| Integrated Utilities and Energy | Offshore Engineering | Outlook

SembCorp Utilities (SembUtilities) continued to deliver strong results in 2004. Turnover climbed 50% to S$2,927.6 million from S$1,950.5 million and was driven primarily by the robust performance of the Singapore and UK operations.

Profit After Tax and Minority Interest (PATMI) was higher at S$125.2 million from S$98.3 million, up by 27%.

SembUtilities continued to account for half of SembCorp Industries’ Group PATMI.

Integrated Utilities and Energy
The Integrated Utilities and Energy segments had a remarkable year. Turnover grew 72% to S$2,516.1 million due to increased contribution from our Singapore and UK operations. PATMI increased 76% to S$158.0 million.

Singapore operations continued to deliver solid performance. Demand for utilities services was strong due to the growing regional and global demand for petrochemical products. The chemical industry in Singapore grew 7.8% in 2004. In addition, the full year contribution of the increase in shareholdings in SUT Sakra (from 80% to 100%), SembGas (from 50% to 70%), and SembCogen (from 70% to100%) in late-2003 also contributed to the growth of earnings.

In early 2005, we integrated the operations of SembGas, SembCogen, SUT Sakra, SUT Seraya and three chemical feedstock units under the SembCorp Utilities umbrella to capitalise on greater synergies in providing bundled services to customers. All assets and liabilities of SUT Sakra and SUT Seraya have also been transferred to SembCorp Utilities.

Integrated Utilities and Energy continue to make considerable progress in overseas ventures. Overseas operations accounted for 23% of Integrated Utilities and Energy’s turnover and contributed to 28% of Utilities’ PATMI.

SembCorp Utilities UK was the main driver for the success in overseas operations. Full year contribution from the UK in 2004 coupled with higher power prices facilitated the increase in its turnover. A total of 143 new contracts and deals worth S$171.2 million were secured during the year.

SembCorp Utilities UK’s first expansion since it was acquired came to fruition with a new 42 megawatt gas turbine and boiler facility coming online late last year, boosting the existing Wilton power station’s total capacity to 197 megawatt. The facility uses the latest “Dry Low NOx” technology, which improves the environmental efficiency of the power station by reducing emissions.

The additional capacity is intended to improve the overall reliability of the site and provide further capacity to meet the needs of site customers.

Phu My 3, our investment in a 717 megawatt combined cycle gas turbine in Vietnam, successfully began commercial operations in March. The plant achieved profitability in its first year of operations. Phu My 3 is part of the greater Phu My power complex which will house six power plants with a total generating capacity of 3,600 megawatt. Phu My 3 is under a 23-year Build, Operate, Transfer (BOT) arrangement with the government of Vietnam.

In addition, our investments in China are progressing healthily and on course. Nanjing SembCorp SUIWU, our investment in the wastewater treatment plant in Nanjing Chemical Industrial Park will officially come online in the second quarter of 2005. Construction for Shanghai Caojing Cogeneration in Shanghai Chemical Industrial Park is ongoing, with Gas Turbine Phase I expected to be completed by end this year.
With its huge domestic market, China remains an important site for petrochemical investments. We formed SembCorp Utilities Investment Management (Shanghai) Limited in June to provide support and a beachhead for our current and upcoming activities in the country. This wholly owned subsidiary received a China Regional Headquarters status from the Ministry of Commerce and has a registered capital of US$2.0 million.

We also realised the value of our 30% stake in Kwinana Cogeneration Plant in early 2005 for S$32.0 million due to the limited growth potential in the Western Australia market.

Offshore Engineering
Offshore Engineering produced a weak set of results in 2004 due to project losses incurred during the year.

We have been directing our energies to steering the business back on track. We installed a new management team and tasked them to put in tighter systems and processes for better management control. These included conducting more frequent management meetings to assess the status and deliverables of ongoing projects, as well as strengthening risk management procedures across the business operations. We also undertook reviews to improve efficiency and optimisation of resources. In October, we parted with our 30% stake in associate Sime SembCorp Engineering for RM65.0 million.

Our orderbook stood at S$304.0 million as of end-2004. Profitable execution of ongoing contracts was given priority and we concentrated on bidding for new contracts that meet our risk management guidelines. In October, in partnership with Saipem Asia, we were awarded a US$112.0 million contract to perform the engineering, procurement and fabrication of the Riser Platform Topsides for PTT Public Company Limited’s Third Transmission Pipeline Project in the Gulf of Thailand. We also secured an order in February 2005 to fabricate and integrate topsides for a floating production storage and offloading vessel from ConocoPhillips China Inc. The project is estimated to be worth more than US$200 million and will be executed jointly with SembCorp Marine’s Sembawang Shipyard.

Outlook
Integrated Utilities and Energy is anticipated to continue to perform well in 2005 riding on the improvements and growth in the petrochemical industry. Singapore and UK operations are expected to generate stable income and organic growth from increased demand for utilities services due to customers’ favourable operating environment. We expect a new wave of chemical investments to take place on Jurong Island in Singapore and we believe we are well positioned to meet this new demand. Similarly, we anticipate additional investments and expansion in our customer base in Teesside in the UK.

Synergies from the transfer of SUT Sakra and SUT Seraya assets and liabilities to SembCorp Utilities should start showing results this year. In addition, contribution from Nanjing SembCorp SUIWU in China is expected to be gradually felt during the second half of the year.

Our priority in 2005 will be to deliver to, or exceed, the level of satisfaction of our customers by ensuring constructive and reliable services. The focus will also be to strengthen our existing operations in Singapore and UK, and paying special attention to the development of the Chinese operations. We are also looking for sites where we can establish a new beachhead. An ongoing strategy is identifying potential greenfield and brownfield acquisitions and investing in sites where growth potential is highest and where we can add the most value.

With some progress being made at restructuring our offshore engineering business, the key objective for 2005 will be to capitalise on the achievements made in the past and to further improve its performance. Our focus is to turnaround the business by delivering existing projects and securing new ones while stringently ensuring that new projects are profitable, and their costs managed well.

We are optimistic of the prospects for 2005 given industry fundamentals and the fruition of earlier investment decisions. Excluding extraordinary items, we expect operating profit in 2005 to be higher than in 2004.