance sheet date.

Income tax relating to items recognised directly in equity is recognised in equity.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off currenttax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the sametaxation authority.

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2.22 Income taxes (cont’d)

c) Sales tax

Revenues, expenses and assets are recognised net of the amount of sales tax except:

• Where the sales tax incurred on a purchase of assets or services is not recoverable from the taxationauthority, in which case the sales tax is recognised as part of the cost of acquisition of the asset or as partof the expense item as applicable; and

• Receivables and payables that are stated with the amount of sales tax included.

The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part ofreceivables or payables in the balance sheet.

2.23 Derivative financial instruments and hedging activities

The Group uses derivative financial instruments such as forward currency contracts to hedge its risksassociated with foreign currency. Such derivative financial instruments are initially recognised at fair valueon the date on which a derivative contract is entered into and are subsequently remeasured at fair value.Derivative financial instruments are carried as assets when the fair value is positive and as liabilities whenthe fair value is negative.

Any gains or losses arising from changes in fair value on derivative financial instruments that do not qualifyfor hedge accounting are taken to the profit and loss account for the year.

The fair value of forward currency contracts is calculated by reference to current forward exchange rates forcontracts with similar maturity profiles.

For the purpose of hedge accounting, hedges are classified as• Fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability

or an unrecognised firm commitment, that is attributable to a particular risk and could affect profit or loss;• Cash flow hedges when hedging exposure to variability in cash flows that is either attributable to a

particular risk associated with a recognised asset or liability or a highly probable forecast transaction andcould affect profit or loss; or

• Hedges of a net investment in a foreign operation

At the inception of a hedge relationship, the Group formally designates and documents the hedge relationshipto which the Group wishes to apply hedge accounting and the risk management objective and strategy forundertaking the hedge. The documentation includes identification of the hedging instrument, the hedgeditem or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’seffectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributableto the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fairvalue or cash flows and are assessed on an ongoing basis to determine that they actually have been highlyeffective throughout the financial reporting periods for which they were designated.

Hedges which meet the strict criteria for hedge accounting are accounted for as follows:

a) Fair value hedges

For fair value hedges, the carrying amount of the hedged item is adjusted for gains and losses attributableto the risk being hedged, the derivative is remeasured at fair value and gains and losses from both are takento the profit and loss account.

For fair value hedges relating to items carried at amortised cost, the adjustment to carrying value is amortisedthrough the profit and loss account over the remaining term to maturity. Any adjustment to the carryingamount of a hedged financial instrument for which the effective interest method is used is amortised to theprofit and loss account.

Amortisation begins as soon as an adjustment exists but no later than when the hedged item ceases to beadjusted for changes in its fair value attributable to the risk being hedged.

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2.23 Derivative financial instruments and hedging activities (cont’d)

a) Fair value hedges (cont’d)

When an unrecognised firm commitment is designated as a hedged item, the subsequent cumulative changein the fair value of the firm commitment attributable to the hedged risk is recognised as an asset or liabilitywith a corresponding gain or loss recognised in the profit and loss account. The changes in the fair valueof the hedging instrument are also recognised in the profit and loss account.

The Group discontinues fair value hedge accounting if the hedging instrument expires or is sold, terminatedor exercised, the hedge no longer meets the criteria for hedge accounting or the Group revokes the designation.Any adjustment to the carrying amount of a hedged financial instrument for which the effective interestmethod is used is amortised to the profit and loss account. Amortisation begins as soon as an adjustmentexists but no later than when the hedged item ceases to be adjusted for changes in its fair value attributableto the risk being hedged.

b) Cash flow hedges

For cash flow hedges, the effective portion of the gain or loss on the hedging instrument is recognised directlyin the hedging reserve, while the ineffective portion is recognised in the profit and loss account.

Amounts taken to hedging reserve are transferred to the profit and loss account when the hedged transactionaffects profit or loss, such as when hedged financial income or financial expense is recognised or when a forecastsale or purchase occurs. Where the hedged item is the cost of a non-financial asset or liability, the amounts takento hedging reserve are transferred to the initial carrying amount of the non-financial asset or liability.

If the forecast transaction is no longer expected to occur, amounts previously recognised in hedging reserveare transferred to the profit and loss account. If the hedging instrument expires or is sold, terminated orexercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previouslyrecognised in hedging reserve remain in equity until the forecast transaction occurs. If the related transactionis not expected to occur, the amount is taken to the profit and loss account.

c) Hedges of a net investment

Hedges of a net investment in a foreign operation, including a hedge of a monetary item that is accountedfor as part of the net investment, are accounted for in a way similar to cash flow hedges. Gains or losseson the hedging instrument relating to the effective portion of the hedge are recognised directly in the foreigncurrency translation reserve while any gains or losses relating to the ineffective portion are recognised inthe profit and loss account. On disposal of the foreign operation, the cumulative value of any such gains orlosses recognised directly in the foreign currency translation reserve is transferred to the profit and lossaccount.

2.24 Operating leases

Operating lease payments are recognized as an expense in the profit and loss account on a straight line basisover the lease term. The aggregate benefit of incentives provided by the lessor is recognized as a reductionof rental expense over the lease term on a straight line basis.

2.25 Segment reporting

Segment information is presented in respect of the Group’s geographical segments. The primary format,geographical segments, is based on the location of the Group’s customers.

Segment results, assets and liabilities include items directly attributable to a segment as well as those that canbe allocated on a reasonable basis. Unallocated items mainly comprise corporate assets, liabilities and expenses.

Segment capital expenditure is the total cost incurred during the period to acquire segment assets that areexpected to be used for more than one period.

Segment accounting policies are the same as the policies of the Group. The Group generally accounts forinter-segment sales and transfers as if the sales or transfers were to third parties at current market price.These transfers are eliminated on consolidation.

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3. Subsidiary, associated and joint venture companies

Details of the subsidiary, associated and joint venture companies as at 31 December 2005 are :-

Name of company Principal activities Cost Percentage of

(Country of incorporation) (Place of business) equity held

2005 2004 2005 2004

$ $ % %

Subsidiary companies

Held by the Company

*** PT Surya Printed circuit board 2,999,035 2,999,035 100 100 Teknologi Batam assembly and contract

(Indonesia) manufacturing(Indonesia)

* CEI International Investment holding 2,494,341 2,494,341 100 100Investments Pte (Singapore)

Ltd (Singapore)

* Tangera Pte Ltd Holding of 3,539,365 3,539,365 100 100(Singapore) industrial property

(Singapore)

9,032,741 9,032,741

Subsidiary companies

Held through subsidiary company

** CEI International Printed circuit board 100 100Investments (VN) assembly and contractLtd (Vietnam) manufacturing

(Vietnam)

Associated company

Held by the Company

# Santec Corporation Precision engineering, 608,000 300,000 37 23Pte Ltd stamping and tool and(Singapore) die making

(People’s Republic of China)

^ TeleMoney Asia Provision of online 173,250 – 33.33 –Pte Ltd and mobile payment(Singapore) services

(Vietnam)

781,250 300,000

Joint venture company

Held through subsidiary company

* CEI-TOYO Contract manufacturing 53.33 53.33Singapore Pte Ltd services(Singapore) (Singapore)

* Audited by Ernst & Young, Singapore.** Audited by member firm of Ernst & Young Global in Vietnam.*** Audited by Kantor Akuntan Publik Drs. Sukimto Sjamsuli.# Audited by Diong T.P. & Co.^ Audited by Chan-Soh & Co.

