| Supply Chain Management | Oil and Gas
| Specialty Logistics | Outlook | Delivering Value

2004 was a fruitful year for SembCorp Logistics (SembLog). Turnover climbed 8% to S$500.7 million from S$465.4 million in 2003 due to better performance from supply chain management operations. Profit After Tax and Minority Interest (PATMI) was up 1,192% to S$1,171.0 million, from S$90.6 million in 2003 - significantly higher due to the sale of our 20% stake in Kuehne & Nagel International (KNI). Excluding exceptional items, PATMI grew 18% to S$106.6 million. In 2004, we clinched 275 contracts.

The extent of our Asian network, as well as our ability to provide customised solutions through in-depth understanding of our clients’ industries, continues to position us as the partner of choice for supply chain management in Asia.

Supply Chain Management
Supply Chain Management turnover increased by 10% to S$452.1 million from S$411.5 million. Contribution to total turnover grew to 90% compared to 88% last year. PATMI climbed 34% to S$94.8 million from S$70.5 million in 2003.

Our Southeast Asia operations posted a 3% rise in turnover to S$303.6 million, on the back of 74 contracts secured during the year. The region contributed 67% to total turnover from supply chain management.

During the year, we further enlarged our supply chain network in Southeast Asia and today cover most of the region. Our joint venture in Vietnam began operations in July and operates 150,000 square feet of warehousing and storage space in Hai Phong, Hanoi, and Ho Chi Minh City. We also established joint ventures in Indonesia and the Philippines in early 2005. In Indonesia, we partnered with PT Nikos Intertrade, a subsidiary of Ultrajaya, Indonesia’s leading producer of dairy products and beverages. In the Philippines, we are teaming with MacroAsia Corporation, one of the leading companies engaged in aviation support services in the country.

Expansion of facilities was underway in both Singapore and Malaysia. We added another 70,000 square foot of warehouse space at Changi International Logistics Centre in Singapore, which will help position us to serve customers reliant on air-freight. In Malaysia, we moved into a new 68,000 square feet warehouse in August, which is now reaching full capacity.

Turnover growth in North Asia was good with strong performance in China, and new contributions from Japan and Korea. North Asia was a strong performer generating S$106.8 million in revenues, up 34% from last year. North Asia contributed 24% to supply chain management turnover, climbing from 19% in 2003. The growth in North Asia was underpinned by stronger performances mainly in China and Japan, as well as in Korea. During the year, we secured a total of 104 contracts in North Asia excluding Japan.

Our coverage of China and Japan was enlarged in 2004. In China, we count 1,140 cities and towns in 31 provinces in our distribution network, 90% of which have delivery lead times within 72 hours. Warehouse space at year-end totalled approximately 270,000 square metres.

Meanwhile, in Japan, our warehousing area totalled 14,550 square metres and our distribution capability has reached more than 15,000 tonnes per day. We have coverage of 683 cities and towns in the country, 95% of which can be reached within 24 hours. Our operations in Japan were strengthened further through Footwork Express’ acquisition of Kyushu Sanko Unyu, the second largest transportation company in Kyushu.

To capitalise on the intra-trade volume among the North Asian economies, as well as the trend of Japanese and Korean companies relocating manufacturing activities to China, we established a North Asia Regional Office in Shanghai in mid-2004 and accelerated our marketing efforts to these companies.

Our South Asia operations secured 81 contracts during the year as a result of increased marketing efforts, contributing S$27.3 million to turnover, an increase of 3%. Restructuring of SembLog India was completed during the year, and we are now exploring the feasibility of providing higher value-added services such as manufacturing, procurement and reverse logistics there. We are also looking at offering Collateral Management Agreement-linked (CMA-linked) logistics services in Sri Lanka for commodities such as tea, paper, and palm oil.

Oil and Gas
Oil and gas logistics delivered stable performance. Turnover stood at S$43.0 million while PATMI improved to S$17.1 million.

In July, we established another offshore base in Kish Island in the Persian Gulf. At the end of 2004, our Batam base began operations and now provides logistical support to our customers.

To grow our business, we are making plans to re-develop the Loyang base in Singapore into a modern and compact logistics hub for the oil and gas industry to serve the Asia Pacific region. We are also considering to expand our operations to Kazakhstan in the Caspian Sea.

Specialty Logistics
In 2004, we enlarged our offering of specialty logistics services by offering metals and CMA-linked logistics through our joint venture with B. Pacorini of Italy. The joint venture has been profitable in its eight months of operations and has secured 26 contracts across Asia.

Outlook
The extent and robustness of our Asian network today, and our strong customer base, make us unique in the logistics market in Asia. Our priority will be to build on these achievements to enhance our competitiveness and expand to new frontiers. Our roadmap for the next three years will be to make ourselves a “household name” in logistics across Asia, accelerate earnings growth and achieve global reach by the end of 2007.

To enhance our competitiveness, we plan to aggressively expand into freight management services. We are also looking at utilising our supply chain management network to focus on the fastest growing verticals and to serve our customers in multiple territories.

We plan to expand to new frontiers by innovating and building systems for tomorrow, such as providing RFID-enabled (Radio Frequency Identification) supply chain management solutions, offering total asset visibility, and developing secure supply chain solutions.

In 2005, we expect our performance to be better than in 2004 on an ex KNI basis. Our management target is to grow net earnings by 20-25%, based on 2004 operating earnings of S$49.0 million.

Delivering Value: Distributing the gains from the sale
of shares in KNI to shareholders
On October 25, the partnership with KNI was mutually terminated and both companies agreed to unwind the cross-holding of shares between them. The sale of our 20% stake in KNI generated S$1.3 billion in proceeds. S$750.0 million has already been paid out as a special cash dividend late last year, while approximately S$250 million is to come in the form of a capital reduction.

We have delivered value to our shareholders substantially with the distribution, and we remain committed to creating and sustaining such value going forward.