Investors

The Board of Directors of CSE Systems & Engineering Ltd (the "CSE") is pleased to announce that the CSE has entered into a conditional sale and purchase agreement with each of Alan Gilby, Alan Stubbs, Neil Atkinson, Richard Mellor, Graham Woodhead, Stephen Bassett, Angela Basset, Nicola Atkinson, Susan Mellor, Nicholas Mellor, 3I Group PLC, Gartmore Private Equity (Growth Fund A) and Gartmore Private Equity (Growth Fund B) (the "Vendors") under which CSE has agreed to acquire from the Vendors the entire issued and paid-up share capital of Servelec Group Limited (the "Servelec") for an aggregate consideration of GBP 16.5 million or approximately S$44.6 million (the "Proposed Acquisition"). The transaction is subject to CSE's shareholders' approval.

The Purchase consideration

The purchase consideration of GBP 16.5 million is made up of cash of GBP 14.025 million and 5,843,532 CSE shares valued at GBP 2.475 million. The CSE shares will be issued at S$1.1419 each after giving a 5% discount to the average last trade price for the five trading days ending 27/4/2000 of S$1.2020 and will have a one-year sales moratorium. The CSE shares are issued to the management of Servelec as 50% of the sale consideration.

The purchase consideration of GBP16.5 million was arrived, at following negotiations on a willing-buyer and willing-seller basis, having taking into account the factors described in the following paragraphs:

1. Price to 1999 audited after tax of about 11.7 times
2. Strategic fit of Servelec with CSE is through the enhancement of the Company's capabilities in expanding geographic coverage, broadening services offer to other vertical process industries and a more significant element is that the Company is able to tap on and market Servelec's technologies telemetry products so as to develop a leading position in the international telemetry market. This will set the course for the next leg of a journey which is CSE's vision of becoming a global world-class systems integrator.
3. The financial track records, cash flow, profit margins and customer base of Servelec.
4. The net tangible asset ("NTA") of Servelec at 31 December 1999 was GBP1.0 million after taking into account a pre-sale dividend of GPB 1.5 million. The price to book is about 16.5 times.

Information relating to Servelec

Servelec consists of Servelec Limited and Seprol Limited, which were founded in 1977 and 1982 respectively. In October 1995, the businesses were acquired from De La Rue in a management buy-out supported by 3I and NatWest Ventures. The management team owns 30% of the equity. Servelec is located in Eckington, near Sheffield, UK.

Servelec designs, manufactures and installs Industrial Automation (IA) and Information Technology (IT) systems, which are used in a broad range of industries, such as the water and utilities, oil & gas, food and beverages, steel and pharmaceuticals industries. However, this by no means confines Servelec only to such industrial areas. Servelec's telemetry systems are widely used where there is a need for information gathering and command and control, whether it be to run Britain's lighthouse (a project undertaken for Trinity House), a television transmitter network (the BBC), or a major power supply and distribution network (Heathrow Airport).

In addition, Servelec has identified an opportunity in the UK healthcare market for the provision of additional information technology services. In order to address this market, Servelec acquired the UK rights to a software product called InteHEALTH. This package is already operational in 22 hospitals in New Zealand and Servelec, has to date installed it in 9 hospitals in UK.

Servelec has also secured a major contract from HM Prison Service for a fully integrated management and control package. The initial development phase is valued at GPB 1 million and once completed will be configured and installed in operational facilities at an average estimated value of GPB0.5 million per location. Currently there are 160 establishments within HM Prison Service's responsibility.

The table set out below summarizes Servelec's markets, capabilities and market position:

Since 1983 Servelec has continuously developed it software products under the collective name of 'SCOPE' (Servelec Configurable Online Process Executive) and has acquired InteHEALTH.

In addition to the SCOPE range of software products, Servelec possesses proprietary hardware products, which are manufactured by its subsidiary, Seprol Limited. Seprol manufactures fully programmable intelligent control devices for use as remote telemetry units (RTU) or outstation, and approximately 60% of Seprol's products are now acquired by Servelec.

Servelec is committed to invest in R&D to continuously enhance and upgrade the products in future. Research & development spending was GBP 0.6 million (FY1999), GBP 0.7 million (FY1998) and GBP 0.8 million (FY1997).

The table set out below summarizes Servelec's products.

Over the years Servelec has established numerous blue chip customers such as Aramco, BHP, BP, British Broadcasting Corporation, British Steel, Conoco, Glaxo-Welcome, Heathrow Airport, HM Prison Service, Kobe Steel, Nestle, North Herfordshire NHS Trust, Northumberland Mental Health NHS Trust, Rhone-Poulenc Rorer, Severn Trent Water, Shell, Southern Water Services, Texaco, The Oil & Pipelines Agency, Welsh Water and Wessex Water.