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4. Revenue

Revenue represents the net invoiced value of goods sold.

5. Profit from operations

Group

2005 2004

$ $

(Restated)

This is stated after charging/(crediting) the following :-

Non-audit fees paid to- Auditors of the company 14,000 9,800- Other auditors 33,210 23,400

Depreciation of fixed assets 1,390,279 1,252,523

Allowance for impairment of goodwill in respect of an associated company – 100,000

Negative goodwill arising on consolidation – (194,000)

Write-back of allowance for doubtful debts – (299,761)

Write-back of allowance for inventory obsolescence – (31,011)

Allowance for inventory obsolescence 186,709 555,716

Interest income on fixed deposits (470,274) (241,920)

Exchange (gain)/ loss (105,941) 107,852

Loss/ (gain) on disposal of fixed assets 1,426 (35,462)

Staff costs- Central Provident Fund contributions 463,872 419,854

- Salaries, wages, bonuses and other costs 8,059,702 7,556,842 - Expense of share-based payments 114,230 391,213

Fair value adjustment of investment securities 192,300 –


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6. Taxation

The major components of income tax expense for the years ended 31 December are:-

Group

2005 2004

$ $

Current taxation 1,969,586 2,232,648Deferred taxation (100,000) (30,000)

1,869,586 2,202,648

Over-provision of current taxation in respect of prior years – (175,204)Share of associated company’s taxation – 2,781

Income tax recognized in profit and loss account 1,869,586 2,030,225

A reconciliation between the tax expense and the product of accounting profit multiplied by the applicable taxrate for the years ended 31 December were as follows : Group

2005 2004

$ $

Profit before tax 7,634,371 7,327,628

Income tax at statutory tax rate of 20% (2004 : 20%) 1,526,875 1,465,526Adjustments :

Expense not deductible for tax purposes 159,427 528,838Different effective tax rates of other countries 170,455 149,020

Tax effect of change in statutory tax rate – 36,332Tax effect of partial tax exemption (10,500) (10,500)Others 23,329 33,432

1,869,586 2,202,648

There are no income tax consequences attached to the dividends to the shareholders proposed by the Company but not recognized as a liability in the financial statements (Note 23).

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6. Taxation (cont’d)

Deferred income tax

Deferred income tax as at 31 December relates to the following:

Group and Company

2005 2004

$ $Deferred tax liabilities

Excess of net book value over tax written down value of property, plant and equipment 87,095 106,340

Deferred tax assets

Allowance for stock obsolescence 492,474 455,131Allowance for doubtful debts 10,595 10,595Fair value changes of financial instruments 50,000 –Other deferred tax assets 84,026 90,614

Gross deferred tax assets 637,095 556,340

Net deferred tax asset 550,000 450,000

7. Earnings per share

Basic earnings per share is calculated by dividing the net profit for the year attributable to ordinary shareholders bythe weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share is calculated by dividing the net profit attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares

that would be issued on the conversion of all dilutive potential options into ordinary shares.

The following reflects the income and share data used in the computation of basic and diluted earnings per share for the years ended 31 December :

2005 2004

$ $

(Restated)

Net profit attributable to ordinary shareholders forbasic and diluted earnings per share 5,764,785 5,297,403

No. of No. of

shares shares

Weighted average number of ordinary shares forbasic earnings per share computation 312,148,930 307,500,432

Effects of dilution arising from employee share options scheme 2,270,150 6,679,407

Weighted average number of ordinary sharesadjusted for the effects of dilution 314,419,080 314,179,839

In the calculation of diluted earnings per share, 2,372,000 (2004: Nil) share options granted to employees under theexisting employee share option plans have not been included in the calculation because they are anti-dilutive for thecurrent financial year presented.

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8. Property, plant and equipment

OfficeLeasehold furniture,land and Plant and Motor fitting and Computer

Group buildings machinery vehicles equipment equipment Renovation Total$ $ $ $ $ $ $

CostAs at 1 January 2004 4,822,913 5,067,136 1,577,661 219,520 723,079 370,697 12,781,006Due to acquisition of a subsidiary 2,556,231 – – 8,148 – 75,672 2,640,051Additions 14,255 504,268 80,000 32,360 482,273 – 1,113,156Disposal/Write-off – (94,667) (163,000) (1,120) (29,325) – (288,112)

As at 31 December 2004 7,393,399 5,476,737 1,494,661 258,908 1,176,027 446,369 16,246,101 and 1 January 2005

Additions 334,956 740,890 78,300 67,507 110,972 6,000 1,338,625Disposal/Write-off – – (650) (6,600) – – (7,250)

As at 31 December 2005 7,728,355 6,217,627 1,572,311 319,815 1,286,999 452,369 17,577,476

Accumulated depreciationAs at 1 January 2004 1,636,743 4,114,342 555,478 148,408 528,236 298,907 7,282,114

Depreciation charge for the year 232,352 356,726 276,862 28,205 267,904 90,474 1,252,523Disposal/Write-off – (17,978) (76,941) (1,025) (28,200) – (124,144)

As at 31 December 2004 1,869,095 4,453,090 755,399 175,588 767,940 389,381 8,410,493 and 1 January 2005Depreciation charge for

the year 310,508 420,998 261,493 38,381 316,414 42,485 1,390,279Disposal/Write-off – – (649) (4,975) – – (5,624)

As at 31 December 2005 2,179,603 4,874,088 1,016,243 208,994 1,084,354 431,866 9,795,148

Net carrying amountAs at 31 December 2005 5,548,752 1,343,539 556,068 110,821 202,645 20,503 7,782,328

As at 31 December 2004 5,524,304 1,023,647 739,262 83,320 408,087 56,988 7,835,608


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8. Property, plant and equipment (cont’d)

Officefurniture,

Plant and Motor fitting and ComputerCompany machinery vehicles equipment equipment Renovation Total

$ $ $ $ $ $

CostAs at 1 January 2004 399,034 1,512,456 145,517 539,208 369,897 2,966,112Additions 326,995 80,000 1,800 469,443 – 878,238Disposal/Write-off – (163,000) (470) (522) – (163,992)

