In 2009, the Group reported a 3.1% increase in revenue to $206.7 million from $200.5 million in 2008. The modest increase is due to improved contributions from the two key business segments of Trading and Marine Logistics.

PERFORMANCE BY BUSINESS SEGMENTS

TRADING

Sales from Trading in 2009 grew slightly by 7.8%, recording revenues of $174.4 million compared to $161.8 million previously. This increase reflects improved sales in the first half of the year, which include a substantial contribution from the Integrated Project Management project and the supply of Oil Country Tubular Goods in Indonesia. Sales in the fourth quarter of 2009 (“4Q2009”) declined due to the Group being more selective in extending credit to its customers amidst the weaker economic conditions.

MANUFACTURING/ DESIGN

In 2009, Manufacturing/Design recorded sales of $2.1 million, as compared to $4.4 million in 2008. The 51.0% decrease is in line with the decreased business activities of GV Oilfield Engineering Pvt Ltd after the sale of its assets in 2008.

MARINE LOGISTICS

The Marine Logistics segment continued to contribute steadily to Group revenue with increased sales of $22.1 million in 2009, up 18.2% from $18.6 million in 2008. The improved revenue reflects increased business activities including chartering of anchor handling tug (“AHT”) vessel, sale of tugboat and higher charter rates enjoyed by the Group’s second vessel, Federal II in the first half of 2009.

ENERGY & UTILITIES

The dip in sales contribution from the Energy & Utilities segment to $2.5 million in 2009 is attributable to the disruption of income from the finance lease receivables and sale of steam to Banyan Utilities Pte Ltd’s major customer which has stopped the operations of its bio-diesel plant in the current financial year. Upon finalization of the liquidation process of the customer, Banyan Utilities Pte Ltd is exploring with potential bio-diesel plant operator to continue to supply steam and electricity.

RESOURCES

Sales from the Resources segment of $5.4 million in 2009 were similar to that recorded in 2008. There was fluctuation in contributions from this segment which is largely influenced by the varying demand for coal.

PERFORMANCE BY GEOGRAPHICAL MARKETS

In 2009, an analysis of performance by geographical markets shows that Federal’s revenue mix was global in nature. The top-performing geographical markets were Indonesia, Singapore, Italy, China and Oman. Indonesia was the number one contributor to Group’s top line with sales of $71.2 million, slightly up from $71.0 million in 2008. Singapore came in second with sales of $43.4 million, down 32.5% from $64.2 million in 2008. Italy was third with sales of $38.1 million in 2009, as compared to $111,000 in 2008. This was due largely to the Algerian line pipe contract secured with Saipem Spa (novated from First Calgary Petroleums Ltd-Sonatrach Spa), an Italian company. Sales to China in 2009 saw a modest increase to $15.0 million in 2009 while Oman chalked up sales of $8.5 million, up 80.8% from $4.7 million in 2008.

KEY DEVELOPMENTS IN FY2009

2009 was a year of continued business and financial consolidation for the Group. Federal divested its stakes in certain projects and subsidiaries as part of its ongoing efforts to sharpen its business focus, streamline operations and raise funds for other projects that would contribute to the Group’s future growth.

Fund-Raising Initiatives

To strengthen the Company’s balance sheet by improving the Group’s working capital position, the Group undertook a major fund-raising exercise by way of a renounceable, underwritten rights issue of 158.6 million rights shares. This rights issue, which generated proceeds of about $15.1 million, was offered at the issue price of $0.10 per rights share on the basis of one rights share for every 2 existing ordinary shares.

During the year under review, Federal also launched the scrip dividend scheme aimed at providing shareholders with an opportunity to choose to receive a dividend in the form of shares. This scheme enables shareholders to acquire additional shares at 25.5 cents per share, and participate in the equity capital of the company without incurring transaction costs. On 27 July 2009, 2,432,970 new ordinary shares were issued pursuant to the scrip dividend scheme. The rights issue, together with the scrip dividend scheme, increased Federal’s share capital to $94.9 million from $79.2 million.