As at January 2000, Servelec employed approximately 160 staff of which approximately 80% of its staff are IT /IA professionals.

Financial information

The audited financial performance of Servelec for the three financial years ended 31 December, prepared in accordance with United Kingdom general accepted accounting principles and Servelec accounting policies is set out below:

Profit/Loss

CAGR : Compound Annual Growth Rate

Turnover

Through the expansion of its customer base, the company's turnover grew 17% from GBP8.0m for 1997 to GBP 10.9m for 1999.

Profit Before Tax

Servelec has achieved a consistent profit before tax margin of between 18.2% and 18.7% during the three financial years of 1997, 1998 and 1999.

Balance sheet

Servelec redeemed investor loan of GBP 1 million and preference shares of GBP 1.65 million from internal generated resources in August 1999.

Rationale for Investment

The Acquisition provides a critical presence for the Group in UK and the Middle East. It is another step towards realizing the Group's mission to be a global world-class systems integrator providing IA and IT services. With CSE's recent strategic acquisition of W-Industries, Inc. in Texas (USA) the Group is well positioned for global reach in the Asian, American and European markets.

The Acquisition aims to achieve the following synergies in the Group's operations through economies of scale and better use of greater resources.

• Provide International sales ,marketing and support channels in America and Asia for Servelec's telemetry products and solutions. The Group aims to develop a leading position in the international telemetry market.
• Add value to the individual IT consulting services businesses of CSE and Servelec.
• Leveraging on the Group's international resource centers to provide more cost effective solutions.
• Broadening the Group's service offering to other vertical markets, such as water and utilities, food and beverages, steel and pharmaceuticals sectors.
• Enhancing the Group's oil & gas capabilities for the pipeline monitoring and control system.

Risk factors

The Proposed Acquisition is vulnerable to certain factors, in particular, the following:

Dependency on key management

The success of Servelec to a certain extent on the continuation of the services of its key executives, namely, Alan Gilby, Alan Stubbs, Neil Atkinson and Richard Mellor. Each of key executives has entered into a service contract with Servelec. The loss of services of such key executives without suitable and timely replacements would have a material adverse impact on the financial results of Servelec.

Currency risk

As the Acquisition and Servelec' future earnings will be in GBP, there will be exposure to GBP currency risk. Fluctuations in GBP rates against the S$ are unpredictable and may have a significant impact on the Group's revenue, profitability and share valuation. CSE will actively manage the foreign exchange position using a combination of forward contracts and bank borrowings.

Dependency on UK market

Servelec derives almost 80% of its revenue from the domestic market, there will be exposure to legal, political and economic risks. Servelec have invested increasing time and resource to target Middle Eastern markets in the past few years. In additional, CSE will leverage on its Asian and American presence to market Servelec's telemetry products.

Changing Technologies Servelec is engaged in development of its telemetry products and InteHEALTH software. Technology products are subject to risk of changes and advances in technology. Servelec is committed to invest in R&D to continuously enhance and upgrade its products.

Financial effects

For the purpose of illustration, the proforma financials effects of the Proposed Acquisition on the Group based on the following assumptions:

i. completion of the acquisition of W-Industries and the placement of 18,000,000 new Shares on 1 January 1999

ii. completion of the Proposed Acquisition on 1 January 1999

iii. issue of 5,843,532 new CSE Shares to the Vendor at S$1.1419 each to part satisfy the consideration.

iv. an interest rate of 6% on the borrowing of $37,867,500.

v. exchange rate of S$2.70 to GBP1 and S$1.70 to US$1

NTA

The proforma financial effects of the Acquisition on the unaudited NTA of the Group as at 31 December 1999, based on the assumptions above, are as follows:

Earnings

The proforma financial effects of the Acquisition on the unaudited earnings and EPS of the Group for the financial year ended 31 December 1999, based on the assumptions above, are as follows:

Gearing

The proforma financial effects of the Acquisition on the unaudited gearing of the Group as at 31 December 1999, based on the assumptions above, are as follows:

*CSE's accounting policy is to write off goodwill arising from consolidation against reserves in the year of purchase

Directors' and Substantial Shareholders' Interests

None of the directors of the Company have any itnerest in Servelec. To the best of the Company's knowledge, none of its substantial shareholders have an interest, whether direct or indirect, in Servelec.

Submitted by Tan San-Ju, Company Secretary on 28/4/2000 to the SGX