As at 31 December 2004 and 1 January 2005 726,029 1,429,456 146,847 1,008,129 369,897 3,680,358Additions 194,760 1,300 46,225 98,255 – 340,540Disposal/Write-off – (650) (6,600) – – (7,250)

As at 31 December 2005 920,789 1,430,106 186,472 1,106,384 369,897 4,013,648

Accumulated depreciationAs at 1 January 2005 380,497 490,472 87,254 393,305 298,198 1,649,726Depreciation charge for the year 43,411 276,630 24,429 223,039 69,711 637,220Disposal/Write-off – (76,941) (376) – – (77,317)

As at 31 December 2004and 1 January 2005 423,908 690,161 111,307 616,344 367,909 2,209,629Depreciation charge for the year 83,518 251,077 23,548 301,898 1,188 661,229Disposal/Write-off – (649) (4,975) – – (5,624)

As at 31 December 2005 507,426 940,589 129,880 918,242 369,097 2,865,234

Net carrying amount

As at 31 December 2005 413,363 489,517 56,592 188,142 800 1,148,414

As at 31 December 2004 302,121 739,295 35,540 391,785 1,988 1,470,729

Property, plant and equipment held by CEI International Investments (Vietnam) Limited

The recoverable value of the property, plant and equipment held by CEI International Investments (Vietnam) Limitedis determined based on a value in use calculation using the cash flow projections based on financial budgetsapproved by management covering a five year period. The discount rate applied to cash flow projections is 10%(2004: 10%) and the cash flows beyond the 5 year period are extrapolated using a Nil growth rate.

The key assumptions for the cash flow projections is the budgeted gross margins and the expected productionvolumes. The basis used to determine the budgeted gross margins is approximately the average gross marginsachieved in the year immediately before the budgeted year achieved by the Group. The expected production volumesis based on either actual volumes achieved in the year immediately before the budgeted year achieved by the Groupand the order book quantities as at 31 December 2005.

Details of leasehold land and buildings held through subsidiary companies are as follows :

Location Description Tenure Land Area (sq m)

Batamindo Industrial Park, Detached single-storey 21 April 1998 toBatam, Indonesia factory with mezzanine floor 18 December 2019 5,788

Vietnam Singapore Industrial Detached single-storey 6 March 2002 toPark, Binh Duong, Vietnam factory with mezzanine floor 11 February 2046 5,000

Vietnam Singapore Industrial Land parcel 7 December 2004 toPark, Binh Duong, Vietnam 11 February 2046 4,500

Ang Mo Kio Industrial Park II, Detached three-storey 1 March 2004 to Singapore factory building 28 February 2023 2,617

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50


9. Investments in subsidiary companies

Company2005 2004

$ $Unquoted shares, at cost (Note 3) 9,032,741 9,032,741Impairment losses (1,409,223) (1,409,223)

Carrying amount of investments 7,623,518 7,623,518

Amounts owing by a subsidiary company 1,856,820 –

9,480,338 7,623,518

The amounts owing by a subsidiary company are effectively quasi-equity loans to the subsidiary company.

10. Investments in associated companies

Group Company2005 2004 2005 2004

$ $ $ $Unquoted shares, at cost (Note 3) 781,250 300,000 781,250 300,000

Share of post-acquisition reserves (59,000) – – –

Impairment of goodwill# (100,000) (100,000) (100,000) (100,000)

Carrying amount 622,250 200,000 681,250 200,000

Goodwill arising from acquisitionof Santec Corporation Pte Ltd 265,000 100,000 – –

#Impairment loss (100,000) (100,000) – –

Carrying amount 165,000 – – –

Investments in Santec Corporation Pte Ltd

The recoverable value of the investment in Santec Corporation Pte Ltd, including the related goodwill, isdetermined based on a value in use calculation using the cash flow projections based on financial budgetsapproved by management covering a five year period. The discount rate applied to cash flow projections is13% and the cash flows beyond the 5 year period are extrapolated using a Nil growth rate.

The key assumptions for the cash flow projections is the budgeted gross margins and the expected productionvolumes. The basis used to determine the budgeted gross margins is approximately the average gross marginsachieved in the year immediately before the budgeted year achieved, after elimination of one-off items thathad affected the historical margins. The expected production volumes is based on the growth rates of the actualvolumes achieved in the 2 years immediately before the budgeted year.

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10. Investments in associated companies (cont’d)

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

2005 2004

$ $

Assets and LiabilitiesCurrent assets 2,354 777Non-current assets 1,429 1,093

Total assets 3,783 1,870

Current liabilities (1,601) (464)Non-current liabilities (61) (95)

Total liabilities (1,662) (559)

Profit and lossRevenue 2,698 1,036

(Loss) / profit for the year (159) 40

11. Interest in joint venture company

The Group has 53.33% interest in the assets, liabilities, expenses and revenue of CEI-TOYO Singapore Pte Ltd.

The Group’s share of the assets, liabilities, revenue and expenses of the joint venture, which are included in the consolidated financial statements, are as follows :

2005 2004

$ $

Assets and LiabilitiesCurrent assets 359,192 370,128Non-current assets 46 121

Total assets 359,238 370,249

Current liabilities (128,449) (138,174)

Total liabilities (128,449) (138,174)

Profit and lossRevenue 6,893 31,473Cost of sales (6,204) (30,027)Other income 5,085 41,964Expenses (7,059) (46,418)

Loss for the year (1,285) (3,008)

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12. Investment securities

Group and Company

2005 2004

$ $

(Restated)

Held-to-maturity investmentsSecured bonds 1,022,883 1,022,883

Secured variable rate notes 1,000,000 –

Held for trading investmentsCallable target return surf deposit 750,000 1,000,000

2,772,883 2,022,883

Made up of :Non-current – 1,022,883Current 2,772,883 1,000,000

2,772,883 2,022,883

Secured bonds

The secured bonds will mature on 7 December 2006 and earned an interest of 5.625% per annum whichapproximates its effective interest rate. The interest is received semi annually in arrears.

Secured variable rate notes

The secured variable rate notes will mature on 3 March 2006 and earned an interest of 3.33% per annumwhich approximates its effective interest rate. The interest is received on a quarterly basis in arrears.

Callable target return surf deposit

The callable target return surf deposit earned an interest of 7.3% over the life of the deposit. The deposit willmature on 2 April 2014 but it will be redeemed by the Bank upon the achievement of the target return. Thedeposit can be traded by the Group at its discretion.

13. Cash and cash equivalents

Cash and cash equivalents comprise the following balance sheet amounts :

Group Company

2005 2004 2005 2004

$ $ $ $

Fixed deposits 7,227,396 12,170,732 6,900,666 11,822,421Cash at bank 4,792,131 4,567,948 4,312,568 4,181,498Cash on hand 11,642 9,288 9,460 6,650

12,031,169 16,747,968 11,222,694 16,010,569

The fixed deposits bear interest rates ranging from 1.5% to 4.2275% (2004 : 0.5% to 1.5%) per annum, which are also the effective interest rates. The short term fixed deposits are made for varying periods of between one week and three months.

