| A Record Year | Outlook | Major Contracts Secured in 2004

Strong demand in ship conversion and ship repair fuelled a record year for SembCorp Marine (SembMarine) in 2004, with the company reporting significant increases in both turnover and net profit.

During the year, we also clinched various significant contracts. Several of these contracts were rig building contracts based on our proprietary Baker Marine technology from subsidiary PPL Shipyard. In addition, we won other contracts which cemented the company’s reputation as a provider of superior and reliable service amongst its international clientele.

A Record Year
In 2004, SembMarine recorded a 21% rise in Profit After Tax and Minority Interest (PATMI) to S$95.0 million, on the back of a 28% increase in turnover to S$1,362.8 million. Operating profit rose 26% to S$93.9 million.

A main driver of the positive performance was the growth of our largest business - ship conversion. This segment, which at present accounts for 45% of SembMarine’s total turnover, recorded a 57% increase in turnover to S$615.0 million. Major projects completed during the year included P-50, the marine conversion for Petrobras Netherlands; CNOOC 114, the FSO conversion for International Andromeda; Berge Sisar, the LPG conversion for Bergesen Offshore; and TT Nina, the FPSO conversion for Modec International.

In particular, major progressive completion work in the second half of 2004 of the P-50 marine conversion project and the P-50 topside fabrication project, ensured that revenues were higher in spite of the total number of vessels completed during the year being marginally lower at 6, down from 7 in 2003.

In ship repair, SembMarine’s second largest segment, turnover rose 32% to S$456.2 million, reflecting our success in securing higher value FPSO upgrading and bottom-damaged repair jobs. In 2004, the average value per vessel was 45% higher than in 2003, at S$1.46 million per vessel – tempering the negative impact from the decline in the number of vessels repaired, which fell from 341 in 2003 to 313 in 2004. In 2004, upgrading of FSO / FPSO units and tankers accounted for 46% of revenues from ship repair. During the year, repairs of bulk carriers also significantly increased, accounting for 24% of total ship repair revenues.

Rig building, which accounts for 9% of turnover, recorded the delivery of the Constellation II jack-up rig by subsidiary PPL Shipyard to Global SantaFe in 2004. Rig building projects in progress for completion in 2005 through to 2007 include the Development Drillers I and II for GlobalSantaFe, and jack-up rigs for Kristiansand Drilling, Mosbarron, Petrojack and Apexindo.

The year proved also a good year for securing new contracts. In 2004, we recorded contracts totalling S$2.1 billion – of this, ship conversion and offshore orders accounted for S$1,126.0 million; rig building accounted for S$594.0 million, and ship building accounted for another S$335.0 million. These projects include the conversion of the P-54 FPSO, the conversion of LPG carrier Berge Sisar, the construction of three units of Baker Marine Pacific Class 375 jack-up rigs, and the building of four units of 2,600 TEU containers.

Outlook
The marine industry in Singapore is expected to continue to benefit from continued strength in global freight rates, as well as in high oil prices.

With higher freight rates, ship owners are expected to prioritise factors such as a shipyard’s reliability in completing repair works on schedule, in order to minimise the length of time a ship is grounded because of repair works. In addition, ship owners are less reluctant to repair their ships only at yards located close to regular ports of call. These will fuel demand for ship repairs.

High oil prices are also seen to benefit the marine engineering industry. Strong demand for oil from countries such as China will continue to underpin firm oil prices, and we expect this to have a knock-on effect on levels of Exploration and Production (E&P) spending globally. In 2005, industry estimates place E&P spending as expanding by 6% to US$176.8 billion – in line with this, we expect to see demand for ship conversions and rig building increasing further.

In the ship conversion and offshore sector, we see strong demand for the conversion of floating production units, and estimate that, as of November 2004, there were approximately 85 systems currently under study or being planned.

In rig building, we also expect to see continued demand given presently high rates of utilisation and the aging of the current rig fleet – industry statistics indicate that the average age of jack-up rigs is currently 21 years, while the average age of semi-submersibles is 20 years.

We have a four-pronged strategy to achieve sustained growth. Firstly, we will continue to strengthen our operations in Singapore and China as part of our global hub strategy. In July, we acquired a 30% stake in Cosco Shipyard Group, which owns five major shipyards located in the key coastal cities of Dalian, Nantong, Shanghai, Zhoushan and Guangzhou. We now have a strong foothold in China and can offer ship owners an effective network of marine engineering services across the entire length of China’s coast.

We will continue to leverage on the complementary facilities between our global marine hubs in Singapore and Brazil. Singapore, which is strong in marine conversion and repair, will continue to focus on such work. On the other hand, Brazil will focus on topside fabrication and topside integration and commissioning, as well as pursue the profitable delivery of the P-43, P-50 and P-54 projects.

Thirdly, we are committed to further build on our technology base, and to leverage on the proprietary vessel and rig designs to increase our share of the market. Since the introduction of our 2,600 TEU container ship design, orders for ships of this capacity has been strong – Wan Hai Lines has ordered six such vessels, while Reederei F. Laeisz and Karl Schluter have each ordered two units. In rig building, our proprietary design for jack-up rigs has led us to secure five orders to-date since marketing efforts commenced early last year.

Lastly, we will continue to strengthen our strategic alliances with our international clientele. Our alliance partners and regular customers ensure a stable baseload for our yards. In 2004 we added three alliance partners Taiwan Marine and Transport, Belgium-based TECTO, and Australia’s North West Shelf Group. This increased the number of alliance partners to 15. Our alliance partners accounted for about 29% of revenues in 2004, up from 20% in 2003. We are confident that by providing our partners with excellent services at our complementary facilities, we will continue to see growing support from our strategic partners.