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We have
given our shareholders
a good return
on their investment.
We shall continue to strive to deliver value to our shareholders
going forward.”


Chairman's Statement

Dear Shareholders,

During the year, our operations achieved strong growth, led by our Integrated Utilities and Energy, Marine Engineering and Logistics businesses.

Our full year turnover increased 28% to S$5.9 billion, while our Profit After Tax and Minority Interest (PATMI) was 39% higher at S$395.5 million. The year was a strong year for our Integrated Utilities and Energy business, which recorded good growth in both revenue and profitability on the back of increased demand for centralised utilities services and energy. During the year, our Marine Engineering operations also benefitted from a boost in demand for ship conversion and repair services.

We have consistently maintained a sound balance sheet. Our interest cover doubled from 7 to 15 times as we continue to observe strict financial discipline. With the divestment of SembCorp Logistics’ share in Kuehne & Nagel International (KNI), we achieved a net cash position at the end of the financial year. The group’s total assets have now surpassed S$8 billion for the first time. Our acquisitions in the last few years have helped to build the Group’s stable earning base in areas with good growth potential, paving the way to deliver sustainable growth for shareholders in the future.

Delivering value to shareholders
A review of our performance over the last five years since 2000 shows that our turnover has more than doubled and PATMI before EI has increased by 98%. During this period, we have also consistently achieved a Return on Equity higher than our target of 12%.

We are committed to delivering shareholder value, and our actions in 2004 have continued to reflect this. Last October, SembCorp Logistics (SembLog) sold its 20% stake in global logistics player KNI for S$1.3 billion as synergies from the collaboration did not meet our expectations.

The divestment provided the opportunity for us to unlock significant value both for SembLog, and for SembCorp Industries shareholders.

Of the approximately S$604 million in distribution to be received in total by SembCorp Industries as a result of the divestment, we are looking to distribute more than half to our shareholders. This amounts to approximately S$306 million. Of this, S$114.2 million was paid by way of a special gross dividend (net dividend of S$91.3 million) in January 2005, translating to gross 6.25 cents per ordinary share. A further capital reduction of about S$215 million is being proposed to our shareholders, and is subject to their approval at the upcoming EGM. The total value to be distributed to our shareholders through the capital reduction exercise is approximately S$117.00 for every 1,000 shares held.

In tandem with our improved performance, the Board of Directors is proposing a final gross dividend of 5 cents per ordinary share. Together with the special gross dividend of 6.25 cents per ordinary share, our total gross dividend stands at 11.25 cents per share.

Along with the 29% appreciation in our share price during the year, we have given our shareholders a good return on their investment. We shall continue to strive to deliver value to our shareholders going forward.

Corporate Social Responsibility
At SembCorp Industries, we believe in being a responsible corporate citizen and giving back to the community.

We responded to the tsunami disaster by mounting a Group-wide effort to raise funds from our companies, staff and business associates towards the relief efforts. To this end, we succeeded in raising more than S$700,000.

Our environmental management arm mobilized more than 100 karang guni* men, who collected more than 13 tonnes of old clothing and 2 tonnes of rice from residents of various housing estates. At the same time, SembLog offered space from two warehouses, packing materials and other resources to local relief agencies, to sort and pack donations in kind.

Enterprise Risk Management
At SembCorp Industries, we believe in adopting a proactive approach to managing risks, and view a good risk management strategy as integral to our businesses. We maintain high-level oversight of the Group’s entire portfolio of risks, whilst regularly evaluating individual risks at our different business operations. This provides an objective basis for allocating the Group’s resources. Risk management alone does not guarantee that business undertakings will not fail. However, by identifying, measuring and controlling risks that may arise, we can make more informed decisions and benefit from a better balance between risk and reward. This will help protect and also create shareholder value.

Corporate Governance
We are committed to the highest standards of corporate conduct and governance, and continually aim to improve the effectiveness of our Board oversight and our Board committees.

In 2004, we continued to review and enhance our Group’s best practices in the areas of Board practices, shareholder communication and financial and internal controls.

The arbitration proceedings on Solitaire, which relate to a dispute arising in 1995 between Sembawang Corporation, and Netherlands-based Allseas, are ongoing.

In May 2004, the Tribunal ruled that Allseas had not breached its contractual obligation to mitigate costs, in its choice of a UK-based shipyard to complete the conversion work on the ship. Sembawang appealed to the High Court against the standard of mitigation of costs applied by the Tribunal; this appeal was dismissed in November.

After re-evaluating the case, the merits of the owners’ claims and our counter-claims, as well as the advice of our UK lawyers, the Board decided to make an additional provision of S$215 million, bringing the total amount of provisions made in 2004 for Solitaire to S$415 million. Sembawang’s eventual exposure will depend on the Tribunal’s decision on the final awards for both parties.

Positioning SembCorp Industries for the future
In line with our commitment to deliver sustainable value, we will continue to strengthen our core businesses, and concentrate our investments in high-growth areas. SembCorp Industries further drives strategic value by playing a significant role in guiding the long-term development and business strategies of our companies. At the same time, our corporate services functions provide integral coordination and support for the Group.

Board Changes and Acknowledgements
Our Board of Directors, Management and all staff were extremely saddened by the sudden demise of our Deputy Chairman and CEO, Mr Wong Kok Siew, in February 2005. Mr Wong had contributed significantly to the SembCorp Group for over six years. We would like to acknowledge Mr Wong’s commitment and untiring efforts in building the Group up to what it is today. His legacy will serve to inspire many in the company for years to come.

I would like to express my appreciation to the Board for providing strategic guidance and governance counsel to SembCorp Industries. In 2004, Tay Siew Choon and S Iswaran retired after distinguished service on the Board. I would like to thank them for their invaluable contributions.

We welcomed two new Board members: Evert Henkes, former CEO of Shell Group’s global chemical businesses, and Colin Au, Corporate Advisor to Temasek Holdings, and President & CEO of Tropical Islands Resort.
On behalf of the Board and management, I would like to express my appreciation to our staff, who have made our achievements today possible. I also thank our customers and business partners for their support over the years.

Finally, I would like to thank all shareholders for your continued confidence in SembCorp Industries.

Yours sincerely,

Peter LH Seah
Chairman, SembCorp Industries

* Malay colloquialism for tradesmen involved in the collection of materials from households for recycling.