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14. Trade receivables

Group and Company

2005 2004

$ $

Trade receivables are stated after deductingallowance for doubtful debts of : 52,976 52,976

Analysis of allowance for doubtful debts

Balance at beginning of year 52,976 352,737Written back during the year (Note 5) – (299,761)

Balance at end of year 52,976 52,976

15. Other receivables

Group Company

2005 2004 2005 2004

$ $ $ $

Deposits 127,361 452,849 49,340 55,340Prepayments 134,525 154,212 100,190 100,976Others 36,183 – 36,183 –

298,069 607,061 185,713 156,316

16. Amounts owing by/to subsidiary companies

Amounts owing by subsidiary companies

The amount owing by subsidiary companies are non-trade in nature, unsecured, interest-free and repayableon demand.

Amounts owing to a subsidiary company Company

2005 2004

$ $

Trade 4,730,985 5,162,283Non-trade 492,705 846,034

5,223,690 6,008,317

The trade and non-trade balances owing to a subsidiary company are unsecured, interest-free and repayableon demand.


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17. Inventories

Group Company

2005 2004 2005 2004

$ $ $ $

Finished products 763,847 1,135,186 763,847 1,135,186Work-in-progress 591,480 467,472 591,480 467,472Raw materials 6,612,046 5,664,530 6,611,296 5,663,785

Total inventories at lower ofcost and net realisable value 7,967,373 7,267,188 7,966,623 7,266,443

Group and Company

2005 2004

$ $

Inventories are stated after deductingallowance for inventory obsolescence of 2,462,365 2,275,656

Analysis of allowance for inventory obsolescence:Balance at beginning of year 2,275,656 1,750,951Written back during the year (Note 18) – (31,011)Allowance made during the year (Note 18) 186,709 555,716

Balance at end of year 2,462,365 2,275,656

18. Trade payables and accruals

Group Company

2005 2004 2005 2004

$ $ $ $

Trade payables 7,999,674 6,761,928 7,850,892 6,621,772Accruals for operating expenses 3,087,645 3,267,809 2,708,450 2,859,615

11,087,319 10,029,737 10,559,342 9,481,387

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19. Other liabilities

Group Company

2005 2004 2005 2004

$ $ $ $

Deposits by customers 321,674 250,457 261,451 190,235Advanced billings to customers 995,885 1,276,510 995,885 1,276,510

1,317,559 1,526,967 1,257,336 1,466,745

20. Share capital

Group and Company

2005 2004

$ $

Authorised :

Balance at beginning and end of year1,000,000,000 ordinary shares of $0.05 each 50,000,000 50,000,000

Issued and fully paid :

At beginning of year314,438,562 (2004 : 302,380,050)ordinary shares of $0.05 each 15,721,928 15,119,003

Issuance of 11,859,012 (2004 : 12,058,512)ordinary shares of $0.05 each for cashunder employee share option scheme 592,951 602,925

Balance at end of year326,297,574 (2004 : 314,438,562)ordinary shares of $0.05 each 16,314,879 15,721,928

The holders of ordinary shares are entitled to receive dividends as and when declared by the Company. All ordinary shares carry one vote per share without restriction.

The Company has 6 employee share option schemes (Note 24) under which options to subscribe for the Company’s ordinary shares have been granted to employees.

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21. Employee share options reserves

Employee share option reserves represents the equity-settled share options granted to employees (Note 24). Thereserve is made up of the cumulative value of services received from employees recorded on grant of equity-settledshare options.

22. Hedging reserves

Hedging reserves record the portion of the fair value changes on derivative financial instruments designated ashedging instruments in cash flow hedges that is determined to be an effective hedge.

The net change in the reserve arises from recognition in the profit and loss account on occurrence of hedgedtransactions.

23. Dividends

Group and Company

2005 2004

$ $

Dividends declared and paid :-

Interim dividends:- Exempt (one-tier) for 2005 at 3.32% (2004 : 4.15% less tax) 541,197 515,881

Special dividends :- Exempt (one-tier) for 2005 at 14.13% (2004 : 16.52% less tax) 2,303,343 2,053,579

Second interim dividends : - Exempt (one-tier) for 2005 at 18.4% (2004 : Nil) 2,999,705 –

Final dividends:- For 2004 at 8.5% less tax (2003 : 8.5% less tax) 1,104,508 1,031,014

Special dividends:- Exempt (one-tier) for 2004 at 13.0% (2003 : 8.5% less tax) 2,111,555 1,031,014

9,060,308 4,631,488

Proposed but not recognized as a liability as at 31 December :-

Dividends on ordinary shares, subject to shareholder’s approval at AGM

- Final exempt (one-tier) dividend for 2005 at 6.8% (2004 : 8.5% less tax) 1,109,412 1,069,083

- Special exempt (one-tier) dividend for 2005 at 11.1% (2004 : 13.0%) 1,810,952 2,043,804

2,920,364 3,112,887

24. Employee benefits

The Company has an employee share incentive plan, CEI Contract Manufacturing Employees Share Option Schemefor the granting of non-transferable options. Options are granted at the prevailing market price determined as theaverage price of the five (5) consecutive trading days immediately preceding the Date of Grant of option.

The subscription of price for each share in respect of which an Option is exercisable shall be a discount of betweenzero (0) and 20% of the prevailing market price. The quantum of discount is performance driven, formula-based andconsiders the Group’s audited profit after taxation for two consecutive financial years starting with the financial yearin which the Option was granted.

All the options issued are at a 20% discount off market price at date of grant.

Options may only be exercised after the second anniversary of the Date of Grant of that Option but before the fifthanniversary of the Date of Grant of that Option. Options granted are cancelled when the option holder ceases to be

under full employment of the Company or any corporation in the Group subject to certain exceptions at the discretionof the Company.

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24. Employee benefits (cont’d)

Information with respect to the number of options granted under the CEI Contract Manufacturing Employees Share Option Scheme is as follows :

i) Options outstanding under Employees Share Options Scheme

Number of shares

2005 2004

Outstanding at beginning of the year 21,451,440 35,001,296Granted (3) 2,372,000 –Exercised (1) (11,859,012) (12,058,512)Lapsed (1,738,224) –Forfeited (33,000) (1,491,344)

Outstanding at end of the year (2) 10,193,204 21,451,440

Exercisable at end of year 7,821,204 11,100,440

(1) The weighted average share price at the date of exercise for the options was $0.1854 (2004: $0.2050).

(2) The range of exercise prices for options outstanding at the end of the year was $0.1215 to $0.1803 (2004: $0.1215 to $0.1803). The weighted average remaining contractual life for these options is 2.6 years (2004: 2.5 years).

