Chairman's Statement

Dear Shareholders,

On behalf of my fellow directors, I am pleased to present to you the performance of the Group for the financial year ended 31 December 2008.

A SATISFACTORY YEAR

For some of us, I dare say, the year 2008 could be a year that we wish to forget. Indeed, 2008 could well be remembered as a year of tremendous turbulence. Rotary has had its fair share of ups and downs as we too are subject to the vagaries of the marketplace. Still, we are pleased to have turned in a creditable set of financials.

We posted a record turnover of S$520.1 million. Net profit after tax and minority interest was S$50.9 million, down 4% from the preceeding year. Earnings per share was 9.0 cents against 9.3 cents in 2007.

We ended the year in a healthy financial state, recording a strong net cash position at S$150.1 million. We shall be rewarding shareholders with a proposed final dividend of 2.3 cents per share.

Throughout the year, we continued to be sensitive to the changes around us, ever vigilant of the need to be nimble and responsive to client needs and market moves.

As I reflect on the year past, I would say that 2008 was a year where we sharpened our focus, fine-tuning every aspect of our business.

SHARPENING OUR FOCUS

Growing our business
As a service provider, our main concern is always that we deliver a superior and uncompromised level of service to our clients. This is not only to ensure that delighted clients will come back with more contracts, but also that through our showcase projects, potential new clients will come a-knocking. The Universal Terminal project on Jurong Island is one such showpiece. We hope that the work we do in the Middle East, in time to come, will also develop into conversation pieces.

In 2008, we developed new working partnerships with some highly regarded names in the Oil and Gas world. We are proud to be involved in ExxonMobil’s second world-scale petrochemical project, called the Singapore Parallel Train.

Technip Italy SpA, awarded us a S$37.9 million Engineering, Procurement & Construction contract in relation to Neste Oil’s new generation biofuel plant in Tuas. Finland-based Neste Oil is a refining and marketing company focused on advanced, clean traffic fuels. Technip, which is headquartered in Paris, ranks among the top five corporations in the field of oil, gas and petrochemical engineering.

We were al so act ive on the revamp and maintenance front, winning numerous contracts of varying sizes amounting to more than S$46 million in 2008. We were pleased to have made good headway with an increase in contracts as well as clients in this area of business which we hope to grow, so to give us a boost in terms of a recurrent income stream.

Keeping clients satisfied
We are especially pleased when we get repeat business from our clients. Oiltanking Singapore, with whom Rotary has forged a relationship for almost two decades, awarded us three contracts in excess of S$102 million in 2008. These included S$60.1 million from Oiltanking Odfjell Terminal Singapore Private Limited (OOT S) for the Chem 6 project which involves the engineering design and construction of a 60,000 cubic metre (cbm) chemical storage facility at its existing site on Seraya, Jurong Island, with connectivity to petrochemical complexes, refineries and downstream chemical companies in and around Jurong Island. Another $42 million contract was awarded by Oiltanking Singapore Limited for the Oiltanking Phase 10 project. This involves a 120,000 cbm facility for clean petroleum products situated at the terminal along Jurong Island Highway.

Other customers that rewarded us with repeat business last year include Shell Eastern Petroleum, Thai Tank Terminal Ltd, SKEC (Thai) Ltd, CTCI (Thailand) Co Ltd and PTT Aromatics and Refining PCL.

Building human resources
It bears repeating that as a service company, our people are our most important resource and are central to our success. Since we started our Global Work Force Scheme with the launch of our first Overseas Training and Test Centre (OTC) in Dalian in June 2007, a total of 579 engineers and craftsmen have passed through our portals. A second OTTC was opened in Fushun in March last year, focusing on training craftsmen in Welding, Pipe Fitting and Electrical Fitting.

looking into building more OTTCs and modifying the curriculum to ensure that they truly bear the hallmark of a Rotary programme. We are expanding our training footprint into India and Bangladesh where our OTTC in Chennai and Dhaka respectively, are expected to start operation this year.

Plans are also afoot to stride into the Middle East with this scheme when the time is right. With this initiative firmly taking root, we are on track to developing a ready and skilled workforce to fuel our growth globally.

In 2009, we expect at least 40 engineers from China to join us after they graduate later in the year.

Keeping workers safe
An important aspect of work life that we focused on last year was the promotion of a safe work culture, and in this respect, we have fine-tuned our Health Safety & Environment (HSE) policy. This was marked by a HSE Symposium in November, where we also took the opportunity to endorse the revised and improved version of our HSE policy in the presence of our business associates. At that event, we joined the bizSAFE community as a bizSAFE partner. bizSAFE is a programme developed by the Workplace Safety and Health Council to help SMEs start the journey to build a safety culture. As a bizSAFE partner, Rotary provides motivating factors for SMEs to join the programme. At the seminar, Rotary invited senior management of various companies that we work and partner with, to join the bizSAFE workshop for CEO s and Top Management. It is our corporate desire to support any move to build safety culture in organisations. Indeed, Rotary was also one of 33 heads of Singapore’s construction firms that signed a pledge to cut workplace injuries down to zero at the inaugural Construction CEO Summit last year.