In 2010, Federal has plans for placement exercises with investors to further strengthen our balance sheet position so as to prepare for our future business growth.

Contractual Wins

Algerian Line Pipe Project
In February 2009, the Group’s subsidiary Federal Hardware Engineering Pte Ltd (“FHEC”) was awarded a substantial contract worth US$64.4 million for supply of line pipe by First Calgary Petroleums Ltd – Sonatrach Spa, a joint developer of an oil and gas field block in Algeria, which was subsequently novated to Saipem Spa, Italy. The contract, won against stiff competition, was for an Engineering, Procurement and Construction (“EPC”) project to supply a 428-km line pipe for the development of the oil and gas reserve at Menzel Ledjmet East field, Algeria. The supply of line pipe, which has commenced in the second half of 2009, is scheduled for completion by the first half of 2010. FHEC has secured an additional contract amounting to US$8.9 million in December 2009 with Saipem Spa and this is expected to be completed in May 2010.

Alton’s Foray into Vietnam
In November 2009, Alton International (S) Pte Ltd (“Alton”) clinched a US$6.0 million contract for the provision of project management and EPC services for compact manifold skids as part of the Te Giac Trang Field Offshore Development to be installed on the Te Gaic Trang Field Offshore Platform project in Vietnam. Work on this project has commenced and is expected to be completed by the fourth quarter of 2010. We are excited about our successful penetration into the Vietnam market, and we believe the successful execution of this project would open up a huge vista of opportunities for Alton in the near future.

Divestments

In December 2009, Alton disposed of its entire 65.0% equity interest in Geo Link Nusantara Pte Ltd (“GLN”) and its land rig and repayment of amount owing by PT Geo Link Nusantara (“PT GLN”) for total proceeds of US$50.0 million. The 65.0% stake was sold to Mr Eka Taufik Syah Putera while the land rig was sold to PT GLN. The land rig was chartered to GLN’s strategic partner, PT GLN, which was awarded an integrated project management contract for a drilling and exploration project in an oil and gas field block in West Java, Indonesia. Mr Eka Taufik is currently one of the shareholders and directors of PT GLN.

In the same month, FHEC divested its 60.0% shareholding in PT Gasuma Federal Indonesia for US$7.84 million to PT Yudistira Energy, an Indonesian company specializing in oil and gas and related services. In January 2010, FHEC also sold its entire 20.0% shareholding in PT Binaguna Adi Sejantera for US$150,000.

Energy & Utilities

In respect of Federal’s 27-year, 3-phase Build-Operate-Own (“BOO”) project for provision of centralized waste water treatment services to the Sichuan PanZhiHua Vanadium- Titanium Industrial Park, the first phase of the project has commenced commercial operation on 1 January 2010. This BOO project is one of China’s largest acidity waste water treatment plants, with a total processing capacity of 100,000 tonnes of waste water per day. This project marks our successful entry into China’s environmental management industry.

Our subsidiary, Federal Environmental (Chengdu) Pte Ltd (“FEC”), together with Sichuan Shui Yi Tap Water Development Co. Ltd (“SSYTWC”), a strategic partner from the water industry, has incorporated Federal Water (Chengdu) Co Ltd (“FWC”) in Chengdu, China to supply raw water, treated industrial tap water and provide project consultancy and related services in Chengdu. FWC is held by FEC and SSYTWC in the proportion of 90.0% and 10.0% respectively.

Marine Logistics

The Group’s strategic objective for the Marine Logistics segment has been to build up its vessel chartering portfolio. The Group further develops its business model to achieve long term and recurring income with the commencement of the chartering of AHT vessel of Federal Offshore Services Pte Ltd for a contractual period of 7 years in 4Q2009. In the light of the improving global economy, and as the regional offshore marine sector becomes increasingly active, our Marine Logistics segment team has been working aggressively in the region to secure a second FSO project for our vessel Federal II.