(3) The fair value of options granted during the year was $0.049 (2004: Nil).

The fair value of share options as at the date of grant, is estimated by an external valuer using Bloomberg Executive Option Valuation Model ("BEOVM"), taking into account the terms and conditions upon which the options were

granted. The inputs to the model used for the year ended 31 December 2005 are shown below.

2005

Dividend yield (%) 4.15 and 8.5Expected volatility (%) 35Historical volatility (%) 35Risk-free interest rate (%) 2.286Expected life of option (years) 1.5Weighted average share price ($) 0.175

Dividend yield

The projected interim and final dividends are set at 4.15% and 8.5% of the par value of $0.05 for each financial yearover the expected life of the options. Special dividends are uncertain and non-recurring, and thus not included inthe projection.

Expected and historical volatility

An expected volatility of 35% has been applied in the BEOVM, after considering the Group's market profile, majorcorporate transactions, expectations on the Company's performance and industry outlook.

Risk-free interest rate

The annual yield, at the measurement date, of a Singapore Government Securities Bond with comparable maturityto the expected life of the options, based on the Singapore Sovereign yield curve, has been applied as a proxy torisk-free rate. This rate is assumed to be relatively stable over the life of the options.

Expected life of option

The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns thatmay occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends,which may also not necessarily be the actual outcome. No other features of the option grant were incorporated intothe measurement of fair value.

Weighted average share price

The last traded price as at the date of grant has been used in the valuation of the Options.

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24. Employee benefits (cont’d)

(ii) Details of share options

2005Balance

as at 1.1.2005 Number of or date of Balance holders Exercise

ESOS Date of grant Options Options Options as at as at Price Exercisablegrant if later exercised lapsed forfeited 31.12.2005 31.12.2005 $ period

1 5.6. 2000 3,678,104 1,939,880 1,738,224 – – – 0.1803 5.6.2002 – 5.6.2005

2 2.2.2001 1,913,936 1,473,132 – – 440,804 29 0.1490 2.2.2003 – 2.2.2006

3 18.9.2002 5,508,400 3,197,000 – – 2,311,400 29 0.1215 18.9.2004 – 18.9.2007

4 13.2.2003 7,920,000 4,600,000 – – 3,320,000 30 0.1236 13.2.2005 – 13.2.2008

5 7.7.2003 2,431,000 649,000 – 33,000 1,749,000 22 0.1578 7.7.2005 – 7.7.2008

6 6.9.2005 2,372,000 – – – 2,372,000 68 0.1520 6.9.2007 – 6.9.2010

23,823,440 11,859,012 1,738,224 33,000 10,193,204

2004

Number of Balance Balance holders Exercise

Date of as at Options Options as at as at Price ExercisableESOS grant 1.1.2004 exercised forfeited 31.12.2004 31.12.2004 $ period

1 5.6. 2000 8,360,440 4,128,632 553,704 3,678,104 49 0.1803 5.6.2002 – 5.6.20052 2.2.2001 6,301,856 4,387,480 440 1,913,936 36 0.1490 2.2.2003 – 2.2.20063 18.9.2002 9,207,000 3,542,400 156,200 5,508,400 52 0.1215 18.9.2004 – 18.9.20074 13.2.2003 8,525,000 – 605,000 7,920,000 83 0.1236 13.2.2005 – 13.2.20085 7.7.2003 2,607,000 – 176,000 2,431,000 27 0.1578 7.7.2005 – 7.7.2008

35,001,296 12,058,512 1,491,344 21,451,440

(iii) Details of share options exercised 2005

ESOS No. of shares exercised Exercise price $ Proceeds from share issue $

1 1,939,880 0.1803 349,7602 1,473,132 0.1490 219,4973 3,197,000 0.1215 388,4364 4,600,000 0.1236 568,5605 649,000 0.1578 102,412

11,859,012 1,628,665

2004

ESOS No. of shares exercised Exercise price $ Proceeds from share issue $

1 4,128,632 0.1803 744,3912 4,387,480 0.1490 653,7353 3,542,400 0.1215 430,402

12,058,512 1,828,528

A total of 28,154,436 (2004: 16,295,424) options have been exercised as at the date of this report.

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25 . Related party disclosures

An entity or individual is considered a related party of the Group for the purposes of the financial statements if : i)it possesses the ability (directly or indirectly) to control or exercise significant influence over the operating andfinancing decisions of the Group or vice versa; or ii) it is subject to common control or common significant influence.

During the year, there were the following significant transactions with related parties based on terms agreed by theparties :-

a) Sale and purchase of goods and services

Group Company

2005 2004 2005 2004

$ $ $ $

Sales made to relatedcompanies – 2,902,676 – 2,738,735

Subcontract cost paid tosubsidiary company – – 3,712,612 3,295,787

Rental paid to subsidiarycompany – – 257,028 133,974

Rental paid to associatedcompany – 133,974 – 133,974

These transactions were conducted on an arm’s length basis on normal commercial terms.

b) Compensation of key management personnel

Group

2005 2004

$ $

Central Provident Fund 81,965 75,850Salaries, wages, bonuses and other costs 2,091,686 2,479,977Share-based payments 221,272 67,006

Total compensation paid to key management personnel 2,394,923 2,622,833

Comprise amounts paid to:• Directors of the Company 961,810 953,348• Other key management personnel 1,433,113 1,669,485

Total compensation paid to key management personnel 2,394,923 2,622,833

The remuneration of key management personnel are determined by the remuneration committee having regard to the performance of individuals and market trends.

The table below shows the ranges of gross remuneration received by the top 5 executives (excluding directors)of the Company.

2005 2004

Number of executives of the Group in remuneration bands :

$250,000 to $499,000 3 1Below $250,000 2 4

Total 5 5

Note: Remuneration paid to Mr Tien Sing Gee, who is related to the Executive Chairman amounted to $250,448(2004: $220,650)

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25 . Related party disclosures (cont’d)

c) Director’s remuneration

The table below shows the ranges of gross remuneration received by the directors of the Company.

2005 2004

Number of directors of the Group in remuneration bands :

$250,000 to $499,000 2 2Below $250,000 3 3

Total 5 5

26. Financial instruments

Financial risk management objectives and policies

The Group is exposed to market risk, including primarily changes in interest rates and currency exchange ratesand uses derivatives and other instruments in connection with its risk management activities. The Group doesnot hold or issue derivative financial instruments for trading purposes. The board reviews and agrees policiesfor managing each of these risks and they are summarised below.

Interest rate risk

The Group has cash balances placed with reputable banks, financial institutions. The Group manages its interestrate risks on its interest income by placing the cash balances in fixed deposits / products of varying maturitiesand interest rate terms.

The Group does not engage in external financing.