In the course of the year, the company also introduced a new initiative – the Safety Carnival – where safety education and training is brought to our workers at their camps and dormitories on the weekend. By way of experiential learning, the fun way, we bring across the safety message to them.

Keeping workers motivated
To encourage and motivate our staff members, we have a Project Incentive Programme (PIP) in place, and over the last year or so, we have been fine-tuning this. The results are encouraging, and Rotary’s turnover rate is 1.72%, compared to all industries’ average of 2.1% in 2008.

Rotary globalisation plan
Our internal re-structuring, part of the Rotary Globalisation Plan (RGP), is also on track. Formally launched in 2008, the RGP is the Group’s strategy for the next five years. With the help of consultants from PricewaterhouseCoopers, RGP charts our growth strategy in terms of our globalisation, identifying priority overseas markets and target sectors, restructuring of the organisation and importantly, improving internal business processes. The eight Key Business Units are now fully and independently operational. Today, we are in a far better position to take advantage of opportunities that arise in various corners of the market. At the same time, we are well-placed for synergistic deals and cross-selling within the Rotary group.

Strengthening internal systems
As part of RGP strategy and as an integral part of our business process improvement workplan, the Group is implementing a new Enterprise Resource Planning (ERP) system. Through the ERP consultation and blue-printing roadmap, we will review, improve and capture best internal processes in ERP systems to support Rotary’s growth mapped out in RGP. The consultation and process improvement initiatives will heavily involve the inputs of all departments and staff. ERP will be seamlessly integrated with our new SmartPlant engineering systems - including SmartPlant 3D, SmartPlant Foundation and SmartPlant Materials. We envision that our ERP, coupled with our SmartPlant systems, will bring Rotary Engineering to greater heights.

METING NEW CHALENGES

As we stand on the threshold another year, the challenges that meet us are many. The most immediate one is how Rotary will ride out the downturn, a result of the global economic downturn. Indeed, Rotary is in a strong position today – with a more robust business model, a gifted and able management staff and a clear blueprint for long-term growth – to face the challenges that lie ahead.

Someone once said: “The pressure of adversity does not affect the mind of the brave man... It is more powerful than external circumstances”. Adversity is certainly not new to Rotary, and looking ahead, we will – as we did before – make adversity work for us. We shall do this by building success upon success.

Construction-based projects
Whereas in the past, Engineering, Procurement and Construction used to account for 70% of income, Rotary is increasingly putting more resources into larger construction-based projects. This reflects our adaptability to market conditions and widens our revenue base as we are able to be a service-provider to process plants.Going forward, we expect the EPC-construction revenue ratio to shift in favour of construction-based projects.

By taking this approach, Rotary is leveraging on its strength of a large skilled workforce that it has built up over the year through its Global Work Force (GWF) scheme. At present, Rotary’s local workforce stands around 4,000, and globally the workforce stands at 6,800. We are reaping dividends from the GWF scheme as it enables us to bid for larger construction jobs. At the same time, our workers are also helping us to fill a vacuum caused by an older work force that is nearing retirement.

Indeed, taking on more construction jobs means that Rotary will not dislodge its workers and will be well-positioned for the upturn when it comes. To this end, its Project Incentive Programme (PIP) serves not only to attract and reward good performance but also promote staff retention.

Increased efficiency and competitiveness
As always, the company keeps a keen eye on its efficiency and competitiveness. Aside from prudent, cost-control policies and adopting best practices, Rotary has slowly but surely been making gradual investments in automation over the years. Large scale projects such as Universal Terminal had made it worthwhile for us to do so. The company had also recently ordered some S$5 million worth of automated pipe fabrication machines. This steady investment in automation will help to improve efficiency and productivity, and will enable us to be more competitive.

Looking farther afield
We have identified our three priority market clusters, namely Southeast Asia (including Singapore), Middle East and China. For Southeast Asia, we are actively looking into the possibility of expanding into Vietnam and Brunei. In the Middle East, Saudi Arabia continues to be the beachhead. In China, we have built up our resource base in terms of engineering design centre, OTTCs, procurement network and fabrication workshop, and are now well positioned to take on more jobs. In addition to growing our existing markets, here and in the region, Rotary is also looking farther afield into emerging markets in Latin America and Africa, starting with Brazil. It is our view that with value depressed and markets down, now is the right time to start building resources for the future.

OUTLOOK

There are no signs yet of an end to the current global economic crisis. With oil prices down, demand for infrastructure is likely to be affected in the various markets that Rotary operates in around the world.

But the downturn will not last forever. In time, conditions will return to normal although we have been forewarned not to expect a quick return to the boom years before the crisis. While the immediate outlook may not be as rosy, we are confident that the upturn will come.

The key for Rotary is to be prepared for it, and when it does come, to be prepared to ride the growth wave again.

A NOTE OF THANKS

On behalf of the Board of Directors, I would like to thank our customers, business associates and suppliers for their unwavering support, encouragement and assistance.

To the management and staff of the Rotary Group of Companies, the Board and I wish to extend our thanks and appreciation for their commitment and dedication.

Finally, thanks are due to all our shareholders who continue to believe in us and to support us.

Mr. Chia Kim Piow
Chairman & Managing Director