Chairman's Statement

The past year has been a challenging year withthe withdrawal of a HDD customer (they turned to manufacturing their parts in house) coupled with major restructuring efforts at our Malaysia plants, both having a substantial impact on our operations. And on a macro level, the year saw the weakening of US dollars. On the brighter side, we have gained some headway in our ongoing negotiations with another major HDD player and production for their parts are starting to pick up. Our Automotive segment remains strong and we expect it to continue its robust growth in the coming years. In view of the above developments, we have invested S$26.2 million to the construction of a new factory, purchasing of additional factory space and new machineries to meet customers' stringent requirements. In spite of the loss of a major HDD customer and the weakening US dollar, we have managed to maintain revenue earnings at over the S$100 million mark, posting S$122 million for the year.

Sales from our automotive segment continued its impressive run of results growing by 33% to reach S$27.9 million in Y2007. Given the current favorable outlook of the automotive industry and the trend of US and European manufacturers of car components outsourcing to Asia, we are optimistic of increasing our sales even further. Sales for our automotive segment stand to benefit from new regulations by the US National Highway Traffic Safety Administration, as they announced that all new vehicles would be required to have Electronic Stability Controls (ESC) by model-year 2012. This has made the market for auto electronic components much more attractive. We have also been successful in persuading a major auto customer to transfer their Netherlands and Japan productions to Innovalues China operations in view of lower costs. As our reputation for quality products and services goes before us, Innovalues has received numerous orders from other players in the automotive industry. In anticipation of the added demand of these projects we have invested heavily to strengthen our production capabilities and we expect projects for these customers to begin mass production in Y2008.

Underpinned by organic growth we managed to extend our Office Automation ('OA') services to include wide-format printers for a global printer manufacturer, who will gradually transfer related programs from European suppliers to us and should have an impact on office automation sales in Y2008. The primary growth driver for our OA business looks set to be from our newly acquired customer who are aggressively trying to increase their share of the printer market and are ramping up their demand for our printer shafts.

As for our HDD segment, we view the unfortunate turn of events as an ideal opportunity to start again from a clean slate. The opportunity to start afresh allows us to reset out contract terms and factor in current global conditions into the equation. Negotiations with a major Korean HDD manufacturer for HDD parts are already on the way and we are currently preparing ourselves to meet their stringent qualification requirements.

We have also appointed a Chief Operation Officer, Mr. Seiichi Yamamoto who has been tasked to manage the production process and ensure yields and cycle times are improved.

While we believe that the worst is over, we remain cautiously optimistic of our business in the year ahead. The looming US recession and the prolonged impact of the global credit crunch remain causes for concern. However, I still believe in the vision of Innovalues of being a global partner in precision engineering and will continue to work towards its fulfillment. I would like to take this opportunity to express my appreciation for our shareholders, customers, employees and business associates for their enduring support and contributions, through the Group's high and low points over the years.