Information relating to the Group’s interest rate exposure is also disclosed in the notes on the Group’s investmentsecurities, cash and cash equivalents.

Foreign currency risk

The Group uses foreign exchange contracts in managing its foreign currency risk arising from cash flows fromanticipated transactions and financing arrangements denominated in foreign currencies, primarily the USdollar. Transaction risk is calculated in each foreign currency and includes foreign currency denominated assetsand liabilities and firm probable purchases and sales commitments.

As at the balance sheet date, after taking into account the effects of forward foreign exchange contracts, theGroup’s currency exposures are insignificant.

Credit risk

Credit risk arising from the inability of a counterparty to meet the terms of the Group’s financial instrumentcontracts is generally limited to the amounts, if any, by which the counterparty’s obligations exceed theobligations of the Group. It is the Group’s policy to enter into financial instruments with a diversity of creditworthycounterparties. Therefore, the Group does not expect to incur material credit losses on its risk managementor other financial instruments.

Fair value of financial instruments

Fair value is defined as the amount at which the instrument could be exchanged in a current transactionbetween knowledgeable willing parties in an arm’s length transaction, other than in a forced or liquidationsale. Fair values are obtained from quoted market prices, discounted cash flow models and option pricingmodels as appropriate.

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26. Financial instruments (cont’d)

Fair value of financial instruments (cont’d)

The following methods and assumptions are used to estimate the fair value of each class of financial instruments:

Cash and cash equivalents, investment securities, short-term receivables and short term payables

The carrying amounts approximate fair value due to the relatively short-term maturity of these instruments.

Derivatives

The fair value of foreign exchange forward contracts is estimated based on the difference between the applicableforward rates prevailing at the balance sheet date and the contracted forward rates, multiplied by the notionalamount and discounted to present value.

As of 31 December 2005, the notional principal amounts and estimated fair values for foreign exchange contractsfor the Group and Company are presented in the following table:

2005 2004

Contractual Estimated Contractual Estimated

notional fair value notional fair value

amount amount

$’000 $’000 $’000 $’000

Foreign exchange forwardcontracts 2,661 (25) 9,565 89

The maturity date of the foreign exchange forward contract approximate the timing of the expected cash flowof the hedged item, which are on varying periods up to 6 months from the financial year end.

Credit risk exposures

The Group’s maximum exposure to credit risk (not taking into account the value of any collateral or othersecurity held) in the event the counterparties fail to perform their obligations as of 31 December 2005 in relationto each class of recognised financial assets, other than derivatives, is the carrying amount of these assets asindicated in the balance sheet.

With respect to derivative financial instruments, credit risk arises from the potential failure of counterpartiesto meet their obligations under the contract or arrangement. The Group and Company’s maximum credit riskexposure for derivative instruments is as follows :

Foreign exchange contracts – the full amount of the foreign currency the Group and Company will be requiredto pay or purchase when settling the forward exchange contracts, should the counterparties not pay thecurrency they are committed to deliver to the Group and Company.

Significant concentrations of credit risk

Concentrations of credit risk exist when changes in economic industry or geographical factors similarly affectsgroups of counterparties whose aggregate credit exposure is significant in relation to the Group’s total creditexposure. The Group’s portfolio of financial instruments is broadly diversified along industry, product andgeographical lines, and transactions are entered into with diverse creditworthy counterparties, thereby mitigatingany significant concentration of credit risk.

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27. Information by segment on the Group’s operations

(a) By business activity :

The Group’s principal activity consists wholly of printed circuit board assembly and box-build operations,therefore, no segment reporting of business activity is appropriate.

(b) By geographical areas :

The Group’s geographical segments are based on the location of customers.

The Group’s assets are based mainly in Singapore, Indonesia and Vietnam where the Group operates.

The following table presents revenue and expenditure information regarding geographical segments for theyear ended 31 December 2005 and 2004 and certain asset and liability information regarding geographicalsegments at 31 December 2005 and 2004.

Asia-Pacific USA Europe Consolidated

2005 2004 2005 2004 2005 2004 2005 2004

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Segment turnoverSales 10,915 7,993 47,841 41,952 11,806 12,506 70,562 62,451Cost of sales (8,297) (6,065) (35,147) (29,586) (7,935) (8,208) (51,379) (43,859)

Segment result 2,618 1,928 12,694 12,366 3,871 4,298 19,183 18,592

Operating profit 7,694 7,503Share of results of

associated company (59) (176) – – – – (59) (176)

Profit before taxation 7,635 7,327Tax expense (1,870) (2,030)

Net profit for the year 5,765 5,297

Other geographical information

Segment assets 3,621 2,221 11,074 10,141 3,075 2,722 17,770 15,084

Interests in associatedcompany 622 200 – – – – 622 200

Unallocated assets* 23,610 27,832

Total assets 42,002 43,116

Unallocated andtotal liabilities 14,763 14,266

Other segment information:

Impairment ofgoodwill – 100 – – – – – 100

* Capital expenditures of approximately $1,338,000 (2004: $1,113,000) and depreciation charge of approximately$1,390,000 (2004: $1,253,000) relate to that of the unallocated assets.

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28. Comparatives

Comparatives in the financial statements have been changed from the previous financial year due to the changes in accounting policies as disclosed in Note 2 and to be consistent with current year presentation.

The following comparatives have also been reclassified to better reflect the nature of the balances.

Group

2004 2004

As restated As previously

reported

Consolidated profit and loss account

Distribution costs – 402,934

Selling and distribution costs 1,765,101 1,114,137

Group Company

2004 2004 2004 2004

As restated As previously As restated As previously

reported reported

$ $ $ $

Balance sheet

Cash and cash equivalents 16,747,968 17,747,968 16,010,569 17,010,569

Investments securities(current portion) 1,000,000 – 1,000,000 –

29. Authorisation of financial statements for issue

The financial statements for the year ended 31 December 2005 were authorised for issue in accordance with a resolution of the directors on 20 February 2006.

