WE VALUE ALLIANCES; DEVELOP OUR TEAM; STRIVE FOR EXCELLENCE

FY2007 was yet another significant year for the Federal Group in terms of the remarkable progress made on diverse business fronts. We believe we are delivering on our promise to shareholders to transform the Group's business model by developing businesses with sustainable and long-term income streams. We are proud to highlight that we have succeeded to a great extent in this regard. Apart from having forged several partnerships in line with our strategic plans, we have further expanded our global market reach, having entered new fast-growing markets such as the Middle East.

What is noteworthy also is our success in clinching several projects in the power utilities sector in Singapore and Indonesia. This has enabled us to kick-start our growing portfolio of energy and utilities-related investments that are expected to generate long-term earnings.

In Singapore, we had embarked on a co-generation facility project located on Jurong Island, based on a Build-Own-Transfer ("BOT") contract with a minimum contract value of $54 million for a period of 12 years. The contract may also be extended for another five plus five years, whereby it is only applicable for maintenance works.

In Indonesia, our new growth drivers in the energy and power utilities sector are three small-scale power plants which we will operate together with our joint venture partners. These are long-term Build-Own-Operate ("BOO") contracts which will generate stable income for the Group. (More details to be found in our Business Review)

For the year under review, we are also pleased to report that our net profit saw a significant increase of 133.6% from $12.5 million to $29.2 million. This was attributable to the Group's focus on high margin business activities such as vessel chartering and the gain on divestment of $16.6 million from our US subsidiary, HP&T Products, Inc.

This strong bottom line was achieved on the back of higher revenue of $154.5 million, an increase of 2.8% over $150.3 million in FY2006. Gross profit margins also improved to 27.1% compared to 25.7% in FY2006.

Earnings per share grew to 8.9 cents for FY2007 from 4.3 cents in FY2006.

Forging Ahead

We shall continue to strengthen our positioning as an integrated engineering and procurement specialist for the energy sector. The Group is constantly reviewing its operations and evolving to meet changing global market conditions. In terms of growth strategy, the Group will continue to identify viable business opportunities so as to create and return value to our shareholders.

In FY2008, we will build on the strong foundation which we have laid in FY2007. FY2008 is expected to be another exciting year for the Group. During the first quarter of FY2008, the Group has initiated a spate of intensive corporate initiatives with new companies being set up to spearhead new business activities and new markets.

Through the newly incorporated subsidiary of Federal Hardware Engineering Co. Pte Ltd ("FHEC"), Federal Engineering Middle East, we will be tapping the abundant oil production/refinery business-related opportunities in the Middle East market.

On the energy and power utilities front, apart from the four power plant contracts we have secured, the Group is continually seeking more BOO, BOT and Engineering, Procurement and Construction ("EPC") projects in the region which will enable us to garner both short-term income and long-term recurring income streams.

In the marine logistics sector, the Group has acquired a vessel, Federal II, with a view to tendering for time charter contracts and other related projects in the region.

DIVERSIFICATION PLANS

Federal is also looking at diversifying into related businesses that can offer enormous market potential. The Group has teamed up with strategic partners to tap business opportunities in the area of environmental management in China, with specific focus on water and waste water treatment and management.

Given the robust demand for coal globally, we have also ventured into the coal mining business in Indonesia. Alton International Resources Pte Ltd, a subsidiary of Alton International (S) Pte Ltd ("Alton"), will participate as an operator of mines and act as the exclusive marketer for the end products.

The Group's 60% - owned subsidiary Banyan Utilities Pte Ltd ("Banyan Utilities") is also in the midst of applying for accreditation under the United Nations framework for Convention on Climate Change's Clean Development Mechanism ("CDM"). Upon approval, this accreditation will mark Banyan Utilities as the first package co-generation developer in Singapore to receive carbon credits, which in turn can be traded amongst industralised countries and companies. This initiative demonstrates Federal's commitment towards environmental responsibility.

Looking Ahead

Going forward, the Group is confident that in 2007, the key business segments such as the Marine Logistics services will be able to generate long-term and recurring income streams. As the level of marine and offshore engineering activities continues to be high as a result of strong demand for oil-rigs and offshore vessels, the Group expects the demand for marine logistics services, including vessel chartering, to remain strong.

With the successful launch of Federal’s first FSO, we are looking into the feasibility of acquiring more FSOs in order to capitalise on the growing global demand for vessel chartering services in the marine logistics sector. In the long term, this would benefit the Group by creating a stable and sustainable recurring income stream.

The Group's 60% - owned subsidiary Banyan Utilities Pte Ltd ("Banyan Utilities") is also in the midst of applying for accreditation under the United Nations framework for Convention on Climate Change's Clean Development Mechanism ("CDM"). Upon approval, this accreditation will mark Banyan Utilities as the first package co-generation developer in Singapore to receive carbon credits, which in turn can be traded amongst industralised countries and companies. This initiative demonstrates Federal's commitment towards environmental responsibility.

Going forward, the outlook for the marine sector, and specifically the oil and gas sub-sector, has remained positive, being underpinned by record high order books, high day charter rates and sufficiently high oil prices. The outlook on rig building remains optimistic, with oil rig demand and activity to grow by 10%. As of November 2007, there are 110 projects involving floating production or storage systems planned or under study. *

As a beneficiary of the oil and gas and marine sector, we believe that the Group will continue to deliver an improved revenue performance in FY2008.

DIVIDEND

In view of the Group’s good financial performance in FY2007, the Directors have proposed for approval at the upcoming Annual General Meeting, a total final dividend of 1.6 cents per share, comprising a final dividend of 0.8 cents per share and a special dividend of 0.8 cents per share, to be paid for FY2007.

WELCOME AND ACKNOWLEDGEMENTS

On behalf of the Board of Directors, I would like to welcome Mr Lim Joo Suan who joined us as an Executive Director in January 2008. He will assist us in driving and expanding the Group’s business as well as managing daily operations.

I would also like to extend my appreciation to our customers and strategic partners worldwide for their invaluable support.

To our dear shareholders, thank you for your confidence in us. Maximisation of shareholder value is a key factor in motivating us to continuously scale greater heights in our business.

Last but not least, a heartfelt ‘thank you’ to my fellow directors for their wise counsel and our staff for their hard work, contribution and dedication to the Company.

Koh Kian Kiong
Executive Chairman and Chief Executive Officer
23 March 2007