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Statistics Of Shareholdings As At 20 February 2006

Issued and fully paid-up capital : S$16,326,505.20Class of shares : Ordinary ShareVoting rights : One vote per share

Distribution of Shareholdings

Size of Shareholdings No of Shareholders % No of Shares %1 – 999 324 6.64 147,832 0.051,000 – 10,000 1,885 38.63 10,275,675 3.1510,001 – 1,000,000 2,638 54.06 120,584,135 36.941,000,001 and above 33 0.67 195,384,932 59.86

Total 4,880 100.00 326,392,574 100.00

Twenty Largest Shareholders

Name No of Shares %

1. Republic Technologies Pte Ltd 62,726,400 19.222. Tien Sing Cheong 34,687,600 10.633. Tan Ka Huat @ Kaharianto Tanmalano 15,901,360 4.874. Ng Cheng Kung 6,878,960 2.115. Hong Leong Finance Nominees Pte Ltd 6,025,552 1.856. DBS Nominees Pte Ltd 5,941,808 1.827. United Overseas Bank Nominees Pte Ltd 5,742,640 1.768. Tan Cheok Hoong 5,360,000 1.649. Heng Teck Yow 4,620,800 1.4210. Thng Ah Hiang 3,908,800 1.2011. DBS Vickers Securities (Singapore) Pte Ltd 3,659,768 1.1212. OCBC Nominees Singapore Pte Ltd 3,387,464 1.0413. The Asia Life Assurance Society Ltd - Par Fund 3,135,000 0.9614. Lim Sea Leang 3,120,536 0.9615. UOB Kay Hian Pte Ltd 2,707,216 0.8316. Lim Piak Hwa 2,505,192 0.7717. Kuan Bon Heng 2,300,000 0.7018. OCBC Securities Private Ltd 1,892,720 0.5819. Phillip Securities Pte Ltd 1,888,016 0.5820. Tan Bien Chuan 1,878,800 0.58

Total 178,268,632 54.64

Substantial Shareholders

Substantial shareholders as recorded in the Register of Substantial Shareholders as at 20 February 2006

No of Shares Held By No of Shares Held BySubstantial Shareholders Substantial Shareholders

Direct Interest % Deemed Interest %

Temasek Holdings (Private) Limited1 – – 62,726,400 19.22Temasek Capital (Private) Limited1 – – 62,726,400 19.22Seletar Investments Pte Ltd1 – – 62,726,400 19.22Republic Technologies Pte Ltd 62,726,400 19.22 – –Tien Sing Cheong 34,687,600 10.63 – –

Note:1 Temasek Holdings (Private) Limited, Temasek Capital (Private) Limited and Seletar Investments Pte Ltd are deemed

to have an interest in 62,746,400 shares held by Republic Technologies Pte Ltd.

Based on the information available to the Company, approximately 65.28% of the Company’s shares listed on theSingapore Exchange Securities Trading Limited were in the hands of the public. Therefore, the Company hascomplied with Rule 723 of the SGX Listing Manual.

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CEI CONTRACT MANUFACTURING LIMITED


(Incorporated in the Republic of Singapore)

NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that the Seventh Annual General Meeting of CEI Contract Manufacturing Limited (“theCompany”) will be held at Swissotel Merchant Court, Merchant Court Ballroom (Section A), 20 Merchant Road,Singapore 058281 on Monday, 27 March 2006 at 10.00 a.m. for the following purposes:

AS ORDINARY BUSINESS

1. To receive and adopt the Directors’ Report and the Audited Accounts of the Company for the year ended 31December 2005 together with the Auditors’ Report thereon. (Resolution 1)

2. To declare Tax Exempt Second and Final dividend of 0.340 cents per ordinary share for the year ended 31December 2005 (2004: 0.425 cents per ordinary share). (Resolution 2)

3. To declare a Tax Exempt Special Dividend of 0.555 cents per ordinary share for the year ended 31 December2005 (2004: 0.650 cents per ordinary share) (Resolution 3)

4. To re-elect Mr Tien Sing Cheong, who is retiring under Article 107 of the Company’s Articles of Association,as a Director of the Company.

Mr Tien Sing Cheong will, upon re-election as a Director of the Company, remain an Executive Chairman ofthe Board and a Member of the Nominating Committee. (Resolution 4)

5. To re-elect Mr Gan Chee Yen, who is retiring under Article 107 of the Company’s Articles of Association, as aDirector of the Company.

Mr Gan Chee Yen will, upon re-election as a Director of the Company, remain a member of the Audit Committeeand Remuneration Committee and will be considered as non-executive for the purposes of Rule 704(8) ofListing Manual of the Singapore Exchange Securities Trading Limited. (Resolution 5)

6. To approve the payment of Directors’ fees of S$138,000 for the year ended 31 December 2005 (31 December2004: S$130,200). (Resolution 6)

7. To re-appoint Ernst & Young as the Company’s Auditors and to authorise the Directors to fix their remuneration.(Resolution 7)

8. To transact any other ordinary business which may properly be transacted at an Annual General Meeting.

AS SPECIAL BUSINESS

To consider and if thought fit, to pass the following resolutions as Ordinary Resolutions, with or without anymodifications:

9. Authority to allot and issue shares up to 50 per centum (50%) of issued share capital

"That pursuant to Section 161 of the Companies Act, Cap. 50 and Rule 806 of the Listing Manual of the SingaporeExchange Securities Trading Limited, the Directors be empowered to allot and issue shares and convertiblesecurities in the capital of the Company at any time and upon such terms and conditions and for such purposesas the Directors may, in their absolute discretion, deem fit provided that the aggregate number of shares(including shares to be issued in accordance with the terms of convertible securities issued, made or grantedpursuant to this Resolution) to be allotted and issued pursuant to this Resolution shall not exceed fifty percentum (50%) of the issued share capital of the Company at the time of the passing of this Resolution, of whichthe aggregate number of shares and convertible securities to be issued other than on a pro rata basis to allshareholders of the Company shall not exceed twenty per centum (20%) of the issued share capital of theCompany and that such authority shall, unless revoked or varied by the Company in general meeting, continuein force until the conclusion of the Company’s next Annual General Meeting or the date by which the nextAnnual General Meeting of the Company is required by law to be held, whichever is earlier." [See ExplanatoryNote (i)] (Resolution 8)

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AS SPECIAL BUSINESS (cont’d)

10. Authority to allot and issue shares under the CEI ESOS

“That pursuant to the provisions of Section 161 of the Companies Act, Cap. 50, the Directors be empoweredto allot and issue from time to time such number of shares in the capital of the Company as may be requiredto be issued pursuant to the exercise of the options that may be granted under the CEI Contract ManufacturingEmployees’ Share Option Scheme (the “Scheme”) provided always that the aggregate number of shares tobe issued pursuant to the Scheme shall not exceed ten per centum (10%) of the issued share capital of theCompany for the time being and that such authority shall, unless revoked or varied by the Company in generalmeeting, continue in force until the conclusion of the Company’s next Annual General Meeting.” [See ExplanatoryNote (ii)] (Resolution 9)

By Order of the Board

Susie Low Geok Eng / Teo Soon HockCompany Secretaries10 March 2006

Explanatory Notes:

(i) The Ordinary Resolution 8 proposed in item 9 above, if passed, will empower the Directors from the date ofthis Meeting until the date of the next Annual General Meeting, or the date by which the next Annual GeneralMeeting is required by law to be held or when varied or revoked by the Company in general meeting, whicheveris the earlier, to allot and issue shares and convertible securities in the Company. The number of shares andconvertible securities that the Directors may allot and issue under this resolution would not exceed fifty percentum (50%) of the issued capital of the Company at the time of the passing of this resolution. For issue ofshares and convertible securities other than on a pro rata basis to all shareholders, the aggregate number ofshares and convertible securities to be issued shall not exceed twenty per centum (20%) of the issued capitalof the Company.

For the purpose of this resolution, the percentage of issued capital is based on the Company’s issued capitalat the time this proposed Ordinary Resolution is passed after adjusting for new shares arising from theconversion or exercise of convertible securities, the exercise of share options or the vesting of share awardsoutstanding or subsisting at the time when this proposed Ordinary Resolution is passed and any subsequentconsolidation or subdivision of shares.

(ii) The Ordinary Resolution 9 proposed in item 10 above, if passed, will empower the Directors of the Company,from the date of the above Meeting until the next Annual General Meeting, to allot and issue sharesin the Company of up to a number not exceeding in total ten per centum (10%) of the issued sharecapital of the Company from time to time pursuant to the exercise of the options under the Scheme.

Notes:

1. A Member entitled to attend and vote at the Annual General Meeting (the “Meeting”) is entitled to appoint aproxy to attend and vote in his/her stead. A proxy need not be a Member of the Company.

2. The instrument appointing a proxy must be deposited at the Registered Office of the Company at Lim Associates(Pte) Ltd 10 Collyer Quay #19-08 Ocean Building Singapore 049315 not less than 48 hours before the timeappointed for holding the Meeting.

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Total number of Shares No. of Shares(a) CDP Register(b) Register of Members

IMPORTANT1. For investors who have used their CPF monies to buy CEI

shares, the Annual Report is forwarded to them at therequest of their CPF Approved Nominees and is sentsolely FOR INFORMATION ONLY.

2. This Proxy Form is not valid for use by CPF Investors andshall be ineffective for all intents and purpose if used orpurported to be used by them.

3. CPF Investors who wish to vote and/or attend shouldcontact their CPF Approved Nominees.



(Incorporated In The Republic Of Singapore)

PROXY FORM(Please see notes overleaf before completing this Form)

I/We, ___________________________________________________________________________________________ (Name)of ___________________________________________________________________________________________ (Address)being a member/members of CEI CONTRACT MANUFACTURING LIMITED (the “Company”), hereby appoint:

Name Address NRIC/Passport Proportion of Number Shareholdings (%)

and /or (delete as appropriate)

Name Address NRIC/Passport Proportion of Number Shareholdings (%)

or failing him/her, the Chairman of the meeting as my/our proxy to vote for me/us on my/our behalf and, if necessary,demand for a poll at the Annual General Meeting of the Company to be held on 27 March 2006 at 10.00 a.m. andat any adjournment thereof. The proxy is to vote on the business before the meeting as indicated below. If nospecific direction as to voting is given, the proxy will vote or abstain from voting at his/her discretion, as he/shewill on any other matter arising at the Meeting:

Resolutions relating to: For Against

1 The adoption of Directors’ Report and the Audited Accounts together with theAuditors’ Report thereon

2 Declaration of Tax Exempt Second and Final Dividend of 0.340 cents perordinary share

3 Declaration of Tax Exempt Special Dividend of 0.555 cents per ordinary share

4 Re-election of Mr Tien Sing Cheong as a Director of the Company

5 Re-election of Mr Gan Chee Yen as a Director of the Company

6 Approval of the payment of Directors’ fees of S$138,000

7 Re-appointment of Ernst & Young as the Company’s Auditors and to authoriseDirectors to fix their remuneration

8 Authority to allot and issue shares up to 50% of issued share capital

9 Authority to allot and issue shares under CEI ESOS

(Please indicate with a cross [X] in the space provided whether you wish your vote to be cast for or against the

Resolutions as set out in the Notice of the Meeting.)

Dated this ______________ day of ______________ 2006

_________________________________________

Signature of Shareholder(s)

or, Common Seal of Corporate Shareholder

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(Incorporated In The Republic Of Singapore)

PROXY FORM (Cont’d Page 2)

Notes:

1. Please insert the total number of Shares held by you. If you have Shares entered against your name in theDepository Register (as defined in Section 130A of the Companies Act, Chapter 50 of Singapore), you shouldinsert that number of Shares. If you have Shares registered in your name in the Register of Members, youshould insert that number of Shares. If you have Shares entered against your name in the Depository Registerand Shares registered in your name in the Register of Members, you should insert the aggregate number ofShares entered against your name in the Depository Register and registered in your name in the Register ofMembers. If no number is inserted, the instrument appointing a proxy or proxies shall be deemed to relateto 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 oneor two proxies to attend and vote instead of him/her. A proxy need not be a member of the Company.

3. Where a member appoints two proxies, the appointments shall be invalid unless he/she specifies the proportionof his/her shareholding (expressed as a percentage of the whole) to be represented by each proxy.

4. The instrument appointing a proxy or proxies must be deposited at the registered office of the Company at10 Collyer Quay #19-08, Ocean Building, Singapore 049315 not less than forty-eight (48) hours before the timeappointed for the Annual General Meeting.

5. The instrument appointing a proxy or proxies must be under the hand of the appointor or of his attorney dulyauthorised in writing. Where the instrument appointing a proxy or proxies is executed by a corporation, itmust be executed either under its seal or under the hand of an officer or attorney duly authorised.

6. A corporation which is a member may authorise by resolution of its directors or other governing body suchperson as it thinks fit to act as its representative at the Meeting, in accordance with Section 179 of the CompaniesAct, Chapter 50 of Singapore.

General:

The Company shall be entitled to reject the instrument appointing a proxy or proxies if it is incomplete,improperly completed or illegible or where the true intentions of the appointor are not ascertainable from theinstructions of the appointor specified in the instrument appointing a proxy or proxies. In addition, in the caseof Shares entered in the Depository Register, the Company may reject any instrument appointing a proxy orproxies lodged if the member, being the appointor, is not shown to have Shares entered against his name inthe Depository Register as at forty-eight (48) hours before the time appointed for holding the Meeting, ascertified by The Central Depository (Pte) Limited to the Company.


1 Corporate Profile / Corporate Information

2 Chairman’s Message

4 Board of Directors

5 Key Management Executives

6 Report on Corporate Governance

12 Risk Identification, Management Policies and Processes

14 Financial Highlights

15 Financial Report

64 Statistics of Shareholders

65 Notice of AGM

67 Proxy Form

Contents


Contact:

Tel: (65) 6481 1882 Fax: (65) 6481 9662

Address:

2 Ang Mo Kio Ave 12 Singapore 569707

E-mail:

[email protected]

ANNUAL REPORT2 0 0 5

CEI Contract Manufacturing Limited


Documents

CEI Contract Manufacturing Limited - 联合早报网ir.zaobao.com.sg/cei/docs/cei2005ar.pdf · CEI is committed to observing good standards of corporate governance and a continual